N-able, Inc.

Good morning and a warm welcome to the Enable third quarter 2022 earnings call. My name is Candice and I will be your moderator for today's call. All lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer at the end. If you'd like to ask a question, please press start followed by one on your telephone keypad. I would now like to pass the conference over to our host, Jeff McGillner with Enable. Please go ahead.

Thank you, Candice, and welcome everyone to Enable's third quarter 2022 earnings call. With me today are John Palyuka, Enable's president and CEO, and Tim O'Brien, EVP and CFO. Following our prepared remarks, we will open the line for a question and answer session. This call is being simultaneously webcast on our investor relations website at investors.n-able.com. There you can find our earnings press release, which is intended to supplement our prepared remarks during today's call. Certain statements made during this call are forward-looking statements, including those concerning our financial outlook, our market opportunities, our continued expectations following the spinoff of our business from SolarWinds in July 2021, and the impact of the global economic environment on our business. These statements are based on currently available information and assumptions, and we undertake no duty to update this information except as required by law. These statements are also subject to a number of risks and uncertainties, including those related to the spinoff transaction completed last year. Additional information concerning these statements and the risks and uncertainties associated with them is noted in today's earnings release and in our filings with the SEC. Copies are available from the SEC or on our investor relations website. Furthermore, we will discuss various non-GAAP financial measures on today's call. Unless otherwise specified, when we refer to financial measures, we will be referring to the non-GAAP financial measures. A reconciliation of the non-GAAP financial measures discussed on today's call to their GAAP equivalents is available in our earnings press release on our investor relations website. And now I will turn the call over to John.

