In addition to historical information, we have also made forward-looking statements in this report. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words "anticipates," "believes," "estimates," "hopes" or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed below, the risk factors discussed in Part II, Item 1A - "Risk Factors" of this Quarterly Report on Form 10-Q (if any) and under the heading "Risk Factors" in our information statement, dated
September 23, 2021(the "Information Statement"), which was filed as Exhibit 99.1 to Amendment No. 3 to Consensus's Registration Statement on Form 10 filed on September 21, 2021(together, the "Risk Factors"), and the factors discussed in the section in this Quarterly Report on Form 10-Q entitled "Quantitative and Qualitative Disclosures About Market Risk." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the Risk Factors and the risk factors set forth in other documents we file from time to time with the SEC. Some factors that could cause actual results to differ materially from those anticipated in these forward-looking statements include, but are not limited to, our ability and intention to: â¢Sustain growth or profitability, particularly in light of an uncertain U.S.or worldwide economy and the related impact on customer acquisition and retention rates, customer usage levels, and credit and debit card payment declines; â¢Maintain and increase our customer base and average revenue per user; â¢Generate sufficient cash flow to make interest and debt payments, reinvest in our business, and pursue desired activities and businesses plans while satisfying restrictive covenants relating to debt obligations; â¢Acquire businesses on acceptable terms and successfully integrate and realize anticipated synergies from such acquisitions; â¢Continue to expand our Cloud Faxbusinesses and operations internationally in the wake of numerous risks, including adverse currency fluctuations, difficulty in staffing and managing international operations, higher operating costs as a percentage of revenues, or the implementation of adverse regulations; â¢Maintain our financial position, operating results and cash flows in the event that we incur new or unanticipated costs or tax liabilities, including those relating to federal and state income tax and indirect taxes, such as sales, value-added and telecommunication taxes; â¢Accurately estimate the assumptions underlying our effective worldwide tax rate; â¢Manage certain risks inherent to our business, such as costs associated with fraudulent activity, system failure or network security breach; effectively maintain and manage our billing systems; allocate time and resources required to manage our legal proceedings; or adhere to our internal controls and procedures; â¢Compete with other similar providers with regard to price, service, and functionality; â¢Cost-effectively procure, retain and deploy large quantities of fax numbers in desired locations in the United Statesand abroad; â¢Achieve business and financial objectives in light of burdensome domestic and international telecommunications, internet or other regulations including data privacy, access, security, and retention; â¢Successfully manage our growth, including but not limited to our operational and personnel-related resources, and integration of newly acquired businesses; â¢Successfully adapt to technological changes and diversify services and related revenues at acceptable levels of financial return; â¢Successfully develop and protect our intellectual property, both domestically and internationally, including our brands, patents, trademarks and domain names, and avoid infringing upon the proprietary rights of others; and â¢Recruit and retain key personnel. â¢Maintain favorable relationships with critical third-party vendors whose financial condition will not negatively impact the services they provide; and â¢Manage certain risks inherent to our business, such as costs associated with fraudulent activity, system failure or security breach; effectively maintaining and managing our billing systems; time and resources required to manage our legal proceedings; liability for legal and other claims; or adhering to our internal controls and procedures. -33- -------------------------------------------------------------------------------- In addition, other factors that could cause actual results to differ materially from those anticipated in these forward-looking statements or materially impact our financial results include the risks associated with new accounting pronouncements, as well as those associated with natural disasters, public health crises, pandemics including the COVID-19 outbreak and other catastrophic events outside of our control, including as to COVID-19 the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and us. Overview
Separation and distribution
