Consensus Cloud Solutions Inc (CCSI) 2021 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Consensus' Q4 investor call. My name is Tom and I will be the operator assisting you today. (Operator Instructions). A question-and-answer session will follow the formal presentation. (Operator Instructions).

On this call will be Scott Turicchi, CEO of Consensus; Jim Malone, CFO; John Nebergall, COO; and Adam Varon, Senior Vice President of Finance and Accounting of Consensus. I will now turn the call over to Adam Varon, Senior Vice President of Finance and Accounting of Consensus. Thank you. You may begin.

Good afternoon, and welcome to the Consensus investor call to discuss Q4 2021 preliminary unaudited results, 2022 guidance and other key information we will share with all of you today. Joining me today are Scott Turicchi, CEO; John Nebergall, COO; and Jim Malone our newly minted CFO.

The earnings call will begin with Scott providing opening remarks; John will give an update on operational progress since our Q3 investor call; and then Jim will discuss our Q4 financial results and 2022 guidance. After we finish our prepared remarks, we will conduct a Q&A session. At that time the operator will instruct you on the procedures for asking a question.

Before we begin our prepared remarks allow me to direct you to the Safe Harbor language on slide 2. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results.

Some of those risks and uncertainties include, but are not limited to, the risk factors outlined on slide 3 that we have disclosed in our Form 10 SEC filings, as well as a summary of those risk factors that we've included as part of the slideshow for the webcast. We refer you to discussions in those documents regarding Safe Harbor language as well as forward-looking statements. Now let me turn the call over to Scott.

Adam, thank you very much. I'd like to add my own welcome to all the investors and analysts who are joining us for the first earnings call of Consensus as we report our Q4 2021 financial results.

As you can see, since we completed the spin, we've been very busy: first, making strides is an independent public company; two, producing outstanding operating results in our first full fiscal quarter; three, winning a significant contract servicing the Veterans Administration health system; four, acquiring Summit Health just outside of Boston; and five, initiating our first stock repurchase program, which is an element of our capital allocation strategy.

Our biggest accomplishment in filling out our public company personnel has been the hiring of Jim Malone as our CFO. Jim comes with a depth of relevant experience in accounting, finance and healthcare. He has already made a significant contribution to Consensus. Welcome, Jim. He will take you through all the financial results and guidance later in the presentation.

Despite the distractions of the spin and the immediate aftermath of separation, we were able to achieve the high-end of the revenue range for Q4 and above the high-end of both our adjusted EBITDA and non-GAAP EPS. I want to thank our employees who, despite many distractions and continuing to work from home, remained very productive.

We are thrilled that after an extensive RFP process, through our relationship with Cognosante, we have been chosen to be the exclusive cloud fax provider to the VA's more than 1,200 healthcare facilities. We believe that over time this will be our single largest contract.

However, this is a year of investment. We have allocated approximately $5 million to stand up and have a FedRAMP certified system for the VA's health facilities. And we'll have the ability to market that system to other government agencies.

Finally, before turning the call over to John, I would like to discuss our capital allocation strategy. Since the spin was announced, I have made it clear that we are not an M&A-focused company. In part this is due to the number of organic efforts that we have on our plate, as well as an aggressive hiring plan over the next two years, to enhance and deepen our technical team. However, we do look for acquisitions that are complementary to our product roadmap, will bring us additional customers and services and, most importantly, great teams of people.

We have found such a company and Summit Health. There are opportunities for cross-selling of their HL7 and FHIR products into our base and the ability to sell Consensus solutions into the Summit base, which is rich in healthcare systems utilizing the Meditech EHR solution.

I would like to welcome again all the former Summit employees to Consensus. It was great to be with you in early February and I look forward to many more meetings. John will provide you with more details on both the VA contract and the Summit acquisition shortly.

Targeted M&A such as Summit fit nicely into our capital allocation program. To fill out that program our Board recently authorized a $100 million stock repurchase program over the next three years. This program is opportunistic with no annual goals of repurchase.

