What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-09 · 66 added, 50 removed, 151 unchanged (43% of the section changed)

41 unchanged sentences

Consensus’ 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 recent global conflicts, inflationary pressures, supply chain disruptions and challenges as well as labor market pressures.

During fiscal year 2023 and through the first quarter of 2024, 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.

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

For purposes of this management’s discussion and analysis of the results of operations and financial condition of Consensus (“MD&A”) section, we use the terms “the Company,” “we,” “us” and “our” to refer to Consensus.

References in this MD&A section to “Former Parent” or “Former Parent Company” refers to Ziff Davis, Inc., collectively with its consolidated subsidiaries.

Key Performance Metrics

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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 operations for the three months ended March 31, 2024 and 2023 (in thousands, except for percentages and Average Revenue per Customer Account):

Three Months Ended March 31,

The following table sets forth certain key performance metrics for our operations for the three and six months ended June 30, 2024 and 2023 (in thousands, except for percentages and Average Revenue per Customer Account):

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Corporate $ 51,720 $ 50,361 $ 103,110 $ 99,768

9 unchanged sentences

Corporate 56 54 56 54

SoHo 786 889 786 889

Consolidated 842 943 842 943

1 unchanged sentence

Corporate 4 3 9 6

SoHo 61 74 123 153

Consolidated 65 77 132 159

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

(2) Represents a monthly ARPA for the quarter, calculated as follows:

(2) Represents a monthly ARPA for the quarter or year-to-date period, 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.

Monthly ARPA on a year-to-date basis is calculated by dividing revenue for the year-to-date period by the average customer base for the applicable period and dividing that amount by the respective period.

We believe ARPA provides investors an understanding of the average monthly revenues we recognize per account associated within Consensus’ customer base.

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Our critical accounting policies are described in our 2023 Annual Report on Form 10-K filed with the SEC on February 28, 2024.

During the three months ended March 31, 2024, there were no significant changes in our critical accounting policies and estimates.

Results of Operations for the Three Months Ended March 31, 2024 and 2023

During the six months ended June 30, 2024, there were no significant changes in our critical accounting policies and estimates.

Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023

The main strategic focus of our Consensus offerings is to enable our customers to securely and cooperatively access, exchange and use information across organizational, regional and national boundaries.

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We expect our business to primarily grow organically and inorganically through the use of capital for re-investment in the business and opportunistic acquisitions that expedite our product roadmap in the interoperability space should they arise.

(in thousands, except percentages) Three Months Ended March 31, Percentage Change

(in thousands, except percentages) Three Months Ended June 30, Percentage Change Six Months Ended June 30, Percentage Change

2024 2023 2024 2023

Revenues $ 87,500 $ 92,792 (6)% $ 175,646 $ 184,246 (5)%

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

Revenues decreased by $3.3 million or 4% for the three months ended March 31, 2024 over the prior year comparable period.

Revenues decreased by $5.3 million or 6% for the three months ended June 30, 2024 over the prior year comparable period.

The decrease was due to a decline of $6.7 million or 16% in our SoHo business, partially offset by an increase of $1.4 million or 3% in our corporate business.

Revenues decreased by $8.6 million or 5% for the six months ended June 30, 2024 over the prior year comparable period.

The decrease was due to a decline of $11.9 million or 14% in our SoHo business, partially offset by an increase of $3.3 million or 3% in our corporate business.

Cost of Revenues

(in thousands, except percentages) Three Months Ended March 31, Percentage Change

(in thousands, except percentages) Three Months Ended June 30, Percentage Change Six Months Ended June 30, Percentage Change

2024 2023 2024 2023

Cost of revenues $17,122 $17,246 (1)% $34,170 $34,754 (2)%

1 unchanged sentence

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 decrease in cost of revenues for the three months ended March 31, 2024 over the prior year comparable period was primarily due to a decrease of $0.7 million in data transmission expense compared to the prior year comparable three month period.

The decrease in cost of revenues for the three months ended June 30, 2024 over the prior year comparable period was primarily due to decreases of $0.7 million in data transmission expense and $0.2 million in online processing fees, partially offset by an increase of $0.7 million in depreciation associated with platform development costs.

