Q3 2023 Everbridge Inc Earnings Call
Good afternoon, welcome to the ever bridge third quarter 2023 earnings Conference call. My name is Jason and I'll be your operator today.
Following management's remarks, we will open the call for your questions 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 Vice President of Investor Relations Northern Lady Sir. Please proceed.
Thank you, Jason and good afternoon, everyone welcome to other bridges earnings call for the third quarter of 2023 with me on today's call are evergreen President and CEO, David Wagner and executive Vice President and CFO, Patrick Brickley. After the market closed we issued our earnings release and supplemental materials, which can be accessed on the <unk>.
IR page.
I got to have a big job 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.
On 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 discussed in our forms.
10-Q, 10-K, as well as other subsequent filings with the SEC.
Information provided on this call reflect our perspective.
Today and should not be considered representative 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'll refer to certain non-GAAP financial measures a reconciliation of our GAAP to non-GAAP financial measures to the extent reasonably available is included in our earnings press release, which you can find on our Investor Relations website.
Our earnings press release includes highlights from our third quarter of 2023. 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.
Please turn to call over to Dave <unk>.
Thanks.
And good afternoon, everyone. We delivered solid Q3 results, including revenue of $114 $2 million, an increase of 3% year over year, adjusted EBITDA of $23 $7 million, an increase of approximately $9 million and 56% from a year ago and annual.
Recurring revenue of $399 million up $4 million quarter over quarter, and 8% year over year.
These results align with our strategy of enhancing shareholder value by prioritizing increasing ear are more valuable with great part of our business and growing efficiently and profitably to achieve our goal of reaching the rule of 40 by 2027 and enhancing our go to market approach evidenced by the Q3 improvement.
In this context subscription revenues of $104 $3 million grew 8% in the third quarter.
Revenues from progression professional services perpetual software licenses and one time services were down $4 $7 million or 32%, bringing total revenue growth of 3%.
Alright, and one time revenues that you're prioritizing recurring revenues and it changes in the macro environment.
Large deal opportunities.
Efficiency wise, we improved adjusted EBITDA by 56% year over year or eight $5 million, while also absorbing the $4 7 million a decrease of professional services and one time revenues.
Our efforts to enhance efficiency, allowing us to reduce costs, while continuing to enhance our product portfolio.
Improvements we are seeing in our third core resolve that we believe demonstrate the progress we are making to increase our growth rate in 2024 are as follows.
Q3 was our highest bookings quarter of the year, both for recurring and one time bookings to our sales productivity improved 11% quarter over quarter and 68% year over year three our average transaction size increased again quarter over quarter to the highest level of the year for our total network Trans.
Actions remains consistent with last year and by our total pipeline is continuing to build.
During Q3, we supported our customers through a range of critical events, including heat waves wildfires Hurricanes and geopolitical unrest, we supported states and countries around the world with life saving alerts in the base of unprecedented heatwave and wildfires. This summer we delivered million.
The messages to floridians, leading up to during and after hurricane ideal yet to support their life safety and recovery golf and more recently as a result of the conflict in the Middle East as a result of geopolitical unrest, we're assisting multinational businesses with critical situational awareness and risk intelligence to Keith.
Our employees and travelers safe and to keep their businesses running efficiently the value of the Arab bridge platform has never been more apparent.
We also just published our inaugural sustainability report that is posted on our IR page I'm delighted with the progress to have a big bridge is making in this area showing our commitment to developing new policies and processes to align our strategy and operations with key sustainability principles.
I am pleased with our progress, especially improved bookings traction we demonstrated in the third quarter now I'll turn the call over to our CFO Patrick Brickley provide further details on our financial results and outlook Patrick.
Thanks, Dave.
During the quarter, we saw a healthy year over year increase in our profitability metrics.
This increase reflects the substantial ongoing improvements that we're making to operational efficiency across all areas of our business.
Work that we intend to continue as we drive towards profitable growth and rule of 40 by 2027.
I will now discuss our results for the quarter in more detail.
For the third quarter, <unk> increased to $399 million up 8% year over year.