As we gain more trading of our stock we'll be making decisions as to the attractive prices for repurchase that will provide returns commensurate with our other capital allocation alternatives. I will now turn the call over to John who will give you more insight into our product and customer win activities.

Thank you, Scott. On to slide 5. It's been an active quarter for the company. In addition to completing the spin and moving forward on our own, there have been significant wins for the business and I'm excited to share them.

First, we are proud to announce that we have entered a partnership with Cognosante LLC who provides innovative health and safety solutions to government. Acting as the technology subcontractor to Cognosante, Consensus will serve as the exclusive supplier of cloud fax technology to the Enterprise Cloud Fax project, otherwise known as ECFax.

As announced in Cognosante's December 15 press release, ECFax will be implemented across the Department of Veterans Affairs Enterprise, by far the largest health system in North America. We are currently working through the process of achieving federal risk and authorization management program certification, known as FedRAMP, a requirement for this project.

While a major technology effort, once complete in early Q4, we will be the only cloud fax solution with this certification, putting Consensus in a strong position for future government opportunities. Rollout is expected to begin in mid to late Q4 and, given the number of medical centers and care sites involved, will likely continue rolling out into 2023 and 2024.

This agreement is the largest cloud fax order in our history including under J2 ownership. We are proud to have been selected for this project and look forward to delivering our innovative technology to help in the VA's modernization effort.

The other important news to share is closing the acquisition of Summit Healthcare Services, an established and innovative health IT company located just outside of Boston. While we had not anticipated much in the way of M&A activity at this early point of the Consensus story, the Summit opportunity was a virtually perfect fit in every respect.

First, the Summit product suite is a precise fit with our existing product roadmap, giving Consensus a full HL7 and Fast Healthcare Internet (sic - Interoperability) Resources, or FHIR, communication capability with existing integrations to every major hospital EHR vendor, and a particularly strong position in the Meditech base.

Second, we know that any overly heavy lift and integrating the organizations was a nonstarter, and found the cultural fit, the quality of people, and the technical environment to be extremely compatible.

Third, we required that the transaction also improve our market position to further penetrate cloud fax and digital signature into our largest target industries. And I'm proud to say that we already have our first integrated fax solution at St. Rose Hospital in California.

Finally, the economics made sense and we forecast the acquisition to be additive to both the top and bottom line in 2022. We needed to be certain that all four requirements -- product advancement, cultural fit, market position, and economics -- were present in order to make this transaction work. And I'm happy to say that they all did work.

In addition to the HL7 and FHIR integrations, the Summit technology suite includes an innovative care continuity application that allows for patient medical record access even when a customer's EHR environment may be experiencing problems. And a powerful RPA, or robotic process automation, tool that automates and streamlines healthcare workflows for effortless document and data routing within an organization.

Finally, with the addition of the Summit team, Consensus has a thriving and highly skilled professional services capability for implementation, for managed services, and for workflow reengineering that creates a new revenue stream for the business. Because of this new capability and services, we are weighing the potential for reporting backlog in future reports as it becomes a more significant item in our financials. This is truly an acquisition that threaded the needle of a hefty set of requirements and brings incredible value to Consensus.

On to slide 6, the corporate sales team had a solid fourth quarter that demonstrates the diversity of our revenue streams. For example, we've been able to close a deal with one of the country's largest population health organizations, closed a deal with the second largest retail pharmacy in the UK with over 1,500 locations, and closed a deal in the retail segment with the booking of Williams-Sonoma as a new account.

We've also deepened our market reach by adding several important partners. Channel partners are a key route to market as they work with us to deliver Consensus technology to captive customer sets through integration and sales cooperation. As we discussed on the previous slide, we've partnered with Cognosante and will provide the cloud fax technology for ECFax.

We've also added Windstream UCaaS, a top unified communication vendor with a solid footprint in healthcare organizations, and Highland Corporation, a leading content service provider whose on-base platform is integrated into thousands of EHR installations with a particularly large epic presence.

