The software company Twilio said on Monday that it planned to lay off about 5 percent of its staff after an underperformance in the growth of a unit that activist investors have set their sights on.
Shares were up just over 1 percent on Monday. The company anticipates incurring restructuring costs of $25 million to $35 million. It also reaffirmed its guidance for its coming fourth quarter and the full year. The cuts will impact some 300 employees, according to Twilio’s headcount in its most recent regulatory filings.
The reductions are part of a broader reorganisation of Twilio’s business, the company wrote in a statement from Twilio’s chief executive, Jeff Lawson, which accompanied a regulatory filing. The company is also in the process of sunsetting its Programmable Video product as part of the plan.
The cuts will be felt most sharply in Twilio’s Data and Applications unit, the same unit the activist investors at Legion Partners and Anson Funds want Lawson to divest. A representative for Anson Funds declined to comment.
The cuts bring Twilio’s total number of layoffs to three rounds over just a little more than a year. In February, Twilio dismissed 17 percent of its workforce, or roughly 15 per cent of its workers. However, Legion thinks the company can eliminate more jobs, a person familiar with the fund’s thinking told CNBC.
A Twilio spokesman refused to comment on shareholders’ input in the restructuring plan, which the company referred to as the “December Plan” in a Securities and Exchange Commission filing.
Twilio will also change the way it sells Flex, its digital engagement product, Lawson said in his letter. The layoffs will cut “many” Flex sales roles and integrate such responsibilities into the current Communications sales teams, Lawson said.
“Last year, we made the decision to pre-invest in go-to-market for Segment (a Twilio Data and Applications product),” Lawson said in a letter to staff, and “the demand environment for this business has only accelerated since the deal was announced, giving us even greater confidence in this investment.” “Unfortunately, this bet has not resulted in the growth outcome we hoped for.”
Twilio bought Segment in a $3.2 billion, all-stock deal last year.
Anson and Legion have pressed Twilio to sell the Data and Applications unit, if not the entire company. Anson and Legion both hold individual stakes of about $50 million, according to people with direct knowledge of the matter and regulatory filings.
The activists are also said to be seeking management changes at the company.
Twilio creates software that allows businesses to communicate with customers. It has also developed or bought tools to assist those businesses in analysing and improving their relationships with customers. Founded in 2008, the company went public under Lawson in 2016.
The company’s stock is still well off its highs in 2021, when it surged alongside the broader tech sector. Shares of Twilio are up roughly 36 percent this year.
The News of Twilio Layoffs
This is an email that was sent out to all Twilio employees today from Twilio CEO Jeff Lawson.
Team,
A company optimizes for its environment. For the last 15 years, we ran Twilio for growth, building a tremendous customer base, product set, and revenue base. But environments change – and so must we. Now we have to prioritize profit far more than before. We’re exiting the last phase with a great market position and very strong cash reserves, but unfortunately, that’s not enough to get us through the next phase. We have to spend less, streamline, and become more efficient. To do that, we’re forming two business units: Twilio Communications and Twilio Data & Applications. And today, I’m unfortunately bearing the news that we’re parting ways with approximately 17% of our team.
This is upsetting to be sure, so I want to share with you the reasons for making this tough decision, as well as some other changes.
Reason for Twilio Layoffs
As we’ve refined our strategy over the past several months, it’s become apparent we need significant structural changes to better execute our strategy. This is because the two parts of our business – communications and software – are at different lifecycle stages and have different operating needs. In Communications, we have to get more efficient. For Segment, Flex, and Engage, we must accelerate growth. These are distinctly different tasks for our teams, and our current structure is slowing our progress toward both these goals, which are critical to our growth, our profit, and our Customer Engagement Platform ambitions.
As a result, we’re forming two business units: Twilio Data & Applications, led by Elena Donio, and Twilio Communications, led by Khozema Shipchandler. Both will include Sales, R&D, and operational resources, and each will be empowered to optimize based on the needs of their respective customers and businesses. Each will be able to sprint toward their goals with more focus and independence – but they’re also highly complementary. I have said many times that Twilio’s products are better together – that we are One Twilio – and that belief has not changed.
