Good day, ladies and gentlemen, and welcome to the Consensus Q3 2022 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 Consensus. Thank you. You may begin.
Good afternoon, and welcome to the Consensus investor call to discuss our Q3 2022 financial results, other key information, and reaffirmation of our 2022 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 Q2 investor call, and then Jim will follow it up to discuss our Q3 2022 financial results and 2022 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 SEC 10-K 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 would like to touch on several areas before handing the call over to John and Jim for more details on our operations, Q3 financial results, and the reaffirmation of our guidance. This was another very good quarter for Consensus in light of high inflation and the volatility in our economy. We were able to produce a record quarterly revenue by growing 7.5% versus Q3 2021. We continue to operate at healthy EBITDA margins of 53.5%, consistent with our guidance of between 50% and 55%. These results were driven by continued strong performance by the corporate business, which grew 19% versus Q3 2021, 14% of which was organic. In addition, this is the ninth consecutive quarter of corporate revenue growth.
It's ninth straight quarter of ARPA growth, up more than 15.9% versus Q3 2021. Our SOHO channel had good results, notwithstanding continuing FX headwinds, which primarily affect this channel of revenue. Also, as we discussed last quarter, we implemented a price change to approximately 30% of the base during the quarter. We expected that we would experience a similar cancel rate to Q2, given the additional cancels expected at the higher price point. I am pleased to report that the cancel rate of 3.6% was only modestly higher than our Q1 cancel rate and 27 basis points lower than Q2. We believe these FX headwinds will continue throughout the year. Jim will provide more detail on the financial performance for the quarter as well as for each channel of revenue.
As was noted in our press release, we have received the authority to operate from the Department of Veterans Affairs as we had expected in September. Cognosante and the VA have been working to develop a plan for rolling out the solution across more than 2,000 facilities within the VA system. That plan is in progress. We now have interest from seven other federal agencies, up from three last quarter, and we'll begin working with them to understand better their needs. John will provide additional details on each of these areas in his portion of the presentation. Despite the tight labor market, we have continued to make progress in our overall hiring with a focus on our technical team and filling out our staff as a standalone company. We ended the quarter with 575 employees.
I'd like to welcome all of our new employees who have joined us since our last earnings call. We also celebrated the one-year anniversary of the spin from our former parent, Ziff Davis, on October 7th of this year. I would like to congratulate all the employees for their arduous work to complete the separation. We were able to finalize the last payments to Ziff regarding transaction fees related to the spin. Jim will provide you with additional details on those amounts. There are still some customer accounts of Ziff that map to some of our bank accounts. We remit the cash collected on a monthly basis and expect all such accounts to stop mapping to our bank accounts prior to year-end.
In addition, we assisted Ziff with the additional sale of 500,000 shares of our stock, leaving them with an ownership position of less than 6% of Consensus. They now have approximately four years to dispose of those remaining shares. Before handing the call over to John, I would like to provide you with our thoughts on the economic environment and how it is influencing the operations of Consensus. The economy has not improved since our last earnings call, and many expect a recession in 2023. I'm pleased to report that our usage volumes per business day are at their strongest levels, due in part to the approximately 40% of our business that is in the healthcare sector. However, we are noticing slower decision cycles for our larger customer opportunities. We believe that this has shifted approximately $3 million of revenue into 2023 from 2022.
Notwithstanding this timing difference, as well as the previously mentioned FX headwinds, we reaffirm our 2022 guidance. Jim will provide additional color on the guidance after reviewing the Q3 results in detail. Finally, we remain liquid with more than $100 million of cash on our balance sheet and the undrawn line of credit that we put in place in March. We remain well-positioned for these uncertain economic conditions due to the fundamental necessity of our services, the subscription nature of our business, which has approximately 70% fixed revenue, and the increasing percentage of our business that maps to the healthcare sector. I'll now turn the call over to John.
Thank you, Scott. On slide five, we can see a summary of our operating results for the quarter. In the third quarter, we achieved another record corporate sales result, closing $8.4 million in ACV and licensed bookings. As a reminder, our corporate sales team consists of enterprise field sales, an inside sales team focused on small and medium business, and the channel program targeting telcos, EMRs, and resellers. Sales bookings for Q3 grew 62% over Q2 and represent 78% increase over Q3 of 2021. Included in our overall sales number is $2.8 million in advanced interoperability products, including $1 million in new Unite sales. Our advanced product set accounted for 34% of our overall sales volume for the quarter.
