Good day, ladies and gentlemen, and welcome to Consensus Q2 2023 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. [Operator Instructions] On this call from Consensus will be Scott Turicchi, CEO; John Nebergall, COO; and Jim Malone, CFO; Johnny Hecker, Executive Vice President of Operations 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.

Good afternoon, and welcome to the Consensus investor call to discuss our Q2 2023 financial results, other key information and 2023 guidance. Joining me today are Scott Turicchi, CEO; John Nebergall, COO; Johnny Hecker, EVP of Operations 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. Johnny will discuss progress on our go-to-market realignment and then Jim will wrap it up to discuss our Q2, 2023 financial results and 2023 guidance. After we finish our prepared remarks, we will conduct a Q&A session. At that time, the operator will instruct you on 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 on the webcast will include forward-looking state. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated result. 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 slideshow for the webcast. We refer you to discussions that most documents regarding Safe Harbor language as well as forward-looking state. Now let me turn this call over to Scott.

Thank you, Adam. While there are many important accomplishments in the quarter, most of them are not yet producing meaningful revenue. As a result and coupled with continuing slow decision making from our perspective corporate customers, weak results from Summit and some near-term loss of efficiency due to our internal sales force realignment, our top line revenue was weaker than anticipated and has influenced us to focus on the lower end of our revenue guidance for the year. Our focus on costs have allowed us to maintain an EBITDA margin consistent with our guidance range of between 50% and 55%. By investing our excess cash, improving our tax position and reducing our share count, our bottom line non-GAAP EPS is ahead of our expectations and should be above the midpoint of our guidance for the year. I will now provide some additional commentary regarding various aspects of our business before handing the call over to John. As noted in our press release, we have made significant progress in our go-to-market realignment. Based on the customer buying motions that we will outline in a later slide, the realignment is showing early success with the pipeline growing significantly from Q1 2023. In addition, we continue to see strong fax volumes in the quarter, slightly ahead of our Q1 record results. However, this process of realignment and the continuation of slow decision making in the healthcare sector for new business, which we have addressed for several quarters, did impact our revenue for the quarter in our corporate channel which grew 6% exclusive of Summit and 3.1% in the aggregate. Turning to our Clarity product, we have signed our first customer on Clarity and also decided to produce additional variations of Clarity to address specific needs in healthcare. Our first customer is using the…

Thank you, Scott. Today in the operations to update, we will look at our sales results for the quarter, give a high level update on the SOHO revenue stream, comment on our overall pipeline and bring you up to speed with key product and engineering progress. Following that, I'll turn it over to Johnny Hecker, our Executive Vice President of Operations to take a few minutes to give you greater insight into the go to market realignment that we announced on our last quarterly call. Before starting in on the sales numbers, I wanted to bring you up to speed on progress with our rollout of the ECFax program at the VA. As you recall, the program was a little slower out of the gate than we would have liked. However, there has been positive movement over the last quarter. In Q2, we successfully completed implementation of forty VA facilities across ten sites, which accounted for the planned initial evaluation portion of the program. I am pleased to say that the response from the VA and the end user community has been overwhelmingly positive. We will be meeting with the VA and our partner Cognosante to map rollout plans now that we finish finished the test phase. We will have updates on those plans on our next call. One more note regarding ECFax. There are nearly thirty governmental opportunities in the pipeline and we're pleased with the overall progress. Given our confidence here, we've added some additional experienced sales talent to help us in partnership with Cognosante with getting these deals over the line. I'd also like to announce that we have signed a full production agreement for Clarity with our first customer, a major provider of prior authorization services to the industry. Specifically, this customer will be using our…

Thank you, John. Excited to be here today and thank you for the opportunity to explain in a bit more detail what led to our Go-to-Market realignment earlier this year. As we started the process of evaluating the entire Go-to-Market posture of the company, we took a view that focused not on products or customer groups, but on the practices, behaviors and processes that our prospects used to purchase consensus services. Broadly, I call this the buying motion. And in thinking through our organizational improvements, it was essential that we both understand that motion of our customers and match our process, our selling motion to meet theirs. By aligning the Go-to-Market team in this way, we create a natural rhythm that meets the customer where they are and helps to ensure our selling process fits their buying process. As we examine the customer behaviors, we saw four distinct buying motions emerge. And while they loosely conform to customer size, there is a substantial overlook between e-commerce, SMB, what we call large accounts and a list of named strategic accounts and partners as you can see, at the top graphic of the customer continuum slide. More importantly, the characteristics of how the various customer groups prefer to buy, whether self-service, inside sales or field sales is the guiding principle we used to construct our Go-to-Market approach. We analyzed where leads come from, what marketing, inbound calls, outbound calling, channel, account based marketing, trade shows, RFP's, referral and networking. We looked closely at how long the sales cycle takes from an immediate sale in e-commerce to sometimes multiple years with the largest companies we serve or prospect. This is largely driven by the complexity and length of the contracting process and then followed by the revenue ramp velocity. It varies from literally…

Thank you, Johnny, and good afternoon everyone. First of all, we are very pleased to announce Deloitte as our new auditors appointed in Q2, 2023, replacing BDO as previously announced in our 8K filed on June 5th, 2023. Let's start with our corporate business results. Q2, 2023 corporate revenue was $50.4 million, an increase $1.5 million or 3.1% over the prior year comparable period. Excluding Summit revenues, which was characterized as inorganic in the prior year, Q2 2023 over Q2 2022, corporate revenue growth increased to approximately 6% and grow sequentially from Q1, 2023 by approximately 1%. Corporate offer of $317.00 was down $38 or 11% from the prior year. Summit represented $9 or approximately 25% of this difference. The remainder of the ARPA difference, as John has noted in his opening remarks, is the timing of larger customer wins, which is lumping on a quarter-to-quarter basis. Quarterly ARPA is certainly affected by this lumpiness. Furthermore, in Q2 2023, the year-over-year offer decreased reflects a greater share of paid debts coming from SMB customers and the planned migration of SOHO customers to corporate. Just a strategy presents the opportunity to one, increased ARPA and SOHO customers migrated based upon our experience under this initiative. And secondly, upsell additional services, gaining greater customer wallet share. Corporate monthly churn improved 1.3%, down from 1.9% for the prior year. The lower churn impact delivered trailing twelve month revenue retention of approximately 101%, consistent with our expectations. Moving to SOHO results, Q2 2023 revenue of $42.4 million, an increase of $0.2 million or 0.5% over the prior comparable period exceeded expectations, ARPA $15.69 was an increase of $1.82 or 13% year-over-year, substantially driven by the SOHO price increase program we announced over a year ago and completed this quarter. Monthly channel churn declined to…

Thank you. We will now be conducting a question and answer session. [Operator Instructions] First question is coming from Ian Zaffino from Oppenheimer. Ian, your line is live.

Hi, good afternoon. This is Isaac Sellhausen [ph] on for Ian. Thanks for taking the question. My first question is on the corporate channel and the deals that were delayed in the -- out to the third quarter because you quantify or put into perspective how large the deals were. And then maybe was the delay of function of sales realignment that you guys talked about or just customers delaying the buying decision? Thanks.

Okay. So the delay has nothing to do with the sales realignment. This is more a continuation of the large and strategic accounts. If you go back to Johnny’s buying motion and continuum chart, these would be at the upper end of that spectrum, the sort of the upper quartile, if you will. And these are situations, some of which you've heard like Clarity we've been working on for in excess of a year. So there's different reasons why there were delays. I would say generally they fall into a couple of different categories. One, we've noticed at that upper quartile, a slowness in decision making generally irrespective of whether it's the core FAX service or an enhanced service like Clarity or the initial phases of Harmony. So that's just something we've generically seen. We've talked about before sort of the uncertainty of the economy and the tight labor market particularly as it relates to the implementation of services like these is a constraint for some of those larger buyers. So that's one element. Now if you think of Clarity in particular and you go back to some of the previous earnings calls where to use the football analogy, we thought we were on the five yard line multiple occasions. And the next quarter, the ball didn't get into the end zone. A lot of that had to do with unpacking what we're disclosing now to you and understanding about Clarity. When we first launched Clarity as a service, think about Willy Moore as a platform technology. And the vision was we'd go out and we would be able to take all comers. What we learned through the proof of concept phase is that there really needed to be productization to address very specific and somewhat narrow situations. So the…

