solarwinds(US:SWI)2023-04-27 20:08Financial Data and Key Metrics Changes - In Q1 2023, total revenues reached $186 million, a 5% year-over-year increase, exceeding the high end of the guidance range [5][38] - Adjusted EBITDA grew 12% year-over-year to $77.4 million, representing an adjusted EBITDA margin of 42% [6][20] - Subscription revenue was $54 million, up 40% year-over-year, while subscription ARR increased by 31% to $185 million [5][18] Business Line Data and Key Metrics Changes - The company reported strong growth in its observability, service management, and database monitoring product lines, with double-digit year-over-year adjusted EBITDA growth [10][71] - Maintenance revenue was $114 million, a decrease of 1% from the prior year, reflecting the transition to subscription models [39] - The trailing 12-month renewal rate was 93%, the highest since Q4 2019, indicating strong customer retention [19][30] Market Data and Key Metrics Changes - The company expanded its SaaS observability solutions in Europe by opening a new data center in Germany and launched an ITSM data center in Australia for the Asia Pacific region [12][31] - The company ended Q1 with 945 customers spending over $100,000 in the last 12 months, an increase of 11% year-over-year [11][20] Company Strategy and Development Direction - The company is focused on a subscription-first transformation, aiming to drive subscription adoption and improve profitability while managing costs [15][36] - Key priorities include enhancing customer retention, expanding the product portfolio, and evolving hybrid cloud observability solutions [16][36] - The company aims to achieve $1 billion in ARR with mid-40s adjusted EBITDA margins, emphasizing the importance of subscription growth for revenue stability [36][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strategy and portfolio despite macroeconomic challenges affecting IT spending [46][43] - The outlook for Q2 2023 includes total revenue guidance of $177 million to $182 million, reflecting a 2% year-over-year growth at the midpoint [23][44] - The company plans to continue selective hiring and disciplined expense management to navigate the uncertain economic environment [21][82] Other Important Information - The company reported a net leverage of approximately 3.8x trailing 12-month adjusted EBITDA, with cash and cash equivalents totaling $141 million at the end of Q1 [42] - One-time costs related to a cyber incident and restructuring charges were noted, with expectations for these costs to fluctuate in future quarters [41] Q&A Session Summary Question: Can you elaborate on the traction with partners and co-selling motions with AWS and Azure? - Management indicated strong co-sell motions with AWS and Azure, noting that these partnerships are still in the early stages, representing a larger opportunity moving forward [50] Question: Can you quantify the size of the larger deals being won? - Management highlighted an increase in the number of deals over $100,000, indicating a positive trend in winning larger customers [61][74] Question: What is the conversion ratio from maintenance to subscription? - The conversion rate from maintenance to subscription was reported at approximately 1.8, exceeding expectations [80] Question: How are you managing expenses in the current environment? - Management emphasized prudent expense management, with selective hiring and a focus on reaping dividends from past investments [82] Question: What are the trends in customer demand from 2022 to 2023? - Management noted a mix of demand driven by both 2022 budget decisions and 2023 budgeting processes, indicating a combination of factors influencing customer decisions [67][68]