So as I talk to the service providers, they want to move as much of their revenue to subscription as possible, and the deliverables that we’ve built for them are recurring revenue in nature versus our competitors, which is integration revenue in nature. And we’re getting a lot of excitement on that.
Ryan MacDonald: Excellent. Thanks for the color. Congrats again.
David Steinberg: Thanks, Ryan.
Operator: Next question, Richard Baldry with Roth MKM. Please go ahead.
Richard Baldry: Thanks. If we look historically, 4Q is on a dollar basis, always been sequentially a lot stronger than what we see out of the third quarter. That’s not implied in your guidance this time around. Sort of curious, is there anything we need to normalize out of there or do you think it’s just your typical conservatism or is there something about macro that we should be thinking about? Thanks.
David Steinberg: No, Rich, it’s really – if you look at the starting point growth rate for the fourth quarter at 18%, I think, we’ve started every quarter’s – next quarter’s guide at a similar level, 18% or 19%. What you do and I think is a fair normalization is last year’s political is a three point headwind. So you could say the 18% is really 21%. But no, I mean we’re very comfortable with the guide, very comfortable with both the top and the bottom line guide. And as we look forward to 2024 the tailwinds we’ve had from some of these very strong signings quarters and by the way – when the queue comes out tomorrow, you’ll see that, it’s not cause for victory lap by any stretch, but it’s a big improvement in RPO going from 135 million in RPO to 210 million this quarter.
So I think that tailwind kicks in next year. Political kicks in, as I mentioned, auto and insurance, we think in second quarter turn positive. So we think fourth quarter is going to be a nice running start into the first quarter of next year.
Richard Baldry: And you talked about sales cycles accelerating, which is not the experience of a lot of other companies. Talk about maybe on the competitive win side of the table, the win rates, as you’re getting into larger engagements and people are more, say, committed to legacy vendors, it obviously should be harder to displace those. So do you think there is some trade off over maybe the intermediate term where competitive win rates might come down a little, but it’s still a net positive because you’re getting into engagements you might not have previously, but just a little tougher to pull the legacy vendor out and maybe your first go around, but it might set you up to win at the next time around?
David Steinberg: You know, it’s funny you say that. We thought that would happen. I’ve said privately and publicly that as we dramatically increased RFPs, we would probably see our close rate go below 50%. We’ve not seen that Rich, we continue to close greater than 50% of the RFPs and engagements we get invited to. I think what’s happening is we are really entering a cycle where people are looking to upgrade from their first generation marketing clouds, and their first generation CDPs, and they know that the large legacy vendors have not invested $0.01 into their products in the last few years. As I like to joke, right, Salesforce’s side hustle used to be their marketing cloud, now their side hustle is Slack, and their marketing cloud is the side hustle to the side hustle.
And as those organizations have cut investment, which we’ve seen across the board, we’re seeing a lot of those cuts being done in marketing cloud, which is allowing us to further the distance in capabilities and quality of our technology to theirs. And quite frankly we’re winning bigger deals than we’ve ever won before at the same percentage that we’ve – consistently won over the years, which even in some cases surprises us. I probably shouldn’t say that on this call, but quite frankly it does.
Richard Baldry: Great. Congrats on a great quarter.
David Steinberg: Thanks, Rich.
Operator: Next question, Zach Cummins with B. Riley Securities. Please go ahead.
Zach Cummins: Hi, good evening. Thanks for taking my questions. David, I know you outlined generative AI as one of the key areas of investment going into next year. Can you just talk about some of the early adoption you’ve seen from your ZOE product and how really that could transform into maybe driving even further adoption of your Zeta marketing platform over the next 12 months or 18 months?
David Steinberg: Yes. It’s almost incredible how many people are using the ZOE component of the data analysis tool. It’s effectively today a generative AI platform that becomes your own internal data scientist. So you can ask real world questions. What are my most valuable audiences? Where am I losing money from a marketing investment perspective? What cohorts of my existing customers are buying more products from my competitors than they are from me? All of those are real world questions that people are using. And what we’re finding is clients who are using ZOE are spending substantially more money on the platform. And our goal is to roll ZOE out to all of our clients in the very near future. And we think that will continue to drive additional adoption rate and additional utilization of platform.
As Chris points out all the time, if you look at the period of time that clients are on our platform, you can draw a line up into the right with the amount of money they spend. We believe ZOE will accelerate that and take the top of that line even higher.
Zach Cummins: Understood. That’s helpful. And Chris, just one question for me regarding free cash flow with the increasing traction with agencies in the near term. I mean, can you talk about the dynamics and how we should think about free cash flow conversion over the coming quarters?
Chris Greiner: I think the best example is if you look through our financial statements in the Q and what’s been published in the press release, you’ll see that there was about an $8 million working capital headwind. And that’s principally driven by the days sales outstanding going from 55 days to 68 driven by the agencies period. If you plug that back in, you would’ve been looking out of cash conversion to EBITDA in the 60s. So we – but it is a reality that we’re going to wrap on that we think by the second half of next year that normalizes. So we’ll live with it for another couple quarters. But you should start to see that cash conversion move up.
David Steinberg: And we don’t expect it to affect our 2025 plan in any way, shape or form.
Zach Cummins: Got it. Well, thanks for taking my questions and best of luck with Q4.
David Steinberg: Thank you.
Operator: Next question, Camden Levy with Oppenheimer. Please go ahead.
