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Edited Transcript of EVBG.NMQ earnings conference call or presentation 27-Feb-17 9:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Everbridge Inc Earnings Call

Mar 14, 2017 (Thomson StreetEvents) -- Edited Transcript of Everbridge Inc earnings conference call or presentation Monday, February 27, 2017 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ken Goldman

Everbridge, Inc. - CFO

* Jaime Ellerston

Everbridge, Inc. - CEO

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Conference Call Participants

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* Richard Davis

Canaccord Genuity - Analyst

* Michael Nemeroff

Credit Suisse - Analyst

* Brent Bracelin

Pacific Crest - Analyst

* Tom Roderick

Stifel Nicolaus - Analyst

* Brad Sills

BofA Merrill Lynch - Analyst

* Terry Tillman

Raymond James - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Everbridge fourth-quarter 2016 earnings conference call. (Operator Instructions). As a reminder, this conference call is being recorded. I would like now to turn the conference over to Ken Goldman, Senior Vice President and Chief Financial Officer. Sir, you may begin.

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Ken Goldman, Everbridge, Inc. - CFO [2]

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Good afternoon and welcome to Everbridge's earnings conference call for the fourth quarter and full-year 2016. This is Ken Goldman, Senior Vice President and Chief Financial Officer of Everbridge. With me on the call today is Jaime Ellerston, CEO and Chairman.

After the market closed today we issued a press release with details regarding our fourth-quarter and full-year performance which can be accessed on the Investor Relations section of our website at IR.everbridge.com. This call is being recorded and a replay will be available on our IR website following the conclusion of the call.

During today's call we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook.

These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. These results are summarized in the press release that we issued today. For a further discussion of that material risks and other important factors that could affect our actual results, please refer to the filings with the SEC included in our recent 10-Q filed on November 14, 2016.

Also, during the course of today's call we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release.

Finally, at times in our prepared comments or responses to your questions we may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future.

With that let me turn the call over to Jamie for his prepared remarks.

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Jaime Ellerston, Everbridge, Inc. - CEO [3]

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Thanks, Ken. And welcome to those of you who are joining our call today. Everbridge produced a solid finish to 2016 highlighted by both revenue and adjusted EBITDA exceeding our guidance for the fourth quarter. Revenue of $21.3 million increased 31% from a year ago and we posted another quarter of positive adjusted EBITDA.

The trends that we outlined in our last call are continuing to drive demand for our expanded suite of SaaS-based applications focused on critical communications and enterprise safety. These trends include: the increased pace, severity and cost of critical events that threaten the safety of people and disrupt organizations; the growing dependency on availability of IT services 24x7 to deliver for enterprises, governments, employees and constituents; and today's workforce continues to go mobile making it more challenging to both reach and locate employees during such critical events.

Our SaaS platform addresses the challenges created by these trends and enables customers to rapidly assess, automate and communicate across virtually any device to ensure that critical events are managed in the most efficient and effective manner. We believe the enterprises are increasingly appreciative that the strategic and mission-critical nature of Everbridge's platform is real. And during the fourth quarter we again successfully expanded our business through a combination of attracting new customers and deepening our relationship with existing customers.

We ended the year with 3,205 customers, a net increase of 129 new customers added during the quarter and an increase of 543 new customers for 2016 overall. These customers continue to increase utilization of our platform by sending approximately 400 million communications in Q4, over 1.5 billion in 2016 for the year.

And turning to customers, our Q4 results demonstrate the strong demand for our core mass notification and instant management solutions across all of our major verticals. In our largest vertical market, corporate, we won significant six-figure deals at Northrop Grumman and Aon and added market-leading brands like MungoDB, Snap Inc., Pacific Life as well as major transportation organizations such as Alaska Airlines or the Ontario Airport. And in the healthcare vertical we signed a number of new customers including Main Line Hospitals and Baptist Healthcare.

Finally, in the state and local vertical we continue to see strong new customer attractions with major regional government organizations like Pierce County, Washington, the second largest county in the state of Washington; Denton County, Texas and Brunswick County, Virginia, as well as major cities like Phoenix, Arizona and Anaheim, California.

Our relationship in communities forms one of the key pillars of our network effect strategy and often leads to our success in much larger regional government wins like our recent win at the state of Florida. Additionally, our work in the government space enables our growing success at the corporate enterprise level.

During the fourth quarter we also continued to see success with the expand component of our land and expand strategy. Key customer expansions -- and I'm specifically speaking here about the expanded usage and broader deployment of existing applications within existing customer implementations. In those theaters in Q4, examples included Uber, TIAA, Panera, Microdynamics as well as transportation organizations like Dallas Love Field and Tucson Airport Authority and the government space organizations like city of San Francisco and Orange County, North Carolina.

Overseas we also saw numerous expansions at leading names like Price Waterhouse Coopers, the United Nations and DeBeers. And finally, in higher Ed we added several new customers such as [Family Merit] College and Oregon Institute of Technology.

On the new product front we continue to reinforce our growth strategy of focusing our platform sales comprising multiple products into enterprise customers, which increases our value and elevates our strategic position. In the quarter our new products accounted for 30% of all new and growth product sales on a trailing 12-month basis. This number has increased every quarter for the past four quarters and is evidence of the strong adoption of our newest applications.

In addition to our core mass notification and instant communication applications we have delivered new applications like Safety Connection, IT Alerting and Community Engagement which address multiple customer pain points as well as increase our overall market opportunity. These newer products were also an important reason we saw an acceleration in multi-product wins in the fourth quarter. With 42 multi-product wins in the quarter growing 35% from our prior 12-month average of 31 per quarter.

This new metric, I will call it multi-product deals, provides visibility into our progress leveraging the breadth of our platform to build larger and deeper customer relationships. This is also one of our key business plan initiatives for 2017, specifically we are looking to increase the number of platform or multi-product deals which will increase our penetration across our enterprise customer organizations and thereby position us to become a more strategic partner.

An additional advantage, which I am certain you can all understand, is that the more products on our platform we have placed into an account the broader reach and ultimately the stickier we become with these customers.

Now let me provide you some detail on these new applications. Safety Connection was a meaningful contributor in the fourth quarter with new multi-product wins at AIG, Gilead Pharmaceuticals, Delta Airlines and Jacobs Engineering.

