EverCommerce Inc. 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID 00 42 ) III- 26 Consolidated Balance Sheets as of December 31, 2022 and 2021 III- 28 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022, 2021 and 2020 III- 29 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2022, 2021 and 2020 III- 30 Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 III- 33 Notes to Consolidated Financial Statements III- 34 II-26 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of EverCommerce Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of EverCommerce Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with U.S. generally accepted accounting principles. Adoption of ASU No. 2016-02 As discussed in Note 9 to the consolidated financial statements, the Company changed its method of accounting for leases in the year ended December 31, 2022 due to the adoption of ASU No. 2016-02. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young We have served as the Company’s auditor since 2020. Denver, Colorado March 15, 2023 II-27 EverCommerce Inc. Consolidated Balance Sheets (in thousands, except per share and share amounts) December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 92,625 $ 93,993 Restricted cash 3,199 3,566 Accounts receivable, net of allowance for doubtful accounts of $ 4.7 million and $ 1.9 million at December 31, 2022 and 2021, respectively 48,032 40,514 Contract assets 12,971 11,039 Prepaid expenses and other current assets 23,760 22,505 Total current assets 180,587 171,617 Property and equipment, net 11,930 13,509 Capitalized software, net 32,554 24,000 Other non-current assets 46,855 24,296 Intangible assets, net 405,720 508,535 Goodwill 914,082 921,416 Total assets $ 1,591,728 $ 1,663,373 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 8,373 $ 10,325 Accrued expenses and other 56,963 49,340 Deferred revenue 22,885 22,992 Customer deposits 11,360 9,828 Current maturities of long-term debt 5,500 10,943 Total current liabilities 105,081 103,428 Long-term debt, net of current maturities and deferred financing costs 530,946 535,184 Other non-current liabilities 49,008 39,113 Total liabilities 685,035 677,725 Commitments and contingencies (Note 17) Stockholders’ equity: Preferred stock, $ 0.00001 par value, 50,000,000 shares authorized and no shares issued or outstanding as of December 31, 2022 and 2021 — — Common stock, $ 0.00001 par value, 2,000,000,000 shares authorized and 191,447,237 and 195,384,291 shares issued and outstanding at December 31, 2022 and 2021, respectively 2 2 Accumulated other comprehensive loss ( 10,198 ) ( 1,767 ) Additional paid-in capital 1,489,935 1,500,643 Accumulated deficit ( 573,046 ) ( 513,230 ) Total stockholders’ equity 906,693 985,648 Total liabilities and stockholders’ equity $ 1,591,728 $ 1,663,373 The accompanying notes are an integral part of these consolidated financial statements. II-28 EverCommerce Inc. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share and share amounts) Year ended December 31, 2022 2021 2020 Revenues: Subscription and transaction fees $ 465,345 $ 351,831 $ 232,931 Marketing technology solutions 134,596 118,275 86,331 Other 20,805 20,033 18,263 Total revenues 620,746 490,139 337,525 Operating expenses: Cost of revenues (exclusive of depreciation and amortization presented separately below) 217,375 162,230 115,020 Sales and marketing 119,059 93,789 50,246 Product development 71,622 49,506 30,386 General and administrative 132,483 110,369 87,068 Depreciation and amortization 110,801 101,437 76,844 Total operating expenses 651,340 517,331 359,564 Operating loss ( 30,594 ) ( 27,192 ) ( 22,039 ) Interest and other expense, net ( 33,902 ) ( 36,111 ) ( 41,545 ) Loss on debt extinguishment — ( 28,714 ) — Net loss before income tax benefit ( 64,496 ) ( 92,017 ) ( 63,584 ) Income tax benefit 4,680 10,051 3,630 Net loss ( 59,816 ) ( 81,966 ) ( 59,954 ) Other comprehensive loss: Foreign currency translation gains (losses), net ( 8,431 ) ( 3,313 ) 1,204 Comprehensive loss $ ( 68,247 ) $ ( 85,279 ) $ ( 58,750 ) Net loss attributable to common stockholders: Net loss $ ( 59,816 ) $ ( 81,966 ) $ ( 59,954 ) Adjustments to net loss (see Note 13) — ( 15,105 ) ( 67,811 ) Net loss attributable to common stockholders $ ( 59,816 ) $ ( 97,071 ) $ ( 127,765 ) Basic and diluted net loss per share attributable to common stockholders $ ( 0.31 ) $ ( 0.82 ) $ ( 3.06 ) Basic and diluted weighted-average shares of common stock outstanding used in computing net loss per share 194,624,968 117,795,280 41,696,800 The accompanying notes are an integral part of these consolidated financial statements. II-29 EverCommerce Inc. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (in thousands) Series B Convertible Preferred Stock Series C Convertible Preferred Stock Series A Convertible Preferred Stock Total Convertible Preferred Stock Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance at January 1, 2020 55,759 $ 527,065 — $ — 44,958 $ 163,264 $ 690,329 — $ — 40,731 $ — $ 96,129 $ ( 371,310 ) $ 342 $ ( 274,839 ) Issuance of Series B convertible preferred stock 16,467 150,250 — — — — 150,250 — — — — — — — — Equity issuance costs — ( 80 ) — — — — ( 80 ) — — — — — — — — Rollover equity in consideration of net assets acquired — — — — — — — — — 222 — 1,319 — — 1,319 Stock-based compensation — — — — — — — — — 2,037 — 10,721 — — 10,721 Stock option exercises — — — — — — — — — 84 — 206 — — 206 Foreign currency translation gains, net — — — — — — — — — — — — — 1,204 1,204 Accretion of Series B convertible preferred stock to redemption value — 67,811 — — — — 67,811 — — — — ( 67,811 ) — — ( 67,811 ) Net loss — — — — — — — — — — — — ( 59,954 ) — ( 59,954 ) Balance at December 31, 2020 72,226 $ 745,046 — $ — 44,958 $ 163,264 $ 908,310 — $ — 43,074 $ — $ 40,564 $ ( 431,264 ) $ 1,546 $ ( 389,154 ) The accompanying notes are an integral part of these consolidated financial statements. II-30 EverCommerce Inc. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Cont’d) (in thousands) Series B Convertible Preferred Stock Series C Convertible Preferred Stock Series A Convertible Preferred Stock Total Convertible Preferred Stock Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance at January 1, 2021 72,226 $ 745,046 — $ — 44,958 $ 163,264 $ 908,310 — $ — 43,074 $ — $ 40,564 $ ( 431,264 ) $ 1,546 $ ( 389,154 ) Accretion of Series B convertible preferred stock to redemption value — 15,105 — — — — 15,105 — — — — ( 15,105 ) — — ( 15,105 ) Issuance of convertible preferred stock, net — — 7,857 109,782 109,782 — — — — — — — — Conversion of convertible preferred stock to common stock upon closing of initial public offering ( 72,226 ) ( 760,151 ) ( 7,857 ) ( 109,782 ) ( 44,958 ) ( 163,264 ) ( 1,033,197 ) — — 125,041 2 1,033,195 — — 1,033,197 Issuance of common stock upon closing of initial public offering, net of issuance costs and underwriters fees of $ 31,278 thousand — — — — — — — — — 21,882 — 340,708 — — 340,708 Issuance of common stock in a private placement — — — — — — — — — 4,412 — 75,000 — — 75,000 Rollover equity in consideration of net assets acquired — — — — — — — — 45 — 726 — — 726 Stock-based compensation — — — — — — — — 571 — 22,095 — — 22,095 Stock option exercises — — — — — — — — 359 — 1,319 — — 1,319 Release of valuation allowance related to prior equity transactions — — — — — — — — — — — 2,141 — — 2,141 Foreign currency translation losses, net — — — — — — — — — — — — — ( 3,313 ) ( 3,313 ) Net loss — — — — — — — — — — — — ( 81,966 ) — ( 81,966 ) Balance at December 31, 2021 — $ — — $ — — $ — $ — — $ — 195,384 $ 2 $ 1,500,643 $ ( 513,230 ) $ ( 1,767 ) $ 985,648 The accompanying notes are an integral part of these consolidated financial statements. II-31 EverCommerce Inc. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Cont’d) (in thousands) Series B Convertible Preferred Stock Series C Convertible Preferred Stock Series A Convertible Preferred Stock Total Convertible Preferred Stock Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance at January 1, 2022 — $ — — $ — — $ — — — $ — 195,384 $ 2 $ 1,500,643 $ ( 513,230 ) $ ( 1,767 ) $ 985,648 Issuance of common stock for Employee Stock Purchase Plan — — — — — — — — — 502 — 3,366 — — 3,366 Common stock issued upon vesting of restricted stock units — — — — — — — 162 — — — — — Stock-based compensation — — — — — — — — — — — 26,818 — — 26,818 Stock option exercises — — — — — — — — — 351 — 1,819 — — 1,819 Repurchase and retirement of common stock — — — — — — — — — ( 4,952 ) — ( 42,994 ) — — ( 42,994 ) Release of valuation allowance related to prior equity transactions — — — — — — — — — — — 283 — — 283 Foreign currency translation losses, net — — — — — — — — — — — — — ( 8,431 ) ( 8,431 ) Net loss — — — — — — — — — — — — ( 59,816 ) — ( 59,816 ) Balance at December 31, 2022 — $ — — $ — — $ — $ — — $ — 191,447 $ 2 $ 1,489,935 $ ( 573,046 ) $ ( 10,198 ) $ 906,693 The accompanying notes are an integral part of these consolidated financial statements. II-32 EverCommerce Inc. Consolidated Statements of Cash Flows (in thousands) Year ended December 31, 2022 2021 2020 Cash flows provided by operating activities: Net loss $ ( 59,816 ) $ ( 81,966 ) $ ( 59,954 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 110,801 101,437 76,844 Stock-based compensation 26,818 22,095 10,721 Deferred taxes ( 7,477 ) ( 12,026 ) ( 4,314 ) Amortization of deferred financing costs and non-cash interest 2,093 4,843 6,393 Bad debt expense 5,578 2,044 1,715 Loss on debt extinguishment — 28,714 — Other non-cash items 4,747 700 — Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable, net ( 13,206 ) ( 13,342 ) ( 516 ) Prepaid expenses and other current assets ( 3,823 ) ( 8,009 ) 4,952 Other non-current assets 4,937 ( 10,514 ) ( 4,168 ) Accounts payable ( 1,868 ) ( 3,961 ) 2,886 Accrued expenses and other 3,076 ( 3,267 ) 16,744 Deferred revenue 160 8,646 1,957 Other non-current liabilities ( 7,218 ) 2,088 4,279 Net cash provided by operating activities 64,802 37,482 57,539 Cash flows used in investing activities: Purchases of property and equipment ( 2,566 ) ( 3,103 ) ( 4,525 ) Capitalization of software costs ( 15,514 ) ( 11,692 ) ( 8,552 ) Payment of contingent consideration — — ( 2,000 ) Acquisition of companies, net of cash acquired — ( 364,873 ) ( 403,231 ) Net cash used in investing activities ( 18,080 ) ( 379,668 ) ( 418,308 ) The accompanying notes are an integral part of these consolidated financial statements. II-33 EverCommerce Inc. Consolidated Statements of Cash Flows (Cont’d) (in thousands) Year ended December 31, 2022 2021 2020 Cash flows provided by (used in) financing activities: Payments on debt ( 9,500 ) ( 1,028,457 ) ( 55,891 ) Proceeds from long-term debt — 850,966 314,668 Deferred financing costs — ( 8,135 ) ( 7,303 ) Exercise of stock options 1,819 1,319 206 Proceeds from preferred stock issuance, net — 109,782 150,170 Proceeds from common stock issuance, net — 415,708 — Proceeds from common stock issuance for Employee Stock Purchase Plan 3,366 — — Repurchase and retirement of common stock ( 42,994 ) — — Net cash provided by (used in) financing activities ( 47,309 ) 341,183 401,850 Effect of foreign currency exchange rate changes on cash ( 1,148 ) 224 ( 87 ) Net increase (decrease) in cash and cash equivalents and restricted cash ( 1,735 ) ( 779 ) 40,994 Cash and cash equivalents and restricted cash: Beginning of year 97,559 98,338 57,344 End of year $ 95,824 $ 97,559 $ 98,338 Year ended December 31, 2022 2021 2020 Supplemental disclosures of cash flow information: Cash paid for interest $ 30,077 $ 30,847 $ 35,219 Cash paid for income taxes $ 2,511 $ 1,495 $ 736 Supplemental disclosures of noncash investing and financing activities: Rollover equity in consideration of net assets acquired $ — $ 726 $ 1,319 Fair value of earnout in consideration of net assets acquired $ — $ — $ 3,471 Accretion of Series B preferred stock to redemption value $ — $ 15,105 $ 67,811 The accompanying notes are an integral part of these consolidated financial statements. II-34 EverCommerce Inc. Notes to Consolidated Financial Statements Note 1. Nature of the Business EverCommerce Inc. and subsidiaries (the “Company” or “EverCommerce”) is a leading provider of integrated software-as-a-service (“SaaS”) solutions or services 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, the Company serves more than 685,000 customers across three core verticals: Home Services; Health Services; and Fitness & Wellness Services. Within the core verticals, customers operate within numerous micro-verticals, ranging from home service professionals, such as construction contractors and home maintenance technicians, to physician practices and therapists in the Health Services industry, to personal trainers and salon owners in the Fitness & Wellness sectors. The platform provides vertically-tailored SaaS solutions that address service SMBs’ increasingly nuanced demands, as well as highly complementary solutions that complete end-to-end offerings, allowing service SMBs and EverCommerce to succeed in the market, and provide end consumers more convenient service experiences. The Company is headquartered in Denver, Colorado, and has operations across the United States, Canada, Jordan, United Kingdom, Australia and New Zealand. Initial Public Offering On July 6, 2021, the Company completed its Initial Public Offering (“IPO”), in which the Company issued and sold 19.1 million shares of its common stock at a public offering price of $ 17.00 per share. After underwriter discounts and commissions, net proceeds from the IPO were $ 303.9 million. Additionally, the Company incurred other IPO related fees of $ 6.9 million. On July 29, 2021, the IPO underwriters 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. In connection with the IPO, the Company’s outstanding convertible preferred stock converted into shares of common stock on a one-for-one basis (see Note 11). Upon conversion of the convertible preferred stock, the Company reclassified the carrying value of the convertible preferred stock to common stock and additional paid-in capital. Immediately prior to the closing of the IPO, the Company filed an amended and restated certificate of incorporation on July 6, 2021 with the Secretary of State of the State of Delaware to authorize the issuance of up to 2,050,000,000 shares, par value $ 0.00001 per share, consisting of 2,000,000,000 shares of common stock and 50,000,000 shares of preferred stock. Note 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The Company’s consolidated financial statements (collectively, the “financial statements”) include the operations of EverCommerce and all wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), as detailed in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”). All material intercompany transactions have been eliminated upon consolidation. Concentrations of Risk The Company maintains cash accounts at domestic and foreign financial institutions. At times and for cash maintained at domestic institutions, certain account balances may exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage. The Company has not experienced any losses on such accounts, and management believes that the Company’s risk of loss is remote. Segment Information The Company’s Chief Operating Decision Maker (“CODM”), its Chief Executive Officer (“CEO”), reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial II-35 EverCommerce Inc. Notes to Consolidated Financial Statements performance. Accordingly, the Company has determined that it operates in a single reportable segment. Since the Company operates in one segment, all required financial segment information can be found in the financial statements. See Notes 4 and 18 for disaggregated information regarding the Company's revenues and long-lived assets by geography, respectively. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates are subject to uncertainties due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and affect items such as valuing identified intangible assets and acquired goodwill and establishing estimated useful lives for intangible assets in connection with business combinations, performing impairment assessments of intangible assets and goodwill, determining the appropriate valuation allowance for deferred tax assets and value of any uncertain tax positions, recognizing stock-based compensation expense and estimating consideration subject to constraint on revenue recognition. On an ongoing basis, management evaluates these estimates, judgments and assumptions. Estimates are based on historical and anticipated results and trends, and on various other assumptions the Company believes are reasonable under the circumstances, including assumptions as to future events. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s financial statements. Business Combinations The results of a business acquired in a business combination are included in the Company’s financial statements from the date of acquisition. The Company allocates purchase price to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Based on the nature of the businesses that the Company acquires, goodwill arising from acquisitions typically consists of synergies with previously acquired businesses and economies of scale resulting from centralizing shared service functions. Determining the fair value of assets acquired and liabilities assumed requires management to make significant judgments and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies. Acquisition-related transaction costs are expensed in the period in which the costs are incurred. Cash and Cash Equivalents and Restricted Cash The Company considers all highly liquid investments with an original maturity of three months or less when acquired to be cash equivalents. Restricted cash consists of funds that are contractually restricted as to usage or withdrawal. Restricted cash relates to cash collected from our customers’ clients that will be remitted to our customers subsequent to period-end, generally within a time period no longer than one month. II-36 EverCommerce Inc. Notes to Consolidated Financial Statements Accounts Receivable, net Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and the customers’ financial condition, the amount of receivables in dispute and customer paying patterns. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Property and Equipment, net Property and equipment are recorded at cost, net of accumulated depreciation. Property and equipment acquired in purchase accounting are recorded at fair value at the date of acquisition. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the following estimated useful lives. Property and Equipment Estimated Useful Life Computer equipment and software 3 years Furniture and fixtures 5 years Leasehold improvements Lesser of estimated useful life or remaining lease term Upon disposition, the cost of disposed assets and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is credited or charged to earnings/loss. Impairment of Long-Lived Assets The Company reviews its long-lived assets, such as amortizing intangible assets, internally developed software and property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to undiscounted future net cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying amount of the asset exceeds its estimated fair value. Estimates of expected future cash flows represent management’s best estimate based on currently available information and reasonable and supportable assumptions. Any impairment recognized is permanent and may not be restored. The Company did not identify any indicators of impairment for the years ended December 31, 2022, 2021 and 2020, other than the abandonment of certain features of its capitalized software as more fully described in Note 8. Capitalized Software, net In accordance with ASC Subtopic 350-40, Internal Use Software , the Company capitalizes certain costs related to software developed for internal use for which it has no plans to market externally. Internal use software includes the software used for the Company’s SaaS offerings. The Company expenses the costs of developing computer software until the software has reached the application development stage and capitalizes 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 product development expense as incurred. In accordance with ASC Topic 985, Software , the Company also capitalizes certain costs related to software developed for external use for which it plans 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 charged to product development expense as incurred. Once technological feasibility is reached, additional development costs II-37 EverCommerce Inc. Notes to Consolidated Financial Statements 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. The Company amortizes both internal use and external software costs, using the straight-line method, over its estimated useful life of five years . Intangible Assets, net 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. The Company determines the appropriate useful life of intangible assets by performing an analysis of expected cash flows of the acquired assets. Developed technology, trademarks and trade names and non-compete agreements acquired through acquisitions are amortized over their estimated useful lives using the straight-line method and customer relationship intangibles are amortized over their estimated useful lives using present value of future cash flows, which approximates the pattern in which the economic benefits are expected to be consumed. Goodwill Goodwill represents the amount by which the purchase price exceeds the fair value of identifiable tangible and intangible assets and liabilities acquired in a business combination. The Company accounts for its goodwill under ASC Topic 350, Intangibles - Goodwill and Other (“ASC 350”). Goodwill acquired in a business combination and determined to have an indefinite useful life is not amortized, but instead is tested for impairment at least annually during the fourth quarter or whenever events or changes in circumstances indicate that the carrying value might not be fully recoverable. For goodwill, impairment is assessed at the reporting unit level. A reporting unit is defined as an operating segment or a component of an operating segment to the extent discrete financial information is available that is reviewed by segment management. For the annual goodwill impairment assessment, the Company has the option of assessing qualitative factors to determine whether it is more likely than not that the carrying amount of a reporting unit exceeds its fair value, or performing a quantitative test. Qualitative factors considered in the assessment include industry and market considerations, the competitive environment, overall financial performance, changing cost factors such as labor costs and other factors specific to a reporting unit such as change in management or key personnel. If the Company elects to perform the qualitative assessment and concludes that it is more likely than not that the fair value of the reporting unit is more than its related carrying amount, then goodwill is not considered impaired and the quantitative impairment test is not necessary. If the Company’s qualitative assessment concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company will perform a quantitative test, which compares the estimated fair value of the reporting unit to its carrying amount. If the estimated fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not impaired. However, if the estimated fair value of the reporting unit is lower than the carrying amount of the net assets assigned to the reporting unit, an impairment charge is recognized equal to the excess of the carrying amount over the estimated fair value. Besides goodwill, the Company has no other intangible assets with indefinite lives. The Company performed annual qualitative goodwill impairment assessments in 2022, 2021 and 2020 and concluded that it was more likely than not that the fair value of the reporting units were more than their related carrying amounts and as such did not identify any goodwill impairment during the years ended December 31, 2022, 2021 and 2020. II-38 EverCommerce Inc. Notes to Consolidated Financial Statements Leases The Company adopted ASU 2016-02, Leases (Topic 842) as of January 1, 2022 and recognized right-of-use (“ROU”) lease assets and lease liabilities on the balance sheet representing the rights and obligations created by those leases and disclosed key information about leasing arrangements. Lease expense is recognized on a straight-line basis and recorded to general and administrative in the statement of operations and comprehensive loss. The Company determines if an arrangement is or contains a lease at inception, which is the date on which the terms of the contract are agreed to, and the agreement creates enforceable rights and obligations. The Company also considers whether its service arrangements include the right to control the use of an asset. The Company used its incremental borrowing rate to determine the present value of lease payments, as the Company’s leases do not have a readily determinable implicit discount rate. The incremental borrowing rate is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term an amount in a similar economic environment. Judgement is applied in assessing factors such as Company-specific credit risk, lease term, nature and quality of the underlying collateral, currency, and economic environment in determining the incremental borrowing rate to apply to each lease. The Company does not recognize ROU assets and lease liabilities for leases with a term of twelve months or less. For all other leases, the Company recognizes ROU assets and lease liabilities based on the present value of lease payments over the lease term at the commencement date of the lease. The ROU assets also include any initial direct costs incurred and lease payments made at or before the commencement date and are reduced by any lease incentives. The Company’s leases may include a non-lease component representing additional services transferred to the Company, such as common area maintenance for real estate. The Company made an accounting policy election to not separate non-lease components from lease components for its real estate leases; rather the Company will account for each lease component and the non-lease components associated with that lease component as a single lease component. However, the non-lease components are usually variable in nature and recorded in variable lease expense in the period incurred. Future lease payments may include fixed rent escalation clauses or payments that depend on an index (such as the consumer price index) measured using the index or applicable rate at lease commencement. Subsequent changes in index and other periodic market-rate adjustments to base rent are recorded in variable lease expense in the period incurred. In addition, certain leases contain termination options, where the rights to terminate are held by either the Company, the lessor, or both parties. These options to extend or terminate a lease are included in the lease terms when it is reasonably certain that the Company will exercise that option. The Company’s leases generally do not contain any material restrictive covenants or residual value guarantees. The Company does not have any leases classified as finance leases. Deferred Financing and Credit Facility Costs Deferred financing costs and discounts on long-term debt are capitalized and netted with long-term debt and amortized over the term of the related debt, using the effective interest method. Costs incurred in connection with the establishment of revolving credit facilities are capitalized and amortized over the term of the related facility period, using the straight-line method. Amortization of debt issuance costs, noncash discounts and other credit facility costs are included in interest expense on the consolidated statements of operations and comprehensive loss. Series A, B and C Convertible Preferred Stock The Company accounted for its Series A Convertible Preferred Stock (“Series A”), Series B Convertible Preferred Stock (“Series B”) and Series C Convertible Preferred Stock (“Series C”) shares subject to possible redemption in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity . Series A shares, Series B shares and Series C shares were conditionally redeemable preferred stock shares (with redemption rights that were either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) that were classified as Convertible Preferred Stock separate from the stockholders’ II-39 EverCommerce Inc. Notes to Consolidated Financial Statements equity (deficit) section of the Company’s consolidated balance sheets. The Series A shares and Series C shares were redeemable upon the occurrence of uncertain events not solely within the Company’s control and these uncertain events were deemed not probable. Therefore, Series A shares and Series C shares were presented at fair value at the time of issuance and were not subsequently re-measured. The Company’s Series B shares featured certain redemption rights that were considered to be outside of the Company’s control and these redemption rights were deemed probable of occurrence through March 15, 2021. Accordingly, Series B shares were presented at redemption value through that date. In connection with the IPO, all of the Company’s then outstanding convertible preferred stock converted into shares of common stock on a one-for-one basis. Upon conversion of the convertible preferred stock, the Company reclassified the carrying value of the convertible preferred stock to common stock and additional paid-in capital. Revenue Recognition The Company recognizes revenue in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (“ASC 606”). In accordance with ASC 606, the Company performs the following steps in determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its contracts with customers: (i) identification of the contract with a customer; (ii) determination of whether the promised goods or services are performance obligations; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as each performance obligation is satisfied. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract to determine if they are distinct and represent a performance obligation. The Company then allocates the transaction price to the respective performance obligations, and recognizes revenue when (or as) the performance obligations are satisfied. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services. Revenue is generated from the following sources: Subscription and Transaction Fees: Subscription revenue primarily consists of the sale of SaaS offerings or the sale of software licenses. Through the S aaS offerings and related support services, customers are granted access to a hosted software application over the contract period without a contractual right to possession of the software. Alternatively, through the sale of software licenses the customer is provided with a right to use software that provides functionality to the customer on a stand-alone basis, and related support services, which include telephone/technical support, when-and-if available software updates and, in certain instances, hosting services. The software licenses are both perpetual and term. Under term license arrangements, the customer is provided the right to use the software for a defined period ranging from one month to five years. Under perpetual license arrangements, the customer is provided the right to use the software for an indefinite period. Subscription revenue related contracts can be both short and long-term, with stated contract terms that range from one month to five years. 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. The contract term for accounting purposes is determined to be the period in which parties to the contract have present enforceable rights and obligations, therefore the contract term under ASC 606 may be shorter than the stated term. • SaaS and related support services : Hosted software applications are primarily comprised of marketing, business management and customer retention solutions for which the Company develops functionality, provides when-and-if available updates and enhancements, hosts, manages and provides telephone and technical support by entering into subscription agreements with customers for a stated period of access. Revenues from the sale of hosted software applications and related support services are generally recognized ratably over the contractual period that the services are delivered, beginning on the date the service is made available to customers. Revenue is recognized ratably because the customer simultaneously receives and consumes the benefits of the services throughout the contract period. Contracts are generally II-40 EverCommerce Inc. Notes to Consolidated Financial Statements fixed price and may be invoiced on a monthly, quarterly or annual basis, with standard payment terms ranging from 30 to 60 days. The timing of revenue recognition may differ from the timing of invoicing to customers. The Company records deferred revenue on the consolidated balance sheets when revenues are recognized subsequent to cash collection from the customer. • License and related support services: License revenue is generated from the sale of on-premise perpetual or term licenses, which are primarily business management related software applications. The majority of the Company’s license arrangements include license support contracts. Revenues from the sale of distinct on-premise licenses are generally recognized at the point in time when the software is made available to the customer to download or use. Revenues from the sale of license related support services, which primarily relate to providing telephone and technical support, unspecified software product upgrades and maintenance releases and patches during the term of the support period, are generally recognized ratably over the contractual period that the services are delivered. Within these arrangements, the Company is obligated to make the support services available continuously throughout the contract and the customer simultaneously receives and consumes the benefit of making these services available throughout the contract period. Contracts are generally fixed price and may be invoiced on a monthly, quarterly or annual basis, with standard payment terms ranging from 30 to 60 days. The timing of revenue recognition may differ from the timing of invoicing customers due to the existence of these invoicing practices as well as the requirement to recognize revenue on a relative stand-alone selling price basis. The Company records a contract asset on the consolidated balance sheets when revenue is recognized prior to invoicing and the right to payment is not solely subject to the passage of time. The Company records an unbilled receivable on the consolidated balance sheets when revenue is recognized prior to invoicing and the right to payment is solely subject to the passage of time. The Company recognizes deferred revenue on the consolidated balance sheets when revenues are recognized subsequent to cash collection from the customer. Transaction fees relate to payment processing and group purchasing program administration services. Payment processing services enable customers to accept payments via credit card, electronic check and other similar methods through facilitation of payment information within the cloud-based applications. Group purchasing program administration services relate to facilitation of group purchasing programs for members through which the Company aggregates member purchasing power to negotiate pricing discounts with suppliers. The Company has determined that the nature of the payment processing and administration services is a stand-ready obligation whereby the Company stands ready to either arrange for the processing of transactions or stands ready to provide members with access to the group purchasing program on a continuous basis throughout the contract term. • Payment processing services: In fulfillment of payment processing services, the Company partners with third-party merchants and processors who assist in the fulfillment of the Company’s obligations to customers. The Company has concluded that it does not possess the ability to control the underlying services provided by third parties in the fulfillment of its obligations to customers and therefore recognizes revenue net of interchange fees retained by the card issuing financial institutions and fees charged by payment networks. Payment processing revenue is recurring and volume based, resulting in the total consideration within these arrangements being variable. The Company applies the variable consideration allocation exception and therefore is not required to estimate variable consideration or a related constraint, as it ascribes the transaction consideration earned to the distinct increment of time for which the service was provided. As a result, the Company measures revenue from transaction services on a daily basis based on an accumulation of the services that have been provided during each respective day. Payment for transaction services is received in arrears, typically within one month of when the services have been provided. Transaction services contracts with customers are generally for a term of one month and renew automatically each month. • Purchasing program administration services: The Company receives rebates from contracted suppliers in exchange for program administration services. Rebates earned are based on a defined percentage of the purchase price of goods and services sold to members under the contract the Company has negotiated with its suppliers. The amount of revenue recognized from these administration services is greater than the consideration received from customers given payment for these services are received in arrears, typically II-41 EverCommerce Inc. Notes to Consolidated Financial Statements within a quarter from when the underlying services were provided. The Company recognizes a contract asset on the consolidated balance sheets until payment has been received. Administration services contracts with customers are generally for an annual or monthly term and renew automatically upon lapse of the current term. Marketing Technology Solutions: Marketing technology solutions consist of digital advertising management and consumer connection services. These advertising management services include content creation, search engine optimization and paid media management services. The nature of the performance obligation within advertising management contracts is to stand-ready and provide management services on a continuous basis over the contract term. As a result, revenue associated with advertising management services is recognized on a ratable basis over the service period as the customer simultaneously receives and consumes the benefits of the management services evenly throughout the contract period . The Company typically earns a fixed recurring fee in exchange for advertising management services; however, in certain instances, the transaction consideration to which the Company is entitled may be variable. The Company applies the variable consideration allocation exception to these arrangements. Advertising management services are typically invoiced on a monthly basis either in arrears or in advance. Certain arrangements may be invoiced on a quarterly or annual basis. Within such arrangements, the Company either recognizes deferred revenue or a customer deposit on the consolidated balance sheets depending on whether the amounts invoiced in advance of revenue being recognized are classified as non-refundable or refundable. Consumer connection services relate to the sourcing and delivery of service requests from consumers to home service providers. Revenue for consumer connection services may be recognized at either a point-in-time or on an over-time basis as each connection is delivered. Revenue is derived from fees paid by service professionals for consumer matches. Fees associated with each consumer match generated may be either fixed price or variable. The variable consideration is allocated to the connection from which it was derived; however, given the inherent variable nature of this consideration, revenue is constrained to the Company’s estimation of transaction consideration. Payment for consumer connection services is received in arrears, typically within one month of when the services have been provided. The Company records a contract asset or unbilled receivable for this difference on the consolidated balance sheets. Marketing technology solutions service related contracts are typically short-term with stated contract terms that are less than one year. Other: Other revenues generally consist of fees associated with the sale of distinct professional services and hardware. Professional service offerings are typically sold as part of an arrangement for products or services included within subscription or marketing revenue. Professional services associated with subscription revenue generally relate to standard implementation, configuration, installation or training services applied to both SaaS and on-premise deployment models. Marketing revenue related professional service fees are derived from website design, creation or enhancement services. Professional service revenue is recognized over time as the services are performed, as the customer simultaneously receives and consumes the benefit of these services. Professional service contracts are offered at either a fixed or a variable price and may be invoiced in advance or arrears of the services being provided. Hardware revenue consists of equipment that supports or enables the Company’s products or services within subscription and transaction fees offerings. Revenue associated with performance obligations for hardware is recognized at a point-in-time, as dictated by the point at which the customer has the ability to direct the use of and obtain substantially all the benefit from the asset. The Company records a contract asset on the consolidated balance sheets when services have been provided and the right to payment is not solely subject to the passage of time, and an unbilled receivable when services have been provided and the right to payment is solely subject to the passage of time. These arrangements may also result in deferred revenue on the consolidated balance sheets when revenues are recognized subsequent to cash collection. Standard payment terms for these arrangements range from 30 to 60 days. Contract terms for other revenue arrangements are generally short-term, with stated contract terms that are less than one year. II-42 EverCommerce Inc. Notes to Consolidated Financial Statements Performance Obligations and Standalone Selling Price: The Company’s contracts at times include the sale of multiple promised goods or services that have been determined to be distinct. The transaction price for contracts with multiple performance obligations is allocated based on the relative stand-alone selling price of each performance obligation within the contract. Judgment can be involved when determining the stand-alone selling price of products and services. For the majority of the Company’s SaaS, on-premise license and professional services, the Company establishes stand-alone selling price based on observable selling prices to similar classes of customers. If the stand-alone selling price is not observable through past transactions, the Company estimates 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 the Company has established the stand-alone selling price of performance obligations as a range and uses 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, the Company performs a review of each performance obligation’s selling price against the established stand-alone selling price range. If any performance obligations are priced outside of the established stand-alone selling price range, the Company reallocates the total transaction price to each performance obligation based on the relative stand-alone selling price for each performance obligation. The established range is reassessed on a periodic basis when facts and circumstances surrounding these established ranges change. The Company’s contracts may include standard warranty or service level provisions that state promised goods and services will perform and operate in all material respects as defined in the respective agreements. The Company has determined that these represent assurance-type warranties and, therefore, are outside the scope of ASC 606. These warranties will continue to be accounted for under the provisions of ASC Topic 460-10, Guarantees. To date, the Company has not incurred any material costs as a result of such commitments. Variable Consideration: Revenue is recorded at the net sales price, which is the transaction price, and includes estimates of variable consideration. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue will not occur when the uncertainty is resolved. The transaction consideration within the Company’s contracts may be entirely variable or contain a variable component. When permitted, the Company applies the variable consideration allocation exception. This exception is generally met for transaction fees, marketing technology solutions and professional services charged on a time-and-materials basis. When the variable consideration allocation exception is not permitted, the Company continues to assess the underlying judgments and estimates used to determine the variable consideration as uncertainties are resolved or new information arises. Reassessment of variable consideration occurs until the underlying uncertainty is resolved. Material Rights: The Company’s contracts with customers may include renewal or other options at stated prices. Determining whether these options provide the customer with a material right and therefore need to be accounted for as separate performance obligations requires judgment. The price of each option must be assessed to determine whether it is reflective of the stand-alone selling price or is reflective of a discount that the customer only received as a result of its prior purchase (a material right). Certain term license and marketing service arrangements contain a material right related to the customer’s ability to renew at an incremental discount. Transaction consideration allocated to the material right is recognized over the expected renewal period, which begins at the end of the initial contractual term and is generally five years. II-43 EverCommerce Inc. Notes to Consolidated Financial Statements Significant financing component: The amount of consideration is not adjusted for a significant financing component if the time between payment and the transfer of the related good or service is expected to be one year or less under the practical expedient in ASC 606-10-32-18. The Company’s revenue arrangements are typically accounted for under such expedient as payments are within one year of transfer of the performance obligations. Other considerations: The Company has elected a policy to exclude from the transaction price all sales taxes assessed by governmental authorities and as a result, revenue is presented net of tax. Cost of Revenues Cost of revenues 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. Advertising The Company expenses the costs of advertising as incurred. Advertising costs are incurred primarily for internet-based advertising. Included in sales and marketing expenses on the consolidated statements of operations and comprehensive loss are charges for advertising of $ 21.4 million, $ 19.3 million and $ 8.7 million for the years ended December 31, 2022, 2021 and 2020, respectively. Stock-based Compensation The Company follows ASC Topic 718, Compensation—Stock Compensation (“ASC 718”), with respect to stock-based compensation. Stock-based compensation, including grants of stock options and restricted stock units, are valued at fair value on the date of grant and are generally expensed on a straight-line basis over the applicable service period. The Company uses the Black-Scholes option-pricing model and a binomial lattice model to estimate the fair value of options granted with time-based vesting and market-based vesting terms, respectively. The following inputs to the Black-Scholes option-pricing model are considered in estimating the fair value: the fair value of the common stock, expected volatility, expected term, risk-free interest rate and expected dividends. The Company does not have a sufficient third-party history of market prices of its common stock, and as such volatility is estimated, using historical volatilities of comparable public entities for the valuation of its stock options. At the point when the Company has sufficient and meaningful trading history of its stock, as is the case for the Company’s 2021 Employee Stock Purchase Plan (the “ESPP”) (refer to Note 12), it will calculate volatility based on its own trading history. The expected term represents the estimated average period of time that the option will remain outstanding. Since the Company does not have sufficient historical data for the exercise of stock options, the expected term is based on the “simplified” method that measures the expected term as the average of the vesting period and the contractual term. Once the Company has sufficient historical data for the exercise of its options it will use Company-specific data. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of the awards. The dividend yield assumption is based on history and the expectation of paying no dividends. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense, when recognized in the financial statements, is based on awards that are ultimately expected to vest. II-44 EverCommerce Inc. Notes to Consolidated Financial Statements Income Taxes The Company is a C corporation for federal income tax purposes. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company's total provision for taxes includes income taxes on the Company's corporate subsidiaries. The Company records uncertain tax positions in accordance with ASC Topic 740, Income Taxes (“ASC 740”), on the basis of a two-step process in which (i) it is determined whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. When applicable, interest and penalties relating to any such uncertain tax positions are recorded as part of income tax expense. Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. The Company includes cumulative foreign currency translation adjustments in comprehensive loss as described below. Net Loss per Share Attributable to Common Stockholders The Company computes net loss per share attributable to its common stockholders using the two-class method required for participating securities, which determines net loss per common share and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The Company’s convertible preferred stock contractually entitled the holders of such shares to participate in dividends, but did not contractually require the holders of such shares to participate in the Company’s losses. As such, net losses for the periods presented were not allocated to these securities. In connection with the IPO, all of the Company’s then outstanding convertible preferred stock converted into shares of common stock on a one-for-one basis. Diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. Foreign Currency Translation The financial results of certain of the Company’s foreign subsidiaries are translated into U.S. dollars upon consolidation. Assets and liabilities of foreign subsidiaries that operate primarily in a functional currency other than the U.S. dollar are translated using the current exchange rate in effect at the consolidated balance sheet date (the Spot Rate). Revenues and expenses are translated using the average exchange rate in effect during the period in which they are recognized. The gains and losses from foreign currency translation of these subsidiaries’ financial statements are recorded directly as a separate component of stockholders’ deficit and represent the majority of the balance within accumulated other comprehensive income on the consolidated balance sheets. The functional currencies of the Company’s significant foreign operations include the Canadian dollar, Great British Pound, Australian dollar and New Zealand dollar. For the Company’s foreign subsidiaries that operate primarily in the U.S. dollar, foreign currency denominated monetary assets and liabilities are remeasured into U.S. dollars at the Spot Rate in effect at the consolidated balance sheet date. Non-monetary assets and liabilities are remeasured using historical exchange rates. Income and expense II-45 EverCommerce Inc. Notes to Consolidated Financial Statements elements are remeasured using average exchange rates in effect during the period in which the elements are recognized within the consolidated statements of operations and comprehensive loss. Emerging Growth Company As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use the extended transition period under the JOBS Act until the earlier of the date that it is (i) no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The adoption dates are discussed below to reflect this election within the Recently Issued Accounting Pronouncements section. Recently Issued Accounting Pronouncements Accounting pronouncements issued and adopted In February 2016, the FASB issued ASU 2016-02, Leases (“ Topic 842”) to improve financial reporting about leasing transactions. This ASU amends and supersedes existing lease accounting guidance and is intended to increase transparency and comparability among organizations by recognizing right-of-use (“ROU”) lease assets and lease liabilities on the balance sheet representing the rights and obligations created by those leases, and requiring disclosure of key information about leasing arrangements. The Company adopted the new lease standard as of January 1, 2022 using the optional transition method to the modified retrospective approach which eliminates the requirement to restate the prior period financial statements. Under this transition provision, results for annual reporting periods beginning on January 1, 2022 are presented under Topic 842, while prior period amounts continue to be reported and disclosed in accordance with the Company’s legacy guidance under ASC Topic 840, Leases . A number of practical expedients and policy elections are available under the new guidance. The Company elected the "package of practical expedients" permitted under the transition guidance, which among other things, did not require reassessment of whether contracts entered into prior to January 1, 2022 are or contain leases, and has carried forward its initial determination of the historical lease classification for existing leases. The Company has not elected to adopt the “hindsight” practical expedient, and therefore will measure the ROU asset and lease liability using the remaining portion of the lease term at adoption on January 1, 2022. Adoption of Topic 842 resulted in the recording of ROU assets and lease liabilities related to the Company’s operating leases of approximately $ 28.3 million and $ 34.8 million, respectively, on January 1, 2022. In addition, upon transition, we eliminated deferred rent liabilities of $ 7.5 million, prepaid rent of $ 0.4 million and other non-current assets of $ 0.6 million. The adoption of the new lease standard did not materially impact our consolidated statement of operations and comprehensive loss or consolidated statement of cash flows and did not result in a cumulative-effect adjustment to the opening balance of retained earnings. Accounting pronouncements not yet adopted In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, which includes the Company’s accounts receivable and contract assets. This updated standard will be effective for annual reporting periods beginning after December 15, 2022. The Company has completed evaluating the impact the adoption of this standard will have on its financial statements and has concluded the impact will not be material to the consolidated financial statements. In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 606) (“ASU 2021-08”), which amends the guidance in ASC 805 to require that an II-46 EverCommerce Inc. Notes to Consolidated Financial Statements acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The FASB’s objective in issuing the ASU is to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity and inconsistency related to both the recognition of an acquired contract liability and payments terms’ effects on subsequent revenue recognized by the acquirer. This updated standard is effective for annual reporting periods beginning after December 15, 2022. The impact of adoption is unknown as it will be based on any potential acquisitions consummated in the year of adoption. Note 3. Acquisitions 2021 Acquisitions During 2021, the Company completed five business acquisitions in conjunction with the execution of its long-term plans and objectives in building a service commerce platform supporting the success of SMBs. All of the acquisitions qualified as business combinations under ASC Topic 805, Business Combinations (“ASC 805”). Accordingly, the Company recorded all assets acquired and liabilities assumed at their acquisition date fair values, with any excess consideration recognized as goodwill. Goodwill primarily represents the value associated with the assembled workforce, and expected synergies subsumed into goodwill. Assets acquired and liabilities assumed in connection with each acquisition have been recorded at their fair values. Fair values were determined by management using the assistance of third-party valuation specialists. The valuation methods used to determine the fair value of intangible assets included the income approach—relief from royalty method for developed technology and trade name, the income approach—excess earnings method for customer relationships and the comparative business valuation method for non-compete agreements. A number of assumptions and estimates were involved in the application of these valuation methods, including revenue forecasts, expected competition, costs of revenues, obsolescence, tax rates, capital spending, discount rates and working capital changes. Cash flow forecasts were generally based on pre-acquisition forecasts coupled with estimated revenues and cost synergies available to a market participant. The Company’s consolidated statements of operations and comprehensive loss include $ 8.4 million of acquisition related transaction costs in general and administrative for acquisitions consummated in 2021. For the year ended December 31, 2021 the Company recognized revenue of $ 21.6 million related to acquisitions consummated in 2021. Each acquisition allows for an adjustment to the purchase price to be made subsequent to the transaction closing date based on the actual amount of working capital and cash delivered to the Company. The consideration paid and purchase price allocations disclosed reflect the effects of these adjustments. II-47 EverCommerce Inc. Notes to Consolidated Financial Statements The following table summarizes the estimated fair values of consideration transferred, assets acquired and liabilities assumed for each acquisition in 2021: Briostack PulseM MDTech Timely DrChrono Total (in thousands) Cash $ 34,441 $ 34,430 $ 15,751 $ 99,820 $ 181,919 $ 366,361 Rollover equity 726 — — — — 726 Total consideration $ 35,167 $ 34,430 $ 15,751 $ 99,820 $ 181,919 $ 367,087 Net assets acquired: Cash and cash equivalents $ 17 $ — $ 100 $ 1,170 $ 130 $ 1,417 Accounts receivable, trade 156 — 175 290 3,344 3,965 Other receivables 222 151 48 95 149 665 Contract assets — — — — 1,172 1,172 Prepaid expenses and other current assets 53 32 34 128 3,115 3,362 Property and equipment 22 4 16 219 226 487 Other non-current assets 144 3 — 52 23 222 Intangible—developed technology 1,360 2,380 1,640 7,014 8,480 20,874 Intangible—customer relationships 4,800 12,510 5,830 28,836 53,970 105,946 Intangible—trade name 390 260 200 1,414 3,250 5,514 Intangible—non-compete agreements 23 10 10 63 10 116 Goodwill 28,274 22,866 7,899 69,737 126,947 255,723 Deferred tax asset 1 — 2 3,397 — 3,400 Accounts payable ( 33 ) ( 113 ) ( 44 ) ( 230 ) ( 2,749 ) ( 3,169 ) Other current liabilities ( 28 ) — — ( 670 ) ( 2,086 ) ( 2,784 ) Accrued expenses and other ( 206 ) ( 99 ) ( 116 ) ( 940 ) ( 2,948 ) ( 4,309 ) Deferred tax liability — ( 3,538 ) — ( 10,463 ) ( 10,740 ) ( 24,741 ) Deferred revenue ( 28 ) ( 36 ) ( 43 ) ( 292 ) ( 374 ) ( 773 ) Total net assets acquired $ 35,167 $ 34,430 $ 15,751 $ 99,820 $ 181,919 $ 367,087 Briostack On January 19, 2021, the Company acquired 100 % of the interest of Briostack LLC dba Briostack (“Briostack”), a provider of operational management software to pest control businesses, for $ 35.2 million. Under the terms of the purchase agreement, certain members of Briostack received 45,454 shares of common stock rollover equity. The Company assessed the fair value of the shares at $ 0.7 million by applying a market approach. The fair value of the rollover equity is reflected in the total consideration above. PulseM On March 17, 2021, the Company acquired 100 % of the interest of Speetra, Inc. dba PulseM (“PulseM”), a provider of enterprise-level reputation management software for small businesses, for $ 34.4 million. MDTech On July 8, 2021, the Company acquired 100 % of the interest of PM Ventures, LLC dba MDTech (“MDTech”), a provider of electronic charge capture solutions to physicians via its SaaS-based MD Coder application and suite of II-48 EverCommerce Inc. Notes to Consolidated Financial Statements add-ons, for $ 15.8 million. Timely On July 8, 2021, the Company acquired 100 % of the interest of Timely Ltd. (“Timely”), a booking and Business Management Software company, for $ 99.8 million. Timely is based in New Zealand and has operations in the United Kingdom and Australia, as well. DrChrono On November 18, 2021, the Company acquired 100 % of the interest of DrChrono Inc. (“DrChrono”), an electronic health record and practice management provider, for $ 181.9 million. With respect to total goodwill recognized for the business acquisitions consummated during the year ended December 31, 2021, the Company expects that $ 36.1 million of goodwill will be deductible for income tax purposes. 