SolarWinds Corporation

Thank you for standing by. My name is Alex and I will be your conference operator today. At this time, I would like to welcome everyone to the SolarWinds 2024 second quarter 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 followed by the number one on your telephone keypad. If you would like to withdraw your question, Press star 1 again. I would now like to turn the call over to Team Karaja, Group Vice President, Finance. Please go ahead.

Thank you. Good morning, everyone, and welcome to the SolarWinds Second Quarter 2024 Earnings Call. With me today are Sudhakar Ramakrishna, our President and CEO, and Bart Kaltu, 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 the timing of phases of such evolution, our expectations regarding our partner ecosystem, the SEC enforcement action, the impact of the global economic and geopolitical environment on our business, and our growth level of debt. 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 our filings with the SEC. Copies are available from the SEC on our investor relations website. We will discuss various nine gap 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 our other financial metrics discussed on today's call are available in our earnings press release and summary slide deck on our investor relations page of our website. 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 only be final once we file our quarterly report on form thank you. With that, I will now turn the call over to Sudhakar.

Thank you, Tim, and good morning, everyone. Thank you for joining us today. 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 our key metrics and building on the momentum we have experienced in the last several quarters. I believe our team's continued focus on customer success and execution has positioned us well for a strong second half of 2024. We believe our performance in a challenging software spending environment demonstrates the compelling value we deliver to customers and the resiliency of our business model. Now, turning to business highlights from this quarter. First, our subscription-first strategy continued to bear fruit, and we are experiencing strong subscription revenue and ARR growth. Second, our customer retention metrics remained robust highlighting the compelling value proposition of our platform. Third, we saw increasing adoption of and traction for our observability solutions. And fourth, we continued with our ongoing product innovation, driven by our focus to improve productivity, reduce complexity, and improve cost effectiveness for our customers. I will now touch on some of these before turning the call over to Bart for more color on the quarter and our financial outlook for the remainder of the year. In Q2 2024, we delivered total revenue of $193 million, above the high end of the guidance range we provided, and representing year-over-year growth of 4%. We continue to see success with our subscription first strategy and delivered year-over-year subscription revenue growth of 31% and subscription ARR growth of 36% in the second quarter. Our second quarter in-quarter maintenance renewal rate was 97% and our trailing 12-month maintenance renewal rate was 97% consistent with last quarter and up from 94% in the same quarter of the prior year. we delivered second quarter total ARR growth of 7% year over year, passing the 700 million mark in total ARR. We exceeded $100 million in total ARR for our hybrid cloud observability solutions, a significant milestone that is the result of the ongoing conversion of our maintenance base, as well as the acquisition of new customers. As I shared last quarter, we believe that tools consolidation, cloud modernization, and simplicity are the key driving factors and represent significant incremental future opportunity for us. We recorded double-digit adjusted EBITDA growth of 17% year-over-year and another quarter of achieving the rule of 50. And finally, in July, we refinanced and extended our debt with another 50 basis point of rate reduction, which Bart will highlight further. Turning to our product portfolio, we continue to believe that our multifaceted solutions deliver the best time to value, time to detect, and time to remediate issues across on-premises, cloud, and hybrid environments. We believe that our observability, database performance, and service management offerings are the most comprehensive in the industry and help customers reduce costs while enabling them to accelerate their business transformation. I will now provide some product and solution updates that are aimed at the diverse and changing needs of our customers. We continue to enhance device and node support in our HCO solutions, giving us the opportunity to expand our footprint in customers' environments and to help them consolidate their tools further. We enhanced our support for Azure and AWS clouds and strive to continue to eliminate visibility gaps for our customers while improving their productivity and reducing their costs. Hybrid observability is a cornerstone of our observability solutions. We enhanced the database performance analyzer, helping enterprises maximize performance and migration of their Postgres SQL databases across on-premises and cloud environments. We continue to further simplify the packaging of our database solutions to give customers the opportunity to experience the full breadth of our solutions. We believe we can expand our business further with these modifications. and we launched our free ITSM maturity model, a purpose-built and free tool for enterprises to evaluate and assess their existing ITSM practices. This tool also provides a roadmap for improving operational excellence and service delivery while reducing costs. I have previously described how our AIOps is leveraged to reduce alert fatigue and determine root cause analysis to further reduce mean time to detect and remediate issues, and how we are developing tools that in the future will allow us to implement predictive analytics into our observability solutions. I'll now touch on AI extensions in our service desk solution that we announced in May, as well as highlight our AI by design principles that'll form a framework guiding our efforts across our portfolio. The ITSM extensions are designed to transform IT operations by improving workflows, accelerating remediation processes from days or hours to minutes. Using LLMs and our own proprietary algorithms, our SolarWinds AI is designed to allow a service desk assistant to instantly summarize ticket histories, suggest agent responses, and create real-time recommended steps for resolving issues. With the ever-evolving nature of artificial intelligence, we knew it was essential that this and all future AI tools we build are carefully architected with security in mind. That is why we introduced our new AI by design principles an extension of the Secure by Design principles that have guided our approach to security since 2021. These principles, which are privacy and security, accountability and fairness, transparency and trust, simplicity and accessibility, are an evolving framework to help customers establish a lasting relationship with AI built on security and productivity. Like Secure by Design, we believe our AI by Design principles should guide our industry as we enter and navigate the future of artificial intelligence. As we pass the halfway point of the year, we are on track to deliver on our 2024 priorities we provided earlier this year. Extending our SolarWinds platform and delivering effective solutions built to help customers achieve hybrid visibility and to manage their hybrid and multi-cloud environments. Second, investing selectively while continuing to exercise expense discipline and expanding profitability. Third, focusing on subscription and ARR growth, customer success and retention, growing profitability and cash flow, and creating more value for our shareholders. I'm pleased with our execution against these priorities. Our strong foundation is the result of transformational efforts made across all aspects of our business, and I believe that we are set up for continued success in the second half of the year. Before I turn the call over to Bart, I want to acknowledge that this is Bart's last Solomons Earnings Call. As we announced in June, Bart will be moving on to pursue the next chapter in his career later this month. Bart has been my partner from the day I joined in this transformational journey. On behalf of all Solarians, Bart, I express my heartfelt gratitude to you for your many contributions. I wish you great health and much success in your future endeavors. I want to welcome Louis Black, who is joining us this month, as our Chief Financial Officer. With over 25 years of experience in finance and operating roles, Luis's experience in transforming technology companies will be crucial for our next phase of growth. Luis is with me in the room today and looking forward to engaging closely with all of you going forward. With that, I will now turn it over to Bart to expand on our financial performance and provide our third quarter and full year 2024 outlook.