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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. These forward-looking statements involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed in Part I, Item 1A - “Risk Factors” in this Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Readers should carefully review the Risk Factors and the risk factors set forth in other documents we file from time to time with the SEC.

Overview

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

Following the separation and distribution, Consensus is a leading provider of secure information delivery services with a scalable Software-as-a-Service (“SaaS”) platform. Consensus serves more than 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. Beginning as an online fax company over two decades ago, Consensus has evolved into a leading global provider of enterprise secure communication solutions. Consensus is well positioned to capitalize on advancements in how people and businesses share private documents and information. Its mission is to democratize secure information interchange across technologies and industries, and solve the healthcare interoperability challenge. Consensus’s communication and interoperability solutions enable its customers to securely and cooperatively access, exchange and use information across organizational, regional and national boundaries.

The COVID-19 pandemic continues to have widespread, rapidly evolving and unpredictable impacts on global economies, inflation, supply chains, work force participation and wages, and has created significant volatility and disruption in financial markets. Our focus remains on promoting employee health and safety and serving our customers.During fiscal 2021, we have observed an increasingly competitive labor market. Increased employee turnover, changes in the availability of our employees, including as a result of COVID-19-related absences, and labor shortages generally have resulted in, and could continue to result in, increased costs, and could adversely impact the efficiency of our operations. We continue to actively monitor the situation and will continue to adapt our business operations as necessary.

For purposes of this management’s discussion and analysis of the results of operations and financial condition of Consensus (“MD&A”) section, we use the terms “the Company,” “we,” “us” and “our” to refer to Consensus. References in this MD&A section to “Parent” or “Parent Company” refer to Ziff Davis, Inc. Inc., collectively with its consolidated subsidiaries (now known as Ziff Davis).

Key Performance Metrics

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

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The following table sets forth certain key operating metrics for Consensus continuing operations for the years ended December 31, 2021, 2020 and 2019 (in thousands, except for percentages):

Years ended December 31,

Revenue ($ in thousands)

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

Customer Accounts (in thousands)(1)

Paid Adds (in thousands)(3)

Monthly Churn %(4)

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

(2)Represents a monthly ARPA calculated for the quarter or year calculated as follows. Monthly ARPA on a quarterly basis is calculated using our standard convention of dividing revenue for the quarter by the average of the quarter’s beginning and ending customer base and dividing that amount by 3 months. Monthly ARPA on an annual basis is calculated by dividing revenue for the year by the average customer base for the applicable four quarters and dividing that amount by 12 months. We believe ARPA provides investors an understanding of the average monthly revenues we recognize per account associated within Consensus’ customer base. As ARPA varies based on fixed subscription fee and variable usage components, we believe it can serve as a measure by which investors can evaluate trends in the types of services, levels of services and the usage levels of those services across Consensus’ customers.

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

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

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Critical Accounting Policies and Estimates

We prepare our consolidated financial statements and related disclosures in accordance with U.S. generally accepted accounting principles (“GAAP”) and our discussion and analysis of our financial condition and operating results require us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies” of the notes to consolidated financial statements in Part II, Item 8 of this Form 10-K which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results may differ significantly from those estimates under different assumptions and conditions and may be material.

We believe that our most critical accounting policies are those related to revenue recognition, share-based compensation expense, fair value of assets acquired and liabilities assumed in connection with business combinations, long-lived and intangible asset impairment, contingent consideration, income taxes and contingencies and allowance for doubtful accounts. We consider these policies critical because they are those that are most important to the portrayal of our financial condition and results and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of the Company’s Board of Directors.

Emerging Growth Company Status

We are an emerging growth company, as defined in Section 3(a) of the Exchange Act, as amended by the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements and exemptions from the requirement of holding a nonbinding advisory vote on executive compensation, exemption from new or revised financial accounting.

Revenue Recognition

Our revenues substantially consist of monthly recurring subscription and usage-based fees, the majority of which are paid in advance by credit card. We defer 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.

Along with our numerous proprietary solutions, we also generated revenues by reselling various third-party solutions. These third-party solutions, along with our proprietary products, allowed us to offer customers a variety of solutions to better meet their needs. We recorded revenue on a gross basis with respect to reseller revenue because we have control of the specified good or service prior to transferring control to the customer.

Share-Based Compensation Expense

We account for share-based awards to employees and non-employees in accordance with the provisions of FASB ASC Topic No. 718, Compensation - Stock Compensation (“ASC 718”). Accordingly, we measure share-based compensation expense at the grant date, based on the fair value of the award, and recognize the expense over the employee’s requisite service period using the straight-line method. The measurement of share-based compensation expense is based on several criteria including, but not limited to, the valuation model used and associated input factors, such as expected term of the award, stock price volatility, risk free interest rate, dividend rate and award cancellation rate. These inputs are subjective and are determined using management’s judgment. If differences arise between the assumptions used in determining share-based compensation expense and the actual factors, which become known over time, we may change the input factors used in determining future share-based compensation expense. Any such changes could materially impact our 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 our employees.

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Impairment or Disposal of Long-lived and Intangible Assets

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

We assess 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 we 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;

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

•Significant negative industry or economic trends;

•Significant decline in our stock price for a sustained period; and

•Our market capitalization relative to net book value.