October 7, 2021, J2 Global, Inc. completed its previously announced plans to separate into two leading publicly traded companies: one addressing healthcare interoperability and comprising the Cloud Fax business, which will do business as Consensus Cloud Solutions, Inc.("Consensus"), and one that will continue J2 Global's strategy of building a leading internet platform focused on key verticals, including technology & gaming, shopping, health, cybersecurity and martech, which will do business as Ziff Davis. We refer to the transactions that resulted in the separation of Consensus and Ziff Davisinto two separate publicly traded companies as the "separation and distribution." Following the separation and distribution, Consensus is a leading provider of secure information delivery services with a scalable Software-as-a-Service ("SaaS") platform. Consensus serves more than one million customers of all sizes, from enterprises to individuals, across over 50 countries and multiple industry verticals including healthcare, education, law and financial services. Beginning as an online fax company over two decades ago, Consensus has evolved into a leading global provider of enterprise secure communication solutions. Consensus is well positioned to capitalize on seismic shifts in how people and businesses share private documents and information. Its mission is to democratize secure information interchange across technologies and industries, and solve the healthcare interoperability challenge. Consensus's communication and interoperability solutions enable its customers to securely and cooperatively access, exchange and use information across organizational, regional and national boundaries. J2 Cloud Services, LLC, together with its subsidiaries ("J2 Cloud Services" or the "Company"), is a leading provider of internet services. As of September 30, 2021, J2 Cloud Services, LLCwas a wholly-owned subsidiary of J2 Global, Inc., now known as Ziff Davis, Inc.("J2 Global" or the "Parent" or the "Parent Company"). Pursuant to the separation, J2 Cloud Servicesbecame a wholly owned subsidiary of Consensus. Prior to the separation, J2 Cloud Servicessold its B2B backup business and transferred its cybersecurity and SMB enablement businesses to entities that remained part of the Parent Company following the separation, which we refer to as the internal reorganization. For purposes of this management's discussion and analysis of the results of operations and financial condition of J2 Cloud Services("MD&A") section, we use the terms "the Company," "we," "us" and "our" to refer to J2 Cloud Services. References in this MD&A section to "Parent" or "Parent Company") refer to J2 Global, Inc., collectively with its consolidated subsidiaries (now known as Ziff Davis). The financial information and results of operations that are discussed in this section principally relate to J2 Cloud Servicesprior to the consummation of the separation and distribution. Consequently, the discussion in this section relates to J2 Cloud Servicesas it was comprised as of September 30, 2021, without giving effect to the internal reorganization and other transactions that occurred in connection with the separation and distribution, and the financial information discussed below is derived from the unaudited condensed consolidated financial statements of J2 Cloud Services. The discussion in this section therefore includes J2 Cloud Services'B2B backup, cybersecurity and SMB enablement businesses, which are not a part of Consensus following the separation, and does not reflect Consensus as it is currently constituted following the separation as a secure information exchange business with an emphasis on healthcare interoperability. As a result, the discussion does not necessarily reflect the financial position, results of operations or cash flows of Consensus following the separation or what Consensus' financial position, results of operations and cash flows would have been had Consensus been a separate, standalone secure information exchange business with an emphasis on healthcare interoperability during the periods presented. See "The Separation and the Distribution" in the Information Statement for a discussion of the internal reorganization and related transactions in connection with the separation and distribution.
J2 Cloud Services LLC as of
J2 Cloud Serviceswas a leading provider of cloud services to businesses of all sizes, from individuals to enterprises, and licenses its intellectual property ("IP") to third parties. J2 Cloud Servicesprovides cloud-based subscription services to consumers and businesses including cloud fax, backup, voice, cybersecurity and SMB enablement. J2 Cloud Servicesgenerates revenues primarily from customer subscription and usage fees and from IP licensing fees, and is driven primarily by subscription revenues that are relatively higher margin, stable and predictable from quarter to quarter with some seasonal -34- -------------------------------------------------------------------------------- weakness in the fourth quarter. In addition to growing our business organically, on a regular basis J2 Cloud Servicesacquires businesses to grow its customer bases, expand and diversify its service offerings, enhance our technologies, acquire skilled personnel and enter into new markets. We selectively pursue acquisitions, which may include companies operating under business models that differ from those we operate under today. Such acquisitions could impact our consolidated profit margins and the variability of our revenues.
