Good day, ladies and gentlemen, and welcome to J2 Global's call about its planned spin off of Consensus. My name is Paul, 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. On this call will be Vivek Shah, CEO of j2 Global and Scott Turicchi, President and CFO of j2.
I will now turn the call over to Scott Turicchi, President and CFO of j2 Global. Thank you. You may begin.
Thank you. Good morning, ladies and gentlemen, and welcome to this special investor conference call to discuss j2Global's As the operator mentioned, I'm Scott Chiricchi, President and CFO of j2 Global and Joining me today is our CEO, Vivek Shah. We'll use the presentation as a roadmap for today's call. A copy of this presentation is available at our website. When you launch the webcast, there is a button on the viewer on the right hand side, which will allow you to expand the slides.
If you've not received a copy of the press release, you may access it at our corporate website at www.j2global.com. In addition, you'll be able to access the webcast from this site. After we complete the formal presentation, we will conduct a Q and A session. The operator will instruct you at that time regarding the procedures for asking a question. Please note the Safe Harbor language on Page 2.
As you know, this call and the webcast will include forward looking statements. Such Statements may involve risks and uncertainties that would cause the actual results to differ materially from the anticipated results. Some of Those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our various SEC filings, including our 10 ks filings, recent 10 Q filings, Various proxy statements and 8 ks filings as well as additional risk factors that we've included as part of the slide show for this webcast on Slide 3. We We refer you to discussions in those documents regarding Safe Harbor language as well as forward looking statements. We use non GAAP measures in this presentation.
Please refer to Slide 4 for explanations of these non GAAP measures and a reconciliation to the most closely Comparable GAAP measures found on Slides 2627. Now let me turn the call over to Vivek.
Thank you, Scott, and good morning, everyone. We're Turning to Slide 6. Contemplated transaction is intended to be structured as a tax Free spin off of j2's CloudFAX business. The business will be called Consensus, and we will refer to it in this We will refer to the remaining company as J2 RemainCo We're planning to distribute at least 80.1% of consensus shares to j2 shareholders On a pro rata basis, with RemainCo expected to retain up to 19.9% of consensus shares that j2 will divest over time in a tax We expect the transaction to be completed in the Q3 of this year, Subject to customary closing conditions, including final Board approval. We believe the companies will emerge With respective capital structures that are optimized for leverage and liquidity, while supporting the capital needed for acquisitions and organic growth.
Turning to Slide 7. Fundamentally, we believe this separation unlocks A great deal of value for both companies, enabling them to better pursue independent growth strategies. Consensus is a leading secure document transmission platform that is developing into a leading pure play healthcare interoperability company. While J2 RemainCo is an established vertically focused Internet company with a track record of accretive M and A and organic growth. The separation will allow each management team to be entirely focused on and have their incentives entirely aligned with Their respective businesses.
Each company should also be able to optimize resource and capital allocation while providing the investment Community was 2 distinctly investable companies. On Slide 8, You see that Remainco's revenues in 2021 on a pro form a basis after giving effect to the proposed transaction And as indicated by the company's current guidance, our estimated between $1,297,000,000 $1,334,000,000 representing about 20% year over year growth on a pro form a basis. The pro Adjusted EBITDA margins are estimated to be roughly 35%. J2 RemainCo will continue to be focused on highly recurring revenue streams, which Earnings and free cash flow growth underpinned by a highly successful programmatic acquisition system. Consensus revenues in 2021 on a pro form a basis after giving effect to the proposed transaction and as indicated by the company's current guidance Our estimated between $333,000,000 $342,000,000 representing about 2% year over year growth on a pro The pro form a adjusted EBITDA margins are estimated to be roughly 55%.
In this, You see one of the key differences in strategy. With a balance between growth and profitability are dissimilar When comparing the 2 businesses, yet both should represent solid value creation formulas. Consensus business will focus on solving the healthcare interoperability opportunity with a scalable SaaS platform, while continuing to achieve enviable margins and free cash flow generation. And there is no one better equipped to ensure consensus' long term Success to Scott Turicchi. He knows the business as well as anyone.
He has been instrumental in ensuring It has received the support and investment it is needed and he has the respect of colleagues, the investment community, our Board And personally, I think he's going to be a tremendous CEO, leading a world class team, including John Nebergull, Consensus' COO, Who has done an outstanding job over the past 3 years in building the business' capabilities and strong market position. Before I hand the call back to Scott to walk you through the consensus section of the presentation, just a few points on Slide 9 about the respective balance For j2 RemainCo, we are planning on calling our 3.25 percent convertible notes, which are callable In June 2021, consensus will be issuing debt primarily to fund distributions to RemainCo such that Spin, RemainCo will be at roughly 3x leverage, while consensus will be roughly 4x leverage. I should point out That consensus generally sees a better conversion of EBITDA to unlevered free cash flow given its historically lower levels of CapEx And a lower effective tax rate. In addition, from a capital allocation perspective, RemainCo has done a Vast majority of the past acquisitions at j2 and acquisition should continue to be its principal use of capital along with organic growth investments and As well as continuing to invest in R and D and M and A.
