UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March~~June 3130, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _________________

Commission File Number: 001-40835

EngageSmart, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	83-2785225
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
30 Braintree Hill Office Park, Suite 101 Braintree, Massachusetts	02184
(Address of principal executive offices)	(Zip Code)

(781) 848-3733

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value per share

ESMT

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☒

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 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒

As of ~~April~~July 3031, 2023, the registrant had ~~166~~167,~~743~~360,~~782~~463 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Income	2
	Condensed Consolidated Statements of Stockholders' Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1516
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2528
Item 4.	Controls and Procedures	2528
PART II.	OTHER INFORMATION	2629
Item 1.	Legal Proceedings	2629
Item 1A.	Risk Factors	2629
Item 2.	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities	2730
Item 3.	Defaults Upon Senior Securities	2730
Item 4.	Mine Safety Disclosures	2730
Item 5.	Other Information	2730
Item 6.	Exhibits	2831
Signatures		2932

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to statements regarding our future results of operations and financial position, industry and business trends, equity compensation, business strategy, plans, market growth and our objectives for future operations.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to: risks related to our ability to sustain our rapid growth; our ability to manage our infrastructure to support future growth; risks related to the effectiveness of our risk management efforts to prevent fraudulent activities; risks related to our ability to attract new customers or convert trial customers into paying customers; risks related to our ability to introduce new features or services successfully and to make enhancements to our solutions; risks related to our customers renewing their contracts for our solutions with us and expanding their use of our solutions; risks related to any decline in our customer renewals or failure to convince our customers to broaden their use of solutions and related services; risks related to the net losses we have incurred on an annual basis, and anticipated increases in our operating expenses; our ability to adapt and respond effectively to rapidly changing technology, evolving industry standards and regulations, and changing business needs, requirements, or preferences; risks related to real or perceived errors, failures, or bugs in our solutions; our ability to face intense competition and to maintain or expand market share within our industry; our ability to establish, grow and maintain strategic partnerships; as well as the other important factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Form 10-K”), filed on February 23, 2023 with the Securities and Exchange Commission (the “SEC”). The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report on Form 10-Q and the documents that we reference and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

EngageSmart, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	March 31, 2023			December 31, 2022
	June 30, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	~~318~~332,~~291~~831		$	311,780
Accounts receivable, net of allowance for credit losses of $203 and $228 as of March 31, 2023 and December 31, 2022, respectively		12,275			10,971
Accounts receivable, net of allowance for credit losses of $196 and $228 as of June 30, 2023 and December 31, 2022, respectively		11,543			10,971
Unbilled receivables		65,~~095~~677			5,413
Prepaid expenses and other current assets		1113,~~686~~476			13,680
Total current assets		~~348~~363,~~347~~527			341,844
Operating lease right-of-use assets		25,~~731~~188			26,907
Property and equipment, net		1516,~~787~~981			14,328
Goodwill		425,677			425,677
Acquired intangible assets, net		6864,~~419~~519			72,319
Other assets		56,~~820~~180			5,422
Total assets	$	~~889~~902,~~781~~072		$	886,497
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	~~652~~1,387		$	1,229
Accrued expenses and other current liabilities		3335,~~795~~715			38,423
Deferred revenue		8,~~834~~924			8,237
Operating lease liabilities		4,~~674~~876			4,632
Total current liabilities		4750,~~955~~902			52,521
Long-term operating lease liabilities		2524,~~845~~987			27,161
Deferred income taxes		1,~~329~~332			1,322
Deferred revenue, net of current portion		~~355~~324			335
Other long-term liabilities		~~172~~269			186
Total liabilities		7577,~~656~~814			81,525
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock, par value $0.001 per share, 10,000,000 shares authorized and no shares issued and outstanding as of March 31, 2023 and December 31, 2022		—			—
Preferred stock, par value $0.001 per share, 10,000,000 shares authorized and no shares issued and outstanding as of June 30, 2023 and December 31, 2022		—			—
Common stock, par value $0.001 per share, 650,000,000 shares authorized and 166,617,401 and 166,081,011 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		167			166
Common stock, par value $0.001 per share, 650,000,000 shares authorized and 167,216,167 and 166,081,011 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		167			166
Additional paid-in capital		~~819~~825,~~347~~142			814,319
Accumulated stockholders' deficit		(51,~~389~~051	)		(9,513	)
Total stockholders’ equity		~~814~~824,~~125~~258			804,972
Total liabilities and stockholders’ equity	$	~~889~~902,~~781~~072		$	886,497

The accompanying notes are an integral part of these condensed consolidated financial statements.

EngageSmart, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income

(in thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue	$	8894,~~432~~409		$	6773,~~362~~862		$	182,841		$	141,224
Cost of revenue		2021,~~899~~637			1617,~~039~~803			42,536			33,842
Gross profit		6772,~~533~~772			5156,~~323~~059			140,305			107,382
Operating expenses:
General and administrative		1514,~~407~~456			1314,~~287~~997			29,863			28,284
Selling and marketing		2930,~~126~~421			2223,~~664~~692			59,547			46,356
Research and development		1416,~~820~~693			10,~~040~~993			31,513			21,033
Amortization of intangible assets		2,362			2,362			4,724			4,724
Total operating expenses		6163,~~715~~932			4852,~~353~~044			125,647			100,397
Income from operations		58,~~818~~840			24,~~970~~015			14,658			6,985
Other income (expense), net:
Interest expense		(~~119~~121	)		(~~119~~121	)		(240	)		(240	)
Other income, net		23,~~539~~322			28322			5,861			350
Total other income (expense), net		23,~~420~~201			~~(91~~201	)		5,621			110
Income before income taxes		812,~~238~~041			24,~~879~~216			20,279			7,095
Provision for income taxes		4,114			820
Provision for (benefit from) income taxes		7,703			(2,663	)		11,817			(1,843	)
Net income and comprehensive income	$	4,~~124~~338		$	26,~~059~~879		$	8,462		$	8,938
Net income per share:
Basic	$	0.0203		$	0.0104		$	0.05		$	0.05
Diluted	$	0.0203		$	0.0104		$	0.05		$	0.05
Weighted-average number of shares outstanding:
Basic		166,~~359~~902,~~810~~466			162,~~143~~991,~~171~~881			166,632,637			162,569,871
Diluted		169,~~907~~969,~~554~~058			~~169~~168,~~016~~950,~~112~~869			169,938,476			168,983,310

The accompanying notes are an integral part of these condensed consolidated financial statements.

EngageSmart, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share amounts)

(Unaudited)

									Accumulated			Total
	Common Stock					Additional			Stockholders'			Stockholders'
	Shares			Amount		Paid-in Capital			Deficit			Equity
Balances as of December 31, 2022		166,081,011		$	166	$	814,319		$	(9,513	)	$	804,972
Issuance of common stock upon exercise of stock options		402,510			1		1,326			—			1,327
Vesting of restricted stock units		199,145			—		—			—			—
Shares withheld for employee taxes		(65,265	)		—		(1,198	)		—			(1,198	)
Stock-based compensation expense		—			—		4,900			—			4,900
Net income		—			—		—			4,124			4,124
Balances as of March 31, 2023		166,617,401		$	167	$	819,347		$	(5,389	)	$	814,125
Issuance of common stock upon exercise of stock options		375,400			—		1,077			—			1,077
Issuance of common stock in connection with employee stock purchase plan		67,359			—		981			—			981
Vesting of restricted stock units		228,166			—		—			—			—
Shares withheld for employee taxes		(72,159	)		—		(1,365	)		—			(1,365	)
Stock-based compensation expense		—			—		5,102			—			5,102
Net income		—			—		—			4,338			4,338
Balances as of June 30, 2023		167,216,167		$	167	$	825,142		$	(1,051	)	$	824,258

									Accumulated			Total
	Common Stock					Additional			Stockholders'			Stockholders'
	Shares			Amount		Paid-in Capital			Deficit			Equity
Balances as of December 31, 2021		161,860,980		$	162	$	787,043		$	(30,106	)	$	757,099
Issuance of common stock upon exercise of stock options		561,581			—		1,897			—			1,897
Vesting of restricted stock units		17,302			—		—			—			—
Shares withheld for employee taxes		(5,471	)		—		(132	)		—			(132	)
Stock-based compensation expense		—			—		2,987			—			2,987
Net income		—			—		—			2,059			2,059
Balances as of March 31, 2022		162,434,392		$	162	$	791,795		$	(28,047	)	$	763,910
Issuance of common stock upon exercise of stock options		1,162,554			2		3,689			—			3,691
Issuance of common stock in connection with employee stock purchase plan		25,930			—		463			—			463
Vesting of restricted stock units		18,018			—		—			—			—
Shares withheld for employee taxes		(6,076	)		—		(134	)		—			(134	)
Stock-based compensation expense		—			—		3,327			—			3,327
Net income		—			—		—			6,879			6,879
Balances as of June 30, 2022		163,634,818		$	164	$	799,140		$	(21,168	)	$	778,136

The accompanying notes are an integral part of these condensed consolidated financial statements.

EngageSmart, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	Six Months Ended June 30,
	2023			2022
Cash flows from operating activities:
Net income	$	48,~~124~~462		$	28,~~059~~938
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		49,~~892~~823			49,~~641~~273
Amortization of deferred costs		~~191~~424			66158
Stock-based compensation expense		410,~~900~~002			26,~~987~~314
Non-cash operating lease expense		12,~~164~~328			12,~~135~~279
Deferred income taxes		710			~~820~~(1,843	)
Non-cash interest expense		58116			58116
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		~~1,803~~(230	)		(1,~~780~~750	)
Accounts receivable, net		(~~1,304~~572	)		~~412~~(531	)
Unbilled receivables		(~~682~~264	)		(1,~~657~~116	)
Other assets		(~~456~~873	)		(~~410~~886	)
Accounts payable		~~(561~~177	)		(~~1,415~~989	)
Accrued expenses and other current liabilities		(42,~~643~~708	)		~~(3,385~~589	)
Deferred revenue		~~617~~676			~~846~~732
Operating lease liabilities		(12,~~262~~529	)		(12,~~662~~873	)
Other long-term liabilities		~~(14~~83	)		2627
Net cash provided by operating activities		824,~~834~~925			218,~~741~~438
Cash flows from investing activities:
Purchases of property and equipment, including costs capitalized for development of internal-use software		(24,~~452~~696	)		(12,~~509~~933	)
Net cash used in investing activities		(24,~~452~~696	)		(12,~~509~~933	)
Cash flows from financing activities:
Payment of debt issuance costs		—			(23	)
Payments of contingent consideration		—			(1,066	)
Proceeds from exercise of stock-based options		12,~~327~~404			15,~~897~~588
Payments of taxes related to net share settlement of equity awards		(12,~~198~~563	)		(~~132~~266	)
Payment of initial public offering costs		—			(12	)
Proceeds from issuance of common stock under employee stock purchase plan		981			463
Net cash provided by financing activities		129			664
Payment of initial public offering costs		—			(286	)
Net increase in cash, cash equivalents and restricted cash		6,511			1,896
Net cash provided by financing activities		822			4,410
Net increase in cash, cash equivalents and restricted cash		21,051			19,915
Cash, cash equivalents and restricted cash at beginning of period		312,080			254,594
Cash, cash equivalents and restricted cash at end of period	$	~~318~~333,~~591~~131		$	~~256~~274,~~490~~509
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	~~318~~332,~~291~~831		$	~~256~~274,~~190~~209
Restricted cash within other assets		300			300
Total cash, cash equivalents, and restricted cash	$	~~318~~333,~~591~~131		$	~~256~~274,~~490~~509

The accompanying notes are an integral part of these condensed consolidated financial statements.

