SolarWinds CEO Kevin Thompson's favorite acronym appears to be MSP (managed services provider). The evidence: Thompson, his executive team, and Wall Street analysts mentioned the MSP software market roughly 40 times during SolarWinds' earnings call last week.
The company's overall business focuses on IT management and automation software. But a specific division -- SolarWinds MSP -- focuses purely on managed services providers. The overall tone during the earnings call was upbeat.
Among the key topics discussed: The growing wave of private equity dollars flowing into the MSP software market (a trend that ChannelE2E has covered closely) affirms a SolarWinds' business strategy that extends back to 2013, Thomson asserts. He noted:
"The MSP market is continuing to grow, and that growth was dominated in a big way in 2018 as we saw a large amount of private equity and venture capital money pour into the space. Venture capital and private equity funds have finally caught on to what we believe is our first investment in the MSP market in 2013, which is with the explosion in the amount of technology being leveraged by companies of all sizes and in all industries, small businesses must have help to leverage and manage the infrastructure and applications their businesses rely on and that an increasing number of these small businesses will turn to MSPs to manage this complexity for them."
The 2013 deal, by the way, involved SolarWinds acquired N-able Technologies, an on-premises RMM (remote monitoring and management) software provider, for roughly $120 million. SolarWinds went on to acquired LogicNow, a cloud-based RMM provider, in 2016. Additional tuck-in deals -- which will power SolarWinds' IT professional and MSP tools -- have also arrived in recent months.
Private Equity and MSP Software Company Acquisitions
During the call, Thompson didn't mention specific private equity deals involving rival MSP software and technology companies. But ChannelE2E has certainly tracked quite a few of them. The list includes:
- Axcient (owner: K1 Capital)
- Barracuda Networks (owner: Thoma Bravo)
- Continuum Managed Services (owner: Thoma Bravo)
- Datto (owner: Vista Equity Partners)
- Kaseya (owner: Insight Venture Partners)
- LogicMonitor (owner: Vista Equity Partners)
- SolarWinds itself (owners: Thoma Bravo, Silver Lake and public stock)
- StorageCraft (Owners: TA Associates)
The major private equity holdout, so far, is ConnectWise. The company remains closely owned by its founders, thought private equity firms have certainly inquired about the business.
The competitive landscape is both expanding and consolidating. Just last week, Carbonite acquired Webroot -- uniting yet another cloud- and appliance-centric backup and disaster recovery (BDR) company with MSP-centric security services for SMB customers.
SolarWinds MSP: RMM, DRaaS, Private Cloud Backup
Amid the crowded market, Thompson says SolarWinds is "best positioned to attack this MSP opportunity" because of the company's:
- leading position in remote monitoring and management;
- expanding presence in backup and security; and
- the power of the SolarWinds brand and a deep technology portfolio.
He didn't back up the claims with specific stats, but SolarWinds is believed to support more than 20,000 MSPs worldwide -- one of the largest figures we've heard in the market.
The company's next R&D moves for MSPs will include private cloud backup as well as disaster recovery as a service as part of a backup offering, Thompson indicated.
SolarWinds MSP: Software Milestones, Revenue Clues
Among the recent MSP-related software milestones Thompson noted:
- Many of SolarWinds' traditionally corporate IT tools and capabilities are increasingly available to MSPs.
- The effort includes network device monitoring for MSPs, which leverages intellectual property from our SolarWinds' network management product. MSPs can monitor switches, routers and firewalls from a single pane of glass. (The effort is a key counter move to upstarts like Auvik Networks, ChannelE2E notes.)
- SolarWinds' NetPath on-premise network performance monitoring product, which analyzes the performance of data movement along the path between user and application wherever the user and the application happen to be, has also extended to MSPs.
MSP subscription revenues played a key role in SolarWinds' overall financial results during the quarter, CFO Bart Kalsu asserted. Among the anecdotes he shared:
- Fourth quarter revenue growth was led by non-GAAP subscription revenue of $69.6 million, which grew 19 percent year-over-year," reflecting solid growth within both our public cloud management and MSP product lines."
- "We believe the fourth quarter growth in our MSP product line reflected our success in capitalizing on a large market opportunity in MSP, driven by the combination of strong new customer acquisition and solid customer net retention rate, resulting from the hard work put forth by our MSP sales and marketing team during the fourth quarter and throughout all of 2018."
- The SolarWinds MSP sales team is focusing on improving the "quality of new customers added."
SolarWinds MSP: Market Size, Price Updates
Meanwhile, SolarWinds has also issued an MSP market report -- the "2018 Trends in Managed Services" reveals a range of positive market trends in North America and Europe, the company says. The report leverages The 2112 Group's MSP Pulse benchmarking tool.
Still, MSPs need to carefully manage their end-customer pricing as certain services commoditize and some vendors adjust pricing. SolarWinds, for instance, is preparing to raise prices on certain MSP products by 2 percent to 4 percent, roughly, Thompson indicated during the earnings call.
Some MSP software rivals have "increased price substantially over the last six to nine months while we've not done anything with price," Thompson added, though he didn't mention rivals by name.
SolarWinds Overall Quarterly Results
SolarWinds' overall revenues were $221.2 million in Q4 2018, up 11.5 percent from Q4 2017. The company had a net loss of $14.7 million, far smaller than a $39.7 million net loss during the corresponding quarter in 2017. The figures generally beat Wall Street's expectations.