Earnings Call Transcript - NABL Q1 2025

Operator, Operator

Good morning, everyone, and welcome to the N-able First Quarter 2025 Earnings Call. My name is Angela, and I’ll be coordinating your call today. I will now hand you over to your host, Griffin Gyr, Investor Relations Senior Manager to begin. Griffin, please go ahead.

Griffin Gyr, Investor Relations Senior Manager

Thanks, operator, and welcome everyone to N-able’s first quarter 2025 earnings call. With me today are John Pagliuca, N-able’s President and CEO; and Tim O’Brien, EVP and CFO. Following our prepared remarks, we will open the line for a question-and-answer session. This call is being simultaneously webcast on our Investor Relations website at investors.nable.com. There you can also find our earnings press release, which is intended to supplement our prepared remarks during today’s call. Certain statements made during this call are forward-looking statements, including those concerning our financial outlook, our market opportunities, and the impact of the global economic environment on our business. These statements are based on currently available information and assumptions, and we undertake no duty to update this information except as required by law. These statements are also subject to a number of risks and uncertainties, including those highlighted in today’s earnings release and our filings with the SEC. Additional information concerning these statements and the risks and uncertainties associated with them is highlighted in today’s earnings release and in our filings with the SEC. Copies are available from the SEC or on our Investor Relations website. Furthermore, we will discuss various non-GAAP financial measures on today’s call. Unless otherwise specified, when we refer to financial measures, we will be referring to non-GAAP financial measures. A reconciliation of certain GAAP and non-GAAP financial measures discussed on today’s call is available in our earnings press release on our Investor Relations website. And, now, I’ll turn the call over to John.