EngageSmart, Inc.

Condensed Consolidated Statements of Cash Flows (Continued)

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	Six Months Ended June 30,
	2023			2022
Supplemental cash flow information:
Cash paid for interest	$	63124		$	57119
Cash paid for taxes	$	~~320~~10,988		$	1,585
Cash paid for amounts included in the measurement of operating lease liabilities	$	12,~~439~~880		$	12,~~404~~813
Supplemental disclosure of non-cash transactions:
Additions to property and equipment included in accounts payable and accrued expenses	$	~~183~~165		$	~~100~~258
Right of use assets obtained in exchange for new operating lease liabilities	$	~~(12~~609	)	$	31,392
Deferred initial public offering costs included in accrued expenses	$	—		$	274

The accompanying notes are an integral part of these condensed consolidated financial statements.

EngageSmart, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Nature of Business and Basis of Presentation

EngageSmart, Inc. and its subsidiaries (together referred to herein as the “Company” or “EngageSmart”) is a leading provider of vertically tailored customer engagement software and integrated payments solutions. EngageSmart offers single instance, multi-tenant, true Software-as-a-Service (“SaaS”) vertical solutions, including SimplePractice, InvoiceCloud, HealthPay24 and DonorDrive, that are designed to simplify the Company's customers' engagement with its clients by driving digital adoption and self-service. The Company serves customers across several core verticals: Health & Wellness, Government, Utilities, Financial Services, Healthcare and Giving. EngageSmart's solutions are purpose-built for each of the Company's verticals and they simplify and automate mission-critical workflows such as scheduling, client onboarding, client communication, paperless billing, and electronic payment processing. EngageSmart is headquartered in Braintree, Massachusetts with additional locations throughout the United States.

Secondary Offering

On February 28, 2023, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, as representatives of the several underwriters named therein, and certain of the Company’s stockholders, including affiliates of General Atlantic, L.P ("General Atlantic") and Summit Partners and certain members of the Company’s management (collectively the “Selling Stockholders”), relating to an underwritten public offering (the “Secondary Offering”) of 8,000,000 shares of the Company’s common stock at a price to the public of $19.00 per share, with an option exercisable by the underwriters for 30 days to purchase up to an additional 1,200,000 shares of common stock from certain of the Selling Stockholders at the public offering price, less underwriting discounts and commissions.

In March 2023, pursuant to the Underwriting Agreement, the Selling Stockholders sold an aggregate of 9,200,000 shares of common stock in the Secondary Offering. The Company did not receive any of the proceeds from the sale of common stock, with all proceeds going to the Selling Stockholders.

In connection with the Secondary Offering, the Company incurred costs of $1.76 million during the ~~three~~six months ended ~~March~~June 3130, 2023, which are included within general and administrative expenses on the condensed consolidated statement of operations and comprehensive income.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation. For all the periods reported in these condensed consolidated financial statements, the Company has not and does not have any material revenue-generating operations on a standalone basis, and all the material revenue-generating operations of the Company are conducted by its subsidiaries.

Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022, included in the Company's 2022 Form 10-K. In the opinion of management, the interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position for the periods presented. The results for the interim periods presented are not necessarily indicative of future results.

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are discussed in Note 2 - Summary of Significant Accounting Policies within the notes to consolidated financial statements for the year ended December 31, 2022, included in the Company's 2022 Form 10-K. There have been no significant changes to these policies during the ~~three~~six months ended ~~March~~June 3130, 2023, except as noted below.

Risk of Concentrations of Credit and Significant Customers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable. The Company's cash and cash equivalents are primarily maintained in accounts with ~~two~~three major financial institutions in the United States. At times, the Company may maintain cash and cash equivalent

balances in excess of Federal Deposit Insurance Corporation ("FDIC") limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Significant customers are those that accounted for 10% or more of the Company’s total revenue or accounts receivable during any period presented herein. During the ~~three~~six months ended ~~March~~June 3130, 2023 and 2022, no customer accounted for 10% or more of revenue. As of ~~March~~June 3130, 2023 and December 31, 2022, no customer accounted for 10% or more of accounts receivable.

Recently Adopted Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"), which requires the recognition and measurement of contract assets and liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers ("ASC 606"). ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and, if adopted early, requires the retrospective method of transition applied to transactions occurring on or after the beginning of the fiscal year of adoption. The Company adopted this standard effective January 1, 2023 on a prospective basis, and it did not have a material impact on its consolidated financial statements.

3. Revenue

Revenue Disaggregated

The Company disaggregates revenue from contracts with customers by reportable segment and revenue type, as the Company believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors and is consistent with the manner in which the Company operates the business. The Company generates a significant majority of its revenue in the Enterprise Solutions segment from transaction and usage-based revenue and a majority of its revenue in the SMB Solutions segment from subscription revenue.

The following table depicts disaggregated revenue by segment and revenue type (in thousands):

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Enterprise Solutions
Transaction and usage-based	$	3538,~~406~~148	$	2829,~~319~~989	$	73,554	$	58,308
Subscription		2,~~555~~676		2,~~081~~156		5,231		4,237
Other		~~684~~484		~~460~~872		1,168		1,332
Total Enterprise Solutions revenue		3841,~~645~~308		3033,~~860~~017		79,953		63,877
SMB Solutions
Transaction and usage-based		1416,~~572~~158		11,~~027~~237		30,730		22,264
Subscription		3436,~~903~~629		2529,~~052~~225		71,532		54,277
Other		~~312~~314		~~423~~383		626		806
Total SMB Solutions revenue		4953,~~787~~101		3640,~~502~~845		102,888		77,347
Total revenue	$	8894,~~432~~409	$	6773,~~362~~862	$	182,841	$	141,224

Contract Assets and Liabilities

Contract assets are rights to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditional on something other than the passage of time. Contract assets are transferred to accounts receivable once the rights become unconditional. The Company did not have contract assets as of ~~March~~June 3130, 2023 or December 31, 2022.

Contract liabilities (deferred revenue) primarily consist of billings and payments received in advance of revenue recognition. The Company primarily bills and collects payments from customers for its services in advance on a monthly, quarterly or annual basis. Contract liabilities are recognized as revenue when services are performed and all other revenue recognition criteria have been met. Amounts expected to be recognized as revenue within 12 months of the balance sheet date are classified as current deferred revenue and amounts expected to be recognized as revenue beyond 12 months of the balance sheet date are classified as non-current deferred revenue. The Company had current deferred revenue of $8.89 million and $8.2 million as of ~~March~~June 3130, 2023 and December 31, 2022, respectively. Non-current deferred revenue was $0.43 million as of ~~March~~June 3130, 2023 and ~~$0.3 million as of~~ December 31, 2022. During the ~~three~~six months ended ~~March~~June 3130, 2023, the Company recognized revenue of $67.85 million from the deferred revenue balance as of December 31, 2022. During the ~~three~~six months ended ~~March~~June 3130, 2022, the Company recognized revenue of $56.0 million from the deferred revenue balance as of December 31, 2021.

Remaining Performance Obligations

ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations. As permitted by ASC 606, the Company has elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable consideration that meets specified criteria. For contracts greater than one year in length, the Company's most significant performance obligations consist of variable consideration. Such variable consideration meets the specified criteria for the disclosure exclusion; therefore, the majority of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied is variable consideration that is not required for this disclosure.

4. Net Income Per Share

Basic net income per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is calculated by dividing net income by the sum of the weighted average number of shares of common stock and potentially dilutive securities outstanding during the period using the treasury stock method. For the periods in which the Company incurs a net loss, the dilutive effect of the Company’s outstanding common stock equivalents is not included in the calculation as the effect would be anti-dilutive. The following table sets forth the computation of basic and diluted net income per share:

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands, except share and per share amounts)
Numerator:
Net income	$	4,~~124~~338	$	26,~~059~~879	$	8,462	$	8,938
Denominator:
Weighted average shares outstanding, basic		166,~~359~~902,~~810~~466		162,~~143~~991,~~171~~881		166,632,637		162,569,871
Effect of potential dilutive shares		3,~~547~~066,~~744~~592		65,~~872~~958,~~941~~988		3,305,839		6,413,439
Weighted average shares outstanding, diluted		169,~~907~~969,~~554~~058		~~169~~168,~~016~~950,~~112~~869		169,938,476		168,983,310
Net income per share, basic	$	0.0203	$	0.0104	$	0.05	$	0.05
Net income per share, diluted	$	0.0203	$	0.0104	$	0.05	$	0.05

The Company excluded the following potential shares of common stock, presented based on amounts outstanding at each period end, from the computation of diluted net income per share for the periods indicated because including them would have had an anti-dilutive effect:

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Options to purchase shares		~~318~~316,~~696~~865		~~580~~457,~~711~~964		317,775		518,998
Unvested restricted stock units		~~389~~1,~~930~~866,878		~~477~~716,~~344~~015		1,132,484		597,339
Total		~~708~~2,~~626~~183,743		1,~~058~~173,~~055~~979		1,450,259		1,116,337

5. Leases

The Company has operating leases for office space to support business operations. The Company's office leases expire at varying dates from 2023 through 2030. The Company's leases do not contain any material residual value guarantees or restrictive covenants. Operating leases are recognized on the condensed consolidated balance sheets as operating lease right-of-use assets, operating lease liabilities and long-term operating lease liabilities. Operating lease expense is recognized on a straight-line basis over the lease term within the Company’s condensed consolidated statements of operations and comprehensive income.

Lease Costs and Other Information

The following table summarizes the components of operating lease expense (in thousands):

	Three Months Ended		Three Months Ended
	Three Months Ended June 30,				Six Months Ended June 30,
	March 31, 2023		March 31, 2022
	2023		2022		2023		2022
Operating lease cost	$	1,~~185~~182	$	1,~~181~~184	$	2,367	$	2,365
Variable lease cost		9470		9154		164		145
Total	$	1,~~279~~252	$	1,~~272~~238	$	2,531	$	2,510

The weighted average remaining lease term (in years) and discount rate were as follows:

	March 31, 2023			December 31, 2022
	June 30, 2023			December 31, 2022
Weighted-average remaining lease term		6.64			6.8
Weighted-average discount rate		2.2631	%		2.26	%

Maturity of Lease Liabilities

The following table presents the future minimum lease payments under the Company's operating leases liabilities as of ~~March~~June 3130, 2023 (in thousands):

Remainder of 2023	$	32,~~850~~514
2024		5,~~750~~873
2025		4,~~489~~615
2026		4,~~079~~209
2027		3,~~808~~942
Thereafter		11,~~001~~069
Total lease payments	$	32,~~977~~222
Less: imputed interest		(2,~~458~~359	)
Lease liabilities	$	3029,~~519~~863

The Company has subleased certain office space for which incoming sublease amounts will offset the future lease payments in the table above. Under the executed sublease agreement, the Company expects to receive future sublease payments of $0.85 million over the remainder of 2023 and $0.9 million thereafter. As of March 31, 2023, the Company has entered into one lease that has not yet commenced with future lease payments of $0.6 million in the aggregate and a term of approximately five years. The Company expects the lease to commence in the second quarter of 2023.

