What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-03-31 · 87 added, 169 removed, 221 unchanged (54% of the section changed)

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Consensus is a leading provider of secure information delivery services with a scalable Software-as-a-Service (“SaaS”) platform.

Consensus serves approximately 1 million customers of all sizes, from enterprises to individuals, across approximately 50 countries and multiple industry verticals including healthcare, government, financial services, law and education.

Consensus serves approximately 900 thousand customers of all sizes, from enterprises to individuals, across approximately 47 countries and multiple industry verticals including healthcare, government, financial services, law and education.

Beginning as an online fax company over two decades ago, Consensus has evolved into a leading global provider of enterprise secure communication solutions.

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Consensus’s communication and interoperability solutions enable its customers to securely and cooperatively access, exchange and use information across organizational, regional and national boundaries.

The global economy continues to be impacted by macroeconomic uncertainty and volatility resulting from the COVID-19 pandemic, Russia’s invasion of Ukraine, inflationary pressures, supply chain disruptions and challenges and labor market pressures.

During fiscal 2022 and 2021, we have observed an increasingly competitive labor market.

Increased employee turnover, changes in the availability of our employees, including as a result of COVID-19-related absences and labor shortages generally have resulted in, and could continue to result in, increased costs, and could adversely impact the efficiency of our operations.

The global economy continues to be impacted by macroeconomic uncertainty and volatility resulting from recent global conflicts, inflationary pressures, supply chain disruptions and challenges as well as labor market pressures.

During fiscal 2022 and through 2023, we have observed an increasingly competitive labor market.

Increased employee turnover, changes in the availability of our employees and labor shortages generally have resulted in, and could continue to result in, increased costs, and could adversely impact the efficiency of our operations.

We continue to actively monitor the situation and will continue to adapt our business operations as necessary.

Key Performance Metrics

We use the following metrics to evaluate our business, including the growth of our business, the value provided by customers to our business and our customer retention.

The following table sets forth certain key operating metrics for our continuing operations for the years ended December 31, 2022, 2021 and 2020 (in thousands, except for percentages):

We use the following metrics to generally assess the operational and financial performance of our business, including the growth of our business, the value provided by customers to our business and our customer retention that provide insights that contribute to certain of our business planning decisions.

We believe these 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.

The following table sets forth certain key performance metrics for our continuing operations for the years ended December 31, 2023, 2022 and 2021 (in thousands, except for percentages):

Years ended December 31,

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Corporate $ 199,621 $ 192,195 $ 169,732

SoHo 170,199 182,390 181,784

162,916 170,199 182,390

362,537 362,394 352,122

Other revenues

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(1) Consensus customers are defined as paying Corporate and SoHo customer accounts.

(2) Represents a monthly ARPA for the quarter or year 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.

(2) Represents a monthly ARPA for the year calculated as follows.

Monthly ARPA on an annual basis is calculated by dividing revenue for the year by the average customer base for the applicable four quarters and dividing that amount by 12 months.

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We prepare our consolidated financial statements and related disclosures in accordance with U.S.

generally accepted accounting principles (“GAAP”) and our discussion and analysis of our financial condition and operating results require us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.

generally accepted accounting principles (“GAAP”) and our discussion and analysis of our financial condition and operating results requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.

See Note 2 - Basis of Presentation and Summary of Significant Accounting Policies of the notes to consolidated financial statements in Part II, Item 8 of this Form 10-K, which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements.

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Actual results may differ significantly from those estimates under different assumptions and conditions and may be material.

We believe that our most critical accounting policies are those related to revenue recognition, share-based compensation expense, impairment or disposal of long-lived and intangible assets, fair value of assets acquired and liabilities assumed in connection with business combinations, income taxes, contingencies and allowance for doubtful accounts.

We believe that our most critical accounting policies are those related to revenue recognition, internal-use software development costs, share-based compensation expense, income taxes, tax contingencies and impairment or disposal of long-lived and intangible assets.

We consider these policies critical because they are those that are most important to the portrayal of our financial condition and results and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

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We record revenue on a gross basis with respect to reseller revenue because we have control of the specified good or service prior to transferring control to the customer.

See Note 3 - Revenues of the notes to consolidated financial statements in Part II, Item 8 of this Form 10-K.

Internal-Use Software Development Costs

We capitalize certain internal-use software and website development costs that are incurred during the application development stage, provided that management with the relevant authority authorizes and commits to the funding of the project, it is probable the project will be completed, and the software will be used to perform the function intended.

Costs related to preliminary project activities and post implementation activities are expensed as incurred.

