Consensus Cloud Solutions, Inc. Reports Second Quarter 2022 Results Reaffirms 2022 Guidance

LOS ANGELES, August 09, 2022--(BUSINESS WIRE)--Consensus Cloud Solutions, Inc. (NASDAQ: CCSI) today reported preliminary financial results for the second quarter 2022.

"I am pleased with our Q2 financial results in this inflationary and soft economy. Our corporate channel continued to drive our growth with a 17% increase over Q2 2021 and has a robust pipeline of enterprise opportunities for the second half of 2022. In addition, the Company continued to produce excellent margins and continued to make progress in attaining the authority to operate from the Veterans Administration which is expected in Q3." said Scott Turicchi, CEO of Consensus.

SECOND QUARTER 2022 HIGHLIGHTS

Q2 2022 GAAP quarterly revenues increased by $5.4 million or 6.1% to $93.2 million compared with $87.8 million for Q2 2021. Our growth was primarily due to an increase of $7.2 million or 17.1% in our corporate business (inclusive of $2.6 million due to the Summit acquisition); partially offset by a decline of $1.8 million or 3.9% in our SoHo business ($1.0 million or 1.7% on a Fx neutral basis).

GAAP net income from continuing operations decreased to $22.3 million in Q2 2022 compared to $38.9 million for Q2 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 and increased headcount; partially offset by higher revenues.

GAAP earnings per diluted share from continuing operations ⁽¹⁾ decreased to $1.11 in Q2 2022 compared to $2.04 for Q2 2021. The decrease is primarily related to the items discussed above.

Adjusted EBITDA ⁽³⁾ for Q2 2022 of $50.3 million is favorable compared to Q2 2021 pro forma adjusted EBITDA ⁽⁵⁾ of $50.0 million. Adjusted non-GAAP earnings per diluted share ⁽²⁾⁽³⁾ for the quarter increased to $1.45 or 6.6% compared to pro forma Adjusted non-GAAP earnings per diluted share ⁽²⁾⁽³⁾ of $1.36 for Q2 2021.

Consensus ended the quarter with $76.3 million in cash and cash equivalents after cash outlays related to interest expense payments of $26.5 million (occurring in Q2 and Q4), share repurchases of $7.6 million and other significant payments of ~$20 million.

Key financial results from continuing operations for Q2 2022 versus Q2 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)
	Q2 2022				Q2 2021			Q2 2021			% Change
Revenues	$	93,163			$	87,842		$	87,842		6.1	%
GAAP net income	$	22,274			$	38,854
GAAP net income per diluted share (1)	$	1.11			$	2.04
Adjusted Non-GAAP net income (2)	$	29,006			$	41,175		$	26,982		7.5	%
Adjusted Non-GAAP income per diluted share (2)(3)	$	1.45			$	2.07		$	1.36		6.6	%
Adjusted EBITDA (3)	$	50,303			$	54,851		$	50,017		0.6	%
Adjusted EBITDA margin (3)		54.0	%			62.4	%		56.9	%

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.

Notes:

(1)		The estimated GAAP effective tax rates were approximately 26.3% for Q2 2022 and 24.3% for Q2 2021. The estimated pro forma Adjusted non-GAAP effective tax rate was approximately 24.0% for Q2 2021. The estimated non-GAAP effective tax rates were approximately 21.2% for Q2 2022 and 22.2% for Q2 2021. The estimated pro forma Adjusted non-GAAP effective tax rate was approximately 24.0% for Q2 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 June 30, 2022 and 2021. Such exclusions totaled $0.34 and $0.12 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 $(0.59) per diluted share for three months ended June 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 Q2 2022 actual results versus Q2 2021 pro forma. Q2 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) is a global leader of digital cloud transmission and interoperability solutions. The company leverages its 25-year technology heritage to provide secure solutions that transform simple digital documents into actionable information, including advanced healthcare standards HL7 and FHIR for secure data exchange. Consensus offers eFax Corporate ^(TM), a leading global cloud faxing solution; Consensus Signal for automatic real-time healthcare communications; Consensus Clarity, a Natural Language Processing and Artificial Intelligence solution; Consensus Unite and Consensus Harmony interoperability solutions; and jsign ^(TM) for secure digital signatures built on blockchain. 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)
	June 30, 2022				December 31, 2021
ASSETS
Cash and cash equivalents	$	76,292			$	66,778
Accounts receivable, net of allowances of $4,372 and $4,743, respectively		29,926				24,829
Prepaid expenses and other current assets		4,910				4,650
Total current assets		111,128				96,257
Property and equipment, net		42,610				33,849
Operating lease right-of-use assets		7,762				7,233
Intangibles, net		51,922				43,549
Goodwill		347,855				339,209
Deferred income taxes		41,592				41,842
Other assets		1,151				873
TOTAL ASSETS	$	604,020			$	562,812
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Accounts payable and accrued expenses	$	39,509			$	40,206
Income taxes payable, current		5,199				5,227
Deferred revenue, current		30,606				24,370
Operating lease liabilities, current		2,422				2,421
Due to Former Parent		4,434				5,739
Total current liabilities		82,170				77,963
Long-term debt		792,916				792,040
Deferred revenue, non-current		134				184
Operating lease liabilities, non-current		14,483				14,108
Liability for uncertain tax positions		6,253				4,795
Deferred income taxes		6,176				6,027
Other long-term liabilities		1,105				360
TOTAL LIABILITIES		903,237				895,477
Commitments and contingencies
Common stock, $0.01 par value. Authorized 120,000,000; total issued is 20,015,838 and 19,978,580 shares and total outstanding is 19,826,724 and 19,978,580 shares at June 30, 2022 and December 31, 2021, respectively.		200				200
Additional paid-in capital		11,913				2,878
Treasury stock, at cost (189,114 and zero shares at June 30, 2022 and December 31, 2021, respectively).		(7,596	)			—
Accumulated deficit		(280,416	)			(318,886	)
Accumulated other comprehensive loss		(23,318	)			(16,857	)
TOTAL STOCKHOLDERS’ DEFICIT		(299,217	)			(332,665	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	604,020			$	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 June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
Revenues	$	93,163			$	87,842			$	184,088			$	174,462
Cost of revenues (1)		15,587				14,554				30,692				28,524
Gross profit		77,576				73,288				153,396				145,938
Operating expenses:
Sales and marketing (1)		16,394				13,681				32,224				26,916
Research, development and engineering (1)		2,741				1,940				5,077				3,616
General and administrative (1)		17,450				5,976				36,256				12,025
Total operating expenses		36,585				21,597				73,557				42,557
Income from operations		40,991				51,691				79,839				103,381
Interest expense		(12,359	)			(254	)			(25,632	)			(480	)
Other income (expense), net		1,577				(97	)			1,750				281
Income before income taxes		30,209				51,340				55,957				103,182
Income tax expense		7,935				12,486				14,978				25,094
Income from continuing operations		22,274				38,854				40,979				78,088
Income from discontinued operations, net of income taxes (1)		—				(11,337	)			—				(3,210	)
Net income	$	22,274			$	27,517			$	40,979			$	74,878
Net income per common share from continuing operations:
Basic	$	1.12			$	1.95			$	2.05			$	3.92
Diluted	$	1.11			$	1.95			$	2.04			$	3.92
Net income per common share from discontinued operations:
Basic	$	—			$	(0.57	)		$	—			$	(0.16	)
Diluted	$	—			$	(0.57	)		$	—			$	(0.16	)
Net income per common share:
Basic	$	1.12			$	1.38			$	2.05			$	3.76
Diluted	$	1.11			$	1.38			$	2.04			$	3.76
Weighted average shares outstanding:
Basic		19,928,316				19,902,924				19,924,864				19,902,924
Diluted		19,965,204				19,902,924				19,985,275				19,902,924
(1) Includes share-based compensation expense as follows:
Cost of revenues	$	216			$	49			$	439			$	99
Sales and marketing		270				93				543				188
Research, development and engineering		340				99				696				201
General and administrative		3,955				140				8,316				276
Income from discontinued operations, net of income taxes		—				1,048				—				2,156
Total	$	4,781			$	1,429			$	9,994			$	2,920

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
	Six Months Ended June 30,
		2022				2021 (1)
Cash flows from operating activities:
Net income	$	40,979			$	74,878
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,564				32,662
Amortization of financing costs and discounts		901				—
Non-cash operating lease costs		787				3,749
Share-based compensation		9,994				2,920
Provision for doubtful accounts		3,262				3,194
Deferred income taxes, net		(2,435	)			(4,289	)
Gain on sale of businesses		—				(2,802	)
Goodwill impairment on business		—				32,629
Other		—				1,508
Changes in operating assets and liabilities:
Accounts receivable		(7,351	)			(6,271	)
Prepaid expenses and other current assets		(37	)			(4,401	)
Other assets		(279	)			1,592
Accounts payable and accrued expenses		(1,857	)			2,318
Income taxes payable		60				(6,027	)
Deferred revenue		1,409				(1,128	)
Operating lease liabilities		(939	)			(4,205	)
Liability for uncertain tax positions		1,458				(4,008	)
Other liabilities		(1,310	)			4,298
Net cash provided by operating activities		52,206				126,617
Cash flows from investing activities:				...