SWI - Earnings call transcript Q2 2024

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Operator

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. [Operator Instructions] I would now like to turn the call over to Tim Karaca, Group Vice President, Finance. Please go ahead.

Tim Karaca

you. Thank and SolarWinds everyone, Earnings Quarter to Call. welcome morning, Second 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

those deck, remarks made also can including during forward-looking remember certain statements slide today's this earnings intended call to statements, and the press call. Please our You is release supplement during are our summary find which concerning our prepared financial and outlook, SEC our the regarding opportunities, of expectations regarding evolution to expectations customer continued ecosystem, our market of enforcement ] retention, action, subscription the phases our to and partner our risks first [ SEC. the gross evolution, mentality environment Investor Copies impact and such today's from our information that update statements our website. the earnings based economic business, except with a in and These and are SEC statements on to filings required geopolitical level the number release, highlighted including subject debt. These currently undertake and the by our our are available on risks information this as uncertainties of Relations are we and assumptions, on of the duty and numerous our of no uncertainties, available global law. timing

of refer summary on Investor definition reconciliation financial our we in earnings discussed today's A of will available on measures deck measures, website. We will to our and metrics differences our the discuss and release call non-GAAP specified, our of financial various non-GAAP and page financial other financial Relations financial press measures. measures to are slide otherwise when be on today's between call. we Unless non-GAAP GAAP referring the

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

Sudhakar Ramakrishna

us Thank good you, and Tim, morning, joining Thank you today. for everyone.

several like As resiliency key on I'm and success model. a to to quarters. I our execution delivered their experienced in for compelling of to positioned strong guidance our the partners momentum across and always, our well strong spending business on SolarWinds. exceeding XXXX. we report building to another demonstrates ongoing last the our believe again that metrics thank deliver quarter, We customers, second pleased software team's the of employees, half once we continued our for I'd performance have shareholders our customer focus value and believe a we and the us challenging environment customers in has commitment

highlights business this quarter. to from turning Now

First, to subscription bear our strong subscription-first and continued experiencing and growth. we ARR revenue fruit, strategy are

our value of platform. our the Second, remained highlighting robust, retention compelling proposition metrics customer

quarter and the high financial the guidance of XXXX, and growth representing remainder total end the QX provided $XXX the on Third, for turning we by traction adoption effectiveness improve driven And solution. some innovation, observability product with fourth, productivity, our touch before of X%. our year-over-year of year. In more these saw the on call delivered range our above of complexity will for cost to of and increasing continued for reduce improve Bart now revenue our customers. I to million, for outlook ongoing over we color we and our focus the of we

delivered subscription-first subscription and year-over-year We XX% growth to in quarter. the see of of ARR growth success strategy with second and revenue continue our subscription XX%

same delivered from of ARR XX% renewal prior in XX%, and and in quarter growth ] total of Our was second renewal quarter with our the last XX-month [ rate trailing quarter and was year. We XX%, second maintenance X% the rate maintenance quarter consistent quarter our We solutions, well as hybrid exceeded the is as of mark passing a million base milestone the maintenance new ARR result the significant total ARR. of conversion the for cloud of our $XXX million ongoing observability total acquisition in year-over-year, customers. $XXX that in up

As point cloud And opportunity year-over-year simplicity Bart XX and reduction, and the we another debt factors of the significant for I Rule driving of XX% represents incremental key achieving recorded quarter future refinanced that which adjusted shared modernization growth and our with in and further. highlight will another believe are XX. tools us. last double-digit consolidation, we July, quarter, finally, extended rate basis We of of EBITDA

product Turning our portfolio. to

most believe We time hybrid in database customers. to service issues best accelerate that on-premises, to and continue are remediate and the environments. the now observability, their updates of value, to some to cloud enabling costs, We that help aimed multifaceted them diverse needs believe and customers at product the that will reduce transformation. I the offerings and deliver and our while comprehensive are business solution to across changing our time industry provide management solutions time our and detect performance

on-premises HCO We solution. visibility cloud customers for performance analyzers, maximize enhance our cloud observability to We giving support continue enterprises for to our and expand performance to continue customers' and our footprint of enhanced their reducing consolidate solutions, gaps costs. Hybrid while strive eliminate them and enhanced migration opportunity is tools in node a support across their the of improving Azure databases and environments. and cornerstone to and further. device our helping the help our PostgreSQL We productivity their environments their in and observability us to database AWS

a while touch how our assess detect in existing and described also map and This that and determine alert that is business highlight can our extensions their ITSM issues, practices. as are that'll The solution. I'll to further our root on to AI a to designed tool desk form to reduce our reduce service to we efforts AI experience we well solution solutions these remediate service our free tool for solutions. expand road implement evaluate purpose-built fatigue improving by Design processes improving transform our a ITSM with how further May analysis into algorithms. tools our developing enterprises guiding proprietary and maturity analytics excellence future portfolio. are We in as free packaging or hours to in provides time minutes now full accelerating predictive reducing the announced our give LLM database operations the IT allow us the using will own the of model, customers ITSM observability our for mean our we believe and from breadth framework across of extensions previously to opportunity launched our further operational have days principles by workflows, to and remediation to cause simplify costs. I continue modifications. And leveraged We we AIOps delivery to and

histories, allow Our SolarWinds suggest designed to AI to recommended issues. agent is service responses, real-time for instantly create and resolving summarize desk ticket steps assistant a

and are this since With essential and by have AI by new approach build the nature intelligence, ever extension security is of should trust, we our guide future Secure Like tools and the to lasting and we all which architected evolving are evolving security, in to framework security our productivity. Design, principles, of that XXXX. These establish we accountability and industry AI intelligence. relationship knew That enter of our are Design mind. Secure principles our as built accessibility, a it introduced on an privacy security guided fairness, future navigate with customers simplicity that artificial we artificial AI transparency by Design and and principles was Design the believe carefully we AI why help with and by principles

on to our deliver the the point year, on As we XXXX of we provided we track are halfway year. pass earlier this priorities

to customers hybrid effective extending First, and achieve environments. and help manage our built and SolarWinds platform to visibility hybrid solutions delivering multi-cloud their

to expense and discipline Second, profitability. investing selectively while continuing exercise expanding

and flow, our and retention, shareholders. our and creating growing ARR priorities. success pleased execution profitability Third, against on I'm cash for more customer focusing subscription these with and growth, value

aspects result strong year. made transformational that our and [ is Our continued the the up believe of in set I all second ] for the half we foundation have business, of efforts of success across

Bart's the this I SolarWinds Before Bart, earnings over acknowledge call. want to I that to call turn is last

you provide day on the joined On of to chapter this pursue As we June, month. in next will the his in be gratitude SolarWinds, in great Lewis is our who endeavors. I Chief your of phase be with transformation over With all roles, and joining our technology us Bart is in been journey. today room Bart years later health career experience transforming over behalf expand our from my will this me future to Lewis's I success will companies XXXX announced with heartfelt all Lewis crucial of finance I in in you next wish on outlook. many forward growth. your you financial Officer. and and forward. With the quarter of as performance Financial for much this partner operating month experience XX our and for to has my contributions turn in moving to Bart, closely full want Black, express to welcome looking now and that, to Bart? Bart it year and engaging third I going

J. Kalsu

part predictable has quarter, we CFO. in over the a Thanks, Sudhakar. another second the was be years, and had a the We quarter of over Lewis strong spending the recurring are financial Despite privilege momentum with XX to continuation remainder SolarWinds to hands first. in strong environment, and It past been to growth be great taking and ARR what a of as We XXXX. confident growth. the remain continues the revenue and for the continue IT have mix sustained of challenging in business from see of our goals a delivered we

quarter $XXX.X the with for quarter. We X% we We ARR above to million, of finished $XXX numbers. that last the to million revenue Turning provided the compared $XXX the end X% of of quarter of increase up revenue million, second ended year total the a the outlook and year-over-year. total prior total high with second

driven execution XX% customers an our existing of reflect our We quarter, to customers million, revenue revenue converting of strategy. success revenue at to was year-over-year. The the which $XX portion growth subscription continues XX% of prior X% to convert a $XXX,XXX our quarter over continues down increase Maintenance Our the was decline continue our XX% products. was total our ARR the $XXX the over cloud as subscription representing to compared our subscription-first million year. million, the the in the year-over-year. to strategy, year. Digging expected hybrid with observability product. of subscription includes details, second had in of X,XXX end Such by increase ARR, base subscription-first quarter up prior second into was $XXX our growth be second This subscription we maintenance revenue of to

Our rate from was basis rate renewal we for remind trailing calculation. XX% at you, this is exclude quarter. to and we customers To convert as maintenance the XX% customers subscriptions, XX-month maintenance on renewal a second those

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

revenue in the license $XX the For quarter XX% of second XXXX. million from million, second quarter, down was $XX

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

on strong operating strong of drive discipline delivered we Our quarter results, and another focus to non-GAAP continues profitability.

adjusted the high end in growing quarter an we was XX% adjusted $X.X for above and million Second the million second of margin EBITDA quarter. XX% year-over-year, the million, representing $XX.X EBITDA gave coming of $XX outlook

Turning to our balance sheet.

Our at ratio the plus X.Xx from refinanced loan, interest basis paid to June of X.XX% of in Xx SOFR net adjusted quarter. XX was XXXX, compares first our quarter approximately the was X.XX%. April. In that trailing dividend leverage we increase million and again to XX SOFR the the declared at the to decreasing is of XX-month points special due plus July by in end rate term The our EBITDA. $XXX This first

the addition, business. we we XXXX, February recurring stability showcases maturity believe of nature In extended and which our to the

advantage look reduce attempt further to to for rate we to take continue forward. interest opportunities will as our and of rate move the environment We variable interest

$XX.X cash We X continue cash with operations flow strong in million months ended to flow from June generate XX. the in

at cash $XXX.X equivalents and end balance was cash investment million. Our quarter and short-term

I earnings then to our profitability. I'll Our our before outlook through to and non-GAAP the outlook thoughts. Sudhakar our year. above per start of of share. beat improved you the final over were discuss Most now diluted $X.XX quarter guidance driven it for turning guidance third by with walk will this our for $X.XX per share $X.XX range full is updated

$X and to million pay million projected a in assuming per is $XXX $XX million to third we third are the of share X% fully growth quarter, million, XXX.X the XX%, third the range $XXX share, per the million our to quarter approximately we expect outlook $XX to tax total expected fully be earnings For shares during revenue at to $X.XX representing be X% estimated EBITDA representing diluted diluted be for And outstanding. approximately growth expect to non-GAAP midpoint. midpoint. Non-GAAP for million, quarter. of $X.XX finally, at to Adjusted cash quarter the an rate the assumes taxes in the

For the the million total revenue million, raising the X% full in range midpoint. expect the at and of $XXX growth year, to revenue we are guidance year-over-year $XXX be representing to

We adjusted EBITDA projected $XXX share, approximately the representing be are XXX.X to to midpoint. Non-GAAP $X.XX which are $X.XX outstanding. shares at $XXX earnings also to diluted raising for estimated million, expected per XX% diluted year-over-year fully now our million be growth assuming share million year, is the per an to fully

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

Sudhakar Ramakrishna

team's against results. Secure on our major company January strong focus both I'm yield progress by initiative performance few started Design days Bart. and in objectives execution I the a EBITDA. on and pride joined XXXX. excited delivering our I adjusted ourselves is you, the by another very to about revenue Thank evidenced in quarter our continued after second We first the

to continuous XXth. the focus has his partnerships on Engelmayer our on agreed transparency is it for and July motion SEC's with dismiss largely Our been improvement, in that claims this Judge public-private Thursday, us very order gratifying unwavering. Against backdrop,

to Customers in the demonstrate present received to remain have the on said statement the constantly their continue constrained solutions so continues accelerate have in uniquely adapting cloud qualified our and will public makes and grow, their our opportunity transformation many. needs evidence serve and to and to enriching to on transformation why order, stage effectively for innovation to to deliver customers our cost we continue rapid to of assets. believe customers claim their the environments multi-cloud in their complexity and to we lives in to growth to help evolving meantime, visibility in we where we forward the I'm are we our business and is As ability our are look the focus budgets of work, to remaining from hybrid us inaccurate. In a we to mission confident world our stages that factually support the adapt ever our and next all grateful as achieve manage them. In purpose empower as to value. where compelling customer

goals, and and now Our but team's your address extremely again, EBITDA employees, stated to proud outlook not SolarWinds. Bart also deliver on has success continued for focus questions. helped only to and increase our our revenue thank year. I'm our I customer efforts us beat happy success, partners, our adjusted are financial shareholders the to commitment customer of customers for their and

Operator

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

Pinjalim Bora

and the into we quarter? QX a ask the pipeline overall you quarter. I of there's maybe on in about linearity quarter? the macroenvironment like a Congrats what It talk lot But about getting. to conflicting that quarter? was of going signals you the second good want during the are the the And during kind seems see half? did How

Sudhakar Ramakrishna

any giving which that's very as QX us. maps half the I customer difference delivering them them as that from, extensions for as And year, positive in helping either all to handy question. visibility very in and let's our AI point, or solutions they're the with by via Design and a to you future-proof to large have diversified at well, or deterioration. The come of macro dictate, pace improved From SaaS know, that at progress our cloud very, and value resonating. been they being or very base in there for we transition that road has continue not described, prop the vantage say, customers, this drive meaningful hybrid any our consolidation, significant for first thanks QX Pinjalim, material in

of say terms I would In this. pipeline,

focus continue activities. our We generation to on pipeline

enlisting We with methodologies. help are extending customer while Transform sure discipline expense reach our focused partners familiar our our our Partner partnerships. be I'm continuing been program. are you we've us that on And extend additional to

Pinjalim Bora

of towards Design to AI to do philosophy by you of the kind how most the AI for in to maybe of these on product? we the second is, you desk question migration Are expect motivation service And accelerate customers? have. monetizing one a are be And in that desk part cloud including One to that the AI we some the capabilities, that cloud? see service going

Sudhakar Ramakrishna

Absolutely.

to Pinjalim, to so and highlight remediate desk observability not thing, only service We the AIOps First time is alert I'll restricted on. introduced had our improvement, of into stacking, our is productivity AI product. platform in efficiencies concepts context

set of permeate will the through that portfolio. And so principles

Now with which are some that. premier capabilities initial ASP. our we higher around a already in of service be products, regards to the management traction And AI tier one the has will seeing product,

for the way As move leverage customers to is I connecting look in our can motivation choice a of have by the the cloud. even today customers that customers deploying configuration cloud, in the AI to But our essentially a it cloud. customers -- to to the capabilities already at deployed self-hosted

but deployment in So extensions in just the entire be. the need not be the words, AI cloud, can other

that the that's flexibility customers. our so And we offer

Operator

comes Your Patrick. the next from line Schulz of question

Patrick Schulz

Sudhakar. for Maybe

over this Just the is past in hybrid cloud ARR of solution And been big customers observability from the $XXX,XXX cohort? growth like what several has very quarters. a look large there? adoption does consistent How for the driver

Sudhakar Ramakrishna

the part your catch of question. last didn't I

Patrick Schulz

hybrid larger the big solution? cohort, cloud what customer observability how With look like? of the just does driver the And a is adoption

Sudhakar Ramakrishna

for cohort, not it is that but a First, board. the across driver just significant

enterprise the the and our for the packaging elegant of been hybrid they And the in cloud. apply we And tools. our to to to where lot tools a highlighting, most can in or which course, their story For story pricing larger board. It elegant the the compelling therefore, if give customers more does have consolidation into is, fashion this because start visibility consolidate primary fragmented. a for simplicity they environment, customers give customers. more general and have more our across we most tend is reasons that the a more I broadly customers extend of larger tools, they extremely tend self-hosted customers We be bit appealing to it's in can

Patrick Schulz

of mean, And And first a very X%. with then, going backdrop. you. the one macro and the the miss But of first, your with particularly, guidance quarter maybe looking working on SolarWinds after venture. been next grew mentioned Bart, guess, with best X% change I to for for I QX successful for half that the Weâ€™re luck tenure at congrats in year is guidance there's next little just the you you.

can So there? that delta you help just bridge

J. Kalsu

hit. What tried I'd We first very performance is. confident we that to Yes. is of consistent want it's say we've the what to somewhat try feel the in and half with guided prudent we when keep guidance way give can We provide guidance, to we with year. line be the that we our for numbers

Operator

That Q&A remarks. the session. closing Mr. concludes conference for to will I our turn Sudhakar back now over

Tim Karaca

Yes. actually couldn't There a the are We name. couple get wireless callers.

check? And a so [ with XXXXXX question. number I hands the -- ], Can has next see we up

William Miller Jump

[indiscernible] remarkably This Securities. congrats It's Truist EBITDA you've question been work Bart done of next your and career. strong. step is either a the for have my on with in to margins for Miller Jump you. the SolarWinds with

debt. recently You the obviously restructured

here of now? curious, the opportunities product side see drive maybe just growth you in investments to from business either right I'm go-to-market to or So the increase do any all

Sudhakar Ramakrishna

our to and continue opportunities and profitability. our Yes, evaluate we growth on is focus investment balancing

in several above our the goal EBITDA to consistently fact, meaningfully that. past times, are, is in As we margins, highlighted, and deliver you I've mid-XXs as described

into our we we do XXXX, how half look better road the do we as go-to-market how while also our we efficiencies and well. scaling get as So on accelerate second focus continually at map,

prospects, and yes. answer will But this is short efficiencies growth against question to be So sustainability. macro weighted conditions, your

William Miller Jump

And now. one ARR The its sequentially momentum maybe sustaining against just more. subscription tougher comps

there anything seeing there's from changed this if we're is year? think seeing that that momentum uptick this you're go-to-market curious side Just the that or you and driving you've

Sudhakar Ramakrishna

business of subscription-first for model transition. a it's which just focus execution It's on value I've described us. a is strategy in But the outlined not always our It's as that transition a a continued model motion. we XXXX, it,

that's our continue provide they a are solutions, better procure it when be observability our So happens database subscription delivering in value, solutions that products service better they arrangement, it And management growth. extended it, to driving what's customers. and to value solutions, the to procure

Operator

comes Stanley. line from question XXX-XXXX Next Morgan the (XXX) of with

Oscar Saavedra

Oscar on from Morgan is Singh. Saavedra Stanley Sanjit for This

around, right? software is maybe in on guidance, seen question color We've my actually So others cutting some guidance.

maybe of to So sort to improvement maintenance maybe result of that in maybe to an actually than the like -- pace of migration? what And gives that extent is subscription seeing you confidence what stronger maybe raise a or it?

J. Kalsu

We've we as question. in the good the the our the half really nothing gave. outperformed far macroenvironment demand as we're that see Yes, as for that seeing makes there's guidance differently. any internal of first as us things And well own year what in

they go half it from us the us comes And back of So like products. observability gives our value to about, see the hybrid our for And of piece year. The products. ahead and in well our cloud our bookings raise Sudhakar customers both existing the confidence is customers. to transformation as for value big and a the the our the good SaaS see as thing talked

Oscar Saavedra

the it it historically you same pace I of Or maybe is second of that those in part extent pace seeing an what still increase to guess has? at are the migrations? the was, it going

Sudhakar Ramakrishna

we been the have expanding achieving For opportunities. most our market our plans part, and

accelerating partners of approach we terms now. in enabled So worldwide that our has the have taken

our APJ. in and started about then now we conversion into is EMEA So the think to we America, way to North expanded first on

we motion, it's results as make to across we've more sales momentum. geographies. across this seen conversion of all regions, primary more of breadth our that And more teams expect see consistent So the partners our and and

Operator

we next Singh Mr. with believe Sanjit So I the Stanley. question, Morgan have for

Sanjit Singh

Sanjit. is This

are up the the morning. on Sorry, this I ARR I was look Oscar's To when at performance growth and toggling rates Bart, sustained. the between question, multiple calls ARR subscription total follow performance,

a X%, subscription it X row. I XX% quarters in think total ARR, was ARR growing like

seems the sort flatlining like of to growth picking the at it's terms in dollars $XX like you clearly are there. When quarters of up that. subscription really ARR range. to great and Can revenue, million growth? the of $XX sort it is I context flattish quarter-over-quarter sustained revenue of what in seems multiple sort in me why has look total subscription million like It ARR like been So understand in help prior of subscription the it

J. Kalsu

Yes. Good Sanjit. subscription different question, from is The reality comes of our types. bookings number a revenue, it

So our HCO is product subscription. an on-premise

a it [ little So has SaaS products. your different ] bit than rec rev

a talk our lot we customers so us maintenance about putting And over to subscription.

So there's some rec related variability that rev in the to [ ] product. particular

you're And in for a example, QX. is results we QX, there subscription customer, -- customer, have it bit a HCO pop big our so what seeing and biggest in little a of

That's second So half expect the to we quarter. What momentum. we'll overcome increase then year, in to ARR of in and we -- see why of health about is more too back that's continue better we we the why the yes, in business. some the the have subscription that's just build a subscription we indicator good on as because revenue talk Sanjit, the think as question, lot that -- to of that far

Operator

over now I session. for the conference Q&A our concludes back That remarks. closing Mr. Sudhakar turn will to

Sudhakar Ramakrishna

SolarWinds, Thank again your for shareholders. appreciate and today, support you joining you thank partners customers, our for all and us again and to

Operator

concludes you today's that all call. gentlemen, and joining. Ladies for Thank

disconnect. now may You

SolarWinds (SWI) 1 Aug 242024 Q2 Earnings call transcript