What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-15 · 155 added, 183 removed, 414 unchanged (45% of the section changed)

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Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.

An analysis of our results of operations and cash flows for the year ended December 31, 2019, including a discussion of the year ended December 31, 2020 as compared to the year ended December 31, 2019, has been reported previously in our final prospectus dated June 30, 2021 pursuant to Rule 424(b)(4) (File No.

333-256641) of the Securities Act (the “Prospectus”), under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

An analysis of our results of operations and cash flows for the year ended December 31, 2020, including a discussion of the year ended December 31, 2021 as compared to the year ended December 31, 2020, has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 15, 2022, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

EverCommerce is a leading provider of integrated, vertically-tailored software-as-a-service (“SaaS”) solutions for service-based small- and medium-sized businesses (“service SMBs”).

Our platform spans across the full lifecycle of interactions between consumers and service professionals with vertical-specific applications.

Today, we serve over 600,000 customers across three core verticals:

Today, we serve more than 685,000 customers across three core verticals:

Home Services;

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• Business Management Software:

Our vertically-tailored Business Management Software is the system of action at the center of a service business’ operation, and is typically the point-of-entry and first solution adopted by a customer.

Our vertically-tailored Business Management Software is the system of action at the center of a service business’s operation, and is typically the point-of-entry and first solution adopted by a customer.

Our software, designed to meet the day-to-day workflow needs of businesses in specific vertical end markets, streamlines front and back-office processes and provides polished customer-facing experiences.

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Our Billing & Payment Solutions provide integrated payments, billing and invoicing automation and business intelligence and analytics.

Our omni-channel payments capabilities include point-of-sale (“POS”), eCommerce, online bill payments, recurring billing, electronic invoicing and mobile payments.

Our omni-channel payments capabilities include point-of-sale, eCommerce, online bill payments, recurring billing, electronic invoicing and mobile payments.

Supported payment types include credit card, debit card and Automated Clearing House (“ACH”) processing.

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These value-add features help small- and medium-sized businesses (“SMBs”) to ensure more timely billing and payments collection and provide improved cash flow visibility.

• Customer Engagement Applications:

Our Customer Engagement Applications modernize how businesses engage and interact with customers by leveraging innovative, bespoke customer listening and communication solutions to improve the customer experience and increase retention.

• Customer Experience Solutions:

Our Customer Experience Solutions modernize how businesses engage and interact with customers by leveraging innovative, bespoke customer listening and communication solutions to improve the customer experience and increase retention.

Our software provides customer listening capabilities with real-time customer surveying and analysis to allow standalone businesses and multi-location brands to receive voice of the customer (“VoC”) insights and manage the customer experience lifecycle.

These applications include:

customer health scoring, customer support systems, real-time alerts,

NPS-based customer feedback collection, review generation and automation, reputation management, customer satisfaction surveying and a digital communication suite, among others.

customer health scoring, customer support systems, real-time alerts, NPS-based

customer feedback collection, review generation and automation, reputation management, customer satisfaction surveying and a digital communication suite, among others.

These tools help our customers gain actionable insights, increase customer loyalty and repeat purchases and improve customer experiences.

• Marketing Technology Solutions:

Our Marketing Technology Solutions work with our Customer Engagement Applications to help customers build their businesses by invigorating marketing operations and improving return on investment across the customer lifecycle.

Our Marketing Technology Solutions work with our Customer Experience Solutions to help customers build their businesses by invigorating marketing operations and improving return on investment across the customer lifecycle.

These solutions help businesses to manage campaigns, generate quality leads, increase conversion and repeat sales, improve customer loyalty and provide a polished brand experience.

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Our business benefits from attractive unit economics.

Approximately 95% of our revenue in the years ended December 31, 2021 and 2020 was recurring or re-occurring, and we maintained a stable average monthly net pro forma revenue retention rate of 99% or more in each of the last 8 -quarters.

We believe the retention and growth of revenue from our existing customers is a helpful measure of the health of our business and our future growth

Our ability to cross sell additional products and services to our existing customers can increase customer engagement with our suite of solutions and thus have a positive impact on our net pro forma revenue retention rate.

Approximately 95% of our revenue in the years ended December 31, 2022 and 2021 was recurring or re-occurring, and we maintained an annualized net pro forma revenue retention rate of approximately 100% for the quarter ended December 31, 2022.

We believe the retention and growth of revenue from our existing customers is a helpful measure of the health of our business and our future growth prospects.

Our ability to cross sell additional products and services to our existing customers can increase customer

engagement with our suite of solutions and thus have a positive impact on our net pro forma revenue retention rate.

For example, we have leveraged our land and expand strategy to cross sell solutions to our existing customers, which has supported our high net pro forma revenue retention rate by increasing customer utilization of our solutions, educating customers as to how our platform and synergies can support their businesses and, in turn, improving customer stickiness.

Our calculation of net pro forma revenue retention rate remains consistent with prior periods.

We calculate our monthly net pro forma revenue retention rate for a particular month as the recurring or re-occurring revenue gained/lost from existing customers, less the recurring or re-occurring revenue lost from cancelled customers, as a percentage of total recurring or re-occurring revenue 12 months prior, divided by 12.

For existing customers, we consider customers that existed 11 or more months prior to the current month and that do not have an end date (i.e., cancelled relationship) on or after the first day of the current month.

For example, the recurring or re-occurring revenue gained/lost from existing customers in November 2022 is the difference between the recurring or re-occurring revenue generated in November 2022 and the same such revenue generated in November 2021, for customers with a start date prior to December 1, 2021 and no end date or cancelled relationship on or after November 1, 2022.

For cancelled customers, we examine customers that cancelled their relationships on or after the first day of the month that is 12 months prior to the current month and before the first day of the current month.

For example, the recurring or reoccurring revenue lost from cancelled customers in November 2022 is the difference between the recurring or re-occurring revenue generated in November 2022 and the same such revenue generated in November 2021, for customers that cancelled on or after November 1, 2021 and before November 1, 2022.

Net pro forma revenue retention is calculated as if acquisitions that were closed during the prior period presented were closed on the first day of such period presented.

Our calculation of net pro forma revenue retention rate for any fiscal period includes the positive recurring and re-occurring revenue impacts of selling new solutions to existing customers and the negative impacts of contraction and attrition among this set of customers.

Our net pro forma revenue retention rate may fluctuate as a result of a number of factors, including the growing level of our revenue base, the level of penetration within our customer base, expansion of solutions, new acquisitions and our ability to retain our customers.

Our calculation of net pro forma revenue retention rate may differ from similarly titled metrics presented by other companies.

This rate for any fiscal period includes the positive recurring and re-occurring revenue impacts of selling new solutions to existing customers and the negative impacts of contraction and attrition among this set of customers.

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We acquire companies to deepen our competitive moats in existing verticals, and enter new verticals and geographies.

We have acquired 52 companies since our inception, including five in 2021 and nine in 2020.

We have acquired 52 companies since our inception.

