Q4 2022 Everbridge Inc Earnings Call
Good morning, and welcome to the Evergreen Inc. Fourth quarter 2022 earnings Conference call.
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I'll now turn the conference in London on body VP of Investor Relations. Please go ahead.
Thank you Anthony and good morning, everyone welcome to ever bridges earnings call for the fourth quarter and full year 2022 with me on today's call are ever break as president and CEO , Dave Wagner and executive Vice President and CFO , Patrick Brickley earlier.
Earlier. This morning, we issued our earnings release, which can be accessed on the Investor Relations section of our website at IR dot ever break Dot com.
This call is being recorded and a replay of the teleconference will be available on our Investor Relations website at the conclusion of today's event.
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.
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 discussed in our forms 10-Q, and 10-K as well as 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 or the earnings are.
Our earnings press release includes highlights from our fourth quarter.
To our fiscal year 'twenty two in addition to our financial results and outlook.
After we review our business and financial highlights we will open the call for questions with that let me turn the call over to Dave Dave.
Thanks, Don Don Good morning.
Everyone and welcome to Abbott bridges earnings call for the fourth quarter and full year 2022 I am very pleased with the financial results. We released earlier this morning.
For the fourth quarter, we achieved revenue of $117 $1 million, an increase of 14% year over year, adjusted EBITDA of $19 $6 million, an increase of $19 million from $572000 a year ago.
Annual recurring revenue.
$384 million, which is up $14 million or 4% quarter over quarter, our largest quarter over quarter increase of the year.
I'm also pleased that the team executed these strong results, while also executing a 10% head count reduction in the quarter. We entered Q4 with 1800 and 93 employees and ended the year with 1700 13.
Our team demonstrated incredible resilience.
In addition to the strong operational results, we completed the repurchase of over $300 million in face value of about 2024 notes, reducing our net debt by approximately $28 million in the quarter.
Each of these results demonstrates our commitment to execute against the plan, we discussed at our Investor Day in December .
Our strategy is anchored on our 20 year commitment to keeping people safe and organizations running by digitizing organizational resilience.
We deliver our customers' intelligent automation technology that empowers them to anticipate mitigate respond to and recover from critical of that.
We serve customers of all sizes, but our focus for the next five years will be on larger enterprises and governments with the resources to fully leverage our solutions and we are focused on driving annual recurring revenue with the aim of achieving $1 billion in a R. R over the long term.
Our results for the fourth quarter demonstrate strong initial steps on our journey entering 'twenty to 'twenty. Three we are confident in our baseline, 6% to 7% revenue growth rate and in achieving $85 million and adjusted EBITDA.
Before I go further I will now I will turn the call over to our CFO Patrick Brickley to provide details on our financial results for the fourth quarter and full year as well as our updated outlook for 2023, after which I will return to provide more detailed commentary.
Quarter Patrick.
Thanks, Dave.
In fiscal year 2022.
Seeded our annual targets for revenue and adjusted EBITDA, and we executed a significant restructuring.
Which resulted in reductions in realignment of resources.
We enter fiscal year 2023, with a leaner cost structure and an experienced leadership team in place to build a profitable organic growth business for the long term.
I will now recap our results for the fourth quarter and full year for full details of our P&L and reconciliation of GAAP to non-GAAP measures. Please refer to our press release.
For the fourth quarter of 2022 hour are our AV $384 million was up approximately 11% year over year.
Sure they are coming from customers over $250000 ticked up to 44% from 43% in the September quarter.
Revenue grew 14% year over year to $117 $1 million.
Reflecting our growth in <unk> as well as record deliveries of onetime licenses and services of over $16 million.
And a modest stub of inorganic contribution from the infill acquisition, which was completed in November 2021.
Adjusted gross margin was 74%, reflecting seasonally higher perpetual license mix in the quarter and improving platform efficiency.
Cash flow from operations was $4 $4 million compared to $10 2 million a year ago adjusted free cash flow was $4 $6 million.
This represents free cash flow adjusted for $4 $2 million of one time cash payments related to restructuring.
For the full fiscal year 2022.
Revenue grew 17% year over year to $431 $9 million.
We enter 2023 with a purely organic growth profile, having lapped all of the acquisitions that we made in 2021 and having made no acquisitions in 2022.
Adjusted EBITDA was $42 1 million or 10% of revenue compared to $11 $2 million or 3% of revenue for 2021.
