EverCommerce Inc.

Thank you for standing by and welcome to EverCommerce's fiscal year 2022 fourth quarter earnings call. My name is Sarah and I will be your operator for today. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw from the question queue, please press star then two. As a reminder, this conference call is being recorded today, Wednesday, March 15, 2023. And I would now like to turn the conference over to Brad Korch, SVP and Head of Investor Relations for EverCommerce. Please go ahead.

Good afternoon. 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 December 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 containing 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. 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. Thank you, Brad.

On today's call, I will highlight fourth quarter results and discuss key customer trends and metrics before turning the call over to Mark to dive deeper into our financials. EverCommerce finished the year strong, beating the top end of the fourth quarter guidance for both revenue and adjusted EBITDA. For the quarter, our reported year-over-year revenue growth was 19%, and normalizing for defects of M&A, our pro forma revenue growth was 14% for the quarter. For 2022, our year-over-year pro forma revenue growth was 16%. We continue to operate the business balancing growth with profitability. For the fourth quarter, our adjusted EBITDA and adjusted unlevered free cash flow margins were higher than previous quarters at approximately 22% and 16% respectively. For the full year, adjusted EBITDA margins were 19%, while adjusted unlevered free cash flow margins were 14%. Customer and payments growth are a key part of our business strategy. Our total payments volume, or TPV, grew 90% year over year. We continue to see increased uptake of payments processing within our core vertical system of actions. Our annualized net revenue retention, or NRR, was also steady at 100% in the quarter. EverCommerce provides vertically 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. At the core, we provide system of action software across many macro verticals. This is the ERP for these smaller, vertical service-based businesses and the way in which our customers generate new business, fulfill services, manage day-to-day operations, and engage with their customers. Our vertical software solutions not only provide the system of action necessary to run their daily business processes, but also the marketing solutions to attract new business, the billing and payment solutions to collect effortlessly, and the customer experience solutions to create predictable and convenient experiences. Our business thrives through two motions, acquiring new customers and expanding our revenue base with existing customers by selling more seats, more features, and cross-selling other solutions like embedded payments. We ended the year serving approximately 690,000 customers across our many diverse verticals and sub-verticals. We acquire customers at strong economics as the overwhelming majority of our customers acquire digitally. Our large customer base represents an incredible opportunity for continued expansion of cross-sell upsell of our solutions. Over the past year, the average ARPU at the solution level grew approximately 8% year over year. One of the biggest drivers for ARPU expansion is our land expand motion of selling core system of action software to our customers and then upselling them new features and cross-selling them 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 71,000 of our customers using more than one solution, a 29% increase year over year. Embedded Payments is our most accretive add-on solution, representing the lion's share of our cross-sell activity today. We measure and report our payments ecosystem growth through TPV. We ended the quarter with an annualized TPV of approximately $10.9 billion, which represents 90% year-over-year growth. We expect TPV to grow as we continue to embed our payment solutions into our core systems of action. Our priorities for 2023 underscore our focus of providing premier systems of action software across many verticals, embedding payments and adding ancillary services that promote our customer successes. We often discuss our time with you, and in doing so, we've cited a greater than $500 billion opportunity in the U.S. and over a $1.3 trillion opportunity globally. With nearly 690,000 customers currently using our software and solutions, we have a tremendous opportunity right in front of us to provide more value and sell additional services to existing customers. We are prioritizing our investments towards our best opportunities to achieve our growth objectives, and at the top of this list is driving adoption of embedded payments. Embedded payments not only drive continued or grounded growth, but also provide better customer economics as customers who have embedded payments yield higher ARPU and improved retention. Entering 2023, we're expanding our EverCommerce payments team to accelerate payments adoption across our solution set. To do so, we are taking steps to improve the seamless onboarding of payments capabilities for our customers, and later in the year, we'll be introducing new capabilities. Recognizing the environment we're in, we'll be even more deliberate on price. Our pricing philosophy at EverCommerce has been to price to value, that is, increment price over time as new features are added and the customer value proposition is enhanced. In 2023, we will keep this philosophy at our core, but we'll be pressing harder on the price lever where appropriate. We're also doubling down on the notion of balancing growth and profitability by institutionalizing a disciplined focus on cost controls, particularly in the areas of people costs, general administrative spend, and sales and marketing costs. We continue to target 20% EBITDA margins with an eye towards operating leverage-driven margin expansion beyond 2023. Finally, we will continue to optimize our solution and product mix, including utilizing M&A where appropriate to add capabilities and targeted market verticals and compound consistent organic growth. Now I'll pass it over to Mark, who will review our financial results in more detail, as well as provide guidance for the first quarter and the full year 2023. Thanks, Eric.