The product team has been busy as well taking on the formidable FedRAMP certification process. This is a major project that requires nearly a year of effort to complete, but one that is necessary to meet the ECFax requirements. We have dedicated a large team to this effort and engaged in the assistance of third-party experts to help in the process.

Our particular instance of FedRAMP will be the FedRAMP High, the most secure cloud environment in the market. It's important to understand that this investment is exciting not only because of the immediate opportunity for ECFax, but also because of the position that we will hold for additional opportunities in the future.

We remain on target to have our formal release of Clarity in Q1 with the major release announcement coming at the upcoming Health Information Management Systems Society show in Orlando in mid-March. Clarity performs AI powered data extractions and is the foundation for our data transformation capability.

This technology, called natural language processing, or NLP, has the capability of eliminating the need to rekey faxed information into structured databases and gives Consensus the ability to transform faxed data into HL7 and FHIR compliant messages. Any of you attending HIMSS can see the magic in real time as we feature a live demonstration at the interoperability showcase.

Our team has pushed the ball forward on jSign, our blockchain backed digital signature offering. Customers can now order a bundled jSign eFax subscription, can integrate jSign through an enterprise API, and have access to a robust administrative dashboard for managing their subscription and end user activity. These capabilities are aimed at the corporate marketplace and we have some exciting opportunities in process in that segment for jSign.

Finally, we have completed the rigorous service organization control, or SOC 2 Type 2 certification. This, in addition to the high trust certification and the upcoming completion of FedRAMP security, demonstrates that the Consensus product offerings are the most secure, most protected, and most well defended in the industry.

Now let's move on to slide 8 to discuss segment revenue results. Our corporate revenue delivered double-digit growth, continuing to show strength in both new revenue and baseline performance. We did have one final account cleanup associated with our system migration project and, while that impacted the pure number of accounts in the segment, the revenue impact was negligible.

The ongoing trend is that we are landing bigger deals and seeing strong growth in the base, the combination of which produces a very nice improvement in ARPA. The number of new accounts added was better than in Q4 -- in Q4 of 2020, and the execution of our corporate sales team is producing impressive results. The churn percentage was impacted by that account cleanup I mentioned and, on a normalized basis, is a nearly flat 1.57%.

On slide 9, we see the small office home office results for the quarter, with revenue virtually flat year-over-year once accounting for approximately $400,000 in FX headwinds. In reviewing the year-over-year results, it's important to note that 2020 is a tough comparison due to the migration to home offices that we saw throughout the pandemic year.

The overall number of accounts dipped from a pandemic high of 1.072 million; however, the offset in ARPA netted out to an on par revenue result. A key driver of the account level revenue was increased billable usage, where subscribers were sending pages in excess of their plan limits, demonstrating a solid customer engagement with the service.

Churn for the period was slightly up from last year but not out of line with our historical range and, in fact, it was nearly flat to what we saw in Q1 2021. We continue to expect the revenue performance of our SoHo segment to hold steady while this quarter's results are in line with that expectation. Now let me hand it over to Jim Malone, our CFO, for a deeper look at the financial results. Jim?

Thank you, John and Scott, for that generous introduction. Hello, it's good to meet you in this call and I look forward to meeting you in person. Thank you for your interest in Consensus. We will continue to provide you timely and meaningful information for you to support your expectations of the company.

I'm relatively new to Consensus. I joined the company in mid-January as Chief Financial Officer. It's an exciting time for the company as it begins to absorb the advantages of being spun from J2. While only here for a short time, I genuinely appreciate the opportunity to be a member of the Consensus team.

Let's move on and I will provide comments about the recent financial performance of the company. We have completed our first quarter as an independent company. In the press release and the PowerPoint deck, we have highlighted our 2021 fourth-quarter and full-year performance using a pro forma presentation.

Moving to slide 11, 2021 pro forma Q4 financial results. 2021 fourth-quarter revenue of $89 million, which includes a full quarter as we assume the spin was executed on day one of the quarter, exceeded the prior year revenue of $85.6 million by $3.4 million.

