EVCM - NASDAQ

Thank you for standing by, and welcome to the EverCommerce's Third Quarter 2024 Earnings Call. My name is Stacey, 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. [Operator Instructions] As a reminder, this conference call is being recorded today, Tuesday, November 12, 2024. I would now like to turn the conference over to Brad Korch, Senior VP and Head - Investor Relations at EverCommerce. Brad, 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 Ryan Siurek, EverCommerce's Chief Financial Officer. Joining them for the Q&A portion of the call is EverCommerce's President, Matt Feierstein; and EverCommerce's Chief Operating Officer, Evan Berlin. This call is being webcast with a presentation that reviews the key financial and operating results for the three months ended September 30, 2024. For a link to the live or replay webcast, please visit the Investor Relations section of the EverCommerce website, www.evercommerce.com. 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 in our comments today. A reconciliation of non-GAAP to GAAP historical measures is provided in both our earnings press release and our earnings call presentation. Before we discuss third quarter results, I would like to once again highlight the presentation of results and KPIs included in the earnings call slides and our prepared comments. As discussed last quarter, we announced the sale of our fitness products, which consisted of four software solutions in early March. The sale of the two North American solutions closed simultaneous with deal signing on March 13th and the two international solutions closed on July 1st. Our third quarter GAAP results do not include any contribution from the Fitness Solutions, but GAAP year-over-year comparisons are impacted due to the inclusion of Fitness Solution revenue in 2023. Pro forma growth as defined in our materials and filings is adjusted to exclude Fitness. Operational metrics such as customer count, TPV and customers enabled for more than one solution that we will discuss today have been adjusted to exclude the Fitness solutions on a pro forma basis for comparability purposes. I will now turn our call over to our CEO, Eric Remer. Please continue.

