Q2 2024 Consensus Cloud Solutions Inc Earnings Call

Operator: Good day, ladies and gentlemen, and welcome to Consensus' Q2 2024 earnings call. My name is Paul, and I will be the operator assisting you today. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. 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.

Unknown Attendee: Good day, ladies and gentlemen, and welcome to Consensus Q2 2024 earnings call.

Good day, ladies and gentlemen, and welcome to consensus Q2, 'twenty 'twenty four earnings call My.

Unknown Attendee: My name is Paul, and I will be the operator assisting you today.

Paul: My name is Paul and I will be the operator, assisting you today.

Unknown Attendee: At this time, all participants are in a listen-only mode. A question and an intercession will follow the former presentation. If anyone should acquire operator assistance during the conference, please press star zero on your telephone keypad.

At this time all participants are in a listen only mode.

Paul: A question and answer session will follow the formal presentation.

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

Unknown Attendee: On this call from Consensus will be Scott Teriki, CEO, Jim Malone, CFO, Johnny Hecker, CRO, and Executive Vice President of Operations, and Adam Varon, Senior Vice President of Finance.

Adam Fraud: On this call from consensus will be Scott to Rekey CEO, Jim Malone, CFO, Johnny Hecker, CRO and executive Vice President of operations and Adam <unk> Senior Vice President of Finance I will now turn the call over to Adam fraud, Senior Vice President of finance at consensus. Thank you you may begin.

Adam Varon: I will now turn the call over to Adam Varon, Senior Vice President of Finance at Consensus. Thank you, you may begin.

Adam Varon: Good afternoon, and welcome to the Consensus Investor Call to discuss our Q2 2024 financial results, other key information, our Q3 2024 quarterly guidance, and full year 2024 guidance. Joining me today are Scott Tariqi, CEO; Johnny Hecker, CRO and EVP of Operations, and Jim Malone, CFO.

Adam Varon: Good afternoon, and welcome to the Consensus investor call to discuss our Q2 2024 financial results. Other key information are Q3 2024 quarterly guidance and full-year 2024 guidance.

Adam Fraud: Good afternoon, and welcome to the consensus Investor call to discuss our Q2 2024 financial results other key information.

Adam Fraud: Our Q3 2020 for quarterly guidance and full year 2020 for guidance.

Adam Varon: Joining me today are Scott Teriki, CEO, Johnny Hecker, CRO, and EVP of Operations, and Jim Malone, CFO. The earnings call will begin with Scott providing opening remarks. Johnny will give an update on operational progress since our Q1 2024 investor call, and then Jim will discuss Q2 2024 financial results, our Q3 2024 quarterly and full-year 2024 guidance.

Scott Rekey: Joining me today are Scott, Turkey CEO.

Speaker Change: Johnny Hecker, CFO and EVP of operations and Jim Malone CFO.

Adam Varon: The earnings call will begin with Scott providing opening remarks. Johnny will give an update on operational progress since our Q1 2024 investor call, and then Jim will discuss Q2 2024 financial results, our Q3 2024 quarterly and full year 2024 guidance. After we finish our prepared remarks, we will conduct a Q&A session. At that time, the operator will instruct you on the procedures for asking a question.

Speaker Change: The earnings call will begin with Scott providing opening remarks.

Speaker Change: Johnny will give an update on operational progress since our Q1 2024 Investor call and then Jim will discuss Q2 2024 financial results are.

Speaker Change: Our Q3 2020 for quarterly and full year 2020 for guidance.

Adam Varon: 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: After we finish our prepared remarks, we will conduct a Q&A session.

Speaker Change: At that time, the operator will instruct you on the procedures for asking a question.

Adam Varon: Before we begin our prepared remarks, allow me to direct you to our forward-looking statements and risk factors on slide two. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our 10-K SEC filing.

Speaker Change: Before we begin our prepared remarks.

Adam Varon: Allow me to direct you to our forward-looking statements and risk factors on slide two. 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 the anticipated results. Some of those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our 10K SEC filing. Now, let me turn the call over to Scott.

Speaker Change: Allow me to direct you to our forward looking statements and risk factors 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 that we have disclosed in our 10-K SEC filings.

Scott Teriki: Now, let me turn the call over to Scott. Thank you, Adam. We had a strong Q2 outperforming on both channels of revenue, adjusted EBITDA, adjusted earnings, adjusted EPS, and free cash flow.

Speaker Change: Now, let me turn the call over to Scott.

Scott Rekey: Thank you Adam.

Scott Taricki: We had a strong Q2, outperforming on both channels of revenue, adjusted EBITDA, adjusted earnings, adjusted EPS, and free cash flow. As we laid out in our Q4 earnings call, our goals for this year include the following. First, eliminating certain costs of the SOHO channel, especially in the area of marketing, to provide for stabilization of the base of revenue over time, and continuing to pursue the acquisition of customers primarily in the healthcare space for our corporate channels.

Scott Rekey: We had a strong Q2 outperforming on both channels of revenue adjusted.

Scott Rekey: Adjusted EBITDA adjusted earnings adjusted EPS and free cash flow.

Scott Teriki: As we laid out in our Q4 earnings call, our goals for this year include the following. First, eliminating certain costs of the SOHO channel, especially in the area of marketing, to provide for stabilization of the base of revenue over time. Second, continuing to pursue the acquisition of customers primarily in the healthcare space for our corporate channel. Third, reviewing and improving our overall cost structure with the goal of driving adjusted EBITDA margins to the higher end of our 50-55% range. Fourth, continuing to repurchase our debt to further reduce our total debt to adjusted EBITDA ratio in anticipation of the first cross-maturing in October 2026.

Scott Taricki: Third, reviewing and improving our overall cost structure with the goal of driving adjusted EBITDA margins to the higher end of our 50 to 55 percent range, and fourth, continue to repurchase our debt to further reduce our total debt to adjusted EBITDA ratio in anticipation of the first tranche maturing in October 2026. Now, let me provide a few additional highlights before turning the call over to Johnny.

Scott Rekey: As we laid out in our Q4 earnings call our goals for this year include the following first eliminating certain costs of the Soho channel, especially in the area of marketing to provide for stabilization of the base of revenue over time.

Scott Rekey: Yeah.

Scott Rekey: Continuing to pursue the acquisition of customers primarily in the health care space for our corporate channel.

Scott Rekey: Third reviewing and improving our overall cost structure with the goal of driving adjusted EBITDA margins to the higher end of our 50% to 55% range.

Scott Rekey: And fourth continuing to repurchase our debt to further reduce our total debt to adjusted EBITDA ratio in anticipation of the first tranche maturing in October 2026.

Scott Teriki: Let me provide a few additional highlights for turning the call over to Johnny. Our corporate channel continue to add new customers primarily through upgrades from our Soho base as well as our relatively new e-commerce offering e-facts protect. Notwithstanding the lower ARPA of these customers than our current average, we were still able to maintain a $310 ARPA and a tight range over the past several quarters of between $305 and $320. Soho is rolling out, driving new levels of usage and revenue. Our Soho revenues beat our expectations for the quarter. I would remind you that in Q2 2023, we finished the price increase to our base and actually saw a slight growth in revenues versus Q2 2022.

Scott Rekey: Let me provide a few additional highlights before turning the call over to Johnny.

Scott Taricki: Our corporate channel continues to add new customers primarily through upgrades from our SOHO base as well as our relatively new e-commerce offering, eFax Protect. Notwithstanding the lower ARPA of these customers than our current average, we were still able to maintain a $310 ARPA and a tight range over the past several quarters of between $305 and $320. We continue to see additional sites from the VA rolling out, driving new levels of usage and revenue.

Johnny Hecker: Our corporate channel continue to add new customers, primarily through upgrades from our Soho base as well as a relatively new ecommerce offering <unk> protect.

Johnny Hecker: Notwithstanding the lower ARPA of these customers than our current average we were still able to maintain a $310 ARPA in a tight range over the past several quarters are between $305 and $320. We continue to see additional sites from the V. A rolling out driving new level.

Scott Rekey: <unk> of usage and revenue.

Scott Taricki: Our SOHO revenues beat our expectations for the quarter. I would remind you that in Q2 2023, we finished the price increase on our base and actually saw a slight growth in revenues versus Q2 2022. As we stated at the time, we viewed this growth as anomalous.

Johnny Hecker: Our Soho revenues beat our expectations for the quarter.

Scott Rekey: I would remind you that in Q2 2023, we finished the price increase to our base and actually saw a slight growth in revenues versus Q2 2022.

Scott Teriki: As we stayed at the time, we viewed this growth as anomalous. We continued to track ahead of our 2023 budget and have found additional marketing opportunities while maintaining a strong LTV to CAC. We were able to substantially reduce our marketing spend and still generate 61,000 paid ads more than Q4 2023 and similar to Q3 2023, which had higher levels of spend. Our cost structure benefited from a full quarter of the cost optimization that we discussed on our Q4 call. As a reminder, most of those cost reductions came primarily from the Soho marketing mentioned earlier. The result was a 4.7 percentage point pickup on our adjusted EBITDA margin to 56.1% for the quarter, which is above the upper end of our long-term range.

Johnny Hecker: As we stated at the time, we view this growth as anomalous. We continue to track ahead of our 2023 budget and have found additional marketing opportunities, while maintaining a strong LTV to CAC.

Scott Taricki: We continue to track ahead of our 2023 budget and have found additional marketing opportunities while maintaining a strong LTV to CAF. We were able to substantially reduce our marketing spend and still generate 61,000 paid ads, more than in Q4 2023 and similar to Q3 2023, which had higher levels of spend. Our cost structure benefited from a full quarter of the cost optimization that we discussed on our Q4 call. As a reminder, most of those cost reductions came primarily from the SOHO marketing mentioned earlier.

Johnny Hecker: We were able to substantially reduce our marketing spend and still generate 61000 paid ads more than Q4, 2023, and similar to Q3, 2023, which had higher levels of spend.

Johnny Hecker: Our cost structure benefited from a full quarter of the cost optimization that we discussed on our Q4 call.

Johnny Hecker: As a reminder, most of those cost reductions came primarily from the Soho marketing mentioned earlier.

Scott Taricki: The result was a 4.7 percentage point pickup in our adjusted EBITDA margin to 56.1% for the quarter, which is above the upper end of our long-term rank. The combination of improved adjusted EBITDA, strong cash collections, and retirement of debt allowed us to improve our free cash flow by more than $11 million in Q2 2023. We were able to repurchase an additional $29.7 million of debt during the quarter. This brings our total repurchases since launching the program in November of 2023 to $156 million and reduces our outstanding total debt to $649 million, or 3.4 times our trailing 12-month adjusted EBITDA and 3.1 times on a net debt basis. I will now turn the call over to Johnny, who will provide you with more operating details.

Johnny Hecker: The result was a 4.7 percentage point pickup on our adjusted EBITDA margin to 56, 1% for the quarter, which is above the upper end of our long term range.

Scott Teriki: The combination of improved adjusted EBITDA, strong cash collections, and retirement of debt allowed us to improve our free cash flow by more than $11 million from Q2 2023. We were able to repurchase an additional 29.7 million of debt during the quarter. This brings our total repurchases since launching the program in November of 2023 to 156 million and reducing our outstanding total debt to 649 million, or 3.4 times our trailing 12 month adjusted EBITDA and 3.1 times on a net debt basis.

Johnny Hecker: The combination of improved adjusted EBITDA strong cash collections and retirement of debt allowed us to improve our free cash flow by more than $11 million from Q2 2023.

Johnny Hecker: We were able to repurchase an additional $29 7 million of debt during the quarter. This brings our total repurchases since launching the program in November of 2000 $23 million to $156 million and reducing our outstanding total debt to $649 million or 3.4 times, our trailing 12 month adjusted.

Johnny Hecker: EBITDA and $3 one times on a net debt basis.

Johnny Hecker: I will now turn the call over to Johnny, who will provide you more operating details. Thank you, Scott, and hello, everyone. Today, I will share business and go-to-market updates covering both our corporate and Soho businesses, along with more details on the public sector, specifically the VA rollout and some product enhancements. Let's start by sharing our sales and operations update, and then on the solid performance in the corporate business. We are pleased to report revenue of 51.7 million dollars, versus 50.4 million dollars last year for Q2, marking an approximate 3% increase over the same period last year.

Johnny Hecker: I will now turn the call over to Johnny who will provide you more operating details.

Johnny Hecker: Thank you, Scott, and hello, everyone. Today, I will share business and go-to-market updates covering both our corporate and SOHO businesses, along with more details on the public sector, specifically the VA rollout, and some product enhancements. Let's start by sharing our sales and operations update and then the solid performance in the corporate. We're pleased to report revenue of $51.7 million versus $50.4 million last year for Q2, marking an approximate 3% increase over the same period last year.

