Q1 2022 EverCommerce Inc Earnings Call
Thank you for standing by and welcome to ever Commerce as fiscal year 2022 first quarter earnings call. My name is Josh and I will be your operator for today at this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during this session.
Need to press Star one on your telephone as a reminder, this conference call is being recorded today Monday May nine 2022, if you require any further assistance. Please press star Zero I would now like to turn the conference over to Brad course, SVP and head of Investor Relations for avid Commerce. Please go ahead.
Good afternoon, and thank you for joining today's call will be led by Eric Reamer ever Commerce, as Chairman and Chief Executive Officer, and Mark Thompson ever Commerce, as Chief Financial Officer.
Joining them for the Q&A portion of the call is ever Commerce as President Matt Fireside.
This call is being webcast with a slide presentation that reviews, the key financial and operating results for the three months ended March 31 2022.
For a link to the live or replay webcast. Please visit the Investor Relations section of the ever Commerce website, www dot ever Commerce Dot com.
The slide presentation and earnings release are also directly available on the site.
Please turn to page two of our earnings call presentation, While I review, our Safe Harbor statement statements made on this call and contained in the earnings materials available on our website that are not historical in nature may constitute forward looking statements such statements are based on the current expectations and beliefs of management.
Actual results may differ materially from these forward looking statements due to risks and uncertainties that are described in more detail in our filings with the SEC we undertake.
Make no obligation to publicly update or revise these forward looking statements except as required by law.
We will also refer to certain non-GAAP financial measures to provide additional information to you our investors a reconciliation of non-GAAP to GAAP historical measures is provided in both our earnings press release and our earnings call presentation I.
I will now turn the presentation over to our CEO Eric Reamer.
Thank you Brad ever Commerce as first quarter results were very strong reported revenue and adjusted EBITDA results exceeded the top end of the guidance ranges.
We also maintained pro forma organic growth above the high end of our 15% to 20% range and continue to generate healthy cash flow.
These results are underpinned by our massive opportunity to drive Digitization of the service economy.
We're just still in the early innings and provides us a strong tailwind to fuel growth for years to come.
On today's call I will highlight our first quarter results reiterate our investment thesis and discuss our key customer trends and metrics before turning the call over to Marc to dive deeper into our financials.
Last quarter, we highlight our long term strategy of balancing growth with profitability.
<unk> first quarter 'twenty two results exemplify this.
You can see the top end of our guidance ranges for both revenue and adjusted EBITDA in our reported revenue growth was 37%.
Normalizing for M&A pro forma organic revenue growth exceeded 20%.
Adjusted EBITDA margin was 60%.
<unk> first quarter and includes front end loaded investments and scalable operations and public company infrastructure as well as the headwind from our Doctor Chrono acquisition, which is still transitioning to proper operations. This year.
Our customer metrics accelerated in the quarter as well total payment volume or CTV grew 26% year over year annualized.
Annualized net revenue retention expanded to above 100%.
As a quick reminder, ever Commerce provides taylor end to end SaaS solutions that support the highly diverse workflows and customer interactions that professionals and home services health services, and fitness and wellness services used to automate manual processes generate new business and create more loyal customers.
Ever Commerce is leading the digital transformation of the service economy with a mission to simplifying our power the lives of business owners, who services support us everyday.
Ever commerce generates over half a billion dollars in annual revenue further were among the elite group of growth focused software companies the balanced durable growth sustainable profitability.
However, commerce offers tremendous value to our customers by providing solutions tailored to the unique workflows and interactions to various services require.
Plumber pediatrician to yoga instructor the way in which each of our customer generates new business.
Phil Services managed day to day operations and engage with their customers is unique.
Our software solutions not only provide the system of action necessary to run their daily business operations, but also the marketing solutions to attract new business.
Billing and payment solutions to collect effortlessly.
Customer experience solutions to create predictable convenient experiences.
Our solutions are cost effective easy to implement and purpose built for service businesses with.
We truly provide end to end solutions that our customers need to compete and grow in a marketplace that is rapidly transforming.
I can't emphasize enough the magnitude of our market opportunity.
