Q2 2023 N-able Inc Earnings Call
Hello, and welcome to the <unk> second quarter earnings call.
My name is navin.
Thank you Yakov.
If you would like to register a question James Thanks, Ben Please press Star followed by one on your telephone keypad.
I'd now like to hand over to Christian <unk> Investor Relations. The floor is yours. Please go ahead.
Thanks, operator.
Everyone to enable second quarter 2023 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 got enabled dotcom.
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.
Market opportunities are.
Our continued expectations following the spinoff of our business 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 highlighted in today's earnings release, and our filings with the SEC.
Additional information concerning these statements and the risks and uncertainties associated with them is highlighted 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 refer to financial measures, we will be referring to 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 at our Investor Relations website.
Now I will turn the call over to John .
Thank you Greg.
Welcome everyone and thank you for joining us today.
From the moment, we began discussing to enable spinoff.
We believed we had a winning formula.
And offering tailored to address the sustainable and rapidly growing market opportunity.
Customer base looking for a trusted partner that understand their business and can help them grow.
And a workforce driven by purpose and a passion to serve our customers.
Who we call partners.
Our business model, we grow as our partners grow capitalized on this formula.
And our MSP partners tell us they appreciate the mutually beneficial relationship.
We have built with them.
And today.
As we pass our second anniversary as an independent publicly traded company.
A record breaking second quarter results further prove that our strategy is on the right track.
Our revenue of $106 million exceeded the $100 million quarterly milestone for the first time in our company's history.
And our year over year constant currency revenue growth of.
Of 17%.
It was the strongest since we became a Standalone company.
Along with our strong bottom line results with an adjusted EBITDA of approximately $35 million.
Representing an adjusted EBITDA margin of approximately 33%.
We are executing our strategic initiatives.
And fulfilling our original promise.
I'll talk later about our execution and upcoming milestones.
But I wanted to spend a minute on what we are seeing in the market.
First the.
The demand environment is healthy.
Our MSP partners to over 500000, small and medium enterprises worldwide.
A variety of sectors, including healthcare law.
<unk> and finance.
And the services these smbs rely on.
Thats a security monitoring.
Ada protections Helpdesk and cloud migration are mission critical for these modern day enterprises.
Industry analysts also project the strength of the SME market.
Gartner forecasting earlier this year.
Software spending by organizations with fewer than 1000 employees.
So the fastest growth of any.
Any other segments through 2026.
Second we.
We are seeing the mlps are increasingly going upmarket managing the it department of a larger organization.
Our acting as sole managed providers.
So managed services organizations to use MSP to filling knowledge skill set or resource efficiencies.
For example, <unk>.
91% of ICU professionals find patch management overly complex and time consuming.
Some reports, stating that internal resources than most of your time, just managing patch on top of everything else on their to do list.
Overseeing patch management is one of the many great examples how MSP add value through a co managed offering.
Mlps are playing a trusted and vital role for these organization.
Which in turn Repowering demand for enable software.
Our strategy to capture this market demand is simple.
Empower our MSP partners with enterprise grade technology to meet the needs of the SMB customer base.
Our multi tenanted platform, which integrates monitoring and management data protection and security offerings in one dashboard is purpose built for that.
And our R&D teams have been busy bringing new features and functionality across each of these categories.
We continue to afford us the capability of our flagship Iron man platforms, which have received best RMM honors by CRM for three years in a row.
We launched advanced analytics.
Which provides powerful functionality that enhances <unk> ability to explore visualized and report the value they deliver to their customers in order to differentiate their offerings.
Apple business tools.
We integrated device discovery monitoring and mobile device management.
MSP the ability to essentially manage windows, Linux and Apple devices in one dashboard.
This reduced the truthful and increasing their profitability.
With macro trends pointing toward growth in Apple devices. We believe this helps us differentiate our value proposition.
In addition, we.
We are in a limited preview with Microsoft Azure cloud resource management.
Which enables partners to discover and manage Azure resources, such as virtual machines and storage.
And SME, the moving assets out of server closets and into the cloud.
We are now helping msp's managed on premise and cloud resources from a unified management experience.
