EverCommerce - Q4 2022
March 15, 2023
Transcript
Operator (participant)
Thank you for standing by, and welcome to EverCommerce's fiscal year 2022 fourth quarter earnings call. My name is Sarah, and I will be your operator for today. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. As a reminder, this conference call is being recorded today, Wednesday, March 15th, 2023. I would now like to turn the conference over to Brad Korch, SVP and Head of Investor Relations for EverCommerce. Please go ahead.
Brad Korch (SVP of Finance and Head of Investor Relations)
Good afternoon, and thank you for joining. Today's call will be led by Eric Remer, EverCommerce's Chairman and Chief Executive Officer, and Marc Thompson, EverCommerce's Chief Financial Officer. Joining them for the Q&A portion of the call is EverCommerce's President, Matt Feierstein. This call is being webcast with a slide presentation that reviews the key financial and operating results for the three months ended December 31, 2022. For a link to the live or replay webcast, please visit the investor relations section of the EverCommerce website, www.evercommerce.com. The slide presentation and earnings release are also directly available on the site. Please turn to page two of our earnings call presentation while I review our safe harbor statement. Statements made on this call and contained in the earnings materials available on our website that are not historical in nature may constitute forward-looking statements.
Such statements are based on the current expectations and beliefs of management. Actual results may differ materially from these forward-looking statements due to risks and uncertainties that are described in more detail in our filings with the SEC. We undertake no obligation to publicly update or revise these forward-looking statements except as required by law. We will also refer to certain non-GAAP financial measures to provide additional information to you, our investors. A reconciliation of non-GAAP to GAAP historical measures is provided in both our earnings press release and our earnings call presentation. I will now turn the presentation over to our CEO, Eric Remer.
Eric Remer (Chairman and CEO)
Thank you, Brad. On today's call, I will highlight fourth quarter results and discuss key customer trends and metrics before turning the call over to Mark to dive deeper into our financials. EverCommerce finished the year strong, beating the top end of the fourth quarter guidance for both revenue and adjusted EBITDA. For the quarter, our reported year-over-year revenue growth was 19%, Normalizing for the effects of M&A, our pro forma revenue growth was 14% for the quarter. For 2022, our year-over-year pro forma revenue growth was 16%. We continue to operate the business balancing growth with profitability. For the fourth quarter, our adjusted EBITDA and adjusted unlevered free cash flow margins were higher than previous quarters at approximately 22% and 16% respectively.
For the full year, adjusted EBITDA margins were 19%, while adjusted unlevered free cash flow margins were 14%. Customer and payments growth are a key part of our business strategy. Our total payments volume or TPV grew 90% year-over-year. We continue to see increased uptake of payments processing within our core vertical system of action. Our annualized net revenue retention, or NRR, was also steady at 100% in the quarter. EverCommerce provides vertically tailored end-to-end SaaS solutions that support the highly diverse workflows and customer actions that professionals in home services, health services, and fitness and wellness services use to automate manual processes, generate new business, and create more loyal customers. At the core, we provide system of action software across many micro verticals.
This is the ERP for these smaller vertical service-based businesses and the way in which our customers generate new business, fulfill services, manage day-to-day operations, and engage with their customers. Our vertical software solutions not only provide the system of action necessary to run their daily business processes, but also the marketing solutions to attract new business, the billing and payment solutions to collect effortlessly, and the customer experience solutions to create predictable and convenient experiences. Our business thrives through two motions: acquiring new customers and expanding our revenue base with existing customers by selling more seats, more features, and cross-selling other solutions like embedded payments. We ended the year serving approximately 690,000 customers across our many diverse verticals and sub-verticals. We acquire customers with strong economics as the overwhelming majority of our customers acquire digitally.
Our large customer base represents an incredible opportunity for continued expansion of cross-sell, upsell of our solutions. Over the past year, the average ARPU at the solution level grew approximately 8% year-over-year. One of the biggest drivers for ARPU expansion is our land expand motion of selling core system of action software to our customers and then upselling them new features and cross-selling them new capabilities such as payments and customer engagement solutions. We measure our cross-sell progress by looking at the growth in the number of customers that are taking more than one solution. We ended the quarter with more than 71,000 of our customers using more than one solution, a 29% increase year-over-year. Embedded payments is our most accretive add-on solution, representing the lion's share of our cross-sell activity today. We measure and report our payments ecosystem growth through TPV.
