Q2 2025 Consensus Cloud Solutions Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to the consensus Q2 2025 earnings call.
My name is Tom, 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 Tiki CEO.
Jim Malone CFO.
Johnny hekker 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.
good afternoon and welcome to the consensus investor call to discuss our Q2 2025 Financial results, other key information, and our 2025, full year, and Q3 2025 quarterly guidance,
Joining me today are Scott Tiki CEO, Johnny hekker C O 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 2025 investor call.
Jim will provide Q2 2025 Financial results and our full year 2025 and Q3
2025 guidance range.
After we finish our prepared remarks, we will conduct a Q&A session.
At that time, the operator will instruct you on the procedures for asking a question.
Before we begin, our prepared, remarks.
Allow me to direct you to our forward-looking statements and risk factors on. Slide 2 of our investor presentation.
As you know, this call on 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 risks factors that we have disclosed in our regulatory filings, including our annual 10K, and quarterly 10q SEC filings.
Now, let me turn the call over to Scott for his opening remarks.
Thank you Adam. We had a strong Q2 returning us to total revenue growth earlier than anticipated.
The continuing improvement. In our corporate Revenue, growth demonstrates, both the necessity and value proposition of our Solutions.
We exceeded our Revenue, objective driven by corporate Revenue growth, posting 6.9% over Q2 2024 ahead of our forecast and the best growth year-over-year in 10 quarts on a normalized basis.
So Revenue was in line with our expectations and below a 10% year-over-year decline for the first time since we began the reduced Marketing in late 2023.
We carefully monitored our cost structure and exceeded our adjusted EVA expectations by more than the outperformance on revenue.
We delivered a robust 54.8%, adjusted evaa margin near the top end of our 50 to 55% range.
We remain committed to our goals that we outlined in February of this year, which include pursuing the acquisition of customers primarily in the health care space for our corporate Channel and driving Revenue, growth in excess of 6.25% this year.
2 manage our corporate cost structure while making modest Investments primarily in our go, to market operations for the benefit of 2026 and Beyond.
3 putting a bank loan in place for the retirement of the remaining 6% notes due October 2026.
and finally, managing the Soho channel for cash flow efficiency, which we began last year,
As previously announced we concluded in early July, a 225 million Bank facility that we will utilize to retire the 6% notes in part due October 2026.
The loan consists of 2 pieces.
75 million revolver and 150 million Term Loan.
We expect that our borrowing costs which are sulfur based will be similar to the current costs of the 6% notes.
Johnny, will provide more detail in his portion of the presentation, regarding the operational results for Q2.
I am pleased that our corporate Channel exceeded our Revenue, expectations and hit a growth rate in excess of our Target.
This success was driven by strong usage, improved revenue, retention, new customer acquisition, and increased contribution from our advanced products.
In addition, eFax protects had records signups which seems to be a trend each quarter.
In addition at the VA we continue to see more facilities come online and record level of usage. All of these contributed to the 6.9% year-over-year growth.
While revenues for the Soho Channel declined in the quarter as anticipated, I am pleased to report that it was the slowest rate of decline since we began the program to reduce marketing costs.
We maintained our discipline on the cost side generating, an adjusted ibaa margin of 54.8% more than 100 basis points ahead of our Q2 expectations. I would note that we would expect a lower margin in Q3 due to a seasonal increase in costs associated with our upcoming year-end audit and the hiring of additional employees, especially in our go to market operations that we discussed, when we released our annual guidance in February.
Free cash flow was 20.3 million in the quarter up 29% from Q2 2024 due to excellent management of our receivables, low estimated tax payments and lower interest expense than a year ago. We now expect our free cash flow in 2025 to exceed the 85 million of free, cash flow in 2024.
As we have stated previously, liquidity is modest in each tranche, both of which trade at or near par.
we were able to repurchase approximately 12 million of our common stock during the quarter at a valuation of approximately 5 times adjusted ibadah, which we view as attractive,
Before turning the call over to Johnny, I would like to comment briefly on the 1, big beautiful, bill act that was signed into law on July 4th.
we are studying the impact of the bill particularly with respect to the anticipated cuts, to Medicaid and Medicare over the next 10 years and how those cuts May generally impact providers, especially the smaller practices in rural areas,
While the cuts do not start until late 2026, we understand that some providers are already making anticipatory cost cutting decisions. We believe that we are well, positioned to assist those efforts to reduce cost structure which we know is 1 of utmost importance right now.
Moreover, the need for Health Care does not evaporate in these scenarios. It merely shifts locations predominantly to Emergency Care Facilities. We have a large diverse base of customers in All Care. Settings, such as providers payers, doctors practices, Labs, pharmacies Etc.
Including those in the Emergency Care Facilities with little customer concentration.
We will closely monitor the situation as it unfolds. I will. Now turn the call over to Johnny to provide you more operational details.
Thank you, Scott, and hello everyone. In my remarks, I will cover key performance indicators, including revenue and customer metrics, as well as our go to market strategies for the corporate and Soho channels.
I'll also touch on operational updates and provide some key highlights for the quarter. Our corporate Channel continues to show robust performance and positive. Momentum in Q2 2025, we saw Revenue reach, a record 55.3 million, a 6.9%, increase over 51.7 million in Q2 of 2024, and another sequential increase from 54.3 million in Revenue. We've reported in q1 of 2025
This was an exceptional quarter while we anticipate continued growth. We don't expect it to maintain. This accelerated year-over-year, growth Pace especially considering our strong performance in Q3 of 2024. Nevertheless this quarter's results coupled with a strong sales pipeline across our entire portfolio of services, reinforce our confidence that we are well on our path to achieving double-digit growth for this business Channel.
Our Q2 growth is driven by several key factors.
As a direct result of our focus on the healthcare industry where experiencing sustained and impressive growth within the healthcare vertical which is becoming an Ever larger portion of our total corporate Revenue.
Our strategic Partnerships can continue to yield significant contributions to our growth. Furthermore, we are particularly encouraged by the sustained expansion within our largest account cohorts, including both strategic and public sector clients.
I am pleased to announce that our trailing 12 months Revenue. Retention rate has reached 102%. This is up from 101%. In the previous quarter, keeping us on track with our 100% Target and marking a substantial year-over-year increase from 99% in Q2 of 2024.
Our corporate customer base has grown to a record approximately 63,000 at the close of Q2 up 11% year-over-year. This is an increase from approximately 60,000 at the close of q1.
As in the previous quarters if x protect and the increasingly automated, Soho to corporate upsell option of our customers Drive, the growth in this metric together. They contributed over 5,800 new accounts during Q2 to the SMB cohort.
Corporate ARPA was $301 for the quarter, down from $307 in the previous quarter and $310 in Q2 of 2024.
Corporate Harper is simultaneously bolstered by a significant Enterprise clients, such as the Department of Veterans Affairs, and tampered by the account expansion and achievements within our smaller SMB cohort.
Our strong corporate performance is multifaceted demonstrating success at every level of the market. The combination of robust Revenue, growth and higher retention rates among our Enterprise clients paired with the steady expansion of our SMB, customer base underscores our ability to execute effectively across the entire customer. Continuum,
And strengthens our overall Market position. It establishes us as a credible and attractive partner, a crucial advantage in a fragmented industry. Like healthcare our capacities serve, this diverse spectrum of clients is a key differentiator and fundamental to our long-term Market expansion and product strategies turning to our public sector initiatives. I am thrilled to report uninterrupted progress. The VA rollout is proceeding. Well, and we are seeing steady increase in the adoption of our services.
This is a direct reflection of the government's commitment to enhancing operational efficiency, and we are proud to be a key partner in that mission.
The value of our FedRAMP High certification cannot be overstated.
It has opened up numerous stories, and we are now in active high-level discussions with other government agencies and non-governmental organizations that require this level of security for their critical communications.
Consequently, our public sector pipeline remains robust and is accelerating.
While we are actively bidding on several larger opportunities, our immediate priority is to build upon the success with the VA.
we are seeing smaller deals progress through the sales funnel at a higher velocity of which we're excited to report 1, just closed early in Q3
adding to our book of business on this product line is a key focus in our public sector business at the moment.
The first half of 2025, has concluded with strong momentum in corporate, and we are very pleased with the results.
This positive performance, a direct outcome of our strategic, execution gives us the necessary Tailwind to confidently pursue. Our ambitious goals for the corporate business, throughout the fiscal year, and into the future before. Moving on to Soho, I'd like to comment on the evolving and dynamic regulatory landscape specifically with regards to the expected Medicaid and Medicare reform from the 1 big beautiful, bill act, the continued discussion around the tefca network and the prior authorization automation ambitions.
The impact of these changes can create substantial opportunities for our business by increasing the need for efficiency and automation.
Since administrative burden has historically been a driver for our business, the increase in complexity may accelerate demand for our solutions.
We believe our broad presence across multiple. Sectors of the healthcare industry is a huge offsetting asset and key factor of stability, regardless of the possible risks from potential provider Financial. Strain with regards to teffa and PRI authorization automation, we view ourselves as a critical on-ramp to the newer interoperable networks. That the industry is moving toward. For example, we have just in the last quarter enabled, a large Health System to automate their high-touch prior authorization process, by taking unstructured taxes. Extracting key data with our AI powered Clarity offering and translating it into a modern fire. Resource-based format that fits directly into the Enterprise platform.
The solution, Bridges, the old and the new seamlessly connecting Legacy workflows to Modern networks without requiring a costly overhaul from the provider.
Moving on to our so. Hope business we recorded Q2 revenue of 32.4 million representing a planned and slowing year-over-year. Decrease of 9.4% from 35.8 million in Q2 of 2024.
this is a slight sequential decrease, from 32.9 million in q1 of 2025 reflecting our continued strategic, focus on optimizing profitability, and maximizing the efficiency of our advertising investments in this channel,
As anticipated, the total Global Soho account base. Saw an expected reduction from 702,000 in the prior quarter to 682,000 during Q2.
Soho are for Q2 2025 was 15.62 compared to $15.39 in q1 of 2025.
Our Soho cancellation rate in Q2 of 2025 was 3.84% up from 3.52% in the previous quarter, our strategic focus in the Soho Channel. Remains squarely on optimizing customer acquisition for maximum profitability with a close watch on metrics like return on Advertising spend and LTV to CAC.
I want to provide some color on the recent volatility, in our Soho cancel rate which we see as a direct result of our strategic execution.
Acquisition strategy for attracting a more diverse mix of customers with varied usage profiles.
This includes an increase in limited use customers from certain channels. A cohort. We welcome as long as they meet our strict profitability thresholds. Second, the outstanding success of our corporate e-commerce Channel allows us to more effectively guide, customers to the right product from their very first interaction. This eliminates the need for many to start and so how and manually upgrade later as a result, the composition of our remaining Soho customer base is changing leading to a turn rate range. That is slightly broader than the narrow range of the past.
This is an acceptable outcome of our recently established and strictly executed strategy.
To summarize, we are very pleased with the quarter's performance and remain. Highly confident in our Outlook, our corporate business is executing, his plan driven by a healthy Pipeline and growing customer adoption of our Solutions in the Soho Channel, our strategic initiatives are delivering the expected outcomes while we continue to monitor the broader macroeconomic environment. We are reaffirming our full year revenue and ebitda guidance.
Before I hand the call over, I want to extend my sincere gratitude to our employees for the dedication and hard work. This past quarter, many thanks also go out to our customers and partners for their continued, trust and collaboration.
We've had an excellent first half of the year and we look forward to building on this momentum.
With that. I'm turning the call over to our CFO. Jim Malone, who will now provide a detailed update on our financial performance and Outlook. Jim
Thank you, Johnny and good afternoon everyone.
