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Consensus Cloud Solutions, Inc. Reports First Quarter 2022 Results

Reaffirms 2022 Guidance

Consensus Cloud Solutions, Inc. (NASDAQ: CCSI) today reported preliminary financial results for the first quarter 2022.

“I am pleased with our team’s performance in delivering record revenue of approximately $91 million while achieving better than forecasted Adjusted EBITDA margins. The revenue growth was led by our corporate business which grew 13% in the quarter. In addition, we launched Consensus Clarity in March and have made great progress in the development of the ECFax solution. Finally, we added to our cash balances during the quarter increasing our liquidity and remaining financially well positioned in the current economic environment,” said Scott Turicchi, CEO of Consensus.

FIRST QUARTER 2022 HIGHLIGHTS

Q1 2022 GAAP quarterly revenues increased 5.0% to $90.9 million compared to $86.6 million for Q1 2021. Revenues increased by $4.3 million or 5% over the prior comparable three month period, $5.0 million or 5.8% on a Fx neutral basis. Our growth was primarily due to $5.4 million or 13% in our corporate business (inclusive of $0.8 million due to the Summit acquisition); partially offset by a decline of $1.0 million or 2.1% in our small office home office (“SoHo”) business, $0.5 million or 1.1% on a Fx neutral basis over the prior comparable period.

GAAP net income decreased to $18.7 million in Q1 2022 compared to $47.4 million for Q1 2021. Income from continuing operations decreased to $18.7 million in Q1 2022 compared to $39.2 million for Q1 2021. The decrease in income from continuing operations over the prior period is primarily related to the interest expense associated with the 2026 and 2028 notes, additional costs as a standalone publicly traded company and increased headcount; partially offset by higher revenues.

GAAP earnings per diluted share from continuing operations (1) decreased to $0.93 in Q1 2022 compared to $1.97 for Q1 2021. The decrease in income from continuing operations over the prior period is primarily related to the interest expense associated with the 2026 and 2028 notes, additional costs as a standalone publicly traded company, increased headcount and a higher share count in the current period; partially offset by higher revenues.

Adjusted EBITDA (3) for Q1 2022 decreased to $48.6 million compared to Q1 2021 pro forma adjusted EBITDA (5) of $50.5 million. The decrease of $1.9 million is primarily related to planned additional compensation costs for new hires, outside services and additional marketing. Adjusted non-GAAP earnings per diluted share (2)(3) for the quarter decreased to $1.33 compared to pro forma Adjusted non-GAAP earnings per diluted share (2)(3) of $1.40 for Q1 2021 due to the aforementioned planned spending and a higher share count.

Consensus ended the quarter with $93.9 million in cash and cash equivalents due to strong operating cash flows generated during the period.

Key financial results from continuing operations for Q1 2022 versus Q1 2021 are set forth in the following table. Reconciliations of Adjusted non-GAAP net income, earnings per diluted share, Adjusted EBITDA and Pro Forma results from operations are to their nearest comparable GAAP financial measures accompany this press release.

(Unaudited, in thousands except per share amounts)

Continuing Operations

Pro Forma (4)

 

Q1 2022

Q1 2021

Q1 2021

% Change

Revenues

$

90,925

 

$

86,620

 

$

86,620

 

5.0

%

 

 

 

 

 

GAAP net income

$

18,706

 

$

39,235

 

 

 

GAAP net income per diluted share (1)

$

0.93

 

$

1.97

 

 

 

Adjusted Non-GAAP net income (2)

$

26,631

 

$

42,214

 

$

27,893

 

(4.5

) %

Adjusted Non-GAAP income per diluted share (2)(3)

$

1.33

 

$

2.12

 

$

1.40

 

(5.0

) %

Adjusted EBITDA (3)

$

48,562

 

$

55,379

 

$

50,545

 

(3.9

) %

Adjusted EBITDA margin (3)

 

53.4

%

 

63.9

%

 

58.4

%

 

Non-Consensus assets are classified as discontinued operations in our financial statements for the prior period. Results in this press release represent continuing operations, and where appropriate, results from discontinued operations have been disclosed.

