Everyone, welcome to the Jefferies Global Healthcare Conference. My name is Brooke Liang from the investment banking team, and I'm pleased to introduce Scott Turicchi, Johnny Hecker, and Adam Varon from Consensus Cloud Solutions. Thanks.
Thank you very much, and good morning. We've got a few slides here before we go to Q&A to kind of level set you on who we are as a company. We've been public a little under three years. We actually are a spun company out of what was formerly known as J2 Global, now known as Ziff Davis. So here's some of the legal stuff, risk factors, other information. Basically, it's referring you to our 10-K, 10-Q, and other documents. If you've got questions on it, let us know. As was just explained, I'm Scott Turicchi, the CEO. Had a long tenure at this company and its predecessor, which was known as J2 Global, and then prior to that, I was an investment banker.
Johnny Hecker actually worked with us at J2, then he took some time and worked at Google and then came back about a year and a half ago, and Adam's been with us for over 10 years, both at J2 and now at Consensus, and he's our SVP of Finance. So let me give you a little bit of an overview of who we are and what we're trying to accomplish as a company, and that is to be the trusted global source for the transformation, enhancement, and secure exchange of digital information. This is really important, particularly in the healthcare space. You'll hear a lot today, I'm sure, in a variety of presentations about interoperability, how information gets moved and transformed from one EHR to another or from one format to another, so we play within that space.
Johnny will give you much greater detail on the individual product offerings, but I'm gonna give you sort of a quick highlight and overview. So our roots are in the digital fax space, so that's where we started almost 30 years ago now. Our founders founded the original company back in 1995, and at the time, it was geared towards individual users. And over the last 27-28 years, it has evolved both in terms of the customers we serve, going from that individual now all the way up to large enterprises and federal government agencies such as the VA, but also the industry sectors. Some of the early adopters in this transformation from what we call on-prem faxing, meaning you have a machine or servers resident in your data center, to in the cloud, were the regulated industries.
But the first ones to adopt, or the earlier ones, were the finance sectors. Legal and healthcare actually had quite a lag. It wasn't until much later, really after the Affordable Care Act was passed and the advent of the adoption of EHRs, that the idea of moving the fax to the cloud became relevant, and you'll see in a minute why fax is important to the healthcare space. The key for what we do is to be trusted, high speed, reliable, to have a variety of third parties, look at our solutions. HIPAA's sort of the lowest standard. There's a third party called HITRUST. We're HITRUST certified. We also deal with FedRAMP for the federal government. FedRAMP High, that's specifically for the VA, regional data protection, et cetera. On the right-hand portion of this slide is the evolution of the services.
So up until really I'd say the late 2010s, the primary service of this company were a variety of brands in the digital fax space, generally the best-known one being eFax and, for our corporate customers, eFax Corporate.
As the company began to address the healthcare space in about 2017, 2018, we took that solution, and first we adapted it for our healthcare customers, but then we added several new solutions on top of that: Unite, which is a bundled solution for transmission that includes, in addition to fax, protocols like HL7, FHIR, and Direct Secure Messaging, jSign, which is a digital signature designed specifically for use within the healthcare space, and Clarity, which is probably the most interesting because it takes what a fax is, which is a piece of unstructured data or a picture, and extracts information from it such that it can be structured, put into a database, think an EHR, but also then transported to other counterparties via a variety of protocols, such as are in Unite.
If you look at the bottom right-hand piece of it, increasingly, more and more of our customers and our revenue are in the healthcare space. So about 40-some% of our total revenue today across all the different lines of business is healthcare, but sixty percent of our corporate revenue and, more importantly, about 70%-75% of the bookings and the new logos that come in. And then we continue to make investments specifically for our healthcare customers over the last few years. It's just under $30 million and growing every day. We have a large footprint within enterprises. We have more than 2,000 of those who are our customers. You'll see when Adam talks about our reporting, we report two streams of revenue: SOHO, which is small office/home office, and corporate. Corporate will have about 54,000-55,000 customers.
