David DeStefano: Yes, great question, Dan. I think you’re thinking about it correctly, and as David talked to and I talked to in some of our prepared remarks, we do anticipate as we kind of get through this big investment cycle, some of which has started to end, but then some of the bigger projects will be wrapping up here in the first half of 2023. We will start to see a little bit of leverage show through in the back half of the year. I think it’s more a 2024 thing. And again, I don’t — I anticipate that we’ll see a bit of improvement from a free cash flow standpoint, but I’m really looking towards 2024 to see that start to move more meaningfully as we get ourselves past these investment cycles.
Daniel Jester: Great. Thank you very much.
David DeStefano: You bet.
Operator: Our next question is from the line of Andrew DeGasperi with Berenberg. Please proceed with your question.
Andrew DeGasperi: Thanks for taking my question. I guess the one question I have is in terms of the direct customer count increasing sequentially by such a large amount in Q4. Maybe can you elaborate a little more what drove that new logo growth? And then in terms of SAP, obviously, that’s a relatively new relationship, if you could elaborate as well in terms of what the contribution was from them. Was it more meaningful in Q4 than you’ve seen it before? Thanks.
David DeStefano: Sure, Sure. So I think a couple of things there. The first is the continued investment we made in Microsoft and the Microsoft connectors and our strength growing in that ecosystem I think, as well as Workday. Those would be the two areas that I think we saw some real nice new logo wins. I would add Salesforce as well. That partnership continues to grow nicely. And I think those three ecosystems and the investments we’ve made there are starting to drive more activity, which serves the new logo growth that you referenced. I think broader SAP, while the — obviously, we’ve got a 30-plus year relationship with SAP, the relationship and working with their sales team is a new experience for us, and we’re definitely seeing a new rhythm in working with that organization, really driving more customer value and better customer experience.
And so when you think about it having the most robust tax technology solutions for SAP between our Chain flow accelerator, our Plus tools, the depth of our integration, you bring that together and you start going and talking to the SAP sales teams, we’re really able to differentiate in a meaningful way. And so I think that supports both our European growth and on some of our North American growth that you saw in 2022 and we’ll continue in 2023.
John Schwab: I think from a customer count perspective, as David was alluding to, there’s a lot of drivers there that are pushing things along and giving us opportunity for growth. And again, we continue to see good logo growth in each of the periods, and we feel good about the motions that are there. Again, we did have a nice Q4 in terms of that. And again, we started to see some of that mid-market activity go along. But one of the things that we called out this quarter, and I think is really important is that thinking about those scaled customers, looking at those guys that deliver over $100,000 of ARR. I think that’s the important metric when we think about our customers, not necessarily the total numbers that are there, but it’s really what are the ones that are playing in the field where we do our best and that’s that scaled customer.
So we’re going to continue to report that. And hopefully, that will give people a real good understanding of kind of how the business drivers are moving.
Andrew DeGasperi: That’s helpful. And then maybe on the margins. Just wondering, is there any movement on the stock-based comp that we should be aware of? I mean, it seems to have gone down this year relative to 2021 as a percent of revenue. Just maybe if you can elaborate a little more on that, that would be helpful?
David DeStefano: Yes. Historically, when you take a look at it, Andrew, as we came through the IPO that we had some overhang of things that kind of had the best of some old granted things that we really had to get caught up on just in the normal accounting pace. So I think we’re seeing a little bit of that and a little bit of that go away. And now we’ve got our normal pace as we go forward in terms of kind of what we’ve been granting. We’ll continue to be very thoughtful about that and the level of stock-based comp that goes into the grants, but I don’t think there’s any material change there to call out. And the number from 2021 into 2022, the fact that it’s gone down has more to do with some of the older stuff pre-IPO.
Andrew DeGasperi: Got it. Thank you
John Schwab: You bet.
Operator: The next question comes from the line of Samad Samana with Jefferies. Please proceed with your questions.
Samad Samana: Hi. Good morning. Thanks for taking my questions. Maybe, first, just I wanted to follow up on the cloud revenue outlook. John, could you maybe unpack how you’re thinking about conversions versus new attach at existing customers versus new customer acquisition as one of the three main drivers of cloud in 2023 and how we should model that?
John Schwab: Yes. That’s — I’ll unpack it a little bit. I’m not going to — I’m going to be a little thoughtful in terms of kind of how we sort of give guidance here. I mean, I think, we guide to the total amount of 27%. But, I think, as we think about the drivers there, that we’ll have the new logos that will be coming straight into cloud that are looking for it. We continue to see, with our existing customers that have on-prem, that as they look to buy, it’s about a 50-50 kind of ratio, that 50% are buying additional on-prem, other 50% are buying into the cloud and using the cloud in addition to their on-prem, creating a hybrid environment. So I think that’s — that continues to be a very strong motion there. And, again, given some of the uncertainty as we kind of look forward, we’re not exactly sure how this is going to impact people’s move to further digitization.
We haven’t seen any impact on our pipeline yet, as it stands. But I think as people think about where to spend money, I think that’s something out there that they may kind of hold on and use the on-prem for slightly — a little bit longer perhaps — and so I think about that as I think about sort of that conversion or that migration, if you will, Samad, from on-prem to cloud. And we’ll see how that kind of susses out as the year kind of plays through. But right now, it’s hard to really give guidance on exactly each of those three components. But, I think, I don’t expect to see a whole lot different, but it’s something that we’re going to certainly keep our eye on and probably be talking to you guys about going forward. Thanks.