Capitalized internal-use software development costs are included in property and equipment and are amortized on a straight-line basis over their estimated useful lives.

There is judgment involved in estimating the stage of development as well as estimating time allocated to a particular project.

A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense in subsequent periods.

See Note 7 - Property and Equipment of the notes to consolidated financial statements in Part II, Item 8 of this Form 10-K.

Share-Based Compensation Expense

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Accordingly, we measure share-based compensation expense at the grant date, based on the fair value of the award, and recognize the expense over the employee’s requisite service period using the straight-line method.

The measurement of share-based compensation expense is based on several criteria including, but not limited to, the valuation model used and associated input factors, such as expected term of the award, stock price volatility, risk free interest rate, dividend rate and award cancellation rate.

These inputs are subjective and are determined using management’s judgment.

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The Company estimates the expected term based upon the contractual term of the award.

Impairment or Disposal of Long-lived and Intangible Assets

We account for long-lived assets, which include property and equipment, operating lease right-of-use assets and identifiable intangible assets with finite useful lives (subject to amortization), in accordance with the provisions of FASB ASC Topic No.

360, Property, Plant, and Equipment (“ASC 360”), which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability is measured by comparing the carrying amount of an asset to the expected undiscounted future net cash flows generated by the asset.

If it is determined that the asset may not be recoverable, and if the carrying amount of an asset exceeds its estimated fair value, an impairment charge is recognized to the extent of the difference.

We assess the impairment of identifiable definite-lived intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Factors we consider important which could individually or in combination trigger an impairment review include the following:

• Significant underperformance relative to expected historical or projected future operating results;

• Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

• Significant negative industry or economic trends;

• Significant decline in our stock price for a sustained period;

• Our market capitalization relative to net book value.

If we determined that the carrying value of definite-lived intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we would record an impairment equal to the excess of the carrying amount of the asset over its estimated fair value.

We have assessed whether events or changes in circumstances have occurred that potentially indicate the carrying amount of definite-lived intangibles and long-lived assets may not be recoverable.

We recorded total impairment of $7.5 million related to operating lease right-of-use assets, of which $6.5 million is related to continuing operations and $1.0 million is related to discontinued operations for the year ended December 31, 2021.

Additionally, we recorded an impairment charge of $1.7 million for associated property and equipment for the year ended December 31, 2021.

The impairment is related to the Company’s decision to exit and seek subleases for certain leased facilities, primarily due to a distributed workforce as a result of the pandemic.

As we seek to return to offices, we will seek a hybrid return to office model.

No impairment was recorded for the years ended December 31, 2022 and 2020.

The Company classifies its long-lived assets to be sold as held for sale in the period (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable, (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

The Company initially measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell.

Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met.

Conversely, gains are not recognized on the sale of a long-lived asset until the date of sale.

Upon designation as an asset held for sale, the Company stops recording depreciation expense on the asset.

The Company assesses the fair value of a long-lived asset less any costs to sell at each reporting period and until the asset is no longer classified as held for sale.

Business Combinations and Valuation of Goodwill and Intangible Assets

We apply the acquisition method of accounting for business combinations in accordance with GAAP and use estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets, including identifiable intangible assets and liabilities acquired.

Such estimates may be based on significant unobservable inputs and assumptions such as, but not limited to, revenue growth rates, gross margins, customer attrition rates, royalty rates, discount rates and terminal growth rates.

We use established valuation techniques and may engage reputable valuation specialists to assist with the valuations.

Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination.

Intangible assets resulting from the acquisitions of entities accounted for using the acquisition method of accounting are recorded at the estimated fair value of the assets acquired.

Identifiable intangible assets are comprised of purchased customer relationships, trademarks and trade names, developed technologies and other intangible assets.

Intangible assets subject to amortization are amortized over the period of estimated economic benefit ranging from one to 20 years and are included in general and administrative expenses on the Consolidated Statements of Income.

We evaluate our goodwill and indefinite-lived intangible assets for impairment pursuant to FASB ASC Topic No.

350, Intangibles - Goodwill and Other (“ASC 350”), which provides that goodwill and other intangible assets with indefinite lives are not amortized but tested for impairment annually or more frequently if we believe indicators of impairment exist.

In connection with the annual impairment test for goodwill, we have the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If we determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then we perform the impairment test upon goodwill.

impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill.

We generally determine the fair value of our reporting units using the income approach methodology of valuation.

If the carrying value of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized for the difference.

For historical periods, we are included in the federal consolidated and state consolidated income tax returns with Ziff Davis and its other subsidiaries.

For purposes of the Consolidated Financial Statements, our taxes were determined using the separate return method as if we had filed separate tax returns.

In addition, our income is subject to taxation in both the U.S.

See Note 15 - Equity Incentive and Employee Stock Purchase Plan of the notes to consolidated financial statements in Part II, Item 8 of this Form 10-K.

Our income is subject to taxation in both the U.S.

and numerous foreign jurisdictions.

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In assessing this valuation allowance, we review historical and future expected operating results and other factors to determine whether it is more likely than not that deferred tax assets are realizable.

See Note 13 - Income Taxes of the notes to consolidated financial statements in Part II, Item 8 of this Form 10-K.

Income Tax Contingencies

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Internal Revenue Service (“IRS”) and other domestic and foreign tax authorities.

Non-Income Tax Contingencies

The Company historically did not collect sales tax in states where it was not able to quantify the appropriate sales tax to be collected.

For periods from 2017 through 2021, the Company believed it was probable that a sales tax liability existed for its corporate accounts;

however, it could not estimate the sales tax liability for its corporate customers until the third quarter of

Prior to the third quarter of 2022, the Company was unable to determine which of these customers were either exempt organizations or resellers and were thus exempt from sales tax.

In the third quarter of 2022, the Company completed an analysis of the pool of corporate customers subject to sales tax in order to estimate the range of sales tax liability on its corporate revenues.

As a result, the Company recorded an accrual of $8.0 million during the quarter ended September 30, 2022 within accounts payable and accrued expenses on the Company’s Consolidated Balance Sheets, as the exposure was then probable and estimable.

Additionally, the Company started sales tax collection and remittance on corporate sales in applicable states in August 2022.

See Note 11 - Commitments and Contingencies of the notes to consolidated financial statements in Part II, Item 8 of this Form 10-K.

In the year ended December 31, 2021, the Company determined that a sales tax liability is probable and it developed a methodology to estimate the liability for the sales tax for the SoHo revenue stream during the affected periods 2017 through 2021.

Accordingly, the Company has recorded a sales tax expense in 2021 of $8.6 million for all periods affected.

In conjunction with the state voluntary disclosure agreement process the company is remitting sales tax for SoHo and corporate sales for current and prior periods.

Taxing authorities may successfully assert that the Company should have collected, or in the future should collect sales and use, telecommunications or similar taxes, and could be subject to liability with respect to past or future tax, which could adversely affect the Company’s operating results.

The Company will continue to review and monitor the impact of sales tax rules in order to mitigate any associated risks on its business.

As such, the Company has a $13.1 million and $8.6 million sales tax liability within accounts payable and accrued expenses on the Company’s Consolidated Balance Sheets as of December 31, 2022 and 2021, respectively.

Allowances for Doubtful Accounts

We maintain an allowance for credit losses for accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expenses in the Consolidated Statements of Income.

We assess collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues.

In determining the amount of the allowance for credit losses, we consider historical collectability based on past due status.

We also consider customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data.

On an ongoing basis, management evaluates the adequacy of these reserves.

Recent Accounting Pronouncements

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Income from continuing operations 21 21 35

(Loss) income from discontinued operations, net of income tax — (3) 9

Loss from discontinued operations, net of income tax

Net income 21% 21% 32%

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Consensus revenues primarily consist of revenues from “fixed” customer subscription revenues and “variable” revenues generated from actual usage of our services.

We also generate an immaterial amount of Consensus revenues from intellectual property licensing.

Revenues increased $9.8 million in the year ended December 31, 2022 over the prior year primarily due to organic growth in our corporate business.

Our total revenue increased by $9.8 million as a result of an increase of approximately $15.6 million in corporate revenues due to organic growth in existing customer usage and new customer acquisitions, as well as acquired revenue of $6.8 million from our acquisition of Summit Healthcare Services, Inc.

(“Summit”), partially offset by a $12.2 million decline in Small office home office (“SoHo”) and $0.4 million in other revenue.

Revenues increased $21.5 million in the year ended December 31, 2021 over the prior comparable period primarily due to growth in our corporate business.

Our total revenue increased primarily as a result of an increase of approximately $20.0 million in corporate revenues due to organic growth in existing customer usage and new customer acquisitions.

Revenues remained consistent for the year ended December 31, 2023 over the prior comparable period.

Total revenues increased by $0.1 million as a result of an increase in corporate revenues of $7.4 million due to organic growth in customer usage and new customer acquisitions, partially offset by a $7.3 million decline in SoHo.

Revenues increased $9.8 million for the year ended December 31, 2022 over the prior comparable period.

Total revenues increased primarily due to organic growth in customer usage and new customer acquisitions in corporate revenues of $15.6 million, as well as acquired revenue of $6.8 million from our acquisition of Summit Healthcare Services, Inc.

(“Summit”), partially offset by a $12.2 million decline in SoHo and $0.4 million in other revenue.

Cost of Revenues

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As a percent of revenues 19% 17% 16%

Cost of revenues is primarily comprised of costs associated with data transmission, network operations, customer service, software licenses for resale, online processing fees and equipment depreciation.

The increase in cost of revenues for the year ended December 31, 2022 was primarily due to an increase in revenues, compensation for additional acquisition and organic headcount and higher software licensing and infrastructure / database hosting costs as a result of moving our data storage from physical storage into the cloud.

The increase in cost of revenues for the year ended December 31, 2021 compared to the prior comparable period was primarily due to an increase in revenues and higher software licensing and infrastructure / database hosting costs as a result of moving our data storage from physical storage into the cloud.

Cost of revenues is primarily comprised of costs associated with personnel costs, data transmission, online processing fees, network operations as well as capitalized software amortization and equipment depreciation.

The increase in cost of revenues for the year ended December 31, 2023 over the prior comparable period was primarily due to increases of $4.1 million in personnel-related expenses and $1.8 million in depreciation associated with platform development costs compared to the prior comparable period.

The increase in cost of revenues for the year ended December 31, 2022 over the prior comparable period was primarily due to an increase in revenues, compensation for additional acquisition and organic headcount and higher software licensing and infrastructure / database hosting costs as a result of moving our data storage from physical storage into the cloud.

Operating Expenses

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Our sales personnel consist of a combination of inside sales and outside sales professionals.

The increase in sales and marketing expenses of $10.8 million for the year ended December 31, 2022 versus the prior year was primarily due to an increase in third party advertising of $4.7 million, primarily in SoHo, as well as an increase of $5.0 million in personnel expenses due to continued investment in the corporate sales team.

The increase in sales and marketing expenses of $6.5 million for the year ended December 31, 2021 versus the prior comparable period was primarily due to an increase in third party advertising of $3.0 million, primarily in SoHo, as well as an increase of $3.5 million in personnel expenses due to continued investment in the corporate sales team.

The increase in sales and marketing expenses of $0.7 million for the year ended December 31, 2023 over the prior comparable period was primarily due to an increase of $4.4 million in personnel-related expenses due to continued investment in the corporate sales team and a $0.6 million increase in computer related costs, partially offset by a reduction in third party advertising spend of $4.5 million, primarily in SoHo.

The increase in sales and marketing expenses of $10.8 million for the year ended December 31, 2022 over the prior comparable period was primarily due to an increase in third party advertising of $4.7 million, primarily in SoHo, as well as an increase of $5.0 million in personnel expenses due to continued investment in the corporate sales team.

Research, Development and Engineering

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Our research, development and engineering costs consist primarily of personnel-related expenses.

The increase in research, development and engineering costs for the year ended December 31, 2022 was mostly due to our continued focus on developing our platform, products and solutions to primarily support corporate revenue growth as well as additional personnel from our Summit acquisition.

The increase in research, development and engineering costs for the year ended December 31, 2021 versus the prior comparable period was mostly due to our continued focus on developing our platform, products and solutions to primarily support corporate revenue growth.

The decrease in research, development and engineering costs for the year ended December 31, 2023 over the prior comparable period was primarily attributable to increased capitalization of personnel-related expenses due to our continued focus on internally developing our platform, products and solutions as well as a reduction in external development costs.

The increase in capitalization resulted in a decrease in personnel-related expenses of $2.1 million.

The increase in research, development and engineering costs for the year ended December 31, 2022 over the prior comparable period was primarily attributable to our continued focus on developing our platform, products and solutions to primarily support corporate revenue growth as well as additional personnel from our Summit acquisition.

General and Administrative

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As a percent of revenues 20% 20% 17%

Our general and administrative costs consist primarily of personnel-related expenses, depreciation and amortization, share-based compensation expense, bad debt expense, professional fees, severance and insurance costs.

The increase in general and administrative expense for the year ended December 31, 2022 versus the prior year was primarily due to increased expenses related to operating as a standalone public company, included increases of $26.6 million in salary and benefits (inclusive of $15.7 million of share-based compensation) and $6.3 million in professional fees, partially offset by a $4.8 million reduction in bad debt expense and the absence $11.5 million in non-recurring expenses related to the spin-off from Ziff Davis in 2021.

The increase in general and administrative expense for the year ended December 31, 2021 versus the prior comparable period was primarily due to $11.5 million in non-recurring expenses related to the spin-off from Ziff Davis, approximately $5.0 million increase in the fourth quarter of 2021 operational expense due to standalone public company costs, an $8.2 million impairment of our downtown LA office space and an $8.6 million sales tax expense related to 2017-2021, of which $0.6 million was related to post spin in the fourth quarter 2021.

Our general and administrative costs consist primarily of personnel-related expenses (inclusive of share-based compensation), professional fees, depreciation and amortization, bad debt expense and non-income related tax expenses.

General and administrative expense remained consistent for the year ended December 31, 2023 over the prior comparable period.

The $0.1 million increase is primarily due to increases in the following:

$4.5 million in bad debt expense, $1.7 million in professional fees and $1.3 million in computer related equipment costs, partially offset by a decrease in non-income related tax expenses of $7.4 million.

The increase in general and administrative expense for the year ended December 31, 2022 over the prior comparable period was primarily due to increased expenses related to operating as a standalone public company, included increases of $26.6 million in salary and benefits (inclusive of $15.7 million of share-based compensation) and $6.3 million in professional fees, partially offset by a $4.8 million reduction in bad debt expense and the absence of $11.5 million in non-recurring expenses related to the spin-off from Ziff Davis in 2021.

Share-Based Compensation

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Continuing operations 18,163 20,055 1,856

(Loss) income from discontinued operations — 602 4,138

Loss from discontinued operations, net of income tax

Total $ 18,163 $ 20,055 $ 2,458

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Interest expense .

Our interest expense is due to outstanding debt.

Our interest expense is due to outstanding debt and is reduced by any capitalized interest.

Interest expense was $45.4 million, $51.4 million and $14.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The increase from 2021 to 2022 is primarily due to twelve months of interest associated with the 2026 and 2028 Senior Notes compared to three months in 2021.

Interest expense decreased between 2020 and 2021 due to the Company redeeming all of its outstanding $650 million 6% Senior Notes in 2020, as a result of which, the Company recorded a loss on extinguishment of $38.0 million included in interest expense for the year ended December 31, 2020.

This is coupled with the Company recording three months of interest associated with the 2026 and 2028 Senior Notes in 2021, in comparison to nine months of interest associated with the 6% Senior Notes in 2020.

The decrease in 2023 from 2022 is primarily due to the partial extinguishment of debt, resulting in a gain of $4.8 million, as well as an increase in capitalized interest of $1.2 million.

Interest expense for the year ended December 31, 2022 compared to 2021 increased primarily due to twelve months of interest associated with the 2026 and 2028 Senior Notes compared to three months in 2021.

Interest income .

Our interest income is generated by interest income earned on cash and cash equivalents.

Our interest income is generated from interest earned on cash and cash equivalents.

Interest income was $3.7 million for the year ended December 31, 2023.

Interest income was not material for the years ended December 31, 2022 and 2021.

Interest income was higher compared to the prior comparable periods due to investments in money market funds starting in 2023.

Other (expense) income, net .

Our other (expense) income, net is generated primarily from miscellaneous items and gain or losses on currency exchange.

Our other (expense) income, net is generated primarily from foreign currency and miscellaneous items.

Other (expense) income, net was $(2.4) million, $(1.6) million and $0.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The change in our gains (losses) recognized in earnings from 2021 to 2022 was primarily attributable to exchange rate fluctuations on inter-company balances between periods in foreign subsidiaries that were in functional currencies other than the U.S.

Dollar and exchange rate fluctuations.

The change in our gains (losses) recognized in earnings from 2020 to 2021 was primarily attributable to lower inter-company balances between periods in foreign subsidiaries that were in functional currencies other than the U.S.

Dollar and exchange rate fluctuations.

The change between periods was primarily attributable to exchange rate fluctuations on inter-company balances between periods in foreign subsidiaries that were in functional currencies other than the U.S.

Significant judgment is required in determining our provision for income taxes and in evaluating our tax positions on a worldwide basis.

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The Company has no federal net operating loss or capital loss limitation carryforwards as of December 31, 2023 or 2022.

The Company has $0.5 million and $0.2 million of foreign tax credit carryforwards as of December 31, 2022 and 2021, respectively, which will expire between 2031 and 2032.

In addition, the Company also has $1.0 million and $0.1 million state research and development tax credits carryforwards, respectively.

If unused, $1 million of the credits as of December 31, 2022 can be carried over indefinitely.

Income tax expense (benefit) amounted to $26.2 million, $39.9 million and $30.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Our effective tax rates for 2022, 2021 and 2020 were 26.5%, 24.8% and 19.8%, respectively.