John Pagliuca, President and CEO

Thank you, Griffin, and welcome, everyone, to our call this morning. As cyber threats continue and uncertainty pervades the economic conversation, small- and mid-market businesses face mounting pressure to stay secure and efficient. And with a cyber-resiliency platform purpose-built for their needs, N-able delivers the protection and performance required to move forward. Our value and approach are resonating. At our recent Empower conference in Berlin, more than 500 international attendees responded to the N-able vision with enthusiasm, underscoring the growing urgency around security and the confidence customers place in our platform. This confidence was echoed at our Investor Day, where we laid out our target to reach $750 million in ARR by 2028. Three growth drivers underpin our path to this target: first, driving security success; second, scaling our go-to-market; and third, boosting customer expansion. Today, we will walk through updates on each and discuss why we believe N-able is ready for both the challenges of today and the opportunities ahead. Let’s begin with our quarterly results. First quarter ARR grew 11% year-over-year in constant currency. First quarter revenue was $118.2 million, and adjusted EBITDA was $31.6 million, reflecting a 27% margin. We once again exceeded our top- and bottom-line guidance as we executed against our strategy and set ourselves to gain share in our large and growing total addressable market (TAM). Turning to our growth pillars, let’s first look at our security initiatives. We made excellent progress on our product roadmap, highlighted by the release of breach prevention from Microsoft 365. We believe this offering solves a deep customer pain point. Microsoft serves as a core technology provider to a large portion of our customer base. And attackers are increasingly bypassing traditional endpoints, targeting digital identities to infiltrate organizations. Our solution ingests Microsoft 365 user telemetry to proactively detect and remediate threats, securing this critical identity attack vector. This is a compelling way for customers to enhance their Microsoft security posture while positioning us to meet strong demand and drive growth. We also launched Vulnerability Management as a new built-in feature in our Unified Endpoint Management (UEM) solution. This is a major step for the industry. Customers looking to identify and remediate vulnerabilities in their environments have historically needed to purchase and deploy two separate tools: one to identify vulnerabilities and another to patch and remediate those endpoints. N-able now delivers the capability to accomplish these workflows with a single solution. This is a differentiator for N-able and a better way to do business for our customers. We are reducing software sprawl, reducing fragmentation and closing security gaps while making the technicians we serve more efficient. We have already discovered millions of vulnerabilities and early positive customer reception gives us confidence that our solution hits the mark. In addition to launching new defensive capabilities, we also advanced our efforts to help customers operate more efficiently. Cove data protection shines particularly bright. The team improved Microsoft domain backup speeds by up to 20%, extending Cove’s value proposition as a trusted cost-effective protector of data. Efficiency matters, especially in an uncertain macro environment, and Cove’s clear ROI positions N-able to win. When you deliver value, awards and recognition follow. We were proud for Cove to be named a Champion in Managed Backup and Disaster Recovery (BDR) by Canalys for the second consecutive year, reinforcing our technical capabilities and continued market strength. Not to be outdone, our Adlumin Security Operations solution was recently named market leader for Managed Detection and Response (MDR) in the 2025 Cyber Defense Magazine Global InfoSec Awards. This award and our market trajectory validate our approach, which we discussed in our recent 2025 State of the SOC publication. I’ll give you some takeaways from the report. The volume, velocity, and cost of cybersecurity attacks and breaches remain at all-time highs. Security teams are overwhelmed. They can’t process an unending number of alerts, and they also don’t have the budget or expertise to hire the multiple security analysts needed to properly reduce their risk profile. Old paradigms simply don’t work in the age of AI-driven threats. A customer example brings this to life. A security professional at a regional healthcare organization was single-handedly managing over 1,500 devices. This is a significant workload and involves substantial risk. He and his organization needed help. Recognizing the business risk, he decided to trial our Adlumin Security Operations solution, and during the trial period, we stopped three different security breaches. The thwarting of these threats immediately proved the ROI of our solution, leading to a six-figure ARR deal. We were winning because we were built differently. Our AI-powered solutions cut through the noise while our experts provide eyes on glass, contextualizing and remediating priority events. Technology is a mode for our AI-powered SOC. We are automating 70% of incident and threat remediation activities across thousands of end customers. This gives us a competitive edge against legacy approaches and empowers us to drive better outcomes for our customers. Our automated SOC, the development of breach prevention for Microsoft 365, and Vulnerability Management highlights that we are building on our technical differentiation. We are bullish on AI and security, and we are just getting started. A second pillar of our growth strategy is expanding our go-to-market. We are broadening our approach to capture the full spectrum of channel providers that small- and mid-market companies rely on to protect their digital operations. Our leading position in the Managed Service Provider (MSP) community is driven by a simple formula: quality partnership coupled with purpose-built software. Resellers, system integrators, and distributors share similar needs and represent approximately twice the market opportunity of the MSP market. We are applying our proven channel formula to partner with these providers, positioning us to deliver cyber resilience to more businesses, regardless of which channel partner they choose. This expansion is already taking shape. In the first quarter, we added resellers across the globe to our program, revamped our partner portal to better facilitate reseller transactions, and hosted a series of high impact events with well-established resellers, including trade shows, roundtables, and executive briefings. And at our Empower conference, we boldly showcased our commitment to delivering cyber resilience to businesses everywhere. We’re executing on a robust playbook, and that work is resonating. We were awarded a 5-Star rating in the CRN Partner Program Guide for the fourth straight year, underscoring our commitment to providing exceptional support and resources that help our customers thrive in a constantly evolving cybersecurity landscape. Scaling our go-to-market goes beyond our sales and marketing motion. Technical considerations are also a key factor. This is why we were thrilled to announce our commitment to CMMC 2.0 readiness, which will enhance our go-to-market strategy by widening our appeal to deals across more regulated sectors, including our customers who support defense and critical infrastructure. A recent customer example validates the progress we’re making in scaling our go-to-market efforts. A consortium of school systems serving thousands of users was evaluating the best way to protect their members. Working alongside a value-added reseller, we educated the customer about our next-gen security capabilities, ease of deployment, high number of out-of-the-box integrations, and commitment to partnership. They saw the power of our approach, signing a large six-figure ARR deal, sealing an N-able win against the competition. This was our largest new deal ever. Make no mistake, our channel expansion isn’t just planned, it’s in progress. A third pillar is boosting customer expansion. Our multi-category, multi-product software suite underpins an approximately $2.5 billion cross-sell opportunity that we believe exists within our existing base, helping customers realize the technical and service benefit of standardizing on a cyber-resilience platform and executing this cross-sell opportunity is key to our growth algorithm and strategy. A customer win brings our platformization strategy to life. A roughly 300-person organization was frustrated with the patchwork of multi-vendor solutions and recognized the need for a more reliable and efficient security approach. Realizing the criticality of secure streamlined operation, they turned to N-able as a trusted partner and adopted our Unified Endpoint Management, security, and data protection solutions. The result? A high five-figure ARR deal. Wins like this are a testament to the impact of our approach. Our cyber-resiliency platform addresses SMB and mid-market core security needs, and our customer success model is dedicated to their outcomes. Without us, these businesses are left to stitch together disparate tools and are often last in line for customer support from larger enterprise-focused vendors. We believe our ability to profitably serve the SMB and mid-market is a competitive mode for N-able. We help them step off the IT treadmill, stay safe, and focus on what matters most: running their business. And with that, I will turn it over to our CFO, Tim O’Brien, then I will circle back for closing remarks. Tim?

