Consensus Cloud Solutions, Inc. (CCSI) Q4 2021 Earnings Call Transcript

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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. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. On this call will be Scott Tariki, CEO of Consensus, Jim Malone, CFO, John Nebergal, COO, and Adam Varon, Senior Vice President of Finance and Accounting of Consensus. I will now turn the call over to Adam Varan, 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 Tariki, 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 two. 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 three that we have disclosed in our form 10 sec filings as well as a summary of those risk factors that we have 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 ConsenSys 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 as 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. A 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 ConsenSys, 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, remain very productive. We are thrilled that after an extensive RFP process to our relationship with Cognizante, we have been chosen to be the exclusive cloud facts 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 in 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 health care systems utilizing the Meditech EHR solution. I would like to welcome again all of 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, fits 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'll 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 five. 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 Cognizante, LLC, who provides innovative health and safety solutions to government. Acting as the technology subcontractor to Cognizante, ConsenSys will serve as the exclusive supplier of CloudFacts technology to the Enterprise CloudFacts Project, otherwise known as eFeeFacts. As announced in Cognizante's December 15th press release, eFeeFacts 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 CloudFacts 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 CloudFacts 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 and established an 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 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 in integrating the organizations was a non-starter 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 but they all did work in addition to the hl7 and fire 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 documents and data routing within an organization. Finally, with the addition of the Summit team, ConsenSys 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 in 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 six. 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 William 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 Cognizante and will provide the cloud fax technology for ECFAX. We've also added Windstream UCAS, a top unified communication vendor with a solid footprint in healthcare organizations, and the Hyland Corporation, a leading content service provider whose OnBase 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 eCFAQs 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 eCFAQs, 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 system 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 re-key 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 J-Sign, our blockchain-backed digital signature offering. Customers can now order a bundled J-Sign eFax subscription, can integrate J-Sign 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 JSON. Finally, we have completed the rigorous Service Organization Control, or SOC 2 Type 2 certification. This, in addition to the HITRUST certification and the upcoming completion of FedGrant 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 eight 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 of 20, 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 percent. On slide nine, 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 on this call and I look forward to meeting you in person. Thank you for your interest in ConsenSys. We will continue to provide you timely and meaningful information for you to support your expectations of the company. I'm relatively new to ConsenSys. 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 spend 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 exceeded the comparable period in 2020 by .5 million. Utilizing an actual share count of 20 million for both 2020 and 2021, EPS year-over-year for the comparable period increased to $1.46, representing an improvement of 10 cents 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's expectations, the company exceeded revenue, adjusted EBITDA, and EPS targets. Moving to slide 12, full year 2020 and 2021 view of consensus. The performer view of what consensus would have reported if it was an independent company beginning in 2020. Again, we have provided in the footnotes an explanation of the performance 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 margins for organic and organic plus acquisitions is forecasted to be 54.4% and 53.7% respectfully. 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 on revenue is $380 million, with adjusted EBITDA and EPS at $204 million and $5.44, respectively. At the high, mid, and low range, our adjusted EBITDA margin of 53.7% was held constant. Thank you. That includes my formal comments. I will now return the podium to the operator, who will let you know the protocol for asking questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we begin. And the first question today is coming from John Tanwonteng from CJS Securities. John, your line is live. Please go ahead.

Hey, good afternoon, everyone. Thank you for taking my question. Congratulations on the first public order as a consensus.

We appreciate it.

It's great to hear you guys. My first question is about the VA contract. I'm wondering what kind of size this could grow to over 23 and 24. You mentioned it's the biggest in your history, so I'm just trying to get a sense of scale here, and if the margins involved are kind of in line with your corporate average.

This is John Nebergon. We're very excited about this contract. The ECFACS program is something that we have high hopes for. You know, the VA has over, I think it's 171 medical centers, over 1,100 sites of care. You know, this is certainly something that could kind of get into the area of, you know, $10 million plus as you get down the line on an annual basis. Margin-wise, we're very comfortable with this, and, you know, our position in this as the technology vendor is not, you know, face forward to the VA, but the delivery mechanism. And, you know, we think it's kind of the best position for us in this particular case to be in, because, you know, that technology then could potentially be leveraged into other government and entities given the FedRAMP certification.

And the only thing I would add to that, John, is, you know, as you know, in any large corporate deployment, and much less or much more so in this kind of a situation, the rollout will be the key that influences how much revenue drops into, say, 23, 24, and beyond. But I agree with John. This should be, you know, a $10 million-plus relationship at the point where we've got, you know substantial rollout throughout the VA system got it thank you for that

color much appreciate it and then second I was wondering if you could talk a little bit more about summit the price you paid I'm not sure that's finalized yet but kind of wondering what the strategy is going forward with M&A is it you know that the only thing you're gonna do for a while or is there more are there more targets out there that you're doing at this moment okay so