Cloud service performance metrics
We use certain metrics to generally assess the operational and financial performance of our business; these metrics also serve as a baseline for internal trends and benchmarking against competitors. The average monthly revenue per customer can be used as an analytical tool in determining the marginal economics of customer acquisition, which is particularly useful as we continue to focus on growing our higher-margin businesses. We also use this metric, in conjunction with the cancel rate, to help provide a directional indicator of Cloud Services revenue and calculate the lifetime value of customers within each of our business units.
The following table shows some key operating metrics for our cloud services business for the three and nine months ended.
Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Subscription revenues: Fixed
$ 152,372 $ 144,525 $ 444,537 $ 426,766Variable 29,639 25,708 84,079 80,255 Total subscriber revenues 182,011 170,233 528,616 507,021 Other license revenues 92 15 275 69 Total revenues $ 182,103 $ 170,248 $ 528,891 $ 507,090Percentage of total subscription revenues: Fixed 83.7 % 84.9 % 84.1 % 84.2 % Variable 16.3 % 15.1 % 15.9 % 15.8 % Total revenues: Number-based $ 98,665 $ 98,000 $ 293,307 $ 289,502Non-number-based 83,438 72,248 235,584 217,588 Total revenues $ 182,103 $ 170,248 $ 528,891 $ 507,090Cloud Services Metrics Average Monthly revenue per Customer ("ARPU") (1) $ 15.53 $ 13.98(2) Cancel rate (3) 2.1 % 2.1 % 1.Quarterly ARPU is calculated using our standard convention of applying the average of the quarter's beginning and ending base to the total revenue for the quarter. The Annual ARPU is computed by taking the beginning and ending base to total revenue for the quarter. We believe ARPU provides investors an understanding of the average monthly revenues we recognize associated with each Cloud Services customer. As ARPU varies based on fixed subscription fee and variable usage components, we believe it can serve as a measure by which investors can evaluate trends in the types of services, levels of services and the usage levels of those services across our Cloud Services customer base.
2. Cloud Services customers are defined as paying direct inbound dialing numbers for fax and voice services, and direct and reseller accounts for other services.
3.Cancel Rate is defined as cancels of small and medium business and individual Cloud Services customers with greater than four months of continuous service (continuous service includes Cloud Services customers administratively canceled and reactivated within the same calendar month), and enterprise Cloud Services customers beginning with their first day of service, calculated monthly and expressed as an average over the three months of the quarter. We -35- -------------------------------------------------------------------------------- exclude cancellations by small and medium businesses and individual Cloud Services customers with less than four months of continuous service because such customers generally pay by credit or debit card and we therefore count them as customers for cancel rate purposes once they have finished any free trial periods and continued through two payment cycles.
Critical accounting conventions and estimates
In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements. Actual results could differ significantly from those estimates under different assumptions and conditions. Our critical accounting policies are described in our 2020 Annual Report on Form 10-K filed with the
SECon March 1, 2021. During the nine months ended September 30, 2021, there were no significant changes in our critical accounting policies and estimates.
Results of operations for the three and nine months ended
Assuming a stable or improving economic environment, and, subject to our risk factors, we expect 2021 revenue to be higher compared to the prior-year. The main strategic focus of our Cloud Services offerings is to reduce or eliminate costs, increase sales and enhance productivity, mobility, business continuity and security of our customers as the technologies and devices they use evolve over time. As a result, we expect to continue to take steps to enhance our existing offerings and offer new services to continue to satisfy the evolving needs of our customers. We expect acquisitions to remain an important component of our strategy and use of capital in this business. However, we cannot predict whether our current pace of acquisitions will remain the same within this business, especially in light of the current macroeconomic conditions. In a given period, we may close greater or fewer acquisitions than in prior periods or acquisitions of greater or lesser significance than in prior periods. Moreover, future acquisitions of businesses within this space but with different business models may impact Cloud Services' overall profit margins. Revenues
(in thousands, except percentages)
Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change 2021 2020 2021 2020 Revenues
$ 182,103 $ 170,2487% $ 528,891 $ 507,0904% Our revenues consist of revenues from "fixed" customer subscription revenues and "variable" revenues generated from actual usage of our services. Our revenues in 2021 have increased over the prior comparable nine month period primarily as a result of revenue attributable to business acquisitions acquired in and subsequent to the third quarter of 2020 and organic growth; partially offset by declines in certain areas Cloud Services businesses.
