Q1 2023 SolarWinds Corp Earnings Call
Hello, My name is <unk> welcome to the Southern Williams first quarter 20 twenty-three earnings call.
All lined up and placed on mute to prevent any background noise.
After the speaker's remarks, there'll be a question and answer session.
If you'd like to ask a question. During this time since you press star one on your telephone keypad, if you'd like to withdraw your question again press Star one.
I will now turn the conference over to Kim Carozza G V P of finance.
Thank you good morning, everyone and it won't come to the first quarter to one or 213 earnings call.
With me today or should that goes around my Krishna, where president and CEO and bought called superpowers CFO .
Following God prepared remarks, we will have a question and answer session.
Call is being fueled pannier free webcast on our Investor Relations website at investors Dot solar wind Dot com.
You can also find our earnings press release, and the summers flight deck, which is intended to supplement our prepared remarks during today's call.
Please remember that towards the the statements made during this call are forward looking statements, including those concerning God financial outlook, our market opportunities our expectations regarding customer retention power evolution to a subscription first mentality and the timing of the faces.
Fashion World Ocean.
Expectations regarding our partner an ecosystem.
Fact of the global economic and geopolitical environment on our business and our gross level of debt.
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 subject to a number of risks and uncertainties, including the numerous risks and uncertainties highlighted in today's earnings beliefs, and our filings with the a T C copies.
Copies are available from the a T C on our Investor Relations website.
We will discuss various non-GAAP financial measures on today's call.
Almost otherwise specified while we're you refer to financial measures, we will be referring to non-GAAP financial measures.
Every constellation of the differences between gap and non-GAAP financial measures as well as the definition of other financial metrics discussed on today's call are available in our earnings press release, and Summer's slide deck on the Investor Relations page of our website finally, we not that to financial result.
Discussed on today's call and then our earnings release are preliminary and patenting final review by Us and our external auditors.
They'll only be final, what's we follow our quarterly report on foreign tank too.
With that I will now turn the call <unk>.
And kicked him good morning, everyone and thank you for joining us today.
As always I'd like to thank God employees customers partners and shareholders for their ongoing commitment to Sullivan.
We had a strong start to the year building.
Building off the momentum fieser in queue for which I attribute to a broad portfolio of solutions that compelling value be Delaware to customers that trust customers place in us the resiliency of our business model and our ongoing improvements in execution.
First quarter highlights included.
Stan Sheila subscription revenue and are are growth demonstrating the fruits of a subscription first strategy, which we had been driving for over one year now.
Growing contribution from Ah observe ability solutions bolstered by balance in our service management also known as IPSA and database monitoring product like.
Continued excellence.
Customer attention demonstrating the value proposition of our solutions.
Double digit year over year, adjusted EBITDA growth, along with increasing margins, reflecting a commitment to expense and operating discipline.
And continued progress with our partners and global system integrators, as we expand our reach to customers through our partners in a scalable and cost effective manner.
Now I'll turn to Q1 financial highlights.
I will touch on some of these before turning it over to budge for more color on the quarter and financial outlook for Q2, 2023, and the full year 2023.
In Q1, 2000, twenty-three, we Delaware total revenues of $186 million about the high end of the range be provided representing a 5% year over year increase.
We are seeing the benefits of a subscription first transformation and delivered first quarter subscription revenue growth of 40% year over year and subscription are our growth of 31%.
As I've said before I consider argue evolution to subscription not just as a business model change, but as a way of delivering greater value to customers.
Now that we are a year into this transformation V C. The compounding benefits of converting maintenance the value added subscriptions the.
Believe this lays the foundation for even more predictable revenue and the opportunity to expand our lifetime value with customers.
I'm excited to report that in Q1 hour in quarter maintenance renewal rate was 94% and are trailing 12 month renewal rates.
Ah now at 93%.
The trailing 12 month Daniel rate is the highest since Q4 of 2019, showing continued improvement and reflecting the value of our solutions.
B ended the first quarter of 2023 with 945 customers, who have spent more than $100000 with us in the last 12 months.
An increase of 11% over the comparable period in the previous year.
