What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-31 compared with 2022-04-15 · 496 added, 461 removed, 902 unchanged (51% of the section changed)

1 unchanged sentence

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

Shareholders and Board of Directors

Consensus Cloud Solutions, Inc.

2 unchanged sentences

We have audited the accompanying consolidated balance sheets of Consensus Cloud Solutions, Inc.

(the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and schedule (collectively referred to as the “consolidated financial statements”).

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 , in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 31, 2023 expressed an adverse opinion thereon.

Basis for Opinion

1 unchanged sentence

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

1 unchanged sentence

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

2 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue recognition – Small Office Home Office (SoHo)

As discussed in Note 3 to the Company’s consolidated financial statements, the Company’s small office home office (“SoHo”) revenue stream consist substantially of monthly recurring subscription and usage-based fees for access to the SaaS platform.

The Company’s process for recognizing SoHo revenue is automated as it relates to the initiation and processing of transactions.

However, SoHo revenue is recorded in the general ledger through manual journal entries.

Total SoHo revenue recognized for the year ended December 31, 2022 was approximately $170 million.

We identified the manual nature of how SoHo revenue is recorded as a critical audit matter.

The recording of SoHo revenue is dependent upon the effective design and operation of certain management review controls.

Certain errors were identified by management relating to the manual journal entries used to record SoHo revenue in the general ledger, resulting in a material weakness related to the precision of management’s review of the manual journal entries to record SoHo revenue, including the completeness and accuracy of the underlying data from system generated reports.

Based on these factors, performing audit procedures to evaluate the existence and accuracy of SoHo revenue, including the completeness and accuracy of underlying data from system generated reports, was especially challenging due to increased extent of our audit effort.

The primary procedures we performed to address this critical audit matter included:

• Testing the system generated reports used to record SoHo revenue, including testing:

(i) IT general controls over the billing systems, (ii) the automated application controls within those billing systems by tracing the activity for a selection of customer accounts through each billing system to the general ledger, and (iii) the custom report queries related to the billing system reports.

• Reconciling (i) certain billing system reports to SoHo revenue recorded in the general ledger, and (ii) certain billing system reports to cash receipts reports for certain geographies;

and testing the completeness and accuracy of the underlying data of the cash receipts reports.

Sales tax accrual – Corporate customers

As described in Note 11 to the consolidated financial statements, the Company recorded sales tax expense of $9.4 million within general and administrative expenses for the year ended December 31, 2022.

The Company did not collect and remit sales taxes for its U.S.

corporate revenue (“Corporate”) customers in prior periods because the Company had not yet completed its analysis of Corporate customers subject to sales tax, which was necessary to reasonably estimate the sales tax liability on its Corporate revenue.

We identified the estimation of the Corporate sales tax accrual as a critical audit matter.

The estimation of the Corporate sales tax accrual is complex as each state has specific rules and regulations regarding the taxability of products and services sold in its jurisdiction.

Performing procedures to audit the reasonableness of the Corporate sales tax accrual required especially subjective auditor judgment due to the nature and extent of audit effort required, including the need to involve professionals with expertise in state and local taxes.

The primary procedures we performed to address this critical audit matter included:

• Utilizing internal state and local sales tax professionals to assess legal opinions obtained by management related to the taxability of the Company’s services in certain states and local jurisdictions with material sales.

• Testing management’s estimate of the Corporate sales tax accrual in states and local jurisdictions where the Company’s services are taxable by validating (i) the completeness and accuracy of system generated revenue reports, and (ii) the tax rates, interest and penalties applicable to each state and local jurisdiction.

/s/ BDO USA, LLP

1 unchanged sentence

Los Angeles, California

April 15, 2022

March 31, 2023

CONSENSUS CLOUD SOLUTIONS, INC.

2 unchanged sentences

December 31, 2022 and 2021

(In thousands, except share amounts)

(In thousands, except share and per share data)

Cash and cash equivalents $ 94,164 $ 66,778

2 unchanged sentences

Prepaid expenses and other current assets 14,335 4,650

Discontinued operations current assets — 114,247

Total current assets 136,528 96,257

5 unchanged sentences

Other assets 2,816 873

Discontinued operations noncurrent assets — 805,568

TOTAL ASSETS $ 633,899 $ 562,812

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Accounts payable and accrued expenses $ 41,246 $ 40,206

3 unchanged sentences

Due to Former Parent 156 5,739

Discontinued operations current liabilities — 143,474

Total current liabilities 71,322 77,963

2 unchanged sentences

Operating lease liabilities, noncurrent 13,877 14,108

Income taxes payable, noncurrent — 943

Liability for uncertain tax positions 6,725 4,795

1 unchanged sentence

Other long-term liabilities 324 360

Discontinued operations noncurrent liabilities — 125,977

TOTAL LIABILITIES 889,160 895,477

1 unchanged sentence

Common stock, $ 0.01 par value.

Authorized 120,000,000 at December 31, 2021;

total issued and outstanding 19,978,580 and zero shares at December 31, 2021 and 2020, respectively.

Authorized 120,000,000 ;

total issued is 20,105,545 and 19,978,580 shares and total outstanding is 19,916,431 and 19,978,580 shares at December 31, 2022 and December 31, 2021, respectively

Treasury stock, at cost ( 189,114 and zero shares at December 31, 2022 and December 31, 2021, respectively)

Additional paid-in capital 21,650 2,878

Accumulated deficit ( 250,408 ) ( 318,886 )

Net parent investment — 1,178,508

Accumulated other comprehensive loss ( 19,108 ) ( 16,857 )

TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY ( 332,665 ) 1,122,542

TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY $ 562,812 $ 1,491,420

TOTAL STOCKHOLDERS’ DEFICIT ( 255,261 ) ( 332,665 )

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $ 633,899 $ 562,812

See Notes to Consolidated Financial Statements

20 unchanged sentences

Interest income — 60 —

Other income (expense), net 160 31,569 ( 1,421 )

Other (expense) income, net ( 1,582 ) 160 31,569

Income before income taxes 98,913 161,084 152,456

Income tax expense (benefit) 39,910 30,043 ( 33,137 )

Income tax expense 26,199 39,910 30,043

Income from continuing operations 72,714 121,174 122,413

19 unchanged sentences

General and administrative 17,447 1,711 457

(Loss) income from discontinued operations 602 4,138 2,711

(Loss) income from discontinued operations, net of income tax — 602 4,138

Total $ 20,055 $ 2,458 $ 5,623

53 unchanged sentences

Cash flows from financing activities:

Debt issuance cost ( 232 ) ( 10,849 ) —

Payment of debt — ( 593 ) ( 650,000 )

Debt extinguishment costs — — ( 29,250 )

Proceeds from line of credit — — 185,000

Repayment of line of credit — — ( 185,000 )

Issuance of long-term debt — 305,000 —

Debt issuance costs ( 10,849 ) — —

Issuance of common stock under employee stock purchase plan 1,284 519 —

Repurchase of common stock ( 7,596 ) — —

Shares withheld related to net share settlement ( 4,079 ) — —

Notes payable from related parties — — ( 819 )

5 unchanged sentences

Other — — ( 1,387 )

Net cash (used in) provided by financing activities ( 247,773 ) ( 179,089 ) 61,305

Net cash used in financing activities ( 10,623 ) ( 247,773 ) ( 179,089 )

Effect of exchange rate changes on cash and cash equivalents ( 1,865 ) ( 4,842 ) 6,635

7 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Years Ended December 31, 2022, 2021 and 2020

1 unchanged sentence

Common stock Additional

paid-in Accumulated Accumulated other comprehensive Net parent Total

Shares Amount capital Deficit loss investment Equity

paid-in Treasury stock Accumulated Accumulated other comprehensive Net parent Total Equity

Shares Amount capital Shares Amount Deficit loss investment (Deficit)

Balance, January 1, 2020 — $ — $ — — $ — $ — $ ( 44,873 ) $ 511,034 $ 466,161

Net income — — — — — — — 152,913 152,913

Other comprehensive income, net of tax — — — ( 1,979 ) — ( 1,979 )

Parent distribution — — — — — ( 109,833 ) ( 109,833 )

Share-based compensation — — — — — 3,796 3,796

Parent contribution — — — — — 64,922 64,922

Balance, December 31, 2019 — $ — $ — $ — $ ( 44,873 ) $ 511,034 $ 466,161

Net income — — — — — 152,913 152,913

Other comprehensive income, net of tax — — — — ( 11,093 ) — ( 11,093 )

Other comprehensive loss — — — — — — ( 11,093 ) — ( 11,093 )

Share-based compensation — — — — — — — 5,623 5,623

3 unchanged sentences

Net income prior to Separation — — — — — — — 102,510 102,510

Share-based compensation — — — — — 99 99

Share-based compensation prior to Separation — — — — — — — 99 99

Parent contribution prior to Separation — — — — — — — 21,238 21,238

9 unchanged sentences

Balance, December 31, 2021 19,978,580 $ 200 $ 2,878 — $ — $ ( 318,886 ) $ ( 16,857 ) $ — $ ( 332,665 )

Net income — — — — — 72,714 — — 72,714

Other comprehensive loss — — — — — — ( 2,251 ) — ( 2,251 )

Vested restricted stock 166,378 2 ( 2 ) — — — — — —

Shares withheld related to net share settlement ( 71,509 ) ( 1 ) ( 4,078 ) — — — — — ( 4,079 )

Repurchase of common stock — — — ( 189,114 ) ( 7,596 ) — — — ( 7,596 )

Issuance of shares under ESPP 32,096 — 1,284 — — — — — 1,284

Share-based compensation — — 21,568 — — — — — 21,568

Adjustments related to the Separation (Note 2) — — — — — ( 4,236 ) — — ( 4,236 )

Balance, December 31, 2022 20,105,545 $ 201 $ 21,650 ( 189,114 ) $ ( 7,596 ) $ ( 250,408 ) $ ( 19,108 ) $ — $ ( 255,261 )

See Notes to Consolidated Financial Statements

4 unchanged sentences

Consensus Cloud Solutions, Inc., together with its subsidiaries (“Consensus Cloud Solutions”, “Consensus”, the “Company”, “our”, “us” or “we”), is a provider of secure information delivery services with a scalable Software-as-a-Service (“SaaS”) platform.

Consensus serves more than one million customers of all sizes, from enterprises to individuals, across over 50 countries and multiple industry verticals including healthcare, financial services, law and education.

Consensus serves approximately 1 million customers of all sizes, from enterprises to individuals, across approximately 50 countries and multiple industry verticals including healthcare, government, financial services, law and education.

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

2 unchanged sentences

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.

(“Ziff Davis” or the “Former Parent”) announced that its Board of Directors approved its separation of the cloud fax business (the “Separation” or the “Spin-Off”), into an independent publicly traded company, Consensus Cloud Solutions, Inc.

On October 7, 2021, the Separation was completed and the Former Parent transferred certain assets and liabilities associated with its Cloud Fax business to Consensus, including the equity interests in J2 Cloud Services, LLC (“J2 Cloud Services”), in exchange for approximately $ 259.1 million in cash, an asset related to $ 500.0 million in aggregate principal amount of the 6.5 % Senior Notes due 2028, and the return of the assets and liabilities related to the non-fax business back to Ziff Davis.

1 unchanged sentence

Ziff Davis retained a 19.9 % interest in Consensus following the Separation.

Subsequently Ziff Davis has sold, or otherwise disposed of, a portion of its Consensus shares, reducing its beneficial ownership in the Company to under 10 % as of December 31, 2022 (see Note 21 - Related Party Transactions).

Basis of Presentation and Summary of Significant Accounting Policies

5 unchanged sentences

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 consolidated financial statements Consensus included an allocation of certain corporate expenses related to services provided to J2 Cloud Services by Ziff Davis.

For periods prior to the Separation, the Consensus consolidated financial statements 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.

2 unchanged sentences

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.

Interest expense relates to interest incurred on third-party debt issued by historical J2 Cloud Services.

For periods prior to the Separation, 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.

As the Cloud Fax business was not historically held by a single legal entity, “net parent investment” in the Consolidated Statements of Stockholders’ Deficit 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.

