SolarWinds Corporation
Q4 2014 Earnings Call Transcript

Published: 30 Jan 2015

[Operator:]

Good afternoon. Welcome to the SolarWinds Fourth Quarter 2014 Earnings Call. This call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Mr. David Hafner, Director of IR. Please go ahead, sir.

[David Hafner:]

Thank you, Camille, and I'd like to say good afternoon, everyone, and welcome to SolarWinds' Fourth Quarter 2014 Earnings Call as well. With me today are Kevin Thompson, our President and CEO; and Jason Ream, our Executive Vice President and CFO. Following prepared remarks from Kevin and Jason, we'll have a brief question-and-answer session. Please note that this call is being simultaneously webcast on our Investor Relations website at ir.solarwinds.com. Please remember that certain statements made during this call, including those concerning our financial outlook, our expectations regarding growth and profitability, our market opportunities and our product releases are forward-looking statements. These statements are subject to a number of risks, uncertainties and assumptions described in our SEC filings, including our Form 10-K for the fiscal year ended December 31, 2013, which was filed on February 14, 2014. Should any of these risks or uncertainties materialize or should any of our assumptions prove to be incorrect, actual company results could differ materially and adversely from those anticipated in these forward-looking statements. These statements are based on currently available information, and we undertake no duty to update this information except as required by law. The cautionary statements regarding these forward-looking statements are further described in today's press release. In addition, some of the numbers during this call will be presented on a non-GAAP basis. Our use and calculation of these non-GAAP financial measures are explained in today's press release, and a full reconciliation between each non-GAAP measure and its corresponding GAAP measure is provided in the tables accompanying the press release. Each non-GAAP item in our forward-looking financial outlook that we will provide today has not been reconciled to the comparable GAAP outlook item because we cannot reasonably or reliably estimate future adjustments. Lastly, today, when we speak about expenses and margins, you can assume we are talking about the non-GAAP figure unless we specify otherwise. And when we talk about growth rates, you can assume we are discussing year-over-year rates to the prior comparable period unless we specify otherwise. And with that, I'll now turn the call over to Kevin.

[Kevin B. Thompson:]

Thanks, Dave. We are pleased to report a strong finish to what has been a very good year for SolarWinds. Total revenue was a record $118.4 million in the fourth quarter, reflecting growth of 22%. Our revenue growth in the fourth quarter was led by strong year-over-year growth in recurring revenue of 28% and another very solid quarter license revenue growth of 14% against a strong growth compare in the fourth quarter of 2013. On a constant-currency basis, our fourth quarter results reflect even stronger growth, as total revenue on a constant-currency basis was $120.1 million, reflecting a year-over-year increase of 24%. On a full year basis, in 2014, we returned to our high-growth ways, delivering 28% growth in revenue with total revenue reaching $428.7 million. As you may recall, in November of 2013, we committed to driving meaningfully higher new business growth in 2014. We said we were focused on driving a minimum of 20% new business growth as our medium-term goal, and that we believed that core product license and subscription sales could each be in the range of that level of growth. We have delivered on that commitment in 2014 with total core product and subscription new business bookings growth of 27%. This is comprised of core product new license booking growth of 21% and new subscription bookings growth of 190% year-over-year. The increase in license bookings was driven by accelerated growth in network management core product license sales and another strong year of systems management core product license sales growth, while the increase in new business subscription bookings was driven primarily by a record year of sales and growth in our MSP business with a small contribution from Pingdom, which we acquired in June of this year. In the fourth quarter, we also continued our unbroken string of quarters with non-GAAP operating margins exceeding the outlook that we provided. Our non-GAAP operating margin for the fourth quarter of 2014 was 44%, rated in the full year to over 43.5%. Overall, 2014 was a great example of the unique ability of our operating model to simultaneously deliver accelerating growth and high margins, which is something the operating models of most of our high-growth peers seem unable to do. We have consistently stated that we see a large growth opportunity for SolarWinds in the on-premise market for managing the performance of IT infrastructure that is deployed behind the company's firewall. In addition, we have said that we believe many of our competitors have reduced their investment and focus on serving the on-premise market while we have increased our investment and focus. We believe our fourth quarter and full year 2014 results serve as a proof point that this growth opportunity in fact exists for us and that we are executing successfully against it. In the fourth quarter of 2014, our core NetMan products new business sales grew by 17%, and our core Sysman product new business sales increased by 12%. This growth in our core Sysman products is more impressive than it looks at first glance, considering the strong compare to the fourth quarter of 2013, when we experienced over 75% growth. On a sequential basis, Sysman and core products new business sales increased by 16%. For the full year 2014, we delivered significantly higher growth in core NetMan new business sales than in 2013, reaching 14% for the full year with the second half of the year right at the 20% new business sales growth bar. The increase in core NetMan products new business sales during 2014 was led by accelerating growth of SolarWinds' NPM and associated scalability engines. We feel our 2014 NetMan performance should put to rest the bear case that the NetMan market is stagnant and that no growth is available for SolarWinds in that market. Our core Sysman products new business sales, which had been a consistent growth driver for us over the last 3 years, continue to show very strong growth, increasing by 34% on a year-over-year basis driven by SolarWinds SAM, SolarWinds database performance manager and SolarWinds Virtualization Manager. As we discussed in some detail at our Analyst Day in November, we believe there's a rapidly growing market opportunity to provide a broad set of IT infrastructure management services to a large number of small businesses that have adopted a light IT approach to building their IT infrastructure. We also currently believe that the most effective way to reach these small-business buyers is through the MSP channel. Our MSP team delivered another strong growth quarter in a series of very strong growth quarters, with new business sales increasing by 25% in the fourth quarter, and subscription bookings, which is a new business growth driver for our MSP business, increasing by 44%. As we have been discussing for the last 15 months, our strategy is to create a set of products that provide IT and DevOps pros the ability to manage the performance of all things IT. At a little deeper level of detail, we believe that it's as critical to provide IT pros with the ability to monitor and manage IT infrastructure across the hybrid world. To that end, today, we are announcing the acquisition of Librato. Librato brings to SolarWinds a cloud-based monitoring platform that will allow us to extend infrastructure and application performance management capabilities across cloud platforms such as AWS, Heroku and Azure in addition to almost 100 other additional sources. Librato is a cloud-based monitoring service currently used by IT pros, operations teams and developers who write and run applications at scale and want to turn the massive amounts of data produced by their apps, tools and services into actionable insights and enable quick resolution for performance problems. Librato currently allows IT and DevOps pros to combine, correlate and inspect metrics from every layer of the cloud infrastructure stack with servers to applications and everything in between, providing real-time monitoring of cloud-based infrastructure. We believe the Librato platform provides SolarWinds with the ability to create a bridge between management of on-premise IT infrastructure and cloud-based IT infrastructure. We also feel that the Librato team has built a very powerful cloud monitoring foundation that we can leverage to solve a number of specific performance management problems for IT and DevOps pros by turning the power of the platform into a set of products which IT and DevOps pros can easily buy at a very affordable price to solve specific problems. As a result, we are planning to spend the remainder of the first quarter packaging and pricing new subscription offerings based on the features and capabilities that already exist within the Librato monitoring platform to allow IT and DevOps pros to much more quickly and easily identify and purchase the solution they need to address performance the problems that they have. We expect to bring several of these new offerings to market during the second quarter of this year. We're excited to have all the employees of Librato become part of the SolarWinds team. We look forward to having them join us in disrupting the cloud management market just as we have disrupted the traditional on-premise IT management market. I will now turn the call over to Jason Ream, who will discuss additional details regarding our fourth quarter performance and will provide our outlook for the first quarter of 2015 as well as an update of our full year 2015 outlook.