But increasingly helping our customers.
Used to sprawl achieve comprehensive visibility across multi cloud environment eliminate alert fatigue and accelerate that business transformation.
All while improving their productivity doing so has enabled us to win larger deals.
Adjusted EBITDA grew 12% year over year $277.4 million, representing an adjusted EBITDA margin of 42% and about the 67 to 70 million dollar outlook, we gave for the quarter.
I now turn to some business highlights.
Turning to some business highlights in the quarter I'm pleased with our progress in expanding our product portfolio and growing up partner ecosystem.
On the product front last year was a transformational year for solar winds as the evolve from a monitoring vendor to a comprehensive observability solutions provider with the introduction of a hybrid cloud episodes ability and Sullivan observer ability SaaS solutions.
We will continue uniquely integrating Sullivan's platform solutions to give customers the best value in multi cloud environment across networks applications databases system's users and things I.
I believe our ability to address these needs a functional departmental and executive teams will continue to create broad appeal for our solutions across a variety of vertical and geographies.
Did support the demand we're seeing for a solutions during the quarter, we extended the geographic footprint off our products with the opening of new data centers in Europe and Asia Pacific.
In Europe , they expanded the reach of ISS Observability solutions by opening a new data center in Germany. The.
The data center will allow more AWS customers to access Solomons observability. So they can manage their hybrid and multi cloud I T environments.
And in Asia Pacific, We announced the launch of our first idea Sam data Center in Australia for a service desk customers.
New ideas M data center is said to enhance sass offering and expand customer availability to Australia and customers and also businesses throughout Asia Pacific in Japan region, reflecting our ongoing commitment to the a P. J reason.
As the evolve Sullivan's platform, we aim to deliver Observability solutions across network infrastructure systems applications databases digital experiences and log monitoring in private and public clouds with a single plane of gas visibility.
Ah solutions have earned multiple industry awards and recognitions in recent months and in Q1.
Forrester research named is amongst notable ops vendors and it's processed Hendrix.
Ops landscape report.
We believe a hybrid cloud observability solution is the only two hybrid solution that allows customers to migrate from on premises to assess at their own pace.
And violets early days, we're excited about our ability to support customers, regardless of where they are in the cloud journey with the flexibility to deploy on a private cloud public cloud or consume it as the service.
They're also making progress on expanding our customer read through our transform partner program launched large steel critical GSI relationships and the ongoing evolution of her internal teams.
In Q1, we held partner summit in all three of our major geographies and a virtual partner summit for the public sector demonstrating are growing commitment to channel partners.
As an example of her progress we launched the H C. L. I observe powered by Solomons. It join development project with a key GSI partner.
We believe the partner ecosystem represents a force multiplier in our efforts to reach more customers in a cost effective and scalable fashion.
It was very satisfying for me to see the palpable excitement of our partners who attended a summons.
I continued to visit our customers and partners throughout the world.
Complexity and productivity continue to be significant challenges exacerbated by macro conditions.
All the same.
Customers continue their business transformation journeys and view our solutions as key to addressing these challenges cuss.
Customer conversations reinforced my belief in our strategy and execution abilities to Delaware disproportionate value.
Now I'd like to remind you of the priorities lay.
It out for you last quarter looking further into 2023, we believe I T environments will continue to grow in complexity, while budgets remain constrained.
Therefore customers will value solutions that improved productivity and lower cost I believe a comprehensive Observability service management and database products and services are ideally suited to address these growing challenges. It is also my belief that by establishing all out.
Ongoing innovations on the Sullivans platform.
We can deliver even greater simplicity to our customers by creating the ability to expand the lifetime value of our customer relationships.
Following a transformational 2022. They believe we are emerging as a much stronger player demonstrated by our ability to Delaware top line growth and expand margins in Q1.
We are seeing success and they believe the diversity of our customer base across all sizes and industries and our focus on attractive growth markets should allow us to whether the challenging economic conditions.
Four key near term priorities are as follows.
First we continue aggressively seeking to drive subscription adoption across our businesses the.
