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Operator
Good day, ladies and gentlemen, and welcome to Consensus Q4 Investor Call. My name is Tom, and I will be the operator assisting you today. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. On this call will be Scott Turecki, CEO of ConsenSys, Jim Malone, CFO, John Nebergall, COO, and Adam Varon, Senior Vice President of Finance and Accounting of ConsenSys. I will now turn the call over to Adam Varon, Senior Vice President of Finance and Accounting of ConsenSys. Thank you. You may begin.
Tom
Good afternoon. And welcome to the Consensus Investor Call to discuss Q4 2021 Preliminary Unaudited Results, 2022 Guidance, and other key information we'll share with all of you today. Joining me today are Scott Taricki, CEO, John Nevergall, COO, and Jim Malone, our newly minted CFO. The earnings call will begin with Scott providing opening remarks. John will give an update on operational progress since our Q3 investor call. And then Jim will discuss our Q4 financial results and 2022 guidance. After we finish our prepared remarks, we will conduct a Q&A session. At that time, the operator will instruct you on the procedures for asking a question. Before we begin our prepared remarks, allow me to direct you to the Safe Harbor language on slide two. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include but are not limited to the risk factors outlined on slide three that we have disclosed in our Form 10 SEC filings, as well as a summary of those risk factors that we have included as part of the slideshow for the webcast. We refer you to discussions in those documents regarding safe harbor language as well as forward-looking statements. Now, let me turn the call over to Scott.
Scott Taricki
Adam, thank you very much. I'd like to add my own welcome to all the investors and analysts who are joining us for the first earnings call of consensus as we report our Q4 2021 financial results. As you can see, since we completed the spin, we've been very busy. First, making strides as an independent public company. Two, producing outstanding operating results in our first full fiscal quarter. Three, winning a significant contract servicing the Veterans Administration health system. Four, acquiring Summit Health just outside of Boston. And five, initiating our first stock repurchase program, which is an element of our capital allocation strategy. A biggest accomplishment in filling out our public company personnel has been the hiring of Jim Malone as our CFO. Jim comes with a depth of relevant experience in accounting, finance, and healthcare. He has already made a significant contribution to consensus. Welcome, Jim. He will take you through all the financial results and guidance later in the presentation. Despite the distractions of the spin and the immediate aftermath of separation, we were able to achieve the high end of the revenue range for Q4 and above the high end of both our adjusted EBITDA and non-GAAP EPS. I want to thank our employees who, despite many distractions and continuing to work from home, remain very productive. We are thrilled that after an extensive RFP process through our relationship with Cognosante, we have been chosen to be the exclusive CloudFax provider to the VA's more than 1,200 healthcare facilities. We believe that over time, this will be our single largest contract. However, this is a year of investment. We have allocated approximately $5 million to stand up and have a FedRAMP-certified system for the VA's health facilities, and we'll have the ability to market that system to other government agencies. Finally, before turning the call over to John, I would like to discuss our capital allocation strategy. Since the spin was announced, I have made it clear that we are not an M&A-focused company. In part, this is due to the number of organic efforts that we have on our plate, as well as an aggressive hiring plan over the next two years to enhance and deepen our technical team. However, we do look for acquisitions that are complementary to our product roadmap, will bring us additional customers and services, and most importantly, great teams of people. We have found such a company in Summit Health. There are opportunities for cross-selling of their HL7 and Fire products into our base, and the ability to sell consensus solutions into the Summit base, which is rich in healthcare systems utilizing the Meditech EHR solution. I would like to welcome again all the former Summit employees to Consensus. It was great to be with you in early February, and I look forward to many more meetings. John will provide you with more details on both the VA contract and the Summit acquisition shortly. Targeted M&A, such as Summit, fit nicely into our capital allocation program. To fill out that program, our board recently authorized a $100 million stock repurchase program over the next three years. This program is opportunistic with no annual goals of repurchase. As we gain more trading of our stock, we'll be making decisions as to the attractive prices for repurchase that will provide returns commensurate with our other capital allocation alternatives. I'll now turn the call over to John, who will give you more insight into our product and customer win activities.
