Everbridge 10Q 2024 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37874

Everbridge, Inc.

(Exact name of registrant as specified in its charter)


Delaware		26-2919312
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

25 Corporate Drive, Suite 400 Burlington, Massachusetts		01803
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (818) 230-9700

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	EVBG	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 6, 2024, the registrant had 41,616,027 shares of common stock outstanding.

EVERBRIDGE, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS


		Page

PART I.	FINANCIAL INFORMATION	3

Item 1.	Condensed Consolidated Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated Statements of Comprehensive Loss	5

	Condensed Consolidated Statements of Stockholders’ Equity	6

	Condensed Consolidated Statements of Cash Flows	7

	Notes to the Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	44

PART II.	OTHER INFORMATION	46

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Repurchases of Equity Securities	46

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Mine Safety Disclosures	46

Item 5.	Other Information	46

Item 6.	Exhibits	47

Signatures		48

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited).

EVERBRIDGE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)


	March 31, 2024			December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	121,432		$	122,440
Restricted cash		2,097			2,120
Accounts receivable, net		101,720			119,389
Prepaid expenses		13,826			12,880
Deferred costs and other current assets		31,365			36,604
Total current assets		270,440			293,433
Property and equipment, net		7,369			8,305
Capitalized software development costs, net		31,334			31,630
Goodwill		512,545			517,184
Intangible assets, net		120,809			130,264
Restricted cash		790			811
Prepaid expenses		1,053			902
Deferred costs and other assets		44,123			43,356
Total assets	$	988,463		$	1,025,885
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	8,113		$	15,013
Accrued payroll and employee related liabilities		30,987			32,824
Accrued expenses		18,003			36,346
Deferred revenue		248,511			242,789
Convertible senior notes, current		63,201			63,110
Other current liabilities		7,687			8,918
Total current liabilities		376,502			399,000
Long-term liabilities:
Deferred revenue, noncurrent		5,627			6,429
Convertible senior notes, noncurrent		296,989			296,561
Deferred tax liabilities		4,882			4,318
Other long-term liabilities		16,307			17,268
Total liabilities		700,307			723,576
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.001, 10,000,000 shares authorized, no shares issued or outstanding as of March 31, 2024 and December 31, 2023, respectively		—			—
Common stock, $0.001 par value, 100,000,000 shares authorized, 41,511,249 and 41,199,583 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively		42			41
Additional paid-in capital		783,732			771,779
Accumulated deficit		(469,497	)		(449,429	)
Accumulated other comprehensive loss		(26,121	)		(20,082	)
Total stockholders’ equity		288,156			302,309
Total liabilities and stockholders’ equity	$	988,463		$	1,025,885

See accompanying notes to condensed consolidated financial statements.

EVERBRIDGE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended March 31,
	2024			2023
Revenue	$	111,429		$	108,268
Cost of revenue		32,444			31,981
Gross profit		78,985			76,287
Operating expenses:
Sales and marketing		37,118			42,188
Research and development		22,848			25,004
General and administrative		31,541			24,466
Restructuring		2,344			21
Total operating expenses		93,851			91,679
Operating loss		(14,866	)		(15,392	)
Other income, net
Interest and investment income		1,084			1,737
Interest expense		(539	)		(769	)
Other income (expense), net		(396	)		618
Total other income, net		149			1,586
Loss before income taxes		(14,717	)		(13,806	)
Provision for income taxes		(5,351	)		(842	)
Net loss	$	(20,068	)	$	(14,648	)
Net loss per share attributable to common stockholders
Basic	$	(0.49	)	$	(0.36	)
Diluted	$	(0.49	)	$	(0.36	)
Weighted-average common shares outstanding:
Basic		41,330,475			40,274,069
Diluted		41,330,475			40,274,069

See accompanying notes to condensed consolidated financial statements.

EVERBRIDGE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2024			2023
Net loss	$	(20,068	)	$	(14,648	)
Other comprehensive income (loss):
Foreign currency translation adjustment, net of taxes		(6,039	)		2,426
Total comprehensive loss	$	(26,107	)	$	(12,222	)

See accompanying notes to condensed consolidated financial statements.

EVERBRIDGE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)


	Common stock					Additional paid-in			Accumulated			Accumulated- other comprehensive
	Shares			Par value		capital			deficit			loss			Total
Balance at December 31, 2023		41,199,583		$	41	$	771,779		$	(449,429	)	$	(20,082	)	$	302,309
Stock-based compensation		—			—		12,211			—			—			12,211
Vesting of restricted stock units and performance-based restricted stock units		301,591			1		—			—			—			1
Stock award shares withheld to settle employee tax withholding liability		(81,668	)		—		(2,164	)		—			—			(2,164	)
Exercise of stock options		2,000			—		53			—			—			53
Issuance of shares under employee stock purchase plan		89,743			—		1,853			—			—			1,853
Other comprehensive loss		—			—		—			—			(6,039	)		(6,039	)
Net loss		—			—		—			(20,068	)		—			(20,068	)
Balance at March 31, 2024		41,511,249		$	42	$	783,732		$	(469,497	)	$	(26,121	)	$	288,156


	Common stock					Additional paid-in			Accumulated			Accumulated- other comprehensive
	Shares			Par value		capital			deficit			loss			Total
Balance at December 31, 2022		40,127,522		$	40	$	721,143		$	(402,124	)	$	(29,948	)	$	289,111
Stock-based compensation		—			—		13,931			—			—			13,931
Vesting of restricted stock units and performance-based restricted stock units		250,127			—		—			—			—			—
Stock award shares withheld to settle employee tax withholding liability		(56,062	)		—		(1,866	)		—			—			(1,866	)
Exercise of stock options		71,166			—		1,263			—			—			1,263
Issuance of shares under employee stock purchase plan		88,863			—		2,546			—			—			2,546
Other comprehensive income		—			—		—			—			2,426			2,426
Net loss		—			—		—			(14,648	)		—			(14,648	)
Balance at March 31, 2023		40,481,616		$	40	$	737,017		$	(416,772	)	$	(27,522	)	$	292,763

See accompanying notes to condensed consolidated financial statements.

EVERBRIDGE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2024			2023
Cash flows from operating activities:
Net loss	$	(20,068	)	$	(14,648	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		14,447			14,774
Amortization of deferred costs		4,860			4,514
Deferred income taxes		(35	)		(501	)
Accretion of interest on convertible senior notes		519			715
(Gain) loss on disposal of assets		1			(352	)
Provision for credit losses and sales reserve		441			1,635
Stock-based compensation		11,412			13,449
Changes in operating assets and liabilities:
Accounts receivable		17,853			11,994
Prepaid expenses		(1,097	)		(2,465	)
Deferred costs		(4,621	)		(5,909	)
Other assets		3,000			(597	)
Accounts payable		(6,539	)		(1,732	)
Accrued payroll and employee related liabilities		(1,837	)		(1,652	)
Accrued expenses		(18,343	)		(797	)
Deferred revenue		4,316			3,589
Other liabilities		(2,167	)		(1,442	)
Net cash provided by operating activities		2,142			20,575
Cash flows from investing activities:
Capital expenditures		(247	)		(575	)
Proceeds from landlord reimbursement		2,006			—
Proceeds from sale of assets		13			4,289
Additions to capitalized software development costs		(3,958	)		(4,112	)
Net cash used in investing activities		(2,186	)		(398	)
Cash flows from financing activities:
Payments associated with shares withheld to settle employee tax withholding liability		(2,164	)		(1,866	)
Proceeds from employee stock purchase plan		1,853			2,546
Proceeds from stock option exercises		53			1,263
Other		(18	)		(19	)
Net cash provided by (used in) financing activities		(276	)		1,924
Effect of exchange rates on cash, cash equivalents and restricted cash		(732	)		63
Net increase (decrease) in cash, cash equivalents and restricted cash		(1,052	)		22,164
Cash, cash equivalents and restricted cash—beginning of period		125,371			201,594
Cash, cash equivalents and restricted cash—end of period	$	124,319		$	223,758
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	—		$	—
Taxes, net of refunds received		589			617
Supplemental disclosure of non-cash activities:
Capitalized assets included in accounts payable and accrued expenses		120			660
Stock-based compensation capitalized for software development		799			376

See accompanying notes to condensed consolidated financial statements.

EVERBRIDGE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

(1) Business and Nature of Operations

Everbridge, Inc., a Delaware corporation (together with its wholly-owned subsidiaries, referred to as “Everbridge” or the “Company”), is a global software company that empowers resilience by leveraging intelligent automation technology to enable customers to anticipate, mitigate, respond to, and recover from critical events to keep people safe and organizations running. The Company’s SaaS-based platform enables the Company’s customers to manage and mitigate critical events. The Company’s enterprise applications, such as Mass Notification, Safety Connection, IT Alerting, Risk Intelligence, Public Warning, Community Engagement, Crisis Management, CareConverge, Control Center, Travel Protector, SnapComms and E911, automate numerous critical event management (“CEM”) processes. The Company generates revenue primarily from subscription fees to the Company’s enterprise applications. The Company has operations in the United States, United Kingdom, Norway, China, Netherlands, Canada, New Zealand, France, India, and other countries.

Proposed Merger with Thoma Bravo

On February 29, 2024, the Company entered into an Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”), by and among Everbridge, Project Emerson Parent, LLC (“Parent”) and Project Emerson Merger Sub, Inc. (“Merger Sub”), which amended and restated the previously announced Agreement and Plan of Merger, dated as of February 4, 2024, by and among Everbridge, Parent and Merger Sub. The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into Everbridge (the “Merger”), with Everbridge continuing as the surviving corporation of the Merger and a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of Thoma Bravo Discover Fund IV, L.P. (the “Thoma Bravo Fund”), an investment fund managed by Thoma Bravo, L.P. For further information, see Note 19, Proposed Merger with Thoma Bravo and Note 20, Subsequent Event.

(2) Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

The condensed consolidated balance sheet as of December 31, 2023, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by U.S. GAAP on an annual reporting basis.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, statements of stockholders’ equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2024 or any future period.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Assets and liabilities which are subject to judgment and use of estimates include the determination of the period of benefit for deferred commissions, relative stand-alone selling price for identified performance obligations in the Company’s revenue transactions, allowances for credit losses, the fair value of assets acquired and liabilities assumed in business combinations, the fair value of contingent consideration, the recoverability of goodwill and long-lived assets, valuation allowances with respect to deferred tax assets, useful lives associated with property and equipment and intangible assets, contingencies, and the valuation and assumptions underlying stock-based compensation. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. In addition, the Company engages valuation specialists to assist with management’s determination of the valuation of its fair values of assets acquired and liabilities assumed in business combinations, convertible senior notes, and certain market-based performance equity awards.

Concentrations of Credit and Business Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and accounts receivable.

The Company maintains cash and cash equivalent balances at several banks. Accounts located in the United States are insured by the Federal Deposit Insurance Corporation (“FDIC”), up to $250,000. From time to time, balances may exceed amounts insured by the FDIC. The Company has not experienced any losses in such amounts.

The Company’s accounts receivable are generally unsecured and are derived from revenue earned from customers primarily located in the United States, Norway, Netherlands, Sweden and the United Kingdom and are generally denominated in U.S. Dollars, Norwegian Krone, Euro, Swedish Kronor or British Pounds. Each reporting period, the Company reevaluates each customer’s ability to satisfy credit obligations and maintains an allowance for credit risk based on the evaluations. No single customer comprised more than 10% of the Company’s total revenue for the three months ended March 31, 2024 and 2023. No single customer comprised more than 10% of the Company’s gross accounts receivable as of March 31, 2024 and December 31, 2023.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist of funds deposited into money market funds. Cash and cash equivalents are recorded at cost, which approximates fair value.

Restricted Cash

The Company’s restricted cash balance primarily consists of cash held at a financial institution for collateral against performance on the Company’s customer contracts and certain other cash deposits for specific purposes.

Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 27, 2024, that have had a material impact on the Company’s condensed consolidated financial statements and related notes.

Revenue Recognition

The Company derives its revenues primarily from subscription services, professional services and software license arrangements. Revenues are recognized when control of services is transferred to the Company’s customers in an amount that reflects the consideration it expects to be entitled to in exchange for those services.

The Company determines revenue recognition through the following steps:

•

Identification of the contract, or contracts, with a customer;

•

Identification of the performance obligations in the contract;

•

Determination of the transaction price;

•

Allocation of the transaction price to the performance obligations in the contract; and

•

Recognition of revenue when, or as, the Company satisfies a performance obligation.

Subscription Services Revenues

Subscription services revenues primarily consist of fees that provide customers access to one or more of the Company’s hosted applications for critical event management, with routine customer support. Revenue is generally recognized over time on a ratable basis over the contract term beginning on the date that the Company’s service is made available to the customer. All services are recognized using an output measure of progress looking at time elapsed as the contract generally provides the customer equal benefit throughout the contract period. The Company’s subscription contracts are generally two years or longer in length, billed annually in advance, and non-cancelable.

Professional Services Revenues

Professional services revenues primarily consist of fees for deployment and optimization services, as well as training. The majority of the Company’s consulting contracts revenue is recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time based on the proportion of services performed to date compared to total services expected to be performed.

Software License Revenues

The Company also sells software and related post contract support for on premises usage as well as professional services, hardware and hosting. The Company’s on premises license transactions are generally perpetual in nature and are recognized at a point in time when made available to the customer for use. Significant judgment is required to determine the standalone selling prices for each distinct performance obligation in order to allocate the transaction price for purposes of revenue recognition. Making this judgment of estimating a standalone selling price involves consideration of overall pricing objectives, market conditions and other factors, including the value of the Company’s other similar contracts, the applications sold, customer demographics, geographic locations, and the number and types of users within the Company’s contracts. The significant judgment was primarily due to using such considerations to estimate the price that each distinct performance obligation would be sold for on a standalone basis because such performance obligations are typically sold together on a bundled basis. Changes in these estimates of standalone selling prices can have a material effect on the amount of revenue recognized from each distinct performance obligation.

