UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10-Q/A~~10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2022~~2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number: 001-40750

Consensus Cloud Solutions, Inc.

(Exact name of registrant as specified in its charter)


Delaware						87-1139414
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

700 S. Flower Street, 15th Floor

Los Angeles, California 90017

(Address of principal executive offices)

(323) 860-9200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value

CCSI

Nasdaq Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

As of ~~November 9, 2022,~~August 4, 2023, there were approximately ~~19,827,836~~19,648,265 shares of the registrant's common stock outstanding.

~~EXPLANATORY NOTE~~

Consensus Cloud Solutions, Inc. (the “Company”) is filing this Amendment No. 1 (“Amendment No. 1”) to its Quarterly Report on Form 10-Q for the period ended September 30, 2022 (the “Original Form 10-Q”), as originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on November 14, 2022, to amend and restate the Original Form 10-Q as further described below.

As disclosed in the Company’s Current Report on Form 8-K, as filed with the SEC on November 14, 2022, the Company is restating its previously issued unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2022. Subsequent to the filing of the Original Form 10-Q, the Company identified errors related to: (i) a its SoHo business that inadvertently grossed up revenue by $1.9 million and $5.3 million for the three and nine month periods ended September 30, 2022, respectively, with a corresponding offset to bad debt expense and (ii) the timing of revenue recognition of $2.2 million and $2.5 million for the three and nine month periods ended September 30, 2022, respectively, which after review, the Company has concluded should be reclassified as deferred revenue. The identified errors in Note 1, “Basis of Presentation”, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q/A had the following effects on the condensed consolidated statements of income of the Company for the three months ended September 30, 2022 compared to previously reported amounts: a reduction in revenue of $4.1 million, or 4.3%, a reduction in operating expenses of $1.8 million, or 3.9%, a reduction in income from continuing operations of $1.8 million, or 10.3%, a reduction in net income of $1.8 million, or 10.3%, a reduction in net income per basic common share from continuing operations of $0.08 or 9.3% and a reduction in net income per diluted common share from continuing operations of $0.09 or 10.5%. The identified errors had the following effects on the condensed consolidated statements of income of the Company for the nine months ended September 30, 2022 compared to previously reported amounts: a reduction in revenue of $7.8 million, or 2.8%, a reduction in operating expenses of $4.8 million, or 4.1%, a reduction in income from continuing operations of $2.3 million, or 4.0%, a reduction in net income of $2.3 million, or 4.0%, a reduction in net income per basic common share from continuing operations of $0.12 or 4.1% and a reduction in net income per diluted common share from continuing operations of $0.12 or 4.1%. See Note 1, “Basis of Presentation” for the impact of the restatement on each effected line item of the Company’s condensed consolidated financial statements.

This Amendment No.1 is presented as of the filing date of the Original Form 10-Q and does not reflect events occurring after that date, or modify or update disclosures in any way other than as required to reflect the restatement. Accordingly, this Amendment No. 1 should be read in conjunction with the Company’s filings with the SEC subsequent to the date on which the Company filed the Original Form 10-Q.

This Amendment No. 1 sets forth the Original Form 10-Q in its entirety, as amended to reflect the restatement. Among other things, forward-looking statements made in the Original Form 10-Q have not been revised to reflect events that occurred or facts that became known to the Company after the filing of the Original Form 10-Q, and such forward-looking statements should be read in their historical context.

~~The following items have been amended as a result of the restatement:~~

~~Part I, Item 1, “Financial Statements”,~~

~~Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”,~~

~~Part I, Item 4, “Controls and Procedures”, and~~

~~Part II, Item 1A, “Risk Factors.”~~

In accordance with applicable SEC rules, this Amendment No. 1 on Form 10-Q/A includes an updated signature page and certifications of the Company’s Chief Executive Officer and Chief Financial Officer in Exhibits 31.1, 31.2 and 32.1 as required by Rule 12b-15.

Refer to Note 1, “Basis of Presentation”, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q/A for additional information and for the summary of the accounting impacts of these adjustments to the Company’s condensed consolidated financial statements.

The Company has concluded there were additional material weaknesses in the Company’s internal control over financial reporting as of September 30, 2022 and that its disclosure controls and procedures remained ineffective as of September 30, 2022. See additional discussion included in Part I Item 4 and Part II Item 1A of this amended quarterly report.

TABLE OF CONTENTS


			Page

Part I.	Financial Information

	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets (unaudited)	3
		Condensed Consolidated Statements of Income (unaudited)	4
		Condensed Consolidated Statements of Comprehensive Income (unaudited)	5
		Condensed Consolidated Statements of Cash Flows (unaudited)	6
		Condensed Consolidated Statements of Stockholders’ ~~(Deficit) Equity~~ Deficit (unaudited)	7
		Notes to Condensed Consolidated Financial Statements (unaudited)	9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4331

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5139

	Item 4.	Controls and Procedures	5239

Part II.	Other Information

	Item 1.	Legal Proceedings	5341

	Item 1A.	Risk Factors	5341

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5341

	Item 3.	Defaults Upon Senior Securities	5342

	Item 4.	Mine Safety Disclosures	5342

	Item 5.	Other Information	5442

	Item 6.	Exhibits	5443

		Signatures	5544

-2-

Part I - Financial Information

Item 1. Financial Statements.

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands except share and per share data)


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
ASSETS	ASSETS	(As Restated)				ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	103,683	$	66,778	Cash and cash equivalents	$	111,977	$	94,164
Accounts receivable, net of allowances of $4,410 and $4,743, respectively		31,075		24,829
Accounts receivable, net of allowances of $5,359 and $4,681, respectively						Accounts receivable, net of allowances of $5,359 and $4,681, respectively	30,814		28,029
Prepaid expenses and other current assets	Prepaid expenses and other current assets	4,921		4,650		Prepaid expenses and other current assets	13,043		14,335
Total current assets	Total current assets	139,679		96,257		Total current assets	155,834		136,528

Property and equipment, net	Property and equipment, net	47,441		33,849		Property and equipment, net	68,210		54,958
Operating lease right-of-use assets	Operating lease right-of-use assets	7,419		7,233		Operating lease right-of-use assets	7,252		7,875
Intangibles, net	Intangibles, net	49,918		43,549		Intangibles, net	47,091		49,156
Goodwill	Goodwill	341,104		339,209		Goodwill	347,855		346,585
Deferred income taxes	Deferred income taxes	39,077		41,842		Deferred income taxes	34,804		35,981
Other assets	Other assets	1,967		873		Other assets	6,037		2,816
TOTAL ASSETS	TOTAL ASSETS	$	626,605	$	562,812	TOTAL ASSETS	$	667,083	$	633,899

LIABILITIES AND STOCKHOLDERS’ DEFICIT	LIABILITIES AND STOCKHOLDERS’ DEFICIT					LIABILITIES AND STOCKHOLDERS’ DEFICIT
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	61,695	$	40,206	Accounts payable and accrued expenses	$	35,532	$	41,246
Income taxes payable, current	Income taxes payable, current	4,218		5,227		Income taxes payable, current	3,175		2,548
Deferred revenue, current	Deferred revenue, current	26,337		24,370		Deferred revenue, current	23,334		24,579
Operating lease liabilities, current	Operating lease liabilities, current	2,458		2,421		Operating lease liabilities, current	2,893		2,793
Due to Former Parent	Due to Former Parent	908		5,739		Due to Former Parent	36		156

Total current liabilities	Total current liabilities	95,616		77,963		Total current liabilities	64,970		71,322
Long-term debt	Long-term debt	793,387		792,040		Long-term debt	794,830		793,865
Deferred revenue, non-current		2,322		184
Operating lease liabilities, non-current		13,998		14,108
Deferred revenue, noncurrent						Deferred revenue, noncurrent	2,301		2,319
Operating lease liabilities, noncurrent						Operating lease liabilities, noncurrent	13,026		13,877

Liability for uncertain tax positions	Liability for uncertain tax positions	6,969		4,795		Liability for uncertain tax positions	8,153		6,725
Deferred income taxes	Deferred income taxes	6,239		6,027		Deferred income taxes	951		728
Other long-term liabilities	Other long-term liabilities	353		360		Other long-term liabilities	298		324
TOTAL LIABILITIES	TOTAL LIABILITIES	918,884		895,477		TOTAL LIABILITIES	884,529		889,160
Commitments and contingencies (Note 10)
Common stock, $0.01 par value. Authorized 120,000,000; total issued is 20,016,950 and 19,978,580 shares and total outstanding is 19,827,836 and 19,978,580 shares at September 30, 2022 and December 31, 2021, respectively		200		200
Treasury stock, at cost (189,114 and zero shares at September 30, 2022 and December 31, 2021, respectively)		(7,596)		—
Commitments and contingencies (Note 8)						Commitments and contingencies (Note 8)
Common stock, $0.01 par value. Authorized 120,000,000; total issued is 20,176,291 and 20,105,545 shares and total outstanding is 19,648,623 and 19,916,431 shares at June 30, 2023 and December 31, 2022, respectively						Common stock, $0.01 par value. Authorized 120,000,000; total issued is 20,176,291 and 20,105,545 shares and total outstanding is 19,648,623 and 19,916,431 shares at June 30, 2023 and December 31, 2022, respectively	202		201
Treasury stock, at cost (527,668 and 189,114 shares at June 30, 2023 and December 31, 2022, respectively)						Treasury stock, at cost (527,668 and 189,114 shares at June 30, 2023 and December 31, 2022, respectively)	(18,937)		(7,596)
Additional paid-in capital	Additional paid-in capital	16,893		2,878		Additional paid-in capital	32,182		21,650
Accumulated deficit	Accumulated deficit	(267,047)		(318,886)		Accumulated deficit	(213,892)		(250,408)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(34,729)		(16,857)		Accumulated other comprehensive loss	(17,001)		(19,108)
TOTAL STOCKHOLDERS’ DEFICIT	TOTAL STOCKHOLDERS’ DEFICIT	(292,279)		(332,665)		TOTAL STOCKHOLDERS’ DEFICIT	(217,446)		(255,261)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	626,605	$	562,812	TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	667,083	$	633,899

See Notes to Condensed Consolidated Financial Statements

-3-

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands except share and per share data)

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(As Restated) (As Restated)
Revenues $ 91,777 $ 89,198 $ 272,190 $ 263,660
Cost of revenues (1)
15,419 14,604 46,111 43,128
Gross profit 76,358 74,594 226,079 220,532
Operating expenses:
Sales and marketing (1)
16,626 13,115 48,850 40,031
Research, development and engineering (1)
3,236 2,019 8,313 5,635
General and administrative (1)
23,839 8,237 57,024 20,262
Total operating expenses 43,701 23,371 114,187 65,928
Income from operations 32,657 51,223 111,892 154,604
Interest expense (13,941) (131) (39,573) (611)
Other income, net 2,992 1,552 4,742 1,833
Income before income taxes 21,708 52,644 77,061 155,826
Income tax expense 6,338 11,512 21,250 36,606
Income from continuing operations 15,370 41,132 55,811 119,220
Loss from discontinued operations, net of income tax (1)
— (13,908) — (17,118)
Net income $ 15,370 $ 27,224 $ 55,811 $ 102,102
Net income per common share from continuing operations:
Basic $ 0.78 $ 2.07 $ 2.80 $ 5.99
Diluted $ 0.77 $ 2.07 $ 2.79 $ 5.99
Net loss per common share from discontinued operations:
Basic $ — $ (0.70) $ — $ (0.86)
Diluted $ — $ (0.70) $ — $ (0.86)
Net income per common share:
Basic $ 0.78 $ 1.37 $ 2.80 $ 5.13
Diluted $ 0.77 $ 1.37 $ 2.79 $ 5.13
Weighted average shares outstanding:
Basic 19,791,019 19,902,924 19,879,759 19,902,924
Diluted 19,873,138 19,902,924 19,958,624 19,902,924
(1) Includes share-based compensation expense as follows:
Cost of revenues $ 219 $ 37 $ 658 $ 136
Sales and marketing 269 93 812 281
Research, development and engineering 390 99 1,086 300
General and administrative 3,878 123 12,526 399
Loss from discontinued operations, net of income taxes — 1,099 — 3,254
Total $ 4,756 $ 1,451 $ 15,082 $ 4,370


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues	$	92,792	$	91,115	$	184,246	$	180,413

Cost of revenues (1)	17,246		15,587		34,754		30,692
Gross profit	75,546		75,528		149,492		149,721
Operating expenses:
Sales and marketing (1)	17,507		16,394		34,400		32,224
Research, development and engineering (1)	1,765		2,741		3,669		5,077
General and administrative (1)	17,432		15,816		38,584		33,185
Total operating expenses	36,704		34,951		76,653		70,486
Income from operations	38,842		40,577		72,839		79,235
Interest expense	(12,817)		(12,359)		(25,383)		(25,632)
Interest income	661		—		665		—
Other (expense) income, net	568		1,577		(280)		1,750
Income before income taxes	27,254		29,795		47,841		55,353
Income tax expense	6,196		7,874		11,325		14,912


Net income	$	21,058	$	21,921	$	36,516	$	40,441









Net income per common share:
Basic	$	1.07	$	1.10	$	1.85	$	2.02
Diluted	$	1.07	$	1.10	$	1.85	$	2.02

Weighted average shares outstanding:
Basic	19,654,922		19,928,316		19,750,570		19,924,864
Diluted	19,662,201		19,968,340		19,772,898		20,002,103


(1) Includes share-based compensation expense as follows:
Cost of revenues	$	334	$	216	$	630	$	439
Sales and marketing	387		270		759		543
Research, development and engineering	52		340		92		696
General and administrative	3,890		4,097		8,322		8,648

Total	$	4,663	$	4,923	$	9,803	$	10,326

See Notes to Condensed Consolidated Financial Statements

-4-

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(As Restated)				(As Restated)
Net income	Net income	$	15,370	$	27,224	$	55,811	$	102,102	Net income	$	21,058	$	21,921	$	36,516	$	40,441
Other comprehensive loss:
Other comprehensive income (loss):										Other comprehensive income (loss):
Foreign currency translation adjustment	Foreign currency translation adjustment	(11,411)		(8,248)		(17,872)		(13,555)		Foreign currency translation adjustment	(971)		(4,344)		2,107		(6,461)
Other comprehensive loss		(11,411)		(8,248)		(17,872)		(13,555)
Other comprehensive income (loss)										Other comprehensive income (loss)	(971)		(4,344)		2,107		(6,461)
Comprehensive income	Comprehensive income	$	3,959	$	18,976	$	37,939	$	88,547	Comprehensive income	$	20,087	$	17,577	$	38,623	$	33,980

See Notes to Condensed Consolidated Financial Statements

-5-

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


		Nine Months Ended September 30,
		2022		2021			Six Months Ended June 30,
		(As Restated)					2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	55,811	$	102,102	Net income	$	36,516	$	40,441
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	11,359		48,744		Depreciation and amortization	8,689		7,564
Amortization of financing costs and discounts	Amortization of financing costs and discounts	1,391		—		Amortization of financing costs and discounts	1,004		901
Non-cash operating lease costs	Non-cash operating lease costs	1,130		3,991		Non-cash operating lease costs	874		787
Share-based compensation	Share-based compensation	15,082		4,370		Share-based compensation	9,803		10,326
Provision for doubtful accounts	Provision for doubtful accounts	(60)		6,562		Provision for doubtful accounts	3,080		191
Deferred income taxes, net	Deferred income taxes, net	(2,435)		10,722		Deferred income taxes, net	2,036		(2,435)

Loss on sale of businesses		—		21,798
Goodwill impairment on business		—		32,629

Other		—		3,530

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Decrease (increase) in:	Decrease (increase) in:					Decrease (increase) in:
Accounts receivable	Accounts receivable	(4,852)		3,546		Accounts receivable	(5,852)		(4,280)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(83)		(7,392)		Prepaid expenses and other current assets	1,237		(37)
Other assets	Other assets	(1,097)		(1,119)		Other assets	780		(279)
Increase (decrease) in:	Increase (decrease) in:					Increase (decrease) in:
Accounts payable and accrued expenses	Accounts payable and accrued expenses	19,991		(13,921)		Accounts payable and accrued expenses	(5,829)		(1,857)
Income taxes payable	Income taxes payable	(805)		(6,911)		Income taxes payable	651		(6)
Deferred revenue	Deferred revenue	(297)		(2,631)		Deferred revenue	(1,173)		1,681
Operating lease liabilities	Operating lease liabilities	(1,389)		(6,553)		Operating lease liabilities	(1,121)		(939)
Liability for uncertain tax positions	Liability for uncertain tax positions	2,174		(2,374)		Liability for uncertain tax positions	1,428		1,458
Other liabilities	Other liabilities	(6,648)		(704)		Other liabilities	(31)		(1,310)
Net cash provided by operating activities	Net cash provided by operating activities	89,272		196,389		Net cash provided by operating activities	52,092		52,206
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(21,060)		(28,280)		Purchases of property and equipment	(18,675)		(13,744)
Acquisition of businesses, net of cash received	Acquisition of businesses, net of cash received	(12,230)		(56,838)		Acquisition of businesses, net of cash received	—		(14,355)
Proceeds from sale of businesses, net of cash divested		—		48,876

Purchase of investments						Purchase of investments	(4,000)		—

Purchases of intangible assets	Purchases of intangible assets	(1,000)		(1,511)		Purchases of intangible assets	—		(1,000)
Net cash used in investing activities	Net cash used in investing activities	(34,290)		(37,753)		Net cash used in investing activities	(22,675)		(29,099)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Debt issuance costs	Debt issuance costs	(232)		—		Debt issuance costs	—		(232)
Issuance of common stock under employee stock purchase plan		631		—
Proceeds from the issuance of common stock under employee stock purchase plan						Proceeds from the issuance of common stock under employee stock purchase plan	871		631
Repurchase of common stock	Repurchase of common stock	(7,596)		—		Repurchase of common stock	(11,244)		(7,596)
Shares withheld related to net share settlement		(1,698)		—
Deferred payments for acquisitions		—		(6,267)
Contribution from Former Parent		—		21,238
Other		—		(593)
Net cash (used in) provided by financing activities		(8,895)		14,378
Taxes paid related to net share settlement						Taxes paid related to net share settlement	(1,175)		(1,590)

Net cash used in financing activities						Net cash used in financing activities	(11,548)		(8,787)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(9,182)		(3,411)		Effect of exchange rate changes on cash and cash equivalents	(56)		(4,806)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	36,905		169,603		Net change in cash and cash equivalents	17,813		9,514
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	66,778		128,189		Cash and cash equivalents at beginning of period	94,164		66,778
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	103,683		297,792		Cash and cash equivalents at end of period	$	111,977	$	76,292
Less cash and cash equivalents at end of period, discontinued operations		—		266,582
Cash and cash equivalents at end of period, continuing operations		$	103,683	$	31,210

See Notes to Condensed Consolidated Financial Statements

-6-

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ ~~(DEFICIT) EQUITY~~DEFICIT

(Unaudited, in thousands except share amounts)


		Common stock			Additional paid-in	Treasury stock				Accumulated		Accumulated other comprehensive				Net parent	Total		Common stock								Additional paid-in	Treasury stock				Accumulated			Accumulated other comprehensive					Total
		Shares	Amount				capital		Shares	Amount		Deficit		loss			investment			Equity			Shares			Amount						capital		Shares	Amount			Deficit			loss			Deficit
Balance, July 1, 2021		—	$	—			$	—	—	$	—	$	—	$	(61,273)		$	1,295,005		$	1,233,732
Balance, April 1, 2022																			Balance, April 1, 2022		19,995,528			$	200				$	7,108	—		$	—		$	(303,037)		$	(18,974)		$	(314,703)
Net income	Net income	—	—				—		—	—		—		—			27,224			27,224		Net income	—			—						—		—	—			21,921			—			21,921
Other comprehensive loss	Other comprehensive loss	—	—				—		—	—		—		(8,248)			—			(8,248)		Other comprehensive loss	—			—						—		—	—			—			(4,344)			(4,344)

Vested restricted stock																			Vested restricted stock		12,401			—					—		—		—			—			—			—
Shares withheld related to net share settlement																			Shares withheld related to net share settlement		(7,897)			—					(417)		—		—			—			—			(417)
Repurchase of common stock																			Repurchase of common stock		—			—					—		(189,114)		(7,596)			—			—			(7,596)
Share-based compensation	Share-based compensation	—	—				—		—	—		—		—			1,451			1,451		Share-based compensation	—			—						4,923		—	—			—			—			4,923
Parent contribution		—	—				—		—	—		—		—			(17,462)			(17,462)
Balance, September 30, 2021		—	$	—			$	—	—	$	—	$	—	$	(69,521)		$	1,306,218		$	1,236,697
Issuance of shares under ESPP																			Issuance of shares under ESPP		15,806			—					631		—		—			—			—			631
Reclassifications related to the Separation																			Reclassifications related to the Separation		—			—					—		—		—			(622)			—			(622)
Balance, June 30, 2022																			Balance, June 30, 2022		20,015,838			$	200				$	12,245	(189,114)		$	(7,596)		$	(281,738)		$	(23,318)		$	(300,207)

