Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
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. Our CEO and CFO concluded that, as of December 31, 2023, our disclosure controls and procedures were effective, at a reasonable assurance level.
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Limitations on the Effectiveness of Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based on certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
Management’s Annual Report on Internal Control Over Financial Reporting
Consensus’ management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for Consensus. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) using the 2013 framework. Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on its assessment, management has concluded that Consensus’ internal control over financial reporting was effective as of December 31, 2023. The effectiveness of our internal controls over financial reporting as of December 31, 2023 has been audited by Deloitte & Touche, LLP, an independent registered public accounting firm and their opinion is stated in their report which is included in Part II, Item 8 of this Annual Report on Form 10-K.
Remediation of Material Weaknesses
As reported in the Company’s form 10-Q for the quarter ended September 30, 2023 and Annual Report on Form 10-K dated March 31, 2023 for the year ended December 31, 2022, we previously identified material weaknesses in our internal control over financial reporting due to design deficiencies involving (i) entity-level controls impacting the control environment and the effective monitoring of controls to prevent or detect material misstatements to the consolidated financial statements (ii) revenue recognition accounting policies and documentation of management review controls over transactions and analysis supporting revenue recognition and the allowance for bad debt (iii) complete and timely preparation and review of technical accounting documentation relating to significant unusual transactions (iv) timeliness of balance sheet account reconciliations and (v.i) User access and segregation of duties related to systems that track employee related costs and (v.ii) evidence of managements review over completeness and accuracy of underlying data used in the operation of certain internal controls that support employee related costs and internally developed software.
Management has completed the execution of its remediation plans and remediated the material weaknesses in internal control over financial reporting that were reported as of December 31, 2022. We began the year ended December 31, 2023 with the appropriate level of resources and technical expertise in accounting, finance, financial reporting and tax departments compared to the year ended December 31, 2022. Our resource levels remained intact throughout the current year. Management deployed additional employee trainings and workshops to strengthen awareness of financial controls and held personnel accountable through frequent and recurring meetings to assess remediation plan status. We expanded the use of Blackline’s Modern Accounting Playbook software, implemented during the fourth quarter of 2022, to bolster our internal controls over balance sheet account reconciliations and the tracking of the financial statement close process. We implemented policies in our revenue processes and increased the depth and precision of our monthly revenue reconciliations. Further, we implemented new management review controls over analysis, schedules and reports that support revenue recognition, bad debt reserve and financial reporting processes to minimize the risk of reporting errors. We expanded the use of our financial reporting team’s SEC expertise to ensure technical accounting memos and related documentation were prepared and reviewed timely with regard to significant unusual transactions, if any. Lastly, we implemented new internal controls to properly address the segregation of duties and select system user access findings previously identified and improved the consistency of our evidence of management review over internally developed software.
We believe the foregoing efforts have effectively remediated the material weaknesses as of December 31, 2023, as the procedures have been implemented for a sufficient period of time and we have completed our testing of the operating effectiveness of the implemented controls and found them to be effective as of December 31, 2023.
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Changes in Internal Control Over Financial Reporting
Other than in respect of the remediation activities described above, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fourth quarter of our fiscal year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
(c) Trading Plans
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 (“2024 Proxy Statement”) for the 2024 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2023.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the information to be set forth in our 2024 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 2024 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 2024 Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the information to be set forth in our 2024 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 Firms
(Deloitte & Touche LLP; Los Angeles, California; PCAOB ID # 34 and BDO USA, P.C.; 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
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 for the three years ended December 31, 2023
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).
19.1*
Consensus Cloud Solutions, Inc. I nsider Trading Policy
21.1* List of subsidiaries of Consensus Cloud Solutions, Inc.
23.1* Consent of Independent Registered Public Accounting Firm – Deloitte & Touche, LLP
23.2*
Consent of Independent Registered Public Accounting Firm – BDO USA, P.C.
31.1* Rule 13a-14(a) Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2* Rule 13a-14(a) Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1** Section 1350 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
97.1* Consensus Cloud Solutions, Inc. Compensation Cla wback Policy
101* The following financial information from Consensus Cloud Solutions, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2023, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022, (ii) Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021, (v) Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2023, 2022 and 2021, 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 February 27, 2024.
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 indicated, in each case on February 27, 2024.
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, 2023:
Allowance for doubtful accounts $ 4,681 $ 5,897 $ ( 4,307 ) $ 6,271
Year Ended December 31, 2022:
Allowance for doubtful accounts $ 4,743 $ 1,157 $ ( 1,219 ) $ 4,681
Year Ended December 31, 2021:
Allowance for doubtful accounts $ 4,110 $ 6,168 $ ( 5,535 ) $ 4,743
(1) Represents specific amounts written off that were considered to be uncollectible.
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