EVBG June 2019 Quarter

It was extremely hard to listen to the call yesterday…just not a very exciting company. This was the first report since I took a small position after Fish’s post here: https://discussion.fool.com/evbg-earnings-34214082.aspx.

I sold my shares this morning. 35% revenue growth was a downtick from 40% last quarter, guided for low-30’s next quarter, and I have no confidence organic* revenue will meaningfully accelerate again in the future.

*They discussed an acquisition, but that’s not the kind of growth to get excited about.

Anyway, just thought I’d make a quick post for my own records. My take away is that some businesses, even if their delivery method is SaaS software, are just destined to have longer sales cycles and slower growth. I think back to Blackline and Zuora. Like EVBG, they had NER’s around 110%. That’s just not going to provide the multiplier effect that some of our high-flyers have.

Anyway, good luck to longs, but I just couldn’t get into this one, so I’m out.

Bear

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Thanks for the Update Bear, You can ignore my previous message to your e-mail…

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Bear,

I agree. I’ve made 100% return on EVBG and plan to leave the position for now.

The call was a little painful in the fact that mgmt explained and reexplained deferred revenue lumpiness.

They also struggled to answer very basic questions about their acquisition of NC4…revenues…gross margins…etc.

The reason EVBG purchased NC4 was because NC4 provides a subscription service for risk analysis of external events (literally a private fusion center monitoring police, cyber, environmental, etc events and providing alerts to companies when in the vicinity)

I’ve worked with both systems and it makes sense. Both are typically purchased and NC4 has a more elite client list (Fortune 100) than EVBG based strictly off the fact that EVBg is about communicating and NC4 is threat monitoring.

EVBG is working on the theory that they are racing to expand Critical Event Management software. They have all the tools. But the pace of adoption is slower (mid 30s) and margins are lower (low 70s) than other opportunities out there.

ESTC, MDB, PD have been favorites of mine to reallocate recently. They are all high margin, forecasting 40% plus growth. MDB and PD are well off their ATHs.

SMAR is on a watchlist for me. It’s also forecasting strong growth. Maybe this makes sense.

I probably won’t sell off today, but it’s on the list.

I’ve done quite a bit of consolidating recently, so going to dive a little deeper

Long EVBG, 6.5% position

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Also exited last week. Had about a 5% position since January. The stock really ran up and ahead of fundamentals IMO. Possibly in sympathy to PD IPO? Dunno.

When it ran up over $100 I sold. I thought +100% in seven months was about as good as it was going to get for EVBG. They had other/newer/cooler products that I was hoping would offset the lapping of acquisitions but that hasn’t materialized.

I liked selling EVBG over $100 and liked buying MDB at $140 even better.

Darth

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EVBG is working on the theory that they are racing to expand Critical Event Management software. They have all the tools. But the pace of adoption is slower (mid 30s) and margins are lower (low 70s) than other opportunities out there.

JAF,

Just out of curiosity, what are you hoping for with EVBG? Mid-30’s growth and a PS ratio near 20? What’s the case for stock appreciation from here? Compare to other mid-30’s growers with PS ratios around 10 (like TDOC or DOCU to name a couple that I own).

Bear

JAF,

Just out of curiosity, what are you hoping for with EVBG? Mid-30’s growth and a PS ratio near 20? What’s the case for stock appreciation from here? Compare to other mid-30’s growers with PS ratios around 10 (like TDOC or DOCU to name a couple that I own).

Bear

Bear,

Was hoping to see them keep the 40% line at 70% margins, giving them a 28% “manageable cash” growth rate.

I track that to ~15 P/S in our cohort

http://imgur.com/a/4BXjlan

They were running hot, but given their increasing ACV, increasing revenues and increasing margins I was willing to roll the dice.

Tailwinds in US Gov and Europe are still in front of them it seems, so timing delayed. Europe is fully adopting population alerting as a mandate. When countries adopt, states adopt, departments adopt, companies adopt. I see that as $80MM annual rev

The question is CEM expansion to move up ACB of existing clients. And what pace of sales is. They sell to large agencies that aren’t super flexible in budgeting. End of FY typically accelerated government adoption. I’d still love to hear more about JARDISS with US Army.

Just a Fool

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