Hello and welcome to today’s N-able’s First Quarter 2022 Earnings Call. My name is Bailey and I will be your moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.

[Operator Instructions] I would now like to pass the conference over to Jeffrey Magoma [ph] with N-able. Jeffrey, please go ahead..

Thank you, Bailey, and welcome everyone to N-able’s first quarter 2022 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, our continued expectations following the spin-off of our business from SolarWinds in July 2021, 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 related to the spin-off transaction completed last year.

Additional information concerning the 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 the 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..

Thanks, Jeff and thank you all for joining us today. We are pleased with both our execution and financial performance in Q1. Our revenue growth was 12% on a constant currency basis that exceeded the high end of our outlook, leveraging the strength of our data protection as a service and security offerings.

Operationally, we are on track with the initiatives we outlined last summer and preparation for our spin-off. Our investment in partners success is resulting in better retention figures, more cross sell opportunities, and a better customer experience.

Our increased investments in product has allowed us to re-establish our cadence bringing additional offerings to our MSPs and is delivering a disruptive data protection offering that is winning in the marketplace. And our investments in additional sales motions and channel expansion is unlocking opportunities in new geographies and areas.

As I mentioned on the last call, this year, we are rallying behind the phrase, earn more N-able fans. And so far in 2022 it has really galvanized our strategy and accelerated our momentum. As you know, we call our MSP customers, our partners because our relationship goes deeper than a mere transaction or sale.

Our partners look to N-able to provide them with a world class technology that allows them to efficiently and securely scale their business and support the IT needs of the customers they need.

Despite all the noise in the market, we remain focused on a different kind of disruption, placing powerful and disruptive technology and business tools in the hands of our partners, enabling them to achieve their growth goals and increase their value to their customer base. Because when they grow, we grow.

We know that in order for us to earn more fans, we need to execute on our mission to empower MSP partners to solve their most pressing problems and keep them secure and ahead of their competition. We have made a long-term commitment to our partners’ success and continuously improve on all fronts. We’ve talked about our industry tailwinds.

The digital evolution continues to accelerate and pose both opportunity and challenges to SMEs. The levels of IT complexity, labor scarcity, and rising cyber threats are increasing in a way that underscores the importance of IT service providers. This aligns with our strategy and our business model. First, IT complexity is rapidly increasing.

What this means for MSPs is that their customers will continue to ask them to manage widespread digital assets with increasing IT demands so they will need to automate and secure new processes and workflows to ensure their SMEs, their customers remain productive.

N-able’s commitment to allow MSPs to manage everything means that our partners are able to meet this move toward a hybrid work and manage the additional complexity of diverse device types, cloud computing environments and SaaS applications.

Second, labor scarcity, specifically for tech talent affects everyone from SMEs and larger enterprises who are relying on outsourcing to fill in talent, to SMPs themselves who need to do more with less labor. Our technology is designed and built to allow technicians to automate and MSPs and the businesses they support to scale.

And third, cybersecurity threats are on the rise and make the work our MSPs do, not just more important, but in fact mission critical to business continuity for hundreds of thousands of businesses around the world.

In our current geopolitical situation, both state and non-state actors pose a heightened threat to businesses in Europe and around the world.

And MSPs are looking to us to provide them with enterprise grade security solutions with the ease of use that SMEs require, to help them stay ahead of the security curve, and provide this core risk management function. A lot of our activity on the product front directly addresses these industry tailwinds.

I mentioned briefly on our last call that we had launched N-able DNS filtering in February, as a new security offering to our partners.

This is a cloud-based, AI driven content filtering and threat protection service that is designed to let MSPs better monitor, manage and proactively protect and secure their customers network, regardless of location or connection. This is ideal for hybrid work environments.

We have seen a strong pickup since launch, and we expect continued acceleration into the second quarter. We have for a long time been on the cutting edge of data protection with one of the first two offerings of cloud-first data protection as a service for MSPs. Last week, we announced the launch of Cove Data Protection.

We believe that Cove is disruptive to the market for its fundamentally different architecture that enables MSPs to modernize their approach to data protection, and allow seamless backup, archive and recovery of data, eliminating up to 90% of labor time and moving roughly 60 times less data, simplifying operations of this transformative solution.

