Q2 2023 SolarWinds Corp Earnings Call

Good morning, and welcome to the solar winds second quarter 2023 earnings call. My name is Brianna and I'll be your conference operator today.

Please note that this call is being recorded.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad.

To withdraw your question again press Star one.

I will now turn the call over to Tim Karanja Group President of Finance you May begin your conference.

Good morning to everyone and welcome to the solar one second quarter 2023 earnings call.

With me today are Sudhakar, Ramakrishna, our president and CEO .

<unk> <unk> our CFO .

Following our prepared remarks, we will have a question and answer session.

This call is being simultaneously webcast on our Investor Relations website at investors thought solar winds dot com.

You can also find our earnings press release, and the summary, slide deck, which is intended to supplement our prepared remarks during today's call.

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

Our expectations regarding customer retention.

Our evolution to a subscription first mentality and the timing of the phases of Sochi evolution, our expectations regarding our partner ecosystem.

Impact 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 expect as required by law.

These statements are subject to a number of risks and uncertainties, including to numerous risks and uncertainties highlighted in today's earnings release, and our filings with the SEC.

Copies are available from the SEC on our Investor Relations website.

We will discuss various non-GAAP financial measures on today's call I'll, unless otherwise specified when we refer to financial measures.

Were you referring to non-GAAP financial measures.

Reconciliation of the differences between GAAP 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 summary, slide deck on the Investor Relations page of our website.

Finally, we note that financial results discussed on today's call and in our earnings release, our preliminary and pending final review by Us and our external auditors and will be final well, we file our quarterly report on Form 10-Q with that I will now turn the call over to.

Sudhakar.

Thank you Tim Good morning, everyone and thank you for joining us today.

As always I'd like to thank our employees customers partners and shareholders for their ongoing commitment to Sullivan.

Had another strong quarter building off the momentum we saw at the end of 2022 and into Q1 and positioning us well as we look to the second half of the year.

I attribute the results to our broad portfolio of solutions.

<unk> value, we deliver to customers.

<unk> of our business model and our continued execution of our priorities.

Second quarter highlights include strong subscription revenue and <unk> growth demonstrating the compounding positive effects of higher subscription first strategy.

Growing contribution from our observer ability solutions. In addition to growth in our service management and database monitoring product lines.

Continued solid customer retention, demonstrating the value proposition and stickiness of our solutions.

And double digit year over year, adjusted EBITDA growth, along with increased margins highlighting the operating leverage in our business and our commitment to expense and operating discipline.

I will now touch on some of these before turning it over to Bud for more color on the quarter and our financial outlook for Q3, and the full year 2023.

In Q2, 2023, we delivered total revenues of $185 million.

Above the high end of the guidance range, we provided and representing a 5% increase year over year.

We are seeing the benefits of our subscription first transformation and delivered second quarter subscription revenue growth of 44% and subscription <unk> growth of 33%.

As I've said before evolution to subscription is not just a business model change, but a way of delivering greater value to customers.

Now that we are over a year into this transformation, we continue to see the benefits of this evolution.

In Q2.

Quarter maintenance renewal rate was 93% and our trailing 12 month renewal rate is now 94%.

The trailing 12 month rate continues to be the highest since Q4 of 2019, showing continued improvement and reflecting the value of our solutions.

We ended the second quarter of 2023 with 933 customers, who have spent more than $100000 with us in the last 12 months, an increase of 6% over the comparable period in the previous year.

We're increasingly helping customers accelerated business transformation initiatives, while improving productivity.

In doing so our customers continue to grow with us.

Adjusted EBITDA grew 18% year over year to $79 1 million.

Presenting an adjusted EBITDA margin of 43% and above the $69 five to $72 5 million outlook, we gave for the quarter.

Turning to some business highlights this quarter.

I wanted to focus on a topic I'm sure is on many of your minds.

Artificial intelligence or AI.

And the highlight.

Some recent industry recognitions, our Sullivan today.

Thank you Goodbye design event on Capitol Hill, and our brand refresh.

In prior calls I described our AI ops capabilities.

We invested in AI powered solutions for over two years and believe customers have been experiencing improved productivity and security by leveraging our AI ops innovations.

We believe <unk> is uniquely positioned to enable IP ops and Dev ops teams to leverage AI based technologies for many use cases across applications networks infrastructure users devices and databases.

AI driven solutions will play an increasingly significant role in enabling customers teams to accelerate the time to value and reduce the time to detect and remediate issues in that environment.

