Executive Summary / Key Takeaways

• N-able is strategically positioned as a provider of a unified cyber resilience platform for the underserved small- and mid-market (SMB) via IT services providers, leveraging its deep MSP channel expertise and expanding into reseller channels.
• The acquisition of Adlumin significantly enhances N-able's security portfolio with AI-powered, endpoint-agnostic XDR/MDR capabilities, creating new growth avenues and strengthening its competitive moat against legacy solutions.
• Recent financial results reflect strategic investments and transitional impacts, including a near-term dip in profitability and net retention due to the Adlumin integration and the Long-Term Contract Initiative, but underlying bookings and ARR growth remain solid.
• Technological innovation, particularly in AI for security and UEM modernization, is a key differentiator, driving customer efficiency and enabling N-able to capture a larger share of the growing cyber resilience market.
• Management guidance points to revenue and ARR growth acceleration through 2025, supported by strategic initiatives and expected improvements in net retention and profitability margins in 2026.

Setting the Scene: The Imperative of Cyber Resilience for the Underserved

In today's digital economy, small and medium-sized businesses (SMBs) and mid-market companies face a daunting challenge: securing complex IT environments against ever-evolving cyber threats without the vast resources of large enterprises. This creates a critical need for external IT expertise and robust, yet accessible, technology solutions. N-able, Inc. (NABL), with over two decades rooted in the IT services channel, has built its foundation on empowering managed service providers (MSPs) to meet this demand, positioning itself as a leading global provider of cloud-based security, data protection, and unified endpoint management (UEM) software.

N-able's core strategy revolves around delivering a unified cyber resilience platform purpose-built for the MSP and their SMB/mid-market clientele. This involves a multi-dimensional "land and expand" model, initially focused on the MSP community, but now strategically broadening its reach to encompass resellers, system integrators, and distributors. This channel expansion is critical, as these providers collectively represent a market opportunity approximately twice the size of the traditional MSP market.

The competitive landscape for serving this segment is dynamic, featuring a mix of larger, more enterprise-focused players like SolarWinds (SWI), and other MSP-centric providers such as Kaseya and ConnectWise, alongside specialized tools and broader IT management suites like ManageEngine (part of Zoho). While some competitors may offer broader IT infrastructure management or specialized tools (like ConnectWise's strength in PSA), N-able differentiates itself through its deep MSP-centric approach, a unified platform vision, and a growing emphasis on integrated, AI-powered cyber resilience solutions. N-able's ability to profitably serve the SMB and mid-market, often overlooked or underserved by larger vendors, is a key competitive moat.

Technological Edge: Building the Cyber Resilience Platform

N-able's investment thesis is deeply intertwined with its technological differentiation and continuous innovation. The company's platform is designed to provide MSPs with the tools needed to monitor, manage, and protect their clients' digital operations efficiently and effectively. Key components include:

• Unified Endpoint Management (UEM) / RMM: N-able's RMM platforms (N-central, N-sight) are foundational, offering capabilities like patching, monitoring, and device management. Recent innovations under the "Ecoverse" vision aim to modernize this core, adding features like identity centralization management, enhanced API capabilities (seeing over 15 million API calls across 25% of N-central SaaS customers in September 2024), and a new unified agent (over 1 million devices activated) for faster insights. A significant recent addition is Vulnerability Management, integrated directly into the UEM solution. This is a key differentiator, allowing customers to identify and remediate vulnerabilities using a single tool, unlike competitors who often require separate solutions. This streamlines workflows and improves technician efficiency.
• Data Protection (Cove): Cove Data Protection is highlighted as a high-growth area and N-able's largest recurring revenue product group. Its cloud-first, multi-tenant architecture provides advantages in speed and cost. Recent enhancements include improved Microsoft (MSFT) domain backup speeds (up to 20%), better overall backup speeds (up to 30%), enhanced restore accuracy via AI (over 95% accuracy), and simplified data retention policies. The company is also developing anomaly detection technology to proactively flag indicators of compromise, moving beyond just recovery to prevention.
• Security Suite (including Adlumin XDR/MDR): N-able's security offerings span EDR, email protection, password management, and more. The acquisition of Adlumin in November 2024 significantly bolstered this area, adding enterprise-grade Extended Detection and Response (XDR) software and Managed Detection and Response (MDR) services. Adlumin's technology is cloud-native, AI-powered, and crucially, endpoint-agnostic, allowing it to ingest data from various endpoint security providers – a critical advantage in heterogeneous MSP environments. The AI-powered SOC automates 70% of incident and threat remediation activities. This capability, along with the ability to decouple XDR software from MDR services, provides flexibility and visibility that management believes differentiates N-able from competitors offering more "black box" solutions. The recent launch of Adlumin Breach Prevention for Microsoft 365 further secures a critical identity attack vector.

The "so what" for investors is clear: N-able's technological investments are designed to create a sticky, integrated platform that drives efficiency and effectiveness for its customers. Quantifiable benefits like faster backup speeds, higher restore accuracy, and automated remediation directly translate to cost savings and improved security outcomes for MSPs and their clients, enhancing N-able's value proposition and competitive standing. This technological edge supports higher average selling prices (ASPs), particularly with the integration of Adlumin, which significantly increases the potential economic stack per user/device.

Strategic Execution and Financial Performance

N-able's strategic initiatives are directly impacting its financial trajectory. The company's three growth pillars – driving security success, scaling go-to-market, and boosting customer expansion – are the focus of investment and execution.

The Adlumin acquisition is central to driving security success and scaling the go-to-market. Adlumin represented approximately $21 million of ARR at the time of acquisition and contributed about $2.5 million in revenue in Q4 2024. It is already proving to be a significant growth driver, standing alongside Cove as one of the highest booking products and generating the largest cross-sell deal in Q4 2024 (over $250,000 ARR). The integration of Adlumin's technology and its established reseller channel is expected to accelerate N-able's growth beyond its core MSP base.