Some notable deals include a major fax deal with Change Health through our Amazon relationship and the University of California, Irvine Health system. In addition, we had an expansive go live at Wellstar, a large Southeastern healthcare system with 9 hospitals and over 300 locations. This particular implementation is a major integration of our eFax platform with an Epic EMR system. Overall, our corporate business delivered revenue of over $51.2 million in the quarter, and the corporate stream accounted for roughly 53% of our overall top line. In Q3, SOHO saw the expected lift as a result of the price increase implemented in Q2.
Now, while the bulk of those increases were fully implemented in the second quarter, there were a few remaining classes of SOHO accounts who will see the increase as their annual plan renews or when a new sign-up from the Q1, Q2 timeframe reaches the six-month mark. Overall, revenues for SOHO were up over Q2 and virtually flat with Q3 2021 once normalizing for foreign exchange rates. Our churn was better than expected at 3.6% for the quarter in light of a price increase on approximately a third of the base and close to the cancel rate in Q4 2021 and Q1 2022. As mentioned last quarter, one of our traditional business practices is to reach into the SOHO customer base when we identify customers, particularly in healthcare, who could benefit from the expanded feature set in the corporate product.
This has been a successful small scale sales tactic, and we're currently scoping a program to do that on a much more expanded basis. On the product front, as Scott mentioned, we're pleased to announce that ECFax has achieved Authority To Operate, or ATO, as expected in September. We are currently working with our partner, Cognosante, and the VA, and have identified the first candidates to receive ECFax. Given that we're coming into the holidays and expect an abundance of time off associated with this part of the year, we anticipate that implementation is going to begin in early 2023. Since achieving ATO, the pipeline of interested government agencies has grown, as Scott mentioned, and we're working with Cognosante pursuing those opportunities. A key part of our overall program involves the commitment to security that envelops our entire platform.
Central to this are certifications, audits, and reviews conducted by recognized third parties that test and validate our security environment. Last quarter, we shared that our fax environment passed HITRUST recertification, and this quarter, we have also renewed our PCI Level 1 and SOC 2 Type 2 certifications. In addition, the team has started work to get jSign ready for its inaugural HITRUST review and expect that we will have that work done by mid-2023. Keeping up with these credentials is vital to our position in the market, and it requires planning, time, and effort on the engineering's part. It is very critical to our success. The product team continues to make progress with both Clarity and Harmony. We are still engaged in our first implementation of Clarity, making refinements and adjustments at the customer's request.
As we reported earlier, we had added handwriting recognition, and our last round of changes for that to be fully operating in the customer environment is nearing completion. Progress is steady, and our pipeline for other customers asking for Clarity remains strong. The team is also hard at work on Harmony, our cloud-based full communication solution for healthcare. As we previously discussed, message transformation is one pillar of the Harmony solution set. One of the transformation technologies of Harmony is a capability called Fax to Direct. Now, this enables a user from one facility to send a fax document, and our system then transforms that in transit to a secure direct message based on the receiver's preference. This was something that we showcased at HIMSS earlier this year.
Now in Q3, we completed a proof of concept with a large East Coast healthcare provider with Fax to Direct in a live production environment. While the overall Harmony product will be a late 2023 release, we do intend to introduce capabilities that can help our customers and can drive revenue as they come available. We're very pleased with this quarter in which we've had record sales, SOHO performance in line with expectations, achievement of the VA ATO for ECFax, and a number of major engineering and product deliveries. Now I'll hand it off to our CFO, Jim Malone, for a closer look at the numbers.
Thank you, John. Good afternoon. Before I start the discussion of the P&L Q3 performance, I wanted to briefly discuss our cash position. As you might recall from previous investor calls, we have pointed out that Q1 and Q3 are our strongest quarters for cash flow conversion. As a reminder, we make semi-annual interest payments of $25 million in Q2 and Q4. We ended Q3 with $103.7 million in cash. Our liquidity remains strong to support our operations with the added benefit of a $50 million undrawn line of credit. Moving to Q3 results, starting with corporate results on slide seven. Q3 2022 corporate revenue of $51.2 million was an all-time record, increasing $8 million or 19% over the prior year period. Corporate revenue grew $84.8 million or 20% on a constant dollar basis.
The number of accounts at 47,000 was 2,000 higher year-over-year. Average monthly revenue per account increased $50 or 16% over the prior year comparable period, primarily resulting from increased usage and new large customer acquisitions. The 14% increase in paid adds and a substantially lower churn rate also contributed to the momentum in double-digit growth. Noteworthy, as John stated, we landed several marquee logos. Our last 12 months revenue retention approximated 104%, consistent with our expectations. Moving to SOHO results on slide eight. Q3 SOHO revenue was consistent with our expectations at $44.7 million, a $700,000 sequential increase over Q2 2022. On a year-to-year basis, revenue declined a - 2.7% or -50 basis points , essentially flat to prior year on a constant dollar basis.
