CONSENSUS CLOUD SOLUTIONS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

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 indicators


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.


                                      -38-
--------------------------------------------------------------------------------

The following table outlines certain key operational measures for Consensus’ continuing operations for the years ended December 31, 20212020 and 2019 (in thousands, except for percentages):

                                                                         Years ended December 31,
                                                               2021                 2020               2019
Revenue ($ in thousands)
Corporate                                                 $       169,732       $ 148,981          $  135,353
SoHo                                                              182,390         181,784             186,237
Consolidated                                                      352,122         330,765             321,590
Other Revenues                                                        542             403                 969
                                                          $       352,664       $ 331,168          $  322,559
Average Revenue per Customer Account ("ARPA)(1)(2)
Corporate                                                 $        308.42       $     276.46       $      256.46
SoHo                                                                14.40              14.32               14.46
Consolidated                                              $         26.65       $   24.99          $    23.99

Customer Accounts (in thousands)(1)
Corporate                                                              45              47                  43
SoHo                                                                1,039           1,072               1,044
Consolidated                                                        1,084           1,119               1,087

Paid Adds (in thousands)(3)
Corporate                                                              13                 12                   7
SoHo                                                                  411                423                 372
Consolidated                                                          424                435                 379

Monthly Churn %(4)
Corporate                                                       2.68    %            1.64  %             1.78  %
SoHo                                                            3.37    %            3.21  %             3.23  %
Consolidated                                                    3.34    %            3.15  %             3.17  %


(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.



                                      -39-
--------------------------------------------------------------------------------

Significant 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.

Stock-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.



                                      -40-
--------------------------------------------------------------------------------

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 against expected or projected historical operating results;

•Significant changes in the way we use acquired assets or in our overall business strategy;

• Significant negative industry or economic trends;

•Significant decline in our share price for an extended 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 Good will 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.



                                      -41-
--------------------------------------------------------------------------------

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.

Conditional consideration

Some of our acquisition agreements include contingent earnout agreements, which are generally based on the achievement of future revenue thresholds or other metrics. Contingent earn-out agreements are based on our valuations of acquired companies and reduce the risk of overpaying for acquisitions if expected 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

                                      -42-
--------------------------------------------------------------------------------

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.

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.



                                      -43-
--------------------------------------------------------------------------------

Provisions for bad debts


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 regarding their impact on our financial position and results of operations. consolidated operations.

Operating results

Completed exercises December 31, 20212020 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.



                                      -44-
--------------------------------------------------------------------------------

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,
                                                          2021                    2020                   2019
Revenues                                                  100%                    100%                   100%
Cost of revenues                                           16                      16                     15
    Gross profit                                           84                      84                     85
Operating expenses:
    Sales and marketing                                    15                      14                     16
    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
Net income                                                32%                     47%                     67%



Revenues

                                                                                              Percentage Change 2021       Percentage Change 2020
(in thousands, except percentages)       2021               2020               2019                versus 2020                  versus 2019
Revenues                             $ 352,664          $ 331,168          $ 322,559                    6%                           3%


Consensus revenue primarily consists of revenue from subscription revenue from “fixed” customers and “variable” revenue generated from the actual use of our services. We also generate an intangible amount of consensus revenue 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.





                                      -45-
--------------------------------------------------------------------------------

Revenue cost

               Percentage Change 2021       Percentage Change 2020
(in thousands, except percentages)      2021              2020              2019                versus 2020                  versus 2019
Cost of revenue                      $ 58,000          $ 53,379          $ 49,990                    9%                           7%
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

                                                                           
               Percentage Change 2021       Percentage Change 2020
(in thousands, except percentages)      2021              2020              2019                versus 2020                  versus 2019
Sales and Marketing                  $ 53,648          $ 47,116          $ 51,522                   14%                          (9)%
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

               Percentage Change 2021       Percentage Change 2020
(in thousands, except percentages)      2021              2020              2019                versus 2020                  versus 2019
Research, Development and            $  7,652          $  7,146          $  9,745                    7%                         (27)%
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.

