N-able, Inc.

The enabled fourth quarter and full year 2023 earnings call will begin shortly. If you would like to register a question at any time, please press star 1 on the telephone keypad. Thank you. Thank you. Hello and welcome to the Enable fourth quarter and full year 2023 earnings call. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during today's events, please press star followed by one on your telephone keypad. I'd now like to hand over to Griffin Gere, Investor Relations Manager. The floor is yours. Please go ahead.

Thanks, Operator, and welcome everyone to Enable's fourth quarter 2023 earnings call. With me today are John Paliuca, 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.enable.com. There, you can also 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, 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 highlighted in today's earnings release in our filings with the SEC. Additional information concerning these statements and the risks and uncertainties associated with them is highlighted 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 non-GAAP financial measures. A reconciliation of certain GAAP to non-GAAP financial measures discussed on today's call is available in our earnings press release on our investor relations website. And now, I will turn the call over to John.

Thank you, Griffin, and welcome to everyone joining us on the call. Today, I want to discuss our 2023 results, enable strategy for meeting the evolving needs of the MSP market we serve, and key components of our 2024 operating plan. Let's start with our results. We delivered strong performance in the fourth quarter and fiscal year 23. Fourth quarter revenue grew in constant currency 11% year over year. And full year 2023 revenue grew 14% in constant currency. Our adjusted EBITDA in the fourth quarter was $39.2 million, reflecting a 36% margin. and $143.4 million for the full year, reflecting a 34% margin. Year over year, we expanded our annual adjusted EBITDA margin by over 300 basis points and unlevered free cash flow margin by over 400 basis points. We are driving profitable growth. We also made solid progress on initiatives across the company, laying the groundwork for what we believe will be a transformative 2024. And now, I'll share some highlights from 2023. On the product front, we increased the depth and breadth of our offerings. The launch of Enable MDR in late Q4 widened the cybersecurity services market to both Enable and our customers. This paves the way for our partners to augment their teams and provide a differentiated level of security service. In RMM, we delivered analytics, Apple management, AI-generated script automation, and other critical functional upgrades, empowering IT technicians to better manage a broader scope of IT assets. We also delivered a host of enhancements to Cove, our cutting-edge data protection offering, adding Teams coverage to our M365 backup, and expanding our draft capabilities, including enhancing Standby Image. Standby Image helps our partners recover faster and more predictably, so they can offer higher service levels to their customers. further differentiating Cove in the market. As a validation point, Cove was recently crowned a champion in the Canalys Managed Backup and Disaster Recovery Leadership Matrix, heralding a change of guard in this space. Legacy vendors of the past, Cove is the future. Collectively, these efforts drove a sharp expansion in our cross-sell opportunity in the second half of 23. Across our product portfolio, Enable's average monthly per device revenue opportunity is currently over $30, up from the low 20s in the beginning of 2022. With over 8 million devices under management, the cross-sell opportunity now sits at well over $2 billion. We believe growing and filling our storefront with increasingly robust, purpose-built products is a winning strategy. In 2023, we delivered on this mission And in 2024, we will begin to realize the opportunity this white space creates. Product innovation added fuel to our powerful go-to-market and partner success engines. In 2023, we hosted our main customer event, Empower, and dozens of global events, including roadshows, business transformation sessions, peer groups, and head nerd office hours. In total, we engaged thousands of our partners at these live events, enabling them to fully maximize their investment and achieve their goals. This partnered approach within the MSP community is crucial to our fabric and sets us apart from our competitors. A customer win in the fourth quarter drives home how these touch points translate to customer value. Through active relationship management, an account executive uncovered an existing MSP's desire to grow their security operations center business. This MSP attended one of our business transformation events focused on building a security service. And even though the MSP had an existing MDR solution in place, the customer signed a multi-skew, multi-year deal with us, including MDR, for approximately $240,000 of ARR. Our product enhancements and brand momentum also had a real impact on prospective customers. Our 2023 new customer revenue cohort was the highest in six years, And given the snowball nature of our growth model, we believe