Good afternoon, and welcome to Twilio's Q1 2020 Earnings Conference Call. My name is Michelle, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Andrew Zilli, Vice President of Investor Relations. Mr. Zilli, you may begin.

Andrew Zilli - Vice President of Investor Relations

Thanks. Good afternoon everyone, and thank you for joining us for Twilio's first quarter 2020 earnings conference call. This is our first time conducting our earnings call from separate locations. So we appreciate your understanding, if we run into any technical glitches. Our earnings results press release, SEC filings and a replay of today's call can be found on our IR website at investors.twilio.com. Joining me virtually today are Jeff Lawson, Co-Founder and CEO; George Hu, COO; and Khozema Shipchandler, CFO.

As a reminder, some of our commentary today will be in non-GAAP terms. Reconciliations between our GAAP and non-GAAP results and guidance can be found in our earnings press release.

Additionally, some of our discussion and responses may contain forward-looking statements, which are subject to risks, uncertainties and assumptions. In particular, our expectations around the impact of the COVID-19 pandemic on our business, results of operations and financial conditions, and that of our customers and partners is subject to change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual Company 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 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 - Founder, Chief Executive Officer & Chairman

Thanks, Zilli and thank you everyone for joining us today. Before I begin discussing the quarter, I want to express that safety has been top of mind for us these past couple of months. Our decisions are driven by a belief that the safety of our team, our customers and the world at large are what's most important. With that in mind, I hope that you all are faring well during this challenging time and that you and your families and friends are safe and relatively comfortable as we ride this out. I also want to stress that safety of our employees has been top of mind during COVID-19. And we move to a fully distributed work model in early March. I want to thank our employees for their flexibility during this time and for their mutual support of each other and of our customers. You all exhibited the Twilio Magic and I thank you. While we wouldn't have wished it this way, in many ways, Twilio was built to this.

Our platform provides three things the world needs, digital engagement, software agility and cloud scale. Technologies such as messaging, email, voice and video has enabled many parts of the economy to continue working, while keeping its participants safe, moving quickly, building prototypes and iterating as our needs evolve has been critical for nearly every kind of organization. That's the essence of agility, and Twilio has enabled organizations to reimagine many of their communications workloads in days and weeks, not months and years.

As you can tell from the numbers, Q1 was a strong quarter for the Company, both before the COVID-19 impact again and as the impact we're starting to be felt across society. Our diversified customer base currently consists of over 190,000 organizations spanning many industries, countries and company sizes. From startups to Fortune 500s, non-profits and even government bodies, this diversification served us well during this period of time, while some customers saw declines, others saw growth. As you can imagine, customers in the hospitality and travel have exhibited very unusual patterns during this period. First, there were spikes in volume as airlines and hotels dealt with re-bookings and canceled flights during the transition from pre-COVID-19 into travel restrictions and shelter-in-place protocols. Then, there was a sharp decline as business slowed. Another example is that ridesharing saw a large decline during this time, with offsets in many cases by sharp increases in demand for food delivery, curbside pickup and retail logistics. In addition, telehealth and work-from-home contact centers saw a pickup of adoption during this time.

While we are cautiously optimistic, no one can predict what exactly will transpire in the back half of the year given the uncertainty of the macroeconomic environment. So while we are certainly seeing headwinds to our business in certain industries, we believe that we have a resilient business model because of our diversified customer base. And long term, we expect that usage and many of the impacted industries will return and others that may be newer use cases will continue to grow in importance. We also saw other use cases where a project that was slated for some time in the future became we need this now. And we made several product announcements in the quarter to strengthen our offerings.

We announced that several of our products are now HIPAA eligible, meaning customers can more fully utilize our voice, video, SMS and SIP products to develop communication workflows completely protected health information in a compliant way. HIPAA is another milestone for Twilio in elevating our data privacy and security to meet the needs of our HIPAA-compliant customers, and we are committed to providing a platform trusted by customers and patients. We also released Flex Dialpad to Public Beta enabling outbound calling from Flex Instances. We also announced Flex Boost, which provides technical, operational and financial resources for contact centers affected by COVID-19. Shortly thereafter, we also launched Video Boost giving qualified prospects three free months of our video APIs.

We've seen companies across multiple industries adapt in real time due to COVID-19. Digital transformation projects that could have taken years such as transitioning from an on-trend contact center to the cloud instead took a weekend. Developers and companies big and small got to work, reconfiguring the world for a work-from-home and nearly 100% e-commerce reality.

Let me give you just a few use cases across various industries that we've helped our customers win over the last couple of months. With shelter-in-place and social distancing going into effect, demand for telehealth solutions has soared. Virtual care became a new reality for doctors, nurses, clinicians and millions of patients around the world. And Epic, the company that supports the comprehensive health records of 250 million people, mobilized to build its own telehealth platform powered by Twilio's programmable video. The solution allows providers to launch a video visit with a patient, review relevant patient history and update clinical documentation directly within Epic.

Protecting customers and employees from unnecessary in-person contact became a top priority for many businesses, including Comcast. Over the course of just a few weeks, developers at Comcast integrated Twilio Voice into their homegrown customer database, enabling technicians and customer care to contact customers for service requests remotely. They also initiated a pilot to incorporate Twilio Video into the same database, which could enable a customer to use the camera on their phone to show a Comcast technician their setup and the technician can walk them through a self-diagnosis and repair without ever stepping foot in their home.