                                      -46-
--------------------------------------------------------------------------------

General and administrative.


                                                                                            Percentage Change 2021       Percentage Change 2020
(in thousands, except percentages)       2021              2020              2019                versus 2020                  versus 2019
General and Administrative            $ 58,228          $ 26,852          $ 21,475                   117%                         25%
As a percent of revenue                   17%               8%                7%


Our general and administrative expenses primarily include personnel expenses, depreciation and amortization, stock-based compensation expense, bad debts, 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 million impairment 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 expenses for the twelve months ended
December 31, 2020 compared to the previous period was mainly due to $1.7 million in rental of offices 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,
                                                   2021           2020         2019
Cost of revenues                              $      72         $   203      $   466
Operating expenses:
   Sales and marketing                               92             442          134
   Research, development and engineering            (19)            383          501
   General and administrative                     1,711             457          (16)
Continuing Operations                             1,856           1,485        1,085
 (Loss) income from discontinued operations         602           4,138        2,711
Total                                         $   2,458         $ 5,623      $ 3,796


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.


                                      -47-
--------------------------------------------------------------------------------

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.

The 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 tax rate from 2020 to 2021 is mainly due to the following factors:

1. An increase in the tax charge related to an increase in income compared to the previous year, and

2. an increase in the tax charge relating to certain non-deductible expenses incurred in the year in connection with the Spin and the recording of the non-tax provision.

The increase in our annual effective tax rate from 2019 to 2020 is mainly attributable to the following factors:


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 related 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
Statutory tax rate             12.5%        30.6%       26.5%
Effective tax rate (1)         2.1%         31.3%       29.7%

(1) The effective tax rate excludes certain discrete items.

                                      -48-
--------------------------------------------------------------------------------

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 operating results (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.

                                                                          Year ended December 31, 2021
                                           Fourth Quarter           Third Quarter            Second Quarter            First Quarter
Revenues                                       89,004                      89,198                    87,842                   86,620
Gross profit                                   73,410                      74,644                    73,476                   73,134
Net income from continuing operations           7,680                      49,052                    21,344                   43,098

Net income from continuing operations
per common share:
Basic                                    $       0.39             $          2.46          $           1.07          $          2.17
Diluted                                  $       0.38             $          2.46          $           1.07          $          2.17

Weighted average shares outstanding
Basic                                      19,908,135                  19,902,924                19,902,924               19,902,924
Diluted                                    19,991,407                  19,902,924                19,902,924               19,902,924

                                                                         

Year ended December 31, 2020

                                           Fourth Quarter           Third Quarter            Second Quarter            First Quarter

Revenues                                       85,564                      83,969                    80,631                   81,004
Gross profit                                   71,696                      70,432                    66,985                   68,676
Net income from continuing operations          10,977                      57,403                    32,543                   21,490

Net income from continuing operations
per common share:
Basic                                    $       0.55             $          2.88          $           1.64          $          1.08
Diluted                                  $       0.55             $          2.88          $           1.64          $          1.08
Weighted average shares outstanding
Basic                                      19,902,924                  19,902,924                19,902,924               19,902,924
Diluted                                    19,902,924                  19,902,924                19,902,924               19,902,924




                                      -49-
--------------------------------------------------------------------------------

Cash 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.


                                      -50-
--------------------------------------------------------------------------------

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)

                                                                                                    More than 5
Contractual Obligations                      1 Year           2-3 Years          4-5 Years             Years               Total
Long-term debt - principal (a)             $      -          $       -      

$305,000 $500,000 $805,000
Long-term debt – interest (b)

                50,800            101,600            101,600              65,000              319,000
Operating leases (c)                          2,516              4,611              4,587              10,254               21,968
Finance leases (d)                                -                  -                  -                   -                    -
Telecom services and co-location
facilities (e)                                  621                211                  -                   -                  832
Holdback payment (f)                          1,565                  -                  -                   -                1,565
Other (g)                                       420                  -                  -                   -                  420
Total                                      $ 55,922          $ 106,422          $ 411,187          $  575,254          $ 1,148,785


(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.

© Edgar Online, source Previews