All right. I think we're ready to go. Thank you all for joining. Great to have a good crowd here. I am Erik Suppiger, Citizens JMP's Communications and Infrastructure Analyst. And for this presentation, we have SolarWinds. To my immediate right, we have Sudhakar Ramakrishna, CEO. And then to his right, we have Bart Kalsu, CFO. And then to his right, we have Tim Krueger, group vice president of finance and investor relations. And I'll kick it off, but please feel free to raise your hand. The goal here is to give you the opportunity to address any questions and concerns. So please do feel free to raise your hand. So SolarWinds is a company that's been in transition for a while. I'd like to touch on a few of those. First off, the big one is kind of the transition to observability from monitoring tools. Just how satisfied are you with the progress in that transition to, one, the Hybrid Cloud Observability, which is your on-premise observability, and then also the SolarWinds Platform, which is the SaaS platform? Erik, over the last three years, we've been making rapid progress in what I would call evolving from monitoring solutions to observability solutions across the spectrum of customers. When I say across the spectrum of customers, most customers that we have are customers who are, call it, self-hosted in nature, like you said, premises-based customers. Everyone has a path to the cloud or already a presence in the cloud. The big challenge that they have is the notion of hybrid visibility. Today, the way they solve it is different solutions for different needs, like one for cloud, one for premises, et cetera. What they find exciting about us is the same solution is able to observe and monitor for them all their environments, regardless of cloud or self-hosted. And that has given us significant tailwinds as we deployed our Hybrid Cloud Observability solutions, now evolving to SaaS. And so while they may manifest as two separate solutions, the way we are approaching it is it's a continuum for customers, gives them investment protection, gives them complete visibility from a single pane of glass, and improves their productivity and cost. OK. So following up on that, one, can you give us some context? I don't think you break out your observability revenues, per se. Can you give us some context as to what portion of your customers have made that migration? And then also, you're selling this as a solution that can address the full IT stack. What portion of your customers today are really using you as the standard across their entire stack? Great questions. I'll address it first from a customer value proposition standpoint. Customers that deploy, be it our overall observability solutions, are looking for four, call it, broad needs. One is tools consolidation. There's tool sprawl. How do I consolidate? Two is, how do I modernize as I think about the cloud and I build hybrid visibility? Three is, I'm resource-constrained. Therefore, how do I improve my productivity, which manifests as, help me identify problems faster, help me remediate problems faster? And then the last but not least in this environment, and in any environment for that matter, is cost. So those are the primary, call it, reasons why customers buy our solutions. And that's what's driving the growth in that segment. You're right that we don't break it out as a segment, so to speak, or specific financials. I would say the closest proxy I can give you is that we do speak about how our subscription ARR is growing. Last year, we reported that it grew at 37%. Given that our observability solutions are predominantly, if not entirely, subscription-focused, that gives you a close proxy for how that whole business is trending. Can you discuss how much of that subscription business we should be thinking about would be related to observability? Vast majority. Again, we don't split. Is that right? Yeah, vast majority. We don't split it out. But the vast majority is the way I would say it, not even a basic majority. Yeah. And I think another thing to think about too, Erik, is what we talk about too is how much of our existing customer base that's using some of our monitoring and management tools that's currently under a maintenance contract has the opportunity to maybe convert over to one of our subscription offerings. And we think about that. If we have $450 million of maintenance ARR today, we think about $300 million of that base has the opportunity to convert over to one of our observability products. And we've talked about what the conversion factors have been. So today, we've been converting $1 of maintenance to $1.60-$1.70 of subscription revenue. We don't think it'll always continue to be that at that conversion factor. But we think there is the opportunity to convert a big chunk of that maintenance base over to one of our subscription products. OK. And that. Go ahead. You asked, Erik, how far are we in this journey? As much progress as we have made in the last two years, I would still say we are in the early innings of it. Put it differently, the runway ahead of us from an opportunity standpoint, both in our customer base as well as in the competitors' customer base, is significant for us. So we think of this as a multi-year transition, hopefully a multi-year growth story. OK. Within your installed