EverCommerce Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2024

There are 12 speakers on the call.

Operator

Thank you for standing by, and welcome to the EverCommerce's Second Quarter 2024 Earnings Call. My name is Brianna, 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 call is being recorded today, Tuesday, August 6, 2024.

Operator

And I would now like to turn the conference over to Brad Korch, SVP 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 Rimmer, EverCommerce's Chairman and Chief Executive Officer and Mark Thompson, Evercommerces' Chief Financial Officer. Joining them for the Q and A portion of the call is Evercommerces' President, Matt Firestein Evercomerce's incoming Chief Financial Officer and current Chief Accounting Officer, Ryan Surek and Evercomerce's Chief Operating Officer, Evan Berlin. This call is being webcast with a slide presentation that reviews the key financial and operating results for the 3 months ended June 30, 2024. For a link to the live or replay webcast, please visit the Investor Relations section of the EverCommerce 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 presentation, while I review our Safe Harbor statement. Statements made on this call and contained in the earnings materials available on our website that are not historical in nature may constitute forward looking statements. Such statements are based on the current expectations and beliefs of management. 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.

Speaker 1

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. 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 second quarter results, I would like to once again 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 4 fitness industry solutions in early March.

Speaker 1

The sale of the 2 North American solutions closed simultaneously with deal signing on March 13th and the 2 international solutions closed on July 1. Our GAAP results include the 2 North American solutions through the date of closing, although 2 international solutions are held for sale and continue to be reported on our results of operations through the Q2 of 2024. As a result, revenue growth rates are affected by the sales of North American assets. Operational metrics such as customer count, TPB 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 form a basis. I will now turn it over to our CEO, Eric Reamer.

Speaker 1

Please continue.

Speaker 2

Thank you, Brad. On today's call, I will highlight Q2 2024 results, dive into some key customer trends, discuss some case studies on our customer payment adoptions and provide an update on our transformation and optimization initiatives before turning the call over to Mark to dive deeper into our financials. Turning to our Q2 highlights, our reported revenue exceeded the top end of our guidance range with growth of 4.3% year over year. Pro form a revenue growth, which excludes the North American fitness assets sold in March, was 6%. Adjusted EBITDA of $41,200,000 beat the midpoint of our guidance range, representing the 23.2% margin.

Speaker 2

Adjusted EBITDA margins expanded modestly year over year despite the investments made into the business. Payments revenue, excluding the fitness solutions grew 8% year over year, driven by our 8.4% growth in TPV. Driving payments adoptions continues to be a key element of our strategy, one that I will highlight with some case studies in a few moments. In the Q2, our Board also increased our share repurchase authorization by $50,000,000 and extended the program through the end of 2025. In the Q2, we repurchased approximately 2,500,000 shares for $24,100,000 bringing our total repurchase since inception of our buybacks in mid-twenty 22 to 15,600,000 shares.

Speaker 2

As of the end of Q2, we had approximately $54,000,000 remaining authorization. EverCommerce provides SaaS solutions for the service SMB economy. We offer tremendous value to our customers by providing solutions tailored to the unique workflows and interactions that various services require. Our software solutions not only provide the system of action necessary to run their daily business processes, but also the marketing solutions to attract new business, the billing and payment solutions to collect effortlessly and the customer experience solutions to create predictable and convenient experiences. Our solutions are cost effective, easy to implement and purpose built for the service businesses.

Speaker 2

We provide end to end solutions that are more than 690,000 customers need to compete and grow in a marketplace that is rapidly transforming. Excluding the North American fitness solutions we've sold and including our KickServe acquisition, we ended the quarter with $683,000,000 in LTM revenue, representing 7% growth. With a focus on balanced profitability, we generated 24.1% adjusted EBITDA margin on an LTM basis. Finally, we crossed over the $12,000,000,000 mark of annualized total payment volume or TPV, a key metric for not just payments adoption, but for growth and profitability. We report our progress in payments adoption quarterly as a key measure of our land and expand strategy.

Speaker 2

We land with our core business management software and then up sell, cross sell our existing customer additional features, services and products, leading with payments, our most mature cross sell motion. This enhances the value that our customers receive in relation with EverCommerce and drives additional revenue. At the end of the Q2, 199,000 customers were enabled to more than one solution, reflecting a 25% year over year growth. As we discussed when we introduced this metric, enabling customers for more than one solution is the first step in the funnel that leads to increased revenue, retention and ultimately profitability of these customers. Once customers are enabled, the next action item for us is to help facilitate usage.

