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spk04: Thank you for standing by and welcome to the EverCommerce's fiscal year 2022 third quarter earnings call. My name is Cole and I'll be your operator for today. Should you require assistance during today's presentation, please press star then zero to reach an operator. And after today's prepared remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one. And as a reminder, this conference call is being recorded today, Thursday, November 10th, 2022. And now, I would like to turn the conference over to Brad Korch, SVP and Head of Investor Relations for EverCommerce. Please go ahead, sir.
spk07: 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 Fierstein. This call is being webcast with a slide presentation that reviews the key financial and operating results for the three months ended September 30th, 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 are to take no obligation to publicly update or revise these forward-looking statements except as required by law. We will also refer to certain non-GAAP financial measures to provide additional information to you, our investors. A reconciliation of non-GAAP to GAAP historical measures is provided in both our earnings press release and our earnings call presentation. I will now turn the presentation over to our CEO, Eric Reamer.
spk11: Thank you, Brad. On today's call, I will highlight third quarter results and discuss key customer trends and metrics before turning the call over to Mark to dive deeper into our financials. EverCommerce remains on pace to deliver mid-double-digit growth combined with solid profitability for the full year despite increased macroeconomic headwinds, particularly affecting our marketing service solutions, which I'll discuss further in a moment. For the quarter, our reported year-over-year revenue growth was 23%. And normalizing for the effects of M&A, our pro forma revenue growth was 13% for the quarter. On an LTM basis, our year-over-year pro forma revenue growth was 18%. We continue to operate the business, balancing growth and profitability, and for the third quarter, our adjusted EBITDA and adjusted unlevered free cash flow margin were approximately steady at 19% and 14% respectively. Customer and payments growth are a key part of our business strategy. Our total payments volume, or TPV, grew 22% year over year as we continue to see increased uptake of payments processing within our core vertical system of action. Our annualized net revenue retention, or NRR, was 100% in the quarter. Finally, we're announcing today that this week our Board of Directors authorized an increased extension of our share repurchase program, doubling the amount to $100 million and extending the program through year-end 2023. As we look to where our public equity is trading, we continue to think that utilizing our excess cash flow to invest in our own business is a very creative use of capital. We continue to believe EverCommerce has a massive opportunity to drive the digitization of the service economy. which is still in the early innings and will provide us a strong tailwind to fuel growth for years to come. As a quick reminder, Epple Commerce provides vertically tailored end-to-end SaaS solutions that support 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 offers tremendous value to our customers by providing solutions tailored to the unique workflows and interactions that these various services require. At the core, we provide system of action software across many micro verticals. This is the ERP of these smaller service-based businesses and the way in which each of our customers generates new business, fulfills services, manage data operations, and engage with their customers. Our software solutions not only provide the system of actions necessary to run their daily processes, but also the marketing solutions to attract new business, the billing and payment solutions to collect effortlessly, and the customer experience solutions to create predictable and convenient experiences. Our solutions are cost-effective, easy to implement, and purpose-built for service businesses. We truly provide end-to-end solutions that our customers need to compete and grow in a marketplace that is rapidly transforming. For the past two quarters, I've talked about the diversity of our customer base across many different micro-verticals and the critical nature of our software solutions for these customers. We serve well over 600,000 paying customers across three main verticals and many sub-verticals. Our customers are focused on selling services, not goods, and many of those services are essential, even in recessionary times. Although we remain very positive about the growth prospects and resiliency of our business, we fell short of our goals in this quarter. I want to take a few moments to discuss what drove this and what we're doing about it. First, what happened in the third quarter? I noted on our second quarter earnings call that we were starting to see some pressure in our marketing service solutions, particularly lead generation. We had factored this trend into our guidance, however, these trends worsened during the third quarter. As a reminder, our marketing service solutions are approximately 23% of total revenue and are a complementary solution to our core value proposition, which is providing vertical software solutions to our service S&B customer. In the third quarter, our core vertical SaaS solutions and payment solutions continue to perform as expected, aided by the diversity of our business and essential nature of the software we provide. So what are we doing? In order to address current market conditions, our fourth quarter guidance contemplates and extends the trend I just discussed. Operationally, we are reprioritizing investment into areas that drive the most growth while also taking action to reduce costs and deliver against our goal of balanced growth and profitability. We'll