to give you a sense we paid about little under two times revenue for the company as you can see by the way we've broken out our guidance we don't know 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 23 without you know any dramatic growth or cross selling the business that will pick up it should be registering north of eight plus million dollars so we think that it's going to be you know good in terms of all the things we mentioned certainly I think I'd start with the people who 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 still 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 and they're going to clock in at around a 20% EBITDA margin this year in part because the deferred revenue haircut for that 500 grand or so drops right to the bottom line I think that you know as I said in my opening remarks you should not be expecting we're going to drop a deal every quarter or two this might quite frankly be the only deal we do this and I think that's perfectly fine as I mentioned we have a lot in our place we've got to get clarity release as John said we previewed at hymns you'll see a big splash around it our teams are going to start selling that we're still working on a variety of the API released later this year early next year that has been dubbed harmony and then as i say there's all these opportunities between the sun technologies and portfolio of customers and what we have so um 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 thank you appreciate it thank you your next question is coming from Ian Zafino from Oppenheimer. Ian, your line is live. Please go ahead.

Hey, good afternoon, guys. This is Isaac Salhausen on for Ian. Thanks 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 will overtake the Soho vertical? And just given the recent activity, should we expect this to come sooner maybe than originally anticipated um it's sort of just outweigh sort of the main drivers of that

shift yeah so there's two things that can influence that one is just the natural trajectory of the business and as you as you may have seen in the slide deck we are seeing some fx currency headwinds sought in q4 is about 400 grand we're seeing it in 22 at least estimated based on the basket of currencies of close to one and a half million dollars and that substantially affects soho so it retards its growth or camps it down um it does not affect to any meaningful degree the corporate 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, meaning Q2. It could even happen late Q1, meaning this month, the quarter we're currently in. So, yes, that crossover was expected to be late this year. It's 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 Cognizante and VA contract, um could you just brought some more details on the overall agreement um is it sort of similar to other enterprise service agreements um and then just additionally how the opportunity and

agreement came about that would be super helpful thanks um sure i guess the opportunity really came about in the way i i think these things normally do from the government's point of view they put without a request for bidders, you know, Cognizante is the prime, and I want to be a little careful here to observe the protocol, because the prime contractor is really the one with the relationship with the VA. In order to fulfill the bid, though, Cognizante was looking for specific partners to be able to deliver the CloudFacts technology that was required by the bid. We were their partner in submitting that with Cognizante being the prime, us being the sub, and that was ultimately selected by the VA. So the VA relationship is with Cognizante, and I'd refer you to their press release of December 15th for more details around the agreement itself.

Okay, very helpful. Thanks very much, Russ.

Thank you. The next question is a follow-up from John Tanwonteng. John, your line is live. Please go ahead.

Hi, I was just wondering about your buyback plans. I know you said you'd be opportunistic about it, but as we know, Jake, the savings holds a lot of your shares and is looking to sell them, you know, 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, you know, we are a strong free cash flow company. And so part of it is a capital allocation strategy independent of the ownership of the underlying equity. And certainly, if we're 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 zip 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 the spin John a lot of elements of 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 or whatever will come 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 that's

helpful scott and then second um i was just wondering uh regarding the soho segment you know flat against the tough comp year of year i understand that as we go forward uh are you expecting slightly more growth as you lap the tougher comp um you know i know your ambition is to actually grow that segment compared to what it's done previously just help me understand

your strategy there? I think, look, I think intermediate to longer term, yes, there are some tougher comps, both backwards looking in the first couple of quarters. I'm happy to say that, you know, as we sit here in real time, the base is stable from where we ended the year. It's not atypical that there are account cleanups in the fourth fiscal quarter. We experienced some of that. I also think we experienced in the fourth quarter, maybe some, you know, cancellations as uh the covid moves from a pandemic to an endemic and people are you know rejiggering how they work it was neither a big positive force historically nor is it a big negative to the extent there's any reversal but i think there's some of that and we're in the early early stages of j sign you know really rolling out to that base and developing a strategy and plan of how j sign can be be contributory to the overall Soho channel. So I think this year, you know, 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's 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 our own budgeting we felt it was prudent to bring the FX component in at least as we understand it right now recognizing that you know it's the kind of a volatile a little 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 an exposure to to the areas that are that are volatile right now eastern europe uh the conflicts that are out

there generally speaking no we do have uh some contractor relationships that are uh in the ukraine but uh you know we we're keeping in contact with the people at least as of uh yesterday thankfully they will remain safe and amazingly they were still working on behalf of the contractor that we contract with so we are monitoring that situation uh but we don't have any business in terms of revenue relationships that would exist in that region of the world of any substance

got it thank you thank you your next question is coming from greg burns from sedoti greg your line

is live please go ahead hi um so in relation to the 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 that you could help us with understanding the growth and penetration of those new solutions?