Service based businesses are the backbone of the U S economy accounting for 77% of the U S. GDP.
And small businesses deploy the majority of service professionals within North America at 31 million small and medium sized businesses and their needs equate to $520 billion total addressable market and we penetrated less than 1%.
Globally, our Tam expands to one three trillion.
We penetrated less than 1% of that.
Our focus today is on three main verticals, but your home services health services fitness and wellness services.
<unk> market for the software and service ever Commerce provides within these verticals today is over $160 billion just in North America.
Many service based small businesses still operate in a low tech world on paper pen phone calls and maybe excel and the Digitization of the service economy is propelling. These business owners, just search for a better way to operate and grow and ever commerce solutions enable them to accelerate their digital transformation.
We continue to grow our very large diversified base of over 600000 customers.
These customers are spread across three main brands, but within each of these brands are several distinct customer segments.
The size nature and diversity of our customer base provides us tremendous organic growth opportunity for upsell and cross sell while also proving resilient as our customers are focused on providing services many of them are essential not goods.
In any economic downturn consumers will still need to fix the air conditioning plumbing leaks go to the doctor and get their haircut.
Our solutions help our customers optimize their business and operate in a more efficient manner.
Spectrum of their end customer behavior.
This provides continued demand for our solutions, which is underscored by the strength of our solutions value proposition and attractive pricing.
We also believe that the SMB service market as a super attractive customer base to serve.
Talk about the diversity ensure quantity of the more than 600000 customers, which eliminates any concentration considerations.
And if you look briefly at the chart on Slide nine you will get a glimpse of our customer journey and attractive customer acquisition and retention economics.
Our customer acquisition costs are low because approximately 85% of our customers are sourced and onboard and then digital self service manner.
No acquisition cost help us drive our high LTV to CAC ratio.
As customers use our software and ultimately take additional products such as embedded payments, our customer retention increases as well.
Company average annualized net revenue retention is over 100% but is.
Customers mature and our increases for customers that have been with ever commerce longer than one year NR improves greater than 200 basis points.
As I've mentioned, a few times, we have a very large base of diverse customers. We ended 2021 with approximately 617000 customers and that number continues to grow.
One of the powerful levers in our business model is the massive embedded opportunity to provide additional integrated solutions into a vertical software systems of action facility.
Facilitating upsell and cross sell with our customers.
We measure the success of this expansion by looking at the growth in the number of customers that are taking more than one solution.
We ended the quarter with more than 60000 of our customers using more than one solution and nearly 40% increase year over year.
While the increase is impressive with less than 10% of our customers taking more than one solution a runway for continued growth through upsell and cross sell is law.
Our most mature upsell cross sell motion is with our integrated billing and payment solutions.
Facilitating a frictionless payment process is mission critical for any small business.
Consumers have come to expect payment for products or services to be digital easy to use mobile friendly and secure.
For business owners, a seamless payments process means higher conversion rates better efficiency accelerated cash receipts and increased revenue.
Ever Commerce payment solutions provide an intuitive front end experience for consumers and is tightly embedded within our various software applications.
Increasingly we see customers embracing this powerful combination.
We ended the quarter with an annualized total payment value or TPB, approximately $9 5 billion, which represents 26% year over year growth.
Customers, who embed payments not only yield higher <unk> revenue, but also improves retention highlight.
Highlighting just one solution salons is a software focused on Kalana spas, we can illustrate this outcome with tangible results.
<unk> customers that are better payment solutions generate approximately three times higher <unk> than customers, who don't have bad payments.
<unk> payments customers also have higher revenue retention.
Our up sell cross sell strategy is both simple improvement we will continue.
To prioritize the integration and revenue expansion of our payments and adjacent marketing and customer experience solutions across our entire solution set.
Finally, I would like to highlight once again, our key priorities for 2022.
We'll continue to invest in building trust and awareness of our ever brands in their respective verticals and to scale, our marketing sales and customer success engine to maintain at least a 15% to 20% organic growth for vascepa future.
We will invest in product development and build optimized solutions to support new feature launches to maintain market competitiveness.
Advance, our scalable operation initiatives, including systems, and organizational consolidation to drive increased operating leverage over time.