As of December 31, 2023 and 2022, the Company has $1.3 million and $0.5 million, respectively, of foreign tax credit carryforwards that begin to expire in 2031, and $1.8 million and $1.0 million, respectively, of state research and development tax credits carryforwards that can be carried over indefinitely.

Income tax expense amounted to $25.9 million, $26.2 million and $39.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Our effective tax rates for the year ended December 31, 2023, 2022 and 2021 were 25.1%, 26.5% and 24.8%, respectively.

The decrease in our annual effective income tax rate from 2022 to 2023 was primarily attributable to a decrease in tax expense relating to the lower amount of certain non-deductible expenses incurred in the year, such as stock based compensation, officer’s compensation, a decrease in the foreign income currently taxed in the U.S.

and the impact of the change in the geographical mix of the income, partially offset by an increase in the reserves for uncertain tax positions.

The increase in our annual effective income tax rate from 2021 to 2022 was primarily attributable to an increase in tax expense relating to certain non-deductible expenses incurred in the year, such as stock based compensation, officer’s compensation, an increase in the reserves for uncertain tax positions and foreign income currently taxed in the U.S., partially offset by increased tax credits and change in the geographical mix of the income.

The increase in our annual effective income tax rate from 2020 to 2021 was primarily attributable to an increase in the state tax expenses due to our expanded state footprints and a reduction in the foreign rate differential due to the change in the geographical mix of earnings.

Quarterly Results of Operations (Unaudited)

The following tables contain selected unaudited Statements of Operation information for each quarter of 2022 and 2021 (in thousands, except share and per share data).

The Company believes that the following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented.

The following tables contain selected unaudited Statements of Operation information for each quarter of 2022 (in thousands, except share and per share data).

The Company believes that the following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the period presented.

The operating results for any quarter are not necessarily indicative of results for any future period.

This data should be read in conjunction with our consolidated financial statements included elsewhere in this Report.

This data should be read in conjunction with our consolidated financial statements included elsewhere in Part II, Item 8 of this Form 10-K.

Historical results are not necessarily indicative of the results that may be expected for the full fiscal year or any other period.

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Diluted 19,939,806 19,873,137 19,968,340 20,035,827

Year ended December 31, 2021 (2)

Fourth Quarter Third Quarter Second Quarter First Quarter

Revenues $ 89,004 $ 89,198 $ 87,842 $ 86,620

Gross profit 74,132 74,594 73,288 72,650

Net income from continuing operations

1,953 41,132 38,854 39,235

Net income from continuing operations per common share:

Basic $ 0.10 $ 2.07 $ 1.95 $ 1.97

Diluted $ 0.10 $ 2.07 $ 1.95 $ 1.97

Weighted average shares outstanding

Basic 19,908,135 19,902,924 19,902,924 19,902,924

Diluted 19,990,787 19,902,924 19,902,924 19,902,924

(1) The quarterly results for the third quarter of 2022 reflect the restated amounts in the Q3 Form 10-Q/A filed on March 31, 2023.

The quarterly results for the first and second quarters of 2022 reflect the revised amounts presented within the Q3 Form 10-Q/A filed on March 31, 2023.

(2) On October 7, 2021, the separation of Consensus into an independent publicly traded company was completed.

The Former Parent distributed 19,902,924 shares of Consensus common stock to holders of J2 Global common stock as of the close of business on October 1, 2021, the record date for the distribution.

This share amount was utilized for the computation of basic and diluted earnings per share for those quarters prior to the spin because the number of shares issued simply reflect a recharacterization of the capital account previously held by the former parent, see Note 1 - The Company in Item 8, Notes to Consolidated Financial Statements.

As a result, the full year 2021 basic and diluted earnings per common share is not comparable to the quarterly results.

Liquidity and Capital Resources

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At December 31, 2023, we had cash and cash equivalents of $88.7 million compared to $94.2 million at December 31, 2022.

The increase in cash and cash equivalents resulted primarily from cash provided by operations, partially offset by cash used for purchases of property and equipment (including software development costs), acquisitions of businesses and cash used to repurchase our common stock.

The decrease in cash and cash equivalents resulted primarily from cash used to repurchase our debt, an increase in repurchases of our common stock in 2023, as well as continued investment in our internally developed software, partially offset by an increase in cash provided by operations.

As of December 31, 2023, cash and cash equivalents held within domestic and foreign jurisdictions were $14.5 million and $74.2 million, respectively.

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Consensus received proceeds of $301.2 million, after deducting the initial purchasers’ discounts, commissions and offering expenses.

