Everbridge, Inc.
Q2 2020 Earnings Call Transcript

Published: 9 Aug 2020

[Operator:]

Greetings and welcome to the Everbridge Second Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct the question-and-answer session. As a reminder, this conference is being recorded today Thursday, August 6, 2020. It is now my pleasure to introduce the conference over to Joshua Young, Investor Relations. Please go ahead, sir.

[Joshua Young:]

[Jaime Ellertson:]

Thanks Joshua and thanks to all of you joining our earnings call today. We're excited to report financial results that exceeded our guidance. Our Q2 results are again a strong example of why we are the critical event management leader and the first choice for organizations desiring to keep people safe and their businesses running in a complex and often challenging environment. As a leader in critical event management, we offer the broadest and deepest platform-enabling organizations to manage and mitigate any type of critical event. While COVID-19 is a seminal critical event of our time, let's not forget that other critical events can simultaneously affect organizations around the globe almost every day, impacting their ability for people to stay safe and businesses to keep running. This past quarter is a perfect example of how pervasive these critical events can be and how they can affect every walk of life and virtually every organization. From an escalating COVID crisis touching almost everyone in the U.S., to civil rights protests occurring in almost every major city following the senseless death of George Floyd and ending up with a hurricane hitting the East Coast all of which is happening as we speak.

[David Meredith:]

Thank you, Jaime. During the second quarter, we extended our leadership position provided world-class support to our customers during a challenging time and advanced our mission to keep people safe and organizations running. In fact, we set new company records for revenue, gross profit and net customer retention rate as well as delivering our largest revenue beat over $2 million since our IPO. We also posted one of our best quarters since being a public company for gross margin and adjusted EBITDA margin. And the strong metrics continued in many other areas of the business which gives us greater confidence in our increased guidance for the year. During difficult times like this pandemic companies turn to established leaders like Everbridge. Organizations require -- I'm sorry organizations recognize that the software solutions they need to protect their people and assets are not quick fixes, solved only by add-on applications. They are looking for a comprehensive solution with the breadth and depth necessary to manage and mitigate any form of critical event from COVID to cyber-attacks to hurricanes. Our performance this quarter reflects our underlying industry leadership. Revenue in the second quarter increased 35% from a year ago to $65.4 million which was above the high end of our guidance range. We also implemented disciplined expense control to generate adjusted EBITDA of $3.6 million which was also well ahead of our guidance for the quarter. We have consistently stated that our objective is to deliver top line growth in the mid-30% range. In the second quarter, we delivered on that objective. And also saw the benefit to our bottom-line performance from shifts in certain investment expenses to later in the year.

[Patrick Brickley:]

Thanks David. I will review our financial highlights from the second quarter. And then provide guidance, for the third quarter and the full year 2020. We extended our track record of strong growth in the second quarter and again, exceeded the high end of our guidance ranges. Revenue in the quarter was $65.4 million, up 35% from a year ago. Adjusted EBITDA for the quarter also exceeded our guidance, at positive $3.6 million. Even in the midst of the worldwide pandemic, we saw our net revenue retention rate well above 110%, as we continue to provide significant value to our existing customers. In fact, net revenue retention was among the highest we've seen in our history. Looking at 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 margin was 72.8%, a 165 basis point improvement year-over-year and a 600 basis point improvement sequentially, representing the highest gross margin since our IPO almost four years ago, as unit economics continue to improve, as we scale. As always, keep in mind that quarterly gross margins may fluctuate from period-to-period and are not necessarily indicative of longer-term trends. For the trailing 12 months, gross margin was 70% consistent with the year ago metric. Total operating expenses in the quarter were $46.1 million, an increase of 27% from a year ago, reflecting continued investments in our platform and our go-to-market strategy, offset by strong expense management, as well as the timing of certain investments that we now plan to make later in the year. Adjusted EBITDA handily beat our guidance, at positive $3.6 million, compared to positive $400,000 in the year ago period. Upside in the quarter was due to our revenue beat, combined with management of operating expenses. Net income in the second quarter was $2.3 million, or $0.06 per diluted share, compared to a net loss of $1.2 million or $0.04 per share a year ago. Turning to our balance sheet. We ended the quarter with $491.3 million in cash, cash equivalents, restricted cash and short-term investments, compared to $506.5 million at the end of the first quarter, reflecting seasonal cash flow patterns and the impact of the small technology tuck-in acquisition we completed during the quarter. Cash payment for this transaction was $9.2 million, net of acquired cash, and total cash and stock consideration was $15.3 million. Free cash flow was an outflow of $7.2 million in the second quarter, consistent with seasonal trends, compared to an outflow of $15.2 million a year ago. Total deferred revenue was $138.8 million at the end of the quarter, an increase of 42% from a year ago. As we note, every quarter our deferred revenue balance at the end of any given quarter can vary due to a number of factors, including the timing of significant new contracts and the timing of annual billings, for new and existing customers. For example, several million dollars in billings that occurred in the second quarter of last year will occur in other periods this year, which has a net impact on deferred revenue for the second quarter. As such, the change in deferred revenue in any given quarter is not an accurate indicator of the underlying momentum of our business. As with all our metrics, we believe the trailing 12-month measures more accurately reflect our underlying performance. The goal of our model remains to drive longer-term revenue growth in the mid-30% range and our trailing 12-month deferred revenue trends continue to support this objective. Now, let me turn to our guidance for the third quarter and the year. After a strong first half, we remain optimistic about our expectations for the full year. We anticipate -- in the third quarter, we anticipate revenue of between $68.3 million and $68.7 million, representing growth of 30% to 31%. We anticipate adjusted EBITDA to be between a loss of $0.4 million and breakeven. We anticipate a non-GAAP net loss of between $4.1 million and $3.7 million or a loss of between $0.12 and $0.11 per share, based on 34.5 million basic and diluted weighted average shares outstanding. Stock-based compensation expense is expected to be approximately $14.8 million in the third quarter. For the full year, we are increasing our revenue guidance to the range of $264 million to $266 million, representing growth of 31% to 32%. We are increasing adjusted EBITDA guidance to a range of $6.6 million to $7.2 million. We expect a non-GAAP net loss of between $4.1 million and $3.1 million or between $0.12 and $0.09 per share-based on 34.4 million basic and diluted weighted average shares outstanding. This guidance assumes estimated stock-based compensation expenses of approximately $49 million for the year. And we continue to anticipate that free cash flow will be approximately breakeven. In summary, we had an exceptional second quarter and first half of 2020, as new and existing customers increasingly turn to Everbridge's leadership. These customers realize that the value that our technology provides them with, to keep their people safe and businesses running during critical events that are happening today and those that will inevitably occur in the future. We believe we are better positioned than ever to deliver on our mission and to generate growing shareholder value, as we further penetrate a multibillion-dollar opportunity. Now, operator, we'd like to open the call for questions.

[Operator:]

Thank you. And our first question is from the line of Matt Stotler with William Blair. You may proceed.

[Matt Stotler:]

Hi, guys. Thanks for taking my question. A couple of questions. So, first of all, congrats on the results. You guys have continued to put up strong results in Q1 and Q2, both despite and partially as a result of the environment we're currently living in. I would love to get your observations regarding progression, as you move from the March-April time frame into the May-June time frame. And any -- specifically any changes that you saw in terms of deal flow or platform usage, especially, with the launches of the several COVID-specific solutions that you mentioned?

[David Meredith:]

Hey, Matt, this is David. Thanks for the comments and the question. So, we continue to see strong demand for our products. Q2, we had a good sales pipeline. We had sales performance that exceeded our expectation, our internal expectations. And we're seeing really good demand for some of the COVID-specific use cases that we've launched. We talked about the COVID risk data feed. Our risk data services are in very high demand, far outpacing our expectations in the plan. The COVID Shield, return to work; and most recently we've launched contact tracing and we've seen very rapid adoption of contact tracing. I mean, even before we had it officially launched, we had customers signing up and we've seen that actually accelerate in recent weeks. So we're pretty excited about that. So, overall, it is a situation where I think customers are looking for help getting back to work, managing their overall risk exposure and business operations in the time of COVID. And this is the space that we've been in for many years. We have very deep and broad solutions and I think people recognize that and they're coming to us.

[Matt Stotler:]

Got it, got it. That's helpful. And then one for Patrick. You mentioned kind of the OpEx discipline in the quarter. It looks like some of that was on sales and marketing. We'd love to, I guess, just flesh that out a little bit, talk about the adjustments that you made to spending in the quarter and how you're thinking about reengaging with that or what the plans are for Q3 and Q4? Thank you.

[Patrick Brickley:]

Thanks, Matt. Yes we are very excited about the growth opportunity and we continue to invest in it. There were some things in Q2 that we're able to slow down a little bit. The obvious things are travel and enterprise sales reps not traveling as much in Q2 as they were in prior periods. So, yes, there were some obvious things. And then when we consider investing in growth opportunities, some of those more related to category creation, we want to be opportunistic and we anticipate we're going to have opportunities to make those investments later in the year.

[Matt Stotler:]

Got it. Thank you for taking my questions and congrats again.

[Operator:]

Our next question is from the line of Terry Tillman with Truist. Go ahead.

[Terrell Tillman:]

Yeah. Good afternoon everyone. I'll echo the congratulations. David, thanks for all the details the color the wins everything. It's very helpful. I'm curious about the starter deal dynamic. Was this just kind of a sign of the times and with COVID and just trying to help people and they want to get started maybe smaller commitment or has this been something that was in the works with Vernon and kind of go-to-market initiatives? And then kind of the second part of that -- so just a little bit more on the background of this. And the second part of it is going forward then what are the implications on looking at kind of your ASPs as opposed to unit acquisition each quarter? And then I have a follow-up.

[David Meredith:]

Yes. Thanks, Terry. So a couple of things. I think some of this really has to do with the overall dynamics of COVID. So what's happening is there's a tremendous urgency from our customers and prospects around specific solutions. They're trying to get deployed as quickly as possible to mitigate risk from COVID or something they're trying to do whether it's getting back to campus for school or back to work or back to public spaces for governments. So they're tending to lock in on a couple of use cases and say we just -- we got to get this up very quickly. And when they do that on a positive note, we're seeing the sales cycle I mean, just dramatically compressed like we've never seen before. So we can give these deals in quickly, but they're more focused on getting the initial couple of use cases in and then it becomes a land-and-expand motion as opposed to saying "Well let's take a little more time in the sales cycle and talk about how we can help you do five other things" right? So I think this is really showing up. If you look our growth bookings for the quarter, it's like extremely high compared to what we've seen historically. And I think you see that show up. Our NRR for the quarter is a historic all-time high it was our best quarter ever in terms of net retention. So -- and a lot of that's coming from that. We get them in with something quick and then we grow. So I guess it's somewhat serendipitous around COVID, but we do have the packages in place to go do that. And I think a lot of the product offerings we've been launching helped with that.

[Terrell Tillman:]

Okay. Great. And then Patrick, just a follow-up question. I'm a good listener understanding deferred and the impact in billings and we should look at that over a trailing 12-month basis. One thing I'm curious though as we get into the second half of the year, you did call out a couple of I guess renewals that will hit from 2Q last year hitting in 3Q. So that's helpful. But as we look into the second half or even into next year, but because of the macro and COVID, is there any changes though you're seeing across either health care public sector or corporate in terms of how they pay, maybe if there was annual before it's more periodic payments, anything that you're noticing in terms of how invoicing is changing if at all? Thanks and nice job.

[Patrick Brickley:]

Sure. Thank you, Terry. We're continuing to see that we are high up on totem pole when it comes to the organizations that are in distressed verticals or the most distressed verticals reaching out to their vendors and their partners for payments from request because while we've certainly received some of such requests, it seems like we're receiving far less than a number of my peers are. So I think that bodes well and it's never a question of whether we can pay. So there's some of that out there, but I don't anticipate that it's adding anything materially new to our billings dynamic.

[Terrell Tillman:]

All right. Thanks.

[Operator:]

Our next question is from the line of Scott Berg with Needham & Co.

[Unidentified Analyst:]

This is Alex on for Scott. And I was wondering what are your hiring plans for the second half? And are they going to be returning to pre-COVID level?

[David Meredith:]

Patrick, do you want to take that?

[Patrick Brickley:]

Yes, I'm happy to take that. Yes. You bet we are hiring. We are actively hiring. We are looking at bringing in full timers, part timers, interns and reaching out to third parties who can take on additional work that we can toggle up and down. So where -- we manage expenses through periods of immediate uncertainty like what happened with COVID and just kind of the shock. We never slow down investment in for example sales capacity. Hiring that's critical to revenue generation, we have always prioritized that and that has always remained strong. So it's in the other areas of the business on G&A, on overhead. Sometimes I have to slow down so that the rest of the org can keep going. And so we have plenty of that, but we're getting back on track across the org very quickly here.

[Unidentified Analyst:]

And the margin….

[David Meredith:]

Yes, I think what this quarter showed in one regard is the leverage in the model where we can turn on more profitability, if we need to, but we're still investing in growth. And you saw how we were able to outperform on our quarterly adjusted EBITDA target as we were being cautious on some investments. But over the long-term, we're going to continue to invest in growth.

[Unidentified Analyst:]

Great. Thank you.

[Operator:]

Our next question is from the line of Brad Zelnick with Credit Suisse. Please begin.

[Bhavin Shah:]

It's Bhavin on for Brad. Just quickly for one for David and then a follow-up for Patrick. David, great to see more country-wide deployment announcements during the quarter. How should we think about the pipeline for more of these deals? And then when you talk about the network effects at the state level, should we also see similar types of network effects happen with these countrywide deals?

[David Meredith:]

Yes, that's a great couple of questions. Thank you. I think the first question on the countrywide, some of the work we're doing right now in supporting Norway with how they're leveraging, the public warning technology to help manage COVID. And if you look at Norway's numbers and metrics compared to other countries even in that region, they've got tremendous metrics in terms of how they're managing the pandemic. But they're using our technology to communicate to all of their citizens and visitors in the country. They're using the technology to help manage social distancing and they're using it even now to help manage communications with citizens of Norway traveling to other regions of the world, if they get exposed to hotspots and communicating with them on the latest protocols in terms of what's happening with quarantine guidelines and things like that. So I think as you see use cases around COVID being used by some of the -- and if you look at who our customers are

[Bhavin Shah:]

Thanks, David that's helpful. And for Patrick, nice to see the strong 2Q performance on revenue gross margins and EBITDA. Was there anything one-time in nature that benefited revenue or gross margins that we should be thinking about? And then from here how should we be thinking about the progression of gross margins? Thanks.

[Patrick Brickley:]

Yeah. Thanks Bhavin. Revenue, there was no material one-time revenue. Whether it's services or sometimes getting a small one-time license across the finish line we've -- each quarter we've had a little bit, but there was no – one-time revenue in Q2 of 2019 was much, much greater than it was in Q1 -- Q2 2020. In terms of adjusted gross margin you're just seeing in Q2 better visibility into the underlying unit economics that we've been building and experiencing and that will continue to improve over time. But that said, each quarter could be a little bit different because of the timing of when we're making investments in security and continuing to -- as we continue to go global with our platform and doing localized investments and building out support as we enter new markets. There will be investments that will be a little bit of a headwind on adjusted gross margin at first. And then over time you'll see us build a lot of scale off of those. And so we're on track to get to 75%, 77%, 78% in the long run. But between now and then you'll certainly see it go up and down. Don't be surprised to see adjusted gross margin closer to 71% at times. And when we deliver some of these country-wide alerting deals, they could have some one-time pressure that would only be for that quarter of delivery like you saw in Q1 there was a little bit of that.

[Bhavin Shah:]

Thanks for the color. And congrats again on the strong performance.

[David Meredith:]

Thank you.

[Operator:]

Our next question is from the line of Sterling Auty with JPMorgan. Please go ahead.

[Jackson Ader:]

Thanks. This is Jackson Ader on for Sterling tonight. Our first question on the corporate side, are you actually seeing any corporate customers may be putting certain products on hold or certain aspects of deal on hold because their employees aren't traveling just like you said Everbridge enterprise salespeople aren't really hopping around the country these days. Are you seeing that impact deal sizes?

[David Meredith:]

Yeah. It's a good question. I don't think it impacts deal sizes. I do -- I think that emphasis placed on certain use cases that are more relevant now than other use cases. So there are some use cases that in normal times they would be more focused on. And -- but I would say the net-net of it is overall the sales funnel pipeline is stronger overall. And where -- the sales cycles are getting shorter, but we are -- it's a different set of use cases that are of primary interest at this time versus something that would have been nine months ago. So does that answer the question?

[Jackson Ader:]

Yeah, I think so. Just following up then on these kind of different use cases in 2020 maybe versus previous years, do you expect that the cadence or the mechanics of cross-selling and up-selling those customers to be virtually unchanged going from contact tracing to some of your other products will that be any different than it was before all this happened?

[David Meredith:]

Well, we've been very thoughtful about how we structure some of these offerings. So contact tracing for example, it's really tied into everything we do and leverages for example our Safety Connect offering. So if you buy contact tracing, you're getting a broader set of capabilities that we're loading in your assets and your people and all the things that we do for a broader implementation, and so we feel really confident that these are long-term customers that will be easy to continue to cross-sell, upsell. And it's showing up in the numbers. Like I said if you look at Q2, our gross bookings numbers were extremely high. And so -- and it's -- our net retention numbers were all-time high. So I think the formula of land and expand is working actually better than usual and we expect that to continue.

[Jackson Ader:]

Thank you.

[David Meredith:]

Sure.

[Operator:]

Our next question is from the line of Will Power with Baird. You may proceed.

[Charlie Erlikh:]

Hey, guys, thanks for taking my question. This is actually Charlie Erlikh on for Will. I was hoping to ask about the network effects in two different ways. I guess, first, the state deal is leading to deals within that state. Is there any way to size that? Like when you look at the state agencies and the governments and cities, the municipalities within each of these states, is the revenue opportunity orders of magnitude larger than the original full state win? It seems like you're seeing a lot of good traction there. And then second, do you also find that your business exhibits network effects in terms of your existing customers maybe gaining more value from the Everbridge platform and you add more and more new customer’s maybe if they're able to share risk data with each other? Or are there any other examples of network effects in that way? Thanks.

[David Meredith:]

Yeah. No, great questions. So the first question I think the best thing to look at is just a real-life use case, which is Florida. And Patrick you can jump in. But just going from memory, I think we have over 400 deals whether it's an airport, health care system, university, statewide agency, city, municipality corporation. So if you look at what we saw, kind of, light up that network effect created in Florida, it was over 400 deals in the state and county. And we're already seeing traction in state of New York, and state of Connecticut, California, et cetera. So as far as quantifying that it's -- we'll continue to get more data as we fill in the puzzle pieces in these states. But directionally we see very similar to Florida. The second question is a very insightful question. So we have something called Everbridge Private Network and that's where our customers are able to on an opt-in basis to share data and use that to help. So, for example, the city of London police, I think they have -- trying to remember the number, I think it's 300 different organizations that are able -- in public and private that they're able to share data across. If you look at the New York Transit Authority also, similarly has an ecosystem where they're able to share data. And there's other -- there's examples of -- across the health care industry, various health care organizations sharing data. So, we do have these happening. And in our product roadmap, we're going to be doing some additional enhancements to make it even easier and more value-added for groups of our customers to leverage the Everbridge private network to create more value and just make it more and more sticky to be in with us.

[Charles Erlikh:]

That’s really helpful. Thanks guys and congrats on the results.

[David Meredith:]

Thank you.

[Operator:]

Our next question is from Ryan MacWilliams with Stephens Inc. Please go ahead.

[Ryan MacWilliams:]

Hey guys. Thanks for taking the questions. This one is for Patrick. So, it seems like there was a lot of activity in the quarter with bookings being high. Patrick, were there any deals that were booked but not billed? And could you quantify?

[Patrick Brickley:]

Well, there wasn't a material amount of that activity in Q2, Ryan. You're right though to refer kind of big picture, when we think about these public warning deals. They aren't our typical SaaS deal, at least not the ones that we've closed to date. We want it to be a SaaS model in future years, but the ones we've closed to date are not. And so we've got over $10 million of backlog related purely to countrywide deals that are signed that we're working on implementing and that will convert to revenue ideally sometime here in the next two to four quarters. And none of -- or very little of that is in our deferred today, but there wasn't any material have new contribution to that in Q2.

[Ryan MacWilliams:]

Great. And then a two-parter here, just getting greedy. We have had a lot of focus on the one too many acquisition and the public warning opportunity. But David, would you mind touching on your IoT opportunity with Connexient and CNL Software acquisition? And then Patrick, would you mind just discussing how those acquisitions impacted deferred between the first and second quarter? Thanks guys.

[David Meredith:]

Yes. So, it's pretty exciting the technology capabilities, we've been able to use to expand our CEM for IoT and it's helping us with COVID right now. So for example, if you're a customer and you can use our command center now to have thermal cameras when employees are coming into the building and take their temperature and that's fully integrated with the broader set of capabilities. So, if someone has a temperature, you can kick off a protocol about what do you do when that happens? You can send messages. You can -- we have tied it in with the mobile app which allows you to do wellness checks. So you kind of go through the full set of use cases around, how do I get my people back to the office and make it more safe for them. We have I think really unparalleled set of capabilities to help to do that. On the contact tracing side, the technology we got from the Connexient acquisition has been really essential as part of that. And you're seeing a lot of issues, people trying to do sort of old-fashioned contact tracing. Number one, if you're just having a call center and people calling, people don't want to take the call and they don't want to get that information. They -- it's very inefficient. It's very expensive. So, our ability to bring all of this technology together and data together and kind of triangulate on the problem is very unique and it's really a digital transformation for what's a very essential, but kind of old-fashioned process around contact tracing. And I think that's why we've seen -- we've actually been somewhat astonished at the rapid adoption on closing deals for that even before we had fully launched all the capabilities. And so, we'll see where that takes us. But right now, we're very busy signing up customers around the contact tracing and our ability to get that launched so quickly with the direct result of being able to leverage some of the technology from those tuck-ins.

[Patrick Brickley:]

And with regards to the deferred, you can tell from David's description that, we've been fortunate we've been able to take a lot of that technology and make it in combination with our platform very relevant to the situation that we're in today and that are -- the customers that we support are in with regards to COVID. But these were technology acquisitions where frankly, we were thinking about future years. We weren't thinking about COVID when we started to pursue these deals because COVID came after that frankly. So they -- the nature of those businesses is such that frankly, when you talk about things like thermal cameras or way finding, you need to get on-site to deliver those. And right now, that just isn't happening. So there isn't much movement in deferred on those businesses and there may not be for a while. But that's fine from our perspective that's -- those are projects that we will get delivered and those are customers that we will be adding to the portfolio and adding to the Everbridge platform over time. And in the meantime, the technology is very relevant as we combine it immediately with our SaaS platform to deliver -- to bring things to market really quickly that are really relevant.

[Ryan MacWilliams:]

Thanks. I was just referring to like their acquired deferred in the first quarter, but that makes sense for the detail going forward. Appreciate the question.

[Patrick Brickley:]

And that's what my reply was with regards to.

[Ryan MacWilliams:]

Awesome. Thank you.

[Patrick Brickley:]

Thank you.

[Operator:]

Our next question is from the line of Tom Roderick with Stifel. Please go ahead.

[Tom Roderick:]

Hi gentlemen, thank you for taking my questions. David, first question for you, I'd really be interested to learn a little bit more about the Siemens deal, both in terms of what you are able to gain from their technology set? And then, in terms of how broadly are they using Everbridge? It seems like a really interesting CEM deal that kind of kicks off your presence and footprint over in Europe. So, maybe you could talk about that a little bit. And then more broadly, just beyond that, I would love to hear just how you're -- how you've been able to sort of introduce the product in Europe get some feet on the ground. Where do you stand with regards to go-to-market there on CEM right now in EMEA?

[David Meredith:]

Yes, Tom thanks for the question. So Siemens is a very important influential company globally and certainly in Europe. And when we did our big CEM Thought Leadership kickoff event in June, we had Siemens there presenting and their Chief Security Officer someone who's held in very high regard and is an influencer thought leader in the space. And so, having Siemens publicly choose to adopt CEM for their enterprise is a really big deal and the fact that they're out talking about it. I think we've said this before. Goldman Sachs, they don't do press releases for vendors, press release saying Goldman Sachs is doing CEM for the enterprise. And you can go through every industry vertical and all these top global brands and leading companies wanting to be on record because CEM is really -- it's the standard. And it's the standard at a time when now every Board and every CEO, this is a very high priority because of the pandemic. It's raised the awareness level. So we're happy that we're able to continue to get such important companies and individual leaders to go on record. The Siemens deal is a little more complicated than a regular CEM deal because they're very excited about what we can do and they've got some intellectual property around artificial intelligence which they think can further enhance our capabilities and so we're working together on that and we'll probably talk more about that in the future. But that is part of the overall commitment of what we're doing there so it's exciting. What was the second question, Tom, sorry?

[Tom Roderick:]

Yes. Just more broadly on CEM go-to-market in Europe, how you're doing building out sales heads, building out regional expansion? I just want to get an update on how that's coming on.

[David Meredith:]

Yes. We've built up our go-to-market capability nicely. We've got for the first time in this past year we've added a partner team in Europe and we're already – I think I mentioned in my prepared remarks already bringing in deals from that. We've got – we've added additional experienced sales, enterprise sales leaders across Europe. And we've got a very nice sales funnel coming out of the quarter which was – both factored and unfactored looks good. And we've got a nice prospect list and engage in a lot of discussions. So again, you never know with COVID sometimes it helps and sometimes it slows things down. But I think right now we're optimistic about the conversations we're having and the team there is really excited to finally be able to sell CEM in Europe. So the sales team there is very happy.

[Tom Roderick:]

Great. Patrick, quick follow-up. You just mentioned something really interesting regarding the over $10 million in backlog for some of these countrywide deals as you look to push those into a SaaS framework and something that you can take on an ongoing subscription basis. Can you give us just some sense as to what else functionally or organizationally needs to be done to be able to turn those deals into SaaS deals? I know there's some technological components that sit next to the carrier. Can you give us an update as to what you have one too many brings to the table? And how far away you think that might be?

[Patrick Brickley:]

Yes. Thanks, Tom. So that backlog that I referred to those are deals that are signed and those deals provide perpetual licenses. So that makes – that really limits the ability to recognize revenue over time. And then the delivery of the technology is also a component of – that drives accounting and to the extent that you are installing something on the premises of a customer and it's a perpetual license you really end up having to recognize most of the revenue upon delivery. And so that's what a lot of that backlog is not all of it. There's support maintenance there are hosting-related services. In fact, for one of those deals part of the hosting is performed on a cloud basis we're actually providing. And this gets to the answer of your question Tom, we are able to provide public warning as a SaaS cloud-based solution. It comes back to what do the buyers want to the extent that sometimes there's a telco, sometimes it's a government and they just want it on their site and they're used to perpetual licenses. Sometimes we see that. And we've certainly seen that on the deals that are in backlog now. But we've already started the discussions where governments or third parties acting on behalf of governments are putting out feelers, requesting information, we're replying with "Good news we can do this with the modern infrastructure and deployment through the cloud." And we'll always be updating it et cetera, et cetera. And we're getting some positive feedback on that. So we hope that we'll be able to sell a number of future deals on a ratable basis.

[Tom Roderick:]

That’s great. Thanks so much for the detail. Appreciate it.

[Operator:]

Our next question is from the line of Mike Walkley with Canaccord Genuity. Please proceed.

[Mike Walkley:]

Great. Thanks for taking my question. My congrats also. Question I want to ask just with the CEM market now probably, a much larger opportunity than most imagine with COVID-19, there's some large technology companies getting into contact tracing. As Everbridge, are you seeing any change with new entrants may be coming into this market with the TAM being so much larger than it might have been a few months ago? And then are you seeing any maybe changes for more aggressive tactics from some of your previous competitor? Thank you.

[David Meredith:]

Yes Mike, thanks for the question. So you raised a really good point, which is we've been saying all along that this critical event management is an important category. It's a big global growing category. And we've been – this is where we've been. This is where we live. This is what we've been building out now for years. So it is interesting to see companies now sort of – because I think one of the things companies are finding is that they're showing up trying to sell their solutions and all the customers want to talk about is COVID. So everyone is putting a COVID spin on whatever it is they try to sell. And the idea that someone is going to throw together like a mobile app in a couple of months and – we spent years, we have over 160 patents. I mean this is – the breadth and depth of our capabilities just far exceeds what anyone else out there has. So I agree with you, we are seeing more companies come in and sort of take the language literally right off our website and talk about it. And in a way I think first of all it validates that this is a big space, it's a growing space and there'll be other people getting into the space. For our historical competitors kind of the point solution providers, I think in a time of crisis with the pandemic, I'd say good gets better and bad gets worse. And you want to be with the top provider and you're never going to get fired picking Everbridge. I mean we've had – I think now we're getting close to 700 million communications that we've sent out just from COVID alone. I think we've done 45 million communications related to civil unrest. There's no one in the industry that can handle the scale that we do. And so I think there's a flight to quality with customers frankly. And we even had some customers come to us when they still have time left on their contracts with some of the other point solution providers and saying "Hey we just got to get on something that scales better." So it is changing and evolving. I think the opportunity set is much bigger. We track this. And historically the total economic losses from critical events are about $500 billion a year. And the latest research on COVID now they're talking about $6 trillion a year. So now it's a $500 billion a year problem that's become a $6.5 trillion a year problem. So it is a bigger problem. It's a bigger opportunity. And we'll – we're monitoring all the players out there closely and we think that we're responding well in terms of how we're going to market.

[Mike Walkley:]

Great. And just a quick follow-up question on that David. Just with your land-and-expand strategy, it just seems like interaction with customers have to be at all-time high just as you try to help them get their people back to work safely. But it seems like as you get closer to your customers, get closer to protecting the revenues such as helping with supply chain and other things that you become even more of value maybe you can upsell more to your customers. Can you share with us maybe how conversations might be changing with customers? And if it's leading to even new use cases that you might have thought about pre-pandemic?

[David Meredith:]

Yes, it's absolutely true. What's happened now is we have -- we're up to over 200 out-of-the-box integrations across all of our capabilities. So we're really an enterprise-wide platform and we're always on always watching helping with their operations. So more and more we're coming up with these -- what we call operational use cases which drive really strong return on investment. So not only is it good where they can say, hey we're fulfilling our duty of care. We're protecting our people keeping the organization running. But also we're getting really good return on investment because we got less IT downtime. We're having really good traction with our IT learning offering. And that's -- and the business case we just had a major industry analyst did a report and came out and said, you know, there's a very significant return on investment from having CEM deployed and they talk to several of our customers to do that research. So more and more we're seeing that. I think a lot of our new use cases are being led by our customers. So we talked about the thermal cameras. We had customers coming us saying, hey we've got to deploy thermal cameras. We want to be able to have this plugging in. So it was important that we had that integrated into the broader set of CEM capabilities. So contact tracing is one where the university is saying, hey we've got to have contact tracing as part of our broader set of capabilities for return to campus. And a lot of urgency on that. So those are just a couple of examples. But you're absolutely right. We're very engaged with our customers. We're talking to them more than ever before and we're leveraging that. I talked about in my prepared remarks that virtuous feedback loop of talking to the customers, seeing where the pain points are and then very quickly getting out new offerings. The whole COVID-19 risk data feed that we added to our risk center was a result of that. And that's been in very high demand. So far our product management process is working in terms of working with those customers. Thank you.

[Mike Walkley:]

Thanks for taking my questions and best wishes to help everybody.

[David Meredith:]

Likewise.

[Mike Walkley:]

Thank you.

[Operator:]

Our next question is from the line of Brian Peterson with Raymond James. You may go ahead.

[Brian Peterson:]

Thanks, everyone, I hope you are doing well. Appreciate you taking the question. I'll keep it to one. I know we're running long here. But just David, I know, you've mentioned the partner channel multiple times since you've come onboard. Again it was mentioned this quarter. I'm curious how that ramp is going versus your expectations. And if we had to think maybe three to five years out, how would you think about the partner channel in terms of maybe contribution to bookings or revenue or however you're going to size it? Thank you.

[David Meredith:]

Yes. Thank you. We do talk about it a lot because it is a -- it's a change. Historically, we've been primarily focused on the direct sales channel. And I think it's exciting that given the historical growth of the company driven primarily through direct the opportunity and the upside from adding additional indirect channels additional routes to market, while continuing to improve our enterprise sales transition. So that's the opportunity. My expectation it is a new thing for us. So I feel like this year is foundational. If you want to do the flywheel it's -- we're pushing the flywheel and it's starting to move and it's starting to turnaround. But you say three to five years I think in three years the flywheel should be spinning full speed. So we're nowhere near what I think we can get to based on my experience in past companies and past jobs. But we're getting every quarter. We're getting proof points. We're getting -- we talked last quarter about Cisco. Fantastic new logo, full CEM deal global -- across offices and almost 100,000 people. I mean that's a tremendous win from a partner. And this quarter we talked about some of the wins I don't think we can name them, but we describe them big companies. So we continue to get proof points. We continue to incrementally add. But full rollout and full capabilities which I think three years is probably a reasonable time frame. I'd like to do anywhere from 15% to 30% of our bookings coming from indirect.

[Brian Peterson:]

Great. Thanks, David.

[David Meredith:]

Sure.

[Operator:]

Mr. Meredith there are no further questions at this time. You may continue with your presentation or closing remarks. Hello, Mr. Meredith are you there, sir?

[David Meredith:]

Thank you. Yes, I'd just like to thank everyone for joining the call today. We're clearly benefiting from our leadership position and strategic vision in the critical event management market, as customers and prospects in the corporate health care and public sectors increasingly turn to us for solutions. We will be attending the Canaccord and Oppenheimer conferences next week and we welcome the opportunity to meet investors at these events. Thank you, again. Goodbye, everyone.

[Operator:]

This does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day everyone.