An example of our RMS solutions value proposition is a deal in the second quarter, where we engage the customer using a well known RMM competitive.
After demonstrating our powerful scripting and automation ability and the capability to support Mac OS.
The customer signed more than $100000 IRR deal with that.
IGT technicians that MSP are charged managing the infrastructure of many different SME.
Which is a critical and often complicated task.
We believe.
The depth of functionality within our RMM offering enabled MSP is to provide these crucial management services efficiently and effectively.
And that is why we are proud to say, we manage the most whereas the message for our MSP.
Demand for our security offerings remained strong as well with growth in revenue from our security business outpacing total company revenue growth.
Our managed Edr offering which debuted in the first quarter is gaining traction and we see a long runway for this advanced offerings.
Meanwhile.
Growth in our Edr solution, which we launched in 2019 remains robust.
Also our password management solution path portal.
And our mail security products Mailer shore are.
Our steady contributors to our security business.
Underlying this demand is evolving compliance and regulatory landscape.
We recently conducted a poll, which more than 2000 MSP you said that the top reason there customers are adopting managed security services is compliant.
Our teams are hearing this in their daily partner engagements as well.
For example, we spent two days discussing how compliance safety industry at our highly rated business of security events attend.
Attended by 65, plus elite partners.
We heard the same scene directly from some of our largest customers.
Data protection is once again, a bright spot in our product suite.
Also outpacing total company revenue growth.
New customers onto our powerful data protection as a service products are up 28% year over year in Q2.
The macro outlook for disaster recovery as a service category is strong.
With IDC projected a CAGR of 18% through 2026.
With favorable market tailwind at our back.
We intend to continue to build cove into a trusted protector of enterprises, most critical asset Dave.
Data.
And we do this through one word.
Innovation.
And we have been delivering.
We recently introduced on demand restore and standby image to Azure, giving MSP has the flexibility to spin up disaster recovery resources on demand and a much more cost effective manner than legacy backup vendors.
We released functionality that accelerates incremental backups for Microsoft Onedrive by as much as 10 times.
And we continue to extend our capabilities in the Microsoft ecosystem.
The teams down external previous.
Those now covers the Microsoft 365 suite, including teams exchange Onedrive and Sharepoint online.
Our go to market team our focus on insurance all of this innovation, which is the eyes and ears of our partners.
We are now live with the disaster recovery as a service marketing campaign.
Including online total cost of ownership calculator on our website.
To help partners understand the value proposition of Coke.
This newly released <unk>.
Savings of up to 60% for customers that use cove versus other options, which validate the <unk> value proposition.
Over the policy product and a durable market that deliver superior outcomes for our customers.
We are excited about the potential for future <unk> growth.
And while our overriding market focus is on MSP partners.
Our solutions also appeal to internal it department.
And sales to these customers arent opportunistic area, where we believe kohl's is taking market share.
Our mission is to provide tools for MSP that enable them to deliver services efficiently and effectively.
And our teams are delivering.
Along these lines I want to speak about our approach to harnessing new technologies within our products, particularly the opportunity we're seeing with center of AI.
We are a technology company.
Innovation is part of our DNA.
We strive to deliver enterprise grade technology to the SME market.
And in this pursuit.
AI technology is employed in our offerings today.
For example, our monitoring and.
<unk> management solution Leverages AI to automate tasks.
And our advanced Edr email solution.
To identify and block threats.
This technology is a tangible benefit for our customers.
Automated scripting troubleshooting and patching safe technician time.
And AI threat protection.
More bad actors.
Looking forward we.
We see generative yeah as another rung on the ladder of technological progress.
And we are working on integrating further innovation and our product strategy deliver even greater customer value.
Use cases, including product ties into later the latest developments in AI and machine learning to increased technician efficiency and our iron offerings.
All of the capability of our security solutions and.
And enhance the effectiveness of our data protection offerings to name, but a few.
As we innovate we.
We believe we have a competitive advantage in the unique insights gained from approximately 25000, MSP, but will allow us to train more effective algorithmic models and create monetize able solution to meet our customers' needs.
As always.
We are mindful of using technology, and ethical and socially responsible manner, while mitigating risks.
And finally.
