LifeSpeak Inc

TSX:LSPK

Earnings Call Transcript

[Operator]

Good morning, and welcome to the LifeSpeak Fourth Quarter 2022 Results Conference Call. [Operator Instructions]

Before we start, we would like to remind you that all amounts discussed on this call are denominated in Canadian dollars, unless otherwise indicated. Please note that statements made during this call may include forward-looking statements and information and future-oriented financial information regarding LifeSpeak and its business and disclosure regarding possible events, conditions or results that are based on information currently available to management, which indicate management's expectation of future growth, results of operations, business performance and business prospects and opportunities.

Such statements are made as of the date hereof and LifeSpeak assumes no obligation to update or revise them to reflect events, disclosures or circumstances, except as required by applicable security laws. Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results. A number of these risks and uncertainties could cause results to differ materially from the results discussed today. Given these risks and uncertainties, one should not place undue reliance on these statements and information. Please refer to the forward-looking statements and information and future-oriented financial information section of the company's public filings which include, without limitation, LifeSpeak's MD&A and its earnings press release issued today for additional information.

At this time, I would like to turn the call over to Michael Held, Chief Executive Officer of LifeSpeak. Please go ahead, sir.

[Michael Held, executive]

Thank you, operator, and welcome to the LifeSpeak Fourth Quarter 2022 Results Conference Call. I'm pleased to report that in the fourth quarter, the LifeSpeak team continued to diversify our business, advance product integration, cross-sell products, sign new clients and advance our strategy of becoming the world's leading digital well-being solution. Despite the overall challenges in the global economy, we have managed to build a company that's more diverse than ever. We now have more than 1,000 clients, the majority of which are outside of Canada, resulting in a diversified revenue base.

We are also demonstrating the power of our platform by leveraging a number of new paths to winning new customers and by highlighting our multiple components to sell more to existing customers and importantly, as our ARR grows, we are demonstrating our efficiency and scalability with strong EBITDA margins.

For years, we've worked diligently to build the world's leading digital well-being solution with a goal of servicing the world's leading employers and health plans and with a unique ability to engage employees in important and sensitive matters.

Over the past several quarters, we have taken our core digital mental health education platform and strategically layered on leading physical well-being, caregiving and substance abuse tools. These core capabilities, which are directly responsive to client requirements have allowed us to build our engagement platform to be able to address a more holistic suite of employee needs. Through targeted acquisitions, we have been able to decisively identify, acquire and retain these leading capabilities, talented teams and deep rosters of corporate clients.

We believe that our core business is fundamentally strong. And in the face of broader economic pressures and the corresponding impact on individuals, a corporate focus on employee well-being and the resulting improvements in retention, culture and productivity remains critical. This market need continues to help us increase our scale and diversification, both in terms of our geographic presence and our client base.

While we are in a macro business environment where corporate spending is more measured, we continue to be in a work cycle where companies are finding retention and hiring very challenging. Feedback from our clients indicate that our services can incentivize current employees to stay and new employees to join. The value we provide for our clients is reflected in the number of business development accomplishments we achieved during our fourth quarter.

Our number of clients increased to 1,002 clients as at December 31, 2022, compared to 422 as at December 31, 2021. Within our core enterprise client base, select client wins in Q4 included BJ's Wholesale Clubs in the U.S., CHC Well-being Inc. and NFP Corporate Services, LLC in the U.S. Partnerships and Embedded Solutions client additions continued through the fourth quarter with the launch of new embedded partnerships with CVS and WebMD.

After quarter end, LifeSpeak launched several additional significant enterprise clients, including UMB Financial in the U.S., Cenovus Energy in Canada, NYU Langone Health in the U.S., BBA Inc. in Canada and BP Corporation of America in the U.S.

During our fourth quarter, our overall cross-selling initiatives progressed, with the successful closing of several cross-sale/multi-product opportunities, including Manitoba Blue Cross, BC Hydro and NYU Langone. The company anticipates cross-sale growth going forward as net new clients are added with multi-product solutions and as the current portfolio of client cross-sell opportunities continue to materialize. Overall, we are very excited about the opportunity that lies ahead of us and believe that we are making significant progress on all fronts.

