EVCM - NASDAQ

Good day, and welcome to EverCommerce Inc.'s Fourth Quarter 2024 Earnings Call. My name is Sherry, and I will be your host for today's call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Brad Korch, Senior Vice President and Head of Investor Relations for EverCommerce Inc. Please go ahead.

Good afternoon, and thank you for joining. Today's call will be led by Eric Remer, EverCommerce Inc.'s Chairman and Chief Executive Officer, and Ryan Siurek, EverCommerce Inc.'s Chief Financial Officer. Joining them for the Q&A portion of the call are EverCommerce Inc.'s President, Matt Feierstein, EverPro's Chief Executive Officer, Josh McCarter, and EverHealth's Chief Executive Officer, Evan Berlin. This call is being webcast with a slide presentation that reviews the key financial and operating results for the three months and year ended December 31, 2024, as well as our 2025 guidance. For a link to the live or replay webcast, please visit the Investor Relations section of the EverCommerce Inc. website at www.evercommerce.com. The slide presentation and earnings release are also directly available on the site. Please turn to page two 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. Reconciliation of non-GAAP to GAAP historical measures is provided in both our earnings press release and our earnings presentation. Before we discuss fourth-quarter results, I would like to highlight a press release that we issued earlier in the week. In this press release, we disclosed that we are actively seeking strategic alternatives for our marketing technology solutions. The company began this process in late 2024, and we expect the sale to occur in 2025. Accordingly, financial guidance provided today will focus on continuing operations and excludes marketing technology. EverCommerce Inc. does not intend to make any further public comment regarding the review of strategic alternatives until it has been completed or the company determines that a disclosure is required by law or otherwise deemed appropriate. I will now turn it over to our CEO, Eric Remer. Please continue.

Thank you, Brad. On today's call, I will highlight fourth-quarter 2024 results, as well as provide an update on our top priorities with our key verticals for 2025. After my remarks, Ryan will take over and dive deeper into our financial performance. We ended 2024 on a strong note. Our fourth-quarter reported revenue exceeded the top end of our guidance range. In fact, throughout 2024, we consistently met or beat expectations. For the fourth quarter, GAAP revenue increased 3.3% year over year. On a pro forma basis, which adjusts the prior year for the sale of the fitness solutions, revenue increased 7% year over year. Adjusted EBITDA of $50.4 million also beat the top end of our guidance range, representing a 28.8% margin. Adjusted EBITDA margin expanded nearly 340 basis points year over year. Payments revenue, excluding the fitness solutions, grew 8.9% year over year, driven by 9% growth in TPV. Finally, with last quarter's announcement of Josh McCarter joining as CEO of EverPro, and more recently our announcement regarding EverHealth, our prior Chief Operating Officer has transitioned to the EverHealth CEO role. We have made significant progress in our transformation efforts that are key to achieving our growth acceleration goals. With the establishment of these leaders, the sale of our Fitness Solution in 2024, and our recent announcement regarding our intent to sell marketing technology solutions, we are positioning our future growth as a pure-play SaaS and embedded payments platform empowering critical service providers in the SMB space. EverCommerce Inc. provides SaaS solutions for the service SMB economy. We offer tremendous value to our customers by providing the system of action necessary to run their businesses with tailored unique workflows. As you know, we only update our customer count once per year. I am now happy to report that we grew our customer count by more than 7% over the past year. We provide end-to-end solutions to more than 740,000 customers across our three major verticals. Our large base of customers is a key strength of EverCommerce Inc. Each one of those customers represents an opportunity to utilize embedded payments, add more features, and/or users, and upsell to more robust products as the business grows. We talk often about our transformation optimization program's financial benefits, whether it's cost savings or accelerated growth. But another key outcome of this program is enhancing our ability to provide more value for our large base of customers. On a pro forma basis in 2024, we generated $690.7 million of revenue, representing a 5.7% year-over-year growth. Subscription transaction revenue grew 8.4% year over year. For the full year, we generated a 25.3% adjusted EBITDA margin, which is approximately 230 basis points of margin expansion year over year. Finally, our annualized total payment volume or TPV expanded to over $12.6 billion. As Brad highlighted in his opening remarks, we recently announced that we are exploring strategic alternatives to our marketing technology solutions. These solutions are valuable products to our customers, fueled by the fact that service-based small businesses need various digital channels to promote their businesses and acquire customers. What has become clear to us as we've been on a transformation journey is that our primary focus, energy, and investments need to be on providing best-in-class vertical SaaS software with embedded payments. We believe that focusing on these areas will allow us to maximize long-term growth, margin accretion, and ultimately shareholder value. From a more practical standpoint, we believe that removing this campaign-based revenue stream and lower-margin business will help highlight the higher growth, higher gross margin businesses from our core SaaS and Payments businesses. Post the planned sale of the marketing technology business, our core verticals will be EverPro for Home Services, EverHealth for Health Services, and EverWell for Wellness, with the two former verticals representing approximately 95% of consolidated revenue. EverPro is an industry-leading provider of integrated workflow-driven solutions for the SMB field service professionals. Providing end-to-end management from lead management, scheduling, dispatch, estimating, invoicing, and value-add solutions such as payments and customer experience management, EverPro faces a fragmented and largely unaddressed market. While there are competitors in our space, our growth opportunity in EverPro largely stems from attracting customers who are not using integrated solutions and from increasing payments adoption. Our 2025 priorities with EverPro are focused on growing our base of customers, improving the expansion of cross-sell opportunities inherent in the business, and most importantly, the adoption of payments. We plan to augment our go-to-market approach, including scaling our efforts with partnerships and channel optimization. Additionally, we are streamlining product development and engineering by unifying roadmaps, rationalizing platforms, and leveraging AI to continue to provide market-leading products to our customers. While we publicly announced Josh McCarter to lead EverPro, we've also augmented the leadership team with the hiring of proven successful leaders across sales, marketing, product, and technology. We have broken down the fragmented solution-centric organization structure within EverPro and built a strong functional organization that we believe will improve efficiency, enable fast decisions, and accelerate growth. EverHealth is a leading provider of end-to-end capabilities for small physician practices, from scheduling to practice management to patient engagement to revenue cycle management that our healthcare customers need. The capstone appointment at EverHealth was our announcement in January that Evan Berlin will be taking the reins as the new CEO. We are investing in our product to provide enhanced features, accurate workflows, and deeper integration to create more value for our customers that we believe will provide better customer acquisition and higher retention. Our platform enables providers to select a single partner of choice to support their entire operation. While we lead with SaaS to empower our customers, accelerating payments continues to be a high priority for EverCommerce Inc. Not only have we made good progress throughout 2024, but the real-time investments we're making today are geared toward increased enablement and usage. As I mentioned last quarter, we are specifically investing in our product capabilities and go-to-market motions to prioritize payment attachment as a point of initial SaaS sale, as opposed to a separate add-on sales motion. At the end of the fourth quarter, approximately 219,000 customers were enabled for more than one solution, reflecting a 22% year-over-year growth. As we discussed when we introduced this metric, enabling customers with more than one solution is the first step in the funnel that leads to increased revenue retention and ultimately profitability of these customers. Once customers are enabled, the next action item for us is to facilitate usage. In the case of payments, this is getting our customers to actively process on our platform. We measure this step in the funnel as utilization. At the end of the fourth quarter, approximately 91,000 customers were actively utilizing more than one solution, reflecting more than a 14% year-over-year growth. The acceleration over the year-over-year growth reported in the prior quarter. Customers who have purchased and utilized more than one solution are now some of our most profitable and stickiest customers. As we've illustrated in past earnings calls, the effect of more customers taking payments and other add-on features and services results in higher net revenue retention. Looking back over the trailing twelve months, our annualized net revenue retention or NRR for the core software and payment solutions is consistent with our prior quarter. Year over year, our payments revenue on a pro forma basis grew 9%, accounting for approximately 17% of overall revenue. This is an acceleration in growth versus last quarter, and it speaks to the continued progress we're making in payments adoption. We report our payments revenue on a net basis, and as a result, payments revenue contributes approximately 95% gross margin as a meaningful contributor to our overall adjusted EBITDA margin. Fourth-quarter estimated annual total payments value or TPV was approximately $12.6 billion, representing a 9% year-over-year growth. As I mentioned earlier, making strategic high ROI investments into our payments platform, we believe will result in increased payment adoption, TPV growth, and revenue acceleration. Now I will pass it over to Ryan who will review our financial results in more detail as well as provide first-quarter and full-year 2025 guidance.

Thanks, Eric. The total reported revenue in the fourth quarter was $175 million, up 3.3% from the prior year period. Within total reported revenue, subscription and transaction revenue was $139 million, up 4.2% from the prior year period, and marketing technology solutions revenue was $29.6 million, down 1.6%. The amounts presented on this slide for marketing technology revenue include amounts historically presented as marketing technology solutions, as well as related marketing technology components included within subscription and transaction revenue. 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 Q4 2024, year-over-year pro forma revenue growth was 7%, while year-over-year pro forma subscription and transaction revenue growth was 8.9%. The primary difference between the actual and pro forma revenue growth is attributable to the removal of prior year revenue associated with the sale of our fitness solutions that closed in 2024. The solid performance in subscription and transaction revenue was largely due to continued execution of our growth strategy, to provide customers with our core system of action software solutions and driving expansion by promoting cross-sell and upsell opportunities, leading with payments. As Eric noted, we also exceeded the top end of our adjusted EBITDA guidance range. Fourth-quarter adjusted EBITDA was $50.4 million, representing a 28.8% margin versus 25.4% in Q4 2023, which is 17% growth year over year. Q4 margin expansion was aided by seasonality in our business sequentially, as well as the timing of some transformation investments. On a year-over-year basis, margins improved due to cost optimization initiatives, mix shift to higher margin products, and overall scale economies. Adjusted gross profit in the quarter was $124 million, representing an adjusted gross margin of 70.9% versus 67.3% in Q4 2023. Adjusted gross profit improved largely as a result of 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. Turning to adjusted operating expenses, which are reconciled in the appendix to this presentation. Overall adjusted operating expenses modestly increased as a percentage of revenue from 41.9% to 42.1% for the quarter on a year-over-year basis, while improving on an LTM basis from 42.8% to 42%, representing our approach to balance the amount and timing of investments made in our solutions. We maintained our focus on improvement in customer satisfaction and acquisition while also highly focused on cost discipline and 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 $48.4 million as compared to $36 million in Q4 2023. Levered free cash flow was $43.8 million in the quarter, and for the trailing twelve-month period, we generated more than $94 million in levered free cash flow. Adjusted unlevered free cash flow was $39.1 million in the quarter and $134.5 million for the last twelve months, representing 31.5% and 20.5% year-over-year growth respectively. We ended the quarter with $136 million in cash and cash equivalents, and we maintained $190 million of undrawn capacity on our revolver. We have $532 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 2.2 times. Consistent with our financial policy, we have $425 million of notional swaps at a weighted average rate of 3.91% for the floating rate component of our interest cost. In December, we successfully repriced the fixed rate component of our term loan. As part of the continued transformation and optimization efforts, the term loan was repriced at par and reduced the fixed price component of the interest rate by 50 basis points while also eliminating the credit spread adjustment to now bear an interest rate of SOFR plus 2.5%, resulting in annualized interest cost savings of approximately $3.3 million. 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 fourth quarter, we repurchased approximately 623,000 shares for $7 million at an average price of $10.88 per share. Based on the board's authorization as of December 31, 2024, we had approximately $32.7 million remaining in our repurchase authorization that runs through year-end 2025. I would now like to finish by discussing our outlook for the first quarter and full year of 2025. As a reminder, our guidance for revenue and adjusted EBITDA for 2025 is based on our continued operations, which will exclude marketing technology solutions. Please note that marketing technology solutions will be reported as discontinued operations beginning in Q1 2025. To assist in the comparison of 2025 guidance to prior year results, we have provided the associated amounts of revenue and adjusted EBITDA for marketing technology solutions included in our consolidated results for 2024 as part of this presentation. For the first quarter of 2025, we expect total revenue of $138 to $141 million and adjusted EBITDA of $39 million to $41 million. For the full year 2025, we expect total revenue of $581 million to $601 million and adjusted EBITDA of $167.5 to $175.5 million.

