SWI - Earnings call transcript Q2 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the SolarWinds' Second Quarter 2020 Earnings Call [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Howard Ma, Senior Director of Investor Relations. Thank you. Please go ahead, sir.

Howard Ma

operator. you, Thank and Call. everyone, SolarWinds Quarter Second Good welcome Earnings XXXX afternoon, to With and Thompson, Kalsu, Kevin me are today President President Chief Executive and CEO; Financial Officer. Vice Bart and

call the process are separately-traded have from statements, our can preliminary spin-off our and limitation, into to related a call remarks also being and financial our on and which may investors.solarwinds.com. newly concerning find and website that a potential a webcast separate to company, possibility could without and a non-GAAP achieve outlook, the forward-looking forward-looking or considerations or financial Investor simultaneously differences the could press accordance potential completing numerous our spin-off. spin-off question-and-answer intended spinoff our our measures. Relations our global and affect differences cause not release On and results those risks GAAP and pandemic potential the release, such the business earnings or differ operations with prepared prepared and of those deck, are including of either business, opportunities, created into the may and Following disrupt our any with of and actual or uncertainties adversely the that company a is Bart, contribute from that separately we'll statements. MSP spinoff respect Investor call COVID-XX the Factors financial spinoff session. condition. not on of plans this statements the our the a summary to certain limited supplement potentially all business Kevin risks some regarding impact related are and potential slide economic today's market These the This could not remember number and consolidated public but is the in to may exploring subject press to Relations the of spin-off business at financial our expected time during brief website, reconciliation anticipated to, of that COVID-XX you including, MSP remarks to related business our provides that the between benefits operational that MSP materially business, cause and our during Please statements public of anticipated and environment include, pandemic be a condition, newly-created to results and strategic, results of the affect made spinoff our operations financial of of businesses and lines or all, global completed at adversely or

and are addition, Board by Directors structures capital nature information and as thereto financial spinoff the operational, becomes the businesses. additional not available are strategic, in In been approved of and statements we respect subject as of objectives, our and and preliminary and plan with future we exploring consider profiles has further currently the two our change and to

as and undertake to measures also financial duty call measures profitability law. no to information available our factors update plan filings, by will refer based Unless statements the references otherwise for currently Form These filed risk press are non-GAAP quarter we on required and today's the August discussed SEC For releases XXXX to such second to basis. more information, in comparable that specified, of and a XXXX. file XX-Q most on and except refer to on please XX-K this our including and XX-Q refer we XX, by related Form measures non-GAAP the we a information, Form recently to and

assessing currency how of our basis and also our constant business framework for currency rates on results foreign our provide a performance outlook revenue the we to excluding We perform, and fluctuations. effect growth provide for expect a will to

further earnings measures release. calculation corresponding in non-GAAP non-GAAP in GAAP tables explained use And the provided call each I'll today's to these turn and in press accompanying measure release full of Kevin. is with measure press Our now over its are that, reconciliation and between the a

Kevin Thompson

Hopefully, has to results aware into the and level to Howard. a and all Thanks, sharing releases be which ability potential transformational traded issued separately explore discusses future second of spin-off We could second will are one, this of the performance management point quarter; a fact we operating this our afternoon: you Board that transaction a authorized of at our press business MSP of management release, this Directors newly-created business the of two that our MSP a optimize growth business. allow core our and higher of drive potential our us in IT public. believe our that to of

very quarter. the second the the will our quarter, of pleased and exploring. cover We are in we opportunity results discuss I'm performance second first the we'll with Overall, spin-off then

took constant and and Our and are X% of uncertain growth approximately by strived focused customers strong to the higher global quarter $XXX and and team we our we This success remaining last range revenue comfortably committed outcomes a in basis, currency end a or basis non-GAAP our striving X% were on in basis. a stayed total the growth very million on effort with focused reported our on global what basis achieve to of million resulted quarter, team and constant reported results for quarter. reaching currency $XXX on a reflecting the environment feel the while volatile within the partners' second on the year-over-year

$XXX delivered end over high outlook. our we in the an of exceeding profitability, meaningfully generating adjusted of EBITDA, addition, million outstanding In quarter

changing their businesses economic challenging the world grappled the impact as environment the The with quarter around second performance. was on and resulting business

to and their budget approval a individual of amount available for approval rapidly and deal As actually processes how pros the were external and environment left with due process around IT committing internal uncertainties were result, budget tech the the that to changing.