Thanks, Jeff, and welcome everyone to our third quarter earnings call. Once again, our Q3 results exceeded the high end of our outlook with revenue of $93.5 million, growing year over year by 13%, on a constant currency basis. We believe this demonstrates the success of our purpose-built, mission-critical platforms and the leverage of our multi-product sales approach as we generated particularly strong growth in our security offerings and data protection as a service. We also exceeded the high end of our adjusted EBITDA forecast, coming in at $28.9 million, representing a 31% EBITDA margin. We entered this year proudly declaring our rally cry of earn more fans. And during the third quarter, we made exciting progress on a number of fronts. To start, we welcomed more than 450 partners and 35 sponsors to our Empower Partner Conference in Las Vegas at the beginning of October. This is the first time we were able to host this event in person in over two years. And it was truly inspiring to bring together many of our elite and super elite customers, as well as some of the top industry leaders to discuss and debate industry trends, best practices, and opportunities with this highly engaged global audience. We entitled the event Own the Cloud and spent time in over 80 workshops, demonstrations, and presentations with partners exploring the MSP's role in monitoring, managing, and securing cloud workloads and SaaS applications. Cloud-based IT spend by small and medium enterprises is expected to grow from $600 billion in 2022 to a trillion dollars by 2027, which we believe represents a significant macro tailwind. However, while our partners want to master the cloud, they need help, and Empower gave them the chance to seek guidance both from us and from each other. From Azure resource management to Microsoft 365 user management and protection, we facilitated conversations to help them not just own but monetize the cloud opportunity. And as I said on stage in Las Vegas, the answer is in the room. Managed service providers today are assisting SMEs in transitioning from the wiring closet to the cloud. decommissioning exchange servers, file servers, and other server-based applications in favor of cloud-based collaboration suites. We believe that while MSPs are capable of shepherding this transition and have evolved their businesses to become cloud solution providers, many struggle to do so efficiently and profitably. And this is why we acquired SpinPanel in July of this year. SpinPanel is a multi-tenant Microsoft 365 management and automation platform built for Microsoft Cloud solution providers and allows users to automate the management and security of all Microsoft tenants, users, and licenses. This is accessible within a single consolidated hub to reduce complexity, bring efficiency, and help enable MSP partners profitably scale their Microsoft business. I'm pleased to report that on August 16th, we announced Cloud User Hub, which leverages the spin panel technology, allowing MSPs to better monetize, scale, and own the strategic slice of the cloud. While still in beta, within 72 hours of announcing this offering, we received over 300 hand raises from partners and prospects looking to trial the product. We believe the combination of Cloud User Hub and our Cove M365 backup offering, which has now surpassed 1.2 million mailboxes protected, will allow MSPs to better provision, monitor, and protect their customers' M365 environments. In 2023, we expect to further expand our integrated cloud offerings to enable MSPs to better monitor, manage, and backup Azure workloads and other SaaS and cloud applications and environments in one place It is a hybrid multi-cloud world that MSPs are charged with managing and protecting, and we plan to give them a unified and multi-tenant approach to manage their customers on-prem and multi-cloud environments. During my keynote at the Empower Conference, we discussed cloud adoption and how MSPs must lean into the curve, helping their customers better leverage the cloud and ensure that they do so efficiently and securely. I also discussed the two other tailwinds that continue to propel the industry. As CEOs and business owners turn to MSPs to assist with compliance, business continuity, and cyber insurance elements of their businesses, layered security continues to allow MSPs an opportunity to be the trusted security advisor for the companies they serve. In their effort to mitigate risk and serve their customers, The software MSPs deploy to identify, protect, detect, respond, and recover allows them to increase wallet share and revenue per customer. When it comes to security, we encourage MSPs to tell rather than sell with a comprehensive layered security philosophy to ensure the best level of protection for both themselves and their customers. We grow as our partners grow. and our best-in-class data protection security offerings give our partners additional services to drive revenue expansion. Whether it's our mail security protecting approximately 2.2 million mailboxes, or EDR technology protecting around 1.2 million endpoints, or our Passportal offering that provides password and credential protection, we give MSPs an integrated, layered security approach that allows them to grow wallet share. Security and efficiency are the name of the game in the managed services industry, because not unlike the rest of the world, MSPs struggle to attract and retain technical talent. This is why MSPs turn to Enable, to help them increase their profitability by automating elements of their workforce and standardizing their tech stack. And while a challenge on the staffing side, labor scarcity remains another powerful tailwind in the industry, as small, medium, and large enterprises are looking to outsource all or part of their IT needs to MSPs. More and more, we are seeing MSPs providing a co-managed service for companies looking to fill labor gaps and do more with a tighter operational budget, such as augmenting the staff of larger multinational companies or performing help desks and security hygiene services. Our tiered multi-tenant platform is perfectly suited for these situations to allow MSPs and internal IT departments to effectively share the management and provisioning of tasks, and has effectively raised the end customer ceiling, allowing MSPs to service multinational Fortune 1000 companies. Now, while these tailwinds are exciting, I also discussed with our partners during Empower the uncertainty around the macroeconomic environment. MSPs provide services that are business critical to their customers. And while most of our partners who attended the event have not felt a material slowdown in their cross-sell business, some acknowledge that their sales cycle is elongating, depending on the vertical they serve. Along with most MSPs, we believe we are in an era where the industry dynamics are strongly in our favor. No business is recession proof, but we believe ours is well positioned to be recession resilient. Those industry dynamics we talk about, labor scarcity, cybersecurity issues, and raising IT complexity in the race to the cloud that are challenges for most companies are tailwinds for Enable. Why? Because we are mission critical to our partners, and we solve the problems that would otherwise be risks. The momentum we have coming out of Empower is driving a lot of energy for us and our partners. And that momentum was achieved by the hard