Thank you, Brad. On today's call, I will highlight third quarter 2024 results and trends as well as provide an update on our transformation optimization initiatives before turning the call over to Ryan to dive deeper into our financial performance. Our third quarter reported revenue exceeded the top-end of our guidance range. GAAP revenue increased 0.9% year-over-year and on a pro forma basis, which adjusts for the sale of fitness, revenue increased 4.3% year-over-year. Adjusted EBITDA of $44.5 million beat the top end of the guidance range, representing a 25.3% margin. Adjusted EBITDA margin expanded 140 basis points year-over-year. Payments revenue, excluding the fitness solutions grew 6.7% year-over-year, driven by an 8.4% growth in TPV. Finally, we continue to make-good progress against our transformation optimization goals. Including the hiring of a key leader over EverPro vertical, whom I'll introduce in a moment. EverCommerce provides SaaS solutions to service SMB economy. We offer tremendous value to our customers by providing solutions tailored to the unique workflows and interactions that various services require. Our software solutions not only provide the system of action necessary to run the daily business processes, but also the marketing solutions to attract new business, billing of 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 the service businesses. We provide end-to-end solutions that are more than 690,000 customers need to compete and grow in a marketplace that is rapidly transforming. On a pro forma basis, we ended the quarter with $679.2 million in LTM revenue, representing a 5.1% year-over-year growth. Subscription and transaction revenue grew 8.6% year-over-year on LTM pro forma basis. Also on LTM basis, we generated 24.5% adjusted EBITDA margin, which is approximately 240 basis points of margin expansion year-over-year. Finally, our annualized TPV expanded to over $12.4 billion. A key driver of payments growth and profitability. We continue to place our highest priority internally on transformation and optimization initiatives. Our transformation efforts are intended to optimize long-term growth and profitability, bring decision making closer to our customer needs and invest in key go-to-market opportunities. We continue to make progress since we announced these efforts. First, on the transformation front, we are focused on improvements in our EverPro vertical through operational changes to organize infrastructure, including hiring an exceptional season leader and decentralizing functions such as sales, marketing and product development to be dedicated to each key vertical. To that end, we are announcing the recent hiring of a strong new leader for EverPro, Josh McCarter. Josh brings 25 years of technology experience to EverCommerce, spanning Ecommerce, vertical, SaaS, consumer marketplaces and integrated fintech. Josh served as the CEO of Mindbody, a leading technology platform for the fitness, wellness and beauty industries, where he navigated the company through the COVID-19 pandemic and acquired Wellness Unicorn ClassPass in 2021. Josh also currently serves on the Board of Compass. Experience Josh brings, the Founder, CEO and Board member of start-up, pre-IPO and public SaaS companies will be instrumental in our transformation, capitalize on the market opportunities and ultimately accelerating growth in our EverPro vertical. Our parallel initiative of transformation is optimization. With optimization, we identified and execute discrete cost save initiatives that we expect will provide a runway for long-term margin expansion and free cash flow generation. But in the near term, it will allow for funding of key growth initiatives. Over the last three months, we continued to create and execute operational plans to identify saving opportunities. These initiatives range from the consolidation of third-party vendors and contracts, rationalization of our real-estate footprint, optimization of our hosting instances and consolidation of our PPO partners. Accelerating payment adoption is a high priority at EverCommerce. We often talked about our strategy at landing with our core business management software that upsell and cross selling our existing customers' additional features, services and products, leading with payments. As we progress along the transformation journey, particularly with the reorganization of EverPro, this cross-sell/upsell motion will transition over time to one that we sell business management software that includes embedded payments. We believe this will further enhance the value our customers receive from the relationship with EverCommerce, while also driving additional revenue and margin expansion. At the end of the third quarter, approximately 212,000 customers were enabled for more than one solution, reflecting 25% year-over-year growth. As we discussed, we introduced this metric, enabling customers for more than one solution is the first step in the funnel that leads to increase revenue, retention and ultimately profitability of these customers. Once customers are enabled, the next action for us is to facilitate usage. In the case of payments, this is getting our customers to actively process on our platform. We measure the step in the funnel as utilization. At the end of the third quarter, approximately 88,000 customers were actively utilizing more than one solution, reflecting 13% year-over-year growth. Customers that purchase and utilize more than one solution are naturally some of our more profitable stickiest customers. As a result, the effect of more customers taking payments or other add-on features and services has higher net revenue retention. Looking back over the trailing 12 months, our annualized net revenue retention or NRR for our core software and payment solutions was 96%. Similar to last quarter, a driver of reduced NRR continues to be the anniversary of a price increase in two of our high velocity lower ARPU solutions and not a measurable change in our customer churn dynamics. Year-over-year, our payments revenue on a pro forma basis grew 6.7%, accounting for approximately 17% of overall revenue. We report our payments revenue on a net basis and as a result, payments revenue contributes approximately 95% gross margin and as a meaningful contributed to our overall adjusted EBITDA margin. Third-quarter estimated annualized total payment volume or TPV was approximately $12.4 billion, representing 8.4% year-over-year growth. We continue to invest and actively manage our onboarding programs to accelerate Payments adoption, which we believe can accelerate Payments revenue growth. Now, I'll pass it over to Ryan, who will review our financial results in more detail as well as provide fourth quarter 2024 guidance.