The 2026 Senior Notes are presented as long-term debt, net of deferred issuance costs, on the Consolidated Balance Sheets as of December 31, 2022 and 2021.

The 2026 Senior Notes are presented as current portion of long-term debt and long-term debt, net of current portion, both of which are net

of deferred issuance costs, on the Consolidated Balance Sheets as of December 31, 2023 and 2022.

The 2026 Senior Notes bear interest at a rate of 6.0% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, which commenced on April 15, 2022.

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Ziff Davis then exchanged the 2028 Senior Notes with lenders under its credit agreement (or their affiliates) in exchange for extinguishment of a similar amount indebtedness under such credit agreement.

The 2028 Senior Notes are presented as long-term debt, net of deferred issuance costs, on the Consolidated Balance Sheets as of December 31, 2022 and 2021.

The 2028 Senior Notes are presented as current portion of long-term debt and long-term debt, net of current portion, both of which are net of deferred issuance costs, on the Consolidated Balance Sheets as of December 31, 2023 and 2022.

The 2028 Senior Notes bear interest at a rate of 6.5% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, which commenced on April 15, 2022.

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As of December 31, 2023, no amount has been drawn down on the Credit Facility.

We currently anticipate that our existing cash and cash equivalents and cash generated from operations will be sufficient to meet our anticipated needs for working capital, capital expenditures and stock repurchases, if any, for at least the next 12 months from the issuance of this Annual Report on Form 10-K and the foreseeable future.

Material Cash Requirements

Our long-term contractual obligations generally include our debt and related interest payments, noncancellable operating leases as well as other commitments.

As of December 31, 2023, we had outstanding $742.4 million in aggregate principal amount of indebtedness, total minimum lease payments of $18.9 million and a liability for uncertain tax positions of $9.7 million (see Note 9 - Long-Term Debt, Note 10 - Leases and Note 13 - Income Taxes of the notes to the consolidated financial statements in Part II, Item 8 of this Form 10-K, respectively).

Due to uncertainties in the timing of the amounts and timing of cash settlement with the taxing authorities, we are unable to make a reasonably reliable estimate of the timing of payments.

We currently anticipate that our existing cash and cash equivalents and cash generated from operations will be sufficient to fund our anticipated needs for working capital, capital expenditures and stock repurchases, if any, for at least the next 12 months from the issuance of this Annual Report on Form 10-K and the foreseeable future.

Debt Repurchase Program

On November 9, 2023, the Board of Directors approved a debt repurchase program, pursuant to which Consensus may reduce, through redemptions, open market purchases, tender offers, privately negotiated purchases or other retirements, a combination of the outstanding principal balance of the 2026 Senior Notes and 2028 Senior Notes (“Debt Repurchase Program”).

The authorization permits an aggregate principal amount reduction of up to $300 million and expires on November 9, 2026.

The timing and amounts of purchases will be determined by the Company, depending on market conditions and other factors it deems relevant.

Any gains or losses on extinguishment of debt are recognized in interest expense on the Consolidated Statements of Income.

As of December 31, 2023 the Company has retired $62.6 million in principal of its senior notes under this program.

Common Stock Repurchase Program

On March 1, 2022, the Company’s Board of Directors approved a share buyback program.

Under this program, the Company may purchase in the public market or in off-market transactions up to $100.0 million worth of the Company’s common stock through February 2025.

Under this program, the Company may purchase, in the public market, or in off-market transactions, up to $100.0 million of the Company’s common stock through February 2025.

The timing and amounts of purchases will be determined by the Company, depending on market conditions and other factors it deems relevant.

The Company entered into Rule 10b-18 and Rule 10b5-1 trading plans and during the year ended December 31, 2022, the Company repurchased 189,114 shares under this program.

The Company entered into Rule 10b-18 and Rule 10b5-1 trading plans and during the years ended December 31, 2023 and 2022, the Company repurchased 839,548 and 189,114 shares, respectively, at an aggregate cost of $23.7 million (inclusive of excise tax of $0.2 million) and $7.6 million, respectively, under this program.

Cumulatively as of December 31, 2023, 1,028,662 shares have been repurchased at an aggregate cost of $31.3 million (inclusive of excise tax of $0.2 million).

The excise tax is assessed at 1% of the fair market value of net stock repurchases after December 31, 2022.

Vested Restricted Stock

At the time of certain vesting events related to restricted stock units or restricted stock awards that are held by participants in the Consensus’ Equity Incentive Plan, a portion of the awards subject to vesting are withheld by the Company to satisfy the employees’ tax withholding obligations that arise upon the vesting of restricted stock.