Cash flow from operations was $20 $2 million compared to $22 2 million a year ago.
Adjusted free cash flow, which adjust for $12 $3 million in one time cash payments related to our restructuring program.
$13 $9 million.
Our net revenue retention rate once again tracked at or above 110%, reflecting continued customer satisfaction combined with demand for additional ever bridge technology to expand within the existing customer base.
Our momentum with large transactions continued in Q4 resulted in trailing 12 months asp's that were again above $100000.
And a record 80 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.
In addition, we recently improved our capital structure by repurchasing approximately $316 million principal amount of our convertible debt using cash on hand of approximately $289 million.
A discount of 875% of face value.
Approximately $134 million of principal amount of 2024 notes are still outstanding.
We expect to retire using cash on hand on or before their maturity in December of 2024.
We ended the fiscal year with cash and cash equivalents of approximately $199 million.
Now I will turn to guidance.
We are reiterating the guidance for fiscal year 2023 that we laid out in detail at our recent Investor day.
We expect to grow revenue in the range of 6% to 7%.
Adjusted EBITDA in the range of $84 million to $86 million a margin of approximately 18, 5%.
Don't anticipate any significant growth in head count during 2023 and as such we expect that we will be poised to make additional progress towards the rule of 40 in 2024.
Our outlook for the first quarter of 2023 is as follows we expect revenue in the range of $106 three to $106 $7 million, reflecting year over year growth of approximately 6%.
This represents a sequential decrease from Q4 2022, which is attributable to a sequential decrease in nonrecurring revenue.
We expect adjusted EBITDA in the range of $1 8 million to $10 2 million a margin of approximately.
As you've seen in our historical performance, our Q1 profitability tends to be pressured by seasonal patterns of head count related costs.
Primarily the timing of payroll taxes.
In summary, the actions we undertook in 2022 to refocus our business and restructure our cost have positioned us well for 2023, both financially and strategically.
With that let me hand, the call back over to Dave.
It's Patrick.
Our $14 million increased in a R. R demonstrates we had a good quarter and a recurring business.
We also had a good quarter from both a new and existing customer perspective.
From a new customer perspective, we added 97, and total new enterprise customers in the fourth quarter of which 50, where C M customers, bringing our total customer count to 307.
Additionally, we generated 80 deals over $100000 in the period, which is up from 66 in the fourth quarter of 2021.
While we had strong deal velocity, we only had one deal over $1 million in the quarter and for over $500000 in the quarter. This compares to five deals over $500000 in Q4 of last year. The decline is primarily due to lower perpetual bookings in the quarter.
Our top five new customer wins in the quarter included two SaaS customers and three perpetual customers two of the new customers. We are in the government vertical one wasn't health care one was in retail and one was in construction development.
Two of the wins were <unk>, two were smart security wins and one win wasn't public warning.
As noted earlier, our perpetual license bookings, which achieved a record level for the year were lower in Q4. This fact, coupled with the strong perpetual deliveries in the quarter led to the lowered backlog, which we expected.
Moving on to sales to existing customers, we had another strong quarter of solution expansions.
Our top five growth deals, where all SaaS deals and they were all <unk> customers.
Two of the five were digital resilient customers and three where people and operational resilience customers.
Two were in the finance vertical two in pharmaceutical and one in construction development.
And the other expired exciting fourth quarter expansion was the Port Authority of New York, and New Jersey, which oversees much of the regional transportation infrastructure, including bridges tunnels airports and seaports, but one of the most populous regions in the country.
Closing out our commentary on AAR, our growth, we had our largest or our quarter over quarter growth of the year driven by our strongest quarterly gross retention rate in over two years. We are very pleased with both gross and net retention in the quarter.
Putting new wins growth deals and retention together, our AAR are in Q4 reached $384 million up $14 million sequentially positioning us well for 2023.
The share of total air are coming from customers up 250 care more ticked up slightly to 44%, reflecting the nice growth in agreements with existing customers.
In addition to our go to market successes, we continue to focus on simplifying our product offerings, and making strategic product integrations in order to increase our efficiency and velocity to improve profitability.
And innovation perspective, we recently introduced a new AI powered situational awareness tool digital apps insights to our digital operations solutions bundle. This solution enables incident commanders and resolve earth to gain deep visibility into it service disruptions and it helps organizations.
Save time, maintaining customer satisfaction deliver continuous service uptime and innovate.
