Everbridge Inc (EVBG) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Everbridge first-quarter earnings conference call. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to turn the call over to your host for today's conference, Mr. Ken Goldman, Chief Financial Officer. Sir, you may begin.

Good afternoon and welcome to Everbridge's earnings conference call for the first quarter of 2017. This is Ken Goldman, Senior Vice President and Chief Financial Officer of Everbridge. With me on the call today is Jaime Ellertson, CEO and Chairman.

After the market closed today, we issued a press release with the details regarding our first-quarter results, which can be accessed on the investor relations section of our website at IR.everbridge.com.

This call is being recorded and a replay will be available on our IR website following the conclusion of the call. During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. These risks are summarized in the press release that we issued today. For a further discussion of the material risks and other important factors that could affect our actual results, please refer to our filings with the SEC, including our recent 10-Q and 10-K filings.

Also, during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release. Finally, at times in our prepared comments or responses to your questions, we may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business on our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future.

With that let me turn the call over to Jaime for his prepared remarks.

Thanks, Ken and welcome to all of you that are joining our first-quarter 2017 earnings call. We are off to a solid start in 2017 with both revenue and adjusted EBITDA coming in above the guidance for the first quarter. Revenue of $22.8 million increased 34% from a year ago. We benefited from a combination of strong underlying fundamental performance in our core and new product offerings, as well as a moderately better-than-expected contribution from our recent acquisitions.

And on our strong revenue performance, combined with our balanced approach to expenses resulted in adjusted EBITDA that was meaningfully better than our guidance for the quarter.

Our Q1 results represent a solid confirmation of both the continued strength in our core mass notification business, as well as market validation of our new products such as Safety Connection and IT Alerting that increasingly contribute to our success by enabling multiproduct sales and a growing ASP.

Our market momentum is driven by three main factors. First, the growing awareness, severity and costs associated with the occurrence of critical events that can threaten the safety of people and disrupt the operations of organizations. Second, the rising dependency on IT services making 24/7 availability a requirement for corporations, governments and other organizations. And third, the increasingly mobile and distributed workforce, which makes it more challenging to protect and locate employees impacted by critical events.

In response to these market factors, we've announced our critical event management or CEM platform, which provides organizations the ability to manage and respond to relevant threats or major events that occur. Then by identifying the intersection of these threats and the events on the organization's people, assets or brand, CEM provides the context to take action, that is effectively managing the incident with the appropriate standard operating procedures or implementing different forms of communication and collaboration, all to ensure the safety of people and the continued operation of businesses.

As we look ahead to the remainder of 2017, we see momentum building for our critical event management strategy and our ability to capitalize on the very large addressable market.

In the first quarter, our growth was driven by increasing demand for our SaaS platform from both new and existing customers, including those who joined us through our January acquisition of IDV Solutions. We added 113 net new customers during the first quarter, which is in line with our expected range. In addition, we continue to see momentum signing new multiproduct deals. In the first quarter, we signed 54 such deals, which represents a meaningful increase over the 41 multiproduct deals completed in the same period one year ago. And the total of 54 multiproduct deals in Q1 also increases our trailing 12 month average to 49.

Now before I proceed, allow me to take a moment to remind you of how we are defining multiproduct deals. As I stated last quarter, this multiproduct deal metric is an important goal in our 2017 business plan and a key barometer for the success of our long-term growth strategy. The metric is comprised of all new and growth transactions we complete in a quarter that includes more than one product. That means that we only include deals into our strong base of 3,000 plus customers growth deals if they are purchasing a net new product that has not been previously subscribed to and now have two or more products from Everbridge.

And for new deals, we only include customers that purchase two or more products on day one. In Q1, we drove many of these multiproduct wins through the creation of new multiproduct bundles that are targeted at specific vertical markets such as our corporate vertical. One example of these new solution bundles is our Safety Connection Pro, which combines our Safety Connection, mass notification and instant management solutions into one offering to enable organizations to automate the process of reaching employees regardless of where they are.

Allow me to provide a few representative wins from Q1 to illustrate how these product bundles and multiproduct deals are driving larger transactions. On the large enterprise and of the scale, let's talk about MasterCard, a household brand in the financial services space with its namesake credit card offering.

MasterCard purchased our Safety Connection Pro multiproduct bundle and we will be rolling it out to all their employees worldwide. That means two of the top three credit card businesses are now Everbridge customers.

Sticking with the theme of large enterprises, One Oklahoma, a Fortune 200 diversified energy company, purchased four of our platform products -- Safety Connection Pro bundle, again that includes Mass Notification and Safety Connection, as well as IT Alerting for a multi-six-figure transaction. One Oklahoma will be using our solution for everything from scheduling crew callouts to IT service restoration.

Just in case you are asking yourself if we can only accomplish these multiproduct or bundled sales at the large end of the market, allow me to illustrate our success at the other end of the market beginning with a small New York City-based technology company focused on business process and compliance automation with just over 100 employees who was an existing Everbridge Mass Notification customer and purchased both our Safety Connection and Crisis Commander solutions to move from a single product user to three product user resulting in an increase in annual spend of 10X.

Another small enterprise multiproduct win was Ascent Resources, an oil production and service company who was looking for basic emergency notification capabilities until the Everbridge team demonstrated how our Safety Connection Pro solution could not only provide emergency notification to their employees, but also system in supporting their lone workers out in the field by providing dynamic locations as they perform service on various distributed oil pads.

As a result, we were able to expand a basic emergency notification win into a multiproduct and Safety Connection Pro deal at over 300% the size of our original proposal. As you can see from these examples, our focus on increasing ASPs by driving multiproduct deals is off to a very strong start in 2017.

In addition our standalone version of Safety Connection achieved the strongest results since its introduction one year ago by delivering a more than 100% quarter-over-quarter increase in total new and growth sales in Q1. During the quarter, we closed standalone Safety Connection deals with leading brands and organizations like Hulu and Indeed.com.

