10-Q: N-able Inc. Reports Q3 2024 Results: Revenue Growth and Increased Profitability

N-able Inc. announced its third-quarter 2024 results, showcasing revenue growth and improved profitability compared to the same period last year.

Summary

• N-able's total revenue for the third quarter of 2024 reached $116.4 million, an increase from $107.6 million in the same quarter of 2023.
• Subscription revenue saw a rise to $115 million, up from $105.2 million year-over-year, driven by growth in data protection, security, and remote monitoring solutions.
• The company's operating income for the quarter was $23.9 million, compared to $18.4 million in the prior year.
• Net income for the quarter increased to $10.8 million, up from $6 million in the third quarter of 2023.
• N-able's adjusted EBITDA for the quarter was $44.8 million, compared to $36.6 million in the same period last year.
• The company had approximately 25,000 customers as of September 30, 2024.
• There were 2,275 MSP partners with annualized recurring revenue (ARR) over $50,000 on the platform, up from 2,134 in the prior year.
• The annual dollar-based net revenue retention rate for subscription products was approximately 105%.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the company's revenue growth, improved profitability, and strong cash position. However, the slight decrease in net revenue retention and the decrease in other revenue temper the overall positive outlook.

Positives

• The company experienced strong growth in subscription revenue, driven by its data protection, security, and remote monitoring solutions.
• N-able demonstrated improved profitability with increases in operating and net income.
• Adjusted EBITDA also saw a significant increase, indicating improved operational efficiency.
• The number of high-value MSP partners (over $50,000 ARR) continues to grow, representing a larger portion of total ARR.
• The company has a strong cash position with $174.4 million in cash and cash equivalents.

Negatives

• Other revenue decreased by 38.8% due to a decline in maintenance and professional services revenue.
• The annual dollar-based net revenue retention rate decreased to 105% from 108% in the prior year.
• Cash flow from operations decreased to $22 million from $27.5 million in the prior year.

Risks

• The company faces exposure to adverse movements in foreign currency exchange rates.
• Changes in interest rates could negatively impact financial results and cash flows due to variable rate borrowings.
• The company is subject to risks related to the cyber incident at SolarWinds, which could impact reputation and sales.
• There is a risk that the company may not be able to successfully identify, complete and integrate acquisitions.
• The company's ability to attract and retain qualified employees and key personnel is a risk.

Future Outlook

The company expects to continue to grow its sales and marketing and research and development organizations to drive new MSP partner additions and product development. They also expect to incur additional expenses related to security enhancements.

Management Comments

• Management believes that the adverse impacts of the Cyber Incident on our financial results have diminished.
• Management believes that existing cash and cash equivalents and cash flows from operating activities will be sufficient to fund operations and meet commitments for capital expenditures for at least the next twelve months.

Industry Context

The results reflect the ongoing demand for cloud-based software solutions for MSPs, particularly in the areas of security, automation, and backup and recovery. The company's focus on recurring revenue and profitability aligns with industry trends.

Comparison to Industry Standards

• N-able's revenue growth of 8.3% year-over-year is solid, but it is important to compare this to other SaaS companies in the MSP space, such as ConnectWise, Datto (now part of Kaseya), and SolarWinds (the parent company).
• The 105% net revenue retention rate is a good indicator of customer loyalty, but it is slightly down from the previous year, which could be a concern if the trend continues. Companies like Veeam and CrowdStrike often have higher retention rates.
• The adjusted EBITDA margin of 38.5% is strong, but it is important to compare this to other companies with similar business models. Companies like Atlassian and ServiceNow often have higher margins due to their scale and efficiency.
• The company's focus on long-term contracts is a positive move, but it is important to monitor the impact on revenue recognition and customer churn. Companies like Salesforce and Adobe have successfully transitioned to subscription models, but it is important to learn from their experiences.

Legal Proceedings

• The company is involved in a legal proceeding regarding a stockholders agreement, where certain provisions were declared unenforceable by the court.

Related Party Transactions

• The company has various agreements with SolarWinds, including Software OEM Agreements, Employee Matters Agreement, Intellectual Property Matters Agreement, Trademark License Agreement, and Software Cross License Agreement.

Stakeholder Impact

• Shareholders will likely view the results positively due to the revenue growth and improved profitability.
• Employees may benefit from the company's growth and continued investment in research and development.
• Customers (MSPs) will benefit from the company's continued focus on product development and security enhancements.
• Suppliers and creditors will likely see the company as a stable and reliable partner due to its strong financial position.

Next Steps

• The company will continue to focus on growing its sales and marketing and research and development organizations.
• The company will continue to enhance security, monitoring, and authentication of its solutions.
• The company will continue to evaluate the impact of market and economic conditions on its business.

Key Dates

Keywords

Managed Service Providers, MSP, SaaS, Subscription Revenue, Cloud Software, Cybersecurity, Data Protection, Remote Monitoring, IT Management, EBITDA