solarwinds(US:SWI)2023-02-09 17:14Financial Data and Key Metrics Changes - In Q4 2022, total revenue was $187 million, a slight increase year-over-year, and above the guidance range of $178 million to $183 million [42] - Adjusted EBITDA for Q4 was $74.5 million, representing a margin of 40%, exceeding the previous outlook of 38% to 39% [21][42] - For the full year 2022, total revenue was $719 million, slightly higher than the prior year and above the guidance of $710 million to $715 million [42] - Subscription ARR as of December 31 was $175 million, a 30% increase year-over-year [19] Business Line Data and Key Metrics Changes - Subscription revenue in Q4 was $50 million, up 45% year-over-year, with full-year subscription revenue of $168 million, up 35% [118] - Maintenance revenue for Q4 was $115 million, a decrease of 3% year-over-year, and $459 million for the full year, down 4% [44] - License revenue for Q4 was $22 million, a decline of approximately 34% compared to Q4 2021, and $93 million for the full year, down 19% [45] Market Data and Key Metrics Changes - The company experienced currency headwinds, with constant currency revenue for Q4 estimated at approximately $191 million, reflecting a 2% year-over-year growth [18] - The total ARR at the end of Q4 was $636 million, up 2% year-over-year, with a constant currency increase of over 3% [43] Company Strategy and Development Direction - The company is focused on a subscription-first strategy, aiming to grow subscription ARR to over $1 billion with mid-40s adjusted EBITDA margins in the coming years [26] - The transition to subscription is seen as a way to deliver greater value to customers, despite some total revenue headwinds [34] - The company is expanding its observability solutions and enhancing its product portfolio to address the growing complexity of IT environments [37][39] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging macro environment in 2022 but noted healthy demand and strong customer retention [39] - For 2023, the company plans to continue optimizing its expense structure while selectively investing to improve profitability [40] - The outlook for Q1 2023 includes total revenue guidance of $177 million to $182 million, representing a 1% year-over-year growth at the midpoint [23] Other Important Information - The company refinanced its debt, extending the maturity date to February 2027 and making voluntary prepayments totaling approximately $650 million [22] - Adjusted EBITDA for 2023 is expected to be approximately $290 million to $300 million, reflecting a 5% year-over-year growth at the midpoint [48] Q&A Session All Questions and Answers Question: How are SME customers thinking about cloud optimization? - Management noted that the hybrid cloud solutions provide flexibility for customers to pace their investments alongside their cloud evolution [78] Question: Can you comment on the trends in the international market, particularly in Europe? - The pipeline remains robust, but management is modeling lower pipeline conversion due to increased deal scrutiny in the macro environment [62] Question: What are the expectations for the observability solutions launched in 2022? - Initial customer success has been positive, and management is optimistic about the contributions of observability to revenue growth [122] Question: How is the company addressing the transition from maintenance to subscription? - The company is using maintenance renewals as opportunities to pitch the Hybrid Cloud Observability product, with high conversion rates observed [111]