What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-14 compared with 2023-03-16 · 184 added, 224 removed, 345 unchanged (54% of the section changed)

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Within our core verticals, our customers operate within numerous micro-verticals, ranging from home service professionals, such as home improvement contractors and home maintenance technicians, to physician practices and therapists within Health Services, to personal trainers and salon owners within Fitness & Wellness.

Our platform provides vertically-tailored SaaS solutions that address service SMBs’ increasingly specialized 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.

Our platform provides vertically-tailored SaaS solutions that address service SMBs’ increasingly specialized demands, as well as highly complementary solutions that provide fully-integrated offerings, allowing service SMBs and EverCommerce to succeed in the market, and provide end consumers more convenient service experiences.

We offer several vertically-tailored suites of solutions, each of which follows a similar and repeatable go-to-market playbook:

offer a “system of action” Business Management Software that streamlines daily business workflows, integrate highly complementary, value-add adjacent solutions and complete gaps in the value chain to create end-to-end solutions.

These solutions focus on addressing how service SMBs market their services, streamline operations and retain and engage their customers.

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

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

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

These applications include:

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

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

customer health scoring, customer support systems, real-time alerts, NPS-based customer feedback collection, review generation and automation, reputation management, customer satisfaction surveying and a digital communication suite, among others.

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

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Approximately 97% of our revenue in the years ended December 31, 2023 and 2022 was recurring or re-occurring, and we maintained an annualized net pro forma revenue retention rate of approximately 95% for the quarter ended December 31, 2023.

Excluding our marketing technology solutions, our annualized net revenue retention rate for our core software and payments solutions was approximately 100% for the quarter ended December 31, 2023.

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

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

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

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

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

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

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

Our net pro forma revenue retention rate

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

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

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

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

We have acquired 52 companies since our inception.

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

We have developed and refined our internal criteria over time with our acquisitions, which has helped us to more readily identify attractive and complementary targets that can be efficiently onboarded.

These acquired solutions can bring deep industry expertise and vertically-tailored software solutions that provide additional sources of growth.

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

Impact of Macroeconomic Climate

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

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

The macroeconomic climate continues to see pressure from global developments such as international geopolitical conflicts, terrorism, a future pandemic, rising inflation, fluctuations in the value of the US Dollar, rising interest rates and supply chain disruptions.

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

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

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

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

Sale of Fitness Solutions

On March 13, 2024, we entered into definitive sale and purchase agreements to sell our fitness solutions to Jonas Software (see Note 2.

Summary of Significant Accounting Policies).

We expect the transaction to close in two parts.

The North American businesses, Club OS and ASF, have closed simultaneous with signing.

The international businesses, ClubWise and MyPTHub, are expected to close during the third quarter of 2024 following customary closing conditions and regulatory approvals.

The Company does not consider the sale of the asset disposal group to be a strategic shift that will have a material effect on its operations and financial results, and therefore it does not qualify for reporting as a discontinued operation.

Key Factors Affecting Our Performance

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges.

Expanding into New Products and Verticals

Given our position in the service SMB ecosystem, as well as our relationships and level of engagement with our customers, we use insights gained through our customer relationships and lifecycle to identify additional solutions that are value-additive for our customers.

These insights allow us to continually assess opportunities to develop or acquire solutions to further grow our business by expanding market share, cross-selling solutions and enhancing customer stickiness to improve customer retention.

Additionally, we have completed acquisitions to enter new micro-verticals and geographies.

Pursuing Acquisitions to Expand our Reach

We acquire companies to accelerate our position as a market leader, fill gaps within our vertically tailored solutions, deepen our competitive moats in existing verticals and enter new verticals and geographies.

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

These acquired solutions can bring deep industry expertise and vertically-tailored software solutions that provide additional sources of growth.

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

Although we expect to continue to acquire companies and other assets in the future, such acquisitions pose a number of challenges and risks.

For additional information, see Part I.

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

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

Acquiring New Customers

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

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

Through organic growth of our business and acquisitions, the number of customers on our platform increased from over 685,000 at the end of 2022 to approximately 708,000 at the end of 2023.

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

Our financial performance will depend in large part on the overall demand for our solutions from service SMBs.

