As filed with the U.S. Securities and Exchange Commission on November 15, 2021.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
EverCommerce Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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7389
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81-4063248
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer Identification No.)
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3601 Walnut Street, Suite 400
Denver, Colorado 80205
720-647-4948
(Address, including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Eric Remer
Chief Executive Officer
3601 Walnut Street, Suite 400
Denver, Colorado 80205
720-647-4948
(Name, address, including zip code, and telephone number, including area code, of agent
for service)
Copies to:
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Marc D. Jaffe
Benjamin J. Cohen
J. Ross McAloon
Latham & Watkins LLP
1271 Avenue of the Americas
New York, NY 10020
(212) 906-1200
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Lisa Storey
General Counsel
3601 Walnut Street,
Suite 400
Denver, Colorado 80205
(720) 647-4948
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Thomas Holden
Rachel Phillips
Ropes & Gray LLP
1211 Avenue of the Americas
New York, NY 10036
(212) 596-9000
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☒
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Smaller reporting company
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☐
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Emerging growth company
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☒
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If an emerging growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
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Title of each class of
securities to be registered
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Amount to be
registered(1)
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Proposed maximum
offering price per
share(2)
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Proposed maximum
aggregate
offering price(2)
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Amount of
registration fee
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Common stock, par value $0.00001 per share
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12,650,000
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$19.90
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$251,735,000
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$23,336
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(1)
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Includes 1,650,000 shares of common stock that are subject to the underwriters’ option to purchase additional shares of common stock.
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(2)
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Estimated solely for the purpose of calculating the registration fee. In accordance with Rule 457(c) under the Securities Act of 1933,
as amended, the price shown is the average of the high and low selling price of the common stock on November 12, 2021, as reported on the Nasdaq Global Select Market.
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The registrant hereby amends this Registration Statement
on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any
jurisdiction where the offer or sale is not permitted.
Subject to Completion. Dated November 15, 2021.
11,000,000 shares
Common Stock
We are offering 11,000,000 shares of our common stock.
Our common stock is listed on the Nasdaq Global Select Market under the
symbol “EVCM.” On November 12, 2021, the last reported sale price of our common stock as reported on the Nasdaq Global Select Market was $20.25 per share.
We are a “controlled company” within the meaning of the corporate
governance rules of The Nasdaq Stock Market.
We are an “emerging growth company” under the federal securities laws
and, as such, may elect to comply with certain reduced public reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”
See the section titled “Risk Factors” beginning on
page 16 to read about the factors you should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor
any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discounts and commissions(1)
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$
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$
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Proceeds, before expenses, to us
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$
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$
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(1)
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See “Underwriters” for a description of the compensation payable to the underwriters.
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We have granted the underwriters an option for a period of 30 days to
purchase up to 1,650,000 additional shares at the public offering price less underwriting discounts and commissions.
Delivery of the shares of common stock will be made on or about ,
2021.
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J.P. Morgan
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Goldman Sachs & Co. LLC
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RBC Capital Markets
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KKR
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Barclays
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Deutsche Bank
Securities
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Jefferies
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Evercore
ISI
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Oppenheimer & Co.
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Piper
Sandler
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Raymond
James
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Stifel
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Canaccord
Genuity
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Academy
Securities
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Loop Capital
Markets
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R. Seelaus
& Co., LLC
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Ramirez & Co.,
Inc.
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The date of this prospectus is , 2021.
Table of contents
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We and the underwriters have not authorized anyone to provide any information or to make
any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We and the underwriters do not take responsibility for, and can provide no
assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do
so. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock.
For investors outside the United States: We and the underwriters have not done anything
that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this
prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside the United States.
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Industry, market and other data
This prospectus contains estimates, projections and information concerning our industry,
our business and the market size and growth rates of the markets in which we participate. Some data and statistical and other information are based on independent reports from third parties, including from IDC, WebFX and Cisco, as well as
industry and general publications and research, surveys and studies conducted by third parties which we have not independently verified. Some data and statistical and other information are based on internal estimates and calculations that are
derived from publicly available information, research we conducted, internal surveys, our management’s knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable.
In each case, this information and data involves a number of assumptions and limitations,
and you are cautioned not to give undue weight to such information, estimates or projections. Industry publications and other reports we have obtained from independent parties may state that the data contained in these publications or other
reports have been obtained in good faith or from sources considered to be reliable, but they do not guarantee the accuracy or completeness of such data. In addition, projections, assumptions and estimates of the future performance of the
industry in which we operate and our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Special Note Regarding Forward-Looking
Statements.” These and other factors could cause our future performance to differ materially from the assumptions and estimates made by third parties and us.
Trademarks, trade names and service marks
EverCommerce, our logos and our other registered or common law trade names, trademarks or
service marks appearing in this prospectus are the property of EverCommerce Inc. This prospectus contains additional trade names, trademarks and service marks of other companies that are the property of their respective owners. We do not intend
our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies. Solely for convenience, our trade names, trademarks and service marks
referred to in this prospectus appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable
licensor to these trade names, trademarks and service marks.
Basis of presentation
Certain monetary amounts, percentages, and other figures included elsewhere in this
prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may
not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
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This summary highlights selected information contained in more
detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should carefully read this prospectus in its entirety before investing in our common
stock, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Special Note Regarding Forward-Looking Statements,” and our financial statements and the
accompanying notes thereto included elsewhere in this prospectus. Unless the context otherwise requires, the terms “we,” “us,” “our,” the “Company,” “EverCommerce” and similar references in this prospectus refer to EverCommerce Inc. and its
consolidated subsidiaries.
Overview
We aim to be the trusted partner of choice for the services economy by providing modern,
vertically-tailored software solutions that enable our customers to drive growth and new business opportunities, manage and scale their operations, and improve customer relationships.
EverCommerce is a leading provider of integrated, vertically-tailored
software-as-a-service (SaaS) solutions for service-based small- and medium-sized businesses, or service SMBs. Our platform spans across the full lifecycle of interactions between consumers and service professionals with vertical-specific
applications. Today, we serve over 500,000 customers across three core verticals: Home Services; Health Services; and Fitness & Wellness Services. 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 and 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.
Small- and medium-sized business, or SMBs, are an important engine for economic growth.
Collectively, SMBs represent the single largest employer and employee category in the U.S. economy, accounting for 99.9% of businesses in the United States, 47% of the U.S. private workforce and over 40% of U.S. GDP. The services sector is
the backbone of the U.S. economy, representing approximately 77% of U.S. GDP and 85% of U.S. employment. Service businesses are the largest segment of the SMB market, employing approximately 50 million people in the U.S. alone.
Today, service SMBs are accelerating their adoption of digital technologies to increase
growth, drive efficiencies, and enhance customer engagement. At the same time, their technology needs are becoming increasingly specialized as they adapt their businesses to better compete and align with evolving consumer preferences.
However, service SMBs typically lack available resources to invest in and support expensive enterprise technology solutions and often rely on little-to-no technology. When technology is used, it is often a fragmented set of point solutions
with insufficient integrated capabilities to support the complete service lifecycle.
Since inception, we have taken a differentiated approach from other software providers.
We recognize that different verticals require vertical-specific functionality, however all businesses require solutions that enable them to perform three key functions: (1) acquire new customers and generate new business opportunities; (2)
manage and scale business operations; and (3) improve and expand on customer relationships. We have built a comprehensive platform designed specifically to meet the unique end-to-end workflow needs of service SMBs. Our integrated solutions
include Business Management Software (such as route-based dispatching, medical practice management, and gym member management), Billing & Payment Solutions (such as e-invoicing, mobile payments, and integrated payment processing),
Customer Engagement Applications (such as reputation management and messaging solutions) and Marketing Technology Solutions (such as websites, hosting, and digital lead generation). These solutions help our customers address the challenges
posed by legacy solutions by providing software that addresses the complete customer engagement workflow, streamlining front- and back-office processes, driving new sales and retention, enabling deeper performance insights, and improving
customer experiences with mobile-friendly, consumer-facing applications.
We go to market with suites of solutions that are aligned to our three core verticals:
(1) the EverPro suite of solutions in Home Services; (2) the EverHealth suite of solutions within Health Services; and (3) the EverWell suite of solutions in Fitness &
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Wellness Services. Within each suite, our Business Management Software – the system
of action at the center of a service business’ operation – is typically the first solution adopted by a customer. This vertically-tailored point-of-entry provides us with an opportunity to cross-sell adjacent products, previously offered as
fragmented and disjointed point solutions by other software providers. This “land and expand” strategy allows us to acquire customers with key foundational solutions and expand into offerings via product development and acquisitions that
cover all workflows and power the full scope of our customers’ businesses.
This results in a self-reinforcing flywheel effect, enabling us to drive value for our
customers and, in turn, improve customer stickiness, increase our market share, and fuel our growth.
While we offer multiple products and address several verticals and micro-verticals, we
manage our business with a singular, centralized approach to strategy and operations. We centralize key functions including marketing, business operations, cybersecurity, and general and administrative functions, ensuring consistency in
execution across each of our verticals, and ultimately stimulating a culture of operational excellence.
Our financial results have reflected our rapid growth. Our revenue has grown at a CAGR
of 61.3% from 2018 to 2020, and reached $337.5 million for the year ended December 31, 2020, up from $242.1 million for the year ended December 31, 2019, which represents revenue growth of 39.4% from 2019 to 2020 despite the impact of the
COVID-19 pandemic. Our net loss was $60.0 million for the year ended December 31, 2020, compared to a net loss of $93.7 million for the year ended December 31, 2019. Our Adjusted EBITDA reached $78.8 million for the year ended December 31,
2020, up from $38.3 million for the year ended December 31, 2019. Our revenue was $354.5 million for the nine months ended September 30, 2021, up from $245.5 million for the nine months ended September 30, 2020, which represents revenue
growth of 44.4%. Our net loss was $77.2 million for the nine months ended September 30, 2021, compared to a net loss of $39.0 million for the nine months ended September 30, 2020. Our Adjusted EBITDA reached $77.9 million for the nine months
ended September 30, 2021, up from $56.8 million for the nine months ended September 30, 2020. Moreover, our business benefits from attractive unit economics; we estimate that the lifetime value of our customers exceeds 10 times the cost of
acquiring them. For a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, information about why we consider Adjusted EBITDA useful and a discussion of the material risks and limitations of this measure,
please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business and Financial Metrics—Non-GAAP Financial Measures.”
Key trends impacting our industry
We believe a number of trends are contributing to the adoption of modern,
vertically-tailored software solutions for service SMBs. EverCommerce is operating at the center of many of these trends, including:
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Accelerating adoption of digital technologies. Consumers’ preferences
for digital experiences have accelerated in recent years. At the same time, new digital solutions are emerging to enable businesses to enhance growth, drive efficiencies, and increase customer engagement.
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Mobile enablement. Due in large part to consumer demand and
purchasing habits, a substantial amount of commerce is now conducted via a mobile device, whether through a standalone mobile application or as an integrated, companion application to a broader web-based software. Mobile commerce is
estimated to represent just over $4.00 of every $10.00 spent online, with growth rapidly outpacing other forms of eCommerce.
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Digital marketing. Digital channels are allowing businesses to reach
their existing and potential end consumers in more innovative, effective and efficient ways than ever before. We estimate that approximately 65% of U.S. SMBs have currently adopted digital marketing tools, of which approximately 60%
are expected to increase their spending on such tools, recognizing the power and importance of these digital channels.
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Digital payments. Today, we estimate that approximately 68% of SMBs
in the United States have adopted digital payment processing solutions, up more than 20% over the last three years, a trend that we expect to continue in the future. Integrated payments (e.g., digital payment acceptance that is
integrated into the software that companies use to manage their businesses) have driven operating efficiencies for businesses and have improved payment security and tracking as compared to traditional paper methods.
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Increasingly vertical- and micro vertical-specific software needs.
SMBs across verticals are specializing in order to better compete and align with end-customer preferences, which has resulted in a greater need for niche, tailored software solutions to address micro-vertical workflows.
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Decreasing barriers to software adoption. Given their size and
resource capabilities, SMBs generally require lower priced and easier-to-implement technology solutions than larger-scale enterprise businesses. As a result of the innovations in cloud technology and the proliferation of SaaS, today’s
solutions are more affordable and easier for SMBs to implement than ever before.
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COVID-19 pandemic is accelerating pre-existing trends. We believe the
COVID-19 pandemic has accelerated the need for digital transformation, resulting in SMBs increasing investment in technology to modernize customer engagement and drive growth and operational efficiencies. The effects of COVID-19 on
businesses in addition to the preventative, and precautionary measures surrounding it have advanced the shift to modern, cloud-based software solutions.
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Limitations of existing approaches
Historically, service SMBs have not heavily relied on technology to manage key
workflows, but recently they are increasingly turning to software solutions to streamline operations and boost efficiency. However, the offerings available in the market often fail to meet the needs of today’s service SMBs, and have some or
all of the following limitations:
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Lacking vertical-specific functionality. Traditional technology
companies offer broad, horizontal solutions that apply a “one-size-fits-all” approach and aim to solve functional challenges across different verticals. For service SMBs, these solutions have an excess of broad functionality but lack
the vertical specialization required in specific verticals.
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Sold as point solutions. Existing solutions typically address a
single application, use case, or stage of a broader workflow. These solutions lack the necessary integration of business data and operational workflows that service SMBs need to execute end-to-end processes. Moreover, they limit
visibility into business performance and businesses’ ability to optimize data gathered across various processes.
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Built on inflexible, legacy technology infrastructure. Existing
solutions are often built on legacy, on-premise infrastructure. These technologies lack the flexibility and scalability required by today’s service SMBs, as well as the ability to customize solutions to meet individual customers’
needs.
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Cost and resource-intensive. Service SMBs are generally
price-sensitive and have limited resources. Existing software solutions often require significant capital, time, and technical resources to implement, inhibiting faster adoption. Moreover, it is difficult for service SMBs to maintain
these solutions and roll out new versions and add-on features without significant time and resources.
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Our market opportunity
We believe our solutions address a massive market opportunity today. We estimate the
total number of service SMBs, which represent service-based businesses with 500 or fewer employees, was approximately 400 million globally in 2020, of which 31 million were in North America.
We estimate the total addressable market, or TAM, for our current solutions was
approximately $1.3 trillion globally in 2020, of which approximately $520 billion was in North America, which refers to the United States and Canada. Of the $520 billion, we estimate a $59 billion opportunity in Home Services, an $84 billion
opportunity in Health Services, a $21 billion opportunity in Fitness & Wellness Services, and a $356 billion opportunity in other services categories. We believe there is considerable runway for long-term growth given the vast majority of
our market opportunity is untapped; we estimate that only 9% of the North America service SMB market has been penetrated with full end-to-end software solutions today, and estimate this number to increase to over 13% by 2025.
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We arrive at the TAM by estimating the number of service SMBs, multiplying by the
list price of the solutions we provide, and making regional adjustments for the number of firms that could pay the listed price. Our TAM also includes our payments opportunity, which we arrive at by estimating total revenue across our
vertical segments and multiplying by both pricing and penetration estimates.
Our solutions
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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Business management software: Our vertically-tailored Business
Management Software is the system of action at the center of a service business’ operation, and is typically the point-of-entry and first solution adopted by a customer. Our software, designed for the day-to-day workflow needs of
businesses in specific vertical end markets, streamlines front and back-office processes and provides polished customer-facing experiences.
