EngageSmart(ESMT) - 2023 Q3 - Quarterly Report

Customer Metrics - As of September 30, 2023, the company serves approximately 116,221 customers in the SMB Solutions segment and approximately 3,406 customers in the Enterprise Solutions segment, totaling 119,627 customers, a 22.3% increase from 97,796 customers in the same period of 2022[108]. Revenue Breakdown - For the nine months ended September 30, 2023, the SMB Solutions segment generated 56% of total revenue, while the Enterprise Solutions segment generated 44%[100]. - The company’s revenue model primarily consists of subscription revenue and transaction-based revenue, with a significant portion derived from transaction and usage-based revenue in the Enterprise Solutions segment[101]. Transaction Volume - The company processed 42.5 million transactions in Q3 2023, up from 37.5 million in Q3 2022, representing a 13.3% increase; for the nine months ended September 30, 2023, transactions processed totaled 128.9 million, compared to 107.9 million in the same period of 2022, a 19.4% increase[110]. Financial Performance - Adjusted EBITDA for Q3 2023 was $18,847,000, compared to $13,222,000 in Q3 2022, reflecting a 42.5% increase; for the nine months ended September 30, 2023, Adjusted EBITDA was $55,548,000, up from $35,744,000 in the same period of 2022, a 55.5% increase[112]. - The company's net income margin improved to 11.8% in Q3 2023 from 8.6% in Q3 2022, while the Adjusted EBITDA Margin increased to 19.3% from 16.8% in the same period[112]. - Net income for Q3 2023 was $11,530,000, a 70.3% increase from $6,770,000 in Q3 2022[131]. - Revenue for Q3 2023 was $97,732,000, representing a 24.0% increase compared to $78,796,000 in Q3 2022[131]. - Gross profit for Q3 2023 was $75,911,000, a 26.6% increase from $59,951,000 in Q3 2022, with a gross margin of 77.7%[131]. Operating Expenses - Total operating expenses for Q3 2023 were $61,594,000, an increase of 11.5% from $55,233,000 in Q3 2022[131]. - Research and development expenses increased by 37.8% to $17,889,000 in Q3 2023 from $12,978,000 in Q3 2022[131]. - Selling and marketing expenses rose by 29.7% to $33,596,000 in Q3 2023 compared to $25,906,000 in Q3 2022[131]. - General and administrative expenses rose by $4.2 million for the three months ended September 30, 2023, primarily due to a $2.5 million increase in professional and consulting-related expenses[137]. Strategic Moves - The company entered into a Merger Agreement on October 23, 2023, with Icefall Parent, LLC, indicating a strategic move for future growth[102]. - The company divested the HealthPay24 solution on August 2, 2023, which previously contributed to the Enterprise Solutions segment, impacting customer counts and revenue streams[98]. - Gain on sale of business was $10.5 million during the three and nine months ended September 30, 2023, related to the divestiture of the HealthPay24 solution[144]. Cash Flow and Liquidity - As of September 30, 2023, the company had cash and cash equivalents of $366.0 million, expected to meet working capital and capital expenditure needs for at least the next 12 months[160]. - Net cash provided by operating activities increased by $8.3 million to $42.4 million for the nine months ended September 30, 2023, compared to $34.1 million in 2022[165]. - Cash provided by investing activities was $11.2 million for the nine months ended September 30, 2023, driven by $30.0 million from the divestiture of HealthPay24, offset by $11.8 million for the acquisition of Luminello, Inc.[166]. - The company entered into a revolving credit agreement allowing borrowing up to $75.0 million, with $2.1 million utilized as of September 30, 2023, reducing borrowing capacity to $72.9 million[161]. - The company may need to seek additional equity or debt financing if current liquidity sources are insufficient, which could lead to dilution for stockholders[162]. Market Conditions - The company operates in an environment of economic uncertainty and inflationary pressure, but inflation did not materially impact results during the nine months ended September 30, 2023[103]. - There have been no material changes in market risk exposure as described in the 2022 Form 10-K[177]. Compliance and Reporting - The company expects to qualify as a large accelerated filer as of December 31, 2023, and will no longer qualify as an emerging growth company[175]. - The company remains in compliance with all financial covenants under the 2021 Revolving Credit Facility as of September 30, 2023[161].