Good day ladies and gentlemen, and welcome to Consensus Q2 2024 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; Jim Malone, CFO; Johnny Hecker, CRO and Executive Vice President of Operations; and Adam Brown, Senior Vice President of Finance. I will now turn the call over to Adam Brown, 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 2024 financial results, other key information, our Q3 2024 quarterly guidance, and full-year 2024 guidance Joining me today are Scott Turicchi, CEO; Johnny Hecker, CRO and EVP of Operations; and Jim Malone, CFO. The earnings call will begin with Scott providing opening remarks. Johnny will give an update on operational progress since our Q1 2024 investor call, and then Jim will discuss Q2 2024 financial results, our Q3 2024 quarterly and full-year 2024 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 our forward-looking statements and risk factors 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 that we have disclosed in our 10-K SEC filing. Now, let me turn the call over to Scott.

Thank you, Adam. We had a strong Q2 outperforming on both channels of revenue, adjusted EBITDA, adjusted earnings, adjusted EPS, and free cash flow. As we laid out in our Q4 earnings call, our goals for this year include the following. First, eliminating certain costs of the SoHo channel, especially in the area of marketing, to provide for stabilization of the base of revenue over time. Second, continuing to pursue the acquisition of customers primarily in the healthcare space for our corporate channel. Third, reviewing and improving our overall cost structure with the goal of driving adjusted EBITDA margins to the higher end of our 50% to 55% range. And fourth, continuing to repurchase our debt to further reduce our total debt to adjusted EBITDA ratio in anticipation of the first tranche maturing in October 2026. Let me provide a few additional highlights before turning the call over to Johnny. Our corporate channel continued to add new customers, primarily through upgrades from our SoHo base as well as our relatively new e-commerce offering eFax Protect. Notwithstanding the lower ARPA of these customers than our current average, we were still able to maintain a $310 ARPA and a tight range over the past several quarters of between $305 and $320. We continue to see additional sites from the VA rolling out, driving new levels of and revenue. Our SoHo revenues beat our expectations for the quarter. I would remind you that in Q2 2023, we finished the price increase to our base and actually saw a slight growth in revenues versus Q2 2022. As we stated, at the time, we viewed this growth as anomalous. We continue to track ahead of our 2023 budget and have found additional marketing opportunities while maintaining a strong LTV to CAC. We were able to substantially reduce our marketing spend and still generate 61,000 paid ads more than Q4 2023, and similar to Q3 2023, which had higher levels of spend. Our cost structure benefited from a full quarter of the cost optimization that we discussed on our Q4 call. As a reminder, most of those cost reductions came primarily from the SoHo marketing mentioned earlier. The result was a 4.7 percentage point pickup on our adjusted EBITDA margin to 56.1% for the quarter, which is above the upper end of our long-term range. The combination of improved adjusted EBITDA, strong cash collections, and retirement of debt allowed us to improve our free cash flow by more than 11 million from Q2 2023. We were able to repurchase an additional 29.7 million of debt during the quarter. This brings our total repurchases since launching the program in November of 2023 to 156 million and reducing our outstanding total debt to 649 million or 3.4x our trailing 12-month adjusted EBITDA and 3.1 times on a net debt basis. I will now turn the call over to Johnny, who will provide you more operating details.

Thank you, Scott, and hello everyone. Today I will share business and go-to-market updates covering both our corporate and SoHo businesses, along with more details on the public sector, specifically the VA rollout and product enhancements. Let's start by sharing our sales and operations update and then the solid performance in the corporate business. We are pleased to report revenue of $51.7 million versus $50.4 million last year for Q2 marking an approximate 3% increase over the same period last year. This outcome serves as a testament to use cases for cloud fax in corporate settings, especially in healthcare. I am most pleased with the increase in the variable portion of our revenues, indicating mostly upmarket growth. It marks another record-setting quarter for our corporate business, emphasizing the unwavering strength and effectiveness of our offerings. The e-commerce and SoHo upsell strategy continues to be a valuable source of customer acquisition with approximately 2,700 customers added in Q2 demonstrating the effectiveness of our strategy. During the last call, we projected a decline in our SoHo to corporate upsell during Q2 due to planned operational changes. However, the growth of our eFax Protect service helped us offset the slowdown to a large extent. We will continue to invest in and expand this e-commerce offering, which aligns with the go-to-market realignment strategy we shared last year. The next phase of this offering will include in-product upsell options for our customers, eliminating the need for in-person interaction with customers for that process. The metrics we share reveal that the growth in corporate accounts driven by those new customers at the lower end of our customer continuum also leads to a higher corporate cancellation rate. It has increased by 103 basis points year-over-year and 37 basis points quarter-over-quarter, reaching 2.29% in the second quarter of…

