Earnings Call Transcript - EVCM Q1 2022

Operator, Operator

Thank you for standing by and welcome to EverCommerce this fiscal year, 2022, first-quarter earnings call. My name is Josh and I will be your operator for today. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. For questions during the session, you'll need to press star one on your telephone. As a reminder, this conference call is being recorded today, Monday, May 9, 2022. If you require any further assistance, please press star or zero and I would now like to turn the conference over to Brad Korch, SVP and Head Investor Relations for EverCommerce. Please go ahead.

Brad Korch, SVP and Head Investor Relations

Good afternoon and thank you for joining. Today's call will be led by Eric Remer, EverCommerce Chairman and Chief Executive Officer, and Marc Thompson, EverCommerce Chief Financial Officer, joining them for the Q&A portion of the call is EverCommerce 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 March 31, 2022. For a link to the live or replay webcast, please visit the Investor Relations section of the EverCommerce website. The slide presentation and 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. Our 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 the presentation over to our CEO, Eric Remer.

Eric Remer, CEO

Thank you, Brad. EverCommerce’s first-quarter results were very strong. Our reported revenue and adjusted EBITDA results both exceeded the top end of the guidance ranges. We also maintained pro forma organic growth above the high end of our 15% to 20% range and continue to generate healthy cash flow. These results are underpinned by our massive opportunity to drive digitization of the service economy, which is still in the early innings and provides us a strong tailwind to fuel growth for years to come. On today's call I will highlight first-quarter results, reiterate our investment thesis, and discuss our key customer trends and metrics before turning the call over to Marc to dive deeper into our financials. Last quarter, we highlighted our long-term strategy of balancing growth with profitability, and our strong first-quarter 2022 results exemplified this. We exceeded the top end of our guidance ranges for both revenue and adjusted EBITDA, reporting revenue growth of 37%. Normalizing for M&A, pro forma organic revenue growth exceeded 20%. Our adjusted EBITDA margin was 60% for the seasonally low first quarter and includes front-end loaded investments in scalable operations and public company infrastructure, as well as a headwind from our DrChrono acquisition, which is still transitioning to proper operations this year. Our customer metrics accelerated in the quarter as well. Total payment volume grew 26% year-over-year and our annualized net revenue retention expanded to above 100%. As a quick reminder, EverCommerce provides tailored end-to-end SaaS solutions that support the highly diverse workflows and customer interactions that professionals in home services, health services, and fitness and wellness services use to automate manual processes, generate new business, and create more loyal customers. EverCommerce is leading the digital transformation of the service economy with a mission to simplify and empower the lives of business owners through service support. EverCommerce generates over $0.5 billion in annual revenue. Furthermore, we are among the elite group of growth-focused software companies that balance durable growth with sustainable profitability. EverCommerce offers tremendous value to our customers by providing solutions tailored to the unique workflows and interactions that various services require. From a plumber to a pediatrician to a yoga instructor, the way each of our customers generates new business, fulfills services, manages day-to-day operations, and engages with their customers is unique. Our software solutions not only provide the systems of action necessary to run daily business operations, but also the marketing solutions to attract new business, the billing and payment solutions to collect effortlessly, and the customer experience solutions to create predictable and convenient experiences. Our solutions are cost-effective, easy to implement, and purpose-built for service businesses. I can't emphasize enough the magnitude of our market opportunity. Service-based businesses are the backbone of the U.S. economy, accounting for 77% of the U.S. GDP. Small businesses employ the majority of service professionals within North America through our 31 million small and medium-sized businesses, and their needs equate to a $520 billion total addressable market. We've penetrated less than 1% globally. Our TAM expands to $1.3 trillion, and we've penetrated less than 0.1% of that. Our focus today is on three main verticals: home services, health services, and fitness and wellness services. The addressable market for the software and services EverCommerce provides within these verticals today is over $160 billion just in North America. Many service-based small businesses still operate in a low-tech world using paper, pen, phone calls, and maybe Excel. The digitization of the service economy is propelling these business owners to search for a better way to operate and grow, and EverCommerce solutions enable them to accelerate their digital transformation. We continue to grow a very large, diversified base of over 600,000 customers. These customers are spread across three main Ever brands, but within each of these brands are several distinct customer segments. We