The decrease in cost of revenues for the six months ended June 30, 2024 over the prior year comparable period was primarily due to a decrease of $1.4 million in data transmission expense, partially offset by an increase of $1.0 million in depreciation associated with platform development costs.

Operating Expenses

Sales and Marketing

(in thousands, except percentages) Three Months Ended March 31, Percentage Change

(in thousands, except percentages) Three Months Ended June 30, Percentage Change Six Months Ended June 30, Percentage Change

2024 2023 2024 2023

Sales and marketing $11,718 $17,507 (33)% $24,276 $34,400 (29)%

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

The decrease in sales and marketing expenses of $4.3 million for the three months ended March 31, 2024 over the prior year comparable period was primarily due to a reduction in third party advertising spend of $4.7 million, predominantly in SoHo, partially offset by an increase of $0.3 million in personnel-related expenses due to continued investment in the corporate sales team.

The decrease in sales and marketing expenses of $5.8 million for the three months ended June 30, 2024 over the prior year comparable period was primarily due to a reduction in third party advertising spend of $5.5 million, predominantly in SoHo, and a decrease of $0.4 million in personnel-related expenses.

The decrease in sales and marketing expenses of $10.1 million for the six months ended June 30, 2024 over the prior year comparable period was primarily due to a reduction in third party advertising spend of $10.2 million, predominantly in SoHo.

Research, Development and Engineering

(in thousands, except percentages) Three Months Ended March 31, Percentage Change

(in thousands, except percentages) Three Months Ended June 30, Percentage Change Six Months Ended June 30, Percentage Change

2024 2023 2024 2023

Research, development and engineering $1,643 $1,765 (7)% $3,548 $3,669 (3)%

1 unchanged sentence

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

Research, development and engineering costs remained consistent for the three months ended March 31, 2024 compared to the prior year comparable period.

The decrease in research, development and engineering for the three months ended June 30, 2024 over the prior year comparable period was primarily due to a decrease of $0.1 million in computer related expense.

The decrease in research, development and engineering for the six months ended June 30, 2024 over the prior year comparable period was primarily due to a decrease of $0.2 million in personnel-related expenses, partially offset by an increase of $0.1 million in computer related expense.

General and Administrative

(in thousands, except percentages) Three Months Ended March 31, Percentage Change

(in thousands, except percentages) Three Months Ended June 30, Percentage Change Six Months Ended June 30, Percentage Change

2024 2023 2024 2023

General and administrative $17,136 $17,432 (2)% $36,104 $38,584 (6)%

1 unchanged sentence

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

The decrease in general and administrative expenses for the three months ended March 31, 2024 over the prior year comparable period was primarily due to decreases of $1.2 million in professional fees and $1.0 million in personnel-related expenses.

General and administrative expenses for the three months ended June 30, 2024 remained consistent with the prior year comparable period.

The decrease in general and administrative expenses for the six months ended June 30, 2024 over the prior year comparable period was primarily due to a decrease of $2.0 million in personnel-related expenses.

Share-Based Compensation

The following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying Condensed Consolidated Statements of Income for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended March 31,

The following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying Condensed Consolidated Statements of Income for the three and six months ended June 30, 2024 and 2023 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Cost of revenues $ 481 $ 334 $ 984 $ 630

7 unchanged sentences

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

Interest expense for the three months ended March 31, 2024 and 2023 was $6.2 million and $12.6 million, respectively.

The decrease between periods was primarily due to the partial extinguishment of debt in the first quarter of 2024, resulting in a gain of $4.9 million.

Interest expense was $8.7 million and $12.8 million for the three months ended June 30, 2024 and 2023, respectively, and.$14.9 million and $25.4 million for the six months ended June 30, 2024 and 2023, respectively.

The decrease between periods was primarily due to the partial extinguishment of debt, resulting in a gain of $1.7 million and $6.6 million for the three and six months ended June 30, 2024, respectively.

Interest income.

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

Interest income was $0.9 million and zero for the three months ended March 31, 2024 and 2023, respectively.

Interest income was higher in 2024 compared to the prior year comparable period due to investments in money market funds that began in the second quarter of 2023.

Interest income was $0.6 million and $0.7 million for the three months ended June 30, 2024 and 2023, respectively, and $1.5 million and $0.7 million for the six months ended June 30, 2024 and 2023, respectively.

Interest income for the three months ended June 30, 2024 was consistent with the prior year comparable period.

Interest income was higher for the six months ended June 30, 2024 compared to the prior year comparable period due to investments in money market funds that began in the second quarter of 2023.

Other income (expense), net .

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

Other income (expense), net for the three months ended March 31, 2024 and 2023 was $3.9 million and $(0.8) million, respectively.

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.

Other income (expense), net was $0.7 million and $0.6 million for the three months ended June 30, 2024 and 2023, respectively, and $4.6 million and $(0.3) million for the six months ended June 30, 2024 and 2023, respectively.

The change between periods was primarily attributable to exchange rate fluctuations on intercompany 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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When necessary, we establish valuation allowances to reduce our deferred tax assets to an amount that will more likely than not be realized.

The provision for income taxes for the three months ended March 31, 2024 and 2023 was $9.9 million and $5.1 million, respectively.

The Company’s effective tax rate for the three months ended March 31, 2024 and 2023 was 27.3% and 24.9%, respectively.

The increase in our effective income tax rate for the three months ended March 31, 2024 was primarily attributable to the change in the geographical mix of income and an increase in the valuation allowance.

The provision for income taxes was $8.6 million and $6.2 million for the three months ended June 30, 2024 and 2023, respectively, and $18.5 million and $11.3 million for the six months ended June 30, 2024 and 2023, respectively.

The Company’s effective tax rate was 26.5% and 22.7% for the three months ended June 30, 2024 and 2023, respectively, and 26.9% and 23.7% for the six months ended June 30, 2024 and 2023, respectively.

The increase in our effective income tax rate for the three and six months ended June 30, 2024 was primarily attributable to the change in the geographical mix of income, an increase in the valuation allowance, and an increase in state taxes on foreign earnings not permanently reinvested.

Liquidity and Capital Resources

Cash and Cash Equivalents

At March 31, 2024, we had cash and cash equivalents of $61.5 million compared to $88.7 million at December 31, 2023.

As of June 30, 2024, we had cash and cash equivalents of $49.2 million compared to $88.7 million as of December 31, 2023.

The decrease in cash and cash equivalents resulted primarily from cash used for debt repurchases, capitalized expenditures and common stock repurchases, partially offset by cash provided by operations.

As of March 31, 2024, cash and cash equivalents held within domestic and foreign jurisdictions were $33.0 million and $28.5 million, respectively.

As of June 30, 2024, cash and cash equivalents held within domestic and foreign jurisdictions were $34.3 million and $14.9 million, respectively.

Credit Agreement

2 unchanged sentences

The final maturity of the Credit Facility will occur on March 4, 2027.

As of March 31, 2024, no amount has been drawn down on the Credit Facility.

As of June 30, 2024, no amount had been drawn down on the Credit Facility.

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 March 31, 2024, we had outstanding $679.0 million in aggregate principal amount of indebtedness (see Note 7 - Long-Term Debt of the Notes to the Condensed Consolidated Financial Statements) and total minimum lease payments of $18.2 million, which had a weighted average remaining lease term of 6.5 years.

As of March 31, 2024, our liability for uncertain tax positions was $10.5 million.

As of June 30, 2024, we had outstanding $649.3 million in aggregate principal amount of indebtedness (see Note 7 - Long-Term Debt of the Notes to the Condensed Consolidated Financial Statements) and total minimum lease payments of $17.4 million, which had a weighted average remaining lease term of 6.3 years.

As of June 30, 2024, our liability for uncertain tax positions was $11.2 million.

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.

5 unchanged sentences

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

As of March 31, 2024 the Company has retired an aggregate of $126.0 million in principal of its senior notes under this program.

As of June 30, 2024 the Company had retired an aggregate of $155.7 million in principal of its senior notes under this program.

Common Stock Repurchase Program

2 unchanged sentences

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 three months ended March 31, 2024 and 2023, the Company repurchased 42,962 and 270,192 shares, respectively, at an aggregate cost of $0.7 million and $9.2 million, respectively, under this program, inclusive of excise tax of zero in both periods.