base, is there a particular customer that is the target customer for making that migration? Is there a segment of that customer base that's not likely to move over to subscription and SaaS? Yeah. So Bart mentioned, call it, the $450 million of ARR. Out of that, we have figured out that there is about $300-$350 million, which I would call high propensity. And how do we arrive at that high propensity is that today, they may be using two or three of our point products, number one. So they already have breadth. Two is that they may be using solutions from customers for, call it, adjacent products. And so therefore, they could be a very prime tools consolidation play for us. And so we train our sellers. We train our partners to deliver those capabilities and value drivers to our customers. And that's how we've been iterating on that installed base to convert. So that would be the, I would say, sweet spot. The reason why we don't count the remaining, let's say, 100-150 actively, not to say that they won't convert, is they may have been simply using a single point product. Or they may be such a small customer that they may not be thinking about broader tools consolidation, et cetera. What we don't state is that we believe that there is at least another 300-350 that is languishing because the competition has not done a good job of refreshing those customers. And so as we grow in our customer base, we are also looking at how do we help those customers become modern. OK. So how do you size up that 350? Do you have some level of engagement with those customers? Engagement, market analysis, propensity analysis. So there is a fairly sophisticated model that we built. OK. Why don't we touch on the competition? There's a question back there. Oh, here we go. Just one question on that. On the $300-$350 that's in maintenance contracts, what's the life of those maintenance contracts? And is it basically you got to wait until that reaches end of life, and then that's when they'll convert? Or is there some way to get them to convert before that maintenance contract is actually on? Most of our contracts are one-year with IT. And so we don't really need to wait for them. So this is a very good point that you bring up. We used to be, in a business model standpoint, a sale-renew model. So we will sell and renew. We've evolved to a customer success model where there's continuous touch with the customer, be it with physical human resources or automation and so on. So many of our customers upgrade/evolve to subscription well before their maintenance contracts expire. OK. Any more questions? You touched on competition. Who do you think of as your competition? There's a number of observability players. But they talk about being higher market. So who do you think of? Yeah. First, the way I would characterize SolarWinds is we are not yet another observability player, is the first clarification I provide. Because the way I try to position us and the way our product portfolio has come together is we help customers accelerate their business transformations. And so how do we do that? We provide solutions that have the best time to value for them. So we don't want customers to purchase software and wait 18 months before they see anything out of it. Two is that we want to be the company that provides them the best time to detect issues and then the time to remediate issues. So in that regard, from what was a plain tools provider, we have transformed into being able to drive these business outcomes for customers along those four dimensions that I previously described. But equally, I understand that customers sometimes look at, hey, I'm looking for database monitoring, or I'm looking for service management, and so on. So in the database monitoring category, typically, we see Idera, Redgate, as the primary competitors. In the service management side, we see more of the Fresh and the Cherwells of the world. But again, the time to value that we deliver is incredibly fast for our service management solutions. And then in the broader observability category, Erik, we see the traditional players because we straddle both cloud, SaaS, and hosted. That's why we have to think about the holistic picture for customers. So we see the traditional players of Cisco, Micro Focus, and so on, and then more of the SaaS-only players, like the New Relics and the Datadogs, from time to time. OK. And Erik, just wanting to add, and competition question always comes up, is also the market size itself. When you look at the opportunity we address, it's a $50-$60 billion market size. And there are many players in it. But when you add the revenue of all these companies, you wouldn't even get probably a fraction of that number. So the opportunity and the growing marketplace is also one thing to mention. OK. Any questions? All right. A couple of software vendors in the observability space was Dynatrace and Palo Alto. They talked about an acceleration in demand to consolidate tools. In the case of Dynatrace, they said this extended some of their sales cycles. What have you seen in terms of demand for consolidation? And how has that affected your sales cycles? The demand for tools consolidation has actually helped us with the results that we showed all through 2023 and hope to continue demonstrating in 2024. When