EverCommerce Inc. (EVCM) Earnings Call Transcript & Summary

Excellent. So thanks for joining us today here at the Barclays TMT Conference. With me today from EverCommerce, is Eric Remer, CEO; and Marc Thompson, CFO. Eric, did I mess up the pronunciation?

You just needed the practice, and then we went right back to it.

I agree. I was like -- I had it, I had it. So like I've been joked around. I'm a Philly guy. So we're never really perfect, but I think 1 for 2 here is okay.

Perfect.

No, I appreciate you guys taking easy on me. So it's me, Eric and Marc here. I'm in New York City. Marc's in Boston. Eric's in Boulder. So hopefully, we'll be together next year in San Fran. Eric, and so, we're not dealing with this anymore over video. If I get it wrong or in person, you can give me much more crap. Next time.

Works either way.

So it's a lot of my 6 fire side today. So we'll be taking questions from the line during this call. But if you do have questions for the team, please email me at [email protected]. We can get them in. So we're going to keep things pretty high level just because I think a lot of investors are newer to the story. I've been covering EverCommerce for about 2 months now. But Eric, for those who are newer on this side, would you mind just give me a background of the company and it's path to IPO?

Yes, definitely. Thanks, Ryan. So as way of background, the predecessor of EverCommerce was a company that I started in 2006 called PaySimple. PaySimple is a SaaS platform, focused on helping service-based small businesses build, collect, manage and ultimately grow their business. Really nice platform, continue to kind of grow. About 6 years ago as I was talking to customers, what I realized was the needs of these service-based businesses were becoming more verticalized, even more microverticalized. So if we had 1,000 field service contractors, think of like plumbers, electricians, things like that, we wanted 5,000, 10,000 or more, we just didn't have the workflows. We didn't have dispatch and inventory management and the things you need to kind of run that kind of core business on a daily basis. So as I look deeper into the verticals, what I saw was a bunch of point solutions, a bunch of fragmentation and nobody was really bringing this all together. So what EverCommerce set have to do is exactly that. Connect the dots, create end-to-end solutions, allowing service base micro and verticalized businesses be more successful. You fast forward to today, we've really created the largest service commerce platform in the world, serve the needs of our 0.5 million businesses worldwide. And if you step back and look at the 2 core things we're really trying to accomplish, number one, we really believe we're at the forefront of that enablement of the digitization of the service economy. It is happening. We're watching it happen. The last 12 months, the last 18 months have really accelerated that acceleration. And the second thing that's really core to know is, we believe owning that system of action, think of it as the ERP for enterprise but really the ERP for that down-market service-based small business, when you own that system of action, that core workflow, these businesses use every day, that provides you the permission to provide them more of their core digital solutions as they make that digital evolution. So we're really in a center point of making that happen for our customers. And as I said, as reported last year, over 0.5 million customers, that continues to grow, and we'll give updated customer numbers at them this year.

Marc, I want to kick to you one second on how to think about like the addressable market for this SMB digitization opportunity. But Eric, what are some of the themes that is driving this like pull forward in SMB software adoption to that? Like why is this important right now?

Yes. You think about -- if you would have asked me 5 years ago, who's our biggest competitor, I would have said Inertia. Just getting -- these are small businesses. We are on the S of the SMB. And so getting these organizations to begin realizing that they need technology to be more efficient. That was the old scheme. Now they need technology to actually survive. And so when you think about the verticals we serve, think of what happened over the last 18 months, think about health services, digital waiting rooms. No one needed that until no one wanted to sit next to someone sat in COVID. So having an updated SaaS platform, EHR, practice management that could integrate with online forms, digital radium rooms, connect the dots, where people don't have to touch anybody anymore. Think about the fitness and wellness space where you need to have the ability to have both online, off-line classes, you need the ability to be able to connect and engage with your customers and your members without them ever going to a gym. And in the home service space, very similar, you want to be able to book, have them serve you and collect the payment without any touch. And so when people realize that it exists, who's going to want to hire a plumber or electrician or work with somebody that doesn't have that type of technology. So it's really shifted from a really nice-to-have to truly a need-to-have. But again, we're on that forefront of that enablement.

