Everbridge, Inc. (NASDAQ:EVBG) Q2 2023 Earnings Conference Call August 8, 2023 8:30 AM ET
Company Participants
Jeff Young – Investor Relations
David Wagner – President & Chief Executive Officer
Patrick Brickley – Executive Vice President & Chief Financial Officer
Conference Call Participants
Alex Sklar – Raymond James
Matt Stotler – William Blair
Brian Colley – Stephens
Scott Berg – Needham
Michael Berg – Wells Fargo
Ryan MacWilliams – Barclays
Mike Latimore – Northland Capital Markets
Operator
Hello, and welcome to the Everbridge, Inc. Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note today’s event is being recorded.
I would now like to turn the conference over to your host today Jeff Young. Mr. Young please go ahead.
Jeff Young
Thank you, operator and good morning, everyone. Welcome to Everbridge’s earnings call for the second quarter of 2023.
With me on today’s call are Everbridge President and CEO, David Wagner; and Executive Vice President and CFO, Patrick Brickley.
Before the market opened, we issued our earnings release, which can be accessed on the Investor Relations section of our website at ir.everbridge.com. This call is being recorded and a replay of the teleconference will be available on our Investor Relations website at the conclusion of today’s event.
During today’s call, we will make forward-looking statements regarding future events or the financial performance of the company that involve certain risks and uncertainties. The company’s actual results may differ materially from the projections described in such statements.
Factors that might cause differences include but are not limited to, those discussed in our Forms 10-Q and 10-K, as well as other subsequent filings with the SEC. Information provided on this call reflects our perspective only as of today and should not be considered representative of our views as of any subsequent date. We explicitly disclaim any obligation to update any forward-looking statements or our outlook. Also during today’s call, we will refer to certain non-GAAP financial measures. A reconciliation of our GAAP to non-GAAP financial measures is included in our earnings press release, which you can find on our Investor Relations website.
Our earnings press release includes highlights from our second quarter of 2023 in addition to our financial results and outlook. After we review our business and financial highlights, we will open the call for questions.
With that, let me turn the call over to Dave. Dave?
David Wagner
Thanks, Jeff. Good morning, everyone and welcome to Everbridge’s earnings call for the second quarter of 2023. We delivered solid financial results for the quarter, which we released earlier this morning.
For the second quarter, we achieved revenue of $110.6 million, an increase of 7% year-over-year; adjusted EBITDA of $18.3 million, an increase of $13.5 million from the year ago and annual recurring revenue of $395 million up $7 million quarter-over-quarter of 9% year-over-year. These solid results reflect the work the team is doing to improve our overall operating efficiency as we execute towards our long-term objectives.
I just saw rated my first anniversary as CEO of Everbridge, and as I reflect on the year I am proud of the progress we have made. We are much more aligned as an organization, we have focused our product development efforts on our core CEM platform and we’ve achieved several key delivery milestones that are improving customer value and satisfaction.
We have simplified and streamlined our go-to-market reducing our non-GAAP sales expense by 9% year-over-year for the first half, which is a major contributor to the increase in trailing 12-month adjusted EBITDA from $12.8 million in the year ago period to $68.9 million this last 12-month period. And over the past 12 months, we reduced our net debt by approximately $61 million to $287 million.
I am deeply grateful to what we’ve done together as one Everbridge to achieve these goals and to deliver the results noted above which are important for our longer-term growth. These accomplishments notwithstanding we are continuing to experience lower overall bookings than last year, primarily in deals of greater than $250k.
On the positive side, based on continuing momentum in smaller transactions, the strength of our net retention and careful cost containment we remain on track to deliver $85 million of adjusted EBITDA in 2023, and are on track with our long-term model of reaching the Rule of 40 by 2027.
Today Everbridge is delivering organizational resilience at a global level in a way that none of our competition can. And our customers need our solutions more than ever. Weather events and social unrest are increasing in both frequency and intensity globally and Boards of Directors and investors alike are looking for their management teams to be increasingly proactive in managing the impact of these risks for their people and business operations.
With our strong customer base of leading enterprises and governments, we are becoming synonymous with resilience and our customers are sharing with us every day incredible stories of resolve of continuity of lives saved and assets protected.
Now, I will turn the call over to our CFO, Patrick Brickleyto provide details of our financial results. Patrick?
