SolarWinds Corporation

Hello and welcome to today's Enable first quarter 2022 earnings call. My name is Bailey and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to Jeffrey McGilmer with Enable. Jeffrey, please go ahead.

Thank you, Bailey, and welcome everyone to in ABLE's first quarter 2022 earnings call. With me today are John Pagliuca, 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.n-able.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, our continued expectations following the spinoff of our business from SolarWinds in July 2021, 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 related to the spinoff transaction completed last year. 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. 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. Thanks, Jeff, and thank you all for joining us today.

We are pleased with both our execution and financial performance in Q1. Our revenue growth was 12% on a constant currency basis that exceeded the high end of our outlook, leveraging the strength of our data protection as a service and security offerings. Operationally, we are on track with the initiatives we outlined last summer in preparation for our spinoff. Our investment in partner success is resulting in better retention figures more cross-sell opportunities, and a better customer experience. Our increased investment in product has allowed us to reestablish our cadence of bringing additional offerings to our MSPs and is delivering a disruptive data protection offering that is winning in the marketplace. And our investment in additional sales motions and channel expansion is unlocking opportunities in new geographies and areas. As I mentioned on the last call, This year, we are rallying behind the phrase, earn more, enable fans. And so far in 2022, it has really galvanized our strategy and accelerated our momentum. As you know, we call our MSP customers our partners because our relationship goes deeper than a mere transaction or sale. Our partners look to enable to provide them with world-class technology that allows them to efficiently and securely scale their business and support their and the IT needs of the customers they need. Despite all the noise in the market, we remain focused on a different kind of disruption, placing powerful and disruptive technology and business tools in the hands of our partners, enabling them to achieve their growth goals and increase their value to their customer base. Because when they grow, we grow. We know that in order for us to earn more fans, We need to execute on our mission to empower MSP partners to solve their most pressing problems and keep them secure and ahead of their competition. We have made a long-term commitment to our partners' success and continuously improve on all fronts. We've talked about our industry tailwinds. The digital evolution continues to accelerate and pose both opportunity and challenges to SMEs. The levels of IT complexity, labor scarcity, and rising cyber threats are increasing in a way that underscores the importance of IT service providers. This aligns with our strategy and our business model. First, IT complexity is rapidly increasing. What this means for MSPs is that their customers will continue to ask them to manage widespread digital assets with increasing IT demands. so they will need to automate and secure new processes and workflows to ensure their SMEs, their customers, remain productive. Enable's commitment to allow MSPs to manage everything means that our partners are able to meet this move toward a hybrid work and manage the additional complexity of diverse device types, cloud computing environments, and SaaS applications. Second, labor scarcity specifically for tech talent, affects everyone, from SMEs and larger enterprises who are relying on outsourcing to fill in talent, to SMPs themselves who need to do more with less labor. Our technology is designed and built to allow technicians to automate and MSPs and the businesses they support to scale. And third, Cybersecurity threats are on the rise and make the work our MSPs do not just more important, but in fact mission critical to business continuity for hundreds of thousands of businesses around the world. In our current geopolitical situation, both state and non-state actors pose a heightened threat to businesses in Europe and around the world. And MSPs are looking to us to provide them with enterprise-grade security solutions with the ease of use that SMEs require. to help them stay ahead of the security curve and provide this core risk management function. A lot of our activity on the product front directly addresses these industry tailwinds. I mentioned briefly on our last call that we had launched enabled DNS filtering in February as a new security offering to our partners. This is a cloud-based, AI-driven content filtering and threat protection service that is designed to let MSPs better monitor, manage, and proactively protect and secure their customers' network, regardless of location or connection. This is ideal for hybrid work environments. We have seen a strong pickup since launch, and we expect continued acceleration into the second quarter. We have for a long time been on the cutting edge of data protection, with one of the first true offerings of cloud-first data protection as a service for MSPs. Last week, we announced the launch of Cove Data Protection. We believe that Cove is disruptive to the market for its fundamentally different architecture that enables MSPs to modernize their approach to data protection and allow seamless backup, archive, and recovery of data, eliminating up to 90% of labor time and moving roughly 60 times less data, simplifying operations with this transformative solution. Leading into this launch, we celebrated a few milestones that validate the power code data protection brings to the market. We received the Backup and Disaster Recovery Award from Cloud Computing Magazine, which recognizes excellence in the advancement of cloud computing technologies, celebrating our cloud-first data protection and quick and reliable recovery from events such as ransomware attacks. We announced in February Since launching our backup solution for Microsoft 365 domains in December of 2019, we are protecting more than 4,000 enabled partners across more than 25,000 customer domains and over 900,000 exchange mailboxes. Since that announcement, we are now protecting over 33,000 M365 domains as of the end of April, and that number continues to grow. We believe traditional local-first image backup does not suit the needs of modern IT environments and certainly misses the mark for MSPs. Our solution was built from the ground up to be cloud-first, unlike other solutions that claim to be in the cloud but are simply legacy architectures with bolted-on secondary cloud features that add complexity. GovData Protection provides appliance-free, direct-to-cloud capability with advanced disaster recovery benefits and designed in cost efficiency, scalability, and reliability that MSPs and their customers require. I'll illustrate this with a feature that is currently in customer preview and slated for general availability in early Q3. It's called Standby Image, and it's an elegant toolset that allows MSPs to have backups sent to the cloud while they maintain a standby image at the location of their choice. allowing for fast and flexible disaster recovery without the need to purchase proprietary appliances. Architecturally, Cove addresses the primary need for modern data management systems. Our partners are telling us, for example, that with Cove, they're able to go from 40 hours spent per month on backup down to four hours, from three full-time support technicians down to around a half of a full-time equivalent. and from 95 tickets per day down to nine. That is a massive impact for services-oriented organizations and allows them to focus on more strategic value-add work. Data protection has long been a growth driver for Enable, and we believe the launch of Cove will accelerate its importance to our business. A recent report from William Blair estimated the TAM for data management at $37 billion in 2024, highlighting the market potential. And though we are not yet known or well-known in the backup and disaster recovery space, we have seen time and time again that when our partners or new prospects switch from a competitive solution to enable, they consistently come back with very positive feedback on our data protection capabilities. As we put effort behind establishing our brand in data protection, we expect to see even greater growth. We just announced that our enabled Mail Assure email security solution has been awarded first place in the latest VB-SPAN comparative review, receiving the highest score both in this latest testing in March of 22 and in September of last year. The tests were conducted by Virus Bulletin, an industry-renowned test laboratory and an important reference for specialists and businesses concerned with computer security. we received the highest VBSPAM plus rating with a malware catch rate of 99.96% and zero false positives. In addition, we are conducting an external preview of an additional feature called Mail Assure Private Portal, which secures emails beyond managed devices to the recipient with audited access and encryption. This is a high-demand feature for our MSP partners, and the feedback we are getting so far has been very positive. Finally, we are in the midst of a soft launch of our new professional services offering, which is designed to help MSPs better deal with one of the industry dynamics I mentioned earlier, specifically labor scarcity issues. Known as Enable Enhanced Services, we've structured this offering to help our partners rapidly unlock the potential of Enable products, optimize their teams and technician efficiency, and accelerate time to value by delivering solutions to their customers faster. The guidance and training we provide is instrumental in helping MSPs grow their business and improve efficiency in everything from migrations to onboarding to ongoing support. Above the base-level services we've always provided, we are introducing a fee-based premium level for partners who require more of a differentiated support experience for their business needs. This is a direct response to partner feedback and the culmination of a significant investment we've made in service delivery that goes to the heart of what enables partners value about us. And we believe this will open the door to even larger-scale opportunities. Now, as I did in our last earnings call, I want to continue the practice of sharing some notable wins. We won a large six-figure Encentral deal with a multinational medical research and testing company based in Europe. They were looking for a single pane of glass to manage their global assets and the ability to automate maintenance tasks over and above standard patching requirements. Though they initially contacted us based on our remote management reputation, they were sold on Encentral's advanced security and full visibility to their highly dispersed and specialized global infrastructure. Second, we sold in a near six-figure deal for our Cove data protection solution to a large MSP that is primarily a Mac shop. Not only was this a great win to replace a competitor, the partner was convinced by our superior value in technology and service, which allows them to reduce and refocus their technician time. They also liked that Cove provided them with a significant advantage in terms of the profitability and scalability of their business. We also had some notable expansion deals in the quarter. First, we had a significant expansion deal of close to 300,000 ARR with a managed security services provider, or MSSP, who was already a large partner of ours for Incentral. They were being courted by a competitor for their primary security suite. After we came in with a competitive solution, including Sentinel-1 EDR, our significant edge was our support access to professional services, and the ease of integration with their current offering. Second, one of our smaller RMM partners in the UK was acquired by our larger MSP, who was using a mixture of homegrown and competitive tools. They were considering how to scale themselves to the integration and the growth they had planned. We demonstrated that Incentral was the right tool for them to expand their service offerings as they consolidated their business. But just as importantly, Compared to the competitors they were actively assessing, we were the right long-term, attentive partner that would focus on their technology and their business above all. The result was a near 200,000 ARR expansion deal, initially managing more than 20,000 endpoints. Third, in a mid-100K ARR expansion deal, a California-based and central and security partner was exploring replacing their backup solution, looking to reduce complexity, improve their reliability and efficiency, and optimize the time and people resources it was taking to offer backup services to their customer. Our solution drastically reduced the time they spent on backup, provided them with on-demand support to augment their team, and gave them the scalability to grow their business. In the first half of 2021, we reorganized and changed the way we engage with our customers by providing dedicated partner success reps. We put the focus on what our customers need, not on what we are trying to sell. And by changing the lens and experience, we are exposing sizable opportunities alongside our partners. Since our change, we have seen the opportunities created by our partner success teams have had the highest close rate of any opportunity we've created. As we continue to invest in the expansion of our channel teams in a new market, our overall sales output continues to improve sequentially, continuing the trend we saw throughout 2021. We generated a quarter over quarter increase in our total sales pipeline, with March our biggest month for pipeline creation in the last two years. Looking ahead, we will be executing in the near term on code, enhanced services, and other product launches we are working on, and working on articulating our value proposition to ensure our potential and current partners are aware and taking full advantage of our holistic solutions. Before I turn the call over to Tim, I want to discuss Enable's business in Ukraine, Russia, and Belarus. We have a de minimis amount of revenue in those regions, and aside from the impact that it's having on the global economy, our operations, financial results, and business have not been materially impacted by the situation there. We operate much of our development activities outside of the U.S., throughout Canada and Europe, including operations in Belarus. If needed, we believe we have adequate resources in non-impacted regions to support our products and are taking actions to mitigate any potential impact as we deem appropriate. Now, I will turn the call over to Tim to discuss our financial results and outlook before I jump back on with some closing thoughts.