We ended the quarter with an annualized TPV of approximately $10.9 billion, which represents 19% year-over-year growth. We expect TPV to grow as we continue to embed our payment solutions into our core systems of action. Our priorities for 2023 underscore our focus of providing premier systems of action software across many verticals, embedding payments, and adding ancillary services that promote our customers' successes. We often discuss our TAM with you, in doing so, we've cited a greater than $500 billion opportunity in the U.S. and over $1.3 trillion opportunity globally. With nearly 690,000 customers currently using our software and solutions. We have a tremendous opportunity right in front of us to provide more value and sell additional services to existing customers.
We are prioritizing our investments towards our best opportunities to achieve our growth objectives, and at the top of this list is driving adoption of embedded payments. Embedded payments not only drive continued organic growth, but also provide better customer economics as customers who have embedded payments yield higher ARPU and improved retention. Entering 2023, we're expanding our EverCommerce Payments team to accelerate payments adoption across our solution set. To do so, we are taking steps to improve the seamless onboarding of payments capabilities for our customers, and later in the year, we'll be introducing new capabilities. Recognizing the environment we're in, we'll be even more deliberate on price. Our pricing philosophy at EverCommerce has been to price to value. That is, increment price over time as new features are added and the customer value proposition is enhanced.
In 2023, we will keep this philosophy at our core, but we'll be pressing harder on the price lever where appropriate. We're also doubling down on the notion of balancing growth and profitability by institutionalizing a disciplined focus on cost controls, particularly in the areas of people costs, general administrative spend, and sales and marketing costs. We continue to target 20% EBITDA margins with an eye towards operating leverage-driven margin expansion beyond 2023. Finally, we will continue to optimize our solution and product mix, including utilizing M&A where appropriate to add capabilities in targeted market verticals and compound consistent organic growth. Now I'll pass it over to Marc, who'll review our financial results in more detail, as well as provide guidance to the first quarter and the full year 2023.
Marc Thompson (CFO)
Thanks, Eric. Total revenue in the fourth quarter was $161.8 million, up 19.3% from the prior year period. Within total revenue, subscription and transaction fees were $121.6 million, up 22% from the prior year period, and marketing technology solutions were $33.3 million, up 13.5% from the prior year period. For the full year, revenue was $620.7 million, up 26.6% on a reported basis. We manage our business for sustainable organic growth and selectively utilize strategic acquisitions to augment this growth. As a result, we believe it's important for investors to evaluate our business growth on a pro forma basis, which is how we measure and manage the business internally.
We calculate our pro forma revenue growth 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, including before the time we completed the acquisition. We believe the pro forma growth rate provides the best insight into the underlying growth dynamics of our business. Our year-over-year pro forma growth rate for the fourth quarter was approximately 14.2%, while our year-over-year 2022 pro forma growth rate was approximately 15.6%. Fourth quarter adjusted EBITDA was $35.2 million, representing a 21.7% margin, while full year 2022 adjusted EBITDA was $119 million, representing a 19.2% margin.
During the fourth quarter, we took several actions, including the implementation of a temporary hiring freeze, to tightly manage costs and deliver against our profitability objectives. In 2023, we plan to continue disciplined active management of our operating expenses as we look to drive profitability and cash flow generation. Adjusted gross profit in the quarter was $107.9 million, representing an adjusted gross margin of 66.7%. Full year 2022 adjusted gross profit was $403.4 million, representing an adjusted gross margin of 65%. Adjusted gross profit is seasonally strongest in the fourth quarter, while seasonally weakest in the first quarter. Turning to operating expenses. Adjusted sales and marketing expenses were $27.9 million, or 17.2% of revenue, down from 18.5% of revenue in the prior year period.
This was driven largely by managing growth investments while working to meet our profitability objectives during the quarter. Adjusted product development costs were $17.5 million or 10.8% of revenue, roughly flat compared to 10.5% of revenue reported in the prior year period. Adjusted G&A expense was $27.8 million or 17.2% of revenue, down from 17.8% of revenue in the prior year period. This was also driven by disciplined spend management during the quarter. We continue to generate significant free cash flow as we invest to grow our business. Our adjusted unlevered free cash flow for the quarter was $26.1 million, representing 17.4% year-over-year growth and a 16.1% margin. For the full year, our adjusted unlevered free cash flow was $85.3 million.