2,000 of those are our largest customers, enterprises. 75%, as I said, of our new sales come from the healthcare sector. Our contracts range from a variety of subscription models to usage-based models, so there's a high degree of revenue visibility, particularly over short windows like months and quarters. We're getting an increasing lift in what we call our advanced product bookings, so that would be those that are not solely fax. We've got just under 100% LTM corporate revenue retention. I'll now invite Johnny to come up, and he's gonna give you a much deeper dive about the space and how our specific solutions service it.
... Thank you, Scott. Good morning, everyone. Yeah, what you see on this slide is, and I'm gonna go through three dimensions. First, I'll talk a little bit about the market. I'll talk more about our product set, and then how we group the market and address the market in our go-to-market motion and in our customer continuum. So what you see on this slide is, on the one hand, on the upper left corner, you see how fragmented the healthcare industry really is, and this is one of the key reasons why there is still a lot of faxing out there, and why there is that need for interoperability, and that discussion, and to bring on new protocols and technologies to connect all of those players.
You have a large portion, obviously, on the providers, and that can be the large, you know, integrated delivery networks, academic hospitals, those kind of huge institutions and organizations, all the way down to, you know, smaller clinics and then single physician offices. So the provider space, on the one hand, with the hospitals and the smaller providers, then you have a, you know, the payers, obviously, responsible, the insurance companies responsible for paying, for managing all the claims, prior authorizations, those kind of things. You have the pharma Rx or pharma distribution piece, all of the pharmacies that are part of this greater ecosystem. And then for us, very important as well, the supporting industries, the clearinghouses, the healthcare IT players. Those really make up the broad healthcare space that we address with our solutions.
All of these constantly exchange data to facilitate patient care. That can be any kind of medical records, that can be referrals, that can be claims. All these kind of things constantly need to be exchanged. The big thing in the healthcare industry, if you compare it to any other industries where you have supply chain or financial industry, where everything is very structured and simple, the documents are very complex and usually unstructured. So unless you have, you know, in a few exceptions, like maybe a script or maybe, you know, maybe a lab report, a lot of structured data, most of the time it is very unstructured. It doesn't fit in a form.
It's a lot of narrative that makes it very complicated to exchange in a structured way, which is why they fall back onto, you know, just oftentimes still using a piece of paper to write something down or just exchanging then that information as a fax. So this is where we come in, and this is one of the main, the main reasons why there still is so much faxing. Now, the second reason is, there's a lot of technology deployed out there, especially. So the further you go upmarket in that space, the more sophisticated the technology is. But then there is a large supporting, we call it the outer circle of the healthcare industry, that is not sophisticated tech, technologically, that has not been digitized.
So think about the, you know, the skilled nursing facilities, the home care facilities, the physical therapists, all of those where the patient ends up after being in acute care. They weren't supported by the 21st Century Cures Act, that didn't get any Meaningful Use subsidies to build out their IT infrastructure. So they are still, if they have migrated to any kind of technology, not on very sophisticated technology, which is why they still use faxing. And our products facilitate that interoperability, so all of those players can communicate among each other. At the bottom, you see. You know, this is really the idea of our product, is that we facilitate all kinds of protocols and all, you know, ways of communicating, but we allow the customer to adapt to that technology at their pace.
So we're not dictating to them, "Hey, now you have to use FHIR because that is the new protocol that everybody needs, and now you have to buy technology to use it." We provide technology that they can use, and they adopt to the technology at their pace. So at the bottom, you see a few of the key points in time as there are discussions about advancing interoperability among those players and the corresponding regulatory rules and ideas that have been communicated. We're now in 2024, the TEFCA framework has been at least partially established. The first QHINs have been designated, so there are ideas and approaches to build out these communication networks, but the underlying technologies and how that is being deployed is still very much in discussion.
While there are a lot of academic discussions, people still get sick, go to the hospital, data still needs to be exchanged for years to come. So let me move on to our product suite. So what do we provide to all of those players? What do we provide to the market to facilitate that communication? At the very top, you see our vision. We've deployed the first ideas of this with first customers that we call Harmony, which is an integrated platform, an API, that facilitates all kinds of protocols and services and needs to customers, where all of our products and services that we currently already sell come together in one single platform. And basically, by, you know, toggling a switch, they can enable certain features and protocols as they need them from the API.
That, that is what we call Harmony. That is where the whole transition is going. Scott already alluded to Clarity, which is a product that we have launched in 2023, a very exciting product for us, and we're, you know, getting a lot of demand for this, which is a technology that is based on our proprietary LLM. It's an AI-based technology that uses natural language processing to understand an unstructured document and extract certain data points to create a second structured data file that goes along with that unstructured document.
So if you think about a fax that comes in, Clarity is capable of extracting certain demographics about that patient, put those into a Continuity of Care Document, and then send that to an EHR, and the EHR picks up that information and then can file that fax a lot faster, which is currently, in many cases, still a very manual process. Someone has to read the fax, understand who the patient is, and type that information into an EHR. So what we're doing here is we're accelerating the processing of those documents, and we are eliminating a large manual process in many of these healthcare providers. Another use case would be the acceleration of processing of prior authorizations.
So one of the new rules that just came was just published by the ONC requires payers to turn around prior authorizations within 72 hours. There's a lot of manual processing in prior authorizations. If we can help with Clarity, because a lot of these prior authorizations are not structured in their data, if we can help with Clarity to extract certain data points and accelerate that processing, that's a big advantage for those payers to meet that 72-hour deadline. If we go further down, we have a platform that we call Unite. It's really, right now, more for clinics and smaller physician offices, so this is not an upmarket product.
It's more a mid-market product, but it's a UI, it's a web interface, where physicians or, yeah, you know, providers, it's a provider product, can access all kinds of interoperable protocols. One of them is still fax, but there's also HL7, FHIR, Direct Secure Messaging, and it's one interface for the administrator in a provider's office. So it's more than just eFax because you can do patient query with it. You have a signature capability. You can triage the faxes. You can file them. You can integrate with your EHR, but it's a document workflow interface that is a little bit like fax on steroids. But the majority, to be honest, of a lot of these transactions are still fax-based. But as I stated in my...
On the last slide, the provider has the option to move on to other protocols at their pace. Whenever they want to change and say, "Hey, I wanna move away from fax to Direct Secure Messaging," they can. The next you see is jSign on this slide. jSign is a digital signature solution. It can be part of the Unite solution, or it can be completely independent. Customers, you can compare it to DocuSign, can use this. It's very much focused for the healthcare industry. It is HITRUST certified, as all of our platforms are. So that is really the differentiator. We try to facilitate this technology specifically for the healthcare space.
And last but not least, the majority of where our revenue comes from, Adam, is gonna speak to it in a minute, is our large eFax platform, eFax Corporate. I have to speed up a little bit.
Yes.
Take you through the customer continuum. This really shows how we are grouping our customers. You see on the very left side, our e-commerce platform, or channel, where customers can self-service, sign up through the internet, for starting at $10 all the way up to a couple of thousand dollars. In the middle, you see the SMB world, a mid-market segment, moving into the large accounts and the strategic accounts on the right. Now, there's two things I wanna emphasize here.
First of all, different sales motions, so, and different sales cycles, where on the lower end, customers sign up, it's a matter of minutes to win these customers, all the way to the upper end, where you have sales cycles of, you know, 6 to, you know, 18, 24 months, RFPs, you go through POCs. These are very, very large customers with very large monthly recurring revenues. And the same thing is for the, for the adoption of these services. The rollout can, in some cases, Scott spoke about the VA, take years until they have deployed our solution across the entire organization. Conscious of time, I wanna hand over to Adam to take you through some of the financials.
That's good. Thank you, Johnny, and good to see everybody. Before we jump into the numbers, it's important to provide our 2024 goals, as discussed on the past few earnings calls. Our focus is on driving EBITDA margin and dollars and free cash flow generation, with the following key drivers: eliminating certain costs in the SOHO channel, especially in the area of marketing, to stabilize the base over time. Continuing to pursue the acquisition of customers, primarily in the healthcare space, for our corporate channel. Number three, reviewing our overall cost structure with the goal of driving EBITDA margins north of 54%. And finally, continuing the repurchase of our debt to further reduce our debt to EBITDA ratio in anticipation of the first tranche of debt due October of 2026. With that, let me move to the next slide.
