Everbridge - Q1 2023
May 9, 2023
Transcript
Operator (participant)
Good morning, and welcome to the 1st quarter 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the Star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press Star and two. Please note this event is being recorded. I would now like to turn the conference over to Nandan Amladi. Please go ahead.
Nandan Amladi (VP of Investor Relations)
Thank you, Sandra. Thank you, Sandra, and good morning, everyone. Welcome to Everbridge's earnings call for the first quarter of 2023. With me on today's call are Everbridge's 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 IR page 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 such 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. 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 first 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 David. David?
Mike Latimore (Analyst)
Thank you, Nandan. Good morning, everyone, and welcome to Everbridge's earnings call for the first quarter of 2023. I am pleased with the strong financial results that we've released earlier this morning. For the first quarter, we achieved revenue of $108.3 million, an increase of 7.9% year-over-year, adjusted EBITDA of $15.9 million, an increase of $13.3 million from a year ago, and annual recurring revenue of $388 million, which is up $4 million quarter-over-quarter and 10% year-over-year. The impact of our 2022 restructuring is evident in our financial results, and we are continuing to improve our execution across the organization.
In the quarter, we had the opportunity to celebrate our company's 20th anniversary with some of our customers and partners in New York City as we officially unveiled Everbridge's evolved brand. It was a special day that allowed us to highlight our long-standing commitment to keeping people safe and organizations running. In the two decades since the company's inception, we've captured a market-leading share of the critical event management market and scaled our platform to reach billions of people globally. We are honored to count 6,500 of the world's leading organizations as our customers, including 25 countries who use us for their countrywide alerting systems. One of the keys to our success is that we offer a comprehensive resilience platform that is incredibly powerful. It has the ability to notify millions of people nearly instantaneously when a critical event occurs.
As many of you listening today are likely aware, several weeks ago, there was an incident that occurred leading to an emergency test alert being sent out to the phones of many Florida State residents very early in the morning. The alert was the result of a human procedural error. It was not a failure of our software platform. Our software system delivered the message as designed and instructed. That's the good news. The bad news is a live message was inadvertently sent to millions of residents' cell phones instead of a notification sent only to Florida broadcasters. We regret the inconvenience this test caused the residents of Florida, and we are committed to the state of Florida and to Florida Division of Emergency Management as a partner, as we are with all of our customers, to continue to improve and ensure best practices are applied.
We further demonstrated this commitment as we agreed with FDEM to rescind the early termination of our agreement and extend our contract through the end of the calendar year to ensure that the people of Florida are protected through the upcoming hurricane season. Our core mission is to keep people safe. We remain focused on the mission as job one for the residents of Florida and all of our customers globally. Switching back to our results, evidenced by our strong year-over-year EBITDA growth and double-digit ARR growth, we are making solid progress on our long-term growth and profitability goals as we execute toward the Rule of 40. Accordingly, we remain confident in our financial outlook for the year, including delivering on our baseline 6%-7% revenue growth and 85 million in adjusted EBITDA in 2023.
I will now turn the call over to our CFO, Patrick Brickley, to provide details on our financial results. Patrick?
Patrick Brickley (EVP and CFO)
Thanks, David. I'm pleased to report solid execution, which produced revenue and adjusted EBITDA that were above our guidance ranges.
As David Wagner mentioned, the strategic alignment program that we implemented during 2022 is continuing to show results as we pursue profitable organic growth. I will now recap our results for the first quarter of 2023, followed by our outlook for the second quarter and full fiscal year. For full details of our PNL and reconciliation of GAAP to non-GAAP measures, please refer to our press release. For the first quarter, our ARR increased to $388 million, up 10% year-over-year. Revenue was $108.3 million, up 8% from a year ago and all organic.
Revenue from subscription services was $99 million, also up 8% from a year ago. Down sequentially from $101 million in Q4 2022 due to fewer calendar days in Q1, as well as timing of invoicing for subscription services on some of our non-SaaS contracts. Our gross revenue retention rate remains healthy with Q1 performance that was moderately below recent peaks. Still notably higher than the gross revenue retention that we experienced in the year ago period. We signed 43 deals over $100,000, down from 56 a year ago. Our average deal size in Q1 was lower than what we've seen in recent quarters. However, our volume of new and growth sales transactions increased year-over-year. Our total customer count of 6,500 is down sequentially by 13 and up 4% year-over-year.