If we determined that the carrying value of definite-lived intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we would record an impairment equal to the excess of the carrying amount of the asset over its estimated fair value. We have assessed whether events or changes in circumstances have occurred that potentially indicate the carrying amount of definite-lived intangibles and long-lived assets may not be recoverable. We recorded total impairment of $7.5 million related to operating lease right-of-use assets, of which $6.5 million is related to continuing operations and $1.0 million is related to discontinued operations. Additionally, we recorded an impairment charge of $1.7 million for property and equipment for the year ended December 31, 2021. The impairment is related to the Company’s decision to exit and seek subleases for certain leased facilities primarily due to a distributed workforce as a result of the pandemic. As we seek to return to offices, we will seek a hybrid return to office model. No impairment was recorded for the years ended December 31, 2020, and 2019, respectively.

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. The Company initially measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset until the date of sale. Upon designation as an asset held for sale, the Company stops recording depreciation expense on the asset. The Company assesses the fair value of a long-lived asset less any costs to sell at each reporting period and until the asset is no longer classified as held for sale.

Business Combinations and Valuation of Goodwill and Intangible Assets

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

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Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets resulting from the acquisitions of entities accounted for using the acquisition method of accounting are recorded at the estimated fair value of the assets acquired. Identifiable intangible assets are comprised of purchased customer relationships, trademarks and trade names, developed technologies and other intangible assets. Intangible assets subject to amortization are amortized over the period of estimated economic benefit ranging from one to 20 years and are included in general and administrative expenses on the Consolidated Statements of Income. We evaluate 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 we believe indicators of impairment exist. In connection with the annual impairment test for goodwill, we have 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 we determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then we perform the impairment test upon goodwill. The impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. We generally determine the fair value of our reporting units using the income approach methodology of valuation. If the carrying value of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized for the difference.

Contingent Consideration

Certain of our 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 our 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, we estimate 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. We consider 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 our other key employees. The contingent earn-out payments are not affected by employment termination.

We measure our 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 of the Notes to Consolidated Financial Statements). We may use various valuation techniques depending on the terms and conditions of the contingent consideration including a Monte-Carlo simulation. This simulation uses 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.

We review and re-assess 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 quarterly 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.

Income Taxes

For historical periods, we are included in the federal consolidated and state consolidated income tax returns with Ziff Davis and its other subsidiaries. For purposes of the Consolidated Financial Statements, our taxes were determined using the separate return method as if we had filed separate tax returns. In addition, our income is subject to taxation in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating our 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

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tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves for tax contingencies are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of a tax audit or lapse of a statute of limitations. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.

We account for income taxes in accordance with FASB ASC Topic No. 740, Income Taxes (“ASC 740”), which requires that deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. GAAP also requires that deferred tax assets are reduced by a valuation allowance if it is more likely than not that some or all of the net deferred tax assets will not be realized. Our valuation allowance is reviewed quarterly based upon the facts and circumstances known at the time. In assessing this valuation allowance, we review historical and future expected operating results and other factors to determine whether it is more likely than not that deferred tax assets are realizable.

Income Tax Contingencies

We calculate current and deferred tax provisions based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the following year. Adjustments based on filed returns are recorded when identified in the subsequent year.

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

As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. Our estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts and circumstances existing at that time. Therefore, the actual liability for U.S. or foreign taxes may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially to reverse previously recorded tax liabilities. In addition, we may be subject to examination of our tax returns by the U.S. Internal Revenue Service (“IRS”) and other domestic and foreign tax authorities.

Non-Income Tax Contingencies

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.

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Allowances for Doubtful Accounts

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

Recent Accounting Pronouncements

The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any election to opt out is irrevocable. We have elected not to opt out of the extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

For a summary of recent accounting pronouncements applicable to us, see Note 2 to the Consolidated Financial Statements and Note 1 to the Condensed Consolidated Financial Statements.

See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies”, to our accompanying consolidated financial statements for a description of recent accounting pronouncements and our expectations of their impact on our consolidated financial position and results of operations.

Results of Operations

Years Ended December 31, 2021, 2020 and 2019

The main strategic focus of our Consensus offerings is to enable our customers to securely and cooperatively access, exchange and use information across organizational, regional and national boundaries. As a result, we expect to continue to take steps to enhance our existing offerings and offer new services to continue to satisfy the evolving needs of our customers.

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

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The following table sets forth for the years ended December 31, 2021, 2020 and 2019, information derived from our Statements of Income as a percentage of revenues. This information should be read in conjunction with the accompanying financial statements and the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Years ended December 31,

Operating expenses:

Research, development and engineering 2 2 3

General and administrative 17 8 7

Total operating expenses 34 24 26

Income from operations 50 60 59

Interest expense (4) (23) (13)

Interest income — — —

Other income (expense), net — 10 —

Income from continuing operations before income taxes 46 47 46

Income tax expense (benefit) 11 9 (10)

(Loss) income from discontinued operations, net of income tax (3) 9 11

Revenues

Consensus revenues primarily consist of revenues from “fixed” customer subscription revenues and “variable” revenues generated from actual usage of our services. We also generate an immaterial amount of Consensus revenues from intellectual property licensing.

Revenues increased $21.5 million in the twelve months ended December 31, 2021 over the prior year period primarily due to growth in our corporate business. Our total revenue increased by $20.5 million primarily as a result of an increase of approximately $20.0 million in corporate revenues due to organic growth in existing customer usage and new customer acquisitions. Our corporate revenue retention for 2020 customers in 2021 is greater than 100%.

Revenues increased $8.6 million in the twelve months ended December 31, 2020 over the prior year period primarily due to $13.6 million growth in corporate revenues as a result of organic growth in existing customer usage and new customer acquisitions of $8.4 million and $5.2 million due to an acquisition; partially offset by a decline of $4.5 million in SoHo and $0.6 million in patent revenue.

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Cost of Revenues

As a percent of revenue 16% 16% 15%

Cost of revenues is primarily comprised of costs associated with data transmission, network operations, customer service, software licenses for resale, online processing fees and equipment depreciation. The increase in cost of revenues for the twelve months ended December 31, 2021 was primarily due to an increase in revenues, higher software licensing and infrastructure / database hosting costs as a result of moving our data storage from physical storage into the cloud.

The increase in cost of revenues for the twelve months ended December 31, 2020 was primarily due to an increase in revenues, higher phone operation costs, an increase in licensing costs and an overall increase in the operational database hosting expense as a result of moving data storage from physical storage into the cloud.

Operating Expenses

Sales and Marketing

As a percent of revenue 15% 14% 16%

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

The increase in sales and marketing expense of $6.5 million for the twelve months ended December 31, 2021 versus prior period was primarily due to an increase in third party advertising of $3.0 million primarily in SoHo, as well as an increase of $3.5 million in personnel expense due to continued investment in the corporate sales team.

The reduction in sales and marketing expense of $4.4 million for the twelve months ended December 31, 2020 versus prior period was primarily due to a reduction in third party advertising of $4.5 million primarily due to increased SoHo funnel metrics as a result of an increase in demand of our services in a work from home environment, a decrease in travel due to the pandemic, offset by an increase of $0.1 million in sales personnel costs due to the increased focus on the corporate sales team.

Research, Development and Engineering

As a percent of revenue 2% 2% 3%

Our research, development and engineering costs consist primarily of personnel-related expenses. The increase in research, development and engineering costs for the twelve months ended December 31, 2021 was mostly due to our continued focus on developing our platform, products and solutions to primarily support corporate revenue growth. The decrease in research, development and engineering costs for the twelve months ended December 31, 2020 was due to the increase in capitalized labor related to developing our platform, products and solutions.

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General and Administrative.

As a percent of revenue 17% 8% 7%

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

The increase in general and administrative expense for the twelve months ended December 31, 2021 versus prior period was primarily due to $11.5 million in non-recurring expenses related to the spin-off from Ziff Davis, approximately $5.0 million increase in Q4 2021 operational expense due to standalone public company costs, an $8.2 millionimpairment of our downtown LA office space and an $8.6 million Wayfair Sales Tax expense related to 2017-2021, of which $0.6 million was related to post spin in Q4 2021.

The increase in general and administrative expense for the twelve months ended December 31, 2020 versus prior period was primarily due to $1.7 million in office rent and $1.0 million increase in Salaries and Benefits and Employee Related expenses.

Share-Based Compensation

The following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 (in thousands):

Years ended December 31,

Operating expenses:

Research, development and engineering (19) 383 501

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

Non-Operating Income and Expenses

Interest expense. Our interest expense is generated from interest expense due to outstanding debt. Interest expense was $14.3 million, $75.8 million, and $43.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. Interest expense decreased between 2020 and 2021 due to the Company redeeming all of its outstanding $650 million 6% Senior Notes in 2020, in which the Company recorded a loss on extinguishment of $38.0 million, which is included in interest expense. This is coupled with the Company recording three months of interest associated with the 2026 and 2028 Senior Notes in the current period, in comparison to nine months of interest associated with the 6% Senior Notes in 2020. The increase from 2019 to 2020 is primarily due to the extinguishment of the Company’s 6% Senior Notes in 2020.

Interest income. Our interest income is generated by interest income earned on cash and cash equivalents. Interest income was $0.1 million, zero and $0.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. Changes in interest income was immaterial between the period from 2020 and 2021 and 2019 to 2020.

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Other income (expense), net. Our other income (expense), net is generated primarily from miscellaneous items and gain or losses on currency exchange. Other income (expense), net was $0.2 million, $31.6 million, and $(1.4) million for the years ended December 31, 2021, 2020 and 2019, respectively. The change was attributable to changes in gain or losses on the currency exchange. The change in our gains (losses) recognized in earnings from 2020 to 2021 were primarily attributable to lower inter-company balances between periods in foreign subsidiaries that were in functional currencies other than the U.S. Dollar and exchange rate fluctuations. The change in our gains (losses) recognized in earnings from 2019 to 2020 were primarily attributable to the settlement of certain intra-entity transactions.

Income Taxes

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

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

As of December 31, 2021 and 2020, the Company has interest expense limitation carryovers of $4.9 million and zero, respectively, which last indefinitely. The Company also has no federal capital loss limitation carryforwards as of December 31, 2021 nor 2020. The Company has $0.2 million and zero million foreign tax credit carryforward as of December 31, 2021 and 2020.

Income tax expense (benefit) amounted to $39.9 million, $30.0 million and $(33.1) million for the years ended December 31, 2021, 2020 and 2019, respectively. Our effective tax rates for 2021, 2020 and 2019 were 24.8%, 19.7% and (22.7)%, respectively.

The increase in our annual effective income tax rate from 2020 to 2021 was primarily attributable to the following:

1.An increase in tax expense relating to an increase in income in comparison to the prior year, and

2.an increase in tax expense relating to certain non-deductible expenses incurred in the year in connection with the Spin and the recording of the Non Income Tax Contingency.

The increase in our annual effective income tax rate from 2019 to 2020 was primarily attributable to the following:

1.An increase in tax expense during 2020 due to a large tax benefit recognized in 2019 from an intra-entity transfer as part of the reorganization of our international operating structure resulting in the recognition of a deferred tax asset with no comparable event during 2020, and

2.an increase in tax expense in 2020 due to a decrease in relation to certain uncertain tax positions in 2019 with no similar reduction in 2020.

In order to provide additional understanding in connection with our foreign taxes, the following represents the statutory and effective tax rate by significant foreign country:

Ireland Japan Canada

(1) Effective tax rate excludes certain discrete items.

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The statutory tax rate is the rate imposed on taxable income for corporations by the local government in that jurisdiction. The effective tax rate measures the taxes paid as a percentage of pretax profit. The effective tax rate can differ from the statutory tax rate when a company can exempt some income from tax, claim tax credits, or due to the effect of book-tax differences that do not reverse and discrete items.

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

Quarterly Results of Operations (Unaudited)

The following tables contain selected unaudited Statements of Operation information for each quarter of 2021 and 2020 (in thousands, except share and per share data). The Company believes that the following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period. This data should be read in conjunction with our consolidated financial statements included elsewhere in this Report. Historical results are not necessarily indicative of the results that may be expected for the full fiscal year or any other period.

Fourth Quarter Third Quarter Second Quarter First Quarter

Net income from continuing operations per common share:

Weighted average shares outstanding

Fourth Quarter Third Quarter Second Quarter First Quarter

Net income from continuing operations per common share:

Weighted average shares outstanding

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Liquidity and Capital Resources

Cash and Cash Equivalents

At December 31, 2021, we had cash and cash equivalents of $66.8 million compared to $66.2 million at December 31, 2020. The increase in cash and cash equivalents resulted primarily from cash provided from operations, partially offset by cash used for purchases of property and equipment (including capitalized labor) and cash used to pay Ziff Davis for its equity interest in J2 Cloud Services, LLC. As of December 31, 2021, cash and cash equivalents held within domestic and foreign jurisdictions were $44.5 million and $22.3 million, respectively.

On October 7, 2020, the Former Parent issued $750 million aggregate principal amount of 4.625% Senior Notes due 2030. A portion of the proceeds were used to fund the redemption of the outstanding aggregate principal amount of the 6.0% Senior Notes due 2025 previously issued by J2 Cloud Services, LLC and to pay the redemption premium due in respect of such redemption and accrued and unpaid interest. The Parent used the remainder of the net proceeds for general corporate purposes including acquisitions.

On October 7, 2021, the Company issued $305 million of 6.0% senior notes due in 2026 (the “2026 Senior Notes”), in a private placement offering exempt from the registration requirements of the Securities Act of 1933. Consensus received proceeds of $301.2 million, after deducting the initial purchasers’ discounts, commissions and offering expenses. The 2026 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.

On October 7, 2021, Consensus issued $500 million of 6.5% senior notes due in 2028 (the “2028 Senior Notes”), in a private placement offering exempt from the registration requirements of the Securities Act of 1933. In exchange for the equity interest in J2 Cloud Services, LLC, Consensus issued the 2028 Senior Notes to Ziff Davis. 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. The 2028 Senior Notes are 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.

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 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 million (the “Credit Facility”). The final maturity of the Credit Facility will occur on March 4, 2027.

We currently anticipate that our existing cash and cash equivalents and cash generated from operations will be sufficient to meet our anticipated needs for working capital, capital expenditure, investment requirements, stock repurchases and cash dividends for at least the next 12 months from the issuance of this Annual Report on Form 10-K.

Cash Flows

Our primary sources of liquidity are cash flows generated from operations, together with cash and cash equivalents. Net cash provided by operating activities was $233.7 million, $238.8 million and $226.7 million for the years ended December 31, 2021, 2020 and 2019, respectively. Our operating cash flows resulted primarily from cash received from our customers offset by cash payments we made to third parties for their services, employee compensation and lease payments associated offices. The decrease in our net cash provided by operating activities in 2021 compared to 2020 was primarily attributable to a decrease in operating lease liabilities, offset by increased prepaid expenses, accounts payable and other long-term liabilities. The increase in our net cash provided by operating activities in 2020 compared to 2019 was primarily attributable to an increase in accounts payable and operating lease liabilities; partially offset by an decrease lower uncertain tax positions and reduced deferred revenue. Our prepaid tax payments were zero and $0.3 million at December 31, 2021 and 2020, respectively. Our cash and cash equivalents and short-term investments were $66.8 million, $66.2 million and $51.1 million at December 31, 2021, 2020 and 2019, respectively.

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Net cash used in investing activities was $42.5 million, $60.9 million and $304.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. Net cash used in investing activities in 2021 and 2020 was primarily due to business acquisitions and capital expenditures associated with the purchase of property and equipment (including capitalized labor); partially offset by proceeds from the sale of businesses. Net cash used in investing activities in 2019 was primarily due to business acquisitions and capital expenditures associated with the purchase of property and equipment (including capitalized labor).

Net cash (used in) provided by financing activities was $(247.8) million, $(179.1) million and $61.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. Net cash used in financing activities in 2021 increased over the prior comparable period and was primarily attributable to distributions to the Former Parent; partially offset by the issuance of debt. Net cash used in financing activities in 2020 decreased over the prior comparable period and was primarily attributable to the repayment of debt; partially offset by contributions from the Former Parent.Net cash provided by financing activities in 2019 was primarily attributable to contributions from the Former Parent.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2021:

Payment Due by Period (in thousands)

Contractual Obligations 1 Year 2-3 Years 4-5 Years More than 5 Years Total

Finance leases (d) — — — — —

Telecom services and co-location facilities (e) 621 211 — — 832

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

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

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

(d)These amounts represent undiscounted future minimum rental commitments under noncancellable finance leases.

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

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

(g)These amounts primarily represent certain consulting and Board of Director fee arrangements, software license commitments and others.

As of December 31, 2021, our liability for uncertain tax positions was $4.8 million. The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with the taxing authorities.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

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Interest Rate Risk

Our cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these instruments. As of December 31, 2021, the carrying value of our cash and cash equivalents approximated fair value. Our return on these investments is subject to interest rate fluctuations.

As of December 31, 2021 and 2020, we had cash and cash equivalent investments primarily in cash and checking accounts of $66.8 million and $66.2 million, respectively. We do not have interest rate risk on our outstanding long-term debt as these arrangements have fixed interest rates.

Foreign Currency Risk

We conduct business in certain foreign markets, primarily in Canada, Australia and the European Union. Our principal exposure to foreign currency risk relates to investment and inter-company debt in foreign subsidiaries that transact business in functional currencies other than the U.S. Dollar, primarily the Australian Dollar, the Canadian Dollar, the Euro, the Hong Kong Dollar, the Japanese Yen, the New Zealand Dollar, the Norwegian Kroner and the British Pound Sterling. If we are unable to settle our short-term intercompany debts in a timely manner, we remain exposed to foreign currency fluctuations.

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

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

Historically, we have not hedged translation risks because cash flows from international operations were generally reinvested locally; however, we may do so in the future. Our objective in managing foreign exchange risk is to minimize the potential exposure to changes that exchange rates might have on earnings, cash flows and financial position.

For the years ended December 31, 2021, 2020 and 2019, foreign exchange gains (losses) amounted to $0.2 million, $31.6 million and $(1.4) million, respectively. The change in our gains (losses) recognized in earnings from 2020 to 2021 and from 2020 to 2019 were primarily attributable to the settlement of certain intra-entity transactions of $33.1 million in 2020 that was not present in neither 2021 nor 2019.

Cumulative translation adjustments, net of tax, included in other comprehensive income for the years ended December 31, 2021, 2020 and 2019, was $(14.4) million, $(11.1) million, and $(2.0) million respectively.

We currently do not have derivative financial instruments for hedging, speculative or trading purposes and therefore are not subject to such hedging risk. However, we may in the future engage in hedging transactions to manage our exposure to fluctuations in foreign currency exchange rates.

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Item 8.Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

Consensus Cloud Solutions, Inc.

Los Angeles, California

Opinion on the Consolidated Financial Statements

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”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2014.

Los Angeles, California

April 15, 2022

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CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2021 and 2020

(In thousands, except share amounts)

ASSETS

Prepaid expenses and other current assets 4,650 1,747

Discontinued operations current assets — 114,247

Operating lease right-of-use assets 7,233 25,711

Discontinued operations noncurrent assets — 805,568

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

Accounts payable and accrued expenses $ 40,206 $ 32,795

Income taxes payable, current 5,227 1,307

Operating lease liabilities, current 2,421 2,578

Due to Former Parent 5,739 —

Discontinued operations current liabilities — 143,474

Deferred revenue, noncurrent 184 240

Operating lease liabilities, noncurrent 14,108 25,549

Income taxes payable, noncurrent — 943

Liability for uncertain tax positions 4,795 3,050

Other long-term liabilities 360 3,061

Discontinued operations noncurrent liabilities — 125,977

Commitments and contingencies (Note 11) — —

Additional paid-in capital 2,878 —

Accumulated deficit (318,886) —

Accumulated other comprehensive loss (16,857) (55,966)

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

See Notes to Consolidated Financial Statements

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CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2021, 2020 and 2019

(In thousands, except share and per share data)

Operating expenses:

Net income per common share from continuing operations:

Net (loss) income per common share from discontinued operations:

Net income per common share

Weighted average shares outstanding:

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

Research, development and engineering (19) 383 501

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

See Notes to Consolidated Financial Statements

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CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2021, 2020 and 2019

(In thousands)

Other comprehensive loss:

See Notes to Consolidated Financial Statements

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CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2021, 2020 and 2019

(In thousands)

Cash flows from operating activities:

Amortization of financing costs and discounts 442 1,217 1,428

Loss (gain) on sale of businesses 21,797 (17,122) —

Lease asset impairments and other charges 9,149 — —

Changes in fair value of contingent consideration 642 (161) 607

Foreign currency remeasurement loss (gain) 181 (35,142) —

Goodwill impairment on business 32,629 — —

Loss on extinguishment of debt — 37,969 —

Decrease (increase) in:

Prepaid expenses and other current assets (12,049) 717 (9,137)

Increase (decrease) in:

Liability for uncertain tax positions (1,730) 8,438 (453)

Cash flows from investing activities:

Proceeds from sale of assets — 507 —

Proceeds from sale of businesses, net of cash divested 48,876 24,353 —

Purchases of intangible assets (1,511) (3,110) —

Cash flows from financing activities:

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 519 — —

Notes payable from related parties — (819) (952)

Deferred payments for acquisitions (6,267) (6,571) (750)

Distribution to Former Parent - Separation (290,282) — —

Distribution of non-fax cash to Former Parent (266,539) — —

Effect of exchange rate changes on cash and cash equivalents (4,842) 6,635 2,253

See Notes to Consolidated Financial Statements

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CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

Years Ended December 31, 2021, 2020 and 2019

(in thousands, except share amounts)

Shares Amount capital Deficit loss investment Equity

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

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

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

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

Share-based compensation — — — — — 99 99

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

Reclassification to accumulated deficit — — 325,377 (325,377) — — —

Foreign currency translation adjustment after Separation — — — — (842) — (842)

Net income after Separation — — 6,491 — 6,491

See Notes to Consolidated Financial Statements

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CONSENSUS CLOUD SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021, 2020 and 2019

1. The Company

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

Consensus Cloud Solutions, Inc. Spin-Off

On September 21, 2021, J2 Global, Inc., known since October 7, 2021 as Ziff Davis, Inc. (“Ziff Davis” or the “Former Parent”) announced that its Board of Directors approved its previously announced separation of the cloud fax business (the “Separation”), into an independent publicly traded company, Consensus Cloud Solutions, Inc. On October 7, 2021, the Separation was completed and the Former Parent transferred certain assets and liabilities associated with its Cloud Fax business to Consensus, including the equity interests in J2 Cloud Services, LLC (“J2 Cloud Services”), in exchange for approximately $259.1 million in cash, an asset related to $500.0 million in aggregate principal amount of the 6.5% Senior Notes due 2028, and the return of the assets and liabilities related to the non-fax business back to Ziff Davis. On October 8, 2021, Consensus began trading on the Nasdaq Stock Market LLC (“Nasdaq”) under the stock symbol “CCSI”. Ziff Davis retained a 19.9% interest in Consensus following the Separation.

2. Basis of Presentation and Summary of Significant Accounting Policies

(a)Principles of Consolidation

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

(b)Basis of Presentation

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

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

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

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.

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As the Cloud Fax business was not historically held by a single legal entity, “net parent investment” is shown to represent Ziff Davis’ interest in the recorded net assets of historical J2 Cloud Services. Other comprehensive income or loss attributable to J2 Cloud Services is presented as a separate component of equity. In the period in which the Separation occurred, the net parent investment is recharacterized as share capital and additional-paid-in-capital to reflect the capital structure of Consensus upon the legal formation of Consensus and the contribution of the Cloud Fax business with any excess of distributions over net parent investment shown within accumulated deficit.

(c)Use of Estimates

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. On an ongoing basis, management evaluates its estimates based on historical experience and on various other factors that the Company believes to be reasonable under the circumstances. Actual results could materially differ from those estimates due to risks and uncertainties, including uncertainty in the current economic environment due to the novel coronavirus pandemic (“COVID-19”).

(d)Discontinued Operations

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

(e)Allowances for Doubtful Accounts

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

(f)Revenue Recognition

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

Principal vs. Agent

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

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Sales Taxes

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

(g)Fair Value Measurements

Consensus complies with the provisions of Financial Accounting Standards Board (“FASB”) ASC Topic No. 820, Fair Value Measurements and Disclosures (“ASC 820”), in measuring fair value and in disclosing fair value measurements. ASC 820 provides a framework for measuring fair value and expands the disclosures required for fair value measurements of financial and non-financial assets and liabilities (see Note 6 - Fair Value Measurements).

The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and long-term debt are reflected in the financial statements at cost. With the exception of long-term debt, cost approximates fair value due to the short-term nature of such instruments. The fair value of the Company’s outstanding debt was determined using the quoted market prices of debt instruments with similar terms and maturities when available. As of the same dates, the carrying value of other long-term liabilities approximated fair value as the related interest rates approximate rates currently available to the Company.

(h)Cash and Cash Equivalents

The Company considers cash equivalents to be only those investments that are highly liquid, readily convertible to cash and with maturities of three months or less at the purchase date.

(i)Debt Issuance Costs

The Company capitalizes costs incurred with borrowing and issuance of debt securities and records debt issuance costs as a reduction to the debt amount. These costs are amortized and included in interest expense over the life of the borrowing using the effective interest method.

(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. 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, 2021, 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.

(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. Dollars at average exchange rates for the period. Gains and losses resulting from translation are recorded as a component of accumulated other comprehensive loss. Net translation loss was $14.4 million, $11.1 million and $2.0 million for the years ended December 31, 2021, 2020 and 2019, 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.

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(l)Property and Equipment

Property and equipment are stated at cost. Equipment under finance leases is stated at the present value of the minimum lease payments. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets and is recorded in cost of revenues and general and administrative expenses on the Consolidated Statements of Income. The estimated useful lives of property and equipment range from 1 to 10 years. Fixtures, which are comprised primarily of leasehold improvements and equipment under finance leases, are amortized on a straight-line basis over their estimated useful lives or for leasehold improvements, the related lease term, if less. The Company has capitalized certain internal-use software and website development costs which are included in property and equipment. 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).

(m)Impairment or Disposal of Long-Lived and Intangible Assets

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

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;

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

•Significant negative industry or economic trends;

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

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

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

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. 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.

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. The Company initially measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset until the date of sale. Upon designation as an asset held for sale, the Company stops recording depreciation expense on the asset. The Company assesses the fair value of a long-lived asset less any costs to sell at each reporting period and until the asset is no longer classified as held for sale.

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

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets resulting from the acquisitions of entities accounted for using the acquisition method of accounting are recorded at the estimated fair value of the assets acquired. Identifiable intangible assets are comprised of purchased customer relationships, trademarks and trade names, developed technologies and other intangible assets. Intangible assets subject to amortization are amortized over the period of estimated economic benefit ranging from 1 to 20 years 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. 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. The impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company generally determines the fair value of its reporting units using the income approach methodology of valuation. If the carrying value of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized for the difference. 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.

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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

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. and numerous foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain.

The Company’s income is subject to taxation in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves for tax contingencies are established when the Company believes that certain positions might be challenged despite the Company’s belief that its tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of a tax audit or lapse of a statute of limitations. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate (see Note 12 - Income Taxes).

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

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

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

The Company does not believe these provisions have a significant impact to our current and deferred income tax balances. 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 accounts for share-based awards to employees and non-employees in accordance with the provisions of FASB ASC Topic No. 718, Compensation - Stock Compensation (“ASC 718”). Accordingly, the Company measures share-based compensation expense at the grant date, based on the fair value of the award, and recognizes the expense over the employee’s requisite service period using the straight-line method. The measurement of share-based compensation expense is based on several criteria, including but not limited to the valuation model used and associated input factors, such as expected term of the award, stock price volatility, risk free interest rate, dividend rate and award cancellation rate. These inputs are subjective and are determined using management’s judgment. If differences arise between the assumptions used in determining share-based compensation expense and the actual factors, which become known over time, Consensus 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”)

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

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

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

(s)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.

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(t)Segment Reporting

FASB ASC Topic No. 280, Segment Reporting (“ASC 280”), establishes standards for the way that public business enterprises report information about operating segments in their annual consolidated financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. ASC 280 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company’s business segment is based on the organization’s structure used by the chief operating decision maker for making operating and investment decisions and for assessing performance. The chief operating decision maker views the Company as one reportable segment known as Cloud Fax (see Note 17 - Segment Information).

(u)Advertising Costs

Advertising costs are expensed as incurred. Advertising costs for the years ended December 31, 2021, 2020 and 2019 was $45.7 million, $47.1 million and $51.5 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. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. 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.

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

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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.

In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this ASU improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability, and payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, including the interim periods within those fiscal years. Early adoption is permitted. The Company 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.

3. Revenues

The Company’s revenues substantially consist of monthly recurring subscription and usage-based fees, the majority of which are paid in advance by credit card. The Company defers the portions of monthly, quarterly, semi-annually and annually recurring subscription and usage-based fees collected in advance of the satisfaction of performance obligations and recognizes them in the period earned.

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

Years ended December 31,

Timing of revenue recognition

Point in time $ — $ — $ —

The Company has recorded $24.5 million and $21.6 million of revenue for the years ended December 31, 2021 and 2020, 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).

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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.

The Company satisfies its performance obligations upon delivery of services to its customers. Payment terms vary by type and location of the Company’s customers and the services offered. The time between invoicing and when payment is due is not significant. Due to the nature of the services provided, there are no obligations for returns.

Significant Judgments

In determining 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.

Performance Obligations Satisfied Over Time

The Company’s business consists primarily of performance obligations that are satisfied over time. This has been determined based on the fact that the nature of services offered are subscription based where the customer simultaneously receives and consumes the benefit of the services provided regardless of whether the customer uses the services or not. Depending on the individual contracts with the customer, revenue for these services are recognized over the contract period when faxing capabilities are provided.

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

Practical Expedients

Existence of a Significant Financing Component in a Contract

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

Costs to Fulfill a Contract

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

Revenues Invoiced

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

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4.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):

Assets and Liabilities Valuation

Accounts receivable $ 194

Property and equipment 44

Customer relationships 8,235

Other intangibles 379

Accounts payables and accrued expenses (94)

Deferred revenue (519)

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.

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

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

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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.

The supplemental information on an unaudited pro forma financial basis presents the combined results of the Company and SRFax as if the acquisition had occurred on January 1, 2019 (in thousands, except per share amounts):

Year ended

(unaudited) (unaudited)

(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. 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

Customer relationships 5,000

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)

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.

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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 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. 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

Customer relationships 3,654

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)

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

5.Discontinued Operations and Disposition of Businesses

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

Accordingly, the 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.

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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):

ASSETS

Cash and cash equivalents $ 61,979

Accounts receivable, net of allowances $4,322 26,174

Prepaid expenses and other current assets 26,094

Total current assets, discontinued operations 114,247

Property and equipment, net 34,028

Operating lease right-of-use assets 30,230

Notes receivable from related parties, noncurrent 8,834

Deferred income taxes, noncurrent 9,772

Total noncurrent assets, discontinued operations 805,568

Total assets, discontinued operations $ 919,815

LIABILITIES

Accounts payable and accrued expenses $ 48,243

Income taxes payable, current 8,224

Deferred revenue, current 79,277

Operating lease liabilities, current 7,235

Other current liabilities 495

Total current liabilities, discontinued operations 143,474

Deferred revenue, noncurrent 14,200

Operating lease liabilities, noncurrent 23,758

Liability for uncertain tax positions 49,268

Deferred income taxes, noncurrent 16,003

Other long-term liabilities 22,748

Total noncurrent liabilities, discontinued operations 125,977

Total liabilities, discontinued operations $ 269,451

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

Year ended December 31

Operating expenses:

Goodwill impairment on business 32,629 — —

(Loss) gain on sale of businesses (21,797) 17,122 —

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

Year ended December 31

Foreign currency remeasurement gain (9) 3,574 1,420

Lease asset impairments and other charges 990 — —

Loss (gain) on sale of businesses 21,797 (17,122) —

Goodwill impairment on business $ 32,629 $ — $ —

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

Voice Asset Sales

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.

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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.

B2B Back-up

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). 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.

6.Fair Value Measurements

The Company complies with the provisions of ASC 820, which defines fair value, provides a framework for measuring fair value and expands the disclosures required for fair value measurements of financial and non-financial assets and liabilities. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

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.

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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

Liabilities:

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

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.

7.Property and Equipment

Property and equipment, stated at cost, at December 31, 2021 and 2020 consisted of the following (in thousands):

Furniture and equipment 846 147

Less: Accumulated depreciation and amortization (20,126) (12,954)

Total property and equipment, net $ 33,849 $ 25,053

Depreciation and amortization expense was $7.3 million, $7.1 million and $3.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.

During the fourth quarter of 2021, the Company recorded a non-cash impairment charge of $1.7 million for property and equipment related to the impairment of the Downtown Los Angeles lease (see Note 10 - Leases for further details). Noimpairment was recorded in 2020 or 2019.

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8.Goodwill and Intangible Assets

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

The changes in carrying amounts of goodwill attributable to continuing operations for the years ended December 31, 2021 and 2020 are as follows (in thousands):

Amount

Goodwill acquired (Note 4) 15,844

Foreign exchange translation 6,491

Foreign exchange translation (3,221)

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

Intangible Assets with Indefinite Lives:

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

Intangible Assets Subject to Amortization:

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

Weighted-Average AmortizationPeriod HistoricalCost AccumulatedAmortization Net

(1) Historically, the Company has amortized its customer relationship assets in a pattern that best reflects the pace in which the assets’ benefits are consumed. This pattern results in a substantial majority of the amortization expense being recognized in the first four to five years, despite the overall life of the asset.

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As of December 31, 2020, intangible assets subject to amortization relate primarily to the following (in thousands):

Weighted-Average AmortizationPeriod HistoricalCost AccumulatedAmortization Net

(1) Historically, the Company has amortized its customer relationship assets in a pattern that best reflects the pace in which the assets’ benefits are consumed. This pattern results in a substantial majority of the amortization expense being recognized in the first four to five years, despite the overall life of the asset.

Expected amortization expenses for intangible assets subject to amortization at December 31, 2021 are as follows (in thousands):

Fiscal Year: Amount

Total expected amortization expense $ 12,478

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 $4.8 million, $4.7 million and $7.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

9.Long-Term Debt

Long-term debt as of December 31, 2021 and 2020 consists of the following (in thousands):

Less: Deferred issuance costs (12,960)

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At December 31, 2021, future principal payments for debt were as follows (in thousands):

Total

Fiscal year:

Interest expense was $14.3 million, $75.8 million, and $43.5 million for the years ended December 31, 2021, 2020 and 2019, 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.

2026 Senior Notes