Leading into this launch, we celebrated a few milestones that validate the power Cove Data Protection brings to the market.

We received the Backup and Disaster Recovery award from Cloud Computing magazine, which recognizes excellence in the advancement of cloud computing technologies, celebrating our cloud-first, data protection and quick and reliable recovery from events such as ransomware attacks.

We announced in February, since launching our backup solution for Microsoft 365 domains in December of 2019, we are protecting more than 4000 N-able partners across more than 25,000 customer domains, and over 900,000 Exchange mailboxes.

Since that announcement, we are now protecting over 33,000 M365 domains as of the end of April, and that number continues to grow. We believe traditional local first image backup does not suit the needs of our modern IT environments, and certainly misses the mark for MSPs. Our solution was built from the ground up to be cloud-first.

Unlike other solutions that claim to be in the cloud, but are simply legacy architectures with bolted-on secondary cloud features that add complexity.

Cove Data Protection provides appliance-free, direct-to-cloud capability with advanced Disaster Recovery Benefits and designed in cost efficiency, scalability and reliability that MSPs and their customers require. I’ll illustrate this with a feature that is currently in customer preview and slated for general availability in early Q3.

It’s called Standby Image and it’s an elegant toolset that allows MSPs to have backups sent to the cloud while they maintain a standby image at the location of their choice, allowing for fast and flexible disaster recovery without the need to purchase proprietary appliances.

Architecturally, Cove addresses the primary need for modern data management systems. Our partners are telling us for example, that with Cove they’re able to go from 40 hours spent per month on backup down to four hours, from three full time support technicians down to around a half of a full time equivalent, and from 95 tickets per day down to nine.

That is a massive impact for services-oriented organizations and allows them to focus on more strategic value add work. Data protection has long been a growth driver for N-able, and we believe the launch of Cove will accelerate its importance to our business.

A recent report from William Blair estimated the TAM for data management at $37 billion in 2024, highlighting the market potential.

And though we are not yet known or well known in the backup and disaster recovery space, we have seen time and time again, that when our partners or new prospects switch from a competitive solution to N-able they consistently come back with very positive feedback on our data protection capabilities.

As we put effort behind establishing our brand and data protection, we expect to see even greater growth.

Also, we just announced that our N-able Mail Assure email security solution has been awarded first place in the latest VBSpam comparative review, receiving the highest score both in this latest testing in March of 2022 and in September of last year.

The tests were conducted by Virus Bulletin, an industry renowned test laboratory and an important reference for specialists and businesses concerned with computer security. We received the highest VBSpam plus rating with a malware catch rates of 99.96% and zero false positives.

In addition, we are conducting an external preview of an additional feature called Mail Assure Private Portal, which secures emails beyond managed devices to the recipient with audited access and encryption. This is a high demand feature for our MSP partners and the feedback we are getting so far has been very positive.

Finally, we are in the midst of a soft launch of our new professional services offering which is designed to help MSPs better deal with one of the industry dynamics I mentioned earlier, specifically, labor scarcity issues.

Known as N-able Enhanced Services, we have structured this offering to help our partners rapidly unlock the potential of N-able products, optimize their teams and technician efficiency, and accelerate time to value by delivering solutions to their customers faster.

The guidance and training we provide is instrumental in helping MSPs grow their business and improve efficiency in everything from migrations to onboarding to ongoing support.

Above the base-level services we’ve always provided, we are introducing a fee based premium level for partners who require more of a differentiated support experience for their business needs.

This is a direct response to partner feedback, and the culmination of the significant investment we’ve made in service delivery that goes to the heart of what N-able’s partners value about us. And we believe this will open the door to even larger scale opportunities.

Now, as I did on our last earnings call, I want to continue the practice of sharing some notable wins. First, we won a large six figure N-central deal with a multinational medical research and testing company based in Europe.

They were looking for a single pane of glass to manage their global assets and the ability to automate maintenance tasks over and above standard patching requirements.

Though they initially contacted us based on our remote management reputation, they were sold on N-central’s advanced security and full visibility to their highly dispersed and specialized global infrastructure. Second, we sold in a near six figure deal for our Cove Data Protection solution to a large MSP that is primarily a Mac Shop.

