I'm DJ Hynes. I'm the senior software analyst at Canaccord. This is the last time you guys will hear me say this until tomorrow, but this is the 44th year we've done this event. We couldn't do it without the companies that come and graciously bring the content that brings the investors, who ask all the smart questions. So, we appreciate everybody's support. We are the last thing, I think, keeping people from food and drinks. So, I'm glad we got a nice full room, and we can dig in on the business. We have EverCommerce here, CFO, Marc Thompson, and incoming CFO, Ryan Siurek. We're going to do this as a fireside chat.
So if there's questions in the audience, raise your hand, we can work them in, but we got more than enough to fill 25-30 minutes here. So, Marc, maybe just to level set in case we have folks who aren't familiar with the business, talk about what EverCommerce does, you know, the problem you solve, and kind of what's attractive about the market that positions the business for long-term growth.
Sure. Thanks for having us, DJ. Appreciate it very much. So, EverCommerce, we like to think that we're leading the digital transformation of the service economy, and how we do that is by selling our SMB service provider customers vertically tailored software solutions, predominantly SaaS software solutions, that enable them to better run their business, in certain cases, help them grow their business and optimize their business. And these vertically tailored solutions are all to be able to manage the diverse workflows that the different service providers have across a range of verticals. We are focused today primarily on home services, health services, and wellness. Have over 690,000 customers.
An important component of the way we deliver value to our customers is, the way we think about it and the way we articulate it, is a land and expand strategy, where we land with that vertically tailored software solution that literally is a solution our customers engage with every day to run their business. We complement that with high value add solutions like digital payments capability or customer engagement solutions or other value add solutions, where, again, they can help optimize their business, help them run their business, or grow their business. Today, as I mentioned, we're across these three verticals. You know, as we look forward and we think about the runway, you know, we've always felt like the TAM is ginormous.
It is, you know, roughly $1 trillion globally of small businesses that provide these types of services. So there is no lack of market for us to continue to sell into. Here in North America, it's about $500 billion.
Yeah. Yeah. I mean, it's, it's amazing the scale and the number of customers you already have today. I think it's, what? 650-
690,000+.
690,000 customers. So, there really is a massive long-tail need for digital transformation. Let's talk about Q2 results, how the business performed, kind of what's top of mind coming out of the quarter.
I think, you know, coming into the year, we sort of said that the trends we saw exiting 2023 are really what we're seeing into this year, what we thought we would see into this year. First half has played out exactly that way. You know, I think across our SaaS solutions, especially in home services, health services, and certainly in our wellness solutions, we see, you know, nice opportunities to drive customer acquisition. Again, you know, our value proposition resonates well within those markets, and we've seen, you know, demand fairly consistent. I know that there's been a lot of discussion around the health and wealth of the SMB. In our case, the service providers that we cater to, we always like to remind people that our solutions are pretty resilient. Our solutions are the ones they use to run their business.
So it's not really a barometer of how well they're doing. If they're using our solution, it is for a very specific reason tied into the value prop. The marketing technology services that we offer, that is a bit of a different story. We started to see some headwinds in that business really exiting 2022 and sort of saw that carry through to 2023, and we said to everybody that that's gonna carry on and persist in 2024, as evidenced by our year guidance. Really, at the beginning of the year, we guided flat on that operation, which really is a sign of continuing persistent macro headwinds there. A lot of it tied back to consumer demand in our lead generation solutions.
So that trend has continued, but I think we've continued to execute well by driving new initiatives to reduce volatility of revenue and stabilize margin there. You know, I think the other thing from just a trend perspective, I would say for EverCommerce, this is a year of transition, and we've talked a lot about that coming into the year. We have underway a variety of transformation initiatives and optimization initiatives, which can create, you know, some volatility. But so far, so good.
Yeah.
Feeling good about things.
Maybe that's a good spot to double-click on the transformation initiatives and kind of specifically what the goal was, what were the changes that you guys made.
Yeah
... to position the business?
I think it's simple: reaccelerate growth, and really drive continuing optimization. When we went public, DJ, and you've been covering us since the IPO, it's always been around balancing growth and profitability, and we've been profitable 16% EBITDA margins when we went public, we're at 24% today. We said we were gonna drive operating leverage in the business. We've done it in the rearview mirror. We think there's a lot more to go. So the optimization initiatives are really around continuing to lean into that, making sure we have the right real estate footprint, managing, you know, what is $250-$300 million of third-party spend, which can certainly be optimized since we've not really matured into that, and that creates a massive long-tail opportunity.
