Business context and reporting period
EverCommerce Inc. (Nasdaq: EVCM) filed this Form 10-K for the fiscal year ended December 31, 2022. It provides vertically tailored SaaS, payment, customer-engagement and marketing solutions to service-based small and midsize businesses across Home Services, Health Services, and Fitness & Wellness. The filing reports annual results, not standalone Q4 results.
The company served more than 685,000 customers at year-end, up approximately 14% organically despite no merger-and-acquisition-driven customer additions during 2022. It operates as one reportable segment.
Financial and operating metrics
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $620.7 million | $490.1 million |
| Operating loss | $30.6 million | $27.2 million |
| Net loss | $59.8 million | $82.0 million |
| Adjusted EBITDA, non-GAAP | $119.0 million | $107.2 million |
| Net cash from operating activities | $64.8 million | $37.5 million |
| Net cash used in investing activities | $18.1 million | $379.7 million |
| Net cash from (used in) financing activities | ($47.3 million) | $341.2 million |
Revenue grew 26.6%. Subscription and transaction fees rose 32.3% to $465.3 million; Marketing Technology Solutions increased 13.8% to $134.6 million; other revenue was $20.8 million. Management reported 15.6% pro forma revenue growth, a measure that includes acquired businesses as if acquired at the start of the comparison period. Approximately 95% of revenue was recurring or re-occurring, and annualized net pro forma revenue retention was approximately 100% for Q4 2022.
Gross profit was $380.1 million, or approximately 61.2% of revenue, versus $308.3 million, or 62.9%, in 2021. Adjusted gross profit was $403.4 million, approximately 65.0% of revenue, versus $327.9 million, or 66.9%. The operating loss was approximately 4.9% of revenue, compared with 5.5% in 2021. Adjusted EBITDA is a non-GAAP measure and excludes, among other items, stock compensation, depreciation and amortization, interest, acquisition costs and specified non-recurring costs.
At December 31, 2022, cash and cash equivalents were $92.6 million and restricted cash was $3.2 million. Principal debt outstanding was $543.1 million, with $190.0 million of revolver capacity available and no revolver borrowings. The company reported $95.8 million in cash, cash equivalents and restricted cash. Management said these resources and operating cash flows should fund working capital, planned capital expenditures and debt service for at least the next 12 months, while noting acquisitions could require additional financing.
Material changes versus the prior comparable period
- Revenue increased $130.6 million; subscription and transaction fees were the largest contributor. The company attributed $61.1 million of the subscription and transaction fee increase to revenue from acquisitions completed in 2021.
- Net loss narrowed by $22.2 million. The 2021 comparison included a $28.7 million loss on debt extinguishment; 2022 had no such charge. Operating loss widened by $3.4 million.
- Operating cash flow increased $27.3 million. Investing cash outflow fell substantially as 2022 had no company acquisitions, compared with $364.9 million of acquisition spending, net of cash acquired, in 2021.
- Cost of revenue increased faster than revenue, rising to 35.0% of revenue from 33.1%. Product development expense rose to 11.5% of revenue from 10.1%; general and administrative expense fell to 21.3% from 22.5%.
- The company repurchased and retired approximately 5.0 million shares for $43.0 million during 2022. It expanded the repurchase authorization to $100 million and extended the program through December 31, 2023; $57.1 million remained available at year-end.
Outlook, commentary, risks and unusual items
The filing does not provide formal numerical guidance for 2023. Management expects continued investment in technology and growth, while acknowledging such spending may pressure near-term profitability. The company also states that historical growth may not be sustainable and expects its growth rate to slow. Management cited inflation, higher interest rates, a stronger U.S. dollar and supply-chain disruption as macroeconomic pressures.
- Internal controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to a material weakness in IT general controls supporting certain acquired solution organizations’ revenue processes. The weakness arose from acquired IT infrastructure and did not result in identified financial-statement misstatements. Remediation was planned; effectiveness had not yet been established. The auditor did not opine on internal control effectiveness.
- Debt and rates: Term debt carried a 7.32% stated rate at December 31, 2022, including the applicable margin. A $200 million swap fixed part of the debt at 4.2295% before the loan margin; a further $100 million swap was entered into in March 2023. A 100-basis-point increase in floating rates was estimated to add approximately $3.4 million in annual interest expense based on year-end debt.
- Acquisition and margin risks: Growth has relied in part on acquisitions, which entail integration, financing, valuation and undisclosed-liability risks. Management warns that faster growth in lower-margin Marketing Technology Solutions could weigh on aggregate margins.
- Other principal risks: Customer concentration and SMB sensitivity to economic conditions; competition; payment-network and processor dependence; cybersecurity, privacy and healthcare regulation; and substantial debt and restrictive covenants. Sponsor-affiliated holders owned approximately 78.5% of common stock and can significantly influence company decisions.
- Tax and accounting items: The company recorded a $4.7 million income tax benefit, including a benefit associated with restructuring ownership of certain intellectual property, and increased its deferred-tax valuation allowance. It adopted lease accounting in 2022, recording operating lease assets and liabilities. No goodwill impairment was recorded.
The independent auditor issued an unqualified opinion on the consolidated financial statements. The filing says ordinary-course legal matters were not expected to have a material adverse effect; it does not identify a material pending legal contingency.
Important facts for investors to verify
- Whether remediation of the material weakness is completed and tested, and whether any additional control deficiencies emerge.
- Whether organic and pro forma growth, retention, and customer additions support management’s long-term growth thesis without acquisitions.
- How higher interest rates, debt repayment, covenant requirements and acquisition funding affect cash flow and financial flexibility.
- Whether gross margins stabilize, particularly as Marketing Technology Solutions and payment-related revenue mix changes.
- Progress and remaining authorization under the share repurchase program, weighed against debt, cash needs and acquisition priorities.
- Potential consequences of cybersecurity or privacy incidents, payment-network or processor changes, healthcare compliance developments, and tax assessments.