Johnny Hecker: Thank you Scott and Hello, everyone.

Johnny Hecker: This outcome serves as a testament to use cases for CloudFacts in corporate settings, especially in health. I am most pleased with the increase in the variable portion of our revenues, indicating mostly upmarket growth. It marks another record-setting quarter for our corporate business, emphasizing the unwavering strength and effectiveness of our offer. The e-commerce and Soho upsell strategy continues to be a valuable source of customer acquisition, with approximately 2700 customers added in Q2, demonstrating the effectiveness of our strategy. However, during the last call, we projected a decline in our Soho to corporate upsell during Q2 due to planned operational changes.

Johnny Hecker: Today, I will share business and go to market updates covering both our corporate and Soho business sense, along with more details on the public sector, specifically, the VA rollout and some product enhancements.

Johnny Hecker: Let's start by sharing our sales and operations update and then on the solid performance in the corporate business.

Johnny Hecker: We're pleased to report revenue of 51 $7 million versus $54 million last year for Q2.

Johnny Hecker: An approximate 3% increase over the same period last year.

Johnny Hecker: This outcome serves as a testament to use cases for cloud facts and corporate settings, especially in health care. I am most pleased with the increase in the variable portion of our revenues, indicating mostly upmarket growth. It marks another record-setting quarter for our corporate business, emphasizing the unwavering strength and effectiveness of our office.

Johnny Hecker: This outcome serves as a testament to use cases for cloud fax and corporate settings, especially in health care.

Johnny Hecker: I am most pleased with the increase in the variable portion of our revenues, indicating mostly upmarket crush.

Johnny Hecker: It marks another record setting quarter for our corporate business, emphasizing the unwavering strength and effectiveness of our offerings.

Johnny Hecker: Conference. The e-commerce and sell-ho upsell strategy continues to be a valuable source of customer acquisition, with approximately 2,700 customers added in Q2, demonstrating the effectiveness of our strategy. During the last call, we projected a decline in our sell-ho to corporate upsell during Q2 due to planned operational changes. However, the growth of our e-facts protect service helps us offset the slowdown to a large extent. We will continue to invest in and expand this e-commerce offering, which aligns with the go-to-market re-alignment strategy we shared last year. The next phase of this offering will include in-product upsell options for our customers, eliminating the need for in-person interaction with customers for that process.

Johnny Hecker: The e-commerce and somehow upsell strategy continues to be a valuable source of customer acquisition with approximately 2700 customers added in Q2, demonstrating the effectiveness of our strategy.

Johnny Hecker: During the last call, we projected a decline in our Soho to corporate upsell during Q2 due to planned operational changes. However, the growth of our FX protect service helped us offset the slowdown to a large extent, we will continue to invest in and expand this e-commerce offering which allows.

Johnny Hecker: However, the growth of our eFAQs Protect service helped us offset the slowdown to a large extent. We will continue to invest in and expand this e-commerce offering, which aligns with the go-to-market realignment strategy we shared last year. The next phase of this offering will include in-product upsell options for our customers, eliminating the need for in-person interaction with customers for that process.

Johnny Hecker: Since with the go to market realignment strategy, we shared last year. The next phase of this offering will include in product upsell options for our customers eliminating the need for in person interaction with customers for that process.

Johnny Hecker: The metrics we share reveal that the growth in corporate accounts driven by those new customers at the lower end of our customer continuum also leads to a higher corporate cancellation rate. It has increased by 103 basis points year over year and 37 basis points quarter over quarter, reaching 2.29% in the second quarter of 2024. Normalized for e-facts protect, the cancel rate in corporate remains significantly below the 2% mark. I would remind you that our cancellation rate is based on accounts and not on revenue. We first saw this trend with the launch of the e-commerce channel, and are pleased to report that corporate ARPA has remained steady for several quarters within the $305 to $320 range, at just above $310 this quarter.

Johnny Hecker: The metrics we share reveal that the growth in corporate accounts, driven by those new customers at the lower end of our customer continuum also leads to higher corporate cancellation. It has increased by 103 basis points year over year and 37 basis points quarter over quarter, reaching 2.29% in the second quarter of 2024, normalized for effects per tick. However, the Cancer Rate in Corporate remained significantly below the 2% mark.

Speaker Change: The metrics, we share reveal that the growth in corporate accounts driven by those new customers at the lower end of our customer continuum also leads to a higher corporate cancellation rate it.

Speaker Change: It has increased by 103 basis points year over year, and 37 basis points quarter over quarter.

Speaker Change: Reaching 2.29% in the second quarter of 2020 for.

Johnny Hecker: Normalized for FX protect the Kansas rate incorporate remained significantly below the 2% Mark.

Johnny Hecker: I would remind you that our cancellation rate is based on accounts and not on revenue. We foresaw this trend with the launch of the e-commerce channel and are pleased to report that corporate ARPA has remained steady for several quarters within the $305 to $320 range at just above $310 this quarter. During Q2, advanced products accounted for 14% of new sales, aligning with the performance of the second half of the previous year while being lower than the Q1 contribution.

Speaker Change: I would remind you that our cancellation rate is based on accounts and not on revenue.

Speaker Change: But for some of the strength with the launch of the E Commerce channel.

Speaker Change: Pleased to report that corporate ARPA has remained steady for several quarters within the 305 to $320 range at just above $310 this quarter.

Johnny Hecker: During key to advanced products accounted for 14% of new sales, aligning with the performance of the second half of the last year while being lower than the Q1 contribution. This temporary slowdown is mainly attributed to our unite offering after a strong sales performance in Q1. It's important to note that this percentage fluctuates and is also influenced by the new sales of our core FACS services. Overall, we're on track with the execution of our go-to-market plan in 2024. We're increasingly closing customers in the lower ARPA spectrum through fully automated e-commerce processes, allowing for our sales team to focus on larger deals, driving up overall sales productivity.

Speaker Change: During Q2 advanced products accounted for 14% of new sales aligning with the performance of the second half of the last year, while being lower than the Q1 contribution.

Johnny Hecker: This temporary slowdown is mainly attributed to our Unite offering after a strong sales performance in Q1. It's important to note that this percentage fluctuates and is also influenced by the new sales of our Core Facts Group. Overall, we're on track with the execution of our go to market plan in 2024. We're increasingly closing customers in the lower ARPA spectrum through fully automated e-commerce process, allowing for our sales team to focus on larger deals driving up overall sales product, and also like to highlight our public sector with the help of Peter Lukas, John Nebergall, John Nebergall, John Nebergall, John Nebergall, John Nebergall, John Nebergall, The implementation of ECFACS at the VA is proceeding as planned and our enthusiasm for its potential remains unwavering.

Speaker Change: This temporary slowdown is mainly attributed to our unite offering after a strong sales performance in Q1.

Speaker Change: It is important to note that this percentage fluctuates and is also influenced by the new sales of our core fax services.

Speaker Change: Overall, we're on track with the execution of our go to market plan in 2024.

Speaker Change: We are increasingly closing customers into lower ARPA spectrum through fully automated e-commerce processes, allowing for our sales team to focus on larger deals driving up overall sales productivity.

Johnny Hecker: I'd also like to highlight our public sector business; the implementation of EC FACS at the VA is proceeding as planned, and our enthusiasm for its potential remains unwavering. We are observing steady growth in line with our projections, and we confidently confirm that we forecast more than $2 million in revenue from the EC FACS program in 2024 and expect continued growth in the coming months and years as we move forward. EC FACS stands out as the sole cloud FACS solution on the FedRAM marketplace, with the additional exceptional distinction of complying with the high-impact level controls. This attests to the utmost level of security, integrity, and availability vital for government agencies operating in sensitive sectors like law enforcement, healthcare, finance, and defense.

Speaker Change: I'd also like to highlight our public sector business the implementation of E. C facts at the VA is proceeding as planned and our enthusiasm for its potential remains unwavering.

Johnny Hecker: We are observing steady growth in line with our projections, and we confidently confirm that we forecast more than $2 million in revenue from the ECFACS program in 2024 and expect continued growth in the coming months and years as we move forward. ECFACS stands out as the sole CloudFACS solution on the FedRAMP marketplace with the additional exceptional distinction of complying with the high impact level control.

Speaker Change: We are observing steady growth in line with our projections and confidently confirm that we forecast more than $2 million in revenue from the <unk> program in 2024, and expect continued growth in the coming months and years as we move forward.

Speaker Change: <unk> stands out as the sole cloud fax solution on the fed ramp marketplace with the additional exceptional distinction of complying with the high impact level controls. This attests to the utmost level of security integrity and availability vital for government agencies operating.

Johnny Hecker: This attests to the utmost level of security, integrity, and availability vital for government agencies operating in sensitive sectors like law enforcement, healthcare, finance, and defense. As we advance our relationships with these agencies, it becomes increasingly apparent that meeting the FedRAMP high-impact standard is a prerequisite for even being considered as a potential solution by the government. We are pleased to share that discussions with other agencies are proceeding. Additionally, we're witnessing heightened demand for our solutions in a second relevant area of the public sector, state and local government, and education.

Speaker Change: Insensitive sectors like law enforcement healthcare finance and defense.

Johnny Hecker: As we advance our relationships with these agencies, it becomes increasingly apparent that meeting the FedRAMP high-impact standard is a prerequisite for even being considered as a potential solution by the government. We're pleased to share the discussions with other agencies are proceeding. We're witnessing heightened demand for our solutions in a second relevant area of the public sector, state and local government and education. This prompt us to explore strengthening our emphasis on the public sector as a critical pillar in our corporate business beyond healthcare and commercial, as we approach our 2025 planning process. Regarding our core facts business, we remain committed to investing in the ongoing development and enhancement of our cloud facts platform.

Speaker Change: As we advance our relationships with these agencies it becomes increasingly apparent that meeting the fed ramp high impact standard is a prerequisite for even being considered as a potential solution by the government we.

Speaker Change: We are pleased to share that discussions with other agencies are proceeding.

Speaker Change: We are witnessing heightened demand for our solutions in a second relevant area of the public sector state and local government and education.

Johnny Hecker: This prompts us to explore strengthening our emphasis on the public sector as a critical pillar in our corporate business beyond healthcare and commercial as we approach our 2025 planning process. Regarding our CoreFAX business, we remain committed to investing in the ongoing development and enhancement of our CloudFAX platform. Adopting a fully qualified approach has demonstrated to be the optimal strategy, particularly in terms of scalability, resilience, and innovation.

Speaker Change: This prompt us to explore strengthening our emphasis on the public sector is a critical pillar in our corporate business beyond healthcare and commercial as we approach our 2025 planning process.

Speaker Change: Guarding our core fax business, we remain committed to investing in the ongoing development and enhancement of our cloud fax platform.

Johnny Hecker: Adopting a fully qualified approach has demonstrated to be the optimal strategy, particularly in terms of scalability, resilience, and innovation. We consistently strive to enhance the platform, keeping our customers' best interest at the forefront while ensuring our continued economic success. We continue to receive robust interest in our AI offering, Clarity, which leverages our proprietary LLM and related technologies to unlock valuable insights from unstructured data. Customers and potential clients are particularly intrigued by the possibility of tailoring clarity models to their specific use cases, enabling them to extract actionable intelligence and automate workflows in ways never before possible.

Speaker Change: Adopting a fully quantified approach has demonstrated to be the optimal strategy, particularly in terms of scalability resilience and innovation.

Johnny Hecker: We consistently strive to enhance the platform, keeping our customers' best interests at the forefront while ensuring our continued economic success. We continue to receive robust interest in our AI offering, Clarity, which leverages our proprietary LLM and related technologies to unlock valuable insights from unstructured data. Customers and potential clients are particularly intrigued by the possibility of tailoring Clarity's models to their specific use cases, enabling them to extract actionable intelligence and automate workflows in ways never before possible.

Speaker Change: Consistently strive to enhance the platform keeping our customers best interest at the forefront while in.

Speaker Change: Ensuring our continued economic success.

Speaker Change: We continue to receive robust interest in our AI offering clarity, which leverages, our proprietary <unk> and related technologies to unlock valuable insights from unstructured data customers and potential clients are particularly intrigued by the possibility of tailoring clarity models too.

Speaker Change: Our specific use cases, enabling them to extract actionable intelligence and automate workflows in ways never before possible.

Johnny Hecker: This heightened interest is reflected in the growing number of proof of concept requests, which are currently contributing to our expanding implementation backlog.