We have an established framework for identification, execution, integration and onboarding of targets, which leverages our significant acquisition experience and utilizes internal criteria for evaluating acquisition candidates and prospective businesses.

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We believe that our methodology, track record and reputation for sourcing, evaluating and integrating acquisitions positions us as an “acquirer-of-choice” for potential targets.

Initial Public Offering

On July 6, 2021, we completed our Initial Public Offering (“IPO”) which resulted in the issuance and sale of 19,117,648 shares of common stock at the IPO price of $17.00 generating net proceeds of $303.9 million after deducting underwriting discounts.

Additionally, we incurred other IPO related fees of $6.9 million.

On July 29, 2021, the underwriters of our IPO fully exercised their over-allotment option, resulting in the sale of an additional 2.8 million shares at the IPO price of $17.00 per share and after underwriter discounts, net proceeds were $43.9 million.

Private Placement

On July 6, 2021 we sold 4,411,764 shares of our common stock to entities affiliated with Silver Lake in a private placement (the “Private Placement”) at a purchase price equal to the IPO price of $17.00 per share of common stock for net proceeds of $75.0 million.

Impact of COVID-19

The COVID-19 pandemic has caused economies, businesses, markets and communities around the globe to be disrupted, and in many cases, shut-down.

In the interest of public health, many governments closed physical stores and business locations deemed to be non-essential, which caused increased unemployment levels and businesses to permanently close.

Many SMBs have been adversely impacted by the COVID-19 pandemic, and as a result, certain of our business operations were negatively impacted, while others have benefited from customers shifting to technology-focused, digital-first business models.

A McKinsey survey from October 2020 revealed that global business executives have accelerated the digitization of their customer and supply-chain interactions by as much as three to four years.

Although we cannot predict when the United States and global economy will fully recover from the COVID-19 pandemic, we believe that our business is well positioned to be a partner-of-choice for new customers, to capitalize on the growing trend of digital transformation and to benefit from the revival of the SMB economy.

Nevertheless, we do not have certainty that a full economic recovery will happen in the near future, and it is possible that the prolonging of the COVID-19 pandemic will adversely affect our business, financial condition

and results of operations.

For more information regarding the potential impact of the COVID-19 pandemic on our business, refer to Part II.

“Risk Factors—Risks Related to our Business—The outbreak of the novel strain of coronavirus disease has impacted, and a future pandemic, epidemic or outbreak of an infectious disease in the United States could impact, our business, financial condition and results of operations, as well as the business or operations of third parties with whom we conduct business.”

Impact on Financial Performance

The COVID-19 pandemic negatively impacted our financial performance in the second quarter of 2020, and to a lesser degree thru the remainder of 2020 and 2021, due to the adverse impact the pandemic had on certain service SMBs.

However, given the diversification of our business, the financial impact was primarily limited to declines in revenue attributable to customers in the Fitness & Wellness and Health Services verticals as many customers in those verticals were forced to close their business or limit operations.

Due to the pandemic, in the three months ended June 30, 2020, our revenue declined from the three months ended March 31, 2020, excluding the impact of acquisitions closed in the first and second quarters of 2020.

Throughout the second half of 2020 and for the year ended 2021, our revenues, excluding the impact of acquisitions closed within the respective periods, have increased as our customers and many service SMBs resumed operations and the impact of the pandemic has lessened.

Given that the COVID-19 pandemic continues to evolve, the extent to which it may further impact our financial condition, results of operations, or liquidity continues to be uncertain and difficult to predict.

Any further impact is likely to vary by specific verticals, solutions and geographies, with the diversity of our customer base potentially moderating the overall effect.

Our priority remains the safety of our employees, customers and the communities in which we live and operate.

We continue to remain in close and regular contact with our employees, customers, business partners and communities to help navigate these challenging times.

Impact of Macroeconomic Climate

The macroeconomic climate continues to see pressure from global developments such as the COVID-19 pandemic, rising inflation, the strengthened US Dollar, rising interest rates and supply chain disruptions.

These developments may have an adverse effect on our revenues and demand for our products and services, as well as on our costs of doing business.

We have taken and will continue to take actions to help mitigate the impact of these economic challenges, but there can be no assurance as to the effectiveness of our efforts going forward.

For more information regarding the potential impact of the COVID-19 pandemic on our business, refer to Part I.

“Risk Factors—Risks Related to our Business—The COVID-19 pandemic has impacted, and a future pandemic, epidemic or outbreak of an infectious disease could impact, our business, financial condition and results of operations, as well as the business or operations of third parties with whom we conduct business.”

Key Factors Affecting Our Performance

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For additional information, see Part I.

“Risk Factors—Risks Related to Our Business—Our recent growth rates may not be sustainable or indicative of future growth and we expect our growth

rate to slow,” “—We may reduce our rate of acquisitions and may be unsuccessful in achieving continued growth through acquisitions” and “—Revenues and profits generated through acquisitions may be less than anticipated, and we may fail to uncover all liabilities of acquisition targets through the due diligence process prior to an acquisition, resulting in unanticipated costs, losses or a decline in profits, as well as potential impairment charges.

“Risk Factors—Risks Related to Our Business—Our recent growth rates may not be sustainable or indicative of future growth and we expect our growth rate to slow,” “—We may reduce our rate of acquisitions and may be unsuccessful in achieving continued growth through acquisitions” and “—Revenues and profits generated through acquisitions may be less than anticipated, and we may fail to uncover all liabilities of acquisition targets through the due diligence process prior to an acquisition, resulting in unanticipated costs, losses or a decline in profits, as well as potential impairment charges.

Claims against us relating to any acquisition may necessitate our seeking claims against the seller for which the seller may not indemnify us or that may exceed the seller’s indemnification obligations.”

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Sustaining our growth requires continued adoption of our solutions by new customers.

Through acquisitions and organic growth of our business, the number of customers on our platform increased from over 500,000 at the end of 2020 to over 600,000 at the end of 2021.

Through acquisitions and organic growth of our business, the number of customers on our platform increased from over 600,000 at the end of 2021 to more than 685,000 at the end of 2022.

We will continue to invest in our efficient go-to-market strategy as we further penetrate our addressable markets.

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Increasing Revenue from Existing Customers

As of December 31, 2021, we had over 600,000 customers worldwide, including approximately 294,000, 90,000 and 67,000 customers in our Home Services, Health Services and Fitness & Wellness Services verticals, respectively.

For the year ended December 31, 2021, we estimate that approximately 98% of our customers had less than $2,000 in billings and less than 1% had more than $5,000 in billings.

As of December 31, 2022, we had more than 685,000 customers worldwide, including approximately 320,000, 95,000 and 69,000 customers in our Home Services, Health Services and Fitness & Wellness Services verticals, respectively.

For the year ended December 31, 2022, we estimate that approximately 90% of our customers

contributed less than $2,000 in revenue and less than 5% contributed more than $5,000 in revenue.

We define a customer as an individual or entity that utilized or was capable of utilizing an EverCommerce solution or service for which they paid any one or combination of recurring, re-occurring or transactional fees in a given period.

