Q3 2022 Everbridge Inc Earnings Call
Welcome to the ever break third quarter 2022 earnings conference call. My name is Vice Navi and I will be your conference operator today.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Following management's remarks, we will open the call for your questions to ask a question you May Press Star then one on I touched on phone.
She'll be draw. Your question. Please press Star then two.
I would like to remind everyone that this call will be recorded and made available for replay via a link in the Investor Relations section of the company's website.
Now I would like to turn the call over to wife's precedent of Investor Relations and then on the Leidy. Sir. Please proceed.
Thank you Vanessa and good morning, everyone. Welcome to have a bridges earnings call for the third quarter of 2022 with me on the call today are either Burgess, President and CEO , David Wagner, and executive Vice President and CFO Patrick Brickley.
Before the market opened we issued our earnings release, which can be accessed on the Investor Relations section of our website at IR <unk> Com. This call is being recorded and a replay of the conference will be available on our Investor Relations website at the conclusion of today's event during.
During today's call, we will make forward looking statements regarding future events or the financial performance of the company that involve certain risks and uncertainties.
The company's actual results may differ materially from the projections described in such statements factors that might cause such differences include but are not limited to those included in our forms 10-Q, and 10-K as well as other subsequent filings with the SEC information provided on this call reflects our perspective only as of today and should.
Not be considered representative of our views as of any subsequent date, we explicitly disclaim any obligation to update any forward looking statements or outlook.
Also during today's call, we will refer to certain non-GAAP financial measures a reconciliation of our GAAP to non-GAAP financial measures is included in our earnings press release, which you can find on our Investor Relations website.
Our earnings press release.
Highlights from our third quarter. In addition to our financial results and outlook. After we review our business and financial highlights we'll open the call for your questions with that let me turn the call over to Dave.
Okay. Thanks, Dan Good morning, and thank you everyone for joining us today.
Last week marked my first 100 days at ever bridge. It has been a rigorous and exciting time.
Over the last three months I've met with well over 100 of our investors prospective investors and analysts I've had meaningful face to face interactions with dozens of our customers and I've met one on one with nearly 200 of my colleagues.
The senior leadership team and I spent many days and nights reviewing our operations are lining on our value drivers and beginning the process of implementing a strategic plan that we believe will drive the next phase of our growth heading into 'twenty, two 'twenty three and beyond the opportunity ahead for our business is compelling.
To begin today's discussion and to set the foundation of our strategic plan I'd like to start with an overview of how ever bricks came to be where we are today and how the new leadership team is planning for our future.
As a company founded 20 years ago in the aftermath of September 11th ever Bridge built the world's Premier critical event management or CRM platform to deliver on our mission of enhancing enterprise resilience for our customers as they work to keep their businesses and people say.
During critical situations.
Our intelligent automation technologies helped us to capture a leading share of the C E M market.
In doing so we've scaled our platform to reach over 2 billion people globally and to deliver over $400 million of revenue annually as a pioneer in CE and then public warning ever bridge has become the leader in a growing early stage market.
Over the past several years the company rapidly expanded its capabilities and global presence.
However, 2022 has been a year of discontinuity and major changes Forever Bridge and we are now maturing into the profitable growth stage of our corporate maturation.
Which will be characterized by stable predictable growth and expanding profitability.
How is the team and I have taken a fresh look at where we are and where we're going we see a clear path forward. We will continue to innovate and we will serve our customers by integrating and building out our leading critical event management platform to support their maturing requirements for delivering enterprise Brazil.
Yes.
However, we also foresee a lower growth rate in 2023, as we focus on organic revenue growth.
As a result of the slower growth we made the difficult decision to extend the strategic realignment that we announced in may whereby we now expect that 200 more positions will be eliminated by the end of the fourth quarter.
This action will allow us to adjust our cost structure keep control of our financial future and deliver predictable revenue growth for our shareholders. We expect earnings to grow faster than revenue for years to come as we simplify modernize and optimize our platform and our internal processes.
The decision earlier in the year to pause material M&A is helping us to focus on execution and to make solid headway in product integration back office integration and sales and marketing optimization, which will drive even better customer experiences and opportunities for cost.
<unk>.
We see a clear path forward for $85 million of adjusted EBITDA in 'twenty to 'twenty three with a baseline expectation of total revenue growth in the 6% to 7% range as we lap growth from previous M&A.
10 year to sharpen our focus on our core growth opportunities and further rationalize our portfolio of products. We are driving toward the rule of 30, as we exit 'twenty to 'twenty three with a plan to reach rule of 40 in the coming years.
