Consensus Cloud Solutions, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted. The company provides subscription-based secure communications and cloud fax services. Prior-period income statements present continuing operations separately from the former parent’s non-fax business, which was spun off in October 2021.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $93.2 | $87.8 | $184.1 | $174.5 |
| Gross profit / margin | $77.6 / 83.3% | $73.3 / 83.4% | $153.4 / 83.3% | $145.9 / 83.6% |
| Operating income / margin | $41.0 / 44.0% | $51.7 / 58.9% | $79.8 / 43.4% | $103.4 / 59.3% |
| Net income | $22.3 | $27.5 | $41.0 | $74.9 |
| Diluted EPS | $1.11 | $1.38 | $2.04 | $3.76 |
- Cash flow: First-half operating cash flow was $52.2 million, investing cash outflow $29.1 million, and financing cash outflow $8.8 million. The prior-year cash-flow comparison includes discontinued operations and is not directly comparable.
- Liquidity: Cash was $76.3 million at June 30, versus $66.8 million at year-end 2021. Current assets were $111.1 million and current liabilities $82.2 million.
- Debt: $805.0 million principal outstanding in 6.0% notes due 2026 and 6.5% notes due 2028; carrying value net of issuance costs was $792.9 million. A $25 million secured revolving facility, with an option for up to $25 million more, was undrawn. The company reported covenant compliance.
- Balance sheet: Total assets were $604.0 million, goodwill $347.9 million, and stockholders’ deficit $299.2 million. The company repurchased $7.6 million of shares in the first half under its $100 million authorization.
Material changes versus the prior comparable period
- Q2 and first-half revenue each grew 6%. Corporate revenue rose 17% in Q2 and 15% for the half, including Summit acquisition contributions of $2.6 million and $3.4 million, respectively. SoHo revenue declined 4% and 3%, respectively.
- Corporate average revenue per account increased, while customer counts fell: consolidated accounts were 1.048 million versus 1.118 million. Consolidated monthly churn rose to 3.79% in Q2 from 3.20%; corporate churn improved to 1.88% from 3.14%, while SoHo churn increased to 3.87% from 3.20%.
- Profitability declined despite revenue growth. Q2 G&A increased to $17.5 million from $6.0 million, mainly reflecting standalone-company costs, including compensation and professional fees. Interest expense rose to $12.4 million from $0.3 million following issuance of $805 million of notes in October 2021. Share-based compensation was $4.8 million in Q2 versus $1.4 million.
- Summit Healthcare Services was acquired in February for $14.4 million net of cash acquired. The preliminary allocation included $8.0 million goodwill; accounting remains subject to finalization.
Outlook, risks and unusual items
- Management expects existing cash and operating cash generation to cover anticipated working capital, capital expenditures and potential repurchases for at least the next 12 months. No numerical revenue or earnings guidance is provided.
- Management describes organic expansion and selective acquisitions as growth priorities, particularly in interoperability. It cites macroeconomic uncertainty, inflation, higher interest rates, labor pressures, competition, customer retention and usage, and foreign-exchange exposure as risks.
- Disclosure controls and procedures were deemed ineffective because of a material weakness in accounting for aspects of the spin-off, including equity changes and discontinued-operations classifications. Management is enhancing controls; remediation is not complete and requires successful operation and testing.
- The company says it cannot currently estimate potential sales-tax liability for certain corporate customers for 2017–2021. It recorded $1.1 million of sales-tax expense for SoHo exposure in the first half of 2022. Uncertain tax-position liabilities were $6.3 million.
- Management does not expect current legal claims, after accrued liabilities, to materially affect financial position, results or cash flows. Foreign-currency translation losses were $6.5 million in the first half; foreign-exchange gains were $1.8 million.
Investor verification points
- Assess whether corporate growth and improved corporate churn can offset declining SoHo accounts and worsening SoHo churn.
- Track standalone operating costs, share-based compensation and interest burden against revenue growth and cash generation.
- Review debt covenant headroom, fixed interest obligations and the terms of the secured revolving facility.
- Monitor remediation of the material weakness and updates to corporate sales-tax exposures and Summit purchase accounting.