The net decrease in customer count is due to the impact of the latest planned divestitures and end-of-life programs for non-core products, which we have been describing since early 2022. During the first quarter, we otherwise saw relatively normal levels of logo ads and churn. Our CEM customer count increased to 335, up 28 sequentially and up 64% year-over-year. GAAP gross profit was $76 million, a margin of 70.5% compared to $69 million or 68% in the year ago period. On an adjusted basis, gross margin was 74.5% compared to 72% a year ago, demonstrating growing efficiencies from platform integration and optimization.
GAAP net loss was $14.6 million or negative 0.36 per share, compared to a net loss of $19.1 million or negative 0.48 per share in the year-ago period. On an adjusted basis, we generated net income of $10.8 million or diluted earnings per share of 0.25 compared to the year-ago period in which we generated a net loss of $600,000 or negative $0.02 per share. Adjusted EBITDA of $15.9 million represented a 15% margin, a significant improvement from the year-ago period in which adjusted EBITDA was $2.6 million or 3% margin. Our Q1 2023 result reflects the substantial ongoing improvements to operational efficiency that we are making across our business, in particular within sales and marketing, gross margin, and R&D.
Cash flow from operations was $20.6 million, up from $7.7 million in the year ago period. Adjusted free cash flow was $20 million, up from $1.5 million in the year ago period. The Q1 2023 result is adjusted for cash payments of $4.1 million related to our 2022 strategic realignment program. We ended Q1 with $224 million in cash equivalents, and restricted cash, up from $202 million, which we reported at the end of fiscal year 2022. Now, I'll turn to our guidance for the second quarter and full year. For the second quarter, we anticipate revenue of between $110 million and $110.5 million, representing growth of approximately 7%.
We anticipate a GAAP net loss of between $16.8 million and $16.3 million and non-GAAP net income of between $11.5 million and $12 million, or diluted earnings per share of $0.26-$0.27. We expect adjusted EBITDA to be between $16.5 million and $17.2 million as we continue to drive operating efficiencies, in particular in the areas of sales and marketing, R&D, and G&A. Our full year guidance remains unchanged as we continue to optimize several areas of the business. We anticipate revenue to be in the range of $456 million-$462 million, representing growth of 6%-7% over 2022. We expect a GAAP net loss of between $47.6 million and $45.6 million or negative $1.17 to $1.12 per share.
On a non-GAAP basis, we expect net income of between 65.8 and $67.8 million or between $1.48 and $1.52 per share. We anticipate adjusted EBITDA will be in the range of $84 million-$86 million, representing an adjusted EBITDA margin of 18.5% at the midpoint. At a high level, this outlook reflects roughly flat quarterly expense and therefore continuous quarterly improvement in adjusted EBITDA and adjusted EBITDA margin. In summary, we delivered a solid quarter to start off the year. As we progress through 2023, we remain focused on execution, driving profitable organic growth and maximizing return on our investments. Looking further, we believe we can deliver the targets laid out at our December 2022 investor day, making steady progress towards the Rule of 40 by 2027. That concludes my prepared remarks.
I'll now turn the call back over to David. David?
Mike Latimore (Analyst)
Thanks, Patrick. As our 10% year-over-year increase in ARR demonstrates, we had a solid quarter in our recurring business. Our ARR growth came from healthy gross retention and steady recurring bookings performance, especially for deals under $100K. In the quarter, we closed 43 deals over $100K and 4 deals over $500K, which was down from 56 and 8, respectively, from the first quarter of 2022. We added 28 new CEM customers, an increase of 16 from 12 in Q1 2022, bringing our total CEM customer count to 335. All top 5 CEM deals during the period were new customer wins. Our top 5 new business accounts in the quarter were all under $500K.
They included three perpetual Smart Security deals, two of which were in the government vertical in the United States, and the third with a port authority in the Middle East. One was a state government Mass Notification deal. The fifth was an enterprise CEM deal. Our total number of new logo deals was consistent with Q1 2022, but the average deal size was down. From the strong foundation we built during our rebranding, including our refreshed web presence, we are executing focused digital programs and sales plays, both to drive full CEM purchases as well as new customer sales of our point solutions, which provide easier on-ramps and shortened sales cycles.
In turn, we will lower the cost of acquisition and allow for future cross-sell and upsell as customers experience the value we bring to increasing their situational awareness, reducing the time to notification during a crisis, and improving the quality of their communications during an incident. To that end, our top 5 growth deals in the quarter included a $1 million-plus add-on to a U.S. government contract and a $1 million-plus add-on to a large U.S. medical insurance company. The remaining top 3 growth deals were enterprise CEM add-ons in the pharmaceutical, technology, and financial services verticals. Our number of add-on growth deals was up more than 10% from Q1 2022, but the average deal size was down. We also recently announced the successful deployment of our Public Warning technology in six different European countries over the past 6 months.