work of my fellow Enablites to propel our offerings forward and increase our stickiness and value. In Q2, I announced the promotion of Chris Groot to General Manager of our Cove data protection business. Cove is our cloud-first, enterprise-grade backup and disaster recovery solution. and continues to demonstrate its clear competitive differentiation from others that are local first with a bolted on cloud architecture. Through his leadership, Cove continues to outpace the overall growth of the business and is our second leading solution area behind our monitoring and management platforms. The key for Cove is an innovation we call True Delta, which allows us to move up to 60 times less data than traditional solutions. We have said, Cove is the best kept secret in data protection, but the word is getting out, awareness is on the rise, and we're having greater success replacing traditional incumbent backup vendors. For example, a unique large MSP aggregator based in Canada has been bringing in a variety of inherited disaster recovery platforms rather than following a unified strategy. Three of the subsidiary MSPs, evaluated Cove, and their techs loved it, but they were still skeptical that it could live up to the promise. Over the course of a couple of weeks, we helped them roll out Cove to hundreds of servers and thousands of endpoints, and the results far exceeded their expectations. In fact, the president said to us, I can't believe there was finally a technology that we implemented that delivered on all of its promises, and the transition was painless. In the 20 years in the business, I've never seen that. The economics here were impressive as well. Since storage is included with Cove, not only are their direct margins better from a licensing perspective, but they were able to get rid of fixed hardware costs plus indirect labor costs due to drastically reduced administration time. And just in licensing costs alone, they told us they were going to save more than $250,000 a year This deal for Enable was an additional $100,000 of ARR. We're also beginning to make some headway in internal corporate IT space, and we are very pleased with the reception and trajectory we are seeing for Cove in the market. An example during Q3, there was a large MSP based in the Netherlands that was looking to roll out Cove to a large retail chain customer. They committed to their customer that it would be a seamless implementation without the need for techs to visit each of their customer sites. The data and processes we developed from a trial with a few sites gave them the confidence they needed to conduct the rollout on a flexible timeline, and they were delighted with the outcome. The value of this deal for Enable was around $80,000 of ARR. With focus comes acceleration, and with success comes duplication. I was so pleased with the acceleration of Cove that we replicated the GM model in our RMM business. In the third quarter, we announced Mike Cullen as the general manager of our remote monitoring and management business. Mike has been with us for a long time and has been instrumental in building Enable to what we are today. And as he takes the reins, there are a number of strategic initiatives to discuss. Last call, we talked about the unique segmentation opportunity that we have in tiering our two-packaged RMM offerings. In Central, aimed at seasoned larger MSPs, and Insight recently launched, which is an all-in-one offering aimed at early growth MSPs. The reception at this early stage for Insight has been excellent. We have seen over 30% year-over-year increase in new logo lands for MSPs in the lower end of the market. We are also seeing momentum with mature MSPs to make the switch to Encentral. We use the term orchestrated scale which represents the power of Incentral to help MSPs to take on large workloads, to manage devices, users, and assets with a minimal amount of labor. A great example of this is actually an update from a deal we mentioned on last quarter's call. A large North American MSP that we had been pursuing was dissatisfied with the support and capabilities they were getting from their current backup vendor. We established the beachhead with the successful implementation of Cove And from there, we continued our conversations about Incentral. During Q3, we ousted a well-established competitor for RMM, growing this $50,000 ARR partner by more than 50% so far, and is a good proof point of our multi-pronged sales approach. Our RMM strategy continues to resonate strongly in the market, and we were honored to be voted as the number one RMM platform for the second year in a row and the CRN 2022 Annual Report Card. We ranked first in the categories of Managed and Cloud Services, Product Innovation, and Partnership, placing us first overall. While we're always honored to receive recognition for the hard work we are doing, this one is awarded based on feedback from our partners and tells us that our commitment to helping them work smarter, not harder, is having a real impact. We will continue to invest in both our technology and our partner success programs to keep our flagship RMM platforms ahead of the industry. On the sales front in the third quarter, we continue to see strong new customer and new SKU bookings, in particular with our data protection and security solutions. Last quarter, we talked about how we believe we are uniquely positioned to MSP aggregators in optimizing their costs and resources through standardization automation, integration, and by having one vendor for service, support, and billings. PE firms and large aggregators around the globe note that working with us satisfies an easily provable ROI that helps them in growing their business more than any other vendor they work with. In many ways, we view these aggregators as a channel, a way we can focus our sales effort to reach multiple MSPs at once. To illustrate the leverage we get through peer-to-peer selling, there is a large and growing MSP aggregator that we began talking to earlier this year about Cove. They are a decentralized, PE-backed entity who buys strong, standalone MSPs and allows for independent operation except for a few shared services. Once we convince the executives of our value proposition, which centers around standardization, single pane of glass integration, advanced features, and high-quality service, they opened the doors to their MSPs. Since April, we sold Co-op to three of their 18 MSPs, which is an additional $150,000 of ARR to an already vibrant account, and we'd love to continue to increase our adoption within this aggregator. M&A in the MSP market continues, and we believe we found a winning formula to take advantage of the opportunity. It starts with showing companies the economic value of standardization than opening the door with our purpose-built technology, keeping them growing through our partner success resources and enhanced services. Our discussions at Empower gave us further confirmation that providing a holistic tool set, we can find entry points with MSPs in many different product areas. But it is the fact that we are truly a partner to them, invested in their success, that keeps propelling us forward. We believe that is what differentiates us from competition and will continue to drive our success over the long term. I'll let Tim take over the call to discuss our financial results and outlook. Then I'll jump back briefly with some closing remarks. Tim.

