Nov 3, 2016
Executives
Kenneth Goldman - SVP and CFO Jaime Ellertson - CEO and Chairman
Analysts
Michael Nemeroff - Credit Suisse Brad Sills - Bank of America Merrill Lynch Tom Roderick - Stifel Terry Tillman - Raymond James Trevor Upton - Pacific Crest Securities Dmitry Netis - William Blair
Operator
Good day, ladies and gentlemen and welcome to the Everbridge Q3 earnings conference call. At this time, all participants are in a listen-only mode.
[Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr.
Kenneth Goldman. Sir, you may begin.
Kenneth Goldman
Thank you. Good afternoon and welcome to Everbridge's earnings conference call for the third quarter of 2016.
This is Ken Goldman, Senior Vice President and Chief Financial Officer of Everbridge. With me on the call today is Jaime Ellertson, CEO and Chairman.
After the market closed today, we issued a press release with details regarding our third quarter performance, which can be accessed on the Investor Relations section of our website at ir.everbridge.com. This call is being recorded and a replay will be available on our IR website following the conclusion of the call.
During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views as of today and should not be considered representative of our views on any subsequent date.
We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.
These risks are summarized in the press release that we issued today. For a further discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our final prospectus, which is on file with the SEC.
Also during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release.
Finally, at times in our prepared comments or responses to your questions, we may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business on a quarterly basis. Please be advised that we may or may not continue to provide this additional detail in the future.
With that, let me turn the call over to Jaime for his prepared remarks.
Jaime Ellertson
Thanks, Ken and welcome to all of you joining us on our first earnings call as a public company. We were very pleased with the company’s execution during the third quarter, which was highlighted by revenue of 19.9 million, an increase of 31% over the same period a year ago and positive adjusted EBITDA of about $300,000.
We've always focused on generating strong top line growth, but doing so in a responsible manner that balances growth and profitability in order to grow shareholder value. Our third quarter results reflect the success of our strategy and we're fueled by strong demand for our expanding suite of SaaS-based applications focused on critical communications and enterprise safety.
Because this is our first call as a public company, I wanted to take a couple of minutes to provide you with some background on Everbridge, the solutions we're bringing to market as well as the multi-billion dollar market opportunity we're addressing. Everbridge provides enterprise software that enables over 3000 customers across the globe to help keep people safe and businesses running.
Our SaaS based applications automate critical communication processes, assessment, location identification, automation and communication to ensure that the right information reaches the right people in the right location at the right time in the right device. By using our software, our customers are able to respond more quickly and more reliably and lower the risk of human life and the cost of business operations from natural disasters, IT outages and cyber-attacks, act to serious situations or terrorist attacks.
Our first application in the Mass Notification space delivers time sensitive alerts during natural and manmade disasters, while getting the right message to the right person is literally a matter of life and death. Just last month in Florida and throughout the southeastern United States, over 900 counties, cities, businesses, transportation authorities and hospitals used Everbridge’s mass notification and our CE solution to send millions of tailored messages to impacted individuals, before, during and after the first major hurricane to make landfall in the US in several years, Hurricane Matthew.
In addition to keeping people safe, Everbridge also helped to keep many businesses running. For example, Loomis Armored Services used Everbridge to deliver critical alerts to employees across Florida, Georgia, South Carolina and North Carolina to ensure their safety as well as to inform their customers with up to the minute service interruption advisories throughout the course of the storm.
The Loomis Armored use case is a great example of how we deliver a combination of both employee’s safety, historically common use of our solutions as well as real operational value to the business, customer and communication to enable operations through our largest and fastest growing customer base by vertical, the corporate market. Since launching our mass notification applications, we’ve leveraged our experience in core platform to deliver a comprehensive suite of enterprise applications focused on critical communications and enterprise safety, including our incident management application, IT alerting, secure messaging, community engagement applications and our safety connection and Internet of Things applications.
Seven total applications on one common platform. In September, the value of our Community Engagement solution was front and center as it was used by local law enforcement agencies in New Jersey to engage their local communities and assist them in identifying the location of the Chelsea bombing suspect.
Less than 2 hours after an Everbridge Nixle alert highlighted, the suspected bomber’s picture was distributed to police and residents in Linden, New Jersey. The suspect was located and ultimately arrested.
The Linder use of Everbridge is a strong example of how our existing state and local government customers can expand their use of the Everbridge platform with our new community engagement solution to leverage these [ph] populations in concert with their safety and law enforcement agencies to successfully engage their community and often resolve major events. Most recently, we have further expanded our value proposition as we've begun to disrupt the physical safety and security markets, delivering a complete solution to address the increasingly mobile employee workforce.
That would be our safety connection solution. Underlying our suite of seven applications is a highly differentiated platform that scales to deliver rapidly millions of communications across virtually any device type to over 200 different countries and regions throughout the world with extraordinary reliability.
To put this in context, over the last 12 months, our SaaS based platform has delivered over 1.4 billion tailored messages. Our platform can deliver millions of messages in seconds to spare populations in the path of a massive event like a hurricane, earthquake or provide the ability to locate and confirm a specific technical resource that was available to repair an IT system failure and restore normal business operations or enable communications of specific instructions such as evacuate or shelter in place, given the exact location of an active shooter on a corporate campus.
There are three major forces driving the strong demand for our solutions. First, it’s increasing pace, severity and cost of critical events both manmade and natural.