The wins in Germany, United Kingdom, Spain, Denmark, Norway, and Estonia bring us to a total of 25 countries around the world. Within the past several months, each country has tested and implemented the Everbridge public safety technology to inform and protect a combined population of more than 200 million residents. Moving to product. We are increasing our investment in innovation and integration, and we are leveraging AI and machine learning technology across our portfolio. On Risk Intelligence, we are delivering improved tooling using innovative AI and ML solutions so that our risk analysts can deliver context and relevance to our customers more efficiently. We continue to enhance our Digital Ops Insights product that we launched last quarter, which also uses AI and ML to enable incident commanders to understand the root cause of outages and resolve incidents faster.
We're making steady progress advancing integrations into our core CEM platform, improving both user experience and speed of delivery for our enterprise customers. Our strategy is to provide the most comprehensive end-to-end solution for critical event management. Over the course of the year, our customers will see a series of improvements as we simplify and streamline our user interface and workflow. Our new Chief Product Officer, Bryan Barney, brings a rich background in creating enterprise-grade platforms from acquired assets, and he has been focused on modernizing our platform with an emphasis on usability, reliability, and flexibility. His experience is already being felt as we align around a shared product vision and platform architecture. In summary, the first quarter marked a solid start to the year as we delivered another sequential increase in ARR and particularly strong growth in our adjusted EBITDA and cash flow.
These results have us on track to achieve our long-term operational and financial goals. As we move through the second quarter, we are building a foundation focused on delivering consistent, profitable growth on our way to $1 billion in ARR, and we have the team, strategy, and resources in place to get there. I look forward to updating you further on our progress in the coming quarters. We're now ready to open the call for questions. Sandra?
Operator (participant)
We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your headset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Alex Sklar from Raymond James. Please go ahead.
Alex Sklar (Director, Application Software Analyst)
Great. Thank you. David, I know we don't have a ton of historical data on ARR, but in terms of the $4 million kind of sequential growth versus Q1, should we think about Q1 being kind of seasonally slowest quarter in terms of what's implied within your guidance? Then also just a clarification if Florida's still included in ARR. Thank you.
Mike Latimore (Analyst)
All right. Great question. Yeah, Q1, yeah, we would think about it as a sequentially lowest quarter. We landed, you know, exactly where we planned in terms of, you know, the healthy, gross retention and, you know, steady booking. We landed, you know, in a good spot. Our ARR metric is still relatively new and is billings-based, so there's some, you know, quarterly variance as well based on timing of renewals, but we landed right where we expected. In terms of the $4 million for State of Florida, it is still in. It will be in, you know, based on the current agreement through the end of the calendar year.
We're not counting on that for next year, but we are working really hard, and we will continue to work really hard, you know, with the state of Florida, on the recompete of that contract, whether that happens in December or whether it happens in June of 2024.
Alex Sklar (Director, Application Software Analyst)
Okay. Great, great color. Patrick or David, I don't know who wants to take this one, but can you just talk about what's driving the sub 100,000 K ACV booking strength? Are these CEM deals that are coming in below the threshold or another solution? How are you thinking about deal sizes for the rest of the year?
Mike Latimore (Analyst)
The, the deal size is, you know, unfortunately pretty consistently down across the board. The, the new business volume in terms of volume of deals was really consistent with the smaller deal size. The existing customer base was up, but also with smaller deal sizes. There are a couple things going on there. We think that, you know, the current macro environment has customers being a little more careful about, you know, ads, the, you know, in the technology vertical in particular, we know about, you know, the reductions in headcounts at many organizations. We're seeing, you know, buying pretty consistently across, in smaller, in smaller chunks. That's.
The second piece is, you kind of heard the first sentence after the end of my introductory remarks, that the 2022 restructuring program, you know, does have, you know, impacts that we're, you know, that we're working through. We reduced over 200 positions during the 4th quarter, including quota-bearing reps. We've got a, you know, we're adjusting to the, you know, to the, to the reduced resources. We made some really intentional changes as we entered 2023 to focus on ARR as a priority. The perpetual deals, just the nature of how they're modeled, as you know, tend to be the larger transactions.