Cost of income
(in thousands, except percentages)
Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change 2021 2020 2021 2020 Cost of revenue
$ 40,707 $ 38,4216% $ 115,860 $ 116,208-% As a percent of revenue 22% 23% 22% 23% Cost of revenues is primarily comprised of costs associated with data and voice transmission, numbers, network operations, customer service, software licenses for resale, online processing fees and equipment depreciation. The increase in cost of revenues for the three months ended September 30, 2021was primarily due to increases in database hosting, processing fees, customer service and network services costs, partially offset by a decrease in phone operation cost. The decrease in cost of revenues for the nine months ended September 30, 2021was primarily due to a business disposed in and subsequent to the second quarter of 2020 that resulted in a decrease in network services cost. -36- --------------------------------------------------------------------------------
Sales and Marketing.
(in thousands, except percentages)
Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change 2021 2020 2021 2020 Sales and Marketing
$ 38,413 $ 28,85533% $ 110,807 $ 87,23127% As a percent of revenue 21% 17% 21% 17% Our sales and marketing costs consist primarily of internet-based advertising, sales and marketing, personnel costs and other business development-related expenses. Our internet-based advertising relationships consist primarily of fixed cost and performance-based (cost-per-impression, cost-per-click and cost-per-acquisition) advertising relationships with an array of online service provider. Advertising cost for the three months ended September 30, 2021was $22.8 million(primarily consists of $16.4 millionof third-party advertising costs and $5.4 millionof personnel costs) compared to the third quarter of 2020 of $17.7 million(primarily consists of $13.1 millionof third-party advertising costs and $3.5 millionof personnel costs). Advertising cost for the nine months ended September 30, 2021was $65.2 million(primarily consists of $49.1 millionof third-party advertising costs and $14.1 millionof personnel costs) compared to 2020 of $54.5 million(primarily consists of $39.9 millionof third-party advertising costs and $11.1 millionof personnel costs). The increase in sales and marketing expenses for the three and nine months ended September 30, 2021versus the prior comparable period was primarily due to increased advertising operations, sales and advertising and product development costs associated with businesses acquired in and subsequent to the third quarter 2020.
Research, development and engineering.
(in thousands, except percentages)
Three Months Ended September Nine Months Ended September 30, Percentage Change 30, Percentage Change 2021 2020 2021 2020 Research, Development and
$ 8,259 $ 4,88669% $ 21,995 $ 16,48433% Engineering As a percent of revenue 5% 3% 4% 3% Our research, development and engineering costs consist primarily of personnel-related expenses. The increase in research, development and engineering costs for the three and nine months ended September 30, 2021versus the prior comparable periods was primarily due to an increase in engineering costs associated with businesses acquired in and subsequent to the third quarter of 2020. General and Administrative.
(in thousands, except percentages)
Three Months Ended September 30, Percentage Change Nine Months Ended September 30, Percentage Change 2021 2020 2021 2020 General and Administrative
$ 37,262 $ 35,5795% $ 104,610 $ 106,850(2)% As a percent of revenue 20% 21% 20% 21% Our general and administrative costs consist primarily of personnel-related expenses, depreciation and amortization, share-based compensation expense, bad debt expense, professional fees, severance and insurance costs. The increase in general and administrative expense for the three months ended September 30, 2021versus prior comparable period was primarily due to an increase in salary and related costs and professional fees. The decrease in general and administrative expense for the nine months ended September 30, 2021versus prior comparable period was primarily due to a decrease in depreciation and amortization expenses related to disposed businesses in and subsequent to the third quarter of 2020. -37- --------------------------------------------------------------------------------
(in thousands, except percentages)
Nine Months Ended September Three Months Ended September 30, Percentage Change 30, Percentage Change 2021 2020 2021 2020 Goodwill impairment on business $ - $ - n/a
$ 32,629$ - n/a As a percent of revenue -% -% 6% -% During the second quarter of 2021, we received an offer to purchase the B2B Backup business. Management has determined that the fair value of the business less cost to sell is lower than its carrying amount. As a result, we recorded a goodwill impairment on business of $32.6 millionand zero for the nine months ended September 30, 2021and 2020, respectively.