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Billing & payment solutions: Our Billing & Payment Solutions
provide integrated payments, billing and invoicing automation, and business intelligence and analytics. Our omni-channel payments capabilities include point-of-sale (POS), eCommerce, online bill payments, recurring billing, electronic
invoicing, and mobile payments. Supported payment types include credit card, debit card and ACH processing. Based on the monthly average processing volume for the quarter ended September 30, 2021, we estimate that we process
annualized total volume of $8.6 billion. We further estimate that, based on our current customers and payment volumes, we have an aggregate payment processing opportunity of approximately $77 billion. Our payments platform also
provides a full suite of service commerce features, including customer management as well as cash flow reporting and analytics. As of September 30, 2021, we had over 51,000 embedded payments customers.
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Customer engagement applications: Our Customer Engagement
Applications modernize how businesses engage and interact with customers by leveraging innovative, bespoke customer listening and communication solutions
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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 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.
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Marketing technology solutions: Our Marketing Technology Solutions
work with our Customer Engagement Applications to help customers build their businesses by invigorating marketing operations and improving return on investment across the customer lifecycle. These solutions help businesses to manage
campaigns, generate quality leads, increase conversion and repeat sales, improve customer loyalty and provide a polished brand experience. Our solutions include: custom website design, development and hosting, responsive web design,
marketing campaign design and management, search engine optimization (SEO), paid search and display advertising, social media and blog automation, call tracking, review monitoring, and marketplace lead generation, among others.
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Our verticals
We currently focus on three distinct, vertically-tailored, integrated SaaS solution
suites:
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EverPro – home services: Our EverPro solutions are purpose-built for
home service professionals, with varying specialized functionality for micro-verticals. For home improvement and field service professionals, project management and field service management applications serve as their business systems
of action, respectively. Professionals in this market rely significantly on driving business from residential homeowners, and thus value tailored solutions which capture and manage lead generation from those end consumers.
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EverHealth – health services: Our EverHealth solutions are
purpose-built for health service professionals. The health services market is rooted in a group of core solutions, including practice management and electronic health record (EHR) / electronic medical record (EMR) software. We believe
that our patient and provider engagement solutions position us well to benefit from major industry trends such as the digitalization of front-office operations and patient engagement.
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EverWell – fitness and wellness: Our EverWell solutions are
purpose-built for fitness and wellness service professionals. The fitness and wellness market includes tech-savvy businesses which generally require integrated solutions that provide modern, convenient experiences for end consumers.
Member management and consumer-facing scheduling and facility access solutions are “must-have” software capabilities for modern gyms, spas and salons. In addition, adjacent solutions in relationship management, inventory management,
personal training scheduling, and fitness tracking are increasingly needed to support a seamless, value-add consumer experience.
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We offer select solutions to customers in other services verticals, including education,
non-profit, pet care, and automotive repair, among many other. While these offerings are not a part of our core suites, they are managed as part of our centralized approach to strategy and operations.
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Why we win
We believe that our offerings are differentiated by the following qualities:
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Tailored, vertical-specific approach. We are exclusively focused on
providing service SMBs with tailored SaaS solutions to help meet their specific needs. Our vertical and micro-vertical approach enables us to provide tailored solutions featuring critical vertical-specific functionality that better
serves our customers when compared to industry-agnostic solutions offered by other businesses.
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Integrated solutions for end-to-end workflow. Our end-to-end suites
integrate solutions across the full range of our customers’ workflows (including internal and back-office functions, and customer-facing services), simplifying their operations and providing a frictionless experience when compared to
disjointed point solutions offered by other software businesses.
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SaaS-based solutions. Our scalable and flexible SaaS solutions
alleviate resource needs associated with implementing and managing costly on-premise infrastructure, which simplifies the management of distributed workforces, enhances operational simplicity, and provides continuous delivery of
updates and upgrades to our solutions.
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Mobile capabilities. Our SaaS, web-based, and mobile solutions enable
business owners, administrators, and in-the-field service professionals to access schedules, customer accounts, and business performance analytics, among other critical features, wherever they are. In addition, our native mobile
applications provide in-depth service delivery functionality for technicians and service professionals in-the-field, even out of cellular or wireless network areas.
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Exceptional digital experiences. Our customers’ use of our offerings
allows them to deliver exceptional digital experiences to consumers across multiple channels, enhancing engagement, retention, and loyalty. For example, our customers can use our technology to develop modern touchpoints for consumers
such as online scheduling, appointment reminders, online customer portals, online and mobile payments, SMS text updates, email updates, and consumer-facing mobile applications.
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Cost-and resource-efficient. SMBs are generally price-sensitive and
resource-constrained, however legacy software solutions are often too expensive to adopt. Our solutions are affordable and easy to implement, and our customers benefit from our strong customer service capabilities, enabling them to
optimize their use of digital solutions without significant financial or resource burden.
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Customer-driven innovation. The insight we gain into our over 500,000
customers’ use of our offerings informs our product pipeline, allowing us to constantly refine existing solutions and deliver new solutions that are most valuable to them.
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Our growth strategies
We are focused on growing and scaling our business in a rapid, yet sustainable and
disciplined fashion. We intend to drive significant growth by executing the following key strategies:
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Attract new customers: We believe that there is a significant
opportunity to attract new customers with our current offerings and within the market segments in which we currently operate. We estimate that there are over 31 million service SMBs in North America alone, and 400 million globally.
Our current verticals and adjacent markets in the service economy are highly fragmented. By improving the awareness of our brands and solutions, we believe that we can increase penetration and sell our complete value chain of
solutions to service SMB customers. Through acquisitions and organic growth of our business, the number of customers on our platform increased from approximately 110,000 at the end of 2018 to over 500,000 at the end of 2020.
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•
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Expand into new products and verticals: Given our position in the
service SMB ecosystem, as well as our relationships and level of entrenchment with our customers, we use insights gained through our customer 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 expand market share, drive customer stickiness, and fuel growth for our business.
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•
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Cross-sell into existing customers: Today, we serve over 500,000
service SMBs, which represent a significant opportunity for growth. As we become more entrenched in our customers’ daily business operations, we are better positioned to capitalize on additional cross-sell and up-sell opportunities.
Based on our existing
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7
customers, we believe we had an embedded revenue opportunity of approximately $5
billion as of September 30, 2021. Our integrated vertical SaaS solutions allow us to offer customers additional capabilities across their entire customer engagement lifecycle. As we continue to develop, acquire, and transform our solutions,
we aim to increase our wallet share and improve retention. For the year ended December 31, 2020, we estimate that approximately 90% of our customers had less than $2,000 in billings and 4% had more than $5,000 in billings.
In conjunction with the strategies cited above, we also acquire solutions to deepen our
competitive moats in existing verticals, and enter new verticals and geographies. We have an established framework for identification, execution, integration, and onboarding of targets. These acquired solutions 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. We have acquired 51 companies since our inception, including 13 in 2019, 9 in 2020 and 4 in 2021. We are currently tracking over 10,000 North American software businesses, primarily across our core verticals, as
potential acquisition opportunities.
Recent developments
Acquisition of DrChrono
On November 2, 2021, we entered into an agreement to acquire all of the equity interests
of DrChrono Inc., a software and digital billing service platform supporting independent physician practices with EHR, practice management and revenue cycle management, for approximately $182.5 million. We intend to fund the acquisition with
approximately $155.0 million of availability under our New Revolver and cash on hand. The transaction is expected to close following all pending legal and regulatory matters being successfully resolved. Following the close, DrChrono will join
our EverHealth solutions and further expand our offerings within health services. We expect the acquisition will integrate with existing and adjacent EverHealth solutions and extend our mobile capabilities within EverHealth. We also believe
DrChrono presents an opportunity for payments integration.
Term Loan Upsize
Concurrent with this offering, we intend to launch a $200 million upsize of our existing
term loan facility under our New Credit Agreement, or the Term Loan Upsize. We intend to use the proceeds from the Term Loan Upsize to repay approximately $190 million outstanding under our New Revolver (after giving effect to the acquisition
of DrChrono) and for general corporate purposes, which may include the acquisition of, or investment in, technologies, solutions, or businesses that complement our business.
As of the date hereof, we do not have any binding commitments to incur any additional
indebtedness and there is no guarantee that we will be able to raise additional debt on commercially reasonable terms or at all. This offering is not conditioned on the Term Loan Upsize and we expect the Term Loan Upsize will close on or
after the consummation of this offering. As of September 30, 2021 after giving effect to this offering and the use of proceeds therefrom, the Term Loan Upsize and the acquisition of DrChrono, we would have had cash and cash equivalents of
approximately $288 million and $190 million of available borrowing capacity under our New Revolver.
Risks associated with our business
Our business is subject to a number of risks and uncertainties, including those
highlighted in the section titled “Risk Factors” immediately following this Prospectus Summary. These risks include, but are not limited to, the following:
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•
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Our limited operating history and our evolving business make it difficult to evaluate our future prospects and the risks and
challenges we may encounter.
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•
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Our recent growth rates may not be sustainable or indicative of future growth and we expect our growth rate to slow.
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•
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We have experienced net losses in the past and we may not achieve profitability in the future.
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•
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We may continue to experience significant quarterly and annual fluctuations in our operating results due to a number of factors,
which makes our future operating results difficult to predict.
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8
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•
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We may reduce our rate of acquisitions and may be unsuccessful in achieving continued growth through acquisitions.
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•
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Revenues and profits generated through acquisition may be less than anticipated, and we may fail to uncover all liabilities of
acquisition targets.
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In order to support the growth of our business and our acquisition strategy, we may need to incur additional indebtedness or seek
capital through new equity or debt financings.
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We may not be able to continue to expand our share of our existing vertical markets or expand into new vertical markets, which
would inhibit our ability to grow and increase our profitability.
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•
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We face intense competition in each of the industries in which we operate, which could negatively impact our business, results of
operations and financial condition and cause our market share to decline.
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The industries in which we operate are rapidly evolving and subject to consolidation and the market for technology-enabled
services that empower SMBs is relatively immature and unproven.
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•
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We are subject to economic and political risk, the business cycles of our clients and changes in the overall level of consumer
and commercial spending, which could negatively impact our business, financial condition and results of operations.
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We are dependent on payment card networks, such as Visa and MasterCard, and payment processors, such as Worldpay and PayPal, and
if we fail to comply with the applicable requirements of our payment network or payment processors, they can seek to fine us, suspend us or terminate our registrations through our bank sponsors.
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If we cannot keep pace with rapid developments and changes in the electronic payments market or are unable to introduce, develop
and market new and enhanced versions of our software solutions, we may be put at a competitive disadvantage with respect to our services that incorporated payment technology.
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•
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Real or perceived errors, failures or bugs in our solutions could adversely affect our business, results of operations, financial
condition and growth prospects.
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•
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Unauthorized disclosure, destruction or modification of data, disruption of our software or services could expose us to
liability, protracted and costly litigation and damage our reputation.
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•
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Our estimated total addressable market is subject to inherent challenges and uncertainties.
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•
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Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer
base and achieve broader market acceptance and utilization of our solutions.
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•
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Our systems and our third-party providers’ systems may fail, or our third-party providers may discontinue providing their
services or technology generally or to us specifically, which in either case could interrupt our business, cause us to lose business and increase our costs.
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•
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If lower margin solutions and services grow at a faster rate than our higher margin solutions and services, we may experience
lower aggregate profitability and margins.
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•
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The outbreak of the novel strain of coronavirus disease has impacted, and a future pandemic, epidemic or outbreak of an
infectious disease in the United States could impact, our business, financial condition and results of operations, as well as the business or operations of third parties with whom we conduct business.
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We may be unable to adequately protect or enforce, and we may incur significant costs in enforcing or defending, our intellectual
property and other proprietary rights.
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We may be subject to patent, trademark and other intellectual property infringement claims, which may be time-consuming, and
cause us to incur significant liability and increase our costs of doing business.
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•
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We are subject to governmental regulation and other legal obligations, including those related privacy, data protection and
information security and the healthcare industry, and our actual or perceived failure to comply with such regulations and obligations could harm our business. Compliance with such laws could also impair our efforts to maintain and
expand our customer and user bases, and thereby decrease our revenue.
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9
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•
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The parties to our sponsor stockholders agreement, who hold a significant portion of our common stock, will control the direction
of our business and such parties’ ownership of our common stock will prevent you and other stockholders from influencing significant decisions.
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•
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We are a “controlled company” under the corporate governance rules of The Nasdaq Stock Market and, as a result, qualify for, and
rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
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Corporate information
We were initially formed under the laws of the state of Delaware in September 2016 under
the name PaySimple Holdings, Inc., with “EverCommerce” being our “doing business as” name. In December 2020, we changed our name to EverCommerce Inc. Our principal executive offices are located at 3601 Walnut Street, Suite 400, Denver,
Colorado 80205 and our telephone number is 720-647-4948. Our website address is www.evercommerce.com. The information contained on, or that can be accessed through, our website is not incorporated by
reference into, and is not a part of, this prospectus or the registration statement of which this prospectus forms a part.
Implications of being an emerging growth company
We qualify as an “emerging growth company” as defined in Section 2(a) of the Securities
Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to
public companies that are not emerging growth companies. These provisions include:
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•
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the option to present only two years of audited financial statements and only two years of related Management’s Discussion and
Analysis of Financial Condition and Results of Operations in this prospectus;
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•
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not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002;
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reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration
statements; and
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exemptions from the requirements of holding nonbinding, advisory stockholder votes on executive compensation or on any golden
parachute payments not previously approved.
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We will remain an emerging growth company until the earliest to occur of: (i) the last
day of the first fiscal year in which our annual gross revenue exceeds $1.07 billion; (ii) the date that we become a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates as of the end of the second
quarter of that fiscal year; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) December 31, 2026.
We have elected to take advantage of certain of the reduced disclosure obligations in
the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide may be different than the information you
receive from other public companies in which you hold stock.
Emerging growth companies can also take advantage of the extended transition period
provided in Section 13(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period and, as a result, our operating results and financial statements may not be comparable to the
operating results and financial statements of companies who have adopted the new or revised accounting standards.
As a result of these elections, some investors may find our common stock less attractive
than they would have otherwise. The result may be a less active trading market for our common stock, and the price of our common stock may become more volatile.
10
The offering
Common stock offered by us
11,000,000 shares
Option to purchase additional
shares of common stock from us
1,650,000 shares
Common stock to be outstanding after this
offering
206,356,459 shares (208,006,459 shares if the underwriters exercise their option to
purchase additional shares in full).
Use of proceeds
We estimate the net proceeds from this offering to us will be approximately $213.4
million (or approximately $245.6 million if the underwriters exercise their option to purchase additional shares in full), assuming a public offering price of $20.25 per share, the last reported sale price of our common stock on the Nasdaq
Global Select Market on November 12, 2021, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds from this offering for general corporate purposes to
support the growth of our business. We may also use a portion of the proceeds for the acquisition of, or investment in, technologies, solutions, or businesses that complement our business, including to repay amounts outstanding under our New
Revolver following the acquisition of DrChrono. See “Use of Proceeds.”
