What changed in this filing

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Item 1. Financial Statements

2022-05-16 compared with 2021-11-15 · 415 added, 503 removed, 397 unchanged (70% of the section changed)

4 unchanged sentences

(Unaudited, in thousands)

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Cash and cash equivalents $ 93,864 $ 66,778

5 unchanged sentences

Operating lease right-of-use assets 8,102 7,233

Trade names, net 45,531 45,359

Customer relationships, net 66,214 90,743

Intangibles, net 53,003 43,549

Goodwill 344,025 339,209

Other purchased intangibles, net 60,199 49,772

Notes receivable from related parties, non-current 8,772 8,834

Deferred income taxes, non-current 44,500 54,122

Deferred income taxes 42,484 41,842

Other assets 1,305 873

TOTAL ASSETS $ 615,346 $ 562,812

LIABILITIES AND MEMBER’S EQUITY

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Accounts payable and accrued expenses 56,616 40,206

2 unchanged sentences

Operating lease liabilities, current 2,821 2,421

Other current liabilities 44 496

Due to Former Parent 11,653 5,739

Total current liabilities 110,107 77,963

Long-term debt 792,495 792,040

Deferred revenue, non-current 162 184

4 unchanged sentences

TOTAL LIABILITIES 929,270 895,477

Commitments and contingencies — —

Member’s equity 1,306,218 1,178,508

Commitments and contingencies (Note 10)

Common stock, $ 0.01 par value.

Authorized 120,000,000 at March 31, 2022;

total issued and outstanding 19,995,528 and 19,978,580 shares at March 31, 2022 and December 31, 2021, respectively.

Treasury stock, at cost ( 19,922 and zero shares at March 31, 2022 and December 31, 2021, respectively).

Additional paid-in capital 6,918 2,878

Accumulated deficit ( 302,068 ) ( 318,886 )

Accumulated other comprehensive loss ( 18,974 ) ( 16,857 )

Total member’s equity 1,236,697 1,122,542

Total liabilities and member’s equity $ 1,576,776 $ 1,491,420

TOTAL STOCKHOLDERS’ DEFICIT ( 313,924 ) ( 332,665 )

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $ 615,346 $ 562,812

See Notes to Condensed Consolidated Financial Statements

3 unchanged sentences

(Unaudited, in thousands)

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

2021 2020 2021 2020

Three Months Ended March 31,

Total revenues $ 90,925 $ 86,620

Cost of revenues (1)

15,104 13,970

Gross profit 75,821 72,650

1 unchanged sentence

Sales and marketing (1)

15,830 13,235

Research, development and engineering (1)

General and administrative (1)

Goodwill impairment on business — — 32,629 —

Total operating expenses 36,972 20,959

Income from operations 38,849 51,691

Interest expense, net — ( 10,204 ) ( 160 ) ( 30,556 )

(Loss) gain on sale of businesses ( 24,600 ) 17,122 ( 21,798 ) 17,122

Interest expense ( 13,274 ) ( 236 )

Interest income — 9

Other income, net 174 379

1 unchanged sentence

Income tax expense 7,043 12,608

Income from continuing operations 18,706 39,235

Income from discontinued operations, net of income taxes (1)

Net income $ 18,706 $ 47,362

Net income per common share from continuing operations:

Basic $ 0.94 $ 1.97

Diluted $ 0.93 $ 1.97

Net income per common share from discontinued operations:

Basic $ — $ 0.41

Diluted $ — $ 0.41

Net income per common share:

Basic $ 0.94 $ 2.38

Diluted $ 0.93 $ 2.38

Weighted average shares outstanding:

Basic 19,921,375 19,902,924

Diluted 20,005,307 19,902,924

(1) Includes share-based compensation expense as follows:

Cost of revenues $ 223 $ 50

Sales and marketing 273 95

Research, development and engineering 356 102

General and administrative 4,361 136

Income from discontinued operations, net of income taxes — 1,108

Total $ 5,213 $ 1,491

See Notes to Condensed Consolidated Financial Statements

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AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)

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

2021 2020 2021 2020

Three Months Ended March 31,

Net income $ 18,706 $ 47,362

Other comprehensive loss, net of tax:

Other comprehensive loss:

Foreign currency translation adjustment ( 2,117 ) ( 7,708 )

Other comprehensive loss, net of tax:

( 8,248 ) ( 4,143 ) ( 13,555 ) ( 11,621 )

Other comprehensive loss ( 2,117 ) ( 7,708 )

Comprehensive income $ 16,589 $ 39,654

4 unchanged sentences

(Unaudited, in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

8 unchanged sentences

Lease asset impairments — 561

Loss (Gain) on sale of businesses 21,798 ( 17,122 )

Goodwill impairment on business 32,629 —

Gain on sale of businesses — ( 1,979 )

Changes in fair value of contingent consideration — 648

Foreign currency remeasurement gain 181 ( 16,295 )

Decrease (increase) in:

14 unchanged sentences

Proceeds from sale of businesses, net of cash divested — 5,999

Proceeds from sale of assets — 507

Purchases of intangible assets ( 1,000 ) —

1 unchanged sentence

Cash flows from financing activities:

Notes payable paid to related parties — ( 819 )

Debt issuance costs ( 232 ) —

Acquired restricted stock ( 1,173 ) —

Deferred payments for acquisitions — ( 1,583 )

Contribution from (distributions to) Parent 21,238 ( 75,513 )

Contribution from Parent — 12,306

Other — ( 142 )

4 unchanged sentences

Cash and cash equivalents at end of period 93,864 196,661

Less cash and cash equivalents at end of period, discontinued operations — 46,986

Cash and cash equivalents at end of period, continuing operations $ 93,864 $ 149,675

See Notes to Condensed Consolidated Financial Statements

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AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY

Three and Nine Months Ended September 30, 2021 and 2020

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

Three Months Ended March 31, 2022 and 2021

(Unaudited, in thousands)

other comprehensive Member’s Total

loss equity equity

Balance, July 1, 2020 $ ( 52,351 ) $ 547,053 $ 494,702

Net income — 58,923 58,923

Other comprehensive loss, net of tax ( 4,143 ) — ( 4,143 )

Share based compensation — 1,388 1,388

Parent contribution — ( 33,903 ) ( 33,903 )

Balance, September 30, 2020 $ ( 56,494 ) $ 573,461 $ 516,967

other comprehensive Member’s Total

loss equity equity

Balance, July 1, 2021 $ ( 61,273 ) $ 1,295,005 $ 1,233,732

Net income — 27,224 27,224

Other comprehensive income, net of tax ( 8,248 ) — ( 8,248 )

Share based compensation — 1,451 1,451

Parent contribution — ( 17,462 ) ( 17,462 )

Balance, September 30, 2021 $ ( 69,521 ) $ 1,306,218 $ 1,236,697

other comprehensive Member’s Total

loss equity equity

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

2 unchanged sentences

Share-based compensation — — — — — — — 1,491 1,491

Parent distribution — ( 75,513 ) ( 75,513 )

Balance, September 30, 2020 $ ( 56,494 ) $ 573,461 $ 516,967

other comprehensive Member’s Total

loss equity equity

Parent contribution — — — — — — — 12,306 12,306

Balance, March 31, 2021 — $ — $ — — $ — $ — $ ( 63,674 ) $ 1,239,667 $ 1,175,993

Common stock Additional

paid-in Treasury stock Accumulated Accumulated other comprehensive Total

Shares Amount capital Shares Amount Deficit loss Equity

Balance, January 1, 2022 19,978,580 $ 200 $ 2,878 — $ — $ ( 318,886 ) $ ( 16,857 ) $ ( 332,665 )

1 unchanged sentence

Other comprehensive loss, net of tax — — — — — — ( 2,117 ) ( 2,117 )

Repurchase of common stock ( 19,922 ) — ( 1,173 ) — — — — ( 1,173 )

Treasury stock 19,922 — — ( 19.922 ) — — — —

Share-based compensation 36,870 — 5,213 — — — — 5,213

Parent contribution — 21,238 21,238

Balance, September 30, 2021 $ ( 69,521 ) $ 1,306,218 $ 1,236,697

Reclassifications related to bonuses and other corporate accruals prior to the Separation (Note 1)

— — — — — ( 1,888 ) — ( 1,888 )

Balance, March 31, 2022 20,015,450 $ 200 $ 6,918 — $ — $ ( 302,068 ) $ ( 18,974 ) $ ( 313,924 )

See Notes to Condensed Consolidated Financial Statements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

March 31, 2022

Basis of Presentation

Consensus Cloud Solutions, Inc., formerly a wholly-owned subsidiary of J2 Global, Inc., known since October 7, 2021 as Ziff Davis, Inc.

