EverCommerce Inc. Q2 FY2021 earnings

EverCommerce reported revenue of $121.1 million for the quarter ended June 30, 2021, up 52.6% from $79.3 million a year earlier. Year-to-date revenue reached $226.0 million, up 44.5% from $156.4 million in the first six months of 2020. Subscription and transaction fees rose 64% and marketing technology solutions rose 37.8%, while other revenue declined. On a pro forma basis, which treats acquisitions as if they had closed at the start of the prior-year period, revenue growth was 31.1% in the quarter and 21.2% year to date. Management reported sequential revenue growth of 13.9% against the first quarter of 2021, excluding acquisitions closed in that quarter, and a 25.2% increase over the prior-year quarter excluding all acquisitions closed after March 31, 2020. The platform serves more than 500,000 service-based businesses across Home Services, Health Services and Fitness and Wellness.

Profitability remains negative. The operating loss for the quarter was $10.8 million, wider than the $4.5 million loss a year earlier. For the six months, the operating loss was $17.4 million against $14.9 million. Operating margin was negative 8.9% versus negative 5.7% in the prior-year quarter, a decline of 3.2 percentage points, while the year-to-date margin of negative 7.7% improved 1.8 points from negative 9.5%. Net loss widened to $24.3 million, or $0.56 per diluted share, from $13.7 million, or $0.65 per diluted share, in the second quarter of 2020. The year-to-date net loss was $40.3 million against $33.6 million, and diluted loss per share narrowed to $1.27 from $1.45. Adjusted EBITDA, which excludes stock-based compensation and other items, was $27.6 million versus $19.4 million. Sales and marketing expense rose 114.5% and general and administrative expense rose 71.3% in the quarter, the latter driven mainly by stock-based compensation and personnel costs.

Cash generation was mixed. Cash from operations for the six months was $3.8 million, down 60.4% from $9.7 million, and capital expenditures fell 72.8% to $1.1 million from $4.2 million. In the quarter alone, operating cash flow was $9.2 million and capital expenditures were $0.9 million. Cash, cash equivalents and restricted cash totaled $202.6 million at June 30, 2021, up from $98.3 million at December 31, 2020. Total debt was $766.2 million, implying net leverage of 4.3 times using the credit agreement definition of adjusted EBITDA. As adjusted for the July initial public offering, the Silver Lake private placement, the refinancing and the over-allotment exercise, cash, cash equivalents and restricted cash would have been about $203.4 million and total debt about $381.5 million, or 1.4 times net leverage. Those figures do not reflect roughly $99.9 million of cash used for the Timely acquisition. The IPO sold 19.1 million shares at $17.00 for net proceeds of $303.9 million, with a further 4.4 million shares sold to Silver Lake affiliates for $75 million and 2.8 million over-allotment shares adding $43.9 million. Deferred revenue was $20.5 million at quarter end and remaining performance obligations were $15.0 million.

Guidance issued on August 9, 2021 covers both the third quarter of 2021 and the full year 2021, with revenue and adjusted EBITDA ranges provided for each period. Adjusted EBITDA is expected to be $23 million to $24 million for the third quarter and $100 million to $102 million for the full year. The outlook includes contribution from Timely but not MDTech, which will be folded in when third quarter results are reported. Both deals closed in July 2021, with Timely acquired for $99.9 million and MDTech for $16.1 million, and the company has completed 51 acquisitions since inception, including 4 in 2021 as of July 31. The risk list is familiar for a recently listed software company. EverCommerce cites a limited operating history and warns that recent growth rates may not be sustainable and that growth is expected to slow. It has posted net losses since inception and does not intend to pay dividends. Acquisition integration, undisclosed liabilities at targets and the pace of dealmaking are all flagged. Competition comes from vertical specialists plus horizontal players such as Salesforce, Intuit, Square and HubSpot. Indebtedness remains a constraint even after the refinancing, and the company is a controlled company, with affiliates of Providence Strategic Growth and Silver Lake owning about 79.3% of the common stock. COVID-19 continues to weigh on sales to fitness and wellness customers, and the extent of future impact is uncertain. Management points to retention as a counterweight: roughly 95% of revenue in the six months ended June 30, 2021 and in the year ended December 31, 2020 was recurring or re-occurring, and the average monthly net pro forma revenue retention rate has stayed at 99% or more in each of the last nine quarters.