SolarWinds Corporation

Ladies and gentlemen, thank you for standing by and welcome to the SolarWinds Second Quarter 2021 earnings call. All lines are currently in a listen-only mode. After the speaker's presentation, there will be a question and answer session. If you would like to ask a question at that time, you may do so by pressing star and the number one on your telephone keypad. It is now my pleasure to hand the conference over to Ashley Hook.

Thank you, Nicole. Good morning, everyone, and welcome to the SolarWinds Second Quarter 2021 earnings call. With me today are Sudhakar Ramakrishna, our President and CEO, and Bart Kausu, 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 incident on our business, our market opportunities, the impact of the global economic environment on our business, and the recently completed spinoff of the Enable 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 cyber incident and the recently completed spinoff of the Enable 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. In addition, we note that our financial results for the second quarter include the impact of the Enable business for the entirety of the quarter, since the spinoff was not completed until July 19, 2021. In today's remarks, when we reference our ongoing SolarWinds business, this will refer to our core IT management business excluding Enable. 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 measure. 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 the summary slide deck on our Investor Relations website. Going forward, we will begin to present certain financial measures on a GAAP basis only. With that, I'll now turn the call over to Scott Kerr.

Thank you, Ashley. Good morning, everyone, and thank you for joining us today. I hope you're doing well and staying safe. I want to start by first thanking our employees, customers, partners, and our shareholders for their ongoing commitment to SolarWinds. Our employees, we call ourselves Solarians, continue to demonstrate excellent commitment to our customers. As I outlined in the Q4 2020 earnings call, Customer retention is our number one priority in 2021, and we make great progress towards this goal in Q2. I attribute the progress to the dedication of our employees, the relevance of our solutions to address customer needs, and the commitment of our partners and customers to SolarWinds. We substantially completed our investigation into the cyber incident and published our findings in May and continue to apply the learning via our Secure by Design initiatives. I have also had the opportunity to share our findings in public forums, such as the RSA, the GYSEC Global, and UK Cybersecurity Conference, as well as with industry peers and government authorities around the world. It is an unfortunate fact that no company regardless of its size, competency, and resources, seems immune to cyber attacks as evidenced by the recent high-profile breaches. In this environment, our pledge of transparency and industry collaboration remains strong and has been well received by customers, partners, and the broader industry as we accelerate our journey to deliver simple, powerful, and secure solutions. As a reminder, our Secure by Design initiative focuses on three core areas. First is to enhance the security of our internal environment and infrastructure. Two is to enhance the security of our software business and environment. And third is innovating to enhance software supply chain build processes. We've devised a unique software build process that's performed across three discrete environments with different characteristics and permissions. This build process results in a changing threat surface and a compressing threat window, thereby making it more difficult for threat actors to break in, and therefore enhancing the integrity of our software supply chain. This approach has resonated well with our customers, many of whom are also developers of software. And we are winning significant deals with customers as a direct result of this aspect of our Secure by Design initiative. Also, as part of our ongoing efforts to make customer environments more safe and secure, we plan to publish white papers and other materials to help the industry at large. I will now touch on a few financial and operational highlights in Q2 for our consolidated business. For the second quarter, We delivered revenue well above the high end of the range of our outlook, with total consolidated non-GAAP revenue ending the quarter at $262 million, representing year-over-year growth of 6%. Our consolidated results include enable for the second quarter, which we successfully spun out last month. Second quarter consolidated adjusted EBITDA was $111.1 million, representing an adjusted EBITDA margin of 42%, exceeding the high end of our outlook for the second quarter. Our Q2 ongoing SolarWinds maintenance renewal rate of 86% is above the low to mid-80s renewal rate we noted we expected in 2021. We continue to focus on customer retention as a key priority and hope to grow back to our historical and best-in-class renewal rate of over 90%. We secured the largest on-premises term subscription deal in the company's history from a large healthcare provider in the United States. This further validates our transition to a business with a higher subscription mix and the confidence that customers place in our portfolio roadmap. Our consolidated subscription revenues grew 17% year-over-year, with our ongoing SolarWinds subscription revenue growing 16% year-over-year. And this area of our business will continue to be a key focus of mine on an ongoing basis. We are winning large public sector deals throughout the world. And many of these customer engagements are secured by design initiative features prominently. We are seeing that the comprehensiveness of our initiative, as described earlier in my comments, and its applicability to a broad range of customer environments is a key differentiator. During the second quarter of 2021, we launched SolarWinds Database Insights for SQL Server, expanding our comprehensive database performance management portfolio. Uniting the features and functionality of the award-winning SolarWinds Database Performance Analyzer, and SolarWinds SQL Sentry Database Insights for SQL Server provides the in-depth performance and environmental data teams need to optimize the performance of Microsoft SQL Server and other leading database platforms running on-premises in the cloud or in hybrid environments. Our products and services received more than 35 industry and customer awards in the first half of 2021. Notably, Trust Radius named nine SolarWinds IT operation management products as 2021 top-rated award winners across 13 categories. And the company's commitment to customer support and success was honored through five CV awards. We continue to attract excellent talent across all functions of our organization. People see the opportunity we have with our mission and strategy to address what we believe will be a $100 billion market opportunity. Last but not least, we reached another significant milestone by completing the spinoff of our managed services business, now known as Enable, on July 19, 2021. By operating as two independent publicly traded companies, we believe that SolarWinds and Enable will be better positioned to align with each other's market needs and customer requirements, enhancing the successful operations of both companies in the future. With that, I will turn it over to Bart to provide more details on our financial performance and outlook.