Q3 2023 SolarWinds Corp Earnings Call
Speaker 1: for its operator to the...
Speaker 1: At this time, I would like him to welcome everyone to the SolarWinds 3rd quarter 2023 earnings.
At this time I would like them to welcome everyone to the southern witness third quarter, 20th twenty-three earnings cause.
Speaker 2: All lines have been placed on mute to prevent any background noise.
Oh lines had been placed on mute to prevent any background noise.
Speaker 2: After the speakers are marked, there will be a question and answer session.
After the speaker's remarks, there will be a question and answer session.
Speaker 2: If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Speaker 2: If you would like to withdraw your question, again, press the star number one.
If you would like to withdraw your question again press the star number one.
Speaker 2: Tim Karaja, group vice president of finance, you may begin your conversation.
Thank you Tim.
Tim garage as group Vice President of Finance you May begin your conference.
Speaker 3: Thank you. Good morning, everyone, and welcome to the SolarWinds Third Quarter 2020-3 earnings call.
Thank you good morning, everyone and it won't come to the soloist third quarter 223 earnings calls.
Speaker 3: We've been today our Sudaka Ramakrishna, our president and CEO , and Bart Kalsu, our CFO . Following our prepared remarks, we will have a question and answer session.
We're paying today or should not go round my Krishna, our president and CEO and bought call to our CFO.
Following God prepared remarks, we will have a question and answer session.
Speaker 3: This call is being simultaneously webcast on our Investor Relations website at investors.solarwents.com
This call is being simultaneously webcast on our Investor Relations website at investors Dot solar wind dot com.
Speaker 3: You can also find our earnings press release and the summer slide deck, which is intended to supplement our prepared remarks during today's call.
You can also find out earnings press release, and the summers slide deck, which is intended to supplement our prepared remarks during today's call.
Speaker 3: Please remember that certain statements made during this call are forward looking statements.
Please remember that sort of statements made during this call are forward looking statements, including those concerning our financial outlook, our market opportunities our expectations regarding customer retention are continued evolution towards subscription first mentality and the timing of the face is I'll transfer you will do.
Speaker 3: including those concerning our financial outlook, our market opportunities, our expectations regarding customer retention, our continued evolution to a subscription first mentality, and the timing of the faces of such evolution, our expectations regarding our partner ecosystem.
<unk>, our expectations regarding our partner ecosystem. The S. E C enforcement action the impact of the global economic and geopolitical environment on our business and our gross level of debt.
Speaker 3: the SEC enforcement action, the impact of the global economic and geopolitical environment on our business and our gross level of debt.
Speaker 3: 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 based on currently available information on assumptions and we undertake no duty to update this information except as required by law. These.
Speaker 3: These statements are subject to a number of risks and uncertainties, including the numerous risks and uncertainties highlighted in today's earnings release and our filings with the SEC. Cappies are available from the SEC on our Immessor Relations website.
These statements are subject to a number of risks and uncertainties, including the numerous risks and uncertainties highlighted in today's earnings release, and our filings with the SEC copy.
Copies are available from the FEC on our Investor Relations website.
Speaker 3: We will discuss various Nan GAAP financial measures on today's call.
We will discuss various non-GAAP financial measures on today's call.
Speaker 3: On this otherwise specified, when we refer to financial measures, we will be referring to non-GAAP financial measures.
Unless otherwise specified while we refer to financial measures, we will be referring to non-GAAP financial measures Eric.
Speaker 3: A reconciliation of the differences between GAAP and NANGAAP financial measures and a definition of other financial metrics discussed on today's call are available in our earnings press release and summary slide deck on the Invest Relations page of our website.
Every constellation of the different differences between gap and non-GAAP financial measures and the definition of other financial metrics discuss on today's call are available in our earnings press release, and Summer's slide deck on the Investor Relations page of our web site.
Speaker 3: Finally, we note that the financial results discussed on today's call and our earnings release are preliminary and pending final review by us and our external auditors and will only be final once we follow our report on form. Thank you. With that, I will now turn the call over to Stalker.
Finally, we note that the financial results discussed on today's call and our earnings release, our preliminary and patenting final interview buyouts, and our external auditors and will only be final. Once we follow our quarterly report on form Tanked, you with that I will now turn the call over to stocker.
Speaker 4: Thank you Tim and good morning everyone. Thank you for joining us today. As always, I'd like to thank our employees, customers, partners and shareholders for their ongoing commitment to soloists.
Thank you, Tim and good morning, everyone.
Thank you for joining us today as always I'd like to thank God employees customers partners and shareholders, but.
Ongoing commitment to Sullivan.
Speaker 4: We delivered another strong quarter. Once again beating our guidance across our key metrics, demonstrating the compelling value we deliver to customers and the strength of our business model.
<unk> another strong quarter once again, beating guidance across all key metrics demonstrating that compelling value will be delivered to customers and the strength of our business model.
Speaker 4: I'm especially pleased with our team's execution across many aspect of our business, resulting in top-line growth while driving a gested EBITDA that exceeded the high end of our guidance range, all in an uncertain macro and one.
Especially pleased with that team to exit Houston across many aspect of five business, resulting in top line.
While driving adjusted EBITDA that exceeded the high end of five guidance range.
All in an uncertain macro and violent.
Speaker 4: Third quarter results include strong subscription revenue and ARR growth demonstrating the positive effects of our subscription first strategy.
Third quarter does that include strong subscription that Avenue and a are outgrowths, demonstrating the positive effects of a subscription first strategy.
Speaker 4: growing revenue and adoption from our observability solution coupled with continued product innovation.
Drilling revenue and adoption from Observability solution.
Filled with continued product innovation.
Speaker 4: Brought in the sales of our service management and database monitoring offering.
Growth in the.
Service management and database monitoring offerings.
Speaker 4: Continued strong customer retention, demonstrating our focused execution as well as the value proposition of our solution.
Continued strong customer retention, demonstrating focused execution as well as the value proposition of a solution.
Speaker 4: and double visit year-over-year adjusted even the growth along with increased margins, highlighting the operating leverage in our business and our commitment to expense management and operating the...
And double digit <unk> adjusted EBITDA growth.
Along with increased margins highlighting the operating leverage in our business and our commitment to expense management and operating discipline.
Speaker 4: I will now touch some of these highlights before turning the call over to Bart for more colour on the quarter and our financial outlook for the balance of the year.
I will now put some of these highlights before turning the call over to Bob for more color on the carpet and our financial outlook for the balance as of yet.
Speaker 4: In Q3 2023, we delivered total revenues of $119 million about the high range we provided representing 6% growth year over year and our highest quarterly revenue growth since the first quarter.
In Q3, 2023, we deliberate total revenues of $119 million above the high range, we provided representing 6%.
Over here and our highest quarterly revenue growth.
Since the first quarter of 2020.
Speaker 4: We continue to see the benefits of our subscription first transformation and deliver third quarter subscription revenue growth of 39% and subscription ARR growth of 34%.