Levered free cash flow, which accounts not only for debt service, but also various working capital adjustments, was $22.7 million in the quarter. For the full year, levered free cash flow of $46.7 million underscores our balance sheet flexibility. This balance sheet flexibility provides optionality as we look to efficiently allocate capital in our business. Our strong free cash flow generation allows us to operate our business with an optimal capital structure that includes modest levels of leverage, which allows us to deliver enhanced equity returns to our shareholders. In the fourth quarter, we repurchased 2.9 million shares for a total cash consideration of $21 million.
During the full year 2022, we repurchased approximately 5 million shares for $43 million, leaving us a remaining authorization of $57 million approved through year-end 2023. We ended the quarter with $93 million in cash and cash equivalents. We maintain $190 million of undrawn capacity on our revolver. Our debt is a combination of floating and fixed rate. Total net leverage is calculated per our credit facility at the end of the quarter was approximately 3.5 times, consistent with our financial policy. We have no material maturities until 2028. As I'm sure we'll get the question in Q&A, let me comment briefly on our relationship with Silicon Valley Bank.
EverCommerce has accounts at SVB, based on our diversified account structure, our relationships with other global banking partners, and the fact that we generate excess cash from operations and have substantial access to capital, we did not expect the potential failure of SVB to disrupt our business operations, and it hasn't. Today, we have full access to our balances that were held at SVB, and we've already transferred the majority of these deposits to other large banks. I'd like to finish by providing our outlook beginning with the first quarter. For Q1, we expect total revenue of $157 million-$160 million, and we expect adjusted EBITDA of $27 million-$29 million. Our full year 2023 guidance is $680 million-$700 million for revenue and $134 million-$142 million for adjusted EBITDA.
Our first quarter guidance reflects the seasonality inherent in our business, which can be summarized by seasonally slower growth and lower margins in the first quarter, seasonally higher growth in the warmer months, and seasonally higher margins in the fourth quarter. Our 2023 outlook does not include any potential impact of M&A activity that could take place. In summary, we're very pleased with our fourth quarter financial results. We executed well and delivered top-line growth that exceeded our most recent guidance, while also tightly managing our cost base to deliver better than expected profitability. Looking ahead, we believe the core of our business, vertical SaaS solutions and embedded payments, is quite resilient.
We intend to focus on both investing in the areas of our business that will produce the best growth and returns, but also double down on optimizing our operations and managing costs in order to balance this growth with profitability. We believe EverCommerce is well-positioned to be a primary beneficiary of the digital transformation that is just getting underway amongst service SMB companies. Our continuing focus is to execute our strategic priorities and deliver consistent, profitable growth that we believe can generate significant value for our shareholders. Operator, we're now ready to begin the question-and-answer section of the call.
Operator (participant)
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from DJ Hynes with Canaccord. Please go ahead.
DJ Hynes (Managing Director and Software Lead Analyst)
Hey, guys. Thanks for taking the questions. Marc, I might have expected to see a bit more operating leverage in the 2023 guide, just kinda as an offset to slower growth. I mean, you highlighted cost controls. We haven't seen any recent M&A. Look, 20% EBITDA margins is very solid, but we're running below kinda 2021 levels, acknowledging now we have public company costs and all that sort of stuff. Maybe just touch on kinda the puts and takes of the margin guide, and if we end up seeing faster growth, is it right to think that a lot of that upside would flow through to the bottom line?
Marc Thompson (CFO)
Yeah. Thanks for the question, DJ. I think, you know, first of all, just comparing the year 22 versus 21, remember there are a couple things going on there. One is 21 didn't include a full year of public company costs, and 22 actually included DrChrono, which as we described, lost $4 million-$5 million in 21, so we were transitioning that in 22. That just is a little bit of a level set. I do believe that we baked in a lot of the investments we need to make certainly around being a public company and a lot of investments in scalable operations, such that what you just described should be true.
Obviously, you know, we're trying to be prudent in the way that we guide, given the continuing environment that we're seeing, but we absolutely believe that we wanna be in front of our cost structure to make sure that we can drive that kinda drop through that you're describing.