In our press release out on this call. Today, we are discussing Q2 25 results and guidance for Q3 25 and full year 25.
We expect to file our 10-Q by close of business today.
I'll begin with our corporate business results.
Q2 2525 was another strong quarter for corporate with revenue of 55.3 million.
An increase of 3.6 million.
Or 6.9% versus prior year, performing ahead of our expectations.
Just for represents the highest corporate growth year-over-year in the past 10 quarters on a normalized basis.
As Johnny stated, we continue to see growth in our health care vertigo, and strong, demand for our core, digital fax product.
Q2 2025, corporate overview of Consensus Cloud Solutions Inc.
From 307 in q125 and 310 in Q2, 24 is in line with expectations.
corporate offer varies across our customer Continuum based on the mix of customers that range from the lower end of the Continuum through large Enterprise clients such as the VA
Therefore offer is pressured as the effects. Protect base continues to grow within the lower SMB cohort base.
Our record Q2 25 corporate Revenue.
Delivered a trailing 12-month retention rate of 102%.
300 basis points and 100 basis points improvement from the prior comparable period.
And q125 respectfully.
Moving to Soho.
Q2, 25 revenue of 32.4 million.
Compared to 35.8 million over the prior year, represents a plan, decrease of 3.4 million or 9.4%.
We continue our strategic focus on optimizing advertising, spend, and profitability in the Soho Revenue Channel.
I would like to note that in the current period, we eliminated dormant accounts not contributing to revenue from the number of Soho customer accounts.
The prior year period has been revised for consistency with the current year, and all metrics calculated are based on the number of customer accounts.
Including Opera and monthly, churn percent.
Our calculated based on the revised number as a result of this change the prior year period.
Of Soho customer accounts, decreased by 26,000.
Accounts had no impact on revenues.
Based on the adjusted customer accounts, noted Q2 25 Opera of $15.62 at a modest improvement from the prior year, comparable period of 17 cents and a suspension subsequential sequential Improvement of 22 cents.
The Soho cancel rate was 3.84% versus 3.55% in the prior compliment period.
The increase is Johnny stated is due to the improving funnel effect and success of the eFax protect and a marginal shift in marketing dollars towards the customer. That is more profitable but has a shorter life.
Moving to Consolidated results.
Consolidated revenue of 87.7 million represents an increase of 0.2 million or 3% versus Q2 24.
And returning us to total revenue growth earlier than anticipated.
This is the first quarterly year-over-year, Consolidated Revenue increase in 8 quarters.
Adjusted EBITDA of $48.1 million is a decrease of $1 million, or 2.1%, versus Q2 2024, primarily driven by planned headcount.
We delivered a healthy, 54.8% adjusted eidar margin or approximately 135 basis points, favorable to the midpoint of our Q2 25 guidance range.
Q2 25 adjusted, net income of 28.4 million is an increase of 0.9 million or 3.2% versus Q2 24 primarily driven by lower interest expense
and depreciation and ammor offset in part by adjusted ibida and a higher share count.
Adjusted EPS of a $1.46 is favorable to Prior year by 2 by 2% or 3 cents driven by the items mentioned and a lower Share account.
Q2 25 non-gaap tax rate.
And share count was approximately 21% and 19.5 million shares with respectfully.
Capital allocation.
Free cash flow.
Q2 2025 free cash flow is $20.3 million versus $15.8 million in the prior comparable period.
Primarily driven by operational performance.
capex of
of 8 million was down 6 million or approximately 7% versus the prior year.
Cash and cash equivalents.
We ended Q2 255 with cash of approximately 58 million, which is sufficient to fund our operations and repurchases of equity and debt.
Equity repurchases, in February 25th, in extension to the previously approved program for another 3 years and up to 67 million dollars.
In Q2 25, we repurchased 546,000 shares for 12 million.
Bringing the total to date Equity purchases of approximately, 1.6 million shares for 45 million.
Bond repurchases as mentioned in our November 23 earnings call. We announced that 300 million 3 year bond repurchase program
In Q2 25 we repurchase approximately.
6 million face value of bonds at par.
Our continued strong cash flow as allowed us to repurchase approximately 223 million face value bonds for approximately 209 million of the cash uh to cash in a program to date.
With approximately 77 million remaining under our current authorized program.
Debt refinance. As noted in our 8K filed on July 14th 2525. We concluded a 225 million Bank facility.
Interest rate is so far. Plus applicable margin based on total, net, leverage ratio.
We expect our borrowing costs to be similar to the current cost of the 6% notes.
Executed at 3 Bank Club deal, including standard Covenants.
The new credit facility, credit agreement will be filed with our 10q.
Moving to.
25 guidance.
We're reaffirming 25 full year guidance for revenue and adjusted. Evida
While raising our adjusted EPS range as follows.
full year revenue between 343 million and 357 million with 350 million at midpoint
Adjusted ibida between 179 million, and 190 million with 185 million at midpoint.
Adjusted EPS between 5 and 2525 to 5.65.
With 5.45 cents at midpoint and increase of approximately 23 cents.
Full year. Estimated share count.
An income tax rate at approximately 19.4 million shares and a tax rate between 20.5% and 22.5%, with 21.5% at the midpoint.
Please remember that, as previously mentioned our 25 guidelines.
Exclude foreign exchange gain or losses on reevaluation of intercompany accounts.
Moving to Q3 25 guests.
Revenues between 85.9 million and 89.9 million with 87.9 million at the midpoint.
Adjusted EBITDA is between $44.4 million and $47.4 million, with $45.9 million at the midpoint.
Just at e, e, e, adjusted, EPS of a dollar 33 to a dollar 42 with a dollar 38 at midpoint.
Estimated q3.25, share count and income tax rate are approximately 19.1 million shares.
And a tax rate between 20.5% to 22.5%, this concludes my formal remarks, and I'd like to turn the call back to the operator for Q&A. Thank you.
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 1 question.
If you would like to ask a question, please press star 1 on your telephone keypad,
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For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keys 1 moment, please while we begin.
And the first question say is coming from David, Larsen from btig David, your line is live. Please go ahead.
Hi, this is Jenny Champs on for Dave. Uh, thanks for taking the question and congrats on the quarter. Um, I was just wanting to know more about your thoughts on demand and the pipeline. We've seen, um, on the major Hospital Systems report. And, uh, they've faced some tough quarters. They're seeing a Slowdown in year-over-year growth in volumes. Just any of your thoughts on discussions with the hospitals. Is this translating into more cautious, spending more cautious, budgets? Or have you not seen that impact at all? Thanks,
Hi Jenny. This is Johnny again, and thanks for the question. I think it's a really good question. Um, currently we're not experiencing what what you're seeing. So actually, we were able to close some significant deals. Just, um, very recently with large Health Systems and hospitals,
Um, so we're we're not experiencing that they're slowing down, as I mentioned on the call, there's really 2 things that are important to say here 1 is. First of all,
We're serving a very very broad spectrum of healthcare customers across multiple sub articles. So on the 1 it's Healthcare Providers really starting from single Physician Offices all the way up to large Health Systems and everything in between.
From across.
Any size of customer you can imagine. So we're not particularly impacted if 1.
Piece or 1 cohorts potentially suffering a little bit at the moment. That's the 1 Thing.
The other thing is with our services and what we're providing, we're really driving efficiency.
There's oftentimes a clear Roi for those customers. Um, they go through a POC, they test the product and then, and then they roll it out. So I think with, you know, lowering that administrative burden with increasing efficiencies, and with saving costs, we are an attractive service. Even for, you know, providers that are suffering from a little bit more financial strain, as you just mentioned,
Okay. Uh, we have a couple of questions by email and then we'll go back to live questions. Uh, it was noted in this email question that our Revenue retention rate had improved 102%. Uh, and the question is what are the drivers behind that in terms of the customer types and sizes and our expectations for that Trend as we go into the back half of the year.
Yeah. Johnny once again that's a good 1 for you because yeah, he's dealing with that every day. Yeah, there's there's multiple drivers for this, right? And and as we know that the retention rate has significantly improved. This doesn't um, happen overnight. 1 of the 1 of the key drivers is obviously our very large and strategic accounts and public sector. Our issue facts offering um which definitely contributing to that to that retention rate. But also in the in the Enterprise space and in the in the large account space. Um we have with the go to market realignment a couple years ago, really changed our approach and how we service those customers. So we're very close. We have a scientist, these books of business, to our sales teams. Um we have, you know, rolled out different kinds of sales methodologies and we're up at cross selling into those existing accounts, we're making sure that we're not losing that business on the flip side. We're
We're trying to grow it, um, and expanding in those, in those accounts. And then lastly, I think on the, on the, on the lower end of the customer, Continuum in the in the SMB world,
We have multiple different programs that we have launched in order to improve our retention rate and, and really tackle churn. Um, and and those programs are are showing success and are bearing fruits as well. Um, so we're we're you know,
Our our offering our product offering the way we, you know, we monitor our customers. The way we look for turn signals, all of those things are being considered and are being are being worked on and have been rolled out into programs and that is driving retention really across the entire customer. Continuum,
now that said, we're expecting that retention rate to to say above the 100% Mark, that is definitely our goal and we're working very hard to, to sustain that ideally grow. It
Okay, we'll take another question by email, which is a pivot to the public sector pipeline that you mentioned Johnny in your prepared remarks and I think there's really a couple of embedded questions here. 1 is the length of the sales cycle that we're experiencing in the public sector and then the second is the Partnerships we have in terms of approaching that sector particularly cognosante. Now, by Etc. Yeah.
Um, so first thing, I I mentioned part of this, on the call, these are very diverse, uh, deal sizes in the public sector. They can be very, very small. That's a few thousand bucks a month.
Close that deal. And then eventually roll it out and really very
Tremendously from from a few couple of months to to multiple years. Now, the size is not the only thing that matters. Sometimes these larger deals can also move faster but we're still early in, in our, you know, federal government sales. Um,
Program and and, you know, learning as we go. Um, but we do have a few rfps that we have responded to. We're hoping to close support deals in the, in the near future.
And, um, with regards to our partnership to with, with Accenture and
Former Cognosante Etc Federal Services, um, that is working really well. We, um, if you have noticed this, the cloud service provider shift was transferred over to us. We're now the listed cloud service provider on the FedRAMP Marketplace.
Um, this makes sense because we're actually, you know, the the owner of the IP and the um, the inventor of the technology. Um, but besides that, that partnership is working really well. We're working very closely, still with Accenture, on many of these larger government deals. Um, and on the, on the smaller ones where it doesn't, you know, where it doesn't make sense for a large system integrated to participate. Um, we do the by ourselves,
Hey, Tom. You want to see if there's any other, uh, live questions certainly and as a reminder, to the audience if you'd like to join the Queue at this time to ask a question. Please press star 1 on your keypad to join the queue. Once again, that'll be star 1 on your telephone keypad at this time. If you wish to join queue to ask a question, please, hold a moment while we see if there are any further questions from the audience.
And there are no further questions in queue at this time, as such, I would like to turn the floor back to Scott. Tariq CEO of consensus for closing remarks great. Well, we appreciate you joining us today for the results of our second fiscal quarter, and our outlook for the balance of the year. Uh, keep posted we do have. I know a virtual conference will be participating in in about actually next week. So, uh, stay tuned for that. And other conferences that we have between now and November.
We'll announce by press release and then in early November, we'll have our Q3 earnings call. So thank you. And if you have any other further questions that you didn't have a chance to ask, now you can email us and we'll get back to you.
Thank you. This does conclude today's conference call, you may disconnect at this time and have a wonderful day. Thank you. Once again for your participation.