[Jason Ream:]

Thank you, Kevin, and good afternoon to everyone on the call. We are pleased to report another quarter of strong performance as well as the completion of a very solid year in terms of both revenue and profitability. Highlights for the fourth quarter include total revenue of $118.4 million, at the high end of our outlook range, representing 22% growth versus the fourth quarter of 2013 or 24% on a constant-currency basis. Despite the currency headwinds in Q4, our revenue growth for the full year of 2014 was a solid 28%, fueled by strong performance of our core commercial license products and by growth in our MSP business. In addition, we had another strong quarter of operating margin performance in Q4, with non-GAAP operating margins coming in above 44% as a result of total revenue coming in at the high end of our range and because expenses were a little lower than what we had built into our outlook for the quarter. We have continued to invest aggressively in the opportunity we see in the markets we currently serve and in those we plan to enter. But as we have said before, the inherent leverage in our model drives the significant portion of our revenue growth into profitability. Lastly, during the fourth quarter, we continued to pursue the strategic direction that we have been following for the last year, and which we laid out in detail at our last Analyst Day. Specifically, we invested in our on-premise IT management software business in order to capitalize on the opportunity that we believe continues to grow for those products. We also continued our focus on serving the MSPs that manage the performance of IT for the SMB market and saw over 40% of revenue growth from the SolarWinds MSP business in the fourth quarter. And we have invested in the growing opportunity in the cloud through our Pingdom business, through the acquisition of Librato and through other ongoing initiatives. As Kevin mentioned in his remarks, we announced today the closing of the acquisition of Librato for total cash consideration of $40 million. Librato's an early-stage cloud company with approximately 20 employees who have all become part of the SolarWinds team, including the founders of Librato, Fred van den Bosch and Joe Ruscio, who were a big part of setting the strategic direction of the Librato cloud management solution. Now I will walk through some of the key metrics that we have committed to provide each quarter. First, core commercial license transaction volume grew by 13% in Q4 on a year-over-year basis. The average size for those core commercial license transactions was approximately $8,800, up slightly from $8,700 in Q4 of 2013 and up sequentially from $7,900 in the third quarter. Total revenue from network management products was $67 million, up from $66 million in Q3 and $59 million in Q4 of 2013. Total revenue from systems management products was $38 million, up from $35 million last quarter and $30 million in the fourth quarter of 2013. Our MSP and cloud revenue, which consists of our MSP products and Pingdom's website and web application management products, increased to $13 million in Q4 from $12 million last quarter and $8 million in Q4 of 2013. While we now report MSP and cloud revenue together, I will tell you that for the year of 2014, our MSP business delivered total revenue of over $38 million, a significant increase from what we recognized in 2013. Sales by our installed base team grew by 51% over a very strong compare in the fourth quarter of 2013, when sales by that team grew by over 200%. This continued a strong trend of growth by the team that focuses on selling into our large and growing core product customer base. North America is still the largest contributor to that number, and while the contribution from the international installed base sales teams grew at a higher rate, the growth from the North America team was very close to the overall average. Because this opportunity is so significant, we expect sales by our installed base team to continue to grow at a high rate in 2015 despite comparisons to a very strong 2014, as we are planning to continue to aggressively add resources to this team. Lastly, 28% of our revenue in Q4 came from outside of North America, an increase from 26% in Q3 and consistent with the first half of 2014, despite significant foreign currency headwinds which negatively impacted our international revenue. The increase in international revenue as a percentage of total was driven by strong growth in EMEA, Latin America and Asia. We have typically provided a view of our new business sales growth by major geography. But because our business has become significantly broader with the growth in our subscription and cloud offerings, we plan to narrow our disclosure in future quarters. We still plan to provide some view on new business sales, particularly as it relates to our strategic focus on rapidly growing our international business, in order to give you a better understanding of the trends in our business. With that said, total new business sales grew by 15% in the fourth quarter of 2014, led by particularly strong performance in MSP subscriptions, high year-over-year growth in license sales to U.S. federal and Latin America and very solid contribution from the large regions of North America and Europe. The regions I just listed grew at rates ranging from 12% to over 30% in the fourth quarter of 2014 versus a very strong comparison in the fourth quarter of 2013. In the fourth quarter, we saw the highest levels of new license sales in our history in North America, EMEA and Latin America. And while, as you would expect, U.S. federal's record quarters happened in September, that team did report the highest new license sales ever for our fourth quarter. Turning to expenses. Our total spend in the quarter was $65.9 million, an increase of approximately $4 million from Q3 and $12 million from Q4 of 2013. When we set our outlook for Q4, we were targeting the 40% to 41% operating margin level that we have set as a goal for the past several quarters. And while our total spend in Q4 was below what was implied in that outlook, we did increase our investment quickly in the areas where we believe that we could generate the appropriate level of returns. However, given the sequential revenue growth in Q4 versus Q3, we were unable to spend down to the 40% level. In Q1 and in the full year of 2015, we plan to invest aggressively in the opportunity to manage the performance of technology, both on-premise and in the cloud, as well as to make the connection between the 2, and we'll continue to drive towards non-GAAP operating margins in the 40% to 41% range. We ended the quarter with $268 million of cash and investments, with approximately 65% of that balance held in the U.S. Total cash and investments increased by $53 million during the quarter, driven primarily by strong operating cash flow of $52 million. We also reported record operating cash flow for the full year of 2014 of just under $200 million, an increase of $36 million or 22% growth from 2013. Turning to our financial outlook for the first quarter and full year of 2015. I would like to start by providing some context on the impact that the euro has on our reported results. As you know, the exchange rate between the euro and the U.S. dollar has been highly volatile over the last 3 months. In fact, we have seen the euro drop against the dollar throughout 2014 and into 2015 from an average of 1.37 in the first quarter of 2014 to 1.27 at the beginning of Q4, to 1.22 at the end of Q4 and to 1.12 in the early part of this week. International markets are a key part of our strategy for customer acquisition and revenue growth. And because we price our software, both license and subscription, in a variety of currencies around the world and have a functional currency of the euro in our international