With widespread school closures, online learning has gone mainstream in a hurry, posing new challenges to keep students engaged and on track with their studies. Blackboard is using Twilio SMS for critical communications to connect patients and teachers and keep students updated. And Schoolclosures.org deployed a distributed contact center on Flex in two days to connect families and teachers during the closures with educational specialists that have experienced teaching from home. Nearly every contact center, especially those on-prem, needed to be reconfigured to support distributed workforces and increased usage.

The City of Pittsburgh needed a way to enable 311 operators to continue to perform their critical work without going to their legacy on-premises call center as usage was spiking in response to COVID-19. They turned to Twilio Flex for solution. And within four days, we're up and running with agents working safely from home and no disruption in service for residents.

Non-profits have also had the scale-up to support the unprecedented demand of the current environment. City Harvest provides New Yorkers with emergency food relief in a safe way through Plentiful, an SMS reservation system built in partnership with United Way for New York City and Twilio. And with 62% more clients scheduling appointments and a 474% growth in volume of messages from partners, they are helping more people safely get through during this critical time.

I'm incredibly proud of the Twilio team for how they performed in the first quarter and how they've adapted to the ever-changing environment. We know that circumstances like these often bring opportunities. And based on the numerous new use cases and unprecedented digital acceleration that's happened over the last month, I believe that this time has actually created even more long-term opportunities for us to address. As such, I'm even more excited about what lies ahead for Twilio.

I want to give a thank you to our Twilio.org team for everything they've done to respond to this pandemic. Within a week of COVID-19 being declared a global pandemic, Twilio.org donated $1 million to various organizations focused on driving the medical response to COVID-19 and serving low income at-risk populations who may be severely impacted by the virus. Twilio is also matching employee donations 2:1 one for charitable organizations focused on the COVID-19 response, including the CDC Foundation, Global Relief International, Give2Asia, and International Medical Corps. These acts are part of our initial response to pandemic, but we are acutely aware of more need in communities around us, and we'll continue our efforts to invest in our communities during this time of need.

I also want to welcome a couple of new leaders at Twilio. We recently hired Christy Lake as our new Chief People Officer, and she will be responsible for our global People team to driving the Company's talent development and acquisition strategy and growing the Twilio Magic around the world. We also welcome Steve Pugh as our new Chief Security Officer to lead Twilio's Global Trust and Security team, responsible for corporate, physical and cybersecurity. We're excited to have you both on board.

Before I hand it over to George, I want to thank those who are on the front lines of this pandemic, the medical professionals, the truck drivers, the food delivery workers, the grocery store workers, the manufacturing workers and everyone else who is playing a role in slowing the spread, while providing us with the stock shelves at our local stores. Thank you. Thank you for everything you're doing for the rest of us.

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

George Hu - Chief Operating Officer

Thanks, Jeff. Our team delivered great results in the first quarter as our investments in go-to-market continued to expand our reach. Customer engagement continues to be top of mind for companies, and we are helping them drive new ways of digital engagement. When we closed our offices in early March, the team did a great job continuing to engage with our customers. Our marketing team shifted several planned in-person events to virtual with more than 30 virtual events, Q2 from the Twilio Engagement Center programs to roundtables, to lunch and learns and our first ever virtual Engage events that we held in mid-April with more than 1,500 registrants.

Our developer relations team also did a great job engaging our extensive developer community online with Twilio TV and Twilio Quest and more. In fact, our developer community spent 150,000 minutes plus watching our live video content this quarter, 528,000 minutes watching on demand video content and averaged a total of nearly 1,000 minutes learning on Twilio Quest. Thanks to the entire team for being there to support our customers and developers throughout the changing environment. I also want to thank our partner ecosystem for stepping up during this challenging time, providing needed implementation services and Twilio packages for mass alerts, remote agent contact centers, AI-powered bots and more.

As you heard from Jeff, COVID-19 has drastically accelerated digital transformation projects across many industries, and we are uniquely positioned to help with our complete customer engagement platform. In fact, we saw a 25% increase in average daily sign-ups from March 18 through April 30, compared to the first 11 weeks of the quarter. This is a great opportunity for us to introduce Twilio to new customers or expand with additional products with existing customers, whether it's adding video for telemedicine, voice for IVR or email for updated notifications, the current environment has presented multiple entry points for us that expand our long-term opportunity. But it's bigger than just individual channels as companies need to act quickly to move their contact centers to the cloud. Prior to this outbreak, it was estimated that of the roughly 15 million contact center seats in the market, about 17% were in the cloud. Now it is expected to be 50% by 2025, and Flex provides us a great opportunity to help companies with this transition with a fully programmable contact center platform.

Let me discuss a few deals we signed in the quarter. As you know, expanding our international presence has been a key area of investment for us over the last couple of years. We've opened several new offices and the percentage of our total headcount outside the US has increased from roughly 19% to 27% in just the past year. This strategy is paying off as we continue to land and expand with some great international companies. For example, we expanded our relationship with Nubank, the largest FinTech company in Latin America. Nubank became a Twilio email customer in 2019 and turned to Twilio to help them scale their contact center to keep up with their growth. In Q1, Nubank chose Flex to power their several thousand contact center agents with our trusted programmable platform. Thanks to our team in Brazil for building such a great relationship with Nubank.

We also signed Flex deals with AB InBev, a Fortune 150 conglomerate. We entered into a new relationship with Standard Chartered Bank, a Global 2000 company and leading international banking group with more than 87,000 employees across 60 markets. Standard Chartered, which has been in business for more than 160 years, is an incredible example of digital transformation, and they selected Twilio to build their new enterprise messaging platform to provide the flexibility, performance and scale they need to provide the best experience for their customers.

