Consensus Cloud Solutions, Inc. Q4 FY2025 Earnings Call

Good day, ladies and gentlemen, and welcome to Consensus Q4 2025 Earnings Call. My name is Paul, and I will be the operator assisting you today. On this call from Consensus will be Scott Turicchi, CEO; Jim Malone, CFO; Johnny Hecker, CRO and Executive Vice President of Operations; 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 morning, and welcome to the Consensus investor call to discuss our Q4 and year-end 2025 financial results, other key information, and our 2026 full year and Q1 2026 guidance. Joining me today are Scott Turicchi, CEO; Johnny Hecker, CRO and EVP of Operations; and Jim Malone, CFO. The earnings call will begin with Scott providing opening remarks. Johnny will give an update on operational progress since our Q3 2025 investor call, and then Jim will discuss Q4 2025 and full year 2025 financial results, then provide our full year 2026 and Q1 2026 guidance range. 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 our forward-looking statements and risk factors on Slide 2 of our investor presentation. 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 that we have disclosed in our regulatory filings, including our annual 10-K and quarterly 10-Q SEC filings. Now let me turn the call over to Scott for his opening remarks.

Thank you, Adam. I'm extremely pleased with both the fourth quarter and full year 2025 results. I believe that we've closed the first phase of Consensus' history and look forward to embarking on the next phase, which begins now. At the time of the spin 4-plus years ago, we had $805 million of debt with a leverage of 4x gross debt to adjusted EBITDA, a majority SoHo revenue business, tech debt, core product offerings that were cloud fax only, and a thinly staffed company with 450 people. And all of this is before inflation spiked in 2022, adding an additional operational headwind. Material progress has been made on all fronts. Through the hard work of our employees, much of it a grind, Consensus has generated more than $800 million of adjusted EBITDA since spin, resulting in free cash flow of approximately $375 million after investing approximately $150 million in the business. This went to retiring tech debt, enhancing our core fax solutions, as well as adding other solutions benefiting primarily the health care sector. The free cash flow has been utilized primarily for the retirement of $243 million of debt, bringing us down to $562 million of debt at year-end and hitting our initial target leverage of 3x total debt to adjusted EBITDA. In addition, given the attractive valuation of our stock throughout most of the past 4 years, we have been able to repurchase $57 million worth of our stock or approximately 2.2 million shares, which represents about 10% of the shares outstanding at spin. We have added about 75 employees to our team over this time frame, and we have shifted the business to its corporate focus. So I want to extend a big thank you to all of our employees who have been part of this transformation. Before turning the call over to Johnny, who will provide you with much detail regarding both the quarter and the full fiscal year, I would like to note a few items. Historically, Q4 is always a more challenging quarter to forecast given holiday closures, vacations, and unpredictable weather. I'm highly encouraged that we beat our top line objectives for the quarter, saw sequential growth in revenue from Q3 despite having 1.6 fewer business days in Q4 2025, and saw the corporate channel exit with a 7.3% growth rate, positioning us favorably for 2026. This is the third consecutive quarter of total revenue growth for the company. The SoHo channel also beat our forecast as we saw improvement in customer acquisition in the latter part of Q4, which is continuing thus far in 2026. We remain focused on our cost structure while adding employees into our product and go-to-market operations during the quarter. We produced positive free cash flow in our most challenging quarter and, more importantly, hit a record $106 million of free cash flow for the year, up 20% from 2024 on flat revenues. We are well-positioned for the next phase of Consensus. Johnny and Jim will provide details regarding our guidance for 2026, but I will make a few observations. We see a continuation of the trend for accelerating corporate growth, approximately 9% at the midpoint of our guidance and a similar rate of decline in SoHo as in 2025, approximately a 10% decline. This combination will have us grow approximately 2% at the midpoint of our range for the year in revenues. From an operational perspective, we expect a modest flow-through of the incremental revenue to adjusted EBITDA as we see increases in our cost structure roughly in line with inflation and have additional people investments that we'll make in the business, primarily, again, in product development and go-to-market operations. We do not have any substantial maturities in our debt until 2028. We will monitor the debt markets to see if an opportunistic refinancing can be achieved, but more likely will occur sometime in 2027. We expect free cash flow to approximate the record level of 2025 and look to be more aggressive in our share repurchase program this year, given the free cash flow yield on our stock is more than 3x that of our debt costs. I will now turn the call over to Johnny.

