Q4 2023 Consensus Cloud Solutions Inc Earnings Call

Operator: is appreciated. Please hold the line, and we'll be right back with you.

<unk> hold the line and we'll be right back with you.

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Operator: Thank you for holding. We look forward to talking with you soon. Please hold the line and we'll be right back with you. www.consensuscloud.com. Good day, ladies and gentlemen, and welcome to Consensus's Q4 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.

Good day, ladies and gentlemen, and welcome to consensus Q4 of 2023 earnings call. My name is Paul and I will be the operator assisted.

You today.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Operator: A question and answer session will follow the first presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. On this call from Consensus will be Scott Taricki, CEO, Jim Malone, CFO, Johnny Hecker, CRO and 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.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

On this call from consensus will be Scott to Rekey CEO, Jim Malone, CFO, Johnny Hecker C. R O and executive Vice President of operations and Adam <unk> Senior Vice President of Finance I will now turn the call over to Adam <unk> Senior Vice President of Finance a consensus. Thank you.

May begin.

Adam Varon: Good afternoon, and welcome to the Consensus Investor Call to discuss our Q4 and fiscal year 2023 financial results, other key information, and 2024 guidance. Joining me today are Scott Taricki, CEO, Johnny Hecker, CRO and EVP of Operations, and Jim Malone, CFO. The earnings call will begin with Scott providing opening remarks.

Good afternoon, and welcome to the consensus Investor call to discuss our Q4 and fiscal year end 2023 financial results. Other key information in 2020 for guidance.

Joining me today are Scott <unk>, CEO, Johnny Hecker, CFO, and EVP of operations and Jim Malone CFO.

The earnings call will begin with Scott providing opening remarks.

Operator: Johnny will give an update on our operational progress since our Q3 investor call, and then Jim will discuss our Q4 2023 and year-end preliminary unaudited financial results and 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 the Safe Harbor language on slide 2.

Johnny will give an update on our operational progress since our Q3 Investor call and then Jim will discuss our Q4 2023 and year end preliminary unaudited financial results and 2020 for guidance.

After we finish our prepared remarks, we will conduct a Q&A session at that time the operator.

Back to 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 two.

Operator: As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that could cause actual results to differ materially from those anticipated. Some of those risks and uncertainties include, but are not limited to, the risk factors outlined on slide three 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 in those documents regarding safe Harvard language as well as forward-looking statements. Now, I turn the call over to Scott. Thank you, Adam.

As you know this call and the <unk>.

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 three that we have disclosed in our 10-K SEC filings as well as a summary of those risk factors. We have included as part of the slideshow for the webcast.

We refer you to discussions in those documents regarding safe Harbor language as well as forward looking statements now.

Now, let me turn the call over to Scott.

Thank you Ed.

Scott Taricki: As we discussed in our Q3 call, our focus has been on EBITDA and free cash flow generation. The market dynamics have not materially changed since our last call in November, and we expect these trends to continue throughout 2024 in the healthcare sector. We have taken the past three months to do a rigorous examination of the business to see where costs can be optimized. As we noted in the Q3 call, we found some spend in our Soho channel that gave us low LTV customers. As we looked even deeper, campaign by campaign, we found additional spend that was at best marginally profitable and, most likely, uneconomic.

As we discussed in our Q3 call our focus has been on EBITDA and free cash flow generation.

The market dynamics have not materially changed since our last call in November and we expect these trends to continue throughout 2024 in the healthcare sector.

We've taken the past three months to do a rigorous examination of the business to see where costs can be optimized.

As we noted in the Q3 call. We found some spend in our Soho channel that gave us low LTV customers.

As we look even deeper campaign by campaign, we found additional spend that was at best marginally profitable and most likely uneconomic.

Scott Taricki: As a result, we have made some additional cuts against our Q4 forecast that had a slight negative impact on revenues in the quarter but favorably affected EBITDA productivity and margins. On the corporate side, revenues were impacted by the enhanced collections process that reduced our outstanding receivables but also resulted in some account closures. This has an effect on the base coming into 2024 and will likely affect corporate revenue growth by approximately one percentage point. Johnny will provide you with more details in his part of the call.

As a result, we have made some additional cuts against our Q4 forecast that had a slight negative impact on revenues in the quarter, but favorably affected EBITDA productivity and margin.

On the corporate side, the revenues were impacted by the enhanced collections process that reduced our outstanding receivables, but also resulted in some account closures.

This has an effect on the base coming into 2024 and will likely affect corporate revenue growth rate by approximately one percentage point.

Johnny will provide you with more details in his part of the call.

Scott Taricki: I am pleased that for the quarter, we generated near our target EBITDA, notwithstanding the headwinds on the top line. However, our bottom-line EPS, while strong, was negatively impacted by a severe rallying of the euro against the U.S. dollar that resulted in a charge of 5.8 million, or 2.4 million more than our forecast. I would note that these are inherently difficult to predict and are non-cash in nature. We are working on a program to mitigate this volatility in 2024. The strong bottom-line results, combined with the finance team's collection efforts, allowed us to be $10 million better in free cash flow versus Q4 of 2022. For the full fiscal year, we produced $77.7 million of free cash flow compared to $53.1 million in 2022. This allowed us to repurchase 71.4 million of our bonds through January at an average price across both tranches of 91%.

I am pleased that for the quarter, we generated near our target EBITDA notwithstanding the headwinds on the topline.

Our bottom line EPS, while strong were negatively impacted by a severe rolling of the euro against the U S. Dollar that resulted in a charge of $5 8 million or $2 4 million more than our forecast I would note that these are inherently difficult to predict and are noncash in nature.

We are working on a program to mitigate this volatility in 2024.

The strong bottom line results combined with the finance teams collection efforts allowed us to be $10 million better than free cash flow versus Q4 of 2022.

For the full fiscal year, we produced $77 7 million of free cash flow compared to $53 1 million in 2022.

This allowed us to repurchase $71 4 million of our bonds through January at an average price across both tranches at 91% of par.

Scott Taricki: We ended the year with a healthy $88.7 million in cash and cash equivalents. As we look to 2024, the biggest change from our preview in November is how we are managing the Soho Channel. Given the change in algorithms, the increasing cost for advertising, and an increasing amount of new signups that have limited use cases and, as a result, a short life, we are cutting almost two-thirds of our marketing spend in 2024 relative to 2023. As a result, we will see a faster decline in revenue for SOHO in 2024 than previously articulated. However, costs are declining by approximately the same amount as revenue.

We ended the year with a healthy $88 7 million of cash and cash equivalents.

As we look to 2024 the biggest change from our preview in November is how we are managing the Soho channel.

Given change in algorithms, increasing cost for advertising and an increasing amount of new sign ups that have limited use cases and as a result, a short life, we're cutting almost two thirds of our marketing spend in 2024 relative to 2023.

As a result, we will see a faster decline in revenue for Soho in 2024 than previously articulated. However, the costs are declining by approximately the same amount as the revenues.

Scott Taricki: As we continue to invest in our corporate channel, we have allocated a few million dollars of additional marketing spend to support this effort. In addition, we have been seeing initial benefits from the go-to-market realignment that we implemented approximately one year ago. We remain positive about the opportunities within the healthcare sector for our core FACTS products and interoperability solutions.

As we continue to invest in our corporate channel we have allocated a few million dollars of additional marketing spend to support this effort in.

In addition, we have been seeing initial benefits from the go to market realignment that we implemented approximately one year ago.

We remain positive on the opportunity within the health care sector for our core facts products and interoperability solutions. We expect an increased corporate contribution exiting 2024 as a result of this strategy and we will continue to pursue it while we generate cash and retire our debt.

Scott Taricki: We expect an increased corporate contribution exiting 2024 as a result of this strategy, and we'll continue to pursue it while we generate cash and retire our debt. At the midpoint of our range of guidance, we expect EBIDTA to grow in 2024 and margins to expand by approximately 290 basis points. We are also paring back our capital expenditures by approximately $7 million from the 2023 level while continuing to invest meaningfully above pre-spin levels. Notwithstanding an expected higher tax rate than in 2023, we still expect to generate approximately $80 million in free cash flow. I will now turn the call over to Johnny. Thank you, Scott. And hello everyone.

At the midpoint of our range of guidance, we expect EBITDA to grow in 2024 and margins to expand by approximately 290 basis points.

We're also paring back our capital expenditures by approximately $7 million in the 2023 level, while continuing to invest meaningfully above pre spin levels.

Notwithstanding an expected higher tax rate than 2023, we still expect to generate approximately $80 million in free cash flow I will now turn the call over to Jonathan.

Thank you Scott and Hello, everyone.

Johnny Hecker: Let me provide an update on our sales and operations, starting with our corporate business. In the fourth quarter of 2023, our corporate revenue reached $49.4 million, reflecting a steady increase compared to the previous year's $47.8 million. We're excited to report the continued success of our Soho upsell strategy, with approximately 1,250 accounts added in Q4 and a total of approximately 4,700 accounts that shifted from Soho throughout the year. Notably, advanced product accounted for 13% of our total new sales, a continued strategic focus for us, and contributing to a 23% share for the full year. Additionally, our eFacts Protect offering has yielded impressive results, garnering approximately 1,000 paid customer ads in the quarter thanks to the Q3 introduction of a new e-commerce channel specifically tailored to corporate clients. Moving on to SOHO,

Let me provide an update on our sales and operations starting with our corporate business in the fourth quarter of 2023, our corporate revenue reached 49 $4 million, reflecting a steady increase compared to the previous year is $47 $8 million.