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We generate subscription and marketing technology revenue from cross-selling our customer engagement and Marketing Technology Solutions across our customer base.

These solutions both increase customer loyalty and repeat purchases, and improve customer experiences, as well as help businesses to manage campaigns and generate quality leads.

These solutions increase customer loyalty, repeat purchases, improve customer experiences and help businesses to manage campaigns and generate quality leads.

Continued Investment in Growth

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We believe that investment in technology development will contribute to our long-term growth, but may also negatively impact our short-term profitability.

As a result, we expect our operating expenses related to sales and marketing and product development to increase as a percentage of total revenue over the near term.

Additionally, while we continued to invest in scalable operations and necessary functions to support operating as a public company in 2021, a greater impact of these investments, particularly related to Sarbanes-Oxley compliance, will be realized in 2022 and beyond.

In 2022, we continued to invest in scalable operations and necessary functions to support operating as a public company.

In 2023 and beyond, smaller incremental investments will be needed to support Sarbanes-Oxley compliance.

Key Business and Financial Metrics

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As a result, Pro Forma Revenue Growth Rate includes pro forma revenue from businesses acquired during the period, including revenue generated during periods when we did not yet own the acquired businesses.

In including such pre-acquisition revenue, Pro Forma Revenue Growth Rate allows us to measure the underlying revenue growth of our business as it stands as of the end of the respective period, which we believe provides insight into our then-current operations.

In including such pre-acquisition revenue, Pro Forma Revenue Growth Rate allows

us to measure the underlying revenue growth of our business as it stands as of the end of the respective period, which we believe provides insight into our then-current operations.

Pro Forma Revenue Growth Rate does not represent organic revenue generated by our business as it stood at the beginning of the respective period.

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This metric is particularly useful to management due to the number of acquired entities.

As the economy has continued to reopen and additional local, state and federal restrictions have been scaled back, our Pro Forma Revenue Growth Rate increased to 21.5% for the year ended December 31, 2021.

Our Pro Forma Revenue Growth rate was 15.6% for the year ended December 31, 2022 reflective of the underlying growth in our business including new customers and providing more solutions to existing customers.

Non-GAAP Financial Measures

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Adjusted Gross Profit is a key performance measure that our management uses to assess our operational performance, as it represents the results of revenues and direct costs, which are key components of our operations.

We believe that this non-GAAP financial measure is useful to investors and other interested parties in analyzing our financial performance because it reflects the gross profitability of our operations, and excludes the indirect costs associated with our sales and marketing, product development, general and administrative activities, depreciation and amortization and the impact of our financing methods and income taxes.

We believe that this non-GAAP financial measure is useful to investors and other interested parties in analyzing our financial performance because it reflects the gross profitability of our operations, and excludes the indirect costs associated with our sales and marketing, product development, general and administrative activities and depreciation and amortization and the impact of our financing methods and income taxes.

We calculate Adjusted Gross Profit as gross profit (as defined below) adjusted to exclude depreciation and amortization allocated to cost of revenues.

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Adjusted EBITDA is used by our management team as an additional measure of our performance for purposes of business decision-making, including managing expenditures, and evaluating potential acquisitions.

Period-to-period comparisons of Adjusted EBITDA help our management identify additional trends in our financial results that may not be shown solely by period-to-period comparisons of net income or income from continuing operations.

In addition, we may use Adjusted EBITDA in the incentive compensation programs applicable to some of our employees.

Our Management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items, and may not be directly comparable to similarly titled metrics used by other companies.

We calculate Adjusted EBITDA as net income (loss) adjusted to exclude interest and other expense, net, income tax benefit, loss on debt extinguishment, depreciation and amortization, other amortization, acquisition related costs, stock-based compensation and other non-recurring costs.

We calculate Adjusted EBITDA as net income (loss) adjusted to exclude interest and other expense, net, income tax expense (benefit), loss on debt extinguishment, depreciation and amortization, other amortization, acquisition related costs, stock-based compensation and other non-recurring costs.

Other amortization includes amortization for capitalized contract acquisition costs.

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Acquisition related costs and other non-recurring costs are excluded as they are not representative of our underlying operating performance.

EBITDA should be viewed as a measure of operating performance that is a supplement to, and not a substitute for, operating income or loss, net earnings or loss and other GAAP measures of income (loss).

Adjusted EBITDA should be viewed as a measure of operating performance that is a supplement to, and not a substitute for, operating income or loss, net earnings or loss and other GAAP measures of income (loss).

The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated in accordance with GAAP, to Adjusted EBITDA on a consolidated basis.

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Cost of Revenues

Cost of revenue (exclusive of depreciation and amortization) consists of expenses related to delivering our services

and products and providing support to our customers and includes employee costs and related overhead, customer credit card processing fees, targeted mail costs, third party fulfillment costs and software hosting expenses.

Cost of revenue (exclusive of depreciation and amortization) consists of expenses related to delivering our services and products and providing support to our customers and includes employee costs and related overhead, customer credit card processing fees, targeted mail costs, third party fulfillment costs and software hosting expenses.

We expect that cost of revenue as a percentage of revenue will fluctuate from period to period based on a variety of factors, including the mix of revenue between Subscription and Transaction Fees and Marketing Technology Solutions, labor costs, third-party expenses and acquisitions.

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Sales and Marketing

Sales and marketing expense consist primarily of employee costs for our sales and marketing personnel, including salaries, benefits, bonuses, stock-based compensation and sales commissions.

Sales and marketing expense consists primarily of employee costs for our sales and marketing personnel, including salaries, benefits, bonuses, stock-based compensation and sales commissions.

Sales and marketing expenses also include advertising costs, travel-related expenses and costs to market and promote our products, direct customer acquisition costs, costs related to conferences and events and partner/broker commissions.

Software and subscription services dedicated for use by our sales and marketing organization, and outside services contracted for sales and marketing purposes are also included in sales and marketing expense.

Sales commissions that are incremental to obtaining a customer contract are deferred and amortized ratably over the estimated period of our relationship with that customer.

We expect our sales and marketing expenses will increase on an absolute dollar basis for the foreseeable future as we continue to increase investments to support our growth.

We also anticipate that sales and marketing expenses will increase as a percentage of revenue in the near and medium-term.

Sales commissions that are incremental to obtaining a customer contract are deferred and amortized ratably over the estimated period of our relationship with

that customer.

We expect our sales and marketing expenses will increase in absolute dollars and may increase as a percentage of revenue for the foreseeable future as we continue to increase investments to support our growth.

Product Development

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Interest and Other Expense, net

Interest and other expense, net, primarily consists of interest expense on long-term debt, net of interest income.

Interest and other expense, net, primarily consists of interest expense on long-term debt, net of interest income, as well as loss on interest rate swap.

It also includes amortization expense of financing costs and discounts, as well as realized and unrealized gains and losses.

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Loss on debt extinguishment represents the difference between the amount paid to extinguish the debt and the carrying value of the debt, inclusive of the write-off of previously deferred financing costs.