Not only was this a great win to replace a competitor, the partner was convinced by our superior value and technology and service, which allows them to reduce and refocus their technician time. They also liked that Cove provided them with a significant advantage in terms of the profitability and scalability of their business..

Second, one of our smaller RMM partners in the UK was acquired by a larger MSP who was using a mixture of homegrown and competitive tools. They were considering how to scale themselves to the integration and the growth they have planned.

We demonstrated that N-central was the right tool for them to expand their service offerings ss they consolidated their business. But just as importantly, compared to the competitors they were actively assessing, we were the right long-term attentive partner that would focus on their technology and their business above all.

The results, was a near 20,000 ARR expansion deal, initially managing more than 20,000 endpoints.

Third, in a mid 100k ARR expansion deal, a California based N-central and Security partner was exploring replacing their backup solution looking to reduce complexity, improve their reliability and efficiency and optimize the time and people resources it was taking to offer backup services to their customer.

Our solution drastically reduced the time they spent on backup, provided them with on-demand support to augment their team and gave them the scalability to grow their business. In the first half of 2021, we reorganized and changed the way we engage with our customers by providing dedicated partner success reps.

We put the focus on what our customers need, not what on what we are trying to sell. And by changing the lens and experience, we are exposing sizable opportunities alongside our partners. Since our change, we have seen the opportunities created by our partner success teams and have had the highest close rate of any opportunity we have created.

As we continue to invest in the expansion of our channel teams, and a new market, our overall sales output continues to improve sequentially, continuing the trend and saw throughout 2021. We generated a quarter-over-quarter increase in our total sales pipeline with March, our biggest month for pipeline creation in the last two years.

Looking ahead, we will be executing in the near-term on Cove, Enhanced Services and other product launches we are working on and working on articulating our value proposition to ensure our potential and current partners are aware and taking full advantage of our holistic solutions.

Before I turn the call over to Tim, I want to discuss N-able’s business in Ukraine, Russia and Belarus. We have a de minimis amount of revenue in those regions. And aside from the impact that is having on the global economy, our operations, financial results and business have not been materially impacted by the situation there.

We operate much of our development activities outside of the U.S. throughout Canada and Europe, including operations in Belarus. If needed, we believe we have adequate resources in non-impacted regions to support our products and are taking actions to mitigate any potential impact as we deem appropriate.

Now, I will turn the call over to Jim to discuss our financial results and outlook, before I jump back on with some closing thoughts..

Thank you, John and thanks to all of you for joining us on the call today. I want to review our first quarter financial results, then discuss our financial outlook for the remainder of 2022.

As John mentioned, we finished the first quarter ahead of our outlook, with total revenue of $90.9 million representing 9% year-over-year growth, or 12% on a constant currency basis. Note that if FX rates had held at the rates used when we gave our guidance, revenue for the quarter would have been approximately $250,000 higher.

Subscription revenue was $88.6 million representing approximately 10% year-over-year growth or 13% on a constant currency basis. Other revenue, which primarily represents maintenance revenue from our discontinued legacy license model was $2.2 million, down 12% year-over-year consistent with prior quarters.

We ended the quarter with 1733 partners with greater than $50,000 of ARR, a 15% year-over-year increase. Partners with over $50,000 of ARR represent 48% of total ARR, up from 43% a year ago. We saw strength across our portfolio with our EDR in Microsoft 365 backup solutions continuing to outpace total company revenue growth.

Dollar based net revenue retention which is calculated on a trailing 12-month basis was 108%. The decrease relative to last quarter is exclusively due to changes in FX rates. 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.

Also note that historical financials for the period prior to the effective spin-off date of July 19, 2021 included operating expenses that were prepared using carve-out allocation methodology while we were still a part of SolarWinds.

While the allocation and estimates in these carve-out financials are based on assumptions that we believe are reasonable, our standalone financials are not necessarily directly comparable to those prepared prior to the effective spin-off date. First quarter gross margin was 85.7% compared to 86.6% in the first quarter of 2021.

First quarter adjusted EBITDA was $27 million, representing approximately 30% EBITDA margin. Unlevered free cash flow was $13.5 million in the first quarter. Q1 CapEx was $3.8 million dollars or 4.2% of revenue. Non-GAAP earnings per share were $0.9 in the quarter based on $180 million weighted average diluted shares.