just the quarter. trials rhythm was we Activity it pace the closing customers business month with the quality the and be as expected products, levels across Given geographies potential measured quarter by economic March. as since we deal variability volatility terms the of conversations in of would with in when uneven entered of have of our the improved environment,

at demand and still of in by and are slowdown May impacted year. expect of do month mid-March. be us not the the we pre-crisis to we the for not levels levels toughest However, significant experienced was those at in that the end before the quarter was

by began our then the Despite customer was expectations improvement on have the which This additional the our due been for consistent sequential of However, CIO see budgets, IT in budget rates an regions, June a which of months and critical in of of in products. pressures based in thousands saw technology corroborated consistently technology to with budget half several expect XXXX performance of during pros geographical heard first we second in that our most most quarter, retention remainder remained XXXX. with recently-released the IT surveys, year. Based has our nature expected demand the six saw pressure interactions and on we lines we pros improvement stable of them indicated product across slowdown these in on have to the the April. pressure second from spending the over an increase remarkably

we spot the budget see a in SolarWinds, there's inside for addition, of the market. hiding pressures bright In

disrupt implement which our the a and unable choose of match. are built try, are to that easy was commoditize business Our market, of to to use and we products combination competitors pricing through that enter to and most

this aspects our foundational quarter that these market We during our of leverage the had will We in to disruption. briefly model market I to highlights several the of operational period economic share IT want in management increase mention. second

launched pricing key on products and products. options for should XXst, our April management you as in family the each of subscription database network, we First, remember, Orion systems of

subscription the Given fact, and environment, the favorably was. will be received economic it in difficult pricing launch we expected

We have the Orion transactions product product in post-launch amount subscription pipeline sales XX estimates. which of exceeded in for meaningful portfolio quarter, closed second built our and subscription a over our of

Orion amount we bookings portfolio of year. in have volume a of remainder As of expectations the the the raised subscription our dollar product result, for

Second, grade $XXX million Subscription reaching XX, at as reported reaching a $XXX the second basis of on basis. XX% we growth increased XX% and of growth solid approximately quarter, with at ARR saw June currency grew basis faster year-over-year million the constant meaningfully quarter a basis, on a reflecting ARR on and rate in reported by the XX% a of XXXX, a constant end currency of total XX%. ARR a on

of infrastructure and from consolidation is application, next We SolarWinds see today. management, over strong a with a on-premise continued infrastructure in IT to by leadership years, have relationship, illustrated by benefit to applications IT evolving management vendor of over that hybrid of and wave in IT strengthen majority for believe we which budget the well-positioned number options, we opportunity basis spent who trailing deployed the see XX-month Driven our growth will us Third, lack XXX customers pressures and basis the the our XX% to on customers. a by a see year-over-year number we on the customer this of of large and several and $XXX,XXX to represents us increasing an great strong market wave.

significantly a believe database across performance seeing Fourth, the large have capabilities application management the expanded closed whose history for and as us. commercial hybrid we This vendors footprint their using. have opportunity to global on-premise, consistently hybrid value performance infrastructure other deepest been already. have institution. is management environment transaction we SolarWinds large the and we're in products we products global In database fact, we that the largest In indicated with compared management that a the In we the second in quarter, cloud native this created have IT market. by purchase was of our growth previously, their opportunity driven financial delivered and IT they

retention native database the of for strong to that their product maintenance performance business, rates In And used seeing. impact environments. cloud of currently in the XXXX rates rates on the year. performance. relational increase the were period over quarter second quarter, market will Ultimately, the additional databases renewal we global quarter, And slightly the the of for XX, as management details of finally, by database and we drive We portfolio pandemic our we XX%, the with rate rates based that on-premise, of our effectively Bart, hybrid our on our June we some half visibility key ended on-premise, our need the XX this second second second I'll outlook pros the products With revenue the and must subscription and net in trends full move the as for months performance across the across through manage performance call the despite renewal and the June with over turn ended to XXXX. XX, by XX-month into well maintenance will Our we're database for third quarter SQL cloud XXX% also who native order believe grow as database technology databases of retention visibility management customer XX% net during the seeing strengthen the retention believe XXXX. over able our many on strong as applications. cloud that, we're applications, NoSQL leading well hybrid as by saw driven to side total provide address

