Consensus Cloud Solutions, Inc. (CCSI) Earnings Call Transcript & Summary

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] 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'll 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 have included as part of the slide show 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 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. Our biggest accomplishment in filling out our public company personnel has been the hiring of Jim Malone as our CFO. Jim comes with the depth of relevant experience in accounting, finance and health care. 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 remain 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 health care 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 2 years to enhance and deepen our technical team. However, we do look for acquisitions that are complementary to our product road map 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 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 3 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 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. Roll out 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 virtually perfect fit in every respect. First, the Summit product suite is a precise fit with our existing product road map, 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 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 improved 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 at all 4 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 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 health care workflows for effortless documents 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 in services, we are laying 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 U.K. with over 1,500 locations and closed the deal on 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. And we've also added Windstream UCaaS, a top unified communication vendor with a solid footprint in health care 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 a 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 fax data into HL7 and FHIR compliant messages. Any of you attending him 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 HITRUST 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 this 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 ARPU. 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%. 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 planned 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 study, 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. Although it's good to meet you on 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, our intent is 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 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 $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 viewer Consensus. Pro forma viewer -- the pro forma 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 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%, 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 rightsizing 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 a 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 of $204 million and $5.44, respectively. At the high, mid and low range, our adjusted EBIT margin 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] The first question today is coming from John Tanwanteng from CJS Securities.

Congratulations on the first public quarter as Consensus. 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 is 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 Nebergall. We're very excited about this contract. The ECFax program is something that we have high help for. The VA has over -- I think it's 171 medical centers, over 1,100 sites of care. This is certainly something that could kind of 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 face forward to the VA, but the delivery mechanism. And we think it's kind of 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.

And the only thing I would add to that, John, is 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 since to, say, '23, '24 and beyond. But I agree with John, this should be a $10 million-plus relationship at the point where we've got substantial rollout throughout the VA system.

Got it. 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 kind of 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 doing at this moment?

Okay. So to give you a sense, we paid about a little under 2x 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 by 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 any dramatic growth or cross-selling the business, that will tick up and should be registering north of $8-plus million. So we think that it's going to be 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 I think it's where your question was headed, it's going to meet our financial returns. It is a lower margin business to us. 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 of the deferred revenue haircut for 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'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 on our plate. We've got to get clarity released, as John said, will be previewed at HIMSS. We'll see a big slash around it. Our teams are going to start selling that. We're still working on a variety of the APIs to released later this year, early next year that has been the [ harmony ]. And then as I say, there's always opportunities between the size, 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.

Your next question is coming from Ian Zaffino from Oppenheimer.

This is Isaac Sellhausen on for Ian. Thanks 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? It sort of outlay sort 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 sought in Q4 is about $400,000. We're seeing it in '22, at least estimated based on the basket of currencies of close to $1.5 million, and that substantially affects SoHo. So it retards it's growth or tamps it down, it does not affect any meaningful degree to 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, in Q2, could even happen late Q1 in 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. And then just regarding the Cognosante and VA contract, could you just provide some more details on the overall agreement? Is it sort of similar to other enterprise service agreements? And then just additionally, how the opportunity and agreement came about? That will be super helpful.

The opportunity really came about in the way, I think these things normally do from the government's point of view that put out a request for bidders. Cognosante is the prime, and I want to be a little careful here to observe the protocol because the prime -- 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 sub and that would 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.

The next question is a follow-up from John 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 time frame. 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 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 than 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 the 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 port 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 forth from it. But we cannot go to them or 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, flat against the 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's 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 are 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're 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 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 bought 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, so 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 -- it's kind of a volatile world that has implications to the debt markets, the equity markets and the ForEx markets.

Got it. And maybe just a follow-up on that. Do you have any exposure to the areas that are volatile right now in Eastern Europe, the conflicts that are out there?

Generally speaking, no. We do have some contract relationships that are in Ukraine, but we're keeping in 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.

Your next question is coming from Greg Burns from 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 that 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 tax customers and our revenue is on a recurring basis, obviously, the revenue that we have and that we're reporting on is overwhelmingly [ facts ]. 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 can also say that as we look at the Summit solution suite, the concept, and I mentioned it in my remarks, a 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 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, being very conscious of the protocols involved because it's just with a small number of primes that service the government, the VA is Cognosante's customer. We're a technology vendor of the ECFax platform, though where 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 customers. 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 a lot of RFPs out there.

Okay. Great. Okay. And with the -- doing the acquisition now the buybacks 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 level?

The leverage is comparable at $200 million ex of EBITDA and $100 million-ish free cash flow. As I think you may remember, we actually cannot proactively delever until at least 2 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 $105 million of 6% notes that are callable 2 years after the date of issuance. So that will be October of '23. And then there's $500 million of 6.5% notes that are non-call for 5 years. So in -- well, you're in 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 our -- the capital opportunities that exist between now and October of '23. And depending on where market conditions are, interest rates, et cetera, we'll then decide what to do, if anything, with $305 million of 6% notes. But we cannot take free cash flow and pay down debt as if these were bank line. 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 pay down of debt, the increase in EBITDA or a combination to get down to gross debt to EBITDA of 3x. So we are about 4x right now a little bit under 4x levered. Obviously, if you take the cash into account on a net basis, we're about 3.5x -- 3.4, 3.5. But at some point, we'd like to be gross debt to whatever the EBITDA is at around 3x. But that will have to wait.

Your next question is coming from Shyam Patil from SIG.

This is Jared on for Shyam. Congrats on the solid quarter. 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 by 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 month. But your key maximum business days in a fiscal year for 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, Easter is in April. So it's 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 services are predominantly use on working business days. And your second question was?

Great. And then the second, so I know that you 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 add a couple of things. One is just the math. But 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 as, an earlier question was raised, as it overtakes the SoHo channel, which even -- if it kicks into a growth mode, it's going to be a modest growth mode. you have the larger channel growing faster that works to your advantage. Now I understand without a further 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's 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 2 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.

Your next question is coming from Joe Goodwin from JMP Securities.

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

I think, look, we've got to get to -- it will be double-digit millions of revenue. So 10% plus and then getting into probably the following year 30%, 40% growth on top of the numbers in '23.

Understood. Okay. And then on your -- just 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, if you're spending low double digits or so, in R&D, I mean, how is that -- 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 health care 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 taking 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. They have to deal with internal systems issues. But quite frankly, we were going to deal with 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 FedRAMP product, the other interoperability solutions that we have talked about to date, but including things we haven't yet talked. 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 '23 may dip into early '24. And I would say that 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 the budgets 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 salespeople 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 the margins, okay, we are 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&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. 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. The JMP conference will be at virtually. There will be a fireside chat next week, and we'll be at the facility 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 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.