Q2 2023 EngageSmart Inc Earnings Call
Okay.
Good morning. Thank you for attending today's engage smart second quarter 2023 earnings call.
My name is Chelsea and I will be your moderator today.
At this time all participants are in a listen only mode.
Later, you will have an opportunity to ask questions. During the question and answer session.
Please note. This call is being recorded and I will be standing by if you should need any assistance.
I'll now turn the call over to Josh Smith of engage smart Josh.
Thank you good morning, and welcome to our second quarter 2023 earnings call 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 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.
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 got engaged smart dotcom.
I would now like to turn the call over to our CEO Bob Bennett.
Building upon our proven track record of success, we achieved another remarkable quarter delivering record revenue of $94 $4 million and adjusted EBITDA of $19 $4 million. This represents 28% revenue growth and 25% adjusted EBITDA margin or is.
<unk> demonstrated our ability to balanced sustainable top line growth and strong profitability and they underscore the durability of our business model with our teammates relentless execution and our attractive market position and defensive verticals, we are well positioned for continued success.
Before diving deeper into the details of our second quarter performance and outlook for 2023, I'd like to address the two strategic accomplishments that we announced today the alumina nello deal and the sale of our health pay 24 solution.
<unk> entered into an agreement to acquire strategic assets of lumen Nello, an electronic medical record and practice management platform for mental health prescribers predominantly psychiatrist.
Simple practice Luminaire law was founded by practitioners to create a practical and intuitive solution that empowers private practices to run a simpler business and deliver better patient experiences both businesses share a commitment to removing administrative burdens for practitioners and enable them to focus on what they care most about.
Treating patients.
We believe the luminaire low deal offers for key strategic benefits first we believe it will expand our market share and growth potential in psychiatry luminaire those customer base complement simple practices growing community mental health practitioners and enables us to better address the high value prescriber market.
<unk> has a compelling market position and offers distinct features and functionality, including E prescribed with both luminaire low and simple practice, we will be able to offer a greater range of functionality and drive higher value for all practitioners.
Third the deal with unlock greater possibilities for serving multi disciplinary group practices.
Solve more complex and acute mental health diagnoses, a growing number of group practices include both prescribers and non prescribers and lumen nello strong background in serving prescribers adds to simple practices deep expertise and mental health.
It will increase the value we bring to employee assistance programs and managed care organizations are growing psychiatrist community enables us to better support health care organizations, and simplifying access to quality care, particularly for patients whose conditions require medications.
We look forward to leveraging the collective experience and strength that luminaire low and simple practice bring to practitioners.
Unhealthy 24 after careful consideration we have entered into a definitive agreement and simultaneously have closed on the sale of our health pay 24 solution to way Star. We are proud to have developed helped pay 24 to become a premier enterprise patient payment platform that both patients and providers.
Rust.
We're confident that way he started as the right owner to unlock healthy 24 as full potential moving forward as we focus our investments in innovations on enhancing our offerings. We believe that this strategic move creates a more streamlined business and enables us to focus on the solutions, which had the highest growth potential for us.
Now turning to our second quarter highlights.
Given by strong new customer adds in mental health and expansion with existing customers. Our SMB segment achieved revenue growth of 30% in the second quarter. The high demand for mental health care, coupled with the shortage of professionals continues to be a strong tailwind for our SMB segment, where.
Where are we now serve nearly 110000 customers and more than 178000 practitioners, notably we have seen an acceleration of gross customer adds in that market. We are also.
Excited about the ongoing traction beyond mental health, we continue to increase awareness for simple practice in specialties like speech language pathologists and occupational therapy and are encouraged by the growth in new customers this quarter.
In addition, we continue to make progress with group practices. The majority of New group acquisitions are made up of smaller businesses with up to 10 practitioners. These practices are an excellent fit for us given our track record of helping solo practitioners grow their businesses. We also continued to see expansion in our existing customer base and are excited about this.
As we discussed last quarter, we have several long term initiatives underway in our SMB segment intended to drive new growth, including simple practice enterprise and revenue cycle management or RCM.
Our simple practice enterprise offering is an extension of our efforts to improve outcomes for patients.
Recent survey from Americas Health insurance plans found that nearly half of the insurance plans in America cover mental health services, and 83% assist their plan members and finding providers and making mental health appointments. We believe that simple practices network of over 178000 practitioners is particularly.
It would be valuable to these health care organizations, because they frequently struggled to find therapist for their customers in a timely manner.
We are seeing great traction with a pilot that we initiated a couple of months ago and are particularly excited about successfully expanding our program for example.