Now let me hand the call back to Scott.
Thanks, Vivek. This is an exciting time at j2 and I'm pleased to have the opportunity to give you the first glimpse into consensus. As you know, we will be filing Form 10 with much more operational, financial and metric disclosure as well as conducting a roadshow prior to the spin expected in Q3. On Slide 11, we present both an attractive financial profile as well as our suite of offerings. Based on the J2 consolidated guidance provided in the Q4 earnings call, we expect revenues for consensus this year to be between $333,000,000 And $342,000,000 up more than 2% from 2020, which is consistent with the 5 year CAGR.
In addition, Adjusted EBITDA margin is expected to be in excess of 55% after including public company expenses for consensus. Our product offerings include secure data delivery and healthcare interoperability solutions, which we will get in in more detail later in this presentation. One important element of our solution is our leading digital fax solution That is a high speed trusted product as evidenced by our corporate customer base. We serve highly regulated industries such as legal, Finance and most importantly healthcare. Our healthcare solutions are not only HIPAA compliant, but also HITRUST certified.
In addition, we are also a leading provider of cloud based fax solutions for SMBs and SOHOs across a wide array of industries and countries. Turning to Slide 12, we believe we are a market leader based on several measures. Over the past 20 years, we have made a concerted effort to offer Products to the enterprise customer now numbering in excess of 350 and having 5 of the top 10 enterprises in the Fortune 500 as customers. Over the past 4 years, we have added features to enter the healthcare space and now count 4 of the top 10 healthcare companies In the Fortune 500 as customers as well. We've been successful in the corporate sector for more than 20 years, which has driven Strong customer retention of 84%, providing us with highly predictable revenue as all of our revenue is recurring.
Finally, we have been consolidators in the space completing on average approximately one transaction in each of the past 10 years And more than 30 acquisitions in the company's history. In fact, the acquisition program of j2 traces back more than 20 years To the original program designed for consensus. Now let's turn to Slide 13. Having introduced consensus as a company, let's look at the health If any of you have had to navigate the healthcare system in the U. S, You will immediately understand the friction that exists in obtaining, managing and sharing medical information.
The ability to securely share health information across hundreds of thousands of care settings is essential to ensuring quality care delivery. Whether sharing data between practices from hospitals to your personal physician or sending claims data from a provider to an insurer, fast, Simple, reliable and secure transport is critical. Documents and data are shared for many typical uses. For example, sharing a patient record between multiple providers helps to ensure that treatment decisions are based on a complete view of the patient's history. Results of a blood test or some of the lab work for patients often leads to referrals from a primary care physician to a specialist.
Prescriptions sent from the physician to the pharmacy also need to be filed as a claim with the insurance company. All of these These communication types contain sensitive personal health information, PHI, that is safeguarded by the Health Information Portability and Accountability Act referred to as HIPAA, which demands strong security of that information at all times. This flow of information creates a voluminous amount of documentation. In fact, estimates are that there has been a 15 fold increase In healthcare, data since 2013 to more than 2,300 exabytes of data, remembering that each exabyte To transmit these documents is via fax by a 3 to 1 margin. Based on estimates from Direct Trust, there are more than 9,000,000,000 pages faxed It is estimated that more than $2,000,000,000 is spent each year Transmitting all of this information.
Let's go to Slide 14. The history of FAX and its usage in healthcare is important to understand why it This is a protocol that has stood the test of time while evolving to remain relevant. Going back to the mid-1960s and for more than 30 years, fax was dominated by the standalone machine. These standalone devices still Today, but have a very modest share of the overall market. Beginning in the mid-1990s, on premise fax Servers began to replace the standalone machine.
For larger organizations that had the advantage of being maintained in house And could be customized to the healthcare system's specialized needs. The disadvantages are that it requires a significant upfront investment and does not scale well More recently, Cloud Fax has entered the healthcare space, taking share from on premise solutions As has been the case in all software categories, the primary advantages are greater cost efficiencies, More of a pay as you go model and quickness to deployment. You can see on the lower half of the slide why Cloud Fax is gaining share. It maintains privacy and security, is a universal protocol, easy to use, cost effective to deploy and HIPAA compliant. On Slide 15, you can see why we're so excited about this space.
Our corporate fax Revenue has grown from $111,000,000 in 2016 to $150,000,000 in 2020 for an 8% CAGR. I would note that we expect about 60% of our corporate revenue this year to come from the healthcare space, which has been a key driver to our overall growth. More importantly, there is significant room to grow. We believe we have about 9% market share of the online fax market, which is defined as the cloud fax marketplace plus the on premise provider marketplace. In the cloud FaxBase, we are estimated to have a 39% market share in North America, which is where approximately 90% of our revenue is generated.
