SWI - Earnings call 4 2023 | SolarWinds Corporation

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Operator

Good morning. My name is Jeannie, and I will be your operator today. [Operator Instructions] I would now like to turn the call over to Tim Karaca, Group Vice President of Finance. Mr. Karaca, you may begin your comments.

Tim Karaca

you. Thank and SolarWinds everyone, Earnings Quarter to Call. welcome morning, Fourth the XXXX Good are President Ramakrishna, Bart me Sudhakar With today our CFO. Kalsu, and our and CEO;

Following Relations website question-and-answer investors.solarwinds.com. have being we webcast at our call simultaneously Investor This is a our on prepared remarks, session. will

deck, outlook, remarks statements also can during Please that statements. our certain slide evolution such today's during earnings opportunities, intended a this to and of including the press call. regarding You those retention, is forward-looking subscription-first timing release financial customer supplement our are expectations made call market our summer find concerning which and our evolution. of prepared remember our our to the continued phases mentality

as These except and of and economic by law. our based to uncertainties, Our assumptions, today's environment we on Investor the highlighted the gross Copies the our on geopolitical and SEC numerous available and expectations filings the These no our the undertake global current are subject ecosystem risks website. of regarding and on statements business, SEC. partner earnings of -- statements and in level with duty required Relations debt. to enforcement information are this available impact update uncertainties and risks number from our including information a release our are action,

to specified We will referring discuss measures. refer financial we when otherwise financial today's financial to we measures unless various be non-GAAP non-GAAP call, measures will on

and deck A the discussed and today's in of on GAAP page press our available reconciliation definition of summary non-GAAP website. on the of call differences financial slide metrics Relations between release other and Investor our measures are financial earnings

call release in and the only report be will discussed the XX-K. and call on annual are by turn our that, Sudhakar. final Form final external we results review will financial our that on we over now once our and to and us Finally, file With preliminary auditors today's pending note I earnings

Sudhakar Ramakrishna

off to in you're XXXX. hope I Tim. a start you, Thank great

a As to like guidance on customers. to our only employees, built XXXX. strong momentum business that resiliency thank ongoing and metrics our model, across commitment I'm customers, of performance our throughout SolarWinds. to again demonstrate another believe key always, all report We partners the their to finishing exceeding once delivered I'd adding to pleased we and the continues high quarter, deliver shareholders for the compelling we the but year our to note not our value also we

this Now turning to highlights business quarter. from

ARR revenue subscription demonstrating the growth our continued strong and subscription-first First, overall strategy. success of

our of adoption and solution. observability growth continued Second,

a foundation solutions SaaS enhancements for and simplicity as in customer to fuels across priority strong on so consolidate retention, continues visibility, be and our can customers Fourth, ours experience that was critical hybrid XXXX. of tools significant our productivity multi-cloud self-hosted innovation platform, which Third, we environments. the cost-effective delivered it SolarWinds and

continued adjusted the detail fourth will will growth I another now of turning discuss over who EBIT before our Rule QX In high year-over-year on performance rate in our the growth of above total provided and quarter, financial XXXX. we we for of XXXX, a X%. quarter XX. of provide financial Finally, highlights the representing million $XXX and of Bart, our range quarter the financial and more XXXX achieving some to of saw outlook revenue call the end

XX%. of quarter, growth XX% of of and the in fourth subscription the ARR success revenue we strategy, With subscription delivered ongoing subscription-first our growth

above XX% range EBITDA year-over-year. fourth million, delivered quarter representing the and $XX end We the growth of of provided adjusted we high of

continued execution and of of of delivered And the XX% total renewal XXXX. with platform an and maintenance strategy. XX% rate quarter we our third the of from the XX-month renewal growth as at was in-quarter fourth of our rate subscription-first quarter trailing ARR maintenance increase XX%, the as fourth year-end Our quarter was X% XX% and end year-over-year year-end

to the most infrastructure, the solutions across comprehensive product full AI-powered applications SolarWinds networks, stack portfolio. in observability provides that industry Shifting our and believe We databases.