One large national managed care organization that was initially piloting the program in one state is now in over 40 states with simple practice enterprise, notably this particular organization has over 100000 practitioners in its network that are not yet using our practice management solution, we believe simple practice and.
Surprise represents a strong opportunity for us to drive top of funnel expand our in network practitioner base and grow our patient and practitioner community.
In addition, we continue to sign and onboard new health care organizations and are encouraged by the positive feedback from both practitioners and patients.
Seo and EAP customers are most excited about the reduction in time to appointment for their members.
The National average for time to appointment is 48 days with simple practice enterprise, we have reduced that period to six days on average for our Mcs and EAP.
Think we can all appreciate the positive impact this improvement in speed to care can have on patients and their families.
We also continue to invest in RCM to address the challenges practitioners faced with dealing with insurance, many health and wellness practitioners don't accept insurance today due to the difficult credentialing processes long payment periods and high administrative cost and Thats, where simple practice can help our goal is to reduce the.
Friction and administrative burden for providers maximize their reimbursement rates and ultimately enable them to manage insurance at scale. So early in our journey, we have gathered relevant customer feedback from the pilot and are excited about our progress across all customers participating in the pilot our RCM solution automates.
Approximately 80% of revenue from submitted insurance claims.
Additionally, we recently completed a third party analysis to size, the RCM opportunity and gain further customer insights based on that analysis. We believe RCM has the potential to expand our behavioral health total addressable market by approximately $700 million.
We have learned that most behavioral health customers prefer functionalities like RCM to be bundled with their practice management solution. They indicated that RCM was one of the top three features that they are likely to adopt as an add on over the next three years, demonstrating the industry shift towards improving mental health care affordability and access.
We believe RCM represents a significant opportunity for us and can enable us to capture higher wallet share from current customers and better serve group practice customers that already accept insurance today.
Now turning to our enterprise segment.
Our dedication to creating streamlined and user centric experiences that drive higher digital adoption continues to resonate well with our customers fueled by steady customer go lives and record digital adoption enterprise delivered revenue growth of 25% in the second quarter. We continued to see strong go lives across verticals.
Utilities for example, we went live with several new customers, including the city of Independence, Missouri.
Once we go live with our customers our solution drive superior rates of digital and paperless adoption Mount Pleasant Waterworks, a water and wastewater utility in South Carolina. For example has reported a 72% increase in electronic payment adoption since first implementing invoice cloud in December of 2017.
As of March 2023, the utility also reported a 46% increase in paperless enrollment.
Another key differentiator is our ability to increase auto pay adoption.
Georgia Farm Bureau, mutual insurance Company for example reported a 35% increase in auto pay adoption and realized a 30% decrease in billing and payment related calls and this was just in the first eight months after going live on the invoice cloud platform.
Our ability to quickly drive results and time savings for our builders is why new customers like Southern Farm Bureau, casualty and Mississippi chose to partner with invoice cloud.
Our new customer growth continues to be driven by our strategic alliances, forming new strategic alliances and strengthening existing relationships remains important to us as they open new markets add to our top of funnel and accelerate sales and implementation cycles. Once they are onboard. It we're excited about our continued collaboration with Oracle.
And recently signed another Oracle customer nationwide energy partners.
Finally, we continue to focus on developing innovative functionalities that remove friction and enhance the customer experience. Most recently, we launched key enhancements to our online bank direct functionality to simplify payment reconciliation and limit money movement for pillars with the launch of our proprietary smart match intelligence.
<unk> Bill there is now only receive match payments ultimately speeding up their payment processing for payments that do not automatically matched builders can take advantage of invoice clouds easy to use interface to match payments to invoices with just one click our machine learning technology, then remembers that match for the future. In addition.
<unk> now have the ability to receive single consolidated deposits and deposits sorted by invoice type.
In summary, we've had a great second quarter fuelled by persistent customer demand in the markets. We serve adoption by our payers and outstanding customer retention rates are strong results are a testament to our product suite of vertically tailored SaaS solutions and position us as leaders in customer engagement software with integrated payments and <unk>.
Additional we are proud of the two strategic accomplishments, we achieved illumina Elo deal as well as the sale of health pay 24, reinforce our commitment to enhance our offerings and deliver exceptional value to our customers.
With that I'll hand, the call over to our CFO Cassandra Hudson <unk>.
Andre.
Thank you Bob.
Had an excellent second quarter that underscores our ability to achieve strong revenue growth while continuously expanding our EBITDA, we delivered revenue growth of 28% in the quarter as well as record adjusted EBITDA of $19 4 million, which represents an adjusted EBITDA margin of 25%.
