SolarWinds Corporation

Ladies and gentlemen, good morning. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the SolarWinds first quarter 2022 earnings call. Today's conference is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 once again. Thank you. And I would now like to turn the conference over to Mr. Bart Kalsu, Chief Financial Officer. Mr. Kalsu, you may begin your conference.

Thank you, Abby. Good morning, everyone, and welcome to SolarWinds' first quarter 2022 earnings call. With me today is Siddhartha Ramakrishna, our President and CEO. Following prepared remarks, we'll have a 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, our expectations regarding customer retention, and our evolution to the subscription-first mentality, the impact of the global economic and geopolitical environment on our business, and the impact of the spinoff of the enabled 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, the current global economic and geopolitical environment, and the completed spinoff of the enabled 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. We completed the spinoff of the Enable business on July 19, 2021, and accordingly have included the results of the Enable business as discontinued operations for historical periods. Therefore, the financial results presented on this call reflect SolarWinds as a standalone business and do not include any contribution from the Enable business. 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. We note also that beginning this quarter, we no longer adjust our revenue for the impact of purchase accounting. So our non-GAAP total revenue would have been equivalent to our GAAP total revenue for the first quarter of 2022. With that, I'll now turn the call over to Siddharth.

Thank you, Bhat. Good morning, everyone, and thank you for joining us today. I hope you're doing well and staying safe. Once again, I would like to start by thanking our employees, customers, partners, and our shareholders for their ongoing commitment to SolarWinds. In Q1, we made significant progress related to our key priorities of customer retention increased focus on subscription revenue growth, and evolution to platform-based solutions with the launch of our hybrid observability solution in April. Our teams achieved impressive results despite a challenging macro environment due to the relevance of our solution, the trust that our customers place in us, and the intense customer success mindset of our team. We continue to make solid progress towards the goals we outlined during our analyst day on November 10th, 2021. Our expanded offerings portfolio and our expanding market opportunity, which we believe will amount to approximately $60 billion by 2025, further reinforce our goal of achieving at least a billion dollars in ARR by 2025 with a compounded annual subscription ARR growth north of 30% over that time period, and while building EBITDA margins in the mid-40s. We had several highlights in the first quarter of 2022. I will touch on some of the highlights before turning it back over to Bart for more color on the quarter, as well as our financial outlook for the second quarter of 2022. First, I am very pleased to report that we timely achieved an important step in our transformation efforts that we outlined during our analyst day to help customers automate, observe, visualize, and remediate their environment, leveraging the SolarWinds platform as we help accelerate their business transformation in multi-cloud world. SolarWinds hybrid cloud observability is generally available as of April 19th after a successful early access preview with great and feedback from customers. Leveraging our best-in-class monitoring solution, we had overlaid observability benefits with tiered subscription licenses. Customers, in addition to protecting their current investments, enjoy the increased benefits of simplicity, including with node-based licensing, and greater productivity while creating effective on-ramps to cloud deployment. For the first quarter, we delivered revenues of $177 million above the high end of the range we provided of $173 to $176 million. This represents a 2% year-over-year growth. Bart will outline the Euro currency headwinds that we and others experienced without which we would have delivered another 1% of additional growth. Adjusted EBITDA was 69 million, representing an adjusted EBITDA margin of 39%, again exceeding our outlook for the first quarter. Bart and I previously indicated that we expect maintenance renewal rates to approach our historical rates in the low to mid 90s in 2022. I'm excited to report that in Q1 2022, our in-quarter renewal rates were 91%. I attribute this very directly to the commitment of our teams, the relevancy of our solutions, and the trust that customers place in us. We also believe that the return of our renewal rates to our historical levels creates an even more solid foundation for business growth in the future. Subscription revenue year over year growth was 37% supported by our largest customer converting to term subscription. We continue to drive a subscription first mindset and continue to believe that we can grow both top line and subscriptions simultaneously. We finished the first quarter of 2022 with 852 customers that have spent more than $100,000 with us in the last 12 months. This is 11% improvement over the previous year. Increasingly, we are helping customers to consolidate tools, to enjoy comprehensive visibility, and to integrate their environments, resulting in larger deal sizes. Our service desk, also known as IPSM in broad terms, and database portfolios continue to demonstrate strong net retention and expansion growth and increasingly help us create a broader business foundation, not only in revenue terms, but also in ways we can serve the evolving business transformation needs of our customers. SolarWinds Service Desk solution now supports dynamic forms. The use of dynamic forms is one of the most powerful changes made to the SolarWinds Service Desk portfolio. This was consistently amongst the most requested features by customers for the past few quarters. Dynamic form rules allow agents to collect vital information relevant to customer issues quickly and efficiently, accelerating problem resolution. The pace of innovation and customer adoption of our Service Desk solution has increased, and they will form the basis for the automation and remediation pillars of the SolarWinds platform. We expanded our SolarWinds Database Performance Analyzer, DPA, to now support all Google Cloud SQL offerings, including MySQL, PostgreSQL, and SQL Server. This is an addition to the support of Azure and AWS hyperscaler platforms. The 2022 GigaOhm radar for cloud observability solutions rated SolarWinds hybrid cloud observability as a leader and fast mover due to our strength across all key criteria of evaluation, including reporting and dashboards, user interaction performance, multi-cloud resource views, predictive analysis, and licensing flexibility. SolarWinds hosted THWACKcamp 2022 on March 2nd and 3rd. This virtual event was attended by over 2,200 members, attending 14 sessions across eight hours and marking our 10th anniversary of this successful event. Our vibrant THWACK user community of more than 180,000 registered members continues to grow with IT, Dev, Sec, and CloudOps professionals and remains a key source of primary research and customer preferences for us. Engaging with our customers and community enables us to ensure our solutions are relevant to our customers, and we believe further increases the rate of success of our investments. With that, I'll turn it over to Bart to provide more details on our financial performance and outlook.