Good day, and welcome to the Sinch fourth quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then 1 on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Thomas Heath, Chief Strategy Officer and Head of Investor Relations. Please go ahead.
Thank you very much, operator. Good afternoon, everyone who's joining us today for this results presentation for Sinch's fourth quarter 2022. My name is Thomas Heath. I'm Chief Strategy Officer and Head of Investor Relations. With me today is our CEO, Johan Hedberg, and our CFO, Roshan Saldanha. With those opening remarks, I'll hand the word over to you, Johan.
Thank you. Thank you, Thomas. I think we can move directly to the next slide. Outlined here are the three priorities we presented back in Q2 2022 results. Executing on them in the stated order of priority. Starting with cost control, we announced the cost reduction program in the summer, targeting SEK 300 million in gross savings. Next slide. When we look at Q4, we can conclude that our cost reduction plan has delivered faster savings than anticipated. Around half of the targeted SEK 300 million savings has been realized. The chart shows how adjusted OpEx has developed. Yellow part show OpEx added from acquisitions in late 2021. Green part show organic development, where you see a flattening out after a sharp increase from early 2021 to early 2022.
Q4 adjusted OpEx in SEK is 2% higher than in Q2 2022, but 12% lower in constant currencies. There are positive one-time items in Q4 that reduce costs by around SEK 60 million. In constant currencies and excluding these one-time items, adjusted OpEx is 8% lower in Q4 compared to Q2. Next slide, please. We targeted a 10% cost reduction in messaging and central functions, which is a little bit more than half of the OpEx base. We can now see that the total restructuring charges will be lower than anticipated. We now estimate them to reach SEK 80 million. Next slide, please. Higher adjusted EBITDA in Q4 2022 than in Q4 2021 on a full pro forma basis. This includes all entities in both periods.
As we said in Q3, the fourth quarter is normally a strong quarter, which also means we normally have a sequentially lower EBITDA in Q1. Next slide, please. As in Q3, cash flow is strong also in this quarter. Cash flow from operating activities close to SEK 1 billion. One clear focus area has been reducing our overdue account receivables. You can see on this chart that we have reduced these further to 60 days. Our three priorities were cost control, cash flow, and growth. We see a positive development on the first two, we're of course not happy with the current growth rate, especially in the messaging segment. Next slide, please. Total growth is healthy, with revenues growing 41% and gross pro-profit 79% compared to Q4 2021.
We have a strategy of combined organic and acquired growth. We see here, of course, that acquired growth contributes significantly. Looking at organic growth, excluding M&A, it makes more sense to look at the pro forma figures for earnings from the acquisitions closed in late 2021 or included from 1st of October to 31st December in both 2021 and 2022. Here we see pro forma revenue growth in constant currencies declining 1 year-over-year and gross profit increasing 3% year-over-year. The primary driver is reduced volumes in some marketing use cases, which we know from the past are more affected by business cycle. Q4 was softer than normal compared to Q4 in previous years for the messaging segment.
Looking into the segments in more detail, around messaging, we have a negative growth with revenues down 5% and gross profit down 8% in constant currencies. A large contributing factor is reduced pricing and volumes with one of our largest customers. This customer is shifting focus from growth towards profitability, which means some business is reassessed and exited. This is the same customer where we adjusted prices in Q2 2022. Excluding this one customer, gross profit growth in messaging would have been positive in Q4. Here, the comparables will get somewhat easier from Q2 2023, but in Q1, we still face tough comparables. For Voice, revenue growth at 4% and GP growth at 6%. Here we continue to have a 5% headwind from A2P reform. Our growth rate here is helped by strong demand for our number verification products.
You should be aware that the comparables in this area will get more challenging during the year. Email. Email is performing well with 19% revenue growth and 20% growth in gross profit. The cloud migration project, where we change vendors to achieve a more competitive cost structure, has now been completed. For SMB, revenue growth is 16% and gross profit growth is 24%. We have highlighted a negative one-time effect in the base, which has a 12% positive effect on the pro forma growth rate in Q4 2022. Underlying GP growth is at 12%, which is in line with Q3. What is happening under the hood here is that growth in North American SMB offerings continues very healthy, but at the same time, there are pressure on the installed base in Australia.
Coming back to the bigger picture, we of course, want to see higher growth rates than we currently see, especially in the messaging segments. This takes some time, of course, and the macroeconomic environment remains uncertain. This means that we are not expecting an immediate improvement. However, there are multiple initiatives ongoing where we are investing to increase our mid and long-term growth. We are investing in product integration, make it easier to consume multiple Sinch products. Most of our customers still use only one product. One such area is developing our voice offering and making more features available via sinch.com. We continue to integrate acquired platforms and move traffic to our global platform, both in messaging and SMB. Lastly, we also continue to invest in APIs and software for conversational messaging.
Since we have a profitable and cash-generative business, we are able to make targeted investments also in a more challenging environment. Thank you, and handing over the word to our CFO, Roshan.
Thank you, Johan, and good day to you on the call. This is Roshan Saldanha, Chief Financial Officer at Sinch. I will walk through the financial results in more detail. Please turn to page 10, where I speak on the fourth quarter highlights. We are satisfied to see a good development in the cost reduction program, delivering results faster than anticipated. Around half of the targeted SEK 300 million gross savings have been realized, and adjusted OpEx in Q4 is 12% lower than in the second quarter of last year on a constant currency basis. The OpEx is helped in the quarter with about SEK 60 million of one-offs, and excluding that, it would have been 8% lower in Q4 compared to the second quarter of 2022.
We also see margin stability and retain good pricing ability due to the superior quality and value that we deliver to our customers. Gross margin in the quarter was at 33%, up from 26% a year ago, and 1.4% up from pro forma Q4 2021. On the second priority of cash flow, we have yet another quarter with strong cash flow. Adjusted EBITDA was at SEK 960 million, and we had improved cash flow from operating activities at SEK 973 million. This means that we were able to take our leverage KPI of net debt over Adjusted EBITDA, excluding IFRS 16 leases, to 2.7x compared to 3.2x at the end of September 2022. Please turn to page 11, which shows a bridge explaining our underlying gross profit development.
In the fourth quarter, we had organic gross profit growth of 2% and pro forma organic gross profit growth of 3% on a constant currency basis. We focus on gross profit when we assess and steer our business. Consolidated gross profit grows by 79% during the quarter to SEK 2.4 billion, and gross margin improved to 33%. The Swedish krona weakening against major currencies helped growth by SEK 156 million or 12 percentage points. The acquired companies during the last 12 months contribute 65 percentage points of the gross profit increase.
Looking more closely at the individual segments, in Messaging, we have an organic growth in gross profit in local currency and in comparable units at -8%, which is due to price reductions with a large customer previously announced in Q2, and weaker traffic compared to last year in the fourth quarter. Moving on to Voice. On a pro forma and organic basis, excluding foreign currency effects, growth in the Voice segment was at 4%. This includes a negative effect from the 8YY regulation change in the U.S. with five percentage points. In the Email segment on a pro forma and organic basis, growth was at 20 percentage points, and in SMB, it was at 24%.
The SMB segment is affected by a one-off negative impact in the base in Q4 2021 prior to acquisition. Excluding that, the growth would have been 12%, which is similar to what we had in third quarter of 2022. Growth in the U.S. market continues to be strong for SMB. That is offset by slower growth among larger customers in Australia. Moving on to page 12. We can see that the numbers on this slide are on a pro forma basis, including all completed acquisitions. It shows also the gross margin stability, which reflects the strength in our product proposition towards customers. We believe that we can improve this over time as higher margin products are growing faster.
Q2 2022, as you know, was affected by a reassessment of reserves for accrued traffic costs with SEK 162 million in the Messaging segment. Adjusted EBITDA margin also continues to be stable at 13% and is supported by the benefits of our cost reduction program, where half of the targeted savings are now realized. Adjusted EBITDA margin in the Messaging segment was 8% for the quarter. I'd like to move on to page 13, where we have the income statement. Consolidated net sales grew by 41% in the quarter to SEK 7.4 billion. The growth rate in the quarter was positively affected by previous acquisitions. On an organic basis in local currency, the growth was -2%, and on a full pro forma basis in local currency, growth would have been -1%.
Other operating income includes foreign exchange gains related to operating items and reversal of a previous acquisition. EBITDA for the quarter was SEK 791 million, up from SEK 330 million last year. One-off items, as I have referred to already in operating costs, helped the adjusted EBITDA by SEK 60 million in the quarter. Adjusted EBITDA per share came in at SEK 1.13 for the quarter versus SEK 0.61 during the same period last year. We made a goodwill impairment related in the Email segment in the third quarter of 2022 of SEK 5 billion. In this quarter, we have a currency effect related to that impairment of SEK 97 billion. EBIT came in at SEK 66 million for the quarter versus -SEK 12 million in the same period previous year.
Acquisition related amortization, which does not affect cash flow, was SEK 587 billion. Adjusted EBIT, which excludes both items affecting comparability and amortization of acquisition related intangible assets, was at SEK 919 million versus SEK 393 million during the same period last year. Moving on to slide 14, which shows the cash conversion. You will find a bridge from adjusted EBITDA to cash flow before changes in working capital and explaining the effect between these items. As in the previous quarter, we can calculate cash conversion after interest payments, taxes, changes in working capital and investments in CapEx. In the quarter, we have a continued strong cash conversion. We see a cash flow generation before changes in working capital of SEK 661 million.
We see total cash conversion of 82% in the quarter, which is aided by a positive change in net working capital. Even if we excluded the positive gain from net working capital, this cash conversion is still at 50%. On average, over the last 12 months, we have a cash flow conversion of 60%. Note that interest rates have come up. Effective interest rate in the quarter was 4.5% on an annualized basis. We also expect working capital to be more lumpy, and we will, we do think we have unlocked a large amount of the working capital that was locked when we bought it earlier. Please turn to the full cash flow statement on page 15.
We see a strong development in conversion of adjusted EBITDA to free cash flow from operations. Cash flow from operating activities after changes in working capital was SEK 973 million for the quarter. Net working capital as a percentage of sales continues to be low at around 6%, which shows the asset-light nature of our business. During the quarter, we amortized about SEK 600 million of loans, and the group had a closing cash balance of SEK 2.1 billion. We had available bank overdraft facilities of SEK 913 million. Moving on to page 16, there you see the net debt over adjusted EBITDA, which is affected by three components: adjusted EBITDA growth, cash generation from operations, and currency impacts, which are immediate on debt, but which have a trailing impact on earnings.
EBITDA growth and strong cash generation caused net debt over EBITDA to fall in Q4 versus Q3. We expect continued deleveraging from earnings growth and cash generation. In the quarter, we also extended maturities for about six and a half billion Swedish kronor and $110 million of existing credit facilities by a year to 2026. Moving on to page 17, we reiterate our financial targets to grow adjusted EBITDA per share by 20% per year and to keep net debt over adjusted EBITDA below 3.5 over time. Adjusted EBITDA per share grew 104% in the fourth quarter, measured on a rolling 12-month basis. Net debt to adjusted EBITDA is at 2.7x, which is well within our financial goals, and we expect to continue to deleverage.
For the last 12 months, there is no difference between pro forma and reported adjusted EBITDA. This KPI excludes the impact of IFRS 16 related lease debt on both net debt and adjusted EBITDA. With those comments, I would like to hand over back to Johan to summarize today's presentation and open up for Q&A.
Next slide, please. Again, I want to reiterate the priorities we set in Q2 2022, which we have been delivering on since then. We launched and executed a cost reduction program where we realized half our targeted SEK 300 million cost savings in Q4. We reported a record adjusted EBITDA number for the company. We have improved our cash flow and managed to convert some 60% of adjusted EBITDA to cash flow in 2022. Many parts of the business perform as expected, but we can improve growth rates in our messaging segment. Looking holistically at our entire business, we have a healthy business, stable margins, and very diversified earnings pool. There is still potential to extract further cost and revenue synergies from the acquisitions closed in 2021. We believe we are well-positioned to advance our position in the marketplace.
Thank you for that, Johan. With those concluding remarks, I'll hand the word over back to the operator for questions.
We will now begin the question-and-answer session. To ask a question, you may press star then the one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. We ask that you please limit yourself to one question and one follow-up. If you have additional questions, please jump back into the queue. At this time, we will pause momentarily to assemble our roster. The first question today comes from Predrag Savinovic with Carnegie Investment Bank. Please go ahead.
Thank you, operator. Good afternoon, Johan and Roshan. Could you reason a bit on the market and the competitive landscape, the market growth and the opportunities you see now? I know this is a broad and strategic question. I get that. What I'm getting at is that pretty much all of your competitors are doing quite drastic things, which is refocusing very much on margins and cash flows. Of course, they start from some of them start from losses. They're reducing staff quite significantly, cutting marketing, R&D, raising prices, et cetera. I'm just wondering if this gives you any opportunities, and if so, what kinds? Also on your recent customer wins, do they have anything to do with this behavioral change from some of your peers? Thank you.
I think for the enterprise segment, we are seeing that I would say the competitive environment, it softens a lot. We feel that we have a very strong position in that market space. I think we look forward to 2023 and some of the cross-sell opportunities we have with our enterprise customer base.
The 15 new customers you sign in messaging, can you put that in relation to maybe your net customer growth in the previous quarters? Could you also quantify what this could mean in terms of gross profit once they're scaled fully?
Thomas here. I think the, we continue to see a healthy inflow of new customers, as we did in Q3. Should bear in mind that in the messaging segment, we're talking about larger customers. Smaller customers will sign up, you know, for our SMB offering or use our email products. These are larger customers which take, you know, often a few months to sign or close, and then in further months to ramp and show proper volume. There's a little bit of a lagging effect in terms of customer acquisition and the, and the competitive landscape. It's a satisfactory performance. Of course, the overall growth is impacted by many factors. Expansion is an important one next to customer acquisition as well.
Okay. Super. Thank you.
The next question comes from Stefan Gauffin with DNB. Please go ahead.
Yes. Hello. A couple of questions. First of all, with a bit weaker demand in especially messaging and voice, in combination with faster than expected results from the cost program, why aren't you looking at expanding the scope of the cost program, given the uncertain outlook? Secondly, I saw that you are looking at raising prices in the first half. I mean, given the weaker volumes and weaker demand, is it the right medicine to raise prices in that environment? Just your thoughts on these two questions, please.
If I start with your last question. We analyze what customer segments that we can raise prices for, and we will not raise prices across the line. It's for specific customer segments where we believe it would be successful. And then you have the uncertain outlook and potential further cost reduction programs. We're of course following carefully how the business develops. As of now, we do not have any further plans for cost reduction programs.
Okay. Very clear. Thank you.
The next question comes from Daniel Thorsson with ABG. Please go ahead.
Thank you very much. Two questions. The first one is on the mid to long term EBITDA margin here. When you announced the acquisition of Pathwire one and a half year ago, you showed a margin graph with a pro forma level of around 16% for all the combined entities. Is that something that is still reasonable for the mix of businesses you have today, a couple of years out, or has anything changed in the last one and a half year that does not make that figure reasonable today, for example? Secondly, now when you de-lever and generate positive free cash flow and we see competitors are struggling a bit more, what needs to happen to be in a better shape for M&A or for you to look at smaller targets in the market? Thanks.
I can take the first one, Roger, here, and then I'll maybe hand over to Johan to answer your second question. On EBITDA margin, I think, you know, that slide that you're referring to was historical pro forma. I think in reference to Johan's previous answer, we do see the potential to increase efficiencies. We have just ordered together these different organizations and we see synergies both on the revenue side and on the cost side over time to be realized. I think it's a bit too early to kind of talk about mid to long term targets, and this is not, you know, something that we had forecasted before, but we see the potential to use.
For M&A, I think we continuously scan the market and we are in a better position now than we were a couple of quarters back. I think main targets right now would be targets that add that are financially accretive.
Yeah. Thank you very much.
The next question comes from Akhil Dattani with JP Morgan. Please go ahead.
Hi. Good afternoon. Thanks for taking the questions. Can I maybe ask a question around the outlook? Obviously, you've sort of helped us understand the way you're thinking about growth versus profitability, but I just wanted to dig a little deeper into how you're thinking about the shape of trends over the coming quarters. In the press release, you talk about not expecting any immediate improvement in growth rates going forward. I just wanted to clarify what that means. I mean, are we talking about relative to the organic growth rate in Q4? Are you talking about in some other way? If you could maybe just help us understand what you're talking about here so we understand the shape of the coming quarters, and I guess a very similar question on margins.
You know, we've had two good EBITDA margin quarters in the last couple of quarters. Is that a sort of reasonable run rate as we think about the going forward? The second one is just on management. You know, in your press release, you talk about quite a lot of management changes across the divisions. I just wondered if you could talk us through how that impacts, if at all, the integration processes. You know, does that create any challenges? Thanks a lot.
Thank you very much. I'll start, Thomas, here. I'll start with the first one and hand over to you, Johan. For when we talk about the, you know, perception about the immediate future, we're referring to the full company on a pro forma perimeter, pro forma organic perimeter. Noting what we alluded to earlier, that our comparables, in Q4, and also going into Q1 are quite tough. Some comparables are easing, further on in the year, at the same time, we have a quite uncertain macroeconomic environment. You know, there are lots of puts and takes as we look further out. We just note that we had a strong quarter last Q4 and also a strong quarter last Q1.
That's what we are referring to. In terms of, you know, the sequential pattern, we did give pro forma figures for Q4 2020 when for last year. You should have some indications in the sequential guidance Q4 to Q1 if you wanna look at the near term. Is there anything, Roshan?
I think just adding maybe a little bit of commentary on the individual segments to that one. I think what we've said here is that in Q4, we were not satisfied with organic growth in messaging and voice. We think we see a good growth pattern in the email segment, which is improved by improvements in the growth margin. SMB continues on the same trend that we have seen in the third quarter. There's a little bit of a difference between the segments. On EBITDA margins, I think the only thing we can say is that, you know, if we have a good and stable... It's very much dependent on revenue and gross profit, I would say, in the short term.
If we have a stable revenue and gross profit, which we expect to have, then we don't see any reason why there should be a worsening of EBITDA margins. With that, I'll hand over to you, Johan, for the last question.
Yeah. I would say we now have a management team that can successfully integrate the different assets we have acquired over the years, creating more of a seamless experience for our customers, and also successfully extract revenue add and cost synergies going forward.
Thanks.
The next question comes from Laura Metayer with Morgan Stanley. Please go ahead.
Good afternoon. Thank you for taking my questions. Two from me, please. One, could you give us an update on the basic versus advanced messaging mix in the messaging segment? Could you comment on how the advanced messaging segment is doing? The second question on EBITDA margin. Your Q4 adjusted EBITDA margin was broadly stable quarter-on-quarter and year-on-year. Could you give us an indication of the evolution when removing the one-off recurring items and FX tailwinds, please? Thank you.
Thank you. I'll start off with the first one. I'll take Roshan's help for the second one. We might need to repeat that question. Starting off in messaging, there are multiple ways to cut and slice the market for analytical purposes. In terms of what we, you know, have more concrete data on, it's different types of communication channels, so SMS, RCS, Telegram, Viber, KakaoTalk, and so forth. As you know, we have what we believe is a market-leading offering in terms of breadth and width of messaging channels. In terms of use cases, it's a little bit more of a sliding scale, and it's hard to apply that type of segmenting, which we can find in reports from industry analysts.
It's hard to apply that in a sort of structured way to realize data, we don't track it really in that way. In terms of looking at the different communication channels, we continue to see fragmentation in messaging and a quite diverged development across different geographies. Where in particular WhatsApp is, you know, continuing to perform well in India and Brazil. We have success with Telegram in other parts of the world. It's a little bit of a mixed picture. We also see RCS in certain countries starting to gain traction, it's a little bit of a mixed picture. These new conversational channels, of course, tend to be used for more advanced use cases, but of a more conversational nature.
I think your second question was on. Perhaps if you can repeat a little bit, on the EBITDA and EBITDA margins.
Sure. Your EBITDA margin in Q4 was around 13% of revenues, and in Q4 last year was around the same. Q3 this year was also around 13%. I understand you had some FX tailwinds and also some tailwind from n-one-off recurring items in Q4. Does that mean the margin actually decreased quarter-over-quarter and year-over-year in Q4? If you can help us understand that would be great. Thank you.
I think the only commentary, the only difference in the fourth quarter is the one-off comment that we have made on SEK 60 million in operating costs, which helped us in the fourth quarter. Besides that, I mean, all other effects are consistent over the quarters. We have an FX tailwind on gross profit that we highlight. We have, of course, an FX headwind on the operating costs, which, you know, which nets out the part of the gross profit segment.
The next question comes from Andreas Joelsson from Danske Bank. Please go ahead.
Good afternoon, everyone. Two questions from me. First of all, looking into 2023 and the growth uncertainty that you see, you mentioned that you are investigating or looking into future looking investments. In that perspective, how do you look at the overall target on EBITDA per share, bearing that in mind of 20% growth? Secondly, maybe a follow-up to the previous question on the messaging volume. You mentioned that you have seen wholesale coming down, one large customer reducing volumes. Do you see any other similar risks in the portfolio you have of messaging volumes, or how should we see that going forward when we look into 2023?
Maybe, Roshan here, I can take a stab at the first one, and then I'll let Johan, maybe speak on the second. The only adjusted EBITDA per share, that's a target that we reiterated this quarter, that we want to grow it to be 20%. Of course, that is sensitive to gross profit development, and we need to continue to watch it closely. We have some cost savings, of course, that should help us during the coming quarters. This is something we will continue to watch closely to be able to deliver to our target. Johan. Yeah, no. I think the risk in the messaging segment, and what we talk about in the report is the marketing use cases.
I think Q4 is sort of marketing-heavy with the, with the big shopping weekends and so forth. We have less of them in the coming quarters, and that is the use case that we talk about in the report. In terms of customer concentration, customer concentration for the entire group has come down markedly, and is less of a concern than it was in previous years.
Great. Thanks.
As a reminder, if you have a question, please press star then one to be joined into the question queue. The next question comes from Klas Danielsson with Nordea. Please go ahead.
Yes, good afternoon. Thank you for taking my question. Just a quick follow-up on the pricing side and what you talk about with customers becoming more price-sensitive. Could you maybe elaborate on what types of effect that is materializing as? Are you seeing kind of any customers staying with Sinch and moving some volumes to other competitors or what's that materializing as? Secondly, also, I wanted to follow up on the operator behavior on the pricing side. Basically, if you could elaborate a bit on what you're seeing in terms of trends there.
Thomas here. I'll clarify the first question and hand over to Johan for the second part. What we're alluding to in terms of price focusing is that focus is really related to some customers, some larger customers in our messaging segment and our voice segment. It's where we have customers and software vendors who either resell or embed our offering into another software product. We're not thinking about banks or airlines or hotels, more technology-oriented companies and service providers. Like ourselves and many other companies in this environment, you know, these companies are scrutinizing their costs and looking at every line item in their P&L. That just means that the price, you know, has a, you know, gains more importance in the ongoing discussions with vendors.
We're very comfortable that we are maintaining or increasing our share of wallet with these customers. We have a privileged position based on a, you know, a long track record of delivery, and, you know, recognition for the high quality in our offering, which maps well to this type of customer segment. This, you know, don't want to exaggerate, you know, how much, you know, of the customer base this relates to, but, you know, even a few large customers can have an impact. Also, we don't really see this in the SMB and email segments, which are, you know, more long tail-oriented. I think there was a question on carrier pricing, Johan. Can you please repeat that question? Would be great. Thank you.
No, it's just a very broad question on what you're seeing operators doing on pricing currently, and basically what your visibility is also on that side into 2023, if you could maybe elaborate a bit on what trends you're seeing there. No, I think we had some of that in previous years, but going into 2023, we don't see that will affect our numbers in any specific way.
Okay. Thank you very much.
The next question comes from Mohammed Moawalla with Goldman Sachs. Please go ahead.
Great. Thank you. Good afternoon. I had two questions, please. One, just as we look at the top line evolution, you obviously talked about some of the challenges. When do you expect the business to potentially kinda come back to sort of market growth rate on a kinda organic gross profit basis? Do you feel the need to potentially reinvest some of the savings from the cost-cutting program to stimulate that acceleration? Secondly, obviously on the working capital movements, this quarter it was driven by increase in accounts payables.
If we look at things like the receivables and DSOs that come down to 60 days in the fourth quarter, are we at kind of approaching a floor on the DSOs, and how much more working capital improvement can you drive, particularly on the kinda DSO side? Thank you.
Yes. On the investment, we are investing in initiatives, especially around product integration, making all our products available on digital channels, also to have all our sales team sell CP product portfolio. This is a cross-sell effect. We are probably in 2023 for the digital channels, we will not see the effect. For cross-sell with field sales teams, we should be able to see effect in H2 2023, although from a small level. I think on the second question, Roshan here, if you look at the working capital impact that we've had, we're currently operating at about 6% of revenues. This reflects the asset light nature of our business.
In this quarter, we have both DSO and DPO contributing to working capital release. I think DSO increased from 69- 60 on a full year basis, but even compared to last quarter. DPO increases as well, but within range this quarter. When you look forward, I think on a structural basis, we do see the possibility to improve working capital over a longer term, but I think the large part of the short-term unlocking is behind us now. We see, now we'll be reverting to a more normal range of working capital movements, which can be relaxed.
Okay. Thank you.
The next question comes from James Pavey with Bank of America. Please go ahead.
Hi, thank you very much for taking my question. A quick question on visibility on volumes over the rest of 2023. You called out earlier that you've got a big impact in Q4 from marketing. Are you worried about any spillover effects into other segments like email? Where I think from your deal presentation, you had about 40% were marketing and 60% transactional email. Thank you.
Yeah. Yeah. I think that the volume patterns of course vary a little bit by product, geographic and customer segments. Generally speaking, you know, the trajectory for email at least is quite optimistic. Email is a very cost-efficient channel for marketing, you know, with a very high ROI for enterprises who use it. It's quite a different value proposition than using, for example, messaging channels, you know, which are more expensive and more, you know, a premium nature, but can also have high ROI when deployed correctly. It's a little bit different between the different channels.
We've highlighted a few headwinds in terms of volumes, Brazil, being one of them, which, you know, has been tough, whereas India, for example, has recovered and is doing very well. Volume growth in Q4 is also affected by our conscious choice to prioritize profitable growth and profitable business in general, which means we've opted to move away from certain leads essentially where the margin profile has not been attractive enough.
All right. Thank you.
The next question comes from Stefan Gauffin with DNB. Please go ahead.
Yes. Just a quick follow-up on the Aspire. When was the migration to the new cloud infrastructure completed? Was it beginning with or end of the quarter? Just to understand the margin development.
Hi, Stefan. This was a phased migration, I would say, over the second half of the year. It was completed gradually through the second half.
Okay. Thank you.
The next question comes from Andreas Joelsson with SEB. Please go ahead.
Yes. Just a follow-up on the cross-sell potential and the execution. If you could provide us with some.
An update on where you are and what you see ahead and where the challenges are, your learnings so far. What is the main hurdles for the ones that are using one product to go to two products? Thanks.
A little bit different depending on the sales motion, in our, if you think of an existing messaging customer, where we have an account manager and a field sales model, then it's essentially similar to onboarding a new customer with a difference that we will have passed a lot of hurdles and requirements, security clearances and so forth. We'll have a foot in the door as an existing vendor on an adjacent contract, right? Other than that, the onboarding process in a field sales scenario is similar to a new customer. On the product-led growth side, think about the 100,000+ developers who use our email products. They're not interacting with our sales teams directly. They're, you know, the sales process is, you know, carried through the product.
That means that to cross an upsell, we need to expose and build out product features and functionality so that when, for example, you log in to Mailgun, you will be exposed in one way or the other, to our messaging offering, our voice offering, our OTP offering, and so forth. A little bit different, you know, whether it's sales-led, you know, cross-sale or product-led growth that we're looking at. Of course, those are our focus areas for us.
Okay. Thanks.
We are now coming to the end of our session. I would like to turn the conference back over to the company for any closing remarks.
Thank you very much, operator, and thank you everyone who dialed in today for the continued interest in our business. I'll leave over to Johan for some concluding remarks. Finishing off with just summarizing what we already said on our three priorities. We're pleased with the execution on cost control and on EBITDA and cash flow. We can improve on the growth rates, especially in the messaging segment. Thank you, everybody. Thank you very much. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.