From an implementation perspective, we are very proud of the fact that we successfully deployed the Norwegian public safety system in December that we were just awarded in September .
Along with the Norwegian government and our partners, we implemented the system in record time strengthening our reputation as the undisputed leader in this market.
This public safety solution will help keep Norway's more than 5 million residents and nearly 7 million annual visitors safe and informed in case of an emergency.
Norway is an innovative country and one of the first countries in the world to implement location based technology to inform and protect its people.
We accomplished all of the above while meaningfully improving our profitability and building our leadership team for the future.
We added several key individuals to the leadership team and to our board this past quarter.
Let me briefly introduce you to each of them.
In December Noah Webster joined as our Chief legal and compliance officer and corporate Secretary. He has over 20 years of legal experience, including negotiating agreements security compliance litigation and M&A.
<unk> is responsible for leading and managing our legal compliance and risk management programs at the company as well as our ongoing ESG efforts.
I've known now for several years from our time together at six and I am incredibly excited to have him on board with docs.
In January we announced the appointment of Brian Barney as our new Chief product Officer, Brian is responsible for leading Abra bridges global product development strategy strengthening our platforms and integrating our products is.
His extensive background in enterprise software and cyber security leadership positions working for companies like Red seal Symantec. So both the mcafee positioned him well to lead our product vision.
And last week, we announced the appointment of John to lay out as our new Chief revenue Officer, John is an extraordinarily customer focused leader who brings out the best in his teams and works to align the entire organization in support of the customer.
He also brings extensive international experience to his role John and I worked together, both that Zacks and entrust at ever Bridge, John will spearhead our go to market motions and focus our sales teams on growth.
And improving our overall go to market efficiency.
We also added two new board members, David Benjamin and Rohit Guy.
Both bring additional skills and experiences to help Shepherd our company through its next phase of growth.
David Benjamin is currently the executive Vice President and Chief Commercial officer for Black box his international experience and track record in accelerating public companies' commercial offerings will be invaluable to our go to market market expansion efforts.
Hey, Guy he is the CEO of RSA security and brings a deep cyber security understanding to ever bridge, which will further bolster us in one of our top focus areas of board governance and risk management.
It also has a strong product management background delivering technologies to market at scale, which will also be a valuable addition.
These leadership and board appointments further strengthen us as a team.
In summary, we delivered a solid financial performance in Q4, as we continued to make progress on our long term financial goals. We are implementing the strategy outlined during our Investor day in December and we are entering the year with a strong foundation to achieve our goals for 2023, we are building.
<unk> focused on delivering consistent profitable growth on our way to $1 billion in annual recurring revenue.
I look forward to updating you on our progress in the coming quarters, we're now ready to open the call for questions Anthony.
Thank you.
We'll now begin the question and answer session to ask a question in My Press Star then one on your telephone keypad.
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To withdraw your question. Please press Star then two.
Please limit yourself to one question and one follow up.
At this time.
Cosmo material to assemble our roster.
Our first question will come from Alex Sklar with Raymond James You May now go ahead.
Thanks, David and Patrick I wanted to ask how youre thinking about bookings velocity for 2023, given the macro is part of that 6% to 7% revenue guide outlook should we think of IRR or RPM growth that should track should that track kind of that revenue growth framework. Thank you.
So that's a good question.
The first thing I think about it in terms of the bookings as bad as the normal seasonality and so we're entering Q1, which tends to be our lower.
Quarter of the year.
When I think about it I think about the E. R. R velocity that we're generating in these deals.
$100000 in blow and those are things that really give me.
Confidence looking forward and you know I combine that with for me the highlight of the quarter personally.
Was that gross retention rate.
Returning to its highest level in two years, but from a bookings velocity perspective, where we're really focused on add on there on the recurring bookings our pipeline for perpetual deals.
It remains solid.
But as you know those those large government deals are more inconsistent.
Timing.
Okay, Great and I guess, Patrick it's kind of a somewhat of a related question, but given the increased focus on.
Can you help frame kind of the embedded growth.
In the 'twenty three outlook.
Are you thinking about from <unk> versus maybe mass notification or other parts of the business.
Well, Hey, Alex you see in the results from Q4 cm is really helping to propel the business.
Yes.
Evolution of the ways in which businesses approach resilience.
Is that driving a more digitized approach and we're the leader in the space.
No.
We had a great <unk> quarter, we're continuing to focus on.
Platform adoption and moving customers up the CGM stock.