Income Tax Benefit

Income Tax Benefit (Expense)

We account for income taxes in accordance with ASC 740, Income Taxes .

ASC 740 requires deferred tax assets and liabilities to be recognized for temporary differences between the tax basis and financial reporting basis of assets and liabilities, computed at the expected tax rates for the periods in which the assets or liabilities will be realized, as well as for the expected tax benefit of net operating loss and tax credit carryforwards.

ASC 740 requires deferred tax assets and liabilities to be recognized for temporary differences between the tax basis and financial reporting basis of assets and liabilities, computed at the expected tax rates for the periods in which the assets or liabilities will be realized, as well as for the expected tax benefit (expense) of net operating loss and tax credit carryforwards.

Income taxes are recognized for the amount of taxes payable by the Company's corporate subsidiaries for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes.

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Revenues increased $130.6 million or 26.6% for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

This increase was primarily driven by increases in subscription and transaction fees of $118.9 million and marketing technology solutions of $31.9 million.

The increase in subscription and transaction fees related to growth in our customer base, higher transaction volumes processed through our payments platform and revenue earned from acquisitions completed in 2021 and 2020.

The increase in marketing technology solutions related to growth in customers using our digital marketing applications, an increase in consumer leads generated by our platforms and revenue earned from acquisitions completed in 2021 and 2020.

Included in revenues for the year ended December 31, 2021 is $21.6 million of revenue from acquisitions closed subsequent to December 31, 2020.

This increase was primarily driven by increases in subscription and transaction fees of $113.5 million and marketing technology solutions of $16.3 million due to our pro forma revenue growth of 15.6% in the year ended December 31, 2022.

Additionally, subscription and transaction fees increased by $61.1 million from revenue earned from acquisitions completed in 2021.

Cost of Revenues

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Cost of revenues increased by $55.1 million or 34.0% for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

This increase is primarily related to the continued growth of the Company and is comprised of $15.4 million in personnel and compensation expense, $8.9 million in outsourced services, $16.0 million in product cost and other miscellaneous items including, but not limited to, promotional expense, software hosting expense, customer credit card processing costs and campaign mail expense.

This increase is primarily comprised of an additional $10.3 million in personnel and compensation expense, $10.3 million of media spend, $9.1 million in contract services, $7.4 million in application programming interface fees and $4.2 million of hosting expense.

As a percentage of revenue, cost of revenues was 35.0% and 33.1% for the years ended December 31, 2022 and 2021, respectively.

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Sales and marketing expenses increased by $25.3 million or 26.9% for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

This increase was primarily driven by an additional $18.7 million in personnel and compensation expense, $10.6 million in advertising spend and $8.1 million in partner commissions, due to the continued investment in growth through various marketing channels and personnel in 2021 as well as the reduced spend during COVID affected periods in 2020.

As a percentage of revenue, sales and marketing was 19.1% and 14.9% for the years ended December 31, 2021 and 2020, respectively.

This increase was primarily driven by an additiona l $15.6 million in personnel and compensation expense, $2.2 million in advertising spend and $2.0 million in conference expense, due to the continued investment in growth through various marketing channels.

As a percentage of revenue, sales and marketing expenses were 19.2% and 19.1% for the years ended December 31, 2022 and 2021, respectively.

Product Development

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General and administrative expenses increased by $22.1 million or 20.0% for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

This increase was primarily driven by additional stock-based compensation expense of $10.3 million due to the vesting of certain restricted stock awards, and personnel and compensation expense of $3.1 million, software and tools expense of $2.6 million and insurance expense of $2.4 million due to the continued investment in infrastructure required to support our rapid growth, scalable operations and being a public company.

Additionally, this investment was reduced during COVID affected periods in 2020.

For further details regarding our stock-based compensation expense related to the vesting of certain restricted stock awards refer to Note 11 in the notes to the consolidated financial statements included in this Annual Report on Form 10-K.

This increase was primarily driven by an additional $10.4 million of personnel and compensation expense, $2.4 million of software and tools spend, $2.1 million of stock based compensation expense and $2.1 million of insurance expense, due to the continued investment in infrastructure required to support our growth, scalable operations and being a public company.

As a percentage of revenue, general and administrative expenses were 21.3% and 22.5% for the years ended December 31, 2022 and 2021, respectively.

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Percentage of revenues 17.8 % 20.7 %

Depreciation and amortization increased by $24.6 million or 32.0% for the year ended December 31, 2021 as compared to the year ended December 31, 2020.

This increase was primarily driven by an increase of $23.1 million in intangible assets’ amortization as a result of intangible asset additions from our 2021 and 2020 acquisitions.

Depreciation and amortization expenses increased by $9.4 million or 9.2% for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

This increase was primarily driven by an increase of $7.3 million in intangible assets’ amortization as a result of intangible asset additions from our 2021 acquisitions.

As a percentage of revenue, depreciation and amortization expenses were 17.8% and 20.7% for the years ended December 31, 2022 and 2021, respectively.

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Interest and other expense, net, decreased by $2.2 million or 6.1% for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

This decrease was primarily due to an overall lower outstanding debt balance in 2021 compared to 2020, as well as a lower effective interest rate as a result of the Refinance (as defined below).

For additional information concerning the Refinance, see the “ New Credit Facilities section” below.

This decrease was primarily due to an overall lower outstanding debt balance in 2022 compared to 2021, as the Company refinanced its former credit facilities on July 6, 2021, offset by the loss on interest rate swap recognized in 2022.

As a percentage of revenue, interest and other expense, net were 5.5% and 7.4% for the years ended December 31, 2022 and 2021, respectively.

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Loss on debt extinguishment $ — $ 28,714 $ (28,714) N.M.

Percentage of revenues 5.9 % N.M.

Percentage of revenues — % 5.9 %

_______________

— Not Meaningful.

Loss on debt extinguishment increased by $28.7 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020.

As a result of the Refinance in the third quarter of 2021, the Company recorded a loss on debt extinguishment of approximately $28.7 million.

For additional information concerning our loss on debt extinguishment, see Note 9 in the notes to the consolidated financial statements included in this Annual Report on Form 10-K.

Loss on debt extinguishment decreased by $28.7 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

In the year ended December 31, 2021, the Company recorded a loss on debt extinguishment of approximately $28.7 million.

For additional information concerning our loss on debt extinguishment, see Note 10 in the notes to the consolidated financial statements included in our 2021 Annual Report on Form 10-K.

Income Tax Benefit

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Percentage of revenues 0.8 % 2.1 %

Income tax benefit increased by $6.4 million or 176.9% for the year ended December 31, 2021 as compared to the year ended December 31, 2020.

This increase was primarily driven by acquisition accounting, differences between the U.S.

Federal income tax rate and the income tax rate in certain foreign jurisdictions and various other discrete items recorded in the year ended December 31, 2021.

Income tax benefit decreased by $5.4 million or 53.4% for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

This decrease was primarily driven by an increase in the valuation allowance against deferred tax assets.