At the same time, while the team and I, we're refining our strategy, we continued to execute in Q3.
As you can see from our earnings release, the health of our business remain strong as we delivered another quarter of solid financial performance across the board.
We grew revenue, 15% and delivered strong bookings, while generating a 14% adjusted EBITDA margin in the period.
Overall I am proud of the strides our team made this quarter towards positioning ever bridge for solid growth in 'twenty to 'twenty three and beyond before I go further I will now turn the call over to our CFO Patrick Brickley to provide details on our financial results for Q3 and outlook for the remainder of the year Patrick.
Thanks, Dave.
The work that we began at the start of this year to strategically realign both our product and go to market organization.
That's created a solid foundation for sustainable profitable growth heading into 2023.
As we continue to do the groundwork to scale up our business, we are optimizing our cost structure integrating prior acquisitions and creating an even more integrated E M platform.
Our efforts so far this year have resulted in a 14% adjusted EBITDA margin in the third quarter.
And we are guiding to exit the year with a Q4 adjusted EBITDA margin of 16%, reflecting the mid teens exit target that we had communicated at the beginning of this year.
Our solid execution in the third quarter produced strong cash flow as well as revenue and adjusted EBITDA that were above our guidance range.
Revenue in the third quarter was $111 $4 million up 15% from a year ago.
Adjusted EBITDA was $15 $2 million up significantly from $4 8 million last quarter as we continued to optimize our cost structure.
In Q3, we incurred $1 $2 million of expense related to the strategic realignment actions that we had initiated in may.
We generated cash flow from operations of $18 million and adjusted for one time payments related to our 2022 strategic realignment program.
We generated positive adjusted free cash flow of $15 $4 million.
We ended the quarter with a cash balance of $487 million.
For full details of our P&L and reconciliation of GAAP to non-GAAP measures. Please refer to our press release.
Total deferred revenue was $233 million up from $214 million at September 32021, and flat sequentially, reflecting a higher mix of perpetual license deals than we had seen in recent quarters and timing of invoicing in our SaaS business.
Total <unk> was $471 million up 9% from a year ago.
Current RPI, which represents our forward 12 month view was $298 million up $6 million sequentially.
And 12% from a year ago.
Our net revenue retention rate continues to track at or above 110%, reflecting continued customer satisfaction combined with demand for additional ever bridge technology to expand within the existing customer base.
We note however that because it's a metric that reflects trailing 12 months revenue.
The planned attrition of some customers during this year and the large deal that we terminated in the first quarter are beginning to weigh on this metric as we progress through 2022.
Our momentum with large transactions continued in Q3, resulting in trailing 12 months asps that were again above $100000.
And a record 75 deals in the quarter that were over $100000 in annual contract value.
Additional business metrics can be found in our Investor relations presentation posted on our website.
Now I'll turn to our guidance for the fourth quarter, we anticipate revenue of between 116 and $116 $4 million representing year over year growth of 13%.
As discussed earlier, FX will pose roughly $2 million of headwinds to fourth quarter revenue relative to currencies on January one 2022.
And roughly half a million dollars of headwind relative to the rates that were reflected in the guidance, which we provided three months ago.
We expect adjusted EBITDA will be between $18, one and $18 $5 million as we continued to optimize our cost structure.
We anticipate non-GAAP net income of between 14% and $14 $4 million or between 30% and 31 per share.
For the full year, we anticipate revenue of between 438, and $431 2 million representing growth of 17%.
This absorbs roughly $5 $5 million in FX headwinds since we established our 2022 guidance in February .
We anticipate adjusted EBITDA will be in the range of 47 to $41 $1 million more than tripling from 2021, and representing an adjusted EBITDA margin of roughly 10%.
We expect non-GAAP net income of between 27 to $27 $6 million or <unk>.
<unk> 59, and <unk> 60 per share based on 46 3 million diluted weighted average shares outstanding.
To sum it up we delivered another quarter of sustained progress on our priorities as we approach the end of fiscal year 2022.
Now I'd like to frame our thinking on 2023.
In terms of profitability, we will enter 2023 with a cost structure that is leaner than ever.
The incremental restructuring actions that we've announced this month, we will reduce our annual run rate expenses by approximately $27 million in 2023, enabling sustained improvements in profitability in 2023 and beyond.
With regards to revenue we are continuing to improve the tenure of our sales force.
There are several additional considerations worth calling out.
Number one.
As we optimize our go to market investments to focus on critical event management.
Ratable recurring subscription revenue and improved efficiency we.
We are reducing some areas of sales capacity that are productive.
Be less efficient.
