Consensus Cloud Solutions, Inc.

Good day, ladies and gentlemen, and welcome to Consensus Q4 2022 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 Turicchi, CEO, John Nebergall, COO and Jim Malone, CFO. I will now turn the call over to John Nebergall, COO at Consensus. Thank you. You may begin.

Good afternoon and welcome to the Consensus investor call to discuss our Q4 and full year 2022 financial results and our 2023 initial guidance. Joining me today are Scott Turicchi, CEO and Jim Malone, CFO. The earnings call will begin with Scott providing opening remarks. I will give an update on a major realignment of our operating structure as well as sales and technology results. And then Jim will follow up and discuss our full year and Q4 financial results. After we finish with our prepared remarks, we will conduct a Q&A session. At that time, the operator will instruct you on procedures for asking a question. A copy of this presentation and the associated press release will be available on our website. Also, if you have any questions, you can always send an email to investor at consensus.com. Before we begin our prepared remarks, allow me to direct you to the safe harbor language on slide two. As you know, this call and webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to, the risk factors outlined on slide three that we have disclosed in our SEC 10-K filing, as well as a summary of those risk factors that we have included as part of the slideshow for the webcast. We refer you to discussions in these documents regarding safe harbor language as well as forward-looking statements. Now, let me turn the call over to Scott.

Thank you, John. I would like to touch on several areas before handing the call over to John and Jim for more details on our operations, Q4 financial results, fiscal year 22 results, as well as the publication of our 2023 guidance. As noted in our press release, we intend to file an amended Q3 2022 10Q to primarily address two unintentional errors we have identified in the preparation of our Form 10-K. The first error is related to an accounting practice we inherited from the spin. Notably, our SOHO revenue stream was inadvertently grossed up by $5.3 million over the first three quarters of 2022 with a corresponding offset to bad debt expense. This correction has no impact on the company's operating income, net income, EBITDA, or cash for the relevant periods. The second error relates to the timing of revenue recognition. We initially recognized $2.2 million of revenue in Q3 2022 for the sale of certain perpetual software licenses to one of our customers, which upon further review we have decided to reclassify as deferred revenue. This correction impacts timing only, not the amount of revenue that we recognized over the contract term. Neither error has any impact on the company's cash or cash equivalents. Jim will provide further details in his financial presentation later in the call. Our operational miss in revenue for the year to achieve the low end of our revenue range was approximately $3 million and was largely due to the timing of both customer decisions and implementations. As we noted in our Q3 call and again earlier this year at an investor conference, we continue to see a more deliberate approach to decision making and implementation by our largest prospects and customers. We believe that this trend will continue in 2023 and have accounted for it in our financial guidance. As John will later detail, we continue to have a number of prospects in our pipeline and remain optimistic that over time they will translate into revenue. Thank you for joining us. Thank you very much. I am enthusiastic about the realignment of our people and resources and believe it will produce a greater pipeline of opportunities, giving us more paths to meet or preferably beat our guidance. John will give you the details in his presentation. We continue to operate at healthy EBITDA margins of 54.3%, consistent with our guidance of between 50 and 55%. These results were driven by continued strong performance in the corporate business, which grew 10.1% versus Q4 2021, and 6.5% of which was organic. Our Soho channel had good results, notwithstanding continuing FX headwinds, which primarily affect this channel of revenue. Also, as we discussed last quarter, there were additional customers affected by the price change, which had a modest impact on our cancel rate. While slower than previously planned, the VA is on the verge of rolling out our EC FACTS to its first medical facility. We expect revenue to start sometime in late Q2 or Q3. The interest in EC FACTS from other government agencies has more than doubled since the end of Q3. There are now more than 15 agencies interested in the service. It is still early, and we do not expect any of these new agency opportunities to produce revenue in 2023 are encouraged by the widespread interest in the solution. Before handing the call over to John, I'd like to comment on the economy and how it is affecting our business outlook. As noted previously, the uncertain economic conditions and fear of a recession has slowed down decision-making of our largest potential customers. We believe that there will be a recession at some point this year and expect this slower decision-making trend to continue as well as to modestly impact the cancel rate of our Soho or e-commerce business. In addition, the tight labor market and sticky inflation has an impact on the cost of our labor force, which is our largest single expenditure. We anticipate there will be an increase of approximately $12 million in cash compensation expense this year over 2022, which is a combination of having more employees in 2023 than 2022, as well as higher wages across the board. We anticipate that this will have a 2.3 percentage point impact on our EBITDA margin in 2023. As our employees are our most valuable asset and we need them to ramp up from the spin to meet the obligations of a standalone public company, as well as dedicate more resources to our development, sales, and marketing efforts, we do not see an opportunity for cost savings in this area. However, we are looking carefully at our non-employee areas to make our operations more efficient. Moreover, we believe these investments in both technology and human capital will strengthen our leadership position in the market. Finally, we remain liquid with more than $94 million of cash on our balance sheet and the undrawn line of credit that we put in place in March of 2022. I'll now turn the call over to John.