We plan to selectively utilize M&A to expand capabilities and penetrate target market segments as you augment organic growth engine.
Before I turn the call over to Mark to discuss our financial results in more detail I'd like to quickly highlight some leadership changes in the company.
I am pleased to announce that last week, we welcome change records to the <unk> team as our chief Human Resources Officer.
<unk> is a proven leader with a track record of thoughtful action in advance and people and culture initiatives forward Hubert.
He will be responsible for all aspects of our global employee experience that ever commerce and joins US most recently from service now.
In addition, our chief operating officer at <unk> will be leaving the company in a couple of weeks to pursue another opportunity.
I'd like to thank Don for his work over the past year.
As far as seeing ever Commerce, as President will reassume sounds duties and direct reports most of what's reported to Matt for many years prior to stone.
Now I'll pass it over to Mark.
Thanks, Eric Today, I'll review, our first quarter of fiscal 2022 results in detail provide our outlook for the second quarter and also update our full year fiscal 2022 guidance is.
As Eric noted our first quarter results were quite strong having exceeded the high end of our guidance range for both revenue and adjusted EBITDA.
Total revenue in the quarter was $143 6 million up 37% from the prior year period and above the high end of our original guidance within total revenue subscription and transaction fees were $108 million up 44% from the prior year period, and marketing technology solutions were $29 nine.
Million up 18% from the prior year period.
Manage the business for sustainable organic growth and selectively utilize strategic acquisitions to augment this growth.
As a result, we believe it's important for investors to evaluate our business growth on a pro forma basis, which is how we manage and measure the business internally.
We calculate our pro forma revenue growth, although all acquisitions closed as of the end of the latest period, we closed as of the first day of the prior year period, including before the time, we completed the acquisition. We believe the pro forma growth rate provides the best insight into the underlying growth dynamics of our business.
We're very pleased that our pro forma growth rate exceeded 20% year over year in the first quarter and we experienced good growth across all three of our core verticals.
Consistent with our discussion last quarter, we drove this growth while maintaining solid profitability.
First quarter, adjusted EBITDA was $23 million, representing a 16% margin.
This is above the high end of our Q1 guidance, having grown adjusted EBITDA, 8% year over year.
The year over year and sequential change in adjusted EBITDA margin.
Elective of our investments in growth and scalable operations the impact of public company costs and expected dilution from the Doctor Chrono acquisition.
Adjusted gross profit in the quarter was $92 8 million, representing an adjusted gross margin of 64, 7% slightly lower than Q1, 'twenty one primarily due to the mix of revenue is that the photo which includes both SaaS software and lower margin revenue cycle management solutions as well.
As the mix of our solutions and marketing technology.
Now turning to operating expenses adjusted sales and marketing expenses were $28 9 million or 21% of revenue up from 18, 2% of revenue in the prior year period.
This increase was primarily driven by continued investments in growth through our various marketing channels and personnel.
Adjusted product development costs were $17 2 million or 12% of revenue up from nine 8% of revenue in the prior year period. This increase reflects investments in our technology teams and development programs to support growth of our various solutions as well as centralized security operations information technology and cloud engineering.
Adjusted G&A expense was $23 7 million was 16, 6% of revenue decreasing from 17, 7% of revenue in the prior year period, Despite significant investments in our centralized operating model and in our public company infrastructure.
Centralized operating model aggregates many of the functions of our various operating units of headquarters, including most G&A functions and we believe is a key component of driving operating leverage over time.
We continue to generate significant free cash flow as we invest in and grow our business last quarter. We introduced two cash flow metrics levered free cash flow and adjusted Unlevered free cash flow reconciliations of which are in the appendix of our earnings presentation.
Adjusted Unlevered free cash flow for the quarter was $14 9 million, representing 9% year over year growth and a 10, 4% margin on a trailing 12 month basis, our adjusted Unlevered free cash flow was $78 $5 million.
Levered free cash flow, which accounts not only for debt service, but also various working capital adjustments was $8 5 million in the quarter.
