EverCommerce Inc.

Thank you for standing by and welcome to EverCommerce's third quarter 2024 earnings call. My name is Stacey and I will be your operator for today. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. As a reminder, this conference call is being recorded today, Tuesday, November 12th, 2024. I would now like to turn the conference over to Brad Korch, Senior VP and Head Investor Relations at Evercore.

Brad, 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 Ryan Surak, EverCommerce's Chief Financial Officer. Joining them for the Q&A portion of the call is EverCommerce's President, Matt Feierstein, and EverCommerce's Chief Operating Officer, Evan Berlin. This call is being webcast with a presentation that reviews the key financial and operating results for the three months ended September 30th, 2024. 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 Thorough Living Statements, except as required by law. We will also refer to certain non-GAAP financial measures in our comments today. A reconciliation of non-GAAP to GAAP historical measures is provided in both our earnings press release and our earnings call presentation. Before we discuss third quarter results, I would like to once again highlight the presentation of results and KPIs included in the earnings call slides and our prepared comments. As discussed last quarter, we announced the sale of our fitness products. which consisted of four software solutions in early March. The sale of the two North American solutions closed simultaneously with deal signing on March 13th, and the two international solutions closed on July 1st. Our third quarter GAAP results do not include any contributions from the fitness solutions, but GAAP year-over-year comparisons are impacted due to the inclusion of fitness solution revenue in 2023. Performer growth, as defined in our materials and filings, is adjusted to exclude fitness. Operational metrics such as customer count, TPV, and customers enabled for more than one solution that we will discuss today have been adjusted to exclude the fitness solutions on a performer basis for comparability purposes. I will now turn our call over to our CEO, Eric Reamer. Please continue.

