David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital. So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Everbridge, Inc. (NASDAQ:EVBG) does use debt in its business. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Everbridge's Net Debt?
The image below, which you can click on for greater detail, shows that at September 2019 Everbridge had debt of US$97.8m, up from US$93.3m in one year. However, its balance sheet shows it holds US$194.7m in cash, so it actually has US$97.0m net cash.
How Healthy Is Everbridge's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Everbridge had liabilities of US$152.5m due within 12 months and liabilities of US$116.1m due beyond that. Offsetting this, it had US$194.7m in cash and US$51.8m in receivables that were due within 12 months. So its liabilities total US$22.0m more than the combination of its cash and short-term receivables.
This state of affairs indicates that Everbridge's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$2.89b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Everbridge boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Everbridge's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year Everbridge wasn't profitable at an EBIT level, but managed to grow its revenue by38%, to US$186m. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is Everbridge?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Everbridge lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$19k and booked a US$49m accounting loss. But the saving grace is the US$97.0m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Everbridge's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Everbridge insider transactions.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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