The following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying condensed consolidated statements of income for the three and nine months ended
September 30, 2021and 2020 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Cost of revenues $ 104 $ 134$ 348 $ 407Operating expenses: Sales and marketing 991 904 1,285 1,329 Research, development and engineering 212 186 642 606 General and administrative 145 165 2,095 2,264 Total $ 1,452 $ 1,389$ 4,370 $ 4,606
Non-operating income and expenses
Interest expense, net. Our interest expense, net is generated primarily from interest expense due to previously outstanding debt and partially offset by interest earned on cash and cash equivalents and notes receivable. Interest expense, net was zero and
$(10.2) millionfor the three months ended September 30, 2021and 2020, respectively, and $(0.2) millionand $(30.6) millionfor the nine months ended September 30, 2021and 2020, respectively. Interest expense, net decreased over the prior comparable period due to the Company redeeming all of its outstanding $650 million6% Senior Notes in 2020. (Loss) gain on sale of businesses. Loss on sale of businesses was $24.6 millionduring the three months ended September 30, 2021and a gain of $17.1 millionfor the three months ended September 30, 2020. Loss on the sale of business was $21.8 millionfor the nine months ended September 30, 2021and a gain of $17.1 millionfor the nine months ended September 30, 2020. Our loss on the sale of business during the third quarter of 2021 was related to the sale of the B2B Back-up business. The loss on the sale of businesses during the nine months ended September 30, 2021was due to the loss on the sale of the B2B Back-up business, partially offset by a gain on the sale of certain Voice assets in the United Kingdomin the first quarter of 2021 with a subsequent adjustment in the second quarter of 2021. See Note 5 - Dispositions from the footnotes to our Condensed Consolidated Financial Statements for additional information. Other income, net. Our other income, net is generated primarily from miscellaneous items and gains or losses on currency exchange. Other income, net was $0.9 millionand $14.9 millionfor the three months ended September 30, 2021and 2020, respectively, $1.4 millionand $16.2 millionfor the nine months ended September 30, 2021and 2020, respectively. Other income, net decreased over prior comparable period due to changes on currency exchange. -38- --------------------------------------------------------------------------------
J2 Cloud Servicesis included in the federal consolidated and state combined income tax returns with the Parent and its other subsidiaries. For purposes of these financial statements, the Company's taxes were determined using the separate return method as if the Company had file separate tax returns. Our effective tax rate is based on pre-tax income, statutory tax rates, tax regulations (including those related to transfer pricing) and different tax rates in the various jurisdictions in which we operate. The tax bases of our assets and liabilities reflect our best estimate of the tax benefits and costs we expect to realize. When necessary, we establish valuation allowances to reduce our deferred tax assets to an amount that will more likely than not be realized. Provision for income taxes amounted to $6.5 millionand $25.4 millionfor the three months ended September 30, 2021and 2020, respectively, $20.3 millionand $49.7 millionfor the nine months ended September 30, 2021and 2020, respectively. Our effective tax rate was 19.3% and 30.1% for the three months ended September 30, 2021and 2020, respectively, and 16.6% and 27.2% for the nine months ended September 30, 2021and 2020,
The decrease in our effective tax rate for the closed quarter
1.a reduction in the tax charge during fiscal year 2021 due to the recognition of a current tax benefit linked to the sale of business-to-business back-up business units; and
2.a reduction in the tax charge due to a discreet tax charge recognized in 2020 related to the sale of the Voice business in
3.an increase in our effective income tax rate during 2021 for
U.S.state and local taxes due to a greater portion of our income being subject to tax in the U.S.
