SolarWinds Corporation

Good morning. My name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the SolarWinds Q2 2022 earnings call. 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 star, then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you. Bart Kelsu, Chief Financial Officer. You may begin.

Thank you, Chris. Good morning, everyone, and welcome to SolarWinds' second 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, our market opportunities, our expectations regarding customer retention, and our evolution to a subscription-first mentality, the impact of the global economic and geopolitical environment on our business, the timing of the phases of our subscription evolution, our gross level of debt, and the impact of the cyber incident and cybersecurity generally 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 subject to a number of risks and uncertainties, including the numerous risks and uncertainties highlighted in today's earnings release and in our filings with the SEC. Copies are available from the SEC on our investor relations website. We completed the spinoff of ENABLE 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. As a reminder, beginning with the first quarter of 2022, we no longer adjust our revenue for the impact of purchase accounting. For the second quarter of 2022, Non-GAAP total revenue is equivalent to our GAAP total revenue. Finally, we note that the financial results discussed on today's call and in our earnings release are preliminary and pending final review by us and our external auditors and will not be final until we file our quarterly report on Form 10-Q. With that, I'll now turn the call over to Sudhakar.

Thank you, Bart. Good morning, everyone, and thank you for joining us today. I hope you're all doing well and staying safe. As always, I'd like to start by thanking our employees, customers, partners, and our shareholders for their ongoing commitment to SolarWinds. I'm pleased to report the results our team achieved, notwithstanding a tough macro and foreign exchange environment. Our low customer concentration, compelling value proposition, and high-velocity transaction model enable us to operate successfully in any environment and particularly in constrained CapEx environments. As you will notice in our results, our teams made significant strides in improving customer retention to our historical levels, continuing to focus on subscription revenue growth, and evolving to platform-based solutions that we believe offer the best time to value, time to detect issues, and time to resolve issues for our customers in their multi-cloud environments. We had several highlights in the second 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 third quarter and full year 2022. We delivered revenues of $176 million near the high end of the range of guidance we provided. On a constant currency basis, we would have delivered 2% year-over-year growth. I'm excited to report that in Q2 2022, our in-quarter renewal rates were 93%. a sequential increase over last quarter, and our last 12-month renewal rates are now at 91%. I attribute these results to the commitment of our teams, the relevancy of our solutions, and the trust our customers place in us. We continue to drive a subscription-first mindset and delivered subscription revenue growth of 25% year-over-year. We've been able to achieve this trajectory in a short period of time without impacting total revenue, notwithstanding the fact that transitions to subscription models often come at the expense of revenue growth in the short term. We believe this has distinguished us from other transitions due to the mix of hybrid and SaaS offerings in our current portfolio. We finished the second quarter of 2022 with 879 customers who have spent more than $100,000 with us in the last 12 months, an increase of 13% over the previous year. Increasingly, we are helping customers reduce tool sprawl, create comprehensive visibility across multi-cloud environments, eliminate alert fatigue, and accelerate their digital transformations, leading to larger deal sizes. Adjusted EBITDA was $67 million, representing an adjusted EBITDA margin of 38%, again in line with the outlook we provided. We continue to expand our partnerships with traditional resellers, global system integrators, and hyperscalers. We're increasingly engaged in co-sell and sell-through activities and are winning large deals across our geographies with and through our partners. Our partner ecosystem is a critical part of our go-to-market strategy. We announced the general availability of our hybrid cloud observability solutions. We also released the early access version of our integrated SaaS observability offerings based on the SolarWinds platform to customers initially focused on the DevOps and database communities. We will extend the SolarWinds platform in the coming quarters into other areas, including service management. By integrating observability and service management onto a single platform, we intend to deliver a very unique value proposition to address the automation, observation, visualization, and remediation needs of our customers across IT, Dev, and SecOps communities. Our simple, powerful, and secure solutions built on strong technology and go-to-market foundations are being designed to be easy to try and buy and to give customers best time to value, time to detect issues in their multi-cloud environments, and best time to remediate the issues, thereby saving significant costs and increasing productivity. In Q2, our observability, database, and service management solutions all received multiple industry accolades, I'll mention a few. Gigaohm Cloud Observability Radar Report rated us a fast-moving leader. This is an early recognition of our emerging observability offerings. Three Stevie Awards recognized our innovations in database monitoring and for advancements in the Secure by Design initiatives. Nine SolarWinds solutions were named 2022 top-rated products by TrustRadius. TrustRadius is leveraged by many of our current and potential customers to help objectively pick solutions to support their needs. Our ninth annual IT Trends Report, based on extensive surveys and industry research, continues to reinforce our strategic direction. Productivity, reduction of tool sprawls and alert fatigue, resource and budget constraints, and complexity are all challenges that customers are looking to us to address. Last but not the least, we published the details of our next generation build system for the benefit of the broader industry. It is my hope that through the adoption of our Secure by Design framework, including the bill systems, we and others will make our customer environments safer and more secure. I'm proud of the progress of our teams and the efforts that they display every day. Transformations are never easy, and the increasing macroeconomic volatility and uncertainty are adding to the challenge. Having been part of many transformations, I'm confident that the changes we are driving through the business are the right ones for our customers and for our company. We are clearly seeing positive results from our deliberate actions, and I expect to continue to make progress in the second half of the year. With that, I will turn it over to Bart. to further expand on our financial performance and to provide a Q3 and updated full-year outlook. Buck?