We've worked extremely hard to bring all our teams and their client bases together and we are seeing many instances of a tangible affirmation of our strategy. As an example, subsequent to quarter end, we signed a significant cross-sell caregiving agreement with a Canadian client. What's notable about this deal is that this type of service [indiscernible] agreement with a U.S. client. We were able to identify similar needs in Canada because we have the market knowledge and ability stemming from our work in the U.S. and we're able to leverage that experience successfully in Canada.

I will now pass the call to Mike McKenna, who will walk us through our detailed financials, following which we will provide some closing remarks before we turn it over to your questions. Mike?

[Michael McKenna, executive]

Thank you, Michael. We believe our fourth quarter financials -- continue to demonstrate the strength and diversity of our business. We're happy to share the results with you today.

Our revenue for Q4 increased by 101% to $13.8 million, up from $6.8 million in the fourth quarter of 2021. Our ARR or annual recurring revenue is now $52.8 million, a 49% increase compared to the fourth quarter of 2021. Of our $52.8 million in ARR, approximately $43.9 million came from our 983 enterprise clients, while the remaining $8.9 million came from the embedded and other recurring revenue-based customer and products.

With respect to the geographic diversification of our business, consistent with the third quarter of 2023, approximately 65% of our ARR originated from markets outside of Canada. We report our ARR on a constant currency basis is using a $1.30 rate. Given our exposure to the U.S. dollar and the movement above that $1.30 rate for consistent quarters, we do think it is helpful to note that if we were to adjust to the prevailing rate at the end of the quarter, our ARR would be approximately $54.2 million as at December 31, 2022.

As our enterprise client segment has grown increasingly -- sorry, excuse me, our enterprise client segment has grown, increasing by approximately 20% year-over-year, it is important to note that no client has accounted for more than 3% of our ARR as of December 31, 2022, continuing to highlight strong diversification of the new platform. Both our Q4 financial press release and the Q4 MD&A will provide further detail on the ARR profile.

Moving on to adjusted EBITDA. Our commitment to operational efficiencies has provided the company with a strong adjusted EBITDA of $4.8 million in Q4. This is an increase of approximately $2 million over the third quarter of 2022. While the 35% adjusted EBITDA margin for the quarter is particularly strong, we do anticipate that margin will decline modestly through early '22 -- sorry, early 2023 as Q4 does include some adjustments that are onetime in nature.

As part of our 2022 quarterly financial results announcements, we identified cost rationalization of approximately $3.3 million in Q1 and subsequently, in Q2, we revised this amount to be approximately $6.8 million. Following the continued implementation of the program through Q3 and Q4, we are pleased to announce that we achieved a total annualized cost savings of over $9.7 million through 2022. More importantly, the cost savings are now being seen in the operating results through a very consistent quarter-to-quarter cash operating expense profile, which has been contributing to a strong increase in our EBITDA margin through 2022.

On to net income and net loss. The net loss for the quarter amounted to $24.5 million. This is obviously a significant increase when compared to Q4 of 2021. The net loss in the quarter and for the annual period was largely driven by a write-down of goodwill. The uncertain economic environment and consistent rising interest rates has put pressure on valuation of companies in our sector and with similar operating profiles. In addition, there was a significant decline in the company's share price from December 31, 2021, which other companies in our industry also experienced in 2022. This resulted in the carrying value being greater than its current market enterprise value as of December 31, 2022 and due to these conditions and with operating segment results falling somewhat short of previous estimates and with an outlook that is less robust overall, a noncash goodwill impairment charge of $26.5 million was recorded.

Moving on to KPIs. In addition to the previously mentioned metrics, we closely track other KPIs. These include gross profit margin. Our gross profit for the fourth quarter of 2022 increased to $12.9 million, resulting in a gross margin of 92%, which is about 1% higher when compared to Q3 of 2022. Net dollar retention, NDR, provides a consolidated measure by which we can monitor the percentage of ARR retained from existing clients as it was in Q1, Q2 and Q3 of 2022. The consolidated NDR remains significantly affected by the reduction in ARR from one large embedded solutions client in early 2022 and higher than normal enterprise client churn, in particular, at Wellbeats. Consolidated NDR will reflect that impact until Q2 of 2023.