business, a strengthening dollar decreases the amount of dollar-based revenue that we will recognize from these sales. In particular, the most significant impact on our total revenue from fluctuations in exchange rates, particularly the euro-dollar exchange rate, is on our recurring revenue. But strengthening of the U.S. dollar also had a negative impact on license. With what I just walked through as the backdrop, as I provide our current outlook for Q1 and for the full year of 2015, I will also give you our current assumptions for the euro-dollar exchange rate as well as the context to make an apples-to-apples comparison with prior periods. For the first quarter, we currently expect to generate revenue in the range of $116.2 million to $118.4 million, representing 21% to 23.5% growth over the first quarter of 2014. The assumptions for new business sales as well as for maintenance and subjection renewals underlying this outlook are consistent with those that we made when we provided our outlook for 2015 at the Analyst Day in November. But we are now assuming an exchange rate of 1.12 as compared to the rate of 1.235 that we were using at that time. That change in assumption has the effect of reducing our expectations for revenue growth in the first quarter of 2015, which would have been approximately 23% to 25% if we were still assuming a euro rate of 1.235. And for reference, if the exchange rate in Q1 of this year was instead 1.37, consistent with what we experienced in the first quarter of 2014, our expectations for year-over-year revenue growth would be approximately 25% to 27%. I'm going to go quickly back through the numbers. As I know, it can be a bit difficult to capture them all on the live call. First, we are assuming a USD-euro exchange rate of 1.12. Second, our outlook for growth in Q1 of 2015 is 21% to 23.5%. Third, if we were using the same exchange rate we used in November, or 1.235, our expectations for growth would be 23% to 25%. And fourth, if we were using the rates from Q1 of 2014, or 1.37, in order to get that more apples-to-apples comparison, our expectations for growth in Q1 of 2015 would be 25% to 27%. Given the extreme volatility in the recent euro-dollar exchange rate, we think it is important to provide some metrics that you can use to estimate the impact of any continued movement in exchange rates. For example, we estimate that a $0.01 move in the average rate for Q1, either up or down from the $1.12 per euro that we assumed in our outlook, would increase or decrease our expectations for total revenue for the first quarter by approximately $135,000. As you know, we provide our outlook at the level of total revenue. But I do want to make some comments to help you understand how we expect the different components of revenue to grow. Specifically, currency does impact new license sales and, therefore, license revenue, but has a more substantial and measurable impact on our recurring revenue. Also, I want to remind you that we use a daily recognition model for our maintenance revenue. And given that there are 2 less days in Q1 than there were in Q4, when our maintenance revenue was almost $700,000 per day, the delta of 2 days has an almost $1.5 million negative impact on Q1. That effect happens every Q1. But combined with the impact of currency, you should expect maintenance and subscription revenue to account for a smaller portion of total revenue in Q1 of 2015 than you otherwise may have modeled. I will just note that while subscription revenue will be negatively impacted by currency headwinds as well, it should continue to be the fastest-growing component of our revenue. For Q1, we expect to generate non-GAAP operating margins of approximately 40% based on the assumption that we continued our ramp on investment in the business at a pace similar to that of Q4 and based on the addition of Librato, as Librato currently has negative operating margins, which we expect will be the case throughout the remainder of 2015. Lastly, for the first quarter of 2015, we expect our non-GAAP tax rate to be approximately 26% to 27% and to have approximately 77.75 million shares -- weighted average shares outstanding, driving non-GAAP earnings per share of $0.43 to $0.46. Turning to the full year of 2015. We currently expect to generate revenue in the range of $513 million to $531 million, representing 20% to 24% growth over 2014. Those growth rates represent a slight change from the outlook that we released on our Q3 earnings call and at Analyst Day in November as we are now using a euro-USD exchange rate of 1.12 instead of the 1.235 which we used at that time. But again, the underlying assumptions for new business sales, as well as for maintenance and subscription renewals, are consistent with that prior outlook. The change in the growth rates for the full year of 2015 is primarily due to the impact of the euro-dollar exchange rate, particularly on recurring revenue. If we were still using the euro-dollar exchange rate of 1.235, our expectations for total revenue growth in 2015 would be approximately 21% to 25%, which is a slight increase from the expectation that we provided in November, primarily to reflect an expectation of revenue contribution from Librato of approximately $2 million to $3 million during 2015. And again, for reference. If we assumed the average exchange rate in 2015 to be 1.32, consistent with what we experienced in the full year of 2014, our expectations for revenue growth would be approximately 22% to 26%, which is approximately 2 points higher than our outlook using current exchange rates. As I did for our Q1 outlook, I will repeat some of the key numbers that I just read. First, we are assuming a USD-euro exchange rate of 1.12. Second, our outlook for revenue growth in 2015 is 20% to 24%. Third, if we were using the same exchange rate we used in November, or 1.235, our expectations for growth could -- would be 21% to 25%. And fourth, if we're using the average rate from 2014 of 1.32, in order to get that more apples-to-apples comparison, our expectations for growth in 2015 would be 22% to 26%. Like the math that we provided for our Q1 outlook, we believe that a $0.01 move up or down from our current assumption for the average rate in 2015 of 1.12 would increase or decrease our expectations of -- for total revenue by approximately $470,000 from the $513 million to $531 million that is our current outlook. Our outlook for non-GAAP operating margins in 2015 remains at 40% to 41%, consistent with our prior outlook. We plan to continue to invest aggressively in our opportunity within the on-premise IT performance market -- management market and in SolarWinds cloud. We expect our non-GAAP tax rate for the year to be approximately 26% to 27% and to have approximately 78.25 million weighted average shares outstanding, driving non-GAAP earnings per share of $1.92 to $2.04. Lastly, I will provide a little color on our acquisition of Librato and its impact on our outlook. Librato is still very early in its revenue generation model, which we expect will continue to evolve as it is integrated within SolarWinds and within our strategy for connecting on-premise and cloud technology performance management. Nevertheless, we do expect Librato to contribute revenue to our overall total. We currently expect for that to be a negligible amount in Q1 and in the range of $2 million to $3 million for the full year of 2015. We plan to invest in the business and in creating the connections between on-premise and cloud, and expect that Librato will be dilutive to 2015 operating margin. We plan to fund the investment in Librato for at least the near term with incremental leverage that the rest of the business is generating, as our operating margin outlook for the year remains the same as it was before the acquisition. With that, I will turn it back to Kevin.