Adam
Thank you, Scott. On to slide five. It's been an active quarter for the company. In addition to completing the spin and moving forward on our own, there have been significant wins for the business, and I'm excited to share them. First, we are proud to announce that we have entered a partnership with Cognosante LLC, who provides innovative health and safety solutions to government. Acting as the technology subcontractor to Cognosante, ConsenSys will serve as the exclusive supplier of cloud fax technology to the Enterprise Cloud Fax Project, otherwise known as EC Fax. As announced in Cognosante's December 15th press release, EC Fax will be implemented across the Department of Veterans Affairs Enterprise by far the largest health system in North America. We are currently working through the process of achieving federal risk and authorization management program certification, known as FedRAMP, a requirement for this project. While a major technology effort, once complete in early Q4, we will be the only cloud fact solution with this certification, putting consensus in a strong position for future government opportunities. Rollout is expected to begin in mid to late Q4, and given the number of medical centers and care sites involved, will likely continue rolling out into 2023 and 2024. This agreement is the largest cloud fax order in our history, including under J2 ownership. We are proud to have been selected for this project and look forward to delivering our innovative technology to help in the VA's modernization efforts. The other important news to share is closing the acquisition of Summit Healthcare Services, an established and innovative health IT company located just outside of Boston. While we had not anticipated much in the way of M&A activity at this early point of the consensus story, the Summit opportunity was a virtually perfect fit in every respect. First, the Summit product suite is a precise fit with our existing product roadmap, giving consensus a full HL7, and fast healthcare internet resources, or FHIR, communication capability with existing integrations to every major hospital EHR vendor and a particularly strong position in the Meditech base. Second, we know that any overly heavy lift in integrating the organizations was a nonstarter and found the cultural fit, the quality of people, and the technical environment to be extremely compatible. Third, we required that the transaction also improve our market position to further penetrate cloud facts and digital signature into our largest target industries. And I'm proud to say that we already have our first integrated back solution at St. Rose Hospital in California. Finally, the economics made sense and we forecast the acquisition to be additive to both the top and bottom line in 2022. We needed to be certain that all four requirements, product advancement, cultural fit, market position, and economics were present in order to make this transaction work, and I'm happy to say that they all did work. In addition to the HL7 and FHIR integrations, the Summit Technology Suite includes an innovative care continuity application that allows for patient medical record access even when a customer's EHR environment may be experiencing problems, and a powerful RPA or robotic process automation tool that automates and streamlines healthcare workflows for effortless documents and data routing within an organization. Finally, with the addition of the summit team, ConsenSys has a thriving and highly skilled professional services capability for implementation, for managed services, and for workflow reengineering that creates a new revenue stream for the business. Because of this new capability in services, we are weighing the potential for reporting backlog in future reports as it becomes a more significant item in our financials. This is truly an acquisition that threaded the needle of a hefty set of requirements and brings incredible value to consensus. On to slide six. The corporate sales team had a solid fourth quarter that demonstrates the diversity of our revenue streams. For example, we've been able to close a deal with one of the country's largest population health organizations. Closed a deal with the second largest retail pharmacy in the UK with over 1500 locations. and closed a deal in the retail segment with the booking of William Sonoma as a new account. We've also deepened our market reach by adding several important partners. Channel partners are a key route to market as they work with us to deliver consensus technology to captive customer sets through integration and sales cooperation. As we discussed on the previous slide, we've partnered with Cognosante, and will provide the Cloud FACTS technology for EC FACTS. We've also added Windstream UCAS, a top unified communication vendor with a solid footprint in healthcare organizations, and Highland Corporation, a leading content service provider whose on-base platform is integrated into thousands of EHR installations with a particularly large EPIC presence. The product team has been busy as well. taking on the formidable FedRAMP certification process. This is a major project that requires nearly a year of effort to complete, but one that is necessary to meet the eCFAX requirements. We have dedicated a large team to this effort and engaged in the assistance of third-party experts to help in the process. Our particular instance of FedRAMP will be the FedRAMP High, the most secure cloud environment in the market. It's important to understand that this investment is exciting not only because of the immediate opportunity for eCFAX, but also because of the