We are developing new solutions designed for advanced Dev ops and platform engineering team, we believe will uniquely transform how organizations respond Matt.

Manage and resolve incidents.

We are integrating our observer ability.

<unk> and elements of service management to deliver these benefits to customers.

In May we announced the addition of transformation artificial intelligence and machine learning capabilities to our <unk> solutions.

The new AI features include a service desk AI virtual agent designed to answer users' questions and troubleshooting.

This is intended to reduce ticket volume by enabling users to remediate easier to solve issues.

That IP practitioners and focus on more complex problems requiring that expertise.

In addition, solar Vince was ranked as a strong performer in the recent Forrester wave report for process centric AI for IP operations published in June .

Our AI capabilities.

One example of how we continuously evolve relevant platform for our customers as they accelerate their digital transformation drive automation modernize applications and undertake cloud migration initiatives.

All while reducing costs in recent months, we have received awards for our innovations across our offerings portfolio and go to market enhancements.

I also want to spotlight the role Sullivan's place in addressing cyber security.

This quarter, we held our Sullivan to date secured by design event in conjunction with Congressman.

That'll either Congressman Roger Krishnamurti ancestors executive assistant director for Cyber Security Eric Goldstein.

During the event, we showcase the importance of public private collaboration and securing a common infrastructure from cyber risks.

I'm encouraged that the industry continues to became aware off and adopt the secure by design principles. We established in early 2021.

Our next generation <unk> system, a key component of secured by design was recognized by the 2023 Big Innovations Award and Cloud Security Awards.

The cloud Security Awards Judge stated this cutting edge technology sets, a new standard for excellence in the industry sector.

Separately.

<unk> announced that our next generation Bill system aligns with the National Institute of standards and technology NIST guidance for secure software development.

In this regard we are in an early trendsetter leveraging our secure by design principles.

This includes aligning our software development processes witnessed.

Software development framework.

S Dcs and Sis is enduring security framework as outlined in the National Cyber security strategy.

While <unk> will set the formal guidance for how software vendors sell.

<unk> test to the Ssds later this fall.

We believe we are ready to date.

Lastly, we recently announced a new refresh logo and brand to signify our ongoing evolution.

Full year expansion and customer empowerment.

As the challenges our customers face have evolved in recent years.

And as the increased use of artificial intelligence has resulted in increasingly complex hybrid and multi cloud environments across industries. We now serve a broad customer base across it ops Dev ops setups and cloud ops teams.

Our new brand reflects our brand transformation, which has made us better equipped than ever to enrich the lives of our customers with simple powerful and secure AI based solutions that help improve productivity and reduce costs.

Now I'd like to remind you of the priorities, we laid out for 2023 and to discuss our progress towards these priorities VEBA.

We believe it environments continued to grow in complexity, while budgets remain constrained and therefore customers value solutions that improve productivity and lower costs.

I believe our comprehensive observe ability service management and database products and services.

Ideally suited to address these growing challenges.

It remains my belief that by establishing on our ongoing innovations on the Sullivan's platform, we can deliver even greater simplicity to our customers.

While creating the ability to expand the lifetime value of our customer relationships.

With that our key near term priorities are as follows.

We continue to seek to drive subscription adoption across our business, which is seen in our strong subscription revenue and <unk> growth results.

We believe this is consistent with how our customers want to consume our products and that an increase in asset prescription base provides an even more solid foundation for our revenue and margin expansion efforts.

Second we continue to exercise expense discipline in a challenging macro environment by investing selectively while managing costs and improved improving our operating margins as reflected in our 18% adjusted EBITDA year over year growth in Q2.

Third we remain very focused on customer retention and expansion efforts as evidenced by our improved renewal rates.

And fourth we continue to innovate on our Sullivan's platform organically and with our expanding ecosystem to bring even greater value to our customers.

Capabilities and take care Bye design efforts I spoke about a moment ago, an excellent examples of our progress.

With that I'll turn it over to Bart to expand on our financial performance and provide Q3 and an updated full year outlook, but.

Thanks, Sudhakar, we embarked on our subscription first strategy in 2021.

Historically, we sold on premises licenses and maintenance to our customers.

An important phase in our subscription transformation involves converting existing maintenance relationships to our hybrid cloud absorbability product, which offers a continuum to customers to adopt SaaS solutions as their business needs dictate.

We started pushing hard on this strategy in the second half of last year and continued to build momentum on these conversions in 2023.

Coupled with new subscription sales.

The second phase began with the launch of solar winds observer ability our SaaS solution.

So whether we sell hybrid cloud of durability, which is an on premises subscription or silver Windsor durability, which is the SaaS version of the product. We believe this lays the foundation for even more recurring and predictable revenue and the opportunity to expand our lifetime value with customers.

We now have 92% of our total revenue as recurring revenue.

Turning to the numbers, we finished the second quarter with total revenue of $185 million.

Which is a 5% increase compared to the prior year and above the total revenue range of outlook, we provided of $177 million to $182 million.

You will notice a meaningful shift in our revenue mix, which reflects our subscription transformation.

We continue to have a larger percentage of our sales as subscription products.

We ended the second quarter with total IRR of $657 million up 6% year over year.

Our subscription <unk> as of June 30 was $198 million, which is an increase of 33% year over year. This growth is mainly due to the execution of our subscription first strategy and the continued conversion of a portion of our maintenance base to the hybrid cloud Absorbability solution.

Digging into the revenue details our second quarter subscription revenue was $53 million.

Up 44% year over year.

Our subscription revenue growth reflects the ongoing success of our subscription first efforts. We are also seeing the results of converting a portion of our maintenance base to the hybrid cloud of durability product.

We continue to convert maintenance customers at a higher than one to one ratio.

As a reminder, as we transition to a subscription model subscription revenue can be impacted by the timing in term of the deals.

Maintenance revenue was $116 million in the second quarter, which is an increase of 2% from the prior year.

We expect maintenance revenue will continue to be impacted by the conversion of a portion of our maintenance customers to subscription and by our focus on structuring new sales of subscription products.

These changes are consistent with our stated strategy, which we believe will improve already robust business fundamentals.

Our maintenance renewal rate is 94% on a trailing 12 month basis and was 93% in the quarter for the second quarter.

Our customer base continues to be very loyal and we are focused and pleased with our ability to get maintenance renewal rates back to historical levels.

Note that as we convert maintenance customers to subscription arrangements, we exclude those customers from our renewal rate calculation.

As a result of the growth in subscription revenue and strong maintenance renewal rates. We now have 92% of our total revenue is recurring revenue.

For the second quarter license revenue was $16 million, representing a decline of approximately 38% compared to the second quarter of 2022.

Remember that our subscription model transformation has been in place for over one year now and therefore, we expect new perpetual license sales performance will continue to be negatively impacted.

Our increased subscription sales more than offset the decline in license revenue in the quarter.

We finished the second quarter of 2023 with 933 customers.

6% year over year growth, who have spent more than $100000 with us in the last 12 months.

I'm also pleased to report that we delivered another quarter of strong non-GAAP profitability second quarter, adjusted EBITDA was $79 $1 million growing 18% year over year.

Representing an adjusted EBITDA margin of 43%.

Coming in well above the 69, 5% to $72 $5 million outlook, we gave for the quarter.

This is a continuation of our commitment to higher profitability in both absolute dollars and in margins.

Excluded from adjusted EBITDA in the second quarter of onetime costs of approximately $7 8 million relating to certain noncash restructuring charges as well as litigation and governmental investigation costs and other professional fees related to the sunburst incident.

Offset by expected insurance reimbursement.

We expect cyber incident related cost to continue to fluctuate in future quarters, and these cyber costs are difficult to predict.

Turning to our balance sheet net leverage at June 30 is down to three five times, our trailing 12 months adjusted EBITDA compared to three eight times as of March 31.

Yeah.

Our cash and cash equivalents and short term investments balance was $178 million at the end of the second quarter, bringing our net debt to approximately $1 1 billion.

On the debt front, we made $650 million and voluntary debt prepayments in 2022, our debt matures in February of 2027, and we continue to seek to bring down the leverage further with adjusted EBITDA expansion and evaluate opportunities for additional debt payments.

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

I will start with our third quarter guidance, and then discuss what it means for the full year.

In formulating guidance, we are optimistic that the momentum we experienced in the first half of 2023 will continue to allow us to grow our top line in 2023.

Driven by our expanded product portfolio and ongoing improvements in execution as well as our strong installed base and customer retention.

We believe the diversity of our customer base across sizes and industries and our focus on attractive growth markets should allow us to weather challenging economic conditions.

That said, although we generally continue to see healthy demand and commitment from our customers. We are mindful of the macro headwinds affecting all areas of spending and the potential for deterioration this year.