DJ Hynes (Managing Director and Software Lead Analyst)
Yeah. Make, makes sense. The second question is just around net revenue retention, right? When you guys went public, I think NRR was in that 90%-95% range. Since then, we've seen really nice improvement, right? I think we're kinda plus or minus 100%, which is great. That said, you know, with the marketing business turning against you guys a little bit, I'm surprised we haven't seen any degradation in NRR. I guess the question is, like, has there been success elsewhere with cross-sell that's maybe being underappreciated given the headwinds in marketing? Maybe just help me understand kinda how you're keeping, you know, NRR whole at 100%.
Marc Thompson (CFO)
Yeah. Yeah. Can you hear me all right?
DJ Hynes (Managing Director and Software Lead Analyst)
Yeah, we got you.
Marc Thompson (CFO)
You highlighted other areas of the business where cross-sell is performing, as you can see. From our continued focus on payments and the results in payments cross-sell is clearly a place where that expansion of the customer base is certainly buoying NRR from that perspective. Obviously, upsell continues to be a strong motion in the business that also buoys NRR as well. Yeah, certainly in the past there may have been some drag from some of that Martech slowness in the past, but we feel really good about the parts of the business that are driving that up from a customer expansion standpoint.
DJ Hynes (Managing Director and Software Lead Analyst)
Got it. Helpful color. Thank you, guys.
Marc Thompson (CFO)
Thanks, DJ.
Operator (participant)
Our next question comes from Samad Samana with Jefferies. Please go ahead.
Samad Samana (Managing Director)
Hey, guys. This is Jeremy on for Samad. Thanks for taking my questions. First on the customer account growth from 12%, you know, that's down from 20% last year. I guess, what should we kind of expect in terms of net adds going forward? I guess which of your three verticals are you seeing most of these net adds coming from? If you can just provide some color there.
Eric Remer (Chairman and CEO)
As for the growth, we'll talk about the verticals.
Marc Thompson (CFO)
Yeah. You know, again, I think as we've discussed in the past from an organic growth lever standpoint, obviously customer growth, you know, one big growth lever, then obviously ARPU expansion, the other big growth lever. You know, nice expansion from an ARPU standpoint. Obviously, customer growth decelled a little bit from the prior year. As you probably see in some of our marketing expense in 2022, we did pull back on that as we navigated really the unknowns of the turbulent economic environment. That, you know, going forward, we still expect it to be a significant part of that lever, or of our growth lever. You know, we continue to expect that to run in a healthy range of where it has been in the past from that perspective.
Eric Remer (Chairman and CEO)
Just the second part of the question. Thank you for the question. The home field services, which still represents, you know, more than half our business, continues to operate at the fastest growth levels, and we continue to see that. Health services, which are our second-largest vertical, is our second fastest-growing vertical. Then our fitness and wellness, which is really distinctly broken up into kind of the fitness and then the salons and spas. Salons and spas are doing great. Fitness, in general, this is not necessarily specifically to EverCommerce, they just have not fully recovered from the pre-COVID levels. That particular category remains, you know, remains relatively flat to pre-COVID levels versus the growth we're getting from the other verticals.
Fortunately, that's our smallest vertical, so it doesn't have the biggest impact. That, in terms of the verticals, in terms of how we look at them, you know, that kind of breakout.
Samad Samana (Managing Director)
Got it. Thank you. That's helpful color. On the M&A front, I guess, what are you guys seeing in terms of private valuations, and I guess, in terms of, you know, what are your priorities for M&A going forward?
Eric Remer (Chairman and CEO)
Yeah. You know, the priorities remain the same. You know, be diligent and find opportunities that we think are gonna add value to the overall ecosystem of EverCommerce and provide more value to our customers. I feel like I'm kind of a broken record over the last, you know, several quarters. The, you know, dislocation between valuation in the private and public markets remains. Private market valuations remain, kind of very healthy. Really never took the kind of downward stream that some of the either public or, you know, larger public comps have taken. You know, we've looked at a lot of things. There's been a few things that have been interesting, but for both fit or potential value, didn't make sense for us at this point.
Samad Samana (Managing Director)
That's helpful. Thanks for taking the question, guys.
Operator (participant)
Our next question comes from Bhavin Shah with Deutsche Bank. Please go ahead.