Safety Connection was also part of our multi-product expansion deals from our large installed base of customers including Anthem, Sanofi, Fannie Mae and Gulfstream. Organizations across a wide range of industries continue to turn to Safety Connection to more effectively manage the physical safety and security of an increasingly mobile workforce.

For our IT Alerting application new multi-product customers included major corporate brands like Visa as well as Virtua and Penn State in the healthcare market. In our installed customer base we continue to see the adoption of our IT Alerting solution with wins at Cargill, Express Scripts, First Financial and Tidelands Health. Our IT Alerting momentum reflects our expansion beyond the traditional business continuity buyer into the IT and general operations area of major enterprises.

Our next one, Community Engagement business, also saw continued new and growth customer wins at local governments such as Urbani Hills Michigan, Albany New York and Guilford County, North Carolina. By the way, Guilford, in addition to existing customers, Mecklenburg County, Orange County, means that Everbridge has three of the largest counties in North Carolina. We also had very high profile wins like Washington DC where Community Engagement was used to alert visitors at the inauguration events in January.

Perhaps the most interesting new wins for Community Engagement came from our corporate base though in the quarter where customers such as Shawmut Construction Company chose to deploy our Community Engagement to manage the visitor and transient populations related to major top sites as a way to communicate with these non-employees and a similar use case was used by the world's largest theme park to communicate with the thousands of daily visitors to each of their parks.

This recent progress with the expansion of our government use case and in the corporate market represents an important step for creating a long-term growth business around our community engagement product.

In Q4 our channels and international business also delivered solid results. In North America, Everbridge signed a strategic partnership with Lenel Corporation. The global leader in advanced physical security systems will be partnering with Everbridge to resell and deliver our Safety Connection solution through its large system and integration channel.

During the fourth quarter our existing strategic partnership with International SOS continued to gain momentum as well with multiple new customer wins like CFA Institute and Intelsat. Both of these new strategic partnerships are examples of our focused effort to extend our overall Everbridge ecosystem to support the broader area of critical event management for global enterprises.

Our international business also completed a number of large direct deals in Q4, including the aforementioned DeBeers and United Nations deals, which I mentioned. But equally [Epps] in Europe to name just a few. And our expanded efforts in Europe are beginning to bear fruit as one of our newest European distributors in Italy closed a major luxury retailer, Yoox Net-a-Porter near the end of the quarter.

Operationally we recently opened and staffed new sales and support offices in Singapore and Paris to help increase our penetration in Asia and Europe and support our long-term growth internationally.

In addition to our organic sales success we also expanded our new application product portfolio by acquisition. As I have stated previously, a primary driver of our overall growth strategy is the addition of new applications or solutions onto the Everbridge platform. During our IPO road show and during last quarter's earnings call I stated our goal is to add at least one new application for our platform each year and to do so through a combination of organic development partnership or technology acquisition.

Consistent with this objective, in late Q4 of 2016 we completed the acquisition of Crisis Commander and shortly thereafter in January we completed the acquisition of IDB Solutions.

Crisis Commander provides organizations with a mobile-based solution for accessing crisis and bring protection plans as well as the ability to manage these events through role-based assignments and status updates. Crisis Commander is used by numerous leading corporate or government organizations including Volvo, Nestle's, Swedish Air Traffic Control, Siemens, Nissan, Absolut, the Norwegian Post Office and the Tui Group.

We believe that Crisis Commander solution will integrate well with our existing suite of Everbridge solutions and provide us with a strong upsell opportunity for our large base of installed customers.

IDB Solutions is a leading provider of threat assessment and operational visualization software. It's marquee solution, Visual Command Center, or VCC as I will often refer to it, simultaneously monitors more than 100 types of threat data as well as social media and other contextual information and then displays an integrated picture of external threats and internal incidents overlaid on an organization's people, assets and supply chains.

As an example, VCC can generate and visualize an alert whenever potential risks occur within the proximity of an organization's resources in order to mitigate risk to personal safety, business continuity, assets and supply operations. IDB's customers include a number of leading government and corporate entities around the globe including Amazon, Dell, Microsoft, Pfizer, Tiffany, VMware, Noble Energy and St. Clair County in Michigan.

IDB has been an Everbridge strategic partner since 2014 and VCC can already leverage our mass notification solutions to communicate with employees and help manage critical events. These were both strategic acquisitions and in combination with Everbridge's critical communications suite will help us to deliver the industry's first complete enterprise grade critical event management platform or, as I will often refer to it, CEM.

Today many large organizations lack a coordinated approach to critical events which negatively impacts the efficiency and effectiveness of their response. They maintain separate emergency, security, IT and supply chain command centers that prevent a common view of threat assessment and the resolution process. Moreover, each of these disparate systems requires 24x7 availability and each can rely on a different set of siloed tools and processes that make coordination, communication and management across these groups difficult and expensive.

The annual cost to leading enterprise of these types of critical events exceeded $500 billion in 2015 and they are complex to assess, manage and mitigate. The Everbridge critical event management platform will provide organizations with a more integrated operational approach to the often disparate systems used today by delivering an end-to-end view integrating threats, operational impact, response status information all on a single pane of glass.

Organizations will be able to access a full array of intelligence, coordination, task execution items required to speed the response to many critical incidents that impact daily operations including severe weather, terrorism, workplace violence, IT outages, cyber attacks, supply-chain disruptions, product recalls, environmental accidents and power outages.

Perhaps most importantly, existing customers such as one of the largest banks, one of the largest manufacturers and one of the largest technology companies in North America had already begun to integrate the Everbridge and IDB solutions to achieve this unified approach to managing critical events across their enterprises.

These customers have told us exactly what they want: a common integrated platform for critical event management to enable them to quickly assess threats then visualize the impact to their organization, then more efficiently and effectively manage their response and ultimately allow them to analyze the overall event with an eye towards mitigating future risk and business disruption to keep people safe and businesses running.