2 unchanged sentences

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“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.

The Company believes that its most significant estimates are those related to revenue recognition, share-based compensation expense, impairment or disposal of long-lived and intangible assets, fair value of assets acquired and liabilities assumed in connection with business combinations, income 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.

2 unchanged sentences

The accounting requirements for reporting the Company’s non-fax business as a discontinued operation were met when the Separation was completed.

Accordingly, the consolidated financial statements reflect the results of the non-fax business as a discontinued operation for all periods presented (see Note 5 - Discontinued Operations and Disposition of Businesses).

Accordingly, the consolidated financial statements reflect the results of the non-fax business as a discontinued operation for the years ended December 31, 2021 and 2020 (see Note 5 - Discontinued Operations and Disposition of Businesses).

(e) Allowances for Doubtful Accounts

10 unchanged sentences

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 Accounting Standards Codification 606, Revenue from Contracts with Customers (“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 Financial Accounting Standards Board (“FASB”) ASC Topic No.

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.

1 unchanged sentence

(g) Fair Value Measurements

Consensus complies with the provisions of Financial Accounting Standards Board (“FASB”) ASC Topic No.

Consensus complies with the provisions of FASB ASC Topic No.

820, Fair Value Measurements and Disclosures (“ASC 820”), in measuring fair value and in disclosing fair value measurements.

10 unchanged sentences

(j) Concentration of Credit Risk

All of the Company’s cash and cash equivalents are invested at major financial institutions primarily within the United States and Ireland.

All of the Company’s cash and cash equivalents are invested at major financial institutions primarily within the United States, the United Kingdom and Canada.

These institutions are required to invest the Company’s cash in accordance with the Company’s investment policy with the principal objectives being preservation of capital, fulfillment of liquidity needs and above market returns commensurate with preservation of capital.

At December 31, 2022, the Company’s cash and cash equivalents were maintained in accounts in qualifying financial institutions that are insured up to the limit determined by the applicable governmental agency.

These institutions are primarily in the United States and Ireland, however, the Company has accounts within several other countries including Australia, Canada, France, Hong Kong, Ireland, Japan, New Zealand, Switzerland and the United Kingdom.

These institutions are primarily in the United States, the United Kingdom and Canada, however, the Company has accounts within several other countries including Australia, France, Hong Kong, Ireland, Japan, New Zealand and Switzerland.

(k) Foreign Currency

Some of Consensus’ foreign subsidiaries use the local currency of their respective countries as their functional currency.

Assets and liabilities are translated at exchange rates prevailing at the balance sheet dates.

Revenues, costs and expenses are translated into U.S.

Assets and liabilities of those subsidiaries are translated into U.S.

Dollars at exchange rates prevailing at the balance sheet dates.

Revenues, costs and expenses of those subsidiaries are translated into U.S.

Dollars at average exchange rates for the period.

1 unchanged sentence

Net translation loss was $ 2.3 million, $ 14.4 million and $ 11.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Realized gains and losses from foreign currency transactions are recognized within other income (expense), net.

Foreign exchange gains (losses) amounted to $ 0.2 million, $ 31.5 million and $( 1.4 ) million for the years ended December 31, 2021, 2020 and 2019, respectively.

In 2022, the Company recorded a $ 5.5 million out of period correction that increased goodwill with an offset to the cumulative translation adjustment.

It was deemed to be an out of period correction that was not material to 2022 or any prior period.

Realized gains and losses from foreign currency transactions are recognized within other (expense) income, net.

Foreign exchange (losses) gains amounted to $( 1.6 ) million, $ 0.2 million and $ 31.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.

(l) Property and Equipment

5 unchanged sentences

The Company has capitalized certain internal-use software and website development costs which are included in property and equipment.

Costs to develop internal-use software incurred during the application development stage are capitalized and amortized over their estimated useful lives.

Costs related to preliminary project activities and post implementation activities are expensed as incurred.

The estimated useful life of costs capitalized is evaluated for each specific project and ranges from 1 to 5 years (see Note 7 - Property and Equipment).

5 unchanged sentences

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 consider 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;

Factors it considers important which could individually or in combination trigger an impairment review include the following:

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

• Significant changes in the manner of our use of the acquired assets or the strategy for Consensus’ overall business;

4 unchanged sentences

The Company assessed whether events or changes in circumstances have occurred that potentially indicate the carrying amount of definite-lived assets may not be recoverable.

There were no impairments recorded in 2022.

In the year ended December 31, 2021, the Company recorded an impairment of $ 1.7 million in property and equipment (see Note 7 - Property and Equipment) and an impairment of $ 6.5 million in operating right-of-use assets (see Note 10 - Leases) in connection with the downtown Los Angeles lease.

Additionally, the Company recorded an impairment of $ 1.0 million in operating right-of-use assets included in discontinued operation in relation to exiting a lease.

There were no impairments recorded in fiscal years 2020 or 2019, respectively.

Additionally, the Company recorded an impairment of $ 1.0 million in operating right-of-use assets included in discontinued operations in relation to exiting a lease.

There were no impairments recorded in 2020.

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.

2 unchanged sentences

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.

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.

(n) Business Combinations and Valuation of Goodwill and Intangible Assets

The Company applies the acquisition method of accounting for business combinations in accordance with GAAP and uses of 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.

The Company applies the acquisition method of accounting for business combinations in accordance with GAAP and uses estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets, including identifiable intangible assets, and liabilities acquired.

Such estimates may be based on significant unobservable inputs and assumptions such as, but not limited to, future revenue growth rates, gross and operating margins, customer attrition rates, royalty rates, discount rates and terminal growth rate assumptions.

6 unchanged sentences

Identifiable intangible assets are comprised of purchased customer relationships, trademarks and trade names, developed technologies and other intangible assets.

Intangible assets subject to amortization are amortized over the period of estimated economic benefit ranging from 1 to 20 years and are included in general and administrative expenses on the Consolidated Statements of Income.

The Company evaluates our goodwill and indefinite-lived intangible assets for impairment pursuant to FASB ASC Topic No, 350, Intangibles - Goodwill and Other (“ASC 350”), which provides that goodwill and other intangible assets with indefinite lives are not amortized but tested for impairment annually or more frequently if Consensus believes indicators of impairment exist.

Intangible assets subject to amortization are amortized over the period of estimated economic benefit ranging from 1 to 20 years and the amortization expense is included in general and administrative expenses on the Consolidated Statements of Income.

The Company evaluates its goodwill and indefinite-lived intangible assets for impairment pursuant to FASB ASC Topic No.

350, Intangibles - Goodwill and Other (“ASC 350”), which provides that goodwill and other intangible assets with indefinite lives are not amortized but tested for impairment annually or more frequently if the Company believes indicators of impairment exist.

In connection with the annual impairment test for goodwill, the Company has the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If the Company determines that it was more likely than not that the fair value of the reporting unit is less than its carrying amount, then it performs the impairment test upon goodwill.

If the Company determines that it was more likely than not that the fair value of the reporting unit is less than its carrying amount, then it performs the impairment test on goodwill.

The impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill.

1 unchanged sentence

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

The Company performed the annual impairment test for goodwill for fiscal year 2021 using a qualitative assessment primarily taking into consideration macroeconomic, industry and market conditions, overall financial performance and any other relevant company-specific events.

The Company performed the annual impairment test for intangible assets with indefinite lives for fiscal 2021 using a qualitative assessment primarily taking into consideration macroeconomic, industry and market conditions, overall financial performance and any other relevant company-specific events.

Consensus concluded that there were no impairments in 2021, 2020 and 2019.

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.

(o) Contingent Consideration

Certain of Consensus’ 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 Consolidated Balance Sheets.

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

(1) the valuation of our 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.

The Company 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 our 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.

The Company 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 our 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 Consolidated Statements of Income.

(p) Income Taxes

In the fourth quarter of 2022, the Company performed the annual impairment test for goodwill for the year ended December 31, 2022 using a qualitative assessment, primarily taking into consideration macroeconomic, industry and market conditions, overall financial performance and any other relevant company-specific events.

The Company performed the annual impairment test for intangible assets with indefinite lives for the year ended December 31, 2022 using a qualitative assessment primarily taking into consideration macroeconomic, industry and market conditions, overall financial performance and any other relevant company-specific events.

The Company concluded that there were no impairments in 2022, 2021 and 2020.

(o) Income Taxes

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

For purposes of the prior year 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.

In addition, J2 Cloud Services’ income is subject to taxation in both the U.S.

For purposes of the prior year consolidated Statement of Income prior to 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 was 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.

Significant judgment was required in evaluating the J2 Cloud Services’ 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.

5 unchanged sentences

These reserves for tax contingencies are established when the Company believes that certain positions might be challenged despite the Company’s belief that its tax return positions are fully supportable.

The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of a tax audit or lapse of a statute of limitations.

The 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

The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate (see Note 13 - Income Taxes).

13 unchanged sentences

The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions and technical corrections to tax depreciation methods for qualified improvement property.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law and is effective for taxable years beginning after December 31, 2022.

The IRA includes a new corporate alternative minimum tax of 15% on adjusted financial statement income of corporations with profits greater than $1 billion, a 1% excise tax on the fair market value of net share buy-backs, in addition to multiple incentives to the clean energy industry.

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

The Company will benefit from the technical correction to tax depreciation related to qualified improvement property and has elected to defer income tax payments and employer side social security payments where eligible.

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.

(q) Share-Based Compensation

The Company benefited from the technical correction to tax depreciation related to qualified improvement property and has elected to defer the employer side social security payments where eligible.

The Company remitted the deferred employer side social security payments during the year ended December 31, 2022.

The Company will continue to evaluate the impact of these provisions on its financial statements.

(p) Share-Based Compensation

The Company accounts for share-based awards to employees and non-employees in accordance with the provisions of FASB ASC Topic No.

3 unchanged sentences

These inputs are subjective and are determined using management’s judgment.

If differences arise between the assumptions used in determining share-based compensation expense and the actual factors, which become known over time, Consensus 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, the Company may change the input factors used in determining future share-based compensation expense.

Any such changes could materially impact the Company’s results of operations in the period in which the changes are made and in periods thereafter.

The Company estimates the expected term based upon the historical exercise behavior of the Company’s employees (see Note 14 - Equity Incentive and Employee Stock Purchase Plan).

(r) Earnings Per Common Share (“EPS”)

The Company estimates the expected term based upon the contractual term of the award (see Note 15 - Equity Incentive and Employee Stock Purchase Plan).

(q) Earnings Per Common Share (“EPS”)

EPS is calculated pursuant to the two-class method as defined in ASC Topic No.

6 unchanged sentences

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.

(s) Research, Development and Engineering

(r) Research, Development and Engineering

Research, development and engineering costs are expensed as incurred.

Costs for software development incurred subsequent to establishing technological feasibility, in the form of a working model, are capitalized and amortized over their estimated useful lives.

(t) Segment Reporting

(s) Segment Reporting

FASB ASC Topic No.

3 unchanged sentences

The chief operating decision maker views the Company as one reportable segment known as Cloud Fax (see Note 18 - Segment Information).

(u) Advertising Costs

(t) Advertising Costs

Advertising costs are expensed as incurred.

Advertising costs for the years ended December 31, 2022, 2021 and 2020 was $ 55.4 million, $ 45.7 million and $ 47.1 million, respectively.

(v) 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.

(u) Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-04, Reference Rate Reform (Topic 848):

2 unchanged sentences

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.

In December 2022, the FASB issued ASU No.

2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848, that extends the period of time preparers can utilize the reference rate reform relief guidance.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024.

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.

1 unchanged sentence

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

The amendments in this ASU reduce the number of accounting models for convertible debt instruments and convertible preferred stock in order to simplify the accounting for convertible instruments and reduce complexity.

The amendments in this ASU reduce the number of accounting models for convertible debt instruments and convertible preferred stock in order to simplify the accounting for convertible instruments

and reduce complexity.

In addition, it amends the guidance for scope exception surrounding derivatives for contracts in an entity’s own equity.

In each case, the related guidance surrounding EPS has also been amended.

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

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 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.

