EngageSmart, Inc.

Good morning. Thank you for attending today's EngageSmart third quarter 2022 earnings call. My name is Shelby, and I'll be your moderator today. I'll now turn the call over to Josh Smith of EngageSmart. Josh?

Thank you. Good morning, and welcome to our Q3 2022 quarterly earnings call. With me on the call today 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. 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 Factors section of our annual report on Form 10K 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, as well as statements regarding why management believes these measures provide useful information, 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 for that introduction, Josh. Good morning, everyone, and thanks for joining us on our call to discuss our quarterly results today. Q3 marked our one-year anniversary of being a public company, and it has certainly been an eventful year. We have repeatedly beaten our revenue and adjusted EBITDA guidance every quarter since our IPO. This is a testament to the strength of our business model and the huge need for our offerings in the ongoing quest to digitize business and consumer engagement in legacy industries. To date, the market dynamic has remained relatively strong despite the macroeconomic flux. This is due to the continued demand for mental health and wellness services and the durability and predictability of services to help consumers ease the payment process for their bills and charitable donations. And our results speak for themselves. EngageSmart delivered record revenue of $78.8 million, representing 42% year-over-year growth, all organic, and adjusted EBITDA of $13.2 million, which is 16.8% of revenue for the quarter. We saw strong demand for our vertically tailored true SaaS solutions fueled by growing customer affinity for digital experiences, rapid adoption of modern technologies and legacy industries, and a continuing shift to electronic payments. Our results demonstrate our customer success using our solutions, our market leading software, and our attractive competitive position. I'd like to thank our teammates for their dedicated efforts. Our momentum and success are driven by their tremendous work and relentless pursuit of customer satisfaction. Before Cassandra dives deeper into the details of our financial performance, I'd like to share some highlights. SMB delivered outstanding growth of 52% year over year. driven by high demand for our simple practice solution and mental health and continued traction in new verticals, such as speech-language pathology and occupational therapy. We now serve over 94,000 customers and more than 154,000 practitioners across our wellness verticals. Turning to our enterprise segment, enterprise achieved 31% year-over-year revenue growth, driven by strong momentum in our verticals. InvoiceCloud, our largest enterprise solution, posted another robust quarter fueled by high digital adoption across all cohorts. We also implemented our solution with several new billers in utilities, insurance, and tax this quarter. To provide more color on our excellent results in the SMB segment, we see high demand for our simple practice solution in our core mental health market, a market that, unfortunately, continues to be characterized by a shortage of professionals coupled with strong demand for care. According to the National Alliance on Mental Illness, three-quarters of Americans say that they are not content with the state of mental health treatment in the United States. Many therapy seekers struggle to find the best provider for them, get in contact with that provider, and successfully book an appointment. SimplePractice, with a network of over 154,000 mental health and wellness practitioners and online scheduling features, is uniquely well positioned to help address these problems and connect care seekers to providers. We are excited about driving change in this industry and the huge opportunity before us. In September, we launched our Simple Practice Enterprise offering. A study from the Hartford shows that from 2020 to 2021, 70% of employers saw an increase in usage of employee assistance programs, called EAPs, due to increased stress and burnouts. Finding mental health practitioners is becoming increasingly difficult and expensive. This not only affects the individual care seeker, but also employers, EAPs, and managed care organizations, abbreviated as MCOs. And we believe a lasting solution must include all parties. We believe we can address inefficiencies around the supply of therapists and quality of care with Simple Practice Enterprise. Through a simple API integration that connects to providers' simple practice accounts, schedulers, either members or care coordinators, can instantly view their availability and request an appointment. This in turn creates an easier, more streamlined referral process for providers and is designed to increase both provider and patient satisfaction. By enabling easy scheduling with simple practice, our goal is to reduce the administrative burden for providers within EAPs or MCOs while also simplifying the patient journey with quicker access to mental health care when they need it most. It is still early days and we don't expect material contributions to revenue in the near future, but we're excited by our progress and the continued interest from employers and health plans. Our simple practice enterprise clients include small, medium, and large EAPs whose combined enrolled members total more than 130 million individuals. We are seeing great traction with early partners as evidenced by an increasing number of bookings and successful appointments. Feedback to date has also been very encouraging. As an example, Kristen Matthews, Chief Clinical Officer for KGA Associates, a New England-based EAP that we signed, agreed that it's critical to make the behavioral health provider