Contracts with Multiple Performance Obligations

Most of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis for those performance obligations with stable observable prices and then the residual method applied for any performance obligation that has pricing which is highly variable. The Company determines the standalone selling prices based on the Company’s overall pricing objectives, taking into consideration market conditions and other factors, including the value of the Company’s contracts, pricing when certain services are sold on a standalone basis, the applications sold, customer demographics, geographic locations, and the volume of services and users.

Returns

The Company does not offer rights of return for its products and services in the normal course of business.

Customer Acceptance

The Company’s contracts with customers generally do not include customer acceptance clauses.

Trade and Other Receivables

Trade and other receivables are primarily comprised of trade receivables that are recorded at the invoice amount, net of an allowance for credit risk, which is not material. Other receivables represent unbilled receivables related to subscription and professional services contracts, net of an allowance for credit losses, which is not material.

Deferred Costs

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Subscription-related commissions costs are deferred and then amortized on a straight-line basis over a period of benefit that the Company has determined to be four years. Sales commissions attributable to professional services are expensed within twelve months of selling the service to the customer. The Company has determined the period of benefit by taking into consideration its customer contracts, its technology and other factors. Sales commissions attributed to renewals are not material and are not commensurate with initial and growth sales. Amortization of deferred commissions is included in sales and marketing expenses in the accompanying condensed consolidated statements of operations.

Deferred Revenue

Deferred revenue consists of amounts that have been invoiced and for which the Company has the right to bill, but that have not been recognized as revenue because the related goods or services have not been transferred. Deferred revenue that will be realized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current.

In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts generally do not include a significant financing component. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, not to receive financing from its customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period.

Recent Accounting Pronouncements Not Yet Adopted

ASU 2023-09

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires annual disclosures of specific categories in the rate reconciliation, additional information for reconciling items that meet a quantitative threshold and a disaggregation of income taxes paid, net of refunds. ASU 2023-09 also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. ASU 2023-09 is effective for the Company beginning with the 2025 Annual Report on Form 10-K. Early adoption is permitted. ASU 2023-09 should be applied prospectively. Retrospective adoption is permitted. The Company is currently assessing the impact this standard will have on the Company’s consolidated financial statements.

ASU 2023-07

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires disclosures of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, the amount and composition of other segment items and the title and position of the CODM with an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. In addition to the measure that is most consistent with the measurement principles under generally accepted accounting principles, additional measures of a segment’s profit or loss that are used by the CODM in assessing segment performance and deciding how to allocate resources may be disclosed. All annual disclosures of a reportable segment’s profit or loss and assets required by Accounting Standards Codification (“ASC”) 280, Segment Reporting, will be required to be disclosed in interim periods. Public entities with a single reportable segment are required to provide all disclosures required under ASC 280. ASU 2023-07 is effective for the Company beginning with the 2024 Annual Report on Form 10-K. Early adoption is permitted. ASU 2023-07 should be applied retrospectively to all periods presented in the financial statements. The Company is currently assessing the impact this standard will have on the Company’s consolidated financial statements.

Other accounting standard updates effective for interim and annual periods beginning after December 31, 2023 are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

(3) Accounts Receivable and Contract Assets, Net

Accounts receivable, net is as follows (in thousands):


	As of			As of
	March 31, 2024			December 31, 2023
Accounts receivable amortized cost	$	107,369		$	125,522
Allowance for credit losses		(5,649	)		(6,133	)
Net accounts receivable	$	101,720		$	119,389

The following table summarizes the changes in the allowance for credit losses for accounts receivable (in thousands):


	Three Months Ended March 31,
	2024			2023
Balance, beginning of period	$	(6,133	)	$	(7,312	)
(Provision for) benefit from expected credit losses, net		163			(928	)
Write-offs		321			310
Balance, end of period	$	(5,649	)	$	(7,930	)

Contract assets, net, included in deferred costs and other current assets on the condensed consolidated balance sheets is as follows (in thousands):


	As of			As of
	March 31, 2024			December 31, 2023
Contract asset amortized cost	$	6,511		$	9,001
Allowance for credit losses		(579	)		(606	)
Net contract asset	$	5,932		$	8,395

The following table summarizes the changes in the allowance for credit losses for contract assets (in thousands):


	Three Months Ended March 31,
	2024			2023
Balance, beginning of period	$	(606	)	$	(1,015	)
Write-offs		27			19
Balance, end of period	$	(579	)	$	(996	)

Credit loss expense was $0.4 million and $1.6 million for the three months ended March 31, 2024 and 2023, respectively.

The following table summarizes the changes in the sales reserve (in thousands):


	Three Months Ended March 31,
	2024			2023
Balance, beginning of period	$	(425	)	$	(425	)
Write-offs		197			—
Balance, end of period	$	(228	)	$	(425	)

(4) Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):


	Useful life	As of			As of
	in years	March 31, 2024			December 31, 2023
Furniture and equipment	5	$	1,913		$	1,965
Leasehold improvements (1)	9		9,424			9,371
System hardware	5		1,923			1,928
Office computers	3		9,076			8,950
Computer and system software	3		2,442			2,408
			24,778			24,622
Less accumulated depreciation and amortization			(17,409	)		(16,317	)
Property and equipment, net		$	7,369		$	8,305

(1)

Lesser of the lease term or the estimated useful lives of the improvements, which may be up to 9 years as of March 31, 2024.

Depreciation and amortization expense for property and equipment was $1.2 million and $1.4 million for the three months ended March 31, 2024 and 2023, respectively.

(5) Capitalized Software Development Costs, Net

Capitalized software development costs, net consisted of the following (in thousands):


	Gross carrying amount		Amortization period	Accumulated amortization			Net carrying amount
As of March 31, 2024	$	69,336	3 years	$	(38,002	)	$	31,334
As of December 31, 2023		64,860	3 years		(33,230	)		31,630

The Company capitalized software development costs of $4.5 million in each of the three months ended March 31, 2024 and 2023.

Amortization expense for capitalized software development costs was $4.8 million and $3.7 million for the three months ended March 31, 2024 and 2023, respectively. Amortization of capitalized software development costs is classified within cost of revenue in the condensed consolidated statements of operations.

The expected amortization of capitalized software development costs, as of March 31, 2024, for each of the following years is as follows (in thousands):



2024 (for the remaining nine months)	$	12,375
2025		11,832
2026		6,833
2027		294
	$	31,334

(6) Fair Value Measurements

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short maturity of these items.

Certain assets, including long-lived assets, goodwill and intangible assets are also subject to measurement at fair value on a non-recurring basis if they are deemed to be impaired as a result of an impairment review. For the three months ended March 31, 2024 and year ended December 31, 2023, no impairments were identified of those assets requiring measurement at fair value on a non-recurring basis.

The following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy. Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):


	As of March 31, 2024
	Quoted		Significant
	Prices in		Other		Significant
	Active		Observable		Unobservable
	Markets		Inputs		Inputs		Total Fair
	(Level 1)		(Level 2)		(Level 3)		Value
Assets:
Cash equivalents:
Money market funds	$	85,230	$	—	$	—	$	85,230
Total financial assets	$	85,230	$	—	$	—	$	85,230


	As of December 31, 2023
	Quoted		Significant
	Prices in		Other		Significant
	Active		Observable		Unobservable
	Markets		Inputs		Inputs		Total Fair
	(Level 1)		(Level 2)		(Level 3)		Value
Assets:
Cash equivalents:
Money market funds	$	88,189	$	—	$	—	$	88,189
Total financial assets	$	88,189	$	—	$	—	$	88,189

The Company classifies and discloses fair value measurements in one of the following three categories of fair value hierarchy:


Level 1 -	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities.


Level 2 -	Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.


Level 3 -	Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company’s assets that are measured by management at fair value on a recurring basis are generally classified within Level 1 or Level 2 of the fair value hierarchy. The Company did not have any transfers into or out of Level 3 during the three months ended March 31, 2024.

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. The fair value of the Company’s investments in certain money market funds is their face value and such instruments are classified as Level 1 and are included in cash and cash equivalents on the condensed consolidated balance sheets.

The Company estimates the fair value of the convertible senior notes based on market-observable inputs (Level 2). As of March 31, 2024 and December 31, 2023, the fair value of the 0% convertible senior notes due March 15, 2026 (the “2026 Notes”) was determined to be $293.5 million and $260.1 million, respectively, and the principal amount of the notes was $300.3 million in each period. As of March 31, 2024 and December 31, 2023, the fair value of the 0.125% convertible senior notes due December 15, 2024 (the “2024 Notes”) was determined to be $61.9 million and $58.7 million, respectively, and the principal amount of the notes was $63.5 million in each period.

(7) Goodwill and Intangible Assets, Net

The following table displays the changes in the gross carrying amount of goodwill (in thousands):



Balance at December 31, 2023	$	517,184
Foreign currency translation		(4,639	)
Balance at March 31, 2024	$	512,545

There were no impairments recorded against goodwill during the three months ended March 31, 2024 and for the year ended December 31, 2023.

Intangible assets consisted of the following (in thousands):


				As of March 31, 2024
	Gross carrying amount		Weighted average life (years)	Accumulated amortization			Net carrying amount
Amortizable intangible assets:
Developed technology	$	24,688	3.66	$	(21,260	)	$	3,428
Tradenames		13,814	4.74		(8,387	)		5,427
Customer relationships		202,575	8.35		(90,621	)		111,954
Total intangible assets	$	241,077		$	(120,268	)	$	120,809


					As of December 31, 2023
	Gross carrying amount		Weighted average life (years)		Accumulated amortization			Net carrying amount
Amortizable intangible assets:
Developed technology	$	34,942		3.47	$	(29,981	)	$	4,961
Tradenames		16,505		4.52		(10,315	)		6,190
Customer relationships		206,235		8.34		(87,122	)		119,113
Total intangible assets	$	257,682			$	(127,418	)	$	130,264

Amortization expense for intangible assets was $8.4 million and $9.7 million for the three months ended March 31, 2024 and 2023, respectively. Included in the amortization expense amounts is amortization expense attributed to developed technology within cost of revenue of $1.5 million and $2.4 million for the three months ended March 31, 2024 and 2023, respectively. During 2022, the Company assigned $5.6 million net carrying amount of intangible assets associated with a pending asset sale to assets held for sale on the consolidated balance sheet. During the three months ended March 31, 2023, the Company completed the divestiture and derecognized the intangible assets (see Note 8). Additionally, during the three months ended March 31, 2024, the Company retired $12.5 million of fully amortized intangible assets.

The expected amortization of the intangible assets, as of March 31, 2024, for each of the next five years and thereafter is as follows (in thousands):



2024 (for the remaining nine months)	$	23,245
2025		26,074
2026		20,274
2027		15,945
2028		15,554
Thereafter		19,717
	$	120,809

(8) Assets and Liabilities Held for Sale

The Company entered into an agreement in the fourth quarter of fiscal 2022 to sell certain assets. In connection with entering into this agreement, the Company concluded that the asset sale met the held for sale criteria and classified the assets and liabilities as held for sale on the consolidated balance sheet. The Company completed the asset sale during March 2023 for total proceeds of $4.8 million. In connection with the asset sale, the Company recorded a gain of $0.3 million which is included in other income (expense), net in the condensed consolidated statement of operations for the three months ended March 31, 2023.

(9) Convertible Senior Notes

0% Convertible Senior Notes Due 2026

In March 2021, the Company issued $375.0 million aggregate principal amount of 0% convertible senior notes due 2026, including $50.0 million aggregate principal amount of 2026 Notes issued upon the initial purchasers’ exercise in full of their option to purchase additional 2026 Notes. The 2026 Notes will mature on March 15, 2026, unless earlier redeemed or repurchased by the Company or converted by the holders pursuant to their terms. The Company will pay special interest, if any, at the Company’s election as the sole remedy relating to the failure to comply with certain reporting obligations and under certain circumstances.

The 2026 Notes are governed by an Indenture between the Company, as issuer, and U.S. Bank Trust Company National Association (as successor in interest to U.S. Bank National Association), as trustee (the “2026 Notes Indenture”). The 2026 Notes are unsecured and rank: senior in right of payment to the Company’s indebtedness that is expressly subordinated in right of payment to the 2026 Notes; equal in right of payment to the Company’s existing and future indebtedness that is not so subordinated, including its 0.125% convertible senior notes due 2024 (see 0.125% Convertible Senior Notes Due 2024 below); effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and other liabilities incurred by the Company’s subsidiaries.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of common stock, at the Company’s election.

The 2026 Notes have an initial conversion rate of 5.5341 shares of common stock per $1,000 principal amount of 2026 Notes. This represents an initial effective conversion price of approximately $180.70 per share of common stock and initially approximately 2.1 million shares issuable upon conversion. Throughout the term of the 2026 Notes, the conversion rate may be adjusted upon the occurrence of certain events. Holders of the 2026 Notes will not receive any cash payment representing accrued and unpaid special interest, if any, upon conversion of a 2026 Note, except in limited circumstances. Accrued but unpaid special interest, if any, will be deemed to be paid by cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock paid or delivered, as the case may be, to the holder upon conversion of a 2026 Note.

Holders may convert all or a portion of their 2026 Notes prior to the close of business on the business day immediately preceding December 15, 2025, in multiples of $1,000 principal amount, only under the following circumstances:

•

during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

•

during the five business day period after any ten consecutive trading day period (the “2026 Notes Measurement Period”), in which the “trading price” (as the term is defined in the 2026 Notes Indenture) per $1,000 principal amount of notes for each trading day of such 2026 Notes Measurement Period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

•

if the Company calls such notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the notes called (or deemed called) for redemption; or

•

upon the occurrence of specified corporate events.

On or after December 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2026 Notes at the conversion rate at any time regardless of whether the conditions set forth above have been met.

As of March 31, 2024, the 2026 Notes are not yet convertible at the option of the debt holder and were classified as long-term on the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023.

The 2026 Notes were not redeemable by the Company prior to March 20, 2024. The Company may redeem for cash all or any portion of the 2026 Notes, at its option, on or after March 20, 2024 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date.

During the year ended December 31, 2023, the Company paid approximately $64.9 million in cash to repurchase approximately $74.7 million aggregate principal amount of the 2026 Notes and recognized an extinguishment gain in the amount of $8.8 million in gain on extinguishment of convertible notes, capped call modification and change in fair value on the consolidated statement of operations.

