Good day, ladies and gentlemen. Welcome to j2 Global's call about its planned spin-off of Consensus. My name is Paul. 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 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 j2 Global's plan to separate into two publicly traded companies. As the operator mentioned, I'm Scott Turicchi, 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&A session.
The operator will instruct you at that time regarding the procedures for asking a question. However, as usual, you may email us questions at any time at investor@j2global.com. Before we begin the presentation, please note the safe harbor language on page two. 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-K filings, recent 10-Q filings, various proxy statements, and 8-K filings, as well as additional risk factors that we've included as part of the slideshow for this webcast on slide three. 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 four for explanations of these non-GAAP measures and a reconciliation to the most closely comparable GAAP measures found on slides 26 and 27. Now let me turn the call over to Vivek.
Thank you, Scott, and good morning, everyone. We're excited to talk to you today in more detail about our plans to separate j2 Global into two independent, publicly traded companies. Because of the great work of our employees across the company, we're in a position to pursue a strategy that we believe will position both companies for superior long-term success. Turning to slide six. The 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 call as Consensus or SpinCo. We will refer to the remaining company as j2 RemainCo or RemainCo for this call.
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-efficient manner. We expect the transaction to be completed in the third quarter 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 seven. 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&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 with two distinctly investable companies. On slide eight, you see that RemainCo's revenues in 2021, on a pro forma basis after giving effect to the proposed transaction and as indicated by the company's current guidance, are estimated between $1.297 billion and $1.334 billion, representing about 20% year-over-year growth on a pro forma basis. The pro forma adjusted EBITDA margins are estimated to be roughly 35%.
j2 RemainCo will continue to be focused on highly recurring revenue streams, which include advertising and subscriptions, as well as consistent and sustained double-digit revenue, earnings, and free cash flow growth, underpinned by a highly successful programmatic acquisition system. Consensus revenues in 2021, on a pro forma basis after giving effect to the proposed transaction and as indicated by the company's current guidance are estimated between $333 million and $342 million, representing about 2% year-over-year growth on a pro forma basis. The pro forma adjusted EBITDA margins are estimated to be roughly 55%. In this, you see one of the key differences in strategy, where the balance between growth and profitability are dissimilar when comparing the two 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. There is no one better equipped to ensure Consensus's long-term success than Scott Turicchi. He knows the business as well as anyone. He has been instrumental in ensuring that it's received the support and investment it has 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 Nebergall, Consensus's COO, who has done an outstanding job over the past three years in building the business's capabilities and strong market position. Before I hand the call back to Scott Turicchi to walk you through the Consensus section of the presentation, just a few points on slide nine about the respective balance sheets of the companies.
For j2 RemainCo, we are planning on calling our 3.25% convertible notes, which are callable in June 2021.
Consensus will be issuing debt primarily to fund distributions to RemainCo such that at spin, RemainCo will be at roughly three times leverage, while Consensus will be roughly four times 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 opportunistic share buybacks. For Consensus, the excess free cash flow can be put to work to deleverage over time, as well as continuing to invest in R&D and M&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 a 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 million and $342 million, up more than 2% from 2020, which is consistent with the five-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 into 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 five of the top 10 enterprises in the Fortune 500 as customers.
Over the past four years, we have added features to enter the healthcare space and now count four 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. Let's turn to slide 13. Having introduced Consensus as a company, let's look at the healthcare space and the opportunity that it presents to us.
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 other 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 communication types contain sensitive personal health information, PHI, that is safeguarded by the Health Insurance 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 is 1 billion GB of data. The vast amount of this data resides in medical documents. The predominant method to transmit these documents is via fax by a 3:1 margin. Based on estimates from DirectTrust, there are more than 9 billion pages faxed annually containing medical records.
It is estimated that more than $2 billion 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 became the dominant mode of transmission. 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 exist 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, it 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 across multiple locations.
