Q1 2022 N-Able Inc Earnings Call
Thank you for your patience.
Unable first quarter 2022 earnings call will begin shortly.
[music].
Hello, and welcome to today's enables first quarter 2022 earnings call. My name is Bailey and I will be your motivation for todays call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers.
At the end if you would like to ask a question. Please press star followed by one on your telephone keypad.
Now I'd like to pass the conference over to Jeffrey Mcgill know with enable Jefferies. Please go ahead.
Thank you Billy and welcome everyone to enables first quarter 2022 earnings call with me today are John Peeler Yoga enables president and CEO and Tim O'brien, EVP and CFO . Following our prepared remarks, we will open the line for a question and answer session.
This call is being simultaneously webcast on our Investor relations website at investors Dot and Dash Abel Dot Com. There you can also find our earnings press release, which is intended to supplement our prepared remarks during today's call certain statements made during this call are forward looking statements, including those concerning our financial outlook our <unk>.
Opportunities are continued expectations following the spin off of our business from solar winds in July 2021, and the impact of the global economic environment on our 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. These statements are also subject to a number of risks and uncertainties, including those related to the spin off transaction completed last year additional information concerning these statements and the risks and uncertainties associated with them is highlighted in today's.
The earnings release and in our filings with the SEC copies are available from the SEC or on our Investor Relations 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 measures.
A reconciliation of certain GAAP to non-GAAP financial measures discussed on today's call is available in our earnings press release on our Investor Relations website, and now I will turn the call over to John .
Thanks, Jeff and thank you all for joining us today.
Yeah.
We are pleased with both our execution and financial performance in Q1.
Our revenue growth was 12% on a constant currency basis that exceeded the high end of our outlook.
Leveraging the strength of our data protection as a service and security offerings.
Operationally, we are on track with the initiatives, we outlined last summer in preparation for our spinoff.
Our investments and partner success.
Is resulting in better retention figures.
More cross sell opportunities and a better customer experience.
Our increased investments in product has allowed us to reestablish our cadence, bringing additional offerings to our MSP.
And it is delivering a disruptive data protection offering that is winning in the marketplace.
And our investments in additional sales motions and channel expansion is unlocking opportunities in new geographies and areas.
As I mentioned on the last call. This year, we are rallying behind the phrase earn more enabled fans.
And so far in 2022, it has really galvanized our strategy and accelerating our momentum.
As you know we call our MSP customers or partners, because our relationship goes deeper than our mirror transaction or sale.
Our partners look to enable to provide them with world class technology that allows them to efficiently and securely scale their business and support.
The IGT needs of the cost and the needs of the customers they need.
Despite all the noise in the market, we remain focused on a different kind of disruption.
<unk> powerful and disruptive technology and business tools in the hands of our partners, enabling them to achieve their growth goals and increase their value to their customer base.
Because when they grow we grow.
We know that in order for us to earn more fans, we need to execute on our mission to empower MSP partners to solve their most pressing problems and keep them secure and ahead of their competition.
We have made a long term commitment to our partner's success and continuously improve on all fronts.
We've talked about our industry tailwind.
The digital evolution continues to accelerate and pose both opportunity and challenge is to Smes.
The levels of complexity labor scarcity and rising cyber threats are increasing in a way that underscores the importance of it service providers.
This aligns with our strategy and our business model.
First.
Complexity is rapidly increasing.
What this means for <unk> is that their customers will continue to ask them to manage widespread digital assets with increasing demands. So they will need to automate and secure new processes and workflows to ensure their smes their customers remain productive.
Enables commitment to allow msp's to manage everything means that our partners are able to meet this move.
Sort of hybrid work and manage the additional complexity of diverse device types cloud computing environments and SaaS applications.
Second labor scarcity, specifically protect talent affects everyone from Smes and larger enterprises, who are relying on outsourcing to fill in talent.
So Adam to S&P, excuse me to S&P themselves, who need to do more with less labor.
Our technology is designed and built to allow technicians to automate and MSP and the businesses they support to scale.
And third cyber security threats are on the rise and make the work our msp's do not just more important but in fact mission critical to business continuity for hundreds of thousands of businesses around the world.
And our current geopolitical situations, both state and Nonstate actors Bose.
It was a heightened threat to businesses in Europe and around the world.
An MSP or looking to us to provide them with enterprise grade security solutions with the ease of use the SME is required to help them stay ahead of the security curve and provide this core risk management function.
A lot of our activity on the product front directly addresses these industry tailwind.
I mentioned briefly on our last call that we had launched enabled DNS filtering in February as a new security offering to our partners.
This is a cloud based AI driven content filtering and threat protection service that is designed to MSP as better monitor manage and proactively protect and secure their customers' network, regardless of location or connection.
This is ideal for hybrid work environments we.
We have seen a strong pickup since launch and we expect continued acceleration into the second quarter.
We have for a long time, but on the cutting edge of data protection.
With one of the first true offerings of cloud first data protection as a service for MSP.
Last week.
We announced the launch of Cove data protection.
We believe that COVID-19 disruptive to the market for its fundamentally different architecture that enables msp's to modernize their approach to data protection and allows seamless backup archive and recovery of data.
Eliminating up to 90% of labor time, and moving roughly 60 times less data.
Simplifying operations this transformative solution.
Leading into this launch we celebrated a few milestones that validate the power co data protection brings to the market.
We received the backup and disaster recovery Award from Cloud Computing magazine, which recognizes excellence in the advancement of cloud computing technologies celebrating our cloud first data protection and quick and reliable recovery from events such as ransomware attacks.
We announced in February .
Since launching our backup solution for Microsoft 365 domains in December of 2019.
We are protecting more than 4000 enabled partners across more than 25000 customer domains and over 900000 exchange mailboxes.
Since that announcement, we are now protecting over 33000 and 365 domains as of the end of April and that number continues to grow.
We believe traditional local first image backup does not suit the needs of our modern it environments and certainly misses the mark for MSP.
Our solution was built from the ground up to be cloud first unlike other solutions that claim to be in the cloud.
But are simply legacy architectures with bolted on secondary cloud features that add complexity.
Cove data protection provides appliance free direct to cloud capability with advanced disaster recovery benefits and designed in cost efficiency scalability and reliability that MSP and their customers require.
I'll illustrate this with a feature that is currently in customer preview and slated for general availability in early Q3.
It's called standby image.
And it's an elegant toolset that allows msp's to have backups sent to the cloud while they maintain a standby image at the location of their choice.
Allowing for fast and flexible disaster recovery without the need to purchase proprietary appliances.
Architecturally COVID-19.
<unk> addresses the primary need for modern data management systems.
Our partners are telling US for example that was cove, they're able to go from 40 hours spent per month on backup down to four hours from.
From three full time support technicians down to around a half of a full time equivalent.
And from 95 tickets per day down to nine.
That is a massive impact for services oriented organizations and allows them to focus on more strategic value add work.
Data protection has long been a growth driver for enable and we believe the launch of Cove will accelerate its importance to our business.
A recent report from William Blair estimated the Tam for data management, a 37 billion in 2024, highlighting the market potential.
And though we are not yet known are well known in the backup and disaster recovery space. We have seen time and time again that when our partners or new prospects switched from a competitive solution to enable that.
They consistently come back with very positive feedback on our data protection capabilities.
As we put effort behind establishing our brand in data protection, we expect to see even greater growth.
Also we just announced that are enabled <unk> email security solution has been awarded first place in the latest VB spam comparative review.
Receiving the highest score both on this latest testing in March of 'twenty, two and in September of last year.
The tests were conducted by virus Bulletin and industry renowned test laboratory and an important reference for specialists and business is concerned with computer security.
We received the highest VB span plus rating with the malware catch rate of 90, 996% and zero false positives.
In addition, we are conducting an external preview of an additional feature called mail assure private portal.
Which secures emails beyond managed devices to the recipient with audited access and encryption.
This is a high demand feature for our MSP partners and the feedback we're getting so far has been very positive.
Finally, we are in the midst of a soft launch of our new professional services offering.
Which is designed to help msp's better deal with one of the industry dynamics I mentioned earlier.
Specifically labor scarcity issues.
Known as enable enhanced services.
The structure of this offering to help our partners rapidly unlock the potential of enabled products optimize their teams and technician efficiency.
And accelerate time to value by delivering solutions to their customers faster.
The guidance and training we provide is instrumental in helping msp's grow their business and improve efficiency in everything from migrations to on boarding to ongoing support.
Above the base level services. We've always provided we are introducing a fee based premium level for partners, who require more of a differentiated support experience for their business needs.
This is a direct response to partner feedback and the culmination of a significant investment we've made in service delivery that goes to the heart of what enables value that would enable us partners value about us and we believe this will open the door to even larger scale opportunities.
Now as I did on our last earnings call.
I want to continue the practice of sharing some notable wins.
First we won a large six figure and central deal with a multinational medical research and testing company based in Europe .
They were looking for a single pane of glass to manage the global assets and the ability to automate maintenance tasks over and above standard patching requirements.
Though the initially content contacted us based on our remote management reputation. They were sold on in Central's advanced security and full visibility to their highly dispersed and specialized global infrastructure.
Second we sold in a near six figure deal for our Cove data protection solution to a large MSP that is primarily a Mac shop.
Not only was this a great win to replace a competitor the partner was convinced by our superior value in technology and service, which allows them to reduce and refocus their technician time they.
They also liked that co provided them with a significant advantage in terms of the profitability and scalability of their business.
We also had some notable expansion deals in the quarter.
First we had a significant expansion deal of close to 300000 a R. R.
With a managed security services provider or MSP, who is already a large partner of ours for and central.
They were being courted by a competitor for their primary security suite.
After we came in with a competitive solution, including Central one Edr are significant edge was our support access to professional services and the ease of integration with their current offering.
Second one of our smaller RMM partners in the U K was acquired by a larger MSP.
Who was using a mixture of homegrown and competitive tools.
They were considering how to scale themselves to the integration and the growth they are plant.
We demonstrated that in central was the right tool for them to expand their service offerings as they consolidated their business.
But just as importantly, compared to the competitors. They were actively assessing we were the right long term attentive partner that would focus on their technology and their business above all the result was a near 200000 RR expansion deal initially managing more than 20000 endpoints.
Third.
At a mid 100 K a R. R expansion deal a California based in central and security partner with exploring replacing their backup solution looking to reduce complexity improve their reliability and efficiency and optimize the time and people resources. It was taking to offer backup services to their customer.
Our solution drastically reduced the time they spent on backup.
Provided them with on demand support to augment their team and gave them the scalability to grow their business.
In the first half of 2021, we reorganized and change the way, we engage with our customers.
By providing dedicated partners success reps.
We put the focus on what our customers need not one of them what we are trying to sell.
And by changing the lens and experience we are exposing sizeable opportunities alongside our partners.
Since our change we have seen the opportunities created by our partners success teams have had the highest close rate of any opportunity we have created.
As we continue to invest in the expansion of our channel teams and in new markets. Our overall sales output continues to improve sequentially continuing the trend we saw throughout 2021.
We generated a quarter over quarter increase in our total sales pipeline with March our biggest months for pipeline creation in the last two years.
Looking ahead, we will be executing in the near term on Cove enhanced services and other product launches we are working on.
And working on articulating our value proposition to ensure our potential and current partners are aware and taking full advantage of our holistic solutions.
Before I turn the call over to Tim.
I want to discuss enables business in Ukraine, Russia and Belarus.
We have a de minimis amount of revenue in those regions and aside from the impact that is having on the global economy, our operations financial results and business have not been materially impacted by the situation there.
We operate much of our development activities outside of the U S.
Throughout Canada and Europe .
Including operations in Belarus.
If needed we believe we have adequate resources and non impacted regions to support our products and are taking actions to mitigate any potential impact as we deem appropriate.
Now I will turn the call over to Jim to discuss our financial results and outlook before I jump back on with some closing thoughts.
Thank you John .
And thanks to all of you for joining us on the call today.
I want to review our first quarter financial results, then discuss our financial outlook for the remainder of 2022.
As John mentioned, we finished the first quarter ahead of our outlook with total revenue of $99 million, representing 9% year over year growth or 12% on a constant currency basis.
Note that if FX rates had held at the rates used when we gave our guidance revenue for the quarter would've been approximately $250000 higher.
Subscription revenue was $88 $6 million, representing approximately 10% year over year growth or 13% on a constant currency basis.
Other revenue, which primarily represents maintenance revenue from our discontinued legacy license model with $2 $2 million down 12% year over year consistent with prior quarters.
Okay.
We ended the quarter with 1733 partners with greater than $50000 of IRR of 15% year over year increase.
<unk> with over $50000 of IRR represent 48% of total IRR up from 43% a year ago.
We saw strength across our portfolio with our Edr in Microsoft 365 backup solutions continuing to outpace total company revenue growth.
Dollar based net revenue retention, which is calculated on a trailing 12 month basis was 108%.
The decrease relative to last quarter is exclusively due to changes in FX rates.
Turning to profit and margins note that unless otherwise stated all references to profit measures and expenses are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliation provided in today's press release.
Also note that historical financials for the period.
Prior to the effective spin off date of July 19th 2021 included operating expenses that were prepared using carve out allocation methodology, while we were still a part of solar winds.
While the allocations and estimates in these carve out financials are based on assumptions that we believe are reasonable are standalone financials are not necessarily directly comparable to those prepared prior to the effective spin off date.
First quarter gross margin was 85, 7% compared to 86, 6% in the first quarter of 2021.
First quarter, adjusted EBITDA was $27 million, representing approximately 30% EBITDA margin.
Unlevered free cash flow.
With $13 $5 million in the first quarter.
Q1, Capex was $3 8 million or four 2% of revenue.
non-GAAP earnings per share was <unk> <unk> in the quarter based on 180 million weighted average diluted shares.
We ended the quarter with approximately $74 million of cash and an outstanding loan principal balance of $348 $3 million, representing net leverage of approximately two five times.
Now I'll provide our financial outlook for the second quarter and full year.
There has been material changes to the foreign exchange environment since our last outlook and we are updating our guidance to reflect the impact of these changes.
Taking aside changes in foreign exchange rates on a constant currency basis, our full year outlook remains consistent with our prior guidance.
I want to start by reconciling our prior 2022 outlook based on current FX rates.
As stated in our previous call, we assumed FX rates for the Euro and pound of 113 and 135, respectively.
We also stated that every point on the euro equated to approximately $900000 of annual revenue and every point on the pound equated to approximately $300000 of annual revenue.
Accounting for updated FX rates of 1.05 on the Euro and 123 on the pound as well as other currencies. Our prior 2022 revenue guidance of $384 million to $388 million.
<unk>, two $375 million to $379 million.
Approximately $9 million of impact for Q2 through Q4.
As it relates to our prior 2022, adjusted EBITDA outlook of $118 million to $122 million using these updated FX rates, our adjusted EBITDA outlook translates to $112 million to $116 million approximately $6 million of impact for Q2 through Q4.
While the global macro environment remains fluid and FX rate may continue to fluctuate based on our current FX assumptions, we expect second quarter 2022 total revenue in the range of 91 to $91 $5 million representing approximately 7%.
Year over year growth or approximately 13% on a constant currency basis up from 12% in Q1.
For the full year 2022, we expect total revenue of $376 million to $379 million representing.
Approximately 9% year over year growth on a reported basis or 13% to 14% growth on a constant currency basis.
In line with our constant currency guidance on our previous call.
We expect second quarter adjusted EBITDA in the range of 26 to $26 $5 million, representing approximately 29% margin at the midpoint.
<unk>.
For the full year, we expect adjusted EBITDA in the range of $112 five to $115 $5 million equating to approximately 30% margin at the midpoint.
We reiterate that capex will be approximately 4% to 5% of total revenue.
We also expect adjusted EBITDA conversion to Unlevered free cash flow to be approximately 70% for the full year.
We expect total weighted average diluted shares outstanding of approximately $181 million for the second quarter and approximately $182 million for the full year.
Finally, we expect our non-GAAP tax rate to be approximately 24% in the second quarter and 26% for the full year.
Now I will turn it over to John for closing remarks.
Thanks, Tim.
As Tim pointed out despite the fact that we had to update our outlook to account for adverse changes in foreign exchange rates.
Operationally, we are very much on track for our plan this year.
We are starting to see the revenue acceleration, we are projecting in the second half of the year.
As you can see we are executing well on our key investment areas backed by a strategy rooted in a deep understanding of our market and the leadership team that is committed to our growth and our partner's success.
We see a great deal of opportunity in the current market environment and is creating a lot of energy and excitement up and down the company.
Earlier, I mentioned that a major part of earning more fans is geared toward our partners and other external parties.
But the real impetus and inspiration derives from my fellow enabled sites, where the key to our success.
I am proud to say our teams are getting recognized for their exceptional work.
We recently won two awards from comparably.
For best Global Culture, and Best Company outlook.
We also just announced that we were honored with for American business Awards also called the <unk>.
A gold award for it department of the year for the spinoff of <unk>.
Silver award for human resources executive of the year for our Chr ROE Kathleen pie.
A silver award for customer service Department of the year, recognizing our partner's success management team.
And the bronze award for achieving and product innovation for Cove data protection.
This external recognition underscores and validates our efforts to build a company that earns fans amongst our partners and their customers our employees and all of our stakeholders around the world.
2021 was a foundational year for us with the rebrand spinoff.
And focus on hardening security into all layers of our operations product development lifecycle and culture.
In 2022 were in full value creation mode for our partners and enable.
The work we are doing now will determine the trajectory for enable moving forward and as you can see we are off to a great start.
Operator, we're now ready to open the line for questions.
Thank you.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
If for any reason you would like Jimmy if that question. Please press star followed by <unk>.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
The first question today comes from Matt Hedberg of RBC capital markets. Please go ahead. Your line is now open.
Oh sure. Thanks, Thanks, guys good morning.
John Thanks for the comments.
Curious.
<unk> had good results here and Youre guiding to effectively no change no change in constant currency growth rates for the year and you've got broad exposure.
It kind of global SMB trends can you talk about sort of the resiliency of those end markets.
The economic condition globally were to change and deteriorate to just sort of maybe speak to the mission critical nature of your solutions and how perhaps.
They might do if there is a bit more of a challenged economic times ahead.
Thanks, Matt you you stole my phrase that I was going to lead with on your question and that is mission critical right.
The services that are Smbs excuse me that our MSP.
Provides the Smes are mission critical this is not a discretionary spend or a nice to have.
Sps.
Effectively making sure small medium enterprises across the globe can do their jobs can be productive can collaborate and can do so securely and and so we're really seeing no real degradation in demand for the <unk>.
Security offerings, our data protection offerings monitoring needs continue to be high throughout so we're not really seeing a degradation.
Either from the SME or from the MSP and I think it speaks to the importance of the MSP community.
The other thing when we when we think about.
Demand the MSP is really a labor arbitrage as well, Matt right and so as Smbs look for better ways to scale our solutions help MSP.
Scale their business be more efficient and drive their profitability up and also in doing so Smes can also mitigate some of the cost that they might have with internal resources by leveraging the MSP. So the supply chain. If you will I'd say, it's actually a pretty a pretty good labor arbitrage for the greater for the greater SME need.
That are out there for it.
No that makes a ton of sense, obviously, you guys have a long history here.
Serving these end markets, maybe the second question one.
One of sort of your peers that serve MSP is is in the process of being acquired I guess I'm curious what does that mean from your perspective from.
Maybe from a consolidation standpoint, I mean do you think.
It really speaks to the opportunity to further consolidate MSP spend from your perspective, and maybe just also maybe just sort of the sheer magnitude of this market just curious on your perspective there.
Sure and I get this question a.
A good amount.
Folks internally and externally look I think it's a the the pending transaction is somewhat of a validation point of the power of the model right.
<unk>.
And folks in our space, we have a tremendous levered model, where we gain access to the power of the SME it spend and and in doing so it allows us to really grow our business and grow our business profitably. That's why we continue to aspire to be a rule of 50 company with that blend of of growth, but also profit and the way we gained.
That profit Matt.
As you know is by leveraging the MSP, we have 25000 msp's those are effectively.
Our sales force as they go out and provide services to the SME. So the transaction for me is just somewhat of a nod that there is that there is a power in this model I look at this as others have described as the Golden era for MSP.
And I think that that pending transaction is more of a nod to the fact that we are in a growth market.
As a golden era for.
An opportunity for the MSP.
And for vendors like enable that support them.
And for us at enable.
My message to my team is that we're focused laser focused really on our roadmap our strategy and providing solutions and business tools to help our msp's grow and that will be our focus so while others may need to be somewhat.
Preoccupied with with their integration plans.
We got to be laser focused on our agenda, our roadmap and our partners.
Great Great perspective, thanks, John Thanks, Thanks, Kevin.
Thank you Matt. The next question today comes from Mike Cecos from Needham <unk>. Mike. Please go ahead. Your line is now open.
Thanks.
Thanks for getting me on the call today, guys I did want to circle up I think in John's opening remarks actually you cited better retention figures.
<unk>.
Is there any way you can provide more color on how those retention figures are trending and then the derivative question that I have for you is.
Is that gross margins actually stepped down slightly if I look on a quarter to quarter or year to year basis, I imagine that part of that gross margin erosion is based on increasing expenses related to cloud hosted offerings.
But wanted to know if that is the case or maybe Theres also a combination where you guys are hiring now.
For a more robust customer success team.
Which in turn would be benefiting those retention figures that John previously segment.
Hey, Mike Tim here I'll I'll take that one on the retention figure is looking at on a constant currency basis that more where John's comments are related to both.
Both gross and net retention improved in Q1 compared to Q4.
We're really excited and I think you hit on it but the investment and partner success is starting to show the return that we expected on both the gross and the net retention one retaining customers at a higher rate and two diet on the opportunities that we're creating from that motion and the closer you are having there that's having an impact on the expand side of the equation.
And as well.
And then turning to your question on gross margin and how Thats come down a little bit.
I would say its a few things one is it's been some investments in the products to improve performance.
As well as functionality for our partners.
Two is just a little bit of product mix.
In terms of.
Some of the different margin profiles, we have across the business and the third is a couple of onetime items that are impacting.
In the quarter in Q1, but I would expect kind of things that steady out in that 86% range over the course of the year.
Terrific terrific. Thanks, and then I know John It also discussed.
I guess, the geopolitical with respect to Europe , and Russia, Ukraine.
<unk>.
Potential exposure to Belarus, as well could you give us and maybe some some finer parameters around.
What you guys are seeing in Europe today.
Potentially how much of your business from an operation standpoint is in Belarus, I'd just be interested in hearing anything you have to say on that.
Sure.
We reiterate what we said.
In the prepared remarks right. So the revenue that we have in the Ukraine, and Russia and Belarus.
Last quarter was de Minimis right. So it's really it's really an immaterial.
Amount.
So no real revenue.
The business does have.
And R&D center in.
In Belarus.
And a couple of support folks as well, but we believe.
The situation in Belarus, while the while the.
Ukraine War.
Is.
As a relatively new one the the situation in Belarus has been somewhat ongoing for a good amount of time and we have.
Resources.
In other Geos and we believe we are.
Sure.
In a spot that we can support all of our products.
If any situation, where two to change or to heighten.
It makes a ton of sense. Thank you very much guys I appreciate it.
Thanks, Mike.
Thank you Mike.
The next question today comes from Keith Bachman from BMO. Keith. Please go ahead. Your line is now open.
Yes. Thank you I wanted to come back to the macro question and try to frame it.
With some data if I could.
If I look at it it's really trying to understand what the potential.
Impact to your business might be.
If I look back to year numbers during the course of 'twenty. There is a lot of moving parts. There you had a pretty meaningful slowdown from the March quarter, the June quarter, but.
Solar wind and whatnot.
There's quite a bit going on so I was actually going to try to frame it.
Using data as information so that I called out during.
The brief impact from.
The COVID-19 economy, so to speak.
Business slowed pretty meaningfully from call it 18%.
In the beginning.
The March quarter, and even the December quarter of 2019, but business slow pretty meaningfully throughout the.
The June September December quarters, and while I agree that you are.
Technology is certainly important to running business a lot of smbs.
Our negatively impacted by recessionary periods, much more so than larger enterprises and either.
Don't continue as a going business or need to cut back.
And so to a previous question.
You talked about resiliency agrees it's important.
Why do you think your business might be different than say what data experienced during an economic recession and why do you think you wouldn't be impacted if there.
In fact, there were a recession our core either late this year into next year, who knows.
Because the underlying fundamentals of TSA Smbs may in fact.
Require less spending or again concerned about ongoing ability to keep doing business, maybe you could just speak a little bit about <unk>.
Particularly during a recessionary period, how you might be impacted and or why you might be different from what in fact happens to data during the COVID-19 economy.
Good morning, Keith This is John great.
Great questions. So, let's let's go back to that so we also experienced let's separate a couple of the what we call.
<unk> that were on the business so.
On Q2, 'twenty, we refer to that as our COVID-19 quarter as well so very similar to <unk>.
What did we see and what did MSP, we actually saw a increase in demand for our security offerings and our data protection offerings. What we actually saw was a decrease in new customer acquisition and we also saw a decrease in our MSP is adding new small medium enterprises. So.
What happened.
Our MSP with thrust to the forefront they were effectively the frontline, helping small medium enterprise navigate through that Covid crisis right and so when you do that you focus on your book of business, our Msp's rose to the challenge frankly.
And secured their customers and help them navigate because they need to be productive they need to be secure and they were 100% focused on.
Helping smbs transition so we didn't actually see a decrease in demand we saw effectively a lack of.
A lack of bandwidth.
Our MSP as did not add new customers, because they were securing and making sure their existing book of business was productive and actually our results that were exactly that our cross sell motion was strong our retention numbers, especially for the high end of our Msp's. We're actually strong we saw a little bit of a degradation on the lower end.
But the demand for us for our solutions, we're actually strong what we what we saw slowing down where msp's, we're not looking for a new offering during COVID-19.
That that for me spoke highly of the importance. The msp's have on the SME. They went from talking to their customers once a month to talking to their CEO as of the small medium businesses daily to help them transition and they did so and there was a tremendous amount of effort.
And frankly without the MSP a lot of a lot of the SME is out there would not be in business today for the for the actions that those SME that those MSP.
<unk> took.
Effectively mobilize the workforce of the small medium enterprise.
Yes, it makes sense to me frankly, a lot of software companies.
And customers.
Business remained fairly robust on COVID-19, but the new logo adds I think for everybody slowed down.
So it makes sense.
And maybe just my follow on if I could is just a clarification you indicated look currency is really tough for everybody. You guys are no different than anybody else 9 million impact of revenues.
Versus last guide you did mention that there was a $6 million EBITDA impact I was just curious why there is such a pronounced.
6 million EBITDA impact of 9 million variance in revenues just maybe there's some mechanics, there I don't know, but if you could just clarify maybe I heard the numbers.
Wrong particular wonder why is there such a meaningful impact on EBITA.
Hey, Keith I am happy to.
Happy to shed some light there you had the numbers right it was $9 million impact on revenue.
Excuse me and and $6 million of impact on EBITDA. Most of it is related to the euro.
You can kind of see bi.
Color, we gave on the Euro for every point, it's about 900 K of annual revenue, we have I would say, we're not naturally hedged on the euro from an expense footprint most of our.
International cost lie and GBP.
As it relates to where we have our operations out of Scotland there.
And so that that's the driver there so its about two thirds to 70% kind of drop through from from revenue to the bottom line, what we're seeing right. Okay.
Okay. Okay.
That's it for me best of luck to you.
Thanks Keith.
Thank you Keith.
As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
The next question today comes from Jason Ader from William Blair. Jason. Please go ahead. Your line is open.
Yeah. Thanks, good morning, guys.
I wanted to ask about COSE, you guys talked about how COVID-19 is more efficient than traditional backup.
Software and you can just explain to us kind of in simple terms why.
Good morning, Jason sure. So a couple of reasons so first.
Our approach and our architecture is fundamentally different right. So we are we are a cloud first architecture.
So what does that mean that means the data flows from the.
The target the workstation or the server or the VM and it goes directly to the cloud. It does not have to go first to an appliance.
That means a couple of things that means better economics for the customer for the MSP that means better economics for enable it also means a more secure solution because that clients effectively as a target for the bad guys and the fact that we go right to the cloud makes it more efficient so that so thats number one number two we have what we call a true Delta technology.
What we're doing is we're looking at changes in the files and in the data. So we'll take a backup and then we'll go on to take the next backups were only looking at the changes there the deltas that are happening, which which therefore.
Produces less data that needs to go back and forth and are less of a storage footprint our competitors taken image.
An entire image and then take another entire image and take another entire image and not just inefficient and so the fact that we were born in the cloud with this architecture leveraging this true Delta technology, just effectively gives us a more efficient offering and what does that mean for the MSP that means less babysitting time, right, they're not needing to watch them or manage their backup is.
Less of a footprint on the storage that they might need to procure or experience and it's less data that's moving back and forth again.
Producing a more of a scalable efficient solution. This is disruptive we win and and we're really excited to see how now with this new I would say reinforced go to market positioning.
What COVID-19 is going to do and continue to be a growth driver for us.
Great and then what's the what's the impact.
Impact on recovery times.
Is your recovery faster because of the way you guys have architected. This this system.
Right, that's exactly right. So both recovery times or <unk> are very efficient and.
And it's because of the way that we do that it's also the fact that we're also going directly to the cloud and with our standby image. We also give MSP is the ability to test and to point to where they want to.
Have have their backup.
Whatever various targets they want so it's a combination of a couple of things. The fact that were cloud first.
Again, as just a differentiator others in the industry claim cloud, but theyre not architected that way.
Actively they are an appliance and then they'll bolt on some type of cloud service.
To give them kind of that that the that effectively that headline that their cloud, but they are not cloud first and they might have a piece of their structure, but it's inefficient and it allows us to have a better effectively better <unk> and RP O times.
Great and then just a quick follow up can.
Can you give us a sense.
Jonathan how often you're landing.
With backup versus other products and maybe how that might change over time I'm, assuming that's one of the reasons you're.
You're kind of leaning in from a branding standpoint here.
Is that is that part of the.
The vision here that you could start to land more on the backup side and any kind of historical data.
On how much of your awards are coming through backup versus other products.
Sure. So historically historically backup has been.
Our cross sell motion, it's been or do you want fries with that type of motion, where we were effectively landing with our RF solutions.
And then using our backup offering that's integrated with our <unk> as a cross sell motion, which has been hugely successful.
With the with the culmination of all the innovation that we've built with our office 365 or <unk> hundred 65 backup offering that's all in one console really what we found Jason is that we're winning.
And.
As a new customer acquisition, so with Cove, Youll see us going to market in a more aggressive way to land Msp's and really what I'm basically saying is what we're taking we're moving our complete data protection as a service offering.
From from out of out of out of underneath the shadow of RMM, and really bringing it to the forefront and going to market and allowing MSP and honestly even mid market companies.
To win and have this disruptive technology going forward. So you're right. This is also a it's a combination of all of our of our technology, but also a change in a note to the market that we will be going with the full data protection suite. That's included that's inclusive of business class disaster recovery and.
And we will be going to market directly and winning directly not as a cross sell motion.
Very good good luck guys. Thanks.
Yes.
Thank you Jason.
There are no additional questions waiting at this time, so I'd like to pass the conference over to John Pelling Ucas closing remarks. Please go ahead.
Thank you all thank you for your ongoing interest in enable and I'm looking forward to talking to you in about 90 days.
That concludes the enable first quarter 2022 earnings call. Thank you for your participation you may now disconnect your lines.
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