Patrick Brickley
Thanks, Dave. I’m pleased to report solid execution which produced revenue at the high end and adjusted EBITDA above the high end of our guidance range. The Strategic Alignment Programs that we implemented during 2022 to streamline our operations is continuing to deliver profitable organic growth.
I will now recap our results for the second quarter of 2023. Followed by our outlook for the third quarter and full fiscal year. For full details of our P&L and reconciliation of GAAP to non-GAAP measures, please refer to our press release.
For the second quarter, our ARR increased to $395 million, up 9% year-over-year. Revenue was $110.6 million, up 7% from a year ago. Revenue from Subscription Services was $102 million, up 8%.
Our gross revenue retention rate remained within our target range, and meaningfully higher than the gross revenue retention that we experienced in the year ago period. We signed 50 deals over $100,000 down from 63 a year ago. Like in Q1, our average deal size in Q2 was lower than what we’ve seen in recent quarters.
Our CEM customer count increased to 373, up 38% sequentially and up 67% year-over-year. We continue to see healthy year-over-year improvements in our profitability and cash flow. Reflecting the substantial ongoing improvements that we are making to operational efficiency, across all areas of our business and in particular within sales and marketing and research and development.
GAAP gross profit was $77.5 million, a margin of 70% compared to the year ago period result of $69.7 million or 68% margin. On an adjusted basis, gross margin was 74% compared to 73% a year ago, demonstrating growing efficiencies from platform integration and optimization. GAAP net loss was $15.1 million or negative $0.37 per share compared to the year ago period in which we generated a net loss of $36.2 million or negative $0.91 per share.
On an adjusted basis, we generated net income of $13.4 million or $0.31 of diluted earnings per share. Compared to the year ago period in which we generated net income of $1.5 million or $0.03 per share. Our adjusted EBITDA of $18.3 million, represents a 17% margin, a significant improvement from the year ago period in which adjusted EBITDA was $4.8 million or 5% margin.
Cash flow from operations was an inflow of $5.4 million, compared to the year ago period in which we had an outflow of $9.9 million. We note that the second quarter tends to be our seasonally slowest for invoicing and cash collections. Adjusted free cash flow was an inflow of $1.6 million, compared to the year ago period, in which we had an outflow of $7.6 million. We ended Q2 with $222 million in cash, cash equivalents and restricted cash, up from $202 million at the end of 2022.
Before I turn to our guidance for the third quarter and full year, I’d like to recap the deliberate changes we’ve made to our go-to-market over the past year. The intended outcomes of these changes are reflected in our second half guidance.
First at our Investor Day in December, 2022, we discussed our strategy to focus on recurring revenue and we introduced ARR as a key metric both internally and externally to represent the increased focus.
Second, we changed sales incentives in favor of selling subscription services rather than non-recurring revenue such as perpetual licenses and associated professional services. We’ve talked on prior quarterly calls about the inherent uncertainty and the timing of perpetual license deals and our cautious view on the second half of this year. This follows two record years of non-recurring revenue driven by the EU public safety mandates. And in particular, the second half of 2022 included our highest two quarters ever for non-recurring revenue with over $30 million of non-recurring revenue in that period.
Considering these factors, as well as the slower sales of large deals due to a softer macro environment that Dave described earlier, we are lowering our expectations for non-recurring revenue in the second half of 2023. In addition, in the third quarter, we have taken expense actions, which we expect will reduce our cost structure in the second half by an additional $1 million to $1.5 million a quarter, which allows us to reaffirm our adjusted EBITDA target of $85 million despite the reduced revenue expectations.
So for the third quarter, we anticipate revenue of between $113.5 million and $114 million representing year-over-year growth of 2%. This rate of growth is largely a reflection of the year-over-year decline that we anticipate in onetime revenue.
We anticipate a GAAP net loss of between $9.4 million and $8.9 million and non-GAAP net income of between $18.5 million and $19 million or diluted earnings per share of $0.42 to $0.43. We expect adjusted EBITDA to be between $23 million and $23.5 million, a margin of 20% at the midpoint as we continue to drive efficiencies in our operating expenses.
For the full year 2023 we anticipate revenue to be in the range of $450 million to $452 million, representing growth of 4% to 5% over 2022. Again this rate of growth is largely a reflection of the year-over-year decline that we anticipate in one-time revenue.
We expect a GAAP net loss of between $43.7 million and $41.7 million or a negative $1.7 to [indiscernible] share. On a non-GAAP basis we expect net income of between $65.8 million and $67.8 million or between $1.48 and $1.52 per diluted share.