And as Bob discussed, we announced the alumina allo deal and the sale of help pay 24. This morning.
As a result, we are updating our 2023 guidance the details of which I will discuss in a few moments.
As for second quarter results revenue growth for Q2 with fueled by growth in customer count and transactions processed as of the end of Q2 2023, our total customer count was 113200, an increase of 22% 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 Q2, we processed $43 8 million transactions up from $36 1 million in the year ago quarter, representing 22% growth.
Driven by strong secular tailwind in mental health, our SMB segment delivered revenue of $53 1 million, representing 30% growth year over year.
Prescription revenue of $36 6 million grew 25% year over year, driven by high trial volume and strong conversion.
As a reminder, we lapped last year's pricing and packaging changes halfway through the first quarter of 2023, the second quarter now marks the first full compare and as anticipated subscription revenue growth moderated from previous levels.
Transaction and usage based revenue of $16 2 million grew 44% year over year fueled by a higher number of transactions processed on our platform as well as a higher transaction <unk> due to the 20 basis point price increase that we implemented in late Q1 of 2023.
Our enterprise segment also performed well with reported revenue of $41 3 million, representing 25% year over year growth marked by steady go lives and continued digital adoption of our solution.
Notably we continue to see high demand for our Invoiced cloud solution and our core vertical utilities insurance and tax.
Our adjusted gross margin for Q2 of 2023 increased to 79, 2% up from 78, 2% in Q2 of 2022, primarily driven by economies of scale the price increase of our integrated payment processing solution and the timing of hardware revenue in the year ago quarter.
Sales and marketing expenses were $29 4 million up $6 3 million as we continue to invest in digital marketing channels to drive new customer acquisition in F&B and broaden our brand to create awareness for our solution.
In enterprise, our investments continue to be in support of our strategic alliances as well as sales head count to fuel pipeline and bookings growth.
R&D expenses came in at $15 6 million up $4 9 million in our SMB segment, we're investing in new features and functionality for group practices such as measurement based care are simple practice enterprise offering as well as revenue cycle management in.
In enterprise, we are investing in features and functionality for our invoice cloud solution such as the recent online banks direct enhancement.
Features like these continuously improve the experience for our <unk> and their payers and help accelerate digital adoption in all of our verticals.
G&A costs were $11 4 million down $1 3 million, we continue to realize efficiencies in G&A driven by lower insurance premiums this year and leverage across many of our back office function.
Net income was $4 3 million for the quarter compared to $6 9 million in the second quarter of 2022.
The decrease was primarily due to higher income tax expense associated with the section 174 tax code changes, partially offset by operating efficiencies and interest income.
Adjusted EBITDA was $19 4 million for the quarter, representing 25% margin compared to $12 million or 16, 2% margin in the second quarter of 2020 to.
We expanded EBITDA margin was primarily driven by economies of scale and efficiencies in G&A, partially offset by higher investments in R&D.
Free cash flow was $13 8 million for the quarter, increasing our cash balance to $332 8 million as of June 32023.
As a reminder, we expect adjusted EBITDA to free cash flow conversion to moderate to approximately 50% in 2023 due to higher cash taxes associated with the section 174 tax code changes and the utilization of the majority of our remaining Nols in 2022.
Now turning to our Q3 and full year guidance, we are updating our 2023 guidance as follows.
We now expect revenue in the range of $376 five to 379 million for the full year or revenue growth of 24% at the midpoint.
This updated guidance factors in our expectations for the continued strong performance across our business.
This is of course offset by the removal of $5 million in revenue from the back half of the year due to the divestiture of <unk> 24.
We estimate that excluding the impact of this divestiture our revenue growth rate for 2023 would increase by roughly two percentage points.
For adjusted EBITDA for the full year, we are updating our guidance to $69 five to 75 million, which represents an adjusted EBITDA margin of roughly 18, 5% at the midpoint or a 230 basis point improvement over fiscal year 2022.
Our adjusted EBITDA guidance assumes continued strong profitability, which is partially offset by the impact of the luminal O deal and the sale of health by 'twenty four.
For Q3 of 2023, we expect revenue in the range of 95% to $96 million, which implies 21% growth year over year at the midpoint of our range.
Our updated revenue range factors in a decrease of $2 million from the sale of health by 'twenty four we estimate that excluding the impact of this divestiture our revenue growth rate for Q3, 2023 would increase by roughly three percentage points.
We expect adjusted EBITDA in the range of $14, seven and $15 2 million, which represents an adjusted EBITDA margin of 15, 7% at the midpoint.
This assumes a minor reduction in adjusted EBITDA as a result of both deal as well as the impact of onetime go to market investments, we are planning to make in our enterprise business as.
As you think about the next quarter and the remainder of 2023. Please keep the following in mind regarding SMB, we continue to see strong new customer growth in mental health and mental health market makes up the majority of our F&B revenue today and continues to grow at a steady pace. Our solution remains in high demand with solo practitioners in small group practices and <unk>.
We continue to invest in increasing awareness for our simple practice brand.
Beyond new customer growth, we enable our practitioners to grow their practices with us and as they expand they typically purchase higher priced packages add more seats and process more payments through our solution.
Additionally, we continue to invest in product innovation to enhance our solution and drive higher value for our practitioners.
We remain excited about RCM and the Tam expansion opportunity it presents.
We received positive feedback in our pilot program and we will continue to invest in this growth area.
Online bank direct functionality.
In addition, we are planning the following strategic one time in enterprise investments to create future margin expansion opportunities.
First we are in the process of renegotiating certain legacy partner arrangements relate.
Related one time expenses will impact margins in the second half, but will enable us to further expand margins over the long term.
Second we are conducting a comprehensive pricing analysis for invoice cloud solution with the goal of better understanding and optimizing our pricing structure, our guidance factors and related consulting expenses that we expect to incur in the second half of 2023.
As a reminder, our donor drive vertical is more susceptible to macroeconomic disruption in our guidance as soon as the slowdown in revenue growth from fundraising events. This year.
Finally are updated guidance for the third quarter in fiscal 2023, now excludes revenue and adjusted EBITDA from our help today 24 solution, who fail we announce today.
In summary, we believe we largely operate in defense of vertical that are characterized by attractive secular tailwind regarding SNB, the unmet need for mental health treatment as large and widespread in the coming quarters. We look forward to leveraging the expertise of simple practice and now lumen L O to better serve practitioners in the mental health and wellness vertical.
And our enterprise segment. The majority of bills are nondiscretionary in nature and the trend towards Digitization remains strong.
The sale of health pay 24 enabled us to focus on the enterprise solutions and markets with the highest growth potential for us.
We remain committed to investing in our solution to further enhance our ability to serve the unique needs of both R. S. M B and enterprise customers, we're confident in our ability to drive profitable growth and create longterm value for stakeholders as we execute our strategy and capitalize on the opportunities that lie ahead, I'll now turn the call back over to Bob for closing <unk>.
<unk>.
I'll bet Bubba Goofy Android that was one strong dizzy quarter.
Refounded engaged smart because activities like paying bills scheduling appointments onboarding, new patient and client communications shouldn't be that hard.
Success is driven by a combination of three simple factors.
First we have a proven playbook that revolves around customers and is guided by top talent. We are focused on recruiting retaining and developing our teammates they were exceptional work and dedication to customer satisfaction fuel our ongoing momentum second our emphasis on product leadership is reflected in our high adoption and retention rates.
Leveraging our deep expertise in vertical markets, we may customer centric decisions and develop innovative industry, leading solutions third we operate in a vast and thriving market with immense potential for expansion, we've captured about 1% of our addressable U S market, we are eager to broaden our reach across all vertical.
And capitalize on new opportunities as they emerge.
He remained focused on the lighting, our customers rolling our business and creating stakeholder value, while we make a positive impact in the world.
We appreciate you all joining us on this call. This morning, Thank you very much.
At this time, if you would like to ask a question. Please press the star and what keys on your touch tone phone.
You may remove yourself from the queue at any time by pressing star Q.
Once again that is star one to ask a question.
And our first question will come from Bob in Shaw with Deutsche Bank. Your line is open.
Thanks for taking my question.
<unk>, just a luman L O.
Appears to be plenty of product and target market overlap how should we think about the long term cost synergy opportunity here is there an ability to overtime consolidated ran it'll get onto one platform.
Thanks, Bob and.
Yeah, I mean that certainly is our intent.
We.
Envision delivering an enhanced solution.
Basically provides the functionality for all of our customers, including the customers of <unk>. So we're excited about that and I think what you'll see once we get on the other side of of migrating to one platform that you'll see a high degree of flow through to the bottom line as a result.
Got it and then just Cassandra following up on your fiscal year guidance, even though after your chest for the health pay scale. It appears that you haven't raised the the full your guidance. Despite the two Q outperformance anything that you're seeing in the business or or kind of pipeline that has you a little bit more cautious or any kind of change to the guy who got excessive.
<unk> to think about.
No I wouldn't say, we're being more cautious I mean, I think you know our performance has been.
Has been very strong for the first half of the year. You know I think there's certainly is noise give in to help pay divestiture of that I'm asking things a bit we did move up the midpoint of our range of bad excluding the impact of.
<unk> and you know I think that factor than the continued strong performance that we saw in the first half to continue in the second half.
If you're you know we.
Our business is very predictable so we're pretty comfortable with the numbers that we put out and you know.
I think that's reflected in our guidance.
Super helpful. Thanks for taking my question.
No problem.
Thank you.
Our next question will come from <unk> with William Blair per line is open.
Alright, Thank you and and good morning, Bobbing, Cassandra K solid numbers and like the strategic move just check I guess on the.
R C M.
Pepper I mean, it sounds like a really large opportunity may be a little bit more color.
On the nuts and bolts of how.
First of all are are you having success on cross Selwyn and what percentage of your clients already except insurance and then how are you what is.
And gave smart doing with their customers to enable that insurance business.
Hi, Bob.
The.
Less than half of our customers, except insurance in simple practice.
But getting closer to have I guess and what we do is actually take over the burden and ultimately we see ourselves, helping our conditions will credentialing.
With the claims management and we're we're developing solutions and systems that automated the process a claims management. So that we get a very high degree of odd.
Automation that requires no human intervention for claims management.
And so what we and then we take it from a revenue standpoint, we take a percentage of the claim that flows through for a solution. So as insurance continues to gain.
Gained traction for mental health across the country, we continue to see strong demand from our conditions for that it's been in pilot really small percentage of our conditions using it today, but.
We anticipate this generating material revenue in the future.
Great.
Thank you and then just on the pricing.
Pricing change I will turn it over with lots of questions.
Going on here, but the pricing change.
That you made what is the response from your customers how old is your pricing compare I think to some of your competitors and how important is that pricing on the payments peace to the overall customer relationships.
The pricing on the payments Park.
Alright, I guess, Bob just to clarify your talking about that simple practice pricing change yeah. That's right I'm sorry, yes, yes sure no problem I mean, we the pricing change went into effect in late March.
I think the reaction.
With.
But.
Very smoothly I guess, the rollout had been very smoothly, we haven't really seen an increase in churn, which you know we're always watching for so I think it was largely a non events for us, especially as you think about.
Tearing into the pricing and packaging change that we did last year, which was far more disruptive so I think very positive.
For us the real key to our payments offering is the integration into our overall platform and investing in.
That integration and the billing capabilities and reporting capabilities for our practitioners add a lot of value.
So you know to continue to make those investments.
Why we made the price increase.
So we're we're certainly providing value and obviously charging for the value that we provide in return.
Oh, great. Thank you.
Thank you for a loop.
Our next question will come from Ashwin shook my car, which city.
Aspirin, please make sure that you're not self muted.
Alright, we'll go to the next question, Jason Kupferberg with Bank of America. Your line is open.
Good morning, Cassandra This is Tyler Dupont, Jason Thanks for taking my questions. So just to start off and just to make sure that I'm on the same page here. If you just spend a minute or two walking through the pieces of guidance.
Particularly with respect to the acquisition divestitures when exactly is helped by 24 and.
<unk> expected to close is that supposed to be simultaneous suggest any sort of clarity there would be appreciated.
Sure. Thanks, Tyler her or the question.
And yes, there and the moving pieces this quarter. So appreciate the follow up.
So both acquisitions closed as of yesterday.
And so as a result at least as it relates to help pay we removed revenue and adjusted EBITDA associated with that business.
As of as of today, effectively and that is factored in our guidance.
And just to reiterate that was about $5 million in revenue.
That we removed in the back half of this year and about a million dollars and adjusted EBITDA.
In terms of Tahoe.
A license in PSA arrangement for this year with them and we're really focused on.
The.
The migration effort associated with rolling out and enhance solution that meets the needs of both customers.
So that's our focus for the back half of this year and.
Moving into next year. So we don't expect to material contributions from that business, while we're making those investments and focusing on that migration plan.
And really excited.
You know more about the strategic.
While you of Tahoe.
Just given it really moves us more meaningfully into the high value psychiatry space.
That's more features and functionality, especially he prescribed which as you know with the roadmap item for US was certainly accelerate.
That for us.
I think it makes us more attractive to multidisciplinary group practices, where they often have prescriber than non prescribers coordinating care together and increases our value on.
Simple practice enterprise, so <unk> <unk> <unk> <unk>.
Providing access to care for patients who require medications so for us it's a very strategic deal.
Looking forward to the value that it will bring to us on the other side of the migration and later in 2024.
Okay. That's helpful. Cassandra Thanks for the color there and then as a follow up it just looks like this was another impressive quarter.
Both within an enterprise.
Growth was like I believe 20.
4% versus customer growth of 7%.
So we're looking at the drivers here are you seeing that led by increased transactions.
We're sort of any any dynamics there that we should pay attention to sort of 10 sensually to that if you speak to the trends are seeing an enterprise.
Sort of X healthcare.
Sure I mean, I think the trend in enterprise has existed for awhile aware, we are continuing to onboard larger and larger customers. So that is definitely driving the overall <unk> up.
And contributing to our growth and also digital adoption right. Our digital adoption continues to increase and exceed our expectations and that's contributing to revenue as well and I think even more broadly speaking on the enterprise business.
Those are the two drivers of overall revenue growth largely.
Getting new customers live ramping them up on our solution and then driving increased rates of digital adoption over time.
I think both of those continue to.
Deliver superior results for us as it relates to enterprise.
Okay, Great I appreciate I appreciate that thank you very much.
Thank you.
Next question will come from Kerry Tillman with Truth Securities. Your line is open.
Yeah, Bob Cassandra, Josh Uhm I tend if I got this right it was hovered Bubba.
That's great you got it right.
Awesome haven't heard that one before so first question, it's a multi parter on the acquisition in this and the New technology you did from the acquisition and then just never got a follow up for you revenue cycle management, but first in terms of.
Your installed base right now of 180, or so thousand clinicians how how much of your current customer base actually prescribes versus does it prescribed right now.
And then the second part is Cassandra that was helpful. In terms of this was a roadmap item on the prescribed would this be like an AD on you think as you move in the next year or would it just go into one of those.
Skews do you have and and then I had a follow up for Cassandra.
So very small percentage Terry of our customers customers today prescribed.
I need to know.
And they're obviously not using simple practice for <unk> for the prescribed because we haven't had that as bad as you said a roadmap item.
We're very excited about expanding then yes. It obviously has long term implications for us and our ability to <unk>.
Provide prescribed in the future to beyond psychiatry into other medical specialties.
Does that answer your question.
It did.
As it relates to.
But just to follow up on that I mean should we looked at 2024 in terms of baby held the shakes out whether it's it's almost like a telemedicine add on or or it would kind of flow into one of the higher value excuse.
Yeah, I mean that will be bundled in.
As we as we continue to.
Refine our pricing packaging over time.
Anticipate that that's bundled in an available to do all of the customers that have the need for that overtime.
Okay Wonderful and then Cassandra in terms of revenue cycle management I know, it's early days, but do you think this could start to leave a mark in 24 and would it be more of a processing revenue stream or subscription revenue stream. Thank you.
<unk> on the corner.
Sure. Thanks Terry.
I guess first and foremost it's processing revenue for us than we are generating revenue through RCM today.
I think our him as a longer term play just given the dynamics in place in the market. So we know today.
But there is a reluctance among providers to access insurance just given the challenges administratively.
They're so we're trying we're looking to solve those problems and we think there is a ton of demand from therapy seekers and and just.
People more broadly to increase coverage for for mental health from the insurance network. So add that changes I think we'll start to see more and more revenue out of our fan, but I do think it is a longer term part of our story.
Thank you.
Hey, guys. Congrats on the corner of this is Michael Rutgers on for Scott Today, just a couple of quick ones for me, but I guess you know looking at this acquisition do you see you know kind of other areas of consolidation like with similar acquisitions or I guess are there other competitors.
<unk> you know in different vertical is of a similar size that you know you could acquire moving forward and then you know how does that play into kind of the the vertical expansion.
Strategy was simple practice.
And.
Variety of different variety of flavors that could come there, but we definitely are excited about.
<unk> in the marketplace in and finding other areas for us to participate and add value too.
And expanding your.
Base of while those conditions overtime.
Great. Thanks, and then on the pricing increase could you just kind of walk us through the impact on S. M. B transaction <unk> growth. There I mean was was most of the growth kind of driven by that are there any other kind of trends and plus.
<unk>.
So it really bold bright so we continue to process more and more transactions on our platform that's going to continue to drive growth for us as well as the pricing change that we made so the 20 basis points price increase.
That occurred in late two one.
And as a result of that change.
We've we've been expecting just released the price increase about an 8% to 12% left in our Hulu on a year over year maintenance on so I think we've been seeing that that play out and it certainly is a contributor but it's not the entirety of the growth that we're seeing a transaction any safe revenue within a company.
Awesome. Thanks.
Thank you.
Our next question comes from John Davis with Raymond James Your line is open.
Good morning, Bob Cassandra because I just wanted to touch a little bit on the one time go to market expenses and three Q for enterprise. There's this kind of a function of reinvesting the upside from two Q just trying to understand how either offensive or defensive these expenses the third quarter.
I think it certainly is a little bit of that J D. I mean, we've been operating ahead of plan.
You know for us in driving more profitability and I'm.
Just thinking about the things that we need to do in our business longterm.
B.
Are kind of going after some of these opportunities here that we think will continue to set us up for success in 24 and beyond so.
I think these are these are opportunistic investments that we're ready to make and execute on.
And you know I think will help drive longer term margin expansion for us as well.
Okay, Great and then all Luman L O as it definitely seems like it's more of a tech capability by it.
I appreciate it's not in the guide, but any color on either of what the current size will growth rate of that business looks like today.
Sure. Thanks for the question.
Right now obviously, we're operating under Ah structure, where we have a license agreement in place with a TSA and work collectively very focused on creating that enhanced solution. So that we can migrate to one single platform, though that's the goal.
For us it will start to contribute to revenue.
And EBITDA once we get on the other side of of the migration and if you think about the business. Obviously, just given the size of the purchase price.
Not a not a huge business, but we are picking up a couple of thousand customers.
And.
The ultimate goal will be to migrate migrating to this single solution and during that time period.
Those customers will be onboard into our platform.
And we will start to be are approved from them bleeding I think during the period of migration you can expect <unk> to be a little bit lower.
And then the second year post that migration, probably more in line with simple practices <unk> and then I think where there is upside is longer term just given the high value of these the psychiatry market itself I think we'll start to see our food trend higher in the out years there.
Again on the other side of the migration will start to see high flow higher flow through.
To the bottom line as well so we're really excited about the deal where probably most excited just about the strategic.
Value that we're getting of moving more meaningfully into the psychiatry market.
The features and functionality of the acceleration in our roadmap on E prescribe.
And then the value to multidisciplinary group practices and <unk> very much in line with the strategy that we've been executing on here for awhile.
Okay, Great and one quick one for you Bob Yeah, we've talked about the prescribed capability for awhile, it's been on the roadmap.
I understand you're kind of going after mental health first and kind of getting this immigrated.
His priority one, but how do you think about opening it up the ability to attack other soft vertical but healthcare down the road.
Yes, it definitely is an asset J D for us as we move forward I mean things more over there a little bit for us because we really got our hands full and.
In behavioral health in the other world Boneless vertical that were already in in terms of growth for the next couple of years, but yes. He prescribed will be something that will obviously, you'll get woven into our our.
Proposition for medical specialties, as we move forward.
Okay. Thank us.
Alright.
Okay. Thank you.
Thank you.
Our next question will come from Jeff with Henry with Craig Hello. Your line is open.
Great. Thanks for taking my questions I've got a couple of first maybe just on the enterprise side you talked about the.
Size of deals increasing I'm, just curious you talked about like the top a funnel enlarge deals.
Large deals that a function of skill ability increases in the product is.
Change and focus on the field. So I just talk about what's driving you up into these larger deals maybe.
Yeah, Hey, Jeff did spot.
The larger deals yeah, I mean, we really part of it is coming from partnerships right alliances that we've got with.
Guidewire for example, we only have signed a.
Large insurance southern farm.
In Mississippi, that's another guidewire.
Referral that comes to us through our reliance's, though in some cases, it's R move up market with alliances sort of example, another oracle deal as well.
Signed in the quarter.
Part of it is we've always had plenty of scale opportunities. The the enhancements that we do make over time as we do go up market.
Are necessary to satisfy the needs of those those customers. We are true staff single instance, multitenant did so as other interested more enterprise style customers come along that are large.
Got it that's helpful and then in the.
Incremental lisenbee wellness markets issue pursuing anything to call out in terms of the trends of customer acquisition cost and I know you played with a lot of digital go to market and ways to approach those different vertical is just as you've been tuning the models around cats to then maybe step on the gas any areas, where you feel like you've kind of got it dialed in a really pouring it a bit.
More expense expenditure there are just some thoughts on that.
We continue to see really strong trends on the new customer acquisition side for simple practice, both within behavioral health and in.
The new expansion specialties, primarily F L P and O T as where we see that growth.
And I I do think this year, we've really been fine tuning that model.
And that play out in the result second quarter.
Gross customer adds exceeded our expectations and we saw an acceleration and ads from Q1, which we don't typically see so I think that was very positive we're continuing to dial up the investment where it makes sense, but I think by and large we have the model down for the market.
Mhm got it okay, great. Thanks.
Thank you.
Our next question will come from <unk> with J P. Morgan Your line is open.
Heard about the backlog in the paper or whatnot, but implementation timetables changing.
Changing at all any signs of lengthening unknowable.
Product and services free for the asking this question quite a bit because we're seeing some cancellations and delays. So curious the best relevant here.
I would say no actually certainly through the first half of this year, we've seen really strong go lives.
We haven't seen any change in the trend as it relates to go lives I mean, there is always that ebb and flow that happens.
With deals going live earlier deals pushing out for a variety of reasons, we manage through that very well.
So I wouldn't say, we've seen any change there.
Perfect. Let me just quickly on the vanilla.
In terms of your diligence and how you.
Though this asset.
In general can you just give a little bit more of your familiarity with us to go ahead and do the deal. Thank you.
Sure what founder that had a very similar outlook two are the founder of simple practice very.
Very customer centric.
A practicing psychiatrist was frustrated with the tools available for practice management and.
He could he could build something better and he did and.
Remarkably similar culture and customer centric approach to the market.
Very nice platform has a few.
Enhancements.
For psychiatry, specifically that are will also help us as we buying them into a singular single solution. The simple practice solution to enable better work with groups and with with well certainly he prescribed being a major one so we just think.
The best of both worlds opportunity very strong customer strong loyal customer base.
And.
A smaller subset because there aren't as many psychiatrist as there are mental health professionals, if you will and wellness professionals.
Alright sounds promising thank you.
Thank you.
Our next question will come from pop Nepali with William Blair. Your line is open.
Today insurances.
Growing very fast so we don't break out necessarily the <unk>.
And you know, we're really starting to pick up scale there.
Cassandra is point it is yoga utilities still seemed to drive it but we've been in the taxes for a long time over we love the product market that they're so we see that as a growth opportunity as well.
That's great and I always get asked I know that we've talked about this a lot, but I still get asked a lot about.
Why what is simple <unk> I'm, sorry, the enterprise business or invoice cloud.
Cloud doing that is allowing it to have higher adoption rates than its competitors.
All of the the first the first reason is single instance, Multitenant did.
Right now we still are operating with about 45% for invoice cloud, it's an electronic bill presentment in payment solution and it's primarily revenue from transaction. So we're getting about 45% of the bills that get issued to an invoice cloud customer get paid through in boys clouds, which means that more than 50.
Percent on average are not being paid to invoice cloudy yet.
While we have customers that are at 80% and higher so we know how to get the.
<unk> base from 45% to 80%, so where we have a team of customer success managers that they are actually working on that very diligently in the meantime, we continue to enhance the platform MOV do enhance it everybody gets those enhancements simultaneously. So that's the beauty of single instance, Molly tendency.
Where we don't have that.
Most of our competitors.
So that gives us a significant advantage in terms of being able to drive adoption.
And retention of customers better more quickly than our competitors and it obviously provides a significant value proposition to a customer in the in the <unk>.
Selling process into strategic alliances as we speak with them about the opportunity to partner with us and not be stuck in time with a solution that doesn't installation because it's hosted in that installation remains the same until they do some kind of an upgrade where khan.
Suddenly pushing every month to enhance the solution and drive higher adoption through simplification and better features.
Thank you and then last question on free cash flow conversion, what should we expect over the.
The medium to long term <unk> free cashflow conversion rates.
I mean.
It's tough to say, we gotta start we got to get through the impact of the tax code changes. This year I think we'll certainly see the conversion rate.
Conversion rate in Peru from where it will be this year just given this is the first year of the impacts there, but <unk> one turning profitable and then to investing meaningfully and R&D, we will have more of an impact from taxes.
That will be impacting that right. So I think we'll see a tick up from the 50 ish or so percent but.
But I don't think we'll get back to the <unk>.
Alright. Thank you appreciate it.
No problem.
Thank you.
There are no additional questions registered at this time.
I will now pass the floor back over the top Dennis for closing remarks.
Thank you <unk> had a successful vibrant second quarter both of our segments contributed to achieve record revenue and adjusted EBITDA results, reflecting the momentum we have built our achievements were driven by several key factors, including robust customer growth and increase in average revenue per <unk>.
Customer and exceptional customer retention.
We are well positioned to take advantage of the immense market opportunity in the U S.
Are compelling win win value proposition continues to resonate with customers.
We look forward to speaking with you again later this quarter at the Keybanc Technology leadership Forum surrounded by mountains in Vale as well as the Goldman Sachs immune to Kobe and Technology conference in San Francisco.
Thank you ladies and gentlemen, this concludes today's conference call and we appreciate your participation.
You may disconnect at anytime.
Goodbye.
[music].