We have the sellers focused on subscription deals and focused on making sure they're meeting the customer where they are and with retaining a focus on full CEM sales and being willing to meet the customers at the point solution is the right way to bring them in for upsell and cross-sell. We've got some transitional things going on here in 2022 as well as as well as the slight macro headwinds.
Alex Sklar (Director, Application Software Analyst)
All right. Thank you for that color.
Operator (participant)
The next question comes from Mike Walkley from Canaccord Genuity. Please go ahead.
Mike Walkley (Managing Director, IoT, Communications and Security Software)
Great. Thanks, David Let's follow start to you're hitting the cash and margin targets. I just wanted to follow up on the Florida incident. Any changes in the competitive environment, and how do you feel about, you know, keeping your position with Florida plus other states as they come up for renewal, given some of your competitors feel like there's an opportunity to try to go after some market share with this event?
Mike Latimore (Analyst)
Yeah. So, yeah. I am certain that our competitors would be looking to take advantage of this. The good news, again, is the platform performed as expected, and we have the best scalability, delivery throughput of anybody in the market. You know, we think that our success in Florida and our success in, you know, national alerting, you know, that remains really strong. You know, the feedback we're getting from many of the customers within Florida, you know, is really strong, really supportive of the Everbridge, you know, solution. We're going to continue to service those, you know, the entire state of Florida count, with great diligence and rigor through the course of this year.
You know, our existing customers really understand the process for issuing test messages and live messages, and so that, our existing customers, it's pretty clear. You know, we're working aggressively, you know, both in informing existing customers and potential new customers of the power of our platform and, you know, its capability. I, you know, we, you know, we do expect lots of noise in the market off of this event, and our job is going to be to, you know, to mitigate the negatives and really emphasize the positives of our scalability and the positives of, you know, building out even deeper relationships with our existing customers and new customers.
Mike Walkley (Managing Director, IoT, Communications and Security Software)
Great, thank you. Just a quick follow-up question. Just on the realigned sales force, you know, how do you feel about where they are now to execute on the intermediate plans? Any products that you wanted to call out that, you know, added to the strong sequential CEM growth that your customers are achieving? Thank you.
Mike Latimore (Analyst)
On the sales force, thanks for asking that. The good thing is our sales tenure is improved markedly. Even though the end number of sales reps is down 16% or 17% year-over-year as we end of the year, the tenure is up, and we had a really nice improvement Q1 over Q1 in terms of, you know, productivity per rep. That part is executing as intended. As you saw that in the numbers, you know, the CEM, albeit smaller, remains, you know, a real strength. We're continuing to see a real strength with our E911 product, particularly here in the U.S.
That's definitely a source of strength in that product.
Mike Walkley (Managing Director, IoT, Communications and Security Software)
Thank you.
Operator (participant)
The next question comes from Matt Stotler from William Blair. Please go ahead.
Matt Stotler (Research Analyst)
Yeah, thank you for taking the questions. Maybe wanted to just follow up on the CEM customer base. You obviously noted smaller deal size, but pretty healthy growth in CEM customers. Can you just touch on the health of that pipeline looking forward, you know, how those deals are moving forward in this environment? Then you mentioned, I think top five were new customer wins. Are you seeing an increasing portion of new CEM deals coming from new customers, or is that still largely upsell at this point?
Mike Latimore (Analyst)
Yeah. CEM is still largely upsell. You know, we're up quarter-over-quarter, down sequentially and, you know, as we would've expected in new CEM deals. I'd say that the pipeline remains very healthy. It remains, you know, healthiest in the sub $500K zone. The big deal, you know, consistent, you know, big deal Q3, Q4, I'm sorry, Q1, Q4, Q1, seems consistent where the deal sizes are not as large as they were. Our pipeline for perpetual does include, continue to include larger deals in the perpetual pipeline, the CEM is broad and balanced in smaller mid-sized transactions.
Matt Stotler (Research Analyst)
Yeah, that's helpful. Then maybe one on the partner channel. I'd love to just maybe get an update on your partner channel optimization initiatives, how it's impacting performance, and then, you know, how you think about incremental opportunities in the ecosystem looking forward.
Mike Latimore (Analyst)
Yeah, we've tightened. Partners are a huge part of our strategy going forward. We've, we're being more focused, you know, since November, focusing on key partnerships that we believe can really move the needle. An example of one of those key partnerships is with Deloitte, where we're collaboratively rolling out resilience workshops, where they're offering complimentary workshops, reviews, enterprise resilience in large, you know, global enterprises, you know, with us. That's an example of a kind of partnership that we think can really move the needle. We're continuing to build out distribution partnerships at the lower levels, again, but in a more focused, in a more focused way. The partner channel is making good progress.
It's more focused, I think if we look to the numbers, the actual percentage of deals through the channel was down, a bit year-over-year with, as a result of that focus.
Matt Stotler (Research Analyst)
Got it. Very helpful. Thank you.
Operator (participant)
The next question comes from Brian Colley from Stephens. Please go ahead.
Brian Colley (Analyst)
Hi. Good morning, guys. Thanks for taking the questions. In regards to the pathways to the platform strategy, could you just provide an update on the progress you've made in kind of migrating the NC4 and Risk Intelligence customers to the core CEM platform and just how that's going relative to your expectations?
Mike Latimore (Analyst)
Thanks for that question. It's going well but slower than I had indicated last October. It was a single-digit movement in number of customers. This year, what I talked about last quarter is we've lowered our expectation as we've engaged in terms of timing, as we engaged with the customers who are on-prem and, you know, talk to them about, you know, they're just remain customers with a strong bias towards on-prem as opposed to cloud. We don't want to prematurely, you know, cause a disruption to their preference. The accounts that moved are moving well. We're continuing to execute that program, but it's we're not expected to be done at year-end this year.
We expect it will extend into next year as well.
Brian Colley (Analyst)
Got it. Thanks for that. How should we think about the pace of ARR growth throughout the remainder of the year? I'm just curious if we should expect, you know, relatively stable trends or a deceleration. Patrick, one for you. Apologies if I missed it, but I'm curious just what net retention rates look like for the quarter as well.
Mike Latimore (Analyst)
In terms of pace of growth, you know, the double digit growth we're seeing in Q4 and Q1, we think is healthy and we're, you know, we're focused on, you know, maintaining ARR growth in that, you know, in that neighborhood and consistent with our 6% to 7%, you know, overall guide, you know, an emphasis on the recurring piece and not a de-emphasis of perpetual, but when you focus on one thing, you're not as much focused on the other. So we're going to continue through the year, see a focus, you know, on the ARR growth and, you know, continuing to execute on our pipeline of perpetual deals.
Patrick Brickley (EVP and CFO)
This is Patrick. In terms of net revenue retention, we're evolving our focus to annual recurring revenue. That's the number one metric by which we are running the business. We're retiring the net revenue retention metric that we had been disclosing in the past because that was revenue based, that was looking backwards. It's, it wasn't ARR based. Some color on Q1. You heard David and I mention in prepared remarks that we had healthy gross revenue retention, not quite at the peaks that we were experiencing, in particular in Q4 last year, but it was healthy gross revenue retention in Q1. It's a large dollar-based quarter of renewals in Q1, we had a healthy result.
On top of that, in terms of growth, I think you heard David say that the transaction volume was up, but we were notably down in deal size. We had a pretty healthy net revenue retention quarter, building off the gross revenue retention.
Brian Colley (Analyst)
Great. All right. Well, thank you for the time, gentlemen.
Patrick Brickley (EVP and CFO)
Thank you.
Operator (participant)
The next question comes from Scott Berg from Needham. Please go ahead.
Scott Berg (Managing Director and Senior Research Analyst)
Hi, David and Patrick. Thanks for taking my questions. Congrats on the good quarter. I just got a couple of them. Patrick, wanted to start with the off-balance sheet backlog. You talked about completing a number of large countrywide deals here in the quarter. How does that, I guess, shape up or size maybe relative to, you know, the last three or four quarters?
Patrick Brickley (EVP and CFO)
Yeah. It's, I think, when you think about just pulling together a couple of dots, as David mentioned, and as I mentioned, focus on ARR, focus on the recurring business, that we think that that and doing that much more profitably drives long-term shareholder value. The perpetual deals and that backlog are still strategically important, but we aren't, we're shifting our focus towards the recurring. That backlog is not as large as it has been, and that also, you know, shows up in our full year revenue guide, where we're confident in our full year range and our ability to drive increasingly profitable organic growth. We're confident in the direction of our recurring business.
In terms of non-recurring in that backlog, you know, perpetual bookings have not, you know, continued to set new records, and that creates a second half headwind to non-recurring revenue.
Scott Berg (Managing Director and Senior Research Analyst)
Got it. Helpful. Then David, you gave a lot of color kind of around pipeline opportunities for the remainder of the year. That was super helpful. Wanted to drill in maybe to the composition of that a little bit. Last year, as I just kind of mentioned, was a big government year, in particular with some of these large European countrywide deals amongst others. It still seems like you have a pretty healthy government pipeline, though, given some of the bookings commentary. Just overall, how do we think about the mix of your sales pipelines today between maybe government and non-government versus a year ago at this time? Thank you.
Mike Latimore (Analyst)
I think as, you know, Patrick said on perpetual, you know, we're not looking to set records in 2023 as compared to 2022. While it's healthy, it doesn't have six, you know, European countries with 200 million residents in the pipeline. On the other side of the pipeline, that would be, you know, answering your question, you know, government, You know, down a bit in terms of bookings and down in perpetual bookings. In terms of the, you know, the results, you heard some, really good, you know, the largest deal in the quarter was an upsell to a U.S. government contract. We had a couple of nice Smart Security sales into the U.S. government.
We had a top five Mass Notification win in a state government here in the U.S. The government vertical in the U.S. is strong, it's shaping up to be a slightly stronger year in North America relative to Europe. You know, last year, Europe had really strong growth for us. I'm seeing a North American, a slight shift towards North American, being stronger than Europe more broadly as a geographic answer to your question.
Matt Stotler (Research Analyst)
Excellent. Thanks for taking my questions.
Operator (participant)
The next question comes from Michael Turrin from Wells Fargo. Please go ahead.
Michael Turrin (Analyst)
Hi, this is Michael Turrin from Michael Turrin. Congrats on the quarter and start to the year. I want to dig into the customer, quarter reported decline. I know that was due to divesting, end-of-lifing, and you mentioned it was outside of that, relatively in line with past editions. Can I think about that in the 75-100 range? Subsequently, how much longer can we expect potential sequential declines or just end-of-lifing of customers from these transitions? Thank you.
Mike Latimore (Analyst)
Yeah, this is Patrick. Thanks for the question. We, there were on the order of 90 or so customer logos in that bucket of divestitures, end of life, et cetera, in the quarter. Otherwise, we would have been, you know, sort of mid-70s, in that range that you described, and that's relatively normal activity, for us. We still have... When you look at the non-core products that we are aiming to divest and/or in the process of end-of-lifing, there are still a few hundred customers in that bucket. The average ARR of those customers is very low. Most of them, the majority of them are 4-digit ARR. In terms of customer count, there are still a few hundred.
That'll continue to be a headwind. The timing of it will be a bit lumpy, and we'll just continue to do what we've been doing, which is call it out when it has a meaningful impact on the change.
Michael Turrin (Analyst)
Thank you. One quick follow-up. Last quarter, you mentioned that about $4 million had planned on taking out of Q1 from the same cohort and $4 million-$8 million over the course of this year. Are those numbers still the same as you stand today?
Mike Latimore (Analyst)
That's right. We made some incremental progress in Q1. Of that range of four-eight, you know, we're targeting, we're still targeting upwards of 8, and we've done four, roughly four as of March 31st.
Michael Turrin (Analyst)
Thank you.
Operator (participant)
The next question comes from Will Power from Baird. Please go ahead.
Will Power (Analyst)
Okay, great. Thank you. I guess a couple of questions. Maybe just to touch base on macro, it sounds like you're seeing lower deal sizes, and perhaps that's partly tied to macro. You know, I wonder if you could just touch on what you're seeing in terms of sales cycles, particularly within, you know, CEM, if you're seeing much impact there, and any differences maybe across, you know, key geographies.
Mike Latimore (Analyst)
Yeah. The lower deal sizes, you know, from one company, it's hard to fully unpack the macro versus the micro. We've shifted the comp plans this year, again, to focus on subscription deals and, you know, to focus on incenting the sales force to meet the customer where they are. And if a point product on-ramp makes more sense than, you know, being ready day one for full CEM to make sure that the sales people aren't elongating sales cycles for larger deal sizes. The sales cycle, you know, I'm not seeing any change in the overall sales cycle. The velocity, as I said, especially on existing deals, was up 10% year-over-year for Q1.
Regionally, I already gave the color that a little bit stronger North America relative to EMEA this year, largely having to do with the strength of the EMEA perpetual performance in Public Warning in 2022 that doesn't have as much opportunity here in 2023.
Will Power (Analyst)
Okay. Maybe just to tie that together with, you know, the full year guidance, maintained guidance, you had, you know, some upside in Q1. I assume that's a function of perhaps some conservatism, maybe also layering in the smaller deal sizes you're seeing, or just maybe any thoughts on what you're expecting in the second half of the year versus maybe what you were expecting previously that help kind of frame the full year outlook?