Controlled company
Following this offering, the parties to our sponsor stockholders agreement will own
73.9% of our outstanding common stock (or 73.3% if the underwriters exercise their option to purchase additional shares in full). As a result, we will be a “controlled company” within the meaning of the corporate governance rules of The
Nasdaq Stock Market.
Risk factors
See the section titled “Risk Factors” and the other information included in this
prospectus for a discussion of factors you should consider carefully before deciding to invest in shares of our common stock.
Nasdaq Global Select Market symbol
“EVCM”
Clear Market Release
J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC have agreed to release us
from our restriction on issuing additional shares of common stock, which restriction was agreed in connection with our initial public offering, in order to permit this offering. See “Underwriting.”
The number of shares of our common stock to be outstanding after this offering is based
on 195,356,459 shares of our common stock outstanding as of September 30, 2021. The number of shares of our common stock to be outstanding after this offering does not include:
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•
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16,436,000 shares of our common stock issuable upon the exercise of outstanding options under our Amended & Restated 2016
Equity Incentive Plan, or the 2016 Plan, and our 2021 Incentive Award Plan, or the 2021 Plan, as of September 30, 2021, at a weighted-average exercise price of $9.69 per share;
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11
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•
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531,629 shares of our common stock issuable upon the vesting of outstanding restricted stock units, or RSUs, under the 2021 Plan,
as of September 30, 2021;
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•
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22,000,000 shares of our common stock reserved for future issuance under the 2021 Plan, as well as any shares that become
issuable pursuant to provisions in the 2021 Plan that automatically increase the share reserve under the 2021 Plan; and
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•
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4,500,000 shares of our common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, or the ESPP, as
well as any shares that become issuable pursuant to provisions in the ESPP that automatically increase the share reserve under the ESPP.
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Except as otherwise indicated, all information in this prospectus reflects and
assumes:
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•
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a public offering price of $20.25 per share of common stock, the last reported sale price of our common stock on the Nasdaq
Global Select Market on November 12, 2021
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•
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no exercise of outstanding options or settlement of RSUs referred to above; and
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•
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no exercise of the underwriters’ option to purchase additional shares of our common stock.
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12
Summary consolidated financial and operating data
The following tables summarize our consolidated financial and operating data for the
periods and as of the dates indicated. The summary consolidated statements of operations data for the years ended December 31, 2019 and 2020 have been derived from our audited consolidated financial statements that are included elsewhere in
this prospectus. The summary consolidated statement of operations data for the year ended December 31, 2018 has been derived from our unaudited consolidated financial statements that are not included in this prospectus. The summary
consolidated statement of operations for the nine months ended September 30, 2020 and 2021 and the consolidated balance sheet data as of September 30, 2021 have been derived from our unaudited interim consolidated financial statements that
are included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements for the year ended December 31, 2018 and the unaudited interim consolidated financial statements on the same basis consistent with the
presentation of our audited consolidated financial statements that are included elsewhere in this prospectus. We have included, in our opinion, all adjustments necessary to state fairly our results of operations for these periods. Our
historical results are not necessarily indicative of the results to be expected in the future and our results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2021 or any other interim periods or any future year or period. The summary financial data set forth below should be read together with the financial statements and the related notes to those statements, as well as
the sections of this prospectus titled “Selected Consolidated Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Consolidated statements of operations data
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|
| |
Year Ended
December 31,
|
| |
Nine Months Ended
September 30,
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|||||||||
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(in thousands, except share and per share data)
|
| |
2018
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| |
2019
|
| |
2020
|
| |
2020
|
| |
2021
|
|
|
| |
(unaudited)
|
| |
|
| |
|
| |
(unaudited)
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Revenues:
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| |
|
| |
|
| |
|
| |
|
| |
|
|
Subscription and transaction fees
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| |
$93,810
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| |
$187,970
|
| |
$232,931
|
| |
$168,413
|
| |
$252,119
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|
Marketing technology solutions
|
| |
29,921
|
| |
37,521
|
| |
86,331
|
| |
62,738
|
| |
88,974
|
|
Other
|
| |
5,958
|
| |
16,651
|
| |
18,263
|
| |
14,370
|
| |
13,397
|
|
Total revenues
|
| |
129,689
|
| |
242,142
|
| |
337,525
|
| |
245,521
|
| |
354,490
|
|
Operating expenses:
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| |
|
| |
|
| |
|
| |
|
| |
|
|
Cost of revenues (exclusive of depreciation and amortization presented
separately below)(1)
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| |
29,352
|
| |
73,098
|
| |
115,020
|
| |
86,372
|
| |
119,488
|
|
Sales and marketing(1)
|
| |
33,581
|
| |
46,264
|
| |
50,246
|
| |
36,305
|
| |
67,647
|
|
Product development(1)
|
| |
11,208
|
| |
26,124
|
| |
30,386
|
| |
22,282
|
| |
35,083
|
|
General and administrative(1)
|
| |
51,006
|
| |
97,962
|
| |
87,068
|
| |
56,388
|
| |
79,796
|
|
Depreciation and amortization
|
| |
24,151
|
| |
52,949
|
| |
76,844
|
| |
55,300
|
| |
73,917
|
|
Total operating expenses
|
| |
149,298
|
| |
296,397
|
| |
359,564
|
| |
256,647
|
| |
375,931
|
|
Operating loss
|
| |
(19,609)
|
| |
(54,255)
|
| |
(22,039)
|
| |
(11,126)
|
| |
(21,441)
|
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Interest and other expense, net
|
| |
(13,474)
|
| |
(40,004)
|
| |
(41,545)
|
| |
(30,653)
|
| |
(31,262)
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|
Loss on debt extinguishment
|
| |
—
|
| |
(15,518)
|
| |
—
|
| |
—
|
| |
(28,714)
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|
Net loss before income tax benefit
|
| |
(33,083)
|
| |
(109,777)
|
| |
(63,584)
|
| |
(41,779)
|
| |
(81,417)
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|
Income tax benefit
|
| |
5,690
|
| |
16,032
|
| |
3,630
|
| |
2,748
|
| |
4,182
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|
Net loss
|
| |
$(27,393)
|
| |
$(93,745)
|
| |
$(59,954)
|
| |
$(39,031)
|
| |
$(77,235)
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|
Net loss per share attributable to common stockholders:
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| |
|
| |
|
| |
|
| |
|
| |
|
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Basic
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| |
|
| |
$(14.13)
|
| |
$(3.06)
|
| |
$(1.91)
|
| |
$(1.01)
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Diluted
|
| |
|
| |
$(14.13)
|
| |
$(3.06)
|
| |
$(1.91)
|
| |
$(1.01)
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|
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| |
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| |
|
| |
|
| |
|
| |
|
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Weighted-average shares used in computing net loss per
share attributable to common stockholders:
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| |
|
| |
|
| |
|
| |
|
| |
|
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Basic
|
| |
|
| |
27,102,531
|
| |
41,696,800
|
| |
41,335,411
|
| |
91,655,461
|
|
Diluted
|
| |
|
| |
27,102,531
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| |
41,696,800
|
| |
41,335,411
|
| |
91,655,461
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13
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(1)
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Includes stock-based compensation as follows:
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|
| |
Year Ended
December 31,
|
| |
Nine Months Ended
September 30,
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(in thousands)
|
| |
2018
|
| |
2019
|
| |
2020
|
| |
2020
|
| |
2021
|
|
|
| |
(unaudited)
|
| |
|
| |
|
| |
(unaudited)
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|
Cost of revenues
|
| |
$—
|
| |
$—
|
| |
$—
|
| |
$—
|
| |
$178
|
|
Sales and marketing
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
298
|
|
Product development
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
437
|
|
General and administrative
|
| |
7,037
|
| |
30,079
|
| |
10,721
|
| |
5,297
|
| |
15,936
|
|
Total stock-based compensation expense
|
| |
$7,037
|
| |
$30,079
|
| |
$10,721
|
| |
$5,297
|
| |
$16,849
|
Consolidated balance sheet data
|
|
| |
As of
September 30, 2021
|
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|
(in thousands)
|
| |
Actual
|
| |
As Adjusted(1)(2)
|
|
|
| |
(unaudited)
|
|||
|
Cash, cash equivalents and restricted cash(3)
|
| |
$98,345
|
| |
$311,742
|
|
Working capital(4)
|
| |
75,034
|
| |
288,431
|
|
Total assets
|
| |
1,489,285
|
| |
1,702,682
|
|
Deferred revenue, current and long-term
|
| |
24,188
|
| |
24,188
|
|
Long-term debt, including current portion
|
| |
385,068
|
| |
385,068
|
|
Total liabilities
|
| |
505,488
|
| |
505,488
|
|
Total stockholders’ (deficit)/equity
|
| |
983,797
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| |
1,197,194
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|
(1)
|
Gives effect to the issuance and sale by us of 11,000,000 shares of common stock in this offering at an assumed public offering
price of $20.25 per share, the last reported sale price of our common stock on the Nasdaq Global Select Market on November 12, 2021, after deducting estimated underwriting discounts and commissions and estimated offering expenses
payable by us. Does not reflect (i) the use of up to $155 million under the New Revolver, and cash on hand, in connection with the acquisition of DrChrono; or (ii) up to $200 million of additional debt pursuant to the Term Loan
Upsize. We intend to use the proceeds from the Term Loan Upsize to repay amounts outstanding under the New Revolver and for general corporate purposes. See “Recent Developments.”
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(2)
|
Each $1.00 increase (decrease) in the assumed public offering price of $20.25 per share, the last reported sale price of our
common stock on the Nasdaq Global Select Market on November 12, 2021, would increase (decrease) the as adjusted amount of each of cash, cash equivalents and marketable securities, working capital, total assets and total stockholders’
equity by approximately $10.6 million, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) the as adjusted
amounts of each of cash, cash equivalents and marketable securities, working capital, total assets and total stockholders’ equity by approximately $19.5 million, assuming the assumed public offering price per share remains the same,
after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The as adjusted information is illustrative only, and will depend on the actual public offering price, number of
shares offered and other terms of this offering determined at pricing.
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|
(3)
|
Includes restricted cash of $2.8 million as of September 30, 2021.
|
|
(4)
|
We define working capital as current assets less current liabilities. See our consolidated financial statements and the
accompanying notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.
|
Key business and financial metrics
In addition to our results and measures of performance determined in accordance with
U.S. GAAP, we believe the following key business and non-GAAP financial measures are useful in evaluating and comparing our financial and operational performance over multiple periods, identifying trends affecting our business, formulating
business plans and making strategic decisions.
Pro forma revenue growth rate
|
|
| |
Year Ended
December 31,
|
| |
Nine Months Ended
September 30,
|
|||
|
|
| |
2019
|
| |
2020
|
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2021
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Pro Forma Revenue Growth Rate(1)
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15.8%
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6.7%
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20.6%
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(1)
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Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business and Financial
Metrics—Pro Forma Revenue Growth Rate” for a description of Pro Forma Revenue Growth Rate.
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Non-GAAP financial measures
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Year Ended
December 31,
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Nine Months Ended
September 30,
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(in thousands)
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2018
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2019
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2020
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2020
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2021
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Gross Profit(1)
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$94,584
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$158,855
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$207,691
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$148,641
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$220,493
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Adjusted Gross Profit(2)
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$100,337
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$169,044
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$222,505
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$159,149
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$235,002
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Adjusted EBITDA(2)
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$15,177
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$38,325
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$78,790
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$56,765
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$77,921
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(1)
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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).
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(2)
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Adjusted Gross Profit and Adjusted EBITDA are non-GAAP financial measures. For a reconciliation of each of Adjusted Gross Profit
and Adjusted EBITDA to the most directly comparable U.S. GAAP financial measure, information about why we consider such measure useful and a discussion of the material risks and limitations of such measure, please see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Key Business and Financial Metrics—Non-GAAP Financial Measures.”
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Investing in our common stock involves a high degree of risk. You
should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and the accompanying notes thereto included elsewhere in this prospectus before investing in our common stock. The risks and uncertainties described below are not the only ones we face.
Additional risk and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. The realization of any of these risks and uncertainties could have a material adverse
effect on our reputation, business, financial condition, results of operations, growth and future prospects, as well as our ability to accomplish our strategic objectives. In that event, the market price of our common stock could decline and
you could lose part or all of your investment.
Risks related to our business
Our limited operating history and our evolving
business make it difficult to evaluate our future prospects and the risks and challenges we may encounter.
Our limited operating history and evolving business make it difficult to evaluate and
assess the success of our business to date, our future prospects and the risks and challenges that we may encounter. These risks and challenges include our ability to:
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attract new and digitally-inclined service SMBs to the EverCommerce platform;
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retain existing customers and leverage cross-sell and upsell opportunities;
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successfully update the EverCommerce platform, including expanding into new verticals and international markets and integrating
additional solution capabilities to further benefit our service SMB customers and enhance the end-customer experience;
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expand through future acquisitions and successfully identify and integrate acquired entities, services and technologies;
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hire, integrate and retain talented people at all levels of our organization;
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comply with existing and new laws and regulations applicable to our business and in the industries in which we participate;
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anticipate and respond to macroeconomic changes, changes within the existing and future industries in which we participate,
including the home services, health services, and fitness and wellness industries, and changes in the markets in which we operate;
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foresee and manage market volatility impacts on market value;
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react to challenges from existing and new competitors;
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improve and enhance the value of our reputation and brand;
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effectively manage our growth; and
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maintain and improve the infrastructure underlying the EverCommerce platform, including our software, websites, mobile applications
and data centers, as well as our cybersecurity and data protection measures.
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If we fail to address the risks and difficulties that we face, including those associated
with the challenges listed above and those described elsewhere in this “Risk Factors” section, our business, financial condition and results of operations could be adversely affected. Further, because we have limited historical financial data
and our business continues to evolve and expand within the industries in which we operate, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history, operated a more
predictable business or operated in a single or unregulated industry. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies with limited operating histories and
evolving business that operate in regulated and competitive industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks
successfully, our results of operations could differ materially from our expectations and our business, financial condition and results of operations would be adversely affected.
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Our recent growth rates may not be sustainable
or indicative of future growth and we expect our growth rate to slow.
Since our founding, we have generated significant growth through acquisitions and by
driving organic growth of our business. Our revenue has grown at a CAGR of 61.3% from 2018 to 2020, and reached $337.5 million for the year ended December 31, 2020, up from $242.1 million for the year ended December 31, 2019, which represents
revenue growth of 39.4% from 2019 to 2020 despite the impact of the COVID-19 pandemic. Our revenue was $354.5 million for the nine months ended September 30, 2021, up from $245.5 million for the nine months ended September 30, 2020, which
represents revenue growth of 44.4%. Our historical rate of growth may not be sustainable or indicative of our future rate of growth. For example, while acquisitions have significantly contributed to our growth to date, we may make fewer or no
acquisitions in the future. We believe that our continued growth in revenue, as well as our ability to improve or maintain margins and profitability, will depend upon, among other factors, our ability to address the challenges, risks and
difficulties described elsewhere in this “Risk Factors” section and the extent to which our various offerings grow and contribute to our results of operations. We cannot provide assurance that we will be able to successfully manage any such
challenges or risks to our future growth. In addition, our base of customers may not continue to grow or may decline due to a variety of possible risks, including increased competition, changes in the regulatory landscape and the maturation of
our business. Any of these factors could cause our revenue growth to decline and may adversely affect our margins and profitability. Failure to continue our revenue growth or improve margins would have a material adverse effect on our business,
financial condition and results of operations. You should not rely on our historical rate of revenue growth as an indication of our future performance.