We believe this is consistent with how our customers want to consume our products and the key to our goal to achieve a billion dollars in a R. R. At mid forties adjusted EBITDA margins.
He also believed in increasing our subscription base provides an even more solid foundation for our revenue and margin expansion effort.
Second we continued to exercise expense disciplined in a challenging macroenvironment, we expect to continue to look for opportunities to invest selectively while managing expenses and improving our operating margins.
As I've said many times, we have an experienced management team that has led companies through many economic cycles.
Believe are resilient business models should allow us to deliver healthy levels of growth and expand profitability.
Third we remain very focused on customer retention and expansion efforts as we have been for the past 24 months.
And fourth continue our portfolio evolution and expand our hybrid cloud Observability and Sullivan's Observability solutions, along with that industry, leading database and service management solutions.
With that I will turn it over to but to expand on our financial performance and provide a cute too and full year outlook, but.
Thanks to darker I want to remind everyone that as we discuss throughout 2022 and that's the darker just outlined one of our top areas of strategic focus is growing with a subscription first mentality.
Our subscription transition will be multifaceted the.
The first phase has entailed selling subscriptions for our existing premises products.
And our hybrid cloud interpret billety product that.
The second phase began with the recent launch of solar winds Observability are SAS solution.
We expect these two models that subscription growth will persist in our business and our overall focus is to grow subscription IRR, while exercising operating discipline.
I also want to remind you that our subscription transformation will negatively impact new perpetual license sales are first quarter results reflect our ongoing progress with this transition and another quarter of solid execution.
Turning to the numbers, we finished the first quarter with total revenue of $186 million, which is a 5% increase compared to the prior year and above the total revenue range of outlets, we provided of $177 million to $182 million.
You will notice a meaningful shift and our mix of revenue, which is reflective of our subscription transformation.
We continue to have a larger percentage of our new sales as subscription products.
We ended the first quarter with a total of $648 million up 5% year over year.
[noise] subscription. They are are as of March 31 was $185 million, which is an increase of 31% year over year.
This growth is mainly due to the execution of our subscription first strategy and then continued conversion of a portion of our maintenance base to the hybrid cloud Observability solution.
Digging into the revenue details are first quarter subscription revenue was $54 million up 40% year over year.
Our subscription revenue growth reflects the ongoing success of our subscription first efforts.
We're also seeing the results of the conversion of a portion of our maintenance base to the hybrid cloud Observability product.
We continued to convert maintenance customers at a higher than one to one ratio as they see the value of our product and they need to manage their hybrid ITN environment.
Maintenance revenue was $114 million in the first quarter, which is a decrease of 1% from the prior year.
We have discussed recently or maintenance revenue has been impacted by the conversion of a portion of our maintenance customers to subscriptions and a larger percentage of new sales as subscription products.
Our maintenance renewal rate is 93 per cent on a trailing 12 month basis.
And at 94% for the first quarter.
The trailing 12 month rate was the highest since Q4 of 2019.
We believe this is a testament to the loyalty of our customer base and our focus customer retention and expansion efforts.
Note that as we convert maintenance customers to subscription arrangements, we exclude those customers from a renewal rate calculation.
As a result of the growth in subscription revenue and strong maintenance renewal rates, we now have 91% of our total revenue as recurring revenue.
For the first quarter license revenue was $17 million, representing a decline of approximately 24% compared to the first quarter of 2022.
Remember that our subscription model transformation has been in place for over one year now and therefore, we expect a new perpetual license sales performance will continue to be negatively impacted.
Or increase subscription sales offsets the declining license revenue in the quarter.
We finished the first quarter of 2023 with 945 customers who've spent more than $100000 with us in the last 12 months.
Which is another quarter of improvement over the previous year and an increase of 56 customers since the start of the year.
I'm also pleased to report that we delivered another quarter of strong non-GAAP profitability.
First quarter, adjusted EBITDA with $77.4 million growing 12% year over year, representing an adjusted EBITDA margin of 42%.
Coming in above the 60 70 to 70 million dollar outlet, we gave for the quarter.
Excluded from adjusted EBITDA in the first quarter or one time net proceeds of approximately $7.8 million related to the expected insurance reimbursement.
