What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-08 · 58 added, 79 removed, 140 unchanged (49% 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 825 thousand customers of all sizes, from enterprises to individuals, across approximately 45 countries and multiple industry verticals including healthcare, government, financial services, law and education.

Consensus serves approximately 790 thousand customers of all sizes, from enterprises to individuals, across approximately 45 countries and/or territories and multiple industry verticals including healthcare, government, financial services, law and education.

Our top 10 customers represent approximately 9% of total revenues and approximately 74% of our Small office home office (“SoHo”) customer accounts are older than 2 years.

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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, 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.

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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 and nine months ended September 30, 2024 and 2023 (in thousands, except for percentages and Average Revenue per Customer Account):

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

The following table sets forth certain key performance metrics for our operations for the three months ended March 31, 2025 and 2024 (in thousands, except for percentages and Average Revenue per Customer Account):

Three Months Ended March 31,

Corporate $ 54,289 $ 51,390

Small office home office (“SoHo”) 34,664 40,129 107,197 124,588

32,849 36,754

87,138 88,144

Other revenues — 2

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Corporate 60 55

SoHo 767 859 767 859

Consolidated 790 863

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Corporate 5 4

SoHo 64 64 187 217

Consolidated 63 68

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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-to-date period, calculated as follows:

(2) Represents a monthly ARPA for the quarter period, and is 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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(3) Paid Adds represents paying new Consensus customer accounts added during the periods presented.

(4) Monthly churn represents paid monthly SoHo and Corporate customer accounts that were cancelled during each month of the quarter or year-to-date period divided by the average number of customers during each month of the same quarter or year-to-date period (including the paid adds).

The period measured is the quarter or year-to-date and expressed as a monthly churn rate over the respective period.

(4) Monthly churn represents paid monthly SoHo and Corporate customer accounts that were cancelled during each month of the quarter period, divided by the average number of customers during each month of the same quarter period, including the paid adds.

The period measured is the quarter period and expressed as a monthly churn rate over the quarter period.

Critical Accounting Estimates

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Our critical accounting policies are described in our 2024 Annual Report on Form 10-K filed with the SEC on February 20, 2025.

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

Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023

During the three months ended March 31, 2025, there were no significant changes in our critical accounting policies and estimates.

Results of Operations for the Three Months Ended March 31, 2025 and 2024

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 September 30, Percentage Change Nine Months Ended September 30, Percentage Change

2024 2023 2024 2023

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

Revenues $ 87,138 $ 88,146 (1)%

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

Revenues decreased by $2.8 million or 3% for the three months ended September 30, 2024 over the prior year comparable period.

The decrease was due to a decline of $5.5 million or 14% in our SoHo business, partially offset by an increase of $2.7 million or 5% in our corporate business.

Revenues decreased by $11.4 million or 4% for the nine months ended September 30, 2024 over the prior year comparable period.

Revenues decreased by $1.0 million or 1% for the three months ended March 31, 2025 over the prior year comparable period.

The decrease was due to a decline of $3.9 million or 11% in our SoHo business, partially offset by an increase of $2.9 million or 6% in our Corporate business.

Cost of Revenues

(in thousands, except percentages) Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change

2024 2023 2024 2023

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

Cost of revenues $18,070 $17,048 6%

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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 three months ended September 30, 2024 over the prior year comparable period was primarily due to increases of $0.9 million in depreciation associated with platform development costs and $0.8 million in network operations costs, partially offset by decreases of $0.3 million in data transmission expense, $0.2 million in personnel-related expenses and $0.2 million in online processing fees.

Cost of revenues for the nine months ended September 30, 2024 remained consistent with the prior year comparable period.

The increase in cost of revenues for the three months ended March 31, 2025 over the prior year comparable period was primarily due to increases of $0.8 million in network operations costs, $0.7 million in depreciation associated with platform development costs and $0.2 million in data transmission costs, partially offset by a decrease of $0.7 million in personnel-related expenses.

Operating Expenses

Sales and Marketing

(in thousands, except percentages) Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change

2024 2023 2024 2023

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

Sales and marketing $12,788 $12,558 2%

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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 $2.8 million for the three months ended September 30, 2024 over the prior year comparable period was primarily due to a reduction in third party advertising spend of $2.7 million, predominantly in SoHo.

The decrease in sales and marketing expenses of $12.9 million for the nine months ended September 30, 2024 over the prior year comparable period was primarily due to a reduction in third party advertising spend of $12.8 million, predominantly in SoHo.

Sales and marketing for the three months ended March 31, 2025 remained consistent with the prior year comparable period.

Research, Development and Engineering

(in thousands, except percentages) Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change

2024 2023 2024 2023

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

Research, development and engineering $1,712 $1,905 (10)%

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

The increase in research, development and engineering for the three months ended September 30, 2024 over the prior year comparable period was primarily due to an increase of $0.3 million in personnel-related expenses.

