Consensus Cloud Solutions Q4 2024 Earnings Call Transcript

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February 19, 2025
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Operator

day, ladies and gentlemen, and welcome to Consensus Q4 twenty twenty four 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. On this call from consensus will be Scott Tericchi, CEO Jim Malone, CFO Johnny Hecker, CRO and Executive Vice President of Operations and Adam Veron, Senior Vice President of Finance.

Operator

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

Adam Varon
Adam Varon
SVP, Finance at Consensus Cloud Solutions

Good afternoon, and welcome to the ConsenSys Investor Call to discuss our Q4 and year end 2024 financial results, other key information and our 2025 full year and Q1 twenty twenty five guidance. Joining me today are Scott Tureka, CEO Johnny Hecker, CRO and EVP of Operations and Jim Malone, our CFO. The earnings call will begin with Scott providing opening remarks. Johnny will give an update on our operational progress since our Q3 twenty twenty four investor call and then Jim will wrap it up to discuss Q4 twenty twenty four and full year 2024 financial results, then provide our full year 2025 and Q1 twenty twenty five guidance range. After we finish our prepared remarks, we will conduct a Q and A session.

Adam Varon
Adam Varon
SVP, Finance at Consensus Cloud Solutions

At that time, the operator will instruct you on the procedures for asking a question. Before we begin our prepared remarks, allow me to direct you to the forward looking statements and risk factors on Slide two of our investor presentation. 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 filings.

Adam Varon
Adam Varon
SVP, Finance at Consensus Cloud Solutions

Now, let me turn the call over to Scott for his opening remarks. Scott, take it away.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

Thank you, Adam. Q4 was another solid quarter for consensus. We saw an improving revenue growth rate in our corporate channel and a continuation of the slowing rate of revenue decline in our SOHO channel, both of which resulted in reaching the high end of our quarterly revenue guidance. Based in part on planned increased marketing spend, we expected an EBITDA margin in Q4 of 51%, which we were able to obtain. We were also able to repurchase approximately $20,000,000 in debt during the quarter, bringing us closer to our goal of total debt to EBITDA of less than three times.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

Looking at the full year, it was very successful against our stated objectives for 2024. We were able to exceed our expectations for corporate revenue growth coming in just shy of 5% for the year against an expectation of 3.1 at the midpoint of our guidance. Similarly, in our SOHO channel, we saw a decline of 13.3% against an expectation of a decline of 14.5%. This combination allowed us to exceed our midpoint of guidance by $5,300,000 in revenues for the year. As we stated each quarter, our focus was on driving EBITDA productivity, while rationalizing our online marketing spend.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

We achieved margins for the year of approximately 54%, which is at the high end of our range of 50% to 55%. More importantly, this EBITDA translated into a record $88,000,000 in free cash flow. We utilize this cash flow plus cash balances to repurchase approximately $144,000,000 principal amount of debt during the year and $2.00 $7,000,000 since the program's inception in late twenty twenty three. Additionally, we continued to add customers to our corporate channel, especially in the healthcare sector, increase the pace of rollout to the VA facilities and started to see traction with our Clarity offerings. We are excited for 2025 and beyond.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

Johnny and Jim will provide granular detail for our guidance, but I will make a few observations. We see a continuation of the trend for improved corporate growth and a slowing of the decline in SoHo. This combination has us flat for the year in revenues at the midpoint of our range, an improvement over the revenue decline of 3.4% experienced in 2024. From an operational perspective, we believe that we could hold EBITDA margins flat with 2024, but view this as a mistake given the opportunity in our space. Based on the two years of work that Johnny and his team have done to realign the sales and marketing teams in the corporate channel, we will be adding personnel to our go to market operations throughout the year.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

While it will negatively impact our margin by approximately one percentage point in 2025, we believe that will provide us with the momentum to return to total revenue growth in 2026. We've also begun to look at our capital structure in anticipation of the 6% notes maturing in October 2026. We will continue to evaluate the various options and markets available to us. However, based on what we know today, it appears that our most cost effective and expeditious financing option will be to expand our bank line of credit. This combined with our intention to pay down an additional $30,000,000 to $40,000,000 of debt by October 2026 will give us ample proceeds to retire the notes and maturity.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

While we have looked at refinancing both tranches of debt, the cost of retiring the currently non callable 6.5% notes is prohibitive. We will update you throughout the year as our thinking gels on our refinancing options. I will now turn the call over to Johnny.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