At the time of certain vesting events related to restricted stock units or restricted stock awards that are held by participants in Consensus’ Equity Incentive Plan, a portion of the awards subject to vesting are withheld by the Company to satisfy the employees’ tax withholding obligations that arise upon the vesting of restricted stock.

As a result, the number of shares issued upon vesting for these awards is net of the statutory withholding requirements that the Company pays on behalf of its employees.

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These shares do not count against the authorized capacity under the Company’s share repurchase program described above.

During the year ended December 31, 2022, the Company withheld shares on its vested restricted stock units relating to its share-based compensation plans of 71,509 shares.

The prior years include cash flows from discontinued operations of the non-Consensus business.

As a result, the prior periods are not comparable.

During the years ended December 31, 2023, 2022 and 2021 the Company withheld shares on its vested restricted stock units and restricted stock awards relating to its share-based compensation plans of 61,878, 71,509 and zero shares, respectively.

The year ended December 31, 2021 includes cash flows from discontinued operations of the non-Consensus business and is not comparable to the years ended December 31, 2023 and 2022.

Our primary sources of liquidity are cash flows generated from operations, together with cash and cash equivalents.

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Our operating cash flows resulted primarily from cash received from our customers offset by cash payments we made to third parties for their services, employee compensation and lease payments for our offices.

The increase in our net cash provided by operating activities in 2023 compared to 2022 was primarily attributable to increased income after excluding noncash items, partially offset by a net decrease in our working capital accounts.

The decrease in our net cash provided by operating activities in 2022 compared to 2021 was primarily attributable to decreased income after excluding noncash items, a decrease in other long-term liabilities in 2022 compared to an increase in 2021, and an increase in accounts receivable.

The decrease in our net cash provided by operating activities in 2021 compared to 2020 was primarily attributable to a decrease in operating lease liabilities, offset by increased prepaid expenses, accounts payable and other long-term liabilities.

Our prepaid tax payments were $8.0 million and zero at December 31, 2022 and 2021, respectively.

Our prepaid tax payments were $3.7 million and $8.0 million at December 31, 2023 and 2022, respectively.

Net cash used in investing activities was $40.5 million, $43.3 million and $42.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Net cash used in investing activities in 2023 included capital expenditures associated with the purchase of property and equipment (including capitalized software development costs) and cash paid for investments.

Net cash used in investing activities in 2022 was primarily comprised of capital expenditures associated with the purchase of property and equipment (including capitalized software development costs) and business acquisitions.

Net cash used in investing activities in 2021 and 2020 was related to business acquisitions and capital expenditures associated with the purchase of property and equipment (including capitalized software development costs);

partially offset by proceeds from the sale of businesses.

Net cash used in investing activities in 2021 was related to business acquisitions and capital expenditures associated with the purchase of property and equipment (including capitalized software development costs), partially offset by proceeds from the sale of businesses.

Net cash used in financing activities was $81.7 million, $10.6 million and $247.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Net cash used in financing activities in 2023 primarily relates to the repurchases of debt and common stock.

Net cash used in financing activities in 2022 included the repurchase of common stock and shares withheld to cover employee income taxes.

Net cash used in financing activities in 2021 increased over 2020 primarily due to distributions to the Former Parent in 2021 compared to contributions from the Former Parent in 2020.

Partially offsetting these amounts, the Company had cash inflows related to the issuance of debt in 2021, compared to repayment of debt in 2020.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2022:

Payment Due by Period (in thousands)

Contractual Obligations 2023 2024 2025 2026 2027 Thereafter Total

Long-term debt - principal (a)

$ — $ — $ — $ 305,000 $ — $ 500,000 $ 805,000

Long-term debt - interest (b)

50,800 50,939 50,800 50,800 32,500 32,589 268,428

Operating leases (c)

2,939 2,842 2,389 2,461 2,534 8,167 21,332

Telecom services and co-location facilities (d)

895 577 282 — — — 1,754

480 — — — — — 480

Total $ 55,114 $ 54,358 $ 53,471 $ 358,261 $ 35,034 $ 540,756 $ 1,096,994

(a) These amounts represent principal on long-term debt.

(b) These amounts represent interest on long-term debt.

(d) These amounts represent service commitments to various telecommunication providers.

(e) These amounts represent certain agreements associated with the Summit acquisition and Board of Directors fee arrangements.

As of December 31, 2022, our liability for uncertain tax positions was $6.7 million.

The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with the taxing authorities.

Net cash used in financing activities in 2021 included distributions to the Former Parent, partially offset cash inflows related to the issuance of debt in 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis