What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-16 compared with 2021-11-15 · 140 added, 186 removed, 98 unchanged (77% of the section changed)

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Forward-looking statements include the information concerning our possible or assumed future results of operations.

Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “hopes” or similar expressions.

Forward-looking statements also include those preceded or followed by the words “expects,” “may,” “anticipates,” “believes,” “estimates,” “will” “hopes” or similar expressions.

For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

3 to Consensus’s Registration Statement on Form 10 filed on September 21, 2021 (together, the “Risk Factors”), and the factors discussed in the section in this Quarterly Report on Form 10-Q entitled “Quantitative and Qualitative Disclosures About Market Risk.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed below, the risk factors discussed in Part II, Item 1A - “Risk Factors” of this Quarterly Report on Form 10-Q (if any) and in Part I, Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 (together, the “Risk Factors”), and the factors discussed in the section in this Quarterly Report on Form 10-Q entitled “Quantitative and Qualitative Disclosures About Market Risk.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof.

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.

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

The Separation and Distribution

On October 7, 2021, J2 Global, Inc.

completed its previously announced plans to separate into two leading publicly traded companies:

one addressing healthcare interoperability and comprising the Cloud Fax business, which will do business as Consensus Cloud Solutions, Inc.

(“Consensus”), and one that will continue J2 Global’s strategy of building a leading internet platform focused on key verticals, including technology & gaming, shopping, health, cybersecurity and martech, which will do business as Ziff Davis.

one addressing healthcare interoperability and comprising the Cloud Fax business, which does business as Consensus Cloud Solutions, Inc.

(“Consensus” or “the Company”), and one that will continue J2 Global’s strategy of building a leading internet platform focused on key verticals, including technology & gaming, shopping, health, cybersecurity and martech, which does business as Ziff Davis.

We refer to the transactions that resulted in the separation of Consensus and Ziff Davis into two separate publicly traded companies as the “separation and distribution.”

Following the separation and distribution, Consensus is a leading provider of secure information delivery services with a scalable Software-as-a-Service (“SaaS”) platform.

Consensus serves more than 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.

Consensus is well positioned to capitalize on seismic shifts in how people and businesses share private documents and information.

Consensus is well positioned to capitalize on advancements in how people and businesses share private documents and information.

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

Consensus’s communication and interoperability solutions enable its customers to securely and cooperatively access, exchange and use information across organizational, regional and national boundaries.

J2 Cloud Services, LLC, together with its subsidiaries (“J2 Cloud Services” or the “Company”), is a leading provider of internet services.

As of September 30, 2021, J2 Cloud Services, LLC was a wholly-owned subsidiary of J2 Global, Inc., now known as Ziff Davis, Inc.

(“J2 Global” or the “Parent” or the “Parent Company”).

Pursuant to the separation, J2 Cloud Services became a wholly owned subsidiary of Consensus.

Prior to the separation, J2 Cloud Services sold its B2B backup business and transferred its cybersecurity and SMB enablement businesses to entities that remained part of the Parent Company following the separation, which we refer to as the internal reorganization.

For purposes of this management’s discussion and analysis of the results of operations and financial condition of J2 Cloud Services (“MD&A”) section, we use the terms “the Company,” “we,” “us” and “our” to refer to J2 Cloud Services.

References in this MD&A section to “Parent” or “Parent Company”) refer to J2 Global, Inc., collectively with its consolidated subsidiaries (now known as Ziff Davis).

The financial information and results of operations that are discussed in this section principally relate to J2 Cloud Services prior to the consummation of the separation and distribution.

Consequently, the discussion in this section 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, and the financial information discussed below is derived from the unaudited condensed consolidated financial statements of J2 Cloud Services.

The discussion in this section therefore includes J2 Cloud Services’ B2B backup, cybersecurity and SMB enablement businesses, which are not a part of Consensus following the separation, and does not reflect Consensus as it is currently constituted following the separation as a secure information exchange business with an emphasis on healthcare interoperability.

As a result, the discussion does not necessarily reflect the financial position, results of operations or cash flows of Consensus following the separation or what Consensus’ financial position, results of operations and cash flows would have been had Consensus been a separate, standalone secure information exchange business with an emphasis on healthcare interoperability during the periods presented.

See “The Separation and the Distribution” in the Information Statement for a discussion of the internal reorganization and related transactions in connection with the separation and distribution.

J2 Cloud Services LLC As of September 30, 2021

J2 Cloud Services was a leading provider of cloud services to businesses of all sizes, from individuals to enterprises, and licenses its intellectual property (“IP”) to third parties.

J2 Cloud Services provides cloud-based subscription services to consumers and businesses including cloud fax, backup, voice, cybersecurity and SMB enablement.

J2 Cloud Services generates revenues primarily from customer subscription and usage fees and from IP licensing fees, and is driven primarily by subscription revenues that are relatively higher margin, stable and predictable from quarter to quarter with some seasonal

weakness in the fourth quarter.

In addition to growing our business organically, on a regular basis J2 Cloud Services acquires businesses to grow its customer bases, expand and diversify its service offerings, enhance our technologies, acquire skilled personnel and enter into new markets.

We selectively pursue acquisitions, which may include companies operating under business models that differ from those we operate under today.

Such acquisitions could impact our consolidated profit margins and the variability of our revenues.

Cloud Services Performance Metrics

We use certain metrics to generally assess the operational and financial performance of our business;

these metrics also serve as a baseline for internal trends and benchmarking against competitors.

The average monthly revenue per customer can be used as an analytical tool in determining the marginal economics of customer acquisition, which is particularly useful as we continue to focus on growing our higher-margin businesses.

We also use this metric, in conjunction with the cancel rate, to help provide a directional indicator of Cloud Services revenue and calculate the lifetime value of customers within each of our business units.

The following table sets forth certain key operating metrics for our Cloud Services business for the three and nine months ended September 30, 2021 and 2020 (in thousands, except for percentages):

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

2021 2020 2021 2020

Subscription revenues:

Fixed $ 152,372 $ 144,525 $ 444,537 $ 426,766

Variable 29,639 25,708 84,079 80,255

Total subscriber revenues 182,011 170,233 528,616 507,021

Other license revenues 92 15 275 69

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

Percentage of total subscription revenues:

Fixed 83.7 % 84.9 % 84.1 % 84.2 %

Variable 16.3 % 15.1 % 15.9 % 15.8 %

Total revenues:

Number-based $ 98,665 $ 98,000 $ 293,307 $ 289,502

Non-number-based 83,438 72,248 235,584 217,588

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

Cloud Services Metrics

Average Monthly revenue per Customer (“ARPU”) (1) (2)

The COVID-19 pandemic continues to have widespread, rapidly evolving and unpredictable impacts on global economies, inflation, supply chains, work force participation and wages, and has created significant volatility and disruption in financial markets.

Our focus remains on promoting employee health and safety and serving our customers.

During fiscal year 2021 and fiscal quarter 2022, we have observed an increasingly competitive labor market.

Increased employee turnover, changes in the availability of our employees, including as a result of COVID-19-related absences, and labor shortages generally have resulted in, and could continue to result in, increased costs, and could adversely impact the efficiency of our operations.

We continue to actively monitor the situation and will continue to adapt our business operations as necessary.

For purposes of this management’s discussion and analysis of the results of operations and financial condition of Consensus (“MD&A”) section, we use the terms “the Company,” “we,” “us” and “our” to refer to Consensus.

References in this MD&A section to “Parent” or “Parent Company” refer to Ziff Davis, Inc., collectively with its consolidated subsidiaries.

Key Performance Metrics

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

The following table sets forth certain key operating metrics for Consensus continuing operations for the three months ended March 31, 2022 and 2021 (in thousands, except for percentages):

Three Months Ended March 31,

Revenue ($ in thousands)

Corporate $ 46,519 $ 41,154

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

90,925 86,528

Cancel rate (3)

Quarterly ARPU is calculated using our standard convention of applying the average of the quarter’s beginning and ending base to the total revenue for the quarter.

The Annual ARPU is computed by taking the beginning and ending base to total revenue for the quarter.

We believe ARPU provides investors an understanding of the average monthly revenues we recognize associated with each Cloud Services customer.

As ARPU varies based on fixed subscription fee and variable usage components, we believe it can serve as a measure by which investors can evaluate trends in the types of services, levels of services and the usage levels of those services across our Cloud Services customer base.

Cloud Services customers are defined as paying direct inward dialing numbers for fax and voice services, and direct and resellers’ accounts for other services.

Cancel Rate is defined as cancels of small and medium business and individual Cloud Services customers with greater than four months of continuous service (continuous service includes Cloud Services customers administratively canceled and reactivated within the same calendar month), and enterprise Cloud Services customers beginning with their first day of service, calculated monthly and expressed as an average over the three months of the quarter.

exclude cancellations by small and medium businesses and individual Cloud Services customers with less than four months of continuous service because such customers generally pay by credit or debit card and we therefore count them as customers for cancel rate purposes once they have finished any free trial periods and continued through two payment cycles.

Other Revenues — 92

Consolidated $ 90,925 $ 86,620

Average Revenue per Customer Account (“ARPA) (1)(2)

Corporate $ 339.94 $ 289.37

SoHo 14.41 14.16

Consolidated $ 28.25 $ 25.86

Customer Accounts (in thousands) (1)

Corporate (5)

SoHo 1,027 1,068

Consolidated 1,073 1,115

Paid Adds (in thousands) (3)

Corporate 4 3

Consolidated 104 116

Monthly Churn % (4)

Corporate 2.05 % 1.87 %

SoHo 3.50 % 3.51 %

Consolidated 3.44 % 3.45 %

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

(2) Represents a monthly ARPA calculated for the quarter or year calculated as follows.

Monthly ARPA on a quarterly basis is calculated using our standard convention of dividing revenue for the quarter by the average of the quarter’s beginning and ending customer base and dividing that amount by 3 months.

Monthly ARPA on an annual basis is calculated by dividing revenue for the year by the average customer base for the applicable four quarters and dividing that amount by 12 months.

We believe ARPA provides investors an understanding of the average monthly revenues we recognize per account associated within Consensus’ customer base.

As ARPA varies based on fixed subscription fee and variable usage components, we believe it can serve as a measure by which investors can evaluate trends in the types of services, levels of services and the usage levels of those services across Consensus’ customers.

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

(4) Monthly churn is defined as Consensus paying customer accounts that cancelled its services during the period divided by the average number of customers over the period.

This measure is calculated monthly and expressed as an average over the applicable period.

Critical Accounting Policies and Estimates

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Actual results could differ significantly from those estimates under different assumptions and conditions.

Our critical accounting policies are described in our 2020 Annual Report on Form 10-K filed with the SEC on March 1, 2021.

During the nine months ended September 30, 2021, there were no significant changes in our critical accounting policies and estimates.

Results of Operations for the Three and Nine Months Ended September 30, 2021 and 2020

Assuming a stable or improving economic environment, and, subject to our risk factors, we expect 2021 revenue to be higher compared to the prior-year.

The main strategic focus of our Cloud Services offerings is to reduce or eliminate costs, increase sales and enhance productivity, mobility, business continuity and security of our customers as the technologies and devices they use evolve over time.

Our critical accounting policies are described in our 2021 Annual Report on Form 10-K filed with the SEC on April 15, 2022.

During the three months ended March 31, 2022, there were no significant changes in our critical accounting policies and estimates.

Emerging Growth Company Status

We are an emerging growth company, as defined in Section 3(a) of the Exchange Act, as amended by the JOBS Act.

For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements and exemptions from the requirement of holding a nonbinding advisory vote on executive compensation, exemption from new or revised financial accounting.

Results of Operations for the Three and Three Months Ended March 31, 2022 and 2021

The main strategic focus of our Consensus offerings is to enable our customers to securely and cooperatively access, exchange and use information across organizational, regional and national boundaries.

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

We expect acquisitions to remain an important component of our strategy and use of capital in this business.

However, we cannot predict whether our current pace of acquisitions will remain the same within this business, especially in light of the current macroeconomic conditions.

In a given period, we may close greater or fewer acquisitions than in prior periods or acquisitions of greater or lesser significance than in prior periods.

Moreover, future acquisitions of businesses within this space but with different business models may impact Cloud Services’ overall profit margins.

We expect our business to primarily grow organically and inorganically through the use of capital for re-investment in the business and opportunistic acquisitions that expedite our product roadmap in the interoperability space should they arise.

(in thousands, except percentages)

Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change

2021 2020 2021 2020

Three Months Ended March 31, Percentage Change

Revenues $ 90,925 $ 86,620 5%

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

Our revenues in 2021 have increased over the prior comparable nine month period primarily as a result of revenue attributable to business acquisitions acquired in and subsequent to the third quarter of 2020 and organic growth;

partially offset by declines in certain areas Cloud Services businesses.

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

We also generate an immaterial amount of Consensus revenues from intellectual property licensing.

Revenues increased by $4.3 million or 5% over the prior comparable three month period.

Our growth was primarily due to an increase $5.4 million or 13% in our corporate business (inclusive of $0.8 million due to the Summit acquisition);

partially offset by a decline of $1.0 million or 2.1% in our SoHo business.

Cost of Revenues

(in thousands, except percentages)

Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change

2021 2020 2021 2020

Three Months Ended March 31, Percentage Change

Cost of revenue $ 15,104 $ 13,970 8%

As a percent of revenue 17% 16%

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

The increase in cost of revenues for the three months ended September 30, 2021 was primarily due to increases in database hosting, processing fees, customer service and network services costs, partially offset by a decrease in phone operation cost.

The decrease in cost of revenues for the nine months ended September 30, 2021 was primarily due to a business disposed in and subsequent to the second quarter of 2020 that resulted in a decrease in network services cost.

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

The increase in cost of revenues for the three months ended March 31, 2022 was primarily due to an increase in network operations and customer service expenses;

partially offset by a decrease in data transmission costs.

Operating Expenses

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(in thousands, except percentages)

Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change

2021 2020 2021 2020

Three Months Ended March 31, Percentage Change

Sales and Marketing $ 15,830 $ 13,235 20%

As a percent of revenue 17% 15%

Our sales and marketing costs consist primarily of internet-based advertising, sales and marketing, personnel costs and other business development-related expenses.

Our internet-based advertising relationships consist primarily of fixed cost and performance-based (cost-per-impression, cost-per-click and cost-per-acquisition) advertising relationships with an array of online service provider.

Advertising cost for the three months ended September 30, 2021 was $22.8 million (primarily consists of $16.4 million of third-party advertising costs and $5.4 million of personnel costs) compared to the third quarter of 2020 of $17.7 million (primarily consists of $13.1 million of third-party advertising costs and $3.5 million of personnel costs).

Advertising cost for the nine months ended September 30, 2021 was $65.2 million (primarily consists of $49.1 million of third-party advertising costs and $14.1 million of personnel costs) compared to 2020 of $54.5 million (primarily consists of $39.9 million of third-party advertising costs and $11.1 million of personnel costs).

The increase in sales and marketing expenses for the three and nine months ended September 30, 2021 versus the prior comparable period was primarily due to increased advertising operations, sales and advertising and product development costs associated with businesses acquired in and subsequent to the third quarter 2020.

Our sales and marketing costs consist primarily of internet-based advertising, personnel costs and other business development-related expenses.

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

Sales and marketing cost for the three months ended March 31, 2022 was $15.8 million (primarily consisting of $10.1 million of third-party advertising costs and $5.5 million of personnel costs) compared to the prior period of $13.2 million (primarily consisting of $8.5 million of third-party advertising costs and $4.6 million of personnel costs).

The increase in sales and marketing expenses for the three months ended March 31, 2022 versus the prior comparable period was primarily due to increased advertising operations, sales and advertising and costs associated with the business acquired in the quarter.

Research, Development and Engineering .

(in thousands, except percentages)

Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change

2021 2020 2021 2020

Three Months Ended March 31, Percentage Change

Research, Development and Engineering $ 2,336 $ 1,676 39%

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

The increase in research, development and engineering costs for the three and nine months ended September 30, 2021 versus the prior comparable periods was primarily due to an increase in engineering costs associated with businesses acquired in and subsequent to the third quarter of 2020.

The increase in research, development and engineering costs for the three months ended March 31, 2022 versus the prior comparable periods was primarily due to our continued focus on developing our platform, product and solutions primarily supporting our corporate revenue growth and incremental costs as a result of our Summit acquisition.

