UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
For the transition period from to
Commission File Number: 001-37874
Everbridge, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
25 Corporate Drive, Suite 400
Burlington, Massachusetts
(Address of principal executive offices)
26-2919312
(I.R.S. Employer
Identification No.)
01803
(Zip Code)
Securities registered pursuant to Section 12(b) of the Securities Act:
Registrant’s telephone number, including area code: (818) 230-9700
Title of each class
Common Stock, $0.001 par value per share
Trading symbol(s)
EVBG
Name of each exchange on which registered
The Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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
Non-accelerated filer
☒
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of the registrant’s common stock on June 30, 2021 (the
last business day of the registrant’s most recently completed second fiscal quarter), as reported on the Nasdaq Global Market on such date, was approximately $5.2 billion. Shares of the
registrant’s common stock held by each executive officer, director and holder of 10% or more of the registrant’s outstanding common stock have been excluded from this calculation as such
persons may be deemed to be affiliates. This calculation does not reflect a determination that these persons are affiliates of the registrant for any other purpose.
The number of shares of registrant’s Common Stock outstanding as of February 22, 2022 was 39,428,257.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference into Part III of this Annual Report on Form 10-K.
Auditor Firm Id:
42
Auditor Name:
Ernst & Young LLP
Auditor Location:
Boston, Massachusetts, United States
EVERBRIDGE, INC. AND SUBSIDIARIES
FORM 10-K
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
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Forward-Looking Statements
PART I
This Annual Report on Form 10-K, including the sections entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never
materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Statements
that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. Forward-looking statements are often identified by the use of words such as, but not limited to,
“anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “goals,” “intend,” “may,” “plan,” “potential, ” “predict, ” “project,” “seek,”
“should,” “target,” “will,” “would” or the negative or plural of these terms and similar expressions or variations intended to identify forward-looking
statements. These forward-looking statements include, but are not limited to, statements concerning the following:
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our ability to continue to add new customers, maintain existing customers and sell new products and professional services to new and
existing customers;
uncertain impacts that the COVID-19 pandemic may have on our business, strategy, operating results, financial condition and cash flows,
as well as changes in overall level of software spending and volatility in the global economy;
the effects of increased competition as well as innovations by new and existing competitors in our market;
our ability to adapt to technological change and effectively enhance, innovate and scale our solutions;
our ability to effectively manage or sustain our growth and to attain and sustain profitability;
our ability to diversify our sources of revenue;
our ability to integrate acquired companies, to complete potential acquisitions, and to integrate complementary businesses and
technologies;
our ability to maintain, or strengthen awareness of our brand;
perceived or actual security, integrity, reliability, quality or compatibility problems with our solutions, including related to security breaches
in our customers systems, unscheduled downtime or outages;
statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and stock performance;
our ability to attract and retain qualified employees and key personnel and further expand our overall headcount;
our ability to grow, both domestically and internationally;
our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the
United States and internationally, including laws and regulations related to export compliance and climate change;
our ability to maintain, protect and enhance our intellectual property;
costs associated with defending intellectual property infringement and other claims; and
the future trading prices of our common stock and the impact of securities analysts’ reports on these prices.
These statements represent the beliefs and assumptions of our management based on information currently available to us. Such forward-looking
statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially
from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not
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limited to, those identified above, and those discussed in the section titled “Risk Factors” included under Part I, Item 1A. 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 that occur after the date of this report.
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Item 1. Business.
Unless otherwise stated in this Annual Report, references to "Everbridge," "we," "us," and "our" refer to Everbridge, Inc. and its consolidated subsidiaries.
Overview
Everbridge is a global software company that provides enterprise software applications that automate and accelerate organizations’ operational response to
critical events in order 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 Information Technology (“IT”) outages, cyber-attacks, product recalls
or supply-chain interruptions, over 6,100 global customers rely on our Critical Event Management (“CEM”) platform 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 over 100 different communication channels, 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 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 e-mail, in over 200 countries and territories, 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. Everbridge’s individual products, addressing the full spectrum of
tasks an organization requires to manage a critical event, include Mass Notification, Safety Connection, IT Alerting, Visual Command Center, Public
Warning, Community Engagement, Risk Center, Crisis Management, CareConverge, Control Center, 911 Connect, Travel Risk Management, SnapComms
and E911. As all of our applications leverage our Critical Event Management platform, customers can 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, enterprise applications
delivered via a single global platform is a significant competitive advantage in the market for Critical Event Management solutions, which we refer to
generally as CEM.
In critical situations, the speed at which threats are assessed and information is transmitted and accessed is essential. For example, United States
Department of Homeland Security research indicates that the average duration of an active shooter event at a school is approximately 12.5 minutes, while
the average police response time to such events is 18 minutes. Accordingly, organizations must be able to aggregate multiple types of threat and incident
data and determine whether their people, assets, or suppliers could be impacted, rapidly deliver messages that are tailored to multiple, specific audiences, in
precise locations and be assured of delivery. Further, the proliferation of mobile and digital communications has resulted in individuals spending less time
in a fixed office location, and this trend makes it more complicated for organizations to protect their employees. These developments have made it
imperative that organizations be able to locate travelling or remote workers to determine who might be impacted by a critical event, and that critical
communications be delivered via voice, SMS, and email, as well as to social media, outdoor signage and personal computers. During public safety threats
and critical business events, the ability to gather, organize and analyze data in real time, and to enable secure, scalable, reliable and automated
communications to people can be essential to saving lives, protecting assets and maintaining businesses. Further, the ability to rapidly organize a response
by locating available responders and using automation to reduce the time required to initiate action can also result in significant economic savings, as, for
example, each minute of unplanned IT downtime costs organizations an average of approximately $9,000, according to the Ponemon Institute.
The following situations reflect examples of how our applications aggregate and assess data and enable improved management of critical events:
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When an active shooter situation or terrorist attack occurs, organizations can quickly identify employees in the affected area, including
employees not at their usual business location, in order to confirm that they are safe and provide tailored instructions. For example, shelter-
in-place instructions may be provided to people in an impacted building while evacuation instructions are provided to those in an adjacent
building. At the same time, first responders and hospitals can use multiple modes of alerting to mobilize resources and call in staff to
provide emergency care.
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When a pandemic such as COVID-19 is underway, corporate, government and healthcare organizations can navigate the complexity of
operating during the shutdown phases, supplement or complement existing manual contact tracing efforts and prepare to bring back the
workforce and reopen society.
When a hurricane is imminent, local emergency management departments can alert affected communities with relevant safety and
evacuation instructions while companies can put in place emergency plans to notify employees of office closures while coordinating work
assignments to maintain the continuity of core operations.
When emergency operations are required or supply chain events occur, companies can consolidate separate command centers using one
common data set to aggregate and assess data on severe weather, political unrest and other types of threats to their own and suppliers’
operations, thereby reducing costs while gaining efficiencies.
When IT systems fail, IT administrators can shorten the time required to alert cross-department responders, use scheduling information to
determine availability and quickly assemble appropriate personnel on a conference bridge, thereby reducing the costs incurred from
downtime.
When a patient is suspected of having a stroke, an on-call specialist can provide a patient assessment via video communications during the
ambulance trip and the emergency room can be readied for an immediate stroke treatment, accelerating critical time to treatment.
When a cyber incident shuts down an IT network, management can alert employees of the network shutdown via a secure, alternate
communication path.
When a power line is down, utility workers can utilize pre-configured incident management templates to alert affected customers and
responders and provide service updates.
When engine readings in critical equipment detect a malfunction, technicians with the appropriate skills can be automatically alerted and
quickly deployed to minimize downtime and avoid revenue loss or service interruption.
When readings from an implanted medical device are abnormal, that information can be automatically routed to the individual’s healthcare
provider to enable timely medical care.
When a young child goes missing, local officials can send alerts to and receive tips from their communities to aid in locating and returning
the child.
When a financial services firm experiences disruptions in service, clients can be promptly notified and audit confirmations can be provided
to document delivery.
Our customer base has grown from 867 customers at the end of 2011 to more than 6,100 customers as of December 31, 2021. As of December 31, 2021,
our customers were based in over 75 countries and included eight of the 10 largest U.S. cities, nine of the 10 largest U.S.-based investment banks, 47 of the
50 busiest North American airports, nine of the 10 largest global consulting firms, eight of the 10 largest global automakers, nine of the 10 largest U.S.-
based health care providers, and seven of the 10 largest technology companies in the world. 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 derive most of our revenue from subscriptions to our critical communications applications. Subscription services revenue represented 89%, 89% and
90% of our total revenue in 2021, 2020 and 2019, respectively. We derived 42% of our revenue in 2021 from sales of our Mass Notification application.
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.
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Recent Developments
In January 2021, we purchased all of the issued and outstanding shares of stock of Red Sky Technologies Inc. (“RedSky”) for a base consideration of $55.4
million, net of cash acquired. In addition to the base purchase price, there was also a potential contingent payment of up to $30 million that was eligible to
be earned by the sellers based on certain revenue targets through the contractual measurement period. During the year ended December 31, 2021, we paid
$0.4 million in cash and issued 4,058 shares of our common stock to settle RedSky’s contingent consideration liability. RedSky is a provider of E911
incident response solutions.
In March 2021, we issued $375 million aggregate principal amount of 0% convertible senior notes due March 15, 2026 (the “2026 Notes”), including $50
million aggregate principal amount of 2026 Notes issued upon exercise in full by the initial purchasers of their option to purchase additional 2026 Notes.
The 2026 Notes will mature on March 15, 2026, unless earlier redeemed or repurchased by us or converted by the holders thereof pursuant to their terms.
In connection with the pricing of the 2026 Notes and the exercise in full by the initial purchasers of their option to purchase additional 2026 Notes, we
entered into capped call transactions with certain counterparties affiliated with the initial purchasers and other financial institutions. The cost of the
purchased capped calls was $35.1 million. The capped call transactions are expected generally to reduce potential dilution to our common stock upon any
conversion of 2026 Notes and/or offset any cash payments we are 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. In connection with the issuance of the 2026 Notes in March 2021, we paid approximately $58.6
million in cash and issued 1,288,994 shares of common stock to repurchase approximately $58.6 million principal amount of our 1.50% convertible senior
notes due November 1, 2022 (the “2022 Notes”). During March 2021, we also partially terminated capped call options entered into in connection with the
2022 Notes, receiving approximately $10.6 million in connection therewith, and modified a capped call option agreement entered into in connection with
the 2022 Notes. Additionally, during the year ended December 31, 2021, we issued 627,212 shares upon the conversion of approximately $21.1 million in
aggregate principal amount of the 2022 Notes.
In April 2021, we signed a definitive agreement with xMatters Holdings, Inc. (“xMatters”) pursuant to which we agreed to purchase all of the issued and
outstanding shares of stock of xMatters. This acquisition closed in May 2021. We purchased all of the issued and outstanding shares of stock
of xMatters for a base consideration of $242.6 million. xMatters is a provider of service reliability platforms.
In November 2021, we purchased all of the issued and outstanding shares of stock of The Anvil Group (International) Limited, Anvil Worldwide Limited
and The Anvil Group Limited (collectively, “Anvil”) for a base consideration of $161.4 million. In addition to the base purchase price, there is also a
potential contingent payment of up to $0.8 million that may be paid to the sellers on or before June 30, 2023. Anvil is a provider of travel risk management,
operational resiliency and occupational health solutions.
In December 2021, David Meredith notified our Board of Directors of his intention to resign from his role as Chief Executive Officer (“CEO”). The Board
of Directors accepted Mr. Meredith’s resignation and, soon thereafter, established an Office of the CEO and began to transition leadership to long-tenured
company executives Patrick Brickley, Executive Vice President, Chief Financial Officer and Treasurer, and Vernon Irvin, Executive Vice President and
Chief Revenue Officer. Mr. Brickley and Mr. Irvin continue serving as Interim Co-Chief Executive Officers while we search for a permanent CEO. Mr.
Meredith concluded his role on our Board of Directors on January 10, 2022 and we processed the termination of his employment on January 30, 2022.
Industry Background
Over the past two decades, methods to assess critical events and to automate, accelerate and digitally transform the process of managing and responding to
such events have evolved rapidly, in tandem with advances in technology, to include automated or system-generated responses, such as voice calls, text
messages, emails, social media and outdoor digital signage. In critical situations, the speed at which threats are assessed and information is transmitted are
essential.
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Evolution of Critical Event Management Solutions
Traditional solutions for critical communications have not kept pace with the increasingly digital world, the evolving threat landscape and the opportunity
to leverage technological innovation to more effectively gain situational awareness and to communicate with people. These solutions are often developed
in-house or are not truly enterprise grade in scale and reliability, leaving many organizations to manually evaluate multiple streams of threat data and to use
analog, one-way and people-based modalities to communicate with relevant stakeholders. These solutions lack the scale to reliably address the breadth of
the different critical challenges that organizations increasingly face, the sophistication required to address evolving needs with aggregated data and analysis
for threat assessment, automated workflows and the ability to rapidly deliver messages that are contextually tailored to multiple, specific audiences, in
precise locations, using a variety of different communication modalities. Traditional solutions also typically determine a person’s location for threat
assessment and availability for response, and send notifications, based upon a static work or home address. Given the mobile and increasingly remote
nature of today’s workforce, solutions now need to be able to dynamically locate who is near a critical event and send instructions to impacted parties and
responders based upon where they actually are.
CEM solutions digitally transform the response to natural, manmade and digital crises, building upon the strengths of modern critical communications with
vital data, analytics, correlation, and seamless orchestration. Organizations today typically manage critical events across the organization in silos that use
disparate data sources and unintegrated tools, making it difficult to achieve a common operational view of threats and of the status of response. Utilizing
a common contact base, consistent rules engines, threat databases that are integrated with information on the location of an organization’s people, assets
and suppliers, and a common visualization platform, CEM solutions can provide a more integrated solution which can improve management control and
visibility and lower costs. The ability to cohesively and rapidly share information and collaborate across the organization underlies creating a common
operational approach.
Key Benefits of Our Solutions and Competitive Strengths
Everbridge was founded with a vision to help organizations keep their people (employees, contractors, customers, residents, visitors) safe and operations
running amid the many types of public safety and critical business events that pose threats. Our CEM solutions enable organizations to assess threats, locate
impacted people and assets, and manage and respond to critical events, all on a single platform. Key benefits of our solutions and competitive strengths
include the following:
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Comprehensive, Enterprise-Scale Platform. The core of our solutions is our Critical Event Management platform, which provides multiple
layers of redundancy to assure uptime and delivery of communications regardless of volume or throughput requirements. The platform is
secure, scalable and reliable, enabling the delivery and verification of communications virtually anywhere, in any volume, in near real-
time. In 2021, we delivered over 6 billion interactions, or about 190 interactions per second, through our globally distributed data centers.
Digital Transformation. Our solutions help enable our customers’ digital transformation efforts by automating business continuity, risk
reduction, and operational resilience. Customers can use our solutions’ situational awareness capabilities to know where their people are,
how to reach them and how to ensure that they are protected, while also remaining updated on the status of their facilities, customers,
inventory, and goods in transit. As part of digital transformation initiatives, our solutions support operational risk reduction for better
operational resiliency.
Out-of-the-Box, Scalable and Mobile Applications. Our SaaS-based applications are out-of-the box, enterprise-ready and can be utilized
without customer development, testing or ongoing maintenance. Regardless of a customer or prospect’s size or needs, our applications are
built to scale to its largest and most complex critical communications requirements.
Aggregated Threat Data and Analysis. Our software gathers and analyzes information from weather data feeds, public safety and threat
data feeds, social media, IT ticketing systems and monitoring systems, as well as inputs and feedback from two-way and polling messages.
Data can be geo-mapped and threat and incident data can be used to automatically trigger simple or complex workflows that are tied to
standard operating procedures or run-books.
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Contextual Communications. We enable intelligence and personalization in the critical communications process by delivering contextual
communications. Our customers can deliver and escalate critical communications broadly to a mass population or to a targeted subset of
individuals based on geographic location, skill level, role and communication modality preferences for rich, two-way collaboration.
Dynamic Location Awareness. Our platform can provide organizations with the ability to send and receive notifications based on the last
known locations of people, not just based on a static office or home address. Our platform integrates with a variety of sources of location
information, including building access control systems and corporate network access solutions. This location-specific approach enables
organizations to quickly determine which individuals may be affected by a public safety threat or able to respond to a critical business
event, and to provide targeted and relevant instructions and two- way communications.
Large, Dynamic and Rich Communications Data Asset. As of December 31, 2021, our data asset consists of our contacts databases that
manage approximately 545 million contact profiles and connections from more than 6,100 customers based in over 75 countries. Our
contacts databases, which we refer to as contact stores, are initially created through an upload of contacts from the customer and are
automatically updated with the most current contact information provided by the customer or by individuals who opt-in to receive
notifications from our Community Engagement application. Our contact stores are repositories for all contact details, attributes and
business rules and preferences, such as a person’s last-known location, language spoken, special needs, technical certifications and on-call
status.
Multi-channel Visualization. Our platform provides the ability to create an integrated view of threats, incidents and the status of response,
all within the context of the locations of an organization’s people, assets and suppliers. Multiple channels of information can be displayed
side-by-side so different facets of a critical event can be monitored simultaneously, and the same data can be displayed on personal
computer screens and on a large command center wall to provide flexibility in deployment.
Robust Security, Industry Certification and Compliance. Our platform is built on a secure and resilient infrastructure with multiple layers
of redundancy. Many of our enterprise applications are designed to meet rigorous security and compliance requirements for financial
services firms, healthcare institutions, the U.S. federal government and other regulated industries, including facilitating compliance with
FINRA and HIPAA standards. Our solutions received designation under the Support Anti-terrorism by Fostering Effective Technology Act
of 2002 (“SAFETY Act”), and certification by U.S. Department of Homeland Security that places us on the approved product list for
homeland security. Our solutions are also accredited under the Federal Information Security Management Act of 2002 (“FISMA”). Our
Everbridge Suite solution also achieved authorization under the Federal Risk and Authorization Management Program (“FedRAMP”) in
2018, that required satisfying a rigorous security and risk management review process and which we believe provides an advantage for
selling into the U.S. federal sector. In 2019, our Critical Event Management platform received certification under International
Organization for Standardization, or ISO, 27001 and also received Cloud Computing Compliance Controls Catalogue (“C5”) accreditation
under the Federal Office for Information Security in Germany. In 2020, we received ISO 27701 compliance, the privacy extension to ISO
27001, and successfully renewed our FedRAMP Agency Authorization.
Automated Workflows. Our platform automates the workflows required to complete a critical notification, including establishing the
individuals within an organization authorized to send messages, the groups of stakeholders to whom messages will be sent and the content
of messages to be sent to different groups of relevant stakeholders, in each case based on incident type. We believe that this automation
reduces the amount of time required to send critical notification as well as the associated cost. Our platform also enables customers to
automatically establish procedures for improving the success of communication efforts.
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Globally Local. Our platform is designed to be utilized globally while accounting for local cultural, linguistic, regulatory and technological
differences. We have relationships with suppliers and carriers in multiple countries to ensure delivery in compliance with local, technical
and regulatory requirements. We have localized our user interface in several languages and dialects.
Next-Generation, Open Architecture. We developed our platform to easily integrate our applications with other systems. Our solutions
provide open Application Program Initiatives (“APIs”), and configurable integrations, enabling our platform to work with our customers’
and partners’ pre-existing processes and solutions, increasing the business value we deliver.
Actionable Reporting and Analytics. Our platform provides real-time dashboards, advanced map-based visualization and ad-hoc reporting
across notifications, incidents and contacts. This information is easily accessed for required after-event reviews, continuous process
improvements and regulatory compliance.
Our Growth Strategy
We intend to drive growth in our business by building on our position as a global provider of critical event management, critical communications and
enterprise safety applications. Key elements of our growth strategy include:
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Accelerate Our Acquisition of New Customers. We have multiple paths of entry into new customers with our portfolio of applications,
which are used for a wide variety of use cases across a diverse set of verticals markets. We intend to capitalize on the breadth of our
solutions and the technological advantages of our CEM platform to continue to attract new customers. In parallel, we plan to attract new
customers by investing in sales and marketing and expanding our channel partner relationships.
Further Penetrate Our Existing Customers. We believe that there is a significant opportunity within our existing customer base to expand
their use of our platform, both by selling new applications and features to our existing customers and selling to additional departments in
their organizations. Our dollar-based net retention rate, which we define as revenue generated from existing customers including recurring
revenue, expansion revenue, downgrades, and cancels, was over 110% for fiscal 2021. We also believe that we have a significant
opportunity to increase the lifetime value of our customer relationships as we educate customers about the benefits of our current and future
applications that they do not already utilize and of taking an integrated CEM approach. New applications added, which represent the total
dollar value of new agreements entered into within the prior 12 months, exclusive of renewals, have grown from 6% of our sales in the first
quarter of 2016 to 63% of our sales in the fourth quarter of 2021.
Expand Our Partner Ecosystem: We continue to expand our strategic partnerships with our channel partners, technology partners, and
system integrators. We intend to further expand our partner ecosystem to open up new channels to market and to enable our customers to
succeed with our technology and platform in their operations and business processes.
Develop New Applications to Target New Markets and Use Cases. Our platform is highly flexible and can support the development of new
applications to meet evolving safety and operational challenges. For example, throughout 2020, we announced a number of applications
under the heading COVID-19 Shield, an extension to our CEM platform offering public health information, risk insights, wellness checks,
logistics awareness and vaccine appointment management. We deployed our CEM Platform for a variety of COVID-19 uses, including to
power countrywide communications about the pandemic, deliver health checks at higher education institutions, and coordinate vaccine
distribution for a number of municipalities and organizations. We intend to continue to develop new applications for use cases in a variety
of new markets and to leverage our platform and our existing customer relationships as a source of new applications, industry use cases,
features and solutions.
Expand Our International Footprint. We intend to continue to expand our local presence in regions such as Europe, the Middle East and
Asia to leverage our relationships with local carriers and our ability to deliver messages to over 200 countries and territories in several
languages and dialects as well as expand our channel partnerships and also to opportunistically consider expanding in other regions.
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Maintain Our Technology and Thought Leadership. We will continue to invest in our core CEM platform and our applications to
maintain our technology leadership position. For example, we believe that we are the only company today that provides a full, integrated
CEM solution and that we provide the first solution to offer dynamic versus static location awareness integrated with analysis and
communications for the employee safety and security marketplace. Further, we believe we have a competitive advantage through our
commitment to innovation and thought leadership that has enabled us to take market share from our competitors and accelerate our growth.
Opportunistically Pursue Acquisitions. We plan to continue to selectively pursue acquisitions of complementary businesses, technologies
and teams that allow us to penetrate new markets and add features and functionalities to our platform.
Our Platform
Since inception, our SaaS-based critical communications platform was architected on a single code base to deliver multi-tenant capability and the speed,
scale and resilience necessary to communicate, collaborate and orchestrate the response to critical events, when they occur.
Additional core technical attributes of our platform include:
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Monitors more than 100 types of threat data and aggregates more than 25,000 of risk data elements for situation assessment and risk
monitoring.
Multi-tenant architecture that supports multiple layers of redundancy to maximize uptime and delivery of critical content, regardless of
volume or throughput requirements.
Dynamic spatial/geographic information system capability to geo-target communications by zip code, street address or a specific radius
from a location.
Support for two-way communications and alerting on over 100 different modalities, including wireless phones, landlines, hand-held
communication and other voice-capable devices, desktop, satellite communication, cell broadcast, location-based SMS, SMS, two-way
radios, TV, outdoor digital signage, sirens and internet enabled devices, social media, websites.
Designed to meet rigorous security and compliance requirements for financial services firms, healthcare institutions, the U.S. federal
government and other regulated industries, including facilitating compliance with health care requirements such as HIPAA privacy and
security standards including FedRAMP, the European Union’s General Data Protection Regulation, or GDPR, and ISO 27001.
Extensive set of APIs and configuration capabilities to allow customers and partners to easily integrate our platform with other systems.
Our APIs’ two-way invocation capabilities enable third-party systems to flexibly and easily integrate with our platform.
Multi-channel visualization capabilities support integrated views of threats, incidents and status of response to improve management
visibility and control.
Supports easy-to-use native mobile applications, including multiple secure mobile applications for message initiation, management and
reporting.
Supports push notifications and two-way conversations that enable mobile users to send and receive secure messages such as text, pictures,
videos and the users’ current geographic locations.
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Our Contact Stores
Our contact stores manage approximately 545 million contact profiles and connections from more than 6,100 customers based in over 75 countries as of
December 31, 2021, up from 15 million contact profiles as of December 31, 2012. They are initially created through an upload of contacts from the
customer and are automatically updated with the most current contact information provided by the customer or by individuals who opt-in to receive
notification from our Community Engagement application. Our contact stores are simultaneously enriched by geographic, situational and other real-time
data. Our contact stores are repositories for all contact details, attributes and business rules and preferences, such as a person’s last-known location,
language spoken, special needs, technical certifications and on-call status.
We leverage the data contained in our contact stores in a number of significant ways. Our data asset across multiple verticals enables us to develop best
practices for reaching the intended contact, on the correct device, at the right location, at the appropriate time. We also use these data to better understand
our customer base and their emerging use cases in order to improve our existing applications and develop new applications.
Everbridge Network
An important component of our platform is our Everbridge Network, which allows our customers to share relevant situational awareness information with
each other. Public safety agencies, for example, can publish information to the Everbridge Network about incidents that might prove disruptive to the
movement of people, goods and services for businesses within a certain area. If any of those businesses are also customers of ours, they will receive this
information from a source they know is vetted and reliable and will be able to take timely steps to mitigate or remediate the situation.
Our Applications
Through our CEM platform, we deliver reliable enterprise-ready applications that provide organizations with the ability to assess threats, locate people,
automate actions, monitor incident response, and deliver contextual communications in any volume, in near-real time. We have designed our applications’
user interface to be easy to use. We understand that since some of our applications will be utilized to manage complex situations or to send large volumes
of messages to key stakeholders during stressful situations, streamlining the user interface to reduce user errors and anxiety is essential. We conduct
extensive usability testing and design reviews with our stakeholders, and have applied in our designs the lessons learned over more than a decade of
working with critical communications users and professionals.
Our applications enable:
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Communications to key stakeholders during emergency situations.
Corporate communications with customers and employees.
Automated outreach to on-call personnel.
Integrated threat assessment and visualization.
Integration of physical security data with location awareness data gathered from travel, network and access systems to rapidly find and
communicate with employees during disruptive events.
Securely designed and efficiently implemented communications among healthcare providers and patients.
Community engagement and collaboration with citizens and businesses.
Critical IoT communications between machines and from machines to people.
Mobile response plan deployment and management of incidence response.
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Our Critical Event Management solutions include:
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Business Operations. The environment in which businesses operate is becoming more and more complex. Critical events such as COVID-
19, severe weather, civil unrest and supply chain disruption impact the resilience of businesses. Everbridge Business Operations helps
businesses prepare for, and respond to, critical events, protecting facilities and business operations. Built on Everbridge’s industry-leading
CEM platform, businesses can detect potential risks which might impact business operations and orchestrate a response in seconds across
teams as well as digital and physical systems.
People Resilience. The increasing frequency of critical events such as COVID-19, severe weather, and civil unrest over the past few years
has challenged many organizations to extend their duty of care responsibilities beyond traditional safety and security in the workplace to
include health and wellness of people. At the same time the scope of those responsibilities has moved beyond the traditional office and
plant-based work model to work in motion where an employee could be working in the office, at home, in the field, or traveling.
Everbridge People Resilience helps businesses prepare for, and respond to, critical events, keeping people healthy, safe, and productive
wherever they work or travel around the globe. Built on Everbridge’s industry-leading CEM platform, businesses can detect potential
threats that might impact people, and orchestrate a rapid response across teams as well as digital and physical systems.
Digital Operations. The Everbridge Digital Operations Platform goes one step beyond signal enrichment by combining signals from
multiple monitoring tools into a relevant context that provides resolvers with clear situational awareness. Massive growth in digital service
has both empowered businesses and exposed new vulnerabilities which expands the possibility of threats. A digital operations
platform enables agile service delivery models, providing resiliency for IT systems in an increasingly virtual world. Organizations now
consider great customer experiences imperative to their business and are pivoting towards streamlining and automating digital operations.
As a result, service uptime is crucial to delivering that experience. Through event correlation, incident suppression, signal enrichment,
context-rich categorization, and prioritization, organizations can monitor issues and react before an incident becomes a business problem.
The Everbridge Digital Operations Platform enables customers to automate remedial actions based on previous incident
resolution. Automating digital operations allows teams to open fewer tickets and spend less time chasing or reinventing the same
resolution, leading to faster Mean Time to Repair (“MTTR”) and more time for innovation.
Smart Security. Everbridge Smart Security helps organizations maintain control of their security by identifying threats to their people or
assets and orchestrating a rapid response across teams and systems, all within an easy-to-use common platform. Theft, vandalism, violence,
civil unrest, terrorism, and natural disasters are just some of the critical events security practitioners are faced with today. Keeping people
safe and assets secure in the face of ever-increasing and ever-more diverse threats is a constant challenge for many organizations.
Operations also continue to grow, involving more systems, more users, and much more data. All of this can be difficult to manage and
costly to control. When a critical event unfolds and information floods an organization, it needs to get the right information to the right
people at the right time to protect its people and their assets and to ensure operational continuity.
Public Safety. Public Safety harnesses the ability to monitor critical events, alert the population, and mobilize a coordinated response
across multiple agencies. The frequency of natural and human-made disasters is on the rise, and simultaneously, monitoring, collaborating,
and communicating during incidents is becoming increasingly complex. For over 20 years, we have partnered with governments
worldwide. From fires or floods to terrorist attacks, we have monitored potential hazards to help governments prepare and respond to
incidents, and effectively provide the right people with the right information. Be it a country-wide emergency or a neighborhood outage,
communities rely on Everbridge to keep them informed and safe.
We also have expanded our CEM platform through a series of recent acquisitions, including RedSky, xMatters and Anvil.
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With enterprise grade redundancy, scalability and uptime, the Everbridge platform reaches residents and visitors in more than 200 countries and territories.
Our Technology
The design and development of our applications, and our critical communication and critical event management platforms include the following key
attributes:
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Robust, Enterprise-Grade Scalability and Reliability. Given the mission-critical nature of our solutions, our multi-tenant platform was
designed to provide a robust, high level of resiliency, scalability and redundancy. We use multiple geographically distributed service
providers and communications carriers to achieve a high degree of redundancy, fault tolerance and cost-effective operations. We have
multiple layers of redundancy and a horizontal scaling model across our infrastructure to deliver high availability and performance.
Similarly, we leverage redundant downstream communications providers to enable our services to remain uninterrupted even if a particular
provider encounters technical difficulties.
Multi-Modal, Globally Local Communications Delivery. We optimize international call routing across hundreds of telecommunications
providers to enable higher voice quality, improved delivery rates during emergencies and the ability to configure local caller IDs to
improve recognition and answer rates. We also work with multiple SMS providers to identify regulatory hurdles and deploy and actively
manage an optimal mix of national and international SMS codes to ensure high delivery and response rates.
Security and Compliance. Our solutions received designation under the SAFETY Act, and certification by U.S. Department of Homeland
Security that places us on the approved product list for homeland security. Our solutions are also accredited under FISMA. Our Everbridge
Suite solution also achieved authorization under FedRAMP in 2018, that required satisfying a rigorous security and risk management
review process and which we believe provides an advantage for selling into the U.S. federal sector. In 2019, our Critical Event
Management platform received ISO 27001 certification and also received C5 accreditation under the Federal Office for Information
Security in Germany.
Hybrid Infrastructure. To provide highly scalable and global solutions, we employ redundant, geographically diverse production
implementations of our platform infrastructure in multiple SOC 2-compliant data center facilities in North America and Europe. Within
each data center, we utilize a hybrid-cloud architecture that enables us to leverage both proprietary and third-party infrastructure services to
enable “on-demand” capacity and performance without substantial upfront investment. Our architecture enables our platform to
dynamically determine the best location from which to deliver critical communications on behalf of our customers and solves many
international communications delivery challenges by utilizing in-country or in-region telephony, messaging and data communication
providers. Our infrastructure is continuously maintained and monitored by dedicated engineers based in redundant network operations
centers in the Los Angeles and Boston areas.
Dynamic Location Detection. Our platform can create and update dynamic data sets containing a contact’s last-known location, including
the airport, street, building floor or conference room at which the contact was most recently present. Multiple data sources can be
aggregated including building access control and badging systems, wired and wireless network access points, and corporate travel
management and office hoteling systems. These data are used to best locate a contact in an emergency or critical business situation,
independent of the contact’s home or office location. Contacts can also share their location via a three-in-one mobile panic button
application, which sends a panic message to the applicable organization’s security team, and also includes the ability to send audio and
video content, to check-in to capture and report geo-location data and to establish a safe corridor through a potentially unsafe area.
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Our Comprehensive Customer Support Services
We are committed to the success of our customers. We demonstrate this commitment by offering a comprehensive set of support services to help our
customers get started quickly, follow best practices, and realize on-going value from our critical communications solution. Our support services include:
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Rapid Onboarding. We leverage a proven methodology and domain expertise, honed through thousands of customer on-boardings
worldwide, to enable rapid use of our platform and compliance with industry best practices. The average implementation time for standard
implementations for new customers purchasing our solutions is 4.5 hours.
Everbridge University. We offer online education, training and professional development through Everbridge University, with role-based
training modules that can be customized to meet a customer’s needs and that can facilitate formalized knowledge transfer and ensure
ongoing self-sufficiency.
Dedicated Account Management. We assign dedicated account managers to all customers. Account managers perform regular service
reviews and post-incident analyses of customer communications to incorporate communication best practices and recommend additional
applications to meet the customer’s critical communications needs.
24/7 Technical Support & Emergency Live Operator Service. We have established geographically redundant technical support centers in
the Los Angeles, California; Boston, Massachusetts; and London, United Kingdom areas. From these support centers, we offer our
customers 24/7 support by phone, email or through our online support center. In addition, our support centers offer a 24/7 emergency live
operator service to assist customers with sending critical communications.
Premium Support Services. With an understanding of the critical role that our solution plays, we have assembled an expert professional
services organization to deliver premium support service packages to our customers. Our professional services team includes certified
emergency management and critical communications practitioners. We believe that we help customers achieve faster time-to-value by
providing on-site project management, consultation with a certified critical communications professional, creation of client-specific
message and scenarios, development of ad-hoc report templates and on-site emergency and incident management reviews.
Our Customers
Our customer base has grown from 867 customers at the end of 2011 to more than 6,100 customers as of December 31, 2021. We define a customer as a
contracting entity from which we generated $200 or more of revenue in the prior month, either directly or through a channel partner. At the end of 2011 we
had 20 customers with contracts valued at $100,000 or more, whereas as of December 31, 2021 we had 611 customers with contracts valued at $100,000 or
more, including 57 customers with contracts in excess of $500,000. As of December 31, 2021, our customers were based in over 75 countries and included
eight of the 10 largest U.S. cities, nine of the 10 largest U.S.-based investment banks, 47 of the 50 busiest North American airports, nine of the 10 largest
global consulting firms, eight of the 10 largest global automakers, nine of the 10 largest U.S.-based health care providers, and seven of the 10 largest
technology companies in the world. 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. For the year ended
December 31, 2021, 67% of our revenue was generated from enterprise customers, 24% from government and government-related customers and 9% from
healthcare-related customers.
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Sales and Marketing
Our sales and marketing organizations collaborate to create brand preference, efficiently and effectively generate leads, build a strong sales pipeline and
cultivate customer relationships to help drive revenue growth. Our marketing strategy consists of a strong thought-leadership program, digital marketing
engine and a diversified sales organization designed to efficiently sell across vertical markets to organizations of all sizes. We have dedicated sales teams
focused on corporate customers, healthcare organizations and government customers, which covers U.S. federal, state and local governmental entities.
Sales
We sell our solutions through our telephone and direct inside sales teams, a direct field sales team and a growing partner channel. Our global sales teams
focus on both new customer acquisition and up-selling and cross-selling additional and new offerings, respectively, to our existing customers. Our sales
teams are organized by geography, consisting of the Americas; Asia Pacific, Europe, the Middle East and Africa (collectively, “EMEA”); as well as by
target organization size. Our inside sales team focuses typically on small and middle-market transactions, while larger or more complex transactions are
generally handled by our direct field sales teams. Our highly trained sales engineers help define customer use cases, manage pilots and train channel
partners.
In addition to the vertical and geographic distribution of our salesforce, we have dedicated teams of account executives focused on net new accounts and
growth of existing accounts, account managers responsible for renewal of existing accounts, and business development representatives targeting new and
growth business opportunity creation. Our sales representatives use phone, email and web meetings to interact with prospects and customers. In 2021, we
increased the headcount of our sales organization, and we intend to continue to invest in building our global sales and go-to-market organizations.
We also sell through channel partners both domestically and internationally. To help integrate our applications with other third-party services and take
advantage of current and emerging technologies, we seek to enter into alliances with leading technology companies.
Marketing
We focus our marketing efforts on increasing the strength of the Everbridge brand, communicating product advantages and business benefits, generating
leads for our salesforce and channel partners, leveraging geographic market strengths and driving product adoption. We run campaigns that take advantage
of a network effect in which success within a region encourages other organizations within that area to choose our solutions, in part to be using a system
consistent with that of other entities in the area with which they may share information or best practices. We deliver targeted content to demonstrate our
thought leadership in critical communications best practices and use digital advertising methods to drive conversion of potential prospects, which convert
to opportunities for our sales organization.
Our marketing team focuses on inbound marketing through our industry-leading content, resources, and sharing customer best practices. We rely on
multiple marketing and sales automation tools to efficiently market to, and automatically identify qualified individuals using product and industry specific
criteria. We use multiple marketing tactics to engage with prospective customers including: email marketing, event marketing, print and digital advertising,
and webinar events. We engage with existing customers to provide vertically-based education and awareness and to promote expanded use of our current
and new software offerings within these customers. We also host regional and national events to engage both customers and prospects, deliver product
training and foster community.
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Research and Development
We invest substantial resources in research and development and leverage offshore development in multiple geographies to implement a “follow the sun”
engineering strategy and to increase the efficiency of our overall development efforts. We enhance our core technology platform and applications, develop
new end market-specific solutions and applications, and conduct application and quality assurance testing. Our technical and engineering team monitors
and tests our applications on a regular basis, and we maintain a regular release process to refine, update, and enhance our existing applications.
Our Competition
The market for CEM solutions is highly fragmented, intensely competitive and constantly evolving. We compete with an array of established and emerging
companies, many of whom are single product or single market focused, as well as in-house solutions. We view CEM as a holistic solution that allows
organizations to digitally transform their critical event management processes. These processes are siloed in a variety of ways in different organizations.
Similarly, solutions from competitors in the field often are siloed by smaller functions across the holistic CEM solution. CEM includes Mass Notification,
Risk Control, Public Warning, IT Alerting and Incident Management, and Control Center systems. The primary competitors for our Mass Notification
applications include BlackBerry Limited, F24 AG, OnSolve, LLC, and Rave Wireless, Inc. The primary competitors for our Risk Center application
include Crisis24 Limited and Dataminr, Inc. The primary competitors for our Public Warning application include Celltick, Intersec and Genasys, Inc. For
IT Alerting and Incident Management, our primary competitor is PagerDuty, Inc. For Control Center, our primary competitor is Genetec. Some competitors
in siloed solutions are beginning to converge and build strategies that follow our CEM platform strategy. With the introduction of new technologies and
market entrants, we expect the competitive environment to remain intense going forward.
We believe that we compete favorably with respect to all of these factors and that we are well positioned as a leading provider of targeted and contextually
relevant critical communications.
Intellectual Property
Our future success and competitive position depend in part on our ability to protect our intellectual property and proprietary technologies. To safeguard
these rights, we rely on a combination of patent, trademark, copyright and trade secret laws and contractual protections in the United States and other
jurisdictions.
We have numerous issued patents and patent applications pending. We cannot assure you that any patents will issue from any patent applications, that
patents that issue from such applications will give us the protection that we seek or that any such patents will not be challenged, invalidated, or
circumvented. Any patents that may issue in the future from our pending or future patent applications may not provide sufficiently broad protection and
may not be enforceable in actions against alleged infringers.
We have registered the “Everbridge”, “Nixle” and “Visual Command Center” names in the United States and have registered the “Everbridge” name in the
European Union. We have registrations and/or pending applications for additional marks in the United States; however, we cannot assure you that any
future trademark registrations will be issued for pending or future applications or that any registered trademarks will be enforceable or provide adequate
protection of our proprietary rights.
We also license software from third parties for integration into our offerings, including open source software and other software available on commercially
reasonable terms. We cannot assure you that such third parties will maintain such software or continue to make it available.
We are the registered holder of a variety of domestic and international domain names that include everbridge.com, as well as similar variations on that
name.
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In order to protect our unpatented proprietary technologies and processes, we rely on trade secret laws and confidentiality agreements with our employees,
consultants, vendors and others. Despite our efforts to protect our proprietary technology and trade secrets, unauthorized parties may attempt to
misappropriate, reverse engineer or otherwise obtain and use them. In addition, others may independently discover our trade secrets, in which case we
would not be able to assert trade secret rights, or develop similar technologies and processes. Further, the contractual provisions that we enter into may not
prevent unauthorized use or disclosure of our proprietary technology or intellectual property rights and may not provide an adequate remedy in the event of
unauthorized use or disclosure of our proprietary technology or intellectual property rights.
If we become more successful, we believe that competitors will be more likely to try to develop solutions that are similar to ours and that may infringe our
proprietary rights. It may also be more likely that competitors or other third parties will claim that our solutions infringe their proprietary rights.
Patent and other intellectual property disputes are common in our industry and we have been involved in such disputes from time to time in the ordinary
course of our business. Some companies, including some of our competitors, own large numbers of patents, copyrights and trademarks, which they may use
to assert claims against us. Third parties may in the future assert claims of infringement, misappropriation or other violations of intellectual property rights
against us. They may also assert such claims against our customers whom we typically indemnify against claims that our solution infringes,
misappropriates or otherwise violates the intellectual property rights of third parties. As the numbers of products and competitors in our market increase
and overlaps occur, claims of infringement, misappropriation and other violations of intellectual property rights may increase. Any claim of infringement,
misappropriation or other violation of intellectual property rights by a third party, even those without merit, could cause us to incur substantial costs
defending against the claim and could distract our management from our business.
Government Regulation
The legal environment of Internet-based businesses is evolving rapidly in the United States and elsewhere. The manner in which existing laws and
regulations are applied in this environment, and how they will relate to our business in particular, both in the United States and internationally, is often
unclear. For example, we sometimes cannot be certain which laws will be deemed applicable to us given the global nature of our business, including with
respect to such topics as data privacy and security, pricing, advertising, taxation, and intellectual property ownership and infringement.
Our customers, and those with whom they interact using our product and platform solutions, upload and store personally identifiable information and other
data into our solutions and provide access to such data, generally without any restrictions imposed by us. This presents legal challenges to our business and
operations, such as rights of privacy related to the data used in connection with our solutions. Both in the United States and internationally, we must
monitor and comply with a host of legal concerns regarding the data stored and processed in our solutions by customers. We must also monitor and comply
with these issues directly in the operation of our business in these jurisdictions.