The 2026 Notes consist of the following (in thousands):


	As of			As of
	March 31, 2024			December 31, 2023
Liability component:
Principal	$	300,276		$	300,276
Less: debt discount, net of amortization		(3,287	)		(3,715	)
Net carrying amount	$	296,989		$	296,561

The following table sets forth total interest expense recognized related to the 2026 Notes (in thousands):


	Three Months Ended March 31,
	2024		2023
Amortization of debt discount and transaction costs	$	428	$	525

The effective interest rates on the 2026 Notes were 0.6% during both the three months ended March 31, 2024 and 2023.

The fair value of the 2026 Notes, which was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, quoted price of the 2026 Notes in an over-the-counter market (Level 2), and carrying value of debt instruments were as follows (in thousands):


	As of March 31, 2024				As of December 31, 2023
	Fair Value		Carrying Value		Fair Value		Carrying Value
2026 Notes	$	293,520	$	296,989	$	260,114	$	296,561

In connection with the issuance of the 2026 Notes, the Company entered into capped call transactions with certain option counterparties (the “2026 capped call transactions”). The 2026 capped call transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the 2026 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2026 Notes, as the case may be, with such reduction and/or offset subject to a cap. Under the 2026 capped call transactions, the Company purchased capped call options that in the aggregate relate to the total number of shares of the Company’s common stock underlying the 2026 Notes, with an initial strike price of approximately $180.70 per share, which corresponds to the initial conversion price of the 2026 Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the 2026 Notes, and with a cap price of approximately $258.14. The cost of the purchased capped calls of $35.1 million was recorded to shareholders’ equity and will not be re-measured.

Based on the closing price of the Company’s common stock of $34.83 on March 31, 2024, the if-converted value of the 2026 Notes was less than their respective principal amounts.

0.125% Convertible Senior Notes Due 2024

In December 2019, the Company issued $450.0 million aggregate principal amount of 0.125% convertible senior notes due 2024, including $75.0 million aggregate principal amount of 2024 Notes issued upon the initial purchasers’ exercise in full of their option to purchase additional 2024 Notes. The 2024 Notes will mature on December 15, 2024, unless earlier redeemed or repurchased by the Company or converted by the holders pursuant to their terms. Interest is payable semiannually in arrears on June 15 and December 15 of each year, commencing on June 15, 2020.

The 2024 Notes are governed by an Indenture between the Company, as issuer, and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), as trustee (the “2024 Notes Indenture”). The 2024 Notes are unsecured and rank: senior in right of payment to the Company’s indebtedness that is expressly subordinated in right of payment to the 2024 Notes; equal in right of payment to the Company’s existing and future indebtedness that is not so subordinated, including its 2026 Notes; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and other liabilities incurred by the Company’s subsidiaries.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of common stock, at the Company’s election. The Company’s current intention is to settle the conversion in shares of common stock if a conversion were to occur.

The 2024 Notes have an initial conversion rate of 8.8999 shares of common stock per $1,000 principal amount of 2024 Notes. This represents an initial effective conversion price of approximately $112.36 per share of common stock and initially approximately 4.0 million shares issuable upon conversion. Throughout the term of the 2024 Notes, the conversion rate may be adjusted upon the occurrence of certain events. Holders of the 2024 Notes will not receive any cash payment representing accrued and unpaid interest, if any, upon conversion of a 2024 Note, except in limited circumstances. Accrued but unpaid interest will be deemed to be paid by cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock paid or delivered, as the case may be, to the holder upon conversion of a 2024 Note.

Holders may convert all or a portion of their 2024 Notes prior to the close of business on the business day immediately preceding June 15, 2024, in multiples of $1,000 principal amount, only under the following circumstances:

•

during any calendar quarter commencing after the calendar quarter ending on March 31, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

•

during the five business day period after any ten consecutive trading day period (the “2024 Notes Measurement Period”), in which the “trading price” (as the term is defined in the 2024 Notes Indenture) per $1,000 principal amount of notes for each trading day of such 2024 Notes Measurement Period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

•

if the Company calls such notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

•

upon the occurrence of specified corporate events.

On or after June 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2024 Notes at the conversion rate at any time regardless of whether the conditions set forth above have been met.

As of March 31, 2024, the 2024 Notes were not convertible at the option of the debt holder and are classified as current liabilities on the condensed consolidated balance sheet as the 2024 Notes mature in less than 12 months.

The 2024 Notes were not redeemable by the Company prior to December 20, 2022. The Company may redeem for cash all or any portion of the 2024 Notes, at its option, on or after December 20, 2022 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2024 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

During the year ended December 31, 2023, the Company paid approximately $65.7 million in cash to repurchase approximately $70.1 million aggregate principal amount of the 2024 Notes and recognized an extinguishment gain in the amount of $3.9 million in gain on extinguishment of convertible notes, capped call modification and change in fair value on the consolidated statement of operations. The Company also partially terminated capped call options entered into in connection with the 2024 Notes during the year ended December 31, 2023 and received approximately $33 thousand recorded to additional paid-in capital on the consolidated balance sheet.

During the year ended December 31, 2022, the Company paid approximately $288.8 million in cash to repurchase approximately $316.4 million aggregate principal amount of the 2024 Notes and recognized an extinguishment gain in the amount of $24.0 million in gain on extinguishment of convertible notes, capped call modification and change in fair value on the consolidated statement of operations.

The 2024 Notes consist of the following (in thousands):


	As of			As of
	March 31, 2024			December 31, 2023
Liability component:
Principal	$	63,459		$	63,459
Less: debt discount, net of amortization		(258	)		(349	)
Net carrying amount	$	63,201		$	63,110

The following table sets forth total interest expense recognized related to the 2024 Notes (in thousands):


	Three Months Ended March 31,
	2024		2023
0.125% coupon	$	20	$	42
Amortization of debt discount and transaction costs		91		190
	$	111	$	232

The effective interest rates on the 2024 Notes were 0.7% during both the three months ended March 31, 2024 and 2023.

The fair value of the 2024 Notes, which was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, quoted price of the 2024 Notes in an over-the-counter market (Level 2), and carrying value of debt instruments were as follows (in thousands):


	As of March 31, 2024				As of December 31, 2023
	Fair Value		Carrying Value		Fair Value		Carrying Value
2024 Notes	$	61,873	$	63,201	$	58,670	$	63,110

In connection with the issuance of the 2024 Notes, the Company entered into capped call transactions with certain option counterparties (the “2024 capped call transactions”). The 2024 capped call transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the 2024 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2024 Notes, as the case may be, with such reduction and/or offset subject to a cap. Under the 2024 capped call transactions, the Company purchased capped call options that in the aggregate relate to the total number of shares of the Company’s common stock underlying the 2024 Notes, with an initial strike price of approximately $112.36 per share, which corresponds to the initial conversion price of the 2024 Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the 2024 Notes, and with a cap price of approximately $166.46. The cost of the purchased capped calls of $44.9 million was recorded to shareholders’ equity and will not be re-measured.

Based on the closing price of the Company’s common stock of $34.83 on March 31, 2024, the if-converted value of the 2024 Notes was less than their respective principal amounts.

Future Maturities of Debt Obligations

The following table summarizes the Company’s debt obligations as of March 31, 2024 (in thousands):


	Remainder of 2024		2025		2026		Total
Debt obligations	$	63,459	$	—	$	300,276	$	363,735

Debt obligations include the principal amount of the 2026 Notes and 2024 Notes but exclude interest payments to be made under the 2026 Notes and 2024 Notes. Although the 2026 Notes and 2024 Notes mature in 2026 and 2024, respectively, they can be converted into cash and/or shares of the Company’s common stock prior to maturity if certain conditions are met. Any conversion prior to maturity can result in repayments of the principal amounts earlier than the scheduled repayments as indicated in the table. The 2026 Notes and 2024 Notes balance excludes debt discount capitalized on the balance sheet.

(10) Stockholders’ Equity

Preferred Stock

As of March 31, 2024, the Company had authorized 10,000,000 shares of preferred stock, par value $0.001, of which no shares were outstanding.

Common Stock

As of March 31, 2024, the Company had authorized 100,000,000 shares of common stock, par value $0.001. Holders of common stock are entitled to one vote per share. At March 31, 2024 and December 31, 2023, there were 41,511,249 and 41,199,583 shares of common stock issued and outstanding, respectively.

(11) Stock Plans and Stock-Based Compensation

The Company’s 2016 Equity Incentive Plan (the “2016 Plan”) became effective on September 15, 2016. The 2016 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights and performance share awards to employees, directors and consultants of the Company. The number of shares of common stock reserved for issuance under the 2016 Plan will automatically increase on January 1 of each year by 3% of the number of shares of the Company’s capital stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s Board of Directors (the “Board”). Additionally, on December 16, 2022, the Board adopted the Everbridge, Inc. 2022 Inducement Plan (the “2022 Inducement Plan”). The only persons eligible to receive grants of Inducement Awards (as defined below) under the 2022 Inducement Plan are individuals who satisfy the standards for inducement grants under Nasdaq Listing Rule 5635(c)(4). An “Inducement Award” means any right to receive Common Stock, cash or other property granted under the 2022 Inducement Plan (including nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards, performance cash awards or other stock-based awards).

2016 Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan (the “2016 ESPP”) became effective on September 15, 2016. The number of shares reserved for issuance under the 2016 ESPP will automatically increase on January 1 of each year by the lesser of 200,000 shares of the Company’s common stock, 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s Board.

The 2016 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount of up to 15% through payroll deductions of their eligible compensation, subject to any plan limitations. The 2016 ESPP provides for separate six-month offering periods beginning each March and September of each fiscal year.

On each purchase date, eligible employees will purchase the Company’s stock at a price per share equal to 85% of the lesser of (i) the fair market value of the Company’s common stock on the offering date or (ii) the fair market value of the Company’s common stock on the purchase date.

For the three months ended March 31, 2024 and 2023, 89,743 and 88,863 shares of common stock were purchased under the 2016 ESPP, respectively. The Company recorded stock-based compensation expense of $0.2 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, there was no unrecognized compensation cost related to the 2016 ESPP.

ESPP purchases were discontinued subsequent to the offering period which ended in March 2024. The fair value of shares issuable under the 2016 ESPP is determined using the Black-Scholes option pricing model with the following weighted average assumptions:


		Three Months Ended March 31, 2023
Employee Stock Purchase Plan:
Expected term (in years) (1)		0.50
Expected volatility (2)		60%
Risk-free interest rate (3)		5.18%
Dividend rate (4)		0%

(1)

The expected term represents the contractual term of the 2016 ESPP;

(2)

The expected volatility of the Company’s common stock on the date of grant is based on the weighted average of the Company’s historical volatility as a public company, the implied volatility of publicly-traded options on the Company’s common stock and the volatilities of publicly traded peer companies that are reasonably comparable to the Company’s own operations;

(3)

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the grant; and

(4)

The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on the Company’s common stock.

Stock Options

Stock option awards are granted with an exercise price equal to the fair market value of the Company’s common stock at the date of grant based on the closing market price of its common stock as reported on The Nasdaq Global Market. The option awards generally vest over four years and are exercisable any time after vesting. The stock options expire ten years after the date of grant.

There were no stock options granted during the three months ended March 31, 2024. There was no stock-based compensation expense recorded during the three months ended March 31, 2024 or the three months ended March 31, 2023 as stock options were fully vested.

The total intrinsic value of options exercised for the three months ended March 31, 2024 and 2023 was less than $0.1 million and $1.1 million, respectively. This intrinsic value represents the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option. Based on the fair market value of the Company’s common stock at March 31, 2024 and 2023, the total intrinsic value of all outstanding options was $0.4 million and $0.6 million, respectively.

There were no nonvested stock options as of March 31, 2024. The amount of cash received from the exercise of stock options during the three months ended March 31, 2024 and 2023 was $0.1 million and $1.3 million, respectively.

The following table summarizes the Company’s stock option activity:


	Stock options outstanding			Weighted average exercise price
Outstanding at December 31, 2023		63,870		$	30.83
Exercised		(2,000	)		26.50
Outstanding at March 31, 2024		61,870			30.97

Stock options outstanding and exercisable are as follows:


	As of March 31, 2024
	Number of shares		Remaining contractual life (years)		Weighted- average exercise price
Outstanding and exercisable		61,870		3.44	$	30.97

Restricted Stock Units

During the three months ended March 31, 2024, the Company granted 234,987 restricted stock units (“RSUs”) to members of its senior management and certain other employees pursuant to the 2016 Plan. There were 282,372 RSUs that vested during the three months ended March 31, 2024. The Company accounts for RSUs issued to employees at fair value, based on the market price of the Company’s common stock on the date of grant. The weighted-average grant date fair values of RSUs granted during the three months ended March 31, 2024 and 2023 were $34.01 and $32.86, respectively. The fair values of RSUs that vested during the three months ended March 31, 2024 and 2023, were $11.3 million and $11.2 million, respectively. During the three months ended March 31, 2024 and 2023, the Company recorded $10.0 million and $10.5 million, respectively, of stock-based compensation related to the RSUs.

As of March 31, 2024, there was $58.4 million of unrecognized compensation expense related to unvested RSUs which is expected to be recognized over a weighted-average period of approximately 1.98 years. For RSUs subject to graded vesting, the Company recognizes compensation cost on a straight-line basis over the service period for the entire award.

Performance-Based Restricted Stock Units

During the three months ended March 31, 2024, the Company granted 115,000 performance-based restricted stock units (“PSUs”) to members of its management pursuant to the 2016 Plan. There were 19,219 PSUs that vested during the three months ended March 31, 2024. Starting in 2023, PSU grants vest based on the achievement of pre-determined performance-based milestones including annual recurring revenue growth thresholds and adjusted earnings before interest, taxes, depreciation and amortization thresholds, as well as the employee’s continued employment with the Company through the date of achievement; through 2022 PSU grants vest based on revenue growth thresholds as well as the employee’s continued employment with the Company through the date of achievement. The measurement periods for PSUs are two and three years with awards vesting after each measurement period. PSUs contain minimum, target and maximum milestones for each performance-based milestone. The number of shares of common stock to be issued at vesting will range from zero to 125% of the target number of PSUs starting in 2023 and from zero to 150% of the target number of PSUs through 2022. Fair value is based on the value of the Company’s common stock at the date of issuance and the probability of achieving the performance metric. Compensation cost is adjusted in future periods for subsequent changes in the expected outcome of the performance related conditions. The weighted-average grant date fair value of PSUs granted during the three months ended March 31, 2024 and 2023 were $35.10 and $34.13, respectively.