Indeed, one of the world's largest and fastest-growing jobsites, chose our Mass Notification solution after running a very competitive purchasing process and then came back to us in less than two months and doubled their employee headcount, as well as added our Safety Connection Pro solution for all employees, increasing both the number of employees covered by our Mass Notification solution, as well as the number of products they subscribe to from one to four.

Most importantly, they increased their overall spend by 300% in three months. In Q1, we saw other leading organizations purchase Safety Connection, including names like Fruit of the Loom, NVIDIA, Etsy and BB&T to name but a few. Ultimately, we believe the growing demand to manage the physical safety and security of an increasingly mobile workforce will continue to drive our successful Safety Connection and when combined with our very substantial and growing customer base for our core Mass Notification application will provide a strong foundation for sales of our expanded Critical Event Management platform.

Our CEM platform is comprised of the integration of a recently purchased visual command center from IDV for threat assessment and visualization. Our Safety Connection solution for dynamic location of people and assets impacted and our Incident Management and Mass Notification solutions for process automation and communication and collaboration.

Everbridge Critical Event Management is unique in its ability to provide enterprises a single pane of glass solution for managing the growing number of threats that impact organizations and create risks for the people and operations every day around the globe.

Today, we provide our CEM solution with basic integrations between our products based on our long-standing partnership between Everbridge and IDV. As I previously stated, we plan to have a more advanced integration in the markets by early next year.

During the first quarter, we introduced our CEM strategy into a number of key customers and prospects and have been very encouraged by the initial response. We will keep you updated on our progress with CEM over the course of this year.

Speaking of specific product success, allow me to provide you a few examples of the key customer wins for our other major products during the recent quarter. For our core Mass Notification solution, we closed new logos, including leading technology firms as Oracle, who purchased a companywide deployment resulting in a multi-six-figure deal and Cadence Systems, as well as other organizations like Zions Bank, MIT, Johnson County, North Carolina, Texas A&M, Cubic Corporation, Aerospace International, BJ's Wholesale Club and our second pro football team, the Buffalo Bills.

For our IT Alerting solution, we added new logos like Nomura, an existing Mass Notification customer rolled out our IT Alerting across the large financial services organization resulting in a 250% increase in their annual spend with Everbridge, as well as a number of other leading organizations like Ameriprise, University of Minnesota, Credit Suisse, Mount Sinai Hospital, Olympus Corporation and Battelle Labs to name just a few. And our Nixle Community Engagement solution added leading County government organizations such as Brown County, Minnesota, Clay County, North Carolina and Yuba City, California.

Finally, our newest solutions, Visual Command Center and Crisis Commander, added new customers like Medtronics and Sony Pictures respectively.

Additionally, we continue to see success with our major vertical markets efforts in the government space where we signed new cities like Lansing, Michigan, new counties like St. Louis County in Minnesota, new transportation organizations like Spokane International Airport and Metropolitan Transportation Commission of California and new state agencies like the West Virginia Division of Homeland Security and Emergency Management.

As we have previously stated, we have a number of pending bids and contract activities with certain states in major metropolitan areas and expect to announce some significant contract awards in the next 60 days.

Internationally, we signed a number of new customers across several different geographies from Bilfinger Construction in Germany, Jubail Oil in Saudi Arabia and Sumitomo Chemical in Japan.

In addition, two deals stand out from the Q1 international tally. First, Airbus Industries moved from a small initial deployment of our Mass Notification in the US to a global rollout of Safety Connection managed out of the headquarters in France for their 70,000 employees. The Airbus win is notable because the Company is one of the world's largest aviation manufacturers and they already possess a mass notification solution through one of their existing subsidiaries.

This contract expands Airbus' annual spend with Everbridge by over 400%. One other interesting new international customer in Q1 was the Metropolitan Police Service in the UK. London's Metropolitan Police employs around 31,000 officers covering an area of 620 square miles and a population of over 7 million people.

They chose Everbridge to enable the delivery of time-sensitive information on criminals and terrorist activity directly into their over 1,500 police vehicles across London. Now that's a mobile app.

During the first quarter, we also continue to witness success with our land and expand strategy through many ongoing customer rollouts, as well as the addition of new products in existing customers, including examples like existing state and local government customer, Caltrans. That stands for California Department of Transportation. Moving from two existing divisional implementations of Mass Notification to all 12 divisions statewide focused on communications surrounding employee safety and business interruptions.

Or corporate customer, American Airlines, expanding from a headquarters-based deployment of Mass Notification to a global rollout of Safety Connection resulting in another multi-six-figure deal or pharmaceutical customer, Biogen, who I recently mentioned added Safety Connection late last year and in Q1 extended their use of our platform with the rollout of our IT Alerting solution. Biogen now uses four of our platform products, up from just one less than two years ago.

Finally, in the healthcare space, the second-largest Children's Hospital in the US, Philadelphia Children's expanded their usage of Everbridge by acquiring both our IT Alerting and our new CMS emergency preparedness solution, doubling their total investment in Everbridge annually.

As I mentioned earlier, bundled and multiproduct sales made up a growing portion of new deals in the first quarter, our ability to land these larger transactions as a result of investments we've made in our newer products. In the first quarter, new products accounted for 32% of all new and growth product sales on a trailing 12-month basis. The continuing growth in this metric reflects our investment in developing new and enhanced solutions to cross-sell and to create new entry points to customers beyond our core Mass Notification applications.

Now before I close and turn it back over to Ken, I'd like to highlight just a few of the other operationally significant accomplishments by the business in Q1. We completed our largest infrastructure project over the past several years with the deployment of our new core communications engine featuring our new generation architecture. This new architecture allows our communication engine to provide up to 100 times greater performance, scale and throughput than the previous generation.

It makes use of advanced software-defined infrastructure capabilities that allow us not only to scale up and down rapidly, but also to deploy complete new engines anywhere in the world automatically within minutes. This allows us to deal even more efficiently with high global or local concentrated demand anywhere in the world on a variety of infrastructure providers.

And given the customer adoption of our growth in community engagement products, we also expanded and strengthened the infrastructure that supports our CE modules, including our Nixle solution during the quarter.

We also completed the migration of substantially all of the former Vocal iModus customers, that's our UK acquisition, onto the Everbridge suite and shut down the iModus solution allowing us to reduce the cost of our European operations. And towards the end of the quarter, we released groundbreaking safety capabilities for our mobile application, [Contract Bridge]. This new mobile application allows us to leverage the timely and targeted information from the over 9,000 vetted public safety agents that use Everbridge to offer trusted relevant and geographically targeted alerts and advisories to residents or visitors whether at a neighborhood or state level. We are focused on becoming the number one mobile safety application in North America.

In summary, we believe our strong start to 2017 positions us well for the remainder of the year. We continue to execute on our new customer, as well as land and expand strategy to drive our growing number of multiproduct wins that include both our core Mass Notification application and our new applications like IT Alerting, Safety Connection and Community Engagement.

Additionally, we are excited about the enthusiastic response to our Critical Event Management platform, which we believe elevates our value proposition and expands our market opportunity further contributing to our long-term success.

Now I'd like to turn the call back over to Ken for details on our financial performance during the quarter.

Thanks, Jaime. I'll provide some more detail on our financial performance for the first quarter and then provide you with our outlook for the second quarter and the year.

First-quarter revenue of $22.8 million was above the high end of our guidance range and represented growth of 34% from a year ago. As Jaime noted, revenue upside was due to the strong underlying momentum of our business, as well as better-than-expected contribution from our recent acquisitions.

During the first quarter, our dollar-based net retention rate remained above 110% and was well above that figure even if you exclude the large customers that entered the mix a year ago. The combination of revenue upside and lower-than-expected expenses due in part to more back-end-weighted hiring led to an adjusted EBITDA loss of $2.3 million, which was more than $1 million better than our guidance. While we won't provide a breakout on a regular basis, it's important to note that, as we anticipated, our core business, excluding IDV, would have been adjusted EBITDA positive in the quarter.

Now I'd like to turn to the details of our P&L. Unless otherwise indicated, I will be discussing income statement metrics on a non-GAAP basis. A reconciliation of GAAP to non-GAAP measures has been provided in the earnings release we issued earlier today.

As Jaime already mentioned, we completed the transition to a new broadcast engine in the first quarter and incurred certain one-time costs, which resulted in a gross margin of 70% compared to 71.8% a year ago. As we've previously indicated, gross margins may fluctuate on a quarter-to-quarter basis. However, we believe that we can continue to drive gradual improvements on gross margins on a longer-term basis as our business scales.

Total operating expenses were $20 million in the quarter, an increase of 41% from a year ago, reflecting continued product and infrastructure investments to support our long-term growth, as well as the increased headcount and related ongoing investments associated with our recent acquisitions.

As I noted, adjusted EBITDA for the quarter was a loss of $2.3 million compared to a loss of $800,000 a year ago. Net loss for the first quarter was $4 million compared to a loss of $1.7 million a year ago. Based on 27.2 million basic and diluted weighted average shares outstanding, net loss per share was $0.15 for the first quarter, also better than our expectations.

Turning to our balance sheet, we ended the quarter with $39.7 million in cash and cash equivalents with the decrease from $60.8 million at the end of the fourth quarter mainly due to payments for our IDV Solutions acquisition.

Note that the proceeds from the small number of primary shares Everbridge sold during our follow-on transaction in April, which generated $10.4 million in net proceeds, are not included in our cash balances at the end of the first quarter.

Total deferred revenue was $55.9 million at the end of the quarter, which was up 35% compared to the end of the year-ago quarter. As we have noted on prior calls, our deferred revenue balance at the end of any given quarter can vary due to a number of factors. As such, even though we have predominantly annual payment terms, deferred revenue is not always a meaningful indicator of the underlying momentum in our business from a quarterly perspective; though we believe it is directionally relevant over a longer-term trended period. Operating cash flow for the quarter was $1.5 million. Free cash flow was essentially breakeven at an outflow of $251,000 for the quarter.

Now let me turn to our outlook. Our increased revenue and adjusted EBITDA expectations for the year reflect our strong start to the year. For the second quarter of 2017, we expect revenue to be between $24.4 million and $24.6 million. We anticipate an adjusted EBITDA loss of between $700,000 and $500,000. Adjusted EBITDA guidance assumes an estimated stock-based compensation expense of approximately $1.1 million for the second quarter.

We anticipate a non-GAAP net loss of between $2.2 million and $2 million or between negative $0.08 and negative $0.07 per share based on 27.8 million basic weighted average shares outstanding. For the full year, we anticipate revenue to be in the range of $101 million to $102 million representing year-over-year growth of 31% to 33%.

We are anticipating an adjusted EBITDA loss of between $2.1 million and $1.3 million for the full year 2017, which includes positive adjusted EBITDA for our core business offset by losses from our acquisitions earlier this year due to the impact of purchase accounting. We expect a non-GAAP net loss of between $8.8 million and $8 million for the full year or between negative $0.32 and negative $0.29 per share based on 27.7 million basic weighted average shares outstanding.

In summary, we are pleased with our strong start to 2017 and are optimistic as we look forward to the rest of 2017. We believe we are well-positioned to meet the increasing demand for Critical Event Management and enterprise safety applications and capitalize on that large multibillion-dollar market opportunity. With that, operator, can we now open the call up to questions please?

(Operator Instructions). Michael Nemeroff, Credit Suisse.

Hey, guys, thanks for taking my questions. Congrats on a very strong quarter to start off the year. Jaime, you referenced in your prepared remarks some large contracts, statewide contracts or bigger contracts that are coming down the line. I'm just curious, are those multiproduct deals? Do you know that now and if so, could you maybe just give us an indication of what are the types of products in addition to just Mass Notification that some of these statewide deals are looking at?

Yes, in most cases, we sell into the state and local market in general. City, county or state or federal agency tends to be first and foremost the Mass Notification product. It's 80% of the deals and then Community Engagement is often sold. It's been now sold into all three of our three largest city, county or state organizations and into many of the counties, but we have a lot more to go on that base.

Then there is -- there are some, as I mentioned on this call, that are buying IT Alerting, but those are the three primary products and in most cases, the bids we are putting out there for the large statewide or major city or metropolitan area bids involve Community Engagement and Mass Notification. But it depends on when the bid was initially started. Some of them a year ago when Community Engagement was new and might not have it in or whether it was started more recently.

So you should expect at a minimum, obviously, it's going to be Mass Notification as the anchor app and more than likely if there is a secondary application, the likely one is Community Engagement.

Great. And then I think I may have missed it, did you give the number of multiproduct deals and then of those multiproduct deals, are those primarily being sold direct or are any of them coming through the channel and then the last question is on the IDV acquisition and whether that's tracking to your expectations or any surprises there? Thanks.

Yes, so now I'm going to have to backtrack. On the first question multiproduct, we did give that number; it's 54 and we are careful to emphasize the definition. We obviously are talking about both leveraging the base, getting the base to buy two and three products, so that's only counted when they are buying a second or third product obviously and net new, they have to be buying two products and that's a definition of 54.

In terms of who purchased -- who is selling the multiproduct deals, that's almost exclusively our base. We are getting referrals in for some multiproduct deals, but that's very early because the channel is only a few years old and is just learning today to sell either some Safety Connection, in the case of international SOS and that's why you will see some there, but more Mass Notification. So historically you should assume that those are single product and it's going to take us a little longer to train them.

And then your last one was IDV and the expectations. Yes, I would say IDV is -- the purchase accounting is all over the place and that's just finally settling down now. They got off to -- our first quarter, our concentration there is trying to retain focus, introduce the concept of CEM without stalling their deals, which were already in progress and we would hope to come back to you in Q2 and start to show early signs of success.

We can introduce the concept of CEM because we already have an integration between IDV's Visual Command Center and Safety Connection, Mass Notification, Incident Management, which is what makes up our CEM platform, but it is not a pure SaaS single instance multitenant platform until early next year as we have stated previously.

So we will have to see what results we get out in Q2 and Q3. This year was primarily meant to be an introduction year and early adopters and so you should, if we get wins that would show that there is even more traction than we thought early on.

Great, thanks very much.

Terry Tillman, Raymond James.

Hey, good afternoon, gentlemen. Thanks for taking my questions and great job on the quarter. I guess, Jaime, as it relates to IDV, you had talked about at least some of their precedents had been -- precedent had been deals that would be 7 to 8 times your ASP. And I guess I'm just curious, as you are looking at some of these opportunities in your top 20 or top 25 accounts to sell that product into or any new business that was signed in 1Q, given that you now own this business, are you seeing those kind of ASPs much higher playing out or just an update on pricing around that product?

Yes, so what I said before, just to clarify it, is CEM would be substantially higher. IDV is a more expensive product. It roughly sells in the magnitude of $100,000 to $200,000 when they go in, often at $250,000 or $300,000 but in the ballpark between there and we don't have enough experience and it's a small enough subset of clients that we don't want to generalize, but certainly it's a magnitude larger, 3, 4, 5 times larger than our ASP for Mass Notification. And in combination, the CEM suite would be selling for 5 to 10 times our ASP for Mass Notification.

So it's substantial when we can combine them and sell them in, upsell and drives our ASP and we've said over and over again that doing the math, we think it's easier to get to a substantial continued growth size in terms of total revenue if we are selling $0.25 million, $0.5 million, $750,000 solution into the enterprise customers than it is to sell $30,000 to $100,000.

We do believe that the early indications from customers, and I would hope to have good strong examples of the loose integration, which again is not that tight integration we will have when everyone is on the exact same SaaS platform, 100% same code base early next year, single instance multitenant platform, which we promised for early next year, but we've already got an integration and as we are introducing that in and have opportunities merging, they are coming in meaningfully larger than anything we have seen here to date for the Company.

So the ASP driven by CEM or the combination of let's just take Safety Connection Pro, which, as I stated, is Mass Notification, Incident Management and Safety Connection with VCC, Visual Command Center. That is coming in at a meaningfully higher number, an order of magnitude 3 or 4 than anything we've seen on a 1 or 2 product sale in the past.

Okay. And I guess you've talked about a milestone in terms of the re-architected platform. You I think mentioned 100 times improved performance. I guess I'm just curious about had you been selling that new platform update in recent sales cycles or is that still something more into the future and is it doing anything in terms of win rates or just improving the competitiveness, which I know you are already strong competitively, but just a little bit more color on how you leverage the performance improvement with the platform itself.

Yes, so the platform itself allows really three things. It allows our continued scale and performance substantially ahead of anyone in our environment, which is, if you are presenting yourself as the market leader, the gorilla in the space, the guy that you should always go to, it's the default easy decision, then you need to be out in front. So we consider part of that table stakes and we will continue to innovate and lead the market with absolutely superior performance, technology and reliability. That is something that we just believe is required.

The second piece though is, as we move to multiple products, we need that performance and speed because, in some products, the magnitude of the number of communications, the number of business processes, the number of transactions looking at, for instance, distributed workers around the world and updating that literally instantaneously and then messaging those that are affected by an event, if you are talking about hundreds of thousands of employees per corporation having multiple corporations, you can see the big data problem we'd experience. So we built it out to support the growing set of products and have the same scale for them.

And then lastly, by getting to that point with the performance, we can scale not only globally, but cost wise. So it will provide a benefit we think both for our international and larger scaled enterprise customers certainly as they move to CEM and we end up doing all the critical event management for a major corporation, the examples and the likes of which we have mentioned on calls previously, those household names and secondly, it can drive down our costs because it's a more efficient platform.

So for all three of those reasons, we do think it's an advantage. We do not make a big deal about it, but we have a branding campaign around our new technology and that does enter into sales cycles on a regular basis.

I wouldn't model up our numbers based on that. I would assume that that is how we are going to maintain our best-in-class win rate and continued renewal rates, as well as continued growth rates we are projecting as a result of not necessarily try to increment that up and build it into a better outcome in the future. We just think that is something we have to do and ensures that we can get to the numbers we are already guiding to.

Got it. And just maybe one last one though for Ken though. As it relates to -- I think on the last call you talked about, and you said this is still very preliminary, but there would probably be more than a 50% write-down on the deferred revenue from the acquisition or at least the IDV acquisition. Did it end up being notably different the assumption around the write-down? Thank you.

No, not significantly different, about what we expected. There was a lot of complexity around it and since the time of the last call, we were still working with the outside auditors, but I would say the end result was consistent with what we expected.

Great, thanks.

Scott Berg, Needham.

Hi, Jaime and Ken. Congrats on a great quarter and thanks for taking my questions. I have two quick ones. First of all, Ken, I know you talked about the quarter being a little bit EBITDA positive without the two acquisitions in the quarter, but can you give us some color on maybe what the revenue contributions were in Q2?

Scott, I'd love to, but it's something that we are not doing at this point in time. We've said in prior earnings calls that we will break out a product or a business unit when it gets to over $10 million in recurring revenue, but at the present time, we are trying to be very careful not to go into segment reporting.

Sure. Fair enough. And then I guess the follow-up question, Jaime, would be on general multiproduct sales in the quarter. I know you had talked about some of the other multiproduct deals that are in the pipeline, but what you saw in the quarter. Were customers buying anything meaningfully different in terms of those additional non-Mass Notification modules versus maybe what you've seen in the last couple quarters?

Absolutely, and I indicated that Safety Connection and Safety Connection Pro, I don't want to use hyperbole, but probably were considered on fire, 100% quarter-over-quarter growth. They did very, very well and that is -- that product is we believe the first disruptive product we've had, net new. It changes the market in physical security and mobile employee management at a fundamental basis. It allows you to understand where all your employees are traveling in the field, in service engagements, at home and when an event happens in the corporation not get caught off guard with the question of who is affected. And that's something in major corporations that happens every day.

When you combine that with Visual Command Center, the ability to contextualize all the threats and all the incoming information, we think we have a powerful combination that leads to CEM or Critical Event Management. So in the quarter, what I think we saw was an increasing number of customers saying, yes, I see Mass Notification, that's interesting. I need that. It's a check in the box, no major or even small corporation really does business and says I can't get to all my people quickly with the relevant information. That is kind of a must-have.

What we are seeing different over the past two to three quarters is the mounting desire and the growing need to say where are all my employees when something happens, not just to communicate, but are they affected. Otherwise, I'm sending out a mass notification every time and so a lot of people that were historically heretofore as I use the example small and large enterprises buying just Mass Notification, it's not tough for our reps to step them up and sell them 2 to 3X more with Safety Connection Pro, the automation of standard processes and standard operating procedures, which is Incident Management, our solution called Incident Management and Safety Connection, which gives you that dynamic location capability.

Are they on WiFi, are they in the building, are they on floor 3, are they in this location campus, where are they traveling today, are they in Paris when something happens, elections disrupting business or a terrorist or a shooting event on Westminster Bridge that type of thing?

It also, we would say, has taken a little bit of time, but the salesforce is getting the hang of it, so they are selling more multiproduct deals than ever before and learning to introduce the multiple products day one and sell the vision instead of just, hey, we are the market leaders in Mass Notification, everyone from Gartner to everyone says so, so buy this from us. It is now expanding into an area where we have virtually no competitors, Safety Connection, I stress the word no competitors, no competitors today and we are disrupting a market and that's a much better place to be in combination with Mass Notification.

So sorry for the long-winded answer, but it helps you really understand what has changed over the last couple quarters with our sales methodology is leading to some of the success with multiproduct sales.

No, that's very helpful. But that's all I have at the moment. Thank you for taking my questions.

Richard Davis, Canaccord.

Thanks very much. One of the questions I had derived from some of the comments you made. So are you guys on track for sales hiring so far this year? Then the corollary is just because you mentioned you are becoming the standard for the industry and so you want to be involved in all the bakeoffs. In other words, I'm just trying to triangulate around capacity to channel all this good news. Thanks.

A simple answer, Richard, is yes. There is nothing we are doing that is abnormal and we certainly we believe are tracking to where we need to be in terms of yield and professional sales capability, both in the US and internationally.

Okay, perfect. And then on the up sales, are you still keeping that within the existing salespeople or do you foresee a need to have an upsell team?

That's a good question. Today, we break our salesforce into only three groups -- strategic account reps, which have a very finite and specific list of accounts and are expected to be closing multi-six-figure transactions. For instance, the large Oracle win was completed by one of our top performing sales executives who only have a finite number of accounts and we would hope those guys are from quarter to quarter closing larger transactions because of that very directed nature.

And then we have AEs, the account executives, that have a geographic or a vertical market remit. Increasingly we are moving to a vertical market organization because it allows our reps to understand solution selling more and we will continue to add there, but hopefully train them more on the vertical market specialty they need to understand to be able to sell those solutions and those higher enterprise dollar solutions into the vertical, but those are net new people and then we have our account managers that sell into the base.

And they are segmented to some extent into pure growth people and in some markets just renewal people and then there's some combination of those. But other than those three groups, those are the three we have. We don't have an upsell team yet, but we are breaking out some of our verticals into focused efforts around pure upsells and they have no -- almost no renewal responsibility and then some that have a combination of renewal and upsell to get just some of that focus, which I think you are alluding to.

Got it. That's helpful color. Okay, well, I think I will turn it over to Tom who is sitting five feet from me here or you can have the operator do it. Thanks.

Tom, do you want to go ahead?

Sure, why not. I will even borrow Richard's phone here, how does that sound? You don't even need a Safety Connection product for this because I can tell you exactly where he is sitting. So all right, I will jump in. I wanted to ask a follow-up on Safety Connection here just in that you guys are getting some nice traction there on that. You had the announcement with Hulu earlier this quarter and I think it was perhaps MasterCard this quarter for Safety Connection Pro. But can you just talk a little bit more about again just the upsell process? It's a little bit of a nontraditional sale that you are going after the physical security market, but is that in fact turning out to be an upsell relative to core Mass Notification? Does it require a different type of sales rep to go after that sale? Just maybe you could provide some anecdotal evidence relative to what you are seeing there in that market. Thanks.

Sure. So in terms of helping you understand the Safety Connection sale, we would tell you that, out of our big product categories, Community Engagement, is the big product, the secondary product sold into now the state and local government and it enables people to do community alignment and keyword opt-ins for events as we have discussed in the past like the papal event where you just type in the Pope to 888777, then you get all the relevant information or Mardi Gras, which we supported or last year's Super Bowl.

So a lot of -- that's a product that's sold traditionally there and is pretty much aligned, pretty easy for the state and local team to sell that because it fits well within this area when you talk about police and local issues, Community Engagement.

On the corporate side, there are two principal products that have really gotten scale. One is IT Alerting. We would argue that that one is a little bit more difficult sale and that's why we have broken off and announced the hiring of Vic recently as the GM of our IT Alerting business because the IT professional is different than the business continuity emergency manager or the security officer, chief security officer or chief risk officer.

So I would argue that's the one sale that requires a little more focus for us because you have to be IT conversant and conversant in these ITSM systems like BMC, ServiceNow, etc.

On the Safety Connection side, it's actually a pretty nicely aligned fit. We often are sold in about a third of the time and the chief security officers own the risk, the emergency response or the business continuity function or they are commingled. They literally sit together, often reporting up to a chief risk officer or CFO. Again, a common ground for us is someone we are used to selling to.

So although we sell with Safety Connection more to the CSO than the business continuity or emergency planning guy, within a corporate environment, very similar tracks and that's why you are seeing probably even faster traction than we've had with IT Alerting in total gross dollars. Although we are not projecting, we can tell you that that product is growing faster. We said that over the last two calls because it's very much an aligned sale. We go into business continuity, the HR director for travel, the person in charge of security, CSO or the risk officer and it's someone we are becoming very comfortable with.

So I think you will continue to see that movement, critical event management is squarely sold into that exact same place. The only extension is the supply chain guy, the guy that owns worldwide supply chain that can be affected by events and hits the bottom line. So we find that a good ROI, but other than that, we are going to be selling to the chief risk officer, the chief security officer, business continuity, emergency and travel guys and that is the target market and the one we are comfortable with today. Hence the success with Safety Connection.

Excellent, okay. Ken, quick one for you. Just in terms of the gross margins on the quarter, can you just give us a sense as to what the impact IDV had on the quarter for gross margins and then how we ought to think about the trajectory of that number going out for the rest of the year? Thanks and I will give Richard his headphones back here.

Okay, and Tom, I'm sorry that's another one of those that we are not going to break out the details by product or by business unit at this point in time. All we can tell you is that we are working towards a longer-term gross margin model consistent with what we talked about at the time of the IPO. But, for now, as we reported this quarter, we believe the costs that we incurred in completing the new broadcast engine were effectively one-time, but we reserve the right from quarter to quarter to make investments as we see fit.

As you know, we don't guide to a particular gross margin and we are very happy with the trends that we've seen historically in terms of the gross margin being maintained. As we've talked about, we're in the enviable position that in order for our gross margin to grow, we don't need to make any fundamental changes in the business. That will happen with volume.

Included in our cost of goods sold are three things. It's the cost of internally developed software amortized to our cost of goods sold. It's the cost of our data centers and the people who run them and it's the cost of message delivery. All of those costs are effectively step functions that go down as revenue increases or volume increases. And so for us to be able to increase our gross margins, we don't have to make any changes, but we do have an infrastructure that is able to support substantially more business and that's part of why we are successful.

Got it. Perfect. Appreciate all the help and we will chat with you soon. Thank you very much.

Brent Bracelin, Pacific Crest.

Thank you for taking the question. Jaime, a couple here for you. What's the relative deal size for multiproduct versus standalone, one? And then two, if you looked at the 54 multiproduct deals this quarter, are you seeing a bigger contribution from last quarter from new customers or upgrades to the installed base?

Fair question. So on the multiproduct deal size, it is trending towards two. We haven't gotten one that fixes it to the trailing 12 just yet, but it's -- it's probably -- let's see the last numbers I saw, probably about -- closing in on doubling now. It's much higher than our current because by default you are giving some discount like you would in an enterprise suite from Oracle or from SAP or from Microsoft with Office for them buying more than one product at a time, but in our case it substantially drives -- we've historically talked about a 10% to 20% discount when they are buying multiple products versus buying them individually.

And so whatever it has been, we have been in the range of 20% to 30% I think at the IPO. Then you'd be talking about a meaningful increase, almost doubling that when you are buying multi-products. Because there are so many, we will have to focus and by next quarter, we might have enough quarters of it to start to get to an average. What we tend to want to not do -- like with the deferred, whether it is good or bad, our deferred revenue balance, we try to remind you that, hey, it goes up in quarters, it goes down. You got to look at it on a trailing 12, so you get an average that's meaningful, we don't just cherry pick it to give you a good quarter and then forget about mentioning when it's a bad quarter. So we will look forward to next quarter trying to have some increased numbers on that potentially.

On where we are selling it, newer growth, by default, you are almost always going to have the base because the base is 3,200, 3,300 customers so -- and it's a lot easier to sell into the base than it is net new. The first quarter we mentioned multiproduct deals, we only talked about new and that's not fair because we are going to get half or even slightly over half into the base given the size of the base.

Right now, it's probably 60/40 base to new, but that's just -- to be honest, it's just my guess. I don't have that specific metric in front of you, but it's clearly easier to sell to our base because we have an established reputation and if we can sell net new at anywhere close to half, you should be selling more to the base because again you have a relationship and the same problem exists in a net new account in most cases that does across our enterprise base.

Makes sense. And then my last follow-up for you, Jaime, the local and state opportunity. What's the size and scope of the opportunity there? I mean who is your primary competitor and what's driving the RFP activities so far this year?

Well, we said on our I think first earnings call that because it wasn't too far after we announced the Florida win that these large six-figure and seven-figure transactions, probably the average of the state or major city like Washington DC, the national capital region or state of Florida or Connecticut, probably average in the $1.5 million range. And these $1 million deals or large six-figure deals that are significantly larger than anything else we see in a market by themselves because they buy everything upfront for all citizens. So it's by default shoving everything upfront in the contract.

We have seen more activity because of our success with Florida and Washington DC as the standardbearer, we proved that that would ultimately provide a coordinated communications to a large geographic area of citizen population, whether that's a national capital region or an entire state that's affected by a hurricane.

So right now, we've mentioned before that you have everything from I think Tennessee and Louisiana and gosh, I don't know, Arizona and New York, there are a bunch of them out there and all we are trying to do is make sure no one is shocked if the results on those larger transactions, which often can be $1 million and above lean our way.

It would make sense this year given the number of them. Other than that, we are going to stay away from any forward statements or getting ahead of our skis because we will want to announce them as they are publicly released, but assume that some of them can happen intra-quarter because once they get out there, they get out there, then there is nothing we can do to stop them.

But that's all I can say about them right now, that there are more this year than there have ever been by a large factor and they are very advanced. I've said on some of these past calls they will be announced this year so there is no question there will be wins or losses this year, we can't win them all and we would hope for as many as we can get on the larger side of that given our success already in that large metro or state type of opportunity.

Great, very helpful. Last question from me for Ken here, just on the gross margins, you talked about the new platform, broadcast engine, impact to the gross margin this quarter. Specifically as you think about those investments in software, data centers, message delivery, is this largely a one quarter kind of big investment and then we could start to see some leverage going forward off that or should we expect a drag for a couple quarters relative to those capacity investments you are making?

Well, so with the statement I made before, which I said that we don't want to commit to not being able to make appropriate investments going forward. For the most part, what we just saw was the end of a large amount of investment. Keep in mind we've probably discussed with you before that our preference is always to put costs behind us rather than mortgage our future. So wherever possible, we prefer not to capitalize anymore than we have to under GAAP, but it's a balancing act.

Clearly, we want to drive gross margin and we can do that. We also want to invest to be able to scale the business, which we are doing and some of the investments that we make for instance in the infrastructure end up yielding significantly higher gross margin going forward because we reduce, for instance, our cost of message delivery, which we did a couple of years ago when we moved from primarily analog-based architecture to digital or SIP-based message delivery.

So I guess that's a long-winded way of saying we will never say never, but for the most part those costs were periodic, but if we do them again, it's not that we weren't able to manage them, it's that we made the decision to make another investment going forward.

Very helpful. Thank you.

Brad Sills, Bank of America Merrill Lynch.

Hey, guys, thanks for taking my question. I wanted to ask about international, how were results in Europe and Asia and then plans for expansion in those regions please?

I think the results were positive and especially the larger accounts getting some traction with larger accounts. I want to caution you it's still a small portion of our business, so we don't want to get out in front of our skis as we tend to try not to do.

With the international SOS partnership and some additional partnerships we have been nurturing, we probably will continue to see names and wins that we would attribute to our partners and ourselves combining for success, but this year is still all about getting traction in both Asia and other parts of Europe and UK where we traditionally have had our base of business.

So we would think it's going to continue. We'd also suggest that this quarter was a good result, but we don't want to beat the drum too much. It was mainly a good result because we saw large multiproduct wins moving forward and expansion both in net new -- one was a net new one and one was a growth and that's the important thing that that team has the experience now and has the right combination of people on it so they can regularly deliver those, but it's still roughly a 10% portion of our business. So still a lot of upside there as we mature it and build out those partnerships.

Great, thanks. And then one more if I could please on some of those state deals that you mentioned, I mean why now? You seem more bullish on these deals. Do you feel it's platform related now with IDV and some of the other investments you've made. States kind of view Everbridge as a scalable enterprise class. I know you've had history there already, but I guess my question is really what's changing in the business to bring more success at least in the pipeline for some of these deals?

That one's pretty simple actually. I mean even on our roadshow as a public -- going out as a public entity,

a lot of people scratched their head and said Mass Notification, emergency notification, we get it, it is a public company and not to poke fun at ourselves, but we've been concerned about that for the last couple years. And clearly started investing two or three years ago in what we consider to be an enterprise scale platform. That's why the new architecture engine, that's why moving from analog to digital, all those transitions and we believe that, although our core Mass Notification market is clearly growing at a rate consistent with our business still, give or take a couple percentage points up or down in any given quarter and big wins or small wins, that the way forward is a much more elevated value proposition that goes beyond just communicating with employees or key constituents -- citizens, customers of companies or employees.

And we have slowly mapped that out to be -- the thing that has commonality in our business is when bad stuff happens or big stuff happens, it can be the Pope visiting, which is not a bad thing or it can be a terrorist or an active shooter or a hurricane or tornado, our system gets used at scale with success worldwide, etc.

And to expand that, we want to help the operational management of those events, what we call critical events. So going forward, I think the thing that's happened is with Safety Connection and Safety Connection Pro, the combination of those products, we are seeing people say, yes, you have something unique past Mass Notification. I am willing to spend 2, 3, 4 times what I would traditionally with Mass Notification. That's why the Ascent Corporation example was important because we sold them and proposed originally Mass Notification. That's what they said in their request for proposal they wanted.

What they bought was something that cost them 3 to 4 times that and involved 4 of our products instead of 1 of our products, Mass Notification. And they did that because they had employees like most companies today that were scattered all around their geographic [region], which is four or five different states in the Midwest and half the time they don't know where those people are because they move from oil pad to oil pad throughout the day servicing things and how many major corporations had people out in the field on a daily basis, not just traveling executives, just sales reps out or service reps out servicing equipment or accounts.

So we believe that as that physical barrier to an office with all your little employee bodies inside that the phrase Elvis has left the building is true with employees. They are outside that and they need to have tools and an overall capability to understand when bad things happen, who is affected in my organization, regardless of their location and then do something about it to manage successfully through to ensure that people's lives aren't impacted. In other words safety or the business operation is sustained so it can continue to make a profit and run and that larger remit is resonating.

We can tell you that we would hope to soon just through the loose association we have with Visual Command Center, the IDV product and the Safety Connection Pro product, Mass Notification, Incident Management and Safety Connection, be able to show you wins that we're already recording at the enterprise level. That is what we are starting to present to selected customers because it's not all going to be done to the end of the year, early next year. We are saying we are going to do it selectively, but we are starting to see that and that's what customers are buying often when they are buying Safety Connection Pro.

It's not much of a step to go to Safety Connection Pro at $200,000 or $300,000, then add IDV at $100,000, $200,000 as we said their ASP has been and you now have a $0.5 million enterprise sale. That takes two things. It takes the product set that we have done and the integration; more integration will make it easier. It takes a market that is no different than our core market, bad things happening affecting organizations globally.

It takes the companies trying to say I want to consolidate that into a single pane of glass and we see that more and more at leading large enterprises, be they literally healthcare, state and local or corporate, but we are focusing on corporate first and then we have to train our reps to be able to sell that enterprise class.

But that is a transition that's occurring in the market. We think the results in Q1 are very demonstrable in the form that they are proving that we can sell a larger multiproduct sale and it's moved from just Mass Notification into the Mass Notification and Safety and Incident Management. If we can now put Visual Command Center together with that, then we have an ASP that's demonstrably higher as we start off with I think -- either Michael or Terry asked the question, but you know that it is stepping up meaningfully and it's going to be much larger and it's a key for us to get to much larger total revenue dollars on an annualized basis because it's a lot easier to sell $0.5 million deals to get to that magic number than it is to sell $30,000 or $50,000 deals.

So that's the migration that's happening. It's the reasoning, it's the momentum behind it and the best thing we can do is obviously in future calls, our Q2 call and Q3 call, be able to show you just as we give you examples today specific examples of that success occurring with wins.

Great, thanks, Jaime.

Dmitry Netis, William Blair & Company.

Thank you for squeezing me in. Congrats, guys, on a nice quarter. Mike, most of my questions have been asked. You are certainly showing very nice progress both on Mass Notification side of things, as well as this new application, Safety Connection. But back to the Mass Notification market, as you said, during the IPO, there was a lot of concerns how fast that market is growing, the size of that potential market. You certainly demonstrated pretty good success there, but, Jaime, I think you said you are expecting the growth out of this market somewhere in that -- let's say you are growing in the 30%, 32% range plus or minus a couple of points. So is that kind of how you're thinking about the growth rate of this market and is this for you mostly a replacement market or is this -- do you see much of a greenfield opportunity there? What's the mix of the deals look like as you go into the core Mass Notification market?

And then, secondarily, on that same topic, just the competition topic goes, what are you seeing out of the competitors in that core market, with CodeRED, for example, merging with MIR3, are they getting any more aggressive or not? What are some of the smaller SaaS vendors? Are you seeing more or less of them? Just touch on that point as well. Thank you.

I can be pretty quick with that because in terms of the growth rate for Mass Notification, you do have to remember that, as we sell more product to them, as we create multiproduct bundles, you do discount a little bit to get three products sold and an ASP that's maybe twice the size of your original ASP. So there is some internal cannibalization you do in any suite sale and we are certainly going to see some of that.

What we've said historically is the growth rate for Mass Notification was in the 20s, mid-20s or higher and given the mix of sales in the quarter, it can go slightly up or down, but it's supportive of our overall growth rate at 30% plus and we don't see and we haven't since our IPO seen any dramatic change in that.

You will see, if we do -- I can think of it as the question was brought up in this call a big SLG deal, state and local government deal, a big city or county or state, all of a sudden that balloons like it did last year with state of Florida. So that kind of goes up and down because we had the biggest deals we can do almost historically because they buy everything upfront would be those mass state and local deals.

And so the growth rate in Mass Notification is consistent with where it's been roughly speaking. It gets cannibalized a little bit the more and more multiproduct deals we do and the more we push customers to buy a lot more dollars, but then we have to appropriate the dollars between.

In terms of the mix, you also have to remember or the maturity of the market I would tell you just that it's certainly less greenfield today than it was six quarters or four quarters ago because the fact of the matter is it's a -- a market matures every year. I would also tell you though that, in the Fortune 1000, everyone has some form of mass notification, but guess what, Oracle had nothing. Pure greenfield.

So who would have thought that you would get that size corporation or in fact both the leading tech examples I gave you had nothing before we got into this quarter and they are two of our largest deals in the quarter. So it is a market that if you pointed out the top 1000, you'd expect 70% to have something or 80%, but as you go down market, it's very much more greenfield. So it depends on the space within the markets you are going.

Today hasn't changed substantially and we are still seeing very large opportunity there and then you go outside the US and it's probably the inverse. It's 80% a greenfield and only 20% applied with the exception of the very largest companies.

I go into Fortune 500 internationally all the time that are based outside the US and they are purchasing their first Mass Notification because that market usually trails the US by two to three years.

And your last question, competition, I think our success begets a lot of investment in the space, so we've seen some pretty good sized investment in the space, but when you -- I hate to use the analogy, but when you have two companies that are solely focused, for instance, one in the example you used, one was historic state and local and on the smaller side of the business and one was in corporate, very small, a fraction of our size, a very small fraction, probably less than 10%. And you put them together, you get kind of a disorganized organization that basically becomes an opportunity for us to peel off their largest customers. So we tend to like it when people in our core space -- when we are the acknowledged leader emerging because it allows us to gain opportunity at their largest customers. It's disruption in their own base and it creates an opportunity for sale.

And sans that, we would have nothing to say other than you've got some people in the market that have a little more money because of investing, but their core technology has not changed. We still have a lead on IP and on fundamentally what is patented and unique in the space and our acknowledged leadership, I don't think whether you ask them or talk to general technology pundits in the market has changed one iota. So there is not much that has changed in the competition. Hopefully that answers your question. I think --

Absolutely, it does, Jaime. I appreciate that perspective and keep up the good work, gentlemen.

Thanks, Dmitry.

Thanks, everyone.

Operator, any other questions?

I'm not showing any further questions at this time.

Well, with that, thank you for participating in our Q1 conference call and look forward to talking to you soon. Thank you, operator, that completes the call.

Thanks, everyone.

Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone have a great day.