vendors talk about tools consolidation, you mentioned Dynatrace here. In their context, tools consolidation tends to be mostly the application monitoring tools. Given how organizations have evolved, especially in the large enterprise, each department might potentially have an application monitoring tool from different vendors. And when they talk about consolidation, that is the context of their consolidation. Our tools consolidation play is, call it mid-market, upper mid-market, CIOs thinking about the entire stack. How is my network looking? What's my infrastructure? What are my databases? What are my applications? What's the best platform to do that? And that's where we excel. OK. All right. And that doesn't extend the sales cycle? Because of the diversity of our customer base, Erik, I mean, we are not playing in the top 20,000 enterprise customer type only. We do have significant presence there. But that's not our, call it, bread and butter. We have a very large customer base. Our deal density will be orders of magnitude greater than some of the other vendors that you're referring to. Therefore, we are able to take into account the variability that happens with large deal cycles. So when they talk about deals getting pushed out, it's mostly the large variety deals. Whereas we have a very broad spectrum of ACV when it relates to our customers. So because of the way we manage our pipeline and our partnerships, we are able to continue to demonstrate predictability. OK. In other words, do some deals push out? Yes. But do deals push out in a way that affects our business? No. Yeah. I think, Erik, I think the way to think about that is we talk about our average deal size maybe closing between 30-60 days. I mean, for us, that 60 days may extend up to 75 or something like that. It's not like it's getting pushed out 6 months or anything like that from a deal close standpoint. OK. Talk a little bit. We're at the beginning of your fiscal 2024. What changes are you making in terms of product roadmap? Or what changes are you making in terms of your go-to-market? No major changes in our product roadmap. I think our strategy is fairly set and has been stable for the last 2.5 years. So what I would say on the product roadmap side is continued acceleration of our observability and SolarWinds Platform capabilities. So on the same platform, having application performance management, database performance management, network infrastructure, and cloud. So we'll be super unique as we deliver those capabilities coming up in the next few weeks and all through the year. So that continues. Similarly, on the service management side, adding additional AI capabilities, driving this notion of time to detect, time to remediate. So that becomes a priority. So the way I would describe the product roadmap and investments is continuation of our strategy and, where possible, acceleration of our strategy. On the go-to-market side, we established the foundations of this in 2022. In 2023, the way I would describe it is a greater focus on partners and partnerships because we feel like we have to be in more deals. You can do that through better partners and better partnerships. You'll see that as an area of focus. In fact, even as we speak here, our APJ Partner Summit is being conducted in Bali. We just finished one in EMEA. Then the Americas one is coming up. OK. All right. So another transition is the transition to subscription. I think you grew, as you said, 37%. It was 37% last year. Just talk a little bit about your satisfaction with your transition to subscription. And then also, how much further do you anticipate that subscription will grow as a percentage of business? I'm very satisfied with it because I think we gave a long-term view that we will be about 25%, I think, is what we said, on a steady-state basis. I'm satisfied not just because of the business model transition but the value model transition. So to the earlier question about do customers transition and wait till their renewals kind of expire, as an example, or do they see value? For me, subscription transition has always been a value model transition, not just a business model transition. By that, what I mean is we don't go to customers and say, you're having license and maintenance on this product. I'm going to give you a like-for-like with subscription. Because that is not very exciting because what is the benefit to the customer? What we do is, with our Hybrid Cloud Observability solutions and broader observability, we go to customers who may, let's say, be a network monitoring customer or a systems monitoring customer and evolve them to a full-suite observability. And therefore, they get greater functionality, greater benefit, greater simplicity, lower cost. And in that process, we get a multiple from them. So on average, for every $1 of maintenance that we're giving up, we get anywhere between 1.6-1.8 of subscription. And that subscription revenue has the propensity to be retained at a much higher rate. The reason for that is, more often than not, when the customer moves, it is a tools consolidation play. So your footprint at the customer is greater. And therefore, the barrier to replacement is greater as well. That is something that we are still proving out because we are maybe in year two of the transition. I'm