We are subject to data privacy and security regulation by data protection authorities in countries throughout the world, by the U.S. federal government, and
by the states in which we conduct our business. In recent years, there have been a number of well-publicized data breaches involving the improper use and
disclosure of personal information of individuals. Many governing authorities have responded to these incidents by enacting laws requiring holders of
personal information to maintain safeguards and to take certain actions in response to a data breach, such as providing prompt notification of the breach to
affected individuals and public officials, or amending existing laws to expand compliance obligations. In the European Union, U.S. companies must meet
specified privacy and security standards, such as the European General Data Protection Regulation, or the GDPR, which governs the protection of
individuals with regard to the processing of personal data, and on the free movement of such data established in the European Union to certain non-
European Union countries, such as the United States. Additionally, the data protection laws of each of the European member countries require
comprehensive data privacy and security protections for consumers with respect to personal data collected about them. In February 2016, the European
Union and U.S. officials announced an agreement, which established the EU-U.S. Privacy Shield, or the Privacy Shield, as a means for legitimating the
transfer of personal data by U.S. companies doing business in Europe from the
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European Economic Area to the U.S. However, on July 16, 2020, the European Court of Justice invalidated the Privacy Shield. As a result, we are no
longer using the Privacy Shield as a legal mechanism for the transfer of data between the EU and the U.S. However, the European Court of Justice upheld
the validity of Standard Contractual Clauses, which we will continue to use as a legal mechanism for the transfer of data between the EU and the U.S. We
have and will continue to engage in efforts to ensure that data transfers from the European Economic Area comply with the GDPR and the data protection
legislation of individual member states.
In the United States, many federal, state, and foreign government bodies and agencies have adopted, or are considering adopting, laws and regulations
regarding the collection, use, and disclosure of personal information. California recently enacted the California Consumer Privacy Act, or CCPA, that
among other things, requires covered entities to provide new disclosures to California consumers, affords such consumers new abilities to opt-out of certain
sales of personal information, and gives such consumers a private right of action to enforce data breaches resulting from the covered entity's violation of its
duty to implement and maintain reasonable security measures.
For a discussion of risks related to these various areas of government regulation, see Risk Factors set forth in Part I, Item 1A of this Annual Report on
Form 10-K.
Human Capital Management
Culture and Governance
Culture
We believe that our culture has been a key contributor of our success to-date and that our mission, with the critical nature of the solutions that we provide,
promotes a sense of greater purpose and fulfillment for our employees. We have invested in building an intentional global culture and believe it represents
one of our most important and sustainable sources of competitive advantage.
Governance
Our Board of Directors and Board committees provide oversight on certain human capital matters. The Compensation Committee of our Board of Directors
acts on behalf of the Board to review, adopt and approve our compensation strategy, policies, plans and programs, including, among others, reviewing and
approving corporate performance goals and objectives relevant to the compensation of our executive officers and other senior management, evaluating and
approving the compensation plans and programs advisable for us, and administration of our equity compensation plans, stock purchase plan, bonus plans,
and other similar plans and programs.
Diversity and Inclusion
We prioritize diversity, equity and inclusion (“DEI”) to create a workplace that reflects the customers and populations we serve. We demonstrate our
commitment to DEI by focusing on several key initiatives. This includes aligning our hiring and recruiting practices to attract a diverse and talented
workforce; creating employee resource groups dedicated to celebrating and empowering communities within our organization, including women,
employees of color, employees who identify as LGBTQ+, and members of the military and first responders; holding open forums for company-wide
discussion and dialogue on civil unrest and equal justice; and supporting a growing ecosystem of minority-owned and led suppliers and partners. As of
December 31, 2021, 31% of our global workforce was female, 31% of vice president and above roles globally were female, and non-Caucasian employees
represented 22% of our U.S. workforce. We are committed to increasing the diversity of our workforce, and during the year ended December 31, 2021,
38% of our U.S. hires were female and 27% were non-Caucasian.
Labor Practices and Policies
Work Hours, Wages and Benefits
We compensate employees competitively relative to the industry and local labor market. We work to ensure full compliance with applicable wage, work
hours, overtime and benefits laws. We assess the current business environment and labor market to refine our compensation and benefits programs.
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In addition to salaries, our compensation and benefit programs (which may vary by country and location) include annual bonuses, stock-based
compensation awards, an Employee Stock Purchase Plan, retirement savings plans, healthcare and insurance benefits including long-term care insurance,
health savings and flexible spending accounts, paid time off, volunteer time off, parental leave, adoption assistance and military leave, among many other
benefits.
Safe and Healthy Workplace and Workplace Security
We seek to comply with all health and safety laws applicable to our business. To this end, we consult with employees to help keep work areas safe and free
of hazardous conditions. Additionally, we are committed to maintaining a workplace free from violence, harassment, intimidation and other unsafe or
disruptive conditions due to internal and external threats. We believe it is paramount to use our own CEM solutions to help us achieve our health and safety
goals. We continue to take a variety of measures, including by using our own CEM solutions, to communicate to our employees and help keep them safe.
COVID-19 Pandemic
During the COVID-19 pandemic we have taken, and continue to take, a variety of measures to ensure the availability and functioning of our critical
infrastructure, to promote the safety and security of our employees and to support the communities in which we operate. These measures include requiring
remote working arrangements for employees where practicable, among other modifications. We are following evolving public and private sector policies
and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions, the promotion of social distancing and the adoption of
work-from-home arrangements. All of these policies and initiatives have been and may continue to impact our operations. We formed a dedicated, cross-
functional task force to monitor the evolving pandemic conditions globally and provide guidance and resources to support employees during the crisis. We
continue to actively monitor the situation and are developing a future of work model that take into account our evolving business operations and are in the
best interests of our employees, customers, suppliers and stockholders.
Workforce, Recruiting, Development and Retention
Workforce Size
As of December 31, 2021, we had 1,952 full-time employees, including 497 in data center operations and customer support, 655 in sales and marketing,
579 in research and development and 221 in general and administrative. As of December 31, 2021, we had 1,078 full-time employees in the United States
and 874 full-time employees internationally. None of our U.S. employees are covered by collective bargaining agreements. We believe our employee
relations are good and we have not experienced any work stoppages.
Recruiting
Our key talent philosophy is to develop talent from within and supplement with external hires. Our talent acquisition team uses internal and external
resources to recruit highly skilled and talented workers, and we encourage employee referrals for open positions. Measurements of our progress include the
percentage of internal candidates sourced and attrition rates. During 2021, 11% of positions were filled by candidates sourced internally and our attrition
rate was 22%. We also develop our talent pipeline with programs such as our internship program. During 2021, we hired 40 interns across various
departments and geographies, representing 33% gender diversity.
Workforce Development
We are committed to investing in our employees through professional training and development to ensure the highest possible performance for our
customers while retaining our employees to grow their careers at Everbridge. We achieve this through several avenues, including skills training within
functional departments, education reimbursement and a Manager Development Program. The Manager Development Program was created to help grow our
people managers and provide a path to leadership. We offer a wide variety of content and resources to maximize development. Since the program started in
2019, nearly 200 employees have participated in training and there was 100% agreement by respondents that the program achieved their expectations and
should be continued.
The Everbridge Performance Management Program was designed to meet several key objectives including providing feedback to enhance performance,
providing developmental guidance to grow skills, experience and careers, aligning individual effort to organizational objectives and recognizing
achievements and contributions. During 2021, participation in the annual review process was 100%.
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The Nominating and Corporate Governance Committee of our Board of Directors develops and periodically reviews with our Chief Executive Officer plans
for succession to the offices of our executive officers and makes recommendations to the Board with respect to the selection of appropriate individuals to
succeed to these positions.
Employee Engagement and Satisfaction
We conduct an annual employee engagement survey to gauge overall employee satisfaction. The survey is an opportunity for employees to provide
anonymous feedback on topics ranging from leadership and management, to opportunities for career growth, to work-life balance and diversity, equity and
inclusion. The results of the survey are used to develop our annual corporate and department business plans as well as direct the efforts of our People
team.
In a survey conducted by Comparably measuring employee sentiment across over 60,000 U.S. companies, we won four 2021 Comparably Awards
including Best Company Outlook and Best Global Culture, ranking in the top 50 in the largest company category. In addition, Everbridge Customer
Success Leader won the 2021 Stevie® Award honoring worldwide Sales Executives. The Stevie Awards were created in 2002 to honor and generate public
recognition of the achievements and positive contributions of organizations and working professionals worldwide. Now in its 15th year, the Stevie Awards
remain highly sought-after worldwide, exemplifying achievement in business by organizations and individuals across more than 60 nations. In 2020, we
were designated as a “Great Place to Work” in the United States and were re-certified in 2021. Based on employee feedback, we have been recognized for
our culture, mission and leadership by Great Place to Work®, a global evaluator of workplace culture.
Environment
Across the globe, both public and private sectors are more concerned than ever about addressing climate change and its associated risks. During severe
weather events, enterprises, small businesses, non-profit organizations, educational institutions and governmental agencies have a responsibility to respond
effectively and efficiently in order to protect people, assets, and facilities from harm. As a result, changes in laws and business practices may create more
demand for our products in the short and long-term.
Climate change is driving more severe weather events across the globe. Our multi-tenant platform was designed to navigate mission-critical events and
provide a robust, high level of resiliency, scalability and redundancy. We use multiple geographically distributed service providers and communications
carriers to achieve a high degree of redundancy, fault tolerance and cost-effective operations. We have multiple layers of redundancy and a horizontal
scaling model across our infrastructure to deliver high availability and performance. Similarly, we leverage redundant downstream communications
providers to enable our services to remain uninterrupted even if a particular provider encounters technical difficulties.
Facilities
Our principal executive offices are located in Burlington, Massachusetts, where we occupy an approximately 73,500 square-foot facility under a lease
expiring on May 31, 2024, and in Pasadena, California, where we occupy an approximately 19,000 square-foot facility under a lease expiring on December
31, 2023. We also have additional offices in the United States as well as internationally including Canada, China, Germany, India, Netherlands, New
Zealand, Norway, Singapore, Sweden, Switzerland and the United Kingdom.
Legal Proceedings
From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently
a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business,
operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and
settlement costs, diversion of management resources and other factors.
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Corporate Information
Our principal executive offices are located at 25 Corporate Drive, Suite 400 Burlington, Massachusetts. Our telephone number is (818) 230-9700. Our
website address is www.everbridge.com.
“Everbridge, Inc.,” the Everbridge logo, and other trademarks or service marks of Everbridge, Inc. appearing in this Annual Report on Form 10-K are the
property of Everbridge, Inc. This Annual Report on Form 10-K contains additional trade names, trademarks and service marks of others, which are the
property of their respective owners. Solely for convenience, trademarks and trade names referred to in this Annual Report on Form 10-K may appear
without the ® or TM symbols.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections
13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge on or through our website at
http://ir.everbridge.com as soon as reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission
(“SEC”). The SEC also maintains a website, www.sec.gov, which contains reports and other information regarding issuers that file electronically with the
SEC. We are not, however, including the information contained on our website, or information that may be accessed through links on our website, as part
of, or incorporating such information by reference into, this Annual Report on Form 10-K.
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Item 1A. Risk Factors.
Our operations and financial results are subject to various risks and uncertainties including those described below. You should consider carefully the risks
and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial
statements and related notes, as well as our other public filings with the Securities and Exchange Commission. The risks and uncertainties described below
are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become
important factors that adversely affect our business. If any of the following risks or others not specified below materialize, our business, financial condition
and results of operations could be materially adversely affected. In that case, the trading price of our common stock could decline.
Summary of Risk Factors
Investing in our common stock involves a high degree of risk because our business is subject to numerous risks and uncertainties, as fully described below.
The principal factors and uncertainties that make investing in our common stock risky include, among others:
Risks Related to Our Business and Our Industry
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If our business does not grow as we expect, or if we fail to manage our growth effectively, our operating results and business prospects
would suffer.
We have not been profitable on a consistent basis historically and may not achieve or maintain profitability in the future.
If we are unable to renew or increase sales of our Mass Notification application, or if we are unable to increase sales of our other
applications or add new applications, our business and operating results could be adversely affected.
We operate in an emerging, evolving, and competitive market, and if we cannot expand our platform and applications to meet the demands
of this market or effectively compete against competitors, our revenue may decline and we may incur operating losses.
Our quarterly operating results may vary from period to period, which could result in our failure to meet expectations with respect to
operating results and cause the trading price of our stock to decline.
Our failure to effectively complete and integrate acquired technologies, assets or businesses may harm our financial results.
Because our long-term growth strategy involves further expansion of our sales to customers outside the United States, our business will be
susceptible to risks associated with international operations.
Risks Related to Cybersecurity, and Reliability
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Compromise or unauthorized access to our data or the data of our customers or their employees could harm our business and our
customers, cause customers to curtail or cease their use of our applications, damage our reputation, and cause us to incur significant
liabilities.
Interruptions or delays in service from our third-party data center providers could impair our ability to make our platform and applications
available to our customers, resulting in customer dissatisfaction, damage to our reputation, loss of customers, limited growth, and reduction
in revenue.
Risks Related to Data Privacy Government Regulation
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We are subject to governmental laws and regulations, particularly related to privacy, data protection and information security, and our
actual or perceived failure to comply with such obligations could harm our business.
Compliance with governmental laws and regulations could impair our efforts to maintain and expand our customer base, and thereby
decrease our revenue.
If our applications fail to function in a manner that allows our customers to operate in compliance with regulations and/or industry
standards, our revenue and operating results could be harmed.
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Risks Related to Our Intellectual Property.
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If we fail to protect our intellectual property and proprietary rights adequately, our business could be harmed.
An assertion by a third party that we are infringing its intellectual property could subject us to costly and time-consuming litigation or
expensive licenses that could harm our business and results of operations.
The use of open source software in our platform and applications may expose us to additional risks and harm our intellectual property.
Risks Related to Ownership of Our Common Stock
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Our stock price may be volatile and you may lose some or all of your investment.
We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would
cause our stock price to decline.
Conversion of the $375 million aggregate principal amount of 0% convertible senior notes due March 15, 2026 (the “2026 Notes”), $450
million aggregate principal amount of 0.125% convertible senior notes due December 15, 2024 (the “2024 Notes”) and the remaining $8
thousand aggregate principal amount of 1.50% convertible senior notes due November 1, 2022 (the “2022 Notes”) will dilute the
ownership interest of existing stockholders, including holders who had previously converted their Notes, or may otherwise depress the
price of our common stock.
We are obligated to maintain a system of effective internal control over financial reporting and any failure to maintain the adequacy of
these internal controls may harm investor confidence in our company and, as a result, the value of our common stock.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts
by our stockholders to replace or remove our current management and limit the market price of our common stock.
Risks Related to Our Indebtedness
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General Risks
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We issued convertible notes that have rights senior to our common stock.
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial
debt.
The conditional conversion feature of the 2026 Notes, 2024 Notes and 2022 Notes, may adversely affect our financial condition and
operating results.
The ongoing COVID-19 pandemic could materially and adversely affect our business, results of operations and financial condition.
Legislative actions and new accounting pronouncements are likely to impact our future financial position or results of operations.
We may have additional tax liabilities from sales taxes, inability to use net operating losses, or changes in regulations, any or all of which
could change our effective tax rate or tax liability and have an adverse effect on our results of operations.
We face exposure to foreign currency exchange rate fluctuations.
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Risks Related to Our Business and Our Industry
If our business does not grow as we expect, or if we fail to manage our growth effectively, our operating results and business prospects would suffer.
The number of our full-time employees were 1,952, 1,344 and 948 as of December 31, 2021, 2020 and 2019, respectively. In 2021, we made a significant
investment in our sales organization, growing our headcount by 36%, and our revenue increased by $97.3 million for the year ended December 31, 2021
compared to 2020, due in part to the increase in our customer base.
However, our business may not continue to grow as quickly or at all in the future, which would adversely affect our revenue and business prospects. Our
business growth depends on a number of factors including:
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our ability to execute upon our business plan effectively;
our ability to acquire new customers and renew agreements with existing customers;
our ability to further sell to our existing customers new applications and features and to additional departments in their organizations;
our ability to develop new applications to target new markets and use cases;
our ability to expand our international footprint;
the growth of the market in which we operate;
our ability to maintain our technology leadership position; and
our ability to acquire and integrate complementary business, technologies and teams.
Further, our growth has placed, and will continue to place, a strain on our managerial, operational, financial and other resources, and our future operating
results depend to a large extent on our ability to successfully manage our anticipated expansion and growth. To manage our growth successfully and handle
the responsibilities of being a public company, we believe we must effectively, among other things:
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increase our customer base and upsell and cross-sell additional and new applications to our existing customers;
invest in sales and marketing and expand our channel partner relationships;
develop new applications that target new markets and use cases;
expand our international operations; and
improve our platform and applications, financial and operational systems, procedures and controls.
We intend to continue our investment in sales and marketing, platform and applications, research and development, and general and administrative
functions and other areas to grow our business. We are likely to recognize the costs associated with these investments earlier than some of the anticipated
benefits and the return on these investments may be lower, or may develop more slowly, than we expect, which could adversely affect our operating results.
If we are unable to manage our growth effectively in a manner that preserves the key aspects of our corporate culture, we may not be able to take advantage
of market opportunities or develop new applications or upgrades to our existing applications and we may fail to satisfy customer requirements, maintain the
quality and security of our applications, execute on our business plan or respond to competitive pressures, which could result in our financial results
suffering and a decline in our stock price.
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We have not been profitable on a consistent basis historically and may not achieve or maintain profitability in the future.
We have posted a net loss in each year since inception, including net losses of $94.8 million, $93.4 million and $52.3 million in the years ended December
31, 2021, 2020 and 2019, respectively. As of December 31, 2021, we had an accumulated deficit of $388.1 million. While we have experienced significant
revenue growth in recent periods, we are not certain whether or when we will obtain a high enough volume of sales of our applications to sustain or
increase our growth or achieve or maintain profitability in the future. Our ability to achieve or maintain profitability also has been and will continue to be
impacted by non-cash stock-based compensation. We also expect our costs to increase in future periods, which could negatively affect our future operating
results if our revenue does not increase. In particular, we expect to continue to expend substantial financial and other resources on:
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sales and marketing, including a significant expansion of our sales organization, both domestically and internationally;
research and development related to our platform and applications, including investments in our research and development team;
continued international expansion of our business; and
general and administration expenses, including legal and accounting expenses related to being a public company.
These investments may not result in increased revenue or growth in our business. If we are unable to increase our revenue at a rate sufficient to offset the
expected increase in our costs, our business, financial position and results of operations will be harmed, and we may not be able to achieve or maintain
profitability over the long term. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknown
factors that may result in losses in future periods. If our revenue growth does not meet our expectations in future periods, our financial performance may be
harmed, and we may not achieve or maintain profitability in the future.
To date, we have derived a substantial portion of our revenue from the sale of our Mass Notification application. If we are unable to renew or increase
sales of this application, or if we are unable to increase sales of our other applications, our business and operating results could be adversely affected.
While we have introduced several new event management applications over the last few years, we derived 42%, 50% and 61% of our revenue from sales of
our Mass Notification application in 2021, 2020 and 2019, respectively, and expect to continue to derive a substantial portion of our revenue from sales of
this application in the near term. As a result, our operating results could suffer due to:
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any decline in demand for our Mass Notification application;
pricing or other competitive pressures from competing products;
the introduction of applications and technologies that serve as a replacement or substitute for, or represent an improvement over, our Mass
Notification application;
technological innovations or new standards that our Mass Notification application do not address; and
sensitivity to current or future prices offered by us or competing solutions.
Because of our reliance on our Mass Notification application, our inability to renew or increase sales of this application or a decline in prices of this
application would harm our business and operating results more seriously than if we derived significant revenue from a variety of applications. Any factor
adversely affecting sales of our historical or new applications, including release cycles, market acceptance, competition, performance and reliability,
reputation and economic and market conditions, could adversely affect our business and operating results.
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If we are unable to develop upgrades to our platform, develop new applications, sell our platform and applications into new markets or further
penetrate our existing market, our revenue may not grow.
Our ability to increase sales will depend in large part on our ability to enhance and improve our platform and applications, introduce new applications in a
timely manner, develop new use cases for our platform and further penetrate our existing market. The success of any enhancement to our platform or new
applications depends on several factors, including the timely completion, introduction and market acceptance of enhanced or new applications, the ability
to maintain and develop relationships with channel partners and communications carriers, the ability to attract, retain and effectively train sales and
marketing personnel and the effectiveness of our marketing programs. Any new application that we develop or acquire may not be introduced in a timely or
cost-effective manner, and may not achieve the broad market acceptance necessary to generate significant revenue. Any new markets into which we
attempt to sell our applications, including new vertical markets and new countries or regions, may not be receptive. Our ability to further penetrate our
existing markets depends on the quality of our platform and applications and our ability to design our platform and applications to meet consumer demand.
Any failure to enhance or improve our platform and applications as well as introduce new applications may adversely affect our revenue growth and
operating results.
If we are unable to attract new customers and retain existing customers, our business and results of operations will be affected adversely.
To succeed, we must continue to attract new customers and retain existing customers who desire to use our existing Critical Event Management (“CEM”)
solutions and new products we introduce from time to time. Acquiring new customers is a key element of our continued success, growth opportunity, and
future revenue. We will continue to invest in a direct sales force combined with a focused channel strategy designed to serve the various requirements of
our target customer base. Any failures by us to execute in these areas will negatively impact our business. The rate at which new and existing customers
purchase our products depends on a number of factors, many of which are outside of our control. For example, a deterioration in macroeconomic conditions
in the markets we operate in as a result of the continuation of the global COVID-19 pandemic, a slower than expected recovery from the pandemic, or for
other reasons could have a negative impact on our customers, which could adversely impact our ability to attract new customers and retain existing
customers. Our future success also depends on retaining our current customers at acceptable retention levels. Our retention rates may decline or fluctuate as
a result of a number of factors outside our control, including competition, customers’ budgeting and spending priorities, and overall general economic
conditions in the geographic regions in which we operate. For example, the impact of the COVID-19 pandemic on the current economic environment has
caused, and may in the future cause, customers to request concessions such as extended payment terms. Customers may delay or cancel CEM projects or
seek to lower their costs by renegotiating existing vendor contracts. If our customers do not renew their subscriptions for our products and services, our
revenue would decline and our business would suffer. In future periods, our total customers and revenue could decline or grow more slowly than we expect.
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If we are unable to sell additional services, features and products to our existing customers, our future revenue and operating results will be harmed.
A significant portion of our revenue growth is generated from sales of additional services, features and products to existing customers. Our future success
depends, in part, on our ability to continue to sell such additional services, features and products to our existing customers. We devote significant efforts to
developing, marketing, and selling additional services, features and products and associated professional services to existing customers and rely on these
efforts for a portion of our revenue. These efforts require a significant investment in building and maintaining customer relationships, as well as significant
research and development efforts in order to provide upgrades and launch new services, features, and products. The rate at which our existing customers
purchase additional services, features, and products depends on a number of factors, including the perceived need for additional CEM solutions, the
efficacy of our current services, the perceived utility and efficacy of our new offerings, our customers’ budgets, and general economic conditions in the
geographic regions in which we operate, which may be impacted by, among other things, the economic uncertainty resulting from the global COVID-19
pandemic. Any new applications we develop or acquire might not be introduced in a timely or cost-effective manner and might not achieve the broad
market acceptance necessary to generate significant revenue. If any of our competitors implements new technologies before we are able to implement them
or better anticipates market opportunities, those competitors may be able to provide more effective or cheaper products than ours. If our efforts to sell
additional services, features, and products to our customers are not successful, our future revenue and operating results will be harmed.
Our business depends substantially on customers renewing their subscriptions with us and a decline in our customer renewals would harm our future
operating results.
In order for us to maintain or improve our operating results, it is important that our customers renew their subscriptions with us when the existing
subscription term expires. Although the majority of our customer contracts include auto-renew provisions, our customers have no obligation to renew their
subscriptions upon expiration, and we cannot provide assurance that customers will renew subscriptions at the same or higher level of service, if at all,
particularly given the economic uncertainty resulting from the global COVID-19 pandemic and other macroeconomic factors such as increasing inflation.
The rate of customer renewals may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction or dissatisfaction with our
solutions, the effectiveness of our customer support services, our pricing, the prices of competing products or services, mergers and acquisitions affecting
our customer base, or reductions in our customers’ spending levels or general economic conditions in the geographic regions in which we operate, which
may be impacted by, among other things, the economic uncertainty resulting from the global COVID-19 pandemic and other macroeconomic factors such
as increasing inflation. If our customers do not renew their subscriptions, or renew on less favorable terms, our revenue may decline, and we may not
realize improved operating results from our customer base.
Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to acquire new customers and achieve broader
market acceptance of our platform and applications.
To increase total customers and achieve broader market acceptance of our platform and applications, we will need to expand our sales and marketing
organization, including the vertical and geographic distribution of our salesforce and our teams of account executives focused on new accounts, account
managers responsible for renewal and growth of existing accounts, and business development representatives targeting new and growth business
opportunity creation. We expect to continue to rely on our sales force to obtain new customers and grow revenue from our existing customer base and we
will continue to dedicate significant resources to our global sales and marketing organizations. The effectiveness of our sales and marketing teams has
varied over time and may vary in the future, and depends in part on our ability to maintain and improve our platform and applications. All of these efforts
will require us to invest significant financial and other resources and we are unlikely to see the benefits, if any, of these increases until future periods after
incurring these expenses. Our business will be seriously harmed if our efforts do not generate a correspondingly significant increase in revenue. We may
not achieve revenue growth from expanding our salesforce if we are unable to hire, develop and retain talented sales personnel, if our new sales personnel
are unable to achieve desired productivity levels in a reasonable period of time or if our sales and marketing programs are not effective.
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If we are unable to successfully hire, train, manage and retain qualified personnel, especially those in sales and marketing and research and
development, our business may suffer.
We continue to be substantially dependent on our sales force to obtain new customers and increase sales with existing customers and our research and
development personnel to continue to innovate and support our platform. Our ability to successfully pursue our growth strategy will also depend on our
ability to attract, motivate and retain our personnel, especially those in sales, marketing, and research and development. We intend to continue to expand
our global sales force, and we face a number of challenges in achieving our hiring goals. For instance, there is significant competition for sales personnel,
including sales engineers, with the sales skills and technical knowledge that we require, including experience selling to large enterprise customers. We face
intense competition for these employees from numerous technology, software and other companies, especially in certain geographic areas in which we
operate, and we cannot ensure that we will be able to attract, motivate and/or retain sufficient qualified employees in the future. If we are unable to attract
new employees and retain our current employees, we may not be able to adequately develop and maintain new products or professional services or market
our existing products or professional services at the same levels as our competitors and we may, therefore, lose customers and market share. Our failure to
attract and retain personnel, especially those in sales and marketing positions for which we have historically had a high turnover rate, could have an adverse
effect on our ability to execute our business objectives and, as a result, our ability to compete could decrease, our operating results could suffer, and our
revenue could decrease. We invest significant time and resources in training new personnel to understand our solutions. In general, new hires require
significant training and substantial experience before becoming productive. Our recent hires and planned hires may not become as productive as we
require, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future in the markets where we currently operate or where
we seek to conduct business. Our business and operating results may be materially and adversely impacted if the efforts to retain our sales and marketing
and research and development personnel are not successful.
The nature of our business exposes us to inherent liability risks.
Our applications, including our Mass Notification, Safety Connection, IT Alerting, Visual Command Center, Public Warning, Community Engagement,
Risk Center, Crisis Management, CareConverge, Control Center, 911 Connect, Travel Risk Management, SnapComms and E911, are designed to
communicate life-saving or damage-mitigating information to the right people, on the right device, in the right location, at the right time during public
safety threats and critical business events. Due to the nature of such applications, we are potentially exposed to greater risks of liability for employee acts or
omissions or system failures than may be inherent in other businesses. Although substantially all of our customer agreements contain provisions limiting
our liability to our customers, we cannot assure you that these limitations will be enforced or the costs of any litigation related to actual or alleged
omissions or failures would have a material adverse effect on us even if we prevail. Further, certain of our insurance policies and the laws of some states
may limit or prohibit insurance coverage for punitive or certain other types of damages or liability arising from gross negligence and we cannot assure you
that we are adequately insured against the risks that we face.
Because we generally recognize revenue ratably over the term of our contract with a customer, downturns or upturns in sales will not be fully reflected
in our operating results until future periods.
Our revenue is primarily generated from subscriptions to our critical event management applications. Our customers generally do not have the right to take
possession of our software platform and applications. Revenue from subscriptions, including additional fees for items such as incremental usage, is
recognized ratably over the subscription period beginning on the date that the subscription is made available to the customer. Our agreements with our
customers typically range from one to three years. As a result, much of the revenue that we report in each quarter is attributable to agreements entered into
during previous quarters. Consequently, a decline in sales, customer renewals or market acceptance of our applications in any one quarter would not
necessarily be fully reflected in the revenue in that quarter, and would negatively affect our revenue and profitability in future quarters. This ratable revenue
recognition also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers generally is
recognized over the applicable agreement term.
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We operate in an emerging and evolving market, which may develop more slowly or differently than we expect. If our market does not grow as we
expect, or if we cannot expand our platform and applications to meet the demands of this market, our revenue may decline, fail to grow or fail to grow
at an accelerated rate, and we may incur operating losses.
The market for CEM solutions is in an early stage of development, and it is uncertain whether this market will develop, and even if it does develop, how
rapidly or how consistently it will develop or whether our platform and applications will be accepted into the markets in which we operate and plan to
operate. Our success will depend, to a substantial extent, on the widespread adoption of our platform and applications as an alternative to historical mass
notification systems. Some organizations may be reluctant or unwilling to use our platform and applications for a number of reasons, including concerns
about additional costs, uncertainty regarding the reliability and security of cloud-based offerings or lack of awareness of the benefits of our platform and
applications. Many organizations have invested substantial personnel and financial resources to integrate traditional on-premises applications into their
businesses, and therefore may be reluctant or unwilling to migrate to cloud-based applications. Our ability to expand sales of our platform and applications
into new markets depends on several factors, including the awareness of our platform and applications; the timely completion, introduction and market
acceptance of enhancements to our platform and applications or new applications that we may introduce; our ability to attract, retain and effectively train
sales and marketing personnel; our ability to develop relationships with channel partners and communication carriers; the effectiveness of our marketing
programs; the costs of our platform and applications; and the success of our competitors. If we are unsuccessful in developing and marketing our platform
and applications into new markets, or if organizations do not perceive or value the benefits of our platform and applications, the market for our platform
and applications might not continue to develop or might develop more slowly than we expect, either of which would harm our revenue and growth
prospects.
The markets in which we participate are competitive, and if we do not compete effectively, our operating results could be harmed.
The market for critical event management solutions is highly fragmented, competitive and constantly evolving. With the introduction of new technologies
and market entrants, we expect that the competitive environment in which we compete will remain intense going forward. Some of our competitors have
made or may make acquisitions or may enter into partnerships or other strategic relationships to provide a more comprehensive offering than they
individually had offered or achieve greater economies of scale. In addition, new entrants not currently considered to be competitors may enter the market
through acquisitions, partnerships or strategic relationships. We compete on the basis of a number of factors, including:
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application functionality, including local and multi-modal delivery in international markets;
breadth of offerings;
performance, security, scalability and reliability;
compliance with local regulations and multi-language support;
brand recognition, reputation and customer satisfaction;
ease of application implementation, use and maintenance; and
total cost of ownership.
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We face competition from in-house solutions, large integrated systems vendors and established and emerging cloud and SaaS and other software providers.
Our competitors vary in size and in the breadth and scope of the products and services offered. Many of our competitors and potential competitors have
greater name recognition, longer operating histories, more established customer relationships, larger marketing budgets and greater resources than we do.
While some of our competitors provide a platform with applications to support one or more use cases, many others provide point-solutions that address a
single use case. Further, other potential competitors not currently offering competitive applications may expand their offerings to compete with our
solutions. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards and
customer requirements. An existing competitor or new entrant could introduce new technology that reduces demand for our solutions. In addition to
application and technology competition, we face pricing competition. Some of our competitors offer their applications or services at a lower price, which
has resulted in pricing pressures. Some of our larger competitors have the operating flexibility to bundle competing applications and services with other
offerings, including offering them at a lower price as part of a larger sale. For all of these reasons, we may not be able to compete successfully and
competition could result in reduced sales, reduced margins, losses or the failure of our applications to achieve or maintain market acceptance, any of which
could harm our business.
We may not be able to scale our business quickly enough to meet our customers’ growing needs and if we are not able to grow efficiently, our operating
results could be harmed.
As usage of our platform and applications grows, we will need to continue making significant investments to develop and implement new applications,
technologies, security features and cloud-based infrastructure operations. In addition, we will need to appropriately scale our internal business systems and
our services organization, including customer support and professional services, to serve our growing customer base, particularly as our customer
demographics change over time. Any failure of, or delay in, these efforts could impair the performance of our platform and applications and reduce
customer satisfaction. Even if we are able to upgrade our systems and expand our staff, any such expansion may be expensive and complex, requiring
management’s time and attention. To the extent that we do not effectively scale our platform and operations to meet the growing needs of our customers,
we may not be able to grow as quickly as we anticipate, our customers may reduce or cancel use of our applications and professional services, we may be
unable to compete effectively and our business and operating results may be harmed.
Our quarterly operating results may vary from period to period, which could result in our failure to meet expectations with respect to operating results
and cause the trading price of our stock to decline.
Our operating results, including the levels of our revenue, renewal rates, cash flows, deferred revenue and gross margins, have historically varied from
period to period, and we expect that these items will continue to do so as a result of a number of factors, many of which are outside of our control,
including:
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the level of demand for our products and services;
customer renewal rates and ability to attract new customers;
the extent to which customers purchase additional products or services;
the mix of our products and services sold during a period;
network outages, security breaches, technical difficulties or interruptions with our products;
changes in the growth rate of the markets in which we compete;
sales of our products and services due to seasonality and customer demand;
the timing and success of new product or service introductions by us or our competitors or any other changes in the competitive landscape
of its industry, including consolidation among our competitors;
the introduction or adoption of new technologies that compete with our offerings;
decisions by potential customers to purchase critical event management products or services from other vendors;
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the amount and timing of operating costs and capital expenditures related to the operations and expansion of our business;
price competition;
our ability to successfully manage and integrate our previous acquisitions and any future acquisitions of businesses, including the recent
acquisitions of RedSky, xMatters and Anvil and including without limitation the amount and timing of expenses and potential future
charges for impairment of goodwill from acquired companies;
our ability to establish and grow relationships with partners to market and sell our products and services;
our continued international expansion and associated exposure to changes in foreign currency exchange rates;
the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;
the announcement or adoption of new regulations and policy mandates or changes to existing regulations and policy mandates, including
any changes relating to the United Kingdom’s exit from the European Union, commonly referred to as “Brexit”;
the cost or results of existing or unforeseen litigation and intellectual property infringement;
the strength of regional, national and global economies;
quarantine, private travel limitation, or business disruption in regions affecting our operations, stemming from actual, imminent or
perceived outbreak of contagious disease, including the COVID-19 pandemic;
the impact of natural disasters or manmade problems such as terrorism or war; and
future accounting pronouncements or changes in our accounting policies.
Fluctuations in our quarterly operating results, key metrics, non-GAAP metrics and the price of our common stock may be particularly pronounced in the
current economic environment due to the uncertainty caused by and the unprecedented nature of the current COVID-19 pandemic. Each factor above or
discussed elsewhere herein or the cumulative effect of some of these factors may result in fluctuations in our operating results. This variability and
unpredictability could result in our failure to meet expectations with respect to operating results, or those of securities analysts or investors, for a particular
period. If we fail to meet or exceed expectations for our operating results for these or any other reasons, the market price of our stock could fall and we
could face costly lawsuits, including securities class action suits.
Due to the foregoing factors and the other risks discussed in this Annual Report on Form 10-K, you should not rely on quarter-to-quarter comparisons of
our results of operations as an indication of our future performance nor should you consider our recent revenue growth or results in any single period to be
indicative of our future performance.
Changes in the mix of sizes or types of businesses or government agencies that purchase our platform and applications purchased or used by our
customers could affect our operating results.
We have sold and will continue to sell to enterprises of all sizes, municipal and regional governmental agencies, non-profit organizations, educational
institutions and healthcare organizations. Sales to larger organizations may entail longer sales cycles and more significant selling efforts. Selling to small
businesses may involve greater credit risk and uncertainty. Changes in the sizes or types of businesses that purchase our applications could cause our
operating results to be adversely affected.
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If we fail to offer high-quality customer support, our business and reputation may suffer.
We offer our customers implementation services and 24/7 support through our customer support centers as well as education, professional development and
certification through Everbridge University as well as a range of consulting services. Consulting service offerings include onsite implementation packages,
Certified Emergency Management professional operational reviews, dedicated client care representatives, custom web-based training, and development of
client-specific communications materials to increase internal awareness of system value.
Providing this education, training and support requires that our personnel who manage our training resources or provide customer support have specific
experience, knowledge and expertise, making it more difficult for us to hire qualified personnel and to scale up our support operations. The importance of
high-quality customer support will increase as we expand our business and pursue new customers and larger organizations. We may be unable to respond
quickly enough to accommodate short-term increases in customer demand for support services or scale our services if our business grows. We also may be
unable to modify the format of our support services or change our pricing to compete with changes in support services provided by our competitors.
Increased customer demand for these services, without corresponding revenue, could increase our costs and harm our operating results. If we do not help
our customers use applications within our platform and provide effective ongoing support, our ability to sell additional applications to, or to retain, existing
customers may suffer and our reputation with existing or potential customers may be harmed.
Acquisitions could disrupt our business and harm our financial condition and operating results.
We have in the past and may in the future seek to acquire additional businesses, products or technologies. We also may evaluate and consider other
potential strategic transactions, including investments in, businesses, technologies, services, products and other assets in the future. We also may enter into
relationships with other businesses to expand our platform and applications, which could involve preferred or exclusive licenses, additional channels of
distribution, discount pricing or investments in other companies. Achieving the anticipated benefits of past or future acquisitions and other strategic
transactions will depend in part upon whether we can integrate acquired operations, products, and technology in a timely and cost-effective manner and
successfully market and sell these as new product offerings, or as new features within our existing offerings.
For example, we acquired RedSky in January 2021, xMatters in May 2021 and Anvil in November 2021. The integration of these businesses and any other
acquisitions may prove to be difficult due to the necessity of coordinating geographically separate organizations and integrating personnel with disparate
business backgrounds and accustomed to different corporate cultures, business operations, and internal systems. We may need to implement or improve
controls, procedures, and policies at a business that prior to the acquisition may have lacked sufficiently effective controls, procedures and policies. The
acquisition and integration processes are complex, expensive and time consuming, and may cause an interruption of, or loss of momentum in, product
development, sales activities, and operations of both companies. Further, we may be unable to retain key personnel of an acquired company following the
acquisition. If we are unable to effectively execute or integrate acquisitions, the anticipated benefits of such acquisition, including sales or growth
opportunities or targeted synergies may not be realized, and our business, financial condition and operating results could be adversely affected.
In addition, we may only be able to conduct limited due diligence on an acquired company’s operations or may discover that the products or technology
acquired were not as capable as we thought based upon the initial or limited due diligence. Following an acquisition, we may be subject to unforeseen
liabilities arising from an acquired company’s past or present operations and these liabilities may be greater than the warranty and indemnity limitations
that we negotiate. Any unforeseen liability that is greater than these warranty and indemnity limitations could have a negative impact on our financial
condition. The acquisitions we have completed in the past and any other acquisitions we complete will give rise to risks, including:
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failing to assimilate the operations and personnel or failing to retain the key personnel of the acquired company or business;
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failing to integrate the acquired technologies, or incurring significant expense to integrate acquired technologies, into our platform and
applications;
disrupting our ongoing business;
diverting our management’s attention and other company resources;
failing to maintain uniform standards, controls and policies;
incurring significant accounting charges;
impairing relationships with our customers and employees;
finding that the acquired technology, asset or business does not further our business strategy, that we overpaid for the technology, asset or
business or that we may be required to write off acquired assets or investments partially or entirely;
failing to realize the expected synergies of the transaction;
being exposed to unforeseen liabilities and contingencies that were not identified prior to acquiring the company; and
being unable to generate sufficient revenue and profits from acquisitions to offset the associated acquisition costs.
Fully integrating an acquired technology, asset or business into our operations may take a significant amount of time. We may not be successful in
overcoming these risks or any other problems encountered with acquisitions. To the extent that we do not successfully avoid or overcome the risks or
problems related to any such acquisitions, our results of operations and financial condition could be harmed. Acquisitions also could impact our financial
position and capital requirements, or could cause fluctuations in our quarterly and annual results of operations. Acquisitions could include significant
goodwill and intangible assets, which may result in future impairment charges that would reduce our stated earnings. In addition, failure to maintain
effective financial controls and reporting systems and procedures during and after integration of an acquired business could also impact our ability to
produce timely and accurate financial statements. We may incur significant costs in our efforts to engage in strategic transactions and these expenditures
may not result in successful acquisitions.
We expect that the consideration we might pay for any future acquisitions of technologies, assets, businesses or teams could include stock, rights to
purchase stock, cash or some combination of the foregoing. If we issue stock or rights to purchase stock in connection with future acquisitions, net income
per share and then-existing holders of our common stock may experience dilution.
If we do not successfully manage the transition associated with the departure of our Chief Executive Officer (“CEO”) and the appointment of a new
CEO, it could be viewed negatively by our customers and shareholders and could have an adverse impact on our business.
Effective January 30, 2022, our former CEO resigned from his position as our CEO, and we have appointed two company executives Patrick Brickley,
Executive Vice President, Chief Financial Officer and Treasurer, and Vernon Irvin, Executive Vice President and Chief Revenue Officer, to serve as Interim
Co-Chief Executive Officers while we search for a permanent CEO. Leadership transitions can be inherently difficult to manage, and an inadequate
transition of our CEO may cause disruption to our business, including to our relationships with customers, vendors and employees.
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We rely on the performance of our senior management and highly skilled personnel, and if we are unable to attract, retain and motivate well-qualified
employees, our business and results of operations could be harmed.
We believe our success has depended, and continues to depend, on the efforts and talents of our senior management and key personnel. Our future success
depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand,
and we may incur significant costs to attract them. In addition, the loss of any of our senior management or key personnel could interrupt our ability to
execute our business plan, as such individuals may be difficult to replace. If we do not succeed in attracting well-qualified employees or retaining and
motivating existing employees, our business and results of operations could be harmed.
Changes in our business and operations, as well as organizational changes, have placed, and may continue to place, significant demands on our
management and infrastructure. If we fail to manage these changes effectively, we may be unable to execute our business plan, maintain high levels of
service, or address competitive challenges adequately.
Over the past 12 months, we have experienced organizational changes, including the resignation of our former CEO and the promotion, addition, or
departure of members of our senior management team. These organizational changes have placed, and will continue to place, a significant strain on our
management, administrative, operational, and financial infrastructure. Our success will depend in part upon the ability of our senior management team to
manage these changes effectively. If we fail to manage these changes effectively, we may be unable to execute our business plan, maintain high levels of
service, or address competitive challenges adequately.