Thanks, Eric. Total reported revenue in the third quarter was $176.3 million, up 0.9% from the prior year period. Within total reported revenue, Subscription and Transaction revenue was $137.6 million, up 3.7% from the prior year period, and Marketing Technology solutions revenue was $34.4 million, down 6.7% from the prior year period. We manage the business for sustainable organic growth and selectively utilize strategic acquisitions or divestitures to augment the trajectory of this growth. As a result, we believe it is important for investors to also evaluate our growth on a pro forma basis, which is how we measure and manage the business internally. We calculate our pro-forma revenue growth as though all acquisitions and divestitures that were completed as of the end of the latest period were closed as of the first day of the prior year period. We believe the pro forma growth rate provides the best insight into the underlying growth dynamics of our business. For Q3 2024, year-over-year pro forma revenue growth was 4.3%, while year-over-year pro forma Subscription and Transaction revenue growth was 8.3%. The primary difference between actual and pro forma revenue growth rate is attributable to the sale of our fitness solutions. The solid performance in Subscription and Transaction revenue was largely due to continued execution of our growth strategy to provide customers our core system of action software solutions and driving expansion by promoting cross-sell and upsell opportunities leading with Payments. Our Marketing Technology Solutions revenue was below our internal expectations. While we are likely to end the fiscal year with year-over-year declines in this revenue line, versus our expectation for approximately flat revenue at the beginning of the year, outperformance in other high-margin areas of the business have made up the difference. As Eric noted, we also exceeded the top end of our adjusted EBITDA guidance range. Third quarter adjusted EBITDA was $44.5 million, representing a 25.3% margin versus 23.9% in Q3 2023, which is 6.5% growth year-over-year. While revenue mix and to a lesser extent cost-savings initiatives had a positive impact on margins during the quarter, they were also aided by the timing of certain transformation investments that we now expect to occur in the fourth quarter. Adjusted gross profit was $117 million, representing an adjusted gross margin of 66.4% versus 64.8% in Q3 2023. Adjusted gross profit improved largely as a result of a positive mix shift in the business. As a percentage of revenue, payments and rebate revenue, both of which have 95% plus gross margin profiles grew compared to the decline in marketing technology, which carries a lower gross margin profile. Now, turning to adjusted operating expenses, which are reconciled in the appendix to this presentation. Overall, adjusted operating expenses modestly increased from 40.9% to 41.1% for the quarter on a year-over-year basis, while improving on an LTM basis from 43.5% to 41.9%, representing our approach to balance the amount and timing of investments made in our solutions. We maintain our focus on improvement in customer satisfaction and acquisition, while also highly focused on cost discipline in functional support areas. Now, turning to some key liquidity measures. We continue to generate significant free cash-flow as we invest to grow our business. Cash flow-from operations for the quarter was $27.5 million as compared to $27.4 million in Q3 2023. Levered free cash-flow was $23 million in the quarter and for the trailing 12 month period, we generated more than $80 million in levered free cash-flow. Adjusted unlevered free-cash flow was $35.5 million in the quarter and $125.1 million for the last 12 months, representing 13.2% and 15.9% year-over-year growth, respectively. We ended the quarter with $102 million in cash and cash equivalents, and we maintain $190 million of undrawn capacity on our revolver. We have $533.5 million of debt outstanding as of the end of the quarter, which matures in July 2028. Our total net leverage as calculated for our credit facility at the end of the quarter was approximately 2.5 times, consistent with our financial policy. During the quarter, we executed another interest rate swap for a notional amount of $125 million at a fixed rate of 3.395% with an expiration date of October 31st 2027 as we continue to proactively manage our interest rate exposure. Together with our previous two swaps, we now have $425 million of notional swaps at a weighted average rate of 3.91% for the floating rate component of our interest cost. We continue to view strong free cash-flow generation as a key priority for the company. With it, we are able to invest in our growing business, while also allowing us to efficiently allocate capital across a spectrum of opportunities, including the outstanding buyback authorization and M&A prospects. In the third quarter, we repurchased approximately 1.4 million shares for $14.6 million at an average price of $10.77 per share. Based on the Board's increased authorization that was mentioned last quarter, as of September 30, 2024, we had approximately $39.4 million remaining in our repurchase authorization that runs through year end 2025. I would now like to finish by discussing our outlook for the fourth quarter. For the fourth quarter of 2024, we expect total revenue of $168 million to $172 million and we expect adjusted EBITDA of $43 million to $46 million. Our full year guidance remains unchanged at the midpoint with the given fourth quarter ranges. As a reminder, please note that the full year guidance given previously excluded the sold fitness assets. Operator, we are now ready to take the first question.

[Operator Instructions] Our first question comes from Matt Hedberg with RBC. Matt, go ahead with your question.

Great. Thank you very much, guys. Thanks for the time. Two questions from maybe. The first one, Eric, it really does seem like the cross-sell opportunity now is significant, especially when you're thinking about higher wallet share. Can you talk about some specific initiatives that the company is doing from like a go-to-market or marketing perspective that could yield even better cross-sell optimization as we look forward?