The main drivers of the change in valuation allowance were the reversal of deferred tax liabilities related to purchased intangibles and the change in presentation of lease-related deferred tax assets and liabilities from the adoption of ASC 842.

Additionally, we restructured the ownership of certain intellectual property during the year, which resulted in an income tax benefit.

Liquidity and Capital Resources

To date, our primary sources of liquidity have been net cash provided by operating activities, proceeds from preferred stock and common stock issuances, including our recent IPO and proceeds from long-term debt.

For a description of our recent IPO and Private Placement, see above in this Part II, Item 7.

under “Initial Public Offering” and “Private Placement,” respectively.

To date, our primary sources of liquidity have been net cash provided by operating activities, proceeds from preferred stock and common stock issuances, including our recent initial public offering (“IPO”) of common stock, 2021 private placement of common stock and proceeds from long-term debt.

Our primary use of liquidity has been acquisitions of businesses.

For a description of our recent acquisitions, see Note 3 in the notes to the consolidated financial statements included in this Annual Report on Form 10-K.

Absent significant deterioration of market conditions, we expect that working capital requirements, capital expenditures, acquisitions, debt servicing and lease obligations will be our principal needs for liquidity going forward.

Absent significant deterioration of market conditions, we expect that working capital requirements, capital expenditures, acquisitions, the Company’s stock repurchase program (discussed below), debt servicing and lease obligations will be our principal needs for liquidity going forward.

During the year ended December 31, 2021, we completed five acquisitions for total consideration of $367.1 million.

During the year ended December 31, 2020, we completed nine acquisitions for total consideration of $415.3 million.

As of December 31, 2021, we had cash, cash equivalents and restricted cash of $97.6 million, $190.0 million of available borrowing capacity under our New Revolver (as defined below) and $548.6 million outstanding under our New Credit Facilities (as defined below).

We believe that our existing cash, cash equivalents and restricted cash, availability under our New Credit Facilities and our cash flows from operations will be sufficient to fund our working capital requirements and planned capital expenditures, and to service our debt obligations for at least the next twelve months.

As of December 31, 2022, we had cash, cash equivalents and restricted cash of $95.8 million, $190.0 million of available borrowing capacity under our Revolver (as defined below) and $543.1 million outstanding under our Term Loans (as defined below).

We believe that our existing cash, cash equivalents and restricted cash, availability under our Credit Facilities (as defined below) and our cash flows from operations will be sufficient to fund our working capital requirements and planned capital expenditures, and to service our debt obligations for at least the next twelve months.

However, our future working capital requirements will depend on many factors, including our rate of revenue growth, the timing and size of future acquisitions and the timing of introductions of new products and services.

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See Part I, Item 1A .“Risk Factors.”

Initial Public Offering

Additionally, we incurred other IPO related fees of $6.9 million.

Private Placement

The following table sets forth cash flow data:

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Net cash used in investing activities (18,080) (379,668)

Net cash provided by financing activities 341,183 401,850

Net cash provided by (used in) financing activities (47,309) 341,183

Effect of foreign currency exchange rate changes on cash (1,148) 224

Net increase (decrease) in cash, cash equivalents and restricted cash $ (779) $ 40,994

Net decrease in cash, cash equivalents and restricted cash $ (1,735) $ (779)

Cash Flow from Operating Activities

During the year ended December 31, 2021, net cash provided by operating activities consisted of net loss of $82.0 million, adjusted by net non-cash adjustments to net loss of $147.8 million and net changes in operating assets and liabilities of $28.4 million.

Non-cash adjustments primarily consisted of depreciation and amortization of $101.4 million, loss on debt extinguishment of $28.7 million and stock-based compensation of $22.1 million offset partially by deferred taxes of $12.0 million.

Changes in working capital during the year ended December 31, 2021 primarily included cash outflows from accounts receivable, net of $13.3 million, other non-current assets of $10.5 million, prepaid expenses and other current assets of $8.0 million and accrued expenses and other of $4.1 million, partially offset by cash inflows of $9.2 million from deferred revenue.

During the year ended December 31, 2020, net cash provided by operating activities consisted of net loss of $60.0 million, adjusted by net non-cash adjustments to net income of $91.4 million and net changes in operating assets and

liabilities of $26.1 million.

Non-cash adjustments primarily consisted of depreciation and amortization of $76.8 million and stock-based compensation of $10.7 million.

Changes in working capital during the year ended December 31, 2020 primarily included net cash inflows from accrued expenses and other of $13.2 million, customer deposits and other long-term liabilities of $9.0 million and prepaid expenses and other current assets of $5.0 million, partially offset by cash outflows for other non-current assets of $4.2 million.

Net cash provided by operating activities was $64.8 million for the year ended December 31, 2022, compared to $37.5 million for the year ended December 31, 2021.

Changes in net cash provided by operating activities result primarily from cash received from net sales within our subscription and transaction fees and marketing technology solutions.

Other drivers of the changes in net cash provided by operating activities include payments for personnel expenses for our employees, costs related to delivering our services and products, partner commissions, advertising and interest on our long-term debt.

The increase in cash provided for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to higher cash collections from our subscription and transaction fees and marketing technology solutions of approximately $121.2 million offset by investments made to support the growth of our business including personnel expenses of $51.2 million, costs directly related to the delivery of our services and products of $41.3 million and the timing of payments.

Cash Flow from Investing Activities

During the year ended December 31, 2022, net cash used in investing activities was $18.1 million.

The cash flow used was driven primarily by acquisition of companies, net of cash acquired, of $364.9 million.

The remainder was primarily for purchases of property and equipment and cost to develop software.

The cash used was driven primarily by costs to develop software of $15.5 million.

The remainder was for purchases of property and equipment.

During the year ended December 31, 2021, net cash used in investing activities was $379.7 million.

The cash flow used was driven primarily by acquisition of companies, net of cash acquired, of $403.2 million.

The remainder was primarily for purchases of property and equipment and cost to develop software.

The cash used was driven primarily by acquisition of companies, net of cash acquired, of $364.9 million.

The remainder was for purchases of property and equipment and cost to develop software.

Cash Flow from Financing Activities

During the year ended December 31, 2021, net cash provided by financing activities was $341.2 million.

The cash flow provided was driven primarily by net proceeds from preferred and common stock issuances of $109.8 million and $415.7 million, respectively, and proceeds from long-term debt of $851.0 million, partially offset by payments on long-term debt of $1,028.5 million.

The proceeds from these financings were primarily used, after payments on long-term debt, to fund acquisitions and for the Refinance discussed below.

During the year ended December 31, 2022, net cash used in financing activities was $47.3 million.

The cash used was primarily driven by the repurchase and retirement of shares of our common stock of $43.0 million.

For additional information regarding our repurchase and retirement of shares of our common stock, refer to Note 11 in the notes to the consolidated financial statements included in this Annual Report on Form 10-K.

The remainder was for payments on long-term debt offset by net proceeds from common stock issuances.

