Q1 2022 EngageSmart Inc Earnings Call

Good morning, and thank you for attending today's engage smart first quarter 2022 earnings call. My name is Emma and I'll be your moderator today, all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.

I'll now turn the call over to Josh Smith with Deutsche Bank Josh.

Thank you and good morning with me on today's call are Bob Bennett, Chief Executive Officer, and Cassandra Hudson Chief Financial Officer.

Our earnings press release supplemental presentation and associated form 8-K can be found at investors got engaged smart dot com.

During this call we will be discussing certain forward looking information.

Actual results could differ materially from those contemplated by these forward looking statements.

Please refer to the risk factors section of our annual report on Form 10-K, and other SEC filings for more information on the risks regarding these forward looking statements and risk factors associated with our business.

On this call, we will discuss certain non-GAAP metrics, including adjusted EBITDA, a reconciliation of non-GAAP metrics to the nearest GAAP metric as well as statements regarding why management believes these measures provide useful information can be found in our earnings press release and supplemental presentation, both of which are available on the Investor Relations.

Section of our website.

This call is being webcast live and will be available for replay on our website at investors got engaged smart dot com I would now like to turn the call over to our CEO Bob Bennett.

Thank you Josh good morning, everyone and welcome to our first quarter earnings call for 2022, we are pleased to announce another quarter of excellent results and progress Q1 reflects the strength of engage smart submission of simplifying customer and client engagement with top line organic growth north of.

<unk>, 40% due to continued robust demand in both segments of our business.

<unk> strong growth of 56% year over year combined with enterprises highly visible durable growth of 28% year over year can be directly attributed to our customers and partners and the dedication of our employees who are relentless in their pursuit of customer satisfaction engagement delivered another quarter of record.

Revenue, finishing at $67 $4 million, representing organic growth of 42% year over year before.

Before it just standard dive into the details of our financial performance I'd like to share with you. Some of the highlights that we are really excited about this quarter.

We've continued to see outstanding customer account growth of 33% and our SMB segment, where we now serve nearly 85000 customers and 130000 professionals intend wellness verticals, our strong organic customer growth in SMB is primarily driven by word of mouth.

The strength of our end to end product suite as a result, we have continued to experience great traction with practitioners led by our first vertical with mental health professionals.

At the same time, we continue to gain ground in new verticals. We are excited about our progress in particular with speech language pathologists occupational therapists and dietitian. We believe we have a strong inherent product market fit in these specialty because these practitioners have similar documentation requirements.

These career trajectory and pain points that our customers and mental health.

For example, one of our speech language pathologists started her own practice using paper nodes paper records and paper billing, resulting in huge headaches. She evaluated 15, EHR solutions and chose simple practice because of its superior functionality and features allowing her to transition from four point.

Systems to our comprehensive single simple practice solution.

So unlock our full potential in all 10 of our simple practice verticals. We are continuously working on new features that further enhance our solution.

As an example, we recently launched built in white boarding for telehealth.

Feature that allows practitioners to draw.

Our AD images to improve client participation. This is particularly valuable to practitioners working with young patients and speech language pathology.

In the first quarter. We've also seen a meaningful increase in average revenue per simple practice customer driven by a combination of reasons in Q1, we rolled out new pricing and packaging to better align price with the value we bring to our customers. We're very encouraged by the positive results to date.

Customer migration mixed by package is trending better than anticipated due to more customers selecting the plus package than we originally anticipated.

Revenue from churn is within our expectations.

We continue to see strong top of funnel growth and Additionally, we've experienced an uptick in customer referrals in Q4, and Q1 related to our increased marketing efforts.

We believe these results reflect the strength of our simple practice solution and the fact, our customers continue to appreciate that superior value at.

At the same time, our existing customers continue to grow their businesses with us as they add new practitioners. They can switch to higher priced packages and process more transactions through us thus fueling our revenue growth and <unk> increase.

We believe our outstanding growth in SMB revenue and customer satisfaction is directly related to our product leadership.

We are committed to innovation and addressing pain points for practitioners, including multi disciplinary group practices. As a result, we make we remain incredibly focused on our roadmap and on prioritizing key workflow feature releases to enhanced telehealth collection and advanced security functionality.

For example, practitioners frequently struggled to verify their patient benefits and insurance to be able to accept in network insurance payments. We have released a feature that simplifies this verification process and our early adopters are already seeing a meaningful improvement in collections.

By simplifying processes such as this we are able to drive practitioner participation to in network health care services, thus boosting provider numbers and making health care accessible to patients at a discounted rate offered by in network insurers with simple practice, we are uniquely positioned to connect patients to <unk>.

Population are practitioners that might otherwise be difficult to reach our monarch network is an extension of our efforts to drive access to care with monarch. We continue to augment a solution designed to go beyond direct patient and practitioner context monarch creates a network that drives access to health care.

And fuels, our flywheel by growing our practitioner base and each customer's patient base. We recently signed a large employee assistance program to a pilot program, which is a testament to the power of monarch and we are very excited about our progress with this initiative.

Now turning to enterprise.

Excellent momentum in the first quarter and now serve 3200 customers across our three vertically tailored solutions. We believe our success is based on our strength in customer go lives and new customer wins, driven by our partner assisted selling motion and the continued adoption of our digital solution.

For invoice cloud the largest revenue contributor in the enterprise segment. We recorded another strong go live quarter driven by a number of notable new customer launches. These.

These include the city of Syracuse in New York City of Denton, Texas, Nashville, Tennessee Metro Water services. We are also excited about our outstanding sales performance in Q1, we won new opportunity, including mobile area water and sewer in Alabama, and Central States water resources and Missouri.

Driven by our alliances with Guidewire cloud based property and casualty insurance software provider that enables businesses to streamline processes and sapiens international a global provider of software solutions for the insurance industry. We are beginning to gain more traction in our insurance vertical we recent.

<unk> signed Kentucky Farm Bureau insurance and are looking forward to launching the invoice cloud online billing and payment system with them in the coming months.

These customer wins result from the outstanding customer experience, we offer for builders and Payors invoice clouds unique focus on customer engagement reduces payment complexity creates peace of mind for the customer and speeds up collections.

Our key differentiation is that we help our customers drive superior digital adoption with true SaaS all customers receive continuous product enhancement versus stuck in time hosted and on premise solutions. Our success in driving digital adoption is also directly related to our <unk>.

<unk> focus on product leadership across our enterprise solutions.

Invoice cloud.

Offers customers the payment experience that is uniquely suited to their individual needs.

Regularly accepting new payment forms as an example, we began accepting crypto as a form of payment through our partnership with Paypal in the first quarter of 2022.

And donor drive our best in class fundraising solution for nonprofits and Corporation recently released an enhanced version of its mobile fundraising App that includes features for contactless event check in and new integrations with apps for activity tracking in summary, we've had an exciting first quarter and are off to a strong.

<unk> start to 2022, we continue to see excellent traction in our vertically tailored SaaS solutions, driven by strong customer growth and great. Net revenue retention. This is a testament to the strength of our business model and our market leadership position and customer engagement software with integrated payments capabilities.

With that I'll hand, the call over to our CFO Cassandra Hudson Cassandra.

Thank you Bob I appreciate everyone joining us today for our Q1 2022 earnings call.

We delivered excellent Q1 results that well exceeded our revenue and adjusted EBITDA guidance, we saw broad based strength across both segments of our business and we're particularly pleased with the performance we saw within F&B.

As a result, we are increasing our outlook on revenue for the rest of 2000 $22 million to $290 million to $294 million or 35% growth at the midpoint of our range.

Up from our prior guidance of $280 million to 285 million or 31% growth at the midpoint.

Our total Q1 revenue of $67 4 million grew 42% year over year and was fueled by strong growth in customer count and transactions processed as.

As of the end of Q1 2022, our total customer count increased 32% versus the prior year to 88000 and was mainly driven by new customer additions from our digital marketing programs and word of mouth referrals in our SMB segment.

Similarly, we saw 38% growth in transactions processed by our solutions year over year with $34 3 million transactions in Q1, 2022 up from $24 9 million in the year ago period.

Our F&B segment continued to perform exceptionally well with first quarter revenue coming in at $36 5 million, representing 56% year over year growth.

Subscription revenue of $25 1 million grew 56% and was highlighted by strong new customer adds and continued expansion with existing customers from add on subscription.

As Bob mentioned, the early results of our new pricing and packaging rollout were strong with a higher mix of existing customers selecting the plus package than we had originally anticipated we attribute this to the superior value created for our customers who are utilizing our fully featured solution.

For new customers in Q1, the mix of customers selecting the starter package, which provides greater flexibility for new to private practice practitioners was in line with our expectation.

Transaction and usage based revenue of $11 million grew 54% as our customers continue to process more transactions on our platform.

We also saw an increase in adoption with a higher percentage of our customers payments flowing through our platform.

Yeah.

Our enterprise segment also delivered strong results with reported revenue of $30 9 million, representing 28% year over year growth.

Vast majority of the revenue in our enterprise segment is derived from transaction and usage safety, which came in at $28 3 million, representing 31% growth year over year.

And invoice cloud, we saw stronger growth than anticipated from our older cohorts as more payers adopted our solution.

To provide further color on the topline I'd like to walk you through the primary growth drivers for SMB and enterprise.

We continue to see strong top of funnel trends in our mental health vertical. Additionally, our increase in marketing spend is broadening our simple practice brand, allowing us to reach audiences that were not previously aware of our solution.

In addition to acquiring new customers, we continue to expect the average revenue per customer to increase overtime.

<unk> add licenses and process more transactions through our solution.

Many practitioners that choose simple practice are only at the beginning of their careers their solo practitioners that just opened their own practice by helping them manage their time more efficiently we enable them to focus on their business and grow their practice ultimately driving our revenue growth as these practices grow over time, we are excited about the opportunity we see to.

Our business with features attracted to group practices. Additionally, we continue to make progress on our strategy of replicating our successful playbook in mental health with our other wellness vertical.

We're focused on engaging with practitioners in these wellness verticals to build a sense of community around our solution that helps our customers more efficiently manage their businesses.

As Bob mentioned, we're seeing traction currently with speech language pathologists occupational therapists and dietitian.

And in enterprise, we continue to build on a highly visible and durable revenue growth.

We had excellent sales performance in Q1 and won a number of customers in both our core and emerging vertical our growth is fueled by our strong product leadership and our established alliance partners, including Harris Utilities group and Guidewire.

They're driving growth by referring existing clients and accelerating the implementation of our enterprise solution. We are excited about our success and our customer pipeline and are looking forward to implementing our solutions with our partners in the future.

Secondly, we continue to see high digital adoption rates with existing customers such as national fuel gas, we drive superior rates of digital adoption, because we offer a payment experience that is uniquely suited to our pillars and their payers need.

We are driving digital adoption through combined marketing and Onboarding efforts ultimately growing revenue as pillars process more payments through our solution.

Now moving on to margins our adjusted gross margin for Q1 of 2022 increased 78, 6% from 77, 6% in Q1 of 2021, mostly driven by the growth in revenue, including the impact from the new pricing and packaging that we rolled out in F&B.

Sales and marketing expenses were $22 3 million up $7 2 million in line with our plan to invest in new customer acquisition.

In Q1, we launched new middle and top of funnel marketing programs that target new channels and broaden our brand to reach customers within our Ken wellness markets and F&B.

R&D expenses came in at $9 9 million up $2 9 million driven by our investment in engineering headcount focused on new product development within our SMB segment as well as enhancing our existing solutions with the goal of maintaining product leadership.

G&A costs were 11 million up $3 7 million, mostly due to absorbing public company operating costs. Following our initial public offering last September .

Adjusted EBITDA was $10 6 million for the quarter, representing 15, 7% margin compared to $7 9 million or 16, 7% margin in the first quarter of 2021, given the exciting opportunities we see in the marketplace. We continue to increase investments in product development and sales and marketing to drive long term revenue growth.

Doorbell public company costs and still remaining highly profitable.

Now moving to our outlook for the second quarter and full year 2022.

For Q2, we expect revenue in the range of $69 million to $70 5 million, which implies 35% growth year over year at the midpoint of our range. We expect adjusted EBITDA in the range of $8 9 million and $9 6 million, which represents an adjusted EBITDA margin of 13, 3% at the midpoint.

For the full year, we now expect revenue to be in the range of $290 million and $294 million or revenue growth of approximately 35% at the midpoint of the range.

For adjusted EBITDA for the full year, we expect to be in the range of $38 million and $40 million, which represents an adjusted EBITDA margin of roughly 13, 4% at the midpoint.

Given the opportunity we have in our current markets and our track record of success, we continue to target top line growth rates at or above 30% for years to come.

I'll now turn the call back over to Bob for closing comments.

Thank you Sandra womb, great numbers, we're off to a great start in 2022, we founded engaged smart because activities like paying bills scheduling appointments onboarding, new patients and client communications shouldnt be that hard our success is driven by three simple factors first.

Our proven customer focused playbook driven by a players.

Our exceptional team drives our success to support our rapid growth, we continuously add people to our organization and have seen great hiring momentum in the first quarter. We are proud to have such a highly focused dedicated workforce ready to take on the future second product leadership as measured by adoption and retention.

Customers choose engaged smart because they want to work with the best we are committed to developing and enhancing our vertically tailored solutions to drive continued product leadership and our success shows as reflected by great customer adoption and net revenue retention.

Our large market and runway, we address a $28 billion U S market and have captured about 1% of market share. We are excited about this promising domestic runway and given our strong track record of growth through product leadership, we are extremely well positioned to execute on that opportunity.

We remain focused on delighting, our customers growing our business and creating shareholder value, while we make a positive impact in the world. We appreciate you all joining us on this call I want to thank you very much.

At this time, if you'd like to ask a question. Please press star one on your Touchtone phone you may remove yourself from the queue at any time progressing the turnkey once again that is star and wanted to ask a question. We will take our first question from will Nance with Goldman Sachs.

Hey, guys good morning.

Bob I'll Echo the world Great numbers I'm wondering if you could spend some time on some of the trends in F&B and help unpack the performance versus your initial expectations, obviously, you're very strong quarter, there and it sounds like the pricing.

<unk> strategy is working out well wondering if you could talk about how much the pricing and segmentation contributed to this quarter's numbers and then going forward could you just kind of talk about how we should expect the mix of kind of pricing and customer acquisition to drive numbers in the F&B segment for the remainder of the year.

Great. Thanks.

So.

Just starting on the pricing side or maybe just taking a step back on Q1 broadly.

Strength across all vectors rates strong new customer acquisition quarter for us.

Really strong payment processing quarter for F&B.

And then positive in positive.

Results on the price new rollout of the pricing and packaging so really.

Really strong results really across the board.

Our overarching strategy with the new pricing and packaging.

Was really to give us more flexibility.

To help us scale, our pricing model as we grow in the future and roll out new features and functionality and move into new verticals.

And to make sure that were aligning our price to the value that we offer to our customers and we think we did that with this rollout.

Results.

Of that rollout inclusive of churn has so far exceeded our expectations, obviously its been one quarter.

Generally we were expecting about a 5% to 10% <unk> uplift from existing customers and we think based on what we're seeing so far that will come in a few.

Few points better than we had anticipated because.

Because of the higher adoption that Bob mentioned on the package.

Largely but overall.

Remain highly encouraged by the continued strength that were seeing in new trials and conversions.

And ultimately we think we got the new pricing and packaging bundle right.

In terms of trends.

Youll still continue to see a strong mix of revenue growth coming from all three of those factors mean that is core to our strategy of how we're going to drive growth in SMB and we expect that trend certainly to continue.

Got it sounds great and then I guess, it's just really nice to see the flow through of the outperformance to the bottom line, especially in the current environment I'm wondering if you could talk through how you're thinking about the trajectory of margins for the remainder of the year, obviously, a much stronger start than we had anticipated and it sounds like there are some opportunities that youre, making in customer acquisition. So just.

Wondering how youre kind of balancing letting some of the outperformance flowed to the bottom line versus kind of reinvesting in customer acquisition to maintain the strong growth rates.

I mean, I think you have it exactly right right. We compete we continue and it's factored into our guidance to be investing more in the new customer acquisition engine on the SMB side.

I think.

Having the revenue beat flowed through to the bottom line is is truly not our intent.

Matter of execution.

I think the team is executing incredibly well, there's a lot going on but it takes a while to deploy against these investments between the.

The investments, we're making in the product.

And bringing on engineering resources, and then really ratcheting up our customer acquisition spend and it just takes time, but that is our intent to continue to deploy more against that.

Got it I appreciate you taking my questions nice results.

Thanks, Bob.

Our next question comes from Pavin Shah Deutsche Bank. Your line is open.

Yeah, Hey, guys. This is rod on the line for Bobby.

So just to kind of follow up on will explain a little bit. So on the pricing change you talked about how revenue revenue churn was in line referrals remained strong so that's great but to unpack that just a bit more.

Spending ahead of the price changes to drive brand awareness is now helping you guys maintained the top of funnel activity.

Medium term do you envision any change in the cadence of the marketing with regards to F&B specifically.

I'm trying to think through how are you guys envisioning size of future cohorts versus historical like maybe there's some impact of margins from the higher pricing for plus but maybe that's offset by startup traction.

How you are thinking about that and the extent to which you use marketing as a lever either in that or maybe in response to my competitors trying to capitalize on the pricing umbrella on maybe on like.

And the satisfaction of the client base and.

In <unk>, we saw that.

Little bit of friction, but a lot of obviously, it's all about people, saying well we came back because it's the best value proposition in general kind of how you view that as a competitive lever just kind of help manage and offset all of those impacts.

Yeah, I mean I guess.

Certainly.

We like I said.

Earlier on our original intent right.

Wanted to roll out pricing and packaging that gave us a lot more flexibility we moved to this three tiered model.

These packages, we believe better align the needs of our customer and the journey that they're on.

Gives us greater flexibility on how we price and package going forward and to your point on marketing spend attracts.

A broader set of new customers by offering a migration path that we didn't really have before for younger practitioners that are earlier on.

In their careers at a lower price point.

I think about them I guess somewhat separately right. We had we migrated our entire customer base to the new pricing and packaging.

The vast overwhelmingly vast majority of our existing customers moved over to the new pricing all within Q1.

I don't think we arent necessarily dialing up marketing spend or trying to drive increased demand too to offset that if you will.

Two separate things, but our strategy remains the same on new customer acquisition right, we're trying to grow.

Fast as we can and reach as many new customers across all of our wellness verticals today, we have as you know.

Foothold in mental health, and we're seeing traction and a lot of new vertical so really those levers are being deployed separately if that kind of gets to the heart of your question.

Yes.

And then I guess as a follow up just on transactions.

Thank you called out how transacted some growth is driven by I think transactions per client, but just want to make sure I got the.

I got that right or is it basically on the SMB side, specifically is it more driven by incremental seats practice is expanding as the solo practitioners grow or is it just new.

New customers coming in across new verticals across mental health.

Okay.

It is across the board for SMB in terms of the strength that we see in payments right. So we're seeing continued increase in the average ticket.

The increase in the number of transactions that are happening per account and then to your point at each one of our accounts adds more clinicians to their practice those clinicians process payments and we get the natural growth from that so it really is all three.

And then just overall adoption so the more.

That's our customers process their payments through our platform, obviously, we benefit from that and we're seeing a lot of strength in the growth in transactions there.

Perfect Awesome. Thanks, Cassandra, Thanks, Bob and congrats again.

Thank you. Thank you.

Our next question comes from Terry Tillman Securities.

Yeah, Hey, Bob Cassandra and Josh hopefully you can hear me okay.

I guess I'd be remiss, if I didn't say it in great numbers as well.

Can you hear me, okay by the way.

It's eerily quiet sounds great okay.

We could have been a little more enthusiasm.

Yes, well, maybe next quarter how about that.

Okay. Yes. So the first question I had is just related to <unk>.

You all basically cut your teeth initially a mental health I mean, if I'm not mistaken that's basically a nine figure <unk> hundred million dollars plus business I'm curious on the learnings from just scaling that business and now as <unk> got a broader set of capabilities to actually add when you sign up new SMB customers.

I don't want to put words in your mouth, but the speech language pathologists occupational therapists and dietitians.

Is there the idea of learnings from our mental health could help even ramp or accelerate these emerging businesses faster than you saw with mental health.

And second part of that is around group practice traction and anything you could share there and then I had one follow up thank you.

Okay. Terry so the mental health of course was simple practices first vertical that they entered and certainly.

Theres been a lot of learning there. The first thing about mental health is we're seeing tremendous demand.

Bill in that marketplace, we think we have a lot of.

A lot of room to continue to grow there aggressively and part of that does relate to the other part of your question which was.

Sort of month, multi clinician groups larger group practices as well as multi disciplinary group practices, we frequently see mental health professionals, working with speech language pathologists and nutritionists.

Nutritionists and so forth all in a single deal.

And a single group practice doesn't need to be hundreds of clinicians for it to be a successful group practice and of course simple practice one of its basic tenants is that we eliminate so much of the administrative burden that those clinicians can focus on their customers and their communities and grow their businesses without the.

Creative hassles that others might have so they are able to add clinicians and of course that drives <unk> up with more seats more payments and so forth. So lots of learning from the new specialties as well as mental health they really run in parallel the clinician base across all 10 of our wellness verticals.

Essentially run the same business. They just have different specialties. So what we learned in one even in terms of driving top of funnel free trials typically.

Typically applies to others. So it's getting the word out and making the adjustments to the solution to accommodate the nuances of each of the verticals and that's that's kind of what we're about does that answer your question Terry.

It definitely does thanks for that and I guess I don't know if this is for your Cassandra.

The theme on higher adoption rates of digital adoption rates.

I am curious if there is anymore you could kind of quantify on like same store sales or potential impact to net revenue retention, maybe that's the wrong way to look at it but just any more you could kind of double click on digital adoption rates and to me. It seems like you're in an inflationary environment and trying to move more of these transactions to a digital fashion there is a real incentive.

For your customers so.

Do you see them, even kind of trying to proactively push more digital adoption just any more you could share on that and the potential impact to you. The same store sales or net revenue. Thank you.

I mean ultimately.

What we see as the customers that use our payment processing.

Service, especially on the on the F&B side, obviously, theyre dry they're driving the highest level of digital adoption for us and they see the value. So it's very clear. They are also very very sticky right because they are really using all the capabilities that we offer.

In our business management solution.

We expect that rate of digital adoption to continue to tick up over time I think in Q1 certainly exceed.

We exceeded our expectations, but we think thats kind of a broader macro trend that.

It should be core to our revenue growth over the long term.

Yes, Terry the other thing about that.

And inflation.

The inflationary environment the way, we price is not a negative.

<unk>.

As average finish.

Clinician hour rates go up and payments go up that creates more volume for us that actually is.

Positive on the SMB side.

Sure.

Okay. Thank you I'll take care.

Thank you. Thank you.

Our next question comes from Bob Napoli with William Blair.

Good morning, actually it's Chris on for Bob Thanks for taking the question.

Just wanted to get an update on the M&A environment.

The environment kind of what Youre seeing out there and what your appetite is to pursue deals.

So hey, Chris it's Bob.

Pursuing a lot of different threads, right now and M&A nothing immediate to announce.

The I'm not sure that the ask side on the M&A is quite achieved the equilibrium with the public market multiples, but.

We're certainly exploring it in a very active and we intend to continue to drive our growth inorganically as well as organically, but we're an organic first company as you know.

Understood and then one last one.

Marketing.

Just can you talk about kind of as you increase your marketing spend how your customer acquisition costs are trending thanks a lot.

I mean, certainly we I think we touched on this a lot on our call where we gave 22 guidance.

But our intent with our marketing spend marketing spend this year is really to reach a broader set of customers. We're investing in branding for example.

Testing a lot of new programs.

On the digital marketing side so.

As you know we have a very highly efficient customer acquisition model, especially on the mental health side. So.

Our expectation is that obviously efficiency ticked down as we invest more but still at a very attractive best in class rate.

I think we're kind of.

<unk>.

Early days still especially in Q1 as we're rolling out new programs Onboarding, a new marketing team. If you will over the past six to nine months on the SMB side.

So certainly more to come.

We're.

Keep a keen eye to efficiency and ROI and that's how we manage our business and.

Investing to drive long term growth.

Understood. Thank you.

Okay.

Our next question comes from John Davis with Raymond James.

Hey, good morning, Bob and Sandra.

Wanted to touch on the SMB segment.

For a second and specifically the net customer adds I think very strong at roughly 4000, given the pricing changes do you think most of the churns don't at this point any churn that you would've had from from pricing likely occurred in the first quarter or so.

Spillover to <unk> or can we get back to more of that kind of 5000 customer add quarter cadence that you had last year.

I think by and large we're through the majority overwhelming majority in Q1 J D to your point.

But it's still.

The pricing and packaging.

That happened the migration for existing customers happened by and large in February and March. So I do think there is the potential for some lingering effects in Q2.

To kind of spillover, but by and large we're through the most of it.

Okay, and then on the <unk> side of things in English really strong up 17% year over year in the SMB business specifically versus.

Versus 11% in <unk> is it simple enough just to say that kind of 600 basis point acceleration is largely driven by pricing.

Kind of a half quarter impact is that a fair way to think about it.

It's actually a little bit of both between pricing and payments, we saw really strong payments result.

In Q1 kind of above the typical average that we've been seeing so it is a little bit of both.

Okay, and then last one for me given the Investor focus on profitability of these days really good to see the flow through there, but the standards. We step back I think the guide has roughly a 13 unchanged margin. This year, how should we think about the trajectory longer term or how do you guys think about it.

'twenty three and beyond not trying to pin you to a number but I think it would be helpful for myself and investors.

Others to just kind of understand how you guys think about the cadence of margin expansion longer term.

Yes, I mean, certainly this year we're investing.

A lot in engineering product development and marketing on the SMB side. We're also absorbing the public company costs. So I think once we get through 2022, we expect to see.

Modest increases in adjusted EBITDA margin expansion over the next few years.

But it's a balanced we're always going to look through the lens of ROI on the investments that we're making and those investments are intended to drive topline revenue growth for us. So it's a balanced I think youll start to see things pick up in 'twenty three.

Okay, great. Thanks.

Okay.

We'll go next to Scott Berg with Needham.

Okay.

Hi, Bob Cassandra Congrats on a great quarter and thanks for taking my questions.

Okay, I guess I got two.

I'm not sure who wants to take the first one but.

It's interesting both of your business segments showed revenue growth acceleration from Q4 to Q1.

I guess as you look back at Q4 and try to explain two segments, which is certainly different than one is was there any impact of maybe the omicron variance in terms of I don't know of new bookings transactions processing Q4 that might have came out in Q1 or.

I guess, maybe the rationale something different than that.

Oh.

I wouldn't say that we saw any direct acceleration in our top line as a result of <unk>.

Covid or are the most recent omicron, Serge I think and we message.

Certainly over the last couple of quarters.

We had some tougher compares in 2022, just given the revenue acceleration we saw in.

In 2020.

And so really I think it's more of a compare issue in 2021, but we've also been investing pretty heavily over the past couple of years to continue to drive this level of growth.

Really.

Kind of pleased with how things are playing out on the top line now given those investments.

Got it helpful. And then from a modeling perspective, you had your best gross margin quarter in about five quarters and kind of get back to.

<unk> levels in 2020 in 2019 versus a little bit of a softer gross margins in 'twenty. One is this kind of 78 and a half to maybe 79% range that the right way to think about margins throughout the rest of the year or just maybe diverge from the Q1 performance.

I mean, we certainly saw obviously the pricing and packaging had a bust.

A slight positive impact on our gross margins.

Still we thought to invest directly in our business and in 2021, and we made a lot of investments in telehealth, we continue to make a lot of investments in customer support and just backend platform and licensing. So I think those investments will continue as you know, we're pretty well optimized on the margin line today. So.

It may tick up slightly but I think we're in kind of the ZIP code that we're going to be in for a while.

Sure.

Great Thats all I have thanks for taking my questions.

Thank you.

We'll go next Ashwin <unk> with Citi.

Thank you Hi, Bob Hey, Cassandra.

Solid results.

And great start to the year.

Thanks.

Yeah.

Sure.

First question is going obviously <unk> growth rates higher than the full year expectation, even though the comps are easier in the back half and there seems to be.

Acceleration in the base.

So I am reading this.

Conservatism in the outlook.

That is just <unk>.

But I just wanted to make sure im not missing any season.

<unk> as far as the cadence of numbers as concerns over the course of the year.

I mean, I don't think Theres any nuance, if you will too in terms of seasonality that that you'd be missing.

We we obviously.

We put guidance out that we're confident in delivering against I think.

We're we're really pleased with performance in Q1.

But theres still a lot of stuff that we're working through pricing and packaging is relatively new and a lot of things need to go right. It's early in the year, but we're.

We're happy with where we are also happy with being able to increase the range on revenue for the year.

Okay, Okay that is making sure.

On the <unk>.

Enterprise pipeline, if you can talk a little bit more about sort of the.

Distribution and diversification.

Great.

Any color there would help.

Yes, we had hi, Ashwin, we did have a strong quarter.

Bookings.

In the first quarter.

And it actually was our strongest bookings quarter for our insurance segment, but very strong as well across all of the invoice clouds all of the invoice cloud.

Government utility tax billing as well as insurance there.

And I think it was a it was a robust selling quarter.

Yes, I think thats, all I can say about enterprise, yes I.

I would say that the the engine.

There is is working right.

We've done some a little bit.

Focusing based on alliances internally and it seems to be having.

Strong yield.

So could you if you don't mind, just kind of get a little bit deeper into.

Into that.

In terms of in terms of your lines.

Well without giving away too much information that it could become readily available to competitive entries is just more of a focus around our alliances team.

Teaming around alliances to get deeper into our partnerships.

Drive higher and higher and better relationships. If you will throughout the end to end top of funnel all the way through the integration and support on the other side of it. So it's just deeper relationships with both the alliances the customers within those alliances that we mutually are going after.

And supporting long term integrations, including integrations and the depth of our integration so that we bring.

As you know our product is the <unk> cloud and Theyre all of our enterprise products all of our products actually are our product leading products part of the part of the product is the way that we integrate with our customer information systems.

<unk>.

So the depth in which we do that and the value that we can drive to our customers through those integrations.

Critical part of our value proposition, so lots of effort and work being done there to drive.

Highly effective value and stickiness among our customer base.

Got it understood. Thank you.

Thank you.

Our last question comes from Josh Beck with Keybanc.

Hey, guys. Congrats on the quarter. This is matti on for Josh.

To touch back a little bit to the strong payments results in SMB.

If that strong <unk>, we should see.

<unk> on the transaction front as you further penetrate.

Percentage of revenues with the most customers without should remain stable.

And then wanted to touch again on <unk> growth, where could we see <unk>, reaching in the near term.

And what's the most popular pricing package it is assumed.

So I didn't.

And I think was a really strong quarter on the payment side.

I think from an RFP perspective, we'll continue to see strong contribution from payments continued growth in transactions driving that revenue growth.

Add on to activity was strong in Q1 and something we expect to continue.

I do think it will be an important part of our revenue growth going forward just like it has been.

Yeah.

And there is a.

Third question, there would you mind repeating it.

Yes, I was just wondering with the most popular pricing packages in SMB.

We're heavily concentrated in the top two packages today.

Prior to.

2022, before we rolled out this new pricing and packaging the overwhelming majority of our customers on our top package and now.

That trend kind of translates to the top two packages.

Okay awesome.

Thank you and congrats again.

Thank you.

There are no additional questions registered at this time I'll pass the conference to Bob Bennett for closing remarks.

Thank you for all your questions and getting smart delivered excellent results in our first quarter of 2022 momentum across the business drove another quarter of record revenue performance with 42% year over year growth and record profitability.

Standouts are the strong customer growth numbers increase in average revenue per customer and exceptional customer retention overall, our positioning continues to be compelling as we address this huge U S market.

<unk>. Thank you all for joining us and we look forward to speaking with you again at the JP Morgan Global Technology Media and Communications conference in May at William Blair's annual growth stock Conference in June and on our Q2 call. This summer and have a great day.

This does conclude today's program. Thank you for your participation you may disconnect at anytime.

Mhm.

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Good morning, and thank you for attending today's engaged smart first quarter 2022 earnings call. My name is Emma and I'll be your moderator today, all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.

I'll turn the call over to Josh Smith, H Mart Josh.

Thank you and good morning with me on today's call are Bob Bennett, Chief Executive Officer, and Cassandra Hudson Chief Financial Officer.

Our earnings press release supplemental presentation and associated form 8-K can be found at investors got engaged smart dotcom.

During this call we will be discussing certain forward looking information.

Actual results could differ materially from those contemplated by these forward looking statements.

Please refer to the risk factors section of our annual report on Form 10-K, and other SEC filings for more information on the risks regarding these forward looking statements and risk factors associated with our business.

On this call, we will discuss certain non-GAAP metrics, including adjusted EBITDA, a reconciliation of non-GAAP metrics to the nearest GAAP metric as well as statements regarding why management believes these measures provide useful information can be found in our earnings press release and supplemental presentation, both of which are available on the Investor Relations.

Section of our website.

This call is being webcast live and will be available for replay on our website at investors got engaged smart dot com I would now like to turn the call over to our CEO Bob Bennett.

Thank you Josh good morning, everyone and welcome to our first quarter earnings call for 2022, we are pleased to announce another quarter of excellent results and progress Q1 reflects the strength of engage smart submission of simplifying customer and client engagement with top line organic growth north of.

40% due to continued robust demand in both segments of our business SMB strong growth of 56% year over year combined with enterprises highly visible durable growth of 28% year over year can be directly attributed to our customers and partners and the dedication of our employees who are relapsed.

And their pursuit of customer satisfaction engaged smart delivered another quarter of record revenue, finishing at $67 4 million representing.

Representing organic growth of 42% year over year.

Before Cassandra dive into the details of our financial performance I'd like to share with you. Some of the highlights that we are really excited about this quarter.

We've continued to see outstanding customer account growth of 33% and our SMB segment, where we now serve nearly 85000 customers and 130000 professionals intend wellness verticals, our strong organic customer growth in SMB is primarily driven by word of mouth.

And the strength of our end to end product suite. As a result, we have continued to experience great traction with practitioners led by our first vertical of mental health professionals at.

At the same time, we continue to gain ground in new verticals. We are excited about our progress in particular with speech language pathologists occupational therapists and dietitian. We believe we have a strong inherent product market fit in these specialty because these practitioners have similar documentation requirements Billy.

Needs career, trajectories and pain points that our customers and mental health.

For example, one of our speech language pathologists started her own practice using paper nodes paper records and paper billing, resulting in huge headaches. She evaluated 15, EHR solution and chose simple practice because of its superior functionality and features allowing her to transition from four point.

Systems to our comprehensive single simple practice solution.

So unlock our full potential in all 10 of our simple practice verticals. We are continuously working on new features that further enhance our solution.

As an example, we recently launched built in white boarding for telehealth, a feature that allows practitioners to draw.

Type or add images to improve client participation. This is particularly valuable to practitioners working with young patients and speech language pathologists in the first quarter. We've also seen a meaningful increase in average revenue per simple practice customer driven by a combination of reasons in Q1, we.

Our new pricing and packaging to better align price with the value we bring to our customers. We're very encouraged by the positive results to date.

Customer migration mixed by package is trending better than anticipated due to more customers selecting the plus package than we originally anticipated.

Lost revenue from churn is within our expectations.

We continue to see strong top of funnel growth and Additionally, we've experienced an uptick in customer referrals in Q4, and Q1 related to our increased marketing efforts.

We believe these results reflect the strength of our simple practice solution and the fact, our customers continue to appreciate that superior value.

At the same time, our existing customers continue to grow their businesses with us as they add new practitioners. They can switch the higher priced packages and process more transactions through us thus fueling our revenue growth and <unk> increase.

We believe our outstanding growth in SMB revenue and customer satisfaction is directly related to our product leadership we.

We are committed to innovation and addressing pain points for practitioners, including multi disciplinary group practices. As a result, we make we remain incredibly focused on our roadmap and on prioritizing key workflow feature releases to enhanced telehealth collections and advanced security functionality for example.

Kitchen is frequently struggled to verify their patient benefits and insurance to be able to accept in network insurance payments. We have released a feature that simplifies this verification process and our early adopters are already seeing a meaningful improvement in collections.

By simplifying processes, such as this we're able to drive practitioner participation to in network health care services, thus boosting provider numbers and making health care accessible to patients at the discounted rate offered by in network insurers.

With simple practice, we are uniquely positioned to connect patients to a population of practitioners that might otherwise be difficult to reach our monarch network is an extension of our efforts to drive access to care with monarch. We continue to augment a solution designed to go beyond direct patient and practitioner con.

Tax.

<unk> creates a network that drives access to healthcare and fuels, our flywheel by growing our practitioner base and each customer's patient base. We recently signed a large employee assistance program to a pilot program, which is a testament to the power of monarch and we are very excited about our progress with this initiative.

Now turning to enterprise, we saw excellent momentum in the first quarter and now serve 3200 customers across our three vertically tailored solutions. We believe our success is based on our strengthened customer go lives new customer wins, driven by our partner assisted selling motion and the continued adoption.

Our digital solution.

Per invoice cloud the largest revenue contributor in the enterprise segment. We recorded another strong go live quarter driven by a number of notable new customer launches. These.

These include the city of Syracuse in New York City.

D a dent in Texas, and Nashville, Tennessee Metro water services. We are also excited about our outstanding sales performance in Q1, we won new opportunities, including mobile area water and sewer in Alabama, and Central States water resources and Missouri.

Driven by our alliances with Guidewire cloud based property and casualty insurance software provider that enables businesses to streamline processes and sapiens international a global provider of software solutions for the insurance industry. We are beginning to gain more traction in our insurance vertical we recently signed.

Kentucky Farm Bureau insurance and are looking forward to launching the invoice cloud online billing and payment system with them in the coming months.

These customer wins result from the outstanding customer experience, we offer for builders and Payors invoice clouds unique focus on customer engagement reduces payment complexity creates peace of mind for the customer and speeds up collections are.

Our key differentiation is that we help our customers drive superior digital adoption with true SaaS all customers receive continuous product enhancement.

Versus stuck in time hosted and on premise solutions. Our success in driving digital adoption is also directly related to our continued focus on product leadership across our enterprise solutions.

Invoice cloud offers customers the payment experience that is uniquely suited to their individual needs by regularly accepting new payment forms as an example, we began accepting crypto as a form of payment through our partnership with Paypal in the first quarter of 2022.

And donor drive our best in class fundraising solution for nonprofits and Corporation recently released an enhanced version of its mobile fundraising App that includes features for contactless event check in and new integrations with apps for activity tracking in summary, we've had an exciting first quarter and are off to a.

Strong start to 2022, we continue to see excellent traction in our vertically tailored SaaS solutions, driven by strong customer growth and great. Net revenue retention. This is a testament to the strength of our business model and our market leadership position and customer engagement software with integrated payment.

<unk>.

With that I'll hand, the call over to our CFO Cassandra Hudson Cassandra.

Thank you Bob I appreciate everyone joining us today for our Q1 2022 earnings call.

We delivered excellent Q1 results that well exceeded our revenue and adjusted EBITDA guidance, we saw broad based strength across both segments of our business and we're particularly pleased with the performance we saw within SMB as.

As a result, we are increasing our outlook on revenue for the rest of 2022.

290 million to $294 million or 35% growth at the midpoint of our range.

Up from our prior guidance of 280 million to $285 million or 31% growth at the midpoint.

Our total Q1 revenue of $67 4 million grew 42% year over year and was fueled by strong growth in customer count and transactions processed.

As of the end of Q1 2022, our total customer count increased 32% versus the prior year to 88000 and was mainly driven by new customer additions from our digital marketing programs and word of mouth referrals in our SMB segment.

Similarly, we saw 38% growth in transactions processed by our solutions year over year with $34 3 million transactions in Q1, 2022 up from $24 9 million in the year ago period.

Our F&B segment continued to perform exceptionally well with first quarter revenue coming in at $36 5 million, representing 56% year over year growth.

Descriptions revenue of $25 1 million grew 56% and was highlighted by strong new customer adds and continued expansion with existing customers from add on subscription.

As Bob mentioned, the early results of our new pricing and packaging rollout were strong with a higher mix of existing customers selecting the plus package than we had originally anticipated.

We attribute this to the superior value created for our customers who are utilizing our fully featured solution.

For new customers in Q1, the mix of customers selecting the starter package, which provides greater flexibility for new to private practice practitioners was in line with our expectation.

Transaction and usage based revenue of $11 million grew 54% as our customers continue to process more transactions on our platform.

We also saw an increase in adoption with a higher percentage of our customers payments flowing through our platform.

Our enterprise segment also delivered strong results with reported revenue of $30 9 million, representing 28% year over year growth.

The majority of the revenue in our enterprise segment is derived from transaction and usage based fees, which came in at $28 3 million, representing 31% growth year over year.

At Invoiced cloud, we saw stronger growth than anticipated from our older cohorts as more payers adopted our solution.

To provide further color on the top line I would like to walk you through the primary growth drivers for SMB and enterprise.

For SMB, we continue to see strong top of funnel trends in our mental health vertical. Additionally, our increase in marketing spend is broadening our simple practice brand, allowing us to reach audiences that were not previously aware of our solution.

In addition to acquiring new customers, we continue to expect the average revenue per customer to increase over time.

<unk> licenses and process more transactions through our solution.

Many practitioners that choose simple practice are only at the beginning of their careers their solo practitioners that just opened their own practice by helping them manage their time more efficiently we enable them to focus on their business and grow their practice ultimately driving our revenue growth as these practices grow overtime. We are excited about the opportunity we see to expand.

Our business with features attracted to group practices. Additionally, we continue to make progress on our strategy of replicating our successful playbook in mental health with our other wellness vertical we have.

We're focused on engaging with practitioners in these wellness vertical to build a sense of community around our solution that helps our customers more efficiently manage their businesses.

As Bob mentioned, we're seeing traction currently with speech language pathologists occupational therapists and dietitians.

And in enterprise, we continue to build on a highly visible and durable revenue growth.

We had excellent sales performance in Q1 and won a number of customers in both our core and emerging vertical our growth is fueled by our strong product leadership and our established alliance partners, including Harris Utilities group and Guidewire.

They are driving growth by referring in existing clients and accelerating the implementation of our enterprise solution. We are excited about our success and our customer pipeline and are looking forward to implementing our solutions with our partners in the future.

Secondly, we continue to see high digital adoption rates with existing customers such as national fuel gas, we drive superior rates of digital adoption, because we offer a payment experience that is uniquely suited to our builders and their payers needs.

We are driving digital adoption through combined marketing and Onboarding efforts, ultimately growing revenue and fillers process more payments through our solution.

Now moving on to margins our adjusted gross margin for Q1 of 2022 increased 78, 6% from 77, 6% in Q1 of 2021, mostly driven by the growth in revenue, including the impact from the new pricing and packaging that we rolled out in F&B.

Sales and marketing expenses were $22 3 million up $7 2 million in line with our plan to invest in new customer acquisition.

In Q1, we launched new middle and top of funnel marketing programs that target new channels and broaden our brand to reach customers within our Ken wellness markets and F&B.

R&D expenses came in at $9 9 million up $2 9 million driven by our investment in engineering headcount focused on new product development within our SMB segment as well as enhancing our existing solutions with the goal of maintaining product leadership.

G&A costs were $11 million up $3 7 million, mostly due to absorbing public company operating costs. Following our initial public offering last September .

Adjusted EBITDA was $10 6 million for the quarter, representing 15, 7% margin compared to $7 9 million or 16, 7% margin in the first quarter of 2021, given the exciting opportunities we see in the marketplace. We continue to increase investments in product development and sales and marketing to drive long term revenue growth.

<unk> public company costs and still remaining highly profitable.

Now moving to our outlook for the second quarter and full year 2022.

For Q2, we expect revenue in the range of $69 million to $70 5 million, which implies 35% growth year over year at the midpoint of our range. We expect adjusted EBITDA in the range of $8 9 million and $9 6 million, which represents an adjusted EBITDA margin of 13, 3% at the midpoint.

For the full year, we now expect revenue to be in the range of $290 million and $294 million or revenue growth of approximately 35% at the midpoint of the range.

For adjusted EBITDA for the full year, we expect to be in the range of $38 million and $40 million, which represents an adjusted EBITDA margin of roughly 13, 4% at the midpoint.

Given the opportunity we have in our current markets and our track record of success, we continue to target top line growth rates at or above 30% for years to come.

I'll now turn the call back over to Bob for closing comments.

Thank you Cassandra womb great.

Great numbers.

We're off to a great start in 2022, we founded engaged smart because activities like paying bills scheduling appointments onboarding, new patients and client communications shouldnt be that hard our success is driven by three simple factors first our proven customer focused playbook driven by a players.

Our exceptional team drives our success to support our rapid growth, we continuously add people to our organization and have seen great hiring momentum in the first quarter. We are proud to have such a highly focused dedicated workforce ready to take on the future.

Product leadership as measured by adoption and retention of.

Customers choose engaged smart because they want to work with the best we are committed to developing and enhancing our vertically tailored solutions to drive continued product leadership and our success shows as reflected by great customer adoption and net revenue retention.

Our large market and runway, we address a $28 billion U S market and have captured about 1% of market share. We are excited about this promising domestic runway and given our strong track record of growth through product leadership, we are extremely well positioned to execute on that opportunity.

We remained focused on delighting, our customers growing our business and creating shareholder value, while we make a positive impact in the world. We appreciate you all joining us on this call I want to thank you very much.

At this time, if you'd like to ask a question. Please press star one on your Touchtone phone you may remove yourself from the queue at any time progression pankey. Once again that is star and wanted to ask a question. We will take our first question from will Nance with Goldman Sachs.

Hey, guys good morning.

Bob I'll Echo the world Great numbers I'm wondering if you could spend some time on some of the trends in F&B and help unpack the performance versus your initial expectations, obviously, a very strong quarter, there and it sounds like the pricing and segmentation strategy is working out well I'm wondering if you could talk about how much the pricing and segmentation contributed to this quarter's numbers.

And then going forward could you just kind of talk about how we should expect the mix of kind of pricing and customer acquisition to drive numbers in the SMB segment for the remainder of the year.

Great. Thanks.

So.

I guess, just starting on the pricing side or maybe just taking a step back on Q1 broadly.

Strength across all vectors rates strong new customer acquisition quarter for us.

Really strong payment processing quarter for SMB, and then positive impact positive results on the price new rollout of the pricing and packaging so really.

Really strong results really across the board.

Our overarching strategy with the new pricing and packaging.

Was really to give us more flexibility.

To help us scale, our pricing model as we grow in the future and rollout of new features and functionality and move into new verticals.

And make sure that were aligning our price to the value that we offer to our customers and we think we did that with this rollout.

On.

Of that rollout inclusive of churn have so far exceeded our expectations, obviously its been one quarter.

Generally we were expecting about a 5% to 10% <unk> uplift from existing customers and we think based on what we're seeing so far that will come in if you will.

Few points better than we had anticipated because.

Because of the higher adoption that Bob mentioned on the package.

Largely but overall.

Remain highly encouraged by the continued strength that were seeing in new trials and conversions.

And ultimately we think we got the new pricing and packaging bundle right.

In terms of trends I think youll still continue to see a strong mix of revenue growth coming from all three of those vectors I mean that is core to our strategy of how we're going to drive growth in SMB and we expect that trend certainly to continue.

Got it sounds great and then I guess, just really nice to see the flow through of the outperformance to the bottom line, especially in the current environment I'm wondering if you could talk through how you're thinking about the trajectory of margins for the remainder of the year, obviously, a much stronger start than we had anticipated and it sounds like there are some opportunities that youre, making in customer acquisition. So just.

Wondering how youre kind of balancing letting some of the outperformance flowed to the bottom line versus kind of reinvesting in customer acquisition to maintain the strong growth rates.

I mean, I think you have it exactly right right. We compete we continue and it's factored into our guidance to be investing more in the new customer acquisition engine on the SMB side.

I think.

Having the revenue beat flowed through to the bottom line is is truly not our intent.

It's a matter of execution.

I think the team is executing incredibly well, there's a lot going on but it takes a while to deploy against these investments between.

The investments, we're making in the product.

Bringing on engineering resources, and then really ratcheting up our customer acquisition spend and it just takes time, but that is our intent to continue to deploy more against that.

Got it I appreciate you taking my questions nice results.

Thanks, Bob.

Our next question comes from Devin Shiloh Deutsche Bank. Your line is open.

Yeah, Hey, guys. This is rod on the line for <unk>.

So just to kind of follow up on the will explain a little bit. So on the pricing change you talked about how revenue revenue churn was in line referrals remained strong and so that's great but to unpack that just a bit more obviously spending ahead of the price changes to drive brand awareness is now it's helping you guys maintained the top of funnel activity, but medium term.

Any change in the cadence of the marketing with regards to SMB, specifically I guess I'm trying to think through how are you guys envisioning size of future cohorts versus historical like maybe there's some impact on margins from the higher pricing for plus but maybe that's offset by startup traction.

How youre thinking about that and the extent to which you would use marketing as the lever either in that or maybe in response to like competitors trying to capitalize on the pricing umbrella Ron maybe on like.

Dissatisfaction among your client base and.

In <unk>, we saw that there was also a little bit of friction, but a lot of obviously take a little bit people, saying well we came back to the best value proposition in general kind of how you think of that as a competitive lever just kind of help manage and offset all of those impacts.

I mean I guess.

Certainly.

Yes.

Like I said.

Earlier on our original intent right.

Wanted to rollout pricing and packaging that gave us a lot more flexibility we move to this three tiered model.

These packages, we believe better align the needs of our customer and the journey that they're that they're on.

Gives us greater flexibility on how we price and package going forward and to your point on marketing spend attracts.

A broader set of new customers.

By offering a migration path that we didn't really have before for younger practitioners that are earlier on.

In their careers at a lower price point.

I think about them I guess somewhat separately right. We had we migrated our entire customer base to the new pricing and packaging.

The VAT, we overwhelmingly vast majority of our existing customers moved over to the new pricing all within Q1.

I don't think we arent necessarily dialing up marketing spend or trying to drive increased demand too to offset that if you will.

Two separate things, but our strategy remains the same on new customer acquisition right, we're trying to grow <unk>.

As we can and reach as many new customers across all of our wellness verticals today, we have as you know.

Foothold in mental health, and we're seeing traction and a lot of new vertical so really those levers are being deployed separately if that kind of gets to the heart of your question.

Yes.

And then I guess as a follow up just on transactions.

Thank you and you called out how that transaction growth is driven by I think transactions per client, but just want to make sure I got the.

<unk> got that right, but is it basically on the SMB side, specifically is it more driven by incremental seats practice is expanding as the solo practitioners grow or is it just.

New customers coming in across new verticals across mental health.

I mean, it is across the board for SMB in terms of the strength that we see in payments right. So we're seeing continued increase in the average ticket.

The increase in the number of transactions that are happening per account and then to your point as each one of our accounts adds more clinicians to their practice those clinicians process payments and we get the natural growth from that so it really is all three.

And then just overall adoption so the more.

That's our customers process their payments through our platform, obviously, we benefit from that and we're seeing a lot of strength in the growth in transactions there.

Perfect Awesome. Thanks, Cassandra, Thanks, Bob and congrats again.

Thank you. Thank you.

Our next question comes from Terry Tillman Securities.

Yeah, Hey, Bob Cassandra and Josh hopefully you can hear me okay.

I guess I'd be remiss, if I didn't say great numbers as well.

Can you hear me, okay by the way.

It's eerily quiet sounds great okay.

Could have been a little more enthusiastic so yes no.

Yes, well, maybe next quarter how about that.

Okay. Yes. So the first question I had is just related to <unk>.

You all basically cut your teeth initially a mental health I mean, if I'm not mistaken that's basically a nine figure 100 million dollar plus business I'm curious on the learnings from just scaling that business and now as <unk> got a broader set of capabilities to actually add when you sign up new SMB customers.

I don't want to put words in your mouth, but the speech language pathologists occupational therapists and dietitians.

Is there the idea of learnings from our mental health could help even ramp or accelerate these emerging businesses faster than you saw with mental health.

And second part of that is around group practice traction and anything you could share there and then I had one follow up thank you.

Okay, Hey, Terry so the mental health of course was simple practices first vertical that they entered and certainly.

Theres been a lot of learning there. The first thing about mental health is we're seeing tremendous demand.

Bill in that marketplace, we think we have a lot of.

Lot of room to continue to grow there aggressively and part of that does relate to the other part of your question which was.

Sort of month, multi clinician groups larger group practices as well as multi disciplinary group practices, we frequently see mental health professionals, working with speech language pathologists and nutritionists.

Nutritionists and so forth all in a single deal.

And a single group practice doesn't need to be hundreds of conditions for it to be a successful group practice and of course simple practice one of its basic tenants is that we eliminate so much of the administrative burden that those clinicians can focus on their customers and their communities and grow their businesses without the.

Great of hassles that others might have so they are able to add clinicians and of course that drives <unk> up with more seats more payments and so forth. So lots of learnings from the new specialties as well as mental health they really run in parallel the clinician base across all 10 of our wellness verticals.

Essentially run the same business. They just have different specialties. So what we learned in one even in terms of driving top of funnel free trials typically.

Typically applies to others. So it's getting the word out and making the adjustments to the solution to accommodate the nuances of each of the verticals and that's that's kind of what we're about does that answer your question Terry.

It definitely does thanks for that and I guess I don't know if this is for your Cassandra.

The theme on higher adoption rate of digital adoption rates.

I am curious if there is any more you could kind of quantify on like same store sales or potential impact to net revenue retention, maybe thats the wrong way to look at it but just any more you could kind of double click on digital adoption rates and to me. It seems like in an inflationary environment and trying to move more of these transactions to a digital fashion there is a real incentive.

For your customers so.

Do you see them, even kind of trying to proactively push more digital adoption just any more you could share on that and the potential impact to your same store sales or net revenue. Thank you.

I mean ultimately.

<unk>.

What we see as the customers that use our payment processing.

Service, especially on the on the F&B side, obviously, theyre dry they're driving the highest level of digital adoption for us and they see the value. So it's very clear. They are also very very sticky right because they are really using all the capabilities that we offer.

In our business management solution.

We expect that rate of digital adoption to continue to tick up over time I think in Q1 certainly exceed.

We exceeded our expectations, but we think thats kind of a broader macro trend that.

It should be core to our revenue growth over the long term.

Yes, Terry the other thing about that.

<unk> inflation.

The inflationary environment the way, we price is not a negative.

<unk>.

As average.

Finishing our rates go up and payments go up that creates more volume for us that actually is.

Positive on the SMB side.

Okay. Thank you I'll take care.

Okay. Thank you.

Our next question comes from Bob Napoli with William Blair.

Good morning, actually it's Chris on for Bob Thanks for taking the question.

Just wanted to get an update on the M&A.

Environment kind of what Youre seeing out there and what your appetite is to pursue deals.

So hey, Chris it's Bob.

Pursuing a lot of different threads, right now and M&A nothing immediate to announce.

I'm not sure that the ask side on the M&A is quite achieved the equilibrium with the public market multiples, but we are we're certainly exploring it in a very active and we intend to continue to drive our growth inorganically as well as.

Organically, but we're an organic first company as you know.

Understood and then one last one.

Marketing.

Can you talk about kind of as you increase your marketing spend how your customer acquisition costs are trending thanks a lot.

I mean, certainly and we I think we touched on this a lot on.

Our call, where we gave 22 guidance, but our intent with our marketing spend marketing spend this year is really to reach a broader set of customers.

Investing in branding for example.

Testing a lot of new programs.

On the digital marketing side, so and as you know we have a very highly efficient customer acquisition model, especially on the mental health side. So.

Our expectation is that obviously efficiency ticked down as we invest more but still at a very attractive best in class rate.

I think we're kind of.

Early days still especially in Q1 as we're rolling out new programs Onboarding, a new marketing team. If you will over the past six to nine months on the SMB side.

So certainly more to come where we are.

Keep a keen eye to efficiency and ROI and that's how we manage our business then.

Investing to drive long term growth.

Understood. Thank you.

Okay.

Our next question comes from John Davis with Raymond James.

Hey, good morning, Bob and Sandra.

To touch on the SMB segment.

For a second and specifically the net customer adds I think very strong at.

We're roughly 4000, given the pricing changes do you think most of the churn stone at this point any churn that you would've had from from pricing likely occurred in the first quarter or some spillover into <unk> or can we get back to more of that kind of 5000 customer add quarter cadence that you had last year.

I think by and large we're through the majority overwhelming majority in Q1 J D to your point.

But.

Phil.

The pricing and packaging.

Happened that migration for our existing customers happened by and large in February and March. So I do think there is the potential for some lingering effects in Q2.

To kind of spillover, but by and large we're through the most of it.

Okay, and then on the <unk> side of things I think it was really strong up 17% year over year in the SMB business specifically versus.

Versus 11% in <unk> is it simple enough just to say that kind of 600 basis point acceleration is largely driven by pricing.

Kind of a half quarter impact is that a fair way to think about it.

It's actually a little bit of both between pricing and payments, we saw really strong payments result in.

In Q1 kind of above the typical average that we've been seeing so it is a little bit of both.

Okay, and then last one for me given the Investor focus on profitability of these days really good to see the flow through there, but the standards. We step back I think the guide has roughly a 13 unchanged margin. This year, how should we think about the trajectory longer term or how do you guys think about it.

In 'twenty, three and beyond not trying to pin you to a number but I think it would be helpful for myself and investors and others to just kind of understand how you guys think about the cadence of margin expansion longer term.

Yes, I mean, certainly this year, we're investing in it.

A lot in engineering product development and marketing on the SMB side. We're also absorbing the public company costs. So I think once we get through 2022, we expect to see.

Modest increases in adjusted EBITDA margin expansion over the next few years.

But it's a balanced we're always going to look through the lens of ROI on the investments that we're making and those investments are intended to drive topline revenue growth for us. So it's a balanced I think youll start to see things pick up in 'twenty three.

Okay, great. Thanks.

We'll go next to Scott Berg with Needham.

Hi, Bob Cassandra Congrats on a great quarter and thanks for taking my questions.

Okay.

Yes, I've got two.

I'm not sure you want to take the first one but.

I think it's interesting both of your business segments showed revenue growth acceleration from Q4 to Q1.

I guess as you look back at Q4 and try to explain two segments, which is certainly different than one is was there any impact maybe the omicron variance in terms of I.

I don't know new bookings transactions processing in Q4 that might have came out in Q1 or.

I guess, maybe the rationale something different than that.

I mean, I wouldn't say that we signing direct acceleration in our top line as a result of Covid or are the most recent omicron Serge.

And we message lists.

Certainly over the last couple of quarters.

We had some tougher compares in 2022, just given the revenue acceleration we saw in.

In 2020.

And so really I think it is it more of a compare issue in 2021, but we've also been investing pretty heavily over the past couple of years to continue to drive this level of growth though.

Really.

Kind of pleased with how things are playing out on the top line now given those investments.

Got it helpful. And then from a modeling perspective, you had your best gross margin quarter in about five quarters and kind of get back to.

<unk> levels in 2020 in 2019 versus a little bit of softer gross margins in 'twenty. One is this kind of 78 and a half maybe 79% range that the right way to think about margins throughout the rest of the year or just maybe diverge from the Q1 performance. Thank you.

I mean, we certainly saw obviously the pricing impacting.

A slight positive impact on our gross margins we're still.

Got to invest directly in our business and in 2021, we made a lot of investments in telehealth, we continue to make a lot of investments in customer support and just backend.

That form and licensing so I think those investments.

We will continue as you know, we're pretty well optimized on the margin line today. So.

And it may tick up slightly but I think we're in kind of the ZIP code that we're going to be in for a while.

Great Thats all I have thanks for taking my questions.

Thank you.

We'll go next Ashwin <unk> with Citi.

Thank you Hi, Bob Hey, Cassandra.

And solid results.

And great start to the year.

Thanks.

Yeah.

Great.

First question is going obviously <unk> growth rates higher than the full year expectation, even though the <unk>.

Comps are easier in the back half and there seems to be.

Acceleration in the base.

I am reading this.

Conservatism in the outlook given that it's just <unk>.

But I just want to make sure I'm not missing any season other nuances as part of the cadence of number of ships concerns over the course of the year.

I mean, I don't think Theres any nuance if you will too in terms of seasonality that you would be missing.

We we obviously.

We put guidance out that we're confident in delivering against I think.

And.

We're we're really pleased with performance in Q1.

But there's still a lot of stuff that we're working through pricing and packaging is relatively new and a lot of things need to go right. It's early in the year, but where we.

We're happy with where we are also happy with being able to increase the range on revenue for the year.

Okay, Okay that is making sure.

And on the enterprise pipeline, if you can talk a little bit more about sort of the distribution and diversification.

Right.

Any color there would help.

Yes, we had hi, Ashwin, we did have a strong quarter of bookings in.

In the first quarter.

And it actually was our strongest bookings quarter for our insurance segment.

Very strong as well across all of the invoice cloud all of the invoice cloud.

Government utility tax billing as well as insurance, there and I think it was a it was a robust selling quarter.

Yes, I think thats, all I can say about enterprise, yes. It was all good I would say that the the engine.

There is.

Working right. So we've done some a little bit.

Focusing based on alliances internally and it seems to be having.

Our strong yield.

Okay.

Don't mind, just kind of get a little bit deeper into.

Into that.

In terms of in terms of the Atlantis.

Well.

Without giving away too much information that you could it could become readily available to competitive entries. It's just more of a focus around our alliances team.

Teaming around alliances to get deeper into our partnerships and.

Drive higher <unk>.

Higher and better relationships. If you will throughout the end to end top of funnel all the way through the integration and support on the other side of it. So it's just deeper.

<unk> ships with both the alliances the customers within those alliances that we mutually are going after in supporting long term integrations, including integrations and the depth of our integration so that we bring.

As you know our product is the envoys cloud and Theyre all of our enterprise products all of our products actually are our product leading products part of the part of the product is the way that we integrate with our customer information systems.

Alliances.

So the depth in which we do that and the value that we can drive to our customers through those integrations is a critical part of our value proposition.

Lots of effort and work being done there to drive.

Hi, highly effective value and stickiness among our customer base.

Got it understood. Thank you.

Thank you.

Our last question comes from Josh Beck with Keybanc.

Hey, guys. Congrats on the quarter. This is Mary on for Josh.

Wanted to touch.

Back a little bit to the strong payments results in SMB wondering if that strong <unk> lift we should see.

Continuing on the transaction front as you further penetrate.

Percentage of revenues with the most customers without should remain stable.

And then wanted to touch again on <unk> growth, where could we see <unk>, reaching in the near term.

And what's the most popular pricing package it is assumed.

Okay.

So I do it.

Again, I think was a really strong quarter on the payment side.

I think from an RFP perspective, we'll continue to see strong contribution from payments to continued growth in transactions driving that revenue growth.

Add on to activity was strong in Q1 and something we expect to continue so.

So I do think it will be an important part of our revenue growth going forward just like it has been.

Yes.

And was there.

Third question, there would you mind repeating it.

Yes, I was just wondering what's the most popular pricing packages in SMB.

We're heavily concentrated in the top two packages today.

Prior to.

2022, before we rolled out this new pricing and packaging the overwhelming majority of our customers are on our top package and now.

That trend kind of translates to the top two packages.

Okay awesome.

Thank you and congrats again.

Thank you.

There are no additional questions registered at this time I'll pass the conference to Bob Bennett for closing remarks.

Thank you for all your questions and getting smart delivered excellent results in our first quarter of 2022 momentum across the business drove another quarter of record revenue performance with 42% year over year growth and record profitability stands.

Standouts are the strong customer growth numbers increase in average revenue per customer and exceptional customer retention overall, our positioning continues to be compelling as we address this huge U S market opportunity.

You all for joining us and we look forward to speaking with you again at the JP Morgan Global Technology Media and Communications conference in May at William Blair's annual growth stock Conference in June and on our Q2 call. This summer.

Have a great day.

This does conclude today's program. Thank you for your participation you may disconnect at any time.