Good day ladies and gentlemen and welcome to the Consensus Q3 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; 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.

Good afternoon and welcome to the Consensus investor call to discuss our Q3 2023 financial results, other key information, and 2023 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 you an update on our operational progress since our Q2 investor call, and then Jim will discuss the Q3 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 the procedures for asking your 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. It's now been two years since our spin, I would like to make some brief comments as we look back over these past two years. As you know we spun with a go-to-market focus and product roadmap aimed at the healthcare sector. We have made substantial investments and strides in this space with more than half of our corporate revenue now coming from the healthcare sector. However, we have also seen inflation and a tight labor market impact revenue growth in this piece of our business. In fact in the past two quarters, we have seen overall corporate revenue growth of approximately 3%, down from approximately 13% in Q3 of 2022. This was driven by a slowdown in revenue generation from our healthcare customers due to stable usage slower, sign-ups, and a slow ramp of our larger customers. Until there is a substantial relief in the labor markets, we expect these trends to continue. As we look to next year with continuing uncertainty in both the economy as well as the labor markets, we'll be focusing our attention on EBITDA and free cash flow generation. As a result, we will reduce our capitalized investments from the level of the past two years while still investing in the business at a rate higher than prior to the spin. The record cash balances of $156 million in future free cash flow will be dedicated to repurchasing our equity and debt securities. Now, that we have cleared the two-year mark from the spin, we are able to repurchase debt and as a result the Board has authorized a $300 million repurchase program over the next three years. This program covers both the 6% notes that mature in October of 2026 as well as the 6.5% notes due in October of…

Hi, thank you, Scott. As we mentioned on the last call, we held a meeting with the ECFax partners to discuss tactics for accelerating the rollout. The talks were substantive and all partners agreed that an acceleration of the overall program in 2024 would be a mutual goal. In that context, we are actively working on acceleration options and are making progress on the overall plan. While not final, we are encouraged by the direction and anticipate a favorable schedule for next year. Now that said, we have seen the hurdles that can be encountered in a project of this scope and are going to be cautious in forecasting any revenue expected from the program next year. As for the current state of the implementation, we have increased the numbers of facilities using ECFax. And while the pure number of facilities is an improvement, the level of usage per facility varies and not every location has been fully implemented. As we have discussed, there are nearly 30 other government agencies in the pipeline and while progress is being made the threat of a government shutdown earlier this quarter and the upcoming holiday season have slowed the speed of discussions. We do not expect any measurable progress on this front, until sometime in 2024. On the Clarity front, we are in the process of implementing our first Clarity PA client, who signed last July. Clarity PA is a specifically engineered version of Clarity, aimed at the problem of prior authorization workflow. As Scott has mentioned, the slow progress in both closing the deal and implementing the customers are fully on display here. The deal took 15 months to close and will likely require an additional 12 months to implement. In the AI market, this is a typical time frame and is…

Thank you, John, and good afternoon, everyone. Let's start with our corporate business results. Q3 2023 revenue was $50.4 million, an increase of $1.5 million or 3% over the prior year comparable period versus growth of 13% from Q3 2021 to Q3 2022. The corporate revenue growth slowed to 3% from 13% in Q3 2022 due to an increased number of customers at lower ops as our larger clients remain slow in both their decision cycles and implementation. Corporate ARPA at $312 was down $36 or 10.5% from the prior year attributable to the mix of paid adds at a lower ARPA, including SOHO accounts moving to corporate. However, it was similar to the ARPA as we experienced in Q2. Monthly churn improved 20 basis points to 1.5% over the prior year, delivering a trailing 12-month revenue retention of 100%. Moving to SOHO results. Q3 2023 revenue of $40.1 million, a decrease of $2.7 million or 6.2% over the prior comparable period. This decrease was driven by an anticipated decline in our base offset by the impact of price increases in the period. This was the hardest comparable as the price increase had substantial effect in Q3 2022, but there had not yet been a meaningful increase in churn. In addition, as Scott noted, we cut marketing spend where the lifetime value to customer acquisition cost was marginally profitable. The ARPA of $15.31 increased by $0.89 or approximately 6% year-over-year benefiting from the price increase. Churn declined 10 basis points to 3.5% compared to the prior period and pre-price increase levels. Notwithstanding the above 6.2% revenue decline in the quarter the full-year SoHo revenue decline is benefiting from the first half performance of a negative 3% and expect it to improve ending the year within our 2% to 4% guidance…

Thank you, Jim. Before we begin our Q&A session I would like to take the opportunity to talk about a management transition noted in our press release. John Nebergall, our Chief Operating Officer will step down from this position effective December 31. John will continue as a strategic advisor in 2024 as he relocates and travels the world. I want to thank John for his more than five years of service to the business. He was hired in mid-2018 to grow the business, focus the opportunity on the healthcare sector and build-out our management team. As part of that build-out he hired Johnny Hecker who will become our Chief Revenue Officer effective January 1, 2024 as well as the EVP of Operations. I would ask Johnny to join us now for the Q&A and I'll turn it over to the operator to instruct you how to queue for questions.

Thank you. We will now be conducting a question-and-answer session [Operator Instructions] We did have a question come from Jon Tanwanteng from CJS Securities. Jon, your line is live.

