EngageSmart, Inc. (NYSE:ESMT) Q2 2023 Earnings Conference Call August 3, 2023 8:30 AM ET
Company Participants
Josh Schmidt – Investor Relations
Robert Bennett – Chief Executive Officer
Cassandra Hudson – Chief Financial Officer
Conference Call Participants
Bhavin Shah – Deutsche Bank
Robert Napoli – William Blair
Tyler DuPont – Bank of America Merrill Lynch
Terrell Tillman – Truist Securities, Inc.
Michael Rackers – Needham & Company
John Davis – Raymond James
Jeffrey Van Rhee – Craig-Hallum Capital Group
Tien-Tsin Huang – JPMorgan
Operator
Good morning. Thank you for attending today’s EngageSmart Second Quarter 2023 Earnings Call. My name is Chelsea, and I will be your moderator today. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note, this call is being recorded and that I will be standing by if you should need any assistance.
I’ll now turn the call over to Josh Schmidt of EngageSmart. Josh?
Josh Schmidt
Thank you. Good morning and welcome to our second quarter 2023 earnings call. With me on the call today are Bob Bennett, Chief Executive Officer and Cassandra Hudson, Chief Financial Officer. Our earnings press release, 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. Please refer to the Risk Factors section of our annual report on Form 10-K and other SEC filings for more information on the risks regarding these forward-looking statements and risk factors associated with our business.
All metrics discussed during this call are non-GAAP, unless otherwise noted. A reconciliation of non-GAAP metrics to the nearest GAAP metric as well as statements regarding why management believes these measures provide useful information 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 our CEO, Bob Bennett.
Robert Bennett
Thanks, Josh. Good morning, everyone, and thank you for joining us on our second quarter 2023 earnings call today. Building upon our proven track record of success, we achieved another remarkable quarter, delivering record Revenue of $94.4 million and adjusted EBITDA of $19.4 million. This represents 28% revenue growth and 20.5% adjusted EBITDA margin.
Our results demonstrate our ability to balance sustainable top line growth and strong profitability and they underscore the durability of our business model. With our teammates’ relentless execution and our attractive market position in defensive verticals, we are well-positioned for continued success.
Before diving deeper into the details of our second quarter performance and outlook for 2023, I’d like to address the two strategic accomplishments that we announced today, the Luminello deal and the sale of our HealthPay24 solution. We have entered into an agreement to acquire strategic assets of Luminello, an electronic medical record and practice management platform for Mental Health prescribers, predominantly psychiatrists. Like SimplePractice, Luminello was founded by practitioners to create a practical and intuitive solution that empowers private practices to run a simpler business and deliver better patient experiences.
Both businesses share a commitment to removing administrative burdens for practitioners and enable them to focus on what they care most about, treating patients. We believe the Luminello deal offers four key strategic benefits. First, we believe it will expand our market share and growth potential in psychiatry. Luminello’s customer base complements SimplePractice’s growing community of mental health practitioners and enables us to better address the high-value prescriber market.
Second, Luminello has a compelling market position and offers distinct features and functionality, including e-prescribe. With both Luminello and SimplePractice, we will be able to offer a greater range of functionality and drive higher value for all practitioners. Third, the deal would unlock greater possibilities for serving multidisciplinary group practices. To solve more complex and acute mental health diagnoses, a growing number of group practices include both prescribers and non-prescribers, and Luminello’s strong background in serving prescribers adds to SimplePractice’s deep expertise in mental health.
Fourth, it will increase the value we bring to employee assistance programs and managed care organizations. Our growing psychiatrist community enables us to better support health care organizations in simplifying access to quality care, particularly for patients whose conditions require medication. We look forward to leveraging the collective experience and strength that Luminello and SimplePractice bring to practitioners.
On Healthpay24, after careful considerations, we have entered into a definitive agreement and simultaneously have closed on the sale of our Healthpay24 solution to Waystar. We are proud to have developed Healthpay24 to become a premier enterprise patient payment platform that both patients and providers trust. We are confident that Waystar is the right owner to unlock Healthpay24’s full potential moving forward as we focus our investments and innovations on enhancing our offerings. We believe that this strategic move creates a more streamlined business and enables us to focus on the solutions which have the highest growth potential for us.
Now turning to our second quarter highlights. Driven by strong new customer adds in mental health and expansion with existing customers, our SMB segment achieved revenue growth of 30% in the second quarter. The high demand for mental health care, coupled with the shortage of professionals, continues to be a strong tailwind for our SMB segment, where we now serve nearly 110,000 customers and more than 178,000 practitioners.