Staying on slide 11 and moving to adjusted EBITDA and EPS, let me start by saying that the adjustments noted in the footnote affecting pro forma adjusted EBITDA for both periods presented are intended to provide a meaningful comparison of quarter results year-over-year. 2021 fourth-quarter results of $51.3 million exceeded the comparable period in 2020 by $0.5 million.

Utilizing a natural [haircut] of $20 million for about 2020 and 2021, EPS year-over-year for the comparable period increased to $1.46, representing an improvement of $0.10 or 7.4%. We met the high-end of our Q4 revenue guidance and exceeded the high-end of our Q4 guidance for both adjusted EBITDA and EPS. Compared to the current analyst expectations, the company exceeded revenue, adjusted EBITDA and EPS targets.

Moving to slide 12, full-year 2020 and 2021 view of Consensus, the pro forma view of what Consensus would've reported if it was an independent company beginning in 2020. Again, we have provided in the footnotes an explanation of the pro forma adjustments affecting the results -- solid revenue, solid adjusted EBITDA and solid EPS performance. We will be carrying this momentum into 2022.

Moving to slide 14, let's move to guidance for full year 2022. Organic revenue at the midpoint of guidance is expected to be 6% while growth on organic plus the Summit acquisition is expected to increase to 8%. The corresponding adjusted EBITDA margin for organic and organic plus acquisitions is forecasted to be 54.4% and 53.7%, respectfully (sic - respectively).

EBITDA margins in 2022 are expected to be lower compared with the prior year, reflecting an investment primarily in R&D headcount. This investment is right sizing the function to accommodate growth initiatives. Combining the Summit acquisition, the margin decreases slightly as we fold Summit into our operations. The expected 2020 share count is 20.5 million and the tax rate range of 19.5% to 21.5%. Capital expenditures are expected to be between $30 million to $33 million.

Let's move on to slide 15 to understand what this means for guidance. At the midpoint our guidance for revenue is $380 million with adjusted EBITDA and EPS of $204 million and $5.44, respectfully (sic - respectively). At the high, mid and low range our adjusted [EBIT] margin of 53.7% was held constant.

Thank you. That concludes my formal comments. I will now return the podium to the operator who will let you know the protocol for asking questions.

(Operator Instructions). Jon Tanwanteng, CJS Securities.

Good afternoon, everyone. Thank you for taking my question and congratulations on the first public order as Consensus. My first question is about the VA contract. I'm wondering what kind of size this could grow to over 2023 and 2024. You mentioned it was the biggest in your history, so I'm just trying to get a sense of scale here, and if the margins involved there are in line with your corporate average.

We are very excited about this contract. The ECFax program is something that we have high hopes for. The VA has over -- I think it is 171 medical centers, over 1,100 sites of care. This is certainly something that could get into the area of $10 million plus as you get down the line on an annual basis.

Margin wise we're very comfortable with this. And our position in this as the technology vendor is not say face forward to the VA but the delivery mechanism. And we think it's the best position for us in this particular case to be in because that technology then could potentially be leveraged into other government entities given the FedRAMP certification.

The only thing I would add to that, Jon, is -- as you know on any large corporate deployment, and much less or much more so in this kind of situation, the rollout will be the key that influences how much revenue drops in say 2023, 2024 and beyond. But I agree with John. This should be a $10 million-plus relationship at the point where we have got substantial rollout throughout the VA system.

Got it. Thank you for that color. It's much appreciated. And then second, I was wondering if you could talk a little bit more about Summit. The price you paid -- I'm not sure if that's finalized yet. But I'm wondering what the strategy is going forward with M&A. Is this the only thing you're going to do for a while or is there more -- are there more targets out there that you're diligencing at this moment?

So, to give you a sense, we paid about a little under 2 times revenue for the company, as you can see by the way we've broken out our guidance. We don't own it for quite a full year this year, about 11 months. We're expecting about $7 million revenue contribution from Summit.