Let's take a look at Slide 16. While Cloudflax is the entree into the healthcare space, the big problem to be addressed is Let's unpack this concept. Electronic Health Record Systems were heralded as a quantum leap in health information access with the promise to put the best patient information into a physician's hands at the point of care, eliminating paper and Starting an electronic revolution. The reality of what happened was that EHRs created data silos unable to effectively share Due to competition between vendors, differences in data structures, unique workflows, the demanded data Bulging IT budgets, constricted access to data and provider frustration. Recent survey data from a number of credible sources document provider concern with the state of data sharing and the strong demand for change.
The goal has not been We believe that consensus is well positioned to Better clinical information sharing is the focus of the consensus interoperability platform. Consensus is a secure cloud interoperability service combines the most commonly used healthcare communication protocols in a single source designed to be used standalone Under HIPAA, there are a limited number of communication protocols that comply with the HIPAA privacy and security rule Secure fax is an accepted method of sharing information as is direct secure messaging known as DSM, which is a private Secure e mail system that encrypts the content of the message and requires identity and credential verification before the recipient can gain access to the message. Further, the Health Language 7 or known as HL7 International is a global standards group It has defined a message structure for electronic data interchange, communication and also an Internet communication protocol Call Fast Health Internet Resources or known as FHIR. Consensus enables the user to send information directly out of their EHR system Using either fax or direct secure messaging. Additionally, consensus has access to a proprietary database that cross references fax Numbers and direct addresses informing the user when a receiver can use multiple protocols.
Standalone implementations of consensus Building on the communication technology, consensus has the ability to send event driven messages to a patient's care team when that patient is admitted, Transferred or discharged from a healthcare facility, a requirement under the CARES Act of 2016. Future releases of consensus for providers and administrative staff. Communications from consensus travel over secure, high trust certified network and are delivered to the recipient EHR system or health information exchange, facilitating access to important critical information where it's needed Consensus was designed to meet the need for providers to send and receive information within their workflows With a comprehensive and efficient tool set that is easy to use. On Slide 18, while we have made significant investments over the past 4 years in our product And personnel, there are large and increasing TAMs as we continue to evolve our product offering. On Slide 18, you can see that we've invested $70,000,000 in both development and acquisition.
The consensus With facts alone, there's a $2,000,000,000 marketplace estimated to be growing at about a 7% CAGR. Consensus builds on that foundation expanding into larger interoperability marketplaces of more than $10,000,000,000 in the near term. Our future plans for adding data intelligent extraction and transformation using natural language processing technology And referral management tools that expand our addressable market even further. This approach opens an exciting path to sustainable growth And assisting in the transition from a document centric to a data centric healthcare system. Finally, I'm proud to have the privilege to lead the senior management team outlined on Slide 19.
The team has deep experience and it would take too long to mention each of their backgrounds, which you can see below their names. I would like to I would like to highlight John Nebergall, who we hired a few years ago to lead the effort into healthcare. His rich background in and deep understanding of the healthcare landscape have been invaluable to bring consensus to where we are today. I look forward to when we were a public company and the more than 400 employees of consensus will have a chance to see their hard work rewarded by being in the public spotlight. Now let me hand the call back to Vivek.
Thanks, Scott. That's a very compelling and powerful case for consensus as a public company. Before we go to questions, a few words about RemainCo starting on Slide 21. We plan to continue to be the high growth, Vertically focused Internet platform the market has come to appreciate. As you know, we operate And acquire category leading brands in high value verticals including tech and gaming, health, shopping, cybersecurity and SMB.
The content and applications we offer ride the wave of digitization and we have a For 2021, As we stated earlier, we are estimating roughly $1,300,000,000 of revenues on a pro form a basis after giving effect to the Bose transaction up over 20% year over year. We believe our business model is very attractive given the predictable, Recurring and diversified nature of our revenue streams. In fact, if you look on Slide 22, you will see that Remainco's pro form a revenues have experienced compounded annual growth of 29% in Remainco's pro form a adjusted EBITDA growth rate has been even more impressive at a CAGR of 34%. And the J2 acquisition system, which has been the foundation of the company, has almost entirely been focused at RemainCo. Of the $2,500,000,000 spent on M and A since 2013, approximately 95% of it was spent in support of RemainCo.
Transaction we've described this morning should more than ensure that Remainco has the capital required to continue It's programmatic approach to acquisitions and value creation. Turning to Slide 23, we believe consensus and RemainCo have different public company peer groups. We expect RemainCo would be compared to Internet peers and programmatic acquirers, while consensus would be more closely aligned with pure play cloud services companies and HCIT businesses. We believe having a Clear set of public comps could unlock a deeper appreciation of both companies and therefore could represent a meaningful expansion On the final slide, we reiterate why we believe this separation will unlock Long term corporate value. We believe we have 2 great companies that should be well positioned I'd like to now ask the operator to rejoin us to instruct you on how to queue for questions.