Unfortunately, these events are happening all too frequently and we're in a world where up to the minute information can make all the difference. The impact is not just a threat to harm the people, the damage to corporate infrastructure, but these events also have a significant economic costs, over 500 billion in 2015.
The second major market force is increasing reliance on IT by companies in order to run their businesses. More than half of the Fortune 500 experience significant IT outages each week, causing hundreds of thousands of dollars of lost productivity.
At the same time, the Internet of Things is projected to extend IT operations to some 20 billion to 30 billion additional devices and intelligent sensors by the year 2020. Organizations are increasing their wash-in data that can point out to the degrading performance of everything from gas to turbine, to an irregular heartbeat.
The challenge is to organize and communicate the relevant information to the right people so they can take action. And the third major market force is the rapid transition of workforces going mobile.
International Data Corporation estimates that by the year 2020, over 70% of all employees will be mobile; protecting employees solely with physical security and video surveillance provides limited value when the majority of the people are not actually based in buildings. Companies need a new approach for providing safety and security for increasing mobile and dispersed workforce.
To address these three major market forces, organizations need to be able to do three things, which are very difficult to do simultaneously. First, they have to be able to respond with speed.
Second, they must be able to handle massive scale. And third, they need to be able to respond with precision.
The Everbridge platform was designed with all these requirements in mind in order to serve a large and growing target market. We estimate based on data from leading research firms for us and also market to market with the total available market for our mass notification, IT alerting, Internet of Things solution will grow from 6 billion last year to over 17 billion by the year 2020.
Our newest product safety connection targets a physical and safety security market which industry research firms and market and markets projects will reach 15 billion by the year 2020. This new category alone nearly doubles the size of our overall addressable market.
Safety connection disrupts the physical safety and security market by fully leveraging and assesses, automates and communicates capabilities of our core platform with location awareness, contact data. Early adopters of safety connection, [Technical Difficulty] investments from physical security devices like access control and video to Everbridge’s safety connection in order to create a single real time operating picture of the risk to their employees and assets.
Companies need to better understand where all their employees actually are, when an instance occurs and not just their static location or address. And safety connection fits in perfectly with the strategic priority.
Altogether, we estimate these markets will represent a greater than $30 billion market opportunity in the coming years to Everbridge. Our success across these markets is illustrated by Everbridge penetration amongst important verticals.
For example, eight of the ten largest US investment banks use Everbridge solutions as well as six of the ten largest global automakers as well as every one of the big four global accounting firms and for citizens who will utilize eight of the ten largest US cities as well as 24 of the 25 busiest airports in North America in the transportation market and in operation centers. The strong customer base is a great asset for us in reference selling.
Now, allow me to turn to the longer term. As we look forward, there are several important drivers to our long-term growth.
New customers represent significant opportunities. There will be a level of quarter to quarter variability, but we've been adding around 150 gross new customers in recent quarters including the third quarter and our pipeline of new logos continues to expand.
With a broad suite of applications, many new relationships begin as a multi-product deal and in the third quarter, we signed more -- in the third quarter, we signed more multi-product deals than in any previous quarter. Secondly, selling more of our existing suite of applications to customers represents an additional growth opportunity for us.
Our platform includes a unified contact and event database, business rules and preferences and common location and notification engines that once implemented enable our customers to easily add new applications, which leverage the same underlying platform. We intend to continue to develop and launch new apps that will target new use cases, allows to continue expand our existing customers as well as increase the size of our addressable market.
We have a proven track record of launching new solutions that effectively address customer pain points on the platform. As evidence, our suite of applications other than our core mass notification and incident management application have grown from 6% on a trailing 12-month new business in the first quarter of 2015 to 28% of new sales on the same basis in the third quarter of 2016.
That is tremendous progress in a relatively short period of time, particularly considering the continued solid growth of our mass notification solution in Q3. The international market remains a significant and underpenetrated market for Everbridge and it is an area that we are investing in.
We believe our recently signed partnership with International SOS will facilitate our expansion in these markets, given their broad geographic reach and substantial presence among the Fortune Global 2000. And last while our growth this year has been entirely organic, we have successfully completed three small acquisitions in prior years and we plan to continue to thoughtfully acquire new technology and customer relationships when a buy decision makes more sense than a build or partner decision.
With that backdrop, allow me to provide a little color on our third quarter performance. After a period of aggressive hiring and investment, we are now focused on capitalizing on our expanded sales force and extended product suite in order to scale our business over the long term.
As I mentioned, we added more than 150 gross new customers in the quarter, bringing our quarter end customer base to 3076 enterprise customers. This is up from 2514 customers in the same period one year ago and represents a net increase of 100 customers compared to the end of last quarter.
The expansion of our customer base reflects strong new additions combined with best in class customer retention of over 90%, which we believe is one of the factors that supports the strategic value we deliver to customers. New wins during the quarter included customers choosing our mass notification occasion incident communication applications in the state and local markets at the county of Santa Clara, California, 16th populous county in California and Wake County, the largest county in North Carolina as well as large cities like Phoenix, Arizona.
We also continue to roll out our state wide contract with Florida, the third largest state in the US, which you believe is the largest state wide contract in our entire space. On the corporate side, we closed new accounts that included leading businesses like Lowe's, Home Improvement, Rackspace, Canon USA, Citrix and Shutterfly and higher education space where new customers such as Dubai University, Educational Corp, UCLA, the largest university in the West and the University of Texas in Austin, the 7th most populous college campus in the entire US.
In the healthcare space, we signed new multi-product contracts with Walter Reed Medical Center, Doctors Hospital and Penn State Hershey Medical Center. The latter having chosen four of our products covering both emergency and operational use cases.
And for our new products, IT alerting, secure messaging, community engagement and safety connection, we continue to demonstrate momentum with new wins for our newest applications. In the safety connection space, we recorded wins at one of the largest automobile manufacturers, a top ten investment bank, a big four accounting firm and one of the top three cloud infrastructure vendors, just to name a few.
For our IT alerting solution, new customers included a top Fortune 100 retailer that purchased Everbridge over a competing incumbent SaaS solution based on a head-to-head evaluation because of our overall platform and superior IT alerting features and functionality. The third quarter also saw new Everbridge IT alerting wins in the transportation sector with companies like Kansas City Southern, in the healthcare space with organizations like Wellspan and in the international markets with new wins at thyssenKrupp, a leader in the people mobility space.
For our Nixle and community engagement business, new customer win profiles included in the state and local space wins like the San Bernardino Sheriff's Department, in healthcare with those new customers like Walter Reed Medical and in the corporate vertical, we won new accounts like Clark Construction, all focused on better engaging their varied communities. In addition to these new product wins, we continued in Q3 to see success with our expand component of our land and expand overall strategy.
Through the third quarter, key customer expansions, specifically I’m speaking about expanding usage and broader deployment of existing applications within existing implementations and for that area, examples in Q3 would be major projects at Dallas/Fort Worth and LAX Airports, both top ten US airports and significant geographic expansions at leading financial services players like HSBC as well as significant roll-out expansion at corporations like Twitter and Sony. In summary, we had a strong third quarter and we're optimistic about our outlook.
Our objective is to continue to scale our organization in order to capitalize on significant market opportunity in front of us and continue to effectively balance growth and profitability. We believe the strength of our platform, continued innovation, our marquee customer list positions us to expand our leadership role and deliver against these long-term goals.
Now, I'd like to turn it back over to Ken for details on our financial performance during the quarter and our outlook. Ken?
Kenneth Goldman
Thanks, Jaime. We're excited to report revenue of $19.9 million for the third quarter, representing growth of 31% from the third quarter of 2015.
Before diving into the financial details of the quarter, I wanted to provide context on our financial model to assist you in interpreting our results, since this is our first call as a public company. We derive our revenue from our customer subscriptions to our platform whereby we recognize revenue over the life of the contract.
Our contracts are generally multi-year, paid annually in advance and many have auto renewal features. The combination of these factors provides us with a high level of revenue visibility.
During the third quarter, best in class customer retention and our ability to expand our footprint with existing customers led to a dollar based net retention rate of 115%. This is consistent with our recent performance of above 110% and shows that roughly half of our growth in the period came from our existing customer base.
Now, I'd like to turn to the rest of the P&L. Unless otherwise indicated, I will be discussing income statement metrics on a non-GAAP basis.
A reconciliation of GAAP to non- GAAP measures has been provided in the earnings release that we issued earlier today. Gross margins in the third quarter were 72.1%, representing an improvement of 170 basis points from a year ago.
Going forward, we expect to be able to drive continued gradual improvements in gross margins as our business continues to scale, although it may fluctuate from quarter-to-quarter due to period specific expenses. Total operating expenses were $15.3 million in the quarter, an increase of 18% from a year ago and well below our revenue growth rate, reflecting leverage in our operating model.
Adjusted EBITDA for the quarter was positive $300,000, a meaningful improvement from negative $1.4 million for the third quarter of 2015 and it represented the second quarter in a row of positive adjusted EBITDA, combined with strong topline growth. As I’ll detail in our guidance, we expect to achieve positive adjusted EBITDA for the third consecutive quarter in the fourth quarter of 2016, though still modestly above breakeven level.
As such, seasonality of employee related expenses at the beginning of the year could lead to an adjusted EBITDA loss in the first part of 2017, although we expect to generate positive adjusted EBITDA for the full year 2017 that represents an improvement from our 2016 performance. We have been and will remain focused on driving strong top line growth with a responsible view on bottom line performance, as we believe this is the right way to grow shareholder value.
Net loss in the third quarter was $1.1 million, compared to a loss of $2.2 million in the year ago quarter. Based on 14.8 million basic and diluted weighted average shares outstanding, net loss was negative $0.07 per share for the third quarter.
Turning to our balance sheet, we ended the quarter with $62.3 million in cash and equivalents. This includes the impact of net proceeds of $69.8 million from our initial public offering in September, after underwriter’s fees, offset by $10.8 million in cash used to retire all previously outstanding debt.
Total deferred revenue was $48.7 million at the end of the third quarter, which was up 36% compared to the end of the third -- the prior year’s third quarter and up 12% from the end of the second quarter. This represented the highest growth in deferred revenue during 2016, but it's worth noting the quarter-to-quarter increases in deferred revenue can vary due to timing factors.
As such, even though with predominately annual payment terms, deferred revenue is not always a meaningful indicator of the underlying momentum in our business from a short term perspective. However, we believe it's directionally relevant over the long-term.
Operating cash flow in the quarter was $8.2 million. Free cash flow, which we define as operating cash flow less capital expenditures and capitalized software development costs, was $6.6 million for the quarter.