REAFFIRMS 2022 GUIDANCE

For 2022 full year guidance, the Company estimates revenues between $375 million and $385 million, Adjusted EBITDA between $201 million and $207 million and Adjusted non-GAAP earnings per diluted share of between $5.36 and $5.50, excluding share-based compensation, amortization of acquired intangibles and the impact of unanticipated items, in each case net of tax. The non-GAAP effective tax rate for 2022 is expected to be between 19.5% and 21.5%. Full year guidance is provided on a non-GAAP basis only because certain information necessary to calculate the most comparable GAAP measures are unavailable due to the uncertainty and inherent difficulty of predicting the occurrence and the future financial statement impact of certain items. Therefore, as a result of the uncertainty and variability of the nature and amount of future adjustments, which could be significant, we are unable to provide a reconciliation of these measures without unreasonable effort.

Notes:

(1)

 

The estimated GAAP effective tax rates were approximately 27.4% for Q1 2022 and 24.3% for Q1 2021. The estimated pro forma Adjusted non-GAAP effective tax rate was approximately 24.0% for Q1 2021.

(2)

 

Adjusted non-GAAP net income and Adjusted non-GAAP earnings per diluted share excludes certain non-GAAP items, as defined in the accompanying reconciliation of GAAP to Adjusted non-GAAP Financial Measures, for the three months ended March 31, 2022 and 2021. Such exclusions totaled $0.40 and $0.15 per diluted share, respectively. Pro forma Adjusted non-GAAP earnings per diluted share excludes certain pro forma items, as defined in footnote (4) below. Such exclusions totaled $0.57 per diluted share for three months ended March 31, 2021. Adjusted non-GAAP net income and Adjusted non-GAAP earnings per diluted share are not meant as a substitute for GAAP, but are presented solely for informational purposes.

(3)

 

Adjusted EBITDA is defined as earnings before interest; other income, net; income tax expense; depreciation and amortization; and other items used to reconcile EPS to Adjusted non-GAAP EPS, as defined in the Reconciliation of GAAP to Adjusted non-GAAP Financial Measures. Adjusted EBITDA amounts are not meant as a substitute for GAAP, but is presented solely for informational purposes.

(4)

 

The % change is a comparison of Q1 2022 actual results versus Q1 2021 pro forma. Q1 2021 pro forma adjustments represent incremental costs incurred as a standalone public company, incremental interest expense related to the debt of $805 million and the effects of pro forma adjustments at the applicable statutory tax rates.

(5)

 

See Net Income to Adjusted EBITDA Reconciliation for the components of pro forma adjusted EBITDA.

About Consensus Cloud Solutions

Consensus Cloud Solutions, Inc. (NASDAQ: CCSI) started as a secure digital document transmission solution 25 years ago and has grown to be a global leader of digital cloud fax technology. The company leverages its technology heritage to securely transform, enhance, and exchange digital information. The company’s suite of interoperability solutions offers a unified digital environment that optimizes workflows; provides real-time event notifications; on-demand patient query and direct secure messaging. Consensus offers eFax, Consensus Unite, Consensus Signal, jSign and has Consensus Clarity and Harmony in development. For more information about Consensus, please visit www.consensus.com.

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this press release are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995, including those contained in Scott Turicchi’s quote and the “Business Outlook” portion regarding the Company’s expected fiscal 2022 financial performance and statements regarding the Company’s share buyback program. These forward-looking statements are based on management’s current expectations or beliefs and are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These factors and uncertainties include, among other items: the Company’s ability to grow fax revenues, profitability and cash flows; the Company’s ability to identify, close and successfully transition acquisitions; subscriber growth and retention; variability of the Company’s revenue based on changing conditions in particular industries and the economy generally; protection of the Company’s proprietary technology or infringement by the Company of intellectual property of others; the risk of adverse changes in the U.S. or international regulatory environments, including but not limited to the imposition or increase of taxes or regulatory-related fees; general economic and political conditions, including political tensions and war (such as the ongoing conflict in Ukraine);and the numerous other factors set forth in Consensus’ filings with the Securities and Exchange Commission (“SEC”). For a more detailed description of the risk factors and uncertainties affecting Consensus, refer to the 2021 Annual Report on Form 10-K filed by Consensus on April 15, 2022 and the other reports filed by Consensus from time-to-time with the SEC, each of which is available at www.sec.gov. The forward-looking statements provided in this press release, including those contained in Scott Turicchi’s quote and in the “Business Outlook” portion regarding the Company’s expected fiscal 2022 financial performance are based on limited information available to the Company at this time, which is subject to change. Although management’s expectations may change after the date of this press release, the Company undertakes no obligation to revise or update these statements.