Thank you, Scott, and hello, everyone. I want to frame my operational update today, not by starting with a list of numbers, but by highlighting the fundamental transformation of our business composition. We continue to see a decisive shift in how our customers utilize our network. This has been going on for a few quarters and has become an established trajectory, a significant acceleration in the utilization of our services within the corporate channel, showing a year-over-year increase in usage per business day that has remained in the double digits for 5 consecutive quarters. For several quarters now, we have witnessed large health care organizations shift to the cloud. This is coupled with the desire to eliminate manual data entry and to improve workflows in order to increase productivity, reduce costs, and accelerate revenue. It is transforming our network from a passive transport layer into an operational contributor, driving notable surges in usage per business day. At the same time, we benefit from our largest customers and channel partners' organic growth. As they grow, we grow. This is not accidental. It is the result of our deliberate strategy to build a highly durable recurring revenue platform. Operationally, we are seeing the continuation of a powerful trend, corporate revenue solidifying its position as a substantial majority of our total top line. To put this in perspective, in Q4 2021, our revenue split was roughly 51% SoHo and 49% corporate. However, by 2024, our corporate revenue represented 60%. In 2025, that figure rose to 64%. And based on our current path, we project it will reach 68% in 2026. This confirms that we have successfully shifted our center of gravity to our highest value asset. The fourth quarter served as powerful evidence of this strategy. We delivered a record $56.8 million in corporate revenue, representing a 7.3% year-over-year increase compared to $52.9 million in Q4 2024. Sequentially, we drove a notable increase from $56.3 million in the prior quarter despite having approximately 1.6 fewer business days in Q4. This performance is significant. It breaks a historical seasonal pattern of sequential decline in Q4 and marks our best corporate growth rate since Q4 of 2022. For the full fiscal year, we delivered $222.7 million in corporate channel revenue, a 6.5% growth rate that validates our acceleration path and puts us ahead of the midpoint of the guidance we provided in February of 2025. We drove this growth through 2 primary operational engines, health care and the public sector. In health care, we are successfully executing on our strategy to expand our trusted network, which serves as the critical foundation for our platformization journey. By entrenching our position as the secure transfer layer for sensitive data, we are creating the necessary infrastructure to layer on our advanced interoperability tools, effectively deepening our relationship and future wallet share with existing customers. We are already seeing the strategic logic validated by our deal quality. We're observing a shift where health care clients are moving beyond simple connectivity and beginning to bundle our eFax Clarity AI solution to solve specific workflow bottlenecks. We're no longer just selling a connection. We're tackling a labor problem. This shift in customer conversation from price per page to value per workflow is the leading indicator that our platform thesis is taking hold. In the public sector, ECFax, our FedRAMP High certified eFax offering for the government, is experiencing high demand across the public sector and nongovernment organizations of all sizes mandated to migrate to secure FedRAMP solutions such as contractors supporting the government in claims processing, waste fraud and abuse prevention, or to operate government facilities. This surge in demand is translating directly into a robust and growing pipeline, and we're actively investing in the expansion of our dedicated team and go-to-market capabilities to capture this opportunity. The Department of Veterans Affairs, the VA, continues to be a major source of growth and a crucial reference account. It demonstrates our capability to operate securely and at scale, meeting the highest standards. Furthermore, the VA