EverCommerce Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2023

There are 11 speakers on the call.

Operator

Thank you for standing by, and welcome to EverCommerce's Second Quarter 2023 Earnings Call. My name is Michelle, and I will be your operator for today. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, this conference is being recorded today, Monday, August 7, 2023.

Operator

And I would now like to turn the conference over to Brad Horch, Senior Vice President and Head of Investor Relations for EverCommerce. Please go ahead.

Speaker 1

Good afternoon, and thank you for joining. Today's call will be led by Eric Riemer, EverCommerce's Chairman and Chief Executive Officer and Mark Thompson, EverCommerce's Chief Financial Officer. Joining them for the Q and A portion of the call is EverCommerce's President, Matt Firestein. This call is being webcast with a slide presentation that reviews the key financial and operating results for the 3 months ended June 30, 2023. For a link to the live or replay webcast, please visit the Investor Relations section of the Evercommerse website, www.evercommerce.com.

Speaker 1

The slide presentation and earnings release are also directly available on the site. Please turn to Page 2 of our earnings call 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 forward looking statements except as required by law. We will also refer to certain non GAAP financial measures to provide additional information to you, our investors.

Speaker 1

A reconciliation of non GAAP to GAAP historical measures provided in both our earnings press release and on our earnings call presentation. I will now turn it over to our CEO, Eric Reamer. Please continue.

Speaker 2

Thank you, Brad. On today's call, I will highlight 2nd quarter results and discuss key customer trends and metrics before turning the call over to Mark to dive deeper into our financials. EverCommerce continues a strong start to 2023 with solid revenue growth, particularly within our software and payment solution And a very robust adjusted EBITDA beat against the top end of the 2nd quarter guidance. We achieved strong bottom line performance by doubling down on balancing growth and profitability. Through both active management of our cost base with a focus on efficiency, we delivered 23% adjusted EBITDA margins, while supporting 13% year over year Subscription and transaction revenue growth, which includes our core software payment solutions, an 8% year over year total revenue growth.

Speaker 2

With upside to profitability, we are creating the opportunity to incrementally invest in areas that can accelerate growth in 2024 and beyond. In addition to efficiently growing our customer base, our strategy is to lead with our core system of action, SaaS solutions and then upsellcross sell additional solutions and features to enhance customer value while driving customer expansion and revenue growth for EverCommerce. Payments is the best illustration of the strategy. During the Q2, our payments revenue grew 32% year over year. EverCommerce provides vertically tailored end to end SaaS solutions that support the highly diverse workflows and customer interactions and professionals in home services, health services Fitness and wellness services used to automate manual processes, generate new business and create more loyal customers.

Speaker 2

As a leading service commerce platform, we provide a system of action software across many market verticals, which in turn drive the workflow to help our customers Generate new business, fulfill services, manage day to day operations and engage with their customers. Upselling and cross selling our existing customers additional features, services and products is not only important for ARPU growth, It's important because it enhances the value our customers receive from the relationship with EverCommerce, which ultimately translates to lower churn and higher retention. For several quarters, we've disclosed a number of customers that are utilizing more than one solution. While this is a data point we continue to measure, we believe a metric that is even more reflective of our current cross sell progress It's a number of customers that have contracted and onboarded for more than one solution. While this is a measurement that tracks progress slightly higher in the funnel of customer revenue realization, For areas like payments enablement specifically, it marks a critical milestone in the customer's journey towards integrated set of solutions that power more of their business.

Speaker 2

As of the end of Q2, while we continue to see expansion of customers utilizing more than one solution to approximately 75,000, The number of customers that have contracted and boarded for 2 or more products grew 29% year over year to approximately 162,000. And with over 685,000 total EverCommerce customers as of the beginning of 2023, we continue to have a very large embedded opportunity to continue to grow this base of multi solution customers. Finally, when looking back over the trailing 12 months, our annualized net revenue retention, or NRR, for Core Software Payment Solutions remains above 100%. Embedded Payments is our most mature and accretive cross sell solution And is a key element of our land and expand strategy. Year over year, our payment revenue grew 32%, contributing to our margin expansion given its gross margin profile.