Thank you, Scott, and hello, everyone. Today, I'd like to discuss our Q4 and full year 2024 results focusing on revenue, customer count and go to market strategy for both our corporate and SoHo business channels. Additionally, I'll provide an operational update and share some insights into our 2025 outlook. The corporate business demonstrated strong growth and increased momentum in Q4 with a revenue increase of approximately 7.1%. Revenues grew from $49,400,000 in Q4 last year to $52,900,000 this year, contributing to a full year corporate revenue of $209,100,000 This represents a 4.8% growth rate year over year compared to $199,600,000 in 2023.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

The extraordinary growth rate in Q4 was driven by several factors. Q4 of last year was impacted by a focus on collections resulting in increased customer terminations and customer loss. These factors significantly impacted Q4 twenty twenty three revenues and the 2024 entry run rate. Therefore, normalized for these impacts on business days, we still achieved growth of approximately 5.5% in Q4 of twenty twenty four. I am very pleased with the business showing strong performance considering seasonality.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

We are seeing continued consumption growth, especially in Cloud Fax within the healthcare sector. Our existing customer base is using our services more and new customers are being implemented and ramping up. This results in a revenue retention rate of 100.5% for fiscal year twenty twenty four, a notable improvement of 170 basis points from ninety eight point eight percent one year ago and also increasing from 99.8% in Q3. Our go to market strategy's emphasis on customer retention, upselling and cross selling has produced positive results, which we are very happy to see. The success and momentum in the corporate revenue channel are further evidenced by this encouraging indicator, which we believe to be sustainable going forward.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

We have achieved a record high corporate customer count of approximately 59,000 just with eFaxProtect, which is a fully automated e commerce offering for corporate customers and the SoHo upsell to corporate program alone, we were able to add more than 3,000 customers to the corporate account base in Q4. This is another successful quarter for customer acquisition. The corporate ARPA remained seasonality related stable at $3.00 $4 roughly matching the $3.00 $6 figure from the same period in the previous year. Full year ARPA ended at a robust $311 for the entirety of 2024 compared to $316 in 2023. This is explainable with our e commerce success and the large number of customers we added at the lower end of the corporate customer continuum throughout 2024.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

Our 2024 go to market strategy has proven successful and I am delighted with the results providing tailwind for this new fiscal year. Let me quickly provide an update on the VA. The eCFAX solution offered in partnership with Accenture Federal Services has shown great progress in its initial deployment at the Department of Veterans Affairs. In 2024, eCFAX revenue exceeded $2,600,000 With the recent FedRAMP High impact authorization awarded just last week, we expect this growth to continue in the coming years, potentially reaching up to $5,000,000 in corporate revenue contribution in 2025. The conclusion of the FedRAMP High authorization will make the solution more attractive to other government agencies.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

Additionally, with a fully operational platform in place, future deployments are expected to be faster than our experience with the VA, which required us to build the entire platform in a government approved cloud environment. Moving on to the SoHo channel. Revenue for Q4 was $34,100,000 down 11.1% from $38,300,000 in the same period last year. 2024 fiscal year SOHO revenues were $141,300,000 versus $162,900,000 in 2023, a planned decline of better than expected 13.3%. The total SOHO account base also saw a slight decrease from $768,000 to $747,000 during the quarter.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

Zoho revenue for the fourth quarter exceeded our initial projections due to the strength of our brand portfolio and targeted marketing initiatives across multiple brands. We are continually optimizing Zoho revenue management through close monitoring of these initiatives and marketing programs. In the fourth quarter, the ARPA increased slightly to $14.99 from $14.88 in Q3 of twenty twenty four and the cancel rate remained stable at 3.38 the same as in Q3. The full year cancel rate for 2024 showed improvement decreasing to 3.4% from 3.54% in 2023 at an overall ARPA of $14.92 down from $15.31 in fiscal year twenty twenty three. This is due to the introduction of the discounted first month versus a free trial period.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

Our focus on automating and optimizing customer acquisition programs has yielded continuous improvement. This strategy success is evident in performance across all brands exceeding our initial projections. We will continue on the path of integrating digital advertising and SEO with a focus on a healthy LTV to CAC ratio. In conclusion, I'd like to share our outlook for 2025 and an update on the current market conditions. First for SOHO and then in a bit more detail for our corporate channel.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