With that in mind, our NDR was 76% as of December 31, 2022, on a consolidated basis, consistent with our Q3 consolidated NDR of 77.5%. To provide better insight into the underlying performance of our portfolio, NDR for our enterprise clients was 94% as of December 31, 2022, which we believe demonstrates the overall strength of the underlying enterprise customer portfolio that we have built, continued to maintain and grow.

Logo Retention Rate. Logo Retention Rate, which is also measured on an LTM basis was 86%. This is slightly lower than the 87% reported at Q3. Of note, though, average enterprise clients ARR added in Q4 was again higher than ARR of the customers churning from the platform. This again highlights the opportunities within the enterprise segment.

Looking ahead to 2023. In 2022, we provided guidance to help stakeholders better understand our business after our IPO, which was followed by a robust period of M&A. Given we do not foresee any significant M&A opportunities, especially in early 2023, and we see opportunity to continue to build the growth profile of the business on more than a quarterly basis or even with just a 1-year view in mind, we prefer to have the flexibility to make decisions for our business to drive growth and strong returns, even if the payback period is beyond next quarter or even the fiscal year.

So for 2023, the company has chosen not to provide formal guidance. And instead, we will happily provide directional disclosure around the company's current quarterly expectations. Based on the company's current sales pipeline visibility and the continued execution of our business strategy, we anticipate moderate growth in revenue, adjusted EBITDA and ARR for the first quarter of 2023 when compared to these results for the fourth quarter of 2022.

On to the pipeline. With respect to an update on the pipeline, we continue to add widely recognizable names to our client portfolio. And as Michael noted earlier, our momentum in customer wins continues to accelerate across North America. An important trend that we are seeing in the enterprise segment is the opportunity for increased size of customer contract wins. This continues both in general terms and on a specific partnership opportunities where new and multiproduct sales are creating several opportunities that the company would not have been capable of obtaining historically. We are now able to pursue much larger enterprise deals due to the strength of the platform and the multiproduct approach. The enterprise pipeline, both in number of deals and size of partnership remains strong.

On the capital structure. With respect to our capital structure, this is an element of our business that we continually monitor to ensure it can support the growth-oriented nature of the business we are building. We are pleased to report that as disclosed earlier today, in conjunction with our financial results, we have entered into an agreement with Beedie Capital for a nonrevolving term convertible loan of $15 million, which pays 2% cash interest in 2023. Beedie has been our long-term and supportive partner to our business, and we are excited to have their further involvement as we set forth on a path of a strong future for LifeSpeak.

We have also, in conjunction with this, entered into an amended senior credit facility. Under the amended credit facility, the company will not have amortization payments through 2023 and has reduced our 2024 obligations to amounts that can be easily managed by cash flow from operations. Furthermore, the company has also reached an agreement with the Wellbeats selling shareholder representatives that has resulted in a very material reduction of the contingent consideration potentially payable from that acquisition. These current financial transactions combined with our highly efficient and predictable cost base will materially decrease the previous burden on the company's cash flows as we look forward to 2023 and 2024.

With that, I'll now turn the call over to Nolan Bederman, LifeSpeak's Executive Chairman, for closing remarks. Nolan?

[Nolan Bederman, executive]

Thanks, Mike. Overall, we remain optimistic about the outlook for our business. LifeSpeak has grown rapidly and we are more diversified than ever before. We are profitable on an adjusted basis, and we believe that our platform is extremely compelling to our clients. We believe that our deep and diverse customer base improves the relevancy and strength of our business and that the scale we have reached today with more than 1,000 clients and the retention rates, which we achieved validate our convictions that our platform of solutions are essential to our clients and to their employees.

We're looking forward to demonstrating the power of our integrated platform as we update you on our progress in the coming weeks and months.

We'll now open the call to questions. Operator?