Set by litigation in governmental investigation cause and other professional fees related to December cyber incident, as well as certain restructuring charges.
We expect one time cyber incident related costs to continue to fluctuate in future quarters, and he's one time cyber costs are very difficult to predict.
As we discussed in our earnings call in February we are focused on our capital allocation disciplined expense management and driving operational efficiencies across all aspects of our business.
Focusing on growth and broader subscription transition.
Given the uncertain macro outlook for 2000 twenty-three in Q1, we made optimizations to our expense structure is part of our ongoing focus on improving operating margins.
These optimizations resulted in $11 million of restructuring charges, primarily associated with 7 million of lease impairment for certain office locations and cost related to a head count reductions.
Looking ahead, we will continue to monitor the environment closely and we plan to hire selectively and continued to manage our costs in a disciplined manner.
Turning to our balance sheet net leverage at March 31st was approximately 3.8 times are trailing 12 months adjusted EBITDA.
Our cash and cash equivalents in short term investment balance was $141 million at the end of the first quarter.
Bringing our net debt to approximately 1.1 billion.
Remember that in November we refinanced our debt and extended the maturity date from February of 2024 to February of 2027.
We continue to seek to bring down the leveraged further with adjusted EBITDA expansion and plan to evaluate opportunities for further debt payments in the coming quarters.
I will now walk you through our outlook before turning it over to Sudhakar for some final thoughts.
I will start with our second quarter guidance, and then discuss what it means for the full year.
And formulating guidance, we are optimistic that the momentum we saw in Q1 should allow us to grow our top line of 2023.
Driven by our expanded product portfolio and ongoing improvements in execution.
As well as our strong installed base in customer retention.
That said, although we generally continued to see healthy demand and commitment from our customers. We are mindful of the macro headwinds affecting all areas of it spending and the potential for deterioration this year.
Accordingly, our outlet carefully takes into account macro economic conditions and the impact of our subscription first business model transition.
We remain focused on our strategy and what we can't control and are committed to continuing to improve our profitability profiled in 2023.
For the second quarter, we expect total revenue to be in the range of $177 million to $182 million, representing a 2% year over year growth at the midpoint.
Adjusted EBITDA for the second quarter is expected to be approximately $69.5 million to $72.5 million, representing 6% year over year growth at the midpoint.
non-GAAP fully diluted earnings per share are projected to be 15 to 17 cents per share assuming an estimated $164 4 million fully diluted shares outstanding.
And finally, our outlook for the second quarter as soon as a non-GAAP tax rate of 26% and we expect to pay approximately 17.8 million in cash taxes during the second quarter.
For the full year, we expect total revenue to be in the range of $725 million to $740 million.
Representing 2% year over year growth at the midpoint.
And unchanged from the guidance we issued in February .
We are increasing the full year adjusted EBITDA to be between 295, and $305 million, representing a 7% year over year growth at the midpoint.
This is compared to the previously provided guidance for the full year of $290 million to $300 million.
We will continue to make selective investments consistent with our priorities and remained very committed to improving efficiency and profitability.
And control we can control in parallel focus on top line growth as we've made meaningful investments in our product portfolio and go to market strategy and believe that these investments are starting to pay dividends.
non-GAAP fully diluted earnings per share is projected to be 71 to 76 cents per share.
Assuming an estimated $166 3 million fully diluted shares outstanding.
Our full year in second quarter guidance assumes a euro two dollar exchange rate of 107 to one.
With that I'll turn the call back over to the Doctor for his closing remarks.
We believe a diversified portfolio of Observability service management and database monitoring offerings is appealing to abroad diversified and growing customer base we.
We are making significant progress in a initiated to deliver compelling ongoing value to customers via a subscription first mindset.
Solutions that Delaware best time to value best time to detect the issues and best time to remediate issues and their multi cloud environments by a simple secure and powerful solutions and expanding margins, even as we Delaware top line growth and evolved to more predictable subscription red.
The news.
The macro environment continues to present challenges to the broader software industry.