On a trailing 12 month basis, Levered free cash flow of $39 6 million illustrates both the deleveraging potential of the business and the incremental cash available to self fund future M&A activity.
The resiliency of our business and generation of strong free cash flow allows us to operate our business with an optimal capital structure that includes modest levels of leverage underscoring the flexibility of our capital structure attributable to the strength of our operation our adjusted Unlevered free cash flow is approximately three five times.
Our annual interest expense, we ended the quarter with $101 million in cash and cash equivalents and we maintain a $190 million of undrawn capacity on our revolver.
Total net leverage as calculated per our credit facility at the end of the quarter was approximately three seven times consistent with our financial policy, we have no material maturities until 2028.
Most importantly comfortably operating our business with leverage enables us to deliver enhanced equity returns to our shareholders.
I'd like to finish by providing our outlook beginning with the second quarter.
But due to revenue, we expect total revenue of $152 million to $154 million and we expect adjusted EBITDA of $28 million to $29 million.
For the full year fiscal 2022, we are raising our revenue expectations based on the solid first quarter results. We now expect total revenue was 623 $629 million, an increase of $4 million at the midpoint compared to prior guidance. We're also raising our 2022 adjusted EBITDA guidance to 100.
22, five to $124 5 million, reflecting both the first quarter our performance, but also the fact that we will continue to invest in our business to drive growth and scalability of our operations.
As we said on our last call. Many of these investments are front end loaded and we expect margin to accelerate throughout the year.
2022 outlook does not include any potential impact of M&A activity that could take place in the year.
In summary, we're very.
We're pleased with ever Commerce's first quarter performance not only were we able to exceed our guidance range is once again, but we were able to do so profitably and with significant cash flow generation. We believe ever commerce is well positioned to be a primary beneficiary of the digital transformation that is just getting underway amongst service Smbs are focus is continuing to exit.
<unk> strategic priorities and deliver consistent profitable growth that we believe can generate significant value for our shareholders.
Operator, we're now ready to begin the question and answer section of the call.
As a reminder, it sounds Jay question, you will need to press star one on your telephone.
John Your question first of all Keith.
Our first question comes from Matt Hedberg with RBC Capital You May proceed with your question.
Hey, guys. Thanks for taking my questions. Congrats on the results maybe Eric for you.
A lot of questions, obviously about the macro environment and you wouldn't necessarily see it in your results your guidance, but just could you talk a little bit more about sort of your broad view of the health of the service economy.
And maybe as we stand now and your thoughts for the rest of the year.
Yes.
Matt I appreciate the question.
I think mark touched upon a little bit if you think about.
The service economy, specifically the service aspect of that call. It service economy. So services can be goods or services to E. Commerce, we put in that category and the service aspect, especially the categories that we focus on which is really our kind of our tight view of the world.
We see continued growth specifically in that home service category Health services really non cyclical categories that we focus on that we focused on for several years, we have not seen any pushback to date and.
As mentioned its not in our Q2 guidance.
We expect specifically with the diversity to the customers, we have and the categories that we cover we don't.
See any.
Headwind against those core categories for the rest of the year.
That's great. Thank you for that Eric and then maybe as a follow up thanks for the.
Comment on the $9 5 billion of TPP.
And we've always thought that the huge opportunity to sell payments back into the base.
Another way to kind of think about how penetrated it is and your overall customer base today, maybe within those three verticals, even but just a little bit more granularity on sort of how.
How early we are in the cusp.
The penetration in your base.
Yes.
Thanks for the question Matt.
You've heard this before and I still think.
We feel like we're really in the early innings of the opportunity. When you look at our system of action software customer basis on average that's about we have about 34% adoption, but when you look at how we project out the overall ptv.
We've got a nice we got about annualized nine $5 billion that we just said in Q1, we look at that opportunity is north of $80 billion. So from a volume standpoint, the penetration really lacks that customer adoption and that's just all about continuing to drive those customers who have.
Integrated payments to further use the workflows that we've created to create incremental workflows that drive more of their wallet share. So again still really early to very very mid innings, there lot of opportunity and runway left.
Great to hear yes, super exciting for that opportunity into that into that sort of that $80 billion bigger opportunity. Thanks, a lot guys well done.