We expanded our relationship with a Fortune 100 brick-and-mortar and online retail company that has been a customer for several years and a brand many of you have likely interacted with recently. They are building a new workflow to expand our usage of Twilio SMS for their mobile and web applications. This new workflow will offer order and shipping notifications via text messaging to get purchased through those channels. Adding email to the platform has been very successful, as it allows us to offer customers a single platform for their digital customer engagement, and we continue to see email drive great new deals for us. We entered into a new relationship with a large car manufacturer that needed a new platform with the reliable deliverability of two-factor authentication for their customers, as their existing solution was not performing. They selected Twilio as their platform of choice combining email and SMS to provide a more reliable and integrated solution to ensure a better experience for customers.

We also expanded our relationship with one of the world's largest consulting firms as they added email to power marketing campaigns and customer notifications across several products. They chose Twilio due to our ability to quickly integrate into key applications across their business in over 120 countries, enabling product teams to ideate, test and deploy with little friction. Overall, we had a strong first quarter. Looking forward, we remain focused on supporting our customers through the current environment and ensuring our platform and our team are ready to support them as they adapt to this new environment.

We're continuing our investment in our go-to-market efforts as we extend our enterprise presence, expand internationally and grow our partner ecosystem. We believe investing in these areas today will set us up for the long term. Thanks to the entire team for delivering these great results.

And with that, I'll hand it over to Khozema.

Khozema Shipchandler - Chief Financial Officer

Thanks, George. And good afternoon everyone. Total revenue for Q1 grew 57% year-over-year to $365 million and dollar-based net expansion was 143%. The SendGrid acquisition closed on February 1, 2019. So adjusting for an extra month of revenue in January 2020, year-over-year revenue growth was 48% and DBNE was 135%. Revenue from our Top 10 active customer accounts represented 15% of revenue compared to 14% both last quarter and in Q1 2019.

International revenue was 28% of total revenue in Q1, compared to 29% both last quarter and in Q1 2019. WhatsApp contributed approximately 7% of revenue. Verizon A2P or Application to Person messaging fee was implemented on February 1 and contributed approximately $4 million to revenue. As a reminder, this was a direct pass-through to customers and did not impact gross profit dollars.

First quarter non-GAAP gross margin was 57% and was negatively impacted by 70 basis points from A2P fees. We will continue to provide the financial impacts of A2P fees throughout the remainder of 2020. Non-GAAP operating profit came in at $6 million, stronger than originally forecast. This outperformance was primarily driven by revenue favorability as well as reduced travel and office expenses, plus slower-than-planned hiring.

Now let me discuss guidance. While we continue to see strength in our business, the macroeconomic environment remains dynamic, and we feel it best to employ prudence in our guidance philosophy. As such, we are withdrawing guidance for the full year. However, we are providing guidance for the second quarter and expect revenue of $365 million to $370 million, including A2P fees for growth of 30% year-over-year at the high end. To date in Q2, we have continued to see a net increase in usage relative to our expectations and strong growth in the overall business, a testament to our resilient model and broadly diversified customer base. As Jeff said earlier, we believe we were built for this kind of environment.

We performed a variety of scenario analysis across use cases, industry verticals and geographic mix to better understand possible impacts to our revenue. And while we're not going to get into the specifics of these scenarios, our revenue guidance naturally takes into consideration headwinds from the more heavily impacted industries like travel, hospitality and ridesharing as well as the offsetting benefits from customers in education, healthcare retail and others. To note, customers that we categorize in those specific impacted industries have averaged less than 10% of Twilio revenue over the last several quarters. That number excludes email. In short, there are puts and takes and so far, we have seen more puts.

We expect the second quarter operating loss in the range of $15 million to $20 million. As we discussed on our last earnings call, we view 2020 as a year of investment for Twilio. Given the strength of our balance sheet as well as the size of the opportunity in front of us, our intention is to continue investing through this cycle. We believe this is in the best interest of Twilio and our stakeholders and will continue to generate elevated growth outcomes for the foreseeable future, enabling us to come out of this current environment at an even stronger position.

Let me give a brief update on each of the areas of investment we laid out on our last call. For our R&D center of excellence in India, we are leasing office space, but for now, we have virtually opened that office, continued with our hiring plans and have onboarded a number of employees who are currently working remotely. We are continuing to hire for our go-to-market team with a focus on enterprise reps, international expansion and Flex specialists. This remains a critical investment as we continue to drive deeper into the enterprise and become our customers' platform of choice when it comes to digital engagement.

Lastly, we continue investing in our systems and infrastructure. As Twilio continues to grow, we want to leverage the benefits of scale. We continue to invest in improvements in our billing systems, quote to cash and other cross-functional areas that have been prioritized across the Company to better enable our employees. We understand the ambiguity that exists in the world today as a result of COVID-19, but we are highly confident in the ROI these investments will generate for the long term. Additionally, with more than $1.8 billion in cash and cash equivalents in the balance sheet, we feel we are in a position of strength to manage the business through this pandemic and come out stronger on the other side.