Notably, we have seen an acceleration of gross customer adds in that market. We are also excited about the ongoing traction beyond mental health. We continue to increase awareness for SimplePractice in specialties like speech-language pathology and occupational therapy and are encouraged by the growth in new customers this quarter. In addition, we continue to make progress with group practices.
The majority of new group acquisitions are made up of smaller businesses with up to 10 practitioners. These practices are an excellent fit for us, given our track record of helping solo practitioners grow their businesses. We also continue to see expansion in our existing customer base and are excited about this momentum.
As we discussed last quarter, we have several long-term initiatives underway in our SMB segment intended to drive new growth, including SimplePractice Enterprise and Revenue Cycle Management, or RCM. Our SimplePractice Enterprise offering is an extension of our efforts to improve outcomes for patients. A recent survey from America’s health insurance plans found that nearly half of the insurance plans in America cover mental health services and 83% assist their plan members in finding providers and making mental health appointments.
We believe that SimplePractice’s network of over 178,000 practitioners is particularly valuable to these health care organizations because they frequently struggle to find therapists for their customers in a timely manner. We are seeing great traction with the pilot that we initiated a couple of months ago and are particularly excited about successfully expanding our program. For example, one large national managed care organization that was initially piloting the program in one state is now in over 40 states with SimplePractice Enterprise.
Notably, this particular organization has over 100,000 practitioners in its network that are not yet using our practice management solution. We believe SimplePractice Enterprise represents a strong opportunity for us to drive top-of-funnel, expand our in-network practitioner base and grow our patient and practitioner community. In addition, we continue to sign and onboard new health care organizations and are encouraged by the positive feedback from both practitioners and patients.
MCO and EAP customers are most excited about the reduction in time to appointment for their members. The national average for time to appointment is 48 days. With SimplePractice Enterprise, we have reduced that period to six days on average for our MCOs and EAPs.
I think we can all appreciate the positive impact this improvement in speed to care can have on patients and their families. We also continue to invest in RCM to address the challenges practitioners face when dealing with insurance. Many health and wellness practitioners don’t accept insurance today due to the difficult credentialing processes, long payment periods and high administrative costs and that’s where SimplePractice can help.
Our goal is to reduce the friction and administrative burden for providers, maximize their reimbursement rates and ultimately enable them to manage insurance at scale. So, early in our journey, we have gathered relevant customer feedback from the pilot and are excited about our progress. Across all customers participating in the pilot, our RCM solution automated approximately 80% of revenue from submitted insurance claims.
Additionally, we recently completed a third-party analysis to size the RCM opportunity and gain further customer insights. Based on that analysis, we believe RCM has the potential to expand our behavioral health total addressable market by approximately $700 million.
We have learned that most behavioral health customers prefer functionalities like RCM to be bundled with their practice management solution. They indicated that RCM was one of the top 3 features that they are likely to adopt as an add-on over the next three years, demonstrating the industry’s shift towards improving mental health care, affordability and access.
We believe RCM represents a significant opportunity for us and can enable us to capture higher wallet share from current customers and better serve group practice customers that already accept insurance today.
Now turning to our Enterprise segment. Our dedication to creating streamlined and user-centric experiences that drive higher digital adoption continues to resonate well with our customers. Fueled by steady customer go-lives and record digital adoption, Enterprise delivered revenue growth of 25% in the second quarter. We continue to see strong go-lives across verticals.
In utilities, for example, we went live with several new customers, including the City of Independence, Missouri. Once we go live with our customers, our solution drives superior rates of digital and paperless adoption. Mount Pleasant Waterworks, a water and wastewater utility in South Carolina, for example, has reported a 72% increase in electronic payment adoption since first implementing InvoiceCloud in December of 2017. As of March 2023, the utility also reported a 46% increase in paperless enrollment.
Another key differentiator is our ability to increase AutoPay adoption. Georgia Farm Bureau Mutual Insurance Company, for example, reported a 35% increase in AutoPay adoption and realized a 30% decrease in billing and payment related calls. And this was just in the first 8 months after going live on the InvoiceCloud platform.
Our ability to quickly drive results and time savings for our billers is why new customers like Southern Farm Bureau Casualty in Mississippi chose to partner with InvoiceCloud. Our new customer growth continues to be driven by our strategic alliances. Forming new strategic alliances and strengthening existing relationships remains important to us as they open new markets, add to our top of funnel and accelerate sales and implementation cycles once they’re onboarded. We are excited about our continued collaboration with Oracle and recently signed another Oracle customer, Nationwide Energy Partners.
