N-able CEO: Economic Headwinds ‘An Opportunity’ For MSPs
‘Unlike a lot of other industries where there might be some headwinds in markets, things related to labor shortage or cybersecurity or even cloud optimization … for MSPs, that’s an opportunity,’ says N-able President and CEO John Pagliuca.
Despite a slowing economy and inflation affecting many industries, macroeconomic conditions give way to more opportunities for MSPs, said N-able President and CEO John Pagliuca.
During N-able’s 2023 first-quarter earnings call Wednesday, Pagliuca said the new normal in the market is that the Burlington, Mass.-based software vendor company and its partners must constantly adapt to the ever-changing nature of the macroeconomic environment. As external circumstances may change, he said N-able’s strategy “remains on target.”
“We believe we are well positioned as a critical infrastructure component to help our MSPs take advantage of the durable secular trends that exist regardless of the economic cycle,” he said. “That healthy demand we see, which industry observers echo, give us confidence with the right strategy [and] with the right business model to address the IT complexities, cyberthreats and IT labor challenges that face the industry.”
Pagliuca, who was calling from N-able’s Empower conference in Prague this week, said he has spoken to a few MSPs about economic headwinds. In those conversations, he said many saw a decline in projects in the fourth quarter of 2022 but recurring revenue continued to be strong. However, those projects ramped up in 2023.
One investor asked how the macroeconomic environment is impacting the business. Pagliuca said while other industries may feel a sting, IT services is full speed ahead.
“MSPs are growing both organically and inorganically,” he said. “Their growth algorithm is a healthy mix between adding new customers and adding services. Where we’re adding services continues to be around security and data protection, so that roughly aligns with where we’re seeing our growth.”
He added that N-able’s data protection and security offerings continue to outpace revenue predictions, so “the demand for [these offerings] in the MSP world is quite high.”
“Unlike a lot of other industries where there might be some headwinds in markets, things related to labor shortage or cybersecurity or even cloud optimization … for MSPs, that’s an opportunity,” he said.
Another question was on credit conditions tightening and how that’s impacting N-able and its partners in the M&A landscape. Pagliuca said he has seen M&A slow down slightly but that the quality of the deals remain.
“The MSP market we serve remains healthy, driven by persistent tailwinds,” he said. “IT management continues to increase in complexity. Cyberthreats are escalating and becoming more insidious. And it remains the case that small and medium-size businesses are challenged to hire technicians in a tight IT labor market.”
For the first quarter of 2023, N-able reported total revenue of $99.8 million, a 10 percent increase from the first quarter in 2022. Subscription revenue was up 10 percent year over year to $97.4 million, GAAP gross margin was 83.8 percent, GAAP net income was $3.5 million, non-GAAP net income was $15.0 million and adjusted EBITDA was $32.7 million.
Looking ahead, N-able management expects revenue in the second quarter to be in the range of $102.5 million to $103.0 million, about a 12 percent increase year over year. Total revenue for 2023 is expected to be in the range of $414 million to $417 million, about 11 percent to 12 percent year-over-year growth.
N-able’s fiscal year runs from Jan. 1 to Dec. 31. On Wednesday, N-able’s stock was $13.15 per share, up from $10.31 at the start of the year.