Does Everbridge (NASDAQ:EVBG) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Everbridge, Inc. (NASDAQ:EVBG) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Everbridge

How Much Debt Does Everbridge Carry?

The image below, which you can click on for greater detail, shows that at September 2022 Everbridge had debt of US$812.0m, up from US$656.2m in one year. However, because it has a cash reserve of US$486.9m, its net debt is less, at about US$325.1m.

How Strong Is Everbridge's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Everbridge had liabilities of US$283.6m due within 12 months and liabilities of US$837.6m due beyond that. Offsetting these obligations, it had cash of US$486.9m as well as receivables valued at US$100.0m due within 12 months. So it has liabilities totalling US$534.2m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Everbridge has a market capitalization of US$1.30b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Everbridge's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Everbridge wasn't profitable at an EBIT level, but managed to grow its revenue by 22%, to US$418m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate Everbridge's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost US$74m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of US$88m into a profit. So to be blunt we do think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 4 warning signs we've spotted with Everbridge .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.