Thanks, Matt.
Thank you. Our next question comes from Ryan Macwilliams with Barclays. You May proceed with your question.
Hey, guys. Thanks for taking the question so.
2000 customers now utilizing more than once to loosen things up a strong step up versus the 55000 last quarter.
Any particular product changes or.
Do you see yourselves notion that contribute to this growth in multi product customers in the quarter.
Yes, it's a great question Ryan. Thanks again this is Matt.
Again, I think you hit on one part we continue to think about optimizing our marketing and sales motion and really that product packaging to drive the new adoption of those embedded solutions, whether that's payments, obviously, where we've had the most material success or customer experience solutions, where we are we're following along quite nicely and then it's really just deepening the integration into those system.
Action software's, those workflow capabilities, whether they be payments or customer experience solutions to further we can deepen those integrations into the system of action business management solutions that better uptake that with that we're going to get so it's really the combination of those two factors driving it.
I appreciate that and then just how is Dr. Chrono performing versus your expectations from a revenue perspective at this point like lumpy here about how it contributed in the quarter and just on the modeling gross margin side I guess, how should we think about ever commerce moving past. Some of these front end loaded costs just as we think about the rest of this.
Year.
Yes, Thanks, Ron I'll take the first one on the Mark will kind of finish up on the second one.
Dr. Kronos is operating at plan.
Right right, along where we expect it to be and we're kind of continue to be excited about the prospects for growth of that business.
So I think Brian in answer to your second question I think your next question was around gross margin or was it EBITDA margin.
That's correct.
Okay. So gross margin.
You said that Theyre actually Dr. Ricardo is the primary contributor to that their mix of revenue is more skewed towards RCM.
That does affect the overall gross margin as you know the RCM solutions are a little lower gross margin than the SaaS solutions. So that's that's the big culprit in the change in gross margin.
Okay.
Thank you. Our next question comes from Kirk <unk> with Evercore you May proceed with your question.
Yes, thanks, very much Eric is where do you just talk about your go to market motion does anything change for you or do you sort of.
Change I guess the products you might be sort of strategizing around our sort of pushing out in a different way. If we go into a recession meeting you or the customer served marketing technologies become something you push harder than payments I was just kind of curious as you guys see this economic environment is there anything that changes on the go to market side.
No.
It's really acceleration of business as usual I'll start I'll, let Mac kind of chime in.
Alright, let off but.
If you think about the business, we say this several times, but 85% of our new customer acquisition itself centered so it's online marketing people are self serving on the by the self serving on board and their self started serving utilizing the solution.
We've gotten really good at kind of getting in front of customers when they're looking for a solution. The biggest thing that Matt touched upon earlier is the motion that we've kind of like really been pushing is embedding more of those solutions as part of that process.
Sell cross sell motion becomes more of a natural process for the customers that have already taken the product that is that is kind of our current workflows as we're sitting here today, and that's going to be accentuated and accelerated over the coming years and so the any type of recessionary.
Macroeconomic won't really pushed pushed back against that if anything will accelerate more of that because you get more embedded solution, the more utilization and more utilization of <unk> and the higher the retention.
The only thing I would add to that Kirk is really when you think of it from a product standpoint, we really do think of that core system of action as the entry way that is where we will embed those those horizontal solutions to amplify and create more end to end workflows, but when you think about from a.
Efficiency standpoint, all of the efficiency from a customer standpoint, which is so necessary specifically during recessionary times is really driven through that core system of action, we'll take customers. However, we're going to meet them, where however, they come to us so they come to us for marketing technology, we'll take them, but we truly think the tip of the spirit is still absolutely.
The core system of action business management software.
That's really helpful and then I assume it might be a little bit early but Eric or Mark I was wondering if anything has changed on sort of the discussions on pricing around M&A targets for you. All obviously valuations are coming under some pressure and I assume the private market will be feeling that.
Soon if not already and I was just kind of curious if that changes sort of your M&A.
Pipeline or anything has changed on that front for you all in terms of more opportunities maybe coming faster.
