EverCommerce Inc.

Thank you for standing by and welcome to EverCommerce fiscal year 2021 fourth quarters earnings call. My name is Carmen and I will be your operator for today. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate during the session, you must press the star then the number one on your telephone. As a reminder, this conference call is being recorded today, Monday, March 14, 2022. And now I would like to turn the conference over to Brad Kort, Senior Vice President and Head of Investor Relations for EverCommerce. Please go ahead.

Good afternoon, and thank you for joining. Today's call will be led by Eric Reamer, EverCommerce's Chairman and Chief Executive Officer, and Mark Thompson, EverCommerce's Chief Financial Officer. Joining them for the Q&A portion of the call is EverCommerce's president, Matt Feierstein. This call is being webcast with a slide presentation that reviews the key financial and operating results for the three months and year ended December 31st, 2021. For a link to the live or replay webcast, please visit the investor relations section of the EverCommerce website, www.evercommerce.com. The slide presentation and earnings release are also directly available on the site. Please turn to page two 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 the 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. Our reconciliation of non-GAAP to GAAP historical measures is provided in both our earnings press release and our earnings call presentation. I will now turn the presentation over to our CEO, Eric Reamer.

Thank you, Brad. I'm excited to share with you that EverCommerce reported excellent fourth quarter results that capped a great year for the company and exceeded revenue and EBITDA guidance. EverCommerce is delivering on its strategy to be a leading provider of service commerce solutions, simplifying and empowering the lives of business owners across the globe. On today's call, I will summarize our investment thesis. highlight fourth quarter results, and discuss our key priorities for 2022 before turning our call over to Mark to dive deeper into our financials. EverCommerce provides tailored end-to-end SaaS solutions that support the highly diverse workflows and customer interactions that professionals in home services, health services, and fitness and wellness services need to automate manual processes, generate new business, and create more loyal customers. With a diverse set of over 600,000 global customers, EverCommerce is leading the digital transformation of the service economy. EverCommerce generates nearly half a billion dollars in annual revenue. Further, we are among an elite group of growth-focused software companies that balance durable growth with sustainable profitability. We grew revenue 45% in 2021, which is inclusive of 21% pro forma organic growth. We did this while maintaining 22% adjusted EBITDA margins. Supporting this growth and profitability are strong customer economics illustrated through a high LTV to CAC ratio. We have a massive market opportunity with one of the largest dressable markets in software and technology. There are over 400 million SMBs and over a trillion dollar market opportunity globally. In the U.S. alone, with the vast majority of our businesses, there is an over half a trillion dollar opportunity and more than 30 million businesses. Services are the backbone of the U.S. economy, accounting for 77% of U.S. GDP, and small businesses employ the majority of service professionals. By focusing and serving the vast community of service businesses that support consumers, homeowners, patients, and members of the local communities, EverCommerce is transforming the service economy. EverCommerce offers tremendous value to our customers by providing solutions tailored to the unique workflows and interactions that various service types require. From a plumber to a doctor to a yoga instructor, the way in which they generate new business, fulfill services, manage day-to-day operations, and engage with customers is very unique. Our software solutions not only provide the system of actions necessary to run our customers' daily business processes, but but also the marketing solutions to attract new businesses, the billing and payment solutions to collect effortlessly, and the customer engagement solutions to create predictable and convenient experiences. Our solutions are cost-effective, easy to implement, and purpose-built for service businesses. We truly provide end-to-end solutions that these businesses need to compete and grow in a marketplace that is rapidly transforming. Looking at our key verticals, which are home services, health services, and fitness and wellness services, all of them independently have very large TAMs. Even with the growth we've experienced, globally we've penetrated less than 0.1% of the market and domestically just over 1%. As you know, we are focused on penetrating these verticals through a deliberate and tiered marketing and brand strategy that maximizes the legacy benefits of our solutions brands and while building awareness and consolidated customer focus for EverPro, EverHealth, and EverWell brands in their respective target verticals. Continued investment in these brands and consolidation of acquired brands enhance our cross-sell effectiveness, customer experience, and overall scalability. Our strong performance in the fourth quarter and for the full year validates our strategy. In the fourth quarter, we reported 47% year-over-year revenue growth, which included 24% pro forma organic growth. For the year, we drove more than 20% customer growth, and our total payment volume, or TPV, increased 21%. We balanced our durable growth with sustained profitability and free cash flow generation. In the fourth quarter, we reported 22% adjusted EBITDA margins and 16% adjusted unlevered free cash flow margins. Our operational momentum continued to accelerate with great progress on our onboarding of Dr. Crono and other solutions according to 2021. Continued centralization of operational functions, integration of solutions and operational platforms, and investment in brand consolidations have supported both new customer acquisition and ARPU expansion. We also continue to make the investments necessary to stand our growth, scale operations, and operate as a public company. As I mentioned earlier, we have a large base of diverse customers. We ended the year with approximately 617,000 customers, an increase of more than 20% year-over-year. One of the powerful levers in our business model is the massive embedded opportunity to provide additional integrated solutions into our vertical software systems of actions, facilitating upsell and cross-sell with our customers. For the full year, we estimate that the average solutions ARPU expanded approximately 15% compared to the prior year. On an annualized basis, our net revenue retention was approximately 100% in Q4. We ended the year with more than 55,000 of our customers using more than one solution from EverCommerce and more than 25% increase year-over-year. We've barely scratched the surface of our estimated $5 billion embedded annual revenue opportunity. I'd like to spend a moment to drill deeper into the specific opportunity we have with our integrated billing and payment solutions. Facilitating a frictionless payment process is mission critical for any small business. Consumers have come to expect payment for products or services to be digital, easy to use, mobile friendly, and secure. For business owners, a seamless payment process means higher conversion rates, better efficiency, accelerated cash receipts, and increased revenue. Everconverse payment solutions provide an intuitive front-end experience for consumers and is tightly embedded within our various software applications. Increasingly, we see our customers embracing this powerful combination. We ended 2021 with an annualized total payment volume, or TPV, of approximately $9.1 billion, which represents a 21% growth since we first published this metric as part of our S-1 for the period ended March 31, 2021. Facilitating the continued integration and revenue expansion for payment and adjacent marketing and customer engagement solutions via cross-sell is a top priority for us. To support the durability of our growth, we have successfully augmented organic growth with a number of acquisitions that expand our market reach with additional systems of actions that provide new opportunity for customer acquisition and ARPU expansion. We have developed a proven M&A playbook that allows us to quickly onboard new solutions, expand growth momentum, and deploy best practices. Our recent acquisition of Dr. Crono, a leading SaaS practice management, EHR, and billing solution that serves more than 4,600 independent practices and 13,000 providers across various medical specialties, is a great example of our M&A strategy in action. It is accretive to our organic growth profile and significantly expands our market reach and penetration in a key vertical market. In the five months since we acquired Dr. Crono, we are fully on board with this solution, and we are already seeing early positive results cross-selling on one of the Everhouse solutions. We are actively investing in product enhancements in 2022 to fully capitalize on the growth opportunity with Dr. Crono, while also driving better-than-expected cost optimization results as we leverage our centralized operating model. While Dr. Crono still provides a headwind to adjusted EBITDA margin in 2022, we expect it to be adjusted EBITDA neutral this year versus an adjusted EBITDA loss of approximately $4.5 million in 2021 on a pro forma basis. We expect it to be a positive contributor to consolidated adjusted EBITDA in 2023 and beyond as the steps we've taken positions the solution well for strong revenue and profitability growth going forward. Dr. Crono is a great example of the types of acquisitions we will pursue. As always, we have a very active funnel of M&A opportunities that we are evaluating through our acquisition framework. However, as we have stated several times in the past, we view M&A as a complementary or highly predictable organic growth model, which allows us to remain very disciplined and only pursue opportunities that both enhance the overall EverCommerce ecosystem and our economic profile. Looking ahead, we have several key priorities for our business in 2022. We will continue to invest in building trust and awareness of our ever-failing brands in their respective verticals, and to continue scaling our marketing, sales, and customer success engines to maintain at least a 15% to 20% organic growth for the foreseeable future. We will invest in product development and build and optimize solutions, support new feature launches, and maintain market competitiveness. We will advance our scalable operations initiatives, including systems and organizational consolidation, to drive increased profitability and operating leverage over time. And we plan to selectively utilize M&A to expand capabilities and penetrate target market segments as you augment our organic growth engine. Now I'll pass things over to Mark.

Thanks, Eric. Today I'll review our fourth quarter fiscal 2021 results in detail and provide our outlook for the first quarter and full year the fiscal 2022. As Eric said, we're very pleased with our fourth quarter results, having exceeded the high end of our guidance range for both revenue and adjusted EBITDA, underscoring a really strong finish to the year and continuing momentum in our business. Total revenue in the fourth quarter was $135.6 million, up 47% from the prior year period and above the high end of our original guidance. Within total revenue, subscription and transaction fees were $99.7 million, up 55% from the prior year period, and marketing technology solutions were $29.3 million, up 24% from the prior year period. Q4 includes approximately $4.5 million of revenue from Dr. Crono, which closed on November 18th. We manage the business for sustainable organic growth and utilize strategic acquisitions to augment this growth. As a result, we believe it's 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, including before the time we completed the acquisition. We believe the pro forma growth rate provides the best insight into the underlying growth dynamics of our business. We are very pleased with our pro forma growth rate, which was 24% year-over-year in the fourth quarter and 21% for the full year. We experienced good growth across all three of our core verticals in our various products. As Eric noted, we drove this growth while maintaining solid profitability. Fourth quarter adjusted EBITDA was $29.3 million, representing a 21.6% margin. This is above the high end of our Q4 guidance, having grown adjusted EBITDA 33% year-over-year. The year-over-year change in adjusted EBITDA margin is reflective of our investments in growth and scalable operations and the impact of public company costs. Adjusted gross profit in the quarter was $92.7 million, representing an adjusted gross margin of 68.4%, with a seasonally higher adjusted gross margin reported in Q4 2020. Turning to operating expenses, sales and marketing expenses were $26.1 million, or 19.3% of revenue, up from 15.2% of revenue in the prior year period. This increase was primarily driven by continued investments in growth through our various marketing channels and personnel. Product development costs were $14.5 million, or 10.7% of revenue, up from 8.8% of revenue in the prior year period. This increase was due to investments in 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 $30.3 million, or 22.3% of revenue, down from 33.3% of revenue in the prior year period due to lower acquisition-related expenses. We continued to make significant investments in our centralized operating model and in our public company infrastructure. Our centralized operating model aggregates many of the functions of our various operating units, including most G&A functions, and we believe is a key component of driving operating leverage over time. Not only are we balancing our high growth with profitability, but we are also generating substantial free cash flow. Looking at slide 17, we're highlighting two free cash flow measures for the first time, the reconciliations of which are in the appendix of our earnings presentation. Our adjusted unlevered free cash flow for the quarter was $22.3 million, representing greater than 50% year-over-year growth and a healthy 15.8% margin. On a full year basis, our adjusted unlevered free cash flow of $77.3 million was approximately four times our annualized pro forma cash interest expense. Our strong balance sheet provides us great flexibility. We ended the quarter with $94 million in cash and cash equivalents and debt of $554 million. Total net leverage as calculated per our credit facility at the end of the quarter was approximately 3.7 times consistent with our financial policy. We have a fully undrawn revolver with $190 million of available capacity, and we have no material maturities until 2028. I'd now like to finish by providing our outlook, beginning with the first quarter. For Q1 revenue, we expect total revenue of $140 to $141 million, and we expect adjusted EBITDA of $21.5 to $22 million. For the full year fiscal 2022, we expect total revenue of $619 to $625 million and adjusted EBITDA of $122 to $124 million. Our 2022 outlook does not include any potential impact of M&A activity that could take place throughout the year. Our adjusted EBITDA guidance implies 20% margins for the full year 2022 and includes planned incremental public company costs as well as the before mentioned headwind from the Dr. Crono acquisition, which closed on November 18th of last year and negatively impacted adjusted EBITDA by 1.4 million in the fourth quarter. As Eric noted, we expect that Dr. Crono will be breakeven in 2022 and contribute positively to EBITDA in 2023 and beyond. This cadence of margin expansion for onboarded solutions is consistent with our historical results and multiple other solutions that we have acquired and onboarded. The implied adjusted EBITDA margin also includes more than $6 million in incremental public company costs in 2022 as compared to 2021. Many of these investments are front-end loaded throughout the year, and we expect margins to accelerate throughout the year. To wrap up, EverCommerce's fourth quarter performance reflected strong momentum across our whole business. Our organic revenue growth and profitability exceeded the rule of 40 and illustrate the strength of our durable business model. We believe EverCommerce is well-positioned to be a primary beneficiary of the digital transformation that is just getting underway among service SMB companies. Our focus is on continuing to execute on our strategic priorities and deliver consistent, profitable growth that we believe can generate significant value for our shareholders. Operator, we're now ready to begin the Q&A section of the call.

Thank you. And as a reminder, to ask a question, simply press star 1 on your telephone. To withdraw the question, press the pound or hash key. That is star one if you have a question. We have a question from the line of Kirk Matern with Evercore ISI. Your line is open.

Yeah, thanks very much. Eric, can you just give us some sense of kind of what you're seeing out in the environment these days? You guys obviously have a huge base of small business customers and I think there's just a lot of questions about how things like inflation are playing into demand for their customers. How are you guys thinking about that as we head into 2022, knowing this is still a big opportunity to add a lot of new customers and take ARPU up as well?

Well, Kurt, thanks for the question. I appreciate that. And, you know, we think a lot about that, as you can imagine. And as we look at our core customers, we are really in kind of essential services. You know, if you think of the categories we serve from kind of our, you know, home services, the customers that we're serving, most of them are doing break and fix it. So that kind of core plumbing, electrical, HVAC, where we don't see much impact on whether inflation goes up or things of that nature. Similar with our health services, you know, you're dealing with kind of core medical and things that are going to continue regardless of some bumps in the economy. And the last category, you know, kind of the fitness and wellness, again, because we're dealing on that kind of smaller side of things, you know, we have customers like Anytime Fitness and At $10 a month, we don't see our kind of businesses being impacted greatly. It's really kind of smaller cost services that, as we look at our customer base, ultimately not be affected. And just to take a step back, and you bring up a really good question, as we look at the overall world, with over 600,000-plus customers, not just in three verticals, but really in almost 35 verticals, five business lines and multiple revenue streams, Things are going to happen across the ecosystem, as you can imagine, as we saw with COVID. But we feel really insulated against whatever may come our way.

That's great. And then just one really quick follow-up for you. Obviously, we've seen valuations in the public market get hammered over the last couple months or a few months. How does that impact, if at all, sort of your strategy around M&A, meaning are you seeing valuations change in the private market? Does that impact anything? I realize you guys have a very long-term view, but just curious if it's impacting your discussions in any way. Thanks.

Yeah, another good question. And we look at, we're constantly tracking the marketplace. We have a large pipeline that we're constantly interacting with. And I do think right now, you bring up a great point, there is a disconnection between public market valuations and private market valuations. So it allows us to be patient as we kind of kicked off in the call with organic growth, the core focus of the business, and our belief that we'll maintain that for years to come, it gives us the kind of the discipline, the ability to be disciplined, and make sure what we find in the marketplace makes sense for us, you know, both now and in the future. So I think, you know, over the long term, we'll continue to look at great opportunities. But again, they need to make sense of the organization. And we'll focus on the kind of core economics of the business until we see the M&A markets and the privates, you know, kind of come back to us.

Thank you.

Your next question comes from Brad Reback with CFO. Your line is open.

Great. Thanks very much. Eric, as we think about total payment volume through the system, is there an opportunity for that to grow meaningfully faster than pro forma revenue growth as you drive attach?

Hey, Brad, thank you for the question. I'll let Matt take that one.

Yeah, I think, again, we're happy with that 21% year-over-year growth of annualized TPV to $9.1 billion. You said that we're meaningful. I certainly think we see the opportunity to continue to push the gas on this embedded TPV payments opportunity. 33% of our applicable software systems of action customers have attached to payments today. So as you've heard us say, we're still really in the early innings. As we're able to meaningfully drive that attach rate and the utilization of payments, I definitely think we believe we can continue to drive that. at 20-plus percent, you know, and beyond. So the opportunity is there. You know, some of those bases are penetrated already, so they aren't going to be growing at the same base. But as we get new opportunities like the Dr. Crono opportunity, like the timely opportunity from our recent acquisitions over the last year, those represent faster growers that can help the TPV grow quicker.

That's great. Thanks very much.

Your next question comes from Sterling Audi with JP Morgan. Your line is open.

Yeah, thanks. Hi, guys. I want to go back to an earlier line of question. I think it was me and Kirk that was asking it kind of on the macro side, but ask it this way. You know, we're looking at the number of new businesses being formed in the U.S., you know, declining year over year, still probably above pre-pandemic rates, but, you know, help investors understand When you look at your companies, your brands getting new customers, is business formation an important part of it, or are you picking up businesses a little bit later than, you know, that early?

Thanks, Sterling. Great to talk to you. You know, we're a little bit after that, so I think the very, very early, that new business that is just kind of getting, you know, LLC or C-Corp, you know, we're going to most likely be on a little bit the next stage of that growth. And you think about the wind behind the sails that we're seeing in the categories, you know, home service, That TAM grew 17% last year. Health services is just getting its feedback from a couple-year pandemic. And as you know, in the fitness and wellness, that was massively hit in 2020 and started to rebound in 2021. And so in the core verticals that we are serving, we've both seen both acceleration and then getting back to kind of business as usual. So that early, early part of that business formation won't affect us, and we haven't seen an effect on our business at this point.

All right, great. And then one follow-up. When thinking about the margin improvement, you talked about some of the integrations and integrating some of the acquisitions, et cetera. Can you maybe go a little bit deeper in terms of what are some of the things that you're doing on maybe not like Dr. Crono, but maybe the last cohort of acquisitions? What are some of the steps that you're taking? What kind of benefits are you seeing at the EBITDA lines?

Yeah, hey Sterling, it's Mark. It's a great question. And we, you know, when we look forward over the longer term, we just see a lot of levers to really drive operating leverage in the business. And it's really kind of throughout the operational motion of the business. But the centralized operating platform starts there really, right? I mean, by virtue of being able to onboard solutions and really drive efficiency across that complete base, whether it be business operations, growth engagement, right on through to the traditional G&A functions, we're going to see consistent improvement there, particularly beyond 22 as we get over the hump of a full year of public company infrastructure in place and as we continue to make investments in scalable operations. to really drive growth well beyond where we are today. But one good example of that is brand consolidation. And I use that word actually in two ways. In the short term, what that has meant is we've acquired 52 solutions. We are operating roughly half of that in terms of solution org operational P&Ls internally. So that allows us to combine different organizations within the go-to-market framework and certainly leverage that centralized platform you know, over a smaller number of businesses. So there's some real efficiency glean there. And then over the very long term, you know, one of the things I think you're going to start to see, and we've talked about this on prior calls, is actual brand consolidation as we think about starting to lean into things like our EverPro brand going forward, EverHealth, EverWell, and so forth. So we are in the early innings, we believe, of really driving operating leverage throughout the sort of stack, if you will. But this will be a big year of kind of continuing to get over that hump, and we really look forward to driving leverage beyond. Makes sense. Thank you.

Your next question comes from Matt Hedberg with RBC Capital Markets. Your line is open.

Sam Bergstrom from Matt Hedberg. Thanks for taking our questions. Say organic growth for the year, 21%, slightly above that targeted 15% to 20% range, really great to see that. Maybe what were some of the keys for the year that led you to outperform that range?

Yeah, thanks for your question, Matt. Again, you know, when you go back to our organic growth, We consistently go back to really two things. There's new customer acquisition, as you know, incredibly large focus of ours. We're excited about our ability to continue to acquire customers at the rate that we had previously, and as you can see by our customer growth over the course of the year, 20% year-over-year growth. Getting those customers into the ecosystem, really think about it as growth lever one. And growth lever two, we've consistently gone back to that massive embedded opportunity with that 600,000-plus now customer base. And when you think about that opportunity, we really think about upsell and cross-sell. And, again, you've heard us. We're in the early innings of that cross-sell. Upsell expansion has increased. has been a rhythm that we've continued to perfect further and further as we've brought the ecosystem together. So, you know, that embedded customer-based opportunity along with new customer acquisitions really continue to be the drivers of that organic growth.

That's great. And then on that cross, though, you provided us with a 55,000 customer number in the press release or the press release in the presentation of customers using more than one solution. Is that something that we should see from you maybe quarterly, annually going forward? And then is there a comparison to last year or maybe a way to think about, you know, customers using more than one solution now versus a year ago?

Yeah, I think we're, you know, that is something we are absolutely tracking, you know, from a very focused standpoint. I think you could expect to see us update that at least annually from that perspective. I think you had a second component to your question.

Matt, I think the second component was, you know, I think we said in the script what we talked earlier, that was a growth of 25% year over year. Great, thanks.

And your next question comes from Bhavin Shah with Deutsche Bank. Your line is open.

Great. Thanks for taking my question. Just continuing on that line of questioning on pro forma revenue growth, which remains impressive, can you just maybe dive into what you're seeing from a vertical perspective as you think about this would be different adverse in terms of headwinds or even more likely tailwinds that you're seeing on these three core verticals?

So the question was, I just want to make sure I got the question right, Bob, and it's Mark, and thanks for the question. So you're asking about vertical breakdown. Is that what you're asking? You broke up a little bit.

Yeah, just qualitatively what you're seeing between EverPro, EverHealth, and EverWealth, whether it's puts and takes. I know during COVID, obviously, EverWealth had some starts and stops, but just any initial insight would be great.

Yeah, you know, look at the three verticals, and I touched on this a little earlier. You know, we have EverPro has really been kind of the, you know, it's the majority of our business, just under, you know, 60% of our business, and it's really been consistent all through, you know, even through, you know, 2020, and then kind of continued its growth in 2021. The TAM continues to grow. You think the, you know, Homeowners continue to invest in their homes. Home ownership continues to grow, and just as more break and fix it that exists, and we believe that market will continue to maintain itself. When you look at the health services, it's variety, but we're in a lot of health, specialty medical. Especially the medical really shut down in early 2020s, tried to come back throughout 2020 into 2021. And we're seeing outside of a few headwinds in various pockets of the nation, 2021 really began its kind of pre-COVID levels and we feel pretty good about its consistency. And the last one was, you know, fitness and wellness, which was, you know, the biggest hit in 2020. By the end of 2021, you know, outside of, again, a little, some kind of, you know, headwinds, certain pockets and geographies, specifically overseas, we have some facilities in the both UK, Australia, New Zealand, where they shut down various parts of the country for For COVID, for the most part, you're seeing that fully rebound. I think Planet Fitness came out and said that their gym's now at about a 97% pre-COVID levels. And so we're kind of getting back to pre-COVID levels, and we expect that to continue.

Thanks for that commentary. And just a quick follow-up. Just when you talked earlier about leveraging the centralized platform, you guys launched EverConnect late last year. Can you just maybe talk about what you're seeing thus far? as you've simplified the product portfolio and you've tried better branding, what you're able to see from a cost-to-sell perspective and what you've seen thus far in 2022?

Yeah, that's a great question, and thanks for that, Belvin. You know, the ever brands, that is obviously a core thesis of ours, that the underlying consolidation of our solutions and the utilization of those ever brands, you know, really from and bringing together the service experiences with them will enable a better customer experience more effective cross-sell opportunities, and a more efficient go-to-market expansion in those markets that we serve. We announced EverConnect in Q4, still in the very, very early innings, but have gotten some nice early wins of that consolidated brand and operational approach. I think we've discussed with you all in the past that a little bit further along, going to market with our EverHealth brand, and again, also seeing some nice wins from a new customer acquisition and an early cross-sell from there, an easier early cross-sell integration of our integrated clearinghouse, of our payments, and our patient engagement solution. So, again, early innings, but we're seeing the evidence of nice wins on that strategy thus far. Super helpful. Thanks for taking that question.

Your next question comes from Samad Samana with Jefferies. Your line is open.

Hi, good afternoon. Thanks for taking my question. So maybe one in terms of as your SMB customers kind of respond to or react to, let's call it a slightly different working environment than where we were prior to the pandemic. Are there any new products or features that they're asking you for that we should think about? Or how do you think about your product development roadmap to maybe capitalize on this different environment for SMBs that they're currently having to deal with?

I'll start on that kind of kickoff. And I'll just give you – thanks for the question. And I'll give you kind of a couple scenarios. And obviously we're developing products on a daily basis for a variety of different needs. But you're seeing more and more needs that it kind of came out of what they needed in COVID and how they're going to expand. I'll give you a good example of that. You know, during COVID in our health service, in our EverHealth group, we developed a virtual waiting room. Nobody wanted to sit in a waiting room with someone next to them that had COVID. But you know who else they don't want to sit next to? Someone who's got the flu. So things like that that have been kind of developed for certain, you know, scenarios have been actually kind of expanded kind of the post-COVID world, and we think that's going to continue. Matt, you want to give a couple examples as well?

Yeah, I think Eric hit on that. I think the trends that we saw in COVID around opportunities are ones that we've continued to invest in. I think some of what you're talking about is also just core to our thesis of, you know, As our current situation and current headwinds that our businesses are facing, our software, our core software, only becomes more and more important to our businesses. It is critical from an efficiency standpoint to how they run their businesses. If they have tightness in supply chain or in labor, our software only becomes more and more important. So we're continuing to invest in upgrades in those existing products. We're focused on unlocking more wallet share through product integrations, like we've talked about, from payments or customer engagement, or just continued incremental feature development that's going to allow us to open up new segments in the micro verticals we're in and drive further new customer acquisition. So I wouldn't say, you know, there's a massive departure now. I think Eric spoke to some of the innovations that we have undertook during COVID. But as we look out and see what headwinds these businesses are facing today, we think that's very central to the core thesis of our product.

Great. And Mark, maybe just a financial question for you. Just when I think about the, I appreciate the color on the additional expenses for operating as a public company, and I know you gave the EBITDA guidance, but how should we think about maybe the traditional relationship between the EBITDA conversion to free cash flow? Should that be similar to prior years, or is there anything we need to know from like a working capital timing perspective that may change that just when we're thinking about cash flow in 2022, is it fair to assume kind of normal conversion?

Yeah. Excuse me. Thanks, Samad. Nothing's really changed there. In fact, I think the investor deck that we put together kind of breaks out the two cash flow metrics for the first time. And I think that the adjusted unlevered free cash flow really highlights that. I think when you do the math on that, you'll see conversion that's in line with what we've talked about previously. So really no change there. And Don't expect that going forward.

Okay, great. Thanks for taking my questions.

Your next question comes from Ryan McWilliams with Barclays. Your line is open.

Thanks for taking the question. Mark, would you mind refreshing us on some of the seasonality you may have seen in the quarter? It looks like for the fourth quarter, it's a stronger quarter for free cash flow and then a weaker quarter on the revenue side for marketing technology solutions. Just love some guidance there. Thanks.

Yeah, so on the cash flow piece, you know, working capital swings towards the end of the year. You saw the same thing in the fourth quarter of last year. So that's really just working capital fluctuations there that, you know, tend to be end-of-year type stuff. I think probably more importantly just the cadence of the business and seasonality, as we talked about before, marketing technology, firstly, it's pretty heavily exposed. to our EverPro vertical, so across the home services categories. So you do see some seasonality there, and that's really what drives Q4 and sort of a softer Q4 and Q1. The middle quarters, Q2 and Q3, are certainly seasonally up there on that line.

Perfect. And then how are you thinking about improving that retention from here? It was nice to see that take up in the quarter. And I know you don't guide that metric, but like, are you planning for incremental contribution from existing customers and improving that retention in this full year 22 guide? Thanks.

Yeah, that's a great question and appreciate that, Ryan. The, you know, We're certainly happy with the continued improvement. We see that continue to expand through two main means, really. The buy and the upsell of the consumption of the additional value-added features that our customers are already utilizing, as well as through that purchase and consumption of those additional products that really cross-sell where we can provide that necessary and really desired integrated end-to-end customer experience that's going to support those cross-sell and expansion opportunities.

Appreciate the call. Thanks, guys.

Your next question comes from Alex Clark with Raymond James. Your line is open.

Thanks. I want to follow up on your answer to that last question. You've got about 15% of your base taking more than one product. Can you just talk about some of the initiatives you're working on to drive that cross-sell hire?

Yeah, absolutely. Obviously, you've heard us talk about payments. Payments is critical. Again, it all really does start with the system of action driving that cross-sell, so we are highly focused on continuing to really build out those systems of action, broaden the circumference of features that they have, specifically through integrating and completing those end-to-end experiences that our customers desire. So if that system of action doesn't have payments, we're going to add payments if that workflow opportunity makes sense. We're going to add our customer engagement solutions, and we have various where those workflow opportunities make sense. And we're going to look for kind of adjacent solutions. I'll call it light integration of marketing technology solutions into those systems of actions as well. As you heard us talk about, I believe it was last quarter, we did bring on Stone D'Souza as our COO. That really is his mantra, thinking about organic growth through the lens of customer expansion and cross-sell and up-sell. So, you know, lots of opportunities and certainly a very, very high focus throughout the organization and leadership on that.

Got it. That's a helpful color. And then how should we think about, so those customers, that cohort of customers that are taking multiple products, how does the economics look from those in terms of either NRR or lifetime value? And I'm just curious kind of what we should expect as you do get to a higher level of cross-sell. Thank you.

Yeah, it's still early on from a cohort basis, so I think we'll be able to provide you more metrics as we go on there. From a lifetime value perspective and from an NRR expectant, obviously from an LTV standpoint, this is all about stickiness. So as we further fill out the customer value chain, our expectation is that that will continue to be stickier and stickier. That customer drives their lifetime longer. That obviously has a positive increase on the NRR. But obviously we're also expanding their spend with us. That expansion of spend has really nice positive impact on our NRR and will also continue to be a driver of how we see that improve into the future. So they really do both go together from a metric growth standpoint. Okay, thank you.

And your next question comes from Pat Walravens with JMP Securities. Your line is open.

Oh, great. Thank you. And let me add my congratulations. So my question number one is, did my PT hub achieve their earn out? Yes.

All right, cool.

I'm sorry. Hold on. Sorry.

It did not. I apologize. I'm sorry.

What was going on with that?

They didn't meet their objectives to hit the earn out, Pat. The business didn't perform to the expectations set in the earn out, which were stretch goals, so I think that's probably the right way to think about it.

And, Pat, just to add to that, I mean, of the, you know, 50 years we've done, I think we've had three earnouts, and that was one most recent. And we rarely do that. I mean, it just creates misalignment in general. And so the vast majority of the, you know, dollars expected to pay are usually on an upfront basis. And if there is any earnout, it's to bridge a gap, and there's going to be a pretty hefty, you know, bridge to kind of cover. So, you know, we're happy to pay them out when they hit them, but we rarely kind of put them in play. Okay, that was yes.

That would be my next question.

So this is not a big part of the mechanism, right?

No, not at all. We really dislike, candidly, the operational lack of alignment, so really try to avoid them. When we onboard these solutions, it's really critical that we bring them on and from day one start to operate to the plan that we put in place. So if we have an earn-out structure, it does create sort of disincentives, if you will, at certain parts of that operational motion. So we really would prefer to have everybody aligned operating to the plan we put in place during diligence and kick that off day one of close.

All right, great. And then, Mark, just sort of a quick follow-up for you. As you look at the balance sheet right now, are there any sort of key points you would make for investors, and are there any places where you can optimize things?

It's a great question, Pat. I mean, you know, first of all, from a cap structure standpoint, as I mentioned in my opening remarks. I mean, we feel like the balance sheet is quite strong. You know, we're operating right within the financial policy we've set out. You know, continue to generate cash. Feel good about that. From a working capital standpoint, I mean, you know the business. We don't create a lot of deferred revenue. This is mostly monthly SaaS. So, you know, that also positively impacts AR. You know, you can always turn the screws on things like collections and optimize that. I'll be very candid and say you know, we're operating at a level that I think is acceptable, but we are folks that are very interested in continuous improvement, and we actually have teams focused on that kind of stuff as well, day in and day out.

All right, great. Thank you both.

And our next question comes from DJ Hines with Canaccord. Your line is open.

Hey, guys. Thanks for taking the question. Eric, where do you think you are in terms of customer awareness with respect to all the horizontal tech solutions that you have in the portfolio, right? I mean, you know, we're at 9% of customers using more than one product. There's lots of wood to chop there. How do you get people aware that you're selling these services?

Yeah, I mean, you know, again, I think we're in the early innings. Every different solution is a little bit different. You know, the longer the solution's in part of the ecosystem, the more aware they are of it. And I think what ends up happening is if you – onboard a solution, you know, you start, you integrate for the new customers to start onboard much quicker, so you get a real quick, you start getting an uptick on new customer acquisition. At the same time, you're going back to the, you know, existing base, and you're selling through to that base as well. So, you know, it is a, you know, heavy, you know, one of the benefits, and we're able to kind of acquire customers very cost-effectively, which gives us great LTV to cap, 85% of our new customer acquisition is You know, they buy self-serve, they onboard self-serve, and they use self-serve. That's amazing. It provides us opportunities to kind of get people onboard quickly on an upsell sell-through. You know, a lot of in-product marketing in the flow of the product to make it where it makes sense. And so when you're doing things like that, it just has to be part of that ecosystem, part of that flow. And so it's, again, early innings, and it takes time to – fully penetrate that. But we've been doing this for quite some time. There's been historical penetrations. We've had it, you know, at Pace Simple, we've integrated into third parties and we've got up to 90 plus percent on, you know, payment sell through. So we know we've seen that kind of progress and it just takes time to kind of fully penetrate. I think the end of that, Matt?

No, I think the most important part at the end is that really it's that integration into that core system of action software that is that driver. Without that, getting them aware of multiple products is certainly difficult. So we've certainly made the most progress from a payment standpoint, and as we have brought more solutions from a customer engagement and where possible, to integrate marketing technology. Those solutions into the ecosystem, you will see our progress continue to quicken over time. But to Eric's point, it takes time and intentionality around how you package and promote the products. Yeah, okay. That's helpful.

And then, Mark, a follow-up for you. If for whatever reason you had to put a pause on M&A activity for a year or so, what would happen to the financial model?

Okay. Not much. I mean, honestly, our whole financial model, right, we don't include M&A in the guidance that we provide. So everything we're doing is really all about driving the organic growth initiatives and the bottom line profitability objectives that we set. You know, if we were to not do M&A, we would, you know, That small team of folks who are focused on, I mean small team, they would be doing actually a lot of different strategic things inside because that is not their only job. So they do do other things with respect to channel development and things like that. So to be candid, at the scale we're at, if we were to not do that, I don't think it would really impact the financial model at all going forward the way we've advertised it.

And I would just add to that. I think the kind of core operations of the team would probably tell you if we didn't do M&A for whatever reason for a period of time, if the economics didn't make sense for business, you would have more resources focused on the kind of core solutions we have today, and you would probably see additional both growth and operating leverage in the core business. So I think M&A is going to continue to be complementary, continue to be an opportunity that we'll see, but we're very confident in the business beyond today that will not only maintain its existing growth, but I think there would be opportunities to potentially accelerate as well.

Perfect. Thank you guys for the comments.

Thank you. And your last question comes from Clark Jeffries with Piper Sandler. Your line is open.

Hello. Thank you for taking the question. You know, first is kind of multi-part for Mark. Just to get a sense on sales and marketing, you know, exiting here, growing faster than revenue, would you remind us really what the main categories of spend in sales and marketing are today and maybe what the trend line might be for that line item over the next 12 months. Is it possible that it, you know, more closely converges with revenue growth and sort of what might be the spend level that's essential for the growth plan and the guidance here?

Thanks, Clark, and it's a good question. And I think you're thinking about it going forward correctly. I think, you know, look, we've been exceeding the growth objectives and we've been investing in sales and marketing to do that. We have a giant market opportunity ahead of us and we're executing well and we want to continue to hit the gas pedal. I think the comparison to 20, you always have to remember that 20 was the year we throttled down, obviously, right, with COVID hitting us really in March and then Q2 hit One of the beauties of the digital marketing model that we have is that we can throttle down, and we did. So I think the comparison is a little tough when you see that kind of growth. I think we started to see growth return in the second half of 20, and we started to invest in that. So as you look at the sales and marketing line as a percent of revenue in the second half, you start to see it move up, and it's been doing that continuously forward. But I think the way you're thinking about it going forward is a pretty good proxy. Thank you.

Great. And then maybe an additional point of color in terms of, you know, is there a way you could contextualize what your hiring needs are for the next year to, you know, hit the growth plan? A lot of companies are working through labor shortages and retaining talent. Anything you'd comment on your strategy and the sort of hiring needs for the next year?

Yeah, I mean, from a contextualization standpoint, again, we understand what we need. It's built into our plan and ultimately the guidance. Like all companies, obviously hiring remains extremely competitive, and to date in 2022 it's probably running a little bit behind plan. We don't expect in any way for this to impact our growth objectives. And over the last year, just for a little bit more color, we've really continued to advance the executional capabilities of of our people experience organization and really what that people platform is. We're focused on critical scale initiatives and talent acquisition. That includes both recruiting and onboarding, employee engagement and development, and employee retention to really help us combat those current conditions. So we're certainly aware of what it is that's built into our plan, and we're executing against that plan today. Appreciate it. Thank you very much.

Thank you. And this concludes our Q&A session. I will turn the call back to Eric Riemer, our CEO, for final remarks.

Well, thank you all for joining us today. I also want to thank the entire EverCommerce global team for a really great fourth quarter as well as an amazing 2021. You know, the collective energy effort. and focus of the team makes everything we do happen. As we enable the digitization of the service economy as the leading service commerce platform in the world, we will continue to focus on simplifying and empowering the lives of business owners by providing them the best software and solutions to make their businesses more successful. Again, thanks so much for joining today.

And with that, ladies and gentlemen, we thank you for your participation in today's program. You may now disconnect.