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spk08: Hello, and welcome to the EverBridge, Inc. second quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist for 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 touchtone phone. To answer your question, please press star then two. Please note, today's event is being recorded. I would now like to hand over to your host today, Jeff Young. Mr. Young, please go ahead.
spk05: Thank you, Operator, and good morning, everyone. Welcome to Everbridge's earnings call for the second quarter of 2023. With me on today's call are Everbridge 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 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 involves certain risks and uncertainties. The company's actual results may differ materially from the projections described in such statements. Factors that might cause 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 second 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.
spk06: Thanks, Jack. Good morning, everyone, and welcome to Everbridge's earnings call for the second quarter of 2023. We delivered solid financial results for the quarter, which we released earlier this morning. For the second quarter, we achieved revenue of $110.6 million, an increase of 7% year-over-year, adjusted EBITDA of $18.3 million, an increase of $13.5 million from the year ago, and annual recurring revenue of $395 million, up $7 million quarter-over-quarter, a 9% year-over-year. These solid results reflect the work the team is doing to improve our overall operating efficiency as we execute toward our long-term objectives. I just celebrated my first anniversary at the U of Ever Bridge, and as I reflect on the year, I am proud of the progress we have made. We are much more aligned as an organization. We have focused our product development efforts on our core CEN platform, and we've achieved several key delivery milestones that are improving customer value and satisfaction. We have simplified and streamlined our go-to-market, reducing our non-GAAP sales expense by 9% year-over-year for the first half, which is a major contributor to the increase in trailing 12-month adjusted EBITDA from $12.8 million in the year-ago period to $68.9 million this last 12-month period. And over the past 12 months, we've reduced our net debt by approximately $61 million to $287 million. I am deeply grateful to what we've done together as One Everbridge to achieve these goals and to deliver the results noted above, which are important for our longer-term growth. These accomplishments notwithstanding, we are continuing to experience lower overall bookings than last year, primarily in deals of greater than $250K. On the positive side, based on continuing momentum in smaller transactions, the strength of our net retention, and careful cost containment, we remain on track to deliver $85 million of adjusted EBITDA in 2023 and are on track with our long-term model of reaching the rule of 40 by 2027. Today, Everbridge is delivering organizational resilience at a global level in a way that none of our competition can. And our customers need our solutions more than ever. Weather events and social unrest are increasing in both frequency and intensity globally, and boards of directors and investors alike are looking for their management teams to be increasingly proactive in managing the impact of these risks for their people and business operations. With our strong customer base of leading enterprises and governments, we are becoming synonymous with resilience, and our customers are sharing with us, every day, incredible stories of resolve, of continuity, of lives saved, and assets protected. Now, I will turn the call over to our CFO, Dr. Frifley, to provide details Thanks, Dave.
spk07: I'm pleased to report solid execution, which produced revenue at the high end and adjusted EBITDA above the high end of our guidance range. The strategic alignment program that we implemented during 2022 to streamline our operations is continuing to deliver profitable organic growth. I will now recap our results for the second quarter of 2023. followed by our outlook for the third 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 second quarter, our ARR increased to $395 million, up 9% year over year. Revenue was $110.6 million, up 7% from a year ago. Revenue from subscription services was $102 million, up 8%. Our gross revenue retention rate remains within our target range and meaningfully higher than the gross revenue retention that we experienced in the year-ago period. We signed 50 deals over $100,000 down from 63 a year ago. Like in Q1, our average deal size in Q2 was lower than what we've seen in recent quarters. Our CEM customer count increased to 373 up 38% sequentially, and up 67% year-over-year. We continue to see healthy year-over-year improvements in our profitability and