and Our their multifaceted service in product increasingly portfolio business offers customers cloud across hybrid on-premises, management multi-cloud transformation accelerate to enabling environment, performance database observability, an and world. solutions

observability, evolve customers our performance our and database cost continue We value, extend to to continuing conversion increased detect help our reduce enjoying scroll solutions. retention to that critical to and capabilities that deliver to customers' issues, and complexity by productivity. and rapidly time cloud remediate observability we are management, We contributes increased teams believe Across and increased as and rates eliminating help value of hybrid improve service the and customer SolarWinds capabilities. are management

solutions spectrum believe flexibility. transformation broad customers We business deployment our enables accelerate our most of SaaS with self-hosted to effectively their to

in include, applications. we into a database scalability enhancements visibility delivers that increase new SolarWinds and the of offering recent observability, performance, Some efficiency November, to databases announced digital and comprehensive services

application reinvent customers addition open XXXX, as and observability observability our cloud-enabled no multi-cloud solution, our capabilities. as problems accelerate to and and enhancements the journeys capabilities, we time application observability At environment. AWS, with the SaaS of unveiled including Combined well source we customers' to helping their in support OpenTelemetry cloud delivered can latest intelligence Kubernetes reduce for their database new detect SQL

device provide our We for support to enhance self-hosted customers. solutions continue increased our to observability new with coverage

visibility. of our and of solutions, notably series gain to the this just power network transformative AI-powered across and evolve had our to announced network our to to pleased cloud infrastructure observability our solutions continue and several that customers share most observability enhancements hybrid I'm week, SaaS-based offerings. solutions infrastructure leverage that proven we also We cloud

ever-changing all more fabric. cloud our secure network developed visibility the of virtual threat design, infrastructure as address to Wednesday, cloud containers hypervisors, by invite and infrastructure across development now and for learn machines, we design is devices, at We standard our a of Building and by SolarWinds how service resources. you about initiative all networks to facets a upon organization's landscape our networking on-premises offerings the and Day complete latest innovations is our and Layered on heritage, security. on-premises February including our part through to illustrate XX. our software offer secured We secure security next

security initiative for only for new development. not enhanced industry also safety secure but advances cyber delivers our SolarWinds standard customers, a our establishes believe for We and at software and large for our

ecosystem. to Turning partner now our

quarters, a us me As our including system global go-to-market in discuss you've motions and customers to hyperscalers in our scalable, for heard cost-effective expanding recent partners, our help reach important Integrators increasingly and and can efficient manner. are expand

enhancements velocity and updates our for partners opportunities program the and new for their achieve inside these greater designed of and to go-to-market our provide channel -- we with revenue building for model which partners, channel In announced SolarWinds and our these flexibility ITSM motions. is improvements foundation upon to we and are sales August options to partner XXXX, for growth accelerate additional product. database specialized targets, offering The

forward their exciting XXXX, We to sharing Summit with look force I we business our including partners Summit EMEA that our planned plans. I XXXX our further Summit partners Bali will continue our in are APJ for believe partner transform and transformation. our multiplier customers accelerate in that meeting and Miami. to together, several can help events summit in boost and our Lisbon, Americas our

dimensions, multiple and strong I'll provide recap. XXXX was year a a quick across

to subscription our revenue with increase is customers our is foundation subscription drove consume in ARR even First, consistent businesses, an we seen margin an expansion adoption base this in across and our strong for subscription which our efforts. want how that provides and more We growth our revenue successfully solid products our believe and results.

growth and environment costs investing our improving Second, challenging as a selectively, XXXX. in margins while we managing our EBITDA macro demonstrated year-over-year rigorous by expense reflected in discipline adjusted in operating XX%

Third, greater on by improved XX% a AI-powered and expanding our renewal success innovation agenda fourth, to customer extending of solutions our to value enhancing we trailing customers. and the bring delivered retention and basis. on prioritize our our XX-month And ecosystem capabilities our we continue to while rate successfully also even maintenance to

It we I to and a a over of business years. outlook. transformational and on across built all provide that, year of the direct successful result last to is Bart aspects With Bart? our my efforts our XXXX will on focus that performance turn over strategy it our that's strong expand full X our a financial belief foundation

J. Kalsu

for was the year that started over joining on of investments the Thanks, XXXX returns everyone we many Sudhakar, to past successful us. made see have for and thanks we to as us few a years.

revenue across We or margin our improved ARR. have subscription all grown as were was to the our area and another beat back is we And and adjusted we X, guidance in million EBITDA focus of with first our acceleration significant quarter subscription in The fourth metrics. the by total consistent revenue $XX XX% year-over-year. and Margins us, adjusted key for mid-XXs. EBITDA

in proud XXXX. financial of the We delivered we are results

made and predictable We recurring have double-digit improving delivered substantial leverage in adjusted growth of profile. our mix revenue, progress increased EBITDA the

total the a high last and increase revenue total fourth to $XXX above above of year million We provided at full quarter. numbers. the prior the $XXX with end we million, of $XXX.X that end outlook we of Turning high to year. above revenue end a finished million, of On the range for of finished year the of of outlook X% the $XXX that and the quarter start high million the to basis, revenue million the total at $XXX $XXX provided well of million compared