All of this is a result of the efforts of my fellow enabled across the globe.
Driven by a productive and positive work culture, which has earned external recognition.
We've outlined those awards and our press releases throughout the first half of the year.
But I want to call out that we received for Cds at the 2023 American business Awards for our products internal teams community effort and our highest even people.
We also received rewards from comparably.
For Best Company Global Culture, and best company career growth.
A couple of months ago.
I was honored to sign the CEO action for diversity and inclusion pledge.
This is the largest CEO driven business commitment to advancing diversity and inclusion in the workplace with over 2400 signatories.
At enable.
Always prioritize diversity equality and belonging.
And this was another great step in our journey to reinforce our commitment to this focus area.
With that.
I would like to turn the call over to Tim to discuss our financial results and outlook and then I'll circle back with some closing remarks.
Jim.
Thank you John and.
And thank you all for joining us today.
As John mentioned this was a momentous quarter for enable.
We just celebrated our two year anniversary as a public company and achieved over $100 million in revenue in the quarter.
Both exciting milestones.
It is the culmination of investments we have made over the years to bring value to our MSP customers, including product innovation by our R&D organization.
The brand building efforts and execution of our go to market teams.
The development of our customer success team and more broadly intentionally creating a culture of innovation for our more than 1500 enable IP across the globe.
It's also a testament to the demand for it services across the global SME market.
For our second quarter results total revenue was $106 1 million.
Representing approximately 16% year over year growth or approximately 17% on a constant currency basis.
Subscription revenue was $103 $4 million.
Representing approximately 16% year over year growth or approximately 17% on a constant currency basis.
Other revenue, which consists primarily of revenue from the sale of maintenance services associated with the historical sales or perpetual licenses and revenue from professional services was $2 $7 million.
21% year over year.
We ended the quarter with 2162 partners that contribute $50000 or more of IRR, which is up approximately 19% year over year.
Partners with over $50000 of IRR now represent approximately 55% of our total IRR up from approximately 50% a year ago.
Looking at net retention for the second quarter, which is calculated on a trailing 12 month basis.
Based net revenue retention was approximately 105% or 109% on a constant currency basis.
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.
Second quarter gross margin was 84, 8% compared to 85, 5% in the same period in 2022.
Second quarter, adjusted EBITDA was $34 9 million.
Up approximately 26% year over year, representing approximately 33% adjusted EBITDA margin.
Unlevered free cash flow was $23 6 million in the second quarter, and Capex was $6 million or five 7% of revenue.
non-GAAP earnings per share was <unk> <unk> in the quarter based on 186 million weighted average diluted shares.
We ended the quarter with approximately $109 million of cash and an outstanding loan principal balance of approximately $344 million representing.
Representing net leverage of approximately one eight times.
Approximately 45% of our revenue was outside of North America in the quarter.
As I stated on our last earnings call. We pulled forward the timing of our annual pricing and packaging changes this year to align closer to our cadence pre COVID-19.
While we usually do not call out pricing and packaging changes we wanted to make sure we highlighted the impact on Q2 year over year comparisons.
To reiterate for the full year, we expect the magnitude of these changes relative to previous years to contribute about one to one 5% on year over year growth.
Given the timing change the impact was more pronounced in the second quarter contributing about 4% to year over year growth.
We evaluate pricing and packaging decisions carefully taking a range of factors into account.
Such as product enhancements, the competitive environment and inflation.
As we look across the market and our offerings, we believe our value proposition continues to be attractive.
Turning to our financial outlook for the third quarter of 2023, we expect total revenue in the range of $106 $5 million to $107 million.
Representing approximately 14% year over year growth or approximately 12% to 13% on a constant currency basis.
We expect third quarter adjusted EBITDA in the range of $34 $5 million to $35 million.
Up 20% year over year at the midpoint and representing an adjusted EBITDA margin of approximately 32% to 33%.
For the full year 2023, we are raising our revenue outlook and now expect total revenue of $419 $5 million to $421 million, representing approximately 13% year over year growth on both a reported and constant currency basis.
We are also raising our adjusted EBITDA outlook and now expect full year adjusted EBITDA of 135 $5 million to $137 million up approximately 19% year over year at the midpoint and representing an approximately 32% to 33%.
