Q1 2023 EverCommerce Inc Earnings Call
Thank you for standing by and welcome to ever Commerce's first quarter 2023 earnings Conference call. My name is Sarah and I Hope your operator for today.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
As a reminder, this conference call is being recorded today.
May nine 2023, and now I would like to turn the conference over to Brad Court S. V. P of <unk> head of Investor Relations for ever Commerce. Please go ahead.
Good afternoon, and thank you for joining today's call will be led by Eric Reamer ever Commerce, as Chairman and Chief Executive Officer, and Mark Thompson ever Commerce, as Chief Financial Officer.
Joining them for the Q&A portion of the call is ever Commerce as President Matt Fierstein.
This call is being webcast with a slide presentation that reviews, the key financial and operating results for the three months ended March 31 2023.
A link to the live or replay webcast. Please visit the Investor Relations section of the ever Commerce website, Www dot ever Commerce Dot com the slide presentation and the earnings release are also directly available on the site.
Please turn to page two of our earnings call presentation, While I review, our Safe Harbor statement statements made on this call and contained in the earnings materials available on our website that are not historical in nature may constitute forward looking statements.
Such statements are based on the current expectations and beliefs of management and actual results may differ materially from these forward looking statements due to risks and uncertainties that are described in more detail on our filings with the SEC.
We undertake no obligation to publicly update or revise these forward looking statements except as required by law.
We'll also refer to certain non-GAAP financial measures to provide additional information to you our investors.
Reconciliation of non-GAAP to GAAP historical measures is provided in both our earnings press release and our earnings call presentation.
Before turning the call over to our CEO , Eric Reamer I want to note that management will not be commenting today on any rumors or speculation that has been in the press either in prepared remarks or during the question and answer portion of the call. Eric. Please continue thank.
Thank you Brad.
Today's call I will highlight the first quarter results discuss key customer tracking metrics before turning the call over to Marc to dive deeper into our financials.
Eric Commerce started the year strong, beating the top end of the first quarter guidance for revenue adjusted EBITDA.
First quarter results benefited from continued strong customer growth and payment penetration and the secular tailwind that digitization the service economy continue.
We continue to balance growth profitability and operating business in our first quarter results underscore this mantra.
It is managed due to the operation and engage with their customers.
As we discussed during our fourth quarter 2022 earnings call in March we ended the year with serving more than 685000 customers.
Our large customer base represents an incredible opportunity for revenue expansion to cross sell up sell of our solutions.
We measure the progress of this land and expand strategy. It by the number of customers using more than one solution.
Metric continues to grow as we embed payments and Margaret digital marketing and lead generation solutions to our customers.
Year over year, the number of customers using more than one of every commerce solutions grew 22% providing significant tailwind in our business.
Today, approximately 10% of our customers are utilizing more than one solution and this continues to represent one of the largest opportunity for growth out of us.
As customers purchased add on capabilities and more than one of our products, we see <unk> expand and our retention of these customers improve.
We measure this through our annualized net revenue retention or IRR looking.
Looking back at trailing 12 months, our annualized net revenue retention has remained constant at approximately 100%.
And better payments is our largest and most accretive cross sold solution year over year, our payments revenue grew 37% outpacing overall revenue growth and contributing to margin expansion in the quarter as payments are booked on a net revenue basis and contribute approximately 95% gross margins.
Payments revenue growth is driven by TPB growth and by improved economics, given our scale we.
We ended this quarter with an annualized GBP of approximately $11 1 billion.
Representing a 70% year over year growth.
We expect PPV and overall payments revenue grow as we continue to a better payment solutions into our courses of action.
200 million plus revenue company established significant scale across our platform our vertically Taylor system of action SaaS solutions that are complemented by value added payment market technology and customer engagement solutions.
We've integrated these products onto our centralized operating platform leveraging centers of excellence across key functions, such as marketing finance accounting.
The legal HR and product development.
The scalability and optimization of our consolidated operations.
Today I'd like to highlight ever health as part of the continued evolution of our service Commerce platform.
Serving approximately 100000 small physician specialty health and medical practices Health services, one of our three key customer verticals.
Through our integration and consolidation initiatives, we've created a platform of connected and customizable solutions and EHR practice management and patient engagement.
Our customers and health services to streamline and grow their practices.
The picture shown on slide eight is our recent ever helped booth at HIMSS Conference last month.
This conference Mark the first time that we went to market as one integrated ever health brand, allowing us to better focus our efforts on our customers and their needs providing them an integrated set of solutions under one umbrella.
We are bullish on our ability to open up new growth opportunities as we move from providing point solutions in the health care space to integrated suites of solutions.
It's become more customer centric and create simplicity is a differentiator and traditionally complex markets.
As we execute this strategy will be able to further streamline our operations and drive cost efficiencies and margin expansion over time.
Now I will pass it over to Mark who will review our financial results in more detail as well as provide second quarter and updated full year 2023 guidance.
Thanks, Eric total revenue in the first quarter was $161 1 million up 12, 2% from the prior year period.
Within total revenue subscription and transaction revenue was $123 8 million up 14, 6% from the prior year period and revenue from marketing technology solutions was $31 8 million up six 3% from the prior year period.
The strong performance in subscription and transaction revenue, which is in line with our long term target was largely due to solid execution of our strategy to provide customers. Our core systems of action software and cross selling embedded payments, which grew 37% in Q1 as Eric had mentioned earlier in the call as we've highlighted in the past.
Earnings calls, we continue to see modest headwinds to growth in our marketing technology solutions, and we continue to take actions to balance growth with profitability within these products and services first quarter. Other revenue of $5 5 million included approximately 500000 of revenue that was previously expected in the second quarter modestly affecting the pace.
Revenue growth in the first half of 2020.
At the end of Q1, LTM revenue was $638 3 million up 27% on a reported basis and 13, 8% on a pro forma basis.
As a reminder, we calculate our pro forma revenue growth as though all acquisitions closed as of the end of the latest period were closed as of the first day of the prior year period, including before the time, we completed the acquisition. We believe the pro forma growth rate provides the best insight into the underlying growth dynamics of our business are.
<unk> growth rate for Q1 is equivalent to our pro forma growth rate because we did not complete any acquisitions during the periods.
First quarter adjusted EBITDA was 31 9 million, representing a 19, 8% margin versus 16% in the first quarter of 2022, and 39% growth year over year.
Additionally, LTM adjusted EBITDA was $128 million, representing a 21% margin in.
In the first quarter, we are clearly delivering towards our full year 2023 objectives by exceeding guidance and achieving 20% adjusted EBITDA margins adjusted EBITDA performance in the quarter was partially due to higher revenue, but was primarily due to our focus on actively managing our operating expenses driving operating leverage and cash flow generation.
Adjusted gross profit in the quarter was $105 2 million, representing an adjusted gross margin of 65, 3% versus 64, 7% in 2022.
<unk> adjusted gross profit was $415 seven representing an adjusted gross margin of 65, 1% adjusted gross profit is seasonally weakest in the first quarter and strengthened over the course of the year. So we do expect gross margins to improve.
Now turning to operating expenses adjusted sales and marketing expenses were $29 2 million or 18, 1% of revenue down from 21% of revenue in the prior year period. This was driven by both the timing and pacing of growth investments and expected scale of economies as our business grows adjusted.
Adjusted product development expense was $18 1 million or 11, 3% of revenue down from 12% of revenue reported in the prior year period.
The decline as a percentage of revenue is attributable to timing and prioritization of investments in our solutions and centralized operations.
Adjusted G&A expense was $25 9 million or 16, 1% of revenue down from 16, 5% of revenue in the prior year period.
This was largely driven by active cost management during the quarter and also stabilizing investments in our public company infrastructure as we are now in our second full year as a public company.
We continue to generate significant free cash flow as we invest to grow our business. Our adjusted Unlevered free cash flow for the quarter was $22 4 million, representing 54% year over year growth and a 13, 9% margin for the last 12 months, our adjusted Unlevered free cash flow was $92 8 billion leverage.
Free cash flow, which accounts not only for debt service, but also various working capital adjustments was $7 8 million in the quarter. This was down slightly year over year, primarily due to higher interest rates for the trailing 12 months Levered free cash flow was $46 1 million continuing to underscore our balance sheet flexibility.
Strong free cash flow generation allows us to operate our business with an optimal capital structure that includes modest levels of leverage ultimately this can allow us to deliver enhanced equity returns to our shareholders. It also allows us to efficiently allocate capital across the spectrum of opportunities, while we continue to appropriately invest in our organic growth.
We used a significant amount of excess cash in Q1 to continue our share repurchase program in the first quarter, we repurchased $3 1 million shares for a total cash consideration of $29 6 million an increase from the fourth quarter of 2022, when we repurchased two 1 million shares.
We ended the quarter was $69 8 million in cash and cash equivalents and we maintain a $190 million of undrawn capacity on our revolver. Our debt is a combination of floating and fixed rate and total net leverage as calculated per our credit facility at the end of the quarter was approximately three two times consistent with our financial policy.
We have no material maturities until 2028.
I would now like to finish by providing our outlook for the remainder of 2023, beginning with the second quarter for.
Q2 revenue, we expect total revenue of $168 million to $172 million and we expect adjusted EBITDA of 31% to $34 million.
Our full year 2023 revenue guidance remains $680 to $700 million and we are raising our adjusted EBITDA guidance to $136 million to $144 million.
As we noted on the first quarter call price increases and new product introductions are expected to drive growth and strong margins throughout the year.
Our 2023 outlook does not include any potential impact of the M&A activity that could take place.
Before we begin the question and answer portion of the call I want to highlight once again, how pleased we are with our first quarter results.
Our focus continues to be on executing against our strategic priorities to deliver consistent profitable growth and significant value for our customers and shareholders.
Operator, we're now ready to begin the question and answer section of the call.
Thank you.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Kirk <unk> with Evercore ISI. Please go ahead.
Yes, thanks, very much and congrats on the good start to the year. Eric can you just talk a little bit more about the macro environment.
Or are things pretty.
Pretty much leveling out versus what you saw on the sorry, the fourth quarter, how would you kind of characterize how the quarter. Wang was there any sort of impact from some of the macro intensity around the banks in March I was just kind of curious where you think we are on that path.
Thank you Kirk I appreciate the question.
Really this quarter really felt the continuation of the growth of Q4 and really business as usual, we do not see any impact in the core verticals, we serve and we've talked about this before correctly as you remember we in that kind of service businesses that we serve in the verticals that we're in from healthcare.
Venezuela as well as home services, which is the largest cabinet category, it's really been kind of a continuation of very steady growth.
At this point, we expect that the rest of the year, we have not seen any.
Any degradation in any of the core verticals that we serve.
Okay, Great and then Mark one for you.
Just on the EBITDA forecast for the year, I guess, where are you I guess year to date against your hiring assumptions is there anything we should be thinking about maybe in the back half of the year from a seasonality perspective around hiring or any one off expenses. Thanks.
Thanks, Kirk so nothing of magnitude I think coming into this year.
Just given the climate we're in.
We want to be in front of our expense base and managing that tightly we refer to that as active management. We did a good job of that in Q1, So we're being.
Very deliberate with respect to our hiring and making sure that we're doing that in the right places for the right reasons, I think coming into the quarter or excuse me exiting the quarter.
<unk> pay is a little bit slower than anticipated. So that I think will sort of carry through the balance of the year, but all in all nothing to really call out.
Great. Thank you all.
Our next question comes from Matt Hedberg with RBC capital markets. Please go ahead.
Hi, This is a nice job for Matt Hedberg. Thanks for taking my question here.
Maybe if you could just start by talking about what trends youre seeing on the new customer side of things relative to last quarter and then how should we think about the net adds going forward.
Thank you so much for the question really.
Okay continuation as it's just tough to current about the cost per acquisition is kind of on pace as expected.
Really based on plan that we that we thought at that.
Anything that has been off anywhere in that top of funnel down to new customer growth has really been really as plan as expected for the first quarter.
I'd say similarly from the full funnel conversion standpoint to all of our channels and obviously digital being our largest region and largest impact one from digital partnerships to live in trade shows and conferences again, we've seen stability quarter over quarter and performance of the funnel there. So.
Happy about that progression.
Got it and then you talked about price increases built into the guidance.
I think your press hard on price lever. This year could you talk more about that.
As a driver for you and then what has been the customer reception of the price increases so far.
So thanks for that I'll I'll take that.
So as we said on our last call.
We always increase prices, we really are focused on value pricing across all of our various products and solutions I think coming into this year.
We have been more deliberate and more widespread with that motion and we do expect that to have impact through the year, probably more in the second half because obviously, we're initiating those here in the first half.
Thus far and has always been our history when we raise price we tend not to see.
Much impact, we usually plan for that noise right around that action and typically we really don't see much and thats certainly been the case year to date.
Got it thank you.
Our next question comes from Brad Reback with Stifel. Please go ahead.
Great. Thanks, very much Erik do you see an opportunity to getting back to the M&A strategy or is your stocks. So compelling of the value right here that it makes no sense to buy other businesses. Thanks.
Yeah. Thanks, Brad I think we're getting closer I think less to do with our value because I think we will continue to perform and I think the stock will take care of itself over time, but I do think we're starting to see really Brad as we've talked about before just being disciplined in making sure. What we're finding is going to be accretive to the business.
Both in the near term to long term and I think the market is beginning to balance out a little bit more now that I've seen in.
In quarters past and so we're looking at a bunch of things but.
We're going to be active as we see opportunities that make sense for the business.
And so following up on that is there a maximum.
Actual EBITDA leverage you'd be comfortable with or how should we think about adding more debt to the business. Thanks.
Yes, right now I think as you saw our leverage went down slightly.
I'll have cash on the balance sheet that we look at and so a lot of it is going to depend on the right type of deal how accretive that is some of the deals. We're looking at are actually just going to be on the smaller side of things that we can.
By our balance sheet without having to create additional leverage and so we were going to be prudent as mark put them kind of the priorities out historically it jumped the ranges what we're willing to kind of gross up to you but at this point in time, we don't see the need to draw down additional leverage.
Great. Thanks very much.
Our next question comes from Bob <unk> with Deutsche Bank. Please go ahead.
Great. Thanks for taking my question just in terms of the consolidation into the larger every house every well etcetera brand can you just first from a cost standpoint, what you guys need to do from an integration integration perspective that kind of consolidated under those brands and then two I know, it's kind of early but what are you seeing on the other side of things in terms of.
From a demand generation standpoint, and a cost of up sell standpoint.
Yes, great.
Great question on the cost side of things obviously, it's still early what we what we expect to see is cost efficiency in terms of how we go to market. So as we consolidate brands and we're and we're actually going to market with less of those brands are digital marketing costs should those are costs that we do feel like we're going to be able to consolidate and get more efficient.
See from as we're going with a consolidated set of solutions versus.
A less integrated set of point solutions.
About our motion down down funnel from that go to market. When you think about the sales organizations implementation.
How we service the customer how we continue to evolve our product platforms all of those represent cost efficiencies. When we think about consolidating not just the brand, but the underlying operations and again thats something that we have been underway with and as we've spoken about in the past have been most significantly underway from from an ever health standpoint, obviously still earn.
Early innings.
It's about what are what are our results there, but the reception in the marketplace has been really really strong.
Obviously from a customer experience standpoint that consolidated set of suite of integrated solutions versus.
What what previously were less integrated more point solution that has a better customer experience and that really is.
Whole thesis behind ever Commerce, and really the whole thesis behind this consolidation and integration of brands and the underlying operations and products. So super excited about early innings, but customer reception has been good.
Bob its Marc just double click on.
What Matt just described more from a time context I mean, we are in the very formative stages of doing this ever health is and we've said this really over the last couple of quarters are sort of leading paving the way. If you will in terms of consolidation of products and organizations within a particular vertical.
It is a multi quarter arc of optimization, though it does create what we think is a very long tail opportunity and one we're very very focused on because as Matt said, it's ultimately it's a lot better for our customers under what breed a lot of optimization into our organization and operations. So we are excited about that but it won't be an over.
Kind of experience.
Sure that makes sense.
I guess, just one follow up on the on this topic.
Your customers as they kind of interfacing with the product that they use that to crowd out the therapy et cetera.
Are those the life changing work, where it's more prevalent that's interesting ever health out there or is it still facing quite a.
Etc.
Yes, that's going to be an iteration over time for sure.
And we will obviously be thoughtful about that obviously thoughtful about the brands that have equity and stronger.
Action from the customers and others, where maybe that that doesn't exist, but yes over time in a very considered way throughout the product experience. They would see throughout not just the product experience through that throughout their entire experience with ever commerce. They will see that shift over time, but again, we're very thoughtful about that and that's going to be a delay.
<unk> change.
Thanks for taking my questions.
Our next question comes from Alex Sklar with Raymond James. Please go ahead.
Alright, Thanks for taking the question. This is John for Alex I wanted to start off with one on the ability to expand into newer micro verticals any opportunities here to stand up new micro verticals using existing solution without the use of M&A.
Yes, John Thanks for the question. The answer is yes, we are constantly expanding looking at opportunities within the verticals that we serve some of that comes organically, meaning verticals customers and kind of.
Complementary or adjacent verticals, we utilize our solution as we start getting critical mass we built additional services on top of that Great example of that is in our cost control business that we have we started getting more kind of tree.
Tree care type of customers utilize next February similar overlap into the pest control, we saw some things and make needed to add to make it even more complete product. We built some of that and now have a really full suite product for that for that vertical so we're doing that.
Several different places as we see the opportunity.
Thanks, that's great color, there and maybe just a follow up on an earlier question on the multi product success any changes in deal sizes on like a like for like solution basis, given the increased integration of payments into more core systems of action. So basically are you seeing more multi product success at the <unk>.
Point of sale versus cross selling later thank you.
Absolutely. It's great question I think we think about multi product take again bolt.
The time of sale of a core system of action.
The whole mantra around a suite of integrated solutions the more.
That has integrated the more we can sell up front, but again, we also will meet customers where they are in the system of action is where they are we're going to have a motion for adding that second product on the back end. So we arent seeing nice success, both in the initial sale as well as the add on cross sell it at a later time when the customer is ready to ingest that so both strategies.
Pushing on both and success on both fronts.
Thank you very much.
The next question comes from Jeremy <unk> with Jefferies. Please go ahead.
Hey, guys. This is Jeremy on for <unk>, Thanks for taking my questions.
So first you guys called out that take rate expansion and it looks like that was a bigger contributor to that payment revenue and tpa.
Can.
Can you talk about what's driving that take rate expansion and kind of how much juice is there left for further expansion.
Yes, absolutely absolutely one of the core strategies within our payments.
From a payments growth standpoint.
We've seen that really on two fronts merchant pricing.
<unk> had opportunities and again, you hear us say price to value. So payments is another place that we look at price to value and we've had opportunity to expand that specifically as the integration and breath of our payments offering has continued to expand in those integrated solutions. So merchant pricing is a spot there and with scale. Obviously, we continue to have the opportunity to.
Optimize our contractual relationships with our backend providers, which creates an expansion opportunity for spread so both of those things together has absolutely led to an increase in net take rate over time on our payments volume.
Got it that's great color. Thank you and then on the.
Yes.
Reiterated full year guide that you guys called out kind of continuing headwinds to marketing tag I guess of that reiterated guide how much of that is coming from incremental strength in subscriptions transactions or are you expecting any stabilization on marketing.
Yes.
We're basically we're seeing kind of we kind of talked about this last quarter Q3 was kind of a time, where we saw some of our tech come down it has stabilized in Q4 and stabilized in Q1, so as we look throughout the rest of the year, it's really were.
<unk> really continuation of the current trends that we're seeing I think their trend has been favorable for us in Q1, and we expect that throughout the rest of the year being prudent with out knowing the macro world. So we feel very comfortable with the guidance we've given at this point.
Got it thanks for taking my questions guys.
If you'd like to ask a question. Please press Star then one at this time.
Our next question comes from Noah Herman with J P. Morgan. Please go ahead.
Hey, guys. Thanks for taking our questions just one from our end.
Okay.
To further improve the onboarding capability.
The ability for customers.
I know it can can you repeat the question. Unfortunately got it got muffled a little bit could you repeat that please I'm sorry.
Yes, no problem.
Steps are you taking to improve the on boarding of payment capabilities for customers.
Yeah got it thanks, that's great.
Again, obviously reporting part of the core growth strategy around payments is.
Creating more opportunities for attach rate driving more attach rate getting those customers to activate and start processing as quickly as possible expanding their wallet share and as I just talked about growing the net take rate. So from an onboarding standpoint, obviously thats key to that's key right in between the attach an accurate.
Utilization.
So super focus from that perspective, I think it's an area that we have been pretty strong on we very much understand that.
Just about.
The proposition.
From a marketing and sales standpoint, but getting somebody setup and starting the process is critical so from all of our touch it during the marketing and sales process educational pieces that we're consistently providing.
Touches from a customer success standpoint to get people without there are a variety of strategic initiatives that we have across the payments landscape that are really focused on exactly that getting that attached payment customer on boarded and starting to utilize the product.
Thank you and congrats on the quarter.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Eric <unk> CEO for any closing remarks.
Well. Thank you for that <unk> started the year very strong and we remain extremely excited about our future prospects and really the continuation of the Digitization of the services economy. Thank you guys very much for joining the call today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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