position that we will hold for additional opportunities in the future. We remain on target to have our formal release of clarity in Q1, with the major release announcement coming at the upcoming Health Information Management Systems Society show in Orlando in mid-March. Clarity performs AI-powered data extractions and is the foundation for our data transformation capability. This technology, called Natural Language Processing, or NLP, has the capability of eliminating the need to rekey faxed information into structured databases and gives consensus the ability to transform faxed data into HL7 and FHIR-compliant messages. Any of you attending HIMSS can see the magic in real time as we feature a live demonstration at the Interoperability Showcase. Our team has pushed the ball forward on JSON, our blockchain-backed digital signature offering. Customers can now order a bundled JSON eFax subscription, can integrate JSON through an enterprise API, and have access to a robust administrative dashboard for managing their subscription and end-user activity. These capabilities are aimed at the corporate marketplace, and we have some exciting opportunities in process in that segment for JSON. Finally, we have completed the rigorous Service Organization Control, or SOC2 Type 2 certification. This, in addition to the HITRUST certification, and the upcoming completion of FedGrants security demonstrates that the consensus product offerings are the most secure, most protected, and most well defended in the industry. Now let's move on to slide eight to discuss segment revenue results. Our corporate revenue delivered double digit growth, continuing to show strength in both new revenue and baseline performance. We did have one final account cleanup associated with our system migration project, and while that impacted the pure number of accounts in the segment, the revenue impact was negligible. The ongoing trend is that we are landing bigger deals and seeing strong growth in the base, the combination of which produces a very nice improvement in ARPA. The number of new accounts added was better than in Q4 of 20, and the execution of our corporate sales team is producing impressive results. The churn percentage was impacted by that account cleanup I mentioned, and on a normalized basis is a nearly flat 1.57%. On slide nine, we see the small office home office results for the quarter, with revenue virtually flat year over year, once accounting for approximately $400,000 in FX headwinds. In reviewing the year-over-year results, it's important to note that 2020 is a tough comparison due to the migration to home offices that we saw throughout the pandemic year. The overall number of accounts dipped from a pandemic high of 1.072 million. However, the offset in ARPA netted out to an on-par revenue result. A key driver of the account level revenue was increased billable usage where subscribers were sending pages in excess of their plan limits, demonstrating a solid customer engagement with the service. Churn for the period was slightly up from last year, but not out of line with our historical range. And in fact, it was nearly flat to what we saw in Q1 2021. We continue to expect the revenue performance of our SOHO segment to hold steady while this quarter's results are in line with that expectation. Now let me hand it over to Jim Malone, our CFO, for a deeper look at the financial results.
Scott
Jim? Thank you, John and Scott, for that generous introduction. Hello. It's good to meet you on this call, and I look forward to meeting you in person. Thank you for your interest and consensus. We will continue to provide you timely and meaningful information for you to support your expectations of the company. I'm relatively new to ConsenSys. I joined the company in mid-January as Chief Financial Officer. It's an exciting time for the company as it begins to absorb the advantages of being spun from J2. While only here for a short time, I genuinely appreciate the opportunity to be a member of the ConsenSys team. Let's move on and I will provide comments about the recent financial performance of the company. We have completed our first quarter as an independent company. In the press release and the PowerPoint deck, we have highlighted our 2021 fourth quarter and full-year performance using a pro forma presentation. Moving to slide 11, 2021 pro forma Q4 financial results. 2021 fourth quarter revenue of $89 million. which includes a full quarter as we assume the spend was executed on day one of the quarter, exceeded the prior year revenue of 85.6 million by 3.4 million. Staying on slide 11 and moving to adjusted EBITDA and EPS, let me start by saying that the adjustments noted in the footnote affecting pro forma adjusted EBITDA for both periods presented are intended to provide a meaningful comparison of quarter results year over year. 2021 fourth quarter results of 51.3 exceeded the comparable period in 2020 by 0.5 million. Utilizing an actual share count of 20 million for both 2020 and 2021, EPS year over year for the comparable period increased to $1.46 representing an improvement of 10 cents or 7.4 percent. We met the high end of our Q4 revenue guidance and exceeded the high end of our Q4 guidance for both adjusted EBITDA and EPS. Compared to the current analyst expectations, the company exceeded revenue, adjusted EBITDA, and EPS targets. Moving to slide 12, full year 2020 and 2021 viewer consensus. The performer view of what consensus would have reported if it was an independent company beginning in 2020. Again, we have provided in the footnotes an explanation of the performer adjustments affecting