<unk> EBIT margin.
Regarding foreign exchange rates, we are assuming FX rates for the remainder of the year of 1.07 for the Euro and 125 for the pound.
We reiterate that we expect capex will be approximately 6% of total revenue for 2023.
We also expect adjusted EBITDA conversion to Unlevered free cash flow to be approximately 65% for the full year.
We expect total weighted average diluted shares outstanding of approximately $187 million for both the third quarter and the full year.
Finally, we expect our non-GAAP tax rate to be approximately 28% in the third quarter and for the full year.
As we enter the back half of the year, we will continue to monitor the macro environment, while we focused on executing initiatives that advance our strategy to efficiently deliver enterprise grade technology to MSP.
All while ensuring our costs are aligned with growth.
We are also focused on driving return from the new offerings. We have brought to market. As these are key to our strategy of accelerating our topline growth in the medium to long term.
Our raised full year revenue and adjusted EBIT Guide reflect our assessment of these operational and strategic dynamics as we pursue a balanced path toward our sustained rule of 50 operating goal.
Now I'll turn it over to John for closing remarks.
Thanks.
A little more than two years ago, when enable became an independent publicly traded company.
The thesis was straightforward.
Independent operation would unlock a higher level of focus and.
That allow us to reach our true potential.
We have seen the benefits of this enhanced focus across our business.
We have filled out leadership positions across our organization and have grown the company from 1300 employees at the time of the spin.
Over 500 employees today.
Our R&D teams have delivered a depth of features within our core product categories that empower our MSP to scale and win.
Our go to market teams have built the enable brand and connected with MSP that events across the globe.
Customer success organization has established meaningful relationships with our customers.
The spinoff two years ago marked a new chapter in the enable journey.
And we continue to keep writing.
It spending remains a priority for organizations.
See healthy market demand for our integrated suite of monitoring and management data protection and security solutions.
While we are mindful of the macro environment.
We believe strongly in the durability of the long term secular growth of SME, <unk> spending and the trend of outsourcing it.
We are executing important strategic initiatives and are invigorated by the opportunity ahead.
To innovate on behalf of our MSP customers and empower them with the tools they need to provide mission critical services.
And with that operator, we are ready for questions.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad. If you would like to withdraw your question. Please press star for the budget.
When preparing to ask your question. Please ensure your device is on mute.
First question comes from Mike <unk> with Needham Your line is open.
Hey, guys. Thanks for taking the questions here.
And good quarter all around.
Wanted to circle back to the guidance that we have here and I appreciate Tim.
You're calling out those annual price changes.
Can you help us think through.
Those price changes and really where I'm going with this is if I look at the Q3 revenue guide.
Shouldnt, we expect the pricing changes to continue to benefit Q3 at least on a year over year basis, just given the subscription model.
I'm just trying to tease out is there anything more to to have this guidance is constructed why wouldn't we be seeing more benefit from those pricing changes in Q3.
Yes, Mike I'll be happy to take it I think we spelled out the impact.
Pretty clearly on Q2, and the year and probably more acutely just how we how we realize some of the price increase is due to the nature of.
Some of the usage components of the business as well as the month to month component of the business is that.
The majority of it is felt.
At the time of the price increase not over a 12 month period.
So I think that that's what I would say probably skewing your view of.
<unk>.
Impact on Q3, and the rest of the year.
Versus more acutely in Q2, and just to reiterate the timing historically we've done.
Pricing and packaging changes in the June timeframe before Covid. It was it was earlier in the year.
And we pulled that in a couple of months this year into April I, just from a timing perspective.
Got it got it.
And then so I appreciate the color I guess the follow up here.
Again like to see the beat in Q2, and then the obvious reason when I look at the calendar 'twenty three guidance.
Your EBITDA if I look at just the pure dollars to the raise on EBITDA is ahead of the dollar rates, we're seeing on revenues and I just wanted to get a better sense is the company is it is it improves cost discipline.
Can you help us frame out I guess.
Were these I don't know if you want to turn on incremental savings or postponing on certain projects, how do we think about.
That EBITDA guide for calendar 'twenty, three just because again the dollar volume raised on E.
EBITDA guide is north of the raise that we're seeing on revenue and trying to determine where that's where that's coming from it model.
Yes, Thanks, Mike.
Sure.
But go ahead John .
Yes.
Tim I can start and then you can cover it in the back in good morning, Mike strategically.
Strategically our I'd say philosophically, we're continuing to lean in so to your question on <unk>.
Stopping or slowing back I'd say no in particular, we continue to focus on on the R&D advancements hopefully during the prepared remarks, you could you could hear or feel the momentum we're making on the product side, we're going to continue to lean in there.
But that being said, we've now been public for two years and we had to do a lot at the beginning and sales and marketing to build that brand and we can weave.
<unk>.
We were able to establish that brand and now we're looking at a little bit more on sales and marketing and saying Hey, what is efficient and what is not efficient and every company you probably have your lowest decile of spend in sales and marketing. So we're taking a little bit of a harder look of.
Areas in sales and marketing that or not.
Generating the best return, but we're continuing to lean in on revenue generating head count and in R&D.
Thanks, Thanks for the color John and thank you again for the comments, Tim I'll turn it over to my colleagues I appreciate it.
Thanks, Mike.
Our next question comes from Matt Hedberg with RBC. Your line is open.
Great. Thanks, guys for my questions as well congrats from me as well I'm John I want to start with you you said something at the start of your prepared remarks, I found really interesting msp's are starting to move up larger into the enterprise.
I think this has been a trend that's been kind of ongoing but you brought it up here and I just sort of curious what do you think is ultimately driving that because that could certainly be a really big long term bullish trend for sort of the actual achievable Tam that you guys are going after.
Sure Yes.
Thanks, It's a great question look.
Tim and I have been in this space for 10 years and in those 10 years, we're seeing Tam increase by an X and Y dimension right and the extra mentioned if you will Matt is 10 years ago Msp's, we're focusing on help to ask there or maybe dipping their toe in security they really weren't necessarily helping on <unk> and some of this other stuff.
Now, we're seeing msp's fully helping out with to help desk bits, but also a bunch of other bits like security compliance risk management backup and disaster recovery. So they're doing a lot more for Smes than they did 10 years ago that really showing up as that trusted partner, that's adding to our Tam because it's adding service service service area, so to speak but the <unk>.
Other dimension that Youre, calling out is they are going upstream when we started when I was in has gotten this business 10 years ago on average Msp's, we're servicing Smes.
We're about 50 employees on down that's not true anymore msp's are helping out.
Fortune 1000 companies and there's two reasons for that number one.
We're seeing labor shortages in it overall, so if you're a CIO or a VP of it.
A fortune 1000 company and Youre looking at all the work that you need to get done you can now look at an MSP because the industry is growing up to become more mature the tools are enterprise grade and leveraged in MSP at a much more cost effective way. So that your team can now go do something else, maybe a little bit more strategic that's why we called out that patch management example.
In the prepared remarks, so the we're seeing because of labor shortages.
Professionals are leveraging the MSP that's number one and the second reason is what I was talking about before and that surface area. Msp's can now help out on the security front the disaster recovery front.
The industry has matured the tools have gotten bigger I'd like to think we have a good amount of helping their allowing these MSP scale and MSP or now we have MSP that are $1 billion in revenue and so they're able now with their maturity level to service. These bigger companies. So for US we're getting the benefit of this X and Y expansion on our on our Tam so to speak.
And the MSP as our as well as they continue to go upstream it's a bigger client, it's a better recurring revenue stream for them and they are able to charge for services that are fortune 1000 company or a mid market company can afford.
That's really good to hear I mean, it's certainly still think there is a long term benefit for that.
And then Tim for you.
I had a question on the price increase as well obviously.
<unk> Q2 beat.
I'm just sort of curious when you built your Q2 guidance how much did you sort of contemplate for a potential benefit piece of either 4% benefit that you called out in your prepared remarks with it more than once you're kind of thoughts or just sort of kind of curious on kind of the.
The components of the beat.
Yes, I would say we took a conservative.
<unk> to our Q2 guidance.