[Operator]

[Operator Instructions] Our first question today go to Doug Taylor of Canaccord.

[Doug Taylor, analyst]

As you said, you've foregone annual guidance for the upcoming year, which I think we can all appreciate. But perhaps I'll get you to speak to what a reasonable growth objective would be amid the current market conditions? And as you -- you're clearly balancing investing for growth with the need to show profitability to service your obligations?

[Michael McKenna, executive]

Good morning, Doug. It's Mike. Thanks for joining the call and for the question.

Look, I think if we look at ARR and we can continue to grow at the rate that we did this year and even increase that, which we're obviously that's our objective, right? It sets up the business to continue to do exactly what you did, right? Ultimately, we are managing the profitability and ensuring that we're meeting the various obligations that we need to. But with that, with the new agreements that are in place, right, we've also created some opportunity for reinvesting of some cash flows that are generated from the business. So that's going to help. But I think we've got to continue to grow at a similar clip from an ARR perspective, right? And that's going to ultimately then, as you know, transition into revenue.

We've got a very, very, very stable cost base now. And I think you can see that quarter-over-quarter, right, if you think back to Q2, just as it relates to sales and marketing G&A, we were sort of at $10.5 million. Those numbers have been in the low 9 range now -- lower than 9 actually this quarter when you adjust for the various onetime items that were related to year-end. So I think that cost base, right, as we think about it going forward and you can really think about a very steady and stable cash cost -- cash operating cost. So I think those things together should continue to contribute to a pretty strong EBITDA margins as well.

[Doug Taylor, analyst]

You spoke to the expectation for Q1, which is obviously finishing today for slight increases or moderate increases in top and bottom line. I wonder if you could speak to the amount of business that you've signed but has not yet been converted or launched or gone live at this point?

[Michael McKenna, executive]

I mean, look, without getting into specific numbers, and I think it's a good place for Michael and Nolan also add some commentary.

I think generally, we're seeing pretty good and pretty strong pipeline and continue to. And as Michael noted, there was pretty strong opportunity within a couple of pretty large customers in the first quarter, right? We have been continuing to manage some churn, which we're working through. I think we've got a pretty good view on where that's going and a pretty good handle on it. So I think overall, is it going to be a huge growth in the quarter? No, that's why we suggested it will be modest, but we will continue to grow, again, at the ARR line, and that ultimately has some additional revenue growth opportunities for us. And again, with the cost base being as steady as it is, right, that's where we see opportunity within the EBITDA margin.

And again, I noted that the EBITDA margin, probably 35% quarter-to-quarter is probably a little high to sustain, but can we think about that in the lower 30s coming out of the year, yes, I think we can, right? And so that's what we're focused on. And again, with the stable cost base, it's not like we're underinvesting in the business. I think we're pretty confident with the group that we've got in terms of sales and leadership there and revenue generation. So yes, environment overall, not without its challenges, but I think opportunity continues to exist. And part of that is because the platform now that's been built, I mentioned that in my remarks, it's just set up to go after a much, much stronger and larger customer base which I think is really important as it relates to ARR contribution.

[Doug Taylor, analyst]

Okay. And if I can maybe sneak -- go ahead.

[Michael Held, executive]

I was just going to say, as I mentioned, we also added a very large cross-sell opportunity at the end of the month. It is a different environment, but we can see things picking up, which corresponds to us also retooling and upgrading our sales team, which is looking fabulous as well as Mike mentioned, very significant reseller partners who are -- who have launched through right now building that pipeline. So the environment is there, but we're certainly seeing all the green shoots that we're looking for and starting to see tangible results ending in a very big agreement at the end of the quarter.

[Operator]

The next question goes to Paul Treiber of RBC Capital Markets.

[Paul Treiber, analyst]

Just a couple of questions on free cash flow. How should we think about the free cash flow conversion heading through '23? And then also the convertible debt does help your near-term liquidity? How do we think about the various -- now as you look at the '23, puts and takes to create cash flow?

[Michael McKenna, executive]

Paul. It's Mike. Thanks for joining the call and for your question.