To manage our current and anticipated future growth effectively, we must continue to
maintain and enhance our technology infrastructure, financial and accounting systems and controls. We must also attract, train and retain a significant number of qualified sales and marketing personnel, client support personnel, professional
services personnel, software engineers, technical personnel and management personnel, and the availability of such personnel, in particular software engineers, may be constrained.
A key element of how we manage our growth is our ability to scale our capabilities and
satisfactorily implement our solutions for our customers’ needs. Failure to effectively manage our growth could also lead us to over-invest or under-invest in development and operations, result in weaknesses in our infrastructure, systems or
controls, give rise to operational mistakes, financial losses, loss of productivity or business opportunities and result in loss of employees and reduced productivity of remaining employees.
We have experienced net losses in the past and we
may not achieve profitability in the future.
We have incurred significant operating losses since our inception. Our net loss was
$93.7 million and $60.0 million for the years ended December 31, 2019 and 2020, respectively, and $39.0 million and $77.2 million for the nine months ended September 30, 2020 and 2021, respectively. Our operating expenses may increase
substantially in the foreseeable future as we continue to invest to grow our business and build relationships with or clients and partners, develop new solutions and comply with being a public company. These efforts may prove to be more
expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. If we are unable to effectively manage the risks and difficulties of investing to grow our business, building
relationships and developing new solutions as we encounter them, our business, financial condition and results of operations may suffer.
We may continue to experience significant
quarterly and annual fluctuations in our operating results due to a number of factors, which makes our future operating results difficult to predict.
Historically, we have experienced fluctuations in period to period operating results, with
stronger results and higher revenue in the second and third quarters of the year, and our quarterly and annual operating results may continue to fluctuate significantly due to a variety of factors, many of which are outside of our control. As a
result, comparing our operating results on a period-to-period basis may not be meaningful. Our past results may not be a predictor of our future performance.
Factors that may affect our operating results and the ability to predict our future
results and trajectory include:
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our ability to increase sales to existing customers and to renew agreements with our existing customers at comparable prices;
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our ability to attract new customers with greater needs for our services;
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changes in our pricing policies or those of our competitors, or pricing pressure on our software and related services;
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periodic fluctuations in demand for our software and services and volatility in the sales of our solutions and services;
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the success or failure of our acquisition strategy;
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our ability to timely develop and implement new solutions and services, as well as improve and enhance existing solutions and
services, in a manner that meets customer requirements;
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our ability to hire, train and retain key personnel;
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any significant changes in the competitive dynamics of our market, including new entrants or substantial discounting of products or
services;
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our ability to control costs, including our operating expenses;
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any significant change in our facilities-related costs;
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the timing of hiring personnel and of large expenses such as those for third-party professional services;
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general economic conditions;
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our ability to appropriately resolve any disputes relating to our intellectual property; and
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the impact of a recession, pandemic or any other adverse global economic conditions on our business, including the impact of the
ongoing COVID-19 pandemic.
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We have in the past experienced, and we may experience in the future, significant
variations in our level of sales. Such variations in our sales have led and may lead to significant fluctuations in our cash flows, revenue and deferred revenue on a quarterly and annual basis. Failure to achieve our quarterly goals will
decrease our value and, accordingly, the value of our securities.
We may reduce our rate of acquisitions and may be
unsuccessful in achieving continued growth through acquisitions.
Since April 2017, we have consummated 51 acquisitions and have generated significant
growth through acquisitions. Although we expect to continue to acquire companies and other assets in the future, such acquisitions pose a number of challenges and risks, including the following:
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the ability to identify suitable acquisition candidates or acquire additional assets at attractive valuations and on favorable
terms;
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the availability of suitable acquisition candidates;
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the ability to compete successfully for identified acquisition candidates, complete acquisitions or accurately estimate the
financial effect of acquisitions on our business;
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higher than expected or unanticipated acquisition costs;
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effective integration and management of acquired businesses in a manner that permits the combined company to achieve the full
revenue and cost synergies and other benefits anticipated to result from the acquisition, due to difficulties such as incompatible accounting, information management or other control systems;
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retention of an acquired company’s key employees or customers;
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contingent or undisclosed liabilities, incompatibilities and/or other obstacles to successful integration not discovered during the
pre-acquisition due diligence process;
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the availability of management resources to evaluate acquisition candidates and oversee the integration and operation of the
acquired businesses;
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the ability to obtain the necessary debt or equity financing, on favorable terms or at all, to finance any of our potential
acquisitions;
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increased interest expense, restructuring charges and amortization expenses related to intangible assets;
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significant dilution to our shareholders for acquisitions made utilizing our securities; and
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the ability to generate cash necessary to execute our acquisition strategy and/or the reduction of cash that would otherwise be
available to fund operations or for other purposes.
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While our acquisition strategy leverages our experience and utilizes internal criteria for
evaluating acquisition candidates and prospective businesses, there can be no guarantee that each business will have all of the positive attributes we seek. If we complete an acquisition that does not meet some or all of our criteria, such
acquisition may not be as successful as one involving a business that does meet most or all of our criteria. There can be no assurance that our criteria are accurate or helpful indicators of success, and we may fail or opt not to acquire
successful businesses that do not otherwise satisfy our internal requirements and preferences. In addition, we will consider acquisitions outside of our existing vertical markets and in industries or services in which we have limited expertise
or experience. While we will endeavor to evaluate the risks inherent in any particular acquisition candidate, there can be no assurance that we will adequately ascertain or assess all of the significant risk factors to such new markets,
industries or services.
Even if we are able to complete acquisitions and other investments, such activities may
not ultimately strengthen our competitive position or achieve our strategic goals and could be viewed negatively by existing or prospective customers, investors or others. We may not realize the anticipated benefits of any or all of our
acquisitions or other investments in the time frame expected or at all. For example, the process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of our combined businesses and the
possible loss of key personnel. Further, acquisitions and consolidations may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for ongoing development of our
current business. Acquisitions can also result in a complex corporate structure with different systems and procedures in place across various acquired entities, particularly during periods in which acquired entities are being integrated or
transitioned to our preferred systems and procedures. Initiatives to integrate these disparate systems and procedures can be challenging and costly, and the risk of failure high.
The occurrence of any of these factors may result in a decrease in any or all acquisition
activity and otherwise adversely impact our options, which may lead to less growth and a deterioration of our financial and operational condition.
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.
In evaluating and determining the purchase price for a prospective acquisition, we
estimate the future revenues and profits from that acquisition based largely on historical financial performance. Following an acquisition, we may experience some attrition in the number of clients serviced by an acquired provider of billing
and payment solutions and marketing and customer retention services. Should the rate of post-acquisition client attrition exceed the rate we forecasted, the revenues and profits from the acquisition may be less than we estimated, which could
result in losses or a decline in profits, as well as potential impairment charges. Moreover, the anticipated benefits of any acquisition, including our revenue or return on investment assumptions, may not be realized.
We perform a due diligence review of each of our acquisition targets. This due diligence
review, however, may not adequately uncover all of the contingent or undisclosed liabilities we may incur as a consequence of the proposed acquisition, exposing us to potentially significant, unanticipated costs, as well as potential impairment
charges. Although a seller generally may have indemnification obligations to us under an acquisition or merger agreement, these obligations usually will be subject to financial limitations, such as general deductibles and maximum recovery
amounts, as well as time limitations. Certain transactions are also subject to limitations of the scope of a Representation and Warranty Insurance policy. We cannot assure you that our right to indemnification from any seller will be
enforceable, collectible or sufficient in amount, scope or duration to fully offset the amount of any undiscovered or underestimated liabilities that we may incur. Any such liabilities, individually or in the aggregate, could have a material
adverse effect on our business, results of operations and financial condition. In addition, our insurance does not cover all of our potential losses, and we are subject to various self-insured retentions and deductibles under our insurance.
Although we believe we have sufficient reserves for contingencies, a judgment
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may be rendered against us in cases in which we could be uninsured or which exceed the
amounts that we currently have reserved or anticipate incurring for such matters.
In order to support the growth of our business and
our acquisition strategy, we may need to incur additional indebtedness or seek capital through new equity or debt financings, which sources of additional capital may not be available to us on acceptable terms or at all and may result in
substantial dilution to our stockholders.
Our operations have consumed substantial amounts of cash since inception and we intend to
continue to make significant investments to support our business growth, acquire complementary businesses and technologies, respond to business challenges or opportunities, develop new solutions and services, and enhance our existing solutions
and services and operating infrastructure. Our net cash provided by operating activities was $57.5 million in 2020 and $13.7 million for the first nine months of 2021. We had cash and cash equivalents of $95.6 million and restricted cash of
$2.8 million as of September 30, 2021. We received an additional $347.8 million of net proceeds in July 2021 from our initial public offering, including the net proceeds received from the underwriters exercise of their option to purchase
additional shares of common stock in our initial public offering.
Our future capital requirements may be significantly different from our current estimates
and will depend on many factors, including the need to:
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finance unanticipated working capital requirements;
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acquire complementary businesses, technologies, solutions or services;
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develop or enhance our technological infrastructure and our existing solutions and services;
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fund strategic relationships, including joint ventures and co-investments; and
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respond to competitive pressures.
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Accordingly, we may need to engage in equity or debt financings or collaborative
arrangements to secure additional funds. Additional financing may not be available on terms favorable to us, or at all. If we raise additional funds through further issuances of equity or convertible debt securities, our existing shareholders
could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our ordinary shares. Any debt financing secured by us in the future could involve additional
restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential
acquisitions. In addition, during times of economic instability, it has been difficult for many companies to obtain financing in the public markets or to obtain debt financing, and we may not be able to obtain additional financing on
commercially reasonable terms, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, it could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to continue to expand our share
of our existing vertical markets or expand into new vertical markets, which would inhibit our ability to grow and increase our profitability.
Our future growth and profitability depend, in part, upon our continued expansion within
the vertical markets in which we currently operate, the emergence of other vertical markets for our solutions and our ability to penetrate new vertical markets. As part of our strategy to expand into new vertical markets, we look for
acquisition opportunities and partnerships that will allow us to increase our market penetration, technological capabilities, offering of solutions and distribution capabilities. We may not be able to successfully identify suitable acquisition
or partnership candidates in the future, and if we do, they may not provide us with the benefits we anticipated.
Our expansion into new vertical markets also depends upon our ability to adapt our
existing technology or to develop new technologies to meet the particular needs of each new vertical market. We may not have adequate financial or technological resources to develop effective and secure services or distribution channels that
will satisfy the demands of these new vertical markets. Penetrating these new vertical markets may also prove to be more challenging or costly or take longer than we may anticipate. Further, as positive references from existing customers are
vital to expanding into new vertical and geographic markets within the service economy, any dissatisfaction on the part of existing customers may harm our brand and reputation and inhibit market acceptance of our services. If we fail to expand
into new vertical markets and increase our penetration into existing vertical markets, we may not be able to continue to grow our revenues and earnings.
20
We face intense competition in each of the
industries in which we operate, which could negatively impact our business, results of operations and financial condition and cause our market share to decline.
The market for our solutions and services is highly competitive and subject to rapidly
changing technology, shifting customer needs and frequent introductions of new products and services. As our platform is utilized across industries, we compete in a variety of highly fragmented markets and face competition from a variety of
sources, including manual processes, basic PC tools, homegrown solutions, as well as from vertically-specialized and horizontal competitors. Vertically-specialized competitors include mobile sales applications and field service management
platforms in Home Services, EHR / EMR and practice management platforms in Health Services, and facility and employee management and member management and programming platforms in Fitness & Wellness Services. Horizontal competitors include
Salesforce for CRM, Intuit for financial products, Square for payments and HubSpot for marketing related solutions.
We expect the intensity of competition to increase in the future as new companies enter
our markets and existing competitors develop stronger capabilities. Our competitors may be able to devote greater resources to the development, promotion and sale of their offerings than we can to ours, which could allow them to respond more
quickly than we can to new technologies and changes in customer needs and achieve wider market acceptance. Because the barriers to entry into our industry are generally low, we expect to continue to face competition from new entrants. We also
encounter competition from a broad range of firms which possess greater resources than we do, and small independent firms that compete primarily on the basis of price. We may not compete effectively and competitive pressures might prevent us
from acquiring and maintaining the customer base necessary for us to be successful.
We may also potentially face competition from our current partners. Our partners,
including our integration partners for our Electronic Health Record and Practice Management solutions within Health Services, our business management software solutions within Home Services and our payment and customer relationship management
solutions within Fitness & Wellness Services, as well as our third-party payment processing partners, could become our competitors by offering similar services. Some of our partners offer, or may begin to offer, services in the same or
similar manner as we do. Although there are many potential opportunities for, and applications of, these services, our partners may seek opportunities or target new clients in areas that may overlap with those that we have chosen to pursue.
We may face competition from companies that we do not yet know about. If existing or new
companies develop or market products or services that are similar to ours, develop entirely new solutions, acquire one of our existing competitors or form a strategic alliance with one of our competitors or other industry participants, our
ability to compete effectively could be significantly impacted, which would have a material adverse effect on our business, results of operations and financial condition.
The industries in which we operate are rapidly
evolving and the market for technology-enabled services that empower SMBs is relatively immature and unproven. If we are not successful in promoting the benefits of our solutions and services, our growth may be limited.
Our three current verticals represent markets for our solutions and services that are
subject to rapid and significant change. The market for software and technology-enabled services that empower SMBs is characterized by rapid technological change, new product and service introductions, consumerism and engagement, and the
entrance of non-traditional competitors. In addition, there may be a limited-time opportunity to achieve and maintain a significant share of these markets due in part to the rapidly evolving nature of the businesses within our Home Services,
Health Services and Fitness & Wellness Services verticals, the technology industries that support these businesses and the substantial resources available to our existing and potential competitors. The market for technology-enabled services
within these verticals is relatively new and unproven, and it is uncertain whether this market will achieve and sustain high levels of demand and market adoption.
In order to remain competitive, we are continually involved in a number of projects to
compete with these new market entrants by developing new services, growing our client base and penetrating new markets. Some of these projects include the expansion of our integration capabilities around our vertical markets, such as field
service management, EHR, PM and other solutions. These projects carry risks, such as cost overruns, delays in delivery, performance problems and lack of acceptance by our clients.
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Consolidation in the industries in which we
operate could decrease demand for our solutions and services by existing and potential clients in such industries.
Participants and businesses in the industries in which we operate may consolidate and
merge to create larger or more integrated entities with greater market power. We expect regulatory, economic and other conditions to result in additional consolidation in the future. As consolidation accelerates, the economies of scale of our
clients’ organizations may grow. If a client experiences sizable growth following consolidation, it may determine that it no longer needs to rely on us and may reduce its demand for our solutions and services. In addition, if an existing
independent client elects to become a part of a franchise group, or if an existing franchise client opts to change to a different franchise group, such clients may be required by the terms of their respective franchise group to use different
solutions and services, which would have an adverse impact on our operations and demand for our solutions. Furthermore, as companies consolidate to create larger and more integrated entities with greater market power, these new entities may try
to use their market power to negotiate fee reductions for our solutions and services. Finally, consolidation may also result in the acquisition or future development by our customers of products and services that compete with our solutions and
services. Any of these potential results of consolidation could have a material adverse effect on our business, financial condition and results of operations.