exceeded our 2025 expectations and is projected to contribute in excess of $9 million this year. Additionally, our state, local, and education, the SLED business has established itself as a second relevant pillar, growing significantly faster than the commercial space. I'm happy to report that our corporate revenue retention rate stands at 101.3%, continuing our trend of operating well above the 100% target. This compares to 100.5% in Q4 of last year. Our total corporate customer base is approximately 65,000, representing an 11.3% increase year-over-year. To ensure both stability and reach, we're executing a distinct barbell strategy where the quality of this revenue is as important as the quantity. On the enterprise side, the average revenue per account (ARPA) of our non-eFax Protect cohort has now increased for 4 consecutive quarters and is well above $300 per month, while the account churn for the same cohort is the lowest in 7 quarters. This confirms that our largest customers are finding more value in our platform and expanding their usage. On the volume side, we added approximately 7,000 new paid accounts in the quarter on a gross basis. This was driven significantly by our eFax Protect e-commerce engine. We successfully navigated the search environment shifts and e-commerce headwinds discussed last quarter, stabilizing our subscriber funnel. Turning to our SoHo business, our operational focus remains on efficiency and maximizing contribution margin. Revenue for the quarter was $30.3 million, a decrease of 11.1% year-over-year, slightly ahead of our expectations outlined in our Q3 call. For the full fiscal year, we delivered $127 million in SoHo channel revenue, a 10% decline versus 2024. We effectively managed our subscriber base to approximately 638,000 with ARPA holding steady at $15.55. Crucially, we're actively navigating the shifts of the search environment that created the headwinds we forecasted. While the first half of Q4 presented challenges, our operational turnaround plan yielded measurable success by the end of the quarter. Despite the traditionally soft holiday season, we saw sign-up metrics improve, and we're continuing to see those improvements into Q1 of 2026. Most importantly, we have successfully reinvented and are managing this channel as the strategic cash engine. This managed decline in revenue is a deliberate choice acceptable only when offset by increased efficiency or when explicitly funding our corporate channel strategy. This discipline ensures we're maximizing the long-term value of this asset to fuel our broader transformation. Let me close my remarks by looking ahead. We view 2025 as the foundational investment year that has set the stage for 2026 and beyond. As a result of our go-to-market realignment, we are maturing as an organization, moving upmarket and deepening our footprint in our key verticals. You will see our revenue mix continue to shift toward corporate and our advanced product suite. While cloud fax remains a robust growth driver, 2025 showed the first real success with our AI-based eFax Clarity offering. While total revenue contribution is still early, the unit economic multiplier is key for our future growth. We're excited about the green shoots, revenue contribution and expanding installed base, solid exit run rate into 2026, increased number of POCs, and a clear go-to-market focus for 2026. While we don't and won't publish line item product revenues, I'm excited to share that we have a clear line of sight to multimillion dollar revenue contribution from eFax Clarity in 2026. The public sector and VA wins are excellent indicators of our ability to grow outside our traditional comfort zone, and we are on track to prove it again with our advanced product suite. We remain laser-focused on our key targets, returning to total growth, setting us up for double-digit growth in the corporate channel and expanding our advanced product footprint. Finally, I want to express my sincere gratitude to our entire team for the execution during this transformative year and to our customers and partners for their continued trust and collaboration. With that, I will hand the call over to our CFO, Jim Malone, to provide the detailed financial update and our 2026 guidance. Jim?