About non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following Adjusted non-GAAP financial measures: Adjusted non-GAAP net income, Adjusted non-GAAP earnings per diluted share, Adjusted EBITDA and free cash flow. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use these Adjusted non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these Adjusted non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our recurring core business operating results. We believe that both management and investors benefit from referring to these Adjusted non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These Adjusted non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity. We believe these Adjusted non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

For more information on these Adjusted non-GAAP financial measures, please see the appropriate GAAP to Adjusted non-GAAP reconciliation tables included within the attached Exhibit to this Release.

 

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)

 

March 31,

2022

 

December 31,

2021

ASSETS

 

 

 

Cash and cash equivalents

$

93,864

 

 

$

66,778

 

Accounts receivable, net of allowances of $3,988 and $4,743, respectively

 

28,813

 

 

 

24,829

 

Prepaid expenses and other current assets

 

5,397

 

 

 

4,650

 

Total current assets

 

128,074

 

 

 

96,257

 

Property and equipment, net

 

38,353

 

 

 

33,849

 

Operating lease right-of-use assets

 

8,102

 

 

 

7,233

 

Intangibles, net

 

53,003

 

 

 

43,549

 

Goodwill

 

344,025

 

 

 

339,209

 

Deferred income taxes

 

42,484

 

 

 

41,842

 

Other assets

 

1,305

 

 

 

873

 

TOTAL ASSETS

$

615,346

 

 

$

562,812

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

Accounts payable and accrued expenses

$

56,616

 

 

$

40,206

 

Income taxes payable, current

 

10,217

 

 

 

5,227

 

Deferred revenue, current

 

28,800

 

 

 

24,370

 

Operating lease liabilities, current

 

2,821

 

 

 

2,421

 

Due to Former Parent

 

11,653

 

 

 

5,739

 

Total current liabilities

 

110,107

 

 

 

77,963

 

Long-term debt

 

792,495

 

 

 

792,040

 

Deferred revenue, non-current

 

162

 

 

 

184

 

Operating lease liabilities, non-current

 

14,523

 

 

 

14,108

 

Liability for uncertain tax positions

 

4,795

 

 

 

4,795

 

Deferred income taxes

 

6,077

 

 

 

6,027

 

Other long-term liabilities

 

1,111

 

 

 

360

 

TOTAL LIABILITIES

 

929,270

 

 

 

895,477

 

Commitments and contingencies

 

 

 

Common stock, $0.01 par value. Authorized 120,000,000 at March 31, 2022; total issued and outstanding 19,995,528 and 19,978,580 shares at March 31, 2022 and December 31, 2021, respectively.

 

200

 

 

 

200

 

Additional paid-in capital

 

6,918

 

 

 

2,878

 

Treasury stock, at cost (19,922 and zero shares at March 31, 2022 and December 31, 2021, respectively).

 

 

 

 

 

Accumulated deficit

 

(302,068

)

 

 

(318,886

)

Accumulated other comprehensive loss

 

(18,974

)

 

 

(16,857

)

TOTAL STOCKHOLDERS’ DEFICIT

 

(313,924

)

 

 

(332,665

)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$

615,346

 

 

$

562,812

 

 

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(UNAUDITED, IN THOUSANDS)

 

Three Months Ended March 31,

 

 

2022

 

 

 

2021

 

Revenues

$

90,925

 

 

$

86,620

 

 

 

 

 

Cost of revenues

 

15,104

 

 

 

13,970

 

Gross profit

 

75,821

 

 

 

72,650

 

Operating expenses:

 

 

 

Sales and marketing

 

15,830

 

 

 

13,235

 

Research, development and engineering

 

2,336

 

 

 

1,676

 

General and administrative

 

18,806

 

 

 

6,048

 

Total operating expenses

 

36,972

 

 

 

20,959

 

Income from operations

 

38,849

 

 

 

51,691

 

Interest expense

 

(13,274

)

 

 

(236

)

Interest income

 

 

 

 

9

 

Other income, net

 

174

 

 

 

379

 

Income before income taxes

 

25,749

 

 

 

51,843

 

Income tax expense

 

7,043

 

 

 

12,608

 

Income from continuing operations

 

18,706

 

 

 

39,235

 

Income from discontinued operations

 

 

 

 

8,127

 

Net income

$

18,706

 

 

$

47,362

 

 

 

 

 

Net income per common share from continuing operations:

 

 

 

Basic

$

0.94

 

 

$

1.97

 

Diluted

$

0.93

 

 

$

1.97

 

 

 

 

 

Net income per common share from discontinued operations:

 

 

 

Basic

$

 

 

$

0.41

 

Diluted

$

 

 

$

0.41

 

 

 

 

 

Net income per common share

 

 

 

Basic

$

0.94

 

 

$

2.38

 

Diluted

$

0.93

 

 

$

2.38

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

Basic

 

19,921,375

 

 

 

19,902,924

 

Diluted

 

20,005,307

 

 

 

19,902,924

 

 

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(UNAUDITED, IN THOUSANDS)

 

Three Months Ended March 31,

 

 

2022

 

 

 

2021 (1)

 

Cash flows from operating activities:

 

 

 

Net income

$

18,706

 

 

$

47,362

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

 

3,706

 

 

 

17,046

 

Amortization of financing costs and discounts

 

461

 

 

 

 

Non-cash operating lease costs

 

447

 

 

 

1,955

 

Share-based compensation

 

5,213

 

 

 

1,491

 

Provision for doubtful accounts

 

2,045

 

 

 

1,607

 

Deferred income taxes

 

(1,310

)

 

 

190

 

Lease asset impairments and other charges

 

 

 

 

561

 

Changes in fair value of contingent consideration

 

 

 

 

648

 

(Gain) loss on sale of businesses

 

 

 

 

(1,979

)

Decrease (increase) in:

 

 

 

Accounts receivable

 

(4,585

)

 

 

(5,446

)

Prepaid expenses and other current assets

 

(494

)

 

 

(2,266

)

Other assets

 

(433

)

 

 

1,280

 

Increase (decrease) in:

 

 

 

Accounts payable and accrued expenses

 

14,799

 

 

 

(3,722

)

Income taxes payable

 

4,781

 

 

 

(184

)

Deferred revenue

 

1,886

 

 

 

2,828

 

Operating lease liabilities

 

(459

)

 

 

(1,869

)

Liability for uncertain tax positions

 

 

 

 

1,147

 

Other long-term liabilities

 

5,145

 

 

 

(723

)

Net cash provided by operating activities

 

49,908

 

 

 

59,926

 

Cash flows from investing activities:

 

 

 

Purchases of property and equipment

 

(6,915

)

 

 

(7,472

)

Acquisition of businesses, net of cash received

 

(12,855

)

 

 

 

Proceeds from sale of businesses, net of cash divested

 

 

 

 

5,999

 

Purchases of intangible assets

 

(1,000

)

 

 

 

Net cash used in investing activities

 

(20,770

)

 

 

(1,473

)

Cash flows from financing activities:

 

 

 

Debt issuance costs

 

(232

)

 

 

 

Contribution from (distributions to) Parent

 

 

 

 

12,306

 

Acquired restricted stock

 

(1,173

)

 

 

 

Deferred payments for acquisitions

 

 

 

 

(1,583

)

Other

 

 

 

 

(142

)

Net cash (used in) provided by financing activities

 

(1,405

)

 

 

10,581

 