[Kevin B. Thompson:]

Thanks, Jason. As you heard in our remarks, we finished 2014 with very strong results for the fourth quarter against a difficult growth compare as well as strong foreign currency headwinds. We are pleased to deliver 28% growth in total revenue and 43.6% in operating margin for the full year and believe that we are well positioned to deliver another solid year of growth and profitability in 2015. While there are still areas of our business where we believe we can continue to improve our performance in 2015 and beyond, we feel positive about the way our business operated during 2014. Our product and R&D engine moved into a higher gear in 2014, meaningfully improving all of our core products and bringing important and game-changing new technology to market in the form of Application-Aware NPM and Version 1 of the App Stack integration. As we look forward to 2015, we believe that we are very well positioned to continue to bring great products to market that will solve an expanded set of problems for IT pros responsible for the management of on-premise IT infrastructure, websites and web applications and IT infrastructure deployed in private and public clouds. In the first quarter of 2015 alone, we have a number of important product releases planned, which I will briefly discuss, that will further expand the list of problems that we can address for IT pros to manage networks, physical and virtual servers, storage, databases and applications. In network infrastructure, the use of wireless networks by businesses has experienced explosive growth over the last several years as the number of mobile devices used by employees in the performance of their day-to-day task has increased sequentially. In the first quarter, we will add the capability to SolarWinds NPM to find and fix gaps in wireless network coverage much faster than ever before by visualizing wireless coverage, signal strength and location of the connected devices, and then we'll provide network engineers with the ability to set up wireless coverage and identify problems without leaving their desks. Inside SolarWinds NPM, we will also provide network engineers with the ability to manage and forecast their network infrastructure capacity needs so that they can easily plan for and manage capacity of network gear. During the first quarter, we expect to make significant progress integrating SolarWinds Storage Manager onto the Orion performance and alerting platform through the release of Version 1 of SolarWinds Storage Resource Manager, which will run completely on the Orion platform. SolarWinds Storage Resource Manager will have all of the most relevant capabilities of SolarWinds Storage Manager and, most importantly, will share the powerful Orion reporting and alerting engine that runs all of our core network management products and some of our core systems management products. We believe that SolarWinds Storage Resource Manager, which we refer as -- to as SRM, will be much easier to implement and use and will scale more effectively in SolarWinds Storage Manager. SRM will also allow us to add support of additional storage devices much more quickly than we could with SolarWinds Storage Manager. We believe full integration of SolarWinds SRM onto the Orion platform will allow us to attack the opportunity to solve Storage Manager problems for our existing customers much more aggressively than we could before. We're also planning in the first quarter to release a powerful new version of SolarWinds Server & Application Monitor. This release of SAM will add AppInsight for IIS to the existing Application Performance Management support already in SAM for Oracle and SQL databases and Microsoft Exchange. Just to remind everyone what AppInsights are, they provide deep application performance monitoring for specific applications with visibility across the application's infrastructure stack. Our strategy is to add application insights to the most commonly used applications in IT infrastructure today. In addition to the new AppInsight for IIS, the first quarter release of SAM also includes the release of our first agent-based monitoring capability, which will allow IT pros to easily monitor applications and servers that reside behind the firewall, in a cloud or in other locations where there are security or bandwidth constraints. Last, as a part of the -- of this release of SAM, we released the App Stack dashboard. This dashboard will add SolarWinds Virtualization Manager, SRM and SolarWinds Web Performance Monitor, in addition to SAM, to the App Stack dashboard to provide visibility for application performance across the major areas of IT infrastructure, allowing IT pros to easily identify and troubleshoot connected performance problems across the full infrastructure stack. The last release I will quickly touch on which we are targeting for the first quarter in our systems management product portfolio is the cloud-based version of SolarWinds Database Performance Analyzer, which has been specifically designed to be able to be quickly deployed in Amazon Web Services with only a few clicks. The cloud version of DPA will allow IT pros to manage the performance of Oracle and SQL databases deployed in supporting applications in AWS. Research shows that 80% of the performance issues of applications are related to databases. So it's not enough to simply manage the performance of the applications. You must manage the performance of the database. This is as true in the cloud as it is on premise. And finally, we're also planning to release a great new version of our MSP product, N-central 10.0, during the first half of 2015. N-central 10.0 will add the ability to proactively manage and fix IT infrastructure performance issues to our MSP offering. This is a capability our customers have been demanding, and we believe it will vault us well beyond our competition in solving problems that small businesses need our MSP partners to solve. On the marketing and sales side, starting at the top of the funnel, the volume of demand captured in 2014 was 30% higher than in 2013 for our core network management and core systems management products. This demand converted into opportunities in the pipeline at a rate consistent with 2013, which resulted in accelerating growth in network management core product new business sales, which reached 14% for the year compared to 3% in 2013, and robust growth in systems management core product new business sales of 34%, coming off high 2013 growth of 39%. We believe that with the investments we have made and are still planning to make in building out a strong digital demand capture team and implementing systems to provide this team with up-to-the-minute visibility in demand trends, we should be able to grow the value of the demand we capture even faster in 2015 than we did in 2014. We also believe that in 2015, we are going to be able to successfully build off of the momentum we worked hard to create in our core network management business over the past year, and expect 2015 growth rates in this part of our business to be strong. We are also excited about the high-growth opportunities we see in several areas of our systems management business. Based on both our 2014 performance and indications we see in the market, we believe that the momentum we have created across Application Management, Database Performance Management, Virtualization Management and our App Stack initiative are strong, and the market opportunity is large and growing. We believe the Sysman product releases we have scheduled in the first quarter, which I discussed in detail, and additional releases scheduled in the second half of the 2015, which we will discuss at a later date, will keep the excitement and interest level high as IT pros see us responding to their request by expanding the number of problems our products allow them to address. As we look at the market opportunity in front of us, we see a large and still-growing opportunity in the network and systems management markets. We believe we are the best-positioned company in software to dominate the IT management market with a suite of easy-to-use yet powerful products that addresses a large number of performance problems that IT pros face each day. We also still see opportunities to further expand the list of IT infrastructure performance issues that we are able to address in these markets through both our organic development efforts, which will have a heavier focus on new product development and integration of existing products in 2015, and potentially through acquisition of technology that solve additional problems we believe we should address for IT pros. In addition, the cloud management market opportunity, while still very small compared to the on-premise opportunity, is growing quickly. We believe, ultimately, to be successful in the cloud management market, you must provide IT and DevOps pros with the ability to solve a connected set of problems from on-premise IT infrastructure and applications to the IT infrastructure and applications developed and deployed in the cloud. In addition, IT pros must be able to solve performance issues across all areas of infrastructure, not just applications, in order to ultimately provide their businesses with the level of performance the business demands. We are focused on providing IT pros with these solutions and believe that with our acquisitions of Pingdom and Librato, coupled with our 2014 product releases, that we have made significant progress in making our vision of managing the performance of all things IT a reality. And finally, a comment as it relates to the uncertainty in the markets as a result of what we believe is a combination of real and perceived weakness in the European economy relative to the U.S. economy, which has obviously caused the significant strengthening of the U.S. dollar against the euro and other major European currencies over the last 120 days. We are mindful of the economic turmoil in certain international markets and have considered this in our view of 2015. We believe we are well positioned to deliver a solid year of growth in 2015 and view the current economic disruption as an opportunity to have our value proposition of easy-to-use, scalable and affordable IT management software resonate in geographic markets and industries disrupted by economic conditions. So while we all prefer to have a stable and growing economic conditions, we believe we created positive momentum across many areas of our business in 2014, which should continue into 2015 including network management new business sales, MSP new business sales as well as, geographically, in our North American, U.S. federal, EMEA and Latin American businesses. We also believe that our go-to-market model gives us a significant competitive advantage in periods of economic contraction, which we plan to exploit to its fullest over the coming months. With that, we will open up the call for questions.

