Q1 2024 Consensus Cloud Solutions Inc Earnings Call
Uh huh.
[music]. Thank you for holding we sincerely appreciate your patients stay on the line and we'll be back in a moment.
Please hold the line and we'll be right back with you.
[music].
For clothing, we look forward to talking with you soon please hold the line and we'll be right back with you.
[music].
Yeah.
Yeah.
Paul: Good day, ladies and gentlemen, and welcome to consensus Q1 2024 earnings call. My name is Paul and I will be the operator assisting you today.
Paul: At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Paul: Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Paul: This call from consensus will be Scott to Rekey CEO, Jim Malone, our CFO, Johnny Hecker C. R. O M Executive Vice President of operations, and Adam <unk> Senior Vice President of Finance.
Paul: Ill turn the call over to Adam <unk> Senior Vice President of Finance a consensus. Thank you you may begin good afternoon, and welcome to the consensus Investor call to discuss our Q1 2024 financial results. Other key information Q2, 2020 for guidance and our 2024 guidance for.
Adam: Year, joining me today are Scott <unk>, CEO, Johnny Hecker C. R O and EVP of operations and Jim Malone CFO.
Adam: The earnings call will begin with Scott providing opening remarks.
Johnny Hecker: Johnny will give an update on operational progress since our year end 2023, Investor call and then Jim will discuss our Q1 2024 financial results Q2 guidance and reaffirmation of our full year 2020 for guidance.
Adam: 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.
Speaker Change: Before we begin our prepared remarks allow me to direct you to the Safe Harbor language on slide two.
Speaker Change: As you know this call and the webcast will include forward looking statements.
Speaker Change: Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results.
Speaker Change: Some of those risks and uncertainties include but are not limited to the risk factors outlined on slide three.
Speaker Change: That we have disclosed in our 10-K SEC filings as well as a summary of those risk factors that we've 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 let me turn the call over to Scott.
Scott: Thank you Adam as noted in the press release I am pleased with the results of our first fiscal quarter.
Scott: As we discussed on the Q4 earnings call our goals for this year include the following.
Scott: Eliminating certain costs of the Soho channel, especially in the area of marketing, allowing us to stabilize the base of revenue over time.
Scott: Two continuing to pursue the acquisition of customers primarily in the health care space for our corporate channel.
Scott: Three reviewing our overall cost structure with the goal of driving EBITDA margins north of 54%.
Scott: And for continuing to repurchase of our debt to further reduce our net debt to EBITDA ratio in anticipation of the first tranche maturing in October of 2026.
Scott: Johnny will provide more detail in his portion of the presentation. However, I'd like to highlight several things before turning the presentation over to them.
Johnny: I'm happy to report that while revenues for the Soho channel dipped in the quarter versus Q1 of 2023, it was better than our expectation.
Johnny: We were able to substantially reduce our marketing spend and still generate 63000 paid ads.
Johnny: More than in Q4, and similar to our Q3 productivity that had higher levels of marketing spend.
Johnny: We continue to monitor the various cohorts and look for opportunities to possibly allocate additional marketing dollars to work above our budgeted amount later in the year.
Johnny: And our corporate channel, our new cloud fax product effects protect had strong sign ups in only its second full quarter of offering.
Johnny: We also saw a record number of upgrades from our Soho channel to corporate.
Johnny: In addition, we saw more facilities come online and a ramping of usage from the V. A.
Johnny: All of these contributed to 4% growth, which while not to our desired long term target is an improvement over the past three quarters.
Johnny: On the AI front, we saw additional wins for clarity P E and clarity C D.
Johnny: We maintained our discipline on the cost side with cuts primarily coming from the Soho marketing mentioned earlier.
Johnny: The result was a six percentage point pickup on our EBITDA margin to 54.5% and near the upper end of our long term range.
Johnny: The combination of improved EBITDA strong cash collections and retirement of debt allowed us to improve our free cash flow by more than 20% from Q1 of 'twenty twenty-three to approximately $36 million in Q1 of 'twenty 'twenty, four which is before a reduction in capex that begins this quarter.
Johnny: We were able to repurchase an additional $63 5 million of debt during the quarter. This brings our total repurchases since launching the repurchase program in November of 2000, $23 million to $126 million and reducing our outstanding debt to $679 million or 3.6 times, our trailing 12 month EBITDA on a <unk>.
Johnny: Most basis and three two times on a net basis.
Johnny: I will turn the call over to Johnny who will provide you more operating details.
Johnny: Okay.
Johnny Hecker: Thank you Scott and Hello, everyone.
Johnny Hecker: Let's dive into our sales and operations update starting with our encouraging performance in the corporate business Q1 is traditionally an active quarter for us and this year was no exception.
Johnny Hecker: We are pleased to report revenue of $51 $4 million versus $49 4 million.
Johnny Hecker: Last year for Q1, marking a 4% increase over the same period last year. This solid result demonstrates the continued momentum of our corporate solutions and marks another record quarter for our corporate business underscoring the strength of our offerings.
Johnny Hecker: Within our corporate business the Soho obsessed strategy remains a rich source for up sells with roughly 1500 customers deciding to upgrade in Q1. This.
Johnny Hecker: This represents excellent growth up 24% quarter over quarter, and an impressive 38% increase year over year. We expect this initiative to slow down a bit in Q2 due to some operational changes we're making.
Johnny Hecker: Furthermore, our advanced products are regaining traction accounting for 21% of new sales in Q1.
Johnny Hecker: Driven by demand for clarity and unite this figure shows a healthy increase over Q4.
Johnny Hecker: Our commitment to innovation is paying off as customers embrace these powerful interoperability and I driven solutions the.
Johnny Hecker: The momentum for FX protect remains strong and we continue to see growing adoption and positive customer feedback.
Johnny Hecker: The Q3 launch of our dedicated E Commerce channel for corporate clients has been instrumental in driving the success.
Johnny Hecker: Turning to our Soho business Q1 revenue was $36 $8 million versus 42 million previous year.
Johnny Hecker: Consistent with the marketing changes, we announced last year. The total Soho account base has decreased from 831000 to 808000.
Johnny Hecker: This is slightly ahead of expectations as we introduced new price plans that are net economically beneficial.
Johnny Hecker: These first months discounted plans are popular among new customers in lieu of our free trial offering. Consequently, we see ARPA declined modestly from $15.12 in Q4 to $14 95 in Q1, while the cancel rate is up slightly at 342% compared to three.
Johnny Hecker: Three 4% in the previous quarter.
Johnny Hecker: Bear in mind that rate includes the accounts, we have upgraded to the corporate product basically making up the entirety of the increase in cancels.
Johnny Hecker: As discussed in our last earnings call. We have made these adjustments to improve the LTV to CAC ratio I am pleased to say these steps have shown real promise in that area. In Q1 has seen a dramatic improvement demonstrating the effectiveness of our smarter AD spent efforts in enhancing the profitability.
Johnny Hecker: Of our customer acquisition efforts.
Johnny Hecker: While it's early days, we're encouraged with these results and will continue to aggressively manage this key metric.
Johnny Hecker: Let's discuss some of the key initiatives and wins.
Johnny Hecker: The V. A rollout is progressing at the expected pace and we remain optimistic about its potential.
Johnny Hecker: We have successfully adjusted our deployment approach to streamline the process with our partners and remain confident in our ability to achieve a seven digit contribution from the VA in 2020 for laying a foundation for further growth in the following years.
Johnny Hecker: The uptake of our <unk> offering continues to gain traction in the extended public sector. We remain in close contact with our existing partner the Sunday and are excited about their announced merger with Accenture.
Johnny Hecker: This signifies the strength of cognizant day, and expands the potential opportunity for EC facts in that growing market segment.
Johnny Hecker: In Q1, we were able to form a new partnership with a leading software company specialized in document delivery and data transfer solutions.
Johnny Hecker: These strategic collaborations expand our capacities and capabilities to deploy our effects and NLP AI solutions, enabling the consumption of structured data for our customers.
Johnny Hecker: The goal of this partnership is to provide a seamless and efficient experience for users leveraging the expertise of both organizations to deliver innovative solutions.
Johnny Hecker: Furthermore, we are in the process of launching a joint go to market partnership with one of the largest revenue cycle management and electronic medical record systems in the country. This partnership represents a significant step forward, creating synergies with a major player in the healthcare technology space.
Johnny Hecker: Bringing our two leading brands together and combining the strengths and capabilities of both organizations. We aim to deliver comprehensive solutions that meet the evolving needs of the health care industry, enhancing patient care and streamlining administrative processes.
Johnny Hecker: During Q1, we attended three important industry events live in Los Angeles, HIMSS in Orlando and channel partners in Las Vegas.
Johnny Hecker: It has provided invaluable opportunities to interact with current and potential customers as well as partners underscoring the importance of in person connections.
Johnny Hecker: I'm also happy to announce that we have successfully refreshed the effects dot com website.
Johnny Hecker: The redesigned site provides an optimized user experience and aligns with our ongoing efforts to attract and retain high value users overall, we're on track with the execution of our 2024 initiatives with customers and partners understandably focusing on cost consciousness and ROI, we haven't witnessed any significant changes in.
Johnny Hecker: The market for customer behavior.
Johnny Hecker: There remains a high level of interest in our solutions that clients continue to be slow in decision, making and remain resource constraint.
Johnny Hecker: We don't expect this to change anytime soon now, let's delve into product updates our AI powered solutions clarity continues to generate a strong pipeline and Bruce see increased demand for other document types than facts right.
Johnny Hecker: We're actively onboarding first customers and building the POC backlog.
Johnny Hecker: The ongoing interest in clarity remains very encouraging.
Johnny Hecker: For our flagship brand effects, we launched the integrated portal, providing an enhanced user experience and laying the foundation for future consolidated offerings, our investment in security, including High Trust and federal efforts continues to pay off.
