Everbridge, Inc.
Q3 2018 Earnings Call Transcript
Published:
- Operator:
- Good afternoon, ladies and gentlemen, and welcome to the Everbridge Q3 2018 Earnings Conference Call. [Operator Instructions].As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Ken Goldman. Please, sir, go ahead.
- Kenneth Goldman:
- Good afternoon, and welcome to Everbridge's earnings conference call for the third quarter of 2018. This is Ken Goldman, Senior Vice President and CFO of Everbridge. With me on the call today is Jamie Ellertson, CEO and Chairman, in addition to Bob Hughes, President of Go-to-Market, and Jim Totton, EVP of Product Management, Engineering and Operations, who will be available during Q&A. After the market close today, we issued a press release with details regarding our third quarter results, which can be accessed on the Investor Relations section of our website at ir.everbridge.com. This call is being recorded, and a replay will be available on our IR website following the conclusion of the call. During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be considered representative of our views of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. These risks are summarized in the press release that we issued today. For a further discussion of the material risks and other important factors that could affect our actual results, please refer to our filings with the SEC, including our recent 10-Q and 10-K filings. Also during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release. Finally, at times in our prepared remarks 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 of our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future. With that, let me turn the call over to Jamie for his prepared remarks.
- Jaime Ellertson:
- Thanks, Ken. Welcome to those of you joining our third quarter earnings conference call. We're excited to share our strong results with you today. Our most recent quarterly results highlight our continued momentum with our Critical Event Management strategy. Our Q3 results exceeded our guidance for both revenue and adjusted EBITDA. Third quarter revenue of $39.8 million represents 43% year-over-year growth. We also continue to invest in our efforts to deliver 2 new major products to the market as well as complete several major infrastructure projects while simultaneously managing to deliver positive adjusted EBITDA ahead of our guidance at $153,000. We are pleased that our Q3 results mark our 9th consecutive quarter of better-than-expected results since our IPO in 2016. Our positive operational metrics in the quarter also reflect our continued success in the marketplace as we, one, continue to penetrate the mass notification market, two, drive multiproduct sales with newer products and, three, expand adoption of our strategic Critical Event Management suite. In the quarter, we added 109 net new enterprise customers, bringing our total enterprise customer count to 4,267, a 29% increase from a year ago. Dollar-based retention remained consistent with past quarters in the mid-90% range and net retention continued to be over 110%. In Q3, we saw a strong contribution from our new products, such as IT Alerting, Safety Connection and our Visual Command Center, which together totaled a record 50% of all new and growth sales in the quarter with the other 50% coming from Mass Notification products, representing continued momentum with our core products. In Q3, our ITA product revenue increased by over 40% year-over-year, and our Safety Connection and Visual Command Center products, both key components of our CEM suite, grew by more than 100% year-over-year. And these products were often purchased in combination, raising the number of multiproduct deals closed during Q3 to an all-time record of 107 transactions. That is a 95% increase over our 55 multiproduct deals we closed in Q3 of 2017, resulting in an increase in our trailing 12-month average to 82 multiproduct deals per quarter. This increasing number of multiproduct deals demonstrates our ability to increase the strategic value we deliver to new and existing customers with our expanding suite of products and in parallel drive larger ASPs. In Q3, our average sales price across all transactions grew to $55,000, an increase of 33% year-over-year. Our international revenue in the quarter also continued to accelerate, coming in at 20% of total revenue. That's up over 150% year-over-year. We signed a number of new CEM deals and expanded the total number of customers with our new multiproduct suite to 24, with contract values that range from 5x to 15x our overall ASP. And lastly, our revenue mix for the quarter was 54% for corporate, 32% for state and local government and 14% for healthcare, the three major verticals we talk about, and remained roughly consistent with previous quarters. Our strong performance can be directly tied to our three primary long-term growth drivers
- Kenneth Goldman:
- Thanks, Jamie. I'll provide some more detail on our financial performance for the third quarter and then discuss our outlook for the fourth quarter and full year 2018. Third quarter revenue of $38.9 million increased 43% from a year ago and was above the high end of our guidance range with strong performance across the board. We also executed well to deliver adjusted EBITDA that also exceeded our guidance at $153,000 compared to an adjusted EBITDA of $807,000 a year ago. Our dollar base net retention rate remains above 110%, reflecting the significant value and satisfaction we provide to our customers. Total enterprise customer count, that is customers generating fees of $200 per month or more, increased by a net of 109 to a total of 4,267. Now turning to the details of our P&L, unless otherwise indicated, I will discussing income statement metrics on a non-GAAP basis. A reconciliation of GAAP to non-GAAP measures has been provided in the earnings release we issued earlier today. Non-GAAP gross margin was 70.2% compared to 72% a year ago, primarily due to the purchase accounting impact on acquired deferred revenue from recent acquisitions. Gross margin during the quarter was also impacted by efforts to complete a number of larger implementations from recent contract wins. We expect both of these factors to be short-term in nature. However, as always, please keep in mind that gross margins can fluctuate from quarter to quarter and should not be considered indicative of any trends. Total operating expenses in the quarter were $29.1 million, an increase of 43% from a year ago, reflected in the combination of continued headcount and product investments along with the expenses of acquired businesses. As I mentioned, adjusted EBITDA was $153,000 and above our guidance range. Net loss in the third quarter was $3.1 million, or minus $0.10 per basic share, and was also better than our guidance compared to a loss of $575,000, or minus $0.02 per basic share, in the year-ago quarter. On a GAAP basis, our net loss was $8.5 million and was also better than our guidance range. Turning to our balance sheet, we ended the quarter with $103.1 million in cash, cash equivalents and short-term investments compared to $106 million at the end of the second quarter, primarily due to CapEx and capitalized software development costs of $3.1 million, which were partially offset by the positive operating cash flow from operations of $700,000. Total deferred revenue was $88.6 million at the end of the quarter, an increase of 37% from a year ago. As we've noted on prior calls, our deferred revenue balance at the end of any quarter can vary due to a number of factors, including seasonality, in which the first quarter represents our smallest quarter for renewals and the fourth being the largest. As such, even though we have predominantly annual payment terms, deferred revenue is not always a meaningful indicator of the underlying momentum of our business from a quarterly perspective, though we believe it's directionally relevant on a longer, trended basis. Now let me turn to our outlook. Continued investment over the course of 2018 has contributed to our better-than-expected results so far this year. Therefore, we're entering Q4 from a position of strength and are increasing our revenue guidance for the year as well as the midpoint of our adjusted EBITDA guidance. For the fourth quarter of 2018, we anticipate revenue of between $40.7 million and $41 million, representing growth of 39.5% to 40.5%. We anticipate adjusted EBITDA to be between positive $400,000 and positive $700,000. We anticipate a non-GAAP net loss of between $3.3 million and $2.9 million, or a loss between $0.11 and $0.10 per share, based on 29.6 million basic weighted average shares outstanding. Stock-based compensation expense is expected to be $4.9 million to $5.1 million for the fourth quarter. Therefore, for the full year 2018, we're raising our revenue guidance to the range of $146 million to $146.3 million, an increase of $2.2 million at the midpoint from prior guidance, representing growth of 40% from a year ago. This increase in guidance reflects our better-than-expected third quarter results and strong business momentum going into the fourth quarter. From a profitability perspective, we now anticipate full year adjusted EBITDA to be in the range of $3.1 million to $2.8 million, an improvement of $0.2 million from our prior guidance. We've seen favorable results from our investments in people and products so far this year and continue to pursue this strategy. We expect a non-GAAP net loss of between $16.3 million and $15.9 million for the full year 2018, or between negative $0.56 and negative $0.55 per share, based on 29.1 million basic weighted average shares outstanding. This includes the impact of an estimated $4.8 million in net interest expense primarily related to our convertible notes. This guidance assumes an estimated stock-based compensation expense of $25.1 million to $25.3 million for the year. Recall that the vesting of our performance stock units is triggered by share price, and this is reflected in our increased stock-based compensation expenses in 2018, with our share price approximately doubling from a year ago. Looking beyond 2018, we remain very enthusiastic and expect strong growth trends to continue into 2019 and anticipate positive organic adjusted EBITDA and free cash flow on a full year basis from our existing business. In summary, we've delivered a better-than-expected performance in the third quarter, with positive and encouraging results across our business. We're enthusiastic about our ability to drive growth from our core mass notification business, new products, expanded market opportunity with Defense Information Systems Agency and FedRAMP authorizations and accelerating international business as we expand our ability to capture an increasing share of the large opportunity that our critical management solutions address. With that, we'll open the call to questions. Operator?