Thank you, John. And thanks to all of you for joining us on the call today. I want to review our third quarter financial results, then discuss our financial outlook for the remainder of 2022. As John mentioned, We finished the third quarter ahead of our outlook with total revenue of $93.5 million representing 6% year-over-year growth on a reported basis or 13% on a constant currency basis. Subscription revenue was $91.2 million representing approximately 6% year-over-year growth or 13% on a constant currency basis. Other revenue, which primarily represents maintenance revenue from our discontinued legacy license model, was $2.3 million, which remained consistent year over year. We ended the quarter with 1,786 partners, generating greater than $50,000 of annual recurring revenue, or ARR, a 7.5% year over year increase. Partners contributing over $50,000 of ARR now represent 50% of total ARR, up from 46% a year ago. In Q3, we saw a continuation of the positive trends in recent quarters, with EDR and Cove data protection, and in particular, with Microsoft 365 backup, continuing to outpace total company revenue growth. Dollar-based net revenue retention calculated on a trailing 12-month basis was 104% on a reported basis. This result reflects approximately four points of negative FX impact. Dollar-based net revenue retention was in line with the previous quarter at 108% in constant currency. Turning to profit and margins, note that unless otherwise stated, all references to profit measures and expenses are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliations provided in today's press release. Also note that historical financials for the period prior to the effective spinoff date of July 19, 2021, included operating expenses that were prepared using carve-out allocation methodology while we were still a part of SolarWinds. While the allocations and estimates in these carve-out financials are based on assumptions that we believe are reasonable, our standalone financials are not necessarily directly comparable to those prepared prior to the effective spinoff date. Third quarter gross margin was 84.8% compared to 87.7% in the third quarter of 2021. The key drivers of the decline are changes in foreign exchange rates, product mix, and data center investments, which we expect to get scalability from in the future. Third quarter adjusted EBITDA came in well above the high end of our outlook at $28.9 million, representing approximately 31% EBITDA margin as we achieved strong cost management in the quarter. CapEx was $5.4 million, or 5.8% of revenue, Unleveraged free cash flow was $18.7 million in the third quarter. Non-GAAP earnings per share was $0.07 in the quarter based on 181 million weighted average diluted shares. We ended the quarter with approximately $87.7 million of cash and an outstanding loan principal balance of $346.5 million, representing net leverage of approximately 2.3 times. Approximately 44% of our revenue was outside of North America in the quarter. Before discussing our fourth quarter and full year outlook, I want to touch on our business approach in this macroeconomic environment. Since the spinoff, we have invested broadly across the business to operate as a standalone company and drive revenue growth. Given these investments and keeping our eye on the state of the broader economy, our plan in the upcoming quarters is to focus our investments in the areas that have demonstrated the highest return. We plan to focus new investments on product and engineering as well as revenue generating sales headcount and moderate investment in other areas of the business. With that said, now I will provide our financial outlook for the fourth quarter and full year. There have once again been changes to the foreign exchange environment since our last outlook and we are updating our guidance to reflect the impact of these changes. I want to start by reconciling our prior 2022 outlook based on current FX rates. As stated in our previous call, we assumed FX rates for the Euro and Pound of 1.00 and 1.19 respectively. Using updated FX rate of 0.99 on the Euro and 1.14 on the Pound, as well as changes in other currencies, our prior 2022 revenue guidance of $370 to $372 million translates to $369 to $371 million, reflecting approximately $1 million of additional FX impact in the fourth quarter. As it relates to our prior 2022 adjusted EBITDA outlook of $107 to $109 million, using these updated FX rates, our adjusted EBITDA outlook translates to $106.5 to $108.5 million, reflecting approximately a half a million dollars of additional FX impact in the fourth quarter. While the global macro environment remains uncertain and FX rates may continue to fluctuate, based on our current FX assumptions, we expect our fourth quarter of 2022 total revenue in the range of 93.3 to $93.8 million, representing approximately 5% year-over-year growth, or approximately 11 to 12% on a constant currency basis. For the full year 2022, we are expecting total revenue of $369.3 to $369.8 million, representing approximately 7% year-over-year growth on a reported basis, or 12 to 13% growth on a constant currency basis, in line with the constant currency growth outlook in the previous quarter. For adjusted EBITDA, we expect the fourth quarter in the range of $27.5 to $28 million, representing approximately 30% margin at the midpoint. We are raising our full-year adjusted EBITDA outlook to $111 to $111.5 million, equating to approximately 30% margin at the midpoint. CapEx is expected to be approximately 5% of total revenue for the full year. We also expect adjusted EBITDA conversion to unlevered free cash flow to be approximately 66% for the full year. We expect total weighted average diluted shares outstanding of approximately 181 million for the fourth quarter and the full year. Finally, we expect our non-GAAP tax rate to be approximately 27% in the fourth quarter and 25% for the full year. Now I'll turn it over to John for closing remarks.