(“J2 Global” or the “Parent” or the “Parent Company”), together with its subsidiaries (“Consensus Cloud Solutions” or “Consensus” , “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 million customers of all sizes, from enterprises to individuals, across over 50 countries and multiple industry verticals including healthcare, education, law and financial services.

Beginning as an online fax company over two decades ago, Consensus has evolved into a leading global provider of enterprise secure communication solutions.

Our mission is to democratize secure information interchange across technologies and industries, and solve the healthcare interoperability challenge.

Our communication and interoperability solutions enable our customers to securely and cooperatively access, exchange and use information across organizational, regional and national boundaries.

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.

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.

Consensus Cloud Solutions, Inc.

On September 21, 2021, the Parent Company announced that its Board of Directors approved its previously announced separation of the Cloud Fax business (the “Separation”), into an independent publicly traded company, Consensus Cloud Solutions, Inc.

On October 7, 2021, the Separation was completed and the Parent Company transferred certain assets and liabilities associated with its Cloud Fax business to Consensus, including the equity interests in J2 Cloud Services (see Note 16 - Subsequent Events).

Historical J2 Cloud Services, LLC

As of September 30, 2021, J2 Cloud Services, LLC, a wholly-owned subsidiary of J2 Global, together with its subsidiaries (“J2 Cloud Services” or the “Company”), was a leading provider of internet services.

J2 Cloud Services provides cloud-based subscription services to consumers and businesses including cloud fax, voice, cybersecurity, privacy and marketing technology.

The financial information and results of operations that are discussed in Item1.

Financial Statements, including the notes to the financial statements, principally relate to J2 Cloud Services.

Consequently, the discussion included herein relates to J2 Cloud Services as it was comprised as of September 30, 2021, without giving effect to the internal reorganization and other transactions that occurred in connection with the separation and distribution (see Note 16 - Subsequent Events).

Basis for Carve-Out Financial Statements

J2 Cloud Services’ Condensed Consolidated Financial Statements have been prepared on a “carve-out” basis from J2 Global’s Consolidated Financial Statements using the historical results of operations, assets, liabilities, and member’s interests attributable to the legal entities which comprise J2 Cloud Services.

The Condensed Consolidated Financial Statements also include an allocation of certain corporate expenses related to services provided to J2 Cloud Services by J2 Global.

These expenses include 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 Parent company personnel to the Company.

The cost of these services has 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 J2 Global revenue for the periods presented.

Management believes these allocations are a reasonable representation of the cost incurred for the services provided;

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 business (the “Separation”), 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.

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 its subsidiaries, 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 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 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.

The interest expense primarily represents interest incurred on J2 Cloud Services’ third-party debt.

No interest expense

incurred by J2 Global has been allocated to J2 Cloud Services as J2 Global’s third-party debt is not specifically related to J2 Cloud Services’ operations.

Total member’s equity represents J2 Global’s interest in the recorded net assets of J2 Cloud Services, as well as other comprehensive income or loss attributable to J2 Cloud Services.

The accompanying interim Condensed Consolidated Financial Statements are unaudited and 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 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 a fair presentation have been reflected in these interim financial statements.

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, 2020, included in the Form 10 Registration Statement filed with the SEC on September 21, 2021, as amended.

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 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, included in our Annual Report (Form 10-K) filed with the SEC on April 15, 2022.

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.

Principles of Consolidation

The accompanying Condensed Consolidated Financial Statements include the accounts of J2 Cloud Services and its direct and indirect wholly-owned owned subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of 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 of assets acquired and liabilities assumed in connection with business combinations, long-lived and intangible asset impairment, contingent consideration, income taxes and contingencies and allowances for doubtful accounts.

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 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.

Also, as part of the carve-out process, certain administrative expenses of J2 Global were allocated to J2 Cloud Services.

Management believes that such allocations are reasonable;

however, the expenses may not be indicative of the actual expenses that would have been incurred by the Company had it been operating as an independent company for the presented periods.

Actual results could materially differ from those estimates due to risks and uncertainties, including uncertainty in the current economic environment due to 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

J2 Cloud Services 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 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.

3 unchanged sentences

Revenue Recognition

J2 Cloud Services 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).

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.

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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 Topic 606 for principal-agent considerations and assesses:

In determining whether the Company acts as the principal or an agent, the Company follows the accounting guidance under Accounting Standards Codification 606, Revenue from Contracts with Customers (“Topic 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.

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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.

The J2 Cloud Services 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.

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 J2 Cloud Services’ use of the acquired assets or the strategy for J2 Cloud Services overall business;

• Significant changes in the manner of our use of the acquired assets or the strategy for J2 Cloud Services overall business;

• Significant negative industry or economic trends;

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

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

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

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

If the Company determined 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.

J2 Cloud Services assessed whether events or changes in circumstances have occurred that potentially indicate the carrying amount of long-lived assets may not be recoverable.

During the three and nine months ended September 30, 2021, J2 Cloud Services recorded an impairment of certain operating right-of-use assets (see Note 8 - Leases).

No impairment was recorded in the three and nine months ended September 30, 2020.

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 in the first quarter of 2022.

In the first quarter of 2021, the Company recorded impairment of certain operating right-of-use assets (see Note 9 - Leases).

The Company classifies its long-lived assets to be sold as held for sale in the period (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.

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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.

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.

1 unchanged sentence

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, revenue growth rates, gross margins, customer attrition rates, royalty rates, discount rates and terminal growth rate assumptions.

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.

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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 and liabilities assumed in a business combination.

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.

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If the carrying value of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized for the difference.

In the second quarter of 2021, the Company recorded an impairment to goodwill associated with the plan to sell the Company’s B2B Backup business (see Note 5 – Dispositions).

No impairment was recorded in the third quarter of 2021 and 2020.

In the first quarter of 2021, the Company changed the annual goodwill impairment assessment date from September 30 to October 1, as it determined this date is preferable, and concluded this was not a material change in accounting principle.

Contingent Consideration

Certain of J2 Cloud Services acquisition agreements include contingent earn-out arrangements, which are generally based on the achievement of future income thresholds or other metrics.

The contingent earn-out arrangements are based upon the Company’s valuations of the acquired companies and reduce the risk of overpaying for acquisitions if the projected financial results are not achieved.

The fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates.

For each transaction, the Company estimates the fair value of contingent earn-out payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability on the Condensed Consolidated Balance Sheets.

J2 Cloud Services considers several factors when determining that contingent earn-out liabilities are part of the purchase price, including the following:

(1) the valuation of the Company’s acquisitions is not supported solely by the initial consideration paid, and the contingent earn-out formula is a critical and material component of the valuation approach to determining the purchase price;

and (2) the former shareholders of acquired companies that remain as key employees receive compensation other than contingent earn-out payments at a reasonable level compared with the compensation of the Company’s other key employees.

The contingent earn-out payments are not affected by employment termination.

J2 Cloud Services measures its contingent earn-out liabilities in connection with acquisitions at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy (see Note 6 - Fair Value Measurements).

The Company may use various valuation techniques depending on the terms and conditions of the contingent consideration including a Monte-Carlo simulation.

This simulation uses a probability distribution for each significant input to produce hundreds or thousands of possible outcomes and the results are analyzed to determine probabilities of different outcomes occurring.

Significant increases or decreases to these inputs in isolation would result in a significantly higher or lower liability with a higher liability capped by the contractual maximum of the contingent earn-out obligation.

Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings.

The amount paid that is less than or equal to the liability on the acquisition date is reflected as cash used in financing activities in J2 Cloud Services’ Consolidated Statements of Cash Flows.

Any amount paid in excess of the liability on the acquisition date is reflected as cash used in operating activities.

J2 Cloud Services reviews and re-assesses the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could be materially different from the initial estimates or prior amounts.

Changes in the estimated fair value of J2 Cloud Services’ contingent earn-out liabilities and adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in general and administrative expenses on the Condensed Consolidated Statements of Income.

J2 Cloud Services is included in the federal consolidated and state combined income tax returns with the Parent and its other subsidiaries.

For purposes of these 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.

No impairment was recorded in the first quarter of 2022 and 2021.