Common stock Additional
paid-in Treasury stock Accumulated Accumulated other comprehensive Total
Shares Amount capital Shares Amount Deficit loss Equity
Balance, July 1, 2022 20,015,838 $ 200 $ 12,245 (189,114) $ (7,596) $ (281,738) $ (23,318) $ (300,207)
Net income (as restated) — — — — — 15,370 — 15,370
Other comprehensive loss — — — — — — (11,411) (11,411)
Vested restricted stock 3,018 — — — — — — —
Shares withheld related to net share settlement (1,906) — (108) — — — — (108)
Share-based compensation — — 4,756 — — — — 4,756
Reclassifications related to the Separation (Note 1) — — — — — (679) — (679)
Balance, September 30, 2022 (as restated) 20,016,950 $ 200 $ 16,893 (189,114) $ (7,596) $ (267,047) $ (34,729) $ (292,279)


	Common stock			Additional paid-in	Treasury stock				Accumulated		Accumulated other comprehensive				Total
	Shares	Amount				capital		Shares	Amount		Deficit		loss			Deficit
Balance, April 1, 2023	20,118,967	$	201			$	26,859	(459,306)	$	(16,791)	$	(234,950)	$	(16,030)		$	(240,711)

Net income	—	—				—		—	—		21,058		—			21,058
Other comprehensive loss	—	—				—		—	—		—		(971)			(971)
Vested restricted stock	49,280	1				(1)		—	—		—		—			—
Shares withheld related to net share settlement	(21,538)	—				(724)		—	—		—		—			(724)
Repurchase of common stock	—	—				—		(68,362)	(2,146)		—		—			(2,146)
Share-based compensation	—	—				5,177		—	—		—		—			5,177
Issuance of shares under ESPP	29,582	—				871		—	—		—		—			871

Balance, June 30, 2023	20,176,291	$	202			$	32,182	(527,668)	$	(18,937)	$	(213,892)	$	(17,001)		$	(217,446)

-7-

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited, in thousands except share amounts)


	Common stock			Additional paid-in	Treasury stock				Accumulated		Accumulated other comprehensive				Total
	Shares	Amount				capital		Shares	Amount		Deficit		loss			Deficit
Balance, January 1, 2022	19,978,580	$	200			$	2,878	—	$	—	$	(318,886)	$	(16,857)		$	(332,665)

Net income	—	—				—		—	—		40,441		—			40,441
Other comprehensive loss	—	—				—		—	—		—		(6,461)			(6,461)


Vested restricted stock	49,271	—				—		—	—		—		—			—
Shares withheld related to net share settlement	(27,819)	—				(1,590)		—	—		—		—			(1,590)
Repurchase of common stock	—	—				—		(189,114)	(7,596)		—		—			(7,596)
Share-based compensation	—	—				10,326		—	—		—		—			10,326
Issuance of shares under ESPP	15,806	—				631		—	—		—		—			631
Reclassifications related to the Separation	—	—				—		—	—		(3,293)		—			(3,293)

Balance, June 30, 2022	20,015,838	$	200			$	12,245	(189,114)	$	(7,596)	$	(281,738)	$	(23,318)		$	(300,207)

Common stock Additional
paid-in Treasury stock Accumulated Accumulated other comprehensive Net parent Total
Shares Amount capital Shares Amount Deficit loss investment Equity
Balance, January 1, 2021 — $ — $ — — $ — $ — $ (55,966) $ 1,178,508 $ 1,122,542
Net income — — — — — — — 102,102 102,102
Other comprehensive loss — — — — — — (13,555) — (13,555)
Share-based compensation — — — — — — — 4,370 4,370
Parent contribution — — — — — — — 21,238 21,238
Balance, September 30, 2021 — $ — $ — — $ — $ — $ (69,521) $ 1,306,218 $ 1,236,697


		Common stock			Additional paid-in	Treasury stock				Accumulated		Accumulated other comprehensive				Total	Common stock							Additional paid-in	Treasury stock	Accumulated			Accumulated other comprehensive				Total
		Shares	Amount				capital		Shares	Amount		Deficit		loss				Equity			Shares	Amount				capital		Shares	Amount		Deficit			loss		Deficit
Balance, January 1, 2022		19,978,580	$	200			$	2,878	—	$	—	$	(318,886)	$	(16,857)			$	(332,665)
Net income (as restated)		—	—				—		—	—		55,811		—				55,811
Other comprehensive loss		—	—				—		—	—		—		(17,872)				(17,872)
Balance, January 1, 2023																				Balance, January 1, 2023	20,105,545	$	201			$	21,650	(189,114)	$	(7,596)	$	(250,408)		$	(19,108)	$	(255,261)
Net income																				Net income	—	—				—		—	—		36,516			—		36,516
Other comprehensive income																				Other comprehensive income	—	—				—		—	—		—			2,107		2,107
Vested restricted stock	Vested restricted stock	52,289	—				—		—	—		—		—				—		Vested restricted stock	74,120	1				(1)		—	—		—			—		—
Shares withheld related to net share settlement	Shares withheld related to net share settlement	(29,725)	—				(1,698)		—	—		—		—				(1,698)		Shares withheld related to net share settlement	(32,956)	—				(1,175)		—	—		—			—		(1,175)
Repurchase of common stock	Repurchase of common stock	—	—				—		(189,114)	(7,596)		—		—				(7,596)		Repurchase of common stock	—	—				—		(338,554)	(11,341)		—			—		(11,341)

Share-based compensation	Share-based compensation	—	—				15,082		—	—		—		—				15,082		Share-based compensation	—	—				10,837		—	—		—			—		10,837
Issuance of shares under ESPP	Issuance of shares under ESPP	15,806	—				631		—	—		—		—				631		Issuance of shares under ESPP	29,582	—				871		—	—		—			—		871
Reclassifications related to the Separation (Note 1)		—	—				—		—	—		(3,972)		—				(3,972)
Balance, September 30, 2022 (as restated)		20,016,950	$	200			$	16,893	(189,114)	$	(7,596)	$	(267,047)	$	(34,729)			$	(292,279)

Balance, June 30, 2023																				Balance, June 30, 2023	20,176,291	$	202			$	32,182	(527,668)	$	(18,937)	$	(213,892)		$	(17,001)	$	(217,446)

See Notes to Condensed Consolidated Financial Statements

-8-

CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

The Company

Consensus Cloud Solutions, Inc., together with its subsidiaries (“Consensus Cloud Solutions”, “Consensus”, the “Company”, “our”, “us” or “we”), is a provider of secure information delivery services with a scalable Software-as-a-Service (“SaaS”) platform. Consensus serves ~~more than one~~approximately 1 million customers of all sizes, from enterprises to individuals, across ~~over~~approximately 50 countries and multiple industry verticals including healthcare, government, financial services, law and education. Beginning as an online fax company over two decades ago, Consensus has evolved into a global provider of enterprise secure communication solutions. Our communication and digital signature solutions enable our customers to securely and cooperatively access, exchange and use information across organizational, regional and national boundaries.

~~Restatement and Revision of Unaudited Condensed Consolidated Financial Statements~~

~~Restatement of Previously Issued Financial Statements~~

~~In connection with the preparation of its Annual Report on Form 10-K for the year ended December 31, 2022, the Company~~ identified unintentional errors in its condensed consolidated financial statements as of and for the three months ended September 30, 2022, primarily relating to: (i) its SoHo business that inadvertently grossed up revenue with a corresponding offset to bad debt expense and (ii) the timing of revenue recognition related to a contract, which after review, the Company has concluded should be reclassified as deferred revenue. In addition, in preparation of this Form 10-Q/A, the Company evaluated any other adjustments that would impact the quarterly periods in 2022 and concluded it was appropriate to include those items in the restated periods presented. Those other items include (i) an error in share-based compensation based on a revaluation of the Company’s performance stock units, (ii) an error in the purchase price allocation related to the Summit Acquisition (see Note 4) that increased the values of the intangible assets acquired and reduced the value of goodwill from the acquisition, and (iii) the identification of certain intangible assets post Separation that were incorrectly included in the opening balance at the time of the Spin-off that belonged to the Former Parent, the correction of which decreased intangible assets with an offsetting decrease to equity (see “Adjustments related to the Spin-off” within this footnote). See tables below for more detail.

~~Revision of Previously Issued Financial Statements for Immaterial Misstatements~~

In addition to the restatement of the previously issued consolidated financial statements as of and for the three and nine months ended September 30, 2022, management determined that the errors related to the SoHo revenue and bad debt expense as well as the revaluation of the Company’s performance stock units also existed in the quarterly periods ended March 31, 2022 and June 30, 2022. Management determined that these errors were not material to the three months ended March 31, 2022 or the three or six months ended June 30, 2022. However, the condensed consolidated financial information for the nine months ended September 30, 2022 presented in this Form 10-Q/A reflects the correction of these immaterial errors. Additionally, management will revise its condensed consolidated financial statements for the quarterly periods ended March 31, 2022 and June 30, 2022 when it files its Form 10-Qs for the quarterly periods ended March 31, 2023 and June 30, 2023.

~~-9-~~

The following tables reflect the impact of the restatement to the specific line items presented in the Company’s previously reported unaudited condensed consolidated financial statements as of and for the three months ended September 30, 2022.

Condensed Consolidated Balance Sheet (unaudited) September 30, 2022
(dollars in thousands) As Originally Reported Adjustments As Restated
Assets
Intangibles, net $ 49,702 $ 216 $ 49,918
Goodwill 342,104 (1,000) 341,104
Total assets $ 627,389 $ (784) $ 626,605
Liabilities and stockholders' deficit
Income taxes payable, current $ 4,883 $ (665) $ 4,218
Deferred revenue, current 26,050 287 26,337
Total current liabilities 95,994 (378) 95,616
Deferred revenue, noncurrent 109 2,213 2,322
Total liabilities 917,049 1,835 918,884
Stockholders’ deficit
Additional paid-in capital 16,419 474 16,893
Accumulated deficit (263,954) (3,093) (267,047)
Total stockholders’ deficit (289,660) (2,619) (292,279)
Total liabilities and stockholders’ deficit $ 627,389 $ (784) $ 626,605

Condensed Consolidated Statement of Income (unaudited) Three Months Ended September 30, 2022
(dollars in thousands except share and per share data) As Originally Reported Adjustments As Restated
Revenues $ 95,912 $ (4,135) $ 91,777
Gross profit 80,493 (4,135) 76,358
Operating expenses
General and administrative 25,604 (1,765) 23,839
Total operating expenses 45,466 (1,765) 43,701
Income from operations 35,027 (2,370) 32,657
Income before income taxes 24,078 (2,370) 21,708
Income tax expense 6,937 (599) 6,338
Net income $ 17,141 $ (1,771) $ 15,370
Net income per common share:
Basic $ 0.86 $ (0.08) $ 0.78
Diluted $ 0.86 $ (0.09) $ 0.77
Weighted average shares outstanding:
Basic 19,791,019 — 19,791,019
Diluted 19,885,880 (12,742) 19,873,138
Share-based compensation expense as follows:
General and administrative $ 3,736 $ 142 $ 3,878
Total $ 4,614 $ 142 $ 4,756

~~-10-~~

Condensed Consolidated Statement of Comprehensive Income (unaudited) Three Months Ended September 30, 2022
(dollars in thousands) As Originally Reported Adjustments As Restated
Net income $ 17,141 $ (1,771) $ 15,370
Comprehensive income $ 5,730 $ (1,771) $ 3,959

Condensed Consolidated Statements of Stockholders’ Deficit (unaudited) Three Months Ended September 30, 2022
(dollars in thousands) As Originally Reported Adjustments As Restated
Balance July 1, 2022:
Additional paid-in capital $ 11,913 $ 332 $ 12,245
Accumulated deficit (280,416) (1,322) (281,738)
Total equity $ (299,217) $ (990) $ (300,207)
Additional paid-in capital activity:
Share-based compensation $ 4,614 $ 142 $ 4,756
Accumulated deficit activity:
Net income 17,141 (1,771) 15,370
Balance September 30, 2022:
Additional paid-in capital $ 16,419 $ 474 $ 16,893
Accumulated deficit (263,954) (3,093) (267,047)
Total equity $ (289,660) $ (2,619) $ (292,279)

~~-11-~~

Condensed Consolidated Statement of Income (unaudited) Nine Months Ended September 30, 2022
(dollars in thousands except share and per share data) As Originally Reported
Adjustments (1)
As Restated
Revenues $ 280,000 $ (7,810) $ 272,190
Gross profit 233,889 (7,810) 226,079
Operating expenses
General and administrative 61,860 (4,836) 57,024
Total operating expenses 119,023 (4,836) 114,187
Income from operations 114,866 (2,974) 111,892
Income before income taxes 80,035 (2,974) 77,061
Income tax expense 21,915 (665) 21,250
Net income $ 58,120 $ (2,309) $ 55,811
Net income per common share:
Basic $ 2.92 $ (0.12) $ 2.80
Diluted $ 2.91 $ (0.12) $ 2.79
Weighted average shares outstanding:
Basic 19,879,759 — 19,879,759
Diluted 19,951,653 6,971 19,958,624
Share-based compensation expense as follows:
General and administrative $ 12,052 $ 474 $ 12,526
Total $ 14,608 $ 474 $ 15,082

~~(1)~~ ~~See tables below for the impact of the revision of the results of operations for the three months ended March 31, 2022 and the three and six months ended June 30, 2022.~~

Condensed Consolidated Statement of Comprehensive Income (unaudited) Nine Months Ended September 30, 2022
(dollars in thousands) As Originally Reported Adjustments As Restated
Net income $ 58,120 $ (2,309) $ 55,811
Comprehensive income $ 40,248 $ (2,309) $ 37,939

~~-12-~~

Condensed Consolidated Statement of Cash flows (unaudited) Nine Months Ended September 30, 2022
(dollars in thousands) As Originally Reported Adjustments As Restated
Cash flows from operating activities:
Net income $ 58,120 $ (2,309) $ 55,811
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation 14,608 474 15,082
Provision for doubtful accounts 5,250 (5,310) (60)
Accounts receivable (10,162) 5,310 (4,852)
Income taxes payable (140) (665) (805)
Deferred revenue (2,797) 2,500 (297)
Net cash provided by operating activities $ 89,272 $ — $ 89,272

~~There was no impact on cash flows from investing or financing activities.~~

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity (unaudited) Nine Months Ended September 30, 2022
(dollars in thousands) As Originally Reported Adjustments As Restated
Additional paid-in capital activity:
Share-based compensation $ 14,608 $ 474 $ 15,082
Accumulated deficit activity:
Net income 58,120 (2,309) 55,811
Reclassifications related to the Separation (3,188) (784) (3,972)
Balance September 30, 2022:
Additional paid-in capital $ 16,419 $ 474 $ 16,893
Accumulated deficit (263,954) (3,093) (267,047)
Total equity $ (289,660) $ (2,619) $ (292,279)

~~-13-~~

The following tables reflect the impact of the immaterial error corrections to the specific line items presented in the Company’s previously reported unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2022.

Condensed Consolidated Balance Sheet (unaudited) March 31, 2022
(dollars in thousands) As Originally Reported Adjustments As Revised
Assets
Intangibles, net $ 53,003 $ (784) $ 52,219
Total assets $ 615,346 $ (784) $ 614,562
Liabilities and stockholders' deficit
Income taxes payable, current $ 10,217 $ (5) $ 10,212
Total current liabilities 110,107 (5) 110,102
Stockholders’ deficit
Additional paid-in capital 6,918 190 7,108
Accumulated deficit (302,068) (969) (303,037)
Total stockholders’ deficit (313,924) (779) (314,703)
Total liabilities and stockholders’ deficit $ 615,346 $ (784) $ 614,562

Condensed Consolidated Statement of Income (unaudited) Three Months Ended March 31, 2022
(dollars in thousands except share and per share data) As Originally Reported Adjustments As Revised
Revenues $ 90,925 $ (1,627) $ 89,298
Gross profit 75,821 (1,627) 74,194
Operating expenses
General and administrative 18,806 (1,437) 17,369
Total operating expenses 36,972 (1,437) 35,535
Income from operations 38,849 (190) 38,659
Income before income taxes 25,749 (190) 25,559
Income tax expense 7,043 (5) 7,038
Net income $ 18,706 $ (185) $ 18,521
Net income per common share:
Basic $ 0.94 $ (0.01) $ 0.93
Diluted $ 0.93 $ (0.01) $ 0.92
Weighted average shares outstanding:
Basic 19,921,375 — 19,921,375
Diluted 20,005,307 30,520 20,035,827
Share-based compensation expense as follows:
General and administrative $ 4,361 $ 190 $ 4,551
Total $ 5,213 $ 190 $ 5,403

~~-14-~~

Condensed Consolidated Statement of Comprehensive Income (unaudited) Three Months Ended March 31, 2022
(dollars in thousands) As Originally Reported Adjustments As Revised
Net income $ 18,706 $ (185) $ 18,521
Comprehensive income $ 16,589 $ (185) $ 16,404

Condensed Consolidated Statement of Cash flows (unaudited) Three Months Ended March 31, 2022
(dollars in thousands) As Originally Reported Adjustments As Revised
Cash flows from operating activities:
Net income $ 18,706 $ (185) $ 18,521
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation 5,213 190 5,403
Provision for doubtful accounts 2,045 (1,437) 608
Accounts receivable (4,585) 1,437 (3,148)
Income taxes payable 4,781 (5) 4,776
Net cash provided by operating activities $ 49,908 $ — $ 49,908

Condensed Consolidated Statements of Stockholders’ Deficit (unaudited) Three Months Ended March 31, 2022
(dollars in thousands) As Originally Reported Adjustments As Revised
Additional paid-in capital activity:
Share-based compensation $ 5,213 $ 190 $ 5,403
Accumulated deficit activity:
Net income 18,706 (185) 18,521
Reclassifications related to the Separation (1,888) (784) (2,672)
Balance March 31, 2022:
Additional paid-in capital $ 6,918 $ 190 $ 7,108
Accumulated deficit (302,068) (969) (303,037)
Total equity $ (313,924) $ (779) $ (314,703)

~~-15-~~

Condensed Consolidated Balance Sheet (unaudited) June 30, 2022
(dollars in thousands) As Originally Reported Adjustments As Revised
Assets
Intangibles, net $ 51,922 $ (784) $ 51,138
Total assets $ 604,020 $ (784) $ 603,236
Liabilities and stockholders' deficit
Income taxes payable, current $ 5,199 $ (66) $ 5,133
Deferred revenue, current 30,606 272 30,878
Total current liabilities 82,170 206 82,376
Stockholders’ deficit
Additional paid-in capital 11,913 332 12,245
Accumulated deficit (280,416) (1,322) (281,738)
Total stockholders’ deficit (299,217) (990) (300,207)
Total liabilities and stockholders’ deficit $ 604,020 $ (784) $ 603,236

Condensed Consolidated Statement of Income (unaudited) Three Months Ended June 30, 2022
(dollars in thousands except share and per share data) As Originally Reported Adjustments As Revised
Revenues $ 93,163 $ (2,048) $ 91,115
Gross profit 77,576 (2,048) 75,528
Operating expenses
General and administrative 17,450 (1,634) 15,816
Total operating expenses 36,585 (1,634) 34,951
Income from operations 40,991 (414) 40,577
Income before income taxes 30,209 (414) 29,795
Income tax expense 7,935 (61) 7,874
Net income $ 22,274 $ (353) $ 21,921
Net income per common share:
Basic $ 1.12 $ (0.02) $ 1.10
Diluted $ 1.11 $ (0.01) $ 1.10
Weighted average shares outstanding:
Basic 19,928,316 — 19,928,316
Diluted 19,965,204 3,136 19,968,340
Share-based compensation expense as follows:
General and administrative $ 3,955 $ 142 $ 4,097
Total $ 4,781 $ 142 $ 4,923

~~-16-~~

Condensed Consolidated Statement of Comprehensive Income (unaudited) Three Months Ended June 30, 2022
(dollars in thousands) As Originally Reported Adjustments As Revised
Net income $ 22,274 $ (353) $ 21,921
Comprehensive income $ 17,930 $ (353) $ 17,577

Condensed Consolidated Statements of Stockholders’ Deficit (unaudited) Three Months Ended June 30, 2022
(dollars in thousands) As Originally Reported Adjustments As Revised
Balance April 1, 2022:
Additional paid-in capital $ 6,918 $ 190 $ 7,108
Accumulated deficit (302,068) (969) (303,037)
Total equity $ (313,924) $ (779) $ (314,703)
Additional paid-in capital activity:
Share-based compensation $ 4,781 $ 142 $ 4,923
Accumulated deficit activity:
Net income 22,274 (353) 21,921
Balance June 30, 2022:
Additional paid-in capital $ 11,913 $ 332 $ 12,245
Accumulated deficit (280,416) (1,322) (281,738)
Total equity $ (299,217) $ (990) $ (300,207)

~~-17-~~

Condensed Consolidated Statement of Income (unaudited) Six Months Ended June 30, 2022
(dollars in thousands except share and per share data) As Originally Reported Adjustments As Revised
Revenues $ 184,088 $ (3,675) $ 180,413
Gross profit 153,396 (3,675) 149,721
Operating expenses
General and administrative 36,256 (3,071) 33,185
Total operating expenses 73,557 (3,071) 70,486
Income from operations 79,839 (604) 79,235
Income before income taxes 55,957 (604) 55,353
Income tax expense 14,978 (66) 14,912
Net income $ 40,979 $ (538) $ 40,441
Net income per common share:
Basic $ 2.05 $ (0.03) $ 2.02
Diluted $ 2.04 $ (0.02) $ 2.02
Weighted average shares outstanding:
Basic 19,924,864 — 19,924,864
Diluted 19,985,275 16,828 20,002,103
Share-based compensation expense as follows:
General and administrative $ 8,316 $ 332 $ 8,648
Total $ 9,994 $ 332 $ 10,326

Condensed Consolidated Statement of Comprehensive Income (unaudited) Six Months Ended June 30, 2022
(dollars in thousands) As Originally Reported Adjustments As Revised
Net income $ 40,979 $ (538) $ 40,441
Comprehensive income $ 34,518 $ (538) $ 33,980

Condensed Consolidated Statement of Cash flows (unaudited) Six Months Ended June 30, 2022
(dollars in thousands) As Originally Reported Adjustments As Revised
Cash flows from operating activities:
Net income $ 40,979 $ (538) $ 40,441
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation 9,994 332 10,326
Provision for doubtful accounts 3,262 (3,071) 191
Accounts receivable (7,351) 3,071 (4,280)
Income taxes payable 60 (66) (6)
Deferred revenue 1,409 272 1,681
Net cash provided by operating activities $ 52,206 $ — $ 52,206

~~-18-~~

Condensed Consolidated Statements of Stockholders’ Deficit (unaudited) Six Months Ended June 30, 2022
(dollars in thousands) As Originally Reported Adjustments As Revised
Additional paid-in capital activity:
Share-based compensation $ 9,994 $ 332 $ 10,326
Accumulated deficit activity:
Net income 40,979 (538) 40,441
Reclassifications related to the Separation (2,509) (784) (3,293)
Balance June 30, 2022:
Additional paid-in capital $ 11,913 $ 332 $ 12,245
Accumulated deficit (280,416) (1,322) (281,738)
Total equity $ (299,217) $ (990) $ (300,207)

The accompanying applicable Notes to the condensed consolidated financial statements have been updated to reflect the restatement and revision as of and for the three and nine months ended September 30, 2022.