Tim O’Brien, EVP and CFO

Thank you, John, and thank you all for joining us today. We had a solid start to the year with Q1 revenue and adjusted EBITDA both coming in above the high end of our guidance range and continued progress across our strategic priorities. We were also pleased to announce a $75 million share repurchase authorization program. While we haven’t repurchased any shares to date, this program gives us an additional capital allocation option and underscores our belief in the N-able business. For our first quarter results, total ARR was $492.7 million, growing at 10% year-over-year on a reported basis and 11% on a constant currency basis. Total revenue was $118.2 million, $2.2 million above the high end of our guidance, representing approximately 4% year-over-year growth on a reported basis and 6% on a constant currency basis. Subscription revenue was $116.8 million, representing approximately 5% year-over-year growth on a reported basis and 7% on a constant currency basis. We ended the quarter with 2,398 customers that contributed $50,000 or more of ARR, which is up approximately 10% year-over-year. Customers with over $50,000 of ARR now represent approximately 58% of our total ARR, up from approximately 56% a year ago. Dollar-based net revenue retention, which is calculated on a trailing 12-month basis, was approximately 101% on both a reported and constant currency basis. Turning to profit and margins. Note that unless otherwise stated, all references to profit measures and expenses are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliations provided in today’s press release. First quarter gross margin was 80.6% compared to 84.7% in the same period in 2024. First quarter adjusted EBITDA was $31.6 million, $3.1 million above the high end of our guidance, representing approximately 27% adjusted EBITDA margin. Unlevered free cash flow was $28.1 million in the first quarter. CapEx, inclusive of $2.8 million of capitalized software development costs, was $6.1 million, or 5.1% of revenue. Non-GAAP earnings per share were $0.08 in the quarter based on 189.1 million weighted average diluted shares. We ended the quarter with approximately $94 million of cash and an outstanding loan principal balance of approximately $38 million, representing net leverage of approximately 1.5 times. Approximately 43% of our revenue was outside of North America in the quarter. Turning to our financial outlook. Our guidance accounts for the following elements. First, we are assuming FX rates of 1.07 for the euro and 1.27 for the pound for the remainder of 2025, along with updates to other currencies. Second, while changing tariff policy is injecting caution and uncertainty into the macro environment, the need for cybersecurity and resiliency remains persistent. On balance, we are raising our reported ARR and revenue guidance to reflect our first quarter results and inclusive of updated FX rates on our business. Additionally, we are maintaining our full year constant currency revenue and ARR guidance as we monitor the fast-changing macro dynamics closely. Third, on the expense front, we continue to balance profitability while investing for growth. Our operating plan includes multiple strategic priorities, including the development of our India R&D site, the integration and success of Adlumin, and new product and go-to-market initiatives. We are raising our adjusted EBITDA guidance and are confident we can deliver on these operational priorities. With that in mind, for the second quarter of 2025, we expect total revenue in the range of $125.5 million to $126.5 million, representing approximately 5% to 6% year-over-year growth on a reported and constant currency basis. We expect second quarter adjusted EBITDA in the range of $34 million to $35 million, representing an adjusted EBITDA margin of approximately 27% to 28%. For the full year 2025, we now expect total revenue of $492 million to $497 million, representing approximately 6% to 7% year-over-year growth, or approximately 6% to 8% on a constant currency basis. We expect full year ARR in the range of $519 million to $525 million, representing 8% to 9% year-over-year growth, or 7% to 9% on a constant currency basis. We are raising our adjusted EBITDA outlook and expect full year adjusted EBITDA of $134 million to $139 million, representing a 27% to 28% adjusted EBITDA margin. We reiterate that we expect CapEx, which includes capitalized software development costs, will be approximately 6% of total revenue for 2025. We are also raising our expected adjusted EBITDA to unlevered free cash flow conversion percentage from 65% to approximately 68% for the full year. We expect total weighted average diluted shares outstanding of approximately 189 million to 190 million for the second quarter and the full year. Finally, we expect our non-GAAP tax rate to be approximately 20% to 21% in the second quarter and for the full year. Now, I will turn it over to John for closing remarks.

