Consensus Cloud Solutions, Inc.

Good day, ladies and gentlemen, and welcome to Consensus Q4 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 Tariki, 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 ConsenSys. Thank you. You may begin.

Good afternoon and welcome to the ConsenSys investor call to discuss our Q4 and fiscal year-end 2023 financial results, other key information, and 2024 guidance. Joining me today are Scott Tariki, 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 our operational progress since our Q3 investor call, and then Jim will discuss our Q4 2023 and year-end preliminary unaudited financial results. and 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. 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. As we discussed in our Q3 call, our focus has been on EBITDA and free cash flow generation. The market dynamics have not materially changed since our last call in November, and we expect these trends to continue throughout 2024 in the healthcare sector. We've taken the past three months to do a rigorous examination of the business to see where costs can be optimized. As we noted in the Q3 call, we found some spend in our SOHO channel that gave us low LTV customers. As we looked even deeper campaign by campaign, we found additional spend that was at best marginally profitable and most likely uneconomic. As a result, we have made some additional cuts against our Q4 forecast that had a slight negative impact on revenues in the quarter, but favorably affected EBITDA productivity and margin. On the corporate side, the revenues were impacted by the enhanced collections process that reduced our outstanding receivables, but also resulted in some account closures. This has an effect on the base coming into 2024 and will likely affect corporate revenue growth rate by approximately one percentage point. Johnny will provide you with more details in his part of the call. I am pleased that for the quarter we generated near our target EBITDA notwithstanding the headwinds on the top line. Our bottom line EPS, while strong, were negatively impacted by a severe rallying of the Euro against the U.S. dollar that resulted in a charge of $5.8 million or $2.4 million more than our forecast. I would note that these are inherently difficult to predict and are non-cash in nature. We are working on a program to mitigate this volatility in 2024. The strong bottom line results, combined with the finance team's collection efforts, allowed us to be $10 million better in free cash flow versus Q4 of 2022. For the full fiscal year, we produced $77.7 million of free cash flow compared to $53.1 million in 2022. This allowed us to repurchase $71.4 million of our bonds through January at an average price across both tranches at 91% of par. We ended the year with a healthy $88.7 million of cash and cash equivalents. As we look to 2024, the biggest change from our preview in November is how we are managing the SOHO channel. Given change in algorithms, increasing cost for advertising, and an increasing amount of new sign-ups that have limited use cases, and as a result, a short life, we are cutting almost two-thirds of our marketing spend in 2024 relative to 2023. As a result, we will see a faster decline in revenue for SOHO in 2024 than previously articulated. However, the costs are declining by approximately the same amount as the revenues. As we continue to invest in our corporate channel, we have allocated a few million dollars of additional marketing spend to support this effort. In addition, we have been seeing initial benefits from the go-to-market realignment that we implemented approximately one year ago. We remain positive on the opportunity within the healthcare sector for our core facts products and interoperability solutions. We expect an increased corporate contribution exiting 2024 as a result of this strategy and will continue to pursue it while we generate cash and retire our debt. At the midpoint of our range of guidance, we expect EBITDA to grow in 2024 and margins to expand by approximately 290 basis points. We are also paring back our capital expenditures by approximately $7 million from the 2023 level, while continuing to invest meaningfully above pre-spend levels. Notwithstanding an expected higher tax rate than 2023, we still expect to generate approximately $80 million in free cash flow. I will now turn the call over to Jonathan.