Thank you for standing by, and welcome to EverCommerce's Second Quarter 2023 Earnings Call. My name is Michelle, and I will be your operator for today. As a reminder, this conference call is being recorded today, Monday, August 07, 2023. And, I'd now like to turn the conference over to Brad Korch, Senior Vice President and Head of Investor Relations for EverCommerce. Please go ahead.

Good afternoon and thank you for joining. Today's call will be led by Eric Remer, EverCommerce's Chairman and Chief Executive Officer; and Marc Thompson, EverCommerce's Chief Financial Officer. Joining them for the Q&A portion of the call is EverCommerce's President, Matt Feierstein. This call is being webcast with a slide presentation that reviews the key financial and operating results for the three months ended June 30, 2023. For a link to the live or replay webcast, please visit the Investor Relations section of the EverCommerce website. A slide presentation and the earnings release are also directly available on the site. Please turn to Page 2 of our earnings call presentation while I review our safe harbor statement. Statements made on this call and contained in 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 forward-looking statements, except as required by law. We will also refer to certain non-GAAP financial measures to provide additional information to you, our investors. A reconciliation of non-GAAP to GAAP historical measures is provided in both our earnings press release and our earnings call presentation. I will now turn it over to our CEO, Eric Remer. Please continue.

Thank you, Brad. On today's call, I'll highlight second quarter results and discuss key customer trends and metrics before turning the call to Marc to dive deeper into our financials. EverCommerce continues its strong start of 2023 with solid revenue growth, particularly within our Software payment solution and a very robust adjusted EBITDA against the top end of the second quarter guidance. We achieved strong bottom line performance by doubling down on balancing growth and profitability, through both active management of our cost base with a focus on efficiency. We delivered 23% adjusted EBITDA margins while supporting 13% year-over-year subscription transaction revenue growth, which includes our core software payment solutions and 8% year-over-year total revenue growth, with upside to profitability. We are creating the opportunity to incrementally invest in areas that can accelerate growth in 2024 and beyond. In addition to officially growing our customer base, our strategies to lead with our core system of action, SaaS solutions and then upsell and cross-sell additional solutions and features to enhance customer value while driving customer expansion and revenue growth for EverCommerce. Payments is the best illustration of the strategy. During the second quarter, our payments revenue grew 32% year-over-year. EverCommerce provides tailored end-to-end SaaS solutions that support the highly diverse workflows and customer interactions to professionals in home services, health services, and fitness and wellness services used to automate manual processes, generating new business and creating more loyal customers. As the leading service commerce platform, we provide system of action software across many micro verticals, which, in turn, drive the workflows to help our customers generate new business, fulfill services, manage day-to-day operations, and engage with our customers. Upselling and cross-selling additional features, services, and products to our existing customers is important not only for ARPU growth but also because it enhances the value our customers receive from their relationship with EverCommerce, which ultimately translates to lower churn and higher retention. For several quarters, we've disclosed a number of customers that are utilizing more than one solution, and this is a data point we continue to measure. We believe a metric more reflective of our current cross-sell progress is the number of customers that have contracted and ordered for more than one solution. While this is a measure with track progress slightly higher in the follow-up customer revenue realization, in areas like payments enablement, it marks a critical milestone in the customer's journey towards an integrated set of solutions that power their business. As of the end of the second quarter, we continue to see the expansion of customers utilizing more than one solution to products with 75,000 customers, and the number of customers that have contracted for two or more products increased by 29% year-over-year to approximately 162,000. With over 685,000 total EverCommerce customers at the beginning of 2023, we continue to have a very large opportunity to grow this base of multi-solution customers. Finally, when looking back over the trailing 12 months, our annualized net revenue retention for core software payment solutions remains above 100%. Embedded payments is our most mature and accretive cross-sell solution and is a key element of our land and expand strategy. Year-over-year, payment revenue growth contributes 32% to our margin expansion, given its gross market profile. Additionally, payments revenue as a percentage of total revenue grew by more than 300 basis points over the past 12 months. Second quarter annualized total payments value was approximately $11.4 billion, representing a 30% year-over-year growth. We expect TPV and overall payments revenue to grow as we continue enhancing payment solutions into our core system of actions. Accelerating payments attachment and utilization are key elements of our long-term growth plan and we continue to see success throughout our core system of action solutions. We are actively testing and implementing new strategic initiatives designed to increase the attachment for payment capabilities to drive more payment-enabled customers back to processing and further increase the wallet share of customers that are already processing. Lastly, I want to touch upon our current progress in integrating generative AI into our business operations, both within the solutions provided to our end customers and in the development of our products and services to support our customers and operational scalability. In Q2, we launched AI-driven capabilities within our survey products that create significant efficiencies for our customers, allowing them to analyze, interpret, and act upon large quantities of raw and unstructured survey feedback. Early customer feedback has been incredibly positive regarding the efficiency that our solutions can now bring to their operations. We are excited about this early progress and will continue to leverage AI to drive greater efficiencies and develop even more innovative and impactful offerings for our customers. Now, I'll pass it over to Marc, who will review our financial results in more detail, as well as provide guidance for the third quarter and an update for the full year of 2023.