Increasing Revenue from Existing Customers

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

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

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

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

For solutions contracting with entities that service groups of customers, for example franchises or other multi-location businesses, the customer is counted at the level of the individual business utilizing the solution.

We believe we have the opportunity to drive incremental revenue growth from our existing customer base through increased cross-selling of our integrated solutions, including digital payments, customer engagement and marketing technology.

We earn transaction fees for payment transactions initiated on our platform, and our revenue and payment volumes grow as customers process more transactions on our platform.

Integrating our payments platform across our EverPro, EverWell and EverHealth suites of solutions can improve customer retention and satisfaction as it drives operating efficiencies for quicker and more efficient billing and payment collection.

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

Expand Revenue and Margin from Existing Customers

We believe we have the opportunity to drive incremental revenue growth from our existing customer base through increased cross-selling and up-selling adjacent solutions.

Our integrated SaaS solutions allow us to offer customers additional capabilities across their entire customer engagement lifecycle including digital payments, customer engagement and marketing technology.

As we continue to develop, acquire and transform our solutions, we aim to continue adding value to our customers by displacing point-solution competitors and legacy, manual methods with our integrated digital offerings, increasing our revenue and improving customer experience and retention.

A primary focus for revenue expansion focuses on cross-selling payments solutions to customers in an effort to prioritize margin growth.

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

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

Expanding into New Products and Verticals

Additionally, we have completed acquisitions to enter new micro-verticals and geographies.

Continued Investment in Growth

We continue to drive awareness and generate demand for our solutions in order to acquire new customers and develop new service SMB relationships, as we believe that we still have a significant market opportunity ahead of us.

We will continue to expand efforts to market our solutions directly to SMBs through online digital marketing, raising brand awareness at conferences and events, and other marketing channels.

We will continue to expand efforts to

market our solutions directly to SMBs through online digital marketing, raising brand awareness at conferences and events, and other marketing channels.

We believe this investment, coupled with our attractive unit economics, will enable us to grow our customer base and continue our strategy of profitable growth.

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

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

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

In 2023, we continued to invest in scalable operations and necessary functions to support operating as a public company, including Sarbanes-Oxley compliance.

In 2024 and beyond, incremental investments will be needed to support the ongoing transformation of our business and infrastructure, including Sarbanes-Oxley compliance.

We have acquired 53 companies since our inception, the majority of which were completed prior to 2022.

While our pace of acquisition has slowed, we continue to pursue growth through a mix of organic revenue expansion and acquisitions.

These acquired solutions can bring deep industry expertise and vertically-tailored software solutions that provide additional sources of growth.

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

Although we expect to continue to acquire companies and other assets in the future, such acquisitions pose a number of challenges and risks.

For additional information, see Part I.

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

Key Business and Financial Metrics

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Management also uses this metric for planning and forecasting purposes.

Our year-over-year Pro Forma Revenue Growth Rate is calculated as though all acquisitions closed as of the end of the latest period were closed as of the first day of the prior year period presented.

In calculating Pro Forma Revenue Growth Rate, we add the revenue from acquisitions for the reporting periods prior to the date of acquisition (including estimated purchase accounting adjustments) to our results of operations, and then calculate our revenue growth rate between the two reported periods.

Our year-over-year Pro Forma Revenue Growth Rate is calculated as though all acquisitions completed as of the end of the latest period were closed as of the first day of the prior year period presented.

In calculating Pro Forma Revenue Growth Rate, we add the revenue from acquisitions for the reporting periods prior to the date of acquisition (including estimated purchase accounting adjustments), and then calculate our revenue growth rate between the two reported periods.

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

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

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

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

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

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Adjusted Gross Profit

Gross profit is calculated as total revenue less cost of revenue (exclusive of depreciation and amortization), amortization of developed technology, amortization of capitalized software and depreciation expense (allocated to cost of revenues).

We calculate Adjusted Gross Profit as gross profit adjusted to exclude non-cash charges of depreciation and amortization allocated to cost of revenues.

