Q4 2022 EngageSmart Inc Earnings Call

Please stand by your program is about to begin.

Good morning. Thank you for attending today's engaged smart fourth quarter and fiscal year 2022 earnings call.

My name is Todd and I'll be your moderator today.

At this time all participants are in a listen only mode.

Later, you will have the opportunity to ask questions. During the question and answer session.

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It is now my pleasure to turn the conference over to Josh Smith up in Gate Smart Josh.

Thank you good morning, and welcome to our fourth quarter and fiscal 2022 earnings call with.

With me on the call today 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.

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.

All metrics discussed during this call are non-GAAP , unless otherwise noted 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 don't engage smart dotcom.

Now I'd like to turn the call over to our CEO Bob Bennett.

Thanks, Josh Good morning, everyone and thank you for joining us on our fourth quarter and fiscal 2022 earnings call today.

Fiscal 2022 was truly a phenomenal year for engage smart we delivered record annual revenue of $303 $9 million, representing 41% year over year growth all organic.

We also reported record annual adjusted EBITDA of $49 $3 million or 16, 2% of revenue for the year.

Our excellent results reflect the strength of engaged smart business model, which is characterized by our proven customer led strategy, our deep vertical expertise, our strategic alliances and our highly motivated team.

I'd like to thank our teammates for their strong passion and outstanding work throughout 2022 never wavering from their commitment to excellence for our customers.

The fourth quarter and fiscal 2022 were marked by robust demand favorable secular trends and continued execution across our business segments as we drove product innovation and extended our market leadership, we enter 2023 from a position of strength, our dedication to simplifying customer and client engagement.

<unk> is resonating with the market our products are gaining market share and we are expanding our footprint across all verticals.

Cassandra <unk> deeper into the details of our financial performance and our outlook for 2023, I'd like to share some 2022 highlights.

Our SMB segment is uniquely positioned to help address the shortage of mental health professionals and the high demand for care SMB achieved outstanding revenue growth of 52% in 2022, driven by new customer add a favorable mix and subscriptions the successful pricing and packaging changes that we implemented.

In Q1 of 2022, and our strength in transactions process. We continue to see strong traction in mental health and are excited about our opportunity to drive growth and expand with group practices in 2023.

Our enterprise segment benefits from systemic long term tailwind stemming from the need for organizations to digitize their operations enterprise delivering annual revenue growth of 29% fueled by customer go lives and high digital and paperless adoption with existing customers to.

To provide more color on our strong results in the SMB segment, we continued to experience high demand for our simple practice solutions, particularly in our core mental health vertical the mental health market is characterized by a shortage of professionals, coupled with an increasing demand for care due to a high prevalence of mental health disorders simple package design.

To simplify administrative functions addresses those challenges by enabling practitioners to focus on what is most important to them treating more patients.

With a network of over 160000 mental health and wellness practitioners simple practice helps many therapies seekers take the critical first steps buying the best provider getting contact with that provider and successfully book an appointment and.

And we continuously evolve our offering with new features and functionalities that had.

Customers.

Most recently, we launched our new client App, which allows our practitioners to use their smartphone we're scheduling note taking messaging billing and more.

Monarch and simple practice enterprise are extensions of our efforts to make care more accessible and to enable our practitioners to focus on what they do best treating patients both monarch and simple packed as enterprises leverage our extensive customer base of over 160000 practitioners monarch is a consumer facing website.

<unk> found that meet monarch dot com that enables a digital method for practitioners and patients to connect it simplifies the process of binding and accepting new patients. It also builds a foundation for simple practice enterprise, our <unk> offering for employee assistance programs.

And managed care organizations.

Our network of practitioners is particularly valuable to these organizations as they frequently struggle to match patients to therapist in a timely fashion by enabling easy scheduling with simple practice for providers, who are already within an EAP or mcl network, we help speed up that process.

We recently signed our largest simple practice enterprise deal to date and have a robust pipeline of opportunities.

We look forward to exploring the potential contribution to our simple practice flywheel as we partner with EAP and mpls to capture in network providers, who do not yet use simple practice.

In mental health. We are excited also about the opportunity with group practices. In 2023, we are prioritizing this market segment with our product roadmap to expand on the efficiencies simple practice creates for groups by further enhancing the value we bring to groups. We believe we can attract new practices and enable our customers to grow their pratt.

This is by adding more practitioners Rev.

Revenue cycle management is also an opportunity for simple practice insurance billing is difficult to manage for small practices and getting paid as a key challenge for our practitioners.

This complexity is often a deterrent to our customers accepting insurance, which can lead to access and affordability issues for patients. We are prioritizing roadmap items to accommodate revenue cycle management and believe we can support our customers and better managing collections and maximizing reimbursement rates.

Intimate Lee, we hope to increase financial transparency for our customers by helping simplify yet another administrative tasks.

Finally, we continue to see a large addressable market opportunity with new verticals and plan to enhance specific features and functionality in the future to continue to drive value for our customers. In addition to product innovation, we continue to invest in marketing to drive a comp.

Word of mouth referrals are most efficient marketing channel, particularly as we rapidly grow our referral base each quarter at the same time, we are seeing great traction with our investments in digital marketing, which enables us to broaden our brand awareness beyond existing customers and their network.

Now turning to our enterprise segment, our strong results are driven by customer go lives across all verticals fueled by our partner assisted selling motion as well as record digital adoption with existing customers.

Our verticals utilities financial services government enterprise healthcare and giving are characterized by broad usage of legacy systems. Many of which are outdated extensive demand pain and time consuming to update that's why many builders struggled with high operating cost failed to meet consumer demand for digital experiences.

And often resist the idea of implementing new systems that is until they meet with us our core value proposition is driving superior rates of digital adoption by enabling a modern user experience a wide variety of payment methods and omnichannel capabilities, ultimately increasing cost saving behaviors, we combine a modern.

Congress experience with engagement capabilities that are specific to the needs of our customers automated reminders emails text messages and personalized bill pay capabilities and we achieve all of that through tight integrations with our dealers customer information systems. Our Ci efforts are.

Our approach allows our builders to offer a modern billing and payments platform without the time consuming process to upgrade the CIL, while extending the useful life of their original solutions and Thats why we win in the fourth quarter and throughout 2022, we saw great momentum in all verticals as we continue to realize efficiencies and deals were.

We have existing integration, we recorded several notable customer launches and utilities, including the city of Port St. Lucie, Florida and insurance, we launched phase one of the go live process with our largest insurance client and in tax we went live with several new clients, including Union County, North Carolina.

In addition, we drove record adoption with existing customers in all verticals our ability to quickly achieve result is highly valued by our new pillars, such as Truckee Meadows water authority in Nevada, and <unk>, a medical professional insurance carrier based in New York within a year of implementing invoice cloud Truckee Meadows increased.

Auto pay adoption by 22% decrease mailed in payments by 20% and achieved $175000 in annual operational efficiencies and pro saw a 211% increase in electronic payment adoption in the first year as well as a seven X increase in Autopay adoption.

Increasing auto pay adoption is a key value proposition for our insurance clients as more customers automatically renew their policies.

We focus not only on driving digital adoption, but also pay from this adoption in the fourth quarter, we had record levels of paperless adoption and achieved a significant milestone approximately half of our customers invoice are sent by us by E Mail, a key step in reducing the use of paper and cost per <unk>.

<unk> Creek water District in California for example, recorded a 33% increase in paperless enrollment within one year.

The fourth quarter was also a phenomenal bookings quarter for enterprise historically, we have seen an ebb and flow in new bookings due to fluctuations on big deals in the fourth quarter, we achieved a record booking quarter driven by consistency in the mid market and several large deals.

Notably we signed two of the four largest deals up 2022 in Q4.

Our new customer growth continues to be driven by our strategic Alliance go to market strategy in Q4, we formed several new partnerships across verticals.

And strengthened existing alliances that contribute to our pipeline and extend our market share and utilities. For example, we launched our fried municipal software Alliance, which further opens the mid size market for us in 27 states and.

In our high growth insurance vertical we signed several new customers, including another guidewire customer Franklin mutual insurance based in New Jersey.

And in tax we finalize the integration was dead net opening county tax market in Illinois, Missouri, and North Carolina. Additionally, we finalized the government procurement partnership it streamlines the buying process for local and county governments product innovation remains incredibly important to us as we continue to drive higher value for.

Our customers. Most recently, we launched outbound payments for insurance customers approximately half of the payments and insurance are outbound representing a large opportunity for us and we are quickly gaining traction in Q4, we closed six outbound payment deals in summary, we've had a strong fourth quarter and a great year, we continue to drive traction in.

The market for products that help save labor cost increase operational efficiency and drive customer satisfaction, we delivered solid results across our vertically payloads SaaS solutions driven by continued customer demand payer adoption on our platform and great customer retention. We believe that this is a testament to the strength of our business model and our market.

Leadership position and customer engagement software with integrated payments.

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

Thank you Bob our fourth quarter results again exceeded our revenue and profitability guidance capping off an outstanding year in which we delivered record revenue net income and adjusted EBITDA.

Revenue in 2022 was $303 9 million, representing 41% growth from 2021, and adjusted EBITDA was $49 3 million or 16, 2% of revenue.

Delivering more than $300 million in revenue as well as a 210 basis point expansion in our adjusted EBITDA margin were important milestones that we achieved in 2022.

In 2023, we are focused on driving continued growth in both segments and making product and go to market investments that are intended to help us achieve our next midterm milestone of $500 million in revenue, while we continue to expand our margins.

For the full year, we expect revenue to be in the range of 380 and $384 million or revenue growth of approximately 26% our revenue guidance implies roughly 30% growth in SMB and 20% growth in enterprise the drivers of which I will cover in a few moments.

For adjusted EBITDA for the full year, we expect to be in the range of $66, five and 69 million, which represents an adjusted EBITDA margin of roughly 17, 7% or a 150 basis point improvement over fiscal year 2022.

While we plan to continue investing in sales and marketing to drive top line growth in R&D to maintain product leadership. We are also committed to expanding margins as we continue to make progress toward our long term adjusted EBITDA margin goal of 30% or higher.

As a result of the outperformance of our business model in 2022, our guidance for revenue and profitability for 2023 is well ahead of our initial expectations from our September 2021 initial public offering.

For Q1 of 2023, we expect revenue in the range of $86 million to $87 million, which implies 28% growth year over year at the midpoint of our range. We expect adjusted EBITDA in the range of $13, five and $14 million, which represents an adjusted EBITDA margin of 15, 9% at the midpoint.

We continue to see strong cash flow generation with free cash flow of $45 8 million in 2022, taking our cash balance to $311 8 million as of December 31, 2022.

In 2023, we expect adjusted EBITDA to free cash flow conversion to moderate to approximately 50% due to higher cash taxes associated with the capitalization of R&D expenses, which is now required for tax purposes under IRC section 174, coupled with significant utilization of our remaining Nols.

In 2022.

As you think about 2023, please keep the following in mind regarding SMB, we expect to see continued high demand for our simple practice solution in our core mental health vertical fueled by a shortage of practitioners coupled with an increasing need for care.

As our practitioners grow their practices and add more simple practice, Steve. Thank you.

These additional features purchase higher priced packages and process more payments through our solution.

We're excited about the opportunity we see with group practices and are prioritizing features that will make it even easier for our customers to manage multiple practitioners this year.

As you recall, we successfully launched our new three tiered pricing and packaging halfway through Q1 of last year due to customers migrating earlier than expected and more customers electing our plus package, we exceeded our expectations and drove growth of more than 50% in simple practice in 2022.

In late Q1 of 2023, we will be increasing the price of our integrated payment processing solution by 20 basis points.

This increase will help to offset the higher payment processing and infrastructure costs that we have been incurring and allow us to continue to provide and invest in the seamless experience our customers expect.

Now turning to enterprise as we move into 2023, we remain highly focused on continued sales and implementation execution to fuel new customer growth.

We are beginning to focus on larger deals and believe moving up market is a critical aspect of our future growth.

Enterprise delivered strong growth in 2022, driven in part by consistency in the mid market and the timing of several large go lives at the end of 2021 and the beginning of 2022.

While the ebb and flow associated with the timing of go lives will result in moderating revenue growth in 2023, we remain confident in the long term durability of our enterprise segment, driven by a record bookings quarter in Q4, and a robust pipeline that we believe will continue to fuel strong growth.

We are excited about our success and traction in our newer insurance and tax rate costs. In 2022, we invested in strategic alliances and signed clients in new states that we believe create long term tailwind for additional targets.

Our donor drive solution is more susceptible to macroeconomic disruption and our guidance assumes a slowdown in revenue growth from fundraising events. This year.

In terms of seasonality, we expect to see a small step down in Q1 revenue on a sequential basis due to the timing of transactions in Q4, 2022 associated with tax billing and invoice cloud and the concentration of large fundraising events for donor derived.

Beyond new customer growth, we continue to focus on product innovation and customer experience that enables us to drive superior rates of digital and paperless adoption we.

We are investing in further simplifying the customer experience by adding functionality that removes friction to drive higher value for our customers.

Now turning to Q4 and full year 2022 results total revenue for Q4 was $83 9 million, representing 36% year over year growth fueled by growth in customer count and transactions processed.

As of the end of Q4 2022, our total customer count surpassed 100000 to 102700, a significant milestone for engage smart and an increase of 24% over the prior year.

Our customer growth continues to be mainly driven by new customer additions from our digital marketing programs and word of mouth referrals in our SMB segment.

We also delivered strong growth in transactions processed in Q4, we processed $38 9 million transactions up from $31 2 million in the year ago quarter, representing 25% growth.

We also saw continued strength in our net revenue retention rate, which was 117% for 2022, driven by the pricing and packaging changes in our SMB segment and strong digital payment adoption in our enterprise segment.

Our SMB segment continues to perform exceptionally well with fourth quarter revenue coming in at $45 2 million, representing 45% growth year over year.

Subscription revenue was $33 5 million grew 58% year over year, driven by new customer adds and the impact of pricing and packaging changes.

Transaction and usage based revenue of $11 5 million grew 21% year over year as more transactions were processed on our platform.

Our enterprise segment also delivered strong results with reported revenue of $38 7 million, representing 27% year over year growth driven by new customer adds and strong digital payment and paperless adoption.

Our adjusted gross margin for Q4 of 2022 increased to 79, 5% from 77, 8% in Q4 of 2021, primarily driven by the results of our SMB pricing and packaging changes.

Sales and marketing expenses were $27 5 million up $6 million in F&B, we continue to test new digital marketing channels to drive new customer acquisition and broaden our brand to create awareness for our solutions and all of the verticals we serve today.

In enterprise, our investments continue to be on our partner relationships as well as sales head count to fuel pipeline and bookings growth.

R&D expenses came in at $13 8 million up $4 5 million in our SMB segment. We're investing in features for group practices and revenue cycle management and our enterprise segment, we're investing in features and functionality to continuously improve the experience for our builders and their payers and to accelerate digital adoption in all of our very.

Nicholas.

G&A costs were $12 6 million up $1 1 million driven by an increase in head count to support our business growth.

Net income was $4 9 million for the quarter compared to a net loss of <unk> 9 million in the fourth quarter of 2021.

Adjusted EBITDA was $13 6 million for the quarter, representing 16, 2% margin compared to $6 3 million or 10, 2% margin in the fourth quarter of 2021.

In summary, we continue to believe we operate in defense of verticals that should remain attractive and vibrant even in an economic downturn.

Guarding SMB the unmet need for mental health treatment is large and widespread periods of economic uncertainty can further increase that need for care.

In our enterprise segment. The majority of adult are non discretionary in nature and the secular trend of Digitization remains strong.

Overall, we believe we are well positioned and remain confident in our ability to continue to deliver profitable growth.

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

Whoops Cassandra tremendous results again feels a little like Groundhog day.

We found it engaged smart because activities like paying bills scheduling appointments onboarding, new patients and client communications shouldnt be that hard it's great to see our team's efforts bear fruit. Our success is driven by three simple factors first our proven customer focused playbook driven by a players we are committed to recruiting.

Retaining and developing top talent, our momentum is driven by their tremendous work and relentless pursuit of customer satisfaction second product leadership as measured by adoption and retention, we leverage our top talent with deep vertical expertise to put our customers at the center of our decision, making ultimately delivering innovative market leading.

Solutions.

Third our large market and runway, we address a $28 billion U S market across all ZIP codes and have captured about 1% of market share. We continue to invest in our solutions to unlock engaged spikes or potential and look forward to expanding our footprint across all of our verticals. We remain focused on delighting our.

<unk> 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. This morning before we begin Q&A I'd like to take a moment to thank our investors and analysts for the time and insights they provide us as we further expand engaged smart and its potential your input is incredibly important to us as we work to build long term shareholder value for this growth company. Thank you very much.

Thank you at this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.

You may remove yourself from the queue at any time by pressing star two.

Once again that is star one to ask a question.

Our first question comes from Robert Napoli with William Blair.

Thank you and good morning congratulations.

Excellent first year as a public company.

Hey, good guidance.

Just a question on how are you.

I'm doing well, Bob how about yourself.

Yes.

The SMB segment.

<unk>.

Lap the price increase in the first quarter.

The number of customers you are adding good trend.

As you get larger.

Deceleration, but youre moving up market are you getting.

Does the average guest clinicians per customer increasing do you expect that too to increase or continue to increase.

Yeah, I mean, we've continued to see growth in the average number of practitioners per practice Bob.

Through 2022, as well and I think as you know it kind of steadily moved up over the past few years.

Certainly with our pricing and packaging changes the opportunity with group practices was really highlighted for us and that is why we are now prioritizing more features specifically for group practices on our roadmap, though you know as we deploy those features we do continue to expect.

More traction there in the group practice segment for us.

Thank you and a follow up.

Just I mean you had.

You mentioned, a 20 basis point.

Price increase but just generally around margin. Your margin guidance is is solid you have 30% target long term margins.

How do you think about incremental margins to get to that 30%.

Long term margin isn't any materiality you can get another 20 basis point price increase when is that and what does that mean to revenue.

Sure.

Taking the pricing first.

You know that that will start to take effect.

In late Q1 here so March timeframe.

And so you know, we'll certainly start to see higher transaction revenue.

As a result of that bleeding into Q2.

And then on the margin side of things.

In the near term a lot of the expansion youre going to see is going to come specifically from G&A.

We're starting to really get leverage from our shared services model across all of engage smart.

And you know I think as you know we'd be kind of incremental improvements in gross margin in 2023, and we expect that.

Effectively that level of improvement to continue in the medium term as well. So those are the two big areas. We're still investing on the engineering side and also investing in our go to market market functions to drive long term growth.

Thank you.

Yes.

Thank you. Our next question will come from will Nance with Goldman Sachs.

Hey, guys.

Nice results. This morning, I wanted to ask on the Enterprise segment. You mentioned you mentioned a handful I think your largest booking quarter in history seems like very strong momentum in the fourth quarter I guess I'm, just trying to kind of marry those comments with the outlook for 20% revenue growth in 2023 should we be thinking about this as sort of just like an air pocket.

At the moment patient timelines and do you guys have kind of line of sight towards an acceleration of some of these large bookings kind of start to flow into revenue.

Thanks for the question well.

Youre thinking about it exactly right. So we did have a really strong bookings quarter. In Q4, we do have to implement those deals. So there's a booking a new.

<unk> cycle and implementation cycle that we have to get through so the ebb and flow that we see in go lives is really reflected in our guidance for this year.

But as we continue to bring the record breaking bookings that we saw in Q4 live we will start to see them really positively impact.

Revenue in the future.

Got it that's Super helpful. And then I was just wondering if you could talk a little bit about penetration rates within just the mental health vertical and couple of practice you guys are talking about going up market into group practices. How do you kind of delineate the size of the bulkhead in each and kind of where you stand point penetration perspective.

So I mean, we you know we still look at the the market Holistically, So with simple practice still targeting $10 billion Tam with $5 billion of that.

More longer term focused on medical specialties 5 billion on the wellness market that we're serving today.

The behavioral health portion of the market, which we estimate to be at least $1 2 billion.

You know obviously there is a huge concentration of solo practitioners, which we've been very successful at selling into them you know where to.

We're really focused on is slowly moving upmarket so selling to still what I would what I would characterize as small group practices, but that's where we've been seeing the biggest traction to date and we'll continue to kind of slowly progressing up into larger and larger group practices over time, but you know where.

We're not we're not actively targeting large group practices. Today. If you will is that a slow movement upward.

Understood I appreciate you, taking my questions and nice results.

Thanks will thanks well.

Thank you. Our next question comes from Terry Tillman with Truth Securities.

Yes, Hi can you hear me.

Yes, Hi, Terry good morning, Terry.

Hey, good morning, Bob Cassandra, Josh Nowadays I feel compelled to ask an AI oriented question, but I'm not going to do it on this call okay.

The question. The first question I had is really well, it's a multi part question.

Related to simple practice first in terms of it doesn't sound like there's still some things and I appreciate what you're saying Cassandra in terms of its still opportunistic and it's not the main focus on group practices, but it sounds like Theres still some deliverables, you'll need to provide in terms of product market fit. So could you give us a sense of when that's going to happen in the second part I'm intrigued by revenue cycle management, maybe you could talk about.

When that could start becoming actionable and what kind of <unk> that could provide them then I had a follow up for Cassandra.

Yeah, Hey, Gary So the yes, the roadmap for our market expansion New specialties continues to drive forward, we're definitely gaining traction.

Significantly it was still speech language pathologists and with occupational therapist.

And a little bit of a.

No I wouldn't call it a pivot, but an adjustment to accommodate the really strong growth, we're seeing in group practices and <unk>.

<unk> health and inter disciplinary type condition outfits, where they've got speech language pathologists occupational therapy, and behavioral health all in the same and the same.

Group.

All of that is happening while we continue to align our product go product.

Product resources into the squad that can attack the.

Chiropractic physical therapy, and some of the other wellness verticals, where we still have a little bit of work to do to pull product market fit but again, what we what we continue to see such strong demand in behavioral health and in the existing I mean, thats lp's are growing really well. So we just wanted to continue to be supportive of.

Those groups and continue to enhance those groups. So that we can continue.

Continue to.

Strong customer satisfaction and the word of mouth viral.

Push towards new trials that drive new new customer adds.

Yes, Jonathan question Terry.

And I'm unfair because I'm asking a couple questions multipart, it's pretty annoying probably for everyone.

But you mentioned revenue cycle management is an opportunity, though that was the second part of the question in terms of just flush it out a little bit more and potentially what kind of impact and timing.

Our revenue cycle management, we are in trials, where we're already in there where we're working to.

Eliminate that administrative burden for many of our practices already today, it's getting traction and where.

We're plowing ahead with it and it looks very favorable and encouraging to US right. Now so that is a we think a significant opportunity as we move forward to really eliminate the.

Households around billing insurance claims and all of that by by creating appropriate partnerships, where we can bring.

Very high visibility to our customers of what's going on with the with the insurance claims.

And eliminate the burden of administering to them so.

We've been playing on that right now going well.

That's great and then Cassandra My second question was just related to you know.

The midpoint of the growth for the full year of 'twenty three is 26% growth I mean, you had the product pricing and packaging that really had a.

A pretty meaningful impact on the F&B in 'twenty.

Two is there anything you could share at all about relative growth rates or just kind of give us some sort of level setting between enterprise and SMB and 23. Thank you.

Sure sure. Thanks for the question Terry.

As it relates to the segments, we expect roughly 30% growth in F&B in 2023, and 20% growth in enterprise.

And you know really have you already highlighted them, we're gonna be working through the compares on the pricing and packaging. This year in F&B. So that's a driver of the growth rate there and then on enterprise. We did have several large go lives at the end of 'twenty, one and the beginning of 2020 to that.

Drove really strong growth for us and in the prior year and there's an ebb and flow associated with the timing of these go lives. So given that we expect enterprise to grow roughly 20% in 2023.

Thank you and congrats.

Thank you thanks Terry.

Yeah.

Our next question comes from Bob and Shah with Deutsche Bank.

Good morning, everyone. It's Nick on for Bob Thanks for taking my questions.

Looking at simple practice enterprise monarch can you talk a little bit more about how you see the opportunity growing there going forward.

Yeah.

So with simple practice enterprise and monarch, Bob and we see that there's a really strong need for connecting patients in a timely fashion to care.

So with monarch and simple practice enterprise, we actually enable these empty OS.

Managed care organizations and employee assistance programs to directly access data and our our base of clinicians to set appointments up online provide online onboarding for new patient.

Get visibility into whether or not the.

B.

Session actually happen is.

Did the patients show up did they actually onboard.

<unk> ability into things that they don't have today in a normal and their normal process. So when you think about a picture of yourself as an MTO is as it is.

A caregiver or somebody that's trying to set up care.

<unk> 'twenty phone calls to solo in small group practitioners, leaving messages trying to get a hold of somebody. So you can align the calendar they call back here on the phone. So all of that goes away with our automation and our online scheduling capabilities. So.

We see a really strong need here for.

Cost savings with the MCR in the EAP behalf.

Many fewer people that are setting up these appointments because it's all easily handled and then we see on the other side of that Bob and a really strong push from these MTO and EAP to get all of their customers.

All of their non overlapping clinicians that they refer to today to get onto a simple practice platform onto the simple practice platform to ease that you ease the ability of scheduling those appointments and then getting the data on the other side of it or whether or not the.

There is proper outcomes happening from it so it's all part of connected care outcome tracking and improving what we think is going to be the long term.

Capabilities of our customers two to treat patients in a timely fashion.

Great. Thank you and can you give us I guess, a little bit more color on how adoption is going kind of outside of sort of the speech and language pathology and occupational therapy verticals in sort of the rest of the wellness space.

It continues to grow I mean, our market expansion is growing more quickly than our.

New markets are growing more quickly than behavioral health, which has been the trend and it continues to grow.

Aggressively.

Can't really stop it because of the viral word of mouth keeps keeps driving it we're not trying to stop it obviously, but we are we're still more focused on on groups SLP and OTC for that for the time being nutritionists and dietitians continued to grow well.

No.

Based on their own through organic word of mouth, but.

I think that the <unk>.

Action is good strong I would say it's steady.

Great. Thanks, once again for taking the questions and congrats on the quarter and the year.

Thanks, Thank you.

Thank you. Our next question comes from Ashwin <unk> with Citi.

Thank you.

Hey, Bob Good morning, Hi, Cassandra money.

Good results good results here congratulations on that.

Thank you.

I was looking for some sort of granular help in terms of kind of the build out of the model looking at the SMB side.

You know the when we consider sort of the.

The number of locations.

<unk> added per quarter and then the next part of that is the number of professionals per location and.

Why do you don't explicitly have as large of pricing like last year.

Inexplicit terms, but you sort of have an implicit because more people are moving to group right.

So if you could provide any kind of color with regards to how.

For someone like me outside looking in can bid it out tech model that would be great.

Alright. Thanks. Thanks for the question in terms of gross customer adds we see pretty consistent trends.

Consistent with what we saw in 2022 for 2023 really driven by the high demand.

For mental health treatment and care so.

That trend remains strong and we think that will sell fuel.

You know pretty consistent gross customer ads we are.

Expecting.

A a flight.

Slight increase in churn as we.

Walk through some of the pricing changes that we have planned for this year.

So you know I would say you know again very small, but largely consistent trends overall with 2022.

You know again on that.

The gross customer adds side.

And then just in terms of group practices, which I know you asked about I mean that has been growing pretty consistently and we expect that trend.

To continue for 2023.

Understood.

Is there any any.

The granular detail that you can provide with regards to the penetration of group practices in the in the base.

Anything like that that group and that could be helpful.

I mean, you know overall we have.

But again I think just north of 1.6 practitioners per practice and that's been up over the past several years from one four.

So we're focused on kind of that next segment up if you will and group practices. You know think still in the 10 to 20 practitioners.

That's why we've been having some good success today and I think that will be contributing to the growth that we see in 2023, especially as we roll out more features and functionality specific to them, which we expect later this year.

Understood and.

And one last cadence question.

We think of rapid growth for 'twenty, two and think of it in terms of segment, obviously, the 20% on enterprise.

I took your comments to imply it would be sub 20 at least Q1and then b.

Higher than that.

Later on and with regards to F N b.

Maybe.

It goes the other direction north of 32 to start in and get a bit lower than that afterwards is that kind of a fair comment any other things to watch out for in terms of competitors or anything like that.

No I mean.

Honestly the deep the impact in Q1.

In terms of the seasonality that we see in enterprises is very small so you know I don't it's not going to be a huge step down here.

And I don't think its going to swing the growth rate too much.

And then on SMB, we do start lapping those compares in in Q1, so it will start impacting the growth rate here in the quarter for sure.

Got it thank you keep up the good work.

Thanks Ashwin.

Yeah.

Thank you. Our next question comes from Jason Kupferberg with Bank of America.

Thanks, guys I wanted to ask about <unk>, you continue to see some healthy growth there.

What sub segments would you say are primarily driving that.

Does <unk> become a bigger part of the overall revenue growth equation in 'twenty three 'twenty four versus what you've seen the last couple of years.

Relative to customer growth.

Yeah, I mean, I think we still expect to see really strong contribution from our <unk> expansion in 2023.

And I think 2022 was certainly an outsized year in terms of the ARPA expansion, we drove which.

Really was.

Associated with the pricing and packaging changes we made.

So the expansion will clearly be less than what we saw in 2022, but you know still a huge contributor for us and the underlying drivers there really around our expansion into group practices, which are how to seat model. So we charge for additional licenses as practitioners join.

The customers that we have.

And you know an element of pricing and payments processing, so more and more.

Payments being processed on our platform.

Right right, Okay, and then maybe just a follow up on margins it looks like Youll come in this year around 18% and adjusted EBITDA, you reiterated the longer term target of 30%.

Would you expect just sort of a relatively steady cadence over time or are there points in time, where just because of scale you start to get more of a pointed inflection, let's say in terms of your G&A leverage.

The next few years, it will be steady progression and that will largely be fueled by expansion in G&A as we get efficiencies there and small incremental improvements in gross margin over the long term I do think we'll start to see real leverage come from sales and marketing.

But that is still I would say a few years out here as we're really investing to drive growth and capture share.

Yes.

You can find a town yeah, okay, great. Thank you.

Alright.

Yes.

Thank you. Our next question comes from Scott Berg of Needham.

Good morning, Scott Your line is open.

Sorry, I was on mute apologies there congrats on the nice quarter and thanks for taking my question.

Got you.

Yeah.

Customer adds and the simple practice business kind of bumps around that 5000 live all year, a nice healthy level, especially with the pricing increase.

But we're seeing a number of software companies with exposure to smaller customers trying to slightly more challenging environment in the fourth quarter I guess as you think about your 2023 guidance are you expecting that environment should be.

That new customer environment to be similar to what you've seen recently are you anticipating any change to the macro.

Yes.

I mean, we're expecting similar trends in terms of gross customer adds for 2023, I think the demand environment, especially around mental health still remains very strong.

I think at least in terms of the customer that we're targeting they behave a little bit differently than a typical SMB customer. So you know I think in some ways that benefits us, but you know as of now the demand environment remains strong and we are expecting consistent contribution in terms of growth.

Got it and then from a follow up perspective, the way, we calculate kind of transactional <unk> per your SMB customers has been trending down a little bit consistently in the last couple of quarters here.

Any reason why transactions might be or that transaction kind of dollar amount from your customers might be trending down just didn't know if there is something seasonally in the business.

Better than the first half of the year than the second half of the year. Thank you.

There is a bit of seasonality to be aware of on the transactional side.

And just with the SMB business overall Q1 tends to be the strongest both in terms of the appointments that are practitioners have which obviously drives our payments revenue or transaction revenue.

And.

Also just in terms of.

You know even new customer adds so Q1 is the strongest and then it kind of slowly stepped down through the year as people take more and more vacation and I think <unk> in.

In 2002 in particular, we certain certainly saw people return to a more normal way of life, taking more vacation et cetera, and so I think that is a typical seasonal seasonal pattern for US you know the other thing just to be aware of is we did make a lot of changes to pricing and packaging.

In 2022 and that did shift some revenue kind of between the buckets. So we're maximizing for total <unk> expansion and as a result, you can see shifts in growth between the categories. There.

Great. That's all I have thanks for taking my questions.

Thanks Scott.

Thank you. Our next question comes from Josh Beck with Keybanc.

Thank you so much for taking the question I wanted to ask a little bit about the group pricing certainly as you get into.

Even four five questions per office, that's really meaningful.

<unk> certainly as you get into 10, it's certainly.

Really large difference versus your kind of average <unk>. So I'm curious on.

Just with respect to the CAC associated with these group clinicians are you finding that the channels that resonate for these large offices is maybe different than the one to two type of offices and just how you're kind of.

<unk> in your go to market as group becomes it seems like a bigger theme.

I mean today, our go to market is still pretty simple and very focused on targeted digital marketing in an e-commerce driven flow.

Do have.

Some onboarding assistance that we provide but that still remain.

And our primary go to market motion with groups.

And I would say like even in those smaller customer segment.

Of the 4% to five practitioners that you were highlighting we found that go to market motion to be working and effective you certainly could see longer term. If we continue to move up into larger and larger group practices that we might need to augment our go to market in some way, but you know I think that's a ways off from from where we are today.

Just to add a little bit of color with the breadth and depth of our solution for these solo practitioners that come on we also do see them migrating fairly quickly.

As they fill up their books to add others add more clinicians to their practice. So there's a natural growth within not just going after group practices, where we see a lot of natural growth within the within the customer base for them attaching other conditions.

Okay.

Great color and maybe just a bit of a <unk>.

Follow up to the prior question.

About the kind of transactions per customer or <unk> per customer within simple practice.

If you look at your penetration levels, obviously you offer.

Our solution through stripe and <unk>.

Quite attractive value of economics through to your customers that way I think there is.

Other options if somebody wants to use maybe another provider, but just when you look at the penetration of your offering within simple practices is that.

Something that could be a needle mover in the years ahead, we're just greater attach even though maybe the business itself isn't really necessarily the your customers' business is it accelerating but just your penetration within their business as perhaps expanding.

Yeah.

I do think that will be a contributor to growth as though our customers continue to process more.

Payments on our platform today, we're at about 75% penetration so we're processing, 75% of our our customers payments.

Directly so.

It is pretty high I think we can still see.

That ticked up a little bit, but more and more modest contribution going forward.

Super helpful. Thanks, Bob.

You're welcome thank you.

Okay.

Thank you. Our next question comes from Rockhill attached with J P. Morgan.

Good morning, Bob and can say Adrian Thanks for taking my question I know you guys did highlight having our strongest bookings quarter on the enterprise side, but just given the macro are you seeing any changes in the sales cycle or any delays.

I would say that it's been steady rig count we've got.

We have large deals there is as we frequently talk about there is an ebb and flow in different they are longer sales cycles for some of the larger deals.

I would say is we've got a very strong sales engine across enterprise that drives pretty reliable results in terms of number of comps now the larger deals come in and in various quarters.

As we mentioned we had two.

Two of the four largest coming in the fourth quarter of.

2022, so anyway, I think that haven't seen a huge we deliver for invoice cloud as an example, we don't charge an upfront fee that we remove pretty much all of the friction from the sale because.

We are a it's an enhancement to their user experience that they want and there's no. They don't have to come up with funds and frequently we have the consumer paying the service fee that's associated with our revenue stream. So not really a big change for any of the customers from for their citizens and for them.

Their rate payers that are paying their utility Bill for example, so I don't think that I think were very steady and continue to see.

Good traction.

Got it thanks, Bob and just a follow up for me given your comments around you'll see more mid market traction with invoice cloud are there any difference in that that delta of more mid market customer versus the larger enterprise guys.

Sales cycle is shorter for the mid market deal than a large.

A larger deal that might be.

An RFP.

Request for proposal oriented so there is a longer process a more complex decision, making unit frequently involve so more drawn out if you will.

I mean, I'd say our results are are similar but we only I would say out of estimating out of 20, new customers only one of them actually comes as an RFP. So we rely heavily on the mid market and we're seeing really strong top of funnel feel better than ever top of funnel for mid market and <unk>.

Enterprise frankly, so I think that we're very bullish in terms of our ability to continue to drive strong bookings.

This year.

And in the future.

Thank you and congrats on the quarter.

Thank you. Thank you.

Thank you. Our next question comes from John Davis with Raymond James.

Hey, good morning, Bob and Cassandra.

Cassandra on gross margins those were quite a bit better than I think we expected I think it was expanded by 160 basis points year over year, which was a nice acceleration from <unk>. So obviously pricing is having some impact but that would also have been in <unk>. So anything else going on the gross margin line, how should we think about that going into 'twenty three.

I mean, I think you're thinking about it exactly right J D. The biggest contributors really pricing and packaging and I do think we're getting just.

Continued focus on driving efficiency.

The costs that we.

Im encouraged to directly support our.

And customer support delivery.

So you know those are levers for us as we continue to expand our margins going forward, but those were kind of the big three if you will.

Okay.

And then net Rev retention was strong at 117%.

Any reasons why that should be materially different in 'twenty. Three obviously you had pricing last year, you have some pricing probably a little bit less this year.

How should we think about churn your churn assumptions versus versus 23, just anything you can help us directionally with that Rev retention as we go forward from here.

Yeah, I mean, I mean, I think the the difference in the contribution on the pricing and packaging will will certainly impact the net revenue retention in a similar way to what we're seeing in our <unk> expansion.

So I would certainly highlight that and then we are expecting some slightly elevated churn. This year, so maybe a small impact from that as well.

But still expecting really strong net revenue retention again, well north of 100%, which is just really driven by our our business model and the levers that we have across both segments to drive growth.

Okay, and one quick last one here once again in the fourth quarter you guys flowed through the large majority of the revenue upside to EBITDA any reason why that should change in 'twenty three should we see revenue upside you feel like you have the investments that you want to make already baked in and the guide and we could see kind of topline upside flow.

Through to the bottom line or are there plans to maybe spend more if you do achieve the top line.

You know I think.

For the most part to the extent that we see upside in revenue, we expect that till our largely flow through at a consistent rate that we saw in 2022.

Okay awesome. Thanks, guys.

Thank you.

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

Thank you <unk>.

Engage mark delivered great results in our fourth quarter and for our full year of 2022 momentum for both segments drove record revenue and adjusted EBITDA performance standouts, our strong customer growth the increase in average revenue per customer our successful pricing and packaging changes and exceptional customer.

Our positioning continues to be compelling as we address our huge U S market opportunity with large Tam and Tam.

You all for joining US today, we are excited to speak with you again later this quarter at Raymond James 44th annual institutional investors conference in Orlando. The Wolfe Research March Madness software Conference in New York, and Truest 2023 technology Internet and services Conference also in New York.

Thank you.

This concludes today's call.

Thank you for your participation you may disconnect at any time.

Okay.

Goodbye.

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Yes.

Thanks.

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