We Think Everbridge (NASDAQ:EVBG) Has A Fair Chunk Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Everbridge, Inc. (NASDAQ:EVBG) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Debt?

The image below, which you can click on for greater detail, shows that at September 2021 Everbridge had debt of US$656.2m, up from US$445.9m in one year. However, it also had US$546.5m in cash, and so its net debt is US$109.7m.

How Strong Is Everbridge's Balance Sheet?

The latest balance sheet data shows that Everbridge had liabilities of US$261.8m due within a year, and liabilities of US$696.9m falling due after that. On the other hand, it had cash of US$546.5m and US$86.2m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$326.0m.

Of course, Everbridge has a market capitalization of US$2.36b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Everbridge can strengthen its balance sheet over time. 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 35%, to US$341m. 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$87m 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. However, it doesn't help that it burned through US$2.3m of cash over the last year. So to be blunt we think it is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Everbridge (1 is concerning!) 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.