We are dependent on payment card networks, such as
Visa and MasterCard, and payment processors, such as Worldpay and PayPal, and if we fail to comply with the applicable requirements of our payment network or payment processors, they can seek to fine us, suspend us or terminate our
registrations through our bank sponsors.
We have entered into agreements with certain payment processors, including Worldpay and
PayPal, in order to enable our clients’ processing of credit, debit and prepaid card transactions through the card networks, such as Visa and MasterCard. Pursuant to these agreements with payment processors, we are registered with the card
networks as an independent sales organization (ISO) of our sponsor bank or as a payment facilitator, and are subject to the card network rules and certain other obligations. The payment networks routinely update and modify requirements
applicable to merchant acquirers, including rules regulating data integrity, third-party relationships (such as those with respect to bank sponsors and ISOs), merchant chargeback standards and the Payment Card Industry Data Security Standards,
or PCI DSS. The rules of the card networks are set by their boards, which may be influenced by card issuers, some of which offer competing transaction processing services.
If we fail to comply with the applicable rules and requirements of the payment card
networks or payment processors, they could suspend or terminate our registration. Further, our transaction processing capabilities, including with respect to settlement processes, could be delayed or otherwise disrupted, and recurring
non-compliance could result in the payment networks or payment processors seeking to fine us, or suspend or terminate our registrations which allow us to process transactions on their networks, which would make it impossible for us to conduct
our business on its current scale. Under certain circumstances specified in the payment network rules, we may be required to submit to periodic audits, self-assessments or other assessments of our compliance with the PCI DSS. Such activities
may reveal that we have failed to comply with the PCI DSS. In addition, even if we comply with the PCI DSS, there is no assurance that we will be protected from a security breach. In the regular course of business, we enter into standard form
contracts with a number of payment processors for the provision of payment processing and related services. Our contracts with payment processors, including Worldpay and PayPal, include standard confidentiality, indemnification and data
protection obligations, among others. Our contracts with Worldpay and PayPal provide for certain termination events, such as material breach, and are subject to automatic annual renewal unless terminated by either party upon prior notice or for
cause. The termination of our registration with the payment networks or our relationships with the payment processors, or any changes in payment network, payment processor or issuer rules that limit our ability to provide merchant acquiring
services, could have an adverse effect on our payment processing volumes, revenues and operating costs. If we are unable to comply with the requirements applicable to our settlement activities, the payment networks or payment processors may no
longer allow us to provide these services, which would require us to spend additional resources to obtain settlement services from a third-party provider. In addition, if we were precluded from processing Visa and MasterCard transactions, which
we access through our payment processor arrangements, we would lose substantially all of our revenue.
We are also subject to the operating rules of the National Automated Clearing House
Association, or NACHA, a self-regulatory organization which administers and facilitates private-sector operating rules for ACH payments and defines the roles and responsibilities of financial institutions and other ACH network participants. The
NACHA
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Rules and Operating Guidelines impose obligations on us and our partner financial
institutions. These obligations include audit and oversight by the financial institutions and the imposition of mandatory corrective action, including termination, for serious violations. If an audit or self-assessment under PCI DSS or NACHA
identifies any deficiencies that we need to remediate, the remediation efforts may distract our management team and be expensive and time consuming.
If we cannot keep pace with rapid developments and
changes in the electronic payments market or are unable to introduce, develop and market new and enhanced versions of our software solutions, we may be put at a competitive disadvantage with respect to our services that incorporated payment
technology.
Payment-related transactions comprised approximately 14% of our revenue in 2020. The
electronic payments market is subject to constant and significant changes. This market is characterized by rapid technological evolution, new product and service introductions, evolving industry standards, changing client needs and the entrance
of non-traditional competitors, including products and services that enable card networks and banks to transact with consumers directly. To remain competitive, we continually pursue initiatives to develop new solutions and services to compete
with these new market entrants. These projects carry risks, such as cost overruns, delays in delivery, performance problems and lack of client acceptance. In addition, new solutions and offerings may not perform as intended or generate the
business or revenue growth expected. Any delay in the delivery of new solutions and services or the failure to differentiate our solutions and services or to accurately predict and address market demand could render our solutions and services
less desirable, or even obsolete, to our clients and to our distribution partners. Furthermore, even though the market for integrated payment processing solutions and services is evolving, it may develop too rapidly or not rapidly enough for us
to recover the costs we have incurred in developing new solutions and services targeted at this market. Any of the foregoing could have a material and adverse effect on our operating results and financial condition.
The continued growth and development of our payment processing activities will depend on
our ability to anticipate and adapt to changes in consumer behavior. For example, consumer behavior may change regarding the use of payment card transactions, including the relative increased use of crypto-currencies, other emerging or
alternative payment methods and payment card systems that we or our processing partners do not adequately support or that do not provide adequate commissions to parties like us. Any failure to timely integrate emerging payment methods into our
software, to anticipate consumer behavior changes or to contract with processing partners that support such emerging payment technologies could cause us to lose traction among our customers or referral sources, resulting in a corresponding loss
of revenue, if those methods become popular among end-users of their services.
The solutions and services we deliver are designed to process complex transactions and
provide reports and other information on those transactions, all at very high volumes and processing speeds. Our technology offerings must also integrate with a variety of network, hardware, mobile and software platforms and technologies, and
we need to continuously modify and enhance our solutions and services to adapt to changes and innovation in these technologies. Any failure to deliver an effective, reliable and secure service or any performance issue that arises with a new
solution or service could result in significant processing or reporting errors or other losses. If we do not deliver a promised new solution or service to our clients or distribution partners in a timely manner or the solution or service does
not perform as anticipated, our development efforts could result in increased costs and a loss in business that could reduce our earnings and cause a loss of revenue. We also rely in part on third parties, including some of our competitors and
potential competitors, for the development of and access to new technologies, including software and hardware. Our future success will depend in part on our ability to develop or adapt to technological changes and evolving industry standards.
If we are unable to develop, adapt to or access technological changes or evolving industry standards on a timely and cost-effective basis, our business, financial condition and results of operations would be materially adversely affected.
Real or perceived errors, failures or bugs in our
solutions could adversely affect our business, results of operations, financial condition and growth prospects.
Our customers expect a consistent level of quality in the provision of our solutions and
services. The support services that we provide are also a key element of the value proposition to our customers. However, complex technological solutions such as ours often contain errors or defects, particularly when first introduced or when
new versions or enhancements are released. Errors will affect the implementation, as well as the performance, of our solutions and software and could delay the development or release of new solutions or new versions of
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solutions, adversely affect our reputation and our customers’ willingness to buy
solutions from us, and adversely affect market acceptance or perception of our solutions. We may also experience technical or other difficulties in the integration of acquired technologies and software solutions into our existing platforms and
applications. Any such errors or delays in introducing or implementing new or enhanced solutions or allegations of unsatisfactory performance could cause us to lose revenue or market share, increase our service costs, cause us to incur
substantial costs, cause us to lose significant customers, negatively affect our ability to attract new clients, subject us to liability for damages and divert our resources from other tasks, any one of which could materially and adversely
affect our business, results of operations and financial condition.
Unauthorized disclosure, destruction or
modification of data, disruption of our software or services or cyber breaches could expose us to liability, protracted and costly litigation and damage our reputation.
We are responsible both for our own business and to a significant degree for acts and
omissions by certain of our distribution partners and third-party vendors under the rules and regulations established by the payment networks, such as Visa, MasterCard, Discover and American Express, and the debit networks. We and other third
parties collect, process, store and transmit sensitive data, such as names, addresses, social security numbers, credit or debit card numbers and expiration dates or other payment card information, drivers’ license numbers and bank account
numbers and personal health information, and we have ultimate liability to the payment networks and member financial institutions that register us with the payment networks for our failure, or the failure of certain distribution partners and
third parties with whom we contract, to protect this data in accordance with payment network requirements. Certain of our software and technology-enabled services are intended for use in collecting, storing and displaying clinical and health
care-related information used in the diagnosis and treatment of patients and in related health care settings such as registration, scheduling and billing. We attempt to limit by contract our liability, however, the limitations of liability set
forth in the contracts may not be enforceable or otherwise protect us from liability, and we may also be subject to claims that are not covered by contract. Although we maintain liability insurance coverage, there can be no assurance that such
coverage will cover any claim, prove to be adequate or continue to remain available on acceptable terms, if at all. The loss, destruction or unauthorized modification of client or cardholder data could result in significant fines, sanctions and
proceedings or actions against us by the payment networks, governmental bodies, our customers, our clients’ customers or others, which could have a material adverse effect on our business, financial condition and results of operations. Any such
sanction, fine, proceeding or action could result in significant damage to our reputation or the reputation of our customers, negatively impact our ability to attract or retain customers, force us to incur significant expenses in defense of
these proceedings, disrupt our operations, distract our management, increase our costs of doing business and may result in the imposition of monetary liability. A significant cybersecurity breach could also result in payment networks
prohibiting us from processing transactions on their networks or the loss of our financial institution sponsorship that facilitates our participation in the payment networks, either of which could materially impede our ability to conduct
business.
In addition our products and services have been and may in the future be targets of
cyber-attacks that attempt to sabotage or otherwise disable them, and the defensive and preventative measures we take ultimately may not be able to effectively detect, prevent, or protect against or otherwise mitigate losses from all
cyber-attacks. Despite our efforts to create security barriers against such threats, it is virtually impossible for us to eliminate these risks entirely. Any such breach could compromise our networks or the products we offer our customers,
creating system disruptions or slowdowns and exploiting security vulnerabilities of our products. Additionally, the information stored on our networks could be accessed, publicly disclosed, lost or stolen, any of which could subject us to
liability and cause us financial harm. These breaches, or any perceived breach, may also result in reporting obligations damage to our reputation, negative publicity, loss of key partners, customers and transactions, increased remedial costs,
or costly litigation, and may therefore adversely impact market acceptance of our products and services and may seriously affect our business, financial condition or results of operations.
An increasing number of organizations, including large merchants, businesses, technology
companies, and financial institutions, as well as government institutions, have disclosed breaches of their information security systems, some of which have involved sophisticated and highly targeted attacks on their websites, mobile
applications, and infrastructure. The techniques used to obtain unauthorized, improper, or illegal access to systems and information (including customers’ personal data), disable or degrade service, or sabotage systems are constantly evolving
and have become increasingly complex and sophisticated, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. Threats can come from a variety of sources, including
criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage,
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and insider threats. Certain efforts may be supported by significant financial and
technological resources, making them even more sophisticated and difficult to detect. Numerous and evolving cybersecurity threats, including advanced and persisting cyber-attacks, cyber-extortion, ransomware attacks, spear phishing and social
engineering schemes, the introduction of computer viruses or other malware, and the physical destruction of all or portions of our information technology and infrastructure could compromise the confidentiality, availability, and integrity of
the data in our systems.
We have been and could in the future be subject to breaches of security by hackers or
other malicious actors. Although we proactively employ multiple measures to defend our systems against intrusions and attacks and to protect the data we collect, our measures may not prevent unauthorized access or use of sensitive data. We
experience cyber-attacks and other security incidents of varying degrees from time to time, though none which individually or in the aggregate has led to costs or consequences which have materially impacted our operations or business. We may be
required to expend significant additional resources in our efforts to modify or enhance our protective measures against evolving threats. A breach of our system or a third-party system upon which we rely may subject us to material losses or
liability, including payment network fines, assessments and claims for unauthorized purchases with misappropriated credit, debit or card information, impersonation or other similar fraud claims or civil liability as a result of mishandled
personal health information. A misuse of such data or a cybersecurity breach could harm our reputation and deter our clients and potential clients from using electronic payments generally and our solutions and services specifically, thus
reducing our revenue. In addition, any such misuse or breach could cause us to incur costs to correct the breaches or failures, expose us to uninsured liability, increase our risk of regulatory scrutiny, subject us to lawsuits and result in the
imposition of material penalties and fines under state and federal laws or by the payment networks. While we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance
coverage may be insufficient to cover all losses.
Although we generally require that our agreements with our distribution partners and
service providers who have access to client and customer data include confidentiality obligations that restrict these parties from using or disclosing any client or customer data except as necessary to perform their services under the
applicable agreements, there can be no assurance that these contractual measures will prevent the unauthorized disclosure of business or client data, nor can we be sure that such third parties would be willing or able to satisfy liabilities
arising from their breach of these agreements. Any failure by such third parties to adequately take these protective measures could result in protracted or costly litigation.
In addition, our agreements with our bank sponsors (as well as payment network
requirements) require us to take certain protective measures to ensure the confidentiality of business and consumer data. Any failure to adequately comply with these protective measures could result in fees, penalties, litigation or termination
of our bank sponsor agreements.
Our existing general liability and cyber liability insurance policies may not cover, or
may cover only a portion of, any potential claims related to security breaches to which we are exposed or may not be adequate to indemnify us for all or any portion of liabilities that may be imposed. We also cannot be certain that our existing
insurance coverage will continue to be available on acceptable terms or in amounts sufficient to cover the potentially significant losses that may result from a security incident or breach or that the insurer will not deny coverage of any
future claim. Accordingly, if our cybersecurity measures and those of our service providers, fail to protect against unauthorized access, attacks (which may include sophisticated cyber-attacks) and the mishandling of data by our employees and
contractors, then our reputation, business, results of operations and financial condition could be adversely affected.
Our estimated total addressable market is subject
to inherent challenges and uncertainties. If we have overestimated the size of our total addressable market or the various markets in which we operate, our future growth opportunities may be limited.
We estimate the total addressable market, or TAM, for our current solutions for service
SMBs was approximately $1.3 trillion globally in 2020, of which approximately $520 billion was in North America, which refers to the United States and Canada. Of the $520 billion, we estimate a $59 billion opportunity in Home Services, a
$84 billion opportunity in Health Services, a $21 billion opportunity in Fitness & Wellness Services, and a $356 billion opportunity in other services categories. We have based our estimates on a number of internal and third-party estimates
and resources, including, without limitation, third party reports and the experience of our management team across these industries. While we believe our assumptions and the data underlying our estimates are
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reasonable, these assumptions and estimates may not be correct and the conditions
supporting our assumptions or estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors. As a result, our estimates of the annual total addressable market for our current solutions and services may
prove to be incorrect. If third-party or internally generated data prove to be inaccurate or we make errors in our assumptions based on that data, our the annual total addressable market for our solutions and services may be smaller than we
have estimated, our future growth opportunities and sales growth may be impaired, any of which could have a material adverse effect on our business, financial condition and results of operations.
We calculate certain operational metrics using
internal systems and tools and do not independently verify such metrics. Certain metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our
business.