Number two in 2023, we anticipate flat year over year growth in nonrecurring revenue and we will be lapping the settlement of the large contract that was terminated earlier this year.
Number three the FX related erosion that we absorbed in mostly the second half of 2022 may create similar pressure on the first half of 2023.
Number four we will continue to optimize our portfolio, which we anticipate will result in continued de emphasis and potential divestment of certain assets that are revenue generating but are noncore.
And finally number five we are wary of the uncertain macro environment. However, we anticipate that its impact may be offset by the internal work that we're doing to improve productivity and execution.
So we are taking a judicious view of our growth profile for 2023 during which the work on improving sales productivity will continue while the salesforce gains more tenure.
Taking all of this into consideration, we expect 2023 baseline revenue growth of 6% to 7% with a clear line of sight to 2023, adjusted EBITDA of $85 million.
Our improved cost structure gives us the confidence to meet or beat this prudent guidance, which we are providing one quarter ahead of when we usually do.
On December 13th we are hosting an investor day during which we plan to disclose our annual recurring revenue and discuss our long term growth path to the rule of 40.
Our Investor day will be held at our new customer experience Center in Vienna, Virginia, just outside Washington D C.
We invite you to join us in person to meet the new leadership team and to see our <unk> platform inaction. We will also webcast. The event live in case, you are unable to join us in person.
Now I'll turn it back to Dave Dave.
Thanks, Patrick as our financial performance reflects 2022 has been a transition year.
Ling ever bridge to focus on driving organic growth as we enter the next phase of the Companys lifecycle heading into 2023.
In the third quarter, we continued to see solid traction with our land and its brand strategy from a land perspective, we landed 72, new enterprise customers and a record 31 <unk> customers in the third quarter, bringing our total customer.
Customer count to 255.
We also generated a record record 75 deals over $100000 in the quarter up from 63 in the prior quarter and 45 in the third quarter last year.
A couple of these deals are part of our best quarter ever and our public warning business, which was anchored by a key win in Norway to embed our software into their national Telecommunications network.
These are largely perpetual software and services deals. So the orders will accrue into revenue as the implementations occur over the next several quarters.
This steady improvement, we're making in landing larger new customers is key to our long term strategy from.
From an expand perspective net revenue retention remained strong at over 110% driven by low 90 as gross retention in add on sales in the quarter.
Although not financially material to the quarter, we have a large customer base in the state of Florida, There was impacted by Hurricane and we take our commitment to these customers seriously.
Before during and after the Hurricane made landfall we work with rigor to support them. During an event that proved to be catastrophic for many residents of that state and across the southeast we supported hundreds of customers with people and assets in the affected area.
Our platform performed flawlessly throughout allowing our customers notifications to keep their citizens and employees safe.
Our ability to reliably manage these critical events at scale is why our customers Trust us to support them during times of need.
Although tragic catastrophic events like hurricane and underscore the meaningful nature of ever bridges mission and the purpose driven work we do.
Separately during the quarter one of our <unk> customers Takeda Pharmaceuticals became the very first customer to achieve the diamond level in our best and resilience program. What makes potato special is the way that they leveraged our CRM platform to implement continuous improvement.
And their ability to detect and SaaS risks.
To coordinate with the crisis response teams to communicate emergency information and ultimately to account for their employees safety.
Through a rigorous use of our platform they developed and tested more than 350 unique incident communication templates for potential crisis situations.
<unk> security team truly demonstrates what best in class looks like in terms of applying duty of care and protection for their employees. We are proud to be a part of their excellence.
During the third quarter. We also continued to build out our leadership team, including recent appointments of a new Chief marketing Officer, and David Alexandra and a new Chief Information Officer, and Sheila Carpenter.
David is a veteran b to B and SaaS marketing executive who brings extensive experience generating global demand and transforming category leading brands like ours.
He and his team's work will shape, our global brand strategy and demand generation capability for years to come.
Sheila joins us with more than two decades of leadership experience in information systems.
In operations and information security software companies.
Her experience in information security scaling I T operations and building enterprise applications will be influential in support of ever bridges more efficient growth.
We also made solid progress on our key strategic product integration priorities by executing on our plan of building, what we call pathways to the platform.
Our first pathway to the platform built during the quarter applies to Anvil, where we completed an initial integration of its travel risk management solution into our core <unk> platform now called ever bridge travel protector.
This integration positions, our CDN platform as the only end to end full lifecycle solution for organizations.
Bill their duty of protection for traveling employees remote employees and hybrid workers returning to the office, we will continue to mature this integration over the coming quarters.