begin to see the effect of our cost-saving measures in the first quarter of 2023. We won't be providing 2023 guidance until we report our fourth quarter 2022 results, but I want to comment directionally on 2023. Assuming a continuation of the macro headwind discussed in the isolated pockets of our business, we would expect 2023 revenue growth in the area of what we've currently been experiencing. Turning to slide seven, let me once again highlight our key customer and payment KPIs. We continue to focus our efforts on the land and expand nature of our selling core systems of action software to our customers and then upselling them on new features and cross-selling them on new capabilities such as payments and customer engagement solutions. We measure our cross-sell progress by looking at the growth in the number of customers that are taking more than one solution. We ended the quarter with more than 70,000 of our customers using more than one solution, a 30% increase year over year. Just over 10% of our total customer base is taking more than one solution, providing a long runway for continued growth and expansion. Embedded Payments is our most mature add-on solution. 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 processing 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 with our various software applications. We measure and report our total payment volume quarterly, and we ended the quarter with an annualized TPV of approximately $10.5 billion, which represents a 22% year-over-year growth. We expect TPV to grow as we continue to embed our payment solutions into our core system of action. Embedded payments is a key lever for future growth. It not only provides ample opportunity to support continual organic growth, but also provides better customer economics as customers who embed payments yield higher ARPU and improve retention. We will continue to prioritize the integration and revenue expansion of our payment and adjacent marketing and customer experience solutions across our entire solution set. I'd like to end my prepared remarks today by highlighting one solution that not only illustrates the critical nature of our software solutions, but also calls attention to how EverCommerce's software provides an essential service when it is needed most. RoofSnap, EverPro's roofing measurement estimating software solution, enables contractors to measure roofs using aerial imagery, saving time and money as these contractors build estimates or roofing projects. RoofSnap is offered as a paid subscription product that our customers view as critical to their daily workflows. RoofSnap provides a very unique service to communities when they need it most. When natural disasters strike, EverCommerce and RoofSnap partnered with AXIM and the Army Corps of Engineers to help those affected shelter in their homes. Providing roof measurements from before the disaster, RoofSnap provides the Army Corps of Engineers with measurements that they can use to apply blue tarps to affected homeowners. Once installed, these tarps allow affected families to shelter in place, freeing up services and housing for those who cannot stay in their homes. In 2021, RoofSnap provided over 24,000 measurements for disaster victims. In October 2022 alone, RoofSnap provided over 13,000 measurements for houses affected by Hurricane Ian. We are really proud of our RoofSnap team for all the great work they do. Now I'll pass it over to Mark.
spk05: Thanks, Eric. Today I'll review our third quarter fiscal 2022 results, provide our outlook for the fourth quarter, and also update our full year fiscal 2022 guidance. Total revenue in the third quarter was $158.1 million, up 23% from the prior year period. Within total revenue, subscription and transaction fees were $120.1 million, up 31% from the prior year period, and marketing technology solutions were $36.3 million, up 15% from the prior year period. During the third quarter, the U.S. dollar continued to strengthen further from the rates used when we provided guidance. We estimate that this strengthening caused a $200,000 headwind in the third quarter. Please also note that the third quarter revenue includes a post-acquisition reclassification of Dr. Crono revenue, the details of which are shown on slide 11. We manage our 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 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. Our year-over-year pro forma growth rate for the third quarter was approximately 13%, while our year-over-year LTM pro forma growth rate was approximately 18%. As Eric mentioned, we have and will continue to prioritize balanced growth and profitability. Third quarter adjusted EBITDA was $30.2 million, representing a 19.1% margin. As a reminder, the year-over-year change in adjusted EBITDA margin is reflective of our investments in growth and scalable operations, the impact of public company costs, and the dilution that was expected from the Dr. Crono acquisition. Adjusted gross profit in the quarter was $100.5 million, representing an adjusted gross margin of 63.5%. During the quarter, the timing of certain product level expenses resulted in a lower adjusted gross profit margin. We expect second half 2022 gross margin to be in line with the first half gross margins. Now turning to operating expenses. Adjusted sales and marketing expenses were $28 million, or 17.7% of revenue, down from 18.9% of revenue in the prior year period. Adjusted product development costs were $18 million, or 11.4% of revenue, up from 9.7% 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 $24.3 million, or 15.4% of revenue, slightly down from 15.5% of revenue in the prior year period. We continue to invest in scalable operations and public company infrastructure, but now that we're over one year past our IPO, the heaviest of this investment is behind us. As we continue to grow and leverage our centralized operating model, which aggregates many functions at our headquarters, we expect to see operating leverage in our G&A expenses. We continue to generate significant free cash flow as we invest to grow our business. Our adjusted unlevered free cash flow for the quarter was $22 million, representing 1.3% year-over-year growth and a 13.9% margin. On a last 12-month basis, our adjusted unlevered free cash flow was $81.4 million. Levered free cash flow, which accounts not only for debt service but also various working capital adjustments, was $9.1 million in the quarter. On a last 12-month basis, levered free cash flow of $44 million underscores our balance sheet flexibility. The balance sheet flexibility allows us options as we look to efficiently allocate capital in our business. Our strong free cash flow generation allows us to operate our business with an optimal capital structure that includes modest levels of leverage, which ultimately allows us to deliver enhanced equity returns to our shareholders. Last quarter, we discussed the $50 million share repurchase authorization that our board provided in mid-June. In the third quarter, we repurchased 1.8 million shares for a total cash consideration of $19.2 million. Including the shares repurchased in June, we have bought back approximately 2.1 million shares for $21.9 million. As Eric noted earlier, this week our board announced an upsizing and extension of our share repurchase program. Our updated share repurchase authorization is for up to $100 million through December 31, 2023. We ended the quarter with $91.5 million in cash and cash equivalents, and we maintain $190 million of undrawn capacity on our revolver. Our debt is a combination of floating and fixed rate, and total net leverage as calculated per our credit facility at the end of the quarter was approximately 3.7 times, consistent with our financial policy. We have no material maturities until 2028. I'd like to finish by providing our outlook, beginning with the fourth quarter. For Q4 revenue, we expect total revenue of $157 to $159 million, and we expect adjusted EBITDA of $32 to $33 million. Our year-to-date results, plus this fourth quarter guide, results in full year 2022 guidance of $616 to $618 million for revenue and $116 to $117 million for adjusted EBITDA. Our guidance reflects the lower than expected third quarter results and, more importantly, reflects the trend line of softness in pockets of our business through year-end. Our guidance also includes the impact of foreign exchange rate fluctuations on our business. Just under 5% of total revenues are denominated in currencies other than the U.S. dollar, namely the New Zealand dollar, the British pound, and the Canadian dollar. We estimate that recent strength in the U.S. dollar has created an additional $500,000 headwind to fourth quarter 2022 revenue compared to the rate used when we provided guidance in August. Our updated full-year 2022 guidance, while lower than previous guidance, still represents approximately 15% year-over-year pro forma growth at the midpoint. Our 2022 outlook does not include any potential impact of M&A activity that could take place. In summary, in the third quarter, we saw strong performance in the majority of our business, but expanded macroeconomic headwinds within pockets of our business resulted in revenue growth that, while still in the low to mid double digits, fell short of expectations. As we look ahead, we believe the core of our business, vertical SaaS solutions and payment services, is quite resilient. We intend to focus both on investing in the areas of our business that will produce the best growth and returns, but also double down on cost controls in order to balance this growth with profitability. 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 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.
spk04: Thank you. And we will now begin the question and answer session. To ask a question, you may press the star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. First question today will come from Kirk Materni with Evercore. Please go ahead.
spk01: Yeah, thanks, guys. Eric, appreciate the commentary on the business. I guess just give us some idea of why some of the challenges you've seen in marketing you don't think spill over perhaps into the core side of the business or payments. I'd imagine the concern is that people see that getting hit and then that sort of flows through to other pockets. Can you just give us some insight or how you're thinking about that to sort of try to de-risk that from sort of impacting your guidance going forward?
spk11: Yeah, no, Kirk, thank you for the question. I appreciate that. And, you know, if you think about the business, and we kind of continue to reiterate this, you know, the core business and the core system of action, which is the vertical business management softwares we provide to the service-based small businesses, those are kind of core workflows to these businesses. These are kind of the essential services for these organizations. We've also embedded payments, which is kind of pretty core to the workflows. As we expanded that out, we added additional solutions like marketing services. And although it's a very great value add, it really is kind of a complementary tool to the core of what they're ultimately doing. That business is very different than that core solution. That is when businesses kind of pull back, and we've seen this in other much larger marketing service companies. Google or Facebook or other organizations that are generating some sort of advertising, that's where that part of the business gets hit. And if you look at the other side of the business, which you really have seen, you know, nothing material and business as usual as expected on the core business, it is because that is the kind of core essential workflows of those organizations. And where we have embedded payments, that doesn't get pulled out. That just begins, again, getting people paid more effectively and faster remains core to the business as well.
spk01: Okay. And I don't know if you want to take this one or maybe Mark, but you know, how are you guys thinking about, are there any things that customers are asking for in terms of billing terms or anything like that, you know, that you all are having to sort of adjust for as it relates to like free cashflow as we had in the fourth quarter? I assume the answer is no, but I was just wondering if you could just talk about sort of, you know, timing on cash flow, those type of things. Thanks, guys.
spk11: Yeah, I'll start a market ad. Thanks, Kirk, again. But no, it's been, again, we're dealing with, you know, a lot of small businesses that are, you know, paying small dollars on a monthly basis, and we haven't had to extend, you know, terms or that type of, you know, billing procedures for any of our customers today.
spk06: Correct.
spk04: And our next question will come from Samad Samana with Jefferies. Please go ahead.
spk12: Hey, guys. Thanks for taking my questions. This is Jeremy Saylor on Persimmon. I guess first up, so it's good to see that 30% year-over-year increase in customers taking more than one product. But the 10% of the base is kind of a downwards tick from the 11% last quarter. Are you seeing kind of a change in customer behavior, or are there any products that customers are taking less of?
spk11: I'll start with that. Actually, the percentage is always a little skewed because that is kind of a good thing that the customer base is growing. So it's an overall percentage as we continue to bring on new customers, although we're not reporting new customer growth at this point in time. We do it on an annual basis. As you can see, if the percentage goes down, the overall customer base continues to kind of grow. So we're really focused, again, on how many new customers and how many existing customers we can take additional products and services, and that number continues to grow. And the percentage actually just provides us, when we look internally, a longer runway to kind of penetrate that base. The last piece of your question is, no, we haven't really seen anything material on our core customers utilizing our core sets of actions in terms of changing behavior or the needs to utilize these solutions today.
spk12: Gotcha. And then you mentioned in your opening remarks that you're kind of reprioritizing spend your most growth, your highest growth areas. I guess you kind of, I guess, elaborate on that a little bit. Where are you seeing the most growth and kind of Is there anywhere that's kind of weaker than other areas? I don't know if that's put up by MicroVertical.
spk11: Yeah, so, you know, again, the core system of actions are where the growth is most part. And it really, you know, EverPro, which is our kind of home field service category, you know, that category has performed well, you know, pre-COVID, through COVID, post-COVID, and continues to perform well, similar with EverHealth. The one area within our overall kind of core system of actions that we've mentioned several times that lags the rest of the business from a growth perspective is definitely in the fitness, and it can ever well, specifically in the fitness-related solutions, software solutions. And really that is really tied to many of them have just not achieved kind of their pre-COVID levels. This is the ultimate gym that utilizes software. And so that is the one area in the overall ecosystem that probably lags the rest of the growth of the business.
spk12: Understood. Thanks for taking my questions, guys.
spk04: And once again, if you would like to ask a question, please press star then one. And we'll come from Matt Hedberg with RBC Capital Markets.
spk10: Please go ahead. Great, guys. Thanks for taking my question. Eric, maybe just to put a final point on the lead gen business. Obviously, it seems like there's a macro element there, but are there things that you guys are doing internally, sort of what you can control to boost that business a bit?
spk11: Yeah, thanks, Matt. Appreciate the question.
spk09: I'm going to let Matt take this call, take this question, sir. Yeah, I mean, Matt, that's a great question. As we've seen that, you know, just quarter over quarter continued decrease in those advertising budgets and their corresponding spend, the things that we can do are obviously diversify. So continue to expand that advertiser base. And we have that large embedded opportunity with our own ecosystem to do so. We can continue to expand efforts into categories that are currently less impacted than some of our traditional discretionary categories. So IE essential field services categories like plumbing, great expansion opportunity. And then obviously from a medium to longer term opportunity, continue to diversify our traffic sources that we used to essentially sell the leads out to our customers. So continuing to build demand in organic traffic capabilities through SEO efforts really helps just de-risk across the base of how we do that business.
spk10: Got it. That's super helpful, Matt. Thanks for that. And then maybe I guess Eric Mark or Matt, but Eric, you made the comment. I think you said you haven't guided for 23 yet, but I think you suggested kind of near where the business is growing organically. Now, I just wanted to – excuse me, maybe put a finer point on that. Is that assuming – I think you just grew 13% organically this quarter. Is that kind of what we're thinking, like that range? Or is it, you know, maybe just put – you know, maybe just a little bit more clarification on what you meant by that?
spk06: Yeah, I think – Matt, this is Mark. Thanks. I think the way to think about it is, first of all, the – What Eric described on the call was really assuming these headwinds continue, we'd be growing in the same area. So the 13% you're referring to, certainly in that area is what we're referring to.
spk04: Got it. Thanks a lot, Tim. And our next question will come from Ryan McWilliams with Barclays. Please go ahead.
spk08: Hey, guys. Thanks for the question. How should we think about the net retention level going forward? Are headwinds here driven by increased customer churn or customers staying with EverCommerce but reducing their marketing spend?
spk11: Thanks, Ryan. Our net revenue retention remains approximately 100%, and we think they'll maintain that in that level, and we think of opportunity growth at other times. Again, the marketing service customers are a different type of customer than your core system of action. I mean, they're built into the whole NLR anyway, but they don't really affect it because there's much less of those customers than there are in the core system of action. So you will have some, we haven't seen a lot of attrition from those customers, you know, pull back and overall spend. So they still need leads, they're still buying our services, they're just not buying as high of a level. So we do not expect the kind of pullback, and we've not seen that, although we've had a fairly significant pullback in Q3, we've not seen any degradation to NRR from that category or the overall business as a whole. I've never met that.
spk09: Yeah, you know, I'd say we feel really strongly about the drivers of growth towards that metric going forward, obviously. Payments, as Eric talked about, payments is so critical to the system of action, embedding that in that, and that's so key from an operational efficiency standpoint, truly why customers using our systems of action may flock to that even tighter in any tighter time. So we still feel like the levers to drive NRR are very strong in the business and excited to continue to do the work that we have to maintain it and expand it.
spk08: Appreciate the call there. And good to hear about the opportunity for increased operating leverage from here. So you guys have strong margins today, but is there anywhere you could cut spend? And are you seeing any improvement in trends for your sales and marketing expenses? So things like maybe the spend on Google AdWords getting better or worse? Thanks.
spk11: I'll start and then Matt and Mark jump in. To date on the second part of the question, there's been nothing material on either side. I think we're remaining in the efficacy of our ability to acquire customers at levels that make sense and similar to historical levels. Over time, I'll let Mark talk about the kind of increased leverage in the business, but we see a lot of opportunities. And as we continue both in the 23, as, you know, as growth is, you know, slowed a little bit in Q3 and kind of into 23, we think we can expand, continue to expand our operating leverage across the business.
spk06: Yeah, I think, Ryan, just to add to that, we've talked about this before. I mean, we're now a quarter beyond one year out from the IPO, so we're starting to see ourselves hit the top of the crescendo, if you will, on public company costs as an example. We'd expect to start to see some operating leverage on the G&A side related to those. And then there's other things within the overall operation that are all part of the short to midterm, which include things like brand consolidation, which can drive a lot of efficiencies throughout the operation, both at the product level and certainly right on through to sales and marketing. Those things are longer arcs, obviously, mid to long-term arcs, but those are the types of things we'll be continuing to focus on as we operate forward.
spk08: Appreciate the color. Thanks, guys.
spk04: And our next question will come from Pat Walraven with AMP Securities. Please go ahead.
spk02: Oh, great. Thank you very much. So, Mark, you have $550 million in debt. The interest rate is adjusted live work plus three and a quarter, right? So now you're paying over 7% on $550 million in debt, like $40 million a year in interest. So just how do you hire rates play into your guys' strategy? How does it play into how you think about making acquisitions? How does it play into thinking about the stock buybacks? I mean, at some point, should you just pay down more of the debt? I'd love to hear your thoughts.
spk06: It's a great question, Pat. Thanks for asking it. In the quarter, we did exercise a swap on $200 million of the debt to fix the rate there to mitigate that interest rate exposure you're thinking about. I think as we talked about before, we're comfortable operating the business with this level of leverage. And as the board and the management team together think about allocation of capital, you know, we certainly have built into our models, you know, cost of capital as we move forward, thinking about the various things like that. And, you know, what I would just say is we maintain a very strong balance sheet. We do have what we consider to be a very manageable amount of leverage in the business. As I mentioned, we just de-risked that somewhat. But also going forward, we always have the $190 million untapped revolver to the extent that we would ever need that for things like M&A or something like that. Yeah, and the impact of that is about 4%.
