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Earnings Transcript for ESMT - Q3 Fiscal Year 2021

Operator: Hello, everyone, and welcome to the EngageSmart Q3 2021 Earnings Call. My name is Daisy, and I will be the operator for today's call. [Operator Instructions]. I will now hand over to your host, Josh Schmidt, from EngageSmart to begin. So Josh, please go ahead.
Josh Schmidt: Thank you, and good afternoon. With me on today's call are Bob Bennett, Chief Executive Officer; and Cassandra Hudson, Chief Financial Officer. Our third quarter 2021 earnings press release and supplemental presentation and associated Form 8-K can be found at investors.engagesmart.com. During this call, we will be discussing certain forward-looking information. Actual results could differ materially from those contemplated by these forward-looking statements. We also will be discussing certain non-GAAP financial measures. Please refer to the Risk Factors section of our quarterly report on Form 10-Q and other SEC filings for more information on the risks regarding these forward-looking statements and risk factors associated with our business. A reconciliation of non-GAAP metrics to the nearest GAAP metric can be found in our earnings press release and supplemental presentation, both of which are available on the Investor Relations section of our website. This call is being webcast live and will be available for replay on our website at investors.engagesmart.com. I would now like to turn the call over to Bob Bennett.
Robert Bennett: Welcome, everyone, and thank you for joining us. In this, our first quarter as a public company, I feel compelled to point out the source of the success we have achieved to date. Delivering on our mission of simplifying customer and client engagement can be directly attributed to the success of our customers, partners and our employees, and I am truly humbled by their contributions. Before we jump into our third quarter results, I thought I'd provide a little background on EngageSmart's position in our markets. We founded EngageSmart because activities like paying bills, going paperless and scheduling appointments shouldn't be that hard. So we set out to create easy-to-use digital self-service software that simplifies customer and client interactions. Our growth in customer count and revenue is an indication of the strong market reception for our vision. Customers are increasingly adopting our vertically tailored customer engagement software and integrated payments capabilities to simplify engagement with their clients by driving digital adoption and self-service. EngageSmart addresses a target market size at $28 billion, encompassing small, medium and enterprise-sized businesses. We serve these organizations and their customers with modern customer engagement and electronic payment software tailored to the verticals of wellness, government, utilities, financial services, health care and giving. These markets are huge and underpenetrated with strong noncyclical growth dynamics. They are mired with legacy systems and manual processes. For us, they represent an exciting and large white space of prospects with growing demand and need for our modern software and payment solutions. We group our solutions into 2 segments with similar annualized revenue of more than $100 million in each. Those segments are small and midsized businesses, which we refer to as SMB; and larger organizations, which we refer to as Enterprise. The SMB segment is represented by our SimplePractice solution and some adjacencies. The Enterprise segment is anchored by our InvoiceCloud solution and also comprises the vertical solutions of HealthPay24 for Enterprise health care and DonorDrive for giving. Most of our SMB segment revenue is subscription-based, while our Enterprise segment is primarily transaction-based revenue. In the SMB segment, our go-to-market strategy is powered by performance marketing programs and end user influencers, communicating that our software helps efficiently manage customer-facing and back-office work streams such as scheduling, billing, notes, compliance and collections. Importantly, our go-to-market is also powered by prospects themselves as they visit our website via trusted word-of-mouth recommendations from peers. We have approximately 120,000 clinicians now using the SimplePractice solution. In the Enterprise business, where we have more than 3,000 customers simplifying consumer engagement through us, direct sales, partnerships and system integrations are important components of our selling motion. They accelerate new customer acquisition and increase long-term customer retention. With that as an overview of our business, I'd like to turn now to the third quarter. EngageSmart delivered record revenue coming in at $55.5 million. We had rock solid performance in both segments of our business highlighted by more than 60% revenue growth in our SMB segment and more than 25% revenue growth in our Enterprise segment. Beginning with the SMB segment, SimplePractice continued to deliver a high transaction volume, fast growth in subscription revenue and high net client additions from conversions of free trials for its practice management solution offered at www.simplepractice.com. SimplePractice, which has its roots in behavioral health, now serves speech-language pathologists, occupational therapists, nutritionists, chiropractors and physical therapists, among others. These new markets are high growth engines for our SMB segment. As a true SaaS solution, SimplePractice continually advances the solution. In Q3, those advances, including enhanced telehealth functions, embedded signatures for clients and enhanced easy-to-view income tracking. As of this quarter, SimplePractice is in 10 wellness specialties and has a solid product road map to fuel growth. We are setting the standard for