solarwinds(US:SWI)2022-08-02 19:09Financial Data and Key Metrics Changes - Total revenue for Q2 2022 was $176 million, near the high end of the guidance range of $174 million to $177 million, reflecting a slight decline compared to the prior year [28] - On a constant currency basis, total revenue would have been approximately $180 million, representing a 2% year-over-year increase [28] - Adjusted EBITDA was $67 million, with an adjusted EBITDA margin of 38%, consistent with the outlook provided [37] - Subscription revenue for Q2 2022 was $37 million, up 25% year-over-year, indicating successful subscription-first efforts [30] - Total ARR as of June 30, 2022, was $625 million, showing a slight increase over the prior year [35] Business Line Data and Key Metrics Changes - Subscription revenue growth reflects the conversion of maintenance customers to hybrid observability subscriptions, with maintenance revenue at $114 million, down 5% year-over-year [31] - License revenue was $25.1 million, representing a decline of approximately 6% compared to Q2 2021 [34] - In-quarter renewal rates were 93%, with trailing 12-month renewal rates at 91%, indicating strong customer retention [13][33] Market Data and Key Metrics Changes - The company experienced a foreign exchange headwind, particularly with the euro's decline against the U.S. dollar, impacting revenue performance [28][44] - Central Europe was identified as a soft spot due to geopolitical factors, but demand remained robust in other regions [62] Company Strategy and Development Direction - The company is focused on a subscription-first mentality, transitioning from on-premises to hybrid and SaaS solutions [26][50] - Plans to extend the SolarWinds platform into service management, integrating observability and service management to address customer needs [19] - The company aims to enhance partnerships with global system integrators and hyperscalers to drive growth [17][92] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's ability to navigate macroeconomic challenges, emphasizing the relevance of their solutions [54] - The outlook for Q3 2022 anticipates total revenue in the range of $180 million to $185 million, with adjusted EBITDA margin expected to be approximately 39% to 40% [41][43] - Full-year revenue guidance was lowered to $715 million to $725 million due to macroeconomic factors and currency fluctuations [46] Other Important Information - A noncash goodwill impairment charge of $612 million was recognized for the quarter due to a decline in market capitalization and financial forecast adjustments [51] - The company is committed to improving supply chain security and software security processes through its next-generation billing system [108] Q&A Session Summary Question: Can you provide more color on the macro backdrop and product performance? - Management noted that foreign exchange remains a significant concern, particularly in Central Europe, but product reception for hybrid cloud observability and service management solutions has been robust [60][62] Question: What are the assumptions for renewal rates moving forward? - Management expects renewal rates to remain in the 90% to 91% range, with any improvement providing upside [66] Question: How did demand progress throughout the quarter? - Demand remained robust relative to historical levels, with no significant deceleration noted as the quarter ended [70] Question: What is the contribution from federal customers? - Federal business is estimated to be closer to 10% of total revenue, with no significant changes expected [101] Question: How is the partner ecosystem evolving? - The company is expanding its partner relationships, focusing on both global system integrators and traditional partners to enhance sales efforts [88][92]