Thank you, Tim. We believe we are seeing the fruits of the strategic initiatives we set in place since before our spinoff. With a set of product offerings and services that are purpose-built to drive MSP partner success, as I mentioned, We have recently adjusted our product group alignments to a GM model to accelerate growth and ensure we are best addressing the needs of our partners. The goal is to build efficiencies to drive our business forward successfully, be better positioned to support our partners and products, and to earn more fans. At the end of the day, we make it our mission to do two things for our partners. First is to bring them enterprise-grade software that will grow their revenue and wallet share. with their customers. Second is to design our software and programs to help them scale, standardize to be more efficient, and drive up their profitability. Simply put, we are focused on both their top line and bottom line, helping our partners navigate this macroeconomic environment and come out on the other side stronger than ever, turning headwinds into tailwinds. With that, If we don't have an opportunity to speak sooner, I wish you all a great rest of the year and look forward to talking with you on our next call in February. Operator, we're now ready to open the line for questions.

Thank you. If you'd like to ask a question, please press Start followed by 1 on your telephone keypad. If for any reason you'd like to remove your question, it is Start followed by 2. Again, to ask a question, it is Star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. So our first question comes from the line of Mike Seacoss of Needham & Co. Your line is now open. Please go ahead.

Hey, guys. Thanks for taking the questions here. I wanted to circle up to make sure I'm understanding a couple of different moving pieces. And congratulations on a strong, I guess, cost discipline that you guys were able to demonstrate this quarter. With respect to the partners generating north of 50,000 in ARR, can you give me that metric again? I think, was it 1786 that you guys had cited in the prepared remarks?

Yes, it was, Mike.

Okay. And so, can you help us understand, I guess, what you're seeing from the MSPs that would have closed this number to back up on a sequential basis? And maybe for a historical perspective, like Did we see a decline during COVID or what seems to be different this go around that's causing maybe some of that quarter to quarter step down that we're looking at?

Yeah, Mike, happy to give some color there. It's really primarily FX related. If I currency adjust out the customers, they're continuing to grow sequentially. The decline is really just due to adjustments in FX rates across the globe.

I see. Okay. Thank you for calling that out. That makes much more sense to me.

Nothing's changed, I would say, from a macro standpoint as it relates to customers over that $50,000 threshold. It's still very healthy, and John touched on a bunch of points around some of the MSP aggregators, and I would say there's a lot of strong momentum there, and we're We're continuing to see success with our approach and strategy around that segment of the market.

And I do just want to firm up my understanding with respect to gross margins and the sales and marketing specifically. So for the gross margins, I know that you guys had cited new products as probably being a little bit of a drag this quarter versus a year ago. And I'm just trying to get for a magnitude, given you guys have had some newer product releases this year. I guess, where are we in scaling those newer products? And so should we expect that drag from new products to, I guess, atrophy in Q4 and beyond? And then the second question would be on the sales and marketing expense. I was surprised to see the I just wanted to see, is there anything specific this quarter that would have caused that quarter-to-quarter decline on the sales and marketing?

Yeah, Mike, happy to give color on both of those. On the gross margin front, you hit on the new products. That's, I would say, an investment up front for some things like the new spin panel offering. as well as our tech services offerings as well. We had to get some infrastructure and some people built out prior to launching and leaning into the growth of those new products. So I would expect to get some scale on both of those fronts as we go through 2023. In the quarter as well, there's also FX pressure on the gross margin line as well. frame it out, it's about, you know, a third new products, a third FX and a third on some data center investments to help help scalability in the future. And then on the sales and marketing front, in terms of the sequential decline, I would say it's more seasonality with some of the marketing in the summer months as well as just timing there and that a little bit of FX as well. as rates came down there. Okay.

And just to clarify on that latter point, I know you had said that some of it is timing, right? So should we expect, I guess, when I think about the timing of those expenses, are you guys deferring some of those expenses to calendar 23? Will it show up in Q4? Did it come out in Q2? Again, just want to make sure I'm crystal clear on that. And what caused the decline there?

Yeah, the decline in Q3 was part seasonality and also part cost management as we looked at some inefficient parts of our spend and tightened that up in Q3. I think you see that more as part of the profit beat in the quarter. But it's a combination of seasonality in Q3 for marketing spend as well as just, I would say, some tighter cost management.

I wouldn't have to hurry to another period. Yep. Okay. Okay. Terrific. Thank you.

Thank you. As a reminder, if you'd like to ask a question, it is start followed by one on your telephone keypad. Our next question comes from the line of Jason Adder of William Blair. The line is now open. Please go ahead.

Yeah, thanks. Hi, guys. Just a couple questions for me. Just on the OpEx front, you talked about some tightening going on. Can you give us more specifics on where you are kind of tightening the belt?

Yeah, sure. Jason, John, good morning. So when we look at our spend, if we back up on OpEx, right, We continue to lean in, as Tim mentioned, in R&D and our products. We're a technology company. We'll continue to lean in and push that agenda forward. On sales and marketing, as you can imagine, there are certain motions that have a lower ROI than others. And when we took a look at our marketing spending Q3, there were certain motions that just have a much lower payback and a longer tail. And that's where we pulled back and I'll give you some examples. So, and a couple of like less than profitable geos in particular, and some of the international emerging markets where it's more about building brand and you're not seeing an immediate return. We pulled back on really some of what I'll call top of funnel initiatives and some of those smaller markets as an example. The other thing we looked at more of our high LTV products and leaned in there. That's why you see the, the uptick and the continued success in in cove. Right? So we're getting a little bit more focused in geos. We're getting a little bit more focused in motions more that it's more middle of the funnel and lower funnel and focusing on our, on our high LTV bits where, where historically. We might have spent in some tools that had a lower LTV to kind of CAC or payback period. We've been really focused on some of that. And the last bit overall, and you're probably seeing this across the universe, cross-sell, where we're focusing more on our install-based and marketing and selling into our install base, that has a higher win rate, obviously, and a lower cost to acquire and to grow those accounts. So we've shifted somewhat into making sure we can grow that customer base as customers in recession lean in more toward their existing vendors and not necessarily new vendors.

All right. Very helpful. Thanks. And then just, John, do you have a – Can you give us a sense of how this period compares to sort of March, April, May, June of 2020? Is it similar or is it fairly different?