believe the size, nature, and diversity of our customer base provides us tremendous organic growth opportunity for upselling and cross-selling, while also proving resilient as our customers are focused on providing services—many of them essential—not goods. In any economic downturn, consumers will still need to fix air conditioning and plumbing leaks, go to the doctor, and get their haircut. Our solutions help our customers optimize their businesses and operate in a more efficient manner, irrespective of their end customer behavior. This provides continued demand for our solutions, which is underscored by the strength of our solutions value proposition and attractive pricing. We also believe the service market has a super attractive customer base to serve. I just spoke about the diversity and sheer quantity of the more than 600,000 customers, which eliminates any concentration considerations. If you look briefly at the chart on slide nine, you'll get a glimpse of our customer journey with attractive customer acquisition and retention economics. Our customer acquisition costs are low because approximately 85% of our customers are sourced and onboarded in a digital self-service manner. These low acquisition costs help us drive our high LTV:CAC ratio. As customers use our software and ultimately take additional products, such as better payment solutions, customer retention increases as well. Our company average annualized net revenue retention is over 100%, and for customers that have been with EverCommerce for longer than one year, this improves by greater than 200 basis points. As I've mentioned a few times, we have a very large base of diverse customers. We ended 2021 with approximately 617,000 customers, and that number continues to grow. One of the powerful levers in our business model is the significant embedded opportunity to provide additional integrated solutions into our vertical software systems of actions, facilitating upselling and cross-selling with our customers. We measure the success of this expansion by looking at the growth in the number of customers that are taking more than one solution. We ended the quarter with more than 60,000 of our customers using more than one solution, a nearly 40% increase year-over-year. While the increase is impressive, with less than 10% of our customers taking more than one solution, our runway for continued growth through upselling and cross-selling is long. Our most mature upselling and cross-selling motion is with our integrated billing and payment solutions, facilitating a frictionless payment process that is mission-critical for any small business. Consumers have come to expect payments for products or services to be digital, easy to use, mobile-friendly, and secure. For business owners, a seamless payment process means higher conversion rates, better efficiency, accelerated cash receipts, and increased revenue. EverCommerce’s payment solutions provide an intuitive front-end experience for consumers and are tightly embedded within our various software applications. Increasingly, we see customers embracing this powerful combination. We ended the quarter with an annualized total payment volume of approximately $9.5 billion, representing 26% year-over-year growth. Customers who embed payments not only yield higher ARPU of revenue but also improved retention. Highlighting just one solution, SalonBiz, which is software focused on salons and spas, we can illustrate this outcome with tangible results. SalonBiz customers that embed our payment solutions generate approximately three times higher ARPU than customers who don't embed payments. SalonBiz payments customers also have higher revenue retention. Our upsell and cross-sell strategy is both simple and effective. We will continue to prioritize the integration and revenue expansion of our payments and marketing and customer experience solutions across our entire suite. Finally, I'd like to highlight our key priorities for 2022 once again. We will continue to invest in building trust and awareness of our Ever brands in their respective verticals. Additionally, we will scale our marketing, sales, and customer success engines to maintain at least a 15% to 20% organic growth for the foreseeable future. We will invest in product development and optimize our solutions to support new feature launches and maintain market competitiveness. We will advance our scalable operations initiatives, including systems and organizational consolidation to drive increased operating leverage over time. We plan to selectively utilize M&A to expand capabilities and penetrate target market segments as we augment our organic growth engine. Before I turn the call over to Marc to discuss our financial results in detail, I would like to quickly highlight some leadership changes in the company. I'm pleased to announce that last week we welcomed a new Chief Human Resources Officer to the EverCommerce team. Shane is a proven leader with a track record of thoughtful action in advancing people and culture initiatives forward, responsible for all aspects of our global employee experience at EverCommerce, and joins us most recently from ServiceNow. In addition, our Chief Operating Officer, Stone De Souza, will be leaving the company in a couple of weeks to pursue another opportunity. I'd like to thank Stone for his work over the past year. Matt Feierstein, EverCommerce President, will reassume Stone's duties and direct reports, most of which reported to Matt for many years prior to Stone. Now I'll pass it over to Marc.