We are now ready to take the first question.

Thanks for taking my questions, and congrats on being a strong year to finish the year. I guess first, just on the macro, can you just give us an update on what you're seeing with the health of your customers and any impact you're seeing from tariffs or hesitancy as we approach a new maturation? And, Matt, you wanna take that?

Yep. Absolutely. So thanks, Bhavin, for the question. You know, right now, we are seeing really nothing currently discernible in either acquisition utilization or churn trends that would point to a macro impact at this point in time. And as you know, given the highly digital nature of our new customer acquisition funnel, we do have real near-time indicators that we continue to monitor. So we look at things like cost per lead, lead to close conversion rates, cost per acquisition, sales cycle times, new sales ASPs, to really assess that net macro impact along with additional utilization and retention indicators. And right now, again, nothing discernible, but obviously something that we're gonna keep our finger on.

And the only thing I'll add to that, if you look at our two main verticals, which represent 95% of our business, our home field service business is really primarily repair and fix. We don't do new starts or things of that nature, and that really is pretty consistent regardless of macro. And then the second largest is our health services, EverHealth. And, again, very consistent regardless of tariffs or macroeconomics that we see.

That's helpful there. And just a quick follow-up. I know you talked about augmenting your existing go-to-market with partnerships and channel optimization. Can you just expand on what you exactly mean by that? And how big is partnerships or channel today in terms of driving traffic?

Yeah, I'll certainly talk about it from my perspective, and then perhaps Evan and Josh will follow on from the vertical perspectives. I think we've always talked about partnerships as kind of one leg of the stool of our new customer acquisition. As we've always talked about, digital is kind of by far the largest. But the partnerships and then in-person trade shows and conferences are really the other two legs of that three-legged stool of our customer acquisition, with digital being, as we've always talked about, between 80% to 85% of that new customer acquisition. Obviously, from a partnership perspective, it's probably the second stool, but a much smaller stool and a leg in that stool. Evan, anything to add from a health perspective?

Yeah, it's a great question. I would just say in EverHealth, we're focused on the existing partnerships we've got plus new partnerships. We see double-digit growth in that channel distribution group of partners that we've got, and those are other affiliates and other EMRs. They're leveraging our patient engagement capabilities as well as the marketplace that we've got within EverHealth. And so there's actually different channels within that third-party distribution and something we continue to invest in to Matt's point to diversify our channel acquisition and also just reduce our cost of acquisition.

Great. Thanks for taking my questions.

Thank you. One moment for our next question. And that will come from the line of Alex Sklar with Raymond James. Your line is open.

Great. Thank you. Eric or Matt, on the accelerating customer count for the full year, can you talk about how that played out from a linearity perspective versus the 3% in 2023? And then with that, what have been kind of the biggest factors for the acceleration of that on the gross retention side? Is it more digital conversion? Is it better on the demand side? I'm just kind of curious what's played into that acceleration.

