EngageSmart, Inc.

Good evening. Thank you for attending today's Engage Smart Q4 2021 earnings call. My name is Selina and I will be your moderator. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star 1 on your telephone keypad. I'll now turn the call over to Josh Schmidt from Engage Smart. Josh?

Thank you and good evening. With me on today's call are Bob Bennett, Chief Executive Officer, and Cassandra Hudson, Chief Financial Officer. Our earnings press release supplemental presentation and associated form 8K can be found at investors.engagesmart.com. Within the supplemental presentation, we are providing a more detailed breakout of our revenue by segment into the following categories, subscription, transaction usage-based fees, and other. During this call, we will be discussing certain forward-looking information. Actual results could differ materially from those contemplated by these forward-looking statements. Please refer to the risk factor section of our quarterly report on Form 10-Q and other SEC filings for more information on the risks regarding these forward-looking statements and risk factors associated with our business. All metrics discussed during this call are non-GAAP unless otherwise noted. A reconciliation of non-GAAP metrics to the nearest GAAP metric can be found in our earnings press release and supplemental presentation, both of which are available on the investor relations section of our website. This call is being webcast live and will be available for replay on our website at investors.engagesmart.com. I would now like to turn the call over to our CEO, Bob Bennett.

Thank you, Josh. Welcome, everyone, and thank you for joining us. We are excited to host our fourth quarter and fiscal 2021 earnings call on the heels of a strong quarter and an outstanding year. Delivering on our mission of simplifying customer and client engagement can be directly attributed to our customers, our partners, and our employees. And I remain humbled by their contributions and continued commitment to engage smart success. Before digging deeper into the details of our performance, I'd like to share with you a few of the highlights that we are really proud of. We've seen tremendous customer growth of 39% year-over-year in our SMV segment, where we now serve over 79,000 customers. Our strong organic customer growth is primarily driven by word of mouth and the strength of our end-to-end product suite. For example, one of our dietician group customers was able to eliminate four separate vendor solutions in favor of simple practice. The improved efficiency enabled each dietician in the practice to see an additional patient each day. At the same time, we are driving continued innovation across our solution. For example, we added mobile app payment features and introduced integrated diagnosing code, which simplifies case management and documentation while driving cost savings. We are serving more verticals today than ever before and are focusing on several high-growth areas. We plan to further invest in these verticals and drive customization of features for a fit that becomes unparalleled in the market. And in our enterprise segment, we are experiencing great traction as we serve over 3,100 customers across our three solutions. We are seeing strong organic growth driven by product innovation, partnerships, and our focus on having a leading value proposition. This includes e-payments and other options to help customers get paid faster, easier, and without paper. For InvoiceCloud, the largest revenue contributor in the enterprise segment, we provide multiple payment alternatives for all our billers, including PayPal, Venmo, and others, in a space where the market is still largely running on checks. We are excited that our progress has been recognized with a shortlisting of InvoiceCloud by the Cloud Award in the category of Best Cloud Payment finance, or billing solution. In our donor drive solution, we are honored to support fantastic charities such as Extra Life, a one-of-a-kind 24-hour gaming marathon benefiting Children's Miracle Network hospitals. We are helping them raise huge amounts of money through the advanced social features found in our technology. We helped Extra Life raise over $3 million in donations in a single weekend. Stories like these get us excited to be part of EngageSmart. If you recall, we founded EngageSmart because activities like paying bills, scheduling appointments, onboarding new patients, and client communication shouldn't be that hard. We've come a long way. Today we are driving digital adoption in a $28 billion market. customers are increasingly adopting our offering to drive digital adoption and self-service as they simplify engagement with their clients. Why? Because EngageSmart solutions help improve their businesses, lower operating expenses, and reduce wasted time. Turning to financial headlines for the fourth quarter and full year, EngageSmart delivered another quarter of record revenue performance. Total revenue in the quarter increased by 37% year-over-year to $61.6 million, driven by strong revenue growth of 55% in our SMB segment and 23% in our enterprise segment. For the full year 2021, total revenue was $216.3 million, an increase of 48% from the prior year. In the SMB segment, we delivered incredible annual year-over-year growth of 74%, and in the enterprise segment, annual revenue grew 28%. Cassandra will review our financials in more detail later, but first let me give you a high-level update on our progress and execution in our SMB and enterprise segments. SimplePractice now serves 10 wellness vertical markets, including mental health, speech-language pathology, occupational therapy, nutrition, chiropractic, and physical therapy, among others. While our roots are in mental health, our newer markets are high-growth engines for our SMB segment, and we intend to increase our investment in product and marketing to drive growth in these markets in 2022 and beyond. Practitioners across these wellness markets are attracted to SimplePractice because it offers an integrated solution for business management, simplifying tasks like scheduling appointments, documenting cases, deploying telehealth, billing and payments, collections, and insurance claims management. This is a high-growth space, and COVID accelerated its growth. Patient visits continue to grow as the pandemic begins to wane. We believe the tremendous SMB customer growth we experienced is a result of increased technology adoption that was catalyzed by the pandemic and has now become a secular shift in behavior. Now turning to our enterprise segments. Our enterprise business brings together vertical-specific engagement capabilities with a modern digital commerce experience. We have more than 3,100 customers across government, utilities, healthcare, financial services, corporate, and nonprofit giving, all using our Invoice Cloud, HealthPay24, and DonorDrive solutions. We saw excellent momentum in the fourth quarter and the full year, driven by strength in customer win, go live, and the continued adoption of our digital solutions. During the fourth quarter, we saw strong new customer acquisition, fueled by our growing network of alliance partners in our core verticals. One example of the traction we're seeing with our alliance partners is InvoiceCloud's partnership with Harris Utilities Group. InvoiceCloud is the largest payments partner for Harris Utilities Group. And that partnership continues to expand with the launch of the Silver Blaze Customer Engagement Portal solution by Harris. Hundreds of mutual customers benefit from our Harris partnership, including the city of Arlington, Texas, who has been working on driving paperless billing and online payment adoption. The city of Arlington, since working with us, has already realized an estimated 60% decrease in payment-related calls and $30,000 in annual savings and shrinking costs alone. Advantages such as these underscore the great value that our enterprise product and leadership teams are bringing to the market. Speaking of leadership, we're particularly excited about the new addition of Kevin O'Brien, who will be leading this business as President of Enterprise to build upon our clear, steady success in this space. Kevin comes to us from PTC and brings an excellent track record of leadership in product and go-to-market that will be valuable to our enterprise solution. Looking forward, the market for customer engagement and online bill payment software remains vast, and organizations are becoming increasingly aware that driving digital self-service and providing customers with multiple ways to pay has been proven to reduce late or lost payments and to increase customer satisfaction overall. With that, I'll turn the call over to our CFO, Cassandra Hudson. Cassandra?