We continued to see the benefits of five subscription first transformation and delivered third quarter subscription revenue growth up 39% in subscription add all growed up 34%.
Speaker 4: This evolution to subscription is not only contributing to our overall improved financial performance and revenue predictability with more than 92% of recurring revenue, but we believe it enables us to deliver greater value to class.
This evolution subscription is not only contributing to overall improved financial performance and revenue predictability with more than 92% of reckoning Avenue, but we believe it enables us to deliver greater value to customers.
Speaker 4: In the third quarter, our in-quarter maintenance renewal rate was 96% and our training 12 months maintenance renewal rate is now 95% up from 94% last quarter and 91% in the prior year.
In the third quarter in quarter maintenance at annual rates.
96% and failing 12 months maintenance renewal rate is now 95% up from 94% last quarter and 91% in the prior year.
Speaker 4: This increase is another reflection of the value of our solution to our car.
This increase is another reflection of the value of <unk> to our customers.
Speaker 4: We ended the third quarter of 2023 with 955 customers who have spent more than $100,000 with us in the last 12 months, an increase of 8% over the comparable period in the previous year.
B ended the third quarter of 2023 with 955 customers, who have spent more than $100000 with us in the last 12 months.
An increase of 8% over the comparable period in the previous year.
Speaker 4: These results are indicative of our focus on helping our customers reduce tool sprawl, reduce alert fatigue and reduce cost while improving productivity.
Visa results indicated of a focus on helping our customers.
Used to sprawl reduce alleged fatigue and reduce costs, while improving productivity.
Speaker 4: We delivered an adjusted EBITDA of $85 million, representing an adjusted EBITDA marginal 45%, and a 21% increase year over year, driven by revenue growth and maintaining investment and expense discipline.
Delivered and adjusted EBITDA of $85 million, representing an adjusted EBITDA margin of 45%.
21% increase year over year, driven by revenue growth and maintaining investment and expense discipline.
Speaker 4: Our adjusted EBITDA margins are the highest quarterly results since the fourth quarter of 2020 for both adjusted EBITDA and adjusted EBITDA margins.
Adjusted EBITDA <unk> the.
Highest quarterly results.
The fourth quarter of 2024, both adjusted EBITDA and adjusted EBITDA modules.
Speaker 4: The results testify to our progress to a continued robust growth and operating discipline.
That is that's testify to progress.
Continued robust growth and operating discipline.
Speaker 4: Now, turning to some business highlights from this quarter, I want to share a base on our product portfolio and partner ecosystem and the broad industry recognition we have.
Now turning to some business highlights from this quarter.
Sure Ah based on our product portfolio and partner ecosystem and abroad industry recognition, we have received.
Speaker 4: Our product and engineering teams continue to deliver capabilities rapidly on our Sullivan's platform and recently delivered network and infrastructure observability to give customers a SaaS option in addition to our self-hosted HydroCloud observability.
Product and engineering teams continue to Delaware capabilities rapidly Sullivan platform, and recently delivered network and infrastructure Observability.
Give customers a <unk> option. In addition to self hosted heidrich cloud the ability.
Speaker 4: Our solutions strive to deliver the best time to value, time to detect and time to remediate issues in our customers' multi-cloud environment.
Solution strive to deliver the best time to value time to detect and time to remediate issues in our customers multi cloud and violence.
Speaker 4: A hybrid cloud observability solution continues to gain widespread customer adoption as it helps customers to reduce toolstrawls, reduce alert fatigue through AIOPS services.
Ah Hi, Mick cloud Observability Celation continues to gain widespread customer adoption as it helps customers to reduce to withdrawal.
<unk> alleged fatigue through <unk> services.
Speaker 4: achieve deployment flexibility and prepare for a hybrid multi-cloud wall.
It seem deployment flexibility and prepared for a hybrid multicloud world.
Speaker 4: Centrials to our hybrid cloud observability strategy is the ability to support and interoperate with a wide range of assets inherent in heterogeneous environments. And in Q3, we added significant capabilities to support modern SD-WAN solutions.
Central to our hybrid cloud Observability strategy is the ability to support an inter operate with a wide range of passage inherent in heterogeneous environments and in Q3, we added significant capabilities to support modern S. D when solutions.
Speaker 4: We believe the combination of hybrid cloud observability and solowinds observability provide the most comprehensive AI-powered full stack observability solution in the industry across networks, infrastructure, application, and database.
We believe the combination of hybrid clouded the ability and <unk> provide the most comprehensive AI powered food stack of the ability solution in the industry across networks.
Construction applications and databases.
Speaker 4: As I've described in previous calls, we intend to make the SolarWinds platform the foundation for all future innovation.
Described in previous call, we intend to make the Sullivan platform the foundation for all future innovation.
Speaker 4: Additionally, at our SolarWinds day, the virtual summit in September , we announced new product enhancements to our service management and database observability solution.
Additionally, at <unk> de <unk>.
In September we announced new product enhancements to our service management and database Observability solution.
Speaker 4: Our new enterprise service management solution extends the value of our service management capabilities beyond ITT.
New Enterprise service management solutions extend the value of a service management capabilities beyond I T T.
Speaker 4: allowing enterprises to improve the management, efficiency, interactions and user experience across any department of their organization.
Allowing enterprises to improve the management efficiency interaction and user experience.
Amy Department of their organization.
Speaker 4: With our new solution, customers who currently rely on disparate and disconnected tools across departments to manage workflows and service requests can greatly improve response time and employee experience.
With a new solution customers, who currently rely on disparate and disconnected twos across departments managed workload and service request can greatly.
Improve response time, an employee experience.
Speaker 4: We also announced an upgraded version of our comprehensive database performance monitoring and data ops solution, SQL Center.
We also announced an upgraded version of a comprehensive database performance monitoring and data ops solution sequel.
Sequel century.
Speaker 4: The extension aims to significantly enhance our customer's ability to identify and prevent database performance issues, avoid outages and enjoy the most out of their databases while lowering lists.
Extension aimed to significantly enhance our customers ability to identify and prevent database performance issues avoid outages and enjoy the most out of their databases, while lowering risk.
Speaker 4: Turning to our partner ecosystem, we announced updates to our transform partner program in org.
Turning to a partner ecosystem, we announced updates to transform partner program in August.
Speaker 4: Designed to accelerate growth and revenue for our partners, these updates provide greater flexibility for our partners to achieve their targets, new opportunities for channel offering improvements, and specialized options for database and ITSM products.
Designed to accelerate growth in revenue for Ah puppies visa date provide greater flexibility put out of pocket.
That target new opportunities for <unk> offering improvements and specialized options for database and I T S. Sam crash.
Speaker 4: As you have heard me discuss in recent quarters, our partners and global system integrators are an increasingly important element of our go-to-market motion that can help us expand our reach to customers in a scalable, efficient, and cost-effective manner.
As you've heard me discuss in recent quarters.
Hotmail and global system integrated and increasingly important elements.
Market promotion that can help us expand our reach to customers.
Scaleable efficient and cost effective manner.