Revenue was $114 $2 million up 3% from a year ago subscription.
Subscription revenue was $104 $3 million up 8% from a year ago, while non subscription revenue of $9 $8 million was down 32% from a year ago.
Our gross revenue retention rate was consistent year over year. However, it dipped slightly relative to the first half 2023.
Primarily due to a bit more renewal contraction than we've seen in recent quarters.
We signed 44 deals over $100000 down from 75, a year ago that said as Dave mentioned.
In Q3, our average deal size rebounded relative to what we saw in the first half of 2023.
GAAP gross margin was $81 million or 71% margin compared to the year ago period result of $76 million or 68% margin adjusted gross margin was 74% compared to 73% a year ago.
GAAP net income was nearly $2 million or negative <unk> 23 cents.
Diluted earnings per share compared to the year ago period in which we generated a net loss of $22 million or a negative 56 cents of earnings per share.
GAAP net income in the third quarter benefited from a nearly $13 million gain from retiring debt early and at a discount.
This gain was partially offset by an $8 million charge related to our legal dispute with certain former shareholders of anvil.
non-GAAP net income was $20 million or <unk> 46 cents of diluted earnings per share compared to the year ago period's net income of $12 million or 27 of diluted earnings per share.
Our adjusted EBITDA of $23 $7 million represents a 21% margin compared to the year ago period, as a result of $15 $2 million or 14% margin.
Cash flow from operations was an inflow of $17 million compared to the year ago period of $18 million and adjusted free cash flow was an inflow of $15 $5 million.
Paired to the year ago period of $15 $4 million.
Our liquidity remains in a healthy position.
We ended Q3 with $105 million in cash cash equivalents and restricted cash.
Down from $201 $6 million at the end of 2020 two.
In the third quarter, we used roughly $130 million of cash to repurchase $145 million of outstanding convertible debt.
In doing so we locked in a desirable yield to maturity and we reduced our net debt to $263 million down 22% from a year ago.
Our debt repurchase reflects our confidence in our increasing ability to drive positive cash flow.
For example year to date adjusted free cash flow has increased nearly 300% year over year.
And we will continue to see further year over year improvements in our cash flow in the quarters ahead.
We will have more than enough cash to retire the $63 million of debt that will mature in December 'twenty two before.
To address any potential outflows related to the anvil legal dispute.
And to continue to fund investments in growth.
Moving to guidance.
We are revising our guidance for the remainder of 2023 a.
A reconciliation of our updated guidance to the guidance, which we gave last quarter is provided on slides.
<unk> 26, and 27 of our quarterly earnings Investor Relations presentation, which you can find on our Investor Relations website.
For the fourth quarter we.
We anticipate results, which will reflect the same pattern that we experienced in Q3.
<unk> year over year growth in subscription revenue.
Continued decrease in non subscription revenues.
And continued improvement in profitability.
As I describe our revenue outlook for the fourth quarter I will talk separately about subscription and non subscription revenue.
We anticipate subscription revenue of between $104, six and $105 million up 3% year over year.
The year ago period.
Included roughly $3 million of subscription revenue from entities that we have since divested and subscription amounts that were recognized on an annual basis during the year ago period.
Not have the same timing this year.
This range is illustrated on slide 27 of our quarterly Investor Relations presentation.
This outlook for Q4 subscription revenue reflects sequential growth of <unk>.
Between 0.3, and zero point $7 million.
Our subscription revenue in the third quarter included roughly $1 million of subscription revenue that is recognized on an annual basis and no such subscription revenue is included in our outlook for the fourth quarter.
This bridge is also illustrated on slide 27 of our quarterly Investor Relations presentation.
We anticipate non subscription revenue of between $9, four and $10 $5 million.
Down from nearly $16 million in the year ago period.
This Q4, a decrease of non subscription revenue is larger than what was reflected in the outlook that we provided in August.
In particular are linked to macroeconomic factors. There are a few on premise sales opportunities, which we now expect to deliver in 2024, rather than our recent projection of fourth quarter 2023.
