N-able, Inc. Q3 FY2025 earnings call

• Strong third quarter results with robust demand for cybersecurity, ARR growth, improved margins, and retention.
• AI integration across platform, including sponsoring CANI framework for shared AI language, advancements in UEM, security operations, and data protection.
• Go-to-market strategy with channel-first approach, expansion in reseller channel, and focus on customer expansion through cross-selling and delivering value.
• Launches such as Anomaly Detection as a Service and executive summary report feature, and progress in security success, go-to-market scaling, and customer expansion.

Third quarter ARR was $528 million, up 14% year-over-year. Total revenue was $131.7 million, $3.7 million above the high end of guidance, representing approximately 13% year-over-year growth on a reported basis and 12% on a constant currency basis. Subscription revenue was $130.5 million, approximately 13% year-over-year growth on a reported basis and 12% on a constant currency basis. Customers that contributed $50,000 or more of ARR numbered 2,611, up approximately 15% year-over-year, representing approximately 61% of total ARR. Dollar-based net revenue retention, calculated on a trailing 12-month basis, was approximately 102% on a reported basis and 102% on a constant currency basis. Third quarter gross margin was 81.1%, and adjusted EBITDA was $41.4 million, representing approximately 31.4% adjusted EBITDA margin.

• Fourth quarter 2025 total revenue expected in the range of $126.5 million to $127.5 million, ~9% year-over-year growth on a reported basis and 7%-8% on a constant currency basis.
• Fourth quarter adjusted EBITDA expected in the range of $33.6 million to $34.6 million, ~27% adjusted EBITDA margin.
• Full year 2025 total revenue raised to $507.7 million to $508.7 million, ~9% year-over-year growth on a reported basis and 8% on a constant currency basis.
• Full year 2025 ARR raised to $530 million to $531 million, 10% year-over-year growth on a reported basis and 8% on a constant currency basis.
• Full year 2025 adjusted EBITDA expected to be $148.2 million to $149.2 million, 29% adjusted EBITDA margin.
• Commitment to return adjusted EBITDA margin to 30% in 2026.

Q: ARR revenue both accelerated quarter-over-quarter on a constant currency basis for several quarters now. Could you talk to some of the keys behind that building momentum? What's really been maybe the incremental the last several quarters? And then maybe with guidance for the fourth quarter here, the FX impact and Adlumin anniversarying, I think it's the case, but should we still be thinking of more growth in the second half than the first half?

A: Thanks for the question. Yes, as it relates to the acceleration that we've seen through the year, it really boils back to executing on, I would say, probably a couple of key components of the strategy. One, on executing around the thesis of the Adlumin acquisition, one on cross-selling that into the base of customers that we have, as well as continuing to push that product through the mid-market via the channel partners that came along with that acquisition. And then two, broadening our channel presence as well via bringing on new disties and resellers to kind of access the mid-market with the broader portfolio as well. So we've been bearing fruit from both of those kind of strategic initiatives internally that have driven some of that acceleration that we've seen through the year. And then unpacking the Q4, so FX is weighing a bit into the equation. We still are expecting more growth in the second half of the year than the first half of the year. Q3 was our best quarter of the year from a sequential ARR growth, excluding any currency impact. We expect Q4 to be above average for the year as well. So we are expecting more ARR growth overall in the second half of the year than we are in the first half of the year for sure. That still holds, and that's what the guide reflects.

Q: Sticking on the ARR guidance, the sequential [indiscernible] on a constant currency basis that is implied here, how much of that is based off of lapping the [indiscernible] contribution compared to conservative or conservatism? And what other factors are you considering there?

A: Yes. We quantified the impact of the Adlumin acquisition in the 4% to 5% range. So it's primarily all related to lapping the Adlumin acquisition. And just unpacking the sequential part of ARR growth for Q4 on the surface due to some FX dynamics, it's looking lower than in what it is ex currency. So, just additional color, there is that Q4 sequential growth from a guide perspective, ex currency, it would be about $10 million higher if you assume the same rates as Q3, just as an example. So Q3, if you look at some of the euro and pound rates, they were some of the highest they were in the month of September year-to-date. So that's most of the impact as it relates to Q4.

Q: It's been almost a year since the Adlumin acquisition. Can you talk a little bit about how that business is performing relative to your initial expectations? And then what are any key learnings about the market or the business that you've had after operating it for a year?

A: Sure. So look, I'd say the acquisition thesis overall is very much holding true. It's -- the story is resonating with our MSPs with the small shops, with the large shops. And one, the fact that it's endpoint agnostic or just agnostic in general that it can ingest all of this different data from different firewalls, from different cloud offerings from different endpoints in EDRs, it really is a perfect fit in my estimation for the MSP community because we know they have a hybrid world. And so we're scaling this really nicely. As we mentioned, we're adding hundreds of end customers at the SMB level. And because of the AI technology, we're able to scale it and not necessarily have the same linear type of cost. So we're really -- I'm impressed with the level of scale that the offering has and the demand is here and now, right? This was very much a greenfield space for the broader MSP market, and that's turning over. MSPs know that they need to have this kind of technology. The very, very, very large shops might have the ability to go and build their own SOC, but that's for the far -- that's for the very few and very large. And so the story is resonating. It also gives us another way to cross-sell other bits, right? The fact that we can push and pull data from our UEM and Cove, we're now able to really convey a complete end-to-end cyber resiliency story. And that end-to-end complete cyber resiliency story, it's resonating with the MSPs. But frankly, it's resonating with our VARs as well, and we're building this VAR network. And a VAR might have an MDR shop or an XDR shop, a VAR might have a backup company, but we're right now the only shop that can actually go to a value-added reseller and walk them through the UEM, which is really a security endpoint management console, the Cove data protection on the backup and the recovery and XDR. And it's really resonating with the VARs because now they have a story to tell their mid-market, their CISOs and their CIOs. And so we're quite pleased with the acquisition. We're continuing to invest both in the R&D and the sales and marketing, and we're really excited for how this thing will continue to develop and be a bigger part of N-able.