Thank you, Bob. I appreciate everyone joining us today for our Q4 and full year 2021 earnings call. We delivered excellent Q4 results, which well exceeded the guidance we provided on our last earnings call for revenue and adjusted EBITDA. Total revenue for Q4 was $61.6 million, representing an increase of 37% year-over-year. The two key metrics driving our strong revenue results are total customer count and transactions processed. As of the end of Q4 2021, our total customer count increased by 23,000 to 83,000 total customers, which grew 37% and was mainly as a result of new customers acquired within our SMB segment. Similarly, we saw 41% growth in transactions processed by our solutions year over year, with 31.2 million transactions in Q4 2021 compared to 22.1 million in Q4 2020. We also saw continued strength in our net revenue retention rate, which was 119% for 2021, driven by our SMB customers continuing to add licenses for additional practitioners and increased utilization of our payment solutions. In addition, our net revenue retention rate is fueled by growth in digital payment adoption for existing customers within the enterprise segment. Our SMB segment continues to perform exceptionally well, with fourth quarter revenue coming in at $31.1 million, representing 55% year-over-year growth. Subscription revenue of $21.2 million grew 48%, driven by continued growth in new customer ads and add-on licenses for additional practitioners. Transaction and usage-based revenue of $9.5 million grew 68%, as our customers continue to process more transactions on our platform. Our enterprise segment also delivered strong results with reported revenue of $30.6 million, representing 23% year-over-year growth. Our enterprise revenue growth was impacted by a one-time hardware sale of $700,000 that occurred in Q4 2020, associated with the migration of customers from legacy on-prem solutions to our HealthPay24 SaaS platform. The vast majority of the revenue in our enterprise segment is derived from transaction and usage-based fees, which grew 28% in Q4 2021. To provide further color on the top line and address the market interest in COVID and our quarterly growth compares, I want to share the following as well as outline growth drivers that we see for 2022. For EngageSmart, COVID accelerated our top line growth rate in 2020 across both segments of our business. With respect to SMB, we were in a great position to serve the immediate increase in demand that we saw from mental health practitioners at the outset of the pandemic. We had elevated levels of new customer ads in Q2 and Q3 of 2020 as practitioners quickly added digital capabilities and solutions in a mostly virtual world. In addition, we saw higher revenue from existing customers as they added practitioners to their practices and processed more payments through us.