We ended the quarter with approximately $70.4 million of cash and an outstanding loan principal balance of $348.3 million representing net leverage of approximately 2.5 times. Now I will provide our financial outlook for the second quarter and full year.

There have been material changes to the foreign exchange environment since our last outlook and we are updating our guidance to reflect the impacts of these changes. Taking aside changes in foreign exchange rates on a constant currency basis our full year outlook remains consistent with our prior guidance.

I want to start by reconciling our prior 2022 outlook based on current FX rates. As stated in our previous call, we assumed FX rates for the euro and pound of 1.13 and 1.35 respectively.

We also stated that every point on the euro equated to approximately $900,000 of annual revenue, and every point on the pound equated to approximately $300,000 of annual revenue.

Accounting for updated FX rates of 1.05 on the euro and 1.23 on the pound, as well as other currencies are prior 2022 revenue guidance of $384 million to $388 million translates to $375 million to $379 million, approximately $9 million of impact for Q2 through Q4.

As it relates to our prior 2022 adjusted EBITDA outlook of $118 million to $122 million, using these updated FX rates our adjusted EBITDA outlook translates to $112 million to $116 million, approximately $6 million dollars of impact for Q2 through Q4.

While the global macro environment remains fluid and FX rates may continue to fluctuate, based on our current FX assumptions, we expect second quarter 2022 total revenue in the range of $91 million to $91.5 million dollars representing approximately 7% year-over-year growth, or approximately 13% on a constant currency basis up from 12% in Q1.

For the full year 2022, we expect total revenue of $376 million to $379 million, representing approximately 9% year-over-year growth on a reported basis or 13% to 14% growth on a constant currency basis, in line with our constant currency guidance on our previous call.

We expect second quarter adjusted EBITDA in the range of $26 million to $26.5 million, representing approximately 29% margin at the midpoint. For the full year, we expect adjusted EBITDA in the range of $112.5 million to $115.5 million, equating to approximately 30% margin at the midpoint.

We reiterate that CapEx will be approximately 4% to 5% of total revenue. We also expect adjusted EBITDA conversion to unlevered free cash flow to be approximately 70% for the full year. We expect total weighted average diluted shares outstanding of approximately 181 million for the second quarter and approximately 182 million for the full year.

Finally, we expect our non-GAAP tax rate to be approximately 24% in the second quarter and 26% for the full year. Now, I will turn it over to John for closing remarks..

Thanks Tim. As Tim pointed out, despite the fact that we had to update our outlook to account for adverse changes in foreign exchange rates, operationally we are very much on track for our plan this year. We are starting to see the revenue acceleration we are projecting in the second half of the year.

As you can see, we are executing well in our key investment areas, backed by a strategy rooted in a deep understanding of our market, and a leadership team that is committed to our growth and our partners’ success.

We see a great deal of opportunity in the current market environment, and this is creating a lot of energy and excitement up and down the company. Earlier, I mentioned that a major part of earning more fans is geared toward our partners, and other external parties.

But the real impetus and inspiration derives from my fellow N-ableights, who are the key to our success. I’m proud to say our teams are getting recognized for their exceptional work. We recently won two awards from Comparably for Best Global Culture and Best Company Outlook.

We also just announced that we were honoured with four American business awards, also called the Stevies.

A Gold award for IT Department of the Year for the spin-off, a Silver award for Human Resources Executive of the Year for our CHRO Kathleen Pai, a Silver award for Customer Service Department of the Year, recognizing our partner success management team, and a bronze award for achievement in product innovation for Cove Data Protection.

This external recognition underscores and validates our efforts to build a company that earns fans amongst our partners and their customers, our employees, and all of our stakeholders around the world.

2021 was a foundational year for us with the rebrand, spin-off and focus on hardening security into all layers of our operations, product development lifecycle, and culture. In 2022, we are in full value creation mode for our partners and N-able.

The work we are doing now will determine the trajectory for N-able moving forward, and as you can see, we are off to a great start. Operator, we are now ready to open the line for questions..

Thank you. [Operator Instructions] The first question today comes from Matt Hedberg of RBC Capital Markets. Matt, please go ahead, your line is now open..

Oh, sure. Thanks guys, good morning. John, thanks for the comments. I’m curious, you had good results here and you’re guiding to effectively no change and -- well, no change and constant currency growth rates for the year. You’ve got a broad exposure to kind of global SME trends.