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

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

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

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

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(in thousands)

Gross profit (1)

$ 675,369 $ 620,746

Cost of revenues (exclusive of depreciation and amortization)

231,007 217,375

Amortization of developed technology

15,451 16,432

Amortization of capitalized software

Depreciation expense allocated to cost of revenue

419,322 380,122

Depreciation and amortization 25,040 23,249

Adjusted gross profit $ 444,362 $ 403,371

(1) Gross profit is calculated as total revenues less cost of revenues (exclusive of depreciation and amortization), amortization of developed technology, amortization of capitalized software and depreciation expense (allocated to cost of revenues).

(2) For the year ended December 31, 2022, gross profit represents total revenues of $620.7 million less cost of revenues (exclusive of depreciation and amortization) of $217.4 million, amortization of developed technology of $16.4 million, amortization of capitalized software of $5.7 million and depreciation expense (allocated to cost of revenues) of $1.1 million.

(3) For the year ended December 31, 2021, gross profit represents total revenues of $490.1 million less cost of revenues (exclusive of depreciation and amortization) of $162.2 million, amortization of developed technology of $14.7 million, amortization of capitalized software of $3.7 million and depreciation expense (allocated to cost of revenues) of $1.2 million.

Adjusted EBITDA

Adjusted EBITDA is calculated as net loss adjusted to exclude interest and other expense, net, income tax expense (benefit), depreciation and amortization, other amortization, stock-based compensation and transaction-related and other non-recurring costs.

Other amortization includes amortization for capitalized contract acquisition costs.

Transaction-related costs are specific deal-related costs such as legal fees, financial and tax due diligence, consulting and escrow fees.

Other non-recurring costs are expenses such as impairment charges, system implementation costs, severance expense related to planned restructuring activities, and costs associated with integration and transformational improvements.

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

Adjusted EBITDA is a key performance measure that our management uses to assess our financial performance and is also used for internal planning and forecasting purposes.

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

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

Other amortization includes amortization for capitalized contract acquisition costs.

Acquisition related costs are specific deal-related costs such as legal fees, financial and tax due diligence, consulting and escrow fees.

Other non-recurring costs are expenses such as system implementation costs and severance related to planned restructuring activities.

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

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

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Interest and other expense, net 46,407 33,902

Income tax benefit (4,680) (10,051)

Loss on debt extinguishment — 28,714

Income tax expense (benefit)

1,639 (4,680)

Depreciation and amortization 104,201 110,801

Other amortization 5,738 4,261

Acquisition related costs 1,028 3,452

Stock-based compensation 25,559 26,818

Other non-recurring costs 6,735 4,592

Transaction-related and other non-recurring costs

Adjusted EBITDA $ 155,619 $ 119,049

Description of Certain Components of Financial Data

For additional information concerning our accounting policies, see Note 2.

Summary of Significant Accounting Policies in the notes to the consolidated financial statements included in this Annual Report on Form 10-K.

We derive our revenue from three primary sources which are described in detail below:

(i) Subscription and Transaction Fees, which are primarily recurring revenue streams, (ii) Marketing Technology Solutions, which includes both recurring and re-occurring revenue streams and (iii) Other revenue, which consists primarily of the sale of distinct professional services and hardware.

Our revenue recognition policies are discussed in more detail under “Critical Accounting Policies and Significant Judgments and Estimates.”

Our revenue recognition policies are discussed in more detail under “Critical Accounting Estimates.”

Subscription and Transaction Fees :

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In particular, Marketing Technology Solutions revenue generally has a higher cost of revenue as a percentage of revenue than our subscription and transaction fee revenue.

For the year ended December 31, 2022, revenue from subscription and transaction fees increased 32.3% compared to the year ended December 31, 2021, whereas Marketing Technology Solutions revenue increased 13.8%.

For the year ended December 31, 2023, revenue from subscription and transaction fees increased 11.8% compared to the year ended December 31, 2022, whereas Marketing Technology Solutions revenue decreased 1.1%.

To the extent our Marketing Technology Solutions revenue grows at a faster rate, whether by acquisition or otherwise, than our Subscription and Transaction Fees revenue, it could negatively impact our cost of revenues as a percentage of revenue.

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

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

that customer.

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

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

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Depreciation and amortization primarily relate to intangible assets, property and equipment and capitalized software.