If we are unable to effectively increase sales of our solutions to large organizations while mitigating the risks associated with serving such customers,
our business, financial position and results of operations may suffer.
Our growth strategy is dependent, in part, upon increasing sales of our solutions to large enterprises and governments. Sales to large customers involve
risks that may not be present (or that are present to a lesser extent) with sales to smaller entities. These risks include:
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increased purchasing power and leverage held by large customers in negotiating contractual arrangements with us;
unfavorable contact terms;
more stringent and complicated implementation processes, including stricter implementation deadlines and penalties for any failure to meet
such deadlines;
more complex, stringent or costly requirements imposed upon us in our support service contracts with such customers, including stricter
support response times and penalties for any failure to meet support requirements;
longer sales cycles, substantial upfront sales costs, and the associated risk that substantial time and resources may be spent on a potential
customer that ultimately elects not to purchase our platform or purchases less than we hoped;
closer relationships with, and dependence upon, large technology companies who offer competitive products; and
more pressure for discounts and write-offs.
In addition, our ability to successfully sell our services to large enterprises is dependent on us attracting and retaining sales personnel, including sales
engineers, with experience in selling to large organizations. Also, because security breaches with respect to larger, high-profile enterprises are likely to be
heavily publicized, there is increased reputational risk associated with serving such customers. If we are unable to increase sales of our offerings to large
enterprise and government customers while mitigating the risks associated with serving such customers, our business, financial position and results of
operations may suffer.
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Our revenue growth will depend in part on the success of our efforts to augment our direct-sales channels by developing relationships with third
parties.
We rely largely on the direct-sales model to market our platform. In order to continue to build our business, we plan to continue to develop partnerships to
support our sales efforts through referrals and co-selling arrangements. Our efforts to develop relationships with partners are still at an early stage, we have
generated limited revenue through these relationships to date, and we cannot assure you that we will be able to develop and maintain successful
partnerships or that these partners will be successful in marketing and selling our platform or solutions based upon our platform. Identifying partners,
negotiating and supporting relationships with them and maintaining relationships requires a significant commitment of time and resources that may not
yield a significant return on our investment. We expect that our partners will have only limited commitments to dedicate resources to marketing and
promoting our solutions. In addition, our competitors may be more effective in providing incentives to our partners or prospective partners to favor their
products or services over our solutions. If we are unsuccessful in establishing or maintaining our relationships with partners, or if these partners are
unsuccessful in marketing or selling our solutions or are unable or unwilling to devote sufficient resources to these activities, our ability to compete in the
marketplace or to grow our revenue could be impaired and our operating results may suffer. Further, new or emerging technologies, technological trends or
changes in customer requirements may result in certain third parties de-emphasizing their dealings with us or becoming potential competitors in the future.
Because our long-term growth strategy involves further expansion of our sales to customers outside the United States, our business will be susceptible
to risks associated with international operations.
A component of our growth strategy involves the further expansion of our operations and customer base internationally. We opened our first international
office in Beijing, China in April 2012 and subsequently opened an office in Windsor, England in September 2012 as part of our geographic expansion. In
March 2014, we acquired Vocal Limited, a mass notification company based in Colchester, England. In December 2016, we acquired Svensk Krisledning
AB, a SaaS mobile crisis management company based in Norsborg, Sweden. In April 2018, we acquired Unified Messaging Systems ASA, a critical
communication and population alerting systems company based in Oslo, Norway. In May 2018, we acquired Respond B.V., a critical communication
solutions company based in the Netherlands. In February 2020, we acquired CNL Software Limited, a global provider of physical security information
management platform software based in Camberley, United Kingdom. In March 2020, we acquired One2Many Group B.V. based in the Netherlands. In
May 2020, we acquired Techwan SA based in Switzerland. In August 2020, we acquired SnapComms Limited based in New Zealand. In November 2021
we acquired Anvil Worldwide Limited and The Anvil Group Limited based in the United Kingdom. For the years ended December 31, 2021 and 2020,
approximately 31% and 26% of our revenue, respectively, was derived from customers located outside of the United States. We intend to further expand
our local presence in regions such as Europe, the Middle East and Asia. Our current international operations and future initiatives will involve a variety of
risks, including:
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currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging
transactions if we chose to do so in the future;
economic or political instability in foreign markets;
greater difficulty in enforcing contracts, accounts receivable collection and longer collection periods;
more stringent regulations relating to technology, including with respect to privacy, data security and the unauthorized use of, access to, or
deletion of commercial and personal information, particularly in the European Union;
difficulties in maintaining our company culture with a dispersed and distant workforce;
unexpected changes in regulatory requirements, taxes or trade laws;
differing labor regulations, especially in the European Union, where labor laws are generally more advantageous to employees as compared
to the United States, including deemed hourly wage and overtime regulations in these locations;
challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to
implement appropriate systems, policies, benefits and compliance programs;
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difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and
regulatory systems;
limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;
limited or insufficient intellectual property protection;
political instability or terrorist activities;
differing exposure to, responses to and capacities for managing the COVID-19 pandemic;
likelihood of potential or actual violations of domestic and international anticorruption laws, such as the U.S. Foreign Corrupt Practices Act
and the U.K. Bribery Act, or of U.S. and international export control and sanctions regulations, which likelihood may increase with an
increase of sales or operations in foreign jurisdictions and operations in certain industries; and
adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.
Our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake will not
be successful. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely
manner, our business and operating results will suffer. We continue to implement policies and procedures to facilitate our compliance with U.S. laws and
regulations applicable to or arising from our international business. Inadequacies in our past or current compliance practices may increase the risk of
inadvertent violations of such laws and regulations, which could lead to financial and other penalties that could damage our reputation and impose costs on
us.
Our business, including the sales of our products and professional services by us and our channel partners, may be subject to foreign governmental
regulations, which vary substantially from country to country and change from time to time. Our failure, or the failure by our channel partners, to comply
with these regulations could adversely affect our business. Further, in many foreign countries it is common for others to engage in business practices that
are prohibited by our internal policies and procedures or U.S. regulations applicable to us. Although we have implemented policies and procedures
designed to comply with these laws and policies, there can be no assurance that our employees, contractors, channel partners and agents have complied, or
will comply, with these laws and policies. Violations of laws or key control policies by our employees, contractors, channel partners or agents could result
in delays in revenue recognition, financial reporting misstatements, fines, penalties or the prohibition of the importation or exportation of our products and
could have a material adverse effect on our business and results of operations. If we are unable to successfully manage the challenges of international
expansion and operations, our business and operating results could be adversely affected.
We are also continuing to monitor developments related to the United Kingdom’s departure from the European Union in 2020, commonly referred to as
“Brexit.” The full effect of Brexit remains uncertain, but it could have significant implications for our business and could lead to economic and legal
uncertainty, including significant volatility in global stock markets and currency exchange rates, and differing laws and regulations as the United Kingdom
determines which European Union laws to replace or replicate. Any of these effects of Brexit, among others, could adversely affect our operations in the
United Kingdom and our financial results.
If we cannot maintain our company culture as we grow, our success and our business may be harmed.
We believe our culture has been a key contributor to our success to-date and that the critical nature of the solutions that we provide promotes a sense of
greater purpose and fulfillment in our employees. We have invested in building a strong corporate culture and believe it is one of our most important and
sustainable sources of competitive advantage. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel and to
effectively focus on and pursue our corporate objectives. As we grow and develop the infrastructure of a public company, we may find it difficult to
maintain these important aspects of our company culture. If we fail to maintain our company culture, our business may be adversely impacted.
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Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing.
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds to invest in future
growth opportunities. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we
may be unable to invest in future growth opportunities, which could seriously harm our business and operating results. If we incur debt, the debt holders
would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our
ability to pay dividends on our common stock. Furthermore, if we issue equity securities, stockholders will experience dilution, and the new equity
securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market
conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. As a result, our
stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.
Our sales cycle can be unpredictable, time-consuming and costly, which could harm our business and operating results.
Our sales process involves educating prospective customers and existing customers about the use, technical capabilities and benefits of our platform and
applications. Prospective customers, especially larger organizations, often undertake a prolonged evaluation process, which typically involves not only our
solutions, but also those of our competitors and lasts from four to nine months or longer. We may spend substantial time, effort and money on our sales and
marketing efforts without any assurance that our efforts will produce any sales.
Events affecting our customers’ businesses may occur during the sales cycle that could affect the size or timing of a purchase, contributing to more
unpredictability in our business and operating results. As a result of these factors, we may face greater costs, longer sales cycles and less predictability in
the future.
Risks Related to Cybersecurity, and Reliability
If our, our customers’ or our third-party providers’ security measures are compromised or unauthorized access to the data of our customers or their
employees, customers or constituents is otherwise obtained, our platform may be perceived as not being secure, our customers may be harmed and may
curtail or cease their use of our applications, our reputation may be damaged and we may incur significant liabilities.
Our operations involve the storage and transmission of data of our customers and their employees, customers and constituents, including personally
identifiable information such as contact information and physical location. Security incidents, whether as a result of third-party action, employee or
customer error, technology impairment or failure, malfeasance or criminal activity, could result in unauthorized access to, or loss or unauthorized disclosure
of, this information, litigation, indemnity obligations and other possible liabilities, as well as negative publicity, which could damage our reputation, impair
our sales and harm our customers and our business. Cyber incidents and malicious internet-based activity continue to increase generally, and providers of
cloud-based services have been targeted. We have experienced malicious internet-based attacks in the past and while to date none have been material to our
business, we may in the future be the target of attempts to gain unauthorized access to our systems. If third parties with whom we work, such as vendors or
developers, violate applicable laws or our security policies, such violations may also put our customers’ information at risk and could in turn have an
adverse effect on our business. We may be unable to anticipate or prevent techniques used to obtain unauthorized access or to sabotage systems because
they change frequently and often are not detected until after an incident has occurred. As we increase our customer base and our brand becomes more
widely known and recognized, third parties may increasingly seek to compromise our security controls or gain unauthorized access to our sensitive
corporate information or customers’ data. Further, because of the nature of the services that we provide to our customers during public safety threats and
critical business events, we may be a unique target for attacks.
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Many governments have enacted laws requiring companies to notify individuals of data security incidents or unauthorized transfers involving certain types of
personal data. In addition, some of our customers contractually require notification of any data security incident. Accordingly, security incidents experienced by
our competitors, by our customers or by us may lead to public disclosures, which may lead to widespread negative publicity. Any security compromise in our
industry, whether actual or perceived, could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact
our ability to attract new customers, cause existing customers to elect not to renew their subscriptions or subject us to third-party lawsuits, regulatory fines or
other action or liability, which could materially and adversely affect our business and operating results. Further, the costs of compliance with notification laws
and contractual obligations may be significant and any requirement that we provide such notifications as a result of an actual or alleged compromise could have
a material and adverse effect on our business.
While we maintain general liability insurance coverage and coverage for errors or omissions, we cannot assure you that such coverage would be adequate or
would otherwise protect us from liabilities or damages with respect to claims alleging compromises of personal data or that such coverage will continue to be
available on acceptable terms or at all.
If our computer systems are or become vulnerable to security breaches or we are unable to comply with our security obligations, we may face
reputational damage and lose clients and revenue.
The services we provide are often critical to our clients’ businesses. Certain of our client contracts may require us to comply with security obligations,
which could include maintaining network security and backup data, ensuring our network is virus-free, maintaining business continuity planning
procedures, and verifying the integrity of employees that work with our clients by conducting background checks. Any failure in our systems or breach of
security relating to the services we provide to the client could damage our reputation or result in a claim for substantial damages against us. Our liability for
breaches of data security requirements, for which we may be required to indemnify our clients, may be extensive. Any significant failure of our equipment
or systems, or any major disruption to basic infrastructure like power and telecommunications in the locations in which we operate, could impede our
ability to provide services to our clients, have a negative impact on our reputation, cause us to lose clients, and adversely affect our results of operations.
In addition, we often have access to or are required to collect and store confidential client and customer data. If any person, including any of our employees
or former employees, penetrates our network security, accidentally exposes our data or code, or misappropriates data or code that belongs to us, our clients,
or our clients’ customers, we could be subject to significant liability from our clients or from our clients’ customers for breaching contractual
confidentiality provisions or privacy laws. Unauthorized disclosure of sensitive or confidential client and customer data, whether through breach of our
computer systems, systems failure, loss or theft of confidential information or intellectual property belonging to our clients or our clients’ customers, or
otherwise, could damage our reputation, cause us to lose clients and revenues, and result in financial and other potential losses by us.
Interruptions or delays in service from our third-party data center providers could impair our ability to make our platform and applications available to
our customers, resulting in customer dissatisfaction, damage to our reputation, loss of customers, limited growth and reduction in revenue.
We currently serve part of our platform functions from third-party data center hosting facilities operated by Century Link and located in the Los Angeles,
California and Denver, Colorado areas. We also rely on Amazon Web Services servers located in Germany, Ireland, the United Kingdom, Canada,
California, and Virginia to host certain of our platform functions and applications. Our operations depend, in part, on our third-party facility providers’
abilities to protect these facilities against damage or interruption from natural disasters, power or telecommunications failures, cyber incidents, criminal
acts and similar events. In the event that any of our third-party facilities arrangements are terminated, or if there is a lapse of service or damage to a facility,
we could experience interruptions in our platform as well as delays and additional expenses in arranging new facilities and services. Any changes in third-
party service levels at our data centers or any errors, defects, disruptions, cyber incidents or other performance problems with our solutions could harm our
reputation.
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Any damage to, or failure of, the systems of our third-party providers could result in interruptions to our platform. Despite precautions taken at our data
centers, the occurrence of spikes in usage volume, natural disasters, cyber incidents, acts of terrorism, vandalism or sabotage, closure of a facility without
adequate notice or other unanticipated problems could result in lengthy interruptions in the availability of our platform and applications. Problems faced by
our third-party data center locations, with the telecommunications network providers with whom they contract, or with the systems by which our
telecommunications providers allocate capacity among their customers, including us, could adversely affect the experience of our customers. Because of
the nature of the services that we provide to our customers during public safety threats and critical business events, any such interruption may arise when
our customers are most reliant on our applications, thereby compounding the impact of any interruption on our business. Interruptions in our services might
reduce our revenue, cause us to issue refunds to customers and subject us to potential liability.
Further, our insurance policies may not adequately compensate us for any losses that we may incur in the event of damage or interruption. Although we
benefit from liability protection under the Support Anti-Terrorism by Fostering Effective Technology Act of 2002, the occurrence of any of the foregoing
could reduce our revenue, subject us to liability, cause us to issue credits to customers or cause customers not to renew their subscriptions for our
applications, any of which could materially adversely affect our business.
Failures or reduced accessibility of third-party software on which we rely could impair the availability of our platform and applications and adversely
affect our business.
We license software from third parties for integration into our platform and applications, including open source software. These licenses might not continue
to be available to us on acceptable terms, or at all. While we are not substantially dependent upon any third-party software, the loss of the right to use all or
a significant portion of our third-party software required for the development, maintenance and delivery of our applications could result in delays in the
provision of our applications until we develop or identify, obtain and integrate equivalent technology, which could harm our business.
Any errors or defects in the hardware or software we use could result in errors, interruptions, cyber incidents or a failure of our applications. Any
significant interruption in the availability of all or a significant portion of such software could have an adverse impact on our business unless and until we
can replace the functionality provided by these applications at a similar cost. Furthermore, this software may not be available on commercially reasonable
terms, or at all. The loss of the right to use all or a significant portion of this software could limit access to our platform and applications. Additionally, we
rely upon third parties’ abilities to enhance their current applications, develop new applications on a timely and cost-effective basis and respond to
emerging industry standards and other technological changes. We may be unable to effect changes to such third-party technologies, which may prevent us
from rapidly responding to evolving customer requirements. We also may be unable to replace the functionality provided by the third-party software
currently offered in conjunction with our applications in the event that such software becomes obsolete or incompatible with future versions of our platform
and applications or is otherwise not adequately maintained or updated.
If we do not or cannot maintain the compatibility of our platform with third-party applications that our customers use in their businesses, our revenue
will decline.
As a significant percentage of our customers choose to integrate our solutions with certain capabilities provided by third-party providers, the functionality
and popularity of our solutions depend, in part, on our ability to integrate our platform and applications with certain third-party systems. Third-party
providers may change the features of their technologies, restrict our access to their applications or alter the terms governing use of their applications in an
adverse manner. Such changes could functionally limit or terminate our ability to use these third-party technologies in conjunction with our platform and
applications, which could negatively impact our solutions and harm our business. If we fail to integrate our solutions with new third-party applications that
our customers use, we may not be able to offer the functionality that our customers need, which would negatively impact our ability to generate revenue
and adversely impact our business.
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Risks Related to Data Privacy Government Regulation
We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security, and our
actual or perceived failure to comply with such obligations could harm our business. Compliance with such laws could also impair our efforts to
maintain and expand our customer base, and thereby decrease our revenue.
Our handling and storage of data is subject to a variety of laws and regulations, including regulation by various government agencies, including the U.S.
Federal Trade Commission (“FTC”), and various state, local and foreign agencies. We collect personally identifiable information and other data directly
from our customers and through our channel partners. We also process or otherwise handle personally identifiable information about our customers’
employees, customers and constituents in certain circumstances. We use this information to provide applications to our customers and to support, expand
and improve our business. We may also share customers’ personally identifiable information with third parties as described in our privacy policy and/or as
otherwise authorized by our customers.
The U.S. federal and various state and foreign governments have adopted or proposed legislation that regulates the collection, distribution, use and storage
of personal information of individuals and that mandates security requirements with respect to certain personally identifiable information. In the United
States, the FTC and numerous state attorneys general are imposing standards for the online collection, distribution, use and storage of data by applying
federal and state consumer protection laws. The lack of a clear and universal standard for protecting such information means, however, that these
obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other requirements or our
practices. Any failure or perceived failure by us to comply with privacy or security laws, policies, legal obligations or industry standards or any security
incident that results in the unauthorized release or transfer of sensitive corporate information, personally identifiable information or other customer data
may result in governmental enforcement actions, litigation, fines and penalties and/or adverse publicity, and could cause our customers to lose trust in us,
which could have an adverse effect on our reputation and business.
Some proposed laws or regulations concerning privacy, data protection and information security are in their early stages, and we cannot yet determine how
these laws and regulations may be interpreted nor can we determine the impact these proposed laws and regulations, may have on our business. Such
proposed laws and regulations may require companies to implement privacy and security policies, permit users to access, correct and delete personal
information stored or maintained by such companies, inform individuals of security breaches that affect their personal information, and, in some cases,
obtain individuals’ consent to use personal information for certain purposes. In addition, a foreign government could require that any personal information
collected in a country not be disseminated outside of that country, and we may not be currently equipped to comply with such a requirement. Our failure to
comply with federal, state and international data privacy laws and regulators could harm our ability to successfully operate our business and pursue our
business goals.
In addition, several foreign countries and governmental bodies, including the European Union and Canada, have regulations governing the collection and
use of personal information obtained from their residents, which are often more restrictive than those in the United States. Laws and regulations in these
jurisdictions apply broadly to the collection, use, storage, disclosure and security of personal information that identifies or may be used to identify an
individual, such as names, email addresses and in some jurisdictions, Internet Protocol, or IP, addresses. Such regulations and laws may be modified and
new laws may be enacted in the future.
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Within the European Union, legislators have adopted the General Data Protection Regulation (“GDPR”), which went into effect in May 2018. The GDPR
includes more stringent operational requirements on entities that process personal data (as compared to existing EU law), including significant penalties for
non-compliance, more robust obligations on data processors and data controllers, greater rights for data subjects (potentially requiring significant changes
to both our technology and operations), and heavier documentation requirements for data protection compliance programs. Specifically, the GDPR
introduces numerous privacy-related changes for companies operating in the EU, including greater control over personal data by data subjects (e.g., the
“right to be forgotten”), increased data portability for EU consumers, data breach notification requirements and increased fines. Under the GDPR, fines of
up to 20 million euros or up to 4% of the annual global revenue of the noncompliant company, whichever is greater, could be imposed for violations of
certain GDPR requirements. The GDPR requirements apply not only to third-party transactions, but also to transfers of information between us and our
subsidiaries, including employee information.
Further, Brexit could lead to additional legislative and regulatory changes. The United Kingdom Data Protection Act that substantially implements the
GDPR became law in May 2018 and was subject to statutory amendments in 2019 that further align it with the GDPR. The development of United
Kingdom data protection laws or regulations and regulation of data transfers to and from the United Kingdom in the medium to longer term, however,
remain unclear and could impact our ability to sell our products and services to customers in the United Kingdom.
California enacted legislation in 2018, the California Consumer Privacy Act (the “CCPA”), that became operative on January 1, 2020. The CCPA requires
covered companies to, among other things, provide new disclosures to California consumers, and affords such consumers new abilities to opt-out of certain
sales of personal information. The CCPA is the subject of proposed regulations of the California Attorney General that were released on October 10, 2019
but have yet to be finalized. Aspects of the CCPA and its interpretation remain unclear at this time. We cannot fully predict the impact of the CCPA on our
business or operations, but it may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to
comply.
While we have taken steps to mitigate the impact of the GDPR on us, such as implementing standard contractual clauses and self-certifying under the EU-
US Privacy Shield, the efficacy and longevity of these mechanisms remains uncertain. For example, on July 16, 2020, the CJEU invalidated the U.S.-EU
Privacy Shield framework that had been in place since 2016, which allowed companies like us to meet certain European legal requirements for the transfer
of personal data from the EEA to the United States, and imposed additional obligations on companies when relying on the model clauses approved by the
EU Commission. This CJEU decision may result in different EEA data protection regulators applying differing standards for the transfer of personal data
from the EEA to the United States, and even require ad hoc verification of measures taken with respect to data flows. The invalidation of the U.S.-EU
Privacy Shield framework will require us to take additional steps to legitimize any personal data transfers that are impacted by this decision. This could
result in increased costs of compliance and limitations on our customers and us. More generally, we find it necessary or desirable to modify our data
handling practices, and this CJEU decision or other legal challenges relating to cross-border data transfer may serve as a basis for our personal data
handling practices, or those of our customers and vendors, to be challenged and may otherwise adversely impact our business, financial condition and
operating results. Potential or actual legal proceedings could lead to one or both of these mechanisms being declared invalid. Further, despite our ongoing
efforts to maintain compliance with the GDPR, we may not be successful either due to various factors within our control (such as limited financial or
human resources) or outside our control (such as a lack of vendor cooperation). It’s also possible that local data protection authorities (“DPAs”) may have
different interpretations of the GDPR, leading to potential inconsistencies amongst various EU states.
Globally, governments and agencies have adopted and could in the future adopt, modify, apply or enforce laws, policies, regulations, and standards
covering user privacy, data security, technologies such as cookies that are used to collect, store and/or process data, marketing online, the use of data to
inform marketing, the taxation of products and services, unfair and deceptive practices, and the collection (including the collection of information), use,
processing, transfer, storage and/or disclosure of data associated with unique individual internet users.
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New regulation or legislative actions (or new interpretations of existing laws, regulations or standards) regarding data privacy and security, together with
applicable industry standards, may increase the costs of doing business and could have a material adverse impact on our operations. If our privacy or data
security measures fail to comply with current or future laws and regulations, we may be subject to litigation, regulatory investigations, fines or other
liabilities, as well as negative publicity and a potential loss of business, which could have a material adverse effect on our reputation and business.
Moreover, if future laws and regulations limit our customers’ ability to use and share personal information or our ability to store, process and share
personal information, demand for our applications could decrease, our costs could increase, and our business, results of operations and financial condition
could be harmed.
If our applications fail to function in a manner that allows our customers to operate in compliance with regulations and/or industry standards, our
revenue and operating results could be harmed.
Certain of our customers require applications that ensure secure processing, communication and storage of sensitive information given the nature of the content
being distributed and associated applicable regulatory requirements. In particular, our healthcare customers rely on our applications to communicate in a manner
that is designed to comply with the requirements of the Health Insurance Portability and Accountability Act of 1996, the 2009 Health Information Technology for
Economic and Clinical Health Act, the Final Omnibus Rule of January 25, 2013, which are collectively referred to as HIPAA, and which impose privacy and data
security standards that protect individually identifiable health information by limiting the uses and disclosures of individually identifiable health information and
requiring that certain data security standards be implemented to protect this information. As a “business associate” to “covered entities” that are subject to
HIPAA, we also have our own compliance obligations directly under HIPAA and pursuant to the business associate agreements that we are required to enter into
with our customers that are HIPAA-covered entities.
Governments and industry organizations may also adopt new laws, regulations or requirements, or make changes to existing laws or regulations, that could
impact the demand for, or value of, our applications. If we are unable to adapt our applications to changing legal and regulatory standards or other
requirements in a timely manner, or if our applications fail to allow our customers to communicate in compliance with applicable laws and regulations, our
customers may lose confidence in our applications and could switch to products offered by our competitors, or threaten or bring legal actions against us.
In addition, governmental and other customers may require our applications to comply with certain privacy, security or other certifications and standards.
For instance, with regard to transfers of personal data, on July 16, 2020, the Court of Justice of the European Union (“CJEU”) invalidated the U.S.-EU
Privacy Shield framework that had been in place since 2016, which allowed companies like us to meet certain European legal requirements for the transfer
of personal data from the European Economic Area (“EEA”) to the United States, and imposed additional obligations on companies when relying on the
model clauses approved by the EU Commission. The invalidation of the U.S.-EU Privacy Shield framework will require us to take additional steps to
legitimize any personal data transfers that are impacted by this decision. While we have other legally recognized mechanisms in place that we believe allow
for the lawful transfer of EU customer and employee information to the United States, this invalidation decision could result in increased costs of
compliance and limitations on our customers and us. Further, it is possible that these other transfer mechanisms may also be challenged or evolve to include
new legal requirements that could have an impact on how we move this data. If our applications fail to maintain compliance with these certifications and
standards, or our competitors achieve compliance with these certifications and standards, we may be disqualified from selling our applications to such
customers, or may otherwise be at a competitive disadvantage, either of which would harm our business, results of operations and financial condition. If
our policies and practices are, or are perceived to be, insufficient or if our customers have concerns regarding the transfer of data from the European Union
to the United States, we could be subject to enforcement actions or investigations by EU Data Protection Authorities or lawsuits by private parties, and our
business could be negatively impacted.
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Failure to comply with governmental laws and regulations could harm our business.
Our business is subject to regulation by various federal, state, local and foreign governments. For example, the Telephone Consumer Protection Act of 1991
(“TCPA”), restricts telemarketing and the use of automatic text messages without proper consent. The scope and interpretation of the laws that are or may
be applicable to the delivery of text messages are continuously evolving and developing. If we do not comply with these laws or regulations or if we
become liable under these laws or regulations due to the failure of our customers to comply with these laws by obtaining proper consent, we could face
direct liability. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable
regulations or requirements could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal
penalties, injunctions or other collateral consequences. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal
litigation, our business, results of operations, and financial condition could be materially adversely affected. In addition, responding to any action will
likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions
could harm our business, reputation, results of operations and financial condition.
A portion of our revenue is generated by subscriptions sold to governmental entities and heavily regulated organizations, which are subject to a number
of challenges and risks.
A portion of our revenue is generated by subscriptions sold to government entities. Additionally, many of our current and prospective customers, such as
those in the financial services, and healthcare and life sciences industries, are highly regulated and may be required to comply with more stringent
regulations in connection with subscribing to and implementing our applications. Selling subscriptions to these entities can be highly competitive,
expensive and time consuming, often requiring significant upfront time and expense without any assurance that we will successfully complete a sale.
Furthermore, engaging in sales activities to foreign governments introduces additional compliance risks specific to the Foreign Corrupt Practices Act, the
U.K. Bribery Act and other similar statutory requirements prohibiting bribery and corruption in the jurisdictions in which we operate. Governmental and
highly regulated entities often require contract terms that differ from our standard arrangements. For example, the federal government provides grants to
certain state and local governments for our applications and if such governmental entities do not continue to receive these grants, they have the ability to
terminate their contracts without penalty. Governmental and highly regulated entities impose compliance requirements that are complicated, require
preferential pricing or “most favored nation” terms and conditions, or are otherwise time consuming and expensive to satisfy. If we undertake to meet
special standards or requirements and do not meet them, we could be subject to increased liability from our customers or regulators. Even if we do meet
these special standards or requirements, the additional costs associated with providing our applications to government and highly regulated customers could
harm our margins. Moreover, changes in the underlying regulatory conditions that affect these types of customers could harm our ability to efficiently
provide our applications to them and to grow or maintain our customer base.
Governmental demand and payment for our applications may also be impacted by public sector budgetary cycles and funding authorizations, with funding
reductions or delays adversely affecting public sector demand for our solutions.
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Potential regulatory requirements placed on our applications and content could impose increased costs on us, delay or prevent our introduction of new
applications, and impair the function or value of our existing applications.
Certain of our existing applications, such as Secure Collaboration, a tailored version of our Secure Messaging application that is designed to comply with
HIPAA, are and are likely to continue to be subject to increasing regulatory requirements in a number of ways and as we continue to introduce new
applications, we may be subject to additional regulatory requirements and other risks that could be costly and difficult to comply with or that could harm
our business. In addition, we market our applications and professional services in certain countries outside of the United States and plan to expand our local
presence in regions such as Europe, the Middle East and Asia. If additional legal and/or regulatory requirements are implemented in the foreign countries in
which we provide our services, the cost of developing or selling our applications may increase. As these requirements proliferate and as existing legal
requirements become subject to new interpretations, we must change or adapt our applications and professional services to comply. Changing regulatory
requirements might render certain of our applications obsolete or might block us from accomplishing our work or from developing new applications. This
might in turn impose additional costs upon us to comply or to further develop our applications. It might also make introduction of new applications or
service types more costly or more time-consuming than we currently anticipate. It might even prevent introduction by us of new applications or cause the
continuation of our existing applications or professional services to become unprofitable or impossible.
Risks Related to Our Intellectual Property
If we fail to protect our intellectual property and proprietary rights adequately, our business could be harmed.
Our future success and competitive position depend in part on our ability to protect our intellectual property and proprietary technologies. To safeguard
these rights, we rely on a combination of patent, trademark, copyright and trade secret laws and contractual protections in the United States and other
jurisdictions, some of which afford only limited protection.
We have numerous issued patents and patent applications pending as of December 31, 2021. We cannot assure you that any patents will issue from any
patent applications, that patents that issue from such applications will give us the protection that we seek or that any such patents will not be challenged,
invalidated, or circumvented. Any patents that may issue in the future from our pending or future patent applications may not provide sufficiently broad
protection and may not be enforceable in actions against alleged infringers. In addition, we have registered the “Everbridge”, “Nixle” and “Visual
Command Center” names in the United States, and have registered the “Everbridge” name in the European Union. We have registrations and/or pending
applications for additional marks in the United States and various other countries; however, we cannot assure you that any future trademark registrations
will be issued for pending or future applications or that any registered trademarks will be enforceable or provide adequate protection of our proprietary
rights.
In order to protect our unpatented proprietary technologies and processes, we rely on trade secret laws and confidentiality agreements with our employees,
consultants, vendors and others. Despite our efforts to protect our proprietary technology and trade secrets, unauthorized parties may attempt to
misappropriate, reverse engineer or otherwise obtain and use them. In addition, others may independently discover our trade secrets, in which case we
would not be able to assert trade secret rights, or develop similar technologies and processes. Further, the contractual provisions that we enter into may not
prevent unauthorized use or disclosure of our proprietary technology or intellectual property rights and may not provide an adequate remedy in the event of
unauthorized use or disclosure of our proprietary technology or intellectual property rights. Effective trade secret protection may not be available in every
country in which our services are available or where we have employees or independent contractors. The loss of trade secret protection could make it easier
for third parties to compete with our solutions by copying functionality. In addition, any changes in, or unexpected interpretations of, the trade secret and
employment laws in any country in which we operate may compromise our ability to enforce our trade secret and intellectual property rights. Costly and
time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret
protection could adversely affect our competitive business position.
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In addition, to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation
brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result in the
impairment or loss of portions of our intellectual property. Failure to adequately enforce our intellectual property rights could also result in the impairment
or loss of those rights. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits
attacking the validity and enforceability of our intellectual property rights. Patent, copyright, trademark and trade secret laws offer us only limited
protection and the laws of many of the countries in which we sell our services do not protect proprietary rights to the same extent as the United States and
Europe. Accordingly, defense of our trademarks and proprietary technology may become an increasingly important issue as we continue to expand our
operations and solution development into countries that provide a lower level of intellectual property protection than the United States or Europe. Policing
unauthorized use of our intellectual property and technology is difficult and the steps we take may not prevent misappropriation of the intellectual property
or technology on which we rely. For example, in the event of inadvertent or malicious disclosure of our proprietary technology, trade secret laws may no
longer afford protection to our intellectual property rights in the areas not otherwise covered by patents or copyrights. Accordingly, we may not be able to
prevent third parties from infringing upon or misappropriating our intellectual property.
We may elect to initiate litigation in the future to enforce or protect our proprietary rights or to determine the validity and scope of the rights of others. That
litigation may not be ultimately successful and could result in substantial costs to us, the reduction or loss in intellectual property protection for our technology,
the diversion of our management’s attention and harm to our reputation, any of which could materially and adversely affect our business and results of operations.
Our failure or inability to adequately protect our intellectual property and proprietary rights could harm our business, financial condition and results of
operations.
An assertion by a third party that we are infringing its intellectual property could subject us to costly and time-consuming litigation or expensive
licenses that could harm our business and results of operations.
Patent and other intellectual property disputes are common in our industry and we have been involved in such disputes from time to time in the ordinary course
of our business. Some companies, including some of our competitors, own large numbers of patents, copyrights and trademarks, which they may use to assert
claims against us. Third parties may in the future assert claims of infringement, misappropriation or other violations of intellectual property rights against us.
They may also assert such claims against our customers whom we typically indemnify against claims that our solution infringes, misappropriates or otherwise
violates the intellectual property rights of third parties. As the numbers of products and competitors in our market increase and overlaps occur, claims of
infringement, misappropriation and other violations of intellectual property rights may increase. Any claim of infringement, misappropriation or other violation
of intellectual property rights by a third party, even those without merit, could cause us to incur substantial costs defending against the claim and could distract
our management from our business.
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As we seek to extend our platform and applications, we could be constrained by the intellectual property rights of others and it may also be more likely that
competitors or other third parties will claim that our solutions infringe their proprietary rights. We might not prevail in any intellectual property
infringement litigation given the complex technical issues and inherent uncertainties in such litigation. Defending such claims, regardless of their merit,
could be time-consuming and distracting to management, result in costly litigation or settlement, cause development delays or require us to enter into
royalty or licensing agreements. In addition, we currently have a limited portfolio of issued patents compared to our larger competitors, and therefore may
not be able to effectively utilize our intellectual property portfolio to assert defenses or counterclaims in response to patent infringement claims or litigation
brought against us by third parties. Further, litigation may involve patent holding companies or other adverse patent owners who have no relevant
applications or revenue and against which our potential patents provide no deterrence, and many other potential litigants have the capability to dedicate
substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. If our platform or any of
our applications exceed the scope of in-bound licenses or violate any third-party proprietary rights, we could be required to withdraw those applications
from the market, re-develop those applications or seek to obtain licenses from third parties, which might not be available on reasonable terms or at all. Any
efforts to re-develop our platform and our applications, obtain licenses from third parties on favorable terms or license a substitute technology might not be
successful and, in any case, might substantially increase our costs and harm our business, financial condition and results of operations. If we were
compelled to withdraw any of our applications from the market, our business, financial condition and results of operations could be harmed.
We have indemnity obligations to our customers and certain of our channel partners for certain expenses and liabilities resulting from intellectual
property infringement claims regarding our platform and our applications, which could force us to incur substantial costs.
We have indemnity obligations to our customers and certain of our channel partners for intellectual property infringement claims regarding our platform
and our applications. As a result, in the case of infringement claims against these customers and channel partners, we could be required to indemnify them
for losses resulting from such claims or to refund amounts they have paid to us. We also expect that some of our channel partners with whom we do not
have express contractual obligations to indemnify for intellectual property infringement claims may seek indemnification from us in connection with
infringement claims brought against them. We may elect to indemnify these channel partners where we have no contractual obligation to indemnify them
and we will evaluate each such request on a case-by-case basis. If a channel partner elects to invest resources in enforcing a claim for indemnification
against us, we could incur significant costs disputing it. If we do not succeed in disputing it, we could face substantial liability.
We may be subject to damages resulting from claims that our employees or contractors have wrongfully used or disclosed alleged trade secrets of their
former employers or other parties.
We have in the past and may in the future be subject to claims that employees or contractors, or we, have inadvertently or otherwise used or disclosed trade
secrets or other proprietary information of our competitors or other parties. Litigation may be necessary to defend against these claims. If we fail in
defending against such claims, a court could order us to pay substantial damages and prohibit us from using technologies or features that are essential to
our solutions, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of these parties.
In addition, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our
ability to develop, market and support potential solutions or enhancements, which could severely harm our business. Even if we are successful in defending
against these claims, such litigation could result in substantial costs and be a distraction to management.
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The use of open source software in our platform and applications may expose us to additional risks and harm our intellectual property.
Our platform and some of our applications use or incorporate software that is subject to one or more open source licenses and we may incorporate
additional open source software in the future. Open source software is typically freely accessible, usable and modifiable; however, certain open source
software licenses require a user who intends to distribute the open source software as a component of the user’s software to disclose publicly part or all of
the source code to the user’s software. In addition, certain open source software licenses require the user of such software to make any modifications or
derivative works of the open source code available to others on potentially unfavorable terms or at no cost. Use and distribution of open source software
may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual
protections regarding infringement claims or the quality of the code.
The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and accordingly there is a risk that
those licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our platform and
applications. In that event, we could be required to seek licenses from third parties in order to continue offering our platform and applications, to re-develop
our platform and applications, to discontinue sales of our platform and applications or to release our proprietary software code in source code form under
the terms of an open source license, any of which could harm our business. Further, given the nature of open source software, it may be more likely that
third parties might assert copyright and other intellectual property infringement claims against us based on our use of these open source software programs.
Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research
and development resources to change our applications.
Although we are not aware of any use of open source software in our platform and applications that would require us to disclose all or a portion of the
source code underlying our core applications, it is possible that such use may have inadvertently occurred in deploying our platform and applications, or
that persons or entities may claim such disclosure to be required. Disclosing our proprietary source code could allow our competitors to create similar
products with lower development effort and time and ultimately could result in a loss of sales for us. Disclosing the source code of our proprietary software
could also make it easier for cyber attackers and other third parties to discover vulnerabilities in or to defeat the protections of our products, which could
result in our products failing to provide our customers with the security they expect. Any of these events could have a material adverse effect on our
business, operating results and financial condition. Additionally, if a third-party software provider has incorporated certain types of open source software
into software we license from such third party for our platform and applications without our knowledge, we could, under certain circumstances, be required
to disclose the source code to our platform and applications. This could harm our intellectual property position and our business, results of operations and
financial condition.
Risks Related to Ownership of Our Common Stock
Our stock price may be volatile and you may lose some or all of your investment.
The market price of our common stock may be highly volatile and may fluctuate substantially as a result of a variety of factors, some of which are related
in complex ways. Our stock price ranged from an intraday low of $57.58 to an intraday high of $178.98 during the year ended December 31, 2021. Factors
that may affect the market price of our common stock include:
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actual or anticipated fluctuations in our financial condition and operating results;
variance in our financial performance from expectations of securities analysts;
changes in the prices of our applications;
changes in our projected operating and financial results;
changes in laws or regulations applicable to our platform and applications;
announcements by us or our competitors of significant business developments, acquisitions or new applications;
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our involvement in any litigation;
our sale of our common stock or other securities in the future;
changes in senior management or key personnel;
trading volume of our common stock;
changes in the anticipated future size and growth rate of our market; and
general economic, regulatory and market conditions.
Recently, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity
securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. Broad
market and industry fluctuations, as well as general economic, political, regulatory and market conditions, may negatively impact the market price of our
common stock. In the past, companies that have experienced volatility in the market price of their securities have been subject to securities class action
litigation. We may be the target of this type of litigation in the future, which could result in substantial costs and divert our management’s attention.
We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would cause our
stock price to decline.
We have provided and may continue to provide guidance about our business, future operating results and other business metrics. In developing this
guidance, our management must make certain assumptions and judgments about our future performance. Some of those key assumptions relate to the
impact of the COVID-19 pandemic, the anticipated contributions from the acquisitions of RedSky, xMatters and Anvil, and the associated economic
uncertainty on our business and the timing and scope of economic activity globally, which are inherently difficult to predict. This guidance, which consists
of forward-looking statements, is qualified by, and subject to, such assumptions, estimates and expectations as provided, and the other information
contained in or referred to in the factors described in this Annual Report on Form 10-K and our other current and periodic reports filed with the Securities
and Exchange Commission. While presented with numerical specificity, this guidance is necessarily speculative in nature, and is inherently subject to
significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific
assumptions with respect to future business decisions or economic conditions, some of which may change. It can be expected that some or all of the
assumptions, estimates and expectations of the guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our
guidance is only an estimate of what management believes is realizable as of the date of release of such guidance. Furthermore, analysts and investors may
develop and publish their own projections of our business, which may form a consensus about our future performance. Our business results may vary
significantly from such guidance or that consensus due to a number of factors, many of which are outside of our control, including due to the global
economic uncertainty and financial market conditions caused by the COVID-19 pandemic, and which could adversely affect our operations and operating
results. Furthermore, if we make downward revisions of our previously announced guidance, or if our publicly announced guidance of future operating
results fails to meet expectations of securities analysts, investors or other interested parties, the price of our common stock would decline.
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Conversion of the 2026 Notes, 2024 Notes and 2022 Notes will dilute the ownership interest of existing stockholders, including holders who had
previously converted their Notes, or may otherwise depress the price of our common stock.
In March 2021, we issued the 2026 Notes, which will mature on March 15, 2026, unless earlier redeemed or repurchased by us or converted by the holders
thereof pursuant to their terms. In December 2019, we issued the 2024 Notes, which will mature on December 15, 2024, unless earlier redeemed or
repurchased by us or converted by the holders thereof pursuant to their terms. In November 2017, we issued the 2022 Notes, which will mature on
November 1, 2022, unless earlier redeemed or repurchased by us or converted by the holders thereof pursuant to their terms. The conversion of some or all
of the convertible 2026 Notes, 2024 Notes and 2022 Notes will dilute the ownership interests of existing stockholders to the extent we deliver shares upon
conversion of any of the 2026 Notes, 2024 Notes and 2022 Notes. Based on the market price of our common stock during the 30 trading days preceding
June 30, 2018, the 2022 Notes were convertible at the option of the holders thereof as of September 30, 2018 and continue to be convertible at the option of
the holders as of December 31, 2021. During 2021, we issued 627,212 shares upon the conversion of approximately $21.1 million in aggregate principal
amount of the 2022 Notes and paid approximately $58.6 million in cash and issued 1,288,994 shares of common stock to repurchase approximately $58.6
million aggregate principal amount of the 2022 Notes. In the third quarter of 2021, the last reported sale price of our common stock was at least 130% of
the conversion price of the 2024 Notes for at least 20 trading days during a period of 30 consecutive trading days ending on, and including, the last trading
day of the quarter, resulting in the 2024 Notes becoming convertible at the option of the holders thereof during the fourth quarter of 2021; however, as the
last reported sale price of our common stock was not at least 130% of the conversion price of the 2024 Notes for at least 20 trading days during a period of
30 consecutive trading days ending on, and including, the last trading day of the fourth quarter of 2021, the 2024 Notes were not convertible as of January
1, 2022. The 2026 Notes were not convertible during the year ended December 31, 2021. Any sales in the public market of the common stock issuable
upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the 2026 Notes, 2024 Notes and
2022 Notes may encourage short selling by market participants because the conversion of the 2026 Notes, 2024 Notes and 2022 Notes could be used to
satisfy short positions, or anticipated conversion of the 2026 Notes, 2024 Notes and 2022 Notes into shares of our common stock could depress the price of
our common stock.