During the three months ended March 31, 2022 and 2021, the Company capitalized internally developed software of $6.5 million and $3.3 million, respectively, which is recorded in property, plant and equipment on the Condensed Consolidated Balance Sheet.

General and Administrative.

(in thousands, except percentages)

Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change

2021 2020 2021 2020

Three Months Ended March 31, Percentage Change

General and Administrative $ 18,806 $ 6,048 211%

As a percent of revenue 21% 7%

Our general and administrative costs consist primarily of personnel-related expenses, depreciation and amortization, share-based compensation expense, bad debt expense, professional fees, severance and insurance costs.

The increase in general and administrative expense for the three months ended September 30, 2021 versus prior comparable period was primarily due to an increase in salary and related costs and professional fees.

The decrease in general and administrative expense for the nine months ended September 30, 2021 versus prior comparable period was primarily due to a decrease in depreciation and amortization expenses related to disposed businesses in and subsequent to the third quarter of 2020.

Goodwill impairment on business.

(in thousands, except percentages)

Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change

2021 2020 2021 2020

Goodwill impairment on business $ — $ — n/a $ 32,629 $ — n/a

As a percent of revenue —% —% 6% —%

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

Management has determined that the fair value of the business less cost to sell is lower than its carrying amount.

As a result, we recorded a goodwill impairment on business of $32.6 million and zero for the nine months ended September 30, 2021 and 2020, respectively.

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

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

The increase in general and administrative expense for the three months ended March 31, 2022 versus prior comparable period was primarily due to operating as a standalone public company.

The increase in costs was primarily attributable to $8.1 million in salary and benefits (inclusive of $4.4 million of share-based compensation), $1.1 million in professional fees, $0.8 million in depreciation and amortization and $0.7 million in Wayfair Sales Tax expense.

Share-Based Compensation

The following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020 (in thousands):

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

2021 2020 2021 2020

The following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying condensed consolidated statements of income for the three and three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Cost of revenues $ 223 $ 50

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General and administrative 4,361 136

Continuing Operations 5,213 383

Income from discontinued operations — 1,108

Total $ 5,213 $ 1,491

Non-Operating Income and Expenses

Interest expense, net .

Our interest expense, net is generated primarily from interest expense due to previously outstanding debt and partially offset by interest earned on cash and cash equivalents and notes receivable.

Interest expense, net was zero and $(10.2) million for the three months ended September 30, 2021 and 2020, respectively, and $(0.2) million and $(30.6) million for the nine months ended September 30, 2021 and 2020, respectively.

Interest expense, net decreased over the prior comparable period due to the Company redeeming all of its outstanding $650 million 6% Senior Notes in 2020.

(Loss) gain on sale of businesses .

Loss on sale of businesses was $24.6 million during the three months ended September 30, 2021 and a gain of $17.1 million for the three months ended September 30, 2020.

Loss on the sale of business was $21.8 million for the nine months ended September 30, 2021 and a gain of $17.1 million for the nine months ended September 30, 2020.

Our loss on the sale of business during the third quarter of 2021 was related to the sale of the B2B Back-up business.

The loss on the sale of businesses during the nine months ended September 30, 2021 was due to the loss on the sale of the B2B Back-up business, partially offset by a gain on the sale of certain Voice assets in the United Kingdom in the first quarter of 2021 with a subsequent adjustment in the second quarter of 2021.

See Note 5 - Dispositions from the footnotes to our Condensed Consolidated Financial Statements for additional information.

Interest expense .

Our interest expense is generated primarily from interest expense due on outstanding debt.

Interest expense for the three months ended March 31, 2022 and 2021 was $13.3 million and $0.2 million, respectively.

Interest expense increased over the prior comparable period due to three months of interest expense on $805.0 million of debt associated with the 2026 and 2028 senior notes in the current period which was not present in the prior comparable period.

Interest income .

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

Interest income for the three months ended March 31, 2022 and 2021 was zero and $9.0 thousand, respectively.

Changes in interest income was immaterial when compared to the prior comparable period.

Other income, net .

Our other income, net is generated primarily from miscellaneous items and gains or losses on currency exchange.

Other income, net was $0.9 million and $14.9 million for the three months ended September 30, 2021 and 2020, respectively, $1.4 million and $16.2 million for the nine months ended September 30, 2021 and 2020, respectively.

Other income, net decreased over prior comparable period due to changes on currency exchange.

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 financial statements, the Company’s taxes were determined using the separate return method as if the Company had file separate tax returns.

Other income, net for the three months ended March 31, 2022 and 2021 was $0.2 million and $0.4 million, respectively.

Changes in Other income, net was immaterial when compared to the prior comparable period.

Our effective tax rate is based on pre-tax income, statutory tax rates, tax regulations (including those related to transfer pricing) and different tax rates in the various jurisdictions in which we operate.

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When necessary, we establish valuation allowances to reduce our deferred tax assets to an amount that will more likely than not be realized.

Provision for income taxes amounted to $6.5 million and $25.4 million for the three months ended September 30, 2021 and 2020, respectively, $20.3 million and $49.7 million for the nine months ended September 30, 2021 and 2020, respectively.

Our effective tax rate was 19.3% and 30.1% for the three months ended September 30, 2021 and 2020, respectively, and 16.6% and 27.2% for the nine months ended September 30, 2021 and 2020,

The decrease in our effective income tax rate for the three months ended September 30, 2021 was primarily attributable to the following:

a decrease in tax expense during 2021 due to recognizing a current tax benefit related to the sale of the business-to-business backup business units;

a decrease in tax expense due to discrete tax cost recognized during 2020 related to the sale of the Voice business in Australia and New Zealand with no comparable event in 2021;

partially offset by

an increase in our effective income tax rate during 2021 for U.S.

state and local taxes due to a greater portion of our income being subject to tax in the U.S.

The decrease in our effective income tax rate for the nine months ended September 30, 2021 was primarily attributable to the following:

a decrease in tax expense during 2021 due to recognizing a tax benefit related to the disposition of certain business units;

a decrease in tax expense due to discrete tax benefits related to a reduction in our net reserve for uncertain tax positions with no similar events for the nine months ended September 30, 2020;

partially offset by

an increase in our effective income tax rate during 2021 for U.S.

state and local taxes due to a greater portion of our income being subject to tax in the U.S.

Provision for income taxes for the three months ended March 31, 2022 and 2021 amounted to $7.0 million and $12.6 million, respectively.

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

The increase in our effective income tax rate for the three months ended March 31, 2022 was primarily attributable to an increase in tax expense due to certain compensation not being deductible for tax purposes.

Significant judgment is required in determining our provision for income taxes and in evaluating our tax positions on a worldwide basis.

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Cash and Cash Equivalents

At September 30, 2021, we had cash and cash equivalents of $297.8 million compared to $128.2 million at December 31, 2020.

The increase in cash and cash equivalents resulted primarily from cash provided from operations, the proceeds from the sale of businesses and contributions from J2 Global;

partially offset by cash used in business acquisitions and the purchases of property and equipment (including capitalized labor).

As of September 30, 2021, cash and cash equivalents held within domestic and foreign jurisdictions were $158.3 million and $139.5 million, respectively.

On October 7, 2020, the Parent issued $750 million aggregate principal amount of 4.625% Senior Notes due 2030.

A portion of the proceeds were used to fund the redemption of the outstanding aggregate principal amount of the 6.0% Senior Notes due 2025 previously issued by J2 Cloud Services, LLC and to pay the redemption premium due in respect of such redemption and accrued and unpaid interest.

The Parent used the remainder of the net proceeds for general corporate purposes including acquisitions.

At September 30, 2021, we anticipated that our existing cash and cash equivalents and cash generated from operations will be sufficient to meet our anticipated needs for working capital, capital expenditures and stock repurchases, if any, for at least the next 12 months.

Post Spin-Off Liquidity and Capital Resources

Subsequent to the separation and distribution, Consensus will no longer participate in the corporate-wide cash management arrangements with J2 Global.

Consensus’s ability to fund its operations and capital needs depends upon its ability to generate ongoing cash from operations and to access the capital markets.

In connection with the planned separation and distribution, 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” and, together with the 2026 notes, the “notes”).

Consensus distributed $269.6 million of the net proceeds from the offering of the 2026 notes to J2 Global in connection with the separation.

Consensus agreed to issue the 2028 notes to J2 Global, which agreed to exchange the 2028 notes with lenders under its credit agreement (or their affiliates) in exchange for extinguishment of a similar amount indebtedness under such credit agreement.

The 2026 notes mature on October 15, 2026 and the 2028 notes will mature on October 15, 2028.

The notes require us to pay interest semi-annually in cash in arrears on April 15 and October 15, commencing April 15, 2022.

The notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of Consensus’s existing and future domestic restricted subsidiaries other than insignificant subsidiaries or subsidiaries designated as unrestricted subsidiaries pursuant to the terms of the notes.

The notes and the related guarantees will be Consensus’s and the guarantors’ general unsecured senior obligations and will be subordinated to any of Consensus’s and the guarantors’ future secured debt to the extent of the assets securing that secured debt.

In addition, the notes will be structurally subordinated to all of the liabilities of Consensus subsidiaries that are not guaranteeing the notes, to the extent of the assets of those subsidiaries.

The 2026 notes will be redeemable on or after October 15, 2023 at a redemption price of 103.000% for the 12 month period commencing October 15, 2023, 101.500% for the 12 month period commencing October 15, 2024 and 100.000% for the 12 month period commencing October 15, 2025.

In addition, Consensus may redeem (i) up to 40% of the 2026 notes before October 15, 2023 with the net cash proceeds from certain equity offerings at the redemption price that will be specified for such notes or (ii) some or all of the 2026 notes at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, to the redemption date, plus an applicable “make-whole” premium.

The 2028 notes will be redeemable on or after October 15, 2026 at a redemption price of 101.625% for the 12 month period commencing October 15, 2026 and 100.000% for the 12 month period commencing October 15, 2027.

The terms of the notes restrict, subject to qualifications and exceptions, Consensus’s ability and the ability of certain of its subsidiaries to incur additional indebtedness, create liens, engage in sale-leaseback transactions, pay dividends or make distributions in respect of capital stock, purchase or redeem capital stock, make investments, repay subordinated indebtedness or certain other restricted payments, sell assets, permit restrictions on the ability of its restricted subsidiaries to pay dividends or make other payments or transfers to Consensus, enter into transactions with affiliates;

or effect a consolidation or merger.

Upon a change of control, as defined in the notes, Consensus will be required to make an offer to purchase the notes.

The purchase price will equal 101% of the principal amount of the notes on the date of purchase plus accrued and unpaid interest.

Consensus believes that its financing arrangements, future cash from operations and access to capital markets will provide adequate resources to fund our future cash flow needs.

At March 31, 2022, we had cash and cash equivalents of $93.9 million compared to $66.8 million at December 31, 2021.

The increase in cash and cash equivalents resulted primarily from cash provided from operations;

partially offset by cash used in a business and asset acquisition, purchases of property and equipment (including capitalized labor) and the surrendering of shares to cover employee income tax related to the release of equity awards.

As of March 31, 2022, cash and cash equivalents held within domestic and foreign jurisdictions were $59.1 million and $34.8 million, respectively.

On March 4, 2022, the Company entered into a Credit Agreement with certain lenders from time to time party thereto (collectively, the “Lenders”) and MUFG Union Bank, N.A., as administrative agent, collateral agent and sole lead arranger for the Lenders (the “Agent”).

Pursuant to the Credit Agreement, the Lenders have provided Consensus with a revolving credit facility of $25 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.

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

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 Q1 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 prior period includes cash flows from discontinued operations of the non-Consensus business, accordingly does not lend itself to a quarter-over-quarter analysis.

Our primary sources of liquidity are cash flows generated from operations, together with cash and cash equivalents.

Net cash provided by operating activities was $196.4 million and $160.3 million for the nine months ended September 30, 2021 and 2020, respectively.

Net cash provided by operating activities was $49.9 million and $59.9 million for the three months ended March 31, 2022 and 2021, respectively.

Our operating cash flows resulted primarily from cash received from our customers offset by cash payments we made to third parties for their services and employee compensation.

The increase in our net cash provided by operating activities in 2021 compared to 2020 was attributable to additional income after considering noncash items;

partially offset by cash outflows associated with prepaid expenses, operating lease liabilities, accounts payable and accrued expenses, higher income tax payments and cash outflows associated with uncertain tax positions.

Our cash and cash equivalents were $297.8 million and $128.2 million at September 30, 2021 and December 31, 2020, respectively.

Net cash used in investing activities was $37.8 million and $29.3 million for the nine months ended September 30, 2021 and 2020, respectively.

For the nine months ended September 30, 2021 and 2020, net cash used in investing activities was primarily due to business acquisitions and capital expenditures associated with the purchase of property and equipment (including capitalized labor);

The decrease in our net cash provided by operating activities in 2022 compared to 2021 was attributable to decreased income after considering noncash items;

partially offset by cash inflows from accounts payable and accrued expenses, other long-term liabilities,income taxes, accounts receivable and prepaid expenses.

Our cash and cash equivalents were $93.9 million and $66.8 million at March 31, 2022 and December 31, 2021, respectively.

Net cash used in investing activities was $20.8 million and $1.5 million for the three months ended March 31, 2022 and 2021, respectively.

For the three months ended March 31, 2022 and 2021, net cash used in investing activities was primarily due to business and asset acquisitions and capital expenditures associated with the purchase of property and equipment (including capitalized labor);

partially offset by proceeds from the sale of businesses.

The increase in our net cash used in investing activities in 2021 compared to 2020 was primarily due to additional cash used for business acquisitions;

The increase in our net cash used in investing activities in 2022 compared to 2021 was primarily due to additional cash used for business and asset acquisitions;

partially offset by proceeds from the sale of businesses.

Net cash provided by (used in) financing activities was $14.4 million and $(83.7) million for the nine months ended September 30, 2021 and 2020, respectively.

For the nine months ended September 30, 2021, net cash provided by financing activities was primarily due to contributions from Parent;

partially offset by deferred payments for acquisitions.

The change in net cash provided by financing activities in 2021 compared to 2020 was primarily attributable to a change in the distribution to Parent.

Net cash (used in) provided by financing activities was $(1.4) million and $10.6 million for the three months ended March 31, 2022 and 2021, respectively.

For the three months ended March 31, 2022 and 2021, net cash provided by financing activities was primarily due to contributions from the former parent, Ziff Davis;

partially offset by deferred payments for acquisitions and the the surrendering of shares to cover employee income tax related to the release of equity awards.

change in net cash (used in) provided by financing activities in 2022 compared to 2021 was primarily attributable to decreased contributions from the former parent;

partially offset by deferred payments for business acquisitions in the prior period;

partially offset by the surrendering of shares to cover employee income tax related to the release of equity awards.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of September 30, 2021:

The following table summarizes our contractual obligations and commitments as of March 31, 2022:

Payment Due by Period (in thousands)

Contractual Obligations 2022 2023 2024 2025 2026 Thereafter Total

Operating leases (a)

Long-term debt - principal (a)

$ — $ — $ — $ — $ 305,000 $ 500,000 $ 805,000

Telecom services and co-location facilities (b)

Long-term debt - interest (b)

50,800 50,800 50,800 50,800 50,800 65,000 319,000

Holdback payment (c)

Operating leases (c)

2,082 2,602 2,561 2,389 2,461 10,697 22,792

Self-Insurance (d)

Telecom services and co-location facilities (d)

810 251 5 — — — 1,066

Other (e) 210 420 — — — — 630

Holdback payment (e)

— 750 750 — — — 1,500

315 — — — — — 315

Total $ 54,007 $ 54,403 $ 54,116 $ 53,189 $ 358,261 $ 575,697 $ 1,149,673

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

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

(d) These amounts represent health and dental insurance plans in connection to self-insurance.

(e) These amounts represent certain consulting and Board of Directors fee arrangements.

As of September 30, 2021, our liability for uncertain tax positions was $50.9 million.

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

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

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

(e) These amounts represent the holdback amounts in connection with certain business acquisitions.

(f) These amounts represent certain consulting and Board of Directors fee arrangements.

As of March 31, 2022, our liability for uncertain tax positions was $4.8 million.

The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with the taxing authorities.

We have not presented contingent consideration associated with acquisitions in the table above due to the uncertainty of the amounts and the timing of cash settlements.

Off-Balance Sheet Arrangements

We are not party to any material off-balance sheet arrangements.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis