Good day, ladies and gentlemen, and welcome to Consensus Q2 2022 Earnings Call. My name is Paul, and I will be the operator assisting you today. [Operator Instructions] On this call from Consensus will be Scott Turicchi, CEO; John Nebergall, COO; Jim Malone, CFO; and Adam Varon, Senior Vice President of Finance. I will now turn the call over to Adam Varon, Senior Vice President of Finance at Consensus. Thank you. You may begin. Adam Varon;Senior Vice President Finance: Good afternoon, and welcome to the Consensus Investor Call to discuss our Q2 2022 financial results, other key information and reaffirmation of our 2022 guidance. Joining me today are Scott Turicchi, CEO; John Nebergall, COO; and Jim Malone, CFO. The earnings call will begin with Scott providing opening remarks. John will give an update on operational progress since our Q1 investor call, and then Jim will discuss Q2 2022 financial results and 2022 guidance. After we finish our prepared remarks, we will conduct a Q&A session. At that time, the operator will instruct you on the procedures for asking a question. Before we begin our prepared remarks, allow me to direct you to the safe harbor language on Slide 2. As you know, this call and the 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 3 that we have disclosed in our 10-K SEC filing as well as a summary of those risk factors that we have included as part of the slide show for the webcast. We refer you to discussions in those documents regarding safe harbor language as well as forward-looking statements. Now let me turn the call over to Scott.

Thank you, Adam. This was a very good quarter in light of high inflation and the risk of an impending recession. We were able to produce a record quarterly revenue by growing 6% versus Q2 2021. In addition, we continue to operate at healthy EBITDA margins, 54%, at the high end of our stated range of 50% to 55%. These results were driven by continued strong performance by the Corporate business, which grew 17.1% versus Q2 2021, and I would note, 11.1% organically. In addition, this is the eighth consecutive quarter of Corporate revenue growth and its eighth straight quarter of ARPA growth, up more than 19% versus Q2 2021. With Clarity tracking to produce revenue in Q3, additional features in jSign, the introduction of Unite Lite, the integration of certain of Summit's technology resulting in Consensus Conductor, the Corporate channel is well positioned for continued growth driven by the revenue from the health care sector. All these initiatives, including our core digital fax product, have produced significant momentum in our Corporate channel, and we have a rich pipeline of opportunities for the second half of 2022. Our SoHo channel had a good result in light of 3 factors impeding its performance in Q2. First, early in the quarter, a geo compliance regulation in Japan resulted in the cancellation of approximately 3,500 accounts. Also during the quarter, we began to test a price increase to new customers and a portion of the SoHo base, which was done in lieu of directly charging state sales taxes. Finally, currency headwinds continued affecting the Q2 results by approximately $1.1 million versus Q2 2021, most of which is allocable to our SoHo revenue streams. We believe these FX headwinds will continue throughout the year. However, the other 2 factors are substantially behind us. Jim…

Thank you, Scott. I'm excited by the performance of our corporate sales program delivering another record quarter and bringing in $5.2 million in ACV and license bookings. As you recall, our corporate sales team is comprised of enterprise field sales, an inside sales team focused on small and medium businesses and the channel program targeting telcos, EMRs and resellers. Sales bookings for Q2 grew 4% over Q1 and represent a 41% increase over Q2 of last year. Leading the way was our enterprise sales team who closed major fax deals with CoverMyMeds, a large national medication prior authorization service provider, and with 3M. The Unite sales team also had an impressive quarter, delivering 43% increase over Q2 '22. The pipeline is strong in cloud fax, jSign and Clarity. Our advanced products accounted for 20% of our quarter sales volume. The SoHo channel faced pressure on several fronts as a number of events impacted the business. Domestically, we executed a price increase as part of our plan to address the sales tax remittance project we mentioned last quarter and saw accelerated churn as notifications were sent out as well as a dip in new accounts, both within our range of expectations. In Japan, which is our second largest SoHo market, a strict geo compliance regulation on phone numbers forced us to terminate a number of accounts and resulted in a churn rate that was 250% greater than the historical rate in Q2 but has since returned to normal levels. Generally, we are seeing increased levels of credit card declines primarily associated with new decline codes that disrupted our normal decline recovery process. While overall churn rates are trending back to normal levels, it remains moderately elevated. Finally, we are executing a targeted account-based marketing program to upgrade SoHo health care customers…