Thank you. We will now be conducting a question and answer session. In the interest of time, we ask that you please limit yourself And the first question is coming from Shyam Patil from SIG. Shyam, your line is live.
Hey guys, good morning. Congratulations on the announcement. It makes a lot of sense and congrats Scott to you as well. I appreciate it. I have a few questions.
The comps slide that you guys have in the presentation is very Great insightful. So many highlights, the value to be unlocked. I was wondering, Vivek, could you talk a little bit about just how you see the valuation unlock playing out? And what do you think is the right valuation for Remainco And consensus. And then my second question is, when you look at the J2, the RemainCo, In the slides, you kind of talk about how you guided to 20% growth for this year, obviously, stellar margins.
How do you think about the right growth rate kind of going forward? Is it kind of in that 20% range? Could you talk about that a little bit as well?
Yes, sure. So to take your first question, Shyam, I'd say, look, We believe we have 2 great companies here, both in consensus and in j2 and we think both are underappreciated and to some degree Not fully understood. And I think what we're doing here in separating these companies, giving them their respective independence, we think we'll go pretty far in addressing some of the gaps. And I think it's also a clear indication and demonstration of our Overall commitment to shareholder value creation. So look, I think this is the right time For what we're looking to do here and then with respect to sort of what the right valuations and what the right Multiples are.
Look, I think the market will decide that and should decide that. What I can say though is I think We're building a compelling case for the market to really understand what these respective businesses are doing, what Their growth characteristics are, what their future potential represents and to then answer your second question on RemainCo into the long term expectations. Yes, look, we think we are a healthy Double digit grower in revenues and in EBITDA and we believe that it will come From a combination of organic and inorganic growth, probably about fifty-fifty.
Well, I'd just like to Dovetail on to what Vexxin as it relates to consensus and you'll notice in the comp set that we provided that probably for the first time in j2's history, We're talking about health information technology companies. And while this group is fairly diverse and there might be an argument that consensus does not have a pure And alone publicly traded comp. I think that this separation allows consensus as it's Nearly half of its business now in healthcare today and an increasing amount really of the growth In the last several years has come off of the investments made to get into this space. And as you can see in the couple of that we mentioned in terms of the TAMs, we're at the very beginning. We're tapping into that core replacement of on prem facts.
It's a great space, dollars 2,000,000,000 TAM and growing. We want to take an increasing share of that. But really this whole area of interoperability and as I mentioned in the opening remarks, the And as I mentioned in the opening remarks, the friction that any of you have seen having been part of the medical System, either personally or on behalf of a loved one, you understand the friction and the pain points that occur. And There's really very few out there that are providing what we would call interoperability as a service. So this is our distinction.
This is our ability, I think, to stand out both in the space, but also as a publicly traded company. So you'll hear, As I said as well, a lot more about consensus over the coming weeks months as we file the Form 10, we put official metrics around The consensus business both historically and also get into some perspective statements in terms of the growth rates and margins going forward.
Great. Thank you, guys. Thanks, Sean.
Thank you. And the next question is coming from Cory Carpenter of JPMorgan. Cory, your line is live.
Hey, everyone. Thanks for the questions. I had 2 Actually both on consensus. Maybe first, so look, I think it was pretty clear in the presentation that you see an opportunity here well beyond just facts. So I was hoping you could talk maybe about the success you've seen thus far with the Consequence product that you launched late last And kind of how that gives you the confidence in your ability to address the interoperability opportunity you see?
And then, second, Scott, you gave a statin presentation, 75% of healthcare data transmitted through fax, majority still on premise. I think you mentioned that corporate Fax is still growing, which I think still surprises a lot of people. So the question I'm hoping you could maybe address and we get a lot from investors is, do you see a risk that As companies upgrade from on premise fax, could they skip over cloud fax? What are you seeing today as people migrate from on premise? And as you look out 3 to 5 years, you still think VAX is the dominant transmission method for healthcare.
That was a lot, Thank you.
You snuck in 3 questions I think into 1. But I'll address them and If I missed any, I'll come back to it. I want to view with really the questions you've asked about first in terms of Bakkt and its role. It is true that today about 30% to 75% or 3 quarters of the transmission Current facts form and a lot of that is a function of the system, a function of how medical records are created. So we believe that this is a great EntrePoint into the area of interoperability, it is obviously a core competency of ours going back a number of years.
