EngageSmart, Inc.

Q2 2023 revenue was $94.4 million, up 28% year over year. Adjusted EBITDA was $19.4 million, up from $12.0 million in the prior-year quarter, with adjusted EBITDA margin of 20.5% versus 16.2%. Adjusted gross margin was 79.2%, up from 78.2% a year ago. SMB revenue was $53.1 million, up 30%, including subscription revenue of $36.6 million (up 25%) and transaction and usage-based revenue of $16.2 million (up 44%). Enterprise revenue was $41.3 million, up 25%. Total customer count was 113,200, up 22%, and transactions processed were 43.8 million versus 36.1 million a year ago. Free cash flow was $13.8 million and cash was $332.8 million at June 30, 2023. For 2023, management guided to revenue of $376.5 million to $379 million, or 24% growth at the midpoint, and adjusted EBITDA of $69.5 million to $70.5 million, implying roughly 18.5% margin at the midpoint. For Q3 2023, revenue guidance was $95 million to $96 million and adjusted EBITDA guidance was $14.7 million to $15.2 million. Guidance excludes HealthPay24, which reduced back-half 2023 revenue by about $5 million and adjusted EBITDA by about $1 million; excluding that divestiture, management said 2023 revenue growth would be about 2 points higher and Q3 growth about 3 points higher.

Bob Bennett framed the quarter as proof of EngageSmart’s ability to combine growth and profitability, emphasizing record results, strong retention, and recurring customer demand across defensive verticals. Strategically, he highlighted Luminello as a way to expand psychiatry reach, add e-prescribe capabilities, and better serve multidisciplinary practices and payer organizations, while calling HealthPay24’s sale a move to streamline the business and focus capital on the highest-growth opportunities. His tone was confident and upbeat, stressing that the company has captured only about 1% of its addressable U.S. market and still has substantial room to expand.

Cassandra Hudson emphasized that revenue growth was driven by customer count and transaction growth, with SMB and Enterprise both contributing strongly. She cited adjusted gross margin of 79.2%, adjusted EBITDA of $19.4 million, free cash flow of $13.8 million, and cash of $332.8 million, while noting that free cash flow conversion should moderate to about 50% in 2023 because of higher cash taxes tied to Section 174 and the use of remaining NOLs in 2022. On guidance, she said the company removed about $5 million of revenue and about $1 million of adjusted EBITDA from the back half due to HealthPay24, while Luminello is assumed to have no material 2023 contribution as the business migrates to one platform.

Analysts pressed on whether Luminello creates meaningful cost synergies, how much platform consolidation is possible, and whether the deal could drive higher flow-through later; management said the intent is to migrate to one enhanced platform and that there should be strong bottom-line flow-through once that is completed. Questions also focused on why full-year guidance was not raised more after the Q2 beat, with management saying HealthPay24 divestiture noise masked the outperformance and that they remain comfortable with a very predictable business. On RCM, management said less than half of SimplePractice customers accept insurance today, the solution is still in pilot, and the opportunity is long term and primarily processing revenue. Analysts also asked about enterprise deal size, CAC, and implementation timing; management said larger deals are being helped by alliances and product enhancements, CAC tuning is working well in SMB, and they have not seen meaningful delays in Enterprise go-lives.