We remain confident in delivering adjusted EBITDA in the range of $84 million to $86 million representing an adjusted EBITDA margin of 19% at the midpoint of $85 million. This outlook reflects the quarterly expense savings noted above and keeps us on our trend of continuous year-over-year improvement in quarterly adjusted EBITDA and adjusted EBITDA margin.
In summary, we delivered a solid first half. As we progress through 2023 we remain focused on execution driving profitable organic growth of ARR and maximizing return on our investments.
Looking further, we are confident we can deliver the targets laid out at our December 2022 Investor Day making disciplined growth first investments and making steady progress towards the Rule of 40 by 2027.
I will now turn the call back over to Dave.
David Wagner
Thanks Patrick. As our 9% year-over-year increase in ARR demonstrates, we continue to grow nicely in a difficult macro environment. In Q2, we closed 50 deals over $100,000, up 6% from last quarter and down 13% from Q2 of last year. We closed one deal over $500,000, down from three last quarter and 12 in Q2 of 2022.
Our overall transaction size remained steady from Q1 to Q2 and is down nearly 40% year-over-year. However our Accelerated Digital Marketing programs have enabled us to drive tighter deal velocity in the [indiscernible].
Representing success across multiple industries, we added 38 new CEM customers, an increase of 10 from last quarter and an increase of 18 or 90% in Q2 2022, bringing our total CEM customer count 373.
Four of the top five CEM deals to same period for new customer wins. Our top five new deals included the CEM deal, two in North America and one in Europe, one Perpetual Public Warning deal in Canada and one RedSky E911 win. Our total number of new logo deals increased, on both a sequential and year-over-year basis. Our top five growth year-over-year quarter, included a $500,000 plus add-on to existing CEM customers for smart security. There were two additional CEM deals in the top 5. One, a Smart Security add-on in the financial vertical, and the other our Risk Intelligence add-on in the technology sector. The final two, were point product growth deals one for digital operations as a major retailer, and the other an E911 add-on. Our number of add-on growth deals was up slightly from last quarter and down about 10% of Q2 2022.
From a retention perspective, our Q2 is solid. We saw good retention in North America offset by some relative weakness internationally. From a go-to-market perspective, notwithstanding the cost efficiencies Patrick noted earlier, we are leaning in even hard with digital marketing and pipeline creation. We are focusing on programs that highlight the value of maturing our customers’ resilience posture, to help motivate them to buy more.
We’re also providing dedicated support to each individual sales rep, to help them optimize their success. We are pleased that more than three quarters of our sellers now have one year or more of tenure. As they continue to develop, we are optimistic that the productivity will continue to improve. Finally, we are working to optimize our pricing to better align value in both new customer wins and growth add-on opportunities.
Moving to product. We executed on several key technology milestones in the quarter, toward our goal of a truly integrated CEM platform as we discussed at Investor Day. In Q2, we delivered a major enhancement through our Critical Event Management Analysis and Correlation Engine. Our customers are now able to apply more complex workflow and variable alerting thresholds allowing them to fine-tune or just so even further.
As we continue to integrate Anvil, we launched Everbridge Travel Protector, which is now CEM native [ph], this means that Travel Risk Management customers not only received standard travel risk information but also have access to the same high-end risk intelligence and single clinical as our CEM customers. Everbridge Travel Protector is available at the standalone product as an add-on to CEM. And over time, we will transition the Anvil customers to this new product.
We are also modernizing the user experience across the board for our core CEM customers. Everbridge 360, our new integrated platform experience featuring a refresh in base simplified workflows and customizable configuration across events and data fees, launched in early July to select customers. Their feedback has been universally positive. And we will continue to roll out Everbridge 360, into all four CEM customers over the rest of the year and we expect to release new features on the rolling date.
Finally, I’d like to turn to smart security. Our control center product was used to help keep people safe during the Kings coronation the largest Police operation in the history of the United Kingdom. Over 29,000 police officers relied on data from over 50,000 cameras and devices with access managed by control center. Everbridge was proud to help provide accessible, actionable, situational awareness bringing such a high-profile public event.
