John Schwab: Yes. I guess a couple of ways to think about that. From an EBITDA to cash flow standpoint, again, I think we talked a little bit this year, that we would be certainly free cash flow positive. I think longer term, what we’ve seen is we’ve seen that in the past, I can tell you that the company has operated about a kind of 70% or so kind of free cash flow conversion from EBITDA. I anticipate certainly we’ll be able to get back there as we kind of move through these investment cycles like we’re doing now and get into the right cadence there. So we feel pretty good about that. As far as CapEx goes this year, again, I want to — I would tell you there’s probably the best part of — in the area of about high teens in terms of millions of spend that would not recur in the following year.
So again, related to some of these infrastructure items that David had talked about. So, in that range that’s what I would guide you to in terms of kind of nonrecurring. But obviously, there’s continued spend in the capitalized software and other areas that will recur. So we’ll keep that out there. But that’s what I think from a nonrecurring piece.
Alex Sklar: Okay. Perfect. Thank you, both for the answers.
John Schwab: Thank you.
Operator: And we’ll proceed now with a question from Samad Samana from Jefferies. Samad, go ahead.
Unidentified Analyst: Hi guys. Thanks for taking my questions. This is Jeremy on for Samad. Follow-up on the net adds. It looks great all around. But I think the rest came in a lot higher than we expected given the emphasis on the indirect channel. Can you talk about what your strength there as well? And is there an opportunity for this to remain elevated?
David DeStefano: I think the — great question. I think there’s a — basically, if you think about our focus and playbook we’re running in NetSuite and Microsoft and Workday, I think we’re beginning to build the type of execution and the brand that we hope to and we’re going to continue to run that playbook firmly in that space. And I think the team has done a nice job of securing enhanced new logo wins. We don’t prognosticate in terms of going forward what that’s going to look like, but I’m really pleased that we’ve disciplined ourselves to a few ecosystems and the teams are running across the partner ecosystem and the tech — the tech firm in a very focused way and you’re seeing that kind of execution in the numbers.
Unidentified Analyst: That’s useful color. And useful color on some of the customer behavior on cloud versus on-prem. I guess, have you noticed any additional change from the close of the quarter through October and November, whether that’s change in deal cycles or anything like that?
David DeStefano: I don’t have any specifics on change in deal cycles this early in the quarter. But fundamentally, everything we’re doing is leading cloud. As I said, I think 90% of our new logos are cloud anyways. And you’re still seeing that cross-sell where existing customers who have on-prem for one module will advance in the cloud with a new module. And so we still see that opportunity and that is really where the teams lead, but no new shift in mix in any way. And as I noted earlier, with our new on-prem pricing we’re actually enhancing gross margins when they go that way because obviously we don’t have to bear any of the on-prem costs. So it’s — the hosting cost. So it’s actually working out strategically very well for us.
Unidentified Analyst: Got you. Thanks for taking my questions, guys.
Operator: And our next question comes from Pat Walravens from JMP Securities. Pat, please go ahead.
Pat Walravens: Oh, great. Thank you. Congratulations to you guys. It’s great to see the performance here. All right, David what is the most important thing for Vertex to get right in 2024?
David DeStefano: In 2024? Execution focus that continues to drive operating leverage. That’s what we’re going to be. That’s where we’re really heads down. We’ve come through a big investment cycle for the last several years. We’ve put ourselves into place. And now it’s about executing and reaping the margin performance that we expect as we look forward.
Pat Walravens: Awesome. And then if I could do a follow-up. When you — you mentioned customers increasing their entitlements a couple of times with different customers, which I thought was super interesting. What is driving that? And how does it work when they increase their entitlements?
John Schwab: Yes. Pat, this is John. I’ll take that. I think what we’re seeing is that we’re seeing a number of different expansion opportunities with existing customers. And so what that typically means is they’re using the same products, but they’re expanding their use to different divisions, different areas, different geographies. And then when they do that they typically roll through a pricing tier that we’ve created. When they roll through that pricing tier then we have the opportunity to increase the annual amount that we charge. So that’s the typical cadence that we see and the reasons for people breaking through.
David DeStefano: Yeah. If I could build on that Pat. It’s a really good point John made. I think it’s important to remember that we go in and we solve a problem for a large multinational we’re only solving it typically in one division or one operating area of their business. And so that just creates an LTV opportunity over time, especially if we’ve now built out our customer success function where they’re going back in and talking about what about the Division B, C, D and E that we can add the sales tax that we’ve covered in Division A. And so we really — that’s really what you’re seeing in that example is where companies are consolidating more of their other units where they’re using a competitor or using an on-prem or an in-house solution that they then want to say why don’t we just standardize across more of our divisions on Vertex?
Pat Walravens: Great. Thank you.
Operator: [Operator Instructions] And we will continue with a question from Daniel Jester from BMO Capital. Daniel, please go ahead.
Kyle Aberasturi: Hey, this is Kyle Aberasturi on for Dan. Thanks for taking my question. Can you just dig a bit further into the Celera cloud migration? I guess, does this change any sales strategy in Q4? Or any changes there? How are you thinking about that? And then, I guess how you’re preparing for 2024? Do you guys expect consistent trends heading into the New Year?
David DeStefano: Yes. Certainly, no change in strategy. I think again the real focus is on execution. We’ve worked hard to put ourselves in this position. The team has done an amazing work. We’ve gone through the investment journey and to get to this point and now it’s about execution. So no — absolutely no shift in strategy. As far as 24 goes we’ve not launched guidance yet but we clearly are seeing the tailwinds that we’ve highlighted around things like SAP and the regulatory environment very much supporting the type of performance that we expected when we embarked on this strategy.