We X% total million, $XXX ARR ended of fourth up with quarter the year-over-year.

be increase of the of the by This XX% at execution driven our strategy. million, Our continues fourth subscription year-over-year. subscription-first $XXX the growth end to ARR was an of quarter

XX, We over with months. of was customers, December the prior have number more have a historically the X% which XXX year. past than increase spent us $XXX,XXX That provided was number over of who XX as the

$XXX,XXX. repeatability annual of and customers or annual revenue will from quality is Moving transition, our customers believe business. providing now of who better metric of recurring than into We provides ARR, indicator the forward, insight that the subscription instead of the a revenue, be the greater recurring of health the have since business, ARR and that with of we total consistent number

of an $XXX subscription full subscription The details, compared year-over-year of year. We total revenue was success roughly subscription the revenue XXX $XXX,XXX fourth prior with growth of our revenue XX% subscription-first quarter Maintenance $XX ARR, million XX% the the in the fourth into quarter, had in over Digging prior the million, million, flat strategy. year-over-year. over representing to a our was increase year. revenue revenue of reflects increase $XXX customers XX% with year up

revenue maintenance was up million, X% $XXX year-over-year. year Full

as previously our we revenue, subscription-first discussed, As to do expect so have will of impacted has transition. the it maintenance continue of our that a subscriptions conversion customers we to continue maintenance we and portion

a XX% Our customer value in in maintenance and XXXX the and of rate our the was quarter. for our renewal to the on XX% is was base fourth basis a our trailing loyalty renewal XX-month testament The rate improvement of solutions.

As we to exclude those customers we subscription, from this maintenance renewal calculation. customers convert rate

subscription rates, revenue the of growth and result revenue recurring renewal as As have total XX% strong now of a our maintenance we revenue.

quarter, fourth the million, the $XX And For million revenue year million, full XX% quarter $XX license down from year-over-year. revenue license down XX% was of $XX was XXXX. fourth in

As sales. continue a reminder, affected to and focus will subscription-first our affect our license has

Fourth million for XX% to in EBITDA was delivered million profitability. end year, million, of $X.X the an in last million Our and $XXX adjusted $XXX the growing million margin was XX% XX% prior non-GAAP adjusted above quarter focus the from guidance $XX.X and EBITDA $XXX.X quarter quarter. XX% Full we we strong on discipline quarter. million adjusted outlook coming adjusted EBITDA margin EBITDA to gave high coming million representing another gave representing of operating of above million, $X.X an year-over-year, year the $XX of $XX.X growing the

subscription quarters, As driving business disciplined across while allocation, focusing in discussed operational efficiencies in we're on we've broader focused transition. capital our our growth our and on prior management expense

for we half expense the Given operating year. outlook took our on the ongoing our part as in XXXX, margins of to the macro structure focus uncertain optimize of improving measures first

restructuring resulted with of measures primarily of charges, certain associated related in XXXX, reductions. to headcount million for $XX these lease During and $XX impairments costs office locations million

ahead, will cost to disciplined environment in closely our selectively manner. Looking we continue hire a and plan manage the to and we monitor

balance our our improved XXXX. position to We Turning leverage significantly sheet. in

approximately was of end year. the months XX This X.Xx December our at adjusted trailing at XX compares to ratio X.Xx, leverage net Our EBITDA. last

SOFR In rate plus term loan, addition, XXXX, the refinanced interest XXX, to latest in decreasing rate advantage January by SOFR of the interest of plus XX points from environment. we XXX taking our basis

flow million in XXXX. generate to with in flow strong cash from cash $XXX continue operations We

under equivalents $X cash was $XXX our balance and short-term to net bringing cash investment year-end, at Our debt million and billion.

Sudhakar Our for before capital our give will ability cash as to cash outlook over fund moving growth as well flow through you to final and positive it turning future allocation flexibility now position walk the us forward. alternatives thoughts. on I

I will start and year. outlook with full for our first then discuss our quarter guidance the

range X% $XXX per revenue expect an million the approximately of diluted million, diluted to estimated For share in expected X% $XXX quarter growth the midpoint. to share, at growth first shares to the midpoint. assuming total be representing $X.XX $XX.X be are to fully Adjusted earnings to $XX.X million, for the XXX.X the million we is EBITDA per be quarter, outstanding. projected representing fully to million at Non-GAAP $X.XX first

outlook And quarter. and a assumes first the finally, pay million XX%, we non-GAAP cash the rate for expect during in quarter $XX our to taxes tax approximately first of

representing the expected to of X% midpoint. Adjusted growth in $XXX $XXX to be For year-over-year we year approximately range million at for year-over-year full million the million, midpoint. be $XXX revenue representing million, the at the year, total to expect the is growth EBITDA $XXX to X%

per per earnings share million diluted shares estimated an diluted assuming XXX.X to projected to are be share, $X.XX outstanding. $X fully fully Non-GAAP

and of call first assumes Sudhakar his euro a rate I'll that, remarks. X.XX:X. quarter exchange year closing for to full to return With guidance dollar Our the

Sudhakar Ramakrishna

Thank you, Bart.

challenges budgets with combined respective our product become As our shared you heels the remain strong more Bart address reflects the complex, of increasing this can relevance of performance in macro broad in EBITDA represents they innovate. belief offerings, on line environments and constrained, Customer a growth adjusted and of of to our businesses. and environment. the our top growth. see, the to ability their as coming Equally, their This continuation of especially XXXX opportunities execute continue array outlook

and opportunity simpler seriously, are looking to are business, our We deliver We security them to ready disciplined to to cloud transform to are the enhancing consolidate seeking pace to procure fatigue, while very and while solutions to while and excited effective to about take while all customer ideally alert success deliver improve obligation that use being of at productivity. we ahead. cost the our reducing their Customers solutions believe suited these help customers.

and success Looking extend to on and effective to customers, more subscription ARR and to seek platform hybrid flow to SolarWinds build environments and profitability, selectively value continue invest to growth, multi-cloud expense our and and help profitability retention, deliver XXXX, shareholders. cash our we will customer expand and continuing exercise their creating solutions, while for discipline focus manage growing

Again, to control. as cap strong teams of our employees, as I focused I'm SolarWinds. commitment shareholders ever pleased Although on our many in of with the fourth quarter, unknowns their around commitment to the confident help we the persist and things business. customers' partners, us the XXXX team's our a direction could we and can thank all our not success. prouder macro customers remain environment to I work I'm for with have be done

now happy are I and to your address Bart questions.

Operator

the Baird. line Oliver Your with Instructions] [Operator question first from of comes Rob

Robert Oliver

There's And I the X.X% divergence guys you year. Sudhakar success move between of contextualize line the to had what rate seeing guide. you the guided just the you, X. for And I QX for top sale, just better some to color fairly the first a given -- around And platform wanted have want this 'XX? then subscription in the for exit could that follow-up. Bart. I and growth had are quick guidance the and a of ask guys to and full a be bit more or for XXXX for significant

Sudhakar Ramakrishna

Rob.

are doing you hope I all, of First wonderful.

Bart Let to context has that around XXXX I'll guide, add me he point. the at and put some comments ask any

priorities the you noted, we and as our as XXXX evidenced been well saw have First, plan results. from our you and results, in executing to as our

XXXX. changes to We macro environment are significant the in not anticipating

us have time, our confidence the are that we execute. to But set, customers solution our ability in confident the at same and in the

balanced of a and related things, that our appropriately perform if any including we are forward. goal unforeseen macro the we with conditions and there bunch So perform created it going to guidance, to well continue

J. Kalsu

and in macro. Rob, reiterate, I And the Yes. little still environment a out just there uncertainty of would bit there's

when that consideration. taking And so into we we just to guidance, just want -- set we're

'XX. We changes as patterns, trying buying be we seen any noticeable go prudent. We're haven't to in just into

Robert Oliver

Got it.

about the follow-up here build kind really this on know it's like program, of I partner you you company. of around your my this would that help to later partners have helpful. What Sudhakar, of progress. in traditionally sounds help year. what how to a the changes you've are mentioned a you guys you this events making lot of numbers lot putting X partner see? from business wasn't definitely year? you of trust would the should the That's partners fingerprints or was it -- the a effort with made business partner been kind Can Great. constitute in And that think we the focused. understand Okay. just us network, other parameters, the success? build then with you Like Could And like to with contributions us

Sudhakar Ramakrishna

Rob. Absolutely,

program, have of our we globally. hyperscalers. great leveraging integrators, global and partners partners, will say call resellers traditional system still innings MSPs And speak our early towards While about that talk when we transformation well made the it, are in service with as as distributors, about, cloud strides I partner the and providers I I

us. at holistic there partners all various approach So truly where We have believe results identifying dimensions, we from a new partners opportunities motions fairly closing them. to demand, in levels of We've these we of generating take already are but maturity. extensions and seen to that

while That's operate doing I'm of build that and the together and we will we very effectively. optimistic foundation time, it multiplier, a continue. how truly that force SolarWinds at closely a at So very same can work cost

forward move where is, see going to effects it with you're we especially of the GSIs. the as So of some

accounts force basis that broad of have us not This larger to winning solution-by-solution from a sales and access is It sales to that speculative. gives very and with the GSIs, field, in is is a we significant getting as leverage working a the those well. are enterprise targeted which of cost lot accounts standpoint. expensive large We and on a say

then continue continue to drive And trickles MSPs to resellers, from our solutions that traditional that to down and it drive MSPs and CSPs on on. subscription there, so

see We're financials our I continue financials, you'll down hopefully, really where see any the that's in but to overall Rob. breaking So there, leverage. not that

Operator

comes Matt Markets. question of from RBC the next Capital line Hedberg Your with

Matthew Hedberg

on I kind follow-up XQ results. a also the guess but guidance, the of

really good beat You quarter, had a really strong performance. this

environment the better a You're kind versus bit quarter. budget in Or macro a guess on of saying planned things little level, growth you maybe more XQ for uncertain. XQ? at the did get I strong high remains because this you was particularly But flush was that just

Sudhakar Ramakrishna

a I simply say it focus Matt, would on -- simple our execution. continued was

not So a negative, relates companies. we bigger QX, as to did as most QX. I the seasonally or positive say, see would to any, know, the anomalies you enterprise quarter either is software for it

We are no exception.

effect. nothing, that outside there So did of call that, But the of it, have we unnatural. benefit was

Matthew Hedberg

Got it.

converting at some value. you you conversion, could the higher I'm think on of that then share wondering And dollar any a Okay. on on have a customers said I the higher you've historically, if efforts. metrics maintenance those -- that you're conversion

Sudhakar Ramakrishna

So is also case. to the through as to robust why conversion the that I provide but some have want metrics all stayed XXXX, context

of it a subscription to converting is said I've dollar. not previous maintenance in matter a dollar a As calls, simply

to products or As typically observability point them consolidation. suite. point our doing functionality a of to enables we do a number much access gives it, doing customers as to when greater our product complete are single That it we tool are small from

And So well. deals, is expansion significant conversion. is most plain some there as of it in

blended of So factors, talk when rate conversion a those it's things. X about we

Operator

from next of Your the comes Bora line question Instructions] JPMorgan. Pinjalim [Operator with

Pinjalim Bora

any relation Are our to end. going are And question the assuming what on legal into conversion you there? maintenance What assumed quick is disruption in you in for the assuming proceedings? 'XX. One guide

Sudhakar Ramakrishna

Pinjalim. Thanks,

focus legal teams, operational the that On related say I really the had that, an standpoint. distractions proceedings, of any from we have can thanks to our not to

us is and our our including me, are customers We on And growing managing and all that. of competent that our focus employees able have a to very team and on business.

us. significant in have customers Our trust

sure continue customer rates, even more we single earn retention We around that through. trust It have that lightly, announcements we very and feel after don't continue every my belief some you've our come seen with And facts their in we work and I'm our the as legal to that the rates, to confident will growth in of take day. recent the facts. the is out authorities, come proceedings

Operator

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

Erik Suppiger

there's sales There's there's a those So you your they is the or decision. extended competitors tool because nature. tool making X customer talk cycle things that when demand. growing how anything I'm a that sign a out decision, morning it's more more if demand for acceleration seen along this it's is of in curious an more consolidation And consolidation off the have and complex of lines. about

Sudhakar Ramakrishna

of all, are that Erik, tools. it consolidate customers is to first looking true

the that, fact, say, able of extremely help our fashion. X deployment get is distinguishing other an observability hybrid is customers simplify to cloud consolidation of we're X the relative I value the competitors to simple express In factor, some solutions, to of The in and consolidate. proposition would and the

is Time key and has case of always been to X value SolarWinds. the drivers, for that our

base. one. compete continue have large well. And able low very business customer So to number we win concentration us therefore, have with longer mid-market naturally deals, very sales to that is That's our velocity even larger are of maintain velocity. we we tend enables as Number X to which drive that and cycles as a customer to the

the to it of only deal let's sales cycles. do in, of with in segment we elongated have some not impacting to I are deal see customers deal, But concentrated enterprise and So like our is consequences business? No. the Yes. it not say, But the

Operator

will time. this Sudhakar at Ramakrishna, call now the There back I to remarks. are closing no for over turn further questions

Sudhakar Ramakrishna

SolarWinds. for of again, thanks all you, Thank and your support

towards our forward priorities, an sharing basis. ongoing look strategic execute results our continue on We will to and work to

Operator

call. today's concludes This

You may now disconnect.

SolarWinds (SWI) 8 Feb 242023 Q4 Earnings call transcript