Bhavin Shah (Director of Software Equity Research)
Great. Thanks for taking my question. I guess, Eric, just at a high level, just from a demand environment perspective, can you maybe just a little bit more elaborate on what you saw during four Q and maybe what you're seeing at the end of the year in terms of the macro? Is it still mostly impacting the marketing side of the business, or are you seeing some of that spill over on the subscription side?
Eric Remer (Chairman and CEO)
Really on the, on the marketing side of the business. You know, I would say that has really flattened out in terms of the pullback we saw in Q3, really kind of re-leveled set. That has kind of continued through Q4 and our expectation through Q1 and beyond. It hasn't necessarily degraded worse than we had thought at the kind of, you know, Q3 time period. The other core verticals are, you know, we have not seen kind of a degradation in acquisition, you know, or acquisition metrics at this point. I think we're, you know.
The marketplace that we're in, I think it sometimes gets lost, big picture, that we have almost 700,000 customers across a lot of different verticals. We see a continued opportunity to grow in all the core verticals that we're in.
Bhavin Shah (Director of Software Equity Research)
Just maybe a little bit on the payment side, clearly a priority for 2023. It sounds like there's more innovation to come. Just from a go-to-market perspective, like, where is the lowest hanging fruit where you can go after? What kind of customers are easiest to maybe move over to your payments platform?
Eric Remer (Chairman and CEO)
The core focus, I'll let Matt take this also. Again, getting back to the home field service category, that has been kind of a, you know, a sweet spot for us. Embedding that into some of our core system of action softwares, making that a part of the sales process when new customers come on, and then converting customers, you know, after the fact. As we talk about quite a bit, as we talk about the, you know, less than just over 10% of our customers are taking more than one solution. That number continues to, you know, the numerator continues to grow on that. We will be focused on continually selling those into those areas. We're also seeing a lot of opportunities in our EverWell. The salon spa space is a big opportunity to provide payments.
We have the leading salon software in New Zealand, Australia, with operations in UK as well, and we're rolling out a major payment program throughout their customer base. We see the opportunities in the areas you would think, where there's a demand, an obvious kind of payment as part of the interaction with the customer. Anything to add to that?
Matt Feierstein (President)
Yeah. And I think you hit those points well, Eric. I think, you know, again, from a strategy standpoint, really optimizing our marketing and sales motion and product packaging to drive more new adoption of the embedded payments, and then deepening the integration and the payment workflow capabilities in those systems of action softwares to really drive more payment wallet share from those customers. Those strategies are tried and true, and we need to continue to execute those.
Bhavin Shah (Director of Software Equity Research)
Super helpful. Thanks again. Just last one, quick one from Marc. Can you just talk about what's embedded from a macro perspective in terms of guidance? That's all for me. Thanks.
Marc Thompson (CFO)
I think the trends that we saw coming out, you know, into the second half, I mean, that's certainly reflected forward. As Eric said, we really haven't seen a change there. That's really all that's in there, Bob.
Eric Remer (Chairman and CEO)
Yeah. We're not expecting things to get better. We're really kind of expecting things to, at this point, maintain themselves.
Operator (participant)
Our next question comes from Brad Reback with Stifel. Please go ahead.
Brad Reback (Managing Director)
Great. Thanks very much. Eric, you'd mentioned being deliberate on price. Can you help us understand that?
Eric Remer (Chairman and CEO)
Yeah. You know, we've, you know, we have a lot of solutions in a lot of different verticals, and as you can imagine, some are, you know, on the lower end of the market. We've been, you know, always, you know, priced to value. As we add more value, we add additional price. With increased inflation and costs that are, you know, definitely absorbed through some of our vendors, we've been more proactive in realizing where those opportunities exist. When you look in the models and you kind of see how, you know, Q1 in general, that's just, if you look at last year, it's just always our, you know, seasonally low quarter.
Part of the growth throughout the year, a lot of the growth, a good portion of both growth is built in with price increases. We have some price increases that are, you know, due, and both the value they're providing and just, you know, a little bit uptick on some inflation costs as well. Very confident in some of the kind of pricing that we're gonna put into the market based upon the continued value we're providing to our customers.
Brad Reback (Managing Director)
On that latter point, the fact that the guide includes some price increases, the midpoint, you're at 10%, which is somewhat below sort of that mid-teens long-term target that you've laid out there. What are the takes on that or the puts? You know, why are we 500 basis points below with a price increase?
