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spk04: Good morning. Welcome to the Everbridge Third Quarter 2022 Earnings Conference Call. My name is Vaishnavi, and I will be your conference operator today. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Following management's remarks, we will open the call for your questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. I would like to remind everyone that this call will be recorded and made available for replay via a link in the investor relations section of the company's website. Now, I would like to turn the call over to Vice President of Investor Relations, Nandan Amladi. Sir, please proceed.
spk01: Thank you, Vaishnavi, and good morning, everyone. Welcome to Everbridge's earnings call for the third quarter of 2022. With me on the call today are Everbridge's President and CEO, David Wagner, and Executive Vice President and CFO, Patrick Berkley. Before the market opened, 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 conference 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 included 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. The reconciliation of our GAAP to non-GAAP financial measures is included in our earnings press release that you can find on our Investor Relations website. Our earnings press release includes highlights from our third quarter in addition to our financial results and outlook. After we review our business and financial highlights, we will open the call for your questions. With that, let me turn the call over to Dave.
spk07: Dave? Thanks, Nandan. Good morning, and thank you, everyone, for joining us today. Last week marked my first 100 days at Everbridge. It has been a rigorous and exciting time. Over the last three months, I met with well over 100 of our investors, prospective investors, and analysts. I've had meaningful face-to-face interactions with dozens of our customers, and I've met one-on-one with nearly 200 of my colleagues. The senior leadership team and I spent many days and nights reviewing our operations, aligning on our value drivers, and beginning the process of implementing a strategic plan that we believe will drive the next phase of our growth heading into 2023 and beyond. The opportunity ahead for our business is compelling. To begin today's discussion and to set the foundation of our strategic plan, I'd like to start with an overview of how Everbridge came to be, where we are today, and how the new leadership team is planning for our future. As a company founded 20 years ago in the aftermath of September 11th, Everbridge built the world's premier critical event management, or CEM platform to deliver on our mission of enhancing enterprise resilience for our customers as they work to keep their businesses and people safe during critical situations. Our intelligent automation technologies helped us to capture a leading share of the CEM market. In doing so, we've scaled our platform to reach over 2 billion people globally and to deliver over $400 million of revenue annually. As a pioneer in CEM and public warning, Everbridge has become the leader in a growing early stage market. Over the past several years, the company rapidly expanded its capabilities and global presence. However, 2022 has been a year of discontinuity and major changes for Everbridge. and we are now maturing into the profitable growth stage of our corporate maturation, which will be characterized by stable, predictable growth and expanding profitability. As the team and I have taken a fresh look at where we are and where we're going, we see a clear path forward. We will continue to innovate, and we will serve our customers by integrating and building out our leading critical event management platform to support their maturing requirements for delivering enterprise resilience. However, we also foresee a lower growth rate in 2023 as we focus on organic revenue growth. As a result of this lower growth, we made the difficult decision to extend the strategic realignment that we announced in May, whereby we now expect that 200 more positions will be eliminated by the end of the fourth quarter. This action will allow us to adjust our cost structure, keep control of our financial future, and deliver predictable revenue growth for our shareholders. We expect earnings to grow faster than revenue for years to come as we simplify, modernize, and optimize our platform and our internal processes. The decision earlier in the year to pause material M&A is helping us to focus on execution and to make solid headway in product integration, back office integration, and sales and marketing optimization, which will drive even better customer experiences and opportunities for cost optimization. We see a clear path forward for $85 million of adjusted EBITDA in 2023 with a baseline expectation of total revenue growth in the 6% to 7% range as we lap growth from previous M&A continue to sharpen our focus on our core growth opportunities and further rationalize our portfolio of products. We are driving toward the rule of 30 as we exit 2023 with a plan to reach rule of 40 in the coming years. At the same time, while the team and I were refining our strategy, we continued to execute in Q3. As you can see from our earnings reliefs, the health of our business remains strong as we delivered another quarter of solid financial performance across the board. We grew revenue 15% and delivered strong bookings while generating a 14% adjusted EBITDA margin in the period. Overall, I am proud of the strides our team made this quarter toward positioning Everbridge for solid growth in 2023 and beyond. Before I go further, I will now turn the call over to our CFO, Patrick Brickley, to provide details on our financial results for Q3 and outlook for the remainder of the year. Patrick?
spk10: Thanks, Dave. The work that we began at the start of this year to strategically realign both our product and go-to-market organizations has created a solid foundation for sustainable, profitable growth heading into 2023. As we continue to do the groundwork to scale up our business, we are optimizing our cost structure integrating prior acquisitions, and creating an even more integrated CEM platform. Our efforts so far this year have resulted in a 14% adjusted EBITDA margin in the third quarter, and we are guiding to exit the year with a Q4 adjusted EBITDA margin of 16%, reflecting the mid-teens exit target that we had communicated at the beginning of this year. Our solid execution in the third quarter produced strong cash flow, as well as revenue and adjusted EBITDA that were above our guidance range. Revenue in the third quarter was $111.4 million, up 15% from a year ago. Adjusted EBITDA was $15.2 million, up significantly from $4.8 million last quarter, as we continue to optimize our cost structure. In Q3, we incurred $1.2 million of expense related to the strategic realignment actions that we had initiated in May. We generated cash flow from operations of $18 million and adjusted for one-time payments related to our 2022 strategic realignment program, we generated positive adjusted free cash flow of $15.4 million. We ended the quarter with cash balance of $487 million. For full details of our P&L and reconciliation of GAAP to non-GAAP measures, please refer to our press release. Total deferred revenue was $233 million, up from $214 million at September 30th, 2021, and flat sequentially, reflecting a higher mix of perpetual license deals than we had seen in recent quarters, and timing of invoicing in our SaaS business. Total RPO was $471 million, up 9% from a year ago. Current RPO, which represents our forward 12-month view, was $298 million, up $6 million sequentially, and 12% from a year ago. Our net revenue retention rate continues to track at or above 110%, reflecting continued customer satisfaction combined with demand for additional Everbridge technology to expand within the existing customer base. We note, however, that because it's a metric that reflects trailing 12-month revenue, the planned attrition of some customers during this year and the large deal that we terminated in the first quarter are beginning to weigh on this metric as we progress through 2022. Our momentum with large transactions continued in Q3, resulting in trailing 12-month ASPs that were again above $100,000 and a record 75 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. Now I'll turn to our guidance. For the fourth quarter, we anticipate revenue of between $116 and $116.4 million, representing year-over-year growth of 13%. As discussed earlier, FX will pose roughly $2 million of headwinds to fourth quarter revenue relative to currencies on January 1st, 2022, and roughly half a million dollars of headwind relative to the rates that were reflected in the guidance which we provided three months ago. We expect adjusted EBITDA will be between 18.1 and 18.5 million dollars as we continue to optimize our cost structure. We anticipate non-GAAP net income of between 14 and 14.4 million dollars, or between 30 and 31 cents per share. For the full year, we anticipate revenue of between 430.8 and 431.2 million dollars, representing growth of 17%. This absorbs roughly $5.5 million in FX headwinds since we established our 2022 guidance in February. We anticipate adjusted EBITDA will be in the range of $40.7 to $41.1 million, more than tripling from 2021, and representing an adjusted EBITDA margin of roughly 10%. We expect non-GAAP net income of between $27.2 and $27.6 million, or between 59 and 60 cents per share, based on 46.3 million diluted weighted average shares outstanding. To sum it up, we delivered another quarter of sustained progress on our priorities as we approach the end of fiscal year 2022. Now, I'd like to frame our thinking on 2023. In terms of profitability, we will enter 2023 with a cost structure that is leaner than ever, The incremental restructuring actions that we've announced this month will reduce our annual run rate expenses by approximately $27 million in 2023, enabling sustained improvements and profitability in 2023 and beyond. With regards to revenue, we are continuing to improve the tenure of our sales force. However, there are several additional considerations worth calling out. Number one, As we optimize our go-to-market investment to focus on critical event management, ratable recurring subscription revenue, and improved efficiency, we are reducing some areas of sales capacity that are productive, albeit less efficient. Number two, in 2023, we anticipate flat year-over-year growth in non-recurring revenue, and we will be lapping the settlement of the large contract that was terminated earlier this year. Number three, the FX-related erosion that we absorbed in mostly the second half of 2022 may create similar pressure on the first half of 2023. Number four, we will continue to optimize our portfolio, which we anticipate will result in continued de-emphasis and potential divestment of certain assets that are revenue generating but are non-core. And finally, number five, we are wary of the uncertain macro environment. However, we anticipate that its impact may be offset by the internal work that we are doing to improve productivity and execution. So, we are taking a judicious view of our growth profile for 2023, during which the work on improving sales productivity will continue while the sales force gains more tenure. Taking all of this into consideration, we expect 2023 baseline revenue growth of 6% to 7%, with a clear line of sight to 2023 adjusted EBITDA of $85 million. Our improved cost structure gives us the confidence to meet or beat this prudent guidance, which we are providing one quarter ahead of when we usually do. On December 13th, we are hosting an investor day, during which we plan to disclose our annual recurring revenue discuss our long-term growth path to the Rule of 40. Our Investor Day will be held at our new Customer Experience Center in Vienna, Virginia, just outside Washington, D.C. We invite you to join us in person to meet the new leadership team and to see our CEM platform in action. We will also webcast the event live in case you are unable to join us in person. Now, I'll turn it back to Dave.
spk07: Dave? Thanks, Patrick. As our financial performance reflects, 2022 has been a transition year, enabling Everbridge to focus on driving organic growth as we enter the next phase of the company's lifecycle, heading into 2023. In the third quarter, we continue to see solid traction with our land and brand strategy. From a land perspective, We landed 72 new enterprise customers and a record 31 CEM customers in the third quarter, bringing our total CEM customer count to 255. We also generated a record 75 deals over $100,000 in the quarter, up from 63 in the prior quarter and 45 in the third quarter last year. Within that record number of new deals, we signed three deals over $1 million in Q3. A couple of these deals are part of our best quarter ever in our public warning business, which was anchored by a key win in Norway to embed our software into their national telecommunications network. These are largely perpetual software and services deals, so the orders will accrue into revenue as the implementations occur over the next several quarters. This steady improvement we're making in landing larger new customers is key to our long-term strategy. From an Expand perspective, net revenue retention remained strong at over 110%, driven by low 90s gross retention and add-on sales in the quarter. Although not financially material to the quarter, we have a large customer base in the state of Florida that was impacted by Hurricane Ian. We take our commitment to these customers seriously. Before, during, and after the hurricane made landfall, we worked with rigor to support them during an event that proved to be catastrophic for many residents of that state and across the southeast. We supported hundreds of customers with people and assets in the affected area. Our platform performed flawlessly throughout allowing our customers notifications to keep their citizens and employees safe. Our ability to reliably manage these critical events at scale is why our customers trust us to support them during times of need. Although tragic, catastrophic events like Hurricane Ian underscore the meaningful nature of Everbridge's mission and the purpose-driven work we do. Separately during the quarter, one of our CEM customers, Takeda Pharmaceuticals, became the very first customer to achieve the diamond level in our Best in Resilience program. What makes Takeda special is the way that they leveraged our CEM platform to implement continuous improvements in their ability to detect and assess risks, to coordinate with crisis response teams, to communicate emergency information, and ultimately to account for their employees' safety. Through rigorous use of our platform, they developed and tested more than 350 unique incident communication templates for potential crisis situations. Takeda's security team truly demonstrates what best in class looks like in terms of applying duty of care and protection for their employees. We are proud to be a part of their excellence. During the third quarter, we also continued to build out our leadership team, including recent appointments of a new chief marketing officer in David Alexander and a new chief information officer in Sheila Carpenter. David is a veteran B2B and SaaS marketing executive who brings extensive experience generating global demand and transforming category-leading brands like ours. He and his team's work will shape our global brand strategy and demand generation capability for years to come. Sheila joins us with more than two decades of leadership experience in information systems, IT, and operations at information security software companies. Her experience in information security, scaling IT operations, and building enterprise applications will be influential in support of Everbridge's more efficient growth. We also made solid progress on our key strategic product integration priorities by executing on our plan of building what we call pathways to the platform. Our first pathway to the platform built during the quarter applies to Anvil, where we completed an initial integration of its travel risk management solution into our core CEM platform, now called Everbridge Travel Protector. This integration positions our CEM platform as the only end-to-end full lifecycle solution for organizations to fulfill their duty of protection for traveling employees, remote employees, and hybrid workers returning to the office. We will continue to mature this integration over the coming quarters. Our second pathway was the milestone integration of our risk intelligence monitoring capabilities into our core CEM platform. This integration will allow us to begin migrating the remaining customers from the acquired solution into our core CEM platform. We will be maturing this integration further over the coming quarters with the objective of migrating all 150-plus legacy application customers onto our CEM platform by the end of 2023. In closing, as we continue to execute on our near-term priorities, which are guided by our land and expand strategy, we are well on the path to doubling our business over time. The breadth of capabilities we've developed over the past 20 years, bolstered by our recent acquisitions, have put us well ahead of the competition. Fueled by our product team initiatives, including impactful machine learning advancements, we have a solid outlook as we head into 2023. Our strong customer base also provides continued opportunity for expansion as we increase multi-product sales with a particular focus on the Global 2000. In summary, we delivered solid financial and operational performance in Q3. As we conclude 2022, Our leadership team is laser-focused on execution, driving revenue growth, and maximizing return on our investments. We are confident that our success in these areas will deliver sustainable top-line growth and expanding profitability and increasing cash flow. That concludes our prepared remarks. We're now ready to open the call for questions. Operator?
spk04: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.
spk05: Our first question comes from Ryan McWilliams with Barclays.
spk04: Please go ahead.
spk13: Hey, guys. Thanks for taking the question. Really appreciate the clarity around the growth objectives and margin targets for next year. Patrick, I know it might be difficult to separate, but how much of that 6% to 7% revenue growth guide for next year is macro-related versus the impact of the restructuring and headcount effects?
spk10: thanks Ryan there are a lot of moving parts as we think about 2023 so far in advance we we are wary of the macro environment but we are doing a lot of work internally to improve productivity and efficiency so we think that you know we're optimistic that'll offset the macro impact and so it has more to do with the other elements that we laid out whether it's reducing some of the existing productive capacity, albeit less efficient capacity, flat non-recurring revenue year-over-year, continued FX headwind into the first half of next year, as well as, importantly, continuing to optimize the product portfolio. We've been chipping away at that this year, but we still may have a fair amount of work to go, and that'll drag into next year.
spk13: Thanks. And then just on the guidance, that top line, what does that imply for the net revenue retention for next year? I know you kind of mentioned that in your prepared remarks. And then Dave, just with these new guidance figures, what do you see more upside for 2023? Is that on the margin side or on the revenue side?
spk10: Yeah, so this is Patrick. I'll take the net revenue retention. We'll talk more about that at our upcoming investor day. Historically, we've used a trailing 12-month revenue metric. We'll probably align the definition of net revenue retention with ARR, which we'll be talking about at our investor day going forward, so it'll be more clear, and we'll unpack more of that on December 13th, if you want.
spk07: Yeah, so your question is a good one, Ryan. We chose our words carefully. So a clear path to $85 million in EBITDA and a baseline of 6% to 7%. And that clear path is really driven by opportunities to modernize and optimize the cost structure. And so I'm really optimistic about the team's ability to continue to dig in and drive the operational improvements, especially as we look into what could potentially be a tougher macro environment. On the baseline comment, of course we see upside, and that's what we're going to be working diligently to deliver. But as Patrick indicated out in the four key areas, we're really getting focused on the SaaS revenue growth as the primary value drive for the business. And so that really leads to the plan we have to disclose in recurring revenue at our investor day and beginning to drive that as our primary metric. So as we dig into that, there's areas that Patrick identified in the kind of mitigating growth or the balances that we're working off that baseline projection.
spk13: Really great to hear about a potential ARR metric. Been looking for that for a long time. But looking forward to the investor day. Thanks, guys.
spk07: Thanks. Look forward to seeing you.
spk04: Our next question comes from Michael Turin with Wells Fargo. Please go ahead.
spk13: Hi, this is Michael Burgon from Michael Turin. Thanks for taking my question. You may want to walk us through where some of the optimization is in the cost structure across R&D, sales, and marketing, and even G&A. It looks like R&D and G&A took the biggest cuts in the quarter, but maybe you can walk us through what that looks like moving forward.
spk10: Sure. This is Patrick. Thanks for the question. So last week, we launched an incremental headcount-related action to continue to Optimize our cost structure and that impacted every area of P&L whether it's cost of revenue sales and marketing R&D or G&A and each area has Room for continued optimization as we head into 2023 we anticipate holding our Investment in each of those areas flat on a dollar basis will continue to evolve the organization and focus on and recurring ratable subscription revenue and critical event management. And in order to do that, we'll take the existing levels of dollar-based investment and we'll be optimizing within that. So we'll continue to invest incremental dollars in core areas of growth and opportunity while continuing to de-emphasize investment in some of the non-core areas And again, that hits all areas of the P&L and sales and marketing in particular will continue to drive more and more efficiency there exiting this year and throughout next year.
spk13: Thank you. And a quick follow-up. How is the size of this restructuring compared to the one done earlier in the year and are the areas impacted any different than what was done earlier in the year? Thank you.