We believe coming out of COVID, our SMB segment will continue to benefit from strong secular tailwinds in digitization and technology adoption.

For enterprise, the need for contactless payments drove an improvement in the rate of digital payment adoption across our Invoice Cloud customer base, accelerating growth from existing customers throughout 2020. Now that things have normalized, we expect more consistent top-line growth rates in 2022 as we move on from COVID comparison. In terms of secular growth drivers for our business, the tailwinds remain highly attractive. In SMB, the wellness markets we serve today are large and relatively untapped. We remain confident that SimplePractice tailwinds will continue to benefit from high demand for digital transformation within our target market, low competition, strong reception for our SimplePractice offering, and a high LTV to CAC ratio that can be dialed into investments to drive growth. Our COVID silver lining is that we have a larger install base for SimplePractice that has a pattern of adding license subscriptions and payment transaction volumes as their businesses grow. It also means a larger base of customers who provide word-of-mouth referrals, which is a major source to feed our top-of-funnel trials. Another growth opportunity in our simple practice business is the continued build-out and innovation of our product suite as we further tailor it to suit the nine new practice areas we now address. As Bob illustrated with his dietician example, we are in a position to advance our offerings and further innovate on new features to serve distinct vertical needs. This should positively impact top-of-funnel activities. Finally, we are rolling out new pricing and packaging, including an entry-level option that we believe should help attract more practitioners to our solution. We have incorporated our telehealth offering into the higher tiered packages to better align with the needs of our customers. For enterprise, new customer go-lives will continue to be a core driver of our growth as we expect a meaningful portion of our 22 growth to come from billers going live within the year, as well as the full year impact of customers that went live in 2021. Transaction growth with our existing billers driven by increased digital payment adoption will also continue to contribute to our growth in 2022. Now moving on to margins. Our adjusted growth margin for Q4 2021 decreased to 78% from 79% in Q4 of 2020, driven by the migration to a new improved telehealth backend provider in early 2021 and additional licensing costs incurred in Q4 2021, both for our SMB segments. Sales and marketing expenses increased $7.8 million to $21.5 million, driven by our continued investment for growth in new customer acquisition, with increased investment in our S&P segment as we target new channels and broaden our brand to reach customers within our 10 wellness markets. R&D expenses increased $3.6 million to $9.3 million, driven by our investment in engineering headcount focused on new product development within our SMB segment, as well as enhancing our existing solutions to maintain product leadership. G&A costs increased $2.9 million to $11.5 million due to absorbing public company operating costs following our initial public offering in September. Adjusted EBITDA was $6.3 million for the quarter, representing 10.2% margin compared to $7.8 million or 17.4% margin in the fourth quarter of 2020.

As a reminder, we experienced a meaningful improvement in profitability Moving to the balance sheet.

As of December 31st, 2021, we had $254.3 million in cash and cash equivalents. During the fourth quarter, our change in cash was mainly related to free cash flow of $2.7 million, offset by the payment of $2.4 million of costs associated with our initial public offering. With that, I'll move on to our outlook for the first quarter and full year of 2022. $61 million to $62.2 million.

five million which implies thirty percent growth year-over-year at the mid point four million and six point two million which represents an adjusted EBITDA margin of nine point four percent at the midpoint three hundred and eighty million and two hundred and eighty five million or revenue growth of approximately 31 percent for adjusted EBITDA for the full year we expect to be in the range of

of $29 million and $31 million, which represents an adjusted EBITDA margin of roughly 10.6% as we continue to invest to drive growth and maintain product leadership.

In our enterprise segment, due to the timing of transactions in Q4 associated with tax billing within Invoice Cloud and the concentration of large fundraising events for donor drives. We expect that sales and marketing spend will increase meaningfully as a percentage of revenue as we invest within SMB to drive top of funnel, continue building the simple practice brand across all the wellness markets we serve, and continue to add sales capacity within the enterprise segment.

We expect R&D spend will increase as a percentage of revenue driven by our investment in innovation to maintain product leadership. We do after fully absorbing public company operating costs in the second half of 2022, and we expect depreciation to in our current markets and our track record of success.