Total revenue in the fourth quarter was $161.8 million, up 19.3% from the prior year period. Within total revenue, subscription and transaction fees were $121.6 million, up 22% from the prior year period, and marketing technology solutions were $33.3 million, up 13.5% from the prior year period. For the full year, revenue was $620.7 million, up 26.6% on a reported basis. 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 fourth quarter was approximately 14.2%, while our year-over-year 2022 pro forma growth rate was approximately 15.6%. Fourth quarter adjusted EBITDA was $35.2 million, representing a 21.7% margin, while full year 2022 adjusted EBITDA was $119 million, representing a 19.2% margin. During the fourth quarter, we took several actions, including the implementation of a temporary hiring freeze, to tightly manage costs and deliver against our profitability objectives. In 2023, we plan to continue disciplined, active management of our operating expenses as we look to drive profitability and cash flow generation. Adjusted gross profit in the quarter was $107.9 million, representing an adjusted gross margin of 66.7%. Full year 2022 adjusted gross profit was $403.4 million, representing an adjusted gross margin of 65%. Adjusted gross profit is seasonally strongest in the fourth quarter, while seasonally weakest in the first quarter. Now turning to operating expenses. Adjusted sales and marketing expenses were $27.9 million, or 17.2% of revenue, down from 18.5% of revenue in the prior year period. This was driven largely by managing growth investments while working to meet our profitability objectives during the quarter. Adjusted product development costs were $17.5 million, or 10.8% of revenue, roughly flat compared to 10.5% of revenue reported in the prior year period. Adjusted G&A expense was $27.8 million, or 17.2% of revenue, down from 17.8% of revenue in the prior year period. This was also driven by disciplined spend management during the quarter. 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 $26.1 million, representing 17.4% year-over-year growth and a 16.1% margin. For the full year, our adjusted unlevered free cash flow was $85.3 million, Levered free cash flow, which accounts not only for debt service but also various working capital adjustments, is $22.7 million in the quarter. For the full year, levered free cash flow of $46.7 million underscores our balance sheet flexibility. This balance sheet flexibility provides optionality 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 allows us to deliver enhanced equity returns to our shareholders. In the fourth quarter, we repurchased 2.9 million shares for a total cash consideration of $21 million. During the full year 2022, we repurchased approximately 5 million shares for $43 million, leaving us a remaining authorization of $57 million approved for year-end 2023. We ended the quarter with $93 million in cash and cash equivalents, and we maintain $190 million of undrawn capacity on our revolvers. Our debt is a combination of floating and fixed rate, and total net leverage is calculated per our credit facility at the end of the quarter was approximately 3.5 times, consistent with our financial policy. We have no material maturities until 2028. As I'm sure we'll get the question in Q&A, let me comment briefly on our relationship with Silicon Valley Bank. EverCommerce has accounts at SVB, but based on our diversified account structure, our relationships with other global banking partners, and the fact that we generate excess cash from operations and have substantial access to capital, we did not expect the potential failure of SVB to disrupt our business operations, and it hasn't. Today, we have full access to our balances that were held at SVB, and we've already transferred the majority of these deposits to other large banks. I'd like to finish by providing our outlook beginning with the first quarter. For Q1, we expect total revenue of $157 to $160 million, and we expect adjusted EBITDA of $27 to $29 million. Our full year 2023 guidance is $680 to $700 million for revenue and $134 to $142 million for adjusted EBITDA. Our first quarter guidance reflects the seasonality inherent in our business, which can be summarized by seasonally slower growth and lower margins in the first quarter, seasonally higher growth in the warmer months, and seasonally higher margins in the fourth quarter. Our 2023 outlook does not include any potential impact of M&A activity that could take place. In summary, we're very pleased with our fourth quarter financial results. We executed well and delivered top-line growth that exceeded our most recent guidance, while also tightly managing our cost base to deliver better-than-expected profitability. Looking ahead, we believe the core of our business, vertical SaaS solutions, and embedded payments is quite resilient. We intend to focus on both investing in the areas of our business that will produce the best growth and returns, but also double down on optimizing our operations and managing costs 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 amongst service SMB companies. Our continuing focus is 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. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from DJ Hines with Canaccord. Please go ahead.

Hey, guys. Thanks for taking the questions. Mark, I might have expected to see a bit more operating leverage in the 2023 guide, just kind of as an offset to slower growth. I mean, you highlighted cost controls. We haven't seen any recent M&A. Look, 20% EBITDA margins is very solid, but we're running below kind of 2021 levels, acknowledging now we have public company costs and all that sort of stuff. Maybe just touch on kind of the puts and takes of the margin guide. And if we end up seeing faster growth, is it right to think that a lot of that upside would flow through to the bottom line?

Yeah, thanks for the question, DJ. So I think, you know, first of all, just comparing the year 22 versus 21. Remember, there are a couple things going on there. One is 21 didn't include a full year of public company costs, and 22 actually included Crono, which, as we described, was lost. $4 to $5 million in 21. So we're transitioning that in 22. So that just is a little bit of a level set. I do believe that we've baked in a lot of the investments we need to make, certainly around being a public company and a lot of investments in scalable operations, such that what you just described should be true. Obviously, you know, we're trying to be prudent in the way that we guide, given the continuing environment that we're seeing. But We absolutely believe that we want to be in front of our cost structure to make sure that we can drive that kind of drop through that you're describing.

Yeah, makes sense.

And the second question is just around net revenue retention, right? So when you guys went public, I think NRR was in that 90, 95% range. Since then, we've seen really nice improvement, right? I think we're kind of plus or minus 100%, which is great. That said, you know, with the marketing business turning against you guys a little bit, I'm surprised we haven't seen any degradation in NRR. So I guess the question is, like, has there been success elsewhere with cross-sell that's maybe being underappreciated given the headwinds in marketing? Or maybe just help me understand kind of how you're keeping, you know, NRR whole at 100%. Can you hear me all right?

Yeah, we got you.

You highlighted other areas of the business where cross-sell is performing, as you can see. From our continued focus on payments and the results in payments, payments cross-sell is clearly a place where that expansion of the customer base is certainly booing NRR from that perspective. Obviously, upsell continues to be. so Buoy's NRR as well. So, yeah, certainly in the past there may have been some drag from some of that MarTech slowness in the past, but we feel really good about the parts of the business that are driving that up from a customer expansion standpoint. Got it.

Helpful callers. Thank you, guys. Thanks, TJ.

Our next question comes from Samad Samana with Jefferies.

Please go ahead.

Hey, guys. This is Jeremy. I'm for Samad. Thanks for taking my questions. So, first, on the customer account growth from 12%, you know, that's down from 20% last year. I guess, what should we kind of expect in terms of net ads going forward? And I guess, which of your three verticals are you seeing most of these net ads coming from? Or if you can just provide some color there.

First, with the growth, can you talk about the verticals?

Yeah. You know, again, I think... We've discussed in the past from an organic growth lever standpoint, obviously customer growth, you know, one big growth lever, and then obviously ARPU expansion, the other big growth lever. So, you know, nice expansion from an ARPU standpoint, obviously customer growth deceled a little bit from the prior year. You're probably seeing some of our marketing expense 22 we did pull back on that as we navigated really the unknowns of the turbulent economic environment that you know going forward we still expect it to be a significant part of that lever so or of our gross lever so you know we continue to expect that to run and in a healthy range of where it has been in the past from that perspective and just a second part of the question thank you for the the question the health field services which some

continues to operate at the fastest growth levels and continues And then our fitness and wellness is just really distinctly broken up into kind of the fitness and then the salons and spas. Salons and spas are doing great. Fitness in general, this is not necessarily, specifically at EverCommerce, they just have not fully recovered from the pre-COVID level. So that particular category remains relatively flat to pre-COVID level. from the other verticals. Unfortunately, that's our smallest vertical, so it doesn't have the biggest impact with that.