2020 Acquisitions During 2020, the Company completed nine business acquisitions in conjunction with the execution of its long-term plans and objectives in building a service commerce platform supporting the success of SMBs. All of the acquisitions qualified as business combinations under ASC 805. Accordingly, the Company recorded all assets acquired and liabilities assumed at their acquisition date fair values, with any excess consideration recognized as goodwill. Goodwill primarily represents the value associated with the assembled workforce, and expected synergies subsumed into goodwill. Assets acquired and liabilities assumed in connection with each acquisition have been recorded at their fair values. Fair values were determined by management using the assistance of third-party valuation specialists. The valuation methods used to determine the fair value of intangible assets included the income approach—relief from royalty method for developed technology and trade name, the income approach— excess earnings method for customer relationships including government contracts and the comparative business valuation method for non-compete agreements. A Monte Carlo simulation was used as the valuation method to determine the fair value of earnout liabilities. A number of assumptions and estimates were involved in the application of these valuation methods, including revenue forecasts, expected competition, costs of revenues, obsolescence, tax rates, capital spending, discount rates and working capital changes. Cash flow forecasts were generally based on pre-acquisition forecasts coupled with estimated revenues and cost synergies available to a market participant. The Company’s consolidated statements of operations and comprehensive loss include $ 15.5 million of acquisition related transaction costs within general and administrative for acquisitions consummated in 2020. For the year ended December 31, 2020 the Company recognized revenue of $ 62.3 million related to acquisitions consummated in 2020. Each acquisition allows for an adjustment to the purchase price to be made subsequent to the transaction closing date based on the actual amount of working capital and cash delivered to the Company. The consideration paid and purchase price allocations disclosed reflect the effects of these adjustments. II-49 EverCommerce Inc. Notes to Consolidated Financial Statements The following table summarizes the estimated fair values of consideration transferred, assets acquired and liabilities assumed for each acquisition in 2020: Remodeling Qiigo AlertMD Invoice Simple (in thousands) Cash $ 25,909 $ 21,564 $ 21,853 $ 32,507 Rollover equity — 619 — — Fair value of earnout 2,455 — — — Total consideration $ 28,364 $ 22,183 $ 21,853 $ 32,507 Net assets acquired: Cash and cash equivalents $ 520 $ 3 $ — $ 598 Accounts receivable, trade 3,401 321 510 688 Other receivables 6 — — 271 Contract assets 85 249 — — Prepaid expenses and other current assets 95 74 11 57 Property and equipment 65 114 58 184 Other non-current assets — 757 — — Intangible—developed technology 1,480 2,120 2,030 1,530 Intangible—customer relationships 11,380 11,110 13,490 17,970 Intangible—trade name 570 710 260 190 Intangible—non-compete agreements 110 40 40 60 Goodwill 12,843 7,405 5,531 18,474 Deferred tax asset, net — 177 — — Accounts payable ( 1,564 ) ( 148 ) — ( 498 ) Accrued expenses and other ( 291 ) ( 565 ) ( 24 ) ( 412 ) Customer deposits ( 85 ) — — ( 1,229 ) Deferred tax liability, net ( 251 ) — — ( 5,360 ) Deferred revenue — ( 184 ) ( 53 ) ( 16 ) Total net assets acquired $ 28,364 $ 22,183 $ 21,853 $ 32,507 II-50 EverCommerce Inc. Notes to Consolidated Financial Statements Brighter Vision Socius Service Fusion My PT Hub (in thousands) Cash $ 17,350 $ 15,670 $ 122,333 $ 10,681 Rollover equity 127 — — — Fair value of earnout — — — 1,016 Total consideration $ 17,477 $ 15,670 $ 122,333 $ 11,697 Net assets acquired: Cash and cash equivalents $ 112 $ 46 $ 660 $ 315 Accounts receivable, trade 2 908 38 7 Other receivables 35 79 686 73 Prepaid expenses and other current assets 48 23 192 45 Property and equipment 26 36 139 209 Other non-current assets 9 — 180 19 Intangible—developed technology 760 1,350 2,820 586 Intangible—customer relationships 6,150 9,900 25,680 1,918 Intangible—trade name 330 520 1,330 140 Intangible—non-compete agreements 20 40 70 13 Goodwill 12,090 3,326 93,717 9,110 Accounts payable ( 61 ) ( 79 ) ( 215 ) ( 209 ) Other current liabilities — — ( 57 ) — Accrued expenses and other ( 210 ) ( 450 ) ( 872 ) ( 162 ) Deferred tax liability, net ( 1,734 ) — ( 1,713 ) ( 286 ) Deferred revenue ( 100 ) ( 29 ) ( 322 ) ( 81 ) Total net assets acquired $ 17,477 $ 15,670 $ 122,333 $ 11,697 II-51 EverCommerce Inc. Notes to Consolidated Financial Statements Updox Other Total (in thousands) Cash $ 142,527 $ 85 $ 410,479 Rollover equity 573 — 1,319 Fair value of earnout — — 3,471 Total consideration $ 143,100 $ 85 $ 415,269 Net assets acquired: Cash and cash equivalents $ 4,994 $ — $ 7,248 Accounts receivable, trade 981 — 6,856 Other receivables 628 — 1,778 Contract assets — — 334 Prepaid expenses and other current assets 640 — 1,185 Property and equipment 1,610 — 2,441 Other non-current assets 377 — 1,342 Intangible—developed technology 7,870 11 20,557 Intangible—customer relationships 48,150 72 145,820 Intangible—trade name 2,620 2 6,672 Intangible—non-compete agreements 110 — 503 Goodwill 78,259 — 240,755 Deferred tax asset, net 58 — 235 Accounts payable ( 1,152 ) — ( 3,926 ) Other current liabilities ( 41 ) — ( 98 ) Accrued expenses and other ( 1,482 ) — ( 4,468 ) Customer deposits — — ( 1,314 ) Deferred tax liability, net — — ( 9,344 ) Deferred revenue ( 522 ) — ( 1,307 ) Total net assets acquired $ 143,100 $ 85 $ 415,269 Remodeling On January 6, 2020, the Company acquired 100 % of the interest of Azar, LLC and Alnashmi for Digital Marketing, LLC (“Remodeling”), an online platform that connects homeowners with home improvement companies, for $ 28.4 million. Under the terms of the purchase agreement, the Company was required to pay the seller an earnout based on achieving $ 6.6 million and $ 5.0 million of total revenue during calendar years ended 2021 and 2020, respectively. The earnout amount would have been $ 2.0 million per year, if the target was met; no consideration would have been paid if the target was not met. At the acquisition date, the Company determined the fair value of the earnout to be $ 2.5 million and included the amount in the total consideration above. The 2020 earnout target was met and the earnout of $ 2.0 million was paid in 2021. At December 31, 2021, the Company concluded that the 2021 earnout target was not met and released the remaining liability with a corresponding gain of $ 0.5 million recorded in general and administrative on the consolidated statements of operations and comprehensive loss. Qiigo On January 16, 2020, the Company acquired 100 % of the interest of Qiigo, LLC (“Qiigo”), a local marketing agent that builds brand unity and helps national brands and their franchises boost their qualified leads, for $ 22.2 million. II-52 EverCommerce Inc. Notes to Consolidated Financial Statements Under the terms of the purchase agreement, certain members of Qiigo received 127,249 shares of common stock rollover equity. The Company assessed the fair value of the shares at $ 0.6 million by applying a market approach. The fair value of the rollover equity is reflected in the total consideration above. AlertMD On January 24, 2020, the Company acquired certain assets and liabilities of Rulester, LLC dba AlertMD, LLC and ChargeMD, LLC (“AlertMD”), a provider of SaaS-based back-office, patient care coordination and front-office solutions, for $ 21.9 million. Invoice Simple On April 17, 2020, the Company acquired 100 % of the interest of Zenvoice Inc. dba Invoice Simple (“Invoice Simple”), a provider of invoicing and estimation software platform for independent contracts, freelancers and business owners, for $ 32.5 million. Brighter Vision On August 21, 2020, the Company acquired 100 % of the interest of Brighter Vision Web Solutions, Inc. (“Brighter Vision”), a provider of offerings of custom-built websites and marketing solutions to therapists in the behavioral health sector, for $ 17.5 million. Under the terms of the purchase agreement, certain members of Brighter Vision received 21,892 shares of common stock rollover equity. The Company assessed the fair value of the shares at $ 0.1 million by applying a market approach. The fair value of the rollover equity is reflected in the total consideration above. Socius On October 16, 2020, the Company acquired 100 % of the interest of Socius Marketing, Inc. (“Socius”), a provider of full service internet marketing that specializes in content design, website development and search engine optimization, for $ 15.7 million. Service Fusion On October 17, 2020, the Company acquired 100 % of the interest of FSM Technologies, LLC (“Service Fusion”), a provider of an end-to-end field service management SaaS platform, for $ 122.3 million. My PT Hub On November 18, 2020, the Company acquired 100 % of the interest of Fitii, Limited and Fitii LLC (collectively “My PT Hub”), a provider of software that enables gym and health club customers to improve monthly collections, generate new business, enhance member engagement, increase retention and automate business processes, for $ 11.7 million. Under the terms of the purchase agreement, the Company was required to pay the seller an earnout based on achieving $ 4.6 million of total revenue during calendar year end 2021. The earnout amount would have been $ 1.0 million, if the target was met; no consideration would have been paid if the target was not met. At the acquisition date, the Company determined the fair value of the earnout to be $ 1.0 million and included the amount in the total consideration above. At December 31, 2021, the Company concluded that the earnout target was not met and released the remaining liability with a corresponding gain of $ 1.0 million recorded in general and administrative on the consolidated statements of operations and comprehensive loss. Updox On December 16, 2020, the Company acquired 100 % of the interest of Updox, LLC (“Updox”), a provider of a healthcare customer relationship management solution, for $ 143.1 million. Under the terms of the purchase II-53 EverCommerce Inc. Notes to Consolidated Financial Statements agreement, certain members of Updox received 72,896 shares of common stock rollover equity. The Company assessed the fair value of the shares at $ 0.6 million by applying a market approach. The fair value of the rollover equity is reflected in the total consideration above. With respect to total goodwill recognized for the business acquisitions consummated during the year ended December 31, 2020, the Company expects that $ 167.1 million of goodwill with be deductible for income tax purposes. Pro Forma Results of Acquisitions (unaudited) The following table presents unaudited pro forma consolidated results of operations for the years ended December 31, 2021 and 2020 as if the aforementioned 2021 and 2020 acquisitions had occurred as of January 1, 2020. The pro forma information includes the business combination accounting effects resulting from these acquisitions, including interest expense of $ 17.1 million and $ 48.3 million for the years ended December 31, 2021 and 2020, respectively, to account for funds borrowed earlier, issuance of our common shares at earlier dates which impacts the calculation of basic and diluted net loss per share, removal of transaction costs of $ 8.4 million and $ 15.6 million for the years ended December 31, 2021 and 2020, respectively, and additional amortization of $ 9.6 million and $ 24.1 million for the years ended December 31, 2021 and 2020, respectively, resulting from the amortization of intangible assets beginning as of January 1, 2020. We prepared the pro forma financial information for the combined entities for comparative purposes only, and the information is not indicative of what actual results would have been if the acquisitions had occurred at the beginning of the periods presented, nor is the information intended to represent or be indicative of future results of operations. Year ended December 31, 2021 Pro Forma 2020 Pro Forma (unaudited) (in thousands, except per share amounts) Total revenue $ 536,936 $ 442,095 Net loss $ ( 104,218 ) $ ( 138,275 ) Adjustments to net loss (see Note 13) ( 15,105 ) ( 67,811 ) Net loss attributable to common stockholders $ ( 119,323 ) $ ( 206,086 ) Basic and diluted net loss per share attributable to common stockholders $ ( 1.01 ) $ ( 4.94 ) II-54 EverCommerce Inc. Notes to Consolidated Financial Statements Note 4. Revenue Disaggregation of Revenue The following tables present a disaggregation of our revenue from contracts with customers by revenue recognition pattern and geographical market: Year ended December 31, 2022 2021 2020 (in thousands) By pattern of recognition (timing of transfer of services): Point in time $ 56,056 $ 49,338 $ 45,589 Over time 564,690 440,801 291,936 Total $ 620,746 $ 490,139 $ 337,525 By Geographical Market: United States $ 567,041 $ 447,232 $ 310,472 International 53,705 42,907 27,053 Total $ 620,746 $ 490,139 $ 337,525 Contract Balances Supplemental balance sheet information related to