Eric Remer (Chairman and CEO)
Yeah. I think the midpoint would put us pretty close to 12%, not 10%, but it's still, you know, below the kind of mid-teen standpoint. I think the two pieces of that puzzle is, number one, we're just being prudent. You know, we just asked about what's built into the model. What's built in the model is continued general softness in the marketplace. you know, we wanna make sure that we, you know, put a guide out that we feel very comfortable with and very confident in our ability to achieve. I think we're being prudent at this point in the marketplace.
With the unknowns macro that what may happen, we've built in both, you know, what we know is a softer base, the price increase that we're gonna put in there, and with some modest growth on new acquisition to allow us to achieve what we're putting out there, which we think there's opportunity to continue to grow on that as well.
Brad Reback (Managing Director)
Excellent. Thanks very much.
Operator (participant)
Our next question comes from Alexander Sklar, Raymond James. Please go ahead.
Speaker 11
Hi. Thanks for taking the question. This is John on from Alex, and just one from us. Maybe to follow up on the logo question from earlier. Can you maybe speak to linearity of those results, throughout the year? Any notable differences quarter to quarter or maybe as you exited the year versus the beginning? That'd be... Thank you very much.
Marc Thompson (CFO)
Linearity, could you just expand on that a little bit? Linearity on the top line, bottom line?
Eric Remer (Chairman and CEO)
I think he's talking..
Marc Thompson (CFO)
Sorry.
Eric Remer (Chairman and CEO)
From a logo perspective.
Speaker 11
Speaking... Sorry, yes, logo perspective.
Marc Thompson (CFO)
Yeah. Customer acquisition, customer account growth. Yeah.
Eric Remer (Chairman and CEO)
Sorry.
Marc Thompson (CFO)
I think we as we've talked about in the past, there definitely is some seasonality in the business, Q4 with kind of hitting a lot of the peak of that from a detail standpoint. You know, we do see that. Then kind of following a lot of along with the financial seasonality, we see pickup back as we get into Q2 and Q3 being the stronger quarters from that perspective.
Speaker 11
Okay. Thanks very much.
Operator (participant)
Our next question comes from Kirk Materne with Evercore ISI. Please go ahead.
Peter Burkly (VP of Software Equity Research)
Hi, guys. This is actually Peter Burkly for Kirk. Appreciate you taking the questions, and congrats on a solid quarter here, despite the continued challenging macro. I kinda wanna turn back to the payments a little bit. You know, it sounds like everything's going pretty well there, and TPV growth is solid. I don't believe you guys have quantified the revenue impact at this stage. I'm just curious, in light of the commentary around how, you know, it's sort of a big piece in making up for some of the NRR weakness related to the marketing tech solutions. You know, as you look forward, is that payments opportunity, you know, does that ultimately outpace the size of the market for the marketing tech solutions?
you know, I guess just with a one or two-year view, you know, curious how you see payments as a, as a contributor to revenue.
Eric Remer (Chairman and CEO)
Well, I think payments, the reason we continue to iterate that and discuss it in our, you know, both in our call and we've done in several quarters past is we look at the $10.9 billion we're currently processing versus, you know, the close to almost a $100 billion opportunity that we have. We're at the very, very early stages of the opportunities, and we're building systems and infrastructure, as Matt talked about, creating products to make that a, you know, not a one-time uptick, but really an ongoing opportunity for us. So we think about, you know, ability to outpace. We don't necessarily look at it like that, but I do think on a general growth standpoint, sure, our payments will outpace our market technology from a growth standpoint.
We do believe Martech is solid, will continue to scale. The opportunity to scale payments even beyond where we've scaled it today, we think is a very long-term opportunity. The benefit of that, as that actually happens, the margin profile of both of those businesses are quite different. The stickiness of both. This is Eric Remer here. Again, I believe opportunity with a system of action, as we've showed, both on the slides and connected, increases ARPU, increases stickiness, increases ultimately NRR. We kind of feel very confident that that motion that we're pushing towards, not either/or, but really and, will provide more value going forward. Now to you, Matt.