The increase in research, development and engineering for the nine months ended September 30, 2024 over the prior year comparable period was primarily due to increases of $0.1 million in personnel-related expenses and $0.1 million in computer related expense.

The decrease in research, development and engineering for the three months ended March 31, 2025 over the prior year comparable period was primarily due to decreases of $0.1 million in personnel-related expenses and $0.1 million in computer related expenses.

General and Administrative

(in thousands, except percentages) Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change

2024 2023 2024 2023

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

General and administrative $17,071 $18,968 (10)%

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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 September 30, 2024 over the prior year comparable period was primarily due to decreases of $0.7 million in non-income related tax expenses.

The decrease in general and administrative expenses for the nine months ended September 30, 2024 over the prior year comparable period was primarily due to decreases of $1.5 million in personnel-related expenses and $1.4 million in professional fees.

The decrease in general and administrative expenses for the three months ended March 31, 2025 over the prior year comparable period was primarily due to decreases of $0.9 million in personnel-related expenses, $0.7 million in professional fees and $0.5 million in non-income related tax 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 and nine months ended September 30, 2024 and 2023 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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, 2025 and 2024 (in thousands):

Three Months Ended March 31,

Cost of revenues $ 476 $ 503

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Interest expense .

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

Interest expense was $9.8 million and $12.6 million for the three months ended September 30, 2024 and 2023, respectively, and $24.6 million and $38.0 million for the nine months ended September 30, 2024 and 2023, respectively.

The decrease between periods was primarily due to the partial extinguishment of debt, resulting in a gain of $0.1 million and $6.7 million for the three and nine months ended September 30, 2024, respectively.

Our interest expense is due to outstanding debt and is offset by any extinguishment gain or losses and capitalized interest.

Interest expense was $9.0 million and $6.2 million for the three months ended March 31, 2025 and 2024, respectively.

During the three months ended March 31, 2025, interest expense increased by $2.8 million compared to the prior year comparable period.

Interest expense increased due to a net loss on debt extinguishment of $(0.1 million) in the current period compared to a net gain on debt extinguishment of $4.9 million in the prior year comparable period.

This increase to interest expense was partially offset by a favorable decrease of $2.2 million in interest expense as debt repurchases lowered our outstanding debt balance.

Interest income.

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

Interest income was $0.7 million and $1.5 million for the three months ended September 30, 2024 and 2023, respectively, and $2.2 million and $2.2 million for the nine months ended September 30, 2024 and 2023, respectively.

Interest income for the three months ended September 30, 2024 decreased compared to the prior year comparable period as the Company decreased its investment in money market funds in order to repurchase long-term debt.

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

Interest income was $0.5 million and $0.9 million for the three months ended March 31, 2025 and 2024, respectively.

Interest income for the three months ended March 31, 2025 decreased compared to the prior year comparable period as the Company decreased its investment in money market funds in order to repurchase long-term debt.

Other (expense) income, net .

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

Other (expense) income, net was $(2.1) million and $3.7 million for the three months ended September 30, 2024 and 2023, respectively, and $2.5 million and $3.4 million for the nine months ended September 30, 2024 and 2023, respectively.

Other (expense) income, net was $(1.1) million and $3.9 million for the three months ended March 31, 2025 and 2024, 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.

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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 was $6.1 million and $7.5 million for the three months ended September 30, 2024 and 2023, respectively, and $24.7 million and $18.9 million for the nine months ended September 30, 2024 and 2023, respectively.

Our effective tax rate was 22.5% and 23.9% for the three months ended September 30, 2024 and 2023, respectively, and 25.7% and 23.8% for the nine months ended September 30, 2024 and 2023, respectively.

The decrease in our effective income tax rate for the three months ended September 30, 2024 was primarily due to the change in the geographical mix of income.

The increase in our effective income tax rate for the nine months ended September 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.

The provision for income taxes was $6.7 million and $9.9 million for the three months ended March 31, 2025 and 2024, respectively.

Our effective tax rate was 24.1% and 27.3% for the three months ended March 31, 2025 and 2024, respectively.

The decrease in our effective income tax rate for the three months ended March 31, 2025 was primarily due to a change in the geographical mix of income, a decreased impact of the valuation allowance on the quarter and a decrease in uncertain tax positions.

Liquidity and Capital Resources

Cash and Cash Equivalents

As of September 30, 2024, we had cash and cash equivalents of $54.6 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 September 30, 2024, cash and cash equivalents held within domestic and foreign jurisdictions were $29.3 million and $25.3 million, respectively.

As of March 31, 2025, we had cash and cash equivalents of $53.4 million compared to $33.5 million as of December 31, 2024.

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

As of March 31, 2025, cash and cash equivalents held within domestic and foreign jurisdictions were $36.5 million and $16.9 million, respectively.

Credit Agreement

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

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

As of March 31, 2025, 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 September 30, 2024, we had outstanding $618.2 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 $18.0 million, which had a weighted average remaining lease term of 5.9 years.

