What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-07 compared with 2025-05-08 · 83 added, 54 removed, 144 unchanged (49% of the section changed)

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◦ Sustain growth or profitability, particularly in light of an uncertain U.S.

or worldwide economy, recent global conflicts, inflationary pressures, elevated interest rates, and the prospect of a U.S.

or worldwide economy, recent global conflicts, inflationary pressures, elevated interest rates, new or additional tariffs or other trade restrictions, and the prospect of a U.S.

federal government shutdown, and the related impact on customer acquisition and retention rates, customer usage levels and credit and debit card payment declines;

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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 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.

Consensus serves approximately 745 thousand customers of all sizes, from enterprises to individuals, across approximately 44 countries and/or territories and multiple industry verticals including, but not limited to, healthcare, government, financial services, law and education.

Our top 10 customers represent approximately 9% of total revenues and approximately 75% of our Small office home office (“SoHo”) customer accounts are older than 2 years.

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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, 2025 and 2024 (in thousands, except for percentages and Average Revenue per Customer Account):

Three Months Ended March 31,

Corporate $ 54,289 $ 51,390

32,849 36,754

The following table sets forth certain key performance metrics for our operations for the three and six months ended June 30, 2025 and 2024 (in thousands, except for percentages and Average Revenue per Customer Account):

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

2025 2024 2025 2024

Corporate $ 55,302 $ 51,720 $ 109,591 $ 103,110

SoHo 32,414 35,779 65,263 72,533

Total 87,716 87,499 174,854 175,643

Other revenues 5 1 5 3

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Corporate 63 56 63 56

SoHo 682 760 682 760

Consolidated 745 816 745 816

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Corporate 8 4 12 9

SoHo 62 61 120 123

Consolidated 70 65 132 132

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

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

In the current period, we eliminated dormant accounts not contributing to revenue from the number of SoHo customer accounts.

The prior year period has been revised for consistency with the current year, and all metrics calculated based on the number of customer accounts (including ARPA and Monthly Churn %) are calculated based on the revised number.

As a result of this change, the prior year period SoHo customer accounts decreased by 26 thousand.

(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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(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 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.

(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 period and expressed as a monthly churn rate over the respective 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 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

During the six months ended June 30, 2025, there were no significant changes in our critical accounting policies and estimates.

Results of Operations for the Three and Six Months Ended June 30, 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 March 31, Percentage Change

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

2025 2024 2025 2024

Revenues $ 87,721 $ 87,500 —% $ 174,859 $ 175,646 —%

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

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

Revenues increased by $0.2 million for the three months ended June 30, 2025 over the prior year comparable period.

An increase of $3.6 million or 7% in our Corporate business was partially offset by a decline of $3.4 million or 9% in our SoHo business.

Revenues decreased by $0.8 million for the six months ended June 30, 2025 over the prior year comparable period.

The decrease was due to a decline of $7.3 million or 10% in our SoHo business, partially offset by an increase of $6.5 million or 6% 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

2025 2024 2025 2024

Cost of revenues $17,624 $17,122 3% $35,694 $34,170 4%

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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 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.

The increase in cost of revenues of $0.5 million for the three months ended June 30, 2025 over the prior year comparable period was primarily due to increases of $0.5 million in network operations costs and $0.3 million in personnel-related expenses, partially offset by a decrease of $0.2 million in depreciation associated with platform development costs.

The increase in cost of revenues of $1.5 million for the six months ended June 30, 2025 over the prior year comparable period was primarily due to increases of $1.3 million in network operations costs, $0.5 million in depreciation associated with platform development costs and $0.4 million in data transmission costs, partially offset by a decrease of $0.4 million in personnel-related expenses.

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

2025 2024 2025 2024

Sales and marketing $12,452 $11,718 6% $25,240 $24,276 4%

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

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

The increase in sales and marketing expenses of $0.7 million for the three months ended June 30, 2025 over the prior year comparable period was primarily due to increases of $0.4 million in third-party advertising spend and $0.2 million in personnel-related expenses.

The increase in sales and marketing expenses of $1.0 million for the six months ended June 30, 2025 over the prior year comparable period was primarily due to an increase of $1.0 million in third-party advertising spend.

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

2025 2024 2025 2024

Research, development and engineering $1,744 $1,643 6% $3,456 $3,548 (3)%

1 unchanged sentence

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

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.

Research, development and engineering costs for the three and six months ended June 30, 2025 remained consistent with the prior year comparable periods.

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

2025 2024 2025 2024

General and administrative $16,852 $17,136 (2)% $33,923 $36,104 (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, 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.

The decrease in general and administrative expenses of $0.3 million for the three months ended June 30, 2025 over the prior year comparable period was primarily due to decreases of $0.5 million in bad debt expense, $0.4 million in depreciation and amortization expense and $0.3 million in non-income related tax expenses, partially offset by increases of $0.5 million in personnel-related expenses and $0.2 million in computer and related equipment expenses.

The decrease in general and administrative expenses of $2.2 million for the six months ended June 30, 2025 over the prior year comparable period was primarily due to decreases of $0.9 million in non-income related tax expenses, $0.6 million in depreciation and amortization expense, $0.4 million in professional fees and $0.4 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, 2025 and 2024 (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, 2025 and 2024 (in thousands):

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

2025 2024 2025 2024

Cost of revenues $ 511 $ 481 $ 987 $ 984

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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 was $8.7 million for both the three months ended June 30, 2025 and 2024, and $17.6 million and $14.9 million for the six months ended June 30, 2025 and 2024, respectively.

During the six months ended June 30, 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 $6.6 million in the prior year comparable period.