simplified digital engagement for clinicians across the wellness spectrum and their patients. In Enterprise, InvoiceCloud showed continued strength in selling and product leadership in the quarter. We signed 2 strategic enterprise-level alliances. One was with an SAP integrator and one was with an Oracle systems integrator. These alliances help to drive growth by referring their existing clients and accelerating the implementation of our enterprise solutions. We also strengthened our long-standing partnership with Harris Utility Group and are now their preferred electronic bill presentment and payment partner. Additionally, we had a notable new customer launch at National Fuel, integrating with this SAP environment to help their customers use preferred methods for bill pay, such as pay by check, pay by phone, pay online and the ability to use digital banking services such as PayPal. Such new launches further drive our monthly recurring revenue with transaction revenue generation beginning day 1. Continuing with the Enterprise segment, DonorDrive is playing an increasingly prominent role. The giving marketplace has seen a dramatic shift from in-person, peer-to-peer fundraising events to virtual events and our highly effective virtual event and charity streaming software has enabled our nonprofit and corporate giving customers to exceed expectations in this difficult environment. Nonprofits such as National Multiple Sclerosis Society and the Make-A-Wish Foundation receive immediate value from our DonorDrive mobile-friendly solution. Looking forward, the market for our customer engagement and online bill pay software remains vast. According to the 2020 State of Online Payment survey conducted by InvoiceCloud, more than 80% of bill payers prefer to pay their bills online, on mobile, on text or via phone, if given the option. And organizations are increasingly becoming aware they're providing customers with multiple ways to pay has proven to reduce late or loss payments and to increase customer satisfaction overall. We see our success is rooted within 5 key strategic growth drivers, which form our flywheel
Cassandra Hudson: Thank you, Bob, and thank you all for joining us today for our first earnings call with investors and the analyst community. Before reviewing our financial highlights for the quarter, I would like to quickly recap our financial model for everyone new to the EngageSmart story. Our revenues are highly visible and recurring in nature, marked by 40% subscription revenue and 60% transaction and usage-based revenue. We price our solutions in a manner that is aligned to the success of our customers, and we typically see an expansion in revenue over time as customers elect to purchase additional add-on offerings and leverage our solutions to drive increased digital payment adoption. For SMB, the typical customer converts from a free trial and buys a subscription to our practice management solution and then add products such as licenses for additional clinicians in their practice, telehealth capabilities and payment processing services. That being the case, the majority of our SMB revenue is driven by monthly subscription fees, and we expect this trend to continue as we expand our leadership position in the wellness vertical. For Enterprise, the majority of our revenue is derived from transaction and usage-based fees from the facilitation of payment processing. Our enterprise customers typically invoice and process recurring payment transactions themselves which results in a highly visible and durable revenue stream for us. Our pricing is customized based on individual customer needs. In some cases, we charge a fee per transaction, some as a percentage of volume or even a mix of both. Today, our revenue split between the SMB and Enterprise segment is roughly 50-50 with strong net revenue retention north of 100%. Our revenue retention is a result of our ability to drive consumers to continue to adopt digital payments. SMB retention also benefits from the continued adoption of add-on products, including insurance claims processing, telehealth and additional licenses for clinicians. Our business is further characterized by best-in-class LTV to CAC returns across both segments that are fueled by our efficient and vertically tailored go-to-market strategy. With that background, on to the quarter. We delivered strong third quarter results that continued to be fueled by rapid growth within our solutions. Consolidated Q3 revenue was $55.5 million, representing an increase of 42% year-over-year and elevating our annualized revenue from $207 million in Q2 to $222 million in Q3. Our growing customer base is a core driver of this growth. On a year-over-year basis, our total customer count has increased by approximately 22,000 to 77,000 total customers. We expect this trend to carry on, fueled by our continued success in our core markets, expansion of our product offerings as well as new vertical expansion. Given that nearly 60% of our revenue is transaction and usage based, continued growth in the number of transactions processed by our solutions is another key driver of total revenue growth. We saw a 40% year-over-year growth rate in the number of transactions processed by our solutions, with 28.6 million transactions in Q3 2021 compared to $20.5 million in Q3 2020. Turning to the business segments. Our SMB segment continued to deliver outsized top line growth with revenue coming in at $28.2 million, reflecting year-over-year growth of 64%. This was primarily driven by continued strength in
Robert Bennett: Thank you, Cassandra. EngageSmart's success will continue to be driven by 3 simple factors
Operator: [Operator Instructions]. Our first question comes from Will Nance from Goldman Sachs. We will move on to our second question. Our second question comes from Sterling Auty from JPMorgan.