referral process as efficient as possible. With Simple Practice Enterprise, they are able to easily access the calendars of their provider panel, who are also Simple Practice customers, and request appointments immediately. We are looking forward to further exploring this opportunity and are excited about the potential contribution to our Simple Practice flywheel as we capture EAP and MCO in-network providers who previously did not use Simple Practice. Now turning to other specialties. These are still a smaller part of our business, but we are encouraged by the strong growth we are seeing, particularly in speech, language pathology, and occupational therapy. We believe we have a compelling product market fit in these specialties because practitioners have similar documentation, compliance, insurance, and billing needs to our mental health customers. Most importantly, our all-in-one approach makes simple practice easy to use for them while quickly and significantly reducing their administrative burden. We continue to invest in our simple practice solution to further simplify administrative tasks and tailor our solution to our specialty. We work closely with our customers to add features and functionality that drive higher value for them. Most recently, we introduced a practice dashboard which gives practitioners an at-a-glance view of the financial health of their practice. This is especially valuable for group practice owners because it improves their ability to track important financial and operational metrics with easy-to-digest visualizations. We are also excited to announce that we have recently hired Ian Knox as Chief Product Officer. Ian brings over 20 years of product leadership experience to SimplePractice. He has worked across Fortune 500 companies and other high-growth businesses and has deep experience with SaaS products, API platforms, and marketplaces. With his leadership, we will continue innovating to better serve our practitioners and their clients. In addition to product innovation, we continue to invest in marketing to drive account growth. Word of mouth referrals are our most efficient marketing channel, particularly as we are rapidly growing our referral base each quarter. At the same time, we are seeing great traction with our investments in digital marketing, including paid SEO. These enable us to broaden our brand awareness beyond existing customers and their network and allow us to reach a larger audience that was previously not aware of simple practice. Now turning to our enterprise segment. Our strong results were driven by customer go-lives fueled by our partner-assisted selling motion and high digital adoption with existing customers. In Q3, we were particularly excited about our momentum and utilities where we saw record digital adoption. Notable customer launches include the city of Springfield, Ohio, and the city of Bowling Green, Ohio, utilities. In a world of rising costs, the ability to increase cost-saving behaviors, like paperless billing and auto-pay enrollments, is critical to customer satisfaction. And that is why billers keep choosing Invoice Cloud. What's so remarkable about our solution is how quickly we achieve results. As an example, the city of Wiley, Texas, saw a 13% decrease in service shutoffs and an 18% decrease in mailed-in checks within the first six months of implementing InvoiceCloud. And our solution drives a higher number of online payments over time. Bonavista Water in Utah, for example, received 75% of bill payments electronically since implementing InvoiceCloud in April 2021. And Truckee Meadows, Nevada, over 12 months, saw a 4x increase in paperless enrollment a 22% increase in auto pay adoption, and a 20% decrease in mail payments. We are also seeing great results in financial services. We signed an alliance with insurance software supplier Intelligence, a fat brain AI company, to provide insurance carriers and their policyholders with a premier billing and payments experience. Additionally, we onboarded nine insurance customers, including the Norfolk and Dedham Group. Across these customers, we developed integrations for four customer information systems. Our rapid growth in the insurance industry demonstrates the importance of a simple and intuitive policyholder and claimant experience that drives customer satisfaction and higher levels of digital adoption. And that's because we partner with our customers to drive results. Ellington Mutual, for example, doubled payment options to allow customers more flexibility when paying bills via digital wallet, text, phone, or PayPal. They achieved a 7X increase in autopay adoption, a 63% increase in paperless enrollment, and a significant decrease in print and mail costs per statement, ultimately improving their bottom line and customer satisfaction. However, the real win for our insurance customers is automatic renewal for policyholders. We are also excited about our success in tax, In Q3, we signed five new county tax clients in four different states. We recently signed an alliance with DevNet, a leading provider of property tax software tailored to meet the needs of local governments across 11 states. We look forward to further broadening our market share in tax as we implement our solution in the coming quarters. In summary, we've had a great third quarter. We continue to drive further traction in the market for products that help save labor costs, increase operational efficiency, and drive customer satisfaction. We delivered strong results across our vertically tailored SaaS solutions, driven by continued customer demand, payer adoption on our platform, and great customer retention. We believe that this is a testament to the strength of our business model and our market leadership position in customer engagement software with integrated payment. With that, I'll hand the call over to our CFO, Cassandra Hudson. Cassandra? Cassandra?