A few other items to discuss before opening the call to questions. Our SIGNAL Conference originally planned for May is now rescheduled as a virtual event for the week of September 28. We are still working through the details of making this event virtual and the related costs. We'll provide an update on our Q2 call. Keep in mind, we will likely reallocate some of the planned SIGNAL expenses to other marketing-related areas. We are also postponing our Investor Day, which will also be virtual to align with SIGNAL and are now targeting Thursday, October 1. Stay tuned for more information from the IR team.

Finally, I wish everyone well and hope you are healthy and safe. Thank you for joining. Operator, please open the line for questions.

Question & Answers

Operator

Okay. [Operator Instructions] Your first question comes from Nikolay Beliov from Bank of America. Your line is open.

Nikolay Beliov - Bank Of America Merrill Lynch - Analyst

Hi, thanks for taking my questions. Nice results here guys and I hope everybody is safe and healthy. Just wanted to dig into the use case that when I think about Twilio, I think about three main use cases, marketing, operations and customer support. Maybe you can help us give us the puts and takes in each of those and how those made out for you during the quarter and what trends you're seeing in the use case, what you saw in the month of April. Thank you. That's it from me.

Jeff Lawson - Founder, Chief Executive Officer & Chairman

Thank you. Nikolay, this is Jeff, I will - Khozema, you want to take it. Sorry, we have the coordination problem on this call like usual. Khozema, do you want to take it?

Khozema Shipchandler - Chief Financial Officer

I think some of the elevated use cases that we've seen so far Nikolay are really in categories I would say. So we talked about some of the headwinds for example, but I think on the other side in terms of like some offsetting benefits that we've seen are use cases in education, healthcare, retail, which is more of a vertical look relative to some of the areas that you called out.

And I think what we're seeing is, is that through the first quarter, certainly on the back end of that and then as well as we begin to start Q2, we've continued to see a slight net increase in usage relative to our expectations in part because of new use cases and in some of those areas. And I think all of that just kind of goes to the broad overall strength in the business. The business is broadly diversified. We have a very resilient model and customer base that spans geos, industries and verticals. And so, I wouldn't necessarily call out a specific use case, but I think we're seeing elevated activities in some of those areas, obviously offset by some of the others that we called out.

George Hu - Chief Operating Officer

Yeah. This is George. I'd add on to that. I agree Khozema, most of the trends we're seeing are by industry. That said, we are seeing six use cases that are opportunistically coming forward for us in - under COVID and these six are remote contact center, self-service, contactless delivery, distance learning, telehealth and mass notifications, and those are some of the emerging use cases that we're seeing under COVID. Certainly not we saw in the quarter. Core use cases that are going strong, but those are some new ones that we're excited about.

Nikolay Beliov - Bank Of America Merrill Lynch - Analyst

Perfect. Thank you guys.

Operator

Your next question comes from Derrick Wood from Cowen. Your line is open.

Derrick Wood - Cowen & Co. - Analyst

Great. Thanks, and congrats on an impressive acceleration and growth. And I think a big jump into new customer accounts in the quarter. I wanted to touch on the sales strategy here. Obviously, there's a lot of disruption with how people are communicating. You guys are talking about acceleration and digital transformation. I'm curious are you seeing sales engagements move out of just the developer and more into the C-Suite. And I guess given this opportunity, what are you doing to lean in from a sales strategy standpoint?

George Hu - Chief Operating Officer

This is George. Yeah, I'm really glad that we've really made the investments over the last few years now to both have the distribution as well as the programs, the executive engagement program, so that we build relationships with companies, so that we can basically be able to take advantage of the situation. And what we're seeing is a growth really across these industries that I talked about. We are engaging at a higher level than before because now what we're seeing is executive decisions coming down to how we got to transform our contact center in 60 days in some cases or what have you. But I would say this is really just much more building on the strategy we've had now for a long time, which is to go into enterprise, sell higher, sell more strategically. And so we're continuing to - I think more execute the playbook that we've been preparing for several years than fundamentally alter the playbook, except for really focusing on these new use cases, which I think I'm very excited about. And we've really done, I think, a good job of training and arming our sales force to go prosecute these six new use case as well.

Derrick Wood - Cowen & Co. - Analyst

Thank you.

Operator

Your next question comes from Michael Turrin from Wells Fargo. Your line is open. Mr. Turrin, your line is open. Are you on mute? We'll move on to…

Michael Turrin - Wells Fargo - Analyst

Can you hear me? Can you hear me?

Operator

Go ahead Mr. Turrin.

Michael Turrin - Wells Fargo - Analyst

Sorry about that. Pinball on the calls here. You talked about Flex in terms of the addition of some of the new features here and then the uptick in remote contact center demand also came up. Is there anything else you can add just in terms of how you've been able to react, given the contact center market in particular seems to be undergoing a pretty big transformation in terms of what's happening and it certainly seems to us like Flex is well suited to capture some of that?

George Hu - Chief Operating Officer

Yeah, this is George. So in addition I think having really a great product and platform in terms of being able to have flexibility and the ability to deploy quickly, which is I think perfect for this moment, ability to support work-at-home agents, remote agents, I mean, I think that this time was really tailor-made to the Flex value proposition. We've augmented that by really beefing up some of our capabilities, our services capabilities and our partner capabilities.

So internally, we have created a program that we're calling the Twilio Lightning program, which is a set of services to help Flex customers get deployed very, very quickly. In some cases, we're able to turnaround some of these emergency cases in just a few days on the platform, which is incredibly exciting. And we're also seeing our partner ecosystem step up to help us, and the Twilio Build program is starting to pay off as we saw in Q1, north of 40% of our Flex deployments involved a partner, which I think is a real testament to the work we've done to build not just the product and the platform and the engagement team on the sell side, but also our partner ecosystem and we're excited about continuing our progress there.

Michael Turrin - Wells Fargo - Analyst

Thank you. Really strong start to the year. Nice work.

Operator

Your next question will come from Matt Stotler from William Blair. Your line is open.

Matt Stotler - William Blair - Analyst

Hey, guys. Thanks for taking my questions. Congrats on the great results. Just a couple of quick ones from me. So one, obviously strong results in Q1. It sounds like usage as you said is above expectations in - so far in Q2. When you look at guidance for Q2 and think about what you're seeing with customer behaviors, how much of your growth do you see coming from continued increase in usage at existing customers versus behaviors that you're seeing in terms of continuing to onboard new customers as we move into Q2?

Jeff Lawson - Founder, Chief Executive Officer & Chairman

Yeah. I think - Matt, thanks for the question. I think it's a mix of both honestly. We're certainly seeing additional tailwind from education, from healthcare, from retail and some of the others that we talked about. I think at some point, those are going to moderate a little bit, but at the same time, I think what is also going to happen is, is that we're going to have some of the other use cases come back that have been down a little bit. And so, I think there are some puts and takes in the mix. But as we said in our earlier remarks, like what we're overall seeing is, is that there is sort of being a tailwind here.

I think in terms of the back half of the year, we're still cautiously optimistic about the way that things are going to play out there. We felt it was prudent to withdraw our guidance for that a period and just given how dynamic things are, but we do remain cautiously optimistic. And I would say, certainly for the long term, we're as excited as we've ever been, if not more excited.

Matt Stotler - William Blair - Analyst

Right, right. It's great. And then, just one more quickly on SendGrid or email in the quarter, just wondering how that performed in Q1 and what you're seeing there given the environment and given all the COVID-related emails that we're all seeing coming into our inboxes.

Jeff Lawson - Founder, Chief Executive Officer & Chairman

Yeah, we don't break out the SendGrid business anymore, but it did continue to perform well in Q1 specific to COVID-19 email as well experienced similarly higher usage relative to what we talked about across the entirety of the business. I'd - also just kind of bear in mind that the email business is predominantly sold as buckets. And so, the revenue for that product doesn't fluctuate as much based on usage.

Matt Stotler - William Blair - Analyst

Right. Helpful. Thanks for taking my questions.

Operator

Your next question will come from Pat Walravens from JMP Securities. Your line is open.

Max - JMP Securities - Analyst

Yeah. This Max [Phonetic] on for Pat. Thank you so much for taking my question. I'm just wondering in terms of the - if you guys have any flexible payment kind of for the SMB and if they request for flexible payment, what's the policy there?

Jeff Lawson - Founder, Chief Executive Officer & Chairman

Yeah, let me just make sure that I understood the question. Have there been requests for flexible payment terms or have we seen any kind of deviations for SMB customers, is that right?

Max - JMP Securities - Analyst

Correct, yes.

Jeff Lawson - Founder, Chief Executive Officer & Chairman

Okay. We've received requests from a small number of customers around changes to payment terms or minimum commitments, and we're evaluating those on a case-by-case basis. But so far, we've not seen an impact on the business from those requests, and we've not seen a material increase in delinquencies. Our DSO is pretty stable. And there is no change in that really in Q1 relative to where it was that in Q4 '19 or other quarters.

Max - JMP Securities - Analyst

That's great. Thank you.

Operator

And your next question will come from Meta Marshall from Morgan Stanley. Your line is open.

Meta Marshall - Morgan Stanley & Co. LLC - Analyst

Great. Thanks. Just wanted to dive into the Epic dealer, kind of the telehealth market. I think Epic or at least from some news reports have been using a different video solution previously. So just what was that they were looking for that kind of made them transition to a Twilio platform and just level of engagement with kind of other telehealth providers would be helpful. Thanks.

George Hu - Chief Operating Officer

Hey. This is George. Yeah, I think that one of the nice, I think, benefits of the tailwinds that we've seen is in our video product. It's a product that is I think really tailor-made for this period of time in terms of being able to be A) deployed very quickly like all of our products. Its consumption base of people can get started and try it without any barriers to entry, and it's also a fantastic product that can scale incredibly well and deliver excellent quality. And so, I think that combination, plus the fact that Twilio is now a HIPAA-compliant, supports HIPAA and be able to BAAs, [Phonetic] I think the timing worked out incredibly well.

And so, the interesting part of that story is that again, this started through the power of our developer community where a developer at Epic had a friend who was a huge Twilio enthusiast who actually used Twilio Video and recommended us to help address some of their challenges, and they were able to through the power of our platform get up and running quickly, try it for themselves, see the power of it. And that cycle end being, I think for us relatively rapid cycle because I think of the fundamental power of our business model and a power of this platform model worked hand in hand with the investments we've made on the enterprise side with the BAAs.

So I think again, this deal really speaks to the power of our model, the strength of our strategy of having a multi-channel or omnichannel strategy and the incredible combination of developer promotion plus the enterprise investments we've made, I think it speaks to all those and we're really thrilled to be able to support an amazing organization like Epic during this type of time period.

Meta Marshall - Morgan Stanley & Co. LLC - Analyst

Great. Thank you.

Operator

Your next question will come from Siti Panigrahi from Mizuho. Your line is open.