Marc Thompson, CFO

Thanks, Eric. Today I'll review our first quarter of fiscal 2022 results in detail, provide our outlook for the second quarter, and also update our full-year fiscal 2022 guidance. As Eric noted, our first quarter results were quite strong, having exceeded the high-end of our guidance range for both revenue and adjusted EBITDA. Total revenue in the quarter was $143.6 million, up 37% from the prior year period and above the high end of our original guidance. Within total revenue, subscription and transaction fees were $108 million, up 44% from the prior-year period, and marketing technology solutions were $29.9 million, up 18% from the prior-year period. We manage the business for sustainable organic growth and selectively utilize strategic acquisitions to augment this growth. As a result, we believe it's important for investors to evaluate our business growth on a pro forma basis, which is how we manage and measure the business internally. We calculate our pro forma revenue growth as though all acquisitions closed as of the end of the latest period we closed, as of the first day of the prior-year period, including before the time we completed the acquisition. We believe the pro forma growth rate provides the best insight into the underlying growth dynamics of our business. We're very pleased that our pro forma growth rate exceeded 20% year-over-year in the first quarter, and we experienced good growth across all three of our core verticals. Consistent with our discussion last quarter, we drove this growth while maintaining solid profitability. First quarter adjusted EBITDA was $23 million, representing a 16% margin. This is above the high end of our guidance, having grown adjusted EBITDA, 8% year-over-year. The year-over-year, and sequential change in adjusted EBITDA margin is reflective of our investments in growth and scalable operations, the impact of public company costs, and expected dilution from the DrChrono acquisition. Adjusted gross profit in the quarter was $92.8 million, representing an adjusted gross margin of 64.7%, slightly lower than Q1 2021, primarily due to the mix of revenue with DrChrono, which includes both SaaS software and lower margin revenue in cycle management solutions, as well as the mix of our solutions within marketing technology. Now turning to operating expenses. Adjusted sales and marketing expenses were $28.9 million, or 20.1% of revenue, up from 18.2% of revenue in the prior year period. This increase was primarily driven by continued investments in growth through our various marketing channels and personnel. Adjusted product development costs were $17.2 million, or 12% of revenue, up from 9.8% of revenue in the prior year period. This increase reflects investments in our technology teams and development programs to support growth of our various solutions, as well as centralized security operations, information technology, and cloud engineering. Adjusted G&A expense was $23.7 million, or 16.6% of revenue, decreasing from 17.7% of revenue in the prior year period, despite significant investments in our centralized operating model and in our public company infrastructure. A centralized operating model aggregates many of the functions of our various operating units in headquarters, including most G&A functions, and we believe is a key component of driving operating leverage over time. We continue to generate significant free cash flow while we invest in and grow our business. Last quarter, we introduced two cash flow metrics, levered free cash flow and adjusted unlevered free cash flow, the reconciliations of which are in the appendix of our earnings presentation. Our adjusted unlevered free cash flow for the quarter was $14.9 million, representing 9% year-over-year growth with a 10.4% margin. On a trailing 12-month basis, our adjusted unlevered free cash flow was $78.5 million. Levered free cash flow, which accounts not only for debt service but also various working capital adjustments, was $8.5 million in the quarter. On a trailing 12-month basis, levered free cash flow of $39.6 million illustrates both the deleveraging potential of the business and the incremental cash available to self-fund future M&A activity. The resiliency of our business and generation of strong free cash flow allow us to operate our business with an optimal capital structure that includes modest levels of leverage. Underscoring the flexibility of our capital structure attributable to the strength of our operation, our adjusted unlevered free cash flow is approximately 3.5 times our annual interest expense. We ended the quarter with $101 million in cash and cash equivalents, and we maintained $190 million of undrawn capacity on our revolver. Total net leverage, as calculated per our credit facility at the end of the quarter, was approximately 3.7 times, consistent with our financial policy. We have no material maturities until 2028. Most importantly, comfortably operating our business with leverage enables us to deliver enhanced equity returns to our shareholders. I'd like to finish by providing our outlook, beginning with the second quarter. For Q2 revenue, we expect total revenue of $152 million to $154 million, and we expect adjusted EBITDA of $28 million to $29 million. For the full-year fiscal 2022, we're raising our revenue expectations based on the solid first quarter results. We now expect total revenue of $623 million to $629 million, an increase of $4 million at the midpoint compared to prior guidance. We're also raising our 2022 adjusted EBITDA guidance to $122.5 million to $124.5 million, reflecting both the first quarter's performance and the fact that we will continue to invest in our business to drive growth and scalability of our operation. As we've said on our last call, many of these investments are front-end loaded, and we expect margins to accelerate throughout the year. Our 2022 outlook does not include any potential impact of M&A activity that could take place in the year. In summary, we're very pleased with EverCommerce's first-quarter performance. Not only were we able to exceed our guidance ranges once again, but we were able to do so profitably and with significant cash flow generation. We believe EverCommerce is well-positioned to be a primary beneficiary of the digital transformation that is just getting underway among service companies. Our focus is on continuing to execute our strategic priorities and deliver consistent, profitable growth that we believe can generate significant value for our shareholders. Operator, we're now ready to begin the question-and-answer session of the call.