[Operator:]

[Operator Instructions] And we do have our first question from John DiFucci with Jefferies.

[John Stephen DiFucci:]

I mean, the results sort of -- they speak for themselves here. Kevin, you've talked about -- you mentioned the volume at the top of the digital marketing/sales funnel being 30% higher. I guess, could -- and you said something about you expected that to grow even faster in 2015. Can you explain a little further what you're talking about here? Because that's something that you've had some focus on, and it's something that you -- when you -- I don't know, a year ago or so, over the longer -- when things were getting -- were a little bit difficult, it seemed like that was an issue. It sounds like you sort of just found the answer there. Can you talk a little bit -- add a little more detail on that?

[Kevin B. Thompson:]

Sure. If you remember, we talk a lot about the work we've been doing to both to improve our visibility into the demand that we're capturing, to improve our ability to forecast that demand, improve our ability to respond to changes that we see in the market that caused that demand to fluctuate. And so we have done a couple of things. One, we've invested pretty heavily in the systems over the last 15 months, and we're not completely done with that. We have implemented a number of technologies that give us visibility much more quickly than we had before that allow us to measure the results of what we're doing at a much finer level of detail than we had in the past. And we've also invested and spent time creating a team that has tremendous experience in capturing digital demand and really expand -- and really measuring the demand and then making changes very rapidly to the indications that we're seeing. So I think what you're seeing in 2014 is as we've gone through the year, we have gotten more consistent at hitting our forecast. Does it mean we're perfect yet? No, but does it mean we're a lot better walking into 2015 than we were into 2014? I think we are. I think we know a lot of the levers that we can pull, particularly in the North American market, and have demand capture grow. I think we still have more work to do internationally because we focused on North America first, as it's our most important market. We didn't ignore international, but we have not spent quite the time yet identifying all the levers that we can pull, all the buttons we can push, that cause demand capture to move higher. So I feel really good about where we are. I feel like we've made a lot of progress. My team knows I don't feel like we're even close to done, and we're going to get even better in 2015. But we do feel confident about our ability to grow demand, which is a good place for us to be.

[John Stephen DiFucci:]

So if I could just summarize, it sounds like you're capturing more potential opportunities and at the same time, you're able to gauge those opportunities more quickly and capitalize on them, turn them into sales. And it also sounds like you're also able to more quickly change course if you so see that as the right way to [indiscernible].

[Kevin B. Thompson:]

Yes. Yes, I think that's the right way to think about it. And as you -- as I indicated, our conversion rate in 2014 off much higher demand were consistent with what we saw in 2013. So we're not just capturing more demand and seeing conversion fall, we're capturing more demand and seeing conversion remain consistent, which means we still have additional levers to pull that we can drive demand capture up higher. We can actually -- we can offset any dropping conversion with more demand if we need to. And so we're definitely, as I said, are in a better place. Not perfect, not done, but in a much better place than we were a year ago.

[John Stephen DiFucci:]

Okay, great. And if I could, just one follow-up. On the technology of Librato versus Pingdom. And if you could talk a little bit about -- because I -- they seems to be similar areas anyway and maybe there’s some overlap. But are they also complementary?

[Kevin B. Thompson:]

Yes. Really very little overlap and very complementary. Pingdom does website and web application performance management, and that's where the company was born. It's where the brand is very, very well-known and where they're -- where Pingdom is a leader in that space, and we're going to really capitalize on that brand and that technology in 2015 and start to grow and drive very quick -- very fast growth. Librato is a little more broad than Pingdom. It manages application and infrastructure across cloud platforms. So it does much more than just website and web apps. It looks at the infrastructure stack that they run in the cloud and uses the, in some cases, uses the -- word is escaping me, but ignore that. Anyway, it's able to manage and monitor those platforms. And so it really does create the connection that we've been looking to create the bridge, that I indicated in my remarks, that allows you to manage from -- applications on-premise and infrastructure on-premise and allows you to manage the applications infrastructure that's in the cloud. Now we still have a little bit of work to do to create those connections completely, but it already does a good bit of that. So great technology, great technical team. And now we've got to put our "go in and go to market" muscle behind that technology and behind that team and create integration with Pingdom, which we will do, and also create integration with our on-premise product. So it really does allow us to do what we believe is critically important, which is you've got to be able to give an IT and DevOps pro the ability to manage technology and infrastructure from on-premise to cloud and everything in between. That's where we think we are much better positioned right now than anyone else in the industry. There are people who've been doing a good job of managing applications in the cloud. There are a few people that are doing an okay job in managing on-premise IT infrastructure, though I think we've been doing a much better job. We now have the ability to do both. Still have some technology work to do to really knit the vision completely together. But I think we have a lot of the pieces and parts right now. We're not done, we still have some technology to build. We may find some other small acquisitions to make, but we're getting very close to making our vision of managing all things IT, regardless of where the IT asset sits, a reality.