As expected, year-over-year revenue decrease was affected by lower paid adds and expected churn, partially offset by higher average monthly revenue per account, driven by a Q3 price increase. Accordingly, the revenue mix further enhanced the contribution to SOHO fixed revenue. Now on to slide nine for our Q3 consolidated results. Q3 revenue of $95.9 million was an all-time record, increasing $6.7 million or 7.5% over Q3 2021. On a constant dollar basis, revenue increased $8.1 million or 9.2%. Reported adjusted EBITDA of $51.3 million was up $0.4 million or approximately 1%, delivering a 53.5% margin in line with our expectations.
Non-GAAP EPS of $1.52 was $0.08 cents or 5.6% year-over-year, reflecting higher revenue, foreign exchange impact resulting from a strong dollar, and a lower share count. As noted on the slide, Q3 2022 is in line with expectations in a challenging economic environment. Now on to slide 11 and our full year guidance. As Scott discussed in his opening remarks, we are reaffirming our full year 2022 guidance range. With respect to full year revenue and EBITDA, adjusted EBITDA, we are guiding to the lower end of the range due to FX headwinds and timing of large customer wins and new product adoption.
Our pipeline continues to be robust for the near to midterm timeframe. Non-GAAP EPS is expected to be at the top of our range due to a strong U.S. dollar providing a benefit with respect to euro-denominated liabilities. As mentioned in Scott's opening remarks, we negotiated a final settlement with our former parent regarding all spin-related transaction costs. The September 30th balance sheet reflects $900,000 due to the former parent, representing commingled cash, which we paid in October. Both parties have made arrangements for customer payments to be processed in their respective company accounts. We expect this initiative to be completed by year-end. These conclude my formal remarks. Now I'll turn the call back to the Operator for the Q&A session. Thank you.
Thank you. We will now be conducting a question-and-answer session. In the interest of time, we ask that you please limit yourself to one question. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we begin. The first question is coming from Fatima Boolani from Citigroup. Fatima, your line is live.
Hey, great, thanks. Good afternoon, guys. This is Mark on for Fatima. Thanks for taking our questions.
No problem.
Great. Maybe just diving into your guidance a little bit, appreciate that, you know, you guys reaffirmed guidance and, you know, maybe moving towards a little bit on the lower end of guidance. The $3 million shift of enterprise out from 2022 into 2023, just in terms of, you know, given you guys reaffirmed, should we expect any sort of upside or anything to maybe make up that $3 million? Is it more on the, you know, lower end of guidance where we should expect or shake out to?
Yeah. Yeah, appreciate the question. Maybe we can unpack this a little bit more. If you take actually the two comments together and you look at the full range guidance and you start at the midpoint of 380, there's about $3 million of FX headwinds, and then another $3 million of we'll call it customer shifting. That would actually put us below the low end of 375 with relative implications to the EBITDA. We are making up some ground to get to somewhere, you know, above the low end of the range.
One of the things that I think everyone should understand is as the business has evolved and we have focused on both larger scale fax deployments out of our corporate channel as well as the newer services, these tend to be increasingly lumpy in terms of the timing of the win and their relative contribution within a given quarter. I think what John said was extremely important, and that is that we're entering a time of the year, and I think with the uncertainty economy, that our view is there are unlikely to be material decisions made that would impact Q4 in any positive material way from a revenue standpoint. Not saying that can't happen.
We'll push very aggressively, but I think just where we are at in the time of the year, a lot of these decisions, while they may be made before year-end, will not have revenue implications for 2022. Taking that all into account, we're gonna do everything we can from SOHO to our enterprise channel to generate as much revenue as we can, but this is our best estimate as we sit today.
Great. Thank you guys very much.
Thank you.
You're welcome.
The next question is coming from Jon Tanwanteng from CJS Securities. Jon, your line is live.
Hi. Good afternoon. Thanks for taking my questions, and commendable job just keeping the guidance even with these headwinds that you're seeing. I guess to follow up on that question, the pushouts that you're seeing on the enterprise side, are they healthcare or are they non-healthcare corporate? Can you give us a little bit more color on the types of customers who are deferring these decisions?