On this slide, on the left hand, we have our LTM Q1 2024 revenues of $359 million. That is -1.5% over the previous LTM period. So let me break down the two revenue streams, as Scott and Johnny have talked about in corporate and SOHO. Our LTM Q1 2024 corporate revenues are approximately $202 million, which is $6.5 million, or 3.3% favorable over the prior LTM period. As we gain traction with our corporate e-commerce offering, eFax Protect, and the continued conversion of upgrades to SOHO, from SOHO to corporate, and implementing more and more facilities as we continue to ramp the VA contract.
Moving to SOHO, the LTM Q1 2024 SOHO revenues of roughly $158 million are approximately down $12 million on a like period, or 7%. As mentioned earlier, our 2024 SOHO strategy includes eliminating certain costs in this channel. This began in Q1, or I'm sorry, Q3 and Q4 of 2023, by eliminating SOHO advertising spend on low LTV campaigns. As we look deeper and deeper into those campaigns, campaign by campaign, for our 2024 plan, we found additional spend that was at, at best, marginally profitable and most likely uneconomic. Based on this analysis, we reduced our 2024 SOHO advertising spend, planned SOHO advertising spend by two-thirds, with a roughly equivalent drop in SOHO revenues. As a result of this strategy shift, we will see a faster decline in SOHO revenue in 2024.
Moving to the middle section of EBITDA. Our non-GAAP adjusted EBITDA of $190 million in the LTM Q1 2024 period was 30 basis points better than the prior period at $190 million, as we managed that cost structure that we talked about, and we optimized EBITDA margin and cash generation in order to pay down debt and manage our business. From an EPS perspective, the LTM Q1 2024 is actually up at $5.53, up 8.2%. This is driven by our net interest expense, non-cash revaluation on intercompany accounts, and a lower share count. Moving to the next slide, let's talk about cash generation and capital allocation strategies.
Our capital allocation priorities, again, are to reduce a debt to EBITDA ratio, gross debt to EBITDA ratio of less than 3x, in anticipation of the first tranche of debt maturing in October of 2026. We do have a $300 million board-approved plan over three years, which commenced in November of 2023. We have secondly, an opportunistic share repurchase program. Again, that was launched in February 2022. It's a board-approved, three-year, $100 million program. The third priority is opportunistic M&A. So let's go to bond and share repurchases. In LTM Q1 2024, we've repurchased $126 million face value for roughly $115 million, which is split at roughly 35, 65 on the 6% notes and the 6.5% notes, respectively.
Our LTM Q1 2024 share repurchases are about $15 million, with $31 million programmed to date since inception. On cash and cash equivalents, we ended Q1 2024 with $62 million, and our LTM Q1 2024 interest income is $4.6 million on the invested excess cash invested. And last, but certainly not least, our free cash flow, LTM Q1 2024, is approximately $84 million. I got 1 minute. The next slide is our a view of our debt to EBITDA ratio, and what this slide really articulates is, from the inception of our spin from our former parent in October 2021, all the way through to Q1 2024, our debt to EBITDA ratio has shrunk based on these repurchases I mentioned.
You'll note that it didn't start basically until 2023, where, we, we, after 2 years, from spin, we, we had a non-call option, so we couldn't buy back any of our debt. We started that in November of 2023, and went into Q1 of 2024. We're at roughly $679 million debt, which is a 3.2 times net debt to EBITDA ratio. And, you know, again, that goal, over a course of time, as, as the first tranche, matures, is to get to below 3x on the gross. That is... One more slide, sorry. Our guidance. I'm reaffirming guidance. Here you can see the numbers.
I'm actually out of time, so, we're reaffirming it at the midpoint of $345 on our revenue non-GAAP, adjusted non-GAAP EBITDA of $188, and adjusted non-GAAP EPS of $5.20. We also give current quarter guidance, so our Q2 2024 guidance is there to the right, at $86.5 million revenue at the midpoint, $47.5 EBITDA, and $1.33 EPS. Thank you. I'll pass it back now. I guess they don't have any questions.