the results. Solid revenue, solid adjusted EBITDA, and solid EPS performance. We will be carrying this momentum into 2022. Moving to slide 14, let's move to guidance for full year 2022. Organic revenue at the midpoint of guidance is expected to be 6%, while growth on organic plus the summit acquisition is expected to increase to 8%. The corresponding adjusted EBITDA margins for organic and organic plus acquisitions is forecasted to be 54.4 percent and 53.7 percent, respectfully. EBITDA margins in 2022 are expected to be lower compared with the prior year, reflecting an investment primarily in R&D headcount. This investment is right-sizing the function to accommodate growth initiatives. Combining the summit acquisition, the margin decreases slightly as we fold summit into our operations. The expected 2020 share count is 20.5 million and the tax rate range of 19.5 percent to 21.5 percent. Capital expenditures are expected to be between 30 million to 33 million. Let's move on to slide 15 to understand what this means for guidance. At the midpoint, our guidance on revenue is $380 million with adjusted EBITDA and EPS at $204 million and $5.44 respectfully. At the high, mid, and low range, our adjusted EBITDA margin of 53.7% was held constant. Thank you. That includes my formal comments. I will now return the podium to the operator. who will let you know the protocol for asking questions.
Operator
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we begin. And the first question today is coming from John from CJS Securities. John, your line is live. Please go ahead.
John
Hey, good afternoon, everyone. Thank you for taking my question. Congratulations on the first public order as a consensus.
Scott
We appreciate it. Thank you, Tom.
John
Yep. It's great to hear you guys. My first question is about the VA contract. I'm wondering what kind of size this could grow to over 2023 and 2024. You mentioned it's the biggest in your history, so I'm just trying to get a sense of scale here, and if the margins involved are kind of in line with your corporate average.
spk11
You know, this is John Nevergawn.
Adam
We're very excited about this contract, the EC-FAX program. It is something that we have high hopes for. The VA has over, I think it's 171 medical centers, over 1,100 sites of care. This is certainly something that could kind of get into the area of $10 million plus as you get down the line on an annual basis. Margin-wise, we're very comfortable with this, and our position in this as the technology vendor is not face-forward to the VA, but the delivery mechanism. And we think it's kind of the best position for us in this particular case to be in because that technology then could potentially be leveraged into other government entities given the FedRAMP certifications.
Scott Taricki
And the only thing I would add to that, John, is, you know, as you know, in any large corporate deployment, and much less or much more so in this kind of situation, the rollout will be the key that influences how much revenue drops into, say, 23, 24, and beyond. But I agree with John. This should be, you know, a $10 million-plus relationship at the point where we've got, you know, substantial rollout throughout the VA system.
John
Got it. Thank you for that color. It's much appreciated. And then second, I was wondering if you could talk a little bit more about Summit. The price you paid, I'm not sure if that's finalized yet, but kind of wondering what the strategy is going forward with M&A. Is this, you know, the only thing you're going to do for a while or are there more targets out there that you're deluging at this moment?
Scott Taricki
Okay, so to give you a sense, we paid about a little under two times revenue for the company. As you can see, by the way, we've broken out our guidance. We downloaded for quite a full year this year, about 11 months. We're expecting about $7 million revenue contribution from Summit. Now, that is after a deferred haircut on some revenue of probably a few hundred thousand dollars. So as we roll into 23 without, you know, any – dramatic growth or cross-selling the business, that will pick up and should be registering north of eight plus million dollars. So we think that it's going to be good in terms of all the things we mentioned. Certainly, I think I'd start with the people who would then bring in the fact that it's got a good customer base for us to access and for them to further access and great complementary technologies. And I think it's where your question was headed, it's going to meet our financial returns. It is a lower margin business today. So you'll notice we gave you two EBITDA margins. 54.4 is the EBITDA margin exclusive of Summit. They're going to clock in at around a 20% EBITDA margin this year, in part because of the deferred revenue haircut. But that $500,000 or so drops right to the bottom line. I think that, as I said in my opening remarks, You should not be expecting we're going to drop a deal every quarter or two. This might, quite frankly, be the only deal we do this year. And I think that's perfectly fine. As I mentioned, we have a lot on our plate. We've got to get clarity released. As John said, it will be previewed at HIMSS. You'll see a big slash around it. Our teams are going to start selling that. We're still working on a variety of the APIs to review. released later this year, early next year, that has been dubbed Harmony. And then, as I said, there's all these opportunities between the Summit technologies and portfolio of customers and what we have. So I would not expect anything more this year in terms of M&A, but you never know.
