EverCommerce Inc.

Thank you for standing by, and welcome to EverCommerce's third quarter 2023 earnings conference call. My name is Norma, and I'll be your operator today. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. As a reminder, this conference is being recorded today, Monday, November 6, 2023. I would now like to turn the conference over to Brad Korch, Senior Vice President and Head of Investor Relations for EverCommerce. Please go ahead.

Good afternoon and thank you for joining. Today's call will be led by Eric Reamer, EverCommerce's Chairman and Chief Executive Officer, and Mark Thompson, EverCommerce's Chief Financial Officer. Joining them for the Q&A portion of the call is EverCommerce's President, Matt Feierstein. This call is being webcast with a slide presentation that reviews the key financial and operating results for the three months ended September 30th, 2023. 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 on our filings of the SEC. We undertake no obligation to publicly update or revise these forward-looking statements except as required by law. We also refer to certain non-GAAP financial measures to provide additional information to you, our investors. Reconciliation of non-GAAP historical measures is provided in both our earnings press release and our earnings call presentation. I will now turn it over to our CEO, Eric Reamer. Please continue.

Thank you, Brad. On today's call, I will highlight third-core results and discuss key customer trends and metrics before turning the call to Mark to dive deeper into our financials. EverCommerce continues to advance its goal of being the leading provider of vertical software for service SMBs. With our business management software, which we refer to as systems of action, we are simplifying the lives of those service providers that support us every day. These core software platforms are critical to our customers' businesses and have proven to be resilient revenue streams. As you've highlighted in the past, you have seen modest macroeconomic pressures in the more transactional aspects of our business. And this was true in the third quarter as well. Despite this, EverCommerce's year-over-year revenue growth expanded over 200 basis points when compared to the growth rate reported last quarter. So in the more uncertain macroeconomic environment, we continue to actively manage our costs and double down on the mantra of balancing growth with profitability. This quarter, we once again exceeded the top end of our guidance range for just the ODA, which grew 39% year over year and equated to a 24% margin. Year over year, this represents over 485 basis point of margin expansion. With upside to profitability, we are creating the opportunity to incrementally invest, in areas that can accelerate growth in 2024 and beyond. Private payments adoption continues to be a key element of our growth strategy, and for the third quarter, we increased our payment revenue by 28%. Finally, I am pleased to announce that last week our board of directors authorized an upsize and extension to our share repurchase authorization. Increased by an additional $50 million, our authorization now runs through year-end 2024. 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. As a leading service commerce platform, we provide system of action software across our many market verticals. which in turn drive the workflows to help our customers generate new business, fulfill services, manage day-to-day operations, and engage with their customers. We continue to execute our land and expand strategy. We land with our core business management software and then upsell and cross-sell our existing customers additional features, service, and products. This enhances the value our customers receive from the relationship with EverCommerce and drives additional revenue. As we've shown in various examples on previous earning calls, this translates to lower churn and higher retention. Last quarter, we introduced a new metric that we feel best reflects our current cross-sell progress, the number of customers that have contracted and onboarded for more than one solution. This metric is higher in the funnel than our traditional disclosure of customers actively utilizing more than one solution. For payments specifically, This metric tracks our customers' payments enablement progress, which is a critical milestone in their journey to regularly accepting payments and contributing to our TPV growth. At the end of the third quarter, while we continue to see expansion of customers utilizing more than one solution to approximately 82,000, the number of customers that have contracted and boarded for two or more products grew 28% year-over-year to approximately 173,000. And with over 685,000 total Upper Commerce customers as of the beginning of 2023, we continue to have a very large embedded opportunity to continue to grow this base of multi-solution customers. Finally, when we look back over the trailing 12 months, our annualized net revenue retention, or NRR, for our core software and payment solutions remained above 100%. Embedded payments is our most accretive cross-sell solution and stands to be a long-term driver for EverCommerce revenue growth and margin expansion. Year-over-year, our payments revenue grew 28%, accounting for approximately 17% of overall revenue. We report our payments revenue on a net basis, and as a result, payments revenue contributes approximately 95% gross margin and is a meaningful contributor to overall adjusted EBITDA margin expansion. Third quarter annualized total payment volume, or TPV, was approximately $11.7 billion, representing 11% year-over-year growth. We expect TPV and overall payments revenue to grow as we continue to embed our payment solutions into our core systems of action. Accelerating payments attachment and utilization are key elements of our long-term growth plan, and we continue to see success through our core system of action solutions. Last quarter, we mentioned that we were actively testing implementing new strategic initiatives designed to increase the attachment of payment capabilities, drive more payment-enabled customers into active processing, and further increase the wallet share of the customers that are already processing. Lastly, I want to highlight a small but important acquisition that we made in the quarter, KickServe. KickServe is a cloud-based web mobile system of action enabling field service providers such as plumbers and HVAC technicians to manage all aspects of the business, including job and customer management, payments, reporting, and business operations. We actively pursued KickServe as part of our overall EverPro product strategy because it filled the gap we had to appropriately serve customers that are too large for our Joyce product, yet too small for our Service Fusion products. KickServe does offer payments integration today, but the solution is both under-penetrated and under-utilized, creating a meaningful cross-sell opportunity with our payment engine. We also expect that our go-to-market engine can help accelerate growth with this product. Now I will pass it over to Mark, who will review our financial results in more detail, as well as provide fourth quarter and updated full year 2023 guidance.