In January 2021, the FASB issued ASU No.

2021-01, Reference Rate Reform (Topic 848).

The amendments in this ASU clarify the scope of ASC 848 to include derivatives that are affected by a change in the interest rate used for discounting, margining, or contract price alignment that do not also reference LIBOR or another reference rate that is expected to be discontinued as a result of reference rate reform.

Similar to ASU 2020-04, the guidance is effective for all entities immediately upon issuance on January 7, 2021.

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

The amendments in this ASU are effective for the Company for the year ended December 31, 2022.

This amendment may be adopted using either a modified or fully retrospective method of transition.

The Company adopted ASU 2020-06 in the fourth quarter of 2022 using a modified retrospective method of transition.

The adoption of this standard did not have an impact on the Company’s consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU No.

1 unchanged sentence

The amendments in this ASU improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability, and payment terms and their effect on subsequent revenue recognized by the acquirer.

The Company early adopted ASU 2021-08 in the second quarter of 2022 and applied it to the Summit acquisition as disclosed within Note 4 - Business Acquisitions.

As a result of this adoption, the Company recognized $ 0.9 million in deferred revenue with a corresponding increase in Goodwill.

In June 2022, the FASB issued ASU No.

2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.

This ASU clarifies the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820.

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

Early adoption is permitted.

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

(w) Reclassifications

Certain prior year reported amounts have been reclassified to conform with the 2021 presentation.

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.

This amendment should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption.

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

In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50).

This ASU enhances the transparency of supplier finance programs.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted.

This amendment should be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on rollforward information, which should be applied prospectively.

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

(w) Adjustments related to the Spin-off

During 2022, the Company identified certain improper classifications related to executive bonuses, 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, and certain intangible assets post Separation that were incorrectly included in the opening balance at the time of the Spin-off which belonged to the Former Parent.

The Company recorded a reclassification of $ 0.6 million from equity to accrued expenses to correct the prior period classification and $ 0.8 million from intangible assets to equity to correct the opening balance on the balance sheet for the year ended December 31, 2022.

The Company determined that the impact of these reclassifications were not material to the current or prior period financial statements.

Additionally, on September 27, 2022, the Company reached a settlement agreement with the Former Parent and agreed to pay $ 2.6 million during the third quarter of 2022 to close out transaction fees related to the Spin-Off.

This payment to the Former Parent as part of the Spin-off and a related adjustment of $ 0.3 million was recorded as an adjustment to equity during year ended December 31, 2022.

The Company’s revenues substantially consist of monthly recurring subscription and usage-based fees from customers accessing the Company’s cloud-based subscription (the “Cloud Fax Services”), a significant portion of which are paid in advance by credit card.

The Company defers the portions of monthly, quarterly, semi-annually and annually recurring subscription and usage-based fees collected in advance of the satisfaction of performance obligations and recognizes them in the period earned.

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

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

8 unchanged sentences

Over time 361,865 352,664 331,168

Total $ 352,664 $ 331,168 $ 322,559

Total revenues $ 362,422 $ 352,664 $ 331,168

The Company has recorded $ 22.9 million and $ 24.5 million of revenue for the years ended December 31, 2022 and 2021, respectively, which was previously included in the deferred revenue balance as of the beginning of each respective year.

As of December 31, 2021 and 2020, the Company acquired zero and $ 0.5 million, respectively, of deferred revenue in connection with the Company’s business acquisitions (see Note 4 - Business Acquisitions).

As of December 31, 2022 and 2021, the Company acquired $ 4.8 million and zero , respectively, of deferred revenue in connection with the Company’s business acquisitions (see Note 4 - Business Acquisitions).

Performance Obligations

The Company’s contracts with customers may include multiple performance obligations.

For such arrangements, revenues are allocated to each performance obligation based on its relative standalone selling price.

Generally, the Company’s contracts with customers include one performance obligation, however, certain contracts may include multiple performance obligations.

For such arrangements, revenues are allocated to each performance obligation based on their relative standalone selling price.

The Company accounts for these arrangements as a single performance obligation as the performance obligations related to a specific arrangement are all consumed simultaneously.

The Company satisfies its performance obligations upon delivery of services to its customers.

3 unchanged sentences

Significant Judgments

In determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

Judgment is also required to determine the standalone selling price for each distinct performance obligation.

Determining whether products and services are considered distinct performance obligations may require significant judgment.

When a cloud-based service includes both on-premises software licenses and cloud-based services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud-based service and recognized over time.

The Cloud Fax Services and related licenses depend on a significant level of integration between the desktop applications and cloud-based services and are accounted for together as one performance obligation.

Judgment is also required to determine the standalone selling price for each distinct performance obligation when there are multiple performance obligations.

In certain cases, the Company is able to establish the standalone selling price based on observable prices of products or services sold or priced separately in comparable circumstances to similar customers.

The Company uses a range of amounts to estimate the standalone selling price when each of the products and services is sold separately to determine whether there is a discount to be allocated based on the relative standalone selling price of the various products and services.

Performance Obligations Satisfied Over Time

1 unchanged sentence

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.

Depending on the individual contracts with the customer, revenue for these services is recognized over the contract period when faxing capabilities are provided.

The Company expects to recognize revenue for Corporate contracts in a range from month-to- month up to 36 months and recognize revenue for SOHO contracts in a range from month-to-month up to one year.

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

3 unchanged sentences

As a practical expedient, the Company has not assessed whether a contract has a significant financing component because the Company expects at contract inception that the period between payment by the customer and the transfer of promised goods or services by the Company to the customer will be one year or less.

In addition, the Company has determined that the payment terms 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 Consensus operates which allows customers to easily move from one provider to another.

This additional risk may make it uneconomical to provide the service.

In addition, the Company has determined that the payment terms the Company provides to its customers are structured primarily for reasons other than the provision of finance to the Company.

The Company typically charges a single upfront amount for services, as other payment terms would affect the nature of the risk assumed by the Company due to the costs of the customer acquisition and the highly competitive and commoditized nature of the business Consensus operates.

Costs to Fulfill a Contract

7 unchanged sentences

Business Acquisitions

For the year ended December 31, 2021, the Company completed a share purchase of SEOmoz, acquired on June 4, 2021, a Seattle-based provider of search engine optimization (“SEO”) solutions.

As part of the Separation, the Company transferred the assets acquired to the Former Parent.

The allocation of the purchase consideration and further details are included in Business Acquisitions Classified in Discontinued Operations below.

For the year ended December 31, 2020, the Company completed an asset purchase of EDC Systems, Inc.

(operating under the name “SRFax”), acquired on February 18, 2020, a Canadian-based provider of fax solutions.

The purchase price accounting for this acquisition was completed during the year ended December 31, 2021.

In addition to the SRFax acquisition, the Company completed a share purchase of the entire issued capital of Inspired eLearning, LLC, acquired on November 2, 2020, a Texas-based platform for cybersecurity awareness and compliance training, as well as the purchase of two other immaterial businesses.

As part of the separation, the Company transferred the Inspired eLearning assets and the two immaterial businesses acquired to the Former Parent.

The allocation of the purchase consideration and further details are included in Business Acquisitions Classified in Discontinued Operations below.

The Consolidated Statement of Income since the date of acquisition and balance sheet as of December 31, 2020, reflect the results of operations of SRFax.

For the year ended December 31, 2020, SRFax contributed $ 7.3 million to the Company’s revenues.

Net income contributed by SRFax is not separately identifiable due to the Company’s integration activities and is impracticable to provide.

Total consideration was $ 25.0 million, net of cash acquired and assumed liabilities for SRFax.

The following table summarizes the allocation of the purchase consideration for the acquisition of SRFax (in thousands):

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.

Summit Healthcare Acquisition

On February 4, 2022, in a cash transaction, the Company acquired certain assets of Summit Healthcare Services, Inc.

(“Summit”), a Massachusetts based provider of secure interoperability solutions within the healthcare industry.

The Consolidated Statement of Income since the date of acquisition and the Consolidated Balance Sheet as of December 31, 2022, reflect the results of operations of this 2022 acquisition.

For the year ended December 31, 2022, this acquisition contributed $ 6.8 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 $ 12.2 million, net of cash acquired, and was subject to certain post-closing adjustments through the measurement period.

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

Assets and Liabilities Valuation

Accounts receivable $ 1,248

Prepaid expenses and other current assets 30

Property and equipment 9

Trade names 907

Operating lease right-of-use assets, non-current 413

Trademarks 800

Customer relationships 8,600

1 unchanged sentence

Other intangibles 1,000

Accounts payables and accrued expenses ( 94 )

Accounts payable and accrued expenses ( 295 )

Deferred revenue ( 4,839 )

Total $ 24,990

During the year ended December 31, 2021, the purchase price accounting has been finalized for SRFax and there were no material adjustments.

The fair value of the assets acquired includes accounts receivable of $ 0.2 million.

The gross amount due under contracts is $ 0.2 million and immaterial amounts are expected to be uncollectible.

The Company did not acquire any other classes of receivables as a result of the SRFax acquisition.

Operating lease liabilities, non-current ( 413 )

The Company has finalized the accounting for the Summit acquisition.

During 2022, the Company recorded a working capital adjustment of $ 2.1 million, which reduced the purchase price of the acquisition by the same amount.

Since the date of acquisition, the Company has recorded $ 1.3 million in additional deferred revenue with a corresponding increase in Goodwill as a measurement period adjustment.

Additionally, as a result of the early adoption of ASU 2021-08 in the second quarter of 2022, the Company recognized $ 0.9 million in deferred revenue with a corresponding increase in Goodwill.

All adjustments are reflected in the table above.

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 in connection with the acquisition of SRFax during the year ended December 31, 2020 is $ 15.8 million, of which the full amount is expected to be deductible for income tax purposes.

Unaudited Pro Forma Financial Information for SRFax

Goodwill recognized associated with this acquisition during the year ended December 31, 2022 is $ 5.7 million, of which $ 5.7 million is expected to be deductible for income tax purposes.

SRFax Acquisition

On February 18, 2020, the Company completed an asset purchase of EDC Systems, Inc.

(operating under the name “SRFax”), a Canadian-based provider of fax solutions.

The purchase price accounting for this acquisition was completed in 2021.

The Consolidated Statement of Income since the date of acquisition reflects the results of operations of SRFax.

For the year ended December 31, 2020, SRFax contributed $ 7.3 million to the Company’s revenues.

Net income contributed by SRFax is not separately identifiable due to the Company’s integration activities and is impracticable to provide.

Total consideration was $ 25.0 million, net of cash acquired and assumed liabilities for SRFax.

Unaudited Pro Forma Financial Information

The following unaudited pro forma information is not necessarily indicative of the Company’s consolidated results of operations in future periods or the results that actually would have been realized had the Company and the acquired business been combined companies during the periods presented.

These pro forma results exclude any savings or synergies that would have resulted from the business acquisition had it occurred on January 1, 2019 and do not take into consideration the exiting of

any acquired lines of business.

These pro forma results exclude any savings or synergies that would have resulted from the business acquisition had it occurred on January 1, 2020 and do not take into consideration the exiting of any acquired lines of business.

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

1 unchanged sentence

December 31, 2020

December 31, 2019

(unaudited) (unaudited)

Revenues $ 332,431

Net income $ 122,912 $ 180,911

Net income from continuing operations $ 122,912

EPS - Basic (1)

$ 6.18 $ 9.09

EPS - Diluted (1)

$ 6.18 $ 9.09

(1) Basic and Diluted EPS are calculated based on net income from continuing operations attributable to common shareholders.

Business Acquisitions Classified in Discontinued Operations

The Consolidated Statement of Income since the date of acquisition, reflect the results of operations of SEOmoz within discontinued operations.

For the year ended December 31, 2021, SEOmoz contributed $ 14.4 million to revenue within discontinued operations.

SEOmoz Acquisition

During the year ended December 31, 2021, the Company completed a share purchase of SEOmoz, acquired on June 4, 2021, a Seattle-based provider of search engine optimization (“SEO”) solutions.

As part of the Separation, the Company transferred all of the assets and liabilities acquired to the Former Parent.