We refer to a number of operational metrics herein, including Pro Forma Revenue Growth
Rate, Adjusted Gross Profit, Adjusted EBITDA, monthly net pro forma revenue retention rate, lifetime value of a customer, customer acquisition costs, and other metrics. We calculate these metrics using internal systems and tools that are not
independently verified by any third party. These metrics may differ from estimates or similar metrics published by third parties or other companies due to differences in sources, methodologies or the assumptions on which we rely. Our internal
systems and tools have a number of limitations, and our methodologies for tracking these metrics may change over time, which could result in unexpected changes to our metrics, including the metrics we publicly disclose on an ongoing basis. If
the internal systems and tools we use to track these metrics undercount or over count performance or contain algorithmic or other technical errors, the data we present may not be accurate. While these numbers are based on what we believe to be
reasonable estimates of our metrics for the applicable period of measurement, there are inherent challenges in measuring savings, the use of our solutions, services and offerings and other metrics. In addition, limitations or errors with
respect to how we measure data or with respect to the data that we measure may affect our understanding of certain details of our business, which would affect our long-term strategies. If our operating metrics or our estimates are not accurate
representations of our business, or if investors do not perceive our operating metrics to be accurate, or if we discover material inaccuracies with respect to these figures, our reputation may be significantly harmed, and our operating and
financial results could be adversely affected.
Failure to effectively develop and expand our
sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance and utilization of our solutions.
Our ability to increase our customer base and achieve broader market acceptance of our
solutions and services will depend to a significant extent on our ability to expand our sales and marketing organizations, and to deploy our sales and marketing resources efficiently. An important component of our growth strategy is to increase
the cross-selling of our solutions and services to current and future SMB customers. However, if our sales force is not successful in doing so, or our existing and potential customers find our additional solutions and services to be unnecessary
or unattractive, we may not be able to increase our customer base. We have invested, and plan to continue to invest, significant resources in expanding our direct-to-SMB sales force as well as our sales force focused on identifying new
strategic partners. However, we may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop, integrate, and retain talented and effective sales personnel, if our new and existing sales personnel
are unable to achieve desired productivity levels in a reasonable period of time.
We also dedicate significant resources to sales and marketing programs. The effectiveness
and cost of our online advertising has varied over time and may vary in the future due to competition for key search terms, changes in search engine use, and changes in the search algorithms and rules used by major search engines. These efforts
will require us to invest significant financial and other resources. Our business and operating results will be harmed if our sales and marketing efforts do not generate significant increases in revenue.
If we are not able to maintain and enhance our
reputation and brand recognition, our business and results of operations may be harmed.
We believe that maintaining and enhancing our reputation and brand recognition is critical
to our relationships with existing clients and the customers or patients that they serve and to our ability to attract new clients. As our marketing efforts depend significantly on positive recommendations and referrals from our current and
past SMB customers, a failure to maintain and provide high-quality solutions and services, or a market perception that we do
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not maintain or provide high-quality solutions and services, may harm our reputation
and impair our ability to secure new customers. Any decisions we make regarding regulatory compliance, user privacy, payments and other issues, and any media, legislative or regulatory scrutiny of our business, or our current or former
directors, employees, contractors, or vendors, could negatively affect our brands. If we do not successfully maintain and enhance the integrity, quality, efficiency and scalability of our software and systems, as well as our reputation and
brand recognition among our customers and the end customers they serve, our business may not grow and we could lose existing customers, which would harm our business, results of operations and financial condition. For example, the success of
our digital lead generation capabilities within our EverPro platform depends, in part, on our ability to establish and maintain relationships with quality and trustworthy home service professionals and home improvement contractors, such as home
maintenance technicians and security alarm professionals operating in both residential and commercial settings. We provide our home service professionals with solutions to capture and manage lead generations to residential homeowners and
business owners, who in turn want to work with home service professionals whom they can trust to provide quality workmanship. Unsatisfactory work performed by any of our recommended home service professionals could result in bad publicity and
related damage to our reputation and/or litigation, which in turn may adversely affect our business, financial condition and results of operations.
Further, the promotion of our platforms and services may require us to make substantial
investments and we anticipate that, as our market becomes increasingly competitive, these marketing initiatives may become increasingly difficult and expensive. Our marketing activities may not be successful or yield increased revenue, and to
the extent that these activities yield increased revenue, the increased revenue may not offset the expenses we incur and our results of operations could be harmed. In addition, any factor that diminishes our reputation or that of our
management, including failing to meet the expectations of our customers, could make it substantially more difficult for us to attract new customers.
If we are unable to retain our current
customers, which are primarily SMBs, or sell additional functionality and services to them, our revenue growth may be adversely affected.
To increase our revenue, in addition to acquiring new customers, we must continue to
retain existing clients and convince them to expand their use of our solutions and services by increasing the number of users and incenting them to pay for additional functionality. Many of our clients are SMBs, which can be more difficult to
retain than large enterprises as SMBs often have higher rates of business failures and more limited resources and are typically less able to make technology-related decisions based on factors other than price. Further, SMBs are fragmented in
terms of size, geography, sophistication and nature of business and, consequently, are more challenging to serve at scale and in a cost-effective manner. As a result, we may be unable to retain existing clients or increase the usage of our
solutions and services by them, which would have an adverse effect on our business, revenue and other operating results, and accordingly, on the trading price of our common stock.
Our ability to sell additional functionality to our existing customers may require more
sophisticated and costly sales efforts, especially for our larger customers with more senior management and established procurement functions. Similarly, the rate at which our customers purchase additional solutions from us depends on several
factors, including general economic conditions and the pricing of additional functionality. SMBs are typically more susceptible to such factors and any adverse changes in the economic environment or business failures of our SMB customers may
have a greater impact on us than on our competitors who do not focus on SMBs to the extent that we do. If our efforts to sell additional functionality to our clients are not successful, our business and growth prospects would suffer.
While some of our contracts are non-cancelable annual subscription contracts, most of our
contracts with clients primarily consist of open-ended arrangements that can be terminated by either party without penalty, generally upon providing 30-day notice. Our clients have no obligation to renew their subscriptions for our solutions
and services after the expiration of their subscription period. For us to maintain or improve our operating results, it is important that our customers continue to maintain their subscriptions on the same or more favorable terms. We cannot
accurately predict renewal or expansion rates given the diversity of our customer base in terms of size, industry, and geography. Our renewal and expansion rates may decline or fluctuate as a result of several factors, including consumer
spending levels, client satisfaction with our solutions and services, decreases in the number of users, changes in the type and size of our customers, pricing changes, competitive conditions, the acquisition of
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our customers by other companies, and general economic conditions. If our customers do
not renew their subscriptions, our revenue and other operating results will decline and our business will suffer. If our renewal or expansion rates fall significantly below the expectations of the public market, securities analysts, or
investors, the trading price of our common stock would likely decline.
Further, we have key customers and a more pronounced customer concentration in certain
markets. Consequently, the loss of any of our key customers or any significant reduction in their usage of our solutions and services may reduce our sales revenue and net profit. There can be no guarantee that our key customers will not in the
future seek to source some or all of their solutions and services from competitors or begin to develop such solutions or services in-house. Any loss, change or other adverse event related to our key customer relationships could have an adverse
effect on our business, results of operations and financial condition.
Our systems and our third-party providers’
systems, including Worldpay, PayPal and other payment processing partners, may fail, or our third-party providers may discontinue providing their services or technology generally or to us specifically, which in either case could interrupt our
business, cause us to lose business and increase our costs.
We rely on our systems, technology and infrastructure to perform well on a consistent
basis. From time to time in the past we have experienced (and in the future we may experience) occasional interruptions that make some or all of this framework and related information unavailable or that prevent us from providing solutions and
services. Any such interruption could arise for any number of reasons. We also rely on third parties, such as Worldpay, PayPal and other payment processing partners, for specific services, software and hardware used in providing our solutions
and services. Some of these organizations and service providers are our competitors or provide similar services and technology to our competitors, and we may not have long-term contracts with them. If these contracts are canceled or we are
unable to renew them on commercially reasonable terms, or at all, our business, financial condition and results of operation could be adversely impacted. The termination by our service or technology providers of their arrangements with us or
their failure to perform their services efficiently and effectively may adversely affect our relationships with our clients and, if we cannot find alternate providers quickly, may cause those clients to terminate their processing agreements
with us. We will continually work to expand and enhance the efficiency and scalability of our framework to improve the consumer and service professional experience, accommodate substantial increases in the number of visitors to our various
platforms, ensure acceptable load times for our various solutions and services and keep up with changes in technology and user preferences. If we do not do so in a timely and cost-effective manner, the user experience and demand across our
brands and businesses could be adversely affected, which could adversely affect our business, financial condition and results of operations.
Our systems and operations or those of our third-party technology vendors could be exposed
to damage or interruption from, among other things, fire, natural disaster, power loss, telecommunications failure, unauthorized entry, computer viruses, denial-of-service attacks, acts of terrorism, human error, vandalism or sabotage,
financial insolvency and similar events. Our property and business interruption insurance may not be adequate to compensate us for all losses or failures that may occur. While we and the third parties upon whom we rely have certain backup
systems in place for certain aspects of our respective frameworks, none of our frameworks are fully redundant and disaster recovery planning is not sufficient for all eventualities. Defects in our systems or those of third parties, errors or
delays in the processing of payment transactions, telecommunications failures or other difficulties could result in:
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loss of clients;
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loss of client and cardholder data;
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fines imposed by payment networks;
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harm to our business or reputation resulting from negative publicity;
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exposure to fraud losses or other liabilities;
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additional operating and development costs; or
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diversion of management, technical or other resources, among other consequences.
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To the extent that such disruptions result in delays or cancellations of customer
orders, or the deployment of our solutions, our business, operating results and financial condition would be adversely affected.
If lower margin solutions and services grow at a
faster rate than our higher margin solutions and services, we may experience lower aggregate profitability and margins.
While we have experienced significant growth across our offering of solutions and
services, certain solutions and services, such as our marketing technology solutions, have lower margins as compared to our subscription and transaction fee services, such as our vertical business management software and integrated payment
solutions. For the year ended December 31, 2020, subscription and transaction fees and marketing technology solutions generated 69.0% and 25.6%, respectively, of our total revenues. Subscription and transaction fees and marketing technology
solutions generated 71.1% and 25.1% of our total revenues for the nine months ended September 30, 2021. To the extent our lower margin solutions and services grow as a portion of our overall business, there may be an adverse impact on our
aggregate profitability and margins. Due primarily to acquisitions involving marketing technology solutions during the periods, marketing technology solutions revenue increased 130.1% in the year ended December 31, 2020 compared to the year
ended December 31, 2019, whereas revenue from subscription and transaction fees increased 23.9%. In the nine months ended September 30, 2021, revenue from subscription and transaction fees increased 49.7% compared to the nine months ended
September 30, 2020, whereas marketing technology solutions revenue increased 41.8%. 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.
In addition, we may be unable to achieve satisfactory prices for our offerings or maintain
prices at competitive levels across our offering of solutions and services. If we are unable to maintain our prices, or if our costs increase and we are unable to offset such increase with an increase in our prices, our margins could decline.
We will continue to be subject to significant pricing pressure, and expect that we will continue to experience growth across our offerings, including in respect of our lower margin solutions, such as our marketing technology solutions, which
will likely have a material adverse effect on our margins.
The outbreak of the novel strain of coronavirus
disease has impacted, and a future pandemic, epidemic or outbreak of an infectious disease in the United States could impact, our business, financial condition and results of operations, as well as the business or operations of third parties
with whom we conduct business.
In December 2019, a novel strain of coronavirus, SARS-CoV-2, was identified in Wuhan,
China. Since then, SARS-CoV-2, and the resulting disease, COVID-19, has spread to almost every country in the world and all 50 states within the United States. The COVID-19 pandemic and related health concerns relating to the outbreak has
significantly increased economic uncertainty and has caused economies, businesses, markets and communities around the globe to be disrupted, and in many cases, shut-down. The COVID-19 pandemic is evolving, and to date has led to the
implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures, as well as the development and controlled distribution of vaccines. In the interest of public health,
many governments closed physical stores and business locations deemed to be non-essential, which has caused increasing unemployment levels and for businesses to permanently close. These and other measures have also negatively impacted consumer
spending and business spending habits, and have adversely impacted and may further impact our workforce and operations and the operations of our customers across industries and markets. For example, in March 2020, in compliance with the local,
state and federal government regulations, we transitioned our worldwide workforce and operations to a remote, work-from-home setting, with the exception of certain customer support personnel. In the second quarter of 2020 we completed a
reduction in our workforce. We also reduced other operating expenses in an effort to maintain profitability and cash flow. Although certain measures are beginning to ease in some geographic regions, overall measures to contain the COVID-19
outbreak may remain in place for a significant period of time, and certain geographic regions are experiencing a resurgence of COVID-19 infections. The duration and severity of this pandemic is unknown and the extent of the business disruption
and financial impact depend on factors beyond our knowledge and control.
Given the uncertainty around the duration and extent of the COVID-19 pandemic, we expect
the evolving COVID-19 pandemic to continue to impact our business, financial condition, results of operations and liquidity, but cannot accurately predict at this time the future potential impact on our business, financial condition, results of
operations or liquidity. Many SMBs, including customers in each of our three current verticals, have been adversely impacted by the COVID-19 pandemic. For example, various government measures, community self-isolation
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practices and shelter-in-place requirements, as well as the perceived need by
individuals to continue such practices to avoid infection, have generally reduced our customers operations and demand for their products and services. At the initial peak of the pandemic, nearly all fitness studios and gyms were closed and many
locations remain closed, either on a permanent basis or until they are permitted to open by local regulations. Such regulations may also impose stringent guidelines with respect to the operations of studios and gyms, including a reduced number
of class participants, increased spacing requirements and restrictions on sharing equipment. These requirements and any associated compliance costs have had and may continue to have an adverse impact on the operations of our Fitness &
Wellness Services customers and accordingly on our operations and business as well. Similarly, Health Services was and continue to be significantly impacted by the COVID-19 pandemic. For example, many patients have avoided or been encouraged
not to visit hospitals, physicians and other services provides or to undergo optional or elective procedures and treatments.
Conversely, pandemics, epidemics and outbreaks may significantly and temporarily increase
demand in certain industries and markets in which we operate. For example, the COVID-19 pandemic has generally increased demand for, and utilization of, telehealth services, and has increased demand from customers shifting to
technology-focused, digital-first business models. While such increases may help to offset the decline of business and demand in other industries, there can be no assurance that these levels of interest, demand and use will continue at current
levels or will not decrease during or after the pandemic. Federal and state budget shortfalls, exacerbated by the COVID-19 pandemic could lead to potential reductions in funding for Medicare and Medicaid. Further reductions in reimbursements
from Medicare and Medicaid could lead to our Health Services customers postponing expenditures on information technology and related services.
In addition, preventative and precautionary measures that we, other businesses, our
communities and governments have and are taking in response to the COVID-19 pandemic may continue to adversely affect elements of our business. We have taken temporary precautionary measures intended to help mitigate the risk of the coronavirus
to our employees, including the transition of our worldwide workforce and operations to a remote, work-from-home setting in March 2020, and our subsequent efforts to supply our employees with the necessary equipment and tools to work-from-home.
It is possible that such widespread remote work arrangements and reduced capacities could have a negative impact on our operations and the productivity and availability of key personnel and other employees necessary to conduct our business, or
otherwise cause operational failures due to changes in our normal business practices necessitated by the COVID-19 pandemic and related governmental actions. The increase in remote working may also result in consumer and patient privacy, IT
security and fraud risks, and our understanding of applicable legal and regulatory requirements, as well as the latest guidance from regulatory authorities in connection with the COVID-19 pandemic, may be subject to legal or regulatory
challenge, particularly as regulatory guidance evolves in response to future developments.
