EverCommerce Inc. — Q2 2023 Form 10-Q Summary
Business context and reporting period
Quarter ended June 30, 2023; comparative periods are the three and six months ended June 30, 2022. EverCommerce provides vertically tailored SaaS, payment and marketing solutions to service-based SMBs across home services, health, and fitness and wellness. It reported more than 685,000 customers and operates as one reportable segment.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $170.1 million | $157.2 million | $331.2 million | $300.8 million |
| Operating income (loss) | $1.8 million | $(6.1) million | $(3.5) million | $(19.7) million |
| Net loss attributable to common stockholders | $(0.9) million | $(12.9) million | $(21.7) million | $(26.2) million |
| Adjusted EBITDA, non-GAAP | $38.8 million | $30.7 million | $70.7 million | $53.7 million |
| Operating cash flow | Not separately provided | Not separately provided | $41.1 million | $24.0 million |
Q2 operating margin was approximately 1.0%, compared with a loss margin of approximately 3.9% a year earlier; first-half operating margin was approximately negative 1.1%, versus negative 6.5%. Q2 net loss per share rounded to zero; first-half loss per share was $0.11, versus $0.13.
At June 30, cash and cash equivalents were $83.1 million, with restricted cash of $3.8 million. Total debt principal was $540.4 million, including $5.5 million current maturities; the $190 million revolving facility was undrawn. The company reported $190 million of available revolver capacity and covenant compliance. It reported cash, cash equivalents and restricted cash of $86.8 million for liquidity purposes. First-half cash used in investing was $10.7 million, including $9.5 million of capitalized software costs; cash used in financing was $39.8 million, primarily share repurchases.
Material changes versus comparable periods
- Revenue grew 8.1% in Q2 and 10.1% in the first half. Subscription and transaction fees rose 12.7% and 13.6%, respectively; marketing technology revenue declined 2.0% in Q2 and increased 1.8% for the half.
- Management attributed revenue growth primarily to more customers, price increases, and higher payment-processing volumes. Approximately 95% of first-half revenue was recurring or re-occurring. Annualized net revenue retention was approximately 98%; excluding marketing technology, retention for core software and payments exceeded 100%.
- First-half operating cash flow increased from $24.0 million to $41.1 million, driven mainly by higher customer collections and payment timing, partly offset by higher interest and operating costs.
- First-half interest and other expense rose 63.8% to $19.9 million, primarily reflecting higher credit-facility interest expense. Q2 expense fell year over year, principally due to an unrealized swap gain.
- The company repurchased approximately $39.6 million of shares in the first half, leaving $17.5 million of authorization available; June 30 shares outstanding were 188.6 million, down from 191.4 million at year-end 2022.
Outlook, risks, contingencies and unusual items
- No quantified full-year revenue, earnings or cash-flow guidance is provided. Management said existing cash, revolver availability and operating cash flows should fund working capital, planned capital expenditures and debt service for at least 12 months, while noting acquisitions or adverse market conditions could increase financing needs.
- Management cited inflation, higher interest rates, currency movements, supply-chain disruption and customer economic conditions as potential pressures on demand and costs. The filing also highlights competition, customer retention, payment-processing dependencies, cybersecurity, acquisition execution and indebtedness risks.
- Debt bears floating-rate interest; the stated term-loan rate was approximately 8.4% at June 30. The credit facilities transitioned from LIBOR to SOFR effective July 1, 2023. Two swaps fixed rates on $300 million of term-loan notional; management did not expect a significant financial-statement impact from the benchmark transition.
- Disclosure controls and procedures were deemed ineffective at June 30 due to a previously disclosed material weakness in internal control over financial reporting. Remediation efforts continued; no material control changes occurred during the quarter.
- A $2.5 million reversal of a foreign deferred-tax valuation allowance contributed to the Q2 tax benefit. The company recorded $10.4 million for sales, use, gross-receipts and goods-and-services tax exposures. Management said known legal matters were not expected to have a material adverse effect.
- Remaining performance obligations for qualifying contracts were $22.3 million; the company expects to recognize approximately 61% within one year. The filing cautions interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether recurring software and payment growth, retention, and customer expansion persist, particularly as marketing technology revenue softened in Q2.
- How floating-rate debt costs evolve after the SOFR transition and whether swaps sufficiently limit interest-rate exposure.
- Progress and timing of remediation of the material weakness and restoration of effective disclosure controls.
- Cash generation after share repurchases, planned investment and any future acquisitions, and the company’s ability to maintain covenant compliance.
- Potential changes in bad-debt expense and tax exposures, including the recorded $10.4 million indirect-tax liability.