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.

2 unchanged sentences

During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain.

J2 Cloud Services establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due.

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.

J2 Cloud Services 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.

J2 Cloud Services accounts for income taxes in accordance with FASB ASC Topic No.

740, Income Taxes (“ASC 740”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities.

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 11 - 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.

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.

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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.

J2 Cloud Services 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 and provides for changes to various tax laws that impact businesses.

limitations on qualified charitable contributions and technical corrections to tax depreciation methods for qualified improvement property.

The CARES Act also appropriated funds for the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.

The Company did not seek to borrow any funds under the program.

However, as a result of an acquisition that closed during the quarter ended December 31, 2020, the Company assumed outstanding PPP loans that had started the process of being forgiven prior to the closing of the acquisition.

During the second quarter of 2021, the Company received approval from the SBA to forgive the entire amount of the outstanding PPP Loan.

The amount forgiven did not have a significant impact to the Company’s financial statements.

The Company 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.

The Company does not believe these provisions have a significant impact to our current and deferred income tax balances.

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Share-Based Compensation

J2 Cloud Services’ share-based compensation is allocated from the Parent for relevant employees and non-employees on a monthly basis.

J2 Cloud Services accounts for share-based awards in accordance with the provisions of FASB ASC Topic No.

718, Compensation - Stock Compensation (“ASC 718”) and in the same manner as awards issued by the Parent except the shares issued are the Parent’s and not the Company’s.

Accordingly, J2 Cloud Services 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 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, J2 Cloud Services may change the input factors used in determining future share-based compensation expense.

If differences arise between the assumptions used in determining share-based compensation expense and the actual factors, which become known over time, Consensus 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 of the Company’s employees.

The Company estimates the expected term based upon the historical exercise behavior of the Company’s employees (see Note 12 - Equity Incentive and Employee Stock Purchase Plan).

Earnings Per Common Share (“EPS”)

Prior to the spin-off, the J2 Cloud Services limited liability company agreement did not provide for units or shares to quantify equity ownership.

Rather, capital accounts were used to track contributions and distributions made by each of the limited liability members.

In light of the foregoing, there is no quantifiable amount of equity securities outstanding during the periods ended September 30, 2021 and 2020 and, as a result, EPS cannot be computed and presented for those periods.

EPS is calculated pursuant to the two-class method as defined in 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.

In 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.

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 consolidated financial statements and requires that those enterprises report selected information about operating segments in interim financial reports.

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 segments are based on the organization structure used by the chief operating decision maker for making operating and investment decisions and for assessing performance.

In accordance with the aggregation criteria within ASC Topic 280, the Company’s operating segments have been aggregated into two reportable segments:

(i) Fax and Martech and (ii) Voice, Backup, Security, and Consumer Privacy and Protection.

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 15 - Segment Information).

Reclassifications to correct prior period errors

In the first quarter of 2022, the Company identified certain errors 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 $ 1.9 million from equity to accrued expenses and due to Former Parent to correct the prior period errors on the balance sheet.

The Company determined that the impact of this reclassification was not material to the current or prior period financial statements.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The Company adopted this ASU in the first quarter of 2021 and has identified no material effect on its financial statements or disclosures.

In January 2020, the FASB issued ASU No.

2020-01, Investments - Equity Securities (Topic 321), Investment - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.

The amendments in this ASU clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the accounting for certain forward contracts and purchased options under Topic 815.

This ASU identifies two main areas for improvement:

(1) accounting for certain equity securities upon the application or discontinuation of the equity method of accounting and (2) scope considerations for forward contracts and purchased options on certain securities.

The amendment states, as it is related to the first area of improvement, that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

The amendment also states, as it is relates to forward contracts and purchased options on certain securities, an entity should consider certain criteria to determine the accounting for those forward contracts and purchased options.

The Company adopted this ASU in the first quarter of 2021 and has identified no effect on its financial statements or disclosures.

In March 2020, the FASB issued ASU No.

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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.

LIBOR is expected to phased out by 2021.

The amendments in this ASU are effective as of March 12, 2020 through December 31, 2022.

The Company is currently evaluating the effect of this ASU on its financial statements and related disclosures.

The accommodations are available for all entities through December 31, 2022, with early adoption permitted.

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

In August 2020, the FASB issued ASU No.

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The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023.

The Company is currently evaluating the effect of this ASU on its financial statements and related disclosures.

In October 2020, the FASB issued ASU No.

2020-10, Codification Improvements.

The amendments in this ASU improve the consistency of the codification and reorganize the guidance into appropriate sections providing less opportunities for disclosures to be missed.

The amendments in this update do not change GAAP and are not expected to result in a significant change in practice.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2020.

The Company adopted this ASU in the first quarter of 2021 and has identified no effect on its financial statements or disclosures.

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.

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The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, including the interim periods within those fiscal years.

The Company is currently evaluating the effect of this ASU on its financial statements and related disclosures.

Early adoption is permitted.

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

The Company’s revenues substantially consist of monthly recurring subscription and usage-based fees, the majority 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 them in the period earned.

Historically, along with its numerous proprietary Cloud Services solutions, the Company also generates revenues by reselling various third-party solutions, primarily through its email security and online backup lines of business.

These third-party solutions, along with the Company’s proprietary products, allowed it to offer customers a variety of solutions to better meet their needs.

The Company recorded revenue on a gross basis with respect to reseller revenue because the Company has control of the specified good or service prior to transferring control to the customer.

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

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

2021 2020 2021 2020

Cloud Services

Subscription $ 182,011 $ 170,233 $ 528,616 $ 507,021

Other 92 15 275 69

Total Cloud Services revenues $ 182,103 $ 170,248 $ 528,891 $ 507,090

Three Months Ended March 31,

Corporate $ 46,519 $ 41,154

Small office home office (“SoHo”) 44,406 45,374

Total revenues $ 90,925 $ 86,620

Timing of revenue recognition

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Total $ 90,925 $ 86,620

The Company has recorded $ 19.3 million and $ 18.7 million of revenue for the three months ended September 30, 2021 and 2020, respectively, and $ 92.7 million and $ 87.7 million for the nine months ended September 30, 2021 and 2020, respectively, which was previously included in the deferred revenue balance as of the beginning of each respective year.

As of September 30, 2021, the Company acquired $ 6.4 million of deferred revenue in connection with the Company’s business acquisitions (see Note 4 - Business Acquisitions) which are subject to purchase accounting adjustments.

The Company has recorded $ 10.9 million and $ 12.3 million of revenue for the three months ended March 31, 2022 and 2021, respectively, which was previously included in the deferred revenue balance as of the beginning of each respective year.

As of March 31, 2022 and December 31, 2021, the Company acquired $ 2.6 million and zero , respectively, of deferred revenue in connection with the Company’s business acquisitions (see Note 4 - Business Acquisitions) which are subject to purchase accounting adjustments.

Performance Obligations

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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 and include fax, voice, backup, security, CPP, and email marketing products 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, revenue for these services are recognized over the contract period when any of the following materially distinct performance obligations are satisfied:

• Faxing capabilities are provided

• Voice services are delivered

• Email Marketing services are delivered

• Consumer privacy services are provided

• Security solutions, including email and endpoint are provided

• Online data backup capabilities are provided

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, revenue for these services are recognized over the contract period when faxing capabilities are provided.

The Company has concluded that the best measure of progress toward the complete satisfaction of the performance obligation over time is a time-based measure.

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In addition, the Company has determined that the payment terms that 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 other payment terms would affect the nature of the risk assumed by the Company to provide service given the costs of the customer acquisition and the highly competitive and commoditized nature of the business J2 Cloud Services operate which allows customers to easily move from one provider to another.

The Company typically charges a single upfront amount for the services because other payment terms would affect the nature of the risk assumed by the Company 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.

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For those customer contracts greater than one year, the Company capitalizes and amortizes the expenses over the period of benefit.

In addition, the Company partners with various affiliates in order to generate a portion of its revenue for certain lines of business.

The commissions earned by the Company’s affiliates are incentive based and are paid based on the acquisition of new customers in a given period.

For those customers with amortization periods determined to be greater than one year, the Company capitalizes and amortizes the expenses over the period of benefit.

Revenues Invoiced

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Business Acquisitions

The Company uses acquisitions as a strategy to grow its customer base by increasing its presence in new and existing markets, expand and diversify its service offerings, enhance its technology, and acquire skilled personnel.

