NABL - NYSE

Hello, and welcome everyone to the N-able Fourth Quarter 2024 Earnings Call. My name is Becky, and I'll be your operator today. [Operator Instructions] I will now hand over to your host Griffin, Investor Relations Senior Manager to begin. Please go ahead.

Thanks, operator and welcome everyone to N-able's fourth quarter 2024 earnings call. With me today are John Pagliuca, N-able's President and CEO; and Tim O'Brien, EVP and CFO. Following our prepared remarks, we will open the line for a question-and-answer session. This call is being simultaneously webcast on our Investor Relations website at investors.nable.com. There, you can also find our earnings press release, which is intended to supplement our prepared remarks during today's call. Certain statements made during this call are forward-looking statements, including those concerning our financial outlook, our market opportunities and the impact of the global economic environment on our business. These statements are based on currently available information and assumptions, and we undertake no duty to update this information except as required by law. These statements are also subject to a number of risks and uncertainties including those highlighted in today's earnings release and our filings with the SEC. Additional information concerning these statements and the risks and uncertainties associated with them is highlighted in today's earnings release and in our filings with the SEC. Copies are available from the SEC or on our Investor Relations website. Furthermore, we will discuss various non-GAAP financial measures on today's call. Unless otherwise specified, when we refer to financial measures, we will be referring to non-GAAP financial measures. For a reconciliation of certain GAAP to non-GAAP financial measures discussed on today's call is available in our earnings press release on our Investor Relations website. And now, I will turn the call over to John.