Very excited to report the continued success of our Soho upsell strategy with approximately 1250 accounts added in Q4 and a total of approximately 4700 accounts that shifted from Soho throughout the year.

Notably advanced products accounted for 13% of our total new sales a continued strategic focus for us.

And contributing to a 23% share for the full year. Additionally, our effects protect offering has yielded impressive results garnering approximately 1000 paid customer adds in the quarter. Thanks to the Q3 introduction of a new E Commerce channel, specifically tailored to corporate clients.

Moving onto Soho as we had anticipated and regularly communicated there was an expected decrease in revenue during Q4 of 2023 with $38 $3 million compared to the previous year is $42 2 million.

Johnny Hecker: As we had anticipated and regularly communicated, there was an expected decrease in revenue during Q4 of 2023, with $38.3 million compared to the previous year's $42.2 million. As we discussed in Q3, we cut some unproductive advertising spending. As we did a deeper analysis, we made additional advertising cuts in Q4, which will continue into our 2024 budget. Our goal is to optimize our SEM spend with a focus on targeting the most profitable customers. As a result of this decreased intake, we did see our total account base decrease from $859,000 to $831,000.

As we discussed in Q3, we kept some unproductive advertising spend.

As we did a deeper analysis, we made additional advertising cuts in Q4, which will continue into our 2020 for budget.

Our goal is to optimize our SCM spend with a focus on targeting the most profitable customers as a result of this decreased intake we.

We did see our total account base decrease from 859000 to 831000.

Johnny Hecker: However, it is important to note that our churn rate improved from 3.49% in the previous quarter to 3.34%, in line with what we would expect to see given our more selective customer acquisition strategy. Now, let's move to some key updates that have shaped our operations. Firstly, the VA rollout has begun its acceleration, and all parties involved have worked in close alignment to adopt a new method of rollout.

However, it is important to note that our churn rate improved from 349% in the previous quarter to 334% in line with what we would expect to see given our more selective customer acquisition strategy.

Now, let's move to some key updates that have shaped our operations firstly, the VA rollout has begun its acceleration.

All parties involved have worked in close alignment to adopt a new method of rollout evolving in that new format, we're ensuring a smooth and efficient implementation as a result, we anticipate to reach a seven digit contribution in 2024 with a promising runway beyond that.

Johnny Hecker: Evolving in that new format, we're ensuring a smooth and efficient implementation. As a result, we anticipate to reach a seven-digit contribution in 2024 with a promising runway beyond. In terms of our easy fax offering for the federal government, other government agencies' progress has been steady, albeit slow. The pipeline remains robust, with prospects remaining cautious of the ongoing federal government spending cap being a regular contentious issue.

In terms of our <unk> offering for the federal government and other government agencies progress has been steady, albeit slow the pipeline remains robust with prospects remaining cautious of the ongoing federal government spending being a regular contentious issue.

Johnny Hecker: We're closely monitoring developments as we await the federal budget resolution. Meanwhile, it's worth noting that our commercial offering, eFixCorporate, has proven to be a viable alternative for smaller government agencies with less demanding requirements. Furthermore, I'm pleased to share some notable wins, including our success with MRO, a customer in the healthcare IT space and expert in the exchange of clinical data, and the initiation of a partnership with Lexmark, a leading provider of printing and imaging products, software solutions, and services. Additionally, our go-to-market realignment strategy has yielded positive outcomes, particularly with the earlier noted success of eFaxProtect, our We have strategically redirected our focus towards our existing customer base, maintaining the healthcare industry as a gold standard for new business and product strategy. In line with this, we are actively cultivating partnerships with electronic health record and healthcare IT ventures.

We are closely monitoring developments as we await the federal budget resolution.

It's worth noting that our commercial offering effects corporate has proven to be a viable alternative for smaller government agencies with less demanding requirements.

Furthermore, I am pleased to share some notable wins, including our success with M. R O a customer in the healthcare it space and expert for the exchange of clinical data.

And the initiation of a partnership with Lexmark, a leading provider of printing and imaging products software solutions and services.

Our go to market realignment strategy has yielded positive outcomes, particularly with the earlier noted success of effects protect our corporate e-commerce offering.

We have strategically redirected our focus towards our existing customer base, maintaining the health care industry as a gold standard for new business and product strategy in line with this we are actively cultivating partnerships with electronic health record and healthcare vendors and.

Johnny Hecker: I'm happy to report that our go-to-market realignment efforts have resulted in increased operational efficiency, steady booking results, a stable sales pipeline, and data-driven adjustments to our strategy. Now, let's briefly discuss our product updates, beginning with our AI-driven solution, Clarity. We continue to build a solid pipeline for Clarity CD for clinical documentation and Clarity PA for prior authorizations, and we are excited to announce that we have already booked our first Clarity CD customers. New prospects and existing customers have shown great interest in adoptable AI and a real-world solution that yields them immediate savings. Additionally, our first-generation Harmony offering is now in production, marking a significant milestone in our product growth. With this specific application of Harmony, the sender transmits a fax document via eFax, and Harmony delivers it as a direct secure message, a broadly used electronic delivery protocol for healthcare.

I am happy to report that the go to market realignment efforts have resulted in increased operational efficiency steady booking results a stable sales pipeline and data driven adjustments to our strategies.

Now, let's briefly discuss our product updates beginning with our AI driven solution clarity.

We continue to build a solid pipeline for clarity CD for clinical documentation and clarity for prior authorizations and we are excited to announce that we have already booked our first clarity CD customers, new prospects and existing customers have shown great interest in adaptable AI and a real world solution yield.

Them immediate savings.

Additionally, our first generation harmony offering is now in production, marking a significant milestone in our product roadmap with this specific application of harmony dissenter transmit a fax documents by effects and harmony delivers it has a direct secure message a broadly used electronic deliberate protocol for health care.

Johnny Hecker: We're excited to announce that we're partnering closely with one of the leading cloud-based EHR and practice management solution providers for small and medium-sized medical practices on this project. As we look ahead to 2024 on the next slide, it's important to note that while we recognize the positive changes within our organization, we are maintaining a conservative outlook on our growth prospects. By optimizing our marketing efforts with a focus on increased profitability, we have deliberately put an emphasis on margin and retention. While in the near term, top-line growth will be moderate, our primary focus remains on cash generation and achieving operating profits. For our SOHO business, we have implemented several strategic measures as part of our go-to-market realignment. By merging the marketing departments for SOHO and corporate, we aim to leverage deeper insights from a propensity analysis indicating that a portion of our SOHO base possesses corporate attributes. Furthermore, we finalized the EFAX price increases in early 2023, allowing us to concentrate our efforts on a more engaged user base.

We are excited to announce that we are partnering closely with one of the leading cloud based EHR and practice management solution providers for small and medium sized medical practices on this project.

As we look ahead to 2024 on the next slide it's important to note that while we recognize the positive changes within our organization, we are maintaining a conservative outlook on our growth prospects by optimizing our marketing efforts with a focus on increased profitability. We have deliberately put an emphasis on margin.

And retention while in the near term top line growth will be moderate our primary focus remains on cash generation and achieving operating profits.

Our Soho business, we have implemented several strategic measures as part of our go to market realignment by emerging the marketing departments for Soho and corporate we aim to leverage deeper insights from our propensity analysis, indicating that a portion of our Soho base processes corporate attributes.

Furthermore, we finalized the effects price increases in early 2023, allowing us to concentrate our efforts on a more engaged user base in.

In 2023, we encountered some challenges related to significant changes implemented by our primary digital advertising partners the.

The changes were aimed at stabilizing their businesses, but they resulted in a significant increase in our customer acquisition cost yielding less profitable customers to navigate these challenges we have undertaken a thorough analysis of our campaigns to identify those that yield high quality customers as reported in <unk>.

Johnny Hecker: In 2023, we encountered some challenges related to significant changes implemented by our primary digital advertising partners. The changes were aimed at stabilizing their business, but they resulted in a significant increase in our customer acquisition cost, yielding less profitable customers. To navigate these challenges, we have undertaken a thorough analysis of our campaigns to identify those that yield high-quality customers.

Our last earnings call. Consequently, we narrowed spending on campaigns targeting high profit customers. Starting in Q3 of 2023 and are continuously evaluating the effectiveness of our campaigns are focused on the smarter AD spend project involves analyzing our subscriber base to optima.

Johnny Hecker: As reported in our last earnings call, consequently, we narrowed spending on campaigns targeting high-profit customers starting in Q3 of 2023 and are continuously evaluating the effectiveness of our campaigns. Our focus on the Smarter Ad Spend project involves analyzing our subscriber base to optimize digital advertising spend. We are closely monitoring ad costs and will strategically re-enter campaigns when the LTV to CAC ratio meets our defined level of return. The narrowed spending in SOHO allows us to shift a portion of that advertising spend to the corporate business while reducing SOHO spend.