this bodes well for future expansion opportunities. Despite an uncertain macro environment in 2023, MSPs chose to start and expand their relationship with Enable. To recap an exciting year, we expanded our white space opportunity, enhanced our product capabilities, and deepened our presence in the MSP community, all while driving profitable growth. Let's now switch gears and look at the MSP market as it stands today, our plans for the future, and our strategy for helping our MSP partners meet evolving SME needs. I'll start with key insights from our MSP Horizons report, a future-focused piece of research we conducted with Canalys, a leading channel analyst firm. Packed with learnings from hundreds of MSPs across the globe, one highlight from the MSP Horizons is the durability of the MSP market. 97% of MSPs surveyed believe they will grow their managed services revenue this year, with roughly two-thirds expecting double-digit growth in 2024. Persistent tailwinds drive these forecasts. Rising IT costs, increasing security threats, intensifying compliance standards, staffing headaches, and staying ahead of the fast-changing technology landscape create considerable challenges for SMEs who are trying to manage their IT operations. MSPs provide the help and critical expertise SMEs need. With these durable forces powering demand, we steadfastly believe in enabling strategic positioning as a provider of purpose-built software to MSPs. There is an abundance of opportunity. While the market is strong, MSPs also face challenges. Their SME customers continue to operate tight budgets. This tighter environment heightens MSP's need for proven solutions that grow their top line and protect their bottom line. Enable empowers both. Our security, data protection, and RMM solutions are integral components of MSP's offerings, driving the top line revenue. Our software solutions are also scalable, unlike labor. And our platform approach drives consolidation of disparate point solutions. This improves technician efficiency and profitability. helping MSPs protect and grow their bottom line. We enable MSPs to play both offense and defense. The MSPs Horizons report also showed the areas in which MSPs are looking to differentiate their offerings to accelerate growth. Cloud infrastructure management and managed security ranked as top priorities. I'll now double click into each. MSPs desire for cloud management reflects a simple reality. Businesses are running their operations in hybrid environments with 63% of SME workloads anticipated to be run in the public cloud in 2024. So MSPs need tools that can operate in the cloud as well as physical networks, servers, and devices. Enable has excellent answers for this hybrid world. Our security solutions are industry leading and delivered seamlessly through the cloud. Cove, our data protection solution, is also delivered in the cloud and protects both on-prem and cloud environments. And critically, in monitoring and management, we recently introduced market-leading innovation with the launch of Cloud Commander. Cloud Commander solves a simple problem statement for MSPs. Navigating the cloud is a headache. The current paradigm forces MSPs to operate disjointed administrative portals across multiple Microsoft clouds. This is time-consuming, manually intensive, and mistake-prone. Cloud Commander leapfrogged this approach, allowing MSPs to navigate the cloud through a single console. Our solution empowers IT technicians to manage workloads, onboard and off-board users, and apply access and security policies to users and devices with point-and-click ease. This is a clear win for the MSP. Eliminating dashboard sprawl generates better technician efficiency. Cloud and on-premise capabilities expand MSP service capacity. And we believe combining Cloud Commander's cloud management capabilities with our historic strength in device management is a leap forward for Enable and the MSPs we serve. Security is also top of mind. Increased attack velocity, the pace of innovation by threat adversaries, and growing compliance standards have elevated the security discussion from the IT department to the C-suite. The intensifying threat landscape has also eroded the line between SecOps and ITOps. Small and medium businesses do not want silos. They want protection. We've listened to the needs of the market, and our product suite expansion in 2023 was concentrated in the security category, highlighted by MDR. So zooming out momentarily, we feel great about our positioning. We play in a large, growing market with durable secular tailwinds. Our offerings align with the business priorities of our customers, and we are bringing products to market that align with market demand. This brings us to 2024. We have an ambitious plan guided by the following objectives. First, empowering MSPs with leading security and data protection solutions that give themselves and their SME clients the peace of mind they deserve. Second, driving rapid innovation into our RMM platforms, enabling MSPs to better manage hybrid digital environments at scale. And third, doubling down on our customer engagement model. delivering a differentiated level of service to the MSP community. Let's start with our customer engagement. Today, we