Therefore in summary, we anticipate total revenue for the fourth quarter to range between 114 and $115 $5 million.
Which reflects a year over year decrease between 3% and 1%.
We anticipate a GAAP net loss of between $6, three and $5 $1 million.
non-GAAP net income of between 21, 5% and $23 million.
Diluted earnings per share of 48 to 52 cents.
We expect adjusted EBITDA to be between $25, six and $27 $1 million a margin of 23%.
We remain well on track with our plan to generate continuous year over year improvement in quarterly adjusted EBITDA and adjusted EBITDA margin.
The pressure that's created by our revised outlook for non subscription revenue.
Moving to full year guidance for 2023, we now anticipate total revenue in the range of 447 to $448 $5 million representing year over year growth of 4%.
Within that we anticipate subscription revenue of between $409 five to $409 $9 million representing year over year growth of 7% and we anticipate non subscription revenue between 37, five and $38 $6 million.
Representing a year over year decline of 18% to 21%.
We expect a GAAP net loss of between <unk>, 34.3, and $33 1 million and non-GAAP net income of between 66, and $67 $5 million or between $1 48, and $1 52 of diluted earnings per share.
We expect to deliver adjusted EBITDA in the range of $83 $5 million to $85 million, representing an adjusted EBITDA margin of 19% at the midpoint.
In summary, we continue to make progress towards our goal of increasing our our more profitably.
Taking an early look ahead to 2024.
We are committed to expanding our profitability.
And although too soon for forecasting GAAP profitability, we expect to grow our full year adjusted EBITDA by roughly 25%.
We remain confident that we can deliver the targets laid out at our December 2022, Investor day, making disciplined growth first investments that will drive steady progress towards the rule of 40% by 2027.
I will now turn the call back over to Dave.
Thanks, Patrick.
In Q3, we delivered our basketball King's performance of the year, while still down compared to last year.
A recent recovery underscores the ongoing improvements we've made to our sales productivity.
The more our pipeline and especially the large deal pipeline has continued to expand as the year has progressed.
Notably in Q3, we successfully closed four deals over 500, K, which was three more than last quarter and we closed one deal over $1 million also marking a sequential improvement.
Our largest new client in the quarter was a smart security deal for shipping port and the Middle East.
Among the remaining top five deals three were new <unk> customers, including a federal government Department and Australian Bank and a large international charitable organization.
Significant new client with an enterprise mass notification win.
Regarding growth deals our two largest E elsewhere government add ons wanted state level emergency notification win and the other in the U S Federal space.
We also have a large smart security cross sell into a C E M accounts.
Do you see them extensions round out the top five add on deals.
In total we added 32, new <unk> customers in Q3, bringing our total CDM customer cat 400 within box.
While average deal sizes are smaller this year, we are maintaining a healthy mix of new Ambrose.
Do you have customer wins.
In terms of retention gross retention was slightly lower than the past few quarters consistent with the same period last year.
Nice sequential increase in churn was due primarily to increased renewal contracts.
No.
We're pleased with the progress we've made executing our go to market strategy, the underlying macro confirm our growth path our sales upward.
Representing their productivity is rising our forward pipeline indicators show traction.
We're successfully adding a balanced mix of new and grow Cen Cosmos.
And we're also reinforcing our strong market position customer feedback assure that we're on the right track our high customer satisfaction solid renewal rates and positive response to our product enhancements are all indicators of the market improves we are anticipating a corresponding growth in book gains in 'twenty.
<unk> talked before in the current environment, our execution is improving and <unk> remains the market leader.
In summary, the third quarter demonstrated the other step up in profitability of $9 million.
As a percent year over year, we're delivering stronger bookings for us sequentially as a result of increasing deal size and improve sales productivity. We're confident that we are well positioned to deliver a year over year.
Okay.
24, which will contribute to increasing E. R. R broke place later and we are also confident that we can grow our adjusted EBITDA by a further 25%.
Bob.
In closing I want to emphasize our steadfast commitment to our customers and achieving resilience we are living in uncertain times.
Organizations and governments are prioritizing the safety of their people and the continuity of their operations.