During the fourth quarter of 2023, we determined that the estimated fair value of our fitness asset group was insufficient to recover the net carrying value of the asset group resulting in an impairment of long-lived assets of approximately $5.1 million (s ee Note 19.

Subsequent Event included in this Annual Report on Form 10-K ).

Additionally, during the year ended December 31, 2023, t he Company ceased use of certain leased premises and subleased certain facilities resulting in an impairment charge of $1.2 million to impair the right-of-use lease assets to their fair value.

Interest and Other Expense, net

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

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

Loss on Debt Extinguishment

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

Income Tax Benefit (Expense)

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

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

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

It also includes amortization expense of financing costs and discounts, as well as realized and unrealized gains and losses related to interest rate swap agreements.

Income Tax (Expense) Benefit

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

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

Results of Operations

The following tables summarize key components of our results of operations for the periods presented.

The period-to-period comparisons of our historical results are not necessarily indicative of the results that may be expected in the future.

We operate as a single reportable segment to reflect the way our chief operating decision maker (“CODM”) reviews and assesses the performance of our business.

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

Impact of Acquisitions

The comparability of our operating results is impacted by our business combinations and acquisitions.

In our discussion of changes in our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, we quantitatively disclose the impact of the growth in certain of our revenues where such discussions would be meaningful.

Expense contributions from our recent acquisitions for each of the respective period comparisons generally were not separately identifiable due to the integration of these businesses into our existing operations, and as such the discussion is focused on major changes in components of costs.

The following tables summarize key components of our results of operations for the year ended December 31, 2023 compared to the same period in 2022.

Comparison of the years ended December 31, 2023 and 2022

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Total operating expenses 672,943 651,340

Operating loss (30,594) (27,192)

Operating income (loss)

2,426 (30,594)

Interest and other expense, net (46,407) (33,902)

Loss on debt extinguishment — (28,714)

Net loss before income tax benefit (64,496) (92,017)

Income tax benefit 4,680 10,051

Net loss $ (59,816) $ (81,966)

Net loss before income tax (expense) benefit

(43,981) (64,496)

Income tax (expense) benefit

(1,639) 4,680

$ (45,620) $ (59,816)

(1) Includes stock-based compensation expense as follows:

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Total stock-based compensation expense $ 25,559 $ 26,818

Comparison of the years ended December 31, 2023 and 2022 (percentage of revenue)

The following table provides the key components of operating costs within our results of operations as a percentage of revenue for the year ended December 31, 2023 compared to the same period in 2022.

Year Ended December 31, Change

Total Revenues 100.0% 100.0% —%

Operating expenses:

Cost of revenues (exclusive of depreciation and amortization presented separately below) 34.2 % 35.0 % (0.8) %

Sales and marketing 18.3 % 19.2 % (0.9) %

Product development 11.2 % 11.5 % (0.3) %

General and administrative 19.6 % 21.3 % (1.7) %

Depreciation and amortization 15.4 % 17.8 % (2.4) %

Impairment 0.9 % — % 0.9 %

Total operating expenses 99.6 % 104.9 % (5.3) %

While revenue growth remains a key focus, we remain committed to continued expansion of gross margin, net income and Adjusted EBITDA through ongoing transformation initiatives.

As a percentage of revenue, cost of revenues declined from 35.0% to 34.2%, an improvement of approximately 80 basis points resulting in higher gross margin.

Additionally, the combination of cost of revenue, sales and marketing, product development and general and administrative costs declined from 87.1% to 83.3%, an improvement of approximately 380 basis points.

A discussion on primary drivers of cost reductions resulting in improved margin follows in the subsequent sections.

Year Ended December 31, Change

2023 2022 Amount %

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Total revenues $ 675,369 $ 620,746 $ 54,623 8.8 %

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

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

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

Revenues increased $54.6 million, or 8.8%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, which primarily represents the organic growth of the business as there were no material acquisitions during 2023 or 2022.

This increase was driven primarily by a $29.4 million increase from subscription and transaction revenues due to our expansion in our number of customers and certain price increases across our portfolio.

Additionally, there was a $25.5 million increase due to higher transaction volumes processed through our payment platforms.