Digital advertising spending.

We're closely monitoring at cost and we'll strategically re enter campaigns when the LTV to CAC ratio Beach are a defined level of return.

The narrowed spending in Soho allows us to shift a portion of that advertising spend to the corporate business, while reducing Soho spent our strategy centers around prioritizing high LTV customers, which will positively influence the profitability of newly acquired Soho customers Encouragingly, we are already ups.

Serving positive indicators with a decrease in CAC, resulting from an increase in organic sign ups and reduced overall spending.

In total we are planning for approximately $139 million in Soho revenue at the midpoint for 2024.

Johnny Hecker: Our strategy centers around prioritizing high-LTV customers, which will positively influence the profitability of newly acquired SOHO customers. Encouragingly, we are already observing positive indicators with a decrease in CAC resulting from an increase in organic signups and reduced overall spend. In total, we are planning for approximately $139 million in Soho revenue at the midpoint for 2024. Through active management, we expect this targeted reduction in revenue to allow us to maintain and possibly improve cash generation in comparison to previous periods. Now, let me address the corporate business and direct you first to our balance sheet. You'll notice a significant decrease in our accounts receivables from Q3 to Q4 of 2023. We've expanded our collections team in a short period, allowing us to focus on rigorous collections management in those quarters. Jim will go into more detail in his prepared remarks.

Through active management, we expect this targeted reduction in revenue to allow us to maintain and possibly improve cash generation in comparison to previous periods now let me address the corporate business and direct you first to our balance sheet.

You'll notice a significant decrease in our accounts receivables from Q3 to Q4 of 2023.

We've expanded our collections team in a short period, allowing us to focus on rigorous collections management in those quarters.

Jim will go into more detail in his prepared remarks.

This effort has improved cash generation. It has also resulted in an increase in customer terminations impacting both our 2023 revenues and run rate entering the new year.

Regarding other impacts on our baseline the facts box migration in Europe resulted in the discontinuation of that platform retaining less than half of its space. Also this may seem significant from a top line perspective. It remains justified from a technical platform retirement and cost standpoint. Additionally, the summit Act.

Johnny Hecker: While this effort has improved cash generation, it has also resulted in an increase in customer terminations, impacting both our 2023 revenues and run rate entering the new year. Regarding other impacts on our baseline, the faxbox migration in Europe resulted in the discontinuation of that platform, retaining less than half of its base. Although this may seem significant from a top-line perspective, it remains justified from a technical platform retirement and cost standpoint. Additionally, the Summit acquisition, strategically conducted for its great talent and technology, continues to generate baseline revenues, but it declined in 2023 and will not contribute to growth in 2024. As we have previously discussed, slow decision-making in the previous years of 2022 and throughout 2023 did not generate the addition of new business as initially anticipated in our 2023 post-pandemic plan. Consequently, we have adopted a more conservative approach to our baseline.

Musician strategically conducted for its great talent and technology continues to generate baseline revenues, but it declined in 2023.

And we will not contribute to growth in 2024.

As we have previously discussed slow decision, making in the previous year of 2022 and throughout 2023 did not generate the addition of new business as initially anticipated in our 2023 post pandemic plan. Consequently, we have adopted a more conservative approach to our baseline we see some but little change.

To that behavior first keeping our new revenue ambitions roughly flattish as well.

Despite the challenges we are encountering we're budgeting corporate revenue to $206 million at the midpoint for 2024, representing a three 1% growth compared to 2023 in line with our recent quarterly growth rates.

So looking ahead, we are maintaining stability in new business and anticipating initial returns from the Japanese corporate launch and response to market conditions. We have kicked off focused sales initiatives in 2024, and reallocated resources to enhance customer retention and cross and upsell opportunities and our large.

Jim Malone: We see some but little change to that behavior, thus keeping our new revenue ambitions roughly flattish as well. Despite the challenges we're encountering, we're budgeting corporate revenue at $206 million at the midpoint for 2024, representing a 3.1% growth compared to 2023, in line with our recent quarterly growth. So looking ahead, we are maintaining stability in new business and anticipating initial returns from the Japanese corporate launch. In response to market conditions, we have kicked off focus sales initiatives in 2024 and reallocated resources to enhance customer retention and cross and upsell opportunities across our large base. These initiatives position us for accelerated corporate growth in 2025 while we remain committed to cash generation. And with that, I will hand the call over to our CFO, Jim Malone, who will provide a bit more color on our Q4 2023 and full year 2023 financial results as well as our 2024 guidance. Jim, Thank you, Johnny, and good afternoon, everyone.

Based on these initiatives position us for accelerated corporate growth in 2025, while we remain committed to cash generation and with that let me hand, the call over to our CFO, Jim Malone, who will provide a bit more color on our Q4 2023 and full year 2023 financial results.

As well as our 2020 for guidance.

Jim.

Thank you Johnny and good afternoon, everyone.

In our press release and on this.

This earnings call today.

We are discussing preliminary unaudited 2023 results and 2020 for guidance.

Our fiscal 2023 order still underway.

And will result in order to financial results filed with our 2023 and 10-K.

<unk> to be filed next week.

Let's start with our corporate business results Q4, 2023 revenue was $49 4 million, an increase of $1 6 million or three 3% over the prior comparable period.

Q4, 2023 year over year corporate revenue growth increased by 30 basis points versus Q3 2023 year over year.

As Tony mentioned Q4 year over year revenue was impacted.

Jim Malone: In our press release and on this earnings call today, we are discussing preliminary unaudited 2023 results and 2024 guidance. Our fiscal 2023 audit is still underway and will result in audited financial results filed with our 2023 10-K, scheduled to be filed late next week. Let's start with our corporate business results. Q4 2023 revenue was 49.4 million, an increase of 1.6 million or 3.3 percent over the prior comparable period. Q4 2023 year-over-year corporate revenue growth increased by 30 basis points versus Q3 2023 year-over-year. However, as Johnny mentioned, Q4 2023 year-over-year revenue was impacted negatively by the cleanup initiated related to the Q4 collection efforts. Migration of Faxbox to the Legacy Platform and Summit.

Negatively by the cleanup initiated related to the Q4 collection efforts.

Migration of facts box for legacy platform.

And summit.

In the second half of the year and increased focus was put on cash collections.

For to improve collections by 9% from slow paying close to this.

And however did result in termination of non paying customers.

Corporate all growth of approximately $306.

It was down $16 four 9% from the prior year.

Driven by the mix of paid ads at a lower offer including Soho accounts moving to corporate.

And the new FX protest initiative that Johnny mentioned in his remarks.

Monthly churn of one point.

2%.

Increased 33 basis points, delivering a trailing 12 month revenue retention.

Jim Malone: In the second half of the year, an increased focus was put on cash collections. This effort improved collections by 9% from slow-paying customers and did, however, result in terminations of non-paying customers. Corporate offer of approximately $306, was down $16 or 4.9% from the prior year, driven by the mix of paid ads at a lower price, including SOHO accounts moving to corporate, and the new e-fax pro-tech initiative that Johnny mentioned in his remarks. Monthly churn of 1.82% increased 33 basis points, delivering a trailing 12-month revenue retention of 99%. The churn increase was primarily due to terminations of non-paying customers.

99% the churn increase was primarily due to terminations of non paying customers.

2023 full year corporate revenue.

$199 6 million or seven 4 million or $3 nine increase over 2022 results.

Year over revenue was also affected by the cleanup initiative related to Q4 collection efforts migration effects box and summit.

Moving to Soho results Q4, 2023 revenue of $38 3 million.

Decrease of $4 1 million or nine 6% over the prior comparable period.

The year over year decrease was within expectations, given the impact of price increases from prior year.

And lower optimized advertising spend.

Jim Malone: 2023 full year corporate revenue was $199.6 million, a $7.4 million or $3.9 increase over 2022 results, year-over-revenue was also affected by the cleanup initiative related to Q4 collection efforts. Migration of Faxbox and Summit. Moving to Soho results, Q4 2023 revenue of $38.3 million, a decrease of $4.1 million or 9.6% over the prior comparable period. The year-over-year decrease was within expectations, given the impact of price increases in prior year and lower optimized advertising spent. This approach delivered a net-based reduction due to fewer paid ads, but potentially higher value customers, partially offset by an increase in ARPA. Opera, of 15.2 to 15.12, increased by 41 cents year over year, benefiting from last year's price increase, churn declined 48 basis points to 3.34 percent compared to the prior period and are now at pre-pandemic churn levels, full year 2023 SOHO revenue was 162.9 million or 7.3 million or 4.3% decline over 2022 results and essentially in line with our full year SOHO guidance range of negative 4% to negative 2%.

His approach delivered a net base reduction due to fewer paid ads, but potentially higher value customers.

The offset by increase but an increase in ARPA.

Offer.

$15 to $15 12.

Increased by 41.

Year over year benefiting from last year's price increase.

Churn declined 48 basis points to 334% compared to the prior year period and are now at pre pandemic churn levels.

Full year 2023 Soho revenue.

It was $162 9 million or $7 3 million or four 3% decline over 2022 souls and essentially in line with our full year. So the guidance range of negative 4% to negative 2%.