Barton Kalsu

everyone Kevin, call. to again joining today's on Thanks, us thanks and

cash on I caused the results, increase second Before an economic $XX December March which rate a of the our our was flow of quarter the EBITDA first expenditures This areas since an COVID-XX. percentage XXst At about to by XX I touch conversion The on million quarter million payments to $XXX first strong during related I begin remarks This of on want call, and everyone should converted to since XX, collection. conversion few in increase is million increase thought to quarter, unlevered second collections cash the liquidity lower-than-expected specifically bonus and compared to areas second earnings business two payments. quarter, are $XXX on we cash quarter, due hand. tax points in is had my we the on sequential end lower impact and adjusted We our the second quarter. I of XX% the talked update cash rate and XXXX. on the slowdown of in capital of free

strong environment. very returned and a had we front, to allowance collection cash the levels collections, On our debt of the normal despite difficult quarter bad economic

the Due from EBITDA days XX, In X.X quarter, the to second year-end. XX-month X.X end times our XXXX. flows at dropped June days the fact, to times of XXth to at March strong our cash second adjusted DSOs quarter trailing declined in XX.X from leverage our at XX at net

discussion revenue second second reaching as Moving our for and of the maintenance some to results, XX% was of quarter revenue details of the second XX%, quarter, Total recurring recognized revenue. of or subscription a quarter during the million. either non-GAAP $XXX our total grew at recurring

revenue rate XXXX. revenue million that which quarter acquired led the from XX% a sequential driven Second the recurring reflecting primarily on for $XX by grew constant decline was subscription was growth was of first quarter subscription in and million, the $XX XX%. April currency year-over-year growth Samanage fact of we non-GAAP revenue growth The XX, year-over-year second quarter, basis on by

second the held a on retention which the with indicated, subscription trailing with rate consistent on As basis reported rate was XX-month prior trailing constant MSP currency our net basis, products The XXX%, for was basis year XXX% our XXX% a total the retention net at up on and consistent Kevin quarter. quarter. first also on a quarter XX-month

quarter business-critical did devices we managing and MSPs slightly sales MSP pressures under devices. increase responded temporarily our our management the most pressure the churn by felt customers second see focused as the customers economic as However, to some their in fell and an being only customer expansion soft on during by on

they We seen grew levels, reaching year-over-year, more non-GAAP million the revenue led the reported modestly approximately Total on of an managing trends. a This reported expansion XX%. license as improvement stronger our activity X%, MSP third back revenue, in $XX.X in reaching on a in increased resulting basis and reflecting counts grew currency MSPs basis as the to quarter $XXX.X revenue increased a device quarter second by for by a in by grew so which far customer year-over-year maintenance million sequentially X% customers have for million, and in churn maintenance of basis. the $XXX.X stronger soft by quarter. normal and the growth devices July quarter on number second license expansion sales totaled partners constant decrease second were in the Non-GAAP was non-GAAP

of recognized over little for amount by second our subscription the despite expectations was on-premise-based our the performance sales the reduced quarter license the Our of exceeding range expectation license which products sales quarter our within the revenue in for of a quarter, X%.

the the second sales his comments, the the in declined for have improvement seen unevenness down weak month rebounded our Bookings As significantly quarter network low were our business and in We resulted single products. digits was driven quarter, was on Kevin rhythm in from June, but first in of the just second felt digits quarter results indicated I in in and the June that demand most we and in this in more based year-over-year the March half to systems of July. our in results that low uneven in the in shared. believe license down and by single of acutely management in which the year May in sales April, business second should then the improve performance trends of

the expect do last to only on headwind year-over-year Orion selling portfolio the of sales of revenue the we growth relative continue decline to six based However are X% licenses decline. will our outlook. for subscription result this a of expected fact to to some license that months Part be year from perpetual product

pricing than an currently to lifetime product for clear, the be not subscription license its as Orion of are is over be given product historically To perpetual portfolio. subscription we Orion transition approximately portfolio XX% long it expect strong the favorable our However, equivalent preferences. for and any higher forcing value we customer rather the subscription product of offer the renewal payment Orion term, accommodate but to to sales, as option rates maintenance portfolio an

second flow quarter We free quarter in have cash the of strong had non-GAAP profitability unlevered and of XXXX. a

in points EBITDA uncertainty million was -- $XXX.X conversion a $X.XX and the XXX.X we margin margin million rate increase conversion per our the a XX% free quarter share unlevered EBITDA from Earnings quarter the a EBITDA XX, year-over-year and of per second quarter of at rate months across economic in shares management of global growth of given approximately share totaled second million our diluted cash quarter basis X%, based business, XX%. full $XXX mentioned flow flow previously of an And for XX%, fully on percentage which $XXX representing for over puts was percentage XXXX, by the of Second adjusted the disciplined adjusted free environment. generated at June expense cash as driven a non-GAAP the six on year-to-date unlevered X of X million, ended first sequential outstanding.