Maya Kilcullen: It's Maya on for Sterling. So just your SMB revenue grew to over 50% of total revenue, really strong growth there. Can you just talk a little bit more about the drivers on the SMB side? And then how this mix shift is it affecting the split between subscription and transaction revenue?
Cassandra Hudson: Sure. I think, I guess, taking the latter part of your question first, the split between subscription revenue and transaction revenues has been pretty stable, with 40% being subscription-based and 60% transaction based. It will shift over time, I think, a little bit more towards subscription, but we're talking a couple of points, not a wholesale shift. In terms of the SMB growth drivers, we continue to see really strong net customer adds and great expansion in ARPU across the business. And as I mentioned, SMB hitting 50% of the overall total of our revenue. That shift is a trend that we expect to continue. So we continue to expect SMB to take up more of our total revenue over the next several years based on the growth profile of the business.
Maya Kilcullen: Okay. Great. And then just as a follow-up. So what's the transaction volume growth in the quarter? Was that mostly driven from new customer acquisitions or increase in transaction volume from existing customers?
Cassandra Hudson: Just given our large installed base, it's really going to be driven by existing customers. And then I would say conversely on the new customer adds, that's really fueling the subscription growth.
Operator: Our next question comes from Terry Tillman from Truist Securities.
Terrell Tillman: Bob and Cassandra, first, congratulations on the IPO. And secondly, congratulations on the results. Cassandra, just following up on the last question. I mean should we -- will you [indiscernible] the actual processing revenue and then the subscription and/or should we just plug in literally like 40% and 50% to get to the numbers for the 3Q, and then I had a couple of questions?
Cassandra Hudson: Sure. Thanks, Terry, and thanks for joining and the congratulations. For now, those trends are stable on the 60-40. So I think that should get you kind of to where you need to be on subscription and transaction in terms of the breakout.
Terrell Tillman: Okay. And when -- talking about SimplePractice, substantial impressive growth, and a lot of that is just really on the back of mental health or behavioral health. I know that, that's been a strategy, and you did call out, I think, maybe Bob earlier, these adjacencies kind of near term -- near-actionable adjacencies, so like oncology, speech pathology. What are you seeing in those kind of near to the core part of the business adjacencies? And how do they seal versus where you were with mental health when you first brought that on? I'm just trying to understand maybe kind of parallels or any observations there. And I had a follow-up.
Robert Bennett: Terry, it's Bob. Thanks for being on. Good to hear your voice. Yes, this SimplePractice in March of 2017 when that became part of EngageSmart, it was literally almost entirely mental health clinicians that were using the solution. Today, we have as many non-mental health customers as we did back in March of 2017, with essentially the same growth rate that we had back then. So we have -- so with our 10 new -- well, there's 9 other markets, including speech language pathologists, occupational therapists, chiropractors, physical therapists, nutritionists, dietitians, and so forth, that are driving very high growth, outsized growth that looks very similar to what we had back in 2017 that translated into another $100 million of -- or went from $4 million in ARR to over $100 million of ARR in about 4 years. So we're very excited about the new markets that we're in, and we have the playbook. Hopefully, we can run the playbook better the second time than we ran it the first time. So I think we're confident in our growth trajectory for those new markets. I'm not sure if that answers your question, but that's my try.