6. Fair Value Measurements

The following tables present the Company’s fair value hierarchy for its assets and liabilities that were measured at fair value on a recurring basis (in thousands):

March 31, 2023

June 30, 2023

Level 1

Level 2

Level 3

Total

Assets:

Cash equivalents - money market funds

~~269~~273,~~906~~080

—

~~269~~273,~~906~~080


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents - money market funds	$	225,712	$	—	$	—	$	225,712

Money market funds held as of ~~March~~June 3130, 2023 and December 31, 2022 were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. The carrying values of the Company’s accounts receivable, unbilled receivables, accounts payable, and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. There were no transfers into or out of Level 3 during the periods presented.

During the ~~three~~six months ended ~~March~~June 3130, 2022, the Company fully settled its contingent consideration liability which was previously measured using Level 3 inputs. Changes in the fair value of the Company’s contingent consideration liability were as follows (in thousands):

Balance as of December 31, 2021	$	2,800
Payment of contingent consideration		(2,800	)
Change in fair value		—
Balance as of March 31, 2022	$	—
Balance as of June 30, 2022	$	—

7. Goodwill and Acquired Intangible Assets

The carrying amount of goodwill by segment resulting from the Company's acquisitions as of ~~March~~June 3130, 2023 and December 31, 2022 was as follows:

	March 31, 2023		December 31, 2022
	June 30, 2023		December 31, 2022
Enterprise Solutions	$	218,658	$	218,658
SMB Solutions		207,019		207,019
Total	$	425,677	$	425,677

Acquired intangible assets of the Company consisted of the following (in thousands):

			March 31, 2023
			June 30, 2023
	Weighted Average Useful Life		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
	(in years)
Customer relationships		10.0	$	82,841	$	(3335,~~414~~486	)	$	4947,~~427~~355
Developed technology		7.0		42,913		(2526,~~001~~538	)		1716,~~912~~375
Tradenames		5.0		5,824		(45,~~744~~035	)		~~1,080~~789
Total			$	131,578	$	(6367,~~159~~059	)	$	6864,~~419~~519


			December 31, 2022
	Weighted Average Useful Life		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
	(in years)
Customer relationships		10.0	$	82,841	$	(31,344	)	$	51,497
Developed technology		7.0		42,913		(23,463	)		19,450
Tradenames		5.0		5,824		(4,452	)		1,372
Total			$	131,578	$	(59,259	)	$	72,319

The Company recorded amortization expense of $3.9 million for each of the three month periods ended ~~March~~June 3130, 2023 and 2022, and $7.8 million for each of the six month periods ended June 30, 2023 and 2022. Amortization of developed technology is recorded within cost of revenue, while amortization of customer relationships and tradenames is recorded within amortization of intangible assets on the Company’s condensed consolidated statements of operations and comprehensive income. Future estimated amortization expense of the Company’s intangible assets as of ~~March~~June 3130, 2023 is expected to be as follows (in thousands):

Remainder of 2023	$	117,~~700~~800
2024		14,640
2025		14,383
2026		9,335
2027		8,284
Thereafter		10,077
Total	$	6864,~~419~~519

8. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

	March 31, 2023		December 31, 2022
	June 30, 2023		December 31, 2022
Accrued employee compensation and benefits	$	711,~~926~~423	$	16,897
Accrued consulting and professional fees		3,~~291~~359		2,560
Accrued processing fees		3,~~256~~108		2,287
Accrued channel partner fees		23,~~952~~170		2,679
Accrued license fees		45,~~477~~218		3,629
Accrued marketing		2,~~195~~117		2,169
Accrued tax liabilities		~~2,944~~632		1,769
Other		6,~~754~~688		6,433
Total	$	3335,~~795~~715	$	38,423

9. Debt

As of ~~March~~June 3130, 2023 and December 31, 2022, the Company had no long-term debt outstanding.

2021 Revolving Credit Facility

On September 27, 2021, the Company entered into a revolving credit agreement (“2021 Revolving Credit Facility”) with JPMorgan Chase Bank, N.A. as administrative agent and certain other lenders. The 2021 Revolving Credit Facility allows the Company to borrow up to $75.0 million, $7.5 million of which may be comprised of a letter of credit facility. The 2021 Revolving Credit Facility will mature on September 27, 2026. In conjunction with the 2021 Revolving Credit Facility, the Company incurred debt issuance costs in the amount of $1.2 million, which were recorded within other assets on the condensed consolidated balance sheets and are being amortized into interest expense over the term of the 2021 Revolving Credit Facility. The 2021 Revolving Credit Facility requires the Company to pay a commitment fee in respect to unused revolving credit facility commitments of 0.25% per annum. The commitment fee is recorded as a component of interest expense on the Company's condensed consolidated statements of operations and comprehensive income. On June 30, 2023, the Company amended the 2021 Revolving Credit Facility to transition from a London Interbank Overnight Rate ("LIBOR")-based interest rate to a Secured Overnight Financing Rate ("SOFR")-based interest rate. No change was made to the interest rate margin. As of ~~March~~June 3130, 2023, the Company has not yet drawn upon the 2021 Revolving Credit Facility, although $2.1 million has been utilized against the 2021 Revolving Credit Facility in the form of a line of credit, reducing the Company's borrowing capacity to $72.9 million.

The 2021 Revolving Credit Facility contains certain financial maintenance covenants, which require the Company to not exceed certain specified total net leverage ratios at the end of each fiscal quarter.

10. Stockholders' Equity

Preferred Stock

In connection with the Company's initial public offering ("IPO") in September 2021, the Company's amended and restated certificate of incorporation and amended and restated bylaws became effective, which authorized the issuance of 10,000,000 shares of preferred stock with a par value of $0.001 per share, with rights and preferences, including voting rights, designated from time to time by the Board of Directors. As of ~~March~~June 3130, 2023, no shares of preferred stock were issued or outstanding.

Common Stock

The Company's amended and restated certificate of incorporation authorized the issuance of 650,000,000 shares of common stock with a par value of $0.001 per share. As of ~~March~~June 3130, 2023, there were ~~166~~167,~~617~~216,~~401~~167 shares of common stock issued and outstanding.

11. Stock-based Compensation

2021 Incentive Award Plan

In September 2021, the Company’s Board of Directors adopted, and its stockholders approved, the 2021 Incentive Award Plan (“2021 Plan”), which became effective in connection with the Company's IPO. The 2021 Plan provides for granting stock options, including incentive stock options ("ISOs") and nonqualified stock options ("NSOs"), restricted stock, dividend equivalents, restricted stock units ("RSUs"), other stock-based awards, and cash awards to eligible employees, consultants and directors. A total of 14,798,186 shares of the Company’s common stock have been reserved for issuance under the 2021 Plan. The number of shares initially available for issuance will be increased annually on January 1 of each calendar year beginning in 2022 and ending in 2031 by an amount equal to the lesser of (i) 5% of the shares of the Company's common stock outstanding on the final day of the immediately preceding calendar year or (ii) a smaller number of shares as determined by the Company's Board of Directors. As of ~~March~~June 3130, 2023, there were 11,~~574~~434,~~631~~749 remaining shares available for the Company to grant under the 2021 Plan.

The Company’s Amended and Restated 2015 Stock Option Plan ("2015 Plan”) provided for the granting of ISOs and NSOs to the Company's employees, consultants, and nonemployee directors. In conjunction with the effectiveness of the 2021 Plan, the Company’s Board of Directors voted that no further awards would be granted under the 2015 Plan but any

awards under the 2015 Plan that were outstanding as of the date of the IPO shall remain outstanding and continue to be subject to the terms and conditions of the 2015 Plan.

Stock-based awards granted to employees generally vest over a four-year period, and, in the case of stock options, expire ten years from the date of grant.

2021 Employee Stock Purchase Plan

In September 2021, the Company’s Board of Directors adopted, and its stockholders approved, the 2021 Employee Stock Purchase Plan (“2021 ESPP”), which became effective in connection with the IPO. The 2021 ESPP authorizes the issuance of shares of common stock pursuant to purchase rights granted to employees. A total of 2,219,728 shares of the Company’s common stock have been reserved for future issuance under the 2021 ESPP. The number of shares available for issuance under the 2021 ESPP will be annually increased on January 1 of each calendar year beginning in 2022 and ending in 2031, by an amount equal to the lesser of: (i) 1% of the aggregate number of shares of the Company's common stock outstanding on the final day of the immediately preceding calendar year or (ii) such smaller number of shares as is determined by the Company's Board of Directors.

The 2021 ESPP permits eligible participants to purchase common stock through payroll deductions of up to 15% of their eligible compensation during the offering period. The purchase price of the shares will be 85% of the lesser of the fair market value of the Company's common stock on the first day of the offering period or the fair market value on the last day of the offering period. The ~~Company's first offering period commenced on February 1, 2022 and ended on May 31, 2022. Following the completion of the first offering period, the~~ 2021 ESPP will typically be administered through consecutive six-month offering periods, commencing on June 1st and December 1st of each fiscal year. As of ~~March~~June 3130, 2023, there were 2,~~155~~088,~~456~~097 shares of common stock available for issuance under the 2021 ESPP.

Stock-based Compensation Expense

Stock-based compensation expense is reflected in the condensed consolidated statements of operations and comprehensive income as follows (in thousands):

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenue	$	~~551~~489	$	~~108~~155	$	1,040	$	263
General and administrative		2,~~442~~609		2,~~319~~377		5,051		4,696
Selling and marketing		~~951~~976		~~403~~557		1,927		960
Research and development		~~956~~1,028		~~157~~238		1,984		395
Total	$	45,~~900~~102	$	23,~~987~~327	$	10,002	$	6,314

12. Income Taxes

The Company's effective income tax rates were 4964.90% and 28(63.52)% for the three months ended ~~March~~June 3130, 2023 and 2022, respectively. The Company's effective income tax ~~rate~~rates were 58.3% and (26.0)% for the six months ended June 30, 2023 and 2022, respectively. The effective tax rates for the three and six months ended ~~March~~June 3130, 2023 ~~was~~were higher than the statutory rate of 21.0% primarily due to ~~stock-based compensation adjustments,~~ the impact of ~~state taxes and~~ the ~~impact of the~~ valuation allowance, partially offset by excess benefits from stock-based compensation. The effective tax ~~rate~~rates for the three and six months ended ~~March~~June 3130, 2022 ~~was~~were ~~higher~~lower than the statutory rate of 21.0% primarily due to ~~stock-based compensation adjustments and the impact of state taxes, partially offset by~~ excess benefits from stock-based compensation.

13. Commitments and Contingencies

Non-Cancellable Commitments

As of ~~March~~June 3130, 2023, the Company had non-cancellable commitments to vendors primarily consisting of subscriptions to third party software products. Obligations under contracts that are cancellable or with a remaining term of 12 months or less are not included. As of ~~March~~June 3130, 2023, future minimum payments under other non-cancellable agreements were as follows (in thousands):


Remainder of 2023	$	2,231
2024		2,937
2025		514
2026		88
2027		—
Thereafter		—
Total	$	5,770

Remainder of 2023	$	3,437
2024		2,915
2025		499
2026		83
2027		—
Thereafter		—
Total	$	6,934

Contingent Value Payments

In 2019, the CVR Bonus Award Plan ("CVR Plan") was established for the benefit of option holders as of February 11, 2019 in the event that holders of Class A-1 common shares of EngageSmart, LLC (the Company's predecessor) receive cash distributions in connection with certain exit events specified under EngageSmart, LLC's LLC Agreement of at least $889.1 million (the “Performance Threshold”). Subject to the achievement of the Performance Threshold, CVR Unit Awards ("CVR Units") entitle the holder, subject generally to the holder’s continued employment through the date of payment, to a pro-rata portion of a bonus pool (based on a participant’s share of CVR Units held). The maximum amount of this bonus pool was capped at $9.5 million, of which, $6.0 million remains outstanding as of ~~March~~June 3130, 2023. No compensation expense has been recognized in relation to the CVR Plan as the Company has determined that achievement of the Performance Threshold is not probable as of ~~March~~June 3130, 2023.

In connection with the Company’s IPO in 2021, the CVR Plan was amended to reflect the conversion of EngageSmart, LLC to EngageSmart, Inc. and the CVR Units otherwise remain subject to substantially the same terms and conditions applicable immediately prior to the Company’s IPO. Following the IPO and the conversion of EngageSmart, LLC to EngageSmart, Inc. (and related transactions), General Atlantic subscribed and received 288,344 additional shares of common stock in the Company, with the value of each share based on the public offering price of the shares of common stock sold by the Company in the IPO. As consideration for the additional shares of common stock, General Atlantic entered into a promissory note with the Company, which requires General Atlantic to make a capital contribution to the Company equal to the amount of any future payments to be made by the Company to holders of CVR Units pursuant to the CVR Plan, which such payments would be triggered by the events specified under the amended CVR Plan. In the event the CVR Units are forfeited or the Performance Threshold is not met, General Atlantic will not be required to make any payments under the promissory note and will keep the shares issued.

Indemnification Agreements

In the normal course of business, the Company may provide indemnification of varying scope and terms to third parties and may enter into commitments and guarantees (“Agreements”) under which it may be required to make payments. The duration of these Agreements varies, and in certain cases, may be indefinite with no limit to the Company’s maximum potential payment exposure. In addition, the Company has obligations with certain members of its board of directors and certain executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors and/or officers. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under any indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of ~~March~~June 3130, 2023 and December 31, 2022.

Legal Proceedings

The Company is from time to time subject to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. The Company routinely assesses its current litigation and/or threatened litigation as to the probability of ultimately incurring a liability. In situations where the Company assesses the likelihood of loss as probable, the Company records its best estimate of the ultimate loss if reasonably possible to estimate. While the outcome of these claims cannot be predicted with certainty, the Company believes that these pending or threatened legal proceedings or claims could not have a material impact on the Company’s condensed consolidated financial statements.

14. Segment and Geographic Information

Segment Information

The Company has determined that its chief executive officer is its chief operating decision maker (“CODM”) and the Company is organized into two reportable segments: Enterprise Solutions and SMB Solutions. The reportable segments were determined based on how the CODM reviews business performance and makes decisions about resources to be allocated.

The Enterprise Solutions segment is primarily engaged in providing SaaS solutions that simplify customer-client engagement primarily through electronic billing and digital payments. Enterprise solutions are built to address the unique needs of specific verticals: Government, Utilities, Financial Services, Healthcare and Giving. For the Enterprise Solutions segment, the Company integrates directly with its customers’ core software systems and utilizes a partner-assisted direct sales model for purposes of its go-to-market strategy. The Company generates a significant majority of its revenue in this segment from transaction and usage-based revenue. For the six months ended June 30, 2023, this segment generated 44% of total revenue.

The ~~Enterprise~~SMB Solutions segment is primarily engaged in providing ~~SaaS~~end-to-end ~~solutions~~practice ~~that~~management ~~simplify~~solutions ~~customer-client~~geared ~~engagement~~toward ~~primarily~~the ~~through~~Health ~~electronic~~& ~~billing~~Wellness ~~and digital payments~~industry. ~~Enterprise~~For ~~solutions~~the ~~are~~Company's ~~built~~SMB toSolutions ~~address~~segment, the ~~unique~~Company ~~needs~~primarily ofrelies ~~specific~~on ~~verticals:~~a ~~Government,~~free ~~Utilities,~~trial ~~Financial~~to ~~Services,~~paid ~~Healthcare~~customer ~~and~~sales ~~Giving~~model. ~~For~~The ~~the~~Company ~~Enterprise~~generates ~~Solutions~~interest ~~segment,~~for its offerings in the Company's ~~integrates~~SMB ~~directly~~Solutions ~~with~~segment ~~its~~through ~~customers’~~a ~~core~~combination ~~software~~of ~~systems~~search ~~and~~engine ~~utilizes~~optimization, ~~a partner~~word-~~assisted~~of-mouth, ~~direct~~paid ~~sales~~customer ~~model~~referrals, ~~for~~and ~~purposes~~search ofengine ~~its go-to-market strategy~~marketing. The Company generates a ~~significant~~ majority of its revenue in this segment from ~~transaction~~subscription ~~and usage-based~~ revenue. For the ~~three~~six months ended ~~March~~June 3130, 2023, this segment generated 4456% of total revenue.

The ~~SMB~~CODM ~~Solutions~~evaluates segment isoperating ~~primarily~~performance ~~engaged~~using inrevenue ~~providing~~and ~~end-to-end~~Adjusted ~~practice~~EBITDA, ~~management~~as ~~solutions~~defined ~~geared~~below, ~~toward~~from ~~the~~reportable ~~Health~~segments &to ~~Wellness~~make ~~industry.~~resource ~~For~~allocation ~~the~~decisions ~~Company's~~and ~~SMB~~to ~~Solutions~~evaluate segment, performance. Adjusted EBITDA assists management in comparing the Company’s ~~primarily~~performance ~~relies~~ on a ~~free~~consistent ~~trial~~basis tofor ~~paid~~purposes ~~customer~~of ~~sales~~business ~~model~~decision-making. The Company ~~generates~~defines ~~interest~~Adjusted ~~for~~EBITDA ~~its~~as ~~offerings~~net inincome ~~the~~excluding ~~Company's~~interest ~~SMB~~income ~~Solutions~~(expense), ~~segment~~net; ~~through~~provision afor ~~combination~~(benefit offrom) ~~search~~income ~~engine~~taxes; ~~optimization,~~depreciation; ~~word-of-mouth,~~and ~~paid~~amortization ~~customer~~of ~~referrals~~intangible assets, ~~and~~as ~~search~~further ~~engine~~adjusted ~~marketing.~~for ~~The~~transaction-related ~~Company~~expenses ~~generates~~and astock-based ~~majority~~compensation. ofAdjusted ~~its~~EBITDA ~~revenue~~from inreportable ~~this~~segments ~~segment~~excludes ~~from~~unallocated ~~subscription~~corporate ~~revenue.~~costs ~~For~~which ~~the~~are ~~three~~primarily ~~months~~comprised ~~ended~~of ~~March~~costs 31for accounting, ~~2023~~finance, ~~this~~legal, ~~segment~~human ~~generated~~resources ~~56%~~and ofcosts ~~total~~for ~~revenue.~~certain executives supporting overall business strategy and execution.

The CODM evaluates segment operating performance using revenue and Adjusted EBITDA, as defined below, from reportable segments to make resource allocation decisions and to evaluate segment performance. Adjusted EBITDA assists management in comparing the Company’s performance on a consistent basis for purposes of business decision-making. The Company defines Adjusted EBITDA as net income excluding interest income (expense), net; provision for income taxes; depreciation; and amortization of intangible assets, as further adjusted for transaction-related expenses and stock-based compensation. Adjusted EBITDA from reportable segments excludes unallocated corporate costs which are primarily comprised of costs for accounting, finance, legal, human resources and costs for certain executives supporting overall business strategy and execution.

The following table sets forth the revenue and Adjusted EBITDA results attributable to each reportable segment and includes a reconciliation of the totals reported for the reportable segments to the applicable line items in the Company’s accompanying condensed consolidated statements of operations and comprehensive income (in thousands):

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue
Enterprise Solutions	$	3841,~~645~~308		$	3033,~~860~~017		$	79,953		$	63,877
SMB Solutions		4953,~~787~~101			3640,~~502~~845			102,888			77,347
Total revenue	$	8894,~~432~~409		$	6773,~~362~~862			182,841			141,224
Adjusted EBITDA
Enterprise Solutions		67,~~423~~198			4,~~476~~285			13,621			8,761
SMB Solutions		1820,~~468~~197			1315,~~018~~907			38,665			28,925
Total Adjusted EBITDA from reportable segments		2427,~~891~~395			1720,~~494~~192			52,286			37,686
Unallocated corporate expenses		(78,~~569~~016	)		(68,~~937~~227	)		(15,585	)		(15,164	)
Total Adjusted EBITDA		1719,~~322~~379			1011,~~557~~965			36,701			22,522
Reconciling items:
Interest income (expense), net		23,~~420~~205			~~(88~~210	)		5,625			122
Amortization of intangible assets		(3,900	)		(3,~~901~~899	)		(7,800	)		(7,800	)
Depreciation		(~~992~~1,031	)		(~~740~~733	)		(2,023	)		(1,473	)
Transaction-related expenses		(~~1,712~~510	)		38—			(2,222	)		38
Stock-based compensation		(45,~~900~~102	)		(23,~~987~~327	)		(10,002	)		(6,314	)
Income before income taxes		812,~~238~~041			24,~~879~~216			20,279			7,095
Provision for income taxes		4,114			820
Provision for (benefit from) income taxes		7,703			(2,663	)		11,817			(1,843	)
Net income	$	4,~~124~~338		$	26,~~059~~879		$	8,462		$	8,938

The Company’s CODM does not separately evaluate assets by segment, and therefore assets by segment are not presented.

Geographic Information

For the ~~three~~six months ended ~~March~~June 3130, 2023 and 2022, revenues by geographic region are not disclosed as revenue outside the United States does not exceed 10% of total revenue.

The Company does not disclose geographic information for long-lived assets as long-lived assets located outside the United States do not exceed 10% of total assets.

15. Subsequent Events

On August 2, 2023, Invoice Cloud, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Invoice Cloud”), entered into a Unit Purchase Agreement (the “UPA”) with Waystar, Inc., a Delaware corporation (“Buyer”), pursuant to which Buyer agreed to purchase all of the issued and outstanding units of membership interests (the “Units”) of IMAGEVISION.NET, LLC, the entity that operates the HealthPay24 platform. Buyer agreed to purchase the Units for an all-cash aggregate purchase price of up to $30.0 million, subject to working capital and other purchase price adjustments. The UPA contains customary representations, warranties, covenants and indemnification provisions for a deal of this size

and nature. The transaction closed on August 2, 2023. In connection with the closing, Invoice Cloud and Buyer entered into a transition services agreement pursuant to which Invoice Cloud will provide certain services to Buyer.

On August 2, 2023, SimplePractice, LLC, a California limited liability company and wholly owned subsidiary of the Company (“SimplePractice”), entered into an asset purchase agreement (the “APA”) with Luminello, Inc., a California corporation, and certain Key Holders as defined therein (collectively, the “Seller”), pursuant to which SimplePractice agreed to purchase certain assets of the Seller for aggregate cash consideration of up to $16.0 million, subject to purchase price adjustments including for working capital, indebtedness, and a Holdback Amount (as defined in the APA) up to an aggregate of $3.6 million to be paid pursuant to the terms of the APA. In addition, Seller may receive contingent payments up to $2.0 million, which are subject to the terms and conditions described in the APA. Seller is engaged in the sale, hosting, distribution and licensing of a practice management software as a service platform and/or software program. The transaction closed on August 2, 2023. In connection with the closing, SimplePractice and the Seller entered into certain intellectual property agreements pursuant to which SimplePractice licensed certain acquired assets back to Seller. In addition, the parties entered into a transition services agreement pursuant to which Seller will continue to operate its platform for a period of time.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, as well as our consolidated financial statements and related notes included in our 2022 Form 10-K. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. You should review the disclosure in Part I, Item 1A. "Risk Factors" in our 2022 Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

Overview

We are a leading provider of vertically tailored customer engagement software and integrated payments solutions. At EngageSmart, our mission is to simplify customer and client engagement to allow our customers to focus resources on initiatives that improve their businesses and better serve their communities. We offer single instance, multi-tenant, true Software-as-a-Service ("SaaS") vertical solutions that are designed to simplify our customers’ engagement with their clients by driving digital adoption and self-service. As of ~~March~~June 3130, 2023, we serve approximately ~~104~~109,~~800~~700 customers in the SMB Solutions segment and approximately 3,400 customers in the Enterprise Solutions segment across several core verticals: Health & Wellness, Government, Utilities, Financial Services, Healthcare and Giving. Our SaaS solutions are purpose-built for each of our verticals and they simplify and automate mission-critical workflows such as scheduling, client onboarding, client communication, paperless billing, and electronic payment processing. Our solutions transform our customers’ digital engagement and empower them to manage, improve, and grow their businesses.

Our vertically tailored solutions include software and payment tools that automate mission-critical business workflows for customers across our verticals. Our value proposition is focused on transforming our customers’ digital engagement through four core SaaS solutions, including:

•

SimplePractice. An end-to-end practice management and electronic health record ("EHR") platform that health and wellness professionals use to manage their practices. SimplePractice serves practitioners, who are our customers, throughout their career journey, allowing them to manage their practice development from licensure to private practice. SimplePractice enables customers to engage with their clients across both virtual and in-person settings, schedule appointments, document cases, and handle all aspects of billing and payment processing, as well as, insurance claim processing on one integrated platform. Our platform also helps our customers build and grow their practices through the use of our online marketplace.

•

InvoiceCloud. An electronic bill presentment and payment solution that helps our Government, Utility, and Financial Services customers digitize billing, client communications, and collections. We believe InvoiceCloud drives superior client digital adoption, which increases engagement and drives operational efficiency for our customers.

•

HealthPay24. A patient engagement and payment platform that helps health systems, physician groups, dental practices, and medical billers efficiently drive patient self-pay collections. On August 2, 2023, we entered into an agreement for the disposition of IMAGEVISION NET, LLC, the entity that operates the HealthPay24 platform, and the transaction closed on August 2, 2023. For additional information, refer to Note 15 - Subsequent Events to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

•

DonorDrive. A fundraising software platform that helps non-profits, healthcare organizations, and higher education institutions produce virtual events, launch branded donation campaigns, and create peer-to-peer fundraising experiences.

Our Business Segments

We organize our solutions into two reportable segments, Enterprise Solutions and SMB Solutions. The chief operating decision maker (“CODM”), which is our chief executive officer, evaluates segment operating performance using revenue and Adjusted EBITDA from reportable segments to make resource allocation decisions and to evaluate segment performance.

•

Enterprise Solutions. The Enterprise Solutions segment is primarily engaged in providing SaaS solutions that simplify customer-client engagement primarily through electronic billing and digital payments, and includes our InvoiceCloud, HealthPay24 and DonorDrive solutions. Enterprise solutions are built to address the unique needs of specific verticals: Government, Utilities, Financial Services, Healthcare and Giving. For the Enterprise Solutions segment, we typically integrate directly with our customers’ core software systems and utilize a partner-assisted direct sales model for purposes of our go-to-market strategy. We generate a significant majority of our revenue in this

1516

specific verticals: Government, Utilities, Financial Services, Healthcare and Giving. For the Enterprise Solutions segment, we typically integrate directly with our customers’ core software systems and utilize a partner-assisted direct sales model for purposes of our go-to-market strategy. We generate a significant majority of our revenue in this segment from transaction and usage-based revenue. For the ~~three~~six months ended ~~March~~June 3130, 2023, this segment generated 44% of total revenue.

•

SMB Solutions. The SMB Solutions segment is primarily engaged in providing end-to-end practice management solutions geared toward the Health & Wellness industry and includes our SimplePractice solution. For our SMB Solutions segment, we primarily rely on a free trial to paid customer sales model. We generate interest for our offerings in our SMB Solutions segment through a combination of search engine optimization, word-of-mouth, paid customer referrals, and search engine marketing. We generate a majority of our revenue in this segment from subscription revenue. For the ~~three~~six months ended ~~March~~June 3130, 2023, this segment generated 56% of total revenue.

Our Revenue Model

We primarily generate two types of revenue: (i) subscription revenue and (ii) transaction and usage-based revenue.

•

Subscription revenue. Generally consists of recurring monthly SaaS subscriptions from the sale of our solutions.

•

Transaction and usage-based revenue. Generally based on the number of Transactions Processed, as defined below, or the dollar value of the Transactions Processed within our software solutions,. ~~which~~We isare paid tofees usfor transaction and usage-based revenue by our customers, our customers’ clients, or afrom ~~combination~~partners ofon ~~both~~transactions for which we originate. For our transaction and usage-based revenue that is derived from the facilitation of payment processing, in general, we receive more revenue for card-based payments than for electronic check and ACH payments.

Impact of Economic and Inflationary Pressure on Our Business

We continued to operate in an environment of economic uncertainty and inflationary pressure, however inflation did not have a material impact on our results of operations induring the ~~first~~six ~~quarter~~months ofended June 30, 2023.

The full extent to which economic and inflationary pressure will directly or indirectly impact our business, results of operations, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. For further discussion of the potential impacts that inflationary pressure and economic uncertainty could have on our business, financial condition, and operating results, refer to Part I, Item 1A. “Risk Factors” in our 2022 Form 10-K.

Key Business Metrics and Non-GAAP Financial Measures

We review the following key business metrics and non-GAAP financial measures to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Accordingly, we believe our key business metrics and non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team. Our key business metrics and non-GAAP financial measures are presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with accounting principles generally accepted in the United States ("GAAP") and may be calculated differently than similarly titled metrics or measures presented by other companies.

Number of Customers

We serve a wide variety of customers across our verticals. The majority of our customers are based in the United States. For the purpose of measuring our key business metrics, we define customers as individuals or entities with whom we directly contract to use our solutions. The total number of customers for each of our segments is presented below.

	March 31, 2023		March 31, 2022
	June 30, 2023		June 30, 2022
Customers in the SMB Solutions segment		~~104~~109,~~790~~733		8489,~~579~~342
Customers in the Enterprise Solutions segment		3,~~390~~429		3,~~183~~217
Total		~~108~~113,~~180~~162		8792,~~762~~559

Transactions Processed

We define Transactions Processed as the number of accepted payment transactions, such as credit card and debit card transactions, ACH payments, emerging electronic payments, other communication, text messaging and interactive voice response transactions, and other payment transaction types, which are facilitated through our solutions during a given period. We believe Transactions Processed is a useful key business metric for investors because it directly correlates with ~~transaction and usage-based revenue. We use Transactions Processed to evaluate changes in transaction and usage-based revenue over time.~~

1617

	Three Months Ended March 31,
	2023		2022
	(in millions)
Transactions Processed		42.6		34.3

transaction and usage-based revenue. We use Transactions Processed to evaluate changes in transaction and usage-based revenue over time.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in millions)
Transactions Processed		43.8		36.1		86.4		70.4

Adjusted EBITDA and Adjusted EBITDA Margin

We define Adjusted EBITDA as net income excluding interest income (expense), net, provision for (benefit from) income taxes, depreciation, and amortization of intangible assets, as further adjusted for transaction-related expenses, and stock-based compensation. Transaction-related expenses typically consist of direct costs related to acquisitions, divestitures, and other strategic activities which are excluded from our non-GAAP measures because they relate to specific transactions which are not reflective of our ongoing operations. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue. We believe that Adjusted EBITDA and Adjusted EBITDA Margin, when taken collectively with our GAAP results, may be helpful to investors because they provide consistency and comparability with past financial performance and assist in comparisons with other companies, some of which use similar non-GAAP financial measures to supplement their GAAP results.

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(in thousands, except percentages)
Net income	$	4,~~124~~338		$	26,~~059~~879		$	8,462		$	8,938
Net income margin		4.76	%		39.13	%		4.6	%		6.3	%
Adjusted EBITDA	$	1719,~~322~~379		$	1011,~~557~~965		$	36,701		$	22,522
Adjusted EBITDA Margin		1920.65	%		1516.72	%		20.1	%		15.9	%

Adjusted Gross Profit and Adjusted Gross Margin

We define Adjusted Gross Profit as gross profit as adjusted for amortization of intangible assets and stock-based compensation. We define Adjusted Gross Margin as Adjusted Gross Profit divided by revenue. We believe that Adjusted Gross Profit and Adjusted Gross Margin, when taken collectively with our GAAP results, may be helpful to investors because they provide consistency and comparability with past financial performance and assist in comparisons with other companies, some of which use similar non-GAAP financial measures to supplement their GAAP results.

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(in thousands, except percentages)
Gross profit	$	6772,~~533~~772		$	5156,~~323~~059		$	140,305		$	107,382
Gross margin		7677.41	%		7675.29	%		76.7	%		76.0	%
Adjusted Gross Profit	$	6974,~~622~~799		$	5257,~~970~~751		$	144,421		$	110,721
Adjusted Gross Margin		7879.72	%		78.62	%		79.0	%		78.4	%

Management uses Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Gross Profit, and Adjusted Gross Margin:

•

as measures of operating performance because they assist us in comparing the operating performance of our business on a consistent basis, as they remove the impact of items not directly resulting from our core operations;

•

for planning purposes, including the preparation of our internal annual operating budget and financial projections;

•

to evaluate the performance and effectiveness of our operational strategies; and

•

to evaluate our capacity to expand our business.

By providing these non-GAAP financial measures, together with a reconciliation to the most directly comparable GAAP measure, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Gross Profit, and Adjusted Gross Margin have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net income, net income margin, gross profit, gross margin, or other financial statement data presented in our consolidated financial statements as indicators of financial performance. Some of the limitations are:

•

such measures do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;

•

such measures do not reflect our tax expense or the cash requirements to pay our taxes;

•

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and

•

other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.

Reconciliations of Non-GAAP Financial Measures

The following tables present the reconciliations for each non-GAAP financial measure to the most directly comparable financial measure calculated and presented in accordance with GAAP.

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(in thousands, except percentages)
Net income	$	4,~~124~~338		$	26,~~059~~879		$	8,462		$	8,938
Net income margin		4.76	%		39.13	%		4.6	%		6.3	%
Adjustments:
Provision for income taxes		4,114			820
Provision for (benefit from) income taxes		7,703			(2,663	)		11,817			(1,843	)
Interest (income) expense, net		(23,~~420~~205	)		88(210	)		(5,625	)		(122	)
Amortization of intangible assets		3,900			3,~~901~~899			7,800			7,800
Depreciation		~~992~~1,031			~~740~~733			2,023			1,473
Stock-based compensation		45,~~900~~102			23,~~987~~327			10,002			6,314
Transaction-related expense		~~1,712~~510			~~(38~~—	)		2,222			(38	)
Adjusted EBITDA	$	1719,~~322~~379		$	1011,~~557~~965		$	36,701		$	22,522
Adjusted EBITDA Margin		1920.65	%		1516.72	%		20.1	%		15.9	%

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(in thousands, except percentages)
Gross profit	$	6772,~~533~~772		$	5156,~~323~~059		$	140,305		$	107,382
Gross margin		7677.41	%		7675.29	%		76.7	%		76.0	%
Adjustments:
Amortization of intangible assets		1,538			1,~~539~~537			3,076			3,076
Stock-based compensation		~~551~~489			~~108~~155			1,040			263
Adjusted Gross Profit	$	6974,~~622~~799		$	5257,~~970~~751		$	144,421		$	110,721
Adjusted Gross Margin		7879.72	%		78.62	%		79.0	%		78.4	%

Components of Results of Operations

Revenue

We generate revenue primarily from providing access to our SaaS solutions via subscription and transaction and usage-based fees for services provided through such solutions. To a lesser extent, we also generate revenue from the sale of implementation services, sale of on-demand learning courses and the sale of hardware.

Cost of Revenue

Cost of revenue primarily consists of personnel-related expenses for our customer support and operations teams, certain variable transaction and licensing costs, amortization of intangible assets related to acquired developed technology, and hosting and data storage costs associated with our infrastructure and platform environments. We expect that cost of revenue will increase in absolute dollars, but it may fluctuate as a percentage of revenue from period to period as we continue to invest in growing our business across our segments.

Operating Expenses

General and administrative

General and administrative expenses consist primarily of personnel-related expenses, professional and consulting-related expenses, and software costs. We expect that general and administrative expenses will increase, but they may fluctuate as a percentage of revenue from period to period. Over the longer term, we expect general and administrative expenses to decrease as a percentage of revenue as we leverage the scale of our business.

Selling and marketing

Selling and marketing expenses consist primarily of personnel-related expenses, inclusive of sales commission expense, fees paid to third-party partners, and costs to market and promote our solutions through advertisements and marketing events. We expect our selling and marketing expenses to increase in absolute dollars as we continue to invest in new customer acquisition and retention efforts, but they may fluctuate as a percentage of revenue from period to period.

events. We expect our selling and marketing expenses to increase in absolute dollars as we continue to invest in new customer acquisition and retention efforts, but they may fluctuate as a percentage of revenue from period to period.

Research and development

Research and development expenses consist primarily of personnel-related expenses, third-party consulting costs, and costs for software tools for product management and software development. Costs associated with developing new products and features that qualify as internal use software are capitalized and amortized. We expect our research and development expenses to increase in absolute dollars, but they may fluctuate as a percentage of revenue from period to period as we expand our research and development team to develop new products and enhance existing products.

Amortization of intangible assets

Amortization of intangible assets, within operating expenses, consists primarily of amortization of customer relationship and tradename assets acquired as part of business combinations. We amortize acquired intangible assets over their estimated useful lives based on the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis.

Other Income (Expense), Net

Interest expense

Interest expense consists of amortization of debt issuance costs and fees associated with unused revolving credit facility commitments.

Other income, net

Other income, net consists primarily of interest income on our cash and cash equivalents.

Provision for (Benefit from) Income Taxes

Provision for (benefit from) income taxes consists of federal and state income taxes in the United States. The primary difference between our effective tax rate and the federal statutory rate is due to a valuation allowance against federal and state deferred tax assets.

We continue to maintain a full valuation allowance against our net deferred tax assets. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance. However, given our current positive earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to reach a conclusion that all or a portion of the valuation allowance may no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease in income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to achieve as well as our projected income levels in future periods.

Results of Operations

The following table sets forth, for the periods presented, each line item from our condensed consolidated statements of operations and comprehensive income on a percentage of revenue basis. The period-to-period comparison of financial results is not necessarily indicative of future results. The information contained in the table below should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

	Three Months Ended March 31,
	2023			2022
	(% of total revenue)
Revenue		100.0	%		100.0	%
Cost of revenue		23.6	%		23.8	%
Gross profit		76.4	%		76.2	%
Operating expenses:
General and administrative		17.4	%		19.7	%
Selling and marketing		32.9	%		33.6	%
Research and development		16.8	%		14.9	%
Amortization of intangible assets		2.7	%		3.5	%
Total operating expenses		69.8	%		71.8	%
Income from operations		6.6	%		4.4	%
Other income (expense), net:
Interest expense		(0.1	)%		(0.2	)%
Other income, net		2.9	%		0.0	%
Total other income (expense), net		2.7	%		(0.1	)%
Income before income taxes		9.3	%		4.3	%
Provision for income taxes		4.7	%		1.2	%
Net income and comprehensive income		4.7	%		3.1	%


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(% of total revenue)
Revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue		22.9	%		24.1	%		23.3	%		24.0	%
Gross profit		77.1	%		75.9	%		76.7	%		76.0	%
Operating expenses:
General and administrative		15.3	%		20.3	%		16.3	%		20.0	%
Selling and marketing		32.2	%		32.1	%		32.6	%		32.8	%
Research and development		17.7	%		14.9	%		17.2	%		14.9	%
Amortization of intangible assets		2.5	%		3.2	%		2.6	%		3.3	%
Total operating expenses		67.7	%		70.5	%		68.7	%		71.1	%
Income from operations		9.4	%		5.4	%		8.0	%		4.9	%
Other income (expense), net:
Interest expense		(0.1	)%		(0.2	)%		(0.1	)%		(0.2	)%
Other income, net		3.5	%		0.4	%		3.2	%		0.2	%
Total other income (expense), net		3.4	%		0.3	%		3.1	%		0.1	%
Income before income taxes		12.8	%		5.7	%		11.1	%		5.0	%
Provision for (benefit from) income taxes		8.2	%		(3.6	)%		6.5	%		(1.3	)%
Net income and comprehensive income		4.6	%		9.3	%		4.6	%		6.3	%

~~Comparison of the Three Months Ended March 31, 2023 and 2022~~21

Comparison of the Three and Six Months Ended June 30, 2023 and 2022

The following tables set forth our results of operations for the periods presented:

	Three Months Ended March 31,
	Three Months Ended June 30,												Six Months Ended June 30,
	2023			2022			Change						2023			2022			Change
	Amount			Amount			Amount			%			Amount			Amount			Amount			%
	(in thousands, except percentages)
Revenue	$	8894,~~432~~409		$	6773,~~362~~862		$	2120,~~070~~547			3127.38	%	$	182,841		$	141,224		$	41,617			29.5	%
Cost of revenue		2021,~~899~~637			1617,~~039~~803			43,~~860~~834			3021.35	%		42,536			33,842			8,694			25.7	%
Gross profit		6772,~~533~~772			5156,~~323~~059			16,~~210~~713			3129.68	%		140,305			107,382			32,923			30.7	%
Operating expenses:
General and administrative		1514,~~407~~456			1314,~~287~~997			~~2,120~~(541	)		16(3.06	)%		29,863			28,284			1,579			5.6	%
Selling and marketing		2930,~~126~~421			2223,~~664~~692			6,~~462~~729			28.54	%		59,547			46,356			13,191			28.5	%
Research and development		1416,~~820~~693			10,~~040~~993			45,~~780~~700			4751.69	%		31,513			21,033			10,480			49.8	%
Amortization of intangible assets		2,362			2,362			—			—	%		4,724			4,724			—			—	%
Total operating expenses		6163,~~715~~932			4852,~~353~~044			1311,~~362~~888			2722.68	%		125,647			100,397			25,250			25.2	%
Income from operations		58,~~818~~840			24,~~970~~015			24,~~848~~825			95120.92	%		14,658			6,985			7,673			109.8	%
Other income (expense), net:
Interest expense		(~~119~~121	)		(~~119~~121	)		—			—	%		(240	)		(240	)		—			—	%
Other income, net		23,~~539~~322			28322			23,~~511~~000			~~8,967~~931.97	%		5,861			350			5,511			1,574.6	%
Total other income (expense), net		23,~~420~~201			~~(91~~201	)		23,~~511~~000			(21,~~759~~492.35	)%		5,621			110			5,511			5,010.0	%
Income before income taxes		812,~~238~~041			24,~~879~~216			57,~~359~~825			~~186~~185.16	%		20,279			7,095			13,184			185.8	%
Provision for income taxes		4,114			820			3,294			401.7	%
Provision for (benefit from) income taxes		7,703			(2,663	)		10,366			(389.3	)%		11,817			(1,843	)		13,660			(741.2	)%
Net income and comprehensive income	$	4,~~124~~338		$	26,~~059~~879		$	(2,~~065~~541	)		~~100~~(36.39	)%	$	8,462		$	8,938		$	(476	)		(5.3	)%

Revenue

Revenue increased $2120.15 million for the three month period ended ~~March~~June 3130, 2023, as compared to the corresponding period in 2022, primarily due to an increase of $1013.61 million in transaction and usage-based revenue driven by an increase in the number of Transactions Processed. Additionally, subscription revenue increased $107.39 million driven by an increase in the number of customers utilizing our solutions, ~~the impact of the pricing~~ and ~~packaging changes in our SMB Solutions segment that occurred in the first quarter of 2022, and higher revenue from~~ existing customer expansion.

Revenue increased $41.6 million for the six month period ended June 30, 2023, as compared to the corresponding period in 2022, primarily due to an increase of $23.7 million in transaction and usage-based revenue driven by an increase in the number of Transactions Processed. Additionally, subscription revenue increased $18.2 million driven by an increase in the number of customers utilizing our solutions and existing customer expansion.

Cost of revenue

Cost of revenue increased $43.98 million for the three month period ended ~~March~~June 3130, 2023, as compared to the corresponding period in 2022, primarily related to an increase of $2.94 million in personnel-related costs, driven by ~~customer support~~ headcount growth to sustain the increased demand for our solutions, and a $1.3 million increase in certain variable transaction, licensing and hosting costs due to higher usage of our solutions.

Cost of revenue increased $8.7 million for the six month period ended June 30, 2023, as compared to the corresponding period in 2022, primarily related to an increase of $5.2 million in personnel-related costs, driven by headcount growth to sustain the increased demand for our solutions, a $2.5 million increase in certain variable transaction, licensing and hosting costs due to higher usage of our solutions, and a $0.7 million increase in depreciation.

General and administrative expenses

General and administrative expenses ~~increased~~decreased $20.15 million for the three month period ended ~~March~~June 3130, 2023, as compared to the corresponding period in 2022, primarily due to ~~$1.7~~a ~~million~~decrease ofin ~~transaction~~professional and consulting-related expenses, ~~incurred~~including inlegal ~~connection~~and ~~with~~insurance acosts, ~~secondary public offering~~ of ~~our~~$1.1 ~~common~~million, ~~stock~~partially inoffset ~~the~~by ~~first~~an ~~quarter~~increase ofin ~~2023.~~software ~~In addition, personnel-related~~ costs ~~increased~~of $0.5 million ~~driven by increased headcount to support overall growth and public company operations~~.

General and administrative expenses increased $1.6 million for the six month period ended June 30, 2023, as compared to the corresponding period in 2022, primarily due to an increase in personnel-related costs of $1.0 million and an increase in software costs of $0.9 million.

Selling and marketing expenses

Selling and marketing expenses increased $6.57 million for the three month period ended ~~March~~June 3130, 2023, as compared to the corresponding period in 2022, primarily due to an increase of $2.49 million in personnel-related costs associated with headcount growth, ~~and~~an ~~equity~~increase ~~awards~~of ~~granted~~$1.8 million in fees paid to ~~existing~~third-party ~~employees~~channel partners, and an increase of $21.23 million in advertising and other marketing-related spend utilized to drive new customer additions~~, and an increase of $1~~.~~5 million in fees paid to third-party channel partners.~~

Selling and marketing expenses increased $13.2 million for the six month period ended June 30, 2023, as compared to the corresponding period in 2022, primarily due to an increase of $5.3 million in personnel-related costs associated with headcount growth, an increase of $3.5 million in advertising and other marketing-related spend utilized to drive new customer additions, an increase of $3.4 million in fees paid to third-party channel partners, and an increase of $0.7 million in professional and consulting-related expenses.

Research and development expenses

Research and development expenses increased $45.87 million for the three month period ended ~~March~~June 3130, 2023, as compared to the corresponding period in 2022, primarily due to an increase of $34.75 million in personnel-related costs associated with headcount growth, and an increase of $0.76 million in third-party consulting costs. Headcount growth and the increase in usage of third-party consultants was associated with enhancing the functionality and ease of use of our solutions.

20Research and development expenses increased $10.5 million for the six month period ended June 30, 2023, as compared to the corresponding period in 2022, primarily due to an increase of $8.2 million in personnel-related costs associated with headcount growth, an increase of $1.3 million in third-party consulting costs, and an increase of $0.8 million in software costs. Headcount growth and the increase in usage of third-party consultants was associated with enhancing the functionality and ease of use of our solutions.

Amortization of intangible assets

Amortization of intangible assets, within operating expenses, remained consistent for the three and six months ended ~~March~~June 3130, 2023, as compared to the corresponding periods in 2022.

Interest expense

~~During~~Interest ~~each~~expense ofremained consistent for the three ~~month~~and ~~periods~~six months ended ~~March~~June 3130, 2023 ~~and 2022~~, ~~interest~~as ~~expense~~compared ~~was~~to ~~$0.1~~the ~~million~~corresponding ~~which~~periods ~~was~~in ~~associated with our 2021 Revolving Credit Facility, as defined below~~2022.

Other income, net

Other income, net increased $23.50 million for the three month period ended ~~March~~June 3130, 2023, as compared to the corresponding period in 2022, due to an increase in interest income earned on our cash equivalents driven by higher interest rates.

~~Provision~~Other income, net increased $5.5 million for the six month period ended June 30, 2023, as compared to the corresponding period in 2022, due to an increase in interest income ~~taxes~~earned on our cash equivalents driven by higher interest rates.

~~The~~Provision ~~provision~~ for ~~income~~(benefit ~~taxes~~from) ~~was $4.1 million during the three months ended March 31, 2023, as compared to a provision for~~ income taxes of $0.8 million for the three months ended March 31, 2022. Our effective income tax rate was 49.9% for the three months ended March 31, 2023, compared to 28.5% for the three months ended March 31, 2022. The effective tax rate for the three months ended March 31, 2023 was higher than the statutory rate of 21.0% primarily due to stock-based compensation adjustments, the impact of state taxes and the impact of the valuation allowance, partially offset by excess benefits from stock-based compensation. The effective tax rate for the three months ended March 31, 2022 was higher than the statutory rate of 21.0% primarily due to stock-based compensation adjustments and the impact of state taxes, partially offset by excess benefits from stock-based compensation.

The provision for income taxes was $7.7 million during the three months ended June 30, 2023, as compared to a benefit from income taxes of $2.7 million for the three months ended June 30, 2022, resulting in an effective income tax rate of 64.0% and (63.2)%, respectively. The increase in income tax provision for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 was primarily due to an increase in pre-tax income, the impact of the valuation allowance, and a reduction of excess tax benefits arising from stock-based compensation.

The provision for income taxes was $11.8 million for the six months ended June 30, 2023, as compared to a benefit from income taxes of $1.8 million for the six months ended June 30, 2022, resulting in an effective tax rate of 58.3% and

(26.0)%, respectively. The increase in income tax provision for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily due to an increase in pre-tax income, the impact of the valuation allowance, and a reduction of excess tax benefits arising from stock-based compensation.

Segment Information

Our reportable segments have been determined in accordance with Accounting Standards Codification ("ASC"), ASC 280, Segment Reporting. Currently, we have two reportable segments: Enterprise Solutions and SMB Solutions. The CODM, which is our chief executive officer, evaluates segment operating performance using revenue and Adjusted EBITDA from reportable segments to make resource allocation decisions and to evaluate segment performance. We define Adjusted EBITDA as net income, excluding interest income (expense), net; provision for (benefit from) income taxes; depreciation; and amortization of intangible assets, as further adjusted for transaction-related expenses, and stock-based compensation. Adjusted EBITDA from reportable segments excludes unallocated corporate costs which are primarily comprised of costs for accounting, finance, legal, human resources and costs for certain executives supporting overall business strategy and execution.

Adjusted EBITDA from reportable segments is a non-GAAP measure. Refer to “Key Business Metrics and Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA, a non-GAAP measure, to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

21Comparison of the Three and Six Months Ended June 30, 2023 and 2022

Comparison of the Three Months Ended March 31, 2023 and 2022


		Three Months Ended June 30,						Six Months Ended June 30,
		2023			2022			2023			2022
	(in thousands, except percentages)
Revenue
Enterprise Solutions		$	41,308		$	33,017		$	79,953		$	63,877
SMB Solutions			53,101			40,845			102,888			77,347
Total revenue			94,409			73,862			182,841			141,224
Adjusted EBITDA
Enterprise Solutions			7,198			4,285			13,621			8,761
SMB Solutions			20,197			15,907			38,665			28,925
Total Adjusted EBITDA from reportable segments			27,395			20,192			52,286			37,686
Unallocated corporate expenses			(8,016	)		(8,227	)		(15,585	)		(15,164	)
Total Adjusted EBITDA			19,379			11,965			36,701			22,522
Reconciling items:
Interest income (expense), net			3,205			210			5,625			122
Amortization of intangible assets			(3,900	)		(3,899	)		(7,800	)		(7,800	)
Depreciation			(1,031	)		(733	)		(2,023	)		(1,473	)
Transaction-related expenses			(510	)		—			(2,222	)		38
Stock-based compensation			(5,102	)		(3,327	)		(10,002	)		(6,314	)
Income before income taxes			12,041			4,216			20,279			7,095
Provision for (benefit from) income taxes			7,703			(2,663	)		11,817			(1,843	)
Net income		$	4,338		$	6,879		$	8,462		$	8,938
Net income margin			4.6	%		9.3	%		4.6	%		6.3	%
Adjusted EBITDA Margin - Enterprise Solutions			17.4	%		13.0	%		17.0	%		13.7	%
Adjusted EBITDA Margin - SMB Solutions			38.0	%		38.9	%		37.6	%		37.4	%

		Three Months Ended March 31,
		2023			2022
	(in thousands, except percentages)
Revenue
Enterprise Solutions		$	38,645		$	30,860
SMB Solutions			49,787			36,502
Total revenue			88,432			67,362
Adjusted EBITDA
Enterprise Solutions			6,423			4,476
SMB Solutions			18,468			13,018
Total Adjusted EBITDA from reportable segments			24,891			17,494
Unallocated corporate expenses			(7,569	)		(6,937	)
Total Adjusted EBITDA			17,322			10,557
Reconciling items:
Interest income (expense), net			2,420			(88	)
Amortization of intangible assets			(3,900	)		(3,901	)
Depreciation			(992	)		(740	)
Transaction-related expenses			(1,712	)		38
Stock-based compensation			(4,900	)		(2,987	)
Income before income taxes			8,238			2,879
Provision for income taxes			4,114			820
Net income		$	4,124		$	2,059
Net income margin			4.7	%		3.1	%
Adjusted EBITDA Margin - Enterprise Solutions			16.6	%		14.5	%
Adjusted EBITDA Margin - SMB Solutions			37.1	%		35.7	%

Revenue

Revenue for the Enterprise Solutions segment increased $7.8.3 million for the three month period ended ~~March~~June 3130, 2023, as compared to the corresponding period in 2022, primarily attributable to an increase in transaction and usage-based revenue driven by an increase in Transactions Processed.

Revenue for the ~~SMB~~Enterprise Solutions segment increased $1316.31 million for the ~~three~~six month period ended ~~March~~June 3130, 2023, as compared to the corresponding period in 2022, primarily attributable to an increase ~~of $9.9 million~~ in subscription revenue driven by an increase in the number of customers utilizing our solutions, the impact of the pricing and packaging changes that occurred in the first quarter of 2022, and higher revenue from existing customer expansion. Additionally, transaction and usage-based revenue ~~increased $3.5 million~~ driven by an increase in Transactions Processed~~, and to a lesser extent, the impact of a price increase that occurred in the first quarter of 2023~~.

Revenue for the SMB Solutions segment increased $12.3 million for the three month period ended June 30, 2023, as compared to the corresponding period in 2022, primarily attributable to an increase of $7.4 million in subscription revenue driven by an increase in the number of customers utilizing our solutions and expansion within our existing customers.

Additionally, transaction and usage-based revenue increased $4.9 million driven by an increase in Transactions Processed, and to a lesser extent, the impact of a price increase that occurred in the first quarter of 2023.

Revenue for the SMB Solutions segment increased $25.5 million for the six month period ended June 30, 2023, as compared to the corresponding period in 2022, primarily attributable to an increase of $17.3 million in subscription revenue driven by an increase in the number of customers utilizing our solutions and expansion within our existing customers. Additionally, transaction and usage-based revenue increased $8.4 million driven by an increase in Transactions Processed, and to a lesser extent, the impact of a price increase that occurred in the first quarter of 2023.

Adjusted EBITDA

Adjusted EBITDA margin for the Enterprise Solutions segment increased to 1617.64% and 17.0% for the three and six month ~~period~~periods ended ~~March~~June 3130, 2023 respectively, as compared to 1413.50% and 13.7% in the corresponding ~~period~~periods in 2022, respectively. The increase in Adjusted EBITDA margin was primarily driven by lower hardware revenue ~~growth~~as ~~outpacing~~well ~~headcount,~~as ~~legal~~efficiencies in general and ~~partner~~administrative ~~fee~~and sales and marketing spend, partially offset by an increase in research and development ~~consulting~~ expenses.

Adjusted EBITDA margin for the SMB Solutions segment ~~increased~~decreased to 3738.10% for the three month period ended ~~March~~June 3130, 2023, as compared to 3538.79% in the corresponding period in 2022. The ~~increase~~decrease in Adjusted EBITDA margin was primarily driven by ~~revenue~~an ~~growth~~increase ~~outpacing~~in ~~headcount~~research and ~~professional~~development ~~fee~~ spend asassociated ~~well~~with asheadcount ~~efficiencies in hosting costs~~growth, partially offset by anefficiencies ~~increase~~ in ~~third~~general ~~party~~and ~~marketing~~administrative spend ~~to drive higher trial volumes~~.

Adjusted EBITDA margin for the SMB Solutions segment increased slightly to 37.6% for the six month period ended June 30, 2023, as compared to 37.4% in the corresponding period in 2022. The increase in Adjusted EBITDA margin was primarily driven by efficiencies in general and administrative spend, partially offset by an increase in research and development spend associated with headcount growth.

Liquidity and Capital Resources

As of ~~March~~June 3130, 2023, we had cash and cash equivalents of $~~318~~332.38 million which were primarily held for working capital purposes. Our primary source of funds has been, and we expect it to continue to be, cash generated from our net revenues, supplemented through debt financing and the sale of our equity securities. We believe our existing cash and cash equivalents, cash provided by operations and access to our 2021 Revolving Credit Facility, as defined below, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. We also expect our sources of liquidity will be sufficient to fund our long-term contractual obligations and capital needs. However, this is subject, to a certain extent, on general economic, financial, competitive, regulatory and other factors that are beyond our control.

22On September 27, 2021, we entered into a revolving credit agreement ("2021 Revolving Credit Facility") which allows us to borrow up to $75.0 million, $7.5 million of which may be comprised of a letter of credit facility. The 2021 Revolving Credit Facility matures on September 27, 2026. On June 30, 2023, we amended the 2021 Revolving Credit Facility to transition from a London Interbank Overnight Rate ("LIBOR")-based interest rate to a Secured Overnight Financing Rate ("SOFR")-based interest rate. No change was made to the interest rate margin. As of June 30, 2023, we have not drawn upon the 2021 Revolving Credit Facility, although $2.1 million has been utilized against the 2021 Revolving Credit Facility in the form of a line of credit, reducing our borrowing capacity to $72.9 million. The 2021 Revolving Credit Facility contains certain financial maintenance covenants, which require us to not exceed certain specified total net leverage ratios at the end of each fiscal quarter. As of June 30, 2023, we were in compliance with all financial covenants under the 2021 Revolving Credit Facility.

subject, to a certain extent, on general economic, financial, competitive, regulatory and other factors that are beyond our control.

On September 27, 2021, we entered into a revolving credit agreement ("2021 Revolving Credit Facility") which allows us to borrow up to $75.0 million, $7.5 million of which may be comprised of a letter of credit facility. The 2021 Revolving Credit Facility matures on September 27, 2026. As of March 31, 2023, we have not drawn upon the 2021 Revolving Credit Facility, although $2.1 million has been utilized against the 2021 Revolving Credit Facility in the form of a line of credit, reducing our borrowing capacity to $72.9 million. The 2021 Revolving Credit Facility contains certain financial maintenance covenants, which require us to not exceed certain specified total net leverage ratios at the end of each fiscal quarter. As of March 31, 2023, we were in compliance with all financial covenants under the 2021 Revolving Credit Facility.

To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity by us would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. In the event that additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all or access the capital markets due to volatility. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, financial condition, and cash flows would be adversely affected.

Cash Flows

The following table summarizes our cash flows for the periods presented:

	Three Months Ended March 31,
	Six Months Ended June 30,
	2023			2022
	(in thousands)
Net cash provided by operating activities	$	824,~~834~~925		$	218,~~741~~438
Net cash used in investing activities	$	(24,~~452~~696	)	$	(12,~~509~~933	)
Net cash provided by financing activities	$	~~129~~822		$	~~664~~4,410

Cash Flows from Operating Activities

Our primary source of operating cash is revenue generated from subscription and transaction and usage-based fees associated with our SaaS solutions. Our primary uses of operating cash are personnel-related costs and payments to our vendors. Our cash flows from operating activities are impacted by the amount of our net income, revenue and customer growth, volume of transactions, changes in working capital accounts, the timing of payments to vendors and add-backs of non-cash expense items such as depreciation and amortization, stock-based compensation expense, deferred income taxes, non-cash operating lease expense, amortization of deferred costs and non-cash interest expense.

Net cash provided by operating activities increased $6.15 million for the ~~three~~six month period ended ~~March~~June 3130, 2023, as compared to the corresponding period in 2022, due to a $35.69 million increase in net income adjusted for non-cash expense items, and an increase of $20.56 million in cash generated from the change in operating asset and liability accounts.

Cash Flows from Investing Activities

Investing activities primarily consist of payments made related to capital expenditures.

Net cash used in investing activities increased $01.98 million for the ~~three~~six month period ended ~~March~~June 3130, 2023, as compared to the corresponding period in 2022, driven by an increase in capital expenditures.

Cash Flows from Financing Activities

Financing activities primarily consist of proceeds from the exercise of stock-based options, proceeds from the issuance of common stock under our employee stock purchase plan, contingent consideration payments and payments of taxes related to net share settlement of equity awards.

Net cash provided by financing activities decreased $03.56 million for the ~~three~~six month period ended ~~March~~June 3130, 2023, as compared to the corresponding period in 2022.

During the ~~three~~six months ended ~~March~~June 3130, 2023, cash provided by financing activities was $0.18 million, which was primarily driven by $12.34 million of proceeds from exercise of stock options and $1.0 million of proceeds from the issuance of common stock under our employee stock purchase plan, offset by payments of taxes related to net share settlement of equity awards of $1.2.6 million.

23During the six months ended June 30, 2022, cash provided by financing activities was $4.4 million, which was primarily driven by $5.6 million of proceeds from the exercise of stock options, offset by contingent consideration payments of $1.1 million.

During the three months ended March 31, 2022, cash provided by financing activities was $0.7 million, which was primarily driven by $1.9 million of proceeds from exercise of stock options, offset by contingent consideration payments of $1.1 million and payments of taxes related to net share settlement of equity awards of $0.1 million.

Contractual Obligations and Commitments

As of ~~March~~June 3130, 2023, there were no material changes in our contractual obligations and commitments from those disclosed in our 2022 Form 10-K.

For additional discussion on our operating leases and other non-cancellable commitments, refer to Note 5 - Leases and Note 13 - Commitments and Contingencies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods, as well as related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and the amount of revenue and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material.

assets and liabilities and the amount of revenue and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates as described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our 2022 Form 10-K, except as noted in Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

Refer to Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.

JOBS Act

We currently qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Accordingly, we have the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We have elected to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our utilization of these transition periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act. We expect to qualify as a large accelerated filer as of December 31, 2023. As a result, we will no longer qualify as an emerging growth company as of such date.

2427

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our market risk exposure as described under the heading "Item 7A. Quantitative and Qualitative Disclosures about Market Risk" in our 2022 Form 10-K.

Item 4. Controls and Procedures.

Inherent Limitations on Effectiveness of Controls

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~March~~June 3130, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended ~~March~~June 3130, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2528

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject to legal and regulatory proceedings in the ordinary course of business. We believe that there is no pending or threatened legal proceeding that has arisen from these matters that individually is likely to have a material impact on our business, financial condition, results of operations or cash flows. However, management’s views and estimates related to these matters may change in the future, as new events and circumstances arise and the matters continue to develop. Moreover, results of litigation and claims are inherently unpredictable, and legal proceedings related to such accidents or incidents could, in the aggregate, have a material impact on our business, financial condition, results of operations, and cash flows.

Item 1A. Risk Factors.

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, liquidity and results of operations. There have been no material changes to the risks and uncertainties previously identified in Part I, Item 1A. “Risk Factors", in our 2022 Form 10-K.

2629

Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities.

(a) Sale of Unregistered Securities; Purchases of Equity Securities by the Issuer or Affiliated Purchaser

Not Applicable.

(b) Use of Proceeds

On September 27, 2021 we completed our initial public offering ("IPO"), in which we issued and sold 13,620,054 shares of our common stock. All shares sold were registered pursuant to a registration statement on Form S-1 (File No. 333-259101), as amended, declared effective by the SEC on September 22, 2021. There has been no material change in the expected use of the net proceeds from our IPO as described in our final prospectus dated September 22, 2021, filed with the SEC in accordance with Rule 424(b) of the Securities Act on September 24, 2021.

Not Applicable.

Item 3. Defaults Upon Senior Securities.

Not Applicable.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

Not Applicable.

Trading Arrangement

Name/Title

Action

Date

Rule 10b5-1*

Non-Rule 10b5‑1**

Total Shares to be Sold

Expiration Date

Cassandra Hudson

Modify (1)

June 14, 2023

X

387,002

November 21, 2024

Chief Financial Officer

* Intended to satisfy the affirmative defense of Rule 10b5-1(c)

** Not intended to satisfy the affirmative defense of Rule 10b5-1(c)

(1) Changed the amount of shares to be sold under the trading arrangement originally adopted on December 14, 2022.

2730

Item 6. Exhibits.

		Incorporated by Reference
ExhibitNumber	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed / Furnished Herewith
2.1	Plan of Conversion.	10-Q	001-40835	2.1	11/10/2021
2.2	Plan of Reorganization.	10-Q	001-40835	2.2	11/10/2021
2.3	Certificate of Conversion of EngageSmart, Inc.	10-Q	001-40835	2.3	11/10/2021
3.1	Amended and Restated Certificate of Incorporation of EngageSmart, Inc.	10-Q	001-40835	3.1	11/10/2021
3.2	Bylaws of EngageSmart, Inc.	10-Q	001-40835	3.2	11/10/2021
4.1	Specimen Common Stock Certificate Evidencing the Shares of Common Stock.	S-1/A	333-259101	4.3	9/13/2021
10.1	Amendment No. 1 to Revolving Credit Agreement.					*
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).					*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).					*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.					**
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.					**
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.					*
101.SCH	Inline XBRL Taxonomy Extension Schema Document					*
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document					*
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document					*
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document					*
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document					*
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)					*
*	Filed herewith.
**	Furnished herewith.

2831

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	EngageSmart, Inc.
Date: May 4, 2023	By:	/s/ Robert P. Bennett
Date: August 3, 2023	By:	/s/ Robert P. Bennett
		Robert P. Bennett
		Chief Executive Officer
Date: May 4, 2023	By:	/s/ Cassandra Hudson
Date: August 3, 2023	By:	/s/ Cassandra Hudson
		Cassandra Hudson
		Chief Financial Officer

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