Consensus Cloud Solutions Inc (CCSI) (Q1 2024) Earnings Call Transcript Highlights: Navigating ...
Revenue: Q1 2024 total revenue was $88.1 million, a decrease of 3.6% over Q1 2023.
Corporate Revenue: Q1 2024 corporate revenue reached $51.4 million, up 4% year-over-year.
SoHo Revenue: Q1 2024 SoHo revenue was $36.8 million, down 12.6% from the previous year.
EBITDA Margin: Improved to 54.5%, up 6 percentage points from Q1 2023.
Net Income: Adjusted non-GAAP net income was $29.8 million, an increase of 35.6% over the prior year.
Earnings Per Share (EPS): Adjusted non-GAAP EPS was $1.55, up 40.9% from the previous year.
Free Cash Flow: Increased by over 20% from Q1 2023 to approximately $36 million.
Debt Repurchase: An additional $63.5 million of debt repurchased during the quarter.
Net Debt to EBITDA Ratio: Reduced to 3.2 times from previous measurements.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Consensus Cloud Solutions Inc (NASDAQ:CCSI) reported a 4% revenue growth in the corporate channel, reaching a record $51.4 million in Q1 2024.
The company successfully reduced marketing spend while still generating 63,000 paid adds, indicating efficient cost management.
EBITDA margin improved by 6 percentage points to 54.5%, reflecting disciplined cost control and operational efficiency.
CCSI repurchased an additional $63.5 million of debt during the quarter, reducing its net debt to EBITDA ratio to 3.2 times.
The launch of new products like eFax Protect and strategic partnerships are enhancing CCSI's market position and product offerings.
Negative Points
Revenue in the SoHo channel declined by 12.6% to $36.8 million in Q1 2024 due to reduced marketing spend and a shrinking customer base.
Despite improvements, the corporate channel growth of 4% still falls short of the company's long-term growth targets.
The company noted a slight increase in the SoHo channel's cancel rate to 3.42%, reflecting potential challenges in customer retention.
Operational changes are expected to slow down the momentum of the SoHo upsell strategy in Q2, potentially impacting revenue growth.
Market and customer decision-making remains slow, which could delay the realization of revenue from new contracts and partnerships.
Q & A Highlights
Q: Hi, good afternoon and thank you for taking my questions. I was just wondering, looking at the midpoint of the Q2 guidance, it's a little bit down sequentially on an EBITDA basis. And I'm wondering on what's going on in that number and kind of what the puts and takes are. I know that so you're bleeding off a little bit, but is there increased expenses? My understanding was that, so maybe a low to no margin business, -- the customers that you were you're running off. A: No, John, remember that revenues are down sequentially from Q1 to Q2, so that puts pressure on as you're going to make up that difference. Customers that cancel can actually are very profitable, remember there on the margin. They're paying us something in some prior period, whether it's the last quarter or the last month.Where there are customers that are less or not profitable is a function of the marketing issue that we discussed both in the call and previously and what type of customers signing up and are they quote-unquote taking advantage of the free trial period. And as a result, not making any payment to us.But yet we've expanded marketing dollars or they stay for a very short period of time. And that's a different question, but that's really the shift in introducing a new plan, which has you pay upfront albeit at a discounted amount. But all customers that we lose or substantially all that we lose in SoHo are profitable to varying degrees because remember, those marketing costs have already been expensed in some prior period. So we have to make that up. So I actually think that the midpoint shows an improvement in margin and a similar level of EBITDA.
Q: Hi, this is Jenny Shen, on for Dave Larson. Congrats on the quarter and thanks for taking my question. It was taken color to hit here that advanced products made up 20% of new sales. Can you just provide some more color there? What opportunities you're seeing from Clarity and Unite? How receptive prospective clients have been and also the potential revenue and margin impact there? A: Thanks for your question. So, what we're seeing is obviously, -- we've been strong with Unite sales in the past. This is a suite that offers more than just faxing to mainly smaller physician offices and smaller clinics. And offer a more broader suite of interoperable products than just fax. And we're seeing, we're forcing continued interest in this product and we have a very focused sales initiative on that product line, and that has really paid off in Q1 on strong sales.Secondly, your question with regards to Clarity, as I mentioned in the call, we've won our first customers for the Clarity platform. We are in the process of rolling that out.So we bought and the increasing use cases and there's some proof of concepts going on that are beyond the prior proof of concept in certain areas we've talked about say the last couple of quarters. So there is an expanding interest in what Clarity can do as a platform. And it's iterating around either a new use cases for it or derivatives of some of our existing used cases which would be in clinical documentation prior authorizations.In terms of your question on the margin, I would say certainly in the aggregate Clarity and Unite, really almost all the advanced services would in general be consistent with our margin structure. Some depending upon how they're deployed could have a slightly higher contribution margin, some might be slightly lower. But as a basket, I'd say they're in line with where we operate today.And I when I say that I'm talking about an operating contribution margin, so before things like G&A and whatnot. So higher than the 54.5% EBITDA margin that we reported, which includes all of those G&A costs.On the overall revenue mix [through the vast majority] is just based on the large baseline that we have in the fax business, obviously still our fax revenue and it will take some time for those advanced products to catch up since we're still growing and as well. So the vast majority of our revenue maintains and continues to be fax. On the new sales side, very excited that we're able to book a substantial part of our bookings and with advanced products.
Q: Great. And congrats on the quarter guys. And I was hoping you could provide a little bit more color on the partnership that you mentioned with the revenue cycle management vendor and what that entails? A: Yes. So that is a large provider of a solution, healthcare IT provider in that space. And we jointly go to market to market our product to their existing customer base and closely connected and then delivering documents into their systems.So those are many thousands of customers that they that they currently serve, and we're going to do joint campaigns and their teams are going to reach out to their existing customers so that this is really an exciting opportunity for us to work with them.
Q: Hi guys, this is Mark ZhaNg in for Fatima. Thanks for taking our questions. Maybe just wanted to touch on the SoHo to corporate conversion momentum. Seems like there's no upgrade reached 1,500 accounts this quarter, which were essentially higher than your usual cadence of call it around a 1,200 mark. Is this number one, ahead of your internal expectations for this quarter? Any sort of changes you're seeing in momentum there with a more favorable customer, seeing better budget to actually do these upgrades or just seeing recognizing the value of the corporate products? A: So, like I mentioned, I think we're super excited about the success of this program and being even above the 1,500 mark in Q1. Key success really is here operational excellence. I think, we've really learned over time to optimize and identifying the most promising customers in that SoHo base and serve them up to the team that does this upsell program.It's a question of routine as well. I think, it takes reps to ramp and to really get in a rhythm there. And we've been able to accomplish that over the course of about three almost four quarters now. So I think those have been the key drivers that we are really picking the right accounts to upsell into. And we see what patterns there are within our SoHo base of customers that are most interested in this product, which is why we're now we've learned a lot and we're confident in maintaining this program, which is why we can make the changes during Q2 that we plan to make.
Q: Thanks for the follow-up. I was just wondering if you had any communication with Accenture and if you did, you know, are they committed to a partnership with Cognosante and if maybe they have other fast partners on their tech stack? And if they are committed and how does that improve your opportunity over the long run in the public sector? A: So I think it's too early to say, right.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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