Consensus Cloud Solutions, Inc. Spin-Off

On September 21, 2021, J2 Global, Inc., known since October 7, 2021 as Ziff Davis, Inc. (“Ziff Davis” or the “Former Parent”) announced that its Board of Directors approved its ~~previously announced~~ separation of the ~~cloud fax~~Cloud Fax business (the “Separation” or the “Spin-Off”), into an independent publicly traded company, Consensus Cloud Solutions, Inc. On October 7, 2021, the Separation was completed and the Former Parent transferred certain assets and liabilities associated with its Cloud Fax business to Consensus, including the equity interests in J2 Cloud Services, LLC (“J2 Cloud Services”), in exchange for approximately $259.1 million in cash, an asset related to $500.0 million in aggregate principal amount of the 6.5% Senior Notes due 2028, and the return of the assets and liabilities related to the non-fax business back to Ziff Davis. On October 8, 2021, Consensus began trading on the Nasdaq Stock Market LLC (“Nasdaq”) under the stock symbol “CCSI”. Ziff Davis retained a 19.9% interest in Consensus following the Separation. Subsequently Ziff Davis has sold, or otherwise disposed of, a portion of its Consensus shares, reducing its beneficial ownership in the Company to under 10% as of ~~September~~June 30, 2023 and December 31, 2022 (see Note 1715 - Related Party Transactions).

Principles of Consolidation

The accompanying interim condensed consolidated financial statements include the accounts of Consensus and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation

The consolidated financial statements of Consensus for periods prior to the completion of the Separation are those of J2 Cloud Services, which were derived from the interim condensed consolidated financial statements of Ziff Davis on a carve-out basis using the historical assets, liabilities, and results of operations attributable to the legal entities and business units which comprised historical J2 Cloud Services.

~~J2 Cloud Services was a wholly-owned subsidiary of Ziff Davis, and together with itssubsidiaries, was a provider of internet services, including cloud-based subscription services to consumers and businesses including cloud fax, voice, cybersecurity, privacy and marketing technology.~~

For periods prior to the Separation, the interim condensed consolidated financial statements of Consensus included an allocation of certain corporate expenses related to services provided to J2 Cloud Services by Ziff Davis. These expenses included the cost of executive management, information technology, legal, treasury, risk management, human resources, accounting and financial reporting, investor relations, public relations, and internal audit services provided by the Former Parent company personnel to J2 Cloud Services. The cost of these services had been allocated to J2 Cloud Services based on specific identification when possible or, when the expenses were determined to be global in nature, based on the percentage of J2 Cloud Services’ relative revenue to total Ziff Davis revenue for the periods presented. Management believes that these allocations were reasonable representations of the costs incurred for the services provided; however, these allocations may not

~~-19-~~

~~be indicative of the actual expenses that would have been incurred by J2 Cloud Services had it been operating as an independent company for the periods presented.~~

Interest expense relates to interest incurred on third-party debt issued by historical J2 Cloud Services. No interest expense incurred by Ziff Davis was allocated to J2 Cloud Services as Ziff Davis’ third-party debt was not specifically related to historical operations of J2 Cloud Services.

As the Cloud Fax business was not historically held by a single legal entity, “net parent investment” is shown to represent Ziff Davis’ interest in the recorded net assets of historical J2 Cloud Services. Other comprehensive income or loss attributable to J2 Cloud Services is presented as a separate component of equity.

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial ~~statements, although the~~statements. The Company believes that the disclosures made are adequate to make that information not misleading. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement of these interim financial statements have been reflected. It is suggested that these financial statements be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, ~~2021,~~2022, included in our Annual Report (Form 10-K) filed with the SEC on ~~April 15, 2022.~~March 31, 2023. Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed therein.

The results of operations for this interim period are not necessarily indicative of the operating results for the full year or for any future period.

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Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, including judgments about the reported amounts of ~~net~~ revenue and expenses during the reporting period. The Company believes that its most significant estimates are those related to revenue recognition, share-based compensation expense, ~~fair value~~impairment or disposal of ~~assets acquired and liabilities assumed in connection with business combinations,~~ long-lived and intangible asset impairment, ~~lease impairment, contingent consideration,~~ income ~~taxes, sales~~ taxes, contingencies and allowances for doubtful accounts. On an ongoing basis, management evaluates its estimates based on historical experience and on various other factors that the Company believes to be reasonable under the circumstances. Actual results could materially differ from those estimates due to risks and uncertainties, including uncertainty in the current economic environment due to factors such as inflationary pressures, elevated interest rates and the novel coronavirus pandemic (“COVID-19”).

~~Discontinued Operations~~

The accounting requirements for reporting the Company’s non-fax business as a discontinued operation were met when the Separation was completed. Accordingly, the Condensed Consolidated Statements of Income reflect the results of the non-fax business as a discontinued operation for the prior period presented (see Note 5 - Discontinued Operations and Disposition of Business).

Allowances for Doubtful Accounts

The Company maintains an allowance for credit losses for accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expenses in the Condensed Consolidated Statements of Income. The Company assesses collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when it identifies specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, the Company considers historical collectability based on past due status. It also considers customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. On an ongoing basis, management evaluates the ~~adequacy~~appropriateness of these reserves.

~~-20-~~Revenue Recognition

~~Revenue Recognition~~

The Company recognizes revenue when the Company satisfies its obligation by transferring control of the goods or services to its customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services (see Note 3 - Revenues).

Principal vs. Agent

The Company determines whether revenue should be reported on a gross or net basis by assessing whether the Company is acting as the principal or an agent in the transaction. If the Company is acting as the principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in a transaction, the Company reports revenue on a net basis. In determining whether the Company acts as the principal or an agent, the Company follows the accounting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“~~Topic~~ASC 606”), for principal-agent considerations and assesses: (i) if another party is involved in providing goods or services to the customer and (ii) whether the Company controls the specified goods or services prior to transferring control to the customer.

Sales Taxes

The Company has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are (i) both imposed on and concurrent with a specific revenue-producing transaction and (ii) collected by the Company from a customer.

Impairment or Disposal of Long-Lived Assets

The Company accounts for long-lived assets, which include property and equipment, operating lease right-of-use assets and identifiable intangible assets with finite useful lives (subject to amortization), in accordance with the provisions of FASB ASC Topic No. 360, Property, Plant, and Equipment (“ASC 360”). ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to the expected undiscounted future net cash flows generated by the asset. If it is determined that the asset may not be recoverable, and if the carrying amount of an asset exceeds its estimated fair value, an impairment charge is recognized to the extent of the difference.

-10-

The Company assesses the impairment of identifiable definite-lived intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors it considers important which could individually or in combination trigger an impairment review include the following:

•Significant underperformance relative to expected historical or projected future operating results;

•Significant changes in the manner of the Company’s use of the acquired assets or the strategy for ~~J2 Cloud Services~~Consensus’ overall business;

•Significant negative industry or economic trends;

•Significant decline in the Company’s stock price for a sustained period; and

•The Company’s market capitalization relative to net book value.

If the Company determines that the carrying value of definite-lived intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, it would record an impairment equal to the excess of the carrying amount of the asset over its estimated fair value.

The Company assessed whether events or changes in circumstances have occurred that potentially indicate the carrying amount of long-lived assets may not be recoverable. No impairment was recorded induring the ~~third quarter of~~six months ended June 30, 2023 and 2022. In the third quarter of 2021, the Company recorded impairment of certain operating right-of-use assets related to the non-fax business (refer to Note 5 - Discontinued Operations and Disposition of Businesses).

~~-21-~~

The Company classifies its long-lived assets to be sold as held for sale in the period if (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable, (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset until the date of sale. Upon designation as an asset held for sale, the Company stops recording depreciation expense on the asset. The Company assesses the fair value of a long-lived asset less any costs to sell at each reporting period and until the asset is no longer classified as held for sale.

Business Combinations and Valuation of Goodwill and Intangible Assets

The Company applies the acquisition method of accounting for business combinations in accordance with GAAP and uses estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets, including identifiable intangible assets, and liabilities acquired. Such estimates may be based on significant unobservable inputs and assumptions such as, but not limited to, future revenue growth rates, gross and operating margins, customer attrition rates, royalty rates, discount rates and terminal growth rate assumptions. The Company uses established valuation techniques and may engage reputable valuation specialists to assist with the valuations. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets resulting from the acquisitions of entities accounted for using the acquisition method of accounting are recorded at the estimated fair value of the assets acquired. Identifiable intangible assets are comprised of purchased customer relationships, trademarks and trade names, developed technologies and other intangible assets. Intangible assets subject to amortization are amortized over the period of estimated economic benefit ranging from 1 to 20 years ~~with~~and the amortization expense is included in general and administrative expenses on the Condensed Consolidated Statements of Income.

The Company evaluates its goodwill and indefinite-lived intangible assets for impairment pursuant to FASB ASC Topic No. 350, Intangibles - Goodwill and Other (“ASC 350”), which provides that goodwill and other intangible assets with

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indefinite lives are not amortized, but tested annually for impairment or more frequently if the Company believes indicators of impairment exist. In connection with the annual impairment test for goodwill, the Company has the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then it performs the impairment test ~~upon~~on goodwill. The impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company generally determines the fair value of its reporting units using the income approach methodology of valuation. If the carrying value of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized for the difference. No impairment was recorded during the six months ended June 30, 2023 or 2022.

Investments

The Company accounts for investments in equity securities in accordance with FASB ASC Topic No. 321, Investments - Equity Securities (“ASC 321”), which requires the accounting for equity investments, other than those accounted for under the equity method of accounting, generally be measured at fair value for equity securities with readily determinable fair values. Equity securities without a readily determinable fair value, which are not accounted for under the equity method of accounting, are measured at their cost, less impairment, if any, and adjusted for observable price changes arising from orderly transactions in the ~~third quarter~~same or similar investment from the same issuer. Any unrealized gains or losses are reported within earnings on the Condensed Consolidated Statement of ~~2022~~Income.

As of June 30, 2023 the carrying amount of the Company’s investments accounted for using the measurement alternative method in accordance with ASC 321 was $4.0 million and ~~2021.~~is included in other assets within the Company’s Condensed Consolidated Balance Sheets. If the Company becomes aware of a significant decline in value that is other-than-temporary, the Company assesses whether an other-than-temporary impairment loss on an investment has occurred due to declines in fair value or other market conditions. The loss will be recorded in the period in which the Company identifies the decline. During the three and six months ended June 30, 2023, the Company did not recognize any investment gain or loss and did not have any impairments during the respective periods.

Income Taxes

Historically, J2 Cloud Services was included in the federal consolidated and state combined income tax returns with the Former Parent and its other subsidiaries. For purposes of the prior year Condensed Consolidated Statement of Income prior to the Separation, the Company’s taxes were determined using the separate return method as if the Company had filed separate tax returns as a C-Corporation. In addition, J2 Cloud Services’ income is subject to taxation in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain.

~~-22-~~

The Company’s income is subject to taxation in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves for tax contingencies are established when the Company believes that certain positions might be challenged despite the Company’s belief that its tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of a tax audit or lapse of a statute of limitations. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate (see Note 119 - Income Taxes).

The Company accounts for income taxes in accordance with FASB ASC Topic No. 740, Income Taxes (“ASC 740”), which requires that deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the net deferred tax assets will not be realized. The valuation allowance is reviewed quarterly based upon the facts and circumstances known at the time. In assessing this valuation allowance, the Company reviews historical and future expected operating results and other factors, including its recent cumulative earnings experience, expectations of future taxable income by taxing jurisdiction and the carryforward periods available for tax reporting purposes, to determine whether it is more likely than not that deferred tax assets are realizable.

ASC 740 provides guidance on the minimum threshold that an uncertain income tax benefit is required to meet before it can be recognized in the financial statements and applies to all income tax positions taken by a company. ASC 740 contains a two-step approach to recognizing and measuring uncertain income tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit will be recorded. Uncertain income tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold. The Company

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recognized accrued interest and penalties related to uncertain income tax positions in income tax expense on its Condensed Consolidated Statements of Income.

In addition, on March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (“CARES”) Act” was enacted into law providing for changes to various tax laws that impact business. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions and technical corrections to tax depreciation methods for qualified improvement property.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law and is effective for taxable years beginning after December 31, 2022. The IRA includes a new corporate alternative minimum tax of 15% on adjusted financial statement income of corporations with profits greater than $1 billion, a 1% excise tax on the fair market value of net share buy-backs, in addition to multiple incentives to the clean energy ~~industry.~~industry (see Note 10 - Stockholders' Equity).

The Company does not believe these provisions have a significant impact to our current and deferred income tax balances. The Company benefited from the technical correction to tax depreciation related to qualified improvement property and has elected to defer the employer side social security payments where eligible. The Company remitted the deferred employer side social security payments during the year ended December 31, 2022. The Company will continue to monitor the impact of these provisions on its financial statements.

~~-23-~~

Share-Based Compensation

The Company accounts for share-based awards to employees and non-employees in accordance with the provisions of FASB ASC Topic No. 718, Compensation - Stock Compensation (“ASC 718”). Accordingly, the Company measures share-based compensation expense at the grant date, based on the fair value of the award, and recognizes the expense over the employee’s requisite service period using the straight-line method. The measurement of share-based compensation expense is based on several criteria, including but not limited to, the valuation model used and associated input factors, such as expected term of the award, stock price volatility, risk free interest rate, dividend rate and award cancellation rate. These inputs are subjective and are determined using management’s judgment. If differences arise between the assumptions used in determining share-based compensation expense and the actual factors, which become known over time, ~~Consensus~~the Company may change the input factors used in determining future share-based compensation expense. Any such changes could materially impact the Company’s results of operations in the period in which the changes are made and in periods thereafter. The Company estimates the expected term based upon the ~~historical exercise behavior~~contractual term of the ~~Company’s employees~~award (see Note 1311 - Equity Incentive and Employee Stock Purchase Plan).

Earnings Per Common Share (“EPS”)

EPS is calculated pursuant to the two-class method as defined in FASB ASC Topic No. 260, Earnings per Share (“ASC 260”), which specifies that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends or dividend equivalents are considered participating securities and should be included in the computation of EPS pursuant to the two-class method.

Basic EPS is calculated by dividing net distributed and undistributed earnings allocated to common shareholders, excluding participating securities, by the weighted-average number of common shares outstanding. The Company’s participating securities consist of its unvested share-based payment awards that contain rights to nonforfeitable dividends or dividend equivalents. Diluted EPS includes the determinants of basic EPS and, in addition, reflects the impact of other potentially dilutive shares outstanding during the period. The dilutive effect of participating securities is calculated under the more dilutive of either the treasury method or the two-class method.

For periods prior to the Separation, EPS is calculated using the number of shares issued to the Former Parent upon the legal formation of Consensus and the contribution of the Cloud Fax business. The dilutive effect of Consensus stock-based compensation awards that were exchanged for the Former Parent stock-based compensation awards is included in the denominator of diluted EPS on a prospective basis.

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Segment Reporting

FASB ASC Topic No. 280, Segment Reporting (“ASC 280”), establishes standards for the way that public business enterprises report information about operating segments in their annual consolidated financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. ASC 280 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company’s business segment is based on the organization’s structure used by the chief operating decision maker for making operating and investment decisions and for assessing performance. The chief operating decision maker views the Company as one reportable segment known as Cloud Fax (see Note 1513 - Segment Information).

~~Adjustments related to the Spin-off~~Reclassifications

~~During 2022,~~Certain prior year amounts have been reclassified for consistency with the Company identified certain improper classifications related to executive bonuses and other corporate charges incurred prior to the Separation that were incorrectly treated as equity contributions at the time of the Spin-off rather than liabilities. The Company recorded a reclassification of $(0.5) million for the three months and $0.6 million for the nine months ended September 30, 2022 from equity to accrued expenses to correct the prior period classificationcurrent year presentation. These reclassifications had no effect on the ~~balance sheet, which was not part~~reported results of the restatement and revision of the unaudited condensed consolidated financial statements. In addition, the Company identified certain intangible assets post Separation that were incorrectly included in the opening balance at the time of the Spin-off that belonged to the Former Parent that resulted in an $0.8 million adjustment from intangible assets to equity that is included in the revised financial statements for the first and second quarter of 2022 and the restated financial statements for the third quarter of 2022. The Company determined that the impact of the reclassifications were not material to the current or prior period financial statements.

~~-24-~~

Additionally, on September 27, 2022, the Company reached a settlement agreement with the Former Parent and agreed to pay $2.6 million to close out transaction fees related to the Spin-Off. This adjustment to the amount paid to the Former Parent as part of the Spin-off was recorded as an adjustment to equity during the nine months ended September 30, 2022.

operations.

2.Recent Accounting Pronouncements

In March 2020, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ~~The accommodations are available for all entities through~~In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, that extends the period of time preparers can utilize the reference rate reform relief guidance. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, ~~with early adoption permitted.~~to December 31, 2024. The Company does not expect the adoption of this standard to have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in this ASU reduce the number of accounting models for convertible debt instruments and convertible preferred stock in order to simplify the accounting for convertible instruments and reduce complexity. In addition, it amends the guidance for scope exception surrounding derivatives for contracts in an entity’s own equity. In each case, the related guidance surrounding EPS has also been amended. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. This amendment may be adopted using either a modified or fully retrospective method of transition. The Company does not expect the adoption of this standard to have an impact on the Company’s consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this ASU improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability, and payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, including the interim periods within those fiscal years. Early adoption is permitted. The Company early adopted ASU 2021-08 in the second quarter of 2022 and applied it to the Summit acquisition as disclosed within Note 4 - Business Acquisitions. As a result of this adoption, the Company recognized $0.9 million in deferred revenue with a corresponding increase in Goodwill.

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This ASU clarifies the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments in this ASU are effective for fiscal years beginning after December 15, 2024, including the interim periods within those fiscal years. Early adoption is permitted. This amendment should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. The Company does not expect the adoption of this standard to have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50). This ASU enhances the transparency of supplier finance programs. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. This amendment should be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on rollforward information, which should be applied prospectively. The Company adopted ASU 2022-04 in the first quarter of 2023. The adoption of this standard did not have an impact on the Company’s condensed consolidated financial statements and related disclosures.

In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): Common Control Arrangement, which addresses the accounting by private companies and certain not-for-profit entities (NFPs) for common control leases and amends the accounting for leasehold improvements in common-control arrangements for all entities. This ASU offers: 1) private companies, as well as not-for-profit entities that are not conduit bond obligors, a practical expedient that gives them the option of using the written terms and conditions of a common-control arrangement when determining whether a lease exists and the subsequent accounting for the lease, including the lease’s classification (Issue 1) and 2) amends the accounting for leasehold improvements in common-control arrangements for all entities (Issue 2). The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statement that have not yet been made available. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes the interim period. The amendments applicable to the Company (Issue 2) are required to be applied using the option of one of the following adoption methods:

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1.Prospective application to all new leasehold improvements recognized on or after the date that the entity first applies the amendments in this ASU;

2.Prospective application to all new and existing leasehold improvements recognized on or after the date that the entity first applies the amendments in this ASU, with any remaining balance of leasehold improvements amortized over their remaining useful life to the common-control group determined as of that date; or

3.Retrospective application to the beginning of the period in which an entity first applied Topic 842, with any leasehold improvements that otherwise would not have been amortized or impaired recognized through a cumulative-effect adjustment to opening retained earnings at the beginning of the earliest period presented in accordance with Topic 842.

The Company does not expect the adoption of this standard to have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

In March 2023, the FASB issued ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. ASU 2023-02 allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted in any interim period. If an entity adopts the amendments in an interim period, it shall adopt them as of the beginning of the fiscal year that includes that interim period. The amendment should be applied on either a modified retrospective or a retrospective basis. The Company does not expect the adoption of this standard to have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

3.Revenues

The Company’s revenues substantially consist of monthly recurring subscription and usage-based fees from customers accessing the ~~majority~~Company’s cloud-based subscription (the “Cloud Fax Services”), a significant portion of which are paid in advance by credit card. The Company defers the portions of monthly, quarterly, semi-annually and annually recurring subscription and usage-based fees collected in advance of the satisfaction of performance obligations and recognizes

~~-25-~~

them in the period earned. The Cloud Fax Services allow customers to access the Company’s software without taking possession.