Yes, thanks, Matt. It's a great question. I'll give a high-level, I'll let Matt and Evan kind of take some of the details. One of the things that we are really excited about and we touched upon this during our last call is something that we call Edge. Edge is a program that we utilized from a -- a previous -- one of the solutions we currently own that provides kind of rewards and benefits to some of our customers, specifically in the contracting space. We launched this into one of our solutions, had really, really positive kind of penetration and now we've since launched it into a couple of other solutions and we're seeing significant uptake from that. I'll let Evan talk more detail about that.

Yes, Matt, it's great question. So one thing I'd say just on the execution front, we've really focused on integrated sales motion when we think about core systems of action with integrated payments, with reputation management and Edge solution, as Eric said, where we have one team focused on selling that all of those integrated solutions at the point-of-sale. We've rolled that out in multiple parts of our business, both in EverPro and in EverHealth and really started to see quarter-on-quarter in Q3, significant growth in new payments attached, new customer attached to payments for our new customers and we'll continue to execute that in this quarter and into 2025. And Edge is a key component to that as is -- as payments and our reputation management solutions.

That's great answer. I mean, it actually kind of dovetailed into the second question. You sort of -- because it really felt like payments was -- or excuse me, cross sell in general, but payments has always been a key catalyst and I think this year is obviously a bit of a transition year from a business perspective and I guess when we think to 2025 more so on an organic kind of pro forma basis, how would you sort of then rank the most important catalyst for organic reacceleration? Obviously, cross-sell is a big part of that. But is there a way to kind of think about like some guardrails on '25 kind of organic growth and the potential for reacceleration?

We're -- thanks, Matt for the question. We're not giving guidance at this point to '25, but I will say that we are -- all the investments and a lot of that we talked about the transformation optimization we've done through '24. We believe it sets us up for a reacceleration more towards the back half of '25 and into '26. I think the things to answer your question specifically, we are still going after massive markets. We have approximately 700,000 customers and that is a very small portion of the markets we're going after. So it starts with, everything we do starts at top of the funnel. We have to execute more effectively, bringing in new customers in all of our solutions, which as Evan just touched upon, we saw -- we started to see some additional pickup in that. And then secondly what we've done as integrated our organizations, we talk about getting more vertical. The sales flow from bringing on the new customer to getting the attach on whether that's payments or other solutions. If we do it upfront on the sale which we've now integrated the sales process, the chances of that customer taking more than one solution and utilize more than one solution is significantly higher. So you put a lot of effort into that. The third thing I'll say is, we will continue to go back to the one of the biggest opportunities as you're looking at A and B is still to penetrate further in the payment opportunity. We have a massive -- we see the amount of payments that run-through our system through the invoices that better sent out. We are getting a fraction of that wallet share at this point. And so we have spent a lot of time, a lot of energy, a lot of effort reorganizing our go-to-market with payments, reorganizing how we're selling that and reorganize the team as a whole. And we're super excited about starting to see those start to pull through ahead of them. Any to add Ryan?

No, I think you nailed it. To Eric's point, Matt, it starts with our system of action software. They're in -- they're really good softwares in really strong markets and nailing our go-to-market all the way through new customer acquisition, further embedding additional solutions and again ensuring that our customers have everything that they need to continue to grow with us. That is the driver that has been the driver and that will be the driver as we go forward in the future to organic growth.

Great guys. Comprehensive answer. Thanks. Best of luck.

Thanks, Matt.

Thank you.

Our next question comes from Ryan MacWilliams with Barclays. Ryan, go ahead with your question.

Hi guys, this is Eamon Coughlin on for Ryan MacWilliams. Thanks for taking the question. Just curious if there are any changes in the broader SMB purchasing environment that you call out in 3Q? And how did linearity look throughout the quarter?

Can you repeat the last question?

Just a question on linearity throughout the quarter. There were any changes you call out?

I'll take the first piece. Really no changes quarter-on-quarter. We've talked about continued ASP expansion, which we did a nice job of new customer acquisition in the quarter. And then from a sales cycle perspective, we continue to see flat to even compressed sales cycles in our core solutions. So really pleased with the progress there in Q3.

Got it. And then maybe a question for Ryan. After acting as the new CFO for two months, are there any strategic changes that you might look to make over the next 12 months? Or are there any key metrics or changes to guidance philosophy you're thinking of?