John
Got it. Thanks, Scott, and congrats on the strong start. I'll jump back in queue.
Scott
Thank you. Appreciate it.
Operator
Thank you. Your next question is coming from Ian Zafino from Oppenheimer. Ian, your line is live. Please go ahead.
Ian Zafino
Hey, good afternoon, guys. This is Isaac Salhausen on for Ian. Thanks for taking the question and for all the business updates. Just first on the overall revenue mix, given the growth rates of the two segments, how should we think about when the corporate vertical would overtake the SOHO vertical? And just given the recent activity, should we expect this to come sooner maybe than originally anticipated? It sort of just outweighs sort of the main drivers of that shift.
Scott Taricki
Yeah, so there's two things that are going to influence that. One is just the natural trajectory of the business. And as you may have seen in the slide deck, we are seeing some FX currency headwinds. Sought in Q4 is about 400 grand. We're seeing it in 22 at least estimated based on the basket of currencies of close to $1.5 million. And that substantially affects SOHO. So it retards its growth or tamps it down. It does not affect to any meaningful degree the corporate. So there's both stronger growth in corporate, as you know, than SOHO. There's the FX differential. But then on top of that, the summit revenue is all corporate. So we are seeing an acceleration of that tipping point to be probably in the next fiscal quarter, being Q2. It could even happen late Q1. meaning this month, the quarter we're currently in. So, yes, that crossover was expected to be late this year. It's going to be now in the first half of this year, probably no later than Q2.
Scott
Okay, great. Thank you.
Ian Zafino
And then just regarding the cognizante and VA contract, could you just provide some more details on the overall agreement? Is it sort of similar to other enterprise service agreements? And then just additionally, how the opportunity and agreement came about. That would be super helpful. Thanks.
Adam
Sure. The opportunity really came about in the way I think these things normally do from the government's point of view. They put out a request for bidders. You know, cognizante is the prime. And I want to be a little careful here to observe the protocol because, The prime contractor is really the one with the relationship with the VA. In order to fulfill the bid, though, Cognizante was looking for specific partners to be able to deliver the CloudFax technology that was required by the bid. We were their partner in submitting that with Cognizante being the prime, us being the sub. And that was ultimately selected by the VA. So the VA relationship is with Cognizante. And I'd refer you to their press release of December 15th for more details around the agreement itself.
Scott
Okay, very helpful. Thanks very much, guys.
Operator
Thank you. The next question is a follow-up. from John Tenlontang. John, your line is live. Please go ahead.
John
Hi, I was just wondering about your buyback plans. I know you said you'd be opportunistic about it, but as we know, Jake, the Davis holds a lot of your shares and is looking to sell them, you know, within a certain timeframe. So I'm wondering if that will be a source of the shares that you could buy back.
Scott Taricki
No, these are independent of each other. So I think one, as we stated in the, as I stated in the opening remarks, You know, we are a strong free cash flow company. And so part of it is a capital allocation strategy independent of the ownership of the underlying equity. And certainly if we're not going to do a lot of M&A, that gives us a lot of firepower then to look at our equity, but subject to attractive prices where returns make sense. More to the point though, the way that Ziff Davis holds the equity in consensus We cannot be directly participatory in terms of going to them and offering to buy some of their shares. There are, as you remember from the spin, John, a lot of elements of the spin pre and post deal with tax issues and tax matters. And so one of the things that is really in their court to decide is when and how they want to monetize some or all of that equity. And then depending on certain decisions they make, then we can possibly step in and either help them facilitate that or whatever will come forth from it. But we cannot go to them, nor can they come to us to try to facilitate a direct purchase and or sale.