Operator, Operator

Thank you. For the question-and-answer session, please press star one on your telephone. Our first question comes from Matt Hedberg with RBC Capital. You may proceed with your question.

Matt Hedberg, Analyst

Hey. Thanks for taking my questions. Congrats on the results. Maybe Eric, for you, there's a lot of questions obviously about the macro environment and you wouldn't necessarily see it in your results, your guidance, but just could you talk a little bit more about sort of your broad view of the health of the service economy? And maybe as we stand now and your thoughts for the rest of the year.

Eric Remer, CEO

Yeah. Thanks, Matt. I appreciate the question, and I think Marc touched upon it a little bit. If you think about the service economy, specifically the service aspect of that—service could be goods or services that e-commerce prepared in that category—and the service aspect, especially in categories that we focus on, which is really our tight view of the world, we see continued growth specifically in the home service category and health services, which are really non-cyclical categories that we have focused on for several years. We have not seen any pushback to date. And obviously, as mentioned, it's not in our Q2 guidance, and we expect, specifically with the diversification of the customers we have and the categories that we cover, we don't see any headwind against those core categories for the rest of the year.

Matt Hedberg, Analyst

That's great. Thank you for that, Eric. And then maybe as a follow-up. Thanks for the comment on the $9.5 billion of TPV, and we've always thought that this was a huge opportunity to sell payments back into the base. Is there another way to think about how penetrated it is in your overall customer base today? Maybe within those three verticals even, but just a little bit more granularity on how early we are in the customer penetration in your base.

Marc Thompson, CFO

Yeah. Thanks for the question, Matt. You've heard us before, and I still think we feel like we're really in the early innings of the opportunity. When you look at our system of action software customer base, on average, we have about 34% adoption. However, with respect to how we project out the overall TPV, we have about annualized $9.5 billion, which we just mentioned in Q1. We see that opportunity as north of $80 billion. So from a volume standpoint, the penetration really lags customer adoption, and that's just all about continuing to drive those customers who have integrated payments to further utilize the workflows that we've created to capture more of their wallet share. So again, we're still really early, very much mid-innings there, and there's a lot of opportunity and runway left.