Revenues from external customers classified by revenue source are as follows (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			Three Months Ended June 30,				Six Months Ended June 30,
		(As Restated)				(As Restated)					2023		2022		2023		2022
Corporate	Corporate	$	48,974	$	43,175	$	144,360	$	126,290	Corporate	$	50,361	$	48,867	$	99,768	$	95,386
Small office home office (“SoHo”)	Small office home office (“SoHo”)	42,801		45,931		127,808		137,095		Small office home office (“SoHo”)	42,429		42,228		84,459		85,007
Other	Other	2		92		22		275		Other	2		20		19		20
Total revenues	Total revenues	$	91,777	$	89,198	$	272,190	$	263,660	Total revenues	$	92,792	$	91,115	$	184,246	$	180,413

Timing of revenue recognition	Timing of revenue recognition									Timing of revenue recognition
Point in time	Point in time	$	135	$	—	$	572	$	—	Point in time	$	145	$	306	$	298	$	437
Over time	Over time	91,642		89,198		271,618		263,660		Over time	92,647		90,809		183,948		179,976
Total	Total	$	91,777	$	89,198	$	272,190	$	263,660	Total	$	92,792	$	91,115	$	184,246	$	180,413

The Company has recorded ~~$4.0~~$4.5 million and ~~$4.1~~$4.3 million of revenue for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$19.2~~$16.0 million and ~~$20.7~~$15.2 million of revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, that was previously included in the deferred revenue balance as of the beginning of each respective year.

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company acquired ~~$5.0~~zero and $4.8 million, ~~and zero,~~ respectively, of deferred revenue in connection with the Company’s ~~business acquisitions (see Note~~acquisition of Summit Healthcare Services, Inc. on February 4, ~~- Business Acquisitions), which are subject to purchase accounting adjustments.~~2022.

-15-

Performance Obligations

~~The~~Generally, the Company’s contracts with customers include one performance obligation, however, certain contracts may include multiple performance obligations. For such arrangements, revenues are allocated to each performance obligation based on ~~its~~their relative standalone selling price. The Company accounts for these arrangements as a single performance obligation as the performance obligations related to a specific arrangement are all consumed simultaneously.

The Company satisfies its performance obligations upon delivery of services to its customers. Payment terms vary by

type and location of the Company’s customers and the services offered. The ~~term~~time between invoicing and when payment is due

is not significant. Due to the nature of the services provided, there are no obligations for returns.

Significant Judgments

~~In determining~~Determining whether products and services are considered distinct performance obligations ~~that should be accounted for separately versus together~~ may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud-based services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud-based service and recognized over time. The Cloud Fax Services and related licenses depend on a significant level of integration between the desktop applications and cloud-based services and are accounted for together as one performance obligation.

Judgment is also required to determine the standalone selling price for each distinct performance ~~obligation.~~obligation when there are multiple performance obligations. In certain cases, the Company is able to establish the standalone selling price based on observable prices of products or services sold or priced separately in comparable circumstances to similar customers. The Company uses a range of amounts to estimate the standalone selling price when each of the products and services is sold separately to determine whether there is a discount to be allocated based on the relative standalone selling price of the various products and services.

Performance Obligations Satisfied Over Time

The Company’s business consists primarily of performance obligations that are satisfied over time. This has been determined based on the fact that the nature of services offered are subscription based where the customer simultaneously receives and consumes the benefit of the services provided regardless of whether the customer uses the services or not. Depending on the individual contracts with the customer, ~~revenues~~revenue for these services ~~are~~is recognized over the contract period when faxing capabilities are provided. The Company expects to recognize revenue for Corporate contracts in a range from month-to-month up to 36 months and recognize revenue for SoHo contracts in a range from month-to-month up to one year.

The Company has concluded that the best measure of progress toward the complete satisfaction of the performance obligations over time is a time-based measure. The Company recognizes revenue on a straight-line basis throughout the subscription period and believes that the method used is a faithful depiction of the transfer of goods and services.

~~-26-~~

Practical Expedients

Existence of a Significant Financing Component in a Contract

As a practical expedient, the Company has not assessed whether a contract has a significant financing component because the Company expects at contract inception that the period between payment by the customer and the transfer of promised goods or services by the Company to the customer will be one year or less. In addition, the Company has determined that the payment terms the Company provides to its customers are structured primarily for reasons other than the provision of finance to the Company. The Company typically charges a single upfront amount for ~~the~~ services, ~~because~~as other payment terms would affect the nature of the risk assumed by the Company due to ~~provide service given~~ the costs of the customer acquisition and the highly competitive and commoditized nature of the business ~~Consensus operates which allows customers to easily move from one provider to another. This additional risk may make it uneconomical to provide~~ the ~~service.~~Company operates.

-16-

Costs to Fulfill a Contract

The Company’s revenues are primarily generated from customer contracts that are for one year or less. Costs primarily consist of incentive compensation paid based on the achievements of sales targets in a given period for related revenue streams and are recognized in the month when the revenue is earned. Incentive compensation is paid upon the issuance or renewal of the customer contract. As a practical expedient, for amortization periods that are determined to be one year or less, the Company expenses any incremental costs of obtaining the contract with a customer when incurred. For those customer contracts greater than one year, the Company capitalizes and amortizes the expenses, when appropriate, over the period of benefit.

Revenues Invoiced

The Company has applied the practical expedient for certain revenue streams to exclude the value of remaining performance obligations for (i) contracts with an original expected term of one year or less or (ii) contracts for which the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed.

4. ~~Business Acquisitions~~

On February 4, 2022, in a cash transaction, the Company acquired certain assets of Summit Healthcare Services, Inc. (“Summit”), a Massachusetts based provider of secure interoperability solutions within the healthcare industry.

The Condensed Consolidated Statement of Income since the date of acquisition and balance sheet as of September 30, 2022, reflect the results of operations of this 2022 acquisition. For the nine months ended September 30, 2022, this acquisition contributed $5.3 million to the Company’s revenues. Net income contributed by this acquisition was not separately identifiable due to the Company’s integration activities and is not material. Total consideration for this transaction was $12.2 million, net of cash acquired, and is subject to certain post-closing adjustments which may increase or decrease the final consideration paid.

~~-27-~~

~~The following table summarizes the preliminary allocation of the purchase consideration, net of cash acquired, for this acquisition (in thousands):~~


~~Assets and Liabilities~~	Valuation (As Restated)
~~Accounts receivable~~	$	~~1,248~~
~~Prepaid expenses and other current assets~~	30
~~Property and equipment~~	9
~~Operating lease right-of-use assets, non-current~~	~~413~~
~~Trademarks~~	~~800~~
~~Customer relationships~~	~~8,600~~
~~Goodwill~~	~~5,789~~
~~Other intangibles~~	~~1,000~~
~~Accounts payable and accrued expenses~~	~~(295)~~
~~Deferred revenue~~	~~(4,951)~~
~~Operating lease liabilities, non-current~~	~~(413)~~


~~Total~~	$	~~12,230~~

The initial accounting for the Summit acquisition is preliminary and subject to change. The Company expects to finalize the accounting for the Summit acquisition within twelve months of the acquisition date. During the third quarter of 2022, the Company recorded a working capital adjustment of $2.1 million, which reduced the purchase price of the acquisition by the same amount. Since the date of acquisition, the Company has recorded $1.4 million in additional deferred revenue with a corresponding increase in Goodwill as a measurement period adjustment. Additionally, as a result of the early adoption of ASU 2021-08 in the second quarter of 2022, the Company recognized $0.9 million in deferred revenue with a corresponding increase in Goodwill.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and represents intangible assets that do not qualify for separate recognition. Goodwill recognized associated with this acquisition during the nine months ended September 30, 2022 is $5.8 million, of which $5.8 million is expected to be deductible for income tax purposes.

~~5. Discontinued Operations and Disposition of Businesses~~

On October 7, 2021, the Former Parent transferred certain assets and liabilities associated with its Cloud Fax business to Consensus, including the equity interests in J2 Cloud Services, in exchange for approximately $259.1 million in cash, an asset related to the $500 million aggregate principal amount of the 6.5% Senior Notes due in 2028, and the return of the assets and liabilities related to the non-fax business back to Ziff Davis. The transfer to the Former Parent of the non-fax business met the accounting requirements to be presented as a discontinued operation once the Separation was completed as the disposition of the non-fax business constituted a strategic shift that had a major effect on the Company’s operations relative to the historical operations of J2 Cloud Services.

Accordingly, the condensed consolidated financial statements reflect the results of the non-fax business as a discontinued operation for all periods presented. The Condensed Consolidated Statements of Income report discontinued operations separate from continuing operations. The Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Stockholders’ (Deficit) Equity combine continuing and discontinued operations. The Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Cash Flows and Consolidated Statements of Stockholders’ (Deficit) Equity include the non-fax business activity through October 7, 2021.

~~-28-~~

~~The key components of income from discontinued operations that were included in the Company’s Condensed Consolidated Statement of Income are as follows (in thousands):~~

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
Revenues $ 92,904 $ 265,230
Cost of revenues 26,102 72,731
Gross profit 66,802 192,499
Operating expenses:
Sales and marketing 25,297 70,775
Research, development and engineering 6,241 16,361
General and administrative 29,025 84,348
Goodwill impairment on business — 32,629
Total operating expense 60,563 204,113
Income (loss) from discontinued operations 6,239 (11,614)
Interest expense (51) (229)
Interest income 181 680
Loss on sale of businesses (24,599) (21,797)
Other expense, net (675) (426)
Loss from discontinued operations before income taxes (18,905) (33,386)
Income tax benefit (4,997) (16,268)
Loss from discontinued operations, net of income taxes $ (13,908) $ (17,118)

~~The key components of cash flows from discontinued operations are as follows (in thousands):~~


	~~Nine Months Ended September 30, 2021~~
~~Depreciation and amortization~~	$	~~39,804~~
~~Capital expenditure~~	~~13,028~~
~~Share-based compensation~~	~~3,254~~
~~Non-cash operating lease costs~~	~~3,227~~
~~Deferred income taxes, net~~	~~5,416~~
~~Lease asset impairments and other charges~~	~~2,707~~
~~Loss on sale of businesses~~	~~21,798~~
~~Goodwill impairment on business~~	~~32,629~~

Prior to the Separation, the Company completed the following dispositions that did not meet the criteria for discontinued operations by themselves but were subsequently classified as discontinued operations as they are part of the non-fax business transferred back to the Former Parent.

~~Voice Asset Sales (Non-Consensus)~~

During the first quarter of 2021, the Company committed to a plan to sell certain Voice assets in the United Kingdom as they were determined to be non-core assets. On February 9, 2021, in a cash transaction, the Company sold the Voice assets. For the nine months ended September 30, 2021, the total gain recognized on the sale was $2.8 million which was recorded in discontinued operations on the Condensed Consolidated Statement of Income.

~~B2B Back-up Sale (Non-Consensus)~~

During the first quarter of 2021, the Company committed to a plan to sell its B2B Backup business as it was determined to be a non-core business. During the second quarter of 2021, the Company received an offer to purchase the business. Management determined that the fair value of the business less cost to sell was lower than its carrying amount. As a result, the Company recorded an impairment to goodwill of $32.6 million which was recorded in the second quarter of 2021. and is included within discontinued operations on the Condensed Consolidated Statement of Income. On September 17, 2021, in a cash transaction, the Company sold the B2B Backup business. For the three and nine months ended September 30, 2021,

~~-29-~~

~~the total loss recognized on the sale was $24.6 million and is included within discontinued operations on the Condensed Consolidated Statement of Income.~~

6. Fair Value Measurements

The Company complies with the provisions of FASB ASC Topic No. 820, Fair Value Measurement, (“ASC 820”), which defines fair value, provides a framework for measuring fair value and expands the disclosures required for fair value measurements of financial and non-financial assets and liabilities. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:


			§			Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

			§			Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

			§			Level 3 – Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are comprised of money market funds and foreign and domestic bank accounts. These cash and cash equivalents are valued based on Level 1 inputs which consist of quoted prices in active markets. The carrying value of the Company’s cash and cash equivalents approximates fair value.

The fair value of long-term debt is determined using recent quoted market prices or dealer quotes for each of the Company’s instruments, which are Level 1 inputs (see Note 86 - Debt). The carrying value of long-term debt is reflected in the financial statements at cost.

Assets Measured on a Non-Recurring Basis

The Company’s non-financial assets, which primarily consist of goodwill, other intangible assets and fixed assets, are reported at carrying value, or at fair value as of their acquisition dates, and are not required to be measured at fair value on a recurring basis. However, on a periodic basis (at least annually for goodwill and indefinite-lived intangibles or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable), non-financial assets are assessed for impairment. If impaired, the carrying values of the assets are written down to fair value using Level 3 inputs.

7.5. Goodwill and Intangible Assets

-17-

acquisition method of accounting are recorded at the estimated fair value of the assets acquired. Identifiable intangible assets are comprised of purchased customer relationships, trademarks and trade names, developed technologies and other intangible assets. The fair values of these identified intangible assets are based upon expected future cash flows or income, which take into consideration certain assumptions such as customer turnover, trade names and patent lives. These determinations are primarily based upon the Company’s historical experience and expected benefit of each intangible asset. If it is determined that such assumptions ~~are not accurate,~~have changed in future periods, then the resulting change will impact the fair value of the intangible asset. Identifiable intangible assets are amortized over the period of estimated economic benefit, which ranges from 1 year to 20 years.

In the nine months ended September 30, 2022, the Company acquired technology for jSign, a corporate solution that provides electronic signature and digital signature solutions to businesses, offering document markup and end-user signing services via mobile-aware web application and enterprise API. The purchase price was $1.0 million and the asset is included in Intangibles, net on the Condensed Consolidated Balance Sheet.

~~-30-~~

The changes in carrying amounts of goodwill for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 are as follows (in thousands):


	Amount ~~(As Restated)~~
Balance as of January 1, ~~2022~~2023	$	~~339,209~~
~~Goodwill acquired (Note 4)~~	~~5,789~~346,585




Foreign exchange translation ~~(1)~~	~~(3,894)~~1,270
Balance as of ~~September~~June 30, ~~2022~~2023	$	~~341,104~~347,855

~~(1)~~ In the second quarter of 2022, the Company recorded a $5.5 million out of period correction that increased goodwill with an offset to the cumulative translation adjustment. It was deemed to be an out of period correction that was not material to 2022 or any prior period.

Intangible Assets with Indefinite Lives:

Intangible assets are summarized as of June 30, 2023 and December 31, 2022 as follows (in thousands):


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Trade names	Trade names	$	27,262	$	27,388	Trade names	$	27,354	$	27,337
Other	Other	4,045		3,683		Other	4,045		4,045
Total	Total	$	31,307	$	31,071	Total	$	31,399	$	31,382

Intangible Assets Subject to Amortization:

As of ~~September~~June 30, ~~2022,~~2023, intangible assets subject to amortization ~~relate primarily to the following~~are summarized as follows (in thousands):


(As Restated)		Weighted-Average Remaining Amortization Period	Historical Cost		Accumulated Amortization		Net
										Weighted-Average Remaining Amortization Period	Historical Cost		Accumulated Amortization		Net
Trade names	Trade names	0.5 years	$	7,945	$	7,430	$	515	Trade names	0.4 years	$	8,176	$	7,701	$	475
Patent and patent licenses	Patent and patent licenses	0.0 years	54,341		54,341		—		Patent and patent licenses	0.0 years	54,341		54,341		—
Customer relationships (1)	Customer relationships (1)	3.2 years	105,560		90,227		15,333		Customer relationships (1)	2.9 years	108,128		95,286		12,842
Other purchased intangibles	Other purchased intangibles	2.1 years	11,923		9,160		2,763		Other purchased intangibles	1.9 years	11,986		9,611		2,375
Total	Total		$	179,769	$	161,158	$	18,611	Total		$	182,631	$	166,939	$	15,692

(1) Historically, the Company has amortized its customer relationship assets in a pattern that best reflects the pace in which the assets’ benefits are consumed. This pattern results in a substantial majority of the amortization expense being recognized in the first four to five years, ~~despite~~which may not correlate to the overall life of the asset.

~~-31-~~-18-

As of December 31, ~~2021,~~2022, intangible assets subject to amortization ~~relate primarily to the following~~are summarized as follows (in thousands):


		Weighted-Average Remaining Amortization Period	Historical Cost		Accumulated Amortization		Net			Weighted-Average Remaining Amortization Period	Historical Cost		Accumulated Amortization		Net
Trade names	Trade names	1.6 years	$	12,219	$	10,633	$	1,586	Trade names	0.5 years	$	8,151	$	7,605	$	546
Patent and patent licenses ~~(1)~~	Patent and patent licenses ~~(1)~~	0.0 years	54,341		53,930		411		Patent and patent licenses ~~(1)~~	0.0 years	54,341		54,341		—
Customer relationships ~~(2)~~(1)	Customer relationships ~~(2)~~(1)	4.3 years	99,571		90,050		9,521		Customer relationships ~~(2)~~(1)	3.1 years	107,175		92,573		14,602
Other purchased intangibles	Other purchased intangibles	3.8 years	13,160		12,200		960		Other purchased intangibles	2.0 years	11,937		9,311		2,626
Total	Total		$	179,291	$	166,813	$	12,478	Total		$	181,604	$	163,830	$	17,774

(1)The December 31, 2021 patent and patent licenses historical cost and accumulated amortization balance was adjusted to conform with presentation of the December 31, 2022 balance for comparability purposes. There was no impact to the net balance.

~~(2)~~ Historically, the Company has amortized its customer relationship assets in a pattern that best reflects the pace in which the assets’ benefits are consumed. This pattern results in a substantial majority of the amortization expense being recognized in the first four to five years, ~~despite~~which may not correlate to the overall life of the asset.

~~Estimated~~Expected amortization ~~expense~~expenses for ~~the remainder of fiscal year 2022 and succeeding years is~~intangible assets subject to amortization at June 30, 2023 are as ~~follows:~~follows (in thousands):


Fiscal Year:	Fiscal Year:	(in thousands)		Fiscal Year:	Amount
2022 (Remainder)		$	1,032
2023		4,174
2023 (remainder)				2023 (remainder)	$	2,118
2024	2024	3,471		2024	3,532
2025	2025	2,624		2025	2,640
2026	2026	2,179		2026	2,130
2027				2027	1,427
Thereafter	Thereafter	5,131		Thereafter	3,845
Total	Total	$	18,611	Total	$	15,692

Amortization expense was ~~$1.2~~$1.1 million and ~~$1.2~~$1.1 million for the three months ended ~~September~~June 30, 2023 and 2022, respectively, and ~~2021, respectively. Amortization expense was $3.8~~$2.2 million and ~~$4.4~~$2.6 million for the ~~nine~~six months ~~end September~~ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

8.6. Debt

Long-term debt consists of the following (in thousands):


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
2026 Senior Notes	2026 Senior Notes	$	305,000	$	305,000	2026 Senior Notes	$	305,000	$	305,000
2028 Senior Notes	2028 Senior Notes	500,000		500,000		2028 Senior Notes	500,000		500,000

Total Notes	Total Notes	805,000		805,000		Total Notes	805,000		805,000
Less: Deferred issuance costs	Less: Deferred issuance costs	(11,613)		(12,960)		Less: Deferred issuance costs	(10,170)		(11,135)
Total long-term debt	Total long-term debt	$	793,387	$	792,040	Total long-term debt	$	794,830	$	793,865

At June 30, 2023, future principal payments for debt were as follows (in thousands):


Fiscal year:	Total
2023 (remainder)	$	—
2024	—
2025	—
2026	305,000
2027	—
Thereafter	500,000
Total	$	805,000

-19-

The Company capitalized $0.5 million and zero of interest expense within property and equipment, net on the Company’s Condensed Consolidated Balance Sheets during the three months ended June 30, 2023 and 2022, respectively, and $1.0 million and zero during the six months ended June 30, 2023 and 2022, respectively.

2026 Senior Notes

On October 7, 2021, Consensus issued $305.0 million of senior notes due in 2026 (the “2026 Senior Notes”), in a private placement offering exempt from the registration requirements of the Securities Act of 1933. Consensus received proceeds of $301.2 million, after deducting the initial purchasers’ discounts, commissions and offering expenses. The 2026 ~~6.0%~~ Senior Notes are presented as long-term debt, net of deferred issuance costs, on the Condensed Consolidated Balance ~~Sheet~~Sheets as of ~~September~~June 30, 2023 and December 31, 2022. The 2026 Senior Notes bear interest at a rate of 6.0% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, ~~commencing~~which commenced on April 15, 2022.

~~-32-~~

The 2026 Senior Notes mature on October 15, 2026, and are senior unsecured obligations of the Company which are guaranteed, jointly and severally, on an unsecured basis by certain of the Company’s existing and future domestic direct and indirect wholly-owned subsidiaries (collectively, the “Guarantors”). If Consensus Cloud Solutions, Inc. or any of its restricted subsidiaries acquires or creates a domestic restricted subsidiary, other than an Insignificant Subsidiary (as defined in the indenture pursuant to which the 2026 Senior Notes were issued (the “2026 Indenture”)), after the issue date, or any Insignificant Subsidiary ceases to fit within the definition of Insignificant Subsidiary, such restricted subsidiary is required to unconditionally guarantee, jointly and severally, on an unsecured basis, the Company’s obligations under the 2026 Senior Notes.

