UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Item 2.02. Results of Operations and Financial Condition.
On October 7, 2021, J2 Global, Inc. (“J2 Global”), now known as Ziff Davis, Inc. (“Ziff Davis”), completed its previously announced plans to separate into two leading publicly traded companies: one addressing healthcare interoperability and comprising the Cloud Fax business, which will do business as Consensus Cloud Solutions, Inc. (“Consensus” or the “Company”), and one that will continue J2 Global’s strategy of building a leading internet platform focused on key verticals, including technology & gaming, shopping, health, cybersecurity and martech, which will do business as Ziff Davis. We refer to the transactions that resulted in the separation of Consensus and Ziff Davis into two separate publicly traded companies as the “separation and distribution.” See the Registration Statement on Form 10 of Consensus, including the information statement that is Exhibit 99.1 thereto, for full description of the internal reorganization undertaken in connection with the separation and distribution and the separation and distribution.
Consensus is providing the financial information attached as Exhibits 99.1 and 99.2 in connection with its investor call scheduled for 5:00 eastern time on November 9, 2021.
Historical J2 Cloud Services LLC – Exhibit 99.1
Pursuant to the separation, J2 Cloud Services, LLC (“J2 Cloud Services”) became a wholly owned subsidiary of Consensus. In connection with the separation and distribution, J2 Cloud Services sold or transferred to entities that would be part of Ziff Davis following the separation and distribution, including its B2B backup business, cybersecurity business and SMB enablement business (the “internal reorganization”). However, as of September 30, 2021, the internal reorganization and the separation and distribution had not been completed. Consequently, the financial information in Exhibit 99.1 relating to J2 Cloud Services presents J2 Cloud Services as it was comprised as of September 30, 2021, without giving effect to the internal reorganization and other transactions that occurred in connection with the separation and distribution.
The financial information of J2 Cloud Services included in Exhibit 99.1 therefore does not reflect Consensus as it is currently constituted following the internal reorganization and separation and therefore does not necessarily reflect the financial position, results of operations or cash flows of Consensus following the separation or what Consensus’ financial position, results of operations and cash flows would have been had Consensus been a separate, standalone secure information exchange business with an emphasis on healthcare interoperability during the periods presented.
Pro Forma Consensus Cloud Solutions, Inc. -Exhibit 99.2
Consensus has provided certain unaudited pro forma financial information for Consensus in Exhibit 99.2, which gives effect to the internal reorganization and the separation. The pro forma financial information has been presented for informational purposes only and is not necessarily indicative of what Consensus’ financial position or results of operations actually would have been had the separation, distribution and other related transactions been completed as of the dates indicated in Exhibit 99.2. In addition, the pro forma financial information does not purport to project the future financial position or results of operations of Consensus.
The unaudited pro forma financial information included in Exhibit 99.2 primarily gives effect to the following:
| • | the sale of the B2B backup business and the transfer of the cybersecurity and SMB enablement businesses to legal entities that are a part of Ziff Davis after the separation; |
| • | the incremental costs to be incurred by Consensus as a standalone public entity and overhead shared prior to the separation from Ziff Davis such as legal, accounting, finance, human resource and payroll, net of tax; and |
| • | the issuance of $805 million of debt by Consensus in connection with the separation capitalization plan. |
The information in this Item 2.02, including Exhibits 99.1 and 99.2, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
| Exhibit No. |
Exhibit | |
| 99.1 | Selected Unaudited Financial Information of J2 Cloud Services, LLC | |
| 99.2 | Selected Unaudited Pro Forma Financial Information of Consensus Cloud Services, Inc. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Consensus Cloud Solutions, Inc. (Registrant) | ||
| /s/ Vithya Aubee | ||
| Vithya Aubee | ||
| Vice President and Secretary | ||
| Date: November 9, 2021 | ||
Exhibit 99.1