Cumulatively as of March 31, 2024, 1,071,624 shares have been repurchased under this program at an aggregate cost of $32.0 million (inclusive of excise tax of $0.2 million).

The Company entered into Rule 10b-18 and Rule 10b5-1 trading plans under this program.

There were no shares repurchased during the three months ended June 30, 2024 under this program.

During the three months ended June 30, 2023 the Company repurchased 68,362 shares under this program at an aggregate cost of $2.1 million, inclusive of excise tax of $0.1 million.

During the six months ended June 30, 2024 and 2023, the Company repurchased 42,962 and 338,554 shares, respectively, at an aggregate cost of $0.7 million and $11.3 million, respectively, inclusive of excise tax of zero and $0.1 million, respectively.

Cumulatively as of June 30, 2024, 1,071,624 shares have been repurchased under this program at an aggregate cost of $32.0 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 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.

1 unchanged sentence

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

During the three months ended March 31, 2024 and 2023, the Company withheld shares on its vested restricted stock units and restricted stock awards relating to its share-based compensation plans of 15,340 shares and 11,418 shares, respectively.

During the three months ended June 30, 2024 and 2023, the Company withheld shares on its vested restricted stock units and restricted stock awards relating to its share-based compensation plans of 21,567 shares and 21,538 shares, respectively.

During the six months ended June 30, 2024 and 2023, the Company withheld shares on its vested restricted stock units and restricted stock awards relating to its share-based compensation plans of 36,907 shares and 32,956 shares, respectively.

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

Net cash provided by operating activities was $44.7 million and $38.0 million for the three months ended March 31, 2024 and 2023, respectively.

Net cash provided by operating activities was $69.1 million and $52.1 million for the six months ended June 30, 2024 and 2023, respectively.

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

The increase in our net cash provided by operating activities in 2024 compared to 2023 was primarily attributable to increased income after excluding noncash items.

In addition, contributing to the increase in cash provided by operating activities, there was an increase in income tax payable in 2024 compared to 2023, and less of an increase in accounts receivable in 2024 compared to 2023.

These sources of cash flow were partially offset by a lower increase in accounts payable and accrued expenses in 2024 compared to 2023.

Net cash used in investing activities was $8.9 million and $12.5 million for the three months ended March 31, 2024 and 2023, respectively.

For the three months ended March 31, 2024, net cash used in investing activities consisted of capital expenditures associated with the purchase of property and equipment (including capitalized labor).

In addition, there was an increase in cash flows from changes in our net working capital in 2024 compared to 2023, most notably the change in the balances of our accounts payable and accrued expenses and accounts receivable over the presented periods.

Net cash used in investing activities was $17.5 million and $22.7 million for the six months ended June 30, 2024 and 2023, respectively.

For the six months ended June 30, 2024, net cash used in investing activities consisted of capital expenditures associated with the purchase of property and equipment (including capitalized labor).

Capital expenditures remained consistent from 2023 to 2024, however in 2023 the Company purchased an investment, which increased the net cash used in investing activities in 2023.

Net cash used in financing activities was $58.8 million and $9.6 million for the three months ended March 31, 2024 and 2023, respectively.

For the three months ended March 31, 2024, net cash used in financing activities was primarily attributable to cash outlays the Company used to repurchase a portion of its outstanding senior notes debt facilities.

For the three months ended March 31, 2023, net cash used in financing activities was primarily attributable to cash used to repurchase common stock.

For the three months ended March 31, 2024 and 2023, net cash used in financing activities also included the payment of employee income tax obligations related to the net settlement of equity awards.

Net cash used in financing activities was $86.1 million and $11.5 million for the six months ended June 30, 2024 and 2023, respectively.

For the six months ended June 30, 2024, net cash used in financing activities was primarily attributable to cash outlays the Company used to repurchase a portion of its outstanding senior notes debt facilities.

For the six months ended June 30, 2023, net cash used in financing activities was primarily attributable to cash used to repurchase common stock.

For the six months ended June 30, 2024 and 2023, net cash used in financing activities also included the payment of employee income tax obligations related to the net settlement of equity awards and cash inflows related to the issuance of common stock under the Company’s employee stock purchase plan.

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-Q

Item 2. Management’s Discussion and Analysis