Managing our global workforce to optimize around that, things like that. On the transformation side, it's really around, frankly, acknowledging that we probably need to reorganize around our vertical market strategies, really with a view towards that ideal customer profile within each of those segments, or subsegments within a vertical, like home services, which is large. But really design the organization or redesign the organization so that it makes very clear where the investment opportunities should be directed, driving efficiency around operations by consolidating brands and products to drive more efficiency. But again, really reveal those places where we can put more wood behind the arrow to drive growth back to, you know, what we think in the mid to long term should be double digits, sort of mid-teens, organic growth.
Yeah. Is there a baseball analogy for where we are in this transformation initiative?
I'm more of a football fan.
Okay, what quarter are we in?
You know, we're in terms of the transformation, I would say, look, we're not. There's really no halfway through or whatnot. I mean, these are. When we set this conversation up coming into the 2024 guide, we talked about this spanning 2024 into 2025. If you think about the optimization initiative specifically, you know, which are a lot about driving dollars towards the bottom line and driving leverage, I mean, we think we'll thread some of those very modestly through in Q4, 'cause it takes a while to put these programs in place. It's really a 2025 initiative. The organizational design work, I think we'll exit the year fairly far along with that, which will be great to set us up for reaccelerating growth beyond.
Yeah. And you kinda hit on the last part of it, but have you helped investors foot kind of what the yield from these initiatives might be in terms of, like, how they impact the financials of the business?
Yeah.
Any high-level goals?
Well, you know, it's funny, I, I think it threads back to the IPO. When we went public, we had, we had sort of shared that we thought this was a business where we could drive operating leverage. We knew we were not as efficient as we would be once we crossed the hump of a, of a series of investments we needed to make, particularly around the infrastructure to support being a public company. You know, we got ourselves into the 24% range. Now, we, we thought we could be, you know, 25%-30%. I mean, we're, we're, we're close there, and we see a lot of upside from where we are. And on the growth side, you know, it's always been about trying to get into that, you know, mid-teens organic growth.
I think those are appropriate targets for us as we thread through these initiatives.
Yeah. Let's talk a little bit about the cross-sell opportunity, specifically payments, right? Which is a very important opportunity for the business and for the folks in the room. I mean, payments contributes with, like, nearly 95% gross margin, so it's a big opportunity and a massively profitable opportunity-
Yeah
... for the business. So talk a little bit about the work you've done to drive payments adoption, kind of the levers you have to pull there, and what the opportunity looks like.
So we've done a lot. It starts with integrating payments capability within the vertically oriented software solutions, wherever that makes sense. That work is done and behind us and in the rearview mirror. The way we measure progress against really leaning into the payments revenue opportunity is twofold. First is utilization, which is, those are the number of customers who are actually using our solutions day in and day out to collect payments. We introduced a metric, I think, a quarter or two quarters ago, around enablement, which is a up-funnel metric, if you will, and that's really tied to the motion of the business. We sell our software solution, and many of these are solutions perhaps we've acquired, where, you know, we integrate the payments capability.
It's time to start selling the payments capability to every new customer that comes in the door, but sell into the backbook. And that number, in terms of payment enablement, we've achieved 199,000 of our 690,000 customers are now enabled for a second product. The vast, vast majority of that is payments, and that represents about 29% of that total customer base. Utilization is actually around, is it, 85,000-90,000?
85,000, 13%.
13% .
Of total.
Of total.
Yeah.
Of total.
Yeah.
Which creates a very large embedded opportunity. And to your point, I'm very glad you're listening, payments is the most accretive thing we can do, and that, that creates a very, very nice opportunity to go after. So how do we attack that? Consistent investment in programs and initiatives, some of which is based on testing and learning around these motions, but it will vary by different vertical end markets. So, for example, salons, we have very high penetration of our customers utilizing payments in those verticals, because you go into the salon, you get your hair styled.
Yeah, very often.
I get my hair cut eventually. We both look a lot better for it. And it's really easy to give the salon our credit card, which is, in our case, integrated. It's not a separate POS. It's fully integrated with the software solution. That's a really easy one to drive very high adoption. Home services, a little different motion, right? Contractors are using our solutions out in the field. They might be managing them on mobile devices. If a customer has a preference for providing cash, well, that might be an opportunity where we didn't capture a digital payment. So there are a number of initiatives that we can invest and lean into around educating our customers around the value of collecting digital payments and so forth, and that's the work that is underway.