very excited about how much more runway is there for us. Yeah. I think that's important to note too, Erik, is that you talked about what we expect to change or happen in 2024. Really, what we're hoping to see is a continuation of what we saw in 2023, right? Yeah. We got back to revenue growth in 2023, 6% total revenue growth. ARR grew by 8%. So if we can maintain that kind of momentum in 2024 and actually build upon it, that's what we're wanting to see in this subscription transformation. And it really kind of came on the heels of the hybrid cloud observability product that we launched in 2022 and then the SWO product, which is the SaaS version of our observability product that we launched later on in 2022, early 2023. So your maintenance business was relatively flat in 2023. Do you think that might start to decline as this transition continues? Yeah. So the maintenance revenue on our income statement was relatively flat in 2023. But that's a combination of two things. One, the conversion of a piece of that maintenance base over to subscription at the conversion factors that Sudhakar talked about obviously had a negative impact. But offsetting that somewhat was a price increase that we rolled out at the start of the year. So we increased our maintenance prices by 9% in 2023. And we're increasing it another 9% or 10% in 2024. Some of that is to try to get customers to start to think about moving from maintenance to subscription. We're obviously not being too heavy-handed with it. But also, we had not increased maintenance prices significantly, like a lot of other companies had in 2021 and 2022 when inflation was a little higher. So we just taken advantage of that opportunity. Those two things offsetting is what caused maintenance to stay flat in 2023. What happens to maintenance revenue really is a matter of what the success is of us getting our customers to convert over from maintenance to subscription and then to continue to add to that maintenance base. OK. And you have a goal of reaching $1 billion. What kind of growth do you think that you'd be generating when ARR reaches $1 billion? Our view is that we are participating in a market that is growing on a blended basis anywhere between 9%-12%. And yes, we had to earn our way into those numbers, which, as Bart highlighted, we did last year. And our goal is to continue maintaining that. Given the size of the market that Tim spoke about, I don't see any reason why $1 billion should be somehow a maximum headroom that we have. Once we achieve that, to at least be growing at the market will be our goal. OK. And Erik, wanting to add, when we think about the market and the place and what SolarWinds can deliver in terms of the opportunity we have, we mentioned that our strategy is set. It's really hard to change strategy and operations at the same time. But when you have the strategy set and the direction and the products in the marketplace, the execution of it gets easier. So our strategy is set in 2021, 2022. In 2023 was our, call it, first year of full execution in our product platforms in the place. And in 2024 is learnings from the strategy applied into execution and actually getting better 2024, 2025 and moving forward. OK. All right. One of the unique aspects of SolarWinds from a financial perspective is your profitability. If we look at you on a rule of 40 basis, combining the EBITDA and the margins and the growth, you've exceeded 50 for the last couple quarters. Can you sustain that level of scoring for the rule of 40? I mean, based off the guidance we gave for 2024, Erik, I mean, I think we'll be right at 50, maybe a little bit, slightly less. But obviously, our goal is to outperform on that. So rule of 50 is definitely something that we think is achievable as we move forward. And like you said, that's something that we've done the last two quarters. So it's really just kind of maintaining the momentum that we saw in 2023 and continuing that into 2024. Would you consider accelerating your investments at the expense of some of the margin if you can accelerate the growth? Good question. We always get this question about whether or not we should be trading off profitability for growth, right? I think the main thing is that we want to control what we can. Us getting back to margins in the mid-40s, we think, was a really distinguishing event for us in 2023. We don't want to lose that momentum. It takes a lot of discipline to get margins back up to that level. And we want to maintain that discipline is what I'd say, Erik. So we always consider and try to drive more growth. But at the end of the day, we also know that profitability is an important factor for us. And Erik, we are investing. I mean, when you think about our OPEX and expense base, it is well above $400 million. So that is the investment which goes into the business every year. What our approach is, we prioritize our investments. And we may cut in one place. But then we will harden in where it matters, where the ROI is, and what is important. So I want to make sure that we're constantly investing in SolarWinds, in our growth. OK. We're basically out of time. Do we have any questions from the audience? All right. Well, then I'm going to wrap it up there. Thank you. Thank you, Erik. Thank you, Sudhakar. Thank you. Bart. Thank you, sir.