Matt Hedberg, Analyst

Great to hear. Yeah, super-exciting for that opportunity into that $80 billion of bigger opportunities. Thanks a lot, guys. Well done.

Eric Remer, CEO

Thanks, Matt.

Operator, Operator

Thank you. Our next question comes from Ryan MacWilliams with Barclays. You may proceed with your question.

Ryan MacWilliams, Analyst

Hi, guys. Thanks for taking the question. So the 60,000 customers now utilizing more than one solution seems like a strong step up versus the 55,000 last quarter. Any particular product changes or changes to your sales motion that contributed to this growth in multi-product customers in the quarter?

Marc Thompson, CFO

It's a great question, Ryan. Thanks again, this is Matt. Again, I want to hit on one part. We continue to think about optimizing our marketing and sales motion, and really that product packaging to drive the new adoption of those embedded solutions. Whether that's payments, obviously, where we've had the most material success or customer experience solutions where we're following along quite nicely. Then it's really just deepening the integration into those systems of action about software as those workflow capabilities, whether they're payments or customer experience solutions. But that combination of those two factors is driving it.

Ryan MacWilliams, Analyst

And then just how is DrChrono performing versus your expectations from a revenue perspective at this point? I'd love to hear about how it contributed to the quarter. And just on the modeling gross margin side, I guess how should we think about EverCommerce moving past some of these front-end loaded costs? Just as we think about the rest of this year. Thanks.

Eric Remer, CEO

Thanks, Ryan. I'll take the first one. Marc will finish up in the second. DrChrono is operating as planned. We're seeing it align with our expectations, and we're excited about the growth of the business.

Marc Thompson, CFO

I think your next question was around gross margin, or was it EBITDA margin? Was it both?

Ryan MacWilliams, Analyst

That's correct. Gross margin.

Marc Thompson, CFO

Okay. So gross margin you see there, DrChrono is the primary contributor to that. Their mix of revenue is more skewed towards RCM, so that does affect the overall gross margin. As you know, the RCM solutions are a little lower gross margin than the SaaS solutions. So that's a big contributor to the change in gross margin.

Ryan MacWilliams, Analyst

Appreciate the color. Thanks, guys.

Operator, Operator

Okay. Next question comes from Kirk Materne with Evercore. You may proceed with your question.

Kirk Materne, Analyst

Yeah. Thanks very much. Eric, why don't you just talk about your go-to-market motion? And does anything change for you or do you change, I guess, the products you might be strategizing around or start pushing out in a different way if we go into a recession? Does the customer marketing technologies become something you push harder than payments? I was just curious as you guys see this economic environment, is there anything that changes on the go-to-market side?

Eric Remer, CEO

At this point, it’s really acceleration of business as usual. I’ll start, and then I’ll let Matt chime in. If you think about the business, we see several times that 85% of our new customer acquisition is self-serve. So it’s online marketing, and people are self-serving. They are onboarding and utilizing our solution. We've gotten really good at getting in front of customers when they're looking for a solution. The biggest thing that Matt touched upon earlier is that the motion we've really been pushing is embedding more of those solutions as part of that process. The upsell and cross-sell motion becomes a more natural process for the customers that have already taken the product. That is our current workflows as we're sitting here today. And that’s going to be accentuated and accelerated over the coming years. Any type of recessionary macroeconomic condition won't really pushback against that. If anything, it'll accelerate because the more embedded the solution, the more utilization, the higher ARPU, and better retention.