Now that is after a deferred haircut on some revenue of probably a few hundred thousand dollars. So, as we roll into 2023 without any dramatic growth or cross-selling of the business, that will pick up and should be registering north of $8 million-plus.

So, we think it's going to be good in terms of all the things we mentioned. Certainly I think I'd start with the people. We would then bring in the fact that it's got a good customer base for us to access and for them to further access, and great complementary technologies, and -- I think it's where your question was headed -- it's going to meet our financial returns.

It is a lower margin business today. So, you'll notice we gave you two EBITDA margins. 54.4% is the EBITDA margin exclusive of Summit. They are going to clock in at around a 20% EBITDA margin this year in part because of the deferred revenue haircut, [because] that $500,000 or so drops right to the bottom line.

I think that, as I said in my opening remarks, you should not be expecting we are going to drop a deal every quarter or two. This might, quite frankly, be the only deal we do this year and I think that's perfectly fine. As I mentioned, we have a lot on our plate. We've got to get Clarity released. As John said, it will be previewed at HIMSS. You will see a big [slash] around it. Our teams are going to start selling that.

We are still working on a variety of the AGIs to be released later this year, early next year that has been dubbed Harmony. And then as I said, there's all these opportunities between (technical difficulty) technologies and portfolio of customers and what we have. So, I would not expect anything more this year in terms of M&A, but you never know.

Got it. Thanks, Scott, and congrats on the strong start. I'll jump back in queue.

Thanks. Appreciate it.

Ian Zaffino, Oppenheimer.

Good afternoon guys. This is [Isaac Sauhauzen] on for Ian. Thank you for taking the question and for all the business updates. Just first on the overall revenue mix, given the growth rates of the two segments, how should we think about when the corporate vertical would overtake the SoHo vertical? And just given the recent activity, should we expect this to come sooner maybe than originally anticipated? If you could outlay some of the main drivers of that shift.

Yes, so there's two things that are going to influence that. One is just the natural trajectory of the business. And as you may have seen in the slide deck, we are seeing some FX currency headwinds. Saw it in Q4; it was about $400,000. We are seeing it in 2022 as we estimated, based on the basket of currency, of close to $1.5 million and that substantially affects SoHo. So, it retards its growth or tamps it down. It does not affect to any meaningful degree the corporates.

So, there's both stronger growth in corporate, as you know, than SoHo; there's the FX differential; but then on top of that, the Summit revenue is all corporate. So, we are seeing an acceleration of that tipping point to be probably in the next fiscal quarter in Q2. It could even happen late Q1, being this month, the quarter we are currently in. So yes, that crossover was expected to be late this year. It is going to be now in the first half of this year, probably no later than Q2.

Okay, great. Thank you. And then just regarding the Cognosante and VA contract, can you just provide more details on the overall agreement? Is it similar to other enterprise service agreements? And then just additionally, how the opportunity and agreement came about? That would be super helpful. Thanks.

Sure. The opportunity really came about in the way I think these things normally do from the government's point of view, they put out a request for bidders. Cognosante is the prime, and I want to be a little careful here just to observe protocol because the prime contractor is really the one with the relationship with the VA.

In order to fulfill the bid though, Cognosante was looking for specific partners to be able to deliver the cloud fax technology that was required by the bid. We were their partner in submitting that with Cognosante being the prime, us being the sub, and that was ultimately selected by the VA. So, the VA relationship is with Cognosante and I'd refer you to their press release of December 15 for more details around the agreement itself.

Jon Tanwanteng.

I was just wondering about your buyback plans. I know you said you'd be opportunistic about it, but, as we know, Ziff-Davis holds a lot of your shares and is looking to sell them within a certain timeframe. So, I'm wondering if that would be a source of the shares that you could buy back.

No, these are independent of each other. So, I think, one, as we stated in the -- as I stated in the opening remarks, we are a strong free cash flow company and so part of it is the capital allocation strategy independent of the ownership of the underlying equity. And certainly if we are not going to do a lot of M&A, that gives us a lot of firepower then to look at our equity, but subject to attractive prices where returns make sense.