third outlook the of quarter be Turning exchange British to fluctuation $X.XX our outlook net headwind and of a to impact XXXX, to is U.S. continue for assumes to dollar $X.XX. dollar of currency projected full our year pound slight rate to The euro rate growth. U.S. foreign and a a to exchange

XX% a quarter basis. X% non-GAAP rate third basis. basis, trailing of million, $XXX year-over-year growth XXXX, million on constant X% a a retention third XXX% X% range on quarter in total assumes the range net and outlook of currency representing of expect on This a XX-month quarter reported in a a XX% maintenance to X% revenue third we on renewal rate to to to of the and basis the For to be $XXX

third quarter, $XXX range results to share for number $XXX for outstanding which assuming per approximately Our average earnings the per a the XXX.X third weighted million. adjusted outlook of of million, of range approximately EBITDA of a shares a is in million quarter share of $X.XX

third share for XXXX non-GAAP of of per assumes tax approximately effective the guidance a XX%. earnings rate quarter Our

to full XX% the growth a for our on for revenue ended a December $X.XXX X% the to assumes basis, year full subscription basis. to XXX%. The in total non-GAAP retention XX% billion renewal XXXX, $X.XXX to to on of in we reported to maintenance of range range be the XX, of and year year outlook year-over-year X% turning outlook Now range the of XXX% net XXXX, expect a in representing currency the full constant rate and revenue billion,

share for EBITDA share of million adjusted range results $XXX of $XXX for XXX.X full weighted a on year full is earnings outstanding Our basis. a average which outlook year, million per to million, assuming $X.XX shares per the in the

earnings a tax Our the XXXX share With I'll turn the guidance will assumes back to per year Kevin. of that, for effective XX%. over non-GAAP rate be full now approximately call

Kevin Thompson

shared Bart. have business quickly call. To recap the points this on we about Thanks, key our

First, we approach they the take increasing to believe the CIOs the leveraging both market MSP to business next IT are infrastructure in we of as of and availability quarters while disruptive performance are our responsible. for management over well-positioned markets, IT level several and go-to-market owners and applications and share look MSP spend, reduce core which

level we've in Second, by spending small in IT of with businesses surprised and market. MSP been medium-sized and resilience the the positively

to hybrid the move as relies. visibility upon as performance by which into results deployed the surveys, the manage observability released infrastructures due driven cloud multiple performance into is in on as to of required. business opportunity the of in applications, see database and based order of purpose. the of were vendor management, Third, applications visibility the have recognized quarter, effectively by pervasiveness performance the independent SolarWinds transformation we of recognition an the database to technologies applications the our structured In important large for well Fourth, which is critically performance greater performance need second deployment on the managing and of in a to of SolarWinds digital native the CIOs

that observability And focused capabilities are resulted subscription database are has the during businesses finally, our and leveraging are the wave. rates IT renewal We which infrastructure to economic net run retention that strong period. performing in our to management our this are products ensure required, ability at that application rate today's critical and stable maintenance the to on levels difficult rise customers'

of a strategic relates to Now as more to I it SolarWinds. conversation the future move want to

that we As team the considering XX have business serve. on of have growth Managed last last their MSP different future over of business spent the the are we strong creation optimal in the Service built subscription Bart in business, value maturity we believe rapidly a a for will years of at on the market And they the inside that the over Provider approach SolarWinds, outlook several in each which management large curve of believe the $XXX Directors, points We last created two been and have We and that revenue that provided. management and and year SaaS our businesses and we XXXX the years, entered seven we XXXX. growing just Board which have structure based in million IT for the success, markets core the building. months our growth business,

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market services infrastructures. maturity, with a However, higher MSPs is manage we includes: of to should the MSP of addressable of technology-based which of that end market, number early customers' continued is their internally-developed drivers the stages parts of several to their are using total growth that expansion MSPs market in in There the manage of deeper customers' digital IT medium-sized them number MSP's SolarWinds broader complexity businesses founded a devices to transformation; a level MSP customers; that provide their the the than expansion upon for business, IT environment, that result application to future driven many still the solutions has our security growth in small in MSPs an this rate even foundation and and as believe number some an and of of businesses. these help estimates, turning its by been infrastructure managed still of market current for increasing protection the and for which XX the The need core was over years ago. to management company increase small be businesses; of of IT need

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SolarWinds in humbling. for trade not great placed in is else trust take people way the very the accomplished, we still I've I of, to to the my you have Thank to time. are consistently The people do about commitment always As been and for a its a take other company where proud we call stakeholders you at do you passionate to and that, wonderful listening will to that I'm you've unafraid lead What you're making you great I have and passionate, stay about best in we investors level anything a you I'm all tell care today, all to SolarWinds be me quite software. can To to know call would whatever is I With as be Solarians, this aggressive day done my company, exhibited and And are created and I not that in to long for me XX for the together company, know, and that power committed communities we The opportunity of have you and truly transition. group years. the this ensure in that the be leadership build the we'll front seamless of this located the confident questions. will I time yet, for us, world. the it SolarWinds the of have you opportunity extremely with the a risk. open you passion last story want best stay experience. honored who have of for let up while

Operator

[Operator the comes Brad of question Credit with first Instructions] from Zelnick And your line Suisse.