[John Stephen DiFucci:]

Great. Nice job, guys. And thanks -- Jason, thanks for that detail on the FX. That's really helpful.

[Jason Ream:]

You're welcome.

[Operator:]

Our next question is from Steve Ashley with R. W. Baird.

[Steven M. Ashley:]

Great. I just like to drill down a little bit on the discussion John was just having, and you talked about needing to really create some products out of the technology. What are those products? I mean, is it Application Performance Management for web apps? What kind of products might we see come out of this eventually?

[Kevin B. Thompson:]

Yes, look, I think what you're going to see is -- and I'm not going to talk about them in details, we're still working through the strategy and what we're going to do when, but what we've got is a platform that does a great job of collecting data, and it can collect a tremendous amount of data. It can collect that data very, very quickly from over 100 sources or right at 100 sources. It also -- the volume that it can then correlate and analyze is really quite impressive. And so it has the ability to do that. Now the work for us is, okay, it does that incredibly well and that's really what they've been selling. How do we turn that into things that, in the SolarWinds model, we can sell really, really well? Which is take that ability to collect data, correlate that data, give you insight you don't have into performance and give that to the customer in a way that is very, very digestible. We think there's a number of different things that we can do. We'll talk about some of those as we get ready to bring them to market. So definitely, by the next call, we'll be able to talk about either what we've already done or what we're about to do in order to give people a really more productized version of the Librato platform that solves very specific problems. So I know that's not a lot of detail but maybe gives you a little bit of insight into what the platform does really well, what we think it does better than absolutely anybody else in the market. And then, we're just going to take that power and turn it into very-easy-to-consume subscription products. And that's what, as you know, we're really great at, is creating very simple, very easy-to-use products that solves complicated problems and sell those very well and -- with our "sell them from the inside" base model, so that's what we're going to do.

[Steven M. Ashley:]

Terrific. Then at the Analyst Day, Jason actually teased us a little bit, talking about maybe you're looking at your maintenance pricing and to review that. Has there been any update on possibly maybe raising maintenance prices?

[Kevin B. Thompson:]

So definitely a strategy that we're continuing to look at. No update in terms of what we've done at this point, but it's strategically something that -- I think what we indicated is -- look, we have not been systematic about it. We have been random at best, and we're going to get systematic about it. So yes, you should expect some level of maintenance price increases in 2015. We have not really built those into the outlook at this point, because if we do that later in the year it won't have a big impact on revenue this year, but it could have more meaningful impact in 2016. So not built into our current view, but definitely, something strategically you should expect us to roll out a methodology for. And when we roll that methodology out, we'll make sure that you guys know kind of how we do it and what we've done and how we're going to do in the future.

[Operator:]

Next, we have Keith Weiss with Morgan Stanley.

[Keith Weiss:]

Just in terms of the Librato acquisition, maybe to help us understand sort of the dynamic right now a little bit better. Can you walk us through their competitive positioning as sort of who do they see in the market and how that changes your -- sort of how that changes your competitive positioning?

[Kevin B. Thompson:]

Yes. Look, I think they've got a number of people that they compete with at different levels. So I think you should think about them, first, as a platform that provides developers and IT ops pros a very broad view of what's going on in the stack that's being used in the cloud. So they provide the insights into performance. And there are a number of different technologies that are in that stack. Things like MongoDB and other things like that, that they've got an ability to look at and say, "Hey, what's going on with that application or with that piece of the infrastructure that could impact the performance of your application?" They don't do by-code [ph] instrumentation like New Relic does, but they do compete with a New Relic or an AppDynamics in terms of the dashboarding functionality. They have the ability to collect data from many different sources, present it in the dashboard and correlate it very, very quickly. And we actually think that their technology is more powerful than anybody else out there. On the small-company side, there's a little company out there called Datadog that you may or may not know, that they compete with that's probably more squarely doing what they do, and then there's a bunch of small-company bunch, handful of small companies out there that has very lightweight dashboarding technology that, in theory, they compete with. But the technology that Librato has and that we now have is much deeper than that. It's able to collect data at a much finer level detail, much higher volume of that data and actually do a lot of correlation and analysis to tell you what's going on with a lot of those -- which a lot of those technologies don't do. So we believe it's a very fast-growing part of the kind of cloud management space right now and the ability to connect that to the on-premise market, I think, is going to create a pretty powerful story that, at least right now, nobody else has the ability to connect and deliver that. So we're going to be, I think, in advance of anyone else and able to be able to give that connected view and give connected management to IT pros, if that's what they need. The great thing is, though, if it's not what you need and not what you want right now, with -- like with everything else we do, you can buy exactly what you need, solve exactly the problem you have right now. But we're going to make it super easy for you to add technology later, which is also what we have historically done.

[Keith Weiss:]

Got it, got it. And then in terms of -- when we're thinking about the growth expectations for FY '15, we have been talking about new business growth in that sort of 19%, 25% range. And it sounds like x currency, we're still in that range. And -- but this quarter was -- if I'm doing a like-for-like compare, and the numbers is about 15%. So there is definitely an implied acceleration from, at least, Q4 into 2015. Could you talk to us about sort of what gives you guys comfort in that acceleration for 2015?