Johnny Hecker: While the recent cyber attack disruptions in the healthcare industry, where horrific we were pleased that our digital cloud fax solution was a fallback lifeline for some of the impacted parties. This resulted in some increased volume and project triggers.
Johnny Hecker: Security is Paramount and consensus offers high quality solutions with a strong focus on secure information exchange.
Johnny Hecker: In summary, we made solid progress in Q1 2024 with record revenue in the corporate business and significant progress on key initiatives.
Johnny Hecker: We are successfully executing our strategy to focus on profitability cash flow generation and the optimization of our customer base and now I'll hand, the call over to our CFO, Jim Malone, who will provide further details about our financial results and guidance Jim.
James C. Malone: Thank you Johnny Hello, everyone.
James C. Malone: In our press release and on this earnings call today, we are discussing.
James C. Malone: Q1, 'twenty 'twenty four results.
James C. Malone: Q2 2024 guidance.
James C. Malone: And reaffirming full year 2024 guidance.
James C. Malone: We expect to file our 10-Q today.
James C. Malone: Let's start with our corporate business results.
James C. Malone: Q1, 2024 revenue was a record 51.4 million, an increase of 2 million or 4% over the prior year comparable period and ahead of our expectations.
James C. Malone: Corporate Aqua Oh, $316 is up slightly from the prior comparable period.
James C. Malone: Monthly customer churn was 1.92% for the quarter.
Speaker Change: Let me remind you that this metric is.
Speaker Change: It is based upon account cancels and.
Johnny Hecker: And the vast majority of customers are biased towards the lower end of our customer continue representing.
Johnny Hecker: Representing primarily e-commerce to SMB accounts.
Johnny Hecker: The trailing 12 month revenue retention.
Johnny Hecker: Was 98%.
Johnny Hecker: Moving to Soho.
Johnny Hecker: Q1, 'twenty 'twenty four revenue of $36 8 million is a decrease of $5 3 million or 12, 6% over the prior comparable period and again better than expectations.
Johnny Hecker: The year over year decrease was primarily driven by planned reduced advertising spend in the current period.
Johnny Hecker: The year over year base reduction due to fewer paid ads.
Johnny Hecker: Awkward or for dolls, Oh, sorry offer of $14 95.
Johnny Hecker: Decreased 1% primary primarily as a result of shifting to price lands with a discounted first months.
Johnny Hecker: Versus a free trial period, resulting in higher paid ads in the quarter.
Johnny Hecker: As Johnny mentioned these plans Arden, our net beneficial to us.
Johnny Hecker: Churn declined 34 basis points to 3.42% year over year.
Johnny Hecker: As we accelerate the movement of Soho customers to corporate this will have an effect on the Soho cancel rate.
Johnny Hecker: In the quarter that movement of customers accounted for for about six six basis points of the churn.
Johnny Hecker: Moving to cause Q1 consolidated results.
Johnny Hecker: Revenue of $88 1 million is a decrease of 3.3 million or three 6% over Q1, 2023 and better than expectations.
Johnny Hecker: Adjusted EBITDA of $48 1 million and 54.5% margin was an increase of $3 8 million or eight 7% over Q1 2023.
Johnny Hecker: The main drivers were our focus on cost structure, most notably the reduction in Soho marketing spend as well as other.
Johnny Hecker: Operating savings.
Johnny Hecker: EBITDA margin of 54.5%.
Johnny Hecker: Near the higher end.
Johnny Hecker: Oh the range presented in our annual.
Johnny Hecker: 'twenty 'twenty four guidance and an increase of six percentage points.
Johnny Hecker: Over the prior year comparable period.
Johnny Hecker: Adjusted non-GAAP net income of $29.8 million.
Johnny Hecker: So an increase of 7.8 million or 35.6% over the prior year driven by the items I mentioned above mentioned.
Johnny Hecker: Plus benefits from noncash foreign exchange on revaluation of intercompany accounts.
Johnny Hecker: Net interest expense and a modestly lower share count.
Johnny Hecker: Adjusted non-GAAP EPS of $1 55.
Johnny Hecker: Higher than the prior comparable period by 49%.
Johnny Hecker: Or 45 cents.
Johnny Hecker: Q1, 'twenty 'twenty, four non-GAAP tax rate and share count was 21, 3%.
Johnny Hecker: And 19.2 million shares.
Johnny Hecker: Moving to our capital allocation strategy as mentioned in our Q3.
Johnny Hecker: 2023 earnings call.
Johnny Hecker: We announced the 300 million dollar three year bond repurchase program approved by our board.
Johnny Hecker: In Q1, 2024, we purchased 63 million face value fourth $58 million of cash program.
Johnny Hecker: Program to date, we have purchased 126 million face value for 115 million cash we have approximately.
Johnny Hecker: $174 million in bond repurchases remaining on this plan.
Johnny Hecker: You'll see in a deck that we have distributed.