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

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.

Interest income was $0.5 million and $0.6 million for the three months ended June 30, 2025 and 2024, respectively, and $0.9 million and $1.5 million for the six months ended June 30, 2025 and 2024, respectively.

Interest income for the three and six months ended June 30, 2025 decreased compared to the prior year comparable periods as we decreased our investment in money market funds, primarily, in order to repurchase common stock and 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 $(1.1) million and $3.9 million for the three months ended March 31, 2025 and 2024, respectively.

Other (expense) income, net was $(2.3) million and $0.7 million for the three months ended June 30, 2025 and 2024, respectively, and $(3.4) million and $4.6 million for the six months ended June 30, 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 $6.7 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.

The provision for income taxes was $7.8 million and $8.6 million for the three months ended June 30, 2025 and 2024, respectively, and $14.5 million and $18.5 million for the six months ended June 30, 2025 and 2024, respectively.

Our effective tax rate was 27.2% and 26.5% for the three months ended June 30, 2025 and 2024, respectively, and 25.7% and 26.9% for the six months ended June 30, 2025 and 2024, respectively.

The increase in our effective income tax rate for the three months ended June 30, 2025 was primarily due to a change in the geographical mix of income, a decreased impact of the valuation allowance on the quarter, a decrease in uncertain tax positions and an increase in the officer’s compensation limitation.

The decrease in our effective income tax rate for the six months ended June 30, 2025 was primarily due to a decreased impact of the valuation allowance and a decrease in uncertain tax positions.

On July 4, 2025, the budget reconciliation bill H.R.

1, referred to as the One Big Beautiful Bill Act (“OBBBA”), was signed into law.

The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions, including modifications to capitalization of research and development expenses, limitations on deductions for interest expense and accelerated fixed asset depreciation.

We are still in the process of evaluating the OBBBA and an estimate of the financial impact cannot be made at this time.

Liquidity and Capital Resources

Cash and Cash Equivalents

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.

As of June 30, 2025, we had cash and cash equivalents of $57.9 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, share repurchases and investments.

As of June 30, 2025, cash and cash equivalents held within domestic and foreign jurisdictions were $30.7 million and $27.2 million, respectively.

Credit Agreement

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Pursuant to the Credit Agreement, the Lenders have provided Consensus with a revolving credit facility of $25.0 million (the “Credit Facility”) with an option held by the Company to obtain an additional commitment of up to a maximum of $25.0 million.

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

As of March 31, 2025, no amount had been drawn down on the Credit Facility.

The final maturity of the Credit Facility was scheduled to occur on March 4, 2027.

As of June 30, 2025, no amount had been drawn down on the Credit Facility.

Subsequent to the period ended June 30, 2025, this Credit Facility was retired with no balance.

In July 2025, the Company entered into a new Credit Agreement (the “2025 Credit Agreement”) with certain lenders party thereto (the “Lenders”) and U.S.

Bank National Association, as agent (the “Agent”) to provide the Company with a senior secured revolving credit facility of $75.0 million and a senior secured delayed-draw term loan facility of $150.0 million (see Note 15 - Subsequent Events of the Notes to the Condensed Consolidated Financial Statements).

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, 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.

As of June 30, 2025, we had $582.4 million in aggregate principal amount of indebtedness outstanding (see Note 7 - Long-Term Debt of the Notes to the Condensed Consolidated Financial Statements) and total minimum lease payments of $15.6 million, which had a weighted average remaining lease term of 5.2 years.

As of June 30, 2025, our liability for uncertain tax positions was $14.1 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.

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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 Condensed Consolidated Statements of Income.

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.

Any gains or losses on extinguishment of debt are recognized in interest expense on the

Condensed Consolidated Statements of Income.

As of June 30, 2025, the Company had retired an aggregate of $222.6 million in principal of its senior notes under this program.

Common Stock Repurchase Program

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

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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).

During the three months ended June 30, 2025, the Company repurchased 551,873 shares under this program at an aggregate cost of $12.5 million (inclusive of excise tax of $0.1 million).

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

During the six months ended June 30, 2025 and 2024, the Company repurchased 553,344 and 42,962 shares, respectively, under this program at an aggregate cost of $12.6 million (inclusive of excise tax of $0.1 million) and $0.7 million, respectively.

Cumulatively as of June 30, 2025, 1,639,069 shares have been repurchased under this program at an aggregate cost of $44.9 million (inclusive of excise tax of $0.3 million).

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

In connection with the Company’s share buyback program (see Note 11 - Stockholders’ Deficit) the Company repurchased 115,652 shares under this program for $2.6 million subsequent to the period ended June 30, 2025.

Vested Restricted Stock

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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 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.

During the three months ended June 30, 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 37,568 shares and 21,567 shares, respectively.

During the six months ended June 30, 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 51,045 shares and 36,907 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 $40.9 million and $44.7 million for the three months ended March 31, 2025 and 2024, respectively.

Net cash provided by operating activities was $ 69.2 million and $ 69.1 million for the six months ended June 30, 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 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.

Net cash provided by operating activities remained consistent with the prior year comparable period.

Net cash used in investing activities was $ 20.2 million and $ 17.5 million for the six months ended June 30, 2025 and 2024, respectively.

For the six months ended June 30, 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 year comparable period was primarily attributable to the purchase of investments in the current period, partially offset by a decrease in capital expenditures during the current year period.

Net cash used in financing activities was $ 28.6 million and $ 86.1 million for the six months ended June 30, 2025 and 2024, respectively.

For the six months ended June 30, 2025 and 2024, net cash used in financing activities is primarily attributable to our repurchases of debt and common stock.

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