EverCommerce Inc.

Thank you for standing by and welcome to Everett Commerce's fiscal year 2022 first quarter earnings call. My name is Josh and I'll be your operator for today. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. As a reminder, this conference call is being recorded today, Monday, May 9th, 2022. If you require any further assistance, please press star zero. And I would now like to turn the conference over to Brad Korsh, SVP 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 ended March 31st, 2022. 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 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. EverCommerce's first quarter results were very strong. Our reported revenue and adjusted EBITDA results both exceeded the top end of the guidance ranges. while we also maintain pro-form organic growth above the high end of our 15% to 20% range and continue to generate healthy cash flow. These results are underpinned by our massive opportunity to drive digitization of the service economy, which is still in the early innings and provides us a strong tailwind to fuel growth for years to come. On today's call, I will highlight our first quarter results, reiterate our investment thesis, and discuss our key customer trends and metrics before turning the call over to Mark to dive deeper into our financials. Last quarter, we highlighted our long-term strategy of balancing growth with profitability, and our strong first quarter 22 results exemplify this. We exceeded the top end of our guidance ranges for both revenue and adjusted EBITDA, and our reported revenue growth was 37%. Normalizing for M&A, pro forma organic revenue growth exceeded 20%. Our adjusted EBITDA margin was 16% for the seasonally low first quarter and includes front-end loaded investments in scalable operations and public company infrastructure, as well as a headwind from our Dr. Crono acquisition, which is still transitioning to profitable operations this year. Our customer metrics accelerated in the quarter as well. Total payment volume, or TPV, grew 26% year over year, and our annualized net revenue retention expanded to above 100%. As a quick reminder, 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 use to automate manual processes, generate new business, and create more loyal customers. EverCommerce is leading the digital transformation of the service economy with a mission to simplify and empower the lives of business owners whose services support us every day. EverCommerce generates over half a billion dollars in annual revenue. Further, we are among the elite group of growth-focused software companies that balance durable growth with sustainable profitability. EverCommerce offers tremendous value to our customers by providing solutions tailored to the unique workflows and interactions their various services require. From a plumber to a pediatrician to a yoga instructor, the way in which each of our customers generates new business, fulfills services, manage day-to-day operations, and engage with their customers is unique. Our software solution does not only provide the systems of action necessary to run their daily business operations, 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 service businesses. We truly provide end-to-end solutions that our customers need to compete and grow in a marketplace that is rapidly transforming. I can't emphasize enough the magnitude of our market opportunity. Service-based businesses are the backbone of the U.S. economy, accounting for 77% of the U.S. GDP, and small businesses employ the majority of service professionals. Within North America, there are 31 million small and medium-sized businesses, and their needs equate to a $520 billion total addressable market, and we've penetrated less than 1%. Globally, our TAM expands to $1.3 trillion, and we've penetrated less than 0.1% of that. Our focus today is on three main verticals, which are home services, health services, and fitness and wellness services. The addressable market for the software and service EverCommerce provides within these verticals today is over $160 billion just in North America. Many service-based small businesses still operate in a low-tech world of paper, pen, phone calls, and maybe Excel. And the digitization of the service economy is propelling these business owners to search for a better way to operate and grow. And EverCommerce solutions enable them to accelerate their digital transformation. We continue to grow our very large, diversified base of over 600,000 customers. These customers are spread across three main EverBrands. but within each of these brands are several distinct customer segments. We believe the size, nature, and diversity of our customer base provides us tremendous organic growth opportunity for upsell and cross-sell, while also proving resilient as our customers are focused on providing services, many of them essential, not goods. In any economic downturn, consumers will still need to fix their air conditioning and plumbing leaks, go to the doctor, and get their hair cut. Our solutions help our customers optimize their business and operate in a more efficient manner, irrespective of their end customer behavior. This provides continued demand for our solutions, which is underscored by the strength of our solutions' value proposition and attractive pricing. We also believe that the SMB service market is a super attractive customer base to serve. I just spoke about the diversity and sheer quantity of the more than 600,000 customers, which eliminates any concentration considerations. And if you look briefly at the chart on slide nine, you'll get a glimpse of our customer journey and attractive customer acquisition and retention economics. Our customer acquisition costs are low because approximately 85% of our customers are sourced and onboard in a digital self-service manner. These low acquisition costs help us drive our high LTV to CAC ratio. As customers use our software and ultimately take additional products such as embedded payments, our customer retention increases as well. Our company average annualized net revenue retention is over 100%, but as customers mature, NRR increases. For customers that have been with EverCommerce longer than one year, NRR improves greater than 200 basis points. As I've mentioned a few times, we have a very large base of diverse customers. We ended 2021 with approximately 617,000 customers, and that number continues to grow. 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 action, facilitating upsell and cross-sell with our customers. We measure the success of this expansion by looking at the growth in the number of customers that are taking more than one solution. We ended the quarter with more than 60,000 of our customers using more than one solution, a nearly 40% increase year over year. While the increase is impressive, with less than 10% of our customers taking more than one solution, our runway for continued growth through upsell and cross-sell is long. Our most mature upsell-cross-sell motion is 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 payments process means higher conversion rates, better efficiency, accelerated cash receipts, and increased revenue. EverCommerce's payment solutions provide an intuitive front-end experience for consumers and is tightly embedded within our various software applications. Increasingly, we see customers embracing this powerful combination. We ended the quarter with an annualized total payment value, or TPV, of approximately $9.5 billion, which represents 26% year-over-year growth. Customers who embed payments not only yield higher ARPU and revenue, but also improved retention. Highlighting just one solution, SalonBiz, a software focused on salon and spas, we can illustrate this outcome with tangible results. SalonBiz customers that embed our payment solutions generate approximately three times higher ARPU than customers who don't embed payments. SalonBiz payments customers also have higher revenue retention. Our upsell-cross-sell strategy is both simple and proven. We will continue to prioritize the integration and revenue expansion of our payments and adjacent marketing and customer experience solutions across our entire solution set. Finally, I would like to highlight once again our key priorities for 2022. We will continue to invest in building trust and awareness of our ever brands in the respective verticals and to scale 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 optimized solutions to support new feature launches and maintain market competitiveness. We will advance our scalable operation initiatives, including systems and organizational consolidation, to drive increased operating leverage over time. We plan to selectively utilize M&A to expand capabilities and penetrate target market segments as we augment our organic growth engine. Before I turn the call over to Mark to discuss our financial results in more detail, I'd like to quickly highlight some leadership changes in the company. I'm pleased to announce that last week we welcomed Shane Triggers to the EverCommerce team as our Chief Human Resources Officer. Shane is a proven leader with a track record of thoughtful action in advancing people and culture initiatives forward. He'll be responsible for all aspects of our global employee experience at EverCommerce and joins us most recently from ServiceNow. In addition, our Chief Operating Officer, Stone D'Souza, will be leaving the company in a couple of weeks to pursue another opportunity. I'd like to thank Stone for his work over the past year. Matt Fierstein, EverCommerce's president, will reassume Stone's duties and direct reports, most of which reported to Matt for many years prior to Stone. Now I'll pass it over to Mark.

Thanks, Eric. Today I'll review our first quarter fiscal 2022 results in detail, provide our outlook for the second quarter, and also update our full year fiscal 2022 guidance. As Eric noted, our first quarter results were quite strong, having exceeded the high end of our guidance range for both revenue and adjusted EBITDA. Total revenue in the quarter was 143.6 million, up 37% from the prior year period, and above the high end of our original guidance. Within total revenue, subscription and transaction fees were 108 million, up 44% from the prior year period, and marketing technology solutions were 29.9 million, up 18% from the prior year period. We manage the business for sustainable organic growth and selectively 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 manage and measure 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're very pleased that our pro forma growth rate exceeded 20% year over year in the first quarter, and we experienced good growth across all three of our core verticals. Consistent with our discussion last quarter, we drove this growth while maintaining solid profitability. First quarter adjusted EBITDA was 23 million, representing a 16 percent margin. This is above the high end of our Q1 guidance, having grown adjusted EBITDA 8 percent year-over-year. The year-over-year and sequential change in adjusted EBITDA margin is reflective of our investments in growth and scalable operations, the impact of public company costs, and expected dilution from the Dr. Crono acquisition. Adjusted gross profit in the quarter was 92.8 million, representing an adjusted gross margin of 64.7%, slightly lower than Q1 2021, primarily due to the mix of revenue at Dr. Crono, which includes both SaaS software and lower margin revenue cycle management solutions, as well as the mix of our solutions within marketing technology. Now turning to operating expenses. Adjusted sales and marketing expenses were 28.9 million, or 20.1% of revenue, up from 18.2% of revenue in the prior year period. This increase was primarily driven by continued investments in growth through our various marketing channels and personnel. Adjusted product development costs were 17.2 million, or 12% of revenue, up from 9.8% of revenue in the prior year period. This increase reflects investments in our technology teams and development programs to support growth of our various solutions, as well as centralized security operations information technology, and cloud engineering. Adjusted G&A expense was $23.7 million, or 16.6% of revenue, decreasing from 17.7% of revenue in the prior year period, despite significant investments in our centralized operating model and in our public company infrastructure. A centralized operating model aggregates many of the functions of our various operating units and headquarters, including most G&A functions, and we believe is a key component of driving operating leverage over time. We continue to generate significant free cash flow as we invest in and grow our business. Last quarter, we introduced two cash flow metrics, levered free cash flow and adjusted unlevered free cash flow, the reconciliations of which are in the appendix of our earnings presentation. Our adjusted unlevered free cash flow for the quarter was $14.9 million, representing 9% year-over-year growth and a 10.4% margin. On a trailing 12-month basis, our adjusted unlevered free cash flow was $78.5 million. Levered free cash flow, which accounts not only for debt service but also various working capital adjustments, was $8.5 million in the quarter. On a trailing 12-month basis, levered free cash flow of $39.6 million illustrates both the deleveraging potential of the business and the incremental cash available to self-fund future M&A activities. The resiliency of our business and generation of strong free cash flow allows us to operate our business with an optimal capital structure that includes modest levels of leverage. Underscoring the flexibility of our capital structure attributable to the strength of our operation, our adjusted unlevered free cash flow is approximately three and a half times our annual interest expense. We ended the quarter with $101 million in cash and cash equivalents, and we maintain $190 million of undrawn capacity on our revolver. 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 no material maturities until 2028. Most importantly, comfortably operating our business with leverage enables us to deliver enhanced equity returns to our shareholders. I'd like to finish by providing our outlook beginning with the second quarter. For Q2 revenue, we expect total revenue of $152 to $154 million, and we expect adjusted EBITDA of $28 to $29 million. For the full year fiscal 2022, we're raising our revenue expectations based on the solid first quarter results. We now expect total revenue of $623 to $629 million, an increase of $4 million at the midpoint compared to prior guidance. We're also raising our 2022 adjusted EBITDA guidance to 122.5 to 124.5 million, reflecting both the first quarter outperformance, but also the fact that we will continue to invest in our business to drive growth and scalability of our operation. As we said in our last call, many of these investments are front-end loaded, and we expect margins to accelerate throughout the year. Our 2022 outlook does not include any potential impact of M&A activity, that could take place in the year. In summary, we're very pleased with EverCommerce's first quarter performance. Not only were we able to exceed our guidance ranges once again, but we were able to do so profitably and with significant cash flow generation. We believe EverCommerce is well positioned to be a primary beneficiary of the digital transformation that is just getting underway amongst service SMBs. Our focus is continuing to execute our strategic priorities and deliver consistent, profitable growth that we believe can generate significant value for our shareholders. Operator, we're now ready to begin the question and answer section of the call.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Our first question comes from Matt Hedberg with RBC Capital. You may proceed with your question.

Hey, thanks for taking my questions. Congrats on the results. Maybe, Eric, for you, you know, there's a lot of questions, obviously, about the macro environment, and you wouldn't necessarily see it in your results, your guidance, but just could you talk a little bit more about sort of your broad view of the health of the service economy, and maybe as we stand now and your thoughts for the rest of the year?

Yeah, no, thanks, Matt. I appreciate the question. And, you know, I think, you know, Mark touched upon it a little bit. If you think about the service economy, specifically the service aspect of that college service economy, so services could be goods or services, the e-com could be put in that category. And the service aspect, especially the categories that we focus on, which is really our kind of our tight view of the world, you know, we see continued growth, specifically in that home service category category. health services, really non-cyclical categories that we focus on and we've focused on for several years. We have not seen any pushback to date, and obviously, as you mentioned, it's not in our Q2 guidance, and we expect specifically with the diversification of the customers we have and the categories that we cover, we don't see any headwind against those core categories for the rest of the year.

That's great. Thank you for that, Eric. And then Maybe as a follow-up, thanks for the comment on the $9.5 billion of TPV. You know, we've always thought that it's a huge opportunity to sell payments back into the base. Is there another way to kind of think about how penetrated it is in your overall customer base today, maybe within those three verticals even, but just a little bit more granularity on how early we are in the penetration of your base?

Definitely, Matt. Yeah, thanks for the question, Matt. I mean, you've heard us before, and I still think we, you know, we feel like we're really in the early innings of the opportunity. When you look at our system of action software customer bases, on average, that's about, we have about 34% adoption. But when you look at how we project out the overall TPV, you know, we've got about, annualized $9.5 billion that we just said in Q1, we look at that opportunity as north of $80 billion. So from a volume standpoint, the penetration really lags that customer adoption, and that's just all about continuing to drive those customers who have integrated payments to further use the workflows that we've created to create incremental workflows and that drive more of their wallet share. So again, still really early to, you know, very early, you know, very mid inning there, a lot of opportunity and runway left.

Great to hear. Yeah. Super exciting for that opportunity into that, into that sort of that $80 billion or bigger opportunity. Thanks a lot, guys. Well done. Thanks, Ben.

Thank you. Our next question goes from Ryan McWilliams with Barclays. You may proceed with your question.

Hey guys, thanks for taking the question. So, With 60,000 customers now utilizing more than one solution, this seems like a strong step up versus the 55,000 last quarter. Any particular product changes or changes to your sales motion that contributed to this growth in multi-product customers in the quarter?

Yeah, it's a great question, Ryan. Thanks again. This is Matt. You know, again, I think you hit on one part. We continue to think about optimizing our marketing and sales motion and really that product packaging to drive the new adoption of those embedded solutions, whether that's payments, obviously, where we've had the most material success, or customer experience solutions where we're following along quite nicely. And then it's really just deepening the integration into those system of action softwares, those workflow capabilities, whether they be payments to or customer experience solutions, the further we can deepen those integrations into those systems of action, you know, business management solutions, the better uptake that we're going to get. So it's really the combination of those two factors driving it.

Appreciate that. And then just how is Dr. Crono performing versus your expectations from a revenue perspective at this point? I'd love to hear about how it contributed to the quarter. And just on the modeling gross margin side, I guess, how should we think about EverCommerce moving past some of these front-end loaded costs, you know, just as we think about the rest of this year?

Thanks. Yeah, thanks, Ryan. I'll take the first one, and then Mark will kind of finish up on the second one. So Dr. Crono is operating at plan. You know, we're kind of right along where we expect it to be, and we're kind of continuing to be excited about the prospects of the growth of that business.

So I think, Ryan, in answer to your second question, I think your next question was around gross margin, or was it EBITDA margins? Or is it both? That's correct, gross margin. Okay, so gross margin, you see a dip there, actually. Dr. Crono is the primary contributor to that. Their mix of revenue is more skewed towards RCM, so that does affect the overall gross margin. As you know, the RCM solutions are a little lower gross margin than the SAT solutions. So that's the big culprit in the change in gross margin. Thanks, Jeff.

Thank you. Our next question comes from Kirk with Evercore. You may proceed with your question.

Yeah, thanks very much. Eric, I was wondering if you could just talk about your go-to-market motion. Does anything change for you all, or do you sort of change, I guess, the products you might be sort of strategizing around or sort of pushing out in a different way if we go into a recession, meaning the customer sort of marketing technologies become something you push harder than payments? I was just kind of curious. As you guys see this economic environment, is there anything that changes on the go-to-market side?

No, at this point, it's really, you know, acceleration of business as usual. I'll start off, Matt, kind of chime in where I let off. But, you know, if you think about the business, we say this several times, but, you know, 85% of our new customer acquisition is self-serve. So it's online marketing. People are self-serving on the buy. They're self-serving onboarding, and they're self-serving utilizing the solution. So we've gotten really good at kind of getting in front of customers when they're looking for solutions. The biggest thing that Matt touched upon earlier is that the motion that we've kind of like really been pushing is embedding more of those solutions as part of that process. So the upsell, cross-sell motion becomes more of a natural process for the customers that have already taken the product. That is kind of our current workflows as we're sitting here today, and that's going to be accentuated and accelerated over the coming years. And so any type of – recessionary macroeconomic won't really push back against that. If anything, we'll accelerate more of that because you get more embedded in the solution, the more utilization, the higher ARPU and the higher the retention.

The only thing I'd add to that, Kirk, is When you think of it from a product standpoint, we really do think of that core system of action as the entryway. That is where we will embed those horizontal solutions to amplify and create more end-to-end workflows. When you think about from an efficiency standpoint, all of the efficiency from a customer standpoint, which is so necessary specifically during, you know, recessionary times is really driven through that core system of action. We'll take customers, however, we're going to meet them however they come to us. So if they come to us for marketing technology, we'll take them. But we truly think, you know, the tip of the spear is still absolutely the core system of action business management software.

That's really helpful. And then I assume it might be a little bit early, but Eric or Mark, I was wondering if anything's changed on sort of the discussion's on pricing around M&A targets for you all. Obviously, valuations are coming under some pressure, and I assume the private market will be feeling that soon, if not already. I was just kind of curious if that changes sort of your M&A pipeline or anything that's changed on that front for you all in terms of more opportunities maybe coming faster.

Yeah, no, it's a great question. And as you kind of discussed last quarter, I mean, you know, part of where we are today, we're in the position where with our, if we never buy another company, our focus is continue to grow at that, you know, 15, 20% range organically for years to come. And it provides us the ability to be very disciplined and making sure the M&A opportunities that we want to execute on are going to be accretive to the business. And we still think today, although there's a very large pipeline of opportunities that we're tracking, there's still a little bit of a disconnect between the public and private markets. And I think to your point, I think we'll start seeing the private markets hopefully be coming in a little bit and provide more opportunity. But in the current moment, we think the dislocation of prices is still a little bit large, and we're going to remain disciplined looking for opportunities that we think are creative in business.

Thank you all. Thank you.

Our next question comes from Bob in Charlotte, Deutsche Bank. You may proceed with your question.

Great. Thanks for taking my question, and congrats on the quarter. You guys talked about payments being one of the key drivers of those number of customers that have more than one solution, but how frequently can you get maybe a payments-first or marketing-first customer to perhaps be upsold into a core business management solution, and how do we think about that opportunity?

Obviously, with the size of our customer base and the number of customers that we have, across marketing and technology and customer experience, obviously that is exciting to us, the ability to cross-sell that system of action. Obviously, from a displacement standpoint, that is the place where they may already have something and we're surrounding it with one of those ancillary products. Again, we purpose-build our solutions individually. integrated with payments, integrated with customer experience, so that we think that is highly competitive in the market and a real opportunity. The switching cost is just different than those, so it is harder, you're right to say that, but it's a real opportunity and it's an opportunity that our teams are chasing all the time in our core vertical business management solutions.

It's important to note, though, as we talk about some of the opportunity, all of the kind of numbers that we share are from the system of action outwards. And so although you bring up a really good point, there's clearly opportunity to upsell the payment and the marketing and the customer experience into the core system of action. And we do that. That happens on a daily basis. But because the system of action integrated to the other solutions is really core to our kind of workflows, That's kind of the numbers we give in terms of the opportunity.

Guy, that's helpful. And just as a follow-up to Matt's first question, just in terms of the payment kind of adoption and penetration, I mean, you spoke about the 34% customer adoption and the volume opportunity north of $80 billion. But how do we think about maybe or helping us size the opportunity of kind of customers that aren't using digital payment solutions right now, whether it's from yourself or one of your peers, just to understand how much low-hanging fruit there is for you guys?

It's a great question. We have tracked this over time, obviously coming from Paysimple. In our time there, inertia, really the change from a lot of manual processes was still what a lot of folks were doing. So they're likely not using a full suite digital solution. They may be using an old hand block, just swipe terminal in their space. So there are plenty of customers that still have you know what might be kind of called early digital but it's not kind of late digital adoption of a true you know software solution with embedded payments so we see a lot of opportunity uh to bring payments into our uh to to attract customers for payments through our business management solutions with embedded payments, where today they're using, you know, maybe some old terminal that, again, works for their needs but is not fully integrated into a business management solution. So the opportunity is absolutely still there and pretty large, we think.

And just to add to that, and to Matt's point specifically, if you think about that customer utilizing that system of action, for them to use a payment solution outside of that system of action, it's almost always a two-step process. So there's, you know, there's more and more reasons as we embed tighter into the system of action for them to continue that workflow and accept within our payment ecosystem.

Got it. Thanks again. To take my questions, thank you. Congrats.

Thank you. Our next question comes from Samad Samad with Jefferies, and they proceed with your question.

Hey, guys. This is Jeremy Saylor on for Samad. So my first question, it's good to see that strong net retention. I guess to double-click on it a little bit, are you seeing any particular strengths from specific verticals or maybe specific customer sizes that are contributing to that?

Yeah, this is Matt. Thanks for the question. Really, we have seen nice gains across the board. I would not tell you that it's in any one specific vertical. Customers that grow with us, and that could be customers of any size, are obviously the ones that are driving that NRR up and to the right in the direction that we want it to. That could be the consumption of the upsell consumption of more of the features that they're already using, or it could be the adding of a second or a third product through our cross-sell motion. So we're not really seeing that across any specific segment. We're actually seeing it across all of the segments. Gotcha. That's great.

And then I guess a similar train of thought. Can you provide an update on maybe the kind of mix between the three verticals? I know last quarter EverPro was 60% of revenue, but maybe I don't know if there's been any change there.

Well, there's going to be a little bit of a shift between the three verticals just because we had a first full quarter of Dr. Crono, which is a bit of a chunkier asset. So, you know, that will uptake our health services a little bit, and the others would fall sort of by the same ratio.

Got it. Okay, that's all for me. Thank you, guys.

Thank you. Our next question comes from David Hines with Canaccord Genuity. You may proceed with your question.

Hey, this is Luke on for DJ. Thanks for taking the question. So great to hear you're seeing healthy end markets, but given sort of the growing fear of economic deterioration, can you just help us think about the durability of the business in a recession? I know what we saw, what happened in the early days of COVID, but, uh, You know, how might things differ in a more normal recession or otherwise? How should we think about sort of the resilience of your business in spite of that SMB exposure that you guys have?

It's a great question. I appreciate that. And if you think about the categories that we serve, you know, specifically most of the categories we serve are kind of deemed essential services within COVID and they're essential services in terms of customers and people utilize them. So the biggest difference between what we're serving in the S&B versus some other companies, we're focused specifically on the service customer versus anyone selling, you know, other type of goods. And so Break down the categories. The largest category, home services, it's primarily break it, fix it. weeks in the plumber, you know, HVAC, electrical, things like that. We believe that will be non-cyclical and not very much affected, and it wasn't affected during COVID, nor do we expect much pushback on recession. And the second largest vertical, as Mark touched upon, that has grown since our Dr. Crono is health services, and that's people going to the doctor. And that, again, non-cyclical doesn't really change much during a recessionary period. And the much smaller category, which is our – Our health and wellness, which is less than 14% of the business, if people are going to get their haircuts during a recession, and any of the fitness studios we serve are primarily the smaller ones, the end-of-time fitnesses, people paying $10 a month. So we feel we're pretty insulated, as insulated as you could possibly be, with over 600,000 customers in multiple verticals and many different sub-verticals. I think we're as positioned as we could possibly be to withstand whatever comes our way.

That's great to hear. And then maybe just, you know, digging in on each of your core verticals, can you just sort of speak to the health you're seeing across each of those three end markets? And then maybe remind us of, like, any seasonality we might see across those business units, you know, over the course of the year. Thanks.

So from a – I mean, really, the story hasn't changed from Q4 into Q1 in terms of health of each of the three verticals. You know, the home services vertical remains healthy as does the EverHealth vertical market as well. And then, you know, EverWell, if there is a place, just given our geographic location, you know, geography of solutions in that particular category, which has been, you know, affected through 21 a little bit from the pandemic within that particular vertical. I mean, that would be the only one that is doing well and certainly growing within the rates that we expect to grow. So, you know, but it's probably lagging the other two. I think, what was your second question? If you just go back to the second part of your question.

Yeah. the seasonality of those three businesses.

Yeah, so seasonality continues to be the same, right? Two and three are the big seasons for us given our exposure to home services. As we just talked about, you know, while that's not as high this quarter just because we have a full quarter of operations with Dr. Crono, it still is over 50%. So you will see a seasonal bump in the business in two and three. Quarters four and one are seasonally lower, and one is probably the seasonal lowest.

Great. Thank you.

Thanks. Our next question comes from Brad Reeve back with people, you know, proceed with your question.

Great, thanks very much. Eric, obviously a lot of questions today around the economy. As you track your business, what type of metrics will you keep an eye on that would cause you to slow down investment, be it people and or marketing?

Thanks, Brad, for the question. It's a great question. Again, we have the benefit, again, not only of the scale of the customers we're serving, but because we're very digitally focused, we get to see real-time kind of response rates on our campaigns that are happening across, as you can imagine, many, many subverticals and many kind of long-tail scenarios. What we get to see based upon that response rate, based upon the workflows that happens when somebody responds, that's the first trigger that we'll be able to see. Secondly, again, we watch from onboarding to attrition. Are we getting upticks in any type of early attrition that The cohorts that joined us in any particular month that we're tracking are treating at a higher rate or a quicker rate than previous cohorts. And so because of, again, the scale of the customers that we see on a literally daily basis, the marketing campaigns we run, and the onboarding of new customers, we're able to get really kind of real-time views of what's going on. And if there is a reason to kind of pull back investments and to refocus, you know, dollars, whether that is in new categories, new marketing engines, or just to pull them back in general, we'll be able to kind of effectuate that relatively quick. Matt, can you add to that?

Yeah, you know, there are also some indicators, you know, within our marketing technology solutions that we sell, from a lead gen perspective, we do get to – and witness consumer behavior from a buying standpoint. So those are also other early indicators that we do look at, along with the B2B indicators that Erica was talking about, that will give us that insight and view and understanding of what's going on in the economy. That's great. Thanks very much. Thanks, Brad.

Thank you. Our next question comes from Alex Fowler with Raymond James. You may proceed with your questions.

Thanks. Mark, can you talk about pricing as a lever for growth, just given the inflationary backdrop, how your contracts are structured in terms of annual escalators, and any change based on the kind of renewal activity in Q1?

No, no change. And it's a great question, Brian, so appreciate that. I think, you know, we, through all of our solutions, are always looking at pricing, price to value, appropriate escalators. Most of our contracts actually don't have auto escalators in. Some do, but the majority do not. So it's sort of at our discretion. And certainly, you know, we think about that not just from an inflationary environment, and that's something obviously we continue to watch as we go through the year, but also something, frankly, we really think much more around the value prop, the competitive market, et cetera. Those are probably drivers we pay attention to a little bit more closely. But overall philosophy has not changed as of yet and we'll continue to evaluate through the year. Obviously, you know, it's a lever. You know, that's not been a lever that's been at all the primary driver of our growth historically.

Got it. Okay, and I don't know who wants to take this one, but just wanted to ask on kind of the linearity of sales activity this year. You had a lot of momentum exiting 2021. NRR has kind of expanded in the quarter. But we had Omicron headwinds. There's been some inflationary pressures. Has there been any change in kind of monthly activity January to April?

Specifically to sales activity on our side?

Yeah, that's right.

Not that we've witnessed. We actually had a nice, strong quarter from a booking standpoint. That was across the board, across our various verticals. So, no, we did not see change in linear impact from January to April. Q1 was a good, solid quarter for us.

Okay, great. Thank you.

Thank you. And as a reminder, to ask a question, you'll need to press star 1 on your telephone. Our next question comes from Clark Jeffries of Piper Sandling. You may proceed with your question.

Hello, and thank you for taking the question. I just wanted to follow up on that last question. Certainly the star of the show this quarter seems to be the cross-sell and up-sell effort with multi-product and payments. But I think getting at the heart of several of these questions on the macro side, I guess qualitatively, how did customer acquisition at the kind of gross ad level fare in the quarter? And looking into April, Were gross ads in line or better than your expectations for the business?

That's a great question, Clark. Appreciate it. From an expectation standpoint, the new customer acquisition engine is working well. It's always been highly scalable, highly efficient. As you know, digital is a core channel. A lot of that digital acquisition converts into self-serve. We're excited and positive about the Q1 results. It was where we wanted to be from a plan perspective, as I just spoke to, from the bookings were a very good solid quarter from a new booking standpoint.

Great. And then, you know, as we think about the 2022 investment plan, in terms of your international exposure, how are you contemplating funding or fueling, you know, the business that's residing internationally today? Are you seeing any differences in the demand environment between international and the U.S. part of the business?

No. No, we're not really seeing any difference. I mean, international, again, Dr. Crono being a little bit chunkier, I mean, that actually brings our international down significantly. as a percent of overall revenue. But, you know, look, we see great opportunities in our international solution organizations, and we're continuing to invest in them, you know, as per plan. Nothing is, you know, obviously it's a time when the macro environment is sort of the big elephant in the room, but I think as you've heard a number of different ways, we haven't seen that effect and feel good about the way we ended the quarter and how that positions us for the year going forward.

It's also important to note who our international exposure is. It's primarily in Canada, Australia, New Zealand, and a little bit of UK. We have very little overall general Europe exposure.

Perfect. Thank you.

Thank you.

And I'm not showing any further questions at this time. I would now like to turn the call back over to Eric Weimer for closing remarks.

I appreciate that. It was really a great start to the year and another really great quarter for EverCommerce. As we've said several times, we are one of the elite growth SaaS companies balancing both durable growth and profitability. The collective team is executing at a very high level. We remain extremely excited about the growth of the business as we continue to lead the digitization of the service economy. Appreciate everyone joining today, and thank you so much.

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