N-able Q3 2026 Earnings Call Transcript

N-able (NYSE:NABL) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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View the webcast at https://events.q4inc.com/attendee/847720306

Summary

N-able reported third quarter 2026 ARR of $553 million, a 5% year-over-year growth, with an adjusted EBITDA of $44 million and a margin of 32%.

The company’s strategic focus includes AI-driven cybersecurity solutions, with their platform protecting over 500,000 businesses globally, and significant growth in their Cove data protection solution.

Future growth is expected from expanding AI capabilities, enhancing product offerings, and leveraging new go-to-market strategies, particularly in international markets such as Western Europe.

Management highlighted a steady renewal rate and a focus on expansion through new SKUs, including data protection and security operations, as key growth drivers.

The company expects full-year 2026 revenue of $541 to $542 million and adjusted EBITDA of $158.5 to $159.5 million, with a continued focus on product innovation and go-to-market execution.

Full Transcript

OPERATOR

Thank you for joining us and welcome to the N-able third quarter 2026 earnings call. After today’s prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Griffin Geer, Director of Investor Relations. Please go ahead.

Griffin Geer (Director of Investor Relations)

Thanks, operator, and welcome everyone to N-able’s third quarter 2026 earnings call. With me today are John Pagliuca, N-able’s President and CEO, and James Tim OBrien, EVP and CFO. Following our prepared remarks, we will open the line for a question-and-answer session. This call is being simultaneously webcast on our investor relations website at investors.n-able.com. There you can also find our earnings press release, which is intended to supplement our prepared remarks during today’s call.

Certain statements made during this call are forward-looking statements, including those concerning our financial outlook, our market opportunities, and the impact of the global economic environment on our business. These statements are based on currently available information and assumptions, and we undertake no duty to update this information except as required by law. These statements are also subject to a number of risks and uncertainties, including those highlighted in today’s earnings release and our filings with the SEC, and actual results may differ materially from those expressed or implied.

Additional information concerning these statements and the risks and uncertainties associated with them is highlighted in today’s earnings release and in our filings with the SEC. Copies are available from the SEC or on our investor relations website. Furthermore, we will discuss various non-GAAP financial measures on today’s call. Unless otherwise specified, when we refer to financial measures, we will be referring to non-GAAP financial measures. A reconciliation of certain GAAP and non-GAAP financial measures discussed on today’s call is available in our earnings press release on our investor relations website. And now I will turn the call over to John.

John Pagliuca (President and CEO)

Thank you, Griffin, and thank you all for joining us today. As cyber threats escalate, we believe that every business, no matter its size, deserves enterprise-grade protection. That conviction is translating into real-world impact, with our AI-powered, end-to-end cybersecurity platform protecting over 500,000 businesses worldwide. It’s also reflected in our profitable growth. Third quarter ARR was $553 million, growing 5% year over year in constant currency.

Adjusted EBITDA was $44 million, representing a margin of 32%. We believe these results reflect a durable business, and I want to spend our time today on what is driving that durability and where N-able goes next. I’ll frame our discussions around the key dynamics shaping our market opportunity, our growth drivers, and where we are focused on stronger execution. Let’s start with market opportunity. The headlines tell a clear story: AI is empowering the adversary, and attacks are growing in scale, speed, and sophistication. IT environments are also becoming more complex as AI agents become one more thing to monitor and secure. Our recent AI Fog report reflects these headlines and shows the pressure these dynamics are placing on security teams. We commissioned an independent survey of nearly 600 security decision makers and practitioners. 86% saw alert volumes increase in the last 12 months, and 55% said alert noise disrupts their incident response daily or several times a week. This research builds on our State of the SOC report earlier in the year, which showed that defenders face an alert every 30 seconds. The takeaway is simple: defenders are overrun. They face more attacks, more alerts, and more complexity than they can absorb. These dynamics drive foundational demand for cybersecurity, and they shape our strategy in three ways.

First, delivering efficiency through intelligent automation. Stretched technicians need to do more with less, and our focus on delivering AI-infused automation lifts their productivity and helps control labor costs. Second, delivering best-of-breed products against an AI-enabled adversary. Good-enough security is no longer good enough. Our best-of-breed product strategy is designed for that standard. Third, bringing enterprise-grade capabilities to businesses of all sizes.