Marc Thompson, CFO

The only thing I'll add to that, Kirk, when you think of it from a product standpoint, we really do think of that core system of action as the entryway. That is where we will embed those horizon solutions to amplify and create more end-to-end workflows. But when you think about efficiency from a customer standpoint, which is still necessary specifically during recessionary times, it’s being driven through that core system of action, which helps customers. However, we're going to meet them where they come to us. If they come to us for marketing technology, we will accommodate them, but we truly think the tip of the iceberg is still absolutely our core system of action business management software.

Kirk Materne, Analyst

That's really helpful. And then I assume it might be a little bit early, but Eric or Marc, I was wondering if anything's changed on the discussions on pricing around M&A targets for you all. Obviously, valuations are coming under some pressure, and I assume the private market will be feeling that soon if not already. I was just curious if that changes your M&A pipeline, or if anything has changed on that front for you all in terms of more opportunities maybe coming faster.

Eric Remer, CEO

Yeah, it's a great question. As we discussed last quarter, part of where we are today, we're in a position where with our strategy to grow at a 15% to 20% range organically for many years to come, it provides us the ability to be very disciplined. We want to ensure the M&A opportunities we pursue will be accretive to the business. We still think that today, although there's a large pipeline of opportunities we’re tracking, there's still a disconnect between the public and private markets. I think to your point, we will start seeing the private markets hopefully becoming a little more attractive, providing us more opportunities. However, at the moment, the dislocation of prices is still a bit large, and we're going to remain disciplined in looking for opportunities that we think are accretive to the business.

Kirk Materne, Analyst

Thank you all.

Operator, Operator

Thank you. Your next question comes from Bhavin Shah with Deutsche Bank. You may proceed with your question.

Bhavin Shah, Analyst

Great. Thanks for taking my question and congrats on the quarter. You guys talked about payments being one of the key drivers of those number of customers that have more than one solution. But how frequently can you get maybe some payments-first or marketing-first customers to perhaps be upsold into a core business management solution? And how do we think about that opportunity?

Marc Thompson, CFO

With the size of our customer base and the number of customers we have across marketing technology and customer experience, that is exciting to us—the ability to cross-sell that system of action. From a displacement standpoint, that is where they may already have something, and we're surrounding it with one of those ancillary products. Again, we purpose-built our solutions integrated with payments and customer experience so that we think that is highly competitive in the market and a real opportunity. The switching cost is just different in those, so you're correct to say that, but it's a genuine opportunity that our teams are chasing all the time in our core vertical business management solutions.

Eric Remer, CEO

It's important to note, though, as we talk about some of the opportunities, all of the numbers that we share are from that system of action at work. So while you bring up a valid point—that is clearly an opportunity to upsell payments and marketing and customer experience into the core software of action—we pursue that, and that happens on a daily basis. However, because of the system of action integrated with the other solutions, it's really core to our workflows. Those are the numbers we give in terms of the opportunity.

Bhavin Shah, Analyst

Got it. That's helpful. And just as a follow-up and a follow-up to Matt's first question on the payment adoption penetration. You spoke about the 34% customer adoption and the volume opportunity being north of $80 billion. But how do we think of that, helping us decipher the opportunity of customers that aren't using digital payment solutions right now, whether it's from yourself or one of your peers just to understand how much low-hanging fruit there is for you guys?

Marc Thompson, CFO

It's a great question. We have tracked this over time. Obviously, coming from PaySimple, during our time there, inertia really of the change from many manual processes was still what a lot of folks were doing. They're likely not using a full suite digital solution. They may be using an outdated hand block just swipe terminal in their space. So there are plenty of customers that still have what might be called early digital, but it's not late digital adoption of a true software solution with embedded payments. Therefore, we see a lot of opportunity to bring payments into our business management solutions with embedded payments, where today they're using maybe some old terminal that, again, works for their needs but is not fully integrated into a business management solution. So the opportunity is absolutely still there and significant, in fact.

Eric Remer, CEO

Specifically, if you consider that customer who utilizes the system of action, for them to use a payment solution outside of the system of action, it's almost always a two-step process. Hence, there are more and more reasons, as we embed payment solutions tighter into the system of action for them to continue that workflow and use our payment ecosystem.