No key changes in terms of metrics or things of that nature. Those are things that we really think about as we go into the 2025 budget season and guidance that we would give. With regard to focus areas, it's going to continue to be the areas that we have put time and effort into, the transformation and optimization that Eric mentioned on the front end and then the -- really the embedded functionality. We've referred to previously cross-sell, upsell, but it's the embedded functionality that we look to in the -- in 2025 that is a key focus just because of the opportunity that presents from the margin profile perspective.

Got it. Thanks, guys.

Thank you.

Thank you.

Our next question comes from DJ Hynes with Canaccord. DJ, go ahead with your question.

Hi, guys. Thanks for taking the question. So the metric that stood out to me, Eric and Matt, in the quarter was the nice growth in enablement of customers with more than one product. Can you just talk about what's driving that new initiatives there, strategies to keep the momentum going? Any color there would be helpful.

Yes. I think Evan hit on it in his -- when he answered his question upfront that. Thinking about that integrated sales motion, so the integrated go-to-market motion, not that we didn't do it before, but really doubling down our focus on that sales rep, talking about that system of action software, but in that same go-to-market motion, speaking about those embedded offerings that we have whether that's payments, whether that's Edge, whether that's -- as he spoke about some of our customer experience solution, really ensuring that at through that first touch, with that new customer through that new customer acquisition process that they get the sense of the full breadth of the offering of what we can do in any of our solutions, whether it be EverHealth, EverPro, EverWell, et cetera. So that integrated sales motion is key and I think you're starting to see that pull through in the way we sell upfront and embed solutions along the way.

Yes. Okay. And then maybe a follow-up on the EverPro side of the business. First, congrats to you guys and Josh for getting him on-board with the team. It sounds like a great hire. The question, have the consolidation of the trades that we're seeing in the space, obviously, it's largely been private equity led. Is that reaching down into your segment of the market? And if so, is EverCommerce a net winner or loser from that trend?

Yes. Thanks, DJ. It's a great question. I think in general, the answer is no. We're playing in the market. We have a lot of smaller contractors, call-it, we have a lot of solos up to maximum 10 trucks, but mostly in that 1 to 10 standpoint. And those are not really the -- in the markets that the PE firms are looking to consolidate, for the most part, those are not the ones that they're consolidating. So we are not utilizing our customers from that perspective. It's a very large market and you can't consolidate every one of those because there's just a lot of one-offs. In the areas where we have a little bit bigger in some of our softwares like service fusion, that's an opportunity for us that we think we benefit. We think we have a really good solution. And when the PE firms do buy those, which has really been nominal to this point in terms of any type of attrition. We think we have an offer -- we have a product that provides them value across their portfolios if it makes sense. And so we haven't seen much of it from that perspective. But I think if that starts coming to our higher-end of our customers, I think we're well positioned to take advantage of it.

Sounds good. Okay. Thank you guys.

Thank you, DJ.

Our next question comes from Alex Sklar with Raymond James. Alex, go ahead with your question.

Great. Thank you. Just want to follow-up either Matt or Evan probably. Just on your commentary on-top of funnel growth for new customers through the third quarter. Any changes from the first half of the year-on that? And then just given some of the organizational changes taking place, how should we think about the potential for you to be kind of more tactical on a solution-by-solution basis either in terms of some of your digital marketing efforts or actual rep hiring? Thanks.

Yes. I think we had -- we stated before, I think we've seen a lot of consistency in Q3 from an acquisition standpoint relative to the consistency we've expressed in past calls from a customer acquisition standpoint, the demand environment hasn't changed. We've been able to successfully continue to execute our go-to-market initiatives as we have expected to and in certain cases beyond that. So we were certainly pleased with go-to-market, new customer acquisition activity in Q3. The second part of the question, can you ask one more time?

Yes, just the idea that you've got some more vertical alignment with some of the organizational changes and just being more tactical on funnel growth either on a solution-by-solution basis or on a micro-vertical basis, just more empowering of the localized leaders.