Can you talk about sort of the resiliency of those end markets, if the economic condition globally were to change and deteriorate? So just sort of maybe speak to the mission critical nature of your solutions and how perhaps they might do if there is a bit more of a challenged economic times ahead?.

John Pagliuca:.

And so we’re really seeing no real degradation in demand for the MSPs security offerings, our data protection offerings, monitoring needs continue to be high throughout. So we’re not really seeing a degradation, neither from the SME or from the MSP and I think it speaks to the importance of the MSP community.

The other thing when we when we think about demand, the MSP is really a labor arbitrage as well, Matt, right? And so, as SMEs look for better ways to scale, our solutions help MSPs scale their business, be more efficient, and drive their profitability up and also in doing so, SMEs can also mitigate some of the costs that they might have with internal resources by leveraging the MSP.

So, the supply chain if you will, I’d say is actually a pretty good labor arbitrage for the greater SME needs that are out there for IT..

Now, that makes a ton of sense, and you guys have a long history here, serving these end markets. Maybe the second question, one of, sort of your peers, that served MSPs is in the process of being acquired. I guess I’m curious.

What does that mean from your perspective from -- maybe from a consolidation standpoint? I mean, do you think it really speaks to the opportunity to further consolidate MSP spend from your perspective? And may be just also maybe just sort of the sheer magnitude of this market, just curious on your perspective there?.

John Pagliuca:.

That’s why we continue to aspire to be a Rule of 50 company with that blend of growth, but also profit. And the way we gain that profit, Matt, as you know, is by leveraging the MSPs. We have 25,000 MSPs. Those are effectively our sales force as they go out and provide services to the SME.

So the transaction for me is just somewhat of a nod that there’s a power in this model. I look at this as others have described as the golden era for MSPs and I think that pending transaction is more of a nod to the fact that we are in a growth market..

we get to be:.

Great, great perspective. Thanks, John. Thanks, thanks, Tim..

Thank you, Matt. The next question today comes from Mike Cikos from Needham. Mike, please go ahead. Your line is now open..

Yes, good morning. Thanks for getting me on the call today guys. I did want to circle up I think in John’s opening remarks actually, you cited better retention figures.

Is there any way you can provide more color on how those retention figures are trending? And then the derivative question that I had for you is the gross margin has actually stepped down slightly, if I look on a quarter-to-quarter or year-to-year basis, I imagine that part of that gross margin erosion is based on increasing expenses related to cloud hosting offerings, but wanted to know if that is the case or maybe there’s also a combination where you guys are hiring out a more robust customer success team, which in turn would be benefiting those retention figures that John previously cited?.

Hey, Mike, Tim here. I’ll take that one. On the retention figures looking at it on a constant currency basis that’s more what John’s comments were related to, both gross and net retention improved in Q1 compared to Q4.

And I think you hit on it, but the investment and partner success is starting to show the return that we expected on both the growth end and the net retention; one, retaining customers at a higher rate; and two, driving on the opportunities that we’re creating from that motion and the closure you were having there that’s having an impact on the expand side of the equation, as well.

And then turning to your question on gross margin and how that’s come down a little bit, it’s, I would say it’s a few things. One is, it’s been some investments in the products to improve performance as well as functionality for our partners.

Two is, just a little bit of product mix, in terms of some of the different margin profiles we have across the business and then third is I think there’s a couple of one-time items that are impacting the quarter in Q1, but I would expect kind of things to steady out in that 86% range over the course of the year..

Terrific, terrific, thanks. And then I know John had also discussed, I guess, the geopolitical with respect to Europe and Russia, Ukraine, potential exposure to Belarus as well.

Could you give us maybe some finer parameters around what you guys are seeing in Europe today? Potentially how much of your business from an operation standpoint is in Belarus? I’d just be interested in hearing anything you have to say on that..

Sure, just to reiterate what we said in the prepared remarks, right? So the revenue that we have in the Ukraine, in Russia, in Belarus in the last quarter was de minimis, right? So it’s really an immaterial amount, so no real revenue.

The business does have an R&D Center in Belarus and a couple of support folks as well, but we believe we’ve -- and you know the situation in Belarus, while the Ukraine war is a relatively new one, the situation in Belarus has been somewhat ongoing for a good amount of time.