realize approximately $4 per device per month of our $30-plus white space opportunity. In 2024, we are focused on driving that number higher. With this in mind, our go-to-market teams are employing more sophisticated tiering and bespoke customer pathways while engaging with our customers at in-market events where we have seen high ROI. We have also seen continued opportunities to facilitate engagement and positive customer outcomes through our recently launched customer platform, which over 20,000 IT technicians have used since its inception last year. Bundled multi-skew offerings and longer-term contracts are another area of opportunity. This flexibility holds mutual benefit for both Enable and our MSPs. Driving the success of our deep security suite is another 2024 focus point. We believe MDR is key to this initiative. The rising threat environment elevates the need for higher protection levels, and adding MDR to our stack firmly cements Enable as a vendor of choice and security, unlocking a new growth avenue. In the past, we generally landed customers on RMM, and our proverbial snowball would grow over time as MSPs added SKUs and rolled out our software across their SME customers. MDR fundamentally changes this equation. It is a powerful solution, offering a new entryway to enable, bolstering our new customer acquisition engine. It also significantly expands our cross-sell opportunity with a per-device price point several times higher than with RMM. In short, MDR creates more snowballs at larger sizes. Our optimism is underscored by the deep pain point MDR meets. Specifically, SME demand for enhanced security services is considerable. But providing these services generally requires a substantial staffing. This leads to unfavorable unit economics, particularly for smaller MSPs. A recent $30,000 ARR deal illustrates how Enable can solve this problem. An MSP told us he was seeing strong client demand for security services. But as the only person running his business, he didn't have the time or resources to deliver the intensive protection services requested. By utilizing external security personnel to enable MDR, the MSP was able to deliver the security outcomes his clients desired, while also achieving profitable growth for his own business. We believe we can profitably replicate the success at scale and provide a tech-enabled staff augmentation pathway for MSPs, which will allow them to land additional customers, expand their scope of service, and sleep easier at night. We see particularly strong opportunity to expand our LTV at the low end of the market where MDR tends to be a more of a greenfield opportunity for MSPs. Cove also aligns with companies that need to be secure. Implementing mechanisms to stop the breach is critical, but not sufficient. Cove acts as a stalwart fail-safe, ready to quickly restore data in case of a breach. In 2024, we are energized by the prospect of continuing to take market share in this fast-growing space. Our ambitious roadmap aims to enhance Cove's ease of use through improved integrations with popular PSA systems, broaden the scope of IT environments where Cove can restore data, and further ensure backup copies are clean and safe. Cove also enjoys up to 60% of the total cost of ownership compared to well-known competitors, and we continue to develop Cove with an eye on maintaining our pricing advantage. Over half of our MSPs use Cove, supporting our view that great economics and strong capabilities our winning value proposition. When an MSP needs to protect data, Cove is the answer. Lastly, in 2024, we plan to take additional steps to modernize our RMM platforms, provide MSPs the ability to connect to third-party software in a more secure and automated way via APIs, and bring innovation to MSPs in the form of Cloud Commander and other hybrid-focused solutions. With hybrid devices, operating systems, cloud environments, and workforce pliability making SME environments even messier, we believe our roadmap and solutions will resonate and enable our MSPs to manage the increasingly digital SME. With clear customer use cases and a path to value insight, we are relentlessly focused on continuing the modernization of our RMM platforms. We've covered a lot of ground today. And while Tim will go into more detail, I want to outline what all this means for our 24 financials. Looking ahead to 2024, our assessment of demand environment reflects strong growth from a resilient market, tempered by a tight operating environment for SMEs and MSPs. We expect full-year gross retention in line with fourth quarter results near 86%, continued healthy contribution from new customers, and accelerated cross-selling of our growing product suite However, we also expect that SME budgetary constraints will lead to slower device additions, which will have a moderating impact on our overall growth this year. Net-net, we expect to operate in line with broader MSP market growth of low double digits in 2024, while investing and executing with rigor to position ourselves with growth acceleration in the mid to long term. And with that, I will turn the call over to our CFO, Tim O'Brien, to discuss our financial results and outlook. And then I'll circle back for some closing remarks.