Q1 2024 EverCommerce Inc Earnings Call & Business Update
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Thank you for standing by and welcome to ever commercial first quarter 2024 earnings call.
My name is Marvin Lumpier awkward for today after the speaker's presentation, there will be a question and answer session.
Question during the session you will need to press star one on your telephone.
He an automated message Viking your hand is race towards all your question. Please press star one again as a reminder, this conference call is being recorded today Thursday may nine 2010 before do not like to turn the conference over to <unk> SVP and head of Investor Relations for Evercore. Please go ahead.
Operator: Good afternoon, and thank you for joining us. Today's call will be led by Eric Remer, Evercommerce's Chairman and Chief Executive Officer, and Marc Thompson, Evercommerce's Chief Financial Officer. Joining them for the Q&A portion of the call is Evercommerce President Matt Feierstein and Chief Operating Officer Evan Berlin. This call is being webcast with a slide presentation that reviews the key financial and operating results for the three months ended March 31st, 2024. For a link to the live or replay webcast, please visit the investor relations section of the Evercommerce website, www.evercommerce.com.
Good afternoon, and thank you for joining today's call will be led by Eric Reamer ever Commerce was chairman and Chief Executive Officer, and Mark Thompson ever Commerce, as Chief Financial Officer.
Speaker Change: Joining them for the Q&A portion of the call is ever Commerce as President backfires time ever Commerce, as Chief operating Officer, Kevin Berlin.
Operator: Call is being webcast with a slide presentation that reviews, the key financial and operating results for the three months ended March 31 2024.
Operator: For a link to the live or replay webcast. Please visit the Investor Relations section of the ever Commerce website, www dot ever Commerce Dot com.
Operator: The slide presentation and earnings release are also directly available on the site.
Operator: The slide presentation and earnings release are also directly available on the site. Please turn to page 2 of our earnings call presentation, where I'll review our Safe Harbor statement. Statements made on this call and contained in the earnings materials available on our website that are not historical in nature may constitute forward-looking statements. Such statements are based on the current expectations and beliefs of management. Actual results may differ materially from these forward-looking statements due to risks and uncertainties that are described in more detail in our filings with the SEC. We undertake no obligation to publicly update or revise these SOAR forward-looking statements, except as required by law.
Operator: Please turn to page two of our earnings call presentation, while I review, our Safe Harbor statement.
Operator: Statements made on this call and contained in the earnings materials are available on our website that are not historical in nature may constitute forward looking statements.
Operator: Such statements are based on the current expectations and beliefs of management.
Operator: Actual results may differ materially from these forward looking statements due to risks and uncertainties that are described in more detail in our filings with the SEC.
Operator: To take no obligation to publicly update or revise these forward looking statements except as required by law.
Operator: We will also refer to certain non-GAAP financial measures to provide additional information to you, our investors. A reconciliation of non-GAAP-to-GAAP historical measures is provided in both our earnings press release and our earnings call presentation. Before we discuss first quarter results, I'd like to highlight the presentation of results and KPIs included in the earnings call slides and our prepared comments. As discussed last quarter, we announced the sale of our four fitness industry solutions in early March.
Operator: We will also refer to certain non-GAAP financial measures to provide additional information to you our investors.
Operator: A reconciliation of non-GAAP to GAAP historical measures is provided in both our earnings press release and our earnings call presentation.
Operator: Before we discuss first quarter results I'd like to highlight the presentation of results and Kpis included in the earnings call slides and our prepared comments.
Operator: As discussed last quarter, we announced the sale of our core fitness industry solutions in early March the sale of the two North American solutions close simultaneously with deal signing <unk>.
Operator: The sale of the two North American solutions closed simultaneously with the deal signing. While the two international solutions are expected to close in the third quarter, they have been classified as held for sale prospectively from the date of signing. As we also discussed last quarter, the revenue guidance given excluded the fitness solutions, and we noted that the EBITDA contribution of these solutions was near zero. As a result, the revenue, revenue growth, and operational metrics such as customer count, TPV, and customers enabled for more than one solution that we will discuss today have all been adjusted to exclude the fitness solutions on a pro forma basis, except where they were specifically noted as GAAP-reported revenue. We will continue this basis of presentation for the remainder of the year. I will now turn it over to our CEO, Eric Remer. Please continue.
Eric Remer: While the two international solutions are expected to close in the third quarter may have been classified as held for sale prospectively from the date of signing.
Eric Remer: As we also discussed last quarter, the revenue guidance, Kevin excluded the fitness solutions and we noted that the EBIT contribution of these solutions with near zero.
Eric Remer: As a result, the revenue revenue growth and operational metrics, such as customer count CPB and customers enables more than one solution that we will discuss today have all been adjusted to exclude the fitness solutions on a pro forma basis, except where specifically noted as GAAP reported revenue.
Eric Remer: We will continue this basis of presentation for the remainder of the year.
Eric Remer: I will now turn it over to our CEO Eric remarks. Please continue.
Eric Remer: Thank you, Brad. On today's call, I will highlight first quarter 2024 results, discuss Evercommerce's presence in the SMB market, our continuing strategic transformation and optimization initiatives, and finally end with a discussion of our key customer trends before turning the call over to Marc to dive deeper into our financials. Turning to our first quarter results, our Q1 reported revenue exceeded the top end of our guidance range with growth of 6% year over year.
Eric Remer: Thank you Brad on today's call I will highlight first quarter 2024 results discuss ever commerce presence in the SMB market, our continued strategic transformation optimization initiatives.
Eric Remer: Finally end with a discussion of our key customer trends before turning the call over to Marc to dive deeper into our financials.
Eric Remer: Within this, core subscription and transaction revenue grew 9%. Adjusted EBITDA grew 28% year-over-year, beating the top end of the guidance range and exceeding the midpoint of guidance by $3.9 million. Adjusted EBITDA margins expanded more than 420 basis points to 24%, compared to 19.8% in the first quarter of 2023. With continued growth and profitability, we are creating the opportunity to invest in our higher growth, higher margin, large market opportunities. Payments revenue grew 11% year over year, driven by 9% growth in TPV and modest take rate expansion. Last week was National Small Business Week.
Eric Remer: Turning to our first quarter results. Our Q1 reported revenue exceeded the top end of our guidance range with growth of 6% year over year within this core subscription and transaction revenue grew 9%.
Eric Remer: <unk> EBITDA grew 28% year over year, beating the top end of the guidance range and exceeded the midpoint of guidance by $3 9 million <unk>.
Eric Remer: Adjusted EBITDA margins expanded more than 420 basis points to 24% compared to 19, 8% in the first quarter of 2023 with continued growth and profitability, we are creating the opportunity to invest in our higher growth higher margin large market opportunities.
Eric Remer: Payments revenue grew 11% Europe at year, driven by 9% growth in TPB and modest take rate expansion.
Eric Remer: Drive payments adoption continues to be a key element of our strategy.
Eric Remer: And given that, I want to take a few moments to highlight the scale of our customer base, all that we do to support our customers, and the tremendous market opportunity in front of us. Service-based businesses are the backbone of the economy, and small businesses employ the majority of service professionals. There are more than 450 million service-based small businesses globally, which translates to a total addressable market of well over a trillion dollars. Evercommerce provides business management software that supports end-to-end business processes for service SMBs.
Eric Remer: Last week with National small business week, and given that I wanted to take a few moments to highlight the scale of our customer base, although we do to support our customers and the tremendous market opportunity in front of us.
Eric Remer: Our space business is the backbone of the economy and small businesses employed majority of service professionals.
Eric Remer: There are more than 450 million service based small businesses globally, which translate to a total addressable market of well over a trillion dollars ever.
Eric Remer: However, Congress provides digital management software to support end to end business processes for service Smbs.
Eric Remer: Our SaaS solutions support highly specialized workflows in each of our verticals, enabling our customers to automate manual processes, generate new business, and create more loyal customers. We enhance the value of our business management solutions by upselling and cross-selling additional features, such as robust payment integration, customer engagement solutions, lead generation, and group buying programs. The products and services we provide are focused on the biggest areas of opportunity. The global addressable market for our business management software solutions is $900 billion, and payment processing represents an additional $200 billion. Moreover, in most cases, the opportunity in front of us is Greenfield. We estimate that the penetration of the service SMB market with fully integrated software solutions is in the very low double digits.
Eric Remer: Our SaaS solution support highly specialized workflows and each of our verticals enables our customers to automate manual processes generate new business and create more loyal customers.
Eric Remer: We enhanced the value of our business management solutions by Upselling and cross selling additional features such as robust payment integration customer engagement solutions lead generation and group buying programs.
Eric Remer: The products and services, we provide are focused on the biggest areas of opportunity.
Eric Remer: Global addressable market for our business management software solutions is $900 billion in the payment processing represents an additional $200 billion.
Eric Remer: Moreover, in most cases the opportunity in front of us is greenfield.
Eric Remer: We estimate that the penetration of service S&P market with fully integrated software solution is in the very low double digits.
Eric Remer: We continue to focus on simplifying the lives of those service providers who support us every single day. Our goal has always been to empower the rapidly growing and evolving S&B market. Evercommerce offers tremendous value to our customers by providing solutions tailored to the unique workflows and interactions that various services require.
Eric Remer: We continue to focus on simplifying the lives of those service providers to support US every single day.
Eric Remer: Our goal has always been to empower the rapidly growing and evolving S&P market.
Eric Remer: Ever Commerce offers tremendous value to our customers by providing solutions tailored to the unique workflows and interactions that various services require.
Eric Remer: Our software solutions not only provide the system of action necessary to run the daily business processes but also the marketing solutions to attract business, the billing and payment solutions to collect payments effortlessly, and the customer experience solutions to create predictable, convenient experiences. Our solutions are cost-effective, easy to implement, and purpose-built for service businesses. We provide end-to-end solutions that our customers need to compete and grow in a marketplace that is rapidly changing.
Eric Remer: Our software solutions not only provides the system of action necessary to run the daily business processes, but also the marketing solutions to attractive business, the billing and payment solutions to collect effortlessly and the customer experience solutions to create predictable convenient experiences.
Eric Remer: Our solutions are cost effective easy to implement at purpose built for service businesses.
Eric Remer: We provide end to end solutions that our customers need to compete and grow in a marketplace that is rapidly transforming.
Eric Remer: As we discussed last quarter, we're taking steps to transform and optimize our operations. In the fourth quarter of 2023, we engage a third-party advisor to help us assess our operations and identify specific initiatives and strategies to simplify, optimize, and better scale our operations with an eye towards sharpening the customer-centric vertical market focus that will better position us to accelerate growth. With respect to the optimization, defined initiatives will provide a long runway for continued margin expansion and free cash flow generation. However, embedded in our 2024 guide is just a small fraction of the overall expected benefit, which should phase in the full run rate by the end of 2026.
Eric Remer: As we discussed last quarter, we've taken steps to transform and optimize our operations.
Eric Remer: In the fourth quarter 2023, we engaged a third party advisor to help us assess our operations and identify specific initiatives and strategy is to simplify optimize and better scale, our operations with an eye towards sharpening our customer centric vertical market focus that will better position us to accelerate growth.
Eric Remer: With respect to the optimization.
Eric Remer: <unk> initiatives will provide a long runway for continued margin expansion and free cash flow generation.
Eric Remer: Better than our 2024 guide, it's just a small fraction of the overall expected benefit which should phase in the full run rate by the end of 2026.
Eric Remer: These initiatives include optimizing third-party vendor spend, which will continue through the end of the year, as well as operationalizing other significant cost-saving opportunities. These savings will not only fund key growth investments but also allow us to continue to deliver long-term margin expansion and significant cashflow generation over the coming years. With our transformation initiatives, we'll be taking the lessons learned from our ongoing EverHealth consolidation and applying them to the rest of the company.
Eric Remer: These initiatives include optimizing third party vendor spend which continued through the end of the year as well as operationalized and other significant cost saving opportunities.
Eric Remer: Statements will not only fund key growth investments, but also allow us to continue to deliver long term margin expansion and significant cash flow generation over the coming years.
Eric Remer: With the transformation initiatives, we will be taking the lessons learned from our ongoing ever health consolidation and apply them to the rest of the company. This includes simplifying our organization structure and sunsetting certain legacy brands as well as investing in key sales and go to market gas that have impacted our growth rate.
Eric Remer: This includes simplifying our organization structure and sunsetting certain legacy brands, as well as investing in key sales and go-to-market gaps that have impacted our growth rate. Given our focus on executing these initiatives, we expect 2024 to be a transition year.
Eric Remer: Given our focus on executing these initiatives, we expect 2024 to be a transition year.
Eric Remer: While growth may be more tempered, we'll work to further expand margins and profitability. A portion of our efficiency gains will be used to reinvest in our products with the goal to accelerate growth in 2025 and beyond. Turning back to our first quarter highlights, we continue to progress well against our land and expand strategy.
Eric Remer: Maybe more temporary we will work to further expand margins and profitability a portion of our efficiency gains will be used to reinvest in our products with the goal to accelerate growth in 2025 and beyond.
Eric Remer: We land with a core business management software and then up-sell and cross-sell additional features, services, and products to our existing customers. This enhances the value of our customers received from the relationship with Evercommerce and drives additional revenue. The KPIs we regularly share in our earnings call illustrate our progress. As a reminder, these KPIs have been restated in both our current and year-ago periods to exclude our finished solutions.
Eric Remer: Turning back to our first quarter highlights, we continue to progress well against our land and expand strategy.
Eric Remer: With a core business management software and then upsell cross sell our existing customers additional features services and products.
Eric Remer: Enhances the value of our customers receive from their relationship with ever Commerce and drive additional revenue.
Eric Remer: The Kpis, we regularly share earnings call illustrate our progress as a reminder, these kpis have been restated in both our current and year ago periods to exclude our fitness solutions.
Marc Thompson: As of the end of the first quarter, we continue to see an increase in customers utilizing more than one solution to approximately 83,000. In addition, the number of customers they've contracted with and I've enrolled for two or more products increased by 27% year over year to approximately 191,000. The payments-enabled customers in this cohort represent a significant near-term opportunity for payment processing and payment revenue growth for Evercommerce. Additionally, customers that purchase and utilize more than one solution are naturally some of our most profitable and stickiest customers.
Marc Thompson: As at the end of the first quarter, we continue to see an increase the customers utilizing more than one solution to approximately $83000.
Marc Thompson: In addition, the number of customers they have contracted and on boarded for two or more products grew 27% year over year to approximately 191000.
Marc Thompson: The payments enable customers in this current represented significant near term opportunity for payment processing and payment revenue growth wherever commerce.
Marc Thompson: Customers that purchased and utilize more than one solution are nationally some of our most profitable and stickier customers.
Marc Thompson: This is because we're providing significant value to them and their businesses. This fact presents itself through strong net revenue retention, looking back over the traveling 12 months or annualized net revenue retention, or NRR, for a core software payment solution with 99%. Embedded payment is the most creative cross-sale solution and stands to be a long-term driver for Evercommerce's revenue growth and margin expansion. Year over year, our pro forma payments revenue grew 11%, accounting for approximately 17% of overall revenue.
Marc Thompson: This is because we are providing significant value to them and their businesses.
Marc Thompson: This fact presents itself through the strong net revenue retention looking back over the trailing 12 months, our annualized net revenue retention or IRR for of course offer payment solutions with 99%.
Marc Thompson: Embedded payment is the most accretive cross sell solution stands to be a long term driver wherever commerce is revenue growth and margin expansion.
Marc Thompson: Year over year, our pro forma payments revenue grew 11% accounting for approximately 17% of overall revenue.
Marc Thompson: We report our payments revenue on a net basis, and as a result, payments revenue contributes approximately 95% gross margin and is a meaningful contributor to our overall adjusted EBITDA margin expansion. First quarter annualized total payments volume of TPV was approximately $11.7 billion, representing 9% year-over-year growth. We expect TPV and overall payments revenue to grow as we continue to embed our payment solutions in our core system of action. Now I'll pass it over to Marc, who will review our financial results in more detail, as well as provide second quarter and full year 2024 guidance.
Marc Thompson: We report our payments revenue on a net basis and as a result payments revenue contributes approximately 95% gross margin as a meaningful contributor to our overall adjusted EBITDA margin expansion.
Marc Thompson: First quarter annualized total payments volume of TPP was approximately $11 7 billion, representing 9% year over year growth.
Marc Thompson: We expect <unk> overall payments revenue to grow as we continue to a better payment solutions and a core system of action.
Marc Thompson: Now I will pass it over to Mark who will review our financial results in more detail as well as provide second quarter and full year 2020 for guidance.
Marc Thompson: Thanks, Eric. Total reported revenue in the first quarter was $170.1 million, up 5.6% from the prior year period. Within total reported revenue, subscription and transaction revenue was $134.7 million, up 8.8% from the prior year period, and revenue from marketing technology solutions was $30.3 million, a decrease of 4.7% from the prior year period.
Marc Thompson: Thanks, Eric total reported revenue in the first quarter was $170 1 million up five 6% from the prior year period.
Marc Thompson: Within total reported revenue subscription and transaction revenue was $134 7 million up eight 8% from the prior year period and revenue from marketing technology solutions was $30 3 million a decrease of four 7% from the prior year period.
Marc Thompson: We manage the business for sustainable organic growth and selectively utilize strategic acquisitions to augment the trajectory of this growth. As a result, we believe it is important for investors to evaluate our business growth on a pro forma basis, which is how we measure and manage the business internally. We calculate our pro forma revenue growth as though all acquisitions and divestitures 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 complete the acquisition or divestiture. We believe the pro forma growth rate provides the best insight into the underlying growth dynamics of our business.
Marc Thompson: We manage the business for sustainable organic growth and selectively utilize strategic acquisitions to augment the trajectory of this growth as a result, we believe it is important for investors to evaluate our business growth on a pro forma basis, which is how we measure and manage the business internally, we calculate our pro forma revenue growth as though all.
Marc Thompson: <unk> and divestitures 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 or divestiture.
Marc Thompson: We believe the pro forma growth rate provides the best insight into the underlying growth dynamics of our business for.
Marc Thompson: For the first quarter of 2024, pro forma revenue was 164.7 million, up 5.7% year over year. Proforma subscription and transaction revenue was 129.4 million, up 9.1% year-over-year. The solid performance and subscription and transaction revenue is largely due to continued execution of our growth strategy to provide customers with our core system of action software solutions and driving expansion by promoting cross-sell and up-sell opportunities, leading with payment. While we believe that our Martech solutions are stabilizing amidst continuing headwinds, their results negatively impacted consolidated revenue growth in the first quarter.
Marc Thompson: For the first quarter of 2024 pro forma revenue was $164 7 million up five 7% year over year pro forma subscription and transaction revenue was $129 4 million up nine 1% year over year.
Marc Thompson: The solid performance in subscription and transaction revenue was largely due to continued execution of our growth strategy to provide customers. Our core system of action software solutions and driving expansion by promoting cross sell and up sell opportunities leading with payments, while we believe that our martech solutions are stabilizing amidst continuing headwinds that resulted.
Marc Thompson: It's negatively impacted consolidated revenue growth in the first quarter, excluding Mar Tech pro forma revenue growth would have been eight 3%.
Marc Thompson: Excluding Martech, pro forma revenue growth would have been 8.3%. As Eric noted, we also exceeded the top end of our adjusted EBITDA guidance. First quarter adjusted EBITDA was $40.9 million, representing a 24% margin versus 19.8% in the first quarter of 2023 and 28% growth in adjusted EBITDA year over year. Adjusted EBITDA outperformance in the quarter was underscored by our focus on actively managing our operating expenses, driving operating leverage, and cash flow generation.
Marc Thompson: As Eric noted, we also exceeded the top end of our adjusted EBITDA guidance range first quarter. Adjusted EBITDA was $40 9 million, representing a 24% margin versus 19, 8% in the first quarter of 2023, and 28% growth in adjusted EBITDA year over year adjusted.
Marc Thompson: Adjusted EBITDA outperformance in the quarter was underscored by our focus on actively managing our operating expenses driving operating leverage and cash flow generation.
Marc Thompson: Adjusted gross profit in the quarter was $113.3 million, representing an adjusted gross margin of 66.6% versus 65.3% in Q1 2023. The increase in gross margin is partially attributable to an increasing mix of higher-margin payments revenue and a decreasing mix of lower-margin marketing technology solutions.
Marc Thompson: Adjusted gross profit in the quarter was $113 3 million, representing an adjusted gross margin at 66, 6% versus 65, 3% in Q1 2023.
Marc Thompson: The increase in gross margin is partially attributable to an increasing mix of higher margin payments revenue and a decreasing mix of lower margin marketing technology solutions revenue.
Marc Thompson: Now, turning to operating expenses, which are reconciled in the appendix to this presentation. Adjusted sales and marketing expense was $27.7 million, or 16.3% of revenue, down from 18.1% of revenue reported in the prior year period. There was a timing benefit to sales and marketing expenses in the first quarter, which we expect to increase for the remainder of the year.
Marc Thompson: Now turning to operating expenses, which are reconciled in the appendix to this presentation adjusted sales and marketing expense was $27 7 million or 16, 3% of revenue down from 18, 1% of revenue reported in the prior year period.
Marc Thompson: There was a timing benefit to sales and marketing expenses in the first quarter, which we expect to increase for the remainder of the year adjusted.
Marc Thompson: Adjusted product development expense was $19.6 million, or 11.5% of revenue, in line with the prior year period. Adjusted G&A expense was $25.1 million, or 14.8% of revenue, down from 16.1% of revenue in the prior year period. Adjusted G&A expenses declined both as a percent of revenue and in absolute dollars as we continue to optimize our operation.
Marc Thompson: Adjusted product development expense was $19 6 million or 11, 5% of revenue in line with the prior year period.
Marc Thompson: Adjusted G&A expense was $25 1 million or 14, 8% of revenue down from 16, 1% of revenue in the prior year period, adjusted G&A expenses declined both as a percent of revenue and in absolute dollars as we continue to optimize our operations.
Marc Thompson: We continue to generate significant free cash flow as we invest to grow our business. Leverage free cash flow was 8.5 million in the quarter. This was up approximately 600,000 or 7.9% year over year. However, leverage-free cash flow growth was negatively impacted by the timing of items related to the sale of the fitness solutions and certain working capital items.
Marc Thompson: We continue to generate significant free cash flow as we invest to grow our business Levered free cash flow was $8 5 million in the quarter. This was up approximately 600000 or seven 9% year over year Levered free cash flow growth was negatively impacted by the timing of items related to the sale of the fitness solutions and certain working capital items.
Marc Thompson: For the trailing 12 months, levered free cash flow was $82.1 million, which represents a 12% margin and a 78.2% increase in levered free cash flow over the prior year, continuing to underscore the efficiency of our business, enhancing our balance sheet flexibility. Adjusted unlevered free cash flows were $29.8 million in the quarter and $118 million for the last 12 months, representing 27.4% and 25.7% year-over- Strong free cash flow generation allows us to continue to invest in our growing business and deliver strong returns to our shareholders.
Marc Thompson: For the trailing 12 months Levered free cash flow was $82 1 million, which represents a 12% margin and a 78, 2% increase in levered free cash flow over the prior year continuing to underscore the efficiency of our business enhancing our balance sheet flexibility adjust.
Marc Thompson: Adjusted Unlevered free cash flow was $29 8 million in the quarter and $118 million for the last 12 months, representing 27, 4% and 25, 7% year over year growth respectively.
Marc Thompson: Strong free cash flow generation allows us to continue to invest in our growing business and deliver strong returns to our shareholders. It also allows us to efficiently allocate capital across the spectrum of opportunities, including the outstanding buyback authorization and M&A prospects in the first quarter, we repurchased approximately one 2 million shares for a total cash consideration.
Marc Thompson: It also allows us to efficiently allocate capital across a spectrum of opportunities, including the outstanding buyback authorization and M&A prospects. In the first quarter, we repurchased approximately 1.2 million shares for a total cash consideration of approximately 12.1 million at an average price of $9.65 per share. As of March 31, 2024, we had approximately $27.9 million remaining on our repurchase authorization that runs through year-end. We ended the quarter with $90 million in cash and cash equivalents, excluding cash and cash equivalents related to our international fitness solutions, and we maintain $190 million of undrawn capacity on our revolver.
Marc Thompson: <unk> of approximately $12 1 million at an average price of $9 65 per share as of March 31, 2024, we had approximately $27 $9 million remaining on our repurchase authorization that runs through year end 2024.
Marc Thompson: We ended the quarter with $90 million in cash and cash equivalents, excluding cash and cash equivalents related to our international fitness solutions, we maintained $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 two five times <unk>.
Marc Thompson: Our debt is a combination of floating and fixed rates, and total net leverage, as calculated for our credit facility at the end of the quarter, was approximately two and a half times, consistent with our financial policy.
Marc Thompson: With our financial policy, we have no material maturities until 2028.
Marc Thompson: We have no material maturities until 2020. I'd like to finish by discussing our outlook for the second quarter of 2020. For the second quarter of 2024, we expect total revenue of $169.5 to $173.5 million, and we expect adjusted EBITDA of $39 to $42 million. We are leaving our full year 2024 guidance unchanged. We continue to expect revenue of $676 to $696 million and adjusted EBITDA of $167 to $176 million. Our guidance assumes near zero growth in our marketing technology solutions business for a full year.
Marc Thompson: I'd like to finish by discussing our outlook for the second quarter of 2024 for the second quarter of 2024, we expect total revenue of 169, 5% to $173 5 million and we expect adjusted EBITDA of $39 million to $42 million.
Marc Thompson: We're leaving our full year 2024 guidance unchanged, we continue to expect revenue of $676 million to $696 million and adjusted EBITDA of 167% to $176 million.
Marc Thompson: Our guidance assumes near zero growth in our marketing technology solutions business on a full year basis before we begin the question and answer portion of the call I want to once again, thank the ever commerce team for their efforts in delivering both top and bottom line results that exceeded expectations and I want to thank all of you for participating on today's call. Our focus is on <unk>.
Marc Thompson: Before we begin the question and answer portion of the call, I want to once again thank the Evercommerce team for their efforts in delivering both top and bottom line results that exceeded expectations. And I want to thank all of you for participating in today's call. Our focus is on continuing to execute our strategic priorities and deliver consistent profitable growth that we believe can generate significant value for our shareholders. Operator, we're now ready to begin the question and answer section of the call. Thank you.
Marc Thompson: <unk> to execute our strategic priorities and deliver consistent profitable growth that we believe can generate significant value for our shareholders.
Marc Thompson: Operator, we're now ready to begin the question and answer section of the call.
Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you need to press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A list. Our first question comes from the line of Bhavin Shah of Douche Bank. Your line is now open.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone wafer your name to be announced to withdraw your question. Please press star one again.
Operator: Please standby, while we compile the Q&A roster.
Bhavin S. Shah: Our first question comes from the line of Bob <unk> Shah of Deutsche Bank. Your line is now open.
Nick Hahn: Hi everyone, this is Nick Hahn for Bhavin this evening. Thank you so much for taking my questions. I guess to start us off, Eric, can you give us some insight into what you're seeing in the overall macro environment? Anything stand out as changing or particularly getting better or worse?
Speaker Change: Hi, everyone. It's Nick on for Bob. This evening. Thank you so much for taking my questions.
Nick Hahn: Just to start us off Eric can you give us some insight into what youre seeing in the overall macro environment anything standout as changing or particularly getting better or worse.
Eric Remer: Thanks, Nick, for the question. Today, we've actually, it's been kind of from a pipeline, that is, we measure the macro, we have enough kind of quantity of pipeline coming through. It's really been kind of business as usual. We haven't seen anything material, both from the tailwinds or headwinds.
Nick Hahn: Yeah.
Eric Remer: Thanks, Nick for the question.
Eric Remer: To date, we've actually it's been kind of a.
Eric Remer: Pipeline Thats kind of a measure of the macro we have enough kind of quantity of pipeline coming through it's really been business as usual, we haven't seen anything material.
Matthew Feierstein: So, I'll let Matt add to that, but from today, at least your first quarter, and as we see here today, it's kind of similar to what we saw in Q4 through Q1. Yeah, I would, I would echo Eric's comments about certainly stability. As we look at our demand trends, we see no significant changes quarter over quarter or compared to historical periods. And we kind of see that throughout all of our funnel metrics that we would typically see any macro impact across. So, this definitely echoes, echo Eric's remarks on stability.
Eric Remer: On the tailwind or headwind, so I'll, let Matt add to that but to date at least your first quarter and as we sit here today, it's kind of similar as we saw in Q4 through Q1.
Matt: I would echo Eric's comments, certainly stability as we look at our demand trends no significant changes quarter over quarter or towards historical periods, and we've got to see that throughout all of our funnel metrics.
Matthew Feierstein: We would typically see any macro impact across so definitely echoes echo Eric's remarks on stability.
Nick Hahn: Got it. Thank you very much. And then just as a follow-up, I mean, with the quarter and the full year guide left unchanged, is there anything we should be thinking about for how you're thinking about guiding for the rest of the year? Anything changed that we should be thinking about just as we look at the back half of the year?
Speaker Change: Got it. Thank you very much and then just as a follow up I mean with the beat in the quarter and the full year guide left unchanged just there anything we should be thinking about for how youre thinking about guiding for the rest of the year anything changed that we should be thinking about just as sort of we look at them towards the back half of the year.
Marc Thompson: This is Marc, Nick. I'll take that question.
Marc Thompson: This is Marc I'll take that question, so I think.
Marc Thompson: Guidance starts with being prudent first and foremost I.
Nick Hahn: I don't think we see anything for the balance of the year that's different than we saw when we issued that guidance, which wasn't that long ago I think as it relates specifically to EBITDA. There is probably some real timing in there just from getting into the year.
Marc Thompson: So I think guidance starts with being prudent, first and foremost, and I don't think we see anything for the balance of the year that's different than we saw when we issued that guidance, which wasn't that long ago. I think it relates specifically to EBITDA. There's probably some real timing in there just from getting into the year with respect to the timing of investments that we had planned for the year, which is part of what you're seeing in our Q2 guidance.
Marc Thompson: With respect to timing of investments that we have planned for the year, which is part of what youre seeing in our Q2 guidance.
Nick Hahn: Great, thank you very much for taking my questions. Thank you. One moment for our next question.
Speaker Change: Great. Thank you very much for taking my questions.
Nick Hahn: Thank you one moment for our next question.
Mason Irwin Marion: Our next question comes from the line of Samed Zamana of Jeffries. Your line is now open.
Nick Hahn: Our next question comes from the line of Samad Samana of Jefferies. Your line is now open.
Mason Irwin Marion: Hi guys, this is Mason Marion on First to Mod. Thanks for taking our questions.
Mason Irwin Marion: Hi, guys. This is Nick Marion on first not thanks for taking our questions.
Marc Thompson: So, marketing technology was down year-to-year, but perhaps not as much as we expected. Any notable trends to call out throughout the quarter? Are you starting to see green shoots in this segment, or are you expecting it to remain under pressure for some time?
Marc Thompson: Marketing technology was down year over year, but perhaps not as much as we expected any notable trends to call out throughout the quarter or are you starting to see green shoots in this segment or are you expecting it to remain under pressure for some time.
Marc Thompson: So, thanks for the question. I think nothing has really changed since, I'll say, the last two quarters of the year. So, when we reported year-end results, we talked about, you know, a persistent headwind, but also a stabilizing operation against that headwind. And I think that's what we continue to see, you know; it is down quarter over quarter, or, excuse me, year over year. But that is consistent with what we had expected and, obviously, consistent with our guide.
Marc Thompson: To your last point, though, I do think, you know, part of our language around stabilization includes seeing some green shoots. We are starting to see, you know, a lift in demand activity and pockets that have been more dormant, particularly in the first half of last year and the back half of the prior year. So, I think that that stabilization amidst, you know, continuing headwinds is kind of the way we think about the business. We've again been trying to be prudent in our guide for the year, flag year over year to make sure that, you know, that's consistent with trends we're seeing, and we'll adjust if we see things.
Matthew Feierstein: And then last quarter, you discussed steps you were taking to streamline and reorient the organization with a sharper focus on your core verticals. Can you talk about some of the progress you're making here? Any key milestones you've reached, and what else needs to be done?
Matthew Feierstein: Yes, definitely would love to. Obviously, I think, you know, again, we talked about this last quarter, as we talked about this from a, certainly from that vertical perspective, we've been talking to you about EverHelp for some time. And obviously, that's where we're furthest along in that journey. I'd say we're pleased with our progress. We continue to move towards that consolidated state. I think last quarter we were an example of some of the benefits of consolidation, with that consolidation from a product perspective, really being able to sell through to customers in one go-to-market motion more of the EverHelp stack.
Matthew Feierstein: I believe last quarter, we mentioned, you know, new sales ASPs up by about 13 percent quarter over quarter or actually year over year. And so, again, progress like that, again, nice progress in EverHelp. We're still in the early innings in other areas of our vertical transformation, so I wouldn't necessarily say necessarily any key milestones that are reportable in a similar way to EverHelp, but really making progress from an organizational standpoint, really orienting around that move towards that vertical transformation and doing the, I call it, pre-planning to consolidation in other verticals outside of EverHelp. But really, again, I can't stress enough how pleased I am with our progress in EverHelp consolidation as the kind of beacon for where we'll go with the rest of the organization. Appreciate it, thank you.
Matthew George Hedberg: Thank you one moment for our next question. Our next question comes from the line of Matt Hedberg of RBC Capital Markets. Your line is now open.
Matthew Feierstein: Why don't I pass that, well, why don't I pass that to you? Yeah, and I will. And Evan here was introduced, and on the call, he'll follow me. You know, from a mandate perspective, yep, that's accurate, and Evan will follow on with some of the specifics, but please, with the progress in the mandates that we tested in the back half of the year, we are doing that across several other programs in the front half of this year, and that will continue into the back half as well.
Matthew Feierstein: We think payments mandates are certainly one strategic initiative in the quiver we have in terms of enabling, you know, driving that payment enablement rate of our software customers, which, you know, again, is obviously what we call top of the funnel from a payment standpoint. We're obviously also focused on taking those payment-enabled merchants, driving them to a greater level of processing, opening the wallet share so that once they start processing, we're getting more of their available wallet. Obviously, doing that through things like expanding our payments product ecosystem so that we can meet, we can help our customers meet their customers where they are in terms of accessing more of their payments capability.
Matthew Feierstein: So, you know, quarter, and I'll, again, let Evan speak to some of the specifics on the mandate progress, but yes, mandates and other initiatives are obviously going well for us from the payments penetration standpoint. Evan. Yeah, thanks, Matt.
Evan Berlin: I would just add to that that we rolled out a specific mandate strategy against one of our main programs in 2023. We've expanded that set of tests and initiatives to eight programs across the ecosystem in our 2024 plan. So expanding not only the specifics around what we're doing with each program but actually taking those learnings from one specific program and applying them to many more components of the ecosystem. So we are well into that execution today in Q2. And then just to sort of wrap up that question for you,
Matthew Feierstein: And then just to sort of wrap up that question, from a consolidated results perspective, you're starting to see that, not starting to, you continue to see that pull through into our results really is reflected as, you know, payments as an overall percent of revenue, which has been increasing over the last four to six quarters, as well as our gross margin, which also has been increasing over the last four to six quarters. That really is a manifestation of these programs in action. Thanks, guys.
Alexander James Sklar: Thank you. One moment for our next question. Our next question comes from the line of Alex Sklar of Raymond James. Your line is now open.
Eric Remer: Great, thank you. Eric, maybe a multi-part question here, but can you just elaborate a little bit more on the potential magnitude of some of the transformation initiatives you referenced in the prepared remarks? Is that on top of some of the brand consolidation activity that's already been in progress? How many of your solutions or maybe a percentage of revenue are you kind of looking at in terms of ranges that might be subject to those efforts? Thanks.
Eric Remer: I appreciate the question. We're not giving, you know, guidance on kind of the full savings or some of the acceleration at this point, but I can say the transformation activities really touched every part of the company, every solution, both, you know, field solutions as well as our centralized operations. We're looking at opportunities within our, you know, existing ecosystem to streamline our costs, working with third-party vendors to reduce costs, and then working with variety, as you talked about with brands, to consolidate those brands to get more value on the marketing spend that we're actually having.
Eric Remer: So, we're seeing value truly across the board and not just on the cost side of things but also how we operate and how we organize around the business. We're spending a lot of time focused, as we talked about, as Matt just talked about, in EverHealth and EverPro and in EverWell, organizing the business more effectively so we can get our sales and our product and our customer-centric people closer to the customer. We think that's going to have a better value on the products we build, our ability to provide more value to our customers, and ultimately generate more revenue, and more profits for the organization.
Alexander James Sklar: Okay, great. I guess we'll look for more to come there.
Matthew Feierstein: And then maybe this is for you, Eric, as well, or Matt, but I just want to dig into the go-to-market motion a little bit more for the nearly 200,000 customers that are enabled for multi solution. I know we talked about payments and a kind of a separate payments team in general, but can you talk about the team broadly that's focused on selling multi solution? And are those mostly self-serving as far as enabling that second piece? Or is it really a good percentage coming from some kind of direct effort?
Matthew Feierstein: Thanks.
Matthew Feierstein: There's definitely a good deal of self-serve enablement, for sure, kind of going back to front there, but certainly, you know we're not. Whether it's self-serve, and, you know, that's at the initial time of purchase, obviously, we're trying to, through our consolidation efforts, which are again, core to what we're trying to do at Evercommerce, which is kill more of the value chains You know, we want to do more of that up front, but we will put the appropriate resources, whether that's in the product or, you know, direct engagement through follow-up sales efforts, follow-up customer success, follow-up customer support, to add those second products as well. So, you know, it's certainly a mix.
Matthew Feierstein: It depends on the solution, to your point. Some of our solutions are definitely PLG. We're going to rely on more of a self-service touch. Other of them are certainly more sales-assisted or have a heavier sales pipeline. In those cases, you know, from front to back in the sales process or through customer success touches, that's how we're going to drive the go-to-market on the expansion of that $190,000 out into the future with obviously a greater number and a greater percent of our overall software customers taking multiple products.
Alexander James Sklar: All right, great. Thanks for that answer, Matt. Please take a moment for our next question.
Ryan Patrick MacWilliams: Our next question comes from the line of Ryan MacWilliams of Barclays. Your line is now open.
Eamon Cozine: Hey, Eric and Matt. This is Eamon Cozine on for Ryan MacWilliams.
Evan Berlin: Thanks for taking the question. Great to see the continued focus on the strengths while improving operational efficiency. I was just curious if you could describe the core business demand right now and maybe what you're seeing from a new logo perspective within SMBs. Any relative changes to call out and demand for pro or health?
Evan Berlin: Yeah, thanks for the questions, Evan. I would say no.
Evan Berlin: As Eric talked about earlier, we really haven't seen any change in demand. We've seen accelerated sales cycles across Q1 versus last year, and we've seen that with increased ARPU as we've continued to drive home not only price increases but also effective bundling to match point around trying to drive more than one solution at the point of sale. So we've seen pretty solid trends there.
Marc Thompson: Well, why don't I start? So, let's start with something we've said is absolutely implied in the macro, which is more tech, which we have in flat year over year, obviously, bringing down and consolidating growth rates overall. And there, I should have said earlier, while we see stabilization against sort of a persistent headwind, our team is executing well there. We are certainly trying to position ourselves, not only to take advantage of green shoots, but also outside opportunities that we think may present themselves through the second half of the year, particularly based on investments that are being self-funded within the operation against a variety of initiatives that we think will both reduce volatility of the revenue streams in that So, that's that piece.
Eamon Cozine: Perfect. And then maybe, could you describe what is implied in the guidance in terms of macro and then maybe what is required to reach the top end range? I'm just curious how to get there. Well, why don't I start?
Marc Thompson: What's implied in the guide on the other side is really continuing to lean into those really big trends that we see around embedded solutions. That is, leading with payments, first and foremost, driving investments in the right parts of the organization. Some of that, what Eric referred to around our transformation initiatives, is designed to really sharpen that focus. So, we're putting our dollars in the right places. And when you look at our top solutions, they're all growing well in excess of our current growth rates.
Marc Thompson: And those are the primary drivers of both revenue growth rates, software growth rates, and TPV growth. And we're going to continue to lean into those. We're not assuming anything. Different from a macro perspective, what we built into our guide is our continuing investment in those initiatives and really driving execution against those initiatives.
Marc Thompson: different from a macro perspective, what we're built into our guide is our continuing investment in those initiatives and really driving execution against those initiatives. I think we might want to add a little bit more color to that. Anybody? Okay.
Marc Thompson: Um, I think we might want to add a little bit more color to that. Anybody want to do that? Okay. Okay.
Marc Thompson: Okay.
Alexei Mihaylovich Gogolev: Thank you one moment for our next question. Our next question comes from the line of Alexei Gogolev of JP Morgan. Your line is now open.
Alexei Mihaylovich Gogolev: Perfect, thanks, guys.
Alexei Mihaylovich Gogolev: Thank you, one moment for next question.
Alexei Mihaylovich Gogolev: Our next question comes from the line of Alexa Gogolov of JPMorgan. Your line is not open.
Matthew Feierstein: Hello, everyone. Could I ask you to provide a bit more color around the level of payments attached and which solutions are you seeing the greatest attached level for?
Alexei Mihaylovich Gogolev: Hello, everyone. Could I ask you to provide a bit more color around the level of payments attached and in which solutions are you seeing the greatest attached level?
Evan Berlin: Yeah, I'll start, and Evan can certainly follow. You know, when you think about payments attached, our core systems of action, we really see a mid-30s attach rate from that perspective. So nice progress, but obviously real opportunities. Those attach rates really vary based on the maturity of payment programs, how long they've been in certain cases, you know, and how deeply embedded payments are into the workflow of that solution. So that could differ in home improvement versus pest control.
Speaker Change: Yeah, I'll start and Evan can certainly follow, you know, when you think about payments attached, our core systems of action we see really a mid-30s.
Evan Berlin: attach rate from that perspective. So nice progress, but obviously real opportunities. Those attach rates
Evan Berlin: really vary based on the maturity of payment programs, how long they've been there, in certain cases, you know, how deeply embedded payments are into the workflow of that solution, so that could differ in home improvement versus pest control. In Ever Pro, obviously, we see, you know, a great opportunity, and many, many, a lot of our existing programs are in Ever Pro. You know, obviously that differs a little bit from Ever Health, where we do have. have payment programs, but you have the insurance pay side of that as well. So when you think about which solutions, think about within EverPro and, you know, across our EverPro environment that's in, you know, both up and down in terms of
Evan Berlin: In EverPro, obviously, we see a great opportunity and many, many of our existing programs are in EverPro. You know, obviously, that differs a little bit from EverHealth, where we do have payment programs, but you have the insurance pay side of that as well. So when you think about which solutions, think about within EverPro and, you know, across our EverPro environment that's in, you know, both up and down in terms of really our down-market solutions and our up-market solutions opportunities and execution against the payments opportunity there. So that spans from home improvement all the way through break-fix and field services. Evan, anything to add? I would just add one of the solutions within
Evan Berlin: really our down market solutions and our off market solutions, opportunities, and execution against the payments opportunity there. So that spans from home improvement all the way through break fix and in field services, evidencing that. I would just add one of the solutions within ever pro, we've been very focused on driving payments attached on new customer acquisition.
Evan Berlin: I would just add, one of the solutions within EverPro, we've been very focused on driving payments attached to new customer acquisition. And from last year, Q1, we were at 30%. This quarter, we're at 41%. So I think it underscores not only the importance of executing against that and ensuring we have the right value proposition and the right selling motion, sales-led and product-led, but really ensuring that once we get those customers enabled for payments, we can ultimately drive their activation, utilization, and expanding share of wallet, as we've talked about before, with the right product workflows embedded inside. So we continue to work on that, as Matt said, across EverPro and EverHealth and EverWell, but we made good progress in Q1.
Evan Berlin: And from last year, Q1, we were at 30% this quarter, we were at 41%. So I think just underscores not only the importance of executing against that and ensuring we have the right value proposition and the right selling motion, sales lead and product led, but really ensuring that
Evan Berlin: once we get those customers enabled for payments that we can ultimately drive their activation, utilization, and expanding share of wallet, as we've talked about before, with
Evan Berlin: the right product workflows embedded inside. So we continue to work on that, as Matt said, across EverPro and EverHealth and Everwell, but good progress in Q1.
Alexei Mihaylovich Gogolev: Great, thank you. And another question on payments. Could you maybe comment on what you see as a midterm normalized level for payments revenue growth? Would it be fair to say that 11% in Q1? I'm going to say that's somewhat of a deceleration versus what we saw last year, so how are you thinking about it in the midterm?
Alexei Mihaylovich Gogolev: Great, thank you. And another question on payments. Could you maybe comment on what you see as midterm normalized level for payments revenue growth? Because
Alexei Mihaylovich Gogolev: Would it be fair to say that 11% in Q1, I'll say that somewhat of a deceleration versus what we've seen last year? So how are you thinking about it in the midterm?
Marc Thompson: Let me start contextually. Remember, we talked about this on our last call in the last quarter. We had, you know, for the prior four quarters coming into the year, we had some one-time incentives on the payment side that escalated the revenue growth rate. So, when you normalize for that, it looks a lot closer to where it is today. I think, obviously, this remains a key focus within our investment strategy.
Marc Thompson: Let me start to contextually. Remember, we talked about this on our last call in the last quarter.
Marc Thompson: We had
Marc Thompson: You know, for the prior four quarters coming into the year, we had some one-time incentives on the payment side that escalated the revenue growth rate. So when you normalize for that,
Marc Thompson: you know, it looks a lot closer to where it is today. I think obviously this remains a key focus within our investment strategy, so
Marc Thompson: I won't, I'll let Evan comment on the sort of mid to longer term, but I think we have a number of initiatives in place where we're investing against that and certainly hope to create some upside from where we are today.
Matthew Feierstein: And this is Matt. I'll just go on with that.
Marc Thompson: So, you know, I won't, I'll let Evan comment on the sort of mid to longer term. But I think we have a number of initiatives in place where we're investing against that and certainly hope to create some upside from where we are today. Yeah, and this is Matt.
Evan Berlin: And as Matt, I'll just follow on with that. I think we've talked about in the past that, you know, a portion of our TPV is in more mature portfolios that is growing at a lower rate. We would point out that 28% of our aggregate aggregate TPV today is in our top five largest opportunities.
Matthew Feierstein: I think we've talked about in the past that, you know, a portion of our TPV is in more mature portfolios that are growing at a lower rate. We would point out that 28% of our aggregate TPV today is in our top five largest operators. Those opportunities together are growing at 23% year-over-year from a TPB perspective, and all of them are sub-10% penetrated from a total opportunity standpoint. So, you know, we will have to grow through some of that maturity in the portfolio, but as you think into the nearer and the long term, those top five solutions and our opportunity, and the fact that they're growing faster will help us accelerate growth right out.
Matthew Feierstein: Those opportunities together are growing at 23% year over year from a TP perspective and all of them are sub 10% penetrated from a total opportunity standpoint. So
Matthew Feierstein: That, you know, we will have to grow through some of that maturity in the portfolio, but as you think into the nearer and the long term, those top five solutions and our opportunity and the fact that they're growing faster will help us accelerate growth right out in the future.
Alexei Mihaylovich Gogolev: I'm done. Thank you very much. Thank you. One moment for our next question.
Speaker Change: Understood. Thank you very much.
Alexei Mihaylovich Gogolev: Thank you, one moment for our next question.
Clarke Jeffries: Our next question comes from the line of Clark Jeffries from Piper Sandler. Your line is now open.
Clarke Jeffries: Our next question comes from the line of Clark Jeffries of Piper Sandler. Your line is now open.
Clarke Jeffries: Hello, thank you for taking the question. There are two questions for me. The first is, you know, I was curious to hear that the third-party advisor and that you hired in assessing operations, the full run rate will be at the end of 2026. So I was curious about the different buckets there.
Clarke Jeffries: Hello, thank you for taking the question. Two from me. The first is, you know, I was curious to hear the third party advisor that you hired in assessing operations. The full run rate will be at the end of 2026.
Marc Thompson: You know, what could be sooner? What will take, you know, more than a year to sort of transact on and in aggregate across the different categories? Is this a relatively linear path to the full run rate, or is it bunched up in kind of the near term or back end? And then one follow-up.
Marc Thompson: So it's curious about the different buckets there, you know, what could be sooner, what will take, you know, more than a year to sort of transact on.
Marc Thompson: and in aggregate across the different categories, is this a relatively linear path to the full run rate or is it bunched up in kind of the near term or back end?
Marc Thompson: Why don't I take that one, Clarke? There are a lot of different initiatives, so I'll try to distill it down. I think the word optimization really applies to the focus that's been really on the last quarter and obviously through the balance of the year. And the blocking and tackling initiatives around driving better third-party spend management, which, you know, against an expense base of our 250-plus million third-party expenses, that creates a
Marc Thompson: and then one fall up.
Marc Thompson: Why don't I take that one, Clark?
Marc Thompson: There are a lot of different initiatives, so I'll try to distill it up.
Clarke Jeffries: you know,
Marc Thompson: The word optimization really applies to focus. It's been really in the last quarter and obviously through the balance of the year. And the blocking and tackling initiatives around, you know, driving better third-party spend management, which, you know, against
Marc Thompson: That will happen in chunks. There will be some big rocks that we'll attack, which we'll start to run through this year and then annualize the next year and beyond. So those will be some of the early components of optimization.
Marc Thompson: an expense base of our 250 plus million third party expense that creates a significant opportunity. That will
Marc Thompson: That will happen in chunks. There will be some big rocks that will attack, which will start to run through this year, and then annualize into next year and beyond. So those will be some of the early components of optimization.
Marc Thompson: Things like, you know, looking at some of the spend for 2025 as we exit the year. Those will obviously transpire through 2025 and into 2026. A lot of the initiatives, though, which I think will start to appear probably in the second half of this year as we start to operationalize them, will relate to the way in which we do business, such as transformation initiatives of a variety of forms, organizational alignment, brand and product consolidation, et cetera.
Marc Thompson: Things like, you know, looking at some of the spend for 25 as we exit the year, those will obviously transpire through 25 and into 26.
Marc Thompson: A lot of the initiatives, though, again, which I think will start to appear
Marc Thompson: probably in the second half of this year as we start to operationalize them, they will relate to the way in which we're doing business related to Transformation initiatives of a variety of forms, organizations
Marc Thompson: organizational alignment, brand and product consolidation, etc. Those initiatives will drive
Marc Thompson: Those initiatives will drive continuing optimization, I think, really beginning, earliest beginning at the end of this year and really into 2025, which is why the timeline is really the way we kind of talk about it. But I think, you know, the goal is really to be exiting 2025 on that kind of full run rate basis. So if you think about where we are at a point in time here in May, and we're looking really at, we said originally this was kind of 18 to 24 months. We don't see anything that's really different today just based on progress, as Matt alluded to earlier in the call, against the number of these initiatives that are in flight. And there are a lot of them.
Marc Thompson: continuing optimization, I think really beginning
Marc Thompson: earliest beginning at the end of this year and really into 25, which is why the timeline is really the way we kind of talk about it. But I think, you know, the goal is really to be exiting
Marc Thompson: 25 on that kind of full run rate basis. So if you think about where we are at a point in time here in May, and we're looking really a
Marc Thompson: We said originally, this was kind of 18 to 24 months. We don't see anything that's really different today, just based on progress, as Matt alluded to earlier, in the call against the number of these initiatives that are in flight. And there are a lot of these in flight.
Clarke Jeffries: Yeah, perfect. It's certainly helpful. I appreciate, you know, across these different buckets, tools, assets, products, operations, there's, there's a lot, you know, there is a lot being put into that. Second question: could you remind us about the seasonality of payments? Or, you know, whether or not you would expect revenue to continue to outpace TPV for most of this year? I think the prior question about the step up, but if I think about, you know, this sort of implied take rate, just off of that, that high-level view looks pretty healthy. Is that something you could continue? See continue, or is there any kind of seasonal notion from Q1 to Q4 to point out in terms of like implied take rate as we look at it?
Clarke Jeffries: Yeah, perfect. Certainly helpful. I appreciate, you know, across these different buckets, tools, assets, products, operations. There's a lot, you know, there is a lot being put into that. The second question is just
Clarke Jeffries: Could you remind us about the seasonality of payments or...
Clarke Jeffries: you know, whether or not you would expect revenue to continue to outpace TPV for most of this year, I think in the prior question about, you know, the step up. But if I think about, you know,
Clarke Jeffries: this sort of implied take rate just off of that high level view looks pretty healthy. Is that something you could see continue or is there any kind of seasonal notion from Q1 to Q4 to point out in terms of like implied take rate as we look at it?
Eric Remer: One thing to note, I'll let Matt discuss seasonality, but when you think about the take rate opportunity, Matt discussed 28% of our top five solutions represent 28% of our TPV, and that's growing at 23%. Those specific solutions, our take rate on those solutions is significantly higher than the rest of the portfolio. So as that continues to grow, we expect to see additional opportunities to grow our take rate both through this year and beyond.
Eric Remer: One thing to know, I'll let Matt discuss seasonality, but when you think about the take rate opportunity, Matt discussed 28% of our top five solutions represent 28% of our TPV, and that's growing at 23%. Those specific solutions.
Eric Remer: Our take rate on those solutions are significantly higher than the rest of the portfolio. So as that continues to grow, we expect to see additional opportunities to grow our take rate, you know, both through this year and beyond.
Matthew Feierstein: Yeah, and again, Evan can chime in with other details. I mean, when you think about take rate and its seasonality per se, I'd really go back to the solutions where we're actually where the payment integrations are happening. And some of those, when you think about seasonality and EverProbe per se, we've talked about just across the swap of those businesses, Q2 and Q3 being the high points, Q4 and Q1 having some seasonality.
Matthew Feierstein: Yeah, and again, Evan, can chime in with other details. I mean, I think when you think about take rate and its seasonality per se, I'd really go back to the solutions where we're actually, where the payment integrations are happening. And some of those, when you think about seasonality and ever pro, for say, we've talked about, you know, just across the swap of those businesses, Q2 and Q3 being the high points.
Matthew Feierstein: So, we will see payment volumes kind of ebb and flow there where we happen to have kind of, let's say, larger net take rates in those programs that could perhaps create some seasonality in take rates there. But I would not say within any given program there's any seasonality to the take rate. It's just kind of the portfolio dynamic that could create that. Yeah, the only thing I'd
Matthew Feierstein: Q4 and Q1 having some seasonality. So we will see payment volumes kind of
Matthew Feierstein: Ebb and Flow there where we happen to have kind of
Matthew Feierstein: let's say, larger net take rates in those programs.
Matthew Feierstein: that perhaps could create some seasonality in take rate there. But I would not say within any given program there's any seasonality to the take rate. It's just kind of the portfolio dynamic that could create that.
Evan Berlin: Yeah, the only thing I'd add is just the price increases that we generally put in the ground from a payments perspective have gone into effect over the past, you know, quarter or so. So that's there for the rest of the year. And at least from a pricing perspective, you won't see additional take rate expansion across 2020.
Evan Berlin: Yeah, the only thing I'd add is just the price increases that we generally put in the ground from a payments perspective have gone into the ground over the past.
Evan Berlin: you know, quarter or so, so that's there for the rest of the year. And it leads from a pricing perspective, you won't see additional take rate expansion across 24.
Clarke Jeffries: Perfect. Yeah, I really, really appreciate all that color. Thank you.
Operator: Thank you, one moment, for our next question. Again, as a reminder to ask a question, you will need to press star 11 on your telephone. Our next question comes from the line of Bill McNaira of Evercore. Your line is now open. Hi guys, thanks for taking my question.
Bill McNamara: Perfect. Yeah, really, really appreciate all that color. Thank you.
Bill McNamara: Thank you, Womont, for next question.
Bill McNamara: Again, as a reminder to ask the question, you'll need to press star 1-1 on your telephone.
Bill McNamara: Our next question comes from the line of Bill McNara of Evercore. Your line is now open.
Bill McNamara: Hi guys, thanks for taking my question on for Kirk tonight. I just wanted to follow up and ask, you know, since spinning off the fitness solutions business, how are you thinking about potential acquisitions in the future?
Bill McNaira: Well, thank you for the question. Yeah, our thought process hasn't really changed throughout, you know. We're continuing to look at opportunities, obviously, in categories that we feel that have long runways, and we double down, just like our last acquisition was KickServe and our kind of EverPro group. We saw an opportunity to fill a gap in the marketplace. And so I think we're, you know, being prudent, making sure that it makes sense for the organization.
Bill McNaira: Well, thank you for the question. Yeah, we're, the thought process hasn't changed really throughout. You know, we're continuing to look at opportunities, obviously, in categories that we feel that have long runways and we're doubled down in, and just like our last acquisition was,
Bill McNaira: kick serve in our kind of ever pro group we saw an opportunity to gap in the marketplace and so I think we're you know be prudent making sure that it makes sense for the organization and
Bill McNaira: Given kind of all the other activities we're doing, we are prioritizing internal growth versus M&A at this moment in time, but we're looking at deal flow on a regular basis. And if we find something that we think is going to be accretive to the organization, we will pursue that.
Bill McNaira: and given kind of all the other activities we're doing, we, you know, prioritizing, you know, internal growth versus MAA at this moment of time. But we're looking at deal flow on a regular basis, and if we find something that we think is going to be accretive to the organization, we will pursue that.
Speaker Change: Okay, great. Thanks for taking my question.
Eric Remer: Thank you. I'm showing no further questions at this time. I'd now like to turn it back to CEO Rick Remer for closing remarks.
Eric Remer: Thank you.
Eric Remer: Thank you. I'm showing no further questions at this time. I'll not like to turn it back to CEO Remer for a closer remarks.
Eric Remer: Well, thank you. We had a really solid quarter. We remain extremely excited, as we talked about several times, about the transformation and optimization initiatives we are executing throughout the company. We expect to see the benefits of those initiatives and the work we're doing throughout the rest of this year and really end the year accelerating to 2025. Thank you all for joining the call today.
Eric Remer: Well, thank you. We had a really solid quarter. It remained extremely excited as we talked about several times by the transformation optimization initiatives we are executing throughout the company. We expect to see the benefits of those initiatives and the work we're doing throughout the rest of this year and really end the year accelerating into 2025.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Thank you all for joining the call today.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may not disconnect.
Operator: [music].