Now I would say generally came in a little bit higher.
Then we had probably baked into.
The Q2 guide, but I would say it was more more lending to just general conservative approach.
The guidance for <unk> for the quarter.
Got it thanks, well done guys.
Thanks Pat.
Yes.
As a reminder, if you'd like to ask any further questions. Please press star one on your telephone keypad now.
We now turn to Jason <unk> with William Blair. Your line is open.
Yes. Thank you good morning, guys just wanted to.
Get a sense for how the macro might be.
Changing at all or or maybe not maybe it's the same as it's been.
But would love just some color commentary.
<unk>.
What type of impact you're still seeing from macro.
Is it new projects is it new customers.
Just sort of a cautiousness I guess is pervading.
The economy right now but is this something that is noticeable do you feel like it's it's trending one way or the other just just any comments on macro would be helpful.
Good morning, Jason.
Great question look we.
We take a look at demand and look at the macro trends and evaluate from a short term and long term on a couple of different fronts right and a couple of different dimensions number one.
On our sales and marketing teams and what is their success rate as it relates to a new customers and new Skus and so on that front I would say things that we're performing.
Better than last year.
I'd say all in all geographies.
Europe has been a little bit softer but.
By all accounts, whether it be Asia Pac.
EMEA or North America, we're still seeing demand in our sales performance better than last year. So that's good. So the demand there is strong in particular for our data protection and our security offerings. The second way, we look at demand and what's going on at the health of the MSP market is our MSP is adding small medium enterprises and what we've been telling your folks in the last couple of quarters.
That's been I would say moderate or moderating part of that is because msp's can reach their both their revenue goal and their profit goal.
By expanding services and not necessarily adding a bunch of customers because they too are having a little bit of a labor shortage. So we're monitoring that I'd say, it's been consistent to what we've been seeing in other quarters, we'd love to see it a little bit stronger and having msp's continue to add small medium enterprises, but I'd say its been its been consistent.
Got you Okay. So yes.
If we fast forward.
A few quarters, a year or whatever and MSP is adding more new customers.
You would view that as a tailwind.
That's right that's correct yes.
Okay, Alright, and then.
I guess the other question I had.
Just on this on this pricing change.
Tim can you just give us a little more detail on.
The comments that you talked about in terms of having more of an immediate impact.
Wasn't quite clear on why that would be.
Yes, just just for customers from a contractual standpoint, better either usage based or in a month to month nature is.
A good portion of our business model and I think we've touched on that in the past, but more of the realization of that.
And real time versus over a 12 month period for.
A good portion of the business and that timing is just is just what drove that.
That more acute impact to Q2, but generally on the year over year, it's consistent annually. So.
Out of that timing.
We gave color last call and this call on the impact there of about a point to a point and a half of impact on the year.
Sure.
And that I think if you just look at it annually they kind of stuff.
The timing and the immediate impact Nate.
Nature.
Is that fairly typical I mean genome.
One to one and a half point.
Tailwind from price changes.
I would say no.
That's the impact on 23 compared to what we've done historically your pricing and packaging changes are always.
Part of our equation.
Generally the impact is as last week, we leaned in a little bit more due to some other product enhancements. We've made over the past 12 months as well as some of the inflationary environment that we've seen.
There for 2023.
Gotcha Gotcha, Okay, and then last question just on customer priorities for you John .
Do you feel like those are changing at all relative to I don't know six months to 12 months ago.
Obviously security is top of mind for everybody.
Disaster recovery.
What.
Work from home is that becoming.
Sort of.
Plus front and center, just because everyone's already doing it and theres other.
Priorities that are that are bubbling up.
Just just any any comments there would be helpful.
Sure I'd say, it's sharpening the work from home.
The noise our focus in the MSP I'd say is it's definitely.
Lowered, especially coming out of the Covid quarters that thats definitely not I would say the and there are top five right now.
What we are seeing a lot is around compliance and how msp's can help their customers be compliant with.
With whatever governing agency of regulatory board that might be specific to the industry or the government in every market is little bit different. So we're seeing msp's looking to us for our help.
It make sure that that they are compliant number one, but then number two to make sure that that their customers can be compliant and that land.