The Company may redeem some or all of the 2026 Senior Notes at any time on or after October 15, 2023 at specified redemption prices plus accrued and unpaid interest, if any, to, but excluding the redemption date. Before October 15, 2023, and following certain equity offerings, the Company also may redeem up to 40% of the 2026 Senior Notes at a price equal to 106.0% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding the redemption date. The Company may make such redemption only if, after such redemption, at least 50% of the aggregate principal amount of the 2026 Senior Notes remains outstanding. In addition, at any time prior to October 15, 2023, the Company may redeem some or all of the 2026 Senior Notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, plus an applicable “make-whole” premium.

The Indenture contains covenants that restrict the Company’s ability to (i) pay dividends or make distributions on the Company’s common stock; (ii) make certain restricted payments; (iii) create liens or enter into sale and leaseback transactions; (iv) enter into transactions with affiliates; (v) merge or consolidate with another company; and (vi) transfer and sell assets. These covenants contain certain exceptions. Restricted payments are applicable only if Consensus Cloud Solutions, Inc. and subsidiaries designated as restricted subsidiaries has a net leverage ratio of greater than 3.0 to 1.0. In addition, if such net leverage ratio is in excess of 3.0 to 1.0, the restriction on restricted payments is subject to various exceptions, including the total aggregate amount not to exceed the greater of (A) $100.0 million and (B) 50.0% of EBITDA for the most recently ended four fiscal quarter period ended immediately prior to such date for which internal financial statements are available. The Company is in compliance with its debt covenants as of ~~September~~June 30, ~~2022.~~2023.

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the estimated fair value of the 2026 Senior Notes was approximately ~~$266.9~~$276.8 million and ~~$316.1~~$282.8 million, respectively, and was based on quoted market prices or dealer quotes for the 2026 Senior Notes which are Level 1 inputs in the fair value hierarchy.

2028 Senior Notes

On October 7, 2021, Consensus issued $500.0 million of 6.5% senior notes due in 2028 (the “2028 Senior Notes”), in a private placement offering exempt from the registration requirements of the Securities Act of 1933. In exchange for the equity interest in the Company, Consensus issued the 2028 Senior Notes to Ziff Davis (see Note 1715 - Related Party Transactions). Ziff Davis then exchanged the 2028 Senior Notes with lenders under its credit agreement (or their affiliates) in exchange for extinguishment of a similar amount of indebtedness under such credit agreement for a total amount of $483.8 million, after deducting the initial purchasers’ discounts, commissions and offering expenses. The 2028 Senior Notes were presented as long-term debt, net of deferred issuance costs, on the Condensed Consolidated Balance ~~Sheet~~Sheets as of ~~September~~June 30, 2023 and December 31, 2022. The 2028 Senior Notes bear interest at a rate of 6.5% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, ~~commencing~~which commenced on April 15, 2022.

-20-

The 2028 Senior Notes mature on October 15, 2028, and are senior unsecured obligations of the Company ~~which~~that are guaranteed, jointly and severally, on an unsecured basis by certain of the Company’s existing and future domestic direct and indirect wholly-owned subsidiaries (collectively, the “Guarantors”). If Consensus Cloud Solutions, Inc. or any of its restricted subsidiaries acquires or creates a domestic restricted subsidiary, other than an Insignificant Subsidiary (as defined in the indenture pursuant to which the 2028 Senior Notes were issued (the “2028 Indenture”)), after the issue date, or any Insignificant Subsidiary ceases to fit within the definition of Insignificant Subsidiary, such restricted subsidiary is required to unconditionally guarantee, jointly and severally, on an unsecured basis, the Company’s obligations under the 2028 Senior Notes.

The Company may redeem some or all of the 2028 Senior Notes at any time on or after October 15, 2026 at specified redemption prices plus accrued and unpaid interest, if any, to, but excluding the redemption date.

~~-33-~~

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the estimated fair value of the 2028 Senior Notes was approximately ~~$425.0~~$427.5 million and ~~$521.2~~$459.4 million, respectively, and was based on quoted market prices or dealer quotes for the 2028 Senior Notes which are Level 1 inputs in the fair value hierarchy.

Credit Agreement

On March 4, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”) with certain lenders party thereto (the ~~“Lenders)~~“Lenders”) and MUFG Union Bank, N.A., as agent (the “Agent”). Pursuant to the Credit Agreement, the Lenders have provided Consensus with a ~~senior secured~~ 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 ~~September~~June 30, ~~2022,~~2023, no amount has been drawn down on the Credit Facility. The Credit Facility is guaranteed by each wholly-owned material domestic subsidiary of Consensus, and secured by substantially all assets of Consensus and the guarantors. The loans made under the Credit Facility are subject to a Secured Overnight Financing Rate (“SOFR”) ~~based~~base interest rate plus a SOFR margin between 1.75% - 2.50%, with stepdowns subject to the total net leverage ratio.

The Credit Facility is subject to a total net leverage ratio covenant and a minimum EBITDA requirement, in each case tested on a quarterly basis. The Credit Agreement contains covenants that restrict the Company’s ability to (i) pay dividends or make distributions on the Company’s common stock; (ii) make certain restricted payments; (iii) create liens or enter into sale and leaseback transactions; (iv) enter into transactions with affiliates; (v) merge or consolidate with another company; and (vi) transfer and sell assets. These covenants contain certain exceptions. Unsecured indebtedness may be incurred, assets may be disposed of, restricted payments may be made and investments may be made, in each case subject to compliance with the Company’s financial covenants. The Company is in compliance with its covenants as of ~~September~~June 30, ~~2022.~~2023.

9.7. Leases

The Company leases certain facilities and equipment under non-cancelable operating and finance leases which expire at various dates through 2031. Office and equipment leases are typically for terms of three to ~~five~~ten years and generally provide renewal options for terms up to an additional five years. The Company determines if an arrangement is a lease at inception. Short-term leases are defined as leases that have a term of 12 months or less and do not include an option to purchase the underlying asset or include an option to purchase the underlying asset that the Company is not reasonably certain to exercise.

~~In certain agreements~~The Company accounts for short-term leases by recognizing the lease payments in general and administrative expenses in the Condensed Consolidated Statements of Income. Short-term lease expense is recognized on a straight-line basis over the term of the lease and associated variable lease payments are recognized in the period in which the ~~Company leases office space where~~obligation for the ~~Company~~payments is ~~the tenant, it subleases the site to various other companies through a sublease agreement.~~incurred.

-21-

Operating lease assets represent the right to use an underlying asset for the lease term, and operating lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date. The Company uses a collateralized incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. Operating leases typically require payment of certain non-lease costs, such as real estate taxes, common area maintenance and insurance. These components comprise the majority of the Company’s variable lease costs and are excluded from the present value of lease liabilities unless an event occurs that results in the payments becoming fixed for the remaining term. The remaining lease and non-lease components are accounted for together as a single lease component for all underlying classes of assets. Operating lease assets are adjusted for lease incentives, initial direct costs, impairments and exit or disposal costs.

The Company accounts for operating leases greater than one year by recognizing the lease payments in general and administrative expenses in the Condensed Consolidated Statements of Income. Operating lease costs are recognized on a straight-line basis from the commencement date to the end of the lease term. Amortization on finance lease right-of-use assets are included in general and administrative expenses in the Condensed Consolidated Statements of Income. Interest on finance lease right-of-use assets, if any, is included in interest expense in the Condensed Consolidated Statements of Income. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of lease expense, ~~are~~recorded in cost of revenues and general and administrative expenses on the

Condensed Consolidated Statements of Income, were as follows (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021				2023		2022		2023		2022
Operating lease cost	Operating lease cost	$	604	$	483	$	1,840	$	1,738		Operating lease cost	$	718	$	607	$	1,387	$	1,236
Short-term lease cost	Short-term lease cost	384		161		1,186		875			Short-term lease cost	427		362		821		802
Finance lease cost
Finance lease cost:											Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	297		283		897		516			Amortization of right-of-use assets	302		297		603		599

Total lease cost	Total lease cost	$	1,285	$	927	$	3,923	$	3,129		Total lease cost	$	1,447	$	1,266	$	2,811	$	2,637

~~-34-~~

Supplemental balance sheet information related to leases is as follows (in thousands):


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Lease-related assets and liabilities	Lease-related assets and liabilities					Lease-related assets and liabilities
Operating lease right-of-use assets	Operating lease right-of-use assets	$	7,419	$	7,233	Operating lease right-of-use assets	$	7,252	$	7,875
Finance lease right-of-use assets (1)	Finance lease right-of-use assets (1)	1,728		2,648		Finance lease right-of-use assets (1)	831		1,427
Total right-of-use assets	Total right-of-use assets	$	9,147	$	9,881	Total right-of-use assets	$	8,083	$	9,302

Operating lease liabilities, current	Operating lease liabilities, current	$	2,458	$	2,421	Operating lease liabilities, current	$	2,893	$	2,793

Operating lease liabilities, noncurrent	Operating lease liabilities, noncurrent	13,998		14,108		Operating lease liabilities, noncurrent	13,026		13,877

Total operating lease liabilities	Total operating lease liabilities	$	16,456	$	16,529	Total operating lease liabilities	$	15,919	$	16,670

(1) The full amount of the finance leases were prepaid. Therefore, there is no corresponding lease liability associated with the finance right-of-use assets.

Supplemental cash flow information related to leases is as follows (in thousands):


	Six Months Ended June 30,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,511	$	1,359

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	254	$	1,316

Nine Months Ended September 30,
2022 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 2,085 $ 925
Operating cash flows from finance leases — 2,719
Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ 1,316 $ —
Finance leases — 2,719

-22-

Other supplemental operating lease information consists of the following:

September 30, 2022

December 31, 2021

June 30, 2023

December 31, 2022

Operating leases:

Weighted average remaining lease term

8.1 years

8.8 years

Weighted average remaining lease term

7.2 years

7.6 years

Weighted average discount rate

4.8

Weighted average discount rate

4.8

4.6

Maturities of operating lease liabilities as of ~~September~~June 30, ~~2022~~2023 are as follows (in thousands):

Operating Leases
Fiscal Year:
2022 (remainder) $ 1,169
2023 2,602
2024 2,561
2025 2,389
2026 2,461
Thereafter 10,697
Total lease payments $ 21,879
Less: Imputed interest (5,423)
Present value of operating lease liabilities $ 16,456

~~-35-~~


Fiscal Year:	Operating Leases
2023 (remainder)	$	1,487
2024	2,898
2025	2,460
2026	2,527
2027	2,534

Thereafter	8,167
Total lease payments	$	20,073
Less: Imputed interest	(4,154)
Present value of operating lease liabilities	$	15,919

Significant Judgments

Discount Rate

The majority of the Company’s leases are discounted using the Company’s collateralized incremental borrowing rate as the rate implicit in the lease is not readily determinable. Rates are obtained from various large banks to determine the appropriate incremental borrowing rate each quarter for collateralized loans with a maturity similar to the lease term.

Options

The lease term is generally the minimum noncancelable period of the lease. The Company does not include option periods unless the Company determined it is reasonably certain of exercising the option at inception or when a triggering event occurs.

Facility lease

On October 28, 2021, Ziff Davis (the “Assignor”) and Consensus (the “Assignee”) entered into the Assignment and First Amendment to Office Lease (the “Amendment”) with the NREA-TRC 700 LLC (the “Landlord”), in regard to the lease which was previously entered into on April 24, 2019 between the Assignor and the Landlord for certain office space located at 700 South Flower Street, Los Angeles, California (the “Lease”). The lease has an expiration date of January 31, 2031. The Amendment granted the Landlord’s consent to the assignment of the Lease by the Assignor to Assignee.

~~10.~~8. Commitments and Contingencies

Litigation

From time to time, the Company and its affiliates are involved in litigation and other legal disputes or regulatory inquiries that arise in the ordinary course of business. Any claims or regulatory actions against the Company and its affiliates, whether meritorious or not, could be time consuming and costly, and could divert significant operational resources. The outcomes of such matters are subject to inherent uncertainties, carrying the potential for unfavorable rulings that could include monetary damages and injunctive relief.

The Company does not believe, based on current knowledge, that any legal proceedings or claims currently exist which, after giving effect to existing accrued liabilities, are likely to have a material adverse effect on the Company’s

-23-

consolidated financial position, results of operations, or cash flows. It is the Company’s policy to expense legal fees related to any litigation as incurred.

Non-Income Related Taxes

The Company historically did not collect sales tax in states where it was not able to quantify the appropriate sales tax to be collected. ~~The~~For the periods from 2017 through 2021, the Company ~~believes~~believed it iswas probable that a sales tax liability ~~exists~~existed for its corporate accounts for periods from 2017 through 2021; however, the Company could not estimate the sales tax liability for its corporate customers. Prior to the third quarter of 2022, the Company was unable to determine which of these customers are either exempt organizations or resellers and ~~are thus exempt from sales tax.~~

In the third quarter of 2022, the Company completed an analysis of the pool of corporate customers subject to sales tax in order to estimate the range of sales tax liability on its corporate revenues. As a result, the Company recorded an accrual of $8.0 million during the three and nine months ended September 30, 2022 within accounts payable and accrued expenses on the Company’s Condensed Consolidated Balance Sheets, as the exposure became probable and estimable.SoHo accounts.

In the year ended December 31, 2021, the Company determined that a sales tax liability was probable and it developed a methodology to estimate the sales tax liability for the SoHo revenue stream during the affected periods from 2017 through 2021. The Company has ~~taken the same approach~~been remitting SoHo sales tax in ~~estimating the liability for the nine months ended September 30,~~applicable states since August 2022.

~~Accordingly,~~However, the sales tax liability for its corporate customers was not estimable until the third quarter of 2022. Prior to the third quarter of 2022, the Company ~~has recorded a~~was unable to determine which of these customers were either exempt organizations or resellers and were thus exempt from sales tax. In the third quarter of 2022, the Company completed an analysis of the pool of corporate customers subject to sales tax ~~expense within general~~in order to estimate the range of sales tax liability on its corporate revenues. As a result, the Company recorded an accrual as the exposure became probable and ~~administrative expenses~~estimable. Additionally, the Company started sales tax collection and remittance on corporate sales in the Condensed Consolidated Statements of Income of $8.4 million and $9.5 million for the three and nine months ended September 30, 2022, respectively, and zero for the three and nine months ended September 30, 2021.

~~-36-~~

applicable states in August 2022.

The Company has initiated a Voluntary Disclosure Agreement (“VDA”) process in the third quarter of 2022, to voluntarily report the prior period sales tax liability. The process is expected to be completed ~~within 6-12 months.~~in the third quarter of 2023. While the Company believes that it has sufficiently reserved for historical sales tax liabilities under FASB ASC Topic No. 450, Contingencies, some state taxing authorities may still challenge the Company’s sales tax position, the methodology used to calculate the sales tax liability, and may also impose other taxes on ~~our~~its business. Taxing authorities may successfully assert that the Company should have collected, or in the future should collect sales and use, telecommunications or similar taxes, and could be subject to liability with respect to past or future tax, which could adversely affect the Company’s operating results.

During the three months ended June 30, 2023, the Company reassessed its sales tax exposure based on the states with a completed VDA process. The Company believes that it did not need to record any additional sales tax expense pertaining to the prior periods. The Company recorded a sales tax expense within general and administrative expenses in the Condensed Consolidated Statements of Income of $0.5 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively. The Company recorded a sales tax expense within general and administrative expenses in the Condensed Consolidated Statements of Income of $1.1 million and $1.1 million for the six months ended June 30, 2023 and 2022, respectively.

The Company will continue to review and monitor the impact of sales tax rules in order to mitigate any associated risks on its business. ~~As such, the Company has recorded a $17.8 million~~The sales tax ~~reserve recorded in~~liability within accounts payable and accrued expenses on the Company’s Condensed Consolidated Balance Sheets was $6.9 million and $13.1 million as of ~~September~~June 30, ~~2022.~~2023 and December 31, 2022, respectively.

~~11.~~9. Income Taxes

Historically, the Company was included in the federal consolidated and state combined income tax returns with the Former Parent and its other subsidiaries. For purposes of the prior period condensed consolidated financial statements, the Company’s taxes were determined using the separate return method as if the Company had filed separate tax returns as a C-Corporation. Accordingly, income tax amounts computed under this method (including deferred taxes and net operating loss carryforwards) may differ from amounts included in the Former Parent’s historical consolidated provision. Pursuant to the terms of the Separation, any tax liabilities with respect to Discontinued Operations remains the responsibility of the Former Parent.

The Company’s tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate adjusted for discrete interim period tax impacts. Each quarter the Company updates its estimated annual effective tax rate and, if the estimate changes, makes a cumulative adjustment. Changes in the geographical mix, permanent differences or the estimated level of annual pre-tax income can affect the effective tax rate. The Company’s effective tax rate for the three months ended ~~September~~June 30, 2023 and 2022 was 22.7% and ~~2021 was 29.2% (as restated) and 21.9%~~26.4%, respectively. The Company’s decreased rate during the three months ended June 30, 2023 is primarily due to a reduction in nondeductible expenses for tax purposes and the change in the geographical mix of income. The Company’s effective tax rate for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 was 23.7% and ~~2021 was 27.6% (as restated) and 23.5%~~26.9%, respectively. The Company’s ~~increased~~decreased rate during the ~~three and nine~~six months ended ~~September~~June 30, ~~2022~~2023 is primarily due to ~~certain~~a reduction in nondeductible expenses ~~not being deductible~~ for ~~tax.~~tax purposes and the change in the geographical mix of income.

~~Income (loss) before~~The Company’s effective tax rates for the three and six months ended June 30, 2023 and 2022 differed from the U.S. federal statutory rates of 21% primarily as a result of state income taxes, ~~included income from domestic operations of $(2.2) million (as restated)~~nondeductible expenses for tax purposes, foreign rate differential, research and ~~$97.8 million for the nine months ended September 30, 2022~~development credits and ~~2021, respectively, and income from foreign operations of $79.2 million and $58.0 million for the nine months ended September 30, 2022 and 2021, respectively.~~uncertain tax positions.

-24-

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had ~~$7.0~~$8.2 million and ~~$4.8~~$6.7 million, respectively, in liabilities for uncertain income tax ~~positions.~~positions, including interest and penalties. Accrued interest and penalties related to unrecognized tax benefits are recognized in income tax expense on the Company’s Condensed Consolidated Statements of Income.

Income Tax Audits

The Company files tax returns in the US, Ireland, Netherlands, France, Canada, Japan and Hong Kong. As of ~~September~~June 30, ~~2022,~~2023, the Company is not under audit in any jurisdiction that it operates within. The Company has ~~recently~~ filed its first set of post-spin tax returns including some international subsidiaries who have previously filed in their local jurisdictions. Depending on the jurisdictions in which the Company is filing, tax returns for the years from ~~2015~~2016 onwards are still open to examination by tax authorities.

~~12.~~10. Stockholders’ ~~Equity~~

Deficit

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 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 and during the three ~~and nine~~ months ended ~~September~~June 30, 2023 and 2022, the Company repurchased ~~zero~~68,362 and 189,114 shares, respectively, under this program. During the six months ended June 30, 2023 and 2022, the Company repurchased 338,554 and 189,114 shares, respectively, under this program. Cumulatively as of ~~September~~June 30, ~~2022, 189,114~~2023, 527,668 shares have been repurchased at an aggregate cost of ~~$7.6 million.~~$18.9 million (inclusive of excise tax of $0.1 million). The excise tax is assessed at 1% of the fair market value of net stock repurchases after December 31, 2022.

~~-37-~~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. Although shares withheld are not issued, they are treated as common share repurchases in the Company’s condensed consolidated financial statements, as they reduce the number of shares that would have been issued upon vesting. These shares do not count against the authorized capacity under the Company’s share repurchase program described above. During the three and ~~nine~~six months ended ~~September~~June 30, 2023 the Company withheld shares on its vested restricted stock units and restricted stock awards relating to its share-based compensation plans of 21,538 and 32,956 shares, respectively. During the three and six months ended June 30, 2022 the Company withheld shares on its vested restricted stock units and restricted stock awards relating to its share-based compensation plans of ~~1,906~~7,897 and ~~29,725~~27,819 shares, ~~respectively~~respectively.

Dividends

The Company currently does not issue dividends to Consensus shareholders. Future dividends are subject to Board approval. Our current debt agreements could trigger restrictions on dividend payments under certain circumstances (see Note 6 - Debt).

-25-

~~13.~~

11. Equity Incentive and Employee Stock Purchase Plan

The Company’s share-based compensation plans include the 2021 Equity Incentive Plan (the “2021 Plan”) and the 2021 Employee Stock Purchase Plan (the “Purchase Plan”). Each plan is described below.

(a) 2021 Equity Incentive Plan

In December 2021, Consensus’ Board of Directors adopted the 2021 Plan, which provides for the grant of incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and share units and other share-based awards. 4,000,000 shares of common stock are authorized to be used for 2021 Plan purposes. As of June 30, 2023, 2,724,739 shares were available to be used under the 2021 Plan.

Restricted Stock and Restricted Stock Units

The Company has awarded restricted stock and restricted stock units to its Board of Directors and ~~staff~~certain employees pursuant to the 2021 Plan. Compensation expense resulting from restricted stock and restricted stock unit grants is measured at fair value on the date of grant and is recognized as share-based compensation expense over the applicable vesting period. Vesting periods are ~~typically~~approximately one year for awards to members of the Company’s Board of Directors, four years for ~~staff~~employees and five years for the Chief Executive Officer and Chief Operating ~~Officer (excluding market-based awards discussed below).~~Officer. The Company granted ~~16,523 shares and 66,767~~57,652 shares of restricted stock ~~and restricted stock~~ units ~~(excluding awards with market conditions below)~~ during the ~~three and nine~~six months ended ~~September~~June 30, ~~2022, respectively.~~2023.

