Everbridge, Inc. (NASDAQ:EVBG) Q4 2022 Earnings Call Transcript

Everbridge, Inc. (NASDAQ:EVBG) Q4 2022 Earnings Call Transcript February 22, 2023

Operator: Good morning and welcome to the Everbridge Inc., Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation there will be an opportunity to ask questions. Please note that this is being recorded. I would now like to turn the conference to Nandan Amladi, VP of Investor Relations. Please go ahead.

Nandan Amladi: Thank you, Anthony and good morning everyone. Welcome to Everbridge’s earnings call for the fourth quarter and full year 2022. With me on today’s call are Everbridge’s President and CEO, Dave Wagner, and Executive Vice President and CFO Patrick Brickley. Earlier this morning we issued our earnings release, which can be accessed on the Investor Relations section of our website at ir.everbridge.com. This call is being recorded and a replay of the teleconference will be available on our Investor Relations website at the conclusion of today’s event. During today’s call, we will make forward-looking statements regarding future events or the financial performance of the company that involve certain risks and uncertainties.

The company’s actual results may differ materially from the projections described in such statements. Factors that might cause such differences include, but are not limited to, those discussed in our Forms 10-Q and 10-K, as well as other subsequent filings with the SEC. Information provided on this call reflects our perspective only as of today and should not be considered representative of our views as of any subsequent date. We explicitly disclaim any obligation to update any forward-looking statements or our outlook. Also during today’s call, we will refer to certain non-GAAP financial measures. A reconciliation of our GAAP to non-GAAP financial measures is included in our earnings press release, which you can find on our Investor Relations website.

Our earnings press release includes highlights from our fiscal year 2022 in addition to our financial results and outlook. After we review our business and financial highlights, we will open the call for questions. With that, let me turn the call over to Dave. Dave?

David Wagner: Thanks, Nandan. Good morning everyone and welcome to Everbridge’s earnings call for the fourth quarter and full year 2022. I am very pleased with the financial results we released earlier this morning. For the fourth quarter we achieved revenue of $117.1 million, an increase of 14% year-over-year; adjusted EBITDA of $19.6 million, an increase of $19 million from $572,000 a year ago; and annual recurring revenue of $384 million, which is up $14 million or 4% quarter-over-quarter, our largest quarter-over-quarter increase of the year. I am also pleased that the team executed these strong results while also executing a 10% headcount reduction in the quarter. We entered Q4 with 1,893 employees and ended the year with 1713.

Our team demonstrated incredible resilience. In addition to the strong operational results, we completed the repurchase of over $300 million in face value of our 2024 notes, reducing our net debt by approximately $28 million in the quarter. Each of these results demonstrates our commitment to execute against the plan we discussed at our Investor Day in December. Our strategy is anchored on a 20-year commitment to keeping people safe and organizations running by digitizing organizational resilience. We deliver our customers intelligent automation technology that empowers them to anticipate, mitigate, respond to and recover from critical events. We serve customers of all sizes, but our focus for the next five years will be on larger enterprises and governments with the resources to fully leverage our solutions and we are focused on driving annual recurring revenue with the aim of achieving $1 billion in ARR over the long term.

Our results for the fourth quarter demonstrates strong initial steps on our journey. Entering 2023, we are confident in our baseline 6% to 7% revenue growth rate and in achieving $85 million in adjusted EBITDA. Before I go further, I will now turn the call over to our CFO, Patrick Brickley, to provide details on our financial results for the fourth quarter and full year, as well as our updated outlook for 2023, after which I will return to provide more detailed commentary on the quarter. Patrick?

Patrick Brickley: Thanks Dave. In fiscal year 2022, we exceeded our annual targets for revenue and adjusted EBITDA and we executed significant restructuring programs which resulted in reductions and realignment of resources. We enter fiscal year 2023 with a leaner cost structure and an experienced leadership team in place to build a profitable organic growth business for the long-term. I will now recap our results for the fourth quarter and full year. For full details of our P&L and reconciliation of GAAP to non-GAAP measures, please refer to our press release. For the fourth quarter of 2022 our ARR of $384 million was up approximately 11% year-over-year. Share of ARR coming from customers over $250,000 ticked up to 44% from 43% in the September quarter.

Revenue grew 14% year-over-year to $117.1 million reflecting our growth in ARR as well as record deliveries of one-time licenses and services of over $16 million and a modest stub of inorganic contribution from the Anvil acquisition, which was completed in November, 2021. Adjusted gross margin was 74% reflecting seasonally higher perpetual license mix in the quarter and improving platform efficiency. Adjusted EBITDA was $19.6 million or 17% of revenue, which is a little higher than the mid-teens adjusted EBITDA that we guided to at the outset of 2022 and is an early reflection of the streamlined cost structure with which we enter fiscal year 2023. Cash flow from operations was $4.4 million compared to $10.2 million a year ago. Adjusted free cash flow was $4.6 million.

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This represents free cash flow adjusted for $4.2 million of one-time cash payments related to restructuring. For the full fiscal year 2022, revenue grew 17% year-over-year to $431.9 million. We entered 2023 with a purely organic growth profile having lapped all of the acquisitions that we made in 2021 and having made no acquisitions in 2022. Adjusted EBITDA was $42.1 million or 10% of revenue compared to $11.2 million or 3% of revenue in 2021. Cash flow from operations was $20.2 million compared to $22.2 million a year ago. Adjusted free cash flow, which adjusts for $12.3 million in one-time cash payments related to our restructuring program was $13.9 million. Our net revenue retention rate once again tracked at or above 110% reflecting continued customer satisfaction combined with demand for additional Everbridge technology to expand within the existing customer base.

Our momentum with large transactions continued in Q4 resulted in trailing 12 months ASPs that were again above $100,000 and a record 80 deals in the quarter that were over $100,000 in annual contract value. Additional business metrics can be found in our Investor Relations presentation posted on our website. In addition, we recently improved our capital structure by repurchasing approximately $316 million principle amount of our convertible debt using cash on hand of approximately $289 million, a discount of 8.75% to face value. Approximately $134 million of principle amount of 2024 notes are still outstanding, which we expect to retire using cash on hand on or before their maturity in December of 2024. We ended the fiscal year with cash and cash equivalents of approximately $199 million.

Now I will turn to guidance. We are reiterating the guidance for fiscal year 2023 that we laid out in detail at our recent Investor Day. We expect to grow revenue in the range of 6% to 7% with adjusted EBITDA in the range of $84 million to $86 million, a margin of approximately 18.5%. We don’t anticipate any significant growth in headcount during 2023, and as such, we expect that we will be poised to make additional progress towards the Rule 40 in 2024. Our outlook for the first quarter of 2023 is as follows. We expect revenue in the range of $106.3 million to $106.7 million, reflecting year-over-year growth of approximately 6%. This represents a sequential decrease from Q4 2022, which is attributable to a sequential decrease in non-recurring revenue.

We expect adjusted EBITDA in the range of $9.8 million to $10.2 million, a margin of approximately . As we’ve seen in our historical performance, our Q1 profitability tends to be pressured by seasonal patterns of headcount related costs, primarily the timing of payroll taxes. In summary, the actions we undertook in 2022 to refocus our business and restructure our costs have positioned us well for 2023, both financially and strategically. With that, let me hand the call back over to Dave.

David Wagner: Thanks, Patrick. As our $14 million increase in ARR demonstrates, we had a good quarter in our recurring business. We also had a good quarter from both a new and existing customer perspective. From a new customer perspective, we added 97 total new enterprise customers in the fourth quarter of which 50 were CEM customers, bringing our total CEM customer count to 307. Additionally, we generated 80 deals over a $100,000 dollars in the period, which is up from 66 in the fourth quarter of 2021. While we had strong deal velocity, we only had one deal over $1 million in the quarter and four over $500,000 in the quarter. This compares to five deals over $500,000 in Q4 last year. The decline is primarily due to lower perpetual bookings in the quarter.