Operator, Operator

Thank you. Your next question comes from Samad Samana with Jefferies. You may proceed with your questions.

Jeremy Sandler, Analyst

Hey guys, this is Jeremy Sandler on for Samad. So first question, it's good to see that strong net retention. I guess to double-click on that a little bit, are you seeing any particular strengths from specific verticals or maybe specific customer sizes that are contributing to that?

Matt Hedberg, Analyst

This is Matt, thanks for the question. Really, we have seen nice gains across the board. I would not tell you that it's in any one specific vertical. Customers that grow with us, whether small or large, are driving that NRR upward into the right. Consumption of upsell or the addition of a second or third product through our cross-sell motion—both contribute, but we don't see it skewed towards specific segments.

Operator, Operator

Got you. That's great. And I guess a similar train of thought, can you provide an update on maybe the mix between the three verticals? I know last quarter EverPro was 60% of revenue, but maybe, I don’t know if there's been any change there.

Eric Remer, CEO

There will be a shift between the three verticals because we had our first full quarter of DrChrono, which is a chunkier asset. So that'll uptick our health services a little bit, and the others will fall by the same ratio.

Operator, Operator

Great. That's all for me. Thank you, guys. Your next question comes from David Hynes with Canaccord Genuity, who may proceed with your question.

Stuart Lewtan, Analyst

Thanks for the question. It’s encouraging to see that you’re experiencing strong end markets. Given the increasing concerns about economic decline, could you provide some insight into the sustainability of your business during a recession? We observed the impact during the initial phase of COVID. How do you anticipate this situation might differ in a typical recession, and how can we evaluate the durability of your business considering the exposure to small and medium-sized businesses?

Eric Remer, CEO

That's a great question. I appreciate that. If you think about the categories we serve, specifically, most of the categories we serve guaranteed essential services during COVID, and they remain essential for customers. The biggest difference between serving the SMB versus some other companies were focused specifically on that service customer versus anyone selling other types of goods. Breaking down the categories, the largest one is home services, primarily focused on repairs like plumbing, HVAC, electrical, etc. We believe these will be non-cyclical and unimpacted, as they weren’t during COVID, nor do we expect much pushback in a recession. The second-largest vertical, as Marc touched upon, includes health services, with people visiting their doctors, and that again is non-cyclical. It doesn’t really change much during recessionary periods. The much smaller category, which is our health and wellness segment, composed of less than 40% of our business, sees fluctuations such as whether people get their haircuts. However, any fitness studios we serve are primarily the smaller type, with people paying about $10 a month. Therefore, we feel quite insulated— as insulated as you can be, with over 600,000 customers across multiple verticals and sub-verticals. We believe EverCommerce is positioned as well as possible to withstand whatever comes our way.

Marc Thompson, CFO

The health of each of the three verticals remains the same from Q4 to Q1. The services vertical remains healthy, as does our EverHealth vertical market, as well. EverWell, if there is a place that has been affected by the pandemic, particularly during 2021, is still doing well but may lag the other two.

Operator, Operator

Thank you. Your next question comes from Brad Reback with Stifel. You may proceed with your question.

Brad Reback, Analyst

Great. Thanks very much. Eric, obviously a lot of questions today around the economy. As you track your business, what type of metrics will you keep an eye on that would cause you to slow down investment, be it in people, branding, or marketing?

Eric Remer, CEO

Thanks for the question; that's a great one. Again, we have the benefit of the scale of the customers we're serving. Because we're digitally focused, we can see real-time response rates on our campaigns that are happening across many verticals. We get to see—based on response rates and workflows—what happens when somebody responds; that’s the first trigger we can observe. Secondly, we monitor onboarding and attrition. If we see upticks in Cohorts who joined us in any particular month that are trading at a higher rate or quicker than previous Cohorts, we’re able to identify that and react. Since we have a scale of customers that we analyze on a daily basis—alongside our marketing campaigns and onboarding of new customers—we can evaluate real-time indicators of what's going on. If necessary, we can determine if we need to pull back investments or refocus resources into new categories or marketing strategies.