The capped call transactions entered into when we issued the convertible notes may affect the value of our common stock.
In connection with the issuances of the 2026 Notes, 2024 Notes and 2022 Notes, we entered into capped call transactions with the respective option
counterparties. The capped call transactions are expected generally to reduce the potential dilution upon conversion of the 2026 Notes, 2024 Notes and
2022 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2026 Notes, 2024 Notes and 2022
Notes, as the case may be, with such reduction and/or offset subject to a cap. In connection with establishing their initial hedges of the capped call
transactions, the option counterparties or their respective affiliates entered into various derivative transactions with respect to our common stock
concurrently with or shortly after the pricing of the 2026 Notes, 2024 Notes and 2022 Notes. The option counterparties or their respective affiliates may
modify their hedge positions by entering into or unwinding derivatives with respect to our common stock and/or purchasing or selling our common stock or
other securities of ours in secondary market transactions prior to the maturity of the 2026 Notes, 2024 Notes and 2022 Notes (and are likely to do so during
any observation period related to a conversion of 2026 Notes, 2024 Notes and 2022 Notes). This activity could cause or avoid an increase or a decrease in
the market price of our common stock.
We are obligated to maintain a system of effective internal control over financial reporting and any failure to maintain the adequacy of these internal
controls may harm investor confidence in our company and, as a result, the value of our common stock.
The Sarbanes-Oxley Act of 2002 requires that we maintain effective internal control over financial reporting and disclosure controls and procedures. We
are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our
internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal
control over financial reporting.
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Our compliance with Section 404 necessitates that we incur substantial accounting expense and expend significant management efforts. We will continue to
dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over
financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and
implement a continuous reporting and improvement process for internal control over financial reporting and to compile the system and process
documentation necessary to perform the evaluation needed to comply with Section 404. However, we cannot assure you that our independent registered
public accounting firm will be able to attest to the effectiveness of our internal control over financial reporting. We may not be able to remediate any
material weaknesses that may be identified, or to complete our evaluation, testing and any required remediation in a timely fashion and our independent
registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented,
designed or operating.
Any failure to maintain adequate internal controls over financial reporting could severely inhibit our ability to accurately report our financial condition or
results of operations. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an
opinion on the effectiveness of our internal controls when they are required to issue such opinion, investors could lose confidence in the accuracy and
completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the
Nasdaq Global Market, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or
to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our
stock, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our
business. We do not have any control over these analysts. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our
business model, our intellectual property or our stock performance, or if operating results fail to meet the expectations of analysts, our stock price would
likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial
markets, which in turn could cause our stock price or trading volume to decline.
We do not anticipate paying any cash dividends in the foreseeable future, and accordingly, stockholders must rely on stock appreciation for any return
on their investment.
We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends to holders of our common stock in
the foreseeable future. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our
stockholders to replace or remove our current management and limit the market price of our common stock.
Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may have the effect of delaying or preventing a
change in control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include
provisions that:
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authorize our board of directors to issue preferred stock, without further stockholder action and with voting liquidation, dividend and other
rights superior to our common stock;
require that any action to be taken by our stockholders be affected at a duly called annual or special meeting and not by written consent,
and limit the ability of our stockholders to call special meetings;
establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations
of persons for director nominees;
establish that our board of directors is divided into three classes, with directors in each class serving three-year staggered terms;
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require the approval of holders of two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or
amend or repeal the provisions of our certificate of incorporation regarding the election and removal of directors and the ability of
stockholders to take action by written consent or call a special meeting;
prohibit cumulative voting in the election of directors; and
provide that vacancies on our board of directors may be filled only by the vote of a majority of directors then in office, even though less
than a quorum.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for
stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we
are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, which generally
prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three
years following the date on which the stockholder became an “interested” stockholder. Any of the foregoing provisions could limit the price that investors
might be willing to pay in the future for shares of our common stock, and they could deter potential acquirers of our company, thereby reducing the
likelihood that you would receive a premium for your common stock in an acquisition.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain
litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Pursuant to our amended and restated certificate of incorporation, unless we consent in writing to the selection of an alternative forum, the Court of
Chancery of the State of Delaware is the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action
asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a
claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended
and restated bylaws, or (4) any action asserting a claim governed by the internal affairs doctrine. Our amended and restated certificate of incorporation
further provides that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and
consented to the foregoing provision. The forum selection clause in our amended and restated certificate of incorporation may limit our stockholders’
ability to obtain a favorable judicial forum for disputes with us.
Future sales of our common stock in the public market could cause our share price to decline.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market
price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect
that sales, particularly sales by our directors, executive officers and significant stockholders, may have on the prevailing market price of our common stock.
Additionally, the shares of common stock subject to outstanding options under our equity incentive plans and the shares reserved for future issuance under
our equity incentive plans, as well as shares issuable upon vesting of restricted stock awards, will become eligible for sale in the public market in the future,
subject to certain legal and contractual limitations.
In addition, in the future, we may issue common stock or other securities if we need to raise additional capital. The number of new shares of our common
stock issued in connection with raising additional capital could constitute a material portion of our then-outstanding shares of our common stock.
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Risks Related to our Indebtedness
We issued convertible notes that have rights senior to our common stock.
In March 2021, we issued the 2026 Notes, which will mature on March 15, 2026, unless earlier redeemed or repurchased by us or converted by the holders
thereof pursuant to their terms. In December 2019, we issued the 2024 Notes, which will mature on December 15, 2024, unless earlier redeemed or
repurchased by us or converted by the holders thereof pursuant to their terms. In November 2017, we issued the 2022 Notes, which will mature on
November 1, 2022, unless earlier redeemed or repurchased by us or converted by the holders thereof pursuant to their terms. In connection with the
issuance of the 2024 Notes, we paid $57.8 million to repurchase $23.0 million in aggregate principal amount of the 2022 Notes. During 2020, we issued
362,029 shares upon the conversion of approximately $12.2 million in aggregate principal amount of the 2022 Notes. During 2021, we issued 627,212
shares of our common stock to holders of our 2022 Notes upon settlement of conversion of approximately $21.1 million in aggregate principal amount of
the 2022 Notes, and in connection with the issuance of the 2026 Notes, we paid approximately $58.6 million in cash and issued 1,288,994 shares of
common stock to repurchase an aggregate principal amount of approximately $58.6 million of such 2022 Notes.
The 2026 Notes, 2024 Notes and 2022 Notes rank senior in right of payment to all of our indebtedness that is expressly subordinated in right of payment to
the 2026 Notes, 2024 Notes and 2022 Notes; equal in right of payment to all of our liabilities that are not so subordinated (including to the 2022 Notes and
2024 Notes, in the case of the 2026 Notes, to the 2022 Notes and 2026 Notes, in the case of the 2024 Notes, and to the 2024 Notes and 2026 Notes, in the
case of the 2022 Notes); effectively junior to any of our secured indebtedness, to the extent of the value of the assets securing such indebtedness; and
structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries. In the event of our bankruptcy, liquidation,
reorganization or other winding up, our assets that secure debt ranking senior or equal in right of payment to the 2026 Notes, 2024 Notes and 2022 Notes
will be available to pay obligations on the 2026 Notes, 2024 Notes and 2022 Notes only after the secured debt has been repaid in full from these assets, and
our assets will be available to pay common stockholders only after all debt obligations have been repaid. There may not be sufficient assets remaining to
pay amounts due on any or all of the 2026 Notes, 2024 Notes and 2022 Notes then outstanding or any or all shares of our common stock then outstanding.
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the 2026 Notes, 2024 Notes and
2022 Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business
may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are
unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional
equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our
financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result
in a default on our debt obligations.
As of December 31, 2021, we had $825 million (undiscounted) principal amount of indebtedness under the 2026 Notes, 2024 Notes and 2022 Notes. Our
indebtedness may:
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limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes;
limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other
general business purposes;
require us to use a substantial portion of our cash flow from operations to make debt service payments;
limit our flexibility to plan for, or react to, changes in our business and industry;
place us at a competitive disadvantage compared to our less leveraged competitors; and
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increase our vulnerability to the impact of adverse economic and industry conditions.
In addition, any future indebtedness that we may incur may contain financial and other restrictive covenants that limit our ability to operate our business,
raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when
due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in
full.
The accounting method for convertible debt securities that may be settled in cash, such as the 2026 Notes, 2024 Notes and 2022 Notes, could have a
material effect on our reported financial results.
In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), which has subsequently been codified as Accounting
Standards Codification (“ASC”) 470-20, Debt with Conversion and Other Options. Under ASC 470-20, an entity must separately account for the liability
and equity components of the convertible debt instruments (such as the 2026 Notes, 2024 Notes and 2022 Notes) that may be settled entirely or partially in
cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the 2026 Notes, 2024
Notes and 2022 Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our
consolidated balance sheet, and the value of the equity component was treated as original issue discount for purposes of accounting for the debt component
of the 2026 Notes, 2024 Notes and 2022 Notes. As a result, we recorded a greater amount of non-cash interest expense in current periods presented as a
result of the amortization of the discounted carrying value of the 2026 Notes, 2024 Notes and 2022 Notes to their face amount over the term of the 2026
Notes, 2024 Notes and 2022 Notes. We reported lower net income in our financial results because ASC 470-20 requires interest to include both the current
period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the
trading price of our common stock and the trading price of the 2026 Notes, 2024 Notes and 2022 Notes.
In August 2020, the FASB issued Accounting Standards Update ("ASU") 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own
Equity. ASU 2020-06 reduces the number of accounting models for convertible instruments by eliminating two of the three models in ASC 470-20, Debt—
Debt with Conversion and Other Options, that require separate accounting for embedded conversion features, amends the requirements for a contract that is
potentially settled in an entity’s own shares to be classified in equity, and amends certain guidance on the computation of earnings per share for convertible
instruments and contracts on an entity’s own equity. ASU 2020-06 is effective beginning in the first quarter of 2022. We are assessing the impact this
standard will have our consolidated financial statements.
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The conditional conversion feature of the 2026 Notes, 2024 Notes and 2022 Notes, may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of the 2026 Notes, 2024 Notes or the 2022 Notes is triggered, holders of the 2026 Notes, 2024 Notes or the
2022 Notes, as the case may be, will be entitled to convert the 2026 Notes, 2024 Notes or the 2022 Notes, as applicable, at any time during specified
periods at their option. Based on the last reported sale price of our common stock during the 30 trading days preceding June 30, 2018, the 2022 Notes were
convertible at the option of the holders thereof as of September 30, 2018 and continue to be convertible at the option of the holder as of December 31,
2021. In the third quarter of 2021, the last reported sale price of our common stock was at least 130% of the conversion price of the 2024 Notes for at least
20 trading days during a period of 30 consecutive trading days ending on, and including, the last trading day of the quarter, resulting in the 2024 Notes
becoming convertible at the option of the holders thereof during the fourth quarter of 2021; however, as the last reported sale price of our common stock
was not at least 130% of the conversion price of the 2024 Notes for at least 20 trading days during a period of 30 consecutive trading days ending on, and
including, the last trading day of the fourth quarter of 2021, the 2024 Notes were not convertible as of January 1, 2022. The 2026 Notes were not
convertible during the year ended December 31, 2021. If one or more holders elect to convert their 2026 Notes, 2024 Notes or 2022 Notes, as the case may
be, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any
fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our
liquidity. In addition, even if holders do not elect to convert their 2026 Notes, 2024 Notes or 2022 Notes, as the case may be, we could be required under
applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2026 Notes, 2024 Notes or 2022 Notes, as applicable, as a
current rather than long-term liability, which would result in a material reduction of our net working capital. On November 1, 2021, as the 2022 Notes
mature in 12 months, we reclassified the 2022 Notes to current liabilities on the consolidated balance sheet.
General Risks
The ongoing COVID-19 pandemic could materially and adversely affect our business, results of operations and financial condition.
The impact of the ongoing COVID-19 pandemic is severe, and widespread, and while vaccines have been approved and are being deployed, the timing of
widespread vaccination rates and the efficacy against new variants of the disease is unknown. It also remains unclear as to when stability will be reached
among the varying levels of shelter in place requirements and movement restrictions is unknown. We are unable to accurately predict the full impact that
the COVID-19 pandemic will have on our results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the
duration and severity of the pandemic and containment measures. Our compliance with these measures has impacted our day-to-day operations and could
disrupt our business and operations, as well as that of our customers, partners, suppliers and others with whom we work, for an indefinite period of time. To
support the health and well-being of our employees, customers, partners and communities, the vast majority of our employees are working remotely and are
expected to continue to work remotely until the pandemic subsides. If a natural disaster, power outage, connectivity issue, or other event occurred that
impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period
of time. The increase in remote working for employees, vendors or contractors may also result in increased consumer privacy, IT security, and fraud
concerns. Further, as certain businesses return to onsite operations, we may experience disruptions if our employees or third-party service providers’
employees become ill despite the availability of vaccines, and are unable to perform their duties. This may impact our operations, internet, or mobile
networks, or the operations of one or more of our third-party service providers. In addition, many of our customers and prospective customers are working
remotely, which may delay the timing of their purchases of our products and services.
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The disruptions to our operations caused by the COVID-19 pandemic may result in inefficiencies, delays and additional costs in our sales and marketing,
professional services and research and development efforts, which cannot be predicted or quantified at this time. We may not be able to fully mitigate any
such inefficiencies, delays and additional costs through remote or other alternative work arrangements. In addition, given the economic uncertainty created
by the COVID-19 pandemic, we have and may continue to see delays in our sales cycle, failures of customers to renew at all or to renew at the anticipated
scope their subscriptions with us, requests from customers for payment term deferrals as well as pricing or bundling concessions, which, if significant,
could materially and adversely affect our business, results of operations and financial condition. In addition, our third-party service providers may
experience financial difficulties or business disruptions that could negatively affect their operations and their ability to supply us with services needed for
our products and operations. Although such events did not have a material adverse impact on our financial results for the year ended December 31, 2021,
there can be no assurance that these events will not have a material adverse impact on our financial results for the full fiscal year or future periods.
Negative conditions in the general economy both in the United States and abroad, including conditions resulting from the COVID-19 pandemic, changes in
gross domestic product growth, financial and credit market fluctuations, energy costs, international trade relations and other geopolitical issues, the
availability and cost of credit and the global housing and mortgage markets could cause a decrease in consumer discretionary spending and business
investment and diminish growth expectations in the U.S. economy and abroad. More generally, the COVID-19 pandemic has caused periods of volatility in
financial markets, which could occur in the future and which could materially and adversely affect demand for our products and services and could
materially and adversely impact our results and financial condition even after the pandemic has subsided and the containment measures are lifted. For
example, we may be unable to collect receivables from those customers significantly impacted by the COVID-19 pandemic, which may be more
pronounced in industry verticals more directly impacted by the COVID-19 pandemic. Also, a decrease in subscriptions and/or renewals in a given period
could negatively affect our revenues in future periods, particularly if experienced on a sustained basis, because a substantial proportion of our software
subscriptions yield revenue recognized over time. The pandemic may also have the effect of heightening many of the other risks described herein including
risks associated with our guidance, our customers, our potential customers, our market opportunity, renewals and sales cycles, among others. We will
continue to evaluate the nature and extent of the impact of the COVID-19 pandemic on our business.
The full extent of the COVID-19 pandemic’s impact on our operations and financial performance depends on future developments that are uncertain and
unpredictable, including the duration and spread of the pandemic, the timing of and likelihood of achieving widespread global vaccination and/or herd
immunity, the effectiveness of the vaccines against new variants of the virus, the pandemic’s impact on capital and financial markets, the timing of
economic recovery to pre-pandemic levels, the spread of the virus to other regions, and the actions taken to contain it, among others. Any of these impacts
could have a material adverse impact on our business, results of operations and financial condition and ability to execute and capitalize on our strategies.
Due to the ongoing uncertainty regarding the severity and duration of the COVID-19 pandemic, we cannot predict whether our response to date or the
actions we may take in the future will be effective in mitigating the effects of the COVID-19 pandemic on our business, results of operations or financial
condition. Accordingly, we are unable at this time to predict the future impact of the COVID-19 pandemic on our operations, liquidity, and financial results,
and, depending on the magnitude and duration of the COVID-19 pandemic, such impact may be material.
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Uncertain or weakened global economic conditions may adversely affect our industry, business and results of operations.
Our overall performance depends on domestic and worldwide economic conditions, which may remain challenging for the foreseeable future. Financial
developments seemingly unrelated to us or to our industry may adversely affect us and our planned international expansion. The U.S. economy and other
key international economies have been impacted by the COVID-19 pandemic, threatened sovereign defaults and ratings downgrades, falling demand for a
variety of goods and services, restricted credit, threats to major multinational companies, poor liquidity, reduced corporate profitability, volatility in credit,
equity and foreign exchange markets, bankruptcies and overall uncertainty. These conditions affect the rate of information technology spending and could
adversely affect our customers’ ability or willingness to purchase our applications and services, delay prospective customers’ purchasing decisions, reduce
the value or duration of their subscriptions or affect renewal rates, any of which could adversely affect our operating results. We cannot predict the timing,
strength or duration of the return of the global economy to pre-pandemic levels and any subsequent impacts worldwide, in the United States, or in our
industry.
Any future litigation against us could be costly and time-consuming to defend.
We have in the past and may in the future become subject, from time to time, to legal proceedings and claims that arise in the ordinary course of business
such as claims brought by our customers in connection with commercial disputes or employment claims made by our current or former employees.
Litigation might result in substantial costs and may divert management’s attention and resources, which might seriously harm our business, overall
financial condition and operating results. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one
or more such claims and might not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could
result in unanticipated costs, thereby reducing our operating results and leading analysts or potential investors to reduce their expectations of our
performance, which could reduce the trading price of our stock.
Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events and to interruption by man-made problems such
as cyber incidents or terrorism.
Our business and operations are vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist
attacks, acts of war, human errors, break-ins and similar events affecting us or third-party vendors we rely on, any of which could have a material adverse
impact on our business, operating results and financial condition. Acts of terrorism, which may be targeted at metropolitan areas that have higher
population density than rural areas, could cause disruptions in our or our customers’ businesses or the economy as a whole. Our servers and those of our
third-party vendors may also be vulnerable to cyber incidents, break-ins and similar disruptions from unauthorized tampering with our computer systems,
which could lead to interruptions, delays, loss of critical data or the unauthorized disclosure of confidential customer data. We or our customers may not
have sufficient protection or recovery plans in place, and our business interruption insurance may be insufficient to compensate us for losses that may
occur. As we rely heavily on our servers, computer and communications systems, that of third parties and the Internet to conduct our business and provide
high quality customer service, such disruptions could have an adverse effect on our business, operating results and financial condition.
Legislative actions and new accounting pronouncements are likely to impact our future financial position or results of operations.
Future changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our financial position or results of
operations. New pronouncements and varying interpretations of pronouncements have occurred with frequency in the past and are expected to occur again
in the future and as a result we may be required to make changes in our accounting policies. Those changes could adversely affect our reported revenues
and expenses, future profitability or financial position. Compliance with new regulations regarding corporate governance and public disclosure may result
in additional expenses.
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For example, in August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU
2020-06 reduces the number of accounting models for convertible instruments by eliminating two of the three models in ASC 470-20, Debt—Debt with
Conversion and Other Options, that require separate accounting for embedded conversion features, amends the requirements for a contract that is
potentially settled in an entity’s own shares to be classified in equity, and amends certain guidance on the computation of earnings per share for convertible
instruments and contracts on an entity’s own equity. ASU 2020-06 is effective beginning in the first quarter of 2022. We are assessing the impact this
standard will have our consolidated financial statements.
The application of existing or future financial accounting standards, particularly those relating to the way we account for revenues and costs, could have a
significant impact on our reported results. In addition, compliance with new regulations regarding corporate governance and public disclosure may result in
additional expenses. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment may result
in increased general and administrative expenses and a diversion of management time and attention from business activities to compliance activities.
Impairment of goodwill and other intangible assets would result in a decrease in our earnings.
Current accounting rules provide that goodwill and other intangible assets with indefinite useful lives may not be amortized but instead must be tested for
impairment at least annually. These rules also require that intangible assets with definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. We have substantial goodwill and other intangible assets, and we would be required to record a significant charge to
earnings in our consolidated financial statements during the period in which any impairment of our goodwill or intangible assets is determined. Any
impairment charges or changes to the estimated amortization periods would result in a decrease in our earnings.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
As of December 31, 2021, we had federal and state net operating loss carryforwards (“NOL”s) of $368.0 million and $307.2 million, respectively, due to
prior period losses, of which $245.7 million and $36.2 million, respectively, can be carried forward indefinably with the remaining expiring in various
years through 2041 if not utilized. In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that
undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. Our existing NOLs may be
subject to limitations arising from previous ownership changes. Future changes in our stock ownership, some of which are outside of our control, could
result in an ownership change. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our
existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. We completed a Section 382 study for the period through
March 31, 2019 and determined that a Section 382 ownership change occurred on December 31, 2017 subjecting all pre-Tax Act losses to a utilization
limitation. We also have federal and state NOLs of $83.0 million and $38.7 million, respectively, from various acquisitions which are subject to limitations
under Section 382. The Company completed a Section 382 study for xMatters, Inc., a wholly owned subsidiary of the Company that was acquired on May
7, 2021. As a result of the study, the Company determined that out of total federal NOLs of $64 million, $0.9 million of federal net operating losses
generated by xMatters, Inc. prior to May 7, 2021 would not be available for utilization due to ownership changes experienced by xMatters, Inc.
Additionally, state NOLs generated in one state cannot be used to offset income generated in another state. For these reasons, we may not be able to realize
a tax benefit from the use of our NOLs, whether or not we attain profitability.
Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations.
Our effective tax rate could be adversely impacted by several factors, including:
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Changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax
rates;
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•
Changes in tax laws, tax treaties and regulations or the interpretation of them;
Changes to our assessment about the realizability of our deferred tax assets that are based on estimates of our future results, the prudence
and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;
The outcome of current and future tax audits, examinations or administrative appeals;
Changes in generally accepted accounting principles that affect the accounting for taxes; and
Limitations or adverse findings regarding our ability to do business in some jurisdictions.
We may have additional tax liabilities.
We are subject to income taxes in the U.S. and many foreign jurisdictions and are commonly audited by various tax authorities. In the ordinary course of
our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Significant judgment is required in
determining our worldwide provision for income taxes. Although we believe our tax estimates are reasonable, the final determination of tax audits and any
related litigation could be materially different from our historical income tax provisions and accruals. The results of an audit or litigation could have a
material effect on our financial statements in the period or periods for which that determination is made.
Tax laws or regulations could be enacted or changed and existing tax laws or regulations could be applied to us or to our customers in a manner that
could increase the costs of our software solutions and adversely impact our operating results.
The application of federal, state, local and foreign tax laws to services provided electronically is continuously evolving. New income, sales, use or other tax
laws, statutes, rules, regulations or ordinances could be enacted or amended at any time, possibly with retroactive effect, and could be applied solely or
disproportionately to services provided over the Internet. These enactments or amendments could adversely affect our sales activity due to the inherent cost
increase the taxes would represent and could ultimately result in a negative impact on our operating results.
In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, modified or applied adversely to us, possibly with retroactive
effect, which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties, as well as
interest on past amounts. If we are unsuccessful in collecting such taxes due from our customers, we could be held liable for such costs, thereby adversely
impacting our operating results.
In response to the COVID-19 pandemic, the United States passed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act in March 2020. The
CARES Act includes various income and payroll tax measures which did not materially impact our financial statements.
We may be subject to additional obligations to collect and remit sales tax and other taxes, and we may be subject to tax liability for past sales, which
could harm our business.
State, local and foreign jurisdictions have differing rules and regulations governing sales, use, value added and other taxes, and these rules and regulations
are subject to varying interpretations that may change over time. Further, these jurisdictions’ rules regarding tax nexus are complex and vary significantly.
If one or more jurisdictions were to assert that we have failed to collect taxes for sales of applications that leverage our platform, we could face the
possibility of tax assessments and audits. A successful assertion that we should be collecting additional sales, use, value added or other taxes in those
jurisdictions where we have not historically done so and do not accrue for such taxes could result in substantial tax liabilities and related penalties for past
sales or otherwise harm our business and operating results.
59
We face exposure to foreign currency exchange rate fluctuations.
As our international operations expand, our exposure to the effects of fluctuations in currency exchange rates grows. While we have primarily transacted
with customers and vendors in U.S. dollars historically, we expect to continue to expand the number of transactions with our customers that are
denominated in foreign currencies in the future. Fluctuations in the value of the U.S. dollar and foreign currencies may make our subscriptions more
expensive for international customers, which could harm our business. Additionally, we incur expenses for employee compensation and other operating
expenses at our non-U.S. locations in the local currency for such locations. Fluctuations in the exchange rates between the U.S. dollar and other currencies
could result in an increase to the U.S. dollar equivalent of such expenses. These fluctuations could cause our results of operations to differ from our
expectations or the expectations of our investors. Additionally, such foreign currency exchange rate fluctuations could make it more difficult to detect
underlying trends in our business and results of operations.
We do not currently maintain a program to hedge transactional exposures in foreign currencies. However, in the future, we may use derivative instruments,
such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such
hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the
limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges
with such instruments.
Item 1B. Unresolved Staff Comments.
None
Item 2. Properties.
Our principal executive offices are located in Burlington, Massachusetts, where we occupy an approximately 73,500 square-foot facility under a lease
expiring on May 31, 2024, and in Pasadena, California, where we occupy an approximately 19,000 square-foot facility under a lease expiring on December
31, 2023. We also have additional offices in the United States as well as internationally including Canada, China, Germany, India, Netherlands, New
Zealand, Norway, Singapore, Sweden, Switzerland and the United Kingdom.
We believe that our current facilities are suitable and adequate to meet our current needs. We intend to add new facilities or expand existing facilities as we
add employees, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our
operations.
Item 3. Legal Proceedings.
From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently
a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business,
operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and
settlement costs, diversion of management resources and other factors.
Item 4. Mine Safety Disclosures.
Not applicable
60
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock, is listed on The Nasdaq Global Market under the symbol “EVBG.”
PART II
As of December 31, 2021, there were 136 holders of record of our common stock. Because many of our shares are held by brokers and other institutions on
behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Stock Performance Graph
This section is not “soliciting material,” is not deemed “filed” with the SEC and shall not be deemed incorporated by reference into any of our other filings
under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, (the “Securities Act”) whether made before or after the
date hereof and irrespective of any general incorporation language in any such filing.
The following graph compares the cumulative total return for an investment of $100 in our common stock, the S&P 500 Stock Index and the S&P 500
Information Technology Index. Data for the S&P 500 Stock Index and the S&P 500 Information Technology Index assume reinvestment of dividends.
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common
stock.
Everbridge, Inc.
S&P 500 Stock Index
S&P 500 Information Technology Index
$
$
$
100.00
100.00
100.00
$
$
$
191.00
94.00
98.00
$
$
$
263.00 $
121.00 $
145.00 $
502.00 $
141.00 $
206.00 $
227.00
179.00
275.00
December 31,
2017
December 31,
2018
December 31,
2019
December 31,
2020
December 31,
2021
61
Recent Sales of Unregistered Securities
On November 10, 2021, we issued 574,639 shares of our common stock to various persons as partial consideration for our purchase of The Anvil Group
(International) Limited, Anvil Worldwide Limited and The Anvil Group Limited. The offer, sale and issuance of these shares was deemed to be exempt
from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
The recipients of the shares acquired them for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to these shares. The recipients were all accredited investors within the meaning of Rule 501 of Regulation D under the Securities Act
and had adequate access to information about us. No underwriters or placement agents were involved in this transaction.
On November 29, 2021, we issued 6,779 shares of our common stock to various persons and entities as deferred consideration for our purchase of Techwan
SA. The offer, sale and issuance of these shares was deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the
Securities Act as a transaction by an issuer not involving a public offering. The recipients of the shares acquired them for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate legends were affixed to these shares. The recipients were all accredited
investors within the meaning of Rule 501 of Regulation D under the Securities Act and had adequate access to information about us. No underwriters or
placement agents were involved in this transaction.
During the year ended December 31, 2021, we issued 1,916,206 shares of our common stock to holders of our 1.50% convertible senior notes due 2022
(the “2022 Notes”), including 627,212 shares of our common stock upon settlement of conversion of approximately $21.1 million in aggregate principal
amount of the 2022 Notes, and in connection with the issuance of the 2026 Notes, we paid approximately $58.6 million in cash and issued 1,288,994 shares
of common stock to repurchase an aggregate principal amount of approximately $58.6 million of the 2022 Notes. For further information, see Note 9,
Convertible Senior Notes, of the notes to consolidated financial statements. These shares of our common stock were issued in reliance on the exemption
from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
None.
Securities Authorized for Issuance Under Equity Compensation Plans
Information about securities authorized for issuance under our equity compensation plan is incorporated herein by reference to Item 12 of Part III of this
Annual Report on Form 10-K.
Item 6. [Reserved]
62
Item 7. 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 our consolidated financial
statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following
discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those contained
in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those under “Risk Factors” included
in Part I, Item 1A or in other parts of this Annual Report on Form 10-K.
Overview
Everbridge is a global software company that provides enterprise software applications that automate and accelerate organizations’ operational response to
critical events in order 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 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 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 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 e-mail, in over 200 countries and territories, 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. Everbridge’s individual products,
addressing the full spectrum of tasks an organization requires to manage a critical event, include Mass Notification, Safety Connection, IT Alerting, Visual
Command Center, Public Warning, Community Engagement, Risk Center, Crisis Management, CareConverge, Control Center, 911 Connect, Travel Risk
Management, SnapComms and E911. We believe that our broad suite of integrated enterprise applications delivered via a single global platform is a
significant competitive advantage in the market for Critical Event Management solutions, which we refer to generally as CEM.
Our customer base has grown from 867 customers at the end of 2011 to more than 6,100 customers as of December 31, 2021. Our customers are based in
over 75 countries and include eight of the 10 largest U.S. cities, nine of the 10 largest U.S.-based investment banks, 47 of the 50 busiest North American
airports, nine of the 10 largest global consulting firms, eight of the 10 largest global automakers, nine of the 10 largest U.S.-based health care providers,
and seven of the 10 largest technology companies in the world. 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 1.9 years as of December 31, 2021, 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. We derived 42% of our revenue in 2021 from sales of our Mass Notification application. 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.
63
We generated revenue of $368.4 million in 2021, $271.1 million in 2020, $200.9 million in 2019 and $147.1 million in 2018, representing year-over-year
increases of 36% in 2021, 35% in 2020 and 37% in 2019. We had net losses of $94.8 million, $93.4 million, $52.3 million and $47.5 million in 2021, 2020,
2019 and 2018, respectively.
As of December 31, 2021, and 2020, 22% and 24% of our customers, respectively, were located outside of the United States and these customers generated
31% and 26% of our total revenue for the years ended December 31, 2021 and 2020, respectively.
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
On January 15, 2021, we entered into a Stock Purchase Agreement with RedSky pursuant to which we purchased all of the issued and outstanding shares of
stock of RedSky for a base consideration of $55.4 million, net of cash acquired. We paid $32.4 million in cash, net of cash acquired, and issued 162,820
newly issued shares of our common stock at closing. On the date of this acquisition, the average price of our common stock on the Nasdaq Global Market
was $141.46 per share. In addition to the base purchase price, there was also a potential contingent payment of up to $30 million that was eligible to be
earned by the sellers based on certain revenue targets through the contractual measurement period. During the year ended December 31, 2021, we paid $0.4
million in cash and issued 4,058 shares of our common stock to settle RedSky’s contingent consideration liability. We acquired RedSky for its E911
incident response solutions platform to enhance our CEM suite of solutions as well as market penetration and customer reach.
In March 2021, we issued $375 million aggregate principal amount of 0% convertible senior notes due March 15, 2026, including $50 million aggregate
principal amount of 2026 Notes issued upon exercise in full by the initial purchasers of their option to purchase additional 2026 Notes. The 2026 Notes will
mature on March 15, 2026, unless earlier redeemed or repurchased by us or converted by the holders pursuant to their terms. In connection with the pricing
of the 2026 Notes and the exercise in full by the initial purchasers of their option to purchase additional 2026 Notes, we entered into capped call
transactions with certain counterparties affiliated with the initial purchasers and other financial institutions. The cost of the purchased capped calls was
$35.1 million. The capped call transactions are expected generally to reduce potential dilution to our common stock upon any conversion of 2026 Notes
and/or offset any cash payments we are 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. In connection with the issuance of the 2026 Notes in March 2021, we paid approximately $58.6 million in cash and
issued 1,288,994 shares of common stock to repurchase approximately $58.6 million principal amount of our 1.50% convertible senior notes due
November 1, 2022. During March 2021, we also partially terminated capped call options entered into in connection with the 2022 Notes and received
approximately $10.6 million as well as modified a capped call option agreement entered into in connection with the 2022 Notes. Additionally, during the
year ended December 31, 2021, we issued 627,212 shares upon the conversion of approximately $21.1 million in aggregate principal amount of the 2022
Notes.
On April 6, 2021, we signed a definitive agreement with xMatters pursuant to which we agreed to purchase all of the issued and outstanding shares of stock
of xMatters. This acquisition closed on May 7, 2021. We purchased all of the issued and outstanding shares of stock of xMatters for a base consideration of
$242.6 million. We paid $178.1 million in cash and issued 555,332 newly issued shares of our common stock at closing. On the date of this acquisition, the
average price of our common stock on the Nasdaq Global Market was $116.12 per share. We acquired xMatters for its service reliability platforms to
enhance our CEM suite of solutions as well as market penetration and customer reach.
64
On November 4, 2021, we entered into an agreement with the shareholders of Anvil pursuant to which we purchased all of the issued and outstanding share
capital of Anvil for a base consideration of $161.4 million. We paid $70.2 million in cash at closing, acquired net purchase liabilities of $1.6 million and
issued Consideration Loan Notes valued at $89.7 million. On November 10, 2021, we issued 574,639 newly issued shares of common stock to settle
consideration loan notes issued on the acquisition date. In addition to the base purchase price, there is also a potential contingent payment of up to $0.8
million that may be paid to the sellers on or before June 30, 2023. At the date of the acquisition, we preliminarily assessed the probability of the contingent
consideration payment and recorded a $0.1 million preliminary fair value as part of the purchase price allocation. We acquired Anvil for its travel risk
management, operational resiliency and occupational health solutions platforms to enhance our CEM suite of solutions as well as market penetration and
customer reach.
In December 2021, David Meredith notified our Board of Directors of his intention to resign from his role as Chief Executive Officer (“CEO”). The Board
of Directors accepted Mr. Meredith’s resignation and, soon thereafter, established an Office of the CEO and began to transition leadership to long-tenured
company executives Patrick Brickley, Executive Vice President, Chief Financial Officer and Treasurer, and Vernon Irvin, Executive Vice President and
Chief Revenue Officer. Mr. Brickley and Mr. Irvin continue serving as Interim Co-Chief Executive Officers while we search for a permanent CEO. Mr.
Meredith concluded his role on our Board of Directors on January 10, 2022 and we processed the termination of his employment on January 30, 2022.
Impacts of COVID-19 to Our Business
During the year ended December 31, 2021, financial results and operations for our Americas and international geographies were not significantly impacted
by the COVID-19 pandemic. We have taken, and continue to take, a variety of measures to ensure the availability and functioning of our critical
infrastructure, to promote the safety and security of our employees and to support the communities in which we operate. These measures include requiring
remote working arrangements for employees where practicable, among other modifications. We are following evolving public and private sector policies
and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions, the promotion of social distancing and the adoption of
work-from-home arrangements. All of these policies and initiatives have been and may continue to impact our operations. We will continue to actively
monitor the situation and may take further actions that alter our business operations as may be required or that we determine are in the best interests of our
employees, customers, suppliers and stockholders. Due to the evolving nature of the situation, we are not able at this time to estimate the future impact of
the pandemic on our financial results and operations, but the impact could be material during any future period affected either directly or indirectly by this
pandemic. Due to our primarily subscription-based business model, the effect of the coronavirus may not be fully reflected in our results of operations until
future periods, if at all. See “Risk Factors” included in Part I, Item 1A included herein which includes information on risks associated with pandemics in
general and COVID-19 specifically. The extent of the future impact of COVID-19 on our operational and financial performance will depend on certain
developments, including new information which may emerge concerning the duration and severity of the outbreak, impact of vaccinations and virus
variants, international actions taken or which may be taken in the future to contain and treat it, impact on our customers and our sales cycles, and impact on
our employees, all of which are highly uncertain and cannot be predicted.
Since 2020, (1) we launched COVID-19 Shield, a new set of coronavirus protection solutions designed to protect the safety of employees and customers,
maintain business operations, safeguard supply chains, and reduce costs and liabilities stemming from the impact of the global coronavirus pandemic; (2)
we launched COVID-19 Return to Work, a software solution designed to help businesses and governments navigate the complexity of operating during the
next phase of the COVID-19 pandemic and prepare to bring back the workforce and reopen society; (3) we launched COVID-19 Shield: Contact Tracing, a
solution for corporate, government and healthcare organizations to supplement or complement existing manual contact tracing efforts; (4) we launched
Control Center, a physical security information management software platform, which includes features designed to help organizations return to work by
integrating and managing data and analytics from video cameras, thermal cameras, badge access and other building systems, and by automating the
response to help organizations ensure the safety and protection of employees, as well as compliance with social distancing and personal protective
equipment policies; and (5) we launched COVID-19 Shield: Vaccine Distribution, an extension to our CEM platform offering risk insights, logistics
awareness and vaccine appointment management. These products were built off of our existing platforms.
65
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 operating
decision maker (“CODM”), principally to make strategic decisions regarding how we allocate our resources and to assess our consolidated operating
performance. Our CODM was David Meredith prior to his resignation as CEO, as described above. Mr. Brickley and Mr. Irvin are currently serving as
interim CODMs of the Company.
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 and our
employee stock purchase plan within the applicable operating expense category based on the equity award recipient’s functional area.
66
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 functions to grow our customer base and increase sales to existing customers. This growth will include adding sales personnel and
expanding our marketing activities to continue to generate additional leads and build brand awareness. In the near term, we expect our sales and marketing
expense to increase on an absolute dollar basis as we hire new sales representatives in the United States and worldwide and grow our marketing staff.
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. In the near term, we expect our research and development expense to increase on an absolute
dollar basis as we continue to increase the functionality of our platform and applications.
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. In
the near term, we expect our general and administrative expense to increase on an absolute dollar basis as we continue to incur the costs associated with
being a publicly traded company.
Interest and Investment Income
Interest income consists of interest earned on our cash balances held at financial institutions. Investment income consist of interest earned on our short-term
investments which consist of U.S. treasuries, U.S. government agency obligations and money market funds.
Interest Expense
Interest expense consists of interest on our outstanding debt obligations including amortization of debt discounts and offering costs.
Gain (Loss) on Extinguishment of Debt and Capped Call Modification
Gain (loss) on extinguishment of debt and capped call modification relates to the partial extinguishment of our 1.50% convertible senior notes due 2022,
modification of a 2022 Notes capped call agreement and extinguishment of consideration loan notes issued in connection with our Anvil acquisition.
Other Expense, Net
Other expense, net consists primarily of realized foreign currency gains and losses.
67
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):
Revenue
Cost of revenue(1)
Gross profit
Operating expenses:
Sales and marketing(1)
Research and development(1)
General and administrative(1)
Total operating expenses
Operating loss
Other expense, net
Loss before income taxes
Benefit from (provision for) income taxes
Net loss
2021
Year Ended December 31,
2020
2019
$
368,433 $
114,216
254,217
271,141 $
83,028
188,113
161,337
81,647
87,482
330,466
(76,249)
(31,126)
(107,375)
12,579
(94,796)
$
123,330
62,512
74,485
260,327
(72,214)
(23,449)
(95,663)
2,267
(93,396)
$
$
200,882
63,535
137,347
87,731
50,024
46,820
184,575
(47,228)
(4,597)
(51,825)
(425)
(52,250)
(1)
Includes stock-based compensation expense and depreciation and amortization of acquired intangible assets as follows (in thousands):
Stock-based compensation expense:
Cost of revenue
Sales and marketing
Research and development
General and administrative
Total
Depreciation and amortization expense:
Cost of revenue
Sales and marketing
Research and development
General and administrative
Total
2021
Year Ended December 31,
2020
2019
$
$
$
$
3,669
16,152
8,297
15,977
44,095
$
$
2,954
15,946
8,703
19,152
46,755
2021
Year Ended December 31,
2020
21,508
930
710
30,020
53,168
$
$
12,165
932
597
17,065
30,759
$
$
$
$
1,966
9,983
7,820
13,720
33,489
9,434
752
502
8,983
19,671
2019
68
The following table sets forth our consolidated statements of operations as a percentage of revenue (1):
Revenue
Cost of revenue
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Operating loss
Other expense, net
Loss before income taxes
Benefit from (provision for) income taxes
Net loss
2021
Year Ended December 31,
2020
2019
100%
31%
69%
44%
22%
24%
90%
(21)%
(8)%
(29)%
3%
(26)%
100%
31%
69%
45%
23%
27%
96%
(27)%
(9)%
(35)%
1%
(34)%
100%
32%
68%
44%
25%
23%
92%
(24)%
(2)%
(26)%
(0)%
(26)%
(1)
Columns may not add up to 100% due to rounding.
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Revenue
(dollars in thousands)
Revenue
Year Ended December 31,
2020
2021
Change
$
%
$
368,433 $
271,141 $
97,292
35.9%
Revenue increased by $97.3 million in 2021 compared to 2020. The increase was due to a $97.3 million increase in sales of our solutions driven by
expansion of our customer base from 5,613 customers as of December 31, 2020 to 6,135 as of December 31, 2021, including increased sales to larger
organizations with greater numbers of contacts and locations.
Cost of Revenue
(dollars in thousands)
Cost of revenue
Gross margin %
Year Ended December 31,
2020
2021
Change
$
%
$
114,216
$
83,028
$
31,188
37.6%
69%
69%
Cost of revenue increased by $31.2 million in 2021 compared to 2020. The increase was primarily due to a $17.0 million increase in employee-related
costs, which includes stock-based compensation, associated with our increased headcount from 332 employees as of December 31, 2020 to 497 employees
as of December 31, 2021 net of a reduction in stock-based compensation expense as a result of expected reduced performance metric achievement, a $9.3
million increase in depreciation and amortization expense attributable to our acquired intangible assets, a $4.1 million increase in hosting, software and
messaging costs and a $0.8 million increase attributed to office and other related expenses to support revenue generating activities.