contracts from customers is as follows: December 31, 2022 2021 (in thousands) Accounts receivables $ 48,032 $ 40,514 Contract assets $ 12,971 $ 11,039 Deferred revenue $ 22,885 $ 22,992 Customer deposits $ 11,360 $ 9,828 Long-term deferred revenue $ 2,496 $ 2,803 Accounts receivable, net: Accounts receivable represent rights to consideration in exchange for products or services that have been transferred by us, when payment is unconditional and only the passage of time is required before payment is due. Contract assets: Contract assets represent rights to consideration in exchange for products or services that have been transferred (i.e., the performance obligation or portion of the performance obligation has been satisfied), but payment is conditional on something other than the passage of time. These amounts typically relate to contracts that include on-premise licenses and professional services where the right to payment is not present until completion of the contract or achievement of specified milestones and the fair value of products or services transferred exceed this constraint. Contract liabilities : Contract liabilities represent our obligation to transfer products or services to a customer for which consideration has been received in advance of the satisfaction of performance obligations. Short-term contract liabilities are included within deferred revenue on the consolidated balance sheets. Long-term contract liabilities are included within other non-current liabilities on the consolidated balance sheets. Revenue recognized from the II-55 EverCommerce Inc. Notes to Consolidated Financial Statements contract liability balance at December 31, 2021 was $ 23.0 million for the year ended December 31, 2022. Revenue recognized from the contract liability balance at December 31, 2020 was $ 13.6 million for the year ended December 31, 2021. Customer deposits : Customer deposits relate to payments received in advance for contracts, which allow the customer to terminate a contract and receive a pro rata refund for the unused portion of payments received to date. In these arrangements, we have concluded there are no enforceable rights and obligations during the period in which the option to cancel is exercisable by the customer and therefore the consideration received is recorded as a customer deposit liability. Remaining Performance Obligations Remaining performance obligations represent the transaction price of unsatisfied or partially satisfied performance obligations within contracts with an original expected contract term that is greater than one year for which fulfillment of the contract has started as of the end of the reporting period. Variable consideration accounted for under the variable consideration allocation exception associated with unsatisfied performance obligations or an unsatisfied promise that forms part of a single performance obligation under application of the series guidance have been excluded. Remaining performance obligations generally relate to those which are stand-ready in nature, as found within the subscription and marketing technology solutions revenue streams. The aggregate amount of transaction consideration allocated to remaining performance obligations as of December 31, 2022 was $ 22.8 million. The Company expects to recognize approximately 59 % of its remaining performance obligations as revenue within the next year, 28 % of its remaining performance obligations as revenue the subsequent year, 9 % of its remaining performance obligations as revenue in the third year, and the remainder during the two-year period thereafter. Cost to Obtain and Fulfill a Contract The Company incurs certain costs to obtain contracts, principally sales, third-party commissions and third-party fulfillment fees, which the Company capitalizes when the liability has been incurred if they are (i) incremental costs of obtaining a contract, (ii) expected to be recovered and (iii) have an expected amortization period that is greater than one year (as the Company has elected the practical expedient to expense any costs to obtain a contract when the liability is incurred if the amortization period of such costs would be one year or less). Assets resulting from costs to obtain contracts are included within prepaid expenses and other current assets for short-term balances and other non-current assets for long-term balances on the Company’s consolidated balance sheets. The costs to obtain contracts are amortized over five years , which corresponds with the useful life of the related capitalized software. Short-term assets were $ 6.6 million and $ 4.8 million at December 31, 2022 and 2021, respectively, and long-term assets were $ 15.1 million and $ 11.9 million at December 31, 2022 and 2021, respectively. The Company recorded $ 4.3 million, $ 2.9 million and $ 2.0 million of amortization expense related to assets for the years ended December 31, 2022, 2021 and 2020, respectively, which is included in sales and marketing expense on the consolidated statements of operations and comprehensive loss, as well as $ 1.7 million, $ 1.0 million and $ 0.3 million, respectively, which is included in cost of revenues expense on the consolidated statements of operations and comprehensive loss. The Company has concluded that there are no other material costs incurred in fulfillment of customer contracts, that are not accounted for under other GAAP, which meet the capitalization criteria under ASC 606 and ASC Topic 340-40, Accounting for Other Assets and Deferred Costs (“ASC 350-40”). II-56 EverCommerce Inc. Notes to Consolidated Financial Statements Note 5. Goodwill Goodwill consisted of the following as of December 31, 2022 and 2021 (in thousands): Balance, January 1, 2021 $ 668,151 Additions 255,723 Measurement period adjustments (1) 293 Effect of foreign currency exchange rate changes ( 2,751 ) Balance, December 31, 2021 921,416 Measurement period adjustments (1) ( 573 ) Effect of foreign currency exchange rate changes ( 6,761 ) Balance, December 31, 2022 $ 914,082 (1) The $ 0.6 million and $ 0.3 million of measurement period adjustments relate to acquisitions consummated during the years ended December 31, 2021 and 2020, respectively. Note 6. Intangible Assets Intangible assets consisted of the following: December 31, 2022 Useful Life Gross Carrying Value Accumulated Amortization Net Book Value (in thousands) Customer relationships 3 - 20 years $ 605,753 $ 265,342 $ 340,411 Developed content and technology 2 - 12 years 105,766 59,208 46,558 Trademarks and trade names 3 - 10 years 38,131 19,725 18,406 Non-compete agreements 2 - 5 years 2,402 2,057 345 Total $ 752,052 $ 346,332 $ 405,720 December 31, 2021 Useful Life Gross Carrying Value Accumulated Amortization Net Book Value (in thousands) Customer relationships 3 - 20 years $ 607,625 $ 187,556 $ 420,069 Developed content and technology 2 - 12 years 106,162 42,215 63,947 Trademarks and trade names 3 - 10 years 38,218 14,540 23,678 Non-compete agreements 2 - 5 years 2,409 1,568 841 Total $ 754,414 $ 245,879 $ 508,535 Amortization expense was $ 101.0 million, $ 93.4 million and $ 70.6 million for the years ended December 31, 2022, 2021 and 2020, respectively. The weighted average remaining useful life of intangible assets acquired is 9.6 years , 10.5 years and 11.4 years for the years ended December 31, 2022, 2021 and 2020, respectively. II-57 EverCommerce Inc. Notes to Consolidated Financial Statements In determining the useful life for each category of intangible asset, the Company considered the following: the expected use of the intangible, the longevity of the brand and considerations for obsolescence, demand, competition and other economic factors. Amortization expense for the Company’s intangible assets are as follows (in thousands): Year ended December 31, 2023 $ 90,440 2024 74,298 2025 62,370 2026 48,652 2027 37,480 Thereafter 92,480 Total amortization expense for the Company’s intangible assets $ 405,720 Note 7. Property and Equipment Property and equipment consisted of the following: December 31, 2022 2021 (in thousands) Computer equipment and software $ 9,327 $ 8,191 Furniture and fixtures 3,570 3,667 Leasehold improvements 11,941 12,032 Total property and equipment 24,838 23,890 Less accumulated depreciation ( 12,908 ) ( 10,381 ) Property and equipment, net $ 11,930 $ 13,509 Depreciation expense was $ 4.1 million for each of the years ended December 31, 2022 and 2021 and $ 4.0 million for the year ended December 31, 2020 . Note 8. Capitalized Software Capitalized software consisted of the following: December 31, 2022 2021 (in thousands) Capitalized software $ 45,872 $ 31,960 Less accumulated amortization ( 13,318 ) ( 7,960 ) Capitalized software, net $ 32,554 $ 24,000 Amortization expense was $ 5.7 million, $ 3.7 million and $ 2.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. During the ordinary course of business, the Company may determine that certain capitalized features of its software will no longer be used either internally or to deliver value to its customers. During the years ended December 31, 2022, 2021 and 2020 the Company recorded a charge to general and administrative expense on II-58 EverCommerce Inc. Notes to Consolidated Financial Statements the accompanying consolidated statements of operations and comprehensive loss for $ 1.2 million, $ 0.7 million and nil , respectively, related to capitalized features no longer expected to be used. Note 9. Leases The Company leases real estate from unrelated parties under operating lease agreements that have initial terms ranging from one to 11 years. Some leases include one or more options to renew, generally at our sole discretion, of five additional years each. The components of lease expense are as follows: Year ended December 31, 2022 (in thousands) Operating lease cost $ 7,859 Variable lease cost 1,495 Short-term lease cost 340 Total lease cost $ 9,694 Included in the consolidated statements of operations and comprehensive loss is total rent expense of $ 9.7 million and $ 8.9 million for the years ended December 31, 2021 and 2020, respectively. Supplemental cash flow information related to leases is as follows: Year ended December 31, 2022 (in thousands) Cash paid for amounts included in measurement of lease liabilities: Operating cash outflows - payments on operating leases $ 8,010 Right-of-use assets obtained in exchange for new lease obligations: Operating leases $ 772 Supplemental balance sheet information, included in other non-current assets , accrued expenses and other and other non-current liabilities on the consolidated balance sheet, related to leases is as follows: Year ended December 31, 2022 (in thousands) Operating lease right-of-use assets $ 21,756 Current operating lease liabilities 5,239 Long-term operating lease liabilities 22,500 Total operating lease liabilities $ 27,739 At December 31, 2022, the weighted average remaining lease term for operating leases was 6.34 years and the weighted average discount rate w as 4.8 %. II-59 EverCommerce Inc. Notes to Consolidated Financial Statements Future undiscounted cash flows for each of the next five years and thereafter and reconciliation to the lease liabilities recognized on the balance sheet as of December 31, 2022 is as follows (in thousands): Year ended December 31, 2023 $ 6,778 2024 4,879 2025 4,438 2026 4,286 2027 3,953 Thereafter 8,555 Total lease payments 32,889 Less: imputed interest 5,150 Total present value of lease liabilities $ 27,739 A summary of the future minimum lease commitments for all non-cancelable operating lease agreements were as follows as of December 31, 2021 (in thousands): Year ended December 31, 2022 $ 8,054 2023 6,526 2024 4,941 2025 4,705 2026 4,558 Thereafter 12,692 Total future minimum payments due $ 41,476 II-60 EverCommerce Inc. Notes to Consolidated Financial Statements Note 10. Long-term debt Long-term debt consisted of the following: December 31, 2022 2021 (in thousands) Term notes with interest payable monthly, interest rate at Adjusted LIBOR or Alternative Base Rate, plus an applicable margin of 3.25 % ( 7.32 % at December 31, 2022) plus quarterly principal payments of 0.25 % of original principal balance with balloon payment due July 2028 $ 543,125 $ 548,625 Revolver with interest payable monthly, interest rate at Adjusted LIBOR or Alternative Base Rate, plus an applicable margin of 3.25 % ( 7.63 % at December 31, 2022), and outstanding balance due July 2026 — — Subordinated unsecured promissory note related to acquisition of Service Nation, Inc., interest paid-in-kind, interest rate at 8.5 % with balloon payment due September 2022 — 2,866 Subordinated unsecured promissory note related to acquisition of Technique Fitness, Inc. D/B/A Club OS, interest paid-in-kind, interest rate at 7 % with balloon payment due December 2022 — 2,655 Principal debt 543,125 554,146 Deferred financing costs on long-term debt ( 4,900 ) ( 5,826 ) Discount on long-term debt ( 1,779 ) ( 2,193 ) Total debt 536,446 546,127 Less current maturities 5,500 10,943 Long-term portion $ 530,946 $ 535,184 In connection with the IPO on July 6, 2021, the Company entered into a credit facility (“Credit Agreement”) that includes term loans in an aggregate principal amount of $ 350.0 million (“Initial Term Loans”), a revolver with a capacity of $ 190.0 million (“Revolver”) and a sub-limit of the Revolver available for letters of credit up to an aggregate face amount of $ 20.0 million. The Initial Term Loans were used to retire the Company’s debt arrangements that were outstanding prior to the IPO. A loss on debt extinguishment related to the refinancing of the Company’s debt arrangements was recorded during the year ended December 31, 2021 totaling $ 28.7 million. As of December 31, 2021, the Company also had outstanding subordinated promissory notes (“Legacy Subordinated Notes”) that included paid-in-kind interest. The remaining Legacy Subordinated Notes outstanding principal and paid-in-kind interest were fully repaid during the year ended December 31, 2022. As of November 2021, the Company had $ 35.0 million outstanding under the Revolver, and borrowed the remaining capacity of the Revolver to fund the acquisition of DrChrono. Subsequently in the same month, the Company received additional term loans in an aggregate principal amount of $ 200.0 million (“Additional Term Loans” and together with the Initial Term Loans, the “Term Loans”), the proceeds of which were used to repay the outstanding principal balance of the Revolver of $ 190.0 million and for general corporate purposes. The Initial Term Loans, Revolver and Additional Term Loans are collectively referred to herein as the (“Credit Facilities”). The Term Loans have a term of seven years , and quarterly payments of principal of $ 1.4 million and interest in arrears. The Revolver has a term of five years . Borrowings under the Credit Facilities will be available as alternate base rate (“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 one half of 1%, and an adjusted LIBOR rate for a one month interest period plus 1 %. At the time of II-61 EverCommerce Inc. Notes to Consolidated Financial Statements origination, the applicable rate for the Term Loans and the Revolver was 3 % for Eurocurrency borrowings and 2 % for ABR borrowings, in each case subject to change based on the Company’s first lien net leverage ratio, as defined in the Credit Facilities. The Company determines the fair value of long-term debt based on trading prices for its debt if available. As of December 31, 2022, the Company obtained trading prices for the term notes outstanding. However, as such trading prices require significant unobservable inputs to the pricing model, such instruments are classified as Level 2. If no such trading prices are available, the Company determines the fair value of long-term debt using discounted cash flows, applying current interest rates and current credit spreads, based on its own credit risk. The fair value amounts were approximately $ 531.6 million and $ 552.8 million as of December 31, 2022 and December 31, 2021, respectively. 