On a year-to-date basis, we generated $1.5 million in free cash flow, compared to an outflow of $1.9 million in the comparable year ago period. Now, let me turn to outlook.
Note that as a public company, we plan to provide guidance on revenue, adjusted EBITDA and net income on both a quarterly and full year basis. For the fourth quarter of 2016, we expect revenue to be between $20.5 million and $20.7 million, representing growth of 27% to 28% from the fourth quarter of 2015.
We anticipate an adjusted EBITDA of between breakeven and $200,000. This adjusted EBITDA guidance assumes estimated stock-based compensation expense of approximately $800,000 for the fourth quarter.
We are anticipating a non-GAAP net loss of between $1.3 million and $1.1 million or between negative $0.05 and negative $0.04 per share, based on 27.2 million basic weighted average outstanding shares. Therefore, for the full-year 2016, we expect revenue to be between $76.1 million and $76.3 million, representing growth of approximately 30% from 2015.
And we're anticipating an adjusted EBITDA loss of between $400,000 and $200,000. This adjusted EBITDA guidance assumes estimated stock-based compensation expense of approximately $2.9 million for the year.
We're expecting a non-GAAP net loss of between $5.3 million and %5.1 million or between negative $0.32 and negative $0.31 per share, based on 16.7 million basic weighted average outstanding shares. In summary, we’re excited to have delivered strong results in our first quarter as a public company.
We believe our results reflect growing demand for our leading software platform for critical communications and enterprise safety and that we're well positioned to capitalize on a large multi-billion dollar market opportunity. With that, operator, can we now open the call to questions?
Operator
[Operator Instructions] And our first question comes from the line of Michael Nemeroff with Credit Suisse. Your line is now open.
Michael Nemeroff
Hey, guys. Thanks for taking my questions and congratulations on a really strong start as a public company.
Jaime, one for you and then maybe one for Ken. Jaime, it's really good to see that the non-mass notification percentage of the businesses is increasing pretty sharply.
Which one of the non-mass notification products or how many of them or which of them do you think represent the greatest near term business opportunity?
Jaime Ellertson
Yeah. As we’ve said in past, we were pretty pleased that the MN performance was strong during the quarter and even with the strong MN performance and further rollout of floor and we were able to have the strongest level of new product sales ever recorded in Q3.
It’s spread across a number of products. So it's really tough to say any one, for Nixle, we saw everything from San Bernardino County Sheriff's department, which obviously had -- recently had a major event happen in their backyard, but everything from Santa Clara, Long Beach, Cape Canaveral and then multiple corporate buyers of that product for very interesting use cases.
On IT alerting, we had some six figure deals and multiple deals across multiple segments, as I mentioned international transportation, corporate space and then safety connection. Now, safety connection, we are seeing pretty strong demand and that product is off to the fastest start we've seen for a net new product.
I'm not sure that translates into exactly I would put that at the front of the pack, but it has been a strong start and maybe one piece of color that will help you guys understand that product, so it’s certainly sold into a new buyer for us, often, the security risk manager or the emergency planner, but more often the Chief Security Officer, risk manager type of position. And in Q3, one of the leading cloud infrastructure providers reached out to us and said they had a problem identifying individuals after recent fire drills and refrained in a similar situation like an active shooter that had no ability to determine in their multiple buildings who is where and whom would be affected.
And so they actually told us that they put a hold on spend on physical access control. They were in the process of implementing some new priorities around video and access control and they actually put that on a hole.
Within the same quarter, they contacted us and moved forward. This was the Director of Physical Safety and Security at one of the largest cloud infrastructure providers to purchase and fast track safety connection.
That customer, by the way, also had one or two of our partners involved, I think they were using now on the physical access control side and International SOS. So I can answer you that safety connection appears to be off to a very rapid start, only being introduced one quarter ago and it is certainly meeting or exceeding expectations, but all the new products continue to do well and it's hard, this early in most cases, where one year in to their history, to claim there's going to be a winner there.
We would hope to see multiple winners for new products and that's the power of the platform.
Michael Nemeroff
That's helpful color, Jaime. And then for Ken if I may.
Just how should we think about the company's attitude towards giving investors growth and profits, both on in the near term and in the long run and where do you think in the long run the profitability should peak at some point?
Kenneth Goldman
Okay. So with regard to where our focus, our focus will always be on growth, but one of the stories that we told on the IPO roadshow was that we felt that as a responsible management team being able to grow the company and be profitable, demonstrated the experience that we brought to bear and that from our standpoint, we want to be able to do responsible growth, meaning, growth with some focus on profitability.
As you know Michael, one of the challenges is that you can always grow faster if you're willing to sacrifice profitability, you can grow slower and put more to the bottom line. In our case, I think, near term, our focus will continue to be on growth, because that's what the market is focused on if the market says that profitability becomes more important.
We can always spend less on future growth and focus more on short term profitability. Long term, we're not ready to deliver the long term model other than to say that we believe that there's a large addressable market in front of us and that we can continue to grow for many, many years and bring this to not only adjusted EBITDA positive, but positive net income in a reasonable timeframe and get the company to deliver best in class metrics in terms of both gross margin and net income.
Operator
And our next question comes from the line of Brad Sills with Bank of America Merrill Lynch. Your line is now open.
Brad Sills
Okay, guys. Thanks for taking my question.