On June 4, 2021, the Company completed the acquisition of the shares of SEOmoz a Seattle-based provider of search engine optimization (“SEO “) solutions, paying the purchase price in cash.

The Condensed Consolidated Statement of Income since the date of acquisition and balance sheet as of September 30, 2021, reflect the results of operations of this 2021 acquisition.

For the nine months ended September 30, 2021, this acquisition contributed $ 14.4 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 impracticable to provide.

On February 4, 2022, in a cash transaction, the Company acquired certain assets of Summit Healthcare Services, Inc., a Massachusetts based provider of secure interoperability solutions within the healthcare industry for a total consideration of $ 15.0 million.

The Condensed Consolidated Statement of Income since the date of acquisition and balance sheet as of March 31, 2022, reflect the results of operations of this 2022 acquisition.

For the three months ended March 31, 2022, this acquisition contributed $ 0.8 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 $ 14.4 million, net of cash acquired and assumed liabilities and is subject to certain post-closing adjustments which may increase or decrease the final consideration paid.

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Operating lease right-of-use assets, noncurrent 413

Trade names 7,200

Trademarks 1,100

Customer relationships 7,900

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Operating lease liabilities, noncurrent ( 413 )

Deferred tax liability ( 4,936 )

Other long-term liabilities ( 786 )

Total $ 14,355

During the nine months ended September 30, 2021, the purchase price accounting has been finalized for EDC Systems Inc.

(operating under the name “SRFax”) and Inspired eLearning.

The initial accounting for the 2021 acquisition is incomplete and subject to change.

The initial accounting for the Summit acquisition is incomplete due to timing of available information and is subject to change.

The Company has recorded provisional amounts which may be based upon past acquisitions with similar attributes for certain intangible assets (including trade names, software and customer relationships), preliminary acquisition date working capital, and related tax items.

During the nine months ended September 30, 2021, the Company recorded adjustments to the initial working capital and to the purchase accounting due to the finalization of prior period acquisitions in the Voice, Backup, Security and CPP businesses which resulted a net increase in goodwill of $ 0.5 million (see Note 7 - Goodwill and Intangible Assets).

Such adjustments had an immaterial impact on the amortization expense within the Condensed Consolidated Statement of Income for the nine months ended September 30, 2021.

The Company expects to finalize the accounting for the Summit acquisition within twelve months of the acquisition date.

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, 2021 is $ 41.2 million, of which none is expected to be deductible for income tax purposes.

Pro Forma Financial Information for SEOmoz Acquisition

The following unaudited pro forma supplemental information is based on estimates and assumptions that the Company believes to be reasonable.

However, this information is not necessarily indicative of the Company’s consolidated results of income in future periods or the results that actually would have been realized had the Company and the acquired businesses been combined companies during the periods presented.

These pro forma results exclude any savings or synergies that would have resulted from these business acquisitions had they occurred on January 1, 2020.

This unaudited pro forma supplemental information includes incremental intangible asset amortization and other charges as a result of the acquisitions, net of the related tax effects.

The supplemental information on an unaudited pro forma financial basis presents the combined results of the Company and its 2021 acquisition as if the acquisition had occurred on January 1, 2020 (in thousands):

Nine Months Ended September 30,

(unaudited) (unaudited)

Revenues $ 550,268 $ 543,901

Net income $ 105,748 $ 133,380

Goodwill recognized associated with this acquisition during the three months ended March 31, 2022 is $ 5.5 million, of which $ 5.5 million is expected to be deductible for income tax purposes.

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 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 constitutes a strategic shift that will have 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 Balance Sheets and 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’ 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’ Equity include the non-fax business activity through October 7, 2021.

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 March 31, 2021

Cost of revenues

Gross Profit 61,815

Operating expenses:

Sales and marketing

Research, development and engineering

General and administrative

Total operating expense 54,891

Income from discontinued operations 6,924

Interest expense ( 100 )

Interest income 252

Gain on sale of businesses 1,979

Income from discontinued operations before income taxes

Income tax expense

Income from discontinued operations, net of income taxes

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

Three Months Ended March 31, 2021

Depreciation and amortization

Capital expenditure

Share-based compensation expense

Non-cash operating lease costs 1,371

Deferred income taxes, net ( 1,951 )

Lease asset impairments and other charges 561

Gain on sale of businesses $ ( 1,979 )

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.

Such assets were recorded within the Voice, Backup, Security, and CPP reportable segment.

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 (loss) gain sale of businesses on the Condensed Consolidated Statement of Income.

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.

The business was recorded within the Voice, Backup, Security, and CPP reportable segment.

During the second quarter of 2021, the Company received an offer to purchase the B2B Backup business.

Management determined that the fair value of the business less cost to sell was lower than its carrying amount, and as a result, the Company recorded an impairment to goodwill of $ 32.6 million during the second quarter of 2021, which was recorded in Goodwill impairment of business on the Condensed Consolidated Statement of Income (see Note 7 - Goodwill and Intangible Assets).

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, the total loss recognized on the sale was $ 24.6 million which was recorded in (loss) gain on sale of business on the Condensed Consolidated Statement of Income.

On February 9, 2021, in a cash transaction, the Company sold the Voice assets for a gain of $ 2.0 million which was recorded in discontinued operations on the Condensed Consolidated Statement of Income for the three months ended March 31, 2021.

Fair Value Measurements

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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’s money market funds are classified within Level 1.

The Company values these Level 1 investments using quoted market prices.

The Company classifies its contingent consideration liability in connection with acquisitions within Level 3 because factors used to develop the estimated fair value are unobservable inputs, such as volatility and market risks, and are not supported by market activity.

Significant increases or decreases in either of the inputs in isolation would result in significantly lower or higher fair value measurement.

The input used in connection with the current contingent consideration arrangements is forecasted revenues which are compared to the revenue thresholds determined in each contingent arrangement.

Based on this revenue comparison, the Company assesses whether it expects a contingent payment to occur.

If such payment is expected, the fair value of the contingent consideration will be the expected payment.

The following tables present the fair values of the Company’s financial assets or liabilities that are measured at fair value on a recurring basis (in thousands):

September 30, 2021 Level 1 Level 2 Level 3 Fair Value Carrying Value

Contingent consideration $ — $ — $ 783 $ 783 $ 783

Total liabilities measured at fair value $ — $ — $ 783 $ 783 $ 783

December 31, 2020 Level 1 Level 2 Level 3 Fair Value Carrying Value

Contingent consideration $ — $ — $ 4,969 $ 4,969 $ 4,969

Total liabilities measured at fair value $ — $ — $ 4,969 $ 4,969 $ 4,969

The following table presents a reconciliation of the Company’s Level 3 financial liabilities related to contingent consideration that are measured at fair value on a recurring basis (in thousands):

Level 3 Affected line item in the Statement of Income

Balance as of January 1, 2021 $ 4,969

Contingent consideration —

Total fair value adjustments reported in earnings 642 General and administrative

Contingent consideration payments ( 4,828 ) Not Applicable

Balance as of September 30, 2021 $ 783

In connection with the Company’s acquisition activity, contingent consideration of up to $ 0.8 million may be payable upon achieving certain future revenue thresholds and had a combined fair value of $ 0.8 million and $ 5.0 million at September 30, 2021 and December 31, 2020, respectively.

Due to achievement of certain thresholds, $ 4.8 million was paid in the first nine months of 2021.

During the nine months ended September 30, 2021 , the Company recorded a decrease in the fair value of the contingent consideration of $ 0.6 million and reported such decrease in general and administrative expenses.

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 8 - Long-Term Debt).

Goodwill and Intangible Assets

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Identifiable intangible assets are amortized over the period of estimated economic benefit, which ranges from 1 year to 20 years.

The changes in carrying amounts of goodwill for the nine months ended September 30, 2021 are as follows (in thousands):

Fax and Martech Voice, Backup, Security and CPP Total Cloud Services

In the three months ended March 31, 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 Other Purchased Intangibles on the Condensed Consolidated Balance Sheet.