Mike Latimore (Analyst)
Yeah. I think on the positive side, you know, on the year, I'm really pleased with the EBITDA and cash flow performance. You know, so thing one, and just to repeat, I think, you know, people recognize the outperformance in earnings and cash. I'm really pleased with the execution that we had between November and through the end of March in making that happen, I think that positions us, you know, well, you know, with this clear line of sight to the 85 we've been talking about since last October. That all feels really good. Steady performance on the ARR double-digit growth feels good. The bookings for perpetual, large perpetual deals, both in Q4 and Q1, you know, was lower.
That's what we're, you know, balancing and, you know, I think further just further de-risking the year and, you know, lining it up to our focus on ARR, EBITDA and cash flow generation.
Terry Tillman (Managing Director)
That makes sense. Thank you.
Operator (participant)
The next question comes from Terry Tillman from Truist Securities. Please go ahead.
Terry Tillman (Managing Director)
Yeah, thanks David, Patrick, and Nandan. My first question, David, just kind of relates a little bit to just the buyer behavior in terms of buying in smaller chunks. I don't know if that surprised you or not, but what I'm curious about is, you know, everything's kind of evolutionary or a journey. How well have you find or collaborate or recalibrated, so to speak, or tuned, the selling motion, the product and packaging, and just kind of farming motions to address what may be, you know, kind of, the new norm, which is buying in smaller chunks? Just trying to understand if that's happened, how well you've been able to react, and then now it's just about volume and velocity going forward and dealing with the new environment.
I had a cash flow question for Patrick.
Mike Latimore (Analyst)
Okay, good. That's a great question. I would say it's happening. If we just go back and look at, you know, the focus on the rebrand and the messaging and, you know, our new chief marketing officer, you know, came in, executed, completed that project, building a strong foundation. The marketing, digital marketing, muscles, you know, were being built at the same time the rebranding was being done, but there were, you know, kind of two things going on. Of course, our new chief revenue officer just joined on February the 13th.
You know, we're in the process of, you know, of building and strengthening those muscles, which are, in my opinion, the right muscles for SaaS, you know, to make sure that we're bringing customers in to the Everbridge family to get the experience and generate the cross-sell, upsell. We're increasingly improving our, you know, our BDR flow, the feedback loop from sales department, the tech stack. That is a process that I would still call, you know, beginning and executing well. I want to go back and re-compliment the sales force.
The key OKR we set back in last July when I very first joined was to get the tenure of the sales team up, steady the sales team, and that has certainly happened. The North American sales kickoff got pushed off to early May. I was with all of our North American sellers. You know, they're feeling good about their opportunity. They're feeling good about, you know, where the, the customers are in the journey, feeling good about their ability to execute their plans for the year.
Terry Tillman (Managing Director)
That's good to hear. Thanks, David. I guess, Patrick, it looks like it was the highest reported OCF or operating cash flow in history. It looked like AR was a notable benefit to the business. What I'm curious about is for the full year, how do we think about like cash flow? Does that change your cash flow forecast? Anything you can share on kind of like EBITDA conversion to cash flow? Thank you.
Patrick Brickley (EVP and CFO)
Yeah. Thanks for the question, Terry. It's an important one as we continue to focus on driving cash flow. We did anticipate a seasonally high Q1 given all the renewals that we had in Q4 and in Q1, and therefore the collection of those invoices. Q1 is typically a really good operating and free cash flow quarter for us. I know that wasn't exactly the case a year ago, but that was a bit of an anomaly. So back to normal this year in Q1 of 2023, and you should anticipate that seasonality continuing. Q2 will be lower. Where By the end of Q1, we had collected a lot of those Q4 and Q1 renewals.
Q2 cash flow you'll see being much lower, and typically Q3 a little bit stronger than Q2, and Q4 back up to much higher levels. Try to model in that sort of trough, and we're still thinking of full year free cash flow in the order of around $60 million.
Terry Tillman (Managing Director)
That's great. Thank you.
Patrick Brickley (EVP and CFO)
You bet.
Operator (participant)
The next question comes from Mike Latimore from Northland Capital Markets. Please go ahead.
Mike Latimore (Analyst)
Great. Yeah. Thanks very much. In terms of your expectations for perpetual license this year, has that changed since the start of the year? The second question just is on the Mass Notification business. You know, how did that perform? Is it stable? You know, declining, growing a little bit? Great, great question. You know, when we did the bridge in Investor Day, we were talking about flat perpetual year over year. When you digest our guide and look out to the second half, you'll see that we're not. You can't see exactly perhaps, but we're not, we're allowing for that not to be flat. We had $31 million, I think, in perpetual revenue in the second half of last year.