We demonstrated that success where in our corporate space about 60% of the customers and most of this occurring within the last 3 to 4 years now comes from healthcare. In terms of the consensus product specifically, you're correct. That was launched actually about a year ago, right as the pandemic was hitting, shortly So we were going to do a big splash at The largest industry association conference in Orlando that got canceled. Notwithstanding that fact though, and I give a lot of credit to our team, They pivoted from the in person model of being able to educate people about consensus, the suite of services it has underneath it, Doing Zoom presentations and I'd say by the middle to late part of the year began getting traction in terms of standalone consensus customers. It's a very small Our overall total revenue stream today growing very rapidly both in terms of customer count and revenue.
We see this as the great long 1, because to your earlier point, it covers the core methods Exclusive of direct mail by which medical documents and medical records can be transferred amongst the various entities meeting them In a HIPAA compliant and secure manner. I do believe to answer a part of your question, the facts will still be A significant and predominant portion of the way that these documents are moved over the next several years, but we want to get The underlying data in those documents is actionable. This is really the key and anybody that's received medical records, whether you've done it, Gotten them via fax or gone to the your primary care and given a number of papers, usually within that documentation there are A handful of key usually numeric pieces of information that are actionable. And the real opportunity here is how you extract that data from these documents, put them into a data set And get them available to doctors, physicians, hospitals in real time. Better medical decisions can be made and a more complete understanding of the patient's overall Health is important in delivering the best of care.
So what's interesting to me about where John and the team have brought consensus over the last 3 years since he's joined is to really get it positioned to take advantage of this very large complex opportunity. I think it produces it has opportunity to produce tremendous outcomes across the spectrum of those participating in the healthcare space. And now is the time where at consensus, we will be taking the free cash flow generated And reinvesting it specifically into this opportunity, be a combination of some M and A, combination of increased CapEx, as well as Further investment in what I'll call the OpEx of the business to fully accelerate and take advantage of this opportunity.
Very helpful. Thank you.
I think I got all of
your questions. Hope I did.
And the next question is coming from Dan Ives from Wedbush. Dan, your line is live.
Hey, yes. First off, Scott, 20 years in the making. Congrats, Awesome to
see. Thank you. Appreciate that.
With sort of Vivek, maybe you and Scott just hit on like the why now. Obviously, is it just besides the market not recognizing the value, I think, in both businesses, is it just The businesses were ready. Obviously, the last 18 months, you've done a lot of structure in terms of business heads and really gotten I think the same to next level. Can you just maybe why now? Obviously, just given what we're seeing.
Thanks.
Good morning, Dan. So look, I think that we're at a point where each business truly has a very Compelling and persuasive reason to be a standalone public company. They both have the requisite and sufficient free cash flow And liquidity to support their respective capital and resource allocation needs. We are seeing some really strong tailwinds at both parts of the company. And to Scott's point, We are absolutely at an inflection point with the consensus business, both in terms of what the corporate piece of the business Means to the whole as well as the clear shift from on prem to cloud and then the longer term opportunity Around kind of the document centric to data centric interoperability
future. So I think
for all of those reasons, we felt the timing was perfect and these businesses We think are going to be very well situated on their own.
Great. And Is Scott going to still be able to answer organic growth questions now that he's not
CSO? Okay. I was
just curious. Thanks.
Well, no, I'll actually address
that Dan. And all joking aside, we talk about organic revenue. And I think this is going to be important. Actually have great ambitions for consensus, being a stronger organic grower than the numbers we put on the page. In fact, I think somebody said an email question and it kind of touches on this.
So we talked about 2% growth, most of which is organic, because as you can see, the Consensus has not been as aggressive in M and A as say the rest of j2. Over the last 5 years, the current estimate based on the midpoint of our Current guidance, if you unpack the guidance we gave in Q4. Having said that, if you take a look at the corporate piece, That growth trend over the same period is 8% and increasing. You may recall back to the Q4 earnings call, The growth there was double digit. So two things are going on.
As that corporate piece becomes a larger share Of the overall consensus business, that's driving more top line growth. 2, while we have acknowledged that the web business It's a modest decline. I'm not exactly buying into that as it's necessary acceptable fact. What we modeled in, that's how you get to the 2%. But I think that business has an opportunity for something closer to stability.
So as you bring these two pieces together, as consensus, the product becomes a larger share of overall consensus' the company's revenue, I expect to see that total growth go up and most of it to be organic. So ask that question in the future once we're a separate public company.
Yes, That's great. Awesome. Thanks.
Thank you. And the next question is coming from Will Power From Baird. Will, your line is live.
Hey, great. Yes, I guess I'd echo my congratulations on the transaction here. I guess a couple of my questions But maybe, Scott, just to come back to the outlook for consensus, just I guess, we'd love to really Fully understand the thought process around growing kind of the healthcare IT interoperability opportunity and maintaining kind of that 55 Margin profiles, is that an important number or the greater investments you can make? I mean, how are you thinking about the balance of Driving growth versus maintaining
margins? Well, it's a great question. Thanks. What we see over sort of the near intermediate term is some modest increase in what I'll call the internal investments of organic, Which is baked into the model. CapEx, which of course will come into depreciation over time.