Even so I'm confident that our strategy portfolio and customer success orientation will be appealing to customers across all geographies and vertical we.
We will continue to exercise expense disciplined invest selectively and strive to Delaware revenue growth and expanding Martin.
Again conclude by thanking God employees partners customers and shareholders for their commitment to Sullivan.
<unk> and now happy to address your questions.
We will now begin the question and answer session.
If you have a question. Please press star one on your telephone keypad.
One moment. Please for your first question.
The first question.
From the lineup.
Please go ahead.
Hi, <unk> can you hear us.
Yeah can you hear me yes.
Yes, we got Ya, yeah, sorry about that so congrats on the <unk> on the solid quote or in a great great starts into the new fiscal year I wanted to get a little more color on the sources of growth to cross the product portfolio. So you know if you could give us sort of the score card if you will across.
Observability across database of cost service management, and also the maintenance subscription which of those four areas sort of grow strength of the order in which of these sort of came in line or weaker than expected.
Ah Sunday.
Thanks for the quest and this is the darker.
As I noted in the script.
To be continued to see the benefits of our focus on subscription transition across the board in terms of specific businesses slash product lines. We saw growth in all three of the major ones that I keep highlighting which is Observability service management and the data.
<unk> potions as I have mentioned previously while we are highlighting those as three broad market opportunities for us. They're also interrelated for us, especially as we evolve Sullivan's platform because of the integrated value that we are delivering to customers.
That makes sense and then I guess, a similar question when I look at the results to 100, K customer ads, where were quite strong you know he did the 5% revenue growth and yet you're sort of being prudently cautious.
For your guidance when you look at the different segments enterprise Midmarket commercial what are the timelines you're seeing there and your S. M B base versus your enterprise customer base.
Absolutely send it as as you heard from but we did increase the full year guidance for EBITDA based on the strength of her Q1 performance and a continued focus on both the top line growth and operating discipline.
The.
We have an address your question is the pipeline for us across all the segments that you mentioned is increasing.
At the same time as you can imagine the larger segment of the enterprise segment there'll be a little bit more of a scrutiny from our budget and budget allocation standpoint, and so the timing of those deals is a bit more variable than let's say in the mid market segment, where the velocity motion that we have established over the years and really really.
Handy.
That plus the diversified customer base that we have gives us a better foundation to build upon.
But change it you know we did have a noticeable improvement in or the number of deals that we have that are greater than 50 K. You know we've as you as you mentioned you know the number of deals where number of customers you've spent more than 100 K with us did increase noticeably in the first quarter you know.
Not to say that we're gonna have that kind of increase every quarter, but it just you know some of the efforts that we've done on the you know moving up market and are starting to pay off.
Thank you. Your next question comes from the line of Matthew Hedberg.
Go ahead.
Oh Wow.
Hi, Thanks for taking our questions.
So to start off as you continue to focus on <unk> can you just talk a little bit more about a comcast in the adoption hybrid solutions and if you have any incremented next steps for this year.
Absolutely we are seeing a strong adoption off our hybrid cloud observability solutions as be highlighted Ah, we launched that solution in honest in April of last year.
Continuing capabilities being added in July and October of last year.
What I can say is that it becomes part of her primary emotion in the Americas, and we still see a lot of opportunity to create a flywheel effect and M. S. N. A P. G. As the year progresses. So as we see it there is a lot of opportunity ahead of us and as much progress is being made.
Believe we are in early stages of the transition.
[noise]. Thank you your.
Your next question comes from the line of.
Robert Please go ahead.
Great. Thanks.
Thanks, guys get morning, they slept my name's, Rob Oliver prepared and apologize for my voice.
A question for you on chat and then borrowed either follow up for you.
Very big shed spent tailwinds right now and.
You guys traditionally very strong position as fast and over the last few years, you've done so I think really yeoman service here in rebuilding a lot of those relationships.
You guys know relative to Tibet, and where you want to be in terms of renewal rich and and positioning relative to that kind of September 1st fiscal year end.
Sure. Thanks, again for the Quest and hope you feel better.
First things first we have generally highlighted.
