SolarWinds Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the SolarWinds fourth quarter 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, press star 0. I would now like to hand the call over to your host, Howard Ma, Senior Director of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to SolarWinds' fourth quarter 2020 earnings call. With me today are Sudhakar Ramakrishna, our President and CEO, and Bart Kalsu, our EVP and Chief Financial Officer. Following prepared remarks, we'll have a brief question and answer session. This call is being simultaneously webcast on our Investor Relations website at investors.solarwinds.com. On our investor relations website, you can also find our earnings press release and a summary slide deck, which is intended to supplement our prepared remarks during today's call. Please remember that certain statements made during this call are forward-looking statements, including those concerning our financial outlook, the impact of the cyber attack on our business, our market opportunities, the impact of the global economic environment on our business, and the updates on the potential spinoff of our MSP 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 the numerous risks related to the impact of the cyber attack on our business and the potential spinoff of our MSV business. 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 the non-GAAP financial measures. A reconciliation of the differences between GAAP and non-GAAP financial measures discussed on today's call are available in our earnings press release and summary slide deck on the Investor Relations page of our website. With that, I'll now turn the call over to Sudhakar.

Thank you, Howard. Good morning, and thank you for joining us today. I hope you're doing well and staying safe. As you know, I joined the company earlier this year on January 4th, and this is my first earnings call with the company. I want to start by first thanking our employees, customers, partners, and our shareholders for their ongoing commitment to and for their support of SolarWinds. I have long been a student of SolarWinds' high-velocity go-to-market model. Our broad portfolio of solutions, low customer concentration, strong revenue recurring base, strong balance sheet, and the opportunity to apply my background to address an expanding market opportunity to support the needs of IT ops, DevOps, and SecOps professionals made it easy for me to say yes when I got the opportunity to lead the company as president and CEO. In the seven weeks, that I have been with the company, I have had the opportunity to spend a lot of my time with customers and partners. The vast majority of the customers that I have spoken to understand that the cyber incident that affected us and others could have happened to any vendor, and especially a broadly deployed vendor like SolarWinds. Equally, they are eager to see us address the issue and share our learnings which we are doing. The other opportunity that keeps coming up in these discussions is our ability to provide guidance and input to protect the entire environment of our customers as opposed to just focusing on our products, making us a more strategic partner. The majority of our customers that downloaded a version of the affected code have upgraded to our latest version and continue to renew their contracts with us. While the first priority continues to be ensure the safety and security of our customers, our conversations with customers and partners have also given us the opportunity to discuss the strength of our entire portfolio and of our future plans. I have also spent a significant amount of time on the cyber attack on SolarWinds both in managing the investigation as well as working closely with our employees, customers, and partners. I'll elaborate on our investigation, learnings, and future plans, but first, I'll touch on a few financial and operational highlights in Q4 and 2020. Our teams did a solid job of executing throughout the year in the face of a global pandemic. We hit a significant milestone that many companies aspire to, achieving non-GAAP revenues of over $1 billion in 2020. We grew non-GAAP revenues by 9% year-over-year for the full year 2020 and 6% year-over-year in Q4. We delivered an adjusted EBITDA margin of 48% for each of the full year and in Q4. Our non-GAAP subscription revenue grew by 22% for the full year 2020, and our net retention rate was approximately 105% on a trailing 12-month basis. We sustained strong maintenance renewal rates north of 90% in 2020, and the fourth quarter renewal rates held up well despite the cyber attacks on SolarWinds, which we announced on December 14th. We completed the SentryOne acquisition in the fourth quarter. Between our database performance analyzer, database performance monitor via the acquisition of VividCortex, and SentryOne, we now have a comprehensive analysis and monitoring portfolio supporting a broad range of database platforms across on-premises, native cloud, and hybrid IT environments. Revenue for our database management products continued to grow in the fourth quarter, consistent with recent trends. We expect Century One to help sustain that growth. The database solutions complement our already strong network systems and application monitoring solutions, as well as our efforts to become a leader in hybrid IT monitoring. Our core IT management