I think it's different, at least from our perspective. So in what we refer to as the COVID quarter, we saw MSPs leaning in heavy on security and data protection. And we saw them really stop adding new customers because they had to focus on their customer base and secure them for the pandemic, which our MSPs did a masterful job of doing, and we were right there to help and support them. So what we saw there was that MSPs were very reluctant to shift RM platforms and to slow down on NCA customers. We're not seeing that drop off. You know, anecdotally speaking, Jason, at Empower, when I was in a room with some of our super elites and asking them where they're seeing, I'd say 75% of the room are not experiencing any slowdown. Remember, what the MSPs provide to their customers are mission-critical, business-critical bits. And so what we're seeing is probably a little bit more of, depending on the vertical, you know, MSPs that are focusing in the hospitality vertical or some retail are seeing a little bit more of an elongated sales cycle. But the other MSPs in FinTech and healthcare and logistics and all these other areas, they're not seeing a slowdown at all. So I would say it's the demand on data protection and security are very similar in that they're both white hot in both periods. but we're not seeing that slow down in new customer acquisition to the same extent we saw in pandemic.

Yeah. Okay. So it's kind of vertical, uh, vertical specific of it. What, what about geos? Um, are you seeing, um, divergence in, in demand across the geos?

No, not really. And, and in North America and, and, uh, in EMEA and in Asia pack, we're, we're seeing, you know, strong year over year. demand compared to last year. So, no, I'm not seeing really any degradation or anything to call out geographically.

Perfect. And then one for Tim. Tim, what's the plan going forward on the debt? Yes, we've got about $345 million of debt.

And I would say, you know, we're We're kind of holding that at this point. We paid out about 1% a year. We're looking at rates and our cash balance and determining how best to apply that cash. But at this point, there's no change in our plan from a debt perspective, even with the rising interest rate.

Okay. Thanks, guys. Good luck. Thanks, Jason.

Thank you. Our next question comes from Keith Bachman of BMO Capital Markets. Your line is now open. Please go ahead.

Hi, this is Adam on for Keith. So first, thanks for taking the question and congrats on the quarter. But so I was wondering if you can provide some more color on the macro headwinds you guys are seeing now in your business. I know you mentioned elongated sales cycles, but last quarter you called out the potential for lower device ads. Just wondering if you're actually seeing that And then going forward for next quarter, do you expect that to continue? And then what's going on with downsell and churn rates as well?

Thanks, Adam. This is John. So, you know, when I think about the industry and the way I communicate this to our MSP partners and here internally, I often break it down between climate and weather, right? is quite strong, right? Those three tailwinds that we keep talking about, cybersecurity, the move to cloud, labor scarcity, and that's probably counterintuitive, are all tailwinds that continue to push and why we're seeing better demand and better growth than we did last year, right? So those are all the positives. And the reference to climate and weather, I think we're mindful that it's somewhat cloudy or a little bit less, less clear in the macro environment. And where we're seeing that most, I'd say, most notably is in device ads. I think at the macro level, you know, it's well understood that PC shipments are flat year over year. That has an impact on the MSP environment. That has an impact on our model to some extent. So that's probably the area there. We continue to see strong data protection and security offerings. continue in that cross-sell. And we're also seeing a little bit of a slowdown where MSP is adding new customers. And again, that's a little bit more vertical, a little bit more vertical sensitive. And the anecdotes and stories the MSPs share with me is that some of their end customers are just a little, have a little bit of a trepidation before they go and add or switch an MSP. So we're seeing a little bit of a slowdown for the MSPs adding new customers on their side.

You had a second part to that question, but I... Oh, downgrade. Yeah.

Our retention rates continue to be strong. And in fact, I'd say as a cohort, overall improving. So we're seeing no degradation in retention rates.

That's helpful. And then I was just going to follow up with, so for Q4, do you assume these trends continue at the current rate, or do you assume any degradation?

You know, I think our forecast suggests a level of prudent conservatism baked in. And, you know, we're mindful that there is a level of certain uncertainty there. So I think we really took a prudent kind of conservative approach. But, you know, there's nothing in the business that indicates any type of change in slope or trajectory.

Got it. Thank you. Very helpful.

Thank you. As there are no more questions registered at this time, I'd like to hand the conference call back over to John Paluca for closing remarks.

Well, thank you all for joining us today for this third quarter earnings call. We look forward to talking to you in February, and we do appreciate your ongoing interest and investment in Enable. Thank you.

Ladies and gentlemen, that concludes today's conference call. Have a great day ahead. You may now disconnect your lines.