Thank you, Johnny, and good morning, everyone. In our press release and during this earnings call, we are reviewing the results for Q4 2025 and the full year of 2025, along with our guidance for the full year and Q1 of 2026. We anticipate filing our 10-K within the next few business days. Starting with the results for Q4 2025, we achieved a record revenue of $56.8 million, which is an increase of $3.9 million or 7.3% compared to the previous year, exceeding our expectations. This quarter marked our highest year-over-year growth rate for 2025, reversing a historical trend of revenue declines in Q4 and representing the best growth rate since Q4 2022. We also delivered a trailing 12-month revenue retention rate of 101.3%, an improvement of around 80 basis points from the previous period. Our corporate customer base has grown to approximately 65,000, up 11.3% year-over-year. The corporate average revenue per account for Q4 2025 was about $290, a decrease of roughly $13 compared to the prior year and about $3 sequentially, which aligned with our expectations. As mentioned by Johnny, the corporate ARPA, excluding eFax Protect, has increased for four consecutive quarters and is now significantly above $300 per month. Now, let's move to the full-year corporate results. For full-year corporate revenue, we recorded $222.7 million, representing an increase of $13.6 million or 6.5% compared to last year, which is better than the midpoint of our initial guidance for 2025 from February. Our corporate revenue has achieved a 7% compound annual growth rate, rising from around $170 million in 2021 to approximately $223 million in 2025. For full-year corporate ARPA, we ended the year at a solid $300, compared to $310 in the previous year, in line with the range we’ve seen over the last several quarters, which was between $290 and $316. Now moving on to Q4 SoHo results, we reported revenue of $30.3 million, down by $3.8 million or 11.1% year-over-year, although slightly ahead of expectations given a decline of 13,000 in paid subscriptions year-over-year. As previously noted by Johnny, despite facing challenges in the first half of Q4 due to changes in the search environment, our operational strategies have yielded measured success, with improved sign-up metrics heading into Q1 2026. The ARPA for SoHo remained stable at $15.55 year-over-year. Churn decreased to 3.5%, down sequentially and year-over-year by approximately 21 basis points and 8 basis points, respectively. In terms of full-year SoHo results, it's worth noting that our revenue decline in this segment was a conscious decision made several quarters ago to pivot this revenue channel into a strategic cash engine. For the full year, SoHo revenue totaled $127 million, which is down $14.3 million or about 10% compared to the prior year, aligning with our original guidance range for 2025 that projected a decline of 11.5% to 7.5%. The SoHo ARPA increased to $15.58 from $15.39, with a full-year customer churn of 3.64% compared to 3.56% in the prior period. Next, moving to Q4 consolidated results, total revenue of $87.1 million marks the third consecutive quarter of year-over-year growth, an increase of $0.1 million or 0.1% over Q4 2024. Our adjusted EBITDA stood at $45.2 million compared to $44.4 million in Q4 2024, yielding a robust 51.9% EBITDA margin, which surpassed our expectations. The adjusted net income reached $27.3 million, reflecting an increase of $3.1 million or 12.7% from the previous year, mainly driven by adjusted EBITDA, net interest expenses, and depreciation and amortization. Adjusted EPS rose to $1.41, up by 13.7% or $0.17 compared to the preceding year, attributed to the factors mentioned earlier. The Q4 2025 non-GAAP tax rate and share count were approximately 19.5% and around 19.4 million shares, respectively. For the full-year consolidated results of 2025, revenue amounted to $349.7 million, remaining stable year-over-year and near the midpoint of our guidance. Adjusted EBITDA for the year was $186.9 million, reflecting a solid 52.4% adjusted EBITDA margin, exceeding our original guidance. Our adjusted net income reached $109.4 million, which is $3.8 million or 3.6% favorable compared to the prior-year period, primarily driven by operational performance and effective capital management. Adjusted EPS grew to $5.62, marking a 3.1% or $0.17 increase from the prior year, mainly due to the factors mentioned. This performance exceeded our initial high-end guidance and approached the high end of the revised guidance from our Q2 call. The 2025 non-GAAP tax rate and share count were roughly 21% and about 19.4 million shares. Now discussing our capital allocation strategy and free cash flow. We concluded 2025 with $106 million in free cash flow, an increase of $18 million or around 20% from 2024, driven by strong cash flow from operating initiatives. Our capital expenditures totaled $30 million, down by approximately $3 million or 10% compared to the previous year. Regarding debt and equity, in Q4 2025, we fully retired our 6% bonds due October 2026 at par. Our current debt balance is $562 million, which includes $348 million in 6.5% notes, a $150 million delayed draw term loan, and $64 million revolver. As of December 31, 2025, we achieved a total debt-to-EBITDA ratio of 3x, with a net debt-to-EBITDA of 2.6x. In Q4 2025, we repurchased 344,000 shares for $8 million, and throughout 2025, we repurchased a total of 1 million shares for $23 million. To date, we have repurchased approximately 2.2 million shares for $57 million. Regarding cash and cash equivalents, we concluded the fiscal year 2025 with $75 million in cash, sufficient to support our operational and capital allocation strategies. Now, for our 2026 guidance, we project full-year revenue between $350 million and $364 million, with $357 million as the midpoint; adjusted EBITDA between $182 million and $193 million, with a midpoint of $187.5 million; and adjusted EPS between $5.55 and $5.95, with $5.75 at the midpoint. The estimated share count and income tax rate for the full year are approximately 19.1 million shares and between 19.7% to 21.7%, with 20.7% at the midpoint for our tax rate. For Q1 2026, we are also offering guidance for revenue between $85.4 million and $89.4 million, with $87.4 million at the midpoint; adjusted EBITDA between $43.8 million and $46.8 million, with a midpoint of $45.3 million; and adjusted EPS between $1.36 and $1.46, with $1.41 at the midpoint. The estimated share count and income tax rate for Q1 2026 are around 19 million shares and 19.7% to 21.7%, with 20.7% at the midpoint. That concludes my formal remarks. I will now turn the call back to Scott.