Land squarely with the different security offerings with more of the advanced security offerings and the data protection pieces right. So I'd say, it's security a couple of years ago and by the way for us. This.
This is a tailwind security was more around with the SME or the Msp's risk tolerance was compliance goes for more like a land of gray to more of a binary one or zero type of game you either are compliant or youre not and for those small medium enterprises that must be compliant in order for them to conduct business they need to up level their security.
<unk> hygiene and the layers of security around that which is driving the MSP is to focus on helping them and be that trusted partner. There. So that's top of mind M&A in the MSP industry.
Has been steady.
Not seeing it really uptick it's been consistent and Thats also a good positive sign for us as the Msp's continue to consolidate they get larger they are healthier and they are able to go up market as well.
Thanks, very much good luck.
Thank you.
Our next question comes from Keith Bachman with Bank of Montreal Your line.
Is open.
Yeah.
Hi, Thank you I have just a couple.
On a broader basis as you think about ongoing portfolio diversification of your offering.
How are you thinking about that.
Build versus partner scenario or Howard cluster should we be thinking about the level of IP that youll.
Through organic development versus a partner.
Trough versus.
Even M&A if you could just.
And how do you see that diversification unfolding over the next couple of years in other words.
You have a very robust offering but.
How does that how do you think that expands over the next few years.
Sure.
And Keith and Great question and just for the audience just as a quick reminder.
Keith is touching on is core to our some of our product strategy. So here at enable.
We build a significant amount of the IP ourselves but.
And a couple of different areas, we choose to partner with enterprise grade companies integrate that technology into our platform because we believe it's a better together experience for the MSP to do their jobs effectively and efficiently and then we'll go from there and of course, the third leg is M&A and so look.
Keith I think you know from our earlier conversations we're very thoughtful as to what path. We want we'd like to go through a lot of times it has to do with the.
The competitive landscape and the type of solution right. So we've chosen with Edr as an example to partner with Sentinel won why well that to be to be the best and to make sure that we have the best offering for our MSP, we would need to have a level of R&D and research and development that doesn't necessarily fit our profile and we believe through the.
Chip with Central one we can we can on our mission and give our MSP is the best security and what we do there as we integrated into our remote monitoring platform and now Msp's can monitor manage and secure in one dashboard and a very efficient way with policy. So wherever we can get that what I call that quad win a win for the small medium enterprise a win for the MSP.
That partner in this case center to one and a win for enable we do that in a lot of times, we look at what would be the long term.
Level of R&D investment that we would need to make sure that we're competitive that we're that we're leading in the space and not lagging in the space looking ahead security depending on where we are in security is usually a good vector where we will either look to.
Using enterprise partner and OEM or.
Potentially look to.
To acquire if it fits the profile, where we typically build is where it's where it's in our core DNA around monitoring and management and we talked about Azure resource management, we talked about our Apple capabilities, we'll be talking more about our cloud management capabilities in the future that's quarter, our DNA and will continue to deliver to the IP.
There. So it continues to be a three pronged approach as you outlined and I'd say, that's the right strategy, because we're always putting the goal of the MSP.
First in each one of them have an opportunity and it's all about bringing to market something that the msp's can can leverage an integrated platform using our using our RMM as that cornerstone.
Okay, great. Thank you and then just one clarification for me I wanted to go back to the pricing what percent of your contracts are month to month versus something longer because of just a little surprised that there wouldn't be a carryover benefit at least for the next couple of quarters on pricing.
Hey, Keith.
I would say about two thirds or a combination of usage or month to month.
Across the business. So it's a good portion in that point to a point and a half of impact is driven through.
The other third kind of coming to fruition.
Over the course of the next 12 months.
Okay, great. Many thanks.
Yes.
This concludes our Q&A I'll now hand back to John you kind of see any closing remarks.
Thank you operator, yes sure just on behalf of all 500 enabled lights across the world. Thank you for your ongoing interest in enable and looking forward to talking to you in about a quarter's time.
Ladies and gentlemen is call is now concluded we'd like to thank you for your participation you may now disconnect your lines.
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This call is now concluded wed like to thank you for your participation you may now disconnect your lines.