Thank you, Griffin and welcome to everyone joining us on the call. We closed 2024 in a position of strength and we believe we are poised for even greater success in 2025. As our results demonstrate, our comprehensive software solutions encompassing security, data protection and unified endpoint management are resonating in the market allowing SMB and mid-market companies across the globe to keep their digital operations safe and functioning. Fourth quarter revenue grew 7% year-over-year in constant currency and full year 2024 revenue grew 10% at constant currency. We exited fiscal year 2024 with ARR of $482 million growing 10% at constant currency. Our adjusted EBITDA in the fourth quarter was $38.1 million reflecting a 32.7% margin and $169.4 million for the full year, reflecting a 36.3% margin. A year ago we set three strategic objectives for the business that if executed would establish a foundation of lasting success for N-able: First, we wanted to provide SMB and mid-market businesses with leading security and data protection solutions to give them the cyber resilience they need to run their businesses; second, we set out to drive rapid innovation into our Unified Endpoint Management or UEM tech stack providing customers the capabilities needed to ensure their IT environments are productive and secure; and third, we want to double down on our engagement model and deliver a differentiated level of service to our massive collective market. Looking back on the year, I am pleased with the foundation we have created and the progress made on all three key objectives. The successful launch of XDR headlined our security objectives. Initially brought to market via our partnership with Adlumin our solution made a substantial splash in the industry and quickly became our fastest-growing SKU and largest pipeline generator in fiscal year 2024 as customers enthusiastically chose the offering to better defend their environments. The partnership validated our belief in the solutions and category and we were thrilled to acquire Adlumin and its cloud-native AI-powered XDR platform in the fourth quarter. We are also delighted to welcome over 175 talented Adlumin colleagues to our team. We believe the strategic acquisition creates multi-dimensional value for N-able. From a technology standpoint, adding Adlumin to our portfolio allows us to deliver comprehensive cyber resilience to our customers by unifying security, endpoint management and data protection in an integrated platform. This is powerful. IT operations and security operations are converging within the SMB and mid-market and IT management software must seamlessly connect with security software. Silos and gaps create risk and additional unnecessary work. N-able's end-to-end portfolio closes gaps and distinctively addresses technician needs for visibility and control across their IT estate, making them more effective and efficient. We believe this cohesive approach positions us to lead and win in the new world of interconnected operations. The acquisition also accelerates our expansion beyond the MSP market. Adlumin, primarily serviced the mid-market to the reseller channel, while N-able focused on MSPs as a road to the SMB. These reseller relationships took years for Adlumin to develop and are valuable assets we now own. We are excited to leverage these resellers to further the adoption of our security solutions, while also expanding the reach of our data protection and UEM products. Early results are promising. Since the acquisition in mid-November, Adlumin stands alongside Cove Data Protection, as one of our two highest booking products. We also deepened our data protection capabilities. Here, we are sticking to our proven Cove playbook, improve ease of use, expand our workload coverage, strengthen our security posture and lean into the power of superior architecture to deliver fast and reliable backup and recovery. The year was marked by significant innovation, highlighted by the introduction of immutable backups that keep customers' data isolated and safe from attackers and enhanced restore through AI, which delivers over 95% restore accuracy. The playbook is clearly working. Cove protects over 180,000 businesses, continues to outpace total company growth and is our largest revenue generating product. We also made significant strides in our second objective, accelerating innovation in the highly strategic UEM category, which includes our RMM products. Enhancements like new APIs and integrations expanded our open Ecoverse, while key innovations, including support for Microsoft Entra ID and improvements in Apple Device Management, equipped technicians to manage more assets with greater efficiency. We continue to break new ground and recently announced the launch of our AI-powered developer portal that accelerates API integrations for faster IT and security service delivery, reducing tasks from hours to seconds. We were recently recognized as a 2024 RMM champion by Canalys for the second year in a row and are committed to leading in the category and helping keep our customers' IT systems running smoothly and securely. And lastly, our world-class go-to-market teams delivered. In 2024, we transitioned the business from less than 10% of revenue from annual contracts to over 50%. We believe this will create stickier, stronger customer relationships, and drive improved gross and net retention over time. We also expanded our routes to market. With a significant portion of SMB and mid-market IT spending flowing through resellers in the broader channel, we invested in people and programs to enhance our ability to bring our solutions to market through these avenues. We believe these investments will expand our serviceable addressable market