Our guidance allows for that not to be flat. I guess, you know, by definition, when you roll through our guide, I think you'll see that we're navigating risk adjusting the perpetual. Doesn't mean it's not going to happen, but that's where you'll see us risk adjusting the outlook.
Matt Stotler (Research Analyst)
Got it. Then on Mass Notification, is that?
Mike Latimore (Analyst)
Oh, great. Real steady, real steady. I'm really pleased with the work we're doing, you know, in Mass Notification. That's one of the things when you hear me talk about, you know, the point product, you know, as companies, you know, think about and mature their ability to, you know, predict, respond or recover from critical events, your Mass Notification is the most common starting point, the most common on-ramp. We saw a nice steady performance in that part of the business. We're using that as the cross-sell engine, continues as a cross-sell engine for CEM.
I feel like the company's putting a little more focus in that core than we had, you know, maybe this time last year, and I think that's going to pay us dividends.
Matt Stotler (Research Analyst)
Mm-hmm. Great. Okay. Thank you.
Operator (participant)
The last question comes from Koji Ikeda from Bank of America. Please go ahead.
Koji Ikeda (Analyst)
Hi. Hello, this is George MacGrehan in for Koji. Thanks for taking my question. You know, I understand that, you know, you've reiterated the full year guide, and you've highlighted some macro headwinds that are kind of showing up in terms of decreasing deal sizes, but higher volumes. It sounds like this is kind of the new normal for a while, and I kind of was wondering, in terms of being able to achieve your ARR goals, given the smaller deal sizes, could you provide a little bit more color on what it is that you're doing to incentivize higher volumes?
Mike Latimore (Analyst)
Yeah. The key driver, you know, first of all, which I mentioned, is the maturation and tenure of the sales force. You know, getting that, you know, that steadied, aligned, the year-over-year Q1 performance of the sales force, you know, gives me confidence as we were intentional in the design of the comp plan to increase territory size to allow, you know, higher opportunity for sellers to make their targets, not to de-emphasize elephant hunting and emphasizing again, meeting the customer where they are in their journey towards CEM, whether that's CEM ready today or whether that's beginning with the point product and moving forward.
Those intentional most things intentionally focus on retention of our sellers, focus on fast selling motions that increase velocity are the key things that are in place. You know, with John coming in, he's really, you know, my experience with them, he's really adept at matching go-to-market motions to the market need in the different, you know, subsegments of our market. I expect to see improving over the course of the next several quarters, improving sales plays to optimize that digital marketing, which is so, to me, is so key in meeting the customers again where they are. We've got a lot of intentionality in our process that we're beginning to execute to continue to drive velocity.
Koji Ikeda (Analyst)
Okay. That's very helpful. Then if I could ask one more question. Could you, Thinking about kind of your 1,000 customers and an average of 250 ARR target in the long term, would you be able to kind of speak to what's the ARR uplift for CEM platform customers versus customers who aren't using the CEM platform?
Mike Latimore (Analyst)
We gave good color on that, I thought, at the investor day, where our average ARR. You have to go back and give me exactly within $2,000. Four hundred and fifty-five thousand dollars is the average ARR of our customers over $250K. It's a meaningful uplift in our overall deal size when we move a customer, you know, from Mass Notification to CEM. We're talking, you know, 200%-300% increase in the ASP, and that's what we're, that's what we're driving to do. Another little piece of color we're measuring and focusing on, you know, what percent of our ARR is from those customers over $250K, and it moved up marginally, like 20 basis points quarter-over-quarter. We're continuing to.
You know, as we see the intentionality with which we were, you know, end-of-life-ing some of the, you know, small acquired products with small customers without upsell to improve our focus on CEM, despite the deal sizes being down, the number of customers and the percentage from over 250s is continuing to improve.
Koji Ikeda (Analyst)
Yeah. That's very helpful. Thank you.
Operator (participant)
This concludes the question and answer session. I would now like to turn the conference back over to the management for any closing remarks.
Mike Latimore (Analyst)
Thank you all for joining us on the earnings call. I look forward to speaking with, you know, many of the analysts and many of our shareholders, you know, in the coming days and weeks and look forward to updating you all again in early August after our Q2 results will be published. Thank you very much. Have a great day.
Operator (participant)
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Goodbye.