solarwinds(US:SWI)2021-10-28 15:58Financial Data and Key Metrics Changes - Total revenue for Q3 2021 was $181.3 million, exceeding the high end of the outlook range of $176 million to $180 million [12][22] - Adjusted EBITDA for Q3 was $75.3 million, representing an adjusted EBITDA margin of 42% [12][33] - Maintenance renewal rate for Q3 was approximately 88%, above the expected low to mid-80% range [13][25] - Subscription revenue grew 20% year-over-year, with subscription ARR increasing 23% year-over-year [14][31] Business Line Data and Key Metrics Changes - Total license and maintenance revenue was $149 million, a decrease of 6% from the prior year [24] - License revenue for Q3 was $29.2 million, representing a decline of approximately 26% compared to Q3 2020 [27] - Subscription revenue for Q3 was $32.3 million, up 20% year-over-year [29] Market Data and Key Metrics Changes - Total ARR reached approximately $624 million as of September 30, 2021, reflecting year-over-year growth of 9% [30] - The company finished Q3 with 786 customers spending more than $100,000 in the last 12 months, a 4% improvement over the previous year [32] Company Strategy and Development Direction - The company completed the spin-off of the N-able business on July 19, 2021, allowing for a standalone strategy [5][15] - Focus on increasing subscription bookings and transitioning to a greater subscription mix [13][39] - Introduction of SolarWinds' observability solutions aimed at enhancing customer value and addressing evolving needs [16][45] Management's Comments on Operating Environment and Future Outlook - Management noted that customer conversations have shifted from incident-related discussions to strategic improvements and security enhancements [52] - The company expects maintenance renewal rates to remain in the high 80s for Q4 and anticipates continued progress into 2022 [40] - Management expressed confidence in the ongoing improvement of license revenue as the impact of the SUNBURST incident diminishes [77] Other Important Information - The company completed a 2-for-1 reverse stock split and declared a dividend of $1.50 per share [35] - Net leverage at September 30 was approximately 3.8x pro forma trailing 12-month adjusted EBITDA [34] Q&A Session Summary Question: How is Q4 looking from a new bookings perspective? - Management indicated that new bookings for Q4 are expected to trend positively, consistent with previous quarters [48] Question: Update on customer conversations and renewal trends post-breach? - Management reported an improvement in renewal rates to 88% and noted that conversations have shifted to strategic discussions about security improvements [50][52] Question: What is the traction in new logos on the enterprise side? - Management stated that traction is being seen across the portfolio, particularly with the Orion Platform and database monitoring solutions [55] Question: What has been the impact of the shift to subscription on revenue growth? - Management noted an 11% headwind to total revenue from the shift to subscription, with ongoing improvements expected as the company moves forward [64] Question: How is the renewal rate in the Federal sector? - Management confirmed that the renewal rate in the Federal sector remains above 80% [71][75] Question: Will the decline in license revenue continue? - Management expects improvements in license revenue as the company anniversaries the SUNBURST incident [77] Question: Has the supply chain issue impacted the company? - Management clarified that supply chain issues have not impacted the company, as it primarily sells software [90]