Moving to Q4 consolidated revenue.

Revenue of $87 8 million is a decrease of $2 5 million or two 7% over Q4 of 2022.

Adjusted EBITDA of $47 2 million.

53, 8% margin was a decrease of $1 8 million or three 7% over Q4 2022.

The main drivers of the revenue flow through.

Drew mentioned above.

Jim Malone: Moving to Q4 consolidated results, revenue of 87.8 million. Is that an increase of 2.5 million or 2.7 percent over Q4 2022? Adjusted EBITDA of $47.2 million and 53.8% margin was a decrease of $1.8 million or 3.7% over Q4 2022. The main drivers are the revenue flow through, as mentioned above, planned employee-related expenses, partially offset by the effect of cost management. EBITDA margin of 53.8% is within our guidance range of 50 to 55%. Adjusted non-GAAP net income of $21.3 million, a decrease of $1.3 million or 5.6%, driven by lower revenues, a higher tax rate, offset by interest income of $1.5 million, and non-cash foreign exchange re-evaluation of intercompany accounts of $0.5 million. Trusted Nungap's EPS of $1.11 was lower than the prior comparable period by 1.8% or 2 cents.

Planned employee related expenses.

Partially offset by effective cost management.

EBITDA margin of 53, 8% is within our guidance range of 50% to 55%.

Adjusted non-GAAP net income of $21 3 million decrease of $1 3 million or five 6% driven by lower revenues.

Higher tax rate offset by interest income of $1 5 million and noncash foreign exchange revaluation of intercompany sales of <unk> 5 million.

First in non-GAAP EPS of $1 11 was lower than the prior comparable period by one 8% or <unk>.

In Q4, 2023, non-GAAP tax rate and share count was 21, 8% and $19 2 million shares.

Moving to 2023 full year consolidated results.

<unk> revenue of $362 6 million is essentially flat versus the prior year.

Adjusted EBITDA of $186 6 million was a decrease of approximately $10 million of five 1% compared to the prior comparable period, delivering a 51.5 margin ascent within our 50% to 55% guidance expectations.

Jim Malone: The Q4 2023 non-GAAP tax rate and share count was 21.8% and 19.2 million shares. Moving to 2023, full year consolidated results, consolidated revenue of $362.6 million is essentially flat versus the prior year. Trusted EBITDA of 186.6 million was a decrease of approximately 10 million or 5.1% compared to the prior comparable period, delivering a 51.5 margin percent within our 50 to 55% guidance expectations. The main year-over-year EBITDA driver and the flat revenue are planned employee-related expenses. Adjusted non-gap net income of $99.8 million decreased $6.8 million, or 6.4%, driven by lower operating income, offset in part by interest income, expense benefit by $4.2 million, and lower tax expense by $2.7 million. Adjusted Nungap EPS of $5.09 was lower than the prior comparable period by 4.5% or The 2023 non-GAAP tax rate and share count was 19.7 percent and 19.6 million shares, as mentioned in our Q3 2023 Earnings Goal. Additionally, we announced a $300 million bond repurchase program approved by the Board of Directors.

The main year over year EBITDA driver.

With the flat revenue as planned employee related expenses.

Just the non-GAAP net income of $99 8 million.

Decreased $6 8 million or six 4% driven by lower operating income offset in part by interest income.

Benefit by $4 2 million and lower tax expense by $2 7 million.

Adjusted non-GAAP EPS of $5 a month.

It was lower than lower than the prior comparable period, but four 5% or 24.

Okay.

To 2023, non-GAAP tax rate share count was $19 seven.

Percent and $19 6 million shares.

As mentioned in our Q3 2023 earnings call.

We announced a 300 million bond repurchase program approved by the board of directors to Q4 2023.

And the first week of January 2024.

We repurchased $62 6 million.

$8 7 million in face value across both tranches for $57 1 million and $7 9 million cash respectfully.

Jim Malone: In Q4 2023 and the first week of January 2024, we repurchased $62.6 million and $8.7 million in face value across both tranches for $57.1 million and $7.9 million in cash, respectively. We repurchased 349,000 and 1 million shares in Q4 and 2023, respectively, for a cash outlay of 8.5 million and 23.5 million. We ended 2023 with $88.7 million in cash and cash equivalents, which is sufficient to fund our operations and repurchases of debt and equity. Our normalized 2012-31-23 cash balance would have been flat versus 930-23 at $156 million, excluding the $65.5 million in bond and equity repurchases. In 2023, full year free cash flow was $77.7 million.

We repurchased 349001 million shares in Q4.

2023, respectively for a cash outlay of two.

$8 5 million and $23 5 billion.

We ended 2023 with $88 7 million in cash cash equivalents, which is sufficient to fund our operations and purchase and.

Repurchases of debt and equity.

Our normalized 2012, 31, 23 cash balance would have been flat versus non 30 23 at 156 million.

<unk> was $65 5 million in bond and equity purchases.

2020 through full year free cash flow was $77 7 million.

For additional assistance with the quarterly spread of our guidance.

Mhm, finding additional volumes for the current quarter.

For the year 2020 for volumes is false.

Revenues between $338 million and $353 million.

With 345 billion.

Good point.

<unk> non-GAAP EBITDA between $182 million, and 194 million with $188 million at midpoint.

Jim Malone: For additional assistance with the quarterly spread of our guidance, we will be providing additional guidance for the current quarter. For the year 2024, revenue between $338 million and $353 million, with $345 million at midpoint. Just a non-gap EBITDA between $182 million and $194 million, with $188 million at midpoint, adjusted non-GAP EPS at $5.08 to $5.31, with $5.20 at midpoint. For Q1 2024, revenues are expected to be between $85 million and $89 million, with $87 million at the midpoint, adjusted Nungap EBITDA between $45 million and $48 million, with $46 million at the midpoint, adjusted non-GAAP EPS between $1.27 to $1.33, with $1.30 at the midpoint. Estimated share count and income tax rate are 19.4 million shares and 20.5% to 22

Adjusted non-GAAP EPS.

FIFO weight to slide 31, with $5 20 at midpoint.

For Q1, 2024 revenues are expected to between the two.

Between $85 million and $89 million with $87 million at midpoint.

Adjusted non-GAAP EBITDA between 45 million, a $48 million with 46 billion at midpoint.

Adjusted non-GAAP EPS at $1 27 to $1 33, with a $1 30 at midpoint.

Estimated share count and income tax rate or $19 4 million shares.

25% to 22, 5% this.

This concludes my formal remarks.

I'd like to turn the call back to the operator for Q&A. Thank you.

22.

5%.

This concludes.

Again.

And our first question today is coming from John <unk> from CJS Securities. John Your line is live.

Operator: This concludes my formal remarks. Now I'd like to turn the call back to the operator for Q&A. Thank you. To 22.5%. This concludes. And the first question today is coming from John Tanwanteng from CGS Securities. Hi, good afternoon.

Hi, good afternoon. Thank you for taking my questions.

I guess my first one.

Scott or John.

But when do you think the decision, making labor issues impacting your corporate business will begin to resolve or begin to inflect.

John Tanwanteng: Thank you for taking my questions. I guess my first one for Scott or Johnny, you know, when do you think the decision-making labor issues impacting your corporate business will begin to resolve or begin to intensify? Is there any light at the end of the tunnel, or should we expect this to continue for the foreseeable future? Hi John, this is Johnny.

Is there any.

At the end of the tunnel or should we expect that to continue for the foreseeable future.

Hi, John This is Johnny.

Johnny Hecker: Yeah, thanks for that question. I think it's a good one. I wish we knew, right? I think what we're experiencing is we're seeing a little bit of, you know, more decisiveness here and there, but it's not at a trend that we would say, keep this ending anytime. So for our 2024 budget, we have anticipated to not see a whole lot of, Okay, got it. And at 3% growth and change with the VA contributing, you know, a little over something within a seven-digit range, does that mean corporate isn't growing without the VA, or are there other components to that? No, no, no; corporate will grow without PPA. It's, I mean, it's not a huge partner.

Thanks for that question I think.

I wish we knew.

I think.

What we're experiencing what we're seeing.

A little bit.

Yes.

Thank you Glenn.

But it's not a trend that we would say hey, we're seeing like ending anytime soon so for our 2020 budget.

We had anticipated.

Not a whole lot of improvement throughout the year.

Okay got it and then 3% growth and change with the VA contributing.

A little over.

Something within a seven digit range. It does that mean corporate isn't growing without the VA or the.

The other components of that.

Corporate book growth for sure.

Yes.

Johnny Hecker: Got it. Got it. Okay. Do you still see fax volumes growing across the same customers year on year? Absolutely.

Not a huge contributor.

Yes.

Okay got it got it Okay do you still see fax volumes growing across the same customers year on year.

Johnny Hecker: Yeah, we see customers. I mean, I mean, we have a very broad spectrum of corporate customers, but especially on the upper end, on the larger customers, we see... Scrub. And this is driven by two concepts, right? On the one hand, depending on what you're talking about, it could be on servers, and they're still migrating a lot of... So we still see a lot of............

Absolutely, yes, we see customers.

We have a very broad spectrum.

Corporate customers.