Thanks, Eric. Total revenue in the second quarter was $170.1 million, up 8.1% from the prior year period. Within total revenue, subscription and transaction revenue was $130.3 million, up 12.7% from the prior year period, and revenue from marketing technology solutions was $34.5 million, down 2% from the prior year period. The strong performance in subscription and transaction revenue, at 12.7% growth, was largely due to the solid execution of our growth strategy providing customers with core system of action software solutions while driving expansion through promoting cross-sell and upsell opportunities, leading with payments. Since the second half of 2022, we've seen headwinds to growth in our marketing technology solutions, and while this continued through the second quarter, we are starting to see early signs of stabilization. At the end of the second quarter, LTM revenue was $651.1 million, up 15.2% year-over-year on a reported basis, and 11.7% on a pro-forma basis. As a reminder, we calculate our pro forma revenue growth as if all acquisitions closed at the end of the latest period were closed at the start of the prior year period, including before the completion of the acquisition. Our pro forma growth rate provides the best insight into the underlying growth dynamics of our business. Our reported growth rate for Q2 was equivalent to our pro forma growth rate, as we did not complete any acquisitions during the relevant periods. Second quarter adjusted EBITDA was $38.8 million, representing a 22.8% margin, versus 19.6% in the second quarter of 2022, and a 26.2% growth year-over-year. Additionally, LTM adjusted EBITDA was $136.1 million, representing a 20.9% margin. In the second quarter, we clearly delivered towards our full year 2023 objectives by exceeding guidance and achieving record EBITDA margins. Adjusted EBITDA performance in the quarter was underscored by our focus on actively managing our operating expenses, driving operating leverage and cash flow generation. The timing and pacing of investments through the first half was a more modest factor, and we expect to make targeted investments in the second half of the year that should enable us to enter 2024 on solid growth footing. One area of incremental investment is resources to accelerate payment adoption among our system of action software solutions. Adjusted gross profit in the quarter was $111.9 million, representing an adjusted gross margin of 65.8%, versus 65% in Q2 2022. LTM adjusted gross profit was $425.9 million, representing an adjusted gross margin of 65.4%. The increase in gross margin is partially attributable to an increasing mix of higher margin payments revenue. Turning to operating expenses, the adjusted sales and marketing expense was $28.7 million, or 16.9% of revenue, down from 18.2% of revenue in the prior year period. Absolute adjusted sales and marketing expenses were approximately flat year-over-year due to a combination of optimization and economies of scale. Adjusted product development expense was $17.7 million, or 10.4% of revenue, down from 10.8% of revenue reported in the prior year period. Absolute adjusted product development expense grew 4.7% year-over-year, as we continued to invest in our solutions. Adjusted G&A expense was $26.6 million, or 15.7% of revenue, down from 16.5% of revenue in the prior year period. As we anniversary the investments made in 2021 and 2022 to support our public company infrastructure, we're beginning to see meaningful operating leverage. We continued to generate significant free cash flow as we invest to grow our business. Our adjusted unlevered free cash flow for the quarter was $27.1 million, representing 21.2% year-over-year growth, and a 15.9% margin. For the last 12 months, our adjusted unlevered free cash flow was $97.5 million. Levered free cash flow, which accounts for debt service and various working capital adjustments, was $22.6 million in the quarter. This was up approximately $16.1 million year-over-year due to both growth in operating income and changes in working capital. For the trailing 12 months, levered free cash flow was $62.2 million, underscoring our balance sheet flexibility. Strong free cash flow generation allows us to continue to invest in our growing business and deliver strong returns to our shareholders. It also enables us to efficiently allocate capital across the spectrum of opportunities, including the outstanding buyback authorization and M&A prospects. In the second quarter, we repurchased approximately 900,000 shares for a total cash consideration of around $10 million at an average price of $11.10 per share. At the end of the quarter, we had $83.1 million in cash and cash equivalents and maintained $190 million of undrawn capacity on our revolver. Our debt, a combination of floating and fixed rate, had total net leverage calculated per our credit facility at the end of the quarter of approximately 2.9 times, consistent with our financial policy. We have no material maturities until 2028. I'd like to finish by providing our outlook for the remainder of 2023, beginning with the third quarter. For Q3, we expect total revenue of $174 million to $178 million and we expect adjusted EBITDA of $34.5 million to $37.5 million. Our full year 2023 revenue guidance remains $600 million to $700 million, and we are raising our adjusted EBITDA guidance again by an additional $5 million to $142 million to $148 million. As we noted on our first quarter call, continuing to execute our growth strategies, price increases, and new product introductions are expected to support growth and strong margins throughout the year. Our 2023 outlook does not include any potential impacts of M&A activity that may take place. Before we begin the question-and-answer portion of the call, I want to thank the entire EverCommerce team for their efforts in delivering these strong results. Our focus continues to be optimizing our operations, managing costs effectively, and delivering on our strategic priorities.

