Consensus Cloud Solutions, Inc.

Good day, ladies and gentlemen, and welcome to Consensus Q1 2023 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, Jim Malone, CFO, and Adam Varon, Senior Vice President of Finance. I will now turn the call over to Adam Varon, Senior Vice President of Finance at ConsenSys. Thank you. You may begin.

Good afternoon and welcome to the ConsenSys investor call to discuss our Q1 2023 financial results, other key information, and reaffirmation of our 2023 guidance. Joining me today are Scott Turicchi, CEO, John Nebergall, COO, and Jim Malone, CFO. The earnings call will begin with Scott providing opening remarks. John will give an update on operational progress since our year-end investor call, and then Jim will discuss Q1 2023 results and 2023 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. 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 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 outlined on slide three that we have disclosed in our 10-K SEC 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 those documents regarding safe harbor language as well as forward-looking statements. Now, let me turn the call over to Scott.

Thank you, Adam. I'd like to provide a brief overview of the quarter before handing the call over to John and Jim for details on our operations and our Q1 financial results. Q1 2023 was a record first fiscal quarter with revenues of $91.5 million and an all-time record for our FAX volumes. Our revenue was in line with our expectations, representing approximately 24% of our annual expected revenue at the midpoint of our guidance for the year and consistent with our disclosure during the Q4 call. The corporate channel experienced 6.2% growth consistent with the organic performance in Q4 of 2022. Despite this growth, we continue to see slow decision-making by our largest prospects and slow implementation by those under contract. This is driven by uncertainty in the economy and labor shortages that exist, especially in the healthcare space. As we have stated before, we believe that this will continue throughout 2023, and our previously released guidance has taken that into account. The price changes for SOHO are coming to an end this current quarter and continue to perform within our modeled expectations. As you know, during the quarter we had to file both an amended 10-Q for Q3 2022 as well as the delayed 2022 10-K. The amended 10-Q, delays in filing and additional audit work had an incremental cost of $2.3 million more than in Q1 of 2022 and had an impact on our EBITDA margin of 2.5 percentage points. In addition, as we noted in the Q4 call, our labor costs are up about $3.3 million due to an additional 70 employees more in the current quarter, most of whom were hired in 2022, and annual merit increases that took place on January 1 of this year. This is approximately 25% of the $12 million increase that we noted in our Q4 call. This had an impact on our EBITDA margin of 3.6 percentage points. As our revenue grows sequentially throughout the year, and the audit costs do not repeat, we will see an expansion of our EBITDA margin. As we stated last quarter, we are judicious in our incremental hiring and are looking for ways to lower our non-employee costs. The sales and marketing realignment has taken place and we are starting to see some of the benefits of the new structure. John will give you additional details in his portion of the presentation. I am pleased to report that the VA has begun the rollout of the EC FACS service. Two facilities were deployed post the close of the quarter and there is now a roadmap for the next several months. We will generate a de minimis amount of revenue in Q2 and see the rollout ramping in future quarters as more facilities are brought online. There are now more than 20 agencies interested in the service. Ten prospects have already been provided a demo and are in active discussions with Cognosante and ourselves. It is still early and we do not expect any of these new agency opportunities to produce revenue in 2023, but are encouraged by the widespread interest in the solution. Before handling the call over to John, I'd like to spend a moment to discuss our liquidity and capital allocation alternatives. We remain very liquid with more than $111 million of cash on our balance sheet and a $50 million undrawn line of credit that we put in place back in March of 2022. These funds are targeted to debt pay down, which cannot occur until the second anniversary of the spin, which would be October of this year, and opportunistic stock repurchases. To that end, in the quarter, we were able to repurchase approximately 270,000 shares at an average cost of approximately $34 per share. I'll now turn the call over to John.