EngageSmart, Inc.

Good morning. Thank you for attending today's Engage Smart second quarter 2023 earnings call. My name is Chelsea and I will be your moderator today. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session. Please note this call is being recorded and that I will be standing by if you should need any assistance. I'll now turn the call over to Josh Schmidt of EngageSmart. Josh?

Thank you. Good morning and welcome to our second quarter 2023 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 10-K 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 second quarter 2023 earnings call today. Building upon our proven track record of success, we achieved another remarkable quarter, delivering record revenue of $94.4 million and adjusted EBITDA of $19.4 million. This represents 28% revenue growth and 20.5% adjusted EBITDA margins. Our results demonstrate our ability to balance sustainable top line growth and strong profitability, and they underscore the durability of our business model. With our teammates' relentless execution and our attractive market position in defensive verticals, we are well positioned for continued success. Before diving deeper into the details of our second quarter performance and outlook for 2023, I'd like to address the two strategic accomplishments that we announced today. the Luminello deal, and the sale of our Health Pay 24 solution. We have entered into an agreement to acquire strategic assets of Luminello, an electronic medical record and practice management platform for mental health prescribers, predominantly psychiatrists. Like Simple Practice, Luminello was founded by practitioners to create a practical and intuitive solution that empowers private practices to run a simpler business and deliver better patient experiences. Both businesses share a commitment to removing administrative burdens for practitioners and enable them to focus on what they care most about, treating patients. We believe the Luminello deal offers four key strategic benefits. First, we believe it will expand our market share and growth potential in psychiatry. Luminello's customer base complements SimplePractice's growing community of mental health practitioners and enables us to better address the high-value prescriber market. Second, Luminello has a compelling market position and offers distinct features and functionality, including ePrescribe. With both Luminello and SimplePractice, we will be able to offer a greater range of functionality and drive higher value for all practitioners. Third, the deal would unlock greater possibilities for serving multidisciplinary group practices. To solve more complex and acute mental health diagnoses, A growing number of group practices include both prescribers and non-prescribers, and Luminello's strong background in serving prescribers adds to SimplePractice's deep expertise in mental health. Fourth, it will increase the value we bring to employee assistance programs and managed care organizations. Our growing psychiatrist community enables us to better support healthcare organizations in simplifying access to quality care, particularly for patients whose conditions require medications. We look forward to leveraging the collective experience and strength that Luminello and SimplePractice bring to practitioners. On HealthPay24, after careful consideration, we have entered into a definitive agreement and simultaneously have closed on the sale of our HealthPay24 solution to Waystar. We are proud to have developed HealthPay24 to become a premier enterprise patient payment platform that both patients and providers trust. We're confident that Waystar is the right owner to unlock HealthPay24's full potential moving forward as we focus our investments and innovations on enhancing our offerings. We believe that this strategic move creates a more streamlined business and enables us to focus on the solutions which have the highest growth potential for us. Now turning to our second quarter highlights. Driven by strong new customer ads and mental health and expansion with existing customers, our SMB segment achieved revenue growth of 30% in the second quarter. The high demand for mental health care, coupled with the shortage of professionals, continues to be a strong tailwind for our SMB segment, where we now serve nearly 110,000 customers and more than 178,000 practitioners. Notably, we have seen an acceleration of gross customer ads in that market. We are also excited about the ongoing traction beyond mental health. We continue to increase awareness for simple practice and specialties like speech language pathology and occupational therapy and are encouraged by the growth in new customers this quarter. In addition, we continue to make progress with group practices. The majority of new group acquisitions are made up of smaller businesses with up to 10 practitioners. These practices are an excellent fit for us given our track record of helping solo practitioners grow their businesses. We also continue to see expansion in our existing customer base and are excited about this momentum. As we discussed last quarter, we have several long-term initiatives underway in our SMB segment intended to drive new growth, including Simple Practice Enterprise and Revenue Cycle Management, or RCM. Our Simple Practice Enterprise offering is an extension of our efforts to improve outcomes for patients. A recent survey from America's health insurance plans found that nearly half of the insurance plans in America cover mental health services. and 83% assist their plan members in finding providers and making mental health appointments. We believe that Simple Practices Network of over 178,000 practitioners is particularly valuable to these healthcare organizations because they frequently struggle to find therapists for their customers in a timely manner. We are seeing great traction with a pilot that we initiated a couple months ago and are particularly