Brad Zelnick

exciting with Great. you've and are today the is on at Thank the it's see value creation. so Board questions. the really very good And taking team us time. the management news shared same shareholder my you Kevin, that much surprising and both focused for to

the required key this potential are the what MSP outline just that reached this As we a by points I process think And decision you which spin-off are the of what in for at us disclose process threshold about of left to to here? imagine Can point? everybody. you've you're the remains this business, legally

Kevin Thompson

need to really them Ultimately, create that but two report because begin larger small number the into information that businesses is greater management relatively a how little understand unit to these the business us shareholder very great the it's for of people created is two members to constraints disclosed is business actually operationally involve and really bit of we one run expanded small will in taking my market beyond should would that The second it management off. still unit, IT have we business split Luckily, are giving we're me. a on and the today. leak there believe because business. format it team. ensure of early a to really, this a is But reality the a than do we're a we we of work to A have the we level very of in IT the that lot exploration to There's any Brad, there's Core of really believe today process. it in we them So that whole is of apart. the been today business MSP people like MSP lot group moment value, faster both businesses number business business is to can do create work that unit. these freedom, of of involved a this directly lot looks exactly core do The We we've so of of optimize level out about and the grow market growing a can we the determine far. we're we genesis reason the opportunity work right circle will got but disclosed of to value. early. We've what the because we've taking to performance

about potential to thing was have the really We to do. of of management our And opportunity. our a convincing this excited very is this Board time explore the it right drivers team put the spent transaction. decision been So we

to it you disclosing we can can fast try work is know, to as and always And we so have it, a to as not we're keep as hard so which, do. secret,

Brad Zelnick

describe And Rule Rule you're sense. a but... going as companies. XXX, of two add know of I to XX I it. XX That to the that doesn't of you get makes perfect company it, up Rule from

Kevin Thompson

do How can That's people that? really I should. got two. It many one.

Brad Zelnick

marketing, if But dissynergies, how And think might it? to in you the how in shared to Kevin, which G&A but products, about us -- shared remind should even down can terms of you extent numbers functions? process, even R&D, early know you to just we shared the that put have I we it's some could

Kevin Thompson

Yes.

perspective, legal, So a aligned bit put function. where we broad strokes, marketing and R&D go-to-market of can't business those little got we've operating an side, or the I brought a shared use into costs different IT, to we've from a functions have we shared really the where to built units. numbers are DevOps, business it, search specifically corporate have but lot to, a to you a in Where charged if finance, -- on expertise word,

MSP move the of into on shared to side of team those some members services that definitely the business. those we'll So and business, have

into a as can I the we core up business, grow, high in but level with will we're IT contribution We growth. at Some also it business. a term. management little will drop as business is we confident move a That of can they over a that XX% And members get different there. end really David's those above run of team think pretty want to rate today. longer invest the bit more investment, at in business said,

But how been core I wait disrupt until then and wait in wait until spend definitely So commoditize well little into does over we've until why are incredibly we business mature those the more really in MSP markets by which disrupt, to side to markets, fact, else business. understood, that than to technology. too ability better that IT and this last markets want they do little don't several a allowing the built big, and well, a market we do we go will be is really we which knows management years, do move on money, earlier in and kind early, they're business and everyone invest the of anyone we've well, will what and will is we do it incredibly give us think the to what patient think what optimizing

Brad Zelnick

Fantastic. much Thank so you Kevin.