Thanks, Eric. Total revenue in the third quarter was $174.7 million, up 10.5% from the prior year period. Within total revenue, subscription and transaction revenue was $132.6 million, up 10.5% from the prior year period. and revenue for marketing technology solutions was 36.8 million, up 1.5% from the prior year period. The solid performance in subscription and transaction revenue was largely due to continued execution of our growth strategy to provide customers our core system of action software solutions and driving expansion by promoting cross-sell and up-sell opportunities, leading with payments. As Eric noted, in Q3, we experienced some softness in the more transactional portions of our business, which negatively impacted revenue and is extended into Q4. Specifically, in the third quarter, we saw a decline in contractor equipment spend through our EverPro rebates rewards program, in which we share a portion of the vendor rebate. Additionally, while payments revenue grew 28% in the third quarter, we also started to see some modest headwinds in certain pockets of our payments business. We continue to experience demand-driven headwinds in our marketing technology solutions, underscoring growth of 1.5% from the prior year period. We have also experienced slower growth in our fitness solutions as that industry remains challenged from the lingering effects of COVID. Excluding marketing technology and fitness solutions, year-over-year revenue growth was approximately 13%. At the end of the third quarter, LTM revenue was $667.7 million, up 12.3% year-over-year on a reported basis. Third quarter adjusted EBITDA was 41.8 million representing a 23.9% margin versus 19.1% in the third quarter of 2022 and 38.6% growth year over year. Additionally, LTM adjusted EBITDA was 147.7 million representing a 22.1% margin and an 18.8% increase year over year. In the third quarter, we're continuing to deliver on our full year 2023 objectives by exceeding EBITDA guidance and achieving record EBITDA margins. Adjusted EBITDA performance in the quarter was underscored by our focus on actively managing our operating expenses, driving operating leverage, and focusing on cash flow generation. To that end, we made a reduction in force last week. This action better positions us to manage through continuing headwinds expected for the balance of the year and into 2024, and enables us to drive growth investments as appropriate. For example, One area of incremental investment is resources to accelerate payments adoption among our systems of action software solutions. Adjusted gross profit in the quarter was $113.3 million, representing an adjusted gross margin of 64.8% versus 63.5% in Q3 2022. LTM adjusted gross profit was $438.3 million, representing an adjusted gross margin of 65.6%. The increase in gross margin is partially attributable to an increasing mix of higher margin payments revenue. Now, turning to operating expenses, adjusted sales and marketing expense was 28.2 million, or 16.2 percent of revenue, down from 17.7 percent of revenue reported in the prior year period. Absolute adjusted sales and marketing expenses were approximately flat year over year due to timing of spend, and we expect a modest sequential increase in sales and marketing expenses in the fourth quarter. As we continue to invest in our products, adjusted product development expense increased approximately $500,000 to $18.6 million, or 10.6% of revenue, down from 11.4% of revenue reported in the prior year period. Adjusted G&A expense was $24.7 million, or 14.1% of revenue, down from 15.4% of revenue in the prior year period. As we anniversary the investments made in 2021 and 2022 to support our public company infrastructure, we're beginning to see meaningful operating leverage. 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 $31.3 million, representing 42% year-over-year growth and a 17.9% margin. For the last 12 months, our adjusted unlevered free cash flow was $106.8 million. Levered free cash flow, which accounts not only for debt service but also various working capital adjustments, was $21.3 million in the quarter. This was up approximately $12.2 million, or 134% year-over-year, due to both growth in operating income and changes in working capital. For the trailing 12 months, levered free cash flow was $74.4 million, a 69% increase over the prior year, continuing to underscore our balance sheet flexibility. Strong free cash flow generation allows us to continue to invest in our growing business and deliver strong returns to our shareholders. It also allows us to efficiently allocate capital across a spectrum of opportunities, including the outstanding buyback authorization and M&A prospects. In the third quarter, we repurchased approximately 160,000 shares for a total cash consideration of approximately 1.6 million at an average of $9.83 per share. As Eric mentioned, our board of directors has authorized an extension of our repurchase program through year-end 2024 and an increase in the size of the program by 50 million. This increase in our program handily fits into our free cash flow generation profile. We ended the quarter with 87.3 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 two and a half times, consistent with our financial policy. We have no material maturities until 2028. I would now like to finish by providing our outlook for the remainder of 2023, beginning with the fourth quarter. As previously described, we're experiencing some softness in certain transactional revenue streams, and we continue to experience headwinds in our marketing technology and fitness solutions. These trends are contemplated in our updated guidance. For Q4, we expect total revenue of $170 to $174 million, and we expect adjusted EBITDA of $35.5 to $39.5 million. We have adjusted our full-year 2023 revenue guidance to $676 to $680 million, and we are raising our adjusted EBITDA guidance again by an additional $5 million to $148 to $152 million. Driving profitability and cash flow remain top priorities for us, and as such, a revised adjusted EBITDA guidance represents a $12 million increase at the midpoint and 210 basis points of margin expansion as compared to our initial full-year guidance and approximately 300 basis points margin expansion over 2022 results. Our Q4 2023 outlook does not include any potential impact of unannounced M&A activity that could take place. Before we begin the question and answer portion of the call, I want to thank the entire EverCommerce team for their efforts in delivering these solid results in a challenging environment. Our focus continues to be optimizing our operations, managing costs effectively, and delivering on our strategic priorities. Operator, we're now ready to begin the question and answer section of the call.

Thank you. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. Please wait for your name to be announced. One moment while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Kirk Merturn with Evercore ISI. Your line is now open.

Yeah, guys, this is actually Peter Berkley. I'm for Kirk. I appreciate you taking the question. So maybe the first one sounds like, you know, the fitness vertical and a little bit of marketing still seeing some weakness, but just curious in terms of other verticals or even micro verticals, Are there any areas where you're seeing, you know, any strength from a new logo standpoint? And then as a follow-up to that, I'm just curious if there's any changes in thinking as you guys are starting to see some success on payments, you know, just growth going forward, the balance between that growth coming from new logos versus cross-sell of other solutions, payments being, you know, top of mind. Thanks.

You know, I'll start off. Thanks for the question. Great question. A lot of pieces. If I don't answer all of it, you know, Mark and Matt will fill in. So thank you for that. But I think I'll start with the end kind of question with regard to the opportunity we see in front of us with regard to payments. So, you know, we are double, tripling down on the payment opportunity. We look at our kind of our top four payment penetrated opportunities represent about 84% of our onboarded payment merchants. That cohort of customers, you know, grew about 86% overall in terms of the payment revenue, you know, year over year. So huge opportunity within the kind of core system of action integrated payment penetration that we're already seeing a lot of growth, and we expect to continue to see that. Now, the second part of it, yes, we continue to grow new logos as part of the core of every software business. So we continue to grow new logos, and then we, you know, land and expand that by upselling them additional services and solutions with a real primary focus on payments?

No, other than to say, I mean, to your point about, I think you were directionally headed towards investing in growth-like payments. I mean, the purpose of obviously continuing to actively manage our expense base is to really provide the opportunity to drive investment dollars where we see those opportunities and manage through these exogenous impacts from the macro climate.

I would just add, the first part of your question, Peter, you asked, you know, where, from a vertical standpoint, we were seeing that new logo acquisition, and that really remains in line with our customer base, obviously with the majority or a large portion of our customer base in home and field services. New logo acquisition definitely weights towards home and field services.

Very helpful. Thank you.

Thank you. One moment for our next question. Question comes from the line of DJ Hines with Canaccord Genuity. The line is now open.

Hey, good evening, guys. Nice job on the margins in the quarter. Good work controlling what you can. Maybe you could double click on some of the comments around kind of increasing headwinds and pockets of the payment business. Just a little bit more specifically, like what are you seeing and how are you thinking this kind of plays out as we look over the next couple of quarters?

Sure. Matt?

Yeah, I'll start. I think the first part of your question was, you know, a little more detail on where we're seeing that softness. You know, specifically in transactions from merchants in discrete areas of wellness, we have seen a little bit of softness in late Q3 and early Q4, and along with some ticket size declines in certain areas of home and field services that we've, again, observed in late Q3 and early Q4. But, you know, overall, again, I do believe we are – not I do believe, I know we are quite excited about the payments opportunity. When you look at our top four solutions, TPV growth in our top four payment solutions year over year is 28%. So as Eric mentioned in his talk track earlier on, you know, payments is incredibly important. There's large growth opportunity. We're executing on a lot of that opportunity. And while we see some discrete areas of softness, certainly we're quite heartened about the opportunity in front of us.

yeah okay makes sense uh and then mark maybe a follow-up for you i'm just wondering as i look at the q4 guide um any changes in kind of your philosophy there i mean do you feel like you're taking a more conservative cut at q4 than you may have in the past just given some of the uncertainty kind of the below midpoint revenue outcome in q3 um just any any high level thoughts on kind of the setup for guidance for q4 um

But I like to think we're always prudent in the way we set guidance, and that's certainly been the same lens that we put out at this time. You know, clearly this quarter we saw softness, as we alluded to, and some of those things that are not as much in our control and a continuation of some that we've been managing through for the first half of the year. So, D.J., I'd probably kind of leave it at that.

Sure.

Sounds good.

Thank you, guys.

Thank you. One moment for our next question, please. Our next question comes from the line of Brad Reback with Stiefel. Your line is now open.

Oh, great. Thanks. On the take rate increase in the quarter on the payments business, can you give us some more color there?

Yeah. Again, Brad, I think that goes back to a lot of things that we've talked to in prior quarters relative to take rate increase. Obviously, there's the pricing front to the merchant that we have been effectuating change across the course of You know, multiple years, but really pick that up last year. Obviously, there's mixed shift. So, as payment volume moves to higher take rate programs, that does have an impact on the overall take rate that we publish. And then lastly, we continue to be focused on optimizing our relationships with our back end providers. We've made some continued meaningful changes with those providers and the economics that we get through negotiation based on scale. So all of those three things together really have driven, you know, our continued focus on net take rate and our improvement in that metric.

And any risk as you lap those next year that they become a bit of a growth headwind?

Listen, I think, you know, ultimately, you know, there are certain things that we will be able to repeat from an action standpoint and other things that we won't be able to repeat at that same level. Obviously, you know, we know this is a lever from a revenue growth standpoint, and it's one that we're going to continue to pay attention to and pull where we can. Like, it's certain things, like I said, we know we have room to continue to expand that margin and other things, you know, either for the time being, we've hit that as hard as we can, or, again, we just won't be able to repeat that.

And, Brent, one thing to add to that is, as Matt talked about before, when you look at the largest growth within the payment section is coming from some of our top system of action softwares that we're not penetrating more effectively, and you look at that TPV growth, That growth is, you know, almost 30% just for those four, and we think those are going to accelerate into next year. So even if you have some pullback on some of the take rate, the hope and the expectation is we will continue to grow through that, through TPP growth.

And to Eric's point, those actually happen to be some of the larger margin programs, so their growth will help us continue to drive the overall net take rate growth because those programs over in debt.

Excellent. Thanks very much.

Thank you. One moment for our next question. Our next question comes from the line of Bob and Shaw with Deutsche Bank. Your line is now open.

Great. Thanks for taking my questions. Just kind of back to the macro question. It sounds like it's still mostly on the marketing side with kind of lingering into the payments. Kind of what impact at all are you seeing on the core system of action side? Can you just talk about renewal rates there, new logo growth, does it remain healthy, or any changes you're seeing just given the softness in the markets?

Yeah, thank you. Thanks for the question, Robin. I think the, as I think you brought up, you started out right down, right through the path with marketing technology. It's been a lag, you know, we kind of, you know, talked about the growth rate being, you know, just over 1%, which brings down the overall growth there in the business. The one area that we continue to see some, you know, logo slower growth is on the fitness side, which has been several quarters. I'm actually wanting to, you know, really post-COVID has not reached kind of pre-COVID levels. And so that's the one area kind of the system of action that is just been lagging and we're seeing it stabilize lagging, but just not accelerating into, you know, kind of pre-COVID expectations. Isn't that the math?

Yeah. And I think to your point, Eric, outside of the fitness for the fitness sub-vertical, you know, in core, Home services and core health services, surrounding systems of action where we really do have strong products, strong footholds in those sub-verticals. Again, no real change from that perspective. We continue to see strengths in our customer acquisition efforts and strengths, as Eric talked about, in those core payment programs within that space from a cross-sell standpoint.

That's good to hear. And just one follow-up, just on the EverHealth side, I know you're starting to go more to market with a more integrated kind of brand. Can you just inform us of how that's going, how those customer conversations have trended, and any benefits you've seen thus far?

It's going really well. Again, it's definitely a journey. So we have started that journey. I'm not going to say we're midway through or X percentage through, but there's a lot of work to continue that journey. I will say customer receptivity has been incredibly strong. Where we meet them in the market, where we've surveyed them, this is what they're looking for is a unified platform. And so we're excited about getting to that spot. We believe that's going to help us drive more efficient go-to-market motions and greater new customer acquisition, the ability to cross-sell at a greater rate. So very excited to get there. It is a process and a journey to get there. But again, along the way, the validation we're getting from our customers and prospects is really strong.

Good. Thanks for taking my questions.

Thank you. One moment for our next question, please. Our next question comes from Alex Schuyler with Raymond James. Your line is now open.

Great, thank you. I just want to follow up on your answer to that last question. Can you talk about the digital demand-gen effort in particular here through the third quarter, and specifically on the new logo set, how that performance for the digital channels has been relative to kind of the start of the year, either in both in pipeline generation or either in conversion as well? Thanks.

Yeah, you know, I would say relative to the start of the year and how that's gone through the year, obviously you do – you have – ebbs and flows based on different market dynamics. But quarter over quarter, significantly from a demand gen standpoint, we really haven't seen a massive change there. Our LTV, obviously, through our efforts on focusing on the right customers, focusing on expansion of those customers, has continued to improve nicely. CAC has remained where we have expected it to remain. And ultimately, LTV to CAC, again, looking back at the beginning of the year, is in a very, very healthy place. Very, very linear to where it was at the beginning of the year and an area that, you know, again, when we look at the strength of that metric overall vis-a-vis digital demand gen, we have opportunities to continue to invest in some of our core products, some of our core systems of action where those return metrics are really strong.

Okay, that's great, Collar. And then just to follow up, I don't know, Eric or Mark, just on the workforce restructuring efforts from last week, can you just provide some more color on what percentage of the business was impacted? And was this across all lines for the business or any particular department that saw maybe an outsize or less of an impact? Thanks.

Yeah, it was about 7% all in, and it was really kind of across the board.

Okay. Thanks for that.

Thank you. One moment for our next question, please. Our next question comes from the line of Ryan McWilliams with Barclays. Your line is now open.

Hey, thanks for taking the question. This is Pete Newton on for Ryan McWilliams. Pretty pleased to see the continued operating execution of the quarter. I got to ask, what do you see on the SMB front? Has customer demand remained in line with prior quarters, or are you seeing things trend differently?

From the SMB standpoint, as we talked about, our pipelines remain very, you know, similar as Matt talked about from Q1, Q2, Q3, we haven't seen much shift in that. I think the areas that we talked about that we're seeing some softness are really focused on consumer demand, which affects our marketing technology, more lead generation business, our rebates, which are, you know, what our customers are selling or buying HVAC and things of that nature for their customers. And so the consumer demand piece of the puzzle is really the area we're seeing the softness, much less so than the business-to-business core softwares that we're selling to the marketplace.

Okay, that's very helpful. And then just as you mentioned the KickServe acquisition, any updated view on your term M&A from here?

We continue to look at things that we think are going to help the overall ecosystem grow more effectively or provide more value to our customers. We look at a lot of things, as you can imagine, on a daily basis. I think we're going to be very prudent. We have a lot of things going on internally and a lot of opportunity. and utilization of cash on hand, making sure we put those dollars toward the best use, whether that is buying back stock or via M&A, all those are kind of looked at independently based on the best opportunity for the shareholders.

Awesome. Thanks, guys.

Thank you. One moment for our next question, please. Our next question comes from the line of Alexey Gogolov with JP Morgan. Your line is now open.

Hi, thank you. This is Elise Kanner on for Alexey Gogolev. So one of my questions has to do with the payment strategy implemented recently. I was wondering if there was any feedback on the strategy that increased software prices for customers that were not willing to adopt payment functionality and has this prompted any churn or attrition in customers?

Yeah, thanks for the question, Elise. Now, we're obviously continuing to effectuate that strategy. You know, churn has actually been below expectations from the implementation of that mandate. So, certainly quite happy it's early going, but the strategy has been successful and obviously one we will consider in the appropriate places looking at repeating as well.

Great, thank you. And then a quick follow-up. So, after talking about the EverHealth consolidation, I was wondering what potential consolidation and other verticals could look like in the quarters or years to come.

Yeah, I mean, we look at that as certainly an opportunity. You know, all of our verticals look a little bit different in terms of the core ITPs that we're going after, our solution set. One won't look exactly identical to the other, but this EverHealth experience is certainly a roadmap for us. We are ahead of that roadmap, thinking about how it might look different in other verticals, EverHealth, for example, EverWell as well. As you know, or as you may know, we've done some of this in some of our horizontals as well, so EverConnect was a consolidation that came together from a discrete set of solutions that we acquired historically. So, we've been down the path of consolidation, actually, for some time. We're certainly in the midst of EverHealth right now. EverConnect has been in our rearview mirror. And we're using all of those learnings to think about what that consolidation will continue to look like, really, for the end customer, because it's all about, you know, creating a customer-centric journey for that end customer. And we believe that opportunity exists in verticals we haven't been as active in yet.

Got it. Thank you so much.

Thank you. As a reminder, to ask a question, you'll need to press star 1-1 and wait for your name to be announced. Our next question comes from the line of Mason Marion with Jefferies. Your line is now open.

Hi. Thanks for taking the question. So you've done a nice job controlling operating expenses, including the announced risk. If we think about the MACRA, if it continues to soften, can you help frame for us how you're thinking about margin progression going forward? Should we expect more modest expansion in 24 if the macro doesn't improve, or are there other further initiatives that you could take as a management team?

I'll start. I'll let Mark go in. Look, thank you very much for the question, by the way, Jason. I think we will, as an organization, have kind of showed this over the last several years as a public company. We're obviously continually focused on how we can expand the top of the funnel and grow more effectively. But in addition to that, increasing our margins is incredibly important to us. You know, we gave kind of long-term goals of that 25 to 30% range, and EBITDA margins were, you know, 24% today in terms of Q3, and we'll end slightly lower than that for the year. And our expectation is that we'll continue to march down that path to continue to expand those margins in 24 and 25. And so, it's both combined with, you know, slightly slower growth rate than we want, but even as growth rates improve, our expectation is we have a lot of leverage within the business as we continue to scale to drive even wider operating margins in the organization.

Yeah, I mean, obviously, we'll be talking about next year's guidance next quarter. But to Eric's point, there are a number of initiatives which we think will have continuing positive impact on margin expansion really in the short to mid and even long term. Obviously, one of those continues to be investments in the higher margin areas of our business like payments. which we will continue to focus on, as well as just continuing to drive efficiency in the operation through, you know, a variety of initiatives, not the least of which you're seeing in things like our EverHealth brand and product consolidation, which naturally drives cost the right direction and efficiency of spend and things like that. So, I think, you know, we expect, as Eric said, as we had talked about really from the beginning, from the time it went public, continuing expansion of margins for the short, mid, and long term. Understood.

Thank you.

Thank you. One moment for our next question, please. Our next question comes from the line of Wayne Trinh with Piper Sandler. Your line is now open.

Hi, this is Wayne Trinh for Clark Jefferies. I noticed there are 11,000 added enabled customers, and of those, 7,000 are using more than one solution. so about 63% over the 50% or so last year. Is that a function of the payments mandate, and should we expect this to tick up over time?

Thanks for the question, Wayne. I appreciate it. I think the payments mandate is obviously just one tactic when we think about the overall strategy of payment enablement. Obviously, when we think about cross-sell payments is where we are furthest along. And there are a variety of strategies and tactics in play to continue to drive payment enablement and all the down funnel metrics in the payments funnel. So again, mandate one, but we're obviously thinking about a lot of other things, product expansion, et cetera, to drive increased payment take. And then there's obviously cross-sell of other products, whether it be in customer experience solutions, marketing technology. We have the opportunity to continue to grow the expansion of utilization of more than one product. I think you've seen nice progress as we've split those metrics into two, tried to give you a little bit more transparency, but a lot of opportunity for us to continue to grow both the payments cross-sell as well as other cross-sells.

Got it. That makes sense. And then you guys mentioned price increases last quarter. Do you anticipate maintaining that into 2024 and maybe continuing it? Thank you.

So price increases will be a continuing phenomenon. I mean, we always look at those and think a lot about price to value, as we've mentioned before. I think this year we became more aggressive than we were the prior year in terms of rolling out price increases across the continuum of our solutions. And we'll continue to do that really for the foreseeable future. It's obviously a great lever. And as we continue to invest in our products and continue to find new ways to create value for our customers, I think it's a great opportunity. Got it. Thank you.

Thank you. One moment for our next question, please. Our next question comes from the line of Pat Walravens with JMP Securities. Your line is now open.

Hi, this is Aaron On. Is there any additional color you can give on the revenue-based customer account growth expectations from KickServe going forward?

KickServe added, you know, you know, minimal customers. It was a very small token acquisition, really focused on providing real technology into the base of customers. We had a non-market solution called Joyce, kind of a, more of a little bit upmarket for SMBs, still SMBs, called Service Fusion. And KickService really sits right in the middle of that. So nominal from a kind of revenue, profitability, and customer standpoint.

that's helpful and then maybe just as a follow-up mark you mentioned direct was about seven percent um when we think about modeling optics going forward which lines should see the most benefit there it's really across the board um you know literally across the board i mean people are are represented through support and success in our cogs line right on through the opex categories got it

Thank you. I'm currently showing no further questions at this time. I'd like to hand the conference back over to Mr. Eric Reamer for closing remarks.

Well, thank you so much. The EverCommerce team continues to work extremely hard to achieve key short and long-term objectives for the company. We remain extremely excited about the opportunities and growth prospects in front of us. Thank you again for joining the call today.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.