The Consolidated Statement of Income for the year ended December 31, 2021 reflects the results of operations of SEOmoz, which contributed $ 14.4 million to revenue within discontinued operations.

Total consideration for SEOmoz was $ 66.5 million, net of cash acquired and assumed liabilities.

The following table summarizes the allocation of the purchase consideration for the acquisition of SEOmoz (in thousands):

Assets and Liabilities Valuation

Accounts receivable $ 3,901

Prepaid expenses and other current assets 1,568

Property and equipment 1,838

Operating lease right-of-use assets 5,888

Trade names 7,200

Customer relationships 5,000

Goodwill 41,213

Other intangibles 21,607

Accounts payables and accrued expenses ( 2,352 )

Other current liabilities ( 14 )

Deferred revenue ( 6,398 )

Operating lease liabilities, current ( 7,191 )

Other long-term liabilities ( 785 )

Deferred tax liability ( 4,936 )

Total $ 66,539

The initial accounting for the SEOmoz acquisition is incomplete as of the date of the Separation and has been included in discontinued operations.

The fair value of the assets acquired includes accounts receivable of $ 3.9 million.

The gross amount due under contracts is $ 4.2 million, of which $ 0.3 million is expected to be uncollectible.

The Company did not acquire any other classes of receivables as a result of this acquisition.

Goodwill recognized in connection with this acquisition is $ 41.2 million of which zero is expected to be deductible for income tax purposes.

The Consolidated Statement of Income and Consolidate Balance Sheet since the date of acquisition, reflect the results of operations of Inspired eLearning.

2020 Acquisitions

On November 2, 2020, the Company completed a share purchase of the entire issued capital of Inspired eLearning, LLC, a Texas-based platform for cybersecurity awareness and compliance training, as well as the purchase of two other immaterial businesses.

As part of the Separation, the Company transferred the Inspired eLearning assets and the two immaterial businesses acquired to the Former Parent.

The Consolidated Statement of Income, since the date of acquisition, reflects the results of operations of Inspired eLearning.

For the year ended December 31, 2020, Inspired eLearning contributed $ 1.6 million to revenue within discontinued operations.

Total consideration for Inspired eLearning was $ 20.5 million, net of cash acquired and assume liabilities.

In the year ended December 31, 2020, two other immaterial businesses were acquired which are included in discontinued operations.

The following table summarizes the allocation of the purchase consideration for the acquisition of Inspired eLearning (in thousands), which is included within discontinued operations on the balance sheet:

Assets and Liabilities Valuation

Accounts receivable $ 1,876

Prepaid expenses and other current assets 1,002

Property and equipment 418

Trade names 2,012

Customer relationships 3,654

Goodwill 13,174

Other intangibles 6,134

Other long-term assets 73

Deferred tax asset 39

Accounts payables and accrued expenses ( 1,878 )

Deferred revenue ( 5,935 )

Operating lease liabilities, current ( 97 )

Total $ 20,472

The initial accounting for the Inspired eLearning acquisition is complete as of the date of the Separation and has been included in discontinued operations.

Total consideration for Inspired eLearning was $ 20.5 million, net of cash acquired and assumed liabilities.

The two other immaterial businesses acquired during the year ended December 31, 2020 are also included in discontinued operations.

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.

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 had a major effect on the Company’s operations relative to the historical operations of J2 Cloud Services.

Accordingly, the consolidated financial statements reflect the results of the non-fax business as a discontinued operation for all periods presented.

The Consolidated Balance Sheets and Consolidated Statements of Income report discontinued operations separate from continuing operations.

The Consolidated Statements of Comprehensive Income, Consolidated Statements of Cash Flows (including Note 18 - Supplemental Cash Flow Information) and Consolidated Statements of Stockholders’ Equity combine continuing and discontinued operations.

The Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Cash Flows and Consolidated Statements of Stockholders’ Equity include the non-fax business activity through October 7, 2021.

The following table summarizes the major classes of assets and liabilities of discontinued operations that were included in the Company’s Consolidated Balance Sheet as of December 31, 2020 (in thousands):

Cash and cash equivalents $ 61,979

Accounts receivable, net of allowances $ 4,322

Prepaid expenses and other current assets

Total current assets, discontinued operations

Property and equipment, net

Operating lease right-of-use assets 30,230

Intangibles, net

Notes receivable from related parties, noncurrent 8,834

Deferred income taxes, noncurrent 9,772

Total noncurrent assets, discontinued operations

Total assets, discontinued operations $ 919,815

Accounts payable and accrued expenses $ 48,243

Income taxes payable, current 8,224

Deferred revenue, current

Operating lease liabilities, current 7,235

Other current liabilities

Total current liabilities, discontinued operations

Deferred revenue, noncurrent

Operating lease liabilities, noncurrent 23,758

Liability for uncertain tax positions 49,268

Deferred income taxes, noncurrent 16,003

Other long-term liabilities

Total noncurrent liabilities, discontinued operations

Total liabilities, discontinued operations $ 269,451

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

The Consolidated Statements of Income report discontinued operations separate from continuing operations.

The Consolidated Statements of Comprehensive Income, Consolidated Statements of Cash Flows (including Note 19 - Supplemental Cash Flows Information) and Consolidated Statements of Stockholders’ Deficit combine continuing and discontinued operations.

The Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Cash Flows and Consolidated Statements of Stockholders’ Deficit includes the non-fax business activity through October 7, 2021.

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

Year ended December 31

$ 271,571 $ 347,293

$ 271,571 $ 347,293 $ 339,276

Cost of revenues 74,294 100,871

74,294 100,871 94,280

Gross profit 197,277 246,422

1 unchanged sentence

Sales and marketing 72,425 72,080

72,425 72,080 58,875

Research, development and engineering 16,756 15,681

16,756 15,681 14,332

General and administrative 84,213 118,608

84,213 118,608 123,812

Goodwill impairment on business 32,629 —

Total operating expense 206,023 206,369 197,019

Total operating expenses 206,023 206,369

(Loss) income from discontinued operations ( 8,746 ) 40,053

13 unchanged sentences

Year ended December 31

2021 2020 2019

Depreciation and amortization

3 unchanged sentences

Share-based compensation expense

602 4,138 2,711

Non-cash operating lease costs 2,814 4,364

5 unchanged sentences

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

Voice Asset Sales (Non-Consensus)

During the first quarter of 2021, the Company committed to a plan to sell certain Voice assets in the United Kingdom as they were determined to be non-core assets.

On February 9, 2021, in a cash transaction, the Company sold the Voice assets.

The total gain recognized on the sale of these Voice assets was $ 2.8 million which was recorded in discontinued operations on the Consolidated Statement of Income in the year ended December 31, 2021.

For the year ended December 31, 2021, the total gain recognized on the sale was $ 2.8 million, which was recorded in discontinued operations on the Consolidated Statement of Income.

During the second quarter of 2020, the Company committed to a plan to sell certain Voice assets in Australia and New Zealand as they were determined to be non-core assets.

On August 31, 2020, in a cash transaction, the Company sold these Voice assets for a gain of $ 17.1 million which was recorded in discontinued operations on the Consolidated Statement of Income in the year ended December 31, 2020.

On August 31, 2020, in a cash transaction, the Company sold the Voice assets.

For the year ended December 31, 2020, the total gain recognized on the sale was $ 17.1 million, which was recorded in discontinued operations on the Consolidated Statement of Income.

B2B Back-up (Non-Consensus)

During the first quarter of 2021, the Company committed to a plan to sell its B2B Backup business as it was determined to be a non-core business.

The B2B Backup business met the held for sale criteria, and accordingly, the assets and liabilities were presented as held for sale on the Consolidated Balance Sheets at March 31, 2021 and June 30, 2021.

During the second quarter of 2021, the Company received an offer to purchase the B2B Backup business and management determined that the fair value of the business less cost to sell was lower than its carrying amount.

As a result, the Company recorded an impairment to goodwill of $ 32.6 million during the second quarter of 2021, which was recorded in impairment of business on the Consolidated Statement of Income (see Note 8 - Goodwill and Intangible Assets).

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

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

As a result, the Company recorded an impairment to goodwill of $ 32.6 million which was recorded in the second quarter of 2021, and is included within discontinued operations on the Consolidated Statement of Income.

On September 17, 2021, in a cash transaction, the Company sold the B2B Backup business.

The total loss recognized on the sale of the B2B Backup business was $ 24.6 million which was recorded in discontinued operations on the Consolidated Statement of Income in the year ended December 31, 2021.

For the year ended December 31, 2021, the total loss recognized on the sale was $ 24.6 million, which is included within discontinued operations on the Consolidated Statement of Income.

Fair Value Measurements

7 unchanged sentences

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 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.

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 a 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):

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

Contingent consideration $ — $ — $ 4,071 $ 4,071 $ 4,071

Total liabilities measured at fair value $ — $ — $ 4,071 $ 4,071 $ 4,071

The following tables 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, 2020 $ —

Contingent consideration 4,071

Total fair value adjustments reported in earnings — General and administrative

Contingent consideration payments — Not Applicable

Balance as of December 31, 2020 $ 4,071

Contingent consideration —

Total fair value adjustments reported in earnings 685 General and administrative

Contingent consideration payments ( 4,756 ) Not Applicable

Balance as of December 31, 2021 $ —

The fair value of the contingent consideration was zero and $ 4.1 million at December 31, 2021 and December 31, 2020, respectively.

Due to achievement of certain thresholds, $ 4.8 million was paid during 2021.

During the year ended December 31, 2021, the Company recorded an increase in the fair value of the contingent consideration of $ 0.7 million and reported such increase 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 9 - Long-Term Debt).

During the year ended December 31, 2021, the Company recorded an increase in the fair value of the contingent consideration of $ 0.7 million using Level 3 inputs and reported such increase in general and administrative expenses.

The contingent consideration was fully paid during 2021.

Assets Measured on a Non-Recurring Basis

The Company’s non-financial assets, which primarily consist of goodwill, other intangible assets and fixed assets, are reported at carrying value, or at fair value as of the date of the Company’s acquisition of Summit on February 4, 2022, and are not required to be measured at fair value on a recurring basis.

However, on a periodic basis (at least annually for goodwill and indefinite-lived intangibles or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable), non-financial assets are assessed for impairment.

If impaired, the carrying values of the assets are written down to fair value using Level 3 inputs.

During the year ended December 31, 2021, the Company recorded total non-cash impairment charges of $ 7.5 million related to its operating lease right-of-use assets, based on their fair value determined using Level 3 inputs (see Note 10 - Leases).

Property and Equipment

Property and equipment, stated at cost, at December 31, 2022 and 2021 consisted of the following (in thousands):

Computers and related equipment $ 51,411 $ 35,032

Computers, equipment and software $ 54,372 $ 36,319

Furniture and equipment 828 846

Leasehold improvements 1,717 1,718

Internal software in development 28,442 15,092

85,359 53,975

1 unchanged sentence

Total property and equipment, net $ 54,958 $ 33,849

Prior year balances of certain property and equipment categories have been reclassified to conform to the current year's presentation.

Depreciation and amortization expense was $ 10.6 million, $ 7.3 million and $ 7.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

7 unchanged sentences

These determinations are primarily based upon the Company’s historical experience and expected benefit of each intangible asset.

If it is determined that such assumptions are not accurate, then the resulting change will impact the fair value of the intangible asset.

If it is determined that such assumptions are not accurate, the resulting change will impact the fair value of the intangible asset.

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

1 unchanged sentence

Balance as of January 1, 2021 $ 342,430

Goodwill acquired (Note 4) 15,844

Foreign exchange translation ( 3,221 )

Balance as of December 31, 2021 $ 339,209

Goodwill acquired (Note 4) 5,677

Foreign exchange translation (1)

Balance as of December 31, 2022 $ 346,585

(1) In 2022, the Company recorded a $ 5.5 million out of period correction that increased goodwill with an offset to the cumulative translation adjustment.

It was deemed to be an out of period correction that was not material to 2022 or any prior period.

There has not previously been an impairment charge of goodwill related to continuing operations.

