N-able (NYSE:NABL): A Leading Provider of Cloud-Based Software Solutions for Managed Service Providers

Published on September 24, 2024 | Ticker: NABL

N-able, Inc. (NYSE:NABL) is a leading global provider of cloud-based software solutions for managed service providers (MSPs), enabling them to support digital transformation and growth for small and medium-sized enterprises (SMEs). The company's flexible technology platform and powerful integrations make it easy for MSPs to monitor, manage, and protect their end-customer systems, data, and networks.

N-able's growing portfolio of security, automation, and backup and recovery solutions is built for IT services management professionals. The company simplifies complex ecosystems and enables customers to solve their most pressing challenges. In addition, N-able provides extensive, proactive support—through enriching partner programs, hands-on training, and growth resources—to help MSPs deliver exceptional value and achieve success at scale.

Financials

In the latest fiscal year, N-able reported annual revenue of $421.88 million and net income of $23.41 million. The company's annual operating cash flow was $90.09 million, while its annual free cash flow reached $67.75 million.

For the first quarter of 2024, N-able delivered robust results, with revenue of $113.7 million, representing approximately 14% year-over-year growth on a reported and constant currency basis. Subscription revenue, which accounted for 98% of total revenue, grew 14.4% year-over-year to $111.5 million. Other revenue, consisting primarily of maintenance and professional services, declined 6.1% to $2.2 million.

The company's first quarter adjusted EBITDA was $39.6 million, up 21% year-over-year and representing a 35% adjusted EBITDA margin. Unlevered free cash flow for the quarter was $7.3 million.

Geographic Breakdown and Revenue Drivers

Based on MSP partner location, revenue from the United States was approximately 47.9% of total revenue in the first quarter of 2024, while revenue from the United Kingdom accounted for 10.4%. No other single country contributed more than 10% of total revenue during this period.

The increase in revenue was primarily driven by growth in sales of N-able's data protection, security, and remote monitoring and management solutions. The company's annual dollar-based net revenue retention rate for its subscription products was approximately 111% for the trailing twelve-month period ended March 31, 2024, up from 103% in the prior-year period.

Subscription revenue growth was inclusive of the impact from long-term committed contracts, while the decline in other revenue was due to a decrease in maintenance revenue, partially offset by an increase in professional services revenue.

Outlook

For the second quarter of 2024, N-able expects total revenue in the range of $116.5 million to $117 million, representing approximately 10% to 11% year-over-year growth on a constant currency basis. The company expects second quarter adjusted EBITDA in the range of $41 million to $41.5 million, representing an adjusted EBITDA margin of approximately 35%.

For the full year 2024, N-able now expects total revenue of $462 million to $465 million, representing approximately 10% to 11% year-over-year growth on a constant currency basis. The company has raised its adjusted EBITDA outlook and now expects full year adjusted EBITDA of $162 million to $165 million, up approximately 14% year-over-year at the midpoint and representing an approximately 35% adjusted EBITDA margin.

N-able expects capital expenditures, including capitalized software development costs, to be approximately 5% of total revenue for 2024. The company also expects adjusted EBITDA conversion to unlevered free cash flow to be approximately 67% for the full year.

Business Overview

N-able's business model is centered around enabling MSPs to support the digital transformation and growth of their SME customers. The company's cloud-based software solutions cover a wide range of IT management and security functions, including remote monitoring and management, data protection, security, and cloud management.

The company's key growth initiatives include:

1. Empowering MSPs with leading security and data protection solutions: N-able is investing in its security and data protection offerings, such as Managed Detection and Response (MDR) and the Cove data protection solution, to provide MSPs and their SME customers with comprehensive peace of mind.

2. Driving rapid innovation in RMM platforms: N-able is continuously enhancing its remote monitoring and management (RMM) platforms to enable MSPs to better manage hybrid digital environments at scale.

3. Doubling down on customer engagement: The company is focused on delivering a differentiated level of service and support to the MSP community, including through its in-person events, research initiatives, and flexible pricing and contract offerings.

These initiatives are resonating with N-able's customer base, as evidenced by the company's strong financial performance, high customer retention rates, and growing adoption of its expanded product portfolio.

Risks and Challenges

While N-able has demonstrated impressive growth and profitability, the company faces several risks and challenges that investors should consider:

1. Macroeconomic conditions: The company's performance could be impacted by any slowdown in IT spending or purchasing decisions by SMEs due to factors such as inflation, rising interest rates, or geopolitical tensions.

2. Competition and pricing pressure: N-able operates in a competitive market, and it may face pricing pressure from rivals or the need to adjust its pricing and packaging to remain competitive.

3. Successful integration of acquisitions: The company's growth strategy includes selective acquisitions, and the successful integration of these acquisitions is crucial to realizing the expected benefits.

4. Cybersecurity threats: As a provider of IT management and security solutions, N-able is exposed to the risk of cyberattacks, which could impact its own operations or those of its MSP partners and their SME customers.

Despite these risks, N-able's strong market position, innovative product portfolio, and focus on customer success position the company well to navigate the challenges and continue its growth trajectory.

Conclusion

N-able's impressive financial performance, driven by the successful execution of its growth initiatives, underscores the company's position as a leading provider of cloud-based software solutions for MSPs. The company's focus on empowering MSPs with advanced security and data protection capabilities, driving innovation in its RMM platforms, and delivering exceptional customer engagement has resonated with its growing customer base.

While the company faces some risks, such as macroeconomic conditions and competitive pressures, N-able's strong market position, diversified product portfolio, and commitment to customer success make it a compelling investment opportunity in the managed service provider software market.

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