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 Swap Agreement has a term of 5 years with a fixed rate in the agreement of 4.2295 %. As of December 31, 2022 the floating rate of the Term Loans was 4.07 % and the effective interest rate was 7.32 % including an applicable fixed margin of 3.25 %. The Swap Agreement is accounted for as a derivative whereby the fair value of the contract is reported in other non-current assets or other non-current liabilities on the consolidated balance sheet, and gains and losses resulting from changes in the fair value are reported in interest and other expense, net, in the statement of operations and comprehensive loss. As of December 31, 2022 the fair value of the Swap Agreement was a liability of $ 2.9 million and reported in other non-current liabilities on the consolidated balance sheet. The Company’s Credit Facilities are subject to certain financial and nonfinancial covenants and are secured by substantially all assets of the Company. As of December 31, 2022, the Company was in compliance with all of its covenants. Aggregate maturities of the Company’s debt are as follows (in thousands): Year ended December 31, 2023 $ 5,500 2024 5,500 2025 5,500 2026 5,500 2027 5,500 Thereafter 515,625 Total aggregate maturities of the Company’s debt $ 543,125 Note 11. Equity On May 5, 2021, the Company amended its Certificate of Incorporation (“Third Amended and Restated Certificate of Incorporation”) to increase the number of authorized shares of Preferred Stock from 125,000,000 shares to 140,000,000 shares of Preferred Stock, $ 0.00001 par value per share, of which 50,000,000 were designated as Series A, 75,000,000 were designated as Series B and 15,000,000 were designated as Series C as of such date. Each share of Series A, Series B and Series C could have been converted into common stock at any time, at the option of the holder, based on a prescribed formula set forth in the Company’s Third Amended and Restated Certificate of Incorporation. In the event of a liquidation, dissolution, winding up of the Company or other similar event, liquidation payments would have first been made to the holders of Series B, then to Series C, then to Series A. In May 2021, the Company issued 7.9 million shares of Series C for proceeds of $ 109.8 million net of issuance costs. In accordance with ASC 480, Distinguishing Liabilities from Equity, if the carrying value of redeemable preferred stock is less than its redemption value, redeemable preferred stock shall be accreted to its redemption value if it is probable it will become redeemable. Prior to March 15, 2021, the Company concluded it was probable that the Series B would become redeemable due to the passage of time. However, after that date the Company concluded that it was no longer probable that the Series B would become redeemable due to the increased likelihood of a II-62 EverCommerce Inc. Notes to Consolidated Financial Statements successful IPO prior to February 23, 2025. The Company’s Series B accruing dividends comprised a component of the redemption value of such stock. The Company recorded the accretion of Series B through March 15, 2021, by increasing its carrying value and recording a corresponding reduction of additional paid-in capital in the amount of $ 15.1 million and $ 67.8 million for the years ended December 31, 2021 and 2020, respectively. Immediately prior to the closing of the IPO on July 6, 2021, the Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to authorize the issuance of up to 2,050,000,000 shares, par value $ 0.00001 per share, consisting of 2,000,000,000 shares of common stock and 50,000,000 shares of preferred stock. In connection with the IPO, all of the Company’s then outstanding convertible preferred stock converted into shares of common stock on a one -for-one basis. Upon conversion of the convertible preferred stock, the Company reclassified the carrying value of the convertible preferred stock to common stock and additional paid-in capital. On June 14, 2022, our Board of Directors approved a stock repurchase program (the “Repurchase Program”) with 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. 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. 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, during the year ended December 31, 2022. Note 12. Stock-Based Compensation In 2016, the Company adopted the 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan provided for the granting of stock-based awards, including stock options, stock appreciation rights, restricted or unrestricted stock awards, phantom stock, performance awards and other stock-based awards. The 2016 Plan allowed for the granting of stock-based awards through January 17, 2027. In connection with the IPO, the Company’s board of directors adopted, and the Company’s stockholders approved, the 2021 Incentive Award Plan (the “2021 Plan”), which became effective immediately prior to the effectiveness of the registration statement for the Company’s IPO and, following the effectiveness of which, the Company can no longer make awards under the 2016 Plan. The 2021 Plan provides for the issuance of incentive stock options, non-qualified stock options, stock awards, stock units, stock appreciation rights and other stock-based awards. The number of shares initially reserved for issuance under the 2021 Plan was 22,000,000 shares, inclusive of available shares previously reserved for issuance under the 2016 Plan. In addition, the number of shares reserved for issuance under the 2021 Plan is subject to an annual increase on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2031, equal to the lesser of (i) 3 % of the shares outstanding (on an as-converted basis) on the last day of the immediately preceding fiscal year and (ii) such smaller number of shares as determined by the Company’s board of directors, provided that no more than 22,000,000 shares may be issued upon the exercise of incentive stock options. Based on the Company’s outstanding shares of common stock as of December 31, 2021, on January 1, 2022 the number of shares reserved for issuance under the 2021 Plan increased by 5.9 million. Stock options During the years ended December 31, 2022, 2021 and 2020, the Company granted time-based and performance-based stock options to employees and directors. Time-based options granted under the 2016 Plan vest 25 % after one year , and then monthly over the next three years whereas time-based options granted under the 2021 Plan vest 25 % after one year and then quarterly over the next three years . Time-based options granted under both the 2016 Plan and the 2021 Plan expire 10 years from date of grant and carry an exercise price equal to the fair market value at the date II-63 EverCommerce Inc. Notes to Consolidated Financial Statements of grant as determined by the Company’s board of directors for options granted under the 2016 Plan and an exercise price equal to the closing price of the Company’s stock at the date of grant for options granted under the 2021 Plan. The overwhelming majority of performance-based options were granted prior to the IPO and had vesting conditions as follows: 50 % of a holder’s award would have vested upon a change in control or an initial public offering if the per share cash price received in connection with such change in control or the per share offering price in such initial public offering was at least $ 27.41 , and the other 50 % of the holder’s award would have vested upon a change in control or an initial public offering if the per share cash price received in connection with such change in control or the per share offering price in such initial public offering was at least $ 36.54 . The performance-based options generally carried an exercise price equal to the fair market value at the date of grant as determined by the board of directors and expired 10 years from date of grant. In connection with the IPO, the Company modified the performance-based stock options to be market condition-based options such that 50 % of a holder’s award will vest if the market price for the Company’s stock reaches and maintains a volume weighted average stock price of $ 27.41 , and the other 50 % of the holder’s award will vest if the market price for the Company’s stock reaches and maintains a volume weighted average stock price of $ 36.54 . Each tranche of options is eligible to vest if the applicable volume weighted average stock price goal is achieved during the first measurement period of January through March of 2023, and if such goal(s) are not achieved during such period, then the tranche(s) of options are again eligible to vest during a second measurement period of April through June 2023. To date, $ 14.9 million of stock-based compensation expense has been recognized related to the market condition-based options. The relevant data used to determine the value of the stock options is as follows: December 31, 2022 2021 2020 Weighted-average risk-free interest rate 1.82 % 0.97 % 1.65 % Expected term in years 6.1 6.1 6.1 Weighted-average expected volatility 50 % 48 % 43 % Expected dividends 0 % 0 % 0 % A summary of stock option activity for the year ended December 31, 2022 is as follows: Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term in Years Aggregate Intrinsic Value (in thousands except for exercise price and term in years) Outstanding balance at January 1, 2022 16,444 $ 9.77 8.00 $ 101,003 Granted 1,713 11.67 Exercised ( 351 ) 5.19 Forfeited ( 869 ) 13.80 Outstanding balance at December 31, 2022 16,937 $ 9.86 7.25 $ 3,870 Exercisable at December 31, 2022 8,802 $ 9.03 6.83 $ 3,839 The weighted-average grant date fair value of time-based stock options granted was $ 5.76 , $ 8.30 and $ 1.27 for the years ended December 31, 2022, 2021 and 2020, respectively. The weighted-average modification date fair value of the market condition-based options modified in 2021 was $ 6.85 . The weighted-average grant date fair value of the performance-based options granted in 2020 was $ 1.29 . The total intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020 was $ 2.3 million, $ 2.1 million and $ 0.1 million, respectively. Compensation expense of $ 19.3 million, $ 11.1 million and $ 3.1 million was recognized in stock-based II-64 EverCommerce Inc. Notes to Consolidated Financial Statements compensation for the years ended December 31, 2022, 2021 and 2020, respectively. The unrecognized compensation expense associated with outstanding time-based stock options at December 31, 2022 was $ 20.8 million, which is expected to be recognized over a weighted average period of 3.6 years. The unrecognized compensation expense associated with outstanding market condition-based stock options at December 31, 2022 was $ 2.5 million, which is expected to be recognized on a straight-line basis over the next 3 months. Restricted Stock Awards During 2017, the Company granted 3.9 million time vesting restricted stock awards (“RSAs”). The awards vested over a four-year period starting on October 17, 2016. On the grant date, the awards were valued at $ 0.75 per award, totaling $ 2.9 million. The Company recorded compensation expense for these awards on a straight-line basis over the vesting period, which approximated the service period. The Company also granted 1.6 million shares of funding RSAs during the year ended December 31, 2018. The funding awards only vested in the instances in which the majority owners or the Company purchased preferred stock. The shares vested in an amount equal to a percentage of the number of preferred shares purchased by majority owners of the Company. On August 23, 2019 and September 4, 2020, all unvested funding RSAs were modified such that the awards vested upon an investment by either of the equity sponsors and the percentage of awards that vested upon such investment was also modified. These modifications did not result in additional compensation expense at the date of each modification; however, future compensation expense for these awards was recognized based on the fair value of the award at the modification date. The compensation expense associated with the unvested funding awards was recorded on the vesting date. Unvested funding RSAs terminated upon the earlier of an IPO or a sale of the Company, as defined in the respective recipients’ Amended and Restated Restricted Stock Award Agreements dated May 7, 2021. On May 7, 2021 and May 20, 2021, the Company issued 7.6 million shares of Series C for $ 105.8 million and 0.3 million shares of Series C for $ 4.2 million, respectively, to fund an acquisition. In connection with these contributions, the funding RSAs were modified, and 0.6 million and 18 thousand, respectively, of funding RSAs vested at $ 17.00 per share. Compensation expense of nil , $ 9.7 million and $ 7.0 million related to funding RSAs was recognized in general and administrative in the statement of operations and comprehensive loss for the years ended December 31, 2022, 2021 and 2020, respectively. In connection with the IPO, all remaining unvested funding awards were cancelled. Restricted Stock Units During the year ended December 31, 2022 and 2021, the Company issued time vesting restricted stock units (“RSUs”). The awards vest over a four-year period starting on the date of grant, with 25 % of the awards vesting on the one-year anniversary, and then in equal quarterly installments for the subsequent three years . The Company records compensation expense for these awards on a straight-line basis, which approximates the service period. Compensation expense of $ 6.0 million and $ 1.2 million related to these awards was recognized in the statement of operations and comprehensive loss for the years ended December 31, 2022 and 2021, respectively. The unrecognized compensation expense associated with the RSUs at December 31, 2022 was $ 20.2 million, which is expected to be recognized over a weighted average perio d of 3.01 years. II-65 EverCommerce Inc. Notes to Consolidated Financial Statements The summary of time vesting restricted stock units activity for the year ended December 31, 2022 is as follows: Units Weighted-Average Grant Date Fair Value (in thousands except for fair value) Unvested, restricted stock units at January 1, 2022 541 $ 17.00 Granted 1,931 11.44 Vested ( 162 ) 17.00 Forfeited ( 288 ) 12.89 Unvested, restricted