EverCommerce Inc. Q3 FY2022 earnings

EverCommerce reported revenue of $158.1 million for the quarter ended September 30, 2022, up 23.0% from $128.5 million in the prior-year quarter. Year-to-date revenue was $458.9 million, up 29.5% from $354.5 million. Reported growth flatters the underlying business because acquisitions closed in late 2021 are baked into the numbers. The company's pro forma revenue growth rate, which treats those acquisitions as though they were owned for the whole comparison period, was 12.7% for the quarter and 16.1% for the nine months. About 95% of revenue in the nine months was recurring or re-occurring, and net revenue retention was approximately 100% for the quarter. The platform serves more than 600,000 service-based businesses.

Profitability moved in two directions. The operating loss widened to $7.3 million from $4.1 million a year earlier, and operating margin fell to -4.6% from -3.2%. Net loss was $15.9 million, or -$0.08 per diluted share, compared with a net loss of $36.9 million, or -$0.20 per diluted share, in the prior-year quarter. A $28.7 million loss on debt extinguishment recorded in the year-ago period did not repeat, which accounts for most of the improvement below the operating line. Year to date, net loss narrowed to $42.0 million from $77.2 million, and diluted loss per share improved to -$0.22 from -$1.01. Adjusted EBITDA, a non-GAAP measure, rose 3.8% to $30.2 million from $29.0 million.

Cash generation improved. Operating cash flow was $13.6 million for the quarter, up 38.3% from $9.8 million, and $37.6 million for the nine months, up 175.1% from $13.7 million. Capital expenditures were $0.6 million in the quarter, down 25.9% from the prior-year quarter, and $2.2 million year to date, up 11.5%. Deferred revenue, reported here on a current-portion basis, rose 16.7% to $25.3 million, and remaining performance obligations rose 40.3% to $22.3 million.

The balance sheet and capital return story are straightforward. The company held $95.2 million of cash, cash equivalents and restricted cash at September 30, 2022, with $190.0 million of revolver capacity and $544.5 million outstanding under its term loans. An interest rate swap effective October 31, 2022 fixes the rate at 4.2295% on $200.0 million of notional for five years, and the term loans carried an effective interest rate of about 5.8% in the quarter. The board raised the share repurchase authorization by $50.0 million to $100.0 million and extended the program through December 31, 2023. EverCommerce repurchased and retired 1,801,062 shares for $19.2 million during the quarter using cash on hand.

Guidance for the fourth quarter calls for adjusted EBITDA of $32 million to $33 million. For the full year 2022, management guides to adjusted EBITDA of $116 million to $117 million. Revenue guidance was also issued for both the fourth quarter and the full year. Management said the core SaaS and payments businesses should keep performing well while pressure persists in isolated pockets of the portfolio.

The risks are macro and mix driven. Management cited rising inflation, a stronger US dollar, rising interest rates and supply chain disruption, with the softness concentrated in marketing services solutions. Cost of revenues ran at 36.5% of revenue in the quarter versus 33.4% a year earlier, and any shift toward lower-margin marketing technology work would keep that ratio under pressure. The company carries meaningful term debt, depends on payment card networks and processors, faces intense competition in each of its verticals, and leans on acquisitions to enter new markets, having completed 52 acquisitions since inception. Whether the SaaS and payments core can carry the growth rate as marketing services cools is the question that will define the next few quarters.