Gross margin percentage remained flat in 2021 as compared to 2020.
69
Operating Expenses
Sales and Marketing Expense
(dollars in thousands)
Sales and marketing
% of revenue
Year Ended December 31,
2020
2021
Change
$
%
$
161,337
$
123,330
$
38,007
30.8%
44%
45%
Sales and marketing expense increased by $38.0 million in 2021 compared to 2020. The increase was primarily due to a $28.6 million increase in
employee-related costs, which includes stock-based compensation, associated with our increased headcount from 482 employees as of December 31, 2020
to 655 employees as of December 31, 2021 net of a reduction in stock-based compensation expense as a result of expected reduced performance metric
achievement. The remaining increase was principally the result of a $6.3 million increase in trade show and advertising costs, a $1.6 million increase
attributed to office related expenses and a $1.5 million increase in software expenses to support the sales team.
Research and Development Expense
(dollars in thousands)
Research and development
% of revenue
Year Ended December 31,
2020
2021
Change
$
%
$
81,647
$
62,512
$
19,135
30.6%
22%
23%
Research and development expense increased by $19.1 million in 2021 compared to 2020. The increase was primarily due to a $20.1 million increase in
employee-related costs, which includes stock-based compensation, associated with our increased headcount from 363 employees as of December 31, 2020
to 579 employees as of December 31, 2021 net of a reduction in stock-based compensation expense as a result of expected reduced performance metric
achievement, a $1.6 million increase in hosting and software related cost, a $1.2 million increase in professional services and a $1.2 million increase in
office related expenses to support research and development activities. In addition, a total of $13.5 million of internally-developed software costs during
2021 and $8.5 million of internally-developed software costs during 2020 were capitalized, resulting in a $5.0 million offset to the increase during 2021.
General and Administrative Expense
(dollars in thousands)
General and administrative
% of revenue
Year Ended December 31,
2020
2021
Change
$
%
$
87,482
$
74,485
$
12,997
17.4%
24%
27%
General and administrative expense increased by $13.0 million in 2021 compared to 2020. The increase was primarily due to a $13.0 million increase in
depreciation and amortization as well as a $3.0 million increase in employee-related costs, which includes stock-based compensation, associated with our
increased headcount from 167 employees as of December 31, 2020 to 221 employees as of December 31, 2021 net of a reduction in stock-based
compensation expense as a result of expected reduced performance metric achievement and a reversal of previously recognized stock-based compensation
as a result of Mr. Meredith’s resignation. The remaining increase was principally the result of a $6.0 million increase in professional services and office
related expenses to support the administrative team and a $1.7 million increase in allowance for credit losses. These increases were partially offset by a
$10.7 million net decrease in our contingent consideration obligation primarily due to final contingent consideration obligation adjustments for RedSky,
One2Many Group B.V. (“one2many”), SnapComms Limited (“SnapComms”) and Techwan SA (“Techwan”).
70
Other Expense, Net
(dollars in thousands)
Other expense, net
% of revenue
Year Ended December 31,
2020
2021
Change
$
%
$
31,126
$
23,449
$
7,677
32.7%
8%
9%
Other expense, net increased by $7.7 million in 2021 compared to 2020 primarily due to an $11.8 million increase in interest expense related to our
convertible senior notes, a $2.5 million increase in loss on extinguishment of convertible notes and capped call modification, a decrease of $1.6 million of
interest income due to lower interest rates on our investment balance and a $1.9 million increase in other expenses primarily related to net foreign currency
transaction losses. These amounts were partially offset by a $10.1 million gain on the extinguishment of consideration loan notes issued in connection with
our Anvil acquisition due the decrease in our stock price between the date the consideration loan notes were issued and the date the consideration loan
notes were extinguished.
Income Taxes
(dollars in thousands)
Benefit from income taxes
% of revenue
Year Ended December 31,
2020
2021
Change
$
%
$
12,579
$
2,267
$
10,312
454.9%
3%
1%
Income tax benefit increased by $10.3 million in 2021 compared to 2020. During 2021, deferred tax liabilities were recognized in connection with the
purchase price accounting for our acquisitions. Certain of such deferred tax liabilities will be a source of future taxable income to realize a portion of our
deferred tax assets, which resulted in a tax benefit of approximately $7.4 million related to U.S. acquired entities and a tax benefit of approximately $1.5
million related to non-U.S. acquisitions recognized during 2021 which is the primary reason for the increase in our income tax benefit from 2020 to 2021.
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
For a discussion regarding our financial condition and results of operations for the year ended December 31, 2020 as compared to the year ended December
31, 2019, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 26, 2021.
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 (in thousands):
Adjusted EBITDA
Adjusted gross profit
Free cash flow
2021
Year Ended December 31,
2020
2019
$
11,220 $
8,044 $
269,995
2,441
195,224
2,895
5,170
141,427
(2,771)
•
Adjusted EBITDA. Adjusted EBITDA represents our net loss before interest and investment (income) expense, net, (benefit from)
provision for income taxes, depreciation and amortization expense, (gain) loss on extinguishment of debt and capped call modification,
change in fair value of contingent consideration and stock-based compensation expense. 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, (gain) loss on extinguishment
of debt and capped call modification, change in fair value of
71
contingent consideration 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 board of directors. 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):
Net loss
Interest and investment expense, net
(Benefit from) provision for income taxes
Depreciation and amortization
(Gain) loss on extinguishment of debt and capped call modification
Change in fair value of contingent consideration
Stock-based compensation
Adjusted EBITDA
2021
Year Ended December 31,
2020
2019
$
$
(94,796) $
35,559
(12,579)
53,168
(7,181)
(7,046)
44,095
11,220
$
(93,396) $
22,082
(2,267)
30,759
446
3,665
46,755
8,044
$
(52,250)
2,979
425
19,671
1,406
(550)
33,489
5,170
72
•
Adjusted Gross Profit. Adjusted gross profit represents gross profit plus amortization of acquired intangibles and stock-based
compensation. Adjusted gross profit is a measure used by management to understand and evaluate our core operating performance and
trends and to generate future operating plans. The exclusion of stock-based compensation expense and amortization of acquired intangibles
facilitates comparisons of our operating performance on a period-to-period basis. In the near term, we expect these expenses to continue to
negatively impact our gross profit. Adjusted gross profit is not a measure calculated in accordance with GAAP. We believe that adjusted
gross profit provides useful information to investors and others in understanding and evaluating our operating results in the same manner as
our management and board of directors. Nevertheless, our use of adjusted gross profit 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. You should consider adjusted
gross profit alongside our other GAAP-based financial performance measures, gross profit and our other GAAP financial results. The
following table presents a reconciliation of adjusted gross profit to gross profit, the most directly comparable GAAP measure, for each of
the periods indicated (in thousands):
Gross profit
Amortization of acquired intangibles
Stock-based compensation
Adjusted gross profit
2021
Year Ended December 31,
2020
2019
$
254,217 $
12,109
3,669
269,995
$
$
188,113 $
4,157
2,954
195,224
$
137,347
2,114
1,966
141,427
•
Free Cash Flow. Free cash flow represents net cash from operating activities minus capital expenditures and capitalized software
development costs. Free cash flow is a measure used by management to understand and evaluate our core operating performance and trends
and to generate future operating plans. The exclusion of capital expenditures and amounts capitalized for internally-developed software
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 is not a measure calculated in accordance with GAAP. We believe that free
cash flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as
our management and board of directors. Nevertheless, our use of free cash flow 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. You should consider 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 to net cash for operating activities, the most directly comparable
GAAP measure, for each of the periods indicated (in thousands):
Net cash provided by operating activities
Capital expenditures
Capitalized software development costs
Free cash flow
2021
Year Ended December 31,
2020
2019
$
$
22,193 $
(5,055)
(14,697)
2,441
$
15,803 $
(3,257)
(9,651)
2,895
$
10,317
(5,269)
(7,819)
(2,771)
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 cost of revenue, non-GAAP gross profit, non-GAAP sales and marketing
expense, non-GAAP research and development expense, non-GAAP general and administrative expense, non-GAAP total operating expenses, non-GAAP
operating income (loss) and non-GAAP net income (loss), 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): stock-based compensation expense,
amortization of acquired intangibles, change in fair value of contingent consideration, accretion of interest on convertible senior notes and (gain) loss on
extinguishment of
73
debt and capped call modification and the tax impact of such adjustments. The tax impact of such adjustments was determined by recalculating current and
deferred taxes utilizing non-GAAP pre-tax income for the year and analyzing changes in valuation allowance post purchase accounting. The tax impact was
considered immaterial for fiscal years 2020 and 2019; however, the prior period tax impact presentation has been recast to align with our 2021 reporting
presentation. 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 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 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 believe that
excluding the change in fair value of contingent consideration allows for more meaningful comparisons between operating results from period to period, as
it is non-operating in nature. 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. We believe that excluding (gain) loss on extinguishment of debt and capped call modification allows for more
meaningful comparisons between operating results from period to period as gains and losses on extinguishment of debt and capped call modification are
non-operating in nature. We do not engage in the repurchase of convertible notes on a regular basis or in the ordinary course of business. 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.
74
The following table reconciles our GAAP to non-GAAP financial measures (in thousands):
2021
Year Ended December 31,
2020
2019
Cost of revenue
Amortization of acquired intangibles
Stock-based compensation
Non-GAAP cost of revenue
Gross profit
Amortization of acquired intangibles
Stock-based compensation
Non-GAAP gross profit
Non-GAAP gross margin
Sales and marketing
Stock-based compensation
Non-GAAP sales and marketing
Research and development
Stock-based compensation
Non-GAAP research and development
General and administrative
Amortization of acquired intangibles
Change in fair value of contingent consideration
Stock-based compensation
Non-GAAP general and administrative
Total operating expenses
Amortization of acquired intangibles
Change in fair value of contingent consideration
Stock-based compensation
Non-GAAP operating expenses
Operating loss
Amortization of acquired intangibles
Change in fair value of contingent consideration
Stock-based compensation
Non-GAAP operating income (loss)
Net loss
Amortization of acquired intangibles
Change in fair value of contingent consideration
Stock-based compensation
Accretion of interest on convertible senior notes
(Gain) loss on extinguishment of debt and capped call modification
Income tax adjustments
Non-GAAP net income (loss)
Liquidity and Capital Resources
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
114,216
(12,109)
(3,669)
98,438
$
$
$
254,217
12,109
3,669
269,995
$
73.28%
83,028
(4,157)
(2,954)
75,917
$
$
$
188,113
4,157
2,954
195,224
$
72.00%
$
161,337
(16,152)
145,185
$
$
123,330
(15,946)
107,384
$
$
81,647
(8,297)
73,350
$
$
62,512
(8,703)
53,809
$
$
87,482
(28,350)
7,046
(15,977)
50,201
$
$
330,466
(28,350)
7,046
(40,426)
268,736
$
(76,249)
40,459
(7,046)
44,095
1,259
$
$
$
(94,796)
40,459
(7,046)
44,095
35,271
(7,181)
(1,278)
9,524
$
$
74,485
(15,979)
(3,665)
(19,152)
35,689
$
$
260,327
(15,979)
(3,665)
(43,801)
196,882
$
$
(72,214)
20,136
3,665
46,755
(1,658) $
$
(93,396)
20,136
3,665
46,755
22,161
446
(669)
(902) $
63,535
(2,114)
(1,966)
59,455
137,347
2,114
1,966
141,427
70.40%
87,731
(9,983)
77,748
50,024
(7,820)
42,204
46,820
(8,301)
550
(13,720)
25,349
184,575
(8,301)
550
(31,523)
145,301
(47,228)
10,415
(550)
33,489
(3,874)
(52,250)
10,415
(550)
33,489
5,711
1,406
(63)
(1,842)
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 $488.0 million as of December 31, 2021. We have generated significant losses since
inception and expect to continue to generate losses for the foreseeable future.
75
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. However, our belief may prove to be incorrect, and we could utilize our
available financial resources sooner than we currently expect. We believe that our financial resources will allow us to manage the anticipated impact of
COVID-19 on our business operations for the foreseeable future, which could include delays in payments from our customers. The challenges posed by
COVID-19 on our business could evolve rapidly. We will continue to evaluate our financial position in light of future developments, particularly those
relating to COVID-19. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in the
section of this Annual Report on Form 10-K titled “Risk Factors.” 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.
Material Cash Requirements and Contractual Obligations
We expect to use cash primarily for operating activities, such as expansion of 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 acquisitions of
businesses and interest payments on our convertible senior notes. 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. Our commitments to settle contractual obligations include $825.0
million principal amount of indebtedness under the 2026 Notes, 2024 Notes and 2022 Notes (see Note 9 of the notes to consolidated financial statements)
and lease obligations of $24.4 million (see Note 18 of the notes to consolidated financial statements).
Cash Flows
The following table summarizes our cash flows (in thousands):
Cash, cash equivalents and restricted cash at beginning of period
Cash provided by operating activities
Cash used in investing activities
Cash provided by financing activities
Effects of exchange rates on cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at end of period
2021
Year Ended December 31,
2020
2019
$
$
475,630 $
22,193
(281,836)
276,344
427
492,758 $
539,662 $
15,803
(85,185)
5,054
296
475,630 $
60,068
10,317
(24,574)
494,101
(250)
539,662
At December 31, 2021, $26.9 million of the $492.8 million of cash, cash equivalents and restricted cash was held by foreign subsidiaries. Our intention is
to indefinitely reinvest foreign earnings in our foreign subsidiaries. If these earnings were used to fund domestic operations, they would be subject to
additional income taxes upon repatriation.
Sources of Funds
Follow-On Public Offering
In January 2019, we completed a follow-on public offering in which we sold 2,645,000 shares of our common stock, which included 345,000 shares sold
pursuant to the exercise by the underwriters of an option to purchase additional shares, at a public offering price of $55.25 per share. We received net
proceeds of $139.1 million, after deducting underwriting discounts and commissions.
76
Convertible Senior Notes
In March 2021, we issued $375.0 million aggregate principal amount of the 2026 Notes, including $50.0 million aggregate principal amount of notes issued
upon exercise in full by the initial purchasers 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 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 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 our common stock or a combination of cash and shares of our
common stock paid or delivered, as the case may be, to the holder upon conversion of a 2026 Note.
In connection with the issuance of the 2026 Notes, we purchased capped call options that in the aggregate relate to the total number of shares of our
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 was $35.1 million.
In December 2019, we issued $450.0 million aggregate principal amount of the 2024 Notes, including $75.0 million aggregate principal amount of notes
issued upon exercise in full by the initial purchasers 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.
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 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 our common stock or a combination of cash and shares of our common stock paid or delivered,
as the case may be, to the holder upon conversion of a 2024 Note.
In connection with the issuance of the 2024 Notes, we purchased capped call options that in the aggregate relate to the total number of shares of our
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 was $44.9 million.
During fiscal year 2019, we paid $57.8 million to repurchase $23.0 million aggregate principal amount of the 2022 Notes. We also partially terminated
capped call options entered into in connection with the 2022 Notes during fiscal year 2019 and received $5.8 million.
During fiscal year 2020, we issued 362,029 shares upon the conversion of approximately $12.2 million in aggregate principal amount of the 2022 Notes.
In connection with the issuance of the 2026 Notes in March 2021, we paid approximately $58.6 million in cash and issued 1,288,994 shares of common
stock to repurchase approximately $58.6 million aggregate principal amount of the 2022 Notes. We also partially terminated capped call options entered
into in connection with the 2022 Notes in March 2021 and received approximately $10.6 million. In addition, during fiscal year 2021, we issued 627,212
shares upon the conversion of approximately $21.1 million in aggregate principal amount of the 2022 Notes.
77
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 payments for acquisitions of businesses, purchases of convertible note caped call
hedges and repurchases of convertible notes.
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 $22.2 million in net cash in 2021 from $121.5 million in non-cash operating expenses, which was partially offset by our net
loss of $94.8 million and by a $4.5 million decrease in changes in operating assets and liabilities. Specifically, we recognized non-cash charges aggregating
to $53.2 million for depreciation and amortization of intangible assets, capitalized software development costs and property and equipment, $44.1 million
for stock-based compensation, $35.3 million related to the accretion of interest on our convertible senior notes, $14.4 million for amortization of deferred
commissions, $4.8 million for provision for credit losses, offset by $13.0 million for deferred income taxes, $7.2 million gain on extinguishment of debt
and capped call modification, $7.0 million change in the fair value of our contingent consideration obligation, a $2.7 million payment for contingent
consideration and $0.4 million in other non-cash charges. The net change in operating assets and liabilities of $4.5 million reflected an $18.2 million
increase in accounts receivable, a $16.8 million increase in deferred cost, a $4.0 million decrease in other liabilities, a $1.2 million increase in other assets
and a $0.5 million increase in prepaid expenses. These amounts were offset by a $26.6 million increase in deferred revenue, a $3.8 million increase in
accounts payable, a $3.1 million increase in accrued expenses and a $2.7 million increase in accrued payroll and employee related liabilities.
Operating activities generated $15.8 million in net cash in 2020 from $116.1 million in non-cash operating expenses, which was partially offset by our net
loss of $93.4 million and by a $6.9 million decrease in changes in operating assets and liabilities. Specifically, we recognized non-cash charges aggregating
$46.8 million for stock-based compensation expense, $30.8 million for depreciation and amortization of intangible assets, capitalized software development
costs and property and equipment, $22.2 million of accretion on the convertible notes, $12.6 million in amortization of commissions, $3.7 million related to
the change in fair value of contingent consideration, $3.1 million for the increase in our provision for credit losses and sales return reserve and a $0.4
million loss on extinguishment of convertible notes, offset by $3.5 million for deferred income taxes. The change in operating assets and liabilities reflected
a $25.0 million increase in deferred revenue, a $22.6 million increase in accounts receivable, an $18.9 million increase in deferred costs due to timing of
payments made for commissions, a $7.4 million increase in other liabilities, a $4.0 million increase in prepaid expenses, a $3.5 million increase in accrued
employee-related expenses due to timing of payments, a $1.5 million increase in accounts payable due to the timing of payments made and a $1.1 million
increase in accrued expenses due to timing of payments made to vendors, partially offset by a $0.1 million decrease in other assets.
Investing Activities
Our investing activities consist primarily of capital expenditures for capitalized software development costs, business acquisitions, property and equipment
expenses and purchase and sales of short-term investments.
Investing activities used $281.8 million cash in 2021, which consisted of $262.1 million of cash paid related to the acquisitions of xMatters, Anvil, RedSky
and SnapComms, $14.7 million of investment in software development and $5.1 million in purchases of property and equipment.
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Investing activities used $85.2 million cash in in 2020, which consisted primarily of $55.1 million of cash paid for the acquisitions of Connexient, Inc.
(“Connexient”), CNL Software Limited (“CNL Software”), one2many, Techwan and SnapComms, $17.1 million of cash paid for the purchase of intangible
assets, $9.7 million of investment in software development and $3.3 million in purchases of property and equipment.
Financing Activities
Cash generated by financing activities includes proceeds from the issuance of common stock from our follow-on public offering, 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 exercise of restricted stock units.
Financing activities provided $276.3 million of cash in 2021, which reflects proceeds of $329.3 million from our 2026 Notes offering after deducting debt
issuance cost and the cost for the capped call transactions entered into in connection with the 2026 Notes offering, $4.6 million from the issuance of stock
under our employee stock purchase plan and $3.1 million from the exercise of stock options. These amounts were offset by $48.0 million in payments for the
extinguishment of 2022 Notes offset by cash received for the partial termination of the 2022 Notes capped call options, $10.1 million in payments for employee
withholding taxes related to the issuance of restricted stock units and $2.5 million in payments for contingent consideration.
Financing activities provided $5.1 million of cash in 2020, which reflects $8.2 million from the exercise of stock options and $3.4 million from the issuance of
stock under our employee stock purchase plan. These amounts were offset by $6.4 million in payments for restricted stock unit employee withholding taxes.
Backlog
We generally sell our critical communications 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 1.9 years as of December 31, 2021, and generally bill and collect payment annually in advance. Since we bill
many of our customers at the beginning of each contract year, there can be amounts that we have not yet been contractually able to invoice. Until such time
as these amounts are invoiced, they are not recorded in revenue, deferred revenue or elsewhere in our consolidated financial statements. We expect that the
amount of backlog relative to the total value of our subscription agreements will change from year to year for several reasons, including the specific timing
and duration of customer agreements, varying invoicing cycles of agreements, the specific timing of customer renewals and changes in customer financial
circumstances. In addition, because revenue for any period is a function of revenue recognized from deferred revenue under contracts in existence at the
beginning of the period, as well as contracts that are renewed and new customer contracts that are entered into during the period, backlog at the beginning
of any period is not necessarily indicative of future performance. Our presentation of backlog may also differ from that of other companies in our industry.
Due to these factors, as well as variances in billing arrangements with customers, we do not utilize backlog as a key management metric internally.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our 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. Our critical accounting estimates that we believe to
have the greatest potential impact on our consolidated financial statements are summarized below. The future effects of the COVID-19 pandemic on our
results of operations, cash flows, and financial position are unclear; however, we believe we have used reasonable estimates and assumptions in preparing
the consolidated financial statements.
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Revenue Recognition
We derive our revenues primarily from subscription services and professional services. We recognize revenue in accordance with FASB ASC 606, Revenue
from Contracts with Customers. We determine 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, we satisfy a performance obligation.
Subscription Services Revenues
Subscription services revenues primarily consist of fees that provide customers access to one or more of our 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
our 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. Our 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 our 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 performed.
Software License Revenues
We also sell software and related post contract support for on premises usage as well as professional services, hardware and hosting. Our 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 our other similar contracts, the applications sold, customer demographics, geographic locations, and the
number and types of users within our 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 our contracts with customers contain multiple performance obligations. For these contracts, we account 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. We determine the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and other factors,
including the value of our 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 purchased.
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Allowance for Credit Losses
Allowance for credit risk for accounts receivables and contract assets is established based on various factors including credit profiles of our customers,
historical payments and current economic trends. We review the allowance for accounts receivables and contract assets by assessing individual accounts
receivable or unbilled contract assets over a specific aging and amount. All other balances are pooled based on historical collection experience. The
estimate of expected credit losses is based on information about past events, current economic conditions, and forecasts of future economic conditions that
affect the collectability. Accounts receivable and contract assets are written-off on a case by case basis, net of any amounts that may be collected. If our
estimate of uncollectible accounts is too low, credit loss expense may increase in future periods, and if it is too high, credit loss expense may decrease in
future periods.
Deferred Costs
Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are
deferred and then amortized on a straight-line basis over a 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 determined the period of benefit by taking into
consideration our customer contracts, our technology and other factors. Amortization of deferred commissions is included in sales and marketing expenses
in the accompanying consolidated statements of operations.
Stock-Based Compensation
We recognize compensation expense for restricted stock unit awards (“RSUs”) based on the fair value of the award and on a straight-line basis over the
vesting period based on the estimated portion of the RSU that is expected to vest. Our board of directors determines the fair value of RSUs based on the
closing price of our common stock as reported on the Nasdaq Global Market on the date of grant.
We grant performance-based RSUs (“PSUs”), that vest upon satisfaction of certain performance-based conditions. The PSUs generally vest based on us
achieving certain revenue growth thresholds. The vesting of the PSUs is subject to the employee’s continued employment with us through the date of
achievement. The fair value is based on the value of our common stock at the date of issuance and the probability of achieving the performance metric.
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.
We recognize compensation expense for our employee stock purchase plan (“ESPP”) based on the fair value of the award and on a straight-line basis over
the term based on the estimated portion of the ESPP that is expected to vest. Inherent in the valuation and recording of stock-based compensation for ESPP,
are several estimates that we made in regard to valuation and expense that will be incurred. We use the Black-Scholes option pricing model to measure the
fair value of ESPP. Expected volatility is based on a combination of historical stock price volatility and implied volatility of our common stock. The risk-
free interest rate is based on the rate on U.S. Treasury securities with maturities consistent with the expected term. We have not paid dividends and do not
anticipate paying a cash dividend in the foreseeable future and, accordingly, use an expected dividend yield of zero.
Business Combinations
The results of businesses acquired in a business combination are included in our consolidated financial statements from the date of the acquisition.
Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the acquisition date. Any excess
consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.
We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination in order to record the tangible
and intangible assets acquired and liabilities assumed based on our best estimate of fair value. Determining the fair value of assets acquired and liabilities
assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenue
and cash flows, discount rates and selection of comparable companies. Significant estimation is required in determining the fair value of the customer
relationship intangible assets, deferred revenue and contingent
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consideration liabilities. The significant estimation is primarily due to the judgmental nature of the inputs to the valuation models used to measure the fair
value of these intangible assets, deferred revenue and contingent consideration liabilities, as well as the sensitivity of the respective fair values to the
underlying significant assumptions. We use the income approach to measure the fair value of these intangible assets, a discounted cash flow approach for
deferred revenue and a Monte Carlo simulation model to measure the fair value of the contingent consideration liabilities. The significant assumptions used
to estimate the fair value of the intangible assets, deferred revenue and contingent consideration liabilities included forecasted revenues from existing
customers, existing customer attrition rates, estimated costs required to fulfill the deferred revenue obligation and forecasted revenues for the contingent
consideration earnout period. When estimating the significant assumptions to be used in the valuation we include a consideration of current industry
information, market and economic trends, historical results of the acquired business, nature of the performance obligations associated with the deferred
revenue and other relevant factors. These significant assumptions are forward-looking and could be affected by future economic and market conditions. We
engage the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and
liabilities assumed in a business combination.
The valuation of the contingent consideration is derived using estimates of the probability of achievement within specified time periods based on
projections of future revenue metrics per the terms of the applicable agreements. These include estimates of our assessment of the probability of meeting
such results, with the probability-weighted earn-out using a Monte Carlo Simulation Model then discounted to estimate fair value. Fair value is estimated
using the probability weighted cash flow estimate closer to the measurement date. The various operating performance measures included in these
contingent consideration agreements primarily relate to product revenue.
Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expense in our
consolidated statements of operations and comprehensive loss.
Goodwill Impairment
Goodwill represents the excess of the aggregate purchase price paid over the fair value of the net assets acquired in our business combinations. Goodwill is
not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. We performed our annual impairment assessment on November 30, 2021. We operate under one reporting unit and as a result, evaluate
goodwill impairment based on our fair value as a whole.
To determine the number of operating segments and reporting units that are present, we analyzed whether there is any customer, product or geographic
information that drives the chief operating decision maker’s (our chief executive officer) decisions on how to allocate resources and whether any segment
management exists. Management has concluded that operating decisions are made at the consolidated company level and there is no segment management
in place that reviews results of operations with the chief operating decision maker.
In assessing goodwill for impairment, an entity has the option to assess qualitative factors to determine whether events or circumstances indicate that it is
more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, it is
more likely than not that the fair value of the reporting unit is greater than its carrying value, then performing the two-step impairment test is unnecessary.
An entity can choose not to perform a qualitative assessment for any of its reporting units and proceed directly to the use of the two-step impairment test.
When assessing goodwill for impairment for the year ended December 31, 2021, we first performed a qualitative assessment to determine whether it was
necessary to perform the two-step quantitative analysis. Based on the qualitative assessment including our share price decrease as well as positive factors
related to macroeconomic conditions, industry and market considerations, cost factors, financial performance and market capitalization, we determined it
was unlikely that our reporting unit fair value was less than its carrying value and the two-step impairment test was not required. Based on the results of our
most recent annual qualitative assessment performed on November 30, 2021, there was no impairment of goodwill recorded.
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Capitalized Software Development Costs
We capitalize certain costs related to the development of our platform and other software applications for internal use. In accordance with authoritative
guidance, we begin to capitalize our costs to develop software when preliminary development efforts are successfully completed, management has
authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended. We stop
capitalizing these costs when the software is substantially complete and ready for its intended use, including the completion of all significant testing. These
costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally estimated to be three years. We also capitalize costs
related to specific upgrades and enhancements when it is probable the expenditure will result in additional functionality and expense costs incurred for
maintenance and minor upgrades and enhancements. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance
are expensed as incurred and recorded within product development expenses in our consolidated statements of operations. We exercise judgment in
determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated
useful lives over which the costs are amortized. To the extent that we change the manner in which we develop and test new features and functionalities
related to our platform, assess the ongoing value of capitalized assets or determine the estimated useful lives over which the costs are amortized, the
amount of internal-use software development costs we capitalize and amortize could change in future periods.
Convertible Senior Notes
Significant judgment is required in determining the liability component of the related convertible senior notes as well as the balance sheet classification of
the elements of the convertible senior notes. We accounted for the convertible senior notes, the partial repurchase and conversions of the 2022 Notes as
separate liability and equity components, determining the fair value of the respective liability components based on an estimate of the fair value of a similar
liability without a conversion option and assigning the residual value to the equity component.
We estimated the fair value of the liability component of the convertible senior notes using a discounted cash flow model with a risk adjusted yield for
similar debt instruments, absent any embedded conversion feature. In estimating the risk adjusted yield, we utilized both an income and market approach.
For the income approach, we used a convertible bond pricing model, which included several assumptions including volatility and the risk-free rate. For the
market approach, we performed an evaluation of issuances of convertible debt securities issued by other comparable companies. Additionally, a detailed
analysis of the terms of the convertible senior notes transactions was required to determine existence of any derivatives that may require separate mark-to-
market accounting under applicable accounting guidance.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, refer to Note 2 of our consolidated financial statements included in this Annual Report on
Form 10-K.
Item 7A. 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.
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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 2021, 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 December 31, 2021.
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. In December 2019, we issued $450 million in aggregate principal amount of our 2024 Notes. In
November 2017, we issued $115 million in aggregate principal amount of our 2022 Notes, of which $8 thousand remain outstanding. The 2026 Notes, 2024
Notes and 2022 Notes are convertible under certain circumstances, including 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. In
the second quarter of 2018, the last reported sale price of our common stock was at least 130% of the conversion price of the 2022 Notes for at least 20
trading days during a period of 30 consecutive trading days ending on, and including, the last trading day of the quarter, resulting in the 2022 Notes
becoming convertible at the option of the holder during the third quarter of 2018. The 2022 Notes were still convertible at the option of the holder at
December 31, 2021. During the year ended December 31, 2021, we issued 627,212 shares of our common stock to holders of our 2022 Notes upon
settlement of conversion of approximately $21.1 million in aggregate principal amount of the 2022 Notes, and in connection with the issuance of the 2026
Notes, we paid approximately $58.6 million in cash and issued 1,288,994 shares of common stock to repurchase an aggregate principal amount of
approximately $58.6 million of the 2022 Notes. In the third quarter of 2021, the last reported sale price of our common stock was at least 130% of the
conversion price of the 2024 Notes for at least 20 trading days during a period of 30 consecutive trading days ending on, and including, the last trading day
of the quarter, resulting in the 2024 Notes becoming convertible at the option of the holder during the fourth quarter of 2021; however, as the trading price
of our common stock was not at least 130% of the conversion price of the 2024 Notes for at least 20 trading days during a period of 30 consecutive trading
days ending on, and including, the last trading day of the during the fourth quarter of 2021, the 2024 Notes were not convertible as of January 1, 2022. The
2026 Notes were not convertible during the year ended December 31, 2021.
Upon conversion, we are required to record a gain or loss for the difference between the fair value of the debt to be extinguished and its corresponding net
carrying value. The fair value of the debt to be extinguished depends on our then-current incremental borrowing rate. If our incremental borrowing rate at the
time of conversion is higher or lower than the implied interest rate of the 2026 Notes, 2024 Notes and 2022 Notes, we will record a gain or loss in our
consolidated statement of operations during the period in which the 2026 Notes, 2024 Notes and 2022 Notes are extinguished. An incremental borrowing rate
that is a hypothetical 100 basis points lower than the implicit interest rate upon conversion of the 2026 Notes, 2024 Notes and 2022 Notes would result in a loss
of approximately $8.3 million.
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 $488.0 million as of December 31, 2021, 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.
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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. 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 8. Financial Statements and Supplementary Data.
Financial Statements
The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Item 15.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None
Item 9A. 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 Securities Exchange Act of 1934, as amended
(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 Annual Report on Form 10-K. 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 effective at a reasonable assurance level as
of December 31, 2021.
Management’s Annual Report on Internal Control Over Financial Reporting
We are responsible for establishing and maintaining internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act).
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Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, assessed the
effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, our management used the Internal
Control – Integrated Framework (2013) as issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this
assessment, management concluded that our internal control over financial reporting is effective as of December 31, 2021.
As permitted by the U.S. Securities and Exchange Commission, we excluded the acquisitions of xMatters and Anvil from our assessment of the
effectiveness of internal control over financial reporting as of December 31, 2021, since it was not practical for management to conduct an assessment of
internal control over financial reporting for these entities between the acquisition dates and the date of management's assessment. Excluded from our
assessment of the effectiveness of internal control over financial reporting as of December 31, 2021 were total assets of approximately 11% and net
revenues of less than 10% of our consolidated total assets and net revenues, respectively, as of and for the year ended December 31, 2021.
This Annual Report includes an attestation report regarding our internal control over financial reporting by our registered public accounting firm, which
appears in the appendix to this Annual Report on Form 10-K.
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.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13(a)-15(d) and 15d-
15(d) under the Exchange Act that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting. In response to the COVID-19 pandemic, our employees began working from home starting
in March 2020. Management is continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact to their
design and operating effectiveness.
Item 9B. Other Information.
None
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable
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Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this item is incorporated by reference to our Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the
SEC within 120 days after the end of the fiscal year ended December 31, 2021.
As part of our system of corporate governance, our board of directors has adopted a code of business conduct and ethics. The code applies to all of our
employees, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing
similar functions), agents and representatives, including our independent directors and consultants, who are not employees of ours, with regard to their
activities related to our business. Our code of business conduct and ethics is available on our website at www.everbridge.com. We intend to post on this
section of our website any amendment to our code of business conduct and ethics, as well as any waivers of our code of business conduct and ethics, that
are required to be disclosed by the rules of the SEC or the Nasdaq Global Market.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to our Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the
SEC within 120 days after the end of the fiscal year ended December 31, 2021.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated by reference to our Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the
SEC within 120 days after the end of the fiscal year ended December 31, 2021.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference to our Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the
SEC within 120 days after the end of the fiscal year ended December 31, 2021.
Item 14. Principal Accounting Fees and Services.
The information required by this item is incorporated by reference to our Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the
SEC within 120 days after the end of the fiscal year ended December 31, 2021.
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Item 15. Exhibits, Financial Statement Schedules.
PART IV
Financial Statements. The financial statements as set forth under Item 8 of this Annual Report on Form 10-K are incorporated herein.
Financial Statement Schedules. All financial statement schedules have been omitted because they are not applicable, not required, or the
information is shown in the financial statements or related notes.
Exhibits. See (b) below.
1.
2.
3.
(b) Exhibits:
Exhibit
Number
Exhibit Description
Filed
Herewith
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Exhibit Index
Sixth Amended and Restated Certificate of Incorporation of
Everbridge, Inc.
10-Q
001-37874
Second Amended and Restated Bylaws of Everbridge, Inc.
10-Q
001-37874
Form of common stock certificate of Everbridge, Inc.
S-1/A
333-213217
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Base Indenture, dated November 20, 2017, between Everbridge,
Inc. and U.S. Bank National Association, as Trustee.
First Supplemental Indenture, Dated November 20, 2017, between
Everbridge, Inc. and U.S. Bank, National Association, as Trustee
(including the form of 1.5% convertible senior notes due 2022).
Indenture, dated December 13, 2019, between Everbridge, Inc.
and U.S. Bank National Association, as Trustee.
Description of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
X
Indenture, dated March 11, 2021, between Everbridge, Inc. and
U.S. Bank National Association, as Trustee.
Form of Global Note, representing Everbridge, Inc.’s 0%
Convertible Senior Notes due 2026 (included as Exhibit A to the
Indenture filed as Exhibit 4.1).
3.1
3.2
4.1
4.1
8/9/21
8/9/21
9/6/16
11/20/17
8-K
001-37874
8-K
001-37874
4.2
11/20/17
8-K
001-37874
4.1
12/13/19
8-K
001-37874
4.1
3/11/21
8-K
001-37874
4.2
3/11/21
10.1
Lease Agreement, dated as of April 26, 2018 by and between
Everbridge, Inc. and PR 155 North Lake, LLC.
10-K
001-37874
10.1
3/1/19
88
Exhibit Description
Filed
Herewith
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Exhibit
Number
10.2+
10.3+
2008 Equity Incentive Plan, as amended and as currently in effect,
and Forms of Stock Option Agreement and Notice of Exercise
thereunder.
2016 Equity Incentive Plan and Forms of Stock Option
Agreement, Notice of Exercise and Stock Option Grant Notice
thereunder.
10.4+
Form of Restricted Stock Unit Award Agreement under the
Everbridge, Inc. 2016 Equity Incentive Plan, as amended.
10.5+
2016 Employee Stock Purchase Plan.
10.6+
Non-Employee Director Compensation Plan.
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
Form of Indemnification Agreement by and between Everbridge,
Inc. and each of its directors and executive officers.
Amended and Restated Engagement Agreement, dated as of
February 26, 2021, by and between Everbridge, Inc. and Jaime
Ellertson.
Employment Agreement, dated as of July 27, 2012, by and
between Everbridge, Inc. and Imad Mouline.
Amendment to Employment Agreement, dated as of February 26,
2021, by and between Everbridge, Inc. and Imad Mouline.
Employment Agreement, dated as of November 3, 2015, by and
between Everbridge, Inc. and Elliot J. Mark.
Employment Agreement, dated as of February 4, 2019, by and
between Everbridge, Inc. and Patrick Brickley.
Letter agreement, dated December 8, 2021, by and between
Patrick Brickley and Everbridge, Inc.
Employment Agreement, dated as of May 25, 2019, by and
between Everbridge, Inc. and David Meredith.
Employment Agreement, dated as of August 19, 2019, by and
between Everbridge, Inc. and Vernon Irvin.
Letter agreement, dated December 8, 2021, by and between
Vernon Irvin and Everbridge, Inc.
Employment Agreement, dated as of October 8, 2019, by and
between Everbridge, Inc. and Ajay Nigam.
89
S-1/A
333-213217
10.3
9/6/16
S-1/A
333-213217
10.4
9/6/16
10-Q
001-37874
S-1/A
333-213217
10-K
001-37874
S-1
333-213217
10.1
10.5
10.6
10.9
8/14/17
9/6/16
2/26/21
8/19/16
10-K
001-37874
10.9
2/26/21
S-1
333-213217
10.15
8/19/16
10-K
001-37874
10.11
2/26/21
S-1/A
333-213217
10.17
9/6/16
8-K
001-37874
10.1
3/1/19
8-K
001-37874
10.1
12/9/21
8-K
001-37874
10.1
6/18/19
10-Q
001-37874
10.2
11/8/19
8-K
001-37874
10.2
12/9/21
10-Q
001-37874
10.1
5/8/20
Exhibit
Number
Exhibit Description
10.18+
2019 Management Incentive Plan of Everbridge, Inc.
10.19+
2020 Management Incentive Plan of Everbridge, Inc.
10.20+
2021 Management Incentive Plan of Everbridge, Inc.
10.21
10.22
21.1
23.1
31.1
31.2
32.1*
32.2*
Lease, dated as of December 16, 2016, by and between
Everbridge, Inc. and Burlington Centre Owner, LLC.
First Amendment to Lease, dated as of February 6, 2018, by and
between Everbridge, Inc. and 25 Corporate Drive LLC.
Subsidiaries of Everbridge, Inc.
Consent of Ernst & Young, LLP.
Certification of Interim Co-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.
Certification of Interim Co-Principal Executive Officer and
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.
Certification of Interim Co-Principal Executive Officer Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Certification of Interim Co-Principal Executive Officer and
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 Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
90
Filed
Herewith
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
10-Q
001-37874
10-Q
001-37874
10.1
10.2
8/9/19
5/8/20
10-K
001-37874
10.20
3/23/17
10-K
001-37874
10.20
3/1/19
X
X
X
X
X
X
X
X
X
X
X
Exhibit
Number
Exhibit Description
Filed
Herewith
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
Document
104
Cover Page Interactive Data File - the cover page interactive data
is embedded within the Inline XBRL document or included within
the Exhibit 101 attachments
X
X
X
*
+
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.
Item 16. Form 10-K Summary.
None.
91
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 25, 2022
Date: February 25, 2022
Everbridge, Inc.
By: /s/ Patrick Brickley
Patrick Brickley
Executive Vice President, Chief Financial Officer and
Interim Co-Chief Executive Officer
By: /s/ Vernon Irvin
Vernon Irvin
Executive Vice President, Chief Revenue Officer and
Interim Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of
the registrant in the capacities and on the dates indicated.
Signature
Title
/s/ Patrick Brickley
Patrick Brickley
Executive Vice President, Chief Financial Officer
and Interim Co-Chief Executive Officer
/s/ Vernon Irvin
Vernon Irvin
/s/ Phillip E. Huff
Phillip E. Huff
/s/ Richard D’Amore
Richard D’Amore
/s/ Alison Dean
Alison Dean
/s/ Jaime Ellertson
Jaime Ellertson
/s/ Bruns Grayson
Bruns Grayson
/s/ David Henshall
David Henshall
/s/ Kent Mathy
Kent Mathy
/s/ Simon Paris
Simon Paris
/s/ Sharon Rowlands
Sharon Rowlands
(Principal Financial Officer and Performing the Functions of Principal
Executive Officer)
Executive Vice President, Chief Revenue Officer
and Interim Co-Chief Executive Officer
(Performing the Functions of Principal Executive Officer)
Vice President, Corporate Controller and Chief
Accounting Officer
(Principal Accounting Officer)
Director
Director
Date
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
Chairman of the Board of Directors
February 25, 2022
Director
February 25, 2022
Vice Chairman of the Board of Directors
February 25, 2022
Director
Director
Director
92
February 25, 2022
February 25, 2022
February 25, 2022
EVERBRIDGE, INC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-9
F-10
F-11
F-13
F-15
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Everbridge, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Everbridge, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the
related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended
December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 25, 2022 expressed an unqualified
opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
Description of the
Matter
Accounting for Acquisitions
As described in Note 8 to the consolidated financial statements, the Company completed three acquisitions in 2021 (the 2021
Acquisitions) for total consideration of $448.2 million consisting of a combination of cash paid (net of the amount of cash
acquired), fair value of stock issued, fair value of consideration loan notes issued and fair value of future contingent
consideration payments. The acquisitions were accounted for as business combinations. The recognition, measurement and
disclosure of the Company’s business combinations in the 2021 consolidated financial statements was considered especially
challenging and required significant auditor judgment due to the complex nature in the determination by management of the
appropriate assumptions and related valuation models for the valuation of acquired assets and assumed liabilities, including,
but not limited to, customer relationship intangible assets, deferred revenue and contingent consideration liabilities. The
financial statement accounts primarily affected by these transactions were intangible assets, deferred revenue, contingent
consideration liabilities, deferred taxes and goodwill.
