Everbridge Inc (EVBG) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Everbridge, Inc. Third Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this call may be recorded.

I would now like to introduce your host for today's conference, Mr. Ken Goldman, SVP and CFO. Sir, please go ahead.

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

After the market closed today, we issued a press release with details regarding our third 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 outlooks. 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 we issued today. For 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 financial 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 or 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 Jamie for his prepared remarks.

Thanks, Ken, and welcome to all of you joining our third quarter 2017 earnings call. We are very pleased with our performance in the third quarter as we exceeded our guidance and generated strong growth while continuing our mission of keeping people safe and businesses running. Revenue in the third quarter was $27.3 million, well above our revenue guidance and an increase of 37% from a year ago with growth driven by new and multiproduct deals as well as greater number of large strategic transactions. And at the same time, continuing our balanced approach to delivering revenue growth with increasing profitability. Our strong topline performance contributed to an adjusted EBITDA in Q3 that also exceeded our guidance at a positive $0.8 million.

Strategically, we continue to focus on several key priorities that drive the long-term success of our business. First, continuing to grow our core public and large enterprise Mass Notification business. Secondly, winning more and larger multiproduct sales. And third, accelerating our Critical Event Management, or as I'll refer to it routinely, CEM strategy.

First a few words about our core Mass Notification and Incident Management products and businesses, which I will routinely refer to as just Mass Notification in my remarks today, and our long-term growth strategy. Our growth strategy for our core Mass Notification solution begins with our public-sector vertical where in Q3 we closed one of the largest state contracts ever awarded, the state of New York. The New York state contract is a long term multiyear contract that upon implementation could generate millions in annual subscriptions as we onboard New York's 20 million citizens. In addition to our public-sector success during Q3, we closed numerous new Mass Notification customers across all our other verticals, both in the US and internationally. Our ability to expand our core business is based on our clearly differentiated platform which continues to deliver market best scale, speed, reliability, global reach and security in our public and large enterprise go to market strategy. This go to market strategy includes our focus on large state and local organizations like Washington, D.C., the state of New York and the state of Florida, an area of accelerating success that is supported with a robust pipeline of future large opportunities.

Next, we've invested in a FedRAMP expansion project which upon certification expected early next year, will enable us to open up the broader federal government market, a space we believe could easily double our total government sector opportunity over the next few years. And rounding out our market opportunities is our growing expansion in Europe into broader international markets where our scaled, secure, high performance global platform helps us win a disproportionate number of larger regional government and infrastructure projects as well as the larger Fortune 1000 enterprises that are trying to protect people and facilities during critical events.

Our second priority is driving multiproduct sales which continue to create larger and stickier customer relationships. Our platform enables customers to leverage a common infrastructure for the management of people, physical assets and processes during critical events, increasingly resulting in multiproduct purchases.

During the third quarter, we closed multiproduct transactions that set new records for Everbridge at top corporate customers. These transactions include our largest CEM deal to date with one of the world's most valuable brands and one of the world's leading banks, closing our largest multiproduct international deal to date. We continue to innovate the ways our applications can be better integrated across the platform as well as drive the processes to achieve better life safety and security to protect people as well as ensure businesses can continue to operate profitably. Our growing number of large multiproduct deals are producing two clear benefits. First, they are generating substantially larger ASPs. Our top 10 deals in Q3 came in almost 5 times our average single products deal.

Second, they are increasing our renewal rates. During the quarter, our overall renewal rates continued in the mid-90s. By the way, that's not including upsells which is already best in class. However, our customers with 2 or more applications on the platform had even higher renewal rates and customers that have purchased 3 or more products have a renewal rate of close to 100%. Now that's sticky.

Our third priority is advancing our Critical Event Management strategy which continues to receive strong early market adoption from customers that seek a single pane of glass solution that enables major organizations to identify critical events or threats anywhere in the world, assess the intersection of their organization's people or assets who may be at risk, and automatically launch standard operating procedures to respond with Incident Management and facilitate communications and collaborations to ensure people's safety and the continued business operations.

Our CEM solution is gaining rapid adoption in larger enterprises and delivering real value to customers. During the third quarter we reported a number of exciting new CEM wins, including our largest CEM sale to date to one of the world's most valuable brands, as well as purchases from leading retail and technology companies. These customers are making big bets on our CEM strategy and vison with an average spend of approximately $500,000 which is up significantly over Q2.

In addition to these accelerating go to market strategies, we continue to believe that we can drive our business forward with a balanced model that delivers solid growth and stable gross margins resulting in continuous improvement of our positive adjusted EBITDA. To put it succinctly, our strategy is working and our results show it.

Now allow me to review a few of our key operational metrics from the third quarter. In Q3 we added 119 net new customers which is consistent with past quarters and brings our total customer count to 3,560, an increase of 16% from a year ago. Our growth is also being driven by our increasing average revenue per customer with multiproduct deals and increasing CEM bookings becoming a meaningful addition with dimension to our growth story.

In Q3 we closed over 10 $100,000 deals and 55 multiproduct deals. An increase from 42 that we closed a year ago and a year-over-year increase of 31% These multiproduct deals lifted our average sales price to $41,000, a year-over-year growth of 32%. Our revenue from international sales continues to grow at approximately 10% of total revenue in Q3 as we continue to penetrate the significant opportunity we believe exists outside the US. And finally, our new products, that's Safety Connection, IT Alerting, Crisis Commander, Visual Command Center, Community Engagement and Secure Messaging, represented 42% of all new and growth sales. That's up from 36% just last quarter and 28% over Q3 of 2016.

Now let's review the third quarter results in more detail. Our performance can be characterized by strong individual solution success, increased multiproduct wins, and a growing number of large transactions for our CEM suite across all of our end markets. In our largest vertical, corporate, we signed our largest CEM deal to date with the world's most valuable brand to power their safety and security operations for their global facilities and over 100,000 employees including their new corporate headquarters. This new CEM win is a significant validation of our CEM strategy and also marks the largest Safety Connection sale to date at over $750,000. This is a significant increase in the ASP from those initial early CEM deals we were mentioning just a few quarters ago that ranged from $200,000 to $400,000 in annual recurring revenue and helps us prove the growing value of our CEM suite.

Another interesting CEM deal that closed in Q3 was a land and expand opportunity or as I often refer to them, growth deal, with one of the world's leading mobile players who was already a customer of our Visual Command Center. This international company recognized that they had a gap in their ability to provide employee safety and security globally and chose our single pane of glass CEM solution to implement an integrated system covering their 50,000 employees across the globe. This growth sale included the addition of our Mass Notification, Incident Management, and Safety Connection applications to the existing Visual Command Center installation to equal our full CEM Suite and enabled us to double the size of this annual relationship to over $500,000 per year in subscription revenue.

Other CEM sales in the quarter included another one of the world's top three software companies and one of the world's leading social media companies. Both choosing 3 or more of our CEM applications and driving their subscription spend with us to over $500,000 per annum.

Staying within the corporate vertical, allow me to highlight several other very significant new and growth technologies including a number multiproduct wins that drove our larger average sales price in the quarter. For our core applications of Mass Notification and Incident Management, we saw major wins at organizations like one of the largest insurance brokerages who had no current notification solution in place. And I quote, were blown away by our CEM vision versus all of our competition.

Another Q3 corporate win that was interesting was because of its speed to close. This leading chemical company purchased our Mass Notification and Incident Management solutions for their entire employee population in just 90 days, start to finish, after visiting a satisfied Everbridge customer. And Q3 was another record setting quarter for our Safety Connection application where we saw important new wins at organizations such as a leading manufacturer of wearable health and fitness devices who chose our Safety Connection Pro package after an RFP where we were told our solution was 3 times more expensive than our competition, but still got the nod because of our ability to deliver both critical communications and mobile employee safety and security.

A second interesting Q3 win for our Safety Connection solution was a selection by the second largest global legal firm who chose Safety Connection Pro to help protect and communicate to its 15,000 employees across 77 global offices. And then maybe one final Safety Connection win in the third quarter included the only Big 3 global business consulting firm that was not already an Everbridge customer. By the way, this sale was also important because this win came in combination with our strategic partner, International SOS.

In the third quarter, we also signed our largest corporate IT Alerting deal to date for approximately $750,000 in annual recurring revenue which we closed with one of the top 3 technology companies in the world. Oh, and by the way, this is a different technology company than I previously mentioned. This leading technology organization already was a small Everbridge customer, sub $50,000, and chose our IT Alerting solution to reduce their IT incident response times by 40% globally across their dev ops and service ops teams. In Q3 we also reported numerous other IT Alerting wins, several above $100,000, from big international wins including one I'll highlight later, as well as another one of the top US legal firms.

Moving onto our public-sector vertical, we're excited about the state of New York win, but even more eager to continue to pursue our robust pipeline of large potential new cities, counties and states which we believe will lead to additional contracts in the next few quarters. During the quarter, we saw other large governmental transactions closing including organizations like San Antonio Water District where we won another competitive battle for a resident employee notification system, a 7-figure multiyear transaction for counties like Ft. Ben, Texas that needed to prepare for Hurricane Harvey and obtained federal funding to purchase Everbridge for all their citizens for the next 5 years at over $100,000 per year.

And finally, as an example of our network effect in the works, within major metropolitan or regional markets, the City of New Orleans, an existing Everbridge Mass Notification customer, purchased Community Engagement after successfully piloting our solution to communicate with over 1 million visitors that attended Mardi Gras last year.

Rounding out our public-sector business, I'd like to provide you a few highlights from our continued success in the higher education space. In Q3 our education team kept rolling with wins at Apollo Education, the global education group that includes the University of Phoenix, another 7-figure multiyear deal, for hundreds of thousands of employees and students worldwide, as well as major universities like Michigan State and Rice university.

In the healthcare space, we continue to record big wins including a large enterprise agreement for Mass Notification at one of the largest health systems in the country, which includes 45 hospital campuses, more than 8,200 licensed beds in 9 states. Hurricane Matthew highlighted the need for this health system to improve their ability to communicate during critical events for patient care and protection of employees. This is a 3-year deal with a value of almost $1 million. A few other great wins in Q3 in our healthcare vertical include one of New Orleans' leading hospital groups which chose our Mass Notification and Incident Management solutions to unify communications across all of their locations for approximately 10,000 employees. Beyond Mass Notification, we saw our other applications and packages register new wins with organizations like Novartis, selecting our IT Alerting solution, and our Crisis Management Systems bundle being chosen by Peace Health, an existing Healthcare customer in a deal that grew our annual recurring fees by 6 figures.

Finally, our international partner efforts in Q3 resulted in some very significant wins beginning with a growth deal at one of the largest banks who selected our IT Alerting solution to unify their global IT response across their operations in 70 countries around the world. This win was the largest international win to date for our IT Alerting solution. In adding, our international team recorded new ITA wins at Hilma, PLC and PCE Travel as well as Mass Notification wins at organizations like Experian. During Q3 we saw solid traction with our partner efforts, developing wins with strategic partner International SOS at Schlumberger and Universal Music Group who selected the combination of Everbridge International SOS for a complete employee global safety solution for an annual subscription valued in 6 figures. Additional reseller deals included leading brands such as [Yox] who bought both our Mass Notification and Safety Connection through a reseller.

We also expanded our overall channels program and support for our CEM Vision with the announcement of a new reseller relationship with one of the world's largest security organizations, G4S, who will be working with Everbridge to implement Safety Connection and our CEM suite in their customer base of leading organizations around the globe.

While we're excited about this performance from a financial perspective, we're also proud of the value our customers realize in real life safety as well as business ROI for our solutions. From hurricanes in the southeast to earthquakes in Mexico to mass shootings out west, our customers have been faced with a growing number of critical events. During the recent CAT 5 hurricane, the state of Florida used our Mass Notification solution to deliver tens of millions of messages to tell people to prepare, evacuate and recover as well as our Community Engagement solution to reach almost a million visitors and residents who signed up during the event to receive mobile warnings and updates. All without a hitch. And throughout this multiday event, Everbridge delivered over 70 million messages for organizations around the globe, all without a hitch. We're proud of solution performance in an event like Hurricane Irma, but we're utilized for far more than life safety and security during the course of these events. An interesting use case from Irma was one of the nation's largest retailers who initially utilized Everbridge to execute safety checks on thousands of employees, but then as the hurricane passed over the state, turned its attention to determining which of their hundreds of stores in the affected area were capable of opening for business. Their challenge was to match their available employee population, those capable of working immediately after the storm, with the undamaged stores capable of serving the public. Utilizing Everbridge, they were able to match available stores with employees available to staff them, enabling hundreds of stores to get back to business as quickly as possible. And hundreds of stores times thousands of dollars in stores -- well, you get the picture, a wicked good ROI for Everbridge Solutions. And this is just one example of how our customers experienced substantive business ROI as well as life safety benefits.

Sticking with the theme of Everbridge ROI, is the use case of CareConverge solution. This is a combination of our Mass Notification, Incident Management and Secure Messaging solutions by hospitals. Hospital emergency departments using our CareConverge have seen over $10 million in incremental potential revenue by shortening emergency room stays, increasing effective capacity, improving patient outcomes, all while enabling increased revenue. CareConverge does this on a daily basis by speeding the activation of response teams and improving efficiency and quality of care for strokes, heart attacks and other urgent medical issues. In Q3, CareConverge was chosen by a regional 600-bed hospital system to improve communication and collaboration across 4,200 physicians, nurses and staff, and streamlined processes for emergency room patient transfers within the hospital. This increasing efficiency will enable them to improve effective capacity and drive both better patient care and higher revenue.

As the last topic, allow me to provide a short update on our major platform investment projects we continue to focus on, like our FedRAMP and Atlas programs. Our multiyear FedRAMP certification project includes a substantial enhancement of our overall security processes across our people, applications and infrastructure with hundreds of new security controls implemented then audited by the government to meet stringent requirements of both the federal and large enterprise markets. We believe gaining FedRAMP certification early next year will open the federal marketplace for our products, potentially more than doubling the size of our public-sector opportunity.

Our second major infrastructure project called Atlas will automate all infrastructure deployment and provisioning tests which will significantly reduce the time required for us to deploy new products and support new geographies. In addition, the Atlas Project includes a significant enhancement to our infrastructure resiliency including to our active geographically dispersed architecture that supports our best in class SLA. And our technology continues to win awards with Safety Connection awarded Security's Best at North America's leading trade show for security practitioners, ASAI.

In summary, our strong third quarter performance was characterized by deals often sold at higher levels at our customers' organization as well as those with a duty of care and operational responsibility to look to Everbridge for our robust, differentiated Critical Event Management solutions. I'm excited to see both core products like Mass Notifications and newer products including IT Alerting, Safety Connection and Visual Command Center, contributing to our growth, increasingly in larger multiproduct transactions. With this foundation we believe we are establishing ourselves as a leader in Critical Event Management and that increasing demand for our unique solutions will drive growth and profitability as we look ahead.

Now I'd like to turn the call back over to Ken for details of our financial performance during the quarter and for our outlook for 2017. Ken?

Thanks, Jamie. I'll provide some more detail on our financial performance for the third quarter, and then discuss our outlook for the fourth quarter and the year. Revenue in the third quarter of $27.3 million was above the high end of our guidance range and represented growth of 37% from a year ago. Our stronger-than-expected top line performance also contributed to adjusted EBITDA that also exceeded our expectations, coming in at a gain of $807,000, an increase from adjusted EBITDA of $335,000 a year ago. Our dollar-based net retention rate remains above 110%, reflecting the significant value and satisfaction we provide to our customers.

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. Gross profit of $19.6 million increased 37% from a year ago and represented a gross margin of 72%, consistent with the 72.1% we reported a year ago, but down from 72.5% in Q2. This sequential decrease is primarily due to the significant increase in messages delivered in the third quarter given the number of natural disasters our customers faced in the quarter. As we've indicated before, while gross margins can fluctuate from quarter-to-quarter, over the longer term we expect to drive gradual improvements as our business continues to scale.

Total operating expenses were $20.4 million in the quarter, an increase of 34% from a year ago, reflecting product and infrastructure investments to support our long-term growth as well as increased headcount and related expenses associated with the acquisitions made in the last year. As I noted, adjusted EBITDA for the quarter was a gain of $807,000, an increase from $335,000 a year ago.

Net loss in the third quarter was $600,000, an improvement from a loss of $1.1 million in the year-ago quarter. Based on 28.1 million basic and diluted weighted shares outstanding, net loss per share was $0.02 for the third quarter, also better than our guidance.

Turning to our balance sheet, we ended the quarter with $47.7 million in cash, cash equivalents and short-term investments, an increase from $45.3 million at the end of the second quarter, primarily due to the $7.5 million in operating cash flow partially offset by $3.4 million in CapEx and capitalized software development costs as well as $3.8 million in acquisition related contingent payments.

Total deferred revenue was $64.5 million at the end of the quarter, an increase of 32% from a year ago. Impacting our year-over-year change in deferred revenue and calculated billings which grew 27% from last year, was an unusually large invoice in the third quarter of 2016, creating a more challenging comparison. As we've noted on prior calls, our deferred revenue balance at the end of any 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 trended period.

Now let me turn to our outlook. With a better-than-expected third quarter performance and continued business momentum, we're increasing our full-year expectations for revenue and profitability. For the fourth quarter of 2017, we expect revenue to be between $28.4 million and $28.6 million. We anticipate an adjusted EBITDA of between $900,000 and $1.2 million. Adjusted EBITDA guidance assumes an estimated stock-based compensation expense of approximately $3.8 million for the fourth quarter. We anticipate a non-GAAP net loss of between $700,000 and $400,000 or between negative $0.02 and negative $0.01 per share based on 28.2 million basic weighted average shares outstanding.

For the full year, we now anticipate revenue to be in the range of $103.5 million to $103.7 million, representing year-over-year growth of 33% to 35%. We're now anticipating an adjusted EBITDA loss of between $800,000 and $500,000 for the full year 2017, which includes positive adjusted EBITDA for our core business, offset by losses from our acquisitions earlier this year. We now expect a non-GAAP net loss of between $6.8 million and $6.5 million for the full year or between negative $0.24 and negative $0.23 per share based on 27.9 [million] basic weighted average shares outstanding.

In summary, we delivered a strong third quarter performance characterized by larger deals which exceeded our expectations. We're excited about our continued progress in the marketplace and our strengthening leadership position and are confident that we can continue to penetrate the multibillion-dollar opportunity ahead of us.

With that, Operator, can we now open up the call to questions, please?

(Operator Instructions) Richard Davis, Canaccord.

Two quick questions. If you think about the space you're operating in, it's kind of like a lifecycle, right? So if you think about it, you prepare, you respond, you recover and you mitigate. You guys kind of started in response and have been kind of inching up from there. So Jaime, how do you see the evolution of Everbridge into those other parts of critical event lifecycle or does that not makes sense? And I know you don't want to boil the ocean, because you don't want to do that, but just how do you think about the evolution of this company? Thanks.

It's a very fair question and as we do better and better, we can tell you that we see needs that we don't necessarily fulfill today. As you said, with VCC, we clearly target the assessment of risk out there. We can tell you where risk is occurring because we can track thousands literally of different sources for threat and impact data. And then cross that with and find the intersection with your facilities, assets or digital devices or things, IoT, that are being affected. And then we can help you launch an automated event. We don't yet manage the entire incident management cycle or crisis management cycle and so we've said on past calls, that's an evolution area for us either to build, buy or partner on. And then we obviously communicate and collaborate and provide the tools to get information to the people that need to know to fix it, to repair it, to get out of harm's way, to stay safe, etc. And at the end of that, we have stated again and again that we want to provide increasing analytics so that after an event like a hurricane or a mass shooting, someone can look at it and say how do we get better next time? How do we reduce the impact to the business? Or if it happens, how do we reduce the risk to individuals or in the worst case, as with tragedies that are happening it seems almost daily, loss of life. So there are a couple of areas in this that we still have to grow into. In addition to the suite of applications, I think the other area you'll hear us continually talk about is we used to sell into one or two areas of the business, business continuity, maybe IT. Increasingly we're selling at the head of supply chain, because that affects all the business operations when there's a major event, not only life safety as I suggested, but getting stores open and matching employees so you can bring business back up, or when there's a critical event, how does it affect your supply chain? So broadening the departments we serve in the organization and having that single pane of glass used by the entire corporation. Both more applications and broader use within an enterprise for the increasing number of critical events will drive our ASP and the total dollars in revenue and our addressable market.

Michael Nemeroff, Credit Suisse.

Chris Rochester on for Michael. Thanks for taking my questions. Congrats on the strong quarter. I was hoping to maybe get a little bit more color on the New York contract. Would you be able to provide any financial implications for the next couple of years? And any color into potential opportunities to expand that contract down the line and whether or not that opens you guys up to enter into any new municipalities within the state of New York? Any color around that would be really helpful. Thanks.

Yeah, I think to your question, I think we've provided most of the information we're going to provide, partially because it's a public contract and you can kind of read for yourself. It is a multimillion dollar contract, over multiple years. Like most of our large contracts, it takes a while to get it geared up. So you'll see us increasingly start to build, but just because we have won the contract and announced it, doesn't mean it's implemented the next day. As with the case of the state of Florida or Washington, D.C. So that's just going to be coming online over the next quarter or two. Then in addition to all that, yes, obviously a large win like that continues to put additional oomph behind our public vertical efforts because once you've won the state of Florida, the third most popular state, Washington, D.C., the home of our government, and then New York, you pretty much run the table on two or three of the largest opportunities you can win in the US. And it brings us I think to 8 or 9 of the top US cities with states. So it does boost that business. But beyond that, it's a contract that as we roll out we generate more services as we get citizens onboarded and that will take a period of time to accomplish. But it's a multiyear contract, I think the contract is actually 7 years, so it's a long-term contract with a lot of upside for Everbridge.

That's helpful. And maybe just one quick follow-up. I mean it looks like you saw really great strength kind of across the board. But was there anything in particular to highlight that was maybe the most surprising or the most unexpectedly positive versus your expectations in the quarter?

Well I would tell you that we're hopefully not too surprised. We think that the CEM strategy continues to be a little bit ahead of track. We said that because we acquired IDD last year and VCC will not be fully integrated into what we consider our pure SaaS environment until middle of next year which it's on track for right now. And so that will then help put more oomph behind that whole major effort for us, the general CEM. And the fact that customers are buying that ahead of it being fully integrated, i.e., 100% single instance, multitenant SaaS, is very, very reassuring. And seeing customers that have VCC, as I mentioned the large international telco choosing to go with us, they had VCC, they bought every other of the CEM suite and then doubled or past doubled their contract value into the over half a million-dollar level. Those types of wins and the other ones, a top 3 software company or one of the other companies I mentioned, those are very reassuring because that's dead on spot with our strategy to provide a single pane of glass across the enterprise for what no one I think with this recent spate of news can argue is a growing list of critical events that affect you whether you're a city, state or local government, scared to death of some idiot with a gun doing something, or a major storm event like the multiple hurricanes we've had, those all are driving increased kind of must-have solutions and higher visibility with higher ownership for us in major corporations. And that's probably a little bit ahead of where we thought it would be, so we're pretty encouraged by that.

Scott Berg, Needham & Company.

Hi, Jaime and Ken, congrats on fitting the most number of larges I think I've ever heard in the script before. Signifies a good quarter. I have two questions for you and they both actually focus on that word large. First of all, on that state of New York deal, Jaime, you mentioned the Florida deal as well, how many more state opportunities are out there like those types of deals do you think versus the individual cities or kind of more municipality type arrangements?

One of the things I tried to do since we've gone public, there's always the question for people, so how is your core Mass Notification business doing and do you have the opportunity to continue to grow that quarter after quarter, year after year for quite a few years given its a large portion of your historic revenue base? And what I tried to set forth in this conference call with the larges, was the clear explanation of our strategy which is yes, we continue to go after core Mass Notification or base and Incident Management, those are our two core historic products that are used in emergency notification. And in the state and local and large county area, whether it's a major city municipality, a huge county that has multiple millions of people in it like an Orange County, California or something, they can all be $300,0000, $400,000, up to several million dollars a year in our major wins. And that fuels our public business. But in addition to that, opening up the federal market, which is market that's a fraction of our overall revenue, that's a big opportunity too. So we spent about a year, a year and a half now by early next year Q1, where we want to be able to gain FedRAMP certification. We'll be submitting our package we believe and then shortly after hopefully gaining certification. And that opens up our federal market practice which is we are saying equal to, so has the opportunity to double, that addressable opportunity for wins that are available every year. And what's good about the federal government is there is huge number of those deals equal to our 35%, 40% that is our state and local business today, our government business today, that are already signed and underway in the federal government and are up for renewal every year or up for win for us. We don't have to go finds those, they are RFPs that come out every year. We just haven't historically participated in those. And then we have the opportunity to expand internationally. So that's the strategy that we've laid out and want to make that real clear, there's three pieces to that. It allows us plenty of room to grow at our current growth rates with our core business for quite a period of time if we execute properly. Because it's a substantial growth in our overall kind of public market addressable market. And then when you go back to state and local, we're only 3 deep in a market that includes 50, at a minimum, and probably 200 when you think of large counties, large cities and states that could be meaningful wins, not a $50,000 or $100,000 win. And so as I said, we're not using the term, the statement lightly, but we had a large healthy pipeline, a robust pipeline of those large county, city and state opportunities and we think you'll hear about more of them in the coming quarters. Past that, I don't think there's much we can say, but we just started to penetrate in the last two years that state opportunity and the business is 14 years old. So there's plenty of room for growth in that segment.

Terry Tillman, SunTrust.

I'd echo congrats on the quarter. First question just relates to the IT Alerting business. I know that's one of those businesses that's vying for kind of $10 million annual run rate at some point, hopefully sooner than later. But did you see any kind of short term benefits or kind of abnormal activity post some of the high-profile ransomware situations such as WannaCry? And just because of the cyber threat and cyber-attacks that seemingly are out there every day, has that changed the growth trajectory of the IT Alerting business?

I think honestly that's been out there for quite a while. We absolutely saw customers who cited that with WannaCry they needed to turn off computers and communicate to entire organizations, thousands of employees in Europe for example. In one deal that I know of, an international deal where they said they had to have something to quickly communicate to everyone one and specifically make sure IT was doing its job in shutting down servers, etc., to avoid the contamination from malware or certain security breaches like WannaCry. So we have seen that. I don't know that it changes the trajectory. The trajectory of that business is pretty good. And this quarter signified our largest deal in the history of the ITA business and then our largest international deal. So I think in both cases we're pretty happy with that and it's moving towards that magic $10 million number I think at an accelerated pace. So we're -- but nothing overwhelming. We didn't see the trajectory double all of a sudden, we don't want to mislead you.

The second question just relates to some of this press release in the recent past which seems like a great hire in terms of experience with Bob Hughes, bringing him onboard. It seems like you all have a lot of good things going on. Maybe a little bit more on the rationale of bringing him onboard, what is he going to do versus what you're doing and could there be any kind of disruption or could there be some sort of change in some of the things you were doing? Just talk a little bit about this senior exec hire and what that could mean for the business as well. Thank you.

Sure, it's a great question. Put very simply, our organization intends to grow fairly rapidly at a continuing pace. It gets harder as you get bigger, right? And I think a lot of organizations, especially early public organizations, see that. And part of the way I think you get around that is by having unique differentiated IP and continue to invest in IP. You see us doing that as Ken remarked in this quarter with our investments in everything from CapEx to the big infrastructure projects. And then the most important thing we have is people. So we start at the top because you have to start to spread the responsibility. And we will have to, as I said, multiple times grow everything from our enterprise sales structure and class of our enterprise organization and upgrade it, as well as the people to lead it. So I hope it's anything but disruptive other than we want to make people sometimes a little bit uncomfortable with the continuing change we have to go through and be ahead of it. And bringing in new leaders that have been there and done that just helps you avoid some of the errors that you'd make if you thought you could do it all yourself with the same exact team. So there's nothing unusual. You'll probably hear of additional new senior hires that we're making, not all of them we go outside. Bob is a reporting officer, so it's got to be made clear that he has joined, but we intend to continue to add pretty dramatically to the team and upscale positions as we go. Because that same team that got us to 100 won't be by itself the only team that gets us to 250. Nothing dramatic there, but the realization that given that's our most important asset after the investment in infrastructure and our product, we're going to continue to invest in new people. And Bob's got the entire go to market, so he's focused going into 2018 on all the changes we need to continue to sell $500,000 and then $1 million average sales instead, in our large accounts, versus a couple of hundred thousand average sales 2, 3 years ago as we've talked about with CEM. And that just requires new people with more experience than we had supporting the existing strong team that we already have.

Tom Roderick, Stifel.

Jaime, can you just expand a little bit more upon the FedRAMP expansion project for those not terribly familiar with it? Could you talk about what it has meant to be included in this, what you guys have had to do from your end, how long that process has been, and then what the go to market looks like from here through 2018 and 2019 when you think about this potentially doubling your fed exposure?

We had historically, like a lot of software companies, not spent a lot of time at the federal government. We respond to requests from them, we don't go chance the federal government down. We have a history of a few million dollars in the federal government to be honest with you, that I know because of my long participation here. 7, 8, 9 years ago came as inbounds to us and that we certainly responded to, but we didn't go chasing or making it a federal business. Because in early days in the federal market, they wanted you to be on premise with a standalone, perpetual licensed product. And that's not the church we go to. So our SaaS model is SaaS 100% throughout the organization and so we basically went with some civil government opportunities where there wasn't really a difficulty getting an authority to operate or any of the advanced security protocols even for non-extreme defense or security type of opportunities. As the cloud has grown in popularity as a way both to control and increase security and reduce costs, the federal government got on the bandwagon and created a program called FedRAMP which requires a certain number of security controls, procedures and processes to be in place across all your people, your physical premises and all your systems. And it's substantially more than any of the standard security that we deal with. So it's been a multiyear project for us to implement those controls, to designate teams of people, to build out additional security, create different type of physical security within our data centers and controls on software, as well as the manageability and securitization of individual programs and applications. We're in the final stretch on that where we're working with approved auditors that come in and check our process, procedures and software and solutions out, and we'll be submitting in the not too distant into our sponsoring organization within the federal government to gain certification and approval. There is an extensive audit. But those are hundreds of additional security controls which again, can be physical or technologically implemented within your solution. So most organizations that I talk to spend a year, year and a half doing it. It's a multimillion dollar project. What's important for us with all of that is, when we finish that, they can accept our product in a lot of scenarios where they wouldn't have taken it with the exception of an on-prem product, which again, we don't have. It's not our church, not our religion. SO for us, the opportunity is to open up a market we already know because of the contracts that are left to mainly a single competitor which is not being competed against aggressively, so it's not a competitive market at all, that are already awarded at a price point that's in the order of 2 to 3x our average price point. So we do know it's a very attractive market because our market is very large and we haven't had the opportunity to invest as much. We didn't do it before this past year, but about a year and half ago we started down the path, increased our investment this year, and when we deliver that and gain that certification, we can bid against all those opportunities well in excess of $50 million of established opportunities and then a lot more for other agencies that want to deploy Mass Notification, IT Alerting, or Safety Connection or Mobile Security type of products across the government. So it's a big opportunity. We think it easily gives us the opportunity to double the size of our current business if we were to win most of that on the government side. And it is an established market. It isn't we have to go and hunt and peck for it. Those are RFPs that come out every year for renewal or reup of projects. So we just have to bid there. So that's the span of it and the opportunity that presents itself, and we intend to go to market with a federal team and some new leadership in our public sector added to the existing team to unify it, and aggressively do that in 2018, of which some of which we're going to be hiring and adding this year.

Excellent. That's really helpful. Just a follow-on go to market question for you, I wanted to understand the go to market here on Safety Connection a little bit better. It seems like you're catching some real nice traction in that product. If you look at the 10 deals you signed over $100,000 this quarter or the 55 multiproduct deals, will we see Safety Connection overlapping with a number of those deals? In other words, are you selling these to existing customers that are buying multiple products at a time and are they stacking up to some of your biggest deals? Is this primarily standalone sales? Just help us understand what the go to market looks like at Safety Connection and who you're seeing that to with success today.

So Safety Connection, it principally delivers two big benefits to customers. One, it enables you to identify when an event has happened, where your people are at. It's that dynamic location from a static location. So when we do Mass Notification today, it's typically the byproduct of a corporation or a city, state or government entity adding in static locations for someone. In other words, your address of an office building and you're on the third floor in the CITGO building somewhere or the IBM building or some customer organization. Or on a college campus, you teach out of this office, or a citizen, you have this household address. Safety Connection adds the dynamic location capability to say we're tracking a bunch of location variables so we can now tell you that Bob Hughes is travelling right now in Germany. He checked in with his badge in the office building that we have in Germany in Munich today and we have his hotel and his itinerary that says he's at the Hilton in Munich. So chances are, with those three location variables, we can now say with 95% certainty he's in Munich. Therefore, when an event happens in Munich, we know that individual is impacted. So it's the ability to identify dynamic locations of an increasingly mobile workforce which is powering part of that product. The other part is it's a mobile safety product. So it gives someone the ability to have a follow me capability on their phone, have a panic button on their phone, and increasingly, whether you think of it as a blue light on college campus, well this puts a blue light on a corporate campus or college, an educational institution campus, in your hand. So you don't have to run to the closest light, you pick up your phone and press the panic button. So the combination of those two is working to our advantage. Most of our teams that focus on Mass Notification or emergency notification can differentiate our product set by upselling and starting with Safety Connection because it includes Mass Notification as a superset when it's sold. And so it is an upsell, but you can also think of it as doubling the purchase price of a standard Mass Notification deal. So no one should find it odd, and we've talked about it multiple times, but if you went back a year ago or even earlier when we talked on the road to investors about our sales, they were in the $25,000 to $30,000 range. And now the average is $41,000, so it's almost double that. And on large deals, it's 3, 4, 5 times that as I said. And that's because they're selling both Mass Notification and Incident Management and Safety Connection to be a total solution to communicate with people, but not where their static location is, wherever they are, and then give them the capability to extend the security that is so common in a building, a badge swipe, a guard at the desk, to something that can enable someone that's on the road increasingly out in the field working with customers, doing service calls, a nurse calling on a home or a social worker calling in a home or something, a mobile capability to extend safety and security. And in that way we're disrupting that entire industry. That's why you've seen so many of the large security firms become resellers and partners of ours. Does that help?

Brad Sills, Bank of America Merrill Lynch.

I wanted to ask one please on deal sizes. Obviously you've seen real momentum there this quarter and in recent quarters deal size is growing. Can you parse out new versus existing customers? CEM is one you pointed out, but just in general, new products are ramping nicely. Maybe a little color on what are customers doing on the initial deal? Are they adding more or is this mostly coming from existing customers kind of buying into CEM and some of these other products out for renewals?

We break it down by new products, new in growth as a percentage of total revenue, so you can separate the core Mass Notification business and see that the new products are growing. That shouldn't surprise you because we've built number of new products into the platform and it should be growing. It was a 42% versus a 37% increase over previous quarters and then on the multiproduct deals you can see we're selling more products out of the gate or to existing customers because it was 55% versus 42% the previous quarter. So handsome growth in both. And along with that we saw some of the largest deals we've ever recorded in the quarter, especially in the corporate market which is important because you see the big, flashy New York state deals and we hope to continue to impress with big, as I said, a robust pipeline in the cities, county and state deal area. But there are a limited number of those, there are 50 states compared to 2,000 major corporation in just North America let alone the Fortune 1000, 2000 globally that can spend virtually the same amount of money on a large enterprise-wide CEM deal. So I think all 3 of those grew. We grew the number, the new products are ramping nicely becoming a larger and larger percentage of our revenue, so we're not reliant on Mass Notification. I tried to point out at the start of my prepared remarks that we have a very clear strategy for continuing to grow Mass Notification. For anyone that thinks that's a dead line, think again. Because we're going to continue to win big deals and we're continuing to see success in that market. And we've mapped out a strategy that takes us three years out in growth in that. With the FedRAMP process and opening up the federal business and then going internationally with it. But then in addition to that, more multiproduct deals, up substantially, and they were larger, period. We saw some of the largest deals. The ITA Alerting deal was almost a quarter of a million dollars larger than anything we've ever seen. So both an international deal that was 3x any previous international IT deal and then the US one. So all those are good indications that, to put it bluntly, that the strategy is working.

Great, thanks, Jaime. Then one more if I may please on the state deals. You mentioned in the past that you've seen a history of state wins pulling through cities and counties in that state. Can you comment on particularly Florida now that we've had about a year under your belt with that contract, have our seen that activity to your expectations? And should we expect that out of state of New York as you roll that out? Thank you.

It's real simple. Yes, period, exclamation point. And then yes, period, exclamation point.

Brian Peterson, Raymond James.

Hi, guys, Kevin on here for Brian. Thanks for taking my call. Really just one for me. As you think about the impact that natural disasters or events can have on your business, do you view that as primarily a tailwind for driving adoption and initial customer demand? Or has there been any change in customer discussions with them maybe looking to increase budgets for this type of solution to ensure they have all the capabilities needed?

I do think that's a great question, because you know, we're in a little bit of a perverse business. Because the worse it gets out there, in some senses people assume the better our business is. And certainly the thing that's happened is, in major organizations, whether it's a city, a major state organization, I mentioned organizations that had no solution historically, that's increasingly more odd. But what's happening is, major corporations are saying we no longer believe this is a blip. We no longer believe that shootings in North America aren't one of the things we have to figure out how to handle from a corporate standpoint because whatever is happening out here in the governmental arena, isn't going to change our environment for years to come. For college campuses, for major international organizations with terrorism, they have to and are starting to step up with a duty of care. And as I said, an elevated understanding in the organization that we need an enterprise solution here. We can't just put a check in the box and move on. So number one, they are accepting that this is not a blip nor is a trend, it's here for real and we have to deal with it. Number two, organizations are now starting to say we need to deal with more of a holistic solution that crosses all our departments and all of our people. Because we'll have people on a college campus, in every part of the campus and a shooter enters the campus and starts doing something, or a hurricane comes into Florida, how do we get our operations up and running as fast as humanly possible? And then third, the desire is there for a single pane of glass. They don't want to implement a crisis management system from Vendor A, an assessment and tracking of incident system from Vendor B, and then some communication or analytic solution from Vendor C and D. They want a single pane of glass just like ERP. So what's very positive for us coming out of a very negative set of events, and no one can argue that the pace and number of critical events is as high as it's been in our history. So when corporations and major government entities look at this now, they're saying I want an enterprise solution like I thought about ERP for my critical events, to tie in everything from how I deal with the event to how it impacts my organization from a business standpoint, from a people safety standpoint. And so the large retailer I talked about is a great example of how organizations are saying, first let me do the safety piece, and then they're saying, wow, you created millions of dollars of potential savings or actual revenue by getting us up and running faster. And so I've got to look at this solution that you're providing, CEM, as a totally different solution. And now you're talking to the CIO, the Head of Risk management, the Head of Supply Chain, guys that affect the revenue of the company as well as our historic strength and base around security and safety. And remember, the advantage we have is, it's all on one platform. You put all those people, all those facilities, office locations, buildings, you get all your travel in, you get all that stuff in and then it can be used as a single solution across the entire spectrum of how the organization lives and breathes in a global environment.

Mike Latimore, Northland Capital.

This is Nick Alman on for Mike. Thanks for taking our questions. Just kind of going off that last one, can you guys just give us an idea of how the various events that happened in the quarter have maybe increased inbound interest? I imagine you guys have seen increases in webinar attendance or something like that, so I guess any color on that would be helpful.

Simply stated, whenever an event like this happens, it drives attention. Active shooter is the number one thing of focus of corporate security and safety, people in major organizations in the United States. It's different if you go to Europe, it's terrorism because they have a different say of dynamics working as you all know. But those events, and they are across the spectrum, there was a -- remember there was multiple earthquakes this last quarter, some causing hundreds and hundreds if not thousands of deaths across the globe. There were major terrorism events in parts of Europe, stunning ones in the US, in New York. They were major mass shootings. Not just one, but multiple. And so these events are increasing and when they happen, they certainly drive attendance at webinars. And as Ken, our CFO says all the time, in a space where you can think of it as you're going to go purchase a system like you'd purchase a bulletproof vest, do you really want to purchase the cheapest bulletproof vest if you're trying to stop a bullet or do you want to spend the extra $200 and get a real bulletproof vest? In our case, being the public company in this space, being the one that continues to mount and rack up the biggest number of marquee wins, has the largest customer base and is more importantly perhaps, largest in terms of its support organization with people and investing the most in its products, it's a -- we become a safe harbor and the best potential strategy solution with CEM for those customers. As I said, I mentioned the large insurance brokerage and it was a quote. They said we were excited about you, but what really blew us away was your CEM strategy. Because in that case, they didn't buy CEM, they bought Mass Notification. But they wanted to go with an organization that could present them all four of the products integrated over the next few years and could grow into that. And again, it's like an ERP strategy for us, we want to own and support an organization's single pane of glass view of critical events and help them reduce the impact to both loss of life or increase safety and security for people, but also keep the business running. So whenever these events happen, it drives both the business and it's increasing the numbers in the size of the transactions, because people are starting to say, I need to deal with that with one vendor, not with five.

Dmitry Netis, William Blair.

Thank you for squeezing me in, gentlemen. I'll be quick. I have two topics I wanted to touch on. One, Jaime, is just I recognize there's a lot on the plate in North America, but wanted to zoom in on international. It's been hovering around 10%. What really needs to happen there for this dealer to inflect? I know you had some relationships there with International SOS and Now, etc. Are those proving themselves out? Are they running above, below expectations? So that's one. And then the second topic is more on the, again, Internet of Things type of market or application. I know it's been sort of lost in translation here as of late and it is a big thing. So just quick update there. What's happening with some of your partnerships, any roadmap items with conversational AI platforms like a Lex or [Propana], etc., and maybe some of the stuff you've been doing in the medical field. Thank you.

Okay. So internationally, you're right, but let's remember that as we grow, we have to grow international to keep up with 10% or slightly higher, right? So I don't want to give you the wrong impression. International is growing, it's just not necessarily outpacing our US business. And I think a couple of things need to happen internationally. We need to be able to have the correct team on the ground and we added a significant manager that reports to Bob Hughes, Javier Colado, in just the most recent quarter when we announced Bob has joined the team, at the same time Javier, the kind of GM for international joined. And we just opened up our Asian office with a few bodies and started to get involved in Asia as well. So I think what you should watch for is increasing deal activity. As we said, a deal like our ITA deal that I mentioned on the call being the largest in history internationally, that's a very significant item and I think you'll continue to see some of those. Progress with big deals and the same productivity we've had in the US. It does tend to trail a little bit behind. And then as I mentioned, one of our infrastructure projects, Project Atlas, combined with our other security measures for international data put us in a better position in the coming year for infrastructure distributed globally and resiliency. So I think a couple of things will happen internationally to deliver that growth along with the products and training that we need to get off with the right management internationally. Added to all of that, I think I've said at least for the past two calls, that if you saw us do something, and we're entering the quarter where we said you shouldn't be surprised to see us do something on the M&A front, we said we might continue to tactically execute to expand in strategic markets internationally through M&A simply because in some cases we can acquire more cost effectively than build out the standard put 10 employees in an office and tranche away with vetting 5 of them out and learning how to sell and then finally getting a couple of customers and then more and then references and then grow. So that is kind of the way we think about the international market and I would tell you that I would stay tuned to see us continue to execute there. We do think it's one of our largest opportunities for faster growth because of its size still and the lack of penetration. But it has been behind a very busy US market and it does have to continue to grow just to keep up with the US. The second part of your question was IoT. So on the IoT front, quite frankly you will see on the CEM architecture and vison that we put out there this next year, our IT Alerting product first coming into the CEM Vision and how that integrates with our ability to identify digital as well as, digital technology, as well as people, places and then things. The things could be a dam or a series of toll gates or digital devices measuring temperature in vineyards or chicken coops as we've mentioned in the past. And so those will come into the initial CEM suite through our IT Alerting product which will be integrated architecturally this next year and then IoT follows immediately behind that because that is the vehicle we'll use for a lot of that IoT expansion. So I'd stay tuned to see that from us early to middle of this next year, the architecture and how we're starting to win customers there. It has to take a little bit of a backset behind our rapid growth in CEM, but it is absolutely part of our CEM vision long term for growth.

Very good. Thank you for that. Very helpful insight and keep up the good work, gentlemen.

I am not showing any further questions. I would now like to turn the call back over to Jaime Ellertson for any further remarks.

All right, well thanks, everyone, for joining our third quarter call. We 're excited to deliver the strong results in Q3 2017 with revenue and adjusted EBITDA both exceeding the high end of our guidance range. I won't use large there. We're also excited about our ability to close the deals we're closing with increased ASPs in the third quarter and we continue to be very enthusiastic about the demand for our solutions and our opportunities going forward. We look forward to speaking to you again and thanks again for attending the call. Good-bye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect and everyone have a great day.