Thank you, Jim. Before taking questions, I want to draw your attention to an 8-K that we filed last night. As noted, our CFO, Jim Malone, will be retiring this year. He will stay on as CFO through the end of Q1 and then will transition to becoming a special adviser to me through the balance of the year. I want to publicly thank Jim for his more than 4 years at Consensus. He is ending on a high note, and we will miss him. As I noted in my opening remarks, we were leanly staffed in late 2021. Jim came in and built a stellar finance and accounting department, culminating in the earliest investor call and 10-K filing in the company's history. More importantly, he developed his successors internally such that upon him stepping down as CFO, the Board has approved effective April 1 for Adam Varon and our current SVP of Finance, to succeed Jim as CFO; and Karel Krulich, our current SVP of Accounting, to become our Chief Accounting Officer. Adam has 14 years with the business, and Karel is approaching 4 years. I look forward to working with both of them and their respective teams. We will now take questions.

The first question today is coming from David Larsen from BTIG.

Congratulations on the good quarter and the continued growth in total revenue and corporate revenue. Can you talk about the demand environment that you're seeing? There's some concern around the Big Beautiful Bill Act, potential declines in exchange enrollment, potential declines in Medicaid enrollment. Is that putting pressure on hospitals budgets or not? And just sort of as an anecdotal point, maybe you could sort of comment on the success of the VA, please.

Yes. Thanks, David. Good questions. Really appreciate it. So on the BBBA and the Medicaid cuts, what we're seeing right now is hospitals have figured it out. We hear from our customers, they usually budget in the last calendar quarter of the year. They went into a little bit of a halt mode and just monitoring what was happening and figuring that out with their budgets. Obviously, we talked about it in the past, focusing more on OpEx than CapEx, managing their cash. So they're interested in moving into services like ours. It took them a while to work through that process, and we're seeing now increasing engagement from that customer group, which is very encouraging, and we're very excited about. On the VA, yes, I said it on the call, we had a good year. We exceeded the $5 million that we had projected for the year in 2025. And we're expecting probably north of $9 million or around $9 million of revenue in 2026. So that is a significant growth for just a single account. We're continuing the rollout successfully. We're seeing increased adoption within the sites that we have rolled out, and we still have runway within that customer. So obviously, that runway is built into our 2026 projection, but it's a really encouraging progress with that customer. Beyond the VA, we're engaged with other government agencies and interestingly also nongovernment organizations that are mandated to use a FedRAMP or sometimes even a FedRAMP high solution now since one is available on the market. So it's very encouraging what we're seeing in the public sector and with that eFax or ECFax for government product.

That's very helpful. And then it's my understanding that Clarity and Harmony to use AI that can actually be very effective in the billing and AR process within the revenue cycle for facilities. Just any color there in terms of your use of AI? And I mean, the hospitals view the purchase of your product as a way to accelerate cash collections? Or is it more of a CapEx purchase?

That's a good question. On the hospital side, we see increased usage mainly in referrals. We are concentrating on specific use cases, particularly referrals and orders related to inbound fax traffic, as well as scanning referrals and similar activities, which involve sorting through documents. The initial step involves indexing, followed by processing these documents at a faster rate. This approach helps reduce their administrative burden and labor. By addressing the labor issue, these tools are enabling hospitals to free up essential staff needed on the clinical side. That’s their primary focus. In terms of revenue cycle operations, this includes areas like Medicaid claims management, where we enhance prior authorization processes to comply with CMS requirements for processing prior authorizations within 72 hours. The faxes received are completely unstructured, which requires extracting data points quickly, and AI plays a crucial role in identifying those key data points.