subscription growth continues to be fueled by Service Desk, which is our ITSM products, and our cloud infrastructure and application management solutions. Additionally, our MSP business again delivered double-digit 15% growth in both the fourth quarter and the full year, surpassing $300 million in revenue in 2020. We ended the year with more than 25,000 MSP partners that service over 500,000 small and medium enterprise customers, reflecting our status as a leading provider of remote monitoring and management, security, data protection, and business management solutions for MSPs around the world. In December, we announced the confidential submission of a Form 10 registration statement with the SEC for the potential spinoff of our MSP business. While the process is difficult to predict, we continue to target completing the transaction in the second quarter. As part of the preparation for the spinoff, the MSP business, formerly known as SolarWinds MSP, also announced a new brand in December. Moving forward, the business will be known by a familiar name, Enable, extending the roots of the company to reflect the performance, protection, and partnership our MSP partners need to power their clients and businesses forward. Now let me turn to the cyber attack. Since we learned of it in December, our top priority has been to ensure that our customers are safe and protected. And the entire company has been working tirelessly to provide remediation, support our customers, cooperate with government authorities, and share our learnings publicly. I want to take a moment to personally thank our customers, employees, and partners around the world for their trust, patience, dedication, understanding, and support during this time. As I came on board and learned more, it became clear that any company would be hard pressed on its own to withstand this type of dedicated and sophisticated attack by a determined nation state. It also became clear that the scope of the attack was much broader than Sullivan's as news and public disclosures emerged about breaches and compromises of other companies unrelated to us. We believe our Orion platform was targeted in this campaign to create a backdoor into IT environments of select customers. The threat actor did this by adding malicious code known as Sunburst to versions that we released between March and June of 2020. Sunburst has since been removed and is not an ongoing threat in current versions of Orion. Additionally, after extensive investigation, we have not found Sunburst in any of our more than 70 non-Orion products. One update that I believe is critical to share is that we previously disclosed that the number of customers that may have installed an effective version of the Orion software platform was fewer than 18,000. Based on our discussions with customers and our investigations into the nature of Sunburst's malicious code and the advanced tradecraft of the threat actor, we believe the number of organizations actually exploited through Sunburst is substantially fewer than the number of customers that may have installed an affected version of the Orion platform. This is consistent with statements by National Security Advisor for Cyber and Emerging Technology, Ann Neuberger, that as of February 17th, nine federal agencies and about 100 private sector companies were compromised. While our attitude will always be that of one impacted customer is one too many, we currently believe the total number of customers potentially impacted is significantly lower than what was originally feared. We are applying our learning from this event and sharing our work more broadly. Internally, we are referring to our work as secure by design and its premise on zero trust principles and developing a best in class secure software development model to ensure our customers can have the utmost confidence in our solutions. We see these investments as consistent with our goal of being a best in class provider of powerful, affordable, and secure solutions. We have published details regarding our efforts But in summary, they're focused on three primary areas. First, further securing our internal environment. Second, enhancing our product development environment. And third, ensuring the security and integrity of the products we deliver. We've added a level of security and review through tools, processes, automation, and where necessary, manual checks around our product development processes that we believe goes well beyond industry norms to ensure the integrity and security of all of our products. We firmly believe that the Orion software platform and related products, as well as all of our other products, can be used by our customers without risk of the sunburst malicious code. We also formed a new technology and cybersecurity committee of our board. Two current sitting members of our board, who are CIOs with significant cybersecurity experience, and I formed the three-member committee. This committee has the responsibility to assist our board in overseeing our response to the cyber incident and provide advice to management and oversight of our improvement initiatives. Given our unique experience, we are committed not only to leading the way with respect to secure software development, but also to sharing our learnings with the industry. Now, let me turn the call over to Bart to provide you details of our financial performance. Bart?