And we have resources in other geos and we believe we are in a spot that we can support all of our products if any situation were to change our [indiscernible]..

Makes a ton of sense. Thank you very much, guys. I appreciate it..

Thanks, Mike..

Thank you, Mike. The next question today comes from Keith Bachman from BMO. Keith, please go ahead. Your line is now open..

Yes, thank you. I wanted to come back to the macro question and try to frame it with some data if I could. If I look at -- and truly trying to understand what the potential impact to your business might be, if I look back to your numbers during the course of 2020, there’s a lot of moving parts there.

You had pretty meaningful slowdown from the March quarter, the June quarter, but solar wind and whatnot, there was quite a bit going on.

So I was actually going to try to frame it using data as information, so data called out during the brief impact from the COVID economy, so to speak, business slowed pretty meaningfully strong, call it 18% in the beginning, the March quarter and even the December quarter of 2019, but business slowed pretty meaningfully throughout the June, September, December quarters.

And while I agree that your technology is certainly important to run a business, a lot of SMBs are negatively impacted by recessionary periods, much more so than larger enterprises and either don’t continue as a growing business or need to cut back.

And so to a previous question, you talked about resiliency that I agree is important, but why do you think your business might be different than say what data experienced during an economic recession and why do you think you wouldn’t be impacted if in fact, there were a session a quarter either late this year or in the next year who knows.

Because the underlying fundamentals of the SMBs may, in fact, require less spending or again concern about ongoing ability to keep doing business, means you could just speak a little bit about, in particular during a recessionary period, how you might be impacted and/or why you might be different from what in fact happened to data during the COVID economy?.

Good morning, Keith. This is John and great question. So let’s go back to that. So, we’ve also experienced, let’s separate a couple of the, what we kind of call meteors that were around the business. So Q2 2020, we refer to that as our COVID quarter as well, so very similar to data.

What did we see and what did MSPs see? We actually saw an increase in demand for our security offerings and our data protection offerings, what we actually saw was a decrease in new customer acquisition and we also saw a decrease in our MSPs adding new small-medium enterprises.

So what happened? The -- our MSPs were thrust to the forefront, they were effectively the frontline, helping small-medium enterprise navigate through that COVID crisis, right? And so, when you do that you focus on your book of business.

Our MSPs rose to the challenge frankly, and secured their customers and helped them navigate because they need to be productive, they need to be secure, and they were 100% focused on helping their SMEs transition. So we didn’t actually see a decrease in demand. We saw effectively a lack of bandwidth.

Our MSPs did not add new customers because they were securing and making sure their existing book of business was productive and actually our results were exactly that. Our cross-sell motion was strong. Our retention numbers, especially for the high end of our MSPs, were actually strong.

We saw a little bit of a degradation on the lower end but the demand for our solutions were actually strong. What we saw slowing down were MSPs, were not looking for a new offering during COVID. And that for me, spoke highly of the importance the MSPs have on the SME.

They went from talking to their customers once a month, to talking to their CEOs of these small-medium businesses daily, to help them transition and they did so and there was a tremendous amount of effort and frankly, without the MSP a lot of the SMEs out there would not be in business today, for the actions that those MSPs took to effectively mobilize the workforce of the small-medium enterprise..

Yes, makes sense. I mean, frankly, a lot of software companies, their existing customers, business remained fairly robust and code, but the new logo ads, I think, for everybody slowed down, so that makes sense. Then maybe just my follow on, if I could is, just a clarification.

You indicated the currency is really tough for everybody, you guys are no different than anybody else. $9 million impact to the revenues versus last guide, you did mention that there was a $6 million EBITDA impact.

I was just curious why there’s such a pronounced $6 million EBITDA impact on $9 million variance in revenues, maybe there’s just some mechanics there.

I don’t understand but if you could just clarify? Maybe I heard the numbers wrong on why is there such a meaningful impact on EBITDA?.

Hey Keith, happy to shed some light there. You had the numbers, right. It was $9 million of impact on revenue, excuse me, and $6 million of impact on EBITDA. Most of it is related to the euro. So, you can kind of see by the color we gave on the euro, for every point, it’s about $900,000 of annual revenue.