Accordingly, our outlook carefully considers macroeconomic conditions and the impact of our subscription first business model transition.

We remain focused on our strategy and what we can control and are committed to continuing to improve our profitability profile in 2023.

$10.

Sending an 11% year over year growth at the midpoint.

This is compared to the previously provided guidance for the full year of 295% to $305 million.

We will continue to make selective investments consistent with our priorities and remain very committed to improving efficiency and profitability.

To control, what we can control and in parallel to 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 76% to 79 cents per share assuming an estimated 166.5 million fully diluted shares outstanding.

And our full year in third year third quarter guidance assumes a euro dollar exchange rate of 108 to one.

With that I'll turn the call back over to the Doctor for his closing remarks.

But I'm very excited about our team's progress as evidenced by another strong quarterly performance on both revenue and adjusted EBITDA.

Following the transformation of the changes we made a cross-eyed our organization and product portfolio in 2022.

We believe we are emerging as a much stronger player.

They are making significant progress initiated to deliver compelling ongoing value to customers.

Subscription first mindset.

So <unk> built to deliver the best time to value.

It's time to detect issues and best time to the immediate issues in their multi cloud environments by a simple powerful and secure solutions.

Expanding our margins, even as we deliver top line growth and evolved to a more predictable subscription revenues.

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 appeal to customers across all geographies and vertical.

We will continue to exercise expense discipline.

Invest selectively and strive to Delaware revenue growth and expanding margins.

We are increasing our guidance for 2023 across the total revenue and adjusted EBITDA as you heard from Buck on the heels of a strong Q2 and first half of 2023 performance.

In fact.

Revised low end of outlook for the year is at or above the previously indicated high end of our guidance ranges on both total revenue and adjusted EBITDA.

Again, I, thank God employees partners customers and shareholders for their commitment to Sullivan <unk>.

<unk> and now happy to address your questions.

At that time, I would like to remind everyone in order to ask a question. Please press start on the number one on your telephone keypad.

Your first question comes from San Dancing with Morgan Stanley . Your line is now open.

Thank you for taking the questions are nice to see you guys re asserting the historical renewal rates and the guidance coming up definitely definitely nice to see how a couple of questions on the macro environment and your <unk>.

Script, you guys are pointing to uhm, what seems like continued challenges in the spell environment. As you can peer Q2 versus Q1, Uhm did environment sort of was it <unk> more more of the same things sort of took down or did you see any sort of improvement with respect to new business.

<unk> thanks for the request in between.

Between Q1, and Q2 for the most part I would say the macro environment has been similar but what I can say about our business is that the.

The business and the demand as I have indicated previously is robust.

In fact the pipeline.

We all measure continues to improve and as I've stated previously the only variability that we see in this broader macroenvironment as some of the larger deals take a little longer to close.

The diversity in the breath of business is what gives us the foundation for the strong performance because we have a large number of mid market customers we have.

The larger customers. So we participate in a broad spectrum of the customer base, resulting in the solid foundation that we are building.

Understood and that makes sense, so I take that comment on the on on the execution in the economic backdrop. The guys are operating in so I looked at the 100 K customer <unk> did decline I think by by a 12 quote unquote are those are the factors associated with such a decline in the in the <unk> customer.

Absolutely I'll I'll highlight a couple of factors that.

It will be fairly straightforward to to digest run his sanjay as we convert.

More and more customers to the subscription arrangements, what you'll notice is that the size of the subscription deals tend to be a little smaller than the perpetual deals, especially in the first year. So that is one factor that.

Is contributing to it as you pointed out it's a fairly small number.

The other point I would highlight this while it has gone down from the previous quarter. It still 6% up from last year. So that's another way to think about that.

We continued to be largely a mid market customer as a mid mid market vendors I've highlighted.

Previously from a strategic standpoint, but we've been going up market Fatah GSI partners and channel partners.

So some of the deals tend to be lumpy, especially the larger ones.

But the overall trend is very positive for us.

I appreciate the context. Thank you. Thank you very much.

Your next question comes from Rob Oliver was bad your line is now open.

Hi, Good morning, Thank you for taking the questions I had to <unk> just first for you.

And you're prepared mirotic should talk a little bit about some of the products getting traction.

With subscription database management at Rts setup and observe ability I was wondering if you could give us a little bit more tolerant granularity around.

Seeing the most traction among those products are the most early success and what we might expect in terms of trajectory.

Of adoption of those products and then I had a quick follow up.

Thank you.

But first of all thanks for your question hope you're doing well.