Our <unk> team is innovating to help organizations monitor risk more comprehensively than ever before and took a biomass situational awareness with a market leading platform for managing critical events.
Empower a more resilient world.
I will now turn the call over to the operator to facilitate the question and answer period.
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.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we'll pause momentarily to assemble our roster.
Our first question comes from Alex Sklar from Raymond James. Please go ahead.
Great. Thank you Dave just on your confidence on an improved bookings outlook I realize there's still some important weeks ahead. This quarter, but historically Q4 is your largest bookings quarter in terms of kind of sequential AOR growth can you just talk about your level of confidence or visibility that's going to continue again. This year and then just a little bit more color on your confidence at the end of the prepared.
Remarks in terms of improved bookings activity next year, assuming no macro improvements.
Yeah. Good question as I pointed out our pipeline has been improving sales productivity is improving.
The average deal size.
Is improving at <unk>.
<unk> sequentially, our strongest quarters and other kinds of things.
It gave us confidence as we head into Q4 and think about.
Year over year. They are our improvement we're still cognizant that Q4 of last year was strong.
Quarter, particularly a strong.
Yeah quarter for AOR growth. So we're not expecting the same kind of strength, we saw last year, where we are.
<unk>, a great quarter as we look forward into 2020 four.
That's where.
The comparable and sequential.
Improvements give us confidence we will continue to see sequential improvement.
In June 24, we had a tougher comparison together with <unk>. So it all works of course, it takes a couple of quarters.
Our growth rate.
Moody's moving up rather than down so that's what we're already doing those remarks and thank you for the follow up question.
Alright, great color, there and then I don't know, Dave or Patrick in terms of the comments on the higher renewal contraction can you just elaborate on what's driving that is that macro related to the competition and did that continue through kind of October or was that kind of isolated to the third quarter.
Hum.
It was isolated to the third quarter he had been really consistently.
Good.
You're running a contraction within the band that kind of a whole.
1000, <unk> within a band of about a couple of hundred thousand up and down quarter over quarter.
It wasn't a huge increase but there was an increase in the third quarter.
You bet.
We think it's Lawrence.
Largely.
Yeah and strain.
In the third quarter it was.
Largely headcount related but there was.
You have some customers who contracted services. So I think it's also a bit indicative of that sort of a budget pressures we've seen in our clients throughout the year.
Alright, great. Thank you for the color.
Yeah.
Our next question comes from our June <unk> from William Blair. Please go ahead.
Hi, This is Chris on garage and thanks for taking my question I'll circle back to sales productivity, it's great to hear about some of the improvements there.
What would you point to as kind of some of the key strategies that the most effective in delivering these improvements.
Yeah.
Well.
You know, it's a team effort when that happens.
One of the key things that's happened and we talked about last core.
Whereas the sales tenure improve Android continued to have great retention.
Of our Salesforce and that's one of the strongest.
Statistically correlated evidence we have and so I think that it's may one the marketing team.
It has really gotten much tighter grew swing.
The last couple of quarters and so we're seeing.
A lot more efficient lead generation.
It is also supporting the sales team.
Team members are as they are onboard and then sales execution is a journey and where we.
We're journeying through it but you know just give John a lot of credit.
Second.
Full quarter.
Getting the team aligned.
Our next question comes from Brian Colley from Stephens. Please go ahead.
Hi, guys. Thanks for taking my question here.
On the updated guidance was the reduction in sales.
100% from the one time revenue or was there any change in the subscription outlook there.
Hey, Brian This is Patrick.
The midpoint of that basically brought it down by about $3 million and you could think of that as $2 million from non subscription and $1 million from subscription.
The story over the year has really been the non subscription, but when you look at subscription we began the year roughly with guidance of call it around $411 million, which is up 7% year over year.
And then our Asp's.
Ted.
To come down.
Early in the year, which was a headwind, but we were able to offset that with improved retention year over year and just now.
You put all that together and we're exiting the year, we're looking at $410 million, rather than 411, 7% year over year, but it is down by $8 million.
Okay perfect.