Thank you, John. Moving to Slide 7, corporate revenue. Q2 2022 corporate revenue of $49.1 million increased $7.1 million or 17% over the comparable prior year period. Corporate revenue grew $7.4 million or 17.8% on a constant dollar basis. The number of accounts at 46,000 was flat year-over-year. However, taking into account MyFax migration, which began in Q2 2021, we were actually up 2,000 accounts or 4.1%. Average revenue per account increased by $58.53 or 19.6% over the prior comparable period, primarily relating to increased usage and new larger customer acquisitions. Paid adds of $4,000 or 13.7% increase over Q2 2021, also contributed to the corporate revenue growth. Monthly churn of 1.88% was favorable to Q2 2021 by 126 basis points. Churn was virtually flat if we normalize the Q2 2021 for MyFax migration. Moving to Slide 8, SoHo. Q2 SoHo revenue of $44 million or negative 4% to the comparable prior quarter was impacted by a negative foreign exchange impact of $800,000. Measured on a constant dollar basis, results would have added negative 2%, in line with our expectations of negative 1% to a negative 3%. The number of accounts in the quarter compared with the comparable prior period decreased by 6.6% or 72,000 accounts. Sequentially versus Q1 '22, the base declined 26,000, primarily related to the geo compliance, new credit card code decline protocols and notification of price increases. Paid adds were down 12.8%, and year-over-year churn was unfavorable by 67 basis points. However, average revenue per account increased 1.5% or $0.19 driven primarily by increased average variable usage per account. As stated in Scott's opening remarks, effective in the third quarter, we are rolling out a SoHo price increase to a portion of the SoHo base, which was done in lieu of directly charging state sales tax.…

[Operator Instructions] The first question is coming from Jon Tanwanteng from CJS Securities.

This is Dan Moore filling in for Jon. I appreciate all the color. Maybe start with -- if you could just talk about the assumptions for foreign exchange rates as well as wage inflation and general inflation underpinning your reaffirmed guidance and where we sit today within those ranges.

Yes. So what we do, just as a matter of course is each quarter end, we look at the FX rates. Historically, FX has not been a major element, positive or negative for the company. However, the 2 currencies that stand out are the euro and the Japanese yen. And so when we look at the end of the 6/30 period, I want to say the day we caught it was very close to 1:1 on the euro, I think 0.0072 on the yen. So what we do is we assume those rates will persist for the back half of the year. Obviously, that will not be the case. It will float against it. But to give you a sense, when we did the original budgeting and we announced our guidance on the February call of this year, given the 2 updates that we've done on FX, they've both gone the wrong way, there's about $2.8 million of headwind from when the time we did our original budget. $2.1 million of that goes to SoHo. About $700,000 goes to corporate. And as I mentioned, half of that is historic because we crossed the 6-month threshold. And then there's, of course, a portion that is prospective and projected. And we'll continue to keep you updated on that. But that's how we do it. We don't currently hedge our currencies from either a revenue or a profit standpoint. So we take the tos and the fros of the FX. There is some profit implication because while we do have cost in euros and in yen, we obviously are very profitable, so you can assume roughly 50% EBITDA contribution that we are either gaining or losing as our currency assumptions are proven to be varying degrees of accurate. In terms of your second…

Very helpful. And if I sneak one more in. Just any additional color you might have on the expected ramp of the VA project? I know minimal this year, but what are your expectations as we start to think about '23?

Yes. We'll know, I think, a lot more when we talk again in November, we've had the Q3 because, as John mentioned, we are knocking on the door. It's kind of a quiet time of the year for federal agencies now that we're in August. But once September kicks in, we're expecting to get that authority to operate, certainly before the end of that month of September, the end of our quarter, the end of the government's fiscal year. We actually think we may be able to seek a rollout in just around quarter end for us, which means there will be some revenue production in Q4. It's unclear to us even right now how to estimate it. We do think that, that piece will be de minimis. So it's not really formally contemplated in how we're thinking about Q4. Quite frankly, Q4 is really important for us to understand the rollout as we look forward into '23 and as we prepare our '23 budgets and ultimately our '23 guidance. But I think I'd be shocked if we got $100,000 of revenue in Q4, somewhere between tens of thousands to $100,000. So clearly, not relevant to us, not important in terms of our overall thinking, but it is the on-ramp to what then I think will be more meaningful revenue in '23, but we're not quite ready to disclose what that is because we've got to get a little bit more work done.

And the next question is coming from Ian Zaffino from Oppenheimer.

This is Isaac Sellhausen on for Ian. Just first question on the SoHo business. Could you just talk about the level of price increases that will be implemented and maybe just remind us if there has been a typical cadence of price increases in the SoHo business in general?

So in answer to the second question, no, because it's been many, many years and it's been a price increase. Historically, if you go way back in the history, price increases were done about every 3 years for a period of 9 or 10 years, concluding in 2008. So from the period of basically 2000 and 2008, there were a series of 3 price changes. In each instance, they were done differently and what we're doing now is very different than what was done back then. But in the -- anywhere from the teens, a 20% lift versus the then pricing. Now we jump forward a number of years to this price change, and it is very different, first of all, to understand its purpose. As both I mentioned, John mentioned and Jim mentioned, and I want to emphasize it for the fourth time, this price change is not so much about raising additional revenue and/or profit, but it's a means to an end of how to deal with the sales tax accrual issue. You may recall that in the Q4 call of last year, we booked an accrual of, I believe, $8.6 million, which was an accrual of a number of years of sales tax owed to a variety of states over a 4-, 5-year period because we had no way historically of charging. So it was neither quantified nor charged nor accrued. So we booked it in Q4, but we knew we had to address it this year, and there were 2 fundamental ways, particularly for the SoHo channels to do that. One was to actually go through all process, which will include the engineering process of changing our billing to actually then accommodate each state sales tax where applicable for each bill. We view that would be…

Okay. Great. That's very helpful. And then just a quick follow-up in terms of the full year revenue guidance that was reaffirmed. And I guess could you provide some color around the original 17% to 20% growth in Corporate revenue? I guess it seems that the strength in Unite and Advanced Products is driving some of that growth already. I guess what other areas have been strong? And how has that sort of played out compared to your expectations from the original data of the guidance?

I'll actually -- I'll give you sort of a high level and then I'm going to ask John to overwhelm you with detail. So in general, I think there's 3 key drivers of the revenue growth coming into 2022 for the Corporate Channel. One, and I would say this remains the key driver in terms of sheer size, is the core digital fax business and its penetration to the health care space, winning new customers. John mentioned some, but there's many others that you wouldn't necessarily recognize the name. They fall into our SMB channel. So the continuation of knocking down that pipeline of opportunities, whether they're on the smaller side we call them SMB or the larger size that we call them enterprise, is the key driver in reality, and it was a key driver in terms of our expectation of building up the budget. Then you have the category of the Advanced Interoperable Solutions, of which you put in Unite, Clarity, jSign and then, of course, once we acquired Summit, some of the Summit services or how we've iterated them, but I'll leave that to the side because that's the smaller piece of it. And I think that, as you noted, and as John pointed out, we've gained really good traction with Unite in this fiscal year. It is so much so that we have a derivative product called Unite Lite as we found certain customers it was too overwhelming the multiplicity of functionality in Unite, so we gave them a lighter version to get them onboarded. Clarity, not yet producing revenue. It's just around the corner, we think, in Q3. So that's more of a timing issue than it is anything else, but we're seeing great traction with particularly this one customer that we're working with. They're helping us actually evolve the product. It's good news, bad news. It delays revenue, but the product becomes -- or the service becomes more robust. So I would say those have been the 2 key core drivers. As we mentioned, we didn't budget anything for the VA this year. We'll get a little bit of revenue coming in from the Q4 rollout, but that's not much.

Yes. And I also say that when you think about the opportunity to grow in corporate, I think we have a very solid and predictable operation in our inside sales team in the way that they're able to perform quarter in and quarter out. I think when you get to field sales just by the nature of the kind of sale it is, it tends to be lumpy. So you can very quickly have a big customer come in and change things for you. You can have those kind of pops that are great to have. And as I look at our pipeline and the advanced state of a few of the opportunities in that pipeline, we have a positive outlook on the balance of the year because we know that we have solid performance coming from that inside sales team, and we feel confident that we're going to have some of these opportunities that are in the pipeline materialize.

I think -- I'd just add one comment, and it's not directly -- well, it's responsive to your question, but has a longer view. And I think one of the things that we are observing is if you look at the Advanced Interoperable Solutions, so if we go beyond the cloud fax, there's a ramping effect that takes place in terms of how customers are won and how revenue actually comes in. If you go back far enough into the Unite history -- and Unite has obviously some noise in it because it was rolled out literally in the teeth of the pandemic in March, April of 2020. But there's a consistent ramping effect even launching it in that environment to where we are today. And I think that, that's a realistic way of looking when we release these new services. Clarity comes out. It takes a while for customer acceptance. We'll learn a few things. We'll adapt the service. And then you'll start to see a ramp of revenue for it. I think that will be true of Harmony as well. We'll probably get some early-stage Harmony de minimis revenue sometime in early '23, but it will be late '23 and '24 before it ramps. And I think part of it is that these are more complex solutions. They touch more portions of company systems, so there's a different degree of integration. And of course, they're all targeted to the health care space, and there's always sensitivity in terms of the regulatory compliance, HITRUST certification and things like that. But I'm very pleased with the portfolio that we have and how it is playing out and the success that our sales force is having both on inside sales and field sales.

[Operator Instructions] The next question is coming from Greg Burns from Sidoti.

With the price increase on the SoHo side, is that pass-through revenue? Or is there a margin on that revenue?

There'll be a little bit -- it depends on where we fall in that range. I'll speak to this year. As we get into next year, there could actually be some margin. The question will be what do we do with that margin. This year, there could be a few hundred grand of benefit. However, we tend to -- our goal is to reinvest that. So if we look at the back half of the year, we're expecting -- I don't know that we'll be able to do this, but we've budgeted for about $600,000, $700,000 of incremental marketing dollars. And as I mentioned earlier, we're continuing our ramp up hiring. So that would chew up -- let's say, if we get $2 million of revenue, it offsets the FX. The FX total $1 million of profit. So there will be $1 million of excess. Our view is we're going to probably reinvest all that $1 million this year in a combination of people and marketing. Now how it actually plays out will be a function, of course, whether those marketing dollars are effective and of course, the pace of hiring that we can do. But we'd assume that as we think through the balance of the year. As we look forward to next year, obviously, there will be revenue in excess of the sales tax owed. And so that's the conversation we'll have when we get the budget because as you know, from the spin, we came out thin from a people standpoint. We put a plan in place. We didn't want to both shock the company and shock the financials by hiring 200 people quickly. It would have been an impossibility, I believe, anyway. And so we've spread that out over a couple of years, and we will…

Okay. And then just what's the difference between Unite and Conductor? Like is there different use cases or different target customer segments for the 2 products? Or can you just help me understand that a little bit better?

Very much so. So I think you can think of Unite as a command center for the ability to send and receive fax, direct secure messaging, use advanced tools to query for patient records in geographic areas and apply some workflow rules to faxes and secure direct messages that come into -- that come into that dashboard. You can use it whether or not you have an EMR. So it can integrate into an EMR and service a communication hub, or you can use it as a stand-alone facility to be able to be a traffic regulator for the information that will come in and out of your practice. When you think of Conductor, you've got to think about an expanded capacity to help an EMR communicate to the world. So as you think of the EMR systems that are installed across the country, they have a need to talk to other EMR systems or the CDC or state boards, those kinds of things. They use something called an interface to get that to accomplish that. Conductor is an interface that expands past the typical interface that you find in health care, which generally transports HL7 messages, FHIR messages, but goes beyond that into secure direct messaging and fax and gives you the ability to put much more complex routing commands, whether inbound or outbound on a piece of information that you want to send to receive. So I think that Conductor is something that is robust in the presence of an EMR. Unite is something a bit lighter, can function with or without that EMR and is able to help people in smaller practices really be able to handle their traffic and route it effectively.

And there were no other questions from the lines at this time. I would now like to hand the call back to Scott Turicchi for closing remarks.

Great. Well, thank you, everyone, for participating in our Q2 earnings call. We put out a release a few days ago. We will be virtually tomorrow at the Oppenheimer Conference. So there will be a presentation around middle of the day, Pacific Time, that John and I will provide some overview to the company, some of those financial results we just discussed. And I think Ian will conduct a fireside chat Q&A session. There's also another -- it's really targeted to bondholders, but a Wells Fargo conference coming up in September -- early September. And then as we have other conference opportunities, we will make those publicly available. Currently, we are anticipating that second week in November, around the 10th roughly, when we would then release our Q3 results and have our Q3 earnings call. That's not a firm date yet, but sometime within a day or 2 of that date is the most likely right now. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect at this time, and have a wonderful day. Thank you for your participation.