Critical event management software company Everbridge (NASDAQ:EVBG) reported results in line with analysts' expectations in Q2 FY2023, with revenue up 7.36% year on year to $110.6 million. However, next quarter's revenue guidance of $113.8 million was less impressive, coming in 2.76% below analysts' estimates. Everbridge made a GAAP loss of $15.1 million, improving from its loss of $36.2 million in the same quarter last year.
Everbridge (EVBG) Q2 FY2023 Highlights:
- Revenue: $110.6 million vs analyst estimates of $110.2 million (small beat)
- EPS (non-GAAP): $0.31 vs analyst estimates of $0.27 (16.2% beat)
- Revenue Guidance for Q3 2023 is $113.8 million at the midpoint, below analyst estimates of $117 million
- The company dropped revenue guidance for the full year from $459 million to $451 million at the midpoint, a 1.74% decrease
- Free Cash Flow of $9 thousand, down 99.9% from the previous quarter
- Gross Margin (GAAP): 70.1%, up from 68.1% in the same quarter last year
Founded as a reaction to the catastrophic events of 9/11, Everbridge (NASDAQ:EVBG) supplies software that helps governments and businesses keep people and infrastructure safe in emergencies.
From school shootings to storm surges, Everbridge can help organisations automate the initiation of incident response, alert people to threats via their phones, and proactively assess risk levels before critical events emerge. Importantly, the Everbridge private network allows groups of customers to opt in to share data on a confidential basis with each other around specific problems or critical events. This means that Everbridge’s platform becomes more valuable as more organizations use it.
Everbridge gains competitive advantage as more customers anonymously share data with each other, so it’s important that it continues to win more customers. And the more Everbridge is deployed by varied customers, the more data and opportunities it has to help streamline responses, and derive insights about how critical events can be better managed in the future.
The whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.
Everbridge has global market penetration but it faces competition from established firms like Juvare, which owns WebEOC, an extremely widely used emergency management software. And there are a plethora of smaller competitors in mass notification, though Everbridge’s cell broadcast and location-based SMS solutions cannot be replicated by all of them.
Sales Growth
As you can see below, Everbridge's revenue growth has been solid over the last two years, growing from $86.6 million in Q2 FY2021 to $110.6 million this quarter.
Everbridge's quarterly revenue was only up 7.36% year on year, which might disappoint some shareholders. However, its revenue increased $2.3 million quarter on quarter, a strong improvement from the $8.86 million decrease in Q1 2023. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that Everbridge is expecting revenue to grow 2.11% year on year to $113.8 million, slowing down from the 15.1% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 6.31% over the next 12 months.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Everbridge's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 70.1% in Q2.
That means that for every $1 in revenue the company had $0.70 left to spend on developing new products, sales and marketing, and general administrative overhead. Everbridge's gross margin is lower than that of a typical SaaS businesses. Gross margin has a major impact on a company’s ability to develop new products and invest in marketing, which may ultimately determine the winner in a competitive market. This makes it a critical metric to track for the long-term investor.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Everbridge's free cash flow came in at $9 thousand in Q2, turning positive over the last year.
Everbridge has generated $29.9 million in free cash flow over the last 12 months, a decent 6.81% of revenue. This FCF margin stems from its asset-lite business model and gives it a decent amount of cash to reinvest in its business.
Key Takeaways from Everbridge's Q2 Results
With a market capitalization of $1.18 billion, Everbridge is among smaller companies, but its $218.9 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
The quarter itself was fine, with revenue and non-GAAP operating profit beating expectations slightly. On the other hand, its full-year revenue guidance was lowered and missed analysts' expectations. While full year guidance for lines below revenue were largely maintained, the weaker topline outlook is a major negative. Additionally, next quarter's revenue guidance missed Wall Street's expectations as well. Overall, this was an ok quarter for Everbridge combined with bad guidance. The company is down 3.91% on the results and currently trades at $28 per share.
Is Now The Time?
Everbridge may have had a bad quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity. We cheer for everyone who's making the lives of others easier through technology but in case of Everbridge, we'll be cheering from the sidelines. Its revenue growth has been a little slower, and analysts expect growth rates to deteriorate from there. And while its strong free cash flow generation gives it re-investment options, unfortunately gross margins aren't as good as other tech businesses we look at.
Everbridge's price to sales ratio based on the next 12 months is 2.5x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.
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