Yes. I mean, we look at the work that we've done from a transformation as, A) helping us get closer to the customer in those micro verticals, getting more of our functional groups sitting together versus a matrix approach where we had a centralized marketing team, but then the rest of the go-to-market team sitting in the verticals. Putting all of those teams together, we feel really strongly about and we've actually seen that across EverHealth as we've driven operational consolidation or super-excited as we're driving operational consolidation in EverPro to reap the executional benefits of getting more of our resources sitting together closer to the customer and actually driving better conversion in our go-to-market processes.

Okay, great. And then I'm not sure you want to take this next one, maybe you, Ryan, but just in terms of the spend optimization efforts, six or so months in, you talked about the $250 million of third-party costs. Where do you stand today in terms of the visibility on potential savings and any biggest near-term opportunities to call out? Thanks.

Yes, we've looked at a lot of different areas. We've done a lot of work in the real-estate portfolio consolidation. We're also working a lot with kind of vendor consolidation from a procurement perspective. There's a number of key areas that we're looking to. We're not disclosing any particular numbers right now from a savings target perspective. As we get into the 2025 budget process, we may have more visibility to provide. But I would say that we have a very strong inventory of areas that we're working on currently and beginning to execute on those in relatively quick succession.

Really, I think you can see some of that pull-through in some of the margin improvement throughout the year as well we've had this year.

Great. Thank you all.

Standby for our next question. Our next question comes from Aaron Kimson with Citizens JMP.

Great. Thanks for the question. Going off of Alex's question a little bit, what inning would you say the company is in with the ongoing business optimization from kind of a go-to-market perspective driving the top-line as well as from an efficiency perspective on the cost side? Is one-piece further along than the other or do you think about them as one and the same?

Yes. Thanks, Aaron. It's a great question. I think we're working on those in parallel paths essentially. So when you think about the two pieces of the puzzle, we really have broken them up from a transformation, organized the teams as Matt says, to get the decision-makers close to the customer, bringing on great leadership to run EverPro as we just talked about, Josh, as a -- really as a business unit from that perspective, so he could actually make decisions holistically within that EverPro vertical. At the same time, while we're doing that, we're focusing on some of the optimization categories that Ryan just discussed. And so we -- our hope is these things are happening in parallel. We will increase our go-to-market, increase our top-line while we're managing our cost structure. I think we put in some of our -- we talked about it in the opening that as we go into '25, a lot of those cost-savings are going to help us reinvest in the business in the short-term to accelerate growth. And so we look at them as they kind of go together because one is going to fuel the other.

Yes. I would just add to that. I think Ryan said it well. We have a strong inventory of opportunity and I think that exists both from a transformation and optimization side. So I think we've in certain places started to reap the benefits in both of those areas, but there still exists a strong inventory of opportunity for us to continue to optimize the business on both fronts.

And I would think of them as like multiple parallel paths. We're not waiting on one for another. Like we have the go-to-market activities that are going on from an EverPro and an EverHealth perspective contemporaneously with the work that we're doing both on transformation and optimization. So we have basically spun up multiple teams all working kind of in concert with one another, but not waiting on any one particular piece.

Thanks for that. And then maybe a follow-up for Ryan, given it's your first call as CFO, what's the single most important metric you think investors should focus on when assessing EverCommerce over the medium-term to long-term?

I don't know that there's actually one metric that I could point to specifically. The metrics that we outlined really overall in the presentation, I think are the ones that we find most important as we run the business from a management perspective. I think the pro forma metrics that we provide on the growth rate point-of-view are important. We rationalize those obviously for things that we think need to be adjusted on a growth basis. I also think that looking at the performance of the individual revenue line items is quite important. We're seeing very strong results from a Subscription and Transaction point-of-view, and I would focus on that really as the core activities from the core solutions from EverPro and EverHealth. Those are very important to us on a long-term basis.

And I want to add just one more. The metric that we introduced a few quarters ago, which is talking about the amount of customers that have been signed up to utilize more than one solution, that is kind of a precursor to our ability to get them utilizing more than one solution. And once that happens, we have a long history of understanding that these customers will spend more and they will be with us longer. So it's a really good kind of prelude to what we believe is going to happen in the future.

Thank you, guys.

Thank you.

[Operator Instructions] Our next question comes from Clarke Jeffries of Piper Sandler. Clarke, go ahead with your question.