The first question comes from Kirk Materne with Evercore. Your line is open.

Yeah, thanks very much. Eric, I was wondering if you could talk about the level of activity within your customer base this quarter, maybe versus the prior two quarters, in terms of pipeline generation. How are you feeling about top-of-funnel activity? I realize marketing is still a bit challenging, but I'm curious if you're seeing anything from a macro perspective that makes you feel perhaps a little better heading into the second half of the year.

Yeah, thanks Kirk. I appreciate the question. I think we felt pretty good going into Q2. We saw some stabilization specifically in the marketing service part, which is why we guided and achieved what we have. But I think both the stabilization in that part and the continued consistency in the pipelines we are seeing in the core business of software payments remains on plan. So we felt really good about the second half, and I think that is reflected in the guidance. Matt?

Yeah, I think you nailed it. Even that core software and payments specifically to systems of action and the addition of payment to that, from a top-of-funnel perspective, we see opportunities to double down on investments, even in those core areas where we see large markets, strong unit economics, so we expect to have opportunities in the second half to continue to drive top-of-funnel activities beyond where they are today.

And Kirk, just one thing to add to what Matt said, to answer your question specifically, from a macro perspective in the core verticals we serve, we are not seeing continued degradation that we may have seen last year.

That's great. And then Marc, one follow-up for you: You mentioned some spending that was supposed to happen in the first half is being pushed to the second half. How should we interpret the EBITDA guidance for the back half, particularly for the fourth quarter, which looks somewhat flat compared to Q2? Is that just spending being held back in the first half coming into the model? And how do you think about operating leverage in general?

Yeah, I'll start. If you think about the adjustments made after our first quarter and again after the second quarter, we feel really good about where we are right now. We have been prudent throughout the year. Obviously, we still live in a volatile world, and we want to be consistent and cautious as we look at the second half.

