EngageSmart, Inc.

Please stand by. Your program is about to begin. Good morning. Thank you for attending today's Engage Smart fourth quarter and fiscal year 2022 earnings call. My name is Todd, and I'll be your moderator today. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your touchstone phone. You may withdraw yourself from the queue by pressing star and two. Please note, I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Josh Schmidt of EngageSmart. Josh.

Thank you. Good morning and welcome to our fourth quarter and fiscal 2022 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 factor 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.

Thanks, Josh. Good morning, everyone, and thank you for joining us on our fourth quarter and fiscal 2022 earnings call today. Fiscal 2022 was truly a phenomenal year for EngageSmart. we delivered record annual revenue of $303.9 million, representing 41% year-over-year growth, all organic. We also reported record annual adjusted EBITDA of $49.3 million, or 16.2% of revenue for the year. Our excellent results reflect the strength of EngageSmart's business model, which is characterized by our proven customer-led strategy, our deep vertical expertise, our strategic alliances, and our highly motivated team. I'd like to thank our teammates for their strong passion and outstanding work throughout 2022, never wavering from their commitment to excellence for our customers. The fourth quarter and fiscal 2022 were marked by robust demand, favorable secular trends, and continued execution across our business segments as we drove product innovation and extended our market leadership. We entered 2023 from a position of strength. Our dedication to simplifying customer and client engagement is resonating with the market. Our products are gaining market share and we are expanding our footprint across all verticals. Before Cassandra dives deeper into the details of our financial performance and our outlook for 2023, I'd like to share some 2022 highlights. Our SMB segment is uniquely positioned to help address the shortage of mental health professionals and the high demand for care. SMB achieved outstanding revenue growth of 52% in 2022, driven by new customer ads, a favorable mix in subscriptions, the successful pricing and packaging changes that we implemented in Q1 of 2022, and our strength in transactions process. We continue to see strong traction in mental health and are excited about our opportunity to drive growth and expand with group practices in 2023. Our enterprise segment benefits from systemic long-term tailwinds stemming from the need for organizations to digitize their operations. Enterprise delivered annual revenue growth of 29% fueled by customer goal lives and high digital and paperless adoption with existing customers. To provide more color on our strong results in the SMB segment, we continue to experience high demand for our simple practice solution, particularly in our core mental health verticals. The mental health market is characterized by a shortage of professionals, coupled with an increasing demand for care due to a high prevalence of mental health disorders. Simple Practice, designed to simplify administrative functions, addresses those challenges by enabling practitioners to focus on what is most important to them, treating more patients. With a network of over 160,000 mental health and wellness practitioners, Simple Practice helps many therapy seekers take the critical first steps. find the best provider, get in contact with that provider, and successfully book an appointment. And we continuously evolve our offering with new features and functionalities that add value for our customers. Most recently, we launched our new client app, which allows our practitioners to use their smartphone for scheduling, note-taking, messaging, billing, and more. Monarch and Simple Practice Enterprise are extensions of our efforts to make care more accessible and to enable our practitioners to focus on what they do best, treating patients. Both Monarch and Simple Practice Enterprise leverage our extensive customer base of over 160,000 practitioners. Monarch is a consumer-facing website found at meetmonarch.com that enables a digital method for practitioners and patients to connect. It simplifies the process of finding and accepting new patients. It also builds the foundation for Simple Practice Enterprise, our B2B offering for employee assistance programs, EAPs, and managed care organizations, MCOs. Our network of practitioners is particularly valuable to these organizations as they frequently struggle to match patients to therapists in a timely fashion. By enabling easy scheduling with simple practice for providers who are already within an EAP or MCO network, we help speed up that process. We recently signed our largest simple practice enterprise deal to date and have a robust pipeline of opportunities. We look forward to exploring the potential contribution to our simple practice flywheel as we partner with EAPs and MCOs to capture in-network providers who do not yet use simple practice. In mental health, we are excited also about the opportunity with group practices. In 2023, we are prioritizing this market segment with our product roadmap to expand on the efficiency simple practice creates for groups. By further enhancing the value we bring to groups, we believe we can attract new practices and enable our customers to grow their practices by adding more practitioners. Revenue cycle management is also an opportunity for simple practice. Insurance billing is difficult to manage for small practices, and getting paid is a key challenge for our practitioners. This complexity is often a deterrent to our customers accepting insurance, which can