Effect of exchange rate changes on cash and cash equivalents

 

(647

)

 

 

(562

)

Net change in cash and cash equivalents

 

27,086

 

 

 

68,472

 

Cash and cash equivalents at beginning of year

 

66,778

 

 

 

128,189

 

Cash and cash equivalents at end of year

$

93,864

 

 

$

196,661

 

Less cash and cash equivalents at end of year, discontinued operations

 

 

 

 

46,986

 

Cash and cash equivalents at end of year, continuing operations

$

93,864

 

 

$

149,675

 

(1) The prior period includes cash flows from discontinued operations of the non-Consensus business, accordingly does not lend itself to a quarter-over-quarter analysis.

 

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

The following tables sets forth reconciliations regarding certain non-GAAP measures for the three months ended March 31, 2022 and 2021 to the most closely comparable GAAP measure.

 

Three Months Ended March 31,

 

2022

Per Diluted Share *

 

2021

Per Diluted Share *

Net income

$

18,706

$

0.93

 

$

39,235

$

1.97

Plus:

 

 

 

 

 

Share-based compensation (1)

 

4,738

 

0.24

 

 

300

 

0.02

Amortization (2)

 

1,150

 

0.06

 

 

887

 

0.04

Spin-off related costs (3)

 

270

 

0.01

 

 

 

Non-income related sales tax (4)

 

262

 

0.01

 

 

 

Acquisition related integration costs (5)

 

102

 

0.01

 

 

388

 

0.02

Accounting fees for tax provision (6)

 

43

 

 

 

 

Intra-entity transfer (7)

 

1,360

 

0.07

 

 

1,257

 

0.06

Gain on sale of assets (8)

 

 

 

 

147

 

0.01

Adjusted non-GAAP net income

$

26,631

$

1.33

 

$

42,214

$

2.12

* The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently.

 

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

RECONCILIATION TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

Three Months Ended March 31,

 

 

2022

 

 

 

2021

 

Cost of revenues

$

15,104

 

 

$

13,970

 

Plus:

 

 

 

Share-based compensation (1)

 

(223

)

 

 

(50

)

Amortization (2)

 

 

 

 

(3

)

Adjusted non-GAAP cost of revenues

$

14,881

 

 

$

13,917

 

 

 

 

 

Sales and marketing

$

15,830

 

 

$

13,235

 

Plus:

 

 

 

Share-based compensation (1)

 

(273

)

 

 

(95

)

Adjusted non-GAAP sales and marketing

$

15,557

 

 

$

13,140

 

 

 

 

 

Research, development and engineering

$

2,336

 

 

$

1,676

 

Plus:

 

 

 

Share-based compensation (1)

 

(356

)

 

 

(102

)

Adjusted non-GAAP research, development and engineering

$

1,980

 

 

$

1,574

 

 

 

 

 

General and administrative

$

18,806

 

 

$

6,048

 

Plus:

 

 

 

Share-based compensation (1)

 

(4,361

)

 

 

(136

)

Amortization (2)

 

(1,532

)

 

 

(1,208

)

Spin-off related costs (3)

 

(360

)

 

 

 

Non-income related sales tax (4)

 

(241

)

 

 

 

Acquisition related integration costs (5)

 

(136

)

 

 

(482

)

Accounting fees for tax provision (6)

 

(57

)

 

 

 

Adjusted non-GAAP general and administrative

$

12,119

 

 

$

4,222

 

 

 

 

 

Interest expense, net

$

(13,274

)

 

$

(236

)

Plus:

 

 

 

Non-income related sales tax (4)

 

108

 

 

 

 

Adjusted non-GAAP interest expense, net

$

(13,166

)

 

$

(236

)

 

 

 

 

Other income, net

$

174

 

 

$

379

 

Plus:

 

 

 

Gain on sale of assets (8)

 

 

 

 

200

 

Adjusted non-GAAP other income, net

$

174

 

 

$

579

 

 

 

 

 

Income tax expense

$

7,043

 

 

$

12,608

 

Plus:

 

 

 

Share-based compensation (1)

 