5 unchanged sentences

Intangible Assets Subject to Amortization:

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

Weighted-Average

In addition to the intangible assets related to Summit (refer to Note 4 - Business Acquisitions) 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 during the year ended December 31, 2022.

The purchase price was $ 1.0 million and the asset is included in Intangibles, net on the Consolidated Balance Sheets and other purchased intangibles in the table below.

As of December 31, 2022, intangible assets subject to amortization are summarized as follows (in thousands):

Weighted-Average Remaining

Cost Accumulated

8 unchanged sentences

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, 2020, intangible assets subject to amortization relate primarily to the following (in thousands):

Weighted-Average

As of December 31, 2021, intangible assets subject to amortization are summarized as follows (in thousands):

Weighted-Average Remaining

Cost Accumulated

1 unchanged sentence

Trade names 1.6 years $ 12,219 $ 10,633 $ 1,586

Patent and patent licenses 1.0 year 1,686 1,568 118

Patent and patent licenses (1)

0.0 years 54,341 53,930 411

Customer relationships (2)

2 unchanged sentences

Total $ 179,291 $ 166,813 $ 12,478

(1) The December 31, 2021 patent and patent licenses historical cost and accumulated amortization balance was adjusted to conform with presentation of the December 31, 2022 balance for comparability purposes.

There was no impact to the net balance.

(2) Historically, the Company has amortized its customer relationship assets in a pattern that best reflects the pace in which the assets’ benefits are consumed.

3 unchanged sentences

Total expected amortization expense $ 17,774

As part of the Separation, Ziff Davis transferred $ 8.5 million in patent and patent licenses to Consensus in a non-cash transaction.

These patent and patent licenses were not historically Cloud Fax assets, thereby increasing the historical cost of patent and patent licenses from $ 1.7 million in 2020 to $ 10.2 million in 2021.

Amortization expense was $ 4.7 million, $ 4.8 million and $ 4.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.

9 unchanged sentences

Interest expense was $ 51.4 million, $ 14.3 million, and $ 75.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The $ 75.8 million interest expense for the year ended December 31, 2020 includes a loss on extinguishment of $ 38.0 million for the redemption of all of its outstanding $ 650.0 million 6.0 % Senior Notes in 2020.

Interest expense for the year ended December 31, 2022 includes $ 0.8 million related to sales tax (refer to Note 11 - Commitments and Contingencies).

The $ 75.8 million interest expense for the year ended December 31, 2020 includes a loss on debt extinguishment of $ 38.0 million related to the redemption of all of its outstanding $ 650.0 million 6.0 % Senior Notes in 2020.

2026 Senior Notes

1 unchanged sentence

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 Consolidated Balance Sheet as of December 31, 2021.

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 6.0 % Senior Notes are presented as long-term debt, net of deferred issuance costs, on the Consolidated Balance Sheet as of December 31, 2022 and 2021.

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, which commenced 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”).

16 unchanged sentences

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

As of December 31, 2021, the estimated fair value of the 2026 Senior Notes was approximately $ 316.1 million 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.

The following table provides additional information related to our 2026 Senior Notes (in thousands):

As of December 31, 2022 and 2021, the estimated fair value of the 2026 Senior Notes was approximately $ 282.8 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.

The following table provides additional information related to our 2026 Senior Notes as of December 31, 2022 and 2021 (in thousands):

Principal amount of 2026 Senior Notes

$ 305,000 $ 305,000

Debt issuance costs ( 3,748 ) ( 4,582 )

Net carrying amount of 2026 Senior Notes

$ 301,252 $ 300,418

2028 Senior Notes

2 unchanged sentences

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 Consolidated Balance Sheet as of December 31, 2021.

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”).

The 2028 Senior Notes were presented as long-term debt, net of deferred issuance costs, on the Consolidated Balance Sheets as of December 31, 2022 and 2021.

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, which commenced on April 15, 2022.

The 2028 Senior Notes mature on October 15, 2028, and are senior unsecured obligations of the Company that are guaranteed, jointly and severally, on an unsecured basis by certain of the Company’s existing and future domestic direct and indirect wholly-owned subsidiaries (collectively, the “Guarantors”).

If Consensus Cloud Solutions, Inc.

or any of its restricted subsidiaries acquires or creates a domestic restricted subsidiary, other than an Insignificant Subsidiary (as defined in the indenture pursuant to which the 2028 Senior Notes were issued (the “2028 Indenture”)), after the issue date, or any Insignificant Subsidiary ceases to fit within the definition of Insignificant Subsidiary, such restricted subsidiary is required to unconditionally guarantee, jointly and severally, on an unsecured basis, the Company’s obligations under the 2028 Senior Notes.

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.

10 unchanged sentences

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

As of December 31, 2021, the estimated fair value of the 2028 Senior Notes was approximately $ 521.2 million 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.

The following table provides additional information related to our 2028 Senior Notes (in thousands):

As of December 31, 2022 and 2021, the estimated fair value of the 2028 Senior Notes was approximately $ 459.4 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.

The following table provides additional information related to our 2028 Senior Notes as of December 31, 2022 and 2021 (in thousands):

Principal amount of 2028 Senior Notes

$ 500,000 $ 500,000

Debt issuance costs ( 7,387 ) ( 8,378 )

Net carrying amount of 2028 Senior Notes

$ 492,613 $ 491,622

2025 Senior Notes

5 unchanged sentences

The Company recorded a loss on extinguishment of $ 38.0 million, which is recorded in interest expense, net in the Consolidated Statements of Income.

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 Consensus with a senior secured revolving credit facility of $ 25.0 million (the “Credit Facility”) with an option held by the Company to obtain an additional commitment of up to a maximum of $ 25.0 million.

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

As of December 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”) base interest rate plus a SOFR margin between 1.75 % - 2.50 %, with stepdowns subject to the total net leverage ratio.

The Credit Facility is subject to a total net leverage ratio covenant and a minimum EBITDA requirement, in each case tested on a quarterly basis.

The Credit Agreement contains covenants that restrict the Company’s ability to (i) pay dividends or make distributions on the Company’s common stock;

(ii) make certain restricted payments;

(iii) create liens or enter into sale and leaseback transactions;

(iv) enter into transactions with affiliates;

(v) merge or consolidate with another company;

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 December 31, 2022.

Consensus 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 .

The Company recorded total non-cash impairment charges of $ 7.5 million, zero , and zero during the years ended December 31, 2021, 2020, and 2019, respectively.

Office and equipment leases are typically for terms of three to ten years and generally provide renewal options for terms up to an additional five years .

The Company determines if an arrangement is a lease at inception.

Short-term leases are defined as leases that have a term of 12 months or less and do not include an option to purchase the underlying asset or include an option to purchase the underlying asset that the Company is not reasonably certain to exercise.

The Company accounts for short-term leases by recognizing the lease payments in general and administrative expenses in the Consolidated Statements of Income.

Short-term lease expense is recognized on a straight-line basis over the term of the lease and associated variable lease payments are recognized in the period in which the obligation for the payments is incurred.

Operating lease assets represent the right to use an underlying asset for the lease term, and operating lease liabilities represent the obligation to make lease payments arising from the lease.

These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date.

The Company uses a collateralized incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments.

Operating leases typically require payment of certain non-lease costs, such as real estate taxes, common area maintenance and insurance.

These components comprise the majority of the Company’s variable lease costs and are excluded from the present value of lease liabilities unless an event occurs that results in the payments becoming fixed for the remaining term.

The remaining lease and non-lease components are accounted for together as a single lease component for all underlying classes of assets.

Operating lease assets are adjusted for lease incentives, initial direct costs, impairments and exit or disposal costs.

The Company accounts for operating leases greater than one year by recognizing the lease payments in general and administrative expenses in the Consolidated Statements of Income.

Operating lease costs are recognized on a straight-line basis from the commencement date to the end of the lease term.

Amortization on finance lease right-of-use assets are included in general and administrative expenses in the Consolidated Statements of Income.

Interest on finance lease right-of-use assets, if any, is included in interest expense in the Consolidated Statements of Income.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company recorded total non-cash impairment charges of $ 7.5 million related to its operating lease right-of-use assets during the year ended December 31, 2021.

The $ 7.5 million in impairment charge during 2021 consists of $ 6.5 million recognized in continuing operations and $ 1.0 million recognized in discontinued operations.

2 unchanged sentences

The impairment was determined by comparing the fair value of the impacted right-of-use asset to the carrying value of the asset as of the impairment measurement date, as required under ASC Topic 360, Property, Plant, and Equipment.

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 represents Level 3 unobservable inputs.

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 carrying value of the asset was remeasured to exclude a five year optional lease term that was originally included in the initial assessment.

1 unchanged sentence

No impairment was recorded in 2022 or 2020.

The components of lease expense, recorded in cost of revenues and general and administrative expenses on the Consolidated Statements of Income, were as follows for the year ended (in thousands):

The components of lease expense, recorded in cost of revenues and general and administrative expenses on the Consolidated Statements of Income, were as follows for the years ended December 31, 2022, 2021 and 2020 (in thousands):

Years ended December 31,

2022 2021 2020

Operating lease cost $ 2,121 $ 2,675 $ 3,002

2 unchanged sentences

Amortization of right-of-use assets 1,182 834 160

Interest on lease liabilities — —

Total lease cost $ 4,959 $ 4,384 $ 3,348

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

Supplemental balance sheet information related to leases as of December 31, 2022 and 2021 was as follows (in thousands):

Lease-Related Assets and Liabilities December 31, 2022 December 31, 2021

5 unchanged sentences

Total operating lease liabilities $ 16,670 $ 16,529

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

(1) The full amount of the finance leases were prepaid.

Therefore, there is no corresponding lease liability associated with the finance right-of-use assets.

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

Supplemental cash flow information related to leases for the years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):

Years ended December 31,

2022 2021 2020

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

21 unchanged sentences

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 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.

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 regards to the lease that 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.

6 unchanged sentences

Non-Income Related Taxes

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.

Accordingly, the Company has recorded a sales tax expense in 2021 of $ 6.7 million for all periods affected, net of federal income tax benefit of $ 1.9 million of which $ 4.6 million, net of federal income tax benefit of $ 1.3 million, is deemed to be an out of period correction that is not deemed to be material to either the current or any prior periods.

The provision for income tax related to continuing operations consisted of the following (in thousands):

The Company historically did not collect sales tax in states where it was not able to quantify the appropriate sales tax to be collected.

For the periods 2017 through 2021, the Company believed it was probable that a sales tax liability existed for its corporate accounts;

however, the sales tax liability for its corporate customers was not estimable until the third quarter of 2022.

Prior to the third quarter of 2022, the Company was unable to determine which of these customers were either exempt organizations or resellers and were thus exempt from sales tax.

In the third quarter of 2022, the Company completed an analysis of the pool of corporate customers subject to sales tax in order to estimate the range of sales tax liability on its corporate revenues.

As a result, the Company recorded an accrual of $ 8.0 million during the quarter ended September 30, 2022 within accounts payable and accrued expenses on the Company’s Consolidated Balance Sheets, as the exposure became both probable and estimable.

Additionally, the Company started sales tax collection and remittance on corporate sales in applicable states in August 2022.

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

The Company has taken the same approach in estimating the SoHo liability for the year ended December 31, 2022.

Accordingly, the Company has recorded a sales tax expense within general and administrative expenses in the Consolidated Statements of Income of $ 9.4 million for both SoHo and Corporate sales for the year ended December 31, 2022, and $ 8.6 million the year ended December 31, 2021 for SoHo sales only.

The Company has initiated a Voluntary Disclosure Agreement (“VDA”) process in the third quarter of 2022, to voluntarily report the prior period sales tax liability.

The process is expected to be completed within 6-12 months.

While the Company believes that it has sufficiently reserved for historical sales tax liabilities under ASC 450, some state taxing authorities may still challenge the Company’s sales tax position, the methodology used to calculate the sales tax liability, and may also impose other taxes on our business.

Taxing authorities may successfully assert that the Company should have collected, or in the future should collect sales and use, telecommunications or similar taxes, and could be subject to liability with respect to past or future tax, which could adversely affect the Company’s operating results.

