SolarWinds' board is seeking a new CEO to succeed Kevin Thompson as part of leadership transition plan, and the company intends to move forward with its SolarWinds MSP business spin-out led by John Pagliuca, Thompson disclosed during the software company's earnings call on October 27, 2020.
Amid those updates, Thompson also noted:
- John Pagliuca, as expected, will shift from president to CEO of SolarWinds MSP if the spin-out happens.
- SolarWinds' board has hired an executive search firm to find a CEO to run the core IT management software business -- essentially, someone to succeed Thompson. The search firm has "presented a number of qualified and interested candidates to the search committee of our Board of Directors," Thompson said.
It sounds like the SolarWinds CEO search is proceeding rapidly. The clue: Thompson indicated that this was likely the final earnings call he will host.
Potential SolarWinds MSP Spin-Out: Progress Report
SolarWinds announced a potential MSP software business spin-out in August 2020. The move would allow the MSP business to focus even more on growth within the MSP segment, while the parent business could focus more on traditional profits in the IT professional market, company officials indicated in August.
Based on an extensive board review, SolarWinds intends to "proceed forward with the separation process," Thompson said on the October 27 earnings call. "Although, the structure and timing of the transaction still must be finalized."
"We expect that the spin-off of the MSP business is going to receive the final approval by our Board of Directors to occur during the first half of 2021. However, there are still a number of legal organizational and operational items that must be accomplished over the coming months to finalize the definitive proposal for final separation for approval by our Board of Directors."
SolarWinds MSP: John Pagliuca's Perspectives
To the best fo ChannelE2E's knowledge, this is the first time Pagliuca has joined SolarWinds CEO Kevin Thompson on the earnings call to provide a deeper dive on the MSP business.
More than 50 percent of SolarWinds' subscription revenue comes from the MSP business, Thompson said, while introducing Pagliuca.
From there, Pagliuca noted:
- MSPs leverage SolarWinds MSP's software to manage technology for more than 500,000 small businesses worldwide.
- SolarWinds MSP expects to generate slightly over $300 million of non-GAAP revenue in 2020. Roughly half of that revenue comes from outside the united states.
- SolarWinds MSP has been growing at a CAGR of 16% on a constant currency basis in the first quarter of 2018 and year-to-date 2020, and grown non-GAAP revenue 15% on a constant currency basis and 12% in the third quarter.
- Net retention rate is 107% on a trailing 12-month basis, both as on reported and constant currency. The company expects net retention rates to drop slightly in Q4 amid the pandemic before beginning to improve in early 2021.
With an eye toward the coronavirus pandemic and its overall implications for the MSP sector, Pagliuca added:
"By nature of our business, we operate behind the scenes of our MSP partners. And as part of a larger SolarWinds parent we've thrived under relative obscurity to those outside of the MSP market.
While we saw slight deceleration in our MSP business as a result of COVID-19, our most recent trends indicate that the MSP market is beginning to accelerate. Notably, ARR growth in the third quarter was a couple of percentage points higher than our MSP business revenue growth."
MSP Technology Industry: More Financial Context
Both SolarWinds MSP and Datto are bellwethers for the overall MSP technology market. Parent SolarWinds ($SWI) often discloses the MSP business's financial performance on earnings call. And Datto ($MSP) will now disclose earnings on a quarterly basis.
Those data points allow MSP technology companies and partners worldwide to measure their own business performance vs. the publicly disclosed SolarWinds and Datto metrics. The performance benchmarks are particularly important as more MSP-focused technology companies seek private equity, venture capital or other types of financial backing.