Johnny Hecker: This heightened interest is reflected in the growing number of proof-of-concept requests, which are currently contributing to our expanding implementation backlog. Turning to our SOHO business, Q2 revenue was $35.8M vs. $42.4M the previous year. Consistent with the focused marketing changes we announced last year, the total SOHO account base decreased from 808,000 to 785,000 during the quarter. However, similar to last quarter, we again remained slightly ahead of expectations, with a continued reduction in free trials and the majority of customers signing up for a first month discounted price plan, allowing us to increase revenue velocity inside the customer population.

Speaker Change: This heightened interest is reflected in the growing number of proof of concept progressed, which are currently contributing to our expanding implementation backlog.

Johnny Hecker: Turning to our SOHO business, Q2 revenue was 35.8 million dollars versus 42.4 million dollars previous year. Consistent with the focused marketing changes we announced last year, the total SOHO account base has decreased from 808,000 to 785,000 during the quarter. Similar to last quarter, we again remain slightly ahead of expectations. With a continued reduction in free trials and the majority of customers signing up for a first month discounted price plan, allowing us to increase revenue velocity inside the customer population. We see ARPA stable at $14.97 in Q2 while the cancel rate is improving slightly to 3.4% sequentially and improved from 3.57% in Q2 after the previous year.

Speaker Change: Turning to our Soho business Q2 revenue was $35 8 million versus $42 4 million previous year.

Speaker Change: <unk> with the focused marketing changes, we announced last year. The total Soho account base has decreased from 808000 to 785000 during the quarter.

Speaker Change: Similar to last quarter. We again remained slightly ahead of expectations with a continued reduction in free trials and the majority of customers signing up for a first month discounted price plan, allowing us to increase revenue velocity inside the customer population.

Johnny Hecker: We see ARPA stable at $14.97 in Q2, while the cancel rate is improving slightly to 3.4% sequentially and improved from 3.57% in Q2 of the previous year. Our smarter ad spend strategy, which centers around boosting profitability and customer acquisition, continues to yield positive results. We have successfully automated and optimized this program, leading to improved output.

Speaker Change: We see ARPA stable at $14.97 in Q2, while the cancel rate is improving slightly to three 4% sequentially and improved from $3 five 7% in Q2 of the previous year.

Johnny Hecker: Our smarter ad spend strategy, which centers around boosting profitability in customer acquisition, continues to yield positive results. We have successfully automated and optimized this program, leading to improved outcomes. Coupled with robust organic returns from our SEO initiatives and our refreshed effects web presence, we're pleased to report that the SOHO business is meeting the intended objectives and marginally outperforming expectations, as evidenced by certain stable key metrics. As a result, we expect to nominally increase our marketing spend using this new approach in the second half of 2024 by approximately $2 million.

Speaker Change: Our smarter AD spend strategy, which centers around boosting profitability and customer acquisition continues to yield positive results. We have successfully automated and optimize this program leading to improved outcomes.

Johnny Hecker: Coupled with robust organic returns from our SEO initiatives and our refreshed effects web presence, we're pleased to report that the Soho business is meeting the intended objectives and marginally outperforming expectations, as evidenced by certain stable key metrics. As a result, we expect to nominally increase our marketing spend using this new approach in the second half of 2024 by approximately $2 million. This concludes my update on our SOHO. In closing, in light of ongoing economic uncertainty, cost awareness, and limited IT resources for our customers and prospects, their decision-making processes remain slow.

Speaker Change: Coupled with robust organic returns from our S. C O initiatives and our refreshed effects web presence. We are pleased to report that the Soho business is meeting the intended objectives and marginally outperforming expectations as evidenced by certain staple key metrics.

Speaker Change: As a result, we expect to nominally increase our marketing spend using this new approach in the second half of 2024 by approximately $2 million.

Johnny Hecker: This concludes my update on our SOHO business. In closing, in light of ongoing economic uncertainty, cost awareness, and limited IT resources for our customers and prospects, their decision-making processes remain slow. To navigate these challenging market conditions, we maintain a high level of flexibility in our go-to-market approach and prioritize sales efficiency. We remain committed to our strategy with a strong focus on cash generation and profitability, while our go-to-market efforts will continue to center on driving growth within the corporate business.

Speaker Change: This concludes my update on ourselves business.

Speaker Change: In closing in light of ongoing economic uncertainty cost awareness and limited resources for our customers and prospects their decision making processes remained slow.

Johnny Hecker: To navigate these challenging market conditions, we maintain a high level of flexibility in our go-to-market approach and prioritize sales efficiency. We remain committed to our strategy with a strong focus on cash generation and profitability, while our go-to-market efforts will continue to center on driving growth within the corporate business. Now, I'll hand the call over to our CFO, Jim Malone, who will provide further details about our financial results and guidance.

Speaker Change: To navigate these challenging market conditions, we maintain a high level of flexibility in our go to market approach and prioritize sales efficiency.

Speaker Change: We remain committed to our strategy with a strong focus on cash generation and profitability. While I'll go to market efforts will continue to center on driving growth within the corporate business.

Jim Malone: Now, I'll hand the call over to our CFO, Jim Malone, who will provide further details about our financial results and guidance. Thank you, Johnny, and good afternoon, everyone. In our press release and on this earnings call today, we are discussing Q2 2024 results and Q3 2024 guidance. We are reaffirming full-year 2024 revenue and adjusted EBITDA guidance while increasing our full-year adjusted EPS guidance range. We expect to file the 10-Q today.

Speaker Change: 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 Malone: Thank you, Johnny, and good afternoon, everyone. In our press release and on this Orange Call today, we are discussing Q2 2024 results and Q3 2024 guidance. We are reaffirming full year 2024 revenue and adjusted EBITDA guidance while increasing our full year adjusted EPS guidance range. We expect to file the 10-Q today.

Jim Malone: Thank you Johnny and good afternoon, everyone.

Jim Malone: In our press release and on this earnings call today.

Jim Malone: We are discussing Q2 2024 results.

Jim Malone: In Q3 2024 guidance.

Jim Malone: We are reef reaffirming full year 2020 for revenue and adjusted EBITDA guidance, while increasing our full year adjusted EPS guidance range.

Jim Malone: We expect to file the 10-Q today.

Jim Malone: Let's start with our corporate business results. Q2 2024 revenue was a record at 51.7 million, an increase of 1.4 million, or 2.7%, over the prior year and performing in line with our expectations. Corporate offer of $310, down from $317, or 2% in the prior year and in line with the last several quarters, ranging from $305 to $320. Q2 2024 customer churn of 2.29% increased 103 basis points year over year and 37 basis points sequentially. For a merely driven by new customers at the lower end of our customer continuum. Johnny mentioned in his script, normalized for the Ethax Protect Project, the cancel rate would have been below 2%.

Jim Malone: Let's start with our corporate business results. Q2 2024 revenue was a record at 51.7 billion, an increase of 1.4 million or 2.7 percent over the prior year and performing in line with our expectations. The corporate offer of $310 was down from $317 or 2% in the prior year and in line with the last several quarters ranging from $305 to $320. Q2 2024 customer churn of 2, primarily driven by new customers at the lower end of our customer continuum. As Johnny mentioned in his script, normalize for the eFax Protect project.

Jim Malone: Let's start with our corporate business results Q2, 'twenty 'twenty four revenue was a record at 50.

Speaker Change: <unk> 51.7 billion.

Speaker Change: An increase of $1 4 million or two 7% over the prior year and performing in line with our expectations.

Jim Malone: Corporate offer of $310 down from $317 or 2% in the prior year.

Jim Malone: And in line with the last several quarters, ranging from 305 $305 to $320.

Jim Malone: Q2, 2024 customer churn of two point.

Jim Malone: Two 9% increased 103 basis points year over year, and 37 basis points sequentially.

Jim Malone: Primarily driven by new customers at the lower end of our customer continue.

Jim Malone: As Johnny mentioned in his script normalize for the effects protect product to.

Jim Malone: The cancer rate would have been below 2%. Notwithstanding this, these customers are net economically beneficial, and I would also remind you that our cancel rate is based on customers, not revenue. Corporate delivered a trailing 12-month revenue retention of 99% and improvement over Q1 2024, moving to Soho. Q2 2024 revenue of $35.8 million is a decrease of $6.7 million or 15.8% over the prior year, and better and better than our expectations. The year-over-year decrease was driven by planned reduced advertising spend and a year-over-year base reduction due to fewer paid ads. With an increase of $0.02 sequentially, the offer of $14.97 decreased 4.6% year over year as a result of shifting to price plans with a discounted first month versus a free trial resulting in higher paid ads in the quarter. These plans are net economically beneficial.

Johnny Hecker: To cancel rate would have been below 2%.

Jim Malone: Notwithstanding this, these customers are net economically beneficial, and I would also remind you that our cancel rate is based upon customers, not revenue. Corporate delivered a trailing 12-month revenue retention of 99% and improvement over Q1 2024.

Johnny Hecker: Notwithstanding as these customers are net economically beneficial.

Johnny Hecker: I would also remind you that our cancel rate based upon customers not revenue.

Speaker Change: Corporate delivered a trailing 12 month revenue retention of 99% an improvement over Q1 'twenty 'twenty four.

Jim Malone: Moving to SOVO, Q2 2024 revenue of 35.8 million is a decrease of 6.7 million, or 15.8%, over the prior year and better than our expectations. The year-over-year decrease was driven by planned reduced advertising spend. and year-over-year base reduction due to fewer paid ads. With an increase of two cents sequentially, all per $14.97 decreased 4.6% year-over-year as a result of shifting to price plans with a discounted first month versus a free trial, resulting in higher paid ads in the quarter. These plans are net economically beneficial. Turn declined 17 basis points to 3.4% year-over-year and was in line with expectations.

Speaker Change: Moving to Soho.

Speaker Change: Q2, 2024 revenue 35.8 million is a decrease of $6 7 million or 15, 8% over the prior year.

Jim Malone: And better and better than our expectations.

Jim Malone: The year over year decrease was driven by planned reduced advertising spend.

Jim Malone: And year over year base reduction due to fewer paid ads.

Jim Malone: With an increase of two <unk> to <unk> sequentially.

Jim Malone: Offer a $14 97 says decreased four 6% year over year as a result of shifting to price plans with a discounted first month versus a free trial, resulting in higher paid ads in the quarter.

Jim Malone: These plans so net economically beneficial.

Jim Malone: Churn declined 17 basis points to three 4% year over year and was in line with expectations. As you recall Q2 2023 was the final quarter of our price increase cycle.

Jim Malone: Churn declined 17 basis points to 3.4% year over year and was in line with expectations. As you recall, Q2 2023 was the final quarter of our price increase cycle. Moving to Q2 consolidated results. Revenue of $87.5 million is a decrease of $5.3 million or 5.7% over Q2 2023, in line with our expectations and driven by the planned reduction in SoHo revenue. Just at EBITDA of $49.1 million, an increase of 1.4 million or 2.9% over Q2 2023 was driven by the cost structure optimization primarily in the area of solo advertising.

Jim Malone: As you recall, Q2-2023 was the final quarter of our price increase cycle.

Jim Malone: Moving to Q2-consolidated results, revenue of 87.5 million is a decrease of 5.3 million or 5.7% over Q2-2023, in line with our expectations and driven by the planned reduction in Soho revenue. Just at EBITDA, 49.1 million, an increase of 1.4 million or 2.9% over Q2-2023 was driven by the core structure optimization, primarily in the area of Soho advertising. Just at EBITDA, margin of 56.1% was 4.7 points above the prior year, exceeding expectations at the high end of our range, which is 55%. Just a net income of 28.1 million is an increase of 1.3 million or 4.9% over the prior year, driven by adjusted EBITDA flow through and net interest expense as a result of the bond repurchase activity, offset by higher DNA and income tax expense.

Jim Malone: Moving to Q2 consolidated results revenue of 87.5 million is a decrease of $5 3 million or five 7% over Q2 2023.

Jim Malone: In line with our expectations and driven by the planned reduction in Soho revenue.

Jim Malone: Adjusted EBITDA of $49 1 million, an increase of $1 4 million or two 9% over Q2 2023 was driven by the cost structure optimization, primarily in the area of solo advertising.

Jim Malone: Just the EBITDA margin of 56.1% was 4.7 points above the prior year, exceeding expectations at the high end of our range, which is 55%. Just the net income of $28.1 million is an increase of $1.3 million or 4.9% over the prior year, driven by adjusted EBITDA flow-through and net interest expense as a result of the bond repurchase activity. All set off by Higher DNA and Income Tax Expenses.

Jim Malone: Adjusted EBITA margin of 56, 1% was 4.7 points above the prior year exceeding expectations at the high end of our range, which is 55%.

Jim Malone: Adjusted net income of $28 1 million is an increase of $1 3 million or four 9% over the prior year driven by adjusted EBITDA flow through and net interest expense as a result of the bond repurchase activity.

Speaker Change: All set.

Speaker Change: By higher DNA and income tax expense.

Jim Malone: Just at EPS of $1.45 is higher than the prior year by 6.6% or 9 cents, driven by the items I mentioned and a modestly lower share count. Q2-2024, non-GAAP tax rate and share count was 21.3% and 19.3 million shares, both consistent with our Q2 guidance.

Jim Malone: Just an EPS of $1.45 is higher than the prior year by 6.6% or $0.09, driven by the items I mentioned and a modestly lower share count. For Q2, 2024, the non-GAAP tax rate and share count were 21.3% and 19.3 million shares, both consistent with our Q2 guidance. Let's talk about our capital allocation strategy. As mentioned in our Q3 November 2023 earnings call, we announced a $300 million three-year bond repurchase program. In Q2'24, we repurchased approximately $30 million face value for $28 million in cash. Program to date, we've repurchased 156 million face value for $143 million in cash. We have approximately $144 million remaining under this program.

Jim Malone: Adjusted EPS of $1 45 is higher than the prior year by six 6% or nine cents driven by the items I mentioned and a modestly lower share count.

Jim Malone: Q2, 2024, non-GAAP tax rate and share count was 21, 3% and $19 3 million shares both consistent with our Q2 guidance.

Jim Malone: Let's talk about our capital allocation strategy. As mentioned in our Q3, November 2023 earnings call, we announced the $300 million three-year bond repurchase program. In Q2-24, we repurchase approximately $30 million face value for $28 million in cash. Program to date, we repurchase $156 million face value for $143 million in cash. We have approximately $144 million in remaining under this program. Total debt to adjusted EBITDA leverage with the debt repurchases mentioned are debt to adjusted EBITDA ratios 3.1 times, well on our way to achieve in our goals of three times. Williams. We ended Q2 with 49 million in cash, which is sufficient to fund our operations and repurchases of debt and equity.

Jim Malone: Let's talk about our capital allocation strategy as mentioned in our Q3 November 2023 earnings call, We announced the 300 million dollar three year bond repurchase program.

Jim Malone: In Q2, 'twenty, four we repurchased approximately 30 million face value for $28 million in cash.

Jim Malone: <unk> to date, we've repurchased 156 million face value.

Jim Malone: $443 million in cash we have approximately 144 million remaining under this program.

Jim Malone: Yeah.

Jim Malone: Total debt to adjusted EBITDA leverage, with the debt repurchases mentioned, our debt to adjusted EBITDA ratio is 3.1 times, well on our way to achieving our goal of 3 times. We ended Q2 with $49 million in cash, which is sufficient to fund our operations and repurchases of debt and equity. Q2 free cash flow was $15.8 million, or 295% positive versus the prior comparable period. Q2 2024 CapEx spend of $8.5 million is down $1.6 million versus the prior year.

Jim Malone: Total debt to adjusted EBITDA leverage.

Jim Malone: With a debt repurchases mentioned, our debt to adjusted EBITDA ratios 3.1 times, well on our way to achieving our goals of three times.

Jim Malone: We ended Q2 with $49 million in cash, which is sufficient to fund our operations and repurchases of debt and equity.

Jim Malone: Q2 free cash flow was 15.8 million, or 295% positive versus the prior comfortable period. Q2 2024 Capac spend of 8.5 million is down 1.6 million versus the prior year.

Jim Malone: Q2 free cash flow was $15 8 million.

Jim Malone: Or 295% positive versus the prior comparable period.

Jim Malone: Q2, 2020 for Capex spend of $8 5 million is down $1.6 million versus the prior year.

Jim Malone: Based on year-to-date results, we are increasing our full-year EPS guidance range and reaffirming full-year 2024 revenue and adjusted EBITDA guidance at the midpoint as follows. Revenue between $338 million and $353 million, with $345 million at the midpoint. Adjusted EBITDA between $182 million and $194 million, with $188 million at the midpoint. Adjusted EPS guidance range from $5.45 to $5.55, with $5.50 at the midpoint. Our estimated share count and non-GAAP income tax rate was 19.3 to 19.4 million shares and a tax rate of 20.5 percent to 22.5 percent.

Jim Malone: Based on year-to-date results, we are increasing our full-year EPS guidance range and reaffirming full-year 2024 revenue and adjusted EBITDA guidance at the midpoint as follows: revenue between $338 million and $353 million, with $345 million at the midpoint. Adjusted EBITDA guidance ranged from $182 million and $194 million, with $188 million at the midpoint. Adjusted EPS guidance ranged from $5.45 to $5.55, with $5.50 at the midpoint. Our estimated share count and non-GAAP income tax rate was 19.3 to 19.4 million shares and a tax rate of 20.5% to 22.5%.

Jim Malone: Based on year to date results, we are increasing our full year EPS guidance range and reefer reaffirming full year 2020 for revenue and adjusted EBITDA guidance at the midpoint as follows.

Jim Malone: Revenue between $338 million and 353 million.

Jim Malone: $345 million at the midpoint.

Jim Malone: Adjusted EBITDA between $182 million and $194 million with $188 million at the midpoint.

Jim Malone: Adjusted EPS guidance range from $5.45.

Jim Malone: To $5 55.

Speaker Change: Wood five $5.50 at the midpoint.

Speaker Change: Our estimated share count non-GAAP income tax rate was $19 three to $19 4 million shares and a tax rate of 25% to 22, 5%.

Jim Malone: For additional guidance within the quarter spread of guidance, we are providing Q3 2024 guidance results as follows. Revenues are expected to be between $83.5 million and $87.5 million, with $85.5 million at the midpoint. Adjusted EBITDA between $44.5 million and $47.5 million, with $46 million at the midpoint. Adjusted EBITDA between $1.25 to $1.35, with $1.30 at the midpoint. Q3 2024 estimated share count and income tax rates are 19.3 to 19.4 million shares and a tax rate of 20.5 percent to 22.5 percent, respectively.

Jim Malone: For additional guidance within the quarter spread of guidance, we are providing Q3 2024 guidance results as follows. Revenues are expected to be between $83.5 million and $87.5 million, with $85.5 million at the midpoint. Justin Ibadar between 44.5 million and 47.5 million with 46 million at the midpoint, adjusted EPS between $1.25 to $1.35, with $1.30 at the midpoint. Q3 2024 estimated share count and income tax rates are 19.3 to 19.4 million shares, and the tax rate of 20.5% to 22.5%, respectively. This concludes my formal remarks. Now, I'd like to turn the call back to the operator for Q&A.

Speaker Change: For additional guidance within the quarter spread of guidance, we are providing Q3 2024 guidance results as follows.

Speaker Change: Revenues are expected to be between $83 5 million and $87.5 million with $85.5 million at the midpoint.

Jim Malone: Adjusted EBITDA between $44 5 million and $47.5 million with $46 million at the midpoint.

Speaker Change: Just the EPS between $1 25 to $1 35.

Jim Malone: With $1 30 at midpoint.

Jim Malone: Q3, 2020 for estimated share count and income tax rates or 19.3 to 19 4 million shares.

Speaker Change: And a tax rate of 25% to 22, 5% respectfully.

Jim Malone: This concludes my formal remarks.

Speaker Change: This concludes my formal remarks, now I'd like to turn the call back to the operator for Q&A.

Unknown Attendee: Now I'd like to turn the calls back to the operator for Q&A. Thank you. We will now be conducting a question and an answer session.

Operator: 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 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Thank you we will now be conducting a question and answer session and the entrance 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.

Unknown Attendee: 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. A 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. 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 if you have a question at this time. On one moment, please, while we pull for questions.

Speaker Change: Confirmation tone will indicate your line is in the question queue you.

Speaker Change: You May press star two if you'd like to remove yourself from the queue 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 if you have a question at this time and one moment. Please while we poll for questions.

Operator: Once again, please press star 1 if you have a question at this time. And one moment, please, while we poll for questions. And the first question today is coming from John Tanwanteng from CJS Securities. John, your line is live. Hi, good afternoon.

Charlie Straser: And the first question today is coming from John Tanwanteng from CJS Securities. John, your line is nice. Hi, good afternoon.

Speaker Change: And the first question today is coming from John timeline Tang from CJS Securities. John Your line is live.

Charlie Strausser: Hi, good afternoon. It's actually Charlie Strausser for John, sub-in here, and my question is, with unemployment, you know, slightly rising, rising a little bit, do you think that the clients might be, you know, starting to be able to stack back up and reduce kind of the friction in deployments, or is that still a ways off?

Charlie Joseph: Hi, good afternoon, its actually Charlie's Joseph John something in here and my question is with.

Charlie Straser: It's Charlie Straser for John. I'm helping in here. My question is with the unemployment, you know, silencing up a little bit there. Do you think that the clients might be, you know, starting to be able to stack that cup and reduce kind of the friction and deployments, or is that still always off? I'm not sure what the issue is with the audio, the audio. I know you had something to do about unemployment and checking up, but could you rephrase it again? Yeah, absolutely. Do you think that your healthcare clients might be starting to be able to stack up and reduce kind of friction and deployments?

Charlie Joseph: Unemployment.

Speaker Change: If you can give a little bit.

Charlie Joseph: Thank you.

Speaker Change: Our clients might be sorry, the fields that step back up and reduce the.

Speaker Change: Friction and deployments or does that flow is off.

Speaker Change: Okay.

Unknown Attendee: Unknown Attendee You faded in and out. I'm not sure what the issue is with the audio.

Speaker Change: You faded in and out.

Unknown Attendee: I know you have something to do about unemployment.

Speaker Change: Not sure what the issue is with.

Speaker Change: The audio.

Speaker Change: I know you had something to do about unemployment ticking up.

Charlie Strausser: But could you rephrase it again? Yeah, absolutely. Do you think that your healthcare clients might be starting to be able to staff back up and reduce some kind of friction in deployments?

Speaker Change: Okay.

Speaker Change: Again.

Speaker Change: Yeah absolutely.

Scott Rekey: Think that your healthcare clients might be starting to be able to staff back up and reduce friction and deployment Scott or understood.

Johnny Hecker: Oh, got understood. Yeah. Yeah, so interesting question. Good question. Appreciate it. Thank you. This is Johnny. So right now, we don't have any indicators that we see clients really finding the talent that they need to drive more IT projects. We don't see any changes in that dynamic in the market at all, to be honest. Thank you very much. Thank you. And once again, it will be star one on your phone if you wish to ask a question. That's star one. If you wish to ask a question.

Unknown Attendee: Oh, got it. Got it. Understandable. Yeah.

Johnny Hecker: Yeah, yeah. So, interesting question. Good question. I appreciate it. Thank you. This is Johnny.

Johnny Hecker: So, right now, we don't have any indicators that we see clients really finding the talent that they need to drive more IT projects. We don't see any changes in that dynamic in the market at all, to be honest.

Speaker Change: Yes.

Speaker Change: Interesting question. Good question I appreciate it. Thank you this is Johnny so right.

Speaker Change: Right now we don't have any indicators that we see clients really finding the talent that they need to drive more.

Speaker Change: Project.

Speaker Change: We don't see any changes.

Speaker Change: And that dynamic in the market at all.

Speaker Change: Yeah.

Transcription by interpreter: Transcription by interpreter 052167832 2015 University of Gainesville, Gainesville College of Journalism

Speaker Change: Great.

Speaker Change: Okay.

Speaker Change: Yes, thank you very much.

Operator: Thank you. And once again, it will be star one on your phone. If you wish to ask a question, that's star one. The next question is coming from David Larson from VTIG. David, your line is live.

Speaker Change: Thank you and once again it will be star one on your phone if you wish to ask a question Thats Star one if you wish to ask a question.

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

Speaker Change: Next question is coming from David Larsen from BTG, David Your line is nice.

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

David Larsen: Hi can you talk about the deployment process at the V. A.

David Larsen: How far along are you any metrics around that.

David Larsen: How many sites the VA has how many year deployed at when did that start.

Speaker Change: And then when will you sort of get to sort of a we'll call it not a full ramp up but a pretty good pace and the total dollars tied to the V. A just more color there would be very helpful.

Speaker Change: How has that situation evolve is improving in terms of access and deployment timing thanks very much.

Johnny Hecker: Thanks very much. Yeah, hi, David. This is Johnny. Good question. Thank you. I think it's, it's, we're at a, we can't really say what percentage we're at on the site metric. It's, they have about 2,200 sites of what we currently know, but a site can be, you know, a handful of people operating an office at a cemetery or can be a huge hospital. So the site is not really a metric that gives us a good indication of volume. It's more about the number of employees, the number of seats that we have. And then beyond that, what applications are these people using?

Johnny Hecker: Yeah, hi David. This is Johnny.

Speaker Change: Yeah, Hi, David This is Johnny good question. Thank you.

Speaker Change: I think it's.

Johnny Hecker: Good question. Thank you. I think it's We're in a, we can't really say what percentage we're at on the site metric. It's, they have about 2,200 sites of what we currently know, but a site can be, you know, a handful of people operating an office at a cemetery, or it can be a huge hospital. So the site is not really a metric that gives us a good indication of volume. It's more about the number of employees and the number of seats that we have. And then beyond that, what applications are these people using?

Speaker Change: We were at a we can't really say what percentage we're at on the site.

Operator: Good day, ladies and gentlemen, and welcome to Consensus Q2 2024 earnings call. My name is Paul, and I will be the operator assisting you today. At this time, all participants are in a listen-only mode.

Operator: A question and an intercession will follow the former presentation. If anyone should acquire operator assistance during the conference, please press star zero on your telephone keypad.

Operator: On this call from Consensus will be Scott Teriki, CEO, Jim Malone, CFO, Johnny Hecker, CRO, and Executive Vice President of Operations, and Adam Varon, Senior Vice President of Finance.

Speaker Change: Metric, it's they have about 22 on riptide, we currently know about our site can be.

Speaker Change: A handful of people operating in office at a cemetery or it can be a huge hospital. So the site is not really a metric that gives us a good indication.

Speaker Change: On a volume it's more about the number of employees the number of seats that we have and then beyond that what what.

Speaker Change: Applications are these people using and we don't have a clear inventory of that at the moment.

Scott Teriki: And we don't have a clear inventory of that at the moment. Remember, we are rolling this out in close collaboration with our partner, Accenture, and federal services. They are driving the majority of the rollout at the site and training the, you know, the end users. We are, we are the provider of the, the infrastructure. Right now, like, like I said, in my, in my opening remarks, we're on pace, we're on track with the rollout at what we had expected. But, you know, obviously, there is a tremendous potential within that account. We don't really want to put a, a final number on it.

Speaker Change: Remember we are rolling this out in close collaboration with our partner Accenture and federal services.

Adam Varon: I will now turn the call over to Adam Varon, Senior Vice President of Finance at Consensus. Thank you, you may begin.

Speaker Change: They are driving the majority of the of the rollout at.

Adam Varon: Good afternoon, and welcome to the Consensus investor call to discuss our Q2 2024 financial results. Other key information are Q3 2024 quarterly guidance and full-year 2024 guidance. Joining me today are Scott Teriki, CEO, Johnny Hecker, CRO, and EVP of Operations, and Jim Malone, CFO.

Speaker Change: At the sites and training.

Speaker Change: And users.

Johnny Hecker: And we don't have a clear inventory of that at the moment. Remember, we are rolling this out in close collaboration with our partner, Accenture, and Federal Services. They are driving the majority of the rollout at the sites and training the end users. We are the provider of the infrastructure. Right now, like I said in my opening remarks, we're on pace. We're on track with the rollout and what we had expected.

Speaker Change: We are the provider of the infrastructure.

Speaker Change: Right now.

Speaker Change: As I said in my in my opening remarks.

Speaker Change: We're on pace, we're on track with with the rollout at what we had expected.

Johnny Hecker: But obviously, there is tremendous potential within that account. We don't really want to put a final number on it because I don't think the VA knows how it will go, right? It's a very, very large organization with hundreds of FAC servers, thousands of, you know, multifunctional devices and machines that they're operating, and they're step by step migrating over to the EC FAC solution. So, as we go along, and as we roll out, we will get a better understanding of how large the total opportunity is. But we're still at the very beginning, and I would just

Speaker Change: But obviously there is a tremendous potential within that account, we don't really want to put.

Adam Varon: The earnings call will begin with Scott providing opening remarks. Johnny will give an update on operational progress since our Q1 2024 investor call, and then Jim will discuss Q2 2024 financial results, our Q3 2024 quarterly and full-year 2024 guidance.

Speaker Change: A final number on it.

Johnny Hecker: Because I don't think the VA knows themselves, right? It's a, it's a very, very large organization with hundreds of fact servers, thousands of, you know, multi functional devices and machines that they're operating. And they're set by step migrating over to the easy fact solution. So, as we go along and, as we roll out, we will get a better understanding of how large the total opportunity is. But we're still at the very beginning.

Speaker Change: Because I don't think it'll be a notice themselves right.

Speaker Change: Very very large organization.

Speaker Change: With hundreds of fact servers thousands of mud.

Speaker Change: Functional devices and machines that they are operating and there are step by step migrating over to the <unk> solution.

Adam Varon: 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: So as we as we go along and as we rollout we will we will get a better understanding of how large the total opportunity is.

Speaker Change: But we're still at the very beginning.

Adam Varon: Before we begin our prepared remarks, allow me to direct you to our forward-looking statements and risk factors on slide two. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include but are not limited to the risk factors that we have disclosed in our 10K SEC filing.

Scott Taricki: And I would just add to what Johnny said, David, in terms of the first part of your question. You'll recall, it was really about a year ago, literally almost a year ago, September 23, when the real rollout started, because that first phase from March to June and July was really the test case. And then there was a big wrap-up meeting to discuss both how those rollouts had been done, the format in which they had proceeded, and alternative ways because the VA has a similar incentive as we do, which is to see it roll out at a faster pace. And then that resulted in a number of months of going back and forth on alternative structures beyond just bringing a facility online.

Scott Teriki: and I would just add to what Johnny said, David, that in terms of the first part of your question, you recall it was really about a year ago, literally almost a year ago, September of 23, when the real rollout started, because that first phase from March to June, July was really the test cases, and then there was a big bring down meeting to discuss both how those rollouts had been done, the format in which they had preceded an alternative ways, because the VA has a similar incentive as we do, which is to see it roll out at a faster pace, and then that resulted in a number of months going back and forth of alternative structures, beyond just bringing a facility online.

David Larsen: And I would just add to what Johnny said, David that in terms of the first part of your question.

Scott Taricki: So the original view was, yes, it would be facility by facility, and eventually, you'd be at 2200. While that is still true, and there's been a dramatic acceleration of the number of facilities that have access to the service since a year ago, as Johnny pointed out, that's really just one of several metrics that matter because there are, I think, close to a million employees that are within the VA. So that constitutes another block of users. And then you've got embedded applications.

Speaker Change: Youll recall, it was really about a year ago.

Scott Taricki: And so what we have seen is what I'll call liberalization of how the rollout is and will take place on a going forward basis. So we're seeing basically each month some degree of rollout relative to the previous month and, as a result, increasing traffic on a sequential basis. And so, as Johnny referenced in his remarks, you know, we think we'll make 2 million-ish in revenue this year, which is, you know, like an infinite increase versus last year.

Speaker Change: Literally almost a year ago September of 2003, when the real rollout started because that first phase from March to June July was really the test cases, and then there was a big bring down meeting to discuss both how those rollouts had been done the format in which they had proceeded.

Scott Taricki: But I would expect significant growth in that number as we go into 2025, just based on the run rate exit that we'll have at the end of 2024, before you even get to adding new users or new facilities in 2025. So, I know that's not the exact quantification you want, but we're not going to give it to you because, as Johnny pointed out, it's very challenging with the VA. I think a lot of times there are just so many different embedded applications and systems and regions that it's a challenge for them to even come up with what that number is.

Scott Teriki: Now, let me turn the call over to Scott.

Speaker Change: And alternative ways because of the VA has a similar incentive as we do which is to see it rollout at a faster pace.

Scott Teriki: Thank you, Adam. We had a strong Q2 outperforming on both channels of revenue, adjusted EBITDA, adjusted earnings, adjusted EPS, and free cash flow.

Speaker Change: And then that resulted in a number of months going back and forth of alternative structures beyond just bringing the facility online.

Scott Teriki: So the original view was yes, it would be facility by facility, and eventually it would be at $2,200. And while that is still true, and there's been a dramatic acceleration of a number of facilities that have access to the service since a year ago, as Johnny pointed out, that's really, it's only one of really several metrics that matter, because there's, I think, close to a million employees that are within the VA, so that constitutes another block of users, and then you've got embedded applications. And so what we have seen is what I call liberalization of how the rollout is and will take place on a going forward basis.

Scott Teriki: As we laid out in our Q4 earnings call, our goals for this year include the following. First, eliminating certain costs of the SOHO channel, especially in the area of marketing to provide for stabilization of the base of revenue over time. Second, continuing to pursue the acquisition of customers primarily in the healthcare space for our corporate channel. Third, reviewing and improving our overall cost structure with the goal of driving adjusted EBITDA margins to the higher end of our 50-55% range. Fourth, continuing to repurchase our debt to further reduce our total debt to adjusted EBITDA ratio in anticipation of the first cross-maturing in October 2026.

Speaker Change: The original view was yes, it would be facility by facility and eventually you'd be at 2200, and while that is still true and there's been a dramatic acceleration of the number of facilities that have access to the service.

Speaker Change: A year ago.

Speaker Change: As Johnny pointed out that's really its a its only one of really several metrics that matter. Because there is I think close to a 1 million employees that are within the VA. So that constitutes another block of users and then you've got embedded applications.

Speaker Change: So what we have seen.

Speaker Change: Is what I'll call a liberalization of how the rollout.

Speaker Change: And will take place on a going forward basis. So we're seeing basically each month some degree of rollout relative to the previous month and as a result, increasing traffic on a sequential basis.

Scott Teriki: So we're seeing basically each month some degree of rollout relative to the previous month, and as a result, increasing traffic on a sequential basis. And so, as Johnny referenced in his remarks, you know, we think two millionish of revenue this year, which is, you know, like an infinite increase versus last year, but I would expect significant growth in that number as we go into 25, just based on the run rate exit that we'll have at the end of 24, or before you can get to adding new users or new facilities in 25. So I know that's not the exact quantification you want, but we're not going to give it to you because, as Johnny pointed out, it's very challenging with the VA.

Scott Teriki: Let me provide a few additional highlights for turning the call over to Johnny. Our corporate channel continue to add new customers primarily through upgrades from our Soho base as well as our relatively new e-commerce offering e-facts protect. Notwithstanding the lower ARPA of these customers than our current average, we were still able to maintain a $310 ARPA and a tight range over the past several quarters of between $305 and $320. Soho is rolling out, driving new levels of usage and revenue.

Speaker Change: So as Jonny referenced in his remarks, we think 2 million ish of revenue this year, which is like an infinite increase versus last year, but I would expect significant growth in that number as we go into 'twenty five just based on the run rate exit that we'll have at the end of 'twenty four before.

Speaker Change: You can get to adding new users or new facilities and 25.

Speaker Change: So I know that's not the exact quantification you want but we're not going to give it to you because.

Scott Teriki: Our Soho revenues beat our expectations for the quarter. I would remind you that in Q2 2023, we finished the price increase to our base and actually saw a slight growth in revenues versus Q2 2022. As we stayed at the time, we viewed this growth as anomalous. We continued to track ahead of our 2023 budget and have found additional marketing opportunities while maintaining a strong LTV to CAC. We were able to substantially reduce our marketing spend and still generate 61,000 paid ads more than Q4 2023 and similar to Q3 2023, which had higher levels of spend.

Speaker Change: As Johnny pointed out it's very challenging with the VA I think a lot of times Theres, just so many different embedded applications and systems and regions. That's a challenge for them to even come up with.

Unknown Attendee: I think a lot of times there's just so many different embedded applications and systems and regions that are challenged for them to even come up with what that number is. But I think we have several years of growth relative to where we sit today in terms of getting to which you might consider to be meaning, you know, not full penetration, but substantial penetration of the VA opportunity. Okay, it sounds like things are improving is what I'm kind of hearing. And then also when you was, okay, was that a yes? Yes, that was a yes. Okay, and then also when you listen to the publicly traded hospitals report, they each are consistently saying that, you know, labor shortages are being resolved.

Johnny Hecker: What that number is.

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

Johnny Hecker: But I think we have several years of growth.

Speaker Change: Relative to where we sit today in terms of getting to what you might consider to be <unk>.

Speaker Change: Meaning.

Speaker Change: That full penetration, but substantial penetration of the VA opportunity.

David Larsen: Okay, it sounds like things are improving, is what I'm kind of hearing. And then also, when you listen, okay, was that a yes? Yes, there was a yes. Okay, okay, and then also, when you listen to the publicly traded hospitals' reports, they each are consistently saying that, you know, labor shortages are being resolved, they're saying that inflation rates have improved, their reliance on contract labor has been reduced, volumes actually look very good at the publicly traded hospitals, as do the EBITDA margins.

Speaker Change: Okay.

Speaker Change: It sounds like things are improving.

Speaker Change: Is what I'm kind of hearing.

Speaker Change: And then also when you list, Okay was that a yes.

Scott Teriki: Our cost structure benefited from a full quarter of the cost optimization that we discussed on our Q4 call. As a reminder, most of those cost reductions came primarily from the Soho marketing mentioned earlier. The result was a 4.7 percentage point pickup on our adjusted EBITDA margin to 56.1% for the quarter, which is above the upper end of our long term range. The combination of improved adjusted EBITDA, strong cash collections and retirement of debt allowed us to improve our free cash flow by more than $11 million from Q2 2023.

Speaker Change: Yes that was a yes.

Speaker Change: Okay. Okay, and then also when you listen to the publicly traded hospitals report.

Speaker Change: They each are consistently saying that.

Speaker Change: Labor shortages are being resolved they are saying that inflation rates have improved.

Johnny Hecker: They're saying that inflation rates have improved. Their reliance on contract labor has been reduced. Volumes actually look very good at the publicly traded hospitals as to the EBITDA margins. I guess any thoughts on, like, I guess this is similar to that first question. But any thoughts on the sort of demand level from the hospital market and the healthcare facilities that you're working with now has, has there been a main improvement?

Speaker Change: Their their reliance on contract labor has been reduced volumes actually look very good at the public traded hospitals as do the EBITA margins.

David Larsen: I guess, any thoughts on, I guess this is similar to that first question, but any thoughts on the sort of demand level from the hospital market and the health care facilities that you're working with now? Has there been any improvement?

Speaker Change: I guess any thoughts on.

Speaker Change: I guess this is similar to that first question, but any thoughts on the.

Speaker Change: Sort of demand level.

Scott Teriki: We were able to repurchase an additional 29.7 million of debt during the quarter. This brings our total repurchases since launching the program in November of 2023 to 156 million and reducing our outstanding total debt to 649 million or 3.4 times our trailing 12 month adjusted EBITDA and 3.1 times on a net debt basis.

Speaker Change: The hospital market and the health care facilities that Youre working with now is has there been any improvement.

Johnny Hecker: Again, a good question. Right now, we're seeing both sides of that coin, right? We see hospitals that are doing very well. I think they are doing well on the clinical side, which is what you're hearing is that they're actually hiring that kind of staff. They're still very cost-conscious and trying to manage their bottom line as well. I don't see an unnecessarily increase in the IT staff, which is where we need most of the support. And then you also do see, you know, the flip side of the coin where you see hospitals that are in distress, right? The most public example is probably the Stuart Health case. Unknown Attendee.

Johnny Hecker: Again, good question. Right now, we're seeing both sides of that coin, right? We see hospitals that are doing very well. I think they are, you know, covering on the clinical side, which is where what you're hearing is that they're actually hiring that kind of staff. They're we don't see a necessarily increase in the IT staff, which is where we need most of the support. And then you also do see, you know, the flip side of the coin, where you see hospitals that aren't in distress, right? I mean, very public is probably the Steward Health case.

Speaker Change: Again good question.

Speaker Change: Right now, where we're seeing both sides of that coin right. We see hospitals that are doing very well.

Speaker Change: They I think they are.

Speaker Change: Covering on the clinical side, which is spread what you are hearing is that they are actually hiring that kind of staff. There is still a very cost conscious and.

Johnny Hecker: I will now turn the call over to Johnny, who will provide you more operating details. Thank you, Scott, and hello, everyone. Today, I will share business and go to market updates covering both our corporate and Soho businesses, along with more details on the public sector, specifically the VA rollout and some product enhancements.

Speaker Change: Trying to manage their their bottom line as well.

Speaker Change: We don't see unnecessarily.

Speaker Change: <unk>.

Speaker Change: Increase in the.

Speaker Change: Staff, which is where we need most of the support and then you also do see.

Johnny Hecker: Let's start by sharing our sales and operations update and then on the solid performance in the corporate business. We are pleased to report revenue of 51.7 million dollars, versus 50.4 million dollars last year for Q2, marking an approximate 3% increase over the same period last year. This outcome serves as a testament to use cases for cloud facts and corporate settings, especially in health care. I am most pleased with the increase in the variable portion of our revenues, indicating mostly upmarket growth.

Speaker Change: The flip side of the coin where you see hospitals that are in distress right. I mean, very public is probably the steward health case.

Speaker Change:

Johnny Hecker: They just filed Chapter 11 recently. So I think you have both sides of that coin in the healthcare industry. You have the very large ones that are that are doing well, but you also have the ones that are they continue to struggle. Now, that's not necessarily bad for us, right? Because they're looking to optimize their costs as well. And we can contribute to that. So we can use that as an opportunity to help them save some money and get rid of legacy infrastructure, which is usually costly. But on the labor side, we don't see a lot of improvement at the moment.

Johnny Hecker: I'm, They just filed Chapter 11 recently. The very large ones that are are doing well, but you also have the ones that are they continue to struggle. Now, that's not necessarily bad for us, right? Because they're looking to optimize their costs as well. And we can contribute to that. So we can use that as an opportunity to help them save some money. And, you know, get rid of legacy infrastructure, which is usually costly. But on the labor side, we don't see a lot of improvement.

Speaker Change: They just filed chapter 11, and reasonably so I think you have both sides of that coin in the health care industry you have the.

Speaker Change: The very large ones that are that are doing well.

Speaker Change: But you also have the ones that are that continue to struggle now that's not necessarily bad for us right because they are looking to optimize their cost as well.

Speaker Change: And we can contribute to that so we can we can use that as an opportunity to help them.

Johnny Hecker: It marks another record setting quarter for our corporate business, emphasizing the unwavering strength and effectiveness of our office. Conference. The e-commerce and sell-ho upsell strategy continues to be a valuable source of customer acquisition with approximately 2,700 customers added in Q2, demonstrating the effectiveness of our strategy. During the last call, we projected a decline in our sell-ho to corporate upsell during Q2 due to planned operational changes. However, the growth of our e-facts protect service helps us offset the slowdown to a large extent.

Speaker Change: Save some money in.

Speaker Change: Get rid of legacy infrastructure, which is usually a costly.

Speaker Change: But on the labor side, we don't we don't see a lot of improve.

Speaker Change: Improvement at the moment.

Unknown Attendee: Okay, that's that's helpful.

David Larsen: Okay, that's helpful. And this is one more quick one for me.

Speaker Change: Okay. That's that's helpful. And then just one more quick one for me any comments on the clarity prior off solution or clarity clinical documentation.

Johnny Hecker: And there's just one more quick one for me. Any comments on the clarity prior off solution or clarity clinical documentation? What sort of uptake rate are you seeing there? And anyway, to sort of take a stab at total dollar and amount of dollar flow from your clients or intel opportunities. Thank you very much. Yeah. So we do see we do see increased interest in that product line. We have a lot of customer engagement, as I said, particularly in POCs. So we have to go through these motions. It is building backlog on our implementation teams. As we're building out that implementation capacity.

Speaker Change: Sort of uptake rate are you seeing there and any way to sort of.

Speaker Change: Take a stab at <unk>.

Speaker Change: Total dollar incremental dollar flow from your clients or in cell opportunity. Thank you very much.

Johnny Hecker: We will continue to invest in and expand this e-commerce offering, which aligns with the go-to-market re-alignment strategy we shared last year. The next phase of this offering will include in-product upsell options for our customers, eliminating the need for in-person interaction with customers for that process. The metrics we share reveal that the growth in corporate accounts driven by those new customers at the lower end of our customer continuum also leads to a higher corporate cancellation rate.

Speaker Change: Yeah.

David Larsen: Any comments on the clarity prior off solution or clarity clinical documentation? What sort of uptake rate are you seeing there? And any way to sort of take a stab at total dollar incremental dollar flow from your clients or in-sell opportunity? Thank you very much.

Speaker Change: So we do see.

Speaker Change: We do see increased interest in that product line, we have a lot of customer engagement.

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

Speaker Change: As I said, particularly in Poc's, so we have to.

Speaker Change: Go through these motions.

Speaker Change: It is building backlog on our on our implementation teams.

Speaker Change: As we're building out that implementation and capacity.

Johnny Hecker: But I think it would be, you know, with the large amount of a fax revenue that the company has, which is still growing, which we're adding to every quarter. The clarity contribution on the revenue side is not material like this. Okay, thanks very much.

Speaker Change: But I think it would be with them.

Speaker Change: With that large amount of.

Johnny Hecker: It has increased by 103 basis points year over year and 37 basis points quarter over quarter, reaching 2.29% in the second quarter of 2024. Normalized for e-facts protect, the cancel rate in corporate remains significantly below the 2% mark. I would remind you that our cancellation rate is based on accounts and not on revenue. We first saw this trend with the launch of the e-commerce channel, and are pleased to report that corporate ARPA has remained steady for several quarters within the $305 to $320 range at just above $310 this quarter.

Speaker Change: Revenue that the company has which is still growing which were adding to every every quarter.

Speaker Change: The clarity contribution on the revenue side is not materially at this point.

David Larsen: Okay, thanks very much. Congratulations on a good quarter.

Speaker Change: Okay. Thanks, so much congrats on a good quarter.

Scott Teriki: Before we take any more live questions, Paul, we've got a couple of questions that come in by email, which I'd like to address. And then you can reach for the queue if there's any other questions that want to come in. So we have a question regarding the SOHO business. It's really a perspective question to 25 about the expected way to decline in SOHO in 25 versus 24. And how that might be changing given the increase in our marketing spend. So let me actually answer a question that's maybe even more near-term relevant, which is the last two quarters of 24.

Scott Taricki: Thank you, David. Before we take any more live questions, Paul, we've got a couple of questions that have come in by email that I'd like to address, and then you can recheck for the queue if there are any other questions that want to come in. So we have a question regarding the Soho business. It's really a perspective question for 25 about the expected rate of decline in Soho in 25 versus 24, and how that might be changing given the increase in our marketing spend.

Paul: Thank you Dave before we take any more live questions. Paul We've got a couple of questions that have come in by E Mail, which I'd like to address and then you can re chair for the Q if theres any other questions that want to come in so we have a question regarding the Soho business. It's really a prospective question the 25 about the <unk>.

Speaker Change: <unk> rate of decline in Soho and twenty-five versus 24.

Johnny Hecker: During key to advanced products accounted for 14% of new sales, aligning with the performance of the second half of the last year while being lower than the Q1 contribution. This temporary slowdown is mainly attributed to our unite offering after a strong sales performance in Q1. It's important to note that this percentage fluctuates and is also influenced by the new sales of our core FACS services. Overall, we're on track with the execution of our go-to-market plan in 2024. We're increasingly closing customers in the lower ARPA spectrum through fully automated e-commerce processes, allowing for our sales team to focus on larger deals, driving up overall sales productivity.

Paul: And how that might be changing given the increase in our marketing spend so let me actually answer a question that maybe even more near term relevant which is the last two quarters of 'twenty. Four so just so everybody understands but we have a certain pace of spend in the first half of 'twenty for the.

Scott Taricki: So let me actually answer a question that's maybe even more near-term relevant, which is the last two quarters of 24. So just so everybody understands, we have a certain pace of spend in the first half of 24 that is substantially lower than the first half of 23. And some of that was in my prepared remarks. Some of that has been noted by Johnny and Jim.

Scott Teriki: So just everybody understands, but we have a certain pace of ten, in the first half of 24 that is substantially lower than the first half of 23. And some of that was in my preparatory remarks; some of that has been noted by Johnny and Jim. We have seen, based on the cohort analysis and based on the marketing programs, the ability to spend increments. Now, from a budgetary standpoint or a forecast standpoint, we've assumed an incremental million dollars in each of Q3 and Q4. And the result that's particularly in the near term, I hit the EBITDA in the Q3 quarter.

Speaker Change: Statuary lower than the first half of 'twenty three and some of that was in my prepared remarks. Some of that has been noted by Johnny and Jim.

Scott Taricki: We have seen, based on the cohort analysis and based on the marketing programs, the ability to spend incrementally. Now, from a budgetary standpoint or a forecast standpoint, we've assumed an incremental million dollars in each of Q3 and Q4, and the result that's particularly in the near term will hit EBITDA in the Q3 quarter. What I think is important to understand is that that is not an authorized amount of spend, right? That's a budgeted amount of spend.

Speaker Change: We have seen based on the cohort analysis and based on the marketing programs the ability to spend incremental.

Speaker Change: Now from a budgetary standpoint, or a forecast standpoint, we've assume an incremental million dollars in each of Q3 and Q4.

Speaker Change: As a result, that's particularly in the near term hit to EBITDA in the Q3 quarter.

Johnny Hecker: I'd also like to highlight our public sector business, the implementation of EC FACS at the VA is proceeding as planned, and our enthusiasm for its potential remains unwavering. We are observing steady growth in line with our projections, and we confidently confirm that we forecast more than $2 million in revenue from the EC FACS program in 2024 and expect continued growth in the coming months and years as we move forward. EC FACS stands out as the sole cloud FACS solution on the FedRAM marketplace with the additional exceptional distinction of complying with the high-impact level controls.