The changes in carrying amounts of goodwill for the three months ended March 31, 2022 are as follows (in thousands):

Balance as of January 1, 2022 $ 339,209

Goodwill acquired (Note 4) 5,513

Goodwill removed due to sale of a businesses (1)

— ( 50,276 ) ( 50,276 )

Goodwill impairment (2)

— ( 32,629 ) ( 32,629 )

Purchase accounting adjustments (3)

Foreign exchange translation ( 697 )

Balance as of September 30, 2021 $ 463,161 $ 412,735 $ 875,896

(1) On February 9, 2021, in a cash transaction, the Company sold certain of its Voice assets in the United Kingdom which resulted in $ 1.3 million of goodwill being removed in connection with this sale and on September 17, 2021, the Company sold certain of its B2B Backup assets which resulted in $ 49.0 million of goodwill being removed in connection with the sale (see Note 5 - Dispositions).

(2) During the nine months ended September 30, 2021, the Company had an impairment to goodwill of $ 32.6 million in connection with certain B2B Backup assets.

(3) Purchase accounting adjustments relate to measurement period adjustments to goodwill in connection with prior business acquisitions (see Note 4 - Business Acquisitions).

Balance as of March 31, 2022 $ 344,025

Intangible Assets with Indefinite Lives:

Intangible assets are summarized as of September 30, 2021 and December 31, 2020 as follows (in thousands):

September 30, 2021 December 31, 2020

Intangible assets are summarized as of March 31, 2022 and December 31, 2021 as follows (in thousands):

March 31, 2022 December 31, 2021

Trade names $ 27,373 $ 27,388

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Intangible Assets Subject to Amortization:

As of September 30, 2021, intangible assets subject to amortization relate primarily to the following (in thousands):

As of March 31, 2022, intangible assets subject to amortization relate primarily to the following (in thousands):

Weighted-Average

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(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 4 to 5 years, despite the overall life of the asset.

This pattern results in a substantial majority of the amortization expense being recognized in the first four to five years , despite the overall life of the asset.

As of December 31, 2021, intangible assets subject to amortization relate primarily to the following (in thousands):

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(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 4 to 5 years, despite the overall life of the asset.

Amortization expense, included in general and administrative expense, approximated $ 12.3 million and $ 11.8 million for the three months ended September 30, 2021 and 2020, respectively, and $ 36.8 million and $ 48.1 million for the nine months ended September 30, 2021 and 2020, respectively.

This pattern results in a substantial majority of the amortization expense being recognized in the first four to five years , despite the overall life of the asset.

Estimated amortization expense for the remainder of fiscal year 2022 and succeeding years is as follows:

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Total $ 21,949

Amortization expense was $ 1.5 million and $ 1.7 million for the three months ended March 31, 2022 and 2021, respectively.

Long-term debt as of March 31, 2022 and December 31, 2021 consists of the following (in thousands):

March 31, 2022 December 31, 2021

2026 Senior Notes $ 305,000 $ 305,000

2028 Senior Notes 500,000 500,000

Total Notes 805,000 805,000

Deferred issuance costs ( 12,505 ) ( 12,960 )

Total long-term debt $ 792,495 $ 792,040

Interest expense was $ 13.3 million and $ 0.2 million for the three months ended March 31, 2022 and 2021, 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 as of March 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 on April 15, 2022.

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 March 31, 2022.

As of March 31, 2022 and December 31, 2021, the estimated fair value of the 2026 Senior Notes was approximately $ 302.7 million and $ 316.1 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 15 - 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 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 as of March 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 on April 15, 2022.

The 2028 Senior Notes mature on October 15, 2028, 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 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.

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.

The Company is in compliance with its debt covenants as of March 31, 2022.

As of March 31, 2022 and December 31, 2021, the estimated fair value of the 2028 Senior Notes was approximately $ 495.6 million and $ 521.2 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) and MUFG Union Bank, N.A., as agent (the “Agent”).

Pursuant to the Credit Agreement, the Lenders have provided MUFG has provided Consensus with a senior secured revolving credit facility of $ 25.0 million (the “Credit Facility”).

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

As of March 31, 2022, 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 interest rate 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 March 31, 2022.

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 years and generally provide renewal options for terms up to an additional five years .

Some of the Company’s leases include options to terminate within one year .

For the first nine months of 2021, the Company recorded impairments of $ 2.2 million on its operating lease right of use assets primarily related to exiting certain lease space.

The Company regularly evaluates its office space requirements in light of more of its workforce working from home as part of a permanent “remote” or “partial remote” work model.

The fair value of the right-of-use asset was based on the estimated sublease income for the affected facilities taking into consideration the time it will take to obtain a sublease tenant, the applicable discount rate and the sublease rate which represent Level 3 unobservable inputs.

The impairments are presented in general and administrative expenses on the Condensed Consolidated Statements of Income.

No impairment was recorded in the three and nine months ended September 30, 2020.

In certain agreements in which the Company leases office space where the Company is the tenant, it subleases the site to various other companies through a sublease agreement.

Finance leases are not material to the Company’s Condensed Consolidated Financial Statements and are therefore not included in the disclosures below.

The components of lease expense were as follows (in thousands):

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

2021 2020 2021 2020

Three Months Ended March 31,

Operating lease cost $ 628 $ 626

Short-term lease cost 440 541

Finance lease cost

Amortization of right-of-use assets 302 78

Total lease cost $ 1,370 $ 1,245

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Operating leases

Operating lease right-of-use assets $ 8,102 $ 7,233

Finance lease right-of-use assets (1)

Total operating lease right-of-use assets $ 10,443 $ 9,881

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Total operating lease liabilities $ 17,344 $ 16,529

(1) Included in “Other assets” in the Consolidated Balance Sheet.

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 was as follows (in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Cash paid for amounts included in the measurement of lease liabilities:

3 unchanged sentences

Other supplemental operating lease information consists of the following:

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Operating leases:

1 unchanged sentence

Weighted average discount rate 4.76 % 4.84 %

Maturities of operating lease liabilities as of September 30, 2021 were as follows (in thousands):

Maturities of operating lease liabilities as of March 31, 2022 were as follows (in thousands):

Operating Leases

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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.

Practical Expedients

As a practical expedient, the Company has not separated lease components from nonlease components for its real property operating leases.

Certain of the Company’s leases contain nonlease components such as maintenance and certain utility costs.

In addition, the Company elected and applied the available transition practical expedients upon adoption.

By electing these practical expedients, the Company did:

• not reassess whether expired or existing contracts contain leases under the new definition of a lease;

• not reassess lease classification for expired or existing leases;

• not reassess whether previously capitalized initial direct costs would qualify for capitalization under Topic 842.

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.

Commitments and Contingencies

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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 the foregoing legal proceedings or claims, after giving effect to existing accrued liabilities, are likely to have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

However, depending on the amount and timing, an unfavorable resolution of some

or all of these matters could have a material effect on the Company’s consolidated financial position, results of operations, or cash flows in a particular period.

The Company has not accrued for any material loss contingencies relating to these legal proceedings because materially unfavorable outcomes are not considered probable by management.

It is the Company’s policy to expense as incurred legal fees related to various litigations.

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 consolidated financial position, results of operations, or cash flows.

It is the Company’s policy to expense as incurred legal fees related to any litigation.

Non-Income Related Taxes

The Company does not collect and remit sales and use, telecommunication, or similar taxes and fees in certain jurisdictions where the Company believes that such taxes are not applicable or legally required.

Several states and other taxing jurisdictions have presented or threatened the Company with assessments, alleging that the Company is required to collect and remit such taxes there.

The Company is currently under audit or is subject to audit for indirect taxes in various states, municipalities and foreign jurisdictions.

The Company has a $ 23.5 million and $ 22.5 million reserve established for these matters which is included in accrued expenses and other long-term liabilities on the Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020, respectively.

It is reasonably possible that additional liabilities could be incurred resulting in additional expense, which could have a material impact on the Company’s financial results.

The Company is included in the federal consolidated and state combined income tax returns with the Parent and its other subsidiaries.

For purposes of these financial statements, the Company’s taxes were determined using the separate return method, as if the Company filed separate tax returns.

The Company has not historically withheld sales tax in states where it was not able to quantify the appropriate sales tax to be withheld.

The Company believes it is probable that sales tax liability exists for its corporate accounts for the periods 2017 through 2021.

However, the Company is currently unable to determine which of these customers are either exempt organizations or resellers and are thus exempt from sales tax.

Therefore it cannot estimate the sales tax liability for these corporate customers.

The Company is currently analyzing the pool of corporate customers subject to sales tax in order to estimate the liability and will record an accrual when the exposure is estimable.

The Company currently cannot estimate the range of sales tax liability for corporate customers.

In the year ended December 31, 2021, the Company determined that a sales tax liability is probable and it developed a methodology to estimate the liability for the sales tax for the SoHo revenue stream during the affected periods 2017 through 2021.