Marc Thompson, CFO

There are also some indicators from our marketing technology solutions. We can witness consumer behavior from a buying standpoint, which will provide us further insight alongside the B2B metrics Eric mentioned, giving us an understanding of what's transpiring in the economy.

Operator, Operator

Thank you. Your next question comes from Alex Sklar with Raymond James. You may proceed with your question.

Alex Sklar, Analyst

Thanks. Marc, can you talk about pricing as a lever for growth, just given the inflationary backdrop? How are your contracts structured in terms of annual escalators and any change based on the renewal activity in Q1?

Marc Thompson, CFO

No change, and it's a great question, Brian, so I appreciate that. I think through all of our solutions, we're continuously looking at pricing: price versus value, and appropriate escalators. Most of our contracts don't actually have auto escalators; most do not. It's at our discretion, and certainly, we think about that not just from an inflationary environment, and that's something we continue to track as we progress through the year. However, we also weigh other factors such as value propositions and competitive market. Those are likely the drivers we pay most attention to.

Alex Sklar, Analyst

Got it. Okay. And I don't know who wants to answer this one, but wanted to ask about the linearity of sales activity this year. You had a lot of momentum exiting 2021, and ours expanded in the quarter. We faced Omicron headwinds, and inflationary pressures, and I'm wondering if you saw any changes in monthly activity from January to April.

Marc Thompson, CFO

Not that we've witnessed. We actually had a nice strong quarter from a booking standpoint. That was consistent across our various verticals. So no, we did not see any change in linear impacts from January to April, as Q1 was a good solid quarter for us.

Operator, Operator

Okay. Great. Thank you. Your next question comes from Clarke Jeffries with Piper Sandler. You may proceed with your question.

Clarke Jeffries, Analyst

Hello and thank you for taking the question. I just wanted to follow up on that last question. Certainly, the core focus this quarter seems to be the cross-sell and up-sell efforts with multi-product and payments. But I think getting at the heart of several of these questions on the macro side, I guess qualitatively, how did customer acquisition at the growth add level fare in the quarter? And looking into April, were gross adds in line or better than your expectations for the business?

Marc Thompson, CFO

That's a great question, Clarke. We are excited about our customer acquisition engine. It's highly scalable and efficient. As you know, digital is a core channel, leading to a lot of self-service customers. We're pleased with our Q1 results, which were on track with our server expectations, and our booking levels for new customers were very strong.

Clarke Jeffries, Analyst

Great. As we think about the 2022 investment plan, could you discuss your international exposure? How do you plan to fund or fuel the growth that's occurring in your international segments today? Are you observing any differences in the demand environment between international and the U.S. sides of your business?

Eric Remer, CEO

No, there’s not really a difference. Again, DrChrono being a chunkier asset does bring our international segment down as a percentage of overall revenue. We see strong opportunities in our international solution organizations and are continuing to invest in those as per our plans. The macro environment is indeed a large factor, but as you've heard in various ways, we haven’t seen an impact and feel good about the way we ended the quarter and how that positions us for the year ahead. Our international exposure primarily exists in Canada, Australia, New Zealand, and a bit in the UK, with limited overall general exposure in Europe.

Operator, Operator

Thank you. And I am not showing any further questions at this time. I would now like to turn the call back over to Eric Remer for closing remarks.

Eric Remer, CEO

I appreciate that. That was a great start to the year and another strong quarter for EverCommerce. As we've stated several times, we want to be elite growth SaaS companies balancing both durable growth and profitability. The collective team is executing at a very high level; we remain extremely excited about the business growth. As we continue to digitize the service economy. Thank you for joining today.

Operator, Operator

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