During the year ended December 31, 2021, net cash provided by financing activities was $341.2 million.

The cash flow used was driven primarily by proceeds from long-term debt of $314.7 million and proceeds from preferred stock issuance of $150.2 million, partially offset by payments on long-term debt of $55.9 million.

The net proceeds from these financings were primarily used for acquisitions.

Equity Offerings

For information regarding our IPO, see Note 2 in the notes to the consolidated financial statements included in this Annual Report on Form 10-K.

The cash provided was driven primarily by net proceeds from preferred and common stock issuances of $109.8 million and $415.7 million, respectively, and proceeds from long-term debt of $851.0 million, partially offset by payments on long-term debt of $1,028.5 million.

Credit Facilities

As of January 1, 2020, EverCommerce Solutions Inc.

(formerly PaySimple, Inc.), as borrower, and EverCommerce Intermediate Inc.

(formerly PaySimple Intermediate, Inc.) had an outstanding credit agreement with various agents and lenders (the “Credit Agreement”).

The Credit Agreement provided for (i) a term loan in an aggregate principal amount of $415.0 million (the “term loan”), (ii) commitments for delayed draw term loans up to an aggregate principal amount of $135.0 million (the “Delayed Draw Term Loans”), (iii) commitments for revolving loans up to an aggregate principal amount of $50.0 million (the “Revolver”) and (iv) a sub-limit of the Revolver available for letters of credit up to an aggregate face amount of $10.0 million, or the letters of credit (the term loan, Delayed Draw Term Loans and Revolver are referred to herein as the “Credit Facilities”).

In September 2020, the Credit Agreement was amended to provide for additional commitments of Delayed Draw Term Loans in an aggregate principal amount of $250.0 million on the same terms and conditions as the original Delayed Draw Term Loans under the Credit Agreement.

Following this amendment, the aggregate principal amount of Delayed Draw Term Loans available under the Credit Agreement was $385.0 million.

Simultaneously with the execution of the Credit Agreement, we and various of our subsidiaries entered into a collateral agreement and guarantee agreement.

Pursuant to the guarantee agreement, EverCommerce Intermediate Inc.

and various of our subsidiaries were guarantors under the Credit Agreement.

Pursuant to the collateral agreement, the Credit Facilities were collateralized by substantially all our assets, including our intellectual property and the equity interests of our various subsidiaries, including EverCommerce Solutions Inc.

The Credit Agreement that governed the Credit Facilities contained certain affirmative and negative covenants, including, among other things, restrictions on indebtedness, issuance of preferred equity interests, liens, fundamental changes and asset sales, investments, negative pledges, repurchases of stock, dividends and other distributions and transactions with affiliates and a passive holding company covenant applicable to EverCommerce Intermediate Inc.

In addition, we were subject to a financial covenant with respect to the Revolver whereby, if the aggregate principal amount of revolving loans and letter of credit disbursements, together with the amount of all undrawn letters of credit (excluding undrawn letters of credit up to $5.0 million and letters of credit that are cash collateralized) outstanding on the last day of any fiscal quarter, exceeded 35% of the aggregate principal amount of the Revolver, then our First Lien Leverage Ratio (as defined in the Credit Agreement) as of the last day of such fiscal quarter was required to be 8.80 to 1.00 or less.

New Credit Facilities

In connection with our IPO, on July 6, 2021 we refinanced our existing Credit Facilities and EverCommerce Solutions Inc., as borrower, and EverCommerce Intermediate Inc.

entered into a new credit agreement (the “New Credit Agreement”) in an aggregate principal amount of $540.0 million, consisting of (i) an aggregate principal amount of $350.0 million (“New Initial Term Loans”), (ii) a revolver with a capacity of $190.0 million (“New Revolver”) and (iii) a sub-limit of the New Revolver available for letters of credit up to an aggregate face amount of $20.0 million.

We used the net proceeds of the New Term Loans and a portion of the funds available under our New Revolver, together with the net proceeds from the IPO, to repay all amounts outstanding under our Credit Facilities.

These transactions are collectively referred to herein as the “Refinance”.

In August 2021, the Company used the net proceeds from the sale of the additional shares of common stock following the exercise of the underwriters’ over-allotment option granted in our IPO to repay $44.0 million of the amount outstanding under the New Revolver.

In November 2021, the Company drew an additional $155.0 million on the New Revolver to fund an acquisition.

Subsequently, in November 2021, the Company drew an additional $200.0 million (“New Additional Term Loans,” and collectively with the New Initial Term Loans, the “New Term Loans”) as permitted by the New Credit Agreement.

The Company used the proceeds to repay all amounts outstanding on the New Revolver and for general corporate purposes.

The New Initial Term Loans, New Additional Term Loans and New Revolver are collectively referred to herein as the “New Credit Facilities.”

Simultaneously with the execution of the New Credit Agreement, we and various of our subsidiaries entered into a collateral agreement and guarantee agreement.

Prior to our IPO, subsidiaries of the Company were party to a credit facility that provided for (i) a term loan in an aggregate principal amount of $415.0 million (the “Legacy Term Loan”), (ii) commitments for delayed draw term loans up to an aggregate principal amount of $385.0 million (the “Legacy Delayed Draw Term Loans”), (iii) commitments for revolving loans up to an aggregate principal amount of $50.0 million (the “Legacy Revolver”) and (iv) a sub-limit of the Revolver available for letters of credit up to an aggregate face amount of $10.0 million, or the letters of credit (the Legacy Term Loan, Legacy Delayed Draw Term Loans and Legacy Revolver are referred to herein as the “Legacy Credit Facilities”).

In connection with our IPO, on July 6, 2021 we refinanced our Legacy Credit Facilities and EverCommerce Solutions Inc., as borrower, and EverCommerce Intermediate Inc.

entered into a new credit agreement (the “Credit Agreement”) in an aggregate principal amount of $540.0 million, consisting of (i) an aggregate principal amount of $350.0 million (the “Initial Term Loans”), (ii) a revolver with a capacity of $190.0 million (the “Revolver”) and (iii) a sub-limit of the Revolver available for letters of credit up to an aggregate face amount of $20.0 million.

We used the net proceeds of the Initial Term Loans and a portion of the funds available under our Revolver, together with the net proceeds from the IPO, to repay all amounts outstanding under our Legacy Credit Facilities.

In November 2021, the Company drew an additional $155.0 million on the Revolver to fund an acquisition.

Subsequently, in November 2021, the Company drew an additional $200.0 million (the “Additional Term Loans,” and collectively with the Initial Term Loans, the “Term Loans”) as permitted by the Credit Agreement.

The Company used the proceeds of the Additional Term Loans to repay all amounts outstanding on the Revolver and for general corporate purposes.

The Initial Term Loans, Revolver and Additional Term Loans are collectively referred to herein as the “Credit Facilities.”

Simultaneously with the execution of the Credit Facilities, we and various of our subsidiaries entered into a collateral agreement and guarantee agreement.