The Company has taken the same approach in estimating the liability for the three months ended March 31, 2022.

Accordingly, the Company has recorded a sales tax expense in three months ended March 31, 2022 and 2021 of $ 0.8 million and zero , respectively, for the period, net of federal income tax benefit of $ 0.2 million.

Historically, we were 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 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.

The Company’s effective tax rate was 19.3 % and 30.1 % for the three months ended September 30, 2021 and 2020, respectively.

The Company’s effective tax rate was 16.6 % and 27.2 % for the nine months ended September 30, 2021 and 2020, respectively.

The Company’s decreased rate during the nine months ended September 30, 2021 is primarily due to the recognition of a tax benefit of $ 13.4 million from the disposition and impairment of the B2B Backup business unit and a net reduction in its reserve for uncertain tax positions recorded with no similar event for the nine months ended September 30, 2020.

During the nine months ended September 30, 2020, the Company recognized an increase in tax expense related to the sale of certain foreign subsidiaries in Australia and New Zealand related to its Voice business unit.

Income before income taxes included income from domestic operations of $ 41.3 million and $ 77.0 million for the nine months ended September 30, 2021 and 2020, respectively, and income from foreign operations of $ 81.2 million and $ 106.0 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021 and December 31, 2020, the Company had $ 50.9 million and $ 53.3 million, respectively, in liabilities for uncertain income tax positions.

The Company’s effective tax rate was 27.4 % and 24.3 % for the three months ended March 31, 2022 and 2021, respectively.

The Company’s increased rate during the three months ended March 31, 2022 is primarily due to certain compensation not being deductible for tax.

Income before income taxes included income from domestic operations of $ 0.8 million and $ 29.4 million for the three months ended March 31, 2022 and 2021, respectively, and income from foreign operations of $ 24.9 million and $ 22.4 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022 and December 31, 2021, the Company had $ 4.8 million and $ 4.8 million, respectively, in liabilities for uncertain income tax positions.

Accrued interest and penalties related to unrecognized tax benefits are recognized in income tax expense on the Company’s Condensed Consolidated Statements of Income.

Cash paid for income taxes net of refunds received was $ 13.5 million and $ 15.0 million for the nine months ended September 30, 2021 and 2020, respectively.

Cash paid for income taxes net of refunds received was $ 3.6 million and $ 1.2 million for the three months ended March 31, 2022 and 2021, respectively.

Certain taxes are prepaid during the year and, where appropriate, included within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet.

The Company’s prepaid tax payments were zero and $ 1.6 million at September 30, 2021 and December 31, 2020, respectively.

The Company’s prepaid tax payments were zero at March 31, 2022 and December 31, 2021, respectively.

Income Tax Audits :

The Company is in various stages of audit by the U.S.

Internal Revenue Service (“IRS”) for its 2012 through 2016 tax years.

On February 24, 2021, the Company received a Notice of Deficiency for tax years 2012 through 2014 which disallowed certain deductions for domestic production.

The Company disagrees with the Notice and filed a petition to appeal on May 24, 2021.

As of September 30, 2021, the audits are ongoing.

J2 Global is under income tax audit by the California Franchise Tax Board (the “FTB”) for its tax years 2012 and 2013.

The FTB, however, has suspended its audit for 2012 and 2013 pending the outcome of the IRS audit for such tax years.

In August 2018, the FTB notified the Company that it will commence an audit of tax years 2015 and 2016.

As of September 30, 2021, the audits are ongoing.

In June 2019, the New York State Department of Taxation and Finance (“NYS”) notified the Company that it will commence an audit for tax year 2015.

In April 2020, the NYS notified the Company that it will also commence an audit for tax years 2016 and 2017.

As of September 30, 2021, the audits are ongoing.

It is reasonably possible that these audits may conclude in the next 12 months and that the uncertain tax positions the Company has recorded in relation to these tax years may change compared to the liabilities recorded for these periods.

If the recorded uncertain tax positions are inadequate to cover the associated tax liabilities, the Company would be required to record additional tax expense in the relevant period, which could be material.

If the recorded uncertain tax positions are adequate to cover the associated tax liabilities, the Company would be required to record any excess as a reduction in tax expense in the relevant period, which could be material.

However, it is not currently possible to estimate the amount, if any, of such change.

Share Based Compensation

J2 Cloud Services records share-based compensation expense for Parents’ share-based awards granted to its employees and non-employees for services provided.

Share-based compensation expense is allocated from the Parent for each relevant employee on a monthly basis.

The following disclosures relate to the Parents’ 2007 Stock Plan (the “2007 Plan”), 2015 Stock Option Plan (the “2015 Plan”) and 2001 Employee Stock Purchase Plan (the “Purchase Plan”).

Such disclosures relate to grants of Parents’ stock-based awards and are not related to any grants of J2 Cloud Services, LLC share-based awards.

The Company files tax returns in the US, Ireland, Netherlands, France, Canada, Japan and Hong Kong.

As of March 31, 2022, the Company is not under audit in any jurisdiction that it operates within.

The Company has not filed any tax returns for the post spin periods, however it does have some international subsidiaries who have previously filed tax returns in their local jurisdictions.

In respect to these international subsidiaries, tax returns filed for the years from 2018 onwards are still open to examination by tax authorities

Stockholders’ Equity

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.

During the first quarter of 2022, the Company entered into Rule 10b-18 and Rule 10b5-1 trading plans and during the three months ended March 31, 2022, the Company repurchased zero shares under these program.

Periodically, participants in the Consensus’ Equity Incentive Plan surrender to the Company shares of the Company’s stock to satisfy tax withholding obligations arising upon the vesting of restricted stock.

During the three months ended March 31, 2022, participants surrendered to the Company 19,922 shares from plan participants for this purpose at an aggregate cost of $ 1.2 million.

The Company currently does not issue dividends to Consensus shareholders.

Future dividends are subject to Board approval.

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.

The 2007 Plan provides for the granting of Parents’ incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units and other share-based awards.

4,500,000 shares of J2 Global common stock are authorized to be used for 2007 Plan purposes.

Options under the 2007 Plan may be granted at exercise prices determined by the Parent’s Board of Directors, provided that the exercise prices shall not be less than the fair market value of J2 Global’s common stock on the date of grant for incentive stock options and not less than 85 % of the fair market value of J2 Global’s common stock on the date of grant for non-statutory stock options.

As of September 30, 2021, 7,000 shares underlying options and zero shares of restricted units were outstanding under the 2007 Plan.

The 2007 Plan terminated on February 14, 2017.

The 2015 Plan provides for the granting of Parents’ incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance share units and other share-based awards.

4,200,000 shares of J2 Global common stock are authorized to be used for 2015 Plan purposes.

Options under the 2015 Plan may be granted at exercise prices determined by the Parent’s Board of Directors, provided that the exercise prices shall not be less than the higher of the par value or 100 % of the fair market value of J2 Global’s common stock subject to the option on the date the option is granted.

As of September 30, 2021, 400,000 shares underlying options and 246,018 shares of restricted stock units were outstanding under the 2015 Plan.

All stock option grants are approved by “outside directors” within the meaning of Internal Revenue Code Section 162(m).

Stock Options

The following table represents stock option activity for the nine months ended September 30, 2021:

Number of Shares Weighted-

Price Weighted-Average

Term (in years) Aggregate

Outstanding at January 1, 2021 475,601 $ 69.61

Exercised ( 68,601 ) 42.08

Outstanding at September 30, 2021 407,000 $ 74.25 6.2 $ 25,385,630

Exercisable at September 30, 2021 157,000 $ 73.00 6.0 $ 9,988,130

Vested and expected to vest at September 30, 2021 346,640 $ 74.11 6.1 $ 21,668,058

The total intrinsic values of options exercised during the nine months ended September 30, 2021 and 2020 were $ 5.6 million and $ 3.0 million, respectively.

The Parent recognized $ 0.2 million and $ 0.2 million of compensation expense related to stock options for the three months ended September 30, 2021 and 2020, respectively, and $ 0.6 million and $ 0.7 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021 and December 31, 2020, unrecognized stock compensation related to non-vested stock options granted under each of the share-based compensation plans approximated $ 5.1 million and $ 5.8 million, respectively.

Unrecognized stock compensation expense related to non-vested stock options granted under these plans is expected to be recognized ratably over a weighted-average period of 4.3 years (i.e., the remaining requisite service period).

