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Hello, everyone. Welcome to today's N-able Second Quarter 2025 Earnings Call. My name is Seth, and I'll be the operator for your call today. [Operator Instructions] I will now hand the floor to Griffin Gyr to begin.

Thank you, operator, and welcome, everyone, to N-able's Second Quarter 2025 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.n-able.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. 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, Tim. Amidst the threat landscape growing more complex by the day, we are delivering the security outcomes that small- and mid-market businesses depend on. Our cyber resilience platform is built to win, and our model is proving it, balancing durable growth with strong profitability. We remain confident in our ability to execute and create long-term value. And with that, operator, we will open it up for questions.

[Operator Instructions] The first question is from Mike Cikos from Needham.

This is Matt Calitri on for Mike Cikos over at Needham. Can you provide some more color on the go-to-market traction you're seeing with resellers? And what has been top of mind for Vikram in his first couple of weeks in the CMO seat?

Yes. Great questions, and good morning to everyone. So look, our go-to-market teams are finding a nice rhythm. It's -- with the XDR platform now, the bigger -- one of the bigger business model transformations is now we have 3 pillars to go to market with. And so I think that's accelerating the strike zone. And it's accelerating the strike zone or widening the strike zone, both in our markets that we're direct, but also in the resellers. And so now we have an opportunity when we're talking to a mid-market company, a CIO and a mid- market company or an owner of an MSP business there's 3 pillars that we can talk to them about. And that's actually showing a nice bit, both on the NCA motion, our new customer acquisition motion, but also on the cross-sell. So we're seeing nice bookings. We saw it last quarter. We continue to see it so far in Q3. And then so we gave you an anecdote on one of the resellers, and I'll share with you another. We're now having conversations and we're now having joint sessions in markets like Germany where we're having dozens of CIOs in Germany attend and listen to our Cove data protection story, our XDR story, and we're leaving those meetings with real opportunities from the personas that are going to make the decisions. And so it's a brand-new lever or a brand-new avenue for revenue for us. So we're pretty excited about it. I think we referenced a quarter-over-quarter doubling of the pipeline. Reminder, we're on average, a $20,000 ASP business. So it's good. We're building it with 6 figures, we're building it into it, but -- and a little bit over time as we extend both from a market point of view, i.e., more countries, more markets and then just from a reseller point of view, adding more active resellers we believe it will have a nice virality kind of coefficient here and really start to drive a significant part of the business. It will take a couple of quarters, but we're seeing it already, and we're pretty excited about that, especially now where we have the 3 areas that we can talk to resellers and MSPs about. On the Vikram front, Vikram is at Black Hat today, which is a good indicator as to where his focus is. He's a cybersecurity expert. And he's really excited because he's able to tell a complete cyber resilience story. And so educating the mid-market about who N- able is, we're well known in the MSP market. We're considered a leader in the MSP market, lesser known in the mid-market. And he's out at Black Hat right now, really promoting that story. We see others in the data protection space partnering with cybersecurity companies. Here at N-able, it's all of our tech, right? So XDR and data protection, we have the complete cyber resilience platform story for the mid-market, and it's all under one house. That gives us an advantage that makes them more efficient, that makes them more secure, and he's out there really promoting that story and making sure that the mid-market understands where we play, why we have 3 best-in- class pillars to go into the mid-market. So he's really focusing on building that cyber resilience brand, and he's out there right now at Black Hat doing so.

That's all great to hear. And can you remind us where we're at with the optimization and the ASC 606 headwinds associated with moving to annual contracts? Are we getting close to seeing a baseline growth emerge here? And as customers are coming up for renewals, are they happy to sign another upfront commitment?

Yes. I would say if you look at our kind of full year ARR outlook, I would say that, that quals any of the 606 or optimization noise that we went through in 2024. So I think that's probably the best marker to look at kind of, I'll call it, the best velocity metric for the business would be kind of exit 2025 ARR. That quals any 606 optimization or any inorganic impact noise from the Adlumin acquisition as well. And then sorry, remind me the second part of the question?

Renewals.

Renewals, yes. So yes, customers are renewing at a very healthy clip, I would say, coming through kind of the first slug of renewals in the first half of the year here in 2025 with the commitments that we put in place last year in 2024. So very willing to recommit and renewing at a clip around 90% or so.

The next question is from Matthew Hedberg at RBC Capital Markets.

This is Mike Richards on for Matt. Strong results across the board and ARR accelerated on a constant currency basis. Maybe I was just looking for more detail on the ARR guidance. Was there anything pulled in this quarter that made results look strong? Or are we just kind of looking at a conservative back half? Like is there anything you guys are seeing in the back half that would kind of leave the constant currency guide untouched? And then I have a follow-up.

