Consensus Cloud Solutions, Inc. Reports Third Quarter 2022 Results

Rhea-AI Summary

Consensus Cloud Solutions, Inc. (NASDAQ: CCSI) reported its Q3 2022 financial results, marking a 7.5% increase in GAAP revenues to $95.9 million, driven by an 18.6% rise in Corporate business. However, GAAP net income decreased to $17.1 million from $41.1 million in Q3 2021, influenced by rising interest and operational costs. The company reaffirmed its 2022 revenue guidance of $375-$385 million and reported a new milestone with the Veterans Administration's Authority to Operate for its Enterprise Cloud Fax service, enhancing prospects for future growth.

Positive

• Q3 2022 GAAP revenues increased by $6.7 million or 7.5% year-over-year.
• Corporate business revenue rose by $8.0 million or 18.6%, contributing to overall revenue growth.
• Adjusted EBITDA for Q3 2022 improved to $51.3 million compared to pro forma $50.9 million in Q3 2021.
• Received Authority to Operate from the Veterans Administration, opening new market opportunities.

Negative

• GAAP net income fell to $17.1 million, down from $41.1 million in Q3 2021.
• Earnings per diluted share decreased to $0.86 from $2.07 in Q3 2021.
• Adjusted EBITDA margin dropped to 53.5% from 62.2% in the previous year.

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.

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 sales tax. The Company has excluded certain non-income related sales taxes because 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) 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. 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.

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 (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 September 30,
	2022				2021				Pro Forma 2021
Net income	$	17,141			$	41,132			$	28,579
Plus:
Interest expense		13,941				131				12,706
Other income, net		(2,992	)			(1,552	)			(1,552	)
Income tax expense		6,937				11,512				9,025
Depreciation and amortization		3,795				3,340				2,128
EBITDA:
Plus:
Share-based compensation		4,614				352				—
Spin-off related costs		157				563				—
Non-income related sales tax		7,423				—				—
Acquisition related costs		291				—				—
Adjusted EBITDA	$	51,307			$	55,478			$	50,886

Adjusted EBITDA as calculated above represents earnings before interest, other income, net, income tax expense and 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; and (4) acquisition related costs. 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 (1)				Q3				Q4			YTD
2022
Net cash provided by operating activities	$	49,908			$	2,298			$	37,066			$	—		$	89,272
Less: Purchases of property and equipment		(6,915	)			(6,829	)			(7,316	)			—			(21,060	)
Free cash flows	$	42,993			$	(4,531	)		$	29,750			$	—		$	68,212

⁽¹⁾ Net cash provided by operating activities during the second quarter was impacted by cash outlays related to interest expense payments of $26.5 million (occurring in Q2 and Q4) and other significant payments of ~$20 million.

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 SEPTEMBER 30, 2021 (UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
	Consensus				Non-GAAP Adjustments				Pro Forma Adjustments (1)				Consensus Pro Forma
Revenues	$	89,198			$	—			$	—			$	89,198
Cost of revenues		14,604				(38	)			146				14,712
Gross profit		74,594				38				(146	)			74,486
Operating expenses:
Sales and marketing		13,115				(143	)			—				12,972
Research, development and engineering		2,019				(127	)			—				1,892
General and administrative		8,237				(1,819	)			4,446				10,864
Total operating expenses		23,371				(2,089	)			4,446				25,728
Income from operations		51,223				2,127				(4,592	)			48,758
Interest expense		(131	)			—				(12,575	)			(12,706	)
Interest income		—				—				—				—
Other expense, net		1,552				—				—				1,552
Income before income taxes		52,644				2,127				(17,167	)			37,604
Income tax expense		11,512				(635	)			(1,852	)			9,025
Net income	$	41,132			$	2,762			$	(15,315	)		$	28,579
Net income per common share from continuing operations:
Basic	$	2.07			$	0.14			$	(0.77	)		$	1.44
Diluted	$	2.07			$	0.14			$	(0.77	)		$	1.44
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 September 30, 2022 and 2021 (in thousands, except for percentages):

	Three Months Ended September 30,
	2022				2021
Corporate revenue	$	51,202			$	43,175
Corporate customer accounts		47				45
Corporate ARPA (1)	$	364.82			$	314.69
Corporate paid adds (2)		4				3
Corporate monthly account churn (3)		1.71	%			3.20	%
SoHo revenue	$	44,708			$	45,931
SoHo customer accounts		978				1,064
SoHo ARPA (1)	$	15.06			$	14.34
SoHo paid adds (2)		86				98
SoHo monthly account churn (3)		3.60	%			3.21	%

⁽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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221110005903/en/

Laura Hinson

Consensus Cloud Solutions, Inc

844-211-1711

investor@consensus.com

Source: Consensus Cloud Solutions, Inc.

FAQ

What were Consensus Cloud Solutions' Q3 2022 revenue results?

Consensus Cloud Solutions reported Q3 2022 revenues of $95.9 million, a 7.5% increase from Q3 2021.

How did CCSI perform in terms of net income in Q3 2022?

CCSI's GAAP net income for Q3 2022 was $17.1 million, a significant decrease from $41.1 million in the same quarter of 2021.

What is the adjusted EBITDA for CCSI in Q3 2022?

The adjusted EBITDA for CCSI in Q3 2022 was $51.3 million, slightly above pro forma adjusted EBITDA of $50.9 million for Q3 2021.

Did CCSI receive any significant approvals recently?

Yes, Consensus Cloud Solutions received the Authority to Operate from the Veterans Administration, marking an important milestone.

What is the revenue guidance for Consensus Cloud Solutions for 2022?

The company reaffirmed its 2022 revenue guidance, estimating revenues between $375 million and $385 million.