John
Got it. That's helpful, Scott. And then second, I was just wondering, regarding the SOHO segment, you know, flat against the tough comp year over year, I understand that. As we go forward, are you expecting slightly more growth as you lap the tougher comps? You know, I know your ambition is to actually grow that segment compared to what it's done previously. Just help me understand your strategy there.
Scott Taricki
Yeah, I think, look, I think intervening to longer term, yes, there are some tougher comps, both backwards looking in the first couple of quarters. I'm happy to say that, you know, as we sit here in real time, the base is stable from where we ended the year. It's not atypical that there are account cleanups in the fourth fiscal quarter. We experienced some of that. I also think we experienced in the fourth quarter maybe some, you know, cancellations as the COVID moves from a pandemic to an endemic and people are, you know, rejiggering how they work. It was neither a big positive for us historically, nor is it a big negative to the sense there's any reversal. But I think there's some of that work. And we're in the early, early stages. of j sign you know really rolling out to that base and developing a strategy and plan of how j sign can be contributory to the overall soho channel so i think this year you know we've got challenges with the fx because soho does have a big chunk of business that is outside the united states now we could be wrong on the fx As you may recall, we look at a basket of currencies. We look to third parties based upon their expectations. It's obviously very volatile right now because even what people thought three weeks ago is changing given world events. So we will see obviously over the course of the year how accurate those predictions are in terms of the effects. So we may get tailwinds that we don't currently anticipate. Conversely, we could get further headwinds. So I do think that at least in our own thinking, in our own budgeting, we felt it was prudent to bring the FX component in, at least as we understand it right now, recognizing that it's kind of a volatile world that has implications to the debt markets, the equity markets, and the forex markets.
John
Got it. Maybe just to follow up on that, do you have an exposure to the areas that are volatile right now in Eastern Europe, the conflicts that are out there?
Scott Taricki
Generally speaking, no. We do have some contractor relationships that are in the Ukraine. But, you know, we're keeping in contact with the people, at least as of yesterday. Thankfully, they remain safe. And amazingly, they were still working on behalf of the contractor that we contract with. So we are monitoring that situation. But we don't have any business in terms of revenue relationships that would exist in that region of the world of any substance.
Scott
Got it. Thank you. Thank you.
Operator
Your next question is coming from Greg Burns from Sedoti. Greg, your line is live. Please go ahead.
Greg Burns
Hi. So in relation to the corporate business, is there anything you could share in terms of the interoperability solutions, the kind of penetration you're seeing, any kind of metrics that you can help us with understanding the growth and penetration of those new solutions?
Adam
Yeah, Greg, this is John, and thanks for the question. You know, we're very excited about that set of solutions. There are probably a couple of things, and as you know, since we have a very large baseline of fax customers and our revenue is on a recurring basis, obviously the revenue that we have and that we're reporting on is overwhelmingly faxed. What we're finding, though, is as you think about new sales and bookings in the corporate segment for 2021, we actually booked about 17% of our new sales were Consensus Unite interoperability product, which is a very strong showing in its first full year in terms of market acceptance and bookings. And I can also say that as we as we look at the the summit um solution suite you know the the concept and i mentioned it in in my remarks of backlog starts to come into play as the the summit technology sale um you know includes an implementation that um takes some time and during which revenue is recognized and And summit right now is is running somewhere north of two and a half million dollars of backlog that will need to be worked through from the professional services group to recognize and I think going forward. we're going to be able to see more and more of that kind of of financial metric being important for us as an organization. And really, when you think of the Summit Suite, that's a set of pure play interoperability products that really are going to make a difference in the marketplace for us and for our position.
Greg Burns
Okay, great. And then in terms of the VA contract, is that EC FACTS initiative, is that VA-specific, or is that a more broader government-based program where You know, maybe there's a lot of legacy fact service sitting out there, and now this is going to be kind of rolled out more broadly and give you a bigger opportunity at it. And how would you size kind of maybe the government opportunity for this service?
