SolarWinds Corporation

Good morning, my name is Jeannie and I will be your operator today. 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 that time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Tim Karaja, Group Vice President of Finance. Mr. Khuraja, you may begin your conference.

Thank you. Good morning, everyone, and welcome to the SolarWinds Fourth Quarter 2023 Earnings Call. With me today are Sudhakar Ramakrishna, our President and CEO, and Bart Kalcu, our CFO. Following our prepared remarks, we will have a question and answer session. This call is being simultaneously webcast on our investor relations website at investors.solarwinds.com. You can also find our earnings press release and the 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, our continued evolution to a subscription-first mentality, and timing of the phases of such evolution, our expectations regarding our partner ecosystem, their CC enforcement action, the impact of the global economic and geopolitical environment on our business, and our gross level of debt. These statements are based on current 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 our filings with the SEC. Copies are available from the SEC on our investor relations website. 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 non-GAAP financial measures. A reconciliation of the differences between GAAP and non-GAAP financial measures and the definition of other financial metrics discussed on today's call are available in our earnings press release and summary slide deck on the Investor Relations page of our website. Finally, we note that the financial results discussed on today's call and our earnings release are preliminary and pending final review by us and our external auditors, and will only be final once we file our annual report on Form 10-K. With that, I will now turn the call over to Sudhakar.

Sudhakar Ramamurthy Thank you, Tim, and good morning, everyone. I hope you're off to a great start in 2024. As always, I'd like to thank our employees, customers, partners, and shareholders for their ongoing commitment to SolarWinds. I'm pleased to report that we delivered another strong quarter, once again exceeding our guidance across all key metrics, finishing the year on a high note, and adding to the momentum we built throughout 2023. We believe our performance continues to demonstrate not only the resiliency of our business model, but also the compelling value we deliver to our customers. Now, turning to business highlights from this quarter. First, strong subscription revenue and overall ARR growth demonstrating the continued success of our subscription first strategy. continued growth and adoption of our observability solutions. Third, strong customer retention, which was a critical priority of ours in 2023. Fourth, significant enhancements we delivered on our SolarWinds platform as it continues to be the foundation that fuels innovation for our self-hosted and SaaS solutions so customers can consolidate tools and experience hybrid visibility simplicity, and cost-effective productivity across multi-cloud environments. Finally, continued adjusted EBITDA growth and another quarter of achieving the rule of 50. I will now discuss some of our fourth quarter financial highlights before turning the call over to Bart, who will provide more detail on the quarter, our financial performance in 2023, and our financial outlook for 2024. In Q4 2023, we saw total revenue of $198 million, above the high end of the range we provided, and representing a year-over-year growth rate of 6%. With the ongoing success of our subscription-first strategy, in the fourth quarter, we delivered subscription revenue growth of 36% and subscription ARR growth of 34%. We delivered fourth quarter adjusted EBITDA of about 87 million, above the high end of the range we provided, and representing growth of 17% year-over-year. Our fourth quarter in-quarter maintenance renewal rate was 95%, and our trailing 12-month maintenance renewal rate at the year end was 96%, an increase from 95% as of the end of the third quarter and 93% as of the year end of 2022. And we delivered fourth quarter total ARR growth of 8% year-over-year with continued execution of our subscription first and platform strategy. Shifting to our product portfolio, We believe that SolarWinds provides the most comprehensive, AI-powered, full-stack observability solutions in the industry across networks, infrastructure, applications, and databases. Our multifaceted product portfolio offers observability, database performance, and service management solutions across on-premises, cloud, and hybrid environment, enabling customers to accelerate their business transformations in an increasingly multi-cloud world. We help reduce customers' complexity and cost by eliminating tool scrawls, help rapidly detect and remediate issues, increase time to value, and improve productivity. We believe that SolarWinds hybrid cloud observability contributes to increased retention and conversion rates and that our customers are enjoying increased value as we continue to evolve and extend the capabilities of our solutions. Across observability, service management, and database performance management, our teams are continuing to deliver customer-critical capabilities. We believe our broad spectrum of self-hosted to SaaS solutions most effectively enables our customers to accelerate their business transformation with deployment flexibility. Some recent enhancements include in November, we announced SolarWinds Database Observability, a new offering that delivers comprehensive visibility into databases to increase the performance, scalability, and efficiency of digital services and applications. Combined with our application observability capabilities, we can reduce customers' time to detect problems in their multi-cloud environments. At AWS reInvent 2023, we unveiled the latest enhancements to our SaaS-delivered observability solution, helping customers accelerate their cloud journeys and including support for open telemetry and new Kubernetes application set intelligence as well as the addition of cloud-enabled open source and NoSQL database observability capabilities. We continue to enhance our self-hosted observability solutions with new device support to provide increased coverage for our customers. We also continue to evolve our network infrastructure and cloud observability solutions and had several customers leverage the power of our solutions to gain hybrid visibility. I'm pleased to share that just this week, we announced a series of transformative AI-powered enhancements across our SaaS-based observability solutions, most notably to our proven network infrastructure and cloud offerings. Building upon our networking heritage, we now offer complete visibility across on-premises and cloud networks, including on-premises and cloud network devices, virtual machines, hypervisors, containers, and infrastructure as a service resources. We invite you all to learn more about our latest innovations at our next Solomons Day on Wednesday, February 28th. Layered through all facets of our offerings is Secure by Design. are standards for secure software development and infrastructure security. We developed the Secure by Design initiative to address the ever-changing threat landscape and to illustrate how security is a part of our organization's fabric. We believe our initiative not only delivers enhanced security for our customers, but also advances fiber safety for SolarWinds and for our industry at large. and establishes a new standard for secure software development. Turning now to our partner ecosystem, as you've heard me discuss in recent quarters, our partners, including global system integrators and hyperscalers, are increasingly important for our expanding go-to-market motions and can help us expand our reach to customers in a scalable, efficient, and cost-effective manner. The SolarWinds model of inside and velocity sales is a foundation upon which we are building these additional go-to-market motions. In August 2023, we announced enhancements to our channel partner program designed to accelerate growth and revenue with and for our partners. These updates provide greater flexibility for our partners to achieve their targets, new opportunities for channel offering improvements, and specialized options for database and IPSM products. We will continue to host our Transform Partner Summit with several exciting events planned for 2024, including our EMEA Summit in Lisbon, our APJ Summit in Bali, and our Americas Summit in Miami. I look forward to meeting our partners and sharing our 2024 plans. I believe that partners are a force multiplier, and together we can help our customers further accelerate their business transformation. 2023 was a strong year across multiple dimensions, and I'll provide a quick recap. First, we successfully drove subscription adoption across our businesses, which is seen in our strong subscription revenue and ARR growth results. We believe this is consistent with how our customers want to consume our products and that an increase in our subscription rates provides an even more solid foundation for our revenue and margin expansion efforts. Second, we demonstrated rigorous expense discipline in a challenging macro environment by investing selectively while managing costs and improving our operating margins as reflected in our 17% adjusted EBITDA year-over-year growth in 2023. Third, we continue to prioritize customer success and retention and successfully improve our maintenance renewal rates to 96% on a trailing 12-month basis. And fourth, we delivered on our innovation agenda by extending and enhancing the AI-powered capabilities of our solutions while also expanding our ecosystem to bring even greater value to our customers. It is my belief that we built a strong foundation and successful strategy that's a direct result of our focus on our transformational efforts across all aspects of our business over the last three years. With that, I will turn it over to Bart to expand on our financial performance and provide a full year 2024 outlook. Bob?