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 million in 2016- $150 million 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 CloudFax marketplace plus the on-premise provider marketplace. In the CloudFax space, 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 CloudFax is the entrée into the healthcare space, the big problem to be addressed is interoperability. 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 information due to competition between vendors, differences in data structures, unique workflows that demanded data at different times, and the use of conflicting protocols. The net result of this electronic record revolution was increasing administrative costs, 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 achieved, which is to make data actionable in real-time. We believe that Consensus is well-positioned to solve this issue. Our interoperability platform is outlined on slide 17. Answering the demand for better clinical information sharing is the focus of the Consensus interoperability platform.
Consensus is a secure cloud-based interoperability service, combines the most commonly used healthcare communication protocols in a single source designed to be used standalone or integrated with an EHR. Under HIPAA, there are a limited number of communication protocols that comply with the HIPAA privacy and security rule requirements. Secure fax is an accepted method of sharing information, as is direct secure messaging, known as DSM, which is a private secure email 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 Level Seven, or known as HL7 International, is a global standards group that has defined a message structure for electronic data interchange communication and also an internet communication protocol called Fast Healthcare Interoperability 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 also have the ability to query patient records directly from participating EHRs within a proximate geographic area. 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 Cures Act of 2016.
Future releases of Consensus should have the ability to extract data directly from fax messages and transform them to structured HL7, FHIR, and DSM protocols, aiding workflow for providers and administrative staff. Communications from Consensus travel over secure, HITRUST certified network and are delivered to the recipient's EHR system or health information exchange, facilitating access to important critical information where it's needed and when 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 four 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 million in both development and acquisition.
The Consensus platform was designed to be scalable and expandable. This architecture delivers the flexibility to add capabilities to meet the needs of a changing market. With fax alone, there's a $2 billion marketplace estimated to be growing at about a 7% CAGR. Consensus builds on that foundation, expanding into larger interoperability marketplaces of more than $10 billion 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 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're 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. 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 proven programmatic M&A system that fuels our total growth strategy. For 2021, as we stated earlier, we are estimating roughly $1.3 billion of revenues on a pro forma basis after giving effect to the proposed 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 forma revenues have experienced compounded annual growth of 29% in the eight years since j2 took its first step in expanding beyond CloudFax with the acquisition of Ziff Davis. RemainCo's pro forma adjusted EBITDA growth rate has been even more impressive, at a CAGR of 34%. The j2 acquisition system, which has been the foundation of the company, has almost entirely been focused at RemainCo. Of the $2.5 billion spent on M&A since 2013, approximately 95% of it was spent in support of RemainCo. The transaction we've described this morning should more than ensure that RemainCo has the capital required to continue its 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 of multiples. On the final slide, we reiterate why we believe this separation will unlock long-term corporate value. We believe we have two great companies that should be well-positioned for the near and long term. 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 to one question. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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. 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. Congrats, Scott, to you as well.
Thank you. Appreciate it.
I have a few questions. The comps slide that you guys have in the presentation is very insightful, certainly 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? My second question is, when you look at j2, the RemainCo, in the slides, you talk about how you've guided to 20% growth for this year. Obviously, stellar margins. How do you think about the right growth rate going forward? Is it in that 20% range? Could you talk about that a little bit as well?
Yeah, sure. To take your first question, Shyam, I'd say, look, we believe we have two great companies here, both in Consensus and in j2, and we think both are underappreciated and to some degree, not fully understood. I think what we're doing here in separating these companies, giving them their respective independence, we think will go pretty far in addressing some of the gaps. I think it's also a clear indication and demonstration of our overall commitment to shareholder value creation. Look, I think this is the right time for what we're looking to do here. With respect to 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. To then answer your second question on RemainCo into the long-term expectations. Yeah. 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 50/50.
I'd just like to dovetail onto what Vivek's saying 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. While this group is fairly diverse, and there might be an argument that Consensus does not have a pure standalone, publicly traded comp, I think that this separation allows Consensus, as it's got 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. As you can see in the couple of slides that we mentioned in terms of the TAMs, we're at the very beginnings. We're tapping into that core replacement of on-prem fax. It's a great space, $2 billion TAM and growing.
We want to take an increasing share of that. Really, this whole area of interoperability, 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. There's really very few out there that are providing, what we would call interoperability as a service. This is our distinction. This is our ability, I think, to stand out both in the space, but also as a publicly traded company.
