Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the year ended December 31, 2021, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report due to a material weakness in internal control over financial reporting, described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The Company did not design and maintain effective internal controls over the accounting for certain elements of the spin-off transaction, a significant unusual transaction, which resulted in a material weakness in internal control over financial reporting as of December 31, 2021. The control activities were not designed to allow the Company to timely identify and account for the following aspects of the spin-off transaction (i) changes to stockholders’ equity and (ii) the completeness and accuracy of certain amounts classified in discontinued operations in the consolidated financial statements and related disclosures. A lack of sufficient resources and technical capabilities in accounting and finance, coupled with the complexities involved in the spin-off transaction were also contributing factors to the material weakness. Significant additional procedures were required by the Company to mitigate the risks associated with the material weakness.
Although the control deficiency did not result in any material misstatement of the consolidated financial statements for the periods presented, there is a reasonable possibility that it could lead to a material misstatement of account balances or disclosures. Accordingly, management has concluded that the control deficiency constitutes a material weakness.
To remediate the material weakness, our management is enhancing existing controls and procedures over our accounting for significant unusual transactions. These controls relate to the analysis and disclosures and the accounting for significant unusual transactions. We plan to enhance our approach and procedures by augmenting internal resources and increasing the deployment of both internal and external subject matter experts to assist our management with the evaluation of our accounting for significant unusual transactions.
We believe that these actions will remediate the material weakness. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
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(b) Management’s Annual Report on Internal Control Over Financial Reporting
This Annual Report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the company's registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.
(c) Changes in Internal Control Over Financial Reporting
Other than the material weakness in our internal control over financial reporting described above, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) which occurred during the fourth quarter of our fiscal year ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference to the information to be set forth in our proxy statement (“2022 Proxy Statement”) for the 2022 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2021.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the information to be set forth in our 2022 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to the information to be set forth in our 2022 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to the information to be set forth in our 2022 Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference to the information to be set forth in our 2022 Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements.
The following financial statements are filed as a part of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm
(BDO USA, LLP; Los Angeles, California; PCAOB ID # 243 )
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Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ (Deficit) Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
The following financial statement schedule is filed as part of this Annual Report on Form 10-K:
Schedule II-Valuation and Qualifying Accounts
All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto.
3. Exhibits
The following exhibits are filed with this Annual Report on Form 10-K or are incorporated herein by reference as indicated below (numbered in accordance with Item 601 of Regulation S-K). We shall furnish copies of exhibits for a reasonable fee (covering the expense of furnishing copies) upon request.
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Exhibit Number Description
2.1* Separation and Distribution Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (incorporated by reference to Ex. 2.1 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).
3.1 Amended and Restated Certificate of Incorporation of Consensus Cloud Solutions, Inc. (incorporated by reference to Ex. 3.1 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).
3.2 Amended and Restated Bylaws of Consensus Cloud Solutions, Inc. (incorporated by reference to Ex. 3.2 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).
4.1 2026 Notes Indenture, dated as of October 7, 2021, by and between Consensus Cloud Solutions, Inc. Wilmington Trust, National Associate, and the Guarantors named therein. (incorporated by reference to Ex. 4.1 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).
4.2 2028 Notes Indenture, dated as of October 7, 2021, by and between Consensus Cloud Solutions, Inc. Wilmington Trust, National Associate, and the Guarantors named therein. (incorporated by reference to Ex. 4.1 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).
4.3 Form of 2026 Note (included in Exhibit 4.1).
4.4 Form of 2028 Note (included in Exhibit 4.2).
4.5* Description of Registrant’s securities.
10.1* Transition Services Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (incorporated by reference to Ex. 10.1 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).
10.2 Tax Matters Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (incorporated by reference to Ex. 10.1 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).
10.3* Employee Matters Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (incorporated by reference to Ex. 10.1 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).
10.4 Intellectual Property License Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (incorporated by reference to Ex. 10.1 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).
10.5 Stockholder and Registration Rights Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (incorporated by reference to Ex. 10.1 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).
10.6† Consensus Cloud Solutions, Inc. 2021 Equity Incentive Plan (incorporated by reference to Ex. 10.1 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).
10.7 †
Consensus Cloud Solutions, Inc. 2021 Employee Stock Purchase Plan (incorporated by reference to Ex. 10.1 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).
21.1* List of subsidiaries of Consensus Cloud Solutions, Inc.
23.1* Consent of Independent Registered Public Accounting Firm – BDO USA, LLP
31.1* Rule 13a-14(a) Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Rule 13a-14(a) Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1** Section 1350 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101* The following financial information from Consensus Cloud Solutions, Inc.’s Quarterly Report on Form 10-K for the year ended December 31, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020, (ii) Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019, (v) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021, 2020 and 2019, and (vi) the Notes to Consolidated Financial Statements.
104* Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith
** Furnished herewith
† Management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
None.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 15, 2022.
Consensus Cloud Services, Inc.
By: /s/ R. SCOTT TURICCHI
R. Scott Turicchi
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated, in each case on April 15, 2022.
Signature Title
/s/ R. SCOTT TURICCHI Chief Executive Officer and a Director
R. Scott Turicchi
(Principal Executive Officer)
/s/ JAMES C. MALONE Chief Financial Officer
James C. Malone
(Principal Financial and Accounting Officer)
/s/ DOUGLAS Y. BECH Director
Douglas Y. Bech
/s/ ELAINE HEALY Director
Elaine Healy
/s/ STEPHEN ROSS Director
Stephen Ross
/s/ NATE SIMMONS Director
Nate Simmons
/s/ PAMELA SUTTON-WALLACE Director
Pamela Sutton-Wallace
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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Description Balance at
Beginning
of Period
Additions:
Charged to
Costs and
Expenses
Deductions:
Write-offs (1)
and recoveries
Balance
at End
of Period
Year Ended December 31, 2021:
Allowance for doubtful accounts $ 4,110 $ 6,168 $ ( 5,535 ) $ 4,743
Deferred tax asset valuation allowance $ ( 45 ) $ — $ — $ ( 45 )
Year Ended December 31, 2020:
Allowance for doubtful accounts $ 4,220 $ 8,046 $ ( 8,156 ) $ 4,110
Deferred tax asset valuation allowance $ ( 45 ) $ — $ — $ ( 45 )
Year Ended December 31, 2019:
Allowance for doubtful accounts $ 4,053 $ 7,925 $ ( 7,758 ) $ 4,220
Deferred tax asset valuation allowance $ ( 45 ) $ — $ — $ ( 45 )
(1) Represents specific amounts written off that were considered to be uncollectible.
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