475

 

 

 

83

 

Amortization (2)

 

382

 

 

 

324

 

Spin-off related costs (3)

 

90

 

 

 

 

Non-income related sales tax (4)

 

87

 

 

 

 

Acquisition related costs (5)

 

34

 

 

 

94

 

Accounting fees for tax provision (6)

 

14

 

 

 

 

Intra-entity Transfer of IP (7)

 

(1,360

)

 

 

(1,257

)

Gain on Sale of assets (8)

 

 

 

 

53

 

Adjusted non-GAAP income tax expense

$

6,765

 

 

$

11,905

 

 

 

 

 

Total adjustments

$

(7,925

)

 

$

(2,979

)

 

 

 

 

GAAP earnings per diluted share

$

0.93

 

 

$

1.97

 

Adjustments *

$

0.40

 

 

$

0.15

 

Adjusted non-GAAP earnings per diluted share

$

1.33

 

 

$

2.12

 

* The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently.

The Company discloses Adjusted non-GAAP Earnings Per Share (“EPS”) and adjusted non-GAAP net income as supplemental Non-GAAP financial performance measures, as it believes they are useful metrics by which to compare the performance of its business from period to period. The Company also understands that these Adjusted non-GAAP measure is broadly used by analysts, rating agencies and investors in assessing the Company’s performance. Accordingly, the Company believes that the presentation of this Adjusted non-GAAP financial measure provides useful information to investors.

Adjusted non-GAAP EPS and Adjusted non-GAAP net income are not in accordance with, or an alternative to, net income per share or net income and may be different from Non-GAAP measures with similar or even identical names used by other companies. In addition, these Adjusted non-GAAP measures are not based on any comprehensive set of accounting rules or principles. These Adjusted non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.

Non-GAAP Financial Measures

To supplement its unaudited condensed consolidated financial statements and pro forma condensed consolidated financial statements, each of which are prepared and presented in accordance with US GAAP, the Company uses the following Non-GAAP financial measures: Adjusted EBITDA, Adjusted non-GAAP Net Income and Adjusted non-GAAP Diluted EPS (collectively the “Non-GAAP financial measures”). The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. The Company uses these Non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that they provide useful information about core operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making.

(1) Share-based compensation. The Company excludes stock-based compensation because it is non-cash in nature and because the Company believes that the Non-GAAP financial measures excluding this item provides meaningful supplemental information regarding the operational performance of the business. The Company further believes this measure is useful to investors in that it allows for greater transparency to certain line items in its financial statements. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(2) Amortization. The Company excludes amortization of patents and acquired intangible assets because it is non-cash in nature and because the Company believes that the Non-GAAP financial measures excluding this item provides meaningful supplemental information regarding the operational performance of the business. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(3) Spin-off related costs. The Company excludes certain expenses associated with the spin-off from Ziff Davis, Inc. The Company believes that the Non-GAAP financial measures excluding this item provides meaningful supplemental information regarding the operational performance of the business. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers.

(4) Non-income related tax. The Company has excluded certain non-income related taxes in connection with the recent spin-off from Ziff Davis, Inc. The Company believes that the Non-GAAP financial measures excluding this item provides meaningful supplemental information regarding the operational performance of the business.

(5) Acquisition related integration costs. The Company excludes certain acquisition and related integration costs such as adjustments to contingent consideration, severance, lease terminations, retention bonuses and other acquisition-specific items. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(6) Accounting fees for tax provision. The Company excludes certain costs associated with the preparation for the tax provision because these costs are expected to be nonrecurring. The Company believes that the Non-GAAP financial measures excluding this item provides meaningful supplemental information regarding the operational performance of the business.