You'll hear, as I said as well, a lot more about Consensus over the coming weeks and months as we file the Form 10, we put official metrics around the Consensus business, both historically and also get into some prospective statements in terms of the growth rates and margins going forward.
Great. Thank you, guys.
Thanks, Shyam.
Thank you. The next question is coming from Cory Carpenter of JPMorgan. Cory, your line is live.
Hey, everyone. Thanks for the questions. I had two, actually, both on Consensus. Maybe first, look, I think it was pretty clear in the presentation that you see an opportunity here well beyond just fax. I was hoping you could talk maybe about the success you've seen thus far with the Consensus product that you launched late last year, and how that gives you the confidence in your ability to address the interoperability opportunity you see. Second, Scott, you gave a stat in 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.
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? As you look out three to five years, do you still think fax is the dominant transmission method for healthcare? That was a lot, but thank you.
You snuck in three questions, I think, into one. I'll address them, and if I missed any, I'll come back to it. I want to deal with really the question that you've asked about first in terms of fax and its role. It is true that today about 75% or three-quarters of the transmission occur in fax format, and a lot of that is a function of the system, the function of how medical records are created. We believe that this is a great entree point into the area of interoperability. It is obviously a core competency of ours going back a number of years, and we've demonstrated that success, where in our corporate space, about 60% of the customers, and most of this occurring within the last three to four 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 after our analyst day for j2. We were going to do a big splash at the largest industry association conference, HIMSS 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, to 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 piece of our overall total revenue stream today, growing very rapidly, both in terms of customer count and revenue. We see this as the great long-term play in this space.
One, 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 needing them in a HIPAA-compliant and secure manner. I do believe, to answer a part of your question, that fax 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 well ahead of the curve and not just offer a better mousetrap for how to move those documents via fax, but actually how to make the underlying data in those documents 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 your primary care and been given a number of papers, usually within that documentation, there are a handful of key, usually numeric pieces of information that are actionable. The real opportunity here is how you extract that data from these documents, put them into a dataset, 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.
What's interesting to me about where John and the team have brought Consensus over the last three years since he's joined, is to really get it positioned to take advantage of this very large, complex opportunity that they get. It has the opportunity to produce tremendous outcomes across the spectrum of those participating in the healthcare space. Now is the time where, at Consensus, we will be taking the free cash flow generated and reinvesting it specifically into this opportunity. It will be a combination of some M&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 the pieces of your question. Hope I did.
The next question is coming from Dan Ives from Wedbush. Dan, your line is live.
Yeah. First off, Scott, 20 years in the making. Congrats, it's awesome to see.
Thank you. Appreciate that.
With that, can 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 this thing to the next level. Can you just maybe hit on why now? Obviously, just given what we're seeing. Thanks.
Good morning, Dan. 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. To Scott's point, we're 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 the document-centric to data-centric interoperability future. 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. Is Scott going to still be able to answer organic growth questions now that he's not CFO? Okay, I was just curious. Thanks.
Well, no. I want to actually address that, Dan.
Yeah.
All joking aside, when we talk about organic revenue, I think this is going to be important because I actually have great ambitions for Consensus being a stronger organic grower than the numbers we've put on the page. In fact, I think somebody sent an email question in that kind of touches on this. We talk about 2% growth, most of which is organic. Because as you can see, Consensus has not been as aggressive in M&A as, say, the rest of j2. Over the last five years, that's 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 digits. 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. Two, while we have acknowledged that the web business is a modest decliner, I'm not exactly buying into that as its necessary, acceptable facts. It's what we modeled in. That's how you get to the 2%. I think that business has an opportunity for something closer to stability. 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.
Super.
Ask that question in the future once we're a separate public company.
Yeah. That's great. Awesome. Thanks.
Thank you. The next question is coming from Will Power from Baird. Will, your line is live.
Hey, great. Yeah. I guess I'd echo my congratulations on the transaction here. I guess a couple of my questions have been answered, but maybe, Scott, just to come back to the outlook for Consensus. Just, I guess, would love to really fully understand the thought process around growing kind of the healthcare IT interoperability opportunity and maintaining kind of that 55% margin profile. Is that an important number? Are there 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. As you know, there are very healthy margins in the digital fax business. This 55%, we've loaded in pro forma a bunch of public company overhead expenses, which we need as an independent public company. Still, the cash flow and EBITDA margin generations 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, $100 million 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&A. There are certain pieces if you go to, in essence, the roadmap on page 17 of the presentation. There's 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. Look for us to be acquisitive in those areas. Of course, that's where I see in the next couple of years, most of the incremental spend coming.