Siti Panigrahi - Mizuho Securities USA LLC - Analyst

Thanks for taking my question. Glad you are all doing well. George, just getting into your go-to-market motion given the changes, can you talk about how the changes happening and you talked about opportunity mostly in the cloud contact center market? Could you talk - give some color, what kind of discussion you're having with customer? I can understand at this point some of the opportunity there to supplement their existing contact center and what are the long-term opportunity you have there and the pipeline look like.

George Hu - Chief Operating Officer

Yeah. So great, great question. Look, I would take a step back and say that overall, as Jeff said, this environment is showing companies that they need to really double down and accelerate on their digital transformation, but they need to be - we all need to be communicating with our customers and digital channels more than ever, and that could be messaging, that could be WhatsApp, that could be video and that could also be voice in the contact center.

All of these channels are incredibly important this period of time and the strength that we're seeing is really across multiple products, not just the contact center and what's really fantastic about this opportunity for us is that certainly while it's challenging for our sales team, they can go visit customers, they're having - obviously, all of us are having our personal challenges with staying at home that our sales team is doing an amazing job of engaging our customers, engaging executives. In this age, you're doing video calls with your customers in each other's homes, you're building a deeper rapport. I think there is some really interesting opportunities being opened up to build deeper connection with customers during this period of time and our sales force is taking advantage of that.

Now one of those opportunities absolutely is the contact center and what we're seeing is that not across the board, but certainly for many companies that this current situation is causing them to rethink many aspects of their contact center. I was talking to one of our customers who in their contact center, they were using a BPO. And suddenly, they had to figure out, okay, how do we make sure that our BPO is socially distanced for their agents and [Indecipherable], how do we support work-at-home agents as part of this. So there's a huge transformation happening in the contact center, and there is no doubt that this is going to accelerate the overall migration of contact centers to the cloud. And I think that we're benefiting from that hopefully as much as anyone, because of our business model and because of our technology model. So we're excited about these use case. We're excited about the transformation happening. We are engaging and I think that this is definitely an area that amidst a lot of challenges, in certain industries, we're excited about.

Siti Panigrahi - Mizuho Securities USA LLC - Analyst

Thank you.

Operator

Your next question comes from Mark Murphy from J.P. Morgan. Your line is open.

Pinjalim Bora - J.P. Morgan - Analyst

Hey, thanks. This is Pinjalim on behalf of Mark. Congrats on the quarter and thanks for taking the question. Khozema, one question for you. Is there any way to disaggregate the upside versus your guidance between core Twilio base, SendGrid and the variable portion because I mean, just trying to figure out was there any material change in the contribution from variable revenue versus what you had expected before?

Khozema Shipchandler - Chief Financial Officer

Yeah, we're not disclosing those different buckets. I mean, I wouldn't - I would say it this way that to reiterate a point that I made earlier that I think what we saw in Q1 was simply a reflection of a broadly diversified customer base that had a strong performance overall. And we noted a few of the areas that we're a more economically challenged and then, some of the areas that had tailwind, but we don't break out those segments anymore.

Pinjalim Bora - J.P. Morgan - Analyst

Okay. Understood. And one quick one for Jeff, if I may. Jeff, any thoughts on the Sinch acquiring the digital interconnect business for SAP. How could that shape the competitive environment in messaging going forward, if at all

Khozema Shipchandler - Chief Financial Officer

Yeah. As a company, we typically focus on the needs our customers have and building software that helps our customers to engage with their customers across a wide variety of touch points. And I think when you look at our business, the strength of our business as far as the size that we're at and the pace at which we're growing at our scale and the diversification of all different products we offer to our customers, I think that we're in a very good position here in United States as well as globally to serve our customers' needs and that's where we focus on, following our customers and where they take us.

Pinjalim Bora - J.P. Morgan - Analyst

Understood. Congrats guys. Thanks.

Operator

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

Heather Bellini - Goldman, Sachs & Co. - Analyst

Great. Thank you. I had two questions. I guess, Jeff, this one would be for you or maybe for George. Just what do you think - how do you think about what we're going through kind of making people even more cognizant of the need for kind of that - those omnichannel touch points and do you have a sense of kind of where you would have pegged penetration of a pure - of a real omnichannel strategy before and how much that might be coming up in conversations with people now?

And then, the follow-up for Khozema is just the A2P impact for the quarter, I think you said it was $4 million. And I think you said it went into effect in February. Does that mean we should be expecting a $6 million benefit that's embedded in guidance for the second quarter? Thank you.

Khozema Shipchandler - Chief Financial Officer

I was going to say, let me just take the second piece and I'll let Jeff elaborate on the first piece. The second piece, we didn't specifically call it out for Q2, but you're in the ballpark.

Heather Bellini - Goldman, Sachs & Co. - Analyst

Great.

Jeff Lawson - Founder, Chief Executive Officer & Chairman

Thanks, Khozema. So, Heather, for the first part of your question, I mean I think what you see going on right now is Twilio is becoming even more relevant to businesses in light of COVID and it takes many shapes based on the type of company that it is, for the industry that they are in or whether at our digital transformation, but I think one thing is kind of clear that for companies who are engaged in a digital transformation that oftentimes these projects were slated for quarters or years that we're going to take to undertake. Many of these got done in weeks. And so, this is going to be seen as a great digital acceleration.