Terrell Tillman: It definitely does. Yes, it definitely does. Yes. So I felt like my first statement was more of just a clarification. So I feel like I'm going to ask one more question, and then I promise I'll stop or you can just hang up on me. But the next question just relates to -- it's nice to hear about more partners on that Enterprise side, particularly around InvoiceCloud. Any way you can sort of frame the opportunity and how quickly it could become actionable with the new system integrator that's Oracle-based as well as SAP?
Robert Bennett: Sure. They're actually already actionable because we've actually implemented those -- that we've implemented new clients on those solutions. So -- and once we've integrated with a certain version of Oracle or SAP, it's a rinse-and-repeat opportunity for us as we go out and find other larger enterprise style clients. So this is a move upmarket for InvoiceCloud primarily in Enterprise to drive higher revenue per client through attaining larger deals. So yes, those are done. And we continue to be aggressive about finding new partnerships, and we'll continue to march forward with both hunting and farming on our partner base.
Operator: We now have Will Nance from Goldman Sachs back on the line.
William Nance: Great. Sorry about that. I wasn't on me, but I don't know what happened. But I appreciate letting me back on. Nice results. Can you guys maybe talk about the customer acquisition environment on the SimplePractice side? I think during the pandemic, I think telehealth drove a lot of the tailwinds in that business. As we kind of get on the other side, does it feel like we can kind of sustain these really elevated levels of growth? And I know that you talked a little bit during the IPO about kind of broadening out customer acquisition funnel, kind of the broader audience for the free trials. Any color on how that's playing out? Any early signs of success there?
Cassandra Hudson: Sure. Sure. To your point, Will, in the very early part of the pandemic, we did see a surge in demand in terms of trials that ultimately converted to customers. Later in 2020, we saw those trends stabilize, and they've been remarkably in line, I would say, since then. We have not seen trials decrease. We've been investing behind them. And to your point, we've been going after these new wellness verticals as well where we're seeing really strong growth. So I think we're very encouraged by the performance and the trials and the ultimate conversion that we've been able to generate now, call it, 18 months post pandemic.
William Nance: Got it. That sounds great. And then maybe switching gears over to the Enterprise side of the business. I know that, that's a business with pretty good line of sight and revenue visibility. Can you maybe speak to just what pipelines look like in that business for kind of new client adds? And given the revenue visibility, how are you kind of feeling about the growth trajectory exiting the year?
Robert Bennett: Yes, Will, it's Bob. The pipeline, the top of funnel is actually quite robust for us in Enterprise where we brought on a lot of new alliances over the past 18 months as we built up that alliance team. We continue to invest in people first, bringing on more and great strength in the talent side to continue to find, sign and leverage partnerships to drive the top of funnel because most of our business is driven by alliances where we integrate directly with the customer information system. So I think that we've got strong inventory at the top of the funnel and proven processes to continue to push the inventory through the factory.
Operator: Our next question comes from Scott Berg from Needham & Co.
Scott Berg: Bob and Cassandra, congrats on the strong first quarter here. I guess two here, we'll start with the growth investments that Cassandra discussed in her pre-scripted remarks. How should we think about the kind of how those are split out between the two different segments, SMB and the Enterprises? I just didn't know if you're trying to lean in on one segment, maybe a little bit more than the other.
Cassandra Hudson: Sure. Scott, thanks for the question, and thanks for joining us today. We're definitely investing very heavily on the SMB side with respect to the product. And we are deploying more marketing spend this year certainly than in prior years. So I would say we are probably rotating a little bit more towards the SMB side of the business. As it relates to Enterprise, the investments there are primarily in our go-to-market area with Enterprise sales headcount and also investing in the partnerships that Bob mentioned earlier.
Scott Berg: Great. Helpful. And then from a follow-up perspective, in the Enterprise segment, I know transaction processing, especially for your government customers, on the InvoiceCloud side has been a little bit depressed, at least historically, I've seen it in coverage of my other companies that have exposure to those types of payments or payment infrastructures. Kind of where are we in normalizing from maybe what was a really solid environment in the first quarter of 2020 before the pandemic obviously getting to the lows in the second quarter. How much have we kind of recovered any sort of transaction off, do you think?
Cassandra Hudson: Thanks. I mean I think we certainly benefited from the focus on digital payments and contactless payments in 2020 that happened during COVID. So I don't think we saw as much of a depression there, if you will. We've definitely seen really good strength in our business. I think things are normalizing now, especially in the gov segment of our Enterprise business. And we're seeing a lot of revenue growth coming from new customers coming online.
Operator: Our next question is from Bob Napoli with William Blair.
Robert Napoli: And let me add my congratulations, Bob and Cassandra, and a nice start as a public company. Good to see. Appreciate it. So I guess -- good to talk to you. Your LTV to CAC ratios have been particularly impressive and I think especially in SMB, but as you're ramping up growth of the business, are those ratios too high? I mean, i.e., is there opportunity to accelerate growth even further by bringing that ratio down slightly? Or is that not a thought, if you would?
Cassandra Hudson: Yes. Yes, that is certainly a thought. And you are right, we are in, I guess, an enviable position with LTV-CAC ratios that are quite high. So we are investing aggressively beyond where we were in 2020 in the first half of this year. And we -- you start to see those investments in Q3 in particular with respect to SMB. And you will see that trend continue in Q4 as well where we're going to be investing more in new customer acquisition and we'll take down the rate slightly as a result in terms of LTV to CAC.
Robert Napoli: And then I mean, obviously, SMB, but within the Enterprise, where do you see or even new verticals, if you would, where do you see the best opportunities to invest to increase investment? And I mean if you cover on, I think, the trends in InvoiceCloud, HealthPay, DonorDrive would be helpful as well.
Cassandra Hudson: Sure, in Enterprise -- yes, in Enterprise, it's really on the Enterprise sales side. I think we're really just dipping our toe in the water on consumer finance and insurance. So those are good opportunities for us to invest to drive growth in the future. Bob, any color you'd add there?
Robert Bennett: Yes. I mean one of the benefits, of course, of having 4 vertically oriented true SaaS solutions in the marketplace is that we have the diversity to -- when one might be a little down, another one is up. Of course, we want them all to be driving outsized growth. And ultimately, that's where we intend to get them all. We have had a bit of a -- in 2020, we had a bit of a headwind, as you know, with our DonorDrive solution because it was focused on peer-to-peer. That has rebounded nicely because they had pivoted to charity events. HealthPay24, the Enterprise health care is still a little bit hard to find -- to get a lot of attention from many of those Enterprise health care facilities because they're still dealing with the COVID pandemic. And we need to obviously be patient with the customers while they're bringing back themselves to post-pandemic times, which we hope is going to be over fairly shortly. The investments in InvoiceCloud have been made largely already in products, but I would agree with Cassandra that we're going to drive more investment in the go-to-market feet in the street. We have a really strong inventory of prospects that we need to get after, and we're excited to bring more soldiers to the floor to get after it.
Robert Napoli: And then just my last question. With your strong balance sheet, and you've done some M&A in the past, your SMB acquisition was pretty good. But how important is M&A from here? Are you actively looking? And if so, what would be the strategy around your M&A?
Robert Bennett: Yes, Bob. So M&A, I think, is very important to us. It will continue to be important to us. So we are investing there, have nothing to announce in the near term for sure, but we intend to be acquisitive and blend our organic growth with inward inorganic growth as we move forward. So we're constantly looking. We're active and optimistic. We're bringing some talent together here.
Cassandra Hudson: And I guess I would just add, right now, kind of currently, we're very focused on executing on our organic growth story and strategy.
Operator: Our next question comes from John Davis from Raymond James.
John Davis: Cassandra, I think in your prepared remarks, you called out improved churn rates. And I was just curious, is that specific to either SMB or Enterprise or both? And then in regards to SMB, maybe some comments or color on net rev retention and how that's trending now that we're lapping kind of the peak COVID bump that you got last year? Just curious how the net revenue retention is trending as we go in the back half of this year.
Cassandra Hudson: Sure, John. Thanks for the question. On the -- so my comments regarding customer churn were certainly with respect to SMB, where we've seen really strong customer retention. And that's really driven by the breadth of our solutions and having embedded telehealth in our product. And we've really seen customers react very well and have been incredibly impressed with the retention rates as a result. As it relates to net revenue retention, to your point, we saw a surge in net revenue retention last year. Things are normalizing on the SMB side into the 120% range as we expected them to.
John Davis: Okay. Great. And then just a little bit on the EBITDA margin. Obviously, this quarter, you had a nice flow through to the upside to EBITDA. Obviously, I think the guide implies 4Q kind of goes back to maybe a high single-digit margin perspective or margin. But if we think about next year, not looking for guidance any time. But just how do we think about the potential upside? Is that something, Bob, do you think you will reinvest in the business? Or is that something we can expect to kind of fall through to the bottom line? Just curious on how you guys think about balancing kind of growth and profitability as we go into '22 and beyond.
Robert Bennett: Thanks for the question, John. Our priority, for sure, is organic growth and driving that through investment in it. So I would, again, not providing any guidance on it, but I would expect us to make every attempt to plow that EBITDA into drive growth in both segments.
Operator: Our next question comes from Bhavin Shah from Deutsche Bank.
Bhavin Shah: Hats off to the team for a great start to being a public company. Just first on SimplePractice, just looking at those adjacent markets, it's nice to see the growth there. From a product capabilities perspective, I mean do you guys believe you guys have the right product in place to really accelerate growth there? And then just from a go-to-market, like any sense to have free-to-paid conversion for these adjacent markets compared to the core behavioral health market?
Robert Bennett: Thanks, Bhavin, and good to hear your voice again. So the SimplePractice solution, it's -- in the past 4.5 years, it has gained an enormous amount of functionality and a lot of add-ons that we've invested in over time, including telehealth, SimplePractice learning and lots of other things. But one of the things that we did note from the very beginning is that most of the solution is applicable to other wellness markets. And that with -- I mean there's still effort there. There are always nuances if you consider that a mental health professional has a different way of making notes and handling insurance claims and so forth than a physical therapist who might need a significantly different method of documentation and notes. Those are sort of the nuances that we bring to the table for each of the verticals as we -- in each of the wellness markets as we move forward. That said, we can move through them fairly quickly, and we are -- as I mentioned earlier, we're -- from behavioral health, we've already advanced into 9 others where we're quite active. We may not have perfect fit yet in a few of them, but we have plenty to gain a lot of traction while we continue to work the road map to bring it to a perfect fit, if there is ever such a thing as perfect.
Bhavin Shah: Got it. That's helpful. And then maybe just flipping to the Enterprise side. I mean you guys have historically had very strong market presence both in government and utilities. But just from a pipeline perspective, how is it shaping up for financial services, insurance, et cetera? And how is particularly the pipeline -- the partnership pipeline progressing here?
Robert Bennett: That's an excellent question. We actually have been very successful adding strong partnerships. We actually signed and announced -- I'm not sure if it was this quarter or the previous quarter, a partnership with Guidewire, which is, I believe, the largest core services provider in the insurance business in the country. So extremely stoked about that alliance and are already quite active on the other side of it with prospects and signing. So very optimistic on the financial services side. Still early innings there, but high growth well beyond the lunatic fringe here, we've got hundreds of customers there.
Bhavin Shah: Great to hear. If I could just sneak in one for Cassandra. Just as we head into 4Q and just progress going forward, any seasonality that we should think about just for the SMB and Enterprise segment?
Cassandra Hudson: On the whole, I would say, no, there's nothing huge. As it relates to Enterprise, there is a little bit of seasonality with respect to the fourth quarter where a lot of our tax billers tend to invoice and bill their customers. So we do see a heavier revenue quarters on a sequential basis there. But otherwise, revenue is pretty stable between the quarters.
Operator: Our next question is from Ashwin Shirvaikar from Citi.
Ashwin Shirvaikar: Bob, Cassandra, congratulations on the quarter. My first question is with regards to just the 2022 setup, I know you're not necessarily providing an outlook or anything like that right now, but investors always start thinking about the setup heading into December and such. So any pointers with regards to, particularly on the Enterprise side, large client plans we should watch out for in case with regards to the pricing initiative, if there's any preference that needs to be? Is that on schedule with monarch? Anything that we need to be watching out for, as we said -- may help to answer investors.
Cassandra Hudson: No, I mean to your point, we'll give more formal and detailed guidance in February on '22. I wouldn't say there's any one particular thing that we're worried about or that we should focus on in either segment. We're expecting our strong growth to continue. Our growth drivers are really new customer acquisition and continuing to drive digital payment adoption across our entire customer base, and we expect both those trends to continue.
Ashwin Shirvaikar: Understood. And as I was looking at your segment information, EBITDA for Enterprise, obviously, is down year-over-year. EBITDA margin is down year-over-year. That's because last year, you had lower cost [indiscernible]. But is this current EBITDA margin level, a more normalized one that we should carry forward? Or is there some kind of catch-up built in there? Any help on that?
Cassandra Hudson: Yes. Yes, no, you're picking up on exactly the right thing. So from a comparison standpoint, we had a temporary pause in spending in 2020. So that is not -- that level of EBITDA is not something that we should expect to continue, and we've been investing very aggressively this year across both segments in terms of hiring. I think our headcount is up over 40% on a year-over-year basis. So the EBITDA margins that you see in Enterprise today are more of a normalized level that you should anticipate to continue?
Operator: Our next question is from Josh Beck from KeyBanc Capital.
Madison Schrage: This is Maddie on for Josh. Once again, congrats on the quarter. I wanted to just ask a bit. I saw that you called out PayPal and Venmo in your remarks. And I was wondering if you've seen these types of wallets drive greater digital payment penetration and if these digital wallets are available across all of your verticals?
Robert Bennett: Right. Thanks for the question. Yes. We are offering these. We are -- we see, I would say, a small uptick. We've got -- we've added PayPal to hundreds of customers at this point, but only a couple of hundred. And we've seen a marginal increase, not material increase in adoption due to that. But every little bit helps, right, when you're talking about payment transactions.
Madison Schrage: Super helpful. And then for my follow-up, I was just wondering if you could characterize the sales pipeline that you're seeing for your InvoiceCloud business.
Robert Bennett: Right. And InvoiceCloud is largely driven through partnerships, and we've been very active in the partnership side. So we have, I think, exceptional top-of-funnel inventory to drive growth, and we continue to hire aggressively to -- I mean, as Cassandra mentioned, we're -- our hiring for EngageSmart this year is north of 40%, which is pretty substantial, but we feel like we're winning that war on talent here and adding -- we're expecting to add about 250 employees in 2021. We started with around 550 in the beginning of the year. So close to 45% growth in headcount. And that's what we're doing. We're investing for long-term growth. We believe that we have the processes in place. We have the sales engine well defined. And we're just looking to put more feet on the street to continue to drive to the inventory that we've already got.
Operator: This is all we have time for today on the Q&A session. So I'll hand back over to Bob for any closing comments.
Robert Bennett: Thank you, and thank you for listening to our first earnings call as a public company. A special thanks to our customers, partners and our amazing almost 800 teammates in EngageSmart for those that may have listened in. You folks are -- continue to crush it, and it's greatly appreciated. Just a last comment, we are incredibly excited about the future, our growth, our $28 billion TAM and the opportunities in front of us. Thank you very much.
Operator: Thank you, everyone, for joining today's call. You may now disconnect your lines, and have a lovely day.