Q1 2024 N-able Inc Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the N-Able first quarter 2024 earnings call. All lines have been placed on mute during the presentation portion of the call, with an opportunity for question and answer at the end. If you'd like to ask a question, please press start, followed by one on your telephone keypad. I would now like to hand the conference call over to our host, Griffin Gyr, Investor Relations Manager. Please go ahead.
Ladies and gentlemen, thank you for standing by welcome to the enable last call talk to fall from 24 earnings call. All lines have been placed on mute during the presentation portion of the call with an opportunity for a question and answer.
If you'd like to ask a question. Please press star followed by one on your telephone keypad now.
Now I'd like to hand, the conference call I thought flies Griffin Kim Investor Relations manager. Please go ahead.
Griffin Gyr: Thanks, Operator, and welcome, everyone, to N-Able's first quarter 2024 earnings call. With me today are John Pagliuca, N-Able's President and CEO, and Tim OBrien, EVP and CFO.
Griffin Gyr: Thanks, Operator, and welcome everyone to enables first quarter 2024 earnings call.
Griffin Gyr: With me today are John Peeler, Yoga enables president and CEO and Tim O'brien.
Timothy James OBrien: <unk> and CFO.
Griffin Gyr: Following our prepared remarks, we will open the line for a question and answer session. This call is being simultaneously webcast on our investor relations website at investors.enable.com. There, you can also find our earnings press release, which is intended to supplement our prepared remarks during today's call. Furthermore, certain statements made during this call are forward-looking statements. Including those concerning our financial outlook, our market opportunities, and the impact of the global economic environment on our business.
Speaker Change: Following our prepared remarks, we will open the line for a question and answer session.
Speaker Change: This call is being simultaneously webcast on our Investor relations website at investors on enable dot com.
Speaker Change: There you can also find our earnings press release, which is intended to supplement our prepared remarks during today's call.
Speaker Change: Certain statements made during this call are forward looking statements, including those concerning our financial outlook.
Speaker Change: Market opportunities and the impact of the global economic environment on our business.
Griffin Gyr: These statements are based on currently available information and assumptions, and we undertake no duty to update this information except as required by law. These statements are also subject to a number of risks and uncertainties, including those highlighted in today's earnings release and our filings with the SEC. Additional information concerning these statements and the risks and uncertainties associated with them is included in today's earnings release and in our filings with the SEC.
Speaker Change: These statements are based on currently available information on the assumptions and we undertake no duty to update this information except as required by law.
Speaker Change: These statements are also subject to a number of risks and uncertainties.
Speaker Change: <unk> those highlighted in today's earnings release.
Speaker Change: And our filings with the SEC.
Speaker Change: Additional information concerning these statements and the risks and uncertainties associated with them is highlighted in today's earnings release.
Speaker Change: And in our filings with the SEC.
Griffin Gyr: Copies are available from the SEC or on our investor relations website. Furthermore, we will discuss various non-GAAP financial measures on today's call. Unless otherwise specified, when we refer to financial measures, we will be referring to non-GAAP financial measures. A reconciliation of certain GAAP and non-GAAP financial measures discussed on today's call is available in our earnings press release on our investor relations website. And now, I will turn the call over to John.
Speaker Change: Copies are available from the SEC or on our Investor Relations website.
Speaker Change: Furthermore, we will discuss various non-GAAP financial measures on today's call.
Speaker Change: Unless otherwise specified we refer to financial measures, we will be referring to non-GAAP financial measures are.
Speaker Change: A reconciliation of certain GAAP to non-GAAP financial measures discussed on today's call is available in our earnings press release on our Investor Relations website.
Speaker Change: Now I will turn the call over to John.
John Pagliuca: Thanks, Chris.
John Pagliuca: Today I will discuss our strong first quarter performance, share observations and takeaways from Empower, our annual customer conference, and provide an update on the key 2024 company objectives we outlined in our previous call. Let's start with our first quarter performance. We delivered robust results amid a steady macroeconomic backdrop. Revenue was $113.7 million, growing approximately 14% year-over-year on a reported and constant currency basis. An adjusted EBITDA margin of 35%. Once again, we exceeded the high end of our top and bottom line guidance. These results establish two critical points.
John: Today, I will discuss our strong first quarter performance.
John Pagliuca: Sure observations and takeaways from empower our annual customer conference.
John: And provide an update on the key 2024 company objectives, we outlined in our previous call.
John: Let's start with our first quarter performance.
John Pagliuca: We delivered robust results amid a steady macroeconomic backdrop.
John Pagliuca: Revenue was $113 $7 million growing approximately 14% year over year on a reported and constant currency basis.
John Pagliuca: And adjusted EBITDA was $39 6 million.
John Pagliuca: Representing an adjusted EBITDA margin of 35%.
John Pagliuca: Once again, we exceeded the high end of our top and bottom line guidance.
John Pagliuca: These results established two critical points.
John Pagliuca: First, we believe this shows that our product strategy is hitting the mark. Over the past 18 months, we have strategically expanded the depth and breadth of our product portfolio, driving our monthly per device opportunity to over $30. First quarter results show that these expanded options and capabilities resonate with our customers. Code Data Protection.
John Pagliuca: First we believe this shows that our product strategy is hitting the mark.
John Pagliuca: Over the past 18 months, we have strategically expanded the depth and breadth of our product portfolio.
John Pagliuca: Driving our monthly per device opportunity to over $30.
John Pagliuca: First quarter results show that these expanded auctions and capabilities resonate with our customers.
John Pagliuca: Co data protection, where.
John Pagliuca: We have made significant investments to deepen our capabilities with our fastest growing business. The Security Product Group, where we added new SKUs and considerably expanded our breadth, followed as our second fastest growing business. And lastly, our IT monitoring and management platform saw steady demand and continues to serve as the primary entryway to N-Able. Growing the depth and breadth of our product portfolio is key to our strategy. Why?
John Pagliuca: When we have made significant investments to deepen our capabilities with our fastest grower.
John Pagliuca: The security product group.
John Pagliuca: We added new Skus and considerably expanded our breadth.
John Pagliuca: Followed as our second fastest growing.
John Pagliuca: And lastly, our monitoring and management platform saw steady demand and continues to serve as the primary entry way to enable.
John Pagliuca: Growing the depth and breadth of our product portfolio is key to our strategy.
John Pagliuca: Why.
John Pagliuca: Well, small and medium enterprises are becoming increasingly digital, and the technology landscape is getting more complex. MSPs are relying on a more extensive set of advanced software tools to keep pace. Broad-based demand across our growing software stack gives us confidence that we're meeting these market needs. Second, we are delivering this innovation profitably, simultaneously growing our bottom line and our product portfolio. And we believe this quarter is proof of our model's capability to deliver customer value in a profitable manner.
John Pagliuca: Well small and medium enterprises are becoming increasingly digital and the technology landscape is getting more complex.
John Pagliuca: MSP is relying on a more extensive set of advanced software tools to keep pace.
John Pagliuca: Broad based demand across our growing software stack gives us confidence that we are meeting these market needs.
John Pagliuca: Second we are delivering this innovation profitably.
John Pagliuca: Simultaneously growing our bottom line and our product portfolio and.
John Pagliuca: And we believe this quarter is proof of our model capability to deliver customer value in a profitable manner.
John Pagliuca: Switching gears, let's now discuss notable takeaways from our annual customer conference in Power, with hundreds of MSPs, vendors, distributors, and industry leaders in attendance. Empower is an opportunity for the MSP community to share best practices and an unparalleled forum for us to get direct insight and learn from our customers and industry peers. One resounding takeaway from the event is that MSPs are optimistic about their prospects. They told us that while elements of SME spend remain measured, they feel industry tailwinds continue to blow in their favor.
John Pagliuca: Switching gears.
John Pagliuca: Let's now discuss notable takeaways from our annual customer conference in power.
John Pagliuca: With hundreds of MSP vendors distributors and industry leaders in attendance.
John Pagliuca: Empower is an opportunity for the MSP community to share best practices, and an unparalleled forum for us to get direct insight and learn from our customers and industry peers.
John Pagliuca: One resounding takeaway from the event is the MSP is are optimistic about their prospects.
John Pagliuca: MSP has told us that while elements of SME spend remain measured they feel industry tailwind continue to blow in their favor.
John Pagliuca: These discussions reinforce our belief in the economic resiliency of our customer base and the vital nature of our data protection, security, and IT management software solutions. Analysts echo the durability of the MSP industry, with Canalys forecasting total managed service revenue to grow by 12% in 2020. This collective sentiment gives us continued confidence in our strategy as we invest across our product set and scale our operations to capture the attractive industry tan. Another consistent theme we heard was that managing the cloud is an enormous opportunity and a daunting challenge.
John Pagliuca: These discussions reinforce our belief in the economic resiliency of our customer base and the vital nature of our data protection security and it management software solutions.
John Pagliuca: Analysts echoed the durability of the MSP industry.
John Pagliuca: With Canal is forecasting total managed service revenue to grow by 12% in 2024.
John Pagliuca: This collective sentiment gives us continued confidence in our strategy as we invest across our product set and scale our operations to capture the attractive industry Tam.
John Pagliuca: Another consistent theme, we heard was that managing the cloud is enormous opportunity and the daunting challenge.
John Pagliuca: Small and medium enterprises are moving operations to the cloud while maintaining on-premise. MSPs express excitement over this trend because it means the pie is growing. The cloud is another vector MSPs can manage and monetize. However, technicians must have the necessary purpose-built software tools and expertise to manage hybrid IT environments.
John Pagliuca: Small and medium enterprises are moving operations to the cloud while maintaining on premise capabilities.
John Pagliuca: MSP has expressed excitement over this trend because it means the pie is growing.
John Pagliuca: The cloud is another vector msp's can manage and monetize.
John Pagliuca: However, technicians must have the necessary purpose built software tools and expertise to manage hybrid it environments.
John Pagliuca: This customer feedback validates the bet we placed by developing Cloud Command. Our cloud management solution empowers MSPs to manage cloud workloads, cementing them as a trusted modern IT provider at the same time. We maintain the ability for our partners to operate within on-premise environments. This dual approach gives them the confidence to capitalize on the future of the cloud while meeting their customers where they are on their digital journey. We serve both on-premises and cloud needs. MSPs also clearly spoke about the ongoing changes in security. Both threat levels and regulatory and compliance requirements are rising, and the SME is squarely in the crosshairs. The question is no longer, "Am I safe?"
John Pagliuca: This customer feedback validate Tibet replaced by developing cloud commander.
John Pagliuca: Our cloud management solution empowers msp's to manage cloud workloads cementing them as a trusted modern it provider.
John Pagliuca: At the same time we.
John Pagliuca: We maintain the ability for our partners to operate within on premise environments.
John Pagliuca: This dual approach gives them the confidence to capitalize on the future of the cloud.
John Pagliuca: While meeting their customers, where they are in their digital journey.
John Pagliuca: We serve both on premises and cloud needs.
John Pagliuca: MSP has also clearly spoken with the ongoing changes in the security space.
John Pagliuca: Both threat levels and regulatory and compliance requirements are rising.
John Pagliuca: And the SME is squarely in the crosshairs.
John Pagliuca: The question is now, am I safe, and am I compliant? This has massive implications for both MSPs and SME operations. We eagerly discussed with and educated MSPs about why we believe adding enable, managed detection, and response to our already broad security stack uniquely positions enabled as the answer to this urgent question, giving them layers of software and human services available in a single motion. All said, our dialogue at the event gave us confidence in our product development strategy for the mission critical security system. A final update from Empower was the progression of the N-Able EcoVerse.
John Pagliuca: Question is no longer safe.
John Pagliuca: The question is now safe.
John Pagliuca: Safe and to my compliance.
John Pagliuca: This is a massive implications for both MSP and SME operation.
John Pagliuca: We eagerly discussed with an educated MSP, but why do we believe adding enable managed detection and response to our already broad security stack uniquely positions enable has the antigens urgent question.
John Pagliuca: Given them layers of software and human services available in a single motion.
John Pagliuca: All said our dialogue at the event give us confidence in our product development strategy and the mission critical security sector.
John Pagliuca: A final update from empower was the progression of the enable eco versus.
John Pagliuca: The ECOverse is our ongoing transformation to an open ecosystem with integrations extending across the broad universe of technician workflow. Over the long term, the ECOverse aims to make every single action and IT technician workflow available via trusted API. This will help tame the inefficiency of tool sprawl for MSPs, driving more efficient use of both the Enable TextS platform and their other software solutions. The strategic rationale is simple.
John Pagliuca: The <unk> is our ongoing transformation to an open ecosystem with integrations extending across the broad universe of technician workflows.
John Pagliuca: Over the long term the <unk> aims to make every single action and technician workflow available via trusted API.
John Pagliuca: This will help team the inefficiency of tool sprawl for MSP.
John Pagliuca: Driving more efficient use of both the enabled tech stack.
John Pagliuca: And there are other software solutions.
John Pagliuca: The strategic rationale is simple.
John Pagliuca: MSPs want to efficiently deliver a broad range of IT services to their SME customers. The ecoverse positions us to meet this need. And while we're in the early stages of this journey, we believe the potential of our EcoBRICS vision is substantial. With network effects driving customer value, we believe the ecoverse can establish the N-Able software platform as the control hub for MSPs everywhere, and that it will drive enable as a long-term MSP market share consolidator. We have made recent progress on this journey.
John Pagliuca: MSP has went to efficiently deliver a broad range of it services to the SME customers.
John Pagliuca: The <unk> positions us to meet this need.
John Pagliuca: And while we are in the early stages of this journey.
John Pagliuca: We believe the potential of our eco brisk vision is substantial.
John Pagliuca: With network effects driving customer value, we believe the ecommerce can establish the enabled software platform as the control hub for Mst's everywhere.
John Pagliuca: And that it will drive enable as a long term MSP market share consolidator.
John Pagliuca: We have made recent progress on this journey.
John Pagliuca: Powerful new integrations with leading PSA and MSP automation vendors create immediate customer value. These partnerships significantly streamline MSB technicians' workflows, allowing them to ticket and bill more efficiently, connect applications, and operate complex IT environments better. We look forward to further advancing our eco-verse vision and providing updates along the way.
John Pagliuca: Powerful new integrations, with leading PSA and MSP automation vendors create immediate customer value.
John Pagliuca: These partnerships significantly streamlined MSP technicians, workflows, allowing them to ticket and build more efficiently.
John Pagliuca: <unk> applications and operate complex it environments better.
John Pagliuca: We look forward to further advancing our <unk> vision and providing updates along the way.
John Pagliuca: Reflecting on the many takeaways from Empower, we continue to have confidence in the MSB market and enable positioning for short and long-term success. Let's now discuss key quarterly highlights and updates on the three 2024 focus areas. As a reminder, our immediate focus is on the following objectives. First, empowering MSPs with leading security and data protection solutions that give themselves and their SME customers the peace of mind they deserve.
John Pagliuca: Reflecting on the many takeaways from empower we continue to have competency MSP market enables positioning for short and long term success.
John Pagliuca: Let's now discuss key quarterly highlights and updates on the three 2024 focus areas.
John Pagliuca: As a reminder.
John Pagliuca: Our immediate focus is on the following objectives.
John Pagliuca: First.
John Pagliuca: Empowering msp's with leading security and data protection solutions that give themselves and their SME customers peace of mind they deserve.
John Pagliuca: Second.
John Pagliuca: Driving rapid innovation into RMM platforms, enabling msce's to better manage hybrid digital environment at scale.
John Pagliuca: And third doubling down on our customer engagement model and delivering a differentiated level of service to the MSP community.
John Pagliuca: Driving rapid innovation into RMM platforms, enabling MSPs to better manage hybrid digital environments at scale. And third, doubling down on our customer engagement model and delivering a differentiated level of service to the MSP community. Looking first at our customer engagement model, we delivered exceptional progress along several dimensions. We leaned in on our in-market presence, hosting 30 events across multiple continents. This in-person interaction is core to our DNA.
John Pagliuca: Looking first at our customer engagement model.
John Pagliuca: We delivered exceptional progress along several dimensions.
John Pagliuca: We leaned in and our in market presence hosting 30 events across multiple continents.
John Pagliuca: In person interaction is core to our DNA.
John Pagliuca: We also launched our MSP Horizons research, helping MSPs across the spectrum assess market trends and the best practices to drive their businesses forward. Our efforts to give customers improved contract flexibility and pricing predictability are seeing traction as customers adopt long-term contracts at a solid pace. And as a testament to these customer engagement efforts, we were recognized with the premier five-star rating in the 2024 CRN Partner Program Guide and a Gold Stevia Award for Best Customer Service Team.
John Pagliuca: We also launched our MSP Horizons research, helping MSP is across the spectrum assess market trends and the best practices to drive their businesses forward.
John Pagliuca: Our efforts to give customers improved contract flexibility and pricing predictability are seeing traction as customers adopt long term contracts at a solid pace.
John Pagliuca: And as a testament to these customer engagement efforts, we were recognized as the Premier five star rating in the 2020 for CRM partner program Guide.
John Pagliuca: And a gold Stevie award for best customer service team.
John Pagliuca: These are welcome acknowledgments of our deeply held belief that our MSP success is our success. We also continue to execute on our initiative to drive innovation in our platform. We bolstered a powerful patch engine and made meaningful improvements to the platform user experience. These efforts advance our strategy of delivering features that solve MSP use cases, all of them improving the technician experience. Past investments in the platform are also bearing fruit. We continue to hear strong positive feedback about our new analytics feature, and new customer acquisition on our flagship and central platform has increased in the past two quarters.
John Pagliuca: These are welcome acknowledgement of our deeply held belief that our MSP success is our success.
John Pagliuca: We also continue to execute on our initiatives to drive innovation in our platforms.
John Pagliuca: We bolstered our powerful patch engine and made meaningful improvements to the platform user experience.
John Pagliuca: These efforts advance our strategy of delivering features that solve MSP use cases, all of them and improved technician experience.
John Pagliuca: Past investments in the platform are also bearing fruit.
John Pagliuca: We continue to hear a strong positive feedback about our new analytics feature and new customer acquisition on our flagship in central platform has increased in the past few quarters.
John Pagliuca: We are excited to continue to invest in and further develop our powerful management platform. We have also made considerable progress on our initiative to give our MSPs the peace of mind they deserve with our security and data protection solutions on the data protection front. The co-team continues to deliver world-class execution. Highlights in the quarter include the introduction of recovery to VMware. The Development of Fortified Copies and increased restore accuracy and speed through the use of AI
John Pagliuca: We're excited to continue to invest in and further develop our powerful management platform.
John Pagliuca: We also made considerable progress on our initiatives to give our msp's peace of mind, they deserve with our security and data protection solutions.
John Pagliuca: On the data protection front.
John Pagliuca: <unk> team continues to deliver world class execution.
John Pagliuca: Highlights in the quarter include the introduction of recovery to Vmware.
John Pagliuca: The development of fortified copies.
John Pagliuca: And increased restore accuracy and speed through the use of AI.
John Pagliuca: These technical advancements solve real-world problems for our partners. As Cove gains traction among larger MSPs and internal IT departments that often utilize VMware, we believe the ability for Cove to directly restore copies into a VMware environment broadens our appeal across the market. Our fortified copies functionality places data copies in locations inaccessible from COBE's management console.
John Pagliuca: These technical advancements solve real world problems for our partners.
John Pagliuca: As <unk> gains traction among larger MSP and internal it departments that often utilized Vmware, we believe the ability for coke to directly restore copies into a vmware environment broadens our appeal across the market.
John Pagliuca: Our fortified copies functionality places data copies and locations inaccessible from closed management console protecting data from a threat actor or malicious insider.
John Pagliuca: Protecting Data from a Threat Actor or Malicious Insider. And the integration of new AI restore techniques into code drives significant time savings in core IT technician workloads. This effectively lowers our customers' cost of ownership while improving the experience. The value creation is born by ourselves.
John Pagliuca: And the integration of new AI restore techniques into Cove drive significant time savings in core it technician workflows.
John Pagliuca: This effectively lowers our customers' cost of ownership, while improving the experience.
John Pagliuca: The value creation is borne by our results.
John Pagliuca: Cove led our growth in the quarter, is moving up third-party rankings at industry publications, such as G2, and is gaining market share. On the security front, our business resilience strategy is responding. We provide layers of security that allow our partners to increase resiliency across their businesses and their customers' businesses. This approach is driving a steady drumbeat of demand across our security suite. Our managed detection and response solution is also generating interest across the spectrum.
John Pagliuca: <unk> led our growth in the quarter.
John Pagliuca: As moving up third party rankings that industry publications, such as <unk>.
John Pagliuca: And is taking market share.
John Pagliuca: On the security front, our business resilient strategy is resonating well.
John Pagliuca: We provide layers of security that allow our partners to increase resiliency across their businesses and their customers' businesses.
John Pagliuca: This approach is driving a steady drumbeat of demand across our security suite.
John Pagliuca: Our managed detection and response solution is also generating interest across the spectrum.
John Pagliuca: We are seeing greenfield demand at the low end and ripouts at the high end, with MDR also leading to multi-skew deals. A rip and replace of a well-known competitor illustrates these dynamics well. A current COVE customer was dissatisfied with their existing platform provider and started a dialogue with us centered on their MDR needs. They were impressed by our MDR offering. They also evaluated our in-central platform, and ultimately, they signed a six-figure ARR deal composed of MDR, EDR, and Central. Our 2024 plan calls for ambitious progress, and building on the great results we delivered in Q1, we believe we are on track to achieve the initiatives we laid out at the beginning of the year. With that, I would like to turn the call over to Tim to discuss our financial results and outlook, and then I'll circle back to some closing remarks. Tim?
John Pagliuca: We are seeing greenfield demand at the low end and remotes at the high end.
John Pagliuca: With MTR also leading to multi SKU deals.
John Pagliuca: A rip and replace of a well known competitor illustrate these dynamics well.
John Pagliuca: Our current code customer was dissatisfied with their existing platform provider.
John Pagliuca: And started a dialogue with our centered on their MTR needs.
John Pagliuca: Impressed by our MTR offering there.
John Pagliuca: They also evaluated our in central platform.
John Pagliuca: And ultimately they signed it over six figure <unk> deal component of MTR Edr and in central.
John Pagliuca: Our 2024 planned costs were ambitious progress and building on the great results. We delivered in Q1. We believe we are on track to achieve the initiatives we laid out at the beginning of the year.
John Pagliuca: With that I would like to turn the call over to Tim to discuss our financial results and outlook and then I'll circle back to some closing remarks Tim.
Timothy James OBrien: Thank you John.
Timothy James OBrien: And thank you all for joining us today. We delivered another strong quarter, again exceeding our guidance on the top and bottom lines. There are encouraging indicators that our expanded product portfolio is resonating with customers, and we continue to innovate while delivering robust profitability. For our first-quarter results, total revenue was $113.7 million, representing approximately 14% year-over-year growth on a reported and constant currency basis. Subscription revenue was $111.5 million, also representing approximately 14% year-over-year growth on a reported and constant currency basis.
Timothy James OBrien: And thank you all for joining us today.
Timothy James OBrien: We delivered another strong quarter again exceeding our guidance on the top and bottom line.
Timothy James OBrien: There are encouraging indicators that our expanded product portfolio is resonating with customers and we continue to innovate while delivering robust profitability.
Timothy James OBrien: For our first quarter results total revenue was $113 7 million representing.
Timothy James OBrien: Representing approximately 14% year over year growth on a reported and constant currency basis.
Timothy James OBrien: Subscription revenue was $111 $5 million.
Timothy James OBrien: Also representing approximately 14% year over year growth on a reported and constant currency basis.
Timothy James OBrien: Other revenue, which consists primarily of revenue from the sale of maintenance services associated with the historical sales of perpetual licenses and revenue from professional services, was $2.2 million, declining approximately 6% year over year. We ended the quarter with 2,187 partners that contributed $50,000 or more of ARR, which is up approximately 13% year over year. Partners with over $50,000 in ARR now represent approximately 56% of our total ARR, up from approximately 52% a year ago.
Timothy James OBrien: Other revenue, which consists primarily of revenue from the sale of maintenance services associated with the historical sales of perpetual licenses and revenue from professional services was $2 $2 million declining approximately 6% year over year.
Timothy James OBrien: We ended the quarter with 2187 partners that contribute $50 or more of IRR, which is up approximately 13% year over year.
Timothy James OBrien: Partners with over $50000 of IRR now represent approximately 56% of our total IRR up from approximately 52% a year ago.
Timothy James OBrien: Dollar-based net revenue retention, which is calculated on a trailing 12-month basis, was approximately 111% or 110% on a constant currency basis. As a reminder, the impact of our pricing and packaging changes in 2023 will affect net revenue retention starting in Q2 this year. Turning to profit and margins, note that, unless otherwise stated, all references to profit measures and expenses are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliations provided in today's press release.
Timothy James OBrien: Dollar based net revenue retention, which is calculated on a trailing 12 month basis was approximately 111% or 110% on a constant currency basis.
Timothy James OBrien: As a reminder, the impact of our pricing and packaging changes in 2023 will affect net revenue retention starting in Q2 this year.
Timothy James OBrien: Turning to profit and margins note that unless otherwise stated all references to profit measures and expenses are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliations provided in today's press release.
Timothy James OBrien: First quarter gross margin was 84.7% compared to 84.6% in the same period in 2023. First quarter adjusted EBITDA was $39.6 million, approximately 21% year-over-year, representing approximately 35% adjusted EBITDA margin. Unlevered Free Cash Flow with $7.3 million in the first quarter. As a reminder, due to the timing of cash outlays throughout the year, Q1 is generally our lowest free cash flow quarter. CapEx, inclusive of $1.7 million of capitalized software development costs and $5.1 million, or 4.5% of revenue.
Timothy James OBrien: First quarter gross margin was 84, 7% compared to 84, 6% in the same period in 2023.
Timothy James OBrien: First quarter, adjusted EBITDA was $39 $6 million.
Timothy James OBrien: Proximately, 21% year over year.
Timothy James OBrien: Presenting approximately 35% adjusted EBITDA margin.
Timothy James OBrien: Unlevered free cash flow was $7 3 million in the first quarter.
Timothy James OBrien: As a reminder, due to the timing of cash outlays throughout the year Q1 is generally our lowest free cash flow quarter.
Timothy James OBrien: Capex inclusive of $1 7 million of capitalized software development costs was $5 1 million or four 5% of revenue.
Timothy James OBrien: Non-GAAP earnings per share were 11 cents in the quarter based on 187 million weighted average diluted shares. We ended the quarter with approximately $139 million of cash and an outstanding loan principal balance of approximately $341 million, representing net leverage of approximately 1.3 times.
Timothy James OBrien: non-GAAP earnings per share was <unk> 11 in the quarter based on 187 million weighted average diluted shares.
Timothy James OBrien: We ended the quarter with approximately $139 million of cash and an outstanding loan principal balance of approximately $341 million, representing net leverage of approximately one three times.
Timothy James OBrien: Approximately 46% of our revenue was outside of North America in the quarter. Before turning to our financial outlook, I will give commentary on our first quarter results. First quarter revenue was above the high end of our guidance range. This outperformance was attributable to strong demand led by Cove Data Protection and success with our long-term contract initiative.
Timothy James OBrien: Approximately 46% of our revenue was outside of North America in the quarter.
Timothy James OBrien: Before turning to our financial outlook I will give commentary on our first quarter results.
Timothy James OBrien: First quarter revenue was above the high end of our guidance range.
Timothy James OBrien: This outperformance was attributable to strong demand led by co data protection and success with our long term contract initiatives.
Timothy James OBrien: Turning to our financial outlook, our guidance accounts for the following elements. First, we are assuming FX rates of 1.07 for the Euro and 1.24 for the pound for the remainder of 2024, along with updates to other currencies to more closely reflect the current rate environment. These updated rates drive approximately $800,000 of negative revenue impact for the remainder of 2024, relative to our FX assumptions during our February call. Our guidance accounts for the negative impact from the larger than normal 2023 pricing and packaging changes. As our pricing and packaging changes are effective annually starting in April, the second quarter is when this impact will start to be realized.
Timothy James OBrien: Turning to our financial outlook, our guidance accounts for the following elements.
Timothy James OBrien: First we are assuming FX rate of 1.07 for the Euro and $1 two four for the pound for the remainder of 2024.
Timothy James OBrien: Along with updates to other currencies to more closely reflect the current rate environment.
Timothy James OBrien: These updated rates drive approximately $800000 of negative revenue impact for the remainder of 2024 relative to our FX assumption during our February call.
Timothy James OBrien: Second.
Timothy James OBrien: Our guidance accounts for the negative impact from the larger than normal 2023 pricing and packaging changes.
Timothy James OBrien: As our pricing and packaging changes are effective annually starting in April the second quarter is when this impact will start to be realized.
Timothy James OBrien: Third.
Timothy James OBrien: While we have previously touched on slower device growth due to the macro environment and some price sensitivity following our pricing changes in 2023, several indicators across our business and market give us the confidence to raise the midpoint of our constant currency revenue and adjusted EBITDA full year guidance. With that in mind, for the second quarter of 2024, we expect total revenue in the range of $116.5 to $117 million, representing approximately 10% year over year growth or approximately 10 to 11% on a constant currency basis.
Timothy James OBrien: While we have previously touched on slower device growth due to the macro environment and some price sensitivity following our pricing changes in 2023.
Timothy James OBrien: Several indicators across our business and market give us the confidence to raise the midpoint of our constant currency revenue and adjusted EBITDA full year guidance.
Timothy James OBrien: With that in mind for the second quarter of 2024, we expect total revenue in the range of 116 $5 million to $117 million, representing approximately 10% year over year growth or approximately 10% to 11% on a constant currency basis.
Timothy James OBrien: We expect second quarter adjusted EBITDA in the range of 41 to $41 $5 million, representing an adjusted EBITDA margin of approximately 35%.
Timothy James OBrien: We expect second quarter adjusted EBITDA in the range of 41 to 41.5 million dollars, representing an adjusted EBITDA margin of approximately 35%. For the full year, 2024, we now expect total revenue of 462, to $465 million, representing approximately 10% year-over-year growth or approximately 10 to 11% on a constant currency basis. We are raising our adjusted EBITA outlook and now expect full year adjusted EBITA of $162 to $165 million, up approximately 14% year over year at the midpoint and representing an approximately 35% adjusted EBITA margin.
Timothy James OBrien: For the full year of 2024, we now expect total revenue of 462.
Timothy James OBrien: To $465 million, representing approximately 10% year over year growth.
Timothy James OBrien: <unk>, approximately 10% to 11% on a constant currency basis.
Timothy James OBrien: We are raising our adjusted EBITDA outlook and now expect full year, adjusted EBITDA of $162 million to $165 million up approximately 14% year over year at the midpoint and representing an approximately 35% adjusted EBITDA margin.
Timothy James OBrien: We reiterate that we expect CapEx, which includes capitalized software development costs, will be approximately 5% of total revenue for 2024. We also expect adjusted EBITDA conversion to unlevered free cash flow to be approximately 67% for the full year. We expect total weighted average diluted shares outstanding of approximately $187 to $188 million for the second quarter and $188 to $189 million for the full year. Finally, we expect our non-GAAP tax rate to be approximately 26% in the second quarter and for the full year. Now I will turn it over to John for his closing remarks.
Timothy James OBrien: We reiterate that we expect Capex, which includes capitalized software development costs will be approximately 5% of total revenue for 2024.
John Pagliuca: We also expect adjusted EBITDA conversion to Unlevered free cash flow to be approximately 67% for the full year.
John Pagliuca: It was a strong start to the year. We delivered strong performance and advanced important initiatives across the business. I would like to thank our 1600 Enable employees for their ongoing dedication to serving the approximately 25,000 MSPs we partner with globally. With a focused operating plan, a clear long-term vision, and a resilient market, we are excited for the rest of the year. And with that, Operator, we'll open the line for questions.
Operator: Thank you. If you would like to register a question, please press start followed by one on your telephone keypad, ensuring that you are unmuted locally. If you'd like to withdraw your question at any time, you can do so by pressing start followed by two.
John Pagliuca: It's a real question. Please press stop qualify one on your telephone keypad, ensuring you want unlimited locally if you'd like to withdraw your question at anytime you can do say by pressing stop <unk>.
Operator: Our first question comes from the line of Mike Sycos of Niedem. Your line is now open. Please go ahead.
Operator: Off the last question comes from the line up Mike So I cost of Nieca. Nathan Your line is that <unk>. Please go ahead.
Michael Joseph Cikos: Hey, guys, thanks. Thanks for taking the questions here. And a great quarter.
Michael Joseph Cikos: Hey, guys. Thanks, Thanks for taking my questions here and great quarter.
Michael Joseph Cikos: Wanted to circle up I know we're in this.
Michael Joseph Cikos: <unk> remains challenging out there right and I think you guys even acknowledged the sme's in device count I was still constrained, but you guys are are obviously executing strongly and do have that confidence to pick up the guy here could you provide a little bit more color as far as what are some of those early indicators, you're seeing I know you spoke about in power and what you're seeing.
Michael Joseph Cikos: Not cold, but there's an incremental color that would would be beneficial as far as what you are seeing from our boots on the ground perspective.
Michael Joseph Cikos: Just wanted to circle back. I know we're in this together. The macro remains challenging out there, right? And I think you guys even acknowledge that the SMEs and device count are still constrained, but you guys are obviously executing strongly and do have that confidence to take up the guy here. Can you provide a little bit more color as far as what are some of those early indicators you're seeing? I know you spoke about power and what you're seeing in code, but some incremental color that would be beneficial as far as what you're seeing from a boots on the ground perspective.
Michael Joseph Cikos: Good morning, Mike This is John Thanks.
Speaker Change: Thanks for the question.
Speaker Change: But we do as I mentioned with the confidence in our guide and for the rest of the year. We we continue to see strong indicators, most notably our new customer acquisition bookings in customer lands have been up there up year over year, that's if I think about the.
Michael Joseph Cikos: Almost <unk> to be the future enterprise value of the business as we bring on these M S P's and we keep winning in the market.
Michael Joseph Cikos: That's when we can get in and begin to start landing and expanding and helping them expand and the rest of them ebay. So.
Michael Joseph Cikos: That's probably the primary.
Michael Joseph Cikos: Most solid indicator is this new customer acquisition uptick in particular in our in Central platform, which is for a reminder, for the group is the platform where.
Michael Joseph Cikos: More of our larger msp's tend to deploy.
Michael Joseph Cikos: Other software on so the fact that we're winning at that end of the market at a pace that's better than historically, especially year over year is probably the best indicator.
Speaker Change: Terrific. Thank thanks for that John and then Bryan just a quick follow up here I know, we talked about some of the fluctuations from.
Michael Joseph Cikos: From a cash flow perspective, it looks like cash flow from ops was down on your on your primarily related to accrued liabilities is that <unk> is that a tiny thing is there anything else to call out there and then the second pieces.
Michael Joseph Cikos: Sequential declined to Msp's with a are over 50000, I think we've run into that before but is that entirely X X related I guess those are the two cleanup questions I had I'd appreciate it.
John Pagliuca: Good morning, Mike. This is John. Thanks for the question. Look, we do, as Tim mentioned, with confidence in our guide and for the rest of the year, we continue to see strong indicators. Most notably, our new customer acquisition bookings and customer lands have been up; they're up year over year. That's if I think about the, what I think is, somewhat of the future enterprise value of the business, as we bring on these MSPs and we keep winning in the market, that's when we can get in and begin to start landing and expanding and helping them expand their SME base.
Speaker Change: Yeah. Thanks for the question Mike.
John Pagliuca: On the on the casually it's timing the primary drivers there just timing has some some prepaid.
John Pagliuca: Taxes as well as just the timing of the year of cash outlays for bonuses and and things like that within the model, but no change the outlook on cash flow conversion from EBITDA.
John Pagliuca: That we stayed at back in February really just timing throughout the year on the cash flow front and then on your second question on the customer's over 50 K var are primarily FX, driven we would've been up slightly FX neutral.
John Pagliuca: And then another part of the equation is the the John touched on we're succeeding with with with new customer acquisition and generally our new customers. The vast majority of our new customers are coming in below that 50, K threshold and then we worked across all the portfolio and bring them up.
John Pagliuca: Up above that but those those are kind of the two contributing factors of we're seeing stronger mix of new coming in.
John Pagliuca: New coming in the door and there was some negative FX impact on that metric in the quarter.
Speaker Change: Got it thanks for helping improve my understanding on those two dynamics I'll turn it over to my colleagues. Thank you guys.
Speaker Change: Thanks, Mike.
John Pagliuca: The next question comes from the line up at Jason Williams.
John Pagliuca: William day of your life.
Speaker Change: <unk>. Please go ahead.
Speaker Change: Yeah. Thank you good morning, guys.
John Pagliuca: So, I'd say that's probably the primary, most solid indicator is this new customer acquisition uptick, particularly on our in-central platform, which, for a reminder for the group, is the platform where more of our larger MSPs tend to deploy their other software. So, the fact that we're winning at that end of the market at a pace that's better than historically, especially year over year, is probably the best indicator.
Speaker Change: A couple of things first.
John Pagliuca: You talked about the new customer acquisition uptake.
John Pagliuca: With in Central can you just talk about.
John Pagliuca: When you're winning those deals is it a displacement.
John Pagliuca: Is this customer's where are you.
John Pagliuca: Maybe we're selling certain things in in that you've.
John Pagliuca: Added more capable added more elements.
Speaker Change: Elements to the to the package that you're selling them just a little more background on on those types of deals and when you're winning and and who you're displacing and while you're winning that'd be helpful. Thanks.
Timothy James OBrien: Terrific. Thanks for that, John. And then, Brian, just a quick follow-up here. I know we talk about some of the fluctuations from a cash flow perspective. It looks like cash flow from operations was down year-on-year primarily related to accrued liabilities. Is that just, is that a timing thing? Is there anything else to call out there? And then the second piece is on the sequential decline of MSPs with an ARO over 50,000. I think we've run into that before, but is that entirely Essex-related? I guess those are the two cleanup questions I had, but I'd appreciate it.
Speaker Change: Sure Good morning, Jason Thanks, Thanks for the questions to John again, So a couple of things historically and I know you notice from following the space, we were known as in RMM offering with two solutions for the lower in the high end and that was the primary onramp onto the business right with.
Timothy James OBrien: With Cove, and with that platform and the fact that that's really just a disruptive technology to disruptive price, we're now bringing customers in there and so we're getting cove customers to walk in the door now people are on wrapping and to enable with Cove how that is.
Timothy James OBrien: Manifesting itself in our RM category is.
Brian: A significant amount of our cove customers are now being crossover into the in central or even into the NCI platform. So that that cross-sell and that pattern is somewhat new for us, but it's accretive. So we're we're getting that combination where historically backup is more of a data protection was more of a of a crosswalk.
Brian: Well, we're now landing with with Cove and going from there you asked a question about my grip and replace look primarily at the high end it as a ripping replace I would say I would say the vast majority at the high end on the low end did you have some greenfield and you'll also have some ancillary folks getting involved so ms.
Timothy James OBrien: Espies social security provider is now need a monitoring and management platform as well, we're seeing a good amount of internal departments now needing a platform that looks and behaves a lot like our RM. It has the patching and take control and monitoring capability, So and the classic high end MSP, it's ripping replace.
Timothy James OBrien: Internal I T Department, it's actually a little bit more of a greenfield because the combination of these offerings are new to an internal I T Department and the collection of them or knew not to the individual solutions are different but this the collection and at the low end their new.
Timothy James OBrien: And then lastly, we are having.
Timothy James OBrien: Ah progress with with ran out of the gate, especially with some of our us actually across the spectrum small customers in large customers, where we're coming to them now that the line between monitoring insecurity is effectively dawn for the MSB, what's it enticing packages were walking in the door and saying Hey, we have this powerful world class.
Timothy James OBrien: <unk> technology, coupled with the RM that's integrated that's also helping the land. So we are getting.
Timothy James OBrien: That one two punch of monitoring insecurity right out of the gate at MCA. So it's a collection of all those bets that's really driving it.
Timothy James OBrien: Yeah, thanks for the question, Mike. On the cashflow bit, it's timing. The primary drivers there are just timing of some prepaid taxes as well as just timing of the year of cash outlays for bonuses and things like that within the model. But no change to the outlook on cashflow conversion from EBITDA that we stated back in February, really just timing throughout the year on the cashflow front. And then on your second question on customers over $50K of ARR, primarily FX-driven, we would have been up slightly FX-neutral.
Speaker Change: Great. Thank you and then.
Timothy James OBrien: Tim just on the.
Timothy James OBrien: The model and the guidance that you gave for the full year.
Timothy James OBrien: Trying to understand the second half because it looks like at least in my model.
Timothy James OBrien: Sequentially revenue would be flat from Q2.
Mike: Into Q3, and Q4 as well if I use the midpoint of your annual guidance. So can you talk about why there would not be sequential growth in the second half.
Timothy James OBrien: Relative to.
Timothy James OBrien: Where you where you got it fixed and Q2.
Timothy James OBrien: And then another part of the equation that John touched on, we're succeeding with new customer acquisition. And generally, our new customers, the vast majority of our new customers, are coming in below that $50K threshold. And then we work to cross-sell the portfolio and bring them up above that. But those are kind of the two contributing factors of we're seeing a stronger mix of new customers coming in, new customers coming in the door, and there was some negative FX impact on that metric in the quarter. I got it.
Timothy James OBrien: Yeah.
Speaker Change: Absolutely Jason.
Timothy James OBrien:
Michael Joseph Cikos: Got it. Thanks for helping improve my understanding of these two dynamics. I'll turn it over to my colleagues. Thank you guys.
Speaker Change: When we think about the second half I'd say, we're continuing to be prudent just with the outlook.
Michael Joseph Cikos: Mostly due to the macro environment.
Michael Joseph Cikos: That were that were kind of hearing and seeing across the board and then the other part of our equation is related to our long term.
Operator: The next question comes from the line of Jason Ader from William Blair. Your line is open, please go ahead.
Jason Noah Ader: Our longterm contract strategy that we put in place here.
Jason Noah Ader: For 2024 as it relates to.
Jason Noah Ader: That strategy for our pricing and packaging changes for 24 versus twenty-three.
Jason Noah Ader: That's where it will start to feel that impact.
Jason Noah Ader: On the on the year over year spectrum.
Jason Noah Ader: Starting here in Q2, so it's a it's a combination of of those things I forgot how we'd set.
Jason Noah Ader: Kind of the rest of the full year guide, we did bring up the midpoint slightly but I would say just continuing to be prudent.
Jason Noah Ader: Until we kind of see all kinds of the macro plays out over the course of the the rest of the year.
Jason Noah Ader: And what's the quantification of those mechanics around the pricing and packaging change like how much impact to have in Q1 and Q2.
Jason Noah Ader: Sounds like a cute second half is not going to have.
Operator:
Jason Noah Ader: A year over year.
Jason Noah Ader: Positive impact, but what.
Jason Noah Ader: I guess I'm not I'm not super familiar with with the how to how to think about those mechanics.
Jason Noah Ader: Yeah, we touch on the impact and last call in the range of 200, <unk> two to two and a half points for the full year no real impact in Q1, the impact Israeli centered in Q2, Q3, and Q4 from a year over year perspective, so, it's probably more than that two and a half 3% range.
Jason Noah Ader: For those three quarters, specifically and that two to two and a half per cent range for for the full year.
Jason Noah Ader: Just from the timing is there was effective as of April and 23.
Jason Noah Ader: And that is when that grow over impact is starting to be felt on a year over year perspective.
Jason Noah Ader: Gotcha Gotcha, So you get to step up and Q2, and then it sort of.
Jason Noah Ader: The way you're thinking about it as sort of its steps up and then it doesn't go up a lot once it steps up at least in the second half.
Operator: Right.
Jason Noah Ader: Thank you.
Operator: Thanks.
Jason Noah Ader: The next question comes from the lineup six.
Jason Noah Ader: <unk> J P Morgan Chase and kind of your line of sight. Then please go ahead.
Jason Noah Ader: Yeah, thank you. Good morning, guys. A couple of things. First, you talked about the new customer acquisition uptick with N-Central. Can you just talk about when you're winning those deals? Is it a displacement? Is this, you know, customers where you maybe we're selling certain things in and that you've added more, you know, added more elements to the package that you're selling them? Just a little more background on those types of deals. And when you're winning and who you're displacing and why you're winning, that would be helpful.
Jason Noah Ader: Hi, Good morning. Thank you for taking my question in a nice set of results this quarter.
Jason Noah Ader: Sure. Good morning, Jason. Thanks for the questions. This is John again.
Speaker Change: John at a follow up in order to nicer rip out of a competitor.
John Pagliuca: So, a couple of things. Historically, and I know you know this from following the space, we were known as an RMM offering with two solutions for the lower and the high end, and that was the primary on-ramp into the business, right? With Cove and with that platform and the fact that that's really just a disruptive technology at a disruptive price, we're now bringing customers in there. And so we're getting Cove customers to walk in the door. So, now people are on-ramping into N-Able with Cove.
Speaker Change: You know in your prepared remarks, and just kind of curious, particularly in your over 50000 customers can you quantify or give us a sense of the cold penetration.
John Pagliuca: And is this is this a consistent theme where.
John Pagliuca: That's leading to a lot of expansion within your customer base once they get a sense of of the platform and what it can do.
John Pagliuca: How that's manifesting itself in our RM category is, you know, a significant amount of our Cove customers are now being cross-sold into the N-Central or even into the N-Site platform. So, that cross-sell in that pattern is somewhat new for us, but it's accretive. So, we get that combination where, historically, backup was more of a, or data protection was more of a cross-sell.
John Pagliuca: The so.
John Pagliuca: Mentioned, it's on a call or two but we have about 10000, so customers using our cove offering the one thing I'll caution folks on is when we think about penetration and our business again because of the sell through nature of our business is two levels of adoption versus the Msp's at 10000 number, but then it's what level of penetration.
John Pagliuca: You asked a question about rip and replace. Look, primarily at the high end, it is a rip and replace. I would say the vast majority at the high end.
John Pagliuca: On the low end, you have some greenfield, and you also have some ancillary folks getting involved. For example, MSSP, so security providers now need a monitoring and management platform as well. We're seeing a good number of internal IT departments now needing a platform that, you know, looks and behaves a lot like our RM. It has the patching, takeover, and monitoring capabilities. So, in the classic high-end MSP, it's rip and replace.
John Pagliuca: To those msp's are using at the SME level and we believe with Cove were very much in early early innings in early levels of penetration there because unlike RMM RMM is effectively an enterprise wide decision for the MSP. They really usually have one RMM with the data protection offering they might inherit.
John Pagliuca: In the internal IT department, it's actually a little bit more of a greenfield because the combination of these offerings is new to an internal ID department, and the collection of them is new. Not that the individual solutions are different, but it's the collection, and at the low end, they're new.
John Pagliuca: 127, 11 different backup offerings and so we're happy that we have 10000 msp's using cove, we're not satisfied with the level of penetration we have at the SME and the fact that we've made all these improvements and the offerings in particular with a recovery set.
John Pagliuca: Particularly with our disaster recovery and our <unk> hundred 65, now we can really go to the msp's and when that entire estate, it's a huge white space opportunity inside of our base I'd say data protection and security are one into as far as the white space opportunity within the base. So that that's how we think about it and and now.
John Pagliuca: Now with our Emdr offering we actually can now expand that whitespace offering we can also land those customers. The the example, I gave in the script is interesting and we tried to give you guys Nuggets that show, where the model and with a business strategy is heading in that we won and that.
John Pagliuca: Customer not a very big customer.
John Pagliuca: Is actually now using our emdr offering, which we believe to be best in class or in central offering and the Edr and so it's that it's that powerful combination of the monitoring and security that we think is a winning one obviously data protection as a as a part of the <unk> framework at the part of the <unk> the security stack and coupling those in.
Speaker Change: Is the right combination for our MSP. So we continue to see good traction there you might have I'm sorry, you made that a second part of your confidence your question that I'm not sure I address if you could just remind me what that was.
John Pagliuca: Yeah.
John Pagliuca: I would love to get your sense of US. So is is cove typically the tip of the spear that expansion strategy as opposed to maybe the other way around or maybe the heavy D. R. And then they kinda back into Cove.
John Pagliuca: It really depends on where the MSP as in their journey I'd say, if it's either going to be cove or or security and.
John Pagliuca: And.
Speaker Change: It's for us it frankly, it really doesn't matter.
John Pagliuca: We want to show them, the breadth and depth of our portfolio and the fact that these are all integrated into our platform is really the compelling compelling story for the msp's because it drives that level of efficiency. So.
John Pagliuca: And then lastly, we are making progress right out of the gate, especially with some of our, actually across the spectrum, small customers and large customers where we're coming to them. Now that the line between monitoring and security is effectively gone for the MSP, what's an enticing package is we're walking in the door and saying, hey, we have this powerful, you know, world-class EDR technology coupled with the RM that's integrated, that's also helping the land. So, we are getting, you know, that one-two punch of monitoring and security right out of the gate at NCA. So, it's a collection of all those bits that are really driving me.
John Pagliuca: And the example that we gave that was actually a cold customer and we expanded them into these other bits, but to my previous statement to to Jason.
John Pagliuca: What we're doing now and a lot of our cases is bundling up and edr offering along with our RM offering over bundling up our emdr Edr together and so providing that type of benefit to the MSP rounded. The gate is resonating with customers. Both on the low end in the high end of the spectrum.
Jason Noah Ader: Great, thank you. And then, Tim, just on the model and the guidance that you gave for the full year, trying to understand the second half because it looks like, at least in my model, sequentially, revenue would be flat from Q2. Q3 and Q4 as well, just if I use the midpoint of your annual guidance. So can you talk about why there would not be sequential growth in the second half relative to where you got it in Q2?
Speaker Change: Got it Super helpful. Maybe just one quick follow up for 10.
Jason Noah Ader: Just.
Jason Noah Ader: Looking at so quick nap in terms of Opex seems to have moderated.
Tim: Pretty well in the quarter, helping with the performance on an operating margin EBITDA side and it looks like a lot of it came from G N a.
Jason Noah Ader: How do we think about that as we kind of like model. This out for the rest of the year and try and assess what kind of operating leverage you're having a business.
Timothy James OBrien: Yeah, absolutely, Jason. When we think about the second half, I'd say we're continuing to be prudent, just with the outlook, mostly due to the macro environment that we're kind of hearing and seeing across the board. And then the other part of our equation is related to our long-term contract strategy that we put in place here for 2024 as it relates to that strategy for our pricing and packaging changes for 24 versus 23, that's where we'll start to feel that impact on the year-over-year spectrum, starting here in Q2.
Timothy James OBrien: So it's a combination of those things. That's how we've set the rest of the full-year guide. We did bring up the midpoint slightly, but I would say just continuing to be prudent until we kind of see how the macro plays out over the course of the rest of the year.
Speaker Change: Yeah absolutely.
Timothy James OBrien: We have continued to get leverage on the G&A front.
Timothy James OBrien: I would expect us to continue to get leverage there as we move forward, we really build delta G&A functions for scale when we spun the business off a couple of years ago.
Timothy James OBrien: And continue to optimize.
Timothy James OBrien: Or spend there and making sure it's pointed it.
Timothy James OBrien: Higher Iowa.
Timothy James OBrien: Hi.
Timothy James OBrien: Type areas, whether it be engineering or sales and marketing.
Timothy James OBrien: Will we have continued to kind of operate with that balanced approach between growth and profit.
Timothy James OBrien: As we kind of March towards that sustained rule of 50 is R. As are kind of medium to long term goal here as a as an operating model.
Timothy James OBrien: Mmm, there's additional leverage to get I would say in all parts of the business.
Timothy James OBrien: We'll take that in a very measured measured fashion our path to 50.
Timothy James OBrien: Desire is to get there via revenue growth acceleration.
Timothy James OBrien: That being said, there's leveraging the model to get their different ways if.
Timothy James OBrien: If we need to and kind of stock ranking I think I've gone through this before but kind of sacrificing where that opportunity lies it's probably.
Timothy James OBrien: Number one in G&A too in sales and marketing and three in R&D.
Timothy James OBrien: Just we'll just we'll continue to want to innovate over the years and continue to drive innovation to kind of feed that top line.
Jason Noah Ader: And what's the quantification of those mechanics around the pricing and packaging change? Like, how much impact did it have in Q1 and Q2? It sounds like in Q3, the second half, it's not gonna have a year-over-year positive impact, but what... I guess I'm not super familiar with how to think about those mechanics.
Speaker Change: Got it I guess, maybe just real quick and it looks like I Dunno, if my math is right [laughter] cause I'm a remote today, but.
Jason Noah Ader: Did it go down sequentially and if so what are some of the cost rationalization come from.
Jason Noah Ader: Looking at the overall Spangled <unk> announcement.
Speaker Change: Yeah, Yeah, I am a non-GAAP basis of it was it was a box black quarter over quarter.
Jason Noah Ader: Looking at Q4 versus versus Q on there was up year over year.
Jason Noah Ader: But now I think <unk>.
Jason Noah Ader: Spend overall and from a non-GAAP Opex perspective was was flat sequentially.
Speaker Change: Okay. Okay.
Speaker Change: Thank you.
Jason Noah Ader: As a reminder, if you'd like to ask a question. Please press stop by one on your telephone keypad.
Speaker Change: Question comes from the lineup.
Speaker Change: <unk> head back Poppy seed capital market. Your line of sight. Then please go ahead.
Timothy James OBrien: Yeah, we touched on the impact in the last call in the range of 2 to 2.5 points for the full year, with no real impact in Q1. The impact is really centered in Q2, Q3, and Q4 from a year-over-year perspective, so it's probably more in that 2.5, 3% range for those three quarters, specifically in that 2 to 2.5% range for the full year. Just from the timing, it was effective as of April 23, and that's when that growth over impact is starting to be felt on a year-over-year perspective. So you get that step up in Q2, and then it's
Jason Noah Ader: Gotcha. Gotcha. So you get the step up in Q2 and then it's sort of You know, the way you're thinking about it is sort of it steps up, and then it doesn't go up a lot once it steps up, at least in the second year.
Speaker Change: Good morning, guys <unk>.
Jason Noah Ader: Yeah, maybe just gone back to <unk> I was just wondering you know.
Jason Noah Ader: How that attract relative to your expectations and now that we have over a quarter under our belt and sort of what you're seeing on the top end of the market crashed the lower end of the market and any competitive dynamics, there that or may be different from what you expected.
Operator: The next question comes from the line of Brian Essex of JP Morgan Chase & Co. Your line is now open; please go ahead.
Speaker Change: Thanks for the question, Mike So MBR.
Brian Lee Essex: It's early days, we really kick this off.
Brian Lee Essex: In the U S in Jan.
Brian Lee Essex: We had some some pre activity a little bit in queue for and then we went worldwide.
Brian Lee Essex: Later on in the first quarter.
Brian Lee Essex: <unk> expectations both on the.
Brian Lee Essex: The the level of bookings.
Brian Lee Essex: And even more so on the number of land and it's been encouraging on the low end. We're we're finding a lot of greenfield right and we're really allowing a smaller MSP to now provide security services that are required at the semi and so if you're a small shop, a five or 10 person managed service provider and.
Brian Lee Essex: You're trying to stay up with larger Msp's really even just trying to service your existing customer base, you need a level of security offering and someone that can help you with the 24, seven and keeping an eye on all in all the threats that are out there and so we're finding it to be a welcome new offering combining.
Brian Lee Essex: Technology and human services at the low end that allows them to keep their customers safe, but also frankly presents as a as a much larger capability of an organization at the high end, we're finding Greenfield. We're also finding some ribbon replaced.
Brian Lee Essex: There are some legacy vendors in there that are not necessarily bespoke foreign MSP and what I mean by that is our offering is unique in that we provide isinglass for msp's. Some emdr services, it's like a black box service right.
Brian Lee Essex: <unk> just kind of gets the output of that we provide a level of transparency for a managed service providers, which they love because now they can see the same thing that our stock analysts are looking at and as a result.
Brian Lee Essex: More transparency, they can better inform their customers so.
Brian Lee Essex: I'll call it a rip and replace but I actually believe it's more of a next gen offering that we're providing at the high end and that's why it's been resonating. So we're quite bullish on it again, it's early days.
Brian Lee Essex: But it's an offering that.
Brian Lee Essex: It's being well received at the low end in the high end.
Brian Lee Essex: Hi, good morning. Thank you for taking the question and for a nice set of results this quarter. John, I had a follow-up question. You noted a nice rip out of a competitor in your prepared remarks. And I'm just kind of curious, you know, particularly with your over 50,000 customers. Can you quantify or give us a sense of the co-penetration? And is this a consistent theme where, you know, that's leading to a lot of expansion within your customer base once they get a sense of the platform and what it can do?
Brian Lee Essex: Great. Thanks, Yes.
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Brian Lee Essex: <unk>.
Speaker Change: Thank you all for joining us today and your continued interest that enable and look forward to seeing you again in the future.
John Pagliuca: So I think we mentioned this on a call or two, but we have about 10,000 or so customers using our COVE offering. The one thing I'll caution folks on is when we think about penetration, it's in our business, again, because of the sell-through nature of our business, there are two levels of adoption.
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John Pagliuca: First, it's the MSPs, and that's that 10,000 number, but then it's what level of penetration those MSPs are using at their SME level. And we believe with COVE, we're very much in the early innings and early levels of penetration there, because unlike RMM, the RMM is effectively an enterprise-wide decision for the MSP. They really usually have one RMM.
John Pagliuca: With the data protection offering, they might inherit one, two, seven, 11 different backup offerings. And so we're happy that we have 10,000 MSPs using COVE. But we're not satisfied with the level of penetration we have at the SME level.
John Pagliuca: And the fact that we've made all these improvements in the offerings, in particular with our recovery set, in particular with our disaster recovery and our M365, now we can really go to the MSPs and win that entire estate. It's a huge whitespace opportunity inside of our base. I'd say data protection and security are one and two as far as the whitespace opportunity within the base go. So that's how we think about it.
John Pagliuca: And now, with our MDR offering, we can actually expand that whitespace offering. We can also land those customers. The example I gave in the script is interesting, and we try to give you guys nuggets that show where the model and where the business strategy is heading in that we won. And that customer, not a very big customer, is actually now using our MDR offering, which we believe to be best in class, our in-central offering, and the EDR.
John Pagliuca: And so it's that powerful combination of monitoring and security that we think is a winning one. Obviously, data protection is a part of the NIST framework. It's a part of the security stack, and coupling those in is the right combination for our MSPs. So we continue to see good traction there. I'm sorry; you might add a second part of your question that I'm not sure I addressed. If you could just remind me what that was.
Brian Lee Essex: Yeah, I think I would love to get your sense of it. So, is Cove typically the tip of the sphere of that expansion strategy as opposed to maybe the other way around, or maybe they have EDR, and then they kind of back into Cove?
John Pagliuca: You know what? It really depends on where the MSP is in their journey. I'd say if it's either going to be Cove or security. And it's, for us, it frankly doesn't matter. You know, we want to show them the breadth and depth of our portfolio. And the fact that these are all integrated into our platform is really the compelling story for the MSPs because it drives that level of efficiency.
John Pagliuca: [music].
John Pagliuca: So, in the example that we gave, that was actually a co-of-customer, and we expanded it into these other bits. But to my previous statement to Jason, what we're doing now in a lot of our cases is we're bundling up an EDR offering along with our RM offering, or we're bundling up our MDR and EDR together. And so providing that type of benefit to the MSP right out of the gate is resonating with customers both on the low end and the high end of the spectrum.
Brian Lee Essex: Got it. It's super helpful. Maybe just one quick follow-up for Tim. You know, looking at some quick math in terms of OPEX seems to have moderated pretty well in the quarter, helping with the performance on the operating margin EBITDA side. And it looks like a lot of it came from GNA. How do we think about that as we kind of like model this out for the rest of the year and try and assess what kind of operating leverage you have in the business?
Timothy James OBrien: Yeah, absolutely. We've continued to get leverage on the G&A front. I would expect us to continue to get leverage there. As we move forward, we really built out the G&A functions for scale when we spun the business off a couple of years ago and continue to optimize our spend there and make sure it's pointed at, you know, higher ROI-type areas, whether it be engineering or sales and marketing. You know, we've continued to kind of operate with that balanced approach between growth and profit as we kind of march towards that sustained rule of 50 as our kind of medium to long-term goal here as an operating model. There's additional leverage to be had, I would say, in all parts of the business. We'll take that in a very measured fashion.
Timothy James OBrien: Our path to 50 is to get there via revenue growth acceleration. That being said, there's leverage in the model to get there in different ways if we need to. And kind of stack ranking. I think I've gone through this before, but I don't know where that opportunity lies. It's probably number one in G&A, number two in sales and marketing, and number three in R&D. We'll continue to want to innovate over the years and continue to drive innovation to kind of feed that top line.
Timothy James OBrien: Got it. I guess maybe just real quick, it looks like I don't know if my math is right because I'm remote today. But, you know, did it go down sequentially? And if so, where did some of the cost rationalization come from? Did overall spend go down? Yeah, yeah, on a non-GAP basis, it was about flat quarter over quarter, looking at Q4 versus Q1. It was up year over year. But no, I would say spend overall from a non-GAAP OPEX perspective was flat sequentially.
Operator: As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. The next question comes from the line of Matthew Hedberg of RBC Capital Markets. Your line is now open; please go ahead.
Matthew George Hedberg: Good morning, guys. It's Mike Richards on for Matt. Maybe just going back to MDR, just wondering how that's tracked relative to your expectations now that we have over a quarter under our belt, and sort of what you're seeing on the top end of the market versus the lower end of the market, and any competitive dynamics there that were maybe different from what you expected.
John Pagliuca: Thanks for the question, Mike. So, MDR, it's early days. We really kicked this off in the U.S. in Jan. We had, you know, some preactivity a little bit in Q4, and then we went worldwide later on in the first quarter.
John Pagliuca: And it's exceeding expectations, both on the level of bookings and, even more so, on the number of lands. And it's encouraging. And on the low end, we're finding a lot of greenfield, right? And we're really allowing a smaller MSP to now provide security services that are acquired at the SME. And so if you're a small shop, a five or 10-person managed service provider, and you're trying to stay up with larger MSPs or really even just trying to service your existing customer base, you need a level of security offering and someone that can help you with 24-7 and keep an eye on all the threats that are out there.
John Pagliuca: So we're finding it to be a welcome new offering, combining, you know, technology and human services at the low end that allows them to keep their customers safe but also, frankly, presents as a much larger capability of an organization. At the high end, we're finding Greenfield.
John Pagliuca: We're also finding some rip and replace. There are some legacy vendors in there that are not necessarily bespoke for an MSP. And what I mean by that is our offering is unique in that we provide eyes on glass for MSPs. Some MDR services are like a black box service, right? The MSP just kind of gets the output of that.
John Pagliuca: We provide a level of transparency for our managed service providers, which they love because now they can see the same thing that our SOC analysts are looking at. And as a result, there is more transparency. They can better inform their customers. So it's, I'll call it a rip and replace, but I actually believe it's more of a next-gen offering that we're providing at the high end, and that's why it's been responding. So we're quite bullish on it. Again, it's early days, but it's an offering that is being well received at the low end and the high end.
Matthew George Hedberg: Great, thanks guys!
John Pagliuca: As there are no additional questions waiting at this time, I'd like to hand the conference back over to John Palouca for closing remarks.
John Pagliuca: Thank you all for joining us today and for your continued interest in N-Able. I look forward to seeing you again in the future.
Operator: Ladies and gentlemen, thank you for joining today's call. You may now disconnect your lines.