And in many ways, Twilio was built for this moment. We offer the three things that companies need as they are accelerating their digital plans, that is digital engagements, all the channels, whether it's voice or messaging or video or chat or WhatsApp or Facebook Messenger like all these channels. Digital engagement, as we've moved so many in-person, face-to-face workloads to digital workloads, we have the digital engagement that companies need. Agility, so the ability to build quickly and to answer to changing conditions. that's obviously been one of the biggest things that's going on in Q1, and Twilio provides the ability for organizations to be agile to build iteratively as they - as the nature of what they need to build and how they need to address the changing circumstances continues to evolve. And the third thing we offer is cloud scale. Yeah, this isn't at the moment where you can spend months planning your capacity requirements and the ratcheting up the data center to plan for your peak.

You need to build something, you need to deploy it and you need to work pretty much instantly. And that's true on the cloud scale, but also geographically, needs to scale it around. And so, Twilio brings that to the table as well. And so, all in all, Twilio was built for this and whether it's the digital engagement, agility and cloud scale, these are things that every company has needed whether regardless of the type of use case that is top of mind for them right now. And I believe the investments the companies are making are going to be durable like the changes that are occurring in our society, right now are going to persist in many ways.

I think that many doctors' visits, for example, are going to stay as telehealth visits after COVID is over. And I think that many more, e-commerce or food delivery or curbside pickup, like a lot of these things that are getting normalized right now will start to become even more normal. And so, it is the social distancing that's going on right now is changing our behaviors. And I think many of those behaviors will change permanently and we can help companies to address those opportunities.

Heather Bellini - Goldman, Sachs & Co. - Analyst

Thanks, Jeff.

Operator

Your next question comes from Alex Zukin from RBC Capital. Your line is open.

Alex Zukin - RBC Capital Markets, LLC - Analyst

Hey guys. Thanks for taking my questions, and congrats on the performance. Two from me, maybe first, Jeff, if we step back, you called out a number of growth vectors on this call, attaching way more channels, acceleration and new customer sign-ups, entry into new verticals, what sounds like from George a bunch of new mini-Flex like use case categories. So I just wanted to ask you where is the biggest focus organizationally and which incremental growth vectors most either exciting to you or you're most enthusiastic about?

Jeff Lawson - Founder, Chief Executive Officer & Chairman

Thank you, Alex. First and foremost, actually our focus for the business has been the health and safety of our employees and our customers and our communities. And so, I just want to really emphasize that's been priority number one for us through this crisis. Then as we think through priority number two is, how do we serve our customers and how do we help our customers to emerge stronger through this crisis. We see a number of areas to address whether it is the new verticals that are arising. So it wasn't actually because of COVID, but it was a - really a coincidence that was fortuitous that we announced HIPAA support and the ability to sign BaaS in the first week in February, and that had been work that we've long planned and planned to announce in that time period.

And so, obviously, the timing was good for us to see a very rapid rise in the number of medical-oriented use cases that we can serve during this time, but as George outlined before, we do see really the six key use cases that are driving a lot of opportunities right now. And I see there's opportunities for Twilio and I see there is opportunities to serve our customers because they are under immense pressure and reconfigure their businesses and their organizations in order to serve their customers and to continue employing their people during this time. And so, that opportunity to serve our customers in those six use cases is both good business and it's also a good way for us to serve our customers and share their success during this time.

And so, I think about healthcare, I think about distance learning, I think about automation, but really our core products have stood up very well as far as messaging, as far as voice, as far as email, as the ways in which companies need to engage with their customers during these times. And so, we continue to invest in those and obviously, George has talked a bit about Flex and some of the Flex wins that we saw in the quarter, which is some of the examples of organizations having to reinvent their contact center, to accelerate their plans, to move those contact centers into the cloud and into software in order to allow their people to work from home, to open up new channels, to scale up - many organizations saw a lot of scale that was unprecedented, while at the same time, they're having to reconfigure where everybody is working. And so, we are able to provide all those things to customers.

Alex Zukin - RBC Capital Markets, LLC - Analyst

Got it. And then, maybe just a follow-up. So for Khozema, if we think about the overall revenue exposure to industries that may be facing some headwinds versus industries that are seeing some tailwinds, how should we think about that backdrop, if there is any kind of high-level percentages of exposure that you can provide? And then new versus existing kind of bookings trajectory, meaning from new customers versus existing kind of the way we think about that, and then anything around seasonality for DBNE both for next quarter and the second half? And apologies in advance for the multi-multipart question.

Khozema Shipchandler - Chief Financial Officer

That's okay. Thanks, Alex. I mean - I guess, I would start by saying that I think that we're very well diversified across industries. And so, that helps to have a business model that's like that and that's why I think creates kind of performance that you saw of us in Q1. In terms of some of the impacted industries, we called out in our earlier remarks that as it relates specifically to rideshare travel and hospitality, which I think have been more significantly impacted than others. There, on a revenue basis, less than 10% of our overall revenue over the last several quarters actually not just in Q1, and that's excluding email. So I think in terms of that, we feel pretty good about the diversity in the business.

And as we also noted, if you look at some of the newer use cases that came on, particularly in education, healthcare, retail even in our dotorg, those have offset and then, some of the downside exposure that we saw in some of those impacted areas. And so, I think generally, we feel pretty good. And then finally, I would just add, I guess into Q2, I mean, that trend has largely continued at least to date.

In terms of DBNE, which I think is what you're getting at in terms of like seasonality and stuff like that, we're not really providing any guidance around DBNE. That's not been our practice historically. Again, we feel great about the overall diversity in the business and what that was able to drive in terms of DBNE and we'll stay focused there.

