Q1 2024 N-Able Inc Earnings Call

Participants

Griffin Gyr; Investor Relations Manager; NAble Inc

John Pagliuca; President, Chief Executive Officer, Director; N-Able Inc

Tim O’Brien; Executive Vice President, Chief Financial Officer; NAble Inc

Mike Cikos; Analyst; Needham & Company, LLC

Jason Ader; Analyst; William Blair & Company LLC

Brian Essex; Analyst; J.P. Morgan Chase & Co.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the N-able first quarter 2024 earnings call. (Operator Instructions)
I would now like to hand the conference call over to our host Griffin Gyr, Investor Relations Manager. Please go ahead.

Griffin Gyr

Thanks, operator, and welcome, everyone, to N-able's first quarter 2024 earnings call. With me today are John Pagliuca N-able President and CEO, Tim O’Brien, EVP and CFO. Following our prepared remarks, we will open the line for question-and-answer session.
This call is being simultaneously webcast on our Investor Relations website at investors dot 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 for 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 to non-GAAP financial measures discussed on today's call is available in our earnings press release on our Investor Relations website. And now I will turn the call over to John.

John Pagliuca

Thanks, Griffin. Today I will discuss our strong first quarter performance and share observations and takeaways from empower our annual customer conference and provide an update on the key 2024 company objectives we outlined in our previous call let's start with our first quarter performance.
We delivered robust results amid a steady macroeconomic backdrop. Revenue was $113.7 million, growing approximately 14% year-over-year on a reported and constant currency basis and adjusted EBITDA was $39.6 million, representing an adjusted EBITDA margin of 35%.
Once again, we exceeded the high end of our top and bottom line guidance. These results establish two critical points. First, we believe this shows that our product strategy is hitting the mark over the past 18 months.
We have strategically expanded the depth and breadth of our product portfolio, driving our monthly per device opportunity to over $30, first quarter results show these expanded options and capabilities resonate with our customers, Cove data protection when we have made significant investments to deepen our capabilities was our fastest grower, the security product group, where we added new skews and considerably expanded our breadth followed as our second fastest grower.
And lastly, our IT monitoring and management platform saw steady demand and continues to serve as the primary entryway to enable growing the depth and breadth of our product portfolio is key to our strategy. Why? Well, small and medium enterprises are becoming increasingly digital and the technology landscape is getting more complex.
MSPs are relying on a more extensive set of advanced software tools to keep pace. Broad-based demand across our growing software stack gives us confidence that we're meeting these market needs.
Second, we are delivering this innovation profitably simultaneously growing our bottom line and our product portfolio. And we believe this quarter is proof of our model's capability to deliver customer value in a profitable manner.
Switching gears, let's now discuss notable takeaways from our annual customer conference in power with hundreds of MSPs vendors, distributors and industry leaders in attendance and power is an opportunity for the MSP community to share best practices and an unparalleled form for us to get direct insight and learn from our customers and industry peers.
One resounding takeaway from the event is that MSPs are optimistic about their prospects. And as these told us that while elements of SME spend remain measured, BPO industry tailwinds continue to blow in their favor.
These discussions reinforce our belief in the economic resiliency of our customer base in the vital nature of our data protection security and IT management software solutions analyst echo the durability of the MSP industry.
With Canal is forecasting total managed service revenue to grow by 12% in 2024. This collective sentiment gives us continued confidence in our strategy as we invest across our product set and scale our operations to capture the attractive industry TAM.
Another consistent theme we heard was that managing the cloud is enormous opportunity and a daunting challenge. Small and medium enterprises are Cove moving operations to the cloud while maintaining on-premises capabilities.
MSPs expressed excitement over this trend because it means the pie is growing. The Clove is another vector MSPs can manage and monetize. However, technicians must have the necessary purpose-built software tools and expertise to manage hybrid IT environments.
This customer feedback validates the bet we placed by developing Commander. Our Clove management solution empowers MSPs to manage Clove workloads, cementing them as a trusted, modern IT provider. At the same time, we maintain the ability for our partners to operate within on-premises environments.
This dual approach using the competence to capitalize on the future of the Clove while meeting the customers where they are in their digital journey. We serve both on-premises and Clove needs. MSPs also clearly spoke about the ongoing changes in the security space, both threat levels and regulatory and compliance requirements are rising and the SME is squarely in the crosshairs question is no longer am I safe the question is now am I safe and to my compliance.
This is a massive implications for both MSPs and SME operations. We usually discuss with an educated MSPs, but why do we believe adding N-able managed detection and response to our already broad security stack.