Our second pathway, whereas the milestone integration of our risk intelligence monitoring capabilities into our core <unk> platform. This integration will allow us to begin migrating the remaining customers from the acquired solution into our core CRM platform.
We will be maturing this integration further over the coming quarters with the objective of migrating all 150, plus legacy application customers onto our <unk> platform by the end of 2023.
In closing as we continue to execute on our near term priorities, which are guided by our land and expand strategy. We are well on the path to doubling our business over time.
The breadth of capabilities, we developed over the past 20 years bolstered by our recent acquisitions have put us well ahead of the competition.
Fueled by our product team initiatives, including impactful machine learning advancements, we have a solid outlook as we head into 2023, our strong customer base also provides continued opportunity for expansion as we increased multi product sales with a particular focus on the global 2000.
In summary, we delivered solid financial and operational performance in Q3.
As we conclude 2020 to our leadership team is laser focused on execution driving revenue growth and maximizing return on our investments. We are confident that our success in these areas will deliver sustainable topline growth and expanding profitability and increasing.
Cash flow.
That concludes our prepared remarks, we're now ready to open the call for questions operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
You are using a speakerphone please pick up your handset before pressing Vicky.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
First question comes from Ryan Macwilliams with Barclays. Please go ahead.
Hey, guys. Thanks for taking my question. So I appreciate the clarity around the objectives and margin targets for next year.
Patrick I know it might be difficult to separate how much of that 6% to 7% revenue growth guide for next year is macro related versus the impacts of the restructuring and head count checks.
Thanks, Brian .
There are a lot of moving parts as we think about 2023, so far in advance.
We are wary of the macro environment, but we are doing a lot of work internally to improve productivity and efficiencies that we think that.
We're optimistic that will offset the macro impact and so it has more to do with the other elements that we laid out whether it's.
Reducing some of the existing productive capacity, albeit less efficient capacity.
Flat nonrecurring revenue year over year.
Continued FX headwind into the first half of next year as well as importantly, continuing to optimize the product portfolio.
We've been chipping away at that this year, but we still may have a fair amount of work to go and that will drag into next year.
Thanks, and then just on the guidance.
Top line, what does that imply for all net revenue retention for next year I know you've kind of mentioned that the prepared remarks, and then Dave just with these new guidance figures what do you see more upside for 2023 is that on the margin side or on the revenue side.
Yes so.
This is Patrick will take the net revenue retention, we will talk more about that at our upcoming Investor day.
Historically, we've used the trailing 12 months revenue metric.
We will probably align the definition of net.
Net revenue retention with IRR, which we'll be talking about at our Investor day going forward so it'll be.
It'll be more clear and we will unpack more of that on December 13th.
Yes.
Have a good one Ryan.
We chose our words carefully so a clear path to 85 million in EBITDA and a baseline of six 7%.
And that clear path is really driven by opportunities to modernize and optimize the cost structure and so I'm really.
God Youre optimistic about the team's ability to continue to dig in and drive operational improvements, especially as we look into what could potentially be a tougher macro environment on the baseline.
I'd comment yeah, Yeah of course, we see upside and that's what we're going to be working diligently to deliver.
But we're.
As Patrick indicated out in the four.
Key areas, we're really getting focused on the SaaS revenue growth is the primary value driver in the business and so that really leads to the.
Plan, we have to disclose and recurring revenue.
At our Investor day, and beginning to drive that as our primary as our primary metrics, though.
As we dig in to that.
Areas that you know Patrick identified.
And the kind of mitigating growth are the are the balances that were working off that baseline projection.
Really great to hear about a potential AOR metric I'm looking for that for a long time, but looking forward to the investor day, Okay. Thanks.
Thanks Danielle.
Yes.
Okay.
Our next question comes from Michael <unk> with Wells Fargo. Please go ahead.
Hi, This is Michael Berg on for Michael Thanks for taking my question.
You may need to walk us through where some of the optimization is on the cost structure of cost.
R&D sales and marketing and G&A it looks like R&D and G&A took the biggest.
Cuts in the quarter, but moved to walk us through what that looks like moving forward.
Sure. This is patrik. Thanks for the question.
In the.
Last week we.
Launched.
An incremental <unk>.
Headcount related actions to continue to.
Optimize our cost structure and that impacted every area of the P&L, whether it's cost of revenues sales and marketing R&D or G&A.
And each area has.
The room for continued optimization as we head into 2023, we anticipate holding our investment in each of those areas flat on a dollar basis will continue to evolve the organization and focus on SaaS and recurring ratable subscription revenue and critical event management.
<unk>.
Yeah.