Johnny Hecker: A new slide deck.
Johnny Hecker: Debt to EBITDA leverage.
Johnny Hecker: As mentioned by as much as I mentioned and as Scott as we have purchased 126 million of that program to date, the scheduled to Pixar gross and net debt to EBITDA leverage from spin to Q1 'twenty 'twenty four.
Johnny Hecker: As we were not able to repurchase any debt until the second anniversary of the spread which was October 20th twenty-three through your purchase activity began in Q4 of 2023.
Johnny Hecker: As of Q1, 'twenty 'twenty four our net debt to.
Johnny Hecker: To EBITDA ratio has decreased to three point to three point to solid progress towards a debt burden of less than three times.
Johnny Hecker: We ended Q1, 'twenty 'twenty four with $61.5 million in cash, which is sufficient to fund our operations our repurchase of debt and equity.
Johnny Hecker: This decrease from our year end balance of $89 million, primarily due to the repurchases.
Johnny Hecker: Q1, 2024 free cash flow, it's 35.8 million.
Johnny Hecker: 21, 6%.
Johnny Hecker: Versus prior comparable period.
Johnny Hecker: Q1, 'twenty 'twenty four capex of 8.9 million is consistent with the prior comparable period.
Johnny Hecker: Moving to guidance, we are reaffirming our full year 2020 for guidance.
Johnny Hecker: In addition for assistance with the quarterly spread of our guidance, we are providing guidance for the for the current quarter.
Johnny Hecker: For the full year.
Johnny Hecker: Our guidance revenue between $338 million and $353 million or 345 million at midpoint.
Johnny Hecker: Adjusted non-GAAP EBITDA.
Johnny Hecker: $182 million.
Johnny Hecker: $294 million with $188 million at midpoint.
Johnny Hecker: Adjusted non-GAAP EPS of $5.08 to $5.31.
Johnny Hecker: With $5.20 at midpoint.
Johnny Hecker: Our estimated share count and income tax rate.
Johnny Hecker: 19.4 million shares.
Johnny Hecker: At a tax rate of 20.5 to 22.5.
Johnny Hecker: For Q2, 'twenty four guidance revenues are expected between 84.5 million and $88 5 million with a $86 5 billion at midpoint.
Johnny Hecker: Adjusted non-GAAP EBITDA of between 46 million and 49 million with $47.5 million at the midpoint.
Johnny Hecker: Adjusted non-GAAP EPS of $1 30 to $1 36, with the dollar 33 at midpoint.
Johnny Hecker: Our estimated share count and income tax rate or 19.3 million shares.
Johnny Hecker: And 25 to 22.5.
Johnny Hecker: Tax rate.
Speaker Change: This concludes.
Speaker Change: My formal remarks, and I'd like to turn the call back to the operator for Q&A. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you we will now be conducting a question and answer session in the interest of time, we ask that you. Please limit yourself to one question. If you would like to ask a question. Please press star one on your telephone keypad.
Operator: Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, please press star one on your phone at this time, if you wish to ask a question.
Speaker Change: Please hold while we poll for questions.
Speaker Change: And the first question today is coming from John Tomlin Tang from C. J S Securities John Your line is live.
Speaker Change: Hi, good afternoon, and thank you for taking my questions I was just wondering.
Speaker Change: Looking at the midpoint of the Q2 guidance, it's a little bit down sequentially on an EBITDA basis, and I'm wondering what's going on.
Speaker Change: In that number and kind of what the puts and takes are I know that you know so how you're bleeding off a little bit but is there increased expenses my understanding was it so maybe a low to no margin business.
Speaker Change: The customers that you were.
Speaker Change: Running off.
Speaker Change: No John remember that revenues are down sequentially from Q1 to Q2, so that puts pressure on it. So you got to make up that difference customers. The castle can actually are very profitable remember, they're on the barge and theyre paying us something in some prior period, whether its the last quarter of the last model.
Speaker Change: Where there are customers that are less or not profitable is a function of the marketing issue that we discussed both in the call and previously and what type of customers signing up and are they.
Speaker Change: Quote unquote, taking advantage of the free trial period.
Speaker Change: And as a result, not making any payment to us.
Speaker Change: But yeah, we've expanded marketing dollars or they stay for a very short period of time and that's it's a different question, but that's really the shift and introducing a new plan, which has you pay upfront, albeit at a discounted amount, but all customers that we lose or substantially all of that we lose in Soho are profitable to varying degrees because.
Speaker Change: But those marketing costs have already been expense and some prior period. So we have to make that up so I actually think that the.
Speaker Change: Midpoint shows an improvement in margin.
Speaker Change: And a similar.
Speaker Change: Level of EBITDA.
Speaker Change: Got it that's helpful. If I could sneak another one in there I was wondering about the.
Speaker Change: Changes you mentioned about.
Speaker Change: That would that would impact the upsell.
Speaker Change: The amount in Q2 and kind of what's going on there.
Speaker Change: Oh, John I think that yes, yeah, so it's different.
Speaker Change: This is an important program for us as it adds to the number of upsets, but as you are new customers, but as you know this is on the lower end. So we expect to see the impact at <unk>.
Speaker Change: Be dramatic.
Speaker Change: We're going through some changes.
Speaker Change: Prioritizing some of the positioning.
Speaker Change: Of the people that we have in that program towards more lead generation up market. So and then we will be back filling those positions, but it will lead to a little bit of a of a decline and not be as strong in Q2 as it was in Q1.
Speaker Change: Got it thank you for the detail.
Speaker Change: Mhm.
Speaker Change: Thank you. The next question is coming from David Larsen from BTG, David Your line is live.
Speaker Change: Okay.
David Michael Larsen: Shannon on for Dave Larsen, Congrats on the quarter and thanks for taking my question.
Speaker Change: It looks like you're correct.
Speaker Change: Yeah that advance products made up 20% of new sales.
Speaker Change: Can you just provide some more color there.
Speaker Change: Opportunities, you're seeing from clarity and unite.
Speaker Change: How receptive prospective clients have been and also the potential revenue and margin impact there.
Speaker Change: Okay.
Speaker Change: Yes, Thanks for your question.
Speaker Change: So.
Speaker Change: What we're seeing is obviously, what we are seeing we're seeing we have been strong with unite sales in the past. This is a a suite that offers.
Speaker Change: More than just faxing too, mainly smaller physician offices and smaller.
Speaker Change: Plenty.
Speaker Change: And offers a more broader suite of interoperable product. Then then just tracks.
Speaker Change: And we are seeing.
Speaker Change: We're seeing continued interest in that product and we have a very focused.
Speaker Change: Sales initiatives on on that product line and that has really paid off in Q1 on the strong sales.
Speaker Change: Lee.
Speaker Change: With regards to clarity as I mentioned in the call. We've won our first customers.
Speaker Change: The clarity platform, we're in the process of rolling that out.
Speaker Change: So.
Speaker Change: Yeah, well, we bought I think increasing use cases and there is some proof of concepts going on that are beyond.
Speaker Change: The prior proof of concepts in certain areas, we've talked about through the last couple of quarters. So there is an expanding interest in what clarity can do with our platform.
Speaker Change: And it's iterating around either new use cases for it or derivatives of some of our existing UK use cases, which would be in clinical documentation prior authorization.
Speaker Change: In terms of your question on the margin I would say certainly in the aggregate clarity really.
Speaker Change: Almost all the advanced services.
Speaker Change: What in general be consistent with our margin structure. Some depending upon how they are deployed could have a slightly higher contribution margin. So it might be slightly lower but as a basket I would say they're in line with where we operate today.
Speaker Change: And when I say that I'm talking about operating contribution margins, so before things like G&A and whatnot, so higher than the.
Speaker Change: About 54, 5% EBITDA margin that we reported which includes all of those G&A costs.
Speaker Change: On the overall revenue mix, though.
Speaker Change: The vast majority.
Speaker Change: Is it just based on the large baseline that we have in the fax business, obviously still our <unk> revenue and it will take some time for those advanced products to to catch up since we're still growing as well right. So the vast majority of our revenue.
Speaker Change: <unk> maintained and continues to be facts.
Speaker Change: On the new sales side very excited that we're able to.
Speaker Change: Book.
Speaker Change: A substantial part of our of our bookings and with advanced products.
Speaker Change: Got it that's really helpful and if I can sneak.
Speaker Change: You can have a quick follow up here I'm not sure if I missed.
Speaker Change: You guys report bookings number and.
Speaker Change: If not can you just some general comments around.
Speaker Change: Yeah.
Speaker Change: And our pipeline. Thank you.
Speaker Change: So yes, the bookings Youre correct. It was never a cobalt metric in our presentation. It is something that for.
Speaker Change: A number of quarters, we would talk about it in the operational section.
Speaker Change: Our view was that it was not terribly helpful. Because it was not you cannot extrapolate from the booking numbers to a future quarter or year worth of revenue and it's fairly volatile number. So you can have like with the VA comes in a very big increase but that may spread over a number of years. So that is not something that we.
Speaker Change: Lee book.
Speaker Change: Or report and don't intend to but I think John can give you sort of a feel for in terms of the sales activity and what's going on in terms of both in the core <unk> business and I think he has already addressed the advanced interoperable, what we're seeing there.
John: Yes, maybe to add to that Scott.
Speaker Change: A few quarters back.
John: And at the continued customer continuum right and it shows very clearly.
John: On the on the lower spectrum of that of that customer continuing with the smaller customers we have a very fast.
John: <unk>.
John: And customers basically bill almost immediately.
John: No later than the month, so we book.
Speaker Change: Our closed that deal on other customers that can take up to now.
Speaker Change: Six eight sometimes a year 12 months until they start contributing substantial revenue.
Speaker Change: So that's why we were not that was more of a confusing number that was really helpful, which is why we've taken it out.
Speaker Change: On the pipeline, where we're doing we're doing well with it.
Speaker Change: <unk> built pipeline, we continue to close deals.
Speaker Change: I mentioned in the call, we don't see a lot of.
Speaker Change: Change in behavior in the market.
Speaker Change: We are still confronted with slow decision, making in large accounts.
Speaker Change: And.
Speaker Change: But are confident that you know.
Speaker Change: We will continue to close but don't see a lot of change in the pace.
Speaker Change: And you can see that in Johnny's presentation.
Speaker Change: The driver or the new ads in the corporate channel were primarily from the upgrades from the <unk> channel, which was good but they come at obviously in this continuum of lower ARPA and also the relatively new back to protect.
Speaker Change: Got it thank you and congrats on the quarter.
Speaker Change: Thank you.
Speaker Change: Thank you all once again Thats star one if you wish to ask a question today. The next question is coming from.
Speaker Change: Samuel from J P. Morgan.
Samuel: And your line is live.
Samuel: Great Congrats on the quarter guys.
Samuel: Was hoping you could provide a little bit more color on the partnership that you mentioned with the revenue cycle management on their own would that entail.
Samuel: Okay.
Samuel: Yeah.
Samuel: So that is.
Samuel: A large provider of resolution health care provider in that space.
Speaker Change: And.
Speaker Change: We're jointly go to market to market our products.
Speaker Change: Should their existing customer base.
Speaker Change: And closely connected and then delivering documents into their systems. So.
Speaker Change: Those are many many thousands of customers that they currently serve and we're going to do joint campaign.
Speaker Change: Their teams are going to reach out to their existing customers.
Speaker Change: This is really exciting.
Speaker Change: Opportunity for us to work with them.
Speaker Change: Yeah that sounds great maybe just just one follow up.
Speaker Change: Last quarter, you had noted that the VA partnership had started to contribute to revenue I was just hoping you could provide an update on the rollout there and contribution in the quarter.
Speaker Change: Yeah.
Speaker Change: Yeah. So.
Speaker Change: No.
Speaker Change: All of this is continuing at a.
Speaker Change: Government pace, let's call it that right so.
Speaker Change: It's contributing at the rate that we were expecting.
Speaker Change: There's there's ups and downs in that rollout, but.
Speaker Change: It's growing now at a at a steady and continued pace, yes, I mean, we're up to a few hundred facilities in terms of the rollout that doesn't mean that all the facilities are fully contributory in fact, they are not.
Speaker Change: But that's a fairly substantial increase versus where we were two or three quarters ago, which I think was in the neighborhood of 100 and of course, not all facilities in the VA or equal relevance provenance or contribution and I would say that we're still at the at most.
Speaker Change: I'd say in the lower quartile to may be slightly above the mid in terms of the size the big behemoth ones.
Speaker Change: Have not come online and so there continues to be a lot of opportunity in terms of.
Speaker Change: How it rolls out, but then also deeper penetration within those for which the wallet has already occurred and some of this has to do with we've talked about on prior calls.
Speaker Change: There is many different flavors of how the faxing is done within a given facility. So you have servers you have in some cases physical devices think of Multifunction printers, you have embedded applications within software and.
Speaker Change: And combinations thereof, and so.
Speaker Change: And you have inbound and outbound and the inbound is relevant because that requires reporting of telephone numbers outbound does not so in order to really capture all of the traffic of a given facility you need to capture all five of those elements and I would say most of the facilities.
Speaker Change: We don't have all five today and there's various reasons for that sometimes putting a numbers of slow sometimes there's contracts that hasnt expired yet so it's not in that facilities of that region's interest to yet disconnect from a multi function device. So all of these things will over time roll off and accrue to our benefit as well as continuing to rollout.
Speaker Change: As to your specific question no, we're not going to give the VA specific contribution.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. The next question is coming from Fatima <unk> from Citigroup Fatima Your line is live.
Speaker Change: Hey, guys. This is mark on for Fatima, Thanks for taking my questions maybe.
Mark: Maybe just wanted to touch on the Soho corporate conversion momentum.
Speaker Change: Seems like the upgrade reached 1500 accounts this quarter.
Speaker Change: It was actually higher than the usual cadence of call it around the 1200 Mark.
Mark: Is this number one ahead of your internal expectations for this quarter.
Mark: Any changes youre seeing momentum there.
Mark: But then more Soho customer seeing better budget to actually do the upgrades or the team.
Speaker Change: Recognizing the value of the corporate product. Thanks.
Speaker Change: Yeah. So.
Speaker Change: Like I mentioned I think.
Speaker Change: We're super excited about the success of this program and being even above the 1500 at March in Q1.
Speaker Change:
Speaker Change: Okay.
Speaker Change: Key success really is here operational excellence I think we've really learned over time to optimize.
Speaker Change: And identifying the most promising customers and that Soho base.
Speaker Change: Serve them up to the team that does this upsell program.
Speaker Change: It's a question of routine as well.
Speaker Change: I think it's taken it takes time it takes.
Speaker Change: Reps to ramp and to really get in a in a rhythm there and we've been able to accomplish that over the course of about three almost four quarters now. So I think those are the key drivers that we're really picking the right accounts to.
Speaker Change: To upsell a tail.
Speaker Change: And we see we can.
Speaker Change: But patterns there are within our Soho base of customers that are theyre most interested.
Speaker Change: And this product at.
Speaker Change: At which which is why we are now.
Speaker Change: We've learned a lot and we're confident in maintaining this program, which is why we can and make the changes during Q2 that we plan to do it.
Speaker Change: Got it that's all very helpful. And then maybe if I could sneak in a quick follow up too.
Speaker Change: As for the puts and takes into the free cash flow performed this quarter.
Speaker Change: Lee.
Speaker Change: Strong and then any updates to the full year outlook for free cash flow, specifically I know last update.
Speaker Change: Call it low <unk> for the year.
Speaker Change: Any update.
Speaker Change: Of course requirement.
Speaker Change: Yes.
Speaker Change: You're correct with strong.
Speaker Change: Free cash flow a quarter.
Speaker Change: Obviously it starts with the EBITDA. So the EBITDA outperforming generally our EBITDA is primarily cash so the outperformance in EBITDA relative to our expectations and certainly to the prior year is the key driver.
Speaker Change: Really taxes I don't think came into play in a material way one way or the other as you can see the capex is relatively flat year over year as those.
Speaker Change: Deceleration is really begin now in Q2, so it's primarily that EBITDA generation.
Speaker Change: I'd also say too as we bought into that.
Speaker Change: There are less.
Speaker Change: Expenses, we have associated with the <unk>.
Speaker Change: Capital structure, but that's very much on the margin certainly in the Q1 free cash flow I think in terms of the full fiscal year, probably it's fair to say the gains that we bank in Q1 should be sustained through the fiscal year. So it moves us up from the low eighty's to probably the mid eighties.
Speaker Change: But there is.
Speaker Change: There's a lot of volatility that goes into free cash flow. When you look at the four quarters timing of tax payments is one obviously working capital is another so.
Speaker Change: The success in Q1, and all the things that we're doing particularly on the operational side those should be sustainable benefits. So if there is not a surprise in the tax rate or really not so much the tax rate, but the timing of our tax payments for the two often have some gap between what we.
Speaker Change: Through as a tax rate and the actual timing of the payment if theres no material change there.
Speaker Change: Then we should be pretty good at sort of the I think closer to the mid eighties.
Speaker Change: For this year.
Speaker Change: Great. Thank you so much.
Jonathan E. Tanwanteng: Thank you and we did have a follow up coming from John Tom I'm Tang from CGS Securities. John Your line is live.
Jonathan E. Tanwanteng: Alright, thanks for the follow up I was just wondering if you had any communication with Accenture and if.
John Nebergall: If you did or the committed to your partnership with cognizant of and if maybe there are other fast partners.
John Nebergall: In their tech stack.
John Nebergall: And if they are committed how does that improve your opportunity over the long run in the public sector.
John Nebergall: Yes.
Speaker Change: I think it's too early to say right that the deal is in progress it hasnt closed yet.
John Nebergall:
John Nebergall: Sure.
John Nebergall: Are they excited about and bullish about this deal I think the footprint that Accenture has and the federal government is far larger than the <unk>.
John Nebergall: Very focused.
Jonathan E. Tanwanteng: Approach that cognizant. They had so it's really a good addition to the accenture offering because they complement each other very well.
Jonathan E. Tanwanteng: And offer us the expansion more broadly, we havent talked to them yet.
Jonathan E. Tanwanteng: And then isn't closed.
Jonathan E. Tanwanteng:
Jonathan E. Tanwanteng: But our.
Jonathan E. Tanwanteng: I think our operating right now.
Jonathan E. Tanwanteng: The federal government space at the security level that we're at is fairly explicit.
Jonathan E. Tanwanteng: So we're confident that.
Jonathan E. Tanwanteng: Can actually benefit from this from this merger.
Speaker Change: Okay, Great and then.
Speaker Change: Can you just go into the ARPA and corporate in Q1, it was up sequentially and I didn't catch why if you could dive into that and tell me what you expect going forward there would be helpful.
Speaker Change: So the ARPA.
Speaker Change: In the quarter, we had some.
Speaker Change: Items last quarter that we mentioned with respect to.
Jonathan E. Tanwanteng: Cash collections and terminations of customers. So it's a mix.
Jonathan E. Tanwanteng: It's a mix of that.
Jonathan E. Tanwanteng: And basically the quarter over quarter.
Jonathan E. Tanwanteng: Increase and.
Jonathan E. Tanwanteng: Our number in our.
Jonathan E. Tanwanteng: Revenue for the quarter.
Jonathan E. Tanwanteng: When you look at it sequentially.