I don't think it's unique to healthcare per se, but obviously with our concentration, particularly in corporate being approaching 70% of new sales being healthcare, that's really where we are observing it the most. We're seeing, you know, there's I think a dual issue that there's two different kinds of timing. One timing is the customer making a decision to adopt the service. The other is they've made the decision, but having the resources to implement. Some of which we can assist with, but we cannot do the implementation, you know, from where we sit without the cooperation of the customer. We've seen it in both cases. In some cases, a timing decision in the first instance. In other cases, we're ready to go, but for whatever reasons on our client side, they're not yet ready to go or commit.
We've also found that given the time of the year, there are some institutions that just say, we're not doing anything until January. We don't wanna touch our systems until January. We can't really force that. We have to respect that decision. We're ready to go. We will begin as soon in January as they want to begin implementation. John, if you wanna add some additional color.
Yes, Scott, I would echo that. I think that in terms of, you know, even some specifics we can talk about, and we talked about the Change Health deal, which is a significant deal for us. The lumpiness is evident there as we had anticipated that would be an early Q3 deal, wound up being a very late Q3 deal.
You know, then there are implementation considerations as we go into Q4. I think the same can be said as we talked about the Clarity implementation that is stretching on a bit longer than we thought it would. In our estimation, you know, we want that Clarity implementation, especially this first one, which is going to be a bit of a flagship for us to be as impeccable as can possibly be. Again, this is a timing issue. It's not a question of if. I t's about when, and that these things have slipped into 2023 is certainly something that, you know, in terms of guidance, we're still in the range, but things have moved out a little bit further than we thought they would.
Understood. Thank you. As you move into 2023, do you catch up with this and do things push out in Q1 if you don't, and everything shifts to the right? Do you have the capacity to execute all the stuff that maybe you're backed up on and the new stuff that might come in?
Yeah, we have the capacity to execute. It all comes down to customer readiness and how that fits with us. We're fully expecting that we're hitting 2023 running. We're going through the budgeting process now, and we'll of course have more to say about that, as we have the fourth quarter earnings.
Got it. Thank you. I'll jump back in queue.
Thanks, John.
Thank you. The next question is coming from Greg Burns from Sidoti & Co. Greg, your line is live.
Good morning. Just to maybe follow up on the commentary about next year. From a margin perspective, what would move you towards the top or low end of your 50%-55% guidance range next year? Have you made all the investments you needed to make, or with the government coming online, is there more upfront costs that you need to absorb before, you know, you start to recognize revenues?
Yeah, it's a great question. I think as John just mentioned, look, we're, I'd say in early to, at most, mid stages of budgeting for 2023. There's a couple of things that are important when you think about the revenue, which influences the margin and then the cost side. One, of course, is the overall economy. I want maximal data before we lock our budget. We're gonna be slower in doing our budgeting this year than we might be in previous years, 'cause I wanna see the most data as it relates to how the core customer base is behaving, as well as to handicap some of these issues where there's been some slippage from one quarter to another.
That's one element of it, which will affect, you know, or could affect where we land on the revenue side. On the cost side of it, you know, from the beginning, we've said this is a multi-year program in terms of the investment, so we are by no means done investing either in our technical or sales resources. Now, some of these relate to the first question, which is where we land on revenues will influence how much we need in things like professional services, additional technical resources, additional sales resources in both our inside sales and our enterprise. It's very much, you know, mixed together. I will tell you that, you know, we will have some downward pressure likely on our margins because of the fact that our employee base has grown this year.
It's been expensive to hire, and we'll have the full year cost of those employees next year versus the fractional cost in this year. We are for , you know, the most part, still in a mode that is inflationary from a wage standpoint, which affects all employees. We will look for mitigants against what will be the likely increases in our expenses regarding employees for the portion of our cost structure that is not employee-related. We have things like telco costs, we have external costs that we have, and they're substantive. They're in the $60 million-$70 million range. It's not clear to me whether the increase in labor costs can be wholly offset by finding savings in the other category. Right now, it's too early to say.
I have no reason to believe we will not operate within that range, but I would not necessarily be expecting any upside from our current margin structure in 2023.
Okay, great. Thank you.
Mm-hmm.
Thank you. The next question is coming from Ian Zaffino from Oppenheimer. Ian, your line is live.
Hi, great. You know, I just kinda wanted to get a little bit more into the SOHO channel. You know, you're taking a price and it's sort of similar, and if I could draw maybe a comparison to what you did during the financial crisis, right? You took pricing up, you saw a little, you know, softness on the customer count side. That sort of mitigated t he type of weakness that you probably would've seen in the financial crisis. I mean, are you expecting something similar this time around or anything to derive from what you're doing now versus what happened in 2008, 2009? Thanks.