Fair Value Disclosure

The Parent uses the Black-Scholes option pricing model to calculate the fair value of each option grant.

The expected volatility is based on historical volatility of the Parent’s common stock.

The Parent estimates the expected term based upon the historical exercise behavior of its employees.

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 Parent uses an annualized dividend yield based upon the per share dividends declared by the Parent’s Board of Directors.

Estimated forfeiture rates were 12.4 % and 11.8 % as of September 30, 2021 and 2020, respectively.

(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.

Restricted Stock and Restricted Stock Units

The Parent has awarded restricted stock and restricted stock units to Parent’s Board of Directors and senior staff pursuant to certain share-based compensation plans.

The Company has awarded restricted stock and restricted stock units to its Board of Directors and staff pursuant to the 2021 Plan.

Compensation expense resulting from restricted stock and restricted 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 approximately one year for awards to members of the Parent’s Board of Directors, four or five years for senior staff (excluding market-based awards discussed below) and eight years for the Chief Executive Officer.

Vesting periods are approximately one year for awards to members of the Company’s Board of Directors, four years for staff and five years for the Chief Executive Officer and Chief Operating Officer (excluding market-based awards discussed below).

The Company granted 26,612 shares of restricted stock and restricted stock units (excluding awards with market conditions below) during the three months ended March 31, 2022.

Restricted Stock Awards with Market Conditions

The Parent has awarded certain key employees market-based restricted stock awards pursuant to the 2015 Plan.

The market-based awards have vesting conditions that are based on specified stock price targets of the Parent’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 Parent achieving the specified stock price targets with a 20-day and 30-day lookback (trading days).

Stock-based compensation expense related to an award with a market condition will be recognized over the requisite service period using the graded-vesting method regardless of whether the market condition is satisfied, provided that the requisite service period has been completed.

During the nine months ended September 30, 2021 and 2020, the Parent awarded 73,094 and 82,112 market-based restricted stock awards, respectively.

The per share weighted average grant-date fair values of the market-based restricted stock awards granted during the nine months ended September 30, 2021 and 2020 were $ 94.40 and $ 70.99 , respectively.

The Company has awarded certain key employees market-based restricted stock awards 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 specified stock price targets over 30 (trading days).

Stock-based compensation expense related to an award with a market condition will be 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.

During the three months ended March 31, 2022, the Company awarded 5,091 market-based restricted stock awards.

The per share weighted average grant-date fair value of the market-based restricted stock awards granted during the three months ended March 31, 2022 were $ 47.54 , 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, 2021 September 30, 2020

March 31, 2022

Underlying stock price at valuation date $ 57.15

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Risk-free interest rate 1.3 %

Restricted stock award activity for the nine months ended September 30, 2021 is set forth below:

Restricted stock award activity for the three months ended March 31, 2022 is set forth below:

Shares Weighted-Average

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Vested ( 10,057 ) 63.69

Canceled ( 3,277 ) 82.96

Nonvested at September 30, 2021 395,366 $ 61.62

Restricted stock unit award activity for the nine months ended September 30, 2021 is set forth below:

Nonvested at March 31, 2022 55,178 $ 56.70

Restricted stock unit activity for the three months ended March 31, 2022 is set forth below:

Shares Weighted-Average

4 unchanged sentences

Canceled ( 8,045 )

Outstanding at September 30, 2021 246,018 3.2 $ 33,610,979

Vested and expected to vest at September 30, 2021 170,143 2.5 $ 23,244,890

The Parent recognized $ 5.7 million and $ 5.1 million of compensation expense related to restricted stock, restricted stock units and market-based restricted stock for the three months ended September 30, 2021 and 2020, respectively, and $ 16.4 million and $ 16.4 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021 and December 31, 2020, the Parent had unrecognized share-based compensation cost of approximately $ 37.3 million and $ 38.6 million, respectively, associated with these awards.

This cost is expected to be recognized over a weighted-average period of 3.6 for awards and 4.1 for units.

Employee Stock Purchase Plan

The Purchase Plan provides for the issuance of a maximum of two million shares of the Parent’s 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 J2 Global common stock at certain plan-defined dates.

The price of the J2 Global common stock purchased under the Purchase Plan for the offering periods is equal to 85 % of the lesser of the fair market value of a share of common stock of the Parent on the beginning or the end of the offering period.

The Parent determined that a plan provision exists which allows for the more favorable of two exercise prices, commonly referred to as a “look-back” feature.

The purchase price discount and the look-back feature cause the Purchase Plan to be compensatory and the Parent to recognize compensation expense.

Outstanding at March 31, 2022 999,885 4.3 $ 60,123,085

Vested and expected to vest at March 31, 2022 601,934 3.5 $ 36,194,267

As of March 31, 2022, the Company had unrecognized share-based compensation cost of $ 44.5 million associated with these awards.

This cost of $ 1.1 million for awards and $ 43.3 million for units is expected to be recognized over a weighted-average period of 1.3 years and 5.2 years, respectively.

(b) Employee Stock Purchase Plan

In October 2021, Consensus established the Purchase Plan, which provides 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 at 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 on the beginning or the end of the offering period, with each offering period being six months.

The Company determined that a plan provision exists which allows for the more favorable of two exercise prices, commonly referred to as a “look-back” feature.

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.

The Parent used the Black-Scholes option pricing model to calculate the estimated fair value of the purchase right issued under the ESPP.

The expected volatility is based on historical volatility of the Parent’s common stock.

The Company used the Black-Scholes option pricing model to calculate the estimated fair value of the purchase right issued under the ESPP.

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 Parent uses an annualized dividend yield based upon the per share dividends

declared by Parent’s Board of Directors.

Estimated forfeiture rates were 11.15 % and 16.50 % as of September 30, 2021 and 2020, respectively.

The increase in forfeiture rate comes as a result of the Purchase Plan being offered to all employees regardless of employment location.

For the nine months ended September 30, 2021 and 2020, 58,145 and 53,694 shares were purchased under the Purchase Plan, respectively.

Cash received upon the issuance of J2 Global common stock under the Purchase Plan was $ 4.2 million and $ 3.3 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, 1,346,794 shares were available under the Purchase Plan for future issuance.

The Parent recognized $ 0.8 million and $ 0.5 million of compensation expense related to the Purchase Plan for the three months ended September 30, 2021 and 2020, respectively, and $ 2.1 million and $ 1.5 million for the nine months ended September 30, 2021 and 2020, respectively.

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 10.34 % as of March 31, 2022.

For the three months ended March 31, 2022, zero shares were purchased under the Purchase Plan.

Cash received upon the issuance of Consensus common stock under the Purchase Plan was zero for the three months ended March 31, 2022.

As of March 31, 2022, 989,579 shares were available under the Purchase Plan for future issuance.

The compensation expense related to the Purchase Plan has been estimated utilizing the following assumptions:

September 30, 2021 September 30, 2020

March 31, 2022

Risk-free interest rate 0.05 %

3 unchanged sentences

Weighted average volatility 17.89 %

J2 Cloud Services

Share-based compensation expense recognized at J2 Cloud Services for the three months ended September 30, 2021 and 2020 was $ 1.5 million and $ 1.4 million, respectively, and $ 4.4 million and $ 4.6 million for the nine months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 30, 2021 and 2020, the Parent granted zero and zero performance stock awards to employees of J2 Cloud Services, respectively.

During the nine months ended September 30, 2021 and 2020, the Parent granted 13,447 and 16,812 performance stock units to employees of J2 Cloud Services, respectively.

During the nine months ended September 30, 2021 and 2020, the Parent granted zero and zero restricted stock awards to employees of J2 Cloud Services, respectively.

During the nine months ended September 30, 2021 and 2020, the Parent granted 13,883 and 24,339 restricted stock units to employees of J2 Cloud Services, respectively.

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 March 31,

2022 2021 (1)

Numerator for basic and diluted net income per common share:

Net income from continuing operations attributable to common shareholders $ 18,706 $ 39,235

Net income available to participating securities (2)

Net income available to common shareholders from continuing operations $ 18,660 $ 39,235

Weighted-average outstanding shares of common stock 19,921,375 19,902,924

Dilutive effect of:

Equity incentive plans 72,281 —

Employee Stock Purchase Plan 11,651 —

Common stock and common stock equivalents 20,005,307 19,902,924

Net income per share from continuing operations:

Basic $ 0.94 $ 1.97

Diluted $ 0.93 $ 1.97

(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 months ended March 31, 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 months ended March 31, 2022, 495,010 anti-dilutive shares were excluded from the earnings per share calculation.