When I talk about, you know, through our transformational work, really identifying those places where we wanna put wood behind the arrow, it is revealing, for example, these types of opportunities where we can much more clearly direct dollars and human and capital resources-
Yeah
... to solving those problems.
Yeah. Is there an opportunity to improve take rate on the payment side over time? Or how do you think about, I guess I would call it price as a lever to growth, but...
So I think we've done a very good job of that. I think there's always opportunities. I think at this point, because we are running at a pretty high rate, it's probably gonna be more mix dependent. So, I think in our case, the way we're gonna continue to optimize that is, you know, obviously always working with our processors to get the best economics we can, but also driving that utilization, 'cause the mix component that we see down the road, it will just be naturally higher-margin customers, so leading to higher take rate overall.
Yep, makes sense. Let's talk a little bit about EverPro, which I believe, pretty sure it's the biggest vertical, right?
It is more than 50% of our revenue.
More than 50%. So you rolled out EverPro Edge. Let's talk about what that product does. That's another one where it has the potential to contribute with very high incremental margins, right? I mean, the rebate portion of that business is-
Even higher than payments.
100% gross margin, basically, right?
Yes, essentially.
Straight, straight cash.
Yes.
Just talk about kind of the opportunity there and what that product is. Help folks understand.
Sure. So it, EverPro Edge was born out of an offering that we had resonance with an acquisition we made back in 2017. And it was, in that case, a pretty straightforward vendor management program, where our Service Nation product offering, they had probably 100+ vendors in the program, where they were managing the program on behalf of their customers, and then it's all HVAC contracting for the most part. So our contracting customers would get a percentage of the rebate pass-through into their pocket for selling Lennox or, you know, other vendors like that.
So, we've taken that and kind of put it on steroids into something called EverPro Edge, which is really meant to be a very seamless solution, where our customers can enjoy benefits in the form of rebates from goods they're already purchasing from vendors within the program. But where they're also joining a community of other contractors in this particular case, where we've launched it to be able to find content around how to better run their business, grow their business, et cetera, and actually interact with other customers if they wanted. You know, the economic value of this to us is, yes, it's very high gross margin.
I think in our earnings deck this past quarter, we displayed a case study where we launched this in conjunction with our Joist solution, which is one of the top-rated apps in the iPhone store, where, or excuse me, as customers start using EverPro Edge, they're already customers, we get sort of a 3x multiplier on our pool. So it's obviously very, very creative. Now, it's also not specific to contractors in the way we think about the world. This is a solution that we can roll into a lot of different micro verticals because the concepts are the same.
Okay. Okay, I was gonna ask that follow-up. Let's talk about kind of M&A. I think it was said on the earnings call, you've done 50 M&A transactions in your 8 years at EverCommerce, so-
Uh, 54.
54, but who's counting?
Mm.
So, you're a pro at this stuff, but you guys have put the clutch in on M&A of late, whether that's macro-driven, valuation expectations, you know, maybe focus on some of these business transformation initiatives. How does M&A feed into the strategy? Kind of, what are you seeing out there today, and what's the appetite to do something?
Well, let me start with that, and then I'll turn it to Ryan, particularly around as we pull through the transformation optimization initiatives, what's it mean for the strategy going forward? But in terms of market, ever since November of 2022, no, 2021, I get that wrong every single time. November of 2021, when the market corrected-
Those COVID years blend together.
You know, two things have happened. One, you know, M&A market definitely dried up for some period of time. For the assets that are more attractive to us, quite honestly, valuations, whether it was back then when the market volume was thin or today, where I do see it starting to open up a little bit, valuations have remained consistently high. We are very disciplined buyers. It's got to be strategically, financially, operationally creative, or we're not gonna go there. And we've held that discipline over the eight years that I've been there. I don't expect that to change.
You know, I think for us, in particular, you know, we look at a capital allocation, and to be honest, that the valuations we're seeing, which are driven in some part by liquidity amongst private equity firms who are attracted to these same types of assets, or just other options that business owners have in that end of the market. You know, we look at paying a whole lot for something like that, versus in our case, buying our own stock. We haven't found anything that looks as attractive as us-
Yeah
... at our price, which is why we've leaned into the buyback. But maybe threading through transformation optimization, we'll just comment a little bit going forward about the strategy.
