3. Consensus Cloud Solutions Inc. (NASDAQ:CCSI)
Number of Hedge Fund Holders: 18
Consensus Cloud Solutions Inc. (NASDAQ:CCSI) is the world’s largest digital fax provider and a trusted global source for the transformation, enhancement, and secure exchange of digital information. Its platform enables businesses to manage customer interactions through various channels, such as voice, chat, and email and uses AI to improve customer service experiences, automate tasks, and gain valuable insights from customer interactions.
Revenue made in the second quarter of 2024 was $87.50 million, with earnings per share of $1.45. Both of these financials beat Street expectations, but revenue declined by 5.70% year over year. The SoHos business revenue declined 15.6% year-over-year. The total number of SoHo accounts decreased from 808,000 to 785,000 during the quarter.
The e-commerce and SoHo upsell strategy remains effective, resulting in ~2,700 new customers in Q2. Advanced products accounted for 14% of new sales, consistent with the second half of 2023 but lower than Q1 performance.
EC Fax (cloud-based fax solution) is progressing well at the Department of Veterans Affairs. Management expects over $2 million in revenue from the program in 2024. The company is seeing increased demand for its solutions in both healthcare and state/local government.
The cloud fax solution is fully cloudified, and its AI offering, Clarity, is generating robust interest. Customers are intrigued by its ability to tailor models for specific use cases, which has led to increased proof-of-concept requests and is contributing to the growing implementation backlog.
The company has also repurchased $29.7 million of debt in Q2, bringing its total repurchases since November 2023 to $156 million and reducing the outstanding debt to $649 million. Strong demand for its cloud-based solutions and innovative AI offerings demonstrates significant market potential. With a solid customer acquisition strategy, Consensus Cloud Solutions Inc. (NASDAQ:CCSI) is expected to expand shortly.
Meridian Small Cap Growth Fund stated the following regarding Consensus Cloud Solutions, Inc. (NASDAQ:CCSI) in its first quarter 2024 investor letter:
“Consensus Cloud Solutions, Inc. (NASDAQ:CCSI), a leading supplier of both secure data delivery for enterprise healthcare interoperability and cloud fax solutions to small office home office (SoHo) customers, was spun out of longtime holding J2 Global (now Ziff Davis) in the fourth quarter of 2022. Consensus has historically enjoyed a high percentage of recurring revenues, low churn in the enterprise segment, and high margins. Much of the company’s current strategic focus is to build upon its legacy digital cloud fax service for the enterprise healthcare sector where data security and interoperability are key concerns. Despite an earnings report in line with expectations, the stock declined during the quarter on lower[1]than-expected guidance. The healthcare business continues to be under macro pressure, largely driven by IT staffing issues that are slowing enterprise-level adoptions of Consensus’ solutions. The company has rightly downshifted to a lower revenue reality and management is proactively shifting marketing spend from inefficient top-line growth efforts in its SoHo segment toward higher revenue generating customers in healthcare. We expect healthcare’s macro issues to eventually ease, resulting in revenue growth accelerating from the low single-digit growth today towards low double digits. The stock was recently trading at an attractive three times earning multiple with more than a 20% free cash flow yield. We believe that even modest growth from here and continued deleveraging could result in a materially higher share price. We maintained our position in the company during the quarter.”