J2 CLOUD SERVICES, LLC CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
(UNAUDITED, IN THOUSANDS)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Total revenues |
$ | 182,103 | $ | 170,248 | $ | 528,891 | $ | 507,090 | ||||||||
| Cost of revenues |
40,707 | 38,421 | 115,860 | 116,208 | ||||||||||||
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|||||||||
| Gross profit |
141,396 | 131,827 | 413,031 | 390,882 | ||||||||||||
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| Operating expenses: |
||||||||||||||||
| Sales and marketing |
38,413 | 28,855 | 110,807 | 87,231 | ||||||||||||
| Research, development and engineering |
8,259 | 4,886 | 21,995 | 16,484 | ||||||||||||
| General and administrative |
37,262 | 35,579 | 104,610 | 106,850 | ||||||||||||
| Goodwill impairment on business |
— | — | 32,629 | — | ||||||||||||
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| Total operating expenses |
83,934 | 69,320 | 270,041 | 210,565 | ||||||||||||
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| Income from operations |
57,462 | 62,507 | 142,990 | 180,317 | ||||||||||||
| Interest expense, net |
— | (10,204 | ) | (160 | ) | (30,556 | ) | |||||||||
| (Loss) gain on sale of businesses |
(24,600 | ) | 17,122 | (21,798 | ) | 17,122 | ||||||||||
| Other income, net |
877 | 14,909 | 1,408 | 16,165 | ||||||||||||
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| Income before income taxes |
33,739 | 84,334 | 122,440 | 183,048 | ||||||||||||
| Income tax expense |
6,515 | 25,411 | 20,338 | 49,714 | ||||||||||||
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| Net income |
$ | 27,224 | $ | 58,923 | $ | 102,102 | $ | 133,334 | ||||||||
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Exhibit 99.2
CONSENSUS CLOUD SOLUTIONS, INC
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
(UNAUDITED, IN THOUSANDS)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Total revenues |
$ | 89,106 | 83,964 | 263,385 | 245,579 | |||||||||||
| Cost of revenues |
14,749 | 13,682 | 43,564 | 39,947 | ||||||||||||
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|||||||||
| Gross profit |
74,357 | 70,282 | 219,821 | 205,632 | ||||||||||||
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| Operating expenses: |
||||||||||||||||
| Sales and marketing |
13,113 | 11,826 | 40,029 | 35,570 | ||||||||||||
| Research, development and engineering |
2,019 | 1,529 | 5,635 | 5,162 | ||||||||||||
| General and administrative |
12,279 | 10,525 | 33,088 | 32,455 | ||||||||||||
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| Total operating expenses |
27,411 | 23,880 | 78,752 | 73,187 | ||||||||||||
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| Income from operations |
46,946 | 46,402 | 141,069 | 132,445 | ||||||||||||
| Interest expense, net |
(12,891 | ) | (12,730 | ) | (38,512 | ) | (38,512 | ) | ||||||||
| Other (expense) income, net |
(646 | ) | 19,512 | (90 | ) | 20,892 | ||||||||||
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| Income before income taxes |
33,409 | 53,184 | 102,467 | 114,825 | ||||||||||||
| Income tax expense |
8,018 | 12,764 | 24,592 | 27,558 | ||||||||||||
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| Net income |
$ | 25,391 | $ | 40,420 | $ | 77,875 | $ | 87,267 | ||||||||
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PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(UNAUDITED, IN THOUSANDS)
| Historical Cloud Services |
Adjustment Related to Ziff Davis Distribution (1) |
Pro Forma Adjustments (2) |
Consensus Pro Forma |
|||||||||||||
| Total revenues |
$ | 528,891 | $ | 265,506 | $ | — | $ | 263,385 | ||||||||
| Cost of revenues |
115,860 | 71,860 | 436 | 43,564 | ||||||||||||
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| Gross profit |
413,031 | 193,646 | (436 | ) | 219,821 | |||||||||||
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| Operating expenses: |
||||||||||||||||
| Sales and marketing |
110,807 | 70,778 | — | 40,029 | ||||||||||||
| Research, development and engineering |
21,995 | 16,360 | — | 5,635 | ||||||||||||
| General and administrative |
104,610 | 57,773 | 13,749 | 33,088 | ||||||||||||
| Goodwill impairment on business |
32,629 | 32,629 | — | — | ||||||||||||
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| Total operating expenses |
270,041 | 177,540 | 13,749 | 78,752 | ||||||||||||
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| Income from operations |
142,990 | 16,106 | (14,185 | ) | 141,069 | |||||||||||
| Interest expense, net |
(160 | ) | 76,864 | (38,512 | ) | (38,512 | ) | |||||||||
| Loss on sale of businesses |
(21,798 | ) | (21,798 | ) | — | — | ||||||||||
| Other income (expense), net |
1,408 | 1,498 | — | (90 | ) | |||||||||||