The strategy will not change going forward. We are gonna continue to be extraordinarily disciplined as we look at opportunities. But as Marc said, you know, we'll have to focus on what opportunities exist at the time. Notwithstanding that, the opportunity for organic growth is still significant.
Yeah.
I think for the reasons that you've outlined, that we've talked about, the payments opportunity is huge. We've also got the opportunity with new products like EverPro Edge. So we're excited about the future. The transformation work that we're doing not only will it assist from a top-line growth perspective, but I'm highly confident that we're gonna continue to expand the market that Marc talked about from, you know, where we started from 16%, now we're at 24%. We do have aspirations, obviously higher, that, you know, we talked about from an IPO perspective. We're gonna continue to track against that.
I would say that, in this stage, the transformation and optimization portion, kind of the next phase of our evolution, is gonna continue to be a key area of importance, not only for me, but for the entire executive leadership.
Yeah.
It positions us to be an even better acquirer-
Yeah
... to be very honest.
Yeah. And one distinction I might make, and this is me speaking, not the company, so correct me if I'm wrong. But other companies that are serial acquirers tend to buy businesses where growth is stalled, they can get them at a discount price, they're cash cowing them, essentially. You guys have a very different strategy, where you're still buying very growthy small companies, right? You get access to their large customer base, and then that's fertile hunting ground for you guys to execute against this cross-sell strategy.
Yeah.
It's a little bit different when you talk about valuation alignment, like you're still buying growing, healthy-
Yes
-businesses, right?
Which is why it's so competitive. I mean,
Yeah.
These are attractive assets. They're not, you know, there's interest in probably everything in the world, but we are attracted to those where they're leading software.
Yeah.
We are growth guys. We want to be growing at that double digit, you know, mid-teens growth rate going forward. You're not gonna do that by buying things that are really fixer-uppers. I think that doesn't necessarily make sense.
Yeah.
So you're spot on with the way we're looking at stuff. As we think about acquisitions going forward, you know, it is gonna be vertically oriented SaaS, where we have that ability to cross-sell, and we see that, and it's got to be evident day one. That's where we can always do the most-
Yeah
... or do the most with that particular acquisition.
Yeah. And, to me, it's, it's a unique public market investment opportunity for investors to get exposure to this long tail of-
Yeah
... You said it's fairly resilient spend, right? If you need to see a doctor, you're gonna see a doctor, or if something breaks in your house-
Yes
-you're gonna get it fixed, right?
Yes.
Like, those are the customers that you guys serve.
Correct.
Ryan, we segued to you on the last question, but maybe we should talk about just kind of the leadership transition with Marc handing the reins to you, and kind of what your focus is. I know you said not much is gonna change from a strategy standpoint, but maybe from a systems or controls or stuff that is interesting to you as you look at kind of assuming the reins here.
Yeah.
Where, where are you focused?
Well, first off, I'm extremely excited about the opportunity. Marc's been. I've had the opportunity to work with Marc for the last 12 months, and it's been a great run. I appreciate everything that he's done. The focus, like I said, is not gonna change. And he's instituted basically, number one, a great team of people, and number two, the transformation and optimization work was already in play by the time I got here, and so it's only continued to move forward. I think the benefit that I bring is that I've actually been in large-scale organizations that have gone through transformation.
While my background is from a controls and accounting and finance perspective, I'm going to be focused in on not only executing on the transformation optimization pieces, but also continuing with the growth from a top-line perspective. So fundamentally, nothing really changes other than the fact that there's a different person in seat, and we're trying to continue to do everything that him and the rest of the leadership team has put in place. That obviously means that, you know, at this stage of, you know, evolution, going from $25 million in revenue to almost $700 million in revenue, we require a little bit of different infrastructure in order to manage such a large ship.
We're doing those things, I think, that are relevant, not only from the transformation point of view, but from the optimization point of view. Putting in things like, you know, spend systems. We actually have a procurement system that, from a procure-to-pay perspective, I think that's gonna drive value. Thinking about strategic sourcing, just thinking about things from a level up from where you start off with when you're actually developing an organization and a company. So totally excited about, like, where we are in the next stage of evolution.
Yeah, yeah. Well, we'll, we'll miss having you, Marc, and your consistency, but look forward to working with you, Ryan. Maybe I'll stop and pause there. I have a couple more questions. I think we got, like, three minutes left. Is there anything in the audience that we could help address? Ken?