Speaker 2

Additionally, payments revenue as a percent of total revenue grew more than 300 basis points over the past 12 months. 2nd quarter annualized total payments volume or TPV was approximately $11,400,000,000 representing 13% year over year growth. We expect TPV and overall payments revenue to grow as we continue to embed our payment solutions into our core system of actions. Accelerating payments attachment and utilization are key elements of our long term growth plan, and we continue to see success throughout our core system of action solutions. We are actively testing and implementing new strategic initiatives designed to increase the attachment of payment capabilities, drive more payment enabled customers into active processing And further increase the wallet share of customers who are already processing.

Speaker 2

And lastly, I want to I'll briefly touch upon our current progress integrating generative AI into our business operations, both within solutions provided to our end customers as well as within our development of our products and services to support our customers and operational scalability. As an example, in Q2, we launched AI driven capabilities within our surveying products that create significant efficiencies for our customers and how they analyze, interpret and act upon large quantities of raw and unstructured survey feedback. These insights allow customers to more quickly and efficiently Implement programs to accelerate revenue as well as generate recommendations for risk mitigation from negative feedback. Early customer feedback has been incredibly positive relative to the even greater efficiency that our solutions can now bring to their operation. We are excited about this early progress.

Speaker 2

We'll continue to leverage AI to drive greater efficiencies in our operation and even more innovative and impactful offerings to our customers. Now I'll pass it over to Mark, who will review our financial results in more detail as well as provide Q3 and updated full year 2023 guidance.

Speaker 3

Thanks, Eric. Total revenue in the 2nd quarter was $170,100,000 up 8.1% from the prior year period. Within total revenues, subscription and transaction revenue was $130,300,000 up 12.7% from the prior year period. And revenue from Marketing Technology Solutions was $34,500,000 down 2% from the prior year period. The strong performance in subscription and transaction revenue at 12.7% growth and in line with our long term target was largely due to solid execution of our growth strategy to provide customers a core system of action software solutions and driving expansion by promoting cross sell and up sell opportunities leading with payments.

Speaker 3

Since the second half of twenty twenty two, We've seen headwinds to growth in our marketing technology solutions. And while this continued through the Q2, we are starting to see early signs of stabilization. At the end of the Q2, LTM revenue was $651,100,000 up 15.2% year over year on a reported basis and 11.7% on a pro form a basis. As a reminder, we calculate our pro form a revenue growth as though all acquisitions closed As of the end of the latest period, we're closed as of the 1st day of the prior year period, including before the time we completed the acquisition. We believe the pro form a growth rate provides the best insight into the underlying growth dynamics of our business.

Speaker 3

Our reported growth rate for Q2 is equivalent to our pro form a growth rate because we did not complete any acquisitions during the relevant periods. 2nd quarter adjusted EBITDA was 38,800,000 representing a 22.8% margin versus 19.6% in the Q2 of 202226.2% growth year over year. Additionally, LTM adjusted EBITDA was $136,100,000 representing a 20.9% margin. In the Q2, we're clearly delivering towards our full year 2023 objectives by exceeding guidance and achieving record EBITDA margins. Adjusted EBITDA outperformance in the quarter was underscored by our focus on actively managing our operating expenses, driving operating leverage and cash flow generation.

Speaker 3

The timing and pacing of investments through the first half was a more modest factor and we expect to make targeted investments in the back half of the year that should enable us Enter 2024 on a solid growth footing. For example, one area of incremental investment is resources to accelerate payment adoption among our Systems of Action Software Solutions. Adjusted gross profit in the quarter was $111,900,000 representing an adjusted gross margin of 65.8 percent versus 65% in Q2 2022. LTM adjusted gross profit was $425,900,000 representing an adjusted gross margin of 65.4%. The increase in gross margin is partially attributable to an increasing mix of higher margin payments revenue.

Speaker 3

And now turning to operating expenses. Adjusted sales and marketing expense was $28,700,000 or 16.9 percent of revenue, down from 18.2 percent of revenue in the prior year period. Absolute adjusted sales and marketing expenses were approximately flat year over year due to a combination of optimization and economies of scale. Adjusted product development expense was $17,700,000 or 10.4 percent of revenue, down from 10.8% of revenue reported in the prior year period. Absolute adjusted product development expense grew 4.7 year over year as we continue to invest in our solutions.

Speaker 3

Adjusted G and A expense was $26,600,000 or 15.7 percent of revenue, down from 16.5 percent of revenue in the prior year period. As we anniversary the investments made in 2021 2022 to support our public company infrastructure, We're beginning to see meaningful operating leverage. We continue to generate significant free cash flow as we invest to grow our business. Our adjusted unlevered free cash flow for the quarter was $27,100,000 representing 21.2% year over year growth at a 15.9% margin. For the last 12 months, our adjusted unlevered free cash flow was $97,500,000 levered free cash flow, which accounts not only for debt service, but also various Capital adjustments was $22,600,000 in the quarter.

Speaker 3

This was up approximately $16,100,000 year over year due to both growth in operating income and changes in working capital. For the trailing 12 months, levered free cash flow was $62,200,000 continuing to underscore our balance sheet flexibility. 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 and A prospects. In the Q2, we repurchased approximately 900,000 shares for a total cash consideration of approximately 10,000,000 at an average price of $11.10 per share.

Speaker 3

We ended the quarter with $83,100,000 in cash and cash equivalents, We maintain $190,000,000 of undrawn capacity on our revolver. Our debt is a combination of floating and fixed rate And total net leverage is calculated per our credit facility at the end of the quarter was approximately 2.9 times consistent with our financial policy. We have no material maturities until 2028. I'd like to finish by providing our outlook for the remainder of 2023 beginning with the Q3. For Q3, we expect total revenue of $174,000,000 to $178,000,000 and we expect adjusted EBITDA of 34.5 to $37,500,000 Our full year 2023 revenue guidance remains $680,000,000 to 700,000,000 And we are raising our adjusted EBITDA guidance again by an additional $5,000,000 to $142,000,000 to 148,000,000 As we noted on our Q1 call, continuing to execute our growth strategies, price increases and new product introductions are expected to support growth in Strong margins throughout the year.

Speaker 3

Our 2023 outlook does not include any potential impact of M and A activity that could take place. Before we begin the question and answer portion of the call, I want to thank the entire Evercomerce team for their efforts in delivering these strong results. Our focus continues to be optimizing our operations, managing costs effectively and delivering on our strategic priorities. Operator, we're now ready to begin the question and answer section of

Operator

The first question comes from Kirk Materne with Evercore. Your line is open.

Speaker 4

Yes, thanks very much. Erica, I was wondering if you could just talk about the level of activity with you all and your customer base this quarter maybe versus the prior two quarters just in terms of Pipeline generation, how you're feeling about sort of top of funnel activity, realized marketing is still a bit challenged, but just kind of curious if you're

Speaker 2

Yes. Thanks, Kirk. I appreciate the question. Yes, I think you hit we felt pretty good going to Q2. We saw some things, specifically in the marketing Service part, which is why we guided the way we guided and achieved what we achieved.

Speaker 2

But I think the stabilization both in that part and the continued consistency in the pipelines that we're seeing in the core business of software and payments really remains You're right on plan. So we feel really good about going to the second half, and I think that's kind of shown in the guidance. Matt, do you want to add anything to

Speaker 5

Yes. I think you nailed that. And in that core software and payments, specifically the systems of action and The addition of payments to that, we're from a top of funnel perspective, we see opportunities to also double down on investments in those core areas Where we see large end markets, lots of opportunity, strong unit economics, so to Eric's point, Exactly where we expected to be with opportunities in the second half to continue to drive top of funnel activities beyond where they are today.

Speaker 2

And Kirk, just one thing to add to Matt's say, just answer that specifically, from a macro perspective, in the core verticals that we serve, we're not seeing any continued degradation that we might have saw last year.

Speaker 4

That's great. And then just, Bart, one follow-up for you. You mentioned obviously some spend that was supposed to happen in the first half is going in the second half. I guess just how should we interpret sort of the EBITDA guidance for the back half or the implied I guess for the Q4? Adjusted EBITDA guidance somewhat flattish versus 2Q.

Speaker 4

Is that just spend that you're maybe holding back on the Q1 coming into the model? And how do you think about just sort of operating leverage in general? Thanks.

Speaker 2

Yes, I'll start. If you think about we raised after Q1, we raised again after Q2. We feel really good about where we are right now, and then I think we've been prudent Obviously, we still live in a volatile world, and we want to be consistent and conservative and prudent as we look to the second half.

Speaker 3

Yes. I mean, exactly, Kurt. Coming out of last year, the world was obviously changing before us and we wanted to make sure that We are actively managing our spend and pace of investment through the year. I think we've done a great job in the first half. It gives us the opportunity to Hit the gas pedal on some initiatives that are really going to underscore the core growth strategies, payments enablement, all of that sort of stuff.

Speaker 3

So feeling As though it's time to put a little bit more into the back half to make sure that we continue to set ourselves up for a nice 2024 and beyond.

Speaker 4

Super. Thank you all.

Operator

Please standby for the next question. The next question comes from Brad Reback with Stifel. Your line is open.

Speaker 6

Great. Thanks very much. I believe it was during Mark's prepared remarks, you talked about accelerated investment And payments adoption in the back half of the year. Can you maybe walk through what you're going to do differently going forward versus what you've done to try to help drive that linkage? Thanks.

Speaker 2

I want to take that.

Speaker 5

Yes. Again, I don't think This is all that different than things that we've talked about in prior quarters. But from an attachment standpoint, As you think from a top of funnel down strategic standpoint, continuing to drive incremental resources from You know, both into our PLG led products, but also where there could be some outbound sales such as into the software customer base to drive that As you go down the funnel in terms of converting more of our payment enabled users into active processing users, looking at outbound customer success resources That we have been testing and have metrics around and now have the ability to say this is where we should double down from incremental resources from that perspective as well. And then as you go further down funnel, both to get more people actively processing and expand wallet share, looking at opportunities to Like we've talked about in past quarters, expand the base of payment enablement product landscape throughout the ecosystem. So those are all areas where we are looking at and actively No for 2H that investment incremental investments on top will help really drive Quicker execution on those strategies.

Speaker 2

And Brad, thanks for the question. One more thing to add to that. We have implemented payment mandates in 2 of our solutions, which we have been one of them mandated as of August 1 and one was in kind of early Q2. And so we're That takes some time to kind of roll out those mandates, but those are positive things that we've kind of implemented in the some of them just got implemented literally last week. So we're excited about the things that Matt brought up in addition to some mandates we're putting into our software solutions.

Speaker 6

Great. And then on Eric, on the AI monetization side, is that going to be direct or more indirect in so much as that will help support future price increases broadly across the product portfolio? Thanks.

Speaker 5

Yes. I think Brad both. Ultimately, I think what Eric spoke to was incremental monetization, but certainly there will be indirect monetization via just More firepower behind some of the products that we're able to bring to market. So we see the opportunity for both and Eric's example was really an incremental monetization

Speaker 2

And the one that we didn't talk about much because I'm sure every company has different pieces of the puzzle, but we utilize and we've been utilizing AI type capabilities Internally to our operations for quite some time and with the increased AI access, we've implemented some of those in different operational Capabilities internally that we'll start seeing hopefully some additional value probably to 2024.

Speaker 6

Great. Thanks very much.

Operator

Thanks, Brad. Please stand by for the next question. The next question comes from Alexander Sklar with Raymond James. Your line is open.

Speaker 7

Hi, thanks for taking the question. This is John on for Alex. Eric or Matt, I know pricing has really been more of a lever this year that you've been looking to push versus prior years. I'm just curious on any metrics you can give on price elasticity to date, if you can maybe share the percent of your base that's seen an increase or maybe some of the retention dynamics surrounding that?

Speaker 3

Yes. This is Mark, Alex. Sorry. Go for it. So Two things.

Speaker 3

1, we come into each year with a series of pricing actions planned in for the year, and You've executed against most of those and you really we expect to see continuing impact from that through the year. But overall, We kind of talked about circa 3% for the year. I think that's very much still the way we think about that. In terms of Churn, we historically always plan that into our internal plans and quite honestly execute quite well through those and never really see That materialized the way we plan. So we tend to be pretty conservative in our outlook on that internally, and I've really not seen any Real impact from that from any of the pricing actions that have been taken thus far in the first half.

Speaker 5

And I think that's the best metric. You mentioned elasticity, that's probably our best Elastic is actually our expected and anticipated churn with all of them are running lower than where we expected. So I think we met that mark from an elasticity standpoint, and that would mean there's likely more there to.

Speaker 2

And opportunity as you look at the 2024 to maintain and or increase Pricing actions into 2024.

Speaker 7

Okay, thanks. That was really helpful color there. And then I know we only get logo growth annually, But I'm just curious if there's been any changes in terms of the vertical or micro verticals driving the growth that you've seen so far this year through July? Thanks.

Speaker 2

It's been pretty consistent across the board. The one area that we talk about and we've talked about before, our fitness Standard category has been a laggard in the industry. It's starting to came some of the Planet Fitness just came out and said they're starting to see some growth in stores. But in general, Market has just been slow to recover from COVID. That's the one area within the ecosystem that we serve that we've seen kind of a lack of growth, but the rest of them has been pretty consistent Yes, pretty across the board.

Speaker 7

Thank you very much.

Operator

Please standby for the next question. The next question comes from Bhavan Shah with Deutsche Bank. Your line is open.

Speaker 8

Great. Thanks for taking my question.

Speaker 9

I just wanted to follow-up on

Speaker 8

an earlier comment you made about kind of mandating payments across 2 year solutions. What's been the customer reception to that? And how long will that take to play out to go throughout that customer base or those 2 respective customer bases?

Speaker 2

Yes. So the mandate, I'll let Mac in some specifics. The mandate was really driven either, a, you kind of convert to our payments. We had About 35% in a specific vertical a specific solution utilizing it. So you went off to the back book and it said if you take our payments, that's great.

Speaker 2

Otherwise, Pretty significant price increase if you don't not take it. And so, we did plan, some people might be not, attrition against it, attrition has been Significantly lower than we had expected. Our response has been very positive. It takes some time. Matt gets more specific in terms of the time of Roll out and then ultimately seeing the value of that?

Speaker 5

Yes. I mean, we to Derek's point, there's really 3 outcomes from that. 2 that we like. One that we really like, which is more people will sign up and take payments and start utilizing that. The second is they'll opt into paying an incremental amount for their software.

Speaker 5

And the third is obviously We don't like this at all and they may choose to leave the solution. Starting from the back forward, again, churn, when we model it against these mandates, it's been lower than we expected. Incremental take rate again, some of these mandates have been in place for several quarters, one that we just started this quarter. We're kind of right where we expected to be from incremental folks taking payments, which is good. And again, Folks that say, we don't want to opt into this and are taking the price increase again.

Speaker 5

We've just seen less than So we feel good about the execution of the mandates that we've done to date, and it's certainly a strategy that we'll continue to use across the portfolio.

Speaker 2

And I think because of the way it rolls out, you get them to say yes, you sign them up, they transition the payments, they start processing. As you're going through a base of thousands of customers, you'll start seeing the benefit of that in 2024.

Speaker 8

That makes sense. And is this something you can kind of roll out through the rest of the year kind of core business solutions? Or is this something more on a case by case basis?

Speaker 2

Every solution is a little bit different, but there is we definitely are choosing the ones that we think have the greatest opportunity and the greatest upside. 1st, As you can imagine, you're potentially underwriting several 1,000 customers to get them on the payments. You want to be thoughtful About the rollout, so we will be doing these on a kind of a bespoke process, but we think we have several others that we could be doing the similar Activities too as well.

Speaker 9

Super helpful. Thanks for taking my question.

Operator

Please standby for the next question. Please standby for the next question. The next question comes from Aaron Kimson with JMP. Your line is open.

Speaker 10

Hey, guys. I know we're probably still 2 quarters away from an initial 2024 guide, but how do investors get comfortable with The organic revenue growth rate ex price increases for 2024 and beyond.

Speaker 2

Well, if you look at kind of where we haven't obviously given that guidance yet, but I think we're Pretty comfortable with where we feel the second half of the year is going and we're seeing positive trends on the way up from there. So I think when we look at some of The ladders are dragging down the business right now. Some of the you talked about the fitness and we talked about marketing services. Fortunately, it's becoming less of a part of our business. I think we Mark talked about in his opening payments as a percentage of total revenue increased 300 points year over year and we expect that to also continue to grow.

Speaker 2

And look at the overall payments growth. And so the areas of business that are becoming the larger part of the business Are the parts of the business that are just growing faster, full stop. We expect to make continue to make investments in those and continue to make those a large part of the business. So as we look For the rest of the year, we have a lot of confidence. And then as we look at 2024, obviously, we'll wait until we See how the year goes from a macro standpoint, but we feel pretty confident in terms of our ability to continue to ramp our growth rates at and higher than current levels.

Speaker 10

That's very helpful. Thank you. And then just stepping back, I mean, you asked the 2 year mark as a public company last month. The stock hasn't really worked in the $17 So overall, you executed pretty well, right? What do you say you think the 1 or 2 things the Street still fails to appreciate 2 years in as a public company?

Speaker 2

Yes. Look, I think the people that are following us, I think, do appreciate it. I think we have Other challenges that we're dealing with from a technical standpoint that really nothing to do with operations. I think we've done a really good job from an operational Standpoint, but I think it still gets underappreciated the scale of the operations and the customer base that we're dealing with. We have Over approximately 700,000 active customers utilizing our solutions as we talked about today, over 160,000 Have signed up for an onboarding for more than one of those solutions.

Speaker 2

And our ability to continually sell more products and services to this very, very fertile base is extremely exciting. Matt touched upon the things we're doing from a payments perspective, not only is payments incredibly accretive from a growth and margin perspective, But it's incredibly accretive from a value perspective to our customer base. As we begin to put more resources, both Internally and then outbound, reaching these customers to get them utilizing the solutions more effectively from a payments perspective, The economic upside from that perspective is extremely, extremely high. And we just we haven't really built that into our models as we're starting to see.com, but I don't think that's been appreciated External industry perspective, yes.

Speaker 10

Awesome. Thank you.

Operator

Please standby for the next question. The next question comes from Clark Jefferies with Piper Sandler. Your line is open.

Speaker 7

Hello. Thank you for taking the question. I wanted to ask about that disclosure around enabled and utilization in the customer base. Do you have us think through how those buckets work, how the enabled flows into the utilized and maybe how much opportunity is left To add to that enabled bucket rather than the overall logos, I'm thinking of large systems of action that may not have that payments enablement or sort of add on functionality to really offer that enablement to the customer?

Speaker 2

Yes. Thanks, Clark. I'll start with just so you define it properly and then Mac could talk about the specifics. So the reason we opened that, the reason we kind of brought Because it really is a better leading indicator of how we're doing in terms of giving people, when we say enabled, you're right, enabled is even higher. So We need to integrate the payment solutions into a software, so they even have the opportunity to take it.

Speaker 2

And then we're actually talking about WiSA enabled. They enabled sign up and onboarded. So they've actually said, yes, I want it. And then that third statistic that we've been giving is the utilization. So the statistics that we kind of brought up today that we're going to be giving going forward is that middle one.

Speaker 2

So they've been enabled in terms of the integration. It's now signed up and onboarded, and we've yet to get them to fully utilize or have it utilized in that particular month. Want to talk some more statistics on that?

Speaker 5

Yes. I mean, I think, Derek makes a great point. We really think it's just a better leading indicator to where we are with multiproduct ultimately getting to multiproduct utilization and powering more of our customers' businesses with the integrated suite of solutions that we have. So again, as Eric talked about, Obviously, getting people contracted and onboarding for that second solution. And then from a strategy perspective, ensuring that like Again, thinking about the payments world where we've just done the most, first we're focused on the go to market motions in marketing sales that's going to drive payment attachment.

Speaker 5

We Talked about some strategic initiatives like mandating payments that's going to help us achieve that. We talked about adding outbound sales such as the complement Product led growth funnels and product messaging. And again, once that's enabled, really we go to our next strategy efforts, which are focused much further down Customer engagement funnel, so driving them into portal payments customer active processing, expanding their wallet share, Initiatives like proactive customer success engagement via those outbound touches, adding more product real estate to the payment integrations. And frankly, that could be adding more product real estate to any integration that's going to drive that multi product utilization. So again, really that's how we think about it.

Speaker 5

Again, it's a these are numbers that we'll continue to publish going forward, but we think Really the right indicators of where we are in that journey to multi product utilization.

Speaker 7

Perfect. And just to clarify, Is any part of it a discretionary choice of the customer or is it really just duration as in they will move towards that utilizing bucket over time and it's more time dependent rather than discretionary. And then just a separate question for Mark. You mentioned stabilization marketing. Any way you could further clarify whether stabilization means return to positive year over year growth or any way you could bracket subscription and transaction growth in the second half of the year, so we know the kind of balance between The segments in the second half?

Speaker 1

Yes. The first part, right go ahead. Yes.

Speaker 5

I can take the first part. Think about it from a customer engagement phone And they're obviously making the choice within our go to market motions to engage with that second product again. We'll use payments as that example. Then of course, we've got to go through the process of getting them contracted, onboarded. And we're going to deploy a next set of strategy and resources behind that To turn that payment attached customer, that enabled customer into utilizing customer.

Speaker 5

So I wouldn't necessarily To us, that's not discretion. It's just the next step in that engagement.

Speaker 2

But timing out the question is meant it's a proactive decision that they are making And 162,000 people have made that decision to do that. So it's not a default number to be very clear. Our opportunity is To get those people who have made that decision, to follow through with that decision to ultimately utilize it. So it's a good that they made the decision. We've made it available.

Speaker 2

They've signed up and now we want them to utilize.

Speaker 5

Yes, 100%. Not a default. That's not discretion. They in front of me, it is their discretion. They made the choice They wanted that integrated suite.

Speaker 2

And in many cases, we've walked through this before. It's almost illogical to not utilize it in some scenarios, Just in some of the workflows that we have and they just keep dealing with small businesses and they're busy and a lot of things going on and it's inertia more than anything else. And so we feel Pretty strongly that we have the opportunity to continue to penetrate the base of customers we have at a much higher level. And I think we've made really good progress and a lot of progress to come. Mark, on the second part of the question.

Speaker 3

Yes. I think on the second part, look, we don't break our revenue guidance into pieces. When we say stabilize, I think you should take that to mean what we've seen in the last couple of quarters is consistent with what we expect to see in the second half and that's all baked into our Going forward. I would just sort of leave it at that.

Speaker 7

All right. Thank you for all the clarification.

Operator

Please standby for the next question. The next question comes from Jeremy Soller with Jefferies. Your line is open.

Speaker 9

Hey, guys. This is Jeremy on for Samad Samana. Thanks for taking my questions. So I guess first one is kind of a 2 parter. I guess, as you continue to drive Attachment of embedded payments is kind of hard to parse out the seasonality.

Speaker 9

Could you maybe like kind of give us some color into what the seasonality of TPV is in a steady state environment? And then also, you mentioned that take rate expansion again. I guess, what levers are you pulling to drive that take rate expansion? I mean, kind of how much more is there to go there?

Speaker 5

Yes. I mean, I think we can talk to the first part, seasonality. I think we've described it across the business. And specifically, if you think about the largest part of our TPB being in home services, Q4 and Q1 would represent the lower end of the seasonality. There's also some just Calendaring in Q4 across the whole payments landscape, when you think about November December and shorter business days, that plays into it.

Speaker 5

So we typically think about Q4 and Q1 As the lower end from a seasonality perspective when it comes to payments in Q2 and Q3 and specifically in home services where There is a lot more activity. We typically see the higher end of TPB from a seasonality perspective there. Your second question, I believe, was about great. And things that we can continue to do, expand that obviously. We're happy about the expansion of take rate over the last 18 months.

Speaker 5

I think we talked about this Last quarter, there was a variety of things that we do from pricing and packaging. Some of it is frankly just mix of our payment space as well, As we are driving more and more attachment and utilization in some of our higher take rate solutions, specifically in home services, We have seen take rate expansion just in aggregate go up. But obviously, from our end, we have opportunities to a, just Grow the expanse of payment capabilities within our integrated systems of action that allows us Continue to obviously add more value to the end customer, but also commensurate price to value from that perspective. And then lastly, we We continue to have opportunities with our end providers for as we continue to scale creating scale in the economic relationship from a take rate standpoint And those contractual arrangements.

Speaker 9

Got it. That's useful color. The rest of mine were asked. Thanks for taking my question.

Operator

Please standby for our next question. The next question comes from Dan Bergstrom with RBC Capital. Your line is open.

Speaker 7

Hey, it's Dan Bergstrom for Matt Hedberg. Thanks for taking our question. So on Ever Health, it's been a couple of quarters now with the rebrand. I know we're early in a long process here, but anything to point out around initial customer reception of the changes? Is it accelerating customer adoption?

Speaker 2

It's been extremely positive. The Everhealth brand is Kind of a soft launch, as kind of an overhead brand for the kind of our Health group within the organization, it will be really officially launched really in Q1 end of Q1 of next year as we're going to really go to market really with 1 brand And consolidate all the other branding parts of it. And I think we'll start seeing even more efficiencies, both in the operations and even, hopefully, Increased upsell on the selling part of it as well. To date, the response has been very positive. We've been selling these solutions, again, under one organization.

Speaker 2

So we've been making very simple upsellcrosssell Full service suite solutions to our customers, which they genuinely appreciate, versus having the connected dots themselves and other partners where they have Point Solutions versus 1 whole solution. So the early feedback is positive. We've seen consistent growth in that category. I think when we launch it fully next year, I think it will be an uptick hopefully in growth, but definitely, in minimum And operational efficacy and efficiency that we'll get in the organization. Do you have another one?

Speaker 5

Yes. I mean, I think it's played out the way we have expected it From an external standpoint, to Eric's point, the reception has been really, really positive. And from an internal standpoint and ultimately to a customer facing standpoint, It really has set us up for that multi product sales. So think about EMRPM as the base system of action, But having those active integrations for integrated insurance clearinghouse and claims, integrated patient pay and now integrated Patient engagement solutions really becoming more active in those EMRPMs. It is exactly what our customers want.

Speaker 5

They They don't want multiple providers and us being able to drive that to market more and more and more over time. Again, that's part of the receptivity that we've got from our end customers. So excited about where we are and to Eric's point, there's a lot more progress to come over the next year.

Speaker 2

That's great.

Speaker 7

Appreciate the color. Thanks.

Operator

Thank you. The next question comes from Ayman Koglin with Barclays. Your line is open.

Speaker 7

Hi, this is Ayman Koglin on for Ryan Williams from Barclays. Can you just probably describe how S and P has fared in 2Q and what management is factoring in for 2H 2023 guidance in terms of macro? Thanks.

Speaker 2

Yes. Again, thank you for the question. I think everything we can only speak to the SMBs, the verticals that we And the verticals we serve are pretty resilient. If you think about the health care customers we serve and the home service customers we serve, we represent The vast majority of our customers, they've been very resilient and we've seen no degradation in both growth and pipeline And we're expecting a similar trajectory for the second half of the year. So not necessarily Increased or decreased, but really along the same lines you've been seeing for the last couple of quarters.

Speaker 2

Got it. Okay. Thanks.

Operator

At this time, I'm not showing any further questions. I would now like to turn the call back to Eric Riehmer for closing remarks.

Speaker 2

Thank you very much. Well, Evercomerce had another We appreciate you all joining the call today, and we will speak to you next quarter.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
EverCommerce Q2 2023
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