But especially on the on the upper end on the larger customers, we see tremendous growth with an individual customer.

Okay, and then driven by.

On the one hand.

The M&A happening within large companies so they acquire.

They require additional volumes.

Secondly, you see.

Lot of that traffic.

Still on Prem.

Depending on what customers are talking about cerberus it could be on machines.

And they are still migrating a lot of these things into the cloud So we chose.

This momentum within within our existing customers.

Johnny Hecker: And then maybe one more thing I talked about in my remarks, a lot of our larger, Healthcare IT, and DHRSA, and as they grow and acquire new customers, bring those on board and grow it. Thank you. And I was wondering when you expect the impact of the lower spend in the SOHO business to level off from a, I guess, sequential decline perspective? Will that take most of the year? What will that look like?

Then maybe one one more thing I talked about it in my remarks, a lot of our larger customers alright, great.

In the HR.

In our space and as they grow and.

Acquiring new customers.

We bring on those volumes.

And grow within those customers as well.

Understood. Thank you and I was wondering when do you expect the impact of the lower spend.

So a business to level off.

I guess sequential decline perspective.

Will that take most of the year, but what does this will look like.

Scott Taricki: the level of the spend or the revenue component associated with it. The revenue and user component that's associated with a decline in... Now, that will continue, that will continue at the current level of budgeted spend that will continue throughout the year, and could even, One of the issues that we will be monitoring... where exactly is that sweet spot around the budget? Because it could be two or three million dollars higher, or it could be a couple million dollars lower.

The level of the spin or the revenue component associated with.

The revenue and end user component of that that's associated with a decline in spend.

Now that will continue.

That will continue at the current level of budget spend that will continue throughout the year and could even continue into next year one of them.

Issues that we will be monitoring.

Where exactly is that sweet spot around the budgeted number because it could be two or $3 million higher it could be a couple million dollars lower.

Scott Taricki: So as we look at the various campaigns, and we monitor them, and we look at their lifetime value expectation, how they behave against other cohorts, that will influence the level of spend, which will then give greater clarity to the answer to your question, as we enter 2025, but I think clearly in 2024 you should expect for each of the four quarters a decline in the base from the. And is there any point where you have enough remaining high-quality customers and high-quality acquisitions in that business that it can eventually grow at some point or stabilize to flat, or is it going to be an expectation that that just declines at a slower pace once again? No, I actually think when you slough off the, what I call the wrench, Uh, when those customers have signed up within the last 12 to 15, and the portion of them that have a short life, they may wean themselves out of it.

So as we look at the various campaigns and we monitor them and we looked at their lifetime value expectation, how they behave against other cohort that will influence the level of spend which will then give greater clarity to the answer to your question as we enter 2005, but I think clearly in 2004, you should expect for each of the four.

Quarters, a decline in the base.

From the predecessor.

Got it and is there any point, where you have enough remaining high quality customers and high quality acquisitions that business can.

Can eventually grow at some point or stabilize to flat, whereas it's going to be your expectation that taxes could decline at a slower pace once you.

No I actually think when you swap off.

The retrofit.

Good day.

Yes.

Feedback.

Okay.

Those customers.

Essentially you're signed up within the last 12 to 15 months.

And a portion of them will have a short life.

Bring themselves out of the system.

Scott Taricki: While it is true you will have a lower revenue, It'll also be much easier to stabilize that number on a go-forward basis. I would still, though, not look for the Soho Channel, the way we are managing it, to grow. But I do think there's a point where it does not entirely clear the window, does not issue keys, that there will be stability or can be stability in that channel of revenue. Got it. Thank you. I'll jump back in.

While it is true you will have a lower revenue than 2003.

Also be much easier to stabilize that number on a go forward basis, I would still though would not look for the Soho channels. The way we are managing it to be a growth vehicle.

But I do think there is a point, it's not entirely clear does not issue.

That there will be stability or can be stability in that channel revenue.

Got it thank you I'll jump back in queue.

Okay.

Thank you. The next question is coming from David Larsen from BTG, David Your line is nice.

John Tanwanteng: Thank you. The next question is coming from David Larson from BTIG. Hi, can you talk a little bit about Clarity, J-Sign, High Trust, and Harmony?

Hi, can you talk a little bit about clarity J signed high trust and harmony.

Johnny Hecker: Maybe if you could please comment on, you know, pricing, revenue contribution, and just broadly speaking, what these products do and how they will benefit your hospital clients in the longer term. Thanks very much, Chart. Clarity. Clarity is our AI and NLP-based solution that helps track and manage. Data from unstructured documents and images like FACTS, and including data that is handwritten or, you know, difficult to read by the human eye, and turn it into structure.

Maybe if you could please comment on.

Pricing.

Revenue contribution and just broadly speaking what these what these products do and how they will benefit your hospital clients longer term thanks very much.

Yeah sure. Thanks, David.

So let me start with.

With clarity.

Clarity.

<unk> based solution that helps to extract.

Data from unstructured documents and images like facts.

And including data that is handwritten are difficult to be read by the human eye.

And turn it into structured data so it can be easily processed are better.

Johnny Hecker: So it can be easily processed, or, better yet, faster processed within other systems like electronic health. It's really a technology platform we have built out that we're now developing individual applications for specific use cases on top. So the Clarity CD platform for clinical documentation helps, you know, and the other ones. So I'm going to show you a quick example. So this is a document that is being extracted from a database.

To be processed within other systems like electronic health record system.

It's really a technology platform that we have to build out that we're that we're now developing individual.

Applications for specific use cases on top so the clarity CD platform for clinical documentation.

Yes.

Extract certain demographic data so a document that is b J.

That can be processed quicker and filed within the EHR system.

Johnny Hecker: So this is a document that is being extracted from the process quicker and filed within the EHR system and delivered to where it really matters in a lot, you know, faster manner than Transcripts provided by Transcription Outsourcing, LLC, with a mouse, filing it. So we're accelerating that process, um, keyed into the system manually. On the prior authorization application on Clarity, we do a similar process, but specifically, the system is trained on prior authorization documents, so we can accelerate that process, and with the recent developments with the rules from the CMS, that will definitely force not only providers to accelerate the turnaround of prior authorization, they will be required to do at a certain time. The J-Sign application is a healthcare-specific or directed but not exclusive application for electronic security.

<unk> delivered two where it really matters a lot.

Faster manner.

<unk>.

<unk> traditionally done which is by manual labor Simon looking at the document and then with a mouse click filing it so we're accelerating that process.

And now data has to be keyed into the system manually anymore.

On the prior authorization application on the clarity we do.

Similar process.

Specifically the system is trained on prior authorization documents.

So we can accelerate that process.

And within reason.

<unk> rules from the CMS.

Currently.

Not only.

But primarily payors to accelerate the turnaround of prior authorization, which will pay will be required to do within certain time limits in the future.

The daytime application is a.

Health care specific directive.

Lucid application for electronic signature.

Johnny Hecker: So, basically, you know, comparable to a technology like you would find from DocuSign, and we know that a lot of the documents that we process for our customers now by fax do require some kind of digital or some kind of signature process before they are being returned. So that's why we view the JSON. Natural Extension of our current office. Transporting Documents, but then going more into the, Thirdly, on the Harmony platform, this is really where we see those technologies come together at a platform level. Choose the technology, you know, product that we have out there. It's like I said in my remark, where we are receiving documents by fax for our customers, and then we're extracting certain data and we're forwarding it, so I'm, and there will be other protocols like FHIR, HL7; we will bring in Clarity technology, and it will all come together in that harmony. Okay. That's great!

So.

Sure.

Basically comparable to technology like to refine from docs.

And we know there is a lot of the document that we process for our customers now buy back.

Do require some kind of digital or some kind of signature process and the priority of return. So that's why we view the DJ side application as a natural extension of our current offering.

Yes.

Transporting documents, but then going more into the into the workflow.

Thirdly on the on the harmony product platform that is really where we see those other technologies come together.

<unk>.

On a platform level where customers can.

Hey, good choose technologies.

Transportation protocols as they need.

And the first.

<unk> product that we have out there is like I said in my remarks.

We are receiving documents firefox for our customer.

And then we're extracting certain data.

Forward. It has direct secure message so the recipient doesn't really receive a fax anymore.

I think your message.

And there will be other protocols by fire.

Seven, bringing the clarity technology and it will all come together in harmony platform.

Okay.

Yes.

That's great what is the what is the revenue contribution from these products and what is like the current we'll call. It like penetration rate what is the upsell potential just pricing any color there what kind of lift can we expect to see from these products.

Johnny Hecker: What is the revenue contribution from these products and what is the current, we'll call it like penetration rate, what is the upsell potential, just pricing, any color there, what kind of lift can we expect to see from these products? Yeah, so from a revenue perspective, I mean, it's very clear that the majority of our revenue is still coming from the fax platform, right? But we're looking to extend, and we're, you know, finding adoption for the new technology. They are priced, depending on the technology, but similarly to a house, a price for faxing technology, which is mostly on a per document or per user level.

Yes.

From a revenue perspective, I mean, it's very clear that the majority of our revenue is still coming from that from the BACS platform alright.

We're looking to extend and we're finding adoption on the new technology.