And as you know, There are very healthy margins in the digital fax business. So this $55,000,000 we've loaded in pro form a bunch of Public company overhead expenses, which we need as an independent public company, but still the cash And EBITDA margin generation of this business are so strong that I think, yes, somewhere in that 55% range is an Achievable and sustainable margin for the business, while we still take what will probably be close to in the near term, a $100,000,000 a year of free cash flow and put that back into the business. I think not dissimilar from what you've seen at j2, The bigger chunks of that spend will be in M and A. There are certain pieces if you go to in essence the roadmap on Page 17 of the Presentation. There are certain elements within that chart that we would like to have direct access to own the IP in, particularly in the area of Natural language processing and data extraction, those are key elements for how you achieve the movement from sort of documents to data.
So look for us to be acquisitive in those areas. And of course, that's where I see in the next couple of years Most of the incremental spend coming. But the core business is so strong. I think these margins are sustainable.
Okay. That's helpful. And maybe just for Vivek, just thinking about Remainco, I wonder if you could just kind of speak Comfort level with the assets you now have, now that you've got a more focused company, are there still Potential divestitures you might be looking at, how committed are you, I guess, to the different segments you're playing in and what are the additional areas that perhaps with a greater focus You might be interested in investing in Fermir?
That's a great question. Look, we're absolutely committed to the 5 That we're in today, we see a tremendous amount of opportunity in each of those. We think we've got world class assets in them. It's Really a compelling group of brands that we have. And so as we think where there's going to continue to be opportunity in those, Obviously, other high value verticals where we see the same opportunity in the analog to digital shift Where we can leverage our various monetization and business models are always going to be interesting for future expansion.
We've Through M and A, moved into a number of new verticals over the years. The Everyday Health Group moved us into the health media vertical, So we feel great about the assets we have. We see a fair amount of connection between a number of them. We have concrete examples of how they work together inside of the company to generate value. Look, I think one important point to make is that RemainCo is going to be very well capitalized Post spin, not just in terms of the distribution from consensus, but the unlevered free cash flow Of a business doing in excess of $460,000,000 in EBITDA is also available to us and then obviously the retained stake And at some point, we will monetize.
So we will have a fair amount of dry powder to continue to The acquisition program as you've come to know it over the last handful of years.
Great. Thank you.
Thank you. Thanks, Tom.
Thank you. And the next question is coming from James Fish of Piper Sandler. James, your line is live.
Hey, guys. Congrats on the announcement and Scott on the CEO role, of course, well deserved is For sure. I guess maybe to build off Will's question and ask it a different way. Why the decision to split off just the fax business and not necessarily all of BCS or Business Cloud Services, given that You guys were trying to do some programs of cross selling, I'm sure it was more on the security and backup side, but I guess Why the decision just to do the fax piece and leave essentially some of the cloud services with the Internet brands?
Yes. So look, I think that there's 2 parts to that question. First, I'll take it from the consensus point of view, which is none of the other Cloud services businesses are really relate at all to the platform, the secure Secure data exchange platform of cloud facts with a healthcare interoperability future and potential. So there's that piece. It doesn't really relate To consensus, but I think more importantly, I think they're very strategic to J2.
To remain co, there's a natural connection, as I mentioned, between Those businesses and other businesses inside of J2, you take our MarTech assets in SMB, Many of those clients are in the retail sector and we see natural adjacencies to our shopping vertical with RetailMeNot and offers and Our other associated shopping brands as well as you look at what Speedtest and IPVanish have done in Launching Speedtest VPN in partnership. So I think that the answer is 2, Paul. We see a lot of relevance So to those cybersecurity and SMB businesses within remain co and at the same time, we don't see the same type
Understood. And then just in terms of how the breakup will work, Any further disclosures we're going to get like any change in the disclosures between any of the businesses? It sounds like consensus, we could get more Kind of a breakdown between web and corporate going forward, but how should we think also about the kind of any TSAs or OpEx Working, given that some of the facilities today are shared.
Yes. So I'll start on the consensus side. So absolutely, When you see the Form 10, consensus will have a complete set of metrics. Obviously, we've got an The dialogue with the investment community, so we're certainly open to hearing your ideas on what would be useful. There's the current metrics that you've seen Historically for all of the VCS business, most of those being dominated by the digital fax piece.
I think some of them are relevant, but not necessarily all of them or they're not All of them or they're not necessarily the complete view or just consensus. So we'll be evolving some of those KPIs, But clearly things like customer count, ARPU, I think breakdown between the web business and the corporate business all are relevant in understanding the consensus story. In terms of the second piece, the beauty about j2 and about consensus being the largest Scale business unit within j2 is that it is substantially standalone. Now granted it doesn't have all of the ink or Corporate infrastructure, so we're going through a process right now of how to stand up the public company. But quite frankly, most of it will be the people between consensus and j2 as there are certain departments that we at consensus will need to rely upon for some period of time Until either certain people transfer over or hired into the consensus organization.