Okay, understood. Thank you. And then just as a quick follow up, on the VA rollout, could you just more broadly talk about how the implementations have gone and then the other opportunities that you mentioned, any color that you can give on the timing of those would be great. Thanks.

Yes. So the VA and I think for you know, prudent reasons was very cautious. So they selected these ten sites and each site can have multiple facilities associated with them. So on average there were four underlying entities, hence the ten sites mapping to forty facilities. And what they were interested in, I think a lot of it was a learning process for them as well. And I know to the outside audience it probably sounds very simple. Oh, you've got a facility, an institution and they have a fax machine or fax machines or a server or a multifunction device that can send and receive faxes. Well the answer actually is all the above. It's not generally one. So one of the things they had to go through is when they would query a site, what are all of the use cases by which end devices by which you send and receive faxes today. And so they would submit a questionnaire back to Cognosante and us and then we go down the list and say, okay that's already covered. That's already covered. Okay, you have a Lexmark multifunction device. We do or don't have an API that can work with that particular manufacturer. So the VA wanted to, you know, have the best customer experience for the underlying facilities and as a result there was incremental work that we did to make sure we could address, not all, but substantially all of the use cases that would capture substantially all of the traffic. So they were very diligent about that. We only would roll out a couple of sites on a two to three-week basis and as a result this initial phase took probably about three months because it just ended in late July. And so now that…

Okay, great, thanks very much, Scott.

You're welcome.

Thank you. [Operator Instructions] The next question is coming from Jon Tanwanteng from CJS Securities. Jon, your line is live.

Hi, it's Charlie Strauser for John. Thanks for taking the questions. Just a quick one from me. How have your expectations changed, if at all, in the web tags versus corporate outlook? And how has the conversation evolved over the last year with intentional enterprise clients?

I missed the last part. How has the conversation changed over the what? I couldn't hear you muffled.

Sorry about that. How has the conversation evolved over the last quarter or so with potential enterprise clients?

Okay. So on the SOHO and I'm glad you pointed out, SOHO is as Jim mentioned had a very good quarter, a pleasing quarter to us in that obviously while not tremendous growth, it did take a little bit of growth over the same quarter of the prior year, but as we noted this was due in large part to what we've seen over the last several quarters, which is a consecutive increase in the arc was the price change at various paces rippled through the base. So as we look forward with the price change being complete, we don't anticipate that SOHO will necessarily be in the positive territory for the back half of the year. In fact if you look at the math and I endorse what John said that until our new head of ecommerce really gets his feet under him and thinks more holistically about the various marketing opportunities, I think it's safe to assume this 75,000 gross new adds per quarter what we call the SOHO channel. And remember we're stealing some from the SOHO channel into the SMB that 1000 roughly a quarter. So I think if you look at that and the fact that the price change is up about 13% and it's a very tough Q3 and Q4 comp because we pushed through so much of the price change in the back half of 2022, you should expect the SOHO channel to be modestly negative in Q3 and Q4 of this year. And then as we look at the '24, we will revisit a whole basket of opportunities which include how we market. It may be includes looking at pricing, there'll be a whole basket of things we'll look at in terms of how we think of that piece of the business, not the ecommerce channel as a whole, but the SOHO customer base as a portion of the ecommerce. How do we look at that on a going forward basis? And obviously stay tuned as we get into next year, closer to next year in terms of our thinking of guidance for the channel. But right now, we wouldn't back away from the guidance that we've given you throughout the year in terms of the budget for corporate which is slightly negative this year. And then Johnny, do you want to talk about the sales motion you've been seeing on the large and strategies?

Yes on the enterprise side, I think we're seeing two things. We're enthusiastic about the pipeline that we were able to build in Q2. I think that's accelerated substantially from Q1 when we were still cleaning house a little bit and after the realignment obviously new sales leaders coming in you have a closer look at the pipeline and look how much potential is really in there. So we cleaned that out and then we really build up on it. We're excited that some of the deals are closing and some of these were delayed three, six months and beyond the close date that we had anticipated and we've been reporting on this for a couple of quarters now that the decision making is slow. So that said, we don't see a lot of acceleration, but we don't see these deals actually fall out of the pipeline. So we're not losing them, it's just that slow decision making. Eventually customers do this, decide and we bring them in and we just need to build more pipeline to get more transaction in these in these larger sales motions. But we're seeing two things happening. On the one side I think our strategic partnerships are starting to pay out. So we have a, I think we reported last quarter on the AWS partnership that we were [indiscernible] accelerate partner of AWS. We see first deals materializing there and closing there. We have strong partnerships in the telco space. I think we sent out a press release on the Hyland OnBase [ph] partnerships. So all of those and there's more partnerships to come that we're working on, all those are generating larger leads in the enterprise world. So we're excited about what's happening, but as I mentioned in my open remarks, obviously we have to close those deals and ramp them up to revenue. And as you saw on the continuum side that revenue ramp, first you have to -- the sales cycle, the contracting cycle, then that revenue ramp can be several months each, so sometimes over a year, 18 months, so it takes time, but we're exciting to see that customers are moving.

We have a question by e-mail Paul, before we go then or is was there a follow up, I'm sorry?

No, no, that's helpful. Thank you.

So we'll take a question by e-mail that came in which is, question is to refresh our investors memory on how management incentives work and basically the stock component within our overall compensation program. And that's a, it's a very broad question because everybody within consensus has equity, although it is a varying degree of their total compensation. There are about 30 or so individuals where it would be much more significantly weighted relative to the cash component. Particularly you can see in the proxy the named executive officers like myself and John and the half of that stock for those 30 people is performance based and the performance criteria is stock price, it's actual stock price dollar amounts. And there's been a lot of debate including discussion with consultants or what are the right metrics for using performance based and there's all kinds of theories and I have to admit I don't think any of them actually hit the mark perfectly, but our philosophy is that we want our managers, our senior managers in particular, to be aligned with growing the stock price. And if the stock price grows, not only will that equity that's issued at a certain price be worth more, but in the case of the performance units, then it triggers the ability for those events. And we put a 10% CAGR on the stock price based on the date of grant. So obviously that has not worked as we would like so far. But as I remind the management team and the employees, these things play out over several years. I saw this at J2 where in one year multiple tranches of equity vested because the stock went on a terror one year and as a result there was not only a catch-up to what…

There were no other questions from the lines at this time Scott.

Right. Thank you. And I would just thank all of you for participating in our Q2 earnings call. A few housekeeping notes. Q3 clearly will be reporting sometime in November, three weeks before we put our press release on the exact date. Tomorrow we will be presenting virtually at the Oppenheimer conference, so some of you have signed up for one on ones. There will be a fireside chat tomorrow. It's in our press release date in August 3rd and then on September the 7th, we're going to host a webinar. It will feature John and Jeff. Jeff is our CTO to discuss artificial intelligence or AI generally how it is used in healthcare today and then more specifically how we use it both in our Clarity services as well as, as we look forward where we see NLP and AI playing a role. We did a similar conference for one of our covering analysts maybe four to five weeks ago. That was well received, but it was a closed audience. So this one is opened up to anybody that is interested. There will be a press release that will go out that will announce it since it's right after Labor Day, and we'll give you all of the particulars of how to sign up and to participate. And then as we have other conferences that come up, we will put our press release to alert you to them and say if not, then we'll talk again in November to discuss Q3 results. Thank you.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.