[Kevin B. Thompson:]

Sure. So I think a couple of things. So when you look at the core product side, you have core NetMan growing at 17% in the fourth quarter, we got core Sysman growing at 12%, which is important, and we had -- MSP's growing at 44%. So those are kind of that -- the biggest piece of the revenue stream. Pingdom's starting to contribute but still very, very small. So I think there's a number of things we look at. So one, the fourth quarter of 2013 was a very strong quarter for us. So that was a pretty strong compare. We've put up good growth numbers against a strong compare. As we look at, really, the first half of 2015, I don't think the compares are quite as strong. I think we had good growth quarters in the first couple of quarters in 2014, but I believe that we can grow at a very high rate on top of that. I think also, we talked about our demand capture and the fact that we've been able to accelerate growth in demand capture, and that we think we can accelerate even further in 2015. And based on the indications I see and the things we're doing, we're confident in our ability to do that. Also, we've got a lot of great new technology coming to market, and we've got it coming to market in the first quarter. We have good market on new technology on the NetMan side. We have some exciting new technology on the Sysman side. We're going to do some things in the MSP business that we believe will allow us to capture more demand because we're going to be able to talk about more problems than we can talk about today. So those are the things that give us confidence that our growth will continue to be in very strong levels as we move into 2015, slightly higher than what you saw for the fourth quarter, and basically consistent with what you saw for the full year of 2014.

[Operator:]

Next, we have Kirk Materne with Evercore ISI.

[Kirk Materne:]

Jason, I'll echo John's comments on the FX guidance. That's really helpful. Kevin, I guess, one of the questions we've gotten a lot over the last couple of years with you guys has been about your expansion in the MSP business. And now that, that business is much larger, could you just talk about your confidence that, that business is really an expansion of sort of your customer base versus maybe somewhat cannibalistic? I think there's still some concerns that as people move towards the cloud, that's going to take away from your core customer. Can you just talk about that a little bit? And then I have one follow-up.

[Kevin B. Thompson:]

Yes. Look, I think you saw very, very strong growth in our MSP business in 2014. But you also saw accelerating growth in our network management business, a very rapid acceleration. You saw our systems management business grow north of 34% -- at 34% against a very strong growth compare last year. So let's use 2014 as an initial example, which is accelerating growth in NetMan, very strong growth in Sysman against a much larger number coming off of 2013 and record growth in our MSP business. So there's a good -- really great data point says it's not cannibalistic. In fact, that's allowing us to serve a component of the market that we weren't serving before. The other thing I would say, after you've been in this business now for about 19 months, a little bit longer than that, almost 20 months -- 21 months, that we've got a very good feel of who that buyer is. And that buyer is a bunch of very small companies that, I don't know, generally have less than 200 employees, in most cases have less than 100 employees and that's just not been the part of the market that -- where we've been the most successful in the past with a broad IT management solution. We might have sold a tool here or there into that market, but unless you were pretty complex on the IT side and a small business, you really didn't need all that we could do. So I think, really, look at 2014 as an example, where you saw accelerating growth across all areas of the business. I think it gives you a view that it's not cannibalistic. It's given us the ability to solve -- to serve a part of the market that we just weren't serving that successfully in the past.

[Kirk Materne:]

Great. And just one question on Pingdom. Can you ask -- or I guess, could you just talk about, I guess, about how many customers are free now versus paid? Or could you give us, I guess, some sense of how that, I guess, ratio is changing? Obviously, they had a ton of free customers and you guys are trying to monetize that better. I guess, how do you feel about sort of the shifting of that ratio heading into 2015?

[Kevin B. Thompson:]

Yes, the ratio is definitely not shifting yet. I mean, we're adding free customers at a much more rapid pace right now than we're adding paid customers, but that's obviously by design in that we've turned up the marketing heat just a little bit. And so we've seen really strong growth in free customers over the last 6 months since we owned Pingdom. We are seeing nice growth in the number of paid customers, but we have not really rolled out the strategy of how you convert free to paid. And that is something we're absolutely laser-focused on as we move into 2015. We expect to make progress on it. We're going to have to try a bunch of different things to see what messages resonate and what things really convince a free user to convert to being a paid user. I think the great thing is, we don't have to be very successful to drive fast growth in bookings at Pingdom because they have so many free users, well north of 650,000 free users now and growing very quickly every month. And so we will really work on that in 2015. We'll give you an update as we make progress. But we expect to have solid growth out of Pingdom in 2015 based on both conversion but also just bringing in a bunch of paid users with a lot better messaging, with product, new offerings we'll bring to market on top of the Pingdom platform, and we'll definitely do that in 2015, which will allow us to monetize the opportunity more effectively than it's being monetized right now.

[Operator:]

Our next question comes from Gregg Moskowitz with Cowen and Company.

[Gregg S. Moskowitz:]

I guess my first question is just on NPM. It's nice to see another strong performance here in the fourth quarter. Was curious how the app-aware NPM product is resonating, Kevin, just in terms of up-selling as well as perhaps new customer acquisition.

[Kevin B. Thompson:]

Yes. I think the functionality we added to NPM and providing that visibility with what's going on in applications, giving you the ability to really understand where your issue is, is it the application, is it the network, so that you actually solve the problem has been a really significant contributor to the level of awareness that we have in the market and the level of demand we're able to capture. We're able to talk about a whole set of problems we couldn't talk about before. We're relevant in a whole set of -- in a lot of situations where we weren't relevant in the past. And so it's absolutely one of the bigger reasons why we've seen our network management growth accelerate this year, and one of the reasons that we feel good about our ability to capture more demand in 2015 that we did -- than we did in 2014. We talked about the fact that, that functionality is -- it solves a relatively complicated problem. We think we have solved that problem as simply as you can, but there's still some complexity to it. And we believe that the usage of that part of the functionality of NPM will grow the longer that a customer is using it and as they get more familiar with how to solve the problems that it can solve. And just the -- the really long list of problems that, that app or functionality gives us the capability to solve. So we feel really good about where it is, and it's been, as we said, a market-expanding move. It gave us the ability to be relevant in many conversations where we weren't before and to capture interest where, in the past, someone might like at you, "You know what, you just don't solve the problems I need to solve or you solve some of the problems I need solved, but I have these other issues where I really need to understand where the problem is occurring. You don't give me that visibility. I'm going to have to go and use another tool." So we're seeing 2 things

[Gregg S. Moskowitz:]

Right. That's really helpful, Kevin. And then, also, I wanted to ask, one objective you've talked about in the not-so-distant past is, really kind of articulating the value proposition to some of the SaaS vendors out there when it comes to the SolarWinds portfolio and how broad it is and how powerful. And I'm just kind of curious if you've had any more success in getting SaaS companies on board as SolarWinds customers.