In 2025, we will continue to prioritize profitability and stability by optimizing our current operations and resources for the SOHO business just as we did in 2024. Our focus will be on leveraging existing strengths and offerings to ensure long term sustainability. We will not pursue aggressive growth strategies. For 2025, we are planning for approximately $128,000,000 in SOHO revenue at the midpoint of guidance, down from $141,000,000 in 2024. The decline rate will slow down from 13.3% in 2024 to approximately 9.5% in 2025.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

We intend to maintain this trend while continuing to carefully control and optimize our marketing expenses. Looking at 2025 for the corporate channel, despite macroeconomic and political uncertainties, we remain cautiously optimistic in light of the encouraging signs that we are currently observing. The healthcare sector experienced a period of slow decision making and reluctance to invest following the rapid growth due to the pandemic. However, we're now seeing encouraging signs in our market performance and a return to normality. The 2023 realignment of our go to market strategy and our focus on customer retention and product suite optimization have proven successful.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

We will continue to prioritize our core fax business. Our advanced solutions, specifically Unite and Claroty are perfect additions to eFax and are generating significant market interest. Unite and Claroty featuring AI technology for data extraction and conversion facilitate interoperability and advanced data processing. We are happy to share that we are in full production with Clarity with accelerated implementation and promising proof of concepts for clients. Advanced solutions only marginally contribute to corporate revenue at this point and in 2025.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

However, they are strategically relevant from a go to market perspective, especially with healthcare being of such relevance to our business. Our entrenched market position, our strategic partnerships and our rigorous execution set us up for continued improvement in our growth rate. Our goal is to achieve corporate revenue of $222,000,000 at the midpoint of guidance in 2025, which would reflect a 6% to 6.5% growth rate compared to 2024 and keep us on track to exceed 5% despite 0.5% fewer business days in 2025 compared to 2024. Within the next two to three years, we aim to accelerate growth in the corporate business channel into the double digits. Overall, at the midpoint of our guidance, we anticipate a flat revenue year at $350,000,000 and growth in the years thereafter, which is encouraging and an improvement from what we have projected just a year ago.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

I want to wrap up by expressing my sincere gratitude to our employees for the exceptional dedication and to our customers and partners for their ongoing collaboration and trust. And now, I'll hand the call over to our CFO, Jim Malone, who will provide an update about our financial results and guidance. Over to you, Jim.

Jim Malone
Jim Malone
CFO at Consensus Cloud Solutions

Thank you, Johnny, and good afternoon, everyone. In our press release and on this call earnings call today, we are discussing Q4 twenty twenty four and full year 2024 results, plus 2025 full year and Q1 twenty twenty five guidance. We expect to file our fiscal twenty twenty four ten ks by close of business today. Let's start with our corporate business results. Q4 twenty twenty four revenue of $52,900,000 increased $3,500,000 or 7.1% versus prior year performing better than expectations.

Jim Malone
Jim Malone
CFO at Consensus Cloud Solutions

Full year estimated share count and income tax rate of our 20,000,000 shares and 20.5 to 22.5% with 21.5% taxes at midpoint, respectively. As Johnny mentioned, the strong growth in Q4 twenty twenty four was influenced by AR cleanup and customer terminations previously mentioned in our Q4 twenty twenty three call. Normalized for these factors and seasonality, we achieved a strong Q4 twenty twenty four corporate growth rate of approximately 5.5%. Q4 twenty twenty four corporate ARPU of $3.00 $4 was essentially flat and when adjusted for seasonality in Q4 twenty twenty four versus Q4 twenty twenty three was roughly in line with $3.00 $6 of the prior year comparable period. Full year corporate revenue of $2.00 $9,000,000 is up $9,500,000 or 4.8% versus prior year continuing in the upward growth trajectory into 2025.

Jim Malone
Jim Malone
CFO at Consensus Cloud Solutions

Full year 2024 corporate offer ended at a solid $311 compared to $316 in the prior comparable period and in line with the last several quarters range of $3.00 $5,000,000 to $320,000,000 As Johnny mentioned in his remarks, this is heavily influenced by our e commerce success and the large number of customers we added at the lower end of the corporate customer continuum throughout 2024. Full year '20 '20 '4 revenue retention increased above 100% to 100.5%, an improvement of 170 basis points from 98.8% in fiscal year twenty twenty three and a sequential increase of 70 basis points from 99.8% at Q3 twenty twenty four. Moving to Soho, Q4 20 20 4 revenue of $34,100,000 decreased $4,300,000 or 11.1% over the prior year and better than expectations. As I mentioned previously, this decrease is driven by our planned reduction in advertising spend and the corresponding year over year base reduction due to fewer paid ads. ARPA of 14.99 a decrease of approximately 1% year over year as a result of shifting to price plans with discounted first month versus a free trial.