(7) Intra-entity transfers. The Company excludes certain effects of intra-entity transfers to the extent the related tax asset or liability in the financial statement is not recovered or settled, respectively during the year. During December 2019, the Company entered into an intra-entity asset transfer that resulted in the recording of a tax benefit and related tax asset representing tax deductible amounts to be realized in future years which is expected to be recovered over a period of up to 20 years and related foreign currency fluctuations. The Company believes that the Non-GAAP financial measures excluding the cumulative future unrealized benefit of the assets transferred and including the tax benefit in the year of realization provides meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(8) Gain on sale of assets. The Company excludes the gain on sale of certain of its assets. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

The Company presents Adjusted non-GAAP Cost of Revenues, Adjusted non-GAAP Research, Development and Engineering, Adjusted non-GAAP Sales and Marketing, Adjusted non-GAAP General and Administrative, Adjusted non-GAAP Interest Expense, net, Adjusted non-GAAP Other Income, net, Adjusted non-GAAP Income Tax Expense, and Adjusted non-GAAP Net Income because the Company believes that these provide useful information about our operating results and enhance the overall understanding of past financial performance and future prospects.

 

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

NET INCOME TO ADJUSTED EBITDA RECONCILIATION

THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(UNAUDITED, IN THOUSANDS)

The following table sets forth a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure.

 

Three Months Ended March 31,

 

 

2022

 

 

 

2021

 

 

Pro Forma 2021

Net income

$

18,706

 

 

$

39,235

 

 

$

27,893

 

Plus:

 

 

 

 

 

Interest expense, net

 

13,274

 

 

 

236

 

 

 

12,810

 

Other income, net

 

(174

)

 

 

(388

)

 

 

(579

)

Income tax expense

 

7,043

 

 

 

12,608

 

 

 

8,808

 

Depreciation and amortization

 

3,707

 

 

 

2,823

 

 

 

1,613

 

EBITDA:

 

 

 

 

 

Plus:

 

 

 

 

 

Share-based compensation

 

5,213

 

 

 

383

 

 

 

 

Spin-off related costs

 

359

 

 

 

 

 

 

 

Non-income related sales tax

 

241

 

 

 

 

 

 

 

Acquisition related costs

 

136

 

 

 

482

 

 

 

 

Accounting fees for tax provision

 

57

 

 

 

 

 

 

 

Adjusted EBITDA

$

48,562

 

 

$

55,379

 

 

$

50,545

 

Adjusted EBITDA as calculated above represents earnings before interest, depreciation and amortization and the items used to reconcile GAAP to Adjusted non-GAAP financial measures, including (1) share-based compensation; (2) spin-off related costs; (3) non-income related sales tax; (4) acquisition related costs; and (5) accounting fees for tax provision. We disclose Adjusted EBITDA as a supplemental Non-GAAP financial performance measure as we believe it is a useful metric by which to compare the performance of our business from period to period. We understand that measures similar to Adjusted EBITDA are broadly used by analysts, rating agencies and investors in assessing our performance. Accordingly, we believe that the presentation of Adjusted EBITDA provides useful information to investors.

Adjusted EBITDA is not in accordance with, or an alternative to, net income, and may be different from Non-GAAP measures used by other companies. In addition, Adjusted EBITDA is not based on any comprehensive set of accounting rules or principles. This Adjusted non-GAAP measure has limitations in that it does not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.

 

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES

(UNAUDITED, IN THOUSANDS)

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

2022

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

49,908

 

 

$

 

$

 

$

 

$

49,908

 

Less: Purchases of property and equipment

 

(6,915

)

 

 

 

 

 

 

 

 

(6,915

)

Free cash flows

$

42,993

 

 

$

 

$

 

$

 

$

42,993

 

The Company discloses free cash flows as supplemental Non-GAAP financial performance measure, as it believes it is a useful metric by which to compare the performance of its business from period to period. The Company also understands that this Non-GAAP measure is broadly used by analysts, rating agencies and investors in assessing the Company’s performance. Accordingly, the Company believes that the presentation of this Non-GAAP financial measure provides useful information to investors.

Free cash flows is not in accordance with, or an alternative to, Cash Flows from Operating Activities, and may be different from Non-GAAP measures with similar or even identical names used by other companies. In addition, the Non-GAAP measure is not based on any comprehensive set of accounting rules or principles. This Non-GAAP measure has limitations in that it does not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.