Hello, thank you for taking the question. If Eric, you made a couple of references to this. I wanted to ask around this new organizational structure to EverPro. It's sounds like the changing the structure to make the decision making closer to the customer needs is really to overcome the biggest obstacle to additional upselling, which is customer awareness. But I was wondering if there's anything else that's top-of-mind within the new organizational structure? Do you think it lends to R&D working better or sales and marketing working better? Or is it really about finding signal from noise off of more than 690,000 customers and making sure they're all aware of what you're -- what you have available as a portfolio?

Yes. Thanks, Clarke, for the question. So it's kind of all of the above. I think the first thing is that you’re -- the last thing you said is, yes, obviously more focus in one specific area from a leadership standpoint provides better understanding of what's happening. But we feel strongly, it's not just the overall signals, it's the things you talked about. So we've actually historically you've had a centralized marketing team that has helped all of our verticals and all the solutions go-to-market within EverPro now, that is a fully focused vertical focused marketing organization within the department. Similarly, with R&D, R&D, although they were kind of at the solution level, it was kind of led from a both individual to back up to kind of essential, the R&D resources within EverPro will be EverPro R&D resources and be utilized the needs of that organization. And so the focus for Josh, his ability to kind of take those resources, put them where the best opportunities are within that EverPro vertical and make sure we're maximizing our investments in R&D. And so it is much more of the kind of former than the latter and we feel very strongly and this is direction we're taking across the organization.

Perfect. And then just a follow-up around NRR, could you maybe remind us about the relative headwind related to some of those pricing changes? Is -- like on an adjusted basis has that troughed and stabilized? And then I think also just the context of what that was historically, so that when we think about the next year or maybe an environment where there might be better economic growth tailwinds, what would be the general range that you would consider as normal or normal business expansionary kind of rates from that metric? Thank you.

Yes. I mean, I'll take that one to start. I think taking out the -- as we have and often speak to NRR without Marketing Technology Solutions just given the campaign-based nature of them versus the recurring standpoint, we had in previous periods been looking at 99% to 100% net revenue retention in certain quarters just a little beyond that. As you heard us speak to and we've spoken to it in past quarters, the anniversary of a really large pricing action that just would not be repeated in two of our lower ARPU solutions that we saw the benefit of from a growth standpoint in 2022 and through the end of 2023, we're watching that from a non-repetitive standpoint where the anniversary of that happened through the end of 2024. So we measure out on LTM basis. So you actually see the impact over that over a longer period of time. I think we're actually -- we are starting to see that rise again, but those -- that is the core driver of that reduction from the 99% to 100% NRR to that 96%, 97% that we've reported the last two quarters.

Perfect. Thank you very much.

Our next question comes from Bill McNamara of Evercore ISI. Bill, go ahead with your question.

Okay. Hi, this is Bill on for Kirk and thanks for taking my question. Given interest rate cuts in the political landscape, has your perspective on the M&A environment changed at all since last quarter?

Well, thanks for the question. I mean, it really hasn't changed in several years. I mean, we are always going to be looking for opportunities to maximize the value of the organization and that can mean from an M&A acquisition or divestiture standpoint. And so we take all those factors into account as we look at anything. And if we see something that's going to make sense for us organizationally, again, whether that's from a acquisition divestiture standpoint, we will proceed accordingly.

Great. And then with the decentralization of sales, marketing and product development, do you see this as requiring an increase in headcount or retraining any personnel to hit full productivity?

Yes, we don't -- certainly, on the second part of your question, not a real issue from a retraining standpoint. And when we look at this from a personnel standpoint, I think there are -- just looking on its face, no, not from an incremental standpoint. There maybe places where we have to add personnel where they weren't there before. There may be opportunities for personnel to actually consolidate in certain places. So on a net-net basis, we don't look at that from a large required change to headcount.

All right. Thank you for taking my question.

This concludes the question-and-answer session. I would now like to turn it back to Eric Remer for closing remarks.

Well, thank you all for participating in the calls today. We are incredibly excited about the progress we're making in both our transformation optimization programs as well as the results we share with you today. I want to once again thank the entire EverCommerce team for their hard work and thank you all of you for your support.