I think a couple of things as it relates to your question, I mean, really, the draw on cash flow, will the EBITDA line is really the interest cost. So a couple of things. We've obviously managed some of that with the convertible debt. That's obviously going to help save about a couple of hundred thousand dollars a quarter on cash interest costs through 2023. So that's very important and very helpful.

Now that we've got a bit more stability within the overall, let's call it, debt side of the capital structure. I think we can take some steps to also manage some underlying rates a little bit better, and that probably, again, saves us some dollars on the interest line.

If you look out into -- if you look back, excuse me, into 2022, we were capitalizing some costs just as it relates to some internally developed software that was finishing up largely in the Wellbeats side. Those projects are largely complete, Paul. So looking into 2023, it would be very limited capital expenditures or capital costs. I think for us, Paul, really about development, right? So using the term capital expenditures [indiscernible] build a network or anything like that, as you know. But I think there was some capital that we were investing in the business, and that's going to -- those projects are really running off in terms of just where the platform is.

So there's not going to be a lot of capital expenditures or capitalized costs through 2023, frankly. So the conversion really largely will be a simple EBITDA, less interest, and there won't be much below that. So that's really, I think the way to think about it, Paul, as we look out into 2023.

[Paul Treiber, analyst]

Eventually, it's helpful. And then just turning to the business. On the enterprise side, you added a number of clients this quarter. What areas are you seeing the most traction with enterprises? Is it more the core LifeSpeak business? Or is it the capabilities that you've added from acquisitions?

[Michael McKenna, executive]

Yes, Michael or Nolan, why don't you jump in on?

[Nolan Bederman, executive]

Paul, it's Nolan. Let me give you a quick overview. So it's really across the board. I think what we spent a lot of last year doing was really putting the pieces together in a way that, first of all, can be sold together. And what we're seeing is really each of the core functional products having traction and then cross-selling in multiple ways. And again, not to get to you in the weeds, but when you have multiple products, you can come up with many, many, many combinations. So part of the work we've been doing is figuring out the highest probability and highest desirability combinations first to overwhelm your selling strategy. And we're really seeing that come to bear multiproduct.

I think the only comment I'll make on the customer side is the same is true. Industry-wise, we've always seen a very diversified set of industry customers, and we really continue to see that. There isn't super concentration in any one given company type, so to speak. We are seeing small and large, and we're seeing across the board types of companies.

And that's really similar in Canada and the U.S. I think other than industry SKUs of the countries themselves, I don't -- I can't really tell you that there's a massive difference. The only thing I would say is the Torchlight business is now officially available to sell in Canada. That was not the case. Obviously, when we bought it, it was only a U.S. product. So that's -- the regional commentary around that is new in Canada.

[Paul Treiber, analyst]

Okay. And then just lastly, just on the logo churn. Is that still related to the acquisitions on the smaller customers there that is churning off? And do you expect the logo churn through '23 or at a certain point to sort of run down to a lower level?

[Michael McKenna, executive]

Paul, it's Mike again. I'll start, and then Michael and Nolan can talk about some of the strategic things that we're working on there.

But I think absolutely, look, I mean there is some churn related to some of the companies -- from some of the companies that we acquired. It typically has been smaller customers than we've been adding to the platform, right? So I think we've mentioned that now 3 quarters in a row, right, the average new customer that we're bringing on from an ARR perspective and size of contract continues to be larger than the average customer that we're losing, which is obviously, that's a strong trend. So we continue to see that.

So overall, logo number, yes, there are some ones about the lower end that we are losing. I mean, you can frankly make the argument on some of these that the cost of servicing the revenue isn't frankly as -- there's a cost of servicing all this revenue, right? So your cost of service to a larger client is basically the same, right? So as we continue to focus on adding larger names to the platform, I mean, ultimately, that is also something that enhances profitability as well.

At the same time, looking everyone to lose a customer, right? So we are very focused on this internally. We do expect probably certainly through Q2 and Q3 of 2023 for that to stabilize a little bit more and seeing some good things on the horizon.