Yeah, Greg, this is John, and thanks for the question. You know, 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 line of fax customers and our revenue is on a recurring basis, obviously the revenue that we have and that we're 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 percent of our new sales were Consensus unite the interoperability product which is a very strong showing in its first full year in terms of market acceptance and bookings and I can also say that um as we as we look at the the summit um solution suite you know the the concept and I mentioned it in in my remarks of backlog starts to come into play as the Summit technology sale, you know, 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 backlogs 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 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. Great. And then in terms of the VA contract, is that EC FACS initiative, is that VA specific or is that a more broader government-based program where, you know, maybe there's a lot of legacy FACS service sitting out there and now this is going to be kind of rolled out more broadly and give you a bigger opportunity at it? And how would you size kind of maybe the government opportunity for this service?

Well, again, I'm being very conscious of the protocols involved because it's just, you know, with a small number of primes that service the government, the VA is Cognizante's customer, we're the technology vendor, the ECFAX platform, though we're that exclusive technology provider, And the ECCX platform is being positioned in such a way that it can be marketed to other government entities beyond the current customer. So we're 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. Okay, and with, you know, doing the acquisition, now the buyback's 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? Like, where do you stand in terms of the balance sheet leverage?

The leverage is comparable at, you know, 200x million of EBITDA and 100 million issues free cash flow. As I think you may remember, we actually cannot proactively de-lever until at least two years after the spin. That's another private letter 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 23 and then there's 500 million of six and a half percent nodes that are non-call for five years so in two in well you're in a fraction now we could think about either retiring or refinancing either all or less than all 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 you know the capital opportunities that exist between now and october of 23 and you know depending on where market conditions are interest rates etc uh we'll then decide what to do if anything with the 305 million of six percent notes but we cannot take free cash flow and pay down debt as if these were bank ones and by the way just to be clear you know 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 pay down of debt increase in EBITDA or a combination to get down to gross debt EBITDA three times so you know we We are about four times right now, a little bit under, four times levered. Obviously, if you take the cash into account on a net basis, we're about three and a half times, 3.4, 3.5. But at some point, we'd like to be gross debt to whatever our EBITDA is at around three times.

But that will have to wait. All right. Great. Thank you.

Thank you. Your next question is coming from Sean Patil from SIG. Shom, your line is live. Please go ahead.

This is Jared on for Shom. Thanks for taking the question, and congrats on a solid quarter. Appreciate it. In the past, you've talked about top-line seasonality being tied to the number of business days in the quarter. Just as you're looking out at 22, is there any reason that you think that 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. Okay.

So the business days, with the exception of a leap year, which we're not in this year, the trend is always Q4 is challenged on a sequential basis vis-a-vis Q3, but anywhere from two to four 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 one but your your key maximum business days in a fiscal year are q2 and q3 and then you'll get into some nuances of when is you know when is easter falling because good friday has some implications uh so this year easter is in april so it's a q2 event there are occasions where it can speak 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 services are predominantly used on working business days okay your second question was

Great. Thank you. And then the second, so I know that you've 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 of things one is you know just the math right we have a corporate channel that we expect will grow you know in the double digit range this year uh you saw what it did in 2021 so as it overtakes as an earlier question was raised as it overtakes the soho channel which even when it 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 accelerants you might have to run that out several years to get to that 10 percent um 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 tending 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 that double-digit organic growth.

Great. Thank you for the third question. No, I got that.

Thank you. Your next question is coming from Joe Goodwin from JMP Securities. Joe, your line is live. Please go ahead.

Great. Thank you so much for taking my question. Actually, kind of double-clicking on the previous question there, I mean, in 23 and 24, just thinking about your new interoperability products, not some that you just acquired, I mean, what would be a success in your mind, Scott, from like a revenue base?

Oh, I think, look, we've got to get to, it'll be double-digit millions of revenue.

So, you know, 10 plus, and then getting into probably in the following year, 30%, 40% growth on top of whatever that number is in 23.

Thank you. And then, you know, on your R&D expense, can you give us a sense just kind of how we should expect that to step up through 2022? And on that, you know, if you're spending, you know, low double digits or so in R&D, I mean, how much of that is focused on the new product initiatives that you're developing? And, you know, is that going to be able to compete with some of the more pure play healthcare interoperability vendors that are receiving venture funding? I guess how are you thinking about that when you're 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 products that are R&D centric that is there to deal with internal systems issues but quite frankly we were going to deal with at J2 independent of the spin 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's a huge team that is involved and growing to address the new products the fed ramp product the other interoperability solutions that we have talked about to date but including things we haven't talked about so we have a 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 23 may dip into early 24 and i would say that you know it's reasonably ratable in terms of the way we intend 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 you know the budget's got one set of assumptions in it reality be the 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 the people are really important and they're not all technical people we're getting sales people and marketing people but it's really important in this environment and 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 sorry that's about the margins okay for 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 to this r b uh 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

thank you 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 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 will be at virtually there'll be a fireside chat next week and we'll be at the Sony conference so also virtually a little bit later in March and then look for releases regarding other conferences that will be attending either virtually or in person over the course of the year uh in terms of our next earnings release you should expect it to be uh sometime in may and so as we get closer we'll put out the date for that release uh and we'll look forward to talking to you about q1 results and giving you an update on 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.