Smaller businesses often face the same threats as larger enterprises but often lack the same resources. Our channel-led model gives us reach across both segments. Now let’s turn to how we are capturing this opportunity. We’ll start with our growth drivers. First up is data protection. Cove, our cloud-first data protection solution, is our largest growth engine and is quickly becoming the backup platform of choice for businesses. The numbers tell the story. Cove recently surpassed 4 million Microsoft 365 mailboxes, protects over 200,000 businesses, and continues to grow well ahead of the company as a whole.

Cove’s success is a clear example of our strategy at work. Its simplicity and automation reduce the labor required to protect each customer, and it delivers enterprise-grade protection at a price and service level that work for businesses of all sizes. We’re extending the same principles to disaster recovery as a service, or DRaaS. It already has hundreds of customers and surpassed $1 million in ARR within months of release. DRaaS can let customers restore operations in minutes straight from our cloud.

That means faster recovery, no capital expense outlay, and no infrastructure to manage. It is a step up in protection, and with threats rising and downtime costing more, DRaaS gives customers a critical route back to business. Building on this momentum, Google Workspace Backup recently went into preview. It’s off to a strong start, adding thousands of users in the first day alone. MSPs often protect hundreds of businesses with environments spanning both Microsoft and Google. Covering both from one console is a particularly strong value proposition for them. We are giving customers a clear reason to consolidate on Cove, and we expect Google coverage to both widen our addressable market and help our win rates.

Let me share two customer examples that demonstrate why Cove is winning. A European MSP chose Cove to standardize its backup offering, an initial deal worth over $350,000 in ARR. Previously, their backup environment was fragmented across multiple solutions, creating complexity in management, billing, and visibility. With Cove, they saw an opportunity not only to simplify and standardize their operations, but also to create new revenue streams by packaging differentiated backup and DRaaS offerings to their customers.

It’s a strong example of how Cove can drive both operational efficiency and revenue expansion for MSPs. And another example: a customer had been juggling traditional backup products, local repositories, and hardware-dependent platforms. With Cove, backup administration effort fell over 50% and deployment time dropped from hours to minutes. When a real recovery event hit, they restored terabytes of data in a matter of hours and were fully operational by morning.

Two different customers, same story. Cove replaces complexity with simplicity and is ready when it matters most. Industry research is validating our solution. Info-Tech recently ranked Cove number one overall in its Enterprise Backup Data Quadrant, including number one for business value created and number one for likelihood to recommend. The rankings come from real-world customer feedback, and Cove beat a wide field of competitors, including well-known enterprise-focused industry leaders.

The market is choosing Cove, and we’re excited to extend our lead in this mission-critical category. Turning to security operations. Businesses increasingly run on a growing digital estate, and protecting all of it means security teams are buried in threats and alerts. Staffing an around-the-clock team is hard for anyone, and especially for MSPs managing it for many businesses at once. N-able helps solve this pain point. Our AI SOC cuts through the noise, and our experts step in when a threat escalates. We maintained a high pace of innovation this quarter on both fronts.

Often, it starts with the noise. Every customer is different, and static rules can’t keep up. Our software learns what normal looks like for each customer and adapts so the real threats rise to the top. Over 90% of investigations are automated by AI, freeing our analysts to focus on the threats that matter most. For the threats that do escalate, we’ve made incident response available to MSPs. When an incident escalates, our experts step in. It’s the around-the-clock team MSPs don’t have to build together.

That means efficient protection across the whole estate without the burden of building a SOC. The result is showing. Security operations is now solidly past $50 million in ARR, with nine figures the next planned milestone. Now to where we are sharpening our focus, starting with unified endpoint management, or UEM. This area is under pressure as technicians work out how AI changes the way they run IT operations, from the tools they use to their broader organizational structure.

This was shown in an MSP survey we conducted earlier this year, where MSPs ranked AI and automation as their number one technical challenge. Two forces explain why. The first is the elevated threat landscape. Cybercrime is now industrialized, with attackers able to find and exploit vulnerabilities in hours. Keeping pace increasingly depends on automation. The second is cost. Labor is a sizable part of an MSP’s cost structure, and much of it goes to repetitive tasks like finding patches and monitoring endpoints.

This work is slow and hard to scale. Our answer is to deliver autonomous endpoint management, where AI handles most of that repetitive work. It’s a win-win. MSPs can protect more assets with the same team over time. We believe this positions us to address not only software budgets, but also a portion of the labor budgets our customers incur. Today we are making real progress, with two recent advances standing out: AI-accelerated vulnerability and patch management, and more value from Enzo, our AI workflow assistant. Starting with vulnerability and patch management, attackers go after gaps, so how quickly customers close them matters. Our solution is designed to find those gaps, rank them by how severe the risk is and how important the asset is, and fix them at scale. It does this across hundreds of third-party applications on Windows, macOS, and Linux.

Then there is Enzo, which is now part of that workflow. Technicians can ask a question in plain English through Enzo’s Patch Expert and Vulnerability Expert and get an answer based on live data from the customer’s own environment. That means less time digging through reports and more time fixing, which helps each technician cover more devices. Turning to Endpoint Detection and Response, or EDR. Customer expectations have risen in this category, and we recently added several new core and adjacent capabilities. They include protection against AI-driven threats, FedRAMP options for regulated customers, cloud-native coverage, and a managed EDR tier. All said, we are bringing a wave of new capability in UEM and EDR, enabling us to compete for more customers and in more situations.

Next, go to market, where we are building a stronger foundation. As we shared last quarter, Russell Rosa joined us as our new Chief Revenue Officer in July, bringing more than 25 years of channel and enterprise cybersecurity experience. He came in with three clear priorities. First, expand our full channel strategy so we reach the partner segments where our platform delivers the most value. Second, deepen our upmarket motion because our portfolio now solves more complex needs across security, data protection, AI, and compliance.

And third, drive operational excellence across the revenue organization so the growth we add is durable and efficient. A go-to-market shift of this size takes time to play out, and we continue to expect some near-term variability. But we are working to build a stronger, more durable growth engine for 2027 and beyond, and there are encouraging early signs we’re headed in the right direction. Two channel developments show that progress. In Australia, we announced a partnership with Leader, a key distribution partner.

MSPs, resellers, system integrators, and channel partners nationwide can now access our security portfolio through Leader’s established network, with local expert support and a dedicated partner program. We also became a security vendor for a leading UK partner and continue to expand across the channel. More doors, more partners, more ways to reach the businesses that need us. Before we conclude, let’s discuss how we are planning to sustain growth from here. Two areas of execution are central to our plans: product innovation and go-to-market excellence. On innovation, we are increasing our data protection surface area, adding Entra ID capabilities as we expand into the identity layer. We are also expanding our security operations platform, and we plan to monetize agents delivering AI that completes tasks technicians manually handle today.

We also expect our expanded endpoint portfolio to drive positive impact. We believe these developments give more reason for customers to stay with N-able, more for us to sell to our existing base, and more ways to win new customers. On go to market, our new playbook is taking shape from how we work with the channel to how we move upmarket, and we will update you as it lands. These two areas touch every part of our growth algorithm: retention, expansion, and new customers.

They give us real levers to sustain our top-line momentum and, with strong execution, can power faster growth. The levers are in our hands, and we are determined to turn them into results. With that said, I’ll turn it over to Tim before circling back for closing remarks. Tim.

James Tim OBrien (EVP)

Thank you, John, and thank you all for joining us today. Let’s begin with the headline view before we get into the figures. The macro backdrop for cybersecurity remains positive and we see our positioning and strategy as sound. Our end-to-end platform helps protect businesses of all sizes. Our growth drivers in data protection and security operations are resonating and we are acting on the areas of focus John outlined to strengthen the business. Importantly, we are combining growth with profitability, with our full year 2026 guidance calling for an adjusted EBITDA margin of approximately 29%.

That profitability gives us strength and flexibility, and we are using it with intention. In the third quarter we repurchased approximately 10.2 million shares for $38.7 million, or approximately 5% of our shares outstanding. These purchases reflect our confidence in the long-term value of the business. Approximately $56 million remained on our authorization as of the end of the third quarter. Now let me walk you through the details of the quarter. For our third quarter results, total ARR was $553 million, growing at 5% year over year on a reported and constant currency basis. Total revenue was $137 million, representing approximately 5% year over year growth on a reported and constant currency basis. Subscription revenue was $136 million, representing approximately 5% year over year growth on a reported and constant currency basis. We ended the quarter with 2,716 customers that contributed $50,000 or more of ARR, which is up approximately 4% year over year.