Speaker 4: Lastly, I'm pleased that we have earned multiple product and industry awards this quarter, including the Sullivan's next generation build system, one that's 2023 cloud security award for the best security infrastructure in enterprise.
Lastly, I'm pleased that with multiple product and industry Awards this corporate including the Sullivan next generation Bill system, one bit 2023 Cloud Security award for the best security infrastructure in empathize.
Speaker 4: Soluvens won the Gold Globby Award as most innovative company of the year in the Cloud Fast category.
<unk> won the gold <unk> award as most innovative company of the year in the cloud fast category.
Speaker 4: Thuramins Observability won the 2023 Cloud SAS Award for Best SAS Product for IT Management.
Sullivan Absorbability, one with 2020th Sea Cloud <unk> Award for best product.
I T management.
Speaker 4: In closing, we had another strong quarter and we are making excellent progress against the priorities we laid out for 2022.
In closing we had another strong quarter and we are making excellent progress against the priorities we laid out for 2023.
Speaker 4: First, we continue to seek to drive subscription adoptions across our business, which is seen in a strong subscription revenue and ARR growth results.
First we continue to seek to drive subscription adoptions across our business, which is seen in a strong subscription revenue and are all goes with us.
Speaker 4: We believe this is consistent with how our customers want to consume our products and that an increase in our subscription base provides an even more solid foundation for our revenue and margin expansion.
We believe this is consistent with how our customers want to consume our products and that an increasing subscription base, providing even more solid foundation.
Revenue in modern expansion efforts.
Speaker 4: Second, we continue to accept time, extend discipline in a challenging macro environment by investing selectively while managing costs and improving our operating model as it reflected in our 21% adjusted EBITDA year-o-year growth in Q3.
Second we continue to exist.
Discipline in a challenging macroenvironment by investing selectively while managing costs and improving operating margins.
Reflected in 21% adjusted EBITDA.
Grilled in Q3.
Speaker 4: First, we remain very focused on customer retention and expansion efforts as evidenced by our improved renewal rate.
Third we remain very focused on customer retention.
Netflix as evidenced by include the annual rate.
Speaker 4: And thought we continued to innovate on our Sullivan platform organically and with our expanding ecosystem to bring even greater value to our car.
And fourth we continue to innovate Sullivan platform organically and without expanding ecosystem to bring even greater value to our customers.
Speaker 4: While there is much work that we do, we believe we are in a great position to achieve what we had hoped to accomplish this fiscal year and enter 2024 with strong momentum.
While there is much work left to do we believe we are in a great position to achieve what we had hoped to accomplish this fiscal year.
<unk> 2024 strong momentum.
Speaker 4: We believe IT environments continue to grow in complexity while budgets remain constrained. And therefore, customers value solutions that improve productivity and lower cost.
We believe I T environment continues to grow in complexity, while budgets remain constrained.
And therefore customers value solution that improve productivity and lower costs.
Speaker 4: I believe our comprehensive observability, service management, and database products and services are ideally suited to address these growing challenges and we are becoming an even more relevant to our customers current and future needs.
I believe comprehensive.
The ability service management and database products and services.
Daily suited to address these growing challenges and we're becoming an even more relevant to our customers current and future needs.
Speaker 4: or Q3 results reflect our increasing relevance to our class.
R Q3 does that reflect our increasing relevance to our customers.
Speaker 4: With that, I will turn it over to Bart to expand on our financial performance and provide a full year outlook.
With that I will turn it over to but to expand on our financial performance and provide a full year outlook.
But.
Speaker 5: Thanks, Adokker. Our subscription first strategy continues to make solid progress. As you know, historically, we sold on premises, licenses, and maintenance to our customers. The first phase of our subscription transformation involves converting our existing maintenance base to subscription via our self-hosted hybrid cloud observability product.
Thanks for the Doctor.
Subscription first strategy continues to make solid progress.
As you know historically, we sold on premises licenses and maintenance to our customers.
The first phase of our subscription transformation involves converting our existing maintenance base to subscription via ourself hosted hybrid cloud of durability product.
Speaker 5: We are now seeing a bigger shift in new sales to our subscription offering.
We are now seeing a bigger shift and new sales to our subscription offerings.
Speaker 5: Driven by our observability solution and our database and service desk product.
Driven by your Observability solution, and our database and service desk products.
Speaker 5: The second phase began with the launch of SolarWinds Observability, our SAS solution.
The second phase began with the launch of solar winds observe ability or sash solution.
Speaker 5: So whether we sell hybrid-cut observability or solar-winds observability, we believe this lays the foundation for even more predictable recurring revenue and the opportunity to expand the lifetime value with customers.
So whether we sell hybrid caught absorbability or Solarwinds Observability. We believe this lays the foundation for even more predictable recurring revenue and the opportunity to expand the lifetime value with customers.
Speaker 5: We've seen great progress with this transformation and we believe we are in a position to continue our momentum through the fourth quarter.
We've seen great progress with this transformation and we believe we are in a position to continue our momentum through the fourth quarter.
Speaker 5: It is worth noting that our third quarter performance puts us back in the position of being a rule of 50 company.
It is worth noting that our third quarter performance puts us back in the position of being a rule of 50 company.
Speaker 5: We believe that with our focus on investment and operating discipline and the broadly diversified portfolio of solutions participating in growing markets, we can be a rule of 50 company on a sustained basis.
We believe that with our focus on investment and operating discipline and a broadly diversified portfolio solutions participating in growing markets. We can be a ruler 50 company on a sustained basis.
Turning to the numbers.
Speaker 5: We finished the third quarter with total revenue of $190 million, a 6% increase compared to the prior year, and above the total revenue range of outlet we provided, of $182 to $186 million. You'll notice a meaningful shift in our revenue mix, which reflects our subscription transformation.
We finished the third quarter with total revenue of $190 million, a 6% increase compared to the prior year and above the total revenue range of outlet, we provided of $182 million to $186 million.
You'll notice a meaningful shift and a revenue mix, which reflects our subscription transformation.
Speaker 5: We continue to have a larger percentage of our new sales as the encryption product.
We continue to have a larger percentage of our new sales as subscription products.
Speaker 5: We ended the third quarter with total ARR of $668 million up 8% year over year.
We ended the third quarter with total a R R of $668 million up 8% year over year.
Speaker 5: Our subscription AR as of September 30th was $213 million. An increase of 34% year-over-year.
Our subscription they are as of September 30th was $213 million, an increase of 34% year over year.
Speaker 5: This growth is primarily due to the execution of our subscription first strategy. The continued conversion of a portion of our maintenance base to the hybrid cloud observability solution and growth in our database and service desk subscription product.
This growth is primarily due to the execution of our subscription first strategy.
Continued conversion of a portion of our maintenance base to the hybrid cloud Observability solution.
And grows in our database and service desk subscription products.
Speaker 5: Taking into the revenue details, our third quarter subscription revenue was $59 million, up 39% year over year.
Digging into the revenue details are third quarter subscription revenue was $59 million.
39% year over year.
