EverCommerce Inc. (NASDAQ:EVCM) is a leading provider of integrated, vertically-tailored software-as-a-service (SaaS) solutions for service-based small- and medium-sized businesses (service SMBs). The company's platform spans across the full lifecycle of interactions between consumers and service professionals, offering a comprehensive suite of solutions to address the unique needs of businesses in its three core verticals: Home Services, Health Services, and Fitness & Wellness Services.

Business Overview

EverCommerce's mission is to empower the rapidly growing and evolving SMB market by providing cost-effective, easy-to-implement, and purpose-built software solutions. The company's offerings are designed to streamline front and back-office processes, modernize customer engagement, and drive more efficient operations for its customers.

At the core of EverCommerce's platform are its vertically-tailored Business Management Software solutions, which serve as the "system of action" for service SMBs. These solutions are complemented by a suite of Billing & Payment, Customer Experience, and Marketing Technology offerings that create an end-to-end ecosystem to support the full scope of a service business's needs.

EverCommerce's "land and expand" strategy focuses on acquiring customers with its core Business Management Software and then cross-selling and upselling additional products and services. This approach has driven strong customer engagement, with the number of customers utilizing more than one EverCommerce solution increasing to approximately 83,000 as of the end of the first quarter of 2024.

Financials

For the full year 2023, EverCommerce reported annual revenue of $675.4 million, annual net income of -$45.6 million, annual operating cash flow of $104.6 million, and annual free cash flow of $81.5 million. The company's revenue growth has been driven by the continued execution of its land and expand strategy, with subscription and transaction revenue growing 8.8% year-over-year in the first quarter of 2024 to $134.7 million.

EverCommerce's financial performance in the first quarter of 2024 exceeded expectations, with total reported revenue of $170.1 million, up 5.6% from the prior-year period. Adjusted EBITDA for the quarter was $40.9 million, representing a 24% margin and a 28% year-over-year increase. The company's focus on actively managing operating expenses and driving operating leverage has contributed to the expansion in adjusted EBITDA margins, which increased by more than 420 basis points compared to the first quarter of 2023.

Payments Opportunity

Payments is a key strategic focus for EverCommerce, as it represents a significant growth opportunity and a highly accretive revenue stream. In the first quarter of 2024, payments revenue grew 11% year-over-year, accounting for approximately 17% of the company's overall revenue. EverCommerce's annualized total payment volume (TPV) for the quarter was approximately $11.7 billion, representing 9% year-over-year growth.

The company's strategy to drive payments adoption involves embedding its payment solutions within its core Business Management Software offerings, which has resulted in a mid-30s attach rate for payments across its solutions. EverCommerce is also focused on expanding its payments product ecosystem and driving increased utilization and share of wallet among its payment-enabled customers, which represent a significant near-term opportunity for revenue growth.

Transformation and Optimization Initiatives

In the fourth quarter of 2023, EverCommerce engaged a third-party advisor to help assess its operations and identify specific initiatives to simplify, optimize, and better scale its business. These transformation efforts are expected to provide a long runway for continued margin expansion and free cash flow generation, with the full run-rate benefits anticipated to be realized by the end of 2026.

The initiatives include optimizing third-party vendor spend, consolidating legacy brands, and investing in key sales and go-to-market capabilities. While these efforts may temporarily impact growth in 2024, they are expected to fund key growth investments and allow the company to continue delivering long-term margin expansion and significant cash flow generation.

Outlook

For the second quarter of 2024, EverCommerce expects total revenue of $169.5 million to $173.5 million and adjusted EBITDA of $39 million to $42 million. The company has left its full-year 2024 guidance unchanged, continuing to expect revenue of $676 million to $696 million and adjusted EBITDA of $167 million to $176 million.

EverCommerce's guidance assumes near-zero growth in its Marketing Technology Solutions business on a full-year basis, as the company continues to navigate persistent headwinds in this segment. However, the company is seeing some stabilization and green shoots, and is focused on executing initiatives to reduce volatility and drive increased profitability in this part of the business.

Geographic Breakdown and Revenue Diversification

EverCommerce's revenue is primarily generated in the United States, which accounted for approximately 89% of total revenue in the first quarter of 2024. The remaining 11% of revenue was derived from international markets, including Canada, the United Kingdom, Australia, and New Zealand.

In terms of revenue diversification, EverCommerce's business is composed of three primary revenue streams: Subscription and Transaction Fees (79% of Q1 2024 revenue), Marketing Technology Solutions (18% of Q1 2024 revenue), and Other revenue (3% of Q1 2024 revenue). The company's Subscription and Transaction Fees revenue, which includes recurring software subscriptions and payment processing fees, grew 8.8% year-over-year in the first quarter, while Marketing Technology Solutions revenue declined 4.7% due to persistent macroeconomic headwinds.

Liquidity

EverCommerce ended the first quarter of 2024 with $90 million in cash and cash equivalents, excluding cash and cash equivalents related to its international fitness solutions, and $190 million of undrawn capacity on its revolving credit facility. The company's debt is a combination of floating and fixed-rate, with total net leverage of approximately 2.5x as calculated for its credit facility.

EverCommerce's strong free cash flow generation, which was $8.5 million in the first quarter and $82.1 million on a trailing 12-month basis, provides the company with the financial flexibility to invest in growth initiatives, pursue strategic acquisitions, and return capital to shareholders. In the first quarter, the company repurchased approximately 1.2 million shares for a total cash consideration of $12.1 million, with $27.9 million remaining on its share repurchase authorization as of March 31, 2024.

Risks and Challenges

While EverCommerce has demonstrated strong financial performance and a compelling growth strategy, the company faces several risks and challenges that investors should consider. These include the potential for continued macroeconomic headwinds, particularly in its Marketing Technology Solutions segment, the ability to successfully execute its transformation and optimization initiatives, and the integration and performance of any future acquisitions.

Additionally, the company operates in a highly competitive landscape, with the need to continuously innovate and adapt its solutions to meet the evolving needs of service SMBs. Regulatory changes, data privacy concerns, and the ability to attract and retain key talent also pose potential risks to EverCommerce's long-term success.

Conclusion

EverCommerce is well-positioned to capitalize on the significant market opportunity in the service SMB space, leveraging its comprehensive suite of vertically-tailored SaaS solutions and its land and expand strategy to drive sustained growth and profitability. The company's focus on payments, transformation initiatives, and strong liquidity profile provide a solid foundation for continued value creation. While challenges remain, EverCommerce's proven execution and strategic vision make it a compelling investment opportunity in the rapidly evolving service technology landscape.