- Operator:
- [Operator Instructions]. Our first question comes from the line of Brad Zelnick from Credit Suisse.
- Brad Zelnick:
- Jamie, my question for you, the JARVISS deal with the U.S. Army, is a really strong reference point for the powerful things you can do with CEM and the broader platform. And your prepared remarks are consistent with what we've seen from other providers to the federal government that success in one agency begets success in others. But you size the federal opportunity at $1 billion. I'm curious to know how much of that is more simple mass notification? And now with FedRAMP approval, how are you doing competitively against your foreign competitor that's been selling into the fed for a while now?
- Jaime Ellertson:
- Well, thanks for the compliment, Brad, and as well the question. It's a good one. I think we do want to point out that, look, we have signed a number of deals this quarter, some of that is having a fully ramped federal sales team on the ground starting a little earlier in the year and being able to gain momentum with some of those opportunities. Unfortunately, until you have your FedRAMP compliance, you really can't participate in some. So some we already watched go right by us that were good opportunities that we believe we would've had a more than fair chance of winning. Some of the deals that we just announced were competitive takeaways. Those agencies were looking at - and they weren't small dollars - moving because they had a less than satisfactory or just wanted some of the feature, functionality and overall solution benefits that we provide with a broader suite into the federal government. And so given there is only one competitor - they are owned by a foreign organization and their product isn't nearly as dynamic as ours - I think it bodes well for us in the broad federal government. In the specific defense space, we added another authorization to operate there, and something the size of JARVISS is a very important situational win and RDaaS win for us because I think going forward you have to have that referenceability. So I think we count as many as 12 different defense agencies watching the rollout, the current rollout of JARVISS, and as I said in my prepared remarks, we hope that the success with JARVISS will lead to supplemental contracts with other organizations. That's often the case, as you mentioned.
- Brad Zelnick:
- Yes. Thanks, Jamie. That deal raised a lot of eyebrows with the folks that we speak to in and around the market. If I could just ask a quick follow-up for Ken. Ken, on operating cash flow, it was a little bit lighter than we were modeling. Can you just comment a bit on your cash conversion and the puts and takes in the quarter and how we should think about it going forward?
- Kenneth Goldman:
- Yes. And Brad, we've discussed this on prior calls. And I know you're new to the story from the standpoint - we, in particular with regard to the strong renewal base, will see customers who will renew potentially early in a quarter or late in a quarter, and that can affect the timing of cash. In other words, we can have a Q3 renewal that renews in Q2 or a Q4 renewal that renews in Q3 or a Q3 renewal that renews the first day of the next quarter, and that can affect our billing and cash collections. We have almost a 0% charge-off history, and so given the nature of the organizations that we do business with, sometimes they can be a little bit shy with their cash payments in terms of timing. But that's probably one of my greater challenges is just when you're dealing with the likes of Global 2000 or Fortune 1000 companies that they will oftentimes pay a little bit late, and that's frustrating on our part. But overall, when you look at cash collections over the course of the year, they continue to be strong.
- Brad Zelnick:
- No. Appreciate it, and we also recognize the lumpiness of cash flow and timing of renewals. I was just seeing if there was something else to call out, but it sounds like it's to normalize going forward, so appreciate the color.
- Operator:
- Our next question comes from the line of Richard Davis from Canaccord.
- Richard Davis:
- Just a question actually sometimes we get from investors because we get questions about competitive mode, and obviously everyone's - I mean, like, the last person to ask questions about FedRAMP, they're all excited about that, which is definitely good. But I wonder if a more broad question is I feel like your business is subject to kind of network effects along kind of several axes as you scale up. I mean, to what extent is that a - have I actually been telling investors the correct thing on that front? So I would hate to be contradicted, but anyways, could you help us kind of flesh that out?
- Jaime Ellertson:
- Yes. I mean, a lot of businesses that focus solely on, say, revenue drivers, they're working with companies, when they're in growth cycles and when they're not, that affects their business. Our primary drivers are our ability to keep people safe and then operationally ensure operations continue to run throughout any type of event. Larger events often provide impetus for purchase. So you bet that we had discussions with numerous C-level officers during and after the hurricanes because they were calling us up trying to figure out how to do certain things that their current, standalone environments just didn't allow for. And so whether it's a tragic shooting in Pittsburgh, as I mentioned, a mass shooting in Vegas, or it's a major hurricane or a typhoon over in Asia, those almost always generate a continuing flow of business for us. We want to focus increasingly on the operational use of our system as well so that there's an everyday payback. And that's why we mentioned an over a million dollar payback for an IT Alerting customer that is spending several hundred thousand dollars and looking for a million dollar return in its first year of use. So we see both drivers for the business, but no one can avoid the fact that the world is an increasingly complex and dangerous place, and more and more of the target market for CEM, the Fortune 1000, is very concerned with how they ensure the safety of an increasingly mobile population and ensure that their operations continue. Big events like hurricanes, shootings, just promote more customer buying.
- Operator:
- Our next question comes from the line of Brad Sills from Bank of America Merrill Lynch.
- Bradley Sills:
- Just another one on the federal results. Obviously, real strong out of the gate here. Would you attribute that to just pent-up demand? As you were getting certified for FedRAMP, there were obviously some deals in the pipeline. Is that - do you think we're going to see - or I guess maybe just any commentary on kind of the pipeline leading up to the FedRAMP certification and some of these follow-on deals that you're mentioning.
- Jaime Ellertson:
- Sure. As I said in the first answer I gave you, we don't want to mislead you that we started early in the year building both the sales team, as we told you we would, and targeting a midsummer achievement of our FedRAMP. In fact, we now have two of those authorizations and even a highly classified defense project, so we're gaining momentum. But that was a planned set of events. We're always going to take the approach of being hopefully a reasonably matured management team in the sense that we have enough experience to tell you once we have a great quarter in Federal not to expect it again every quarter because our sales can be lumpy up and down, but we want to stress that we have good momentum in that space, and it continues to provide a great opportunity for us to not only grow existing customers - the USPS win was an example of an existing customer expanding. And the IT Alerting solution was significantly larger than their Mass Notification purchase. So you see a 3, 4 expansion of a customer contract, that's as good as a brand-new win in our book. And then big new wins being as large as USDA or a mega contract like a JARVISS that can propel other opportunities in the defense space where there's a lot of spending. So we can't tell you that every quarter's going to be the same as our first one when we had a one quarter running start into it, so it's a culmination of probably two quarters. We do see continued great momentum in the federal space, and we're just actually just getting into a rhythm in the federal space too. So we won't project results, but I would watch our next quarter in the federal market.
- Bradley Sills:
- Great. Thanks, Jamie. And then also an international, real good results there. Could you provide a little color please on where that's coming from? Is that primarily UMS? Or are you seeing more cross-sell opportunity for traditional Everbridge into the UMS installed base?
- Jaime Ellertson:
- Literally, the correct answer is all of the above. So we had a great organic. Our team beat their number. Organically, the acquired businesses beat their number. And in fact, some new opportunities popped up that are a combination of both, UMS buying some Everbridge, Crisis Commander's sales teams in the Nordics and Scandinavia doing their first big Everbridge deals, literally across the board internationally or we wouldn't have gotten to the 150% year-over-year. It isn't one or the other. It's all those kind of hitting on all cylinders.
- Operator:
- Our next question comes from the line of Tom Rodrick from Stifel.
- Thomas Roderick:
- So I kind of want to dive in a little bit deeper on the question Richard was asking. But thinking about the cross-sell approach here, both domestically and internationally now that you've had UMS, VCC in the mix and you're rolling out CEM, would love to hear what happens with sales cycles as you're taking some of these newer products to market. How much does that shorten the sales cycle? What does that do for stickiness, do you think, in terms of revenue retention going forward? And how much more efficient does this all become as you're layering on new solutions to the effectively installed base?
- Jaime Ellertson:
- Tom, thanks for the question. It's a good one because it plays to both our strengths and the state of strategic strategy of both multiproduct deals. Obviously, with a - what we believe is kind of the best-in-class net dollar renewal basis in the mid-90s. That's where it starts. If you're losing too many customers out the back door, you have to do a lot of new selling just to get back to break even. But when you're in that mid-90 category, I think you're best in class, and it starts there. Then we layer on the new products, which are clearly gaining traction. You heard 40% to 100% year-over-year growth for those products, and they've obviously been out for the while. So those are multimillion dollar revenue streams, and that helps us gain traction. It's certainly faster to sell to an existing customer. We're no different than anyone else. We want to build an ecosystem and a platform play for people and get them to buy 1, 2, and 3 and 4 products, a much easier way to grow the business than making 100% of the growth, which used to happen for us and is consistent with a lot of young enterprise software companies coming off their first or second application and only being new customers. So we like the fact that we're recording multiple multiproduct deals in the base. They are a faster time to market. We don't give you the actual time to close for our deals, but they are considerable faster in the base than they are with net new customers. And that also leads into, in many cases, our more strategic, highly integrated suite, which is CEM, where customers like Chevron are buying four products at once. And that leads to a much larger ASP, as I said. The CEM suite, the average increase over our general ASP - that's across all products - is 5x to 15x. So it makes it a lot easier for us to get to our numbers and exceed our numbers when we're able to cross and upsell the base, which happens faster than a net new sale close. And then on the net new, if we put in whatever that time period is, 7, 9 months on average for big enterprise [indiscernible] different probably than most other enterprise software companies, it helps to sell four products instead of 2 or 3 products because it just increases the sales price, and the return for us is better with that customer. And as you know, we've quoted this stat before, but once a customer gets three products from us, essentially we don't ever lose them. So the retention level there is bordering, teetering, it got to be on 100%. So that's how we'd answer that. It's a good question.
- Thomas Roderick:
- Yes. Thanks, Jamie. That's great. Ken, this is a little bit in the weeds, but I'm sort of curious about the timing relative to perhaps the federal launch. A bit of a jump in the long-term deferred line - and I know it's still fairly small relative to the whole base - but anything to that with the long-term deferred number effectively sort of doubling quarter-on-quarter? Is that a new norm reflecting some of the larger customers perhaps are looking to pay multiple years at once? Is that tied to federal? Any comment on that?
- Kenneth Goldman:
- We're not going to provide specific detail. I don't mean to frustrate you on that. The reality is that you will see the ups and downs in both current and long-term deferred, and it's just the nature of trying to accommodate the needs of our customers. But nothing specific to federal or any particular market. It's just something that, as our business continues to grow, as international continues to grow, as I say, we are meeting the needs of our customers in terms of the contractual arrangements.
- Jaime Ellertson:
- Yes. And you'll see over a trailing 12 that that's growing, but as we've said repeatedly, Tom, you can't look into one quarter and then try to take it forward because it'll be lumpy at times, according to contracts being signed and etc., etc.
- Operator:
- Our next question comes from the line of Brent Bracelin with KeyBanc Capital.
- Clarke Jeffries:
- This is Clarke Jeffries on for Brent. Jamie, it seems like we're hearing a lot more about deals that are closed within 24 hours. I think the stat that struck me was that 20-some odd companies moved to Everbridge during Hurricane Irma. I was just wondering if you could maybe give some color on what's necessary to win those kinds of deals. And is there any investments you could call out in terms of enabling the sales force to operate like that and kind of the impact to multiproduct deals?
- Jaime Ellertson:
- Sure. I don't know where the 20 during Irma came from. That may be a statistic that was quoted a long time ago and may be accurate. I didn't use that in my prepared remarks tonight, and so that one I don't know about. What I can do is link this to the previous question from Tom and Richard Davis about the network and the effect of these large events out there, being our most strategic suite is critical to that management. When large events happen, does that cause these things happen? So the example we have, Loblaw. Yes, they're in a terrible ransomware, malware situation. They have to shut down their internal network. They need a solution immediately. We are the stated market leaders, certainly in our opinion, but by most analysts' opinion, both in size and quality of solution out there. And so they put a call into us, and then we deliver. We stand it up in 24 hours. That sales rep is a very happy camper to have been in that base or have that named account. But we often see, when major events occur, an acceleration in the sales cycle, and that's natural just like a good economy with high revenue growth means people are looking at how they can grow and spend on further revenue growth, etc. One of the drivers for our business are critical events worldwide. If you track them, they are up in every single meaningful stat across the board globally, and they've shown no signs and none of the fundamentals show signs of them changing at all in the near future. And so that's going to drive collapsing of some sales cycles for us, and I think you'll hear about those in future quarters. But in terms of anything other than that being a general driver for our business, it's hard to say because we don't do anything but enable the sales force to sell it to a customer based on our value proposition of keeping people safe and their businesses running, a strong ROI and cost savings of collapsing multiple enterprise, individual, independent apps into a single operating environment. And those two benefits, they're trained to sell on whether it's a customer who's desperate and needs it in a day or a week or a customer that works with us for six months to close a six figure contract. They're pretty around the same. It's just that with big events come an acceleration of the business in different categories.
- Clarke Jeffries:
- Great. Thank you for all that color. On the federal opportunity, I was just wondering if you'd help us frame our expectations to the size of the commitment you're already seeing from these agencies, whether it be lengths or sort of whether those commitments are already reaching into kind of the eight figure size and whether or not it's going to be an iterative upsell to get that kind of deal or just where we're at in terms of the pipeline.
- Jaime Ellertson:
- Well, I mean, the federal market, we held out the opportunity clearly to the street and to our investor population that we thought the federal market was going to be a significant opportunity in terms of its size, certainly over $1 billion of new TAM for us to be accessing equal to the entire TAM for our state and local population for core products
- Operator:
- Our next question comes from the line of Scott Berg with Needham.
- Jaime Ellertson:
- Scott, you there?
- Scott Berg:
- Sorry, guys. Didn't realize I had you on mute. Two quick ones. Jamie, we'll start with you. You'd mentioned in the EU, the advanced population alerting system requirements that are coming down the pipeline. Is there anything specifically that you guys need to do to change maybe your platform to prepare you for some of those opportunities? Or are you pretty much all set to - as is?
- Jaime Ellertson:
- No. That's just a - again, you talk about the same thing, trends in your business. You know that in the technology business, sometimes compliance and regulation is a friend. And in our case, this is going to be very friendly. The basic laws that are being crafted in the EU today for release, we think, this year or early next are going to require countries to have automated population alerting systems in. There's only a few players in that game. We're the only software - really software-based solution that has two-way and international-traveler capability. And given that we have so many great references of that success in Europe and continue to win very, very large populations like Andhra Pradesh, as I mentioned, 50 million people. So we have the scale and already have the reputation of being the best in the world. We think we're set up perfectly. That's just a set of regulations that's going to drive an entire continent to be purchasing en masse. And so we don't have to do anything special. We just have to sit back and wait for the regulations to get closer and then, as you can imagine, assume, like the federal government, we're already starting to work those opportunities.
- Scott Berg:
- Got you. Helpful. And then a follow-up for Ken. Ken, I believe you had mentioned just some commentary in fiscal '19 expectations around adjusted EBITDA, that it should be, we'll call it, mildly positive from continuing operations. Given that '18 was that way when you likely back out the impact of the UMS acquisition, does that kind of magnitude or trajectory change much relative to '18? Or is this still a foot on the accelerator to invest for growth and positive EBITDA still probably fairly minimal for the year?
- Kenneth Goldman:
- Yes. I would say that our long-term commitment that we gave at the time of the IPO that by 2021 we would produce a strong level of both increased adjusted gross margin and increased adjusted EBITDA, but in the intervening years, that we would deliver basically breakeven to slightly positive is consistent. As we talk to investors around the country, they are steadfast in their belief that growth versus profitability growth is the driver of value. That doesn't mean that as a responsible, experienced senior management team that we don't think about profitability. But we want to have the correct balance between the two. We talked about on today's call that we have made ongoing investments throughout the year. Witness the results of two quarters in a row of 43% growth. But for 2019, right now, although we're not giving guidance per se, directionally, we're saying that we will be positive, both in terms of adjusted EBITDA and cash flow from the core business.
- Operator:
- Our next question comes from the line of Brian Peterson at Raymond James.
- Unidentified Analyst:
- Evan here on for Brian. Just one question on the federal vertical. Can you frame where you see yourself in terms of building out the partnership channel for that segment? And do you see the need to make additional investments there to service that market over the intermediate term?
- Jaime Ellertson:
- Yes. That's a good question. So we believe that we will continue to both develop and announce other partnerships as access into the federal government. Often the bids include, as you know, very large, established SIs. You can assume we're working with many of those today, but will be interested in growing that list of system integrators and federal government contractors, some because of the unique defense nature of some of these projects and the required different things that are easier done through a partner than us done directly and then some for reach, just into certain spaces where there are specialties. And so that is an ongoing and rapidly - we're rapidly adding to that list of system integrators and partners. On the investment side, no, there isn't - other than - FedRAMP is an ongoing investment for us and continues to have us audited on a regular basis and meeting certain conditions. And so we'll continue to invest in the FedRAMP solution, but we don't need to do something else for our products. The reason that it was a Big Bang of sorts is because when we received FedRAMP authorization, it was effectively for our suite, which, as you know, is multiple products. And that's - we're targeting ITA into there, targeting Mass Notification, Incident Communication, a number of our applications and we got that out of the way with our initial authorization. Now we just have to update it and maintain it and extend that reach with partners.
- Operator:
- Our next question comes from the line of Will Power at Baird.
- William Power:
- Jamie, I guess on the prepared remarks you reference several key critical management wins, including Chevron, which would seem to be a great global reference account. I wonder if you could provide any color just on was that a competitive displacement? Are these some new capabilities that perhaps they didn't have from point solutions previously? Just some color kind of on the competitive process for that and what really set you apart from whoever else showed up to try to provide those capabilities.
- Jaime Ellertson:
- Sure. It was certainly competitive in the sense that they looked at multiple different providers of standalone systems, but I went to great lengths in my prepared remarks - I want to remind you - to let you know that we're not you know, you stand or mass notification or just a messaging company. We believe we have gotten past that to the point that now we're talking about CEM disrupting the $20 billion safety and security market because it provides a single operating environment for major organizations to keep all of their people safe and secure as well as the businesses running. And so in the Chevron example, what you ended up having was they were looking at individual situation awareness solutions from different security vendors. They were looking at multiple mass notification companies. They were looking at how they manage major incidents. They were looking at how they communicate when there's an incident like a ransomware and you can't use your channels. You want them secure. In our case, they were looking even at their threat data. How do we get all this data that can tell us that there's an event near one of our oil refineries or one of our offices or impacting a senior executive's travel schedule? So those are all individual, standalone products that we competed against, and it was absolutely a competitive win. But we feel like we had an unfair advantage. We have an integrated, common operating environment, which, at the end of the day, is the only way. If you've got 180 locations and 50,000 people with 10,000 plus travelers a week out there, how would you possibly manage that on seven independent systems? It just doesn't work. And so being the people that brought the space together and the first guys to call it CEM, sometimes we bear the burden this last year of educating the market. But what's happening is we're seeing increased traction because people are buying into I'm not going to buy seven of these and stitch them together. I don't have the time. I don't have the interest in that. The same way that it happened for ERP, from CRM, for human capital management, another recent very large market pulling together talent management all the way to contractor management and cost management. We're just integrating all those pieces in a single environment, out-of-the-box, enterprise-scale global reach from a public company. And that makes it really difficult for someone to compete against us. And they're significant deals. These are million-dollar wins, so everyone wants a piece of that action, we think. It's just that no one else has that integrated platform.
- Operator:
- Our next question comes from the line of Eric Lemus at SunTrust Robinson.
- Eric Lemus:
- I just had one question. There's a lot of momentum that you talked about in the quarter, specifically in federal and strong results in international and plenty of different new products coming to market. So with that all in mind - and you spoke briefly a bit about 2019 - but is there any reason why the core business, ex-acquisitions, wouldn't accelerate next year?
- Jaime Ellertson:
- Well, I mean, business acceleration comes from all three of our core strategic drivers, right? So we are seeing - and a lot of people worried about it early in our existence. As I remind you, we're not just a messaging platform. On the other hand, our messaging products like core Mass Notification, an enterprise app for alerting in emergencies, had a fantastic quarter and across all accounts from corporate to state and local to federal to now new international wins with the acquired product for population alerting, but in that same mass notification family had - entire countries we're winning. So that provides the base of our business because it has been our largest revenue component. I also want to point out that the strategic new products though now are quarter after quarter basically hitting the roughly 50% mark. In other words, all new and grow sales, out of those 109 new customers, 50% of them were solely new products. There was no Mass Notification in there. They were made up of the new products
- Operator:
- Our last question comes from the line of Mike Latimore at Northland Capital.
- Unidentified Analyst:
- [Indiscernible] here for Mike Latimore. A couple of quick questions on the international [indiscernible] side. Could you give an update on your Sweden win? Is it fully deployed and operational right now? And what other countries or regions look promising?
- Jaime Ellertson:
- Yes. Well, we talked about a number of international. And Sweden I don't think I necessarily talked about this quarter in terms of the existing national contract. That's been in place. It's a multi, multimillion dollar. It's a $7 million, $8 million, $10 million over a number of years contract, so those population alerting for entire country wins can become very substantive. That's why the EU regulations that are coming into place are very meaningful for us because it creates a meaningful growth driver for all countries in the EU often that have very uneven past with a national system like France are going to be required to update that and have a fully-fledged, automated population alerting system, such as our population alerting product that we acquired from UMS. Sweden has been in place and is working fine. The Sweden one I actually referenced in this call was a brand new one, which just went into play. It was a new licensing agreement during the quarter among Iceland as a whole country and, say, Oslo as a significant six figure win for the 1.5 million people of Oslo. So that product is working across Europe. And equally we announced the Andhra Pradesh. Last quarter we talked about the rollout in Singapore. That product is working in Asia and in Europe. We do not sell that product in the U.S., but internationally, it's firing on all cylinders.
- Kenneth Goldman:
- Any further questions?
- Operator:
- I'm showing no further questions at this time. Mr. Ken Goldman, you can proceed, sir.
- Kenneth Goldman:
- All right. Well, thank you for joining our call today. We're excited again to exceed our financial objectives and raise our outlook. We believe that our third quarter results demonstrate our core business is strong, our strategy is working, and we're well-positioned, as I mentioned a number of times, to drive continued success with our CEM solution in the broad safety and security marketplace in the next few years. We look forward to speaking to you again, and again, thanks for attending. Goodbye.
- Operator:
- Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may now disconnect.
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