Pursuant to the guarantee agreement, EverCommerce Intermediate Inc.

and various of our subsidiaries are guarantors of the obligations under the New Credit Agreement.

Pursuant to the collateral agreement, the New Credit Facilities are secured by liens on substantially all of our assets, including our intellectual property and the equity interests of our various subsidiaries, including EverCommerce Solutions Inc.

The New Credit Agreement contains certain affirmative and negative covenants, including, among other things, restrictions on indebtedness, issuance of preferred equity interests, liens, fundamental changes and asset sales, investments, negative pledges, repurchases of stock, dividends and other distributions and transactions with affiliates.

In addition, we are subject to a financial covenant with respect to the New Revolver whereby, if the aggregate principal amount of revolving loans (excluding letters of credit) outstanding on the last day of any fiscal quarter exceeds 35% of the aggregate commitments available under the New Revolver, then our first lien leverage ratio as of the last day of such fiscal quarter must be 7.50 to 1.00 or less.

Borrowings under the New Credit Agreement are available as ABR or Eurocurrency borrowings.

ABR borrowings under the New Credit Agreement accrue interest at an alternate base rate plus an applicable rate, and Eurocurrency borrowings accrue interest at an adjusted LIBOR rate plus an applicable rate.

and various of our subsidiaries are guarantors of the obligations under the Credit Facilities.

Pursuant to the collateral agreement, the Credit Facilities are secured by liens on substantially all of our assets, including our intellectual property and the equity interests of our various subsidiaries, including EverCommerce Solutions Inc.

The Credit Facilities contain certain affirmative and negative covenants, including, among other things, restrictions on indebtedness, issuance of preferred equity interests, liens, fundamental changes and asset sales, investments, negative pledges, repurchases of stock, dividends and other distributions, and transactions with affiliates.

In addition, we are subject to a financial covenant with respect to the Revolver whereby, if the aggregate principal amount of revolving loans (excluding letters of credit) outstanding on the last day of any fiscal quarter exceeds 35% of the aggregate commitments available under the Revolver, then our first lien leverage ratio as of the last day of such fiscal quarter must be 7.50 to 1.00 or less.

Borrowings under the Credit Facilities are available as ABR or Eurocurrency borrowings.

ABR borrowings under the Credit Facilities accrue interest at an alternate base rate plus an applicable rate, and Eurocurrency borrowings accrue interest at an adjusted LIBOR rate plus an applicable rate.

The ABR rate represents the greater of the prime rate, Federal Reserve Bank of New York rate plus ½ of 1%, and an adjusted LIBOR rate for a one month interest period plus 1%.

The applicable rate for the New Term Loans and the New Revolver loans is 3% for Eurocurrency borrowings and 2% for ABR Borrowings, in each case subject to change based on our first lien net leverage ratio.

The applicable rate for the Term Loans and the Revolver loans is 3% for Eurocurrency borrowings and 2% for ABR Borrowings, in each case subject to change based on our first lien net leverage ratio.

Effective October 31, 2022, the Company entered into an interest rate swap agreement in connection with the Company’s Credit Facilities for a notional amount of $200.0 million to convert a portion of the Term Loans from a floating rate to a fixed rate (the “Swap Agreement”).

The arrangement has a term of five years with a fixed rate in the agreement of 4.2295%.

On March 14, 2023, the Company entered into a second interest rate swap agreement in connection with the Company’s Credit Facilities for a notional amount of $100.0 million to convert a portion of the Term Loans from a floating rate to a fixed rate.

This swap agreement is effective March 31, 2023 and has a term of approximately 4.5 years with a fixed rate in the agreement of 3.969%.

With respect to ABR borrowings, interest payments are due on a quarterly basis on the last business day of each March, June, September and December.

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last business day of the interest period applicable to the borrowing and, in the case of a Eurocurrency borrowing with an interest period of more than three months’ duration, each day prior to the last day of such interest period that occurs at intervals of three months’ duration after the first day of such interest period.

The New Revolver has a variable commitment fee, which is based on our first lien leverage ratio.

The Revolver has a variable commitment fee, which is based on our first lien leverage ratio.

We expect the commitment fee to range from 0.25% to 0.375% per annum.

We are obligated to pay a fixed fronting fee for letters of credit of 0.125% per annum.

Amounts borrowed under the New Revolver may be repaid and re-borrowed through maturity of the New Revolver in July 2026.

The New Term Loans mature in July 2028.

New Term Loans may be repaid or prepaid but may not be re-borrowed.

As of December 31, 2021, there was $548.6 million outstanding under our New Credit Facilities, comprising $548.6 million related to the New Term Loans and none outstanding related to the New Revolver.

The effective interest rate on the New Term Loans was approximately 3.9% from July 6, 2021 through December 31, 2021.

As of December 31, 2021, we were in compliance with the covenants under the New Credit Agreement.

Amounts borrowed under the Revolver may be repaid and re-borrowed through maturity of the Revolver in July 2026.

The Term Loans mature in July 2028.

The Term Loans may be repaid or prepaid but may not be re-borrowed.

As of December 31, 2022, there was $543.1 million outstanding under our Credit Facilities, all of which was related to the Term Loans as no amounts were outstanding under the Revolver.

The effective interest rate on the Term Loans was approximately 5.2% for the year ended December 31, 2022.

As of December 31, 2022, we were in compliance with the covenants under the Credit Facilities.

Stock Repurchase Program

On June 14, 2022, our Board of Directors approved a stock repurchase program wi th authorization to purchase up to $50.0 million in shares of the Company’s common stock through the expiration of the program on December 21, 2022 (the “Repurchase Program”).

Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases to be determined at the Company’s discretion, depending on market conditions and corporate needs.

This program does not obligate the Company to acquire any particular amount of common stock and may be modified, suspended or terminated at any time at the discretion of the Board of Directors.

The Company expects to fund repurchases with existing cash on hand.

The Company repurchased and retired 4,951,966 shares of common stock for $43.0 million , including transaction fees, d uring the year ended December 31, 2022.

On November 7, 2022, our Board of Directors approved an expansion of the Repurchase Program with authorization to purchase up to an additional $50.0 million in shares of the Company’s common stock ($100.0 million total) and an extension to the expiration of the Repurchase Program through December 31, 2023.

As of December 31, 2022, $57.1 million remains available under the Repurchase Program.

Contractual Obligations

Refer to Notes 9 and 16 in the notes to the consolidated financial statements included in this Annual Report on Form 10-K for a discussion of our debt and operating lease obligations, respectively.

Refer to Notes 9, 10 and 17 in the notes to the consolidated financial statements included in this Annual Report on Form 10-K for a discussion of our debt, operating lease and contractual obligations, respectively.

Additionally, on March 14, 2023, the Company entered into an interest rate swap agreement in connection with the Company’s Credit Facilities for a notional amount of $100.0 million to convert a portion of the Term Loans from a floating rate to a fixed rate.

This swap agreement is effective March 31, 2023 and has a term of approximately 4.5 years with a fixed rate in the agreement of 3.969%.