Adam
Well, again, being very conscious of the protocols involved, because it's just, you know, with a small number of primes that service the government, the VA is cognizante of Paul Minehart, Customer where the technology vendor the EC fax platform, though it were that exclusive technology provider and the EC fax platform is being positioned in such a way that it can be marketed to other government entities beyond the current customer so. We really consciously, in thinking through it with our partner, created a platform that was capable of servicing not just the one customer, but would be open to other potential customers, and there are live RFPs out there.
Greg Burns
Okay, great. Okay, and with doing the acquisition, now the buyback's in play, how do you think about leverage? Going forward, are you comfortable with the current leverage? Do you want to reduce it from here? Like, where do you stand in terms of the balance sheet leverage?
Scott Taricki
The leverage is comfortable at, you know, 200x million of EBITDA and 100 million issue free cash flow. As I think you may remember, we actually cannot proactively de-lever until at least two years after the spin. That's another private letter ruling tax-related issue dealing with the spin itself. Our debt is currently in two tranches. There's $305 million of 6% notes that are callable two years after the date of issuance, so that would be October of 23. And then there's $500 million of 6.5% notes that are non-call for five years. So you're in a fraction now. We could think about either retiring or refinancing either all or less than all of the $305 million. but we're not really going to be in a position to touch the $500 million tranche until we get to the fifth year post-spin. So we will see what are the capital opportunities that exist between now and October of 23. And depending on where market conditions are, interest rates, et cetera, we'll then decide what to do, if anything, with the $305 million of 6% notes. We cannot take free cash flow and pay down debt as if these were bank loans. And by the way, just to be clear, if we were not constrained by the spin and the various tax elements around it, we would not have financed consensus in this manner, in part to address your question. Because it is a goal of ours, whether it's through the pay down of debt, the increase in EBITDA, or a combination, to get down to gross debt to EBITDA three times. So, you know, we are about four times right now a little bit under, four times lever. Obviously, if you take the cash into account on a net basis, we're about three and a half times, 3.4, 3.5. But at some point, we'd like to be gross debt to whatever our then EBITDA is at around three times.
Scott
But that will have to wait. All right. Great. Thank you. Thank you.
Operator
Your next question is coming from Sean Patil from SIG. Sean, your line is live. Please go ahead.
spk03
Hi, guys. This is Jared on for Sean. Thanks for taking the question, and congrats on the solid quarter. In the past, you've talked about top-line seasonality being tied to the number of business days in the quarter. Just as you're looking out at 22, is there any reason that you think that that might differ for this year? And then... On EBITDA, just is there anything to call out as you're thinking about the pacing of EBITDA through the year, especially given headcount additions? And then I've got one more after, if you don't mind. Okay.
Scott Taricki
So the business days, with the exception of a leap year, which we're not in this year, the trend is always Q4 is challenged on a sequential basis vis-a-vis Q3 by anywhere from two to four business days. There's a little bit of modest relief that occurs in Q1, although quite frankly, it doesn't really kick in until February, which is a short month, and then March is really the strong month. But your key maximum business days in a fiscal year are Q2 and Q3. And then you'll get into some nuances of when is Easter falling, because Good Friday has some implications. So this year, Easter is in April, so it's a Q2 event. There are occasions where it can sneak into Q1. So there are some things on the margin that can affect it, but in general, you look for Q2 and Q3 to be your strongest number of business days, which affects the selling cycle, but more importantly, the usage. The services are predominantly used on working business days.
Scott
Your second question was? Great, thank you.
spk03
And then the second, So I know that you've provided the near-term outlook of about 5% to 9% organic revenue growth on a year-over-year basis, but you've also spoken to a path to 10% plus over the longer run. Do you mind just speaking to that path and what levers you might be able to pull to get above 10% growth?
Scott Taricki
Sure. I think there's a couple of things. One is just the math. We have a corporate channel that we expect will grow in the double-digit range this year. You saw what it did in 2021. So as it overtakes, as an earlier question was raised, as it overtakes the SOHO channel, which even if it kicks into a growth mode, is going to be a modest growth mode, you have the larger channel growing faster that works to your advantage. Now, I understand without any other accelerant, you might have to run that out several years to get to that 10%. One of the things that gives us optimism is the new products and services that are on the slate for this year, which will have a partial impact this year, a full impact next year. And of course, the benefit of the summit revenue, products and services, which eventually will become part of our organic base of revenue. So it's not something that we are budgeting or attempting to achieve in the next year or two. But it is an affirmative goal of ours as we think about how we go and access more customer wins and more revenue per customer to get to that double digit organic growth.
Scott
Great. Thank you.
Operator
Your next question is coming from Joe Goodwin from JMP Securities. Joe, your line is live. Please go ahead.
Joe Goodwin
Great. Thank you so much for taking my question. Actually, kind of double-clicking on the previous question there. I mean, in 23 and 24, just thinking about your new interoperability products, not some that you just acquired, I mean, what would be a success in your mind, Scott, from like a revenue base?
Scott
Oh, I think, look, we've got to get to, it'll be double-digit millions of revenues. So, you know, 10 plus, and then getting into probably in the following year, 30, 40% growth on top of where that number is in 23. Understood. Okay. Thank you.
Joe Goodwin
And then, you know, on your R&D expense, can you give us a sense of just kind of how we should expect that to step up through 2022? And on that, you know, if you're spending – you know, low double digits or so in R&D. I mean, how much of that is focused on the new product initiatives that you're developing? And, you know, is that going to be able to compete with some of the more pure play health care interoperability vendors that are receiving venture funding? I guess, how are you thinking about that when you're going to market?
Scott Taricki
Well, I don't think we're thinking quite in the manner you're thinking about it. So we have a lot of initiatives. Some are internal that don't affect products. that are R&D-centric. They have to deal with internal systems issues that, quite frankly, we were going to deal with at J2 independent of the spin, just a matter of the pacing and the timing. I'd actually like those projects accelerated. We have the ability now to hire to accomplish those ends. Yes, there's a huge team that is involved and growing to address the new products, the FedRAMP product, the other interoperability solutions that we have talked about to date, but including things we haven't yet talked about. So we have a pace of hiring that actually arcs out in R&D over about 27 months. So we began literally at spin, so in October of last year, And the program runs through the end of 23, may dip into early 24. And I would say that it's reasonably ratable in terms of the way we intend to hire. The reality, of course, will be how can we hire or what is the pace we can hire in a tight labor market? So the budget's got one set of assumptions in it. reality be the reality. This is one of the reasons, too, though, why an acquisition like Summit was important. Because as I led with, and as John mentioned, the people are really important. And they're not all technical people. We're getting sales people and marketing people. But it's really important in this environment. And we put a high value on the talent acquisition in the context of looking at M&A. But I think you should assume, I think it was an earlier question that I didn't fully address, So that's not the margins okay for 53 seven, including summit for the year, how do the margins sort of. Lay out, I think, over the four quarters, that was the implication and it does tie to this r&b question indirectly as well, so you should expect a somewhat lower margin than the average for the year into one. And there will be a build over the four quarters as revenue comes in to absorb the new hires that we hired in Q4 and that we are hiring currently in Q1. We're trying to get as much done as soon as we can in terms of hiring, but realistically, it is going to spread out throughout the year.
Scott
Thank you. Thank you.
Operator
And there are no further questions in queue at this time. I would now like to pass the floor back to the consensus management team for closing remarks.
Scott Taricki
Great. Well, we thank all of you for joining us today on our first true earnings call. We look forward to speaking to you in the future. We will be at a couple of conferences this month of March. There's a JMP conference we'll be at virtually. There'll be a fireside chat next week. And we'll be at the CIDOTI conference also virtually a little bit later in March. and then look for releases regarding other conferences that we'll be attending either virtually or in person over the course of the year. In terms of our next earnings release, you should expect it to be sometime in May. And so as we get closer, we'll put out the date for that release. And we'll look forward to talking to you about Q1 results and giving you an update on all these good things that are going on.
Scott
Thank you. Thank you, ladies and gentlemen.
Operator
This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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