spk11: I'm sorry, just to add from a board perspective, as we increase the buyback, I mean, the board continues to kind of look at the business as just an allocation of capital and a value creation for shareholders. They felt at this moment in time it was the best utilization of capital. But again, we continue to generate cash flow. We think we have a long way and a very diversified base of customers, so we feel very comfortable with our ability to continue to generate cash flow and actually increase that. And that can be utilized for different things in the future as well. You brought up a couple of them, whether that is debt, M&A, or things of that nature. But we think at this time, it was a very good use of capital, and that was kind of the overall board's decision.
spk02: Okay, good. It sounds like you guys are giving a lot of thought. And then, Eric, you know, it's getting a little colder in California. We just had the guy come and fix our furnace today. So I remember last quarter, he said, you know, break it, fix it should provide resilience, and that made sense to me. And I shared that point of view with investors. I really didn't think about this marketing side of it. And I'm just wondering, was it was it a surprise to you too? Or was it not a surprise that the marketing business fell off so fast?
spk11: You know, we budgeted it. I mentioned the Q2 earnings call that we started to see some designation in the marketing service, you know, part of the business. And so we saw that happening and clearly we put that into our numbers and we thought we had brought that down enough based on what we saw. And it wasn't really until the second half of Q3 that we started to see that kind of pull down a little bit further. And unfortunately, in that business, you know it doesn't have to make you know with things pull back you know a couple million dollars isn't huge in the scheme of things but in terms of a budget in terms of a guidance it actually makes a difference obviously as you know and so you know that degradation could happen fast when the people stop they stop spending and and we felt a little bit that at g3 unlike on our software business which is obviously the vast majority of our business just much more predictability as you talked about from the break and fix it. So we were a little bit surprised by the overall kind of degradation of the second half, but we've kind of put that and budgeted that for that in Q4.
spk03: Okay, great. Thank you, guys.
spk04: And our next question will come from Bobby Shaw with Deutsche Bank. Please go ahead.
spk03: Okay, thanks for taking my question. I guess just taking from the marketing side, can you guys just provide some insight, I guess, in a normalized environment, what the seasonality of this business should be from a quality perspective as we just think about the impacts going forward, or the potential impacts going forward?
spk09: The question was seasonality in the market. Yeah, I mean in a normalized environment we typically see Q4 and into early Q1 as the trough periods and Q2 into Q3 as the typically higher periods.
spk03: Yeah, that's helpful there. And then just as customer acquisition costs, just given the evolving backdrop, have you seen any change in terms of the ability and the pricing to kind of acquire new customers?
spk11: To date, it's been, you know, no material increase or, as you asked earlier, decrease in the cost of acquisition for customers.
spk09: Yeah, I mean, we're pretty used to kind of playing in a world where, you know, we advertise in multiple channels. We're used to cost fluctuation, and that's just part of the game of how we manage it. Obviously, you know, digital is a core competency, and it's something we're used to seeing. To Eric's point, you know, we have not seen, you know, significant fluctuations outside of the normal of what we manage.
spk03: Super helpful. Just the last quick one for me. Just in terms of the TPV growth, it's slowed down a little bit in terms of the year-on-year growth rate, even sequentially looking at it relative to prior periods. Are you seeing anything changing in the underlying metrics in terms of the health of your customers and their ability to track end consumers and their willingness to pay that's changing that has you concerned or worried at all?
spk11: No, not at all. It's a great question. And I think if you look at the, you know, the courses of action integrated payments, it represents almost 75% of our business. It's really been, for the most part, business as usual. And you see no big degradation in either attrition or NRR or anything like that. I think, again, what we call about the market services, that was the one area that we saw, you know, degradation. And G2 a little bit, you know, obviously a little bit more on G3. And I talked about it earlier in an earlier question. The only area within the kind of core customer base, and it hasn't necessarily been an increase in churn or lowered NRR, but kind of a slowed growth rate is really in that fitness part of our fitness software within that Everwell group. And that's really just driven by the kind of fitness world in general just has not recovered from kind of pre-COVID levels. So as we have a lot of opportunity within our fitness with some really big deals that we get penetrated to, we still feel really great about the opportunity, but definitely lag the overall other software solutions we provide.
spk12: That's super helpful, Eric. Thanks for taking that question. Thank you very much.
spk04: And this concludes our question and answer session. I would like to turn the conference back over to Eric Reamer for any closing remarks. Thank you so much.
spk11: Look, although we're genuinely disappointed we did not achieve our objective for the quarter, we remain very excited and extremely bullish about the future prospects of EverCommerce. The digitization of the service economy is just beginning, and EverCommerce truly is the leading software enabling that digital transformation. Thank you so much.
spk04: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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