Yeah, I appreciate the question. Obviously, quite happy with the growth of customers. I think when you think about that total customer count, what goes into that, obviously, new customer acquisition trended nicely across the year, again, really driven by our digital efforts. But also, again, increasing investments in partnerships and the small other areas that we've been looking to diversify from that standpoint. So across 2024, we certainly saw as we got into Q2 and Q3 some benefit to those efforts from a new customer acquisition standpoint. I wouldn't say that beyond that there's anything from a trend standpoint. I think our execution from a new customer acquisition standpoint was consistent across the year. And then from obviously a retention standpoint, that's the other side of the coin of the customer count. Retention was where we expect it to be, an area that we continue to invest in how we engage with our customers, continuing to invest in our products to make them only more valuable and strengthen their value proposition for our end customers. And we continue to iterate across our portfolio on that, and I think across the course of 2024, that really manifested in that 7% growth of total customers of execution on both the new customer acquisition and the retention side.

I'll add to that. Thanks, Matt. We talked about that 7% growth, but I think the really important number to really focus on is the 740,000 customers. It's a massive scale of SMB customers that gives us the opportunity, which we're getting better and better at providing more value to by providing more services to them. So that continues to be a large focus for us. Obviously, we're happy to continue that to grow, but the overall scale of that, I think, it's lost sometimes how many customers we actually have within the EverCommerce Inc. ecosystem.

Great answers. And, Eric, I actually want to dovetail on that for the second question. Here. So you the scale you've built out, you're obviously divesting the marketing solutions, but you've talked about how important some of these horizontal solutions are to your customer base in general. So strategy post the marketing sale, can you just talk about the opportunity to enable more horizontal optionality either with more marketplace partners or you talked a lot about partnerships today. Just curious on that strategy broadly.

Yeah, no, it's a great question. And look, all of our customers, which is why we went to the marketing space in the first place, they need leads. They need efforts, providing more value. We've seen the greatest success by a large amount in embedded finance, specifically payments. And so as we look to provide more value, I mean, we provide reputation management. We provide other integrated services beyond payments, but we definitely are seeing that as the continued focus and really the core need of our customers at this time. So for things outside of the ecosystem that we need to partner to provide our value, yeah, we'll bring in partnerships, and we have those as we speak, and Matt can talk about some of those as well. But I think as we look at the future of where we're going as an organization, we want to make sure we create the best SaaS products for our customers, provide the best integrated, embedded finance that they're looking for to grow their business, and really stay laser-focused and make sure that we're dialing those two objectives. I nailed them out.

Yeah, I mean, I think so they're all internally super focused on payments, on the customer experience solutions, on edge, which we've talked about over the recent quarters. And again, we certainly you heard Eric talk about the value that marketing technology solutions can provide to end customers. That's certainly something that through third-party partnerships we can continue to provide to those end customers.

Great. Thank you both. Congrats on the quarter.

Thank you.

And one moment for our next question. That will come from the line of Matthew Hedberg with RBC Capital Markets. Your line is open.

Hey, guys. It's Mike Richards on for Matt. Thanks for taking the question. You know, obviously, there's a lot of moving parts, you know, the divestiture. But, you know, Ryan, is this your first guide you're kind of owning as a CFO, how should we think about the guidance philosophy relative to guidance in the past? And then what are the levers to that growth acceleration in the back half that we should be looking for?

Yeah, I think I mean, we feel good about the guide. I think you can see from a guidance perspective, for 2024, we came in, you know, almost on top of where our guidance was from an actual perspective and exceeded or beat on a quarterly basis kind of throughout the year. We're trying to, you know, give a 50/50 in terms of our view of where the business will be. Right. There's a lot of moving parts. We had the fitness divestiture in 2024. Obviously, we announced that we're going through a process right now for marketing technology, really to focus in the areas that both Eric and Matt had talked about. But from a guidance perspective, in the areas that will be representing our continuing operations, we feel strongly about our ability to kind of see where that is right now. Should anything change, we'll update that. But right now, we spent a good deal of time looking at historicals and also looking at the trends that we see in the marketplace that Matt talked about upfront. And yeah, for the first quarter and for the full year, we feel good right now.