Restricted Stock and Restricted Stock Units with Market Conditions

The Company has awarded certain key employees market-based restricted stock ~~awards~~and restricted stock units pursuant to the 2021 Plan. The market-based awards have vesting conditions that are based on specified stock price targets of the Company’s common stock. Market conditions were factored into the grant date fair value using a Monte Carlo valuation model, which utilized multiple input variables to determine the probability of the Company achieving the specified stock price targets ~~over~~for 20 out of 30 trading ~~days.~~days or 20 out of 25 trading days (look-back period). Stock-based compensation expense related to an award with a market condition is recognized over the requisite service period using the graded-vesting method unless the market condition has been met and requisite service period has been completed, then the expense will be accelerated and recognized in ~~period.~~the period that the market condition and service period requirement have been met. During the ~~three and nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company awarded zero ~~and 5,091~~ market-based restricted stock awards ~~respectively. The per share weighted average grant-date fair value of the market-based~~and restricted stock awards granted during the nine months ended September 30, 2022 was $49.12, as determined by the valuation. Notwithstanding the valuation, all market-based stock awards are issued at the market value at the close of business on the date the grant is awarded.

~~The weighted-average fair values of market-based restricted stock awards granted have been estimated utilizing the following assumptions:~~


	~~September 30, 2022~~
~~Underlying stock price at valuation date~~	$	~~57.15~~
~~Expected volatility~~	~~35.0~~		%
~~Risk-free interest rate~~	~~1.5~~		%

~~-38-~~

units.

Restricted stock activity for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 is set forth below:

Shares Weighted-Average
Grant-Date
Fair Value
Nonvested at January 1, 2022 65,235 $ 38.46
Granted 884 37.67
Vested (30,703) 38.50
Canceled — —
Nonvested at September 30, 2022 35,416 $ 38.42

~~Restricted stock unit activity for the nine months ended September 30, 2022 is set forth below:~~


		Number of Shares	Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value			Shares	Weighted-Average Grant-Date Fair Value
Outstanding at January 1, 2022		1,013,097
Nonvested at January 1, 2023						Nonvested at January 1, 2023	35,416	$	38.42
Granted	Granted	70,974				Granted	—	—
Vested	Vested	(51,405)				Vested	(19,737)	37.77
Canceled	Canceled	(21,291)				Canceled	—	—
Outstanding at September 30, 2022		1,011,375	3.8	$	47,838,038
Vested and expected to vest at September 30, 2022		648,013	3.0	$	30,651,008
Nonvested at June 30, 2023						Nonvested at June 30, 2023	15,679	$	39.24

As of ~~September~~June 30, ~~2022,~~2023, the Company had unrecognized share-based compensation cost ~~as restated,~~related to its restricted stock

awards of ~~$35.4~~$0.2 million, ~~associated with these awards. This cost, as restated, of $0.7 million for awards and $34.7 million for units~~which is expected to be recognized over a weighted-average period of ~~1.2 years~~0.7 years.

-26-

Restricted stock unit activity for ~~awards~~the six months ended June 30, 2023 is set forth below:


	Number of Shares	Weighted-Average Grant-Date Fair Value		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2023	1,082,451	$	51.63
Granted	57,652	53.06
Vested	(74,120)	53.09
Canceled	(12,367)	57.32
Outstanding at June 30, 2023	1,053,616	$	51.54	3.5	$	32,662,096
Vested and expected to vest as of June 30, 2023	711,412	$	52.62	3.0	$	22,053,764

As of June 30, 2023, the Company had unrecognized share-based compensation cost related to its restricted stock units of $31.1 million, which is expected to be recognized over a weighted-average period of 2.6 years.

The Company capitalized $0.5 million and ~~4.7 years for units.~~zero, respectively, of share-based compensation cost within property and equipment, net on its Condensed Consolidated Balance Sheets during the three months ended June 30, 2023 and 2022. During the six months ended June 30, 2023 and 2022, the Company capitalized $1.0 million and zero, respectively, of share-based compensation cost within property and equipment, net on its Condensed Consolidated Balance Sheets.

(b) Employee Stock Purchase Plan

In October 2021, Consensus established the Purchase Plan, which provides for the issuance of a maximum of 1,000,000 shares of common stock. Under the Purchase Plan, eligible employees can have up to 15% of their earnings withheld, up to certain maximums, to be used to purchase shares of Consensus’ common stock on certain plan-defined dates. The purchase price for each offering period is 85% of the lesser of the fair market value of a share of common stock of the Company (a “Share”) on the ~~beginning~~first or ~~the end~~last day of the offering period, with each offering period being six months.

The ~~Company determined that~~plan includes a ~~plan~~ provision ~~exists~~ that allows for the more favorable of two exercise prices, commonly referred to as a “look-back” ~~feature.~~feature, to be used in the purchase price calculation. The purchase price discount and the look-back feature cause the Purchase Plan to be compensatory and the Company to recognize compensation expense. The compensation cost is recognized on a straight-line basis over the requisite service ~~period.~~period, which is the same as the offering period of the Purchase Plan. The Company used the Black-Scholes option pricing model to calculate the estimated fair value of the purchase right issued under the ~~ESPP.~~Purchase Plan. The expected volatility is based on historical volatility of the Company’s common stock. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a term equal to the expected term of the option assumed at the date of grant. The Company uses an annualized dividend yield based upon the per share dividends declared by the Company’s Board of Directors. Estimated forfeiture rates were ~~1.94%~~5.61% as of ~~September~~June 30, ~~2022.~~2023.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022, zero and 15,806~~2023, 29,582 shares ~~respectively,~~ were purchased under the Purchase Plan. Cash received upon the issuance of Consensus common stock under the Purchase Plan during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~zero and $0.6 million, respectively.~~$0.9 million. As of ~~September~~June 30, ~~2022, 973,773~~2023, 927,901 shares were available under the Purchase Plan for future issuance.

~~-39-~~

The compensation expense related to the current offering period of the Purchase Plan has been estimated utilizing the following assumptions:


			~~September~~June 30, ~~2022~~2023
Risk-free interest rate			~~1.54%~~5.26%
Expected term (in years)			0.5
Dividend yield			0.00%
Expected volatility			~~24.55%~~56.95%
Weighted average volatility			~~24.55%~~56.95%

-27-

~~14.~~

12. Earnings Per Share

The components of basic and diluted earnings per share are as follows (in thousands, except share and per share data):


		Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021 (1)		2022		2021 (1)			Three Months Ended June 30,				Six Months Ended June 30,
		(As Restated)				(As Restated)					2023		2022		2023		2022
Numerator for basic and diluted net income per common share:	Numerator for basic and diluted net income per common share:									Numerator for basic and diluted net income per common share:
Net income from continuing operations attributable to common shareholders	Net income from continuing operations attributable to common shareholders	$	15,370	$	41,132	$	55,811	$	119,220	Net income from continuing operations attributable to common shareholders	$	21,058	$	21,921	$	36,516	$	40,441
Net income available to participating securities (2)		(24)		—		(119)		—
Net income available to common shareholders from continuing operations		$	15,346	$	41,132	$	55,692	$	119,220
Net income available to participating securities (1)										Net income available to participating securities (1)	(15)		(43)		(38)		(97)
Net income available to common shareholders from operations										Net income available to common shareholders from operations	$	21,043	$	21,878	$	36,478	$	40,344
Denominator:	Denominator:									Denominator:
Weighted-average outstanding shares of common stock	Weighted-average outstanding shares of common stock	19,791,019		19,902,924		19,879,759		19,902,924		Weighted-average outstanding shares of common stock	19,654,922		19,928,316		19,750,570		19,924,864
Dilutive effect of:	Dilutive effect of:									Dilutive effect of:
Equity incentive plans	Equity incentive plans	66,356		—		64,473		—		Equity incentive plans	6,929		24,262		17,292		63,532
Employee Stock Purchase Plan	Employee Stock Purchase Plan	15,763		—		14,392		—		Employee Stock Purchase Plan	350		15,762		5,036		13,707
Common stock and common stock equivalents	Common stock and common stock equivalents	19,873,138		19,902,924		19,958,624		19,902,924		Common stock and common stock equivalents	19,662,201		19,968,340		19,772,898		20,002,103
Net income per share from continuing operations:
Net income per share from operations:										Net income per share from operations:
Basic	Basic	$	0.78	$	2.07	$	2.80	$	5.99	Basic	$	1.07	$	1.10	$	1.85	$	2.02
Diluted	Diluted	$	0.77	$	2.07	$	2.79	$	5.99	Diluted	$	1.07	$	1.10	$	1.85	$	2.02

(1)On October 7, 2021, the separation of Consensus into an independent publicly traded company was completed. The Former Parent distributed 19,902,924 shares of Consensus common stock to holders of J2 Global common stock as of the close of business on October 1, 2021, the record date for the distribution. This share amount was utilized for the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2021 because the number of shares issued simply reflect a recharacterization of the capital account previously held by the Former Parent.

~~(2)~~ Represents unvested share-based payment awards that contain certain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid).

For the three ~~and nine~~ months ended ~~September~~June 30, 2023 and 2022, there were ~~499,584~~747,416 and ~~499,476,~~507,282 anti-dilutive shares, respectively, that were excluded from the earnings per share calculation. For the six months ended June 30, 2023 and 2022, there were 655,495 and 499,956 anti-dilutive shares, respectively, that were excluded from the earnings per share calculation.

~~-40-~~

~~15.~~13. Segment Information

The Company’s businesses are based on the organizational structure used by the chief operating decision maker (“CODM”) for making operating and investment decisions and for assessing performance. The CODM views the Company as one business, Cloud Fax.

The Company’s Cloud Fax business is driven primarily by subscription revenues that have relatively higher margins, are stable and predictable from quarter to quarter with minor seasonal weakness in the fourth quarter.

The ~~accounting policies of the businesses are the same as those described in Note 1 - Basis of Presentation. The~~ Company evaluates performance based on revenue, gross margin and profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses.

-28-

The Company maintains operations in the U.S., Canada, Ireland and other countries. Geographic information about the U.S. and all other countries for the reporting periods is presented below. Such information attributes revenues based on markets where revenues are reported (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenues:	Revenues:	(As Restated)				(As Restated)				Revenues:
United States	United States	$	72,720	$	69,747	$	214,214	$	205,011	United States	$	73,569	$	71,901	$	145,882	$	141,494

Canada	Canada	$	12,679	$	11,289	$	37,013	$	33,741	Canada	13,118		12,230		25,952		24,335
Ireland	Ireland	4,309		5,376		13,785		16,813		Ireland	3,818		4,567		7,760		9,477
All other countries	All other countries	2,069		2,786		7,178		8,095		All other countries	2,287		2,417		4,652		5,107
Foreign countries	Foreign countries	19,057		19,451		57,976		58,649		Foreign countries	19,223		19,214		38,364		38,919
		$	91,777	$	89,198	$	272,190	$	263,660		$	92,792	$	91,115	$	184,246	$	180,413

The following presents the Company’s long-lived assets, excluding finite-lived intangible assets (in thousands):


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Long-lived assets:	Long-lived assets:					Long-lived assets:
United States	United States	$	53,768	$	39,475	United States	$	74,603	$	61,858

Canada	Canada	$	620	$	748	Canada	360		531
Ireland	Ireland	194		787		Ireland	278		167
All other countries	All other countries	278		72		All other countries	221		277
Foreign countries	Foreign countries	1,092		1,607		Foreign countries	859		975
Total	Total	$	54,860	$	41,082	Total	$	75,462	$	62,833

~~16.~~14. Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated ~~balances of~~ other comprehensive loss, which solely comprises of foreign currency translation adjustments, for the three months ended ~~September~~June 30, ~~2022~~2023 (in thousands):

Foreign Currency Translation

Balance as of ~~July~~April 1, ~~2022~~2023

~~(23,318)~~(16,030)

Other comprehensive loss

~~(11,411)~~(971)

Net increase in other comprehensive loss

~~(11,411)~~(971)

Balance as of ~~September~~June 30, ~~2022~~2023

~~(34,729)~~(17,001)

~~-41-~~

The following table summarizes the changes in accumulated ~~balances of~~ other comprehensive loss, which solely comprises of foreign currency translation adjustments, for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 (in thousands):

Foreign Currency Translation

Balance as of January 1, ~~2022~~2023

~~(16,857)~~(19,108)

Other comprehensive ~~loss~~income

~~(17,872)~~2,107

Net increase in other comprehensive ~~loss~~income

~~(17,872)~~2,107

Balance as of ~~September~~June 30, ~~2022~~2023

~~(34,729)~~(17,001)

There were zero reclassifications out of accumulated other comprehensive loss for the three and ~~nine~~six months ended ~~September~~June 30, 2022. In the second quarter of 2022, the Company recorded a $5.5 million out of period correction that increased goodwill with an offset to the cumulative translation adjustment. It was deemed to be an out of period correction that was not material to 2022 or any prior period.2023.

-29-

~~17.~~

15. Related Party Transactions

In connection with the Separation, Consensus and Ziff Davis entered into several agreements that govern the relationship of the parties following the Separation, including a separation and distribution agreement, a transition services agreement (“TSA”), a tax matters agreement, an employee matters agreement, an intellectual property license agreement and a stockholder and registration rights agreement (the “Agreements”). The TSA governs services including certain information technology services, finance and accounting services and human resource and employee benefit services. The agreed-upon charges, if any, for such services are intended to cover any costs and expenses incurred in providing such services. As of ~~September~~June 30, ~~2022,~~2023, a majority of the services provided under TSA were completed or terminated, with a select few services still winding down and set to terminate no later than 24 months following the Separation. Further, as noted in Note 9, Ziff Davis assigned its lease of office space in Los Angeles, California to Consensus. Ziff Davis and Consensus will have joint liability under the lease through October 7, ~~2022, after which time the Company will be the sole lessee under the lease.~~2023.

During the three ~~and nine~~ months ended ~~September~~June 30, 2023 and 2022, the Company paid approximately ~~$7.2~~$0.4 million and ~~$18.7~~$11.5 million, respectively, and during the six months ended June 30, 2023 and 2022 the Company paid approximately $0.6 million and $11.5 million, respectively, to Ziff Davis ~~respectively,~~ to settle co-mingled cash accounts, costs associated with the transition services agreement and Separation. Additionally, the Company incurred approximately ~~$0.1~~$0.4 million ~~and $0.6 million, respectively,~~ in costs related to the registration of shares for sale held by Ziff Davis for the three and ~~nine~~six months ended ~~September~~June 30, 2022. No costs were incurred in 2023 related to the registration of shares for sale held by Ziff Davis. These costs were recorded in general and administrative expenses within the Condensed Consolidated Statement of Income. Subsequent to the disposition of the shares, Ziff Davis’ beneficial ownership in the Company was under 10%, as of ~~September~~June 30, ~~2022.~~2023 and December 31, 2022 (see Note 1 - Basis of Presentation). Amounts due to Ziff Davis as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 were ~~$0.9 million~~zero and ~~$5.7~~$0.2 million, respectively, related to these items, as well as reimbursement related to certain transaction related costs.

~~-42-~~-30-

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Information

In addition to historical information, we have also made forward-looking statements in this report. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words “expects,” “may,” “anticipates,” “believes,” “estimates,” “will,” “hopes” or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed below, the risk factors discussed in Part II, Item 1A - “Risk Factors” of this Quarterly Report on Form 10-Q (if any) and in Part I, Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (together, the “Risk Factors”), and the factors discussed in the section in this Quarterly Report on Form 10-Q entitled “Quantitative and Qualitative Disclosures About Market Risk.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the Risk Factors and the risk factors set forth in other documents we file from time to time with the SEC.

Some factors that could cause actual results to differ materially from those anticipated in these forward-looking statements include, but are not limited to, our ability and intention to:

◦Sustain growth or profitability, particularly in light of an uncertain U.S. or worldwide economy, inflationary pressures and ~~increasing~~elevated interest rates, and the related impact on customer acquisition and retention rates, customer usage levels and credit and debit card payment declines;

◦Maintain and increase our customer base and average revenue per user;

◦Generate sufficient cash flow to make interest and debt payments, reinvest in our business and pursue desired activities and business plans while satisfying restrictive covenants relating to debt obligations;

◦Acquire businesses on acceptable terms and successfully integrate and realize anticipated synergies from such acquisitions;

◦Continue to expand our Cloud Fax businesses and operations internationally in the wake of numerous risks, including adverse currency fluctuations, difficulty in staffing and managing international operations, higher operating costs as a percentage of revenues or the implementation of adverse regulations;

◦Maintain our financial position, operating results and cash flows in the event that we incur new or unanticipated costs or tax liabilities, including those relating to federal and state income tax and indirect taxes, such as sales, value-added and telecommunication taxes;

◦Accurately estimate the assumptions underlying our effective worldwide tax rate;

◦Manage risks from our international operations, including risks associated with currency fluctuations and foreign exchange controls and adverse changes in global financial markets;

◦Manage certain risks inherent to our business, such as costs associated with fraudulent activity, system failure or network security breach; effectively ~~maintain~~maintaining and ~~manage~~managing our billing systems; ~~allocate~~allocating time and resources required to manage our legal proceedings; liability for legal and other claims; or ~~adhere~~adhering to our internal controls and procedures;

◦Compete with other similar providers with regard to price, service and functionality;

◦Cost-effectively procure, retain and deploy large quantities of fax numbers in desired locations in the United States and abroad;

◦Achieve business and financial objectives in light of burdensome domestic and international telecommunications, internet or other regulations including data privacy, access, security and retention;

◦Successfully manage our growth, including but not limited to, our operational and personnel-related resources, and integration of newly acquired businesses;

◦Successfully adapt to technological changes and diversify services and related revenues at acceptable levels of financial return;

◦Successfully develop and protect our intellectual property, both domestically and internationally, including our brands, patents, trademarks and domain names, and avoid infringing upon the proprietary rights of others;

◦Recruit and retain key personnel; and

◦Maintain favorable relationships with critical third-party vendors whose financial condition will not negatively impact the services they provide; ~~and~~

◦Manage certain risks inherent to our business, such as costs associated with fraudulent activity, system failure or security breach; effectively maintaining and managing our billing systems; time and resources required to manage our legal proceedings; liability for legal and other claims; or adhering to our internal controls and procedures.

~~-43-~~-31-

In addition, other factors that could cause actual results to differ materially from those anticipated in these forward-looking statements or materially impact our financial results include the risks associated with new accounting pronouncements, as well as those associated with natural disasters, public health crises ~~pandemics including the COVID-19 outbreak~~ and other catastrophic events outside of our control, including as to COVID-19 the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and us.control.

Overview

~~On October 7, 2021, J2 Global, Inc.~~completed its previously announced plans to separate into two leading publicly traded companies: one addressing healthcare interoperability and comprising the Cloud Fax business, which does business as Consensus Cloud Solutions, Inc. (“Consensus” or “the Company”), and one that will continue J2 Global’s strategy of building a leading internet platform focused on key verticals, including technology & gaming, shopping, health, cybersecurity and martech, which does business as Ziff Davis. We refer to the transactions that resulted in the separation of Consensus and Ziff Davis into two separate publicly traded companies as the “separation and distribution.”

~~Following the separation and distribution,~~ Consensus is a leading provider of secure information delivery services with a scalable Software-as-a-Service (“SaaS”) platform. Consensus serves ~~more than~~approximately one million customers of all sizes, from enterprises to individuals, ~~across over~~approximately 50 countries and multiple industry verticals including healthcare, government, financial services, law and education. Beginning as an online fax company over two decades ago, Consensus has evolved into a leading global provider of enterprise secure communication solutions. Consensus is well positioned to capitalize on advancements in how people and businesses share private documents and information. Its mission is to democratize secure information interchange across technologies and industries and solve the healthcare interoperability challenge. ~~Consensus’s~~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 the COVID-19 pandemic, Russia’s invasion of Ukraine, inflationary pressures, supply chain disruptions and challenges and labor market pressures. During fiscal year ~~2021~~2022 and through the ~~third~~second quarter of ~~2022,~~2023, we have observed an increasingly competitive labor market. Increased employee turnover, changes in the availability of our employees, including as a result of COVID-19-related absences, and labor shortages generally have resulted in, and could continue to result in, increased costs, and 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.

~~-44-~~-32-

Key Performance Metrics

We use the following metrics to evaluate our business, including the growth of our business, the value provided by customers to our business and our customer retention.