stock units at December 31, 2022 2,022 $ 12.27 2021 Employee Stock Purchase Plan In connection with the IPO, the Company’s board of directors adopted the 2021 Employee Stock Purchase Plan. The ESPP is designed to allow eligible employees to purchase shares of our common stock, at periodic intervals, with their accumulated payroll deductions. The ESPP consists of two components: a Section 423 component, which is intended to qualify under Section 423 of the Internal Revenue Code (the “Code”) and a non-Section 423 component, which need not qualify under Section 423 of the Code. The aggregate number of shares of common stock that were initially reserved for issuance under the ESPP is equal to the sum of (i) 4,500,000 shares and (ii) an annual increase on the first day of each calendar year beginning in 2022 and ending in and including 2031 equal to the lesser of (A) one percent ( 1 %) of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year and (B) such smaller number of shares as determined by our board of directors; provided that in no event will more than 60,000,000 shares of our common stock be available for issuance under the Section 423 component of the ESPP. Compensation expense of $ 1.5 million and $ 0.1 million related to the ESPP was recognized in the statement of operations and comprehensive loss for the years ended December 31, 2022 and 2021, respectively. Stock-based Compensation Expense Stock-based compensation expense was classified in the accompanying consolidated statements of operations and comprehensive loss as follows: Year ended December 31, 2022 2021 2020 (in thousands) Cost of revenues $ 373 $ 39 $ — Sales and marketing 1,503 506 — Product development 1,854 551 — General and administrative 23,088 20,999 10,721 Total stock-based compensation expense $ 26,818 $ 22,095 $ 10,721 II-66 EverCommerce Inc. Notes to Consolidated Financial Statements Note 13. Net Loss Per Share Attributable to Common Stockholders The following table presents the calculation of basic and diluted net loss per share for the Company’s common stock: Year ended December 31, 2022 2021 2020 (in thousands except share and per share amounts) Numerator: Net loss $ ( 59,816 ) $ ( 81,966 ) $ ( 59,954 ) Accretion of Series B to redemption value — ( 15,105 ) ( 67,811 ) Numerator for basic and diluted EPS – net loss attributable to common stockholders $ ( 59,816 ) $ ( 97,071 ) $ ( 127,765 ) Denominator: Denominator for basic and diluted EPS – Weighted-average shares of common stock outstanding used in computing net loss per share 194,624,968 117,795,280 41,696,800 Basic and diluted net loss per share attributable to common stockholders $ ( 0.31 ) $ ( 0.82 ) $ ( 3.06 ) The following outstanding potentially dilutive common stock equivalents have been excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented due to their anti-dilutive effect: December 31, 2022 2021 2020 Outstanding options to purchase common stock and unvested RSUs 18,959,163 16,984,483 16,268,357 Outstanding convertible preferred stock (Series A and B) — — 117,183,540 Total anti-dilutive outstanding potential common stock 18,959,163 16,984,483 133,451,897 Note 14. Fair Value of Financial Instruments Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value. The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: • Level 1: Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. • Level 2: Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. The Company has no assets or liabilities valued with Level 2 inputs. II-67 EverCommerce Inc. Notes to Consolidated Financial Statements • Level 3: Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The carrying value of cash and cash equivalents, accounts receivable, contract assets and accounts payable approximate their fair value because of the short-term nature of these instruments. There were no transfers between fair value measurement levels during the years ended December 31, 2022 and 2021. The following table presents information about the Company's financial assets and liabilities measured at fair value on a recurring basis: December 31, 2022 Balance Sheet Classification Level 1 Level 2 Level 3 Total (in thousands) Asset: Money market $ 6,568 $ — $ — $ 6,568 Cash equivalents Liability: Interest swap rate $ — $ 2,893 $ — $ 2,893 Other non-current liabilities December 31, 2021 Balance Sheet Classification Level 1 Level 2 Level 3 Total (in thousands) Asset: Money market $ 14,855 $ — $ — $ 14,855 Cash equivalents Liability: Contingent consideration $ — $ — $ 675 $ 675 Other current liabilities The following is a reconciliation of the opening and closing balance for contingent consideration measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the year ended December 31, 2022 (in thousands): Opening balance $ 675 Fair value adjustments ( 18 ) Amounts settled through payment ( 657 ) Ending balance $ — Note 15. Retirement Plan Effective January 1, 2009, EverCommerce Inc. adopted a defined contribution savings plan under section 401(k) of the Internal Revenue Code (the 401(k)). The 401(k) covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis. The Company may make discretionary and/or matching contributions to the 401(k). The Company began making discretionary employer contributions effective January 1, 2020 equal to 25 % of employee contributions up to 8 % and increased this contribution to 100 % of employee contributions up to 4 % effective January 1, 2022 and contributed $ 4.8 million, $ 1.5 million and $ 1.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. II-68 EverCommerce Inc. Notes to Consolidated Financial Statements Note 16. Income Taxes The components of our net loss before income tax benefit are as follows: Year ended December 31, 2022 2021 2020 (in thousands) United States $ ( 59,134 ) $ ( 81,801 ) $ ( 55,664 ) International ( 5,362 ) ( 10,216 ) ( 7,920 ) Net loss before income tax benefit $ ( 64,496 ) $ ( 92,017 ) $ ( 63,584 ) As of December 31, 2022, a portion of our undistributed earnings from non-U.S. subsidiaries are intended to be indefinitely reinvested in non-U.S. operations, and therefore no U.S. deferred taxes have been recorded. As of December 31, 2022, there was no material unrecognized deferred tax liability related to countries where we are indefinitely reinvested. The remaining undistributed earnings from non-U.S. subsidiaries are not permanently reinvested, however, due to a combination of anticipated tax treatment and losses, no material deferred tax liability exists. The components of the provision for income taxes consists of the following: Year ended December 31, 2022 2021 2020 (in thousands) Current: State $ 1,539 $ 801 $ 369 Foreign 1,258 1,174 315 Total current 2,797 1,975 684 Deferred: Federal ( 9,034 ) ( 12,747 ) ( 8,993 ) State ( 2,743 ) ( 2,263 ) ( 2,104 ) Foreign ( 11,235 ) ( 3,436 ) ( 1,878 ) Change in valuation allowance - United States 12,257 6,342 8,392 Change in valuation allowance - Foreign 3,278 78 269 Total deferred ( 7,477 ) ( 12,026 ) ( 4,314 ) Income tax benefit $ ( 4,680 ) $ ( 10,051 ) $ ( 3,630 ) II-69 EverCommerce Inc. Notes to Consolidated Financial Statements The Company’s deferred tax assets and liabilities, included in other non-current liabilities on the consolidated balance sheets, related to temporary differences and operating loss carryforwards were as follows: December 31, 2022 2021 (in thousands) Deferred tax assets: Net operating losses $ 44,545 $ 50,059 163(j) interest limitation 23,363 19,698 Reserves and accrued expenses 7,258 5,592 Property and equipment depreciation 2,526 1,469 Stock-based compensation 3,753 1,531 Deferred rent — 1,839 Lease liability 7,053 — Other 2,555 1,793 Total deferred tax assets 91,053 81,981 Less: valuation allowance ( 47,756 ) ( 31,070 ) Net deferred tax assets 43,297 50,911 Deferred tax liabilities: Intangible assets ( 38,080 ) ( 57,836 ) Property and equipment depreciation ( 5,056 ) ( 6,956 ) Capitalized expenses ( 3,804 ) ( 3,091 ) Operating lease right-of-use assets ( 5,434 ) — Other ( 614 ) ( 844 ) Total deferred tax liabilities ( 52,988 ) ( 68,727 ) Net deferred tax liabilities $ ( 9,691 ) $ ( 17,816 ) The Company had net operating loss and tax credit carryforwards as of the financial statement date as follows: Amount Expiration Years (in thousands) Net operating losses, federal (Post December 31, 2018) $ 22,816 Indefinite Net operating losses, federal (Pre January 1, 2019) $ 10,204 2028 - 2037 Net operating losses, state $ 7,340 Various Net operating losses, foreign $ 4,185 2035 - Indefinite Tax credits, federal $ 258 2037 Tax credits, foreign $ 260 Various Management has not considered future projections of income in this analysis due to the Company’s history of losses. The Company has determined that it is more likely than not that a portion of the deferred tax assets will not be realized and has recorded a valuation allowance of $ 47.8 million and $ 31.1 million as of December 31, 2022 and 2021, respectively, against the deferred tax assets. If the Company’s assumptions change and we determine that we will be able to realize these deferred tax assets, the tax benefits related to any reversal of the valuation allowance on II-70 EverCommerce Inc. Notes to Consolidated Financial Statements deferred tax assets as of December 31, 2022, will be accounted for as follows: $ 44.8 million will be recognized as a reduction of income tax expense and $ 3.0 million will be recorded as an increase in equity. A reconciliation of our valuation allowance on deferred tax assets is as follows: Year ended December 31, 2022 2021 (in thousands) Balance at beginning of period $ 31,070 $ 16,539 Additions to valuation allowance 15,648 6,420 Additions recorded in acquisition accounting — 9,816 Additions recorded as a decrease in equity 1,430 436 Reductions recorded as an increase in equity ( 392 ) ( 2,141 ) Balance at end of period $ 47,756 $ 31,070 The Company files income tax returns in the U.S. federal jurisdiction, Colorado, various other state jurisdictions, Canada, Jordan, the United Kingdom, Australia and New Zealand. The years open for audit vary depending on the tax jurisdiction. In the U.S., the Company's federal tax returns for the years before 2019 (year ended December 31, 2019) are no longer subject to audit. The net operating losses utilized during the open periods from select years prior to 2019 are subject to examination. The foreign jurisdictions statutes vary but are generally four years from assessment of the return. While management believes we have adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from our accrued positions as a result of uncertain and complex application of tax regulations. Additionally, the recognition and measurement of certain tax benefits includes estimates and judgment by management and inherently includes subjectivity. Accordingly, additional provision on federal, state and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: Year ended December 31, 2022 2021 (in thousands) Balance at beginning of period $ 134 $ — Gross additions based on tax positions related to the current year 230 134 Balance at end of period $ 364 $ 134 As of December 31, 2022 and 2021, unrecognized tax benefits of $ 0.4 million and $ 0.1 million, respectively, were recorded in other long-term liabilities, which would impact the annual effective tax rate if recognized. The Company recognizes interest and penalties, if any, related to unrecognized tax positions in the provision for income taxes in the accompanying consolidated statement of operations and comprehensive loss. The Company does not expect a significant increase or decrease in unrecognized tax benefits over the next twelve months. The Company, through its foreign subsidiary Alnashmi Digital Marketing, LLC, provides exported technology services, the profits of which are exempt from income tax through December 31, 2025 according to the provisions of the article (9/A/4) of Regulation Number 106 of the 2016 Regulations. So long as the services are exported outside of Jordan, they originate in Jordan and there are no other services within the exported services, the qualifications are II-71 EverCommerce Inc. Notes to Consolidated Financial Statements met. The approximate dollar value of tax expense related to the tax holiday was $ 0.3 million and $ 0.2 million as of December 31, 2022 and 2021, respectively. On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our financial statements. During the year ended December 31, 2022, we restructured the ownership of certain intellectual property, which resulted in an income tax benefit. The income tax benefit differs from the expected tax benefit computed by applying the U.S. federal statutory rate to income before taxes as a result of the following: Year ended December 31, 2022 2021 2020 (in thousands, except percentages) Benefit at U.S. statutory rate $ ( 13,544 ) 21.00 % $ ( 19,324 ) 21.00 % $ ( 13,353 ) 21.00 % Change in income tax resulting from: State income benefit, net of federal benefit ( 852 ) 1.32 ( 1,916 ) 2.08 ( 1,694 ) 2.66 Stock-based compensation 2,961 ( 4.59 ) 529 ( 0.57 ) 1,579 ( 2.48 ) Nondeductible compensation 163 ( 0.25 ) 2,788 ( 3.03 ) — — Nondeductible transaction costs — — 509 ( 0.55 ) 480 ( 0.75 ) Foreign rate differential ( 129 ) 0.20 ( 613 ) 0.67 ( 268 ) 0.42 Change in valuation allowance 15,648 ( 24.26 ) 6,420 ( 6.98 ) 8,661 ( 13.62 ) Intellectual property migration ( 8,805 ) 13.65 — — — — Other ( 122 ) 0.19 1,556 ( 1.69 ) 965 ( 1.52 ) Income tax benefit $ ( 4,680 ) 7.26 % $ ( 10,051 ) 10.93 % $ ( 3,630 ) 5.71 % Note 17. Commitments and Contingencies The Company has non-cancelable contractual purchase obligations incurred in the normal course of business to help deliver our services and products and provide support to our customers. These contracts with vendors primarily relate to software service, targeted mail costs, third party fulfillment costs and software hosting. Unrecognized future minimum payments due under these agreements are as follows (in thousands): Year ended December 31, 2023 $ 12,608 2024 12,800 2025 10,279 2026 2,125 2027 2,625 Thereafter 688 Total future minimum payments due $ 41,125 From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. II-72 EverCommerce Inc. Notes to Consolidated Financial Statements The Company assesses the applicability of nexus in jurisdictions in which the Company sells products and services. As of December 31, 2022 and 2021, the Company recorded a liability in the amount of $ 11.2 million and $ 13.0 million, respectively, within current liabilities and other long-term liabilities as a provision for sales and use and gross receipts tax. In connection with the Company's accounting for acquisitions, the Company has recorded liabilities and corresponding provisional escrow or indemnity receivables within the purchase price allocations for instances in which the Company is indemnified for tax matters. Note 18. Geographic Areas The following table sets forth long-lived assets by geographic area: December 31, 2022 2021 (in thousands) United States $ 36,226 $ 34,906 International $ 8,258 $ 2,603 Note 19. Subsequent Events 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 %. II-73 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.