I wondered if you could comment a little bit about some of the activity with the states, State of Florida, City of Connecticut are two existing customers. Maybe if you could comment a little bit on some of the pull through you might have seen during the quarter of other law enforcement within those states as well as corporates, any kind of pull through effect you may be seeing there and then any commentary on some of the pipeline for some new state deals would also be helpful please?
Jaime Ellertson
Yeah, so Brad, I think on the state side, the quarter was overshadowed a little bit by a major storm, Hurricane Matthew coming in, that's what the state funds in our case, funds our engagement through as a hurricane fund and I’m happy to tell you that, we had a big success there with delivering millions and millions of messages to the State of Florida, everything from our community engagement product, which they used to head with a keyword of Florida prepares through all the way to Florida recovers, different set of keywords to issue updates and provide them and if you signed up for that during the storm, you got active update, you now have to go to a news channel, you could be in a shelter or thinking about leaving because you’re in Southern Florida which ended up missing the brunt of the storm. But if you ended up in the Jacksonville and some of those waterfront areas, you’re decimated.
They were, in some cases, obliterated as the State of Florida talks about it and are in severe stress and will have to go through recovery. So that always helps us because that’s the third most populous state.
It sets an example of not only the ability to sell and deliver an infrastructure but in a major event shine and Governor Scott was literally on the airwaves every day leading up to that store, multiple times a day pounding the table saying sign-up for the Mass Notification system. We had hundreds of thousands of new sign-ups daily in the day before and right after the storm and nothing like a good mass geographically dispersed emergency to get people to sign up and be involved with the system.
So that was a big success we have as we’ve mentioned, multiple state-wide projects, sales projects going on and no one can demonstrate the success after at the scale that we can here with the Florida win and in the recent history. So that's very positive.
On the community engagement side, the keyword opt-in that is going very well on our - the kind of the Nixle product, I mentioned some of the wins but some of the ones you guys probably don't realize that keyword not just you know hurricane but big events like the Super Bowl, we signed really interesting community engagement applications everything from Rocky Mountain National Park who has over a million visitors a year and now when you enter the park you sign-up, you type in a keyword for the park, park updates and they can figure out and provide you updates throughout your stay in the park and should there be an emergency the Rangers can finally communicate with you, never an existing capability previously. And there are multiple national parks throughout the US and areas like that.
Walter Reed Medical Center, hundreds of thousands of doctors, clinical staff, patients, vendors, no way to communicate to them because many of them are transit, they go on and off for patients, they're going in and out of the hospital, but now when you enter they ask you to sign into keyword and then they communicate and update you. And major organizations like - on the corporate side, car construction which builder of DFW Airport, you can manage on a project like deck you have literally hundreds of thousands of workers over the course of a year or two and every time someone goes on the job site, in most cases there is transit contractors or day workers, this gives them ability to communicate and update those people on where their danger areas, where they're going to be doing blasting during a day and all sorts of vendor updates.
So the state and local business is focused on large wins major cities like Santa Clara those are not small dollar wins but also on these big state projects, I would just caution you that the Community Engagement product although it's doing extremely well having a record year in the state and local space, we're now seeing some great corporate customer wins and too many different types of use cases account but we didn’t expect that to continue in the coming quarters.
Brad Sills
And one follow-up if I may please, it sounds like you had a great quarter on cross-selling some of these other applications outside of the core EMNS, Mass Notification. Could you comment specifically please on IT Alerting and Secure Messaging given that those are new departments outside of the core sales audience, how those track during the quarter would be helpful please?
Thank you.
Jaime Ellertson
I mean on the IT Alerting side, I think we've given you a little bit of color but everything from Lowe's which was a major new win for us and then the transportation companies I think I gave you Kansas City Southern. Internationally, thyssenKrupp, which is the big elevator manufacturer.
So across the board everything from international to US, everything from corporate to transportation and retail all those ended up on the IT Alerting side and that product continues to grow at a very rapid pace. We're not breaking down individual products until we get 10 million, so there's not much other than the additional color that we signed everything from small IT Alerting projects to very large IT Alerting projects in the quarter and certainly met her expectations.
On the Secure Messaging side, we had some new hospital wide and system wide rollouts for secure messenger - our Secure Messaging product and that continues to go well and we have stated in the past we will continue to integrate that product further because the opportunity there isn't just selling a new product, it's making that one of our core channels that you can communicate through and that gives us even a better cross-sell and up-sell. We did accomplish where we've been historically 115% type of net retention which means our growth engine is really working and continues to work and it’s real larger that's a tougher and tougher number to manage but we again deliver that in Q3.
So across the board, the new products and our ability to cross-sell them into both existing customers as well as land new customers is what powered the results.
Operator
And our next question comes from the line of Tom Roderick with Stifel. Your line is now open.
Tom Roderick
So Jamie, let me for the first one that you may be piggy backing on the last question just around this 115% net retention number you’ve offered up here. So, I guess what I'm trying to understand a little bit better is if you look at the hires that you've made in sales and the investments you've made in the platform.
Can you just go into a little bit more detail with how the sales force is set up and structured in other words what sales reps are sort of aimed at what markets and how do you have those set up so as to handle the bucket of new products, do you have sales reps focused on only the new products just talk a little bit more about how you've structured it so far and how you want to invest in it going forward?
Jaime Ellertson
It's a consistent message nothing - fortunately nothing has changed radically here, as I mentioned, we went through a year in 2016 where we spent a little bit of time and considerable money getting ready and prepared for the expense of going public and in fact absorbed some of that expense. We also expanded the sales force and as you know when you expand a sales force and add a whole bunch of people and we did that in late 2015 and into early 2016, they do not show up and immediately understand your core market on our experts in your core space even if they had a related area like if they were in the ITSM space historically, we brought them in to help us sell our IT Alerting product.
So, there is a time period to ramp those sales individuals. And as I said in my prepared remarks, I'm particularly pleased that we started to see success with those guys hitting numbers and delivering deals and we certainly showed a consistency in delivery of growth overall at 31%.
So we're starting to get production even at large numbers of scale from those teams. Our team is broken up as it was last quarter and will be next quarter principally into account executives which are challenged with going out and taking and finding net new customers and landing them for any of our products.
There are some vertical market, sales guys we have in areas like healthcare, corporate, state and local government, transportation and they are experts within that vertical. They sell all of our products but they understand the use case and the specifics around a customer need there.
That's how you land say 24 of the 25 top airports that isn't a coincidence. We have a very strong individual in that space.
For state and local corporate, we have really strong sales guys that really understand sales professionals and historically have been selling in that area. Matching that team of net new hunters, we have our account managers which we don't really consider farmers but certainly that manage an account relationship and their job is not only make sure that renewal comes in at the historic 90% plus renewal rates, so we don't have to replace customers, we keep them happy but then cross sell and up sell and they're broken into the same rough set of verticals you have some in corporate, some in state and local, and some in health care which are three largest markets and then a smattering other specialists including our international teams which have broken up.
And the only other group we really have is we have an increasingly growing, it will grow this year and next year, strategic set of account executives that have a very limited number of named accounts and they handle some of our biggest customers, customers like the state of Florida or customers like big corporate names for healthcare organizations where we want real focus either on the account management side, so their major account managers instead of just account managers or in the account executive side there is strategic account executives. We would balance all that as you know with our channels team, which had a strong quarter, best quarter ever and certainly we continue to believe that that channel expansion is an opportunity for us with not only International SOS and other partners like federal signal but new partners and growth opportunities both in the US and international for alternate distribution i.e.
not our account executives or account managers.
Tom Roderick
Ken, quick follow-up for you, just thinking about the gross margin trajectory here. Can you go into a little bit more detail just in terms of what some of the puts and takes are as we model gross margins not just this next quarter but kind of the trend line over the next year or two, how you would generally sort of encourage us to think about it.
And maybe more specifically if you can kind of provide some encouragement as to how to think about new products layering in and state projects versus what the underlying core gross margins are doing that would be really helpful. Thank you.
Kenneth Goldman
Well, remember - including our gross margins there are three things, the cost of internally developed software. If the cost of operating our platform and it's the cost of the people who operate the platform.
And one of the nice things about our business is that with scale those costs come down as a percentage of revenue. Very simply we don't have a huge cost of goods sold that is lockstep with revenue because of the fact that we have seen and we've demonstrated historically that that cost of goods sold goes down as revenue goes up.
Again, I'm going to take the line tonight that we're not giving guidance beyond the end of this year and we will start to provide and detail more of the future but for right now that's not a metric we're going to provide just yet other than to say anecdotally it has historically shown signs of improvement. We want to be able to strike as with both the adjusted gross margin and adjusted EBITDA the right balance between investing and growing.
So we're going to show improvement over time as I said during my part of the earnings call that you may see some periods where it may not always go up from the prior period just because of some period specific expenses but in general directionally over the course of time you should see it moving up in the right.
Operator
And our next question comes from the line of Terry Tillman with Raymond James. Your line is now open.
Terry Tillman
Hi, good afternoon gentlemen, can you hear me?
Jaime Ellertson
We can.
Kenneth Goldman
We can.
Terry Tillman
[indiscernible] nice job on the quarter as your first quarter out of the gate. I guess, Tom's question, one of the answers you provided was about the channel and international SOS, could you actually be more specific in terms of what they bring to bear and where are they in terms of getting educated and starting to be productive and actually going out there and being a channel for you all?
Jaime Ellertson
Sure. So international SOS is a leading provider of emergency travel and health related and travel risks related information and services.
I think at this point there are over $2 billion and have a good portion of think we've quoted numbers of two thirds of the Global 2000. So, a lot of presence, fairly large presence in that Fortune 100 or Global 2000 market, with substantial international presence and that's important to us.
They came to us several years ago and we started a dialogue and this past year in early in 2016, we came to an agreement to replace all their communication capability. So as they support a traveling executive, let's pick a major bank that has hundreds of traveling executives but they them heading everywhere from Japan to Kenya in Africa.
And they need to provide updates on what’s to expect in that area and if there are risks. And then when a traveler gets sick, ill or has some sort of malady that affects them in those areas, it's not as though you walk to the corner drugstore and get a prescription or you see a local doctor.
That can be a risky proposition. They manage all that.
But they need to communicate before they can manage anything. And so we have replaced their communication engine and now for the literally millions of communications they send to executives, the senior most typically executives in the Global 2000, those messages are all delivered with a tagline delivered by Everbridge.
And we get paid to do that across the board that relationship is going slightly better than expected. We are ahead of our targets at the initial six month mile post, but we have only rolled out initial integration.
Later this month, we roll out the fully integration with Everbridge so we can get from International SOS where a traveler is, update our safety connection product and in combination to all the resident employees or personnel, so in buildings in a campus for instance plus you're traveling population so that in a security operations center or general operations center you can see the fatality of your employees and when an event occurs you understand who is affected and where people are in a relationship to an event. That we believe with International SOSs over 400 person sales force, many of which are in areas outside of the US over 100 plus in Europe and over 100 plus in Asia where we now have offices and personnel to support them but don’t have as larger direct sales forces that provides upside opportunity and we are tracking a number of significant opportunities with them and will try to give you some color by next quarter on wins in Q4 with international SOS.
But suffice to say, it's a very significant partnership for us, the largest we've signed today. It carries guaranteed revenue streams from the embedded product that we supply them but the upside is even more interesting to us which is their sales force referring in and recommending us.
And the combination of our Mass Notification or Safety Connection product in their accounts through their sales team is something that we're just starting literally this quarter. So few months last quarter, but primarily this quarter and we'll expect to be able to give you a color on that and let you know how that's going with commentary after Q4.
Terry Tillman
Ken, I'm going to actually let you have a hall pass this first quarter and my second question is going to be for Jamie again in terms, as we were talking to investors about the story, some folks are curious about Mass Notification and how far along that market is saturated. I think you signed about 150 customers a quarter, but maybe Jamie you could just give us any kind of quantification or perspective on how you see the vitality of the Mass Notification, obviously these other markets are higher growth, but just still having growth opportunities in Mass Notification.
Thank you.
Jaime Ellertson
All I would tell you on that is our Mass Notification had our biggest quarter in the history of the company. It actually - we would have shown even higher new product growth had we not had such a strong Mass Notification as showing and actually we see no weakness whatsoever in the Mass Notification business partially because we have new channel partners, partially because we're continuing to expand internationally.
And then partly because overall our sales team that's the first product so that's the first one they got and it's moving forward. And so I would tell you that we don't see this here, a slowing of the Mass Notification product, what we do see is a continued growth of the new products.
And you'll see that in the quarterly totals we report for you.
Operator
And our next question comes from the line of with Brent Bracelin with Pacific Crest Securities. Your line is now open.
Trevor Upton
This, this is Trevor Upton on for Brent, thanks so much for taking my questions. In your prepared remarks Jamie, you mentioned the head-to-head win.
I was wondering if you could remind us what percentage of deals are head-to-head versus more Greenfield?
Jaime Ellertson
That was ITA specifically, so I would guess its somewhere in the neighborhood of 50%. I'm absolutely ballpark in that, we don't - we track that but I don't have that details in front of me.
And I know in the ITA space it's probably in the 50% area. And I would guess it's in that range for most other products with the exception of Safety Connection, which is, literally we're going in and we’ve had people with inbound call saying never seen anything like this, can't wait to get Jin [00:51:25] here and we're not competing against anyone.
We're displacing stand on physical access control security like bad systems and video systems and alarm systems in the corporate world so that's – those are 100% net new, we're disruptive in that market. ITA, it's probably 50-50 and the most competitive space is our core Mass Notification space because it's been out there the longest.
I see that as 60-40, you know 60% are competitors and only 40% are kind of Greenfield or 30% because that's definitely the most mature market we have.
Trevor Upton
And then internationally, I think that the reason earthquake in Italy, is that driving increased demand?
Jaime Ellertson
Ours is a perverse business and we say this only half jokingly, it's a cultural thing for us we're very proud to be able to do things that are - that really make a difference for people but when bad things happen business is good. It drives demand; nothing as I said we had more sign ups and more people come on the Everbridge system the week of the earthquake then in probably the previous month.
So it consolidates focus, it gets people thinking about communication and critical events and drives people to our systems. And fortunately there is no slowdown whatsoever in the number of major events and the fact is because the news, the internet cycle, everything puts them in a higher priority and points them out better.
And there just are more of them, it’s a complex a global environment we play in now and so, for traveling executives, for major corporations with terrorism, for corporate, government and citizen populations, all those things drive business and continue to do so. More events, you will see some, you see more volume in our system and like we said millions and millions during Hurricane Matthew alone over a few days.
But equally with any other event worldwide, earthquake there or a typhoon in Asia.
Trevor Upton
So those sign-ups are those local in Europe or is it the global - increased global awareness?
Jaime Ellertson
It increases global awareness and obviously local, we get phone calls literally after any type of event like that and what can we do and it starts new sales opportunities. Doesn't always close immediately but it absolutely is a generator of new opportunities for us.
Trevor Upton
Just a quick one for Ken, what was the ending share count?
Kenneth Goldman
It's in the press release.
Trevor Upton
Sorry I missed it, not the diluted but the end of period.
Kenneth Goldman
Hold on a second, [indiscernible].
Trevor Upton
I can follow-up, okay thank you. That’s all I have.
Kenneth Goldman
Next question.
Operator
And our next question comes from the line of Dmitry Netis with William Blair. Your line is now open.
Dmitry Netis
Couple of questions, one I want to clarify, to the point Jamie was just making as far as the adverse weather event, earthquakes, like Hurricane Matthews, others out there. When you have a [indiscernible] does that go straight to your revenue line, it doesn’t defer right, so I’d assume that goes right to the revenue line [indiscernible], and then sort of clarification on that part.
And then secondly on the bookings side, you did do quite well there as far as the net change in deferred revenues from last quarter to this one, so I assume you find a fair amount of new contracts here and your growth I think from deferred you mentioned was 38% year-over-year, but the billing calculation I guess it was 51% year-over-year. So, I’m just thinking as far as the seasonality goes and kind of the usage fees which probably cannot be predicted I get that.
But I look at last year’s kind of ramp up in your billings numbers, it was nice through the end of year and then it feel off in March and then it’s sort of building up again this year in a similar trajectory. So as far as the seasonality trend and the expectations that Q1 being weaker and then Q4 potentially being a stronger September quarter, anything you can comment on that front would be really helpful on the billing side.
Jaime Ellertson
Thank you Dmitry for the comments, so on usage, look you can't always correlate usage with revenue that's impossibility because in some markets, we absolutely do have customers in the state and local space that because of budget reasons they buy on unlimited contracts. So, in Florida we do not build them by usage or number of calls and we’ve reached such scale with billions of messages going out that and incremental additional 10 million messages we don't even see the blip in our cost side of the equation, it costs certainly more than none, but it's not impacting our cost and you see that in the increased profitability that we're able to drive.
So I think it drives new business overall which is a longer term phenomenon because it takes us between three and nine months to close new business depending on the segment. State and local is a longer sales cycle than corporate, but I would not try to equate even though there is with volume, there will be some users especially corporate users and especially with unique messaging or communication costs like international messaging that will have to buy more usage and are usage oriented.
But the volume of our customers over the broad base that's the - more activity as I said, the more terrorist events, more severe weather events, they drive new customers and overall new contracts not necessarily huge balloons within a quarter on messaging count nor do they necessarily cost us that much more because Florida is clearly the - the hurricane was clearly the biggest event we've had and we turned in our best quarter in a while in terms of profitability. So it doesn't really impact either one, it drives long-term new business wins.
And to the seasonality, I'll turn it over to Ken.
Kenneth Goldman
I mean the reality is as we've discussed with you and others on the roadshow, there is going to be some seasonality both from the standpoint of deals getting close and in terms of some of the expenses although that's why we focus not on things like bookings or billings but on revenue which does reasonably good job of taking seasonality out of the equation. And as I said on expenses, expenses are pretty consistent throughout the year growing over time but as we said in this quarter, we saw expenses grow by 18% and we saw revenue grow by significantly above that.
Dmitry Netis
And just a follow-up, I appreciate Jamie that insight and Ken for the explanation on the billing side. But what normally we expect March to be down on the billings side or from the revenue side, is that something that should be expected going forward, strong end of the year and then kind of drop-off from Q4 to Q1?
Kenneth Goldman
At this point, we are not giving specifics 2017 is going to lay out, but realistically, there isn’t a lot of seasonality but there is some just based on the fact that our customers buying cycles but I’m going to defer until we get to the 2017 guidance at this point.
Jaime Ellertson
I think Dmitry, you saw the progress we made in the positive results and I think you'll see - you'll get some of those answers in our guidance which will come next quarter and because that's a quarter out there a little ways we can safely tell you before you get there, you'll get some guidance from the company.
Dmitry Netis
And then just a last one from me then, you guys mentioned that you signed up these multi-product deals as many this quarter than any other quarter you have had in the company’s history, so I was just wondering is there a way to quantify that, what’s [indiscernible].
Jaime Ellertson
There really isn't right now as we said in our prepared remarks and we will be a little bit of a broken record being I think responsible here with the metrics, but we got a number of metrics, we're going to provide you. We will be providing the growth of the new products, so 28% dramatically up over a year ago, and more than likely you will get that metric every quarter.
So you'll be able to tell the growth as it compares to Mass Notification or core historic products that in the bulk of our revenue. What we don't want to do is get into each individual product or growth rates of individual products over others because they can very seasonally.
And on the multi-product front, we would just tell you we did give some clarity and this was by far the best quarter we’ve ever had with multi-product sales. And including more than just two, some three and four products but that sales force was only hired in mid-2015, late 2015 and only came aboard this year.
So they're just starting to reach their rhythm that was something we've said repeatedly that we spent time in hiring them and getting them ramped and now we're seeing some of that success but given it's a lot of small numbers, we don't want to give you a percentage that misleads you or give you, we had these 12 or 25 deals whatever the number was and then not be able to sustain that and have you think that that's a negative because it's not just the number of multi-product deals, it’s the total dollars involved in the deals and the product that we're talking about. And so there's just too many variables right now, what we’ll stick with is, overall aggregate new products as compared to the core and that will give you a good barometer.
And we'll quote and try to give you color on how we did with multi-product deals with specific color so you can understand that they are customers that are looking for us to buy a platform instead of a sole product which is a big part of our strategy long term.
Kenneth Goldman
And operator, we have time for one more question.
Operator
And I'm showing no further questions at this time, I would now like to turn the call back over to Mr. Jaime Ellertson for closing remarks.
Jaime Ellertson
Well thanks everyone for joining our first earnings calls as a public company. We believe our strong results reflect our leadership and momentum in the market that is growing in size and importance and the need to protect people and businesses is acute out there.
We believe that we're better positioned than anyone else to serve this market and doing so will enable us to scale as we build a large profitable organization for the long term. Thanks again for attending, we look forward to seeing you guys in the market.
Good bye.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, you may now disconnect.
Everyone have a great day.