The decrease in our effective tax rate for the nine-month period ended
1.a reduction in the tax charge during the year 2021 due to the recognition of a tax benefit linked to the sale of certain business units; and
2.a decrease in tax expense due to discrete tax benefits related to a reduction in our net reserve for uncertain tax positions with no similar events for the nine months ended
September 30, 2020; partially offset by 3.an increase in our effective income tax rate during 2021 for U.S.state and local taxes due to a greater portion of our income being subject to tax in the U.S.Significant judgment is required in determining our provision for income taxes and in evaluating our tax positions on a worldwide basis. We believe our tax positions, including intercompany transfer pricing policies, are consistent with the tax laws in the jurisdictions in which we conduct our business. Certain of these tax positions have in the past been, and are currently being, challenged, and this may have a significant impact on our effective tax rate if our tax reserves are insufficient.
Liquidity and capital resources
Cash and cash equivalents
September 30, 2021, we had cash and cash equivalents of $297.8 millioncompared to $128.2 millionat December 31, 2020. The increase in cash and cash equivalents resulted primarily from cash provided from operations, the proceeds from the sale of businesses and contributions from J2 Global; partially offset by cash used in business acquisitions and the purchases of property and equipment (including capitalized labor). As of September 30, 2021, cash and cash equivalents held within domestic and foreign jurisdictions were $158.3 millionand $139.5 million, respectively. -39- -------------------------------------------------------------------------------- On October 7, 2020, the Parent issued $750 millionaggregate principal amount of 4.625% Senior Notes due 2030. A portion of the proceeds were used to fund the redemption of the outstanding aggregate principal amount of the 6.0% Senior Notes due 2025 previously issued by J2 Cloud Services, LLCand to pay the redemption premium due in respect of such redemption and accrued and unpaid interest. The Parent used the remainder of the net proceeds for general corporate purposes including acquisitions.
Liquidity and capital resources after the demerger
Subsequent to the separation and distribution, Consensus will no longer participate in the corporate-wide cash management arrangements with J2 Global. Consensus's ability to fund its operations and capital needs depends upon its ability to generate ongoing cash from operations and to access the capital markets. In connection with the planned separation and distribution, Consensus issued
$305 millionof 6.0% senior notes due 2026 (the "2026 notes") and $500 millionof 6.5% senior notes due 2028 (the "2028 notes" and, together with the 2026 notes, the "notes"). Consensus distributed $269.6 millionof the net proceeds from the offering of the 2026 notes to J2 Global in connection with the separation. Consensus agreed to issue the 2028 notes to J2 Global, which agreed to exchange the 2028 notes with lenders under its credit agreement (or their affiliates) in exchange for extinguishment of a similar amount indebtedness under such credit agreement. The 2026 notes mature on October 15, 2026and the 2028 notes will mature on October 15, 2028. The notes require us to pay interest semi-annually in cash in arrears on April 15and October 15, commencing April 15, 2022. The notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of Consensus's existing and future domestic restricted subsidiaries other than insignificant subsidiaries or subsidiaries designated as unrestricted subsidiaries pursuant to the terms of the notes. The notes and the related guarantees will be Consensus's and the guarantors' general unsecured senior obligations and will be subordinated to any of Consensus's and the guarantors' future secured debt to the extent of the assets securing that secured debt. In addition, the notes will be structurally subordinated to all of the liabilities of Consensus subsidiaries that are not guaranteeing the notes, to the extent of the assets of those subsidiaries. The 2026 notes will be redeemable on or after October 15, 2023at a redemption price of 103.000% for the 12 month period commencing October 15, 2023, 101.500% for the 12 month period commencing October 15, 2024and 100.000% for the 12 month period commencing October 15, 2025. In addition, Consensus may redeem (i) up to 40% of the 2026 notes before October 15, 2023with the net cash proceeds from certain equity offerings at the redemption price that will be specified for such notes or (ii) some or all of the 2026 notes at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, to the redemption date, plus an applicable "make-whole" premium. The 2028 notes will be redeemable on or after October 15, 