Q4 2021 SolarWinds Corp Earnings Call

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Speaker 1: Thanks. Good morning, everyone, and welcome to SolarWinds fourth quarter 2021 earnings call. With me today are Sadakha Ramakrishna, our President and CEO , and Bar Kalasoo, our Executive Vice President and CFO . Following prepared remarks, we'll have a brief question and answer session. This call is being simultaneously webcast on our Investor Relations website at investors.solarwinds.com.

Thanks, Good morning, everyone and welcome to solar in the fourth quarter 2021 earnings call.

With me today are Sudhakar, Ramakrishna, President and CEO and more calcium all executive Vice President and CFO . Following our prepared remarks, we'll have a brief question and answer session. This call is being simultaneously webcast on our Investor relations website at investors that solar and Dot com.

Speaker 1: On our investor relations website, you can also find our earnings press release in a summary slide deck which is intended to supplement our prepared remarks during today's call. Please remember that certain statements made during this call are forward-looking statements, including those concerning our financial outlook.

On our Investor Relations website, you can also find our earnings press release, and a summary, slide deck, which is intended to supplement our prepared remarks during today's call. Please.

Please remember that certain statements made during this call are forward looking statements, including those concerning our financial outlook.

Speaker 1: the impact of the cyber incident on our business, our market opportunities.

Impact of the cyber incident on our business our market opportunities the impact of the global economic environment on our business and the impact of the spin off of the Naval business. These statements are based on currently available information and assumptions and we undertake no duty to update this information except as required by law.

Speaker 1: the impact of the global economic environment on our business and the impact of the spinoff.

Speaker 1: of the enabled business. These statements are based on currently available information and assumptions, and we undertake no duty to update this information except as required by law.

Speaker 1: These statements are also subject to a number of risks and uncertainties, including the numerous risks related to the cyber incident and the completed spinoff of the enabled business. Additional information concerning these statements and the risks and uncertainties associated with them is not available.

These statements are also subject to a number of risks and uncertainties, including the numerous risks related to the cyber incident and the completed spin off of the enabled business.

Additional information concerning these statements and the risks and uncertainties associated with them is highlighted in today's earnings press release and in our filings with the SEC copies are available from the SEC or on our Investor Relations website.

Speaker 1: is highlighted in today's earnings press release and in our filings with the SEC. Copies are available from the SEC or on our Investor Relations website.

Speaker 1: We completed the spinoff of the Enable Business on July 19, 2021, and accordingly have included the results of the Enable Business as discontinued operations for current and historical periods.

We completed the spinoff of the enable business.

My 19th 2021, and accordingly have included the results of the enable business as discontinued operations for current and historical periods.

Speaker 1: Therefore, the financial results presented on this call reflect solar rims as a standalone business and do not include any contribution from the enable business.

Therefore, the financial results presented on this call reflect solar Ns as a standalone business and do not include any contribution from the naval business.

Speaker 1: Furthermore, we will discuss various non-GAAP financial measures on today's call. Unless otherwise specified, when we refer to the financial measures, we will be referring to the non-GAAP financial measure. A reconciliation of the differences between GAAP and non-GAAP financial measures discussed on today's call are available in our earnings release and summary slide deck on the investor relations page of our website.

Furthermore, we will discuss various non-GAAP financial measures on today's call unless otherwise specified when we refer to financial measures, we will be referring to the non-GAAP financial measure a reconciliation of the differences between GAAP and non-GAAP financial measures discussed on today's call are available in our earnings release and summary, slide deck on the Investor Relations page.

Our web site.

Speaker 1: We note also that because there was no impact of purchase accounting on revenue in the fourth quarter of 2021, our GAAP total revenue for the quarter is equivalent to the non-GAAP total revenue measure that we have historically reported. Beginning in the first quarter of 2022, we will no longer adjust our revenue for the impact of purchase accounting. With that, I'll now turn the call over to the Docker.

Note also that because there was no impact of purchase accounting on revenue in the fourth quarter of 2021.

Our GAAP total revenue for the quarter is equivalent to the non-GAAP total revenue measure that we have historically reported beginning in the first quarter of 2022, we will no longer adjust our revenue for the impact of purchase accounting with that I'll now turn the call over to Sudhakar.

Speaker 2: Thank you, Dave. Good morning, everyone, and thank you for joining us today. I hope you're doing well and staying safe. Once again, I would like to start by thanking our employees, customers, partners, and our shareholders for their ongoing commitment to solar vision.

Thank you Dave Good morning, everyone and thank you for joining us today, I hope youre doing well and staying safe.

Once again I would like to start by thanking our employees customers partners and shareholders for their ongoing commitment to Sullivan.

Speaker 2: It's now a little over a year since I joined SolarWinds.

It is now a little over a year since I joined Sullivan.

Speaker 2: Thanks to the competence, commitment, great attitudes, and resilience of the entire SolarWinds team, we have made significant progress related to our key priorities of customer retention, increasing our focus on subscription revenue growth, and evolution to platform-based solutions.

Thanks to the competence commitment great attitudes and resilience of the entire solar Vince team. We have made significant progress related to our key priorities of customer retention, increasing focus on subscription revenue growth and evolution to platform based solutions.

Speaker 2: The efforts for our team resulted in several highlights in our performance, which I'll go into shortly.

Efforts <unk> team resulted in several highlights in our performance, which I will go into shortly.

Speaker 2: As many of you are also aware, we held our annual analyst day meeting on November 10, 2021.

As many of you are also aware we held our annual analyst day meeting on November 10th 2021.

Speaker 2: During this virtual event, we described our portfolio and go-to-market plans for SolarWinds, our expanding market opportunity, which we believe will amount to approximately 60 billion by 2025, and our goal to achieve at least a billion dollars in ARR by 2025 with a compounded annual subscription ARR growth north of 30% over that time period.

During this virtual event, we described our portfolio and go to market plans for Sullivan, our expanding market opportunity, which we believe will amount to approximately $60 billion by 2025, and our goal to achieve at least $1 billion in IRR by 2025.

The compounded annual subscription AOR growth north of 30% over that time period.

Speaker 2: and then building to EBITDA margins in the mid-forties.

And then building to EBITDA margins in the mid <unk>.

Speaker 2: We believe this combination of top-line scale, growth, and strong profitability will put us in a small group of public software companies with a similar financial profile.

We believe this combination of top line scale.

And strong profitability will put us in a small group of public software companies with similar financial profile.

Speaker 2: As I mentioned earlier, we had several highlights in the fourth quarter of 2021. I'll touch on some of the highlights before turning it over to Bart for more color on the fourth quarter as well as our financial outlook for the first quarter and full year of 2022.

As I mentioned earlier, we had several highlights in the fourth quarter of 2021.

Touch on some of the highlights before turning it over to Bob for more color on the fourth quarter as well as our financial outlook for the first quarter and full year of 2022.

Speaker 2: The continued relevance of our solutions, the execution abilities of our teams, and the trust that our customers have in us were all on display during the fourth quarter.

The continued relevance of our solutions the execution abilities of our teams and the trust that our customers have enough were all on display during the fourth quarter.

Speaker 2: For the fourth quarter, we delivered revenues of $186.7 million, above the high end of the range we provided of $180 to $184 million.

For the fourth quarter, we delivered revenues of $186 7 million above the high end of the range. We provided of 180 to 184 million.

Speaker 2: Adjusted EBITDA was $78.4 million, representing an adjusted EBITDA margin of 42%, again exceeding the high end of our outlook for the fourth quarter.

Adjusted EBITDA was $78 4 million, representing an adjusted EBITDA margin of 42%.

Again exceeding the high end of our outlook for the fourth quarter.

Speaker 2: Customer retention remained our top priority throughout 2021, and we made great progress towards this goal in Q4.

Customer retention remained a top priority throughout 2021, and we made great progress towards this goal in Q4.

Speaker 2: Our trailing 12-month Q4 maintenance renewal rate of 88% was above the low to mid 80% renewal rates we noted we expected in 2021.

Our trailing 12 months Q4 maintenance renewal rate of 88% was above the low to mid 80% renewal rates. We noted we expected in 2021.

Speaker 2: Based on our customers' loyalty and strong execution of our customer and go-to-market teams, we expect to return to our retention rates to improve in 2022 and approach our historical best-in-class levels in the low 90 percent range.

Based on our customers' loyalty and strong execution of our customer and go to market teams, we expect to return to our retention rates to improve in 2022 and approach historical best in class levels in the low 90% range.

Speaker 2: Our continued focus on driving subscription first resulted in an 18% year-over-year increase in subscription revenues in the fourth quarter, and we believe we are well positioned to accelerate this level of growth moving forward.

Our continued focus on driving subscription first and resulted in an 18% year over increase in subscription revenues in the fourth quarter and we believe we are well positioned to accelerate this level of growth moving forward.

Speaker 2: For the full year, we delivered 719 million.

For the full year, we delivered $719 million.

Speaker 2: of gap revenues, representing flat year-over-year performance relative to 2020 and adjusted EBITDA of $303 million, representing a 42% EBITDA margin, while growing subscription revenue 19% year-over-year on a gap basis.

GAAP revenues, representing flat year to year over performance related to 2020, and adjusted EBITDA of $303 million, representing a 42% EBITDA margin, while growing subscription revenue, 19% year over year on a GAAP basis.

Speaker 2: We anticipate both our license and subscription revenues to grow in 2022 reflecting a recovery in sales to new and existing customers and further expanding our recurring revenue base.

We anticipate both license and subscription revenues to grow in 2022.

Reflecting a recovery in sales to new and existing customers and further expanding our recurring revenue base.

Speaker 2: Our focus on delivering simple, powerful, and secure solutions combined with our still very early efforts to build out our system integrator and enterprise go-to-market motions has resulted in continued ASP expansion and an increasing number of large deals.

Our focus on delivering simple powerful and secure solutions combined with our still very early efforts to build out a system integrator and enterprise go to market motions has resulted has resulted in continued ASP expansion and an increasing number of large deals.

Speaker 2: Specifically, our product and platform integrations, combined with simplified packaging and pricing, delivered tremendous value to customers, resulting in multiple million dollar plus deals and an increasing number of 100K deals in 2021.

Specifically.

Product and platform integrations, combined with simplified packaging and pricing delivered tremendous value to customers, resulting in multiple million dollar plus deals and an increasing number of 100 K deals in 2021.

Sure.

Speaker 2: Our efforts to transition our customers to our new SolarWinds observability offerings was well received in the second half of 2021. While still very early, both customer adoption and subscription bookings have been very encouraging.

Our efforts to transition our customers to our new Sullivan's observer ability offerings was well received in the second half of 2021, while it's still very early both customer adoption and subscription bookings have been very encouraging.

Speaker 2: Customers are looking to leverage their on-premises deployments while seamlessly connecting to the cloud, and we are providing them with a solution to accomplish their goal while modernizing their deployments and helping them accelerate their digital transformation. This subscription.

Estimates are looking to leverage their on premises deployment, while seamlessly connecting to the cloud and we are providing them with the solution to accomplish that goal, while modernizing their deployments and helping them accelerate their digital transformations.

This subscription transformation.

Speaker 2: to SolarWinds observability will become a mainstay beginning in 2022. Our AIOps capabilities are being delivered on the same platform, further bolstering our customers' productivity by helping them to manage their deployments more simply, to isolate issues efficiently, and to remediate them quickly.

Sullivan's favorability will become a mainstay beginning in 2022.

On AI ops capabilities are being delivered on the same platform further bolstering our customers productivity by helping them to manage their deployment, most simply to isolate issues efficiently and to remediate them quickly.

Speaker 2: We are unifying our application monitoring solutions to give customers even easier ways to deploy and consume them. Application monitoring will become an integral part of our SolarWinds platform.

We are unifying our application monitoring solution to give customers, even easier ways to deploy and consume them.

Application monitoring will become an integral part of our <unk> platform.

Speaker 2: We believe our database monitoring solutions continue to lead the market with significant depth and breadth across functionality, platform, and deployment support.

We believe our database monitoring solutions continue to lead the market with significant depth and breadth across functionality platform and deployment support.

Speaker 2: A volume of 100K plus deals has continued to grow.

Volume of 100, K plus deals has continued to grow.

Speaker 2: alongside our SolarWinds velocity motion.

Alongside our Sullivan's velocity motion.

Speaker 2: We intend to continue working closely with our hyperscaler partners like Azure and AWS to further accelerate our growth.

We intend to continue working closely with our Hyperscale partners like Azure and AWS to further accelerate our growth.

Speaker 2: Our service desk solutions are ideally suited for the mid-market and we are accelerating our integrations most recently with Microsoft Teams.

Our service desk solutions ideally suited for the mid market and we are accelerating our integrations most recently with Microsoft teams.

Speaker 2: While we believe the stand-alone motion will continue to accelerate, our service desk solutions will become integral elements of the SolarWinds platform to support our automation and remediation capabilities.

While we believe the Standalone motion will continue to accelerate our service desk solutions will become integral elements of the Sullivan's platform to support our automation and remediation capabilities.

Speaker 2: We continue to take our commitment to building a safer and more secure customer environment very seriously. To this end, we are working on all aspects of our Secure by Design initiative, which I detailed in 2021.

We continue to take our commitment to building a safer and more secure customer environment very seriously.

To this end we are working on all aspects of our secure by design initiative, which I detailed in 2021.

Speaker 2: Our team recently published a white paper on our next generation build systems that is a result of our efforts to set a new standard in secure software development to engage with and contribute to open source efforts and to share what we have learned to help secure software.

Our team recently published a white paper on our next generation <unk> systems that is a result of our efforts to set a new standard insecure software development to engage with and contribute to open those efforts and to share what we have learned to help.

Take care southwest supply chain practices. It is my hope that the entire industry will embrace these practices and together, we can enable our customers' digital transformations securely.

Speaker 2: It is my hope that the entire industry will embrace these practices and together we can enable our customers' digital transformations securely.

Speaker 2: With that, I will turn it over to Bhatt to provide more details on our financial performance and outlook.

With that I will turn it over to Bart to provide more details on our financial performance and outlook.

Speaker 3: Thanks to Dr. and thanks again to everyone joining us on today's call. Once again, I will discuss our SolarWinds results on a standalone basis. As most of you know, our spin of the Enable business was effective on July 19, 2021. Therefore, their results are reflected as discontinued operations in our fourth quarter and full year financial results.

Thanks to the Doctor and thanks again to everyone joining us on today's call. Once again I will discuss our solar winds results on a standalone basis as most of you know our spending to enable business was effective on July 19th 2021. Therefore their results are reflected as discontinued operations in our fourth quarter and <unk>.

Full year financial results.

Speaker 3: Also, a quick reminder that the guidance for the fourth quarter that I provided in October did not include any impact from Enable, as the spin had been completed prior to the start of the fourth quarter.

Also a quick reminder, that the guidance for the fourth quarter that I provided in October did not include any impact from enable as the spin had been completed prior to the start of the fourth quarter.

Speaker 3: In addition, our public filings will present and enable discontinued operations in prior periods for better comparability.

In addition, our public filings will present enable as discontinued operations and prior periods for better comparability.

Speaker 3: At the start of 2021, we determined not to provide full year guidance, given the uncertainty we faced at that time as a result of the cyber incident, the ongoing impact of the COVID-19 pandemic, and the potential timing of the spinoff of our Enable business.

At the start of 2021, we determined determined not to provide full year guidance given the uncertainty we faced at that time as a result of the cyber incident, the ongoing impact of the COVID-19, pandemic and the potential timing of the spinoff of our enable business.

Speaker 3: As we discussed in our Q4 2020 earnings call, while we felt it was too early to predict a range of outcomes with our usual level of precision, we were encouraged by the recent customer engagements and focused on customer retention and maintaining renewal rates above 80 percent.

As we discussed in our Q4 2020 earnings call. While we felt it was too early to predict a range of outcomes with our usual level of precision. We were encouraged by the recent customer engagements and focused on customer retention and maintaining renewal rates above 80%.

Speaker 3: Reflecting back on the year, despite the significant challenges we faced, we are pleased with our performance and expect to improve upon it in 2022.

Reflecting back on the year. Despite the significant challenges. We faced we are pleased with our performance and expect to improve upon it in 2022.

Speaker 3: Although we had indicated that we expected maintenance renewal rates to be in the low to mid 80s, we ended the year with renewal rates at approximately 88% for 2021.

Although we had indicated that we expected maintenance renewal rates to be in the low to mid eighties. We ended the year with renewal rates at approximately 88% for 2021. We also saw new sales improve as we moved through the year in our commercial business and our fourth quarter financial results reflect another quarter of improving execution.

Speaker 3: We also saw new sales improve as we moved through the year in our commercial business, and our fourth quarter financial results reflect another quarter of improving execution.

Speaker 3: That execution led to another quarter of better-than-expected financial results, with total revenue ending at $186.7 million, well above the high end of our total revenue outlook of $180 to $184 million. For the fourth quarter of 2021, there was no impact of purchase accounting on revenue, so our GAAP total revenue is equivalent to the non-GAAP total revenue measure we have historically reported.

That execution led to another quarter of better than expected financial results with total revenue ending at $186 7 million well above the high end of our total revenue outlook of $180 million to $184 million.

For the fourth quarter of 2021, there was no impact of purchase accounting on revenue. So our GAAP total revenue is equivalent to the non-GAAP total revenue measure we have historically reported.

Speaker 3: Total license and maintenance revenue was $152 million in the fourth quarter, which is a decrease of 3% from the prior year period.

Total license and maintenance revenue was $152 million in the fourth quarter, which is a decrease of 3% from the prior year period.

Speaker 3: maintenance revenue was 119 million dollars in the fourth quarter which is a decrease of three percent from the prior year.

Maintenance revenue was $119 million in the fourth quarter, which is a decrease of 3% from the prior year.

Speaker 3: As we talked about at our Analyst Day, our maintenance revenue has been impacted by a combination of year-over-year declines in license sales for the past nine quarters and a reduction in our renewal rates in 2021.

As we talked about at our analyst day, our maintenance revenue has been impacted by a combination of year over year declines in license sales for the past nine quarters and a reduction in our renewal rates in 2021.

Speaker 3: The trend of lower license sales intensified with the introduction of subscriptions of our licensed products in the second quarter of 2020 as well as the cyber incident in December of 2020 as well.

The trend of lower license sales intensified with the introduction of subscriptions of our licensed products in the second quarter of 2020.

As well as the cyber incident in December of 2020 as well.

Speaker 3: We focus more of our efforts on longer-term customer success and retention.

We focus more of our efforts on longer term customer success and retention.

Speaker 3: As I mentioned earlier, we are encouraged by the fact that our renewal rates remained higher than our expectation of low to mid 80s that we shared at the start of 2021.

As I mentioned earlier, we are encouraged by the fact that our renewal rates remained higher than our expectation of low to mid eighties that we shared at the start of 2021.

Speaker 3: On a trailing 12-month basis, our maintenance renewal rate is 88%.

On a trailing 12 month basis, our maintenance renewal rate is 88%.

Speaker 3: Working with our customers has been a top priority this year, and our renewal rates reflect our focus on customers and the trust they place in our solutions and relationships.

Working with our customers has been a top priority this year and our renewal rates reflect our focus on customers and the trust they place in our solutions and relationships.

Speaker 3: Also consistent with recent quarters, we want to provide the end quarter renewal rate for the fourth quarter, which currently stands at approximately 87%, but believe it will be 88% by the end of the first quarter, which again is above our expectations at the start of the year.

Also consistent with recent quarters, we went to provide the in quarter renewal rate for the fourth quarter, which currently stands at approximately 87%, but believe it will be 88% by the end of the first quarter, which again is above our expert expectations at the start of the year.

Speaker 3: For the fourth quarter, license revenue was $33.8 million, which represents a decline of approximately 2% as compared to the fourth quarter of 2020.

For the fourth quarter license revenue was $33 8 million, which represents a decline of approximately 2% as compared to the fourth quarter of 2020.

Speaker 3: Our new license sales performance with commercial customers improves sequentially each quarter during the year.

Our new license sales performance with commercial customers improved sequentially each quarter during the year.

Speaker 3: On-premises subscription sales resulted in an approximately 8 percentage point headwind to our license revenue for the quarter.

On premises subscription sales resulted in an approximately eight percentage point headwind to our license revenue for the quarter.

Speaker 3: Moving to our subscription revenue, four quarter subscription revenue was $34.4 million, up 18% year over year.

Moving to our subscription revenue fourth quarter subscription revenue was $34 $4 million up 18% year over year.

Speaker 3: This increase is due to the additional subscription revenue from Century One products as well as increased sales of our on-premises subscriptions as part of our early efforts to shift more of our business to subscription.

This increase is due to the additional subscription revenue from century, one products as well as increased sales of our on premises subscriptions as part of our early efforts to shift more of our business to subscription.

Speaker 3: Total ARR reached approximately $631 million as of December 31, 2021.

Total IRR reached approximately $631 million as of December 31, 2021.

Speaker 3: Reflecting year-over-year growth of 1% and up slightly from our ending third quarter total ARR balance of $624 million. Our subscription ARR of $134.7 million is an increase of more than 20% year-over-year and 3% sequentially from the third quarter.

Reflecting year over year growth of 1% and up slightly from our ending third quarter total AR balance of $624 million.

Our subscription IRR of $134 7 million is an increase of more than 20% year over year and three 3% sequentially from the third quarter.

Speaker 3: Total GAAP revenue for the full year ended December 31, 2021, was $719 million. Subscription revenue was $125 million of that total and represents growth of 19% year-over-year on a GAAP basis.

Total GAAP revenue for the full year ended December 31, 2021 was $719 million subscription.

Subscription subscription revenue was $125 million of that total and represents growth of 19% year over year on a GAAP basis.

Speaker 3: The growth was led by our continued focus on expanding our subscription offerings through our on-premises subscription sales, as well as sales of our database offerings, including the Century One products acquired in the fourth quarter of 2020.

The growth was led by our continued focus on expanding our subscription offerings through our on premises subscription sales as well as sales of our database database offerings, including the century when products acquired in the fourth quarter of 2020.

Speaker 3: Total license and maintenance revenue for the full year in 2021 decreased 3% year-over-year to $594 million. Total maintenance revenue grew 2%, reaching $479 million. License revenue for the full year was negatively impacted by a combination of the 2021 cyber incident and the impact of offering perpetual license products on a subscription basis.

Total license and maintenance revenue for the full year in 2021 decreased 3% year over year to $594 million total maintenance revenue grew 2% reaching $479 million.

License revenue for the full year was negatively impacted by a combination of the 2021 cyber incident and the impact of offering perpetual license products on a subscription basis.

Speaker 3: which we expect to yield more revenue over the full duration of the typical customer lifetime, but negatively impacts license revenue and total revenue in the near term.

Which we expect to yield more revenue over the full duration of the typical customer lifetime, but negatively impacts license revenue and total revenue in the near term.

Speaker 3: We finished 2021 with 829 customers that have spent more than $100,000 with us in the last 12 months, which is a 5% improvement over the previous year.

We finished 2021 with 829 customers that have spent more than $100000 with us in the last 12 months, which is a 5% improvement over the previous year.

Speaker 3: We continue to supplement our traditional high-velocity, low-touch sales approach with targeted efforts to build larger relationships with our enterprise customers, which we spoke about at our analyst day in November .

We continue to supplement our traditional high velocity low touch sales approach with targeted efforts to build larger relationships with our enterprise customers, which we spoke about at our analyst day in November .

Speaker 3: We delivered a solid fourth quarter of non-gap profitability. Fourth quarter adjusted EBITDA was $78.4 million, representing an adjusted EBITDA margin of 42%, exceeding the high end of the outlook for the quarter, despite continuing to invest in our business.

We delivered a solid fourth quarter of non-GAAP profitability fourth quarter, adjusted EBITDA was $78 4 million, representing an adjusted EBITDA margin of 42% exceeding the high end of the outlook for the quarter, despite continuing to invest in our business and.

Speaker 3: And for the year ended December 31, 2021, Adjusted EBITDA was $303 million, representing an Adjusted EBITDA margin of 42% as well.

And for the year ended December 31, 2021, adjusted EBITDA was $303 million.

Renting an adjusted EBITA margin margin of 42% as well.

Speaker 3: Excluded from adjusted EBITDA in the fourth quarter are one-time costs of approximately $9.3 million of cyber incident-related remediation, containment, investigation, and professional fees, net of insurance proceeds. These one-time costs for the full year of 2021 totaled approximately $33.1 million net of insurance reimbursement.

Excluded from adjusted EBITDA in the fourth quarter are one time costs of approximately $9 3 million or <unk>.

Cyber incident related remediation containment investigation and professional fees net of insurance proceeds these onetime costs for the full year of 2021 totaled approximately $33 $1 million net of insurance reimbursements.

Speaker 3: These cyber incident related costs are not included in the JustDiva DAW, are one-time and non-recurring. They are separate and distinct from our Secure by Design initiatives, which are aimed at enhancing our IT security and supply chain process.

These cyber incident related costs are not included in the adjusted EBITDA are onetime and nonrecurring they are separate and distinct from our secure by design initiatives, which are aimed at enhancing our it security and supply chain processes.

Speaker 3: Costs related to our secure but as on initiatives are and will remain part of our recurring cost structure on a go-forward basis

Costs related to our secure but is on initiatives are and will remain part of our recurring cost structure on a go forward basis.

Speaker 3: We expect one-time cyber incident related costs to fluctuate in future quarters, but to overall lower in future periods. These one-time cyber costs are, however,

We expect onetime cyber incident related cost to fluctuate in future quarters, but to overall lower in future periods.

These onetime cyber costs are however difficult to predict.

Speaker 3: Net leverage on December 31 was approximately 3.9 times our trailing 12-month adjusted EBITDA. As a reminder, we retained the full amount of the $1.9 billion in term debt that we had prior to the spinoff of Enable.

Net leverage on December 31 was approximately three nine times, our trailing 12 months adjusted EBITDA.

As a reminder, we retained the full amount of the $1 9 billion in term debt that we had prior to the spinoff of enable.

Speaker 3: Our cash balance was $732 million at the end of the fourth quarter, bringing our net debt to approximately $1.2 billion. Our plan is to keep that cash on our balance sheet for the foreseeable future. We intend to maintain flexibility as it relates to our cash on balance sheet.

Our cash balance was $732 million at the end of the fourth quarter, bringing our net debt to approximately $1 2 billion.

Our plan is to keep that cash on our balance sheet for the foreseeable future, we intend to maintain flexibility as it relates to our cash on balance sheet.

Speaker 3: Our debt matures in February of 2024, and we expect to reevaluate our level of gross debt and possible paydowns well in advance of that maturity date.

Our debt matures in February of 2024, and we expect to reevaluate our level of gross debt and possible paydowns well in advance of that maturity date.

Speaker 3: I will now walk you through our outlook before turning it back over to Sadaqa for some final thoughts.

I will now walk you through our outlook before turning it back over to Sudhakar for some final thoughts.

Speaker 3: We are providing guidance for the first quarter of 2022 and for the full year of 2022 for total revenue, adjusted EBITDA margins, and earnings per share.

We are providing guidance for the first quarter of 2022 and for the full year of 22 2022 for total revenue adjusted EBITDA margins and earnings per share.

Speaker 3: For the full year guidance of 2022, we expect total revenue to be in the range of $730 million to $750 million, representing year-over-year growth of 2 to 4 percent.

For the full year guidance of 2022, we expect total revenue to be in the range of $730 million to $750 million representing year over year growth of 2% to 4%.

Speaker 3: We expect our total revenue to be positively impacted by increases in our license revenue as well as subscription revenue growth as a result of an increase in new sales in 2022 as compared to 2021.

We expect our total revenue to be positively impacted by increases in our license revenue as well as subscription revenue growth as a result of an increase in new sales in 2022 as compared to 2021.

Speaker 3: We will lead with a subscription-first focus as it relates to new sales, and we'll also focus on migrating our maintenance customers to our observability products, which are sold as subscriptions.

We will lead with a subscription first focus as it relates to new sales and we'll also focus on migrating our maintenance customers to our observe ability products, which are sold is sold as subscriptions.

Speaker 3: especially in the second half of the year when we expect that more of the functionality will be available.

Especially in the second half of the year, when we expect that more of the functionality will be available.

Speaker 3: We expect that our total revenue growth will be partially offset by a decline in maintenance revenue due to load or license sales over the past two years.

We expect that our total revenue growth will be partially offset by a decline in maintenance revenue due to lower license sales over the past two years.

Speaker 3: Adjusted EBITDA margin for the year is expected to be approximately 41%.

Adjusted EBITDA margin for the full for the year is expected to be approximately 41%.

Speaker 3: non-GAAP fully diluted earnings per share is projected to be $1.01 to $1.08 per share, assuming an estimated 162.6 million fully diluted shares outstanding.

non-GAAP fully diluted earnings per share is projected to be $1 <unk> to $1 <unk> per share assuming an estimated $162 6 million fully diluted shares outstanding.

Our full year and first quarter guidance assumes a euro to dollar exchange rate of one <unk> down from the $1 six we assumed for 2022, when we provided our initial 2022 outlook at our analyst day in November even so we are comfortable reaffirming the guidance we gave previously.

For the first quarter of 2022, we expect total revenue to be in the range of $173 million to $176 million representing.

Representing a year over year growth rate of flat to 1%.

Once again, we expect license and subscription revenue growth to be partially offset by a decline in maintenance revenue, which we expect to be down approximately 4% to 5% year over year.

Adjusted EBITDA margin for the first quarter is expected to be approximately 36%.

Speaker 3: Our historical trend has been that the first quarter of the year is at a lower level of profitability due to several factors, including payroll taxes on year-end bonuses,

Our historical trend has been that the first quarter of the year is at a lower level of profitability due to several factors.

Including payroll taxes on yearend bonuses.

Speaker 3: higher levels of social security taxes, in addition, the full impact of our Secure by Design initiatives that we discussed a year ago are now in place.

Higher levels of social security taxes and.

In addition, the full impact of our secured by design initiatives that we discussed a year ago are now in place, we expect our level of profitability to improve as we move through the year as has been the case historically as revenue increases in our investments scale.

Speaker 3: We expect our level of profitability to improve as we move through the year, as has been the case historically, as revenue increases and our investments scale.

Speaker 3: As stated earlier, our outlook for the full year for adjusted EBITDA margins of approximately 41%

As stated earlier our outlook for the full year for adjusted EBITDA margins of approximately 41%.

Speaker 3: non-GAAP fully diluted earnings per share is projected to be 22 cents per share, assuming an estimated 160.5 million fully diluted shares outstanding.

non-GAAP fully diluted earnings per share is projected to be 22 per share assuming an estimated $160 5 million fully diluted shares outstanding.

Speaker 3: And finally, our outlook for the first quarter assumes a non-gap tax rate of 22 percent, and we expect to pay approximately $6.5 million in cash taxes during the first quarter.

And finally, our outlook for the first quarter assumes a non-GAAP tax rate of 22% and we expect to pay approximately $6 5 million in cash taxes during the first quarter.

Speaker 3: We also expect that maintenance renewal rates will improve and continue to get closer to historical levels in 2022.

We also expect that maintenance renewal rates will improve and continue continue to get closer to historical levels in 2022.

Speaker 3: As we think about our EBITDA margins for 2022, the costs associated with our Secure by Design initiatives, investments in transitioning our product portfolio to a greater subscription mix, and our continued investments in our sales and marketing initiatives are factored into the margins for the year and why we expect margins to be consistent with 2021.

As we think about our EBITDA margins for 2022, the costs associated with our secured by design initiatives investments in transitioning our product portfolio to a greater subscription mix and our continued investments in our sales and marketing initiatives are factored into the margins for the year and while we expect margins to be consistent with 2021.

Speaker 3: We believe we will return to accelerating margins again in the future, but in the near term we are committed to and excited about the investments in our business that we shared with you at our Analyst Day in November .

We believe we will return to accelerating margins again in the future, but in the near term we are committed to and excited about the investments in our business that we shared with you at our analyst day in November .

Speaker 3: Finally, we believe our unlevered free cash flow conversion will improve in 2022 over 2021 and we expect to be in line with our fourth quarter 2021 level.

Finally, we believe our Unlevered free cash flow conversion will improve in 2022 over 2021, and we expect to be in line with our fourth quarter 2021 levels.

Speaker 3: With that, I will now turn the call back over to Sadaqa for his closing remarks.

With that I will now turn the call back over to Sudhakar for his closing remarks.

Speaker 2: Thank you, Bart. I'm pleased with our strong Q4 performance, exceeding our outlook in both total revenue and adjusted EBITDA, and with how we ended 2021.

Thank you, but I am pleased with our strong Q4 performance exceeding our outlook in both total revenue and adjusted EBITDA and with how we ended 2021.

Speaker 2: We are executing our mission to help customers accelerate their business transformations via simple, powerful, and secure solutions for multi-cloud environments. I'm excited about accelerating our ability to serve our customers and to grow our business.

We are executing our mission to help customers accelerate their business transformation why a simple powerful and take care solutions for multi cloud environment I'm excited about accelerating our ability to serve our customers and to grow our business, we expect to deliver strong license and such.

Speaker 2: We expect to deliver strong license and subscription growth in 2022 via continued execution of our strategy.

<unk> growth in 2022 by a continued execution of our strategy.

Speaker 2: In 2022, we will continue our journey of subscription growth with unified platforms, superior customer experiences, expanding go-to-market motions, and a growing list of applications as the foundations for this growth.

In 2022, we will continue our journey of subscription growth with unified platforms.

Carrier customer experiences expanding go to market motions and a growing list of applications as the foundation for this group, we will continue to exercise discipline in how we invest in our business in order to deliver a unique combination of growth and profitability that we believe.

Speaker 2: We will continue to exercise discipline in how we invest in our business in order to deliver a unique combination of growth and profitability that we believe represents a compelling investment opportunity. I'll conclude by again thanking our employees, partners, and customers for their commitment to SolarWinds.

Presents a compelling investment opportunity I'll conclude by again thanking our employees partners and customers for their commitment to supplement.

Speaker 2: Bart and I will now be happy to address your questions.

<unk> and I will now be happy to address your questions.

Speaker 4: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Speaker 4: Your first question today comes from the line of Sterling Audie with J.P. Morgan. Your line is now open.

Your first question today comes from the line of Sterling Auty with Jpmorgan. Your line is now open.

Speaker 1: Yeah, thanks. Hi, guys. So, in terms of the new customer improvement, I'm curious if you can give us a sense of what percentage of those new customers are choosing subscription and what is the product that you're kind of seeing the most success leading into those new customer wins?

Yeah. Thanks, Hi, guys. So in terms of the new customer.

I'm curious if you can give us a sense of what percentage of those new customers are choosing subscription and what is the product that youre kind of seeing the most success leading into those new customer wins.

Speaker 2: Definitely, Sterling, a couple of different ways to think about it. One is, as I mentioned in my remarks, the database opportunity is continuing to expand for us, both on the velocity side, as well as call it the 100K deal, 100K plus deal size. So a lot of those customers, or a good mix of that customers, prefer subscription. Two is that, as we have...

Definitely sterling.

A couple of different ways to think about it one is as I mentioned in my remarks.

The database opportunity is continuing to expand for us both on the velocity side as well as call. It. The 100 K deal 100, K plus deal size. So a lot of those customers are good mix of that customers.

<unk> subscription.

Two is that as we have embarked on integrations and different levels of packaging and pricing for our core products. If I can use that word.

Speaker 2: integrations and different levels of packaging and pricing for our core products, if I can use that word. We have also been able to lead with subscription first on that, and some of the larger deals that we won were subscription deals. And increasingly in the mid-market, we see the same focus as customers move, let's say, from either maintenance to a tools consolidation type

We have also been able to lead with subscription first and that and some of the larger deals that we won where subscription deals and increasingly in the mid market. We see the same focus as customers move, let's say from either maintenance to eight tools consolidation type.

Speaker 2: scenario. And we have the opportunity and the ability to sell subscription to them as well. And we are seeing great attraction there. So to put it simply, we are seeing that trend across the board, be it in mid-market or large enterprise. However, it is not a subscription only model. We still give the preference to the customer, although we sell on the value proposition of acquiring subscription.

Scenario, and we have the opportunity and the ability to sell subscription to them as well and we are seeing greater traction there. So to put it simply we are seeing that trend across the board be it in mid market are large enterprise.

However, it is not a subscription only model, we still give preference to the customer although we sell on the value proposition of acquiring subscription.

Speaker 1: make sense. One follow-up on that database side, can you give us a sense in terms of the use case that customers are putting that into production? Is it for on-premise databases, private data center, or are they also using it to maybe manage some storage repositories in the cloud?

Makes sense and one follow up on that database side can you give us a sense in terms of the use case that customers are putting that into production is for on premise databases private data center or the also using it to maybe manage some.

Storage repository as in the cloud.

Speaker 2: All of those, Sterling, as well as there are some specific DevOps capabilities that our database monitoring solutions provide as well. So that represents an expanding opportunity for us, whereas historically we have been focused on IT ops. Increasingly, we are serving the needs of DevOps and SRE community as well, as it relates to database and other products.

All of those.

Sterling as well as there are some specific dev ops capabilities that database monitoring solutions provide as well so that represents a expanding opportunity for us, whereas historically we have been.

Focus on IP ops increasingly we are serving the needs of Dev ops, and SRT community as well as it relates to database and other products.

Got it thank you.

Yeah.

Speaker 4: Your next question comes from the line of Matt Hedberg with RBC Capital Markets. Your line is now open.

Your next question comes from the line of Matt Hedberg with RBC capital markets. Your line is now open.

Speaker 1: Great, guys. Thanks for taking my questions. You know, kind of taking a step back, you know, it's really good to hear improved maintenance, renewal rates, and expectations into 2022. You know, I guess on the new business side, sort of following up on Sterling's first question, you know, how do you guys feel about kind of SME spending trends in 2022? I mean, maybe just talk about the, you know, on a global basis or maybe by geo, how you kind of expect kind of that new business to trend in 2022?

Great guys. Thanks for taking my questions.

Taking a step back.

Really good to hear improved maintenance renewal rates and expectations into 2022.

I guess on the new business side and sort of.

Following up on Sterling's first question.

How do you guys feel about kind of SME spending trends in 2022, I mean, maybe just talk about the on a global basis or maybe by Geo. How you kind of expect some of that new business to trend in 2022.

Speaker 2: So Matt, first of all thanks for the question. As you know SolarWinds' foundation has been the SME in the mid-market with an expanding motion into enterprise.

So Matt first of all thanks for the question.

Sullivan's is foundation has been the SME and the mid market with an expanding motion into enterprise I will say that the enterprise motion, albeit early has been encouraging but the majority of the business still comes from SME and Thats, where we expect to see the growth.

Speaker 2: I will say that the enterprise motion, albeit early, has been encouraging, but the majority of the business still comes from SME, and that's where we expect to see the growth into 2022. In terms of macro trends, I would say that they have

Into 2022 in terms of macro trends I would say that they have they have been stabilizing.

Speaker 2: They have been stabilizing, although I don't have evidence to tell you that the spend in that sector is accelerating. But that could be a general statement about most.

Although I don't have evidence to tell you that the spend in that sector is accelerating but that could be a general statement about most organizations in terms of as they look at their needs for the future as they look at their multi cloud capabilities. One of the things that we are doing for them.

Speaker 2: organizations in terms of as they look at their needs for the future, as they look at their multi-cloud capabilities, one of the things that we are doing for them is how do we declutter their environments, provide them simplicity as they deploy these multi-cloud environments.

Is how do we declutter their environments provide them simplicity as they deploy these multi cloud environments at a affordable cost for them to from a value proposition standpoint. So it's a very much of a value based sale and in many cases, what we have noticed as we have one deal is.

Speaker 2: at a affordable cost for them from a value proposition standpoint. So it's a very much a value-based sell and in many cases what we have noticed as we have won deals is it is a share of wallet shift into us rather than net new expansion.

It is a share of wallet shift into us rather than net new expansion.

Yes.

Speaker 3: Got it. Thank you. And then maybe just as a follow-up to the maintenance renewal improvements that you expect in 2022, obviously the federal side had been running at lower renewal rates for the last couple of years. How much of, I guess, what are sort of the expectations around on federal maintenance approval, maintenance rates as we move into 2022 and beyond?

Got it. Thank you and then maybe just as a follow up to the maintenance renewal improvements that you expect in 2020. So obviously the federal side had been running at lower renewal rates.

For the last couple of years.

How much.

What are sort of the expectations around on federal maintenance approval maintenance rates as we move into 2022 and beyond.

Okay.

Speaker 3: You know, actually, our federal renewal rates were fairly consistent with our commercial renewal rates in 2021, Matt. And so as we move forward, we're projecting that same trend, to be honest with you. Obviously, our federal business was impacted in 2021 as a result of the breach. You saw that in our third quarter results. But as far as maintaining and renewing customers, we're seeing a positive trend there. All the efforts that we've put into, you know,

Actually our federal renewal rates were fairly consistent with our commercial renewal rates in 2021, Matt and so as we move forward, we're projecting that same trend to be honest with you.

Obviously, our federal impact our federal business was impacted in 2021 as a result of the breach.

You saw that in our third quarter results.

But as far as maintaining and renewing customers and we're seeing a positive trend there all the efforts that we put into.

Speaker 3: working with our customers, making sure they understand, you know, how the breach may have impacted them. As you know, most of the customers, that wasn't the case. And we've done that with our federal customers as well, and we're seeing good traction there.

Working with our customers, making sure they understand how the breach may have impacted them as you know most of the customers that wasn't the case.

And we've done that with our federal customers as well and we're seeing good traction there.

That's great. Thanks, a lot mark.

Speaker 4: Your next question comes from the line of Eric Superger with JMP. Your line is now open.

Your next question comes from the line of Erik <unk> with JMP. Your line is now open.

Speaker 5: Yeah, thanks for taking the question. Talk a little bit about the rollout plans for the application monitoring service. When you said that's going to be an integral part of 22, can you talk a little bit about timing and then also how you see the competitive dynamics playing out there? Is it going to be largely data dog and New Relic or who do you see there?

Yes, thanks for taking the question.

Talk a little bit about the rollout plans for the application monitoring service.

You had said that's going to be an integral part.

'twenty two.

Can you talk a little bit about timing and then also.

How do you see the competitive dynamics playing out there is it going to be largely data dog.

New relic or who do you see there.

Speaker 2: Definitely. Eric, let me provide two parts to that question.

Definitely I think first let me provide two parts to that.

Question first is that we have a fairly rich application monitoring portfolio today.

Speaker 2: First is that we have a fairly rich application monitoring portfolio today. However, most of those products are sold on a individual basis, meaning there's a logging product, there is a specific application monitoring product, and so on.

Ever most of those products are sold on a individual basis, meaning there is a logging product. There is a specific application monitoring product and so on so what we have more recently done is unified them in a way that allows customers to more simply consume them.

Speaker 2: So what we have more recently done is unified them in a way that allows customers to more simply consume them.

Speaker 2: So, consequently, the cross-sell of our existing products improves through both better e-commerce integration as well as the product integration itself. So that's kind of a, call it a standard motion. What I was referring to when I said APM becomes an integral part of our SolarWinds platform is that as we come out with our hybrid cloud platform as a service.

So consequently, the cross sell of our existing products improves through both better e-commerce integration as well as the product integration itself. So thats kind of a call it a standard motion.

What I was referring to when I said, the APM becomes an integral part of our <unk> platform is that as we come out with our hybrid cloud platform.

As a service platform.

Speaker 2: These capabilities will be directly ported onto that platform, and that becomes the basis of all future innovation.

These capabilities will be directly ported onto that platform and that becomes the basis of all future innovation.

Speaker 2: In terms of the competitive landscape, all the competitors that you mentioned will be relevant in this space, except the way to think about the SolarWinds platform is it will be a unique integration across all forms of previous monitoring, whether it be application, network and infrastructure, database, and obviously the system monitoring pieces.

In terms of the.

The competitive landscape all the all the competitors that you mentioned will be relevant in this space, except the way to think about the Sullivan platform is it will be a unique integration across all forms of previous monitoring whether be application network and infrastructure database.

And obviously the the system monitoring pieces.

Speaker 2: but with increased automation and remediation capabilities derived from.

But with increased automation and remediation capabilities.

Data from our <unk>.

Speaker 2: That is what will give us a unique combination, which is the breadth of our solutions, the ability to integrate them more simply and securely for our customers. So that will be the value add, be it for the mid-market customer or be it for specific segments of our customers like the DevOps community that I mentioned earlier.

Service desk solutions that'll what can you give us a unique combination which is the breadth of our solutions the ability to integrate them more simply and securely put our customers. So that will be the value add be it for the mid market customer, albeit for a specific segment.

All of our customers like our like the Dev ops community that I mentioned earlier.

Speaker 5: And how do you expect your pricing to compare with the competition? Yeah, so historically, as you know, we have been very price competitive and that

And how do you expect your pricing to compare.

With the competition.

Yes. So historically as you know we are we have been very price competitive.

And that tendency.

Speaker 2: Tendency will continue going forward, except that we will be much more focused on value-based pricing going forward. And in the early tests that we have done, that has been very well received as well, both on the packaging front as well as on the pricing front.

Tendency will continue going forward.

Except that we will be much more focused on value based pricing going forward and in the early tests that we have done that has been very well received as well both on the packaging front as well as on the pricing front.

Very good thank you.

Speaker 4: Your next question comes from the line of Sanjit Singh with Morgan Stanley . Your line is now open.

Your next question comes from the line of Sanjay Zhang with Morgan Stanley . Your line is now open.

Speaker 6: Thank you for taking the questions. I wanted to start my first question on the topic of sales. I think at the analyst base, Dr. A, you sort of laid out how you're going to sort of evolve the strategy and leaning in a little bit more into account-based sales. What can you tell us about how that early traction is going? You know, typically there's

Thank you for taking the questions I wanted to start.

My first question on the topic of sales I think at the analyst day Sudhakar you sort of laid out how are you going to sort of evolve the strategy and leaning in a little bit more into account based sales what can you tell us about how that early traction is going typically there is sales.

Speaker 6: you know, sales kickoff meetings at the beginning of the year. How's the, what is sort of phase one of that strategy in 2022 looking like? And in terms of hiring against those initiatives, how would you assess the progress thus far?

Sales kickoff meetings at the beginning of the year how is the what is sort of phase one of that strategy.

In 2022, looking like and in terms of hiring against those initiatives how would you assess the progress thus far.

Speaker 2: Sanjit, we just completed our global kickoff event, in fact, a couple of weeks ago, at which we obviously spoke to our sales teams about the plans and their motions and so on, but also about the product strategy and the excitement that the team shared around the unified offerings that we're coming out with.

Sounds good.

We just completed our global.

Global kickoff events in fact, a couple of weeks ago, which.

Which we obviously spoke to our sales teams about the plans and their emotions and so on but also about the product strategy and the excitement that the teams share around that.

Unified offerings that were coming out with as it relates to the sales motion and think of it as I'll just for the benefit of everybody remind us of the three broad motions.

Speaker 2: As it relates to the sales motions, think of it as, I'll just, for the benefit of everybody, remind us of the three broad motions. Call it the velocity motion, which is the traditional solvence motion, and then we have expanded to more of the mid-market and the enterprise motion.

The velocity motion, which is the traditional Sullivan's motion and.

And then we have expanded to more of the mid market and the enterprise motion.

Speaker 2: The investments in the latter two, we started making them in the second half of last year with the expectation that as we enter 2022, we'll start getting better and fuller yields from those teams.

The investments in the latter two are we started making them in the second half of last year.

With the expectation that as we enter 2022 will start getting better and fuller yield from those teams.

Speaker 2: Many of those teams are already in place, specifically in EMEA, those are already in place and they're already getting into productivity.

Many of those teams are already in place specifically in EMEA and those are already in place and they are already getting into productivity in the Americas. It is still a work in progress, but we are making very good traction and similarly in <unk>, we have added those resources as well.

Speaker 2: In the Americas, it is still a work in progress, but we are making very good traction. And similarly, in APJ, we have added those resources as well.

Speaker 2: So, account-based marketing motion has been standardized across the company today, driven by marketing teams in conjunction with the sales.

So our account based marketing motion has been standardized across the company today driven by our marketing teams in conjunction with our sales team. So what you should expect to see and I gave you. Some very early indicators of that in the Q4 earnings report.

Speaker 2: So what you should expect to see, and I gave you some very early indicators of that in the Q4 earnings report of multiple million dollar deals, increasing number of 100K plus deals that Bart also noted as customers spending with us. So what we see is a clear increase of the ASP trends that we have.

A multiple million dollar deals increasing number of 100, K plus deals that but also noted.

As customer spending with us so what we see is a clear increase of the ASP trend that we have.

Speaker 2: At the same time, our intention is not only to continue keeping the ASPs going up, but also the transactions going up, which is why I say we need to continue nourishing our velocity motion.

At the same time, our intention is totally continue keeping the asp's going up but also the transactions going up which is why I say, we need to continue nourishing our velocity motion.

Speaker 6: Makes total sense. I'm very encouraged to hear the traction with larger customers in Q4. Bart, as my follow-up question, I just want to talk about the trajectory of growth throughout the year. You know, the full year guide is definitely encouraging. Q1 starts from a lower level of growth. And if you just sort of connect the dots on why the weaker growth to begin the year, and how do you expect that to trend?

Thanks to all sorts of very encouraging to hear the traction with larger customers in Q4 or as my follow up question I just wanted to talk about the trajectory.

Growth throughout the year.

The full year guide is definitely encouraging Q1 starts from a from a lower level of growth and can you sort of connect the dots on.

While the weaker growth to begin the year and how do you expect that to trend as we can.

Speaker 6: as we go, as we progress throughout the year. Any comments that would be helpful? Okay. Yeah.

As we progressed throughout the year and any comments there would be helpful.

Yes.

One thing Sanjay.

Speaker 3: that trend is consistent with our prior years. We've always had a little lower revenue in the first quarter, particularly as it relates to license revenue historically. This year, however, we're facing a headwind as it relates to maintenance revenue. We talked about back at Analyst Day how maintenance revenue was going to be flat to slightly down in 2022. But the main thing is that maintenance revenue reaccelerates in the back half of the year. So that impact is heavily felt in the first quarter. So when you're putting together your models, you might want to think about maintenance revenue being at its lowest point in the first quarter and then it starts to pick back up as we move through the year. So it's really the combination of those two things is why Q1, from a growth perspective, is going to be our lowest quarter in the year based on the way we lay it out. So once again, very consistent.

That trend is consistent with our prior years, we've always had.

A little lower revenue in the first quarter.

Particularly as it relates to license revenue historically.

This year. However, we are facing a headwind as it relates to maintenance revenue, we talked about back at analyst day, how maintenance revenue was going to be.

Flat to slightly down in 2022.

But the main thing is is that maintenance revenue reaccelerate in the back half of the year. So that impact is most heavily felt in the first quarter. So when you're when you're when you're putting together. Your models you might want to think about maintenance revenue.

At its lowest point.

In the first quarter and then it starts to pick back up.

As we move through the year. So it's really the combination of those two things is why Q1.

From a growth perspective is going to be our lowest quarter in the year.

Based on the way we laid out so.

Speaker 3: Once again, very consistent with what we've done and the way we've projected in the past.

Once again very consistent with what we've done in the way we projected in the past.

Super helpful. Thank you Barbara.

Speaker 4: Your next question comes from the line of Rob Oliver with Baird. Your line is now open.

Your next question comes from the line of Rob Oliver with Baird. Your line is now open.

Speaker 7: i great good morning guys uh... so docker one for you to start that part i have a follow-up for you soccer on the federal uh... portion of the business uh... probably for your earlier commentary you guys have done a you don't really outstanding job maintaining the renewal rates through uh... a lot of variables you know post a hack as we get into uh... the federal year-end in in twenty-two if you what what what constitutes success for you guys here we go a lot of product initiatives you've got the unified ui is the idea at federal to be able to just get the renovation of you know uh... you'd be where where that you don't be better or or or consistent on the court or is there an opportunity here as you look at federal to uh... drive some of the newer platform product initiatives into that vertical

Hi, great good morning, guys.

<unk> one for you to start and then Bart I had a follow up for you so sudhakar.

Federal portion of the business.

Obviously for your earlier commentary you guys.

They have done a really outstanding job maintaining the renewal rates through.

A lot of variables post to hack.

As we get into the federal year end in 'twenty two.

What constitutes success for you guys here I mean, a lot of product initiatives, you've got the unified UI is the idea at federal to be able to just get the renewal rates.

<unk>.

Better or consistent on the core or is there an opportunity here as you look at federal to drive some of the newer platform product initiatives into that vertical.

Speaker 2: Great question. So what constitutes success in federal this year will not only be the maintaining of our renewal rates, which, as you heard, we were able to establish in 2021, but also reaching out to customers and expanding their footprints with the full complement of our capability.

Great question so.

What constitutes success in federal this year will not only be the maintaining of our renewal rates, which as you heard we were able to establish in 2021.

But also reaching out to customers and expanding their footprints with the full complement of our capabilities. So even as of 2021, while it was not our main focus.

Speaker 2: So even as of 2021, while it was not our main focus.

Speaker 2: We started introducing database monitoring into federal customers, and that was very well received.

We started introducing database monitoring into federal customers and that was very well received so the database specialist teams and the federal sales teams are working in conjunction to see how we can cross sell that into federal government customers. This year as an example, I'm not restricting it to just that.

Speaker 2: So the database specialist teams and the federal sales teams are working in conjunction to see how we can cross sell that into federal government customers this year as an example. I'm not restricting it.

Speaker 2: to just that. Equally, in talking to many federal customers myself...

Equally.

In talking to many fabric customers myself they have a very strong interest in our application monitoring portfolio not necessarily due to the depth and breadth of the capabilities, but the simplicity that we deliver to their it environments and the synergy if I can use that word that they have relative to the other products.

Speaker 2: they have a very strong interest in our application monitoring portfolio, not necessarily due to the depth and breadth of the capabilities, but the simplicity that we deliver to their environment.

Speaker 2: and the synergy, if I can use that word, that they have related to the other products that we have deployed in those environments. So those motions will start accelerating. Another thing I'd note is that our government team, broadly speaking, has been reaching out to customers much more for

We have deployed in those environments. So those motions will start accelerating and then the other thing I'd note is that our government team broadly speaking he's been reaching out to customers much more for demand Gen and selling activities in 2022 versus <unk>.

Speaker 2: demand gen and selling activities in 2022 versus, largely speaking, stabilizing activities in 2021. So those three factors, at a minimum, should also contribute to ongoing growth in the business. Great.

Largely speaking stabilizing activities in 2021, so those three factors at a minimum should also contribute to ongoing growth in the business.

Great. Thanks, that's great color and then.

Just for you a bit of a follow up to <unk> question earlier around some of the account based efforts that you guys have.

Speaker 7: to Sanjeev's question earlier around some of the account-based efforts that you guys have, you know, laid out at the Analyst Day, a bunch of new turf for you guys here. And I think even for companies that have a lot of experience here, there's a lot of variables this year, you know, employment costs, hiring, things like that. So just maybe you could help us understand how you contemplated some of those things or others as you looked at the guidance for this year. Thank you. You know, when we put together guidance...

They laid out at the analyst day, a bunch of new turf for you guys here and I think even for companies that have a lot of experience here. There's a lot of variables. This year employment costs hiring things like that so just.

Maybe you could help us understand how you contemplated some of those things or others as you looked at the guidance for this year. Thank you.

Speaker 3: You know, when we put together guidance, Rob, you know, a lot of factors go into that. You know, clearly, you know, the enterprise motion for us is something we've been talking about for, you know, not just in 2021. We started some of those efforts even before that. You know, but I would tell you, you know, you know, it's still the majority of our business is still going to be in that volume and velocity motion that we've always had. We are going to start to continue to build upon the bigger relationships that we've had. I think one of the things I talked about in my script was the fact that we have.

When we put together guidance, Rob a lot of factors go into that clearly the enterprise motion for US is something we've been talking about for you or not just not.

Not just in 2021, we started some of those efforts even before that but I would tell you.

It's still the majority of our business is still going to be in that volume and velocity motion that we've always had.

We are going to start to continue to build upon the bigger relationships that we've had I think one of the things I talked about in my script was the fact that we have.

Speaker 3: over 800 customers who've spent more than $100,000 with us and that number actually grew in 2021, that'll still be the case, but you can do the math on those 800 customers and get, you know, figure out exactly what percentage of our revenue that is. It's, you know, we're still...

Over 800 customers, who have spent more than 100000 with us and that number actually grew in 2021 that will still be the case, but you can do the math on those 800 customers and get figure out exactly what percentage of our revenue as that is it's we're still dominant on the SME customers and we still have the most of.

Speaker 3: Dominant on the SME customers, and we still have you know the most of our relationships. You know we're in that less than $10,000 amount

Our relationships in that less than 10000 dollar amount.

Speaker 2: And that will continue to the case. The other point I'd highlight on that is we have presents in almost every large enterprise there is. I mean, in fact, well over 498 of the Fortune 500. So that's not been the issue historically. But most of the purchases in many of those environments were departmental purchases which will seem like a mid-market purchase.

And that will continue to the case the other point I'd highlight on that is we have presence in almost every large enterprise that is I mean in fact well.

Well over 498 of the Fortune 500, so that's not been the issue historically.

But most of the purchases in many of those environments, where departmental purchases, which will seem like a mid market purchase and to the motion that we have added both with our direct touch resources and the global system integrator relationships is to basically expand it and go cross.

Speaker 2: And so the motion that we have added, both with our direct-touch resources and the global system integrator relationships, is to basically expand it and go across.

Speaker 2: department as well as to the director of IT slash CIO level.

Department as well as to the director of Slash CIO levels.

Speaker 3: And the other thing, too, is that, you know, one of the things we talked a lot about at Analyst Day is that the shift to observability, our platform will become more of a platform in the fact that you'll, it'll be more of an integrated product offering, so that hopefully we'll have better upsell opportunities within the product itself. In the past, our products have just mainly been point products, so a new sales opportunity almost is a complete new focus for us. Great. Very helpful.

And the other thing too is that one of the things we talked a lot about at analyst day is that the shift to observe ability our plants will become more of a platform and the fact that you will it'll be more of an integrated product offering so that hopefully we will have better upsell opportunities within the product itself in the past our products have just mainly the endpoint products. So a new sale.

<unk> opportunity almost as a is a complete new a new focus for us.

Great very helpful. Thanks again guys.

Mhm.

Speaker 4: Your next question comes from the line of Kingsley Crane with Berenberg. Your line is now open.

Your next question comes from the line of Kingsley Crane with Bamberg. Your line is now open.

Speaker 1: I'd like to think more about the balance between maintenance growth and subscription growth. What expectations do you have for converting that maintenance phase to subscription in fiscal 22?

I'd like to think more about the balance between maintenance and subscription growth.

Your expectations do you have or converting that maintenance base to subscription just wondering here.

Speaker 3: So our expectations in 2022 are still fairly, you know, we're not aggressively shifting that maintenance space. And the biggest reason is because we don't have the full functionality of the product available. We are starting to reach out to the customers that we think would be interested in a migration, Kingsley. But as far as it relates to building that into our 2022 expectations, those numbers are still very, very low. We'll talk more...

So our expectations in 2022 are still fairly we're not we're not aggressively shifting that maintenance base and the biggest reason is is because we don't have the full functionality of that of that of the product available and we are starting to reach out to the customers that we think will have would be interested in a migration kingsley.

But as far as it relates to building that into our 2022 expectations. Those numbers are still very very low.

We'll talk more about that in the second.

Yes.

Speaker 1: Okay, and so then potentially what could that level be in 23? And then also just thinking about the growth and subscription revenue x that maintenance conversion for really any year.

Okay.

And so then potentially what could that level be in 'twenty three and then also just thinking about the.

The growth in subscription revenue ex that maintenance conversion for for really any year.

Thanks, Lee can you repeat the second part of your question.

Speaker 1: Uh, thinking about the organic growth and subscription revenue or the growth X, the maintenance conversion.

I was thinking about the organic growth in subscription revenue or growth.

The maintenance conversion.

Okay.

Speaker 2: We're not stating specific percentages of conversion of maintenance to

So we may not stating specific percentages of.

Conversion of maintenance too.

Speaker 2: subscription in that way, what we are looking at is how do we deliver different and differentiated functionality to our customers on a go-forward basis. So let me give you an event-based model.

Subscription in that we can see what we're looking at is how do we deliver different and differentiated functionality to our customers on a go forward basis. So let me give you a event based <unk>.

Speaker 2: A customer, if they have any cloud deployment but at the same time want to preserve.

Model.

A customer if they have any cloud deployment.

At the same time want to preserve.

Speaker 2: their premises deployment, that would be an ideal candidate for us to evolve them to call it cloud connectedness and modernization of their deployments. So that would be a prime customer of how we would evolve from maintenance to subscription. But in many cases, what we also experience, at least to date, is that we also experience a significant uptick in the average selling price to those customers.

Our premises deployment that would be an ideal candidate for us to evolve them to call. It cloud connectedness and modernization of their deployments so that would be a prime customer of how we would evolve from maintenance to subscription but in many cases, what we also experience at least to date is that we also.

We experienced a significant uptick in the average selling price to those customers. So it is much more based on need as opposed to a false maintenance to subscription like for like conversion.

Speaker 2: So it is much more based on need as opposed to a forced maintenance to subscription like-for-like conversion.

Speaker 3: Yeah. And as you think about subscription revenue growth for us in 2022, you know, we, like Siddhartha said, and one of the things I emphasize is that we expect subscription revenue growth to be higher in 2022 than what we had in 2021. And that would all be organic as far as it relates to the subscription sales of our on-premise subscription offerings today, as well as the observability in the second half of the year.

Yes.

As you think about subscription revenue growth for us in 2022.

Sudhakar said in one of the things I emphasize is that we expect subscription revenue growth to be higher in 2022 than what we had in 2021 and that would all be organic as far as it relates to the subscription sales of our on premise subscription offerings today as well as.

The observed ability in the second half of the year.

Okay. That's very helpful. Thank you.

Speaker 4: Your next question comes from the line of Connor Passarella with Truist Securities. Your line is now open.

Your next question comes from the line of Conor Passarella with Trust Securities. Your line is now open.

Speaker 8: Hey, good morning, team. This is Connor on for Terry. Thanks for taking my questions. I just wanted to start on customer strategy. So you mentioned investment in customer success management as a supplement to your selling motion. Just curious as to what effect you've seen CSM have on adoption rates and maybe what kinds of benefits there might be from an expand point of view as a result of successful CSM engagements.

Hey, good morning team Connor on for Terry Thanks for taking my questions. Just wanted to start on customer strategy. So you've mentioned investment in customer success management as a supplement so youre selling version just curious as to what effect you've seen CSM have on adoption rates and maybe what kinds of benefits there might be from and expand point of view as a result of successful.

<unk> engagements.

Absolutely.

Speaker 2: So, Connor, thanks for the question, I'll take that. We started that motion last year and it will be an expanding motion into 2022. What we have observed so far is the following. Initially, the CSMs were focused, due to the incidents in December 2020, on maintaining customers, supporting them, bringing them back online in conjunction with our partners and so on.

So.

Got it thanks for the question I'll I'll take that.

We started that motion last year and it'll be an expanding motion into 2022, what we have observed. So far is the following initially the CSM were focused due to the incidents in December 2020 on maintaining customers supporting them and bringing them back on.

Line in conjunction with our partners and so on as we evolve to the second half of 2021, we became much more involved are they became much more involved in pipeline generation activities.

Speaker 2: As we evolved to the second half of 2021, we became much more involved or they became much more involved in pipeline generation activities as well as the expand motion, as you referred to. We expect that to continue going forward into 21, especially in the mid-market to the enterprise motion. And what we notice is, as you can imagine, because of the direct touch that we have with the customers, the trust that the customers have in our CSMs.

As well as the expand motion as you as you referred to we expect that to continue going forward into 'twenty, one, especially in the mid market to the enterprise motion and what we noticed is as you can imagine because of the direct touch that we have with our customers.

Just that the customers have in our CSM the pipeline that we generate through that.

Speaker 2: the pipeline that we generate through that converts at a much higher rate than what you would normally expect a marketing-led pipe conversion to happen. So that's the significant impact that we see in both expansion and conversion as we get into 2022 and beyond.

Convert at a much higher.

Eight than what you would normally expect a marketing lead pipe conversion to happen. So that's a significant impact that we see in both the expansion and conversion as we get into 'twenty two and beyond.

Okay.

Great that's really helpful. Thank you.

Sorry about that we have time.

Time for one more question.

Speaker 4: Your last question today comes from the line of Kirk Mattern with Evercore. Your line is now open.

Your last question today comes from the line of Kirk <unk> with Evercore. Your line is now open.

Speaker 9: Hey, guys, this is audio here asking on behalf of Kirk, but thanks for taking my questions. First, Dr, can you give us some more color on what gives you confidence that the license business can rebound in?

Hey, guys.

The idea here asking on behalf of Kirk, but thanks for taking my questions.

First Sundar can you give.

Give us some more color on what gives you confidence that the license business can rebound.

Speaker 9: Um, and 22 in terms of positive revenue growth, and is that just more? So top of the funnel activity, or as you mentioned, more stability and or maybe both.

And 'twenty two in terms of like positive revenue growth and is that just more so top of the funnel activity or as you mentioned more stability in asp's or maybe both and then I'll follow up yes.

Speaker 2: And then I'll follow up. Yeah, definitely. So I'll remind us of what we did or didn't at the beginning of 2021, which is to serve our customers and get their environment stable. We did not engage in a lot of demands and activities for the first part of 2021.

Yes definitely.

I'll remind us of what the.

We did or didn't at the beginning of 2021, which is to serve our customers and get their environment stable. We did not engage in a lot of demand Gen activities for the first part of 2021, I expect 2022 to be a much more nominal.

Speaker 2: I expect 2022 to be a much more normal year, if I can call it that, in terms of demand activities.

I can call it that in terms of our demand activities.

Speaker 2: conversion activities, go-to-market activities, and so on. So that's one factor.

Conversion activity as go to market activities and so on so that's one factor the second factor is that.

Speaker 2: The second factor is that throughout 2021 and specifically in the second half of 2021, we engaged in adding more.

Throughout 2021, and specifically in the second half of 2021, we engaged in adding more.

Speaker 2: people to our go-to-market efforts, be it in sales or in marketing across the world. So I expect to get yield out of those investments into 2022.

People to our go to market effort.

Be it in sales and marketing across the world. So I expect to get out of those investments into 2022.

Speaker 2: The last thing is, because of our better packaging and pricing activities, we also are seeing an uptick in ASP. So as you can basically create the multiplicative effect of those three to convince yourself that the license growth will happen. Obviously, the foundation remains our solutions, our relevance of our solutions to our customers.

The last thing is because of our better packaging and pricing activities, but we also are seeing an uptick in ASP.

So as you can basically create a multiplicative effect of those three two.

Vince yourself the license growth will happen.

Obviously the foundation remains.

Our solutions are.

Relevance of our solutions to our customers.

Speaker 9: Gotcha. Makes sense. And then I just wanted to ask a quick update on the international initiatives, specifically in Japan and Germany.

Got you that makes sense and then.

Just wanted to ask a quick update on the international initiatives, specifically in Japan and Germany.

Speaker 2: Um, they were both so germany or i'll call it broadly speaking the dark region

They were both so Germany, our I'll call it broadly speaking the dark region.

Speaker 2: was always served by our inside sales motion. But more recently, I would say specifically, end of Q3, beginning of Q4, we have on the ground resources in the dark region. That is a large under-penetrated part of the overall market for us. And while early, we have very strong and positive signs there.

Was always served by our inside sales motion.

But more recently I would say specifically end of Q3 beginning of Q4.

Have on the ground resources in the dark region.

That is a large underpenetrated part of the overall market for us.

While early we have very strong and positive signs there in Japan most of the activities to date have been.

Speaker 2: In Japan, most of the activities to date have been

Speaker 2: on partner acquisition, partner enablement. As you know, the motions in Japan tend to be a little bit slower, but as they start flowing, they tend to sustain. So I would say we are in business development phase in Japan and revenue acceleration phase in the dark region.

On partner acquisition.

Partner enablement as you know the motions and Japan tend to be a little bit slower, but as they start flowing they tend to sustain so I would say we are in business development phase in Japan and revenue acceleration phase in the dock region.

Thank you so much.

Yeah.

Speaker 7: Thanks very much everyone who tuned in today. That concludes our fourth quarter earnings call. Have a great day.

Thanks, very much everyone, who tuned in today that concludes our fourth quarter earnings call have a great day.

Yes.

Speaker 10: The and.

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