Yeah, there are some similarities, but I think, look, there's also differences. Partly, it appears this recession will be different than the Great Recession. One of the questions is w hat does this recession look like compared to that? I would just make the note that similar to last time, we completed the price change, and it was coincident, we weren't that smart, prior to the real onset of the Great Recession. You know, if to the extent we're not in a recession now, but it's around the corner in 2023, looks like that will be a similar fact pattern.
There was though, just to be clear and to be fair, there was an increase in the cancel rate in 2009 relative to the 2008 performance that had nothing to do with the price change, but was influenced by the severity of the recession, albeit relatively brief in duration. We suffered increase in cancel rates for maybe a couple of quarters, then they started to return not only to the previous mean, but they actually went lower. Is that a fair overlay for 2023? Who knows? Because I don't think right now there's an anticipation the recession will be as shockingly severe as 2008, 2009, but I think there's a belief it might have a longer duration than 2008, 2009. These are kind of things we have to play around with.
Yes, getting the price change substantially done before the onset of the recession is a mitigant and is a help because quite frankly, I'd rather have a smaller base of customers that is a steadier, better base of customers than a larger base that is more fragile. It does have that effect of winnowing out some of the weaker customers, and generally managing the smaller base is better versus managing a larger but arguably somewhat weaker base. These are all variables that are the same. This is why I want as much data as I can get before we lock things down for 2023.
Okay. Thank you very much.
Uh-huh.
Thank you. Once again, ladies and gentlemen, if you wish to enter the Q&A queue, please press star one on your phone. The next question is coming from James Breen from William Blair. James, your line is live.
Thanks for taking the question. Can you just talk a little bit about the growth you saw on the fax corporate side? You know, you call out mid-market in the presentation. You know, is there anything specific you're doing there from a sales motion to sort of drive growth? T hen, you know, from a overall cost perspective, as you're thinking about, you know, potential for recession and the impact on the overall business, you know, how do you manage around that, and can you keep the margin structure relatively stable, you know, even if we see a little bit worse revenue growth? Thanks.
Yeah. I'll let John take the first question 'cause those channels of inside sales and field sales report into him.
Yeah.
H e might share some secrets. Just no trade secrets.
Just no trade secrets. Yeah. We're obviously very pleased with the inside sales program. I think what we've done is we've taken a program that had traditionally been focused on being a part of the web marketing program, meaning that you get hand raisers or you get form fills from businesses that are larger than a SOHO business. The inside sales team does either outreach or follow-up and closes those deals. What we've been able to do, though, is introduce this idea of a channel kind of relationship that starts to funnel new and different kinds of opportunities to our inside sales team. You have folks like resellers or folks who are managed services providers that are interested in being able to bring fax to their customer sets.
We've been successful with expanding into that. We have also expanded into specific account-based marketing practices. Each of these steps we have sort of builds on the step before to help us continue to move forward with how we sell, how we reach out into the marketplace, and how we identify new opportunities. One of the places that we consistently find new opportunities is by reaching into the SOHO base and frankly farming out of the SOHO base. As we can tell by the analytics that we use, some of those SOHO customers are members of larger organizations. We reach in, start that conversation, and upsell them into a corporate product that better suits their needs and their business purpose.
I think as time has gone on, what we've been able to do with our inside sales team is keep expanding the kinds of techniques that they use in order to drive demand and capture that demand. We've been able to show that that's a fairly bottomless pit of opportunity in that, you know, there's always a new idea or a new way that we can think about to c ontinue to drive new business.
Jim, in terms of the second question, I think, look, we put out and we've said consistently we have a range of margins of 50%-55%. You know, that is our commitment. Right now, I don't see a reason why we will not operate in that range in 2023. As I say, I'm not expecting the Great Recession of 2008, 2009. You know, something Draconian like that comes, maybe we'd have to caveat the statement. I think based on what most people are expecting, we still see a very positive trajectory in terms of revenue growth. I think the question is how much in 2023. I t's also important to understand, and it's something that we will beat the drum on, we need to make investments in this company. Those will continue in 2023 because the opportunity is so large.
It's not so much about playing for a given quarter in 2023 or even 2023 as a whole. The issue for us is really where do we think we can land revenue-wise such that we can measure and calibrate, if you will, the pace of that investment that will be commensurate with the growth in revenue. It's not like we're gonna shut down. Where we look for cost savings and where a recession can be helpful is not in our people. It is in the other areas of our business. I know in 2008, 2009, we were able to make tremendous savings in our telco costs, meaning our third-party vendors, in certain marketing programs. Those are the areas we'll be looking at.