Thank you, Johnny, and good afternoon, everyone. In our press release and on this earnings call today, we are discussing Q2 2024 results and Q3 2024 guidance. We are reaffirming full-year 2024 revenue and adjusted EBITDA guidance while increasing our full-year adjusted EPS guidance range. We expect to file the 10-Q today. Let's start with our corporate business results. Q2 2024 revenue was a record at 51.7 million, an increase of 1.4 million or 2.7% over the prior year, and performing in line with our expectations. Corporate offer of $310 down from $317 or 2% in the prior year, and in line with the last several quarters ranging from $305 to $320. Q2 2024 customer churn of 2.29% increased the 103 basis points year over year and 37 basis points sequentially, primarily driven by new customers at the lower end of our customer continuum. As Johnny mentioned in his script, normalized for the eFax Protect project, the cancel rate would've been below 2%. Notwithstanding this, these customers are net economically beneficial, and I would also remind you that our cancel rate is based upon customers not revenue. Corporate delivered a trailing 12-month revenue retention of 99% and improvement over Q1 2024. Moving to SoHo, Q2 2024 revenue of 35.8 million is a decrease of 6.7 million or 15.8% over the prior year and better than our expectations. The year-over-year decrease was driven by planned reduced advertising spend and year-over-year base reduction due to fewer paid ads. With an increase of $0.02 sequentially, ARPA of $14.97 decreased 4.6% year-over-year as a result of shifting to price plans with a discounted first month versus a free trial resulting in higher paid ads in the quarter. These plans are net economically beneficial. Churn declined 17 basis points to 3.4% year-over-year and was in…

[Operator Instructions] And the first question today is coming from Jon Tanwanteng from CJS Securities. Jon, your line is live.

It's Charlie [indiscernible] for Jon Tanwanteng in here. And my question with unemployment slightly teeing up -- a little bit. Do you think that the healthcare clients might be starting to be able to stack back up and reduce kind of the friction in deployments or is that still a ways off?

You faded in and out? I'm not sure what the issue is with the audio. I know you had something to do about unemployment ticking up, but could you rephrase it again?

Yeah. Absolutely. Do you think that your healthcare clients might be starting to be able to stack back up and reduce kind of friction in deployment?

Yeah, got it. Understood. So, interesting questions. It’s a good question. Appreciate it. Thank you. This is Johnny. So right now, we don't have any indicators that we see clients really finding the talent that they need to drive more IT projects. We don't see any changes in that dynamic in the market at all, to be honest.

[Operator Instructions] Next question is coming from David Larsen from BTIG. David, your line is open.

Hi, can you talk about the deployment process at the VA? How far along are you -- any metrics around like how many sites the VA has, how many you're deployed at? When did that start? And then when will you sort of get to sort of we'll call it, not a full ramp up, but a pretty good pace and the total dollars tied to the VA, just more color there would be very helpful. And how has that situation evolved? Is it improving in terms of access and deployment timing? Thanks very much.

Yes. Hi David. This is Johnny. Good question. Thank you. I think it’s, we're at a -- we can't really say what percentage we're at on the site metric, they have about 2,200 sites of what we currently know but a site can be a handful of people operating an office at a cemetery, or it can be a huge hospital. So the site is not really a metric that gives us a good indication of volume. It's more about the number of employees, the number of seats that we have. And then beyond that what applications are these people using and we don't have a clear inventory of that at the moment. Remember we are rolling this out in close collaboration with our partner Accenture and Federal Services. They are driving the majority of the rollout at the site and training the end users. We are the provider of the infrastructure. Right now, like I said in my opening remarks, we're on pace, we're on track with the rollout of what we had expected but obviously, there is a tremendous potential in that account. We don't really want to put a final number on it because I don't think the VA knows themselves, it's a very, very large organization with hundreds of fax servers, thousands of multifunctional devices and machines that they're operating and they're step-by-step migrating over to the EC fax solution. So, as we go along and as we roll out, we will get a better understanding of how large that the total opportunity is. But we're still at the very beginning.