So maybe I can let Michael and Nolan talk about a little bit more. But in terms of the trends, Paul, like certainly, as we get -- as we're looking out into Q2 and Q3, we can see some stabilization there, for sure.

[Michael Held, executive]

Yes. Mike, it's Michael. I'm happy to -- we have a specific task force of people across functions who are dedicated to this matter as it's very important as we continue to grow. So the main reason behind is to get well ahead, identify risks and address them all in advance. And just activities that strengthen communications between us and our clients and the relationships to afford opportunities to better work through when issues do arise or bunch of [indiscernible] arise. And this has been going on for a few months. And my latest call with the group, we're already seeing results and more safe clients, and so I feel very good about the fact that we will have a churn well under control.

[Operator]

The next question go to Jeff Martin of Roth MKM.

[Jeff Martin, analyst]

I wanted to get a sense of -- you mentioned in Q2 '23, you'll lap the promoter retention declines that were -- are likely driven by Wellbeats. Just curious if kind of the new steady-state expectation once we lap that is in the low to mid-90s or if you expect that to be significantly different from that?

[Michael McKenna, executive]

Jeff. It's Mike. Thanks for joining the call and for your question.

I think absolutely, the target has to be plus 90% logo retention rate, right, very important for the business from a stability perspective and from a growth perspective, right? So obviously, as we add customers, we want to make sure we're maintaining the base, especially as the platform evolves, and we see more opportunity for cross-sell, right? We want to make sure we've got that base in a good order.

So absolutely, we want to be targeting low to mid-90s. It's going to take a bit of work to get there, but I think that's the target, and we can see a path to getting there. And so you want to see us chasing down those numbers as we evolve here. But I think you're thinking about it the right way.

[Jeff Martin, analyst]

Great. And then with respect to the sales process, I'm curious what you're hearing from your sales team in terms of kind of feedback from clients, decisions, obviously, probably getting pushed out, maybe elevated to higher decision level personnel on the client side. Just curious, what you're hearing from sales force in terms of pipeline conversion?

[Michael McKenna, executive]

Yes. It's a good question. I think certainly in Q4, we saw more than we would have thought get pushed out into Q1, and that was a familiar situation, but it wasn't really sort of -- I guess it wasn't like, let's just call it sort of native to a deal size, right? It was sort of across the board, top to bottom, things were getting pushed out. So that was -- I don't want to suggest to be a surprising that it evolved as the quarter evolved.

But then some of the deals that we saw get pushed into Q1 were able to be signed in Q1. So I think, yes, probably the takeaway there is that decisions are maybe taking a little bit longer, right? But again, the pipeline still remains about good conversations going on. We're adding certainly some large customers to the roster. So I think you're thinking about it, you're right, Jeff, when we are hearing some of that -- our finance team is on weekly updates with the -- weekly, almost daily updates depending on the time of the quarter with the sales team and trying to process some of this real-time information.

But I think, look, it's evolving. That said, like Michael touched on this in his remarks, like we're still in a space where like the buyers or the employers are looking at the product as being very important, right? Also, we've got an evolving sales process because, frankly, we're selling more breadth and depth to what we're offering, right? And so with some of the larger deals, they can also take a little bit longer just to sort of get through the decision-making process.

All that to be said, while, again, the process may be a little bit delayed. We certainly are still seeing very good activity and a lot of really good conversations in the pipeline. So I don't see it as a situation whereby the overall growth profile of -- and I'll talk about this just on an ARR will be that much different for us in 2023 than it may have been in 2022. There are some things that have moved around in terms of timing, but we're also replacing some of those things that moved around with some larger opportunities, which obviously then enhance the ARR results.

[Jeff Martin, analyst]

Great. And one more, if I could. Embedded Solutions, planned and expand -- maybe talk about the progress of some of the expansion within the Embedded Solutions portfolio as we progressed throughout 2022. I know there were some clients within that group that there was an expectation of some pretty significant expansion throughout '22. So maybe you can touch on that?