Critical Accounting Estimates

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In determining the total consideration that we expect to receive, we include variable consideration only to the extent that it is probable that a significant reversal of cumulative revenue will not occur when the uncertainty is resolved.

Consideration subject to a constraint on revenue recognition has not been significant.

Additionally, there have not been material changes in these estimates or assumptions pertaining to constraints on revenue recognition over the reporting periods presented.

In the future, if there are material changes in the underlying estimates and assumptions pertaining to constraints on revenue recognition, the financial statements could be materially impacted.

Subscription and Transaction Fees:

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Subscription revenue related contracts can be both short and long-term, with stated contract terms that range from one month to five years.

Our contracts may contain termination for convenience provisions that allow the Company, customer or both parties

the ability to terminate for convenience, either at any time or upon providing a specified notice period, without a penalty.

Our contracts may contain termination for convenience provisions that allow the Company, customer or both parties the ability to terminate for convenience, either at any time or upon providing a specified notice period, without a penalty.

Transaction fees relate to payment processing and group purchasing program administration services.

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If the stand-alone selling price is not observable through past transactions, we estimate the stand-alone selling price taking into consideration available information such as market conditions and internally approved pricing guidelines related to the performance obligation.

As permitted under ASC 606, at times we have established the stand-alone selling price of performance

obligations as a range and utilize this range to determine whether there is a discount that needs to be allocated based on the relative stand-alone selling price of the various performance obligations.

As permitted under ASC 606, at times we have established the stand-alone selling price of performance obligations as a range and utilize this range to determine whether there is a discount that needs to be allocated based on the relative stand-alone selling price of the various performance obligations.

At contract inception, we perform a review of each performance obligation’s selling price against the established stand-alone selling price range.

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The established range is reassessed on a periodic basis when facts and circumstances surrounding these established ranges change.

Business Combinations

Business Combinations, Goodwill and Intangible Assets

Our acquisitions have been accounted for under the acquisition method.

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The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets.

Intangible assets primarily consist of customer relationships which include government contracts, developed technology, trademarks and trade names, and non-compete agreements, which are recorded at acquisition date fair value, less accumulated amortization.

These estimates and assumptions can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted average cost of capital, and the estimated useful lives.

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Alternatively, a company may elect to proceed directly to a quantitative goodwill impairment test.

The Company’s annual impairment assessment did not identify any goodwill impairment during the years ended December 31, 2021, 2020 or 2019.

The Company performed a qualitative annual impairment assessment for the years ended December 31, 2022, 2021

For the qualitative assessments, we reviewed factors including macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in any key personnel, any changes in composition of carrying amount of our assets and changes in our stock price.

There were no reasonable changes to the methods and assumptions that would have resulted in an impairment.

In the future, if there are material changes in the underlying estimates and assumptions pertaining to the impairment assessment, the financial statements could be materially impacted.

For each year end, we determined that it was more likely than not that the fair value of each of our reporting units was more than the respective related carrying amounts, including goodwill, and therefore did not record any goodwill impairment.

Intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset.

Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise.

The determination of estimated useful lives and the allocation of purchase price to intangible assets requires significant judgment and affects the amount of future amortization and possible impairment charges.

We determine the appropriate useful life of intangible assets by performing an analysis of expected cash flows of the acquired assets.

Indicators we reviewed included whether there was a significant decrease in market prices of our assets, a significant adverse change in the extent or manner in which our assets are being used, a significant adverse change in legal factors affecting our assets and a cash flow loss.

The Company did not identify indicators of impairment for the years ended December 31, 2022, 2021 and 2020.

In the future, if there are material changes in the underlying estimates and assumptions pertaining to the impairment assessment, the financial statements could be materially impacted.

The Company completed five and nine business acquisitions in 2021 and 2020, respectively, and as a result recorded $132.5 million and $173.6 million in intangible assets and $255.7 million and $240.8 million of goodwill using the aforementioned valuation estimates, respectively.

There were no material changes to prior estimates for the years ended December 31, 2021 and 2020.

Deferred income tax assets and liabilities are determined based upon the net tax effect of the differences between the financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income or loss in the years in which the differences are expected to be reversed.

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The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

Capitalized Software

We capitalize certain costs related to software developed for internal use for which we have no plans to market externally.

The internal use software includes the software used for our SaaS offerings.

We expense the costs of developing computer software until the software has reached the application development stage and capitalize all costs incurred from that time until the software has been placed in service, at which time amortization of the capitalized costs begins.

Determination of when the software has reached the application development stage is based upon completion of conceptual designs, evaluation of alternative designs and performance requirements.

Costs of major enhancements to internal use software are capitalized while routine maintenance of existing software is charged to expense as incurred.

We also capitalize certain costs related to software developed for external use for which we plan to sell to customers, i.e.

on-premise software to be installed on customer computers at the customer site.

Costs incurred prior to reaching technological feasibility are expensed as incurred.

Once technological feasibility is reached, additional development costs incurred are capitalized.

Technological feasibility is demonstrated by the completion of the product design and when all high-risk development issues have been resolved.

Capitalization ceases when the product is available for general release to the customers.

We amortize both internal use and external software costs, using the straight-line method, over its estimated useful life of five years.

The Company recorded an additional $16.7 million and $14.5 million in valuation allowance on our deferred tax assets in 2022 and 2021, respectively, using the aforementioned approach.

The Company recorded $0.4 million and $0.1 million in unrecognized tax benefits for the years ended December 31, 2022 and 2021, respectively.

Valuation allowances are currently assessed based on scheduling the reversal of temporary differences, without consideration to future projections of income, given the Company’s history of losses.

This approach may change in the future, requiring the use of estimates or assumptions with regard to future taxable income in assessing the need for and quantum of valuation allowances.

Stock-Based Compensation

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Once we have sufficient history of trading prices we will use our calculated volatility.

Common Stock Valuation

For all periods prior to our IPO, the fair value of the shares of common stock underlying our share-based awards were estimated on each grant date by our Board of Directors with input from management and contemporaneous third-party valuations.

We believe that our Board of Directors has the relevant experience and expertise to determine the fair value of our common stock.

Given the absence of a public trading market for our common stock prior to our IPO, our Board of Directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including:

• contemporaneous valuations of our common stock performed by independent third-party appraisers;

• our actual operating results and financial performance;

• conditions in the industry and economy in general;

• the rights, preferences and privileges of our then-outstanding convertible preferred stock relative to those of our common stock;

• the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public offering or a sale of our company, given prevailing market conditions;

• equity market conditions affecting comparable public companies and the market performance of comparable publicly traded companies;

and global capital market conditions;

• the lack of marketability of our common stock and the results of independent third-party valuations.

Valuations of our common stock were prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the FASB in ASC 718, ASC 820, as well as the AICPA in its Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

There have not been material changes in these estimates or assumptions over the reporting periods presented.

In the future, if there are material changes in the underlying estimates and assumptions pertaining to stock-based compensation, the financial statements could be materially impacted.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis