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spk01: Good morning and welcome to the first quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star and two. Please note this event is being recorded. I would now like to turn the conference over to Nandan Amaldi. Please go ahead.
spk07: Thank you, Sandra. Thank you, and good morning, everyone. Welcome to Everbridge's earnings call for the first quarter of 2023. With me on today's call are Everbridge's President and CEO, David Wagner, and Executive Vice President and CFO, Patrick Brickley. 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 teleconference will be available on our IR page 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 involves 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 first quarter of 2023, 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?
spk08: Thank you, Nandan. Good morning, everyone, and welcome to Everbridge's earnings call for the first quarter of 2023. I am pleased with the strong financial results that we've released earlier this morning. For the first quarter, we achieved revenue of $108.3 million, an increase of 7.9% year over year, adjusted EBITDA of $15.9 million, an increase of $13.3 million from a year ago, and annual recurring revenue of $388 million, which is up $4 million quarter over quarter, and 10% year over year. The impact of our 2022 restructuring is evident in our financial results, and we are continuing to improve our execution across the organization. In the quarter, we had the opportunity to celebrate our company's 20th anniversary with some of our customers and partners in New York City as we officially unveiled Everbridge's Evolved brand. It was a special day that allowed us to highlight our longstanding commitment to keeping people safe and organizations running. In the two decades since the company's inception, we've captured a market-leading share of the critical event management market and scaled our platform to reach billions of people globally. We are honored to count 6,500 of the world's leading organizations as our customers, including 25 countries who use us for their countrywide alerting systems. One of the keys to our success is that we offer a comprehensive resilience platform that is incredibly powerful. It has the ability to notify millions of people nearly instantaneously when a critical event occurs. As many of you listening today are likely aware, several weeks ago there was an incident that occurred leading to an emergency test alert being sent out to the phones of many Florida State residents very early in the morning. The alert was the result of a human procedural error. It was not a failure of our software platform. Our software system delivered the message as designed and instructed. That's the good news. The bad news is a live message was inadvertently sent to millions of residents' cell phones instead of a notification sent only to Florida broadcasters. We regret the inconvenience this test caused the residents of Florida, and we are committed to the state of Florida and to Florida Department of Emergency Management as a partner, as we are with all of our customers, to continue to improve and ensure best practices are applied. We further demonstrated this commitment as we agreed with FDEM to rescind the early termination of our agreement and extend our contract through the end of the calendar year to ensure that the people of Florida are protected through the upcoming hurricane season. Our core mission is to keep people safe. We remain focused on the mission as job one for the residents of Florida and all of our customers globally. Switching back to our results, evidenced by our strong year-over-year EBITDA growth and double-digit ARR growth, we are making solid progress on our long-term growth and profitability goals as we execute toward the Rule of 40. Accordingly, we remain confident in our financial outlook for the year, including delivering on our baseline 6% to 7% revenue growth and $85 million in adjusted EBITDA in 2023. I will now turn the call over to our CFO, Patrick Brickley, to provide details on our financial results. Patrick?
spk09: Thanks, Dave. I'm pleased to report solid execution, which produced revenue and adjusted EBITDA that were above our guidance ranges. As Dave mentioned, the strategic alignment program that we implemented during 2022 is continuing to show results as we pursue profitable organic growth. I will now recap our results for the first quarter of 2023, followed by our outlook for the second quarter and full fiscal year. For full details of our P&L and reconciliation of GAAP to non-GAAP measures, please refer to our press release. For the first quarter, our ARR increased to $388 million, up 10% year over year. Revenue was $108.3 million, up 8% from a year ago, and all organic. Revenue from subscription services was $99 million, also up 8% from a year ago, but down sequentially from $101 million in Q4 2022 due to fewer calendar days in Q1 as well as timing of invoicing for subscription services on some of our non-SAS contracts. Our gross revenue retention rate remains healthy, with Q1 performance that was moderately below recent peaks, but still notably higher than the gross revenue retention that we experienced in the year-ago period. We signed 43 deals over $100,000, down from 56 a year ago. Our average deal size in Q1 was lower than what we've seen in recent quarters However, our volume of new and growth sales transactions increased year over year. Our total customer count of 6,500 is down sequentially by 13 and up 4% year over year. The net decrease in customer count is due to the impact of the latest planned divestitures and end-of-life programs for non-core products, which we have been describing since early 2022. During the first quarter, we otherwise saw relatively normal levels of logo ads and churn. Our CEM customer count increased to 335, up 28 sequentially, and up 64% year-over-year. GAAP gross profit was $76 million, a margin of 70.5%, compared to $69 million, or 68% in the year-ago period. On an adjusted basis, gross margin was 74.5 percent compared to 72 percent a year ago, demonstrating growing efficiencies from platform integration and optimization. GAAP net loss was $14.6 million, or negative 36 cents per share, compared to a net loss of $19.1 million, or negative 48 cents per share, in the year-ago period. On an adjusted basis, we generated net income of $10.8 million or diluted earnings per share of 25 cents compared to the year-ago period in which we generated a net loss of $600,000 or negative 2 cents per share. Adjusted EBITDA of $15.9 million represented represented a 15% margin, a significant improvement from the year-ago period in which adjusted EBITDA was $2.6 million, or 3% margin. Our Q1 2023 result reflects the substantial ongoing improvements to operational efficiency that we are making across our business, in particular within sales and marketing, gross margin, and R&D. Cash flow from operations was $20.6 million, up from $7.7 million in the year-ago period. Adjusted free cash flow was $20 million, up from $1.5 million in the year-ago period. The Q1 2023 result is adjusted for cash payments of $4.1 million related to our 2022 Strategic Realignment Program. We ended Q1 with $224 million in cash, cash equivalents, and restricted cash up from $202 million, which we reported at the end of fiscal year 2022. Now, I'll turn to our guidance for the second quarter and full year. For the second quarter, we anticipate revenue of between $110 and $110.5 million, representing growth of approximately 7%. We anticipate a gap net loss of between $16.8 and $16.3 million, and non-GAAP net income of between $11.5 and $12 million, or diluted earnings per share of 26 to 27 cents. We expect adjusted EBITDA to be between $16.5 and $17.2 million as we continue to drive operating efficiencies, in particular in the areas of sales and marketing, R&D, and G&A. Our full-year guidance remains unchanged as we continue to optimize several areas of the business. We anticipate revenue to be in the range of $456 to $462 million, representing growth of 6% to 7% over 2022. We expect a gap net loss of between $47.6 and $45.6 million, or negative $1.17 to $1.12 per share. On a non-gap basis, we expect net income of between $65.8 and $67.8 million, or between $1.48 and $1.52 per share. We anticipate adjusted EBITDA will be in the range of $84 to $86 million, representing an adjusted EBITDA margin of 18.5% at the midpoint. At a high level, this outlook reflects roughly flat quarterly expense, and therefore, continuous quarterly improvement in adjusted EBITDA and adjusted EBITDA margin. In summary, we delivered a solid quarter to start off the year. As we progress through 2023, we remain focused on execution, driving profitable organic growth, and maximizing return on our investments. Looking further, we believe we can deliver the targets laid out at our December 2022 investor day, making steady progress towards the Rule of 40 by 2027. That concludes my prepared remarks. I'll now turn the call back over to Dave.
spk08: Dave? Thanks, Patrick. As our 10% year-over-year increase in ARR demonstrates, we had a solid quarter in our recurring business. Our ARR growth came from healthy gross retention and steady recurring bookings performance, especially for deals under $100K. In the quarter, we closed 43 deals over 100K and four deals over 500K, which was down from 56 and eight, respectively, from the first quarter of 2022. We added 28 new CEM customers, an increase of 16 from 12 in Q1 2022, bringing our total CEM customer count to 335. All top five CEM deals during the period were new customer wins. Our top five new business accounts in the quarter were all under 500K. They included three perpetual smart security deals, two of which were in the government vertical in the United States, and the third with a port authority in the Middle East. One was a state government mass notification deal, and the fifth was an enterprise CEM deal. Our total number of new logo deals was consistent with Q1 2022, but the average deal size was down. From the strong foundation we built during our rebranding, including our refreshed web presence, we are executing focused digital programs and sales plays, both to drive full CEM purchases as well as new customer sales of our point solutions, which provide easier on-ramps and shortened sales cycles. In turn, we will lower the cost of acquisition and allow for future cross-sell and up-sell as customers experience the value we bring to increasing their situational awareness, reducing the time to notification during a crisis, and improving the quality of their communications during an incident. To that end, our top five growth deals in the quarter included a million-dollar plus add-on to a U.S. government contract and a million-dollar plus add-on to a large U.S. medical insurance company. The remaining top three growth deals were enterprise CEM add-ons in the pharmaceutical, technology, and financial services verticals. Our number of add-on growth deals was up more than 10% from Q1 2022, but the average deal size was down. We also recently announced the successful deployment of our public warning technology in six different European countries over the past six months. The wins in Germany, United Kingdom, Spain, Denmark, Norway, and Estonia bring us to a total of 25 countries around the world. Within the past several months, each country has tested and implemented the Everbridge public safety technology to inform and protect a combined population of more than 200 million residents. Now moving to product. We are increasing our investment in innovation and integration. and we are leveraging AI and machine learning technology across our portfolio. On risk intelligence, we are delivering improved tooling using innovative AI and ML solutions so that our risk analysts can deliver context and relevance to our customers more efficiently. We continue to enhance our DigitalOps Insights product that we launched last quarter, which also uses AI and ML to enable incident commanders to understand the root cause of outages and resolve incidents faster. And we're making steady progress advancing integrations into our core CEM platform, improving both user experience and speed of delivery for our enterprise customers. Our strategy is to provide the most comprehensive end-to-end solution for critical event management. Over the course of the year, our customers will see a series of improvements as we simplify and streamline our user interface and workflow. Our new Chief Product Officer, Brian Barney, brings a rich background in creating enterprise-grade platforms from acquired assets, and he has been focused on modernizing our platform with an emphasis on usability, reliability, and flexibility. His experience is already being felt as we align around a shared product vision and platform architecture. In summary, the first quarter marked a solid start to the year as we delivered another sequential increase in ARR and particularly strong growth in our adjusted EBITDA and cash flow. These results have us on track to achieve our long-term operational and financial goals. As we move through the second quarter, we are building a foundation focused on delivering on our way to a billion dollars in ARR, and we have a team, strategy, and resources in place to get there. I look forward to updating you further on our progress in the coming quarters. We're now ready to open the call for questions. Sandra?
spk01: We will now begin the question and answer session. To ask a question, you may press Start and 1 on your telephone keypad. If you are using a speakerphone, please pick up your headset before pressing the keys. To withdraw your question, please press Start and 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Alex Esclar from Raymond James. Please go ahead.
spk13: Great. Thank you. Dave, I know we don't have a ton of historical data on ARR, but in terms of the 4 million kind of sequential growth versus Q1, should we think about Q1 being kind of the seasonally slowest quarter in terms of what's implied within your guidance? And then also just a clarification, is Florida still included in ARR? Thank you.
spk08: Great question. So yeah, Q1, we would think about as a sequentially lowest quarter. We landed exactly where we planned in terms of the healthy gross retention and steady booking. So we landed in a good spot. Our AR metric is still relatively new and is Billings-based, so there's some you know, quarterly variance as well based on timing of renewals, but we landed right where we expected. In terms of the $4 million for the state of Florida, it is still in. It will be in based on the current agreement through the end of the calendar year, and we're not counting on that for next year, but we are working really hard, and we will continue to work really hard with the state of Florida on the recompete of that contract, whether that happens in December or whether it happens in June of 2024. Okay, great color.
spk13: And then Patrick or Dave, I don't know who wants to take this one, but can you just talk about what's driving the sub-100,000 K ASP booking strength? Are these CEM deals that are coming in below the threshold or another solution? And then how are you thinking about deal sizes for the rest of the year?
spk08: Yeah, so the deal size is, unfortunately, pretty consistently down across the board. So the new business volume in terms of volume of deals is really consistent with the smaller deal size. The existing customer base was up, but also with smaller deal sizes. There are a couple things going on there. We think that... The current macro environment has customers being a little more careful about ads and the technology of vertical. In particular, we know about the reductions in headcounts at many organizations. So we're seeing buying pretty consistently across in smaller chunks. And then the second piece is, you kind of heard the first sentence after the end of... my introductory remarks. The 2022 restructuring program does have impacts that we're working through. We reduced over 200 positions during the fourth quarter, including quota-bearing reps, so we're adjusting to the reduced resources. And we made some really intentional changes as we enter 2023, to focus on ARR as a priority. And so the perpetual deals, just the nature of how they're modeled, as you know, tend to be the larger transactions. We have the sellers focused on subscription deals and focused on making sure they're meeting the customer where they are. And with ARR, you know, retaining a focus on full CEM sales and being willing to meet the customers of a point solution is the right way to bring them in for upsell and cross-sell. So we've got some transitional things going on here in 2022 as well as, as well as that, you know, slight macro headwinds.
spk13: All right. Thank you for that, Keller.
spk01: The next question comes from Mike Walkley from CounterCard Genity. Please go ahead.
spk10: Great. Thanks, Dave. It's a solid start to your hitting the cash and margin targets. I just wanted to follow up on the Florida incident. Any changes in the competitive environment and how do you feel about keeping your position with Florida plus other states as they come up for renewal given some of your competitors feel like there's an opportunity to try to go after some market share with this event?
spk08: Yeah. So I am certain that our competitors would be looking to take advantage of this. And the good news, again, is the platform performed as expected and we have the best scalability delivery throughput of anybody in the market. And so we think that our success in Florida and our success in national alerting, that remains really strong. The feedback we're getting for many of the customers within Florida, you know, is really strong, really supportive of the Everbridge solution. And so we're going to continue to service those, you know, the entire state of Florida account with great diligence and rigor through the course of this year. And, you know, our existing customers really understand the process of for issuing test messages and live messages. And so that, existing customers, it's pretty clear. And we're working aggressively both in informing existing customers and potential new customers of the power of our platform and its capabilities. So we do expect lots of noise in the market off of this event, and our job is going to be to mitigate the negatives and really emphasize the positives of our scalability and the positives of building out even deeper relationships with our existing customers and new customers.
spk10: Just a quick follow-up question. Just on the realigned Salesforce, how do you feel about where they are now to execute on the intermediate plans and Any products that you wanted to call out that added to the strong sequential CEM growth that your customers are achieving? Thank you.
spk08: On the sales force, thanks for asking that. The good thing is our sales tenure is improved markedly. So even though the end number of sales reps is down 16% or 17% year over year as we enter the year, The tenure is up, and we had a really nice improvement, Q1 over Q1, in terms of productivity per rep. That part is executing as intended, as you saw in the numbers. The CEM, albeit smaller, remains remains a real strength. We're continuing to see a real strength with our E911 product, particularly here in the U.S. That's definitely a source of strength in that product. Thank you.
spk01: The next question comes from Ed Stotler from William Blair. Please go ahead.
spk12: Yeah, thank you for taking the questions. Maybe one to just follow up on the CEM customer base. You obviously noted smaller deal size, but pretty healthy growth in CEM customers. Just touching the health of that pipeline looking forward, maybe how those deals are moving forward in this environment. And then you mentioned, I think, top five were new customer wins. Are you seeing an increasing portion of new CEM deals coming from new customers, or is that still largely upsell at this point?
spk08: Yeah, CEM is still largely upsell. We're up quarter over quarter, down sequentially, as we would have expected in new CEM deals. I'd say that the pipeline remains very healthy. It remains healthiest in the sub-500K zone, so the big deal pipeline. Consistent, big deal Q3, Q4, I'm sorry, Q4, Q1 seems consistent where the deal sizes are not as large as they were. Our pipeline for perpetual does include, continues to include larger deals in the perpetual pipeline, but the CEM is broad and balanced in smaller and mid-sized transactions.
spk12: Yeah, that's helpful. And then maybe one on the partner channel. We'd love to just maybe get an update on your partner channel optimization initiatives, how it's impacting performance, and then how you think about incremental opportunities in the ecosystem looking forward.
spk08: Yeah, we've tightened – so partners are a huge part of our strategy going forward. We've – We're being more focused since November, focusing on key partnerships that we believe can really move the needle. An example of one of those key partnerships is with Deloitte & Touche, where we're collaboratively rolling out resilience workshops where they're offering complementary workshops, reviews, enterprise, resilience, in large global enterprises with us. And that's an example of a kind of partnership that we think can really move the needle. We're continuing to build out distribution partnerships at the lower levels, again, but in a more focused way. So the partner channel is making good progress. It's more focused, and I think if we looked at the numbers, the actual percentage of deals through the channel was down a bit year over year as a result of that focus.
spk12: Very helpful. Thank you.
spk01: The next question comes from Brian Colley from Stephens. Please go ahead.
spk05: Hi. Good morning, guys. Thanks for taking the questions. In regards to the pathways to the platform strategy, could you just provide an update on the progress you've made in kind of migrating the NC4 and risk intelligence customers to the core CEM platform and how that's going relative to your expectations?
spk08: Thanks for that question. It's going well, but slower than I had indicated last October. So it was a single-digit movement in number of customers this year, and what I talked about last quarter is we've lowered our expectation as we've engaged with, in terms of timing, as we've engaged with the customers who are on-prem and talked to them about, they're just, remain customers with a strong bias towards on-prem as opposed to cloud. We don't want to prematurely cause a disruption to their preference. The accounts that moved are moving well. We're continuing to execute that program, but we're not expecting to be done at year end this year. We expect it will extend into next year as well.
spk05: Got it. Thanks for that. And then how should we think about the pace of ARR growth throughout the remainder of the year? I'm just curious if we should expect relatively stable trends or deceleration and then Patrick, one for you. Apologies if I missed it, but I'm curious just what net retention rates look like for the quarter as well.
spk08: In terms of pace of growth, the double-digit growth we're seeing in Q4 and Q1 we think is healthy, and we're focused on maintaining ARR growth in that neighborhood and consistent with our 6% to 7%. you know, overall guide, you know, an emphasis on the recurring piece and not a de-emphasis of perpetual, but when you focus on one thing, you're not as much focused on the other. And so we're going to continue through the year to see a focus, you know, on the ARR growth and, you know, continuing to execute on our pipeline of perpetual deals.
spk09: And this is Patrick. In terms of net revenue retention, so we're evolving our focus to annual recurring revenue. That's the number one metric by which we are running the business. And we're retiring the net revenue retention metric that we had been disclosing in the past because that was revenue-based, that was looking backwards. It wasn't ARR-based. Some color on Q1. You heard Dave and I mention in prepared remarks that we had healthy gross revenue retention, not quite at the peaks that we were experiencing in particular in Q4 of last year, but it was healthy gross revenue retention in Q1. It's a large... It's a large dollar-based quarter of renewals in Q1, and so we had a healthy result. And then on top of that, in terms of growth, I think you heard Dave say that the transaction volume was up, but we were notably down in deal size. So we had a pretty healthy net revenue retention quarter building off the gross revenue retention.
spk05: Great. All right. Well, thank you for the time, gentlemen.
spk09: Thank you.
spk01: The next question comes from Scott Berg from Needham. Please go ahead.
spk06: Hi, Dave and Patrick. Thanks for taking my questions. Congrats on the good quarter. I just got a couple of them. Patrick wanted to start with the off-balance sheet backlog. You talked about completing a number of large countrywide deals here in the quarter. How does that, I guess, shape up or size maybe relative to the last three or four quarters?
spk09: Yeah, I think when you think about just pulling together a couple of dots, as Dave mentioned and as I mentioned, focus on ARR, focus on the recurring business. We think that that and doing that much more profitably drives long-term shareholder value. The perpetual deals and that backlog – are still strategically important, but we're shifting our focus towards the recurring. So that backlog is not as large as it has been, and that also shows up in our full-year revenue guide where we're confident in our full-year range and our ability to drive increasingly profitable organic growth. We're confident in the direction of our recurring business. And in terms of non-recurring, in that backlog, You know, perpetual bookings have not, you know, continued to set new records, and that creates a second-half Fed win to non-recurring revenue.