During the three months ended March 31, 2024 and 2023, the Company recognized $1.2 million and $2.6 million, respectively, of stock compensation expense in connection with PSU awards. As of March 31, 2024, there was $6.3 million of unrecognized compensation expense related to unvested PSUs which is expected to be recognized over a weighted-average period of approximately 1.74 years. Compensation cost is recognized under the accelerated method and is adjusted in future periods for subsequent changes in the expected outcome of the performance related conditions.

The following table summarizes the Company’s RSU and PSU activity:


	Number of Shares
Outstanding at December 31, 2023		3,069,904
Granted		349,987
Vested		(301,591	)
Forfeited		(125,848	)
Outstanding at March 31, 2024		2,992,452

Market-Based Grants

During the three months ended March 31, 2022, the Company issued market-based grants, which were payable in cash to partially settle a vendor contract. Vesting was contingent upon the achievement of pre-determined market and service conditions. Cash payment at settlement ranged from zero to approximately $1.3 million based on the Company’s total stockholder return (“TSR”) relative to the performance of peer companies through September 2023. The market-based grants were classified as a liability on the Company’s balance sheet and were remeasured at each reporting period until settlement. Cash payment determined as of the settlement date in September 2023 was zero. During the three months ended March 31, 2023, the Company recognized a stock compensation credit of $0.1 million, respectively, in connection with these awards.

The fair value of the market-based grants was determined using the Monte-Carlo simulation with the following assumptions:


		Three Months Ended March 31, 2023
Market-Based Grants:
Expected term (in years)		0.48
Expected volatility		57%
Risk-free interest rate		4.88%
Dividend rate		0%

Stock-Based Compensation Expense

The Company recorded the total stock-based compensation expense as follows (in thousands):


	Three Months Ended March 31,
	2024		2023
Cost of revenue	$	1,287	$	1,655
Sales and marketing		4,067		4,747
Research and development		2,639		3,726
General and administrative		3,419		3,321
Total	$	11,412	$	13,449

Stock-based compensation expense is recognized over the award’s expected vesting schedule, which is reduced for forfeitures.

(12) Basic and Diluted Net Loss per Share

Basic net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive shares of common stock. Basic and diluted net loss per share of common stock were the same for all periods presented as the impact of all potentially dilutive securities outstanding was anti-dilutive. The Company uses the if converted method for convertible senior notes for calculating any potential dilutive effect on diluted loss per share.

The following common equivalent shares were excluded from the diluted net loss per share calculation because their inclusion would have been anti-dilutive:


	As of March 31,
	2024		2023
Convertible senior notes		2,226,536		3,263,941
Stock-based compensation grants		3,054,322		3,490,501
Total		5,280,858		6,754,442

In connection with the issuance of the 2026 Notes in March 2021, the Company paid $35.1 million to enter into capped call option agreements to reduce the potential dilution to holders of the Company’s common stock upon conversion of the 2026 Notes. In connection with the issuance of the 2024 Notes in December 2019, the Company paid $44.9 million to enter into capped call option agreements to reduce the potential dilution to holders of the Company’s common stock upon conversion of the 2024 Notes. The capped call option agreements are excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive. In December 2023, the Company partially terminated capped call options related to the 2024 Notes and received $33 thousand.

Reserve for Unissued Shares of Common Stock

The Company is required to reserve and keep available out of its authorized but unissued shares of common stock such number of shares sufficient for the exercise of all shares granted and available for grant under the Company’s 2008 Equity Incentive Plan, 2016 Plan, 2016 ESPP and 2022 Inducement Plan. The amount of such shares of the Company’s common stock reserved for these purposes at March 31, 2024 was 8.2 million shares. Additionally, the Company is required to reserve and keep available out of its authorized but unissued shares of common stock shares that become issuable pursuant to the terms of the 2026 Notes and 2024 Notes.

(13) Income Taxes

The Company is subject to income tax in the United States as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax. The Company does not provide for U.S. deferred income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are reinvested indefinitely.

The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, the Company makes a cumulative adjustment in that quarter. The Company’s quarterly tax provision, and its quarterly estimate of its annual effective tax rate, are subject to significant volatility due to several factors, including the Company’s ability to accurately predict its pre-tax income and loss in multiple jurisdictions.

For the three months ended March 31, 2024 and 2023, the Company recorded a provision for income taxes of $5.4 million and $0.8 million, respectively, resulting in an effective tax rate of (36.36)% and (6.10)%, respectively. The provision for income taxes of $5.4 million generated in the three months ended March 31, 2024 was associated with estimated cash taxes required in jurisdictions in which the estimated deferred tax assets for the year will require a valuation allowance.

As of March 31, 2024, the Company had no gross tax-effected unrecognized tax provision. The Company’s policy is to record interest and penalties related to unrecognized tax benefits as a component of income tax expense. During the three months ended March 31, 2024, the Company did not record amounts related to the accrual of interest and penalties. During the three months ended March 31, 2023, the amounts recorded related to the accrual of interest and penalties were immaterial.

(14) Segment information

The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the CODM, who is the Company’s chief executive officer, in deciding how to allocate resources and assess the Company’s financial and operational performance. While the Company has applications that address multiple use cases, the Company’s applications generally operate on and leverage a single technology platform and are deployed and sold in an identical way. In addition, the Company’s CODM evaluates the Company’s financial information and resources and assesses the performance of these resources on a consolidated basis. As a result, the Company has determined that the Company’s business operates in a single operating segment. Since the Company operates as one operating segment, all required financial segment information can be found in the consolidated financial statements.

(15) Revenue Recognition

The following table disaggregates the Company’s revenue by geography which provides information as to the major source of revenue. North America includes United States and Canada and International aggregates international revenues excluding Canada. The majority of the Company’s North America revenue is generated in the United States (in thousands):


	Three Months Ended March 31,
Primary Geographic Markets	2024		2023
North America	$	85,689	$	82,067
International		25,740		26,201
Total	$	111,429	$	108,268

The following table presents the Company’s revenues disaggregated by revenue source (in thousands):


	Three Months Ended March 31,
	2024		2023
Subscription services	$	105,316	$	98,785
Professional services		5,261		5,929
Software licenses and other		852		3,554
Total	$	111,429	$	108,268

Contract Assets

Contract assets arise when the Company has earned revenue on a contract with a customer prior to billing. Any contract assets that may arise are recorded in other assets on the Company’s condensed consolidated balance sheets net of an allowance for credit losses.

Contract Liabilities

The Company’s contract liabilities consist of advance payments and deferred revenue. The Company’s contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. The Company classifies advance payments and deferred revenue as current or noncurrent based on the timing of when it expects to recognize revenue. Generally, all contract liabilities are expected to be recognized within one year and are included in deferred revenue on the Company’s condensed consolidated balance sheets. The noncurrent portion of deferred revenue is included and separately disclosed on the Company’s condensed consolidated balance sheets.

Deferred Costs

Current deferred costs, which primarily consist of deferred sales commissions, were $18.8 million and $20.0 million as of March 31, 2024 and December 31, 2023, respectively. Noncurrent deferred costs, which primarily consist of deferred sales commissions, were $27.6 million and $26.6 million as of March 31, 2024 and December 31, 2023, respectively. During the three months ended March 31, 2024 and 2023, amortization expense for the deferred costs was $4.9 million and $4.5 million, respectively. There was no impairment loss in relation to the costs capitalized for the three months ended March 31, 2024 and the year ended December 31, 2023, respectively.

Deferred Revenue

During the three months ended March 31, 2024 and 2023, $94.7 million and $90.6 million, respectively, of subscription services, license and other revenue was recognized and was included in the deferred revenue balances at the beginning of the respective period.

During the three months ended March 31, 2024 and 2023, $0.5 million and $2.6 million, respectively, of professional services revenue was recognized and was included in the deferred revenue balances at the beginning of the respective period.

Remaining Performance Obligations

As of March 31, 2024, approximately $488.4 million of revenue is expected to be recognized from remaining performance obligations for subscription and other contracts. The Company expects to recognize revenue on approximately $302.3 million of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

As of March 31, 2024, approximately $9.6 million of revenue is expected to be recognized from remaining performance obligations for professional services contracts. The Company expects to recognize revenue on approximately $8.6 million of these remaining professional services performance obligations over the next 12 months, with the balance recognized thereafter.

(16) Leases

The Company’s leases relate primarily to office facilities that expire on various dates from 2023 through 2031. The terms of the Company’s non-cancelable operating lease arrangements typically contain fixed lease payment which increases over the term of the lease at fixed rates, rent holidays and provide for additional renewal periods. Lease expense is recognized over the term of the lease on a straight-line basis. All of the Company’s leases are classified as operating leases. The Company has determined that periods covered by options to extend the Company’s leases are excluded from the lease term as the Company is not reasonably certain the Company will exercise such options.

The Company records its right-of-use (“ROU”) asset within other assets (long term) and its operating lease liabilities within other current and long-term liabilities.

Additional information related to the Company’s leases is as follows (in thousands, except lease term and discount rate):


	As of			As of
	March 31, 2024			December 31, 2023
Balance sheet information
ROU assets	$	15,143		$	16,075
Lease liabilities, current	$	3,633		$	3,825
Lease liabilities, non-current		15,788			16,694
Total lease liabilities	$	19,421		$	20,519
Supplemental data
Weighted average remaining lease term	5.77 years			5.91 years
Weighted average discount rate		6.04	%		6.12	%


	Three Months Ended March 31,
	2024		2023
Cash paid for amounts included in lease liabilities	$	1,332	$	1,312
ROU assets obtained in exchange for new lease obligations		56		425

Maturities of lease liabilities as of March 31, 2024 were as follows (in thousands):


Year ending December 31,
2024 (for the remaining nine months)	$	3,652
2025		4,271
2026		3,800
2027		3,380
2028		3,184
Thereafter		6,284
Total undiscounted lease payments		24,571
Less: imputed interest		(5,150	)
Total lease liabilities	$	19,421

The following table presents components of lease expense (in thousands):


	Three Months Ended March 31,
	2024			2023
Operating lease expense	$	1,253		$	1,333
Short-term lease expense(1)		66			169
		1,319			1,502
Less: Sublease income		(57	)		(69	)
Total lease expense	$	1,262		$	1,433

(1)

Short-term lease expense includes all leases with lease terms ranging from less than one month to one year.

As of March 31, 2024, the Company does not have any leases that have not yet commenced that create significant rights and obligations.

(17) Commitments and Contingencies

Litigation

In April 2022, certain former shareholders of The Anvil Group (International) Limited, Anvil Worldwide Limited and The Anvil Group Limited (collectively, “Anvil”), which was acquired by Everbridge on November 4, 2021, filed a claim in the United Kingdom Commercial Court against Everbridge Holdings Limited and Everbridge, Inc. The suit claimed that these companies breached certain provisions of the acquisition documents relating to the issuance of Everbridge, Inc. stock, which formed part of the consideration payable for the stock in Anvil. As of December 31, 2023, the Company had accrued a liability of $25.0 million on the Company’s consolidated balance sheet with respect to this claim. On January 31, 2024, the Company entered into a settlement agreement (the “Settlement Agreement”). Under the terms of the Settlement Agreement, the Company paid $25.0 million to settle the claims.

In April 2022, a putative class action lawsuit was filed in the United States District Court for the Central District of California against the Company, Jaime Ellertson, Patrick Brickley, and David Meredith (the Company’s former Chief Executive Officer) by Sylebra Capital Partners Master Fund Ltd, Sylebra Capital Parc Master Fund, and Sylebra Capital Menlo Master Fund (collectively, “Sylebra”). In September 2022, Sylebra filed an amended and restated complaint (the “First Amended Complaint”). The lawsuit alleges violations of the federal securities laws by the Company and certain of its officers and directors arising out of purported misrepresentations in the information the Company provided to investors regarding the Company’s organic and inorganic revenue growth, and the status of integrating acquisitions, which allegedly artificially inflated the price of the Company’s stock during the period from November 4, 2019 to February 24, 2022. The Company is not able to estimate the amount of the loss allegedly suffered by members of the putative class or the amount of legal costs and internal efforts associated with defending the Company and the Company’s officers and directors. The Company intends to defend the action vigorously. In October 2022, the Company filed a motion to dismiss the lawsuit on various grounds, including failure to plead any actionable misstatement or omission, failure to establish scienter, and failure to meet the pleading requirements of the Private Securities Litigation Reform Act and other applicable law. On May 9, 2023, the court granted the Company’s motion to dismiss each of the claims, dismissing the First Amended Complaint in its entirety, without prejudice. Sylebra filed a Second Amended Complaint on June 30, 2023. The Company has filed a motion to dismiss the Second Amended Complaint and that motion was heard by the court on January 4, 2024. On March 18, 2024, the court granted the Company’s motion to dismiss the Second Amended Complaint in its entirety, without prejudice. Sylebra filed notice of appeal on April 16, 2024. Even if the Company were to prevail, this litigation could continue to be costly and time-consuming and divert the attention of the Company’s management and key personnel from the Company’s business operations. During the course of the litigation, the Company anticipates announcements of the results of hearings and motions, and other interim developments related to the litigation. If securities analysts or investors regard these announcements as negative, the market price of the Company’s common stock may decline. If the Company is unsuccessful in defending itself in this litigation, this lawsuit could materially and adversely affect the Company’s business, financial condition, results of operations and cash flows.

In June 2022, a purported shareholder derivative action was filed in the United States District Court for the Central District of California against certain current and former directors and officers of the Company, naming the Company as a nominal defendant. The suit claims that these individuals breached their fiduciary duties to the Company’s shareholders and to the Company generally in connection with the same set of circumstances alleged in the class action lawsuit. The complaint is derivative in nature and does not seek relief from the Company. This action has been stayed pending the outcome of the motion to dismiss filed in the putative class action lawsuit brought by Sylebra.