2026at a redemption price of 101.625% for the 12 month period commencing October 15, 2026and 100.000% for the 12 month period commencing October 15, 2027. The terms of the notes restrict, subject to qualifications and exceptions, Consensus's ability and the ability of certain of its subsidiaries to incur additional indebtedness, create liens, engage in sale-leaseback transactions, pay dividends or make distributions in respect of capital stock, purchase or redeem capital stock, make investments, repay subordinated indebtedness or certain other restricted payments, sell assets, permit restrictions on the ability of its restricted subsidiaries to pay dividends or make other payments or transfers to Consensus, enter into transactions with affiliates; or effect a consolidation or merger. Upon a change of control, as defined in the notes, Consensus will be required to make an offer to purchase the notes. The purchase price will equal 101% of the principal amount of the notes on the date of purchase plus accrued and unpaid interest. Consensus believes that its financing arrangements, future cash from operations and access to capital markets will provide adequate resources to fund our future cash flow needs. -40- --------------------------------------------------------------------------------
Our primary sources of liquidity are cash flows generated from operations, together with cash and cash equivalents. Net cash provided by operating activities was
$196.4 millionand $160.3 millionfor the nine months ended September 30, 2021and 2020, respectively. Our operating cash flows resulted primarily from cash received from our customers offset by cash payments we made to third parties for their services and employee compensation. The increase in our net cash provided by operating activities in 2021 compared to 2020 was attributable to additional income after considering noncash items; partially offset by cash outflows associated with prepaid expenses, operating lease liabilities, accounts payable and accrued expenses, higher income tax payments and cash outflows associated with uncertain tax positions. Our cash and cash equivalents were $297.8 millionand $128.2 millionat September 30, 2021and December 31, 2020, respectively. Net cash used in investing activities was $37.8 millionand $29.3 millionfor the nine months ended September 30, 2021and 2020, respectively. For the nine months ended September 30, 2021and 2020, net cash used in investing activities was primarily due to business acquisitions and capital expenditures associated with the purchase of property and equipment (including capitalized labor); partially offset by proceeds from the sale of businesses. The increase in our net cash used in investing activities in 2021 compared to 2020 was primarily due to additional cash used for business acquisitions; partially offset by proceeds from the sale of businesses. Net cash provided by (used in) financing activities was $14.4 millionand $(83.7) millionfor the nine months ended September 30, 2021and 2020, respectively. For the nine months ended September 30, 2021, net cash provided by financing activities was primarily due to contributions from Parent; partially offset by deferred payments for acquisitions. The change in net cash provided by financing activities in 2021 compared to 2020 was primarily attributable to a change in the distribution to Parent.
Obligations and contractual commitments
The following table summarizes our contractual obligations and commitments at
Payment Due by Period (in thousands) Contractual Obligations 2021 2022 2023 2024 2025 Thereafter Total Operating leases (a)
$ 2,137 $ 7,501 $ 6,163 $ 5,746 $ 5,538 $ 28,877 $ 55,962Telecom services and co-location facilities (b) 708 1,712 456 42 - - 2,918 Holdback payment (c) 3,369 11,113 - - - - 14,482 Self-Insurance (d) 5,860 1,527 - - - - 7,387 Other (e) 210 420 - - - - 630 Total $ 12,284 $ 22,273 $ 6,619 $ 5,788 $ 5,538 $ 28,877 $ 81,379(a)These amounts represent undiscounted future minimum rental commitments under noncancellable operating leases. (b)These amounts represent service commitments to various telecommunication providers. (c)These amounts represent the holdback amounts in connection with certain business acquisitions. (d)These amounts represent health and dental insurance plans in connection to self-insurance. (e)These amounts represent certain consulting and Board of Directors fee arrangements. As of September 30, 2021, our liability for uncertain tax positions was $50.9 million. The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with the taxing authorities. We have not presented contingent consideration associated with acquisitions in the table above due to the uncertainty of the amounts and the timing of cash settlements.
Off-balance sheet provisions
We are not a party to any material off-balance sheet arrangements.
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