Thank you, Brad. On today's call, I will highlight third quarter 2024 results and trends, as well as provide an update on our transformation optimization initiatives before turning the call over to Ryan to dive deeper into our financial performance. Our third quarter reported revenue exceeded the top end of our guidance range. GAAP revenue increased 0.9% year-over-year, and on a pro-form basis, which adjusts for the sale of fitness, revenue increased 4.3% year-over-year. Adjusted EBITDA, $44.5 million, beat the top end of the guidance range, representing a 25.3% margin. Adjusted EBITDA margin expanded 140 basis points year-over-year. Payments revenue, excluding the fitness solutions, grew 6.7% year-over-year. driven by an 8.4% growth in TPV. Finally, we continue to make good progress against our transformation optimization goals, including the hiring of a key leader of EverPro and Vertical, whom I'll introduce in a moment. EverCommerce provides sound solutions to the service SMB economy. We offer tremendous value to our customers by providing solutions tailored to the unique workflows and interactions that various services require. Our 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 solutions are cost-effective, easy to implement, and purpose-built for the service businesses. We provide end-to-end solutions that our more than 690,000 customers need to compete and grow in a marketplace that is rapidly transforming. On a pro forma basis, we ended the quarter with $679.2 million in LTM revenue, representing a 5.1% year-over-year growth. Subscription and transaction revenue grew 8.6% year-over-year on LTM pro forma basis. Also on LTM basis, we generated 24.5% adjusted EBITDA margin, which is approximately 240 basis points of margin expansion year-over-year. Finally, our annualized TPV expanded to over $12.4 billion. a key driver of payments growth and profitability. We continue to place our highest priority internally on transformation and optimization initiatives. Our transformation efforts are intended to optimize long-term growth and profitability, bring decision-making closer to our customer needs, and invest in key go-to-market opportunities. We continue to make progress since we announced these efforts. First, on the transformation front, we are focused on improvements at EverPro vertical through operational changes to organizational structure, including hiring an exceptional seasoned leader and decentralizing functions such as sales, marketing, and product development to be dedicated to each key vertical. To that end, we are announcing the recent hiring of a strong new leader for EverPro, Josh McCarter. Josh brings 25 years of technology experience to EverCommerce, spanning e-commerce, vertical SaaS, consumer marketplaces, and integrated fintech. Josh serves the CEO of MindBody, the leading technology platform for the fitness, wellness, and beauty industries, where he navigated the company through the COVID-19 pandemic and acquired Wellness Unicorn ClassPass in 2021. Josh also currently serves on the board of Compass. The experience Josh brings to founder, CEO, and board member of startup, pre-IPO, and public SaaS companies will be instrumental in our transformation, capitalizing the market opportunities, and ultimately accelerating growth in our EverPro vertical. Our parallel initiative of transformation is optimization. With optimization, we identify and execute discrete cost-saving initiatives that we expect will provide a runway for long-term margin expansion and free cash flow generation. But in the near term, it will allow for funding of key growth initiatives. Over the last three months, we continue to create and execute operational plans to identify saving opportunities. These initiatives range from the consolidation of third-party vendors and contracts, rationalization of our real estate footprint, optimization of our hosting instances, and consolidation of our PPO partners. Accelerating payment adoption is a high priority at EverCommerce. We often talked about our strategy at landing with our core business management software that upsell and cross-selling our existing customers' additional features, services, and products, leading with payments. As you progress along the transformation journey, particularly with the reorganization of EverPro. This cross-sell, up-sell motion will transition over time to one that we sell business management software that includes embedded payments. We believe this will further enhance the value our customers receive from the relationship with EverCommerce, while also driving additional revenue and margin expansion. At the end of the third quarter, approximately 212,000 customers were enabled for more than one solution, reflecting 25% year-over-year growth. As we discussed when we introduced this metric, enabling customers for more than one solution is the first step in the funnel that leads to increased revenue, retention, and ultimately profitability of these customers. Once customers are enabled, the next action for us is to facilitate usage. In the case of payments, this is getting our customers to actively process on our platform. We measure this step in the funnel as utilization. At the end of the third quarter, approximately 88,000 customers were actively utilizing more than one solution. reflecting 13% year-over-year growth. Customers that purchase and utilize more than one solution are naturally some of the more profitable, sickiest customers. As a result, the effect of more customers taking payments or other add-on features and services is higher net revenue retention. Looking back over the trailing 12 months, our annualized net revenue retention, or NRR, for a core software payment solutions was 96%. Similar to last quarter, a driver of reduced NRR continues to be the anniversary of a price increase in two of our high-velocity, lower-RPU solutions and not a measurable change in our customer return dynamics. Year over year, our payments revenue on a pro-forma basis grew 6.7%, accounting for approximately 17% of overall revenue. We reported our payments revenue on a net basis, and as a result, payments revenue contributes approximately 95% gross margin, and as a meaningful contributor to our overall adjusted EBITDA margin. Third quarter estimated annualized total payment volume, or TPV, was approximately $12.4 billion, representing 8.4% year-over-year growth. We continue to invest and actively manage our onboarding programs to accelerate payments adoption, which we believe can accelerate payments revenue growth. Now I'll pass it over to Ryan, who will review our financial results in more detail, as well as provide fourth quarter 2024 guidance.

Thanks, Eric. Total reported revenue in the third quarter was $176.3 million, up 0.9% from the prior year period. Within total reported revenue, subscription and transaction revenue was $137.6 million, up 3.7% from the prior year period, and marketing technology solutions revenue was $34.4 million, down 6.7% from the prior year period. We manage the business for sustainable organic growth and selectively utilize strategic acquisitions or divestitures to augment the trajectory of this growth. As a result, we believe it is important for investors to also evaluate our 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 and divestitures that were completed as of the end of the latest period were closed as of the first day of the prior year period. We believe the pro forma growth rate provides the best insight into the underlying growth dynamics of our business. For Q3 2024, year-over-year pro forma revenue growth was 4.3%, while year-over-year pro forma subscription and transaction revenue growth was 8.3%. The primary difference between actual and pro forma revenue growth rate is attributable to the sale of our fitness solutions. 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. Our marketing technology solutions revenue was below our internal expectations. While we are likely to end the fiscal year with year-over-year declines in this revenue line versus our expectation for approximately flat revenue at the beginning of the year, Outperformance in other high margin areas of the business have made up the difference. As Eric noted, we also exceeded the top end of our adjusted EBITDA guidance range. Third quarter adjusted EBITDA was $44.5 million, representing a 25.3% margin versus 23.9% in Q3 2023, which is 6.5% growth year over year. While revenue mix and, to a lesser extent, cost savings initiatives had a positive impact on margins during the quarter, They were also aided by the timing of certain transformation investments that we now expect to occur in the fourth quarter. Adjusted gross profit was $117 million, representing an adjusted gross margin of 66.4% versus 64.8% in Q3 2023. Adjusted gross profit improved largely as a result of a positive mix shift in the business. As a percentage of revenue, payments and rebate revenue, both of which have 95% plus gross margin profiles, grew compared to the decline in marketing technology, which carries a lower gross margin profile. Now, turning to adjusted operating expenses, which are reconciled in the appendix to this presentation. Overall, adjusted operating expenses modestly increased from 40.9% to 41.1% for the quarter on a year-over-year basis, while improving on an LTM basis from 43.5% to 41.9%, representing our approach to balance the amount and timing of investments made in our solutions. We maintain our focus on improvement in customer satisfaction and acquisition, while also highly focused on cost discipline in the functional support areas. Now, turning to some key liquidity measures, we continue to generate significant free cash flow as we invest to grow our business. Cash flow from operations for the quarter was 27.5 million, as compared to $27.4 million in Q3 2023. Levered free cash flow was $23 million in the quarter, and for the trailing 12-month period, we generated more than $80 million in levered free cash flow. Adjusted unlevered free cash flow was $35.5 million in the quarter and $125.1 million for the last 12 months, representing 13.2% and 15.9% year-over-year growth, respectively. We ended the quarter with $102 million in cash and cash equivalents, and we maintain $190 million of undrawn capacity on our revolver. We have $533.5 million of debt outstanding as of the end of the quarter, which matures in July 2028. Our total net leverage, as calculated for our credit facility, at the end of the quarter was approximately 2.5 times, consistent with our financial policy. During the quarter, we executed another interest rate swap for a notional amount of $125 million at a fixed rate of 3.395%, with an expiration date of October 31, 2027, as we continue to proactively manage our interest rate exposure. Together, with our previous two swaps, we now have $425 million of notional swaps at a weighted average rate of 3.91% for the floating rate component of our interest cost. We continue to view strong free cash flow generation as a key priority for the company. With it, we are able to invest in our growing business while also allowing us to efficiently allocate capital across a spectrum of opportunities, including the outstanding buyback authorization and M&A prospects. In third quarter, we repurchased approximately 1.4 million shares for $14.6 million at an average price of $10.77 per share. Based on the Board's increased authorization that was mentioned last quarter, as of September 30, 2024, we had approximately $39.4 million remaining in our repurchased authorization that runs through year-end 2025. I would now like to finish by discussing our outlook for the fourth quarter. For the fourth quarter of 2024, we expect total revenue of $168 to $172 million, and we expect adjusted EBITDA of $43 to $46 million. Our full-year guidance remains unchanged at the midpoint with the given fourth quarter ranges. As a reminder, please note that the full-year guidance given previously excluded the sole fitness assets. Operator, we are now ready to take the first question.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from Matt Hedberg with RBC. Matt, go ahead with your question.

Great. Thank you very much, guys. Thanks for the time. Two questions for you. Maybe the first one, Eric. it really does seem like the cross-sell opportunity now is significant, especially when you're thinking about higher wallet share. Can you talk about some specific initiatives that the company is doing from a go-to-market or marketing perspective that could yield even better cross-sell optimization as we look forward?

Yeah, thanks, Matt. It's a great question. I'll give a high level. I'll let Matt and Evan kind of take some of the details. One of the things that we are really excited about, and we touched upon this during our last call is something that we call Edge. You know, Edge is a program that we utilized from a previous, one of the solutions we currently own that provides kind of rewards and benefits to some of our customers, specifically in the contracting space. We launched this into one of our solutions, had really, really positive kind of penetration And now we've since launched it into a couple other solutions and we're seeing a significant uptake from that. I'll let Evan talk in more detail about that.

Yeah, Matt, it's a great question. So one thing I'd say just on the execution front, we've really focused on integrated sales motion when we think about core systems of action with integrated payments, with reputation management and edge solution, as Eric said, where we have one team focused on selling that, all of those integrated solutions at the point of sale and We've rolled that out in multiple parts of our business, both in EverPro and in EverHealth, and really started to see quarter on quarter in Q3 significant growth in new payments attached, new customer attached to payments for our new customers. And we'll continue to execute that in this quarter and into 2025. And Edge is a key component to that, as is payments and our reputation management solutions.

That's a great answer. I mean, it actually kind of dovetails into the second question. You sort of, because it really felt like me payments was, or excuse me, Crossrail in general, but payments has always been a key catalyst. And I think, you know, this year is obviously a bit of a transition year from a business perspective. And I guess when we think to 2025, you know, more so on an organic kind of pro forma basis, you know, how would you sort of then rank the most important catalyst for organic reacceleration? Obviously, cross-hull is a big part of that, but is there a way to kind of think about like some, some guardrails on, on 25 kind of organic growth and the potential for reacceleration?

You know, we're, thanks for the question. We're not, we're not giving guidance at this point to 25, but, but I will say that we are all the investments. And a lot of that, we talked about the transformation optimization we've done through 24, we believe sets us up for, um, a reacceleration more towards the back half of 25 and into 26. I think the things, to answer your question specifically, we are still going after massive markets. We have approximately 700,000 customers, and that is a very small portion of the markets we're going after. So it starts with everything we do starts at the top of the funnel. We have to execute more effectively, bringing in new customers in all of our solutions, which, as Evan just touched upon, we've started to see some additional pickup in that. And then secondly, what we've done as integrated our organizations, and we talk about getting more vertical, the sales flow from bringing on the new customer to getting the attach on whether that's payments or other solutions. If we do it upfront on the sale, which we've now integrated the sales process, the chances of that customer taking more than one solution and utilize more than one solution is significantly higher. So you put a lot of effort into that. The third thing I'll say is, You know, we will continue to go back to one of the biggest opportunities as you're looking at A and B is still to penetrate further in the payment opportunity. We have a massive, you know, we see the amount of payments that run through our system through the invoices that are sent out. We're getting a fraction of that wallet share at this point. And so we have spent a lot of time, a lot of energy, a lot of effort reorganizing our go-to-market with payments, reorganizing how we're selling that, and reorganizing the team as a whole to And we're super excited about starting to see those start to pull through. Any other than that?

No, I think you nailed it. To Eric's point, Matt, it starts with our system of action software. They're really good softwares in really strong markets. And nailing our go-to-market all the way through new customer acquisition, further embedding additional solutions, and, again, ensuring that our customers have, you know, everything that they need to continue to grow with us, that is the driver, that has been the driver, and that will be the driver as we go forward in the future to organic growth.

Great, guys. Comprehensive answer. Thanks. Best of luck. Thank you.

Our next question comes from Ryan McWilliams with Barclays. Ryan, go ahead with your question.

Hey, guys. This is Eamon Coggan. I'm for Ryan McWilliams. Thanks for the question. Just curious if there are any changes in the broader S&B purchasing environment that you'd call out in 3Q, and how does linearity look throughout the quarter?

Can you repeat the last question?

Just a question on linearity throughout the quarter. Are there any changes you'd call out?

I'll take the first piece. Really, no changes quarter on quarter. We've talked about you know, continued ASP expansion, which we did a nice job of, new customer acquisition in the quarter. And then from a sales cycle perspective, we continue to see flat to even compress sales cycles in our core solutions. So really pleased with the progress there in Q3. Got it.

And then maybe a question for Ryan. After acting as the new CFO for two months, are there any strategic changes that you might look to make over the next 12 months Or are there any key metrics or changes to guidance philosophy you're thinking of?

No key changes in terms of metrics or things of that nature. Those are things that we really think about as we go into the 2025 budget season and guidance that we would give. With regard to focus areas, it's going to continue to be the areas that we have put time and effort into, the transformation and optimization that Eric mentioned on the front end and in the you know, really the embedded functionality we've referred to previously, cross-sell, up-sell, but it's the embedded functionality that we look to in 2025 that is a key focus just because of the opportunity that presents from the margin profile perspective.

Guys, thanks, guys. Thank you.

Our next question comes from DJ Hines with Conacordia. DJ, go ahead with your question.

Hey, guys. Thanks for taking the question. So the metric that stood out to me, Eric and Matt, in the quarter was the nice growth and enablement of customers with more than one product. Can you just talk about what's driving that, new initiatives there, strategies to keep the momentum going? Any color there would be helpful.

Yeah, I think Evan hit on it in his, you know, when he answered his question up front, that boom. thinking about that integrated sales motion, so the integrated go-to-market motion, not that we didn't do it before, but really doubling down our focus on that sales rep, talking about that system of action software, but in that same go-to-market motion, speaking about those embedded offerings that we have, whether that's payments, whether that's edge, whether that's, as he spoke about, some of our customer experience solution, really ensuring that through that first touch, with that new customer, through that new customer acquisition process, that they get the sense of the full breadth of the offering of what we can do in any of our solutions, whether it be EverHealth, EverPro, EverWell, et cetera. So that integrated sales motion is key, and I think you're starting to see that pull through in the way we sell up front and embed solutions along the way.

Yeah, okay. And then maybe a follow-up on the EverPro side of the business. First, congrats to you guys and Josh for getting him on board with the team. Sounds like a great hire. The question, have the consolidation of the trades that we're seeing in the space, obviously it's largely been private equity led. Is that reaching down into your segment of the market? And if so, is EverCommerce a net winner or loser from that trend?

Thanks, DJ. It's a great question. I think in general, the answer is no. We're playing in the market. We have a lot of smaller contractors, you know, call it, you know, we have a lot of solos, you know, up to, up to maximum 10 trucks, but mostly in that, you know, one to 10 standpoint. And those are not really the, you know, the, in the markets that the PE firms are looking to consolidate. For the most part, those are not the ones that they're consolidating. So we are not utilizing our customers from that perspective. It's a very large market and you can't consolidate, you know, every one of those because there's just a lot of one-offs. In the areas where we have a little bit bigger in some of our softwares like Service Fusion, that's an opportunity for us that we think we benefit. We think we have a really good solution. And when the PE firms do buy those, which has really been nominal to this point in terms of any type of attrition, we think we have a product that provides them value across their portfolios if it makes sense. And so we haven't seen much of it from that perspective. But I think if that starts coming to a higher end of our customers, I think we're well-positioned to take advantage of it. That was good.

Okay. Thank you, guys. Thanks, EJ.

Our next question comes from Alex Sklar with Raymond James. Alex, go ahead with your question.

Great. Thank you. I just want to follow up, either Matt or Evan, probably. Just some of your commentary on top of funnel growth for new customers through the third quarter. Any changes from the first half of the year on that? And then just given some of the organizational changes taking place, how should we think about the potential for you to be kind of more tactical on a solution by solution basis, either in terms of some of your digital marketing efforts or actual rep hiring? Thanks.

Yeah, I think we stated before, I think we've seen a lot of consistency in Q3 from an acquisition standpoint relative to the consistency we've expressed in past calls from a customer acquisition standpoint. The demand environment hasn't changed. We've been able to successfully continue to execute our go-to-market initiatives as we have expected to and in certain cases beyond that. So we were certainly pleased with, you know, go-to-market new customer acquisition activity in Q3. The second part of the question is, Can you ask one more time?

Yeah, just the idea that you've got some more vertical alignment with some of the organizational changes and just being more tactical on funnel growth, either on a solution by solution basis or on a micro vertical basis, just more empowering of the localized leaders.

Yeah, and we look at the work that we've done from a transformation as A, helping us get closer to the customer in those micro verticals, getting more of our functional groups sitting together versus, you know, a matrixed approach where we had you know, a centralized marketing team, but then, you know, the rest of the go-to-market team sitting in the verticals, putting all of those teams together, we feel really strongly about, and we've actually seen that across EverHealth as we've driven operational consolidation or super excited as we're driving operational consolidation in EverPro to reap the executional benefits of getting more of our resources sitting together closer to the customer and actually driving better conversion in our go-to-market processes.

Okay, great. And then I'm not sure who wants to take this next one, maybe you, Ryan, but just in terms of the spend optimization efforts, six or so months in, you talked about the $250 million of third-party costs. Where do you stand today in terms of the visibility on potential savings and any biggest near-term opportunities to call out? Thanks.

Yeah, we've looked at a lot of different areas. We've done a lot of work in You know, the real estate portfolio consolidation, we're also working a lot with kind of vendor consolidation from a procurement perspective. There's a number of key areas that we're looking to. We're not disclosing any particular numbers right now from a savings target perspective. As we get into the 2025 budget process, we may have more visibility to provide. But I would say that we have a very strong inventory of areas that we're working on currently and beginning to execute on those in relatively quick succession.

Alex, I think you can see some of that pull through in some of the margin improvements throughout the year as well we've had this year.

Great. Thank you all. Stand by for our next question. Our next question comes from Aaron Kimson with Citizens JPM.

Great. Thanks for the question. Going off of Alex's question a little bit, What ending would you say the company is in with the ongoing business optimization from kind of a go-to-market perspective driving the top line, as well as from an efficiency perspective on the cost side? Is one piece further along than the other, or do you think about them as one and the same?

Thanks, Aaron. It's a great question. I think we're working on those in parallel paths, essentially. So when you think about the two pieces of the puzzle, we really have broken them up from a Transformation, organize the teams, as Matt says, to get the decision makers close to the customer, bring it on great leadership to run EverPro, as we just talked about, Josh, really as a business unit from that perspective so it could actually make decisions holistically within that EverPro vertical. At the same time, while we're doing that, we're focusing on some of the optimization aspects. categories that, you know, Ryan just discussed. And so, you know, our hope is these things are happening in parallel. We will increase our go-to-market, increase our top line while we're managing our cost structure. I think we put in some of our, you know, we talked about it in the opening that as we go into 25, a lot of those cost savings are going to help us reinvest in the business in the short term to accelerate growth. And so we look at them as they kind of go together because one's going to fuel the other.

Yeah, I would just add to that. I think Ryan said it well. We have a strong inventory of opportunity, and I think that exists both from a transformation and the optimization side. So I think we've, in certain places, started to reap the benefits in both of those areas, but there still exists a strong inventory of opportunity for us to continue to optimize the business on both fronts.

And I would think of them as like multiple parallel paths. We're not waiting on one for another. Like we have the go-to-market activities that are going on from an EverPro and an EverHealth perspective contemporaneously with the work that we're doing both on transformation and optimization. So we have, you know, basically spun up multiple teams all working kind of in concert with one another, but not waiting on any one particular piece.

Thanks for that. And then maybe a follow-up for Ryan, given it's your first call with CFO. What's the single most important metric you think investors should focus on when assessing EverCommerce over the medium terms and long term?

I don't know that there's actually one metric that I could point to specifically. The metrics that we outline really overall in the presentation I think are the ones that we find most important as we run the business from a management perspective. I think the pro forma metrics that we provide on the growth rate point of view are important. We rationalize those obviously for things that we think need to be adjusted on a growth basis. I also think that looking at the performance of the individual revenue line items is quite important. We're seeing very strong results from a subscription and transaction point of view, and I would focus on that really as the core activities and the core solutions from EverPro and EverHealth. Those are very important to us on a long-term basis.

And I would add just one more. The metric that we introduced a few quarters ago, it's talking about the A lot of customers that have been signed up to utilize more than one solution, that is kind of a precursor to our ability to get them utilizing more than one solution. And once that happens, we have a long history of understanding that these customers will spend more and they will be with us longer. So it's a really good kind of prelude to what we believe is going to happen in the future. Thank you, guys.

Thank you. As a reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Our next question comes from Clark Jeffries of Piper Sandler. Clark, go ahead with your question.

Hello. Thank you for taking the question. Eric, you made a couple of references to this. I wanted to ask around this new organizational structure to EverPro. It sounds like changing the structure to make the decision-making closer to the customer needs is really to overcome the biggest obstacle to additional upselling, which is customer awareness. But I was wondering if there's anything else that's top of mind within the new organizational structure. Do you think it lends to R&D working better or sales and marketing working better? Or is it really about you know, finding signal from noise off of, you know, more than 690,000 customers and making sure they're all aware of what you have available as a portfolio?

Thanks, Clark, for the question. You know, it's kind of, you know, all of the above. I think the first thing is, the last thing you said is yes. You know, obviously more focus in one specific area from a leadership standpoint provides, you know, better understanding of what's happening. But we've we feel strongly it's not just the overall signals, it's the things you talked about. So we've actually, historically, we've had a centralized marketing team that has helped all of our verticals and all the solutions, you know, go to market. Within EverPro now, that is a fully focused, vertical focused marketing organization within the department. Similarly with R&D, R&D, although they were kind of at the solution level, it was kind of led from a both individual, the backup up to kind of a central, the R&D resources within EverPro will be EverPro R&D resources and be utilized to the needs of that organization. And so the focus for Josh, his ability to kind of take those resources, put them where the best opportunities are within that EverPro vertical and make sure we're maximizing our investments in R&D. And so it is much more of the kind of former than the latter approach. And we feel very strongly, and this is direction we're taking across your organization.

Perfect. And then just to follow up around NRR, could you maybe remind us about the relative headwind related to some of those pricing changes? Is like on an adjusted basis, has that troughed and stabilized? And then I think also just the context of what that was historically so that when we think about the next year or maybe an environment where there might be better economic growth tailwinds, what would be the general range that you would consider as normal or normal business expansionary kind of rates from that metric? Thank you.

Yeah, I mean, I'll take that one to start. I think taking out the as we have and often speak to NRR without marketing technology solutions, just given the campaign-based nature of them versus the recurring standpoint. You know, we had in previous periods been looking at 99% to 100% net revenue retention in certain quarters, just a little beyond that. As you heard us speak to, and we've spoken to it in past quarters, the anniversary of a really large pricing action that just would not be repeated in two of our lower ARPU solutions that we saw the benefit of from a growth standpoint in 2022 and through the end of 2023. We're watching that from a non-repetitive standpoint where the anniversary of that happened through the end of 2024. We measure NRR and LTM basis, so you actually see the impact over that over a longer period of time. I think we're actually – we are starting to see that rise again, but that is the core driver of that reduction from the 99 to 100 percent NRR to, you know, that 96, 97 percent that we've reported the last two quarters.

Perfect. Thank you very much.

Our next question comes from Bill McNamara of Evercore ISI. Bill, go ahead with your question.

Hi, this is Bill. I'm for Kirk, and thanks for taking my question. Given interest rate cuts in the political landscape, has your perspective on the M&A environment changed at all since last quarter?

Thanks for the question. It really hasn't changed in several years. We are always going to be looking for opportunities to maximize the value of the organization. And that can mean, you know, from an M&A acquisition or divestiture standpoint. And so, you know, we take all those factors into account as we looked at anything. And if we see something that's going to make sense for us organizationally, again, whether that's from an acquisition or divestiture standpoint, you know, we will proceed accordingly.

Great. And then with the decentralization of sales, marketing, and product development, Do you see this as requiring an increase in headcount or retraining any personnel to hit full productivity?

Yeah, we don't. Certainly, on the second part of your question, not a real issue from a retraining standpoint. And when we look at this from a personnel standpoint, I think there are Just looking on its face, no, not from an incremental standpoint. There may be places where we have to add personnel where they weren't there before. There may be opportunities for personnel to actually consolidate in certain places. So on a net-net basis, we don't look at that from a large required change to headcount.

All right. Thank you for taking my question.

This concludes the question and answer session. I would now like to turn it back to Eric Reamer for closing remarks.

Well, thank you all for participating in the calls today. We are incredibly excited about the progress you're making in both our transformation optimization programs as well as the results we share with you today. I want to once again thank the entire EverCommerce team for their hard work and thank all of you for your support.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.