John Pagliuca, President and CEO

Thanks, Tim. Our earnings reflect continued progress advancing cyber-resilience for businesses worldwide. Our customer confidence demonstrates a continued belief in the value we deliver. And our industry accolades are proof points that our efforts are resonating. While evolving trade policies can create uncertainty, cyber threats don’t pause and neither do we. The launch of new security capabilities, the growth of channel partners in our partner program, and our largest new bookings deal ever showcase that N-able is innovating and growing. We look forward to building on this progress throughout the year. And with that, operator, you’ll open up the line for questions.

Operator, Operator

Thank you. The first question comes from Mike Cikos with Needham. Your line is open. Please go ahead.

Mike Cikos, Analyst

Terrific. Thanks for the questions here, guys. I just wanted to see before getting into it, with the Adlumin acquisition, can you segment how much the acquisition contributed to revenue growth or ARR just so we can get an organic growth rate for you guys?

Tim O’Brien, EVP and CFO

Hey, Mike, I would point to, we size the kind of starting point of revenue from the Adlumin acquisition upon the point of acquisition was about $21 million of ARR or so, and that has no impact from like 606 revenue recognition on that. So that’s kind of recognized ratably. So that should help you guys back into an organic growth rate.

Mike Cikos, Analyst

Okay. And then for the follow-ups here, I know, we’re still relatively new with the new disclosures around ARR. But just as we think about the rest of the year, are there any considerations we should have in our models when thinking about seasonality or different movements of the business here on a quarterly basis throughout the year?

Tim O’Brien, EVP and CFO

Yeah, Mike, I would expect it to be fairly consistent as the way we set it up with, I would say, some slight improvement as we go through the year. We gave that similar color on the last call as well that we’d expect ARR sequential growth to kind of be building as we went through calendar 2025.

Mike Cikos, Analyst

Terrific. I’ll turn it over to my colleagues. Thank you.

Tim O’Brien, EVP and CFO

Thanks, Mike.

Operator, Operator

Thank you. The next question comes from Brian Essex with JPMorgan. Your line is open. Please go ahead.

Brian Essex, Analyst

Hi, good morning, and thank you for taking the question. I guess, first question is just overall view on the market and the health of the spending environment, particularly after – beginning of April, when things seem to have gotten a little bit noisier from a macro perspective. We’d love to hear what you’re hearing from both enterprise customers and MSPs and how they’re experiencing the current spending environment?

John Pagliuca, President and CEO

Sure. Good morning, Brian. This is John. Thanks for the question. Look, whether it be data protection or the thwarting of the threat actors, the need for cyber-resiliency is a must, right? It’s not like a nice to have. So, we continue to see the demand, and that’s both reflected in our bookings and our pipeline remains strong. So, we’re not really hearing – we’re not really seeing any major differences from the demand point of view. The offerings continue to resonate in the market. That being said, I’d say anecdotally, with some of the channel checks, we do hear folks talking about certain deals taking a little bit longer or just a little bit more of a measure twice cut-wise approach before folks are launching a big project. But overall, demand remains strong and the offerings continue to resonate in the market.

Brian Essex, Analyst

Got it. That’s helpful. And then, I guess, maybe could you decompose dollar-based net retention for us? Do you anticipate that this is a trough here? Is there further to decline there? And then maybe the key components of that in terms of churn, cross-sell, upsell, any pricing increases just so we can kind of get an idea of the dynamics behind it and understanding it’s a trailing 12-month metric, but just trying to understand when we might start to see that kind of like heading in the other direction?

Tim O’Brien, EVP and CFO

Yeah. Hey, Brian. This is Tim. I would expect where we’re at to be more in that trough. I think with the trailing 12 months, I would say this kind of fully captures the impact that we saw and some of the dynamics back in 2024 that we’ve covered previously. I would say, overall, gross retention has been steady, and the impact on the improvements we’re looking to drive will be driven mostly through the cross-sell opportunity that we have within the customer base. So that’s where we’re focused on executing in 2025 here on pushing that price per device up as we cross-sell the white space opportunity that’s sitting within the customer base.