The Long-Term Contract Initiative, which began in 2024, is a strategic move to enhance customer relationships and revenue predictability. By Q1 2025, over 50% of ARR was under long-term committed contracts. While this initiative is expected to drive stronger retention and facilitate cross-sell over time, it has introduced near-term headwinds. Customers have engaged in estate optimization prior to committing, and the timing of revenue recognition under ASC 606 for on-premise contracts has created lumpiness. These headwinds are expected to persist through the first half of 2025 before dissipating.

Financially, the first quarter of 2025 reflects the impact of these strategic shifts and investments. Total revenue grew 3.9% year-over-year to $118.2 million, driven by a 4.8% increase in subscription revenue, benefiting from Adlumin and the LTC initiative's revenue recognition dynamics, partially offset by a decline in other revenue. However, profitability saw a significant decrease, with operating income falling from $20.5 million to $1.8 million and the company reporting a net loss of $7.2 million compared to net income of $7.5 million in the prior year. This was primarily driven by increased operating expenses across the board, including higher costs of revenue (up 51.3% due to Adlumin amortization, cloud/royalty fees, personnel), sales and marketing (up 12.8% due to personnel, transaction costs), R&D (up 8.2% due to personnel, subscriptions, partially offset by capitalized software), and a substantial increase in G&A (up 40.2% due to Adlumin deferred/contingent consideration adjustments, transaction costs, professional fees). Amortization of acquired intangibles also increased significantly due to Adlumin.

On a non-GAAP basis, operating income decreased to $25.3 million (21.4% margin) from $33.2 million (29.2% margin), and Adjusted EBITDA decreased to $31.6 million (26.8% margin) from $39.6 million (34.8% margin). This margin compression reflects the planned investments in Adlumin integration, the new India R&D site, and go-to-market expansion, coupled with the revenue recognition dynamics.

ARR, a key metric for the subscription business, grew 10.3% year-over-year (11% constant currency) to $492.7 million as of March 31, 2025, demonstrating continued underlying demand and the contribution from Adlumin. Customers with over $50k ARR grew 9.6% and now represent 58% of total ARR. The dollar-based net revenue retention rate, a trailing twelve-month metric, decreased to 101% from 111%, reflecting the impact of pricing/packaging changes and LTC-related rationalization. Management expects this to be a trough and improve going forward, driven by cross-sell.

Liquidity remains solid, with $94.1 million in cash and cash equivalents as of March 31, 2025. Operating cash flow saw a significant increase to $19.7 million in Q1 2025 from $4.2 million in Q1 2024, benefiting from changes in operating assets and liabilities and non-cash items. The company maintains a manageable debt level with a net leverage of approximately 1.5 times. A $75 million share repurchase program was authorized in March 2025, signaling management's confidence in the business.

Outlook and Risks

Management's outlook for 2025 signals expected growth acceleration, albeit with near-term margin impacts from strategic investments. For the second quarter of 2025, revenue is guided between $125.5 million and $126.5 million (5-6% year-over-year growth reported and constant currency), with Adjusted EBITDA between $34 million and $35 million (27-28% margin).

Full-year 2025 guidance projects total revenue of $492 million to $497 million (6-7% year-over-year reported, 6-8% constant currency) and full-year ARR of $519 million to $525 million (8-9% year-over-year reported, 7-9% constant currency). This ARR guidance implies acceleration from the 7% pro forma constant currency growth exiting 2024. Adjusted EBITDA for the full year is expected to be $134 million to $139 million (27-28% margin), with Q1 representing a low point before margins improve. Management anticipates Adjusted EBITDA margin returning to the low-30s in 2026.

Key assumptions include specific FX rates, the successful integration and growth contribution from Adlumin, and the expected dissipation of LTC-related headwinds in the second half of 2025, allowing cross-sell to drive NRR improvement. CapEx is expected to be around 6% of revenue, and Adjusted EBITDA to unlevered free cash flow conversion is projected at approximately 68% (raised from 65%), partly due to a lower expected non-GAAP tax rate of 20-21% (down from 25-29%), benefiting from the Adlumin acquisition.

While the outlook is positive, risks remain. Macroeconomic uncertainty, including changing trade policies, inflation, and geopolitical events, could impact IT spending and purchasing decisions. Fluctuations in foreign currency exchange rates and rising interest rates (impacting variable rate debt) pose financial risks. Competition in the MSP and security markets is intense, requiring continuous innovation and effective go-to-market execution. The successful integration of Adlumin and realization of anticipated synergies and growth contributions are critical. The variability of contingent consideration and deferred consideration related to acquisitions also introduces potential financial impacts.

Conclusion

N-able is executing a clear strategy to capitalize on the growing demand for cyber resilience among SMBs and mid-market businesses, delivered through its established and expanding channel partnerships. The acquisition of Adlumin represents a transformative step, significantly enhancing its security portfolio and opening new avenues for growth beyond the traditional MSP market. While recent financial performance reflects the near-term costs and transitional impacts of these strategic initiatives, underlying metrics like ARR growth and bookings indicate continued demand and execution strength.

The company's technological differentiation, particularly in integrated, AI-powered security and modernized UEM, provides a competitive edge in addressing the efficiency and security needs of its target market. Management's guidance points towards revenue and ARR acceleration through 2025, supported by the strategic pillars and expected improvements in key metrics like net retention. Investors should monitor the success of the Adlumin integration, the traction in new channel segments, the improvement in net retention driven by cross-sell, and the overall macro environment as key indicators of N-able's ability to deliver on its long-term growth ambitions and margin expansion targets for 2026.