The largest customer in the federal space, which became a subscription customer of ours last year, but I can highlight is that they renewed again this year reinforcing their belief in a solution set and as you can imagine that subscription business not just a maintenance manual.
Additionally, we continue to expand our relationships with federal customers and had a strong fed quarter as well in Q1, both in terms of a number of deals as well as the size of the built in many cases as you highlighted our team has done yeoman's service in the federal sector and we continue to do it.
The broader public sector is a strong area for us and.
Solutions resonate Dan and will continue to be a focus for us as we get into the federal buying season in both 2023 as well as into the future.
[noise]. Thank you. Your next question comes from the line of Eric.
Please go ahead.
Yeah. Thanks for taking my question.
First off as as you convert our customers from a subscription from maintenance to subscription can you talk a little bit about what the conversion ratio.
Has been you said it was greater than one to one do you have a a range of what kind of expansion you see there.
And is it can.
Can you tell us if if.
If your conversion to subscription is that moving faster than you had projected.
Be interested to know how it is relative to expectations. Then lastly, you said that you're looking at further expense cuts.
What what options are you looking at taking to further reduce costs.
So yeah, Eric the you know from a from a conversion standpoint in the first quarter the conversion rate from maintenance to subscription was it was closer to 1.8 for us So Ah still well above you know the one.
11213 that most most folks convert their maintenance base at and well above our you know our expectations. We are still still fairly early on so we don't expect to continue to convert at the 1.8 level. So that is you know better than what we expect and what we've modeled as far as in the number of cuts.
Summers in the adoption rate I will tell you. It's it's generally in line, but you know maybe slightly ahead. You know we've we have an expectation we're not pushing customers hard we want customers to convert on their own timelines. We went to we want the decision. We're not we don't want to push for it meaning that you know we don't want to sacrifice for.
<unk> revenue just to get a customer converted for maintenance the subscription.
So you know, we're slow and steady across the board as far as getting our maintenance space to move over to subscription revenue.
Thank you.
Question comes from the line of Terry Tillman he'd go ahead.
Oh, great. Thanks, Good morning, Geysers contact us on for Terry. Thanks for taking my question just wanted to touch on partners. So it sounds like there's this contractions done in front of me updated partner strategy. So far I just wanted to double click on maybe where you are seeing momentum with partners in terms of reaching more customers, maybe what you're hearing from them on adoption as well as any advantages you've seen around.
Sure.
That's two partners I I highlighted both the call of the traditional partners through transform partner program as well as some of the more recent additions that we've made with global system integrators and such.
Think about it is our more focus traditional partners continue to help us expand our geography can customer footprint, but predominantly in the mid market.
The GSI partners are focused a lot more on the larger enterprise in which the quiet as you know in a traditional company a lot more feet on the street, but given a model. We felt it was more appropriate to work with the gsi's enable them and continued to manage a lower cost of sales. So that's how we scaled ah but do so.
[noise] efficiently from an expense standpoint, as well now coming to AWS and agile.
And those relationships continue we have some very strong cosell motions established with them pretty much across the entire portfolio, but that being said I would say in terms of partnership lifecycle, they're still earlier in the lifecycle and more mature in the lifecycle, representing a larger opportunity for us on a go forward basis.
Thank you.
Again, if you'd like to ask a question press star one on your telephone keypad.
Next question comes from the line of Jacob staff.
Had.
This is jacob on for cash overall looks like Ah.
Very good quarter. So congrats on that a couple of things I wanted to touch on is I believe it was mentioned in the prepared remarks that you've been able to win larger deals and that's evidenced by the increase in hundreds of customers and the last in the last year are you able to quantify how much larger these deals that you're lambing R and then.
On top of that maybe touch on one right, so you're saying against.
Maybe some more cloud native competition any any color around that would be really really appreciate it.
Ah sounds good Jason Jacob we will continue representing the 100 K.
Above a size deals that bought highlighted in his script on a go forward basis as an indication to you of.
The types of deals that we have any these are not necessarily large customers. Although we are winning a lot of large customers as well, but when you think about why are trailing.