But I think we're in a much better shape than many companies because of the overall structure and organizational structure of j2 and how we are set up As separate divisions and then separate business units under those divisions.
Thanks, Scott. That's very helpful. Congrats again, guys.
Thanks. Thank you.
Thank you. And the next question is coming from James Breen of William Blair. James, your line is live. Thanks. Can you give us
a little bit more color on the balance sheet distribution between the two companies in terms of where the gross debt is today? And so you're going to pay Some of the converts that's out there and from a gross debt perspective, what do you see being at each company once the deal closes?
Yes. So let me take that. So let's start with J2. So J2 has got about $1,700,000,000 of debt on its balance sheet. Although if you value particularly the converts The 3.25 percent given where our stock price is, you probably add about another $300,000,000 in terms of obligations.
So you could call it a little north of $2,000,000,000 of Gross obligations taking into account 3.25 percent at market value, the 1.75 percent converts in the 4.58 Senior unsecured notes. Consensus clearly is debt free at this point. So at the point of separation and there's still a lot of work to be done in terms of The most efficient way to achieve the capitalization, but what we anticipate is consensus raising in the area of about $800,000,000 of debt Might be in multiple tranches, combination of bank and high yield. The key is that the vast majority of that. So consensus will retain a piece, There'll be some fees and expenses, but I'm expecting in the neighborhood of $700 ish million of that money to transfer back to j2.
Now, in order for it to be a tax efficient transaction for J2, most if not all of those proceeds We'll be utilized to retire debt. And so one of the areas is as you look at
the J2 capitalization, which of those
pieces make sense Which of those pieces make sense for debt retirement and in what format? So that's something that we will work on. It is, I think, opportunistic that in the midst of this transaction, but independent of it, we have these 3.25 converts that we issued 7 years ago that have a call date coming up. Now they're not maturing. Maturity is not till June of 2029, but We have as part of this announcement said that yes, we do intend to call those converts.
They're very deep in the money. As you know from our history and from our various filings, we've talked about a next year settlement method for those convoots. So that would mean paying $400,000,000 in cash for the principal amount and issuing any shares for the Delta value, which would probably be at today's stock price 2,600,000 shares, 2,700,000 shares. However, we're going to take a hard look as to whether that's the right mix Or whether we should in fact retire those converts with more cash and less for any share issuance. So those are details that we worked out over the coming weeks.
Obviously, once we have a plan and specifically once we have the declaration of call, We will then declare both of those convert holders into The Street what is the appropriate mix of cash and equity, if any, For the retirement of the 3.25%. But they're the easiest piece to deal with because coincidentally They have this call provision that is coming up.
So net at the close, Yes,
sort of boil it all down of the $2,000,000,000 gross obligations today about $2,000,000,000 will remain with J2 and kind of $800,000,000 with consensus?
Yes. As I say, it could be but there could be more cash at j2 depending on how this converts to sell, there could be less cash. So you've got the gross debt I think fairly close. The net debt could be will be lower for future j2 based upon the cash retained. And I got a question by email that I think is a derivative of your question, Jim.
So let me just address it. One of the questions was, well, From the credit side, what do you see as sort of the target ratings for each of the 2 companies? And I think that when you cut through all of this for j2, The j2 metrics in terms of leverage on a gross and net basis look very similar to if not somewhat better And what j2 is today consolidated. So we will have outreach to the rate agencies. I've already Made the initial outreach to them, alerted them that this transaction is coming.
In the coming days, we'll be having conversations With them to better educate them on the transaction and clearly as we move towards distribution and the financing is firmer, we'll give them further updates. It would be my hope and expectation though that on the J2 side, the credit ratings would essentially be affirmed at the Double B level on each side given that the credit is substantially similar, if not somewhat better than what it is today. Consensus will be more highly levered. It will be about 4 times its EBITDA versus say the 3 times that exists at j2 today and So I would expect a lower credit rating than that 4B that currently exists at J2. Part of my job is to hopefully convince those rating agencies that it's a modest reduction from the current ratings.
But I'm realistic. We'll see what happens In terms of the final financing package, the actual interest rates on the various pieces of debt issued, but I would expect that consensus would have a Lower credit rating than JJ. Great. Thank you.
Thank you. And the next question is coming from Rishi Jaluria from D. A. Davidson. Rishi, your line is live.
Wonderful. Thanks so much for taking my question and Scott congrats on the promotion. One quick housekeeping and then a more Just on the housekeeping side. In the press release yesterday, it had said that consensus would be primarily the cloud Are
there any other assets that
are moving over and is voice going to any part of voice going to move over? Is that staying with RemainCo? And then more importantly, look, I think we a lot of us have looked at this and said that the stock is clearly undervalued from some of the parts And doing a spin off like this is a great way to unlock that value. Vivek, how are you thinking about the potential for future spin offs like this? Maybe for example, spinning off an asset like gaming, which would as a sustainable company get a much higher multiple And what the public markets seem to be giving us part of JC Global today?