And the word we used all of last year, you know, just being prudent. You know, I think we want to put numbers out there that we feel very confident that we will, you know, beat and exceed. And as we did every quarter last year and for the full year, we expected it the same this year.

Got it. And then, you know, it was awesome to see the acceleration in payments. You know, maybe you guys could talk more on the investments that you're making into that platform and what are some of the biggest frictions you tend to see in adoption and maybe would those investments be addressing those frictions that you're seeing with customers?

Yeah, for sure. I mean, I think you've heard us talk about the payments funnel before, getting more increasing customers to attach, getting those attached customers to activate, and then expanding the wallet share of those customers. I think one of the largest friction points we've seen across all of our time dealing with SMBs is just inertia. Change, and that's something that obviously we're going to, and we have experience and we'll continue to push through with investments to remove that inertia of change. So, you know, again, when you look at increasing attach rates to our existing SaaS customers, we've talked you heard Eric talk about prior our integrated sales motion, so making investments there. In terms of selling SaaS and payments at the same time, continue to invest in our payment sales team. So having payment sales reps that can follow-up beyond the sale a sales rep when there's a payments lead that didn't close, closing on that in our activation funnel, really putting customer success resources into the ground to follow-up on. Great. We've got a payments customer attached. They're starting to utilize. How do we expedite and drive additional utilization there? So again, that's another area of investments. And when you think about expanding wallet share, really the expansion of our product landscape, we've talked about that over several quarters from a payments perspective, improving payment workflows within our core systems of action, the addition of functionality like to pay across the payments ecosystem. So all three of those core areas of the funnel, we are actively making investments to drive further penetration beyond where we are today.

Great. Thanks.

Thank you. One moment for our next question. And that will come from the line of Kirk Materne with Evercore. Kirk, if you're on mute, please unmute your line. Okay. We'll move on to the next question. Just one moment. And that will come from the line of Aaron Kimson with Citizens.

Great. Thanks, guys. Congrats to Evan on the new role running EverHealth. How should we think about the payments opportunity and the penetration or maturity of that motion within EverHealth relative to EverPro?

Yeah. Thanks, Aaron. Good to see you a couple of weeks back. You know, I think ultimately, the opportunity is a little bit smaller when you look at the EverHealth business versus EverPro, just when you think about the overall healthcare dynamics where you've got patient payments as a percentage of the total, but the businesses tend to be larger. The needs in terms of actually giving patients lots of ways to make those payments, especially if you think about the advent and the acceleration of higher deductible plans. It's absolutely something that our customers need deeply embedded within both their patient engagement and their core practice management solution. So I would say we're very much in the early stages, especially in our core platforms like DrChrono, where we do have payments integrated. We're still, to Matt's point, working on building out all of the workflows and then driving all of the funnel steps within our health services ecosystem, getting customers enabled, activated, and ultimately expanding share of wallet as we invest in the product. So we see a lot of continued opportunity within EverHealth from a patient payments perspective.

That's helpful. And then the 740,000 customers is great to see for the cross-sell opportunity. Given that we only get customer count once a year, I wanted to ask on the public call if there's any color you can provide about how we should think about customer count on an ex-market basis as of December 31, 2024, to see if we can get an idea of how to model that as things happen throughout 2025. Thanks.

Yeah. Aaron, this is Brad. It's about we'll give the exact number when we get to next quarter, but it's about 15,000 customers.

Thank you. One moment for our next question. And we'll try Kirk Materne's line with Evercore ISI. Your line is open. Hi, Kirk. We're having trouble hearing you on our end.

Thank you. That is all the time we have for our question and answer session today. I would now like to turn the call back over to Mr. Eric Remer for closing remarks.

Well, thank you for that. Thanks again for joining us today and for your continued support of EverCommerce Inc. We are very excited about the transformation progress we have made and where it can take us in 2025 and beyond. And we look forward to connecting with you individually over the next coming days and weeks. Thank you very much.