EverCommerce Inc. (EVCM) Earnings Call Transcript

Good morning, everyone. My name is Alexei Gogolev, Head of Vertical Software team here at JPMorgan. And today, I'm delighted to have Marc Thompson, CFO of EverCommerce with us. Mark, welcome.

Thanks for having us.

For those here that are somewhat less familiar with your incredible story, could you give us a quick overview of EverCommerce? And what has been the evolution of the business?

Sure. So EverCommerce, really, our roots are way back to PaySimple, which was founded by our CEO, Eric Remer, about 15-plus years ago. And the mission of PaySimple was really to simplify the lives of small business service providers by enabling digital payments. So it was pretty simple to use software to help them run their business, but the real special sauce was being able to capture a digital payment and get paid frictionlessly. Well, today, EverCommerce has a vastly expanded portfolio of solutions, but our mission remains the same, which is really to simplifying and power the lives of those business owners that provide services to us every single day, whether it's in our home, in the doctor's office and whatnot. And the solutions that we offer today to our more than 690,000 customers across 3 different verticals. They really run the gamut that the core is the system of action business management solution, which is what they're interacting with every single day to run their business. But we complement that with a variety of solutions to help them grow their business, bring more customers into their business. As well as capture digital payments to offer them other value-add services and solutions. And then on the back end, help them engage with their customers so they can drive retention. We're selling these solutions across 3 large verticals -- today, 4 verticals actually. Home Services, our largest category, where we're providing tools and solutions to everything from roofers and contractors to landscapers, et cetera, health services, where our primary customers are small physician practices, the wellness vertical, which after the divestiture of our fitness solutions really revolves around the wellness portion, which are mostly salons. And then we also have a large set of solutions really around marketing technology, which are those solutions that our customers can turn to, again, help them grow their business. As I mentioned, we have about 690,000 customers. And our vertical markets comprise a global TAM in excess of $1 trillion.

Great, Mark. And quite a few divisions of your business. Obviously, they will have different trends that you're seeing right now. Could you maybe talk about the top of the funnel trends for each of them?

Sure. So Home Service is our largest vertical, more than 50% of our revenue. There, again, we're serving a variety of different micro verticals. That will be HVAC contractors, plumbers, electricians, roofers, landscapers, pest control services. a [indiscernible] Of solutions that really provide services again -- or excuse me, solutions to micro vertically oriented customers. The top of funnel there continues to be quite robust. I think in home services, one of the important things to remember about our business, we're not really subjected or correlated so much to new home buying trends. We're sort of countercyclical in that the vast majority of our customers are really break fix. Or maintenance type contractors. And we see very attractive penetration opportunities here. The market in home service is low penetration. We estimate it to be kind of in that circa 11%. So a lot of room to grow. It truly is a greenfield opportunity. And many of these contractors that we sell to in the home services category or service providers. This is the first time they're stepping into the digital transformation. And that again is wherever commerce is really helping to pave the way. So Home Service is biggest category for us, biggest vertical market, largest revenue component of our business. And frankly, probably the largest opportunity from a new customer acquisition standpoint. Health Services, there our ideal customer profile is really a small physician practice than kind of 1 to 10 docs, but specialty practices, which might range up to 100 physicians as well. And here, the top of funnel -- this is a market that is frankly a little bit more mature. Just going back to the days of Obamacare, where electronic medical records and things like that, needed to be implemented. Our solution set here really runs the gamut of patient engagement solutions, practice management solutions and the like. And here, top of funnel, again, pretty consistent. Nice trends there. It's a very well-defined market. And it's a market that's a little bit more educated. And less of a greenfield opportunity, more competitive in the sense that you really need to be driving a focus on your customer and a value prop that really delivers what they need, where they are in their life cycle. And then wellness, similar to health services, it's a rapidly growing global market opportunity. For us, our solutions are international and domestic. We have some great market share internationally with our timely solution. We have some very attractive solutions here domestically. And that particular market, growth dynamics are quite robust. Top of funnel is again quite attractive. These are some of our faster-growing solutions. And the value prop there is very much like home services. In salon, have a solution that helps them run their business, all parts of their business, capture digital payments, et cetera. But when we look across kind of the top of funnel characteristics kind of across all of them. And I would say we continue to see pretty good demand across all and the place where we've seen a little bit of a difference is more on the Marketing Technology Solutions, as we've talked about previously, where demand continues to be somewhat muted.

And I would imagine that competition is different for each of those verticals. Could you maybe elaborate a bit more who you're competing with? And what is the value proposition?

Yes, happy to do that. So in home field services, a lot of times because it's so greenfield, you're competing with a spreadsheet or maybe handwritten invoices. I think it can be that simple and that old school. So there, the digital transformation is really starting to take hold. But where we're competing, there are other competitors in the market who are offering home and field service applications similar to ours and connecting digital payments. Nobody has got tremendous market share. As you start to move upmarket, you will find competitors to look more like small enterprise software vendors. That's not our customer. Our customers tend to be much smaller. They need out of the box, easy to use, easy to onboard, easy to engage and drive value quickly in their business. So there, I would say, primary competition for us is probably not coming from another solution, it's probably coming from nothing. Health services might be a little bit of a different situation. Again, it's a more mature market in that solutions have been available for quite some time. And I think their customers are switching from other solutions where we can offer a better experience, generally mobile first, given our practice management suite of solutions. And part of what we've talked about previously is what we're doing from a brand and product consolidation. Within EverHealth we're really trying to double down and focus on that ICP so that we can seamlessly deliver under one umbrella, a suite of solutions that our competitors can't. And that, I think, will become very powerful from practice management, patient engagement right on through to collecting payments for co-pays and things like that. And then in the wellness sector, again, I would say a defined set of competitors that is its own vertical, and it's different in different markets. So where we compete in Australia and New Zealand, actually, we're the big dog. Have very nice market share in those markets. Going to the U.K., there are players like Fresha and [Forest] perhaps and then domestically, there is a variety of different players in the market. And then MarTech, there, again, a lot of different service-based companies that provide all kinds of lead gen opportunities for customers. So our solution set there is really packaged to be able to deliver to our ICP within our vertical markets. So home service contractors mostly and then also health services the physician practice.

And you've mentioned plans to consolidate brands in the health segment. What about other divisions? Is there logic behind consolidation under one umbrella?

Yes. There's tremendous logic in each of our verticals. And we've talked publicly about EverHealth because it's an easy one to articulate where you, again, think about a small physician practice 1 to 10 docs, what do they need? Well, they need something to actually build their scheduled patients. They need something to build them. They need to be able to communicate them with biotech's message and follow-up. They need clearinghouse capabilities. We can bring all of that under one solution set under the EverHealth brand eventually where they can show up and say, this is what I need 1, 2, 3, 4 sets of solutions. That model, taking that over to marketing technology as an example. We've actually already -- we're further along there -- Thank you very much. We're further along in that one than we are in even EverHealth, where we streamlined the organization through demand channels and are targeting our customer based on the various vertical markets, but being able to deliver a seamless set of solutions to our customers increasingly able to allow them to buy multiple solutions within that overall suite of services. When we come over to EverPro, we'll do the same thing. It will be a little bit more complex because some of the vertical markets truly are a little bit different. So it's that ICP that I think will change. And once you consolidate around that ICP, it gives you the opportunity to really think about what are the best solutions, what drives the best value, what drives the best experience and consolidate around those and then work backwards.

Perfect. And Consolidation of the brands, it sounds like it's also part of this broader internal optimization that you started. Can you remind us -- what prompted those initiatives? What has been done so far? And how long do you think this transition may take place?

It's a great question. So EverCommerce, we -- no surprise, we've grown through acquisition, and we've acquired more than 50 solutions. Along the way, our vision always was within vertical markets, operationally consolidate these products around a defined customer set and then deliver a centralized set of functions; marketing, business operations, all the back office functions to each of these vertically oriented product groups. So over time, while we've acquired 50-plus solutions, we've operationally consolidated down to far fewer groups than that, although there will be multiple brands. The idea, what I just articulated in EverHealth, that idea translated is really about taking those solutions and saying, "All right, again, start with the customer." What does the customer really need? What's going to drive the most value into our earlier discussion, what's going to competitively differentiate us. Because we feel like we have all of the solutions they need, but we might have more than one. So in the case of EverHealth, as an example, we're consolidating brands such that we have 2 or 3 different practice management solutions. We're going to bring that down to 1 maybe 2, there's a third. We've talked about previously. We told our customers last year. We're going to sunset this by the end of this year. And that actually is unfortunately built into our guide. So it's bringing revenue down as we migrate customers over. That kind of action will drive some real economic benefit to us going forward. And I think our ability to do that in each of our different vertical markets is going to be key to driving overall optimization. It's also going to be key to clarifying where we need to invest, what new features, what new functions, what do we need to be bringing to that customer set to, again, drive more value and ultimately, of course, accelerate growth.

And when you think about midterm growth outlook for each of those main segments, could you break down growth components in terms of volumes and price?