Sure, especially with some hiring difficulties in SMB, right? You definitely want to really squeeze out the resources that you have currently, right? [indiscernible]

The suspicious is huge.

[indiscernible]

Exactly.

COVID is going to do that. Yes. I think COVID for many software businesses, right, really drove a call to action. So Marc, as you guys look to capitalize on this SMB digitization opportunity, I guess, how are you thinking about the market within your verticals and overall what you're doing?

Eric, do you want to take the market question, or you want me to tag that?

You go for it.

So I mean these -- first of all, these markets -- the 3 main verticals we're in, these are over $0.5 billion of TAM domestically and, obviously, larger internationally. I think our M&A strategy, part of that is about getting into different geos with the same solutions, and you've seen that demonstrated with acquisitions of Timely and others in the U.K. and New Zealand. But I think -- as we think about TAM, penetration today, it's around 9%. And that's really -- speaks to that digitization opportunity. The verticals we're in, about 60%, a little less than 60% is home services. So we're clearly a little bit over-indexed there. About 19% health services, 14% fitness and wellness. And when you look at that trends of digitization across that spectrum, home services, by far and away, the lowest penetration, lowest rates of adoption. And to your point, Ryan, COVID, we think, was really a call to action. It was -- all of our tools and solutions really make their businesses easier to execute in a pandemic. And certainly beyond, they've seen the benefits of that automation. So we think those are tailwinds that will drive increased penetration, not just for us, but, obviously, everybody attacking these markets for years to come.

And Ryan, that's a really important point to note where you had some of these great COVID software companies that got a real big bump and then the bump kind of stabilized. This was a call to action. I really like the words you used there because that call to action is the beginning of that long tail digitization. This isn't a onetime bump and then we're back to normal. This is actually the beginning of the trend that will go on for many years to come.

Yes. And can you just talk about some of the pain points within maybe EverPro or within home services, you help customers work? I think just like an example for investors to grab that will really demonstrate how you add value as the ERP for SMBs.

Yes. I mean I kind of gave those in the earlier point, but think about from -- it's a 2-sided marketplace. So if I'm a plumber, every time I get a lead, if I have a lead, think about the old way of doing things. You call up, you go online, you find somebody, you're not sure if they're good or bad, you call the plumber and you leave a voicemail. They call you back, you finally get a time, you get a big window. They show up at your house. You point them over to the sink. They fix your sink. They hand you would invoice, they walk out the door, you got to figure out and right them a check, and that's a relationship. It really was fine. The good news is your sink is fixed but your relationship with that plumber really doesn't exist anymore. Think about the new way of doing things. You go online. Instead of taking a random plumber, you're looking at detailed reviews from other customers of who that plumber is. You schedule your appointment with a very tight window from that plumber right online. As that plumber is on the way to your house, you're getting text updates of who that plumber is, his reviews and when he's going to show up. He shows up at your house. You point him to the sink. He still fixes the sink, which is the good news. But prior to walking out of the house, he takes a digital payment. And the plumber is able to look at you and say, "Great. I noticed that you don't have any kind of ongoing maintenance. Are you interested in me coming on a quarterly basis?" So utilizing our software provides the opportunity for the plumber to actually upsell additional of his services. The plumber walks out the door, payments are taken care of, and you get a real-time text saying, "Hey, how is your experience?" Well, as a consumer I just had a Uber ask experience. I thought that was awesome. I give the plumber a great review, allows the plumber to get more positive reviews on his website. And then on an ongoing basis, I could -- the plumber could digital market -- that direct market to that consumer to get more follow-on business. So think about it from the bull sides of it. Homeowner: "I'm happy. This is a tech forward guy. He knows what he's doing. I had a great service." The plumber's perspective: "At worst case, I have an ongoing happy customer. At best case, I just increased my opportunity to generate more revenue." So both sides of that equation win utilizing better technology.

And these are features that are commonly associated with like mid-market enterprise corporations that are ahead of those things, right? So for an SMB or an individual like sole partnership to have those, I mean, that's a pretty powerful tool versus competitors.

It's huge. It's game-changing. But I think if you think about the next generation of homeowners, if they don't have it, I'm not calling you. I'm going to work with that guy who does have that because there's a mental thing that we think about. When you're tech forward, your plumbing services may be just as good or worse for that matter, but I think you're better because you're least cutting edge and the way to interact with you. And that engagement, the customer engagement across all verticals is the biggest growth vehicle that we're seeing in health care, in fitness as well as in home services.

Customer engagement isn't just for corporations anymore, right? Like it has to be SMB across all facets. Marc, one thing I think is very interesting about the EverCommerce story is that it's the organic growth opportunity that we've been talking about, along with some of the M&A just because there are so many different verticals that even go into just under EverPro or home services or health and wellness. So very difficult to build to address each of those use cases individually. So can you just talk about kind of like your thought process and strategy behind M&A?

Sure. So M&A, in our business, is really -- is for 3 things. One, we want to acquire new solutions in the markets we're already in. And when you think about a range of solutions, I mean, I think of it as kind of 3 types, right? One is just SaaS solutions, which are really that system of action that drive the micro vertically-oriented workflows that our customers truly value. The second would be -- and that's really the vertically-oriented. Then the horizontal solutions, which are payments, we're not unlikely to do anything on payments. We have our own proprietary engine and it works great. And then on the marketing technology solutions side, we've acquired a number of solutions over the last couple of years, probably not an area where it's focused on in terms of acquisition, but we have the tools we need to really drive customer growth for our customers, so the tools they need to grow their business and then customer engagement solutions on the back end that really help them grow -- retain their customers. So we're -- with those product sets within each of our markets, we're always looking to expand. That could be within a micro vertical we're already in, for example, hair salons. We bought a business some years ago called SalonBiz, perfectly suited for a higher-end multi-salon portion of the market, purchased Timely this past summer, great acquisition for the one salon operator and the lower end of the market. We see that in a number of our verticals where the segmentation, to your point, on comparing this to the enterprise market, their stratification of customers and their needs are different up and down those markets. So that's one vector. The other is get us into a new micro vertical, right? That's what might take us into a new category within home services. And then lastly is geo. And the geography element, Timely is a great example of that. Our club-wise acquisition in the U.K. We've made a number of acquisitions in Canada. So really thinking about that as a means of getting us into different geographies altogether.

I love that idea, right, that like a single hair salon versus 5 hair salons versus 20 hair salons, right, that requires different software. So...

Those are different size and scale of businesses and they have different challenges, and they think about their workflows and the level of complexity goes up, it's more geometric. It's not linear.

Yes. And look, I might be able to do scheduling on pen and paper from individual hair salon, but that's not going to really work for 3 or 4. But no. Eric, as you have leverage across all these different individual end markets or EverPro, EverHealth. Like how do you cross-sell into an opportunity once may you acquire business or add features across your broad suite?

It's a huge focus of our business. And we're at the -- I would say the second inning but we might not even be in the second inning. We're at the very early stages of taking advantage of that. As I mentioned earlier, with over 0.5 million customers and growing rapidly, the opportunity to sell additional solutions, we look at it as how do you provide more value to the customer. So it's always coming from the customer perspective. If you provide more value to the customer, obviously, that increases your ARPU and your stickiness of those customers. And so we made an investment. We brought on a new COO, back in July, Stone de Souza, who came from Sage prior to that Intuit. And his major focus really is kind of core focus is really that, creating a team and resources to actually -- with the integrations already exist for APIs. Now he's just being very thoughtful of in-product marketing, like touch outreach, making sure the product -- the moment in time we would want to take a payment, for example, that's where the product opportunity shows you. So being very thoughtful about when we touch people, why we touch them and how we touch them. And a lot of that is data-driven. We have a pretty good -- very deep data set of analysis understanding based on people's buy behavior, based on their movements throughout their cycle as part of our business. When do we touch them, when is the right time to upsell them? When is the right time to provide them new products and services? And so between marketing, testing and data, those are really the 3 avenues we're going about upselling and cross-selling the base.

And payments is one -- from your background, something you or EverCommerce is certainly very strong in. I guess when a new business comes online at EverCommerce you acquire a new business, what can you do from the payment side to really bolster your current opportunity?

Yes. I mean, often, there's kind of 2 scenarios. One, they had something in place that probably was subscale and not really the right solution or, secondly, they had nothing in place. Either way you want to bolster that workflow within the app, integrate that via an API because we already have a payment solution and then begin selling that to the customer base. And what it really ultimately does is it provides more value. We have solutions within the -- our remodeling space. We had -- there was nothing when we started that space. We did integrations. We created the workflows. We now have a very healthy hundreds of millions of dollars within that remodeling space that didn't exist prior, not revenue of TPV essentially. So there's a lot of opportunities as we buy companies to put more integrations, more workflows. And actually, like I said earlier, it provides more value to the customer.

You've got over 50 acquisitions. Yes. Still getting used to the Zoom over here. It's only been 18 months in. It's always a bad look when the cloud communications guy has a problem. So you guided on 50 acquisitions, more than that, over the life of your company but this isn't exactly a total M&A story. Like you have a plenty of organic growth opportunity within your core businesses. Marc, would you just -- can you to help investors with your organic profile and how like M&A bolsters on top of that?

Yes. And it's -- I'm glad you asked that because I want to actually -- on the M&A strategy, I missed a key point in sort of why we do that motion. But start with the organic growth profile. I mean really drive organic growth in 2 ways. New customer acquisition, which leverages a very, very efficient digital acquisition model as well as other channels. And as Eric always says, I mean, this business was formed on a horizontal solution into the broadest part of the market. So that actually is a lot more complicated than turning that engine towards vertically oriented solutions where you can drive even more efficiency. So there's new customer acquisition and, of course, this motion of integrating solutions we own and driving that cross-sell as well as just optimizing operations kind of around newly acquired solutions to drive better growth. But organic growth is, obviously, going quite well for us. I mean, Q3, 20%; year-to-date, 21%. Feeling very good about where we are, particularly in the range that we described being at the top end and expect that the markets we're serving and the way we've constructed the business, we can continue to execute at a high level. I think -- the piece that I wanted to come back to on M&A is -- so we're entering new markets. We're getting new products for new markets, whether that's domestically within verticals we're in or geographies. But M&A also adds to that flywheel, right? We bring in a new system of action. We can integrate payments, for example, or bring customer engagement solutions. So there is that bit of a geometric growth effect that's part of that embedded growth opportunity that's ahead of us.

And Ryan, just to add to that, we look at M&A as a compounding effect of our business, and we built a lot of the infrastructure via M&A because we saw a huge opportunity. We want to get to there quickly. Now that the infrastructure is in place, and we run this business as one centralized entity. This is one organization, marketing product, technology, all the core functions are run centrally from this organization. And as Marc said, organic is core to everything we do, and we use M&A to accentuate the organic growth and really compound the business and provide more value to the ultimate -- the entire ecosystem.

Yes. Do you want to capitalize on these SMB trends that you're seeing? I mean, in general, I'd just like to ask more about the M&A side because that is really interesting to me and how the different verticals interact with each other. But Eric, I think, the DrChrono acquisition was really a classic EverCommerce bolt-on to your existing product set. So can you go over like why they went with EverCommerce like why it's a good fit for your business, what you can add to that platform? I think that would really -- it's a really great example to show investors the power of what you're doing.

Yes. I'll start off with the why and kind of how we source. I mean 65% of the deals that we've done to date are proprietary deals. We've been able to develop relationships. These guys have actually been talking to you for 3-plus years. When they came to market, we were the only company that they really want to talk to you based on relationships that were built. We provide them a really great home for their software because not only do they believe our efficacy to help them grow that core software. They understand the full suite of solutions we have in the EverHealth group makes their software that much more valuable. So to them, it was a no-brainer to work with EverCommerce. And it's a great place for their team, a great place for them to continue to grow their careers. In terms of why it makes sense for us, you mentioned it, this is a sweet spot down the middle deal for us. This was a core SaaS solution, providing SMB solutions in the verticals that we're already in but gives us access to chiropractic and acupuncture and some subspecialties that we weren't really focused upon. So it's a great system of action that practice management EHR combined with some RCM in it as well. So it's really a full suite solution, and we were able to integrate that, which already has some soft integrations into our uptech solution to provide full customer engagement to their customers. So we're super excited about payment integration, customer engagement integration to take this really great platform, really top-end technology that was built out in the valley and now make it even better by providing full suite end-to-end solution to its customers. So in every way, if I could check a box off of why an M&A deal makes sense, this one was proprietary, which is great, great price. You were able to get this in a really great multiple, great technology, very good growth profile. And then our ability as EverCommerce to provide more value to that company by putting more of the solutions we own into that ecosystem and make more value to the customer, that is a check, check, check type of deal for us.

Yes. And I like the idea that you can be flexible in terms of the need for these individual business owners. Like if they want to continue with EverCommerce, they can do that. If they want to sell out or like go more into like a lifestyle business, they can do that. So really, you being public now makes it more flexible for you to deal deals like this. So...

Yes. And that's huge, Ryan. I mean these guys, they could -- a PE firm comes to them and says, "Great, we'll take 40% of your company. You got to roll over a big chunk, and we're looking at you better in the next 5 years," and they're kind of done sometimes. They built a great company. They built a really great thing. And if they want to be a part of us, that's awesome. But we have enough infrastructure to allow them to be completely transparent. What do you want to do? And how do we work with you to make that transition awesome? And that helps us a lot in these types of deals.

And Marc, going public definitely raises your notoriety and also raises some capital for the company. So what are some of the investments or objectives going forward for some of that cash after going public?

Well, I mean, a lot of the cash that we deploy -- I mean, this is self-funds and generates cash and has great adjusted EBITDA margins, we think, relative to our growth rate. So I always bifurcated it into 2 parts of the discussion. Cash from operations, we're going to continue to fund into our business. I mean, particularly, coming out of COVID, our business has proven incredibly resilient. Our markets are very large. The value prop, as we talked about, that tailwind of digitization, we just see an opportunity to continue to hit the gas pedal on investment, and we will do that. We've been doing that in the back half of this year. People should expect more of that next year. Same is true in investing in the scale of the operation and scalability of the operation, the cross-sell motion we talked about. I mean brought in Stone de Souza, but there are going to be investments we're going to make in systems and people and, methodically, over time, really invest into that opportunity because we think, one, it's incredibly accretive. And two, it's a very big opportunity. And then three, from an operational perspective, we are a public company now. We're going to be bringing through a full year of those costs next year and stuff. So just getting over that investment hump. As we look at the capital raise from the IPO, that's been deployed in M&A. We went out recently into the term loan B market expanded. That's created more liquidity to be able to continue to execute on the M&A strategy. And we really think about going public as a means of creating access to capital pools so that we can capitalize for the long term at an optimal cost that we think benefits the shareholders in the long run. And that we're excited about being public. I do think it builds brand and patina of us as that acquirer of choice in these markets. So I think that's certainly helpful. But no doubt, over the longer term, again, being public is going to help build brand across our solutions, most importantly, and down in the markets we serve. So over time, we'll extend that brand strategy down into those markets as well.

Excellent. And just one more for Marc. On your most recent earnings, you saw organic growth 20% and like the DrChrono acquisition that I previously talked about. But how would you characterize the quarter for investors who maybe are just something on EverCommerce?

I mean we honestly felt like we had a great quarter. I mean when we look at Q3, we think it really underscores our position as leading this digitization of the service economy. I mean I think we have that growth rate expectation out there, 15% to 20%. We're operating at the high end. We're feeling quite good about that. Clearly, we're executing well on those organic growth drivers, right, new customer acquisition. And we're seeing great uptake on the cross-sell. We launched that TPV metric so people can see that as an indicator of the broader motion but, certainly, payments, which continues to be the bulk of that cross-sell, I mean, we grew that very nicely in the first 9 months of the year. And then, of course, we're doing this with strong profitability. Now we have to continue to invest, but profitability matters, and we are going to be, over the very long term, very focused on creating leverage going forward. And then lastly, we do think, to your point, DrChrono is representative of a very nice acquisition that hit -- it rings the bell on a number of fronts and really sort of solidifies -- for investors the first time since being public, they can kind of see how that really comes together. So all in all, I mean, we felt like we had a great quarter.

No, I appreciate the commentary. You talked [indiscernible] I wanted to ask Eric about, the TPV number. You grew TPV, about 15% since 2020. How do you -- like how would you gauge or construct or supercharge the payment opportunity for like EverCommerce, going forward?

Yes, Ryan, that's a great question. And if you think of the 15% was, call it, we gave that number out. So it was end of year until Q3, if you look at year-over-year, it's over 20% year-over-year. So it's -- we continue to kind of grow that. And we think the opportunity -- we kind of give the numbers about a little over $8.6 billion of processing running through our platform, which represents just over 10% of the $77 billion existing opportunity with our existing customers. And so we see the opportunity to penetrate that at a much higher level going forward. And just -- a lot of it is -- it's good old block and tackling. It's doing the right things. One of -- I mentioned Stone earlier but one of Stone's biggest focus is penetrating the base from a payment standpoint at a much deeper level. And it's really providing more value, like I said earlier, putting in-app marketing, in-app workflows, making sure that the payment becomes accretive to that customer's workflow. And if you do that, it takes care of itself in terms of penetration.

Excellent. Yes, what does that kind of look like from a blocking and tackling standpoint? I'm sorry, I was in the 6 fire side, running [indiscernible], when it comes to like SMB payments?

Yes. So think about 85% of our customers are self-serve. So we've gotten really good at both digital marketing as well as creating really simple-to-use, easy products. So someone can buy a product, onboard a product and, ultimately, use a product without any touch. That's awesome. It allows us to create amazing LTV to CAC ratios and things of that nature. Where you have to spend a lot of time is making sure if you're not touching the customer, how do you get in product marketing effective so they can upsell, cross-sell as well. Now we do like to -- outsource. We have success teams and things of that nature. But you think about the in-product marketing, you log in, here are new features. Think about the opportunities as you're working through that workflow management. This is the place where you should be taking a payment. A screen pops up, sign up now. And then you add that to where it makes sense economically. You have your success team reaching out for some light touch to get those people on board to utilize our payment system.

I appreciate that commentary. And just kind of to wrap up here. I've been asking a lot of the companies in these firesides like we went through the COVID period, and now we're kind of in the post-COVID period and some companies did better in one versus the other or are facing tougher comps in one versus the other. I guess what excites you about 2022? Like what -- of these tailwinds that we talked about to really be a differentiator for EverCommerce?

Yes. I mean I think nobody expected what was going to happen in the last 18 months. So we're all kind of dealing with new realities that were just how well you manage change, I think, incredibly only proud of the team is incredibly excited about the things we accomplished during that period. And as you go into '22, you touched on it really well. The tailwinds are just starting. We -- the digitization has been accelerated. We are well positioned. We put a lot of investments into the infrastructure to take advantage of those tailwinds. And so as we look forward, we just see a continuation. Again, not a short term, not a midterm but truly a long-term continuation of that digitization. And once these customers take that first step in the digital evolution, EverCommerce, by providing them that core system of action, we're not only able to provide that first step, we're able to fill in all that digital white space as they continue down their digital solution. So we're super excited. We think we're at the very early stages of a very long-term opportunity that we're just excited to kind of see it out.

Yes. And we're definitely been digging more into this SMB software opportunity and encourage investors to do the same as well. If you have any questions for Eric and Marc and the rest of the EverCommerce management team and you're watching us on replay, please e-mail me at [email protected], we can get that in. Guys, thanks so much for the time. Hopefully, we can be together in person soon.

I look forward to it. Thanks, Ryan, so much.

Thanks for having us. Take care.

Yes.