And I would just add to what Johnny said, David, that in terms of the first part of your question, you’ll recall, it was really about a year ago, literally almost a year ago, September of ‘23, when the real rollout started because that first phase from March to June, July was really the test cases. And then there was a big bring down meeting to discuss both how those rollouts had been done, the format in which they had proceeded, and alternative ways because the VA has a similar incentive as we do, which is to see it roll out at a faster pace. And then that resulted in a number of months of going back and forth of alternative structures beyond just bringing a facility online. So the original view was, yes, it would be facility by facility, and eventually you'd be at 2,200. While that is still true and there's been a dramatic acceleration of the number of facilities that have access to the service. Since a year ago as Johnny pointed out, that's really -- it's only one of really several metrics that matter because I think, close to a million employees that are within the VA. So that constitutes another block of users. And then you've got embedded applications. And so what we have seen is what I'll call a liberalization of how the rollout is and will take place on a going-forward basis. So we're seeing basically each month, some degree of rollout relative to the previous month, and as a result, increasing traffic on a sequential basis. And so as Johnny referenced in his remarks we think two million-ish of revenue this year, which is like an infinite increase versus last year. But I would expect significant growth in that number as we go into ‘25, just based on the run rate exit that we'll have at the end of ‘24 before you even get to adding new users or new facilities in ‘25. So, I know that's not the exact quantification you want, but we're not going to give it to you because as Johnny pointed out, it's very challenging even with the VA. I think a lot of times, there's just so many different embedded applications and systems and regions that it's a challenge for them to even come up with what that number is.

But I think we have several years of growth relative to where we sit today in terms of getting to what you might consider to be a meaning full -- not full penetration, but substantial penetration of the VA opportunity.

It sounds like things are improving is, is what I'm kind of hearing. And then also when you list - okay, was that a yes?

Yes, that was a yes.

And then also when you listen to the publicly traded hospitals report, they each are consistently saying that labor shortages are being resolved. They're saying that inflation rates have improved. Their reliance on contract labor has been reduced. Volumes actually look very good at the publicly traded hospitals as do the EBITDA margins. I guess, any thoughts on like -- I guess this is similar to that first question, but any thoughts on the sort of demand level from the hospital market and the healthcare facilities that you're working with now? Has there been any improvement?

Again, good question. Right now, we're seeing both sides of that coin. We see hospitals that are doing very well. I think they are covering on the clinical side, which is what you are hearing is that they're actually hiring that kind of staff. They're still very cost-conscious and trying to manage their bottom line as well. We don't see a necessarily increase in the IT staff, which is where we need most of the support. And then you also do see the flip side of the coin where you see hospitals that are in distress, right? I mean, very public is probably the Steward Health case that they just filed Chapter 11 recently. So I think you have both sides of that coin in the healthcare industry. You have the very large ones that are doing well. But you also have the ones that continue to struggle. Now, that's not necessarily bad for us, right, because they're looking to optimize their costs as well. And we can contribute to that. So we can use that as an opportunity to help them save some money and get rid of legacy infrastructure, which is usually costly. But on the labor side, we don't see a lot of improvement at the moment.

Okay. That's helpful. And there's just one more quick one from me. Any comments on the clarity prior auth solution or clarity clinical documentation? What sort of uptake rate are you seeing there and any way to sort of take a stab at total dollar, incremental dollar flow from your clients or incel opportunity? Thank you very much.

Yes, so we do see increased interest in that product line. We have a lot of customer engagement, as I said, particularly in POCs. So we have to go through these motions. It is building backlog on our implementation teams, as we're building out that implementation capacity. But I think, it would be with that large amount of fax revenue that the company has, which is still growing, which we're adding to every quarter, the clarity contribution on the revenue side is not material at this point.

Before we take any more live questions, Paul, we've got a couple of questions that have come in by email, which I'd like to address and then you can recheck for the queue if there's any other questions that want to come in. So we have a question regarding the SoHo business. It's really a perspective question to ‘25 about the expected rate of decline in SoHo in ‘25 versus ‘24, and how that might be changing given the increase in our marketing spend. So let me actually answer a question that's maybe even more near-term relevant, which is the last two-quarters of ‘24. So just so everybody understands, but we have a certain pace of spend in the first half of ‘24 that is substantially lower than the first half of ‘23. And some of that was in my prepared remarks. Some of that has been noted by Johnny and Jim. We have seen, based on the cohort analysis and based on the marketing programs, the ability to spend incrementally. Now from a budgetary standpoint or a forecast standpoint, we've assumed an incremental million dollars in each of Q3 and Q4. And as a result, that's particularly in the near term, I hit the EBITDA in the Q3 quarter. What I think is important to understand is that is not an authorized amount of spend, that's a budgeted amount of spend. The key is really that both the marginal contribution and the average of that spend maintains what we consider to be a strong LTV to CAC. If we see in given programs or chunks of programs that you just can't spend more beyond a certain limit, we don't intend to spend it. So a lot of the answer to the ‘25 question, or at least a portion of…

There are no other live questions at this time, Scott.

So we want to thank all of you for participating in our Q2 earnings call and look for press releases in terms of various upcoming conferences that we may be participating in. As I just mentioned, we will announce our Q3 results in the first, I think full week of November. So there'll be a press release as we get closer to the exact date and time. And, of course, if any of you have any other questions, you can reach out to us by email or call us as you digest the results. 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.