EverCommerce, the software giant serving service-based SMBs, just delivered a solid Q1 2024 performance. Revenue beat expectations, adjusted EBITDA soared 28%, and margins expanded impressively. It's the kind of steady execution investors have come to expect.

But beneath the surface, something more intriguing is brewing. EverCommerce is quietly, almost subtly, positioning itself for a potential explosion in its payments take rate, a move that could significantly amplify its already robust profitability.

The clue lies in the strategic language used by executives during the Q1 2024 earnings call, particularly regarding the company's land-and-expand strategy with payments at its core. While analysts focused on the headline 11% growth in payments revenue, there's a subtler trend that's likely to have a far greater impact in the mid to long term.

Remember, EverCommerce reports its payments revenue on a net basis. This means that the ~95% gross margin contribution of payments directly fuels the company's impressive EBITDA expansion. So, driving payments adoption isn't just about incremental revenue; it's about supercharging profitability.

Here's where the whisper strategy comes in. EverCommerce is deliberately concentrating its payment integration efforts on its top five highest-potential solutions. These solutions, while currently representing only 28% of the company's total payment volume (TPV), boast a 23% year-over-year growth rate. More importantly, these solutions have a significantly higher take rate compared to the rest of the EverCommerce portfolio.

Why is this a whisper strategy? Because the company hasn't explicitly quantified the difference in take rate between these top five solutions and the rest. They've alluded to it, highlighted the strategic focus, but the exact magnitude remains unsaid.

Hypothetical Scenario: Take Rate Expansion

Let's do some hypothesis building. Assume the average take rate for EverCommerce's overall payments business is around 1.5%. This is a reasonable assumption based on industry benchmarks for similar integrated payments solutions. Now, let's say the take rate for those top five solutions is even just 0.5% higher, coming in at 2%.

As these top five solutions, growing at a significantly faster rate, become a larger share of the total payments pie, that 0.5% delta in take rate begins to have a cascading effect. Each new customer acquired, each dollar of TPV processed within these solutions, contributes disproportionately more to EverCommerce's bottom line.

EverCommerce's Levers for Accelerating Payments Growth

And the company is pulling multiple levers to accelerate this shift:

Mandates: EverCommerce has successfully tested payment mandates, nudging customers towards integrated payments and, importantly, learning how to optimize these programs for even greater adoption.Embedded Workflows: The company emphasizes embedding payment functionality deeply within its core software solutions, making it frictionless for customers to transact and increasing the likelihood of higher TPV per customer.Product Consolidation: The ongoing brand and product consolidation, particularly within EverHealth and now with EverPro, allows EverCommerce to create more holistic packages, bundling payments seamlessly and making it an almost natural choice for new customers.

Potential Profitability Surge

This all points to a fascinating scenario: as those top five high-take-rate solutions gain prominence, EverCommerce's overall payments take rate could see a significant upward creep. We're not talking about a sudden jump; rather, a steady, perhaps even imperceptible increase over the next few quarters, driven by the underlying mix shift in TPV.

What does this mean for investors? EverCommerce's strategic focus on payments, combined with its operational efficiency initiatives, could translate to a profitability surge that's currently underestimated by the market. The company is already a cash flow machine, but this whisper strategy has the potential to turn up the dial even further.

EverCommerce Q1 2024 Financial Highlights

Source: Seeking Alpha

MetricValueRevenue$170.1 million (beat expectations)Adjusted EBITDA$40.9 million (up 28% year-over-year)Adjusted EBITDA Margin24% (expanded 420 basis points)Payments Revenue Growth11% year-over-yearTotal Payment Volume (TPV)~$11.7 billion (up 9% year-over-year)

"Fun Fact: EverCommerce processes over $1 billion in payments volume per month, highlighting the sheer scale of its embedded payments opportunity."

Conclusion

Keep an eye on not just the headline payments revenue growth, but also on the subtle clues about take rate expansion. EverCommerce is playing a smart, long game, and those who listen closely to the whispers might just be the ones to reap the greatest rewards.