spk10: Yeah, this is much more headcount related. So in May, we announced the beginning of the program, and we had said that we will spend between $13 and $21 million to remove $13 to $18 million from our annual run rate expense. Where we are right now with the May actions is we're forecasting to spend about $20 to pull out $17 million of annual run rate expense. Now in November, the incremental action, we're forecasting to spend between $11 and $12 million to pull out $27 million of annual recurring expense. So in aggregate, across the broader action beginning in May and now extended in November, we're looking to spend roughly $31 to $33 million in order to save $42 to $44 million of annual run rate expense. Most of that is headcount related.
spk13: Thank you.
spk04: Our next question comes from Matt Stottler with William Blair. Please go ahead.
spk09: Hey, good morning. Thank you for taking the questions. Maybe just one on the macro. You mentioned some caution in the 2023 numbers around what could happen there. but obviously came in above guidance for the current period. So we'd love to just double-click on what you're seeing in terms of spending behavior from customers, any lengthening in deal cycles or things falling out of the pipeline, and any specific areas of strength or weakness given the uncertainty.
spk07: Yeah, great question. So areas of strength, I highlighted in the script. Our public warning business, and I'm really proud of that team, executed... their best bookings quarter in the history of the company, anchored by those couple of really key wins in Norway that I mentioned. So the government business continues really strong. From a deal perspective, we continue to execute really well on those enterprise deals over $100K. That's something I'm really pleased about, so up into the 70s, from the 60s, quarter over quarter, so that feels good. Last quarter, Vernon was here and spoke of no deals he knew that were impacted by budget cycles. This quarter, it was one deal that he noted to me that that has been impacted by budget cycles. So from what we're seeing, it's a very modest impact at this point. We don't feel immune to it, so we are being judicious in our outlook, but we're not seeing a big impact at this time.
spk09: Gotcha. That's very helpful. And then maybe just one follow-up on the back-end integrations, obviously bringing the core pieces of the acquisitions from the last couple of years together into the core CEM offerings. Any update on the timeline there and kind of how the key components of that process are coming together?
spk07: Yeah, thanks for bringing that up. I'm excited about those two that we mentioned in the script, that being – the initial integration of the Anvil Travel Protector into CEM. That integration really unlocks the value of that acquisition for existing CEM customers and new CEM customers. And so we're going to be continuing to extend that integration over the coming quarters to ultimately enable the migration of the Anvil Enterprise customers into CEM. I would expect that to really be a late 23 and 24 activity. On the second integration, the risk intelligence integration into core CEM, that on the other side represents the kind of culmination of the integration work. The risk intelligence was integrated into the platform for existing CEM customers and new CEM customers a few years ago. And this represents, this work represents completing the full feature parity to allow us to be, not to begin, but to really focus on the remaining 150 customers on the legacy application and bring them across, again, with the objective of bringing all of them across by the end of the year. And I'm excited about that because of the up-sell, cross-sell opportunity it provides as we move those customers into the key platform. So I really like those two examples. Obviously, they were in play well before I arrived, but they demonstrate the execution on the pathways to platform and then the power of focus that the leadership team and the product team is able to have, which will make us more efficient going forward and will really improve customer experiences on our cross-sell opportunity.
spk06: Got it. Thanks again.
spk05: Our next question comes from Bill Power with Baird.
spk04: Please go ahead.
spk14: Okay, great. Thanks. Yeah, a question on CEM. It looked like, you know, particularly strong CEM you know, customer growth. And so we'd love to kind of, you know, double click on some of the key, you know, drivers there. And I guess in part then trying to reconcile, you know, how to think about, you know, CEM growth in the next year, given the guidance, you know, how much are some of the go-to-market optimization efforts perhaps going to hinder, you know, what you've seen, you know, more recently on the CEM front.
spk07: Yeah, so thanks for pointing that out. You know, CEM is the strength of this company. It is the area of focus as we move forward. And so as we do our strategic alignment, everything the leadership team and I are doing is really focused in on that market-leading capability. And we are growing inside that set of capabilities faster than the markets. When you stand back, though, and unpack the whole company, obviously we're guiding to a lower revenue growth on some of the assets. That has to do, as Patrick said, first with an alignment across the organization that we're driving a recurring revenue growth, and particularly the SaaS software recurring revenue growth. It also reflects the fact that There have been other acquisitions over time, and those cohorts of customers in some cases aren't growing and retaining as well as our core CEM piece. And so that's really the balance. You're getting right at the issue. That's the balance we're driving as we continue to exploit our strong competitive advantages and leadership position in CEM, balanced with optimizing customers. and modernizing some of the acquired company cohorts over time.
spk14: Okay. And maybe just, you know, one follow-up. It sounds like you're feeling, you know, optimistic and, well, positive as you're talking about Norway on the population warning opportunity, but I just I guess I just want to be clear with all the macro uncertainties and turmoil in Europe, is that having much of an impact on either the EU mandate or the opportunity more broadly, or is everything by and large kind of moving ahead as planned or better still?
spk07: Well, I'd say Patrick's been clear that the – The opportunity we've executed very well on, it wasn't as, when it all came to pass, wasn't as robust as perhaps hoped, but we have succeeded in winning the majority of the public warning opportunities that have been awarded in Europe. There are still roughly a dozen EU countries that have not yet made their decision. Those will be the smaller countries, and we're continuing to position ourselves well for those opportunities. As I mentioned earlier, that is built into our guide where we're not expecting as much growth on the perpetual side as we are on the south side, and that having been said, You know, these nice wins off a record quarter, you know, will probably be delivered and come into revenue in 2023 or, you know, primarily in 2023. So we're balancing all of those things. We continue to see a good opportunity for public warning. This year will be an all-time record, and we wouldn't quite be expecting a record next year, but we are expecting continued success in gaining share in public warning.
spk14: Okay, thank you. Yeah, and also look forward to the analyst day.
spk07: Yeah, we are too. Thanks.
spk04: The next question comes from Brian Coller with Stevens. Please go ahead.
spk11: Hi, guys. Thanks for taking my question. So I know the product bundles are still a relatively new selling motion, but I'm curious if you could maybe talk about the traction you're seeing there and whether or not you're seeing any evidence that these are kind of improving sales productivity or improving your ability to upsell.
spk07: Thanks, Brian. Yeah, for sure we're continuing to see steady improvement in the go-to-market motions from the simplification into the personas. It's made it a lot easier for our sellers and our customers to really see and understand the journey to CEM as a platform for the enterprise through the eyes of the buying persona. I point back to the Takeda Diamond Resilience Program, and as we talked to risk officers and security officers in our large enterprise customers, they're looking for looking to Everbridge and our platform as a way to integrate risk management across the organization. And so that's really where the power of CEM comes. The persona buying journey helps us align with either the chief security officer or with the chief human resource officer or with the chief information officer. And then from that value proposition, expand out into the breadth of course of CEM and hopefully that decay to pharmaceutical examples gives you as investors an insight into the power of the platform as our enterprise customers reach in and really focus on the workflows that support their duty of care. So we're seeing good work with it. It's a maturing market and so we're seeing this maturation primarily at the larger enterprise clients and we see a long runway to continue to grow CEM as more and more organizations focus more carefully on the safety of their people and protecting their organization from climate change events and other critical events.
spk11: Got it. That's super helpful. Thank you. I wanted to ask about just the total customer ads. they were down a bit from last quarter. So I was curious kind of what drove that, you know, is that, you know, facing any headwind from the de-emphasis of non-core technology? And then secondly, I wanted to ask, is, you know, the continued de-emphasis of non-core technology baked into your 2023 guidance?
spk10: Hi, Brian. It's Patrick. Thanks. Yes. Similar to what you saw in Q1, Q3 had the net ads in Q3 that reflect continued de-emphasis, end-of-lifing of legacy non-core platforms. So they tend to be small-dollar customers. On these platforms, we still have a few hundred of those customers that we're continuing to work through. So that will continue to be a headwind to that. metric of net customer ads and the anticipated dollar impact of continued de-emphasis and potential divestment is reflected in our initial guide for 2023. In 2022, we had mentioned a range of six to upwards of $10 million of ARR related to the potential de-emphasis We've only made progress to the tune of about $2 million on that so far this year, so it's going to carry into next year, and that's part of the 2023 guide.
spk11: Got it. That's helpful. I'll leave it there. Thank you for the time.
spk06: Thank you.
spk04: Our next question comes from Scott Berg with Needham. Please go ahead.
spk08: Hi, Dave and Patrick. Thanks for taking my questions. I guess I have two of them. First of all, Patrick, as a follow-up to what you just said on the product rationalization, can you just clarify that a little bit? It sounds like what you announced earlier this year is still kind of coming out of the model today. And then the product rationalizations you talk about as a head one for next year in 2023, are those incremental new rationalizations or just the execution of the previously announced ones?
spk10: Hey, Scott. Thanks for the question. More execution of what we had previously discussed. Some of those are on path for, for example, potential divestment, and that just hasn't happened yet. So if and when there are divestitures, the related ARR will peel off pretty quickly. Meantime, we've just been end of sailing, end of lifing, and so that's why the progress has been more gradual.
spk08: Helpful, thank you. And then from a follow-up to me, I just wanted to also define what line of sight for 85 million and 23 adjusted at EBITDA means. Does that mean for the full year you're expecting to be at $85 million as a minimum for the year, or is that an exit velocity as we get through calendar 23? Thank you.
spk07: Yeah, you're welcome. That is, you know, is a dollar focus for the full year. So that would be a full year of The timing of that, obviously Q1s tend to be down a bit and move up through the year, but for the full year EBITDA guide, it's a clear line of sight to $85 million of EBITDA for the full year.
spk06: Great. Thanks for taking my questions. Sure thing. Thank you.
spk04: The next question comes from Koji Aikido with Bank of America. Please go ahead.
spk12: Hey, David and Patrick, thanks for taking my questions. You know, definitely appreciate all the color on the prepared remarks on how to think about all the moving pieces here. I had a question on the revenue cadence for 2023. And, you know, you mentioned earlier some planned customer attrition, you know, maybe some divestitures of revenue generating products. But I guess the question here is, are you anticipating any quarters where revenue would sequentially decline next year? considering you guys are a subscription business?
spk07: Yeah, that's a great question. And, you know, as you look at the historical performance of the company, you know, Q1s have been down quarter over quarter. And the investor deck that we put out on the website today, we undertook to take, you know, some of the 10K Q information and display it more clearly to show the the recurring revenue trend versus the non-recurring trends to help point that out. And when you look at that minor unpacking presentation, you can see that the recurring revenue growth has been consistent. And then you'll start to see a little more clearly, at least for me, when I visually look at it, the impact of the non-recurring businesses on the quarterly cycle. So last quarter, we got a lot of questions about holy smokes, guys. The second half looks really good relative to the first half. And Patrick and I pointed out we had a lot of deliveries from perpetual winds coming through in the second half. And I think you saw that. Well, I know you saw that in Q3. And when you unpack the guide for Q4, you'll see that again. And so when you look at that historical trends, you would probably conclude that Q1 would be a potential down quarter, but we are really focused on the ARR growth subject to those concerns that Patrick laid out in terms of FX and minor de-emphasis. Those things notwithstanding, we would be expecting a steady increase in our recurring revenue.
spk12: Got it, got it. And then just one follow-up for me. I think you guys might be talking about this next month at your investor day, but I just wanted to throw it out there today. How does X Matters play into the growth algorithm for 2023? Thanks, guys.
spk07: Yeah, thanks for bringing that up. X Matters is a really powerful capability for DevOps leaders and service managers to put low-code and no-code integration and optimize their workflows and so you know one of the things we're doing internally we talk about is you know optimizing the sub brands and so we're going to be digging in we are digging in I'll be digging in even more as we align the sales team for 23 on focusing on those sub brands and making sure that we're optimizing the go-to-market motions not just for CEM but for those kinds of sub brands that have really powerful capabilities to make sure we're doing all the things that we should be doing in terms of demand gen, in terms of getting the right sales and pre-sales resources on each opportunity in the funnel. And that plays a key role. The other area where X Matters is playing a really key role, as I alluded to in a prior Q&A, you know, when we talk to our customers, this idea of enterprise workflow and having one central way, one platform approach, an extensible approach to managing risk across the enterprise. That CIO and or CISO along with the CSO control in most organizations 80% of the risk events and bringing that together in a common look of dealing workflow is one of the really great strategic areas we're going to be leaning into. And so that part of X Matters playing into our long-term strategy is also something we're excited to unpack and take advantage of as we execute on the overall platform approach in the coming years.
spk12: Thanks so much for taking my questions. Really appreciate it. Thank you so much.
spk07: Sure thing.
spk04: The next question comes from Terry Dillman with Truist Securities. Please go ahead.
spk03: Yeah, hi, David and Patrick. Thanks for taking my questions as well. Some of them have been answered, but I still have a few. One thing I'm curious about, David, in terms of just optimizing the sales capacity that is on a go-forward basis and just optimizing go-to-market and these pathway to platform opportunities, do you see as we exit 2023, and I know it's already a lot to give 23 guidance. I'm not trying to... tell you to give us 24 guidance, but do you think actually growth and organic growth starts kind of picking up to some higher level into 23? The second part of this first question for you, David, is just there is kind of a tale of two cities, and ARR growth is definitely stronger. You know, anything you can share about, like, targeted ARR growth, and then I had a follow-up for Patrick.
spk07: Okay, so that's a very insightful question, and... We are, as a team, aligning on the key value driver of ARR growth and how that growth converts into revenue growth over time. That is the key focus area. But even inside that, we have lots of pieces that we're unpacking and optimizing over time. It will be a multi-year period, but particularly in 2023. So the way you should be reading what Patrick and I have said very specifically is this baseline growth is building in a tempered growth on the non-recurring pieces, which by definition means the recurring pieces will be growing faster, and we'll also be managing these optimizations over time. That's one of the things I'm most optimistic about. The thing I'm most optimistic about, our enterprise customers taking advantage of CEM to keep the people safe and the organizations running. Those stories are powerful. We are in the leadership position by far in that category area. The second thing I'm most excited about is the commitment of my colleagues here at Everbridge, the leadership team, and every employee, their commitment to executing on behalf of our customers and our purpose in the market. And so we're going to continue to take advantage of the best ideas of every seller, the best ideas of every developer to optimize for our customers. And so I cannot predict with 100% certainty what that will look like. I can tell you I'm really optimistic about the power of this team as aligned on the core CEM opportunity that will manifest itself in ARR growth over time.
spk03: That's great. Maybe just one more real quick one for Patrick. In terms of the invoicing, I think you talked about a little bit of timing dynamics in the quarter. Anything more you can share about that? And just, you know, in a tougher macro, the way customers are demanding the invoicing or the payment terms, could that change? And just how to think about cash flow in relationship to EBITDA going forward. Thank you.
spk10: Yeah, thanks, Terry. Yeah, in Q3, the change in deferred had a little bit more to do with the mix of the bookings than the timing of the invoicing, but timing of invoicing always plays a role and shows up in the calculated billings metric, and it's part of why there's so much noise in that. As we move through this sort of macro, we do receive requests to alter invoicing terms. We work through that with customers. That's not our first option, but we are seeing an increase in those types of requests, not to do with our services or anything of that nature, just more due to the macro. So yeah, that's part of what we have our eye on as we think about 2023.
spk02: Okay, see you in December. Thanks.
spk10: Thanks.
spk04: The next question comes from Alex Klar with Raymond James. Please go ahead.
spk02: Great, thanks. David, just one for me. But on some of the further optimization that you've been talking about today, can you just elaborate on if you're making any changes to the core CEM kind of go-to-market that you've been putting into place over the past year in terms of the persona-based selling, the in the more simplified bundles, and how long should we think about this round of optimization taking? Thanks.
spk07: Thanks for the question. In terms of optimization, that is the word I am using and will continue to use. I hate that word with respect to what we felt we had to do in terms of you know, losing some colleagues that we really value here at Everbridge. And so I can fall into the trap when I'm talking to investors of failing to recognize the importance of these individuals to what Everbridge has done today. And so anyway, it's with great empathy and care that we're trying to manage these painful transitions of our human capital. Putting that aside and becoming more clinical for a moment, approximately half of the roughly 2,000 positions we're planning to eliminate are here in North America and those notifications have all, 200, I'm sorry, 100 is half of the 200 are here in North America and those, everyone has been affected in North America has been notified. We have a very large global footprint and operate in lots of geographies, and so our intention to eliminate potentially another 100 positions, a total over 200, is being executed in accordance with local laws in each geography where those employees are located, and that process varies from one week to several months. So as we stated in the script, we expect if the plans fully implement internationally as they have in North America, to have over 200 employees who were with us in the first of November to no longer be here on the first of January. So it'll be a feathered end, and we have the expectation that That will be complete by the end of the year.
spk05: This concludes the question and answer session.
spk04: I would like to turn the conference back over to Mr. Wagner for any closing remarks.
spk07: Well, I thank you all for joining us today. Today is Election Day, and so we moved our call to the morning with the hope that that would enable people to participate. And so get out and vote. We have opened the registration page for our IR Day in December, and we look forward to seeing many of you there and unpacking our future plans in more detail at that time. Operator?
spk04: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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