Quite frankly, the type and the severity of the recession will be indicative of the magnitude of the opportunities there. It's not in our people. Our people will grow in 2023 versus where we are right now in 2022. That is a necessity in my view, even if it does mean that the margin could be somewhat lower than the current 53.5%.
Great. Is it fair to say the investments that you're making to grow the business are in people and to some extent technology?
Yes. Well, it's the people building the technology. Yes and yes. I think going forward, as we talked about, you know, at the time of the spin, sort of year two would be a heavier investment in the sales piece of it. Although it doesn't mean there's no investment that will be incrementally made in the technology piece. That still needs to continue. These things are sort of balanced, and it is basically all people who are either producing the technology on the one hand and/or implementing or selling it on the other hand. The good news is we're basically substantially done with the G&A. Unfortunately, you know, having been spun, we had, you know, a meaningful amount of people we had to hire this year to stand up an independent public company. That, I don't see persisting into the future.
That I think our G&A piece is fairly well set, but it's these other areas that do require additional investment. The question is really the pace of it, given our expectation of revenue growth in 2023 versus 2022. Stay tuned for more. I know you'd love more details than that, but you know, given where we are right now and given the uncertainty in the economy, I think we have to take this data into account and manage it accordingly.
Great. Thanks.
Thank you. We had a follow-up coming from Jon Tanwanteng from CJS Securities.
Follow-up, Jon. Yes, Jon.
Hi. Thanks for taking the follow-up. I was just curious, you mentioned a couple of times now that you've been able to reach into the SOHO channel to get, like, corporate customers that, you know, may not be fully being served. I was wondering how much of that has actually occurred in the past three quarters or since the spin. You know, how much revenue did you pull out of SOHO, and how much did that grow to both revenue and margin- wise as you put them in corporate?
You can think of it as almost an accidental experiment. It was not accidental if you were the one running the inside sales channel, but we're talking about a few hundred customers per month. You know the ARPU of our SOHO customers, they're $15. Now, you should assume that what's being cleaned off has higher ARPU, so call it $50, $60. It's not, you know, it's tens of thousands of dollars a month. What we have observed is when they go into the inside sales channel, two things occur.
First of all, unlike in the SOHO channel, there's the opportunity to directly talk to the customer. Once you can do that, the availability of services that inside sales has is much faster than SOHO. You're developing a relationship, but you're also saying, what are your real problems? I've got a suite of services. You can pick and choose amongst them.
We have seen where that has occurred, in most instances, at least a doubling of the revenue. $1,000 becomes $40,000 a month. In the scheme of things, it's not very big on a historic basis. The reason we've never gone through and said, you know, when you look at the SOHO channel, there's a shifting maybe of $100,000 out of SOHO into corporate because it's a rounding error. What it did is it gave us the insight that can we accelerate that program, and can we take 10,000 or tens of thousands of SOHO customers and bring them into inside sales? The challenge is you need more inside sales people to do the outreach to the customer, right?
That group isn't scaled to talk to 10,000 people in the next 30 or 60 days. We're in the process of hiring into that group specifically so that we can accelerate the pace of taking from SOHO into corporate. Right now, we feel it's imprudent to take a bunch of customers and throw them into the corporate channel if they cannot be effectively managed. You've got to have the personnel there to make the calls, do the outreach, get the research done, so that you have a productive conversation, and you can, in fact, double or maybe more than double the ARPU for those customers. We think it's a very fertile ground. Going back to the earlier question, everyone wants to have their cake and eat it too. They want all the revenue, they want the cost.
I do too, but that's just not the way the world works. The question is, how much are we willing to go out and hire before that revenue is in hand? Because, you know, while it is a fairly quick hit to revenue, there could be an offset, depending on the timing, of half a quarter to a quarter where you've got the expense and you don't have the revenue lift. These are all the balancing acts that we're going through right now. You know, when you step back and you stop with all the quarterly stuff, the opportunity set in front of us as we look out over the next 18 months, so the balance of this year through 2023 and into 2024, includes opportunities like this.
It includes the Clarity opportunities and subsequent customers, the continuation to go after the fax customers, particularly in the healthcare space, that are still on-prem. Other large customers that we've not yet talked about through our integration programs. There are, you know, Harmony, which is, you know, maybe a modest contributor next year, but more for 2024. There's just a lot of opportunity here, but key limitation is people. We just can't take advantage of all of these opportunities as fast as we like. There are some limiting factors because even when we're ready, as we move upstream, our counterparties have to be ready. If they don't have the personnel, then we don't want to be too far ahead of the curve.