Further, while the potential economic impact brought by and the duration of any pandemic,
epidemic or outbreak of an infectious disease, including COVID-19, may be difficult to assess or predict, the widespread COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which
could result in a reduction in our ability to access capital that could adversely affect our liquidity.
The full extent to which the outbreak of COVID-19 will impact our business, results of
operations and financial condition is still unknown and will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the emergence
of variants and strains of the virus, the actions to contain the virus or treat its impact, including the development and distribution of vaccines and therapies, and how quickly and to what extent normal economic and operating conditions can
resume. Even after the outbreak of COVID-19 has subsided, we may experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.
To the extent the COVID-19 pandemic adversely affects our business, financial condition
and results of operations, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
We are subject to economic and political risk, the
business cycles of our clients and changes in the overall level of consumer and commercial spending, which could negatively impact our business, financial condition and results of operations.
We are exposed to general economic conditions that affect consumer confidence, consumer
spending, consumer discretionary income and changes in consumer purchasing habits. A sustained deterioration in general economic
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conditions, particularly in the United States, or increases in interest rates, could
adversely affect our financial performance by reducing the number or aggregate volume of transactions made using electronic payments. A reduction in the amount of consumer or commercial spending could result in a decrease in our revenue and
profits. If our customers make fewer purchases or sales of products and services using electronic payments, or consumers spend less money through electronic payments, we will have fewer transactions to process at lower dollar amounts, resulting
in lower revenue.
While we attempt to minimize our exposure to economic or market fluctuations by serving a
balanced mix of end markets and geographic regions, any significant or sustained downturn in a specific end market or geographic region can impact our business and that of our customers. These factors may make it difficult for our customers and
us to accurately forecast and plan future business activities; neither we nor our customers can predict the timing, strength or duration of any economic downturn or subsequent recovery. Furthermore, if a significant portion of our customers are
concentrated in a specific geographic area or industry, our business may be disproportionately affected by negative trends or economic downturns in those specific geographic areas or industries. These factors may also cause our customers to
reduce their capital expenditures, alter the mix of services purchased and otherwise slow their spending on our services. In addition, due to these conditions, many of our competitors may be more inclined to take greater or unusual risks or
accept terms and conditions in contracts that we might not deem acceptable. These conditions and factors may reduce the demand for our services and solutions, and more generally may adversely affect our business, results of operations and
financial condition.
A weakening in the economy could have a negative impact on our customers, as well as the
customers they serve who purchase solutions and services using the payment processing systems to which we provide access, which could, in turn, negatively affect our business, financial condition and results of operations. Many of our clients
are SMBs. To continue to grow our revenue, we must add new SMB customers, sell additional solutions and services to existing SMB customers and encourage existing SMB customers to continue doing business with us. However, a weakening in the
economy could force SMBs to close at higher than historical rates in part because many of them are not as well capitalized as larger organizations and are typically less able to make technology-related decisions based on factors other than
price, which could expose us to potential credit losses and future transaction declines. Further, credit card issuers may reduce credit limits and become more selective in their card issuance practices. We also have a certain amount of fixed
and semi-fixed costs, including rent, debt service and salaries, which could limit our ability to quickly adjust costs and respond to changes in our business and the economy.
General inflation, including wage inflation, increases in interest rates, currency
volatility as well as monetary, fiscal and policy interventions by national or regional governments in anticipation of or reaction to such events could have negative impacts on our business by increasing our operating costs and our borrowing
costs as well as decreasing the capital available for our customers to purchase our solutions and services.
If we are unable to retain our personnel and hire
additional skilled personnel, we may be unable to achieve our goals.
Our future success depends upon our ability to attract, train and retain highly skilled
employees and contract workers, particularly our management team, sales and marketing personnel, professional services personnel and software engineers. Any of our key personnel have worked for us for a significant amount of time or were
recruited by us specifically due to their experience. Our success depends in part upon the reputation and influence within the industry of our senior managers who have, over the years, developed long standing and favorable relationships with
our vendors, card associations, bank sponsors and other payment processing and service providers. Each of our executive officers and other key employees may terminate his or her relationship with us at any time and the loss of the services of
one or a combination of our senior executives or members of our senior management team, including our Chief Executive Officer, Eric Remer, our President, Matthew Feierstein, and our Chief Financial Officer, Marc Thompson, may significantly
delay or prevent the achievement of our business or development objectives and could materially harm our business. Further, contractual obligations related to confidentiality and assignment of intellectual property rights may be ineffective or
unenforceable, and departing employees may share our proprietary information with competitors in ways that could adversely impact us.
In addition, certain senior management personnel are substantially vested in their stock
option grants or other equity compensation. While we periodically grant additional equity awards to management personnel and other key employees to provide additional incentives to remain employed by us, employees may be more likely to leave us
if a significant portion of their equity compensation is fully vested.
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We face intense competition for qualified individuals from numerous other technology
companies. Often, significant amounts of time and resources are required to train technical personnel and we may lose new employees to our competitors or other technology companies before we realize the benefit of our investment in recruiting
and training them. We may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational and managerial requirements, on a timely basis or at all, and we have paid and may in the
future be required to pay increased compensation in order to do so, including as a result of wage inflation. Because of the technical nature of our solutions and services and the dynamic market in which we compete, any failure to attract and
retain qualified personnel, as well as our contract workers, could have a material adverse effect on our ability to generate sales or successfully develop new solutions, client and consulting services and enhancements of existing solutions and
services. Also, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or divulged proprietary or other confidential information.
Our indebtedness could adversely affect our
financial health and competitive position.
As of September 30, 2021, we had cash, cash equivalents and restricted cash of $98.3
million, $155.0 million of borrowing capacity under our New Revolver, and $385.0 million outstanding under our New Credit Facilities. In connection with the acquisition of DrChrono, we may use up to $155 million under the New Revolver, and cash
on hand, to fund such acquisition. In addition, pursuant to the Term Loan Upsize, we intend to raise up to $200 million of additional term loan debt under our New Credit Agreement. We intend to use the proceeds from the Term Loan Upsize to
repay amounts outstanding under the New Revolver and for general corporate purposes. See “Recent Developments.” To service this debt and any additional debt we may incur in the future, we need to generate cash. Our ability to generate cash is
subject, to a certain extent, to our ability to successfully execute our business strategy, including acquisition activity, as well as general economic, financial, competitive, regulatory and other factors beyond our control. There can be no
assurance that our business will be able to generate sufficient cash flow from operations or that future borrowings or other financing will be available to us in an amount sufficient to enable us to service our debt and fund our other liquidity
needs. To the extent we are required to use our cash flow from operations or the proceeds of any future financing to service our debt instead of funding working capital, capital expenditures, acquisition activity or other general corporate
purposes, we will be less able to plan for, or react to, changes in our business, industry and in the economy generally. This will place us at a competitive disadvantage compared to our competitors that have less debt. There can be no assurance
that we will be able to refinance any of our debt on commercially reasonable terms or at all, or that the terms of that debt will allow any of the above alternative measures or that these measures would satisfy our scheduled debt service
obligations. If we are unable to generate sufficient cash flow to repay or refinance our debt on favorable terms, it could significantly adversely affect our financial condition and the value of our outstanding debt. Our ability to restructure
or refinance our debt will depend on the condition of the capital markets and our financial condition. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further
restrict our business operations. Additionally, in the future our credit rating may be downgraded due to the incurring additional indebtedness, including the Term Loan Upsize, or adverse economic or industry conditions, which could increase our
cost of debt and make it more onerous to restructure or refinance our existing indebtedness.
In addition, the terms of our New Credit facility contain, and any agreements evidencing
or governing other future debt may contain, certain restrictive covenants that limit our ability, among other things, to engage in certain activities that are in our long-term best interests and align with our business strategies or operations,
including our ability to:
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incur or assume additional debt or amend our debt and other material agreements;
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declare or make distributions and redeem or repurchase equity interests or issue preferred stock;
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In addition, under certain circumstances, we will be required to satisfy and maintain a
specified financial ratio under the terms of our New Credit Facilities. While we have not previously breached and are not in breach of any of these covenants, there can be no guarantee that we will not breach these covenants in the future. Our
ability to
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comply with these covenants and restrictions may be affected by events and factors
beyond our control. Our failure to comply with any of these covenants or restrictions could result in an event of default under the terms of our indebtedness. An event of default would permit the lending banks to take certain actions, including
terminating all outstanding commitments and declaring all amounts outstanding to be immediately due and payable, including all outstanding borrowings, accrued and unpaid interest thereon, and all other amounts owing or payable with respect to
such borrowings and any terminated commitments. In addition, the lenders would have the right to proceed against the collateral we granted to them, which includes substantially all of our assets. If payment of outstanding amounts under our New
Credit Facilities accelerated, our assets may be insufficient to repay such amounts in full, and our common stockholders could experience a partial or total loss of their investment.
Interest rate fluctuations may affect our results
of operations and financial condition.
Fluctuations in interest rates could have a material effect on our business. As a result,
we may incur higher interest costs if interest rates increase. These higher interest costs could have a material adverse impact on our financial condition and the levels of cash we maintain for working capital.
In addition, the terms of any Eurocurrency borrowings under our New Credit Facilities use,
a LIBOR rate, which represents the ICE Benchmark Administration Interest Settlement Rate, as a benchmark for establishing the rate of interest. The London Interbank Offered Rate, or LIBOR, is the subject of recent national, international, and
other regulatory guidance and proposals for reform and is expected to be replaced with a new benchmark or to perform differently than in the past. While our New Credit Facilities generally provide for alternative and LIBOR successor rates in
the event that the existing rate cannot be determined in accordance with the terms of the agreements, the consequences of these developments cannot be entirely predicted but could include an increase in the cost of our variable rate
indebtedness.
As a result of becoming a public company, we are
obligated to develop and maintain proper and effective internal control over financial reporting, and if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to
produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.
As a public company, we are subject to the reporting requirements of the Exchange Act, the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of The Nasdaq Stock Market, and other applicable securities rules and regulations. Compliance
with these rules and regulations has increased and will continue to increase our legal and financial compliance costs, make some activities more difficult, time consuming, or costly, and increase demand on our systems and resources,
particularly after we are no longer an emerging growth company. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. The Sarbanes-Oxley Act
requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. It may require significant resources and management oversight to maintain and, if necessary, improve our
disclosure controls and procedures and internal control over financial reporting to meet this standard. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating
results. Although we have already hired additional employees to comply with these requirements, we may need to hire more employees in the future or engage outside consultants, which would increase our costs and expenses.
As a public company, we are also required, pursuant to Section 404 of the Sarbanes-Oxley
Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K. Effective internal control over financial reporting is
necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in
their implementation, could cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading
price of our common stock.
This assessment will need to include disclosure of any material weaknesses identified by
our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on the effectiveness of our internal control over financial reporting, provided
that our
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independent registered public accounting firm will not be required to attest to the
effectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC following the later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as
defined in the Exchange Act, or the date we are no longer an emerging growth company, as defined in the JOBS Act. We could be an emerging growth company for up to five years. An independent assessment of the effectiveness of our internal
controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. We will be
required to disclose changes made in our internal control and procedures on a quarterly basis. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and
procedures and hiring accounting or internal audit staff.
We are in the early stages of the costly and challenging process of compiling the system
and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing, and any required remediation in a timely fashion. During the evaluation and testing
process, if we identify material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective.
If we are unable to assert that our internal control over financial reporting is
effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control, we could lose investor confidence in the accuracy and completeness of our financial reports, which
could cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the Nasdaq Global
Select Market.
In addition, as we continue to scale and improve our operations, including our internal
systems and processes, we are currently implementing, and in the future may seek to implement, a variety of critical systems, such as billing, human resource information systems and accounting systems. We cannot assure you that new systems,
including any increases in scale or related improvements, will be successfully implemented or that appropriate personnel will be available to facilitate and manage these processes. Failure to implement necessary systems and procedures,
transition to new systems and processes or hire the necessary personnel could result in higher costs, compromised internal reporting and processes and system errors or failures. For example, we recently initiated the simultaneous implementation
of a number of systems, including a new enterprise resource planning, or ERP, system that facilitates orderly maintenance of books and records and the preparation of financial statements. ERP system implementations are complex projects that
require significant investment of capital and human resources, the reengineering of many business processes and the attention of many employees who would otherwise be focused on other aspects of our business. The implementation and transition
to any new critical system, including our new ERP system, may be disruptive to our business if they do not work as planned or if we experience issues related to such implementation or transition, which could have a material adverse effect on
our operations.
Our ability to use our net operating losses to
offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the
Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-ownership change NOLs to offset future taxable income. For these purposes, an ownership change generally occurs where the
aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified
testing period. Similar rules may apply under state tax laws. Our existing NOLs may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change in connection with this offering, or there is a future
change in our stock ownership (which may be outside of our control) that results in an ownership change, our ability to utilize NOLs could be further limited by Section 382 of the Code. U.S. federal NOLs generated in taxable years beginning on
or before December 31, 2017, or pre-2017 NOLs, are subject to expiration while U.S. federal and certain state NOLs generated in taxable years beginning after December 31, 2017, or post-2017 NOLs, are not subject to expiration. Additionally, for
taxable years beginning after December 31, 2020, the deductibility of federal post-2017 NOLs is limited to 80% of our taxable income in such year, where taxable income is determined without regard to the NOL for such post-2017 NOLs. For these
and other reasons, we may not be able to realize a tax benefit from the use of our NOLs.
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Government healthcare regulation, healthcare
industry standards and other requirements create risks and challenges with respect to our compliance efforts and our business strategies within Health Services.
The healthcare industry is highly regulated and subject to frequently changing laws,
regulations and industry standards. These laws and regulations may impact us directly or indirectly through our contracts with Health Services customers. Many healthcare laws and regulations are complex, and their application to specific
solutions, services and relationships may not be clear. In particular, many existing healthcare laws and regulations, when enacted, did not anticipate the healthcare IT solutions and services that we provide, and these laws and regulations may
be applied to our solutions and services in ways that we do not anticipate. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), efforts to repeal or
materially change the ACA, and other federal and state efforts to reform or revise aspects of the healthcare industry or to revise or create additional legal or regulatory requirements could impact our operations, the use of our solutions and
our ability to market new solutions, or could create unexpected liabilities for us. We have attempted to structure our business and operations to comply with laws, regulations and other requirements applicable to us and to our customers and
contractors, but there can be no assurance that our business or operations will not be challenged or impacted by enforcement initiatives.
Risks related to intellectual property
We may be unable to adequately protect or enforce,
and we may incur significant costs in enforcing or defending, our intellectual property and other proprietary rights.
Our success depends in part on our ability to enforce and defend our intellectual property
and other proprietary rights. We rely upon a combination of trademark, trade secret, copyright and other intellectual property laws, as well as license agreements and other contractual provisions, to protect our intellectual property and other
proprietary rights. In addition, we attempt to protect our intellectual property and proprietary information by requiring our employees and consultants to enter into confidentiality, non-competition and assignment of inventions agreements.