The following table sets forth certain key operating metrics for our ~~continuing~~ operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (in thousands, except for percentages):


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
		2022			2021			2022			2021				2023			2022			2023			2022
Revenue ($ in thousands)	Revenue ($ in thousands)	(As Restated)						(As Restated)						Revenue ($ in thousands)
Corporate	Corporate	$	48,974		$	43,175		$	144,360		$	126,290		Corporate	$	50,361		$	48,867		$	99,768		$	95,386
Small office home office (“SoHo”)	Small office home office (“SoHo”)	42,801			45,931			127,808			137,095			Small office home office (“SoHo”)	42,429			42,228			84,459			85,007
		91,775			89,106			272,168			263,385				92,790			91,095			184,227			180,393
Other Revenues		2			92			22			275
Other revenues														Other revenues	2			20			19			20
Consolidated	Consolidated	$	91,777		$	89,198		$	272,190		$	263,660		Consolidated	$	92,792		$	91,115		$	184,246		$	180,413
Average Revenue per Customer Account (“ARPA) (1)(2)
Average Revenue per Customer Account (“ARPA”) (1)(2)														Average Revenue per Customer Account (“ARPA”) (1)(2)
Corporate	Corporate	$	348.94		$	314.69		$	347.96		$	300.83		Corporate	$	316.55		$	354.99		$	316.15		$	347.47
SoHo	SoHo	14.41			14.34			14.06			14.25			SoHo	$	15.69		$	13.87		$	15.39		$	13.88
Consolidated	Consolidated	$	29.51		$	26.67		$	28.63		$	26.24		Consolidated	$	32.41		$	28.64		$	31.75		$	28.19

Customer Accounts (in thousands) (1)	Customer Accounts (in thousands) (1)													Customer Accounts (in thousands) (1)
Corporate	Corporate	47			45			47			45			Corporate	54			46			54			46
SoHo	SoHo	978			1,064			978			1,064			SoHo	889			1,002			889			1,002
Consolidated	Consolidated	1,025			1,109			1,025			1,109			Consolidated	943			1,048			943			1,048

Paid Adds (in thousands) (3)	Paid Adds (in thousands) (3)													Paid Adds (in thousands) (3)
Corporate	Corporate	4			3			11			10			Corporate	3			4			6			7
SoHo	SoHo	86			98			283			321			SoHo	74			96			153			196
Consolidated	Consolidated	90			101			294			331			Consolidated	77			100			159			203

Monthly Churn % (4)	Monthly Churn % (4)													Monthly Churn % (4)
Corporate	Corporate	1.71		%	3.20		%	1.88		%	2.74		%	Corporate	1.26		%	1.88		%	1.32		%	1.96		%
SoHo	SoHo	3.60		%	3.21		%	3.66		%	3.31		%	SoHo	3.57		%	3.87		%	3.66		%	3.68		%
Consolidated	Consolidated	3.51		%	3.21		%	3.58		%	3.28		%	Consolidated	3.44		%	3.79		%	3.54		%	3.61		%

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

(2)Represents a monthly ARPA ~~calculated~~ for the quarter or year 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 an annual basis is calculated by dividing revenue for the year by the average customer base for the applicable four quarters and dividing that amount by 12 months. We believe ARPA provides investors an understanding of the average monthly revenues we recognize per account associated within Consensus’ customer base. As ARPA varies based on fixed subscription fee and variable usage components, we believe it can serve as a measure by which investors can evaluate trends in the types of services, levels of services and the usage levels of those services across Consensus’ customers.

(3)Paid Adds represents paying new Consensus customer accounts added during the annual period.

(4)Monthly churn is defined as Consensus paying customer accounts that cancelled its services during the period divided by the average number of customers over the period. This measure is calculated monthly and expressed as an average over the applicable period.

~~-45-~~-33-

Critical Accounting ~~Policies and~~ Estimates

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements. Actual results could differ significantly from those estimates under different assumptions and conditions. Our critical accounting policies are described in our ~~2021~~2022 Annual Report on Form 10-K filed with the SEC on ~~April 15, 2022.~~March 31, 2023. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, there were no significant changes in our critical accounting policies and estimates.

~~Emerging Growth Company Status~~

We are an emerging growth company, as defined in Section 3(a) of the Exchange Act, as amended by the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, exemptions from the requirement of holding a nonbinding advisory vote on executive compensation, and exemption from new or revised financial accounting. As of December 31, 2022, we will no longer be an emerging growth company as defined in Section 3(a) of the Exchange Act, as we will be a large accelerated filer.

Results of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

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. As a result, we expect to continue to take steps to enhance our existing offerings and offer new services to continue to satisfy the evolving needs of our customers.

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.

Revenues

~~(in thousands, except percentages)~~

Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change
2022 (1)
2021
2022 (1)
2021
Revenues $ 91,777 $ 89,198 3% $ 272,190 $ 263,660 3%


(in thousands, except percentages)	Three Months Ended June 30,				Percentage Change	Six Months Ended June 30,				Percentage Change
	2023		2022			2023		2022
Revenues	$	92,792	$	91,115	2%	$	184,246	$	180,413	2%

~~(1)As Restated~~

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

Revenues increased by ~~$2.6~~$1.7 million or 3%2% over the prior comparable three month period. Our growth was primarily due to an increase of ~~$5.8~~$1.5 million or ~~13%~~3% in our corporate business ~~(inclusive~~and an increase of ~~$1.9 million due to the Summit acquisition); partially offset by a decline of $3.1~~$0.2 million or 7%1% in our SoHo business.

Revenues increased by ~~$8.5~~$3.8 million or 3%2% over the prior comparable ~~nine~~six month period. Our growth was primarily due to an increase of ~~$18.1~~$4.4 million or ~~14%~~5% in our corporate ~~business (inclusive of $5.3 million due to the Summit acquisition);~~business; partially offset by aan anticipated decline of ~~$9.3~~$0.6 million or 7%1% in our SoHo business.

~~-46-~~

Cost of Revenues

~~(in thousands, except percentages)~~


(in thousands, except percentages)								(in thousands, except percentages)	Three Months Ended June 30,		Percentage Change	Six Months Ended June 30,		Percentage Change
		Three Months Ended September 30,		Percentage Change	Nine Months Ended September 30,		Percentage Change		2023	2022		2023	2022
		2022	2021		2022	2021
Cost of revenue		$15,419	$14,604	6%	$46,111	$43,128	7%
Cost of revenues								Cost of revenues	$17,246	$15,587	11%	$34,754	$30,692	13%
As a percent of revenue	As a percent of revenue	17%	16%		17%	16%		As a percent of revenue	19%	17%		19%	17%

Cost of revenues is primarily comprised of costs associated with data transmission, network operations, customer service, software licenses for resale, online processing fees and equipment depreciation.

The increase in cost of revenues for the three ~~and nine~~ months ended ~~September~~June 30, ~~2022~~2023 was primarily due to an increase of $1.1 million in ~~network operations~~personnel-related expenses and ~~customer service expenses; partially offset by a decrease~~$0.4 million in ~~data transmission costs.~~depreciation associated with platform development costs compared to the prior comparable three month period.

The increase in cost of revenues for the six months ended June 30, 2023 was primarily due to an increase of $2.3 million in personnel-related expenses and $1.4 million in depreciation associated with platform development costs compared to the prior comparable six month period.

-34-

Operating Expenses

Sales and Marketing

~~(in thousands, except percentages)~~


		Three Months Ended September 30,		Percentage Change	Nine Months Ended September 30,		Percentage Change
(in thousands, except percentages)								(in thousands, except percentages)	Three Months Ended June 30,		Percentage Change	Six Months Ended June 30,		Percentage Change
		2022	2021		2022	2021			2023	2022		2023	2022
Sales and marketing	Sales and marketing	$16,626	$13,115	27%	$48,850	$40,031	22%	Sales and marketing	$17,507	$16,394	7%	$34,400	$32,224	7%
As a percent of revenue	As a percent of revenue	18%	15%		18%	15%		As a percent of revenue	19%	18%		19%	18%

Our sales and marketing costs consist primarily of internet-based advertising, personnel costs and other business development-related expenses. Our internet-based advertising relationships consist primarily of fixed cost and performance-based (cost-per-impression, cost-per-click and cost-per-acquisition) advertising relationships with an array of online service providers. Our sales personnel consist of a combination of inside sales and outside sales professionals.

Sales and marketing ~~cost~~costs for the three months ended ~~September~~June 30, ~~2022 was $16.6~~2023 were $17.5 million (primarily consisting of $10.0 million of third-party advertising costs and $7.0 million of personnel costs) compared to the prior period of $16.4 million (primarily consisting of $10.3 million of third-party advertising costs and ~~$6.0 million of personnel costs) compared to the prior period of $13.1 million (primarily consisting of $8.2 million of third-party advertising costs and $4.8~~$5.9 million of personnel costs). The increase in sales and marketing expenses for the three months ended ~~September~~June 30, ~~2022~~2023 versus the prior comparable period was primarily due to increased personnel-related expenses, partially offset by a reduction of third-party advertising ~~operations, sales and advertising and costs associated with the business acquired in the current year.~~spend.

Sales and marketing ~~cost~~costs for the ~~nine~~six months ended ~~September~~June 30, ~~2022 was $48.9~~2023 were $34.4 million (primarily consisting of ~~$30.7~~$19.1 million of third-party advertising costs and ~~$17.3~~$14.2 million of personnel costs) compared to the prior period of ~~$40.0~~$32.2 million (primarily consisting of ~~$25.5~~$20.4 million of third-party advertising costs and ~~$14.2~~$11.5 million of personnel costs). The increase in sales and marketing expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 versus the prior comparable period was primarily due to increased personnel-related expenses, partially offset by a reduction of third-party advertising ~~operations, sales and advertising and costs associated with the business acquired in the current year.~~

~~-47-~~

spend.

Research, Development and Engineering

~~(in thousands, except percentages)~~


		Three Months Ended September 30,		Percentage Change	Nine Months Ended September 30,		Percentage Change
(in thousands, except percentages)								(in thousands, except percentages)	Three Months Ended June 30,		Percentage Change	Six Months Ended June 30,		Percentage Change
		2022	2021		2022	2021			2023	2022		2023	2022
Research, development and engineering	Research, development and engineering	$3,236	$2,019	60%	$8,313	$5,635	48%	Research, development and engineering	$1,765	$2,741	(36)%	$3,669	$5,077	(28)%
As a percent of revenue	As a percent of revenue	4%	2%		3%	2%		As a percent of revenue	2%	3%		2%	3%

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

The ~~increase~~decrease in research, development and engineering costs for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 versus the prior comparable ~~periods~~period was primarily attributable to increased capitalization of personnel-related expenses due to our continued focus on internally developing our platform, products and solutions ~~primarily supporting our corporate revenue growth and incremental costs~~as well as a ~~result of our Summit acquisition.~~reduction in external development costs partially offset by an increase in personnel-related expenses.

-35-

General and Administrative

~~(in thousands, except percentages)~~


		Three Months Ended September 30,		Percentage Change	Nine Months Ended September 30,		Percentage Change
(in thousands, except percentages)								(in thousands, except percentages)	Three Months Ended June 30,		Percentage Change	Six Months Ended June 30,		Percentage Change
		2022 (1)	2021		2022 (1)	2021			2023	2022		2023	2022
General and administrative	General and administrative	$23,839	$8,237	189%	$57,024	$20,262	181%	General and administrative	$17,432	$15,816	10%	$38,584	$33,185	16%
As a percent of revenue	As a percent of revenue	26%	9%		21%	8%		As a percent of revenue	19%	17%		21%	18%

~~(1)As Restated~~

Our general and administrative costs consist primarily of personnel-related expenses, depreciation and amortization,

share-based compensation expense, bad debt expense, professional fees and insurance costs.

The increase in general and administrative ~~expense~~expenses for the three months ended ~~September~~June 30, 2022 versus prior comparable period was primarily due to $7.8 million in non-income tax related expenses. In addition, increased expenses related to operating as a standalone public company, included increases of $7.1 million in salary and benefits (inclusive of $3.8 million of share-based compensation) and $2.2 million in professional fees partially offset by a $2.8 million reduction in bad debt expense.

~~The increase in general and administrative expense for the nine months ended September 30, 2022~~2023 versus prior comparable period was primarily due to increased expenses of $1.8 million in bad debt expense, $0.5 million in computer equipment costs and $0.5 million in personnel-related expenses; partially offset by a $1.3 million reduction in professional fees and the absence of expenses of $0.4 million related to ~~operating as a standalone public company, including increases~~the registration of ~~$23.1~~shares for sale held by Ziff Davis that were incurred in the second quarter of 2022.

The increase in general and administrative expenses for the six months ended June 30, 2023 versus prior comparable period was primarily due to increased expenses of $3.2 million in ~~salary and benefits (inclusive of $12.1 million of share-based compensation), $8.5~~bad debt expense, $1.2 million in ~~non-income tax related expense, $5.3~~personnel-related expenses and $0.9 million in professional fees ~~$2.3 million~~primarily in ~~computer and related expenses, $1.5 million insurance expenses, $1.0 million in depreciation and amortization expense~~connection with the year-end audit; partially offset by ~~a $5.6~~the absence of expenses of $0.4 million ~~reduction~~related to the registration of shares for sale held by Ziff Davis that were incurred in ~~bad debt expense.~~the second quarter of 2022.

~~-48-~~

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~~Condensed Consolidated Statements of ~~income~~Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
		2022 (1)		2021		2022 (1)		2021				2023		2022		2023		2022
Cost of revenues	Cost of revenues	$	219	$	37	$	658	$	136		Cost of revenues	$	334	$	216	$	630	$	439
Operating expenses:	Operating expenses:										Operating expenses:
Sales and marketing	Sales and marketing	269		93		812		281			Sales and marketing	387		270		759		543
Research, development and engineering	Research, development and engineering	390		99		1,086		300			Research, development and engineering	52		340		92		696
General and administrative	General and administrative	3,878		123		12,526		399			General and administrative	3,890		4,097		8,322		8,648
Continuing operations		4,756		352		15,082		1,116
Loss from discontinued operations		—		1,099		—		3,254

Total	Total	$	4,756	$	1,451	$	15,082	$	4,370		Total	$	4,663	$	4,923	$	9,803	$	10,326

~~(1)As Restated~~

Non-Operating Income and Expenses

Interest expense. Our interest expense is due to outstanding ~~debt.~~debt and is reduced by any capitalized interest. Interest expense for the three months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$13.9~~$12.8 million and ~~$0.1~~$12.4 million, respectively. Interest expense for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$39.6~~$25.4 million and ~~$0.6~~$25.6 million, respectively. Interest expense for ~~the three and nine months ended September 30, 2022~~both periods included interest expense on $805.0 million of debt associated with the 2026 and 2028 senior ~~notes, which were entered into in October 2021,~~notes. Interest expense for the three and ~~as such there~~six months ended June 30, 2023 was noreduced by $0.5 million and $1.0 million of capitalized interest, ~~expense related to these facilities in prior comparable periods.~~respectively, that did not occur during 2022.

Interest income. Our interest income is generated from interest earned on cash and cash equivalents. Interest income was $0.7 million and zero for the three months ended June 30, 2023 and 2022, respectively. Interest income was $0.7 million and zero for the six months ended June 30, 2023 and 2022, respectively. Interest income was higher compared to the prior comparable periods due to investments in money market funds starting in 2023.

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Other (expense) income, net. Our other (expense) income, net is generated primarily from miscellaneous items and gains or losses on currency exchange. Other (expense) income, net for the three months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$3.0~~$0.6 million and $1.6 million, respectively. Other (expense) income, net for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$4.7~~$(0.3) million and $1.8 ~~million.~~million, respectively. Changes in ~~Other~~other (expense) income, net in ~~both periods were~~three month period was driven by ~~higher~~lower foreign exchange gains when compared to the prior comparable ~~periods.~~period. Changes in other (expense) income, net in six month period was driven by higher foreign exchange losses when compared to the prior comparable period.

Income Taxes

Our effective tax rate is based on pre-tax income, statutory tax rates, tax regulations (including those related to transfer pricing) and different tax rates in the various jurisdictions in which we operate. The tax bases of our assets and liabilities reflect our best estimate of the tax benefits and costs we expect to realize. When necessary, we establish valuation allowances to reduce our deferred tax assets to an amount that will more likely than not be realized.

Provision for income taxes for the three months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$6.3~~$6.2 million and ~~$11.5~~$7.9 million, respectively. Provision for income taxes for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$21.3~~$11.3 million and ~~$36.6~~$14.9 million, respectively.

The Company’s effective tax rate for the three months ended ~~September~~June 30, 2023 and 2022 was 22.7% and ~~2021 was 29.2% and 21.9%~~26.4%, respectively. The Company’s effective tax rate for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 was 23.7% and ~~2021 was 27.6% and 23.5%~~26.9%, respectively. The ~~increase~~decrease in our effective income tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was primarily attributable to ~~an increase~~a reduction in nondeductible expenses, primarily consisting of sales tax ~~expense due to certain expenses not being deductible for tax purposes.~~penalties and the change in the geographical mix of income.

Significant judgment is required in determining our provision for income taxes and in evaluating our tax positions on a worldwide basis. We believe our tax positions, including intercompany transfer pricing policies, are consistent with the tax laws in the jurisdictions in which we conduct our business. Certain of these tax positions have, in the past been challenged, and this may have a significant impact on our effective tax rate if our tax reserves are insufficient.

~~-49-~~

Liquidity and Capital Resources

Cash and Cash Equivalents

At ~~September~~June 30, ~~2022,~~2023, we had cash and cash equivalents of ~~$103.7~~$112.0 million compared to ~~$66.8~~$94.2 million at December 31, ~~2021.~~2022. The increase in cash and cash equivalents resulted primarily from cash provided by operations; partially offset by cash used in ~~a business and asset acquisition,~~the repurchase of commons stock, purchases of property and equipment (including capitalized labor)~~, the repurchase of common stock,~~ and the ~~surrendering~~purchase of ~~shares to cover employee income tax related to the release of equity awards.~~investments. As of ~~September~~June 30, ~~2022,~~2023, cash and cash equivalents held within domestic and foreign jurisdictions were ~~$51.1~~$35.2 million and ~~$52.6~~$76.8 million, respectively.

Credit Agreement

On March 4, 2022, the Company entered into a Credit Agreement with certain lenders party thereto (collectively, the “Lenders”) and MUFG Union Bank, N.A., as agent (the “Agent”). Pursuant to the Credit Agreement, the Lenders have provided Consensus with a ~~senior secured~~ revolving credit facility of ~~$25~~$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..~~million. The final maturity of the Credit Facility will occur on March 4, 2027. As of ~~September~~June 30, ~~2022,~~2023, no amount has 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 June 30, 2023, we had outstanding $805.0 million in aggregate principal amount of indebtedness (see Note 6 - Debt of the Notes to the Condensed Consolidated Financial Statements). As of June 30, 2023, our total minimum lease payments are $20.1 million (see Note 7 - Leases of the Notes to the Condensed Consolidated Financial Statements). As of June 30, 2023, our liability for uncertain tax positions was $8.2 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.

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

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 and during the three ~~and nine~~ months ended ~~September~~June 30, 2023 and 2022, the Company repurchased ~~zero~~68,362 and 189,114, respectively, shares under this program.

During the six months ended June 30, 2023 and 2022, the Company repurchased 338,554 and 189,114 shares, respectively, under this program. Cumulatively as of June 30, 2023, 527,668 shares have been repurchased at an aggregate cost of $18.9 million (inclusive of excise tax of $0.1 million). The excise tax is assessed at 1% of the fair market value of net stock repurchases after December 31, 2022.

Cash Flows

~~The prior period includes cash flows from discontinued operations of the non-Consensus business. As a result, the prior period is not comparable.~~

Our primary sources of liquidity are cash flows generated from operations, together with cash and cash equivalents. Net cash provided by operating activities was ~~$89.3~~$52.1 million and ~~$196.4~~$52.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, 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 was consistent period over period, however the net cash provided by operating activities in ~~2022 compared to 2021 was attributable to decreased income after considering noncash items, an increase in accounts receivable, and~~2023 included a larger decrease ~~in other liabilities; partially offset by increases~~ in accounts payable and accrued expenses and ~~our liability for uncertain tax positions,~~a larger increase in accounts receivable in 2023, as well as ~~changes~~a decrease in ~~prepaid expenses and other current assets, income tax payable and operating lease liabilities~~deferred revenue in 2023 compared to an increase in deferred revenue in 2022. Largely offsetting these items were increases in the ~~prior year period that were lower~~provision for doubtful accounts and deferred income taxes, net in ~~the current year period. Our cash and cash equivalents were $103.7 million and $66.8 million at September 30, 2022 and December 31, 2021, respectively.~~2023.

Net cash used in investing activities was ~~$34.3~~$22.7 million and ~~$37.8~~$29.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, net cash used in investing activities was primarily attributed to capital expenditures associated with the purchase of property and ~~2021,~~equipment (including capitalized labor) and the purchase of investments. For the six months ended June 30, 2022, net cash used in investing activities was primarily due to business and asset acquisitions and capital expenditures associated with the purchase of property and equipment (including capitalized labor)~~; partially offset by proceeds from the sale of non-fax businesses in 2021.~~. The decrease

~~-50-~~

in our net cash used in investing activities in ~~2022~~2023 compared to ~~2021~~2022 was ~~primarily~~ due to a ~~decrease~~lower cash outlay related to the purchase of investments in 2023, compared to a higher cash ~~outlays~~outlay associated with a business ~~acquisitions and capital expenditures;~~acquisition in 2022, partially offset by ~~proceeds from~~an increase in capital expenditures associated with the ~~sale~~purchase of ~~non-fax businesses~~property and equipment (including capitalized labor) in ~~2021.~~2023.

Net cash ~~(used in) provided by~~used in financing activities was ~~$(8.9)~~$11.5 million and ~~$14.4~~$8.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, net cash ~~(used in) provided by~~used in financing activities was primarily due to ~~contributions from the Former Parent; partially offset by~~ the repurchase of common stock ~~deferred payments for acquisitions~~ and the ~~surrendering~~payment of ~~shares to cover~~ employee income tax obligations related to the ~~release~~net settlement of equity awards. The change in net cash ~~(used in) provided by~~used in financing activities in ~~2022~~2023 compared to ~~2021~~2022 was primarily attributable to ~~cash inflows related to contributions from the Former Parent that occurred~~an increase in ~~2021, partially offset by deferred payments for acquisitions in 2021; compared to~~ cash outflows related to the repurchase of common stock ~~and shares withheld~~in 2023 compared to ~~cover employee income taxes in~~ 2022.