Finally, we continue to focus on developing innovative functionalities that remove friction and enhance the customer experience. Most recently, we launched key enhancements to our online bank direct functionality to simplify payment reconciliation and limit money movement for billers. With the launch of our proprietary smart-match intelligence technology, billers now only receive match payments, ultimately speeding up their payment processing.
For payments that do not automatically match, billers can take advantage of InvoiceCloud’s easy-to-use interface to match payments to invoices with just one click. Our machine learning technology then remembers that match for the future. In addition, billers now have the ability to receive single consolidated deposit and deposits sorted by invoice type.
In summary, we’ve had a great second quarter, fueled by persistent customer demand in the markets we serve, adoption by our payers and outstanding customer retention rate. Our strong results are a testament to our product suite of vertically tailored SaaS solutions and position us as leaders in customer engagement software with integrated payments. In addition, we are proud of the two strategic accomplishments we achieved. The Luminello deal as well as the sale of HealthPay24 reinforce our commitment to enhance our offerings and deliver exceptional value to our customers.
With that, I’ll hand the call over to our CFO, Cassandra Hudson. Cassandra?
Cassandra Hudson
Thank you, Bob. We had an excellent second quarter that underscores our ability to achieve strong revenue growth, while continuously expanding our EBITDA. We delivered revenue growth of 28% in the quarter as well as record adjusted EBITDA of $19.4 million, which represents an adjusted EBITDA margin of 20.5%. And as Bob discussed, we announced the Luminello deal and the sale of HealthPay24 this morning. As a result, we are updating our 2023 guidance, the details of which I will discuss in a few moments.
As for second quarter results, revenue growth for Q2 was fueled by growth in customer count and transactions processed. As of the end of Q2 2023, our total customer count was 113,200, an increase of 22% over the prior year. Our customer growth continues to be mainly driven by new customer additions from our digital marketing programs and word-of-mouth referrals in our SMB segment.
We also delivered strong growth in transactions processed. In Q2, we processed 43.8 million transactions, up from 36.1 million in the year ago quarter, representing 22% growth. Driven by strong secular tailwinds in mental health, our SMB segment delivered revenue of $53.1 million, representing 30% growth year-over-year. Subscription revenue of $36.6 million grew 25% year-over-year, driven by high trial volume and strong conversion.
As a reminder, we lapped last year’s pricing and packaging changes halfway through the first quarter of 2023. The second quarter now marks the first full compare, and as anticipated, subscription revenue growth moderated from previous levels. Transaction and usage-based revenue of $16.2 million grew 44% year-over-year, fueled by a higher number of transactions processed on our platform as well as a higher transaction ARPU due to the 20 basis point price increase that we implemented in late Q1 of 2023.
Our Enterprise segment also performed well, with reported revenue of $41.3 million, representing 25% year-over-year growth, marked by steady go-lives and continued digital adoption of our solutions. Notably, we continue to see high demand for our InvoiceCloud solution in our core verticals; utilities, insurance and tax.
Our adjusted gross margin for Q2 of 2023 increased to 79.2%, up from 78.2% in Q2 of 2022, primarily driven by economies of scale, the price increase of our integrated payment processing solution and the timing of hardware revenue in the year-ago quarter.
Sales and marketing expenses were $29.4 million, up $6.3 million as we continue to invest in digital marketing channels to drive new customer acquisition in SMB and broaden our brand to create awareness for our solution. In Enterprise, our investments continue to be in support of our strategic alliances as well as sales headcount to fuel pipeline and bookings growth.
R&D expenses came in at $15.6 million, up $4.9 million. In our SMB segment, we’re investing in new features and functionality for group practices, such as measurement-based care, our SimplePractice Enterprise offering as well as revenue cycle management.
In Enterprise, we’re investing in features and functionality for our InvoiceCloud solution, such as the recent online bank direct enhancement. Features like these continuously improve the experience for our billers and their payers and help accelerate digital adoption in all of our verticals. G&A costs were $11.4 million, down $1.3 million. We continue to realize efficiencies in G&A, driven by lower insurance premiums this year and leverage across many of our back-office functions.
Net income was $4.3 million for the quarter compared to $6.9 million in the second quarter of 2022. The decrease is primarily due to higher income tax expense associated with the Section 174 tax code changes, partially offset by operating efficiencies and interest income.
Adjusted EBITDA was $19.4 million for the quarter, representing 20.5% margin compared to $12 million or 16.2% margin in the second quarter of 2022. The expanded EBITDA margin was primarily driven by economies of scale and efficiencies in G&A, partially offset by higher investments in R&D.