[Kevin B. Thompson:]

Yes, I think we have done a really nice job over the last, say, 6 to 9 months in speaking the language that guys that are running data centers for SaaS companies use in their everyday work. And so we have a long list of SaaS companies that are now customers ours. And the good thing is we're seeing them use a pretty broad cross-section of our product. So they tend to use 2, 3, 4 products because they obviously have very complicated infrastructure, with everything from network to storage to database to applications that need to be managed. Our Database Performance Management product has a really strong foothold, I've indicated before. And that foothold is increasing. Various products is performing really well for us right now and in the SaaS world is one of the places where we believe it's really doing well right now. So we are making progress and it's part of the reason we've seen really strong growth across our core products, and we'll continue to focus on it in 2015 and beyond because there's still a lot of market to take.

[Operator:]

Our next question comes from Scott Zeller with Needham & Company.

[Robert Scott Zeller:]

Yes. This is just more of a housekeeping issue. So as we -- as we're following the performance of the subscription revenue line, could you tell us again what's in that line? The -- is there anything in there other than N-able? And what exactly...

[Jason Ream:]

Yes. Scott, the Pingdom line is also in there as well, which is why in the script, this time, I did give the perspective that for all 2014, the MSP business, which isn't -- the former N-able business, was $38 million in total revenue for 2014. The remainder there is Pingdom.

[Kevin B. Thompson:]

And then Librato will also be in subscription revenue in 2015. Though, as Jason indicated, it's not going to be a very big number in 2015, but it will absolutely be a revenue stream that should grow very quickly as we move through 2015 and into next year.

[Operator:]

Next, we have Greg McDowell with JMP Securities.

[Greg McDowell:]

Great. Jason, just one quick question for you. You mentioned that your operating margin guidance is consistent with the prior outlook, and that's, really, despite FX headwinds and a slightly dilutive acquisition. So as I'm looking at the sort of the operating expenses and the puts and takes compared to sort of your guidance on the different lines, COGS, S&M, R&D, G&A, from the Analyst Day a few months ago. I'm just wondering if there's any way we should think about modeling those expense lines differently in light of some of the changes you mentioned.

[Jason Ream:]

No. I wouldn't expect those to be any different than what I'd talked about there. Look, if anything, we might have a slight -- there might be a slight bias towards the COGS in cost of revenues because Librato is going to have a cloud platform, which has more cost, obviously, than license -- our cost of license revenue and maybe a little bit more than cost of maintenance. But when it comes to currency impact, we have international operations in each of those different buckets you were talking about. And so we actually get somewhat of a currency benefit on the expense side. It's not nearly as large as the hit that we take on revenue side from a strengthening dollar, but it's not going to change the geographies of the expenses in any material way.

[Greg McDowell:]

Okay, that's helpful. And Kevin, maybe one quick one for you, because you sort of wrapped up your international commentary mentioning words like disruption and contraction. And I just want to make sure I'm clear that you're happy with the international team's performance in Q4, and that increase in the funnel at the top end is also happening at the international level.

[Kevin B. Thompson:]

Yes, look, without a doubt. I mean, we saw international revenue, as a percentage of total, go from 26% to 28%, which is, I think, the strongest it's ever been in terms of the percentage of total revenue. So we had a very good international quarter across Europe, Asia and Latin America. And we're definitely seeing growth in the top end of the funnel in those markets, also. I did indicate that we have more levers and dials that we are confident in, in North America because that's where we've spent a greater percentage of time. But we are creating those levers and dials and adding them in international relatively quickly. So I feel good about where the international business is. I feel that the international business will be a growth driver for us. It should grow a little faster than our North American business as we look forward. And so that -- our view of international has really not changed at all.

[Operator:]

Our next question is from Karl Keirstead with Deutsche Bank.

[Karl Keirstead:]

Jason, I've got a Q1 '15 modeling question for you. You mentioned that for certain reasons including FX, the maintenance and subscription portion of the Q1 might be smaller than normal. It -- license versus recurring runs pretty consistently, 37%, 38% license versus the remainder recurring. So if that license mix is going to be a little higher than the normal 37%, 38% against your revenue guide, I get license growth comfortably north of 20%. That's a good data point and disclosure, if that's what you were intending. So I just want to make sure that my methodology is correct.

[Jason Ream:]

Yes, Karl. I can't comment on the exact numbers since we do just guide at the total revenue line. I would say, one, that the currency impact, as I talked about in my prepared remarks, yes, will hit maintenance in particular, but also subscription more heavily than it should hit license. And that has to do with the deferred revenue that we have on our books, et cetera. But two, I'll also look at -- as I look at some of the models that are out there on -- in the Street for both Q1 and for the full year of 2015, I would say that maintenance does appear to be a bit higher than what's in our model. Our maintenance modeling has been very accurate, and what we delivered this quarter is exactly what we predicted.

[Operator:]

Our final question comes from Tim Klasell with Northland Securities.

[Joshua Reilly:]

Yes, this is Josh in for Tim. Just a quick question on geographies. Are there any specific geographies in 2015 that you are going to make a focus on investing more than 2014?

[Kevin B. Thompson:]

I don't think we're going to invest any more in any specific geography in 2015 than we did in 2014. We've indicated international growth as an important part of the strategy, that we believe our international business should be a bigger percentage of our total revenue than it is today, that the growth opportunity is large and that we're a little earlier stage in those markets. But I think we had the investments relatively well balanced in 2014, so I don't see any real meaningful shift in how we're targeting the international markets. We already have a pretty good focus on them, and I think that focus is appropriate and it's about the right level.

[Joshua Reilly:]

Okay. And then one last question on the valuation on Librato. Have you noticed any change in the discussions with some of the smaller technology companies at valuation in the last quarter, too? Or is it...

[Kevin B. Thompson:]

Look, I think that -- I think the valuation of Librato is very reasonable given the value that we see in the business. And so we feel good about that. Do I think that some VCs will start to have a slightly more rational view of the value of their portfolio companies given the fact that we had a number of private rounds done at levels higher than the companies went public at? That should begin to happen. But I felt like the folks that we're dealing with, both the Librato founders as well as the investors of Librato were super rational and were easy to deal with. And I feel like we came out with a great acquisition at a great price. And I think it was a win for them also. So we'll see, but I would say, my theory is, you will see and feel some decline in value of private companies, but we'll have to see how that plays out. As you know, those investors sometimes don't react as quickly as we all think maybe they should. So we'll continue to be careful and diligent, and make sure we're buying the right assets at the right price.

[David Hafner:]

Okay, that does it for today's call. Thanks to everybody who tuned in.

[Operator:]

Once again, that does conclude today's call, and we appreciate your participation.