In summary, in the second quarter, we delivered another solid performance as we sequentially increased ARR and further expanded our adjusted EBITDA margin. While we are navigating through a challenging macro environment, we are making meaningful enhancements to our core CEM platform. And are making disciplined growth first investments we are allowing us to make steady progress on our short-term increases in efficiency profitability and cash flow and our long-term goal to reach the Rule of 40 by 2027. I look forward to updating you on our progress in the coming quarters.
We are now ready to open the call for questions. Steve?
Question-and-Answer Session
Operator
Yes. Thank you. At this time we will begin the question-and-answer session. [Operator Instructions] And the first question comes from Alex Sklar with Raymond James.
Alex Sklar
Great. Thank you. David or Patrick I just want to better understand the second half of the year growth guide, which I think implies you exit the year at about 1% growth, I appreciate all the color on the nonrecurring pressure. But can you just give us some more color on what that factors from a subscription growth standpoint relative to what you were baking in last quarter? Thanks.
David Wagner
Yes great question. The large deal challenges we’ve been having are across both perpetual and subscription primarily the perpetual deals end up being more on the larger deals. The same large deal phenomenon is impacting the bookings for recurring as well. As we think about the year and our previous full year guide of 6% to 7% with one times flat.
Obviously now we’re calling the one-time down year-over-year. And we’re seeing the subscription down a little bit, but not much but subscription is holding in relative to that beginning of the year outlook of in the 6% to 7% range and it’s really the one-time that run down. Obviously we would love for large deals recurring deals to be here that would have been bolstering our ARR growth and subscription revenue growth further. But anyway relative to how we saw the year playing out to die really on the one-time side.
Alex Sklar
Okay. Great color. So your comment on deal velocity on subscription mostly offsetting the large deal phenomenon. Okay. And then just a two-part question on the SALESFORCE and go-to-market. You talked about some changes there. John has been in the seat for just about six months now. What can you tell us about the changes you’re making as part of this the new cost structure referenced on the call? I know — and then separately you referenced optimizing pricing. Can you just elaborate a little bit more on what that entails?
David Wagner
Yes. On the — yes [indiscernible] Patrick alluded to cost savings measures that were taken early this quarter. A lot of those are in the go-to-market largely around fans and layers and improving overall efficiency. On the good news side our sales tenure is improving. And so we’re really pleased by that. But — for the first time, since I have been here our year-over-year tenured sales productivity went down. And so that’s obviously the large deal phenomenon impact that productivity, but we’re really focused on helping each seller become productive in their roles and improving the productivity.
So John and his management team are really focused on individual sellers, are focused on getting a little more higher segmentation in how our sellers approach the market both in the sales organization and in their collaboration with marketing and lining up those programs. So I see John delivering more efficient go-to-market organization and aligning go-to-market organization. And as I alluded to last quarter, there’s still work to do. I do believe that the majority of what we experienced is a macro trend. Obviously, we have work to do in our own four walls as well.
Alex Sklar
Great. Thank you.
Operator
Thank you. And the next question comes from Matt Stotler with William Blair.
Matt Stotler
Hi. Thanks for taking my questions. Maybe start with a multipart question on average deal size. So you noted that you remain kind of lower than what you’ve seen historically in the quarter. Large deal scrutiny and challenges is very clear. I’d love to just I guess better understand, if you’re seeing new deals coming smaller customers are reducing spend or if this is an indication that maybe you’re seeing more success at the lower end of the market versus the enterprise? Any additional color there would be helpful.
David Wagner
Yeah. It’s across the board. The new customer deal size down 40% and the existing customer deals size 40% — take — I guess a little bit of feeling on at least the Q1 to Q2 deal size was similar. So we didn’t see a further drop of in deal size, although it’s pretty meaningful year-over-year. When you break it down, it’s just pretty meaningful numbers in the over $500,000 deal signed and it’s largely the impact of those large deals not being in the flow that’s driving the average deal size down. I do think — that’s what I focus on switching topics now to the mid-market. That is one of the focus areas that we’re moving into is more of a mid-market focus.
We enjoy a very strong penetration in large enterprises especially here in North America. And that cross-selling motion to that base is a really important part of what we’re doing. But from a new customer perspective, we’re really dialing in on the 10,000 to 49,000 employees enterprise still a large company, but down one segment from where we’ve got the aligned share today.
Matt Stotler
Got it. That’s helpful. And then as a follow-up, you noted the drop in SalesForce productivity year-over-year associated with the large deal challenges. How are you thinking about head count and hiring for the rest of the year? I think at the beginning of the year you were planning to be flattish. Is there a situation where you reflect that up or down especially given kind of lower productivity there?