The decline in marketing technology solutions revenues of 1.1% resulted primarily from a reduction in demand driven by decreases in consumer spending during 2023.

The majority of our revenue growth is attributable to the successful delivery of system of action capabilities to our SMBs in our verticals of home services, health and wellness as well as the ancillary revenue included in “other” associated with these services.

The combined growth of revenue from the categories of subscription and transaction fees and other was 11.5% partially offset by a reduction in marketing technology solutions, which has experienced more volatility in revenue generation than the delivery of services through system of actions.

Cost of Revenues

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Cost of revenues (exclusive of depreciation and amortization presented separately below) $ 231,007 $ 217,375 $ 13,632 6.3 %

Percentage of revenues 35.0 % 33.1 %

Cost of revenues increased by $13.6 million, or 6.3%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

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

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

This increase is primarily comprised of an additional $5.4 million of lead generation and ad spend subject to resale to customers, $3.3 million of email and SMS expense, $2.6 million of campaign mail expense, and $2.1 million of application programming interface fees.

Sales and Marketing

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Sales and marketing $ 123,561 $ 119,059 $ 4,502 3.8 %

Percentage of revenues 19.2 % 19.1 %

Sales and marketing expenses increased by $4.5 million, or 3.8%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

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

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

The increase was driven primarily by an additional $2.3 million in advertising spend, $1.1 million in software and tools and $1.0 million in personnel and compensation expense.

Product Development

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Product development $ 75,614 $ 71,622 $ 3,992 5.6 %

Percentage of revenues 11.5 % 10.1 %

Product development expenses increased by $4.0 million, or 5.6%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

This increase was primarily driven by additional product development related personnel expenses of $16.3 million, as a result of investments in our technology teams to support our various solutions as well as centralized security operations, information technology and cloud engineering.

As a percentage of revenue, product development expenses were 11.5% and 10.1% for the years ended December 31, 2022 and 2021, respectively.

The increase was a result of investments in our technology and teams to support our various solutions as well as centralized security operations, information technology and cloud engineering, driven by an additional $1.5 million of personnel and compensation expense, $1.3 million of software and tools, and $1.3 million of technology spend.

General and Administrative

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General and administrative $ 132,235 $ 132,483 $ (248) (0.2) %

Percentage of revenues 21.3 % 22.5 %

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

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

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

General and administrative expenses decreased by $0.2 million, or 0.2%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The decrease was driven primarily by a $1.9 million decrease in stock-based compensation expense, $1.6 million decrease in facility expense and $1.0 million decrease in professional fees, offset by an additional $4.1 million of personnel and compensation expense.

Depreciation and Amortization

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Depreciation and amortization $ 104,201 $ 110,801 $ (6,600) (6.0) %

Percentage of revenues 17.8 % 20.7 %

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

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

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

Interest and Other Expense, net

Depreciation and amortization expenses decreased by $6.6 million, or 6.0%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The reduction in depreciation and amortization was driven primarily by the reduced rate of replacement assets resulting from a slowdown in business acquisitions.

Specifically, these decreases were driven primarily by a decrease of $9.7 million in intangible assets’ amortization, partially offset by $2.7 million of additional capitalized software amortization and an increase of $0.5 million of property and equipment depreciation.

Year Ended December 31, Change

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(dollars in thousands)

Impairment $ 6,325 $ — $ 6,325 100.0 %

During the fourth quarter 2023, we determined that the estimated fair value of our fitness asset group was insufficient to recover the net carrying value of the asset group resulting in an impairment of long-lived assets of approximately $5.1 million ( s ee Note 19.

Subsequent Event included in this Annual Report on Form 10-K ).

Additionally, during the year ended December 31, 2023, we ceased use of certain leased premises and subleased certain facilities resulting in an impairment charge of $1.2 million to impair the right-of-use lease assets to their fair value.

We did not have similar expenses for the year ended December 31, 2022.

Interest and Other Expense, net

Percentage of revenues 5.5 % 7.4 %

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

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

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

Loss on Debt Extinguishment

Year Ended December 31, Change

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(dollars in thousands)

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

Percentage of revenues — % 5.9 %

_______________

— Not Meaningful.

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

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

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

Income Tax Benefit

Interest and other expense, net $ 46,407 $ 33,902 $ 12,505 36.9 %

Interest and other expense, net, increased by $12.5 million, or 36.9%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The increase was driven primarily by higher interest expense as a result of increased variable base interest rates during 2023 on the Company’s Credit Facilities of $14.9 million, partially offset by a decrease of $0.9 million in unrealized losses recorded on the interest rate swaps and a $0.8 million increase in interest income.

Income Tax (Expense) Benefit

Year Ended December 31, Change

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(dollars in thousands)

Income tax benefit $ 4,680 $ 10,051 $ (5,371) (53.4) %

Percentage of revenues 0.8 % 2.1 %

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

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

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

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

Income tax (expense) benefit

$ (1,639) $ 4,680 $ (6,319) (135.0) %

Income tax (expense) benefit decreased by $6.3 million, or 135.0%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, with the change driven primarily by discrete items and the year-over-year decrease in the Company’s pre-tax loss.

The year ended December 31, 2023 includes the release of a valuation allowance in the second quarter of 2023.

The year ended December 31, 2022 included a California law change, an intercompany intellectual property sale, and the establishment of a valuation allowance for our New Zealand subsidiaries in the first quarter of 2022.

Liquidity and Capital Resources

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

Our primary use of liquidity has been acquisitions of businesses.

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

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

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

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

To date, our primary sources of liquidity have been net cash provided by operating activities, proceeds from equity issuances and long-term debt.

Our primary use of liquidity through 2021 was primarily associated with acquisitions of businesses.

Subsequent to 2021, we have utilized liquidity for items such as strategic investments in the ongoing transformation of our business and infrastructure, our recent business acquisition of Kickserv and share repurchases authorized through our Repurchase Program.

For a description of our recent acquisitions, see Note 3.

Acquisitions in the notes to the consolidated financial statements included in this Annual Report on Form 10-K.

Absent significant deterioration of market conditions, we expect that working capital requirements, capital expenditures,

acquisitions, the Company’s Repurchase Program (as defined below), debt servicing and lease obligations will be our principal needs for liquidity going forward.

As of December 31, 2023, we had cash, cash equivalents and restricted cash of $96.2 million, $190.0 million of available borrowing capacity under our Revolver (as defined below) and $537.6 million outstanding under our Term Loans (as defined below).

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

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

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

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See Part I, Item 1A .“Risk Factors.”

Initial Public Offering

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

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

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

Private Placement

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

The following table sets forth cash flow data:

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Net cash used in investing activities (38,020) (18,080)

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

Net cash used in financing activities

(66,630) (47,309)

Effect of foreign currency exchange rate changes on cash 400 (1,148)

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

Net increase (decrease) in cash, cash equivalents and restricted cash

$ 355 $ (1,735)

Cash Flow from Operating Activities

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

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

The increase in cash provided for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to higher cash collections from our subscription and transaction fees and marketing technology solutions, which includes revenues from payment processing of approximately $62.3 million, partially offset by higher interest payments of $15.1 million, costs directly related to the delivery of our services and products of $12.4 million, and higher investments made to support the growth of our business including personnel expenses of $2.7 million.

Cash Flow from Investing Activities

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

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

The remainder was for purchases of property and equipment.

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

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

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

During the year ended December 31, 2023, net cash used in investing activities of $38.0 million was related primarily to costs to develop software of $20.0 million, the acquisition of Kickserv, net of cash acquired, for approximately $15.0 million and $3.0 million for purchases of property and equipment.

During the year ended December 31, 2022, net cash used in investing activities of $18.1 million was related primarily to costs to develop software of $15.5 million and $2.6 million for purchases of property and equipment.

Cash Flow from Financing Activities

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

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

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

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

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

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

During the year ended December 31, 2023, net cash used in financing activities of $66.6 million was related primarily to the repurchase and retirement of shares of our common stock of $67.3 million.

During the year ended December 31, 2022, net cash used in financing activities of $47.3 million was related primarily to the repurchase and retirement of shares of our common stock of $43.0 million and $9.5 million for payments on long-term debt, partially offset by net proceeds from common stock issuances of $5.2 million.

For additional information regarding our repurchase and retirement of shares of our common stock, refer to Note 11.

Equity in the notes to the consolidated financial statements included in this Annual Report on Form 10-K.

Credit Facilities

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

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

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

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

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

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

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

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

We are party to a credit agreement, as amended, that provides for two term loans for an aggregate principal amount of $550.0 million (“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.

These debt arrangements are collectively referred to herein as the “Credit Facilities”.

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

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

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

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

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

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

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

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

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

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

Prior to July 1, 2023, borrowings under the Credit Facilities were available as ABR or Eurocurrency borrowings.

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

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

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

With respect to Eurocurrency borrowings, interest payments are due on the

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

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

Effective as of July 1, 2023, borrowings under the Credit Facilities bear interest at the Company’s option at ABR plus an applicable rate, or at a forward-looking term rate based upon the secured overnight financing rate (“SOFR”), plus (i) (a) with respect to Term Loans, credit spread adjustments of 0.11448%, 0.26161%, 0.42826% and 0.71513% for interest periods of one, three, six and twelve months, respectively, and (b) with respect to revolving loans, a credit spread adjustment of 0.0% (“Adjusted SOFR”) plus (ii) an applicable rate, in each case with such applicable rate based on the Company’s first lien net leverage ratio.

The ABR represents the highest of the prime rate, Federal Reserve Bank of New York rate plus ½ of 1%, and the Adjusted SOFR for a one month interest period plus 1%.

The applicable rate for the Term Loans and the Revolver was 3.0% for Adjusted SOFR borrowings and 2.0% for ABR borrowings, in each case subject to change based on our first lien net leverage ratio.

Effective October 31, 2022, we 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 floating rate component of the Term Loans from a floating rate to a fixed rate (the “Initial Swap”).

The Initial Swap has a term of five years with a fixed rate in the agreement of 4.212% as amended in June 2023.

Additionally, effective March 31, 2023, the Company entered into a second interest rate swap agreement in connection with our Credit Facilities for a notional amount of $100.0 million to convert a portion of the floating rate component of the Term Loans from a floating rate to a fixed rate (the “Second Swap”).

The Second Swap has a term of approximately 4.5 years with a fixed rate in the agreement of 3.951%, as amended in June 2023.

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

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As of December 31, 2023, there was $537.6 million outstanding under our Credit Facilities, all of which was related to the Term Loans as no amounts were outstanding under the Revolver.

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

The effective interest rate on the Term Loans was approximately 8.5% for the year ended December 31, 2023, excluding the effect of any interest rate swap agreements.

As of December 31, 2023, we were in compliance with the covenants under the Credit Facilities.

Stock Repurchase Program

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

On June 14, 2022, our Board approved a stock repurchase program (as subsequently amended, 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 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.

On November 5, 2023, our Board approved an additional expansion of the Repurchase Program with authorization to purchase up to an additional $50.0 million in shares of the Company’s common stock (from $100.0 million to $150.0 million in total) and extended the expiration of the Repurchase Program through December 31, 2024.

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.

This Repurchase 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.

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

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

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

The Company repurchased and retired 6.9 million shares of common stock for $67.6 million, including transaction fees and taxes, during the year ended December 31, 2023.

As of December 31, 2023, $40.0 million remains available under the Repurchase Program.

Contractual Obligations

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

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

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

Refer to Notes 9.

Long-Term Debt and 17.

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

Critical Accounting Estimates

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GAAP requires us 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.

While our significant accounting policies are described in further detail in Note 2 in the notes to the consolidated financial statements included in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

While our significant accounting policies are described in further detail in Note 2.

Summary of Significant Accounting Policies in the notes to the consolidated financial statements included in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

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

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

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

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

There have not been any material changes during 2023 in the underlying estimates and assumptions in determining probability of variable consideration.

Subscription and Transaction Fees:

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The timing of revenue recognition within our software subscription services is dictated by the nature of the underlying performance obligation.

Our SaaS offerings and license support services are generally recognized ratably over the contractual period that the services are delivered, beginning on the date our service is made available to customers.