However, we cannot be certain that the steps we have taken or will take to protect and enforce our intellectual property and proprietary rights will be successful. Third parties may challenge, invalidate, circumvent, infringe, misappropriate or
otherwise violate our intellectual property or the intellectual property of our third-party licensors, and any of these claims or actions may result in restrictions on our use of our intellectual property or the conduct of our business. Our
intellectual property may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages, which could result in costly redesign efforts, discontinuance of certain service offerings or
other competitive harm. Others, including our competitors, may independently develop similar technology, duplicate our solutions and services, design around or reverse engineer our intellectual property, and in such cases neither we nor our
third-party licensors may be able to assert intellectual property rights against such parties. We also rely, and expect to continue to rely on, certain services and intellectual property that we license from third parties for use in our product
offerings and services. We cannot be certain that our licensors are not infringing upon the intellectual property rights of others or that our suppliers and licensors have sufficient rights to the third-party technology incorporated into our
platform in all jurisdictions in which we may operate. Further, our contractual license arrangements may be subject to termination or renegotiation with unfavorable terms to us, and our third-party licensors may be subject to bankruptcy,
insolvency and other adverse business dynamics, any of which might affect our ability to use and exploit the products licensed to us by these third-party licensors. We may have to litigate to enforce or determine the scope and enforceability of
our intellectual property rights (including litigation against our third-party licensors), which is expensive, could cause a diversion of resources and may not prove successful. The loss of intellectual property protection or the inability to
obtain the right to use third-party intellectual property could harm our business and ability to compete.
Further, existing U.S. federal and state intellectual property laws offer only limited
protection and the laws of other countries in which we market our software solutions and services may afford little or no effective protection of our intellectual property. Therefore, our intellectual property rights may not be as strong or as
easily enforced outside of the U.S.
We may be subject to patent, trademark and other
intellectual property infringement claims, which may be time-consuming, and cause us to incur significant liability and increase our costs of doing business.
We cannot be certain that our products and services and the operation of our business do
not, or will not, infringe or otherwise violate the intellectual property rights of third parties. Third parties may assert infringement claims
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against us with respect to current or future solutions, including for patent
infringement, breach of copyright, trademark, license usage or other intellectual property rights. There may be existing patents or patent applications of which we are unaware that could be pertinent to our business; many patent applications
are filed confidentially in the United States and are not published until 18 months following the applicable filing date. Additionally, in recent years, individuals and groups have been purchasing intellectual property assets for the sole
purpose of making claims of infringement and attempting to extract settlements from companies like ours. Even if we believe that intellectual property related claims are without merit, defending against such claims is time consuming and
expensive and could result in the diversion of the time and attention of our management and employees. In addition, the outcome of litigation is uncertain, and any claim from third parties may result in a limitation on our ability to use the
intellectual property subject to these claims. Claims of intellectual property infringement also might require us to redesign or reengineer our affected solutions or services, enter into costly settlement or license agreements, pay costly
royalties, license fees or damage awards for which we may not have insurance, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our solutions or services. Even if we have an agreement for
indemnification against such costs, the indemnifying party, if any in such circumstances, may be unable to uphold its contractual obligations. If we cannot or do not license the infringed technology on reasonable terms or substitute similar
technology from another source, our revenue and earnings could be materially and adversely affected.
We may be subject to claims asserting that our
employees or consultants have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Although we try to ensure that our employees and consultants do not use the proprietary
information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s
current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we
are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
In addition, while it is our policy to require our employees and contractors who may be
involved in the creation or development of intellectual property on our behalf to execute agreements assigning such intellectual property to us, we may be unsuccessful in having all such employees and contractors execute such an agreement. The
assignment of intellectual property may not be self-executing or the assignment agreement may be breached, and we may be forced to bring claims against employees or third parties or defend claims that they may bring against us to determine the
ownership of what we regard as our intellectual property. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
Our use of “open source” software could adversely
affect our ability to offer our services and subject us to possible litigation.
We may use open source software in connection with the development and deployment of our
solutions and services, and we expect to continue to use open source software in the future. Companies that use open source software in connection with their products have, from time to time, faced claims challenging the use of open source
software and/or compliance with open source license terms. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software or claiming noncompliance with open source licensing terms. Some
open source software licenses require users who distribute software containing or linked to open source software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source
code, which could include valuable proprietary code of the user, on unfavorable terms or at no cost. While we monitor the use of open source software and try to ensure that none is used in a manner that would require us to disclose our
proprietary source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur, in part because open source license terms are often ambiguous and almost none of them have been interpreted by
U.S. or foreign courts. Any requirement to disclose our proprietary source code or pay damages for breach of contract could have a material adverse effect on our business, financial condition and results of operations and could help our
competitors develop products and services that are similar to or better than ours.
Further, in addition to risks related to license requirements, use of certain open source
software carries greater technical and legal risks than does the use of third-party commercial software. For example, open source software
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is generally provided without any support or warranties or other contractual
protections regarding infringement or the quality of the code, including the existence of security vulnerabilities. To the extent that our platform depends upon the successful operation of open source software, any undetected errors or defects
in open source software that we use could prevent the deployment or impair the functionality of our systems and injure our reputation. In addition, the public availability of such software may make it easier for others to compromise our
platform. Any of the foregoing risks could materially and adversely affect our business, financial condition and results of operations.
Risks related to regulation
We are subject to governmental regulation and
other legal obligations, particularly related to privacy, data protection and information security, and our actual or perceived failure to comply with such obligations could harm our business. Compliance with such laws could also impair our
efforts to maintain and expand our customer and user bases, and thereby decrease our revenue.
Our handling of data is subject to a variety of laws and regulations, including regulation
by various government agencies, including the U.S. Federal Trade Commission, or the FTC, and various state, local and foreign agencies. We collect personally identifiable information and other data from our customers and the end-customers they
serve and use this information to provide services to such customers and end-customers, as well as to support, expand and improve our business.
The U.S. federal and various state and foreign governments have adopted or proposed
limitations on the collection, distribution, use and storage of personal information of individuals. In the United States, the FTC and many state attorneys general are applying federal and state consumer protection laws as imposing standards
for the online collection, use and dissemination of data. However, these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other requirements or our practices. At
state level, lawmakers continue to pass new laws concerning privacy and data security. Particularly notable in this regard is the California Consumer Privacy Act, or the CCPA, which became effective on January 1, 2020. The CCPA introduces
significant new disclosure obligations and provides California consumers with significant new privacy rights. We have been and will continue to be required to expend resources to comply with the CCPA.
Additionally, a new privacy law, the California Privacy Rights Act, or the CPRA, was
approved by California voters in the November 3, 2020 election. The CPRA generally takes effect on January 1, 2023 and significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain personal information and
creating a new state agency to oversee implementation and enforcement efforts, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. Some observers have noted the CCPA and
CPRA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could also increase our potential liability and adversely affect our business. Privacy laws are being considered and proposed in
other states across the country, such as in New Hampshire, Illinois, Nebraska, and Minnesota. On March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act, or the CDPA, a comprehensive privacy statute that shares similarities
with the CCPA, CPRA, and legislation proposed in other states. The CDPA will require us to incur additional costs and expenses in an effort to comply with it before it becomes effective on January 1, 2023. Broad federal privacy legislation also
has been proposed. Recent and new state and federal legislation relating to privacy may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment in resources to compliance
programs, could impact strategies and availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.
The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by
the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations, impose privacy, security and breach notification obligations on “covered entities,” including certain health care providers,
health plans, and health care clearinghouses, and their respective “business associates” that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, as well as their covered
subcontractors with respect to safeguarding the privacy, security and transmission of individually identifiable health information. Entities that are found to be in violation of HIPAA, whether as the result of a breach of unsecured PHI, a
complaint about privacy practices, or an audit by the U.S. Department of Health and Human Services (“HHS”), may be subject to significant civil, criminal, and administrative fines and penalties and/or
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additional reporting and oversight obligations if required to enter into a resolution
agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance.
Outside of the United States, many jurisdictions have laws or regulations dealing with the
collection, use, sharing, or other processing of personal information, including laws in the European Economic Area (“EEA”), Canada, Middle East, Australia, and South America. For example, the General Data Protection Regulation in the EEA and
its equivalent in the United Kingdom impose a strict data protection compliance regime (which will continue to be interpreted through guidance and decisions over the coming years) including: ensuring the security of personal data using
appropriate technical and organizational measures; providing detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily accessible form); demonstrating that valid consent or another
appropriate legal basis is in place or otherwise exists to justify data processing activities; granting new rights for data subjects in regard to their personal data (including the right to be “forgotten” and the right to data portability), as
well as enhancing current rights (e.g., data subject access requests); introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches;
imposing limitations on retention of personal data; maintaining a record of data processing; and complying with the principal of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit.
Failure to comply with these laws could result fines of up to the greater of €20 million ($24 million) or 4% of global turnover, stop processing orders, or civil litigation.
We are also subject to evolving European Union laws on data export requiring that where
data is transferred outside the European Union to us or third-parties, there must be suitable safeguards in place. On July 16, 2020, the Court of Justice of the European Union, or the CJEU, issued a decision invalidating the Privacy Shield
framework on which we previously relied and requiring an assessment of the transfer on a case-by-case basis taking into account the legal regime applicable in the destination country. We continue to investigate and implement contractual,
organizational, and technical changes in response to the decision but we cannot guarantee that any such changes will be sufficient under applicable laws and regulations or by our customers, governments, or the public. To the extent that we
transfer personal data outside of the European Economic Area or the United Kingdom, there is risk that any of our data transfers will be halted, limited, or challenged by third parties.
The federal Gramm-Leach-Bliley Act, or GLBA, includes limitations on financial
institutions’ disclosure of nonpublic personal information about a consumer to nonaffiliated third parties, in certain circumstances requires financial institutions to limit the use and further disclosure of nonpublic personal information by
nonaffiliated third parties to whom they disclose such information and requires financial institutions to disclose certain privacy policies and practices with respect to information sharing with affiliated and nonaffiliated entities as well as
to safeguard nonpublic personal customer information.
Each of these privacy, security, and data protection laws and regulations, and any other
such changes or new laws or regulations, could impose significant limitations, require changes to our business, or restrict our use or storage of personal information, which may increase our compliance expenses and make our business more costly
or less efficient to conduct. In addition, any such changes could compromise our ability to develop an adequate marketing strategy and pursue our growth strategy effectively, which, in turn, could adversely affect our business, financial
condition, and results of operations. The interpretations and measures conducted by us in our efforts to comply with the applicable data protection laws may have been or may prove to be insufficient or incorrect. If our privacy or data security
measures or practices fail to comply with current or future laws and regulations, we may be subject to claims, legal proceedings or other actions by individuals or governmental authorities based on privacy or data protection regulations and our
commitments to customers and users, as well as negative publicity and a potential loss of business. Moreover, if future laws and regulations limit our customers and users’ ability to use and share personal information or our ability to store,
process and share personal information, demand for our solutions could decrease, our costs could increase, and our business, results of operations and financial condition could be harmed.
Through our relationships with third parties,
including payment processors such as Worldpay, we must comply with certain payments and other financial services-related regulations, as well as binding industry standards, including the card network rules. Our failure to comply could
materially harm our business.
The local, state, and federal laws, rules, regulations, licensing schemes, and industry
standards that govern our business include, or may in the future include, those relating to underwriting, foreign exchange, payments services (such as money transmission, payment processing, and settlement services), anti-money laundering,
combating terrorist financing, escheatment, international sanctions regimes, and compliance with the card network rules, PCI
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DSS and the NACHA Operating Rules. Each of the card networks (e.g., Visa, Mastercard,
Discover and American Express) have specific rules applicable to the use of their network. We are subject to these rules pursuant to our agreements with payment processors and sponsor banks. The card network rules impose certain requirements on
us, including notice and disclosure requirements, transaction monitoring. The PCI DSS, which contain compliance guidelines and standards with regard to our security surrounding the physical and electronic storage, processing and transmission of
an individual’s cardholder data, is applicable to operations of the Company. Failure to obtain or maintain PCI DSS compliance could result in the Company’s inability to accept or process credit card payments on its own behalf, a merchant’s
inability to utilize the Company’s software to process credit card payments and remain PCI Compliant, or subject the Company to penalties and fines. Further, if the Company’s internal systems are breached or compromised, the Company may be
liable significant forensic investigation costs, consumer notification-related costs, for card re-issuance costs and subject to higher fines and transaction fees. The NACHA Operating Rules, which contain compliance guidelines and standards,
including with respect to our security surrounding the physical and electronic storage, processing and transmission of an individual’s bank account data, are applicable to operations of the Company pursuant to our agreement with a third party
to offer our customers ACH payment capabilities. Failure to maintain compliance with the NACHA Operating Rules could result in the Company’s inability to offer ACH transaction options to our customers or subject the Company to penalties and
fines. Further, if the Company’s internal systems are breached or compromised, the Company may be liable for significant forensic investigation costs and consumer notification-related costs, and subject to higher fines and transaction fees. Any
or all of these results could have a material negative effect on the Company’s operations. Changes in these security standards may cause us to incur significant unanticipated expenses to meet new requirements.
As we expand into new jurisdictions, the number of foreign laws, rules, regulations,
licensing schemes, and standards governing our business will expand as well. In addition, as our business and solutions continue to develop and expand, we may become subject to additional laws, rules, regulations, licensing schemes, and
standards. We may not always be able to accurately predict the scope or applicability of certain laws, rules, regulations, licensing schemes, or standards to our business, particularly as we expand into new areas of operations, which could have
a significant negative effect on our existing business and our ability to pursue future plans.
Evaluation of our compliance efforts, as well as the questions of whether and to what
extent our solutions and services could be considered money transmission, are matters of regulatory interpretation and could change over time. We have taken the position that in all cases where we do not participate in the authorization of
transactions or settlement of funds, that a solution or service does not meet the definition of “engaging in financial activities” under the Gramm-Leach-Bliley Act, or GLBA, and therefore we are not subject to the requirements set forth in GLBA
and its implementing Regulation P. In the future, if regulators disagree with our position with respect to GLBA or other potentially applicable laws, including those related to money transmission, or if new guidance or interpretations thereof
are issued, we could be subject to investigations and resulting liability, including governmental fines, restrictions on our business, or other sanctions, and we could be forced to cease conducting certain aspects of our business with residents
of certain jurisdictions, be forced to change our business practices in certain jurisdictions, or be required to obtain licenses or regulatory approvals, including state money transmitter licenses. There can be no assurance that we will be able
to obtain or maintain any such licenses, and, even if we were able to do so, there could be substantial costs and potential changes to our solutions or services involved in maintaining such licenses, which could have a material and adverse
effect on our business. In addition, we could be subject to fines or other enforcement action if we are found to violate disclosure, reporting, anti-money laundering, capitalization, corporate governance, or other requirements of such licenses.
These factors could impose substantial additional costs, involve considerable delay to the development or provision of our solutions or services, require significant and costly operational changes, or prevent us from providing our solutions or
services in any given market.
If we fail to comply with complex procurement laws
and regulations with respect to government contracts, we could lose business and be liable for various penalties.
We must comply with laws and regulations relating to the formation, administration and
performance of government contracts, which affect how we conduct business with certain governmental entities. In complying with these laws and regulations, we may incur additional costs. Any non-compliance could result in the imposition of
significant fines and penalties, including contractual damages, and impact our ability to obtain additional business in the future. Our governmental entity clients periodically review our compliance with their contracts and
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