They are they are price.

Yes, depending on the technology, but similarly to how customers are used to pay for a vaccine technology.

Mostly on a per document our page level.

Johnny Hecker: Depending on the protocol, it can be a transaction cost, but we're going to continue with our subscription and then usage-based pricing models for all of them. Um, yeah. Yeah, I think you also have to have high trust.

Depending on the on the protocol it can't get our transaction hotspot areas.

We are going to continue with our subscription and usage based pricing models for all of these technologies.

Yeah, I think that.

Yes, I think you all high trust, so core <unk> service and more recently Jay side have been high Trust certified at this point, although weighted in Q4. This year clarity is not yet in harmony has really added.

Johnny Hecker: So the core EFACS service and more recently J-Sign have been highly trusted certified at this point, although it is in the queue for this year, Clarity is not yet, and Harmony is really at, very early. So if you take all of them together, Harmony's not contributing any revenue in 23 and does not expect to contribute much in 24. There's a low single million dollars of revenue for what would be Clarity. That's very helpful. Thank you. And then could you maybe just talk a little bit more about EMRs, like Epic and Cerner and Metatech in particular? Are you working with those EMR vendors? Are you the eFax platform within any of those? Or do they have their own, and are you competing with them?

Very early infancy stages. So if you take all of them together hundreds not.

Contributing any revenue in 'twenty, three and not expected to contribute much in 'twenty four.

Low single millions of dollars of revenue or will it be clarity Jason.

That's very helpful. Thank you and then can you maybe just talk a little bit more about the EMR like epic and Cerner and Meditech. In particular are you working with those EMR vendors are you the facts platform within any of those or do they have their own and are you competing with them. Thanks very much.

Johnny Hecker: Thanks very much. So, there are some EHR vendors or EMR vendors that we are the default for, CloudFacts Platform 4, but we integrate basically with all of them.

<unk>.

So there are some EHR vendors of EMR vendors that we are the default.

Thanks platform for.

But we integrate basically with all of them through our API technology can connect any EMR to our to our cloud platform.

Johnny Hecker: For our API technology... and more to our cloud platform. And we have customers on all of the technologies that you mentioned. Okay, just one last quick one for me. You mentioned a 65 hospital health system win, I think, last quarter with a hundred and seven skilled nursing facilities and 25 urgent care centers. Was that the VA, or is that a different hospital system?

And we have customers on all of the technologies that you had mentioned.

Okay and just one last quick one for me you had mentioned a 65 hospital health system win I think last quarter with 107 skilled nursing facilities and 25 urgent care centers was that the VA or is that a different hospital system.

Johnny Hecker: And what kind of revenue contribution can we see from that client, and when would that start to roll in on the books? So that was not the VA, that was a, I don't know, I think it was a nonprofit. That size customer, you can probably expect. You know, definitely a seven-digit contribution. It's started to ramp up. We're in the rollout phase, but as you can expect with that many facilities, we are very much dependent on the efficiency of their IT teams and their partners to work closely with them for that rollout. But we expect that rollout to be a lot faster than the VA, so it's a lot. Okay, thanks very much. I'll hop back in the queue.

What kind of revenue contribution can we see from that client and when would that start to roll on the books.

So that was not the VA that was a I don't know.

With the nonprofit Steven.

<unk>.

That size customer, we can probably expect.

Definitely a seven digit contribution it started to ramp we are in the rollout, but as you can expect with that many facilities.

We very much dependent on efficiency of fair ITT and their partners usually these companies have.

Partners, who have outsourced their alright.

Thank you very closely with them to that rollout.

But we expect that rollout to be.

A lot faster than the VA the VA.

I believe over 2200.

Anne Samuel: Thank you. The next question is coming from Anne Samuel from J.P. Morgan. Hi, thanks for taking the question. I was hoping maybe you could speak to, you know, what your conversations have been like with your hospital customers right now about demand. I mean, you know, we've heard some mixed commentary from others in the space that there have been some green shoots just given improving margins, but labor still remains, you know, a real pressure point. But you do help alleviate some of that pressure.

So it's a lot it's a lot larger.

Okay. Thanks, very much I'll hop back in the queue.

Alright, thank you.

Thank you. The next question is coming from Amazon from J P. Morgan and your line is nice.

Hi, Thanks for taking the question I was hoping maybe you could speak to.

What your conversations have been like with your hospital customers right now around demand. So we've heard some mixed commentary from others in this space that there've been some green shoots just given improving margins, but labor still remains a real pressure point, but you do help alleviate some of that pressure. So you know.

Johnny Hecker: So, you know, is the conversation more along the lines of not now? Or is it more of a longer-term halt in spending? Yeah, thank you, Anne. I think so. I would get in line with the great shoots, right?

Are the conversation more along the lines of not now or is it more of a longer term halton spending.

Yeah. Thank you Ann I think.

No.

I will get in line with the grid.

Johnny Hecker: We're seeing hospitals coming around and saying, yeah, you know, it's time to tackle these projects, and the other thing is that we do see some that are still under economic pressure, others that see improvements in cash flow, but what we do not see is like more a more a more a more a more a more a more a more a more a more a more a more a more a more a more I think that it is still a very, very tight labor market, and that's because they can definitely help with our product to take some pressure off of their nursing staff and their administrative staff, so they're interested in talking about that, but you still have to get on the priority list, and We're successful here and there, but it's not at the rate that we would like to see it, obviously, from the sales side, but I agree there are some Now, is the healthcare space a super fast-moving space? No, they're not. We're slow at decision-making by nature, and it's almost like the government.

We're seeing hospitals coming around and things.

And to tackle these projects.

Okay.

Do see some that are still under economic pressure others that the improvement in cash flow, but what we do not see is like that.

<unk> be hugely successful in hiring talent alright, I think that is still a very very tight labor market and thats, what we depend on.

We can definitely help with our products. It takes some pressure off of their nursing staff and their administrative staff. So they are interested in talking about these things.

But you still have to get on the priority list alright.

And we're successful here and there, but it's not at the rate that we would like to see it obviously always being a patient from from the SaaS side.

But I agree there are green shoots and we were able to close deals here and there now is the health care space at Super fast moving space.

They are slower decision, making by nature.

Johnny Hecker: But slowly but surely, we're penetrating. That's really helpful, Collar. Thank you. And then just, you know, maybe one on the on the margins, you're doing a really nice job of holding the margins despite the revenue shortfall. I was hoping you could speak to maybe where you see the biggest opportunities to be lean, you know, is it just advertising or are there other areas that you can take a look at? And how much of that cost containment is long term versus just related to the near term revenue shortfall? I would say, actually, Anne, most of it would be in the area of advertising and marketing. As I mentioned to the previous questioner.., to John when he led off.

And it's almost like the government, but slowly, but surely we're penetrating that space more and more.

That's really helpful color. Thank you and then just maybe one on the margins you are doing a really nice job of holding the margins. Despite the revenue shortfall I was hoping you could speak to maybe where you see the biggest opportunity is to be lean you know is it just advertising or are there other areas that you can take a look at and how much of that cost containment is.

Long term versus just related to the near term revenue shortfall.

I would say actually in most of it would be in the area of advertising and marketing as I mentioned.

So the previous questioner.

John let off.

Scott Taricki: There will be some flex in that based on how various programs perform, and maybe we can add a little bit to it, but the philosophy in terms of Soho Channel revenue is a strategy. So it's not a one-year event, and then we expect that we'll spend double next year. No, this is a permanent shift in the thinking of how to treat that stream of revenue and, in fact, take some of the historic marketing dollars that went to Soho and shift them over to the corporate side.

There will be some flex in that based on how various programs perform and maybe we can add a little bit to it but the <unk>.

Philosophy in terms of the Soho channel revenue is a strategy. So its not a one year event and then we expect that we will spend double next year. This is a permanent shift in the thinking of how to treat that stream of revenue and in fact take some of the historic marketing dollars the web.

To Soho and shift them over to the corporate side.

Scott Taricki: It always had an element of marketing, but that's going to be roughly a little bit less than double this year, and I would expect that will grow even again next year in 2025. That is still a long way away. There probably won't be as much Delta, if any, in the marketing, and we'll continue to fine-tune some of the other areas that would be, say, in our talks. So, but that's for many months. That's helpful.

An element of marketing, but thats going to be roughly.

Roughly a little bit less than double this year and I would expect that we'll grow even again next year and 25 so.

That has been the primary bulk of it now as I mentioned, we go through all the lines of the P&L, So there's little savings or not telco cost.

A lot of nickels and dimes that also add up but the vast majority of it certainly as we look at 'twenty four would be in the marketing budget now enrolled 25.

Still a long way away there probably won't be as much delta if any in the marketing costs.

And we will continue to fine tune some of the other areas that would be say in our Cogs.

So but thats.

Anne Samuel: And then just one final question for me, as we think about your revenue guidance for next year, what level of churn are you embedding within that? So, I mean, when you say next year, you mean 24, right?

Many months away.

That's helpful. Thank you and then just one final one for me as we think about your revenue guidance for next year what level of churn are you embedding within that.

So we say next year, you mean 24, right I presume right.

Exactly.

Great.

On the salt.