Revenues generated from the sale of on-premise perpetual or term licenses are generally recognized at the point in time when the software is made available to the customer to download or use.

SaaS offerings and license support services are generally recognized ratably over the contractual period that the services are delivered, beginning on the date our service is made available to customers, while on-premise perpetual or term licenses are generally recognized at the point in time when the software is made available to the customer to download or use.

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

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In fulfillment of our payment processing services, we partner with third-party merchants and processors who assist us in fulfillment of our obligations to customers.

We have concluded that we do not possess the ability to control the underlying services provided by third parties in the fulfillment of our obligations to customers and therefore recognize revenue net of interchange fees retained by the card issuing financial institutions and fees charged by payment networks.

and fees charged by payment networks.

Transaction services contracts with customers are generally for a term of one month and automatically renew each month.

We also receive rebates from contracted suppliers in exchange for our 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.

Rebates earned are based on a defined percentage of the purchase price of goods and services sold to members.

Administration services contracts with customers are generally for an annual or monthly term and renew automatically upon lapse of the current term.

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Professional service revenue is recognized over time as the services are performed, as the customer simultaneously receives and consumes the benefit of these services.

Hardware revenue is recognized at a point-in time and consists of equipment that supports or enables our products or services within subscription and transaction fees offerings.

Performance Obligations and Standalone Selling Price:

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

Business Combinations, Goodwill and Intangible Assets

Our acquisitions have been accounted for under the acquisition method.

Net assets and results of operations are included in our financial statements commencing at the respective acquisition dates.

We allocate the fair value of the purchase consideration of our acquisitions to the tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recognized as goodwill.

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

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

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

Changes in these assumptions could affect the carrying value of these assets.

Goodwill and Intangible Assets Recoverability

We perform an impairment test annually in the fourth quarter or whenever events or changes in circumstances indicate that the carrying value of goodwill might not be fully recoverable.

In accordance with applicable accounting guidance, a company can assess qualitative factors to determine whether it is necessary to perform a goodwill impairment test.

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

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

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

In accordance with applicable accounting guidance, a company can assess qualitative factors to determine whether it is necessary to perform a goodwill impairment test or may elect to proceed directly to a quantitative goodwill impairment test.

The Company performed a quantitative annual impairment assessment for the year ended December 31, 2023 and a qualitative assessment for the previously reported periods, each of which resulted in substantial excess of estimated fair value over net carrying value for each reporting unit.

For the quantitative assessment, we use a weighted combination of a discounted cash flow model (known as the income approach) and comparisons to publicly traded companies engaged in similar businesses (known as the market approach).

The income approach requires us to use a number of assumptions, including market factors specific to the business, the amount and timing of estimated future cash flows over an extended period of time, long-term growth rates for the business and a rate of return that considers the relative risk of achieving the cash flows and the time value of money.

As part of the market approach, we make judgments about the comparability of publicly traded companies engaged in similar businesses.

and changes in our stock price.

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

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

Subsequent Event included in this Annual Report on Form 10-K ) of which $3.1 million was attributable to intangible assets.

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

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

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

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

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

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

Stock-Based Compensation

All stock-based compensation, including grants of common stock options and restricted stock, are valued at fair value on the date of grant.

We use the Black-Scholes option-pricing model to estimate the fair value of common stock options granted with time-based vesting.

The following inputs are considered in estimating the fair value:

Risk-free interest rate:

The risk-free rate is based on observed interest rates appropriate for the terms of our awards.

Dividend yield:

The dividend yield is based on history and the expectation of paying no dividends.

Expected term:

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, given our limited stock option exercise data.

Once we have sufficient option exercise data we will calculate the expected term based on our history of option exercises.

Expected volatility:

We do not have a sufficient history of market prices of our common stock, and as such volatility is estimated, using historical volatilities of comparable public entities.

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

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

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

Recent Accounting Pronouncements

See Note 2 in the notes to the consolidated financial statements included in this Annual Report on Form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.

Summary of Significant Accounting Policies in the notes to the consolidated financial statements included in this Annual Report on Form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.

Election Under the Jumpstart Our Business Startups Act of 2012

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What changed 10-K

Item 7. Management’s Discussion and Analysis