Yes, I can help unpack it. I would say there's definitely some FX dynamics at play with Q2 and the full year. If you neutralize any of the FX impact for -- between the full year outlook and Q2, the second half is -- from a growth standpoint on ARR is slightly above where it was in the first half of the year. So I know it looks a little bit wonky just due to some of the FX dynamics. But if you neutralize some of that FX impact, second half implies more growth in the first half of the year in our constant currency outlook.

Got you. And then at Investor Day, we talked about new pricing and packaging bundles coming in the second half. I was just wondering if you guys could give an update there and how you guys are looking at that, driving more cross-sell across the 3 pillars?

Sure. Yes. The market, our customer base continues to tell us that as they look through, they have tech stack fatigue, right? And especially some of the smaller shops navigating a vendor sprawl where they might have 16 or 17 different vendors is suboptimal. And so where we can bundle that up with, one, a best-in- kind of class type of solution and then help them with their vendor sprawl. And inevitably, when you parse it apart, it's better economics for them as well. So the bundling continues to resonate. I'd categorize it still an experimental phase, right, where we're experimenting. We're getting good traction, and we continue to lean in a little bit more as we go through the back half of this year and continue into 2026. So all positive from that front.

So the next question is from Joe Vandrick at Scotiabank.

John, I think you mentioned half of the MSPs aren't offering MDR. Is that true for your customer base? And how are you educating your MSP customers on the opportunity?

Directionally, we're finding it true for our customer base as well, yes. So -- but you bring up a good point. Part of our heritage here is that we do a good job of evangelizing and educating both the mid-market and the managed service providers as to what they need for their customers to make sure that they're protecting their businesses every day. But the key part of that is doing it efficiently. And so what we're preaching is to augment, right? A lot of it -- some of the MSPs, maybe some of the bigger shops, they've tried to potentially build a SOC themselves. And most have found it to be an upside down business proposition. And so by leveraging our XDR technology, we're doing a lot of the -- our technology is doing a lot of the heavy lifting for these MSPs. We're providing that line of monitoring and defense and then they can focus on some more of the strategic initiatives. So the guidance to MSPs out there is, hey, augment, leverage a technology provider that can handle the threats and the detection for you and go back to what you're good at and advising your customers. And so then there's a whole spectrum, right? In the XDR/MDR space, there's a bunch of players that have been around for quite a bit that are not necessarily built in the modern -- with modern cloud architecture, leveraging AI. We're very proud of the level of automation and artificial intelligence that we have in our SOC and the way that we're detecting, but also responding and giving customers the guidance that they need. What used to take hours to get back to a customer is now taking minutes. And as we know, when we're dealing with threat actors, time is essential, right? And so we're finding that the MSPs are really resonating with the offering, one because of the AI that's infused, but also because we give them the ability to have eyes on glass. And our solution, which is different than other folks, other folks, they look at MDR/XDR is like a black box service. They can't see what's going on inside. Ours is software and software first. So the MSPs can look at the same things that our security experts are looking at, giving them the comfort and confidence that they need. And so the story is resonating. The tech is differentiated, and we continue to evangelize, and we're seeing more and more opportunity. It's by far one of our faster-growing SKUs from a pipeline and bookings perspective.

Our next question is from Jason Ader from William Blair.

I just wanted to ask just about the overall health of the SMB IT market. What trends are you seeing to kind of give you a sense of just that macro element? Do you feel like things are stable? Are they getting any better or worse? That would be my first question.

Sure. Jason, it's John. So look, I think the trends that we've been referring to the last couple of quarters continue to be those same solid trends in that data protection and security are top of mind. It's a big part of the MSPs growth algorithm, and it's very much top of mind for CIOs and CISOs of mid-market businesses. And so -- and then you couple that with a boost in productivity that mid-market companies and MSPs are getting and leveraging another wave of technology in AI and IT spend appears to be, I'd say, pretty healthy in our base and what we're seeing based on our pipeline, talking to CIOs and talking to MSPs. MSPs are continuing to grow. They're continuing to add more services. The need for not just IT operations automation, but also security and security operations continues to be strong. So from our lens, it seems -- the demand seems to be as healthy as before. And frankly, as I mentioned before, our go-to- market teams are building a healthier pipeline than they have been in the past couple of quarters. So we're optimistic about the demand there.

Any commentary on the device side, the RMM side?

Yes. I'd say it's been consistent, like so -- the physical devices -- so by the way, we manage and secure and recover a bunch of things, right? So on the device side, I'd say it's consistent. It's relatively what it's been in the last couple of quarters, I'd say, more flattish. But we are seeing a nice uptick in a lot of the other digital assets, M365 users, users in general, virtual machines, right? These are all assets that we manage that there's data on that we're making sure that people are protected and recovering. So in the VM world and in M365 and SaaS world, more growth there. And in the physical devices, that's more of a flattish type of trend.

[Operator Instructions] We have no further questions on the call at this time. So I'll hand back to management for any closing remarks.

Thank you all for joining us today and your continued interest in N-able. Enjoy the balance of your summer.