[Michael McKenna, executive]

Yes. Look, going back all the way to the IPO, right, this is certainly an area of the business where we certainly expected more opportunity than maybe has come to bear, right? Some of the customer contracts that we have for some of the partnerships that we've taken on in that area, Jeff, just hasn't rolled out as fast as we were potentially led to believe they may when the partnerships were created. There's various factors that have gone into that, right? But it's certainly an area whereby growth has been far less robust than we would have hoped or expected.

I think we do have some good dedicated resources within the broader sales and operations team to continue to try to maximize some of those partnerships that we have. I mean, look, there are still some really, really good counterparties within that group, right? And we've mentioned them all, all the names on various calls through the quarter-to-quarter reportings in 2022. So there are some really good counterparties. It's just really a situation about trying to maximize the opportunities within them.

So we'll continue to focus on that and continue to try to create opportunities within the partnerships that we have, probably less focused on in terms of adding a significant number -- a number of new land-and-expand type deals quarter-over-quarter. I mean there are some, and there are still some of those in the pipeline and certainly conversations going on. Obviously, the focus -- the focus is clear as it relates to enterprise opportunities with an enterprise and some larger enterprise opportunities and those larger enterprise opportunities, right, obviously, key because the ARR starts on day 1 of the partnership.

So I think that's a bit of a, I don't want to call it shift in focus, but certainly, where we're seeing the best opportunity to create growth. That said, again, we have some excellent partnerships in that Embedded side, and we'll continue to try to push those to grow.

[Operator]

The next question goes to David Kwan of TD Securities.

[David Kwan, analyst]

I was curious, you guys obviously made some pretty significant improvements on the cost structure here, just with the cost savings you guys have implemented and identified from various acquisitions in particular. But we've also seen a notable slowdown in the revenue and ARR growth. So I was curious to get your thoughts as to how much of an impact do you think the cost saving initiatives that you guys have implemented that maybe held back your ability to generate stronger revenue with ARR growth?

[Nolan Bederman, executive]

Mike, let me give a quick one and I'll turn it over to you. I think, David, so most of our cost-saving exercises have been around consolidation of the operations, streamlining and infrastructure. We certainly are in any way intentionally cost saving around go-to-market. As you know, we're a direct B2B for the most part business. So they're on a kind of synergies in like a B2C marketing business would have.

One of the things that we're doing in consolidation, though, is we're introducing a much more complex sale, which that definitely takes some time to retool a sales force and get the people who are much more focused on multiproduct sales versus single product sales, and that's definitely been a little slower of a process candidly than we would have liked, but we're making amazing progress there. But that is not where the cost cutting -- cost-saving exercises have been focused. So we don't think cost is a big part of that, that is integrating 5 businesses and then retooling the sales approach in a coherent way that customers can really understand.

Mike, sorry, go ahead. I just don't mean to interrupt you there.

[Michael McKenna, executive]

I think, David, there's a couple of key points just as it relates to this, right? And Nolan touched on a little bit, right? The cost savings have typically tended to come from overlapping functions as it relates to integration, right? Those have not typically tended to be the sales functions. We continue to try to press forward with sales, and we're actually -- even through 2023, we're going to spend more on marketing to support that sales team and sales pipeline than we ever had. We've been able to reshift -- sorry, shift some of the cost savings into areas to support the pipeline. I think that's really important, right?

The challenge really as it relates to this is we are adding customers at a pretty strong pace but we're also managing pretty significant churn, right? So that's the balance that we're trying to focus on, and that's also where we continue to dedicate more internal resources just on the account management and customer success management side. So I think that's really the focus.

So there's a number of things that develop there. But again, the cost savings are really comparable over I think functions and overlapping costs. So not necessarily specific to the sales team.

[David Kwan, analyst]

No, that's helpful color, guys. And I guess it's -- because of the multiproduct sales push that I assume probably sale cycles are longer than what you historically would have seen when you had a lot less to sell and that possibly is another reason why?

[Michael McKenna, executive]

I think that's a pretty strong takeaway, David, so we've spoken about today.