The Company will continue to review and monitor the impact of sales tax rules in order to mitigate any associated risks on its business.

As such, the Company has a $ 13.1 million and $ 8.6 million sales tax liability within accounts payable and accrued expenses on the Company’s Consolidated Balance Sheets as of December 31, 2022 and 2021, respectively.

In conjunction with the state voluntary disclosure agreement process the Company is remitting sales tax for SoHo and corporate sales for current and prior periods.

Other Balance Sheet Account Details

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following as of December 31, 2022 and 2021 (in thousands):

Prepaid insurance $ 1,004 $ 1,191

Prepaid income taxes 8,033 —

Other prepaid expenses 4,884 3,233

Other current assets 414 226

Total $ 14,335 $ 4,650

Accounts payable and accrued expenses

Accounts payable and accrued expenses consisted of the following as of December 31, 2022 and 2021 (in thousands):

Accounts payable $ 6,288 $ 4,905

Accrued sales and other taxes 13,865 8,721

Accrued interest 10,717 12,559

Accrued compensation 2,755 4,401

Accrued advertising expenses 3,545 3,001

Other accrued expenses 4,076 6,619

Total $ 41,246 $ 40,206

Income from continuing operations before income taxes for the years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):

Years Ended December 31,

2022 2021 2020

Domestic $ 7,772 $ 80,655 $ 49,673

Foreign 91,141 80,429 102,783

Income before income taxes $ 98,913 $ 161,084 $ 152,456

Income tax expense (benefit) related to continuing operations consisted of the following (in thousands):

Years Ended December 31,

2022 2021 2020

Federal $ 13,327 $ 22,368 $ 5,831

6 unchanged sentences

Total deferred ( 1,738 ) 6,601 5,533

Total provision $ 39,910 $ 30,043 $ ( 33,137 )

Income tax expense $ 26,199 $ 39,910 $ 30,043

A reconciliation of the statutory federal income tax rate with Consensus’ effective income tax rate is as follows:

7 unchanged sentences

Reserve for uncertain tax positions 2.1 0.5 0.1

Intra-entity tax benefit — — ( 31.7 )

Impact on deferred taxes of enacted tax law and rate changes 0.1 — —

Tax credits and incentives ( 2.4 ) ( 0.1 ) ( 0.1 )

3 unchanged sentences

Effective tax rates 26.5 % 24.8 % 19.8 %

The effective tax rate for the year ended December 31, 2021 differs from the federal statutory rate primarily due to an increase in the net reserve for uncertain tax positions during 2021 driven by an increase in expenses incurred that are not deductible for tax.

The effective tax rate for the year ended December 31, 2020 differs from the federal statutory rate primarily due to impacts of the jurisdictional mix of income and the disallowance of certain expenses.

The effective tax rate for the year ended December 31, 2019 differs from the federal statutory rate primarily due to a net tax benefit recognized as a result of an intra-entity transfer.

In December 2019, the Company completed an intra-entity asset transfer between two of its foreign subsidiaries as part of the reorganization of its international operating structure.

The effective tax rate for the year ended December 31, 2022 differs from the federal statutory rate primarily due to the Global Intangible Low-Taxes Income inclusion, impact of jurisdictional mix of earnings, an increase in the net reserve for uncertain tax positions during 2022, various tax credits and certain expenses not deductible for tax purposes, such as, non-deductible executive compensation.

The effective tax rate for the year ended December 31, 2021 differs from the federal statutory rate primarily due to impacts of the Global Intangible Low-Taxed Income inclusion, an increase in the reserve for uncertain tax positions during 2021 and various tax credits.

The effective tax rate for the year ended December 31, 2020 differs from the federal statutory rate primarily due to the Global Intangible Low-Taxes income inclusion, impact of jurisdictional mix of earnings and various tax credits.

Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.

7 unchanged sentences

Share-based compensation expense 611 245

Basis difference in property and equipment 30,887 36,139

Impairment of investments — 48

Basis difference in intangibles 20,056 30,887

Basis difference in developed software 1,089 —

Deferred revenue 425 —

1 unchanged sentence

State taxes 187 135

Section 163(j) interest limitation 5,521 1,144

Other 974 1,530

9 unchanged sentences

Net deferred tax assets $ 35,253 $ 35,815

The Company had approximately $ 35.8 million and $ 39.0 million in net deferred tax assets as of December 31, 2021 and 2020, respectively, related primarily to basis difference between tangible and intangible assets.

The Company had approximately $ 35.3 million and $ 35.8 million in net deferred tax assets as of December 31, 2022 and 2021, respectively, related primarily to basis differences in tangible and intangible assets.

Based on the weight of available evidence, the Company assesses whether it is more likely than not that some portion or all of a deferred tax asset will not be realized.

If necessary, the Company records a valuation allowance sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized.

The deferred tax assets should be realized through future operating results and the reversal of temporary differences.

As of December 31, 2021 and 2020, the Company has interest expense limitation carryovers of $ 4.9 million and zero , respectively, which last indefinitely.

As of December 31, 2021 and 2020, the Company had $ 0.2 million and zero foreign tax credit carryforward, respectively.

In addition, as of December 31, 2021 and 2020, the Company had state research and development tax credits of $ 0.1 million and zero , respectively, which can be carried forward indefinitely.

As of December 31, 2022 and 2021, the Company has a minimal amount of valuation allowance against its deferred tax assets of foreign net operating losses.

As of December 31, 2022 and 2021, the Company has interest expense limitation carryovers of $ 23.4 million and $ 4.9 million, respectively, which carries forward indefinitely.

As of December 31, 2022 and 2021, the Company had $ 0.5 million and $ 0.2 million foreign tax credit carryforward, respectively.

If unused, these credits expire between 2031 and 2032.

In addition, as of December 31, 2022 and 2021, the Company had state research and development tax credits of $ 1.0 million and $ 0.1 million, respectively, which can be carried forward indefinitely.

Federal and state laws can impose substantial restrictions on the utilization of tax credit carry-forwards in the event of an “ownership change,” as defined in Section 382 of the Internal Revenue Code.

The Company has determined that no significant limitation would be placed on the utilization of its tax credit carry-forwards due to ownership changes.

The Company has not provided deferred taxes on approximately $ 330.9 million of undistributed earnings from foreign subsidiaries as of December 31, 2022.

2 unchanged sentences

Because of the various avenues in which to repatriate the earnings, it is not practicable to determine the amount of the unrecognized deferred tax liability related to the undistributed earnings if eventually remitted.

Certain tax payments are prepaid during the year and included within prepaid expenses and other current assets on the Consolidated Balance Sheet.

The Company’s prepaid tax payments were zero and $ 0.3 million at December 31, 2021 and 2020, respectively.

Income from continuing operations before income taxes included income from domestic operations of $ 80.7 million, $ 49.7 million and $ 81.1 million for the years ended December 31, 2021, 2020 and 2019, respectively, and income from foreign operations of $ 80.4 million, $ 102.8 million and $ 64.6 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Certain tax payments are prepaid during the year and included within prepaid expenses and other current assets on the Consolidated Balance Sheets.

The Company’s prepaid tax payments were $ 8.0 million and zero at December 31, 2022 and 2021, respectively.

Uncertain Income Tax Positions

4 unchanged sentences

The Company classifies gross interest and penalties and unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as non-current liabilities in the Consolidated Balance Sheets.

As of December 31, 2021, the total amount of unrecognized tax benefits was $ 3.7 million, of which $ 3.7 million, if recognized, would affect the Company’s effective tax rate.

As of December 31, 2020, the total amount of unrecognized tax benefits was $ 3.1 million, of which $ 3.1 million, if recognized, would affect the Company’s effective tax rate.

As of December 31, 2019, the total amount of unrecognized tax benefits was $ 3.0 million, of which $ 3.0 million, if recognized would affect the Company’s effective tax rate.

The aggregate changes in the balance of unrecognized tax benefits, which excludes interest and penalties, for 2021, 2020 and 2019, is as follows (in thousands):

As of December 31, 2022, the total amount of unrecognized tax benefits, excluding interest and penalties, was $ 5.7 million, of which $ 5.7 million, if recognized, would affect the Company’s effective tax rate.

As of December 31, 2021, the total amount of unrecognized tax benefits, excluding interest and penalties, was $ 3.7 million, of which $ 3.7 million, if recognized, would affect the Company’s effective tax rate.

As of December 31, 2020, the total amount of unrecognized tax benefits, excluding interest and penalties, was $ 3.1 million, of which $ 3.1 million, if recognized would affect the Company’s effective tax rate.

The aggregated changes in the balance of unrecognized tax benefits, which excludes interest and penalties, for 2022, 2021 and 2020, is as follows (in thousands):

Years Ended December 31,

7 unchanged sentences

As of December 31, 2022, 2021 and 2020, the total amount of interest and penalties accrued was $ 1.0 million, $ 1.0 million and $ 0.9 million, respectively, which is classified as a liability for uncertain tax positions on the Consolidated Balance Sheets.

In connection with tax matters, the Company recognized interest and penalty expense (benefit) in 2021, 2020 and 2019 of $ 0.2 million, $ 0.2 million and $( 4.4 ) million, respectively.

In connection with tax matters, the Company recognized interest and penalty expense in 2022, 2021 and 2020 of $ 0.1 million, $ 0.2 million and $ 0.2 million, respectively.

Uncertain income tax positions are reasonably possible to significantly change during the next 12 months as a result of completion of income tax audits and expiration of statutes of limitations.

At this point it is not possible to provide an estimate of the amount, if any, of significant changes in reserves for uncertain income tax positions as a result of the completion of income tax audits that are reasonably possible to occur in the next 12 months.

In addition, the Company cannot currently estimate the amount of, if any, uncertain income tax positions which will be released in the next 12 months as a result of expiration of statutes of limitations due to ongoing audits.

As a result of ongoing federal, state and foreign income tax audits (discussed below), it is reasonably possible that the Company’s entire reserve for uncertain income tax positions for the periods under audit will be released.

It is also reasonably possible that the Company’s reserves will be inadequate to cover the entire amount of any such income tax liability.

Income Tax Audits:

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

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

As of December 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.

The Company has recently filed its first set of post-spin tax returns including some international subsidiaries who have previously filed in their local jurisdictions.

In respect to these international subsidiaries, tax returns filed for the years from 2016 onwards are still open to examination by tax authorities.

6 unchanged sentences

The Separation was achieved when Ziff Davis’ distributed 80.1 % of the shares of Consensus common stock to holders of Ziff Davis common stock as of the close of business on October 1, 2021, the record date for the distribution.

Ziff Davis’ stockholders of record received one share of Consensus common stock for every three shares of Ziff Davis’ common stock.

Ziff Davis’ stockholders of record received one share of Consensus common stock for every three shares of Ziff Davis’ common stock held.

Ziff Davis retained a 19.9 % investment in Consensus following the Separation.

On March 1, 2022, the Company’s Board of Directors has 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 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 (see Note 21 - Subsequent Events).

Subsequently Ziff Davis has sold, or otherwise disposed of, a portion of its Consensus shares, reducing its beneficial ownership in the Company to under 10% as of December 31, 2022 (see Note 21 - Related Party Transactions).

The Company currently does not issue dividends to Consensus shareholders.

Future dividends are subject to Board approval.

Periodically, participants in Consensus 2021 stock plan may surrender to the Company shares of Consensus common stock to satisfy tax withholding obligations arising upon the vesting of restricted stock.

During the years ended December 31, 2021, 2020, and 2019 the Company purchased zero shares, respectively, from plan participants for this purpose.

Our current debt agreements could trigger restrictions on dividend payments under certain circumstances (see Note 9 - Long-Term Debt).

Common Stock Repurchase Program

On March 1, 2022, the Company’s Board of Directors approved a share buyback program.

Under this program, the Company may purchase, in the public market, or in off-market transactions, up to $ 100.0 million of the Company’s common stock through February 2025.

The timing and amounts of purchases will be determined by the Company, depending on market conditions and other factors it deems relevant.

The Company entered into Rule 10b-18 and Rule 10b5-1 trading plans and during the years ended December 31, 2022 and 2021, the Company repurchased 189,114 and zero shares, respectively, under this program.

Cumulatively as of December 31, 2022, 189,114 shares have been repurchased at an aggregate cost of $ 7.6 million.

Vested Restricted Stock

At the time of certain vesting events related to restricted stock units or restricted stock awards that are held by participants in Consensus’ Equity Incentive Plan, a portion of the awards subject to vesting are withheld by the Company to satisfy the employees’ tax withholding obligations that arise upon the vesting of restricted stock.

As a result, the number of shares issued upon vesting for these awards is net of the statutory withholding requirements that the Company pays on behalf of its employees.

Although shares withheld are not issued, they are treated similarly as common share repurchases in the Company’s consolidated financial statements, as they reduce the number of shares that would have been issued upon vesting.

These shares do not count against the authorized capacity under the Company’s share repurchase program described above.

During the years ended December 31, 2022 and 2021 the Company withheld shares on its vested restricted stock units relating to its share-based compensation plans of 71,509 and zero shares, respectively.

Refer to Note 15 - Equity Incentive and Employee Stock Purchase Plan, for shares of common stock issued in relation to the Company’s equity incentive plan.

3 unchanged sentences

In connection with the Separation, the Former Parent terminated awards that were held by Consensus employees.

These were replaced with awards issued under the 2021 Equity Incentive Plan.

Each award held by a Consensus employee under the Former Parent’s compensation plans was converted into 2.21 Consensus awards under the 2021 Equity Incentive Plan, which resulted in 86,460 Ziff Davis awards converted into 191,076 Consensus awards.

This modification resulted in no incremental compensation cost.

In 2021, the Company recorded a reduction of share-based compensation expense, offset by APIC, of $ 3.2 million, net of federal income tax expense of $ 1.0 million, of which $ 3.0 million, net of federal income tax expense of $ 0.9 million, is deemed to be an out of period correction that is not deemed to be material to either the current or any prior periods.

Consensus Equity Incentive Plans

5 unchanged sentences

Restricted Stock and Restricted Stock Units

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

The Company has awarded restricted stock and restricted stock units to its Board of Directors and certain employees 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 Company’s Board of Directors, four years for senior staff (excluding market-based awards discussed below) and five years for the Chief Executive Officer and Chief Operating Officer.

The Company issued 59,175 shares of restricted stock awards (excluding awards with market conditions below), all of which were exchanged in the Separation.

The Company granted 510,128 shares of restricted stock units (excluding units with market conditions below), which includes 91,203 shares exchanged in the Separation, during the year ended December 31, 2021.

Vesting periods are approximately one year for awards to members of the Company’s Board of Directors, four years for employees and five years for the Chief Executive Officer and Chief Operating Officer.

The Company issued 884 and 59,175 shares of restricted stock during the years ended December 31, 2022 and 2021, respectively.

All of the restricted stock issued in 2021 were exchanged in the Separation.

The Company granted 216,959 and 510,128 restricted stock units, which includes 91,203 shares exchanged in the Separation in 2021, during the years ended December 31, 2022 and 2021, respectively.

Restricted Stock and Restricted Stock Units with Market Conditions

Consensus has awarded certain key employees market-based restricted stock awards pursuant to the 2021 Plan.

The Company has awarded certain key employees market-based restricted stock and restricted stock units pursuant to the 2021 Plan.

The market-based awards have vesting conditions that are based on specified stock price targets of the Company’s common stock.

Market conditions were factored into the grant date fair value using a Monte Carlo valuation model, which utilized multiple input variables to determine the probability of the Company achieving the specified stock price targets 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 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 year ended December 31, 2021, the Company issued 6,060 shares of market-based restricted stock awards, all of which were exchanged in the Separation.

Market conditions were factored into the grant date fair value using a Monte Carlo valuation model, which utilized multiple input variables to determine the probability of the Company achieving the specified stock price targets for 20 out of 30 trading days or 20 out of 25 trading days (look-back period).

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 the requisite service period has been completed, then the expense will be accelerated and recognized in the period that the market condition and service period requirement have been met.

During the year ended December 31, 2021, the Company issued 6,060 shares of market-based restricted stock, all of which were exchanged in the Separation.

The Company granted 503,144 market-based restricted stock units, which includes 34,638 shares exchanged in the Separation, during the year ended December 31, 2021.

The per share weighted-average grant-date fair values of the market-based restricted stock awards granted during the year ended December 31, 2021 was $ 57.67 .

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

December 31, 2021

During the year ended December 31, 2022, the Company granted 42,586 shares of market-based restricted stock units.

The per share weighted-average grant-date fair values of the market-based awards granted during the years ended December 31, 2022 and 2021 was $ 55.47 and $ 46.07 , respectively, as determined by the Monte Carlo valuation.

Notwithstanding the valuation, for the underlying stock price assumption, all market-based stock awards utilize the market value at the close of business on the date the grant is awarded.

The Monte Carlo valuation model used to estimate the fair value of the market-based awards granted utilized the following weighted-average assumptions:

December 31, 2022 December 31, 2021

Underlying stock price at valuation date $ 59.66 $ 57.06

1 unchanged sentence

Risk-free interest rate 3.6 % 1.3 %

Restricted stock award activity for the year ended December 31, 2021 is set forth below:

Contractual term 8 years 6.1 years

Restricted stock activity for the years ended December 31, 2022 and 2021 is set forth below:

Number of Shares Weighted-Average

Fair Value (1)

Nonvested at January 1, 2021 — $ —

1 unchanged sentence

Nonvested at December 31, 2021 65,235 $ 38.46

Granted 884 37.67

Vested ( 30,703 ) 38.50

Nonvested at December 31, 2022

35,416 $ 38.42

Restricted stock unit activity for the year ended December 31, 2021 is set forth below:

(1) The Company revised the grant date fair value of certain awards which were inaccurately disclosed related to the prior period.

The Company determined that the update of this disclosure did not have a material impact to the current or prior period financial statements.

As of December 31, 2022, the Company had unrecognized share-based compensation cost related to its restricted stock awards of $ 0.5 million, which is expected to be recognized over a weighted-average period of 1.0 years.

Restricted stock unit activity for the years ended December 31, 2022 and 2021 is set forth below:

Shares Weighted-Average

Fair Value Weighted-Average

Fair Value (1)

Weighted-Average

Life (in Years) Aggregate

4 unchanged sentences

Outstanding at December 31, 2021 1,013,097 $ 50.71

Granted 259,545 57.61

Vested ( 165,494 ) 54.72

Canceled ( 24,697 ) 56.20

Outstanding at December 31, 2022 1,082,451 $ 51.63 3.9 $ 58,192,566

Vested and expected to vest at December 31, 2022 710,764 $ 52.68 3.3 $ 38,210,673

As of December 31, 2021, the Company had unrecognized share-based compensation cost of $ 48.6 million associated with these awards.

This cost of $ 1.6 million and $ 47.0 million is expected to be recognized over a weighted-average period of 1.7 years for awards and 5.4 years for units, respectively.

The Company recognized $ 0.2 million of tax benefits related to the restricted stock awards and restricted stock units for the periods ending December 31, 2021 related to the 2021 Plan.

(1) The Company revised the grant date fair value of certain awards which were inaccurately disclosed related to the prior period.

The Company determined that the update of this disclosure did not have a material impact to the current or prior period financial statements.

As of December 31, 2022, the Company had unrecognized share-based compensation cost related to its restricted stock units of $ 39.8 million, which is expected to be recognized over a weighted-average period of 4.6 years.

The Company recognized $ 1.3 million and $ 0.2 million, respectively, of tax benefits related to the share-based compensation costs for the years ending December 31, 2022 and 2021 related to the 2021 Plan.

(b) Employee Stock Purchase Plan (“ESPP”)

2 unchanged sentences

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 (a “Share”) on the beginning or the end of the offering period, with each offering period being six months.

Consensus performed an analysis of the Purchase Plan terms and 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 Company recognized $ 0.1 million of compensation expense related to the Purchase Plan for the year ended December 31, 2021.

The purchase price for each offering period is 85 % of the lesser of the fair market value of a share of common stock of the Company (a “Share”) on the first or last day of the offering period, with each offering period being six months.

The plan includes a provision 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 therefore, the Company is required to recognize compensation expense.

The compensation cost is recognized on a straight-line basis over the requisite service period, which is the same as the offering period of the Purchase Plan.

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

3 unchanged sentences

The Company uses an annualized dividend yield based upon the per share dividends declared by its Board of Directors.

Estimated forfeiture rates was 10.34 % as of December 31, 2021.

Estimated forfeiture rates were 6.73 % and 10.34 % as of December 31, 2022 and 2021, respectively.

During 2022 and 2021, 32,096 and 10,421 Consensus shares were purchased under the Purchase Plan for a weighted average purchase price of $ 40.39 and $ 49.67 per share, respectively.

Cash received upon issuance of the Company’s common stock under the Purchase plan was $ 1.3 million and $ 0.5 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, there are 957,483 shares available under the Purchase Plan for future issuance.

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

December 31, 2021

December 31, 2022 December 31, 2021

Risk-free interest rate 4.54 % 0.05 %

3 unchanged sentences

Weighted average volatility 48.19 % 17.89 %

During 2021, 10,421 Consensus shares were purchased under the Purchase Plan at $ 49.67 per share.

As of December 31, 2021, there are 989,579 shares available under the Purchase Plan for future issuance.

Historical Cloud Services

7 unchanged sentences

Stock Options

The stock option activity attributable to Consensus employees for the period ended December, 2021, 2020, and 2019 is summarized as follows:

The stock option activity attributable to Consensus employees for the years ended December, 2021 and 2020 is summarized as follows:

Number of Shares

6 unchanged sentences

( 250 ) 29.53

Options outstanding at December 31, 2020 8,460 $ 29.53

( 250 ) 29.53

Adjustment due to Separation ( 8,210 )

2 unchanged sentences

Vested and expected to vest at December 31, 2021 — $ — 0.0 $ —

For the years ended December 31, 2021, 2020, and 2019, the Former Parent granted zero options to Consensus employees, respectively, to purchase shares of common stock pursuant to the 2015 Plan.

These stock options vested 20 % per year and expired 10 years from the date of grant.

The total intrinsic values of options exercised attributable to Consensus employees during the years ended December 31, 2021, 2020 and 2019 was zero , respectively.

The total fair value of options vested during the period prior the Separation was zero for the years ended December 31, 2021, 2020, and 2019, respectively.

For the years ended December 31, 2021 and 2020, the Former Parent granted no options to Consensus employees, respectively, to purchase shares of common stock pursuant to the 2015 Plan.

Stock options granted under the 2015 plan vested 20 % per year and expired 10 years from the date of grant.

The total intrinsic values of options exercised attributable to Consensus employees during the years ended December 31, 2021 and 2020 was zero .

The total fair value of options vested during the period prior the Separation attributable to Consensus employees was zero for the years ended December 31, 2021 and 2020.

Cash received by the Former Parent from options exercised under all share-based payment arrangements for the years ended December 31, 2021 and 2020 was zero .

The actual tax benefit realized for the tax deductions from option exercises under the share-based payment arrangements totaled zero for the years ended December 31, 2021, 2020, 2019.

As of December 31, 2021, there was zero of total unrecognized compensation expense related to nonvested share-based compensation options granted under the 2015 Plan.

The actual tax benefit realized for the tax deductions from option exercises under the share-based payment arrangements was zero for the years ended December 31, 2021 and 2020.

As of December 31, 2021, there was no unrecognized compensation expense related to nonvested share-based compensation options granted under the 2015 Plan.

Fair Value Disclosure

The Former Parent used 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 Former Parent’s common stock.

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

The risk-free interest rate is based on U.S.

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

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

The risk-free interest rate was 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 Former Parent uses an annualized dividend yield based upon the per share dividends declared by the Former Parent’s Board of Directors.

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

Estimated forfeiture rates were 12.4 % and 13.0 % as of December 31, 2021 and 2020, respectively.

2 unchanged sentences

Vesting periods are approximately one year for awards to members of the Former Parent’s Board of Directors, five

years for senior staff (excluding market-based awards discussed below) and eight years for the Chief Executive Officer.

The Former Parent granted 2,207 , 2,961 , and 5,937 shares of restricted stock and restricted units (excluding awards with market conditions below) the years ended December 31, 2021, 2020 and 2019, respectively.

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

The Former Parent granted 2,207 and 2,961 shares of restricted stock and restricted units the years ended December 31, 2021 and 2020, respectively.

Restricted Stock Awards with Market Conditions

The Former 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.

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

The market-based awards had vesting conditions that were based on specified stock price targets of the Former 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 Former 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 the years ended December 31, 2020 and 2019, the Parent awarded 73,094 , 82,112 , and 74,051 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 years ended December 31, 2021, 2020 and 2019 were $ 113.27 , $ 91.17 , and $ 84.58 , respectively.

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

December 31, December 31, December 31,

2021 2020 2019

Stock-based compensation expense related awards with a market condition were recognized over the requisite service period using the graded-vesting method, regardless of whether the market condition was satisfied, provided that the requisite service period had been completed.

During the nine months ended September 30, 2021 and the year ended December 31, 2020, the Former 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 years ended December 31, 2021, 2020 were $ 113.27 and $ 91.17 , respectively.

The Monte Carlo valuation model used by the Former Parent to estimate the fair value of market-based restricted stock awards granted utilized the following weighted-average assumptions:

December 31, December 31,

Underlying stock price at valuation $ 113.27 $ 91.17

1 unchanged sentence

Risk-free interest rate 1.3 % 0.7 %

The total fair value of restricted stock and restricted stock units vested during the years ended December 31, 2021, 2020 and 2019 was $ 1.3 million, $ 0.7 million, and $ 2.0 million, respectively.

The actual tax benefit realized for the tax deductions from the vesting of restricted stock awards and units totaled zero , respectively, for the years ended December 31, 2021, 2020 and 2019.

Contractual term 8 years 8 years

The restricted stock award activity for the years ended December 31, 2021 and 2020 is set forth below:

1 unchanged sentence

Nonvested at January 1, 2020 37,674 $ 75.03

Granted 7,564 82.64

Vested ( 7,785 ) 76.43

3 unchanged sentences

Canceled ( 6,850 ) 83.14

Nonvested at December 31, 2020 26,869 $ 57.21

Vested ( 6,189 ) 74.52

Canceled ( 6,850 ) 83.14

Adjustment due to Separation ( 13,830 ) 53.72

10 unchanged sentences

Canceled ( 8,856 )

Outstanding at December 31, 2020 13,694

Granted 4,416

Vested ( 2,470 )

Canceled ( 8,856 )

Adjustment due to Separation ( 6,784 )

1 unchanged sentence

Vested and expected to vest at December 31, 2021 — 0.0 $ —

The total fair value of restricted stock and restricted stock units vested during the years ended December 31, 2021 and 2020 was $ 1.3 million and $ 0.7 million, respectively.

The actual tax benefit realized for the tax deductions from the vesting of restricted stock awards and units totaled zero, respectively, for the years ended December 31, 2021 and 2020.

(b) Employee Stock Purchase Plan ( “ESPP”)

1 unchanged sentence

2001 Employee Stock Purchase Plan, as amended (the “Purchase Plan”), which provided for the issuance of a maximum of 2,000,000 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 Ziff Davis’ common stock at certain plan-defined dates.

Under the Purchase Plan, eligible employees could have up to 15 % of their earnings withheld, up to certain maximums, to be used to purchase shares of Ziff Davis’ common stock at certain plan-defined dates.

The price of the common stock purchased under the Purchase Plan for the offering periods is equal to 95 % of the fair market value of the common stock at the end of the offering period.

On February 2, 2018, the Former Parent approved an amendment to the Former Parent’s Amended and Restated 2001 Employee Stock Purchase Plan, to be effective May 1, 2018, such that (i) the purchase price for each offering period shall be 85 % of the lesser of the fair market value of a share of common stock of the Parent (a “Share”) on the beginning or the end of the offering period, rather than 95 % of the fair market value of a Share at the end of the offering period, and (ii) each offering period will be six months, rather than three months.

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

2 unchanged sentences

The Former 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 Former Parent’s common stock.

The risk-free interest rate is based on U.S.

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

The risk-free interest rate was 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 Former Parent uses an annualized dividend yield based upon the per share dividends declared by the Former Parent’s Board of Directors.

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

Estimated forfeiture rates were 11.15 % and 11.15 % as of December 31, 2021 and 2020, respectively.

During the years ended December 31, 2021, 2020 and 2019, 503 , 1,413 , and 1,921 shares, respectively were purchased under the Purchase Plan at price at $ 72.92 per share during 2021.

During the years ended December 31, 2021 and 2020, 503 and 1,413 shares were purchased under the Purchase Plan, respectively.

Shares purchased under the Purchase Plan were priced at $ 72.92 per share during 2021.

As of December 31, 2021, zero shares were available under the Purchase Plan for future issuance.

1 unchanged sentence

Consensus has a 401(k) Savings Plan that qualifies under Section 401(k) of the Internal Revenue Code.

Eligible employees may contribute a portion of their salary through payroll deductions, subject to certain limitations.

Eligible U.S.

employees may contribute a portion of their salary through payroll deductions, subject to certain limitations.

The Company may make annual contributions at its sole discretion to these plans.

1 unchanged sentence

Earnings Per Share

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

The components of basic and diluted earnings per share for the years ended December 31, 2022, 2021 and 2020 are as follows (in thousands, except share and per share data):

Years Ended December 31,

3 unchanged sentences

Net income available to participating securities (2)

( 143 ) ( 359 ) —

Net income available to common shareholders from continuing operations $ 72,571 $ 120,815 $ 122,413

9 unchanged sentences

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 years ended December 31, 2020 and 2019, respectively because the number of shares issued simply reflect a recharacterization of the capital account previously held by the former parent (see Note 1 - The Company).

This share amount was utilized for the computation of basic and diluted earnings per share for the year ended December 31, 2020 because the number of shares issued simply reflect a recharacterization of the capital account previously held by the former parent (see Note 1 - The Company).

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

For the year ended December 31, 2021, 191,076 anti-dilutive shares were excluded from earnings per share calculation.

For the years ended December 31, 2022 and 2021, 509,280 and 191,076 anti-dilutive shares were excluded from earnings per share calculation, respectively.

Segment Information

2 unchanged sentences

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 2 - Basis of Presentation and Summary of Significant Accounting Policies.

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.

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

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

Geographic information about the U.S.

9 unchanged sentences

Total $ 362,422 $ 352,664 $ 331,168

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

2022 December 31,

7 unchanged sentences

Supplemental Cash Flows Information

Cash paid for interest on outstanding debt during the years ended December 31, 2021, 2020 and 2019 was zero , $ 54.4 million and $ 42.3 million, respectively, which is the primary contributor for total cash paid for interest.

Cash paid for interest on outstanding debt during the years ended December 31, 2022, 2021 and 2020 was $ 51.9 million, zero and $ 54.4 million, respectively.

The Company capitalized $ 1.4 million of interest expense within property and equipment, net on the Company’s Consolidated Balance Sheets during the year ended December 31, 2022.

Zero interest expense was capitalized during the years ended December 31, 2021 and 2020.

The Company capitalized $ 1.5 million of share-based compensation cost within property and equipment, net on our Consolidated Balance Sheets during the year ended December 31, 2022.

Zero share-based compensation cost was capitalized during the years ended December 31, 2021 and 2020.

Cash paid for income taxes net of refunds received was $ 36.5 million, $ 3.1 million and $ 1.7 million during the years ended December 31, 2022, 2021 and 2020, respectively.

During the year ended December 31, 2021, in a non-cash transaction, an asset related to the $ 500.0 million aggregate principal amount of the 6.5 % Senior Notes due 2028 (see Note 9 - Debt) and $ 837.3 million of non-fax business net assets were transferred to Ziff Davis with a corresponding reduction of additional-paid-in-capital.

During the year ended December 31, 2021, in a non-cash transaction, an asset related to the $ 500.0 million aggregate principal amount of the 6.5 % Senior Notes due 2028 (see Note 9 - Long-Term Debt) and $ 837.3 million of non-fax business net assets were transferred to Ziff Davis with a corresponding reduction in additional-paid-in-capital.

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated balances of other comprehensive loss, which solely comprises of foreign currency translation adjustments, for the years ended December 31, 2021, 2020, and 2019 (in thousands):

The following table summarizes the changes in accumulated other comprehensive loss, which solely comprises of foreign currency translation adjustments, for the years ended December 31, 2022, 2021 and 2020 (in thousands):

Foreign Currency Translation

4 unchanged sentences

Other comprehensive loss before reclassifications ( 14,397 )

Net current period other comprehensive loss ( 11,093 )

Balance as of December 31, 2020 $ ( 55,966 )

Other comprehensive income before reclassifications ( 14,397 )

Transfer of non-fax business to Former Parent 53,506

1 unchanged sentence

Balance as of December 31, 2021 $ ( 16,857 )

There were zero reclassifications out of accumulated other comprehensive loss for the years ended December 31, 2021, 2020, and 2019.

Other comprehensive loss before reclassifications (1)

Net current period other comprehensive loss ( 2,251 )

Balance as of December 31, 2022 $ ( 19,108 )

(1) In 2022, the Company recorded a $ 5.5 million out of period correction that increased goodwill with an offset to the cumulative translation adjustment.

It was deemed to be an out of period correction that was not material to 2022 or any prior period.

There were no reclassifications out of accumulated other comprehensive loss for the years ended December 31, 2022, 2021 and 2020.

Related Party Transactions

In preparation for and in executing the Separation, the Company incurred approximately $ 11.5 million (excluding costs associated with the deferred issuance costs) of transaction-related costs, before reimbursement by Ziff Davis.

These transaction costs primarily relate to professional fees associated with preparation of regulatory filings and transaction execution and separation activities within finance, tax and legal functions.

3 unchanged sentences

In addition, the Company paid Ziff Davis approximately $ 8.9 million subsequent to the Separation due to excess cash held at the Separation date net of other related items pursuant to the Separation and Distribution Agreement.

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.

In connection with the Separation, Consensus and Ziff Davis entered into several agreements that govern the relationship of the parties following the Separation, including a separation and distribution agreement, a transition services agreement (“TSA”), a tax matters agreement, an employee matters agreement, an intellectual property license agreement and a stockholder and registration rights agreement (the “Agreements”).

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

The agreed-upon charges, if any, for such services are intended to cover any costs and expenses incurred in providing such services.

As of December 31, 2022, a majority of the services provided under TSA were completed or terminated, with a select few services still winding down and set to terminate no later than 24 months following the Separation.

Further, as noted in Note 10, 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 December 31, 2021 was $ 5.7 million related to these items, as well as reimbursement related to certain transaction related costs, and is included in other current liabilities within the Consolidated Balance Sheet.

Subsequent Event

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 total consideration of $ 15.0 million.

The initial accounting for this acquisition is incomplete due to the timing of available information and purchase accounting information is still being compiled and is not available for disclosure.

On March 1, 2022, the Company’s Board of Directors has 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 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.

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 $ 25.0 million (the “Credit Facility”).

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

Ziff Davis and Consensus had joint liability under the lease through October 7, 2022, after which time the Company will be the sole lessee under the lease.

During the year ended December 31, 2022, the Company paid approximately $ 20.8 million to Ziff Davis, to settle co-mingled cash accounts, costs associated with the transition services agreement and Separation.

Additionally, the Company incurred approximately $ 0.6 million in costs related to the registration of shares for sale held by Ziff Davis for the year ended

December 31, 2022.

These costs were recorded in general and administrative expenses within the Consolidated Statement of Income.

Subsequent to the disposition of the shares, Ziff Davis’ beneficial ownership in the Company was under 10 % as of December 31, 2022.

Amounts due to Ziff Davis as of December 31, 2022 and December 31, 2021 were $ 0.2 million and $ 5.7 million, respectively, related to these items, as well as reimbursement related to certain transaction related costs.

Changes In And Disagreements With Accountants On Accounting And Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data