Good day, ladies and gentlemen, welcome to Consensus Q4 2022 Earnings Call. My name is Paul and I will be the operator assisting you today. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. On this call from Consensus will be Scott Turicchi, CEO, John Nebergall , COO, and Jim Malone, CFO. I will now turn the call over to John Nebergall , COO at Consensus. Thank you. You may begin.
Good afternoon, welcome to the Consensus investor call to discuss our Q4 and full- year 2022 financial results and our 2023 initial guidance. Joining me today are Scott Turicchi, CEO, and Jim Malone, CFO. The earnings call will begin with Scott providing opening remarks. I will give an update on a major realignment of our operating structure as well as sales and technology results, Jim will follow up and discuss our full- year and Q4 financial results. After we finish with our prepared remarks, we will conduct a Q&A session. At that time, the operator will instruct you on procedures for asking a question. A copy of this presentation and the associated press release will be available on our website. If you have any questions, you can always send an email to investor@Consensus.com.
Before we begin our prepared remarks, allow me to direct you to the safe harbor language on slide two. You know, this call and webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to, the risk factors outlined on slide three that we have disclosed in our SEC 10-K filing, as well as a summary of those risk factors that we have included as part of the slideshow for the webcast. We refer you to discussions in these documents regarding safe harbor language as well as forward-looking statements. Let me turn the call over to Scott.
Thank you, John. I would like to touch on several areas before handing the call over to John and Jim for more details on our operations, Q4 financial results, fiscal year 22 results, as well as the publication of our 2023 guidance. As noted in our press release, we intend to file an amended Q3 2022 10-Q to primarily address two unintentional errors we have identified in the preparation of our form 10-K. The first error is related to an accounting practice we inherited from the spin. Notably, our SoHo revenue stream was inadvertently grossed up by $5.3 million over the first three quarters of 2022, with a corresponding offset to bad debt expense. This correction has no impact on the company's operating income, net income, EBITDA or cash for the relevant periods.
The second error relates to the timing of revenue recognition. We initially recognized $2.2 million of revenue in Q3 2022 for the sale of certain perpetual software licenses to one of our customers, which, upon further review, we have decided to reclassify as deferred revenue. This correction impacts timing only, not the amount of revenue that we recognized over the contract term. Neither error has any impact on the company's cash or cash equivalents. Jim will provide further details in his financial presentation later in the call. Our operational miss in revenue for the year to achieve the low end of our revenue range was approximately $3 million and was largely due to the timing of both customer decisions and implementation.
As we noted in our Q3 call, and again earlier this year at an investor conference, we continued to see a more deliberate approach to decision making and implementation by our largest prospects and customers. We believe that this trend will continue in 2023 and have accounted for it in our financial guidance. As John will later detail, we continue to have a number of prospects in our pipeline and remain optimistic that over time, they will translate into revenue. I would also observe that changes in our incremental revenue are more dependent on revenue coming from medium to large enterprise customers, the timing of which is harder to predict. As we believe that this will continue to be the case and is independent of economic conditions, we are widening the revenue range for our guidance that Jim will detail for you later.
In conjunction with our performance in Q4, we evaluated the sales and marketing structure that we inherited at the time of the spin. We concluded that the approach of the three revenue streams, SoHo, mid-market and enterprise, and organizations to manage them, does not allow an optimal go-to-market strategy. The siloed approach inhibits efficient marketing spend and creates gaps where one channel of revenue ends and the other begins. I am enthusiastic about the realignment of our people and resources, believe it will produce a greater pipeline of opportunities, giving us more paths to meet or preferably beat our guidance. John will give you the details in his presentation. We continue to operate at healthy EBITDA margins of 54.3%, consistent with our guidance of between 50% and 55%.
These results were driven by continued strong performance in the corporate business, which grew 10.1% versus Q4 2021. six and a half percent of which was organic. Our SoHo channel had good results, notwithstanding continuing FX headwinds, which primarily affect this channel of revenue. Also, as we discussed last quarter, there were additional customers affected by the price change, which had a modest impact on our cancel rate. While slower than previously planned, the VA is on the verge of rolling out our ECFax to its first medical facility. We expect revenue to start sometime in late Q2 or Q3. The interest in ECFax from other government agencies has more than doubled since the end of Q3. There are now more than 15 agencies interested in the service.
It is still early, we do not expect any of these new agency opportunities to produce revenue in 2023, but are encouraged by the widespread interest in the solution. Before handing the call over to John, I'd like to comment on the economy and how it is affecting our business outlook. As noted previously, the uncertain economic conditions and fear of a recession has slowed down decision-making of our largest potential customers. We believe that there will be a recession at some point this year and expect this slower decision-making trend to continue, as well as to modestly impact the cancel rate of our SoHo or e-commerce business. In addition, the tight labor market and sticky inflation has an impact on the cost of our labor force, which is our largest single expenditure.
We anticipate there will be an increase of approximately $12 million in cash compensation expense this year over 2022, which is a combination of having more employees in 2023 than 2022, as well as higher wages across the board. We anticipate that this will have a 2.3 percentage point impact on our EBITDA margin in 2023. Our employees are our most valuable asset, and we need them to ramp up from the spin to meet the obligations of a standalone public company, as well as dedicate more resources to our development, sales, and marketing efforts, we do not see an opportunity for cost savings in this area. We are looking carefully at our non-employee areas to make our operations more efficient. We believe these investments in both technology and human capital will strengthen our leadership position in the market.
Finally, we remain liquid with more than $94 million of cash on our balance sheet and the undrawn line of credit that we put in place in March of 2022. I'll now turn the call over to John.
Thank you, Scott. Let's move to slide five. In early Q4 of last year, Johnny Hecker joined Consensus. Johnny came to us from Google, where he led sales efforts in Europe, and previous to that, has a long history in the cloud fax industry. We gave him the objective of evaluating our current go-to-market structure and to develop recommendations to improve our offensive capabilities, finding ways to break down any silos that stifle performance, ensuring a strong focus on healthcare, bringing more discipline in data analytics to drive the business, and to find ways to make our overall execution more effective and efficient. Based on those recommendations, the executive team has implemented a sweeping realignment of our go-to-market operation. I have asked Johnny to lead this new go-to-market team and have implemented the following changes.
A strategic sales team has been established to focus on our largest current customers and biggest prospects, including government. This will be a hand-selected team working with only large multi-million-dollar opportunities. A single direct sales organization that eliminates the former enterprise and mid-market sales approach for a more integrated sales operation. As part of this change, the old SoHo sales segment has been eliminated, and responsibility for e-commerce sales is now a sales function rather than a marketing function. We have created a new discipline called the Sales Enablement and Optimization Function. This team will be dedicated to using data analytics and statistical analysis to continuously improve our sales process, to manage our RFP and RFI responses, and control pricing across the organization. This will unlock the power of our internal data collection program and optimize sales execution. Marketing will be consolidated into a single organization.
We have recognized that our marketing program on the web also has an enormous impact on driving upmarket customer behavior, and so we have integrated the marketing function. The marketing team will maximize our demand generation efforts, driving leads to sales, and our e-commerce portals managing spend more efficiently and improving overall impact of our efforts. Our channel program and services team will also join the new revenue organization and report to Johnny Hecker as well. A new strategy team will be formed under Bevy Minor, a recognized expert in healthcare IT. This team will concentrate efforts on emerging opportunities in the healthcare industry, becoming involved in giving Consensus a voice in legislations, in CMS, HHS rulemaking, and in standards boards. The strategy team will also provide competitive analysis, manage the events that we attend, and develop a series of seminars and webinars aimed at the North American healthcare market.
The international operations are unchanged in this realignment. It is important to emphasize that this action is focused on improving our efficiency and our effectiveness in the North American market with a strong emphasis on healthcare interoperability. This is not, I repeat, not a cost-cutting exercise or reduction in force or a downsizing. We believe that taking these actions will help us become even more competitive, raise our profile in the industry, and give us better command over our overall go-to-market execution. Let's go on to slide six. I will comment on the year, the quarter, and a number of in-progress operating items. First, for the year 2022, we saw record corporate sales performance with $23.2 million in bookings, a 59% improvement over 2021, and a 35% improvement if you exclude sales associated with the assets acquired in our purchase of Summit Healthcare.
Sales included $9.7 million in our advanced product set, more than double last year. In total, these non-fax products represented slightly more than 36% of our overall bookings. As we have stated on a number of occasions over the last several months, we were beginning to see a more deliberate pace of decision-making by our prospects, largely as a result of economic uncertainty that dominated the financial news. While our pipeline remains promising, deferrals by several key prospects as well as the natural historical seasonality of our business impacted the fourth quarter results. Overall bookings for the quarter were $4.6 million, a 44% increase over Q4 2021, and when you exclude the perpetual license product sale of $2.5 million in Q3, it was a 22% decline.
That sequential decline is somewhat better than 2021's seasonal decline of 32% between Q3 and Q4. In the quarter, we also saw sales of our advanced products hit 46% of total bookings. The broad price increase we executed in the SoHo base is nearing completion. All in-year increases for 2022 have been implemented, and all that remains are the outstanding annual plans who will receive the increase when their renewal comes due. For the quarter, overall SoHo churn was 3.82%, a 22 basis point increase from Q3, which was better than the 28 basis point increase we experienced last year. The churn rate remains favorable to our post-price increase modeling, which we continue to monitor closely.
On the ECFax front, we are well into the planning stage of the first system deployment and anticipate that we will be live with the first user in either late Q1 or Q2. We have spoken on previous calls there has been an interest from other government agencies for use of the ECFax system, and we've actually scheduled the first demos of the system in the coming weeks. Aside from those scheduled demos, we also have a number of formal RFI and RFPs that we have received. Over the past two quarters, we've been involved in a proof of concept trial with our Clarity product. I'm pleased to say that we're now in the final stages of negotiating the production SOW for Clarity, which is expected to put us into production in Q2. The product team continues its initiatives in Q4, rolling out the Compliance 365 initiative.
The purpose of this program is to weave compliance and security into our daily execution, not only on the development team, but throughout the entire organization. While we continue to support the SOC 2 FedRAMP and HITRUST audits as they come due, the team is also working to maintain a very aggressive schedule of employee training, self-review, and internal testing that ensures our security environment is second to none in the industry. We move our customers' most critical information and remain committed to strengthen our already formidable security programs. Our technology team is also expanding the ability for us to support our customer base with the formation of a Level 3 support team. Moving further past what is considered ordinary technical support, the Level three group will have development skills to work with clients on a deeper technical level, solving their most important and challenging issues.
A like expansion in our product team is the addition of product marketing to our capability set. This newly formed group will be dedicated to product commercialization, education, and launch activities. Working closely with the newly announced strategy team, product marketing will serve as the key link between the drawing board and revenue generation. Finally, our engineers continued to be hard at work, pushing forward a project that builds on what's already the most flexible platform in the industry and applying emerging practices and technologies to ensure we offer our customers an exceptional experience while supporting emerging needs and revenue opportunities. The team is also building for the future with Harmony, we are still expecting an MVP version of the product by the close of Q4.
To sum up, the operations finished the year with record bookings. The clear establishment of our advanced products in the marketplace and execution of a wide range in price increase. While we have seen prospect decisions slow in Q4, we are confident that this is a timing issue and anticipate that the pipeline will produce many deals this year that we had expected in 2022. I'll turn it over to our Chief Financial Officer, Jim Malone, for a closer look at the financial metrics. Jim.
Thank you, John. Good afternoon, everyone. I would like to review our fourth quarter financial results, discuss our performance for the full- year 2022, as well as provide our initial guidance for 2023. Before I discuss our Q4 results, as Scott alluded to earlier in the call, I wanna call out that overall revenue in 2022 was impacted by two extraordinary items totaling approximately $10 million. A legacy spin accounting practice that inadvertently increased revenue with an offset reducing bad debt. A second separate accounting error in Q3, where a $2.5 million revenue transaction was incorrectly recorded as revenue instead of deferred revenue. Jumping to this first item, the SoHo legacy adjustment. As a consequence of the spin, Consensus inherited a legacy SoHo accounting practice affecting revenue and bad debt.
This practice inadvertently grossed up revenue with corresponding offset to bad debt expense. Our 2022 financials reflect a correcting adjustment, reducing revenue for the nine months ending September 30th, 2022 by $5.3 million, and the full- year by $7.3 million, with an offsetting reduction in our bad debt expense of the same amount with no impact on net income, EBITDA, or cash. The adjustment is not cumulative, but represents a discrete reclassification between revenue and bad debt. This issue will not reoccur. The second item, in the third quarter of 2022, Consensus recorded $2.5 million of revenue related to a sale of perpetual software products. Upon further consideration, Consensus reclassed the revenue to deferred revenue. Consensus invoiced the customer and was paid in full in Q3.
Revenue and EBITDA was reduced by $2.5 million, and net income was negatively impacted by approximately $2 million. Now turning to the fourth quarter, consolidated revenue was $90.2 million, an increase of $1.2 million compared to Q4 of 2021 or 1.4% growth. On a constant dollar basis, revenue grew 2.8% as foreign exchange fluctuations had an unfavorable impact of $1.2 million. Q4 reported adjusted EBITDA was $49 million, down $2.6 million or 5.1%, delivering a 54.3% EBITDA margin in line with expectations. non-GAAP EPS of $1.13 reflects a decrease of $0.21 versus $1.34 in Q4 of 2021. The decrease reflects higher revenue, fully offset by the EBITDA shortfall and a negative impact of foreign exchange from a strong dollar.
Corporate fourth quarter, revenue was $47.8 million, an increase of $4.4 million over the prior year period. Corporate revenue increased $4.7 million on a constant dollar basis or 11%. As John discussed in his prepared remarks, we continued to add meaningful new logos in the fourth quarter, a testament to the value that we are delivering as we help solve the healthcare interoperability and connectivity challenges that our customers face. SoHo in the fourth quarter, revenue was $42.4 million, a decrease of $2.9 million over the prior quarter. On a constant dollar basis, SoHo revenue decreased by $2 million or 4.6%. As I mentioned previously, of the $7.3 million revenue reversal impacting 2022, $2 million was moved out of the fourth quarter.
The SoHo market is price sensitive, and churn was better than our expectations, even considering the implementation of a $1-$2 price increase. It is important to note that as our customers churn, we are left with a more stable and higher quality sticky base of revenue. Now turning to full- year results. Consolidated revenue of $362.4 million was up $9.7 million over full- year 2021, a 2.8% increase, and increased $14.1 million on a constant dollar basis or 4%. Note that full- year has grown $10 million of revenue adjustments discussed early in this call. Reported adjusted EBITDA for the full- year 2022 was $196.7 million, a decline of $6.3 million.
Negative 3.1%, delivering a 54.3% margin in line with our expectations and achieving the upper band of our historical rate of 50%-55% guidance on EBITDA margin. Adjusted EBITDA was negatively impacted by the deferred reclass of the $2.5 million. Finally, non-GAAP EPS for the year 2022 was $5.33, a decrease of $0.13 or 2.4%. The impact of the deferred revenue adjustment of $2.5 million was $0.10. We ended the Q4 just over $94 million in cash. Our liquidity remains strong to support our operations with the added benefit of a $50 million line of credit that remains undrawn. I would like now to provide a preliminary review of guidance for 2023.
We expect 2023 revenue to be in a range of $370 million-$390 million. We expect EBITDA in the range of $192 million-$206 million, translating to a margin of approximately 52.3% at the midpoint. We expect Non-GAAP to be in a range of $4.93-$5.20. Net income would be negatively impacted by increased depreciation and amortization of $6 million-$7 million relating to software products placed in service. Thank you for your continuing interest investment. I would like now to turn the call back to the operator. Thank you.
Thank you. We will now be conducting a question and answer session. In the interest of time, we ask that you please limit yourself to one question. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we begin. The first question is coming from Fatima Boolani from Citigroup. Fatima, your line is live.
Hey, good afternoon, guys. This is Mark on for Fatima. Thanks for taking our questions. Maybe just for my question, digging a little bit into 2023 guidance, can you maybe parse out the assumptions on macro conditions and, you know, maybe how much noise or headwinds from the go-to-market realignment efforts you guys are expecting? Just maybe as a quick follow on there, is there anything that we should keep in mind in terms of just first half, second half, you know, balance for the year, just given all the headwinds and, you know, like I said, changes that you guys are going through, and how we should think about, you know, the quarters for 2023? Thanks.
Sure. This is Scott, Mark. Good to have you on the call. Look, as you know, everybody's got their own view of the economy and whether we'll go into recession, and if so, when. I'll give you our assumptions, and we're likely to be wrong on this, as I suspect many companies are, but it does influence how we think of our guidance. We don't see the economy being in a recession right now. Now, independent of that, the uncertainty of the economy, we've talked about this now for two running quarters, and John and I and everybody has, I think, hit this pretty hard, has delayed our larger customer decision-making, which can impact, and we did see it certainly impact revenue to some extent in Q3 and definitely in Q4. We believe that carries over, that affects all four quarters.
Where there tends to be the most sensitivity in the streams of our customers is in the e-commerce space or the formerly SoHo base. What we did there is it'll look from our estimation as though the cancel rate is somewhat flat over the course of the year, but we kept it elevated near its current 3.8%, 3.82. Now, the reason in the near term in Q1 and Q2 is because, as John's mentioned, we still have a tail effect for the next two quarters of finishing off the last of the annual customers who will not reach the one-year anniversary until June 30th. It is in the second half of the year where we'd normally expect a return to the norm of cancel rates, where we keep them elevated at in the 3.8 range.
That is our best estimate to acknowledge how a recession may influence the cancel rate of the SoHo base in the back half of the year. We do not anticipate, we are not budgeting that this recession would be anything like the 2008, 2009 recession. That would be, we'd probably have to add some incremental cancels to it. We've also assumed in the back half of the year in SoHo somewhat lesser new paid ads, as in a recession, sometimes you pull back your marketing or your marketing becomes less effective or the customers are less fragile. Most of the economy influences how we think of the SoHo business and its performance or the former SoHo business, e-commerce business, if you will.
To a lesser extent, really timing on the decision making as we move upstream to what we call our large accounts and to some extent the strategic accounts in the new nomenclature. In terms of the how to sort of spread the revenues, we see it sort of going like this over the course of the year. It's not ratable, it's not 25% for each quarter. It's about 24% in Q1, about 26% in Q4, just shy of 25% in Q2, and just a little north of 25% in Q3. There is, you know, some ramping going on throughout the course of the year. As customers we won in Q4, we get a full- year benefit of, and as they ramp up, and as we add new business throughout the year.
I would also note, when you think of the margin profile, although Jim talked about, you know, in the aggregate, the 52.3% EBITDA margin at the midpoint of the range, a lot of the costs over the course of the year are not totally fixed, but they're more fixed than not. You should expect a somewhat lower EBITDA margin in Q1 when we have lesser revenue and a somewhat higher EBITDA margin in Q4. Now, there's not gonna probably be radical variation across the four quarters, but once again, the margins should not be expected to be constant over the four quarters.
Thank you. The next question is coming from Ian Zaffino from Oppenheimer. Ian, your line is live.
Hey, good afternoon. This is Isaac Saulson on for Ian. My question is around you talked about the $3 million, I guess, missing revenue just due to customer decisions and implementation decisions. You know, I guess as you look to the first quarter and throughout this year, you know, are you expecting to see that come back and just sort of how that paces out in terms of implementations and customers deciding when they wanna adopt the solution?
Yeah, this is John. Thanks for the question. You know, I think what we're going to see is that, this deliberate decision-making is going to be something that occurs, as, you know, the continued coverage of what may or may not happen with the economy is sort of the topic of the day. That went into our thinking.
As we looked at the coming year and we thought about where we would wind up, we certainly factored in what we saw in Q4 and made the assumption that until whatever it is is going to happen in the economy, actually manifests itself, that we would continue to see this deliberate kind of pace of people being able to make decisions that they felt comfortable making or be able to have the enough assets in place to be able to actually implement and roll out. Our expectation is that while this sort of hangs over the heads of everybody that, you know, has to work in this economy, that was what we were going to see. That also, as I mentioned before, that was factored into our thinking as we came into, you know, the guidance that we provided.
I would just add to that. Things we were talking about in Q3 and Q4, yes, we are seeing them coming to fruition in Q1. The things we thought would come to fruition in Q1 may not now play out till Q2 or Q3. That's the thinking or the what we've imposed, if you will, on the budgetary model as we roll out over the four quarters. As I say, in my, you know, earlier remarks, how the economy will actually play out and how people will behave against it is very much, I think, to be determined. We felt it was prudent to take our near-term experience and assume that at least for the current four quarters, meaning 2023, that this situation will persist.
Things that we thought would occur will occur, but on a delayed basis, and then we just keep rolling that from a pipeline perspective throughout the year, meaning things that we thought would occur in 23 probably won't occur till 24 as you get later in the year.
Great. Thank you very much.
Thank you. Just a reminder, ladies and gentlemen, if you wish to ask a question today, please press star one on your phone. That's star one if you wish to ask a question. The next question is coming from John Tanwanteng from CJS Securities. John, your line is live.
Hi, good afternoon. Thank you for taking my questions. Just a quick one on the deferred revenue. Over what timeframe do you expect to recognize that the ones that are were identified in 22 that are going there?
Hi. Hi, this is Jim Malone. That deferred revenue would be, will be recognized, first of all, I would say it's solid revenue. The product was accepted by the client. We received the cash. It's a matter as you're raising up, it's a timing issue, not that the revenue is in question. Likely that we're looking into that now, John. The revenue, according to the accounting principles, will be recognized over the term of the contract or a shorter period of the contract. It is good future revenue. We're looking into that. You'll likely see some of that revenue coming about in 2023. We'll continue to assess it.
Unlikely that it would be all the revenue.
What?
Unlikely it would be all the revenue.
Be all the revenue. Right.
in the current fiscal year.
Right.
It's probably gonna be spread over some number of quarters or some number of years.
Correct.
Understood. Thank you.
And then-
Just regarding the new market structure, is this something that will take time to implement, or are you already, you know, have you already run the whole thing through the organization? What kind of traction do you expect to see from, you know, from this program?
It's actually been implemented. The good news is, and as John mentioned, this was not, you know, designed for cost savings, although I think there will be efficiencies, say, in our marketing dollars of spend.
By reorganizing sales and marketing in the manner we did. It was really putting a better structure in place and putting people in the place that we currently have where they could really spread their wings and take advantage of a bigger opportunity. In the evolution of this structure, there's probably a-- and there's always debate, a handful or so of incremental hires that we will embark upon. It has been implemented. Everybody knows their new role within the structure. We very recently rolled it out, so it's not like it's been functioning for two or three months. It's been functioning for about one week. There are a handful of hires that we will be pursuing to fill in some of the gaps as we roll from the old siloed structure to the new structure.
It is very much in the early stages of being in force. I think like everything, you know, you have to be a little bit cautious because even though all of the people are in the boxes with a small exception, they're all gonna have to get used to their new roles and how they interact with each other. Part of it is breaking down a historic mentality. I mean, remember, the siloed mentality is not one that, you know, we came up with a year or two years ago. This goes back 20 years. In some cases, some of the people have been with the company for a number of years.
A lot of it is breaking apart that mindset, understanding we're now thinking holistically about marketing of the certain brands, you know, going to market as a unified sales, not I'm in the e-commerce bucket, I'm the mid-market bucket, or I'm the enterprise bucket. Then filling in some gaps that were identified as we tried to stretch from the old mid-market to the former enterprise. There was a gap in there of customers, say, generating, you know, significantly tens of thousands of dollars, maybe $100,000 a month in revenue that kind of fell between the cracks of those two previous subchannels of revenue. I do think that we're gonna have, you know, some period of time to digest the structure for people to get confident and comfortable with it.
The real goal, if you look at it from a sales standpoint or a booking standpoint, is to dramatically increase the aperture at the top of the funnel and to have a lot more in the pipeline so that there's many more routes or ways or paths by which we can achieve the revenue. It's not so dependent upon, say, one or two or three handfuls of larger customers that are currently in the pipeline that people think are gonna close now, but then they close a month later, two months later, three months later, and it creates a ripple effect in terms of deferring revenue out to future periods.
Got it. Thanks for that color. Last one from me. Just any thoughts on use of cash over the next year? You guys still generate a fair amount, you know, even with some headwinds going, you know, help me understand what the priorities are.
Yeah. The priorities are... Look, I think in this environment, building cash is not a bad thing. Doesn't mean we're gonna sit on it and do nothing. In fact, I'd like to get that cash invested and get a little better yield out of it, meaning in short term, very liquid investments. I actually am probably even more negative on M&A in the near to intermediate term. It doesn't mean we don't look and won't look, but I really don't anticipate any transactions this year. I think there's a lot for the development teams to do that is internal. John's outlined a number of them in terms of, you know, evolution of existing products, development of new products like Harmony MVP, consolidation of existing internal systems that's not so transparent to the outside world.
There's a lot of work to be done. I think we're gonna be very judicious this year in how we bring on, you know, incremental hires. We're not gonna not hire, but obviously, given our view of, call it, a 5% top line growth, we're not gonna add at the same pace we did in 2022. We have to really prioritize. I think just adding an M&A deal it would cause distraction on the front end and probably even greater distraction on the back end. I don't see M&A in the near term as being a priority really at all. That may change in 2024 or 2025, but I think for 2023, it's highly unlikely. That leaves us to really, opportunistic stock repurchases, which we remain interested in depending upon the level of the stock.
I am more and increasingly interested in paying down some debt. Now, as you know from the spin, we really can't do anything until October of this year when we hit the two-year anniversary. Even at that point, we can only effectuate transactions against the 6% notes, the five-year notes at 6%. Obviously, it's a very attractive interest rate in this environment, we have to look at where do the bonds trade, what are ways of buying them in. I don't see a rationale for calling them because the call price is 103 and they trade below par. Those are all things we're gonna watch as we get later in the year. I do think, some actual retirement of debt, if not this year, next year, in anticipation of the maturity of the 6% notes in 2026, would be a good use of cash.
Great. Thanks, Scott. I'll jump back in queue.
Sure.
Thank you. The next question is coming from Joe Goodwin from JMP Securities. Joe, your line is live.
Great. Thank you for taking my question. I guess, Scott, or John, you know, last week, the ONC announced the 6 organizations that were approved to participate in TEFCA, 2 of which you integrate with, I believe. Can you just share, you know, your perspective on the announcement, then maybe talk about, you know, what TEFCA could mean, you know, for the industry and any positives or negatives it brings to your business?
Well, for those of you who don't know, TEFCA is a framework for interoperability that relies on entities called QHINs to be able to communicate via FHIR or Fast Healthcare Interoperability Resources in order to move information. We believe the TEFCA framework is going to play favorably for us. I think that we have a place to play in front of the QHINs to be able to assimilate communications through a number of different protocols, deliver those to QHINs, who will then speak FHIR to other QHINs.
From our point of view, we've got an opportunity with the QHINs, and as you pointed out, there are a couple who are already customers, to potentially expand our footprint there as a multichannel, multiprotocol intake to be able to deliver information to a QHIN so that they can communicate over the TEFCA network. We're looking at it as an opportunity for us.
Got it. Thanks for that. Just to clarify, in order to do so that would be an incremental product development?
You know.
Yeah.
we speak all those languages already, so it wouldn't be incremental for us. In fact, we think it would be a nice opportunity to showcase Clarity in particular as an uplift to a QHIN's set of value delivery that they can make to their customers as they market themselves to the healthcare the healthcare endpoints.
Understood. Thank you.
Thank you.
We're gonna take a few questions that have come in by email. Paul?
There was one other question in the queue.
I'm sorry. Yeah. We'll take some questions by email. We've gotten some questions by email, let's address those. It was noted that, and I, and I'm pleased with it, that the sequential uptick in our corporate channel was from 47,000 to 52,000 customers. That was the good news. Not that there's any bad news, they happen to be on the smaller mid-market end of the spectrum versus larger customers. Had they been larger customers, we probably would have easily made up the $3 million shortfall and then some. That's how sensitive on the margin it is, whether they're 5,000 big customers that come in, strategic customers, large accounts, or they're mid-market. Unfortunately, in terms of Q4 revenue productivity, they were in predominantly the mid-market. In terms of the visibility, the next question on guidance of corporate revenue.
Leaving aside economic assumptions, I think it's clear to most people there's very strong visibility on the e-commerce channel. It's a function of marketing dollars in paid ads that it generates, cancel rate that, you know, we've disclosed and our own assumptions around it. There's a continuum though, and as you move out of the e-commerce model into the mid-market, the large accounts and the strategic, the farther upstream you go, the less visibility you have as it relates particularly to new customer wins and implementation. The book of business that's in-house is very predictable. Sometimes there will be some volatility. We saw in Q4, for example, you'll notice it in the metrics, a sequential decline of $1 million in variable revenue from Q3 to Q4. That was largely. It was a function of two things.
One, lesser business days in Q4, which is always true, but there were some very bad weather conditions on the East Coast, particularly in the latter part of December, the last two, three weeks of December. That impacts that. Those kind of things can be taken into account and they're not always, you know, knowable when you sit 11, 12 months out and are giving annual guidance. The book of business is very solid. The timing of wins and the implementation and their ramp is what is less visible.
What we did this year in the guidance is we, I wouldn't say we completely de-risked it, but relative to last year's guidance, we took out a lot of the speculation of what would be the conversion of the pipeline, the timing and the implementation, because, you know, for a variety of reasons, the back half of the year, that didn't play out as we hoped for. The next question was on FX headwinds. I don't have this for the quarter, although we'd be happy to provide it. I know for the year it was about $2.7 million for the whole company. The vast majority of that goes to the e-commerce or SoHo channel. A few hundred grand would be to the corporate.
Our FX this year and what we do in the budgeting process is we do sort of a, an average of a variety of economists that are out there, usually at a variety of brokerage firms. If I had to pick the euro as part of probably the key currency that had the most influence and volatility in both our revenues, EBITDA and the intercompany relationships below the line, it's projected to be fairly stable at around a 1.08 range of where it ended the year, which I think was 1.07 and change. There is some moderation across the four quarters. I think it might hit a high of 1.09. What we do is we bake that in to our analysis.
If you take Q4 relative to at least the other three quarters of 2022, it should be stable if, in fact, the euro behaves that way. Whether it behaves better or worse, we will take that into account obviously as we, you know, have our financial reporting for each quarter. Then as Jim has mentioned historically, and he will do so prospectively, he'll give it to you on a constant dollar basis. That's why you'll notice there's about a 1 percentage point better growth rate. For the corporate channel and the company as a whole in 2022, if you look at it on constant dollar versus as reported.
In the scheme of things it's relatively modest. We give you that additional information so that you have access to it if you know, look at the business that way, because that is really the strength of the business. We don't obviously control or have any influence on the FX exchange rates. We, you know, sometimes are benefited by them, sometimes we are. It's to our detriment. Last year was to our detriment. Okay. Paul, we'll go back to live questions.
Certainly. We did have a follow-up come in from John Tanwanteng from CJS Securities. John, your line is live.
Hey, thanks for taking my follow-up. Not to ask you to make guidance or outlook for an out year, but let's say we get past these recessionary headwinds, people go back to making, you know, decisions that are more timely, maybe churn rates and so tick back down to more normalized rates. You know, what could you envision a 2024 might look like, you know, both getting back to a revenue growth rate that's more normalized and number 1, and number 2, you know, what kind of margins would you be able to generate in that scenario? Would it be a case where you keep investing more to drive future growth or is there some room for expansion there?
Yeah. I think. Look, I love the question, John. We just released 2023 guidance, let's talk about 2024, 2025. In some respects I like the question because I do think, you know, I don't know whether the economy will play out as we articulate it. You know, will it recover by early 2024? Will it still be in a malaise? Who knows? I guess I'll take at face value your assumptions, which is we have a mild recession, it hits the back half of the year, and it's on an improvement up ramp going into 2024. I think as we think about it, think about the range we gave, you know, all the way back to the time of the spin. We said 5%-9% revenue growth, okay?
We're projecting at the low end of that range this year, you know, at the low end. It has been my view, my belief, my hope, and my desire, I put all the caveats in, that we will drive double-digit growth. I think in light of the economic conditions, that's probably not likely in 2024, but if we start migrating from the low end of the range to, say, the mid-ish point or slightly above that would probably be trending in the right direction. You know, the exact numbers in 2024 are also gonna be a function of, well, how much does the VA contribute? How substantially rolled out will it be? We've seen unfortunately some delay after delay after delay.
You may recall going back some number of months ago, it was the VA's desire that there would be the first implementation in our fiscal Q4, the government's fiscal Q1. Now we're talking about the first rollout coming in late Q1 for us or sometime in Q2, and producing revenue in Q2 or early Q3. You know, if we go out far enough, all of those things should start contributing revenue, other agencies should be on board, Clarity should be producing revenue. All these things should start accumulating on itself, and I would expect then some acceleration of growth. But this is very, very high level and it's very, very early. I generally don't like to get into, you know, talking two to three years out.
I do think we are setting the stage for when there is a good improving economy with all of the pieces we've put in place to see some acceleration, hopefully good acceleration, off the 5% that we're estimating this year at the midpoint. In terms of margins, you know, look, that's an interesting question. We're judicious this year. There continue to be demands. Look, ours has become primarily a people-oriented business. That's how we drive incremental revenue. We need the people to build, and develop, we need the people to market, we need the people to sell, we need the people to support the customer. It's all about people. Yes, there's a marketing dollar spend that is, you know, it's a real number, but it's all people first.
As I said, we're gonna be very judicious this year in incremental hires if in fact we trend to a 5% revenue growth. I would say this, if we start to trend higher in the range, and you'll notice there's a modest expansion of margin if you move from 3.8% to 3.9%. We do anticipate there would be some reinvestment of those incremental revenue dollars back into the business. If you think out longer term, I don't know. I mean, I do what I don't wanna have happen here is. I don't believe this business is really a margin play business. Might margins expand somewhat as we get to high single or low double-digit growth? Yes.
I don't think it's fundamentally a margin play saying, "All right, we're at 52.3%, and the goal is to get to 55% and then to 57.5%." It's more about revenue generation and being a revenue play at a very good margin. Yes, we will definitely reinvest incremental revenue dollars to some extent back into the business, and we'll probably bring some to the bottom line.
Great. Thanks, Scott. Actually, you were touching on some of the things I want to ask about the VA. I was wondering if you could point out if anything, what the causes of the delays were over the last, you know, several quarters. If going forward, you know, what could break the logjam? I know that, you know, being under a continuing resolution, having a budget can make a difference in a lot of cases. Is that something that you're, you know, thinking at? And is that something that impacted the VA?
I'll let John take it 'cause he's the closer to the front line.
You know, I think what we're seeing is that you know, as you go into engagements with clients. There's a perception of the ease of a fax system in terms of the kind of complexity that actually has to go into delivering Cloud Fax in a high quality way. I think what surprised the customer more than anything was the level of information necessary in order to make sure things were routing correctly, that connections were made, that the right numbers to be ported were ported. It certainly required work on the implementer's end as well as the customer's end. As you go through, I think the first deployment, you shake out a lot of those kind of concerns
I think additionally, as you look at the landscape and, you know, some challenges that this government agency in particular has had with different kinds of deployments of new technology, there's a an overall feeling that they wanna be very careful to make sure that they're doing things exactly the right way and that the rollout is successful. I think we're getting to the point with the first deployment where we get live customers up and running, and the lessons learned as we've gone through that process with the implementer and with the customer are gonna be able to be applied forward so we can start to accelerate. It's really getting that first one up, and I think that that's what we're seeing in terms of the things that we're moving more slowly than any of us would like.
Understood. Thank you for that color. Good luck, guys.
Thank you.
Thanks.
Thank you. There were no more questions in queue at this time. I would now like to hand the call back to Scott Turicchi for closing remarks.
We actually have one more that came in by email, Paul. I'll take this, and then we'll close out the call 'cause we're on the hour mark. I actually think it's an insightful, good question that I'm glad to get on the record here. Question is about free cash flow generation. We don't guide the free cash flow. It's a tricky thing to estimate. Having said that, I wanna make some comments about 2022 free cash flow and a variety of adjustments that impacted the reported results, some of which will have some occurrence in 2023, but most will not. What I wanna highlight is about $22.5 million-$23 million of payments that hit our free cash flow in 2022, 2 of which should not reoccur.
One had to do with some taxes we paid in 2022 that actually related to 2021 of $6.5 million. We had payments to Zip exclusive of the commingled cash that was about $11 million. As you've heard Jim talk about, and you've seen in our K's and our Q's, we've been going through a process with the states to settle historical sales tax issues. We paid about $5 million in mostly in Q4, but in the latter part of 2022. That's almost $23 million of free cash flow. The VDA piece will continue in 2023, but it's hard to estimate how much will pay out in 2023 'cause it's really a function of how fast the states respond to us. We think it could be in that range of $5 million-$7 million.
It could be lower than that, it could be higher than that by probably a modest amount. As I look at it, at the 197 of EBITDA, we paid $30 million in cash taxes that related to the year, $52 million in interest expense, $30 in CapEx. You'd expect about $85 million of free cash flow. The adjustments I gave you gets you somewhere into the mid-to-high $70s. Then there's always dribs and drabs of things in terms of working capital timing and things like that. The derivative question was, what do we think the free cash flow will be at the midpoint of the guidance range, which is 199 of EBITDA? Our CapEx, which really capitalized labor, will go up, probably offset the 197-199 delta.
I would expect it to be somewhere between, you know, the high 70s maybe to the mid-80s. It will be dependent upon the pace at which we settle with the states. It is something we wanna do. Our settlements have generally been under our accruals. In that sense, it's been favorable. It's been a very smooth process. It's something that I'd like to see us get behind us. On the other hand, we cannot unilaterally force that issue. It's a dialogue with various states. That's all the questions that we have both live and by email. We appreciate your time and attention today for listening to the Q4 and fiscal year 2022 call.
Hopefully, we've given you enough information so you can understand both historical results, the 2 accounting adjustments, as well as how we think about our guidance for 2023. There are a handful over the next 2 to 3 months of conferences we'll be participating at. The JMP conference is coming up in early March. That'll be a live presentation. I believe there's a Needham conference coming up that will be virtual. We will announce all of these by press release so you can participate. If you happen to be there live, you can request a one-on-one. If not, I think in most instances, there'll either be a fireside chat or a formal presentation, and those will be webcasts. Thank you.
Thanks.
Thank you. This does conclude today's conference. You may disconnect at this time, and have a wonderful day. Thank you for your participation.