And in order to do that we will take the existing levels of dollar based investment and we'll be optimizing within that so we'll continue to invest incremental dollars in core areas of growth and opportunity, while continuing to deemphasize investment and some of the non core areas and again.
That hits all areas of the P&L and sales and marketing in particular will continue to drive more and more efficiency there.
Exiting this year and throughout next year.
Got it thank you and a quick follow up.
What was the size of this restructuring compared to the one done earlier in the year and are the areas impacted any different than what was done earlier in the year. Thank you.
Yeah. Yeah. This is a much more head count related so in May we announced the beginning of the program and we had said that we will spend between 13% and $21 million to remove $13 million to $18 million from our annual run rate.
Where we are right now with the Mei actions is we're forecasting to spend about 20 to pull out $17 million of annual run rate expense.
Now in November .
The incremental action, we're forecasting to spend between 11 and $12 million.
Pull out $27 million of annual recurring expense so in aggregate across the broader action beginning in May and now extended in November we're looking to spend roughly 31% to $33 million in order to save $42 million to $44 million of annual run rate.
Yes.
Most of that is head count related.
Thank you.
You bet.
Your next question comes from Matt Stotler with William Blair. Please go ahead.
Hey, good morning, Thank you for taking the questions maybe just one on the macro you mentioned.
Some caution in the 2023 numbers around what could happen there, but obviously came in above guidance for the current period. So.
Would love to just double click on what Youre seeing in terms of spending behavior from customers.
Licensing and deal cycles of things falling out of the pipeline and any specific areas of strength or weakness given the uncertainty.
Yeah, great Great question, so areas of strength I highlighted in the script, our public warning business and I'm really proud of that team executed their best bookings quarter.
In the history of the company anchored by a couple of really key wins.
In Norway that I mentioned so.
The government business continues.
Really strong.
Ideal.
Perspective, we continued to execute really well on those enterprise deals over 100, K, that's something I'm really pleased about so up into the <unk> from the <unk>.
Quarter over quarter, so that feels good.
Last quarter, we had.
Vernon was here and spoke of no DLP, new that were impacted by by budget cycles. This quarter. It was one deal that he noted to me that that has been impacted by budget cycle. So from what we're seeing.
Yes.
Very modest.
The impact at this point.
We don't feel immune to it so we are being judicious in our outlook, but we're not seeing.
A big impact at this time.
Okay.
Got you that's very helpful.
Just one follow up on the on the back end integrations, you, obviously bring a niche.
Youre into the core <unk> offerings.
Any update on the timeline, there and kind of how the key components of that process are coming together.
Yeah, thanks for bringing that up.
About those two that we mentioned the scrap that being.
The initial integration of the anvil travel protect or into <unk> that integration really unlocks.
The value of that acquisition for existing customers and new <unk> customers and so we're going to be continuing to that.
Extend that integration over the coming quarters to ultimately enable the migration of the anvil enterprise customers into CES them I would expect that to really be a late 'twenty three 'twenty four activity on the second integration.
The risk intelligence.
Integration into <unk> that.
That on the other side represents the kind of the culmination of the integration work that risk intelligence was integrated into the platform for our existing <unk> customers are new tem customers.
A few years ago.
And this represents this work represents completing the full feature parity to allow us to be not to begin but to really focus on the remaining 150.
Customers on the legacy application and bring them across again with the objective of bringing all of them across.
By the end of the year and I'm excited about that because of the up sell cross sell opportunity. It provides as we move those customers into.
The key platform so.
I really like those two examples obviously they were in play well before.
Arrive, but they they demonstrate the execution on the power the pathway at the platform and then the power.
Our focus.
Leadership team and our product team is able to have which will make us more efficient going forward and will really improve customer experiences on a cross sell opportunity.
Got it thanks again.
Our next question comes from Bill Fowler with Bank. Please go ahead.
Okay, great. Thanks.
Yes, a question on <unk> it looked like.
Particularly strong <unk> customer.
Customer growth and so would love to kind of double click on some of the key.
The drivers there and I guess in part that I'm trying to reconcile how to think about.
<unk> grows into next year, given the guidance you know how much are.
Some of the go to market optimization efforts, perhaps going to hinder you know what <unk> seen more recently on the on the CGM front.
Yeah, so thanks for pointing that out.
And is the strength of this company. It is the area of focus.
As we move forward and so as we do our strategic alignment everything that leadership team and I are doing is really focused on that market, leading capability and we are growing inside.
That set of capabilities faster than the market when you stand back, though and unpack.
The whole company, obviously, we're guiding to a lower revenue growth.
On some of the assets that.
And that has to do as Patrick said burst with.
A and alignment across the organization that we're driving recurring revenue growth in particular, the SaaS software recurring revenue growth.
It also reflects the fact that.
There've been other acquisitions over time in those cohorts of customers.
Some cases aren't growing and retaining as well as our core CMP and so that's really the balance youre getting right. The issue. That's the balance we're driving as we continue to exploit our strong competitive advantages our leadership position in <unk>.
Balanced with optimizing.
And and modernizing.
Some of the acquired company cohorts over time.
Okay, and maybe just.
One follow up it sounds like Youre feeling.
Optimistic and positive as you're talking about Norway on the population.
Morning opportunity, but I just.
Yes, I was wondering with all the macro uncertainties and.
Turmoil in Europe is that having much of an impact on you know the age of the EU and a mandate or.
The opportunity more broadly or is everything by and large kind of moving ahead as planned or better still.
Well I'd say.
Patrick has been clear that they.
The opportunity we've executed very well on it wasn't as when it all came to pass wasn't as robust as perhaps.
But we have succeeded in winning the majority of the public warning.
Opportunities that have been awarded in Europe , there are still.
Roughly.
A dozen EU countries that have not yet made their decision those will be the smaller.
Countries, and we're continuing to position ourselves.
Well in.
For those for those opportunities.
As I mentioned earlier.
Is built in to our guide, where we're not expecting as much growth on the perpetual side as we are on the SaaS side and that having been said.
These nice wins off a record quarter.
Probably be delivered and come into revenue in 2023 are primarily in 2023. So we're balancing all of those things we continue to see a good opportunity for.
For public warning this year will be an all time record and we wouldn't quite be expecting a record next year, but we are expecting a continued.
Success.
And gaining share in public warning.
Okay. Thank you yeah, and also look forward to the analyst day.
Yeah, we are too thanks.
The next question comes from Brian Colley with Stephens. Please go ahead.
Hi, guys. Thanks for taking my question.
So I know the product bundles are still a relatively new selling motion but.
I'm curious if you could maybe talk about the traction youre seeing there.
And whether or not youre seeing any evidence that these are kind of improving sales productivity or.
Improving your ability to upsell.
Thanks, Brian .
Yes for sure we're continuing to see steady improvement in the go to market motions from the simplification.
The persona is it's made it a lot easier.
For our sellers and our customers.
Really see and understand that the journey to <unk> as a platform for the enterprise.
Through the eyes of the buying persona.
I point back to the Takeda at Diamond Resilience program and as we talk to risk officers and security officers in our large enterprise customers.
They are looking for.
Looking to.
Ever bridge, and our platform as a way to integrate our risk management across the organization.
And so that's really where the power of <unk> comes that persona buying journey helps us align with either the chief security officer, or with the Chief Human resource officer or with a cheap infill.
Information Officer, and then from that value proposition expand out into the breath of course, and hopefully that Takeda pharmaceutical examples.
You as an investors and insight into the power of the platform as our enterprise customers.
Reach and and really focus on the workflows that support their duty of care.
So we're seeing good work with it.
It's a maturing market and so we're seeing this maturation primarily at the larger enterprise clients and we see a long runway to continue to grow as that.
As more and more.
Organizations focus more carefully on the safety of their their people and protecting their organization from climate change events and other critical events.
Got it that's super helpful. Thank you.
I wanted to ask about just the total customer adds.
They were down a bit from last quarter. So I was curious kind of what drove that.
And what is that.
Facing any headwind from the de emphasis of noncore technology, and then secondly, I wanted to ask is the.
<unk> de emphasis of noncore technology baked into your 2023 guidance.
Hi, Brian It's Patrick Thanks, Yes similar.
Similar to what you saw in Q1 Q.
Q3.
Had the net adds in Q3 did reflect continued.
The emphasis end of life ing of legacy non core platforms. So they tend to be small dollar customers.
On these platforms, we still have a few hundred of those customers that were continuing to work through.
That will continue to be a headwind to that.
Trick of net customer adds and the dollar impact or anticipated dollar impact of continued emphasis and potential divestment.
Is reflected in our initial guide for 2023 in 2022, we had mentioned a range of.
6% to upwards of $10 million of IRR.
<unk> to the potential emphasis.
We've only made progress to the tune of about $2 million on that so far this year. So it's going to carry into next year and Thats part of the 2023 guidance.
Got it.
Helpful. I'll leave it there. Thank you for the time.
Thank you.
Okay.
Our next question comes from Scott Berg with Needham. Please go ahead.
Hi, Patrick Thanks for taking my questions I guess.
Two of them first of all Patrick as a follow up to what you just said on the.
Product rationalization.
Can you just clarify that a little bit so it sounds like what you announced earlier. This year is still kind of coming out of the model today and then the product rationalization as you talk about as a headwind for next year in 'twenty three.
Incremental new rationalizations or just the execution of the previously announced one.
Thanks, Scott. Thanks for the question more execution of what we had previously discussed with some of those are on path for for example, potential divestment and that just hasn't happened yet so when if and when there are divestitures.
The related <unk> Peel off pretty quickly.
Time, we've just been end of sailing end of life Ing.
So that's why the progress has been more gradual.
Helpful. Thank you and then from a follow up to me I. Just wanted to also define what line of sight for $85 million and 23 adjusted EBITDA means does that mean for the full year, you're expecting to be at $85 million.
Minimal for the year or is that an exit velocity as we get through calendar 'twenty three thank you.
Yeah Youre welcome that is <unk>.
Dollar focus for the full year, so that would be a full year.
The timing of that obviously Q1 tend to be down a bit and move up through the year, but for the full year.
EBIT guide, it's a clear line of sight to $85 million of EBITDA for the full year.
Great. Thanks for taking my questions.
Thank you.
The next question comes from Koji Aikido with Bank of America. Please go ahead.
Hey, David and Patrick Thanks for taking my questions definitely appreciate all the color on.
On the prepared remarks on how to think about.
All of the moving pieces here I had a question on the revenue cadence for 2023, and you mentioned earlier some customer planned customer attrition, maybe some divestitures of revenue generating products, but I guess the question. Here is are you anticipating any quarters, where revenue was sequentially decline next year, considering you guys.
Our subscription business.
Yes, that's a great question and as you look at the historical performance of the company Q1s have been down quarter over quarter and the investor deck that we put out on the website today.
We.
Under took to take some of the 10-K Q information and display it more clear late to show that.
The recurring revenue trend versus the nonrecurring trends to help point that out and when you when you look at that.
Minor unpacking presentation, you can see that the.
Our recurring revenue growth has been consistent and then you'll start to see a little more clearly when you're at least for me when I visually look at it the impact that the non recurring businesses on the <unk>.
On the core by cycle, So last quarter, we got a lot of questions about Holy Smokes guide the second half looks looks really good relative.
Relative to the first half and Patrick and I pointed out that we had a lot of deliveries from perpetual wins coming through in the second half and I think you saw that well I guess I know you saw that in Q3 and you'll see when you unpack the guide for Q4, you'll see that.
That again, and so we would be when you look at the historical trends.
Would probably conclude that Q1 would be a potential down quarter, but we are really focused.
On the near the a or our growth.
Object to those concerns that are yeah that Patrick laid out in terms of add backs and.
Minor the emphasis.
Those things notwithstanding we would be expecting.
A steady increase in our recurring and our recurring revenue.
Got it got it and then just one follow up for me.
Thank you guys might be talking about this next but at your Investor day, but I just wanted to throw it out there today is how does X matters play into the growth algorithm for 2023. Thanks, guys. Yeah. Thanks for bringing that up ex matters is a really powerful capability for Dev ops leaders to put and service manager.
To put low code no code.
Gration and optimize their workflows and so one of the things we're doing internally we talk about is.
Optimizing the sub brands and so we're going to be digging in and we are digging in and I'll be digging in even more as we align our sales team for 'twenty three on focusing on those sub brands and making sure that we're optimizing the go to market motions not just for <unk>, but for those kinds of sub brands have really powerful.
<unk> to make sure we're doing all the things that we should be doing in terms of demand Jan in terms of getting the right.
Sales and pre sales resources on on each opportunity.
In the funnel and that that plays a key role the other area, where X matters is playing a really key role as I alluded to in our prior Q&A.
When we talk to our customers.
This idea of enterprise workflow and having.
One central way to.
A one platform approach and extensible approach to managing risks across the enterprise that CIO and our C. I S O along with the CSO control in most organizations, 80% of the risk of anthem and bringing that together.
In a common look at beyond workflow is one of the really great strategic areas, we're gonna be leaning into and and for that part of X matters playing into our long term strategy is also something.
We're excited to unpack.
And take advantage of as we execute on the overall platform approach in the coming years.
Thanks, so much for taking my questions really appreciate it. Thank you so much sure thing.
The next question comes from Terry Tillman with <unk> Securities. Please go ahead.
Yes, Hi, David and Patrick Thanks for taking my questions as well some of them that answer, but I still have a few one thing I'm curious about David in terms of just.
Optimizing the sales capacity.
On a go forward basis, and just optimizing go to market in this pathway to platform opportunities do you see as we exit 2023, and I know, it's already a lots of give 'twenty three guidance I'm not trying to tell you to give US 24 guidance, but do you think actually growth in organic growth starts kind of picking up to some higher level one to 'twenty three the second part of the.
First question for you David is just.
There is kind of.
A tale of two cities and they are our growth is definitely stronger anything you can share about like target today, our growth and then I had a follow up for Patrick.
Okay. So that's a very insightful question.
We are as a team aligning on the key value driver of that.
Our growth and how that growth converts into.
Revenue growth over time that is the key focus area.
But even inside that we have lots of pieces that were unpack gain and optimizing over.
It will be a multi year period, but particularly in 2023.
So.
Yeah. The way you should be reading, what Patrik and I have said very specifically is.
This baseline growth.
<unk> is building out a tempered growth on the nonrecurring pieces, which by definition means that recurring pieces will be growing faster.
And we'll also be managing.
These optimizations over time, and that's I wanted to one of the things I'm most optimistic about the thing the thing I'm most optimistic about our our enterprise customers taking advantage of cm to keep their people safe in the organizations running those stories are powerful.
We are in a leadership position by far in that category area, but second thing I'm. Most excited about is the commitment of my colleagues here at ever bridge a leadership team.
And every employee their commitment.
Two executing on behalf of our customers and our purpose.
The market and so we're going to continue to take advantage of the best ideas.
Every seller the best ideas of every developer to optimize for our for our customers and so I cannot predict with 100% certainty what that will look like I can tell you I'm really up domestic about the power of this team as aligned on the.
The core CRM opportunity that will manifest itself in a growth overtime.
That's great.
Just one more real quick one for Patrick in terms of the invoicing I think you talked about a little bit of timing dynamics in the quarter anything more you can share about that and just you know on.
The tougher macro does the way customers are demanding the invoicing or the payment terms or could that change and just how to think about cash flow in relationship to EBITDA going forward. Thank you.
Yes, Thanks Terry.
Yeah in Q3 the.
The change in deferred had a little bit more to do with the mix of the bookings and the timing of the invoicing with timing of invoicing noise.
Plays a role and shows up in the <unk>.
Calculated billings metric and it's part of why there's so much noise in that.
As we move through this sort of macro we do receive requests.
To alter invoicing terms.
We work through that with customers.
That's not our first option.
Yes.
We are seeing an increase in those types of requests.
Not not to do with our services or anything of that nature, just more due to the macro so yes. That's part of what we have our eye on as we think about 'twenty 'twenty three.
Okay. So you're in December thanks.
Thanks.
The next question comes from Alex Sklar with Raymond James. Please go ahead.
Great. Thanks, David just one for me, but Cumulus further optimization that you've been talking about today can you just elaborate on it making any changes to the core.
Kind of go to market that you've been putting into place over the past year in terms of the persona based selling and a more simplified bundles and how should we think about this round them up how long do how long should we think about this round of optimization taking thanks.
Thanks for the question John .
In terms of optimization.
That is the word I am using oil and we'll continue to use I hate that word with respect to what we felt we had to do in terms of.
<unk>.
<unk>.
Losing some colleagues that we really value here at ever branch and so.
I can fall into the trap when I'm talking to investors of failing to recognize.
The importance of these individuals' too to what ever bridge has done has done today and so anyway, it's with great empathy and.
And care that we're trying to manage these painful transitions of our human capital.
Putting that aside and becoming more political for a moment.
Approximately half of the roughly 2000 positions.
We're planning to eliminate or here in North America, and those notifications have all 200 of them sorry, 100, if half of the 200 are here in North America and those.
Everyone has been.
Effected in North America has been notified and we have a very large global footprint and operate in lots of geographies and so our intention.
Yeah.
Two to eliminate potentially another 100 positions to total over 200 is being executed in accordance with.
Local laws in each geography, where those employees are located and that process varies from one week to several months.
So as we stated in the script we expect.
If the plants fully implement.
Internationally as they have in North America to add 200.
Over 200 employees, who were with us in the first of November .
Net to no longer be here on the first of January so it'll be a bad, though Dan and we have the expectation that.
Oh.
That will be complete by the end of the year.
This concludes our question and answer session I would like to turn the conference back over to Mr. Wagner for any closing remarks.
Okay.
Well. Thank you all for joining US today today is election day, and so we moved our call to the morning with the hope that that would enable people to participate.
And so get out and vote.
We have opened the registration page for our IR day in December and we look forward to seeing many of you there and unpacking our future plans in more detail at that time operator.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.