Customers with $50,000 or more of ARR now represent approximately 63% of our total ARR, up from approximately 61% a year ago. Dollar-based net revenue retention, which is calculated on a trailing twelve-month basis, was approximately 105% on a reported basis and 103% on a constant currency basis. Approximately 46% of our revenue was outside of North America in the quarter. Turning to profit and margins, note that unless otherwise stated, all references to profit measures and expenses are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliations provided in today’s press release. Third quarter gross margin was 78% compared to 81% in the same period in 2025. Third quarter adjusted EBITDA was $43.6 million, representing approximately 32% adjusted EBITDA margin. Unlevered free cash flow was $30 million in the third quarter.

CapEx, inclusive of $2 million of capitalized software development costs, was $9 million, or 7% of revenue in the third quarter. We ended the quarter with approximately $92 million of cash and an outstanding loan principal balance of approximately $397 million, representing net leverage of approximately 1.9 times. Since quarter end, we have also drawn the full $75 million of our delayed draw term loan. Also, as a reminder, the final installment payment for the AD Lumen acquisition totaling approximately $67 million is due in the fourth quarter.

Non-GAAP earnings per share was $0.12 in the third quarter, based on 187 million weighted average diluted shares. Let’s now turn to our financial outlook. Our guidance incorporates the following elements. First is the impact of updated FX rates. We are now using FX rates of 1.11 for the Euro and 1.33 for the Pound relative to our prior guidance. This drives an approximately $3 million headwind to full year 2026 ARR and a $750,000 headwind to full year 2026 revenue, with most of the revenue headwind flowing through to adjusted EBITDA. Second, renewal rates in the third quarter were roughly in line with first half renewal rates and our fourth quarter guidance assumes similar performance.

Moving to the fourth quarter of 2026, we expect total revenue in the range of $133 to $134 million, representing approximately 3% to 4% year over year growth on a reported basis and 4% to 5% on a constant currency basis. We expect fourth quarter adjusted EBITDA in the range of $39.6 to $40.6 million, representing an adjusted EBITDA margin of approximately 30%. For the full year 2026, our total revenue outlook is approximately $541 to $542 million, representing approximately 6% to 7% year over year growth on a reported basis and 5% on a constant currency basis. Our full-year ARR outlook is $558 to $560 million, representing 3% to 4% year over year growth on a reported basis and 5% on a constant currency basis. We expect full-year adjusted EBITDA of $158.5 to $159.5 million, representing an adjusted EBITDA margin of approximately 29%.

Looking ahead briefly, we see our full year 2026 constant currency ARR growth as the right framing for 2027 top-line performance as we build towards acceleration over time. With that in mind, we plan to keep investing in 2027 to drive this growth in product innovation, our go-to-market engine and agentic AI along with some one-time expenses. The market opportunity is compelling and we believe continuing to invest to capture this demand is the path that creates the most value.

We expect our full year 2026 unlevered free cash flow to be approximately $116 to $118 million. We expect CapEx, which includes capitalized software development costs, to be approximately 6% of total revenue for 2026. We expect cash interest payments of approximately $28 million, assuming interest rates remain in line with current levels. We expect total weighted average diluted shares outstanding of approximately 178 million to 181 million for the fourth quarter, and 186 million to 187 million for the full year.

Finally, we expect our non-GAAP tax rate to be approximately 25% for both the fourth quarter and the full year. Now I will turn it over to John for closing remarks.

John Pagliuca (President and CEO)

Thank you, Tim. Bringing this all together, demand for cybersecurity is large, urgent and growing. And AI is raising the stakes for every business we serve. The answer is smarter, more powerful software that is well governed. We have a profitable growing business, a strong platform, a new go-to-market leader and a clear plan. Every business deserves enterprise-grade protection, and that is what we are focused on delivering. And with that, operator, we are ready for questions.

OPERATOR

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mike Sikos with Needham.

Mike, your line is now open.

Mike Sikos (Analyst at Needham)

Great, thanks for taking the questions here, guys. I just wanted to start with the renewal rates that you guys are noting in Q3 and then the assumptions for Q4. Just rewinding the clock to Q2, right? So UEM and EDR, we were told that the renewal rates had drifted down, exited the quarter somewhere in the mid-80s. And I’m just looking to get an update. How did Q3 shake out relative to Q2? Did we see any improvement on those renewal rates?

James Tim OBrien (EVP)

Thanks, Mike. This is Tim. We saw steady renewal rates in Q3 compared to Q2, and that’s similar. And as we look into the Q4 guide, we’ve assumed again similar rates. So we haven’t seen an improvement there on the renewal rates to date.

Mike Sikos (Analyst at Needham)

Got it. And I know that—well, two pieces on that, right? Is that why, when we are thinking about a starting point for calendar ’27, I know you had said, hey, calendar ’26, the ARR constant currency is a good framework. Is that being heavily influenced by that renewal rate? And then also, what are you seeing on go-to-market to give you some confidence that renewal rates do start to improve as we think about the future?

John Pagliuca (President and CEO)

Morning, Mike, it’s John here. How are you? So, hey, look, if you think about the growth algorithm, right, there’s obviously the land, the expand and the retain part of it. The retain part of it, there’s a cohort that’s the renewals and there’s also, we have a good part that’s not necessarily committed. The gross retention piece, you know, for a good amount of time has been pretty consistent. And we do expect—and that’s always been kind of in the mid-80s—we do expect that to improve.

But when we look ahead, what we’re aspiring to and where we’re aspiring to go more toward the acceleration of growth is really on the expand piece and then on the new piece. And on the expand piece, we have a basket of new high-demand SKUs that are fresh, whether they’ve recently been in market last quarter or whether we’re putting them in market this quarter and in the beginning of 2027. So we’re bullish and optimistic about our expand and what’s on the docket to bring in, right. We talked about drafts, we talked about Google Backup, we have incident response on the security side, we’ve introduced a whole cohort of SKUs related to endpoint security.

So we’re bullish there. That being said, we want to earn and see the results of these new SKUs, these new cohorts, these new ESCRs, if you will. And as we realize those results, you’ll start seeing that first show up in the actuals and then into our guide. But until we actually see the realization of some of that, we’re going to continue to be prudent and cautious with our guide. And then similarly on the new part, we mentioned Russell, who’s our new CRO. He’s doing great things already. He’s up-leveling the level of professionalism. I expect win rates to improve, but he’s also looking across different geos and seeing where we can expand efficiently in some of these markets where we’ve done okay but we expect to do better. But again, we’re not necessarily going to be baking that into our guide until we actually see the fruit of our labor and see some of these things realized, which we think is the proper thing to do.

We want to realize the acceleration and not forecast the acceleration. And so when I think about ’27, the renewal rates and the GRR have been pretty consistent. It’s more about the upside on the expand and on the NCA, the new customer acquisition.

Mike Sikos (Analyst at Needham)

Understood. Thank you, guys.

John Pagliuca (President and CEO)

Thanks, Mike.

OPERATOR

Your next question comes from the line of Eric Sepicher with B. Riley. Your line is now open.

Ethan Weydahl (Analyst at B. Riley)

Hi there, this is Ethan Weydahl on for Erica. Thanks for taking my questions. For starters, you mentioned some geos for expansion there. Maybe can you expand on where you’re seeing the most opportunity?

John Pagliuca (President and CEO)

Sure. You know, usually on these calls I get a question on, hey, what’s changed in the last 90 days? And for me, the last 90 days I spent a good amount of time in Europe talking to managed service providers and cybersecurity professionals and IT directors in Europe. And one of the things that I see is that compliance is very much being pushed down now into the small-medium enterprises. Right. In countries like Italy. These are large markets, large GDP, with a good amount of IT professionals in markets like this where they’re getting more and more regulation pushed down not at the, even the, you know, not at the large enterprise but also the small-medium enterprise.

And that’s just one example. We’re seeing that across Western Europe. So we want to capitalize on the need for these small-medium enterprises to uplevel their security hygiene and also comply with new, up-leveled regulatory requirements. And so there’s a good amount of opportunity, and we want to make sure that we’re landing and accelerating our growth in markets like Italy, France. We have an investment in Doc. We brought in a new leader in Australia.