Yes, it's a great question and as you kind of discussed last quarter I mean part of where we are today, we're in a position where with our.
Another company our focus is continue to grow at that 15% to 20% range organically for years to come and it provides us the ability to be very disciplined and making sure. The M&A opportunities that we want to execute on are going to be accretive to the business and we still think today. Although there is a very large pipeline of opportunities that we're tracking there is still a little bit of a disconnect between the public.
In private markets.
To your point I think we will we will start seeing the private markets.
Hopefully be coming in a little bit and provide more opportunity, but in the current moment. We think the dislocation of prices. There is still a little bit larger we're going to remain disciplined looking for opportunities that we think are accretive to the business.
Thank you all.
Thank you. Our next question comes from Robyn <unk> with Deutsche.
Thank you you May proceed with your question.
Great. Thanks for taking my question and congrats on the quarter, you guys talked about payments being one of the key drivers.
Number of customers that have more than one solution, but how quickly can we get maybe a payments first our marketing for customer to perhaps be up sold into the core business management solution and how do we think about that opportunity.
And obviously with the size of our customer base and the number of customers that we have across marketing technology and customer experience, obviously that is exciting to us the ability to.
Cross sell that system of action, obviously from a displacement standpoint that is the place where they may already have something and we're surrounding it with one of those ancillary products against.
We are we purpose built our solutions integrated with payments integrated with customer experience. So that we think that is.
Highly competitive in the market and a real opportunity. The switching cost is just different than those so it is harder youre right to say that but it's a real opportunity and thats an opportunity that our that our teams are chasing all the time and our core vertical.
This management solutions, it's important to note, though is we talk about some of the opportunity all of the kind of numbers that we share our from that system of action outwards and so although you bring up a really good point, there's clearly opportunity to up sell the payment and the marketing the marketing and the customer experience into the core system of action and we do that that happens.
On a daily basis, but because the system of action integrated to the other solutions is really core to our kind of workflows that is kind of the numbers, we give in terms of the opportunity.
Got it that's helpful and just as a follow up and if off to that first question. Just in terms of the payment kind of adoption and penetration that you spoke about the 34% customer adoption and the volume opportunity in north of $80 billion, but how do we think about maybe are helping us size the opportunity.
Customers that aren't using digital payment solutions right now, whether it's from yourself or one of your peers just to understand how much low hanging fruit there for you guys.
It's a great question.
We have tracked us over time, obviously coming from paid simple.
And in our time, there inertia really of the change from a lot of manual processes, what's still what a lot of folks were doing so.
Likely not using our full suite digital solution they may be using an old hand.
Block.
Just swipe terminal in their space. So there are plenty of customers that still have what might be kind of called early digital but it's not kind of late digital adoption of a true software solution with embedded payment. So we see a lot of opportunity to bring payments into our Q.
To attract customers for payments through our business management solutions with embedded payments where today they are using.
Maybe some old terminal.
Again, it works for their needs, but is not fully integrated into our business management solutions. So the opportunity is absolutely still there and pretty large we think and just to add to that point.
Typically if you think about that customer utilizing that system of action for them to use a payment solution outside of the system of action. It's almost always the two step process. So there is.
There is more and more reasons as we embed tighter into the system of action for them to continue that workflow and accept within our payment ecosystem.
Got it thanks again for taking my questions and congrats.
Thank you. Our next question comes from some months a model with Jefferies. You May proceed with your question.
Hey, guys. This is Jeremy Taylor on for some odd.
So first question its good to see that strong net retention I guess to double click on that a little bit are you seeing any any particular strengths some specific verticals or maybe specific customer sizes that are contributing to that.
Yes. This is.
This is Matt. Thanks for the question really we have seen nice gains across the board I would not tell you that it's in any one specific vertical cut.
Customers that grow with us so.
And that could be customers of any size are obviously the ones that are driving that MLR up into the right in the direction that we wanted to that could be the consumption of the upsell consumption of more of the features that they're already using or it could be the adding of a second or a third product through through our cross sell motion. So we're not really seeing that.
Any specific segment, we're actually seeing it across all of the segments.
Got you that's great and then I guess, a similar train of thought can.