cash flow, reflecting the substantial ongoing improvements that we are making to operational efficiency across all areas of our business, and in particular within sales and marketing and research and development. GAAP gross profit was $77.5 million, a margin of 70%, compared to the year-ago period's results of $69.7 million, or 68% margin. On an adjusted basis, gross margin was 74%, compared to 73% a year ago, demonstrating growing efficiencies from platform integration and optimization. GAAP net loss was $15.1 million, or negative 37 cents per share, compared to the year-ago period in which we generated a net loss of $36.2 million, or negative 91 cents per share. On an adjusted basis, we generated net income of $13.4 million, or 31 cents of diluted earnings per share, compared to the year-ago period in which we generated net income of $1.5 million, Our adjusted EBITDA of $18.3 million represents a 17% margin, a significant improvement from the year-ago period in which adjusted EBITDA was $4.8 million, or 5%. Cash flow from operations was an inflow of $5.4 million compared to the year-ago period in which we had an outflow of $9.9 million. we note that the second quarter tends to be our seasonally slowest for invoicing and cash collection. Adjusted free cash flow was an inflow of $1.6 million compared to the year-ago period in which we had an outflow of $7.6 million. We ended Q2 with $222 million in cash, cash equivalents, and restricted cash up from $202 million at the end of 2020. Before I turn to our guidance for the third quarter and full year, I'd like to recap the deliberate changes we've made to our go-to-market over the past year. The intended outcomes of these changes are reflected in our second half guidance. First, at our investor day in December 2022, we discussed our strategy to focus on recurring revenue. and we introduced ARR as a key metric, both internally and externally, to represent this increased focus. Second, we changed sales incentives in favor of selling subscription services rather than non-recurring revenue, such as perpetual licenses and associated professional services. We've talked on prior quarterly calls about the inherent uncertainty in the timing of perpetual license deal and our cautious view on the second half of this year. This follows two record years of non-recurring revenue driven by the EU public safety mandate. And in particular, the second half of 2022 included our highest two quarters ever for non-recurring revenue with over $30 million of non-recurring revenue in that period. Considering these factors, as well as the slower sales of large deals due to a softer macro environment that Dave described earlier, we are lowering our expectations for non-recurring revenue in the second half of 2023. In addition, in the third quarter, we have taken expense actions, which we expect will reduce our cost structure in the second half by an additional $1 to $1.5 million a quarter which allows us to reaffirm our adjusted EBITDA target of $85 million, despite the reduced revenue expectation. So, for the third quarter, we anticipate revenue of between $113.5 and $114 million, representing year-over-year growth of 2%. This rate of growth is largely a reflection of the year-over-year decline that we anticipate in one-time revenue. We anticipate a gap net loss of between $9.4 and $8.9 million, and non-GAAP net income of between $18.5 and $19 million, or diluted earnings per share of 42 to 43 cents. We expect adjusted EBITDA to be between $23 and $23.5 million, a margin of 20% at the midpoint, as we continue to drive efficiencies in our operating expenses. For the full year 2023, we anticipate revenue to be in the range of $450 to $452 million, representing growth of 4% to 5% over 2022. Again, this rate of growth is largely a reflection of the year-over-year decline that we anticipate in one-time revenue. We expect a gap net loss of between $43.7 and $41.7 million. or negative $1.07 to $1.02 per share. On a non-GAAP basis, we expect net income of between $65.8 and $67.8 million, or between $1.48 and $1.52 per diluted share. We remain confident in delivering adjusted EBITDA in the range of $84 to $86 million, representing an adjusted EBITDA margin of 19% at the midpoint of $85 million. This outlook reflects the quarterly expense savings noted above and keeps us on our trend of continuous year-over-year improvement in quarterly adjusted EBITDA and adjusted EBITDA margins. In summary, we delivered a solid first half. As we progress through 2023, we remain focused on execution, driving profitable organic growth of ARR, and maximizing return on our investments. Looking further, we are confident we can deliver the targets laid out at our December 2022 Investor Day, making disciplined growth-first investments and making steady progress towards the rule of 40 by 2027. I'll now turn the call back over to Dave.
spk06: Thanks, Patrick. As our 9% year-over-year increase in ARR demonstrates, We continue to grow nicely in a difficult macro environment. In Q2, we closed 50 deals over 100K, up 6 from last quarter, and down 13 from Q2 of last year. We closed one deal over 500K, down from 3 last quarter, and 12 in Q2 of 2022. Our overall transaction size remains steady from Q1 to Q2 and is down nearly 40% year over year. However, our accelerated digital marketing programs have enabled us to drive wider deal velocity in the top 100 states. Representing success across multiple industries, we added 38 new CEM customers, an increase of 10 from last quarter, and an increase of 18, or 90%, due to 2022, bringing our total CEM customer count to 373. Four of the top five CEM deals were in the period for new customer wins. Our top five new deals included three CEM deals, two in North America and one in Europe. One perpetual public warning deal in Canada and one Red Sky B911 win. Our total number of new logo deals increased on both a sequential and year-over-year basis. Our top five growth deals in the quarter included a $500,000 plus add-on to an existing CEM customer for smart security. There were two additional CEM deals in the top five. One, a smart security add-on in the financial vertical, and the other, a risk intelligence add-on in the technology sector. The final two were point product growth deals. One for digital operations at a major retailer, and the other, an E911 add-on. Our number of add-on growth deals was up slightly from last quarter and down about 10% from Q2 2022. From a retention perspective, our Q2 is solid. We saw good retention in North America, offset by some relative weakness internationally. From a good market perspective, notwithstanding the cost efficiencies Patrick noted earlier, we are leaning in even harder with digital marketing and pipeline creation. We are focusing on programs that highlight the value of maturing our customers' resilience posture to help motivate them to buy more. We are also providing dedicated support to each individual sales rep to help them optimize their success. We are pleased that more than three-quarters of our sellers now have one year or more of tenure. As they continue to develop, we are optimistic but their productivity will continue to improve. Finally, we are working to optimize our pricing to better align value in both new customer wins and growth add-on opportunities. Moving to product, we executed on several key technology milestones in the quarter toward our goal of a truly integrated CEM platform as we discussed at Investable. In Q2, we delivered a major enhancement for a critical event management analysis and correlation engine. Our customers are now able to apply more complex workflows and variable alerting thresholds, allowing them to fine-tune our system even further. As we continue to integrate Anvil, we launched Everbridge Travel Protector, which is now CEM native. This means that travel risk management customers not only receive standard travel risk information, also have access to the same high-end wrist intelligence and single-pinning glass as our CEM customers. Everbridge Travel Protector is available as a standalone product, as an add-on to CEM, and over time, we will transition the Enzo customers to this new product. We are also modernizing the user experience across the board for our core CEM customers. Everbridge 360, our new integrated platform experience, featuring a refreshed interface Simplified workflows and customizable configuration across events and data feeds launched in early July to select customers. Their feedback has been universally positive, and we will continue to roll out Everbridge 360 to all 4CM customers over the rest of the year. And we expect to release new features on a rolling date. Finally, I'd like to turn to smart security. Our control center product was used to help keep people safe during the King's Coronation, the largest police operation in the history of the United Kingdom. Over 29,000 police officers relied on data from over 50,000 cameras and devices with access managed by control centers. Everbridge was proud to help provide accessible, actionable, situational awareness during such a high-profile public event. In summary, In the second quarter, we delivered another solid performance as we sequentially increased ARR and further expanded our adjusted EBITDA margins. While we are navigating through a challenging macro environment, we are making meaningful enhancements to our core CDM platform and are making disciplined, growth-first investments that are allowing us to make steady progress on our short-term increases in efficiency, profitability, and cash flow, and our long-term goal to reach the rule of 40 by 2027. I look forward to updating you on our progress in the coming quarters. We are now ready to open the call for questions. Steve?
spk08: Yes, thank you. At this time, we will begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. And the first question comes from Alex Squire with Raymond James.
spk04: Great, thank you. David or Patrick, I just want to better understand the second half of the year growth guide, which I think implies you exit the year at about 1% growth. I appreciate all the color on the non-recurring pressure, but can you just give some more color on what that factors from a subscription growth standpoint relative to what you were baking in last quarter?
spk06: Thank you. Yes, that's a great question. You know, the... The large deal challenges we've been having are across both perpetual and subscription. Primarily, the perpetual deals end up being more of the larger deals, but the same large deal phenomenon is impacting the bookings for recurring as well. As we think about the year and our previous full-year guide, the 6% to 7%, with one-time flat, obviously now we're calling the one-time down year over year, and we're seeing the subscription down a little bit, but not much. The subscription is holding in relative to that beginning-of-the-year outlook in the 6% to 7% range. really the one time it's drawn down. Obviously, we would love for a bonds deal, recurring deals to be here. That would have been bolstering our ARR growth and subscription revenue growth further. But anyway, relative to how we saw the year plan out in a guide, it's really on the one-time side.
spk04: Okay, great, Collar. So your comment on deal velocity on subscription mostly offsetting the large deal phenomenon Okay, and then just a two-part question on the sales force and go-to-market. You talked about some changes there. John's been in the seat for just about six months now. What can you tell us about the changes you're making as part of this, the new cost structure reference from the call? And then separately, you referenced optimizing pricing. Can you just elaborate a little bit more on what that entails?
spk06: Yeah, on the – Yeah, so John definitely has his feet under him. Patrick alluded to cost savings measures that were taken early this quarter. A lot of those are in the go-to market, largely around fans and layers and improving overall efficiency. On the good news side, our sales tenure is improving, and so we're really pleased by that. But for the first time since I've been here, our year-over-year tenure sales productivity went down. And so that's obviously the large deal phenomenon impacts that productivity, but we're really focused on helping each seller become productive in their roles and improving their productivity. John and his management team are really focused on individual sellers. They're focused on getting a little more tighter segmentation in how our sellers approach the market, both in the sales organization and in their collaboration with the marketing team and lining up those programs. So I see John delivering more efficient go-to-market organization and the lining go-to-market organization. And as I alluded to last quarter, there's still work to do. I do believe that the majority of what we're experiencing is a macro trend, but obviously we have work to do in our own four walls as well.
spk04: Okay, great. Thank you.
spk08: Thank you. And the next question comes from Matt Stoller with William Blair.
spk02: Thank you for taking my questions. Maybe start with a multi-part question on average deal size. So you noted that it remained kind of lower than what you've seen historically in the quarter. Large deal scrutiny and challenges is very clear. I'd love to just better understand if you're seeing new deals come in smaller if customers are reducing spend or if this is an indication that maybe you're seeing more success at the lower end of the market versus the enterprise. Any additional color there would be helpful.
spk06: Yeah, it's across the board. The new customer's deal size is down 40%, and the existing customer deal size is 40%. You know, I take a little bit of, you know, feeling better that at least the Q1 to Q2 deal size was similar, so we didn't see a further drop-off. in deal size, although it's pretty meaningful year over year. When you break it down, it's pretty meaningful numbers in the over 500K deal size, and it's largely the impact of those large deals not being in the flow that's driving the average deal size down. I do think that, and that's why I'm switching topics now to the mid-market That is one of the focus areas that we're moving into is more of a mid-market focus. We enjoy a very strong penetration in large enterprises, especially here in North America. And that cross-selling motion to that base is a really important part of what we're doing. But from a new customer perspective, we're really dialing in on the 10 to 49,000 employee enterprise. It's still a large company. But, you know, down one segment from where we got the lion's share today.
spk02: Got it. That's helpful. And then as a follow-up, you noted the drop in Salesforce productivity year over year associated with the large deal challenges. How are you thinking about headcount and hiring for the rest of the year? I think at the beginning of the year you were planning to be flattish. Is there a situation where you would flex that? you know, up or down, especially given kind of the lower productivity there?
spk06: Yeah. We call them discipline growth first decisions that we're focusing on, and this is one we have not made with finality for next year. As I said in the script, we are really pleased that our sales team Retention has gone up to a good level now. Not fully surprisingly, if folks are turning through their first 12-month period, not all of them are reaching the productivity. It's a challenging environment that we'd expect. As I said, we're leaning in sales manager to seller, marketing support to seller to make sure that we're supporting those salespeople. in their transition from early with the company to tenured. And so there's definitely a training exercise and sales management exercise that we're following rigor to help drive that productivity higher.
spk02: Got it. Thanks again.
spk08: Thank you. And the next question comes from Brian Carley with Stevens.
spk09: Hi, guys. Thanks for taking my question. So, I'm curious, on the implied guidance for 4Q of 1 percent, I'm curious kind of how we should think about 1 percent for 4Q. I'm curious how we should think of ARR growth in the context, you know, of the updated guidance. And maybe if you could kind of quantify the reduction, you know, how much of it was subscription and how much was, you know, the non-recurring piece. And also, how you feel about your ability to kind of re-accelerate growth into next year.
spk06: Good morning, Brian. That's a great question. And you can hear from our commentary, again, relative to the way we saw the year. And I don't know exactly what you have in your model or the others. But from the commentary we gave at the beginning of the year, 6% to 7% growth. with one-time flat. Obviously, then we were planning 7% to 8% with the one-time flat was the way we were kind of looking at the year when we started talking about it nine or 10 months ago. We're running in the sevens on subscription revenue growth. There's not a lot, but a little bit of noise as the year-over-year compares. in the way we were planning some stuff up last year. We're saying 4% to 5% now with the primarily one time down. So it's primarily one time down, maybe 100 basis points out of the subscription side, and it's the one time. And I've been using the word one time more carefully. Patrick and I are both using it more carefully. The perpetual software deals also drive a good bit of PF. And so when we say one time, we're putting the PF associated with those license deals into the same sentence. Anyway, so it's not just perpetual, but the one time is where the majority, the shortfall from the way we saw the year in our guide is where we see it today.
spk09: Got it. That's super helpful. Thank you. And in terms of, you know, the reduction, I'm also curious if there's any specific, you know, verticals or, you know, areas of the business from a product perspective where you're seeing... Brian, I'm rolling around.
spk06: You know, you've known me for a while. I'm digging in spreadsheets and roll around in my bed at night on exactly that question. It is the strangest... It is large deals across the board. I go through it a million ways on Sunday, and the metrics we're giving you are the metrics that matter. It is deals over $250K, it's a few free deals over $500K and a million that have slowed down, and the velocity, I'm certainly pleased on the new business side, our Our new business generation, both in terms of number of deals and in total, was fine. We were off in existing customer transactions, as I said, about 10% year over year. But there's no real specifics to it. One thing I'll point out, because when I'm all around at night thinking about this stuff, You know, state of Florida, our sled business was solid. Our sled business was solid this quarter, so that's not even what I'd like to point out to Brian. It seems to be an across-the-board slowdown in the larger transaction.
spk09: Great. Thank you for that. And just a housekeeping question. Did you all report the total enterprise customer count, or is that something that you're not reporting anymore?
spk07: It ran roughly in place from the last quarter, Brian. We had, similar to what you saw last quarter, we had headwinds related to as we continue to end of sale, end of life, shut down non-quarter assets. Without that headwind, we would have added a net roughly 70, but instead we roughly ran in place from last quarter. Okay.
spk09: Perfect. Thank you for the time, Dylan.
spk08: Thank you. And the next question comes from Scott Berg with Needham.
spk01: Hi, everyone. Good morning, and thanks for taking my questions. I have a couple. Dave, you've obviously spoken a lot about the one-time revenues that are down, especially in the government, I guess, kind of verticals, or at least that's my assumption, and it's heavy in the government verticals, but Any change of win rate there? Any pricing pressure? Is this just really a continued reflection of those deals just aren't ready to have decisions made on or just not in the pipeline in general? Thank you.
spk06: Yeah, on the government side, it's a slowdown in those decisioning processes. I've talked to a couple of close network people in the in that companies in similar spaces, they're seeing the same thing, especially in Europe, getting a larger commitment. So it's a slowdown. We do have a couple of nice opportunities in the second half, but the way things are going this year, we're adjusting the full year to reflect a tougher big deal environment for the rest of the year.
spk01: Got it. Helpful. And then my follow-up question is on the CEM deals. The number of deals continues to trend higher year over year. We know the pricing is down as the, you know, kind of package them and size them maybe a little bit smaller just to drive that initial footprint with some customers. But how should we think about that combination of modules that are, you know, comprising these deals? sounds like you're seeing a shift of what customers have historically bought within the CEM deal versus maybe what they're purchasing today. Is that maybe the right view, or are you seeing combinations that are maybe noteworthy?
spk06: Thank you. So it's one of the things I remain very positive on. So when I roll through that gross retention in larger customers, that's remains a real strength for us. The opportunity to cross-sell and up-sell those accounts as we move the attached add-on focus, the growth focus, remains really strong. The big movement in the CEM journey goes from mass identification, which improves your resilience posture, to be much more responsive in a critical event, to add the visualization risk component, risk intelligence component of the product. That's the really big step up in the CEM journey. We're doing, I guess, a better job seeding that smaller and and then allowing the assets and contacts to grow over time than we have been in the past. And as I alluded to earlier, we're targeting that. It's not mid-market, but that 10,000 to 49,000 user enterprise, especially on the new customer wind size because we've got such great penetration already in organizations with over 50,000 employees.
spk08: Thank you. And the next question comes from Michael Berg with Wells Fargo.
spk10: Hi. Thanks for taking my question. I just wanted to follow on to Scott's question earlier on large deals. Relative to Q1, would you characterize the environment, the macro environment as getting meaningfully worse? And are some of these deals that are slowing down, are these deals you still expect to close either later in the year or potentially in the next? Thank you.
spk06: That's a great question. Q2 to Q1 was relatively steady for us. Steady on the deal size decline, which is the number one thing that we're concerned about. If I put a positive bid on it, we had one over a million dollar deal in Q1 and none over Q2. We had better volume in the sub in the smaller deal side in Q2 than Q1. But we were down at Q2 over Q2 in numbers of transactions into install base. So I call it a steady Q2 from Q1, not a deterioration. The last two weeks of June were you know, less than we had expected. And so, you know, that was a challenge. And, you know, we've been, you know, floating, you know, some of those into this quarter. But, again, as we stand back from the year, we're seeing, you know, we saw Q2 relatively steady from Q1, and we're adjusting to expect a tougher 50 on the line. Yeah.
spk10: Got it. Thank you. And a quick follow-up. Did you say that the perpetual deals is impacting quarterly revenue by 1 to 1.5 million in the second half?
spk06: No. What we did say, 1 to 1.5 million, that was in Patrick's script. That's proactive cost adjustments we made in early July. That's where we're going to help you bridge the EBITDA guide. So you look at the you know, round numbers, $8 million down in revenue guide, how you're holding the $85, well, that's, you know, the $8 million, a part of that is professional services, so you don't have full margins, 75% margin, you're at $6 million, and the one and a half per quarter cost savings, that gets us three of it, and then the cost discipline that we have been evidencing through the first half, enabling our EBITDA beats in both Q1 and Q2, that discipline continues through and lets us stay on a path for the EBITDA guide despite the shortfall in revenue.
spk10: Helpful. Thank you.
spk08: Thank you. And the next question comes from Ryan McWilliams with Barclays.
spk03: Hey, guys. Thanks for taking questions. Just one more on large deals. I'd love to hear your opinion on how much of the headwind to these deals is in Everbridge's control versus macro. Do you think Everbridge is just more later cycle for software purchasing and it could just take some time to work through the cycle and for macro improves to then get booking for some of these sales efficiency metrics to improve?
spk06: Yes. Hi, Ryan. It's a good question. Again, one that I've been turning around as I air spreadsheets and roll around in my bed at night. To answer your question, I feel like it's 70-30, 70-30 macro to micro, company-specific things. You know, we are licensed based on contacts, and so... those contracts are primarily employees and we're focused in the, uh, um, in the over 50,000 employees, um, vertical and, and those companies, they, they aren't hiring at the rate they were. Um, I do expect those companies to be the strongest coming back out of, of, of this turn as well. But, um, you know, everybody's taken a turn, um, on, on, on, on profitability. And, um, I think as they get to the second turn of the crank, as you're suggesting, and start to look at really driving productivity, we have really strong ROI metrics in our core customer base that the efficiencies they get from their security operators by implementing a critical event management platform are really strong. I think as we turn back towards which software is going to make our teams more productive and and really drive the productivity gains, I think we're going to be, again, in a good spot as we turn through this.
spk03: Appreciate that. I'm pleased to see the CEM sales still doing well. From an individual product perspective, anything to call out on the momentum for mass notification and safety connections?
spk06: One of the things that I'm pleased about year over year, Patrick alluded to it, the gross retention is improving, especially in the mass verification side. We've got that improvement from negative growth to slightly positive growth and improved year-over-year. That's a trend I'm actually pleased with. Maybe I overemphasized, but I feel like I should emphasize more the really great work that our product teams are doing. We started with a premise that focusing and investing on our core is the right approach, and we're getting really good feedback with the investments and improvements we're making, driving more value for our existing customers. That is a bright spot for me in how we're executing this delivery.
spk08: Thank you. And the next question comes from Mike Latimer with Northland Capital Markets.
spk12: Great. Yeah, thanks. How about just pipeline growth? You know, is it growing nicely? Is the pipeline slow, just overall pipeline growth?
spk06: Yes. Pipeline is the macro. It's not growing well because the bigger deals aren't there. But the velocity is maintaining or maybe even slightly improved, especially on the new deal side. And so that's what we're leaning in. You want to sell what customers want to buy and the customers are wanting to buy in more disciplined ways. smaller amounts right now.
spk12: And the CEM deal is kind of obviously strong. How many of those were upsells into kind of the global 2,000? You know, how is that pattern playing out here?
spk06: That's a good question. I don't have that in front of me. From looking at the deal list, you know, as I said, we're – we're very, very nicely penetrated in North American enterprises with over 50,000. Like, there are more to win, but our penetration is great there. And the new logos are in the next year down size account, for sure.
spk12: Yeah. And just on mass notification, sounds like a little bit of growth there, which is good. Is that... What would... cause that? Is that just more focus? Is that a pricing change? Is that product enhancement?
spk06: It's primarily focused, which has manifested itself first in the product organization. We've taken time, as I said, to go back and make sure that that segment of the market, we're investing there to make sure that we retain and grow those core customers. We've done some really nice things. I've been listening carefully to county emergency managers across the country, and we're building improvements in our core flagship product. So anyway, I'm really proud of the work that the team has done the double down there, we're tightening in the integrations with other stock parts of the platform to make it even easier to use. So we're definitely putting some attention there.
spk08: Okay, thanks. Thank you. And the next question comes from Cash Rangan with Goldman Sachs.
spk11: Hey guys, this is Jacob on for Cash. Thanks for taking the question. I wanted to ask how many of the CEM deals, and I apologize for this discussion earlier, but how many of the CEM deals or CEM additions this quarter were a result of upselling from the existing customer base versus net new customers. And then if we could maybe touch on the dynamic around the international segment, it seems like it's seen a little bit of weakness for the last few quarters. So anything you're seeing there that might be willing to call out?
spk06: Yeah, the new CEM deals, again, is a little bit of a bright spot, smaller, but the new deals are 50%. If you're around like top five, I think three of the top five transactions, new transactions were CEM deals, and so that's something I feel good about. You know, international, I think it's no secret that the EU has It's our own challenges, especially the U.K., where we have a good bit of business. We're solid there, but not the same level of growth that we were seeing in prior years. Again, we've been more disciplined with our investments, particularly internationally, where we were – I don't know, overinvest is a strong word, but we were invested heavily to penetrate those markets since we're making more disciplined CAC-based investments. We've been adjusting international a little bit more than North America.
spk03: Sounds good. Thank you.
spk08: Thank you. And this concludes the question and answer session. I would like to return the floor to management for any closing comments.
spk06: Thank you, Keith, and thank you, everybody, for joining us on our second quarter call. Patrick and I will be very active, especially in the next two or three days, with investors and some conference activity. Look forward to connecting with many of you in the next 72 hours, and hopefully all of you again in 90 days when we report our third quarter results. Have a great day.
spk08: Thank you. The conference has now concluded. Thank you for attending today's presentation. May not understand your lines.
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