Everbridge, Inc.
Q4 2019 Earnings Call Transcript

Published: 19 Feb 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Everbridge Fourth Quarter 2019 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference may be recorded.

[Patrick Brickley:]

Thank you. Good afternoon, and welcome to Everbridge's earnings conference call for the fourth quarter of 2019. This is Patrick Brickley, Senior Vice President and Chief Financial Officer of Everbridge. With me on the call today are Jaime Ellertson, Executive Chairman; and David Meredith, CEO. After the market closed today, we issued a press release with details regarding our fourth quarter and full-year 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 the 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-K and 10-Q 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 and David for their prepared remarks.

[Jaime Ellertson:]

Thanks, Patrick, and thanks to all of those joining our fourth quarter 2019 earnings call today. We had an excellent fourth quarter with really strong performances across our business, resulting in our best year ever in 2019. Growing demand for our core Critical Event Management suite combined with the success across all of our key market segments and geographies, are a strong validation of our strategy and our business overall. The momentum we exited in 2019, which sets our business up for an even better performance in 2020.

[David Meredith:]

Thank you, Jaime. I am pleased by the strong performance that exceeded our guidance on both the top and bottom lines, and I am impressed by our team's performance in achieving these results. Our success in the marketplace reflects investments in our teams to broaden and further enhance our product portfolio to bring these products to market and to support our customer success around the world. With tremendous momentum across our business, we are better positioned than ever to continue the success in 2020 and beyond. As Jaime indicated, we exceeded our financial guidance for the fourth quarter, extending our track record for another quarter.

[Patrick Brickley:]

Thanks, David. I will review our financial highlights from the fourth quarter and then provide guidance for the first quarter and the full-year. We ended 2019 on a strong note with fourth quarter revenue growth of 37%, above our expectations, leading to a very robust year overall also with 37% growth. Revenue in the fourth quarter was $57.1 million. With the strong execution, we were also able to deliver adjusted EBITDA for the quarter that exceeded our guidance at $5.6 million. Maintaining high customer retention is the foundation of our growth, and our dollar- based net retention rate remains consistently above 110% as we continue to provide significant value to our existing customers. This is complimented by new customer additions and we saw a very healthy 173 net new enterprise customers in the quarter, who generate fees of $200 per month or more. We ended the year with over 5,000 enterprise customers. 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 70.3%, up 50 basis points from a year-ago. As always, keep in mind that gross margins may fluctuate from quarter-to-quarter and should not be considered indicative of any trends. Total operating expenses in the quarter were $37 million, an increase of 21% from year-ago, reflecting our ability to make investments that will enable us to continue generating strong topline growth while also benefiting from scale to produce incremental margin leverage. Adjusted EBITDA was above guidance at $5.6 million compared to $800,000 in the year-ago period. Net income in the fourth quarter was $1.7 million or $0.05 per diluted share, above the high end of our guidance range and an improvement from our year-ago net loss of $2.8 million or $0.09 per basic and diluted share. On a GAAP basis, our net loss was $13.1 million also better than our guidance range. Looking at the year as a whole, revenue of $200.9 million increased 37% from 2018 with larger deals, higher ASPs, and more multi-product sales, especially CEM contributing to this growth. Gross margin for the year was 70.4%, fairly consistent with 70.6% a year-ago. Adjusted EBITDA for the year was $5.7 million compared to an adjusted EBITDA loss of $2.7 million a year-ago. Turning to our balance sheet. We ended the year with $539.7 million in cash, cash equivalents, restricted cash and short-term investments compared to $199.1 million at the end of the third quarter, primarily due to the successful offering of convertible notes in December, which provided net proceeds of approximately $437 million. Free cash flow was an outflow of $1.3 million in the fourth quarter and an outflow of $2.8 million for all of 2019, a notable improvement from an outflow of $6.9 million in 2018. Total deferred revenue was $133.5 million at the end of the quarter, an increase of 40% from a year-ago. Even when this metric is very strong, we will note again that 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. As such, the change in deferred revenue on a quarterly basis is not always a meaningful indicator of the underlying momentum in our business, though we believe its growth is directionally relevant on a longer-term basis. Now let me turn to our outlook for first quarter and the year. We ended a record year with a record fourth quarter and considerable momentum, which drives our optimism and confidence in 2020. We are particularly excited about our momentum with CEM, our larger deal sizes and our ability to balance growth from new customers and expansions at existing customers. While topline growth remains our first priority, we continue to focus on improving profitability over the longer-term. While we don't guide to gross margins, we continue to expect improvement on a longer-term basis. During 2020, we will see a couple of opposing forces as well. We expect to benefit from continued scale in our business, but believe that this will largely be offset by strong gross profit contributions at lower margin from prime contractor arrangement. Combined with continued technology and go-to-market investments that will enable us to capture a large share of the opportunity ahead of us, we expect to again make incremental improvements in adjusted EBITDA and operating and free cash flow in 2020. With that in mind, for the full-year, we expect revenue to be in the range of $260.3 million to $262.3 million, representing growth of 30% to 31%. We anticipate adjusted EBITDA to be in the range of $6 million to $7 million. We expect non-GAAP net loss of between $26.5 million and $25.5 million or between $0.77 and $0.75 per share based on $34.2 million basic and diluted weighted average shares outstanding. This includes the impact of a large increase in non-cash interest expense related to our convertible debt. This guidance assumes estimated stock-based compensation expenses of approximately $47.4 million for the year. We anticipate the free cash flow will be approximately breakeven to slightly positive for the year. For the first quarter, we anticipate revenue of between $57.5 million and $57.9 million, representing growth of 34% to 35%. We anticipate adjusted EBITDA to be a loss between $5.9 million and $5.5 million. We anticipate a non-GAAP net loss of between $13.3 million and $12.9 million or loss of between $0.39 and $0.40 per share based on $34 million basic and diluted weighted average shares outstanding. Stock-based compensation expense is expected to be approximately $11 million in the first quarter. In summary, we are pleased to have delivered a record quarter and year and to be entering 2020 better positions than at any other time in our history. We are optimistic and confident that we will be able to continue our track record of delivering high revenue growth with gradually improving profitability and cash flow as we further penetrate the multibillion-dollar opportunity ahead of us. Now, operator, we'd like to open the call for questions.

[Operator:]

Our first question comes from the line of David Hynes with Canaccord. Your line is now open.

[David Hynes:]

Hey, thanks very much. Congrats on the strong results. Maybe we can start with CEM, obviously seen some nice momentum there. I think in the past you've said around half of your CEM customers have come from point solution users that upgrade. Can you just talk generally about what the catalyst is to make that happen? Is it event driven? Is it just about sales persistence in the C-suite? And I guess, if it's the latter, are you focused on training your Mass Notification reps to sell more strategic? Or is it about bringing in new folks who have experience selling higher in our organization? So any color to help me understand kind of the cadence and strategy there would be helpful.

[David Meredith:]

Yes. Hi, David. This is David Meredith. Thanks for the question. So it really is both sides, and Jaime has talked for several quarters about what we call our enterprise transition, which is transforming our salesforce and being able to sell higher up into the C-suite into larger organizations. And we continue to see really good progress on that front. It's an ongoing journey. We're not at the end yet, but we are seeing improvements. I think a lot of that showed up this quarter. We rolled out a new sales management process, so we have consistency on a global basis for that. And I think we're doing a lot of things that represent best-in-class practices and processes. In terms of being event driven, there is no question that when you turn on the news every day and you're seeing critical events, showing on there, it raises the awareness level. And one, I think organizations want to keep their people safe. They want to keep their businesses running faster, consistent with our mission. So the other thing is as we get more and more integrated and more and more operational use cases, not only is it the right thing to do for taking care of their people, it is also a great return on investment for customers. And I think they're seeing more and more of those examples, and more and more of our customers are going out and publicly allowing us to name them and we're doing press releases and there are being references for other customers. So it's really just becoming the standard. I think it's going to get to the point where if you're a Fortune 500 company, you don't have a CEM platform, I think people are going to start to wonder why you're not prepared.

[David Hynes:]

Yes. That makes perfect sense. And then maybe one follow-up just for Patrick on the guidance. The headwinds to gross margins as you kind of engage more strategic partners. Are you thinking that gross margins take a step back a bit this year? Do we just see the margin improvement kind of stall out? Just any framework you're thinking about kind of the expense structure in 2020?

[Patrick Brickley:]

Sure. Thanks for the question. We think in terms of the adjusted EBITDA and cash flow that we will continue to show continued gradual improvement there. In terms of gross margins, we're excited that we're entering this Public Warning opportunity with the ability to sell the entire platform and that enables the opportunity for us to operate as the prime contractor and really own these opportunities from beginning to end. As a result, there could be some compression on our gross margin. You could think of it as more or less just kind of stalling out, perhaps for a little while. There will be – there’re some puts and takes though and time will tell, we are not anticipating any sort of material decline in them, just some headwinds.

[David Hynes:]

Very good. Congrats on the results guys.

[David Meredith:]

Thank you.

[Patrick Brickley:]

Thank you.

[Operator:]

Our next question comes from Bhavan Suri with William Blair. Your line is now open.

[Matthew Stotler:]

Hey guys. This is Matt Stotler on for Bhavan Suri. Congratulations on the quarter. Great quarter, obviously some strong results there. I guess, first, wanted to maybe log another question on guidance. Looks like we’re – in addition to the thoughts on gross margin here, it looks like we're also seeing some increased investments, so obviously a lot of exciting things going on, we'd love to kind of breakdown on a dollar basis. Where are we seeing those investments if we look forward to 2020? How that breaks out between sales and marketing, research and development, G&A? And then within those line items, what specifically are some of the initiatives that you have in mind?

[Patrick Brickley:]

Thanks for the question, Matt. Yes. So on G&A, I don't get to continue to invest at the same rate of revenue growth, but we will continue to build out the platform, so you'll see that in R&D, we'll continue to build a competitive advantage that's going to benefit us for the long-term. We'll also see that in our adjusted gross margin. Our sales and marketing, you heard David talk a bit about that. We still have – we're still continuing to rollout new programs there and build capacity for future years, so continued investment there. Zooming out, we're really excited about the momentum that we're entering 2020 with, and overall, we do believe that we can continue to drive strong revenue growth while continuing to add to our adjusted EBITDA and increasingly to our operating and free cash flow.

[Matthew Stotler:]

Right, helpful. Okay. And then maybe just one follow-up, kind of looking at the partner strategy here, obviously, it's been a greater focus for you guys over the past six to nine months. You obviously have the California one with Atos as well as the recent announcement with Control Risks. Love to just get updated thoughts on the pipeline regarding your channel relationships, what the market opportunity looks like through those channels versus your direct go-to-market, and how significant the indirect channels could be in terms of contributor revenue over time?

[David Meredith:]

Yes. It's a great question. It's definitely an area of focus that we talked about. It will take time to get to the full potential and what it can be. What we're really looking to do is to add more routes to market. Historically, we've been predominantly focused on direct sales and the company has done an amazing job of driving really significant growth through that one route to market for the most part. So now we are – and in conjunction with our product strategy, because we're integrated now with almost a hundred other companies with our platform. And that opens itself up to all different types of opportunities, whether its referral deals or OEM deals or other types of partnerships like what we're doing with Control Risks, which we're really excited about. So we're already seeing some improvement in terms of deal flows coming through. We don't think it's anywhere near where it'll eventually be. And as you said, we had the State of California, which was the largest contract in our company's history that we got through an SI partner. I think as you look at some of these big population warning deals around the world, probably expect to see maybe some similar opportunities like that. And then we're continuing to get progress on the OEM front. And then, again, Control Risks is just a great partner because we do software and they do consulting and they're plugged into most of the big brands around the world and having a – I don't want to understate that from this earnings call, a major global consultancy that's been leading in this for 45 years has created a CEM practice, consulting practice, that's the first time that's ever happened. So we're seeing the adoption of CEM as a standard with the highest reputation companies, and that only helps us with what we're doing. And I think you're starting to see that with the results we posted in terms of the numbers CEM wins in Q4.

[Matthew Stotler:]

Got it. Thanks for taking the questions.

[David Meredith:]

Sure.

[Patrick Brickley:]

You bet.

[Operator:]

Our next question comes from Terry Tillman with SunTrust Robinson Humphrey. Your line is now open.

[Terry Tillman:]

Yes. Hey, Jaime, David and Patrick. Can you all hear me okay?

[David Meredith:]

Yes, we can.

[Patrick Brickley:]

Hi, Terry.

[Terry Tillman:]

Okay. Hey, congrats on the strong sales in the quarter. I guess the first question, and I don't know who this should be for, but don't fight over it. Okay. But in terms of the CEM, and obviously the momentum and as you all call it, a spike in U.S. in fourth quarter, I'm curious how we could see this monetize in international markets? I mean you've obviously gotten learnings in the U.S., how quickly do you see this ramping in Europe, for example? Because we know now the number of CEM customers you have in the U.S., and we know some of the deal sizes. I'd like to see how quickly this could be replicated in material in the international markets? That's the first question.

[David Meredith:]

Well, we've said all along we plan. We have not formally rolled out CEM internationally. We're planning to roll it out to Europe this year in 2020. I can tell you we're already building a funnel of customers that are very interested in it based on what they're seeing from the U.S. and how we've enabled our sales team internationally. So we're pretty excited about it. We'll do a big launch and we think it's going to probably accelerate the growth internationally and I don't think we're ready to put numbers to it, but directionally we're pretty excited about it.

[Terry Tillman:]

Okay. And maybe the follow-up, Patrick, could you give us a sense or update us on NC4? I think you did give us a range for the expectation in 2020, if I'm not mistaken, $8 million to $10 million, and then anything materiality wise in terms of this IoT acquisition? Thank you.

[Patrick Brickley:]

Yes. So for the IoT acquisition, that's a Q1 event. And it's a technology acquisition. For NC4, we believe that NC4 helps us sell our risk intelligence offerings and any products can leverage it, including CEM. And because NC4 is now fully integrated into risk center and it's not sold separately, it's impossible to attribute a revenue contribution from it alone. So I'd say zooming out, we believe that we're providing guidance that's both realistic and prudent and we're entering the year with a lot of momentum for CEM and otherwise.

[Operator:]

Our next question comes from the line of Ryan MacWilliams with Stephens. Your line is now open.

[Ryan MacWilliams:]

Hey, guys. Thanks for taking the question. So on the EU directive Public Warning opportunity, I know it's still early an RFPs haven't come out yet, but have you seen an appetite for countries to pursue a hybrid solution for both cell broadcast and location-based SMS? And then if not, are you prioritizing location-based SMS deals over cell broadcast or are you just trying to go after each opportunity?

[David Meredith:]

Ryan, this is David. Thanks for that question. Very insightful review. I think our perspective and our positioning is really a platform-based approach, where we believe there's benefits to being able to have a platform that can deliver a location-based SMS and cell broadcast. And then there's other where we feel our proprietary capabilities, we can tie around that as well that only we can provide and that's the message we're taking to the marketplace. And I think that's the message that some of the thought leaders are reflecting as well. So we're excited about the opportunity to go and win those deals when they start to come. Obviously, we're dealing with a mandate to have it up by June of 2022. So realistically, how soon will we finally get RFI, RFP deals closed implemented. Revenue wise, you're probably talking more 2021 than 2020. But we are seeing activity. We're starting to see RFIs. We're having meetings and discussions and so we think we're very well positioned there. And we are positioning around a platform approach that can deliver all those capabilities. And we've actually delivered hundreds of cell broadcast solutions in other parts of the world. And if you look at what we're doing with some of our existing implementations, we've been the prime and delivered across both. So we think we've got expertise on both. Obviously, with your math, we've got the leading location-based SMS solution as well.

[Ryan MacWilliams:]

Perfect. And then as I said, a fairly great quarter on the CEM suite side. Of those 5,000 and change enterprise customers today, do you have a sense of how many of these could be a target for CEM? And also besides the corporate space where you've mentioned a lot of great wins, it seems like there's been nice state and local CEM suite wins this year. Can you maybe add some color around how this opportunity could play out in 2020 and how this pipeline will be supported by recent wins like California?

[David Meredith:]

Yes. So in terms of our installed base, I think they're all candidates for upsells. So remember, we've got 10 Software-as-a-Service products and on average our customers are only using two of them. So we'll continue to upsell as far as which ones are likely to be CEM customers. There's two ways to look at it. One is the larger customers are a really good fit because they're managing across multiple countries and that sort of thing. But then on the flip side, our smaller customers, they like to have things automated because they don't have as much staff. So it's really just a different segmentation strategy and how you approach them and how you package up the solution and we have different combinations of what we can sell in a CEM bundle. So we think this is the right product for the right customer segment, right channel, right price. So we're going to continue to develop that and we think that's going to be a really good source of growth on the CEM side. In terms of other areas for CEM, I think you're going to see us talking more about CEM for public safety, which is expanding into our government space. Remember we're FedRAMP compliant and that's a big deal. Every year we have 325 certifications we have to go through, and most of our competitors don't have that, and that's a halo effect and we continue to add more states and more cities and towns, and so we're getting really good momentum. We had a good year on the state and local side as well, and we think all of that can lend itself towards CEM for public safety. And then as we alluded to earlier, I think extending into some adjacencies around CEM in the IoT space. When you think about we protect things that you care about, your people, your assets, your customers, supply chain brand. Well, when you've got 75 billion devices that are connected, you've got a lot more assets, you've got to care about and you've got to protect. That lends itself well to what we do. And then the flip side is all of those sensors, whether it's a safe city and you've got cameras all around different types of sensors, the ability to aggregate and correlate all that data, curate through it and figure out where is a critical event? Because at the end of the day, minutes matter, seconds matter with critical events and we just get better and better if we can leverage IoT for that. So I think that's going to play well in the public sector as well as the private sector.

[Ryan MacWilliams:]

Appreciate the color. Thanks for the questions. Congrats on a good quarter guys.

[David Meredith:]

Thank you.

[Patrick Brickley:]

Thank you.

[Operator:]

Our next question comes from Scott Berg with Needham. Your line is now open.

[Scott Berg:]

Hi, Jaime, David, and Patrick. Congrats on a good quarter. I guess, first question probably for you, David, you hired a new Head of Sales, Vernon in the year, back in September. Outside of the additional push from some of the partners strategies, now that we're into the beginning of the new sales year, are there any other kind of significant changes to the salesforce that are important to note or is it more kind of fine tuning and tweaking?

[David Meredith:]

Well, thanks Scott. Thanks for the question. Yes, Vernon Irvin has come in and really done a fantastic job. I mean he didn't get any ramp up time, but luckily he's seen the movie before and knows what he's doing. And I'm very happy with the results, the numbers he's posted in the last few quarters. As far as – there's a bunch of dials that we're tuning, one of the things we've done is we've added a global center of excellence around solution selling, which I think is enabling us to accelerate the speed at which we can get new sales reps productive because they've got a centralized group that can help them with best practices and help support them with big customer opportunities. So we're pretty excited about that group. As I mentioned earlier, we rolled out a whole new standardized kind of best practices processes around sales management and pipeline management and additional reports. And there's a bunch – Vernon loves programs, so we've got a program around penetrating the rest of the Fortune 1000 and the Global 2000 and other things. So he's putting in place discipline and process and how we drive to grow the numbers. And I think we're happy with the results so far.

[Scott Berg:]

Got it, helpful. And then from a follow-up perspective, probably for Jaime, I think you're still heavily involved in the acquisition strategy of the company, the company that just raised a fair amount of cash. Do you change your views or perspective on maybe what those acquisitions look like this year? They've been product heavy. Don't know if that changes either in size or scale or maybe looking at some customer type acquisitions? Thank you.

[Jaime Ellertson:]

Sure. Well I think increasingly David and Patrick make most of those decisions. I've still sit in that seat, but I hope to be giving that seat up pretty quickly here as we get into the middle of the 2020. But the cash we raised, we feel great about, primary purposes were to retire our existing debt under the previous convert. But we still look at the strategic plan as targeting 30% to 35% growth on an annualized basis. And that's comprised of organic growth plus a couple of percentage points, not much different than what we said historically 3% to 7% from M&A. And as David mentioned in his prepared remarks, we got a small technology kind of people transaction done after the close of the quarter, but in the IoT space, we continue to do things in that space to expand CEM into the literally billions of sensors that are out there both in buildings and in entire cities, and we'll probably continue that exact same strategy, increasingly led by David and Patrick and mildly by myself.

[Operator:]

Our next question comes from Brian Peterson with Raymond James. Your line is now open.

[Brian Peterson:]

Hi gentlemen. Thanks for taking the question and congrats on the really strong billings number. So just wanted to hit on the CEM success, I'm curious, any change to sales cycles that you've seen or is it still too early days and in terms of that and is it really more about the breadth of opportunities in the discussions that you're having with some of your larger potential customers?

[David Meredith:]

Yes. Thanks Brian. Appreciate that. It's a great question. And one of the things we're trying to do and Vernon's really pushing this is raise our level and this is part of the enterprise transition that we've been doing for several quarters. But getting to – starting a conversation with the C-suite as opposed to working our way up. So I will say there were a few deals there where we started discussion with the CEO and from the start of the discussion to the closing of the deal, it all happened in the quarter. And I think some of the sales folks said, "Wow that was really fast. Didn't know things could happen that fast." And so yes, I think as we continue to move up into the C-suite and even into the Board of Directors, because you think about what keeps a Board Member or a CEO up at night, a lot of it is critical events and I think we're seeing that in the news. And again, it raises the awareness and the fact that there's a readymade solution, which is best-in-class and proven and not only provides you that assurance, but also provides real return on investment around some of these operational use cases we're doing more and more with our customers. It's just very compelling to the C-suite. So that's continuing enterprise sales transition and getting better at doing that in a systematic way. And so I think there are opportunities to shorten the cycle. But for a typical deal where we're – the way we normally go about it, I don't see a whole lot of change from what we've been doing.

[Brian Peterson:]

Got it. That's good to hear. And Patrick, maybe just one for you, I know the ASPs have been going up pretty significantly. I think they were up 9% year-over-year this quarter. Any help on how to think about that metric maybe over the next few quarters? Thank you.

[Patrick Brickley:]

Sure, Brian. Thank you. Yes, we like the trends there. We expect that that will continue when you zoom out, certainly any individual quarter, it can bounce around a bit. But whether it's continuing to sell large deals, and we did more in 2020, far more in 2019 than we ever have and/or continuing to train the team to be able to sell some of our more strategic products, which sometimes are single product deals. They both contribute to our growth. And so sometimes that mix will bounce around a little bit, but it should continue to be up to the right overall in terms of a trend.

[Brian Peterson:]

Understood. Thank you.

[Patrick Brickley:]

You bet.

[Operator:]

Our next question comes from Will Power with Baird. Your line is now open.

[William Power:]

Well, great. Thanks. Yes, I guess maybe a couple of questions. Maybe first stuff for David, I guess you've referenced some of the initial RFIs that you maybe seeing in the EU as respect to that Population Alerting mandate a couple of years from now. I mean, any early color as that what's you’re seeing competitively any surprises on that front and are you able to get any real read on how we might think about the size of that opportunity, maybe in reference to some of the additional or existing deals you have on the continent in that area? And then Patrick, maybe just quickly for you, you talked about prime contractors having an impact on, at least a modest impact on gross margins. How do you think about the lifetime value of those deals? Is it same, better, is a lower sales cost to offset that? Any other color there would be great?

[David Meredith:]

Yes. Thanks Will. In terms of the countrywide population warning deals, it's still pretty early. So to try and say what the deal size and the dollar, it's just – there's still sort of trying to scope out how they want to tackle the problem. I think the good news is we've done a lot in terms of leaning in on thought leadership and I think our view of what the country should be doing is generally getting adopted. So we're excited about that. And the one thing I'll say that keeps coming up again and again, I think the people making decisions, the one thing is they don't want to make a mistake. They don't want to make the wrong choice and there's a lot of incentives around that. And I think that positions us well because as the one public company in this space with a strong balance sheet and bench strength and the years of experience and all the references we have, I think we're very well positioned to be the right choice, especially when you factor in our full platform approach to how we're going to solve this for people where they have kind of flexibility to do either cell broadcast or location-based or hybrid combination with additional IP wrapped around it. I think it's a compelling message. That being said, it's still early days and we're dealing with countries and governments and telcos, so that can sometimes take longer than we want it to. And so I think we have to continue to play this out in the coming quarters and we'll get more insights as we go.

[Patrick Brickley:]

And Will, this is Patrick to answer the second part of your question. We're excited about the opportunity that we hope that winning a countrywide deal will afford us. We're starting to see it in our existing wins. But when you think about network effects and you take what we did in Florida where we didn't have much business when we first won the statewide alerting deal in Florida, and based on the referenceability, based on the sharing of data within the Everbridge network. We've since rolled up over 200 contracts within the State of Florida. We're doing that in the State of New York. We got the state and the city, the MTA, we’re working on hospitals, transportation, et cetera. Now we hope to do that in California and we're taking it to countries. So when we look at the gross margin impacts, which we hope to be able to manage very successfully with the countrywide alerting opportunities, we think that as a much broader opportunity for us that will play out over time.

[William Power:]

Okay, thank you.

[Patrick Brickley:]

You bet.

[Operator:]

Our next question comes from Tom Roderick with Stifel. Your line is now open.

[Thomas Roderick:]

Hey, gentlemen. Thanks for taking my questions. I sentiments on a nice finish to the year. Jaime, you led off the script with the discussion on coronavirus and I know it's meant to be sort of an anecdote or one sort of moment in time, but as you seen some of these incidents in the past in your leadership and David chime in here as well from your perspective. I'd be curious how the conversations with customers evolve? Do they accelerate in light of an event like this? You've got a product in the marketplace that can serve an immediate need. Obviously this is a moment in time, but how are customers reacting to that and that product that's in the marketplace to coronavirus itself actually be a catalyst for earlier deal closing then you might expect. Can you just talk about that at this period of time and also historically how you've seen various incident like this impact the sales environment?

[Jaime Ellertson:]

Yes. I mean we don't, and David will chime in here because he is intimately involved with large customers that are signing up now and did obviously just sign up in a very strong Q4 for CEM, and across multiple verticals and leadership positions. So none of those companies we mentioned, whether it's a major theme park, a manager who run theme parks in the U.S. and Asia and in Europe or it's a major financial institution that has offices in every one of the countries thus far with a significant outbreak certainly in greater China or one of the largest manufacturers in the world. They all have tens of thousands of people that are affected in real time. They're actually in China or in Singapore where there's now an outbreak, a confirmed outbreak or other countries where there's a spread of the virus. And when you think of the impact to your company, you first think of people, right, executives who's traveled there recently. Did they go through quarantine when they came back? How do we track all the people? If you've got a 100,000, 50,000, 200,000 employees, how could you possibly manage that without shutting down your business? And that's the safety of executives, now think of the rank and file people. They happen to travel and they travel on a private basis, but come back to an office and then potentially can contaminate an office or shutdown a manufacturing plant because they happen to been to an affected area without something to manage how your assets, the people and things you care about are affected by that growing spread, daily spread of a virus. A number one issue is that it spreads at 4x the rate of flu, the contingent. So this rapid spread that concerns people, not necessarily the deaths. And as we said, those are – our hearts go out to those people, and we think this is a serious issue, no different than other manmade or natural disasters, but it is a great example and that's the life safety portion of it. Now turn to those same companies I just mentioned and think about their supply chain. For that matter, think of all 5,000 of ours or the Fortune 1000. Take a wild guess at what percentage have manufacturing of some critical goods in China, the vast majority without getting into numbers that maybe mind boggling, the vast majority, so they're all affected. Everyone is going to be impacted by the virus in some way either because the goods that you expect out of production in a region are not coming as fast because factories are closed down or workers are going through, as I heard in one recent case, from a Board member, a four-hour a day testing period every morning. So on an eight-hour day, they're working less than 50% of the time even when a factory is turned back on. Just saw the news half an hour before walking in here. Apple iPhone sales reported to be down 2%. That's a big number directly attributable to coronavirus. So whether it's people in the spread of – a critical event like this or your business disruption, the supply chain, this is a kind of a poster child for what can happen, and why Board of Directors, C-level officers need to have such a product. And I think Q4 is a small example, but the opportunity to supply and provide people with a solution that can identify the risk, help them communicate how to stay safe or keep their business running and mitigate the risk, and then in the end follow-up and improve process and procedures and protect the brand is an enormous opportunity for CEM. But I'll let David – just because that is a big thematic in the news today. I'll let David talk about this too.

[David Meredith:]

Yes. Thanks Jaime. Our mission is to keep people safe and keep businesses running. So this is when we activate. We have made some operational changes. So we've actually formed what we call a rapid response team process. So when there is a major critical event in any part of the world, whether it's a cyclone in Odisha or a Hurricane in Florida, or coronavirus outbreak. We mobilize the team and we were reaching out to our customers, see how can we help, how can we engage with you to do better? So if you look at Hurricane Dorian, we did something like 15 million communications in matter of days and we were taking our risk center, which is partially powered by NC4 and we’re lighting up a lot of customers and basically giving them access to that during the hurricane. And what's happened, a lot of those customers came back and said, hey, we really like that. We want to sign up for that data. Resident Connect, we were asked by the state if we could add millions more people to the contact list and we have a product for that called Resident Connect. It was $0.5 million recurring revenue deal that we got done the week of the hurricane. And they were delighted we could turn it on for them within a matter of a couple of days. So it's a win-win, and we've been responsive. I think on the coronavirus, Patrick talked about, everything Jaime said, I agree wholeheartedly. And having a CEM supply chain solution that we launched this year was very timely given the coronavirus. But Patrick talked about network effects. And when we look at our network of customers, there's a lot of activity and we've already done millions of communications across our customers specifically related to coronavirus and there's just a lot of activity. We're doing regular webinars and information updates and we've had something like 5x, the normal amount of executives attending those than what we would normally do for other types of critical events. So we've never seen, since I've been here, not that long, less than a year, but never seen the level of interest across all categories of our customers is what we're seeing with this. And there's a lot of things. We did a press release recently. We've launched a whole new data feeds specifically related to coronavirus. Jaime mentioned how dynamic it is, how rapidly it's moving. So helping our customers better have situational awareness as to where is the virus spreading and where other people and assets and how can they respond. So this is what we're here to do. This is why we exist. And so we take it seriously and we're definitely busy working on it right now.

[Thomas Roderick:]

Really good. That's very helpful. Thank you. Patrick, really quick one for you. I know you don't guide to it and I know you kind of steer us away from it. But wondering if you can help us think directionally about how you might – how we might want to shape the model of our deferred revenues for the year, a couple of years ago it was down sequentially a few percent into the first quarter, last year was up, so it creates a little bit of a tricky compare for the first quarter. Any thoughts on how you might suggest we – we've modeled out the shape of differs this year? Any thoughts relative to one-time lumpy events in the fourth quarter, good, bad or otherwise that we should think about going into Q1?

[Patrick Brickley:]

Thanks Tom. We don't guide to that. But I will say we had a really strong Q4 as you can see, like any Q4, sometimes we're able to pull a couple of things in and we're able to do that, and like every Q1, we’ll experience some seasonality. So I would say you probably see patterns similar to what you've seen in the past. No huge surprises there. You've made a quick reference there to the public warning deals. I'd say that those aren't necessarily going to drive those metrics in the immediate future. So as you expect more of the same.

[Thomas Roderick:]

Excellent. Okay, thank you.

[Patrick Brickley:]

Thank you.

[David Meredith:]

Thanks.

[Operator:]

Our next question comes from Sterling Auty with JPMorgan. Your line is now open.

[Sterling Auty:]

Yes. Thanks. Hi, guys. I apologize if this is in the press release, but I'm on the road. Just wondering, give some highlights to the large CEM deals, but when you look across the totality of it, what is the average CEM deal size look like and how has that been trending?

[Patrick Brickley:]

Hey, Sterling, it's Patrick. So we don't provide that very precisely. What we've spoken about in the past is that the all-in spend of CEM customers is ranging anywhere from $300,000 to over $1.5 million, and now frankly, we can talk about an even larger number as a result of Q4 over $2 million. So we're excited about that and the continued momentum there.

[Sterling Auty:]

All right, great. And then one follow-up, on the IT opportunity, what's kind of the secret sauce or where you feel that you have the biggest opportunity to win? Because that's a space that obviously between PagerDuty and number of other vendors, there's more competitors with a packaged solution than perhaps what you've seen in some of your other like CEM for example. So what's going to be the approach to win business in that space?

[David Meredith:]

Yes. This is another area – this is David. Thanks, Sterling. This is another area where we feel like we're getting pulled in. And one of the trends that we're seeing over and over again and beating some of the competitors, including the ones you're talking about is vendor consolidation. So when you look at our platform, customers are finding they can replace three or four or five vendors with our platform. So they want us to do more and more and more. So – and again, if you go back to what we do with CEM and with our risk center with the data, first thing you want to know is all the risk data that's out there. We have over 20,000 verified data elements and it's growing every month because we're always adding more to it. So of course, you want to have all the data coming from all those sensors coming in. It just makes sense. And this is the strength of our strategy around the single pane of glass, so Visual Command Center. We really own the real estate in terms of the interface that people look at to get all their data. So if there's someone that comes in and says, well, we've got this really nice little IoT module with some data. What our customers are saying to them is, do us a favor, call Everbridge and plug into their modern API architecture, so we can get that data on our single pane of glass called Visual Command Center. So we think we've positioned ourselves very well to kind of superset these different point solution providers that you're talking about. And I think we're getting good traction on that strategy in the marketplace. And then the flip side is, yes, that's the data – sure, and the flip side of it is we're seeing more and more use cases around smart buildings, safe cities that play very well to Critical Event Management in terms of how we assess, automate, digitize the response, and then manage the end-to-end process. So that just feels like a good fit in terms of additional use cases leveraging the platform that we have.

[Sterling Auty:]

Understood. Thank you so much.

[David Meredith:]

Sure. Thank you.

[Operator:]

Our next question comes from Brad Zelnick with Credit Suisse. Your line is now open.

[Bhavin Shah:]

Hi. It's Bhavin on for Brad. Congrats on the strong end to the year. Guys, it's nice to see the momentum in the business, especially with CEM. But if I look at your revenue guidance, it seems like you're guiding below the 30% mark organically, which would be below the commentary that Jaime spoke about earlier for sustainable 30% growth with M&A in addition to that. Are there any one-timer that we should be thinking about or just timing of revenue recognition that are impacting fiscal 2020?

[Jaime Ellertson:]

Thanks, Bhavin. So when you look at the second half of Q4 and what we said to expect from NC4 and you adjust for that, you'll see that we've had strong organic growth. And as I said earlier, as we head into 2020, we've really integrated NC4 and risk center into our entire product offering and so it's difficult to break that out. We've merged our salesforces and as we exited Q4, we were achieving double the rate of sales that that company brought in. So we're excited about the momentum. Looking at 2020 overall, we're providing what we believe with 30% plus growth for the year, what we believe to be realistic and prudent as we sit here today. And time will tell whether we can outperform that.

[Bhavin Shah:]

That's helpful. I just want to follow-up on that. I know this year, I think you had a few on-premise deals, which helped out. I don't know if that kind of anniversarying becomes a headwind into 2020?

[Jaime Ellertson:]

No, there wasn't activity like that that was material enough to create a headwind. Our guidance certainly anticipates having to lap any sort of de minimis one-time revenue events and we're excited about the organic growth. We'll continue to look at ways to expand the platform by building, buying, partnering, technology and geographic expansion. So we'll continue more of the same as you've seen historically and that's driving both revenue growth of north of 30%, as well as continued improvement on the bottom line, whether it's adjusted EBITDA or increasingly operating and free cash flow.

[Bhavin Shah:]

Very helpful. Congrats on the momentum.

[Jaime Ellertson:]

Thank you.

[Operator:]

I'm showing no further questions in queue at this time. I'd like to turn the call back to David Meredith for closing remarks.

[David Meredith:]

I'd like to thank you all for joining the call today. Everbridge had a remarkable fourth quarter, capping our best year ever with strength across the board, and particularly notable momentum with CEM. We believe we are better positioned than ever to extend our competitive lead, further penetrate the opportunity ahead of us and continue delivering strong growth. We look forward to seeing you at upcoming events, including our Investor Meeting, which we're going to have in New York on March 23, and we'll have details coming out about that soon. Thank you again, and goodbye.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.