More to the point though, the way that Ziff-Davis holds the equity in Consensus, we cannot be directly participatory in terms of going to them and offering to buy some of their shares. There are -- as you remember from this spin, John, a lot of elements of the spin pre-and post-deal with tax issues and tax matters. And so one of the things that is really in their court to decide is when and how they want to monetize some or all of that equity.

And then, depending on certain decisions they make, then we can possibly step in and either help them facilitate that or whatever will come forward from it. But we cannot go to them, nor can they come to us, to try to facilitate a direct purchase and/or sale.

Got it. That's helpful, Scott. And then second, I was just wondering regarding the SoHo segment, (inaudible) against a tough comp year-over-year, I understand that. As we go forward, are you expecting slightly more growth as you lap the tougher comps? I know your ambition is to actually grow that segment compared to what it has done previously. Just help me understand your strategy there.

Yes, I think -- look, I think intermediate to longer-term, yes, there are some tougher comps both backward looking in the first couple of quarters. I'm happy to say that, as we sit here in real time, the base is stable from where we ended the year. It's not atypical that there were account cleanups in the fourth fiscal quarter. We experienced some of that.

I also think we experienced in the fourth quarter maybe some cancellations as the COVID moves from a pandemic to an endemic and people are rejiggering how they work. It was neither a big positive for us historically, nor is it a big negative to the extent there's any reversal. But I think there's some of that in Q4.

And we are in the early, early stages of jSign really rolling out to that base and developing a strategy and plan of how jSign can be contributory to the overall SoHo channel. So, I think this year we've got challenges with the FX because SoHo does have a big chunk of business that is outside of the United States.

Now, we could be wrong on the FX. As you may recall, we look at a basket of currencies, we look to third parties based upon their expectations. It is obviously very volatile right now because even what people thought three weeks ago is changing given world events.

So, we will see, obviously over the course of the year, how accurate those predictions are in terms of the FX and we may get tailwinds that we don't currently anticipate. Conversely we could get further headwinds.

So, I do think that, at least on our own thinking and our own budgeting, we felt it was prudent to bring the FX component in, at least as we understand it right now, recognizing that it's kind of a volatile world that has implications to the debt markets, the equity markets and the Forex markets.

Got it. Maybe just to follow up on that -- do you have any exposure to the areas that are volatile right now, Eastern Europe, the conflicts that are out there?

Generally speaking, no. We do have some contractor relationships that are in the Ukraine, but we are keeping contact with the people. At least as of yesterday, thankfully, they remain safe. And amazingly they were still working on behalf of the contractor that we contract with. So, we are monitoring that situation, but we don't have any business in terms of revenue relationships that would exist in that region of the world of any substance.

Greg Burns, Sidoti.

So, in relation to the corporate business, is there anything you could share in terms of the interoperability solutions, the kind of penetration you're seeing -- any kind of metrics you can help us with understanding the growth and penetration of those new solutions?

Yes, Greg, this is John and thanks for the question. We're very excited about that set of solutions. There are probably a couple of things and, as you know, since we have a very large baseline of fax customers and our revenue is on a recurring basis, obviously the revenue that we have and that we are reporting on is overwhelmingly fax.

What we're finding though is, as you think about new sales and bookings in the corporate segment for 2021, we actually booked about 17% of our new sales were Consensus Unite interoperability product, which is a very strong showing in its first full year in terms of market acceptance and bookings.

And I'd also say that as we look at the Summit solution suite, the concept -- and I mentioned it in my remarks -- of backlog starts to come into play as the Summit technology sale includes an implementation that takes some time during which revenue is recognized. And Summit right now is running somewhere north of $2.5 million of backlog that will need to be worked through from the professional services group to recognize.

And I think going forward, we're going to be able to see more and more of that kind of financial metric being important for us as an organization. And really when you think of the Summit suite, that's a set of pure play interoperability products that really are going to make a difference in the marketplace for us and for our position.