Scott Teriki: What I think is important to understand is that is not an authorized amount of spend, right? That's a budgeted amount of spend. The key is really that both the marginal contribution and the average of that spend maintains when we consider to be a strong LTV to CAC. If we see in given programs or trunk the programs that you just can't spend more beyond a certain limit, we don't intend to spend it. So a lot of the answer to the 25 question, or at least a portion of it, is a function of what will be the sustained level of marketing spend as we exit 24 and go into 25.

Speaker Change: What do you think is important to understand is that is not an authorized amount of spend right. That's a budgeted amount of spin. The key is really that both the marginal contribution and the average of that spend maintains what we consider to be a strong LTV to CAC, if we see and given programs or <unk>.

Scott Taricki: The key is really that both the marginal contribution and the average of that spend maintains what we consider to be a strong LTV to CAC. If we see in given programs or chunks of programs that you just can't spend more beyond a certain limit, we don't intend to spend it.

Speaker Change: The programs that you just cant spend more beyond a certain limit we don't intend to spend it so.

Scott Taricki: So a lot of the answer to the 25 question, or at least a portion of it, is a function of what will be the sustained level of marketing spend as we exit 24 and go into 25. It is our current expectation and certainly our hope that we can fully spend that million dollars in each of Q3 and Q4. So you should be expecting a lesser decline in the SOHO business in Q3 and Q4. Those are easier comps for us than Q2, which was our toughest comp of the four quarters this year.

Speaker Change: A lot of the answer to the 25 question or at least a portion of it is a function of what will be the sustained level of marketing spend as we exit 'twenty four and go into 25. It is our current expectation and certainly our hope we can fully spend that $1 billion in each of Q3 and Q4.

Scott Teriki: It is our current expectation and certainly our hope. We can fully spend that million dollars in each of Q3 and Q4. So you should be expecting a lesser decline in the solo business in Q3 and Q4. Those are easier cops for us than Q2, which was our toughest comp of the four quarters of this year. And then, as we address the Q3 results on the November call, I think we'll have good insight in terms of what we expect in 25. I expect a lesser rate of decline in the solo business than we saw for seeing from 23 to 24.

Johnny Hecker: This attests to the utmost level of security, integrity, and availability vital for government agencies operating in sensitive sectors like law enforcement, healthcare, finance, and defense. As we advance our relationships with these agencies, it becomes increasingly apparent that meeting the Fed ramp high-impact standard is a prerequisite for even being considered as a potential solution by the government. We're pleased to share the discussions with other agencies are proceeding. We're witnessing heightened demand for our solutions in a second relevant area of the public sector, state and local government and education. This prompt us to explore strengthening our emphasis on the public sector as a critical pillar in our corporate business beyond healthcare and commercial, as we approach our 2025 planning process.

Speaker Change: So you should be expecting a lesser decline in the Soho business in Q3, and Q4 those are easier comps for us than Q2, which was our toughest comp of the four quarters of this year and then as we address the Q3 results on the November call. I think we will have good insight in terms of what we expect.

Scott Taricki: And then as we address the Q3 results on the November call, I think we'll have good insight in terms of what we expect in 25. I expect a lesser rate of decline in the SOHO business than we saw or are seeing from 23 to 24. But in terms of quantifying it now, a lot of it will hinge on the exact level of marketing spend and what that stabilized run rate is as we look forward into 25.

Speaker Change: In 25, I expect a lesser rate of decline in the Soho business than we saw or seeing from 'twenty to 'twenty four but in terms of quantifying. It now a lot of it will hinge on the exact level of marketing spend and what is that stabilized run rate as we look forward into 'twenty five the.

Scott Teriki: But in terms of quantifying it now, a lot of it will hinge on the exact level of marketing spend. And what is that stabilized one rate as we look forward into 25.

Scott Teriki: The second question had to do with one of capital deployment or CAPX. It's kind of on the question of the nearing a refinancing. So I would just remind people that we have, as was noted by Jim, you know, 649 million a day. There are two tranches of that. The 6% notes are doing October 26. So, more than two years away, although as the question is premise, I think we will be looking at what our options are certainly in 25. Or, at a minimum, addressing the trance, they'll be maturing in 26. The second trance, which is larger, the six and a half mature in October of 28.

Scott Taricki: The second question had to do with capital deployment, our CapEx, and others. I think we will be looking at what our options are, certainly in 2025 for at a minimum addressing the tranche that will be maturing in 2025. The second tranche, which is larger, the 6 12 matures in October of 2020.

Speaker Change: The second question had to do with one of our capital deployment of our Capex.

Speaker Change: It's premised on the question of the nearing of refinancing so I would just remind people that we have.

Johnny Hecker: Regarding our core facts business, we remain committed to investing in the ongoing development and enhancement of our cloud facts platform. Adopting a fully qualified approach has demonstrated to be the optimal strategy, particularly in terms of scalability, resilience and innovation. We consistently strive to enhance the platform keeping our customers' best interest at the forefront while ensuring our continued economic success. We continue to receive robust interest in our AI offering clarity, which leverages our proprietary LLM and related technologies to unlock valuable insights from unstructured data.

Speaker Change: As was noted by Jim $649 million of debt.

Jim Malone: There are two tranches of that the 6% notes are due in October of 2006, so more than two years away. Although his question is premise I think we will be looking at what our options are certainly in 'twenty five or at a minimum addressing the tranche there'll be maturing in 2006, the second tranche, which is long.

Speaker Change: Larger the six and a half mature in October of 2008.

Scott Taricki: Our CapEx this year has been more front-end weighted, so we've given you a range of 26 to 30 million for the year. We believe we're going to come in near the high end of the range for 24, around 30 million. So you'll see step downs on a sequential basis in Q3 relative to Q2 and Q4 relative to Q3. This is really a budgetary question as it relates to our level of capital investment in 2025.

Scott Teriki: Our CAPX this year has been more front-end weighted. So we've given you a range of 26 to 30 million for the year. We believe we're going to come in there the high end of the range for 24, around 30 million. So you'll see step downs on a sequential basis in Q3 relative to Q2 and Q4 relative to Q3. This is really a budgetary question as it relates to our level of capital investment in 25. We obviously have not started that process yet. I would say sitting here today, I don't see any material change in the level of CAPX spend.

Speaker Change: Our capex. This year has been more front end weighted so we've given you a range of 26% to $30 million for the year. We believe we're going to come in near the high end of the range for 'twenty or around $30 million. So youll see step downs on a sequential basis in Q3 relative to Q2 and Q4 relative to Q3.

Johnny Hecker: Customers and potential clients are particularly intrigued by the possibility of tailoring clarity models to their specific use cases enabling them to extract actionable intelligence and automate workflows in ways never before possible. This heightened interest is reflected in the growing number of proof of concept requests, which are currently contributing to our expanding implementation backlog.

Speaker Change: This is really a budgetary question as it relates to our level of capital investment in 'twenty five.

Scott Taricki: We obviously have not started that process yet. I would say... sitting here today, I don't see any material change in the level of CapEx spend. Could it be, you know, two or three million lower or two or three million higher? Yes. A lot of it will be the function of what projects we carry into 25, which ones are we green lighting, and which ones are we not. But I actually don't see the amount of CapEx on the margin as being in any way influential in terms of how we think about refinancing either tranche. Paul, back to you if there are any more live questions. There were no more live questions.

Speaker Change: We obviously have not started that process yet.

Speaker Change: I would say sitting here today I don't see any material change in the level of capex spend could it be.

Scott Teriki: Could it be, you know, two or three million lower, or two or three million higher? Yes. A lot of the function of what projects are we carrying into 25? Which ones are we reenlighting? Which ones are we not reenlighting? But I actually don't see the amount of CAPX on the margin is being in any way influential in terms of how we think about refinancing either front.

Speaker Change: Two or $3 million, lower or two or 3 million higher yes.

Johnny Hecker: Turning to our SOHO business, Q2 revenue was 35.8 million dollars versus 42.4 million dollars previous year. Consistent with the focused marketing changes we announced last year, the total SOHO account base has decreased from 808,000 to 785,000 during the quarter. Similar to last quarter, we again remain slightly ahead of expectations. With a continued reduction in free trials and the majority of customers signing up for a first month discounted price plan, allowing us to increase revenue velocity inside the customer population.

Speaker Change: With a function of what projects are we carrying into 25, which ones are green lighting, which ones are we not green lighting, but I actually don't see the amount of capex on the margin as being in any way influential in terms of how we think about refinancing either tranche of debt.

Unknown Attendee: Paul, back to you if there's any more live questions. There were no other live questions at this time, Scott. Okay.

Speaker Change: Paul back to you if there is any.

Speaker Change: More live questions. There were no other life questions at this time Scott.

Operator: There were no other live questions at this time, Scott.

Speaker Change: Okay.

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

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

Speaker Change: So we want to thank all of you for participating in our Q2 earnings call and.

Speaker Change: Look for press releases in terms of various upcoming conferences that we may be participating in.

Johnny Hecker: We see ARPA stable at $14.97 in Q2 while the cancel rate is improving slightly to 3.4% sequentially and improved from 3.57% in Q2 after previous year. Our smarter ad spend strategy, which centers around boosting profitability in customer acquisition, continues to yield positive results. We have successfully automated and optimized this program leading to improved outcomes. Coupled with robust organic returns from our SEO initiatives and our refreshed effects web presence, we're pleased to report that the SOHO business is meeting the intended objectives and marginally outperforming expectations as evidence by certain stable key metrics.

Speaker Change: I just mentioned, we will announce our Q3 results in the first I think full week of November so there'll be a press release as we get closer to the exact date and time and of course, if any of you have any other questions you can reach out to us by email or call us as you Digest the results. Thank you.

Johnny Hecker: As a result, we expect to nominally increase our marketing spend using this new approach in the second half of 2024 by approximately $2 million.

Speaker Change: Yeah.

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

Unknown Attendee: This does conclude today's conference. You may disconnect at this time. I'm going to have a wonderful day. Thank you for your participation.

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.

Johnny Hecker: This concludes my update on our SOHO business.

Johnny Hecker: In closing, in light of ongoing economic uncertainty, cost awareness and limited IT resources for our customers and prospects, their decision-making processes remain slow. To navigate these challenging market conditions, we maintain a high level of flexibility in our go-to-market approach and prioritize sales efficiency. We remain committed to our strategy with a strong focus on cash generation and profitability while our go-to-market efforts will continue to center on driving growth within the corporate business.

Jim Malone: Now, I'll hand the call over to our CFO, Jim Malone, who will provide further details about our financial results and guidance. Thank you, Johnny, and good afternoon, everyone. In our press release and on this earnings call today, we are discussing Q2 2024 results and Q3 2024 guidance. We are reaffirming full-year 2024 revenue and adjusted EBITDA guidance while increasing our full-year adjusted EPS guidance range. We expect to file the 10Q today.

Jim Malone: Let's start with our corporate business results. Q2 2024 revenue was a record at 51.7 million, an increase of 1.4 million or 2.7% over the prior year and performing in line with our expectations. Corporate offer of $310 down from $317 or 2% in the prior year and in line with the last several quarters ranging from $305 to $320. Q2 2024 customer churn of 2.29% increased 103 basis points year over year and 37 basis points sequentially.

Jim Malone: For a merely driven by new customers at the lower end of our customer continuum. Johnny mentioned in his script, normalized for the Ethax Protect Project, the cancel rate would have been below 2%. Notwithstanding this, these customers are net economically beneficial and I would also remind you that our cancel rate is based upon customers not revenue. Corporate delivered a trailing 12 month revenue retention of 99% and improvement over Q1 2024.

Jim Malone: Moving to SOVO, Q2 2024 revenue of 35.8 million is a decrease of 6.7 million or 15.8% over the prior year and better than our expectations. The year over year decrease was driven by planned reduced advertising spend, and year-over-year base reduction due to fewer paid ads. With an increase of two cents sequentially, all per $14.97 decreased 4.6% year-over-year as a result of shifting to price plans with a discounted first month versus a free trial resulting in higher paid ads in the quarter. These plans are net economically beneficial. Turn declined 17 basis points to 3.4% year-over-year and was in line with expectations. As you recall, Q2-2023 was the final quarter of our price increase cycle.

Jim Malone: Moving to Q2-consolidated results, revenue of 87.5 million is a decrease of 5.3 million or 5.7% over Q2-2023, in line with our expectations and driven by the planned reduction in Soho revenue. Just at EBITDA, 49.1 million, an increase of 1.4 million or 2.9% over Q2-2023 was driven by the core structure optimization primarily in the area of Soho advertising. Just at EBITDA, margin of 56.1% was 4.7 points above the prior year, exceeding expectations at the high end of our range, which is 55%.

