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Datto Adds 1,000 MSP Customers, Even As COVID-Related Churn Hits Base

“There have been some MSPs running right into the eye of the storm and saying change is good. I think just more MSPs have to adopt that to return to previous levels,” Datto CEO Tim Weller told investors.

Newly public Datto raised more than $641 million from its IPO last month (above), which the company has used to pay off more than half a billion in debt, while holding onto about $50 million in free cash, CEO Tim Weller said during the company’s first-ever earnings call.

Norwalk, Conn.-based Datto - which began trading October 19 on the New York Stock Exchange under the ticker symbol MSP – said revenue for its third quarter ending Sept. 30 came in 11 percent higher than a year ago, backed by higher subscription sales. Datto has added about 1,000 MSP customers since September 2019, with 200 net-new MPS customers joining Datto in the just-completed quarter for a total of 17,200 MSPs that use Datto’s IT solutions globally.

Subscription revenue was up 17 percent this quarter to $122.8 million compared to $105.2 a year ago, Datto said.

However, the company said its retention rate – the number of MSPs who are sticking with Datto -- suffered a bit, dropping from about 88 percent prior to March to around 84 percent in June. Datto CFO John Abbot attributed the losses to small MSP customers who were hit hardest during the opening days of the pandemic.

“This year actually has been another very strong year in the gross addition of new MSPs, but it‘s been accompanied by higher churn of MSPs as well, and generally those have been smaller MSPs, and that all makes sense in the context of COVID,” Abbot told investors.

Weller said the SMB market spent $137 billion with MSPs in 2019. That spend is growing four times faster than the overall IT spend by SMBs as those businesses increasingly turn to solution providers for better uptime and cybersecurity needs. He said Datto’s MSP customers target “the ‘M’ in ‘SMB’ “ mentioning car dealerships and insurance companies, which run complex e-commerce environments and can’t afford to be offline for a moment.

“I‘ve talked to a few MSPs in the last couple months who told me they’re having record years, and they’re accelerating the number of proposals that are going out,” Weller said. “There have been some MSPs running right into the eye of the storm and saying change is good. I think just more MSPs have to adopt that to return to previous levels.”

Datto reported total revenue of $130.7 million, up 11 percent from $117.7 million in the third quarter of 2019. Datto’s net income for the third quarter was $19.5 million for an earnings per share of $0.14. The company’s IPO price was $27.00 on Oct. 19: On Tuesday Datto traded about a dollar higher at 28.02.

Datto’s IPO came amid talk that other MSP software tool providers are considering jumping into the public market. Solarwinds, which provides MSP tools under the name Solarwinds MSP, is mulling whether to spin that business off into a publicly traded company or as a stand alone private company.

Datto, which was acquired by Vista Equity Partners and merged with Autotask in December 2017, was the first of the major MSP tool providers: ConnectWise, Kaseya, and Solarwinds, to make the IPO leap.

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