Okay, great. And then in terms of the VA contract, is that ECFax initiative -- is that VA specific or is that a more broader government based program where maybe there's a lot of legacy fax service sitting out there and now this is going to be rolled out more broadly and give you a bigger opportunity? How would you size the government opportunity for this service?

Well again, being very conscious of the protocols [involved], because if it's just with a small number of primes that service the government, the VA is Cognosante's customer, we're the technology vendor of the ECFax platform, so we are that exclusive technology provider. And the ECFax platform is being positioned in such a way that it can be marketed to other government entities beyond the current customer.

So, we really consciously, in thinking through it with our partner, created a platform that was capable of servicing not just the one customer, but would be open to other potential customers and there are live RFPs out there.

Okay, great. And with doing the acquisition, now the buyback is in play, how do you think about leverage going forward? Are you comfortable with the current leverage? Do you want to reduce it from here? Where do you stand in terms of the balance sheet leverage?

The leverage is comfortable at [$200X] million of EBITDA and $100 million-ish of cash flow. As I think you may remember, we actually cannot proactively delever until at least two years after the spin. That's another private label ruling, tax-related issue dealing with the spin itself.

So, our debt is currently in two tranches. There's $[305] million of 6% notes that are callable two years after the date of issuance, so that would be October of 2023. And then there's $500 million of 6.5% notes that are non-called for five years. So, in a year and a fraction now, we could think about either retiring or refinancing either all or less than all of the $305 million. But we're not really going to be in a position to touch the $500 million tranche until we get to the fifth year post spin.

So, we will see what are the capital opportunities that exist between now and October of 2023. And depending on where market conditions are, interest rates, etc., we'll then decide what to do, if anything, with the $305 million of 6% notes. But we cannot take free cash flow and pay down debt as if these were bank loans.

And by the way, just to be clear, if we were not constrained by the spin and the various tax elements around it, we would not have financed Consensus in this manner, in part to address your question. Because it is a goal of ours, whether it's through the paydown of debt, the increase in EBITDA or a combination, to get down to gross debt to EBITDA of 3 times.

So, we are about 4 times right now, a little bit under 4 times levered. Obviously, if you take the cash into account on a net basis, we are about 3.5 times, 3.4, 3.5. But at some point we'd like to be gross debt to whatever our then EBITDA is at around 3 times. But that will have to wait.

Shyam Patil, SIG.

This is [Jared] on for Shyam. Thanks for taking the question and congrats on the solid quarter. In the past you've talked about top-line seasonality being tied to the number of businesses in the quarter. Just as you're looking out at 2022, is there any reason that you think that might differ for this year?

And then on EBITDA, just is there anything to call out as you're thinking about the pacing of EBITDA through the year, especially given headcount additions? And then I've got one more after, if you don't mind.

So, the business days, with the exception of a leap year, which we are not in this year, the trend is always Q4 is challenged on a sequential basis vis-à-vis Q3 by anywhere from 2 to 4 business days. There's a little bit of modest relief that occurs in Q1, although, quite frankly, it doesn't really kick in until February which is a short month and then March is really the strong month.

But your key maximum business days in a fiscal year are Q2 and Q3. And then you'll get into some nuances of when is Easter falling because Good Friday has some implications, so this year Eastern is April so it is a Q2 event. There are occasions where it can sneak into Q1.

So, there are some things on the margin that can affect it, but in general you look for Q2 and Q3 to be your strongest number of business days, which affects the selling cycle but, more importantly, the usage. The (inaudible) predominantly used on working business days. And your second question was?

Great, thank you. And then the second -- so, I know you that provided the near-term outlook of about 5% to 9% organic revenue growth on a year-over-year basis, but you've also spoken to a path to 10% plus over the longer run. Do you mind just speaking to that path and what levers you might be able to pull to get above 10% growth?