We are extremely excited to bring this new CEM platform to the marketplace. We expect that our CEM platform will help Everbridge expand our value proposition, increase our TAM and elevate our strategic position with customers as well as expand our potential usage throughout the enterprise space. We believe our more comprehensive capabilities will attract an even broader set of new customers to Everbridge in addition to adding fuel to the expand component of our land and expand model.

Further, as we continue to add a number of applications that our customers can use, we believe that Everbridge will become increasingly embedded as a strategic technology supplier and trusted partner.

In summary, we had a strong finish to 2016. This past year we successfully executed on our strategy to drive growth from our continued adoption of our core mass notification application while simultaneously growing our revenue from new applications like IT Alerting, Safety Connection and Community Engagement.

As we look to 2017 our aim is to both further expand our platform for delivering critical event management as well as elevate our strategic position by helping enterprises assess, visualize, manage and analyze events that impact the entire organization. We are excited about this opportunity we see in the marketplace and we believe the Company is in a strong position to capture share in an even larger market in 2017.

Now I'd like to turn the call back over to Ken for details on our financial performance during the quarter and our outlook for 2017. Ken.

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Ken Goldman, Everbridge, Inc. - CFO [4]

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Thanks, Jamie. I'd like to go into more detail on our financial performance for the fourth quarter and the year and then provide you with our outlook for 2017.

From a summary perspective, fourth-quarter revenue of $21.3 million was above the high end of our guidance range and represented growth of 31% from a year ago. During the fourth quarter our dollar-based net retention rate remained above 110% at 116%. As such we delivered another quarter of solidly balancing growth between new and existing customers.

While we continue to invest in longer-term growth opportunities, some of our revenue upside did fall to the bottom line to produce positive adjusted EBITDA of $400,000 which was also above the top end of our guidance range.

Now I'd like to turn to the rest of the P&L. Unless otherwise indicated I will be discussing income statement metrics on a non-GAAP basis. A reconciliation of GAAP to non-GAAP measures has been provided in the earnings release we issued earlier today.

Gross margin in the fourth quarter was 72.6%, representing an improvement of 279 basis points from a year ago. While gross margins may fluctuate on a quarter-to-quarter basis, we believe we can drive continued gradual improvements in gross margins as our business continues to scale.

Total operating expenses were $16.3 million in the quarter, an increase of 18% from a year ago reflecting continued product and infrastructure investments to support our long-term growth. As I noted, adjusted EBITDA for the quarter was positive $400,000, a meaningful improvement from a loss of $1.7 million for the fourth quarter of 2015 and represented the third quarter in a row of positive adjusted EBITDA as we continue to run the business with a focus on balance between growth and efficiency.

Net loss for the fourth quarter was $900,000 compared to a loss of $2.5 million in the year ended a quarter ago. Based on 27.1 million basic and diluted weighted average shares outstanding, net loss per share was negative $0.03 for the fourth quarter.

Looking at the year as a whole revenue increased 31% to $76.8 million as new products, multi-product deals, up sells and expansions all contributed to strong growth. Gross margin was 72.3%, up from 70% in 2015, reflecting the leverage we can generate with scale. Adjusted EBITDA for the year was just above breakeven compared to a loss of $3.4 million in 2015.

Turning to our balance sheet, we ended the year with $60.8 million in cash, a small decrease from $62.3 million at the end of the third quarter due to the payments for our Crisis Commander acquisition. Total deferred revenue was $52.6 million at the end of the year, which was up 30% compared to the end of the prior year.

As we noted on our prior call, when the year-over-year growth of our deferred revenue increased to 30% our deferred revenue balance at the end of any quarter can vary due to a number of factors. As such, even though we have predominantly annual payment terms, deferred revenue is not always a meaningful indicator of the underlying momentum in our business from a quarterly prospective, though we believe it is directionally relevant over a longer trended period.

Operating cash flow in the quarter was $3 million, free cash flow was $1.5 million for the quarter and $3 million for the full year, which is a meaningful improvement when compared to outflow of $3 million in 2015.

Now let me turn to our outlook starting with the full year of 2017. We anticipate revenue to be in the range of $100 million to $101 million representing year-over-year growth of 30% to 31%. Our full-year guidance assumes a combined contribution of approximately $4 million from our Crisis Commander and IDB acquisitions after taking into account the impact of purchase accounting on acquired deferred revenue.

In addition, this acquisition contribution for 2017 includes an expectation that we will be reducing certain revenue producing services for the acquired businesses as we focus on driving adoption of our expanded platform.

From a profitability perspective we continue to expect our core Everbridge business to generate positive adjusted EBITDA in 2017. However, with an approximately $3 million negative impact associated with the upfront dilution from the Crisis Commander and IDB acquisitions, the majority of which is due to purchase accounting impact on deferred revenue, we are anticipating an adjusted EBITDA loss of between $2.8 million and $1.8 million for the full year 2017.

This guidance assumes an estimated stock-based compensation expense of approximately $3.8 million for the year. Looking beyond 2017, we expect the combined impact from these acquisitions to be at least neutral to our overall adjusted EBITDA. We expect a non-GAAP net loss of between $9.1 million and $8.1 million for the full year 2017, or between negative $0.33 and negative $0.30 per share based on 27.4 billion basic weighted average outstanding shares.

Our long-term view on how we plan to run the business remains unchanged. We remain focused on driving strong top-line growth while being responsible regarding our bottom-line performance. We believe this is the best way to build long-term shareholder value.

Now let's turn to first quarter of 2017. We expect revenue to be between $22 million and $22.2 million including a contribution of approximately $0.5 million from our Crisis Commander and IDB acquisitions. We anticipate an adjusted EBITDA loss of between $3.7 million and $3.5 million. This adjusted EBITDA guidance assumes an estimated stock-based compensation expense of approximately $900,000 for the first quarter.

We are anticipating a non-GAAP net loss of between $5.2 million and $5 million or between negative $0.19 and negative $0.18 per share based on 27.2 billion basic weighted average shares outstanding.

Finally, ahead of our lock up expiration on March 15, today we also announced that we intend to file a registration statement for a secondary offering in late March. The proposed $50 million offering is expected to consist predominately of secondary shares from existing shareholders.