Speaker 5: Our subscription revenue growth reflects the ongoing success of our subscription first F.
Our subscription revenue growth reflects the ongoing success of our subscription first effort, we continue to convert maintenance customers at a higher than one to one ratio as they see the value of our observability products and they need to manage their hybrid ITE environment.
Speaker 5: We continue to convert maintenance customers at a higher than one-to-one ratio as they see the value of our observability products and the need to manage their hybrid IT environment.
Speaker 5: In addition, a higher percentage of our new deals are being sold as subscription arrangements. Subscription revenue was also positively impacted by multi-year arrangements in the third quarter.
In addition, a higher percentage of our new deals are being sold that subscription arrangement.
[noise] subscription revenue was also positively impacted by multiyear arrangements in the third quarter.
Speaker 5: Maintenance revenue was $116 million in the third quarter, an increase of 2% from the prior year. The increase is attributed to our high renewal rates and the higher the normal price increase we implemented at the start of the year.
Maintenance revenue was $116 million in the third quarter, an increase of 2% from the prior year.
The increase is attributed to our high renewal rates and the higher than normal price increase we implemented at the start of the year.
Speaker 5: As previously discussed, our maintenance revenue has been impacted by converting a portion of our maintenance customers to subscriptions and by selling a larger percentage of new sales as subscription products in line with our subscription first strategy.
As previously discussed or maintenance revenue has been impacted by converting a portion of our maintenance customers to subscriptions and by selling a larger percentage of new sales as subscription products in line with our subscription first strategy.
Speaker 5: Our maintenance renewal rate is 95% on a trailing 12 month basis and was 96% for the third quarter.
Our maintenance renewal rate is 95 per cent on a trailing 12 month basis and was 96% for the third quarter.
Speaker 5: The trailing 12 month rate was the highest rate since the fourth quarter of 2019.
The trailing 12 month rate was the highest rate since the fourth quarter of 2019, we.
Speaker 5: We believe this testifies the loyalty of our customer base, the value of our solutions, and our focus on customer retention and expansion efforts.
We believe this testifies to the loyalty of our customer base the value of our solutions and our focus on customer retention and expansion effort.
Speaker 5: Note that as we convert maintenance customers to subscription arrangements, we exclude those customers from our renewal rate calculation.
Note that as we convert maintenance customers to subscription arrangements, we exclude those customers from a renewal rate calculation.
Speaker 5: As a result of the growth in subscription revenue and strong maintenance renewal rates, we now have 92% of our total revenue as recurring revenue.
As a result of the growth in subscription revenue in strong maintenance renewal rates, we now have 92% of our total revenue as recurring revenue.
Speaker 5: For the third quarter, license revenue was $14 million, representing a decline of approximately 37% compared to the third quarter of 2022. Remember that with our increased efforts on subscription transformation, we expect new perpetual license sales performance will continue to be negatively impact.
For the third quarter license revenue was $14 million, representing a decline of approximately 37% compared to the third quarter of 2022.
Remember that with our increased efforts on subscription transformation, we expect new perpetual license sales performance will continue to be negatively impacted this.
Speaker 5: This is by design and the increased subscription sales continue to more than offset the decline in license revis.
This is by design and the increase subscription sales continue to more than offset the decline in license revenue.
Speaker 5: We finished the third quarter of 2023 with 955 customers who have spent more than $100,000 with us in the last 12 months, which is another quarter of year-over-year improvement over the third quarter of 2022, as well as a sequential increase over the second quarter of this year.
We finished the third quarter of 2023 with 955 customers, who spent more than $100000 with us in the last 12 months, which is another quarter of year over year improvement over the third quarter of 2022 as well as a sequential increase over the second quarter of this year.
Speaker 5: I'm pleased to report that we delivered another quarter of strong non-gap profitability. Third quarter adjusted EBITDAW with $85 million growing 21% year over year. Representing an adjusted EBITDAW margin of 45% and coming in 8.5 million dollars above the high end of the outlook we gave for the quarter.
I'm pleased to report that we delivered another quarter of strong non-GAAP profitability.
Third quarter, adjusted EBITDA was $85 million growing 21% year over year.
Representing an adjusted EBITDA margin of 45% in coming in eight and a half million dollars above the high end of the outlook, we gave for the quarter.
Speaker 5: Excluded from Adjusted EBITDA in the third quarter are one-time expenses of approximately $2.9 million related to the sub-siber incident, net of insurance reimbursements. We continue to expect one-time cyber incident related costs to fluctuate and increase in future quarters related to the litigation with the SEC.
Excluded from adjusted EBITDA in the third quarter or one time expenses of approximately $2.9 million related to december's cyber incident net of insurance reimbursement. We continue to expect one time cyber incident related costs to fluctuate an increase in future quarters related to the litigation with the SEC.
Speaker 5: As we discussed in our earnings call in May, we are focused on our capital allocation.
As we discussed in our earnings call in May we are focused on our capital allocation.
Speaker 5: Discipline expense management and driving operational efficiencies across our business while focusing on growth and our broader subscription transition. Given the uncertain macro outlook for 2023, we optimized our expense structure as part of our ongoing focus on improving operating margins in the first half of the year.
Disciplined expense management, and driving operational efficiencies across our business, while focusing on growth and our broader subscription transition.
Given the uncertain macro outlook for 2000 twenty-three, we optimized our expense structure as part of our ongoing focus on improving operating margins in the first half of the year.
Speaker 5: During 2023, these optimizations resulted in 20 million of restructuring charges primarily associated with 14 million of lease impairments for certain office locations and costs related to headcount reduction.
During 2000 twenty-three. These opt amazed optimizations resulted in 20 million a restructuring charges, primarily associated with $14 million lease impairment for certain office locations and costs related to headcount reductions.
Speaker 5: Looking ahead, we will continue to monitor the environment closely and we plan to hire selectively and continue to manage our costs in a discipline manner.
Looking ahead, we will continue to monitor the environment closely and we plan to hire selectively and continue to manage our costs in a disciplined manner.
Speaker 5: Turning to our balance sheet, we've made significant progress, reducing our net leverage ratio, which at September 30th with approximately 3.2 times our trailing 12 months adjusted evidaw. This compares to 3.9 times at the end of last year.
Turning to our balance sheet, we've made significant progress, reducing our net leverage ratio, which at September 30th was approximately 3.2 times are trailing 12 months adjusted EBITDA.
This compares to 3.9 times at the end of last year.
Speaker 5: We have significantly improved our leverage position in 2023 through improved performance and our ability to convert non-gap profitability to cash flow.
We have signal significantly improved our leverage position in 2000 twenty-three through improved performance and our ability to convert non-GAAP profitability to cash flow.
Speaker 5: As communicated before, we will continue to execute our plans to get below three times net leverage.
As communicated before we will continue to execute our plans to get below three times net leverage.
Speaker 5: Our cash and cash equivalents and short-term investments balance was $235 million at the end of the third quarter, bringing our net debt to approximately $1 billion.
Our cash and cash equivalents and short term investments balance was $235 million at the end of the third quarter, bringing our net debt to approximately $1 billion.