lead to access and affordability issues for patients. We are prioritizing roadmap items to accommodate revenue cycle management and believe we can support our customers in better managing collections and maximizing reimbursement rates. Ultimately, we hope to increase financial transparency for our customers by helping simplify yet another administrative task. Finally, we continue to see a large addressable market opportunity with new verticals and plan to enhance specific features and functionality in the future to continue to drive value for our customers. In addition to product innovation, we continue to invest in marketing to drive a confluence. Word of mouth referrals are our most efficient marketing channel, particularly as we rapidly grow our referral base each quarter. At the same time, we are seeing great traction with our investments in digital marketing. which enables us to broaden our brand awareness beyond existing customers and their network. Now turning to our enterprise segment. Our strong results are driven by customer go-lives across all verticals, fueled by our partner-assisted selling motion, as well as record digital adoption with existing customers. Our verticals, utilities, financial services, government, enterprise healthcare, and giving are characterized by broad usage of legacy systems. many of which are outdated, expensive to maintain, and time-consuming to update. That's why many billers struggle with high operating costs, fail to meet consumer demand for digital experiences, and often resist the idea of implementing new systems. That is until they meet with us. Our core value proposition is driving superior rates of digital adoption by enabling a modern user experience, a wide variety of payment methods, and omni-channel capabilities, ultimately increasing cost-saving behaviors. We combine a modern commerce experience with engagement capabilities that are specific to the needs of our customers. Automated reminders, emails, text messages, and personalized bill pay capabilities. And we achieve all that through tight integrations with our billers' customer information systems, or CISs. Our approach allows our billers to offer a modern billing and payments platform without the time-consuming process to upgrade the CIS while extending the useful life of their original solutions. And that's why we win. In the fourth quarter and throughout 2022, we saw great momentum in all verticals as we continue to realize efficiencies in deals where we have existing integration. We recorded several notable customer launches and utilities, including the city of Port St. Lucie, Florida. In insurance, we launched phase one of the go-live process with our largest insurance client. And in tax, we went live with several new clients, including Union County, North Carolina. In addition, we drove record adoption with existing customers in all verticals. Our ability to quickly achieve results is highly valued by our new billers, such as Truckee Meadows Water Authority in Nevada and Empro, a medical professional insurance carrier based in New York. Within a year of implementing InvoiceCloud, Truckee Meadows increased auto pay adoption by 22%, decreased mailed-in payments by 20%, and achieved $175,000 in annual operational efficiencies. MPRO saw a 211% increase in electronic payment adoption in the first year, as well as a 7x increase in auto-pay adoption. Increasing auto-pay adoption is a key value proposition for our insurance clients, as more customers automatically renew their policies. We focused not only on driving digital adoption, but also paperless adoption. In the fourth quarter, we had record levels of paperless adoption and achieved a significant milestone. Approximately half of our customers' invoice are sent by us by email, a key step in reducing the use of paper and cost for billers. Sokol Creek Water District in California, for example, recorded a 33% increase in paperless enrollment within one year. The fourth quarter was also a phenomenal bookings quarter for Enterprise. Historically, we have seen an ebb and flow in new bookings due to fluctuations on big deals. And the fourth quarter, we achieved a records booking quarter driven by consistency in the mid-market and several large deals. Notably, we signed two of the four largest deals of 2022 in Q4. Our new customer growth continues to be driven by our strategic alliance go-to-market strategy. In Q4, we formed several new partnerships across verticals and strengthened existing alliances that contribute to our pipeline and extend our market shares. In utilities, for example, we launched our Fry Municipal Software Alliance, which further opens the midsize market for us in 27 states. In our high growth insurance vertical, we signed several new customers, including another Guidewire customer, Franklin Mutual Insurance, based in New Jersey. And in tax, we finalized the integration with DevNet, opening county tax markets in Illinois, Missouri, and North Carolina. Additionally, we finalized a government procurement partnership that streamlines the buying process for local and county governments. Product innovation remains incredibly important to us as we continue to drive higher value for our customers. Most recently, we launched outbound payments for insurance customers. Approximately half of the payments in insurance are outbound, representing a large opportunity for us, and we are quickly gaining traction. In Q4, we closed six outbound payment deals. In summary, we've had a strong fourth quarter and a great year. We continue to drive traction in the market for products that help save labor costs, increase operational efficiency, and drive customer satisfaction. We delivered solid 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?