spk06: Got it. Helpful. And then, Dave, you gave a lot of color kind of around pipeline opportunities for the remainder of the year. That was super helpful. But I wanted to drill in maybe to the composition of that a little bit. Last year, as I just kind of mentioned, was a big government year, in particular with some of these large European countrywide deals, amongst others. It still seems like you have a pretty healthy government pipeline, though, given some of the bookings commentary. But just overall, how do we think about the mix of your sales pipelines today between maybe government and non-government versus a year ago at this time? Thank you.
spk08: I think as Patrick said, I'm not perpetual. We're not looking to set records in 2023 as compared to 2022. And so while it's healthy, it doesn't have six European countries with 200 million residents in the pipeline. On the other side of the pipeline, so that would be answering your question, government down a bit in terms of bookings and down in perpetual bookings. In terms of the results, you heard some really good, the largest deal in the quarter was an upsell to a U.S. government contract. We had a couple of nice smart security sales into the U.S. government. So we had a top five mass notification win in a state government here in the U.S. So the government vertical in the U.S. is strong and it's shaping up to be a slightly stronger year in North America relative to Europe. Last year, Europe had really, really strong growth for us. I'm seeing a slight shift towards North America being stronger than Europe more broadly as a geographic answer to your question.
spk06: Excellent. Thanks for taking my questions.
spk01: The next question comes from Michael Turin from Wells Fargo. Please go ahead.
spk03: Hi, this is Michael Burgon from Michael Turin. Congrats on the quarter and start to the year. I want to dig into the customer quarter-to-quarter decline. I know that was due to divesting and end-of-lifing, and you mentioned it was outside of that, relatively in line with past additions. Can I think about that in the 75-to-100 range, and subsequently, How much longer can we expect potential sequential declines or just end-of-lifing of customers from these transitions? Thank you.
spk09: Yeah, this is Patrick. Thanks for the question. So there were on the order of 90 or so customer logos in that. a bucket of divestitures, end of life, et cetera, in the quarter. So otherwise, we would have been sort of mid-70s in that range that you described, and that's relatively normal activity for us. And we still have, when you look at the non-core products that we are aiming to divest and or in the process of end of lifing, there are still a few hundred customers in that bucket. Now, the average ARR of those customers is very low. Most of them, the majority of them, are four-digit ARR. But in terms of customer count, there are still a few hundred. So that will continue to be a headwind. The timing of it will be – be a bit lumpy and we'll just continue to do what we've been doing, which is call it out when it has a meaningful impact on the change.
spk03: Thank you. And one quick follow-up. Last quarter you mentioned that about $4 million had been taken out of Q1 from the same cohort and $4 to $8 million over the course of this year. Are those numbers still the same as we've seen today?
spk09: Yeah, that's right, so we made some incremental progress in Q1, so of that range of four to eight, we're still targeting upwards of eight, and we've done four, roughly four as of March 31st. Thank you.
spk01: The next question comes from Will Powell from Bayard, please go ahead.
spk11: Okay, great. Thank you. I guess a couple of questions. Maybe just to touch base on macro, it sounds like you're seeing lower deal sizes and perhaps that's partly tied to macro, but I wonder if you could just touch on what you're seeing in terms of sales cycles, particularly within CEM, if you're seeing much impact there and any differences maybe across key geographies.
spk08: Yeah. Yeah, so the lower deal sizes, from one company, it's hard to fully unpack the macro versus the micro. We've shifted the comp plans this year, again, to focus on subscription deals and to focus on... incenting the sales force to meet the customer where they are, and if a point product on-ramp makes more sense than being ready day one for full CEM to make sure that the sales people aren't elongating sales cycles for larger deal sizes. So the sales cycle, I'm not seeing any change in the overall sales cycle. The velocity, as I said, especially on existing deals, was up 10%. year over year for Q1. And regionally, I already gave the color that a little bit stronger North America relative to EMEA this year, largely having to do with the strength of the EMEA perpetual performance in public warning in 22 that doesn't have as much opportunity here in 23.
spk11: Okay, and then maybe just to tie that together with, you know, the full year guidance, maintain guidance. You had, you know, some upside in Q1. I assume that's a function of perhaps some conservatism, maybe also layering in the smaller deal sizes you're seeing, or just maybe any thoughts of what you're expecting in the second half of the year versus maybe what you were expecting previously that helped kind of frame the full year outlook.
spk08: Yeah, I think on the positive side, on the year, I'm really pleased with the EBITDA and cash flow performance. So thing one, and just to repeat, I think people recognize the outperformance in earnings and cash. I'm really pleased with the execution that we had between November and through the end of March in making that happen. I think that positions us Well, with this clear line of sight to the 85 we've been talking about since last October. So that all feels really good. Steady performance on the ARR, double-digit growth, feels good. The bookings for March perpetual deals, both the Q4 and Q1, was lower. So that's what we're balancing and I think just further de-risking the year and lining it up to our focus on ARR EBITDA and cash flow generation.
spk11: That makes sense. Thank you.
spk01: The next question comes from Terry Tillman from Trius Securities. Please go ahead.
spk02: Yeah, thanks, David, Patrick, and Nandan. So my first question, David, just kind of relates a little bit to just the buyer behavior in terms of buying in smaller chunks. I don't know if that surprised you or not, but what I'm curious about is, you know, everything's kind of evolutionary or a journey. How well have you recalibrated, so to speak, or tuned the selling motion, the product and packaging, and just kind of farming motions to address what may be kind of the new norm, which is buying in smaller chunks. I'm just trying to understand if that's happened, how well you've been able to react, and then now just about volume and velocity going forward and dealing with the new environment. And then I had a cash flow question for Patrick.
spk08: Okay, good. That's a great question. I would say it's happening. And so if we just go back and look at the focus on the rebrand and the messaging and our new Chief Marketing Officer came in, executed, completed that project, building a strong foundation. The marketing, digital marketing muscles were being built at the same time. The rebranding was being done, but there were kind of two things going on. And, of course, our new Chief Revenue Officer just joined on February the 13th. So we're in the process of – of building and strengthening those muscles, which are, in my opinion, the right muscles for SAS to make sure that we're bringing customers in to the Everbridge family to get the experience and generate the cross-sell upsell. So we're seeing increasing numbers of opportunities. We're increasingly improving our BDR flow, the feedback loop and sales department, the tech stack. But that is a process that I would still call beginning and executing well. I want to go back and re-complement the sales force. The key OKR we set back in last July when I very first joined was to get the tenure of the sales team up, steady the sales team, and that has certainly happened. We had the North American... sales kickoff got pushed off to early May, and so I was with all of our North American sellers, and they're feeling good about their opportunity. They're feeling good about where the customers are in the journey, feeling good about their ability to execute their plans for the year.
spk02: That's good to hear. Thanks, David. And I guess, Patrick, it looks like it was the highest reported OCF or operating cash flow in history. It looked like AR was a notable benefit to the business. And so what I'm curious about is for the full year, how do we think about like cash flow? Does that change your cash flow forecast and anything you can share on kind of like EBITDA conversion to cash flow? Thank you.
spk09: Yeah, thanks for the question, Terry. It's an important one as we continue to focus on driving cash flow, and we did anticipate a seasonally high Q1 given all the renewals that we had in Q4 and in Q1 and therefore the collection of those invoices. Q1 is typically a really good operating and free cash flow quarter for us. I know that wasn't exactly the case a year ago, but that was a bit of an anomaly. So back to normal this year in Q1 of 2023. And you should anticipate that seasonality continuing. So Q2 will be lower. By the end of Q1, we had collected a lot of those Q4 and Q1 renewals. And so Q2 cash flow you'll see being much lower. And typically Q3 a little bit stronger than Q2, and Q4 back up to – to much higher levels. So we try to model in that sort of trough, and we're still thinking of full year free cash flow in the order of around $60 million. That's great. Thank you. You bet.
spk01: The next question comes from Mike Latimore from Northern Capital Markets. Please go ahead.
spk04: Great. Yeah. Thanks very much. In terms of your expectations for perpetual licenses here, has that changed since the start of the year? And then the second question just is on the mass notification business. How did that perform? Is it stable, declining, growing a little bit?
spk08: So great question. When we did the bridge in Investor Day, we were talking about flat perpetual year over year when you digest our guide. and look out for the second half, you'll see that we're not, well, you can't see exactly perhaps, but we're not, we're allowing for that not to be flat. We had 31 million, I think, in perpetual revenue in the second half of last year, and we're not, our guidance allows for that not to be flat. So I guess, by definition, when you roll through our guide, I think you'll see that we're navigating risk-adjusting the perpetual. It doesn't mean it's not going to happen, but that's where you'll see us risk-adjusting the outlook.
spk04: Got it. And then on mass notification, is that... Oh, great, great.
spk08: Real steady, real steady. I'm really pleased with the work we're doing in mass notification. It's one of the things, when you hear me talk about the point product, As companies think about and mature their ability to predict, respond, or recover from critical events, mass notification is the most common starting point, the most common on-ramp. So we saw a nice, steady performance in that part of the business. We're using that as the cross-sell engine, continues as a cross-sell engine for companies. for CEM. So I feel like the company's putting a little more focus in that core than we had, you know, maybe this time last year, and I think that's going to pay us dividends. Great.
spk10: Okay.
spk08: Thank you.
spk01: The last question comes from Koji Ikeda from Bank of America. Please go ahead.
spk14: Hi. Hello. This is George McGreehan for Koji. Thanks for taking my question. You know, I understand... that you've reiterated that full year guide, and you've highlighted some macro headwinds that are kind of showing up in terms of decreasing deal sizes but higher volumes. It sounds like this is kind of the new normal for a while, and I kind of was wondering, in terms of being able to achieve your ARR goals given the smaller deal sizes, could you provide a little bit more color on what it is that you're doing to incentivize higher volumes?
spk08: Yes. The key driver, first of all, which I mentioned, is the maturation and tenure of the sales force. And so getting that steadied, aligned, the year-over-year Q1, performance of the sales force gives me confidence we were intentional in the design of the comp plan to increase territory size to allow higher opportunity for sellers to make their targets not to de-emphasize elephant hunting and emphasizing again meeting the customer where they are in their journey towards CEM, whether that's CEM Ready Today or whether that's beginning with a point product and moving forward. So those intentional things intentionally focus on retention of our sellers, focus on staff selling motions that increase velocity are the key things that are in place. And with John coming in, he's really... My experience with him, he's really adept at matching go-to-market motions to the market need in the different subsegments of our market. And so I expect to see improving over the course of the next several quarters, improving sales plays to optimize that digital marketing, which is, to me, so key in – meeting the customers again where they are. So we've got a lot of intentionality in our process that we're beginning to execute to continue to drive velocity.
spk14: Okay, that's very helpful. And then if I could ask one more question, could you, thinking about kind of your 1,000 customers and an average of 250 ARR target in the long term, Would you be able to kind of speak to what's the ARR uplift for CEM platform customers versus customers who aren't using the CEM platform?
spk08: Yeah, we gave good color on that, I thought, at the investor day where our average ARR – and you have to go back and get me exactly within $2,000 – $455,000 is the average ARR of our customers over 250, and so it's a meaningful uplift in our overall deal size when we move a customer from mass notification to CEM. We're talking 200%, 300% increase in the ASP, and that's what we're driving to do. Another little piece of color we're measuring and focusing on you know, what percent of our ARR is from those customers over $250K. And it moved up marginally, like 20 basis points quarter over quarter. So we're continuing to, you know, as we see that the intentionality with which we were, you know, end of life things, some of the, you know, small acquired products with small customers that out upsell to improve our focus on CEM despite the The deal sizes being down, the number of customers and the percentage from over 250 is continuing to improve.
spk14: That's very helpful.
spk00: Thank you.
spk01: This concludes the question and answer session. I would now like to turn the conference back over to the management for any closing remarks.
spk08: Thank you all for joining us on the earnings call. I look forward to speaking with many of the analysts and many of our shareholders in the coming days and weeks, and look forward to updating you all again in early August after our Q2 results will be published. Thank you very much. Have a great day.
spk01: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Goodbye. Thank you. you you music music Thank you. Thank you. music music Thank you. Thank you. Good morning and welcome to the first quarter 2023 earnings conference call. All participants
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