In terms of let's take I'll take segment by segment at a at a high level and provide some color. If you have a follow on happy to answer as well.

The database portfolio of the database monitoring portfolio has been doing well across the spectrum of NACA across the spectrum.

We have some very large customers who are adopting it as well as.

The mid market base, including a cloud motions with.

With our partnerships with the cloud service providers.

The second part I'd highlight on the Observability pieces, we outlined a hybrid cloud observability solution between launched in fact, almost a year ago now that's been gaining very fast attraction largely with the customers who are looking for tooth consolidation hybrid cloud.

Deployment options continue to assess based solutions because we are unique in the sense that we can help our customers self host the solution and convert them in process over time as their business needs dictate which becomes increasingly compelling in this macro environment. So that's driving a lot of attraction.

<unk> and then the service management solution is 100% based solution that is ideal for the mid market value appropriately. There is unlike other service management solution, where the time to value takes many quarters and in some cases years, we are able to deliver value to customers.

In days, so that's what's driving the stickiness of it but the most interesting and exciting thing that we're doing Rob. It is not looking at them as discreet products, which of course, they are and can continue to be for a long period of time, but they already side increasingly on the Sullivan platform.

That gives us the ability to land and expand and provide customers more unified solutions and experiences with Xander it uses that costs and increases their productivity.

Rob the relations.

Your next question comes from Matt had badly RBC capital markets airline is now open.

And yeah I'll offer breast again, great great results here in this quarter and the guidance moving higher is also great to see.

I had a question about maintenance conversion.

Maybe part you Might've mentioned, it's converting at a higher to one to one conversion ratio, which is great to see.

<unk> are are there things that you're doing specifically to me the drive.

Higher maintenance conversions or is this more customer led at this point.

Matt I'll take that as well and.

Give you some color.

When when Bob describes it as.

Converting at a higher rate.

What it is is Vietnam converting like for like so let me give you an example.

Let's say you are a network monitoring customer of ours with a dollar off maintenance coming up do.

Typically when you convert you are converting to our hybrid cloud Observability solution, which not only gives you network monitoring, but also let's say systems monitoring so typically when we convert via converting to higher value add which of the reason why I don't look at that subscription transformation as simply.

Business model transformation. It is more of value model transformation customers get more capability unable to consolidate.

More tools.

Able to experience logo overall costs and improve their productivity. So that's what the driving our conversion factors and my belief is that we will continue to show that given the large size of the maintenance base.

For several years to come.

Alright, that's great to hear and then.

So that's when you started the pilates prepared remarks with the investments that you guys have been making with AI.

Within Aif's past two years.

I'm curious where are you on that investment spectrum.

I assume it's sort of an ongoing initiative, but you know yours time from now.

How much more do you think will be infused.

And the total product stack asked to imagine it particularly for your customer base that has to be a huge opportunity for efficiency gains and whether it's.

Security advocacy size. It just kind of curious about where we are on that investment cycle.

Absolutely.

Describe it as in 2021, it started at zero and we boot strapped it.

These days I'm going forward I expect it to be much more in a steady state mode.

Think we have the need to pour a lot more money into it but most likely will just maintain it at this point and continually add capabilities.

And the reason for being able to do that was 21 and 22 was a heavy lifting setting up a platform capabilities now it's a matter of what I would call out slightly emotion in terms of ongoing innovations across the spectrum.

Thank you.

Your next question comes from Eric.

J M. P Securities. Your line is now open.

Yeah. Thanks for thanks for taking me a question first off good to see that.

You isn't that leverage ratio coming down.

Do you have a target for that and any change in terms or any update in terms of the timing for that.

And then secondly.

Talking about transitioning your.

Breath of products onto your assess platform where are you in terms of that that development process clearly you've got the observability working but where are you in terms of the breath of your portfolio.

Hey, Thanks for the questions I'll take the first one real quick on the leverage yes, you know good improvement. This quarter you know studio a couple of things you know our continued growth in our cash balance pronto brought our net leveraged down and then you know EBITDA expansion, obviously helps as well. So you combine those things in three and a half times is what are we ended the second quarter.

We spoken publicly you know our goal is to get down below three times.

And the next we I think we said over the next couple of years, obviously, if we continue to perform as we have that'll that'll happen sooner rather than later.

And then a car.

Strategy.

Main use of cash continues to be focused on that pay down a bit.

Because the organic portfolio that we have built.

Sure.

