EverCommerce Inc. Q1 FY2023 earnings

EverCommerce opened fiscal 2023 with revenue of $161.1 million in the first quarter, up 12.2% from the prior-year quarter. Adjusted EBITDA was $31.9 million, compared with $23.0 million a year earlier. The bottom line did not follow the same path. The company reported a net loss of $20.8 million, or $0.11 per diluted share, and that loss widened from the prior-year quarter. The operating loss narrowed to $5.3 million. Operating margin was negative 3.3%, up from the prior-year quarter. The company reports as a single operating segment.

The divide between operating performance and the net loss sits below the operating line. Interest and other expense, net, rose sharply, and management tied the increase to a higher effective interest rate and a loss on the company's interest rate swaps. EverCommerce has been hedging that exposure. It entered a swap in late 2022 covering a $200.0 million notional amount at a fixed rate of 4.2295%, then added a second swap effective March 31, 2023, covering $100.0 million at a fixed rate of 3.9690%.

Cash generation held roughly steady. Operating cash flow was $12.7 million for the quarter, down 1.2% from the prior-year quarter. The dip reflects higher interest payments, more spending on personnel, and costs tied to delivering services, partly offset by higher collections. Capital expenditures were $0.5 million, down 46.5%, as the company spent less on property and equipment while continuing to capitalize software costs. Two forward-looking balances moved in the opposite direction. Deferred revenue, current portion, fell 10.6% to $24.2 million, and remaining performance obligations fell 16.7% to $20.5 million. Both are worth watching because they frame near-term billings. The company also repurchased and retired 3,123,697 shares for $29.6 million, leaving $27.6 million available under the repurchase program as of March 31, 2023.

The customer base remains the core asset. EverCommerce serves more than 685,000 customers across Home Services, Health Services, and Fitness & Wellness Services. About 95% of revenue in the three months ended March 31, 2023 and 2022 was recurring or re-occurring, and the annualized net revenue retention rate was approximately 100% for the quarter ended March 31, 2023. The Pro Forma Revenue Growth Rate was 12.2% for the three months ended March 31, 2023. Inside the mix, subscription and transaction fees grew 14.6% and marketing technology solutions grew 6.3% compared with the prior-year period. Management has acquired 52 companies since inception and still leans on deals to deepen vertical moats and enter new geographies.

Guidance for the second quarter of 2023 points to Adjusted EBITDA of $31 million to $34 million. For the full year 2023, management expects Adjusted EBITDA of $136 million to $144 million, alongside revenue guidance ranges for both the second quarter and the full year. Management cautioned that stock-based compensation, which is excluded from Adjusted EBITDA, could prove material to GAAP results.

Risks look familiar for a consolidator in software. EverCommerce cites pressure from the COVID-19 pandemic, rising inflation, a strengthened US Dollar, rising interest rates, and supply chain disruptions. It also flags intense competition in each industry it serves, a limited operating history, the chance that recent growth rates are not sustainable, a material weakness in internal control over financial reporting, and risks tied to its indebtedness. The deferred revenue and RPO declines add a nearer-term question about how much of the recurring base converts into billings this year.