Matt Feierstein (President)
No, to your point, massive runway opportunity in payments and the, you know, the change in unit economics of a system of action customer with embedded payments is such a potential difference maker from, you know, an ARPU standpoint and from a retention standpoint, that, you know, obviously that's why you can see we're over-indexing on investments there.
Peter Burkly (VP of Software Equity Research)
That's really helpful, guys. I appreciate that a lot. Maybe if I could just follow up with one other quick one. You know, you mentioned, you know, cost control sounds like it's gonna be a big focus if, you know, if the growth side remains under a little bit of pressure in the near term. You called out, you know, a little bit of a hiring freeze in 4Q. I'm just curious how you feel about your capacity today from a sales and marketing perspective and, you know, sort of how you see that trending over the course of the year.
Eric Remer (Chairman and CEO)
I think we have the infrastructure in place to manage the campaigns we want. When we look in terms of bringing things back based on certain economics, it's really some of our spend, and we have the ability, as we said before, to really, you know, bring that up or down based on the market conditions. I think our ability to kind of, you know, press that down as we see things, the markets increasing allows us to kind of, you know, move swiftly with the market. You know, you talked about our margins. When we went public, we talked about a long range version and that 25%-30% EBITDA margin. We still believe strongly in that increased operating leverage, you know, over the next several years.
Peter Burkly (VP of Software Equity Research)
Great. Thanks, Eric.
Eric Remer (Chairman and CEO)
Thank you very much for the question.
Operator (participant)
If you'd like to ask a question, please press Star then one. Our next question comes from Matt Hedberg with RBC Capital Markets. Please go ahead.
Matt Hedberg (Managing Director and Software Research Analyst)
From Matt Hedberg. Thanks for taking our question here. A follow-up to the payment questions and then, you know, very helpful discussion in the Q&A here on payments. In the prepared remarks, you talked about expanding the payment team to drive adoption. Maybe where is some of that plan focused? Is it more around, you know, integrations on the product side or simply expanding reach and coverage?
Eric Remer (Chairman and CEO)
Yeah. Thanks for the question. It's actually on both pieces of that puzzle. We are expanding the team to allow us to embed more places within our ecosystem, but also the actual expertise to make sure we're providing best practices at every touch point. As you can imagine, we have, you know, with the amount of customers we have, the amount of customers we're acquiring, and the touch points we have, it's really making sure that we're utilizing the experts that we have. Remember, one of our solutions, which was PaySimple, and now we kind of call it EverCommerce Payments, you know, we've been running that for, you know, 16, 17 plus years. We have a lot of expertise making sure we beef up that team with the leadership.
There's a great leadership of that organization to make sure that each of the solutions, that we embed our payments in, that we are integrating that in a way that is gonna provide the best value to the customer, the best workflow for the customer, and also the best ability for us to adopt that customer at the payment, you know, utilizing our payments. That's how we really focused our investment, both on the technology workflow side as well as both the just, you know, human capital expertise side to make sure we are providing the best solutions for our customers.
Matt Hedberg (Managing Director and Software Research Analyst)
That's great. Thanks.
Eric Remer (Chairman and CEO)
One thing to note on that. This kind dovetails your question with the question we just answered. It's important to note, you know, when we talk about why we think payments is so important, it always starts from our view from the customer standpoint. We think when that customer embeds payments, it's just so much more value for them. They collect payments faster, the customer's more valuable to us on an ongoing basis. When you think about the margin capabilities of upstream internally and how that increases our ARPU and ultimately our gross margins, payments run around 95% gross margins versus you talk about the marketing services, it's significantly less than that.
The opportunity for us to not only create bigger long-term customers, but also increase our gross margin over time is huge as we embed more of those payment solutions into our customers' workflow.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back over to Eric Remer for any closing remarks.
Eric Remer (Chairman and CEO)
Thank you so much. You know, just to kind of reiterate, you know, we're excited about how we the momentum we had to close in the year both beat our revenue and EBITDA top end of the guidance. You know, priorities going into next year is really as we continue to kind of harp on investing in both payments and cross-sell adoption to drive additional growth and retention. De-risking, you know, some of the growth plans with some of the price increases that we talked about earlier. As we focus on kind of going into, you know, 2023, we remain committed to simplifying and powering the lives of almost 700,000 customers by providing them really the best vertical software and solutions for their needs. Thank you very much for joining the call today.
Operator (participant)
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.