Cloud communications firm Twilio this afternoon reported Q3 revenue that topped Wall Street's expectations, and a surprise profit, and an outlook for this quarter's revenue that was higher as well. 

The one apparent blemish in the quarter was that the company's Dollar-Based Net Expansion Rate was 131%. That was down from 137% in the prior-year period.

The report sent Twilio shares down 13% in late trading.

"We had a terrific Q3, and we're really exicted about our set-up for Q4," said CFO Khozema Shipchandler, in an interview withZDNetvia Zoom following the report. 

Characterizing the quarter as "another fantastic growth quarter," Shipchandler noted that the company generated 65% revenue growth in the quarter, of which 38% was"organic."

"I'm more exicted than ever about the prospects of the company, and if you look at some of the things we announced at our developer conference, Signal, Twilio's just getting started."

"Customer engagment is a massive market opportunity, and one that we expect to lead," Shipchandler added.  

Possibly adding to the sell-off tonight was the company's announcement that George Hu, Twilio's chief operating officer, is stepping down. Hu will remain at Twilio as a strategic advisor to help transition some responsibilities to Twilio's chief revenue officer, Marc Boroditsky.

Shipchandler will add the role of COO, Twilio said. 

During Twilio's conference call Wednesday evening, CEO and co-founder Jeff Lawson thanked Hu "for the amazing contributions he's made to Twilio over the past 5 years."

"With George's leadership, we really figured out a developer first go to market, which is an incredibly challenging feat given nearly no other companies have a go-to-market that is unique or as efficient as ours. George has set us up on a new trajectory and build a tremendous team."

Revenue in the three months ended in September rose 65%, year over year, to$740.2 million, yielding a net profit of a penny a share.

Twilio's own forecast had been$670 million to$680 million in revenue and negative 14 cents to negative 17 cents per share.

Analysts had been modeling$681 million and a net loss of 14 cents per share.

Asked about the Dollar-Based Net Expansion Rate, Shipchandler noted that the 131% number is still within the range the company has been for many years. 

"131% is well within the range that we've kind-of been at, over the last several years," said Shipchandler. "As you know, 130%, even 120%, is still world-class, and so we feel really great about the way our customers continue to grow and innovate with us."

Among the factors Shipchandler emphasized was the company's product line called Segment, which Twilio acquired with its purchase of the startup of that name in November of last year for roughly$3 billion. Revenue at Segment was up 12% from the prior quarter, and is now on pace to generate$200 million in annual revenue, said Shipchandler.  

"We're really, really excited about Segment and the way that that business has been performing," he said. 

Another highlight from the company's developer conference is Twilio's Engage product. "That is another pillar that now goes alongside Flex and Frontline and really allows us to serve the entirety of the customer value cycle."

Twilio said it added 42,000 "active" customers for 250,000 in total at quarter's end.

For the current quarter, the company sees revenue of$760 million to$770 million, and net loss in a range of 23 cents to 26 cents. That compares to consensus for$745 million and a 10-cent net loss per share.

Asked about M&A, Shipchandler said the company will be "opportunistic" although "the cash is not burning a hole in our pockets."

Valuations across the landscape of tech "are elevated across industries, and in many cases, sectors are trading at all-time highs," he observed. "We are perfectly content waiting for valuations to normalize, and if they don't, we will strike if the time is right."

"The most important thing for us is that if we see attractive assets out there, we want to be opportunistic about it."

Technology categories where Twilio is interested in acquiring expertise include marketing technology, artificial intelligence and machine learning. "To the extent that there were those sorts of domain-specific capabilities, we would take a look."

In prepared remarks, CEO Lawson called the results "another quarter of strong growth at scale in the third quarter as companies continue to turn to Twilio in this digital-first world." 

Added Lawson, "We are extremely excited about the next generation of our customer engagement platform, and our newest pillar, Twilio Engage, which will allow companies of all sizes and in any industry to build and optimize hyper-personalized marketing campaigns on every channel for customer acquisition, conversion and retention."

Also:Twilio beats Q2 expectations with 67% revenue growth

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