Jim Malone: Just a net income of 28.1 million is an increase of 1.3 million or 4.9% over the prior year driven by adjusted EBITDA flow through and net interest expense as a result of the bond repurchase activity, offset by higher DNA and income tax expense. Just at EPS of $1.45 is higher than the prior year by 6.6% or 9 cents, driven by the items I mentioned and a modestly lower share count. Q2-2024, non-gap tax rate and share count was 21.3% and 19.3 million shares, both consistent with our Q2 guidance.

Jim Malone: Let's talk about our capital allocation strategy. As mentioned in our Q3, November 2023 earnings call, we announced the $300 million three year bond repurchase program. In Q2-24, we repurchase approximately $30 million face value for $28 million in cash. Program to date, we repurchase $156 million face value for $143 million in cash. We have approximately $144 million in remaining under this program. Total debt to adjusted EBITDA leverage with the debt repurchases mentioned are debt to adjusted EBITDA ratios 3.1 times, well on our way to achieve in our goals of three times.

Jim Malone: Williams. We ended Q2 with 49 million in cash, which is sufficient to fund our operations and repurchases of debt and equity. Q2 free cash flow was 15.8 million, or 295% positive versus the prior comfortable period. Q2 2024 Capac spend of 8.5 million is down 1.6 million versus the prior year.

Jim Malone: Based on year-to-date results, we are increasing our full-year EPS guidance range and reaffirming full-year 2024 revenue and adjusted EBITDA guidance at the midpoint as follows. Revenue between $338 million and $353 million with $345 million at the midpoint. Adjusted EBITDA between $182 million and $194 million with $188 million at the midpoint. Adjusted EPS guidance range from $5.45 to $5.55 with $5.50 at the midpoint. Our estimated share count and non-gap income tax rate was 19.3 to 19.4 million shares and a tax rate of 20.5 percent to 22.5 percent.

Jim Malone: For additional guidance within the quarter spread of guidance, we are providing Q3 2024 guidance results as follows. Revenues are expected to be between $83.5 million and $87.5 million with $85.5 million at the midpoint. Adjusted EBITDA between $44.5 million and $47.5 million with $46 million at the midpoint. Adjusted EBITDA between $1.25 to $1.35 with $1.30 at the midpoint. Q3 2024 estimated share count and income tax rates are 19.3 to 19.4 million shares and a tax rate of 20.5 percent to 22.5 percent respectively.

Jim Malone: This concludes my formal remarks.

Operator: Now I'd like to turn the calls back to the operator for Q&A. Thank you.

Operator: We will now be conducting a question and an 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. A 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. 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 if you have a question at this time. On one moment, please, while we pull for questions.

Charlie Straser: And the first question today is coming from John Tanwanteng from CJS Securities. John, your line is nice. Hi, good afternoon.

Johnny Hecker: It's Charlie Straser for John. I'm helping in here. My question is with The unemployment, you know, silencing up a little bit there, do you think that the clients might be, you know, starting to be able to stack that cup and reduce kind of the friction and deployments, or is that still always off? I'm not sure what the issue is with the audio, the audio. I know you had something to do about unemployment and checking up, but could you rephrase it again?

Johnny Hecker: Yeah, absolutely. Do you think that your healthcare clients might be starting to be able to stack up and reduce kind of friction and deployments? Oh, got understood. Yeah. Yeah, so interesting question. Good question. Appreciate it. Thank you. This is Johnny. So right now, we don't have any indicators that we see clients really finding the talent that they need to drive more IT projects. We don't see any changes in that dynamic in the market at all, to be honest. Thank you very much. Thank you. And once again, it will be star one on your phone if you wish to ask a question. That's star one, if you wish to ask a question.

David Larson: Next question is coming from David Larson from BTIG. David, your line is live. Hi, can you talk about the deployment process at the VA, how far along are you, any metrics around, like how many sites the VA has, how many you're deployed at? When did that start? And then when will you sort of get to sort of a, we'll call it not a full ramp up, but a pretty good pace and the total dollars tied to the VA, just more color there will be very helpful.

David Larson: And how has that situation evolved? Is it improving in terms of access and deployment timing? Thanks very much. Yeah, hi, David. This is Johnny. Good question. Thank you. I think it's, it's, we're at a, we can't really say what percentage we're at on the site metric. It's, they have about 22 hundred sites of what we currently know, but a site can be, you know, a handful of people operating an office at a cemetery or a can be a huge hospital.

David Larson: So the site is not really a metric that gives us a good indication of volume. It's more about the number of employees, the number of seats that we have. And then beyond that, what, what applications are these people using? And we don't have a clear inventory of that at the moment. Remember, we are rolling this out in, in close collaboration with our partner Accenture and federal services. They are driving the majority of the, of the rollout at the site and training the, you know, the end users.

David Larson: We are, we are the provider of the, the infrastructure. Right now, like, like I said, in my, in my opening remarks, we're on pace, we're on track with, with the rollout at what we had expected. But, you know, obviously, there is a tremendous potential within that account. We don't really want to put a, a final number on it. Because I don't think the VA knows themselves, right? It's a, it's a very, very large organization with hundreds of, of fact servers, thousands of, you know, multi functional devices and machines that they're operating.

David Larson: And they're set by step migrating over to the easy fact solution. So, as we, as we go along and, as we roll out, we will, we will get a better understanding of how large the total opportunity is.

Johnny Hecker: But we're still at the very beginning, and I would just add to what Johnny said, David, that in terms of the first part of your question, you recall it was really about a year ago, literally almost a year ago, September of 23, when the real rollout started, because that first phase from March to June, July was really the test cases, and then there was a big bring down meeting to discuss both how those rollouts had been done, the format in which they had preceded an alternative ways, because the VA has a similar incentive as we do, which is to see it roll out at a faster pace, and then that resulted in a number of months going back and forth of alternative structures, beyond just bringing a facility online. So the original view was yes, it would be facility by facility, and eventually it'd be at $2,200.

Johnny Hecker: And while that is still true, and there's been a dramatic acceleration of a number of facilities that have access to the service, since a year ago, as Johnny pointed out, that's really, it's only one of really several metrics that matter, because there's, I think close to a million employees that are within the VA, so that constitutes another block of users, and then you've got embedded applications. And so what we have seen is what I call liberalization of how the rollout is and will take place on a going forward basis.

Johnny Hecker: So we're seeing basically each month some degree of rollout relative to the previous month, and as a result, increasing traffic on a sequential basis. And so as Johnny referenced in his remarks, you know, we think two millionish of revenue this year, which is, you know, like an infinite increase versus last year, but I would expect significant growth in that number as we go into 25, just based on the run rate exit that we'll have at the end of 24, or before you can get to adding new users or new facilities in 25.

Johnny Hecker: So I know that's not the exact quantification you want, but we're not going to give it to you, because as Johnny pointed out, it's very challenging with the VA. I think a lot of times there's just so many different embedded applications and systems and regions that are challenged for them to even come up with what that number is. But I think we have several years of growth relative to where we sit today in terms of getting to which you might consider to be meaning, you know, not full penetration, but substantial penetration of the VA opportunity.

Johnny Hecker: Okay, it sounds like things are improving is what I'm kind of hearing. And then also when you was, okay, was that a yes? Yes, that was a yes. Okay, and then also when you listen to the publicly traded hospitals report, they each are consistently saying that, you know, labor shortages are being resolved. They're saying that inflation rates have improved. Their reliance on contract labor has been reduced. Volumes actually look very good at the publicly traded hospitals as to the EBITDA margins.

Johnny Hecker: I guess any thoughts on, like, I guess this is similar to that first question. But any thoughts on the sort of demand level from the hospital market and the healthcare facilities that you're working with now has, has there been a main improvement? Again, good question. Right now, we're seeing both sides of that coin, right? We see hospitals that are doing very well. I think they are, you know, covering on the clinical side, which is where what you're hearing is that they're actually hiring that kind of staff.

Johnny Hecker: They're we don't see a necessarily increase in the IT staff, which is where we need most of the support. And then you also do see, you know, the flip side of the coin, where you see hospitals that aren't in distress, right? I mean, very public is probably the steward health case. They just filed chapter 11 recently. So I think you have both sides of that coin in the healthcare industry. You have the very large ones that are that are doing well, but you also have the ones that are they continue to struggle.

Johnny Hecker: Now, that's not necessarily bad for us, right? Because they're looking to optimize their costs as well. And we can contribute to that. So we can we can use that as an opportunity to help them save some money and get rid of legacy infrastructure, which is usually costly. But on the labor side, we don't we don't see a lot of improvement at the moment. Okay, that's that's helpful.

Johnny Hecker: And there's just one more quick one for me. Any comments on the clarity prior off solution or clarity clinical documentation? What sort of uptake rate are you seeing there? And anyway, to sort of take a stab at total dollar and amount of dollar flow from your clients or intel opportunities. Thank you very much. Yeah. So we do see we do see increased interest in that product line. We have a lot of customer engagement as I said, particularly in POCs.

Johnny Hecker: So we have to go through these motions. It is building backlog on our on our implementation teams. As we're building out that implementation capacity. But I think it would be, you know, with the with that large amount of a fax revenue that the company has, which is still growing, which we're adding to every every quarter. The clarity contribution on the revenue side is is not material like this. Okay, thanks very much.

Scott Teriki: Before we take any more live questions, Paul, we've got a couple of questions that come in by email, which I'd like to address. And then you can reach for the queue if there's any other questions that want to come in. So we have a question regarding the SOHO business. It's really a perspective question to 25 about the expected way to decline in SOHO in 25 versus 24. And how that might be changing given the increase in our marketing spend.

Scott Teriki: So let me actually answer a question that's maybe even more near term relevant, which is the last two quarters of 24. So just everybody understands, but we have a certain pace of Ten, in the first half of 24 that is substantially lower than the first half of 23. And some of that was in my preparatory remarks, some of that has been noted by Johnny and Jim. We have seen, based on the cohort analysis and based on the marketing programs, the ability to spend increments.

Scott Teriki: Now, from a budgetary standpoint or a forecast standpoint, we've assumed an incremental million dollars in each of Q3 and Q4. And the result that's particularly in the near term, I hit the EBITDA in the Q3 quarter. What I think is important to understand is that is not an authorized amount of spend, right? That's a budgeted amount of spend. The key is really that both the marginal contribution and the average of that spend maintains when we consider to be a strong LTV to CAC.

Scott Teriki: If we see in given programs or trunk the programs that you just can't spend more beyond a certain limit, we don't intend to spend it. So a lot of the answer to the 25 question, or at least a portion of it, is a function of what will be the sustained level of marketing spend as we exit 24 and go into 25. It is our current expectation and certainly our hope. We can fully spend that million dollars in each of Q3 and Q4. So you should be expecting a lesser decline in the solo business in Q3 and Q4. Those are easier cops for us than Q2, which was our toughest comp of the four quarters of this year.

Scott Teriki: And then as we address the Q3 results on the November call, I think we'll have good insight in terms of what we expect in 25. I expect a lesser rate of decline in the solo business than we saw for seeing from 23 to 24. But in terms of quantifying it now, a lot of it will hinge on the exact level of marketing spend. And what is that stabilized one rate as we look forward into 25.

Scott Teriki: The second question had to do with one of capital deployment or CAPX. It's kind of on the question of the nearing a refinancing. So I would just remind people that we have as was noted by Jim, you know, 649 million a day. There are two tranches of that. The 6% notes are doing October 26. So more than two years away, although as the question is premise, I think we will be looking at what our options are certainly in 25.

Scott Teriki: Or at a minimum addressing the trance, they'll be maturing in 26. The second trance, which is larger, the six and a half mature in October of 28. Our CAPX this year has been more front-end weighted. So we've given you a range of 26 to 30 million for the year. We believe we're going to come in there the high end of the range for 24, around 30 million. So you'll see step downs on a sequential basis in Q3 relative to Q2 and Q4 relative to Q3.

Scott Teriki: This is really a budgetary question as it relates to our level of capital investment in 25. We obviously have not started that process yet. I would say sitting here today, I don't see any material change in the level of CAPX spend. Could it be, you know, two or three million lower or two or three million higher? Yes. A lot of the function of what projects are we carrying into 25? Which ones are we reenlighting? Which ones are we not reenlighting? But I actually don't see the amount of CAPX on the margin is being in any way influential in terms of how we think about refinancing either front.

Operator: Paul, back to you if there's any more live questions. There were no other live questions at this time, Scott. Okay.

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

Operator: I'm going to have a wonderful day.

Operator: Thank you for your participation.