Everbridge Inc (EVBG) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Everbridge's Fourth Quarter 2018 Earnings Conference Call. (Operator Instructions) And as a reminder, today's conference is being recorded.

I'd now like to hand the conference over to Everbridge's CFO, Ken Goldman. Please go ahead, sir.

Good afternoon, and welcome to Everbridge's earnings conference call for the fourth quarter of 2018. This is Ken Goldman, Senior Vice President and Chief Financial Officer of Everbridge. With me on the call today are Jaime Ellertson, CEO and Chairman; and Patrick Brickley, Vice President of Finance and Accounting, and CFO-elect.

After the market closed today, we issued a press release with details regarding our fourth 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 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 Jaime Ellertson, who is joining us from our European headquarters in London, for his prepared remarks.

Thanks, Ken. Welcome to those of you joining our fourth quarter earnings conference call. Our strong fourth quarter results capped a very successful year for Everbridge, with continued momentum across our entire platform and particular strength demonstrated in our Critical Event Management, or CEM, success. At $41.8 million, revenue in the fourth quarter was above the top end of our original guidance and at the high end of our preliminary results that we announced in January, in conjunction with our successful follow-on equity offering and represented a year-over-year growth of 43%. And adjusted EBITDA in the quarter exceeded both our original and preliminary expectations, coming in at $0.8 million. For the full year, we generated revenue of $147.1 million, up 41% over 2017. And we delivered this accelerating growth while still beating our adjusted EBITDA guidance. Our strong finance results for the quarter, and for all of 2018, reflect the successful execution of our 3-pronged long-term growth strategy. Specifically, first, to maintain solid growth rates and global expansion of our Mass Notification and populating -- Population Alerting businesses. Secondly, to achieve best-in-class renewal rates while driving more multiproduct sales into our customer base as well as the addition of net new customers to grow our customer base overall. And thirdly, to expand the adoption of our strategic Critical Event Management suite. During the fourth quarter, we blew it out on every metric we track. We added a record 155 net new enterprise customers, bringing our total enterprise customer count to 4,422. This quarterly increase is well above our historical range of roughly 100 to 125 net new customer additions. And in Q4, we continued to drive overall dollar-based retention consistent with past quarters in the mid-90% range and net retention of over 110%. During the quarter, Everbridge saw a strong contribution of new deal activity coming from new products, such as IT Alerting, Safety Connection and our Visual Command Center solutions. These new products contributed a record 55% to all new and gross sales made in the quarter. Our core Mass Notification products also delivered substantial growth, driving 45% of all new and gross sales, with particular strength in the international markets during the fourth quarter. And these products were often purchased in multiproduct deals. Q4, we drove 93 multiproduct deals, up 33% from a year ago. The strong product sales results drove the overall value we see in each transaction as reflected in the growth in our average deal size, or ASP, increasing to over $67,000 on a trailing 12-month basis, up 31% year-over-year.

In fact, the fourth quarter -- in the fourth quarter, Everbridge closed 32 deals valued at over $100,000 per year, a new record and more than 100% growth in the number of deals we closed of that magnitude just 1 year ago. We also saw a substantial demand for our most strategic suite with a record number of 11 Critical Event Management deals from new and existing customers adopting our multiproduct platform or adding products to expand into our CEM suite. This brings the number of CEM customers at the end of Q4 to 35, up 45% from just a quarter ago. And international revenue continued to grow rapidly as well, increasing over 175% from a year ago, another record. In total, international represented 20% of our overall revenue. As we often state, our individual quarterly metrics, even record results, can fluctuate and should not necessarily be considered indicative of any trends. We still believe the best way to evaluate our performance is to look at our trailing 4-quarter average as the overall measure of our consistent growth. Last, our revenue mix for Q4 was 56% corporate, 31% for local and state and federal government deals, and 13% for healthcare. All roughly consistent with previous quarters as we continue to see growth from across all our vertical markets.

Looking at the year as a whole, and our rolling 4-quarter metrics, for 2018, we saw total revenue growth of 41%, up 36% last year, and 31% growth from the year before that, demonstrating our continued steady expansion, fueled by new products into our large total addressable market. A 36% increase in new and gross sales. Almost 1,000 net new customer additions with roughly half of those coming from UMS. Continued high customer satisfaction with mid-90% net retention, closing 104 deals valued at over $100,000 each, that number is up 70% over 2017. Continuous ASP growth of 31% to over $67,000. And strong success with our strategic CEM suite contributed to our ASP growth, with 25 CEM deals in 2018, up 150% from the 10 deals closed in 2017. Equally, the size of these CEM deals continues to be between 5 to 15x the size of our overall ASPs. Accelerating international revenue growth of 168%, now representing 19% of all revenue for the full year compared to 10% of revenue in 2017. And of course, our entry to the federal government and defense markets, we substantially increased our addressable market opportunity and demonstrate its value in 2018, signing our second largest customer contract to date, a multimillion dollar multiyear deal with the U.S. Army.

Now turning to some of the specific fourth quarter highlights. All 3 of our strategic growth drivers produced strong results in the quarter, starting with our first growth driver, Mass Notification and Population Alerting. Allow me to begin by updating and expanding our actual definition of this growth driver to include both historical core Mass Notification, Incident Communication and Secure Messaging solutions as we've done in the past. But now adding our population location-based alerting solutions, which we acquired last year from UMS. These newly acquired population alerting applications are in the process of being integrated with our best-in-class Mass Notification solutions and therefore, won't be included in this first growth strategy. As you know, our Mass Notification solutions are sold into both private and public markets across all geographies, as are our Population Alerting solutions with one exception. Our acquired Population Alerting solutions, we call them PAS and LBAS, are not sold into the North American market. Going forward, we'll combine all 4 of these solutions under the single umbrella of Population Alerting, representing our first growth driver for both public and private marketplaces.

In the fourth quarter, we signed core Mass Notification deals with new customers across all our target markets, including high-profile companies such as RingCentral, a global leader in cloud-based business phone systems. And with one of the top luxury department store chains in North America, with over 70,000 employees and 380 stores as well as signing large expansion deals, such as HSBC Global services with over 250,000 employees in over 60,000 countries. We also signed numerous large 6-figure public market Mass Notification deals, including Harris County, Texas, the third-largest county in the United States; New York City Housing Authority, which provides affordable housing for more than 400,000 people in 328 public housing developments across the city's 5 boroughs, where we leveraged our existing relationships with the City of New York and the State of New York; our Everbridge network effect; as well as Mass Notification deals with one of the larger Canadian regional government entities, the Halifax, Nova Scotia regional municipality. And closer to home in the (inaudible) U.S. federal government space, we recorded new entire agency wins such as the government publishing office, a competitive takeaway, as well as growth deals at agencies like the Federal Deposit Insurance Corporation. In the healthcare market, we saw significant Secure Messaging wins at leading organizations, including Steward Health Care System, the largest private for-profit hospital operator in the U.S., operating 38 hospitals nationwide. And Prism (sic) [Prisma] Health, the largest not-for-profit health organization in South Carolina. Internationally, in Asia, we secured our second 7-figure state deal in India. This time in the State of Odisha, with a population of more than 45 million people, the government of Odisha will be leveraging the Everbridge platform's great and operationalized disaster response plans, mobilize resources and track activities across multiple state departments. Odisha is one of the many large coastal states in India, which gets hit by heavy cyclones and floods each year. India continues to represent an important growth market for our business in Asia. Across the world in Europe, we signed another large 6-figure Mass Notification win with the government of the Netherlands. This deal is significant because, as you may recall, we already have a general Population Alerting contract through our UMS business for the entire country. But this win was a product -- was procured by our new local team, supporting one of the Netherlands' largest government entities. And this one deal is roughly equal to our entire revenue from this country last year. This result demonstrates that our acquired and local teams are working well together and deliver results that should sustain our continued expansion and international success in 2019. Further, these wins across the broader international market indicate we are well positioned to continue penetrating this large market opportunity. Across the broader Europe, recent events such as the new EECC directive that requires member states to set up public emergency alerting systems to protect residents and visitors should dramatically increase the number of large multimillion dollar opportunities we can target over the next 3 years. All helping us sustain continued long-term growth of our Population Alerting solutions globally.

Our second growth driver begins with our continued mid-90% dollar-based customer retention and renewals from our large base of over 4,400 enterprise customers, and then accelerates our overall success by layering on growth and net new deals. Growth deals include a supplemental product being sold into an existing customer or expansion of an existing solution. And these growth and net new customers are typically purchasing one of our newer solutions, like IT Alerting, Safety Connection or Visual Command Center. In Q4, we continued to deliver substantive evidence of our enterprise leadership in the IT Alerting space, receiving recognition from both industry and customers based on peer reviews from the user community IT Central Station, who recently named Everbridge the leading enterprise IT and Incident Management tool in the market. This leadership is also reflected by our customers who drove our IT Alerting revenue up 40% year-over-year. In the fourth quarter [of RT brands], including leading financial solutions like Fifth Third; the world's largest low-cost airline, Southwest Airlines; and one of the nation's largest emergency 911 solution providers, West Corporation; as well as internationally in 6-figure deals with growth customers such as Standard Chartered bank was undergoing a major automation initiative, where we demonstrated that we can mobilize the global IT staff 8x faster than their previous system, all signed large enterprise IT Alerting deals. We had similar success with our Safety Connection solution, recording numerous 6-figure wins and new brand name customers, like Fortune 500 engine maker Cummins; the fifth-largest defense contractor, General Dynamics; and leading high-growth technology companies like Workday. And outside the U.S., we signed Safety Connection deals with important new customers like the Parliament of Singapore, which represented a key government agency win in Singapore, reflects our growing traction in the Asia-Pacific region. As a result, with the deals like this and our momentum throughout the year, revenue for Safety Connection in Q4 grew by 90% year-over-year and 76% over the full year. We also saw great success with our multiproduct 6-figure deals in the quarter, including wins like cryptocurrency [via] Coinbase, who selected both our Visual Command Center and Safety Connection solutions as one example of new multiproduct customers. Or a growth win at Sutter Hill, who continues facing increasing threats from wildfires and added our VCC to their existing environment of Mass Notification, Incident Communication and CMS Emergency Preparedness solutions.

The third component of our growth strategy is CEM, which continues to drive our largest and most strategic new and growth deal activity at Everbridge. In Q4, we closed a record 11 CEM deals, including the significant Fortune 1000 organizations like the second-largest chemical company in the world, Dow Chemical, will be leveraging our entire CEM suite to build a state-of-the-art fusion center that bridges their physical security and cybersecurity environments into a single, unified and integrated view for managing and responding to enterprise risk. We're excited to lead this effort at Dow, which is representative of how enterprises are helping to ensure the protection of their people, assets from both physical to cyber assets, and reputation on a global scale. In Q4, we also closed 6-figure CEM deals with one of the largest overnight delivery companies in the world, with over 450,000 global employees delivering 15 million shipments each day across 220 countries; as well as the largest independent petroleum refinery in the world, Valero, another Fortune 1000 company with over 10,000 employees operating 15 refineries; as well as the largest ticket agency and promoter of global events, just to name a few. Across these 4 examples of our numerous CEM wins in Q4, you see the consistent thematic that each enterprise has hundreds of thousands of employees, often spread across numerous locations, supporting business operations with a global brand and faces the potential of multiple critical events on any given day. From cyber issues to core business functions to travel disruption. All of these companies need to know who is where and what assets are affected when a critical event occurs, whether a natural disaster or man-made event. (inaudible) see a value proposition and as Q4 evidenced, large organizations are increasingly adopting our suite to keep their people safe and their businesses running faster. Each of these new and growth CEM deals was between 5 and 15x larger than our overall ASP, and continued to be substantive drivers of our overall growing revenue. And as a significant incremental step towards CEM adoption, we saw a number of new and existing customers choosing to adopt Visual Command Center. I'll remind you that we define our CEM suite customers as purchasing a minimum of 3 of our core 4 CEM products; risk intelligence as a service, or RiaaS; MN or IC, our Mass Notification and Incident Communication products; Safety Connection and Visual Command Center. New customers that choose VCC -- who chose VCC in the fourth quarter include leading organizations like Olympus Corporation of the Americas; [Aegon Money Services]; as well as leading online payment provider, Stripe. Needless to say, we're stoked about our future. Again, we believe we're just at the beginning of penetrating this very large CEM market opportunity as well as a huge opportunity for our Population Alerting solutions. For example, in 2018, we were able to grow our CEM sales by over 50%, even while we limited our focus to just the corporate sales team in North America. So you can imagine how excited we are to be expanding our markets and geographic reach for CEM in 2019. Internationally, we saw rapidly increasing success with our recently acquired Population Alerting solutions, solid progress in new geographies like Southeast Asia and India, combined at year-end with fundamental new government regulations that should dramatically accelerate region-wide adoption and the sheer number of multimillion dollar opportunities in a market which grew by 150% in 2018. We believe our track record of winning larger deals and growing ASPs as well as the fundamental early stage of both these key markets will further support our growth well into the future.

And our success continues to be recognized by the industry. In addition to the recognition from IT Central Station for IT Alerting solution in the fourth quarter, the Everbridge platform was also recognized in a Forrester research study focused on solutions of providing unified approach to ensuring operational resilience as well as by Frost & Sullivan, who presented Everbridge with the Technology Leadership Award for offering the most comprehensive situational awareness solution on the market.

We're also excited that our ability to protect people and assets extends to major events worldwide, including our recent use at the Macy's Thanksgiving Day Parade; New York City's New Year's Eve celebration; and although just after the close of Q4, the big game. Speaking of Super Bowl LIII, we're excited to see the New England Patriots win as well as Everbridge's role with the City of Atlanta in alerting residents and more than 1 million visitors and fans participating in a series of events in the 10 days leading up to and including the big game.

Overall, 2018 was a very strong year for Everbridge, and a significant proof point that we can indeed continue to expand our market, while in parallel grow our business faster. As we begin 2019, we believe we're better positioned than ever before to expand our leadership position of both CEM, enterprise IT Alerting and Population Alerting markets. Of course, as we expand our business, we must also expand our team and the leadership to drive our dynamic organization. As announced last year, I'll be transitioning to the new role of Executive Chairman during 2019 after we identify and announce the new CEO. Our CEO search is progressing nicely, and we have several strong internal and external candidates deep in the process. I'm confident we will announce the transition of the new CEO over the next few quarters. Furthermore, we recognize that the CEO transition must be accomplished while we also continue to deliver our historically strong quarterly execution. And because I'm not exiting the business and will remain to assist the new leader, I'm confident we'll achieve these twin goals of adding new leadership while delivering on our commitments to drive long-term shareholder value.

Our growing number of talented employees are a critical element of our success, and our leadership team is also supported by a diverse and experienced Board of Directors. In 2018, we expanded our Board to include Alison Dean, the Chief Financial Officer of iRobot. And just last month, we announced the addition of new board member, Sharon Rowlands, who was the former CEO and President of Thomson Financial, former Division President of Gannett and is the newly appointed CEO of Web.com Group. Both Sharon and Alison expand the operational experience and diversity of our board with executives that have led billion-dollar corporations.

And while I'm on the topic of leadership, I'd like to update everyone on one other senior leadership transition that is ahead of schedule and all but complete. Our CFO transition from Ken Goldman, who we announced will be retiring next quarter, over to Patrick Brickley, our current VP of Finance and Accounting and incoming CFO. Patrick has already stepped into many of the CFO responsibilities with Ken's assistance, and the team has continued its strong execution without missing a beat. I want to take a moment to address my deep gratitude as a shareholder and a management team member for Ken's impressive tenure here and the success we've had with him at the financial helm.

I also want to share with you my confidence in Patrick as he takes over as our new CFO. Patrick has been Ken's #2 since joining Everbridge almost 4 years ago, and he will be just as instrumental in supporting our growth as we look ahead. Both these guys will provide you more detail on the transition during their prepared remarks.

And Patrick will inherit a very strong balance sheet. This past month, we successfully executed a follow-on equity transaction adding roughly $140 million in cash to our balance sheet. While our growth strategy is primarily organically driven, we expect to continue to leverage strategic M&A transactions in order to enhance our growth drivers, accelerate our product delivery and market expansion.

Last year, our M&A activity added 5 to 7 percentage points to our total growth of 41%. As we look ahead, we'll continue to expand our portfolio through organic development efforts, such as the forthcoming delivery of our new Crisis Management and Analytics solutions in Q1 and Q3, respectively, while in parallel, continue to evaluate make-versus-buy decisions that can accelerate our new product introduction cadence or expand our geographic reach with acquisitions that we believe will continue to add to our overall growth.

Therefore, in summary, from an organizational as well as a product and market perspective, we believe we're in an enviable position as 2019 gets underway. Our further market penetration with more than 40% overall growth in 2018 clearly illustrates that our strategy is working.

As Patrick will discuss in a moment, we're confident that we can continue to deliver mid-30s to 40% overall growth in 2019 as our revenue continues to increase to new levels with our CEM Population Alerting solutions further penetrating our multibillion dollar market opportunity.

Now I'll turn the call over to Ken and Patrick for details on our financial performance and increased guidance for the year.

Thanks, Jamie. Before I get into the details of the quarter, I wanted to convey that my years at Everbridge have been the most gratifying in my career, with a high-caliber team that I'm surrounded with on a daily basis being the big part of that. Having worked very closely with Patrick over the past 4 years, one of the biggest factors in the timing of my retirement is my confidence that I -- in Patrick's ability to lead our finance team as Everbridge advances to its next levels of growth and scale. I'm sure that those of you who've had the opportunity to speak with Patrick will surely agree.

Now let me turn to the details of our financial performance for the fourth quarter of 2018 before passing the call over to Patrick to discuss our outlook for the first quarter and full year 2019.

