solarwinds(US:SWI)2021-02-28 15:57Financial Data and Key Metrics Changes - SolarWinds achieved non-GAAP revenues of over $1 billion in 2020, representing a 9% year-over-year growth [10][24] - Non-GAAP subscription revenue grew by 22% for the full year 2020, reaching $399 million [24][25] - Adjusted EBITDA margin was 48% for both Q4 and the full year 2020, with adjusted EBITDA totaling $489.7 million for the year [10][26] Business Line Data and Key Metrics Changes - Non-GAAP subscription revenue for Q4 was $106.6 million, up 20% year-over-year, driven by a 16% growth in the MSP business [23] - Non-GAAP license revenue for Q4 was $34.5 million, a decline of approximately 23% compared to Q4 2019, impacted by the pandemic and the cyberattack [21] - The MSP business delivered double-digit growth of 15% in both Q4 and the full year, surpassing $300 million in revenue for 2020 [11][12] Market Data and Key Metrics Changes - Total ARR reached approximately $960 million as of December 31, 2020, reflecting year-over-year growth of 14% [22] - Maintenance renewal rates remained strong, exceeding 90% in 2020, despite the challenges faced [10][20] Company Strategy and Development Direction - The company aims to integrate its platforms to support hybrid IT needs, focusing on automation, monitoring, and remediation [34][66] - SolarWinds plans to expand its international go-to-market investments and enhance its customer success model [35] - The potential spin-off of the MSP business, now branded as Enable, is targeted for completion in the second quarter of 2021 [12][31] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about growth in 2021, despite near-term headwinds from the cyberattack and pandemic [28] - The company is focused on enhancing security measures and developing a secure software development model [16][18] - Management believes that the cyberattack has validated the importance of digital transformation for SMEs, leading to sustained demand for their solutions [23] Other Important Information - The company has formed a new technology and cybersecurity committee to oversee its response to the cyber incident [18] - Investments in security-related initiatives are expected to cost approximately $20 million to $25 million in 2021 [48][81] Q&A Session Summary Question: Improvement in demand picture for subscriptions - Management expects demand for subscriptions to bottom in March and improve throughout the year [42] Question: Future liability and potential litigation related to SUNBURST - Management indicated that licensing agreements may cover potential liabilities, as vulnerabilities are common across the industry [46][47] Question: Pace of new business in Q1 - The pace of new business has been impacted by the cyberattack, but positive trends are expected [54] Question: Churn in federal vs. non-federal sectors - It is too early to quantify churn, but most customers have upgraded and renewed contracts [72][74] Question: Growth trajectory of the MSP business - The MSP business experienced 15% growth in 2020, with expectations for high-teens growth on a normalized basis [75][76] Question: Offering concessions to renewing customers - Conversations regarding renewals have been normal, with no significant concessions offered [79] Question: Long-term impact of investments on margins - Margins are expected to be lowest in Q1, improving as the year progresses, with some investments yielding returns in the latter half of 2021 [81][82]