Okay. No, that's helpful.
The core business is so strong that I think these margins are sustainable.
Okay. No, that's helpful. Maybe just for Vivek, just thinking about RemainCo. I wonder if you could just kind of speak to 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 from here?
That's a great question. Look, we're absolutely committed to the five verticals 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. Look, 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&A, moved into a number of new verticals over the years. The Everyday Health group moved us into the health media vertical, for instance. 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've worked 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 million in EBITDA is also available to us. Obviously the retained stake that at some point we will monetize. We will have a fair amount of dry powder to continue to pursue the acquisition program as you've come to know it over the last handful of years.
Great. Thank you.
Thank you.
Thank you. 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 for sure.
Thank you.
I guess maybe to build off of 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. I guess why the decision just to do the fax piece and leave essentially some of the cloud services with the Internet brands?
Look, I think that there's two parts to that question. First, I'll take it from the Consensus point of view, which is none of the other cloud services businesses relate at all to the platform, the secure data exchange platform of CloudFax or the healthcare interoperability future and potential. There's that piece. It doesn't really relate to Consensus. I think more importantly, I think they're very strategic to j2. To RemainCo, 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.com and our other associated shopping brands, as well as you look at what Speedtest and IPVanish have done in launching Speedtest VPN in partnership.
I think that the answer is twofold. We see a lot of relevance to those cybersecurity and SMB businesses within RemainCo, and at the same time, we don't see the same type of adjacencies with those businesses and Consensus.
Understood. Just in terms of how the breakup will work, any further disclosures we're going to get? Any change in the disclosures between any of the businesses? Sounds like Consensus, we could get more of a breakdown between Web and Corporate going forward. How should we think also about any TSAs or OpEx split working, given that some of the facilities today are shared?
Yeah. I'll start on the Consensus side. Absolutely, when you see the Form 10, Consensus will have a complete set of metrics. Obviously, we've got an active dialogue with the investment community, 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 BCS business, most of those being dominated by the digital fax piece. I think some of them are relevant, not necessarily all of them, they're not necessarily the complete view for just Consensus. We'll be evolving some of those KPIs. 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. Granted, it doesn't have all of the Inc. or corporate infrastructure. We're going through a process right now of how to stand up the public company. Quite frankly, most of it will be the people transferring over from what we call the fax business unit inside of CloudFax. There will be a TSA that will exist in both directions 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 are hired into the Consensus organization.
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.
Thank you.
Thank you. 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 and distribution between the two companies in terms of where the gross debt is today? You said you're going to pay off some of the convert that's out there. From a gross debt perspective, what do you see being at each company once the deal closes?
Let me take that. Let's start with j2. j2's got about $1.7 billion of debt on its balance sheet, although if you value particularly the converts to three and a quarters, given where our stock price is, you probably add about another $300 million in terms of obligations. You could call it a little north of $2 billion of gross obligations, taking into account the three and a quarters at market value, the one and three quarters converts in the four and five-eighths senior unsecured notes. Consensus clearly is debt-free at this point. 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.
What we anticipate is Consensus raising in the area of about $800 million of debt, might be in multiple tranches, combination of bank and high yield. The key is that the vast majority of that. 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. In order for it to be a tax-efficient transaction for j2, most, if not all of those proceeds, will be utilized to retire debt. One of the areas is, as you look at the j2 capitalization, which of those pieces make sense for debt retirement and in what format? 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 three-and-a-quarter converts that we issued approximately seven years ago that have a call date coming up. They're not maturing. Maturity is not till June of 2029. 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 share settlement method for those converts. That would mean paying $400 million in cash for the principal amount and issuing any shares for the delta value, which would probably be at today's stock price, 2.6 million-2.7 million shares.