Revenue in the fourth quarter increased 43% from a year ago to $41.8 million, which was above our original guidance range and at the top end of the preliminary results we disclosed in January. We continue to execute well in the quarter, enabling us to deliver adjusted EBITDA of $800,000, which exceeded our original guidance for the quarter and was also slightly above our preliminary expectations.

Our dollar base net retention rate remains above 110%, reflecting the significant value and satisfaction we provide to our customers. Total enterprise customer count from customers generating fees of $200 per month or more increased by a net of 155, the highest number of organic net adds since our IPO. We ended the year with a total of 4,422 enterprise customers.

Turning 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.

Non-GAAP gross margin was 70% compared to 73% a year ago, primarily due to the purchase accounting impact on acquired deferred revenue from recent acquisitions. However, as always, please keep in mind that gross margins can fluctuate from quarter-to-quarter and should not be considered indicative of any trends.

Total operating expenses in the quarter were $30.6 million, an increase of 45% from a year ago, reflecting the combination of continued product and headcount investments in addition to the incremental expenses of acquired businesses. As I mentioned, adjusted EBITDA was $800,000 and above our expected range.

Net loss in the fourth quarter was $2.8 million or $0.09 per basic share and was also better than our original guidance compared to a loss of $500,000 or $0.02 per year the year-ago quarter. On a GAAP basis, our net loss was $9.8 million and was also better than our original guidance range.

Looking at the year as a whole, revenue of $147.1 million increased 41% from 2017 with larger deal sizes, higher ASPs and more multiproduct sales contributing to this growth. Gross margin for the year was 71% compared to 72% in 2017, primarily due to acquisitions.

Adjusted EBITDA for the year was a loss of $2.7 million and slightly exceeded our guidance and preliminary expectations. It's important to note that if not for the acquisitions during the year, we would have delivered positive adjusted EBITDA for the whole year, consistent with our strategy.

Turning to our balance sheet, we ended the quarter with $105.5 million in cash and cash equivalents and short-term investments compared to $103.1 million at the end of the third quarter, primarily due to cash flow from operations of $4.1 million, partially offset by CapEx and capitalized software development costs of $2.6 million.

Note that our cash balance at the end of the fourth quarter does not include the net proceeds of approximately $140 million from our subsequent equity offering completed in January.

Total deferred revenue was $95.6 million at the end of the quarter, an increase of 31% from a year ago. As we've noted on prior calls, our deferred revenue balance at ending of any given quarter can vary due to a number of factors, including seasonality in which the first quarter represents our smallest quarter for renewals and the fourth quarter being the largest. 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's directionally relevant on a longer-trended basis.

Now let me turn the call over to Patrick for details of our capital raise and our outlook for 2019.

Thanks, Ken. I'm looking forward to stepping up as CFO and meeting many of you at investor events in the months ahead. As Jaime and Ken mentioned, in January, we completed a follow-on equity offering, raising $139 million in net proceeds while incurring minimal dilution and bringing our total balance of cash and cash equivalents to nearly $240 million as of the middle of January.

We have been careful with respect to share dilution since our IPO, which was relatively small and was followed by a small secondary offering and a convertible notes offering, and now most recently, this follow-on offering in January. This offering increases our market float and also strengthens our balance sheet, providing us with capital to pursue strategic acquisitions that can complement our organic growth strategy by accelerating the broadening of our suite, creating new and larger cross-selling opportunities or expanding our geographic reach.

Throughout our history, we have been thoughtful in our acquisition strategy and in deploying capital to further extend our market leadership. And this will continue to be the case going forward.

Now let me turn to our outlook for 2019 and the first quarter. With a leading market position, strong product lineup and expanding sales reach, we are optimistic that we will be able to extend our record of mid-30% organic revenue growth into 2019. We expect to achieve this while also generating positive adjusted EBITDA and free cash flow for the year from our existing business as we continue our strategy of balancing growth and profitability.

Therefore, for the full year 2019, we anticipate revenue of $195.1 million to $196.6 million, representing growth of 33% to 34%. From a profitability perspective, we anticipate adjusted EBITDA to be in the range of positive $4 million to $5 million. We expect a non-GAAP net loss of between $9.6 million and $8.6 million for the full year or between negative $0.29 and negative $0.26 per share based on 32.8 million basic weighted average shares outstanding, including the 2.6 million shares issued in conjunction with our offering in January. This guidance assumes estimated stock-based compensation expenses of approximately $39.6 million for the year.

Before turning to our first quarter guidance, let me share some thoughts on factors that will impact our revenue linearity in 2019. First, just after the end of the first quarter, we will see the anniversary of our UMS acquisition, such that effectively all of Q2 will represent organic growth. However, we expect this impact in Q2 will be offset by perpetual license revenue in the low 7 figures from deals that closed in the fourth quarter but will be recognized in the second quarter, including the large Odisha deal that Jaime mentioned. As a result, we expect that our revenue growth rate in each of the first and second quarters will exceed our growth rates in both the third and fourth quarters.

We expect the impact for the sale of perpetual licenses from acquired technology to diminish as we transition these products to subscriptions.

From a profitability perspective, I'd like to emphasize that we expect to deliver positive adjusted EBITDA and free cash flow on a full year basis. But we'd also like to remind you that our expenses tend to be front-loaded. For example, in Q1, we expect over $1 million in expenses from seasonal payroll taxes and costs associated with our annual global sales kickoff meeting.

With that in mind, for the first quarter of 2019, we anticipate revenue of between $42 million and $42.3 million, representing growth of 38% to 39%. We anticipate adjusted EBITDA to be a loss of between $2.7 million and $2.4 million. We anticipate a non-GAAP net loss of between $6 million and $5.7 million or a loss of between $0.19 and $0.18 per share based on 32.0 million basic weighted average shares outstanding.

Stock-based compensation expense is expected to be $9.4 million to $9.6 million in the first quarter. In summary, we delivered a very strong performance in the fourth quarter, capping a highly successful year for the company. We're optimistic that our momentum will continue in 2019 based on our strengthening market leadership, expanding product line and growing sales capacity, all of which leave us well positioned to continue gaining share in this multibillion-dollar opportunity.

Now, operator, we'd like to open the call for questions.

(Operator Instructions) Our first question is from Brad Zelnick with Crédit Suisse.

It's Kevin Ma on for Brad. Can you guys give any details on how initial conversations are going with EU nations following the relatively recent directive? And from what you've seen so far, how sophisticated are their needs generally?

So I mean, the directive is brand-new as your research probably shows. And some of the analyst community has already documented that the EECC directive only went into place the very end of last year, start of this year. So as you can imagine, the member nations are just getting their hands around first deploying the legislation, then going forward. As Patrick said, we continue to see success with UMS. And we believe that our scale, our brand and the integrated solutions provide an enviable position for us in that market to deliver a countrywide solution, which is what's required by the legislative directive. It's also requires that a solution be able to deliver it to a mobile device and to both visitors and residents of the selected country. We just don't see any other solution that can deliver that period, the hardware-based cell broadcasting solutions, as we said, don't work. We have more reference-able accounts than anyone on the planet, and given the technology position and the protected IP, we just feel we're in a great position. But those discussions that we've been having and continue to have around UMS Population Alerting, everything from wins as we announced, the city of Oslo, so major cities to whole countries continue to move forward. The regulations and legislations should just accelerate that over the next few years.

Got it. I appreciate that color. And any changes on how are you thinking about M&A strategy after the recent capital raise? I think you and Patrick both touched on this briefly in your prepared remarks. But can you expand a bit on how we should think about balancing priorities outstanding internationally versus building out your product portfolio?

Yes, I mean, we obviously don't have anything to announce today or we would've done it in our prepared remarks. And we don't comment on forward-looking M&A. But as we said, we hope we've earned at least the credibility that we are sensible. We call ourselves experienced executive team. When it comes to M&A, we're looking at almost all of our decisions as build first because if we can do it organically as with our Crisis Management suite that we're delivering this quarter and analytics, which we'll deliver in Q3, then we're going to do that. But sometimes, a buyer partner solution is just a better mode to market faster and allows us to access more markets. The 2 specific M&A directions that we've given you in the past continue. It's expansion of our CEM suite. So we can add an additional product that expands our customer relationship, allows us to cross and upsell yet another product and grow the ASP. We want to do it, solve the bigger problem for our customers or one that helps us expand geography. Example would be some of the European acquisitions that have opened up the Scandinavia region, where we're now the largest player. And after we convert those existing Mass Notification customers and Population Alerting customers are integrated with their Mass Notification solution, enable us to cross and upsell our other 8, 9 products into those customers. So nothing has changed in the direction, the strategic direction. We do like the fact that people see us having the cash. It doesn't mean that we're going to do anything crazy though because we've established the fact that we have a buying pattern in the market. We're sensible purchasers, and we want to see fairly rapid results that are accretive to shareholders.

Our next question comes from Sterling Auty with JPMorgan.

I wanted to follow up on the line of questioning around the Europe opportunity. So with the regulation and the discussions, how should we think about those sales processes vis-à-vis what you see in the corporate side? Are they more stringent RFPs? Are they more informal discussions? Are they -- tend to be a little bit longer? What's the make-up of that process look like?

So in general, what we're talking about, Sterling, are what we call Population Alerting, which is comprised of 2 components, either a front-end to give an entire country the ability to communicate through multiple different vendors, including ourselves on the back end with Location Based Alerting, our other population alerting solution, to assist in population. The second component, LBAS, Location Based Alerting, is the piece that we put inside carriers that lets us see who's connected to the network. And then communicate even to visitors in a local language because we see their phone number and can figure out, well, you're from the U.S. or you're from Paris and happened to be in Norway today, so we're going to communicate in French to you. And it's over standard text messaging, which is the easiest, most acceptable method. Those solutions, I want to point out as Patrick mentioned, we have a number of existing Population Alerting solutions that were already too far down the track for us to change and therefore could lead to some significant deals as those opportunities range anywhere from the low end of just sub-$1 million to a high-end of well in excess of $5 million to $10 million. So these are very large opportunities. Some are already in process because UMS was out there for a while. With our brand and scale, we believe some of those may come to fruition and even cause a bulge in our revenue in 2019 as early as Q1. And that's what Patrick was talking about in his prepared remarks. The remainder that are being funneled now into a process because of the new EECC regulations, that's -- many are already in process, others are now being accelerated because countries are saying, what legislation do I want to put in place? And do I want to wait 1.5 years until I get everything in a row, and then start an RFP process with only a 1 year to implement. And these systems often take a full year to implement. So you need to do it multi-years in advance. And so we -- what we see is, we have a current pipeline of those. As I mentioned, very few of those happen to be perpetual. We're converting those all in the future to the extent we don't disrupt the current sales opportunity to SaaS. And those that are already in play are just being accelerated or funneled into a accelerated process by the legislation. It's too early to say we've seen the first 3 RFPs from the EEC (sic) [EECC] directives. It is not too early to say we are seeing an acceleration of current opportunities because of the EEC directive. So organizations, countries that were already starting down this path, with us or others, are accelerating that. What's happened with EEC is everyone has to do it. So now everyone is going to be moving towards it. And so there will be new opportunities. And does that help you understand where we are with it?

Yes. No, I think that's excellent. Maybe just one follow-up, if I may. Can you give a sense within the guidance that you've given, what does that allow for investments for capacity increases in your sales and marketing function?

So we -- one of our international strategies and strategic pillars to continue growth was to move forward with a substantial expansion of our Population Alerting technologies both in Europe and Asia. And so we already are in the process of either having hired or hiring a substantial growth in that team long before the EECC directive came out. That was in our planning of last year when we did the UMS acquisition. They just didn't get to scale and to some extent, didn't have the brand reputation or the balance sheet to support a multiyear project. As we said, many of these projects, like the ones I've mentioned that happened already [be inflated on a] perpetual basis are multimillion dollar, multiyear deals. And so because of that, our brand and size helps. We started the sales expansion already in Q4, and we'll finish that off early this year with new bodies in both Europe and in Asia.

Our next question comes from Bhavan Suri with William Blair.

I got 2 questions. One, just following up on some of these questions around sales cycles and penetration, but touching a different market. When you look at sort of some of the local markets, let's just say in the U.S., state, local, otherwise, and you think about sort of some of the large wins you've had broadly, and now with FedRAMP. Do you see sort of the potential for sort of a network effect, a flywheel effect? If you look at verticals, you get sort of the guys who were ahead of the game starting to buy and understanding the strategic importance of what everybody does. And then you start to see the next 5 or 6 guys in the top 10, and then you see some of the smaller guys. And so we get this fast follower approach. Just would love to understand sort of have you seen that? And then, is that also applicable as you look at sort of just countries and globally, you might see in Europe, maybe in Asia. Just want to get some sense firstly on the sort of flywheel effect that happens once you've sort of got some critical mass?

The simple answer is yes and yes, right. So we have, for a long time, stated that we have something we call the Everbridge network effect is -- which when we get into a region, as led to deals like Florida, Washington, D.C. or New York State. And you get penetration. You can show the local parties. That's why as an example, the major stakes out there that have legislation are moving towards statewide deals that are large like California and Texas because of wildfires or recent hurricanes. Owning the top counties like Harris County -- which is bigger than half of all U.S. states, by the way. So that's a big deal we recorded at Harris County. But it also positions us perfectly for a statewide opportunity because who is better positioned than someone that's already connected to your citizens, already has the profile built on all your citizens and can leverage that. And then once you win the state, it is much easier for our sales teams to go in and win the major hospitals, which count on emergency preparedness and local safety and public safety agencies like fire and police. And then once you get those agencies and all that public environments, it's much easier to go after the major corporations, which have to operate in a community involving state and local government. And so it is a natural flywheel effect. And that's amplified, as you can imagine, when you go to a country like The Netherlands, you already have the entire country of Netherlands, then in this most recent quarter, we announced 1 deal that equaled our entire revenue for that country last year in 1 deal. And it was with essentially the largest by spending agency within The Netherlands government. And so you do get a flywheel effect. You get this, what we call Everbridge network effect, and it feeds on itself as you become -- and we are the only public company in the space in North America, on the broader international markets, we have unique technology. And the only one that has countrywide wins that play in the Mass Notification space for either the public or the private markets and the continuation of that just makes us the easy choice. We certainly believe we are the best solution in the world in terms of keeping people safe and businesses running, but we accelerate that success because we're also a safe solution reliably delivering, scalably delivering globally for customers. And so there is that network effect. And that's what we talk about. So yes and yes.

Jaime, that's helpful. I guess one follow-up to that, just a little more broadly too. So there are sort of other solutions out in the market, point solutions, whatever you want to call them. And as you think about orchestration, right, you've already talked about analytics and things like that. But orchestration becomes important, like -- and I'll give you an example. I'm in Chicago. I don't need a notification from the city that it's going to be really cold. I don't need a notification from the building to watch out for falling ice. I don't need notification from William Blair to say go home and don't come because it's minus 20 degrees. But those might be different solutions, and 2 of them might be Everbridge. But as you think about orchestration and sort of a layer above it all to manage that, do you think you guys end up owning and building that space and integrating with sort of these point solutions, which are sort of, I guess, competitors? Or do you think there's room for sort of this neutral third-party to kind of run that role? How do you think that sort of -- that [cool] way of orchestrating across a lot of your alerts, which once, obviously, you have them, that gives you a huge network effect but also across some of the competitors? Just would love to get your thoughts there.

You bet. Well, trying to keep it brief and allow time for more questions, look, we need to understand who those competitors are. We don't always see them, so we don't recognize a lot of competition. But all kidding aside, as we did earlier this past year in 2018, we announced our orchestration engine for IT Alerting products. And the ability to operationalize more and more alerting -- as you know, 3 years ago, we didn't have an IT Alerting product, that's a relatively new product, which includes scheduling and the orchestration of a process from a ServiceNow, an ITSM player, through to delivering the right message to the right person to get the job done faster and reduce the impact of an IT outage. The same thing can be done for safety and compliance, for regulatory, for a lot of different areas of alerting. And so yes, we think that orchestrating the alerting across an enterprise, everything from historic Mass Notification to a city or business operation using IoT in the future is a core business for us, and we will continue to expand and lead those markets.

Our next question comes from Tom Roderick with Stifel.

So Patrick, I wanted to dive in a little bit more in your guidance and appreciate the knowledge and understanding around lapping UMS so the growth rate will moderate. But if we sort of look at where all of our numbers were for the back half of the year, particularly look at all of 2019 and look at your guidance for the full year, it's notably ahead for the full year while the first quarter is sort of right in line with our expectations. So I'm hoping to understand a little bit more as I think about the organic acceleration that looks like you're modeling in. How much of that is sort of tuned into some of the perpetual license work you're talking about? You mentioned that creates a little bit of kind of a bulge in the revenue. So maybe you could talk to that and the impact in the numbers. And then secondarily, any other initiatives or recent bookings that have a timing mechanism perhaps that would drive some acceleration in the numbers in the second half just so we can understand why you guys are modeling so much above where we're at?

Sure. So the -- we are a pure play SaaS company. And so just to clarify in perpetual, there will be an impact in Q2 to the tune of roughly $1 million, $1.5 million, but it will be one-time. And considering that we're guiding full year to $196 million, give or take, that's -- it's less than 1% of the total business. So I just want to stress the point that while we do have an impact of perpetual, we're talking about really a single deal and one time. And we just wanted to call it out to help you with -- as you kind of [re-swivel] your models. From there, we feel really strongly about our organic momentum. And whether it be our rapid progress with CEM and a strong pipeline as we head into 2019 or also those deferred revenue haircuts wear off, we get a little bit -- we get full credit for the businesses that we've now integrated, we acquired in 2018. But we now have fully incorporated those into the Everbridge organic business, and so we'll see continued momentum there as well. So we feel like as we head into 2019, both on top line and bottom line, we feel like we're firing on all cylinders.

Outstanding. That's great. Jamie, as I think about the CEM market, you guys have sort of largely helped to define that market itself. I recognize 5 to 15x is a great sort of return or upsell relative to traditional deals, but pretty broad range. Can you just kind of give us a sense as to how those deals are progressing in size in roughly a year since you guys have launched CEM and what you think happens from here? Do they sort of naturally get bigger? Do you have existing customers that dipped their toe in on CEM coming back with much broader enterprise standardizations? What's the trend line look like from here?

Sure, Tom. I mean, yes, I think generally, they continue to accelerate, and we believe the momentum is going to continue across the board. Now when you think about CEM, remember, it is a multiproduct strategy, right? So it used to be you have to have 3 out of our 4 products. That product set as of mid this year will be 6 products. So if 4 products resulted in a $300,000 or $400,000 average deal size, which by the way, we measure success over our single product because we used to sell with the additional products that we built and talked about repeatedly with you, a single deal for Mass Notification or IT Alerting being $50,000, $60,000, $70,000. So $300,000 to $400,000 for 3 products or 4 together, that's a substantial uplift. And the whole idea is to get the customer believing the same vision that if we can provide you a suite of products a la any other 3-letter acronym company, HCM, the Workdays of the world, or ERPs, the [S&P] or Oracles of the world, or CRMs with multiple products, we're trying to deliver that single pane of glass to manage critical events for both individual people safety as well as business operations. And if 4 or 3 equal $300,000 to $400,000, more is better. So 5 to 6 applications hopefully resulting in an average deal, as we announced, Dow bought everything in the suite. With 6 deals, that deal would've gone from whatever it was, $600,000, $700,000, to $1 million. So by continuing to flush out the suite with the other applications and mature at the same time the overall sales force and the number of sales people that are selling the product, we started the year with less than our full corporate team selling only to the corporate space. And as we enlarge the number of verticals we're selling and the number of sales people, you're naturally going to get a lift as well. So both of those are very positive drivers to the overall CEM success. And that's why we feel good about its continued momentum. The deals are going to get bigger because we're going to have more products to sell, and the sales force is going to get more knowledgeable with use cases and benefit to customers. And that's going to drive individual sales success with more deals.

Our next question comes from Terry Tillman with SunTrust Robinson.

Hey, gentlemen. Can you hear me okay?

Yes, we can, Terry. Go ahead.

Yes, there's a lot of goodness here. We can probably keep you on the phone till 9 p.m. if you want to. I had a ton of questions. But I'm going to narrow it down to one question, believe it or not. And I'm really getting into the weeds here, but Safety Connection, that product, when you launched it, it was the fastest-growing product out of the gate. You saw quick traction. But it sounds like now you're seeing it in international markets and in public sector. Maybe, Jaime, you could talk a little bit about Safety Connection in terms of the expansiveness of the opportunity with that product into '19 and beyond.

Sure. Look, first of all, it's approaching 11:30 for me over here. I'm in our European headquarters speaking to you, but we love doing it so -- but I think Safety Connection is sometimes overlooked. And Safety Connection is by far our most singly disruptive product because with that product, we're going into a workplace today because it's primarily historically sold into the private markets. Now you're starting to see leading public entities which substantially expand Safety Connection, the Parliament of Singapore, our government deals that we're doing around wearable devices this next year, which we're very excited about, areas like the hotel industry, California, which is going to require a wearable panic button. You got to funnel all of that information to some solution that can figure out where you are when you push a button. And so Safety Connection is disruptive in that employees are becoming more mobile, and as more corporations, many, many of the entities that are on the phone today, their corporations are moving to a pure hoteling concept, where people will grab a desk with a mobile ID when they come in the office. It may not be the same one for a month in a row or maybe the exact same one, but it won't be an office necessarily. It will be a collaborative workspace. And as more campuses are built and more global trade is done, the requirement to be able to figure out where people are with more location vectors than turning on your mobile phone and spying on you or tracking you the entire time are required. And so we basically have invented that mobile safety and security market. And we've written that way, that's in its early stages. People are just figuring out the privacy aspects. A number of leading financial institutions that we work with are just figuring out how to roll out Safety Connection globally. You heard about HSBC today and others. Those are very large accounts, and we see that market continuing. And that is one of the driving apps, I would say, behind CEM. Because it doesn't make much sense to see a major event and overlay your assets, your physical infrastructure if your people aren't located there. So you need a combination of all 3. You need the event, you need to understand where your buildings and locations and even brand are, but then you also need to see where your people are. And often, they are out, mobile. And so that's what Safety Connection brings together. And that's why you continue to see like in Q4, 90% year-over-year growth. And that's a significant product now in terms of overall revenue for us.

Our next question comes from Brian Peterson with Raymond James.

Kevin here on for Brian. Understanding the large deal and CEM closures can be lumpy. But how should we think about the trajectory for ASP growth as you look out to 2019?

Yes, the only thing we -- I would tell you, then Patrick may have some comments too as it relates to guidance. But look, CEM is still in its early phases, so we're only 35 or so customers in. So we're still gaining an understanding of the buying pattern. We're reducing the selling cycles. We said we're adding products, which increases the ASP of the CEM deals because they're all, by definition, they have to be multiproduct deals. In fact, when we released the 2 new products, both Crisis Management and Analytics, by Q3, we'll require that a customer has to buy 4 products to qualify for CEM. So we keep the definitions a reasonably high bar and a true multiproduct integrated solution sale. But the very nature of adding the products increases the ASP and the knowledge of the sales force. And so because they're large deals, large deals take a little bit longer. They're probably yet 1/3 longer than any of our normal deals to 50% longer because they're 5 to 15x larger. I said in my prepared remarks between 5 and 15x the size of our normal single product deal. So that does lead to a larger ASP, but it also leads to a longer sales cycle and, therefore, a little lumpiness. We're early in the game. They're going to continue, and we believe we've got continued momentum as we rolled out to broader. So you should see continued success. But beyond that, I think it's a little early for us to give any other specific guidance. I don't know if you'd add to that, Patrick, or anything else around CEM and lumpiness and large deals.

Yes, and in particular, on ASP. We don't guide to it. But you've heard Jaime and Ken say, it's a lot easier to get to $500 million in revenue by increasing the ASP rather than trying to make it up on volume. So we've been architecting growth in our ASP over the past few years. And we're already now architecting it for the next few years. So should anticipate that metric will continue to grow up driven by a number of factors, CEM being just one of them.

Got it. And then just a quick one on your deferred revenue results. Have you seen any recent changes to contract durations? Or would you expect that to have an impact on your billings going forward?

The only change that we've seen is kind of a gradual increase in the average duration. 1/3 of our business is still state and local government, which typically will go year-to-year. Even though we might win kind of a 5-year deal, they only get budget for 1 year at a time. So we count those as 1 year. As the mix has kind of gradually shifted to more like 55% corporate, it used to be closer to 50%, we see an uptick in that overall average. It used to be 2%. I think it's now 2.2%. And that should -- as long as the mix continues to gradually shift towards corporate, you might see a gradual increase in that metric. Corporate tends to be [3-plus years], on average.

Our next question comes from Brad Sills with Bank of America.

Congratulations, Ken, on your next move. We'll miss you.

Thank you.

Yes, I wanted to ask you guys just kind of on that previous question, with regards to your move, the larger deals, CEM, et cetera, how has the sales force changed? And how is it going to change going forward in terms of addressing larger deals that you mentioned?

Yes, I mean, we talked about it last year that we're on a multiyear transition to a much more robust and mature enterprise selling motion and team. We said at the -- kind of as we ended this last quarter and certainly Q4 this past year, that we believe we're about halfway through that transition, and we haven't had a hiccup, which is half the battle, right, we're trying to avoid as we drive the car faster from 60 to 70 miles an hour, we're changing the tires and we don't want to drive off the road or fail on our consistent execution. And so that -- sometimes that by itself is half the battle, and we're very excited that almost all our key indicators, from the experience of the sales team, the clear enterprise experience that we've added going from a single product to selling 4 or 5 products at once and $50,000 ASP to $500,000, requires a more mature, more focused sales team. And so last year, we focused on hiring stronger and maintaining our strongest people with better training, focusing on productivity per rep and the average quota and quota attainment for reps. And in almost every case, all of our metrics were up and to the right, and some very significantly, and that led to some of our success. As we approached 2019, we're focused on further delivering more clear benefits to our customers on the ROI for Critical Event Management, focused around vertical organization of the sales force. So we rolled out 2 or 3 new verticals at a recent kickoff. And we'll continue to specialize around these larger deals more on vertical than on a particular group within the sales force so that someone doesn't have to learn everything from oil and gas to healthcare and all the benefits for CEM. And so that's a transition we'll continue this year, and we expect some results. That team, new leadership, Pat Galvin, who now leads our North American sales team as Gary Phillips moved over to head up Corporate Development, is doing a very good job, led by Bob Hughes and the rest of the team. And we expect that transition to continue.

We have time for one more call -- one more question, and then we have to end to do callbacks with individual analysts. So thank you. One more last call.

Our final question comes from Scott Berg with Needham & Company.

It looks like he disconnected. Would you like to take one more person?

Certainly.

All right. We will take Brent Bracelin with KeyBanc Capital.

This is Brent. Jaime, just wanted to ask (inaudible) growth question here. Just because we've seen you guide at the beginning of the last 2 years to 30% growth. You're now guiding to 33% growth. We've touched on this quite a bit today on the call. But as you think about just comparing, contrasting this year versus last year, what are the growth drivers that are driving the optimism here? 1 or 2 factors that you're a little more optimistic about kind of organic growth this year versus the last 2 years?

I think we're guiding to 33% to 34%. But I -- but Patrick can correct me there. But yes. So I think it's just exactly what we talked about. A year ago, we were beginning an enterprise sales transition around our CEM solution, and we're just introducing it at scale into the market. With only 10 successes, you really can't tell what you're really good at something and the market is really reciprocating and it exists or you're throwing a party and a few people showed up, and it's just not going to work out. And so in our case, we're seeing CEM work and work at scale with the same repeated model. And we're getting better at the value drivers for customers, and the ROI that we can present to a C level officer, across Chief Security Officers, Chief Risk Officers, CFO, CIOs, et cetera, COOs. And so that is certainly [brewing] our confidence and our ability to execute around that organic growth in our CEM opportunity. And then the fact that we're adding 2 more products to expand the suite by 50% in 2019. And the backdrop to our core business has just never been better. I mean, we have a brand new federal market, which we couldn't have gotten out of the blocks faster in 2018 than we did. Still believe that the federal government may present 1 or 2 of our largest customers in the coming years. And then on top of that, Population Alerting internationally is poised to grow as -- without using the word explode, grow as fast as we can probably manage it with new regulatory and legislation environments that mandate every single country across Europe, not the few that we have or the few large ones you think about, but every country has to implement a solution that is pretty much delivered by us and us alone internationally. In addition to Asia, which continues to grow at record paces, I want to remind everyone that our international business, half of that growth of 168% 2018 was organic, and half was acquired. In both cases, they did substantially better than they did the previous year. So you've got both CEM and our continued success and maturation there, an expansion of product set, and then you got a core Population Alerting, including the federal government here to drive continued success and internationally as stronger drivers with the legislations you can get. And I would think that would allow us to conclude that numbers and trajectory are fairly reasonable at the roughly 34% year-over-year growth. And that's organic. Obviously, we could do and continue to believe that M&A is key to our strategy. And so could see certainly 5% to 7% added and in that mix on top of it with successful execution of M&A in 2019.

Great, Jaime. Helpful color, as always. And Ken, it's been great working with you and best of luck.

Thank you.

So in conclusion, we'll wrap it up because we do [need the other] calls. We appreciate you joining the call. I think my last summary summarized it properly, we're excited about 2019. We're excited about continuing to execute both our strategy and on behalf of shareholders.

Thanks very much for attending the call today.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation.

You may all disconnect. Have a wonderful night.