Jim Malone
Jim Malone
CFO at Consensus Cloud Solutions

These plans continue to be net economically beneficial. It should be noted that year over year paid ads were up three thousand despite an approximate 30% reduction in Q4 twenty twenty four year over year advertising spend. Churn of 3.38% while up slightly year over year is in line with the last several quarters and within expectations. Full year Soho revenue was $141,300,000 dollars down $21,700,000 or 13.3% versus prior year as we reduced our advertising spend by approximately 50% in 2024 versus 2023. SoHo offer revenue of $14.92 down from $15.31 largely driven by the discounted first month promotion with full year customer churn of 3.4% versus 3.54%, a 14 basis point improvement.

Jim Malone
Jim Malone
CFO at Consensus Cloud Solutions

Moving to consolidated results, Q4 consolidated results revenue of $87,000,000 is a decrease of $800,000 or 0.9% over Q4 twenty twenty three, performing better than expectations. Adjusted EBITDA of $44,400,000 dollars versus $47,200,000 in Q4 twenty twenty three delivered a 51% EBITDAR margin in line with expectations. Adjusted net income of $25,800,000 is an increase of $4,400,000 or 20.8% over prior year primarily driven by a non cash FX revaluation on intercompany balances and lower net interest expenses offset by unfavorable EBITDA flow through depreciation and amortization and taxes. Adjusted EPS of $1.32 is favorable to prior year by 18.9% or $0.21 driven by the items I just mentioned and a modest higher share count. Q4 twenty twenty four non GAAP tax rate and share count was 20.6% approximately 19,600,000.0 shares.

Jim Malone
Jim Malone
CFO at Consensus Cloud Solutions

Full year consolidated results. Full year 2024 revenue of $350,400,000 is a decrease of $12,200,000 or 3.4% over the prior year largely driven by the planned decline in our solo business partially offset by a better than expected growth in corporate. This was approximately $5,000,000 more than the midpoint of our guidance. Full year 2024 EBITDA was $188,400,000 an increase of $1,800,000 or 1% from the prior comparable period. The improvement is driven primarily by lower advertising spend and cost optimization efforts.

Jim Malone
Jim Malone
CFO at Consensus Cloud Solutions

Adjusted net income of $109,200,000 was $9,400,000 or 9.4% favorable versus the prior year comparable period. Adjusted EPS was up $0.54 or 10.6% compared to the prior year. This is primarily due to the foreign exchange revaluation on intercompany balances and lower net interest expense, partially offset by higher taxes. The 2024 non GAAP tax rate and share count was 20.6% and approximately 19,400,000.0 shares respectively. Moving to our capital allocation strategy.

Jim Malone
Jim Malone
CFO at Consensus Cloud Solutions

As mentioned in our November 2023 earnings call, we announced a $300,000,000.03 year bond repurchase program. Q4 twenty twenty four, we repurchased $20,100,000 face value for $20,000,000 in cash. Our continued strong cash flow has allowed us to repurchase $2.00 $7,000,000 face value bonds for $193,000,000 cash program to date and we have $93,000,000 remaining under our current authorized program. We expect our free cash flow to be similar to 2024 providing us with sufficient cash to meet our leverage target by the maturity of our 6% notes. With the debt repurchases just mentioned, total debt to adjusted EBITDA is 3.2 times.

Jim Malone
Jim Malone
CFO at Consensus Cloud Solutions

Net debt to adjusted EBITDA ratio is three times and we're getting very close to achieving our total debt to adjusted EBITDA target of three times. We ended fiscal twenty twenty four with cash of $34,000,000 which is sufficient to fund our operations and repurchase our debt and equity. Full year 2024 free cash flow is $88,000,000 versus $77,000,000 in the prior comparable period on strong cash flow from operating activities with CapEx of 33,000,000 down $3,000,000 or 8% versus the prior year. Moving to 2025 guidance. Full year revenue between $343,000,000 and $357,000,000 with $350,000,000 at midpoint.

Jim Malone
Jim Malone
CFO at Consensus Cloud Solutions

Adjusted EBITDA between $179,000,000 and $190,000,000 with $185,000,000 at midpoint. Adjusted EPS between $5.03 to $5.42 with $5.22 at midpoint. Full year estimated share count and interest tax rate are 20,000,000 shares and tax rate between 20.522.5% with 21.5% at midpoint, respectively. Please remember that our 2025 guidance and results exclude foreign exchange gain losses on revaluation of intercompany accounts. I'd like to comment on this change and how we will report adjusted net income to getting in our Q1 twenty twenty five financial statements.

Jim Malone
Jim Malone
CFO at Consensus Cloud Solutions

Our adjusted net income calculation will eliminate foreign exchange gains and losses on intercompany balances in both periods 2025 and 2024. This line item can fluctuate significantly from period to period and its operating metric does not represent the company's operating performance. Therefore, we are eliminating it from our results. As stated in our press release filed today, the impact on the full year 2024 EPS was $0.18 resulting in a pro form a EPS of $5.45 excluding the 2024 foreign exchange gain. For our first quarter of twenty twenty five, we are providing guidance as follows: revenues between $85,000,000 and $89,000,000 with $87,000,000 at the midpoint Adjusted EBITDA between $44,800,000 and $47,800,000 with $46,300,000 at the midpoint.

Jim Malone
Jim Malone
CFO at Consensus Cloud Solutions

Adjusted EPS of $1.26 to $1.36 with $1.31 at midpoint. Estimated twenty twenty five share count and income tax rate are 20,000,000 shares and a tax rate between 19.5% to 21.5%. This concludes my formal remarks and I'd like to turn the call back to the operator for Q and A. Thank you.

Operator

Thank you. We will now be conducting a question and answer session. And the first question today is coming from David Larson from BTIG. David, your line is live.

David Larsen
Analyst, Managing Director at BTIG

Hey, congratulations on the good quarter. Can you maybe talk about the uptake of your advanced products, in particular like Clarity and J sign at the Vive conference? There was a lot of talk about the use of AI to basically like submit appeals letters to health plans to basically convert written data into structured data to assist with adjudication claims? Any color on the uptake there and processes there would be helpful. Thank

David Larsen
Analyst, Managing Director at BTIG

you.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

Yes. Hi, David. This is Johnny. Very good question.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

Thank you for that. Yes. So we're excited about where we are with Claroty today. The product is in full production. And maybe to give a little bit of insight of what the product does, it applies artificial intelligence and underlying LMS models to extract or to understand basically unstructured documents, primarily for us obviously coming from the fax world, but is also capable of ingesting documents from other channels, and then extract based on the prompts that were programmed individual data points and put those into a structured data format and then import those in, for example, an EHR system or any kind of system through a variety of file formats.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

We can customize those for our customers. So there's a lot of demand for that. There's a lot of POCs. We have a few systems actually in production already. So we're able to win customers to sign contracts.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

We're in deployment. We're in production. There's a lot of ideas of what can be done with a technology like that, which makes it a little bit more difficult on the deployment side, which is why we need a lot of proof of concept to really fine tune this for individual customers. But we're also very much focusing on developing replicable solutions. We've mentioned this in the past.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

We have two models that are out there right now, one for prior authorization purposes. So understanding a prior authorization request, extracting data points there and accelerating the processing of those. And secondly, basically categorizing and classifying clinical documents and then extracting primarily patient demographics, but also additional data points regarding insurance and those kind of things and then creating a CCDA document and then forwarding that document in a structured format and basically providing two things, the unstructured documents, so it can still be read by the human eye, plus a structured data file with these demographics. So that accelerates the process of filing these documents within, for example, EHR systems. What we're currently not doing is really extracting things like diagnosis or more complicated text.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

We're really very much focused right now on

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

the structured data fields.

David Larsen
Analyst, Managing Director at BTIG

That's

David Larsen
Analyst, Managing Director at BTIG

great. Thank you. And then just at a high level, corporate revenue growth, I think it was up 7% year over year. That's a pretty substantial acceleration from I think you were at like 2.7% earlier in the year. I mean, what are your expectations for corporate revenue growth going forward on a quarterly basis?

David Larsen
Analyst, Managing Director at BTIG

And just any general color on the demand environment? Have we turned the corner? Thanks very much.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

So I think in terms of the numbers, as Johnny pointed out, Dave, the $7,100,000 while it is a correct mathematical calculation, we did have a variety of account cleanups in Q4 of twenty twenty three. So we believe that's not the best comparison. And I think as Johnny noted in his prepared remarks that more normalized year over year growth is about 5.5%, still the best of the four quarters in 2024. And you're correct, we had a low of 2.7%, so just into 3% in one of the preceding quarters. So as we look out, you'll see the midpoint of the guidance about 6.25% growth in corporate.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

As Johnny mentioned, there's a slightly fewer business days in 2025 versus 2024 that matters to us particularly in corporate. So I think that it will not as you saw in 2024 be necessarily linear or equal in each of the four quarters because there is some volatility in terms of timing of wins and onboarding of customers. But I think if you look at the exit rate of 5.5% and you look at the annual target of 6.25%, there's obviously not a lot of variation between the two.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

So you should expect a I think from

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

an analytical standpoint a reasonably smooth progression from where we exited Q4 to getting to that number for the full fiscal year. And our expectation is we'd be at a somewhat higher run rate going into '26. And then you want to talk about some of the demand that we're seeing?

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

Yes. So I mentioned it on the call, right. I think I called it costly optimistic. We're seeing more than just green shoots. We're actually able to close deals.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

We see a little bit of acceleration in the decision making. We're collecting the fruits. And there's two factors to this. On the one hand, I think the market has normalized a little bit. Like I mentioned it on the call, there was a lot of tailwind during the pandemic.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

There was a lot of fast decision making. People just needed to get stuff done. So we profited from that, but then post pandemic we had the exact opposite. So it was more of a headwind. And I think that market condition has finally normalized.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

That is one of the things that happened. And secondly, we did align our go to market on the sales side as well as on the marketing side, and we started early in 2023 to adjust to change market conditions. And we have done a lot of things operationally. We have made some structural changes in our go to market and build the foundations that we need to now accelerate our growth. So we feel like we're in a very good position to and to your question, if we have turned the corner, yes, that's what it feels like.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

I think we're on an upward path. And I mentioned on the call, our ambition is to get to double digit growth in our corporate channel. Is that going to happen 2025 or 2026? Probably not, but the years thereafter that's what we're expecting, that's what we're aiming for.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

The usual contract obviously assumes that the economy doesn't completely implode sometime between now and then, But I would expect you would have that as a basic assumption.

David Larsen
Analyst, Managing Director at BTIG

Thanks very much. You guys have a good quarter.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

Thanks, Dave. Appreciate it.

Operator

Thank you. The next question is coming from Fatima Boolani from Citigroup. Fatima, your line is live.

Fatima Boolani
Fatima Boolani
Managing Director, Co-Head US Software Equity Research at Citi

Hey, great. Good afternoon. This is Mark on for Fatima. Thanks for taking our questions. Maybe can you guys give some finer details in terms of how the 25 go to market investments will be allocated?

Fatima Boolani
Fatima Boolani
Managing Director, Co-Head US Software Equity Research at Citi

So looking to I guess, is it towards adding more sales headcount to go after new customer cohorts or even new industries or pursuing new partnerships? And then just on timing, is there a ramp up period associated with these investments to really put the revenue acceleration in 2026? Thanks.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

Yes. Thank you, Mark. Very good questions. There's multiple ways that we're investing. On the one hand, yes, it's particularly go to market and sales headcount, which we're expanding.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

That will be ramping throughout the year. And most of that effect with you will most of the impact will not happen in 2025. We will see some of it, obviously, but most of it is really investment into the future in 'twenty six and beyond. Like I mentioned to in the earlier question or the response to the earlier question, we had to build out that foundation and that structure to actually scale up and that's what we're focusing on right now. Obviously, still keeping our EBITDA margin in mind and managing that at a pace rate.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

The other thing that we're doing is we are continuously monitoring very closely our spend on SOHO and we have shifted over the last year and a half and we'll continue to use some of those marketing funds to our corporate marketing expense. So we're attending a lot of trade shows, we're doing digital advertising, we're working on a thought leadership program. So there's a lot of marketing programs that we're doing to establish ourselves more and more in the market and generate demand for the corporate channel.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

And I would just add to that. I think in terms of the expense, if you're looking at how the expense spreads, it's not perfectly ratable over the four quarters, but it does ramp from right now. So we actually are in the mode of hiring as we speak and actually already forty five days into the quarter over the balance of the year. So you should expect that you're going to get some impact in Q1, it's going to be larger in Q2, your biggest impact will be in Q4 because you have the cumulative effect of the four quarters of the incremental heads. So roughly it's $1,000,000 a quarter, but it's going to be much lower than that in Q1 and it will be slightly higher than that in Q4 in terms of the expense.

Fatima Boolani
Fatima Boolani
Managing Director, Co-Head US Software Equity Research at Citi

Great. Thanks for the detail. And maybe if I could just follow, I know Johnny you mentioned you're building out the foundation and structure this year already and it's been in terms of go to market spend. So why aren't we seeing a little bit more, call it acceleration or optimism on '25 guide? Is there something that's holding you guys back?

Fatima Boolani
Fatima Boolani
Managing Director, Co-Head US Software Equity Research at Citi

It seems like your demand has turned the corner. Your initiatives are gaining traction. So any sort of caution that's keeping you guys from being a little bit more progressive on '25? Thanks.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

Yes, okay. Good question. I think we are seeing acceleration, right? If you compare it to our last year's growth rate, we're now going above 5%. That is significant change looking at where we're coming from.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

One of the key reasons why we don't see the speed that you're asking about is the majority of that investment goes off market. So I think our e commerce engine, our downmarket and midmarket sales engine, they're operating very efficiently and very well. And they're adding a lot of customers, so a number of accounts to our corporate base. But the revenue impact is by no means the size of if you add like five or six of these very, very large customers, with the VA probably being on the very top end. So I've talked about the customer continuum in the past and those our market customers have way longer sales cycles.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

And then once you have closed them, they also have longer ramp cycles. So if you think about sales cycles of six to nine, maybe sometimes twelve months, it takes a while to bring on those customers and then they ramp over another period of six to twelve months. So sometimes it's a two year effect until you see the full impact of a customer like that onboarding. In the case of the VA, it's even longer. It took us two to three years to close the deal and now we're in the process of rolling that out, which is another three maybe five year process

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

for full penetration.

Fatima Boolani
Fatima Boolani
Managing Director, Co-Head US Software Equity Research at Citi

Great. Thank you guys very much.

Johnny Hecker
Johnny Hecker
Chief Revenue Officer & Executive VP of Operations at Consensus Cloud Solutions

Thank you. Thank you. And there were no other questions.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

We have some questions. Go ahead.

Operator

Apologies. Go ahead. Yes, I'm sorry. There were no other questions, but we did get one more come in from Okay.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

We do have some questions via email. So let me take those while you queue the additional live questions. There's a few questions that came in by email. One is talking about the drivers of the range of growth for corporate, which would be 4.5% to 8.5%, six point two five % roughly is the midpoint in terms of our guidance. That will be driven predominantly through new customer additions as opposed to material changes in the ARPA.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

As you've noticed, the ARPA tends to be in a fairly tight range of maybe $20 plus or minus $3.1 and we don't expect that that's probably going to shift materially this year. So the driver is going to come from new customer adds more than a material move in the ARPA. The second question I think is an interesting one, but I don't think it is it's not the way we look at the business. And the question has to do with the SOHO churn rate, which obviously we report and then there's a corporate churn rate. And the corporate churn rate as we've discussed before, if you look at the actual cancel rate that's measured on accounts and it's everything from the small SMBs to the very largest customers we have.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

We actually think that's not that important a metric given the diversity of base that exists within corporate as opposed to Soho, which is very homogeneous. The question though is at what point do we expect the two cancel rates to converge? And I'm not sure that we ever expect them to converge because what we do in Soho now with the discounted first month has an elevation of the cancel rate and you've seen it be very stable in a tight range of about 10 basis points over the last four quarters since we introduced the new discounted first month. So if we were to stop that program, yes, we'd expect the cancel rate to come down. But as long as we maintain that program and we're thinking about 230,000 to 250,000 gross adds in a year, most of which will come under that program, that will keep the churn on a more elevated basis relative to the corporate which has the benefit of yes, some higher churn at the lower end, but offset by almost negligible churn at the larger account or strategic account level.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

So I'm not sure certainly we don't expect them to converge this year. We haven't done enough work to look at whether there might be a convergence point two to three years out. And then the final question coming from email is, as we look out beyond $25,000,000 there's a presumption we'll continue to build cash, we would agree with that in terms of the dynamics of the business and the free cash flow. What are the intended uses for it? As I noted in my prepared remarks to get to our number between now and October of twenty six, there's probably $30,000,000 to $40,000,000 of debt repayment that we would need in order to go under that three times total debt to EBITDA.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

Obviously, we expect to have much more cash beyond that $30,000,000 to $40,000,000 Some of that will be jurisdictionally trapped. So not all of it is readily available for we call U. S. Activities. But I would say that cash beyond what we need for the debt service would be allocated primarily going forward to stock repurchases.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

You'll notice our Board today did extend the stock repurchase program, which expired. It was a three year program that was put in place shortly after the spin. This is the third anniversary. We bought about one third of the stock under that original authorization. The Board has extended that out another three years.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

We're keeping the amount that's remaining, which is about $68,000,000 So certainly based on the stock valuation, that would be an opportunity. And then I think as we start to march farther out and we've obviously done I think an excellent job of rationalizing our debt structure to date, we start to bring M and A into play. And so we'll start to look at not only the returns that we think we get in buying in our stock at whatever the spot price is, but also what are opportunities in terms to add to our business and that can occur in many different flavors. There's obviously some that are more fact centric. There's some that are more in the interoperable space.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

There's some that bridge across both. But those are things that increasingly, while I wouldn't say we're completely done with the debt piece, given the progress we've made, we can start to turn our attention at least in part to allocating some of our future cash flow and for that matter potential borrowings to M and A. Okay, back to the live questions.

Operator

Okay. We did have a question come in from Matthew Sainshofer from Mizuho. Matthew, your line is live.

Matthew Sandschafer
SVP & Senior Analyst at Mesirow

Hi, everyone. How much of the corporate growth in 2025 is derived from the VA rollout specifically? And do you expect any of the disruption currently going on in the federal bureaucracy and in HHS in particular to have any as well as potentially the VA to have any effect on the VA business or the larger healthcare space for you?

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

Yes. Sure answer that. I think as Johnny mentioned that we did a little over $2,500,000 of revenues last year. We're obviously in a run rate exiting $24,000,000 at a higher level than the booked amount. We're assuming about $5,000,000 contribution from the VA this year and we don't anticipate that based on what's already been done to date, the rollout that the VA contract would be impacted.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

Obviously, you got to have the usual caveats. Every day there's new executive orders. There's new people in charge of various departments. There's threats that various departments may not exist. You all know that.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

But from what we see and in our conversations both with what would now be Accenture, who is the acquirer of Cognizante, who was our partner, as well as people within the VA, we see that the rollout will continue unimpeded.

Matthew Sandschafer
SVP & Senior Analyst at Mesirow

Do you see any potential impact across the healthcare space overall?

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

No.

Matthew Sandschafer
SVP & Senior Analyst at Mesirow

Okay.

Matthew Sandschafer
SVP & Senior Analyst at Mesirow

Thank you.

Operator

Thank

Operator

you. And there were no other questions from the lines. I'll now hand the call back to Scott Drayke for closing remarks.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

Great. Thank you, Paul. We appreciate you all joining us today for a review of 2024 and our first look into 2025. As I mentioned in my opening remarks, certainly as we have our quarterly calls for Qs one, two and three, we'll provide you obviously not only a status update on the financial results, but also as our thinking evolves and ultimately solidifies in terms of the actual amount and size and timing of the refinancing of the '26 notes. As I mentioned in my remarks, at this point, it looks like we will go a bank debt route, which will get a line in place such that we'll have the proceeds necessary that upon maturity, we can draw upon that line to repay whatever is left of the 6% notes.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

So look forward to as we have our next call in May to discuss Q1 results, We'll give you whatever update is available on that. Between now and then, we're at a variety of conferences. There will be press releases out. There are a combination of equity conferences as well as leverage or debt conferences. And of course, if you have any questions between now and the next earnings call, feel free to e mail us.

Scott Turicchi
Scott Turicchi
CEO at Consensus Cloud Solutions

Thank you.

Operator

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

Executives
    • Adam Varon
      Adam Varon
      SVP, Finance
    • Scott Turicchi
      Scott Turicchi
      CEO
    • Johnny Hecker
      Johnny Hecker
      Chief Revenue Officer & Executive VP of Operations
    • Jim Malone
      Jim Malone
      CFO
Analysts
    • David Larsen
      Analyst, Managing Director at BTIG
    • Fatima Boolani
      Managing Director, Co-Head US Software Equity Research at Citi
    • Matthew Sandschafer
      SVP & Senior Analyst at Mesirow
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Earnings Conference Call
Consensus Cloud Solutions Q4 2024
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