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~~Contractual Obligations and Commitments~~

~~The following table summarizes our contractual obligations and commitments as of September 30, 2022:~~

Payment Due by Period (in thousands)
Contractual Obligations 2022 2023 2024 2025 2026 Thereafter Total
Long-term debt - principal (a)
$ — $ — $ — $ — $ 305,000 $ 500,000 $ 805,000
Long-term debt - interest (b)
25,470 50,800 50,939 50,800 50,800 65,089 293,898
Operating leases (c)
1,169 2,602 2,561 2,389 2,461 10,697 21,879
Telecom services and co-location facilities (d)
151 278 14 1 — — 444
Other (e)
210 375 — — — — 585
Total $ 27,000 $ 54,055 $ 53,514 $ 53,190 $ 358,261 $ 575,786 $ 1,121,806

~~(a)These amounts represent principal on long-term debt.~~

~~(b)These amounts represent interest on long-term debt.~~

~~(c)These amounts represent undiscounted future minimum rental commitments under noncancellable operating leases.~~

~~(d)These amounts represent service commitments to various telecommunication providers.~~

~~(e)These amounts represent certain agreements associated with the Summit acquisition and Board of Directors fee arrangements.~~

As of September 30, 2022, our liability for uncertain tax positions was $7.0 million. The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with the taxing authorities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The following discussion of the market risks we face contains forward-looking statements. Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. Consensus undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Readers should carefully review the risk factors described in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, as well as in other documents we file from time to time with the SEC, including the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K filed or to be filed by us in ~~2022.~~2023.

Interest Rate Risk

Our cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these instruments. As of ~~September~~June 30, ~~2022,~~2023, the carrying value of our cash and cash equivalents approximated fair value. Our return on these investments is subject to interest rate fluctuations.

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had cash and cash equivalent investments, primarily in money market funds and cash held in foreign and ~~checking~~domestic bank accounts, of ~~$103.7~~$112.0 million and ~~$66.8~~$94.2 million, respectively. We do not have interest rate risk on our outstanding long-term debt as these arrangements have fixed interest rates.

~~-51-~~

We cannot ensure that future interest rate movements will not have a material adverse effect on our future business, prospects, financial condition, operating results and cash flows. To date, we have not entered into interest rate hedging transactions to control or minimize certain of these risks.

Foreign Currency Risk

Our principal exposure to foreign currency risk relates to investment and inter-company debt in foreign subsidiaries that transact business in functional currencies other than the U.S. Dollar, primarily ~~the Canadian Dollar,~~ the Euro and the Japanese Yen. If we are unable to settle our short-term intercompany debts in a timely manner, we remain exposed to foreign currency fluctuations.

As we expand our international presence, we become further exposed to foreign currency risk by entering new markets with additional foreign currencies. The economic impact of currency exchange rate movements is often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause us to adjust our financing and operating strategies.

As currency exchange rates change, translation of the income statements of the international businesses into U.S. Dollars affects year-over-year comparability of operating results, the impact of which is immaterial to the comparisons set forth in this Form 10-Q.

Historically, we have not hedged translation risks because cash flows from international operations were generally reinvested locally; however, we may do so in the future. Our objective in managing foreign exchange risk is to minimize the potential exposure to changes that exchange rates might have on earnings, cash flows and financial position. We currently do not have derivative financial instruments for hedging, speculative or trading purposes and therefore are not subject to such hedging risk. However, we may in the future engage in hedging transactions to manage our exposure to fluctuations in foreign currency exchange rates.

Foreign exchange gain (loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022 were $3.0~~2023 was $0.6 million and ~~$4.7~~$(0.3) million, respectively. Foreign exchange gain for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021 were $1.7~~2022 was $1.6 million and ~~$2.1~~$1.8 million, respectively. The change in foreign exchange ~~gains were~~gain (loss) was primarily attributable to ~~higher inter-company~~the translation of certain intra-entity balances ~~between periods~~ in foreign ~~subsidiaries that were in functional currencies other than the U.S. Dollar and exchange rate fluctuations.~~currencies.

Cumulative translation adjustment ~~losses,~~loss, included in other comprehensive income for the three months ended ~~September~~June 30, 2023 and 2022 ~~and 2021 were $11.4~~was $1.0 million and ~~$8.2 million.~~$4.3 million, respectively. Cumulative translation adjustment ~~losses,~~gain (loss), included in other comprehensive income for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 ~~and 2021 were $17.9~~was $2.1 million and ~~$13.6 million.~~$(6.5) million, respectively.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

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The Company maintains ~~disclosures~~disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities ~~and~~ Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the quarterly period ended ~~September~~June 30, ~~2022,~~2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report due to material weaknesses in internal control over financial reporting, described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, ~~such that there is~~where a reasonable possibility exists that a material misstatement of our annual or interim financial statements ~~will~~may not be prevented or detected on a timely basis.

Previously Reported Material Weaknesses

As previously ~~disclosed~~described in the Company’s Annual Report on Form 10-K dated March 31, 2023, for the year ended December 31, ~~2021,~~2022, the ~~company did not design and maintain effective internal controls over~~Company has identified the ~~accounting for certain elements of the spin-off transaction, a significant unusual transaction, which resulted~~following material weaknesses in ~~a material weakness in~~our internal control over financial ~~reporting.~~reporting:

~~-52-~~

Control Environment and Monitoring

~~The~~Material weaknesses existed in the design of our entity-level controls impacting the control ~~activities were not designed~~environment and the effective monitoring of controls to ~~allow the Company~~prevent or detect material misstatements to timely identify and account for the following aspects of the spin-off transaction (i) changes to stockholders’ equity and (ii) the completeness and accuracy of certain amounts classified in discontinued operations in the consolidated financial ~~statements and related disclosures. A~~statements. These deficiencies were primarily caused by a lack of sufficient accounting resources and technical ~~capabilities in accounting~~expertise during the first half of 2022, which contributed to (i) ineffective structure and ~~finance, coupled with~~accountability over the ~~complexities involved in~~performance of controls and (ii) ineffective evaluation and determination as to whether the ~~spin-off transaction~~components of internal controls were ~~also contributing factors to the material weakness. Significant additional procedures were required by the Company to mitigate the risks associated with the material weakness.~~present and functioning.

~~In addition, during the three months ended September 30, 2022 management has determined that the Company has~~These material weaknesses contributed to the following additional material ~~weakness in its internal control over financial reporting:~~ weaknesses:

Control Activities and Information and Communication

•Management did not design and maintain effective internal controls that addressed (i) appropriate revenue recognition accounting policies, (ii) the review of reports used to support manual revenue recognition entries for completeness and accuracy and (iii) precision and documentation of management review controls over transactions and analysis that support revenue recognition and the allowance for bad debt.

~~To remediate~~•Management did not design and maintain effective internal controls to ensure the ~~material weakness, our management is enhancing existing controls~~complete assessment and ~~procedures over our~~timeliness in preparing and reviewing technical accounting ~~for~~documentation relating to significant unusual transactions. ~~These~~

•Management did not design and maintain effective internal controls ~~relate~~to ensure the timeliness of balance sheet account reconciliations, including account balances related to the ~~analysis~~spin-off transaction.

•Management did not design and ~~disclosures~~maintain effective internal controls in the areas of (i) user access and segregation of duties related to systems that track employee related costs, and (ii) the documentation of the review of completeness and accuracy of underlying data used in the operation of certain internal controls that support employee related costs and internally developed software.

Remediation Measures

We have identified and begun to implement several steps, as further described below, designed to remediate the foregoing material weaknesses and to enhance our overall control environment. To remediate these material weaknesses, we began the year ending December 31, 2023 with the appropriate level of resources and technical expertise in finance, accounting, ~~for~~financial reporting and tax departments compared to the first half of the year ended December 31, 2022. During the fourth quarter of 2022, we implemented Blackline’s Modern Accounting Playbook software to bolster our internal controls over balance sheet account reconciliations in 2023. As part of the 2022 year end close, we performed enhanced revenue reconciliation procedures in response to the errors identified and disclosed in our the Current Report on Form 8-K that the Company filed with the SEC on February 22, 2023, and will continue these practices throughout fiscal year 2023. During the

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first and second quarters of fiscal year 2023, we implemented new internal controls to address the segregation of duties related to select system access findings previously identified. We expanded the use of our financial reporting team’s SEC experts to ensure technical accounting memos and related documentation were prepared and reviewed timely with regard to significant unusual transactions. We ~~plan~~continue to ~~enhance~~address and implement new accounting policies and management review controls over analysis, schedules and reports that support revenue recognition, bad debt reserve and financial reporting processes to minimize the risk of reporting errors. Lastly, we engaged our ~~approach~~employees in training programs and ~~procedures by augmenting~~workshops to bolster awareness and education of internal ~~resources and increasing the deployment of both internal and external subject matter experts to assist our management with the evaluation of our accounting for significant unusual transactions.~~control documentation requirements.

~~We believe that these actions will~~While the foregoing measures are intended to effectively remediate the material ~~weakness.~~weaknesses described in this Item 4, it is possible that additional remediation steps will be necessary. As such, as we continue to evaluate and implement our plan to remediate the material weaknesses, our management may decide to take additional measures to address the material weaknesses or modify the remediation steps described above. The material ~~weakness will not~~weaknesses cannot be ~~considered~~fully remediated ~~however,~~ until the applicable remedial controls operate for a sufficient period ~~of time~~ and management has concluded, through testing, that these controls are operating effectively. As planned and anticipated, we are on schedule to execute our testing plans during the third and fourth quarters of 2023.

(b) Changes in Internal Controls

Other than the ~~additional~~actions taken to remediate the material weakness described above, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) which occurred during the ~~third~~second quarter ended ~~September~~June 30, ~~2022~~2023 that have materially affected, or are reasonably ~~like~~likely to materially affect, our internal control over financial reporting.

Part II - Other Information

Item 1. Legal Proceedings

See Note 108 - Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements (Part I, Item 1) for information regarding certain legal proceedings in which we are involved.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, as well as in other documents we file from time to time. There have been no material changes to the risk factors from those described in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Unregistered Sales of Equity Securities

None.

(b) Issuer Purchases of Equity Securities

~~None.~~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. For further information on our share repurchases refer to Note 10 - Stockholders' Equity of the Notes to the Condensed Consolidated Financial Statements (Part I, Item 1).

-41-

The following table summarizes the share repurchase activity for the three months ended June 30, 2023:


	Total Number of Shares Purchased	Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Program
					(in thousands)
April 1 - 30, 2023	—	$	—	—	$	83,206
May 1 - 31, 2023	—	—		—	83,206
June 1 - 30, 2023	68,362	29.98		68,362	81,157
	68,362			68,362	$	81,157

(1) Average price paid per share includes costs associated with the repurchases, but excludes the 1% excise tax accrued on our share repurchases as a result of the Inflation Reduction Act of 2022.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

~~-53-~~

Not applicable.

Item 5. Other Information

None.

-42-

Item 6. Exhibits


Exhibit Number			Description

2.1*			~~Separation and Distribution Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc.~~ ~~(incorporated by reference to Ex. 2.1 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).~~
3.1			Amended and Restated Certificate of Incorporation of Consensus Cloud Solutions, Inc.(incorporated by reference to Ex. 3.1 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).
3.2			Amended and Restated Bylaws of Consensus Cloud Solutions, Inc.(incorporated by reference to Ex. 3.2 to Consensus’ Current Report on Form 8-K filed with the Commission on October 8, 2021, File No. 001-40750).











31.1*			Rule 13a-14(a) Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*			Rule 13a-14(a) Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**			Section 1350 Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101			The following financial information from Consensus Cloud Solutions, Inc.’s Quarterly Report on Form ~~10-Q/A~~10-Q for the quarter ended ~~September~~June 30, ~~2022,~~2023, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, (ii) Condensed Consolidated Statements of Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, (iv) Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, (v) Condensed Consolidated Statements of Stockholders’ ~~(Deficit) Equity~~Deficit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, and (vi) the Notes to Condensed Consolidated Financial Statements.
104*			Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith ** Furnished herewith

~~-54-~~-43-

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Consensus Cloud Solutions, Inc.



Date:	~~March 31,~~August 9, 2023	By:	/s/ R. SCOTT TURICCHI
			R. Scott Turicchi
			Chief Executive Officer and Director
			(Principal Executive Officer)

Date:	~~March 31,~~August 9, 2023	By:	/s/ JAMES C. MALONE
			James C. Malone
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

~~-55-~~-44-


Condensed Consolidated Balance Sheet (unaudited)	September 30, 2022
(dollars in thousands)	As Originally Reported		Adjustments		As Restated
Assets
Intangibles, net	$	49,702	$	216	$	49,918
Goodwill	342,104		(1,000)		341,104
Total assets	$	627,389	$	(784)	$	626,605

Liabilities and stockholders' deficit
Income taxes payable, current	$	4,883	$	(665)	$	4,218
Deferred revenue, current	26,050		287		26,337
Total current liabilities	95,994		(378)		95,616
Deferred revenue, noncurrent	109		2,213		2,322
Total liabilities	917,049		1,835		918,884

Stockholders’ deficit
Additional paid-in capital	16,419		474		16,893
Accumulated deficit	(263,954)		(3,093)		(267,047)
Total stockholders’ deficit	(289,660)		(2,619)		(292,279)
Total liabilities and stockholders’ deficit	$	627,389	$	(784)	$	626,605


Condensed Consolidated Statement of Income (unaudited)	Three Months Ended September 30, 2022
(dollars in thousands except share and per share data)	As Originally Reported		Adjustments		As Restated
Revenues	$	95,912	$	(4,135)	$	91,777
Gross profit	80,493		(4,135)		76,358

Operating expenses
General and administrative	25,604		(1,765)		23,839
Total operating expenses	45,466		(1,765)		43,701
Income from operations	35,027		(2,370)		32,657
Income before income taxes	24,078		(2,370)		21,708
Income tax expense	6,937		(599)		6,338

Net income	$	17,141	$	(1,771)	$	15,370





Net income per common share:
Basic	$	0.86	$	(0.08)	$	0.78
Diluted	$	0.86	$	(0.09)	$	0.77

Weighted average shares outstanding:
Basic	19,791,019		—		19,791,019
Diluted	19,885,880		(12,742)		19,873,138

Share-based compensation expense as follows:
General and administrative	$	3,736	$	142	$	3,878
Total	$	4,614	$	142	$	4,756


Condensed Consolidated Statement of Income (unaudited)	Nine Months Ended September 30, 2022
(dollars in thousands except share and per share data)	As Originally Reported		Adjustments (1)		As Restated
Revenues	$	280,000	$	(7,810)	$	272,190
Gross profit	233,889		(7,810)		226,079

Operating expenses
General and administrative	61,860		(4,836)		57,024
Total operating expenses	119,023		(4,836)		114,187
Income from operations	114,866		(2,974)		111,892
Income before income taxes	80,035		(2,974)		77,061
Income tax expense	21,915		(665)		21,250

Net income	$	58,120	$	(2,309)	$	55,811





Net income per common share:
Basic	$	2.92	$	(0.12)	$	2.80
Diluted	$	2.91	$	(0.12)	$	2.79

Weighted average shares outstanding:
Basic	19,879,759		—		19,879,759
Diluted	19,951,653		6,971		19,958,624

Share-based compensation expense as follows:
General and administrative	$	12,052	$	474	$	12,526
Total	$	14,608	$	474	$	15,082


Condensed Consolidated Balance Sheet (unaudited)	March 31, 2022
(dollars in thousands)	As Originally Reported		Adjustments		As Revised
Assets
Intangibles, net	$	53,003	$	(784)	$	52,219
Total assets	$	615,346	$	(784)	$	614,562

Liabilities and stockholders' deficit
Income taxes payable, current	$	10,217	$	(5)	$	10,212
Total current liabilities	110,107		(5)		110,102

Stockholders’ deficit
Additional paid-in capital	6,918		190		7,108
Accumulated deficit	(302,068)		(969)		(303,037)
Total stockholders’ deficit	(313,924)		(779)		(314,703)
Total liabilities and stockholders’ deficit	$	615,346	$	(784)	$	614,562


Condensed Consolidated Statement of Income (unaudited)	Three Months Ended March 31, 2022
(dollars in thousands except share and per share data)	As Originally Reported		Adjustments		As Revised
Revenues	$	90,925	$	(1,627)	$	89,298
Gross profit	75,821		(1,627)		74,194

Operating expenses
General and administrative	18,806		(1,437)		17,369
Total operating expenses	36,972		(1,437)		35,535
Income from operations	38,849		(190)		38,659
Income before income taxes	25,749		(190)		25,559
Income tax expense	7,043		(5)		7,038

Net income	$	18,706	$	(185)	$	18,521





Net income per common share:
Basic	$	0.94	$	(0.01)	$	0.93
Diluted	$	0.93	$	(0.01)	$	0.92

Weighted average shares outstanding:
Basic	19,921,375		—		19,921,375
Diluted	20,005,307		30,520		20,035,827

Share-based compensation expense as follows:
General and administrative	$	4,361	$	190	$	4,551
Total	$	5,213	$	190	$	5,403


Condensed Consolidated Balance Sheet (unaudited)	June 30, 2022
(dollars in thousands)	As Originally Reported		Adjustments		As Revised
Assets
Intangibles, net	$	51,922	$	(784)	$	51,138
Total assets	$	604,020	$	(784)	$	603,236

Liabilities and stockholders' deficit
Income taxes payable, current	$	5,199	$	(66)	$	5,133
Deferred revenue, current	30,606		272		30,878
Total current liabilities	82,170		206		82,376

Stockholders’ deficit
Additional paid-in capital	11,913		332		12,245
Accumulated deficit	(280,416)		(1,322)		(281,738)
Total stockholders’ deficit	(299,217)		(990)		(300,207)
Total liabilities and stockholders’ deficit	$	604,020	$	(784)	$	603,236


Condensed Consolidated Statement of Income (unaudited)	Three Months Ended June 30, 2022
(dollars in thousands except share and per share data)	As Originally Reported		Adjustments		As Revised
Revenues	$	93,163	$	(2,048)	$	91,115
Gross profit	77,576		(2,048)		75,528

Operating expenses
General and administrative	17,450		(1,634)		15,816
Total operating expenses	36,585		(1,634)		34,951
Income from operations	40,991		(414)		40,577
Income before income taxes	30,209		(414)		29,795
Income tax expense	7,935		(61)		7,874

Net income	$	22,274	$	(353)	$	21,921





Net income per common share:
Basic	$	1.12	$	(0.02)	$	1.10
Diluted	$	1.11	$	(0.01)	$	1.10

Weighted average shares outstanding:
Basic	19,928,316		—		19,928,316
Diluted	19,965,204		3,136		19,968,340

Share-based compensation expense as follows:
General and administrative	$	3,955	$	142	$	4,097
Total	$	4,781	$	142	$	4,923


Condensed Consolidated Statement of Income (unaudited)	Six Months Ended June 30, 2022
(dollars in thousands except share and per share data)	As Originally Reported		Adjustments		As Revised
Revenues	$	184,088	$	(3,675)	$	180,413
Gross profit	153,396		(3,675)		149,721

Operating expenses
General and administrative	36,256		(3,071)		33,185
Total operating expenses	73,557		(3,071)		70,486
Income from operations	79,839		(604)		79,235
Income before income taxes	55,957		(604)		55,353
Income tax expense	14,978		(66)		14,912

Net income	$	40,979	$	(538)	$	40,441





Net income per common share:
Basic	$	2.05	$	(0.03)	$	2.02
Diluted	$	2.04	$	(0.02)	$	2.02

Weighted average shares outstanding:
Basic	19,924,864		—		19,924,864
Diluted	19,985,275		16,828		20,002,103

Share-based compensation expense as follows:
General and administrative	$	8,316	$	332	$	8,648
Total	$	9,994	$	332	$	10,326


	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
Revenues	$	92,904	$	265,230
Cost of revenues	26,102		72,731
Gross profit	66,802		192,499
Operating expenses:
Sales and marketing	25,297		70,775
Research, development and engineering	6,241		16,361
General and administrative	29,025		84,348
Goodwill impairment on business	—		32,629
Total operating expense	60,563		204,113
Income (loss) from discontinued operations	6,239		(11,614)
Interest expense	(51)		(229)
Interest income	181		680
Loss on sale of businesses	(24,599)		(21,797)
Other expense, net	(675)		(426)
Loss from discontinued operations before income taxes	(18,905)		(33,386)
Income tax benefit	(4,997)		(16,268)
Loss from discontinued operations, net of income taxes	$	(13,908)	$	(17,118)


	Shares	Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2022	65,235	$	38.46
Granted	884	37.67
Vested	(30,703)	38.50
Canceled	—	—
Nonvested at September 30, 2022	35,416	$	38.42


	Payment Due by Period (in thousands)
Contractual Obligations	2022		2023		2024		2025		2026		Thereafter		Total
Long-term debt - principal (a)	$	—	$	—	$	—	$	—	$	305,000	$	500,000	$	805,000
Long-term debt - interest (b)	25,470		50,800		50,939		50,800		50,800		65,089		293,898
Operating leases (c)	1,169		2,602		2,561		2,389		2,461		10,697		21,879

Telecom services and co-location facilities (d)	151		278		14		1		—		—		444



Other (e)	210		375		—		—		—		—		585
Total	$	27,000	$	54,055	$	53,514	$	53,190	$	358,261	$	575,786	$	1,121,806