EverCommerce Inc.

understand the benefits of digital solutions and are increasingly integrating technology into the everyday operations of their business. Still, the service SMB market is under-penetrated with only 9% of our target customers utilizing end-to-end solutions to run their businesses. This is in large part because existing solutions can't meet the unique needs of SMB service owners. Custom solutions like ERPs have historically been primarily built for large enterprises and are not affordable. These broad solutions also tend to lack the specialization required to meet the specific needs of the service industries. And point solutions, which have grown in popularity, such as workflow marketing and customer engagement, often lack the integrations to create seamless end-to-end solutions. These limitations have stunted technology adoption for service-based small businesses, who lack the budget and resources to customize and connect these solutions themselves. EverCommerce has taken a differentiated approach to the market by creating vertically tailored solutions that solve specific business problems for SMB service companies. Our solutions center on the system of action that drives a service business's day-to-day operation. Think of a field service management solution that manages work orders and deploys technicians to onsite jobs in their service areas. Or practice management solutions that support day-to-day operations for small medical practices. We then integrate horizontal solutions including payment processing, digital marketing lead generation, and customer engagement applications to create an end-to-end experience for both the consumer and the business. The improvement of the consumer's experience increases the loyalty and grows revenue for small businesses, while the digital transformation of the business improves efficiency at the same time. As these businesses grow, they can adopt more solutions and features, increasing our ARPU and our customer lifetime value. It's this organic growth flywheel that fuels the growth of EverCommerce. Finally, to increase our speed to market and maximize the vertically tailored features of our software, we have built an M&A engine to find, acquire, and onboard best-of-breed solutions into our essential ecosystem. This inorganic increases velocity of vertical and geographic penetration while providing value-add complementary solutions for our customers. We are currently focused on three specific verticals within the service SMB market, which we believe represent particularly attractive growth opportunities. The home service vertical, a $59 billion North American market opportunity, is focused on several key industries, including field services, home improvement and remodeling, and security alarm specialized service professionals. The health service vertical, an $84 billion North American market opportunity, is focused on supporting the digital transformation and improved patient engagement of small and medium-sized physician and specialty care practices. The fitness and wellness vertical, a $21 billion North American market opportunity, and our industry most impacted by the pandemic, is focused on recovering industries of single and multi-location fitness, instructional dance, and salon and spa professionals. We've rapidly scaled the business in the past five years. generating $407 million of revenue over the past 12 months ending June 30th, 2021. Our strategy to drive future growth is supported by our massive under-penetrated market opportunity and built upon our scaled operations and dual organic and intergrantic growth engines. First, we are focused on new customer acquisition and cross-sell upsell to our more than 500,000 customers within our current product portfolio. We're at the early stages of driving growth with the solutions we have today and believe it can generate strong, consistent, organic growth. Second, we expect to continue to execute on our successful M&A strategy to acquire additional solutions that expand the value we deliver to customers. We've executed on 51 transactions the past five years and have developed a highly repeatable and scalable onboarding program that leverages our expertise in operations, payments, and digital marketing to augment the vertically tailored software we provide. The service SMB software market is highly fragmented. Our ability to efficiently acquire and scale these solutions has enabled us to generate value for both customers and our shareholders. I'll provide some details of one of our recent acquisitions in a moment. Turning to our second quarter results in more detail, we had a strong performance across our solutions. I'd like to spend a moment reviewing the trends that we're seeing in each of our three core verticals. And the Home Service Vertical or EverPro brand represents a suite of solutions such as field service management and alarm monitoring software that provide the vertically tailored solutions needed for specially home technicians and contractors. This vertical continues to perform well and was our fastest growing in the quarter. Rising home prices, low interest rates, and durable trend of work from home has driven demand for skilled services like contractors, plumbers, HVAC, and landscaper professionals to name a few. Small businesses in these markets are experiencing high demand for their services and are looking for simple-to-use, yet powerful technology that can help them to capture and manage this demand and provide the experience their customers expect. This dynamic, which we expect to continue, drove strong interest in adoption across our EverPro solutions in the second quarter. In the health service vertical, our EverHealth brand represents a suite of solutions, such as electronic health record and practice management solutions. that help physicians and practitioners provide more efficient, more engaged patient care. This vertical also had a strong quarter and is benefiting from the rise of personalization and consumerization in healthcare, as well as the growing popularity of telemedicine. We are seeing particular strengths with our patient engagement solutions, which provide convenient digital experiences for scheduled appointments, receiving reminders, accessing medical records, test results, and providing 24-7 access to their health information. We are seeing physician practices embrace our technology and new opportunities it creates to deepen and improve care and patient relationships. In the fitness and wellness vertical, our EverWell brand represents a suite of solutions such as member and facilities management and salon and spa management needed for fitness and wellness professionals to automate scheduling and client services. This vertical showed continuing improvement in the second quarter, but certain micro-verticals continue to feel the impact of COVID-19. Many fitness providers remain under pressure as their consumers have only gradually begun to return to in-person classes following extended closures. Conversely, our salon, beauty, and wellness areas are rebounding very well and are back to pre-COVID trends. The trends we are seeing in fitness and wellness are highly localized and impacted by vaccination and contagion rates as well as government mandates. We recently expanded our penetration of fitness and wellness with the acquisition of Timely, a global appointment booking and business management software company that is used by spas and salons in the UK, Australia, and New Zealand. Timely has built a strong business serving more than 50,000 beauty professionals who book more than 30 million appointments annually. Timely is a great example of our M&A strategy at work. There's a system of action solution that broadens our penetration in the existing vertical, expands our global reach, has growth opportunities leveraging our current digital marketing expertise, and provides another avenue to integrate our existing payment solutions. Let me wrap up by reiterating how excited we are at the way the business is performing. We executed well against all of our strategic goals in the second quarter and meaningfully accelerated top-line growth. With the successful completion of our IPO, we are now fully focused on expanding our growth, both organically and through strategic acquisitions. We believe we have clearly established EverCommerce and its industry-tailored brands as the software platforms of choice for service SMBs, which is one of the largest opportunities in the entire software market. We are confident in our ability to be the primary winner in this market and build a much larger, increasingly profitable business over time. We are enabling the digital transformation of the service economy and provide unique access to the next generation of leading SaaS platforms that are serving the vertical and micro-vertical SMB service businesses. I will now turn it over to our CFO, Mark Thompson. Mark, over to you.

Thanks, Eric. Today, I'll provide an overview of our financial model, review our second quarter fiscal 2021 results, and also provide our outlook for the third quarter and full year of fiscal 2021. To start, EverCommerce has a highly recurring and reoccurring revenue model that consists of recurring SaaS subscription and transaction solutions and reoccurring marketing technology services. Subscription and transaction revenue represents about 70% of our total revenue today. And included within this is our payments business, which is about 14% of our overall revenue. We expect this segment to continue to drive the majority of our growth going forward. The other meaningful component of revenue is our marketing technology solutions, which is primarily focused on lead generation and other solutions that help our customers grow their customer bases. This reoccurring revenue represents about 25% of the business today. Given more than half of our revenue is generated within our home services vertical, we do experience some seasonality in our consolidated results, with Q4 and Q1 being the most impacted quarters. Underscoring our focus on delivering our SMB customers valuable solutions and a great customer experience, we have realized a stable average monthly net revenue retention rate above 99% in each of the last eight quarters. Now with that background, let's turn to our second quarter results in detail. Total revenue in the second quarter was 121.1 million, up 53% from the prior year period. Within total revenue, subscription and transaction fees were 85.1 million, up 64% from the prior year period, and marketing technology solutions were $32 million, up 38% from the prior year period. As Eric discussed, M&A is a core part of our growth strategy. As a result, we believe it's also 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 closed, as of the end of the latest period, were closed as of the first day of the prior year period, thereby including results prior to our ownership. We believe the pro forma growth rate provides the best insight into the underlying growth dynamics of our business. Our pro forma growth rate for Q2 was 31% year over year and 21% for the year-to-date period versus 2020. While our performance in Q2 was very strong, it did benefit from lower Q2 comps, as Q2 2020 was the period when we felt the most impact from COVID. Overall, we were pleased with the strong recovery and continued improvement in growth across the business during the quarter. Growth trends across all three end markets strengthened during the quarter, and our marketing technology solutions continue to see strong momentum. Now let's review the income statement in more detail. As a reminder, unless otherwise noted, all metrics are non-GAAP, and we've provided a reconciliation of GAAP, to non-GAAP metrics in our press release and investor presentation. Adjusted gross profit in the quarter was $80.2 million, or an adjusted gross margin of 66%, compared to an adjusted gross margin of 63% in the second quarter of fiscal 2020, reflecting a mix of about 70% of revenue from subscription and transaction revenue versus about 66% in Q2 2020. Now turning to operating expenses, Sales and marketing expenses were $22 million, or 18% of revenue, up from 13% of revenue in the prior year period. This increase was primarily driven by continued investments and growth through our various marketing channels and personnel. Product development costs were $12 million, or 10% of revenue, up from 8% of revenue in the prior year period. This increase was due to investments and additions to our technology teams to support our various solutions as well as centralized security operations, information technology, and cloud engineering. G&A expense was $18.7 million, or 15% of revenue, down from 18% in the prior year period. Our business is built around our centralized operating model, which aggregates many of the functions of our various operating units at headquarters. This has been a key component of our ability to scale as quickly as we have. We will continue to invest in the infrastructure to support our rapid growth scalable operations, and being a public company. We expect that these investments, particularly the investments related to being a public company, will accelerate in the second half of 2021 following the completion of our IPO in early July. Q2 adjusted EBITDA was $27.6 million, which was an increase of $8.1 million, or 42%, from the year-ago period. Adjusted EBITDA margin was 23%, down 1% versus the year-ago quarter, but quite strong considering our investments in growth and scalable operations. We expect adjusted EBITDA and related margins to reduce in Q3, given the losses in Q3, and as we continue to invest in growth opportunities and scalable operations in the second half. On a gap basis, our Q2 net loss is $24.3 million, or a loss of $0.56 per share based on weighted average basic shares outstanding of $43.7 million. On a gap basis, our Q2 loss from operations was $10.8 million. Turning to the balance sheet and cash flow, we ended the quarter with $202.6 million in cash, cash equivalents, and restricted cash. Total debt at the end of the quarter was $766 million. Total net leverage as calculated per our credit facility at the end of the quarter was approximately 4.3 times using credit agreement-defined adjusted EBITDA. Subsequent to the end of the quarter, we successfully completed our IPO, which raised net proceeds of $347.8 million, including the exercise of the over-allotment option, as well as a $75 million concurrent private placement by Silverlink. In addition, we successfully completed a term loan B financing, which lowers our cost of debt by approximately 225 basis points and put in place a $190 million revolving credit facility. Adjusted for the net proceeds from the equity financings and our recent debt refinancing, our as-adjusted net leverage at the end of Q2 would have been approximately 1.4 times using credit agreement-defined adjusted EBITDA. As-adjusted net leverage does not reflect the use of cash for timely, which was approximately $99.9 million. Our long-term target is to run the business with net leverage of approximately 2.5 to 3.5 times credit agreement defined, adjusted EBITDA, and lever up to 4 to 4.5 times to fund acquisitions. Our financial profile and balance sheet is the strategic asset for the company, ensuring we have significant capital available to deploy to invest in organic and inorganic growth initiatives. I'd like to finish by providing our outlook, beginning with the third quarter. Please note that our outlook for Q3 in the full year 2021 includes our acquisition of Timely, but the outlook excludes any impact from M&A which was not completed by the end of Q2. As we have previously indicated, we will report the contribution from acquisitions in the period in which they are acquired, so we expect to discuss our Q3 acquisitions during our Q3 earnings call. For Q3, we expect total revenue of $122 to $124 million, and we expect adjusted EBITDA of $23 to $24 million. And for the full year fiscal 2021, we expect total revenue of 471 to 474 million, and we expect adjusted EBITDA of 100 million to 102 million. A few things to keep in mind as you consider our guidance for the remainder of the year. First, our business is performing at a high level and is tracking ahead of our prior expectations for the year. In particular, we are pleased with the momentum across our business notably in our ever pro and ever health verticals. Second, pro forma growth in Q2 on a percentage basis was aided by lower comps because Q2 of last year was the most difficult operating quarter from a COVID perspective. While we continue to see strong business activity, the pro forma growth rates in the second half of 2021 will be lower than our Q2 pro forma growth rate because we began to see improvements in our business in the third and fourth quarters of 2020. Third, we continue to see headwinds from COVID, particularly in our fitness and wellness vertical, where we're selling in Australia, New Zealand, and the UK, all of which have been experiencing shutdowns and other COVID-related challenges. While we have not seen any material impact to our business yet from this most recent Delta variant wave, it is something we're closely monitoring. To summarize, EverCommerce is performing well on both our core drivers, organic growth and acquisitions. Our results reflect the accelerating desire for digitization from service SMBs. This is a trend that we expect to benefit our business for years to come. We believe we have the ability to deliver an attractive combination of strong top-line growth and improving profitability in the coming years, which we are confident can generate meaningful value for shareholders. With that, we'd like to open up the call for Q&A. Operator?

Thank you. To ask a question, you'll need to press star 1 on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Sterling Otte with J.P. Morgan. Your line is open.