Free cash flow was $13.8 million for the quarter, increasing our cash balance to $332.8 million as of June 30, 2023. As a reminder, we expect adjusted EBITDA to free cash flow conversion to moderate to approximately 50% in 2023 due to higher cash taxes associated with the Section 174 tax code changes and the utilization of the majority of our remaining NOLs in 2022.
Now, turning to our Q3 and full-year guidance. We are updating our 2023 guidance as follows. We now expect revenue in the range of $376.5 million to $379 million for the full-year or revenue growth of 24% at the midpoint. This updated guidance factors in our expectations for the continued strong performance across our business. This is, of course, offset by the removal of $5 million in revenue from the back half of the year due to the divestiture of HealthPay24. We estimate that excluding the impact of this divestiture, our revenue growth rate for 2023 would increase by roughly 2 percentage points.
For adjusted EBITDA for the full-year, we are updating our guidance to $69.5 million to $70.5 million, which represents an adjusted EBITDA margin of roughly 18.5% at the midpoint or a 230 basis point improvement over fiscal year 2022. Our adjusted EBITDA guidance assumes continued strong profitability, which is partially offset by the impact of the Luminello deal and the sale of HealthPay24.
For Q3 of 2023, we expect revenue in the range of $95 million to $96 million, which implies 21% growth year-over-year at the midpoint of our range. Our updated revenue range factors in a decrease of $2 million from the sale of HealthPay24. We estimate that excluding the impact of this divestiture, our revenue growth rate for Q3 2023 would increase by roughly 3 percentage points.
We expect adjusted EBITDA in the range of $14.7 million and $15.2 million, which represents an adjusted EBITDA margin of 15.7% at the midpoint. This assumes a minor reduction in adjusted EBITDA as a result of both deals as well as the impact of one-time go-to-market investments we are planning to make in our Enterprise business.
As you think about the next quarter and the remainder of 2023, please keep the following in mind. Regarding SMB, we continue to see strong new customer growth in mental health. The mental health market makes up the majority of our SMB revenue today and continues to grow at a steady pace. Our solution remains in high demand with solo practitioners and small group practices, and we continue to invest in increasing awareness for our SimplePractice brand.
Beyond new customer growth, we enable our practitioners to grow their practices with us. And as they expand, they typically purchase higher priced packages, add more seats, and process more payments through our solution. Additionally, we continue to invest in product innovation to enhance our solution and drive higher value for our practitioners. We remain excited about RCM and the TAM expansion opportunity it presents. We received positive feedback in our pilot program, and we will continue to invest in this growth area.
As a reminder, we increased the pricing of our integrated payment processing solution by 20 basis points in late Q1 of 2023. This increase helps to offset the higher payment processing and infrastructure costs that we have been incurring and allows us to continue to provide and invest in the seamless experience our customers expect. Finally, we are very excited about the strategic potential of the Luminello deal. However, our guidance assumes no material contribution from this deal in 2023.
Now turning to Enterprise. We are seeing consistent demand for our solutions and have built a robust pipeline that we believe will continue to fuel steady customer growth. We are beginning to focus on larger deals and are excited about our top-of-funnel. In addition, we are encouraged by the continued traction in insurance and tax, both verticals are characterized by large white space where we see significant room for growth.
Our expansion into these verticals speaks to the versatility of our solution as well as our ability to replicate our success in other verticals. We continue to invest in strategic alliances that create long-term tailwinds for growth as well as in our solution to enhance features like the online bank direct functionality. In addition, we are planning the following strategic one-time Enterprise investments to create future margin expansion opportunities.
First, we are in the process of renegotiating certain legacy partner arrangements. Related one-time expenses will impact margins in the second half but will enable us to further expand margins over the long-term. Second, we are conducting a comprehensive pricing analysis for our InvoiceCloud solution with the goal of better understanding and optimizing our pricing structure. Our guidance factors in related consulting expenses that we expect to incur in the second half of 2023.
As a reminder, our DonorDrive vertical is more susceptible to macroeconomic disruption and our guidance assumes a slowdown in revenue growth from fundraising events this year.
Finally, our updated guidance for the third quarter and fiscal 2023 now excludes revenue and adjusted EBITDA from our Healthpay24 solution, whose sale we announced today. In summary, we believe we largely operate in defensive verticals that are characterized by attractive secular tailwinds. Regarding SMB, the unmet need for mental health treatment is large and widespread. In the coming quarters, we look forward to leveraging the expertise of SimplePractice and now Luminello to better serve practitioners in the mental health and wellness verticals.