In terms of the verticals, in terms of how we look at them, you know, that's going to break out.

Got it. Thank you. That's helpful, Keller. And then on the M&A front, I guess, what are you guys doing in terms of private valuations? And I guess in terms of what are your priorities for M&A going forward?

Yeah, the priorities remain the same. Be diligent and find opportunities that we think are going to add value to the overall ecosystem of our commerce and provide more value to our customers. I feel like I'm on a broken record over the last several quarters. The dislocation between valuation in the private and public markets remains. Private market valuations remain kind of very healthy, really never took the kind of downward stream that some of the larger public comps are taking. So we've looked at a lot of things. There's been a few things that have been interesting, but for both fit or potential value, it didn't make sense for us at this point.

That's helpful. Thanks for taking my question, guys.

Our next question comes from Ben Shaw with Deutsche Bank. Please go ahead.

Great. Thanks for taking my question. I guess, Eric, just at a high level, just from a demand environment perspective, can you maybe just a little bit more elaborate on what you saw during 4Q and maybe what you're seeing at the beginning of the year in terms of the macro? Is it still mostly impacting the marketing side of the business, or are you seeing some of that spill over on the subscription side?

Really, on the market side of business, I would say that has really flattened out in terms of the pullback we saw in Q3 really kind of re-level set, and that has kind of continued through Q4 and our expectation through Q1 and beyond. So it hasn't necessarily degraded worse than we had thought at the kind of Q3 time period. But the other core verticals, you know, we have not seen kind of a degradation in acquisition, you know, or acquisition budgets at this point. So I think we're, you know, I think we're, the marketplace that we're in, I think it sometimes gets lost, big picture that we have almost 700,000 customers across a lot of different verticals. And we see a continued opportunity to grow in all the core verticals that we're in.

And then maybe a little bit on the payment side, clearly a priority for 2023. It sounds like there's more innovation to come. But just from a go-to-market perspective, where is the lowest hanging fruit where you can go after? What kind of customers are easiest to maybe move over to your payments platform?

The core focus, I'll let Matt take this also. Again, getting back to the home field service category that has been kind of a sweet spot for us, embedding that into some of our core system of action software, making that a part of the sales process when new customers come on, and then converting customers after the fact. We talk about quite a bit as we talk about less than just over 10% of our customers are taking or the one solution that number continues uh you know the the numerator continues to grow on that and so um we will be focused on continually selling those into those areas we're also seeing opportunities in a lot of opportunities in our everwell uh the salon spa space is a big opportunity to provide payments We have a leading software in Brazil and Australia with operations in the UK as well. And we're rolling out a major payment program throughout their customer base. So we see the opportunities in the areas you would think where there's a demand, an obvious kind of payment as part of the interaction with the customer.

Yeah, and I think you hit those points well. I think, you know, again, from a strategy standpoint, really optimizing our marketing and sales motion and product packaging to drive more new adoption of the embedded payments and then deepening the integration and the payment workflow capabilities in those systems of action softwares to really drive more payment wallet share from those customers.

Those strategies are tried and true, and we need to continue to execute those.

Super helpful. Thanks again. Just the last one, quick one from Mark.

Can you just talk about what's embedded from a macro perspective in terms of guiding? That's all from me. Thanks.

I think the trends that we saw coming out, you know, into the second half, I mean, that's certainly reflected forward. As Eric said, we really haven't seen a change there. That's really all that's in there, Bob.

Yeah, we're not expecting things to get better, but we're really kind of expecting things to, at this point, maintain themselves.

Our next question comes from Brad Reback with Dyke Steeple. Please go ahead.

Great. Thanks very much. Eric, you had mentioned being deliberate on price. Can you help us understand that?

We have a lot of solutions and a lot of different verticals. And as you can imagine, some are, you know, on the lower end of the market. So we're sensitive to both our customers, where they sit, and also the value of providing them. So we've been, you know, always, you know, price the value. As we add more value, we add additional price with it. Increased inflation and costs that are definitely absorbed through some of our vendors. We've been more proactive in realizing where those opportunities exist. So when you look at the models and you kind of see how, well, Q1 in general, that's just, if you look at last year, it's just always our, Part of the growth throughout the year, a lot of the growth, a good portion of the growth is built in with price increases. We have some price increases that are both, you know, due and both the value they're providing and just, you know, a little bit uptake on some inflation costs as well. So very confident in some of the kind of pricing that we're going to put into the market based upon the contained value we're providing to our customers.

And so on that latter point, the fact that the guide in includes some price increases. At the midpoint, you're at 10%, which is somewhat below sort of that mid-teens long-term target that you've laid out there. What are the takes on that or the puts? Why are we 500 basis points below with a price increase?

Yeah, I think the midpoint would put us pretty close to 12%, not 10%, but it's still below the kind of mid-teen standpoint. I think the two pieces of that puzzle is, number one, we're just being prudent. I think the last, it was just asked about what's built into the model. What's built into the model is continued general softness in the marketplace. And so we want to make sure that we put a guide out that we feel very comfortable with and very confident in our ability into place. And with the unknown macro that may happen, we've built in both what we know we can solve to base, the price increase that we're going to put in there, and with the modest growth on new acquisition to allow us to achieve what we're putting out there, which we think is our opportunity to continue to grow on that as well.

Excellent. Thanks very much.

Our next question comes from Alex Sklar with

Raymond James, please go ahead.

Hi, thanks for taking the question. This is John on from Alex and just one from us. Maybe to follow up on the logo question from earlier, can you maybe speak to linearity of those results throughout the year? Any notable differences quarter to quarter or maybe as you exited the year versus the beginning? Thank you very much.