When we look at these two business units on their own, it’s clear that we’ve gotten too big, especially in Communications. And that’s why we’re also letting go of some colleagues today. It is painful to part ways with so many talented people – but it’s necessary to get our two businesses into the right shape to succeed.
I’m sure you’re wondering why we’re making additional cuts to the team after the September layoffs. At that time, we sought to streamline the company as it was then structured. Today’s news, however, is more driven by the need to organize ourselves differently for success – and the changes needed to enact this new structure. Both the reorganization and the reductions increase our ability to drive profit and growth, both of which are required in this new environment.
For Our Departing Colleagues
At Twilio, we care about each other, our customers, and the world around us – and in this situation, it means we generously care for our departing colleagues. Here’s what to expect for those who are departing:
Inside the U.S.
You will get an email in the next three hours at your personal email address. You’ll be eligible for 12 weeks of base pay, plus one week for every year of completed service at Twilio, continued health coverage, career resources, and other support to help with your transition. You’ll also receive the full value of Twilio’s February 15 vest.
Outside the U.S.
You’ll receive an email or meeting invitation within the next three hours letting you know if you’re impacted or may be impacted. You’ll be eligible for at least 12 weeks of base pay, plus one week for every year of completed service at Twilio, career resources, and other support in line with local practices. You’ll also receive the full value of Twilio’s February 15 stock vest. Outside the U.S., there is a broad range of employment laws, and we’ll take great care to guide these Twilions and their managers through these processes, such as required consultation periods.
I know many of you who are impacted. I’ve worked alongside you, and I’ve seen the amazing work you’ve done. Thank you – you’re a permanent part of Twilio and I’m sorry that we’re parting ways like this.
Getting more Judicious with Our Spending
We’re winding down some of the perks we’ve historically offered, including our book and wellness allowances. We’ve also decided to sunset Twilio Recharge, which I believe in, but which (in retrospect) was ill-timed given our profitability goals. Those who are already eligible or will become eligible for Recharge by the end of 2023 will still be able to take it. (Other perk changes will vary by country, so we will share that with each of you individually via email this week.)
We have not, however, touched the most impactful benefits that are most essential to Twilions’ health and financial security, including, medical, retirement, and the Employee Stock Purchase Program (ESPP).
As part of our shift to remote work, we plan to close some Twilio offices over the next few months, with the intent of maintaining at least a handful of global hubs and satellite offices. We’ve seen very low office utilization, so we’re going to redirect some of our cost savings into higher travel budgets so you can see one another more often – something we’ve all been missing a lot. These closures will happen and be communicated in phases starting this week and continuing into the next few months.
What’s Next
For those of you remaining on this mission – this will be hard. I know you have a lot of questions today. I hope you’ll understand that our priority for today will be your impacted colleagues globally so we can do our best to support them.
Beginning tomorrow morning at approximately 8 a.m. PST, you’ll hear from your BU or function leader via email so you can have clarity about where your role sits and your team structure. Then, we’ll hold a Company All Hands meeting to answer your questions about today’s news. We’ll also make sure you know if your manager has changed by the end of the day tomorrow.
I know this company – the great people, the tremendous empathy, our collective desire to do the right thing. These changes hurt. The weeks ahead will be about processing all this change and working together to acclimate to our new structure. While tremendously difficult, I believe these actions will put us on the right path for executing our strategy and creating an even stronger, more efficient, and more effective Twilio.
-jeffiel
The layoff was quite unusual. It affected so many people. Twilio CEO Jeff Lawson resigned and was replaced by the firm’s president, Khozema Shipchandler. Lawson’s departure comes as Twilio battles activist investors who demand a spin-off of certain assets or a total sale of the business. Lawson co-founded Twilio in 2008.