Alex Zukin - RBC Capital Markets, LLC - Analyst

Perfect. Thank you, guys. Congratulations again.

Operator

Your next question will come from Rich Valera from Needham. Your line is open.

Nate Hitchcock - Needham & Company - Analyst

Hi guys. This is Nate Hitchcock on for Rich. Thanks for taking the question. And I'll echo the congratulatory remarks on the strong results in the quarter. So, looking specifically at the geographic breakdown, it looks like a reversal and recent trend where domestic grew faster than international in the quarter and really wondering what dynamics were at play, maybe from a product perspective, specifically may be calling out email or SendGrid, if you could provide any color there, it would be much appreciated.

Khozema Shipchandler - Chief Financial Officer

Yeah, this is Khozema. I mean, I wouldn't read too much into it honestly. It was off about 100 bps relative to prior periods. I would say it's in the ballpark of what we would have expected it to be. I don't think there was any particular trend relative to any of our categories. There's just lots of moving pieces and that can drive it one way or the other. I think the fact that we saw strong growth in our US businesses on the back of some of the areas that we highlighted, particularly education and healthcare is a good thing. And I just wouldn't read much into geographic mix beyond that.

Nate Hitchcock - Needham & Company - Analyst

Okay, great. I appreciate the response.

Operator

Your next question will come from Brent Bracelin from Piper Sandler. Your line is open.

Brent Bracelin - Piper Sandler & Co. - Analyst

Good afternoon. I had one for Jeff and Khozema. Jeff, really encouraging to see the vision laid out the IPO and the diversification strategy paying off in spades here this quarter. You'd ask me in 2016 if the large operator via a customer i.e., Comcast, I probably would have said no. My question for you is given you're seeing kind of this COVID-induced acceleration in the digital opportunity, would you consider accelerating your build-to-buy strategy, why or why not there? And then again, one quick follow-up for Khozema.

Jeff Lawson - Founder, Chief Executive Officer & Chairman

Yeah. Thank you, Brent. I mean, I think build, buy, the two of those together means everything. And yes, we are accelerating our build versus buy, and we're accelerating the business. So as you can see, yeah, we continue to invest in the long term. And I think it's the right thing to do because we see a lot of investments that we can make both in terms of product and distribution as well as us building the core systems and processes of the business in order to continue scaling this Company for a long period of time. And so, as we think about what's going on right now, the current pandemic environment, but also the long term five, 10 years from now, we see this essentially as to some point, entry point for many - even more long-term opportunities, both new kinds of customer relationships that we're going to build, new markets that we may be able to participate in, but also new products and new needs of our customers that are going to emerge, and we are in a position to be able to invest. And that investment can be organic or could be inorganic, but we - with the balance sheet that we have, we see this as an opportunity to invest and to emerge from the COVID pandemic stronger.

Brent Bracelin - Piper Sandler & Co. - Analyst

Makes sense. And then, Khozema, just if I got this right, it looked like WhatsApp was 7% of revenue in the quarter, I think it was up - that's up from 4% in the prior year. That would put WhatsApp materially higher year-over-year and at $100 million plus run rate. So I guess my question is what's happening at WhatsApp, what drove the strength there, if that is the right number? And are there some new video use cases driving that? Any color on what drove the outperformance at WhatsApp would be certainly helpful this quarter? Thanks.

Khozema Shipchandler - Chief Financial Officer

Yeah. So just in terms of the number that you cited, it was 7% of revenue, and that's what we called out in our earlier remarks. It's predominantly one use case. Around account verification, we have a strong relationship with that company. We work hard at it obviously every day. I'd have to get back on some of the specific numbers that you cited. They sound directionally right to me. But again, I'd have to get back to you in terms of specifics. But I think we just maintain a good relationship with that company. And as I said, we work hard at it every single day.

Just one other thing I would add Jeff's remarks around build, buy. On the buy side in particular, Jeff mentioned we have $1.8 billion on our balance sheet, which puts us in a position of strength. We raised that money in part to be opportunistic for a time like this. Obviously, we could never have anticipated a global pandemic when we did it, but I think that leaves us in a pretty strong spot to be opportunistic, and we've got a lot of optionality going forward.

Operator

And your final question for today will be from Rishi Jaluria from D. A. Davidson. Your line is open.

Philip Rigby - D. A. Davidson & Co. - Analyst

Hi, this is actually Philip Rigby on for Rishi. Thanks for taking the question. Can you just talk about what impacts you are seeing related to political activity in this environment? Just trying to get a sense of how spend there is tracking relative to your expectations.

Jeff Lawson - Founder, Chief Executive Officer & Chairman

I'll give the high level. I think as anticipated in politics, especially here in United States, messaging is proving to be a pretty effective medium for candidates to engage with likely voters. So like it was in 2016 and 2018, I think 2020 will be a year of elevated spend by the political participants. We're not breaking out any predictions around that category of our business, but I would say it's playing out as we expected quite a lot this year.

Brent Bracelin - Piper Sandler & Co. - Analyst

Great. Thank you.

Operator

There are no further questions. I will turn the call back over to the presenters for closing remarks.

Jeff Lawson - Founder, Chief Executive Officer & Chairman

All right. Thanks everybody for joining today, and we hope you're all staying safe and healthy and look forward to catching up with you over the next quarter or so.

Operator

AI Assistant

TWILIO INC

Q1 2020

Earnings Transcript

Find Answers

Ask about any part of the document to get insights, explanations, or key details.