excited about successfully expanding our programs. For example, one large national managed care organization that was initially piloting the program in one state is now in over 40 states with Simple Practice Enterprise. Notably, this particular organization has over 100,000 practitioners in its network that are not yet using our practice management solution. We believe Simple Practice Enterprise represents a strong opportunity for us to drive top of funnel, expand our in-network practitioner base, and grow our patient and practitioner community. In addition, we continue to sign and onboard new healthcare organizations and are encouraged by the positive feedback from both practitioners and patients. MCO and EAP customers are most excited about the reduction in time to appointment for their members. The national average for time to appointment is 48 days. With Simple Practice Enterprise, we have reduced that period to six days on average for our MCOs and EAPs. I think we can all appreciate the positive impact this improvement in speed to care can have on patients and their families. We also continue to invest in RCM to address the challenges practitioners face when dealing with insurance. Many health and wellness practitioners don't accept insurance today due to the difficult credentialing processes, long payment periods, and high administrative costs. And that's where simple practice can help. Our goal is to reduce the friction and administrative burden for providers, maximize their reimbursement rates, and ultimately enable them to manage insurance at scale. So early in our journey, we have gathered relevant customer feedback from the pilot and are excited about our progress. Across all customers participating in the pilot, our RCM solution automated approximately 80% of revenue from submitted insurance claims. Additionally, we recently completed a third-party analysis to size the RCM opportunity and gain further customer insights. Based on that analysis, we believe RCM has the potential to expand our behavioral health total addressable market by approximately $700 million. We have learned that most behavioral health customers prefer functionalities like RCM to be bundled with their practice management solution. They indicated that RCM was one of the top three features that they are likely to adopt as an add-on over the next three years, demonstrating the industry's shift towards improving mental health care affordability and access. We believe RCM represents a significant opportunity for us and can enable us to capture higher wallet share from current customers and better serve group practice customers that already accept insurance today. Now turning to our enterprise segment. Our dedication to creating streamlined and user-centric experiences that drive higher digital adoption continues to resonate well with our customers. Fueled by steady customer go-lives and record digital adoption, enterprise delivered revenue growth of 25% in the second quarter. We continue to see strong go-lives across verticals In utilities, for example, we went live with several new customers, including the City of Independence, Missouri. Once we go live with our customers, our solution drives superior rates of digital and paperless adoption. Mount Pleasant Water Works, a water and wastewater utility in South Carolina, for example, has reported a 72% increase in electronic payment adoption since first implementing Invoice Cloud in December of 2017. As of March 2023, the utility also reported a 46% increase in paperless enrollment. Another key differentiator is our ability to increase auto-pay adoption. Georgia Farm Bureau Mutual Insurance Company, for example, reported a 35% increase in auto-pay adoption and realized a 30% decrease in billing and payment-related calls. And this was just in the first eight months after going live on the Invoice Cloud platform. Our ability to quickly drive results and time savings for our billers is why new customers like Southern Farm Bureau Casualty in Mississippi chose to partner with InvoiceCloud. Our new customer growth continues to be driven by our strategic alliances. Forming new strategic alliances and strengthening existing relationships remains important to us as they open new markets, add to our top of funnel, and accelerate sales and implementation cycles once they're onboarded. We are excited about our continued collaboration with Oracle and recently signed another Oracle customer, Nationwide Energy Partners. Finally, we continue to focus on developing innovative functionalities that remove friction and enhance the customer experience. Most recently, we launched key enhancements to our online bank direct functionality to simplify payment reconciliation and limit money movement for billers. With the launch of our proprietary smart match intelligence technology, Billers now only receive matched payments, ultimately speeding up their payment processing. For payments that do not automatically match, billers can take advantage of Invoice Cloud's easy-to-use interface to match payments to invoices with just one click. Our machine learning technology then remembers that match for the future. In addition, billers now have the ability to receive single consolidated deposits and deposits sorted by invoice type. In summary, we've had a great second quarter, fueled by persistent customer demand in the markets we serve, adoption by our payers, and outstanding customer retention rates. Our strong results are a testament to our product suite of vertically tailored SaaS solutions and position us as leaders in customer engagement software with integrated payments. In addition, we are proud of the two strategic accomplishments we achieved. The Luminello deal, as well as the sale of HealthPay24, reinforce our commitment to enhance our offerings, and deliver exceptional value to our customers. With that, I'll hand the call over to our CFO, Cassandra Hudson. Cassandra?