Hi. Good afternoon. It's Pete Lukas for Jon. I guess just in terms of the VA rollout how much do you think you can gain from that plan next year on a gross revenue basis or however you want to define it? How should we think about that?

Yes, that's something we'd like to be able to know as well. As I mentioned in my opening remarks, although I gave some directional guidance for next year, it's clearly not the formal guidance nor is it a budget. As John noted in his comments, we had a very substantive meeting back in late August with not only Cognosante the VA and their various representatives. Here we sit in almost mid-November and there still is a plan being worked through in terms of exactly how the rollout will proceed. And if I had to put it into two buckets the initial phase that we discussed last quarter that concluded with the 40 sites was done on a site basis and the philosophy was that you would take each individual unit call it a clinic hospital et cetera and you would convert everything within that facility from what they were currently doing to ECFax. ow that's not the way we would generally roll out a large-scale corporate enterprise. What has occurred in this sort of next phase that we have been rolling out is and John noted this is we are rolling out more facilities but not necessarily taking all the pieces at a moment in time. And this is an important distinction because there are layers of methods by which fax can be sent and received within an organization. To give you some idea, they're individual numbers, point-to-point communications, there's fax that travels inbound versus outbound. Some maybe on servers; some maybe associated with multifunction devices, of which there could be a variety think HP Ricoh, Canon, Lexmark Brother, et cetera. There are applications where you can fax the application or it can be received in. So it's a non-trivial exercise to think about taking an organization or an office…

Very helpful. Thanks. I’ll jump back in the queue.

Okay. [Operator Instructions] The next question is coming from Fatima Boolani from Citi. Fatima, your line is live. Q –Unidentified Analyst: Hey. Good afternoon, guys. This is Mark on for Fatima. Thanks for taking our questions. Maybe one for Johnny. I understand it's still early days – early in the process before you get into the CRO role. But when you take on the CRO role any sort of early points you can share on your plans there? Should we maybe expect changes in sales incentives or go-to-market initiatives? And then any sort of color around areas of upside or downside risk as you're going to 2024 aside from the obvious macro headwinds? Thanks.

Thank you. Yes, good question. I think we've started that process earlier this year with the go-to-market realignment. And I had the opportunity on the last earnings call to take everybody through our continuum of customers and how we are migrating our sales promotion to meet our customers on their buying motion to be more flexible in the market. And I think we're going to continue on that road. As John mentioned in the remarks, we have started the e-commerce channel for the Corporate space. That's proven to be a successful program. So we're going to continue down that road. So the one thing will definitely be – that alignment with our customers' buying motion and continuing that realignment of our go-to-market sales and marketing teams. And the other team will be obviously continuing to analyze our existing customer base and doubling down on the verticals that are most successful for us today, primarily that'd be the healthcare space, right? We're seeing a lot of growth in that area. Scott talked about it in his opening remarks that it's more than 50% of our Corporate revenue by now. So we're going to continue down that road and double down on those verticals. Q – Unidentified Analyst: Great. Thank you. And then maybe just one for Scott or Jim. As you guys think going into 2024, any sort of guidance on capital allocation strategy or changes there? Could you see the optionality on the debt side but what's sort of the priority here given the macro headwinds?

Yes and we have a related question that came by e-mail but I'll answer your question first and then there is a derivative of that question that came by e-mail, which I'll also address. So we were – just to bring everybody up to speed who hasn't followed the company since the spin. as I noted in the opening remarks we were limited in our capital allocation strategies to this point and only being able to obviously invest in the company repurchase our equity securities or do M&A. We did a little bit of M&A very early on in acquiring Summit but that's not really been the focus of the company as you know. So most of our capital allocation has been allocated to repurchasing stock, which we've done fairly consistently and of course banking cash. Now our attention shifts somewhat in that we do have a maturity coming up in a little under three years. Those will be the 6% notes due October 15 to 26; and then two years later the $500 million of 6.5%s. Given that we've crossed the two-year threshold of the spin, we now have flexibility of buying the securities. Now in the case of the 6.5%s they're non-call. In the case of the 6%s they're callable but at a $1.03 price and because of the movement in interest rates both securities trade below par. A little unclear exactly the spot price the bonds are not quite as liquid as the stock. But I think it's safe to say the 6.5%s are in the mid-80s and the 6%s, which have the nearer-term maturity are closer to the mid-90s. And so we will be looking – the Board authorized a $300 million repurchase program over the next three years. But I would note that it is…

Thank you. And there were no other questions in queue at this time. I would now like to hand the call back to Scott Turicchi, for closing remarks.

Great. Thank you Paul and thank you all for joining us today on our Q3 call. We will have the next earnings call which of course will be the Q4 call. And as I mentioned at the beginning, we will have a more robust discussion about 2024 guidance. That will be sometime in probably the latter part of February, third week of February of 2024. But we do have an upcoming High Yield Bond Conference at the end of this month, the courtesy of Bank of America Merrill Lynch, we'll be there. There will be another conference from BTIG that we'll be at on 20th of November. That's for the equity holders, and then stay tuned for additional press releases, for additional conferences probably more likely at the beginning of next year versus the balance of this year. And of course, if you do have further questions you can contact any one of us. And we'd be happy to get back to you. Thank you.

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