In our Enterprise segment, the majority of bills are nondiscretionary in nature, and the trend towards digitization remains strong. The sale of HealthPay24 enables us to focus on the Enterprise Solutions and markets with the highest growth potential for us. We remain committed to investing in our solution to further enhance our ability to serve the unique needs of both our SMB and Enterprise customers.
We are confident in our ability to drive profitable growth and create long-term value for our stakeholders as we execute our strategy and capitalize on the opportunities that lie ahead.
I’ll now turn the call back over to Bob for closing comments.
Robert Bennett
Hubba Bubba, Cassandra, that was one strong, busy quarter. We founded EngageSmart because activities like paying bills, scheduling appointments, onboarding new patients and client communications shouldn’t be that hard. Our success is driven by a combination of three simple factors.
First, we have a proven playbook that revolves around customers and is guided by top talent. We are focused on recruiting, retaining and developing our teammates. Their exceptional work and dedication to customer satisfaction fuel our ongoing momentum. Second, our emphasis on product leadership is reflected in our high adoption and retention rates. Leveraging our deep expertise in vertical markets, we make customer-centric decisions and develop innovative industry-leading solutions.
Third, we operate in a vast and thriving market with immense potential for expansion. We have captured about 1% of our addressable U.S. market. We are eager to broaden our reach across all verticals and capitalize on new opportunities as they emerge. We remain focused on delighting our customers, growing our business and creating stakeholder value while we make a positive impact in the world.
We appreciate you all joining us on this call this morning. Thank you very much.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question will come from Bhavin Shah with Deutsche Bank. Your line is open.
Bhavin Shah
Thanks for taking my question and great to see another strong quarter. Just on Luminello, given that there appears to be plenty of product and target market overlap, how should we think about the longer-term cost synergy opportunity here? Is there an ability to, over time, consolidate or integrate onto one platform?
Cassandra Hudson
Thanks, Bhavin. Yes, I mean, that certainly is our intent. So, we envision delivering an enhanced solution that basically provides the functionality for all of our customers, including the customers of Luminello. So we’re excited about that. And I think what you’ll see once we get on the other side of migrating to one platform that you’ll see a high degree of flow-through to the bottom line as a result.
Bhavin Shah
Got it. And then just – Cassandra, just following up on your fiscal year guidance. Even after we adjust for the HealthPay sale, it appears that you haven’t raised the full-year guidance despite the 2Q outperformance. Anything that you’re seeing in the business or kind of pipeline that has you a little bit more cautious or any kind of change to the guidance methodology we should think about?
Cassandra Hudson
No, I wouldn’t say we’re being more cautious. I mean, I think our performance has been up – has been very strong through the first half of the year. I think there certainly is noise given the HealthPay divestiture that’s masking things a bit. We did move up the midpoint of our range a bit excluding the impact of HealthPay, and I think that factors in the continued strong performance that we saw in the first half to continue in the second half. I think this year, our business is very predictable. So we’re pretty comfortable with the numbers that we put out, and I think that’s reflected in our guidance.
Bhavin Shah
Super helpful. Thanks for taking my question.
Operator
Thank you. Our next question will come from Bob Napoli with William Blair. Your line is open.
Robert Napoli
Thank you and good morning, Bob and Cassandra. Solid numbers, and I like the strategic moves. Just, I guess, on the RCM effort, I mean, it sounds like a really large opportunity. Maybe a little bit more color on the nuts and bolts of how – first of all, are you having success on cross-sell and what percentage of your clients already accept insurance? And then how are you – what is EngageSmart doing with their customers to enable that insurance business?
Robert Bennett
Hi Bob, it’s Bob. Yes, less than half of our customers accept insurance in SimplePractice or getting closer to half, I guess. And what we do is actually take over the burden, and ultimately, we see ourselves helping our clinicians with credentialing, with the claims management and we’re developing solutions and systems that automate the process of claims management so that we get a very high degree of automation that requires no human intervention for claims management.
And so what we – and then we take, from a revenue standpoint, we take a percentage of the claim that flows through our solutions. So, as insurance continues to gain traction for mental health across the country, we continue to see strong demand from our clinicians for that. It’s been in pilot, really small percentage of our clinicians using it today, but we anticipate this generating material revenue in the future.
Robert Napoli
Great. And then, just on the pricing change and I’ll turn it over, lots of questions, a lot of it going on here. But the pricing change that you made, what is the response from your customers? How does your pricing compare, I think, to some of your competitors? And how important is that pricing on the payments piece to the overall customer relationship, the pricing on the payments part?
Cassandra Hudson
I guess, Bob, just to clarify, you’re talking about the SimplePractice pricing change, correct?
Robert Napoli
Yes, that’s right. I’m sorry. Yes.
Cassandra Hudson
Sure, no problem. I mean, the pricing change went into effect in late March. I think the reaction was – went very smoothly, I guess. The rollout has been very smoothly. We haven’t really seen an increase in churn, which we’re always watching for. So I think it was largely a non-event for us, especially as you think about comparing it to the pricing and packaging change that we did last year, which was far more disruptive.
So, I think, very positive. For us, the real key to our payments offering is the integration into our overall platform and investing in that integration and the billing capabilities and reporting capabilities for our practitioners adds a lot of value. And so, to continue to make those investments, that’s why we made the price increase. So we’re certainly providing value, and obviously charging for the value that we provide in return.
Robert Napoli
Great. Thank you.
Operator
Thank you. Our next question will come from Ashwin Shirvaikar with Citi. Ashwin, please make sure that you’re not self-muted. All right, we’ll go to the next question, Jason Kupferberg with Bank of America. Your line is open.
Tyler DuPont
Good morning, Bob and Cassandra. This is Tyler DuPont on for Jason. Thanks for taking the question. So just to start off and just to make sure that I’m on the same page here. Could you just spend a minute or two walking through the pieces of guidance, particularly with respect to the acquisition and divestitures, sort of when exactly is HealthPay24 and Luminello expected to close? Is that supposed to be simultaneous? So, just any sort of clarity there would be appreciated?
Cassandra Hudson
Sure. Thanks, Tyler, for the questions. And yes, there is some moving pieces this quarter, so appreciate the follow-up. So, both acquisitions closed as of yesterday. And so as a result – at least as it relates to HealthPay, we’ve removed revenue and adjusted EBITDA associated with that business as of today, effectively, and that is factored in our guidance. And, just to reiterate, that was about $5 million in revenue that we removed in the back half of this year and about $1 million in adjusted EBITDA. In terms of [Tahoe], we are operating under a license and TSA arrangement for this year with them, and we’re really focused on the migration effort associated with rolling out an enhanced solution that meets the needs of both customers. So that’s our focus for the back half of this year and moving into next year. So we don’t expect material contributions from that business while we’re making those investments and focusing on that migration plan.
And really excited more about the strategic value of Tahoe just given it really moves us more meaningfully into the high-value psychiatry space, gives us more features and functionality, especially e-prescribe, which, as you know, was a roadmap item for us, so it certainly accelerates that for us. I think makes us more attractive to multidisciplinary group practices where they often have prescribers and non-prescribers coordinating care together and increases our value on SimplePractice Enterprise. So for EAPs and MCOs providing access to care for patients who require medication. So for us, it’s a very strategic deal. Looking forward to the value that it will bring to us on the other side of the migration and later in 2024.
Tyler DuPont
Okay. That’s helpful, Cassandra. And then as a follow-up, it just looks like this was another impressive quarter for growth within Enterprise. Growth was like, I believe, right around 25% versus customer growth of 7%. So when looking at the drivers here, are you seeing that led by increased transactions in ARPU or sort of any dynamics there that we should pay attention to? Sort of tangentially to that, if you could just speak to the trends you’re seeing in Enterprise as a whole now sort of ex- HealthPay?
Cassandra Hudson
Of course. I mean, I think the trend in Enterprise has existed for a while where we’re continuing to onboard larger and larger customers. So that is definitely driving the overall ARPU up and contributing to our growth, and also digital adoption, right? Our digital adoption continues to increase and exceed our expectations and that’s contributing to revenue as well. And I think even more broadly speaking, on the Enterprise business, those are the two drivers of overall revenue growth, largely. Getting new customers live, ramping them up on our solution and then driving increased rates of digital adoption over time. And I think both of those continue to deliver superior results for us as it relates to Enterprise.
Tyler DuPont
Okay, great. I appreciate that. Thank you very much.
Operator
Thank you. Our next question will come from Terry Tillman with Truist Securities. Your line is open.
Terrell Tillman
Yes, Bob, Cassandra and Josh. I think if I got this right, it was Hubba Bubba. That’s great.
Robert Bennett
You got it right.
Terrell Tillman
Yes, awesome. Haven’t heard that one before. So first question is, it’s a multi-parter on the acquisition and the new technology that you get from the acquisition. And then, Cassandra I had a follow-up for you on revenue cycle management. But first, in terms of your install base right now of 180-or-so-thousand clinicians, how much of your current customer base actually prescribes versus doesn’t prescribe right now? And then the second part is, Cassandra, that was helpful in terms of this was a roadmap item on e-prescribe. Would this be like an add-on, you think, as you move into next year? Or would it just go into one of those SKUs that you have? And then I had a follow-up for Cassandra.
Robert Bennett
So, very small percentage, Terry, of our customers today prescribe. I mean, it’s in the – a few hundred. And they’re obviously not using SimplePractice for e-prescribe because we haven’t had that. That’s been, as you said, a roadmap item. So, very excited about expanding that. And yes, it obviously has long-term implications for us in our ability to provide e-prescribe in the future to beyond psychiatry and to other medical specialties. Does that answer your question?
Terrell Tillman
It did. As it relates to – it did, but I guess a follow-up on that. I mean, should we look to 2024 in terms of maybe how this shakes out, whether it’s almost like a telemedicine add-on or it would just kind of flow into one of the higher valued SKUs?
Robert Bennett
Yes. I mean, that will be bundled in, as we continue to refine our pricing packaging over time, but anticipate that, that’s bundled in and available to all of the customers that have the need for that over time.
Terrell Tillman
Okay. Wonderful. And then, Cassandra, in terms of revenue cycle management, I know it’s early days, but do you think this could start to leave a mark in ’24? And would it be more of a processing revenue stream or subscription revenue stream? Nice job on the quarter.
Cassandra Hudson
Sure. Thanks Terry. I guess, first and foremost, it’s processing revenue for us, and we are generating revenues through RCM today. I think RCM is a longer-term play just given the dynamics in place in the market. So we know today that there is a reluctance among providers to accept insurance just given the challenges administratively there. So we’re trying – we’re looking to solve those problems, and we think there is a ton of demand from therapy seekers and just people more broadly to increase coverage for mental health from the insurance network. So as that changes, I think we’ll start to see more and more revenue out of RCM, but I do think it is a longer-term part of our story.
Operator
Thank you. Our next question comes from Scott Berg with Needham. Your line is open.
Michael Rackers
Hey, guys. Congrats on the quarter. This is Michael Rackers on for Scott today. Just a couple of quick ones from me. But I guess, looking at this acquisition, do you see kind of other areas of consolidation, like with similar acquisitions or I guess, are there other competitors in different verticals of a similar size that you could acquire moving forward? And then how does that play into kind of the vertical expansion strategy with SimplePractice?
Robert Bennett
Yes. Hey Michael, it’s Bob. Yes, we do anticipate that there’s more to come here on strategic acquisitions in the future and a variety of different flavors that could come there, but we definitely are excited about our momentum in the marketplace and finding other areas for us to participate and add value to, an expanding base of wellness clinicians over time.
Michael Rackers
Great. And then on the pricing increase, could you just kind of walk us through the impact on SMB transaction ARPU growth there? I mean, was most of the growth kind of driven by that? Or are there any other kind of trends in play?
Cassandra Hudson
Sure. So it’s really both, right? So we continue to process more and more transactions on our platform. That’s going to continue to drive growth for us as well as the pricing change that we made. So it was the 20 basis point price increase that occurred in late Q1, and as a result of that change, we’ve been expecting just related to the price increase about an 8% to 12% lift in ARPU on a year-over-year basis. So I think we’ve been seeing that play out and certainly is a contributor, but it’s not the entirety of the growth that we’re seeing out of transaction and usage-based revenue within SMB.
Michael Rackers
Awesome. Thanks.
Operator
Thank you. Our next question comes from John Davis with Raymond James. Your line is open.
John Davis
Good morning, Bob and Cassandra. Cassandra, just wanted to touch a little bit on the one-time go-to-market expenses in 3Q for Enterprise. Is this kind of a function of reinvesting the upside from 2Q? Just trying to understand how either offensive or defensive these expenses in third quarter are.
Cassandra Hudson
I mean it’s – I think it certainly is a little bit of that, JD. I mean, we’ve been operating ahead of plan for us and driving more profitability and just thinking about the things that we need to do in our business long-term. We we’re kind of going after some of these opportunities here that we think will continue to set us up for success in ’24 and beyond. So, I think these are opportunistic investments that we’re ready to make and execute on. And I think will help drive longer-term margin expansion for us as well.
John Davis
Okay, great. And then on Luminello, it definitely seems like it’s more of a tech capability buy. And I appreciate it’s not in the guide, but any color on either what the current size or growth rate of that business looks like today?
Cassandra Hudson
Sure. Thanks for the question. So with Tahoe, right now, obviously, we’re operating under a structure where we have a license agreement in place with the TSA, and we’re collectively very focused on creating that enhanced solution so that we can migrate to one single platform. So that’s the goal. For us, it will start to contribute to revenue and EBITDA once we get on the other side of the migration. And if you think about business, obviously, just given the size of the purchase price, it’s not a huge business, but we are picking up a couple of thousand customers. And the ultimate goal will be to migrating to this single solution. And during that time period, those customers will be onboarded to our platform, and we’ll start to see ARPU from them bleed in.
I think during the period of migration, you can expect ARPU to be a little bit lower. And then in the second year post that migration, probably more in line with SimplePractice’s ARPU. And then I think where there is upside is longer term, just given the high value of the psychiatry market itself, I think we’ll start to see ARPU trend higher in the out years there. Again, on the other side of the migration, we’ll start to see higher flow-through to the bottom line as well. So we’re really excited about the deal. We’re probably most excited just about the strategic value that we’re getting of moving more meaningfully into the psychiatry market, the features and functionality, the acceleration in our roadmap on e-prescribe, and then the value to multidisciplinary group practices in EAPs and MCOs is very much in line with the strategy that we’ve been executing on here for a while.
John Davis
Okay, great. And then one quick one for you, Bob. We’ve talked about the e-prescribe capability for a while. It’s been on the roadmap. I understand kind of going after mental health first and kind of getting this integrated is priority one. But how do you think about it opening up the ability to attack other sub-verticals within healthcare down the road?
Robert Bennett
Yes. So, it definitely is an asset, JD, for us as we move forward. I mean, think more out there a little bit for us because we’ve really got our hands full and in behavioral health and the other wellness verticals that we’re already in, in terms of growth for the next couple of years. But yes, e-prescribe will be something that will obviously get woven into our value proposition for medical specialties as we move forward.
John Davis
Okay. Thanks guys.
Cassandra Hudson
Thank you.
Operator
Thank you. Our next question will come from Jeff Van Rhee with Craig-Hallum. Your line is open.
Jeffrey Van Rhee
Great. Thanks for taking my questions. I’ve got a couple. First, maybe just on the Enterprise side, you talked about the size of deals increasing. I’m just curious, you talked about like the top of funnel and large deals. The large deals, is that a function of scalability increases in the product? Is it a change in focus on the sales side? Just talk about what’s driving you up into these larger deals maybe?
Robert Bennett
Yes. Hey Jeff, it’s Bob. The larger deals, yes, I mean we’re really – part of it is coming from partnerships, right, alliances that we’ve got with Guidewire, for example, we’d signed a large insurance Southern Farm in Mississippi. That’s another Guidewire referral that comes to us through our alliances. So, in some cases, it’s our move up market with alliances. So, for example, another Oracle deal as well that’s signed in the quarter.
Part of it is, we’ve always had plenty of scale opportunities. The enhancements that we do make over time as we do go up market are necessary to satisfy the needs of those customers. We are true SaaS, single instance multi-tenanted. So, as other interested, more Enterprise style customers come along that are large, now that we’ve added those enhancements and features that are desired by those Enterprise customers, it gives us the ability to add the value and win those deals where previously we might not have been going after those. So, I think that it’s both product – not really scale, but product enhancements as well as alliance driven.
Jeffrey Van Rhee
Got it. That’s helpful. And then in the incremental SMB wellness markets that you’re pursuing, anything to call out in terms of the trends of customer acquisition costs? I know you played with a lot of digital go-to-market and ways to approach those different verticals. Just as you’ve been tuning the models around CAC to then maybe step on the gas, any areas where you feel like you’ve kind of got it dialed in and are really pouring in a bit more expenditure there or just some thoughts on that?
Cassandra Hudson
I mean, we continue to see really strong trends on the new customer acquisition side for SimplePractice, both within behavioral health and in the new expansion specialties, primarily SLP and OT is where we see that growth. I do think this year, we’ve really been fine-tuning that model, and that’s playing out in the results. Second quarter gross customer adds exceeded our expectations. Then we saw an acceleration in adds from Q1, which we don’t typically see. So I think that was very positive. We’re continuing to dial up the investment where it makes sense. But I think, by and large, we have the model down for these markets.
Jeffrey Van Rhee
Got it. Okay, great. Thanks.
Operator
Thank you. Our next question will come from Tien-Tsin Huang with JPMorgan. Your line is open.
Tien-Tsin Huang
Hi, good morning. Thanks for all the detail here. I just want to ask on Enterprise and heard about the backlog in the pipeline and whatn