We continue to target top line growth rates. or higher comprised of growth margins within the 80% to 82% expenses of 25% to 30%, which will vary based on overall growth and maintaining overall product leadership. And G&A in the 8% to 10% range, as we've realized back office efficiency Thank you, Cassandra.

In summary,

We are excited about the record results we delivered in our first year as a public company, including a strong finish in Q4. Our solutions have high adoption rates rooted in excellent customer affinity, as evidenced by customer count, trial conversion, net revenue retention, and third-party awards. EngageMart's success will continue to be driven by three simple factors. First, our proven customer-focused playbook, driven by A players. Companies are simply groups of people organized around a common purpose. We are proud to have incredible talent across the entire organization. Second, product leadership as measured by adoption. Customers don't want to regularly make system changes. They want to work with someone who sets the bar and maintains product leadership as judged by adoption. A large market and runway. We are still in very early innings and have captured less than 1% of market share, and we have the best staff solutions in our verticals. We continue to be excited about the future. We are focused on delighting our customers, growing our business, and creating shareholder value. We appreciate you all joining us on this call. Thank you very much.

If you would like to ask a question, if for any reason you would like to remove that question, please press star followed by two.

Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question.

We will pause here briefly as questions. The first question comes from Robin Shaw with Deutsche Bank. Great.

Thanks for taking the time. My question, and congrats on a strong end to 2020. Cassandra, Cassandra, just in terms of your fiscal 2020, how do you think about the performance of SMB versus enterprise going forward?

And in particular, how should we think about the recent price changes that simple practice kind of flows through the model? I mean, by our math, it will be appreciated.

Great. Thanks, Bhavin, and good to connect with you again. So in terms of the guide for 2022, you know, we're not talking about total revenue guidance.

For both Q1 and the full year 2022 implies, you know, 30% growth range. You know, and that is what we're doing from both segments. continued strength in terms of revenue growth from smd well above the fleet average of our total revenue growth and then kind of consistent growth rates from the enterprise segment with uh with what we've been seeing in the back half of 2021. um and then in terms of

Our rolled-out pricing to new customers and our transitioning pricing for existing customers over the first half of this year, for us, those changes, I think, put us in a good position to serve and drive better customer acquisition on the lower end with the introduction to an entry-level platform. entry-level offering that we didn't have previously. And then we've also incorporated telehealth into the offering on the higher price tier. So, you know, for us in terms of revenue contribution for existing customers, we see an impact of about 5% to 10% in terms of increased ARPU expansion overall. That's our current expectation. But more to come, like I said, early days.

That's very helpful and I appreciate the additional color. Just a quick follow-up, maybe for Bob, just as we think about the nine additional verticals in simple practice, where do you think are the low-hanging fruit of this? Which verticals do you see yourself having the most success over the next coming quarter to two years, and how much will kind of having the starter package really help catalyze adoption there? Thanks, Bob, and that's a good question. Yeah, so I think that, you know, we're still seeing very strong inroads in mental health, of course, but the new professions of, you know, speech-language pathology, occupational therapy, CAP-TERRA recently listed us as a high score for massage therapy as well. Those are well underway, and we're seeing, you know, conversion rates in the mid to high 30s there right now and very strong retention similar to our mental health. So I think that those three will continue to be high chargers for us, but we are continuing to push forward in others like physical therapy and nutrition, dieticians, so acupuncture. I'm sorry, chiropractors. So we're in 10. We're going to get them all. We're on our way.

Perfect. Well, congrats again. Thank you for taking my questions. Thanks. You bet.

Thank you, Bobbin. The next question comes from John Davis with Raymond James. Please proceed.

Good afternoon, guys. Quickly, Bob, start. You have $250 million or so on the cash on the balance sheet. Valuations across everywhere seem to be coming down. So I want to ask two questions on capital allocation. One is, what's at the top of the list? Have you seen kind of the bid-ask spread normalize? And then two, thoughts on kind of donor drive and help pay 24, do those assets fit strategically? Are there assets you could buy to accelerate the growth there, just given kind of the relatively immaterial part of revenue? Just thoughts there would be helpful.

Hey, John. Nice to hear from you. So, yeah, the bid and asks, you know, I'm not sure that there's been such a compression or normalization yet between bids and asks, but we're certainly in the market now with our Alan Canzano ad as the EDP of Cork Dev and Strategy. So, we're We're looking around mapping and evaluating several different things, some of which could be impactful in our emerging businesses like HealthPay24, DonorDrive. Too early to say where we go there yet, but we're active and, yeah, we know we've got the capital and the currency to be able to be active. We plan to be.

Okay, and then, Cassandra, just as we – two things I want to touch on in regards to kind of the guide, one of the 22 and one of the longer-term guides. So on 22, if I just look at, you know, the 1Q guide and kind of fill in the rest of the year, anything to call out from a cadence or seasonality perspective, I mean, it appears that you kind of need high single-digit – growth sequentially throughout the year to kind of get to the midpoint of the guide. So just be curious there, and it calls out kind of the latter part of the year. And then bigger picture, you know, 80% to 82%. um gross margins 30 plus percent either about margins not trying to penny down like how do we think more on the gross margin size it's something we can see you know 50 to 100 basis points a year and then how do you think about letting kind of some of the top line upside slowing down uh to the bottom line or either dot if if and when that would happen in 22.

Sure. Thanks, John. Good to hear from you. So, you know, I guess first on the seasonality question, you know, the SMB business is pretty smooth from a sequential perspective. You know, where we do have a bit of seasonality is more on the enterprise side. So to the point of your question, Q4 is a pretty big quarter for us within enterprise for revenue. There's a billing with an invoice cloud that occurs in that period and also a concentration of events within donor drives so you know we do see a sequential step down actually between q4 and q1 as a result of that seasonality otherwise it is pretty pretty stable and smooth from a total revenue perspective And then on the long-term side, first on gross margins, I think it will be a couple years out here before we see that level of expansion. We're pretty well optimized today on the margin. I think where you'll see the upside coming from is Higher price points, I think, for us in the future. And then further optimization on the customer support delivery side. Those are kind of our two big levers to drive the margin expansion. And then EBITDA, I would say, in terms of achieving that 30% target is a little bit longer out and really depends on the opportunities we see. Right now, we have huge opportunities to drive top-line growth. That's where we're focused. You know, to the extent that that changes, we'll obviously think a little bit differently about how quickly we get to that target EBITDA margin.

Okay, just quickly as a follow-up, if we were to see upside of the top line, you guys anticipate spending that, kind of holding the EBITDA guide, or should we kind of expect that you would see some higher EBITDA if we were to get top line upside this year?

Yeah, well, it will largely be reinvesting for growth this year in those two main areas that I mentioned on the call. So, you know, reinvesting in terms of marketing predominantly on the SMB side and then kind of continuing to invest in our product roadmap.

Okay. Very helpful. Thanks.

Thank you. Thank you, Sterling. The next question. comes from Bob Napoli with William Blair. Please proceed.

Thank you. Good afternoon, Bob and Cassandra. Nice job on the quarter. Really good to see you. Thanks, Bob. In the SMB segment, what percentage today, can you remind me what percentage or remind us what percentage is mental health? And as you look out over the next five to ten years, if you would, I guess, or three to five maybe, what do you think the other verticals organically would, you know, what is the opportunity, what would you expect that mix to look like over time?

All right. Sure, thanks for the question. So, you know, today the SMB business with simple practice is predominantly mental health. So think north of 90% mental health and then less than 10% for the additional specialties. So the additional specialties are nascent today, but that's where we're seeing pretty fast growth and expect to continue to drive faster growth there over the next several years. So we'll see that mixed shift up. I couldn't tell you with any precision today on where that would get to, but certainly we'll start to see additional specialties pick up more share. I do think it will be concentrated in the verticals that we know are getting strong traction today, so speech-language pathology, occupational therapists, massage therapy, and then also physical therapy.

Thank you. And you are ramping up marketing in that part of the business. Can you give us some color on kind of the trends in LTV to CAC or any different trends in the conversion rates from free to use to paying customers? And do those LTVs and conversion rates vary much by vertical?

Sure. So, you know, on an LTV to CAC basis, certainly we're highly efficient in mental health for SMBs. So, you know, we do see higher CACs for the additional verticals, but we're looking to, we'll look to optimize those over the next several years. For 2022, you know, I think we're kind of deliberately investing for growth and expect to take down our lpd to cac ratios a little bit as a result but still in a highly you know still a highly efficient model you know think higher than 10x lpd to cac ratios less than 12 months on payback so makes perfect sense to do um you know i think another thing that we're doing in the year is really um investing heavily in broadening the brand so that we're speaking more holistically beyond mental health to all of these different wellness verticals. So those are kind of the two main areas of focus from a marketing perspective.

And then just lastly, any update on Monarch? The monetization of Monarch is, what is the strategy behind Monarch? Does that have a chance to become a material part of the business? So we're still in early stages. It's becoming more and more evident that it's a really critical piece of the puzzle for us to drive organic growth really of new trials right now in mental health, but ultimately across all of our specialties for clinicians. No plans to, you know, create material revenue from it in 2022, Bob, but we do have some interesting, you know, enterprise pilots going on that are proving out to be very effective for us to drive, you know, appointments, good solid traction. It's going to be a great long-term play for us. Great. Thank you. Thanks, Bob. Thanks, Cassandra. Appreciate it.

Thank you.

Thank you, Bob. The next question comes from Scott Berg with Needham & Company. Please proceed.

Hi, everyone. Congrats on the great quarter and thanks for taking my questions. I have two. Let's start with the simple practice business. I saw the change in pricing. From what you've seen early so far from customers, how should we think about the acquisition or kind of cadence around pricing going forward? Do you see the new pricing really as an opportunity just to capture maybe some customers on the low end that previously maybe didn't attach to the platform, or maybe some of your customers that were likely to buy anyways may take a lower price point but then be more apt to kind of get upsold on the higher price points as possible? as their life with the company goes forward.

Sure. Hi, Scott. Thanks for the question. So certainly still early days on the pricing change for simple practice. Motivation there really was around having the starter packet to address customers who are, sorry, practitioners who are earlier in their life cycle. So really capturing a segment of the market that we're not really getting today. And then also just kind of realigning the value of our that have kind of been sold in add-on fashion up until now to the needs of our customers. So we've woven telehealth into the higher-priced offerings. You know, I don't think you'll see us, you know, we're not going to be programmatic about pricing. It really will be in line with, you know, features and rollout of future features to our customers, so not something that, you know, you'll expect from us every year or anything like that.

Kind of helpful. And then my follow-up is on the enterprise business. Looks like, or I guess transactions in general, price transaction volume was up 41% year over year, but revenues were up roughly 36%, if our math is correct there. How can we think about pricing around your payment services there? Are they pretty stable at this point? Or should we maybe expect some further changes, whether that's up or down over the course of the next 12 months? Thank you.

Yeah, pricing in the enterprise segment has been very stable. You know, I wouldn't expect anything in the way of changes, at least as it relates to 2022.

Great. That's all we have. Thank you.

Thank you. Thank you, Scott. The next question comes from Ashwin Shrivakar with Citigroup. Please proceed.

Hi, Cassandra. Good results and outlook and appreciate all the detail. Thank you. So I guess the first question I have is if you could provide some, you know, some idea of the baseline, right, when you have practitioners come in today. My understanding is most of them go into what used to be known as pro and is now plus. Is that still the case that you're seeing, and is there a revenue split you could provide between solo versus group? And I guess let me start there. Any sort of metrics or granularity that helps us form a baseline of what the situation is today, and then we can talk about the pricing, I guess.

Sure. It's early in the pricing rollout, so a bit tough for us to say what the actual mix between all of the product fencing ultimately will be. What I will tell you is we've seen really strong utilization of our higher priced offerings across our existing customer base today. So, you know, you're talking 79,000 customers. The overwhelming majority of them were using our higher-priced offering before we rolled out these new offerings. So our expectation is that, you know, based on the features in each one of those packages, that we'll skew more heavily to the two higher-priced offerings and that on the starter pack, we'll be picking up clinicians that we hadn't otherwise been seeing who are much earlier in their journey and don't necessarily need or, you know, aren't planning on using the fully featured option right away, but that ultimately they'll upgrade into that. In terms of solo versus group, you know, again, pretty stable trends there. We have 1.6 clinicians on average per customer, and we've seen that tick up over, you know, the past two years or so. So pretty stable trends overall, and we've seen strong uptake from groups. which has been great to see.

Got it. And just moving to the enterprise side, I guess there's been a couple of management changes. What should we expect from that? And could you also comment on sort of the pipeline of large accounts that are considering the solutions there now, particularly for invoice cloud? Yeah, thanks for that question. Right, we are super excited about Kevin O'Brien coming in. He's got a great background in go-to-market product and alliance-led go-to-market strategies, both with PTC and with Oracle. At PTC, he managed over $400 million in revenue in the product line that he had. So super excited about that as the new president of our enterprise solutions. And I would say that we are doing really well with some decent-sized accounts. We actually – you may remember that we had a new alliance with Guidewire in the insurance segment that I think we announced in 2021. We have already – we've already closed the largest – financial services deal that we've ever had as a Guidewire partner. So we're off to the races. That gate is now open. So we're really excited about our migration up the enterprise chain, and I think we've got great prospects there. Awesome. Great to hear. Thank you.

Thank you. Thank you, Ashwin. The next question comes from Terry Tillman with Truist. Please proceed.

Yeah, hi, Bob and Cassandra. I'll echo the congratulations. I'm going to keep myself reined in. I'm just going to ask two questions. Actually, one, like almost a two-part, so maybe it's a two-and-a-half question, so I hope that's okay.

I think first I'm going to ask on the enterprise side.

I think you all talked about outbound campaigns.

I'm curious, it's kind of like a same-store sales question.

How much of your customer base is starting to use outbound campaigns, and what kind of lift is that creating in terms of getting more folks to do paperless billing and payments as opposed to maybe just kind of natural expansion or, you know, a citizen or somebody is going to, you know, add another online payment service or et cetera? I'm just curious kind of like what you see from those different angles on how same-store sales grows, and then I had a follow-up. Great to hear your voice, Terry. Yeah, the outbound campaigns are really targeted at delinquent payables, right, or receivables. So they typically, and we use, you know, outbound campaigns are directed through our IVR, Interactive Voice Response System, that makes a phone call and, you know, you may have forgotten, but your bill is late or your payment is late, you know, click one to hear your balance, click two to make a payment. So I think that the lift is, you know, it's meaningful. It's early stages for us because we rolled it out in, you know, sort of the second half of last year. But, you know, I would say it is, you know, incremental, not hugely material, Terry. I don't know if that helps. It definitely helps. Yeah, and just a follow-up question. I know Cassandra was talking earlier about, you know, kind of a conscious decision to probably bring down the LTB to CACC. You know, in 2022, is there some incremental spending, maybe some branding?

One thing I'm curious about, though, you have this proven word of mouth that's amazing in terms of how that drives the customer growth and conversion to paid customers.

But is there any kind of testing and learning of other kind of top-of-funnel go-to-market activities you're thinking about in 2022? Thank you, and congrats again.

Sure. Thanks, Terry, for the question. You know, I think you'll see us still remain, you know, very focused on targeted digital marketing efforts. You know, we certainly spent a fair bit of time in Q4 testing new marketing programs and channels. We'll continue to do some of that today, but I think by and large, you know, we've found a very efficient go-to-market motion for us on the SMB side. So, you know, we're more or less doubling down on that and really investing in the brand and going after our additional specialty markets a little bit more deliberately. But beyond that, nothing terribly new or different from the model we have today.

Thank you, Terry. The next question comes from Jason Kupferberg with Bank of America. Please proceed.

Great. Thanks, guys. I wanted to just start with NRR really strong here in 2021. I think you said 119%. How should we think about that trending in 2022? Do you think you can stay in this kind of triple-digit zone?

Yeah, thanks, Jason. You know, I think we'll see pretty stable trends there. You know, I We still see a lot of opportunity to expand ARPU on the SMB side, so that naturally will keep NRR elevated. Also, with the pricing and packaging change, we're expecting that to have a positive impact on ARPU, so that will certainly play into it a little bit. And then continued pretty stable growth on the adoption side of things for enterprise, so pretty stable with what we saw in 2021.

Right, right. Okay. And just on the margins, how much of a headwind are you expecting in 2022 from having, like, a full year of public company costs? I'm just kind of looking at, you know, year over year, and I know there's going to be some decline, you know, at least at the midpoint, 2022 versus 2021, but I'm assuming some of it is just a function of having a full year of absorbing those costs.

That's exactly right. So we started incurring public company costs in Q4 largely of this past year. So with the full year impact of that, you're looking at an incremental, you know, roughly $7 to $8 million hitting the P&L.

$7 to $8 million incremental year over year in 22? Correct. Okay, great. Thank you, guys.

Thank you. Thank you, Jason. The next question comes from Josh Beck with KeyBank. Please proceed.

Hey, guys. This is Maddie on for Josh. Thanks for taking my question. The first question that I have for you is, you know, clinics opening back up in person, how you're seeing that affect your telehealth and where you see that going in the future. And then my second question is any sort of color around payback trends that you're seeing across the businesses. Thanks.

so uh thanks maddie i'm going to say that the we are really not seeing any material change or deviation in the mix of uh you know new clinicians taking on the product and telehealth and so forth we have sort of be bundled a little bit and we include telehealth in our in our top bundle which has a lot of other things as well so we can't be completely sure that they're taking it for telehealth only but we think that We think that telehealth is a new normal, frankly, going forward for mental health clinicians for sure. It's just they're serving clients all across the country now based on their specialty. So I think that we're pretty solid on telehealth for the future.