Exactly, Kirk. Coming out of last year, the world was obviously changing, and we wanted to actively manage our spending and the pace of our investments throughout the year. I believe we've done a great job in the first half, and this is the opportunity to accelerate some initiatives that will underscore the core growth strategies, particularly with payments enablement. We feel it is the right time to invest more in the back half to set ourselves up for a great 2024 and beyond.

The next question comes from Brad Reback with Stifel. Your line is open.

Great. Thanks very much. I believe it was during Marc's remarks where you talked about accelerated investment in payments adoption in the back half of the year. Can you walk through what you're going to do differently going forward versus what you've done to help drive that linkage?

Yes. Again, I don’t think this is all that different than things we've discussed in prior quarters. From an attachment standpoint, as you think from a top-of-funnel strategic perspective, we are continuing to drive incremental resources into our PLG-led products, while also incorporating outbound sales touches into the software customer base. This aims to convert payment-enabled users into active processing users. We're evaluating our outbound customer success resources and recognizing where we should double down on our efforts.

And Brad, thanks for the question. One more thing to add: We have implemented payment mandates in two of our solutions, with one having been mandated as of August 1 and one in early Q2. It takes some time to roll out those mandates, but they are positive implementations.

Great. And then on AI monetization, is that going to be direct or more indirect in terms of supporting future price increases broadly across the product portfolio?

Yes, I think both. Ultimately, as Eric mentioned, there are incremental monetization opportunities. However, there will also be indirect monetization through enhancing our pricing power across the product portfolio.

One aspect we haven’t discussed much is that we've utilized AI-type capabilities internally for some time now. With increased AI access, we are implementing various operational capabilities, which we expect to yield additional value by 2024.

The next question comes from Alexander Sklar with Raymond James. Your line is open.

Hi. Thanks for taking the question. This is John on behalf of Alex. Eric or Matt, I know pricing has really been a lever you’ve been looking to push this year compared to prior years. Can you provide any insights on price elasticity to date? Specifically, what percent of your base has experienced an increase and any retention dynamics surrounding that?

This is Marc. We enter each year with a series of pricing actions planned out, and we've executed against most of these expectations, aiming for around 3% for the year. This remains our outlook. Regarding churn, we’ve historically planned conservatively and executed effectively, without the materialized impact we initially expected in our internal projections.

That’s the best metric to examine. Our expected and anticipated churn are running lower than where we expected. This suggests there's potential to maintain or even increase pricing actions into 2024.

Overall, it's been pretty consistent across the board. The fitness sector has lagged a bit in recovery. Some clients have started to report growth in-store, but the market remains slow. Other than that, our other verticals are performing consistently.

The next question comes from Bhavin Shah with Deutsche Bank. Your line is open.

Great. Thanks for taking my question. I wanted to follow up on your earlier comment about mandating payments across your solutions. What has been the customer reception to that? How long will it take to see the effects throughout your customer base?

Yes. I'll let Matt elaborate on the mandate. It was primarily aimed at encouraging customers to use our payment systems. Approximately 35% of users in a specific vertical have adopted our payments. We informed them that opting out would lead to a significant price increase. We prepared for potential customer loss due to this mandate, but the actual loss has been much lower than we expected, and overall feedback has been positive.

To Eric's point, there are three possible outcomes from that: one is that more customers sign up and utilize payments; the second is they choose to pay an incremental amount for their software; and the third outcome is less favorable, where they may choose to leave our solution. The churn against these mandates has been lower than expected.

Because of the way it rolls, once customers are integrated, they tend to be encouraged to utilize it. With our base of thousands of clients, the benefits will start becoming apparent in 2024.

The next question comes from Aaron Kimson with JMP. Your line is open.

Hey, I know we are likely two quarters away from initial guidance for 2024, but how can investors feel comfortable with the organic revenue growth rate, excluding price increases, looking ahead?