Brian Essex, Analyst

Okay. That’s helpful. And what kind of considerations will we need to make on the pricing side?

Tim O’Brien, EVP and CFO

I expect pricing to be in the 1% to 2% range for calendar 2025.

Brian Essex, Analyst

Got it. Very helpful. Thank you.

John Pagliuca, President and CEO

It’s going to be very material.

Tim O’Brien, EVP and CFO

Okay. Thanks, Brian.

Operator, Operator

Thank you. The next question is from Matt Hedberg with RBC Capital Markets. Your line is open. Please go ahead.

Matthew Hedberg, Analyst

Great. Thanks for taking my questions, guys. John, I wanted to ask you about the reseller traction. It seems really exciting as another growth vector. It sounds like we’re still early. I kind of wanted to see like where are we at? Like, I don’t know. What inning are we in that kind of reseller motion? And how do you think about potentially that aiding growth this year? I have to imagine you probably haven’t embedded a ton in guidance for that. But just sort of curious on that element.

John Pagliuca, President and CEO

Yeah. Hey, Matt. Great question. Yeah. And so just maybe to remind the audience a bit, we’ve traditionally been focusing on the route to the SME or mid-market via the MSP. And now, we’re widening that net, so to speak, and really beginning to invest a little bit more in other types of channel participants, value-add resellers, even some system integrators and some of the folks like that. Matt, I’d categorize it as early innings for sure, but it’s already seeing some green shoots. We’re focusing right now on adding resellers, active resellers both in North America and international. Part of the one of the benefits from the Adlumin acquisition is they had a reseller network in the U.S. And so, what we’re doing there is we’re adding to that network, but we’re also now giving them more items for their shelf, so to speak, in their line card with Cove and with our UEM offerings, and that’s been getting some good traction. And then in Europe, we’ve added some channel account managers in the UK, we’ve added some in the dock markets. And those are already starting to throw off some green shoots. Our business, I often refer to it as a snowball business, 20,000 plus customers. We’re lining up those pipelines. We’re starting to get deals. Bookings are starting to come in. It will have an impact on 2025, but not necessarily material just because of the nature of the snowball kind of builds. We do expect it to have a bigger impact in 2026. But so far, so good. The demand is there. The products resonate, and we’re really beginning to seed, and we’re starting to see that pipeline build nicely.

Matthew Hedberg, Analyst

That’s fantastic. Yeah. It does seem like a really interesting additional growth vector versus historical MSP distribution. I guess, the other thing that really stood out to me, John, you mentioned it kind of earlier in your prepared remarks, was sort of your vulnerability management solution. We often hear a lot of customer issues with both the vulnerability management side and the patch management side, especially, I can imagine that’s even more relevant in the SMB space. It sounds like you’re having some strong early traction with that as well. Wondering if you can give us a little bit of a sense too on maybe where you’re seeing that success. And is it competitive displacements? Or is it the case where they may be not using anything for vulnerability management in some of your customers?

John Pagliuca, President and CEO

Sure. When we surveyed our managed service providers in particular, the two biggest areas of need were around security operations and XDR, MDR activity, and a close second was Vulnerability Management. Matt, I’d say it’s a hybrid. Some have disparate tools that they were using. No one really had it in one unified platform inside their UEM. This is definitely going to be a differentiator in our UEM for sure. We’re starting with the scanning of endpoints in the applications. Then we’re going to add to that and add on with scanning of networks and then to the cloud. I’d say it’s a little bit of a hybrid. We’ll probably be displacing some folks at the first tranche or the first horizon with the endpoint, but that will be a little bit more of a greenfield or blue ocean with the network and definitely with the cloud. We have it, it’s actually included in our UEM. We’re not charging our MSPs for it, and it’s showing up. Look, I often refer to this as left hand, right hand clapping. You need to scan and understand what the vulnerabilities are, and then you need to patch. Our patching, we believe, is best in class. The level of automation, the level of policies that folks can do, it all goes squarely right into our mission. We’re helping these MSPs be more secure, helping their customers be more secure, and making sure they can do this effectively and efficiently. This was one of the top two priorities that MSPs were looking for. It really is a gap in the industry. We know that there are a lot of enterprise players, and some of our MSPs are forced to use some of those enterprise players, and it might be a little bit heavier than what an MSP needs. They’re not necessarily architected in an end tier so that they can deploy this across their group. Now, what an MSP can do is run certain and common policy across all of their customers, which drives a tremendous amount of efficiency. We’re really excited about it, and the reception has been great. We announced this in Berlin at our Empower event. We had over 500 attendees there, and the place went wild. The audience started cheering when our CTO announced that this is going to be included in N-central and N-sight, both of our UEMs. We’re looking forward to it. This will help us make the platform stickier and displace competitors as we’re going in because the competition does not have this. So this is truly a differentiator.