Can you provide an update on maybe the kind of mix.
The three verticals I know last quarter ever pro was 60% of our revenue, but maybe I don't know if there's been any change there.
Well theres going to be a little bit of a shift between.
The three verticals just because we had our first full quarter of.
Dr Krone, which is a bit of a chunk of your assets. So that will uptick our health services, a little bit and the others would fall sort of buy the same ratio.
Got it okay. That's helpful. Thank you guys.
Thank you. Our next question comes from David Hynes with Canaccord Genuity you May proceed with your question.
Hey, this is Luke on for Vijay Thanks for taking the question.
So great to hear Youre seeing healthy end markets, but given sort of the growing economic deterioration can you just help us think about the durability of the business in a recession.
What we saw what happened in the early days with Covid, but.
How might things different in a more normal recession or otherwise.
We think about sort of the resilience of your business in spite of that SMB exposure that you guys up.
I know, it's a great question I appreciate that and if you think about the categories that we serve.
Specifically most of the categories server, we're kind of deemed essential services within COVID-19 in their essential services in terms of customers and people utilize them. So the biggest difference between what we're serving and the SMB versus some other companies were focused specifically on that service customer versus anyone selling.
Other type of goods, so break down the categories. The largest category of home services, it's primarily break and fix it.
The plumber.
HVAC electrical and things like that we believe that'll be non cyclical and not very much affected and it wasn't affected during COVID-19, nor do we expect much pushback on recession and the second largest vertical at mark touched upon that has grown since our Dr. Chrono is health services and Thats people go on the Doctor and that again non cyclical doesn't really change much.
During recessionary period, and then much smaller category, which is our health and wellness, which is less than 40% of the businesses and people are going to get the haircuts during a recession.
Fitness studios, we serve are primarily the smaller one.
People are paying $10 a month, so we feel pretty insulated insulated as it could possibly be with over 600000 customers in multiple vertical and many different sub verticals I think were positioned as we could possibly be to withstand whatever comes their way.
That's great to hear and then maybe just.
Digging in on each of your core verticals can you just sort of speak to the help you're seeing across each of those three end markets.
And then maybe remind us of any seasonality, we might see across those business units.
Over the course of the year.
So from a I mean.
Really the story hasn't changed from Q4 into Q1 in terms of health of each of the three verticals.
The home services vertical remains healthy as does.
The ever health.
Vertical market as well and then well if theres a place just given our geographic.
<unk>.
No.
Geography of solutions in that particular category, which has been.
Affected through 'twenty, one a little bit from the pandemic with within that particular vertical I mean that would be the only one that is doing well and certainly growing within the rates that we expect to grow so.
But it's probably lagging the other two I think.
What was your second question. If you just go back to the second part of your question.
Okay.
The seasonality of the <unk> season.
So seasonality continues to be the same right two and three are the big seasons for us given our exposure to home services as we just talked about while that's not as not as high this quarter, just because we have a full quarter of operations with Dr. Ricardo It still is over 50%.
You will see a seasonal bump in the business in two and three quarters four and what are seasonally lower in what is probably the seasonal levels.
Great. Thank you.
Thank you. Our next question comes from Brad Reback with Stifel.
Equally may proceed with your question.
Great. Thanks, very much Eric obviously, a lot of questions today around the economy as you track your business what type of metrics, where you keep an eye on that would cause you to slow down investment be it people <unk> marketing.
Thanks, Matt for the question. It's a great question again, we have the benefit again not only of the scale of the customers. We are serving but because of a great digitally focused we see real time kind of response rates on our campaigns that are happening across as you can imagine many many sub vertical in many kind of long tail.
Scenarios, so we get to see based upon that response rates based upon the workflows that happens when somebody respond. That's the first trigger that we'll be able to see secondly, again, we watch from Onboarding to attrition or are we getting the uptick any type of early retraction that cohort that joined us in any particular month.
That we're tracking are trading at a higher rate or a quicker rate than in previous cohorts and so because of the again the scale of the customers that we see literally daily basis, the marketing campaigns, we run and the Onboarding of new customers, we were able to get really kind of real time views of what's going on and if there is a reason to kind of pull back.
<unk>.
Refocus dollars, whether that is in new categories new.
<unk> engines were just to pull it back in general we will be able to kind of fluctuate that relatively correct. If I can add to that.
Yes, there are ultimate some indicators within our marketing technology solutions that we sell from a lead Gen perspective, we do get to see and witness consumer behavior from a buying standpoint. So those are also other early indicators that we do look at along with the <unk> indicators that Eric was talking about.
That will give us that insight and view and understanding of what's going on in the economy.
That's great thanks very much.
Thanks, Brad.
Thank you. Our next question comes from Alex.
Raymond James You May proceed with your question.
Thanks, Mark can you talk about pricing as a lever for growth just given the inflationary backdrop. How your contracts are structured in terms of annual escalators and any change based on your kind of renewal activity in Q1.
No no change.
It's a great question, Brian So I appreciate that I think we.
Through all of our solutions are always looking at pricing price to value appropriate escalators most of our contracts actually don't have auto escalators and some do but the majority do not so it's sort of at our discretion and certainly we think about that not just from an inflationary.
Environment and that's something obviously, we continue to watch as we go through the year, but also something frankly, we really think much more around the value prop the competitive market et cetera. Those are probably drivers we pay attention to a little bit more closely.
So, but overall philosophy has not changed as of yet and we will continue to evaluate through the year obviously.
It's a lever.
That's not been a lever that's been.
At all the primary driver of our growth historically.
Got it Okay, and I don't know who wants to take this one but just wanted to ask on kind of the linearity of sales activity. This year you had a lot of momentum exiting 2021, <unk> kind of expanded in the quarter.
Omicron headwinds theres been some inflationary pressures has there been any change in kind of monthly activity January to April .
Specifically to sales activity on our side.
Yes, that's right.
Not that we've witnessed we actually add.
A nice strong quarter from a bookings standpoint, where that was across the board across our various vertical so no we did not see.
Change in linear impact from January to April . It was Q1 was a good solid quarter for us.
Okay, great. Thank you.
Thank you and as a reminder to ask a question you will need to press star one on your telephone. Our next question comes from Clarke Jeffries with Piper Sandler You May proceed with your question.
Hello, and thank you for taking the question.
Wanted to follow up on that last question certainly the star of the show this quarter seems to be the cross selling upsell effort with multi product in payments, but I think getting at the heart of several of these questions on the macro side I guess qualitatively how did customer acquisition.
Gross add level, there in the quarter and looking into April .
Gross ads in line or better than your expectations for the business.
That's great question Clarke I appreciate it.
From an expectation standpoint, the new customer acquisition engine is working well, it's always been highly scalable highly efficient.
As you know digital is a core channel a lot of that digital acquisition converts into self serve we're excited and positive about the Q1 results. It was where we wanted to be from a plant perspective as I just spoke to from the bookings were.
A very good solid quarter from a new bookings standpoint.
Great and then as we think about the 2022 investment plan.
In terms of your international exposure, how are you contemplating funding are fueling.
The business that's residing internationally today are you seeing any differences in the demand environment between international and the U S.
Part of the business.
No.
No we're not really seeing any difference I mean international again, Dr. Kronos being a little bit chunkier that actually brings our international down as a percent of overall revenue, but look we see great opportunities in our international solution organizations, and we're continuing to invest in them.
As per plan nothing is.
Obviously, it's a time when the macro environment is sort of the big.
Elephant in the room, but I think as you've heard a number of different ways, we haven't seen that effect and feel good about the way we ended the quarter and how that positions us for the year.
Going forward and it's also important to note or international exposure is primarily in <unk>.
Canada.
Australia, New Zealand and a little bit in UK, we have very little overall.
General Europe exposure.
Okay. Thank you.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Eric for closing remarks.
I appreciate that it was really a great start to the year.
Really great quarter for ever Commerce, as we've said several times, we want to be elite growth SaaS company is balancing both growth and profitability. The collective team is executing at a very high level. We remain extremely excited about the growth of the business as we continue to be the digitization of the service economy appreciated when joining today and thank you so much.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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