Consensus Cloud Solutions, Inc. Reports Third Quarter 2022 Results

Reaffirms 2022 Guidance

Veterans Administration Approval to Operate

LOS ANGELES–(BUSINESS WIRE)–Consensus Cloud Solutions, Inc. (NASDAQ: CCSI) today reported preliminary financial results for the third quarter of 2022.

“Our Q3 financial results demonstrated continued revenue growth and strong EBITDA margins despite the volatile economic conditions. In addition, we celebrated the first anniversary of the Spin, devoting significant resources to separate from our former parent and fill out the roles as a separate public company. We achieved a significant milestone receiving the Authority to Operate from the Veterans Administration in late Q3. This combined with our pipeline of new customer opportunities bodes well for the remainder of the year and into 2023.” said Scott Turicchi, CEO of Consensus.

THIRD QUARTER UNAUDITED 2022 HIGHLIGHTS

Q3 2022 GAAP quarterly revenues increased by $6.7 million or 7.5% to $95.9 million compared with $89.2 million for Q3 2021. Our growth was primarily due to an increase of $8.0 million or 18.6% in our Corporate business (inclusive of $1.9 million due to the Summit acquisition); partially offset by a decline of $1.2 million or 2.7% in our SoHo business. On a constant dollar basis, revenues grew by $8.1 million or 9.2% compared to the prior year.

GAAP net income from continuing operations decreased to $17.1 million in Q3 2022 compared to $41.1 million for Q3 2021. The decrease is primarily related to the interest expense associated with the 2026 and 2028 notes, additional costs as a standalone publicly traded company, including increased headcount and sales tax related expenses; partially offset by higher revenues.

GAAP earnings per diluted share from continuing operations ⁽¹⁾ decreased to $0.86 in Q3 2022 compared to $2.07 for Q3 2021. The decrease is related to the items discussed above.

Adjusted EBITDA ⁽³⁾ for Q3 2022 of $51.3 million is favorable compared to Q3 2021 pro forma adjusted EBITDA ⁽⁵⁾ of $50.9 million. Adjusted non-GAAP earnings per diluted share ^(1)(2)(3) for the quarter increased to $1.52 or 5.6% compared to pro forma Adjusted non-GAAP earnings per diluted share ⁽⁴⁾ of $1.44 for Q3 2021.

Consensus ended the quarter with $103.7 million in cash and cash equivalents after cash outlays related to capital expenditures of $7.3 million and payments to the Former Parent of $7.2 million, primarily related to commingled cash and the settlement of certain cost associated with the spin.

Key financial results from continuing operations for Q3 2022 versus Q3 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 and percentages)	Continuing Operations						Pro Forma ⁽⁴⁾
	Q3 2022			Q3 2021			Q3 2021			% Change
Revenues	$	95,912		$	89,198		$	89,198		7.5	%

GAAP net income	$	17,141		$	41,132
GAAP net income per diluted share ⁽¹⁾	$	0.86		$	2.07
Adjusted Non-GAAP net income ⁽²⁾	$	30,294		$	43,894		$	28,579		6.0	%
Adjusted Non-GAAP income per diluted share ^(1)(2)(3)	$	1.52		$	2.21		$	1.44		5.6	%
Adjusted EBITDA ⁽³⁾	$	51,307		$	55,478		$	50,886		0.8	%
Adjusted EBITDA margin ⁽³⁾		53.5	%		62.2	%		57.0	%

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 the case of adjusted non-GAAP net income, 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.

VETERANS ADMINISTRATION

Enterprise Cloud Fax (ECFax), available through our partnership with prime contractor Cognosante, has achieved Authority to Operate (ATO) from the Department of Veterans Affairs (VA), and marks Consensus’ official entry into the U.S. federal government marketplace.

Notes:

(1)		The estimated GAAP effective tax rates were approximately 28.8% for Q3 2022 and 21.9% for Q3 2021. The estimated pro forma Adjusted non-GAAP effective tax rate was approximately 24.0% for Q3 2021. The estimated non-GAAP effective tax rates were approximately 20.9% for Q3 2022 and 19.9% for Q3 2021. The estimated pro forma Adjusted non-GAAP effective tax rate was approximately 24.0% for Q3 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 September 30, 2022 and 2021. Such exclusions totaled $0.66 and $0.14 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 $(0.77) per diluted share for three months ended September 30, 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 Q3 2022 actual results versus Q3 2021 pro forma. Q3 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. See Certain Other Pro Forma Financial Information for a reconciliation from GAAP to pro forma Adjusted non-GAAP net income and pro forma Adjusted non-GAAP income per diluted share.
(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) is the world’s largest digital fax provider and a trusted global source for the transformation, enhancement and secure exchange of digital information. We leverage our 25-year history of success by providing advanced solutions for regulated industries such as healthcare, finance, insurance and manufacturing, as well as state and the federal government. Our solutions consist of: cloud faxing; digital signature; intelligent data extraction using natural language processing and artificial intelligence; robotic process automation; interoperability; and workflow enhancement that result in improved healthcare outcomes. Our solutions can be combined with best-in-class managed services for optimal implementations. For more information about Consensus, visit consensus.com and follow @ConsensusCS on Twitter to learn more.

“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 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

	September 30, 2022			December 31, 2021
ASSETS
Cash and cash equivalents	$	103,683		$	66,778
Accounts receivable, net of allowances of $4,410 and $4,743, respectively		31,075			24,829
Prepaid expenses and other current assets		4,921			4,650
Total current assets		139,679			96,257
Property and equipment, net		47,441			33,849
Operating lease right-of-use assets		7,419			7,233
Intangibles, net		49,702			43,549
Goodwill		342,104			339,209
Deferred income taxes		39,077			41,842
Other assets		1,967			873
TOTAL ASSETS	$	627,389		$	562,812

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Accounts payable and accrued expenses	$	61,695		$	40,206
Income taxes payable, current		4,883			5,227
Deferred revenue, current		26,050			24,370
Operating lease liabilities, current		2,458			2,421
Due to Former Parent		908			5,739
Total current liabilities		95,994			77,963
Long-term debt		793,387			792,040
Deferred revenue, non-current		109			184
Operating lease liabilities, non-current		13,998			14,108
Liability for uncertain tax positions		6,969			4,795
Deferred income taxes		6,239			6,027
Other long-term liabilities		353			360
TOTAL LIABILITIES		917,049			895,477
Commitments and contingencies
Common stock, $0.01 par value. Authorized 120,000,000; total issued is 20,016,950 and 19,978,580 shares and total outstanding is 19,827,836 and 19,978,580 shares at September 30, 2022 and December 31, 2021, respectively		200			200
Treasury stock, at cost (189,114 and zero shares at September 30, 2022 and December 31, 2021, respectively)		(7,596	)		—
Additional paid-in capital		16,419			2,878
Accumulated deficit		(263,954	)		(318,886	)
Accumulated other comprehensive loss		(34,729	)		(16,857	)
TOTAL STOCKHOLDERS’ DEFICIT		(289,660	)		(332,665	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	627,389		$	562,812

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Revenues	$	95,912		$	89,198		$	280,000		$	263,660

Cost of revenues ⁽¹⁾		15,419			14,604			46,111			43,128
Gross profit		80,493			74,594			233,889			220,532
Operating expenses:
Sales and marketing ⁽¹⁾		16,626			13,115			48,850			40,031
Research, development and engineering ⁽¹⁾		3,236			2,019			8,313			5,635
General and administrative ⁽¹⁾		25,604			8,237			61,860			20,262
Total operating expenses		45,466			23,371			119,023			65,928
Income from operations		35,027			51,223			114,866			154,604
Interest expense		(13,941	)		(131	)		(39,573	)		(611	)
Other income, net		2,992			1,552			4,742			1,833
Income before income taxes		24,078			52,644			80,035			155,826
Income tax expense		6,937			11,512			21,915			36,606
Income from continuing operations		17,141			41,132			58,120			119,220
Loss from discontinued operations, net of income taxes ⁽¹⁾		—			(13,908	)		—			(17,118	)
Net income	$	17,141		$	27,224		$	58,120		$	102,102

Net income per common share from continuing operations:
Basic	$	0.86		$	2.07		$	2.92		$	5.99
Diluted	$	0.86		$	2.07		$	2.91		$	5.99

Net loss per common share from discontinued operations:
Basic	$	—		$	(0.70	)	$	—		$	(0.86	)
Diluted	$	—		$	(0.70	)	$	—		$	(0.86	)

Net income per common share:
Basic	$	0.86		$	1.37		$	2.92		$	5.13
Diluted	$	0.86		$	1.37		$	2.91		$	5.13

Weighted average shares outstanding:
Basic		19,791,019			19,902,924			19,879,759			19,902,924
Diluted		19,885,880			19,902,924			19,951,653			19,902,924

⁽¹⁾ Includes share-based compensation expense as follows:
Cost of revenues	$	219		$	37		$	658		$	136
Sales and marketing		269			93			812			281
Research, development and engineering		390			99			1,086			300
General and administrative		3,736			123			12,052			399
Loss from discontinued operations, net of income taxes		—			1,099			—			3,254
Total	$	4,614		$	1,451		$	14,608		$	4,370

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)

	Nine Months Ended September 30,
	2022			2021⁽¹⁾
Cash flows from operating activities:
Net income	$	58,120		$	102,102
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		11,359			48,744
Amortization of financing costs and discounts		1,391			—
Non-cash operating lease costs		1,130			3,991
Share-based compensation		14,608			4,370
Provision for doubtful accounts		5,250			6,562
Deferred income taxes, net		(2,435	)		10,722
Loss on sale of businesses		—			21,798
Goodwill impairment on business		—			32,629
Other		—			3,530
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable		(10,162	)		3,546
Prepaid expenses and other current assets		(83	)		(7,392	)
Other assets		(1,097	)		(1,119	)
Increase (decrease) in:
Accounts payable and accrued expenses		19,991			(13,921	)
Income taxes payable		(140	)		(6,911	)
Deferred revenue		(2,797	)		(2,631	)
Operating lease liabilities		(1,389	)		(6,553	)
Liability for uncertain tax positions		2,174			(2,374	)
Other liabilities		(6,648	)		(704	)
Net cash provided by operating activities		89,272			196,389
Cash flows from investing activities:
Purchases of property and equipment		(21,060	)		(28,280	)
Acquisition of businesses, net of cash received		(12,230	)		(56,838	)
Proceeds from sale of businesses, net of cash divested		—			48,876
Purchases of intangible assets		(1,000	)		(1,511	)
Net cash used in investing activities		(34,290	)		(37,753	)
Cash flows from financing activities:
Debt issuance costs		(232	)		—
Issuance of common stock under employee stock purchase plan		631			—
Repurchase of common stock		(7,596	)		—
Shares withheld related to net share settlement		(1,698	)		—
Deferred payments for acquisitions		—			(6,267	)
Contribution from Former Parent		—			21,238
Other		—			(593	)
Net cash (used in) provided by financing activities		(8,895	)		14,378
Effect of exchange rate changes on cash and cash equivalents		(9,182	)		(3,411	)
Net change in cash and cash equivalents		36,905			169,603
Cash and cash equivalents at beginning of period		66,778			128,189
Cash and cash equivalents at end of period	$	103,683		$	297,792
Less cash and cash equivalents at end of period, discontinued operations		—			266,582
Cash and cash equivalents at end of period, continuing operations	$	103,683		$	31,210

⁽¹⁾The prior period includes cash flows from discontinued operations of the non-Consensus business. As a result, the prior period is not comparable.

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES (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 September 30, 2022 and 2021 to the most closely comparable GAAP measure.

	Three Months Ended September 30,
	2022		Per Diluted Share ^*		2021			Per Diluted Share ^*
Net income	$	17,141	$	0.86	$	41,132		$	2.07
Plus:
Share-based compensation⁽¹⁾		4,460		0.22		336			0.02
Amortization⁽²⁾		814		0.04		888			0.04
Spin-off related costs ⁽³⁾		128		0.01		414			0.02
Non-income related sales tax ⁽⁴⁾		6,425		0.32		—			—
Acquisition related integration costs ⁽⁵⁾		220		0.01		—			—
Intra-entity transfer ⁽⁶⁾		1,106		0.06		1,124			0.06
Adjusted non-GAAP net income	$	30,294	$	1.52	$	43,894		$	2.21
Pro forma adjustments		—		—		(15,315	)		(0.77	)
Pro forma adjusted non-GAAP net income	$	30,294	$	1.52	$	28,579		$	1.44

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

	Three Months Ended September 30,
	2022			2021
Cost of revenues	$	15,419		$	14,604
Plus:
Share-based compensation⁽¹⁾		(219	)		(37	)
Amortization⁽²⁾		—			(1	)
Adjusted non-GAAP cost of revenues	$	15,200		$	14,566

Sales and marketing	$	16,626		$	13,115
Plus:
Share-based compensation⁽¹⁾		(269	)		(93	)
Spin-off related costs ⁽³⁾		—			(50	)
Adjusted non-GAAP sales and marketing	$	16,357		$	12,972

Research, development and engineering	$	3,236		$	2,019
Plus:
Share-based compensation⁽¹⁾		(390	)		(99	)
Spin-off related costs ⁽³⁾		—			(28	)
Adjusted non-GAAP research, development and engineering	$	2,846		$	1,892

General and administrative	$	25,604		$	8,237
Plus:
Share-based compensation⁽¹⁾		(3,736	)		(123	)
Amortization⁽²⁾		(1,061	)		(1,211	)
Spin-off related costs ⁽³⁾		(157	)		(485	)
Non-income related sales tax ⁽⁴⁾		(7,422	)		—
Acquisition related integration costs ⁽⁵⁾		(291	)		—
Adjusted non-GAAP general and administrative	$	12,937		$	6,418

Interest expense	$	(13,941	)	$	(131	)
Plus:
Non-income related sales tax ⁽⁴⁾		657			—
Adjusted non-GAAP interest expense, net	$	(13,284	)	$	(131	)

Income tax expense	$	6,937		$	11,512
Plus:
Share-based compensation⁽¹⁾		154			16
Amortization⁽²⁾		247			324
Spin-off related costs ⁽³⁾		29			149
Non-income related sales tax ⁽⁴⁾		1,654			—
Acquisition related costs ⁽⁵⁾		71			—
Intra-entity Transfer of IP ⁽⁶⁾		(1,106	)		(1,124	)
Adjusted non-GAAP income tax expense	$	7,986		$	10,877

Total adjustments	$	(13,153	)	$	(2,762	)

GAAP earnings per diluted share	$	0.86		$	2.07
Adjustments *	$	0.66		$	0.14
Adjusted non-GAAP earnings per diluted share	$	1.52		$	2.21

^*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.

Contacts

Laura Hinson

Consensus Cloud Solutions, Inc

844-211-1711

[email protected]

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Source: https://thenewscrypto.com/consensus-cloud-solutions-inc-reports-third-quarter-2022-results/