Matthew Hedberg, Analyst

Okay. Best of luck, guys.

Operator, Operator

Thank you. The next question is from Keith Bachman with BMO. Your line is open. Please go ahead.

Keith Bachman, Analyst

Yeah. Thanks very much. I just wanted to ask three questions, if I could. Good morning. The first is could you tell us how much did the revenue guidance change due to foreign exchange?

Tim O’Brien, EVP and CFO

Hey, Keith. This is Tim. Primarily, we held our constant currency outlook for the year. So, all the increased revenue guidance is related to foreign exchange for the year.

Keith Bachman, Analyst

Okay. Great. Thank you. Then the second question is sort of where Brian was digging in a little bit. You mentioned that there’s more scrutiny on deals. Just to be clear, though, is the pipeline the same, but there’s deal elongation or you’re even seeing the deal elongation or sales cycle expanding? Is there any change in the cadence is really work?

John Pagliuca, President and CEO

Yeah. This is John. What I mentioned is there are really more anecdotes that we’re seeing. But that being said, we wanted to maintain, I would say, a prudent kind of outlook given some of the uncertainty. But no, look, the bookings are strong. The pipeline remains quite strong. We’re not really seeing anything that’s materially different in the metrics. It’s more some of the anecdotes that we’re hearing from some of our channel checks, not necessarily what we’re seeing in our direct business.

Keith Bachman, Analyst

Fair enough. Okay. Thank you, John. And then the last question I had is really related to Slide 25 on the deck. And just wanted to maybe you could revisit on the EBITDA margin expectations as we go out. What’s interesting is your EBIT dollars are roughly consistent with what they were, say, in 2023 and while the revenues expanded. So, is the thesis that EBIT margins will remain constant here or go up? Just give us a little reminder how either the EBIT margins will transition and/or the dollars as you aspire to the larger ARR targets?

Tim O’Brien, EVP and CFO

Yeah, Keith. I think, looking at calendar 2025, we’re squarely focused on growth reacceleration and a couple of key investment initiatives: one, on Adlumin, making Adlumin successful; two, on launching our new site in India; and three, is driving the expansion of our channel in both North America and internationally by adding new resellers and getting that channel to add points of growth to the overall business. So from a 2025 standpoint, that’s focused. I’d say we’re staying conservative on EBITDA there with the number one focus on growth. As we look at 2026, I would expect us to move back into the low-30s from an EBITDA perspective as we balance the investments between profit and growth in 2026.

Keith Bachman, Analyst

Yeah, that was really the spirit of the question was 2026, it’s working those margins return. Okay. Fair enough. That’s it for me. So low-30s kind of margins as we conceptualize 2026?

Tim O’Brien, EVP and CFO

Yes.

Keith Bachman, Analyst

Okay. Perfect. Many thanks. That’s it for me.

John Pagliuca, President and CEO

Thanks, Keith.

Operator, Operator

Thank you. The next question is from Jason Ader with William Blair. Your line is open. Please go ahead.

Jason Ader, Analyst

Yeah. Thank you. Good morning, guys. First, I wanted to get a clarification. So, the $2.6 million beat on the revenue side versus guidance, and you had $2 million positive impact from FX. Just wanted to make sure those numbers are right and whether that was contemplated in the original guidance. In other words, if not for FX, you would have beaten by $0.6 million, is that the right way to think about it? Or was it contemplated in the guidance?