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| Income before income taxes |
122,440 | 72,670 | (52,697 | ) | 102,467 | |||||||||||
| Income tax expense |
20,338 | (9,949 | ) | 5,695 | 24,592 | |||||||||||
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| Net income |
$ | 102,102 | $ | 82,619 | $ | (58,392 | ) | $ | 77,875 | |||||||
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| (1) | Reflects J2 Cloud Services’ transfer of the revenue and expenses associated with backup, cybersecurity and SMB enablement businesses and historical shared services cost such as legal, accounting, finance, human resource and payroll to legal entities owned by Ziff Davis, Inc. (“Ziff Davis”), formerly J2 Global, Inc. |
| (2) | 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 estimated statutory income tax rate of 24%. |
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
(UNAUDITED, IN THOUSANDS)
| Historical Cloud Services |
Adjustment Related to Ziff Davis Distribution (1) |
Pro Forma Adjustments (2) |
Consensus Pro Forma |
|||||||||||||
| Total revenues |
$ | 507,090 | $ | 261,511 | $ | — | $ | 245,579 | ||||||||
| Cost of revenues |
116,208 | 75,825 | 436 | 39,947 | ||||||||||||
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| Gross profit |
390,882 | 185,686 | (436 | ) | 205,632 | |||||||||||
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|||||||||
| Operating expenses: |
||||||||||||||||
| Sales and marketing |
87,231 | 51,661 | — | 35,570 | ||||||||||||
| Research, development and engineering |
16,484 | 11,322 | — | 5,162 | ||||||||||||
| General and administrative |
106,850 | 60,326 | 14,069 | 32,455 | ||||||||||||
| Goodwill impairment on business |
— | — | — | — | ||||||||||||
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| Total operating expenses |
210,565 | 123,309 | 14,069 | 73,187 | ||||||||||||
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| Income from operations |
180,317 | 62,377 | (14,505 | ) | 132,445 | |||||||||||
| Interest expense, net |
(30,556 | ) | 46,468 | (38,512 | ) | (38,512 | ) | |||||||||
| Gain on sale of businesses |
17,122 | 17,122 | — | — | ||||||||||||
| Other income (expense), net |
16,165 | (4,727 | ) | — | 20,892 | |||||||||||
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| Income before income taxes |
183,048 | 121,240 | (53,017 | ) | 114,825 | |||||||||||
| Income tax expense |
49,714 | 18,909 | 3,247 | 27,558 | ||||||||||||
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| Net income |
$ | 133,334 | $ | 102,331 | $ | (56,264 | ) | $ | 87,267 | |||||||
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|||||||||
(1) Reflects J2 Cloud Services’ transfer of the revenue and expenses associated with backup, cybersecurity and SMB enablement businesses and historical shared services cost such as legal, accounting, finance, human resource and payroll to legal entities owned by Ziff Davis.
(2) 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 estimated statutory income tax rate of 24%. |
CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES
RECONCILIATION OF PRO FORMA NET INCOME TO ADJUSTED NON-GAAP NET INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED, IN THOUSANDS)
Adjusted non-GAAP net income is GAAP net income with the following modifications: (1) elimination of share-based compensation; (2) elimination of certain acquisition related integration costs; (3) elimination of disposal related costs; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of gain or loss on sale of assets; and (6) elimination of intra-entity transfers.
| Three Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Pro forma net income |
$ | 25,391 | $ | 40,420 | ||||
| Plus: |
||||||||
| Share based compensation (1) |
268 | 364 | ||||||
| Disposal related costs (3) |
428 | — | ||||||
| Amortization (4) |
921 | 1,421 | ||||||
| Sale of assets (5) |
— | (37 | ) | |||||
| Intra-entity transfers (6) |
— | (15,409 | ) | |||||
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| Adjusted non-GAAP net income |
$ | 27,008 | $ | 26,759 | ||||
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CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES
RECONCILIATION OF PRO FORMA NET INCOME TO ADJUSTED NON-GAAP NET INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED, IN THOUSANDS)
Adjusted non-GAAP net income is GAAP net income with the following modifications: (1) elimination of share-based compensation; (2) elimination of certain acquisition related integration costs; (3) elimination of disposal related costs; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of gain or loss on sale of assets; and (6) elimination of intra-entity transfers.