Speaker 5: I will now walk you through our outlet before turning it over to Sudakar for final thought.
I will now walk you through our outlet before turning it over to the Doctor for final thoughts.
Speaker 5: I will start with our Ford Quarter Guidance and then discuss what that means for the full year.
I will start with our third quarter guidance, and then discuss what that means for the full year.
Speaker 5: Given the performance we have seen today, we continue to believe that we will be able to grow our top line in 2023. Driven by our expanded product portfolio, and ongoing improvements in execution, as well as our strong customer renewal and retention rate.
Given the performance we have seen today, we continue to believe that we will be able to grow our top line in 2023.
Driven by our expanded product portfolio and ongoing improvements in execution as well as our strong customer renewal and retention rate.
Speaker 5: 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.
We believe the diversity of our customer base across sizes and industries and our focus on attractive growth markets should allow us to whether challenging economic conditions.
Speaker 5: Our outlook carefully takes into account macro economic conditions and the impact of our subscription first business model transition.
Our outlook carefully takes into account macro economic conditions and the impact of our subscription first business model transition.
Speaker 5: We remain focused on our strategy and what we can control and are committed to continuing to improve our profitability profile in 2023.
We remain focused on our strategy.
And what we can control and are committed to continuing to improve our profitability profile in 2023.
Speaker 5: For the fourth quarter, we expect total revenue to be in the range of 188.5 million to $192.5 million, representing a 2% year-over-year growth at the midpoint.
For the fourth quarter, we expect total revenue to be in the range of $188.5 million to $192.5 million, representing a 2% year over year growth at the midpoint.
Speaker 5: Adjusted EBITDA for the fourth quarter is expected to be approximately 80.5 million to 82.5 million Representing 9% year-to-year growth at the midpoint
Digested EBITDA for the fourth quarter is expected to be approximately $85 million to $82.5 million, representing 9% year over year growth at the mid point.
Speaker 5: Non-GAP fully diluted earnings per share are projected to be 20 to 22 cents per share, assuming an estimated 167.4 million fully diluted shares outstanding.
non-GAAP fully diluted earnings per share are projected to be 20 to 22 cents per share assuming an estimated 167.4 million fully diluted shares outstanding.
Speaker 5: Finally, our outlet for the fourth quarter assumes a non-gap tax rate of 26%. And we expect to pay approximately 8 million in cash taxes during the fourth quarter.
Finally, our outlet for the fourth quarter as soon as a non-GAAP tax rate of 26% and we expect to pay approximately $8 million in cash taxes during the fourth quarter.
Speaker 5: For the full year, we are again raising our guidance and expect total revenue to be in the range of $749 to $753 million, representing 4% year-over-year growth at the mid-
For the full year, where you're again, raising our guidance and expect total revenue to be in the range of 749% to $753 million, representing 4% year over year growth at the midpoint.
Speaker 5: This compares to the previously issued guidance of 740 to 748 million and the initial range of 725 to 740 million at the start of the year.
This compares to the previously issued guidance of $740 million to $748 million.
In the initial range of $725 million to $740 million at the start of the year.
Speaker 5: We are again raising our full year at Jessie Bedog guidance to be between $322 and $324 million representing a 15% year-over-year growth at the midpoint.
We are again, raising our full year adjusted EBITDA guidance to be between 322 and $324 million <unk>.
Representing a 15% year over year growth at the midpoint.
Speaker 5: This is compared to the previously provided guidance for the full year of $308-313 million.
This is compared to the previously provided guidance for the full year of $308 million to $313 million.
Speaker 5: We continue to make selective investments consistent with our priorities and remain very committed to improving efficiency and profitability.
We continue to make selective investments consistent with our priorities and remain very committed to improving efficiency and profitability.
Speaker 5: We remain focused on top-line growth as we have made meaningful investments in our product portfolio and go-to-market strategies. We believe these investments...
We remain focused on top line growth as we've made meaningful investments in our product portfolio and go to market strategies. We believe these investments are starting to pay dividends.
Speaker 5: Non-GAP fully diluted earnings per share is projected to be 83 to 85 cents per share, assuming an estimated 166.4 million fully diluted shares out of stand.
non-GAAP fully diluted earnings per share is projected to be 83 to 85 cents per share assuming an estimated $166 4 million fully diluted shares outstanding.
Speaker 5: And finally, our full year and fourth quarter guidance assumes a Euro to dollar exchange rate of 1.06 to 1. With that, I'll return the call to Saddam-
And finally, our full year in fourth quarter guidance assumes a euro dollar exchange rate of 1.06 to one.
With that I'll return the call. This a doctor for his closing remarks.
Speaker 4: Thank you, Bart. I'm very pleased with the team's progress as evidenced by another strong quarterly performance on both revenue and adjusted EBITDA.
Thank you, but I'm very pleased with the team's progress as evidenced by another strong quarterly performance on both revenue and adjusted EBITDA.
Speaker 4: Although our focus today is on the strength of our third quarter results and the progress we have made as a business, I want to spend a few moments talking about the recently announced Tribal Enforcement Action brought by the SEC related to the Sunburst attack.
Although our focus today is on the strength of our third quarter results and the progress we have made as a business I want to spend a few moments talking about the recently announced seven enforcement action brought by the FCC related to the Sunbeds attack.
Speaker 4: We find the SEC's allegations very disappointing and believe they are inconsistent with the facts.
We find the sec's allegations very disappointing and believed that inconsistent with the facts.
Speaker 4: As difficult as the attack was, we are very proud of how our employees responded and their tireless engagement with our public and private sector customers, partners, and other stakeholders.
As difficult as that tax laws, we are very proud of how our employees refunded in that time engagement with our public and private sector estimates.
<unk> and other stakeholders.
Speaker 4: Through our secure by design efforts, we have endeavored to set a new standard in secure software development and infrastructure security and our approach has received broad recognition in the security and IT index.
You too take care Bye design efforts.
And David to set a new ended.
Software development and infrastructure security and approach has received broad recognition in the security and iced tea in that please.
Speaker 4: We will continue to be outspoken advocates and promoters of public private partnerships to port and respond to cyber attacks. I believe this is the only way to improve cyber security for public and private entities.
We will continue to be outspoken advocates and promoters of public private partnerships.
Talked to and respond to cyber attacks.
I believe this is the only way to improve cyber security public and private entities. We are concerned that the sec's actions will extend the progress we have made as an industry.
Speaker 4: We are concerned that the SEC's actions will stunt the progress we have made as an industry.
Speaker 4: Through all of this, and most importantly, we deeply appreciate our customers' recognition of the circumstances of the sunburst attack and the opportunity to enjoy greater relevance with them as evidenced by our growth and retention rate.
Do all of this and most importantly, we deeply appreciate customers recognition of the circumstances of December attack and the opportunity to enjoy great that relevant with them as evidenced by asthma and retention rates.
Speaker 4: We are working hard and making significant progress in our initiatives to deliver ongoing, compelling value to customers via subscription first, my six.
We are working hard and making significant progress in a initiated the delaware ongoing compelling value to estimate.
Subscription first mindset.
Speaker 4: build solutions to deliver the best time to value, the best time to detect issues, and the best time to remediate issues in their multi-cloud environment by a simple, powerful, and secure solution. And to expand our margin, even as we deliver top-line growth and evolve to a more predictable subscription revenue.
Been solutions to deliver the best time to value.
Time to detect the issue and the best time to remediate issues in their multi cloud and violence by a simple powerful and see cancellation and to expand our mouths and even as we deliver top line growth and evolved to a more predictable subscription revenues.
Speaker 4: The macro environment continues to present challenges to the broader software industry.
The macro environment continues to present challenges to the browser software investigate.
Speaker 4: Even so, I'm confident our strategy, portfolio, and customer success focus will appeal to customers across all geographies and across all verticals. We continue to exercise expense discipline, invest selectively, and strive to deliver revenue, growth, and expanding markets.
Even so I'm confident our strategy portfolio and customer success focus will appeal to customers across all geography and across all good to go.
We continue to exercise explains discipline invest selectively and strive to denigrated Avenue.
And expanding Muslims.
Speaker 4: We're increasing our guidance for 2023 across total revenue and adjusted give it up as you heard from Bob.
We are increasing our guidance for 2000 2003.
<unk> told me that Avenue and adjusted EBITDA as you heard from bumped.
Speaker 4: on the heels of a strong QC and first half 2020 performance.
On the heels of a strong Q3 in first half of 2023 performance.
Speaker 4: In fact, our revised low-end of the outlook for the year is about the previously indicated high-end of our guidance ranges on both total revenue and adjusted EBITDA.
In fact.
The low end of the outlook for the year is about the previously indicated high end apart guidance range. It.
On both total revenue and adjusted EBITDA.
Speaker 4: Again, I thank our employees, partners, customers and shareholders for their commitment to the solution. But tonight, I'm now happy to address your questions.
Again, I, thank God employees partners customers and shareholders.
Commitment to Sullivan.
Boston I and now I'm happy to address your questions.
Speaker 2: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone key.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Speaker 2: Your first question comes from the line of Rob Oliver with Beard. Your line is open.
Your first question comes from the line.
Oliver was there your line is open.
Speaker 6: Hey guys, it's Patrick Sholeson for Rob this morning. Thanks for taking the questions. I got first starting with the larger customers of greater than 100,000 spend. This cohort formed pretty well during the quarter and growth actually accelerated despite a continued challenging macro for larger deals. Just wanted to dive a little deeper into this.
Hey, guys et cetera shows on for out. This morning. Thanks for taking my questions I got first starting with the larger customers of greater than 100000 spend this cohort farm pretty well during the quarter and growth actually accelerated despite continue challenging macro for larger deal just wanted to die of a little deeper into best.
Speaker 6: Just trying to understand what the main drivers are and maybe some of the enhancements you made around the partner program are these are into getting traction with the larger customers.
Try to understand some of the main drivers are and and maybe some of the enhancements you made around the partner program or are they starting to gain traction with the larger customers.
Speaker 4: I'll take a crack at that question and about field theta jump and add your comments. First of all, yes, your observation is absolutely right. But as we have always described on these calls, we will expect some variability in large fields as we go through various quarters. For the reason why you're seeing this study trend from us.
I'll take a crack at that question about feel free to jump in and add your son Uhm supposed to call you at your observation is absolutely right, but as we have always described on these calls.
We will expect some variability in large deals as we go through various quarters, but the reason why you're seeing this steady Glen from us.
Speaker 4: is because we are continuing to deliver greater value to cut.
Is because we are continuing to deliver greater value to customers one of the points I bring up consistently is that we had helping customers eliminate <unk> what that means is that instead of as being simply a point product solution provider.
Speaker 4: One of the points I'd bring up consistently is that we are helping customers eliminate tools wrong. What that means is that instead of us being simply a point product solution provider, we are delivering platforms and broader capabilities to customers that then let them consolidate other vendors' tools and other capabilities onto the Sullivan's platform.
Delivering platform and broader capabilities to customers that and let them consolidate other vendors tools and other capabilities onto the sullivans platform.
Speaker 4: In fact, the hybrid cloud observability solution that's been gaining traction since we introduced does exactly that in addition to doing a lot of other things. So that's what's contributing to some of the larger deal types.
Fact, the hybrid cloud up the ability solution that's been gaining traction since we introduced does exactly that in addition to doing a lot of other things. So that's what's contributing to some of the larger sizes.
Speaker 4: The other point is what you highlighted, which is working with global system integrators and continuing to evolve our transform partner program. We will see some more traction there, but it's not fully reflected yet. And this will be a long journey for us, but we are very excited about where we are.
The other point is what you highlighted which is working that global system integrated and continuing to evolve transform partner program, we will see some more tracks in there, but it's not fully reflected yet and this will be a long journey for us that we are very excited about where we're headed.
Speaker 6: Great, I appreciate the call out in quick follow up too. Just want to ask you about the public sector and some of the fatty customers, which your team is on a great job maintaining these relationships here. It seems like this vertical continues to be a nice pocket of strength. Can you talk about some of the demand you saw during Q3, just given the federal September fiscal year end, and maybe where do you stand now in terms of renewal rates, expansion activity, subscription progress, et cetera, just relative to where you like to be? Thanks guys.
Great I appreciate the call out and quick follow up to just want to ask about the public sector and some of the side customers, which your team has done a great job maintaining these relationships here. It seems like there's a vertical continues to be a nice pocket of straying. So can you talk about some of the demand you saw it during Q3, just given the federal September fiscal year, and and maybe where do you stay.
Now in terms of renewal ray its expansion activity subscription progress et cetera relative to where you like to me. Thanks guys.
Speaker 4: Yes, we are making very good progress there and as you indicated, we have retained most, if not all our customers and have continued to expand as well with new customers in the public sector and especially the federal sector.
Yes that we are making very good progress there and as you indicated we have retained most if not all our customers and have continued to expand as well with new customers in the public sector and especially the federal segment that'd be continued to be a very important aspect of five business because <unk>.
Speaker 4: That will continue to be a very important aspect of our business because our solutions support 30 government customers in my opinion as well or better than most other options out there. And that's the reason why they tend to be loyal to us and continue to expand with us.
<unk> <unk> <unk>, <unk> gum and customers in my opinion, as well or better than most other options out there and that's the reason why they tend to be loyal to us and continue to expand with us.
Speaker 4: With regards to demand in Q3, we did see good demand, although I will say that towards the end of the quarter, especially on the 30th and the 29th, because of some of the continuing resolution issues, we did have these slip into Q4.
With regards to demand in Q3, we did see good demand, although I will say that towards the end of the quarter, especially on the 30th and the 29th because of some of the continuing resolution issues. We did have slipped into Q for with some of them be already closed but that is a that was it a soft spot for.
Speaker 4: which some of them be already closed, but that was a soft spot for us in Q3 as we ended it.