If you consider our current guidance and feel confident about second half performance, we see positive trends for the remainder of the year, even with laggers holding down our performance in certain sectors. We talked about payments as a percentage of total revenue, which is expected to continue growing. Areas of our business that are enlarging are also those that grow faster. We are excited about investing in the areas that drive growth. As we approach 2024, we'll assess how the macroeconomic environment affects our outlook, but we feel assured in our ability to ramp our growth rates to current levels or beyond.

That's very helpful. Thank you. Also, you've been public for about two years now. The stock hasn’t performed well compared to its IPO price. Overall, you’ve executed quite well. What do you think are the main aspects the street still fails to appreciate about your performance?

The followers do appreciate it, but we still encounter challenges stemming from technical aspects that don’t reflect our operational success. We've effectively scaled internally and grown our active customer base significantly. With approximately 700,000 active clients, and over 160,000 customers onboarding to multiple solutions, our capacity to expand within this fertile customer base is exciting. Payments, in particular, contribute positively to our growth and margin performance. We are optimistic about expanding these relationships, but it hasn't yet been reflected in external appreciation.

The next question comes from Clarke Jeffries with Piper Sandler. Your line is open.

Hello. Thanks for taking the question. I wanted to ask about the disclosure regarding enabled and utilized customers within the customer base. Can you clarify how these buckets work together and the opportunity left to grow in the enabled segment rather than just focusing on overall logos?

Yes, that's a great point. The reason we emphasized this statistic is that enabled customers are the next step. We classified 'enabled' customers as those who have integrated the payment solutions, and those that have fully signed up to utilize it are considered 'utilized.' Essentially, the flow is from enabled to utilized, with a focus on increasing the number of engaged customers.

We believe emphasizing these metrics helps us measure our progress toward achieving multi-product utilization across our integrated suite of solutions. The strategies we are deploying will target these gaps, focusing on conversion rates and deeper engagement with our enabled customers.

Got it. Is any part of it a discretionary choice of the customer, or is it more reliant on time and duration as they transition to the utilization bucket?

From a customer engagement perspective, the choice often lies in their engagement with our go-to-market motions and how they approach the onboarding process to enable themselves to use the services.

We articulate that it’s a proactive decision on the customer's part; it’s not a default number. We aim to facilitate those choices so they follow through and utilize the services effectively.

The next question comes from Jeremy Sahler with Jefferies. Your line is open.

Thanks for taking my question. As you drive attachment of embedded payments, what's the seasonality of TPV in a steady state? Also, what levers are you using to expand take rates further?

From a seasonality perspective, Q4 and Q1 typically represent the lower end of the seasonality for payments, largely driven by business day counts during the holiday period. Q2 and Q3 typically reflect increased activity, particularly in home services, representing the higher end of seasonality.

That’s helpful color. Thanks for taking my questions.

The next question comes from Dan Bergstrom with RBC Capital. Your line is open.

It's Dan Bergstrom for Matt. Thanks for taking our questions. Regarding Ever Health, it's been a couple of quarters since the rebrand. How has initial customer reception been to these changes? Is it accelerating customer adoption?

The reception has been extremely positive. The Ever Health brand has been soft-launched as an overarching brand for our health group within the organization, with a full launch expected in Q1 next year. This consolidation will simplify our offerings, and we anticipate positive impacts on upselling and cross-selling full-service solutions, which our customers genuinely appreciate.

The external reception aligns with our internal strategy, helping us set up for multi-product sales. By integrating various services into our EMR, we are meeting customer expectations effectively. We look forward to seeing more progress going forward.

At this time, I’m not showing any further questions. I would now like to turn the call back to Eric Remer for closing remarks.

Thank you very much. EverCommerce had another consistent quarter of exceeding expectations. The market and the opportunity for our software and solutions continue to grow, and we remain extremely excited about our unique position in the marketplace to capitalize on that opportunity. We appreciate you all joining the call today, and we will speak to you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.