Trailing 12 months with many customers is growing that's because we are helping them consolidate that environment. There's a lot of too strong that happens in customer environments, and we're helping them consolidate because we have the most comprehensive set of solutions.
Another trend that I would suggest that b keep in focus as the industry evolves and as customers look to simplify their complex environments manage that cost and improve their productivity.
In terms of cloud native are broadly speaking competition a V feel very good about our competitive position if you take each of the five segments.
Let me start in reverse order almost this time with regards to our database monitoring products, it's a different setup competitors, but based on everything that we are seeing in the market. We have an incredibly compelling solution that we believe will help customers of all sizes and.
Especially in the larger enterprises as well the service management solutions are ideally suited for mid market and we continue to expand that ecosystem and we've had our share of competitive Vince that as well and an observer ability that uniqueness that we have is we are enabling customers do evolved from their premises based.
Solutions to fast and cloud native solutions.
Oh as their business needs indicate or dictate rather than imposing a particular model on them.
Thank you.
Your next question comes from the line of Boston, Massachusetts.
Go ahead.
Hi can you hear me okay.
Okay great.
John Dessauer here.
For you.
Regarding an inflection point Rev rack revenue recognition, meaning if you as you convert maintenance and you're no longer selling perp licenses.
<unk> from here Okay.
<unk> no pick up an attrition rate across your customer set.
Well you sort of see the same start to see increasing sequentially in revenue assuming Q1 trends you just observe continue moving forward.
So yeah, you know to answer the question, we still have we talked about the subscription transitioning subscription transition being multifaceted and.
In regards to that you know the when we convert a maintenance customer too and on premium hybrid cloud Absorbability product. There is a there's a there's an upfront component to that subscription revenue and then when we talk about the slow product offering that's R. Sass offering that that subscription revenue will be fully pro rata. So there's a little bit of a.
Mix in our in our subscription revenue between those two models. It's why we both that's why we disclose what our subscription. They are are is just because we think that is.
More indicative of what the overall trend is going to be from a subscription standpoint, because we do get some upfront component to the subscription revenue when it's in on prime subscription.
Thank you. Your next question comes from the line of Eric.
Please go ahead.
Yeah, I just wanted to check.
What.
The interest rates on the on the desk move around much yeah, and what interest expense or are you expecting for this year.
Hi, This is Tim where are they expecting might change compared to what we discussed in Q1 in terms of models.
Even though freights moods likely we're still in the same same vicinity.
Thank you. Your next question comes again from the line of Boston, Massachusetts. Please go ahead.
[laughter]. Thanks.
Again, I guess when you think about that.
Understand anything or commentary on efficiencies that you'll give your customers and you're offering.
But if you think about the customer designing Q1 of this year was that the result of.
2022 buying decisions for those what made more a part of their 2023 budgeting processes again by your customers. How would you think about that conversion in terms of where the demand driver was from 2022 budget decisions or customers deciding of 2023 spent.
It's a combination I would say if if you look at the the foundation to five business. The velocity that we have with how we generate pipeline and how we close pipeline is in many cases be close within the quarter boundary and so you can attribute that a lot of that from.
2023, budgeting second standpoint equally.
Equally weeds and a pipe of in previous quarters, as well and in some cases like I mentioned customers they've taken of agency approach and so there's always gonna be some spillover from one quarter to another just like they will be spillover from Q1, two cute too and so we keep count of every one of those and closed those out so.
It's gonna be a mixed bag so to speak in terms of 2022 spill over 220 23 budgets.
Another indication I'll give you there is that the overall pipe in the business continues to grow and it's important to keep it growing in that direction, especially given the overall macro conditions, where some customers may take a wait and see approach.
And even when they do how do we Delaware predictable growth is our focus.
Thank you is there are no further questions at this time I will not.
Turn the call back over to excuse me, Tim Carozza, GBP, a finance and management.
Thanks, all thank you again timmons here with me as as bought to I appreciate everyone's attention focus in support of Solomons talk to you soon.
This concludes today's conference call you.
You may now disconnect.
Uh-huh.
Mmm.
Yeah.
[noise].
Mhm.
Yeah.
[noise].