Everbridge (Nasdaq:EVBG) - Sell or Short Recommendation
The 180-day lockup period for the Everbridge IPO is set to expire on 3.17. At this time, the company's pre-IPO insiders will be able to sell 17,552,946 shares, which represent 65% of the total shares outstanding. The sudden increase in shares available for trade could potentially flood the market and lead the share price to fall.
While not all lockup expirations provide short opportunities, Everbridge offers a unique combination of factors, opening a window for event-driven traders.
We suggest shorting Everbridge shares before the lockup period expiration to take full advantage of the impending declines.
(S-1/A Filing)
Business overview: Provider of security solutions and critical software for safety
Everbridge is a tech company that provides enterprise-level software to aid communication for businesses during critical events, such as public threats and disasters. The company's platform provides immediate news and updates during terrorist attacks, active shooter events, cyber attacks and severe weather incidents. The platform allows millions of messages to be sent simultaneously to 200 countries in 15 languages in near-real-time deliveries. The platform allows users to make threat assessments, aggregate data and deliver contextual information.
Services included are: Mass Notification, Incident Management, IT Alerting, Safety Connection, Community Engagement, Secure Messaging, and Internet of Things. The company has customers in 25 countries. Its customers include eight of the 10 largest U.S. cities, 24 out of the top 25 busiest U.S. airports, eight of the 10 biggest investment banks and four out of the 10 largest health providers in the country, among others. It is based in Burlington, Massachusetts.
IPO and Early Market Performance
The company priced its shares at $12 on Sept. 15, 2016, which was the midpoint of its marketed range of $11 to $13. During its market debut, Everbridge soared to close at $15.25 for a 27% gain. Since that time, the stock has moved upward, and as of 3/6, shares were trading at $18.04, a 58.7% gain from its IPO price.
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The company's reported fourth-quarter earnings on 2.27 with the following results:
- Fourth-quarter 2016 revenue was $21.3M, a 31% increase compared to the same quarter in 2015 and above analysts' estimate.
- GAAP operating loss was $(2.6) million versus $(4)M for Q42015.
- Non-GAAP net loss was $(0.9) million versus $(2.5) million for Q42015.
- Non-GAAP EPS was $(0.03) compared to $(0.20) for Q42015.
- As of December 31, 2016, Everbridge had total cash of $60.8 million.
The company issued guidance for 2017 and provided an expected revenue range of $100-101M compared to $76.8M for 2016, and non-GAAP EPS of $(0.33)-(0.3) compared to $(0.3) for 2016.
Recent Acquisitions
Since making its market debut, Everbridge has acquired two start-ups. First was Svensk Krisledning AB in December 2016, a Sweden-based developer of a SaaS mobile crisis management solution, called Crisis Commander. The acquisition served to strengthen Everbridge's mobile offerings. Second was IDV Solutions, LLC, in January 2017, a provider of threat assessment and operational visualization software.
Bold growth moves, combined with strong results, could provide additional support for EVBG insiders to reap initial profits.
Executive management team
Jaime Ellertson services as CEO and board chairman. He previously served as CEO and chairman at CloudFloor Corporation, a company which offers cloud solutions for enterprises. The company was acquired by Everbridge in 2011. Prior to that, Ellertson worked at Gomez, Inc. and S1 Corporation, serving in various executive roles.
Kenneth Goldman served as CFO and has more than 30 years of experience with mergers and acquisitions, corporate strategies, operations, administration and finance. He previously worked in executive roles at Fiksu, Salary.com, Black Duck Software, Student Advantage, LODESTAR Corporation and others. Goldman has a Bachelor's degree from Syracuse University and is a certified public accountant.
Conclusion: Short ahead of the event
Everbridge is up nearly 59% since its IPO. Given such strong returns, we imagine early investors may be eager to cash in on gains once trading restrictions are lifted.
The table below shows beneficial pre-IPO investors by percentage owned. ABS Ventures IX, L.P., a technology focused venture capital investor, owns 31.1% of shares and may be eager to sell now as it prepares to move on to new ventures.
Currently, 65% of total shares outstanding are restricted from trading. Everbridge recently announced plans to offer approximately $50 million worth of shares in a secondary offering that will predominately be from existing shareholders. This upcoming secondary offering may encourage some shareholders to put off selling shares at the lock-up expiration and instead wait until the secondary offering. However, the secondary offering will increase the number of shares available for sale in addition to the increase in shares available for sale after the lock-up expiration.
Our firm's research has studied price movement around the lock-up expiration period for the last five years and found above-average negative returns during the day (-11,+9) period surrounding many lockup expirations.
We found factors which strengthened our results included: strong market performance since IPO, tech-focused company, and where a large percentage of the shares are owned by VC investors. In an unlikely conflation,Everbridge fits the description for each of the factors.
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