SolarWinds Corporation

Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to SolarWinds third quarter 2024 earnings conference 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. And if you'd like to withdraw that question, again, press star one. Thank you. I will now like to turn the conference over to Kim Karaja, Vice President of Finance. You may begin.

Thank you. Good morning, everyone, and welcome to the SolarWinds Third Quarter 2024 Earnings Call. Sudhakar Ramakrishna, our President and CEO, and Louis Black, our CFO, are with me today. Following our 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. 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, our expectations regarding our partner ecosystem, the SEC 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 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 non-GAAP financial measures on today's call. Unless specified when we refer to financial measures, we'll 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 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. 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. Our results testify to our team's commitment to customer success, the breadth and depth of our offerings, and the trust that customers continue to place in us. I'm pleased with the execution of our teams which resulted in strong top line and adjusted EBITDA growth. Now, turning to the business highlights from this quarter. First, we again delivered strong subscription revenue and ARR growth, highlighting the sustained momentum of our subscription first strategy. Second, the increased adoption of our observability solution continues to drive revenue growth. On October 2nd, we announced significant updates to this part of our portfolio. More on this in just a second. Third, we continue to experience a good balance of deal sizes across our regions and market segments. We believe our low customer concentration and the criticality of our solutions to customer operations continue to underpin our performance. Fourth, we continue to extend our solutions portfolio with the goal of delivering the best time to value and time to detect and resolve issues for our customers. I will now touch on some Q3 financial highlights before turning the call over to Louis for more color on the quarter and our financial outlook for the balance of the year. In Q3 2024, we delivered total revenue of $200 million representing 6% year-over-year growth above the high end of our guidance range. We continue to execute our subscription-first strategy and delivered year-over-year subscription revenue growth of 30% and subscription ARR growth of 36% in the third quarter. Our third quarter in-quarter maintenance renewal rate was 96%, and our trailing 12-month maintenance renewal rate was 97%, flat from 97% last quarter and up from 95% in Q3 of last year. Our customer retention metrics remained robust, highlighting the compelling value proposition of our solution. Total ARR in the third quarter was $724 million, an increase of 8% year-over-year. We delivered adjusted EBITDA of $96 million, representing 13% year-over-year growth with 48% margins. We continue to be a Rule of 50 company. Turning to our product portfolio, as I've previously discussed, our purpose of enriching the lives of our customers is central to all we do. Reducing complexity, lowering costs, and increasing our customers' productivity remain key motivating factors for our portfolio evolution. I believe our diverse array of solutions across observability, database performance monitoring, and service management deliver unmatched time to value, time to detect, and time to remediate issues. We serve customers across on-premises, cloud, and hybrid environments, empowering them to make the best decisions for their organizations while adapting to their evolving needs. Customers facing higher costs and complexities from multiple vendors continue to use our platform to consolidate their tools, lower their total cost of ownership, and increase visibility across their hybrid environments. We are encouraged by the traction here highlighted by key wins in Q3 with both public and private sector organizations. Turning to SolarWinds observability. Most organizations have assets both on premises and in the cloud. The complexity of these hybrid and distributed environments leads to visibility challenges resulting from a hybrid observability gap. This gap can cause degraded technology performance, prolonged issues identification and resolution time, and even damaged customer experience from missed SLAs. These can further cause declining customer satisfaction, lost business, and reduced tech ROI, impacting a company's bottom line and future growth. Of course, customers try to counter the hybrid observability gap with many tools, leading to tools sprawl. Often, they're forced to prioritize either on-premises or cloud workloads due to the limitations of other software vendor solutions. However, we designed our observability solutions to close the hybrid observability gap and give our customers unified visibility across on-premises and cloud environments. It is gratifying to see growing validation in our approach as organizations increasingly turn to our platform to consolidate their tools, lower TCO, and increase visibility across their environments. Earlier this month, we announced that our observability offerings are now collectively known as SolarWinds Observability. Our hybrid offering, previously known as hybrid cloud observability, and our cloud native SaaS offering, previously known as SolarWinds observability, will now be known as SolarWinds observability self-hosted and SolarWinds observability SaaS, respectively. This change, which we discussed at our SolarWinds Day on October 2nd, is tightly aligned with with how we market our comprehensive observability solutions to our end customers. We continue to extend our versatile observability solutions in the market with key capabilities, including improving system scalability to help customers reduce their footprint by as much as 50%, thereby reducing their total cost of ownership. Expanded support for Azure and AWS workloads SD-WAN extensions, wireless access points, and storage arrays. We believe these enhancements further improve our competitiveness in landing new customers as we help customers more readily eliminate tools from. We evolved our AIOps progress around anomaly-based alerts to reduce alert fatigue and to improve incident management. These enhancements can help customers reduce their time to detect and time to resolve issues. Our observability, database performance, and service management solutions work together to deliver a great value to our customers. We are excited by the energy of our team bringing and sharing these improvements with our customers, and we are confident in the solutions we offer to the visibility problems our customers have told they face. Turning to SolarWinds Service Management, we are leveraging generative AI to extend our capabilities, allowing customers to auto-generate runbooks, further accelerating remediation capabilities and time savings. We also continued our expansion journey with our enterprise service management platforms, enabling our customers to provide help desk solutions across any department in the organization. SolarWinds ITSM customers who enabled our Gen AI features have achieved meaningful year-over-year improvement in the meantime to resolve issues. We are seeing greater adoption of these Gen AI capabilities, which are part of our service desk solutions premium package and result in higher average sales prices. Now turning to our database performance management solutions, we continue to simplify the packaging and pricing of our database solutions. Now customers have the freedom and flexibility to choose the right solution for their environment. And all of this to the changes we implemented for our observability solutions over the last two plus years, we believe these will further simplify the customer experience resulting in greater adoption and higher ASP. As always, we remain dedicated to helping customers reduce costs while enabling them to accelerate their business transformation. We believe this will give us further opportunity to expand our footprint in customers' environments and help them consolidate their tools. In closing, I'm proud of the progress we have made against the priorities we provided at the start of the year. First, we are extending our SolarWinds platform and delivering effective solutions built to help customers achieve hybrid visibility and manage their hybrid and multi-cloud environments. The recent announcements on SolarWinds observability represent significant milestone achievements against this priority. Second, investing selectively while continuing to exercise expense discipline and seeking expanded profitability as evidenced by portfolio evolution, top line growth, and bottom line profitability. Third, focusing on subscription and total ARR growth, customer success and retention, growing profitability, and creating more value for our shareholders. We aim to continue to deliver compelling value to our customers. The relevance of our solutions and the commitment of our teams gives me high confidence in our ability to deliver a strong Q4. With that, I will now turn it over to Louis to expand on our financial performance and provide our fourth quarter a full year 2024 outlook. Louis.