Mass notification is also very important but that's a piece of CGM and we really want to be focused on the amgen before it.
Okay. Thank you both.
Our next question will come from Matt Stotler with William Blair You May now go ahead.
Hey, good morning, Thank you for taking the questions maybe first on the C. M. Net adds obviously, you're very strong in the quarter about 50.
Nearly to ask anything you've seen prior in terms of a quarterly.
Quarterly adds an acceleration in terms of the year of your growth rate will also get some more color on whats working there on the <unk>.
Standpoint, and then just something Thats attributable more to Q4 seasonality or is this a structurally higher capacity when you think about the ability to grow the CPM cohort.
With the recent changes you've made in the business.
So that's a good question yeah those ads are.
Probably the focus area.
Of our go to market strategy, especially as we're aligning into 2023 were <unk>.
Paying particular attention to.
Propensity models.
Account based marketing for new <unk> wins as well as.
Driving the expansions of our existing point solution customers up into the yeah. Yeah. One of the things that that worked well in Q4 as I noted before the migrations of the risks that our customers and to see that.
That program kicked in in Q4, we expect that to be a steady contributor throughout the course of.
2023, and then.
Related to that at a more macro level I'm not so concerned.
About.
Yes.
Versus new customer wins, we know from experience that once we get a customer win into.
Into the <unk> family the expansion happens as they mature there.
Resilience strategies, so we remain.
Also I am excited about point solution wins that will grow into CGM over time so.
It's a really important indicator you know I won't be surprised if we have quarters that move around.
A little bit as we continue to execute the strategy and I'm, probably answering somebody else's question, but you know one of the things in it.
I think you're you were asking about is just overall capacity.
For delivering <unk> predictor, but deals of all kinds and we highlighted in November . The fact that we did take some sellers out of the organization.
Yeah.
In early mid Q4.
And we talked about that 6% to 7%, allowing for some reduction in <unk>.
And capacity theoretical capacity from those sellers.
As we lean into 2023, we're really focused on.
Yeah.
Retention of our of everybody in the company of course, but those quota bearing reps that retention in the expansion of capacity thats going to come through tenure and so we're making good progress on on that Okay are as we are you know kind of hit the midpoint of Q1, So that's a.
A really long answer to a straightforward question does that help you Matt Yeah. That's super helpful. I appreciate that.
A follow up.
At this point you mentioned that you are substantially done with the workforce restructuring.
Talked about so far when you look at the technology side of things and the continued.
Our continued efforts to integrate everything both of them back and the front end.
We kind of continue moving towards this as true platform model.
Could you give an update on where you are in that process and maybe the updated timeline for completion on that front as well.
Yeah.
I'll hit that in two ways, one I'm really pleased with the teammates who worked with me in that brief interim chief product officer that I did with that along with it.
Wow you Matt.
At Investor Day.
Also very pleased with the addition of Brian Barney.
To the leadership team has experience, particularly at Mcafee, but also.
Other companies that.
Where he has been he has so much pattern recognition from those experiences with building platforms Inc.
Incorporating acquire technologies and so he is early in its journey, but I'd just tell you I'm already really impressed with how he's.
Digging into the technology <unk> digging into the platform.
Arc of capture and further aligning the team to enhance our velocity so.
We still have a.
Lot of wood to chop, but I am really confident.
Yes, six months into my journey and six weeks into Brian's journey that we've got the right team and the right things moving forward from a product platform perspective.
Great. Thank you very much.
Our next question will come from Brian Colley with Stephens you May now go ahead.
Hey, good morning, guys and thanks for taking my questions.
Over the last couple of quarters. Your messaging has kind of suggested the macro wasn't really having a material impact on the results I'm curious whether or not that was still the case in <unk> and today and.
Kind of how the sales pipeline trended throughout the quarter.
And how you would characterize the demand environment today.
Yes, that's a really good question.
Yes to me the key indicators.
From the script we're.
One that increasing velocity and the Hunter K K deal range.
Yeah the interesting.
To me.
The other number was the four deals over 500, K versus five a year ago and actually.
It's down quite a bit from the Q2 Q3 quarters.
So that larger deal.
<unk>.
Slowed a bit.
In the quarter.
Yes.
And that and then the third piece that I am really getting to me the highlight of the quarter was.
The gross retention number.
Getting back to.
Our multi year high so we add.