Tim O’Brien, EVP and CFO

No. What was contemplated in the guide was the rates that we stated back in February. So there was some FX upside on Q1 results. The other part on the revenue side, Jason, is we had some, I would say, some impact from 606 to the positive, which doesn’t carry through for the full year in Q1 as well.

Jason Ader, Analyst

Okay. Very helpful. Okay. Good. And then, on the customer expansion side, can you just talk about, I don’t know, anything that you didn’t talk about in the prepared remarks in terms of some of the things you’re working on, bundling or other initiatives, go-to-market initiatives? And then, specifically, what metrics should we be looking at going forward to check on the success of some of those initiatives?

John Pagliuca, President and CEO

Hey, Jason. This is John. Yeah, look, so one of the things that the Adlumin acquisition afforded us is, if you think about the economic stack that we bring to market, that’s now $30 per user per month, right, and which – the Adlumin ASP by itself was anywhere from $5 to $12. So, it’s a substantial uptick in our economic stack. That allows us the ability to do a little bit more bundling and packaging, which will help our customers, both the mid-market customers and the MSPs. What we believe is that at the mid-market and at the low-end in particular, if you’re buying things in a silo, those silos are not as efficient, not as effective and potentially not as secure. By bundling via one kind of platform, the end customer is getting the benefit of that. We’re going to package that up, that should drive, that will drive, our average selling prices (ASPs) up. What you can look for proof points there, an acceleration in ARR, an uptick in Net Revenue Retention (NRR) as we go through, because we should get some of that cross-sell as we go through. We tried to give a little bit of an example of that in the prepared remarks. I mentioned that 300-employee healthcare organization, right? That’s a high five-figure ARR deal. Before Adlumin, that might have been more like a $12,000 to $14,000 ACV type of deal, it was just UEM or one of our offerings. Now, bundling that together, we’re getting four or five times, six times the ACV for a 300-person organization or a 300-device MSP. I expect the bundling and packaging to have a benefit both on the low-end and the high-end, but maybe even an overweight impact on the lower end of the market, because that’s really where they can drive some of the economic benefit for themselves, but more importantly, drive the efficiency for the technicians that those organizations are frankly a little bit overstretched if they’re using more of a siloed approach.

Jason Ader, Analyst

On the end market side, is that where you’ve seen most of the success for maybe some of your competitors like in the low-end of the MSP market, just some of that kind of full platform?

John Pagliuca, President and CEO

Yeah. Let me split that answer up, because it’s important. The Adlumin automated SOC, that’s resonating on the low-end, that’s resonating in the middle, that’s resonating in the high-end, that’s resonating in the mid-market. Like that remains our fastest growing SKU and the cross-sell has been really, really strong across the entire spectrum. The bundling, I’d say the success is a little bit more on the middle to the lower end.

Jason Ader, Analyst

Very good. Thank you.

John Pagliuca, President and CEO

And, frankly, we’re actually really just getting started with some of that, where it’s more, I would say, in testing and we look to bring a little bit more of that systematically to the back half of this year and into 2026.

Joe Vandrick, Analyst

Yeah. Thanks for the question. John, if you could talk about traction you’re having with Adlumin. Remind us what’s the catalyst for greenfield adoption. Is it typically a breach, someone trying to get cyber insurance, or maybe some other reason? Really just trying to understand why this market is poised to take off now.

John Pagliuca, President and CEO

Sure. Thanks, Joe. Based on our research, but also research of analysts in the space, I would call it the XDR/MDR market is really a blue ocean type of market for MSPs. I’d say the majority, we’ve seen as low as 55% and as high as 70%, depending on the survey do not have a solution in place today. So that’s exciting. What’s driving that? You hit it all. I’d say it’s like hitting for the cycle, right? Yes, if somebody has a cyber breach or an incident, that’s a catalyst; if it’s a need for insurance. Hopefully, it’s also SMBs, mid-market companies, and MSPs being proactive saying they can’t handle threats that are needed. They shouldn’t be building a SOC. It’s millions of dollars for a lot of these managed service providers or mid-market companies to build a SOC. If they can rely on a company that’s leveraging AI to help them in a much more automated way, search for threats and thwart the threats. The biggest part of the Adlumin solution that we believe is a differentiator is what we refer to as big R, and that we remediate. Before a customer can even be aware of a threat, we can already take action and remediate. One of the more interesting things that I mentioned in the prepared remarks is we also went to market with Microsoft 365 breach prevention. We were at RSA last week, the first time N-able was ever an exhibitor at the cybersecurity event in San Francisco, and one of the big themes is identity. M365 really is one of those bits that are effectively completely automated. We’re seeing any anomalous behavior with the signing in or just the logging in or a user or an identity under M365, we can actually shut down that access. Whether for a mid-market company or an MSP, they could still be sleeping, and we’ll take action for them on their behalf, making sure that there’s no lateral movement, ensuring that that person no longer has access to their information. This is resonating in the market. It’s a differentiated approach. It’s very much an AI-powered automated SOC, and it seems to be really resonating.

Joe Vandrick, Analyst

That makes a lot of sense. Okay. And you’ve also talked a lot about the value of selling the entire platform. I think I heard the word platformization. So I’m curious, is there an effort to integrate all the offerings together into a single pane of glass? And does that add further value? And where are you on that journey?

John Pagliuca, President and CEO

Sure. When you think about the technicians’ need, it’s really about the workflows, and that culminates or people speak to it as a single pane of glass. The reality is it’s all about automating of the workflows. What we have is effectively three best-in-class offerings: our Cove data protection offering, our UEM offerings, and the Adlumin offering. Best-in-class. So if a mid-market company or an MSP has a need for one of those three offerings, they can consume that. We do pitch and believe that it is a better together story. It makes the MSPs or the technicians more efficient. It makes the solution more effective. Why? It’s because of the workflows. They don’t need to log on. They don’t need to manage up the roles-based account controls and all the access is there, pushing and pulling of the data. We can automate things. We can make the offerings more secure by looking at if there was any anomalous detection. We actually had a customer that was using both Cove and Adlumin when a breach was detected. The breach was remediated. Just for a belt and suspenders approach, since they had Cove, they were able to go back and recover from the previous day just to make sure that there were no threat actors in their environment, and that none of their data was corrupted. That’s a good example of the cyber-resiliency platform where we’re detecting, remediating, and then we can recover just to ensure that the environment is clean. We believe that having that complete resiliency story is differentiated both for N-able and for the MSPs we serve and the mid-market companies that are dealing with the threats.

Joe Vandrick, Analyst

Yeah. Thanks so much for taking my question.

Operator, Operator

Thank you. We have a follow-up question from Mike Cikos with Needham. Your line is open. Please go ahead.

Mike Cikos, Analyst

Hey, guys. Thanks for getting me back on here. I just had a quick follow-up. I believe it was in response to Jason’s line of questioning. We just wanted to make sure we were being thorough here. If I go back a quarter ago, management said that they expected a 5-point headwind to Q1 revenue and a 4-point headwind to calendar 2025 from ASC 606. So did that 5-point headwind to Q1 play out as expected? And are we still maintaining that 4-point headwind to calendar 2025 from these revenue recognition dynamics?

Tim O’Brien, EVP and CFO

Hey, Mike, yeah, we saw things come in very close to where we had projected things for both Q1 and for 2025. Q1 was slightly less as we had a little bit of positive impact from 606, but that headwind for the year is still consistent.

Mike Cikos, Analyst

Okay. And for an update as well, what percent of the customers today are on longer-term contracts versus monthly?

Tim O’Brien, EVP and CFO

That’s north of 50%. It’s in the mid-50s from an LTC committed contract ARR standpoint.

Mike Cikos, Analyst

Great. And final follow-up. But on the unlevered free cash flow conversion, the fact that we’re bumping up by 3 points today, is it fair to assume that’s really being driven by the lower tax rate assumption for the year? And then secondarily, why is the tax rate coming down by 4 points now?

Tim O’Brien, EVP and CFO

Yeah. That’s primarily the driver on the change in the conversion. The key driver on the lower tax rate is due to some of the benefit we’re getting from the Adlumin acquisition. We’re able to realize a little bit more benefit than we originally expected there.

Mike Cikos, Analyst

That’s great. Thank you, guys.

Tim O’Brien, EVP and CFO

Thanks, Mike.

Operator, Operator

Thank you. We currently have no further questions. So, I hand back to John for closing remarks.

John Pagliuca, President and CEO

Thank you, operator. And thank you, everyone, for checking in with us today and spending time with N-able.