Who do you compete with, and what is your CAC, LTVs, and churn Stats?
Yeah, maybe I'll just repeat it for the webcast. Competition, the question was around competition. Who, who you guys see, which is a loaded question because it's so fragmented.
Yeah.
and then more around kind of the microeconomics of the business-
Yeah
... LTV to CAC stacks, that stats-
Yeah
that sort of stuff.
I'll take them. First, competition, and DJ knows this well, and he knows that there's just not an easy answer to that because we compete, remember, in different micro verticals, even within the large verticals. So, you know, I would say in home services, there are players further upmarket than us, and there are, you know, a lot of smaller players than us. In each of the micro verticals we're in, we've always wanted to be a leading software solution in each of those verticals. So I think we generally have rung that bell. We see competition that, frankly, you've never heard about.
In the health services world, our ICP, our Ideal Customer Profile there, I mean, we're talking about small physician practices, one to 10 to 20 physicians, maybe up to 100 if it's a specialty, clinic or something like that. But there, you know, you might see, people come downmarket trying to serve that customer base. That's hard because those customers actually don't have the infrastructure to be able to support those solutions. And then in wellness, where we're today, having divested our fitness assets, where frankly, part of the reason we divested, there were larger competitors in that market that, were doing everything they could. It didn't make sense, given the profile. That was among the reasons we chose to get out. In wellness, a little bit of a different story.
We have some really nice solutions and compete with, again, a pretty fragmented universe, mostly privately held companies, in that market. Reversing the order, I think, well, the next question you'd asked about, churn. If you look across our SMB, like on a consolidated basis, you know, think it mid-20s gross churn, which is pretty typical for these markets. What I would or for this customer profile, what I would say is that also varies. So in health services, it's considerably lower. These are stickier solutions, with a lot of functionality, and the physician practices don't churn out of those very easily, nor do they in places like our security alarm offerings, where, you know, these are central station monitoring tools and billing solutions that are, you know, very, very low churn characteristics.
It's the smaller customers and the entry-level solutions where you'd see the bulk of that. CLTV, CLTV to CAC, we track those metrics pretty religiously. We don't disclose them, but they're very attractive, and it is a way we think a lot about tuning the portfolio, if you will, and always kind of understanding where we're driving value. We are, you know, obviously, given our desire to balance that growth and profitability, we're very metric-driven around the return that we're gonna get on investments we're making.
When you hear mid-20s gross churn, your net churn is considerably healthier.
Yeah. I mean, it had been running 100. It was 97%, this last quarter. That has to do a lot with lapping a significant price increase we had the prior year. And it should be in that zone. I mean-
Yeah.
But net retention is considerably higher.
Yeah, and your total customer count's stable, your two-plus enabled-
Yes
is growing.
Growing.
You lose that-
Our enabled customers, I don't know if I mentioned them or not, I mean, it's 199,000, but it grew 25%-
Right
... year- over- year. I mean, we're absolutely putting in place, you know, the, the opportunity to lean into that embedded growth opportunity resident right within our customer base. And frankly, you know, we're at a scale where, of course, we want to be growing our customer base, but it's also getting the right customers in the door, right? I mean, there's an economic equation around that as well.
Yep. We hit on a lot, right? You talked about kind of the financial goals, post-transformation, that re-accelerate growth. No ceiling on margins at this point. It can still go higher. Any parting thoughts you want to leave the group with, or things that you think may still be underappreciated about the EverCommerce story?
Why don't I turn to Ryan since he's gonna be-
Yeah.
He's gonna be-
It's his show now. That was... moment. I'm out.
Parting thoughts. I would say that the businesses that I've been in have had a high TAM, but in a very, like, narrow range or narrow focus. What's excited me about the opportunity here, and one of the reasons I came here a year ago, was the TAM is huge, and the opportunity is even bigger. As you talked about, where there's some fragmentation, our opportunity to, like, penetrate in payments and also cross-sell and upsell in other areas where we're developing organically is significant. So, that excites me, and the ability to do that in conjunction with our transformation and optimization, I think everybody at the company sees the opportunity the way that we've been describing it. And it's an exciting future.
That's great. Great spot to leave it. Thank you, guys, Marc, Ryan, for doing this. And let's get some food.
Excellent. Thank you, DJ.
Thank you.
Thanks to Canaccord. This was great.
Thank you, guys.
Thank you.
Yeah, great job.