N-Able - Earnings Call - Q4 2024

Executive Summary

• Q4 revenue of $116.5M grew 7.5% YoY and exceeded both the original Q4 guide and the updated post-Adlumin revenue guide; adjusted EBITDA of $38.1M also finished above the updated guide despite integration and FX headwinds.
• Non-GAAP EPS was $0.10 vs GAAP EPS of $0.02; non-GAAP profit reflected add-backs for stock-based comp, amortization, and transaction/restructuring costs tied to the Adlumin acquisition.
• FY25 outlook calls for ARR of $514–$522M (7–8% YoY CC), revenue of $486.5–$492.5M (6–8% CC), and adjusted EBITDA margin of 27–28%, reflecting planned investment, ASC 606 timing headwinds (~4 pts FY), and Adlumin integration, with margins targeted to return to >30% in 2026.
• Stock reaction catalysts: evidence of cross-sell traction (Adlumin contributed ~$2.5M to Q4 revenue and had ~$21M ARR at close), ARR acceleration through 2025, and clear explanation of revenue recognition headwinds vs underlying demand trends.

What Went Well and What Went Wrong

What Went Well

• Revenue and adjusted EBITDA finished above guidance; management cited steady demand, disciplined cost management, and early contribution from Adlumin (~$2.5M from Nov 20 close through quarter-end).
• Security momentum: XDR/MDR became the fastest-growing SKU and largest pipeline generator in FY24; acquiring Adlumin expands platform breadth and channel reach, with endpoint-agnostic XDR architecture and options to decouple software (XDR) from services (MDR).
• Cove Data Protection continues to outpace company growth and remains the largest revenue product; AI-enhanced restore accuracy >95% and expanded integrations underscore product moat.

What Went Wrong

• Profitability compression QoQ: adjusted EBITDA margin fell to 32.7% from 38.5% in Q3, reflecting integration, investment, and FX; CFO guided FY25 margins to 27–28% before a return to >30% in 2026.
• Trailing 12-month net revenue retention moderated to ~103% (from 105% in Q3), with management expecting TTM gross/net retention to bottom in Q1’25 before improving from Q2.
• ASC 606 revenue recognition dynamics from the long-term contract initiative introduce near-term growth headwinds (~5 pts in Q1’25; ~4 pts FY25), adding “lumpiness” to reported revenue despite underlying ARR growth.

Transcript

Griffin Gyr (Senior Manager and Investor Relations)

Hello, and welcome everyone to the N-able fourth quarter 2024 Earnings call. My name is Becky, and I'll be your operator today. During the presentation, you can register a question by pressing star followed by one on your keypad. If you change your mind, please press star followed by two. I will now hand over to your host, Griffin, Investor Relations Senior Manager, to begin. Please go ahead.

Thanks, Operator. Good morning, everyone. To N-able's fourth quarter 2024 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.n-able.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. I will turn the call over to John.

John Pagliuca (President and CEO)

Thank you, Griffin. Welcome to everyone joining us on the call. We closed 2024 in a position of strength, and we believe we are poised for even greater success in 2025. As our results demonstrate, our comprehensive software solutions encompassing security, data protection, and unified endpoint management are resonating in the market, allowing SMB and mid-market companies across the globe to keep the digital operations safe and functioning. Fourth quarter revenue grew 7% Year-over-Year in constant currency, and full year 2024 revenue grew 10% in constant currency. We exited fiscal year 2024 with ARR of $482 million, growing 10% at constant currency. Our Adjusted EBITDA in the fourth quarter was $38.1 million, reflecting a 32.7% margin, and $169.4 million for the full year, reflecting a 36.3% margin.

A year ago, we set three strategic objectives for the business that, if executed, would establish a foundation of lasting success for N-able. First, we wanted to provide SMB and mid-market businesses with leading security and data protection solutions to give them the cyber resilience they need to run their businesses. Second, we set out to drive rapid innovation into our unified endpoint management, or UEM, tech stack, providing customers the capability needed to ensure their IT environments are productive and secure. Third, we want to double down on our engagement model and deliver a differentiated level of service to our massive collective market. Looking back on the year, I'm pleased with the foundation we have created and the progress made on all three key objectives. The successful launch of XDR headlined our security objective.

Initially brought to market via our partnership with Adlumin, our solution made a substantial splash in the industry and quickly became our fastest-growing SKU and largest pipeline generator in fiscal year 2024, as customers enthusiastically chose the offering to better defend their environments. The partnership validated our belief in the solution and category, and we were thrilled to acquire Adlumin and its cloud-native AI-powered XDR platform in the fourth quarter. We are also delighted to welcome over 175 talented Adlumin colleagues to our team. We believe the strategic acquisition creates multidimensional value for N-able. From a technology standpoint, adding Adlumin to our portfolio allows us to deliver comprehensive cyber resilience to our customers by unifying security, endpoint management, and data protection in an integrated platform. This is powerful. IT operations and security operations are converging within the SMB and mid-market, and IT management software must seamlessly connect with security software.

Silos and gaps create risk and additional unnecessary work. N-able's end-to-end portfolio closes gaps and distinctively addresses technician needs for visibility and control across their IT estate, making them more effective and efficient. We believe this cohesive approach positions us to lead and win in the new world of interconnected operations. The acquisition also accelerates our expansion beyond the MSP market. Adlumin primarily serviced the mid-market through the reseller channel, while N-able focused on MSPs as a route to the SMB. These reseller relationships took years for Adlumin to develop and are valuable assets we now own. We are excited to leverage these resellers to further the adoption of our security solutions while also expanding the reach of our data protection and UEM products. Early results are promising. Since the acquisition in mid-November, Adlumin stands alongside Cove data protection as one of our two highest-booking products.

We also deepened our data protection capabilities. Here, we are sticking to our proven Cove playbook: improve ease of use, expand our workload coverage, strengthen our security posture, and lean into the power of superior architecture to deliver fast and reliable backup and recovery. The year was marked by significant innovation, highlighted by the introduction of immutable backups that keep customers' data isolated and safe from attackers, and enhanced restore through AI, which delivers over 99% restore accuracy. The playbook is clearly working. Cove protects over 180,000 businesses, continues to outpace total company growth, and is our largest revenue-generating product. We also made significant strides in our second objective, accelerating innovation in the highly strategic UEM category, which includes our RMM products.

Enhancements like new APIs and integrations expanded our open e-commerce, while key innovations, including support for Microsoft Entra ID and improvements in Apple device management, equipped technicians to manage more assets with greater efficiency. We continue to break new ground and recently announced the launch of our AI-powered developer portal that accelerates API integrations for faster IT and security service delivery, reducing tasks from hours to seconds. We were recently recognized as a 2024 RMM champion by Canalys for the second year in a row and are committed to leading in the category and helping keep our customers' IT systems running smoothly and securely. Lastly, our world-class go-to-market team has delivered. In 2024, we transitioned the business from less than 10% of revenue from annual contracts to over 50%. We believe this will create stickier, stronger customer relationships and drive improved growth and net retention over time.

We also expanded our routes to market. With a significant portion of SMB and mid-market IT spending flowing through resellers in the broader channel, we invested in people and programs to enhance our ability to bring our solutions to market through these avenues. We believe these investments will expand our serviceable, addressable market and unlock significant growth potential. Reflecting on our progress in 2024, we broadened our portfolio, enhanced our technical moats, and expanded our routes to market. Building on this foundation in 2025, we aim to further evolve our highly effective business model with three key pillars. First, expand our security leadership in servicing our SMB and mid-market customers. Second, scale our go-to-market and replicate our success in the MSP community with resellers in the broader channel. Third, elevate the customer experience with tailored support, service, and connection. Let's first discuss security leadership.

Security digital operations are imperative for modern business, and the need for cyber resilience is particularly acute for small to mid-market organizations. The World Economic Forum's 2025 Global Cybersecurity Outlook highlights that 35% of small organizations felt their cyber resilience was insufficient, five times the rate of larger organizations. Adlumin, XDR, and MDR underpin our confidence in meeting this customer need. Adlumin is AI-powered, built in the cloud, and winning. One key differentiator is our endpoint-agnostic capabilities. We can ingest data from across the spectrum of endpoint security providers while driving superior security outcomes for our customers. We can also decouple XDR software from MDR services. One customer segment may want both XDR and MDR, while other segments may want only XDR or MDR. We can meet the customers where they are and win in every segment.

We believe these attributes are competitive moats that will be difficult for the competition to replicate and will serve to power our success in this category for years to come. With this in mind, our dedicated sales teams are full speed ahead, leveraging their expertise to put the powerful Adlumin solution in front of our large customer base. It is working. Our biggest cross-sale deal in the fourth quarter was an Adlumin deal for over $250,000 of ARR. The customer had service issues with their existing well-known MDR provider, and our team delivered expertise, trust, and service to win the deal. Security also permeates our UEM roadmap. Put simply, a well-managed IT asset is a safe IT asset. We are building on our deep strengths in patch management and aiming to add vulnerability management, posture management, and other features to support our customers in playing the best defense.

Data protection rounds out our layered approach to cyber resilience. One key initiative is developing anomaly detection technology to proactively flag indicators of compromise. The ability to not just recover from attacks, but help prevent them is the next frontier in data protection. We intend for Cove to be at the forefront. We are also working to develop integrations with external ticketing systems, security platforms, and robotic process automation firms to improve incident response and automate tasks. Having a team committed to delivering big-picture headline capabilities like anomaly detection while solving seemingly small use cases like exposing improved ticketing is why technicians love Cove and why we are excited about our roadmap. All these initiatives further Cove's reputation as a comprehensive solution for IT organizations. The takeaway is clear. Our customers' needs have evolved, and N-able is investing to help them stay ahead of the curve.

Our security and data protection categories represent our TAM's largest and fastest-growing sections, accounting for over 70% of our fourth-quarter bookings. Protecting digital operations is the future of N-able, and we are investing accordingly. Turning to our second pillar, we are investing to scale our go-to-market and expand our presence with resellers and other channel providers. This unlocks significant opportunity. Companies with internal IT teams that may not need the support services offered by MSPs often rely on trusted resellers and channel providers to guide their software purchasing. We want to ensure N-able's products are in those reseller conversations. Our powerful, multi-tenanted products, coupled with our focus on partnership, have propelled us to a leadership position in the MSP community. We are confident these factors will serve as a successful blueprint for channel expansion.

In fiscal year 2025, we are specifically focused on leveraging the robust North American reseller channel we acquired via the Adlumin acquisition and further expanding our mid-market channel presence. We will also look to add our data protection and UEM products to reseller channels in North America and also plan to replicate this channel motion in attractive international markets such as the U.K., DACH, and Australia. This considerably widens the strike zone, and we expect growth in the reseller portion of our business to outpace the growth of our MSP business in the coming years. Our final pillar is to elevate our customer experience. We have an extensive product suite that is purpose-built to meet the needs of our customers in an approximately $2.5 billion cross-sale opportunity within our base.

As our customers grow increasingly diverse in size, product, and geography, we are scaling our tailored strategy that delivers a higher-touch approach for higher value accounts. This ensures our resources align with the service needs and expectations of our broader customer base. Customer success is part of our DNA, and we believe this is a core differentiator for N-able. While many companies talk about servicing small mid-market businesses, we've successfully done it for 20-plus years. With that, I will turn the call over to our CFO, Tim O'Brien, to discuss our financial results and outlook. I'll circle back for some closing remarks. Tim?

Tim O’Brien (EVP and CFO)

Thank you, John. Thank you all for joining us today. We made considerable progress across the business in 2024. Our product and go-to-market teams executed critical initiatives, and we once again operated above the rule of 40.

We also executed the strategic acquisition of Adlumin. The addition of Adlumin expands the aperture of our business. The purchase brings N-able a new growth avenue in the high-demand security market, establishes reseller and channel relationships, and greatly enhances our product suite. With Adlumin in the fold and strong progress across our broader business, we are excited about the firepower we have to scale N-able to new heights. Let's review our 2024 results, discuss our 2025 outlook, and key strategic and operational initiatives as we move forward. Total revenue in the fourth quarter was $116.5 million, representing 7% Year-over-Year growth on a reported and constant currency basis. Subscription revenue was $115 million, representing approximately 8% Year-over-Year growth on a reported and constant currency basis. Other revenue, which primarily represents maintenance revenue from our discontinued perpetual license model, was $1.5 million.

We ended the quarter with 2,349 customers contributing $50,000 or more of ARR, up approximately 7% Year-over-Year. Customers with over $50,000 of ARR now represent 57% of our total ARR, up from 56% a year ago. Dollar-based net revenue retention, which is calculated on a trailing 12-month basis, was approximately 103% on both a reported and constant currency basis. For the full year, we finished 2024 ahead of our outlook, with total revenue of $466 million, representing Year-over-Year growth of 10% on both a reported and constant currency basis. Subscription revenue was $459 million, growing approximately 11% Year-over-Year on both a reported and constant currency basis. Given the impact of ASC 606-related revenue recognition timing resulting from our long-term contract initiative, we will now begin providing annualized recurring revenue.

ARR as of December 31, 2024, was $482 million, growing at 9% Year-over-Year on a reported basis and 10% on a constant currency basis, inclusive of the impact of the Adlumin acquisition. On a pro forma basis, our 2024 Year-over-Year constant currency ARR growth was approximately 7%. 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. Fourth quarter Adjusted EBITDA was $38.1 million, representing a 32.7% Adjusted EBITDA margin. Full year 2024 Adjusted EBITDA was $169.4 million, representing an Adjusted EBITDA margin of 36.3%. Fourth quarter gross margin was 82.3% compared to 84.5% in the fourth quarter of 2023. Full year 2024 gross margin was 83.8% compared to 84.6% in 2023.

Unlevered free cash flow was $98.7 million in 2024 and $29 million in the fourth quarter. CapEx was $23.7 million, inclusive of $6.2 million of capitalized software development costs, or 5.1% of revenue for the full year. CapEx was $8.1 million, inclusive of $1 million of capitalized software development costs, or 7% of revenue in the fourth quarter. Non-GAAP earnings per share was $0.10 in the fourth quarter based on 188 million weighted average diluted shares and $0.48 for the full year based on 188 million weighted average diluted shares. We ended the year with $85 million of cash and equivalents and had an outstanding loan principal balance of $339 million, representing net leverage of approximately 1.5 times based on trailing 12-month EBITDA. Approximately 45% of our revenue was outside of North America in the quarter and 46% for the full year.

Before turning to our 2025 outlook, I will give commentary on our results. Fourth quarter revenue and Adjusted EBITDA were once again above our guidance. We continue to execute, see steady demand in our markets, and maintain disciplined cost management. The fourth quarter also includes the impact of the Adlumin acquisition we closed on November 20th. This brings us to our first quarter and full year 2025 guidance. I want to outline a few key assumptions. First, we anticipate FX rates will be slightly lower on average versus 2024 and are assuming FX rates of 1.04 for the euro and 1.25 for the pound for the remainder of 2025. As a reminder, in 2025, every point on the euro represents approximately $1.2 million of annual revenue impact, while every point on the pound represents approximately $400,000. Second, our guidance incorporates the acquisition of Adlumin.

At the time of acquisition in November of 2024, Adlumin represented approximately $21 million of ARR, growing healthily above market rates. We aim to continue this strong velocity in 2025, and we see three new growth opportunities by acquiring Adlumin. One, developing a new customer acquisition motion with XDR and MDR. We primarily use Adlumin as a cross-sale motion in the partnership model and see a substantial opportunity to land new customers, including greenfield deals in the exciting security operations market. Two, bring our data protection and UEM products to the established Adlumin North American channel. And three, bring the Adlumin portfolio to enable a strong international customer base. We also wanted to provide color on the impact of ASC 606 revenue recognition. Due to the timing of our long-term contract initiative, we anticipate transitory lumpiness in our revenue.

We expect revenue recognition dynamics to drive an approximate 5% Year-over-Year revenue growth rate headwind in the first quarter of 2025 and a 4% Year-over-Year revenue growth rate headwind for the full year 2025. As stated previously, due to these mechanics, we are introducing ARR as a new top-line velocity measure, and we anticipate ARR dollar growth to build throughout the year as we integrate the Adlumin acquisition. Turning to the bottom line, we expect 2025 Adjusted EBITDA margin to be below our target model as we integrate Adlumin into the business, invest in a new development site in India, and realize the impact of the timing of our long-term contract initiative. We expect Q1 margin to be a low point due to these factors coupled with seasonality. We expect to return Adjusted EBITDA margin to north of 30% in 2026.

Now I will provide our financial outlook for the first quarter and full year 2025. For the first quarter of 2025, we expect total revenue in the range of $115-$116 million, representing approximately 1-2% Year-over-Year growth, or 3-4% on a constant currency basis. We expect first quarter Adjusted EBITDA in the range of $27.5-$28.5 million, representing an approximately 24-25% margin. For the full year 2025, we expect total revenue of $486.5-$492.5 million, representing 4-6% Year-over-Year growth, or 6-8% growth on a constant currency basis. We expect full year ARR in the range of $514-$522 million, representing 7-8% Year-over-Year growth, or 7-9% on a constant currency basis. Our 2025 ARR guide represents pro forma constant currency growth acceleration.

We expect full year Adjusted EBITDA in the range of $132-$138 million, representing an approximately 27%-28% margin. For the full year 2025, we expect CapEx, which includes capitalized software development costs, to be approximately 6% of revenue and Adjusted EBITDA conversion to unlevered free cash flow to be approximately 65%. As a reminder, our debt is floating and currently fixed to SOFR. In 2025, we anticipate approximately $27 million in interest expense for the full year, which assumes an effective interest rate of approximately 7.5%. We expect total weighted average diluted shares outstanding of approximately 189-190 million for the first quarter and approximately 191 million for the full year. Finally, we expect our non-GAAP tax rate to be approximately 25%-29% in both the first quarter and the full year. We are entering 2025 with energy and confidence.

As a proven leader in UEM, we've built a foundation of trust and excellence. Cove is a jewel in the high-growth, cloud-first data protection market, while the addition of Adlumin's MDR and XDR represent our next frontier, addressing the critical security needs of digital-first SMBs and mid-market companies. Our go-to-market is scaling, and our end markets remain strong as we sit at the intersection of powerful secular tailwinds in cybersecurity, data growth, and digital transformation. The opportunity is clear, and we are investing to seize this opportunity and scale N-able to new heights. Now I will hand it back over to John for closing remarks. John?

John Pagliuca (President and CEO)

Thanks, Tim. We had our 2025 leadership kickoff a few weeks ago, and I wanted to close today with the same message I shared with our N-able Light team. N-able is focused on growth.

Our high-conviction bet on XDR and MDR gives us a powerful horse in the race for security dollars and enhances our end-to-end platform. By investing more in the channel, the N-able name will be injected in the conversation of billions of dollars of potential spending. These are growth opportunities. We are playing offense. I'm very excited about 2025 and the road ahead for N-able. Our guide calls for over $500 million of ARR and strong profit margins. We are executing at scale with a durable business model and high ambitions. Every day, we are pushing the envelope to give our customers the solutions they need to protect and drive the success of small and mid-market companies across the globe, and we are determined to deliver. We look forward to further discussing the opportunity for N-able at our investor day on March 13th and encourage you to join via live webcast.

With that, Operator, we'll turn it over for questions.

Operator (participant)

Thank you. If you wish to ask a question, please press Star followed by 1 on your telephone keypad now. If for any reason you wish to remove your question from the queue, please press Star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is from Mike Cikos from Needham. The line is now open. Please go ahead.

Mike Cikos (Analyst)

Great. Thanks for taking the question, you guys. I just wanted to start with Adlumin and the acquisition here. Can you help us think through what was the revenue contribution from Adlumin in Q4, and what is embedded in the calendar 2025 guide year when we look at the ARR revenue that you guys are guiding to?

Tim O’Brien (EVP and CFO)

Hey, Mike. Thanks for the question.

Q4 contribution was from the acquisition date on November 20th through the end of the year. It was probably in the range of about $2.5 million of contribution on Q4. At the time of acquisition, Adlumin was approximately $21 million in ARR. We're not breaking down the contributions in the 2025 guide, but as you kind of think through Year-over-Year kind of compares, I think that's a good baseline to leverage as to kind of what the starting point was with that part of the business.

Mike Cikos (Analyst)

Thanks for that. I know we've obviously had this longer-term initiative and moving customers to annual contracts now for the last year, now north of 50%. Is there an expected headwind or benefit? If we think about we're north of 50% today, are you guys trying to drive that to north of 70% in this coming year?

Is there any way to kind of quantify how we should be thinking about that initiative?

Tim O’Brien (EVP and CFO)

Yeah. The initiative will continue. I would expect any basically all new business coming in is generally 90% or so plus in committed contracts going forward. I would expect more of a natural blend up over time. I would not expect another significant uptick like we had in 2024 as we go forward. I would say generally the mix will just kind of uptick in probably the mid to high single-digit range annually for the next few years.

Mike Cikos (Analyst)

Terrific. Thank you very much, guys.

Operator (participant)

Thank you. Our next question is from Brian Essex from JPMorgan. Your line is now open. Please go ahead.

Brian Essex (Analyst)

Hi. Good morning, and thank you for taking the question.

I guess maybe, John, for you just to start, would love to understand how conversations with Adlumin's reseller and partnership arrangements, reseller and mid-market partners are. How has engagement been on the partner side for Adlumin, and what needs to happen for you to be fully engaged both for Adlumin and legacy N-able?

Tim O’Brien (EVP and CFO)

Good morning, Brian. Thanks for the question. I've personally been involved in a handful of some of the bigger resellers. The interesting thing here, right, both the MSP, the managed service provider, and these resellers, they're both advisors to the small, medium business and to the mid-market with different flavors, right? The managed service provider is actually a little bit more hands-on driving some of the operations for these mid-market or small, medium businesses, while the reseller is more of that procurement guide and helping them survey the landscape.

When we're walking into the conversations, these resellers are actually quite enthusiastic that the acquisition happened because, one, now it's the backing of a publicly traded company and all the rigor that's related to a public company. Also, they now have a partner that can give them in one-stop shop Cove data protection, our UEM offerings, and even EDR. They've now inherited a partner with a little bit more of an optionality in the portfolio, which will allow us to scale. The Adlumin reseller channel was actually pretty much exclusively focused on North America. They built a fantastic channel. We're going to leverage that, but we're going to scale that in 2025. As we mentioned in the prepared remarks, we're going to bring that same recipe internationally and in the U.K., DACH, and Australia, but then obviously worldwide.

These are conversations that I think have been very warmly received on the reseller side. Even on the MSP side, they're very much leaning in and leveraging now the Adlumin XDR offering as well. So far, so good.

Brian Essex (Analyst)

That's super helpful. Maybe just to follow up, there are a lot of XDR, MDR options out there. Maybe help us understand who does Adlumin typically see competitively, and what is that conversation like? Is it mostly kind of like they have some level of product differentiation on the mid-market SMB side that sets them apart, or how should we think about their ability to penetrate that market?

Tim O’Brien (EVP and CFO)

Sure. The number one ask from our managed service providers two years back was saying, "Hey, we need help in understanding the threats.

We need help in looking at all of the logs across the network. There's a bunch of competitors out there, but they're not scratching the itch. We found Adlumin, and as you know, we first started doing the partnership via an OEM. Why we selected them is why we acquired them and why they're winning in the market, right? First, it's born in the cloud. It's current generation, leveraging both AI and agentic AI technology so that people can do things or that the system can do things in an autonomous way. Why that's important, Brian, is because it helps the margins. It's much more of a software type of play, but it also allows us to democratize the pricing to mid-market and small, medium enterprises so that they can deploy this everywhere, number one. Number two, it's endpoint agnostic. What does that mean?

That means unlike some of the other players in the space, like some big companies like CrowdStrike or these other folks, they're more tied to their endpoint. Adlumin can ingest data from a collective of different endpoints, whether it be Microsoft Defender or SentinelOne or Bitdefender or CrowdStrike. It doesn't matter. In particular for the MSP community, that's important because we know they have a heterogeneous type of network. The fact that they're endpoint agnostic, the fact that it's built cloud-native and AI allows it for automation. The third part, it allows MSPs or mid-market to separate the software from the service. A lot of the competitors, like the folks that you asked when we bump into, whether it be Arctic Wolf or some of these other shops, they're providing more of a black box service and providing an answer.

What Adlumin does is it separates the software. So the technician at a mid-market or an MSP can actually see the software, can see what's going on, and they can choose to use it as software only via an XDR deployment or a black box service and say, "Hey, yeah, we just want the MDR or a hybrid where our SOC analysts are helping their team." That extra level of visibility is a game changer for these folks. They want the visibility. They just need some help. We are not a black box MDR service. It's very much an XDR platform, a technology that has an MDR feature. That's the reason why it's winning so well in both the mid-market and the MSP community.

Brian Essex (Analyst)

That makes a lot of sense. It's super helpful color. Thank you.

Operator (participant)

Thank you. Our next question is from Matt Hedberg from RBC. Your line is now open. Please go ahead.

Matthew Hedberg (Analyst)

Great. Thanks for taking my questions, guys. I wanted to just maybe just a little clarification first. It sounds like at the midpoint of your 2025 revenue guide, you're calling for 7% constant currency growth. It sounded like if we normalize that for, I think you said some revenue lumpiness, that it looks more like 11% would be more of like a that's an inorganic number. Is that kind of the right way to think about that?

Tim O’Brien (EVP and CFO)

That would be correct. Yeah, Matt. The kind of 606 impact on the revenue growth rate in 2025 for the full year is approximately 4%.

Matthew Hedberg (Analyst)

Okay, Just as a related question, I know you're not guiding to ARR, but just conceptually, should ARR, and I think you said it should build throughout the year, but conceptually, would you expect ARR to exit at a double-digit growth rate or maybe even above revenue? Just trying to get a sense for just sort of optically how we should think about ARR growth in 2025.

Tim O’Brien (EVP and CFO)

Hey, Matt. We actually did guide exit ARR for 2025. On a constant currency basis, that was 7%-9%. And on a pro forma basis, exiting 2024. And pro forma basis, exiting 2024 was 7%. We are expecting acceleration on the ARR line as we go through 2025.

Got it. Okay. Just as a reminder, exit 2024 has the full impact of Adlumin in it, so the compares do not really have the inorganic impact. Got it. Great.

Matthew Hedberg (Analyst)

I mean, I guess, John, I guess thinking just, and I assume this might be a part of your analyst day, which we're looking forward to. If we sort of sit back, you outlined a number of drivers: Adlumin, Cove, just expanding MSP relationships. What do you think the single biggest factor is getting you guys back? I think we still think you guys can grow mid-teens. What do you think the single biggest factor is to get kind of back to that level of growth that you guys were previously?

Tim O’Brien (EVP and CFO)

Yeah. As do we, Matt. Right? And so we will walk through this a little bit on analyst day.

If you think about it from the metadata or the structure of a business model and compare where we were a couple of years ago to where we are today, today we have this XDR platform that's a brand new NCA motion for us as well and a much bigger cross-sell opportunity. That will create a pretty nice tailwind. The second bit, as we think about the SMB and the trillions of dollars of spend that's at the SMB, we've been really focusing only on the MSP route, which is just really a smaller subset of that market. Now leaning in and leveraging the channel that Adlumin is having. By the way, we started to invest organically prior to the Adlumin acquisition in this channel as well because we've been seeing the pull from this part of the market.

If you think about it from a business model point of view, those are the two brand new levers that we're bringing in. We actually set that foundation in 2024, and we're going to scale those two levers in 2025. Again, it's using security in the XDR platform as not just a cross-sell, but now an NCA platform, right? That's a big bit. Now the second lever is going direct to these resellers and channel partners. From a model point of view, those are two significant levers. Again, we planted them in 2024. We're scaling them in 2025. Got it.

Matthew Hedberg (Analyst)

Thanks a lot.

Operator (participant)

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

Keith Bachman (Analyst)

Yeah. Thanks very much. I wanted to ask some similar questions.

On the revenues, you're guiding the 7 on the midpoint, but some of the 606 items get you to 11. If you take out the Adlumin contribution, you're sort of mid to low single-digit revenue growth. I know we have to guess a little bit on Adlumin. I'm just trying to understand what are the variables. I know just to say it again on ARR, you're guiding to call it 8 at the midpoint, but that also has Adlumin in the ARR. If we back out Adlumin from that growth rate, it also calls it mid to low single digits. I'm just trying to understand what is impacting organic growth here, even if I normalize for 606 and M&A.

You talk about on the slide that the market's grown at 14%, you think, or your TAM rather is grown at 14% as we look out through the next couple of years. I'm trying to bridge the delta on what's impacting growth, in particular in 2025. Maybe if you can zero in on just give us some color on what the net retention rate or gross retention rates, I know it was down a little bit to 85%, I think, this year. Maybe you could just flesh out a little bit how you're thinking about those two metrics, gross and net retention, as we just try to reconcile what the organic growth rate is coming, what you're guiding the organic growth rate in 2025 is. Thank you.

Tim O’Brien (EVP and CFO)

Yeah. Maybe I'll start now if Tim to jump in. A couple of things.

Tim touched on this on the last call as well. For the first half of the year, there's definitely some headwinds as we kind of, we'll call it growing over on some of those long-term commitment contracts, right? When we talk about GRR or NRR, it's on a trailing 12-month basis. That's going to impact both those KPIs, but also our growth rate for the first half of the year. We would expect to see that accelerating more through the second half of the year, number one. Number two, we're super enthusiastic and very bullish about the Adlumin acquisition. That being said, it's a new acquisition. They've been with us for less than 90 days. There's definitely a level of prudence that we've baked into how the trajectory of that line of our model will go in through the back half of the year.

We expect to continue to perform. As we do, then we'll gain a little bit more confidence. We wanted to provide a guide that you and both the sell side and the buy side had confidence in. That really reflects more of the current acceleration. As we gain momentum there, then we'll take a different look. There is definitely a level of prudence in the Adlumin number. Just making sure that that's clear with you and the folks. Anything else to?

Yeah. I think just to unpack kind of normalized rates, Keith, I would say it's more higher single digits versus kind of the lower single digits to mid-single digits that you referenced. If you look at the ARR guide, constant currency 7%-9%, 2024 includes the Adlumin exit ARR as of 2025.

There's not a full inorganic impact in that number to reconcile out, if that makes sense. From a pro forma perspective, 2024. I guess I just have to say more. Yeah. Sorry. Go ahead. Yeah. In the prepared remarks, we commented that 2024 pro forma ARR growth was approximately 7% exiting 2024. That's relative to the guide of 7-9%. The guide assumes acceleration from exit 2024 to exit 2025, all things equal.

Keith Bachman (Analyst)

Okay. Can you talk? Okay. Yeah. I just assumed that Adlumin, if you, well, there was acceleration through the year, so it would impact the ARR.

Let's leave that. Can you comment a little bit on just some directional barometers on how you're thinking about gross and net retention?

Tim O’Brien (EVP and CFO)

Yeah. I would say we're expecting both lines to improve as we go through 2025.

From a trailing 12-month basis, I would expect it to bottom out in the first quarter. From there, on a trailing 12-month basis, I would expect it to improve from Q2 onward.

Keith Bachman (Analyst)

Okay. Okay. All right. Thank you.

Operator (participant)

Thank you. Our next question is from Joe Vandrick from Scotiabank. Your line is now open. Please go ahead.

Joe Vandrick (Analyst)

All right. Good morning. And thanks for taking my questions. John, maybe for you, I know Cove is the largest recurring revenue product group. You mentioned that the last two quarters. For customers that are leveraging Cove for their backup solution, but maybe not using other N-able products, what's the playbook to target these customers and drive consolidation? Can you talk about if you've had any success there?

Tim O’Brien (EVP and CFO)

Hey, Joe. Thanks for the question. Yeah. Look, Q4 was a very strong quarter, right?

Our bookings were some of the best bookings we've had in years, actually. A lot of that is off the strength of now having both Cove as an NCA, a new customer acquisition path, and XDR as a new customer acquisition path. We're landing those customers with Cove. Now really the playbook is now we can introduce the customers. They're getting the experience of N-able, how we're more than just a software provider. We're helping them with their business. We're helping them with their positioning and the way that they package it back to their SMB or their mid-market customer. We're now showing them the power of an integrated platform. We're now being able to walk them through and say, "Hey, look, you have Cove. Look at our UEM offering, right?

Look at N-central and understand that you can gain more efficiencies and a more secure environment if you're integrating those bits. We're also looking at ways to integrate and provide a little bit more of a data share between Cove and our XDR platform, again, sharing those bits to give MSPs the complete view across their entire estate. As we've now completed this picture with our XDR offering, our data protection offering, and our UEM offering, we believe we're really one of, if not the only, one of the best complete from management to monitoring to data recovery and security platform that's there. That is going to make the MSPs and the mid-market customers more efficient and more effective at what they're doing. That story is beginning to resonate. We're now starting to see folks that started with Cove adding on UEM.

We're starting to see folks that started with XDR adding EDR. We're starting to see customers that began and have been with us for years leveraging N-central, one of our UEM offerings, and now going to Adlumin because they understand that complete picture makes them more efficient and more effective. Like I said, we planted the seed in 2024, and we're going to scale that and have more of that kind of cross-sell in 2025.

Joe Vandrick (Analyst)

Got it. That makes sense. Okay. Maybe one for Tim. How much is N-able exposed to the U.S. federal government? That's either directly or indirectly through MSPs that service government agencies. How should we be thinking about that end market in 2025?

Tim O’Brien (EVP and CFO)

We don't have direct visibility into the end customer of the MSPs, but anecdotally, we're very diversified from the end markets that they serve.

I would not expect our business to be impacted in any different way compared to just the general mix from that perspective. I would not expect too much impact from anything there at this point. We have not heard anything anecdotal from our customers.

John Pagliuca (President and CEO)

Yeah. And Joe, remember, nearly half of our revenue is outside of the U.S. as well. We have a diverse revenue base just from geography, which is part of our strength. As Tim mentioned, it is a very, very diverse customer base and the industries that the MSPs are servicing.

Joe Vandrick (Analyst)

Yep. Thank you, guys.

John Pagliuca (President and CEO)

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

Great. Thank you all for your time and your questions today. Looking forward to talking with you all, Anna, stay here in another 10 days or so.

Operator (participant)

This concludes today's call. Thank you for joining us. You may now disconnect.