Scott Taricki: Yes, exactly. So, on the subtle... As we have left, you know, not that long ago, we used to put it in there just for information. You know, you lose two-thirds of the customers within the first year of those that you market, those that have signed up. So what happens is the core gets better and better as the percentage of the base gets increasingly larger than the new. So it will, you've already started to see it tick down from the middle of last year into Q3, into Q4. That trend will continue. I don't have to give you more specificity in terms of the actual number.

As we have less.

<unk> and less sign ups that have a higher churn rate because youll recall going back.

Long ago, we put it in there just for informational purposes.

Lose two thirds of the customer within the first year of those that you market those that have signed up so what happens is the cohort get better and better.

The percentage of the base is increasingly larger than the new sign ups. So.

Will you have already started to see a tick down from the middle of last year into Q3 into Q4 that trend will continue.

Im happy to give you more specificity in terms of the actual.

Numbers.

Scott Taricki: But I think we're going to see it, you know, at some point tick through 3%. Yeah, OK. Right. It'll probably go down between 40.

But I think we're going to see it at some point kick through three percentage, yes, it will get down to that 3% right.

It will probably go down between 40, and 80 basis points throughout the remainder now at the corporate.

Scott Taricki: Now the corporate, what I talked about and what Johnny talked about in terms of The Jim Zabadka, The Aggressors, accounts receivables, collections, if there were some cancellations, that basically was the whole increase in the cancel rate in corporate. So it's been at a fairly stable level in sort of the one and a quarter to one and a half percent. We think that is sustainable for 24. I wouldn't know, but our underlying economic assumption is that there will not be a recession in 2024. Call it a soft landing, whatever you want to call it, that we'll continue to experience. GDP growth, we expect it to remain positive. We're not faking anything draconian.

And what <unk> talked about it with John talked about in terms of.

Due to the bad debt the aggressive account.

Receivables collection, yes, there were some cancellations that basically was the whole decrease in the cancel rate corporate from Q3 Q4.

And so it's been a fairly consistent stable level and sort of a one and a quarter to one 5% range and we think that is sustainable for 'twenty four I would note.

But our underlying economic assumption is that there will not be a recession in 'twenty four.

Call It a soft landing, where we want to call. It that we will continue to experience.

The various elements of the economy that we've seen in the last two to three quarters. Obviously, there is some volatility with the expectation of when the fed will cut how much they'll cut but in terms of.

Scott Taricki: And obviously, if that were to occur, we would have to rethink it. That is very helpful. Thank you so much for all the color.

GDP growth, we expect it to remain positive throughout the year. So we're not baking anything draconian and obviously that would occur we would have to rethink that.

Operator: Thank you. The next question is coming from Fatima Boulani from... Martini, your line is open. Hey, good afternoon, guys. This is Mark Han for Fatima.

Okay.

Very helpful.

Well. Thank you so much for all the color.

Hmm.

Thank you. The next question is coming from <unk> <unk> from Citi. So Athena your line is nice.

Hey, Good afternoon, guys. This is mark on for Tim Thanks for taking our questions.

Mark Han: Thanks for taking our questions. Maybe just a clarification on the timing of the VA contribution. Can you give a sense of when we should start to see that contribution? Are there any contributions in the first quarter? Or is this more of a second half event?

Just a clarification on the timing of the VA contribution.

Joseph when we should start to see that contribution is there any contribution in the first quarter or is this more of a second half event and shall we expect a ramp through the year to get there.

Scott Taricki: And should we sort of expect a ramp through the year to get there? Yeah, it actually has already started. There's a small contribution in Q4, and yes, it will ramp up in each successive quarter through Q24 and likely through Q25. So, as Johnny mentioned, there's been significant work done since the big August meeting we talked about a couple of earnings calls ago when we had finished the pilot phase, and then there was a continuation of the rollout, more under the same methodology that the preliminary rule had done. And then I would say toward the middle of the fourth quarter, there was beginning to be an acceleration of the rollout and also a change in the philosophy of how it rolled out. So that will be, andpersots.io Transcripts provided by Transcription Outsourcing, LLC.

Yes, actually I'll start.

Small contribution in Q4, and yes, it will ramp in each successive quarter through 'twenty, four and likely through 'twenty one.

So as John mentioned theirs.

Been significant work done from.

Big August meeting, we talked about a couple of earnings calls ago. When we had finished the pilot phase.

And then there will be a continuation of the rollout more under the same methodology that the preliminary rollout had gone through and then I would say towards.

All middle ish, maybe early to middle of the fourth quarter.

There was beginning to be an acceleration of the rollout and also a change in the philosophy, how it rolls out and so that will be continuing theres still some some details to be worked out with continuing in terms of the current rollout and that is accelerating pretty much each month.

Scott Taricki: So we'll see, as a result, we've seen the traffic build each month. That will continue to build, and so it will ramp through all 12 months. Okay, great. That's very helpful. And then any sense of when we should be reaching a run rate level? Is this, you know, I guess, a 25 event or 26 events? Any comment there would be appreciated, and other sources.

We will see as a result, we have seen the traffic build.

Each month that will continue to build and so it will ramp through all 12 months of this year.

Okay, Great. That's very helpful. And then any sense of when we should be reaching a run rate level of this.

I guess about 25 of them towards 26 events any color there would be appreciated.

It's dependent upon.

<unk> actually had certain goals and objectives.

Scott Taricki: Which we like, bringing on more traffic at a substantially faster pace than has occurred in 2023. But how much of that is realizable? And by the way, we think in calendar years; they think in their fiscal year, which is September 30th, quarter, one quarter offset. But I would say it's clearly not, we will not achieve the full ramp in 24. I think it is unlikely even in 25. Depending on this pace of acceleration, maybe 26 or 25.

Which we like because it's bringing on more traffic that.

That is substantially faster pace than as occurred in 2023.

How much of that is realizable and by the way we think in calendar year two they think in their fiscal year, which is September 30.

Quarter, one quarter, offset but I would say, it's clearly not.

We will not achieve the full ramp in 'twenty four I think it is unlikely even in 'twenty five.

Depending on this pace of acceleration, maybe 'twenty six or 'twenty seven.

Mark Han: Okay, perfect. And then just last follow-up, just on the cash flow generation this quarter, you guys essentially reaffirmed the cash flow trend that you guys provided early in the last quarter, which calls for low 80s per cash flow in 2024. Why shouldn't we see more upside from here, given the lower capex, the other collection efforts, and really the cost efforts that are really showing up in the EBITDA line? Thanks. Can you repeat that, Mark?

Okay, Perfect and then just a last follow up just on the cash flow generation this quarter.

Centrally reaffirmed cash trend that you guys provided early reads in last quarter, which calls for a low <unk> free cash flow in 2024.

Why should we see more upside from here given the lower Capex further collection effort and really the cost of parts that really showing up in the EBITDA.

Thanks.

Can you repeat that mark.

Mark Han: Oh, yeah, sure. I was just just following up on the cash generation. You guys essentially reaffirmed 24 cash generation in the low 80s. One wonders, you know, why shouldn't we see more upside from here, given the lower capex here, better collection efforts, and the cost efforts that are showing up on the EBITDA side? Remember, we have higher tax rates in 2024-2023. Our tax rate is going up, and those will be cash taxes, so that will be a mitigating factor against it. And I think pretty much everything else flows through it.

Oh, Yes sure I'll, just just following up on the cash generation.

Essentially reaffirmed all 24 cash generation of the low eighty's.

Wanted to get Thats, why Shouldnt, we see more upside from here given the lower Capex. This year better collection efforts on the cost efforts that are showing up on the EBITDA side.

Yes.

Well remember we have higher taxes.

And 'twenty four than 2003, our tax rate is going up and those will be cash taxes, so that will be a mitigating factor against it.

And I think pretty much everything else flows through.

Scott Taricki: I mean, you know, the EBITDA is going up a little bit year over year. EBITDA is essentially cash. Yes, you're correct. We pick up $7 million roughly in CapEx, but we're going to give a couple million back in taxes, and we're at $77 million. You add a few million, and you're going to be $81 million, $82 million. So I think it flips.

The EBITDA is going up a little bit year over year EBITDA is essentially cash.

Yes, Youre correct, we pick up.

$7 million roughly in the Capex, but when you give a couple of million back taxes and were $77 million or the 80 182, So I think it puts.

Scott Taricki: Okay, great. Thank you guys so much. Before we go to the next question, we did have a question that came in via email related to the free cash flow, which is in the press release we noted. The free cash flow would be dedicated to a combination of share repurchases, bond repurchases, and possibly M&A. So the question is, what's the perceived allocation amongst the various potentialities? Well, the ones that are the most certain are clearly related to our own capital.

Okay, great. Thank you guys so much.

Before we go to the next question. We did have a question that came in by E. Mail is related to the free cash flow, which is in the press release, we noted that the free cash flow would be dedicated to a combination of share repurchases bond repurchases and possibly M&A.

So the question is what's the perceived allocation amongst the various potentiality.

Ones that are the most certain are clearly related to oil and capital structure. So we can go into the market, we can buy bonds and goodbye equity. So I think it's likely to assume those will consume the majority of the free cash flow and where the cash balances.