We have, I would say we’re not naturally hedged on the euro from an expense footprint and now most of our international costs lie in GBP as it relates to where we have our operations out of Scotland there, so that’s the driver there. So it’s about two thirds to 70% kind of drop through from revenue to the bottom line what we’re seeing..

Right, okay, okay. Many thanks, that’s it from me. Best of luck to you..

Thank you..

Thank you, Keith. [Operator Instructions] The next question today comes from Jason Ader from William Blair. Jason, please go ahead. Your line is open..

Yes, thanks. So Morning, guys. I wanted to ask about Cove.

You guys talked about how Cove is more efficient than traditional backup software, can you just explain to us kind of in simple terms why?.

Good morning, Jason, sure. So a couple of reasons, so first, our approach and our architecture is fundamentally different, right? So we are a cloud-first architecture. So what does that mean? That means the data flows from the target, the workstation or the server, or the VM and it goes directly to the cloud.

It does not have to go first to an appliance. That means a couple of things. That means better economics for the customer for the MSP. That means better economics for N-able. It also means a more secure solution, because that appliance effectively is a target for the bad guys and the fact that we go right to the cloud makes it more efficient.

So that's number one..

They're not needing to watch or manage their backup. It's less of a footprint on their storage that they might need to procure or experience and it's less data that's moving back and forth, again producing more of a scalable, efficient solution. This is disruptive.

We win and we're really excited to see how now with this new, I would say, reinforced, go to market positioning, what Cove is going to do and continue to be a growth driver for us..

They're not needing to watch or manage their backup. It's less of a footprint on their storage that they might need to procure or experience and it's less data that's moving back and forth, again producing more of a scalable, efficient solution. This is disruptive.

We win and we're really excited to see how now with this new, I would say, reinforced, go to market positioning, what Cove is going to do and continue to be a growth driver for us..

Great.

And then what's the impact on recovery times, is your recovery faster because of the way you guys have architected this system?.

Right, that's exactly right. So both recovery times, RTOs and RPOs are very efficient and it's because of the way that we do that. It's also the fact that we're also going directly to the cloud.

And then with our standby image, we also give MSPs the ability to test and to point to where they want to have their backup, and whatever various targets they want. So it's a combination of a couple of things. The fact that we're cloud-first, again is just a differentiator. Others in the industry claim cloud, but they're not architected that way.

And effectively, they're an appliance, and then they'll bolt-on some type of cloud service to give them kind of that, effectively that headline that they are cloud, but they're not cloud-first. And they might have a cloud piece of their structure, but it's inefficient. And it allows us to have a better, effectively, better RTO and RPO times..

Great. And then just a quick follow up. Can you give us a sense, John how often you're landing with backup versus other products? And maybe how that might change over time? I'm assuming that's one of the reasons you're kind of leaning in from a branding standpoint here.

Is that part of the vision here that you could start to land more on the backup side and any kind of historical data on how much of your lands are coming through backup versus other products?.

Sure. So historically backup has been a cross-sell motion. It's been a, do you want fries with that type of motion, where we’re effectively landing with our RM solutions, and then using our backup offering that's integrated with our RMs as a cross-sell motion, which has been hugely successful.

But with the culmination of all the innovation that we've built with our Office 365, or M365 backup offering, that's all in one console. Really, what we found Jason is that we're winning and as a new customer acquisition. So with Cove, you'll see us go into market in a more aggressive way to land MSPs.

And really, what I'm basically saying is, we're taking, we're moving our complete data protection as a service offering from out of underneath the shadow of RMM and really bringing it to the forefront and going to market and allowing MSPs and honestly, even midmarket companies to win and have this disruptive technology going forward. So you're right.

This is also a -- it's a combination of our of our technology, but also a change in a node to the market that we will be going with the full data protection suite that's inclusive of business class disaster recovery. And we'll be going to market directly and winning directly not as a cross sell motion..

Very good. Good luck, guys. Thanks..

Thank you, Jason. There are no additional questions waiting at this time. So I'd like to pass the conference over to John Pagliuca for closing remarks. Please go ahead..

Thank you all. Thank you for your on-going interest in N-able and I'm looking forward to talking to you in about 90 days..

That concludes the N-able first quarter 2022 earnings call. Thank you for your participation. You may now disconnect your lines..