Kevin Thompson

Brad. you, Thank

Operator

Your with next from line Morgan Singh comes the question Stanley. of Sanjit

Melissa Dunn

is question. this taking Melissa Dunn for Sanjit. the Hi, for on Thanks

today? how year? piece signs So subscription big revenue that it relates trending get of piece, how piece is over if And ramping? color more how little been seen hoping business. little hoping the you've as that, the Within the get on more management to to the And is it's that of a a last cloud to any

Kevin Thompson

Yes.

we about talked the haven't simply So cloud size the management of business.

that core IT management couple And have subscription core core management portfolio Orion subscription. our of business. we we numbers subscription sell cloud have subscription. business, a which have will the to in have product is MSP that IT a performance we call business of as our revenue think the sell I And management, approach revenue in the we're $XXX inside today, shared management we ITSM, database believe we on of million beginning we XXXX. of The we rest is part our

our when application those -- the an story. you the take management infrastructure comprises go-forward what rest those are From we management, ITSM of revenue that is that growing product part has. of product, important management the management, cloud products performance all you company have, when the perspective, products management take service, log via that subscription are So delivered nicely, database the a of that

while into is and times of I've Brad's which question, that some category products I fit of of kind said was early little answering Some many markets, in that that those those publicly. I a mentioned we're

are if enterprise I with big we will while advantage of to where attack more we to we how in beginning in transaction, them us allow vendor displacing we're -- how with software, and markets hybrid for be it around to think was the and opportunity potential on-premise. believe IT environments. it still We spin-off the consolidate mature, deals, number of management pros this see see large have we effective, absolutely large best allow to those IT that move deployment win take which of forward the competitors older and a we on-premise some in we

our So will be. focus that's where

Kevin Thompson

Helpful. Thank Okay. you.

Operator

ISI. next Your Evercore line the from comes question Materne with Kirk of

Kirk Materne

know on congrats And going much. you're a anywhere, I not great very but run. Kevin, Thanks

I I from headed there when remember Raleigh. you think first down

on congrats long time. So a -- been it's

Meaning, that. after explain could again, of as if sort and So I'd anywhere, of When perspective? are I going do business but I towards business? you're new that, a going trying clients things a mentioned your bit that you're the IT do talk having kind better religion think that. there of a of some you knowing model, sort of which about you there can functions not thought sort displace -- you congrats. know sort could say -- optimizing discounting You was from go-to-market you competitors, are on curious around you little more go-to-market standalone things that to

on effectively you can today? more way curious, would you're of a little bit it how discounting? sort those installed little be of do that more a there Is to a kind on detail bit just into accounts maybe doing more than base So Just helpful. get

Kevin Thompson

Sure.

first running. this just have management focus to down forward, that, it really core to IT large going level business a right. put, assuming able perspective, particular comes it global on transaction moves business, units be down able we're you multiple to -- of you will focus be business from kind the of comes to run So When to that you're that

clear. and making it's of management matter a You're to a priority, core this on across have and business number business, that The decisions priority business. very, larger constantly not IT one very sharing a grow decisions will resources make will those

and a a what the can with we we in From as set. we broad we largest would get. that's one So mentioned commercial we technology in go-to-market really large having number history financial the a institution very second the are have do, seeing perspective, deal global quarter. an closed we're example advantage success. And of We our

market not and higher broad. really than lot on-premise believe as they environments hybrid customers because are in that customers modern. in and we're a and of ours lot the today. companies taking respond. pricing not we It's customers to technology beginning out environment success competitors away to as manage of but It's also Their technology There's competitors, our the our better much than those are there of and our really see some from more deep, a anybody have of can't competitors is as is ours. not We

on because we we believe we a for with approach We're focus wish. style competitors. a do a now sell will, can you displace anyone style never SolarWinds and opportunity focus the how what We're on SolarWinds it a but doing in is go thing don't without approach that dedicated you So create create else, it's those doing and is like And not specific good that it opportunity. we already.

to is doing last some the in IT well, I less of focus to but I do the we market won little focus opportunities? down said, may to them. I'm mature strong our just we've will get do it know markets patient be One and where get saying have to can us a us those understand all the that's focus, we that, been the us, past. can can displacement like and get some We us markets versus like will the our us allow also be we the enough you on do we patient those do. to. displacement couple some comes size because we our When the opportunities This train sales reps When it's to not to what CIOs How it those of you we We depth really deals to can you where maybe potential win those where breadth of have have that's a on forward. one this patient, that conversations come that allowing incredibly you allows think see -- competing. I those out in and more go about we'll newer focus thing, position to things allows years in very, to we well. little of the how messaging today. some think aggressively and over what growth the we're until of not won't. do markets the capabilities of be focus that of to But move transaction markets, we'll well, been we technologies the opportunity have able rid you to very identify that in It figured okay, split a trying

Kirk Materne

Okay. you And given was if I good, June do It's today's solid back follow-up you guys little more just How It that a going pipeline and half could, the sort environment. actually. mentioned question, and quarter, July. was had around of bit like as you things one the Last you into in of head quarter the sounds year? everything that visibility just on. got feel better a

Thanks. of Just some any kind ability just of qualitative pros? IT thoughts sort on the the environment, purchasing of especially around from

Kevin Thompson

is were see We see better, stability. bad level a visibility. needed could the we and quarter of us because waiting that level. call allows to be first have That's back some okay stable on Yes. just at What stable to need what is see to to we said didn't we

think albeit challenges even of June, we we year, activity were I So that pros improvement, a just lower in than a see was of saw to based at April, their this January happen or was the volatility, half we levels. is approval beginning to on in of improvement were back real the to not stabilization, they mentioned technology on Trends are obviously, on to didn't of improved. early some like. in what given to because that really process another. that year, know level day of lot March, that starting May, of still level how some visibility May, their believe year but where what changing looks I They're see us QX that kind close have the has is QX we them this April, of year, what companies saw last we one one feel of

of stuck thing The understand fully good they got is process in the didn't now understand. approval they levels that. Additional

kind going what kind So of a on know when side approval to take, other of improved knows frame be. what the going of engage our conversation, has level loop in -- is we buyer They the their is what to it's what which visibility. time

than So I think improving, it it's for and it's better was April, March in sure.

economy But confident we in We I continue to think very July very, has where better in I that outstanding I unless from an the QX. over of we right of March a of tremendous Kind don't are quarter of open expect to be of a better we way a third to quarter been profit a to quarter, level be are where of very quarter. improvement amounts we profitability. ability so QX happens be them obviously in fourth June, had level going QX, And be. and we global long broader part drive the of fourth going the while that high our to and over kind very, small improvement than think the now. drive all May. will rest than the and something quarter, want growth see in this they're get

Kirk Materne

Thank you, Kevin.

Kevin Thompson

Kirk. Thanks

Operator

comes question of with from next Sterling the line Auty Your JPMorgan.

Sterling Auty

if MSP the going is supports calls, Or still But something is that Hi some with gone ask businesses? any over. you that technology the that between I'm apologize sort distinct some licensing of there spin-out so go that to could both I with of products potential or be end you've I that guys. chance with cross bouncing there Thanks. spin-out? already up

Kevin Thompson

most or certainly, So to dedicated business of are other. the products the one

IT are So and government used our just the sold core products corporate really IT buyers. and management into

very -- -- use to that level been platform be the a to so MSP the specifically designed a sold got market providing meter On specific they've another MSP to very of able for service MSPs product is need in they've they word, of because versus be side, need it way. build needs in can customer, technology to use a to based much on They customer usage. one how

relatively revenue So inside. amounts reposition have different. similar. very that do of repackage, And are that the meaningfully capabilities products a couple of we it are small and kind we of product sell are The platforms

So we much. have not a little bit very of but that,

Sterling Auty

customers. through experiencing put Okay. terms little slowing that on there just follow-up, was growth on of we August? And July you environment. that of think that some little what about in Datadog bit being the -- And has cloud you the of were one saying Is return to talked well from that expansion of in in of this expansion and a And just just a heard pause? started beginning from as then pressure I net bit maybe

Kevin Thompson

Yes.

two the that I'll really, the of So in kind about sides talk of business.

side the June is saw of we MSP reduce So and on May business, that number of kind the the devices. what our in MSPs of

So and keep for be May in my the I and down of me customers' heart of reduced April any of elements, number managing for number they reduced didn't endpoints bill -- devices devices manage endpoints. keep ones those Hey, Because take to revenue bit, have small They business my and of critical little but we'll and far were may I They that number And them They everything endpoints. beating. think a number customers. the being And They many then network closed managing just businesses, they August manage again. the need their of those we've environments. is counts able open, start we're the their so think seen to say, back didn't what were seeing when stay then open. I end again. get Why? customers, those July in really to to to and into that grow lose the device were absolutely continue to

are Again, the MSPs we their infrastructure. of now back managing bigger adding year. a think back. customers' the move half those So through They're devices beginning or of the as percentage continue will that we

translated a then into spending, core saw for processes, of time take we a lot second always quarter. the saw saw you approval business, transaction lengthening process the closed that in the time. a quarter. deal big a side more of period before longer business of if get much lot lot a approved. transactions management the the definitely a really cycle IT -- closed of didn't would second conversation, We which will, great We in of transactions, process longer On stringent, We're volume the of a drop selling of

the Some of that level. was small business at

see rest back I the the of year. we move as come some through of that think we'll volume

continue strong, but see year. don't we'll to our be think ASPs going this back think it's I all I to come

least partially going looking is at it's open kind are of ball how businesses many fully and at and I take on what open. the into to how next performing performing think crystal versus economy based are businesses year, I have and how

Sterling Auty

Thank you. sense. Makes

Kevin Thompson

Sterling. Thanks

Howard Ma

time more we two for questions. have Operator,

Operator

Okay.

Securities. question Erik of with line from next JMP Your the Suppiger

Erik Suppiger

it's -- with And you're I working around, I Yes. great been the heard spin-out. sticking been timing Kevin, I about but congratulations. you. think One, don't you've for know the

any go that. have time And MSP ahead -- You okay, frame? business rough then the with

Kevin Thompson

Yes.

to good before the going can happen. On the and spin-off, a still bit it's a away potentially from make decision final we're pretty to we point getting

in days. XXX it's next made to decision happen. XX move the spin-out first actually the be is the be So decided could the going we of If half before to forward, year in next to to

Erik Suppiger

revenue. the cost the the be think them? proportion -- million billion then out Or business in $XXX about And it's it, the call how in Would revenues? to would the MSP $X of split between we headcount of, Okay. two of structure

Kevin Thompson

Yes.

profitable average, very call, definitely but So business meaningfully corporate above as the it's not management business. last our core I it's little than the technologies of word profitability the It's several for customer on IT MSP MSP our level our obviously little a touch runs years very last kind at running more business because Also, for below as a a XX set SaaS profitable to that from of MSPs headcount management IT of revenue percentage success and core years is support mentioned profitable. very, business average. require the business, math. the the personal a of is at a it just more a complicated a But builds. corporate little perspective. use it's got

percentage bigger little that's than the So of headcount is as business global where business. the a a

Erik Suppiger

Okay. Thank Very you. good.

Kevin Thompson

Last you. Thank question.

Operator

Your with line America. Rangan last question of of Bank from comes Kash the

Unidentified Analyst

Jacqueline This for Kash. is on actually

that the into now? in about the initiatives be what can Like have bit place And are some what more you MSP that First, a can detail spin-off? constraints business you the new talk are of put post-spin-off?

Kevin Thompson

Yes.

really were business. a that it allocating to to that the there's business not conversation They a and also We level. the demanded of that from comes to order of constraint global separate growth a target a part a to of global get unit. perspective, investment level more profitability this. company, do target down that let target, that And from focused level In profit they'll are to at on hey, we MSP profit to to profit So really set says, consolidated I want will business that as be a drop. able invest have being be a

set means to It able part on Who size those of their of Another else. in priority, wants they'll able decisions requires make gets prioritization based own, be done those more based do business resources. of get to opportunity, the to a time. need, on something on of shorter be the window on critical they'll same which based resources

more we're acquire to need terms of there's order that a deliver them. can them of we initiatives, great the to is of number not MSPs or services to to In to we services, one some deliver we we today. of the technology-based things them build in delivering need believe And

more have believe of we're get can market the don't will building revenue which basis, bring development to partner one. that from through brand-new to getting side, new we on We So service, combination in us stream we new getting annual We so our that that. products that's add a buy on partners. really and to we're investing to OEM and MSP increase We the think more a allow an new technology just partner.

level revenue about $X size of take M&A, effort. do get the the could other might it because the priority I would business of. opportunities is relatively small The $XX of mentioned not million number XX% thing or that of those really small XX% adds it a advantage to revenue to or there they make SolarWinds a there But to technology are business whether MSP revenue, to million we -- of sense those acquisition acquisition whether that consolidated opportunities, of because comes are only any terms level a lot requires acquisition, integration that it's effort. as it's And think when in

and when revenue so maybe for in But don't should revenue, a $XX even time you you're can stream. And that and strategic million almost that. million $XXX if business and you $X buying spend technology million billion $X is company, absolutely that's million doing do $X revenue

another constraint that's them. So we've had on

across There as of portfolio. interesting is global our that advantage product we products, that about able to because and the business, sense sure consolidated do business it a our separate advantage that pricing sure in is our are think take able synergy business. not be options more makes other because ways of take are we pricing The a taking importantly, try to both we may make stand-alone and packaging market been between to there's -- to make but

are a that understand. I but There more ones think the the those are easiest those few. to So probably are are

do have attending quarter. to we and next that, talk up we'll appreciate with we questions. you to everyone wrap So the call. for And the will And operator,

Operator

gentlemen, participating. concludes Thank today's and this conference for call. Ladies you

now disconnect. may You

SolarWinds (SWI) 8 Aug 202020 Q2 Earnings call transcript