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 or any share issuance. Those are details that will be 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 to those convert holders and to the street what is the appropriate mix of cash and equity, if any, for the retirement of the three and a quarters. They're the easiest piece to deal with because coincidentally, they have this call provision that is coming up.
Net at the close, sort of boil it all down, of the $2 billion gross obligations today, about $1.2 billion will remain with j2 and kind of $800 million with Consensus?
Yeah. As I say, there could be more cash at j2, depending on how the converts are settled. There could be less cash. You've got the gross debt, I think, fairly close. The net debt will be lower for future j2 based upon the cash retained. 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 two companies? 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 than what j2 is today consolidated. We will have outreach to the rating 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. 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 BB 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'll be about four times its EBITDA versus, say, the three times that exists at j2 today in pro forma. I would expect a lower credit rating than that BB 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. 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. I would expect that Consensus would have a lower credit rating than j2.
Great. Thank you.
Thank you. 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, Scott, congrats on the promotion. One quick housekeeping, then a more strategic question. Just on the housekeeping side. In the press release yesterday, it had said that Consensus would be primarily the CloudFax business. Are there any other assets that are moving over, is any part of Voice going to move over? Is that staying with RemainCo? More importantly, look, I think a lot of us have looked at this and said that the stock's clearly undervalued from the sum of the parts perspective, 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 standalone company, get a much higher multiple than what the public markets seem to be giving it as part of j2 Global today. Thanks.
Thanks, Rishi. To answer your first question, the second-line voice assets will stay at RemainCo as part of the SMB vertical. Just in terms of the broader question about would we consider other transactions. Look, start with the CloudFax business, in my mind, is the most highly undervalued asset of scale inside of j2, I think continues to be probably the most therefore underappreciated asset within the company. We're right to start here. We're going to look to execute upon this well. I think we have demonstrated in this, I think broadly, that we are always operating with our shareholders' best interest in mind, always looking at any options we have to ensure long-term value creation. From our point of view, we remain open-minded, 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. 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 to 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 CloudFax business versus the corporate fax business. Does that make sense?
Yeah. No, I get it. We've had that question even as part of j2 over the years. Very hard to unpack that because there are elements that are shared. They're not distinct business units, if you will, under one company. There is shared infrastructure, there's shared personnel. I think it's fair to say that there probably is a margin delta between the two, if you could allocate all of the costs. And something that we will probably attempt to do as part of this separation exercise and additional disclosure on Consensus. If I look at the business unit, while we talk about it on a standalone basis being in the sort of low 60s at j2, that's a business unit contribution. Remember, there are corporate overhead costs of the cloud business, and then certainly to stand up a public company, there are parent company costs.
You probably lower that a few points in terms of just what is the standalone EBITDA margin pre being a public company. Then there's a few million dollars of public company costs. That's how you get to the 55. That's the delta from the 62 to the 55. I think if you take the 62 as sort of the starting point and leave aside some of the corporate pieces, you're probably going to have a few point advantage in the web business in terms of its EBITDA contribution relative to the corporate piece. I would remind everybody that 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 what we've been talking about in terms of the healthcare interoperability opportunity to date has been focused on the medium to large enterprise within that spectrum. Of the $150 million of revenues that we talked about, there's a meaningful portion of that that's in the sort of larger SMB, medium enterprise side. 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.
Maybe just one quick housekeeping question, if I could squeeze it in, again, for you, Scott. Maybe from j2's perspective, will the business unit now known as Consensus go into discontinued operations kind of starting here in with Q1 earnings? Is that something? I don't know. Maybe just talk through the accounting of it.
No. 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 that I think as we move forward will qualify for being not discontinued ops, but assets held for sale would be the B2B backup assets.
Got it. Very helpful. Thanks. Congrats again, guys.
Thank you.
Thank you. 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 on a very summary basis going forward. 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, the board can declare the distribution, which we expect to be in Q3.
From j2's standpoint, we are in a quiet period. 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. We will not be taking additional questions now. We do have an earnings call coming up to report Q1 results. I would remind everybody that the release of those earnings will be on Monday night, May the 10th, and then Tuesday morning on the 11th, Rebecca 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.
We thank you for joining us today, and we look forward to your participation on May the 11th.
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.