David Wagner
Yeah. We called them disciplined growth first decisions that we’re focusing on. And this is one we have not made with finality for next year. As I said in the script, we are really pleased that our sales retention has gone up to a good level now. Not really surprisingly is folks are turning – many turn through their first 12-month period, not all of them are reaching the productivity. It’s a challenging environment – that we’d expect. So as I said, we’re leaning in sales manager to seller, marketing support to sellers to make sure that we’re supporting those salespeople in their transition from early with the company to tenured. And so there’s definitely a training exercise and sales management exercise that we’re buying rigor to help drive that productivity higher.
Matt Stotler
Got it. Thanks, again.
Operator
Thank you. And the next question comes from Brian Colley with Stephens.
Brian Colley
Hi, guys. Thanks for taking my question. So I’m curious on the implied guidance for 4Q of 1%. I’m curious kind of how we should think about 1% for 4Q. I’m curious how we should think of ARR growth in the context of the updated guidance? And maybe if you could kind of quantify the reduction how much of it was subscription? And how much was the non-recurring piece? And also how you feel about your ability to kind of reaccelerate growth into next year?
David Wagner
Good morning, Brian, that’s a great question. And you can hear from our commentary, again relative to the way we saw the year and I don’t know exactly what you have in your model or the others. But from the commentary we gave at the beginning of the year 6% to 7% growth with one-time flat. Obviously, then we were planning 7% to 8% with the one-time flat was the way we were kind of looking at the year and we start talking about it nine or 10 months ago.
We’re running in the 7s on subscription revenue growth. There’s not a lot but a little bit of noise at the year-over-year compares. In the way we were playing it to step up last year. But I would – when you take – we’re saying 4% to 5% now with the primarily one-time down. So it’s primarily one-time down maybe 100 basis points out of us on the subscription side. And its the one-time. And I’ve been using the word one-time more carefully, Patrick and I both use it more carefully. The perpetual software deals also drive a good in PF. And so when we say one-time, we’re putting the PF associated with those license feeling for the same into the same sentence. Anyway it’s not just perpetual but the one-time is where the majority of the shortfall from the way we saw the year in our guide where we see it today.
Brian Colley
Got it. That’s super helpful. Thank you. And in terms of the reduction, I’m also curious if there’s any specific verticals or areas of the business from a product perspective where you’re seeing the…?
David Wagner
Brian, I roll around — you’ve known me for a while. I’m roll down dug-in [ph] spreadsheets and roll around in my bed at night on exactly that question. It is the strangest thing. It is large deals across the board. I go through it a million ways from Sunday and the metrics we’re giving you are the metrics that matter. It is yields over $250,000 acutely deals over $500,000 and $1 million that have slowed down.
And the velocity, I’m certainly pleased on the new business side, our new business generation both in terms of number of deals and in total with five. We were off in existing customer transactions when they said about 10% year-over-year. But it’s — there’s no real specifics to it.
One thing I’ll point out, when I’m roll around and I’m thinking about this stuff. State of Florida, our slide business was solid. Our slide business was solid this quarter. So that’s not even what I expect for that, Brian is that profitable slowdown larger impact [ph].
Brian Colley
Great. Thank you for that. And just a housekeeping question. Did you all report the total enterprise customer count, or is that something that you’re not reporting anymore?
Patrick Brickley
It ran roughly in place from the last quarter, Brian. We had similar to what you saw last quarter. We had headwinds related to as we continue to end of sale end of life shut down non-core assets. Without that headwind, we would have added a net roughly $70 million but it’s roughly [indiscernible].
Brian Colley
Perfect. Thank for the time gentlemen.
Patrick Brickley
You bet.
Operator
Thank you. And the next question comes from Scott Berg with Needham.
Scott Berg
Hi, everyone. Good morning. Thanks for taking my questions. I have a couple. Dave, you’ve obviously spoken a lot about the one-time revenues that are down, especially in the government I guess, kind of verticals or at least that’s my assumption. And it’s having the government verticals, but any change of win rates there? Any pricing pressures? Is this just really a continued reflection of those deals just aren’t ready to have decisions made on or just not in the pipeline in general? Thank you.