Growth objectives of course will continue to stay open for inorganic as well, but the primary focus is that paid up.

Now coming to your question about the the platform as I've indicated previously Ah service management platform is 100%.

Platform, we released our Observability SaaS October of 2022, and we continue to expand its capabilities and as this year progresses.

More of our solutions will decide on the Sullivan platform when I say more of a solution that already includes today database observe ability and application monitoring and Observability solutions increase.

Increasingly our security network and infrastructure solutions as well so the team is on a fairly rapid pace.

Building on <unk> capabilities on our Sullivan platform and that will continue to serve as a great foundation for us to not only evolve customers, but also acquire new customers as we continually have been doing.

Very good thank you.

Securities. Your line is now open.

Greg morning to emphasis cardiovascular along for Terry Thanks for taking my questions. The first one I wanted to come back to the AI topics. So on the AIG virtual agents, that's going to be 800, and the service desk unnecessarily in the lifecycle, but I'm just curious on how we should think about the manifestation of an opportunity and a practice and maybe what the initial feedback.

Has been from your customer base since the since the announcement none at all.

Yeah.

I'll I'll step back a little bit and reinforce a couple of other points as well, while we added that to the service desk and announced it more recently as one of our AI extension.

The AI extensions that they've been building relate back to a broader monitoring and observe ability solution set as well in fact, one of the very first releases of AI ops that we created was to support the alert stacking capabilities of off our customers all of us have.

Heard of the term alert fatigue customers are getting I led left right and center and do not know how to prioritize creating both productivity and cost headaches as well as security headaches. So the first releases of them, which started in fact in 2022.

Focus on how do we improve stacking how do we help them get to the right to issues faster how do we do a better issue resolution improved productivity and security So think of what we do.

Done with the.

Digital assistant as an extension of hot AI roadmap and while it's early days the feedback from our customers has been very positive because increasingly what we're doing is that Ah service management solution becomes a full and integrated capability.

The mid market.

Other fact I would highlight here is that we are a vendor that's uniquely combining some of the observer ability capabilities with our service management portfolio, where we are not really able to detect issues for customers, but also automatically remediate them. So that's a unique value proposition that will resonate very strongly in the mid March.

From my perspective.

<unk>.

Got it it's really helpful to understand maybe just as a follow up on the international side with Europe in AP, J upstairs and how that opportunity is continue to progress.

The new data centers, we talked about last quarter, maybe what would the US and continued investment look like in these regions. Thank you.

Through our own people as well as a increasing and expanding set of channel partners.

Transform channel program many of our large GSI customers are also as you know based in the a P J region.

What I can also highlight is that Ah pipeline continues to grow at an accelerated pace.

<unk> and the only way the ability that I will record too is what I have previously alluded to riches because of the macro situation and some of the data conversion cycles have been a bit more protracted.

But what's helping us is the diversity of our customer base.

Reach that we have now built both without people as well as our channel partners.

Great. Thank you.

Your next question comes from cash wagon with Goldman Sachs. Your line is now open.

Hey, guys. This is jacob stuff off the cash flowing and thanks for taking my question.

Good to see the quarter the beaten the tourism is good to see I wanted to ask about the.

The approach, we're taking the hiring of southern you've taken a little bit more of a prudent approach to investments and maybe adding head count. So can you give any directional guidance around where a head count might be specifically like quota carrying reps.

Is that'd be like on a year over year or a quarter quarter over quarter basis.

Jacob I'll give you a broader responds to it we were committed to selectivity <unk> an ongoing operationally discipline.

I believe we are staying true to that at the same time, making the investments needed to capture the market opportunity that we have ahead of us and in that process have been able to showboat revenue growth and significant EBITDA expansion.

So that'd be continued to be a strategy going forward, which is selective is the operative term and discipline across the boat.

In terms of where we are making investments we will continue to look for investments in expanding and accelerating product portfolio as well as the go to market capabilities. Although increasingly we are leveraging our channel partners as well to get increased leverage.

Awesome, Okay, and then another question around the.

The sequential decline.

And large customers you mentioned that there is the dynamic of play of when the convert to subscription that deal might be smaller than 100 K.

Can you talk about how many of those 12 customers this dynamic applied to and two Q.

I don't have the exact specifics Jacob may I have to come back to you on that okay.

Okay understood. Thank you so much.

There are no further questions at that time, I will now turn the call back over to sit out there around the questionnaire.

Thanks, again, and thank you all for joining a call and we look forward to continuing to be in touch.

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