Linearity, could you just expand on that a little bit? Linearity on the top line, bottom line?

From a logo perspective. Speaking from a logo perspective.

Yeah, customer acquisition, customer account growth, yeah. Sorry. And so I think you As we've talked about in the past, there definitely is some seasonality in the business Q4 with kind of hitting a lot of the peak of that from a detail standpoint. So, you know, we do see that. And then kind of following a lot of along with the financial seasonality, we see pickup back as we get into Q2 and Q3 being the stronger quarters from that perspective.

Thanks very much. Our next question comes from Kirk with Evercore ISI.

Please go ahead.

Hi, guys. This is actually Peter Burke for Kirk. Appreciate you taking the questions, and congrats on a solid quarter here despite the continued challenging macro. So I kind of want to turn back to the payments a little bit. You know, it sounds like everything's going pretty well there, and TPV growth is solid. I don't believe you guys have quantified the revenue impact at this stage. So I'm just curious in light of the commentary around how, you know, it's sort of a big piece in making up for some of the NRR weakness related to the marketing tech solution. You know, as you look forward, is that payments opportunity, you know, does that ultimately outpace the size of the market for the marketing tech solutions? Or, you know, I guess just with a one or two year view, you know, curious how you see payments as a contributor to revenue.

Well, I think payments, the reason we continue to iterate that and discuss it in our, you know, in the column we've done in several quarters past is we look at the $10.9 billion we're currently processing versus, you know, the close to almost $100 billion opportunity that we have. we're at the very, very early stages of the opportunities. And we're building systems and infrastructure, as Matt talked about, creating products to make that a, you know, not a one-time uptake, but really an ongoing opportunity for us. So we think about the ability to outpace. We don't necessarily look at it like that, but I do think on a general growth standpoint, sure, our payments will outpace our, market technology from a growth standpoint but we do believe market technology is solid we'll continue to scale but the opportunity to scale payments even beyond what we've scaled it today we think it's a very long term opportunity and the benefit of that as that actually happens um the margin profile of both of those businesses are quite different the stickiness of both are quite different Yeah, opportunities of action, as we've shown both on the slides and connected, increases ARPU, increases stickiness, increases ultimately NRRs. So we kind of feel very confident that that motion that we're pushing towards, not either or, but really and, will provide more value going forward.

Now, to your point, massive runway opportunity in payments and the, you know, the, The change in unit economics of a system of action customer with embedded payments is such a potential difference maker from, you know, an ARPU standpoint and from a retention standpoint that, you know, obviously that's why you can see we're over-indexing on investments there.

That's right. I appreciate that a lot. Maybe if I could just follow up with one other quick one. You know, you mentioned, you know, cost control sounds like it's going to be a big focus if, you know, if the growth side remains under a little bit of pressure in the near term. And you called out, you know, a little bit of a hiring freeze in 4Q. So I'm just curious how you feel about your capacity today from a sales and marketing perspective and, you know, sort of how you see that trending over the course of the year.

I think we have the infrastructure in place to manage the campaigns we want, but we look in terms of bringing things back based on certain economics. It's really some of our spend, and we have the ability, as we said before, to really bring that up or down based on the market conditions. So I think our ability to kind of you know, press that down as we see things, the market's increasing, allows us to kind of, you know, move swiftly with the market. You know, you talked about our margins, and when we went public, we talked about a long-range version, and that 25% to 30% even at the margin, and we still believe strongly in that increased operating leverage, you know, over the next several years.

Great. Thanks, Eric. Thank you very much for the question.

Again, if you'd like to ask a question, please press star then one. Our next question comes from Matt Hedberg with RBC Capital Markets. Please go ahead.

Matt Hedberg. Thanks for taking our question here. A follow-up to the payment questions and then, you know, very helpful discussion in the Q&A here on payments. In the prepared remarks, you talked about expanding the payment team to drive adoption. Maybe where is some of that plan focused? Is it more around integrations on the product side or simply expanding reach and coverage?

Yeah, thanks for the question. It's actually on both pieces of the puzzle. So we are expanding the team to allow us to embed more places within our ecosystem, but also the actual expertise to make sure we're providing best practices at every touchpoint. As you can imagine, with the amount of customers we have, the amount of customers we're acquiring, and the touchpoints we have, it's really making sure that we utilize the experts that we have. And remember, one of our solutions which was Paysimple, and now we kind of call it EverCommerce Payments. You know, we've been running that for, you know, 16, 17 plus years. And so we have a lot of expertise, making sure we beef up that team with the leadership. There's a great leadership of that organization to make sure that each of the solutions that we embed our payments in, that we are integrating that in a way that is going to provide the best value to the customer, the best workflow for the customer, and also the best ability for us to adopt that customer as a payment, utilizing our payments. So that's how we've really focused on our investment, both on the technology workflow side, as well as both the just human capital expertise side to make sure we are providing the best solutions for our customers.

That's great. Thanks.

One thing to note on that, and this kind of dovetails your question with the question we just answered, it's important to note, you know, when we talk about why we think payments are so important, you know, it starts from our view from the customer standpoint. We think when that customer invents payments, it's just so much more value for them. They collect payments faster. The customer is more valuable to us on our business. When you think about the margin capabilities that upstream internally and how that increases our approval and ultimately our gross margins, payments run around 95% gross margins versus, you talk about the marketing services, it's significantly less than that. So the opportunity for us to not only create long-term customers but also increase our gross margin over time is huge as we embed more of those payment solutions into our customers' workflow.

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. You know, just to kind of reiterate, you know, we're excited about how we, the momentum we end up closing the year both beat our revenue and EBITDA top end of the guidance. You know, priorities going into next year is really as we continue to kind of harp on investing in both payments and cross-sell adoption to drive additional growth and retention. De-risking some of the growth plans with some of the price increases that we talked about earlier. As we focus on going into 2023, we remain committed to simplifying and empowering the lives of almost 700,000 customers by providing them really the best vertical software and solutions for their needs.

Thank you very much for joining the call today.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Hello. Thank you. Thank you.

Thank you for standing by and welcome to EverCommerce's fiscal year 2022 fourth quarter earnings call. My name is Sarah and I will be your operator for today. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw from the question queue, please press star then two. As a reminder, this conference call is being recorded today, Wednesday, March 15, 2023. And I would now like to turn the conference over to Brad Korch, SVP and Head of Investor Relations for EverCommerce. Please go ahead.

Good afternoon. 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 December 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. 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. Thank you, Brad.

On today's call, I will highlight fourth quarter results and discuss key customer trends and metrics before turning the call over to Mark to dive deeper into our financials. EverCommerce finished the year strong, beating the top end of the fourth quarter guidance for both revenue and adjusted EBITDA. For the quarter, our reported year-over-year revenue growth was 19%, and normalizing for defects of M&A, our pro forma revenue growth was 14% for the quarter. For 2022, our year-over-year pro forma revenue growth was 16%. We continue to operate the business balancing growth with profitability. For the fourth quarter, our adjusted EBITDA and adjusted unlevered free cash flow margins were higher than previous quarters at approximately 22% and 16% respectively. For the full year, adjusted EBITDA margins were 19%, while adjusted unlevered free cash flow margins were 14%. Customer and payments growth are a key part of our business strategy. Our total payments volume, or TPV, grew 90% year over year. We continue to see increased uptake of payments processing within our core vertical system of actions. Our annualized net revenue retention, or NRR, was also steady at 100% in the quarter. EverCommerce provides vertically tailored end-to-end SaaS solutions that support the highly diverse workflows and customer actions 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. At the core, we provide system of action software across many macro verticals. This is the ERP for these smaller, vertical service-based businesses and the way in which our customers generate new business, fulfill services, manage day-to-day operations, and engage with their customers. Our vertical software solutions not only provide the system of action necessary to run their daily business processes, but also the marketing solutions to attract new business, the billing and payment solutions to collect effortlessly, and the customer experience solutions to create predictable and convenient experiences. Our business thrives through two motions, acquiring new customers and expanding our revenue base with existing customers by selling more seats, more features, and cross-selling other solutions like embedded payments. We ended the year serving approximately 690,000 customers across our many diverse verticals and sub-verticals. We acquire customers at strong economics as the overwhelming majority of our customers acquire digitally. Our large customer base represents an incredible opportunity for continued expansion of cross-sell upsell of our solutions. Over the past year, the average ARPU at the solution level grew approximately 8% year over year. One of the biggest drivers for ARPU expansion is our land expand motion of selling core system of action software to our customers and then upselling them new features and cross-selling them 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 71,000 of our customers using more than one solution, a 29% increase year over year. Embedded Payments is our most accretive add-on solution, representing the lion's share of our cross-sell activity today. We measure and report our payments ecosystem growth through TPV. We ended the quarter with an annualized TPV of approximately $10.9 billion, which represents 90% year-over-year growth. We expect TPV to grow as we continue to embed our payment solutions into our core systems of action. Our priorities for 2023 underscore our focus of providing premier systems of action software across many verticals, embedding payments and adding ancillary services that promote our customer successes. We often discuss our time with you, and in doing so, we've cited a greater than $500 billion opportunity in the U.S. and over a $1.3 trillion opportunity globally. With nearly 690,000 customers currently using our software and solutions, we have a tremendous opportunity right in front of us to provide more value and sell additional services to existing customers. We are prioritizing our investments towards our best opportunities to achieve our growth objectives, and at the top of this list is driving adoption of embedded payments. Embedded payments not only drive continued or granted growth, but also provide better customer economics as customers who have embedded payments yield higher ARPU and improved retention. Entering 2023, we're expanding our EverCommerce payments team to accelerate payments adoption across our solution set. To do so, we are taking steps to improve the seamless onboarding of payments capabilities for our customers, and later in the year, we'll be introducing new capabilities. Recognizing the environment we're in, we'll be even more deliberate on price. Our pricing philosophy at EverCommerce has been to price to value, that is, increment price over time as new features are added and the customer value proposition is enhanced. In 2023, we will keep this philosophy at our core, but we'll be pressing harder on the price lever where appropriate. We're also doubling down on the notion of balancing growth and profitability by institutionalizing a disciplined focus on cost controls, particularly in the areas of people costs, general administrative spend, and sales and marketing costs. We continue to target 20% EBITDA margins with an eye towards operating leverage-driven margin expansion beyond 2023. Finally, we will continue to optimize our solution and product mix, including utilizing M&A where appropriate to add capabilities and targeted market verticals and compound consistent organic growth. Now I'll pass it over to Mark, who will review our financial results in more detail, as well as provide guidance for the first quarter and the full year 2023. Thanks, Eric.

Total revenue in the fourth quarter was $161.8 million, up 19.3% from the prior year period. Within total revenue, subscription and transaction fees were $121.6 million, up 22% from the prior year period, and marketing technology solutions were $33.3 million, up 13.5% from the prior year period. For the full year, revenue was $620.7 million, up 26.6% on a reported basis. 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 fourth quarter was approximately 14.2%, while our year-over-year 2022 pro forma growth rate is approximately 15.6%. Fourth quarter adjusted EBITDA was $35.2 million, representing a 21.7% margin, while full year 2022 adjusted EBITDA was $119 million, representing a 19.2% margin. During the fourth quarter, we took several actions, including the implementation of a temporary hiring freeze to tightly manage costs and deliver against our profitability objectives. In 2023, we plan to continue disciplined, active management of our operating expenses as we look to drive profitability and cash flow generation. Adjusted gross profit in the quarter was $107.9 million, representing an adjusted gross margin of 66.7%. Full year 2022 adjusted gross profit was $403.4 million, representing an adjusted gross margin of 65%. Adjusted gross profit is seasonally strongest in the fourth quarter, while seasonally weakest in the first quarter. Now turning to operating expenses. Adjusted sales and marketing expenses were $27.9 million, or 17.2% of revenue, down from 18.5% of revenue in the prior year period. This was driven largely by managing growth investments while working to meet our profitability objectives during the quarter. Adjusted product development costs were $17.5 million, or 10.8% of revenue, roughly flat compared to 10.5% of revenue reported in the prior year period. Adjusted G&A expense was $27.8 million, or 17.2% of revenue, down from 17.8% of revenue in the prior year period. This was also driven by disciplined spend management during the quarter. 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 $26.1 million, representing 17.4% year-over-year growth and a 16.1% margin. For the full year, our adjusted unlevered free cash flow was $85.3 million. Levered free cash flow, which accounts not only for debt service but also various working capital adjustments, is $22.7 million in the quarter. For the full year, levered free cash flow of $46.7 million underscores our balance sheet flexibility. This balance sheet flexibility provides optionality 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 allows us to deliver enhanced equity returns to our shareholders. In the fourth quarter, we repurchased 2.9 million shares for a total cash consideration of $21 million. During the full year 2022, we repurchased approximately 5 million shares for $43 million, leaving us a remaining authorization of $57 million approved for year-end 2023. We ended the quarter with $93 million in cash and cash equivalents, and we maintain $190 million of undrawn capacity on our revolvers. Our debt is a combination of floating and fixed rate, and total net leverage is calculated per our credit facility at the end of the quarter was approximately 3.5 times, consistent with our financial policy. We have no material maturities until 2028. As I'm sure we'll get the question in Q&A, let me comment briefly on our relationship with Silicon Valley Bank. EverCommerce has accounts at SVB, but based on our diversified account structure, our relationships with other global banking partners, and the fact that we generate excess cash from operations and have substantial access to capital, we did not expect the potential failure of SVB to disrupt our business operations, and it hasn't. Today, we have full access to our balances that were held at SVB, and we've already transferred the majority of these deposits to other large banks. I'd like to finish by providing our outlook beginning with the first quarter. For Q1, we expect total revenue of $157 to $160 million, and we expect adjusted EBITDA of $27 to $29 million. Our full year 2023 guidance is $680 to $700 million for revenue and $134 to $142 million for adjusted EBITDA. Our first quarter guidance reflects the seasonality inherent in our business, which can be summarized by seasonally slower growth and lower margins in the first quarter, seasonally higher growth in the warmer months, and seasonally higher margins in the fourth quarter. Our 2023 outlook does not include any potential impact of M&A activity that could take place. In summary, we're very pleased with our fourth quarter financial results. We executed well and delivered top-line growth that exceeded our most recent guidance, while also tightly managing our cost base to deliver better-than-expected profitability. Looking ahead, we believe the core of our business, vertical SaaS solutions, and embedded payments is quite resilient. We intend to focus on both investing in the areas of our business that will produce the best growth and returns, but also double down on optimizing our operations and managing costs 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 amongst service SMB companies. Our continuing focus is 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. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from DJ Hines with Canaccord. Please go ahead.

Hey, guys. Thanks for taking the questions. Mark, I might have expected to see a bit more operating leverage in the 2023 guide, just kind of as an offset to slower growth. I mean, you highlighted cost controls. We haven't seen any recent M&A. Look, 20% EBITDA margins is very solid, but we're running below kind of 2021 levels, acknowledging now we have public company costs and all that sort of stuff. Maybe just touch on kind of the puts and takes of the margin guide. And if we end up seeing faster growth, is it right to think that a lot of that upside would flow through to the bottom line?

Yeah, thanks for the question, DJ. So I think, you know, first of all, just comparing the year 22 versus 21, remember there are a couple things going on there. One is 21 didn't include a full year of public company costs, and 22 actually included Crono, which, as we described, was lost. $4 to $5 million in 21. So we're transitioning that in 22. So that just is a little bit of a level set. I do believe that we've baked in a lot of the investments we need to make, certainly around being a public company and a lot of investments in scalable operations, such that what you just described should be true. Obviously, you know, we're trying to be prudent in the way that we guide, given the continuing environment that we're seeing. But We absolutely believe that we want to be in front of our cost structure to make sure that we can drive that kind of drop through that you're describing.

Yeah, makes sense.

And the second question is just around net revenue retention, right? So when you guys went public, I think NRR was in that 90, 95% range. Since then, we've seen really nice improvement, right? I think we're kind of plus or minus 100%, which is great. That said, you know, with the marketing business turning against you guys a little bit, I'm surprised we haven't seen any degradation in NRR. So I guess the question is, like, has there been success elsewhere with cross-sell that's maybe being underappreciated given the headwinds in marketing? Or maybe just help me understand kind of how you're keeping, you know, NRR whole at 100%.

Can you hear me all right? Yeah, we got you.

You highlighted other areas of the business where cross-sell is performing, as you can see. From our continued focus on payments and the results in payments, payments cross-sell is clearly a place where that expansion of the customer base is certainly booing NRR from that perspective. Obviously, upsell continues. but also Buies NRR as well. So, yeah, certainly in the past there may have been some drag from some of that MarTech slowness in the past, but we feel really good about the parts of the business that are driving that up from a customer expansion standpoint. Got it.

Helpful caller. Thank you, guys. Thanks, TJ.

Our next question comes from Samad Samana with Jefferies.

Please go ahead.

Hey, guys. This is Jeremy. I'm for Samad. Thanks for taking my question. So, first, on the customer account growth from 12%, you know, that's down from 20% last year. I guess, what should we kind of expect in terms of net ads going forward? And I guess, which of your three verticals are you seeing most of these net ads coming from? Or if you can just provide some color there.

Yeah, you know, again, I think...

We discussed in the past from an organic growth lever standpoint, obviously, customer growth, you know, one big growth lever, and then obviously ARPU expansion, the other big growth lever. So, you know, nice expansion from an ARPU standpoint. Obviously, customer growth deceled a little bit from the prior year. You're probably seeing some of our marketing expense in 2021. We did pull back on that as we navigated really the unknowns of the turbulent economic environment. You know, going forward, we still expect it to be a significant part of that lever, of our growth lever. So, you know, we continue to expect that to run in a healthy range of where it has been in the past from that perspective.

And just the second part of the question, thank you for the question. The health field services, which still represents, you know, more than half our businesses, continue to operate at the fastest growth levels and continue to see So it's growing vertical. And then our fitness and wellness is just really distinctly broken up into kind of the fitness and then the salons and spas. Salons and spas are doing great. Fitness in general, this is not necessarily specifically to ever commerce. They just have not fully recovered from the pre-COVID level. So that particular category remains, you know, relatively flat to pre-COVID level. we're getting from the other verticals. Unfortunately, that's our smallest vertical, so it doesn't have the biggest impact with that.

In terms of the verticals, in terms of how we look at them, that's going to break out.

Got it. Thank you. That's helpful, Connor. And then on the M&A front, I guess, what are you guys doing in terms of private valuations? And I guess in terms of what are your priorities for M&A going forward?

Yeah, the priorities remain the same. Be diligent and find opportunities that we think are going to add value to the overall ecosystem of our commerce and provide more value to our customers. I feel like I'm on a broken record over the last several quarters. The dislocation between valuation in the private and public markets remains. Private market valuations remain kind of very healthy, really never took the kind of downward stream that some of the larger public comps are taking. So we've looked at a lot of things. There's been a few things that have been interesting, but for both fit or potential value, it didn't make sense for us at this point.

That's helpful. Thanks for taking my question, guys.

Our next question comes from Babin Shaw with Deutsche Bank. Please go ahead.

Great. Thanks for taking my question. I guess, Eric, just at a high level, just from a demand environment perspective, can you maybe just a little bit more elaborate on what you saw during 4Q and maybe what you're seeing at the beginning of the year in terms of the macro? Is it still mostly impacting the marketing side of the business, or are you seeing some of that spill over on the subscription side?

Really, on the market side of the business, I would say that has really flattened out in terms of the pullback we saw in Q3 really kind of re-level set, and that has kind of continued through Q4 and our expectation through Q1 and beyond. So it hasn't necessarily degraded worse than we had thought at the kind of Q3 time period. But the other core verticals, you know, we have not seen kind of a degradation in acquisition, you know, or acquisition projects at this point. So I think we're, you know, I think we're, the marketplace that we're in, I think it sometimes gets lost, big picture that we have almost 700,000 customers across a lot of different verticals. And we see a continued opportunity to grow in all the core verticals that we're in.

And then maybe a little bit on the payment side, clearly a priority for 2023. It sounds like there's more innovation to come. But just from a go-to-market perspective, where is the lowest hanging fruit where you can go after? What kind of customers are easiest to maybe move over to your payments platform?

The core focus, I'll let Matt take this also, again, getting back to the home field service category that has been kind of a sweet spot for us, embedding that into some of our core system of action softwares, making that a part of the sales process when new customers come on, and then converting customers after the fact. We talk about quite a bit as we talk about less than just over 10% of our customers are taking or the one solution, that number continues to, you know, the numerator continues to grow on that. And so we will be focused on continually selling those into those areas. We're also seeing opportunities in, a lot of opportunities in our Everwell. The salon spa space is a big opportunity to provide payments. We have a leading software in New Zealand, Australia with operations in the UK as well. And we're rolling out a major payment program throughout their customer base. So we see the opportunities in the areas you would think where there's a demand, an obvious kind of payment as part of the interaction with the customer.

Yeah, and I think you hit those points well. I think, you know, again, from a strategy standpoint, really optimizing our marketing and sales motion and product packaging to drive more new adoption of the embedded payments and then deepening the integration and the payment workflow capabilities in those systems of action softwares to really drive more payment wallet share from those customers.

Those strategies are tried and true, and we need to continue to execute those.

Super helpful. Thanks again. Just the last one, quick one from Mark.

Can you just talk about what's embedded from a macro perspective in terms of guiding? That's all for me. Thanks.

I think the trends that we saw coming out, you know, into the second half, I mean, that's certainly reflected forward. As Eric said, we really haven't seen a change there. That's really all that's in there, Bob.

Yeah, we're not expecting things to get better, but we're really kind of expecting things to at this point maintain themselves.

Our next question comes from Brad Reback with Dyke Steeple. Please go ahead.

Great. Thanks very much. Eric, you had mentioned being deliberate on price. Can you help us understand that?

Yeah, you know, we've, you know, We have a lot of solutions and a lot of different verticals. And as you can imagine, some are, you know, on the lower end of the market. So we're sensitive to both our customers, where they sit, and also the value of providing them. So we've been, you know, always, you know, price the value. As we add more value, we add additional price with it. Increased inflation and costs that are definitely absorbed through some of our vendors. We've been more proactive in realizing where those opportunities exist. So when you look at the models and you kind of see how, well, you know, Q1 in general, that's just, if you look at last year, it just always are, you know, But part of the growth throughout the year, a lot of the growth, a good portion of growth is built in with price increases. We have some price increases that are both, you know, due and both the value they're providing and just, you know, a little bit uptick on some inflation costs as well. So very confident in some of the kind of pricing that we're going to put into the market based upon the value we're providing to our customers.

And so on that latter point, the fact that the guide in includes some price increases. At the midpoint, you're at 10%, which is somewhat below sort of that mid-teens long-term target that you've laid out there. What are the takes on that or the puts? Why are we 500 basis points below with a price increase?

Yeah, I think the midpoint would put us pretty close to 12%, not 10%, but it's still below the kind of mid-teen standpoint. I think the two pieces of that puzzle is, number one, we're just being prudent. I think the last – we were just asked about what's built into the model. What's built into the model is continued general softness in the marketplace. And so we want to make sure that we put a guide out that we feel very comfortable with and very confident in our abilities. marketplace. And with the unknown macro that what may happen, we've built in both, you know, what we know we can solve the base, the price increase that we're going to put in there, and with the modest growth on new acquisition to allow us to achieve what we're putting out there, which we think is our opportunity to continue to grow on that as well.

Excellent. Thanks very much.

Our next question comes from Alex Sklar with

Raymond James, please go ahead.

Hi, thanks for taking the question. This is John on from Alex, and just one from us. Maybe to follow up on the logo question from earlier, can you maybe speak to linearity of those results throughout the year? Any notable differences quarter to quarter, or maybe as you exited the year versus the beginning? Thank you very much.

Linearity, could you just expand on that a little bit? Linearity on the top line, bottom line?

From a logo perspective. Speaking from a logo perspective.

Yeah, customer acquisition, customer account growth, yeah. Sorry. And so I think you As we've talked about in the past, there definitely is some seasonality in the business Q4 with kind of hitting a lot of the peak of that from a decel standpoint. So, you know, we do see that. And then kind of following along with the financial seasonality, we see pickup back as we get into Q2 and Q3 being the stronger quarters from that perspective.

Thanks very much. Our next question comes from Kirk, attorney with Epicor ISI.

Please go ahead.

Hi, guys. This is actually Peter Burke for Kirk. Appreciate you taking the questions and congrats on a solid quarter here despite the continued challenging macro. So I kind of want to turn back to the payments a little bit. You know, it sounds like everything's going pretty well there and TPV growth is solid. I don't believe you guys have quantified the revenue impact at this stage. So I'm just curious in light of the commentary around how, you know, it's sort of a big piece in making up for some of the NRR weakness related to the marketing tech solution. You know, as you look forward, is that payments opportunity? You know, does that ultimately outpace the size of the market for the marketing tech solutions? Or, you know, I guess just with a one or two year view, you know, curious how you see payments as a contributor to revenue.

Well, I think payments, the reason we continue to iterate that and discuss it in the column we've done in several quarters past is we look at the $10.9 billion we're currently processing versus the close to almost $100 billion opportunity that we have. We're at the very, very early stages of the opportunities. And we're building systems and infrastructure, as Matt talked about, creating products to make that a, you know, not a one-time uptake, but really an ongoing opportunity for us. So when you think about the ability to outpace, we don't necessarily look at it like that. But I do think on a general growth standpoint, sure, our payments will outpace our market technology from a growth standpoint. But we do believe the market technology is solid, will continue to scale. But the opportunity to scale payments, even beyond what we've scaled it today, we think it's a very long-term opportunity. And the benefit of that, as that actually happens, the margin profile of both of those businesses are quite different. The stickiness of both of those as we've shown both on the slides and connected, increases ARPU, increases stickiness, increases ultimately NRRs. So we kind of feel very confident that that motion that we're pushing towards, not either or, but really and, will provide more value going forward.

And now to your point, massive runway opportunity in payments and the, you know, the, The change in unit economics of a system of action customer with embedded payments is such a potential difference maker from, you know, an ARPU standpoint and from a retention standpoint that, you know, obviously that's why you can see we're over-indexing on investments there.

That's right. I appreciate that a lot. Maybe if I could just follow up with one other quick one. You know, you mentioned, you know, cost control sounds like it's going to be a big focus if, you know, if the growth side remains under a little bit of pressure in the near term. And you called out, you know, a little bit of a hiring freeze in 4Q. So I'm just curious how you feel about your capacity today from a sales and marketing perspective and, you know, sort of how you see that trending over the course of the year.

I think we have the infrastructure in place to manage the campaigns we want, but we look in terms of bringing things back based on certain economics. It's really some of our spend, and we have the ability, as we said before, to really bring that up or down based on the market conditions. So I think our ability to kind of you know, press that down as we see things, the market's increasing, allows us to kind of, you know, move swiftly with the market. You know, you talked about our margins, and when we went public, we talked about a long-range version, and that 25 to 30 percent, you put the margin, and we still believe strongly in that increased operating leverage, you know, over the next several years.

Great. Thanks, Eric. Thank you very much for the question.

Again, if you'd like to ask a question, please press star then one. Our next question comes from Matt Hedberg with RBC Capital Markets. Please go ahead.

Matt Hedberg. Thanks for taking our question here. A follow-up to the payment questions and then, you know, very helpful discussion in the Q&A here on payments. In the prepared remarks, you talked about expanding the payment team to drive adoption. Maybe where is some of that plan focused? Is it more around integrations on the product side or simply expanding reach and coverage?

Yeah, thanks for the question. And it's actually on both pieces of that puzzle. So we are expanding the team to allow us to embed more places within our ecosystem but also the actual expertise to make sure providing best practices at every touch point um as you can imagine we have you know with the amount of customers we have the amount of customers we're acquiring um and the touch points we have it's really making sure that we utilize the experts that we have and remember one of our solutions which was Paid Simple and I would kind of call it Evercommerce Payments, we've been running that for 16, 17 plus years. And so we have a lot of expertise, making sure we beef up that team with the leadership, there's a great leadership of that organization to make sure that each of the solutions that we embed our payments in, that we are integrating that in a way that is going to provide the best value to the customer, the best workflow for the customer, and also the best ability for us to adopt that customer as a payment, utilizing our payments. So that's how we've really focused on our investment, both on the technology workflow side, as well as both the just human capital expertise side to make sure we are providing the best solutions for our customers.

That's great. Thanks.

One thing to note on that, and this kind of dovetails your question with the question we just answered, it's important to note when we talk about why we think payments are so important, it always starts from our view from the customer standpoint. We think when that customer invents payments, it's just so much more value for them. They collect payments faster. The customer is more valuable to us. When you think about the margin capabilities of upstream internally and how that increases our approval and ultimately our gross margins, payments run around 95% gross margins versus, you talk about the marketing services, it's significantly less than that. So the opportunity for us to not only create long-term customers but also increase our gross margin over time is huge as we embed more of those payment solutions into our customers' workforce.

This concludes our question and answer session.

I would like to turn the conference back over to Eric Gremer for any closing remarks.

Thank you so much. You know, just to kind of reiterate, you know, we're excited about how we, the momentum we end up closing the year both beat our revenue and even got top end of the guidance. You know, priorities going into next year is really as we continue to kind of harp on investing in both payments and cross-sell adoption to drive additional growth and retention. De-risking some of the growth plans with some of the price increases that we talked about earlier. As we focus on going into 2023, we remain committed to simplifying and empowering the lives of almost 700,000 customers by providing them really the best vertical software and solutions for their needs.

Thank you very much for joining the call today.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.