[David Kwan, analyst]

Okay. That's helpful. And I understand not providing kind of fiscal '23 guidance and kind of more focused on color around the upcoming quarter. But I guess, Mike, you talked about kind of expectations on where margins could play out this year. For sales companies, one of the common targets is kind of the rule of 40. Do you think you could hit the rule of 40 this year, so I guess, kind of implying organic growth in at least kind of the mid- to high single digits?

[Michael McKenna, executive]

I think that's a pretty good place to be thinking about it, David. I think actually probably ARR growth to be even a little bit higher with some of the initiatives that are underway. So I think obviously, that's a pretty important metric for us to be targeting, and we're working towards that. But again, I think you've done -- you've obviously thought through that very well. And you've got a pretty good handle on, I think, where we can go and maybe even a little bit -- a little bit more on the growth side than ARR, if some of these initiatives can come through from a pipeline support perspective.

[David Kwan, analyst]

No, that's helpful. Just 2 more questions. On -- you provide, I guess, some general commentary on the Wellbeats kind of, I guess, the renegotiation there. Is there anything specific you can provide in terms of how much of that -- what the material adoption is, it's not like less than half of the -- I think it was USD 12.5 million that could have been the possible payout there as well as the timing in the form of consideration?

[Michael McKenna, executive]

It's considerably lower than even half, David, and the timing will be in Q2. It will be a cash payment but it will be minimal in the context of the number that you mentioned.

[David Kwan, analyst]

That's helpful. And the last one, just the reference in the press release, I know you guys talked about it basically on the call in terms of the principal repayments under your senior debt. Is that $1.1 million when we talk to kind of amortization, is that a principal repayment? I guess that's due in Q4, but that was, I think -- it was about $17.5 million, I think, under previously.

[Michael McKenna, executive]

Correct. Yes, it's $1.1 million for December 31 versus the previous $17-plus that you mentioned. That's the right way to be thinking about, yes.

[Operator]

Our final question goes to Gavin Fairweather of Cormark.

[Gavin Fairweather, analyst]

Just on revenue versus ARR in Q4. It seemed like there was a bit of a divergence in growth rates. Sequentially, ARR was up, call it, a couple of percent, revenue up 8%. I think FX is a little bit of that based on how you calculate your ARR. But are there any other factors that you would point to there?

[Michael McKenna, executive]

Gavin, it's Mike. There was a little bit of onetime revenue [indiscernible] at least a couple of contracts that we have on the Wellbeats side that both contribute to ARR and then also have some onetime nature to them, those are with the various aspects of the U.S. military. And we've talked about those contracts a little bit before, but that's where -- whether it would be a little bit of contribution there, and those were obviously straight U.S. dollars. So there's a little bit of impact as well on the FX rate, not a significant number by any means overall, but there's a little bit of onetime revenue in the quarter.

But that's typical for the contracts to -- of those contracts where from time to time, there is some onetime revenue. We would expect that again in 2023, which is always hard to pinpoint. So that's why we treat it as onetime in nature, a portion of that contract.

[Gavin Fairweather, analyst]

Okay. That's helpful. And then just on deal sizing. Obviously, you're embarking on multiproduct sales. Curious how kind of per employee pricing is also trending and where you think those 2 would net out? Like is the dynamic macro influencing kind of the per employee or per member pricing at all on new deals or renewal? And then how do you think about the potential for that and anything against multiproduct deals? That's it for me.

[Michael McKenna, executive]

I think like the pricing fell in pretty strong. Gavin, we haven't really seen pricing pressure. And in fact, we've talked in some cases about are there opportunities to raise prices. So I think overall pricing has held in pretty strong. We're not -- again, we're not seeing too much pushback there, right? There's pushback on timing at different times as it relates to decision-making and the like and some things that are getting moved around time to time for budgetary reasons or cycle reasons, but I haven't seen a significant amount of pushback so far on the PEPM pricing.

I don't know, Michael or Nolan if you want to add anything on that, but it's not...

[Nolan Bederman, executive]

Generally speaking, yes, I think Mike summarized that well. Generally, that's not the determinant of sales and we haven't seen that.

[Operator]

Thank you. We have no further questions. This now concludes today's call. Thank you so much for joining. You may now disconnect your lines.