Very helpful. And then Dave one for you I'm curious kind of where you stand today in terms of completing some of the product integration work.
You've talked about kind of needed to up sell or convert.
It was 150 plus customers from RC nine and anvil over to the <unk> platform and then any progress update.
Converting.
Some of your mass notification customers within the GTK over to see them as well.
And those are both great questions. Thanks for asking so on the <unk> nine the.
The momentum is picking up we as you remember from a year ago.
This call we've talked about that cohort.
Our customers and then by Q1, we kind of kind of our goal a half.
But we had we had good migration this quarter.
It was the highest rated quarter of a year to date.
The road map for them for the migration.
Sure.
But the product work to actually go to market with them and why it works will drive that.
The remaining.
Customers with.
More more force.
We will be coming up around the end of the year. So that program continues.
<unk> made good progress we gave slowing down.
On retention that that had to work for us today, So I'm pleased with where that's going.
Okay.
And feature parity will be done in Q1.
And end of life off before then.
On the on the on the second.
The second cohort.
Our mass notification in the global 2000 the upgrades.
We had another good quarter, a nice mix of new customers at a three year comparable as I talked about are really exciting wins in our U S Federal government.
A department.
We've got a really nice opportunity there was a nice sized deal one of our top five.
I had a really nice Australian band that we think gives us an anchor accounts for that region.
Uh huh.
That those are new accounts.
On the upgrade side.
It was also.
Real balanced on the upgrade side. So I think we had a few more CDN customers, Alaska or customer adds were they down year over year or continuing to see a real good mix of both new customer add ons and migrations.
For CGM.
Got it thank you.
Yeah.
The next question comes from Scott Berg from Needham. Please go ahead.
Hi, everyone. Thanks for taking my questions I guess, a couple stayed on the on the bookings in the quarter you sound pretty positive.
On.
Obviously, the improvements that Youre seeing there company did though only at $4 million of ADR, which was not the highest of.
The year, so far at least today.
How do we kind of reconcile those two commentaries my guess, it's probably from some of the downhole pressure that you talked about but I didn't know if there's anything else that's kind of comprised of you're making up that gap.
No that's it that's exactly those two offsets.
You know that.
But primarily.
Primary drivers there.
Okay.
And then Patrick from a follow up the million dollars of revenue.
Subscription revenue recognized in Q3, but not Q4, I guess I'm a little confused by that as I'm not sure why it's not being recognized this quarter, maybe thats the down sell.
That you all talked about but just trying to help understand what that is that wont be recognized in Q3, and then does it actually covered in Q4, and then does it come back in Q1 for some reason.
Yeah.
So with that million dollars as is.
ASC 606.
It has taken something that.
Our service that we provide ratably, but requires us to recognize annually and it's related to subscription.
But we only recognize it primarily one time a year.
In 2022, we recognize it in Q4.
That was part of the year over year that was talking about the Q4.
And in 2023, we recognized it in Q3.
So it's a so so at the.
He is different year over year.
There were a couple of other items like that in Q4 of last year that have already been recognized earlier. This year in 2023, so it's subscription, but ASC 606, just sheetz she's a couple of million dollars of our subscription revenue a little uniquely.
[noise] ongoing you just to be clear is the ongoing customer et cetera, it'll come back round next year in 'twenty, four and probably in Q3 of 'twenty, probably in Q3 and 24 yeah.
Got it very helpful. Thank you.
Yeah.
The next question comes from Michael <unk> from Wells Fargo. Please go ahead.
Hi, Thanks for taking my question I wanted to kind of take a different angle on this.
Your adjusted EBITDA guidance went down by about a million Bucks and when I think about perpetual deals that come off I think of those as very high margin. So that you can help just give me some puts and takes on what.
He is driving the lower EBITDA guidance is it you know some strength in the quarter offset by the lowered perpetual primarily or missed you know help level set there. Thank you.
Yes.
And in the back half of 2023, we've removed.
And plus million dollars of.
Non subscription revenue.
Much of which is very high margin in particular, those perpetual licenses. So that's created a lot of pressure.
Our.
The EBITDA, but we were making our way through it it's the offset is the continued.
Focus on efficiency and productivity. If you look at a couple of areas like sales and marketing.
Got that down year over year as a percent of revenue from 36% to 29%.
And yet at the same time, we just delivered our best bookings quarter of the year and as you heard Dave talk about productivity is up.
Sizes are coming up in a couple of other key metrics that are part of that are improving.
Looking at R&D as a percent of revenue that's come down from 19% to 17%.
But at the same time, we improved our productivity, we just delivered ever break 360, which is critical to customer adoption redo expansion. So.
We're improving our productivity, while improving our profitability and that has helped to absorb the <unk>.
Pat.
The reduction in the outlook for non subscription right.
And then if I could just add it's a minor point by these were nowhere in addition to that.
You know that anvil.
Accrual there's opex.
For that for that case, and so we're further observed as they're absorbing the opex for that so when I think about the work that the team that I'm really proud of the work. The team has been doing on the expense management that Patrick talked about in my way of thinking is that last quarter. Our guest onto this quarter, maybe we're planning about that amount for Nash.
For that.
Additional two.
$3 million.
I'll ask related to that bad Guy and no matter what.
As the spring.
<unk>.
The guidance that we are still targeting a five we're doing everything we can as a management team.
Uh huh.
Yeah. So that that's what we've been what I imagine and I think we're doing a good job of it.
Got it so maybe one quick follow up to that is you just gave the one to 2 million opex with the anvil. It sounds like that's part of the non-GAAP or adjusted EBITDA on a normal basis could you help us quantify you know how we could think about the perpetual deals that you took off.
Flow through to EBITDA reason I ask is I think it would be helpful for the investor community to understand what a more normal.
EBITDA profile would look like today should you know things have come across as you had originally expected.
Yeah, well I think.
<unk>.
We mentioned that we are.
As we look forward to 2024.
Stating that we could increase our adjusted EBITDA by 25%.
With our existing exiting cost structure and continuing to.
To make gradual optimizations to it.
So whereas in Q4, we've got.
Adjusted EBIT related expenses.
Around $89 million, that's what we would anticipate continuing to run into next year there'll be seasonality in the payroll tax impact seasonality etcetera, but and then.
Over 90% of our revenue is subscription.
The gross margin on that is very high so yeah the margin on the.
One time licenses software licenses and other.
<unk> is really high in the last year that was $18 million.
This year, that's going to be around 12 $5 million to $13 million with with really high margin.
And.
But we we originally thought there'd be a lot more than 12 and after 13.
And most of.
The reduction that we're talking about came out of the back half of the year. So we had to.
Unfortunately, we've been able to manage through it.
And it might be for the first time, we put it into our into.
Into our guidance that split between subscription and professional services and software. So you have that for the fourth quarter Guide pass right through it on the call as well, but it's in the table of the press release. So you can.
Get that break out not just our historical core as part of the quarter forecast.
<unk> forecast and then just a minor correction on the on the Anvil the $8 million is an accrual for.
Intangible.
Damages in addition to that first at operating expenses.
They have to take that same trial that are coming in through the P&L in that.
They're not adjusted out of in the EBITDA expenses.
Just under nine for Q3, and probably just over 90 for Q4.
Got it helpful. Thank you.
Yes.
The next question comes from William Power from Baird. Please go ahead.
Hi, this is the honest some more time for willpower. Thanks for taking the question.
So just looking at non subscription revenue how do you think that might shake out next year should we expect non subscription revenue.
Decline in 'twenty 'twenty four or is there any early framework for how to think about that piece.
<unk>.
We're not.
In a position to do to the guide on those revenues.
Went through that now the narration and.
And you've seen the guy.
A couple of quarters, and maybe you'll love to get at the Investor deck, We gave out a core trend.
Those numbers over a period of time, but.
And we went through a season in a.
The last two years 'twenty, one 'twenty, two black or public warning deals. This year, we're going through a year, where there has not been public a warning.
D O awarded globally to date this year. So this in some ways this year appeals.
Feels law, but it also can tax Shirley.
Everything we're doing is around growing the recurring revenue, we're working with those products and those customer sets to make.
More subscription so our intention over time is to drive those subscription revenues.
One thing I think we've demonstrated this year is going to be able to manage expenses around those onetime I don't want to run here what would be hold on I'm getting at.
A one time deal for.
For our business model, so where government business model.
Laser focused on a or on a subscription revenue growth and.
In that way.
A tailwind from.
From non subscription the way, we're trying to do what's.
Run the business.
Fair enough. Thanks, I'll pass it back.
The next question comes from Terry Tillman from Truest. Please go ahead.
Oh, Hey, good afternoon, Sam This is Scott on for Terry I. Appreciate you taking the questions. Just curious on what changes you've made in the customer success organization to better serve our existing customer base and enable that cross sell up sell off generally and then I guess also what kinds of conversations they are having with the existing base around the value of <unk>.
Mutational resilience.
Yeah. So that's a great question customer success in an area, where we're focused I worry about some really great account managers and that when you all specialists.
Now that work with our clients. We definitely is an area that John is spending a lot of attention on and we're expecting that to make some changes that further.
Drive alignment between those those two teams and support the comp was even better on the customer journey.
We're getting really good good feedback that ever break 360, it doesn't deliver on that the ease of use and integration.
Our bags.
Yes.
The geopolitical unrest and our ability to deliver messages really trouble.
Trouble hard environment, delivering messages into our clients employees and services to get down to safe locations, we're deeply engaged with our clients.
Right now and.
I'm, just I'm pleased with what the team and how we're able to.
Just to service them in their time of need.
Great. That's helpful. Thank you.
The next question comes from Ryan Macwilliams from Barclays. Please go ahead.
Hey, guys. Just a quick question I know, it's early but any early comments on next year Hustle think about your priorities or.
Focus on them the time to sort of a growth or continues to go real improvement.
Color there thanks.
Yeah, Ryan that's a good a.
Good follow up question on this.
All of our detail.
<unk> pointed thing that Patrick and I mentioned was.
Yeah.
Early about looking ahead with them.
With a focus on growing.
EBITDA, 25%.
Year over year.
So we think we can continue to deliver operating improvement Abbvie continues to grow.
You look at the E. R. R R.
It has come down.
Over the quarter, we had some real strong quarters at this time last year, we had a really much bigger team. This time last year and that's why I think the improvements in sales productivity.
Pipeline build.
Deal sizes are so important as we look forward into next year.
Where we expect to be.
Delivering year over year improvement beginning in Q1 on our on a recurring bookings for full performance.
Performance, which with our strong renewal rates will start to drive our growth rates are later next year, because we're still lapping some strong compares with a lot more salespeople through this quarter.
Okay.
The quality of the convertible debt retirement.
Mobile over the past few quarters.
Hopefully there I guess just for investors how should we think about the path ahead for leveraged capital structure and what you bundle offers went up to two years.
Sure.
As we mentioned we've got enough cash to get through the debt that matures in December two months, where we have another 300 million or so that will mature in March 2026 between now and then we will continue to.
Generate more and more.
Cash flow to be able to pay that down and as we mentioned at our Investor Day in 2022 December 'twenty two.
We anticipate that if we're not able to.
Why that.
Debt obligation and more shrink 26 entirely out of our own pockets that by then we were.
Well.
Driving enough profitability that we could well have a number of options, including just street bank debt.
Yeah.
We're exiting this year with.
Adjusted EBITDA leverage of roughly 301, we're going to get that down to two to one and by the end of may be right around one to one so we don't know what that markets will look like.
<unk> Revival at June 26, but we are.
Were confident that were you kind of be able to have a lot of different options that are not dilutive to be able to satisfy that remaining obligation.
Is it the color Scott.
Yep.
Again, if you have a question. Please press Star then one.
And the next question comes from Koji Aikido from Bank of America. Please go ahead.
Hey, guys. Thanks for taking the questions I had a question on on renewals and specifically on the contraction in the down sells and I was wondering if you could talk a little bit about what's driving that is it seats is it pricing is it a certain type of product.
Sort of color there to help understand the contracts would be would be great. Thank you. Yeah. It's primarily feeds of course, we're dealing with.
<unk> 6000 customers and lots and lots of renewals or the aggregate.
The aggregate.
Here's a summary of the downtown Chicago.
The.
Quarter over quarter decline in retention, but retention remains yes.
It was this quarter last year. So it's been a it's been a good spot not better spot.
Wanted to end by the contractions in the quarter head count reductions are certainly part of it.
It's anecdotal, but if theres a cost concentration.
There was a lot of there was some consolidation which are comfortable being purchased and a little bit maybe more in our digital operations at our core <unk>.
Okay.
Yeah, just just.
Generally.
It added.
Okay.
As a 100 basis points increase.
During the quarter.
Got it Okay. That's helpful. And then just one follow up here when I look at the deck and it's a slide slide is this it looks like 26. The reconciliation of the guidance you know kind of the previous guide versus the guide that is today and I noticed that there's a reduction.
In the license and P. S due to delays in large on Prem deals.
Was 8 million and then an additional 2 million added onto the updated guidance. You know the question here is what gives you the confidence that these deals just pushed deals will eventually close thanks guys.
[laughter].
Uh huh.
Well, yes.
Ones that are at the bottom of the pipeline I can tell you that.
We've got confidence we can we know that the national program, where we're working in.
They take time to close and it's hard to.
The controller governance quality time timeline, but we know that there nationally in Peru.
Projects. So that's what gives us confidence in terms of larger.
Top of funnel pipeline, where the direction.
Goes next year and the year after.
Yeah. That's what we spent this year it can be can be guiding on the one times.
Right.
For next year at this time.
Thanks for taking the question guys.
Okay. Thank you.
The next question comes from Kash Rangan from Goldman Sachs. Please go ahead.
Hey, guys. This is Jacob on for Kash. Thanks, So much for taking the question a lot of good questions I had a man. So just a couple simple ones from me.
The 32 sequential adds for D C E M customers.
Can you provide a split on how many of those were net new customers and how many of those were existing customers that adopt to see them and then additionally.
I noticed the stock based comp was down.
700, Bips I think.
Yeah. It was.
8% of total revenue versus 15% last quarter and 12% in Q1, so how should we think about that.
On a go forward basis. Thanks, so much.
Okay I don't have a split on the C. E M. I gave it in the top five we had three new <unk> two.
To upsell them in the top five I think is roughly.
50, 50, we can follow up with you on that.
Now I'd like to follow up with you on stock based comp you will see them are beginning to see a real intentional focus.
All of the management team in and the comp Committee.
Hum.
And just a broken down on.
On stock based comp and the number of share it with others, it's pretty clear the way our evergreen program.
Works.
3% a year.
So we got a real specific budgets that we're working in.
We are working towards that 3% to 4%.
Net and gross.
Equity bonds.
The next three years, so 2023 becomes the kind of in my way of thinking kind of a new normal forever bridge.
Going forward from a dilution perspective in 2022 was high for several good reasons.
<unk>.
Moves through will be moving down into that.
We are closer to that.
So the 4% range.
Thank you so much.
This concludes our question and answer session I would like to turn the conference back over to Mr. Wagner for his closing remarks.
Well. Thank you everybody for participating I just lots of good questions on the one time and Oregon are important.
We remain focused on profitable.
Growth in driving the annual recurring revenue and recurring parts of our business.
Forward over the next few weeks, we're gonna be on the road with investors at several conferences, including the Needham Virtual Tech Conference on November 16, the UBS Global Tech Conference on November 28th Wells Fargo TMT summit on.
On November 29, the Raymond James TMT, and consumer conference on December 4th and Barclays Tech Conference on December seven we look forward to speaking with many of you at those events and we will speak with you again soon thank you for your support of our mission and confidence in our ability to achieve it Jason.
Thank you.
Thank you for joining us today for the ever Bridge third quarter 2023 earnings Conference call you may now disconnect.
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