In summary, we are excited to have delivered strong results for 2016 and in addition have a positive view of the business as we begin 2017. We believe we are well positioned to meet the growing demand for critical event management solutions and capitalize on the large multibillion dollar market opportunity Everbridge is addressing. With that, operator, can we now open the call up to questions, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions). Richard Davis, Canaccord.

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Richard Davis, Canaccord Genuity - Analyst [2]

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Two quick questions, one for Ken. Can you just high level to say how much of the revenue disappeared due to purchase accounting? And then second, kind of staying on that same notion, I think you have explained a good rationale for Crisis Commander, IDB and stuff like that, and obviously while you can say specifically and you may not even know what your next acquisition is. As an outsider, at least at a high level, kind of what should we expect in terms of broad product direction and/or tolerance for short-term dilution? Thanks.

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Ken Goldman, Everbridge, Inc. - CFO [3]

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So, Richard, with regard to the first question, we are not giving out the specifics yet. We haven't completed the audit or the acquisitions. So we are using our best estimate as of today. But roughly half of the deferred revenue or perhaps a little bit more deferred disappeared as a result of purchase accounting.

As I said, we are still finalizing the audit for that. It is an unfortunate byproduct of the accounting regulations when you do an acquisition. And we will be providing more detailed in the future. But for now I would tell you it is about half of what we saw.

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Richard Davis, Canaccord Genuity - Analyst [4]

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Got it.

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Jaime Ellerston, Everbridge, Inc. - CEO [5]

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And then on your question, Richard, of futures, we have done two rather rapidly because we had a strategic plan that we've been executing on for the past two or three years towards critical event management anyway. But I would tell you that the two we have done are enough for right now; we need to digest those and execute on those. And so we frankly are focused on adding pieces to the platform probably around the analyzed component and the predictive components of our critical event management, but that is a little ways off. I wouldn't -- just as we said on the road show and have continued to say, you don't expect us to sit on the cash. I would caution you to think that we are going to do anything else in the very near-term here.

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Richard Davis, Canaccord Genuity - Analyst [6]

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Great. Super helpful. Thank you.

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Operator [7]

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Michael Nemeroff, Credit Suisse.

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Michael Nemeroff, Credit Suisse - Analyst [8]

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Nice job on the quarter. Jaime, it sounds like the number of multiple product new wins is accelerating, that is good to see. Can you maybe rank in order of the new business which, coming from the non-mass certification products, are generating the most new or generated the most new recurring revenue in the quarter?

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Jaime Ellerston, Everbridge, Inc. - CEO [9]

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Well, we have been consistent on this, right, so we are not going to give specific numbers until the products get to $10 million. I would tell you that, as we said last quarter, Safety Connection continued to be a very fast-growing product, the fastest one we have launched to date.

ITA because it is the longest product in terms of our ownership and being integrated to the platform, we built it internally, is today probably the largest and again growing at a very fast rate.

And then you have Community Engagement, which was acquired a brand-new only approximately a year ago, so it is probably the smallest of the three. But we haven't given specific components and I wouldn't be shocked to see that the IDB product gets to be the first one to our metric for individual performance and numbers released. But past that color we are trying to stay away from specific numbers, Michael.

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Michael Nemeroff, Credit Suisse - Analyst [10]

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That is helpful, Jaime. And then in terms of the competitive landscape, has anything been changing over the last couple of months? Has going public increased your profile with new customer growth? I'm just kind of curious because you have always been the premium price product compared to the competition. I just want to know if that has changed or if there is any pricing pressure now than there was previously?

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Jaime Ellerston, Everbridge, Inc. - CEO [11]

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I don't know that there is anymore pricing pressure. As we mentioned on the road show, I think we addressed it marginally last quarter. The pure mass notification business is the most mature of all of our products. And as such has a little more pricing pressure because there are more competitors in that specific market.

That is the reason, quite frankly, I think ahead of the entire market after being the sole leader of the Magic Quadrant every year it was published and the largest player in the market. That is the reason we added the additional products, because we didn't want a risk of commoditization.

In this most recent quarter we had a strong quarter in mass notification. We had everything from the city of Sudbury, Ontario announcing in a press conference that they -- the analogy they used was we were better than the Batman signal. And although I don't believe we are superhuman I enjoyed being compared to super heroes and the value and effect to society.

But that is a more mature market, as such that is why initially critical communications and our much broader thematic of critical event management is so important because when we get in mass notification, Safety Connection, Community Engagement and perhaps secure messaging, which we are starting to see two -- not only two products, so a multi-product deal, but three products into an account.

You can imagine how much more difficult it is for a competitor to price against us because they can only price against mass notification, no other competitor exists with Safety Connection and integration with your leading travel provider or integration with your physical security provider like Lenel or Tyco or [G4S].

And so, for us that expansion into multiple products is the best way to avoid broad-based commoditization and in those accounts we certainly see virtually no pressure. So obviously the most mature market is going to have the most pressure. Haven't seen much of a change; it is a competitive market because a lot of people in it. And we are hopefully moving the high ground to where our competitors can't compete at all, which is the critical event management space.

So in a major technology company, perhaps the largest software company in North America that uses for instance us as one of their pillars and the other pillar is IDB, we think it is going to be very difficult for someone to come in and say I will do that for $0.50 less a message or $0.50 less the contact or some other individual pricing item and commoditize this because of the more enterprise play.

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Michael Nemeroff, Credit Suisse - Analyst [12]

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That is helpful, Jaime. Thanks very much. Congratulations again.

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Operator [13]

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Brent Bracelin, Pacific Crest Securities.

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Brent Bracelin, Pacific Crest - Analyst [14]

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A couple questions here. I had a follow-up on the new metric you gave us on the multi-product deals, 42 in the quarter. Was that driven a little bit by seasonality you think or what does the pipeline look at on kind of that multi-product deal front? And what is driving that?

Is this a change in sales compensation where you are starting to see more success and an incentive to sell multi-products? Walk us through kind of the dynamics that is driving that and if we should expect to continue here in Q1. Or is there a seasonal factor to consider?

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Jaime Ellerston, Everbridge, Inc. - CEO [15]

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Well, there is -- as much as I would like to, there's always a little bit of seasonality. I think our Q4 and sometimes our Q2 are good quarters because you have the government effect in Q2 with the end of the government quarter in Q4. We are trying to -- I think we have successfully in the technology in the software business trained all of our buyers that we are trying to close a strong year.

But I would tell you that our multi-product transactions are all of the above as your answer. We absolutely categorically are focusing our sales reps on selling more products into an account and making an enterprise sale that gives above a basic business continuity, a security or a individual operational departmental manager HR or travel.

We want to sell at that enterprise level. We are compensating the sales team to do that, we are targeting specific multi-product sales and a multi-product sale involves different whole new sales from each category. So it is Safety Connection, mass notification, IT Alerting, Community Engagement.

One of the -- you have to have two or three or four or five of our six, seven products in in each one. And we are comparing that metric on a trailing 12-month basis because then you have a stable average that you can see. And I would tell you we -- I would be shocked if you didn't see continued strong increase in that multi-product number every one of the quarters this year -- on a trailing 12-month average.

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Brent Bracelin, Pacific Crest - Analyst [16]

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Sure, you bet. That's helpful color. Just drilling down into Safety Connection, one of your newer products. A little surprised with the success you are having there at new customer AIG, you called out Gilead, Delta and even existing customers. You talked a little about the upsell. What is resonating on the Safety Connection product with customers and what product are you replacing?

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Jaime Ellerston, Everbridge, Inc. - CEO [17]

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That is what is great. We are not really replacing anything with Safety Connection as much as we are augmenting their ability to know where the hell all their non-building employees are. So think of any large campus, think of a major software player, a major pharmaceutical like we have announced the last couple quarters. Those guys have 12 buildings or 15 buildings or a university with 25 or 40 buildings on a campus.

And at any given point of the day 24x7, 365 there are 50% of the occupants with an address in a specific building not resident. They can be not resident because they are in the next building over having lunch, chatting up a male or female, a social environment or just traveling that day to another office somewhere in the world.

An event happens on that campus, the corporate security, the business continuity and safety people, the HR people, the travel people all get calls from the Chief Risk Officer, the Chief Operating Officer or the CEO when a major event happens and the first thing they ask is are our people safe? We have to be able to put a message out that we know our employees are safe, our students are safe, it is a fundamental just like it is for government.

And so, when we can come in and say, between our technology that locates traveling people or people in other offices without turning on your phone and creating a big brother scenario, and gives you that ability to understand where people are and then communicating with location awareness the right message at the right place, the right time and the right device. it literally is a matter of life and death in an active shooter or a terrorism event, which get a lot our press and therefore focus major corporations, enterprises, campus police and administration on this problem.

But it can be as simple as there is a tornado coming or a tsunami in a town that you have a lot of salespeople in, in Japan and you have got to figure out where all those employees are, are they safe. And so, what resonating is our ability to provide an extension to the old physical building ability to say you badged in and therefore you are there when people are now 50% of the time outside their physical office where they maintain a permanent address.

And in a mobile workplace, in a place where people travel more and we are more globally connected that is a requirement. And this is the first product that does it. So it is disruptive to that space, we are ultimately taking spend away from the larger physical security companies, that is why you will see the partnerships announced there because they want us to extend them and not to be left out of that.

But it is an opportunity for major corporations to get control of all their mobile population and surround them with the security that you have today with a badging system and doors and locks and alarms on windows.

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Brent Bracelin, Pacific Crest - Analyst [18]

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Certainly makes sense. My last question for you, Jaime, is really around kind of IDV Solutions, a new business, it almost looks like a new product. I know you have been working with them as a partner since 2014. Would you be able to talk a little bit about the Visual Command Center product? Is that something you plan to productize on a standalone basis or either integrate with your existing products?

And then what is the overlap? Again, you have been working with them. Is there a lot of overlap, customer overlap at this point or is there a pretty big cross-selling opportunity on that product?

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Jaime Ellerston, Everbridge, Inc. - CEO [19]

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Yes, the best way to describe Visual Command Center is they built -- they started in the visualization space, so I'm going to try to paint a picture for you guys. I am sure most of you will get it, I apologize if others don't.

But if you have seen a recent Jason Bourne movie and they walk into that space where all the CIA operatives are throwing up all the highway cams and all the street cams and all the data and they are mixing -- in any recent sci-fi or just thriller movie, these operation centers are mixing 1 million pieces of data to come up with a location of that one individual that they are trying to save or track down in Jason Bourne's case. That is IDV.

It is the ability to take a lot of data, identify the intersection of that data of a threat -- it could be weather, it could be you've had 20 flat tires with your Toyota distribution trucks, it could be Amazon delivering packages, it could be executive threats. Any type of threat to the organization, its assets, its people, its entire supply chain. And then the minute those threats overlap with your assets you instantly can visualize it.

So now we can see the difference between a supply-chain event that looks like it is an individual event with six things that are going to create a cascading problem for me and I'm not going to be able to get my cars to my dealers or my drives into my factories and build these machines. And as a result you obviously have to manage the event and communicate, we do that really well with our Incident Communication product and our overall Mass Notification product.

So we have the communication and the instant management piece down, they had the threat assessment. They take in over 100 different forms of threat data and these are big companies, Amazon, Microsoft, Pfizer. And we can integrate that together on a single pane of glass.

And these major corporations and government spend millions and millions of dollars trying to do that in many cases one for the cyber team, denial of service [attacks], and bugs on software and other things; for the physical types of impact, things like terrorism or active shooter, workplace violence; and then separate systems yet again for things like supply-chain.

In our case we believe we are going to be able to with existing products -- and remember, these guys have been partners for two years -- integrate all that together, provide it on a single pane of glass. And these are the dollar solutions; their product average selling price is roughly 7 to 8 times ours. So it really elevates our strategic positioning and should integrate -- increase our ASP and that important multiproduct metric.

To your final point of the question, do we have a lot of overlap, have you already sold out of whatever it is, 50, 100 customers is already in most of them. We have about a 5% penetration in their base. So they have got a lot of customers we are working on jointly now closing that they have got and we have customers that they are trying to get into.

So we look forward to quite a few new opportunities to be announced this year where we will be able to say, yes, that is now a real critical event management customer. They have got IDV for threat and visualization, they've got Everbridge for mass notification, safety connection and instant communication. And those should be large transactions.

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Brent Bracelin, Pacific Crest - Analyst [20]

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Yes, that is very helpful color on that transaction. Ken, I'm going to squeeze one in here for you if I could, it is my last one, I promise, here. D&A obviously last year was about $7.7 million, you've made a couple acquisitions, I assume continued investment in kind of the data center footprint. What should we think about D&A expenses for this year?

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Ken Goldman, Everbridge, Inc. - CFO [21]

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Yes, I mean you will see a marginal increase but nothing significant. The nice thing about our business, it is primarily in the cloud. And so we don't have an equipment centric business.

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Brent Bracelin, Pacific Crest - Analyst [22]

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Okay, thank you.

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Ken Goldman, Everbridge, Inc. - CFO [23]

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The only thing that is is a result of purchase accounting.

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Operator [24]

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Tom Roderick, Stifel.

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Tom Roderick, Stifel Nicolaus - Analyst [25]

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Jaime, I appreciate you putting kind of a finer point on the IDV acquisition and sort of that was a great example. I was actually hoping you could do the same thing for Crisis Commander and just give us sort of a real-world example particularly how it might bolt on top of your existing suite.

Secondarily to that question, can you just go into the plans around sort of sales and marketing integration, how many reps or which reps you are kind of taking on here or will this kind of be effectively bolted onto your suite and be sold predominantly by your sales reps? Thanks.

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Jaime Ellerston, Everbridge, Inc. - CEO [26]

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Yes, sure, great questions too. Because the deal is fundamentally how we can execute on the acquisitions which is important to us here. Both IDV and Crisis Commander are sold directly into our core base. Our core base is with Safety Connection and mass notification and instant communication is the business continuity, emergency manager, Chief Risk Officer, securities, Chief Security Officer.

And both of these products, IDV's visual command center, VCC, as well as Crisis Commander are sold into those two constituent bases. So the majority of our sales force, which is differentiated, for instance, with IT Alerting, that is a separate team of people that concentrate on selling to the IT, the more operational user. These are straight down our sweet spot.

And so in the Crisis Commander case what had happened and transpired was for the past couple of years we had been selling and working with a few different parties that had similar tools and saw pretty good success in our base. And the tools, when we looked at Crisis Commander, were we believed inferior. They didn't have the functionality and the implementation history.

And Crisis Commander also did something else for us, it allowed us to add some new territories in Europe to our customer geography base because they are based out of Sweden, selling primarily throughout Europe, London, Germany and the Nordics along with the US.

And so, in Crisis Commander's case it allows you to take a standard business continuity plan, a product recall plan, some sort of emergency transfer plan that you would instinctively go to and for compliance reasons have to build. But traditionally we saw them sitting in a bound notebook behind someone's desk in the bowels of an organization.

And the truth is when an emergency happened no one could do much because the last thing you are going to do when the building is on fire, there is a flood or you have some sort of huge discontinuity event is you pull out a binder and start reading and calling off actions.

So what Crisis Commander did was very simple -- they took those plans, automated them, made them digital and converted them to task less and made them assignable so that you could track them and did it all through a mobile application.

So today often when we are used from a communication standpoint it is because of an emergency, a business continuity an Emergency Manager or Chief Risk Officer is executing a emergency plan of some sort whether it is active shooter or flooding or fire or natural act. And they are trying to communicate to the outside audience.

In Crisis Commander's case it takes those manual plans historically, automates them and converts them into task less with appointed individuals and automation including location capabilities worldwide. And anyone with a smartphone now has the plan on their phone.

So if you are running 1,000 stores throughout the world and 10 of them in the Paris region get flooded this month, the manager doesn't call home or look at a book, he simply looks at his mobile phone and says, what do I do in case of a flood? And it tells them to do these 20 events and as you finish them check them off.

The managers back at corporate can see them being checked off, can reassign them and it is a way for them to automate and manage through mobile technology the actual crisis or critical event.

So, a perfect extension of our platform and one that we think sells very nicely into the base. It is slightly lower ASP, more in the $10,000 to $15,000 range than our historic $28,000, $30,000 price point. But a nice add on with a substantive customer base already in all the markets we sell into.

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Tom Roderick, Stifel Nicolaus - Analyst [27]

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Perfect. It looks like a nice collection of add on's there. One quick follow up just on the emergency notification side of the business. I know you have been clear to characterize this as part of the more mature side of the business. But at the same time it still seems very early in your opportunity at the state and local side.

You have announced some key wins in the last year, you mentioned the Sudbury opportunity here that was just recently a very good [reference] customer. Can you talk about the pipeline for state and local and how you think about that opportunity and that addressable market in the next couple years?

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Jaime Ellerston, Everbridge, Inc. - CEO [28]

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Yes, I mean it continues to be by far our largest market, we have said that on the road show and simple math tells you that from looking at our historic's from an overall mass notification product side. From a market segment standpoint I think we have said generally corporate represents about 50%, state and local 35%, and 15% for healthcare which are the numbers we threw out and haven't changed all that much from the IPO.

And so, as we look at that market going forward, there continues to be a lot of opportunity in virtually all those segments. We have to balance making sure we don't provide too many shiny new objects for the sales force, so we have some vertical focus and some product concentration. But the opportunity set there specifically embedded in a larger product offering like critical event management we think is still the way to go because it differentiates us.

We have tried to historically stay away from selling just mass notification or just IT Alerting because after the market does get to a certain size there would be natural commoditization. We avoid that by having more of an enterprise suite and embedding those individual products in an integrated fashion giving the customer an advantage to do that and solving a much broader problem for the enterprise.

But as we look at mass notification long-term we remained bullish about it. We had a good quarter this past quarter and we will continue to not only see that grow in the US, grow with our channel partners. It's important that we're getting some of those up finally up to sales snuff, and then growing just purely internationally along with the channels.

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Tom Roderick, Stifel Nicolaus - Analyst [29]

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Perfect. Very helpful, thank you, guys.

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Operator [30]

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Brad Sills, Bank of America Merrill Lynch.

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Brad Sills, BofA Merrill Lynch - Analyst [31]

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Just wanted to ask about IT Alerting. I know this is a different sales audience than your core security manager, but you are seeing real success there. Is that really a function of you just getting more traction now with these other departments? I guess how natural is it of a cross sell when you already have mass notification in the physical security department for example to kind of move organically into IT Alerting?

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Jaime Ellerston, Everbridge, Inc. - CEO [32]

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So every new product that we enter into, we are not the first. So in Safety Connection for instance, we invented that space, we were the first in the market and you can hear it in our excitement around the product. There isn't a lot of competition, we are disruptive to a multibillion-dollar existing market so it is a little bit easier.

IT Alerting we were not the first to the party, but it is a basic alerting function. You are connected to one of the big [ITSM] vendor service now or [VMC] or CA or someone, you are taking their typical email output that there is something wrong and you are parsing that and looking at a set of profiles and then connecting to the right person in the right location on the right device to quickly make a change because it can cost hundreds of thousands of dollars per hour when major corporations have an outage, retailers, etc.

And so, that is a different buyer, IT buyer. So like anyone else, we have had to work with the sales force, we have specialized that. We recently announced that we brought on a new Senior Vice President, [Vic], who comes from a background of being at VMC as a Senior Product Manager for the ITSM space and prior to that with Blade Logic in the related space.

And so, we've added some bulk to that team and specialized it more as we continue to be successful in it and see a good future in that market. But it is different. We do get the cross sale opportunity you had asked about though. We get the specific -- Brad, the specific example of a major corporation -- I was just at this last week, a major banking corporation, they told us they are working with us on some of our newest products, on some of our existing products.

And they said, by the way, we just did an IT Alerting RFP and we weren't sure we were going to include you. But now, because we are using you for so many other things, we are going to include you into the finals round automatically on that.

So we do see those types of opportunities and we believe they are going to continue to get better and better. Because once you've built that profile database and we are communicating to all those employees anyway, why would anyone want to introduce a new product? It is just like if you have SAP for financials and HR are you really going to change out and buy a specific different manufacturing solution?

Some people do, but probably 80%, 90% go with the suite because there is a value to the integration and putting a new product in the mix just causes a headache for that enterprise CIO or CTO or business owner. And we see the same things here.

So it is not a new playbook, the successful enterprise software companies have been running this playbook for the last 10 years. We are running the same playbook, we are clearly differentiated from the rest of the market which is almost all single application products, not multiple products with an enterprise play and we think that is the differentiator that is going to allow us to continue to grow in the future.

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Brad Sills, BofA Merrill Lynch - Analyst [33]

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Thanks, Jaime. And then one on the state deals that you have already one, Florida, Connecticut. I know there is not a lot of history with Florida yet, but in the past you have spoken about some pull through effect, when you win the state you will get some counties and municipalities downstream. Are you seeing that -- and also corporates. Are you seeing that trend continue with or even start for state of Florida and with state of Connecticut as well?

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Jaime Ellerston, Everbridge, Inc. - CEO [34]

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Yes. The state of Connecticut, it's well established. We have -- we mentioned in our road show we have everything from the state to I think like 253 of the 258 or 61 PSAPs and all the state hospitals now, many of the major education facilities. I think three of the top five employers and three out of the top three. I mean we have been able to run most of the tables there and that has worked.

Florida I would tell you in that big an implementation is relatively new and we were very fortunate that not only did we get about a third or half of the state up in some of the biggest counties, but then we had the first hurricane, as you guys well know, in the last 10 years and the solution came out with flying colors. I mean we added hundreds of thousands of opt ins in one day before the hurricane actually landed and made shore. Each of the products performed incredibly well and our relationship with Florida has grown as a result.

So, we are tickled pink about that, but there is still work to do in Florida and the technical account managers we have down there are working hard to bring it up fully. And as we do that then you will start to see some of those announcements. A little early in the first six months because, remember, it was announced in July of the second, third quarter of last year. So it is still a little bit early, but I am sure you are going to see the exact same results, we see those in DC and some of the results you are seeing today are as a result of those wins.

So that network effect, as we call it, continues to do -- work magic for us because when we get a certain concentration within an area it makes it easier to sell focused on you are already in our database for state -- for the state or for the major city, we have the hospital surrounding you, the major educational institutions, why choose another vendor. It doesn't always but it is a much better pitch than trying to say use this just because.

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Brad Sills, BofA Merrill Lynch - Analyst [35]

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Right, right. Great. Okay, thanks, Jaime. One more if I may please. You mentioned earlier IDV kind of being more of a TAM expansion. (Technical difficulty) on that? I Just assume more sophisticated organizations still potentially moving up market a little bit, is that what you meant by TAM expansion?

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Jaime Ellerston, Everbridge, Inc. - CEO [36]

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Well, the IDV customers are almost all exclusively enterprise accounts. So as we add some -- we will have in our 3,000 base $15,000 accounts, that does not exist in the IDV base. The IDV base is the true Fortune 5000 base, you don't find an Everbridge size company in there.

And so from that standpoint they provide us the opportunity to jointly go after the Fortune 500 or Fortune 1000 North America and even internationally with a extreme blue-chip customer base. I mentioned just a few of them, but if that is any representation including the highest levels of government it is a solid base and very little overlap, about 5% shared customers. So lots of upsell on both sides.

And actually in almost every case there is at least a competitor's implementation of mass notification there. So we would hope that with the integration we are delivering as fast as this next quarter customers will see that and then say, well, I am going to go with the bundle instead of buying separately.

Again, it is a basic suite concept, it is not new, we are just -- we just think we can run that playbook extremely well here and build on it and the exciting piece about IDV is it is an average sale price that is 7 or 8 times our ASP. So it is certainly going to elevate our total sale price where we can sell those two as an enterprise solution.

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Brad Sills, BofA Merrill Lynch - Analyst [37]

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Great, thanks, Jaime.

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Operator [38]

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Terry Tillman, Raymond James.

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Terry Tillman, Raymond James - Analyst [39]

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I have got I guess 30 seconds here. But -- and since I don't have much time I guess I am going to have to wait for a call back from my Batman questions and analogy. But my first question just relates to the $4 million revenue contribution, Ken, that you talked about.

I guess for just risk mitigation purposes where is the confidence level in terms of de-risking those acquisitions? Is this the book of business that they had late stage pipeline with? Or is this just deferred revenue that does carry over? Just trying to understand how much you are putting into the forecast related to them having to go out and sign new business to get the $4 million?

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Jaime Ellerston, Everbridge, Inc. - CEO [40]

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So the answer is, yes. Meaning it is a little bit of both. We've been doing this long enough that we are not going to put out anything that we think is extremely risky in terms of numbers. So some of it is deferred revenue that we expect to bleed out. Remember they're a subscription businesses as well. So it is recurring revenue.

And then there will be new [in growth] as well. But you know us well enough to believe that we are relatively conservative in terms of how we are looking at things. And throughout the year we may adjust our guidance as we have come to live with them.

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Terry Tillman, Raymond James - Analyst [41]

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Okay. And Jaime, though, in terms of the multi-product sales and the color you provided, it sounds like there is strong traction and you guys are proud of what is happening there. But I guess though, just to understand this, in terms of as you think about evolving your go-to-market strategies in 2017, there is always kind of sales changes, territory changes at the beginning of the year.

Is there anything more meaningful than normal that you are doing on the go-to-market side because of some of the multi-product opportunities and we need to think about that as something potentially disruptive to the sales organization?

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Jaime Ellerston, Everbridge, Inc. - CEO [42]

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It is a very fair and it is I think a very good question because that does happen, right. So we have taken an approach to keep the acquired businesses somewhat separated and unique in terms of their sales forces. We are going to take advantage of those opportunities but slowly and some of that is the conservatism you are hearing from Ken.

We do not like substantive changes to the sales teams at the start of the year or in the middle of the year and that is why getting these transactions done at the very end of last year and a few days into 2017 was important to us. Because if we are going to make a change we want it announced to the customer base early enough to digest and, quite honestly, to be able to gestate sales opportunities and close them within the year.

The worst opportunity is something that closes in June or July and all you do is turn up your sales force for six months of shiny new object but no real revenue traction. And so, it was important to get them done early, it has been important to segment them to some extent and make very clear lines of delineation as to who can sell and how they are getting compensated.

And there, as an example, in our core the bulk of our sales teams, their number one priority is selling a mass notification product and things like the up sell into Safety Connection which are proven products and we have traction we know how to implement. And we will see, because we have so many customers asking for it we believe, some CEM sales. And we don't need a lot of them to make a difference because they're so much larger than our historical ASP.

But we are being somewhat cautious with that and we are not going to disrupt the sales force with -- it is a free for all, everyone is allowed to sell. There are very strict rules we are focused on. And you see that coming into the numbers we provide you for IDV and Crisis Commander; we are trying to be pretty mature about that.

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Terry Tillman, Raymond James - Analyst [43]

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Okay. And just the last question, thanks for fitting me in here. Lenel and International SOS, we obviously knew about International SOS in the past. We always had the assumption here. The indirect is an interesting opportunity, not betting everything on that it could be a potential upside driver. But this is mostly a direct sales type dynamic going forward.

Could you give us a sense on what kind of sales capacity these partners are adding? And does anything change on what you are seeing in terms of how influential the indirect could be coping forward? Thank you.

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Jaime Ellerston, Everbridge, Inc. - CEO [44]

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Sure. I mean, International SOS I mentioned before has a sales force, a direct sales force of 300 to 400 people around the globe. And what is most important about International SOS is they are in 70% of the Fortune 500 already or the Global 2000. So when we go into those accounts that I mentioned, many of them Bank of America or Microsoft, they already have or are choosing International SOS as their medical and travel emergency provider.

And so we come in and we can take that data and immediately locate it on a mapping interface and show the threat related to any traveler in the world any time of day, 24x7, 365, and make it pop to those people so they immediately know we have got a problem in Nigeria right now, that team that was from Goldman that is working on that resource deal, that major bank, or this team over here traveling from a big technology partner. That is what International SOS helps with and they turn up some of those new opportunities.

We get revenue from International SOS because we are their communication provider for every single one of their, I don't know, 1,000 TravelTracker or 700 TravelTracker customers. We really don't count them as customers until we bring them and upsell them an Everbridge product.

So we are pretty, again, mature and conservative about that number and, as I announced customers like Intelsat, I mean big corporation selecting Everbridge because of the combination. It still is only a couple quarters in, but it is growing pretty rapidly and we have pretty strong hopes of the International SOS partnership. It is a good partnership that is working.

On the Lenel side, that is a little different. Lenel is the largest in the Fortune 5000 physical security companies, they compete with the Tyco's, the G4S's, the [S Squared], the Honeywell's. But they are the largest, I think they have, they count like 70% or 80% again of the Fortune 1000, the Fortune 500 companies.

And so, the benefit there is we have integrated with all of them, but what Lenel is going to be doing is they are going to be packaging up Safety Connection and mass notification and adding it to their OnGuard solution to combine the physical badging system with Safety Connection and selling it through their large system integration partners which have thousands of reps throughout North America.

And so our focus there is going to be on getting 4, 5, 10 of those large system integrators knowledgeable to product and opening up much larger opportunities for us. It is validation of the Safety Connection product because why would someone that large partner with us and agree to sell it unless obviously we had some really good technology and secret sauce there to manage, locate and coordinate and communicate to mobile employees and extend that physical security to the virtual security you need for a traveler or a mobile employee? And it represents a pretty good-sized channel for us.

But it is brand-new, just announced. In fact, you guys are hearing it first, the actual press release formally on the Lenel relationship comes out of Lenel in about the next two to three weeks.

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Terry Tillman, Raymond James - Analyst [45]

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Thanks, congrats.

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Operator [46]

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I am showing no further questions. I would now like to turn the call back to Jaime Ellerston, Chairman and CEO, for any further remarks.

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Jaime Ellerston, Everbridge, Inc. - CEO [47]

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Well thanks, everyone, for joining us for the fourth-quarter call. We are certainly excited to deliver some strong and positive growth in adjusted EBITDA in 2016 and we are obviously very excited about 2017 and our critical event management program and the recent acquisitions. And we look forward to seeing you in the market and speaking to you. Thanks again for joining today. Goodbye.

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Operator [48]

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Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.