Jonathan E. Tanwanteng: Versus Q1, two and three of last year, it's very comparable.
Jonathan E. Tanwanteng: Yes.
Jonathan E. Tanwanteng: I would say the last five quarters a bit within a fairly narrow band that are.
Jonathan E. Tanwanteng: You can move up at 300, and some dollars base a few dollars positive or negative off of that and I would argue that kind of goes into just.
Jonathan E. Tanwanteng: Things happen throughout the quarter.
Jonathan E. Tanwanteng: So I wouldn't I wouldn't make a lot about it other than I would say the ARPA has been stable within a tight range for five quarters.
Speaker Change: Understood. Thanks.
Speaker Change: Thank you do have no other questions from the lines and Scott over to you for any internet questions sure. We do yes, we do have a couple that have come in via E. Mail. One is really I think the guidance question, which is how to think of corporate revenue growth going forward, given the 4% growth in Q1 and the acceleration.
Scott: After 3% we've seen the last preceding three quarters.
Scott: I would have a couple of comments one one quarter in itself does not make a trend. So I think from a broader guidance standpoint, I would still be guiding people from a revenue and EBITDA towards the midpoint of our ranges on EPS I would be closer to maybe even above closer to the higher end of the range as.
Scott: As Jim and others mentioned at the bottom line there are these FX.
Scott: Revaluations that are noncash, but were positive in the quarter.
Scott: Of course in Q4, they were heavily negative.
Scott: We think we're getting close to mitigating that volatility, but so far on a year to date basis, certainly for the three months and I could probably April now they are definitely to the positive. So thats, adding probably 15 16, the bottom line certainly in the quarter at 16th is probably $15 16 for the year right now, but I wouldn't I wouldn't be breaking out.
Jonathan E. Tanwanteng: Our corporate and extrapolating or.
Jonathan E. Tanwanteng: The influence of the question might be well plus 4% this quarter can be 5%, 6%, 7% no I don't.
Jonathan E. Tanwanteng: We're not there yet.
Jonathan E. Tanwanteng: Let's see how Q2 goes.
Jonathan E. Tanwanteng: Let's see how the book of business builds some of the things that John talked about how they contribute both in the quarter and the balance of the year and then we can revisit that.
Jonathan E. Tanwanteng: On the Q2 call.
Jonathan E. Tanwanteng: Second question had to do with the Soho business and whether the full impact of the marketing spend strategy has been realized in Q1 and the answer is no.
Jonathan E. Tanwanteng: In the sense that there was a ramp down so there wasn't the full quarter benefit if you will of the savings. It goes actually back to the earlier question of if it can be down a $1 six in revenue sequentially from Q1 to Q2, how do you have your EBITDA.
Jonathan E. Tanwanteng: Not quite but close to flat and that's because there are some marketing dollars to come out that as we went through the first three months of Q1, there was a ramp down. So as you go into Q2, it's at a lower level should be an average lower level in Q2 than in Q1.
Jonathan E. Tanwanteng: <unk> said that.
Jonathan E. Tanwanteng: We found some very good opportunities where to spend money and some very good LTV to CAC. So something that we are evaluating is something I mentioned in my opening remarks is are there opportunities to put a few more dollars to work.
Jonathan E. Tanwanteng: It's a very attractive economics and if the answer that question is yes, then there may be some incremental dollars added to the core budget or to the baseline but in general I think you should assume somewhat less marketing spend in Q2 than in Q1.
Jonathan E. Tanwanteng: Based on sort of that midpoint of the guidance, which would have a little bit of downward pressure on the net adds.
Jonathan E. Tanwanteng: But that would be more than offset by the savings from the marketing dollars not spent.
Speaker Change: And those are all the questions we have via E mail.
Speaker Change: Before we conclude.
Speaker Change: I would just like to let you all know that we have or upcoming investor conferences.
Jonathan E. Tanwanteng: Tomorrow.
Jonathan E. Tanwanteng: <unk> has a virtual conference there is no formal presentation. It is one on one only so at this point I think if you have.
Jonathan E. Tanwanteng: We have not signed up it's probably too late on Tuesday of next week Goldman Sachs is a high yield conference that we'll be participating in once again, that's the one on ones only no formal presentation, but on June 5th will be at the Jefferies Global Healthcare conference there will be a presentation and it will be webcast. We will also be available.
Jonathan E. Tanwanteng: For one on ones and then a week later on June 13th we will be at the Goldman Sachs healthcare high yield.
Jonathan E. Tanwanteng: Care Conference equity conference and once again, there will be a presentation that will be webcast and will also be available for one on one.
Jonathan E. Tanwanteng: The next formal call in terms of discussing Q2 results will be in August for our press release within a few weeks sometime in July to give you. The exact date and time and we appreciate your participation or this call to go over our Q1 results.
Speaker Change: Thank you. This does conclude today's conference you may disconnect at this time and have a wonderful day. Thank you for your participation.
Speaker Change: Okay.
Jonathan E. Tanwanteng: Yes.