Auditing the Company's accounting for the 2021 Acquisitions was especially challenging due to the significant estimation
required by management in determining the fair value of the customer relationship intangible assets, deferred revenue and
contingent consideration liabilities of $122.2 million, $43.7 million and $9.2 million, respectively. The significant estimation
was primarily due to the judgmental nature of the inputs to the valuation models used to measure the fair value of these
intangible assets, deferred revenue and contingent consideration liabilities, as well as the sensitivity of the respective fair
values to the underlying significant assumptions. The Company used the income approach to measure the fair value of the
intangible assets, a discounted cash flow approach for deferred revenue and a Monte Carlo simulation model to measure the
fair value of the contingent consideration liabilities. The significant assumptions used to estimate the fair value of the
intangible assets, deferred revenue and contingent consideration liabilities included forecasted revenues from new and existing
customers, existing customer attrition rates, estimated costs required to fulfill the deferred revenue obligation and estimated
annual recurring revenue which is a basis for future contingent consideration payment. When estimating the significant
assumptions to be used in the valuation the Company included a consideration of current industry information, market and
economic trends, historical results of the acquired business, nature of the performance obligations associated with the deferred
revenue and other relevant factors. These significant assumptions are forward-looking and could be affected by future
economic and market conditions.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company’s
accounting for acquisitions. We tested controls over the valuation of intangible assets, deferred revenue and contingent
consideration liabilities, including the valuation models and underlying assumptions used to develop such estimates.
To test the fair value of the acquired intangible assets, deferred revenue and contingent consideration liabilities, our audit
procedures included, among others, evaluating the significant assumptions used, and the testing of the completeness and
accuracy of underlying data. We tested the valuation models used to value the acquired intangible assets, deferred revenue and
contingent consideration liabilities including consideration of the nature and classification of such contingent liabilities. Our
testing procedures over the significant assumptions included, among others, comparing them to current industry, market and
economic trends, historical results of the acquired business and to other relevant factors. We also performed sensitivity
analyses of the significant assumptions to evaluate the change in the fair value resulting from changes in the assumptions. In
addition, we involved a valuation professional to assist in our evaluation of the methodology used by the Company and
significant assumptions.
F-3
Description of the
Matter
Accounting for Software Revenue Contracts
The Company has a number of contracts under which it is required to deliver its software onto customer-controlled premises.
In addition to it, such contracts usually have additional performance obligations, such as software support and maintenance,
professional services, and managed services. Revenue recognition accounting policy for such contracts is discussed in Note 2
to the consolidated financial statements. The financial statement accounts primarily affected by such transactions were revenue
and deferred revenue.
Auditing such transactions was especially challenging because of the significant judgment required by management 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.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the revenue
recognition process for software licenses, including controls over the determination of standalone selling prices for distinct
performance obligations.
Our audit procedures included, among others, evaluating the Company’s judgments related to the estimate of standalone selling
price of each performance obligation. We tested management’s estimate of stand-alone selling price of each performance
obligation, including an evaluation of the assumptions applied by the Company in the estimates by comparing those significant
assumptions to the Company’s 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. We met with the project managers to discuss and evaluate those estimates. We
also performed a sensitivity analysis of the significant assumptions to evaluate the impact that the change in the standalone
selling price of each identified performance obligation resulting from changes in the assumptions would have on revenue
recognized during the period.
F-4
Description of the
Matter
Accounting for Convertible Notes
As discussed in Note 9 to the consolidated financial statements, in March 2021 the Company issued $375 million of
convertible senior notes due March 15, 2026 (2026 Notes), which permits the Company to settle in cash, shares of common
stock or a combination of cash and shares of common stock at its option. Concurrent with the offering of the 2026 Notes, the
Company entered into separate capped call transactions to reduce potential dilution upon conversion of the 2026 Notes.
Simultaneous with the issuance of the 2026 Notes, the Company repurchased a portion of the convertible notes issued in
November 2017, due November 1, 2022 (2022 Note Partial Repurchase), accounting for this transaction as a debt
extinguishment. These transactions are collectively referred to as the Convertible Notes Transactions. The financial statement
accounts primarily affected by these transactions were debt, equity and other expense.
Auditing the Company’s accounting for the 2026 Notes and the 2022 Notes Partial Repurchase was complex due to the
significant judgment required in determining the liability component of the related convertible notes as well as the balance
sheet classification of the elements of the 2026 Notes. The Company accounted for the 2026 Notes and the 2022 Notes Partial
Repurchase as separate liability and equity components, determining the fair value of the respective liability components based
on an estimate of the fair value of a similar liability without a conversion option and assigning the residual value to the equity
component.
The Company estimated the fair value of the liability component of the 2026 Notes and 2022 Notes using a discounted cash
flow model with a risk adjusted yield for similar debt instruments, absent any embedded conversion feature. In estimating the
risk adjusted yield, the Company utilized both an income and market approach. For the income approach, the Company used a
convertible bond pricing model, which included several assumptions including volatility and the risk-free rate. For the market
approach, the Company performed an evaluation of issuances of convertible debt securities issued by other comparable
companies. Additionally, a detailed analysis of the terms of the Convertible Notes Transactions was required to determine
existence of any derivatives that may require separate mark-to-market accounting under applicable accounting guidance.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s
Convertible Notes Transactions. For example, we tested the Company’s controls over the initial recognition and measurement
of the Convertible Notes Transactions, including the recording of the associated liability and equity components.
Our testing of the Company’s initial accounting for the Convertible Notes Transactions, among other procedures, included
reading the underlying agreements and evaluating the Company’s accounting analysis of the initial accounting of the
Convertible Notes Transactions, including the determination of the balance sheet classification of each transaction,
identification of any derivatives included in the arrangements and determination that the 2022 Notes Partial Repurchase was a
debt extinguishment.
Our testing of the fair value of the liability components of the 2026 Notes and the 2022 Notes Partial Repurchase, included,
among other procedures, evaluating the Company's selection of the valuation methodology and significant assumptions used by
the Company and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and
estimates. Specifically, when assessing the key assumptions, we focused on the Company’s assumptions used to determine the
risk adjusted yield, which was based on a calibration to the convertible notes’ issuance price and corroborated by an analysis of
comparable issuances of debt securities by other companies. In addition, we involved a valuation professional to assist in our
evaluation of the methodology used by the Company and significant assumptions.
F-5
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2018.
Boston, Massachusetts
February 25, 2022
F-6
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Everbridge, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Everbridge, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the
COSO criteria). In our opinion, Everbridge, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2021, based on the COSO criteria.
As indicated in the accompanying Management's Annual Report on Internal Control over Financial Reporting, management’s assessment of and conclusion
on the effectiveness of internal control over financial reporting did not include the internal controls of xMatters Holdings, Inc. (“xMatters”) and The Anvil
Group (International) Limited, Anvil Worldwide Limited and The Anvil Group Limited (collectively, “Anvil”) , which is included in the 2021 consolidated
financial statements of the Company and constituted approximately 11% of total assets as of December 31, 2021 and less than 10% of net revenues for the
year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over
financial reporting of xMatters and Anvil.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated
financial statements”), and our report dated February 25, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
F-7
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 25, 2022
F-8
EVERBRIDGE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
Assets
As of December 31,
2021
2020
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Prepaid expenses
Deferred costs and other current assets
Total current assets
Property and equipment, net
Capitalized software development costs, net
Goodwill
Intangible assets, net
Restricted cash
Prepaid expenses
Deferred costs and other assets
Total assets
Current liabilities:
Liabilities and Stockholders’ Equity
Accounts payable
Accrued payroll and employee related liabilities
Accrued expenses
Deferred revenue
Contingent consideration liabilities
Convertible senior notes
Other current liabilities
Total current liabilities
Long-term liabilities:
Deferred revenue, noncurrent
Convertible senior notes
Deferred tax liabilities
Other long term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.001, 10,000,000 shares authorized, no
shares issued or outstanding as of December 31, 2021 and
December 31, 2020, respectively
Common stock, $0.001 par value, 100,000,000 shares authorized,
39,389,733 and 35,449,447 shares issued and outstanding as of
December 31, 2021 and December 31, 2020, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
488,035 $
3,880
120,995
13,740
28,469
655,119
12,185
22,720
531,163
219,319
843
1,916
35,750
1,479,015 $
16,002 $
36,725
13,884
223,579
59
8
14,073
304,330
14,261
665,695
16,082
15,958
1,016,326
467,171
4,667
94,376
11,774
20,464
598,452
7,774
16,329
187,411
113,762
3,792
1,943
31,481
960,944
9,698
27,674
7,246
165,389
10,619
—
15,602
236,228
4,738
441,514
10,065
16,094
708,639
—
—
39
853,664
(388,112)
(2,902)
462,689
1,479,015 $
35
542,776
(293,316)
2,810
252,305
960,944
See accompanying notes to consolidated financial statements.
F-9
EVERBRIDGE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
2021
Year Ended December 31,
2020
2019
$
368,433 $
114,216
254,217
271,141 $
83,028
188,113
Revenue
Cost of revenue
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Operating loss
Other expense, net:
Interest income
Interest expense
Gain (loss) on extinguishment of debt and capped call modification
Other expenses, net
Total other expense, net
Loss before income taxes
Benefit from (provision for) income taxes
Net loss
Net loss per share attributable to common stockholders:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
Other comprehensive income (loss):
Foreign currency translation adjustment
Total other comprehensive income (loss)
Total comprehensive loss
161,337
81,647
87,482
330,466
(76,249)
390
(35,949)
7,181
(2,748)
(31,126)
(107,375)
12,579
(94,796) $
(2.50) $
(2.50) $
123,330
62,512
74,485
260,327
(72,214)
2,007
(24,089)
(446)
(921)
(23,449)
(95,663)
2,267
(93,396) $
(2.70) $
(2.70) $
200,882
63,535
137,347
87,731
50,024
46,820
184,575
(47,228)
4,499
(7,478)
(1,406)
(212)
(4,597)
(51,825)
(425)
(52,250)
(1.58)
(1.58)
37,962,793
37,962,793
34,581,144
34,581,144
33,161,656
33,161,656
(5,712)
(5,712)
(100,508) $
8,557
8,557
(84,839) $
(679)
(679)
(52,929)
$
$
$
$
See accompanying notes to consolidated financial statements.
F-10
Balance at January 1, 2019
Issuance of common stock, net of cost
Issuance of common stock in connection with
acquisition
Stock-based compensation
Vesting of restricted stock units
Shares withheld related to net share settlement of
stock awards
Exercise of stock options
Issuance of shares under employee stock purchase
plan
Equity component of the convertible notes due
2024,
net of allocated issuance costs and taxes
Purchase of capped call hedge for the convertible
notes due 2024, including issuance costs
Equity component of repurchased convertible notes
due 2022
Termination of capped call hedge for the
convertible
notes due 2022
Other comprehensive loss
Net loss
Balance at December 31, 2019
Issuance of common stock in connection with
acquisitions
Stock-based compensation
Vesting of restricted stock units and performance-
based restricted stock units
Shares withheld related to net share settlement of
stock awards
Exercise of stock options
Issuance of shares under employee stock purchase
plan
Settlement of convertible notes due 2022
Other comprehensive income
Net loss
Balance at December 31, 2020
EVERBRIDGE, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
Common stock
Shares
29,700,192
2,645,000
$
Par value
320,998
—
275,680
(54,312)
918,588
42,481
—
—
—
—
—
—
33,848,627
462,224
—
451,879
(48,469)
323,838
49,319
362,029
—
—
35,449,447
$
Additional
paid-in
capital
Accumulated
deficit
Accumulated-
other
comprehensive
income (loss)
$
194,866
138,831
$
(147,670) $
—
(5,068) $
—
Total
42,158
138,834
32,798
33,989
—
(4,602)
17,410
2,337
86,133
(44,948)
(36,649)
5,780
—
—
425,945
53,193
47,079
—
(6,364)
8,159
3,389
11,375
—
—
542,776
$
$
—
—
—
—
—
—
—
—
—
—
—
(52,250)
(199,920)
—
—
—
—
—
—
—
—
(93,396)
(293,316) $
—
—
—
—
—
—
—
—
—
—
(679)
—
(5,747)
—
—
—
—
—
—
—
8,557
—
2,810
$
32,798
33,989
—
(4,602)
17,411
2,337
86,133
(44,948)
(36,649)
5,780
(679)
(52,250)
220,312
53,193
47,079
—
(6,364)
8,160
3,389
11,375
8,557
(93,396)
252,305
30
3
—
—
—
—
1
—
—
—
—
—
—
—
34
—
—
—
—
1
—
—
—
—
35
F-11
Balance at January 1, 2021
Issuance of common stock in connection with
acquisitions
Issuance of common stock for contingent
consideration
Stock-based compensation
Vesting of restricted stock units and performance-
based restricted stock units
Shares withheld related to net share settlement of
stock awards
Exercise of stock options
Issuance of shares under employee stock purchase
plan
Equity component of convertible notes due 2026,
net of allocated issuance costs and taxes
Purchase of capped call hedge for the convertible
notes due 2026, including issuance costs
Settlement of convertible notes due 2022
Termination and modification of capped call
hedge for the convertible notes due 2022
Other comprehensive loss
Net loss
Balance at December 31, 2021
Common stock
Shares
35,449,447
$
Par value
1,311,960
51,914
—
573,493
(68,832)
114,381
41,164
—
—
1,916,206
—
—
—
39,389,733
$
Additional
paid-in
capital
Accumulated
deficit
Accumulated-
other
comprehensive
income (loss)
Total
35
$
542,776
$
(293,316) $
2,810
$
—
—
—
2
—
—
—
—
—
2
—
—
—
39
169,541
7,177
44,684
—
(10,085)
3,113
4,587
99,000
(35,124)
17,109
10,886
—
—
853,664
$
$
—
—
—
—
—
—
—
—
—
—
—
—
(94,796)
(388,112) $
—
—
—
—
—
—
—
—
—
—
—
(5,712)
—
(2,902) $
252,305
169,541
7,177
44,684
2
(10,085)
3,113
4,587
99,000
(35,124)
17,111
10,886
(5,712)
(94,796)
462,689
See accompanying notes to consolidated financial statements.
F-12
EVERBRIDGE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
Amortization of deferred costs
Deferred income taxes
Accretion of interest on convertible senior notes
(Gain) loss on extinguishment of debt and capped call modification
Provision for credit losses and sales reserve
Stock-based compensation
Change in fair value of contingent consideration obligation
Payment of contingent consideration in excess of acquisition date fair value
Other non-cash adjustments
Change in operating assets and liabilities:
Accounts receivable
Prepaid expenses
Deferred costs
Other assets
Accounts payable
Accrued payroll and employee related liabilities
Accrued expenses
Deferred revenue
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from landlord reimbursement
Payments for acquisition of business, net of acquired cash
Additions to capitalized software development costs
Purchase of short-term investments
Maturities of short-term investments
Purchase of intangibles
Net cash used in investing activities
F-13
2021
Year Ended December 31,
2020
2019
$
(94,796) $
(93,396) $
(52,250)
53,168
14,373
(12,972)
35,271
(7,181)
4,750
44,095
(7,046)
(2,653)
(322)
(18,187)
(478)
(16,793)
(1,172)
3,772
2,687
3,088
26,595
(4,006)
22,193
(5,055)
—
(262,084)
(14,697)
—
—
—
(281,836)
30,759
12,609
(3,478)
22,161
446
3,071
46,755
3,665
—
78
(22,614)
(3,983)
(18,902)
146
1,547
3,499
1,057
24,964
7,419
15,803
(3,257)
—
(55,138)
(9,651)
—
—
(17,139)
(85,185)
19,671
7,982
109
5,711
1,406
661
33,489
(550)
—
(241)
(25,558)
(3,481)
(15,293)
1,758
5,312
4,548
(1,308)
29,704
(1,353)
10,317
(5,269)
1,143
(58,419)
(7,819)
(1,975)
47,765
—
(24,574)
Cash flows from financing activities:
Proceeds from public offering, net of costs
Proceeds from issuance of convertible notes
Payments of debt issuance costs
Purchase of convertible notes capped call hedge
Repurchase of convertible notes
Proceeds from termination of convertible notes capped call hedge
Payments of contingent consideration obligation
Shares withheld to settle employee tax withholding liability
Proceeds from employee stock purchase plan
Proceeds from option exercises
Other
Net cash provided by financing activities
Effect of exchange rates on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash—beginning of year
Cash, cash equivalents and restricted cash—end of year
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
Taxes, net of refunds received
Supplemental disclosure of non-cash activities
Common stock issued in connection with acquisitions
Deferred consideration in connection with acquisition
Contingent consideration in connection with acquisitions
Common stock issued in connection with contingent consideration payment
Purchase accounting payable, net
Common stock issued in connection with settlement of convertible notes
Purchased intangible asset decrease
Capitalized assets included in accounts payable and accrued expenses
Stock-based compensation capitalized for software development
Other non-cash activities
2021
Year Ended December 31,
2020
2019
—
375,000
(10,640)
(35,100)
(58,643)
10,650
(2,540)
(10,083)
4,587
3,113
—
276,344
427
17,128
475,630
492,758 $
—
—
(131)
—
—
—
—
(6,364)
3,389
8,160
—
5,054
296
(64,032)
539,662
475,630 $
894 $
1,543
1,938 $
706
169,541
—
9,195
7,177
1,492
17,109
(3,027)
1,622
589
—
53,193
4,044
6,267
—
(163)
11,375
—
291
324
—
139,110
450,000
(12,686)
(44,910)
(57,791)
5,780
—
(4,602)
2,337
17,411
(548)
494,101
(250)
479,594
60,068
539,662
1,766
90
32,798
—
550
—
—
—
—
136
500
202
$
$
See accompanying notes to consolidated financial statements.
F-14
Everbridge, Inc.
Notes to the Consolidated Financial Statements
(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 provides enterprise software applications that automate and accelerate organizations’ operational response to critical events in order 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, Visual Command Center, Public Warning, Community
Engagement, Risk Center, Crisis Management, CareConverge, Control Center, 911 Connect, Travel Risk Management, 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.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the Company’s results of operations and those of its wholly-owned subsidiaries. All
intercompany transactions and balances have been eliminated in consolidation. The Company’s accounting and financial reporting policies conform to
generally accepted accounting principles in the United States of America (“U.S. GAAP”).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Business acquisitions are included in the
Company’s consolidated financial statements from the date of the acquisition. The Company’s purchase accounting resulted in all assets and liabilities of
acquired businesses being recorded at their estimated fair values on the acquisition dates.
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 our 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. There have been significant changes to the global economic
situation as a consequence of the COVID-19 pandemic. There continue to be uncertainties with respect to macroeconomic conditions as a result of the
pandemic and there may be future periods of global instability and volatility in markets where the Company conducts business which could cause changes
to estimates as a result of the financial circumstances. Such changes to estimates could potentially result in impacts that would be material to the
consolidated financial statements, particularly with respect to the timing of revenue recognition resulting from potential implementation delays, evaluating
the recoverability of long-lived assets with finite useful lives for impairment and estimates of credit losses for accounts receivables and contract assets. No
impairments were recorded as of the balance sheet date; however, due to significant uncertainty surrounding the situation, management's judgment
regarding this could change in the future. As of the date of issuance of these financial statements, the Company’s results of operations have not been
significantly impacted by the COVID-19 pandemic; however, the Company continues to monitor the situation.
F-15
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
Recently Adopted Accounting Pronouncements
ASU 2020-01
In January 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-01, Clarifying the Interactions
Between Topic 321, Topic 323, and Topic 815. ASU 2020-01 addresses the accounting for the transition into and out of the equity method and measuring
certain purchased options and forward contracts to acquire investments. Observable transactions that require a company to either apply or discontinue the
equity method of accounting for the purposes of applying the measurement alternative in accordance with FASB Accounting Standards Codification
(“ASC”) 321, Investments – Equity Securities, should be considered immediately before applying or upon discontinuing the equity method. Certain non-
derivative forward contracts or purchased call options to acquire equity securities generally will be measured using the fair value principles of ASC 321
before settlement or exercise and consideration shall not be given to how entities will account for the resulting investments on eventual settlement or
exercise. The Company adopted ASU 2020-01 on January 1, 2021 on a prospective basis. The adoption of this standard did not have a material impact on
the Company’s consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
ASU 2021-10
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance.
ASU 2021-10 requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting
model by analogy. ASU 2021-10 is effective for the Company beginning in the first quarter of 2022. ASU 2021-10 may be applied either prospectively or
retrospectively. The Company is currently assessing the impact this standard will have on the Company’s consolidated financial statements.
ASU 2021-08
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from
Contracts with Customers. ASU 2021-08 requires the recognition and measurement of contract assets and contract liabilities acquired in a business
combination in accordance with ASC 606, Revenue from Contracts with Customers. Considerations to determine the amount of contract assets and contract
liabilities to record at the acquisition date include the terms of the acquired contract, such as timing of payment, identification of each performance
obligation in the contract and allocation of the contract transaction price to each identified performance obligation on a relative standalone selling price
basis as of contract inception. ASU 2021-08 is effective for the Company beginning in the first quarter of 2023. ASU 2021-08 should be applied
prospectively for acquisitions occurring on or after the effective date of the amendments. Early adoption of the proposed amendments would be permitted,
including adoption in an interim period. The Company is currently assessing the impact this standard will have on the Company’s consolidated financial
statements.
F-16
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
ASU 2021-04
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting
for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 requires accounting for modifications or
exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after the modification or exchange
based on the economic substance of the modification or exchange. The recognition of the modification depends on the nature of the transaction in which
the equity-classified written call option is modified. If there is more than one element in a transaction (for example, if the modification involves both a debt
modification and an equity issuance), then the guidance requires allocating the effect of the option modification to each element. ASU 2021-04 is effective
for the Company beginning in the first quarter of 2022. ASU 2021-04 should be applied prospectively to modifications or exchanges occurring on or after
the effective date of the amendments. The Company is currently assessing the impact this standard will have on the Company’s consolidated financial
statements.
ASU 2020-06
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—
Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06
reduces the number of accounting models for convertible instruments by eliminating two of the three models in ASC 470-20, Debt—Debt with Conversion
and Other Options, that require separate accounting for embedded conversion features, amends the requirements for a contract that is potentially settled in
an entity’s own shares to be classified in equity, and amends certain guidance on the computation of earnings per share for convertible instruments and
contracts on an entity’s own equity. ASU 2020-06 is effective for the Company beginning in the first quarter of 2022. ASU 2020-06 may be applied using a
modified or full retrospective transition method. 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, 2021 are not expected to have a material impact
on the Company’s financial position, results of operations or cash flows.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Accounting
standards describe a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that
may be used to measure fair value which are the following:
Level 1—Quoted prices in active markets for identical assets or liabilities or funds.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
F-17
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
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.
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 years ended December 31, 2021, 2020 and
2019. One customer comprised approximately 10% of the Company’s gross accounts receivable balance at December 31, 2021. No single customer
comprised more than 10% of the Company’s gross accounts receivable balance at December 31, 2020.
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.
Accounts Receivable
Accounts receivable includes trade accounts receivables from the Company’s customers, net of an allowance for credit risk. Accounts receivable are
recorded at the invoiced amount and do not bear interest. The Company’s contract assets relate to services performed which were not billed, net of an
allowance for credit risk. Allowance for credit risk for accounts receivables and contract assets is established based on various factors including credit
profiles of the Company’s customers, historical payments and current economic trends. The Company reviews its allowance for accounts receivables and
contract assets by assessing individual accounts receivable or unbilled contract assets over a specific aging and amount. All other balances are pooled based
on historical collection experience. The estimate of expected credit losses is based on information about past events, current economic conditions, and
forecasts of future economic conditions that affect the collectability. Accounts receivable and contract assets are written-off on a case by case basis, net of
any amounts that may be collected.
Property and Equipment, Net
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful
lives of the assets, which is generally three years for computer software, office computers and system software, five years for system hardware and
furniture and equipment, and over the shorter of lease term or useful life of the assets for leasehold improvements. Maintenance and repairs are expensed as
incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in the Company’s results of operations.
F-18
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
Capitalized Software Development Costs
The Company capitalizes the costs of software developed or obtained for internal use in accordance with FASB ASC 350-40, Internal Use Software.
Capitalized software development costs consist of costs incurred during the application development stage and include purchased software licenses,
implementation costs, consulting costs, and payroll-related costs for projects that qualify for capitalization. These costs relate to major new functionality.
All other costs, primarily related to maintenance and minor software fixes, are expensed as incurred.
The Company amortizes the capitalized software development costs on a straight-line basis over the estimated useful life of the software, which is
generally three years, beginning when the asset is substantially ready for use. The amortization of capitalized software development costs is reflected in
cost of revenue.
For software licenses for on premises usage, software development costs are capitalized in accordance with ASC 985-20, Costs of Software to be Sold,
Leased or Marketed. The Company capitalizes software development costs incurred after technological feasibility of the software is established or for
development costs that have alternative future uses. Under the Company’s current practice, the technological feasibility of the underlying software is not
established until substantially all product development and testing is complete, which generally includes the development of a working model. Software
development costs that have been capitalized to date have not been material.
Business Combinations
The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of acquisition.
Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the acquisition date. Any excess
consideration over the value of the assets acquired and liabilities assumed is recognized as goodwill.
The Company performs valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination, and allocates the
purchase price to the tangible and intangible assets acquired and liabilities assumed based on its best estimate of fair value. Acquired intangible assets
include: tradenames, customer relationships, and developed technology. The Company determines the appropriate useful life of intangible assets by
performing an analysis of cash flows based on historical experience of the acquired businesses. Intangible assets are amortized over their estimated useful
lives based on the pattern in which the economic benefits associated with the asset are expected to be consumed, which to date has approximated the
straight-line method of amortization. The estimated useful lives for tradenames, customer relationships, and technology are generally three to seven years,
five to nine years, and three to four years, respectively.
The valuation of the contingent consideration is derived using estimates of the probability of achievement within specified time periods based on
projections of future revenue metrics per the terms of the applicable agreements. These include estimates of the Company’s assessment of the probability of
meeting such results, with the probability-weighted earn-out using a Monte Carlo Simulation Model then discounted to estimate fair value. Fair value is
estimated using the probability weighted cash flow estimate closer to the measurement date. The various operating performance measures included in these
contingent consideration agreements primarily relate to product revenue.
Segment Information
The Company's chief operating decision maker was David Meredith, the Company’s former Chief Executive Officer. Upon Mr. Meredith’s resignation (see
Note 19), the Company began to transition leadership to Patrick Brickley, Executive Vice President, Chief Financial Officer and Treasurer, and Vernon
Irvin, Executive Vice President and Chief Revenue Officer as Interim Co-Chief Executive Officers and interim chief operating decision makers of the
Company. The chief operating decision maker reviews the Company's financial information presented on a consolidated basis for purposes of allocating
resources and evaluating the Company's financial performance. Accordingly, the Company has determined that it operates in a single reporting segment.
F-19
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets with finite useful lives for impairment whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable. Long-lived assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable or that the useful lives of those assets are no longer appropriate. Management
considers the following potential indicators of impairment of its long-lived assets (asset group): a substantial decrease in the Company’s stock price, a
significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used, a significant adverse change in legal factors or in
the business climate that could affect the value of the long-lived asset (asset group), an accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of a long-lived asset (asset group), and a current expectation that, more likely than not, a long lived
asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. When such events occur, the
Company compares the carrying amounts of the assets group to their undiscounted expected future cash flows. If this comparison indicates that there may
be an impairment, the amount of the impairment is calculated as the difference between the carrying value and fair value. For the years presented, the
Company did not recognize an impairment charge.
Intangible Assets
Intangible assets consist of patents, tradename, customer relationships and acquired technology. The Company records acquired intangible assets at fair
value on the date of acquisition. and amortize such assets using the straight-line method over the expected useful life of the asset. The estimated useful life
of acquired intangible assets is three to nine years. The Company evaluates the useful lives of these assets on an annual basis and tests for impairment
whenever events or changes in circumstances occur that could impact the recoverability of these assets in accordance with the long-lived assets policy
states above. If the estimate of an intangible asset’s remaining useful life is changed, the Company amortizes the remaining carrying value of the intangible
asset prospectively over the revised remaining useful life.
Goodwill
Goodwill represents the excess of the aggregate purchase price paid over the fair value of the net assets acquired in business combinations. Goodwill is not
amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. Events or changes in circumstances that could trigger an impairment review include a significant adverse change in business climate, an
adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of use of the acquired
assets or the strategy for the Company’s overall business, significant negative industry or economic trends, or significant underperformance relative to
expected historical or projected future results of operations. The Company has the option to first assess qualitative factors to determine whether the
existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying
value, including goodwill. If, after assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair
value of a reporting unit is less than its carrying amount, additional impairment testing is not required. The Company tests for goodwill impairment
annually on November 30.
The Company performed a qualitative goodwill assessment at November 30, 2021 and concluded there was no impairment based on the qualitative
assessment including our share price decrease as well as positive factors related to macroeconomic conditions, industry and market considerations, cost
factors, financial performance and market capitalization.
Debt Issuance Costs
Debt issuance costs related to convertible senior notes recorded as a reduction of the carrying amount of the debt are amortized to interest expense using the
effective interest method.
F-20
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
Revenue Recognition
The Company derives its revenues primarily from subscription services and professional services.
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.
Identify the customer contract
A customer contract is generally identified when the Company and a customer have executed an arrangement that calls for the Company to grant access to
its software products and provide professional services in exchange for consideration from the customer.
Identify performance obligations that are distinct
A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a
customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the
customer, and a company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. The
Company has determined that subscriptions for its online software products are distinct because, once a customer has access to the online software product
that it purchased, the online software product is fully functional and does not require any additional development, modification, or customization. The
Company generally considers its on premises software products distinct because once the on premises software product is made available to the customer
for beneficial use, it is fully functional and does not require any additional development, modification, customization or support. Professional services sold
are distinct because the customer benefits from the on-boarding and training to make better use of the online and on premises software products it
purchased. On occasion, the Company will treat on premises software licenses and professional services as a combined performance obligation when
professional services significantly modify or enhance the core functionality of the on premises software.
Determine the transaction price
The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a
customer, excluding sales taxes that are collected on behalf of government agencies. The Company estimates any variable consideration to which it will be
entitled at contract inception, and reassesses at each reporting date, when determining the transaction price. The Company does not include variable
consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will occur when any uncertainty
associated with the variable consideration is resolved. Variable consideration revenue was not material for the years ended December 31, 2021, 2020 and
2019.
Allocate the transaction price to the distinct performance obligations
The transaction price is allocated to the separate performance obligation on a relative standalone selling prices (“SSP”) basis for those performance
obligations with stable observable prices and then the residual method is applied for any performance obligation that has pricing which is highly variable.
The Company determines the SSP of its goods and services based upon their average sales price or using other observable inputs, such as similar products
or services.
F-21
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
Recognize revenue as the performance obligations are satisfied
Revenues are recognized when or as control of the promised goods or services is transferred to customers. Revenue from subscriptions to the Company’s
critical event management and enterprise safety applications is recognized ratably over the subscription period beginning on the date the Company’s online
software products are made available to customers. Most subscription contracts are two years or more. The Company recognizes revenue from professional
services as the services are provided. Software 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.
Disaggregation of Revenue
The Company provides disaggregation of revenue based on geographic region (see Note 15) and based on the subscription versus professional services and
other classification on the consolidated statements of operations as it believes this best depicts how the nature, amount, timing and uncertainty of revenue
and cash flows are affected by economic factors.
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 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 our 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.
F-22
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
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 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.
Advertising Expenses
Advertising expenses to promote the Company’s services are expensed as incurred. Advertising expenses included in sales and marketing expense were
$9.5 million, $4.8 million and $1.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.
F-23
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
Research and Development
Research and development expenses primarily consist of employee-related costs for research and development staff, including salaries, bonuses, benefits
and stock-based compensation and the cost of certain third-party service providers related to the development of the Company’s solutions that do not meet
the criteria to be capitalized under ASC 350-40, Internal Use Software or ASC 985-20, Costs of Software to be Sold, Leased or Marketed.
Stock-Based Compensation
Stock-based compensation expense is comprised of stock options, restricted stock units (“RSUs”), performance-based RSUs (“PSUs”) and employee stock
purchase plan awards.
Stock-based compensation related to stock options and RSUs is measured at the grant date based on the fair value of the award and is recognized straight-
line as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. The Company
utilizes the Black-Scholes pricing model for determining the estimated fair value of the stock options and employee stock purchase plan awards. The
Black-Scholes pricing model requires the use of subjective assumptions including the option’s expected term, the volatility of the underlying stock, the fair
value of the stock and the expected forfeiture rate.
The Company grants PSUs that vest upon satisfaction of certain performance-based conditions. The vesting of PSUs is subject to the employee’s continued
employment with the Company through the date of achievement. The fair value is based on value of the Company’s common stock at the date of issuance
and the probability of achieving the performance metric. 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.
Income Taxes
The Company accounts for income taxes using the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as
income in the period that includes the enactment date. A valuation allowance is established if it is more likely than not that all or a portion of the deferred
tax asset will not be realized.
The calculation of the Company’s tax liabilities involves dealing with uncertainties of the application of complex tax regulations. The Company recognizes
liabilities for uncertain tax positions based on a two-step approach. The first step is to evaluate the tax position for recognition by determining if the weight
of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate
settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic
adjustments.
Foreign Currency Translation
The functional currency for the Company’s foreign subsidiaries is the local currency. For those subsidiaries, the assets and liabilities are translated into U.S.
dollars at the exchange rate at the balance sheet date. Income and expenses are translated at the average exchange rates for the period. Net losses on foreign
currency transactions of $1.5 million, $0.4 million and $0.2 million for the years ended December 31, 2021, 2020 and 2019, respectively, were recorded as
a component of other expenses, net, on the consolidated statements of operations.
Other Comprehensive Income (Loss)
For all periods presented, the Company’s other comprehensive income (loss) is comprised of foreign currency translation adjustments related to the
Company’s foreign subsidiaries.
F-24
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
Net Loss Per Share Attributable to Common Stockholders
Basic net loss per share attributable to common stockholders is computed by dividing the Company’s net loss attributable to common stockholders by the
weighted-average number of common shares used in the loss per share calculation during the period. Diluted net loss per share attributable to common
stockholders is computed by giving effect to all potentially dilutive securities, including stock-based compensation awards and convertible senior notes.
The Company uses the if converted method for convertible senior notes for calculating any potential dilutive effect on diluted loss per share. Basic and
diluted net loss per share attributable to common stockholders was the same for all periods presented as the inclusion of all potentially dilutive securities
outstanding was anti-dilutive.
(3) Accounts Receivable and Contract Assets, Net
Accounts receivable, net is as follows (in thousands):
Accounts receivable amortized cost
Allowance for credit losses
Net accounts receivable
As of December 31,
2021
2020
$
$
127,917
$
(6,922)
120,995 $
98,164
(3,788)
94,376
The following table summarizes the changes in the allowance for credit losses for accounts receivable (in thousands):
Balance, beginning of period
Provision for expected credit losses
Write-offs, net
Balance, end of period
2021
Year Ended December 31,
2020
2019
$
$
(3,788) $
(3,512)
378
(6,922) $
(1,125) $
(2,877)
214
(3,788) $
(711)
(971)
557
(1,125)
Contract assets, net, included in deferred costs and other current assets on the consolidated balance sheets, is as follows (in thousands):
Contract asset amortized cost
Allowance for credit losses
Net contract asset
As of December 31,
2021
2020
$
$
$
8,569
(1,160)
7,409 $
The following table summarizes the changes in the allowance for credit losses for contract assets (in thousands):
Balance, beginning of period
Provision for expected credit losses
Write-offs
Balance, end of period
Year Ended December 31,
2021
2020
$
$
(398) $
(798)
36
(1,160) $
2,560
(398)
2,162
—
(398)
—
(398)
Credit loss expense for the years ended December 31, 2021, 2020 and 2019 was $4.4 million, $2.7 million and $0.7 million, respectively.
F-25
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
The following table summarizes the changes in the sales reserve (in thousands):
Balance, beginning of period
(Additions) reductions
Write-offs
Balance, end of period
(4) Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
Furniture and equipment
Leasehold improvements (1)
System hardware
Office computers
Computer and system software
Less accumulated depreciation and amortization
Property and equipment, net
2021
Year Ended December 31,
2020
2019
$
$
(175) $
(239)
164
(250) $
(175) $
(85)
85
(175) $
(200)
16
9
(175)
Useful life
in years
5
9
5
3
3
As of December 31,
2021
2020
$
$
2,530 $
7,842
1,357
8,783
2,694
23,206
(11,021)
12,185 $
2,041
4,944
807
6,547
827
15,166
(7,392)
7,774
(1)
Lesser of the lease term or the estimated useful lives of the improvements, which may be up to 9 years.
Depreciation and amortization expense for property and equipment for the years ended December 31, 2021, 2020 and 2019 was $3.8 million, $2.7 million
and $2.2 million, respectively.
(5) Capitalized Software Development Costs, Net
Capitalized software development costs, net consisted of the following (in thousands):
As of December 31, 2021
As of December 31, 2020
Gross
carrying
amount
$
$
75,042
59,761
Amortization
period
3 years
3 years
Accumulated
amortization
Net
carrying
amount
$
$
(52,322) $
(43,432) $
22,720
16,329
The Company capitalized software development costs of $15.3 million, $9.9 million and $8.8 million during the years ended December 31, 2021, 2020 and
2019, respectively.
Amortized expense for capitalized software development costs was $9.0 million, $7.9 million and $7.0 million during the years ended December 31, 2021,
2020 and 2019, respectively. Amortization of capitalized software development costs is classified within cost of revenue in the consolidated statements of
operations and comprehensive loss.
The expected amortization of capitalized software development costs, as of December 31, 2021, for each of the next three years is as follows (in
thousands):
2022
2023
2024
$
$
10,349
7,704
4,667
22,720
F-26
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
(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 years ended December 31, 2021, 2020 and 2019, no impairments were identified of
those assets requiring measurement at fair value on a non-recurring basis.
The Company classifies and discloses fair value measurements in one of the following three categories of fair value hierarchy:
Level 1
liabilities.
Level 2
or indirectly.
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and
Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly
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.
F-27
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
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):
Assets:
Cash equivalents:
Money market funds
Total financial assets
Liabilities:
Contingent consideration
Total financial liabilities
Assets:
Cash equivalents:
Money market funds
Total financial assets
Liabilities:
Contingent consideration
Derivative instruments - acquisition-related deferred
common stock consideration
Total financial liabilities
As of December 31, 2021
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Fair
Value
409,692 $
409,692 $
— $
— $
— $
— $
— $
— $
— $
— $
59 $
59 $
409,692
409,692
59
59
As of December 31, 2020
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Fair
Value
432,560 $
432,560 $
— $
— $
— $
— $
432,560
432,560
— $
—
— $
— $
10,619 $
10,619
1,011
1,011 $
—
10,619 $
1,011
11,630
$
$
$
$
$
$
$
$
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 and out of Level 1 or Level 2 during the year ended December 31, 2021.
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 consolidated balance sheets.
For the years ended December 31, 2021, 2020 and 2019, gains or losses realized on the sale of investments were not material. Investments are reviewed
periodically to identify possible other-than-temporary impairments. As the Company has the ability and intent to hold these investments with unrealized
losses for a reasonable period of time sufficient for the recovery of fair value, which may be maturity, the Company does not consider these investments to
be other-than-temporarily impaired for any of the periods presented.
F-28
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
On May 27, 2020, the Company entered into a Stock Purchase Agreement with Techwan SA (“Techwan”) pursuant to which the Company purchased all of
the issued and outstanding shares of stock of Techwan (see Note 8). In accordance with the Stock Purchase Agreement, 6,779 shares of the Company’s
common stock were reserved and were expected to be issued to the sellers in November 2021 subject to the provisions in the Stock Purchase Agreement.
Management analyzed the liability for derivative accounting consideration under ASC 815, Derivatives and Hedging, and determined that the liability
qualifies for derivative accounting. The derivative liability was not designated as a hedging instrument. In accordance with ASC 815, the Company
recorded the acquisition-related deferred common stock consideration derivative liability, which was carried at fair value, in other long-term liabilities on
the consolidated balance sheet. The derivative liability was marked-to-market each measurement period and changes in fair value during the years ended
December 31, 2021 and 2020 of $(0.2) million and $0.1 million, respectively, were recorded as a component of other expense, net on the consolidated
statements of operations. The fair value was derived from the Company’s stock price. In November 2021, the Company issued 6,779 shares of the
Company’s common stock to settle the derivative liability and reclassified the derivative liability from a liability to equity.
On November 4, 2021, the Company entered into an agreement with the shareholders of The Anvil Group (International) Limited, Anvil Worldwide
Limited and The Anvil Group Limited (collectively, “Anvil”) pursuant to which the Company purchased all of the issued and outstanding share capital of
Anvil (see Note 8). The Company paid $70.2 million in cash at closing, acquired net purchase liabilities of $1.6 million and issued $89.7 million in loan
notes (“Consideration Loan Notes”) due on November 4, 2022, unless early redeemed by the Company or if there is a redemption on event of default. Also,
on November 4, 2021, the Company entered into a Flip-Up Agreement with the Consideration Loan Notes holders to issue shares of the Company’s
common stock within 10 business days. The Flip-Up Agreement included a call option for the Company buy the Consideration Loan Notes from the sellers
of Anvil and a put option for the sellers of Anvil to sell the Consideration Loan Notes to the Company for 574,639 shares of the Company’s common stock.
The call and put option was considered a feature embedded in the Consideration Loan Notes. As the value of the call and put option conversion feature
embedded in the Consideration Loan Notes was influenced principally by the underlying equity security’s fair value and the volatility in that fair value, the
call and put option conversion feature was not considered closely related to the Consideration Loan Notes host contract; therefore, the call and put option
conversion feature was bifurcated from the Consideration Loan Notes and recognized separately as a derivative liability at fair value.
On November 4, 2021, the Company exercised the call option and issued the 574,639 shares of common stock on November 10, 2021. During the three
months ended December 31, 2021, the Company recognized a $10.1 million gain on the derivative and extinguishment of the Consideration Loan Notes in
Gain (loss) on extinguishment of debt and capped call modification on the consolidated statement of operations due the decrease in the Company’s stock
price between the date the consideration loan notes were issued and the date the consideration loan notes were extinguished.
F-29
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
The following table summarizes the changes in Level 3 financial instruments (in thousands):
Fair value at December 31, 2019
Contingent consideration from one2many acquisition
Contingent consideration from Techwan acquisition
Contingent consideration from SnapComms acquisition
Change in fair value of contingent consideration
obligation from one2many acquisition
Change in fair value of contingent consideration
obligation from Techwan acquisition
Change in fair value of contingent consideration
obligation from SnapComms acquisition
Foreign currency translation
Fair value at December 31, 2020
Contingent consideration from RedSky acquisition
Contingent consideration from Anvil acquisition
Change in fair value of contingent consideration
obligation from SnapComms acquisition
Change in fair value of contingent consideration
obligation from one2many acquisition
Change in fair value of contingent consideration
obligation from RedSky acquisition
Payment for SnapComms acquisition
Payment for one2many acquisition
Payment for RedSky acquisition
Foreign currency translation
Fair value at December 31, 2021
$
$
—
2,190
2,030
2,047
8,114
(2,030)
(2,047)
315
10,619
9,135
60
709
408
(8,163)
(720)
(10,679)
(972)
(338)
59
The valuation of the contingent consideration was derived using estimates of the probability of achievement within specified time periods based on
projections of future revenue metrics per the terms of the applicable agreements. These include estimates of the Company’s assessment of the probability of
meeting such results, with the probability-weighted earn-out using a Monte Carlo Simulation Model then discounted to estimate fair value. Fair value is
estimated using the probability weighted cash flow estimate closer to the measurement date. The various operating performance measures included in these
contingent consideration agreements primarily relate to product revenue. As these are unobservable inputs, the contingent consideration liabilities are
included in Level 3 inputs.
During the year ended December 31, 2021, as a result of completing the assessment of SnapComms Limited (“SnapComms”) meeting revenue metrics
during the period of April 1, 2020 through March 31, 2021, the Company recognized an increase in the fair value of SnapComms’ contingent consideration
obligation in the amount of $0.7 million. During the year ended December 31, 2021, the Company issued 6,188 shares of the Company’s common stock to
settle SnapComms’ contingent consideration liability.
During the year ended December 31, 2021, as a result completing the assessment of One2Many Group B.V. (“one2many”) meeting revenue metrics during
the period of March 1, 2020 through February 28, 2021 and the payment of the contingent consideration liability, the Company recognized an increase in
the fair value of one2many’s contingent consideration obligation in the amount of $0.4 million. During year ended December 31, 2021, the Company paid
€4.1 million in cash and issued 41,668 shares of the Company’s common stock to settle one2many’s contingent consideration liability.
F-30
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
During the year ended December 31, 2021, as a result of completing the assessment of Red Sky Technologies Inc. (“RedSky”) meeting certain revenue
targets through the contractual measurement period, the Company recognized a decrease in the fair value of RedSky’s contingent consideration obligation
in the amount of $8.2 million. During the year ended December 31, 2021, the Company paid $0.4 million in cash and issued 4,058 shares of the Company’s
common stock to settle RedSky’s contingent consideration liability.
The Company estimates the fair value of the convertible senior notes based on market-observable inputs (Level 2). As of December 31, 2021, the fair value
of the 0% convertible senior notes due March 15, 2026 (the “2026 Notes”) was determined to be $318.3 million and the principal amount of the 2026 Notes
was $375.0 million. As of December 31, 2021 and 2020, the fair value of the 0.125% convertible senior notes due December 15, 2024 (the “2024 Notes”)
was determined to be $440.6 million and $663.6 million, respectively, and the principal amount of the 2024 Notes was $450.0 million for each period. As
of December 31, 2021 and 2020, the fair value of the 1.50% convertible senior notes due November 1, 2022 (the “2022 Notes”) was determined to be $16
thousand and $265.5 million, respectively, and the principal amount of the 2022 Notes was $8 thousand and $79.8 million, respectively. See Note 9.
(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, 2019
Increase due to acquisitions
Foreign currency translation
Balance at December 31, 2020
Increase due to acquisitions
Foreign currency translation
Balance at December 31, 2021
There were no impairments recorded against goodwill in 2021, 2020 or 2019.
Intangible assets consisted of the following (in thousands):
$
$
91,421
89,033
6,957
187,411
348,794
(5,042)
531,163
Amortizable intangible assets:
Developed technology
Tradenames
Customer relationships
Total intangible assets
Amortizable intangible assets:
Developed technology
Tradenames
Customer relationships
Total intangible assets
Gross
carrying
amount
Weighted-
average life
(years)
As of December 31, 2021
Net
carrying
amount
Accumulated
amortization
43,178
28,250
219,850
291,278
3.41 $
4.13
8.30
$
(16,214) $
(12,779)
(42,966)
(71,959) $
26,964
15,471
176,884
219,319
Gross
carrying
amount
Weighted-
average life
(years)
As of December 31, 2020
Net
carrying
amount
Accumulated
amortization
31,851
15,360
100,590
147,801
3.54 $
3.52
7.41
$
(5,322) $
(6,638)
(22,079)
(34,039) $
26,529
8,722
78,511
113,762
$
$
$
$
F-31
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
Amortization expense for intangible assets was $40.5 million, $20.2 million and $10.4 million for the years ended December 31, 2021, 2020 and 2019,
respectively. Amortization expense of tradenames and customer relationships is included within general and administrative expenses, while amortization of
developed technology is included in cost of revenue. The Company recorded amortization expense attributed to developed technology of $12.1 million,
$4.2 million and $2.1 million for the period ended December 31, 2021, 2020 and 2019, respectively. In December 2020, the Company completed an asset
acquisition and recorded $17.1 million to developed technology. During the year ended December 31, 2021, the Company recognized a $3.0 million
reduction in the cost basis of the developed technology due to a partial return of the purchase price. The average useful life for the December 2020 asset
acquisition of acquired technology is 4.0 years. During the year ended December 31, 2021, the Company retired $1.9 million of fully amortized intangible
assets.
The expected amortization of the intangible assets, as of December 31, 2021, for each of the next five years and thereafter is as follows (in thousands):
2022
2023
2024
2025
2026
Thereafter
(8) Business Combinations
$
$
44,297
39,351
33,841
27,442
21,260
53,128
219,319
The Company accounted for the following acquisitions using the acquisition method of accounting for business combinations under ASC 805, Business
Combinations, which required that the assets acquired and liabilities assumed be recognized on the balance sheet at their fair values as of the acquisition
date. The excess of the purchase price over the net fair value of the assets and liabilities was recorded as goodwill. This goodwill includes the know-how of
the assembled workforce, the ability of the workforce to further improve technology and product offerings, customer relationships and the expected cash
flows resulting from these efforts. Goodwill may also include expected synergies resulting from the complementary strategic fit these businesses bring to
existing operations.
Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The
judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives and the
expected future cash flows and related discount rates, can materially impact the Company’s results of operations. Significant inputs used for the model
included the amount of cash flows, the expected period of the cash flows and the discount rates. Significant estimation was required by management in
determining the fair value of the customer relationship intangible assets, deferred revenue and contingent consideration liabilities. The significant
estimation is primarily due to the judgmental nature of the inputs to the valuation models used to measure the fair value of these intangible assets, deferred
revenue and contingent consideration liabilities, as well as the sensitivity of the respective fair values to the underlying significant assumptions. The
Company used the income approach to measure the fair value of these intangible assets, a discounted cash flow approach for deferred revenue and a Monte
Carlo simulation model to measure the fair value of the contingent consideration liabilities. The significant assumptions used to estimate the fair value of
the intangible assets, deferred revenue and contingent consideration liabilities included forecasted revenues from existing customers, existing customer
attrition rates, estimated costs required to fulfill the deferred revenue obligation and forecasted revenues for the contingent consideration earnout period.
When estimating the significant assumptions to be used in the valuation the Company includes a consideration of current industry information, market and
economic trends, historical results of the acquired business, nature of the performance obligations associated with the deferred revenue and other relevant
factors. These significant assumptions are forward-looking and could be affected by future economic and market conditions. The valuation of the
contingent consideration was derived using estimates of the probability of achievement within specified time periods based on projections of future revenue
metrics per the terms of the applicable agreements. These include estimates of the Company’s assessment of the probability of meeting such results, with
the probability-weighted earn-out using a Monte Carlo Simulation Model then discounted to estimate fair value. Fair value is estimated using the
probability
F-32
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
weighted cash flow estimate closer to the measurement date. The various operating performance measures included in these contingent consideration
agreements primarily relate to product revenue.
The business acquisitions discussed below are included in the Company’s results of operations from their respective dates of acquisition.
2021 Acquisitions
During the year ended December 31, 2021, the Company acquired Red Sky Technologies Inc., xMatters Holdings, Inc. and The Anvil Group
(International) Limited, Anvil Worldwide Limited and The Anvil Group Limited. These acquisitions were not material and neither the investment in the
assets nor the results of operations of these acquisitions were significant to the Company’s consolidated financial position or results of operations, and thus
pro forma information is not required to be presented.
Red Sky Technologies Inc.
On January 15, 2021, the Company entered into a Stock Purchase Agreement with Red Sky Technologies Inc. pursuant to which the Company purchased
all of the issued and outstanding shares of stock of RedSky for a base consideration of $55.4 million, net of cash acquired. The Company paid
$32.4 million in cash, net of cash acquired, and issued 162,820 newly issued shares of the Company’s common stock at closing. On the date of this
acquisition, the average price of the Company’s common stock on the Nasdaq Global Market was $141.46 per share. In addition to the base purchase price,
there was also a potential contingent payment of up to $30 million that was eligible to be earned by the sellers based on certain revenue targets through the
contractual measurement period. At the date of the acquisition, the Company preliminarily assessed the probability of RedSky meeting the revenue metrics
through the contractual measurement period and recorded a $9.1 million initial fair value of contingent consideration as part of the purchase price
allocation. During the year ended December 31, 2021, the Company recognized a decrease in the fair value of RedSky’s contingent consideration
obligation in general and administrative expenses in the consolidated statements of operations in the amount of $8.2 million. During the year ended
December 31, 2021, the Company paid $0.4 million in cash and issued 4,058 shares of the Company’s common stock to settle RedSky’s contingent
consideration liability. The Company acquired RedSky for its E911 incident response solutions platform to enhance the Company’s CEM suite of solutions
as well as market penetration and customer reach.
F-33
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed, which were recorded as of the acquisition date,
as well as the aggregate consideration for the acquisition of RedSky made by the Company (in thousands):
Assets acquired
Accounts receivable
Property and equipment
Trade names
Acquired technology
Customer relationships
Goodwill
Other assets
Total assets acquired
Liabilities assumed
Accounts payable
Accrued expenses
Deferred revenue
Deferred tax liabilities
Other liabilities
Net assets acquired
Consideration paid
Cash paid, net of cash acquired
Fair value of common stock issued
Contingent consideration
Total
RedSky
$
$
$
$
2,926
18
2,230
3,590
20,000
49,508
242
78,514
233
773
5,866
7,048
26
64,568
32,401
23,032
9,135
64,568
The weighted average useful life of all identified acquired intangible assets is 7.73 years. The average useful lives for acquired technologies, customer
relationships and trade names are 3.0 years, 9.0 years and 4.0 years, respectively. Identifiable intangible assets with definite lives are amortized over the
period of estimated benefit using the straight-line method. The straight-line method of amortization represents the Company’s best estimate of the period of
expected cash flows of the identifiable intangible assets.
The goodwill balance is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the
integration of RedSky’s products with the Company's other solutions. The Company believes that the factors listed above in relation to the purchase of
RedSky support the amount of goodwill recorded as a result of the purchase price paid for the acquisition, in relation to other acquired tangible and
intangible assets. The resulting goodwill from the RedSky acquisition is not deductible for income tax purposes.
For the year ended December 31, 2021, the Company incurred transaction costs of less than $0.1 million in connection with the RedSky acquisition, which
were expensed as incurred and included in general and administrative expenses.
xMatters Holdings, Inc.
On April 6, 2021, the Company and xMatters Holdings, Inc. (“xMatters”) signed a definitive agreement pursuant to which the Company agreed to purchase
all of the issued and outstanding shares of stock of xMatters. This acquisition closed on May 7, 2021. The Company purchased all of the issued and
outstanding shares of stock of xMatters for a base consideration of $242.6 million. The Company paid $178.1 million in cash and issued 555,332 newly
issued shares of the Company’s common stock at closing. On the date of this acquisition, the average price of the Company’s common stock on the Nasdaq
Global Market was $116.12 per share. The Company acquired xMatters for its service reliability platforms to enhance the Company’s CEM suite of
solutions as well as market penetration and customer reach.
F-34
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
As the Company finalizes its estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments may be recorded during the
measurement period (a period not to exceed 12 months). The initial accounting is incomplete as of December 31, 2021 for the acquired assets and liabilities
as the Company is currently in the process of completing the assessment of the tax attributes of the business combination. The finalization of the
acquisition accounting valuation assessment may result in a change in the valuation of the deferred tax assets and liabilities which could have a material
impact on the Company’s results of operations and financial position.
The following table summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed, which were recorded as of the
acquisition date, as well as the aggregate consideration for the acquisition of xMatters made by the Company (in thousands):
Assets acquired
Accounts receivable
Property and equipment
Trade names
Acquired technology
Customer relationships
Goodwill
Other assets
Total assets acquired
Liabilities assumed
Accounts payable
Accrued expenses
Deferred revenue
Deferred tax liabilities
Other liabilities
Net assets acquired
Consideration paid
Cash paid, net of cash acquired
Fair value of common stock issued
Total
xMatters
$
$
$
$
6,716
1,458
8,200
8,390
78,940
170,437
5,433
279,574
1,164
5,517
34,421
3,436
5,056
229,980
165,498
64,482
229,980
The weighted average useful life of all identified acquired intangible assets is 8.13 years. The average useful lives for acquired technologies, customer
relationships and trade names are 3.0 years, 9.0 years and 5.0 years, respectively. Identifiable intangible assets with definite lives are amortized over the
period of estimated benefit using the straight-line method. The straight-line method of amortization represents the Company’s best estimate of the period of
expected cash flows of the identifiable intangible assets.
The goodwill balance is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the
integration of xMatters’ products with the Company's other solutions. The Company believes that the factors listed above in relation to the purchase of
xMatters support the amount of goodwill recorded as a result of the purchase price paid for the acquisition, in relation to other acquired tangible and
intangible assets. The resulting goodwill from the xMatters acquisition is not deductible for income tax purposes.
For the year ended December 31, 2021, the Company incurred transaction costs of $1.5 million in connection with the xMatters acquisition, of which $0.7
million was expensed during the year ended December 31, 2021 and included in general and administrative expenses.
F-35
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
The Anvil Group (International) Limited, Anvil Worldwide Limited and The Anvil Group Limited
On November 4, 2021, the Company entered into an agreement with the shareholders of The Anvil Group (International) Limited, Anvil Worldwide
Limited and The Anvil Group Limited (collectively, “Anvil”) pursuant to which the Company purchased all of the issued and outstanding share capital of
Anvil for a base consideration of $161.4 million. See Note 6 for a discussion of the Consideration Loan Notes and Flip-Up Agreement. The Company paid
$70.2 million in cash at closing, acquired net purchase liabilities of $1.6 million and issued $89.7 million Consideration Loan Notes. On November 10,
2021, the Company issued 574,639 newly issued shares of the Company’s common stock to settle consideration loan notes issued on the acquisition date.
In addition to the base purchase price, there is also a potential contingent payment of up to $0.8 million that may be paid to the sellers on or before June 30,
2023. At the date of the acquisition, the Company preliminarily assessed the probability of the contingent consideration payment and recorded a $0.1
million preliminary fair value as part of the purchase price allocation. The Company acquired Anvil for its travel risk management, operational resiliency
and occupational health solutions platforms to enhance the Company’s CEM suite of solutions as well as market penetration and customer reach.
As the Company finalizes its estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments may be recorded during the
measurement period (a period not to exceed 12 months). The initial accounting is incomplete as of December 31, 2021 for the acquired assets and liabilities
as the Company is currently in the process of completing the assessment of valuation inputs and assumptions as well as completing the assessment of the
tax attributes of the business combination. The finalization of the acquisition accounting valuation assessment may result in a change in the valuation of the
deferred tax assets and liabilities, deferred revenue and intangible assets, along with the opening working capital accounts, which could have a material
impact on the Company’s results of operations and financial position.
The following table summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed, which were recorded as of the
acquisition date, as well as the aggregate consideration for the acquisition of Anvil made by the Company (in thousands):
Assets acquired
Accounts receivable
Property and equipment
Trade names
Acquired technology
Customer relationships
Goodwill
Other assets
Total assets acquired
Liabilities assumed
Accounts payable
Accrued expenses
Deferred revenue
Deferred tax liabilities
Other liabilities
Net assets acquired
Consideration paid
Cash paid, net of cash acquired
Consideration loan notes issued
Contingent consideration
Total
F-36
Anvil
$
$
$
$
2,361
204
2,600
3,800
23,270
128,849
5,022
166,106
837
1,041
3,365
5,618
1,633
153,612
63,897
89,655
60
153,612
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
The weighted average useful life of all identified acquired intangible assets is 8.01 years. The average useful lives for acquired technologies, customer
relationships and trade names are 4.0 years, 9.0 years and 5.0 years, respectively. Identifiable intangible assets with definite lives are amortized over the
period of estimated benefit using the straight-line method. The straight-line method of amortization represents the Company’s best estimate of the period of
expected cash flows of the identifiable intangible assets.
The goodwill balance is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the
integration of Anvil’s products with the Company's other solutions. The acquisition of Anvil will bring in house the expertise and experience to manage
medical and travel-related situations for the Company’s travel risk management offerings to new and existing customers. The Company believes that the
factors listed above in relation to the purchase of Anvil support the amount of goodwill recorded as a result of the purchase price paid for the acquisition, in
relation to other acquired tangible and intangible assets. The resulting goodwill from the Anvil acquisition is not deductible for income tax purposes.
For the year ended December 31, 2021, the Company incurred transaction costs of $1.4 million in connection with the Anvil acquisition, of which $1.0
million was expensed during the year ended December 31, 2021 and included in general and administrative expenses.
2020 Acquisitions
During the year ended December 31, 2020, the Company acquired Connexient, Inc., CNL Software Limited, One2Many Group B.V., Techwan SA and
SnapComms Limited. These acquisitions were not material individually or on a consolidated basis. Additionally, neither the investment in the assets nor the
results of operations of these acquisitions were significant to the Company’s consolidated financial position or results of operations, and thus pro forma
information is not required to be presented.
Connexient, Inc.
On February 7, 2020, the Company entered into a Stock Purchase Agreement with Connexient, Inc. (“Connexient”) pursuant to which the Company
purchased all of the issued and outstanding shares of stock of Connexient for a base consideration of $20.2 million. The Company paid $11.5 million in
cash at closing and paid the remaining purchase price with 96,611 newly issued shares of the Company’s common stock. On the date of this acquisition, the
average price of the Company’s common stock on the Nasdaq Global Market was $93.32 per share. In addition to the base purchase price, there was also a
potential contingent payment of up to $6.0 million that was eligible to be earned by the sellers based on fiscal year 2020 revenue metrics. As of the date of
the acquisition, the fair value of the contingent consideration was zero as a result of the Company’s initial assessment of the probability of Connexient
meeting the revenue metrics. At December 31, 2020, it was determined that Connexient would not meet the fiscal year 2020 revenue metric threshold.
The Company acquired Connexient for its strategic technology assets to enhance the Company’s CEM suite of solutions to broaden support for Internet of
Things (“IoT”) applications as well as market penetration and customer reach.
F-37
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed, which were recorded as of the acquisition date,
as well as the aggregate consideration for the acquisition of Connexient made by the Company (in thousands):
Assets acquired
Accounts receivable
Prepaid expenses and other current assets
Property and equipment
Acquired technology
Trade names
Customer relationships
Goodwill
Other assets
Total assets acquired
Liabilities assumed
Accounts payable
Accrued expenses
Deferred revenue
Deferred tax liabilities
Other liabilities
Net assets acquired
Consideration paid
Cash consideration, net of cash acquired
Fair value of common stock issued
Total
Connexient
$
$
$
$
849
518
9
1,220
630
7,800
14,343
238
25,607
751
208
2,420
2,011
211
20,006
10,991
9,015
20,006
The weighted average useful life of all identified acquired intangible assets is 7.92 years. The average useful lives for acquired technologies, customer
relationships and trade names are 3.0 years, 9.0 years and 4.0 years, respectively. Identifiable intangible assets with definite lives are amortized over the
period of estimated benefit using the straight-line method. The straight-line method of amortization represents the Company’s best estimate of the period of
expected cash flows of the identifiable intangible assets.
The goodwill balance is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the
integration of Connexient’s products with the Company's other solutions. The Company believes that the factors listed above in relation to the purchase of
Connexient support the amount of goodwill recorded as a result of the purchase price paid for the acquisition, in relation to other acquired tangible and
intangible assets. The resulting goodwill from the Connexient acquisition is not deductible for income tax purposes.
During the year ended December 31, 2020, the Company incurred transaction costs of $0.1 million in connection with the Connexient acquisition, which
were expensed as incurred and included in general and administrative expenses.
CNL Software Limited
On February 25, 2020, the Company entered into a Stock Purchase Agreement with CNL Software Limited (“CNL Software”) for a base consideration of
approximately $35.7 million. The Company paid approximately $19.8 million in cash at closing and paid the remaining purchase price with 153,217 newly
issued shares of the Company’s common stock. On the date of this acquisition, the average price of the Company’s common stock on the Nasdaq Global
Market was $104.10 per share. The Company acquired CNL Software for its strategic technology assets to enhance the Company’s CEM suite of solutions
to broaden support for IoT applications as well as market penetration and customer reach.
F-38
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
During the year ended December 31, 2020, the Company finalized CNL Software’s assets acquired and liabilities assumed. As a result, the Company
recognized a $0.6 million increase in CNL Software’s deferred revenue balance with a corresponding increase in goodwill from the initial assessment as of
the acquisition date.
The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed, which were recorded as of the acquisition date,
as well as the aggregate consideration for the acquisition of CNL Software made by the Company (in thousands):
Assets acquired
Accounts receivable
Prepaid expenses and other current assets
Property and equipment
Acquired technology
Trade names
Customer relationships
Goodwill
Other assets
Total assets acquired
Liabilities assumed
Accounts payable
Accrued expenses
Deferred revenue
Deferred tax liabilities
Other liabilities
Net assets acquired
Consideration paid
Cash paid, net of cash acquired
Fair value of common stock issued
Total
CNL Software
1,979
1,095
731
2,150
1,080
5,500
28,679
1,314
42,528
315
1,653
3,751
1,553
1,276
33,980
18,030
15,950
33,980
$
$
$
$
The weighted average useful life of all identified acquired intangible assets is 5.01 years. The average useful lives for acquired technologies, customer
relationships and trade names are 3.0 years, 6.0 years and 4.0 years, respectively. Identifiable intangible assets with definite lives are amortized over the
period of estimated benefit using the straight-line method. The straight-line method of amortization represents the Company’s best estimate of the period of
expected cash flows of the identifiable intangible assets.
The goodwill balance is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the
integration of CNL Software’s products with the Company's other solutions. The Company believes that the factors listed above in relation to the purchase
of CNL Software support the amount of goodwill recorded as a result of the purchase price paid for the acquisition, in relation to other acquired tangible
and intangible assets. The resulting goodwill from the CNL Software acquisition is not deductible for income tax purposes.
During the year ended December 31, 2020, the Company incurred transaction costs of $0.1 million in connection with the CNL Software acquisition,
which were expensed as incurred and included in general and administrative expenses.
F-39
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
One2Many Group B.V.
On March 19, 2020, the Company entered into a Stock Purchase Agreement with One2Many Group B.V. pursuant to which the Company purchased all of
the issued and outstanding shares of stock of one2many for a base consideration of $13.1 million. The Company paid $5.5 million in cash at closing,
acquired purchase liabilities of $2.0 million and paid the remaining purchase price with 52,113 newly issued shares of the Company’s common stock. On
the date of this acquisition, the average price of the Company’s common stock on the Nasdaq Global Market was $104.95 per share. In addition to the base
purchase price, there was also a potential contingent payment of up to approximately $15.0 million that was eligible to be earned by the sellers based on
revenue metrics during the period of March 1, 2020 through February 28, 2021. The potential contingent payment included an amount payable to the
Company if a certain revenue threshold was not met during the period of March 1, 2020 through February 28, 2021. At the date of the acquisition, the
Company preliminarily assessed the probabilities of one2many meeting the revenue metrics during the period of March 1, 2020 through February 28, 2021
and recorded a $2.2 million initial fair value of contingent consideration as part of the purchase price allocation. During the years ended December 31,
2021 and 2020, the Company recognized an increase in the fair value of one2many’s contingent consideration obligation in the amount of $0.4 million and
$8.1 million, respectively, recognized in general and administrative expenses in the consolidated statements of operations and comprehensive loss. During
year ended December 31, 2021, the Company paid €4.1 million in cash and issued 41,668 shares of the Company’s common stock to settle one2many’s
contingent consideration liability. The Company acquired one2many for its cell broadcast technology to enhance the Company’s public warning
applications as well as market penetration and customer reach.
The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed, which were recorded as of the acquisition date,
as well as the aggregate consideration for the acquisition of one2many made by the Company (in thousands):
Assets acquired
Accounts receivable
Other current assets
Property and equipment
Acquired technology
Trade names
Customer relationships
Goodwill
Other assets
Total assets acquired
Liabilities assumed
Accounts payable
Accrued expenses
Deferred revenue
Deferred tax liabilities
Other current liabilities
Net assets acquired
Consideration paid
Cash consideration, net of cash acquired
Fair value of common stock issued
Contingent consideration
Total
F-40
one2many
$
$
$
$
521
1,441
19
970
580
3,100
10,704
176
17,511
72
636
1,460
985
136
14,222
6,563
5,469
2,190
14,222
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
The weighted average useful life of all identified acquired intangible assets is 5.67 years. The average useful lives for acquired technologies, customer
relationships and trade names are 3.0 years, 7.0 years and 3.0 years, respectively. Identifiable intangible assets with definite lives are amortized over the
period of estimated benefit using the straight-line method. The straight-line method of amortization represents the Company’s best estimate of the period of
expected cash flows of the identifiable intangible assets.
The goodwill balance is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the
integration of one2many’s products with the Company's other solutions. The Company believes that the factors listed above in relation to the purchase of
one2many support the amount of goodwill recorded as a result of the purchase price paid for the acquisition, in relation to other acquired tangible and
intangible assets. The resulting goodwill from the one2many acquisition is not deductible for income tax purposes.
During the year ended December 31, 2020, the Company incurred transaction costs of $0.2 million in connection with the one2many acquisition, which
were expensed as incurred and included in general and administrative expenses.
Techwan SA
On May 27, 2020, the Company entered into a Stock Purchase Agreement with Techwan SA pursuant to which the Company purchased all of the issued
and outstanding shares of stock of Techwan for a base consideration of $15.5 million. The Company paid $9.4 million in cash at closing, acquired purchase
liabilities of $0.1 million and paid the remaining purchase price with 38,425 newly issued shares of the Company’s common stock. In addition, in
accordance with the Stock Purchase Agreement, 6,779 shares of the Company’s common stock were issued to the sellers in November 2021. On the date of
this acquisition, the average price of the Company’s common stock on the Nasdaq Global Market was $132.05 per share. In addition to the base purchase
price, there was also a potential contingent payment of up to approximately $7.0 million that was eligible to be earned by the sellers based on revenue
metrics during the period of April 1, 2020 through March 31, 2021. At the date of the acquisition, the Company preliminarily assessed the probabilities of
Techwan meeting the revenue metrics during the period of April 1, 2020 through March 31, 2021 and recorded a $2.0 million initial fair value of contingent
consideration as part of the purchase price allocation. During the year ended December 31, 2020, the Company recognized a decrease in the fair value of
Techwan’s contingent consideration obligation in the amount of $2.0 million recognized in general and administrative expenses in the consolidated
statements of operations and comprehensive loss. During the year ended December 31, 2021, the Company determined that Techwan did not meet the
revenue metrics during the period of April 1, 2020 through March 31, 2021. The Company acquired Techwan for its strategic technology assets to enhance
the Company’s CEM suite of solutions as well as market penetration and customer reach.
F-41
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed, which were recorded as of the acquisition date,
as well as the aggregate consideration for the acquisition of Techwan made by the Company (in thousands):
Assets acquired
Accounts receivable
Other current assets
Acquired technology
Trade names
Customer relationships
Goodwill
Other assets
Total assets acquired
Liabilities assumed
Accrued expenses
Deferred revenue
Deferred tax liabilities
Other current liabilities
Net assets acquired
Consideration paid
Cash consideration, net of cash acquired
Fair value of common stock issued
Acquisition-related deferred common stock consideration
Contingent consideration
Total
Techwan
921
235
1,160
580
5,100
12,678
254
20,928
673
1,190
838
927
17,300
9,301
5,074
895
2,030
17,300
$
$
$
$
The weighted average useful life of all identified acquired intangible assets is 7.47 years. The average useful lives for acquired technologies, customer
relationships and trade names are 3.0 years, 9.0 years and 3.0 years, respectively. Identifiable intangible assets with definite lives are amortized over the
period of estimated benefit using the straight-line method. The straight-line method of amortization represents the Company’s best estimate of the period of
expected cash flows of the identifiable intangible assets.
The goodwill balance is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the
integration of Techwan’s products with the Company's other solutions. The Company believes that the factors listed above in relation to the purchase of
Techwan support the amount of goodwill recorded as a result of the purchase price paid for the acquisition, in relation to other acquired tangible and
intangible assets. The resulting goodwill from the Techwan acquisition is not deductible for income tax purposes.
During the year ended December 31, 2020, the Company incurred transaction costs of $0.2 million in connection with the Techwan acquisition, which were
expensed as incurred and included in general and administrative expenses.
F-42
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
SnapComms Limited
On August 4, 2020, the Company entered into a Stock Purchase Agreement with SnapComms Limited pursuant to which the Company purchased all of the
issued and outstanding shares of stock of SnapComms for a base consideration of $34.4 million. The Company paid $13.6 million in cash and issued
121,858 newly issued shares of the Company’s common stock at closing. On the date of this acquisition, the average price of the Company’s common stock
on the Nasdaq Global Market was $145.13 per share. In August 2021, the Company paid deferred consideration of approximately New Zealand
$2.5 million in cash and issued 12,390 shares of the Company’s common stock. In addition to the base purchase price, there was also a potential contingent
payment of up to approximately $5.0 million that was eligible to be earned by the sellers based on revenue metrics during the period of April 1, 2020
through March 31, 2021. At the date of the acquisition, the Company preliminarily assessed the probability of SnapComms meeting the revenue metrics
during the period of April 1, 2020 through March 31, 2021 and recorded a $2.0 million initial fair value of contingent consideration as part of the purchase
price allocation. During the years ended December 31, 2021 and 2020, the Company recognized an increase in the fair value of SnapComms’ contingent
consideration obligation in the amount of $0.7 million and a decrease in the fair value of SnapComms’ contingent consideration obligation in the amount of
$2.0 million, respectively, recognized in general and administrative expenses in the consolidated statements of operations and comprehensive loss. During
the year ended December 31, 2021, the Company issued 6,188 shares of the Company’s common stock to settle SnapComms’ contingent consideration
liability. The Company acquired SnapComms for its internal communications software to enhance the Company’s CEM suite of solutions as well as market
penetration and customer reach.
The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed, which were recorded as of the acquisition date,
as well as the aggregate consideration for the acquisition of SnapComms made by the Company (in thousands):
Assets acquired
Accounts receivable
Other current assets
Property and equipment
Acquired technology
Trade names
Customer relationships
Goodwill
Other assets
Total assets acquired
Liabilities assumed
Accrued expenses
Deferred revenue
Deferred tax liabilities
Other liabilities
Net assets acquired
Consideration paid
Cash consideration, net of cash acquired
Fair value of common stock issued
Acquisition-related deferred consideration
Contingent consideration
Total
F-43
SnapComms
1,808
283
118
2,300
960
13,300
22,629
943
42,341
503
3,165
4,960
742
32,971
10,090
17,685
3,149
2,047
32,971
$
$
$
$
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
The weighted average useful life of all identified acquired intangible assets is 7.82 years. The average useful lives for acquired technologies, customer
relationships and trade names are 3.0 years, 9.0 years and 3.0 years, respectively. Identifiable intangible assets with definite lives are amortized over the
period of estimated benefit using the straight-line method. The straight-line method of amortization represents the Company’s best estimate of the period of
expected cash flows of the identifiable intangible assets.
The goodwill balance is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the
integration of SnapComms’ products with the Company's other solutions. The Company believes that the factors listed above in relation to the purchase of
SnapComms support the amount of goodwill recorded as a result of the purchase price paid for the acquisition, in relation to other acquired tangible and
intangible assets. The resulting goodwill from the SnapComms acquisition is not deductible for income tax purposes.
During the year ended December 31, 2020, the Company incurred transaction costs of $0.1 million in connection with the SnapComms acquisition, which
were expensed as incurred and included in general and administrative expenses.
(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 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 1.50%
convertible senior notes due 2022 (see 1.50% Convertible Senior Notes Due 2022 below) and 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 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.
F-44
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
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 December 31, 2021, the 2026 Notes are not yet convertible. The 2026 Notes are classified as long-term on the consolidated balance sheet as of
December 31, 2021 as it is the Company’s intent to settle all of the debt at maturity or to settle in shares if exercised by the debt holder prior to maturity.
The 2026 Notes are 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.
Based on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and with similar maturity,
the Company estimated the implied interest rate of its 2026 Notes to be approximately 7.25%, assuming no conversion option. Assumptions used in the
estimate represent what market participants would use in pricing the equity component, including market interest rates, credit standing, and yield curves, all
of which are defined as Level 2 observable inputs. The estimated implied interest rate was applied to the 2026 Notes, which resulted in a fair value of the
liability component of $269.6 million upon issuance, calculated as the present value of implied future payments based on the $375.0 million aggregate
principal amount. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, is amortized to interest
expense over the term of the 2026 Notes. The $105.4 million difference between the aggregate principal amount of $375.0 million and the estimated fair
value of the liability component was recorded in additional paid-in capital as the 2026 Notes were not considered redeemable.
Significant judgment is required in determining the liability component of the related convertible senior notes as well as the balance sheet classification of
the elements of the convertible senior notes. The Company accounted for the convertible senior notes and the partial extinguishment of the 2022 Notes,
discussed below, as separate liability and equity components, determining the fair value of the respective liability components based on an estimate of the
fair value of a similar liability without a conversion option and assigning the residual value to the equity component.
F-45
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
The Company estimated the fair value of the liability component of the convertible senior notes using a discounted cash flow model with a risk adjusted
yield for similar debt instruments, absent any embedded conversion feature. In estimating the risk adjusted yield, the Company utilized both an income and
market approach. For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility
and the risk-free rate. For the market approach, the Company performed an evaluation of issuances of convertible debt securities issued by other
comparable companies. Additionally, a detailed analysis of the terms of the convertible senior notes transactions was required to determine existence of any
derivatives that may require separate mark-to-market accounting under applicable accounting guidance.
In accounting for the transaction costs related to the issuance of the 2026 Notes, the Company allocated the total amount incurred to the liability and equity
components based on their estimated relative fair values. Transaction costs attributable to the liability component, totaling $7.6 million, are being amortized
to expense over the term of the 2026 Notes, and transaction costs attributable to the equity component, totaling $3.0 million, were netted with the equity
component in shareholders’ equity.
The 2026 Notes consist of the following (in thousands):
Liability component:
Principal
Less: debt discount, net of amortization
Net carrying amount
Equity component (1)
As of
December 31, 2021
$
$
375,000
(97,261)
277,739
99,000
(1)
Recorded in the consolidated balance sheet within additional paid-in capital, net of $3.0 million transaction costs in equity and net of $3.4 million
for taxes.
The following table sets forth total interest expense recognized related to the 2026 Notes (in thousands):
Amortization of debt discount and transaction costs
Year Ended
December 31, 2021
$
15,715
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 (carrying
value excludes the equity component of the Company’s 2026 Notes classified in equity) was as follows (in thousands):
2026 Notes
As of December 31, 2021
Fair Value
Carrying Value
$
318,311 $
277,739
In connection with the issuance of the 2026 Notes, the Company entered into capped call transactions with certain counterparties affiliated with the initial
purchasers and other financial institutions. The capped call transactions are expected generally to reduce potential dilution to our common stock upon any
conversion of 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 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.
F-46
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
Based on the closing price of the Company’s common stock of $67.33 on December 31, 2021, 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 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 and 2022 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 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.
F-47
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
In the third quarter of 2021, the last reported sale price of the Company’s common stock was at least 130% of the conversion price of the 2024 Notes for at
least 20 trading days during a period of 30 consecutive trading days ending on, and including, the last trading day of the quarter, resulting in the 2024 Notes
becoming convertible at the option of the holder during the fourth quarter of 2021; however, as the last reported sale price of the Company’s common stock
was not at least 130% of the conversion price of the 2024 Notes for at least 20 trading days during a period of 30 consecutive trading days ending on, and
including, the last trading day of the fourth quarter of 2021, the 2024 Notes were not convertible as of January 1, 2022. The 2024 Notes are classified as
long-term on the consolidated balance sheet as of December 31, 2021 as it is the Company’s intent to settle all of the debt at maturity or to settle in shares if
exercised by the debt holder prior to maturity.
The 2024 Notes are 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.
Based on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and with similar maturity,
the Company estimated the implied interest rate of its 2024 Notes to be approximately 5.16%, assuming no conversion option. Assumptions used in the
estimate represent what market participants would use in pricing the equity component, including market interest rates, credit standing, and yield curves, all
of which are defined as Level 2 observable inputs. The estimated implied interest rate was applied to the 2024 Notes, which resulted in a fair value of the
liability component of $360.4 million upon issuance, calculated as the present value of implied future payments based on the $450.0 million aggregate
principal amount. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, is amortized to interest
expense over the term of the 2024 Notes. The $89.6 million difference between the aggregate principal amount of $450.0 million and the estimated fair
value of the liability component was recorded in additional paid-in capital as the 2024 Notes were not considered redeemable.
Significant judgment is required in determining the liability component of the related convertible senior notes as well as the balance sheet classification of
the elements of the convertible senior notes. The Company accounted for the convertible senior notes and the partial extinguishment of the 2022 Notes,
discussed below, as separate liability and equity components, determining the fair value of the respective liability components based on an estimate of the
fair value of a similar liability without a conversion option and assigning the residual value to the equity component.
The Company estimated the fair value of the liability component of the convertible senior notes using a discounted cash flow model with a risk adjusted
yield for similar debt instruments, absent any embedded conversion feature. In estimating the risk adjusted yield, the Company utilized both an income and
market approach. For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility
and the risk-free rate. For the market approach, the Company performed an evaluation of issuances of convertible debt securities issued by other
comparable companies. Additionally, a detailed analysis of the terms of the convertible senior notes transactions was required to determine existence of any
derivatives that may require separate mark-to-market accounting under applicable accounting guidance.
In accounting for the transaction costs related to the issuance of the 2024 Notes, the Company allocated the total amount incurred to the liability and equity
components based on their estimated relative fair values. Transaction costs attributable to the liability component, totaling $10.2 million, are being
amortized to expense over the term of the 2024 Notes, and transaction costs attributable to the equity component, totaling $2.6 million, were netted with the
equity component in shareholders’ equity.
F-48
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
The 2024 Notes consist of the following (in thousands):
Liability component:
Principal
Less: debt discount, net of amortization
Net carrying amount
Equity component (1)
As of December 31,
2021
2020
$
$
450,000 $
(62,044)
387,956 $
86,133
450,000
(80,968)
369,032
86,133
(1)
Recorded in the consolidated balance sheet within additional paid-in capital, net of $2.6 million transaction costs in equity and net of $0.9 million
for taxes.
The following table sets forth total interest expense recognized related to the 2024 Notes (in thousands):
0.125% coupon
Amortization of debt discount and transaction costs
2021
Year Ended December 31,
2020
2019
$
$
562 $
18,924
19,486 $
564 $
17,974
18,538 $
27
827
854
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 (carrying
value excludes the equity component of the Company’s 2024 Notes classified in equity) were as follows (in thousands):
As of December 31,
2021
2020
2024 Notes
$
440,564 $
387,956 $
663,615 $
Fair Value
Carrying Value
Fair Value
Carrying Value
369,032
In connection with the issuance of the 2024 Notes, the Company entered into capped call transactions with certain counterparties affiliated with the initial
purchasers and other financial institutions. The capped call transactions are expected generally to reduce potential dilution to our common stock upon any
conversion of 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 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 $67.33 on December 31, 2021, the if-converted value of the 2024 Notes was less than their
respective principal amounts.
1.50% Convertible Senior Notes Due 2022
In November 2017, the Company issued $115.0 million aggregate principal amount of
F-49
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
1.50% convertible senior notes due 2022 including $15.0 million aggregate principal amount of 2022 Notes issued upon the initial purchasers’ exercise in
full of their option to purchase additional 2022 Notes. The 2022 Notes will mature on November 1, 2022, unless earlier redeemed or repurchased by the
Company or converted by the holders pursuant to their terms. Interest is payable semiannually in arrears on May 1 and November 1 of each year,
commencing on May 1, 2018.
The 2022 Notes are governed by an Indenture between the Company, as issuer, and U.S. Bank, National Association, as trustee (the “2022 Notes
Indenture”). The 2022 Notes are unsecured and rank: senior in right of payment to the Company’s future indebtedness that is expressly subordinated in
right of payment to the 2022 Notes; equal in right of payment to the Company’s existing and future indebtedness that is not so subordinated, including the
Company’s 2026 Notes and 2024 Notes; effectively subordinated 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 subordinated 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 2022 Notes have an initial conversion rate of 29.6626 shares of common stock per $1,000 principal amount of 2022 Notes. This represents an initial
effective conversion price of approximately $33.71 per share of common stock and initially approximately 3.4 million shares issuable upon conversion.
Throughout the term of the 2022 Notes, the conversion rate may be adjusted upon the occurrence of certain events. Holders of the 2022 Notes will not
receive any cash payment representing accrued and unpaid interest, if any, upon conversion of a 2022 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 2022 Note.
Holders may convert all or a portion of their 2022 Notes prior to the close of business on the business day immediately preceding May 1, 2022, 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, 2018 (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 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 five consecutive trading day period (the “2022 Notes Measurement Period”), in which the
“trading price” (as the term is defined in the 2022 Notes Indenture) per $1,000 principal amount of notes for each trading day of such 2022
Notes Measurement Period was less than 98% of the product of the last reported sale price of the Company’s common stock on such
trading day and the conversion rate on each such trading day;
if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day
immediately preceding the maturity date; or
upon the occurrence of specified corporate events.
On or after May 1, 2022, 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 2022 Notes at the conversion rate at any time regardless of whether the conditions set forth above have been met.
The 2022 Notes were not redeemable by the Company prior to November 6, 2020. The Company may redeem for cash all or any portion of the 2022 Notes,
at its option, on or after November 6, 2020 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 2022 Notes to be redeemed, plus
accrued and unpaid interest to, but excluding, the redemption date. The Company has not provided notice to exercise its option to redeem the 2022 Notes.
F-50
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
Based on the market price of the Company’s common stock during the 30 trading days preceding June 30, 2018, the 2022 Notes were convertible at the
option of the debt holder as of September 30, 2018 and continue to be convertible at the option of the debt holder as of December 31, 2021.
In connection with the issuance of the 2024 Notes in December 2019, the Company paid $57.8 million to repurchase $23.0 million aggregate principal
amount of the 2022 Notes. The Company determined the fair value of the liability portion being extinguished immediately prior to extinguishment. Based
on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and with similar maturity, the
Company estimated the implied interest rate of its 2022 Notes to be approximately 4.64%. The fair value of such liability portion was then deducted from
the amount of consideration transferred and allocated to the liability component. The difference between the fair value of the liability and its carrying value,
inclusive of any unamortized debt issue costs, was recognized as an extinguishment loss in the amount of $1.4 million in loss on extinguishment of
convertible notes on the consolidated statement of operations and comprehensive loss during the year ended December 31, 2019. The remaining
consideration was allocated to the reacquisition of the equity component and recognized as a reduction of additional paid-in capital on the consolidated
balance sheet in the amount of $36.7 million. The Company also partially terminated capped call options entered into in connection with the 2022 Notes
during fiscal year 2019 and received $5.8 million recorded to additional paid-in capital on the consolidated balance sheet.
During the year ended December 31, 2020, the Company issued 362,029 shares upon the conversion of approximately $12.2 million in aggregate principal
amount of the 2022 Notes and recognized $11.4 million in additional paid-in capital on the consolidated balance sheet related to shares issued. The
Company determined the fair value of the liability portion being extinguished immediately prior to extinguishment. Based on market data available for
publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and with similar maturity, the Company estimated the implied
interest rate of its 2022 Notes ranged from approximately 4.64% to 5.13%. The fair value of such liability portion was then deducted from the amount of
consideration transferred and allocated to the liability component. The difference between the fair value of the liability and its carrying value, inclusive of
any unamortized debt issue costs, were recognized as an extinguishment loss in the amount of $0.4 million in loss on extinguishment of convertible notes
on the consolidated statement of operations and comprehensive loss during the year ended December 31, 2020.
During the year ended December 31, 2021, the Company issued 627,212 shares upon the conversion of approximately $21.1 million in aggregate principal
amount of the 2022 Notes and recognized $19.8 million in additional paid-in capital on the consolidated balance sheet related to shares issued. The
Company determined the fair value of the liability portion being extinguished immediately prior to extinguishment. Based on market data available for
publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and with similar maturity, the Company estimated the implied
interest rate of its 2022 Notes ranged from approximately 4.87% to 5.13%. The fair value of such liability portion was then deducted from the amount of
consideration transferred and allocated to the liability component. The difference between the fair value of the liability and its carrying value, inclusive of
any unamortized debt issue costs, was recognized as an extinguishment loss in the amount of $0.5 million in loss on extinguishment of convertible notes
and capped call modification on the consolidated statement of operations during the year ended December 31, 2021.
In connection with the issuance of the 2026 Notes in March 2021, the Company paid approximately $58.6 million in cash and issued 1,288,994 shares of
common stock to repurchase approximately $58.6 million aggregate principal amount of the 2022 Notes. The Company determined the fair value of the
liability portion being extinguished immediately prior to extinguishment. Based on market data available for publicly traded, senior, unsecured corporate
bonds issued by companies in the same industry and with similar maturity, the Company estimated the implied interest rate of its 2022 Notes to be
approximately 4.87%. The fair value of such liability portion was then deducted from the amount of consideration transferred and allocated to the liability
component. The difference between the fair value of the liability and its carrying value, inclusive of any unamortized debt issue costs, was recognized as an
extinguishment loss in the amount of $2.2 million in loss on extinguishment of convertible notes and capped call modification on the consolidated
statement of operations during the year ended December 31, 2021. The remaining consideration was allocated to the reacquisition of the equity component
and recognized as a reduction of additional paid-in capital on the consolidated balance sheet in the amount of $2.7 million. The Company also partially
terminated capped call options entered into in connection with the 2022 Notes in March 2021
F-51
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
and received $10.6 million recorded to additional paid-in capital on the consolidated balance sheet and modified a capped call option agreement entered
into in connection with the 2022 Notes and recognized modification expense of $0.2 million in loss on extinguishment of convertible notes and capped call
modification on the consolidated statement of operations and additional paid-in capital on the consolidated balance sheet.
The 2022 Notes are classified as current liabilities on the consolidated balance sheet as of December 31, 2021 as the notes mature in less than 12 months.
The Company may repurchase the 2022 Notes prior to maturity and intends to settle in shares if exercised by the debt holder prior to maturity.
Based on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and with similar maturity,
the Company estimated the implied interest rate of its 2022 Notes at the time of issuance to be approximately 6.93%, assuming no conversion option.
Assumptions used in the estimate represent what market participants would use in pricing the equity component, including market interest rates, credit
standing, and yield curves, all of which are defined as Level 2 observable inputs. The estimated implied interest rate was applied to the 2022 Notes, which
resulted in a fair value of the liability component of $92.1 million upon issuance, calculated as the present value of implied future payments based on the
$115.0 million aggregate principal amount. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, is
amortized to interest expense over the term of the 2022 Notes. The $22.9 million difference between the aggregate principal amount of $115.0 million and
the estimated fair value of the liability component was recorded in additional paid-in capital as the 2022 Notes were not considered redeemable.
In accounting for the transaction costs related to the issuance of the 2022 Notes, the Company allocated the total amount incurred to the liability and equity
components based on their estimated relative fair values. Transaction costs attributable to the liability component on the remaining outstanding notes as of
the issuance date, of less than $0.1 million, are being amortized to expense over the term of the 2022 Notes, and transaction costs attributable to the equity
component as of the issuance date, totaling $0.8 million, were netted with the equity component in shareholders’ equity.
The 2022 Notes consist of the following (in thousands):
Liability component:
Principal
Less: debt discount, net of amortization
Net carrying amount
Equity component (1)
As of December 31,
2021
2020
$
$
8 $
—
8 $
(39,358)
79,795
(7,313)
72,482
(21,318)
(1)
Recorded in the consolidated balance sheet within additional paid-in capital, net of $0.8 million transaction costs in equity. Additional paid-in
capital also includes $2.7 million and $36.7 million, respectively, market premium representing the excess of the total consideration delivered over
the fair value of the liability recognized related to the $58.6 million and $23.0 million, respectively, principal balance extinguishment of the 2022
Notes in March 2021 and December 2019.
The following table sets forth total interest expense recognized related to the 2022 Notes (in thousands):
1.50% coupon
Amortization of debt discount and transaction costs
2021
Year Ended December 31,
2020
2019
$
$
110 $
632
742 $
1,363 $
4,187
5,550 $
1,709
4,884
6,593
F-52
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
The fair value of the 2022 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 2022 Notes in an over-the-counter market (Level 2), and carrying value of debt instruments (carrying
value excludes the equity component of the Company’s convertible notes classified in equity) were as follows (in thousands):
As of December 31,
2021
2020
2022 Notes
$
16 $
8 $
265,488 $
Fair Value
Carrying Value
Fair Value
Carrying Value
72,482
In connection with the issuance of the 2022 Notes, the Company entered into capped call transactions with certain counterparties affiliated with the initial
purchasers and others. The capped call transactions are expected generally to reduce potential dilution to our common stock upon any conversion of 2022
Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2022 Notes, as the case may be, with
such reduction and/or offset subject to a cap. Under the 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 2022 Notes, with an initial strike price of approximately $33.71 per share, which
corresponds to the initial conversion price of the 2022 Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the
conversion rate of the 2022 Notes, and have a cap price of approximately $47.20. The cost of the purchased capped calls of $12.9 million was recorded to
shareholders’ equity and will not be re-measured. During the three months ended March 31, 2021, the Company amended one of the capped call agreements to
reduce the cap price to $46.68 and recognized modification expense of $0.2 million in loss on extinguishment of convertible notes and capped call modification
on the consolidated statement of operations.
Based on the closing price of the Company’s common stock of $67.33 on December 31, 2021, the if-converted value of the 2022 Notes was more than their
respective principal amounts.
The following table summarizes the Company’s debt obligations at December 31, 2021 (in thousands):
Debt obligations
Less than
1 Year
$
8
$
1 to 3
Years
450,000
$
3 to 5
Years
375,000
$
More than
5 Years
—
$
Total
825,008
Debt obligations include the principal amount of the 2026 Notes, 2024 Notes and 2022 Notes but exclude interest payments to be made under the 2026
Notes, 2024 Notes and 2022 Notes. Although the 2026 Notes, 2024 Notes and 2022 Notes mature in 2026, 2024 and 2022, respectively, they can be
converted into cash and shares of our common stock prior to maturity if certain conditions are met. Any conversion prior to maturity can result in
repayments of the principal amounts sooner than the scheduled repayments as indicated in the table. The 2026 Notes and 2024 Notes balance excludes
$97.3 million and $62.0 million, respectively, of debt discount capitalized on the balance sheet and shown net of our debt obligations.
(10) Stockholders’ Equity
Preferred Stock
As of December 31, 2021, the Company had authorized 10,000,000 shares of preferred stock, par value $0.001, of which no shares were outstanding.
Common Stock
Holders of the Company’s common stock are entitled to one vote per share.
As of December 31, 2021, the Company had authorized 100,000,000 shares of common stock, par value $0.001. At December 31, 2021 and 2020, there are
39,389,733 and 35,449,447 shares of common stock issued and outstanding, respectively.
F-53
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
(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.
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 of directors.
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 years ended December 31, 2021, 2020 and 2019, 41,164, 49,319, and 42,481 shares of common stock, respectively, were purchased under the 2016
ESPP. As of December 31, 2021, 2020 and 2019, total recognized compensation cost was $1.8 million, $1.4 million, and $0.9 million, respectively. As of
December 31, 2021, unrecognized compensation cost related to the 2016 ESPP was $0.4 million which will be amortized over a weighted-average period
of 0.20 years.
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:
Employee Stock Purchase Plan:
Expected term (in years) (1)
Expected volatility (2)
Risk-free interest rate (3)
Dividend rate (4)
2021
0.50
45% - 60%
0.05% - 0.06%
0%
Year Ended December 31,
2020
0.50
55% - 65%
0.12% - 0.29%
0%
2019
0.50
45%
1.93% - 2.52%
0%
(1)
(2)
The expected term represents the contractual term of the 2016 ESPP;
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;
F-54
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
(3)
(4)
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
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 years ended December 31, 2021 and 2020. The Company recorded stock-based compensation expense of
$1.2 million, $3.5 million and $5.7 million for the years ended December 31, 2021, 2020 and 2019, respectively, attributed to stock options.
The total intrinsic value of options exercised in 2021, 2020 and 2019 was $12.7 million, $30.6 million and $48.2 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 December 31, 2021, 2020 and 2019 the total intrinsic value of all outstanding options
was $6.9 million, $34.5 million and $37.3 million, respectively.
Total unrecognized compensation cost related to nonvested stock options was approximately $0.1 million as of December 31, 2021 and is expected to be
recognized over a weighted average period of 0.28 years. The amount of cash received from the exercise of stock options in 2021, 2020 and 2019 was $3.1
million, $8.2 million, and $17.4 million, respectively.
The following table summarizes the Company’s stock option activity:
Outstanding at December 31, 2020
Exercised
Forfeited
Outstanding at December 31, 2021
Stock options outstanding, vested and expected to vest and exercisable are as follows:
Outstanding
Vested and expected to vest
Exercisable
Vested and nonvested stock option activity was as follows:
Outstanding at December 31, 2021
Stock options
outstanding
Weighted
average
exercise price
$
279,021
(114,381)
(6,900)
157,740
25.55
27.21
37.19
23.83
As of December 31, 2021
Remaining
contractual
life (years)
Weighted-
average
exercise
price
$
5.10
5.10
5.02
23.83
23.83
22.56
Number
of shares
157,740
157,695
148,038
Vested
Nonvested
Options
outstanding
Weighted
average
exercise
price
Options
outstanding
Weighted
average
exercise
price
148,038 $
22.56
9,702 $
43.35
F-55
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
Restricted Stock Units
During the year ended December 31, 2021, the Company granted 463,657 RSUs to members of its senior management and certain other employees
pursuant to the 2016 Plan. There were 285,517 RSUs that vested during the year ended December 31, 2021. 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 years ended December 31, 2021, 2020 and 2019 were $124.00, $122.82 and $80.16 respectively. The fair values of RSUs that
vested during the years ended December 31, 2021, 2020 and 2019, were $25.6 million, $18.2 million and $11.9 million, respectively. During the years
ended December 31, 2021, 2020 and 2019, the Company recorded $28.1 million, $20.1 million, and $16.3 million respectively, of stock-based
compensation related to the RSUs.
As of December 31, 2021, there was $59.1 million of unrecognized compensation expense related to unvested RSUs which is expected to be recognized
over a weighted-average period of approximately 2.49 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 year ended December 31, 2021, the Company granted 465,766 PSUs to members of its management pursuant to the 2016 Plan. There were
287,976 PSUs that vested during the year ended December 31, 2021. The PSUs generally vest based on the Company achieving certain revenue growth
thresholds which range from 20% to 40% compounded annual growth for grants through 2020 and 15% to 35% compounded annual growth for grants
starting in 2021 over a measurement period of two years for the first 50% of PSUs and three years for the remaining PSUs. The vesting of the PSUs is
subject to the employee’s continued employment with the Company through the date of achievement. During the year ended December 31, 2021, the share
price of the Company’s common stock on the date of issuance of the PSUs ranged from $67.19 to $156.80 per share. The 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. During the three months ended December 31, 2021, as a
result of forecasted decreases in the compounded annual growth rate, the Company reduced the expected achievement of performance metrics and
recognized a reduction in stock-based compensation expense. The weighted-average grant date fair value of PSUs granted during the years ended
December 31, 2021, 2020 and 2019 was $123.94, $119.78 and $80.87, respectively. For the years ended December 31, 2021, 2020 and 2019, the Company
recognized $13.0 million, $21.8 million and $10.6 million, respectively, of stock compensation expense in connection with the PSU awards.
As of December 31, 2021, there was $28.9 million of unrecognized compensation expense related to unvested PSUs which is expected to be recognized
over a weighted-average period of approximately 2.12 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:
Outstanding at December 31, 2020
Granted
Vested
Forfeited
Outstanding at December 31, 2021
Number of Shares
1,420,541
929,423
(573,493)
(196,733)
1,579,738
There were no tax benefits recognized for the tax deductions from stock options exercised or RSU and PSU awards vested during the years ended
December 31, 2021, 2020 and 2019, as tax benefits increased net operating losses which were analyzed for a valuation allowance along with the
Company’s other deferred tax assets.
F-56
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
Stock-Based Compensation Expense
The Company recorded the total stock-based compensation expense as follows (in thousands):
Cost of revenue
Sales and marketing
Research and development
General and administrative
Total
2021
Year Ended December 31,
2020
2019
$
$
3,669 $
16,152
8,297
15,977
44,095 $
2,954 $
15,946
8,703
19,152
46,755 $
1,966
9,983
7,820
13,720
33,489
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:
Convertible senior notes
Stock-based compensation grants
Total
2021
6,080,480
1,737,478
7,817,958
Year Ended December 31,
2020
6,371,882
1,699,562
8,071,444
2019
6,733,914
2,038,174
8,772,088
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. In connection with the issuance of the 2022 Notes in November 2017, the Company paid $12.9 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 2022 Notes.
In March 2021 and December 2019, the Company partially terminated capped call options related to the 2022 Notes and received $10.6 million and $5.8
million, respectively. In March 2021, the Company also modified a capped call agreement entered into in connection with the 2022 Notes and recognized
modification expense of $0.2 million in loss on extinguishment of convertible notes and capped call modification on the consolidated statement of
operations. 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.
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 and 2016 ESPP. The amount of such
shares of the Company’s common stock reserved for these purposes at December 31, 2021 was 5.4 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,
2024 Notes and 2022 Notes.
F-57
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
(13) Income Taxes
The components of loss before income taxes are as follows (in thousands):
Domestic
Foreign
Total
2021
Year Ended December 31,
2020
2019
$
$
(90,584) $
(16,791)
(107,375)
$
(72,164) $
(23,499)
(95,663)
$
(47,218)
(4,607)
(51,825)
For purposes of reconciling the Company’s provision for income taxes at the statutory rate and the Company’s provision (benefit) for income taxes at the
effective tax rate, a notional 21% tax rate was applied as follows (in thousands):
Income tax at federal statutory rate
Increase (decrease) in tax resulting from:
State income tax expense, net of federal tax effect
Nondeductible permanent items
Executive compensation
Foreign rate differential
Gain on extinguishment of debt
Tax rate change
Adjustment to deferred taxes
Change in valuation allowance
Uncertain tax positions
Nonqualified stock option and performance award windfall
upon exercise
Other
Total
2021
Year Ended December 31,
2020
2019
$
(22,549) $
(20,089) $
(10,883)
(5,018)
(87)
4,885
(1,060)
(2,123)
(1,039)
817
23,262
165
(9,352)
(480)
$
(12,579)
$
(3,763)
1,659
6,020
(156)
—
—
(3,190)
25,339
151
(8,608)
370
(2,267)
$
(3,657)
3,522
—
(367)
—
—
(1,904)
22,481
128
(9,128)
233
425
The difference between the statutory federal income tax rate and the Company’s effective tax rate in 2021, 2020 and 2019 is primarily attributable to the
effect of state income taxes, difference between the U.S. and foreign tax rates, non-deductible officer compensation, share-based compensation, true up of
deferred taxes, other non-deductible permanent items, and change in valuation allowance. In addition, the Company’s foreign subsidiaries are subject to
varied applicable statutory income tax rates for the periods presented.
The provision for (benefit from) income taxes is as follows (in thousands):
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Change in valuation allowance
Total
F-58
2021
Year Ended December 31,
2020
2019
$
$
67 $
49
212
328
(20,181)
(7,634)
(8,354)
(36,169)
23,262
(12,579)
$
353 $
94
492
939
(15,835)
(6,115)
(6,595)
(28,545)
25,339
(2,267)
$
—
139
116
255
(16,460)
(5,100)
(751)
(22,311)
22,481
425
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
The net deferred tax assets (liabilities) are comprised of the following (in thousands):
Deferred tax assets
Lease liability
Tax credits
Accrued expenses
Deferred revenue
Net operating loss carryforward
Other assets
Property and equipment
Intangible assets
Valuation allowance
Total net deferred tax assets
Deferred tax liabilities
Deferred commissions
Intangible assets
Property and equipment
Debt discount
Right-of-use asset
Other
Total deferred tax liabilities
Total deferred income tax liabilities
As of December 31,
2021
2020
$
$
5,945 $
195
3,632
2,882
114,625
10,247
106
2,662
(56,252)
84,042
(6,234)
(50,443)
—
(38,156)
(5,160)
(131)
(100,124)
(16,082)
$
4,447
9
3,066
555
73,752
7,483
—
2,448
(52,320)
39,440
(5,996)
(18,199)
(685)
(20,370)
(4,029)
(134)
(49,413)
(9,973)
A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized based on an assessment of positive
and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts. A significant piece of objective
negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2021. Such objective evidence limits the
ability to consider other subjective evidence such as its projections for future growth. On the basis of this evaluation, at December 31, 2021 and 2020, a
valuation allowance of $56.3 million and $52.3 million, respectively, has been recorded.
As of December 31, 2021, the Company has accumulated federal and state net operating loss (“NOL”) carryforwards of $368.0 million and $307.2 million,
respectively. Of the $368.0 million of federal NOL carryforwards, $122.3 million was generated before January 1, 2018 and is subject to the 20-year
carryforward period (“pre-Tax Act losses”). The remaining $245.7 million (“post-Tax Act losses”) can be carried forward indefinitely but is subject to the
80% taxable income limitation. Of the $307.2 million of state NOL carryforwards, $36.2 million can be carried forward indefinitely. The pre-Tax Act U.S.
federal and state net operating loss carryforwards will expire in varying amounts through 2041. The Company completed a Section 382 study for the period
through March 31, 2019 and determined that a Section 382 ownership change occurred on December 31, 2017 subjecting all pre-Tax Act losses to a
utilization limitation; however, such limitation is not expected to result in NOLs expiring unused. Any future annual limitation may result in the expiration
of NOLs before utilization. Included in the Company’s NOLs are federal and state NOLs of $83.0 million and $38.7 million, respectively, from various
acquisitions which are subject to limitations under Section 382. The Company also completed a Section 382 study for xMatters, Inc., a wholly owned
subsidiary of the Company. As a result of the study, the Company determined that out of total federal NOLs of $64.0 million, $0.9 million of federal net
operating losses generated by xMatters, Inc. prior to May 7, 2021 would not be available for utilization due to ownership changes experienced by xMatters,
Inc.
F-59
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
As of December 31, 2021 and 2020, the Company had combined foreign net operating loss carry-forwards available to reduce future taxable income of
approximately $75.9 million and $48.4 million, respectively. As of December 31, 2021 and 2020, valuation allowances of $74.1 million and $29.9 million,
respectively, had been recorded against the related deferred tax assets for those loss carry-forwards that are not more likely than not to be fully utilized in
reducing future taxable income.
The following changes occurred in the amount of unrecognized tax benefits (in thousands):
Beginning balance of unrecognized tax benefits
Additions for current year tax positions
Additions for prior year tax positions
Ending balance (excluding interest and penalties)
Interest and penalties
Total
2021
Year Ended December 31,
2020
2019
$
$
748 $
138
577
1,463
27
1,490
$
597 $
131
—
728
20
748
$
469
106
—
575
22
597
For the year ended December 31, 2021, 2020 and 2019, the Company has recorded income tax expense of $165,000, $151,000 and $128,000, respectively,
related to uncertain tax positions. The Company’s policy is to recognize potential interest and penalties related to unrecognized tax benefits associated with
uncertain tax positions, if any, in the income tax provision. At December 31, 2021, 2020 and 2019, the Company had accrued $27,000, $20,000 and
$22,000, respectively, in interest and penalties related to uncertain tax positions.
The Company is subject to taxation in the United States and various states along with other foreign countries. The Company has not been notified that it is
under audit by the IRS or any state, however, due to the presence of NOL carryforwards, all the income tax years remain open for examination in each of
these jurisdictions. The Company has been notified of an income tax examination by the Chinese tax authorities during the first quarter of 2022. There are
no other audits in any other foreign jurisdictions. The Company does not believe that it is reasonably possible that the total amount of unrecognized tax
benefits will significantly increase or decrease in the next 12 months.
Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiaries because of the Company’s
intent to reinvest such earnings indefinitely in active foreign operations. At December 31, 2021, the Company had $18.9 million in unremitted earnings that
were permanently reinvested related to its consolidated foreign subsidiaries.
(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 chief operating decision maker (“CODM”) in deciding how to allocate resources and assess the Company’s financial and
operational performance. The Company’s CODM was David Meredith, the Company’s former Chief Executive Officer and upon Mr. Meredith’s
resignation (see Note 19), the Company began to transition leadership to Patrick Brickley, Executive Vice President, Chief Financial Officer and Treasurer,
and Vernon Irvin, Executive Vice President and Chief Revenue Officer as Interim Co-Chief Executive Officers and interim CODMs of the Company.
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.
F-60
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
(15) Revenue Recognition
The following table disaggregates the Company’s revenue by geography which provides information as to the major source of revenue (in thousands):
Primary Geographic Markets
United States
International
Total
2021
Year Ended December 31,
2020
2019
$
$
253,941 $
114,492
368,433 $
201,458 $
69,683
271,141 $
157,039
43,843
200,882
The following table presents the Company’s revenues disaggregated by revenue source (in thousands):
Subscription services
Professional services
Software licenses and other
Total
Contract Assets
2021
Year Ended December 31,
2020
2019
$
$
327,047
26,022
15,364
368,433
$
$
242,651
20,410
8,080
271,141
$
$
179,934
17,187
3,761
200,882
The Company does not have material amounts of contract assets since revenue is recognized as control of goods is transferred or as services are performed.
There are a small number of professional services that may occur over a period of time, but that period of time is generally very short in duration. Any
contract assets that may arise are recorded in other assets in the Company’s consolidated balance sheet 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 in the Company’s consolidated balance sheet. The noncurrent portion of deferred revenue is included and separately disclosed
in the Company’s consolidated balance sheet.
Deferred Costs
Current deferred costs, which primarily consist of deferred sales commissions, were $15.8 million and $14.5 million as of December 31, 2021 and 2020,
respectively. Noncurrent deferred costs, which primarily consist of deferred sales commissions, were $17.0 million and $15.9 million as of December 31,
2021 and 2020, respectively. During the years ended December 31, 2021, 2020 and 2019, amortization expense for the deferred costs was $14.4 million,
$12.6 million and $8.0 million, respectively. There was no impairment loss in relation to the costs capitalized.
Deferred Revenue
For the years ended December 31, 2021, 2020 and 2019, $157.6 million, $123.3 million and $86.2 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. For the years ended
December 31, 2021, 2020 and 2019, $8.6 million, $6.6 million and $6.0 million, respectively, of professional services revenue was recognized and was
included in the deferred revenue balance at the beginning of the period.
F-61
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
As of December 31, 2021, approximately $425.3 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 $263.6 million of these remaining performance obligations over the
next 12 months, with the balance recognized thereafter.
As of December 31, 2021, approximately $15.7 million of revenue is expected to be recognized from remaining performance obligations for professional
services contracts. The Company expects to recognize revenue on approximately $13.4 million of these remaining performance obligations over the next 12
months, with the balance recognized thereafter.
(16) Geographic Concentrations
Revenue by location is determined by the billing address of the customer. Approximately 69%, 74% and 78% of the Company’s revenue was from the
United States for the fiscal years ended December 31, 2021, 2020 and 2019, respectively. No other individual country comprised more than 7% of total
revenue for the fiscal years ended December 31, 2021, 2020 and 2019. Property and equipment by geographic location is based on the location of the legal
entity that owns the asset. As of December 31, 2021 and 2020, more than 70% and 83%, respectively, of the Company’s property and equipment was
located in the United States.
(17) Employee Benefit Plan
The Company maintains a 401(k) plan for the benefit of the Company’s eligible employees. The plan covers all employees who have attained minimum
service requirements. The 401(k) plan allows each participant to contribute up to an amount not to exceed an annual statutory maximum. The Company
may, at its discretion, make matching contributions to the 401(k) plan. There was $2.0 million, $1.7 million and $1.2 million cash contributions made to the
plan by the Company for the years ended December 31, 2021, 2020 and 2019, respectively. Contribution expense recognized for the 401(k) plan was $1.9
million, $1.7 million and $1.2 million for the years ended December 31, 2021, 2020, and 2019, respectively.
(18) Leases
The Company’s leases relate primarily to office facilities that expire on various dates from 2022 through 2029. 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):
Balance sheet information
ROU assets
Lease liabilities, current
Lease liabilities, non-current
Total lease liabilities
Supplemental data
Weighted average remaining lease term
Weighted average discount rate
As of December 31,
2021
2020
$
$
$
18,160
$
6,356
15,328
21,684
$
$
15,045
4,259
14,403
18,662
4.24 years
5.99%
4.57 years
7.00%
F-62
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
Cash paid for amounts included in lease liabilities
ROU assets obtained in exchange for new lease obligations
Maturities of lease liabilities as of December 31, 2021 were as follows (in thousands):
$
2021
Year Ended December 31,
2020
6,574 $
8,250
4,891 $
5,870
2019
3,986
17,724
Year ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total undiscounted lease payments
Less: imputed interest
Total lease liabilities
$
$
The following table presents components of lease expense (in thousands):
Operating lease expense
Short-term lease expense(1)
Less: Sublease income
Total lease expense
2021
Year Ended December 31,
2020
2019
$
$
6,383 $
832
7,215
(61)
7,154 $
5,024 $
982
6,006
(236)
5,770 $
7,505
6,454
3,655
1,955
1,813
2,993
24,375
(2,691)
21,684
3,879
958
4,837
(91)
4,746
(1)
Short-term lease expense includes all leases with lease terms ranging from less than one month to one year.
As of December 31, 2021, the Company does not have any leases that have not yet commenced that create significant rights and obligations.
(19) Commitments and Contingencies
For a summary of the Company’s debt and lease obligations, see Notes 9 and 18, respectively.
(a) Litigation
From time to time the Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of business. Although the
results of 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, operating results, financial condition 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.
(b) 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.
F-63
Everbridge, Inc.
Notes to the Consolidated Financial Statements—(Continued)
(c) CEO Transition
In December 2021, David Meredith notified the Company’s Board of Directors of his intention to resign from his role as Chief Executive Officer (“CEO”).
The Board of Directors accepted Mr. Meredith’s resignation and, soon thereafter, established an Office of the CEO and began to transition leadership to
long-tenured company executives Patrick Brickley, Executive Vice President, Chief Financial Officer and Treasurer, and Vernon Irvin, Executive Vice
President and Chief Revenue Officer. Mr. Brickley and Mr. Irvin continue serving as Interim Co-Chief Executive Officers while the Company searches for
a permanent CEO. Mr. Meredith concluded his role on the Company’s Board of Directors on January 10, 2022 and the Company processed the termination
of his employment on January 30, 2022
In connection with Mr. Meredith’s departure, in December 2021, the Company recognized a reversal of $5.6 million within general and administrative
expense of previously recognized stock-based compensation as a result of the related forfeiture of his stock-based awards.
F-64
DESCRIPTION OF THE REGISTRANT'S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.5
The following description sets forth certain material terms and provisions of the securities of Everbridge, Inc. (the “Company”) that are registered under
Section 12 of the Securities Exchange Act of 1934, as amended. This description also summarizes relevant provisions of Delaware law. The following
summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the applicable provisions of Delaware law and
our certificate of incorporation and our bylaws, copies of which are incorporated by reference as an exhibit to the Annual Report on Form 10-K of which
this Exhibit 4.5 is a part. We encourage you to read our certificate of incorporation, our bylaws and the applicable provisions of Delaware law for additional
information.
Our certificate of incorporation authorizes us to issue up to 100,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of
preferred stock, par value $0.001 per share, in one or more series.
Holders of our common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Subject to the preferences that may be
applicable to any outstanding shares of preferred stock, common stockholders are entitled to receive ratably such dividends, if any, as may be declared from
time to time by our board of directors out of funds legally available for that purpose. In the event of our liquidation, dissolution or winding up, the common
stockholders are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of any shares of preferred
stock then outstanding. Common stockholders have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking
fund provisions applicable to the common stock. The common stock currently outstanding is fully paid and nonassessable.
The transfer agent and registrar for the common stock is Computershare.
Our common stock is listed on The Nasdaq Global Market under the trading symbol “EVBG.”
Our board of directors is authorized, without any action by the stockholders, subject to any limitations prescribed by law, to designate and issue preferred
stock in one or more series and to designate the powers, preferences and rights of each series, which may be greater than the rights of the common stock. It
is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of the common stock until our board of
directors determines the specific rights of the holders of such preferred stock. However, the effects might include, among other things:
•
•
•
•
impairing the dividend rights of the common stock;
diluting the voting power of the common stock;
impairing the liquidation rights of the common stock; and
delaying, deferring or preventing a change in control.
Anti-Takeover Provisions
Certain provisions of Delaware law and our certificate of incorporation and bylaws could make the following more difficult:
•
•
•
our acquisition by means of a tender offer;
acquisition of control by means of a proxy contest or otherwise; and
removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types of coercive takeover practices and inadequate takeover bids, and are
designed to encourage persons seeking to acquire control of the Company to negotiate with the board of directors. The Company believes that the benefits
of increased protection against an unfriendly or unsolicited proposal to acquire or restructure the Company outweigh the disadvantages of
discouraging such proposals. Among other things, negotiation of such proposals could result in an improvement of their terms.
Delaware Anti-Takeover Law. Delaware corporations may elect not to be governed by Section 203 of the General Corporation Law of Delaware (the
“DGCL”), i.e., Delaware’s anti-takeover law. The Company has not made this election. Delaware’s anti-takeover law provides that an “interested
stockholder,” defined as a person who owns 15% or more of the outstanding voting stock of a corporation or a person who is an associate or affiliate of the
corporation and, within the preceding three-year period, owned 15% or more of the outstanding voting stock, may not engage in specified business
combinations with the corporation for a period of three years after the date on which the person became an interested stockholder. The law defines the term
“business combination” to encompass a wide variety of transactions with or caused by an interested stockholder, including mergers, asset sales and
transactions in which the interested stockholder receives or could receive a benefit on other than a pro rata basis with other shareholders. With the
affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of our capital stock entitled to vote in the election of
directors, voting together as a single class, we may amend our Certificate of Incorporation in the future to no longer be governed by the anti-takeover law.
This amendment would have the effect of allowing any person who owns at least 15% of our outstanding voting stock to pursue a takeover transaction that
was not approved by our board of directors. However, because the Company has not elected to opt-out of this provision, for transactions not approved in
advance by our board of directors, the provision might discourage takeover attempts that might result in a premium over the market price for shares of our
common stock.
Limitations of Director Liability and Indemnification. Our certificate of incorporation provides that directors shall not be personally liable to the
corporation or to its shareholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the DGCL. Delaware law currently provides that this waiver may not apply to liability:
•
•
•
•
for any breach of the director’s duty of loyalty to us or our shareholders;
for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
under Section 174 of the DGCL (governing distributions to shareholders); or
for any transaction from which the director derived any improper personal benefit.
In the event the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our
directors will be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. Our bylaws further provide that we will indemnify each
of our directors and officers, trustees, fiduciaries, employees and agents to the fullest extent permitted by Delaware law.
Election and Removal of Directors. Our certificate of incorporation provides that a director can only be removed from the board of directors for cause and
only by the affirmative vote of stockholders holding a majority of the outstanding voting power of all classes of stock entitled to vote in an election of
directors, voting together as a single class. The board of directors has the exclusive right to increase or decrease the size of the board and to fill vacancies
on the board. These provisions may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of the Company
because they generally make it more difficult for stockholders to replace a majority of the directors.
Stockholder Meetings. Under our certificate of incorporation, only our chairman of the board, chief executive officer, president or board of directors may
call a special meeting of stockholders pursuant to a resolution adopted by at least a majority of the total number of authorized directors.
Requirements for Advance Notification of Stockholder Nominations and Proposals. Our bylaws contain advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of
directors or a committee of the board of directors.
Elimination of Stockholder Action by Written Consent. Our certificate of incorporation eliminates the right of stockholders to act by written consent
without a meeting. This provision will make it more difficult for stockholders to take action opposed by the board of directors.
No Cumulative Voting. Our certificate of incorporation does not provide for cumulative voting in the election of directors, which, under Delaware law,
precludes stockholders from cumulating their votes in the election of directors, frustrating the ability of minority stockholders to obtain representation on
the board of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred stock makes it possible for the board of directors, without stockholder
approval, to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to obtain control of the Company.
These and other provisions may have the effect of deferring hostile takeovers or delaying changes in the control or management of the Company.
Amendment of Provisions in the Certificate of Incorporation. Our certificate of incorporation requires the affirmative vote of the holders of a majority of
the outstanding voting power of our stock to amend or repeal any provision of the certificate of incorporation concerning the:
•
•
•
•
•
•
•
•
•
•
•
absence of the necessity of the directors to be elected by written ballot;
management of the business of the Company by the board of directors;
absence of the authority of stockholders to act by written consent;
authority to call a special meeting of stockholders;
number of directors and structure of the board of directors;
removal of directors and the filling of vacancies on the board of directors;
authority of the bylaws to govern advance notice provisions with respect to nominations by stockholders for the election of directors and other
business to be brought before any meeting of stockholders;
the method of amending and authority to amend the bylaws and certificate of incorporation of the Company;
personal liability of directors to the Company and the stockholders;
indemnification of the directors, officers, employees and agents of the Company; and
authority or vote required to amend or repeal the section of the certificate of incorporation providing for the right to amend or repeal provisions
of the certificate of incorporation.
Amendment of Provisions in the Bylaws. The certificate of incorporation requires the affirmative vote of the holders of a majority of the outstanding
voting power of our stock to amend any provision of the bylaws concerning:
•
•
•
•
•
•
meetings of or actions taken by stockholders;
number of directors and their term of office;
election and qualification of directors;
removal of directors and the filling of vacancies on the board of directors;
indemnification of the directors, officers, employees and agents of the Company; and
amendments to the bylaws.
Everbridge, Inc.
2021 Management Incentive Plan
Exhibit 10.20
Introduction
The 2021 Management Incentive Plan (“The Plan”) is designed as an incentive to participants to perform at their most effective level, as a reward for strong
performance and as a way of sharing in the success of the Company. The Plan is designed to be self-funded and is incorporated in the business targets and
budgets.
The Plan is designed to reward high performance at the corporate, team and individual level. Awards payable under the Plan will be determined through a
combination of overall bonus pool funding, which will be based upon predefined corporate financial objectives, and achievement of specific team and
individual/development goals.
This Plan is CONFIDENTIAL, and details may not be disclosed outside the Company by any participants.
Eligibility for Participation
Designated employees (“Participants”) are eligible for inclusion in The Plan for the calendar year January 1, 2021 to December 31, 2021. Participation in
The Plan is at the discretion of the Company. Employees considered for participation include management level employees and individual contributors in
functions that meet established criteria. Eligibility for participation is not automatic and will be reviewed annually.
Participation for new hires designated as eligible to participate will be pro-rated based on days in The Plan during the plan year.
There is no contractual commitment on the part of the Company in relation to future years of participation and in this respect the Plan does not confer on
any employees any rights to future participation, future employment, or give rise to any cause of action against the Company.
Operation of The Plan
For each Participant, a fixed cash amount or fixed percentage of base salary will be specified for the purposes of participation in The Plan. The overall Plan
funding will be based on the achievement of predefined corporate financial targets. Individual bonus achievement will be based upon achievement of
business unit/departmental business plans and team, individual and development-based performance goals as agreed to by you and your manager and
maintained within Reflektive. A copy of the business plan will be on file with the People Department and each participant will be provided a copy.
Each participant must sign a copy of The Plan document acknowledging that the document was reviewed.
Everbridge management reserves the right to modify the Plan at any time. Notification of changes to the Plan will be made in writing to affected
participants. Changes may be made to the Plan periodically in order to revise goals, update strategies or correct errors.
Performance against predefined corporate financial targets will be assessed at the end of the fiscal year once all financial results of the Company have been
prepared and approved. The CEO will have the discretion to adjust, up or down any department’s bonus funding based on department KBPI
performance. Everbridge management will then have the discretion to adjust, up or down, any employee’s payout based on subjective assessment of the
employee’s individual performance throughout the year.
2021 Everbridge Management Incentive Plan
Page 1 of 2
Payment
Bonus payments will be made annually after the official close of the operating year, estimated to occur no later than May of the year following. Payment
will be made to each participant provided that the participant:
•
•
Has not given notice to resign employment before any payment is made, and
Remains an active employee at the time of payout.
Any payment to which participants in the following categories may be entitled will be pro-rated:
•
•
•
Employees whose eligibility for participation in The Plan begins after January 1, 2021, or
Employees who are transferred to another position, business unit, department or group within the Company during the plan year and their new
position does not qualify them as eligible to participate in The Plan.
Employees who transfer to a position and become eligible to participate in the Plan during the plan year.
Any payment in whole or in part shall be made through the Company’s normal payroll process and will be net of any appropriate Income Tax, Social
Security Contributions or other relevant deductions.
The Chief Executive Officer and Board of Directors of Everbridge, Inc. reserves the right to amend the plan at any time based on business conditions.
Contractual Status
Payments under The Plan are not contractual. No legally enforceable right to payment will arise under The Plan, nor any right to compensation or damages
for non-payment as a result of the termination of employment (however caused), or for any other reason.
The Plan is not a guarantee of employment for a definite period of time. The participant acknowledges and understands that they or Everbridge may
terminate the employment relationship at any time with or without cause.
The Plan terminates, for the participant, on the date the participant’s employment with Everbridge is terminated.
This Plan shall be construed and governed in accordance with the laws of the Commonwealth of Massachusetts.
Validity
The Plan is valid only for the calendar year January 1, 2021 – December 31, 2021. At the expiration of this Plan, Everbridge will establish a new Plan for
Participants.
2021 Everbridge Management Incentive Plan
Page 2 of 2
List of Subsidiaries of Everbridge, Inc.
Exhibit 21.1
Company Name
Beijing Wan Qiao Da Guan Information & Technology Ltd.
CNL Software Limited
CNL Software, Inc.
Connexient, Inc.
Everbridge Asia Pte. Ltd.
Everbridge Holdings Limited
Everbridge Denmark ApS
Everbridge Europe Limited
Everbridge Finland OY
Everbridge France SAS
Everbridge Netherlands Holdings B.V.
Everbridge Netherlands B.V.
Everbridge Norway AS
Everbridge Securities Corporation
Microtech USA LLC
NC4, LLC
NC4 Public Sector, LLC
Previstar, Inc.
Previstar Private Limited
Red Sky Technologies, Inc.
SnapComms Limited
SnapComms, Inc.
Svensk Krisledning AB
Techwan SA
The Anvil Group (International) Limited
UMS AB
Unified Messaging Systems & Services Private Limited
xMatters, Inc.
Jurisdiction
China
United Kingdom
Delaware
Delaware
Singapore
United Kingdom
Denmark
United Kingdom
Finland
France
Netherlands
Netherlands
Norway
Massachusetts
Delaware
Delaware
Delaware
Delaware
India
Michigan
New Zealand
Delaware
Sweden
Switzerland
United Kingdom
Sweden
India
California
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-3 Nos. 333-262231 and 333-220777) of Everbridge, Inc.,
(2) Registration Statement (Form S-8 Nos. 333-253639, 333-236767, 333-230032, 333-227502 and 333-216909)
pertaining to the 2016 Equity Incentive Plan and the 2016 Employee Stock Purchase Plan of Everbridge, Inc., and
(3) Registration Statement (Form S-8 No. 333-213679) pertaining to the 2008 Equity Incentive Plan, the 2016 Equity
Incentive Plan, and the 2016 Employee Stock Purchase Plan of Everbridge, Inc.;
of our reports dated February 25, 2022, with respect to the consolidated financial statements of Everbridge, Inc. and subsidiaries
and the effectiveness of internal control over financial reporting of Everbridge, Inc. and subsidiaries included in this Annual
Report (Form 10-K) of Everbridge, Inc. and subsidiaries for the year ended December 31, 2021.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 25, 2022
CERTIFICATION OF INTERIM CO-PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Vernon Irvin, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Everbridge, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: February 25, 2022
By: /s/ Vernon Irvin
Name: Vernon Irvin
Title: Executive Vice President, Chief Revenue Officer
and Interim Co-Chief Executive Officer (Performing the
Functions of Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF INTERIM CO-PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Patrick Brickley, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Everbridge, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: February 25, 2022
By: /s/ Patrick Brickley
Name: Patrick Brickley
Title: Executive Vice President, Chief Financial Officer
and Interim Co-Chief Executive Officer (Principal
Financial Officer and Performing the Functions of
Principal Executive Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Vernon Irvin, Interim Co-Chief Executive Officer of Everbridge, Inc., do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge, the Annual Report on Form 10-K of Everbridge, Inc. for the year
ended December 31, 2021 (the “Report”):
(1)
(2)
fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
Everbridge, Inc.
Date: February 25, 2022
By: /s/ Vernon Irvin
Name: Vernon Irvin
Title: Executive Vice President, Chief Revenue Officer
and Interim Co-Chief Executive Officer (Performing the
Functions of Principal Executive Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Patrick Brickley, Interim Co-Chief Executive Officer and Chief Financial Officer of Everbridge, Inc., do hereby certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge, the Annual Report on Form
10-K of Everbridge, Inc. for the year ended December 31, 2021 (the “Report”):
(1)
(2)
fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
Everbridge, Inc.
Date: February 25, 2022
By: /s/ Patrick Brickley
Name: Patrick Brickley
Title: Executive Vice President, Chief Financial Officer
and Interim Co-Chief Executive Officer (Principal
Financial Officer and Performing the Functions of
Principal Executive Officer)