Sure, I think there's a couple things. One is just the mass. We have a corporate channel that we expect will grow in the double-digit range this year. You saw what it did in 2021. So, as it overtakes -- an earlier question was raised. As it overtakes the SoHo channel, which even if it kicks into a growth mode is going to be a modest growth mode. You have the larger channel growing faster that works to your advantage.

Now I understand without any other accelerant you might have to run that out several years to get to that 10%. But one of the things that gives us optimism is the new products and services that are on the slate for this year, which will have a partial impact this year, a full impact next year, and of course the benefit of the Summit revenue products and services, which eventually will become part of our organic base of revenue.

So, it's not something that we are budgeting or attempting to achieve in the next year or two, but it is an affirmative goal of ours as we think about how we go and access more customer wins and more revenue per customer to get to the double-digit organic growth. [And you said you had a] third question?

No, that's it. Thank you.

Joe Goodwin, JMP Securities.

Great, thank you so much for taking my question. Actually kind of double-clicking on the previous question there, in 2023 and 2024, just thinking about your new interoperability products, not Summit that you just acquired, what would be a success in your mind, Scott, from like a revenue base?

Look, we've got to get to -- it will be double-digit millions of revenue. So, $10 million-plus, and then getting into probably the following year 30%-40% growth on top of [whatever] that number is in 2023.

Understood. Okay. Thank you. And then on your R&D expense, can you give us a sense of how we should expect that to step up through 2022? And on that, if you're spending low double digits or so in R&D, how much of that is focused on the new product initiatives that you're developing? And is that going to be able to compete with some of the more pure play healthcare interoperability vendors that are receiving venture funding? How are you thinking about that when you are going to market?

Well, I don't think we're thinking quite in the manner you're thinking about it. So, we have a lot of initiatives; some are internal that don't affect product that are R&D centric. They have to deal with internal systems and issues that, quite frankly, we were going to deal with at j2 independent of the spin. It's just a matter of the pacing and the timing. I'd actually like those projects accelerated. We have the ability now to hire to accomplish those ends.

Yes, there is a huge team that is involved and growing to address the new products, the FedRAMP product, the other interoperability solutions that we have talked about to date, but including things we haven't yet talked about.

So, we have a pace of hiring that actually arcs out in R&D over about 27 months. So, we began literally at spin, so in October of last year, and the program runs through the end of 2023, may dip into early 2024. And I would say that it's reasonably ratable in terms of the way we tend to hire. The reality of course will be how can we hire or what is the pace we can hire in a tight labor market?

So, the budget has got one set of assumptions in it, reality -- because of reality. This is one of the reasons, too, though why an acquisition like Summit was important. Because, as I led with and as John mentioned, people are really important. And they're not all technical people. We're getting salespeople and marketing people. But it's really important in this environment (inaudible) we put a high value on the talent acquisition in the context of looking at M&A.

But I think you should assume -- I think it was an earlier question that I didn't fully address (inaudible) on margins. Okay, if we're at 53.7 including Summit for the year, how do the margins sort of lay out I think over the four quarters? That was the implication. And it does tie into this R&D question indirectly as well.

So, you should expect a somewhat lower margin than the average for the year in Q1. And there will be a build over the four quarters as revenue comes in to absorb the new hires that we hired in Q4 and that we are hiring currently in Q1. We're trying to get as much done as soon as we can in terms of hiring, but realistically it is going to spread out throughout the year.

And there are no further questions in queue at this time. I would now like to pass the floor back to the Consensus management team for closing remarks.

Great. Well, we thank all of you for joining us today on our first true earnings call. We look forward to speaking to you in the future. We will be at a couple of conferences this month of March. There's the JMP conference we'll be at virtually, it will be a fireside chat next week. And we will be at the Sidoti conference, also virtually, a little bit later in March. And then look for releases regarding other conferences that we'll be attending either virtually or in person over the course of the year.

In terms of our next earnings release, you should expect it to be sometime in May. And so, as we get closer we'll put out the date for that release and we'll look forward to talking to you about Q1 results and giving you an update of all these good things that are going on. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.