and unlock significant growth potential. Reflecting on our progress in 2024, we broadened our portfolio, enhanced our technical moats and expanded our routes to market. Building on this foundation in 2025, we aim to further evolve our highly effective business model with three key pillars: first, expand our security leadership in servicing our SMB and mid-market customers; second, scale our go-to-market and replicate our success in the MSP community with resellers in the broader channel; and third, elevate the customer experience with tailored support, service and connection. Let's first discuss security leadership. Security digital operations are imperative for modern business and the need for cyber resilience is particularly acute for small to mid-market organizations. The World Economic Forum's 2025 Global Cybersecurity Outlook highlights that 35% of small organizations felt their cyber resilience was insufficient five times the rate of larger organizations. Adlumin XDR and MDR, underpin our confidence in meeting this customer need. Adlumin is AI-powered, built in the cloud and winning. One key differentiator is our endpoint-agnostic capabilities. We can ingest data from across the spectrum of endpoint security providers, while driving superior security outcomes for our customers. We can also decouple XDR software from MDR services. One customer segment may want both, XDR and MDR, while other segments may want only XDR or MDR. We can meet the customers where they are and win, in every segment. We believe these attributes are competitive moats that will be difficult for the competition to replicate, and will serve to power our success in this category for years to come. With this in mind, our dedicated sales teams are full speed ahead, leveraging their expertise to put the powerful Adlumin solution, in front of our large customer base. And it's working. Our biggest cross-sell deal in the fourth quarter was an Adlumin deal for over $250,000 of ARR. The customer had service issues with their existing well-known MDR provider and our team delivered expertise, trust and service to win the deal. Security also permeates our UEM roadmap. Put simply, a well-managed IT asset is a safe IT asset. We are building on our deep strength in patch management and aiming to add vulnerability management, posture management and other features to support our customers in playing the best defense. Data protection rounds out our layered approach to cyber resilience. One key initiative is, developing anomaly detection technology to proactively flag indicators of compromise. The ability to not just recover from attacks, but help prevent them is the next frontier in data protection. And we intend for Cove to be at the forefront. We are also working to develop integrations with external Ticketing Systems, Security Platforms and Robotic Process Automation firms to improve incident response and automate tasks. Having a team committed to delivering big picture headline capabilities like anomaly detection, while solving seemingly small use cases like exposing improved ticketing is why technicians love Cove. And why we are excited about our roadmap. All these initiatives further Cove's reputation as a comprehensive solution for IT organizations. The takeaway is clear. Our customers' needs have evolved and N-able is investing to help them stay ahead of the curve. Our security and data protection categories represent our TAM's largest and fastest-growing sections, accounting for over 70% of our fourth quarter bookings. Protecting digital operations is the future of N-able. And we are investing accordingly. Turning to our second pillar, we are investing to scale our go-to-market and expand our presence with resellers and other channel providers. This unlocks, significant opportunity. Companies with internal IT teams, that may not need the support services offered by MSPs, often rely on trusted resellers and channel providers to guide their software purchasing. We want to ensure N-able's products are in those reseller conversations. Our powerful, multi-tenanted products coupled with our focus on partnership, have propelled us to a leadership position in the MSP community. And we are confident these factors will serve as a successful blueprint for channel expansion. In fiscal year 2025, we are specifically focused on leveraging the robust North American reseller channel, we acquired via the Adlumin acquisition and further expanding our mid-market channel presence. We will also look to add our data protection and UEM products to reseller channels in North America, and also plan to replicate this channel motion in attractive international markets such as the U.K., DACH and Australia. This considerably widens the strike zone, and we expect growth in the reseller portion of our business to outpace the growth of our MSP business in the coming years. Our final pillar is to elevate our customer experience. We have an extensive product suite that is purpose-built to meet the needs of our customers and an approximately $2.5 billion cross-sell opportunity within our base. As our customers grow increasingly diverse in size, product and geography, we are scaling our tailored strategy that delivers a higher touch approach for higher-value accounts. This ensures our resources align with the service needs and expectations of our broader customer base. Customer success is part of our DNA. And we believe this is a core differentiator for N-able. While many companies talk about servicing small and mid-market businesses, we've successfully done it for 20-plus years. With that, I will turn the call over to our CFO, Tim O'Brien, to discuss our financial results and outlook. And then I'll circle back for some closing remarks. Tim?

Thank you, John, and thank you all for joining us today. We made considerable progress across the business in 2024. Our product and go-to-market teams executed critical initiatives and we once again operated above the Rule of 40. We also executed the strategic acquisition of Adlumin. The addition of Adlumin expands the aperture of our business. The purchase brings N-able a new growth avenue in the high-demand security market established reseller and channel relationships and greatly enhances our product suite. With Adlumin in the fold and strong progress across our broader business, we are excited about the firepower we have to scale N-able to new heights. Let's review our 2024 results, discuss our 2025 outlook and key strategic and operational initiatives, as we move forward. Total revenue in the fourth quarter was $116.5 million, representing 7% year-over-year growth on a reported and constant currency basis. Subscription revenue was $115 million, representing approximately 8% year-over-year growth on a reported and constant currency basis. Other revenue which primarily represents maintenance revenue from our discontinued perpetual license model was $1.5 million. We ended the quarter with 2,349 customers contributing $50,000 or more of ARR, up approximately 7% year-over-year. Customers with over $50,000 of ARR now represents 57% of our total ARR, up from 56% a year ago. Dollar-based net revenue retention which is calculated on a trailing 12-month basis was approximately 103% on both a reported and constant currency basis. For the full year, we finished 2024 ahead of our outlook with total revenue of $466 million, representing year-over-year growth of 10% on both a reported and constant currency basis. Subscription revenue was $459 million growing approximately 11% year-over-year on both a reported and constant currency basis. Given the impact of ASC 606-related revenue recognition timing resulting from our long-term contract initiative, we will now begin providing annualized recurring revenue. ARR as of December 31, 2024 was $482 million, growing at 9% year-over-year on a reported basis and 10% on a constant currency basis, inclusive of the impact of the Adlumin acquisition. On a pro forma basis, our 2024 year-over-year constant currency ARR growth was approximately 7%. Turning to profit and margins. Note that unless otherwise stated all references to profit measures and expenses are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliations provided in today's press release. Fourth quarter adjusted EBITDA was $38.1 million, representing a 32.7% adjusted EBITDA margin. Full year 2024 adjusted EBITDA was $169.4 million, representing an adjusted EBITDA margin of 36.3%. Fourth quarter gross margin was 82.3% compared to 84.5% in the fourth quarter of 2023. Full year 2024 gross margin was 83.8% compared to 84.6% in 2023. Unlevered free cash flow was $98.7 million in 2024 and $29 million in the fourth quarter. CapEx was $23.7 million inclusive of $6.2 million of capitalized software development costs or 5.1% of revenue for the full year. CapEx was $8.1 million inclusive of $1 million of capitalized software development costs or 7% of revenue in the fourth quarter. Non-GAAP earnings per share was $0.10 in the fourth quarter based on 188 million weighted average diluted shares and $0.48 for the full year based on 188 million weighted average diluted shares. We ended the year with $85 million of cash and equivalents and had an outstanding loan principal balance of $339 million, representing net leverage of approximately 1.5x based on trailing 12-month EBITDA. Approximately 45% of our revenue was outside of North America in the quarter and 46% for the full year. Before turning to our 2025 outlook, I will give commentary on our results. Fourth quarter revenue and adjusted EBITDA were once again above our guidance. We continue to execute, see steady demand in our markets and maintain disciplined cost management. The fourth quarter also includes the impact of the Adlumin acquisition we closed on November 20. This brings us to our first quarter and full year 2025 guidance. I want to outline a few key assumptions. First, we anticipate FX rates will be slightly lower on average versus 2024 and are assuming FX rates of 1.04 for the euro and 1.25 for the pound for the remainder of 2025. As a reminder, in 2025, every point on the euro represents approximately $1.2 million of annual revenue impact, while every point on the pound represents approximately $400000. Second, our guidance incorporates the acquisition of Adlumin. At the time of acquisition in November of 2024, Adlumin represented approximately $21 million of ARR, growing healthily above market rates. We aim to continue this strong velocity in 2025 and we see three new growth opportunities by acquiring Adlumin. One, developing a new customer acquisition motion with XDR and MDR. We primarily use Adlumin as a cross-sell motion in the partnership model and see a substantial opportunity to land new customers including greenfield deals in the exciting security operations market. Two, bring our data protection and UEM products to the established Adlumin North American channel; and three, bring the Adlumin portfolio to enable strong international customer base. We also wanted to provide color on the impact of ASC 606 revenue recognition. Due to the timing of our long-term contract initiative, we anticipate transitory lumpiness in our revenue. We expect revenue recognition dynamics to drive an approximate 5% year-over-year revenue growth rate headwind in the first quarter of 2025 and a 4% year-over-year revenue growth rate headwind for the full year 2025. As stated previously, due to these mechanics, we are introducing ARR as a new top line velocity measure and we anticipate ARR dollar growth to build throughout the year as we integrate the Adlumin acquisition. Turning to the bottom line. We expect 2025 adjusted EBITDA margin to be below our target model, as we integrate Adlumin into the business, invest in a new development site in India and realize the impact of the timing of our long-term contract initiative. We expect Q1 margins to be a low point due to these factors, coupled with seasonality. We expect to return adjusted EBITDA margin to north of 30% in 2026. Now, I will provide our financial outlook for the first quarter and full year 2025. For the first quarter of 2025, we expect total revenue in the range of $115 million to $116 million, representing approximately 1% to 2% year-over-year growth or 3% to 4% on a constant currency basis. We expect first quarter adjusted EBITDA in the range of $27.5 million to $28.5 million, representing an approximately 24% to 25% margin. For the full year 2025, we expect total revenue of $486.5 million to $492.5 million, representing 4% to 6% year-over-year growth or 6% to 8% growth on a constant currency basis. We expect full year ARR in the range of $514 million to $522 million, representing 7% to 8% year-over-year growth or 7% to 9% on a constant currency basis. Our 2025 ARR guide represents pro forma constant currency growth acceleration. We expect full year adjusted EBITDA in the range of $132 million to $138 million, representing an approximately 27% to 28% margin. For the full year 2025, we expect CapEx which includes capitalized software development costs to be approximately 6% of revenue and adjusted EBITDA conversion to unlevered free cash flow to be approximately 65%. As a reminder, our debt is floating and currently fixed to SOFR. In 2025, we anticipate approximately $27 million in interest expense for the full year, which assumes an effective interest rate of approximately 7.5%. We expect total weighted average diluted shares outstanding of approximately 189 million to 190 million for the first quarter and approximately 191 million for the full year. Finally, we expect our non-GAAP tax rate to be approximately 25% to 29% in both the first quarter and the full year. We are entering 2025, with energy and confidence. As a proven leader in UEM, we've built a foundation of trust and excellence. Cove is a jewel in the high-growth cloud-first data protection market, while the addition of Adlumin's MDR and XDR, represent our next frontier, addressing the critical security needs of digital-first, SMBs and mid-market companies. Our go-to-market is scaling and our end markets remain strong, as we sit at the intersection of powerful, secular tailwinds in cybersecurity, data growth and digital transformation. The opportunity is clear and we are investing to seize this opportunity and scale N-able to new heights. Now, I will hand it back over to John for closing remarks. John?

Thanks, Tim. We had our 2025 leadership kickoff, a few weeks ago and I wanted to close today with the same message I shared with our N-able team. N-able is focused on growth. Our high conviction bet on XDR and MDR, gives us a powerful horse in the race for security dollars and enhances our end-to-end platform. By investing more in the channel, the N-able name will be injected in the conversation of billions of dollars of potential spending. These are growth opportunities. We are playing offense. I'm very excited about 2025 and the road ahead for N-able. Our guide calls for over $500 million of ARR and strong profit margins. We are executing at scale, with a durable business model and high ambition. Every day, we are pushing the envelope to give our customers the solutions they need to protect and drive the success of small mid-market companies across the globe and we are determined to deliver. We look forward to further discussing the opportunity for N-able at our Investor Day on March 13 and encourage you to join via live webcast. And with that, operator, we will turn it over for questions.

Yes. The initiative will continue. I would expect any – basically, all new business coming in is generally, 90% or so plus in committed contracts going forward. So, I would expect more of a natural blend up, over time. I wouldn't expect another significant uptick like we had in 2024, as we go forward. So I would say, generally, the mix will just kind of uptick in probably the mid- to high single-digit range annually for the next few years.

Terrific. Thank you very much, guys.

Thank you. Our next question is from Brian Essex from JPMorgan. Your line is now open. Please go ahead.

Hi. Good morning and thank you taking my questions. I guess, maybe John for you just to start would love to understand how conversations with Adlumin's reseller and partnership arrangements -- like reseller and mid-market partners are. How has engagement been on the partner side for Adlumin? And what needs to happen for you to be fully engaged both for Adlumin and like legacy N-able?

Good morning, Brian. Thanks for the question. So I've personally been involved in a handful of some of the bigger resellers. The interesting thing here right so they're -- both the MSP -- the managed service provider and these resellers they're both advisers to the small medium business and to the mid-market with different flavors, right? The managed service provider is actually a little bit more hands on driving some of the operations for these mid-market or small medium businesses. While the reseller is more of that like procurement guide and helping them survey the landscape. So when we're walking into the conversations these resellers are actually quite enthusiastic that the acquisition happened because one now we have -- it's the backing of a publicly traded company and all the rigor that's related to a public company. But also they now have a partner that can give them a one-stop shop Cove Data Protection, our UEM offerings and even EDR. And so they've now inherited a partner with a little bit more of an optionality in the portfolio which will allow us to scale. The Adlumin reseller channel was actually pretty much exclusively focused on North America. They built a fantastic channel. We're going to leverage that. So we're going to scale that in 2025. And as we mentioned in the prepared remarks we're going to bring that same recipe internationally with -- in the UK DACH in Australia, but obviously worldwide. So these are conversations that I think are -- have been very warmly received on the reseller side. And even on the MSP side they're very much leaning in and leveraging now the Adlumin XDR offering as well. So far so good.

Got it. That's super helpful. Maybe just a follow-up. There are a lot of XDR MDR options out there. Maybe help us understand like who does Adlumin typically see competitively? And what is that conversation like? Is it mostly kind of like they're -- they have some level of product differentiation on the mid-market SMB side that sets them apart? How should we think about their ability to penetrate that market?

Sure. So the number one ask from our managed service providers two years back was saying, hey we need help in understanding the threats. We need help in looking at all of the logs across the network. And there's a bunch of competitors out there but they're not scratching the itch. And we found Adlumin and as you know we first started doing the partnership via an OEM. Why we selected them is why we acquired them and why they're winning in the market, right? So first it's born in the cloud. It's current generation leveraging both AI and agentic AI technology so that people can do things -- or that the system can do things in an autonomous way. Why that's important Brian is because it helps the margins it's much more of a software type of play. But it also allows us to democratize the pricing to mid-market and small medium enterprises so that they can deploy this everywhere number one. Number two, it's endpoint-agnostic. So what does that mean? That means unlike some of the other players in the space some big, big companies like a CrowdStrike or these other folks they're more tied to their endpoint. Adlumin can ingest data from a collective of different endpoints whether it be Microsoft Defender or SentinelOne or Bitdefender or CrowdStrike it doesn't matter. And in particular for the MSP community that's important because we know they have a heterogeneous type of network. So the fact that they're endpoint-agnostic, so fact that it's built -- it's cloud-native and an AI allows it for automation. And then the third part it allows MSPs or mid-market to separate the software from the service. A lot of the competitors like the folks that you asked who we bump into whether it be an Arctic Wolf or some of these other shops they're providing more of like a black box service and providing an answer. What Adlumin does is it separates the software. So the technician at a mid-market or an MSP can actually see the software and see what's going on. And they can choose to use it as software only via an XDR deployment or a black box service and say "Hey yes, we just want the MDR or a hybrid, where our SOC analysts are helping their team." And that extra level of visibility is a game changer for these folks. They want the visibility. They just need some help. And so we're not a black box MDR service. It's very much an XDR platform a technology that has an MDR feature. And that's the reason why it's winning so well in both the mid-market and the MSP community.

That makes a lot of sense. Super helpful color. Thank you.

Thank you. Our next question is from Matt Hedberg from RBC. Your line is now open. Please go ahead.

Great. Thanks for taking my questions guys. I wanted to just maybe just a little clarification first. But -- so it sounds like at the midpoint of your 2025 revenue guide, you're calling for 7% constant currency growth. I just -- it sounded like if we normalize that for I think you said some revenue lumpiness that it looks more like 11%, would be more of like a -- that's an inorganic number. But is that kind of the right way to think about that?

That will be correct. Yeah. Matt. The kind of 606 impact on the revenue growth rate in 2025 for the full year is approximately 4%.

Okay. And then I guess as a related question, I know you're not guiding to ARR, but just conceptually should ARR -- and I think you said it should build throughout the year. But conceptually should -- would you expect ARR to exit at a double-digit growth rate or maybe even above revenue? Just trying to get a sense for just sort of optically how we should think about ARR growth in 2025.

Hey, Matt, we actually did guide exit ARR for 2025. On a constant currency basis, that was 7% to 9%. And on a pro forma basis in -- and pro forma base exiting 2024 was 7%. So we are expecting acceleration on the ARR line as we go through 2025.

Got it. Okay.

And just as a reminder 2024 has the full impact of Adlumin. And so the compares don't really have the inorganic impact.

Got it. Great. And then I mean I guess John, I guess thinking just -- and I assume this might be a part of your Analyst Day which we're looking forward to. If we sort of sit back, you've got a -- you outlined a number of drivers, Adlumin, Cove just expanding MSP relationships. What do you think the single biggest factor is getting you guys back? I think we still think you guys can grow mid-teens. What do you think the single biggest factor is to get kind of back to that level of growth that you guys were previously?

Yeah. As do we Matt, right? And so we will walk through this a little bit on Analyst Day. If you think about it from like the metadata or the structure of a business model and compare where we were a couple of years ago to where we are today, today, we have this XDR platform that's a brand-new NCA motion for us as well and a much bigger cross-sell opportunity. So that will create a pretty nice tailwind. And then the second bit, as we think about the SMB and the trillions of dollars of spend that's at the SMB, we've been really focusing only on the MSP route, which is just really a smaller subset of that market. And so now leaning in and leveraging the channel that Adlumin is having -- and by the way we started to invest organically prior to the Adlumin acquisition in this channel as well because we've been seeing the pull from this part of the market. So if you think about it from a business model point of view, those are the two brand new levers that we're bringing in. We actually set that foundation in 2024 and we're going to scale those two levers in 2025. So again, it's using security in the XDR platform as not just a cross-sell, but now an NCA platform, right? That's a big bit. And now the second lever is going direct to these resellers and channel partners. So from a model point of view, those are two significant levers. Again, we planted them in 2024, we're scaling them in 2025.

Got it. Thanks a lot.

Thank you. Our next question is from Keith Bachman from BMO. Your line is now open. Please go ahead.

Yeah. Thanks very much. I wanted to ask some similar questions. So on the revenues, you're guiding to 7% on the midpoint, but some of the 606 items gets you to 11%. But if you take out the Adlumin contribution, you're sort of mid to low-single-digit revenue growth. And I know we have to guess a little bit on Adlumin. And I'm just trying to understand, what are the variables? And I know just to say it again, on ARR, you're guiding to call it, 8% at the midpoint but that also has Adlumin in the ARR. And so, if we back out Adlumin from that growth rate and also call it mid to low-single-digits. So I'm just trying to understand, what is impacting organic growth here even if I normalize for 606 and M&A. You talked about on the slide that the market's grown at 14% you think -- or your TAM rather is growing 14% as we look out through the next couple of years. And I'm trying to bridge the delta on what's impacting growth in particular in 2025. And maybe if you can zero in on -- just give us some color on what the net retention rate or gross retention rates? I know it was down a little bit to the 85% I think this year. Maybe you could just flesh out a little bit how you're thinking about those two metrics gross and net retention as we just try to reconcile what the organic growth rate is coming what you're guiding the organic growth rate in 2025 is?

Yes. Maybe I'll start and I'll ask Tim to jump in. So a couple of things, and Tim touched on this on the last call as well. For the first half of the year, there's definitely some headwinds as we kind of -- we'll call it, growing over on some of those long-term commitment contracts, right? When we talk about GRR or NRR, it's on a trailing 12-month basis. That's going to impact both those KPIs but also our growth rate for the first half of the year. And then we would expect to see that accelerating more to the second half of the year number one. Number two we're super enthusiastic and very bullish about the Adlumin acquisition. That being said, it's a new acquisition. They've been with us for less than 90 days and there's definitely a level of prudence that we've baked in to how that -- the trajectory of that line of our model will go in through the back half of the year. So we expect to continue to perform. And as we do then we'll gain a little bit more confidence. But we wanted to provide a guide that you and both the sell side and the buy side have confidence in, and that really reflects more of the current acceleration. And as we gain momentum there then we'll take a different look. So there's definitely a level of prudence in the Adlumin number. So, just making sure that that's clear with you and the folks. Anything else to...

Yes. I think just to unpack of kind of normalized rates, Keith, I would say, it's more higher single-digits versus kind of the lower single-digits to mid-single digits that you referenced. If you look at the ARR guide, constant currency 7% to 9% that includes -- 2024 includes the Adlumin exit ARR as of 2025. So there's not a full inorganic impact in that number to reconcile out if that makes sense. So from a pro forma…

Yes, sorry. Please go ahead.

Yes, so we -- in the prepared remarks, we commented that 2024 pro forma ARR growth was approximately 7% exiting 2024. And that's relative to the guide of 7% to 9%. So the guide assumes acceleration from exit 2024 to exit 2025, all things equal.

Okay. Can you talk -- okay. Yes, I just assumed that Adlumin, if you -- well, there was acceleration through the year, so it would impact the ARR but let's leave that. But can you comment a little bit on just some directional barometers on how you're thinking about gross and net retention?

Yes, I would say, we're expecting both lines to improve as we go through 2025. From a trailing 12-month basis, I would expect it to bottom out in the first quarter. But from there on a trailing 12-month basis, I would expect it to improve from Q2 onwards.

Okay. All right. Thank you.

Thank you. Our next question is from Joe Vandrick from Scotiabank. Your line is open. Please go ahead.

Hi. Good morning and thanks for taking my questions. John, maybe for you, I know Cove is the largest recurring revenue product group. You've mentioned that in the last two quarters. So for customers that are leveraging Cove, for their backup solution, but maybe not using other enabled products, what's the playbook to target these customers and drive consolidation? And can you talk about if you've had any success there?

Hey, Joe, thanks for the question. Yeah. And look, Q4 was a very strong quarter, right? Our bookings were some of the booking -- the best bookings we've had in years actually. And a lot of that is off the strength of now having both Cove as an NCA, a new customer acquisition path and XDR as a new customer acquisition path. And so we're landing those customers with Cove. And now that really -- the playbook is now we can introduce the customers -- they're getting the experience of N-able, how we're more than just a software provider. We're helping them with their business. We're helping them with their positioning and the way that they package it back to their SMB or their mid-market customer. And we're now showing them the power of an integrated platform. So we're now being able to walk them through and say, "Hey, look, you have Cove. Look at our UEM offering, right, looking at N-central and understand that you can gain more efficiencies and a more secure environment, if you're integrating those bits." We're also looking at ways to integrate and provide a little bit more of a data share between Cove and our XDR platform, again, sharing those bits to give MSPs the complete view across their entire estate. So as we now have completed this picture with the -- our XDR offering, our data protection offering, and our UEM offering we believe, we're really the -- if not the only one of the best complete from management to monitoring, to data recovery and security platform that's there. That's going to make the MSPs in the mid-market customers more efficient and more effective at what they're doing. And that story is beginning to resonate. So we're now starting to see folks that started with Cove adding on UEM. We're starting to see folks that started with XDR, adding EDR. We're starting to see customers that began and been with us for years, leveraging N-central one of our UEM offerings and now going to Adlumin. Because they understand that complete picture, it makes them more efficient and more effective. So like I said, we planted the seed in 2024, and we're going to scale that and have more of that kind of cross-sell in 2025.

Got it. That makes sense. Okay. And then maybe one for Tim, how much is N-able exposed to the U.S. federal government, and that's either directly or indirectly through MSPs that service government agencies? And how should we be thinking about that end market in 2025?

We don't have direct visibility into the end customer of the MSPs. But anecdotally, we're very diversified from the end markets that they serve. And I wouldn't expect our business to be impacted in any different way from just, compared to -- just the general mix from that perspective. So I wouldn't expect too much impact from anything there at this point. We haven't heard anything anecdotal from our customers.

Yeah. And Joe, remember, so nearly half of our revenue is outside of the U.S. as well. So we have a diverse revenue base just from a geography which is part of our strength. And then as Tim mentioned, it's a very, very diverse customer base and the industry that the MSPs are servicing.

Yes. Thank you, guys.

Thank you. We currently have no further questions, so I'll hand back to John, for closing remarks.

Great. Thank you, all for your time and your questions today. Looking forward to talking with you all, at Analyst Day, here in another 10 days or so.