Is Everbridge (NASDAQ:EVBG) Using Too Much Debt?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Everbridge, Inc. (NASDAQ:EVBG) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Everbridge

What Is Everbridge's Net Debt?

The image below, which you can click on for greater detail, shows that Everbridge had debt of US$501.0m at the end of March 2023, a reduction from US$809.7m over a year. On the flip side, it has US$220.9m in cash leading to net debt of about US$280.1m.

How Strong Is Everbridge's Balance Sheet?

We can see from the most recent balance sheet that Everbridge had liabilities of US$299.4m falling due within a year, and liabilities of US$534.2m due beyond that. Offsetting this, it had US$220.9m in cash and US$116.3m in receivables that were due within 12 months. So its liabilities total US$496.4m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Everbridge is worth US$1.19b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. 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're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Everbridge wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to US$440m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Everbridge had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$60m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of US$57m. So we do think this stock is quite risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Everbridge that you should be aware of before investing here.

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.