And so CRM is a part of the story, so is the clickstream data, so is all the data that’s in other systems and records, so is the customer service data, so is the – and the list goes on. And that’s why this is such a hard problem to solve. And that’s why 20 years into the world of CRM, at least in the cloud, it’s an unsolved problem still, and Segment is a solution that solves that problem. And so that’s really where we’re starting. We’re not trying to create another system of record. We are trying to bring to market the solution to the problem of companies already have too many systems of record and in fact, they need to make sense of it all. And that’s what customers are coming to Twilio for.
Kash Rangan: Super. Thank you so much, Jeff.
Operator: Our next question comes from Michael Turrin with Wells Fargo Securities. Please go ahead.
Michael Turrin: Hey, great. Thanks. Appreciate you taking the question. Aidan, on margin, net operating income target continues to move up fairly significantly, but we’re also seeing some of the growth rates and core metrics in the Data App segment in particular show some decay. So just wondering if you’re reaching a point where you need to dial back the margin expansion and just drive some investment into reinforcing the foundation. Appreciate there’s some just general transition happening there. And maybe just help level set how we should think about margin trajectory from here given the significant improvements you’re showing. Thanks.
Aidan Viggiano: Yes. So we guided to this year in terms of profit, we haven’t given a guide for 2024. This year has obviously played out better than what we laid out coming into the year. So we’re really pleased with the profit performance to date. When you think about that profit and you think about the relative – the two different business units, the Communications business today generates 88% of our revenue, 82% of our non-GAAP gross profit. So that business is really the profit generator for the company. And then on Data & Applications side, we’re investing. So, I would say that for the foreseeable future, you could assume that the efficiencies that we’re generating on the communication side of the house are really what’s enabling the investment in Data & Applications.
So I think that we have opportunity going forward to continue to see leverage. I’d expect both of those or that leverage to come from two areas, largely the Communications business as we move to self serve, as we shift to lower cost regions and we leverage automation as well as the G&A functions where automation and shift to lower cost regions are also areas that we’re pursuing. But we’re not going to give a specific outlook in terms of a range right now.
Michael Turrin: Understood. Thanks very much. Appreciate the color.
Operator: Our next question comes from Alex Zukin with Wolfe Research. Please go ahead.
Alex Zukin: Hey guys, thanks for taking the question. I guess maybe just the kind of 1A, 1B for me would be if you think about the applications business, we’re talking about reacceleration. I guess maybe I just want to better understand when do we expect the net retention rate to trough. And then if I calculate just a change in deferred revenue plus the applications revenue, I think I get to about a 5% billings growth number for that business. Is that the right way to think about the kind of, the range of the future growth rate kind of X meaningful improvement? And then maybe for Jeff, you guys have made such great progress on the operating efficiency side, but if we think about the reconstituting or I would say reactivating, activating some of the sales motion on the app side, do you need, is that where you actually need to put in now greater investment on the sales and marketing side and versus kind of where we’ve been seeing some of the savings?
Aidan Viggiano: Why don’t I start and then I’ll hand it over to Jeff. So there was a lot in there. So starting with the Data & Applications kind of DB&E and where there’s a trough. So we don’t guide to that metric and I’m not going to give an outlook there, but maybe just some thoughts on the Data & Applications growth rate. So we grew 9% in the quarter. That was compared to 12% last quarter. So it did slow down a bit quarter-over-quarter. And we would expect just based on prior period bookings, we would expect more muted sequential revenue growth in the Data & Applications business in the fourth quarter, though, we continue to expect sequential bookings improvement into Q4. And that’s really where we’re focused higher bookings and reducing churn and contraction, as Jeff said, that will result in the higher revenue growth in the future.
So that’s the focus we saw a number of solid wins in the quarter and we’re really working to build on the uptick in bookings we saw in the third quarter. The second question was with regards to deferred revenue. So deferred revenue trends, so I wouldn’t take this, the change in the deferred revenue balance, as I wouldn’t over index to it. I guess it was driven by Data & Applications in the quarter. There’s always timing and lumpiness of payments and things like that, but the trend, it was driven by Data & Applications, but I wouldn’t over index to that number. So let me hand it over to Jeff to take the next part of the question.
Jeff Lawson: Thank you, Alex. The question was essentially do we need to invest more in the sales effort for TD&A? And the short answer is no, I don’t believe we do. We have hired a good number of reps. We have enabled them, and we are starting to see that productivity now. Obviously, we want the whole thing to be happening faster, but in general, I don’t think that spending more money on that effort is the answer. It’s not a matter of us under investing. I think it’s a matter of productivity, and I think it’s a matter of continuing to evolve our presence in the market. And there’s a number of things that we’re doing in order to make that team continually growing in their productivity to hit the numbers that we want to hit. So I don’t think it’s a matter of us having to invest more. I think we got enough waffles on the plate. Now we just have to add some syrup.
Alex Zukin: Excellent. Thank you.
Operator: Our next question comes from James Fish with Piper Sandler. Please go ahead.
James Fish: Hey guys, thanks for the question. Building off – actually off of Michael’s prior question around margin, actually wanting to send to the cash flow side. Aidan, you actually talk about stronger collections. Can you just walk us through the linearity of what you actually saw this quarter overall, if we should expect more of these upfront deals to happen in the coming year or so to help drive these better collections overall? Additionally, is there any way to think about long term free cash flow conversion relative to net income here over the next couple of years? Thanks.