It's 90 days later, we remain really confident in the 6% to 7% baseline growth, which we built as youll recall not accepting an overly robust.
Outlook.
As we look forward into 2023.
Got it.
And then for a follow up.
I was wondering if you could just provide an update on where you are with regard to divesting or end of life ing the noncore assets.
<unk> talked about the remaining four to 8 million there are.
How much of that.
Alright.
How much of that.
Impacted for Q 'twenty two.
Are you, including any revenue from those assets.
<unk> guide and.
For the full year as well.
Hey, Brian It's Patrick.
There was no impact in Q4, we do have a divestiture under LOI that we.
Are on track to execute shortly here over the next couple of weeks.
And that's a few million dollars of they are we have a couple of smaller opportunities that we're looking to execute on by the end of the quarter and throughout the year. We will continue to work through the portfolio analysis, Dave as Dave mentioned, Brian is onboarding applying a fresh set of eyes and I anticipate throughout the year.
We continue to have opportunities that will take advantage of.
In order to find better homes for certain assets.
And our guide.
Yeah. It does anticipate that there could be some potential headwinds.
Headwind related to divestiture, but these are all these are all relatively small that was part of the bridge that we provided at the Investor day from 2022 growth to the guide for 2023 Rev.
Revenue growth of 6% to 7% there are.
There is $4 million to $8 million of IRR that is up for potential divestiture is that we've identified today and we've got.
Just shy of half of that under LOI as we speak.
Okay got it.
Thanks for the time guys.
Yes, Thank you Brian .
Our next question will come from Michael <unk> with Wells Fargo Securities You May now go ahead.
Oh, you got Michael Berg on for Michael churn Congrats in the quarter I want to dive into what's baked into guidance specifically your rule 44 implied for the year. It is a tick under what you just performed in fiscal 'twenty. Two so maybe walk us through if there's any level of conservatism whether it's from.
Macro or sales pipeline, how are you doing on the cost side. So you can walk us through thank you.
Yeah Joe.
The biggest contributor to that difference is the.
The acquired revenue.
So the inorganic growth that we had.
Had in in the revenue number last year.
There's not an exact pinpoint on that but that's where we kind of walked through the 21 $19 17.
<unk>.
<unk> thousand 14% ending.
Revenue growth rates and so that's kind of the first big jump off is we're entering 'twenty.
2023, with a purely organic.
Yeah.
Growth rate and then of course, we built in or are we just talked about the $4 8 million of which 4 million or just under four has already been asked.
Under LOI, it's out of the AAR, our number it's out of the revenue guide.
So that remaining would be zero.
Five in our in our.
What could come out for future divestitures, such as Patrick said those would be small.
We have that lapping of large customer so you'll have that detailed waterfall from the investor day that kind of brings you back and then the I guess the other one is planning for flat one time.
<unk> software and SaaS year over year, so the combination of those five factors.
Brings at waterfall to gather from.
Last year's overall growth rate to that baseline 6% to 7%.
<unk> had.
Guidance for 2023.
Just real quick on the cost side.
The restructuring actions that we took.
Already.
During 2022 will improve our profitability in 'twenty three relative to 'twenty, two and we will continue to be optimizing the business throughout 'twenty, three and that will set us up for continued improvement in profitability. We expect as we head into 'twenty. Four so we've taken a lot of cost actions that will improve profitability cash flow and states.
We have to work worked through some some comps on revenue, but you see what the <unk> growth that we do think we're moving in the right direction for the long term.
Thank you and a quick follow up on the <unk> seasonality.
We have the last four quarters now in terms of net new additions can we think of.
These types of levels being the typical seasonality for EUR progression throughout the year, So pretty similar from Q1 to Q2 in Q.
Q2 to Q3, a nice big jump in Q4.
So Q4 seasonality a good quarter right. So.
We are pleased that we had the highest quarter over quarter growth of the year.
Yeah, those are those being the last four quarters <unk> printed the 2022 quarters.
Are the only quantico.
Quite a quite good numbers we have.
Going forward as we did that.
Going back and re recreating our numbers, we did not go back into with the level of that.
Bob.
Tying back into the prior year, so we're going to be.
Having good year over year compares beginning next quarter.
But at the highest level, we would expect that Q4 bump to be that to be the.
The highest kind of quarter over quarter bump.
Bump it a year and then but as you know <unk> it should be pretty stable.
Indicator.
The predictability of the business as we as we move that steadily steadily upward throughout the course of the year.
Yeah.
Our next question will come from Terry Tillman with <unk> you May now go ahead.
Yes, Thanks for taking my question and a follow up maybe Dave for you in terms of the risk center migrations. It sounded like that was kind of a.
Our newer kind of play our strategy there was unfolding in may have benefited for kids.
Could you give us a sense on just.
The size and scope of that opportunity as we progress through 'twenty, three and is that going to be something that lingers in a positive way into 24, just a little bit more on how the risk center migrations could help some of the kpis stalled in 'twenty three.
Yeah. That's a good question Perry and so we talked about that last quarter. The total population.
Entering last quarter was 175 target customers.
We successfully migrated about.
10 of them last quarter, that's the pace, we expect for the next couple of quarters as we are digging into those customers.
There is there is a little more.
Reticence to move from on Prem to the cloud than than we had expected we're going to focus on moving that cohort.
With.
If retention goal number one growth goal number two and you know cost savings getting them gone as objective number three so I expect.
To be that to be a pretty steady.
Uh huh.
No opportunity to move customers and drive a or our growth is as those moves that through the course of 2023 and then I also do expect to linger into 2024.
Okay got it Patrick.
This is something I missed.
Simple question simple answer, but in terms of the total mix of business that's perpetual license.
What's the assumption for 'twenty three as opposed to what happened in 'twenty two thank you.
Yeah.
Hey, Terry right now, we're anticipating about flat in 'twenty three relative to 'twenty two.
22 was up about 20% from 21, so it was.
The delivery of nonrecurring licenses.
As well as a lot of our services, which are which are nonrecurring we had record amounts in 'twenty two specifically in Q4, we don't anticipate setting new records as we enter 'twenty three.
Yeah.
Okay. Thank you.
Our next question will come from Ryan Macwilliams with Barclays. You May now go ahead.
Thanks, taking my question and good to see strong winds and cm larger customers along with the sequential improvement in IRR, Patrick how should we think about the year over year growth in <unk> for 2023 as it relates to the revenue guidance.
Well.
Hey, Ryan.
We don't guide to IRR, but.
We are as we continue to.
Focus the business.
On <unk>, we mentioned at our Investor day on critical event management.
And on our behalf of getting 1000 customers to 250, <unk> greater and working with their existing base to move them up the stack. We wanted we want to see a growth in double digits and as we work through headwinds in terms of lapping the nonrecurring revenue.
We anticipate that that will translate into into similar pace of revenue growth. So that's going to take a number of quarters as we work through all of that.
Excellent and just on the free cash flow side anything to think about as we move past the workforce restructuring or maybe just any differences about how the free cash alone could play out in 2020 three versus one time deal.
Yes, yes, no major differences in the timing in 'twenty two with.
Was a little unique in that in Q3, we had a lot more operating cash flow than we usually do in Q3 than we are.
Some things happen in Q3 that would typically happen in Q4, but in terms of the full year.
Yes.
Then.
Result was what we had anticipated in <unk> and.
2023 will be higher the restructuring cash outflow will be.
Almost entirely wrapped up in the first half of 'twenty three.
And we.
We will continue to call that out so that you have clear line of sight to it.
But beyond that as our adjusted EBITDA grows our operating cash flow will grow and our free cash flow will grow in the major.
Differences between operating and free cash flow will continue to be the capitalized software development and.
And that's something that will remain relatively static in 'twenty three.
Compared to 22.
We should the color okay.
Yes.
Our next question will come from Parker Lane with Stifel. You May now go ahead.
Hi, This is Matthew on for Parker, Thanks for taking my questions.
To start you mentioned record.
Gross.
Retention rates, despite reducing head count I'm, just wondering kind of what led to that combination of outcomes.
And <unk> not seen a decline in that rate and do you expect that to continue into 2023.
Yeah, that's a great question Matthew Thank you so that it was.
No not an all time record, but the highest in two full years.
I really point the primary piece to the board's decision to pause material M&A and then our execution as a leadership team.
Really getting.
Our arms around every customer renewal, whether it's legacy ever bridge, our newly acquired.
And.
So I do expect.
Yeah, I think that's the third important piece was that the customers are using our solution.
And liking it and retaining it so I think.
There were just a couple of bad maybe 100 basis points of execution.
The improvement the team was able to two.
To gather and.
As a pause material M&A and got the acquired cohorts really.
In command than that and the customer success motions.
The company has used for years around its core cohorts.
And then some just some real specific great execution.
Uh huh.
By the team that I am pleased about but I do expect.
Has to be off the lows, we saw mid last year.
Don't expect us to be gone back.
Back there so.
I leave the Q.
Four number extremely pleased with with that and expecting.
No improvement from where we were at.
Audit for Q2, and Q3 last year to continue.
Got it and then secondly is there any specific product in the portfolio do you want to call out that kind of led to growth in the quarter or was it just general excitement in the <unk> portfolio.
The woman that debt that bubbled up and when I gave those top five existing and top five news the digital resilience.
Had a strong performance.
In the quarter.
So I was I was pleased by that.
Yeah.
But the overall CGM portfolio and that broader.
Need of our customers to digitize enterprise resilience.
That's the core driver, but inside the portfolio I was pleased with the digital resilience.
Especially on the new win side in that in the quarter.
Terrific. Thank you very much.
Our next question will come from Mike Latimore with Northland Capital markets. You May now go ahead.
Alright, great. Thanks.
And in terms of the CDM deals I think you may have given this but how many came from new versus existing customers and then what does the pipeline look like for kind of new versus existing.
We don't break it.
New versus existing I did give a kind of a little.
Mean back towards Terry Terry's question on.
Can that move from <unk> to those migrations. So we're being real intention at all if you remember the wheel from Investor day that second quadrant. So we now have that 307 existing.
Which is great and then the next cohort those migrations.
But still down on that on that lower left hand side, new customers are important we had two of our top five.
Sized wins in the quarter were <unk> I think that's good obviously, the perpetual deals are going to tend to be.
Bigger deals that will be calling out in the top five but we had some nice large new customer wins and of course that momentum and hunter the velocity in that 100 K deal range was also.
A contributor over time at a big average again, if you remember the investor day going around that wheel.
Would be expecting.
Yes, two thirds to 80% of the CMS to be growth of existing.
With the remainder coming in through the new customer acquisition and that will again vary quarter over quarter, but that's the high level five year pattern that were.
Work stack them.
Yes.
And then these are record cm deals.
Presumably they get the full reflection on revenue in the first quarter. So does that suggest maybe first quarter anr growth.
Sequentially it could be as good as what you saw in the fourth quarter.
I want to make sure I had that so that the deals they do get deployed relatively quickly and so they do go into the AOR snowball and do begin to amortize out relatively quickly and so those perpetual deals that can have.
Nor way one was a really strong example will be closed in September and had it fully implemented by December but that's it's probably more that's kind of the exception not the rule, it's more of a 180 days.
On those perpetual so yes.
Yes, you guys have all been around SaaS business is a long time.
The <unk>, we're going to go into <unk>, and <unk> kind of come out into revenue.
Great.
With very little.
And with very little delay.
Okay, and then just lastly, you talked about.
Maybe a fewer of the 500000 deals is a reflection of the macro perhaps.
What about just sales cycles generally any change in sales cycles.
No like I said the velocity was strong in fact I looked at that.
Yes, both the C M number and the over 100 K number so as indicators of the underlying velocity, but yeah.
It's one quarter, we were down.
It's one quarter, it's not a huge number but you were down from five deals over 100, K in the quarter a year ago to four.
Oh, I'm, sorry over 500, K from five deals down to four and so that you know that.
I'm, just putting all of that in the Shaker and that really good gross retention.
Good still good very good velocity in the AR.
In the mid five larger deals again in this quarter, a little lower on the large deals.
Okay, great. Thanks.
Yes.
Our next question will come from Koji Ikeda with Bank of America.
You May now go ahead.
Hey, guys, Hey, David Hey, Patrick Thanks for taking the questions I wanted to ask you a question or a follow up on the sales capacity commentary earlier, just taking into mind the reduction in capacity last year.
<unk> growth this year.
But it sounds like the demand in <unk> and sales execution execution was pretty strong.
I guess the question is what are you looking for from a demand perspective. This year, where you may accelerate the pace of expanding sales cut sales capacity from here.
Yeah.
Yes. So that's yeah that is a really good question and.
Yeah, I think you're asking at the exact way that we're thinking about it as a leadership team and our go to market team and so.
Yes, we took out quota bearing reps with.
I guess with intentionality and with caution and the.
The Subtractions, we're largely in the reps who are focused on the smaller.
On the smaller deal sizes.
Yes.
Potentially impact.
A number of new customers, especially as we scale.
Sales generated pipeline for those reps.
It comes out quarter over quarter.
But the real opportunity here in the first half is.
Arresting the departures and improving rep retention, which.
Wherever we are now six weeks into the quarter.
As well as from beginning July last year, we're making really good progress on that on that Rep retention that's thing one to address.
And that.
Provides all of the.
Expansion of capacity that we'd be planning for.
We look forward, we want to grow that capacity, so we want to be back into.
Hiring quota bearing reps as we turn that turn the page later this year into next and that's that we're gonna be evaluating those decisions carefully based on.
Our sales efficiency progresses throughout.
Q1, Q2 and into Q3.
Got it thanks, David and just one follow up here looking at the <unk> revenue guide. It is down sequentially you mentioned gross retention back to the highest in two years.
Also mentioned a couple of planned divestitures. So so understand all of that but maybe help us understand any additional puts and takes beyond that that would cause the <unk> revenue to be down sequentially anything particular to call out from them at that I'll, let the yeah. Yeah. Thank you well I'll, let Patrick I'll, let Patrick take the details that we've been disclosing.
I think beginning at Q3 the split between.
Revenue in the quarter rounded to the nearest million between.
Recurring.
<unk> when you look at that stack Bar chart.
We had a really strong really strong Q4 at a pretty strong Q3 and so.
So that combined with the.
The lower perpetual Q4.
That's the biggest difference youre going to see steady steady growth in our recurring revenues and that and seasonality in that perpetuals, yes. So in the.
Hey, Koji it's Patrick.
117, there were there was well over $16 million.
One time revenue.
In Q4.
And Q1 is just not gonna have.
Anywhere near that amount so you see what the AOR growth.
Subscription and recurring businesses is continuing to grow but that one time.
Set of revenues is very lumpy and youll see in the 10-K that.
We anticipate filing by the end of this week that in 2022.
That one time revenue amounted to over $35 million. So it's on the one hand 35 out of 432, its not a huge percent, but but it is lumpy and it creates it can create some noise and just as you saw.
And the transition from Q4 dollars 21 to Q1 'twenty two.
Uh huh.
A lot of times those onetime deliveries they land in Q4 and they don't land in Q1. So we had a sequential decrease coming into 'twenty, two and we will.
I have another one coming into 'twenty three.
Got it thanks, guys. That's super helpful. Thank you so much.
Yeah.
Okay and then do you have a question. Please press Star then one our next question will come from Kash Rangan with Goldman Sachs. You May now go ahead.
Hello, Thank you very much David and Patrick David question for you, it's been probably what seven eight months since you joined as CEO .
That's been enough time to conduct an extensive review and congrats on the quarter by the way.
I'm curious to get your take on what elements of the old strategy.
We're actually working that you expect to harness and invest in and what are the elements of the new strategy that are that you hope to implement that will get the path to the billion dollars from revenue that you've clearly.
Clearly outlined.
That's good. Thank you so much yeah. Thank you kash.
Yeah, I hope it's coming through.
Really loud and clear that it's.
It's building out this recurring revenue and focused on the value creation that comes from that is.
Is the difference.
It really to me the key strategic.
Shifts that we've made I remain really bullish and I say that and I remain really bullish on our public warning public safety and smart security products those.
Really.
Fantastic value there is definitely synergy with the with the rest of the portfolio. So yeah thing one is focusing on that recurring revenue and make sure. That's the focus thing too is.
Strategically bringing together.
In the right way.
The full suite of our products and to me the good thing.
The bad thing about what the company has done is just a lot of M&A relatively close together. The good thing is that everything hangs together the customer demand that customer synergies.
C L.
We're going to be able to bring this together.
Retaining our leadership position with the broadest set of solutions in the <unk>.
Base.
And with this modest divest the charge that we've talked about that the four to eight which.
Should drop to zero to four and a half or so.
With the divestiture under LOI that we pulled out so anyway.
To me if that that big.
The $1 billion.
And and growing those customers through cross sell.
<unk> and <unk>.
And new customer adds and just staying really focused on that.
Got it really well balanced business model. Thank you so much.
This concludes our question and answer section.
I'd like to turn it comes back over to Dave Wagner for any closing remarks.
Well again I. Thank you all for participating with us today and I look forward to speaking with many of you throughout the course of the quarter and updating you again.
After Q.
Q1 is complete and thank you all very much have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.