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.

In accordance with the aggregation criteria within ASC Topic 280, the Company’s operating segments have been aggregated into two reportable segments:

(i) Fax and Martech;

and (ii) Voice, Backup, Security, and Consumer Privacy and Protection.

The Company’s business is driven primarily by subscription revenues that are relatively higher margin, 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 and Summary of Significant Accounting Policies.

The CODM views the Company as one business, Cloud Fax.

The Company’s Cloud Fax business is driven primarily by subscription revenues that are relatively higher margin, 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.

Information on reportable segments and reconciliation to the Condensed Consolidated Statements of Income is as follows (in thousands):

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

2021 2020 2021 2020

Revenue by reportable segment:

Fax and Martech $ 114,648 $ 98,044 $ 320,829 $ 286,687

Voice, Backup, Security, and CPP

67,455 72,204 208,062 220,403

Total revenues 182,103 170,248 528,891 507,090

Gross profit by reportable segment:

Fax and Martech

$ 91,993 $ 81,435 $ 261,742 $ 238,149

Voice, Backup, Security, and CPP

49,403 50,392 151,289 152,733

Total gross profit 141,396 131,827 413,031 390,882

Direct costs by reportable segment (1) :

Fax and Martech $ 44,556 $ 30,482 $ 114,519 $ 90,988

Voice, Backup, Security, and CPP 39,378 38,838 155,522 119,577

Total direct costs (1)

83,934 69,320 270,041 210,565

Operating income (loss) by reportable segment:

Fax and Martech

$ 47,437 $ 50,953 $ 147,223 $ 147,161

Voice, Backup, Security, and CPP

10,025 11,554 ( 4,233 ) 33,156

Total income from operations $ 57,462 $ 62,507 $ 142,990 $ 180,317

(1) Direct costs for each segment include other operating expenses that are directly attributable to the segment, such as employee compensation expense, local sales and marketing expenses, engineering and network operations expense, depreciation and amortization and other administrative expenses.

The CODM does not use Balance Sheet and Cash Flow information in connection with operating and investment decisions.

Accordingly, the following segment information is presented (in thousands).

September 30, 2021 December 31, 2020

Cloud Services $ 1,577 $ 1,491

Nine Months Ended September 30,

Capital expenditures:

Cloud Services $ 28,280 $ 28,897

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

2021 2020 2021 2020

Depreciation and amortization:

Cloud Services $ 16,082 $ 20,532 $ 48,744 $ 58,362

The Company maintains operations in the U.S., Canada, Ireland and other countries.

2 unchanged sentences

Such information attributes revenues based on markets where revenues are reported (in thousands).

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

2021 2020 2021 2020

Three Months Ended March 31,

United States $ 71,138 $ 66,925

2 unchanged sentences

All other countries 2,671 2,661

Foreign countries 19,787 19,695

$ 90,925 $ 86,620

September 30,

2022 December 31,

1 unchanged sentence

United States $ 59,715 $ 43,727

Canada 6,577 7,128

Ireland 1,716 2,625

All other countries 397 80

Foreign countries 8,690 9,833

Total $ 68,405 $ 53,560

Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated balances of other comprehensive loss, net of tax, for the three months ended September 30, 2021 (in thousands):

Foreign Currency Translation

Balance as of July 1, 2021 $ ( 61,273 )

Other comprehensive loss ( 8,248 )

Net increase in other comprehensive loss ( 8,248 )

Balance as of September 30, 2021 $ ( 69,521 )

The following table summarizes the changes in accumulated balances of other comprehensive loss, net of tax, for the nine months ended months ended September 30, 2021 (in thousands):

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 March 31, 2022 (in thousands):

Foreign Currency Translation

2 unchanged sentences

Net increase in other comprehensive loss ( 2,117 )

Balance as of September 30, 2021 $ ( 69,521 )

Balance as of March 31, 2022 $ ( 18,974 )

There were zero reclassifications out of accumulated other comprehensive loss for the three months ended March 31, 2022.

Related Party Transactions

Parent contributions and distributions

In order to pay certain operating costs, income taxes and to fund certain acquisitions, the Company may enter into intercompany and related party transactions with the Parent, or other subsidiaries of the Parent, during the year.

Certain intercompany balances in connection with operating costs, income taxes and to fund certain acquisitions are recorded as a contribution from Parent or a distribution to Parent within Member's Equity.

As of December 31, 2020, in connection with certain operating costs provided by the Parent or other subsidiaries of the Parent, the Company had a related party payable balance of $ 13.3 million which is included in accounts payable and accrued expenses on the Condensed Consolidated Balance Sheet.

During the second quarter of 2021, management determined the balance will not be repaid and was converted to a contribution from Parent.

Intercompany notes on the accompanying Condensed Consolidated Balance Sheets reflect amounts payable or receivable from the Parent or other affiliated entities.

Notes receivable

In August 2018, the Company entered into a loan agreement with Ziff Davis International Ltd., a subsidiary of the Parent’s Digital Media division, for the amount up to £ 20.0 million British pounds, which is equivalent to $ 27.7 million U.S.

The loan matures the earlier of (i) the dissolution or insolvency of the Borrower, or (ii) Borrower’s event of default;

or (iii) the date on which any of Borrower’s representations or warranties become materially false, or (iv) August 31, 2023 and bears interest at a rate of 3.0 % per annum.

As of September 30, 2021 and December 31, 2020, the principal amount outstanding on the loan was £ 6.5 million British pounds, which is equivalent to $ 8.8 million, respectively in U.S.

Subsequent Events

Consensus Cloud Solutions, Inc.

On October 7, 2021, the Separation of Consensus into an independent publicly traded company was completed and J2 Global transferred J2 Cloud Services, LLC to Consensus Cloud Solutions, Inc.

who in turn transferred the non-fax assets and liabilities back to J2 Global such that Consensus was left with the cloud fax business.

The Separation was achieved through J2 Global’s distribution of 80.1 % of the 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.

J2 Global’s stockholders of record received one share of Consensus common stock for every three shares of J2 Global’s common stock.

On October 8, 2021, Consensus began trading on Nasdaq under the stock symbol “CCSI”.

Ziff Davis, Inc.

(“Ziff Davis”) (formerly J2 Global, Inc.) retained a 19.9 % interest in Consensus following the Separation.

In connection with the Separation and Distribution, on October 7, 2021, Consensus entered into various agreements with Ziff Davis contemplated by the Separation and Distribution Agreement to provide a framework for Consensus’s relationship with Ziff Davis after the Separation and Distribution, including the following agreements:

A Separation and Distribution Agreement;

A Transition Services Agreement

A Tax Matters Agreement

An Employee Matters Agreement

An Intellectual Property License Agreement

A Stockholder and Registration Rights Agreement

Indentures for 2026 Notes and 2028 Notes

In connection with the Distribution, on October 7, 2021, Consensus issued $ 305 million of 6.0 % senior notes due 2026 (the “2026 Notes”) and $ 500 million of 6.5 % senior notes due 2028 (the “2028 Notes”).

The 2026 Notes were issued pursuant to an Indenture, dated as of October 7, 2021, by and between Consensus and Wilmington Trust, National Association, as trustee (the “2026 Indenture”), and the 2028 Notes were issued pursuant to an Indenture, dated as of October 7, 2021, by and between Consensus and Wilmington Trust, National Association, as trustee (the “2028 Indenture”).

On October 7, 2021, in exchange for the equity interest in Consensus, Consensus paid Ziff Davis approximately $ 269.6 million of cash and issued $ 500.0 million of the senior notes due 2028 to Ziff Davis.

Facility lease

On October 28, 2021, J2 Global (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 regards 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.

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, a tax matters agreement, an employee matters agreement, an intellectual property license agreement, and a stockholder and registration rights agreement (the “Agreements”).

The transition services agreement governs services including certain information technology services, finance and accounting services and human resource and employee benefit services.

The agreed-upon charges for such services are generally intended to allow the providing company to recover all costs and expenses of providing such services and are expected to terminate no later than twelve 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.

Amounts due to Ziff Davis as of March 31, 2022 and December 31, 2021 was $ 11.7 million and $ 5.7 million, respectively, related to these items, as well as reimbursement related to certain transaction related costs.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements