Q3 2022 N-Able Inc Earnings Call
[music].
Okay.
Good morning, and a warm welcome to the enable third quarter 2022 on its call. My name is Candice and I will feel much right. So for today's call.
Lines have been placed on mute during the presentation portion of the call with an opportunity for questions at the end.
If you'd like to ask a question. Please press star followed by one on your telephone keypad I would now like to pass the conference I thought to our house host.
Laguna within April Please go ahead.
Thank you Ken.
Welcome everyone to enabled third quarter 2022 earnings call with me today are John <unk> enables president and CEO and Tim O'brien, EVP and CFO . Following our prepared remarks, we will open the lines for a question and answer session. This call is being simultaneously webcast on our Investor relations website at investors.
<unk> dot and Dash Abel Dot com. There you can 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 market opportunities are continued expectations. Following the spin off of our business from solar.
<unk> 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 spinoff.
<unk> completed last year.
Additional information concerning these statements and the risks and uncertainties associated with them as noted in today's 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 referred to financial measure.
<unk>, we will be referring to the non-GAAP financial measures a reconciliation of the non-GAAP financial measures discussed on today's call to their GAAP equivalents 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 welcome everyone to our third quarter earnings call.
Once again.
Our Q3 results exceeded the high end of our outlook.
With revenue of $93 5 million.
Growing year over year by 13% on a constant currency basis.
We believe this demonstrates the success of our purpose built mission critical platforms and the leverage of our multi product sales approach.
As we generated particularly strong growth in our security offerings and data protection as a service.
We also exceeded the high end of our adjusted EBITDA forecast coming in at $28 9 million.
Representing a 31% EBITDA margin.
We entered this year proudly declaring a rally cry of earn more fans and.
And during the third quarter, we made exciting progress on a number of fronts.
To start we welcomed more than 450 partners and 35 sponsors to our empower partner conference in Las Vegas at the beginning of October .
This is the first time, we were able to host this event in person and over two years.
And it was truly inspiring to brings together many of our elite and <unk> customers as well as some of the top industry leaders to discuss and debate industry trends best practices and opportunities with its highly engaged global audience.
We entitled the event on the cloud and.
And spend time in over 80 workshops demonstrations and presentations with partners exploring the msp's role in monitoring managing and securing cloud workloads and SaaS applications.
Cloud based it spend by small and medium enterprises is expected to grow from $600 billion in 2022.
Two trillion by 2027.
Which we believe.
Represents a significant macro tailwind.
However, while our partners want to master the cloud they need help.
And empower give them the chance to seek guidance both from us and from each other.
From Azure resource management to Microsoft 365 user management and protection.
We facilitated conversations to help them not just one but monetize the cloud opportunity.
And as I said on stage in Las Vegas.
Answer is in the room.
Managed service providers today are assisting Smes and transitioning from the wiring closet to the cloud.
Decommissioning exchange servers file servers and other server based applications in favor of cloud based collaboration suite.
We believe that while MSP or capable of shepherding this transition.
Have evolve their businesses to become cloud solution providers Lenny.
<unk> struggled to do so efficiently and profitably.
And this is why we acquired spin panel in July of this year.
Spin panel as a multi tenant Microsoft 365 management and automation platform.
Built from Microsoft cloud solution providers.
It allows users to automate the management and security of all Microsoft tenants users and licenses.
This is accessible.
Within a single consolidated hub to reduce complexity.
Efficiency.
And help enable MSP partners profitably scale their Microsoft business.
I am pleased to report that on August 16th we announced cloud user hub, which leverages the spin panel technology.
Allowing msp's to better monetize scale and own the strategic slice of the cloud.
While still in beta within 72 hours of announcing this offering.
We received.
Over 300 hand raises from partners and prospects looking to trial the product.
We believe the combination of cloud user hub and our code <unk> hundred 65 backup offering which has now surpassed $1 2 million mailboxes protected will allow <unk> to better provision monitor and protect their customers and 365 environments.
In 2023.
We expect to further expand our integrated cloud offerings.
To enable msp's to better monitor manage and backup Azure workloads, and other SaaS and cloud applications and environments in one place.
It is a hybrid multi cloud world that MSP that charged with managing and protecting.
And we plan to give them a unified and multi tenant approach to manage their customers on prem and multi cloud environments.
During my keynote at the empower conference we discussed cloud adoption in our MSP as much leaned into the curve.
Selling their customers better leverage the cloud and ensure that they do do so efficiently and securely.
I also discussed the two other tailwind that continue to propel the industry.
As Ceos and business owners turned to MSP to assist with compliance.
Business continuity and cyber insurance elements of their businesses.
Layered security continues to allow MSP and opportunity to be the trusted security advisor for the companies they serve.
And their effort to mitigate risk and serve their customers.
The software MSP deploy to identify.
Yeah.
Detect respond and recover.
Allows them to increase wallet share and revenue per customer.
When it comes to security.
We encourage msp's to tell rather than sell with.
With a comprehensive layered security philosophy to ensure the best level of protection for both themselves.
And their customers.
We grow as our partners grow.
And our best in class data protection and security offerings give our partners additional services to drive revenue expansion.
Whether it's our mail security protecting approximately $2 2 million mailboxes.
For Edr technology protecting around $1 2 million endpoints.
Or our past portal offering that provides password and credential protection, we give msp's and integrated layered security approach.
Hows of them to grow wallet share.
Security and efficiency are the name of the game and the managers managed services industry because not unlike the rest of the world.
MSP struggled to attract and retain technical talent.
This is why msp's turned to enable to help them increase their profitability by automating elements of their workforce and standardizing their tech stack.
And while a challenge on the staffing side labor scarcity remains another powerful tailwind in the industry.
Small medium and large enterprises are looking to outsource all or part of their it needs to MSP.
More and more we.
We are seeing Msp's, providing a co managed service for companies looking to fill labor gaps.
Or do more with a tighter operational budget.
Such as augmenting the staff of larger multinational companies.
Our performing Helpdesk and security hygiene services.
Our tiered multi tenant platform is perfectly suited for these situations to allow MSP and internal it departments to effectively share the management and provisioning of tasks.
It is effectively raised the end customer ceiling allow.
Allowing MSP to service multinational fortune 1000 companies.
Now while these tailwind there are exciting I also discussed with our partners during empower the uncertainty around the macroeconomic environment.
Msp's provide services that are business critical to their customers.
And while most of our partners who attended the event have not felt the material slowdown in the cross sell business.
<unk> acknowledged that their sales cycle has elongated depending on the vertical they serve.
Along with most Mlps. We believe we are in an era, where the industry dynamics are strongly in our favor.
New business is recession proof, but.
But we believe ours is well positioned to be recession resilient.
Those industry dynamics, we talk about labor.
Labor scarcity.
Cyber security issues and raising it complexity in the race to the cloud.
Set of challenges for most companies.
<unk> for enable.
Why.
Because we are mission critical to our partners and we solve the problems that would otherwise be risks.
The momentum we have coming out of empower is driving a lot of energy for us.
And our partners.
That momentum was achieved by the hard work of my fellow enabler to propel our offerings forward and increase our stickiness and <unk>.
Value.
In Q2.
<unk> announced the promotion of Chris grew to general manager of our KOL data protection business.
Cove, our cloud first enterprise grade backup and disaster recovery solution.
<unk> continues to demonstrate its clear competitive differentiation from others at a local one with a bolted on cloud architecture.
Through his leadership.
Growth continues to outpace the overall growth of the business and as our second leading solution area behind our monitoring and management platforms.
The key for Cove is an innovation, we call true Delta.
Which allows us to move up to 60 times less data than traditional solutions.
We have said.
<unk> is the best kept secret in data protection.
But the word is getting out.
This is on the rise.
And we are having greater success, replacing traditional incumbent backup vendors.
For example.
Our unique large MSP aggregator based in Canada.
Has been bringing in a variety of inherited disaster recovery platforms, rather than following a unified strategy.
Three of the subsidiary MSP.
Evaluated cove and their techs loved it.
But there was still skeptical that it can live up to the promise.
Over the course of a couple of weeks, we help them rollout drove to one hundreds of servers in thousands of endpoints.
The results far exceeded their expectations.
In fact, the president said to us.
I can't believe it was finally, a technology that we implemented that delivered on all of its promises.
And the transition was painless.
And the 20 years in the business I've never seen that.
The economics here were impressive as well.
Storage is included with Cove.
Not only other direct margins better from a licensing perspective.
But they were able to get rid of fixed hardware costs plus indirect labor costs.
Due to drastically reduce the administration time.
And just in licensing cost alone.
They told us they were going to save more than $250000 a year.
This deal for enable with an additional $100000 of IRR.
We're also beginning to make some headway in internal corporate space and.
And we are very pleased with the reception and trajectory we are seeing for cove in the market.
An example during Q3.
There was a large MSP based in the Netherlands that was looking to rollout cove to a large retail chain customer.
They committed to their customer that would be a seamless implementation without the need for tax to visit each of their customer sites.
The data and processes, we develop from a trial with a few sites gave them the confidence they needed to conduct the rollout on a flexible timeline and they were delighted with the outcome the.
The value of this deal for enable was around $80000 of IRR.
With focused from an acceleration and with success comes duplication.
I was so pleased with the acceleration of code that we replicated the GM model in R&M business.
In the third quarter, we announced Mike Cohen as the general manager of our remote monitoring and management business.
Mike has been with us for a long time.
And has been instrumental in building enabled to what we are today.
And as he takes the reins there are a number of strategic initiatives to discuss.
Last call, we talked about the unique segmentation opportunity that we have in sharing our two packaged RMM offerings.
And central aimed at seasoned larger MSP.
And insight recently launched which is an all in one offering aimed at early growth msp's.
The reception of this early stage for insight has been excellent.
And we have seen over 30% year over year increase in new logo lands for MSP and the lower end of the market.
We're also seeing momentum with mature MSP to make the switch to and central.
We use the term orchestrated scale, which represents the power of and central to help MSP MSP to take on large workloads to manage devices users and assets with a minimal amount of labor.
A great example of this is actually an update from a deal we mentioned on last quarter's call.
A large north American MSP that we had been pursuing was dissatisfied with the support and capabilities. They were getting from their current backup vendor.
We established a beachhead with the successful implementation of Cove.
And from there we continued our conversations about at central.
During Q3, we hosted a well established competitive for RMM.
Growing this $50000 AAR partner by more than 50% so far.
It is a good proof point of our multi pronged sales approach.
Our <unk> strategy continues to resonate strongly in the market.
And we were honored to be voted as the number one RMM platform for the second year in a row and the CRM 2022 annual report card.
We ranked first in the.
<unk> have managed and cloud services.
Product innovation.
And partnership placing us first overall.
While we're always honored to receive recognition for the hard work we are doing.
This one is awarded based on feedback from our partners.
And tells us that our commitment to helping them work smarter not harder is having a real impact.
We will continue to invest in both our technology and our partner's success programs to keep our flagship RMM platforms ahead of the industry.
On the sales front in the third quarter, we continue to see strong new customer and new SKU bookings.
In particular with our data protection and security solutions.
Last quarter, we talked about how we believe we are uniquely positioned to MSP, aggregators and optimizing their costs and resources through standardization automation integration and by having one vendor for service support and billings.
PE firms and large aggregators around the globe that working with us satisfies an easily provable ROI that helps them and growing their business more than any other vendor they work with.
In many ways.
We view these aggregators of the channel.
We can focus our sales effort to reach multiple MSP at once.
To illustrate the leverage we get through peer to peer selling.
There was a large and growing MSP aggregator that we began talking to earlier this year about Cove.
They are a decentralized p/e backed entity, who buys strong standalone MSP and allows for independent operation except for a few shared services.
Once we convince the executives of our value proposition.
Which centers around standardization single pane of glass integration advanced features.
And high quality service.
They opened the doors to their msp's.
Since April we sold close to three of their 18 MSP.
Which is an additional $150000 of IRR to an already vibrant account.
And we look to continue to increase our adoption within this aggregator.
M&A the MSP market continues and we believe we found a winning formula to take advantage of the opportunity.
It starts with showing companies the economic value of standardization that opening the door with our purpose built technology keeping them growing.
Through our partners success resources and enhanced services.
Our discussions at empower gave us further confirmation that providing a holistic tool set we can find entry points with MSP and many different product areas.
But it is the fact that we are truly a partner to them invested in their success that keeps propelling us forward.
We believe that is what differentiates us from competition and we will continue to drive our success over the long term.
I'll, let Tim take over the call to discuss our financial results and outlook, then I'll jump back briefly with some closing remarks Tim.
Thank you John and thanks to all of you for joining us on the call today.
I want to review our third quarter financial results, then discuss our financial outlook for the remainder of 2022.
As John mentioned.
We finished the third quarter ahead of our outlook with total revenue of $93 $5 million, representing 6% year over year growth on.
On a reported basis or 13% on a constant currency basis.
Subscription revenue was $91 2 million.
Representing approximately 6% year over year growth or 13% on a constant currency basis.
Other revenue, which primarily represents maintenance revenue from our discontinued legacy license model was $2 3 million.
Which remain consistent year over year.
We ended the quarter with 1786 partners generating greater than $50000 of annual recurring revenue or <unk>.
A seven 5% year over year increase.
Partners contributing over $50000 of IRR now represents 50% of total IRR up from 46% a year ago.
In Q3, we saw continuation of the positive trends in recent quarters with Edr and co data protection and in particular with Microsoft 365 backup continuing to outpace total company revenue growth.
Dollar based net revenue retention calculated on a trailing 12 month basis was 104% on a reported basis.
This result reflects approximately four points of negative FX impact.
Dollar based net revenue retention was in line with the previous quarter at 108% in constant currency.
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 reconciliations provided in today's press release.
Also note that historical financials for the for the period prior to the effective spinoff 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 or.
Our standalone financials are not necessarily directly comparable to those prepared prior to the effective spinoff date.
Third quarter gross margin was 84, 8% compared to 87, 7% in the third quarter of 2021.
The key drivers of the decline or changes in foreign exchange rates product mix and data center investments.
Which we expect to get scalability from in the future.
Third quarter adjusted EBITDA came in well above the high end of our outlook at $28 $9 million, representing approximately 31% EBIT margin as we achieved strong cost management in the quarter.
Capex was $5 4 million or five 8% of revenue.
Unlevered free cash flow was $18 7 million in the third quarter.
non-GAAP earnings per share was <unk> <unk> in the quarter based on 181 million weighted average diluted shares.
We ended the quarter with approximately $87 7 million of cash and an outstanding loan principal balance of $346 $5 million, representing net leverage of approximately two three times.
Approximately 44% of our revenue was outside of North America in the quarter.
Before discussing our fourth quarter and full year outlook I want to touch on our business approach in this macroeconomic environment.
Since the spinoff, we've invested broadly across the business to operate as a standalone company and drive revenue growth.
Given these investments and keeping our eye on the state of the broader economy are planned in the upcoming quarters is to focus our investments in the areas that have demonstrated the highest return.
We plan to focus new investments on product and engineering as well as revenue generating sales head count and moderate investment in other areas of the business.
With that said now I will provide our financial outlook for the fourth quarter and full year.
They have once again been changes to the foreign exchange environment since our last outlook and we are updating our guidance to reflect the impact of these changes.
I want to start by reconciling our prior 2022 outlook based on current FX rates.
As stated in our previous call, we assumed FX rate for the euro and pound of 1.00 and $1 one nine respectively.
Using updated FX rate of <unk> 99 on the Euro and $1 one four on the pound as well as changes in other currencies.
Our prior 2022 revenue guidance of $370 million to $372 million translates to $369 million to $371 million, reflecting approximately $1 million of additional FX impact in the fourth quarter.
As it relates to our prior 2022, adjusted EBITDA outlook of $107 million to $109 million.
Using these updated FX rates, our adjusted EBITDA outlook translates to $106 five to $108 $5 million, reflecting approximately a $5 million of additional FX impact in the fourth quarter.
While the global macro environment remains uncertain and FX rates may continue to fluctuate based on our current FX assumptions, we expect our fourth quarter of 2022 total revenue in the range of $93 three to $93 8 million representing.
Approximately 5% year over year growth or approximately 11% to 12% on a constant currency basis.
For the full year 2022, we are expecting total revenue of 369, three to $369 8 million.
Representing approximately 7% year over year growth on a reported basis or 12% to 13% growth on a constant currency basis in line with the constant currency growth outlook in the previous quarter.
For adjusted EBITDA, we expect.
The fourth quarter in the range of 27, 5% to $28 million.
Representing approximately 30% margin at the midpoint.
We are raising our full year, adjusted EBITDA outlook to 111% to $111 $5 million equating to.
Approximately 30% margin at the midpoint.
Capex is expected to be approximately 5% of total revenue for the full year.
We also expect adjusted EBITDA conversion to Unlevered free cash flow to be approximately 66% for the full year.
We expect total weighted average diluted shares outstanding of approximately 181 million for the fourth quarter and the full year.
Finally, we expect our non-GAAP tax rate to be approximately 27% in the fourth quarter and 25% for the full year.
Now I'll turn it over to John for closing remarks.
Thank you Tim.
We believe we are seeing the fruits of the strategic initiatives, we set in place since before our spin off.
With a set of product offerings and services that are purpose built to drive MSP partner success.
As I mentioned, we have recently adjusted our product group alignment to a GM model to accelerate growth and ensure we are best addressing the needs of our partners.
The goal is to build efficiencies to drive our business forward successfully.
Be better positioned to support our partners and products and to earn more fans.
At the end of the day, we make it our mission to do two things for our partners.
First.
As to bring them enterprise grade software that will grow their revenue and wallet share with their customers.
Second is to design, our software programs to help them scale standardized to be more efficient and drive up their profitability.
Simply put we are focused on both their topline and Bottomline helped.
Helping our partners navigate this macroeconomic environment and come out on the other side stronger than ever.
Turning headwinds into tailwind.
With that if.
If we don't have an opportunity to speak sooner.
I wish you all a great rest of the year.
And look forward to talking with you on our next call in February .
Operator, we're now ready to open the line for questions.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you'd like to remove your question to start followed by <unk>.
To ask a question. It is star one as a reminder, if you are using a speaker phone ph amendment to pick up your handset before asking your question.
Our first question comes from the line of Mike Sekos Nathan.
Your line is now open. Please go ahead.
Hey, guys. Thanks for taking the questions here.
I wanted to circle up to make sure I'm understanding a couple of different moving pieces and congratulations on a strong.
Cost discipline that you guys were able to demonstrate this quarter.
First with respect to the partners generating north of 50000. They are can you can you give me that metric again I think was at $17 86 that you guys had cited on the in the prepared remarks.
Yes, it was Mike.
Okay, and so can you help us understand.
I guess, what youre seeing from the MSP that would close this number to pick back up on a sequential basis and maybe for a historical perspective.
Did we see a decline during COVID-19 or what what seems to be.
Different this go around.
Maybe some of that quarter to quarter step down that we're looking at.
Yes.
Some color there, it's really primarily FX related if I currency adjust out of the customers, they're continuing to grow sequentially.
<unk>.
The decline is really just due to adjustments in FX rates across the globe.
I see okay. Thank you for calling that out.
That makes much more sense to me.
Yes, and just.
One of the call and nothing has changed I would say from a from a macro standpoint as it relates to customers over that 50 $50000 threshold, it's still very healthy.
John touched on a bunch of points around some of the MSP Aggregators and I would say there is a lot of strong momentum there and where we are.
We're continuing to see success.
With our approach and strategy around that segment of the market.
And I do just wanted to firm up my understanding with respect to gross margins in the sales and marketing specifically.
And the gross margins I know that you guys had cited.
New products is probably being a little bit of a drag this quarter versus a year ago and I'm just trying to get for a magnitude given you guys have had some newer product releases this year.
I guess, where are we in scaling those more products and so should we expect that.
That drag from new products to I guess.
Accuracy and.
Q4, and beyond and then the second question would be on the sales and marketing expense.
I was surprised to see that.
Downtick sequentially and just wanted to see is there anything specific this quarter.
That would have.
Cause that.
The quarter decline on the sales and marketing.
Yes.
Happy to give color on both of those.
On the gross margin front, you had on the new products that I would say an investment upfront.
And things like that the new spend panel offering.
As well as our <unk>.
Tech services offerings as well, we had to get some infrastructure and some people built out.
Prior to launching and leaning into the growth of those new products. So I would expect to get to a scale on both of those brands.
As we go through 2023.
In the quarter as well, there's also FX pressure on.
<unk>.
On the on the gross margin line as well if I frame it out it's about a third new products.
FX and a third on some data center investments.
To help help scalability in the future.
And then on the sales and marketing front in terms of the the sequential decline I would say it's more seasonality.
Some of the marketing in the summer months.
As well as just timing.
There.
And.
Is that a little bit of FX as well.
As rates came down there.
Okay, and just to clarify on that latter point I know.
You had said that some of it is timing right. So should we expect.
I guess.
When I think about the timing of those expenses, where you guys deferring some of those expenses to calendar 'twenty three will it show up in Q4 did it did it come out in Q2 again, just want to make sure I'm Crystal clear on.
And what caused the decline there.
Yes. The decline in Q3 was what was part seasonality and I'll also part cost management as we looked at some inefficient parts of our spend.
And tighten that up in Q3, I think you see that more in the <unk>.
As part of the profit beat in the quarter, but it's a combination of seasonality in Q3 for marketing spend as well as just I would say some tighter cost management.
Got it. Thank you good morning, which occurred during the period.
Yes.
Okay terrific. Thank you.
Thank you as a reminder, if you'd like to ask a question to start followed by one on your telephone keypad.
Our next question comes from the line of Jason <unk>.
William Blair.
Line is now open. Please go ahead.
Yeah. Thanks, Hi, guys. Just couple of question for me just on the Opex front you talked about.
Some tightening going on can you give us more specifics on where you are kind of tightening the belt.
Sure Jason.
John Good morning.
So.
Got it.
When we look at our spend.
If we back up on Opex rate, we continue to lean in.
As Tim mentioned in R&D in our products that we are a technology company and we will continue to lead in and push that agenda forward on sales and marketing as you can imagine there are certain motions that are less.
Lower ROI.
And others and when we took a look at our marketing spend in Q3. There is certain motions that just have a much lower payback in a longer than a longer tail and thats, where we pulled back and I'll give you. Some examples.
And a couple of.
Like less than profitable Geos in particular in some of the international emerging markets, where it's more about building brand and you're not seeing an immediate return we pulled back on really some of what I'll call top of funnel initiatives and some of those smaller markets. As an example, the other thing we looked at more of our high LTV products.
And leaned in there that's why you see the uptick and the continued success in Cove right. So we are getting a little bit more focused and geos were getting a little bit more focused and motions more that it's more middle of the funnel and lower funnel.
And focusing on our on our high LTV bps.
Historically.
We might have spent in some tools that had a lower LTV to.
CAC or payback period, we've been we've been really focused on.
Some of that in the last bit overall, and you're probably your pricing across the universe.
<unk> cel, where we're focusing more on our install base and marketing and selling into our installed base that has a higher win rate, obviously and a lower cost to acquire and to grow those accounts. So.
We've shifted.
On what into making sure we can grow that customer base as customers in recession lean more toward their existing vendors and not necessarily new vendors.
Alright very helpful. Thanks, and then just.
John do you have a can you give us a sense of how this period compares to sort of <unk>.
March April May June of 2020 is it similar or is it fairly different.
Yes.
I think it's different at least from our perspective, so and what we refer to as the Covid quarter.
We saw msp's leaning in heavy on security and data protection.
And we saw them really stopped adding new customers because they had to focus on their customer base and secure them for the pandemic, which our MSP as did a masterful job of doing and we were right there to help and support them. So what we saw there was that.
<unk>, we're very reluctant.
To shift our own platforms and a slowdown on NCA were not seeing that that drop off.
Anecdotally speaking Jason at empower.
When I was in a room with some of our Super leads and asking them, where theyre seeing I'd say, 75% of the room.
Are not experiencing any any slowdown remember that.
The MSP provide to their customers are mission critical business critical bets and so what we're seeing is probably a little bit more depending on the vertical MSP.
MSP that are focusing in the hospitality vertical awesome retail are seeing a little bit more of an elongated sales cycle, but the other MSP and fintech and healthcare.
<unk> and all these other areas, they're not seeing a slowdown at all so.
I would say.
The demand on data protection and security are very similar and that they are both white hot in both periods, but we're not seeing that slowdown in new customer acquisition.
To the same extent pandemic.
Pandemic, yes, okay. So its kind of vertical vertical specific of what about Geos are you seeing.
Divergence in demand across the Geos.
Not really in North America, and in EMEA and in Asia Pac we are seeing strong year over year demand compared to last year. So no I am not seeing really any degradation.
Or anything.
To call out geographically.
Perfect and then one for Tim Tim Whats.
The plan going forward on the debt.
Yes, we've got about $345 million of debt.
And I would say.
Sure.
We're kind of holding that at this point.
We paid out about 1% a year, we're looking at rates and our cash balance and determining how best to apply that cash but at this point.
There is there is no change in our plan from a debt perspective, even with the rising interest rates.
Okay. Thanks, guys. Good luck.
Thanks, Jason.
Thank you.
Our next question comes from Keith Bachman of Sandler Capital markets. Your line is now open. Please go ahead.
Hi, This is Adam on for Keith So first thanks for taking my question and congrats on the quarter.
So I was wondering if you can provide some more color on the macro headwinds you guys are seeing now in your business.
I know you mentioned elongated sales cycles, but last quarter, you called out the potential for lower device ads.
Just wondering if you're actually seeing that and then going forward for next quarter do you expect that to continue and then what's going on with down sell and churn rates as well.
Thanks, Adam this is John .
When when I think about the industry and the way I communicate this to our MSP partners.
And here internally.
Often break it down between climate and weather right and the climate is quite strong right. Those retail wins that we keep talking about cyber security the move to cloud labor scarcity and Thats, probably counterintuitive are all <unk> that continue to push and why were seeing better demand and better grow.
<unk> than we did last year right. So those are all the positives.
And the and the reference to climate and weather I think we are mindful that it is somewhat cloudy or a little bit less.
Less clear in the macro environment, and where we're seeing that most I would say most notably isn't device ads I think at the macro level.
It's well understood that PC shipments are flat year over year that hasnt impact on on the MSP environment that has an impact on our on our model to some extent. So that's probably that's probably the area. There we continue to see strong.
Bob.
Data protection and security offerings continue and that cross sell and we're also seeing a little bit of a.
Slowdown, where MSP is adding new customers and again, that's a little bit more vertical.
A bit more vertical sensitive and the anecdotal stories. The MSP share with me is that some of their end customers are just a little a little have a little bit of a trepidation as before they go and add our switching MSP. So we're seeing a little bit of a slowdown for the MSP is adding new customers on their side.
You had a second part to that question, but.
No downgrades.
Yes.
Our retention rates continue to be strong and in fact I would say.
As a cohort overall, improving so we're seeing no degradation in retention rates.
That's helpful. And then I was just going to follow up with so for Q4 do you assume these trends continue at the current rate or do you assume any degradation.
I think our forecast.
Suggests.
Our level of prudent conservatism baked in.
And we're mindful that.
But there is a level of certainty uncertainty there. So I think we really took a prudent conservative approach.
But there's nothing in the business that indicates any type of change in slope of trajectory.
Okay got it thank you very helpful.
Thank you Sir no more questions registered at this time I'd like to hand, the conference call back over to John Paul Luca for closing remarks.
Well. Thank you all for joining us today for the third quarter earnings call, we look forward to.
I'm talking to you in February and we do appreciate your ongoing interest in investment in enable thank you.
Ladies and gentlemen that concludes today's conference call.
Great Day ahead, you may now disconnect your lines.