This is what we're dealing with right now as we think about 2023, we think about the budget, the pace of hiring relative to the revenue opportunity. There's a lot of it out there, a lot of opportunity out there.
Got it. Thank you, Scott. A second question just on the SOHO piece. I think you're planning to keep increasing the price across the base that hasn't received price increases yet. How much should we be expecting in future months and quarters, number one? Number two, could you give us a little bit of insight into just the pace of churn in October so far and if it's changed from Q3 at all?
I think the answer to the last question is no, it's continuing in line.
Mm-hmm.
In terms of the pacing, remember, there's about 10% of the group that's international that we're currently not anticipating price changing. We did about 30%, so that's 40%. There's a little under 20% that are annuals that get affected as the renewals come up, so meaning Q4, Q1 and Q2 of next year. That gets you to approximately 60%. Then there's a big chunk that are already on special programs. I don't have that exact number, but it's probably another 20-some points. Internally we have all these different, we call them offer codes for special situations where people take multiple numbers or they're high use, et cetera. Probably unlikely that many of them get affected, some may.
You're left with an additional maybe 15% that we actually are taking a hard look at, and may very well move forward in terms of price increasing them in the not too distant future.
Okay.
The internationals right now are off the table, the non-U.S. are off the table. That doesn't mean they won't be on the table in the future, but at least for right now, as we think over the next couple of quarters, there's no contemplation.
Got it. So 15 plus the annuals or is that just the annuals?
No, 15 plus the annuals. You got 15 plus call it another 15-ish that are annual that have yet to be affected, meaning Q4, Q1 and Q2.
Understood. Thank you.
About 30%. Well, 15% is definitely gonna happen. It just happens as renewals come along on the annuals. The other 15% is a decision to be made, but I would say we're leaning more likely in favor of doing it than not.
Got it. Thanks, Scott.
Okay. We've received a few questions by email, so I don't know if there's any more people on the live queue. I think some of these we have addressed through either the direct prepared remarks or in response to other questions. I think we should maybe unpack a couple of these additionally. John, one of them is a question about the Authority To Operate in the VA and how it and FedRAMP certification interplay with each other. Are they the same? Are they different? What does it mean in terms of our Authority To Operate with the VA and what other potential opportunities we have out there?
Yeah. The way that works is a little bit of a hierarchy. You have to have sponsorship and approval of your first, government agency, and then they sponsor you to a review for FedRAMP. What's happened is that the Authority To Operate means that ECFax has met all requirements for the system to transact in production. As to the VA, we have the full set of requirements met and the ability to transact in production, and it's all a matter of rolling out. Now, the VA then submits that information that it used to come to that determination to the FedRAMP Marketplace audit committee for evaluation. We've been told that that committee is backed up about 12 weeks in getting through the submissions.
Our expectation is that we'll get that FedRAMP feedback probably in Q1, in January or early February, to get that answer. As of right now, the ATO gives us full authority to operate in production with the VA for the stated purpose.
Okay. We have another question that came via email. I think John touched on these, but there is an interesting interplay here. One was a little bit more detail on the Change Health customer win, and also the UC Irvine contract and where those can lead. Change Health comes through a relationship with Amazon Connect. How do those two interplay with each other? A couple different questions for John.
Yeah, we have spent a good deal of time over the last couple of years building up our channel program, and this is really the Change Health win was a product of that. You know, the Amazon Marketplace and Amazon Connect have a good amount of reach. They have customers who they sell commercial services to. Our service is one of those that the Amazon Connect team sells. We're looking forward to continuing that relationship. Change Health, obviously a very large and very prestigious name in healthcare right now. That's something that we're very happy with. Remember, as we think about these things, as we book them, and just one thing to say about bookings in general, but when we talk about bookings, we're talking about minimum commitments.
As we've talked about many times, what winds up happening is actual revenue comes in in excess of those minimum commitments when the transactions start to exceed minimum levels. When we think about the implications of a Change Health, we think about the implications of a UC Irvine and how those are going to perform in relation to what we quote for bookings. Generally, what we see is that the performance of those customers is going to exceed what we put as far as our measurement of what we've booked. We're excited about both of those. Obviously, there's a lot of reach there. We're very excited about the go live that we had.
In the Southeast as well. I mean, that's another one with an Epic integration, and the Wellstar System that we believe is going to be very positive for us going forward.
The last question, which I'll take, has to do really I think with capital allocation, but the question was framed: We've built our cash balances to north of $100 million, notwithstanding making the various payments to our former parent, Ziff Davis, that Jim referenced. The question was any reason for pausing repurchases. First of all, I'd remind everybody, we have an umbrella program that covers three years, so we never quote, unquote, paused the program. There are, depending on our various windows, prices that we set, which then determine whether there's any execution.