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Pro forma net income |
$ | 77,875 | $ | 87,267 | ||||
| Plus: |
||||||||
| Share based compensation (1) |
848 | 1,073 | ||||||
| Acquisition related integration costs (2) |
366 | (21 | ) | |||||
| Disposal related costs (3) |
428 | — | ||||||
| Amortization (4) |
2,740 | 3,725 | ||||||
| Sale of assets (5) |
152 | (255 | ) | |||||
| Intra-entity transfers (6) |
— | (16,432 | ) | |||||
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| Adjusted non-GAAP net income |
$ | 82,409 | $ | 75,357 | ||||
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CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES
RECONCILIATION OF PRO FORMA TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED, IN THOUSANDS)
The following table sets forth reconciliations regarding certain pro forma non-GAAP measures for the three months ended September 30, 2021 and 2020 to the most closely comparable pro forma GAAP measure.
| Three Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cost of revenues |
$ | 14,749 | $ | 13,682 | ||||
| Plus: |
||||||||
| Share based compensation (1) |
(37 | ) | (59 | ) | ||||
| Amortization (4) |
(1 | ) | (220 | ) | ||||
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| Adjusted non-GAAP cost of revenues |
$ | 14,711 | $ | 13,403 | ||||
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| Sales and marketing |
$ | 13,113 | $ | 11,826 | ||||
| Plus: |
||||||||
| Share based compensation (1) |
(93 | ) | (103 | ) | ||||
| Disposal related costs (3) |
(50 | ) | — | |||||
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| Adjusted non-GAAP sales and marketing |
$ | 12,970 | $ | 11,723 | ||||
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| Research, development and engineering |
$ | 2,019 | $ | 1,529 | ||||
| Plus: |
||||||||
| Share based compensation (1) |
(99 | ) | (42 | ) | ||||
| Disposal related costs (3) |
(28 | ) | — | |||||
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| Adjusted non-GAAP research, development and engineering |
$ | 1,892 | $ | 1,487 | ||||
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|||||
| General and administrative |
$ | 12,279 | $ | 10,525 | ||||
| Plus: |
||||||||
| Share based compensation (1) |
(123 | ) | (275 | ) | ||||
| Disposal related costs (3) |
(485 | ) | — | |||||
| Amortization (4) |
(1,211 | ) | (1,650 | ) | ||||
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|||||
| Adjusted non-GAAP general and administrative |
$ | 10,460 | $ | 8,600 | ||||
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| Other expense, net |
$ | (646 | ) | $ | 19,512 | |||
| Plus: |
||||||||
| Sale of assets (5) |
— | (48 | ) | |||||
| Intra-entity transfers (6) |
— | (20,275 | ) | |||||
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| Adjusted non-GAAP other income (expense), net |
$ | (646 | ) | $ | (811 | ) | ||
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| Income tax provision |
8,018 | $ | 12,764 | |||||
| Plus: |
||||||||
| Share based compensation (1) |
84 | 115 | ||||||
| Disposal related costs (3) |
135 | — | ||||||
| Amortization (4) |
291 | 449 | ||||||
| Sale of assets (5) |
— | (11 | ) | |||||
| Intra-entity transfers (6) |
— | (4,866 | ) | |||||
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| Adjusted non-GAAP income tax provision |
$ | 8,528 | $ | 8,451 | ||||
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| Total adjustments |
$ | (1,617 | ) | $ | 13,661 | |||
CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES
RECONCILIATION OF PRO FORMA TO ADJUSTED NON-GAAP FINANCIAL MEASURES
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED, IN THOUSANDS)
The following table sets forth reconciliations regarding certain pro forma non-GAAP measures for the nine months ended September 30, 2021 and 2020 to the most closely comparable pro forma GAAP measure.
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cost of revenues |
$ | 43,564 | $ | 39,947 | ||||
| Plus: |
||||||||
| Share based compensation (1) |
(136 | ) | (158 | ) | ||||
| Amortization (4) |
(5 | ) | (255 | ) | ||||
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| Adjusted non-GAAP cost of revenues |
$ | 43,423 | $ | 39,534 | ||||
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| Sales and marketing |
$ | 40,029 | $ | 35,570 | ||||
| Plus: |
||||||||
| Share based compensation (1) |
(281 | ) | (342 | ) | ||||
| Disposal related costs (3) |
(50 | ) | — | |||||
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| Adjusted non-GAAP sales and marketing |
$ | 39,698 | $ | 35,228 | ||||
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| Research, development and engineering |
$ | 5,635 | $ | 5,162 | ||||
| Plus: |
||||||||
| Share based compensation (1) |
(300 | ) | (309 | ) | ||||
| Disposal related costs (3) |
(28 | ) | — | |||||
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| Adjusted non-GAAP research, development and engineering |
$ | 5,307 | $ | 4,853 | ||||
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| General and administrative |
$ | 33,088 | $ | 32,455 | ||||
| Plus: |
||||||||
| Share based compensation (1) |
(399 | ) | (603 | ) | ||||
| Acquisition related integration costs (2) |
(482 | ) | 28 | |||||
| Disposal related costs (3) |
(485 | ) | — | |||||
| Amortization (4) |
(3,600 | ) | (4,646 | ) | ||||
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| Adjusted non-GAAP general and administrative |
$ | 28,122 | $ | 27,234 | ||||
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| Other income (expense), net |
$ | (90 | ) | $ | 20,892 | |||
| Plus: |
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| Sale of assets (5) |
200 | (335 | ) | |||||
| Intra-entity transfers (6) |
— | (21,621 | ) | |||||
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| Adjusted non-GAAP other income (expense), net |
$ | 110 | $ | (1,064 | ) | |||
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| Income tax provision |
24,592 | $ | 27,558 | |||||
| Plus: |
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| Share based compensation (1) |
268 | 339 | ||||||
| Acquisition related integration costs (2) |
116 | (7 | ) | |||||
| Disposal related costs (3) |
135 | — | ||||||
| Amortization (4) |
865 | 1,176 | ||||||
| Sale of assets (5) |
48 | (80 | ) | |||||
| Intra-entity transfers (6) |
— | (5,189 | ) | |||||
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| Adjusted non-GAAP income tax provision |
$ | 26,024 | $ | 23,797 | ||||
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| Total adjustments |
$ | (4,534 | ) | $ | 11,910 | |||
Non-GAAP Financial Measures
To supplement its unaudited pro forma condensed consolidated financial statements, which are prepared and presented in accordance with US GAAP, the Company uses the following Non-GAAP financial measures: Adjusted EBITDA and Adjusted non-GAAP Net Income (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 provide meaningful supplemental information regarding operational performance. 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) 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.
(3) Disposal related Costs. The Company excludes expenses associated with the disposal of certain businesses. 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.
(4) 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 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.
(5) Gain/loss on Sale of Assets. The Company excludes the gain/loss 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.
(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 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.
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 Other Income (Expense), net, Adjusted non-GAAP Income Tax Provision, 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
PRO FORMA NET INCOME TO ADJUSTED EBITDA RECONCILIATION
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED, IN THOUSANDS)
The following table sets forth a reconciliation of pro forma net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Pro forma net income |
$ | 25,391 | $ | 40,420 | $ | 77,875 | $ | 87,267 | ||||||||
| Plus: |
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| Interest expense, net |
12,891 | 12,730 | 38,512 | 38,512 | ||||||||||||
| Other income (expense), net |
646 | (19,512 | ) | 90 | (20,892 | ) | ||||||||||
| Income tax expense |
8,018 | 12,764 | 24,592 | 27,558 | ||||||||||||
| Depreciation and amortization |
3,340 | 2,872 | 8,941 | 8,181 | ||||||||||||
| Reconciliation of GAAP to Adjusted non-GAAP financial measures: |
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| Share-based compensation |
352 | 479 | 1,116 | 1,412 | ||||||||||||
| Acquisition-related integration costs |
— | — | 482 | (28 | ) | |||||||||||
| Disposal related costs |
563 | — | 563 | — | ||||||||||||
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| Adjusted EBITDA |
$ | 51,201 | $ | 49,753 | $ | 152,171 | $ | 142,010 | ||||||||
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Adjusted EBITDA as calculated above represents earnings before interest, other (income) expense, net, income tax expense, depreciation and amortization and the items used to reconcile GAAP to Adjusted non-GAAP financial measures, including (1) share-based compensation, (2) certain acquisition-related integration costs, and (3) certain disposal 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.
Certain Other Pro Forma Financial Information (Unaudited)
The following table sets forth certain pro forma financial and operating information for Consensus for the three months ended September 30, 2021 and 2020 (in millions).
| Three Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Corporate Revenue |
$ | 42.3 | $ | 37.4 | ||||
| Corporate Accounts |
45 | 46 | ||||||
| Corporate ARPA (1) |
$ | 311.37 | $ | 276.18 | ||||
| Corporate Paid Adds (2) |
3 | 3 | ||||||
| Corporate Monthly Account Churn (3) |
3.21 | % | 1.36 | % | ||||
| SoHo Revenue |
$ | 46.8 | $ | 46.6 | ||||
| SoHo Accounts |
1,080 | 1,100 | ||||||
| SoHo ARPA(1) |
$ | 14.39 | $ | 14.18 | ||||
| SoHo Paid Adds (2) |
98 | 108 | ||||||
| SoHo Monthly Account Churn (3) |
3.17 | % | 2.93 | % | ||||
| (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. |