Thanks.
Thanks, Rishi. So to answer your first question, the second And Just in terms of the more the broader question about would we consider other transactions. Look, to start with The Cloud Fax business in my mind is the most highly undervalued asset of scale inside And I think continues to be probably the most therefore underappreciated asset within the company. So we're right To start here, we're going to look to execute upon this well. And I think we have demonstrated in this, but I think Broadly that we are always operating with our shareholders' best interest in mind and always looking at Any options we have to ensure long term value creation.
So from our point of view, we remain open minded And if we see opportunities to create sustained value creation, we're going to absolutely pursue them. All right, wonderful. Thank you.
Thanks, Rishi.
Thank you. And the next question is Coming from Saket Kalia from Barclays. Saket, your line is live.
Awesome. Hey, guys. Thanks for taking my question here and congrats Both of you on the announcement. Lots of my questions have been answered. So maybe I'll just keep it to one.
Maybe for you, Scott. It was a helpful point on the mix shift within the consensus business potentially supporting growth. I was wondering if you could just touch On perhaps the differences in margin or free cash flow profile between that web fax business versus kind of the corporate Does that make sense?
Yes. No, no, I get it. We've had that question even as part of J2 over the years. Very hard to unpack That's because there are elements that are shared. They're not distinct business units, if you will, under one company.
So there is shared infrastructure, there's shared personnel. I think it's fair to say that there probably is
a Margin
delta between the 2, if you could allocate all of the costs Something that we will probably attempt to do as part of this separation exercise and additional disclosure on consensus. So if I look at the business unit, while we talk about it on Standalone basis being in the sort of low 60s at j2, that's a business unit contribution. So remember, there are corporate overhead costs The cloud business and then certainly to stand up a public company, there are ink or parent company costs. So you probably lower that a few points in terms of just What is the standalone EBITDA margin pre being a public company? And then there's a few $1,000,000 of public company cost, how you get to the 55.
So that's the delta from the 62 to 55. I think if you take the 62 Sort of the starting point, we decide some of the corporate pieces. You're probably going to have a few point advantage in the web business in terms of the EBITDA And I would remind everybody the corporate piece runs the gamut from The small business, not the micro businesses, but the small business all the way up through the enterprise. Now a lot of we've been talking about In terms of the healthcare interoperability opportunity, today has been focused on the medium to large enterprise within that spectrum. Of the $150,000,000 of revenues that we talked about, there's a meaningful portion of that that's in the sort of SMB, larger SMB, Median enterprise side, so it's actually even a more complicated question that there's really a whole Series of margins based upon the individual type of customer that we're talking about.
And maybe just one quick housekeeping question, if I could squeeze it in, again for you, Scott. Maybe from J2's perspective, Will consensus will the business unit now known as consensus go into discontinued operations kind of starting here With Q1 earnings or is that something I mean, I don't know, maybe just talk through the accounting of it in terms of
No, no, I think the short answer to your question is no. It remains part of j2. Obviously, the transaction is not effectuated. So It will remain consolidated. You'll see that in the Q1 results.
Since we're talking about separation in Q3, you'll see it also in the Q2 results And then it will disappear from j2's financials at the point of distribution. The only assets That we've talked about before, but I think as we move forward, we'll qualify for being not discontinued ops, Assets held for sale would be the B2B backup assets.
Thank you. And I would now like to hand the call back over to J2 Global's Scott Turicchi to close the call.
Great. Well, everybody, we thank you for on short notice joining us today for this very exciting time at both j2 and consensus. On behalf of the nearly 5,000 employees at j2, we're thrilled about where each company stands today, the opportunities that we've laid out As we mentioned, the next steps here are from the distribution standpoint For J2 to file a Form 10 regarding the business of consensus, historical financial data, begin the process with the SEC. Once we complete that, Then the Board can declare the distribution, which we expect to be in Q3. From j2 standpoint, We are in a quiet period, so I would just note that our comments regarding this transaction are Limited to what we said last night in the press release, the deck we provided today, as well as the commentary and the answer to the various questions.
So we will not Taking additional questions now. We do have an earnings call coming up to report Q1 results. I would remind everybody that the release Those earnings will be on Monday night, May 10th, and then Tuesday morning on 11th, Vivek and I will host the earnings call for Q1, at which point we'll review the operational results, discuss guidance on a forward looking basis and give you any further updates in terms of where we are within the spin. And so we thank you for joining us today and we look forward to your participation on May 11.
Thank you, ladies and gentlemen. This does conclude today's j2 global conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.