And just one last quick one...

No, I was just going to say you addressed the Harmony product suite, right? So with Clarity extracting the data, we still need to translate it into a data format and deliver it on a protocol that the customer requires. So it needs to integrate with their EHR system or with the rev cycle management system, whatever they need. So they need FHIR message or HL7 format. So that's where Harmony comes in, where we transfer that structured data, that unstructured data into a structured data piece, but then deliver it in the exact format that the customer requires.

Great. And then 3 years from now, what percentage of revenue would you expect to be corporate?

It's a good question. And part of that goes to not only the growth of corporate over the next 3 years, which, as you can tell from all of our remarks, we're very bullish about those trends and they're breaking through double-digit growth. But obviously, it introduces the question of where SoHo will be. But I would say if we're at almost 2/3, 1/3 today in favor of corporate, you're probably going to be around 75-25 within the 3-year time frame. And that will be premised in part on breaking through the 10% for corporate growth and then pulling in that minus 10% on SoHo. But that should be roughly the mix about 3 years out.

Jim, we'll miss you. And Adam, congrats on the promotion. Good results. I wanted to just dig in a little bit more to Clarity. You indicated you have line of sight in the multimillions in revenue this year. What are the kind of the underlying demand dynamics that is driving that interest from the market? And who's the competition that you face there? And then my follow-up question would be just on the guidance range for 2026. It looks a little wide. And I'm just wondering if that's correct? Or did you provide a similar range for your initial 2025 view a year ago? And what are the variables between the low and the high end of that range?

Well, I'll let Johnny start with the operational question on Clarity, and then I'll jump in and talk about the guidance and the construction of it. Yes. So go ahead.

To provide some context on Clarity, initially, there was a broad exploration of various AI projects and verticals. However, we've identified clear demand in specific areas, primarily focusing on document classification and maximizing the value of our solutions. In terms of referral management and order management, we see two primary benefits. Firstly, they help reduce administrative burdens in imaging and radiology centers, where many staff members often spend their time entering data, which contributes to costs. Secondly, by processing referrals more quickly, these centers can increase their revenue. One of our clients refers to this as a race to yes; the first to respond to a referral typically secures the patient. This need is what drives our focus, leading to a more targeted approach as we prepare for a clear go-to-market strategy for Clarity in 2026. Our initial steps will concentrate on referrals and prior authorizations, with plans to introduce additional workflows later.

And that's great color.

So as to the guidance, let me give everybody a little bit of a history on this and our philosophy. And it has been done consistently, Gene, for a number of years and certainly with 2025. So as you can imagine, the focus for us from a financial standpoint and operational is on our budget for any upcoming fiscal year, in this case, 2026. That budget then translates into the midpoint of our guidance of both revenue, adjusted EBITDA and non-GAAP EPS. And this is important because those are also the numbers that are used as it relates to the various compensation programs for our employees. Some have certain bonus participations based on a combination of revenue and EBITDA. In other cases, it's revenue and adjusted non-GAAP net income. So those are all consistent at the midpoint. Then what we do is a while ago, we came up with what I'll call an extrapolation on the top line of about 2%. So that gives you based on the current level of revenue, about a $7 million range on either side. And those are just to account for all the known and unknowns. If you will, things that could change in the economy, not catastrophic changes where you would go from, say, a stable economy to a great financial crisis, but what I'd call moderating either headwinds or tailwinds in the economy. There's obviously a number of variables that go into generating the top line. There's going to be some volatility and variability around it. The thesis is that our midpoint, which is the budget, when you combine that with the extrapolation should accommodate most of those current unknowns. Now obviously, if they accumulate in one direction or another, the range may not be sufficient. So that's where we start. That's the philosophy on the range of revenues. And then from there, we bleed down and we look, obviously, most importantly, at the margin at the midpoint. If there is a slight decrease in revenue, it is likely that there will also be a slight decrease in margin. Operationally, adjustments may be made throughout the year to manage costs in response to lower revenue. On the other hand, if revenue exceeds expectations, there may be a slight increase beyond our midpoint forecast, but this raises considerations for additional reinvestment. The fixed costs below the profit line, such as depreciation and amortization, will remain unaffected by changes in revenue. Interest expense and income are based on the outstanding debt at year-end, which amounts to $562 million, including a fixed 6.5% on high-yield notes and floating rates on our credit facilities where we are moving to lock in the SOFR for six months. We anticipate no debt repayment or equity buybacks during the year. We project our free cash flow will accumulate and be reinvested at money market fund rates. In terms of share count affecting the bottom line, we may find better uses for our cash throughout the year. Debt repayment could yield slightly better returns, but we believe that retiring equity will provide more significant returns given our current free cash flow yield, which stands at about 25% based on our equity against a free cash flow of $106 million. Whereas when we retire debt, we're retiring it either under 6% or at most at 6.5% if we can get those high-yield notes at par. So that's what will practically happen as we flow through the year. As I mentioned in the opening remarks, given where the stock price is, we have a strong bias towards shifting our cash flow allocations more in the favor of equity repurchases versus debt retirement. Having said that, if we look out over the next 2.5 years to the ultimate maturity of the 6.5% notes, it is our goal to bring the total debt of $562 million down, and that's kind of a question mark. My sense is right now, and of course, these are fluid conversations based on market conditions, not only today but in the future, we probably want to bring that debt down over time to around $500 million. There may be an argument for going lower, and that's something that we'll be exploring over the course of this year because, as I mentioned, given the uncallable nature of the 6.5% notes until October and then at a premium, it's unlikely we do any refinancing this year. It's possible, but unlikely. So these are probably '27 events. But obviously, we're going to keep our pulse on the market and start looking at that actually right now.

The next question will be from Ian Zaffino from Oppenheimer.

This is Isaac Sellhausen on for Ian. Just one on the corporate channel. Could you discuss your expectations for ARPA this year? Do you believe the eFax Protect will continue to have a dilutive impact on ARPA or any offsets on that for the year?

Thanks, Ian. I mentioned earlier that we're observing ARPA in two segments. The significant traffic and volume coming from eFax Protect is slightly lowering that ARPA. In contrast, when we look at the non-eFax Protect segment, we see growth in ARPA. As we continue to add more eFax Protect customers and find success with that program, we anticipate ongoing growth, but it will exert slight downward pressure on the overall corporate ARPA.

Aggregate example.

Exactly. The question is if that's really still the right metric to measure that business. We're focusing more and more on the revenue retention rate, which I think is the stronger indicator for how that business develops.

Okay. Understood. And then just a quick follow-up just on margins. I know you guided to the EBITDA margin. If you could provide any color on gross margin expectations. I know you talked a little bit about modest cost increases in the prepared remarks, but any additional details on that would be great.

Yes. I'd say most of our cost increases are in OpEx, not up there in COGS. So we have, on a non-GAAP basis, pretty stable margins right around 80%. And there's no reason to believe those will not continue. So we expect it to be in the 80% range this year and going forward. Remember, most of our cost structure, the largest single piece is people, and most of the people are expensed down below. They're not in COGS. They're in OpEx. And so that's where we have the increased salaries that I mentioned, not only for the core employee base in terms of raises year-over-year, but also as we add incremental people, they're coming in at the OpEx because they're in Johnny's group, which is all flavors of go-to-market and our Jeff Sullivan, our CTO, in his product and engineering group.

There were no other questions at this time. I would now like to hand the call back to Scott Turicchi for closing remarks.

Great. Thank you, Paul. Thanks, everyone, for getting up early, depending on where you are in the country to listen to our Q4 earnings call. We will return to the normal time slot when we report Q1 in May. This was unusual. As we announced, we are at the BTIG conference. So to accommodate their schedule, we did the release last night and did the call early this morning. This is unusual for us, but we appreciate you attending and asking questions this morning. Of course, we're available not only at the conference over the next couple of days, but we'll be available for Q&A. You can reach out to us. And then there'll probably be 1 or 2 conferences over the next several months that we'll attend, and we'll put out press releases over to you for those. Our next regularly scheduled call will be sometime in May to discuss Q1 results. Thank you.

Thank you. This does conclude today's conference. You may disconnect at this time. Thank you for your participation, and have a wonderful day.