Consensus Cloud Solutions, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone Q4 filing; Q4 results are included below. Unless noted, amounts are U.S. dollars. Comparisons are with FY2020.
Business context
Consensus became an independent public company on October 7, 2021, when it separated from Ziff Davis. It provides recurring-revenue SaaS services for secure information delivery, principally cloud fax, serving more than one million customers in over 50 countries. Healthcare interoperability is a strategic growth area, but related products beyond fax remained an immaterial share of revenue. Historical results before the separation are carve-out results and may not represent the costs or performance of a standalone company.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $352.7 million | $331.2 million |
| Gross profit / margin | $294.7 million / 83.6% | $277.8 million / 83.9% |
| Operating income / margin | $175.1 million / 49.7% | $196.7 million / 59.4% |
| Income from continuing operations | $121.2 million | $122.4 million |
| Net income, including discontinued operations | $109.0 million | $152.9 million |
| Operating cash flow | $233.7 million | $238.8 million |
| Cash and cash equivalents at year-end | $66.8 million | $66.2 million |
Revenue rose 6.5%. Corporate revenue increased to $169.7 million from $149.0 million, while SoHo revenue was nearly flat at $182.4 million versus $181.8 million. Corporate growth reflected usage in existing accounts and new customers. Corporate monthly churn rose to 2.68% from 1.64%; SoHo churn was 3.37% versus 3.21%.
Operating expenses increased to $119.5 million from $81.1 million, with general and administrative expense rising to $58.2 million from $26.9 million. The increase included separation costs, higher standalone-company costs, office impairment and sales-tax expense. Operating margin fell to 49.7% from 59.4%. Continuing-operations income was broadly stable, but total net income declined mainly because discontinued operations moved from $30.5 million of income to a $12.2 million loss.
Q4 revenue was $89.0 million, compared with $85.6 million in Q4 2020. Q4 income from continuing operations was $7.7 million, versus $11.0 million a year earlier.
Reported operating cash flow covers the consolidated reporting periods, including the non-fax business through its transfer at separation; it should not be read as a full-year standalone cash-flow measure for the continuing business. Cash flow from investing activities was negative $42.5 million and financing activities were negative $247.8 million, with financing outflows largely reflecting separation-related distributions.
At year-end, principal debt was $805 million: $305 million of 6.0% notes due 2026 and $500 million of 6.5% notes due 2028. Debt’s carrying amount, net of issuance costs, was $792.0 million. Cash was $66.8 million. Management said cash and expected operating cash generation should cover anticipated needs for at least 12 months. A $25 million revolving facility, maturing in 2027, was entered into in March 2022; the filing does not state whether it was drawn.
Material changes, outlook and notable items
- The separation made Consensus independent and transferred the non-fax business back to Ziff Davis. Ziff Davis retained 19.9% of Consensus at year-end.
- Management’s stated priorities are corporate growth, healthcare interoperability, maintaining SoHo fax revenue, profitability and cash generation, and selective acquisitions. No specific numerical revenue or earnings guidance is provided.
- In March 2022, the board authorized repurchases of up to $100 million of stock through February 2025. The company also acquired healthcare interoperability assets for $15 million in February 2022.
- FY2021 included $11.5 million of separation-related costs and $8.2 million of continuing-operations impairment charges related to office space and equipment. The filing discusses $8.6 million of Wayfair sales-tax expense in its operating-expense discussion; the tax note reports $6.7 million of sales-tax expense net of tax benefit for affected SoHo periods. The amounts should be reconciled to the detailed disclosures.
- The company recorded a $32.6 million goodwill impairment and a $24.6 million loss on sale of the B2B Backup business within discontinued operations.
- A material weakness in internal control over financial reporting related to accounting for the separation was identified; management said the controls were not effective at year-end and remediation was ongoing. The financial-statement auditor issued an unqualified opinion, but did not audit or opine on internal-control effectiveness.
- Risks include dependence on fax for substantially all revenue and operating income; competition and technology change; uncertain adoption of healthcare interoperability products; cybersecurity, privacy and service-provider risks; regulatory and tax exposure; and costs and restrictions associated with the separation and debt.
Most important facts for investors to verify
- How much of Corporate growth and retention is recurring, and whether the rise in corporate churn persists.
- Standalone cash generation, capital spending and cash available for debt service, given the reported cash flows include discontinued-operation periods.
- The reconciliation and potential remaining exposure for sales taxes, particularly the unquantified corporate-account liability for 2017–2021.
- Progress remediating the separation-related material weakness and whether internal controls are subsequently tested and found effective.
- Debt covenants, interest burden and liquidity following separation, and the terms and actual use of the revolving facility.
- Whether Consensus Unite and other interoperability offerings gain meaningful adoption and revenue, and whether the company can do so without weakening profitability.