David Wagner
Yes. On the Government side, it’s a slowdown in those decisioning process as I talked to a couple of close network people in that companies in similar spaces. They’re seeing the same thing, especially in Europe getting a larger commitment. So it’s a slowdown. We do have a couple of nice opportunities in the second half but the way — the way things are going this year, we’re adjusting the full year to reflect for a big deal allow us throughout the year.
Scott Berg
Got it. Helpful. And then my follow-up question is on the CEM deals. The number of deals continues to trend higher year-over-year. The pricing is down as the kind of package them in size them maybe a little bit smaller just to drive that initial footprint with some customers. But how should we think about the combination of modules that are comprising these deals? It sounds like you’re seeing a shift of what customers have historically bought within the CEM deal versus maybe what they’re purchasing today? Is that maybe the right view, or are you seeing combinations that are moving noteworthy? Thank you.
Dave Wagner
So, one of the things, I remain very positive on. So when I roll through that, the gross retention in larger customers that remains a real strength for us? The opportunity to cross-sell and upsell those accounts as we move the attach add-on focus the growth focus remains really strong. The big movement in the CEM journey goes from mass notification, which improves your resilience posture to be much more responsive in a critical event to add the digital innovation and risk component is intelligence component of the product.
That’s the really big step up in the CEM journey. And so we’re doing — I get a better job seeding that smaller and then allowing the assets and content to grow over time than we have been in the past. And as highlighted to earlier we’re targeting that. It’s not mid-market but that 10,000 to 49,000 user enterprise, especially on the new customer win size because we’ve got such great penetration already in organizations and over 50,000 employees.
Operator
Thank you. And the next question comes from Michael Berg with Wells Fargo.
Michael Berg
Hi. Thanks for taking my question. I just wanted to follow on to Scott’s question earlier on the large deals. Relative to Q1, would you characterize the environment the macro environment is getting meaningfully worse? And are some of these deals that are slowing down? Are these deals you still expect to close either later in the year or potentially into next? Thank you.
Dave Wagner
That’s a great question. So Q1, Q2 to Q1 was relatively steady for us, steady on the deal size decline which is the number one thing that we’re concerned about. If I put a positive spin on it, we had won over $1 million deal in Q1 and none over Q2. And so we had better volume in the small deal side in Q2 that you want and then but we were down at Q2 over Q2 in numbers attract transactions into installed base.
So I call it steady Q2 from Q1 not a deterioration the last two weeks of June were last than we had expected. And so that was a challenge and we’ve been flowing some of those into this quarter. But again, as we stand back from the year, we’re seeing there’s not too relatively steady from Q1 and we’re adjusting to expect a tougher environment.
Michael Berg
Got it. Thank you. Then a quick follow-up. Did you say that, the perpetual deals is impacting quarterly revenue by $1 million to $1.5 million in the second half?
Dave Wagner
No. What we did say on the $1 million to $1.5 million that was in Patrick’s script that’s proactive cost adjustments we made in early July. That’s we’re going to help you bridge the EBITDA guide.
So if you look at the round numbers $8 million down in revenue guide, how you holding 85. Well, that’s the $8 million part of that is professional services. So you don’t have full margins 75% margin, you’re at $6 million.
And the 1.5 per quarter cost savings get to three of it and then the cost discipline that we have been evidencing through the first half enabling our EBITDA beats in both Q1 and Q2 that discipline continues through and let us stay on a path for the EBIT guide, despite short follow-up in revenue.
Michael Berg
Helpful. Thank you.
Operator
Thank you. And the next question comes from Ryan MacWilliams with Barclays.
Ryan MacWilliams
Hi guys. Thanks for taking my questions. Just one more on large deals, I’d love to hear your opinion on like, how much of the headwind to these deals is in Everbridge control versus macro?
Like, do you think Everbridge is just more later cycle for software purchasing and it could just take some time to work through the cycle and for macro improved to then get bookings and some of these sales efficiency metrics to improve?
David Wagner
Hi Ryan, it’s a good question. Again, one that I’ve been turned around as Everbridge’s spreadsheets and roll around at my bed at night, to answer your question, I feel like it’s 70-30 macro to micro that company specific things.
We are license based on contacts. And so, those contacts are primarily employees and we’re focused in the in the over 50,000 employee vertical. And those companies they aren’t hiring at the rate they were. I do expect these companies to be the strongest coming back out of — this turn as well. But everybody has taken a turn on profitability.
And I think if they get to the second term of the cracks, you’re suggesting and start to look at really driving productivity. We have really strong ROI metrics in our core customer base that the efficiencies they get from their security operators by implementing a critical event management platform are really strong.
I think as we turn back towards which software is going to make our teams more productive and really drive productivity gains. I think we’re going to be again in a good spot as we turn through this.
Ryan MacWilliams
Appreciate that. And pleased to see the CEM sales still doing well, from an individual product perspective, anything to call out on the momentum for Mass Notification and Safety Connection?
David Wagner
And one of the things that I’m pleased about year-over-year Patrick, alluded to it. The gross retention is improving. Especially in the Mass Notification side, we’ve got that improvement from negative growth, just slightly positive growth and improved year-over-year. So that’s a trend, I’m actually pleased with.
I should — and maybe I overemphasize, but I feel like I should emphasize more the really great work that our product teams are doing. We started with a premise that focusing and investing on our core is the right approach and we’re getting really good feedback with the investments and the improvements we’re making driving more value for our existing customers. That is a bright spot for me in how we’re executing to deliver for customers.
Ryan MacWilliams
Appreciate the color. Okay.
Operator
Thank you. And the next question comes from Mike Latimore with Northland Capital Markets.
Mike Latimore
Great. Yes. Thanks. How about just pipeline growth? Is it growing nicely? Is the pipeline flow just overall pipeline growth?
David Wagner
Yes. Pipeline at the macro is not going well because we’re — the bigger deals aren’t there. But the — the velocity is maintaining or maybe even slightly improved especially on the new deal side. And so that’s what we’re laying them in. You want to sell what customers want to buy and the customers are wanting to buy more disciplined from – smaller amounts right now.
Mike Latimore
And the CEM deal come, obviously, strong. How many of those were upsells into kind of the Global 2000. How is that pattern playing out there?
David Wagner
That’s a good question. I don’t have that in front of me. From looking at the deal list — as I said we’re very, very nicely penetrated in North American enterprise of over 50,000. Like there are more to win, but our penetration is great there. And the new logos are in the next year down the size account for sure.
Mike Latimore
Got it. And just on Mass Notification, it sounds like a little bit of growth there which is good. Is that what would cause that? Is that just more focused? Is that a pricing change, is that product enhancement?
David Wagner
It’s primarily focused which has managed itself first in the product organization. We’ve taken time as I said to go back and make sure that that segment of the market. We are — yes we’re investing there to make sure that we retain and grow those core customers. We’ve done some real nice things that’ve been listening carefully. The County Emergency Managers across the country and we’re building improvement in our core flagship product and — I’m really proud of the work that the team has done that double down there. We’re tightening in the integrations with other stock parts of the platform to make it even easier to use. So we’re definitely putting some attention there.
Mike Latimore
Yeah. Okay. Thanks.
Operator
Thank you. And the next question comes from Kash Rangan with Goldman Sachs.
Unidentified Analyst
Hi guys. This is Jacob [ph] on for Kash. Thank you for taking the question. I wanted to ask how many of the CEM deals and I apologize if this has been touched on earlier, but how many of the CEM deals or CEM additions this quarter were a result of upselling from the existing customer base versus net new customers?
And then if we could maybe touch on the dynamic around the International segment, it seems like it’s been a little bit of weakness for the last few quarters. So anything you’re seeing there that might be willing to call out?
David Wagner
Yeah. The new CEM deal to get is a little bit of a bright spot smaller, but the new deals are 50%. If you run like top five, I think three of the top five transactions, new transactions were CEM deals. And so that’s something I feel good about. International, I think it’s no secret that the EU has its own challenges especially the UK where we have a good bit of business. We’re solid there. But not the same level of growth that we are seeing in prior years.
Again, we’ve been more disciplined with our investments particularly internationally where we were over-invested is a strong word, but we were invested heavily to penetrate those markets and we’re making more disciplined cash-based investments. We’ve been adjusting International a little bit more than North America.
Unidentified Analyst
Sounds good. Thank you.
Operator
Thank you. And this concludes the question-and-answer session. I would like to return the floor to management for any closing comments.
David Wagner
Thank you, Keith, and thank you everybody for joining us on our second quarter call. Patrick and I and Nandan will be very active in especially in the next two or three days with investors and some profit activity look forward to connecting with many of you in the next 72 hours and hopefully all of you again in today when we report our third quarter results. Have a great day.
Operator
Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.