In March 2024, the Company began to receive demand letters on behalf of purported stockholders challenging certain disclosures in the preliminary proxy statement filed with the SEC on March 11, 2024, as well as the definitive proxy statement (the “Proxy Statement”) filed with the SEC on March 21, 2024, in connection with, among other things, the Merger Agreement. As of April 25, 2024, four complaints have been filed in federal courts in New York and Delaware and a state court in Massachusetts by purported stockholders against, among others, Everbridge and its Board in connection with the Merger: Quagliani v. Everbridge, Inc., et al., Case No. 1:24-cv-02223 (S.D.N.Y. filed March 25, 2024); Finger v. Everbridge, Inc., et al., Case No.1:24-cv-00414 (D. Del. filed April 2, 2024); and Scott v. Everbridge, Inc., et al., Case No. 1:24-cv-00415 (D. Del. filed April 2, 2024) (collectively, the “Federal Merger Actions”) and Lacoff v. Everbridge, Inc., et al., Case No. 24-cv-815 (the “State Court Action” and, collectively with the Federal Merger Actions, the “Merger Actions”). Each of the Federal Merger Actions assert that the Proxy Statement omitted certain allegedly material information regarding, among other things, the background of the Merger, and Everbridge’s financial projections and Qatalyst Partners LP’s financial analyses in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a-9 promulgated under the Exchange Act, rendering the Proxy Statement false and misleading. The State Court Action purports to allege misrepresentation claims under Massachusetts common law relating to the Proxy Statement. The plaintiffs in the Merger Actions seek, among other things, an injunction enjoining consummation of the Merger, rescission of the Merger if consummated, costs of the action, including attorneys’ fees and experts’ fees and expenses, and an order directing the filing of a proxy statement that does not contain any untrue statements of material fact. The Company and its Board, among others, entered into a memorandum of understanding to settle the Lacoff action (“Memorandum of Understanding”), on April 22, 2024 and for an immaterial amount. Under the terms of the Memorandum of Understanding, the plaintiff in the Lacoff action agreed to dismiss her claims with prejudice. The Finger, Scott, and Quagliani actions were voluntarily dismissed by May 3, 2024.

From time to time the Company may become involved in other legal proceedings or be subject to claims arising in the ordinary course of business. Although the results of ordinary course litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on its business, financial condition, results of operations or cash flows. Regardless of the outcome, litigation can have an adverse impact because of defense and settlement costs, diversion of management resources and other factors.

Employee Contracts

The Company has entered into employment contracts with certain of the Company’s executive officers which provide for at-will employment. However, under the provisions of the contracts, the Company would incur severance obligations of up to twelve months of the executive’s annual base salary for certain events, such as involuntary terminations.

(18) Restructuring and Restructuring-Related Activities

In May 2022, the Board approved a program (the “2022 Strategic Realignment”) to strategically realign the Company’s resources in order to accelerate and grow the Company’s investments in the Company’s largest growth opportunities while streamlining the Company’s operations. The 2022 Strategic Realignment program includes a targeted realignment and reduction of headcount, facilities and other third-party spend. In November 2022 and July 2023, the Board approved amendments to the 2022 Strategic Realignment program to include additional targeted realignment and reduction of headcount and other third-party spend.

The 2022 Strategic Realignment program is in support of the 2022 strategic initiatives to simplify the Company’s business and accelerate the integration of recent acquisitions, and will help to drive the financial outcomes of sustainable growth and improved profitability and cash flow and is expected to be substantially completed by the first half of fiscal 2024.

In addition to restructuring costs, the Company will also incur costs that do not constitute restructuring under ASC 420, Exit and Disposal Cost Obligations, and which the Company instead refers to as business transformation costs. These costs consist primarily of expenditures directly related to the 2022 Strategic Realignment and include employee retention costs, professional fees and investments in automation and technology. The following table provides a summary of the Company’s estimates of total pre-tax charges associated with the 2022 Strategic Realignment, by major type of cost, of which approximately $33 million to $35 million are expected to result in cash outlays (in millions):


	Total Estimated Amount Expected to be Incurred
Restructuring charges:
Workforce	$	13	to	$	14
Facilities-related		5	to		5
Other		—	to		—
Business transformation charges		16	to		17
Total restructuring and business transformation charges	$	34	to	$	36

The following table sets provides a summary of restructuring activities (in thousands):


	Workforce (1)			Facilities- related (2)			Other		Total
Balance at January 1, 2024	$	1,444		$	(5	)	$	—	$	1,439
Charges		2,334			10			—		2,344
Charges settled in cash		(1,921	)		(9	)		—		(1,930	)
Charges settled in non-cash		(44	)		—			—		(44	)
Balance at March 31, 2024	$	1,813		$	(4	)	$	—	$	1,809

(1)

Balance at March 31, 2024 is recorded in accrued payroll and employee related liabilities, accounts payable and accrued expenses on the condensed consolidated balance sheet.

(2)

Balance at March 31, 2024 is recorded in prepaid expenses on the condensed consolidated balance sheet.

Since the inception of the 2022 Strategic Realignment program through March 31, 2024, the Company incurred approximately $18.1 million of restructuring charges, of which $13.6 million was for employee-related expenses, $4.3 million was for facilities-related expenses and $0.2 million for other expenses.

The following table presents restructuring and business transformation expenses by major type and line item within our accompanying condensed consolidated statement of operations (in thousands):


	Three Months Ended March 31,
	2024			2023
Restructuring charges	$	2,344		$	21
Business transformation charges:
Cost of revenue		65			341
Sales and marketing		(32	)		1,066
Research and development		463			646
General and administrative		243			331
Other income (expense), net		—			(1	)
Total business transformation charges		739			2,383
Total restructuring and business transformation charges	$	3,083		$	2,404

(19) Proposed Merger with Thoma Bravo

On February 29, 2024, the Company entered into the Merger Agreement, by and among Everbridge, Parent and Merger Sub, which amended and restated the previously announced Agreement and Plan of Merger dated as of February 4, 2024 by and among Everbridge, Parent and Merger Sub. The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into Everbridge, with Everbridge continuing as the surviving corporation of the Merger and a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of Thoma Bravo Fund.

The Board determined that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to and in the best interests of Everbridge and its stockholders, and have approved the Merger Agreement and the transactions contemplated by the Merger Agreement. The Board also resolved to recommend that the stockholders of the Company vote to adopt the Merger Agreement and approve the Merger.

Also on February 29, 2024, in connection with the execution of the Merger Agreement, the Thoma Bravo Fund delivered to Everbridge an equity commitment letter (the “Equity Commitment Letter”) pursuant to which the Thoma Bravo Fund has committed to invest in Parent the cash amounts set forth therein for the purpose of funding up to the full amount of the aggregate merger consideration payable therein. Everbridge is a third party beneficiary of the Equity Commitment Letter and is entitled to enforce the investment commitment, on the terms and subject to the conditions set forth therein.

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock of Everbridge, par value $0.001 per share (“Common Stock”), outstanding immediately prior to the Effective Time (subject to certain exceptions, including shares of Common Stock owned by stockholders of Everbridge who have not voted in favor of the adoption of the Merger Agreement and have properly exercised appraisal rights in accordance with Section 262 of the General Corporation Law of the State of Delaware) will automatically be converted into the right to receive $35.00 in cash without interest thereon (the “Per Share Price”), subject to applicable withholding taxes.

Pursuant to the Merger Agreement, at the Effective Time, each outstanding option to purchase shares of Common Stock that is vested at the Effective Time, or that vests as a result of the Merger at the Effective Time, will automatically be cancelled and converted into the right to receive an amount in cash equal to (x) the total number of shares of Common Stock subject to such vested option multiplied by (y) the excess, if any, of (A) the Per Share Price over (B) the exercise price per share of such vested option, without interest thereon and subject to applicable withholding taxes. Each outstanding option to purchase shares of Common Stock that is unvested at the Effective Time will automatically be cancelled and converted solely into the contingent right to receive from Parent or Everbridge an amount in cash equal to (x) the total number of shares of Common Stock subject to such unvested option immediately prior to the Effective Time, multiplied by (y) the excess, if any, of (A) the Per Share Price over (B) the exercise price per share of such unvested option, without interest thereon and subject to applicable withholding taxes, which resulting payment will be subject to the same vesting terms and conditions as applied to such unvested options immediately prior to the Effective Time. Any option to purchase shares of Common Stock, vested or unvested, that has an exercise price per share that is greater than or equal to the Per Share Price will be automatically cancelled at the Effective Time for no consideration or payment.

Pursuant to the Merger Agreement, at the Effective Time, each of the Company’s outstanding restricted stock units subject to time-based vesting (a “Company RSU”) that is vested at the Effective Time (but not yet settled), or that vests as a result of the Merger at the Effective Time, will automatically be cancelled and converted solely into the right to receive an amount in cash equal to (x) the total number of shares of Common Stock subject to such vested Company RSU immediately prior to the Effective Time, multiplied by (y) the Per Share Price, without interest thereon and subject to applicable withholding taxes. Each Company RSU that is unvested at the Effective Time will be automatically cancelled and converted solely into the contingent right to receive from Parent or Everbridge an aggregate amount in cash equal to (x) the total number of shares of Common Stock subject to such unvested Company RSU prior to the Effective Time, multiplied by (y) the Per Share Price, without interest thereon and subject to applicable withholding taxes, which resulting payment will be subject to the same vesting terms and conditions as applied to such unvested Company RSU immediately prior to the Effective Time, provided that the terms rendered inoperable by the transactions contemplated by the Merger Agreement will no longer have any force or effect.

Pursuant to the Merger Agreement, at the Effective Time, each of the Company’s outstanding restricted stock units subject to vesting on the basis of time and the achievement of performance targets (a “Company PSU”) that is vested or vests at the Effective Time (but not yet settled) will automatically be cancelled and converted solely into the right to receive an amount in cash equal to (x) the total number of shares of Common Stock subject to such vested Company PSU immediately prior to the Effective Time, multiplied by (y) the Per Share Price, without interest thereon and subject to applicable withholding taxes. Each Company PSU that is unvested at the Effective Time will be automatically cancelled and converted solely into the contingent right to receive from Parent or Everbridge an aggregate amount in cash equal to (x) the total number of shares of Common Stock subject to such unvested Company PSU prior to the Effective Time based on the number of shares that such unvested Company PSU would settle for at target achievement of the applicable performance metrics, multiplied by (y) the Per Share Price, without interest thereon and subject to applicable withholding taxes (a “Converted PSU Cash Award”), which resulting payment will be subject to the same vesting terms and conditions as applied to such unvested Company PSU immediately prior to the Effective Time, except that in lieu of vesting based on performance metrics, 50% of each Converted PSU Cash Award will instead vest at target achievement at the end of the fiscal quarter which ends immediately after the second anniversary of the date of grant, and 50% of each Converted PSU Cash Award will vest at target achievement at the end of the fiscal quarter which ends immediately after the third anniversary of the date of grant, subject in each case to continuous service through the applicable vesting date(s), and provided that terms rendered inoperable by the transactions contemplated by the Merger Agreement will no longer have any force or effect.

Completion of the Merger is subject to customary closing conditions, including the receipt of specified regulatory approvals and the absence of an order or law preventing the Merger.

The Merger Agreement contains customary representations, warranties and covenants made by each of Everbridge, Parent and Merger Sub, including, among others, covenants by Everbridge regarding the conduct of its business prior to the closing of the Merger.

Following the date of the Merger Agreement, Everbridge is subject to customary restrictions on its ability (and the ability of its subsidiaries and representatives) to (1) solicit, initiate, propose or induce the making or knowingly encourage, facilitate or assist alternative acquisition proposals from third parties, (2) subject to certain exceptions, provide nonpublic information relating to Everbridge or any of its subsidiaries to third parties regarding alternative acquisition proposals or (3) engage in discussions or negotiations with, third parties regarding alternative acquisition proposals. In addition, Everbridge has agreed that, subject to certain exceptions, the Board will not withdraw its recommendation that the stockholders of the Company vote to adopt the Merger Agreement and approve the Merger.

Either Everbridge or Parent may terminate the Merger Agreement if (1) the Effective Time has not occurred by August 4, 2024, which may be extended to November 4, 2024 if certain closing conditions related to the receipt of required regulatory approvals have not been satisfied at such time, (2) a governmental authority of competent jurisdiction has issued a final non-appealable governmental order preventing the Merger or (3) the stockholders of the Company fail to adopt the Merger Agreement. Everbridge may terminate the Merger Agreement in certain additional limited circumstances, including to allow Everbridge to enter into an agreement providing for an alternative acquisition transaction that constitutes a Superior Proposal (as defined in the Merger Agreement). Parent may terminate the Merger Agreement in certain additional limited circumstances, including if the Board withdraws its recommendation that the stockholders of the Company vote to adopt the Merger Agreement.

Upon termination of the Merger Agreement under certain specified circumstances, Everbridge will be required to pay Parent a termination fee (the “Company Termination Fee”) of $50,000,000. Specifically, the Company Termination Fee is payable if (1) the Merger Agreement is terminated in certain circumstances; (2) prior to such termination (but after the date of the Merger Agreement) a proposal for an alternative acquisition transaction has been publicly announced or disclosed and not withdrawn; and (3) within one year of such termination, Everbridge subsequently consummates an alternative acquisition transaction or enters into a definitive agreement providing for an alternative acquisition transaction and such transaction is ultimately consummated. The Company Termination Fee will also be payable in certain circumstances if the Merger Agreement is terminated: (1) by Parent because the Board withdraws its recommendation that the stockholders of the Company vote to adopt the Merger Agreement; or (2) by Everbridge in order to enter into an agreement providing for an alternative acquisition transaction that constitutes a Superior Proposal.

Upon termination of the Merger Agreement under certain specified circumstances, Parent will be required to pay Everbridge a termination fee (the “Parent Termination Fee”) of $124,000,000 if the Merger Agreement is terminated in certain circumstances.

The Merger Agreement also provides that Everbridge, on the one hand, or Parent and Merger Sub, on the other hand, may specifically enforce the obligations under the Merger Agreement, including the obligation to consummate the Merger if the conditions set forth in the Merger Agreement are satisfied. Subject to limited exceptions, in the event the Merger Agreement is validly terminated, Parent’s and Merger Sub’s aggregate liability for monetary damages for breaches of the Merger Agreement are capped at $124,000,000 plus Reimbursement Obligations (as defined in the Merger Agreement), and the Company’s liability for monetary damages for breaches of the Merger Agreement are capped at the Company Termination Fee plus any Enforcement Expenses (as defined in the Merger Agreement).

(20) Subsequent Event

Proposed Merger with Thoma Bravo

On April 25, 2024, Everbridge held a virtual special meeting of its stockholders (the “Special Meeting”) to vote on the proposals identified in Everbridge’s Proxy Statement filed with the SEC on March 21, 2024 and mailed to the Everbridge stockholders starting on March 21, 2024. At the Special Meeting, the following proposals were considered:

(1)

the proposal to adopt the Merger Agreement (the “Merger Agreement Proposal”);

(2)

the proposal to approve, on a non-binding, advisory basis, the compensation that will or may become payable by Everbridge to its named executive officers in connection with the Merger (the “Advisory Compensation Proposal”); and

(3)

the proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting (the “Adjournment Proposal”).

At the Special Meeting, the Everbridge stockholders approved the Merger Agreement Proposal and the Advisory Compensation Proposal. As the Merger Agreement Proposal was approved, the Adjournment Proposal was unnecessary.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited consolidated financial statements and the related notes and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2023 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 27, 2024. References to “Everbridge,” “we,” “us,” “our,” and the “Company” refer to Everbridge, Inc. and its consolidated subsidiaries. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are often identified by the use of words such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements include, but are not limited to, statements with respect to our outlook; our proposed acquisition by entities affiliated with Thoma Bravo, L.P. (“Thoma Bravo”); the effect of recent changes in our senior management team on our business; our ability to maintain effective internal control over financial reporting and disclosure controls and procedures, including our ability to remediate the material weakness in internal control over financial reporting in the anticipated timeframe, if at all; the impact of new accounting standards; our ability to service our debt; our business strategy, including with respect to potential acquisitions; plans and objectives of future operations; the potential impact of macroeconomic events such as the COVID-19 pandemic, the ongoing war in Ukraine or the evolving situation in the Middle East; the success of the 2022 Strategic Realignment; expected expenses, cash charges and cost savings; and our future financial and business performance. The events described in these forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, our ability to implement and achieve cost savings and the other operational and personnel changes described herein, and those discussed in the section titled “Risk Factors”, set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

Everbridge is a global software company that empowers resilience by leveraging intelligent automation technology to enable customers to anticipate, mitigate, respond to, and recover from critical events to keep people safe and organizations running. During public safety threats including severe weather conditions, active shooter situations, terrorist attacks or a pandemic, as well as critical business events such as IT outages, cyber-attacks, product recalls or supply-chain interruptions, global customers rely on our Critical Event Management platform to empower their resilience and to quickly and reliably aggregate and assess threat data, locate people at risk and responders able to assist, automate the execution of pre-defined communications processes through the secure delivery to a comprehensive range of different communication channels and devices, and track progress on executing response plans. Our customers use our platform to identify and assess hundreds of different types of threats to their organizations, people, assets or brand. Our solutions enable organizations to automate and deliver intelligent, contextual messages to, and receive verification of delivery from, hundreds of millions of recipients, across multiple communications modalities such as voice, SMS and email, in several languages and dialects – all simultaneously. Our Critical Event Management platform is comprised of a comprehensive set of software applications packaged for organizations to address five core use cases, safeguarding: Business Operations, People Resilience, Digital Operations, Smart Security, and Public Safety. Our individual products address the full spectrum of tasks an organization requires to manage a critical event, including Mass Notification, Safety Connection, IT Alerting, Risk Intelligence, Public Warning, Community Engagement, Crisis Management, CareConverge, Control Center, Travel Protector, SnapComms and E911. Our applications leverage the Everbridge Critical Event Management platform, permitting customers to use a single contacts database, rules engine of algorithms and hierarchies, and user interface to accomplish multiple objectives. We believe that our broad suite of integrated applications delivered via a single global Critical Event Management (“CEM”) platform is a significant competitive advantage in the resilience market for CEM solutions.

Our customer base has grown from 867 customers at the end of 2011 to more than 6,700 customers as of March 31, 2024. We provide our applications to customers of varying sizes, including enterprises, small businesses, non-profit organizations, educational institutions and governmental agencies. Our customers span a wide variety of industries including technology, energy, financial services, healthcare and life sciences, manufacturing, media and entertainment, retail, higher education and professional services.

We sell all of our critical event management applications on a subscription basis. We generally enter into contracts that range from one to three years in length, with an average contract duration of 1.7 years as of March 31, 2024, and generally bill and collect payment annually in advance. We derive most of our revenue from subscriptions to applications. On average, 95% of the revenue that we recognized in each of the eight most recently completed quarters was generated from contracts entered into in prior quarters or renewals of those contracts; the balance of the revenue that we recognized in each such quarter was generated from contracts entered into with new customers or new contracts, other than renewals, entered into with existing customers in such quarter. Our pricing model is based on the number of applications subscribed to and, per application, the number of people, locations and things connected to our platform as well as the volume of communications. We also offer premium services including data feeds for social media, threat intelligence and weather. We generate additional revenue by expanding the number of applications that our customers subscribe to and the number of contacts and devices connected to our platform.

We generated revenue of $111.4 million and $108.3 million for the three months ended March 31, 2024 and 2023, respectively, representing a period-over-period increase of 3%. We had net losses of $20.1 million and $14.6 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and 2023, 18% of our customers in each period were located outside of North America. These customers generated 23% and 24% of our total revenue for the three months ended March 31, 2024 and 2023, respectively. North America includes United States and Canada and International aggregates international revenues excluding Canada.

We have focused on rapidly growing our business and believe that the future growth of our business is dependent on many factors, including our ability to increase the functionality of our platform and applications, expand our customer base, accelerate adoption of our applications beyond Mass Notification within our existing customer base and expand our international presence. Our future growth will also depend on the growth in the market for critical event management solutions and our ability to effectively compete. In order to further penetrate the market for critical event management solutions and capitalize on what we believe to be a significant opportunity, we intend to continue to invest in research and development, build-out our data center infrastructure and services capabilities and hire additional sales representatives, both domestically and internationally, to drive sales to new customers and incremental sales of new applications to existing customers. Nevertheless, we expect to continue to incur losses in the near term and, if we are unable to achieve our growth objectives, we may not be able to achieve profitability.

Recent Developments

Proposed Merger with Thoma Bravo

On February 4, 2024, we entered into an Agreement and Plan of Merger, as amended on February 29, 2024 (the “Merger Agreement”) with Project Emerson Parent, LLC (“Parent”) and Project Emerson Merger Sub, Inc. (“Merger Sub”). The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into Everbridge (the “Merger”), with Everbridge continuing as the surviving corporation of the Merger and a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of Thoma Bravo Discover Fund IV, L.P. (the “Thoma Bravo Fund”), an investment fund managed by Thoma Bravo, L.P.

Completion of the Merger is subject to customary closing conditions, including the receipt of specified regulatory approvals and the absence of an order or law preventing the Merger.

Either Everbridge or Parent may terminate the Merger Agreement if (1) the Effective Time has not occurred by August 4, 2024, which may be extended to November 4, 2024 if certain closing conditions related to the receipt of required regulatory approvals have not been satisfied at such time, (2) a governmental authority of competent jurisdiction has issued a final non-appealable governmental order preventing the Merger or (3) our stockholders fail to adopt the Merger Agreement. We may terminate the Merger Agreement in certain additional limited circumstances, including to allow us to enter into an agreement providing for an alternative acquisition transaction that constitutes a Superior Proposal (as defined in the Merger Agreement). Parent may terminate the Merger Agreement in certain additional limited circumstances, including if the Board of Directors (the “Board”) withdraws its recommendation that our stockholders vote to adopt the Merger Agreement.

Upon completion of the transaction, Everbridge will become a privately held company and will continue to operate under the Everbridge name and brand. On April 25, 2024, during a special meeting of stockholders, our stockholders approved the proposal to adopt the Merger Agreement. The transaction is expected to close in the second calendar quarter of 2024, subject to customary closing conditions and approvals. For further information, see Note 19, Proposed Merger with Thoma Bravo and Note 20, Subsequent Event, of the notes to condensed consolidated financial statements.

Other Business and Macroeconomic Conditions

Rising interest rates present a recent challenge impacting the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future. The general consensus among economists suggests that we should expect a higher recession risk to continue over the next year, which, together with rising interest rates and inflation, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations. Furthermore, such economic conditions have produced downward pressure on share prices. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future, especially if inflation rates continue to rise, on our operating costs including our labor costs, employee availability and wage increases, consequences associated with COVID-19, the war in Ukraine and the evolving situation in the Middle East, which may result in additional stress on our working capital resources.

Presentation of Financial Statements

Our consolidated financial statements include the accounts of our wholly-owned subsidiaries. Business acquisitions are included in our consolidated financial statements from the date of the acquisition. Our purchase accounting resulted in all assets and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates. All intercompany balances and transactions have been eliminated in consolidation.

We report our financial results as one operating segment. Our operating results are regularly reviewed on a consolidated basis by our chief executive officer, who is our chief operating decision maker, principally to make strategic decisions regarding how we allocate our resources and to assess our consolidated operating performance.

Components of Results of Operations

Revenue

We derive most of our revenue from the sale of subscriptions to our critical event management and enterprise safety applications.

We generally bill and collect payment for our subscriptions annually in advance. All revenue billed in advance of services being delivered is recorded in deferred revenue. The initial subscription period typically ranges from one to three years. We offer varying levels of customer support based on customer needs and the complexity of their businesses, including the level of usage by a customer in terms of minutes or the amount of data used to transmit the notifications. Our pricing model is based on the number of applications subscribed to and, per application, the number of people, locations and things connected to our platform as well as the volume of communications. We also offer premium services including data feeds for social media, threat intelligence and weather. We generate additional revenue by expanding the number of premium features and applications that our customers subscribe to and the number of contacts connected to our platform. Our revenue growth in the near-term may be adversely affected by our ability to integrate our recent acquisitions, drive new client adoption and sales of our full-suite of solutions.

We also sell professional services, which primarily consist of fees for deployment and optimization services as well as training. In addition, we also sell our software and related post contract support for on premises usage.

Cost of Revenue

Cost of revenue includes expenses related to the fulfillment of our subscription services, consisting primarily of employee-related expenses for data center operations and customer support, including salaries, bonuses, benefits and stock-based compensation expense. Cost of revenue also includes hosting costs, messaging costs and depreciation and amortization. As we add data center capacity and support personnel in advance of anticipated growth, our cost of revenue will increase and, if anticipated revenue growth does not occur, our gross profit will be adversely affected.

Operating Expenses

Operating expenses consist of sales and marketing, research and development and general and administrative expenses. Salaries, bonuses, stock-based compensation expense and other personnel costs are the most significant components of each of these expense categories. We include stock-based compensation expense incurred in connection with the grant of stock options, restricted stock units, performance-based restricted stock units, market-based grants and our employee stock purchase plan within the applicable operating expense category based on the equity award recipient’s functional area.

Sales and Marketing

Sales and marketing expense primarily consists of employee-related expenses for sales, marketing and public relations employees, including salaries, bonuses, commissions, benefits and stock-based compensation expense. Sales and marketing expense also includes trade show, market research, advertising and other related external marketing expense as well as office and software related costs to support sales. We defer certain sales commissions related to acquiring new customers or services and amortize these expenses ratably over the period of benefit that we have determined to be four years. Sales commissions attributable to professional services are expensed within twelve months of selling the service to the customer. We plan to continue to expand our sales and marketing activities to grow our customer base and increase sales to existing customers. This growth will include expanding our marketing activities to continue to generate additional leads and build brand awareness.

Research and Development

Research and development expense primarily consists of employee-related expenses for research and development staff, including salaries, bonuses, benefits and stock-based compensation expense. Research and development expense also includes the cost of certain third-party services, office-related costs to support research and development activities, software subscriptions and hosting costs. We capitalize certain software development costs that are attributable to developing new applications and adding incremental functionality to our platform and amortize these costs over the estimated life of the new application or incremental functionality, which is generally three years. We focus our research and development efforts on improving our applications, developing new applications and delivering new functionality.

General and Administrative

General and administrative expense primarily consists of employee-related expenses for administrative, legal, finance and human resource personnel, including salaries, bonuses, benefits and stock-based compensation expense. General and administrative expense also includes professional fees, insurance premiums, corporate expenses, transaction-related costs, office-related expenses, facility costs, depreciation and amortization and software license costs.

Restructuring

In May 2022, our Board approved a program (the “2022 Strategic Realignment”), as amended, to strategically realign our resources in order to accelerate and grow our investments in our largest growth opportunities while streamlining our operations. This program is in support of the 2022 strategic initiatives to simplify our business and accelerate the integration of recent acquisitions, and will help to drive the financial outcomes of sustainable growth and improved profitability and cash flow. The 2022 Strategic Realignment program includes a targeted realignment and reduction of headcount, facilities and other third-party spend. See Note 18 in the notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Restructuring expense consists of 2022 Strategic Realignment program expenses related to headcount, facilities and other third-party spend.

Interest and Investment Income

Interest income consists of interest earned on our cash balances held at financial institutions. Investment income consists of interest earned on our money market funds.

Interest Expense

Interest expense consists of interest on our outstanding debt obligations including amortization of debt discounts and offering costs.

Other income (expense), net

Other income (expense), net consists primarily of realized foreign currency gains and losses.

Results of Operations

The following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods. The period-to-period comparison of our historical results is not necessarily indicative of the results that may be expected in the future (in thousands):


	Three Months Ended March 31,
	2024			2023
Revenue	$	111,429		$	108,268
Cost of revenue(1)		32,444			31,981
Gross profit		78,985			76,287
Operating expenses:
Sales and marketing(1)		37,118			42,188
Research and development(1)		22,848			25,004
General and administrative(1)		31,541			24,466
Restructuring		2,344			21
Total operating expenses		93,851			91,679
Operating loss		(14,866	)		(15,392	)
Other income, net		149			1,586
Loss before income taxes		(14,717	)		(13,806	)
Provision for income taxes		(5,351	)		(842	)
Net loss	$	(20,068	)	$	(14,648	)

(1)

Includes stock-based compensation expense and depreciation and amortization for intangible assets, capitalized software development costs and property and equipment as follows (in thousands):


	Three Months Ended March 31,
	2024		2023
Stock-based compensation expense
Cost of revenue	$	1,287	$	1,655
Sales and marketing		4,067		4,747
Research and development		2,639		3,726
General and administrative		3,419		3,321
Total	$	11,412	$	13,449


	Three Months Ended March 31,
	2024		2023
Depreciation and amortization expense
Cost of revenue	$	6,355	$	6,248
Sales and marketing		287		380
Research and development		246		314
General and administrative		7,559		7,832
Total	$	14,447	$	14,774

The following table sets forth our condensed consolidated statements of operations as a percentage of revenue(1):


	Three Months Ended March 31,
	2024			2023
Revenue		100	%		100	%
Cost of revenue		29	%		30	%
Gross profit		71	%		70	%
Operating expenses:
Sales and marketing		33	%		39	%
Research and development		21	%		23	%
General and administrative		28	%		23	%
Restructuring		2	%		0	%
Total operating expenses		84	%		85	%
Operating loss		(13	)%		(14	)%
Other income, net		0	%		1	%
Loss before income taxes		(13	)%		(13	)%
Provision for income taxes		(5	)%		(1	)%
Net loss		(18	)%		(14	)%

(1)

Columns may not add up to 100% due to rounding.

Comparison of the Three Months Ended March 31, 2024 and 2023

Revenue


	Three Months Ended March 31,				Change
(dollars in thousands)	2024		2023		$		%
Revenue	$	111,429	$	108,268	$	3,161		2.9	%

Revenue increased by $3.2 million for the three months ended March 31, 2024 compared to the same period in 2023. The increase was due to a $3.2 million increase in sales of our solutions driven by expansion of our customer base from 6,500 customers as of March 31, 2023 to 6,768 customers as of March 31, 2024, including increased sales to larger organizations with greater numbers of contacts and locations.

Cost of Revenue


	Three Months Ended March 31,						Change
(dollars in thousands)	2024			2023			$		%
Cost of revenue	$	32,444		$	31,981		$	463		1.4	%
Gross margin %		71	%		70	%

Cost of revenue increased by $0.5 million during the three months ended March 31, 2024 compared to the same period in 2023. The increase was primarily due to a $0.7 million increase in travel risk management, operational resiliency and occupational health solutions costs, a $0.5 million increase in hosting, software and messaging costs and other costs, a $0.2 million increase in office and other related expenses to support revenue generating activities and a $0.1 million increase in depreciation and amortization expense attributed to our fixed assets, acquired intangibles and capitalized software. These amounts were offset by a $1.0 million decrease in employee-related costs, which includes stock-based compensation and employee-related costs related to the 2022 Strategic Realignment. There were 393 and 402 employees as of March 31, 2024 and 2023, respectively.

Gross margin percentage increased due to revenue growth outpacing cost.

Operating Expenses

Sales and Marketing Expense


	Three Months Ended March 31,						Change
(dollars in thousands)	2024			2023			$			%
Sales and marketing	$	37,118		$	42,188		$	(5,070	)		(12.0	)%
% of revenue		33	%		39	%

Sales and marketing expense decreased by $5.1 million for the three months ended March 31, 2024 compared to the same period in 2023. The decrease was primarily due to a $3.4 million decrease in employee-related costs, which includes stock-based compensation and employee-related costs related to the 2022 Strategic Realignment. There were 487 and 548 employees as of March 31, 2024 and 2023, respectively. The remaining decrease was principally the result of a $1.3 million decrease in advertising-related costs and trade show expenses, a $0.3 million decrease in office-related expenses and a $0.1 million decrease in software expenses to support the sales team.

Research and Development Expense


	Three Months Ended March 31,						Change
(dollars in thousands)	2024			2023			$			%
Research and development	$	22,848		$	25,004		$	(2,156	)		(8.6	)%
% of revenue		21	%		23	%

Research and development expense decreased by $2.2 million for the three months ended March 31, 2024 compared to the same period in 2023. The decrease was due to a $1.3 million decrease in employee-related costs, which includes stock-based compensation and employee-related costs related to the 2022 Strategic Realignment, a $0.6 million decrease in professional services, a $0.1 million decrease in software-related costs and a $0.1 million decrease in office-related and other expenses to support research and development activities. There were 515 and 541 employees as of March 31, 2024 and 2023, respectively. In addition, $4.3 million of internally developed software costs during the three months ended March 31, 2024 and $4.2 million of internally developed software costs during the three months ended March 31, 2023 were capitalized, resulting in a $0.1 million decrease in research and development expense during the three months ended March 31, 2024.

General and Administrative Expense


	Three Months Ended March 31,						Change
(dollars in thousands)	2024			2023			$		%
General and administrative	$	31,541		$	24,466		$	7,075		28.9	%
% of revenue		28	%		23	%

General and administrative expense increased by $7.1 million during the three months ended March 31, 2024 as compared to the same period in 2023. The increase was primarily due to an $8.2 million increase in professional services and office-related expenses primarily due to merger transaction-related costs. The increase was also due to a $0.4 million increase in employee-related costs, which includes stock-based compensation and employee-related costs related to the 2022 Strategic Realignment. There were 182 and 194 employees as of March 31, 2024 and 2023, respectively. These increases were partially offset by a $1.2 million decrease in allowance for credit losses and a $0.3 million decrease in depreciation and amortization.

Restructuring


	Three Months Ended March 31,						Change
(dollars in thousands)	2024			2023			$		%
Restructuring	$	2,344		$	21		$	2,323	N/M
% of revenue		2	%		0	%

Restructuring expense increased by $2.3 million for the three months ended March 31, 2024 compared to the same period in 2023 primarily due to a $2.3 million increase in employee-related expenses in connection with the 2022 Strategic Realignment.

Other income, net


	Three Months Ended March 31,						Change
(dollars in thousands)	2024			2023			$			%
Other income, net	$	149		$	1,586		$	(1,437	)		(90.6	)%
% of revenue		0	%		1	%

Other income, net decreased by $1.4 million for the three months ended March 31, 2024 when compared to the same period in 2023. The decrease was due to a $0.7 million decrease in interest income and a $0.7 million decrease in net foreign currency transaction gains.

Income Taxes


	Three Months Ended March 31,						Change
(dollars in thousands)	2024			2023			$			%
Provision for income taxes	$	(5,351	)	$	(842	)	$	(4,509	)	N/M
% of revenue		(5	)%		(1	)%

A portion of the losses incurred during the three months ended March 31, 2024 are expected to be realized in some jurisdictions during the year or recognized as a deferred tax asset as of December 31, 2024. Losses incurred for other operating jurisdictions required a valuation allowance. The provision for income taxes of $5.4 million generated in the three months ended March 31, 2024 was associated with estimated cash taxes required in jurisdictions in which the estimated deferred tax assets for the year will require a valuation allowance. The change in income taxes of $4.5 million for the three months ended March 31, 2024 as compared to the same period in 2023 was primarily related to an increase in estimated cash taxes associated with 2024 as compared to what was estimated in the same quarter of 2023.

Other Metrics

We regularly monitor a number of financial and operating metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Our other business metrics may be calculated in a manner different than similar other business metrics used by other companies.

•

Adjusted EBITDA. Adjusted EBITDA represents our net loss before interest and investment (income) expense, net, provision for income taxes, depreciation and amortization expense, stock-based compensation expense and costs related to the 2022 Strategic Realignment. We do not consider these items to be indicative of our core operating performance. The items that are non-cash include depreciation and amortization expense and stock-based compensation expense. Adjusted EBITDA is a measure used by management to understand and evaluate our core operating performance and trends and to generate future operating plans, make strategic decisions regarding the allocation of capital and invest in initiatives that are focused on cultivating new markets for our solutions. In particular, the exclusion of certain expenses in calculating adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis. Adjusted EBITDA is not a measure calculated in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and the Board. Nevertheless, use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are: (1) although depreciation and amortization are non-cash charges, the capitalized software that is amortized will need to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; (2) adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (3) adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (4) adjusted EBITDA does not reflect tax payments or receipts that may represent a reduction or increase in cash available to us; and (5) other companies, including companies in our industry, may calculate adjusted EBITDA or similarly titled measures differently, which reduces the usefulness of the metric as a comparative measure. Because of these and other limitations, you should consider adjusted EBITDA alongside our other GAAP-based financial performance measures, net loss and our other GAAP financial results. The following table presents a reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):


	Three Months Ended March 31,
	2024			2023
Net loss	$	(20,068	)	$	(14,648	)
Interest and investment expense, net		(545	)		(968	)
Provision for income taxes		5,351			842
Depreciation and amortization		14,447			14,774
Stock-based compensation		11,412			13,449
2022 Strategic Realignment		3,083			2,404
Adjusted EBITDA	$	13,680		$	15,853

•

Free Cash Flow and Adjusted Free Cash Flow. Free cash flow represents net cash provided by operating activities minus capital expenditures and capitalized software development costs. Adjusted free cash flow represents free cash flow as further adjusted for cash payments for the 2022 Strategic Realignment. Free cash flow and adjusted free cash flow are measures used by management to understand and evaluate our core operating performance and trends and to generate future operating plans. The exclusion of capital expenditures, amounts capitalized for internally-developed software and cash payments for the 2022 Strategic Realignment facilitates comparisons of our operating performance on a period-to-period basis and excludes items that we do not consider to be indicative of our core operating performance. Free cash flow and adjusted free cash flow are not measures calculated in accordance with GAAP. We believe that free cash flow and adjusted free cash flow provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and the Board. Nevertheless, our use of free cash flow and adjusted free cash flow have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under GAAP. You should consider free cash flow and adjusted free cash flow alongside our other GAAP-based financial performance measures, net cash provided by operating activities, and our other GAAP financial results. The following table presents a reconciliation of free cash flow and adjusted free cash flow to net cash provided by operating activities, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):


	Three Months Ended March 31,
	2024			2023
Net cash provided by operating activities	$	2,142		$	20,575
Capital expenditures		(247	)		(575	)
Capitalized software development costs		(3,958	)		(4,112	)
Free cash flow		(2,063	)		15,888
Cash payments for 2022 Strategic Realignment		3,923			4,121
Adjusted free cash flow	$	1,860		$	20,009

•

Additional Supplemental Non-GAAP Financial Measures. To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide investors with certain additional supplemental non-GAAP financial measures, including non-GAAP gross profit, non-GAAP gross margin and non-GAAP net income, which we collectively refer to as non-GAAP financial measures. These non-GAAP financial measures exclude all or a combination of the following (as reflected in the following reconciliation tables): amortization of acquired intangibles, stock-based compensation expense, costs related to the 2022 Strategic Realignment and accretion of interest on convertible senior notes and the tax impact of such adjustments. The tax impact of such adjustments was determined by recalculating the estimated annual effective tax rate utilizing non-GAAP pre-tax income estimated for the year and then applying the recalculated estimated annual effective tax rate to year-to-date non-GAAP net income. The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision making. While our non-GAAP financial measures are an important tool for financial and operational decision making and for evaluating our own operating results over different periods of time, you should consider our non-GAAP financial measures alongside our GAAP financial results.

We believe that excluding the impact of amortization of acquired intangibles allows for more meaningful comparisons between operating results from period to period as the intangibles are valued at the time of acquisition and are amortized over a period of several years after the acquisition. We exclude stock-based compensation expense which can vary based on plan design, share price, share price volatility, and the expected lives of equity instruments granted. We believe that providing non-GAAP financial measures that exclude stock-based compensation expense allow for more meaningful comparisons between our operating results from period to period because stock-based compensation expense does not represent a cash expenditure. We believe that excluding costs related to the 2022 Strategic Realignment allows for more meaningful comparisons between operating results from period to period as this is a discrete event based on a unique set of business objectives and is incremental to the core activities that arise in the ordinary course of our business. We believe that excluding the impact of accretion of interest on convertible senior notes allows for more meaningful comparisons between operating results from period to period as accretion of interest on convertible senior notes relates to interest cost for the time value of money and are non-operating in nature. Accordingly, we believe that excluding these expenses provides investors and management with greater visibility of the underlying performance of our business operations, facilitates comparison of our results with other periods and may also facilitate comparison with the results of other companies in our industry.

There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact upon our reported financial results. Further, stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in our business and an important part of the compensation provided to our employees.

The following table reconciles our GAAP gross profit to non-GAAP gross profit (in thousands):


	Three Months Ended March 31,
	2024		2023
Gross profit	$	78,985	$	76,287
Amortization of acquired intangibles		1,521		2,385
Stock-based compensation		1,287		1,655
2022 Strategic Realignment		65		341
Non-GAAP gross profit	$	81,858	$	80,668

The following table reconciles our GAAP gross margin to non-GAAP gross margin(1):


	Three Months Ended March 31,
	2024			2023
Gross margin		70.9	%		70.5	%
Amortization of acquired intangibles margin		1.4	%		2.2	%
Stock-based compensation margin		1.2	%		1.5	%
2022 Strategic Realignment margin		0.1	%		0.3	%
Non-GAAP gross margin		73.5	%		74.5	%

(1)

Columns may not add up to 100% due to rounding.

The following table reconciles our GAAP net loss to non-GAAP net income (in thousands):


	Three Months Ended March 31,
	2024			2023
Net loss	$	(20,068	)	$	(14,648	)
Amortization of acquired intangibles		8,583			9,648
Stock-based compensation		11,412			13,449
2022 Strategic Realignment		3,083			2,404
Accretion of interest on convertible senior notes		519			715
Income tax adjustments		4,444			(737	)
Non-GAAP net income	$	7,973		$	10,831

Liquidity and Capital Resources

To date, we have financed our operations primarily through cash from sales to our customers, along with equity issuances and debt financing arrangements. Our principal source of liquidity is cash and cash equivalents totaling $121.4 million as of March 31, 2024. We have generated significant losses since inception and expect to continue to generate losses for the foreseeable future.

We believe that our cash and cash equivalent balances and the cash flows generated by our operations will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations. However, our belief may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in the section of Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 and Part II, Item 1A of this Quarterly Report on Form 10-Q. We cannot assure you that we will be able to raise additional capital on acceptable terms or at all. In addition, if we fail to meet our operating plan during the next 12 months, our liquidity could be adversely affected.

Under the terms of the Merger Agreement with Project Emerson Parent, LLC and Project Emerson Merger Sub, Inc., we have agreed to various covenants and agreements, including, among others, agreements to conduct our business in the ordinary course during the period between the execution of the Merger Agreement and the closing. Outside of certain limited exceptions, we may not take, commit or agree to do certain actions without Project Emerson Parent, LLC’s consent, including, but not limited to, entering into material transactions other than in the ordinary course of business, disposing of material assets, making capital expenditures in excess of the amounts specified in the Merger Agreement, issuing additional capital stock or other equity securities, or incurring additional indebtedness. We do not believe these restrictions will prevent us from meeting our ongoing operating expenses, working capital needs or capital expenditure requirements.

Material Cash Requirements and Contractual Obligations

We expect to use cash primarily for operating activities, such as our sales and marketing operations, research and development activities and other working capital needs, such as salaries, bonuses, and other personnel cost and data center hosting costs, as well as payments for merger-related expenses, acquisitions of businesses, interest payments on our convertible senior notes and payments related to the 2022 Strategic Realignment. We expect to continue to finance our operations primarily through cash from sales to our customers and may consider future equity issuances and debt financing arrangements. As of March 31, 2024, our commitments to settle contractual obligations include $363.7 million principal amount of indebtedness under the 0% convertible senior notes due March 15, 2026 (the “2026 Notes”) and 0.125% convertible senior notes due December 15, 2024 (the “2024 Notes”) (see Note 9 of the notes to consolidated financial statements) and lease obligations of $24.6 million (see Note 16 of the notes to condensed consolidated financial statements).

Cash Flows

The following table summarizes our cash flows (in thousands):


	Three Months Ended March 31,
	2024			2023
Cash, cash equivalents and restricted cash at beginning of period	$	125,371		$	201,594
Net cash provided by operating activities		2,142			20,575
Net cash used in investing activities		(2,186	)		(398	)
Net cash provided by (used in) financing activities		(276	)		1,924
Effects of exchange rates on cash, cash equivalents and restricted cash		(732	)		63
Cash, cash equivalents and restricted cash at end of period	$	124,319		$	223,758

Sources of Funds

Our sources of funds include cash from sales to our customers, along with equity issuances and debt financing arrangements including our 2026 Notes and 2024 Notes.

Uses of Funds

Our historical uses of cash have primarily consisted of cash used for operating activities, such as expansion of our sales and marketing operations, research and development activities and other working capital needs as well as repurchases of convertible notes and payments related to the 2022 Strategic Realignment.

Operating Activities

Our net loss and cash flows provided by or used in operating activities are significantly influenced by our investments in headcount and infrastructure to support our growth, marketing and sponsorship expenses, and our ability to bill and collect in a timely manner. Our net loss has been significantly greater than our use of cash for operating activities due to the inclusion of non-cash expenses and charges.

Operating activities generated $2.1 million in cash in the three months ended March 31, 2024, primarily as a result of non-cash operating expenses of $31.6 million which was offset by our net loss of $20.1 million and $9.4 million decrease in changes in operating assets and liabilities. Included in the $2.1 million cash provided by operating activities was $3.9 million cash paid related to the 2022 Strategic Realignment. Specifically, we recognized non-cash charges aggregating to $14.4 million for depreciation and amortization of intangible assets, capitalized software development costs and property and equipment, $11.4 million for stock-based compensation, $4.9 million for amortization of deferred commissions, $0.5 million related to the accretion of interest on our convertible senior notes and $0.4 million for provision for credit losses. The net change in operating assets and liabilities of $9.4 million reflected an $18.3 million decrease in accrued expenses, a $6.5 million decrease in accounts payable, a $4.6 million increase in deferred cost, a $2.2 million decrease in other liabilities, a $1.8 million decrease in accrued payroll and employee related liabilities and a $1.1 million increase in prepaid expenses. These amounts were offset by a $17.9 million decrease in accounts receivable, a $4.3 million increase in deferred revenue and a $3.0 million decrease in other assets.

Operating activities generated $20.6 million in cash in the three months ended March 31, 2023, primarily as a result of non-cash operating expenses of $34.2 million and $1.0 million increase in changes in operating assets and liabilities which was offset by our net loss of $14.6 million. Included in the $20.6 million cash provided by operating activities was $4.1 million cash paid related to the 2022 Strategic Realignment. Specifically, we recognized non-cash charges aggregating to $14.8 million for depreciation and amortization of intangible assets, capitalized software development costs and property and equipment, $13.4 million for stock-based compensation, $4.5 million for amortization of deferred commissions, $1.6 million for provision for credit losses and $0.7 million related to the accretion of interest on our convertible senior notes partially offset by $0.5 million for deferred income taxes and $0.4 million for gains on the disposal of assets. The net change in operating assets and liabilities of $1.0 million reflected a $12.0 million decrease in accounts receivable and a $3.6 million increase in deferred revenue. These amounts were offset by a $5.9 million increase in deferred cost, a $2.5 million increase in prepaid expenses, a $1.7 million decrease in accounts payable, a $1.7 million decrease in accrued payroll and employee related liabilities, a $1.4 million decrease in other liabilities, a $0.8 million decrease in accrued expenses and a $0.6 million increase in other assets.

Investing Activities

Our investing activities consist primarily of capital expenditures for capitalized software development costs, business acquisitions, property and equipment expenses, purchase and sales of short-term investments and the sale of assets.

Investing activities used $2.2 million in cash in the three months ended March 31, 2024, which consists of a $4.0 million investment in software development and $0.2 million in purchases of property and equipment offset by $2.0 million attributed to a landlord reimbursement.

Investing activities used $0.4 million in cash in the three months ended March 31, 2023, which consists of a $4.1 million investment in software development, $0.6 million in purchases of property and equipment offset by $4.3 million cash received from the sale of assets.

Financing Activities

Cash generated by financing activities includes proceeds from borrowings under our convertible senior notes, proceeds from the partial termination of convertible note capped call hedges, proceeds from the exercise of employee stock options and contributions to our employee stock purchase plan. Cash used in financing activities includes payments for debt and offering issuance costs, purchases of convertible notes capped call hedges, extinguishment of debt, payment of contingent consideration and employee withholding liabilities from the issuance of shares related to restricted stock units and performance-based restricted stock units.

We may from time to time seek to retire or purchase additional outstanding debt through cash repurchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, any such repurchases or exchanges may result in us acquiring and retiring a substantial amount of such indebtedness, which could impact the trading liquidity of such indebtedness.

Financing activities used $0.3 million of cash in the three months ended March 31, 2024, which reflects $2.2 million payment for employee withholding taxes related to the issuance of restricted stock units and performance-based restricted stock units partially offset by $1.9 million from the issuance of stock under our employee stock purchase plan and $0.1 million from the exercise of stock options.

Financing activities provided $1.9 million of cash in the three months ended March 31, 2023, which reflects $2.5 million from the issuance of stock under our employee stock purchase plan and $1.3 million from the exercise of stock options, partially offset by $1.9 million payment for employee withholding taxes related to the issuance of restricted stock units and performance-based restricted stock units.

Critical Accounting Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates.

There have been no changes to our critical accounting estimates described in the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024, that have had a material impact on our condensed consolidated financial statements and related notes.

Recently Issued Accounting Pronouncements

See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a summary of recently issued and adopted accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign exchange rates as well as, to a lesser extent, inflation.

Interest Rate Risk

Our investment portfolio is exposed to market risk from changes in interest rates. The fair market value of fixed rate securities may be adversely impacted by fluctuations in interest rates while income earned on floating rate securities may decline as a result of decreases in interest rates. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in investment grade securities. We have historically maintained a relatively short average maturity for our investment portfolio, and we believe a hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not change the fair value of our interest sensitive financial instruments by a material amount. In addition, if a 100-basis point change in overall interest rates were to occur in 2024, our interest income would not change significantly in relation to amounts we would expect to earn, based on our cash, cash equivalents, and investments as of March 31, 2024.

Changes in interest rates may also impact gains or losses from the conversion of our outstanding convertible senior notes. In March 2021, we issued $375 million in aggregate principal amount of our 2026 Notes of which $300.3 million remain outstanding as of March 31, 2024. During the year ended December 31, 2023, we paid approximately $64.9 million in cash to repurchase approximately $74.7 million principal amount of the 2026 Notes. In December 2019, we issued $450 million in aggregate principal amount of our 2024 Notes of which $63.5 million remain outstanding as of March 31, 2024. During the year ended December 31, 2023, we paid approximately $65.7 million in cash to repurchase approximately $70.1 million principal amount of the 2024 Notes. During the year ended December 31, 2022, we paid approximately $288.8 million in cash to repurchase approximately $316.4 million principal amount of the 2024 Notes. The 2026 Notes and 2024 Notes are convertible under certain circumstances, including upon certain trading price conditions related to our common stock, and upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. The 2026 Notes and 2024 Notes were not convertible as of March 31, 2024.

We are exposed to interest rate risk in the ordinary course of our business. Our cash, cash equivalents and investments include cash in readily available checking and money market accounts and marketable securities. These securities are not dependent on interest rate fluctuations that may cause the principal amount of these assets to fluctuate.

We had cash and cash equivalents of $121.4 million as of March 31, 2024, which consisted of bank deposits and money market funds. To date, fluctuations in interest income have not been significant.

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

Foreign Currency Exchange Risk

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than our functional currency, the U.S. dollar, principally British Pounds, Euro, Norwegian Krone, Swedish Kronor and other foreign currencies. Movements in foreign currencies in which we transact business could significantly affect future net earnings. For example, the strengthening of the U.S. dollar has a negative impact on our reported international net revenue but a positive impact on our reported international operating expenses. We do not currently engage in any hedging activity to reduce our potential exposure to currency fluctuations, although we may choose to do so in the future. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have had a material impact on our consolidated financial statements. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in foreign currency rate.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations historically. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting related to ineffective information technology general controls (“ITGC”s) over user access and change management for the primary system supporting our financial statement close process. The material weakness was first identified and reported in Management’s Annual Report on Internal Control Over Financial Reporting in our Annual Report on Form 10-K for the period ending December 31, 2023.

This material weakness did not result in any identified material misstatements to the financial statements, and there were no changes to previously released financial results. Following identification of this material weakness, and prior to filing this Quarterly Report on Form 10-Q, we performed additional analysis and procedures in preparing our condensed consolidated financial statements for the three months ended March 31, 2024. Based on these procedures, management believes that the consolidated financial statements included in this Form 10-Q have been prepared in accordance with U.S. GAAP.

Remediation Plan for Material Weakness

Management has implemented measures designed to ensure that the material weakness is remediated. We took the following remediation steps during the fourth quarter of 2023 and first quarter of 2024:

•

We reviewed all changes that occurred in our primary system supporting our financial statement close process. We enhanced procedures related to change management and user access by creating an electronic workflow request and approval to ensure all requests and approvals are confirmed with the systems administrators and accounting staff to address any financial impact.

•

We have written policies and procedures over the operation and importance of ITGCs and policy requirements of each control, with a focus on those controls involving user access to IT systems and change management of IT systems that support financial reporting processes.

•

We have documented and trained personnel of ITGCs to facilitate knowledge transfer in the event of personnel and function changes.

•

We enhanced management’s review and testing plan to monitor ITGCs with a specific focus on IT systems supporting our financial reporting processes.

As of March 31, 2024, management has implemented all remedial actions described above in respect to the material weakness relating to policies and procedures within the IT function. Due to the timing of the design and implementation of these remediation efforts during the first quarter of 2024, there has been insufficient time for the Company to demonstrate consistent execution against all newly implemented actions. As such, management is unable to conclude on the operating effectiveness of the implemented remediations at March 31, 2024. We expect to continue to assess their operating effectiveness throughout 2024.

Changes in Internal Control

Except as described above with respect to our remediation plan, there were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our global organization have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

See Note 17 in the notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of our legal proceedings, which is incorporated herein by reference.

Item 1A. Risk Factors.

We operate in a rapidly changing environment that involves a number of risks, which could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I-Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 27, 2024. During the three months ended March 31, 2024, there were no material changes to the risk factors that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Repurchases of Equity Securities.

(a) Recent Sales of Unregistered Equity Securities

None

(b) Use of Proceeds

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable

Item 5. Other Information.

Trading Arrangements

During the three months ended March 31, 2024, none of our directors or executive officers adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as such terms are defined in Item 408(c) of Regulation S-K).

Item 6. Exhibits.

Incorporated by Reference

Exhibit

No.

Exhibit Description

Filed

Herewith

Form

File No.

Exhibit

Filing Date

2.1

Amended and Restated Agreement and Plan of Merger, dated February 29, 2024 among Project Emerson Parent, LLC, Project Emerson Merger Sub, Inc. and Everbridge, Inc.

8-K

001-37874

2.1

3/1/24

3.1

Sixth Amended and Restated Certificate of Incorporation of Everbridge, Inc.

10-Q

001-37874

3.1

8/9/21

3.2

Third Amended and Restated Bylaws of Everbridge, Inc.

10-Q

001-37874

3.2

11/9/23

10.1+

Letter Agreement, dated as of March 7, 2024, by and between Everbridge, Inc. and Shirley Devlin-Lebow.

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents

104

Cover page formatted as Inline XBRL and contained in Exhibit 101

* This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

+ Indicates management contract or compensatory plan.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Everbridge, Inc.

Date: May 9, 2024	By:	/s/ David J. Wagner
		David J. Wagner
		Chief Executive Officer

Date: May 9, 2024	By:	/s/ David E. Rockvam
		David E. Rockvam
		Executive Vice President and Chief Financial Officer

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Everbridge (EVBG) 10-Q2024 Q1 Quarterly report

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