As of September 30, 2024, our liability for uncertain tax positions was $11.9 million.

As of March 31, 2025, we had outstanding $588.4 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 $16.4 million, which had a weighted average remaining lease term of 5.4 years.

As of March 31, 2025, our liability for uncertain tax positions was $13.6 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.

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, stock and debt repurchases, if any, for at least the next 12 months and the foreseeable future.

We currently anticipate that our existing cash and cash equivalents and cash generated from operations and financing activities will be sufficient to fund our anticipated needs for working capital, capital expenditures, stock and debt repurchases, if any, for at least the next 12 months and the foreseeable future.

Debt Repurchase Program

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

As of September 30, 2024, the Company had retired an aggregate of $186.8 million in principal of its senior notes under this program.

In connection with the Company’s Debt Repurchase Program (see Note 7 - Long-Term Debt), the Company paid $9.2 million, which includes accrued interest, to repurchase $9.1 million in principal of its senior notes subsequent to the period ended September 30, 2024.

As of March 31, 2025, the Company had retired an aggregate of $216.6 million in principal of its senior notes under this program.

In connection with the Company’s Debt Repurchase Program (see Note 7 - Long-Term Debt), the Company paid $6.0 million, which includes accrued interest, to repurchase $6.0 million in principal of its senior notes subsequent to the period ended March 31, 2025.

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.

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

under this program.

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

During the three months ended September 30, 2023 the Company repurchased 152,399 shares under this program at an aggregate cost of $3.8 million, inclusive of excise tax of $0.1 million.

During the nine months ended September 30, 2024 and 2023, the Company repurchased 42,962 and 490,953 shares, respectively, at an aggregate cost of $0.7 million and $15.1 million, respectively, inclusive of excise tax of zero and $0.1 million, respectively.

Cumulatively as of September 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).

In March 2022, the Company’s Board of Directors approved a share buyback program, under which the Company was able to 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.

In February 2025, the Company’s Board of Directors authorized and approved a three-year extension of the share repurchase program through February 2028.

The share buyback program may end before this date if the maximum amount of repurchases has been reached or at the discretion of the Company’s Board of Directors.

The timing and amounts of purchases are 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 under this program.

During the three months ended March 31, 2025, the Company repurchased 1,471 shares under this program for a minimal amount.

During the three months ended March 31, 2024, the Company repurchased 42,962 shares under this program at an aggregate cost of $0.7 million.

Cumulatively as of March 31, 2025, 1,087,196 shares have been repurchased under this program at an aggregate cost of $32.4 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.

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

During the three months ended September 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 3,489 shares and 2,412 shares, respectively.

During the nine months ended September 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 40,396 shares and 35,368 shares, respectively.

During the three months ended March 31, 2025 and 2024, the Company withheld shares on its vested restricted stock units and restricted stock awards relating to its share-based compensation plans of 13,477 shares and 15,340 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 $110.6 million and $112.1 million for the nine months ended September 30, 2024 and 2023, respectively.

Net cash provided by operating activities was $40.9 million and $44.7 million for the three months ended March 31, 2025 and 2024, 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 decrease in our net cash provided by operating activities over the prior comparable period was primarily attributable to a decrease in our net working capital accounts of $3.4 million, partially offset by increased income of $1.9 million after excluding noncash items.

Net cash used in investing activities was $25.5 million and $32.7 million for the nine months ended September 30, 2024 and 2023, respectively.

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

The decrease in our net cash used in investing activities over the prior comparable period was primarily attributable to less cash used for investments and capital expenditures associated with the purchase of property and equipment (including capitalized labor).

Net cash used in financing activities was $116.8 million and $14.1 million for the nine months ended September 30, 2024 and 2023, respectively.

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

The change in net cash used in financing activities over the prior comparable period was primarily attributable to an increase in cash outflows related to the repurchase of our debt in the current period, which was absent in the prior period, partially offset by a decrease in the repurchases of the Company’s common stock.

The decrease in our net cash provided by operating activities over the prior comparable period was primarily attributable to a decrease in net cash inflows resulting from changes in our working capital accounts as well as decreased income after excluding noncash items.

Net cash used in investing activities was $12.2 million and $8.9 million for the three months ended March 31, 2025 and 2024, respectively.

For the three months ended March 31, 2025, net cash used in investing activities consisted of capital expenditures, primarily capitalized software development costs, and cash paid for investments.

The increase in our net cash used in investing activities over the prior comparable period was primarily attributable to the purchase of investments in the current period.

Net cash used in financing activities was $10.1 million and $58.8 million for the three months ended March 31, 2025 and 2024, respectively.

For the three months ended March 31, 2025 and 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.

The decrease in net cash used in financing activities over the prior comparable period was primarily attributable to a decrease in cash outflows related to the repurchase of our debt in the current period.

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