In Q3, as we ended it but as you saw from Amazon, even without those deep Red Delaware excellent results about the high end of the range we provided.
Speaker 4: But as you saw from our results, even without those deeds, we delivered excellent results about the high end of the range we provided.
Speaker 4: indicating the diversity and the robustness of our solutions across all verticals and of course a federal as well.
Indicating the diversity in the robustness of our solutions across all vertical and of course, a federal as well.
Speaker 2: Your next question comes from the line of Matthew Hedberg with RBC Capital Markets. Your line is open.
Your next question comes from the line of Matthew Hedberg with RBC capital market. Your line is open.
Speaker 7: Hey guys, this is Simranan from Matt Hedberg. Thanks for taking our question and congrats on the purchase. Just one for me, can you speak to the health of the SME market and how customer spending has been tracking? And I'd also love to hear any additional commentary around how you've been thinking about retention and expansion throughout the quarter relative to expectation and what is driving this trend.
Hi, guys. This is Sam.
<unk>, thanks for taking our questions.
That's wonderful.
Called the house.
Marketing, how customer standing has been tackle and I'd also like to hear any additional commentary around how you been thinking about the tension in expansion throughout the quarter relative to expectations and what is driving.
Mmm.
Speaker 4: Thanks again for your question. I'll take a quick crack hat responding to it and bottle add any additional color he chooses to.
Thanks again for your question I'll I'll take a quick crack had responding to it and Buffy add any additional <unk> to this too.
Speaker 4: Specifically on the SME sector. I have highlighted this previously as well, which is While many of our customers may be on the mid market or mid-sized range technology is a must have for them and Solutions such as ours will help them eliminate complexity Reduce their cost and improve their productivity
Okay, specifically on the SME sector I have highlighted this previously as well, which is mmm, while many of our customers maybe on the mid market or mid sized range technology is a must have put in and solutions such as that was will help them eliminate complexity.
Use that costs and improve their productivity, so environment, where the complexities growing they do not have the resources the human resources of very large enterprises and at the same time, they tend to be fairly captain rich and so they invest until you since like that with and we are seeing very robust demand.
Speaker 4: So in an environment where their complexity is growing, they do not have the resources, the human resources of very large enterprises. And at the same time, they tend to be fairly...
Speaker 4: And so they invest in solutions like others, and we are seeing very robust demand in our...
<unk> in our mid market customers.
Speaker 4: The variability as we have highlighted previously is on the large enterprise segment because the deal cycles are requiring more approval and tend to take a bit longer to a compromise.
The ability as we have highlighted previously he's on the large enterprise segment, because D cycles are requiring more approval.
And tend to take a bit longer.
To accomplish.
Speaker 4: The beauty of our business is that we are very, very diversified and so we are able to get through these macro-conditions and still deliver very predictable results.
Beauty of businesses that we are very very diversified and so we are able to get through these macro condition and still deliver very predictable.
Speaker 5: And on our renewal rates, you know, we talked about the fact that our renewal rates actually got back to some of our all-time highs. I think our end-quarter renewal rate was actually at 96 percent, and on a trailing 12-month basis, our renewal rate was up to 95 percent. So really strong traction just goes back to what the doctor talked about as far as the strength of our customer base and the loyalty of our customer base and, you know, and how much they like our products.
[laughter], yeah and on a renewal rates.
Talked about the fact that our renewal rates you actually got back to some of our all time highs I think we are in quarter renewal rate was actually at 96% and I'm gonna trailing 12 month basis.
[noise] renewal rate was up to 95%. So really strong traction just shows goes back to what's the doctor talked about as far as the the strength of our customer base in the loyalty of our customer base and you know and how much they like our product.
Speaker 2: Your next question comes from the line of Sanjit Singh with Morgan Stanley . Your line is open.
Your next question comes from the line of Sanchez thing with Morgan Stanley. Your line is open.
Speaker 8: Yeah, thank you for taking the question and then congrats on getting back to the rule of 50 financials. Given us a doctor, what you talked about in momentum with the observability portfolio, ITSM and database, I was wondering if you could sort of disaggregate the improvement in sort of net UARR between sort of migrations and how this sort of growth portfolio, how much of that is contributing to your net new subscription AAR result.
Yeah. Thank you for taking the questions and congrats on getting back to you know the rule of 50 financials given us the Doctor what you talked about the amendment Timothy Observability portfolio Ikea in the database I was wondering if you could sort of disaggregate the improvement in sort of <unk> between sort of migrations and how this sort of.
Gross portfolio, how much of that is contributing to your net new subscription to our results.
Speaker 4: So, this thanks again for your question and your continued support of Sologan Desaun.
That's it. Thanks again are you requesting and your continued support of Sullivan's as well.
Speaker 4: What are we looking at when we talked about migrations or conversions?
What are we.
Looking at when we talk about migrations of conversions in August.
Speaker 4: Not every instance, but a majority of the instances. It's not just a claims inversion as I've said previously.
Not every instance, but the majority of instances if not just a claim conversion as at the <unk> seriously.
Speaker 4: which is we don't simply give up maintenance dollars and convert them to subscription of HCO or our observability solutions or database service management for that matter.
We don't simply give up maintain installers and convert them to subscription Okay. C. O R. R of the ability to listen to our database of service management for that matter.
Speaker 4: In almost many situations, what happens is that the customer is also expanding with us. This is a consolidation of toolsprall or reduction of toolsprall, improvement in alert stacking capabilities, getting them ready for the cloud and so on. Even when we say migration or conversion, there's an expansion involved.
Almost many situations what happens is that the customer is also expanding with that.
This is a consolidation of <unk> improvement in back.
Backing capabilities getting them ready for the cloud and thought so even when we pay migration or conversion, there's an expansion involved.
Speaker 4: And then separate from that is what we call completely new deals. These new deals can be cross-sell of observability, let's say into databases service management customers or net new to franchise, which are a deal that
And then separate it from that is what we call it completely new deal with these new deals can be crossed off observer ability, let <unk> database of service management customers.
R net new to franchise.
Which are deals that.
Speaker 4: we may have displaced the competitor because we are more modern and more cloud-ready for that customer. So we segregate our internally between conversions as well as new and we are seeing robust growth in both dimensions, so we don't really split out those financial external.
They may have displays that competent there because we are more modern and more cloud ready for that customer. So we segregate intently between conversion as well as new and seeing robust growth in both dimension, but we don't really split out those financial extending.
Speaker 8: understood and then maybe we'll go back to you know just some of the you know your comments on on SMD if you think about the business across Gias if you look at how the SME business performed was there any sort of uh seems there between North America, Europe , APEC or would they sort of sort of you saw broadly consistent trends across the region.
Understood and then maybe it would go back to you know just some of the you know your comments on the on a Sunday. If you think about the business across <unk>. If you look at how the the SME business perform or is there any sort of seems there between North America, Europe, APAC or would they sort of saw probably <unk>.
<unk> trends across the region.
Speaker 4: It's broadly consistent, Sanjit, notwithstanding some of the macro challenges that we are facing in MEA due to all the reasons that you know wars and economies and so on and so forth. But even there, our overall transaction count is actually increased.
It's it's broadly consistent attended notwithstanding some of the macro challenges that'd be a pacing and Amy adhere to all the reasons that large and economies and so on and so forth, but even there our overall transaction count is actually increasing.
Speaker 4: So which is an indication of the robust demand and moment that we are there and the criticality of our
So which is an indication of the robust demand environment that'd be all that in and the criticality applies to you.
Speaker 4: And the reason why I highlight the whole SNE angle or the mid market angle is conventional wisdom would say in these
And the reason why I highlight the whole SME angle or the mid market angle is conventional wisdom would say in these situations that you will face a lot of pleasure because of lack of traction or ability to invest in those segments and large enterprise. So to speak is okay <unk>.
Speaker 4: Please a lot of pleasure because of lack of traction or ability to invest from those segments and large enterprise service speaker is okay.
Speaker 4: We believe based on our experience the exact opposite is true, which is large enterprise deals and larger deals in general take a little bit more time, more approvals in place, most scrutiny. So delayed cycles as you have heard from many different software vendors.
Believe based on our experience the exact opposite is true, which is large enterprise d's and larger data in January take a little bit more time more approval in place most scrutiny. So delayed techniques as you have heard from many different software vendors.
Speaker 4: And that's where a focus on both mid-market and selective enterprise allows us to drive very diversified results.
And that's where a focus on both mid market and selective enterprise allows us to drive very diversified with us.
Understood. Thank you for the color.
Speaker 2: Your next question comes from a line of Terry Tillman with truest securities your line is open.
Your next question comes from the line of Terry Tilman with Truth Securities. Your line is open.
Speaker 9: Great morning, this is Connor Bessar, I'll offer Terry, thanks for taking my question. I just want for me, curious on the new ESM product. You recently announced, you curious how the initial reception has been amongst your customer base and maybe how we should think about the profile of a typical customer that will look to deploy ESM across different departments in the organization, so we can think about sizing that customer.
Greg morning, This is Scott our bass or on for Terry. Thanks for taking my question I just want from me curious on the new ESN product, you've recently announced just curious how the initial reception center amongst your customer base and maybe how we should take about a profile of the typical customer that will look to deploy yes, I'm across different departments and organizations, just having to think about sizing.
That customer.
Speaker 4: So previously our solutions were largely focused on the IT department, with ESMB of course, can traverse into departments. But in terms of the sweet spot of our customer, I would say that it's still called the mid-market customers, including the upper end of the mid-market, where the CIO has a significant role to play in deciding the technology solution and the stack across the organization.
Yeah. So.
Basically our solution spell largely focused on the I T Department with E. S. M. B of course can <unk> into department, but in terms of the sweet spot of a customer I would say that it's still.
Still call it the mid market customers, including the upper end of the mid market made the C. I O has a significant role to play in deciding the technology solution <unk> across the organization.
Great. Thank you.
Speaker 2: Your next question comes from the line of cash rungin from Goldman Sachs, your line is up.
Your next question comes from the line of cash runs in from Goldman Sachs. Your line is open.
Speaker 10: Hey guys, this is Jacob Staffel on for Cash. Thanks so much for taking the question.
Hey, this is a trick of stuff for them for cash. Thanks, So much have a second question.
Speaker 10: Really solid results, so really good to see that continuing execution. So just one or two from me. First one being a realistic guidance has been raised in Sudakra. I think you put it well. How the the low end of the new fiscal year guidance is above the high end of the initial fiscal year guidance. So.
Really solid results are really good to have a concern of execution. So just one or two from me first one being a realize it guidance has been raised I'm Sinatra thing that you put it well how the the low end of the new fiscal year guidance is above the high end of the initial fiscal your guidance. So so that being said do how much <unk>.
Speaker 10: So that thinks that how much potential to the upside do you think there could be in 4Q given that, that's typically when budget flushes occur, and companies might be a little bit more willing to spend, just give an uncertainty on budget heading into next year.
So to be upside do think there could be in for Q given that.
That's typically when budget flushes occur and company this might be a little bit more willing to spend just given uncertainty on budget heading into next year.
Speaker 5: Yeah, Jacob, you know, I would tell you that, oh, sorry, it's a doctor. Yeah, what Jacob, I'll start off in this doctor, you can come in after that. You know, I was just gonna say, Jacob, you know, when we set Q4 guidance.
Yeah, Jacob let me tell you that Oh, sorry for Doctor and deal with it.
Jacob I'm Gonna start off and then stuck or you can come in and after that yeah. I was just gonna say Jacob you know when we set Q for guidance, we kind of followed a similar methodology that we did first heading to the the full year guidance back in February as well as the updated guidance that we provided last quarter. You know, there's a lot of macro headwinds right now so we're trying to be somewhat cautious.
Speaker 5: We kind of follow the similar methodology that we did for setting the full year guidance back in February as well as the updated guidance that we provided last quarter. You know, there's a lot of macro headwinds right now, so we're trying to be somewhat cautious when we're providing guidance. But, you know, the plan is for us to try to exceed that number, but obviously there's a fair number of factors that play right now.
When we when we're providing guidance, but you know the plan is for us to to try to exceed that number but ER, but obviously, there's there's a fair number of factors at play right now.
Speaker 10: Awesome, okay. And then just last one, is there any specific vertical that you might call out that showed maybe outside strength or weakness in this last quarter?
Awesome, Okay and then this last one is is there any any specific vertical that you might call out that showed maybe outside of strength or weakness on this last quarter.
Speaker 4: No, Jacob, we had, I would say, consistently, well, across all the verticals that we participate in. As you know, we are a super diversified company where it comes to both customer count as well as verticals. And then, of course, we had the, call it traditional traction in Fed that you would expect in Q3, notwithstanding some of the ground and shutdown related issues. Jacob. Okay.
No Jacob we had.
I would say consistent results across all the way to keep that participate in as you know we are super diversified company when it comfortable Catholic count as well as vertical and then of course, we had the.
Call it traditional traction in fed that you would expect in Q3, notwithstanding some of the government shutdown related issue.
Joshua Okay.
Thank you so much.
Speaker 2: Again, if you would like to ask a question, press star then the number one on your telephone keypad.
Again, if you would like to ask a question Press Star then the number one on your telephone keypads.
Speaker 2: There are no further questions at this time. I would like to turn the call back to Sudakar Rama Karshan.
There are no further questions at this time I would like to turn the call back to see a doctor <unk>.
Speaker 4: Thank you very much again. With this, we conclude Q3 earnings calls. And I appreciate everyone attending, asking your questions and supporting followers. Thank you very much.
Thank you very much again with this we conclude Q3 earnings call and I appreciate everyone attending asking your questions and supporting Sullivan.
This concludes today's call you may now disconnect.
Speaker 11: Please wait, the conference will begin shortly. Thank you.
Please wait the conference will begin shortly.
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