And then I think the second part of your question was on payback periods. So, you know, in terms of sales and marketing efficiency, we certainly did increase the level of investment in Q4. So, you know, saw paybacks dip, you know, slightly. You know, and we're expecting them to dip slightly again in 2022 as we invest to drive top-line growth in Q4. particular on the SMB side of the business. So, you know, that's where we're putting our investment. You know, you still see payback periods less than 12 months in the SMB space by far, so that's kind of what we're using as our guide today.

Awesome. Thank you, guys. Thank you.

Thank you, Maddie. We have a follow up from Sterling Audi. Please proceed.

Yeah, thanks, guys. Actually, it's not a follow up. Thanks for squeezing me in for my first question. Just wanted to know on the enterprise side, you talked about, you know, new customers ramping being a big part of 22 growth. Can you talk about what you saw in terms of sales cycles in the enterprise business in the fourth quarter and what the pipeline looks like for 22?

work so from a sales cycle perspective for enterprise you know they vary between three and nine months generally um and then we have uh an implementation cycle kind of somewhere in the six to nine months um pretty stable trends there um i don't know bob anything you'd add no i think that you know we had a you know good quarter for bookings and you know go lives you know we had a really good second half frankly so i think that

no real surprises, kind of a steady cadence. Great. And then one follow up on that enterprise side. Are you seeing your customers do anything to further promote adoption and usage? I would imagine the pandemic obviously was a huge, you know, driver to that adoption. But are there any kind of communication, email programs or other things that you're seeing that are helping drive further adoption, maybe into the base that they just couldn't get during the pandemic? Good question, Sterling. I think that we do provide a lot of guidance to our customers to help them understand opportunities for increasing digital adoption, online payment adoption. As you know, in the invoice cloud side, our billers' perfect world is 100% online payment, preferably through autopay, and 100% paperless. So, you know, we provide a lot of tips that help them get there and, you know, actually work with them to run marketing programs that absolutely drive higher adoption.

Got it. Thank you.

Thanks, Sterling. Thank you, Sterling. We have another follow-up from Bob Nicoli. Please proceed.

Thank you for the follow-up. Just on enterprise as well, I think, Bob, last quarter you had explained enterprise is just dipping their toe into the consumer finance and insurance segment, and you signed a major customer in Guidewire. How large, first of all, is consumer finance and insurance in enterprise, and how big is the opportunity, and do you have a pipeline there? So much stronger pipeline and insurance to take them in reverse order, Bob. But we have a strong pipeline, certainly have a strong pipeline in insurance driven by our alliances, you know, our alliance partners in insurance. And I would say that in consumer finance, we have a handful of consumer finance companies. customers but we have so much pipeline and activity going on in insurance that we're that we're you know much more focused on that because it's happening right now we're delivering live you know it's it's and got a very strong product market that they're out of the gate which we also have in consumer finance in terms of the size of the markets consumer finance is probably the largest vertical that we have. And, you know, so we're early days there. We will get to it. We're already in it, but we will get bigger in it as we move forward. So that's also an opportunity for us to look around and see if there are any inorganic opportunities as well. Thanks. And is there any in consumer finance, is it targeted towards like auto loan repayments or mortgage repayments or any specific sector in consumer finance? Primarily auto loans. I think auto loans and general lending, we're also in discussions with some mortgage finance and so forth, but on the consumer finance side, it's been primarily auto. Great. Thank you. Appreciate it.

Thank you, Mr. Napoli. There are no additional questions registered at this time, so I'll pass the conference to Bob for closing remarks.

Thank you. And thank you for all your questions. It's great to hear your voices again. It has been quite a year. EngageSmart delivered outstanding results in our first year as a public company with 48% annual revenue growth. Momentum across the business drove another quarter of record revenue performance. Standouts are the strong customer growth numbers and exceptional customer retention. Overall, our positioning continues to be compelling as we address a huge market opportunity as product leaders in the markets we're focused on today. Thank you all for joining us. We look forward to speaking with you again at the Bank of America Electronic Payment Symposium on March 21 and on our Q1 call later this spring. Thank you.

That concludes the Engage Smart Q4 2021 earnings call. Thank you for your participation. You may now disconnect your line.