So these are established markets but with the heightened focus on a higher level of compliance and security hygiene, which should provide a nice boost to the MSPs that we service and then by extension N-able. So those are just a couple of good examples of what we’re seeing, and Russell is doing a good job mobilizing, in an efficient manner, teams that we can reap the benefit of these changes in the local markets. Sure. You know, captured in the prepared remarks, we list out, you know, a handful of SKUs that are endpoint security related. We talked about the FedRAMP one as an example, some of the AI SKUs. A good number of those SKUs are via our partnership, our strategic partnership with Sentinel One. And then some of them are actually our own homegrown IP. So yeah, the short answer is yes, we’re bringing those to market. It’s early days. But what I can tell you by monitoring the front line of both my customer success organization and my sales folks, we’re seeing more and more of those quotes coming in.

We’re beginning to see pipeline for those SKUs. They’re in demand. They will take a little bit of time to matriculate into real results, but early indicators show that there’s a good amount of demand there from a high-quality partner and a high-quality number of SKUs.

OPERATOR

Your next question comes from the line of Jason Ader with William Blair. Your line is now open.

Jason Ader (Analyst at William Blair)

Yeah, thanks. Good morning, guys. Wanted to ask on the gross retention, and maybe you can just help us understand: a mid-80s gross retention selling into the MSPs seems subpar. Maybe it’s not. Maybe that’s sort of average for the industry. But I would have thought, just given that the MSP model is different than selling to, you know, individual businesses where you would have a lot of churn with small businesses, with the MSP model you should, I don’t know, theoretically get better retention.

But maybe just walk us through that. And I don’t know if you have a historical view. When you guys were growing, you know, kind of double digits a few years ago and your NRR was 110%, was gross retention higher then, or was that more of a function of expand?

James Tim OBrien (EVP)

Hey Jason, this is Tim. I’ll unpack that for you. I’ll start with the history. If I look back even like into three, four years ago, 2022, like our gross retention rates were about a point higher, about 87% versus 86% on a constant currency basis. And then your point around the MSP versus the end customer, there’s a nuance there as we look at our, you know, any MSPs that we lose, the churn rate there. If you unpack the, you know, the 14 points there on that 86, about half of that is losing an MSP.

So I think your thesis is right. You know, do you lose an MSP at a lower clip than you lose an end customer? And the answer is yes. The difference in there is that the MSP has, you know, a wide range of a number of end customers depending on their business model. It can be, you know, a handful of customers and it can be north of a thousand customers that they’re managing. But they have churn within their end customers as well. So what we’ll see is some contraction within MSPs that may have a net kind of reduction in their end customers.

But we also have another, you know, the other half of the equation on MSPs that are adding a bunch of end customers. So what we see there is the other half of that equation is MSPs spending less with us. That makes up the other half of the retention equation. But it’s made up in all the MSPs that are net winners from a share perspective just within the MSP industry, if that makes sense.

Jason Ader (Analyst at William Blair)

Gotcha. So if an MSP is spending less with you, then it’ll affect the gross retention rate. Are some MSPs spending less with you due to moving to other vendors, or is it more of a function of their customer base is shrinking and they don’t have as many seats anymore so they’re spending less than you? And I guess what I’m getting at is, versus a few years ago, is it more of a macro driver here that, you know, the overall kind of, call it, small business economy is weaker and that’s impacting MSP spending, or is it more a competitive pressure or pricing pressure or something like that?

John Pagliuca (President and CEO)

Yeah, I wouldn’t say that the small-medium enterprise economy is getting weaker, and the demand for MSPs is quite strong. The MSPs themselves are a little bit more in a mature market. In other words, when they’re landing a customer five years ago, Jason, when they were landing a customer, that customer might never have had an MSP before. So if you think about it, that would be a net add. Now, as small-medium enterprise is a little bit more mature, compliance is more of a readily steady phenomenon here.

MSPs are now taking share from another MSP. So the MSPs are getting larger. The good news is, as MSPs are getting larger, they’re also beginning to take share in a co-managed model through bigger and bigger enterprises. We’re seeing MSPs here in the U.S., but also abroad, you know, now starting to be part of a co-managed model for even Fortune 1000 companies. So that’s a nice expansion piece. Of course, we continue to see competition, and that’s good because we know it’s a growing market.

But I’d say probably the bigger change from maybe a few years ago is that when an MSP lands a customer now, it has just as much of a chance of being from another MSP as opposed to maybe a greenfield for the MSP market.