Certain Other Pro Forma Financial Information (Unaudited)

 

CONSENSUS CLOUD SOLUTIONS, INC

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(UNAUDITED, IN THOUSANDS)

 

Consensus

 

Pro Forma Adjustments (1)

 

Consensus Pro Forma

Revenues

$

86,620

 

 

$

 

 

$

86,620

 

Cost of revenues

 

13,970

 

 

 

92

 

 

 

14,062

 

Gross profit

 

72,650

 

 

 

(92

)

 

 

72,558

 

Operating expenses:

 

 

 

 

 

Sales and marketing

 

13,235

 

 

 

(95

)

 

 

13,140

 

Research, development and engineering

 

1,676

 

 

 

(102

)

 

 

1,574

 

General and administrative

 

6,048

 

 

 

2,864

 

 

 

8,912

 

Total operating expenses

 

20,959

 

 

 

2,667

 

 

 

23,626

 

Income from operations

 

51,691

 

 

 

(2,759

)

 

 

48,932

 

Interest expense

 

(236

)

 

 

(12,574

)

 

 

(12,810

)

Interest income

 

9

 

 

 

(9

)

 

 

 

Other expense, net

 

379

 

 

 

200

 

 

 

579

 

Income before income taxes

 

51,843

 

 

 

(15,142

)

 

 

36,701

 

Income tax expense

 

12,608

 

 

 

(3,800

)

 

 

8,808

 

Net income

$

39,235

 

 

$

(11,342

)

 

$

27,893

 

 

 

 

 

 

 

Net income per common share from continuing operations:

 

 

 

 

 

Basic

$

1.97

 

 

$

(0.57

)

 

$

1.40

 

Diluted

$

1.97

 

 

$

(0.57

)

 

$

1.40

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

19,902,924

 

 

 

 

 

Diluted

 

19,902,924

 

 

 

 

 

(1) Pro forma adjustments represents the following:

  • Represents incremental costs to be incurred as a standalone public entity and overhead currently shared from Ziff Davis such as legal, accounting, finance, human resource and payroll, net of tax.
  • Reflects the interest expense related to debt of $805 million principal amount issued by Consensus Cloud Solutions, Inc., on October 7, 2021, in connection with the separation capitalization plan with an interest rate of 6.3% per annum.
  • Reflects the effects of the pro forma adjustments at the applicable statutory income tax rates.

The following table sets forth certain pro forma financial and operating information for Consensus for the three months ended March 31, 2022 and 2021 (in millions).

 

Three Months Ended March 31,

 

 

2022

 

 

 

2021

 

Corporate revenue

$

46,519

 

 

$

41,154

 

Corporate customer accounts

 

46

 

 

 

47

 

Corporate ARPA (1)

$

339.94

 

 

$

289.37

 

Corporate paid adds (2)

 

4

 

 

 

3

 

Corporate monthly account churn (3)

 

2.05

%

 

 

1.87

%

 

 

 

 

 

 

 

 

SoHo revenue

$

44,406

 

 

$

45,374

 

SoHo customer accounts

 

1,027

 

 

 

1,068

 

SoHo ARPA (1)

$

14.41

 

 

$

14.16

 

SoHo paid adds (2)

 

100

 

 

 

113

 

SoHo monthly account churn (3)

 

3.50

%

 

 

3.51

%

(1) Represents a monthly ARPA calculated for the quarter calculated as follows. Monthly ARPA on a quarterly basis is calculated using our standard convention of dividing revenue for the quarter by the average of the quarter’s beginning and ending customer base and dividing that amount by 3 months. Consensus believes ARPA provides investors an understanding of the average monthly revenues we recognize per account associated within Consensus’ customer base. As ARPA varies based on fixed subscription fee and variable usage components, Consensus believes it can serve as a measure by which investors can evaluate trends in the types of services, levels of services and the usage levels of those services across Consensus’ customers.

(2) Paid Adds represents paying new Consensus customer accounts added during the annual period.

(3) Monthly churn is defined as a Consensus paying customer accounts that cancelled its services during the period divided by the average number customers over the period. This measure is calculated monthly and expressed as an average over the applicable period.

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