Yes. So for us, our growth algorithm is always going to be about driving new customer acquisition, which is important, but the most accretive thing that we can do, which also, in turn, drives better growth through retention is sell them more than one solution. We refer to that as expansion. So we've been leading with digital payments because it is very, very accretive for us, but we are also selling them other solutions as well. So new customer acquisition will drive growth. We want to do that as efficiently as we can always, but we also want to be landing this is this land and expand strategy, land with the new customer and then expand by upselling and cross-selling other solutions. To us, those are going to be the 2 primary components of growth with expansion really leading the way in a lot of cases. The other thing, obviously, is just improving retention, things like that as well. Once we sell them a second and a third product, we know that they tend to be stickier, which improves retention, of course, which comes back to driving revenue growth as well. Price, always a factor, low single digits factor for us. These are not customers where enterprise software -- being a consumer of enterprise software, I'm sort of shocked at some of the price increases that we're seeing year-to-year, you don't get away with that at this part of the market. It's more measured, but it is consistent, but it's 1% to 3% type effect.

Okay. Could I shift gears to payments. Obviously, it's such an important part of your story. Could you discuss your overall strategy and how does this attach help you improve stickiness with your customers?

Yes. It's a great question. So payments incredibly important component of our business because it is the most accretive thing we can do, and it does drive real stickiness and retention. So our strategy is it goes back to our strategy of growth overall. Land with our business management system of action, expand that relationship, start with payments because we can integrate right into the workflows of our solution set, digital payment capability that improves our customers' customer experience frictionlessly, which delights our customer, which means that they, of course, stick around because once you've sold them software that they're using to run their business every day, and now they're getting paid through your software. That's a very sticky relationship, very similar to ERP in the enterprise marketplace. So the land and expand strategy. That's not something we invented that was invented in the enterprise software market. We just have built a business such that we can do that frictionlessly for a micro SMB customer, which is obviously where we're focused. So that motion provides us an incredible opportunity for growth, which we think about as sort of near and midterm and the long term. Near and midterm -- and we talk about this on our calls quarter we have 83,000 customers out of 690,000 that are taking more than one product. The vast majority of that are payments today, although they are taking other products, customer engagement SaaS solutions, our EverPro Edge solution, some of the marketing technology solutions, but the vast majority is payments. Of those customers, that ends up being about 12%. When we think about those payments customers, those that have taken a second product there's an enablement feature, meaning some portion of those have been enabled and then there is -- once they're enabled, they need to adopt. That bridge between we've enabled payments and now we're driving adoption, that creates that midterm growth opportunity. The long tail is, of course, more penetration beyond 12%. We're about 28% penetrated from an enablement perspective. So that, that bridge between the -- again, the 12% and 28%, that really creates the opportunity for midterm growth. Long-term growth is really much more about the ultimate, which is just continuing to drive penetration of more than one product leading with payments. Payments is about 95% gross margin because we recognize it on a net basis. And therefore, as we continue to drive payments revenue growth that drives a better mix of revenue, that will in turn tick up gross margin. That's what we've been seeing in our results quarter-on-quarter as payments becomes a higher percentage. And then lastly, on the payments front, when you think about it from a unit economic perspective, this is what actually gets me quite excited because that's where you see it play out in a different way economically. So take one of our entry-level EverPro solutions, it might be circa $10, $11 a month subscription. Easy-to-use tool, small contractor, maybe it's an individual or 1 or 3 guys, something like that. The minute they adopt payments. So we enable them and then they adopt it, you can drive ARPU 3 to 5x. That's significant expansion, which is why I was saying earlier, customer acquisition, always going to be an important growth motion. Want to do that as efficiently as you can. Also really want to be driving expansion because it has such a geometric effect.

But what methods do you use to persuade some of these customers to switch to your methods versus alternative payments that they are using?

It's again, another great question. And it will differ by solution and go-to-market. So in certain solutions, we've mandated it, where mandate might come in the form of it's time for renewal. If you take our payments, your software prices is x, you don't take our payments, your software price might be 2 or 3x. And surprisingly, you have a lot of enablement with that. And then people start to understand, okay, here's real value. And I think with our customer set because -- these are not high-touch customers. These are small businesses. You don't interact with them like you do in an enterprise fashion. So educating them on the value prop and what it does for their business, takes different approaches, again, for different markets. So there's the mandate approach that's more of a carrot and a stick. But there are other motions where we've tested and learned into solutions where we thought it might not make sense to sort of beyond drip marketing and things like that to actually be in contact through a call center or something like that. There are portions of our cohort where actually that does work quite well. So investing in that kind of capability to help again, educate customers so that they drive adoption after they've been enabled. That's a great way to drive adoption once they've lit it up but now they need to understand why it's valuable to them. So reaching out to the right cohort and actually interacting with them one-on-one also works. So the motions will vary. And as we continue to think about driving that penetration and really taking that move from enable to adopt it, we are testing and learning into a variety of different means to be able to achieve that.

Great. Marc, if I could go back to consolidation efforts. Any metrics you can give us that highlight some of the progress that you've achieved so far?