Our top-five new customer wins in the quarter included two SaaS customers and three perpetual customers. Two of the new customers were in the government vertical, one was in healthcare, one was in retail, and one was in construction development. Two of the wins were CEM wins, two were smart security wins, and one win was in public warning. As noted earlier, our perpetual license bookings, which achieved a record level for the year were lower in Q4. This fact coupled with the strong perpetual deliveries in the quarter led to the lowered backlog which we expected. Moving on to sales to existing customers, we had another strong quarter of solution expansions. Our top-five growth deals were all SaaS deals and they were all CEM customers. Two of the five were digital resilience customers, and three were people and operational resilience customers.

Two were in the finance vertical, two in pharmaceutical, and one in construction development. Another exciting fourth quarter expansion was the Port Authority of New York and New Jersey, which oversees much of the regional transportation infrastructure, including bridges, tunnels, airports, and sea ports for one of the most populous regions in the country. Closing out our commentary on ARR growth, we had our largest ARR quarter-over-quarter growth of the year, driven by our strongest quarterly gross retention rate in over two years. We are very pleased with both gross and net retention in the quarter. Putting new wins, growth deals, and retentions together, our ARR in Q4 reached $384 million, up $14 million sequentially, positioning us well for 2023.

The share of total ARR coming from customers of 250K or more to top slightly to 44% reflecting the nice growth in agreements with existing customers. In addition to our go-to-market successes, we continue to focus on simplifying our product offerings and making strategic product integrations in order to increase our efficiency and velocity to improve profitability. From an innovation perspective, we recently introduced a new AI powered situational awareness tool, digital ops insights to our digital operations solutions bundle. This solution enables incident commanders and resolvers to gain deep visibility into IT service disruptions, and it helps organizations save time, maintain customer satisfaction, deliver continuous service uptime, and innovate.

From an implementation perspective, we are very proud of the fact that we successfully deployed the Norwegian Public Safety System in December that we were just awarded in September. Along with the Norwegian Government and our partners, we implemented this system in record time, strengthening our reputation as the undisputed leader in this market. This public safety solution will help keep Norway’s more than five million residents and nearly seven million annual visitors safe and informed in case of an emergency. Norway is an innovative country and one of the first countries in the world to implement location-based technology to inform and protect its people. We accomplished all of the above while meaningfully improving our profitability and building our leadership team for the future.

We added several key individuals to the leadership team and to our Board this past quarter. Let me briefly introduce you to each of them. In December, Noah Webster joined as our Chief Legal and Compliance Officer and Corporate Secretary. He has over 20 years of legal experience, including negotiating agreements, security, compliance, litigation and M&A. Noah is responsible for leading and managing all legal, compliance and risk management programs at the company, as well as our ongoing ESG efforts. I’ve known Noah for several years from our time together at Zix, and I’m incredibly excited to have him on board with us. In January, we announced the appointment of Bryan Barney as our new Chief Product Officer. Brian is responsible for leading Everbridge’s global product development strategy, strengthening our platforms and integrating our products.

His extensive background and enterprise software and cybersecurity leadership positions working for companies like RedSeal, Symantec, Sophos and McAfee positioned him well to lead our product vision. And last week we announced the appointment of John Di Leo as our new Chief Revenue Officer. John is an extraordinarily customer focused leader who brings out the best in his teams and works to align the entire organization in support of the customer. He also brings extensive international experience to his role. John and I work together both at Zix and Entrust. At Everbridge John will spearhead our go-to-market motions and focus our sales teams on growth and improving our overall go-to-market efficiency. We also added two new Board members, David Benjamin, and Rohit Ghai.

Both bring additional skills and experiences to help shepherd our company through its next phase of growth. David Benjamin is currently the Executive Vice President and Chief Commercial Officer for Blackbaud. His international experience and track record in accelerating public companies commercial offerings will be invaluable to our go-to-market market expansion efforts. Rohit Ghai is the CEO of RSA Security and brings a deep cybersecurity understanding to Everbridge, which will further bolster us in one of our top focus areas of board governance and risk management. Rohit also has a strong product management background delivering technologies to market at scale, which will also be a valuable addition. These leadership and board appointments further strengthen us as a team.

In summary, we delivered a solid financial performance in Q4 as we continued to make progress on our long-term financial goals. We are implementing the strategy outlined during our Investor Day in December, and we are entering the year with a strong foundation to achieve our goals for 2023. We are building a foundation focused on delivering consistent profitable growth on our way to $1 billion in annual recurring revenue. I look forward to updating you on our progress in the coming quarters. We’re now ready to open the call for questions. Anthony?

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Q&A Session

Operator: Thank you. Our first question will come from Alex Sklar with Raymond James. You may now go ahead.

Alexander Sklar: Thanks. David or Patrick, I want to ask how you’re thinking about bookings velocity for 2023 given the macro as part of that 6% to 7% revenue guide to outlook, should we think of ARR or RPO growth that should track, should that track kind of that revenue growth framework? Thank you.

David Wagner: So that, that’s a good question. You know, the first thing I think about is in terms of the bookings is that, is the normal seasonality, and so we’re entering Q1 which tends to be our lower quarter of the year. When I think about it, I think about the ARR velocity that we’re generating in these deals $100,000 and below and those are things that really give me confidence looking forward. And I combine that with, for me, the highlight of the quarter personally was that gross retention rate returning to its highest level in in two years. But from a bookings velocity perspective, we’re really focused on the recurring bookings. Our pipeline for perpetual deals remains solid, but as you know, those large government deals are more inconsistent in their timing.

Alexander Sklar: Okay, great. And I guess Patrick, just kind of a somewhat of a related question, but given the increased focus on CEM, can you help frame kind of the embedded growth in the 2023 outlook that you’re thinking about from CEM versus maybe mass notification or other parts of the business?

Patrick Brickley: Well hey, Alex. You see in the results from Q4 CEM is really helping to propel the business. This evolution of the ways in which businesses approach resilience is driving a more digitized approach and we’re the leader in the space. So we had a great CEM quarter. We’re continuing to focus on the platform adoption and moving customers up the CEM stack. Mass notification is also very important, but that’s a piece of CEM and we really want to be focused on CEM as we move forward.

Alexander Sklar: Okay, thank you both.

Operator: Our next question will come from Matt Stotler with William Blair. You may now go ahead.

Matt Stotler: Hey, good morning. Thank you for taking the questions. Maybe first on the CEM net ads, obviously you know, very strong in the quarter above 50 nearly 2x anything you’ve seen prior in terms of quarterly ads and acceleration in terms of the year-over-year growth rate. We’d love to get some more color on what’s working there on the CEM standpoint? And then is this something that’s attributable more to Q4 seasonality or is this kind of structurally higher capacity when you think about the ability to grow the CEM cohort with the recent changes you’ve made to the business?

David Wagner: Thank you. So that’s a good question. You know, those ads are probably the focus area of our go-to-market strategy. Especially as we’re aligning into 2023, we’re paying particular attention to propensity models, account based marketing for new CEM wins, as well as driving the expansions of our existing point solution customers up into CEM. One of the things that worked well in Q4 as I noted before, the migrations of the risk center customers into CEM, that program kicked in in Q4. We expect that to be a steady contributor throughout the course of 2023. And then related to that at a more macro level, I’m not so concerned about CEM versus new customer wins. We know from experience that once we get a customer win into the Everbridge family, the expansion happens as they mature their resilient strategies.