Jason Ader (Analyst at William Blair)

Gotcha. Okay, then last, just to wrap it up for me, so the 103 constant currency NRR — for you to get, let’s call it, to 105 to 110, which I assume is your goal — is that not going to come from gross retention, it’s going to come more from expand? Is that the right framing? And then from an expand perspective, is that just sort of cross-sell, selling more products into the existing customers versus betting on MSPs adding more customers?

John Pagliuca (President and CEO)

Yeah, sure. So, you know, as Tim flagged, right, the GRR has been pretty consistent. I think as we look to aspire to that higher, you know, 10% growth number, can GRR be 100 bps better? Sure. Are we building plans and, you know, looking at our renewal rates, focusing on product stickiness? 100%. So I think some of the expansion comes from the GRR. But you’ve already nailed it, right? The bigger part, the bigger lever, is in the expand. And that’s why we’re excited about the new SKUs.

Draft is a high ASP, high demand, very sticky offering. It plays well with the small folks, it plays well with the big folks. And if you think about the rising cost of hardware, the timing couldn’t be better. Right. MSPs that have either invested in data centers or their small-medium enterprises that are invested in servers, they would love now to take away the headache, but also the cost, and putting that continuity dependency on N-able. Right. And so we’re excited about that.

Same thing with G Suite and security. So the big part of the acceleration here, beyond the success of some of these SKUs that we’ve already put in the market — and we gave you guys a couple of indicators — early days, drafts already surpassing a million dollars in ARR. G Suite already on day one already had thousands of mailboxes that we were backing up. We need to see that trend continue. Right. These are small snowballs. I like my snowball analogy. These are small snowballs that, as they accumulate, will start to show up in the $600 million business that we aspire to become.

But that’s why we’re looking forward to it. But the short answer: expansion. The new SKUs and cross-sell with some of these new SKUs and continuing to continue to cross-sell at Lumen. That Lumen has been a success. We gave you guys a couple of breadcrumbs in the prepared remarks as to the velocity and size of Ad Lumen and, you know, we’re all, we’re just getting started. As we mentioned in prepared remarks, we expect that to be a nine-figure opportunity as we continue to cross-sell that as well.

Jason Ader (Analyst at William Blair)

Thank you.

OPERATOR

Your next question comes from the line of Joe Vandrick with Scotiabank. Your line is now open.

Joe Vandrick (Analyst at Scotiabank)

Thanks for the question. Jonamy. You were just talking about Ed Lumen, and cybersecurity I think was the first thing you talked about in your prepared remarks. It seems like the cyber threat landscape is really just continuing to worsen, especially for SMBs that may not have resources to defend themselves. So can you talk about how you’re helping your MSP partners educate their customers on these threats, and are you seeing this translate to higher adoption of your security solutions?

Is that translating to adoption of COVID and Ad Lumen?

John Pagliuca (President and CEO)

Sure. And Joe, you’re actually teasing out a really unique part of our value proposition and one of the more important moats that we have. We call our MSPs partners because they are our partners, and a good part of our model is in the sell-through, and a lot of that sell-through is giving the MSPs collateral, pricing advice as far as how they go to market with their bits. We do a lot of peer-to-peer and provide a lot of expert service on the go-to-market parts as well so that they can then go educate their customers.

One of the biggest parts that’s helping the MSP is along the lines of compliance. Right now, MSPs can walk into their small-medium enterprise and not sell security, but tell that small-medium enterprise operator, that owner, why they need to be compliant if they’re in the healthcare space, if they’re in a financial services organization, if they’re in manufacturing, etc. So a lot of the things that’s providing a lot of a boost for the MSP as it relates to security is that more and more markets are driving more and more descriptive and higher hygiene level of compliance in different verticals and different GEOs.

So we’re making sure the MSPs are educated, we’re making sure we’re helping them think through the complete business resilience story. Again, this is one thing that we separate, is that we’re not a cybersecurity company in that we’re providing just one part of the equation. We’re a true business resilience company that gives MSPs the tools for before an attack with our patching and our vulnerability management capabilities and our monitoring capabilities; during the attack with Adlumin and our endpoint security and our threat hunting; and then after the attack with Cove and our data and our data protection.

So we preach business resilience, we preach the end-to-end cyber story. And we preach it not just from a technology point of view, but also from a go-to-market point of view. And we make sure that that translates to our end customers that the MSPs are servicing as well. And by the way, that’s also true for the internal IT departments that we service. So that’s what’s resonating. We have a technology moat, we’re architected for the small-medium enterprise, we’re architected for the MSP, but we also have a go-to-market moat in the way that we service and partner with these MSPs that enterprise companies do not do and do not focus on.

But it is a big part of our story, and we do see cybersecurity to be an ongoing tailwind in the small-medium enterprise for sure.

Joe Vandrick (Analyst at Scotiabank)

Yeah, very helpful. And then I think, John, you called out Russell’s appointment as CRO, but some of those changes being made have led to some variability. Can you talk a little bit more about the sales strategy, what changes have been implemented? And then I think you mentioned some early encouraging results, but any more detail there would be great, thanks.

John Pagliuca (President and CEO)

Sure. So Russell’s been here for about 90 or so days, and he’s been really focused on up-leveling the professionalism in the organization and streamlining and simplifying a lot of the things that we’re doing in go-to-market. He has a real clear vision on how we want to expand internationally with different GEOs and pods. I hinted at that a little bit earlier, Joe, in some of the earlier responses. So I would say he’s got a good focus on the international, and then here in North America and I’d say worldwide, bringing on more of a technical seller, investing in our SEs.

As MSPs get more mature, as the landscape gets more complicated, bringing in a technical resource that can help the MSP navigate not just the sale, but the ongoing implementation of our services. And he’s been laser focused on up-leveling our technical depth as a sales organization. And so I think that will help us win the bigger accounts, but also help us be a guide and provide that guide for the medium and small MSPs as well. So, so far so good, and we’ll continue to provide updates as this journey is continuing with us here.

Joe Vandrick (Analyst at Scotiabank)

Thank you.

OPERATOR

Your next question comes from the line of Keith Bachman with BMO Capital Markets. Your line is now open.

Adam (Analyst at BMO Capital Markets)

Hi, this is Adam on Trickey. Thank you for taking the question. I wanted to ask specifically on the AI-driven positive MSPs you mentioned last quarter, just given the market uncertainty and the need for the MSPs to define their own AI strategy, particularly on the endpoint. So has that changed since last quarter? How’s it trended, and what are your expectations for that going forward? Thank you.

John Pagliuca (President and CEO)

Sure. When I think about AI, I’ll bifurcate it a little bit as it relates to cybersecurity. I think there’s a general acknowledgment: MSPs are aware, I think cybersecurity professionals are aware, that you need to fight fire with fire. And having an AI-driven SOC that we have here at N-able is becoming, frankly, table stakes. Having technology and cybersecurity tools that again are AI-reinforced or AI-led are becoming more and more the common and the norm, and MSPs are, I would say, grokking that and they’re adopting those services, and that’s why Adlumin has been successful.

For tools that are more IT operations and that are in their tech stack, we’re seeing a rapid adoption of some AI tooling across the MSP base, probably most notably in Sharper in North America and maybe the UK and Benelux. But we’re seeing that adoption, which is why we’re excited about Enzo, which is why we’re excited about our AI strategy and the co-workers that we’ve put in—the vulnerability management one, the patching one—because it’ll help MSPs, and we’re not stopping there.

We’ll be continuing to provide AI tooling that is only really, frankly, enhancing the SaaS tools and enhancing our UEM bits. Our vision really is to deliver an autonomous endpoint management platform so that MSPs can focus on the more complex parts of the organization. But it is causing MSPs to take a step back and rethink or reimagine what their organizations look like, how they’re triaging tickets, how they’re responding to tickets, what their management structures need to look like. And so we are seeing MSPs rethink their tooling overall, which we believe in the medium term presents a really large opportunity for players like N-able. And we’re poised, and we continue to invest, to hopefully reap the benefits of that next evolution toward autonomous endpoint management.

OPERATOR

There are no further questions at this time. I will now turn the call back to CEO John Pagliuca for closing remarks.

John Pagliuca (President and CEO)

Thank you all for joining us today and look forward to speaking to you in the next quarter.

OPERATOR

This concludes today’s call. Thank you for attending. You may now disconnect.

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