There were no executions of repurchases in Q3 because the stock, I guess the good news was, did not hit our level, so there were no repurchases. We will reset the level as we go forward between now and the next time we have an earnings call in February to discuss the Q4 results. Depending on where the stock trades, we may or may not have additional repurchases. Having said all that, it's not, in my view, a bad thing in this environment to build some cash, and there are a few reasons for doing so. You know, or you may remember that about a year from now, 11 months from now, our first tranche of debt, not so much that I'm interested in calling it, 'cause it's at a premium, but for the first time, we could actually buy debt in the open market.
Currently, it trades at a discount. Whether that would be a good investment versus buying the stock, I don't know. We'll have to see where the debt trades when we get deeper into 2023. That is an option available to us once we hit the second anniversary date of the spin, which will be October 7, 2023. Also, too, I think in this environment, while we do have the additional line of credit, it's not one that I really am anxious to tap into. To the extent we would find something interesting M&A-wise, I'd like to be able to pay that out of cash balances versus having to incrementally borrow.
Speaking of M&A, even though that's not per se the nature of the question, we continue to look for opportunities, but I would say we are very discerning. The discernment comes on a variety of levels. Obviously, price, as you would imagine, we're sensitive to. Those of you that have followed us historically know that how we get our rates of return is very important to us in thinking through our capital allocation. I would just emphasize going even beyond that.
As I mentioned earlier in response to an earlier question, we have a lot of organic opportunities in front of us that I believe are important that we execute against. One of the things that is of utmost priority is that any M&A that we do, like Summit, is not only complementary to what we're doing, but can assist us in accelerating what we're doing. To the extent in any way becomes a distraction from what we are doing organically, that is a disqualifying factor.
That is a very narrow lens through which you can look at M&A because a lot of things need repair or they need substantive integration. Those, at least in the near to intermediate term, to me, would be problematic. H aving the cash available and be able to act quickly and act on an all-cash basis is another reason that if such a transaction were to occur, we'd be able to respond quickly without having to increase our borrowings. Now turn it back over to you, Paul, to see if there's any more people in the queue for questions.
Yep. We did have Jon come in from CJS, Jon Tanwanteng, with another follow-up. Jon, please go ahead.
Sure.
Thanks for the second follow-up. Just one more on the pushouts and deferrals that you were talking about. Was any of that the VA, just with the delayed implementation schedule that you were talking about, number one.
No.
Number two, a s you run through the year, what is the expected implementation rate and what you can actually realize from that relationship?
We don't know yet. No to the first question, and we don't know to the second. We're in, I don't know, knee-deep, neck-deep right there right now trying to understand that because it'll also be influential of how we put it in our budget for 2023. R ight now there's not enough insight to be able to have a plan, a rollout that then can map to revenues. We're waiting. It's something that Cognosante, the prime, is working very aggressively with the VA as well as ourselves, but it is what it is.
Fair enough. Thank you.
The good news is we're ready to go. There are many degrees of complexities 'cause it does involve the VA in Washington, D.C., it involves individual institutions locally, it involves ourselves, it involves Cognosante, so it's taking some time. To John's point, we're ready to go. We're chomping at the bit, but we're not driving that decision.
Got it. Best of luck, guys.
Thank you.
Thank you. There were no other questions from the lines. I'll now hand the call back to Scott Turicchi for some closing remarks.
Great. Thank you, Paul. We appreciate all of you joining us today to get an update on Consensus' Q3 earnings and our outlook, certainly for Q4. We will be at a high yield conference in Boca Raton in late November, I believe on November 30 th. There should be a fireside chat there, so, you know, we may get some additional updates, even though it is a conference geared towards high yield bondholders. We have a series of conferences coming up in January. In fact, three of them in the same week. The JPMorgan Healthcare Conference, the Needham Conference, and the CJS Conference. Try to balance to be able to attend all of them, if not in person, at least virtually.
There will be additional information before we have our Q1 or Q4 results, which we'll probably have the second or third week of February. At that time, we'll release full guidance, be able to give you more fulsome answers to a lot of the questions you asked today about how much will the VA contribute, what will the margin structure be, what will our pace of hiring be, is the recession in any way impacting our view in terms of revenue generation. We get it. Those are all the questions that we're interested in too. Stay tuned, and over the next 60 or so days, we'll increasingly have answers. Thank you.
Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.
Thank you, Paul.