Speaker 2

In the case of payments, this entailed getting our customers to actively process payments on our platform. We measure this step in the funnel as utilization. At the end of the Q2, approximately 87,000 customers were actively utilizing more than one solution, reflecting a 16% year over year growth. Customers that purchase and utilize more than one solution are naturally some of our most profitable and stickiest customers. This is because we provided significant value to them and their businesses.

Speaker 2

A positive byproduct of our cross sell motion is strong net revenue retention. Looking back over the trailing 12 months, our annualized net revenue retention or NRR for our core software payment solutions was 97%. While this is down slightly on a sequential basis, a major driver here was the anniversary of a price increase in one of our high velocity, lower ARPU solutions and not a measurable change in our customer churn dynamics. Embedded payments is the most accretive cross sell opportunity and is a key component of Evercommerces growth strategy. Year over year, our payments revenue excluding the fitness solutions grew 8%, accounting for approximately 17% of overall revenue.

Speaker 2

We report our payments revenue on net basis and as a result payment revenue contributes approximately 95% gross margin and is a meaningful contributor to our overall adjusted EBITDA margin. 2nd quarter estimated annual total payments volume or TPV was approximately $12,100,000,000 representing 8.4 percent year over year growth. We continue to invest and actively manage our onboarding programs to accelerate payment adoption, which we believe can accelerate payments revenue growth. These payment and cross sell enabled metrics emphasize the good progress we are making, but we are still very much in the early innings of the story. To illustrate the impact continued progress can have on our business, we want to walk through 2 case studies, 1 on payments adoption and a second regarding the growth opportunity from our newly launched EverPro Edge subscription adoption.

Speaker 2

Starting with the payments adoption of Timely, is our salon and spa software that's focused on the New Zealand, Australian and UK markets. Timely is a full service system of action software to allow salon owners to manage customer appointments, inventory, stylist scheduling and of course taking payments. When we recorded this solution in late 2021, Time's initial use of case payments was for taking appointment deposits via the web. While this provided much needed service for our customers, in these markets, deployment deposits are as common as restaurant reservation deposits have become in the U. S.

Speaker 2

It did not allow for our customers to take payments for all their services. What our customers really needed was a point of sale solution that could be used within the salon to capture payments for salon services like haircuts, products sold in the store as well. So we invested to make that happen. We developed features within our software to handle these payments. We partnered with a new provider to offer point of sale terminals in salons.

Speaker 2

Given the nature of our SMB focused business, these terminals needed to be self provisioning and easy to use out of the box. After completing this new integration and ironing out the kings of the point of sale device enablement, we've seen our TPV approximate double in just over a year. This is driven by both average annualized TPV per active processing customer growth over 50% and growth in customers enabled for payments processing from 41% to 52% of customers over the same time period. Our second case study is EverPro Edge. In the second half of twenty twenty three, we introduced our new EverPro Edge solution for existing Joyce customers.

Speaker 2

As we discussed on our March earnings call, EverPro Edge is a new solution that provides customers the opportunity to save, learn and grow, create a community and trust our brand for engagement with them. Evercore Edge provides the opportunity for our customers to engage with educational content to help them improve their operations as well as earn cash back rebates at leading vendors where they may already be purchasing goods. Since the introduction of Edge, we have seen Joyous customers that join Edge grow their overall ARPU by approximately 3 times. Given that the rebate portion of the Edge is nearly 100% margin, this ARPU growth also translates into significant margin expansion. Edge also enhances the value of these customers gained from the EverCommerce relationship and the rebates received can in some case offset the cost of the software for our customers.

Speaker 2

This is a true win win and something we think can help us better grow and retain customers. A key component of our growth acceleration strategy is our transformation optimization program, about which I would like to provide a quick update. During the quarter, we made significant progress against a multi quarter program. On the optimization side, we continue to validate saving opportunities, looking to consolidate spend across vendors and in some cases, reimagine how we allocate resources. Our transformation initiatives continue to align our business around Everhealth and EverPro customer verticals.

Speaker 2

Ultimately giving these business units the organizational structure and support they need to accelerate growth. This includes simplifying our organizational structure and decommissioning legacy brands, as well as investing in key sales and go to market gaps that have impacted our growth rate. During the quarter, we made some key sales and market leadership hires that are integral steps to achieving the vision. We also launched our first EverPro website that begins to consolidate those product brands in the same fashion we discussed with Everhealth in the past. We've also begun to invest in common company wide systems that will increase operational efficiencies aligned with our transformation efforts.

Speaker 2

We are doing the work now that we believe will enable us to accelerate growth to both enhance customer acquisition and improve cross sell capabilities and ultimately also drive better profitability. In the coming months, we expect to have additional new exciting announcements as we continue to drive our transformation journey. Before I turn the call over to Mark, I'd like to quickly comment on the announcement we made today in conjunction with our earnings release. This afternoon, we announced the appointment of Ryan Ceryk as Evercomer's new Chief Financial Officer effective September 6. Ryan joined EverCommerce a little over a year ago as a Chief Accounting Officer and working closely with him over the last year has become clear that he has both the skills and the drive necessary to help us lead EverCommerce's next phase of growth.

Speaker 2

This is a bittersweet announcement though, as I'm excited to see Ryan step into this role. I will miss working with Mark, who has been a strong partner to me and the Evercommer's leadership team over the past 8 years. Now I'll pass it over to Mark, who will review our financial results in more detail as well as discuss Q3 and full year 2024 guidance.

Speaker 3

Thanks, Eric. Total reported revenue in the 2nd quarter was $177,400,000 up 4.3% from the prior year period and exceeding the top end of our guidance range. This was also the highest quarterly revenue on record. Within total reported revenue, subscription and transaction revenue was $137,000,000 up 5.2% from the prior year period and revenue from Marketing Technology Solutions was $35,000,000 up 1.6 percent from the prior year period. We managed the business for sustainable organic growth and selectively utilize strategic acquisitions to augment the trajectory of this growth.

Speaker 3

As a result, we believe it's important for investors to evaluate our business growth on a pro form a basis, which is how we measure and manage the business internally. We calculate our pro form a revenue growth as though all acquisitions and divestitures closed as of the end of the latest period were closed as of the 1st day of the prior year period, including before the time we completed the acquisition or divestiture. We believe the pro form a growth rate provides the best insight into the underlying growth dynamics of our business. For the Q2 of 2024, year over year pro form a revenue growth was 6%, while year over year pro form a subscription and transaction revenue growth was 7.3%. 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.

Speaker 3

While we believe that our marketing technology solutions are stabilizing amidst continuing headwinds, their results negatively impacted consolidated revenue growth in the 2nd quarter. As Eric noted, we also exceeded the midpoint of our adjusted EBITDA guidance range. 2nd quarter adjusted EBITDA was $41,200,000 representing a 23.2% margin versus 22.8% in the Q2 of 2023 and 6.2% growth in adjusted EBITDA year over year. During the quarter, we were able to expand margins on a year over year basis while investing in the business, including making certain transformation related investments Eric described. This quarter's adjusted EBITDA performance notably does not include a material amount of optimization savings, which we expect to start having a more measurable impact in 2025 and beyond.

Speaker 3

Adjusted gross profit in the quarter was $116,100,000 representing an adjusted gross margin of 65.4 percent versus 65.8% in Q2 2023. The slight decrease in gross margin on a year over year basis was largely due to the timing of revenue and cost of goods sold within the marketing technology solutions and not an indication of change within the core SaaS business. Now I'll turn to adjusted operating expenses, which are reconciled in the appendix to this presentation. Overall, adjusted operating expenses declined from 43% to 42% in the quarter underscoring our focus on profitability as we scale and grow the business. Adjusted sales and marketing expense was $28,800,000 or 16.2 percent of revenue, down from 16.9 percent of revenue reported in the prior year period.

Speaker 3

Adjusted product development expense was $19,600,000 or 11% of revenue, up from the 10.4% reported in the prior year period, largely due to planned investments and maintenance in our products. Adjusted G and A expense was $26,500,000 or 14.9 percent of revenue, down from 15.7% of revenue in the prior year period. Adjusted G and A expenses declined both as a percent of revenue and in absolute dollars as we continue to optimize our operations. We continue to generate significant free cash flow as we invest to grow our business. Cash flow from operations for the quarter was $23,900,000 as compared to $28,400,000 in the prior year comparative quarter.

Speaker 3

Levered free cash flow was $19,000,000 in the quarter, down approximately $3,600,000 or 16% year over year and was negatively impacted by the timing of working capital changes. For the trailing 12 months, levered free cash flow was $78,500,000 which represents an 11.4% margin and a 26.2% increase in levered free cash flow over the prior year, continuing to underscore the efficiency of our business and enhancing our balance sheet flexibility. Adjusted unlevered free cash flow was $30,000,000 in the quarter and $121,000,000 for the last 12 months, representing 11% 22.7% year over year growth respectively. Strong free cash flow generation is a deliberate goal for the EverCommerce team as it enables the flexibility to invest in our growing business while also enabling us to efficiently allocate capital across the spectrum of opportunities, including the outstanding buyback authorization of M and A prospects. In the second quarter, we repurchased approximately 2,500,000 shares for a total cash consideration of approximately $24,100,000 at an average price of $9.57 per share.

Speaker 3

Due to the Board's increased authorization that Eric mentioned, as of June 30, 2024, we had approximately $54,000,000 remaining in our repurchase authorization that runs through year end 2025. We ended the quarter with $87,000,000 in cash and cash equivalents and we maintained $190,000,000 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 2.6 times consistent with our financial policy. We have no material maturities until 2028. I'd now like to finish by discussing our outlook for the Q3 of 2024.

Speaker 3

For the Q3 of 2024, we expect total revenue of $172,000,000 to $176,000,000 and we expect adjusted EBITDA of $39,000,000 to 42,000,000 dollars We're leaving our full year 2024 guidance unchanged. We continue to expect revenue of 676 dollars to $696,000,000 and adjusted EBITDA of $167,000,000 to $176,000,000 dollars Our guidance assumes flat year over year revenue trends within our Marketing Technology Services business. Furthermore, we note that as we said at the beginning of the year, 2024 will be a transition year in which we are making investments to support the transformation and continuing optimization of the business with an eye towards accelerating growth and increasing profitability. To that end, we'll continue to prioritize long term value creation and seize opportunities to make accretive investments as they become actionable. Now before we begin the question and answer portion of the call, I'd like to take a moment to thank Eric, Matt, our Board and the whole EverCommerce team for the opportunity to serve as CFO for the last seven and a half years.

Speaker 3

It's been a true pleasure. While we've accomplished a lot during this time, I'm confident that the best is yet to come. Operator, we're now ready to take the first question.

Operator

Thank you. Our first question comes from Bahavan Saa of Deutsche Bank. Your line is now open.

Speaker 4

Great. Thanks for taking my questions. And Mark,

Speaker 5

it's been great working with you. Just first

Speaker 4

of all, just it looks like marketing technology solutions kind of returned to year over year growth after a couple of quarters of declines. How much of that was kind of execution versus macro related? And can you just broadly give us an update what you're seeing from a macro perspective and kind

Speaker 6

of what's embedded in the guide?

Speaker 3

So, Bhavan, I'm not sure that that came through as crisply. Could you repeat the second half? I think you were asking about macro climate and impact on revenue and then I just didn't catch the second portion.

Speaker 4

Yes. The first one, sorry, just the Marketing Technology Solutions kind of return to year over year growth after kind of a couple of quarters of year over year declines. How much of that was execution versus macro? And then just overall macro, what did you see in 2Q and kind of what's embedded

Speaker 1

for the rest of the year?

Speaker 3

Got it. Sorry. Thank you. So Marketing Technology, the 1.6% growth this quarter versus I think slightly down quarter over quarter in Q1. I think look on the margin, it's a little bit of both.

Speaker 3

I think we continue to execute well, but the headwinds remain. So I don't really think much has changed. We continue to think we are stabilized. If you add the 2 quarters, 1st 6 months of the year, we're slightly down year over year, which is consistent with our guide flat for the full year. And in terms of macro trends for the full year, do you want to comment on that?

Speaker 3

Yes.

Speaker 2

Thanks, Bob. And we're not seeing it. We check we kind of constantly watching this. So we really started at the top of the lead funnel all the way down to retention statistics and to date everything that's been fairly stable in terms of seeing any macro trends. So nothing has changed in the business from a kind of macro perspective and that's reflected in the guidance for the rest of the year.

Speaker 4

Helpful. Just one quick follow-up. It looks like kind of payments revenue grew more in line with TPV growth this quarter, while previously kind of it's been growing in excess of TPV growth. Any reason why they're converging today? And kind of how do we think about the relationship of both going forward?

Speaker 6

Yes. Thanks, Bhavan. It's Evan. Yes, I would just say, we talked about this, I think, last quarter in terms of take rate expansion and the control that we have over that from both a pricing perspective to our customers and then our relationships with our processors, which we always work to optimize our costs. We continue to expect that there will be opportunities to expand TPV growth and ultimately take rate will kind of take care of itself as we have different program mix and utilization from our customers over a period of time.

Speaker 6

So we expect to have continued TPV growth and take rate expansion and optimization over the long term.

Speaker 1

Thanks so much for taking my questions.

Operator

Thank you. Our next question comes from Matthew Hedberg of RBC Capital Markets. Your line is now open.

Speaker 7

Hey, guys. This is Mike Richards on for Matt. Thanks for taking the question. Maybe on the optimization initiatives, how has that trended relative to your expectations now that we're a couple of quarters in? And then maybe with the CFO transition, does anything change here in terms of timeline or where we're allocating resources and investments?

Speaker 2

Thanks. Yes. I'll start on the CFO side. I'll let Matt talk about kind of where we are in the optimization. The answer is no.

Speaker 2

Nothing changes in terms of our expectations of our continuation on the optimization as well as the transformation. Fortunately, Mark has built a really strong organization from top to bottom and we're very fortunate to have Ryan Zurich, who's been serving as a CEO for the last year, has had previous experience and we believe will make a very smooth transition and really follow through with all the work that both Mark and the rest of the team has done to kind of put that optimization and transformation in motion. So in terms of where we are on it, Matt, you want to talk about that?

Speaker 6

Yes. I think we focused last year sorry, last quarter really highlighting the focus on the Ever Health and the Ever Pro verticals and really giving leaders in these verticals the organizational structure and the support they need to accelerate growth. So things like simplifying our organizational structure, decommissioning legacy brands, investing in key sales and go to market gaps, things that have impacted growth rate, Obviously, that's where we are focused from a transformation perspective. During the quarter, we continue to work with our 3rd party change management rep to define our next steps. We've made some key hires within those verticals as well.

Speaker 6

So excited, I think we are where we thought we would be from a transformation perspective. And from an optimization perspective, I think you heard our remarks during the opening of the call, we are also where we expected to be with real impact that we'll see pull through in 2025.

Speaker 3

Yes. And just to double click on it, I mean, Eric mentioned a couple of transformation related expenses that hit this quarter and that's a little front end loaded, if you will. We'll start to see the thread through the efficiencies, we believe in the back portion of the year and then carry into 2025. But as I said in my remarks, we haven't seen a lot of that yet. And really, this is all positioning to exit the year into 2025.

Speaker 2

Thanks, guys.

Operator

Guys. Thank you. Our next question comes from Ryan McWilliams of Barclays. Your line is now open.

Speaker 8

Hey guys, thanks for the question and congrats to Mark on a great run. Just to start, I want to hear a little more detail on the puts and takes behind your net retention rate in the quarter. It seems like there was a pricing dynamic here on the comp basis. And then how should we think about what level NRR should stay at for the rest of this year?

Speaker 6

Yes. From a puts and takes standpoint, I think you heard us mention this. I think when we looked at when you look at retention dynamics of the business in whole, we really saw a lot of consistency. From that NRR perspective, obviously, we mentioned it last quarter, it continues to have impact from the anniversary of some larger pricing increases in one of our high velocity, but lower ARPU solutions where we just won't see that quantum of pricing increase layer on top in this year. So we are seeing the impact of that anniversary and will likely for another quarter or so.

Speaker 6

But again, with the stable retention dynamics with our focus on cross sell and up sell, our expectation is that NRR should stay in this the neighborhood that it has been. And obviously, we've talked about the opportunity for that to continue to grow as our motions from a cross sell perspective around payments, around edge are further integrated into the base of software customers. We obviously have opportunity to continue to take that up and north to the places that it has been and beyond.

Speaker 8

Thanks. And then for Mark, just on the full year revenue guide, should we think about it as for the second quarter revenue came in above the range, but for the full year you're taking out the revenue contribution from the international operations as a part of the guide Or is there other things we should think about in relation to the full year guide? Thanks. Yes. Ryan, I mean the revenue guidance this

Speaker 1

is Brad. The revenue guidance we've given all year doesn't include fitness full stop. So I think if you look at the press release, we delineated exactly what the fitness contribution was in the quarter. And so that's how you should compare those. And then yes, for the Q3 and the Q4, it does not include any fits.

Speaker 1

Operator, ready for the next question?

Operator

Yes. Thank you. Our next question comes from Alexander Sklar of Raymond James. Your line is now open.

Speaker 9

Hi, thanks for taking the question. This is John on

Speaker 2

for Alex. I want to

Speaker 9

start with cross sell, specifically on the multi solution customers. You talk about some of the puts and takes driving the growth there? It's still up nicely year on year, but it looks like the net add sequentially was below recent quarters. So anything you flagged there, maybe seasonality or changes in go to market or maybe the sale of fitness there, just any color you can provide there?

Speaker 6

No, I appreciate the question. Thanks for that. It's certainly I wouldn't call that necessarily seasonality. Obviously, a key focus on payments. We know we have a lot of runway from a cross sell payments cross sell perspective from payments.

Speaker 6

So, a big focus there. You've heard us talk about EverPro Edge, that is again another value add solution that can be cross sold into our system of action software bases. We have our customer experience solutions where again opportunity exists and we are executing on programs to cross sell those there. So some of those products are somewhat still early in their lifecycle like Edge. And so, the consistency of those quarter over quarter may not be the right measurement period from that perspective, I.

Speaker 6

E, for example, we are in Edge. There are 2 solutions that we've launched this integration with. It may take us several more quarters before the next two integrations are launched, but those are in planning and those will be executed. So, as we bring more integrated products to market, quarter over quarter, growth may not be the best look year over year certainly would be the best way to look at it.

Speaker 9

Okay. That's helpful color there. And then on the TTV growth here, I'm curious if you can maybe quantify, I think last quarter you guys called out for the top 5 solutions that were trending nearly 30% of TPV, I think was driven from those solutions and that was running 20%. I'm just curious if you can maybe speak to how that those have trended there, just the amount of growth generated by those businesses?

Speaker 6

Yes. The percentage of aggregate TPV remains relatively stable at 28%. It was the same last quarter and our growth rate of those top 5 solutions from a TPVU perspective is with 22% year over year and that's really in line with what we spoke to from last quarter. Like we spoke then, still holds true in this quarter. That's where the core focus, the core investment from a payments penetration standpoint is in those top five solutions.

Speaker 9

Thank you very much.

Operator

Thank you. Our next question comes from Mason Marion of Jefferies. Your line is now open.

Speaker 10

Hi, thanks for taking the questions. First, congrats to you, Ryan, on the promotion and best of luck to you, Mark. So I'm going to touch on the capital allocation front. So you divested several underperforming assets and have allocated more money to share repurchases. You've spoken about your increased focus on streamlining your current operations.

Speaker 10

We've heard from others that private valuations are starting to rationalize a bit. Can you talk about why this is the right time to focus more internally and allocate capital back into yourselves versus maybe externally and pursue more deals?

Speaker 2

Yes. Thanks for the question. Look, we're always looking. We're constantly where we have our pulse on the market and although they'll be rationalizing, they're still rationalizing from much higher points than we are currently trading. So from an accretive standpoint and a value standpoint that we think the underlying value of Evercommerces, we and myself, the management team and the Board still strongly believe it is a very good investment for shareholders to be investing in the buyback.

Speaker 2

So we'll continue to look at things even through our kind of transformation period. If something comes that makes sense economically and we think accretive to the organization, we'll execute on that as well.

Speaker 10

Great. And then you highlighted the point of sale traction within Timely. Is there an opportunity to bring this technology to other parts of your business or geos?

Speaker 6

Yes, absolutely. When we think about the other top solutions that Matt mentioned, we either have point of sale solutions in market at some level or we'll be deploying them over the course of the next handful of quarters. So we're in the early stages of those opportunities. But as you pointed out, the timely case study is a great example. We expect to get nearly 50% of our TPV by the end of the year from point of sale transactions at Timely and there's opportunity to do similar types of efforts in those other top solutions and other parts of our business that have been point of sale enabled for some time.

Speaker 6

So that's a core part of the strategy in terms of driving utilization and share of wallet expansion on a go forward

Speaker 1

basis. Great. Thank you.

Operator

Our next question comes from Aaron Kimson of Citizens JMP. Your line is now open. Bill McNamara of Evercore ISI. Your line is now open.

Speaker 6

Hi, this is Bill on for Kirk. Thanks for taking my question. Are you guys seeing any increased price sensitivity from small business customers? And how do you see pricing as a long term strategy for growth? Yes, sure.

Speaker 6

I'll start and others may want to add. I think we've expressed this in past quarters. We look at price from a price to value standpoint. So we certainly want to as we continue to enhance the value of the software that we're providing to our end customers, price is absolutely a lever that we've used in the past and we'll continue to use in the future based on that price to value ratio. To the first part of your question, we've not seen any increased sensitivity from that pricing standpoint.

Speaker 6

We've got a long history with multiples with the multiple solutions that we have with pricing increases in the market. We certainly understand when we do that, what the expectations of feedback and or churn might be and we watch that data very closely. We've seen no changes quarter over quarter, year over year from a sensitivity standpoint with any actions we've done this year. Great. Thanks for taking my questions.

Operator

Thank you. Our next question comes from Aleksey Gogolev of JPMorgan. Your line is now open.

Speaker 5

Hello, everyone. You talked about some degradation of vendor management programs last quarter, mainly due to Wicca Macco. Have you seen any improvements there?

Speaker 6

Sorry, Alexia, we didn't catch the degradation that you were referring to that we had spoken to in the past quarter. Can you repeat?

Speaker 5

Degradation of vendor management programs?

Speaker 3

Are you referring to our EverPro Edge offering that we launched end of last year? We talked a little bit about it in our Q1 call where we continue to see nice traction with that solution. That's part of what we obviously highlighted in Eric's case studies.

Speaker 1

Okay. Or perhaps. Yes.

Speaker 5

I was referring to some of the headwinds that you've seen in some other management programs. But in terms of the dynamic that you are seeing on the R and D and S and M sales and marketing side. Could you talk about how long should we expect to see the elevated sales and marketing level during that transition process?

Speaker 3

I think in terms of sales and marketing expense, obviously, we tightly manage that and commensurate with growth and really do it's very much part of the balancing growth and profitability motion. It has been relatively stable. I expect it to be operating in that range. Having said that, the organizational transformation initiatives we've been referring to that we've been developing into this year. And as we start to execute into the second half along with some of the optimization initiatives, We do expect that we will continue to get more out of that investments.

Speaker 3

And we will continue to drive growth investments where we need to drive into our best solutions where they offer the best revenue growth opportunities going forward. From a product development standpoint, it's very similar. We're investing obviously not just to keep our solutions current within the market, but also investing in new solutions, such as EverPro Edge that we talked about at the end of last year and into this year as well as continuing integrations of payments and so forth and other cross sell initiatives. So that we would expect will continue to also be within a band, but continuing to invest behind growth as we continue to try to reaccelerate that growth profile going into 2025.

Speaker 5

Perfect. And if I could squeeze one more, please. Where would you say you are in the adoption curve for different customer groups in terms of payment. Obviously, on this call, you've again highlighted loans as the front runners, but just curious on how you're driving attach in your other verticals?

Speaker 6

Yes. Listen, it depends on the vertical and it certainly depends on the solution within that. In certain places, we are further along the maturity of that based on the micro vertical and just the long term necessity of payments in the workflow. So if you look at pest control software, for example, we have long that has long been embedded in the solution of the system of action software solution as a core part of the workflow, and it's a requirement from that end contractor and penetration is definitely more on the mature side. You can compare that to other places where we're still really early on in the maturity curve.

Speaker 6

This could be a place where we have introduced payments to that workflow in a software within the last 1 to 3 years and we're still ramping those penetration efforts. So it varies across the portfolio and our management to that is really System of Action Software Solutions specific.

Speaker 5

Perfect. Thank you very much for your answers.

Operator

Thank you. Our last question comes from Aaron Kimson of Citizens JMP. Your line is now open.

Speaker 11

All right. Thanks so much, guys. I was talking to myself in here on mute earlier. I apologize. Can you give us an update on the Everhealth consolidation?

Speaker 11

Is that trending ahead of the rest of these optimization and brand consolidations where we won't see as much until 2025 and beyond given that you kind of started with Everhealth?

Speaker 6

Was the question thanks, Aaron. Was it about EverPro or EverHelp? EverHelp. EverHelp. EverHelp.

Speaker 6

Yes. EverHelp. So I think we've talked over the last couple of quarters about both the brand rollout and website optimizations. If you take a look at our core solutions, they're all by Everhealth, the sub products by Everhealth. We've invested over the past couple of months in bringing new leadership from a commercial go to market perspective, which has started to we started to see the fruits of those investments from a conversion improvement perspective or increase in ASP and actually reduction in sales cycle time.

Speaker 6

And when you look at payment enablement attach on new customer acquisition, we increased that from the low 30s in Q1 to the mid-50s in Q2. So my answer would be we've seen good progress in terms of both the transformation and the existing customers that continue to expand their share of wallet with us. And I would just add, I think you asked, is that the is when we think about the broader transformation program, does that follow Everhealth? And absolutely certain components of what we have done in Everhealth over the last year plus, When you look to our other verticals, specifically EverPro, operational consolidation like we've done at Everhealth, that's a model that we will follow, brand consolidation. Product consolidation will look different across our verticals, but certainly some form factors of what we've done in Everhealth will follow at EverPro.

Speaker 11

That's very helpful. Thank you. And then maybe as a follow-up, I think Bill may have touched on this a bit, but are you seeing any increase in charge offs or customers that are unable to pay on time? And then just if not, how do you approach that? It was a big theme on the ZoomInfo call last night and I'd love to hear how EverCommerce thinks about it.

Speaker 3

So, why don't I take a shot at that? I think, for the most part, our customers, pay by credit card on a monthly subscription basis, or obviously were paid on the payments motion in different ways. So we don't see a ton of that and we really haven't seen any change where we do have receivables. We haven't seen any change in pattern of behavior amongst our small business customers.

Speaker 11

Got it. Thank you very much.

Operator

Thank you. This now concludes the question and answer session. I would now like to turn it back to Eric Riehmer for closing remarks.

Speaker 2

Thank you so much. We were pleased with our results and look forward to continuing our transformation optimization throughout this year and 3/25. And just want to have a following remark as this will be the last time Mark joins our earnings call is that a genuine thank you for all the work you've done the past almost 8 years as an organization, grew up with Mark and he's done an amazing job both providing value across the organization and also building a legacy within this organization. So we have the ability to promote from within and have a really great leader to step up. So thank you, Mark, for all your contribution.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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Key Takeaways

  • Revenue beat: Q2 reported revenue was $177.4 M, up 4.3% yoy (6% pro forma ex-fitness sales), marking the highest quarterly revenue on record and exceeding guidance.
  • Adjusted EBITDA strength: Q2 adjusted EBITDA reached $41.2 M (23.2% margin), modestly expanding yoy despite strategic investments, and trailing-12-month EBITDA margin was 24.1%.
  • Payments & cross-sell growth: Payments revenue grew 8% yoy on an 8.4% TPV increase (to $12.1 B), with 199 k customers enabled on >1 solution (+25% yoy) and 87 k actively utilizing >1 solution (+16% yoy).
  • Case studies: Integrating POS terminals in Timely doubled its TPV in just over a year, and EverPro Edge subscribers boosted ARPU ~3× with near-100%-margin vendor rebates.
  • Transformation & capital allocation: A multi-quarter program is simplifying org structure, consolidating brands (EverHealth, EverPro), filling go-to-market gaps and targeting 2025 cost savings, while the Board added $50 M to the share buyback authorization (now $54 M remaining).
AI Generated. May Contain Errors.
Earnings Conference Call
EverCommerce Q2 2024
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