Consensus Cloud Solutions, Inc. (NASDAQ:CCSI) Q3 2023 Earnings Call Transcript

Our advanced product sales came in just short of $1 million and while that was an improvement over Q2, that also still lags behind the 2022 pace. We’ve also continued our aggressive pursuit of harvesting healthcare accounts from the SoHo base into a more expensive corporate product. For the past several quarters, we have been successfully upgrading more than 1,000 SoHo accounts per quarter, into a corporate product and this quarter is no exception with about 1,300 customers upgraded from SoHo. While each upgrade is a positive increase in revenue, it does come with a negative impact in a couple of key metrics that are important to note. First, these customers tend to be on the extreme low end of our corporate average revenue per account or ARPA range, impacting our overall corporate ARPA with downward pressure.

Second, the process for changing an account from SoHo to corporate includes, cancellation of the SoHo account. This process then creates an unfavorable impact on SoHo churn, as our system calculates the cancellation as a churned account. So as you assess our operating metrics, be aware that our upgrade program has those impacts. In the quarter, we were able to close two large hospital system deals, with a combined 60-plus hospitals over 400 clinics and more than 100 skilled nursing facilities. Due to their level of complexity, we anticipate that implementation will take most if not all of 2024. As you will recall from our discussion about the go-to-market realignment earlier this year, we established the e-commerce group for all web-based self-service sales.

This group includes our traditional SOHO revenue stream and has been expanded to encompass upmarket sales to the SMB market. This quarter, the SOHO market saw a further moderation of the churn that we saw last year due to our price increase rollout. Churn for the quarter came in just under 3.5%, a nice improvement from last year’s Q3 result. Now as mentioned earlier that number includes the 1,300 accounts that we upgraded to Corporate. As we discussed last call, we continue to see the pace of new adds fall under pre-pandemic levels. As we’ve also said on our last call, the expectation is that this trend will be the new normal in SOHO as we have made the decision to pull back spending in areas of SOHO that we found to have questionable profitability and we’ll continue to scrutinize our marketing spend to ensure high returns for the business.

This quarter we launched an e-commerce product targeting SMB customers. Traditionally we had used our inside sales team to sell inbound web opportunities and these form-fill customers would be assisted by a live sales rep. The release of this eFax Protect product marks our first entry into the self-service sales approach for corporate. Finally, on the product front as mentioned earlier, we successfully released Clarity CD and we have also successfully completed the Jsign HITRUST audit. Now let me pass the presentation to Jim Malone, our CFO. Jim?

Jim Malone: Thank you, John, and good afternoon, everyone. Let’s start with our corporate business results. Q3 2023 revenue was $50.4 million, an increase of $1.5 million or 3% over the prior year comparable period versus growth of 13% from Q3 2021 to Q3 2022. The corporate revenue growth slowed to 3% from 13% in Q3 2022 due to an increased number of customers at lower ops as our larger clients remain slow in both their decision cycles and implementation. Corporate ARPA at $312 was down $36 or 10.5% from the prior year attributable to the mix of paid adds at a lower ARPA, including SOHO accounts moving to corporate. However, it was similar to the ARPA as we experienced in Q2. Monthly churn improved 20 basis points to 1.5% over the prior year, delivering a trailing 12-month revenue retention of 100%.