Scott Taricki: So we can go into the market; we can buy bonds, we can buy equity. So I think it's likely to assume that those will consume the majority of either the free cash flow or the cash balance. I would say that depending on where the stock settles, that may be an attractive alternative.

I'd say that depending on where the stock settled.

That may be an attractive alternative we clearly stated now for several calls running desire to deleverage. If we can continue to get the bonds at a discount that is an attractive investment and on the acquisition side. There's I think a narrow set that would be of interest to us.

Scott Taricki: We clearly have stated now for several calls running a desire to deleverage, and they'll continue to get the bond at a discount; that is an attractive investment. And on the acquisition side, I think there is a narrow set that would be of interest to us. But I think it's a narrow set; it's not a broad set. Evaluations continue to be generally challenging.

But I think its I know thats not a process.

Valuations continue to be generally challenging so I would say, it's not probably a high probability that we would do acquisitions.

Scott Taricki: So I would say it's not probably a high probability that we would do that, but certainly it is within our field of view, and I think we're more interested in doing an acquisition that would have a more meaningful impact than a small one. So if that were to be the case, we would reprioritize the allocation away from shrinking our own internal capital structure towards the M&A transaction. And that would be the cash balances we have were a substantial portion of the free cash flow. And then I'll also remind everybody, we do have a modest line of credit that can be expanded up to $50 million. So we could do something that is triple digits in terms of acquisition purchase price. I'm not sure that that is a high probability, but it's certainly within the field. Thanks for watching. Please go back.

Certainly it is within our.

Our field of view.

I think we're more interested in doing an acquisition that would have a more meaningful impact than a small tuck.

Is that would it be the case, we would re prioritize the allocation away from shrinking your own internal capital structure towards the M&A transaction and that would be the cash balances. We have we're a substantial portion of free cash flow and then I'll also remind everybody. We do have a modest line of credits that can be expanded up to 50 million.

So we could do something that is triple digits.

In terms of the acquisition purchase price as I say I'm not sure that that is a high probability, but it's certainly within the field of view.

Next question.

Operator: The next question is a follow-up coming from John Tamlintang from CJS Securities. John, your line is open. My question was answered, thank you. No problem. And the next question is from Arun Seshadri from BNP. Arun, your line is, Yes, hi, thanks. Just most of my questions answered.

Ill go back into line.

The next question is a follow up coming from John <unk> from CJS Securities. John Your line is nice.

Hi, My question was answered thank you.

Okay No problem and the next question is from Arun Seshadri from BNP Arun your line of sight.

Yes, hi, Thanks, just most of my questions answered just wanted to understand is there within the within Soho is there.

A set of accounts or a proportion of the total.

Arun Seshadri: Just wanted to understand, is there, within the, within SOHO, a set of accounts or a proportion of the total customers that you think is a very stable account base? And then most of the attrition is coming from, you know, a portion of that account base? Is there any way to segment that customer base for us so we can get a sense for when that, you know, attrition is coming towards an end? Well, I think it goes back to the earlier question that I answered. There's been a phenomenon for a couple of years now where you get a fair amount through the marketing programs of what I call the renters.

Customers.

That you think is a very stable account base and then most of the attrition is coming from.

Yes.

A portion of that account is there any way to segment that that customer base for us. So you can get a sense for when that.

Christian is coming towards an end.

Well I think it will go back to the earlier question that I answered. So there has been for a couple of years now this phenomenon that you get a fair amount through the marketing programs are what I call. The renters people, who have limited use cases and as a result, they churn generally within a 12 month period.

Scott Taricki: People who have limited use cases, and as a result, they churn generally within a 12 month period. As we have reported before, about two-thirds of the signups will churn out within a year. So as you decrease the marketing spend, you decrease the gross signups, then as you march out over time, 12 to 18 months, you start to get to that, what I'll call, a more core base of SOHO customers. Now I'm not.

Reported before about two thirds of the sign ups that will turn out within a year. So as you decreased the marketing spend decreased the gross sign ups in that half.

Then as you March out over time 12 to 18 months, you start to get to that what I'll call more core base.

Soho customers now.

Scott Taricki: It's a little unclear where that point is, as I mentioned earlier, because a portion of it will be a function of, well, what are the marketing programs in 25 and 26? and also studying the more near-term cohort behavior versus the one that we've got to go back as far as 10 years. But there absolutely is.

I will not.

It's a little unclear where that point as I mentioned earlier, because a portion of it will be a function of what are the marketing program in 'twenty five 'twenty six.

And also studying.

The more near term cohort behaviors.

Versus the ones that we've got to go back as far as 10 years, but there absolutely is a stable core base within there and I think it's not unreasonable to believe that sometime within that two to three year window, you would probably find stability, but theres a lot of variables that go into it. So it's not something that can be definitively answer right now.

Scott Taricki: Got it. So it's hard to say, you know, off your total customer base, you know, this number or like half the number is how stable it is over time. It's a changing cohort. There are changing cohorts, because each, depending on how you want to look at it, certainly each year or each set of signups has its own cohort behavior pattern, ages a certain way, and then you accumulate it all. So. I'm not going to say anything more, but I think that's kind of the math behind it. And then you look at the behavior of the new signups and how they mirror previous cohorts. And then part of it is where you draw the line.

Got it so it's hard to say of your total customer base.

This number or like half the number is.

Staying stable over time, it's a changing cohort.

There is change in cohorts with each depending I want to look at it it certainly each year reset of sign ups has its own core b cohort behavior pattern age of the certain way and then accumulate at all.

So.

Am I understanding more of and think that that's true.

The math behind it and then you look at the behavior of the new sign ups and how they mirror previous cohorts and then as part of it is where do you draw. The one you're talking about customer that will be around for <unk>.

Johnny Hecker: You're talking about customers that'll be around for five years or more, three years or more, 10 years or more, that would also give you a different answer as to where the current, you know, being heard 31,000, is that color. Got it, understood. And then secondly, on the corporate side, the new customers that you're adding appear to be at a lower ARPA. Is that ARPA trend line, you know, the sort of like ads and where you're adding them, that just continues at similar levels the expectation? Yeah, so there are there's a couple of reasons.

Five years or more three years or more 10 years or more that would also give you a different answer.

We're in the current 831000.

Is that cut off.

Okay.

Got it understood and then secondly on the.

On the corporate side.

The new customers that you're adding appear to be at a lower ARPA.

It does that is that ARPA trend line.

The sort of Blake adds and where they're where youre, adding them that just continues at similar levels as the expectation.

Yes, there is.

Johnny Hecker: First of all, I think we're converting several customers into corporate, and we're really mining that base, and we're attracting customers that are more, trending towards corporate, converting low-end customer Subs by www.zeoranger.co.uk, for, I think that's the main driver. I think last year we saw with the Faxbox migration that we talked about. Transcripts provided by Transcription Outsourcing, LLC, but with additional staff from the SOHO base, creating a little bit of awkward pressure on the corporate. But, I mean, ARPA is a difficult KPI for the.

A couple of reasons first of all I think we've reported on that we're converting soho customers into corporate and group really mining that base.

We're attracting customers that are more.

Trending towards corporate so it's really converting a low end customer into that into that upper mark.

Rate base.

But the main driver.

I think last year, we saw with the Saks box migration that we.

Talked about seven.

Some churn or some customers actually were positive for ARPA Lee So that gave us some additional pressure but.

With adding adding from the Soho base.

Okay.

A little bit of a refresh on the corporate but I mean, ARPA as a difficult kpis for the quarter, if youre right we have customers.

Johnny Hecker: Yeah, go ahead, across the spectrum. $50 a month, all, so Yeah, yeah, if you tell you to mix someone like the VA and they run, or you land them on your customer, they're going to buy us the ARPA up. And that's what we face. Got it? I understand. Thank you very much. Thank you, and that concludes today's Q&A session. I would now like to hand the call back to Scott Tariqi for closing remarks. Great. Well, thanks, everyone, for joining us on the Q4 call and giving insight in terms of our 2024 outlook. We will put out releases when there are upcoming conferences in terms of reporting the first fiscal quarter, which will be in the early part of May. I don't have the calendar in front of me. 789, roughly, in that time frame.

Across the spectrum from $50 a month, all the way up to hundreds of thousands of dollars per month right. So.

Yes, yes, if you take the mix somewhat like the VA and they ramp for.

How are you.

One of the larger customers.

Going to bias the ARPA.

Alright, and Thats, what we face with the customer continue.

Yes.

Got it understood. Thank you very much.

Thank you and that concludes today's Q&A session I would now like to hand, the call back to Scott <unk> for closing remarks.

Well, thanks, everyone for joining us on the Q4 call in to give insight in terms of our 2024 outlook.

We will put out releases when there are upcoming conferences in terms of reporting the first fiscal quarter that will be in the.

Early part of May I don't have the calendar in front of me, but.

79, roughly in that timeframe and obviously if you have any questions between now and then reach out to us Laura Hinson for IR and <unk>.

Scott Taricki: And obviously, if you have any questions between now and then, reach out to us for IOP, and we'll get it done. Thank you very much. Thank you. This does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.

We'll get your question answered so thank you very much and we'll talk to you soon.

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