solarwinds(US:SWI)2022-11-03 23:24Financial Data and Key Metrics Changes - For Q3 2022, total revenue was $179 million, down 1% year-over-year, but on a constant currency basis, it showed a 1% growth [11][25] - Adjusted EBITDA was $70.3 million, representing an adjusted EBITDA margin of 39% [14][32] - Total Annual Recurring Revenue (ARR) was $623 million, roughly flat compared to the prior year, with subscription ARR at $159 million, up 23% year-over-year [26][27] Business Line Data and Key Metrics Changes - Subscription revenue for Q3 was $42 million, up 31% year-over-year, reflecting the success of the subscription-first strategy [28] - Maintenance revenue was $114 million, a decrease of 4% from the prior year, impacted by the conversion of maintenance customers to subscription [29] - License revenue was $23 million, down approximately 22% compared to Q3 2021, due to the focus on subscription sales [30] Market Data and Key Metrics Changes - The federal business showed improved sales performance in Q3 compared to the previous year, with a total of 882 customers spending over $100,000 in the last 12 months, a 12% increase year-over-year [31] - The company experienced delays in deal closures in Europe, but demand remained strong across all regions [21][50] Company Strategy and Development Direction - The company is focused on a subscription-first strategy, aiming to grow annual recurring revenues to over $1 billion in the coming years [13][15] - The launch of the SolarWinds Transform Partner Program aims to enhance channel growth and development [20] - The transition from monitoring to observability solutions is a key element of the company's strategy to address customer challenges in hybrid and multi-cloud environments [17][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term opportunity despite macroeconomic challenges and FX headwinds [22][38] - The company is focused on customer retention and expansion, maintaining a renewal rate of 91% [12][43] - Management plans to exercise expense discipline while seeking selective investment opportunities [44] Other Important Information - The company completed a voluntary debt prepayment of $300 million and expects to make additional payments to reduce gross debt [35] - A goodwill impairment of $279 million was recorded in Q3 due to the current macroeconomic environment [40] Q&A Session Summary Question: Insights on federal business performance - Management noted good growth in the federal sector due to long-term engagement and the stickiness of solutions [48] Question: Pipeline in Europe and deal closures - Management acknowledged strong demand but mentioned local conditions causing some delays in deal closures [50] Question: Update on SME spending - Management indicated that scrutiny is more prevalent in upper mid-market and enterprise segments, while SME spending remains robust [53] Question: Initial response to SolarWinds Observability - Management reported positive initial responses and emphasized the advantages of their full stack capabilities [55] Question: Partner ecosystem evolution - Management highlighted the importance of global system integrators in reaching larger digital transformation initiatives [59] Question: Sustainability of renewal rates - Management expressed confidence that the 91% renewal rate is sustainable despite macro uncertainties [61] Question: Interest expense modeling - Management indicated that interest expenses have increased due to rising rates, with a current estimate around $24 million [67]