You need to be positioned N-able has the antigens urgent questions, giving them layers of software and human services available in a single motion all set our dialogue at the event give us confidence in our product development strategy in the mission critical security sector.
A final update from Empower was the progression of the enabled Ecoverse. The Ecoverse is our ongoing transformation to an open ecosystem with integrations extending across a broad universe of technician workflows over the long term, the Ecoverse aims to make every single action and IT technician workflow available, we have trusted API.
This will help tame the inefficiency of tools for offer MSPs, driving more efficient use of both the N-able tech stack and their other software solutions.
The strategic rationale is simple. MSPs want to efficiently deliver a broad range of IT services to the SME customers. The Ecoverse positions us to meet this need. And while we're in the early stages of this journey, we believe the potential of our Ecoverse vision is substantial with network effects driving customer value. We believe Ecoverse can establish the N-able software platform as the control hub for MSPs everywhere and that it will drive enabled as a long-term MSP market share consolidator.
We have made recent progress on this journey, powerful new integrations with leading PSA and MSP, the automation vendors create immediate customer value. These partnerships significantly streamline MSP technicians, workflows, allowing them to ticket and build more efficiently connect applications and operate complex IT environments better.
We look forward to further advancing our Ecoverse vision and providing updates along the way, reflecting on the many takeaways from Empower. We continue to have competence. The MSP market enables positioning for short and long-term success.
Let's now discuss key quarterly highlights and updates on the Q3 2024 focus areas, as a reminder, our immediate focus is on the following objectives. First, empowering MSPs with leading security and data protection solutions that give themselves and their SME customers, peace of mind they deserve.
Second, driving rapid innovation into RMM platforms, enabling MSPs to better manage hybrid digital environments at scale.
And third, doubling down on our customer engagement model and delivering a differentiated level of service to the MSP community.
Looking first at our customer engagement model, we delivered exceptional progress along several dimensions. We learned in and our end market presence hosting 30 events across multiple continents. This in-person interaction is core to our DNA.
We also launched our MSP horizons research, helping MSPs across the spectrum, assess market trends and the best practices to drive their businesses forward. Our efforts to give customers improved contract flexibility and pricing predictability are seeing traction as customers adopt long term contracts at a solid pace.
And as a testament to these customer engagement efforts. We were recognized with the premier five-star rating in the 2024 for CRM Partner Program Guide and a Gold Stevie Award for best customer service team. These are welcome acknowledgments of our deeply held belief that our MSP success is our success.
We also continue to execute on our initiatives to drive innovation in our platforms. We bolstered our powerful patch engine and made meaningful improvements to the platform user experience. These efforts advance our strategy of delivering features that solve MSP use cases, all of them improve technician experience past investments in the platform are also bearing fruit.
We continue to hear strong positive feedback about our new analytics feature and new customer acquisition on our flagship and central platform has increased in the past two quarters, we were excited to continue to invest in and further develop our powerful management platform.
We also made considerable progress on our initiatives to give our MSPs the peace of mind they deserve with our security and data protection solutions.
On the data protection front, the Cove team continues to deliver world-class execution. Highlights in the quarter include the introduction of recoveries of VMware for development of four to five copies and increased restore accuracy and speed through the use of AI.
These technical advancements solve real-world problems for our partners as Cove gains traction among larger MSPs and internal IT departments that often utilize VMware. We believe the ability for Cove to directly restore copies into a VMware environment broadens our appeal across the market are fortified copies, functionality, places, data copies and locations inaccessible from cause management console, protecting data from a threat actor for malicious insider.
And the integration of new AI restore techniques into Cove drive significant time savings in core IT technician workflows. This effectively lowers our customers' cost of ownership while improving the experience the value creation is borne by our results Cove led our growth in the quarter is moving up third party rankings and industry publications such as G2 and is taking market share.
On the security front, our business resilience strategy is resonating. We provide layers of security that allow our partners to increase resiliency across their businesses and their customers' businesses. This approach is driving a steady drumbeat of demand across our security suite.
Our Managed Detection and Response solution is also generating interest across the spectrum. We are seeing greenfield demand at the low end and remote at the high end with MDR, also leading to multi-use new deals, a rip and replace of a well-known competitor illustrates these dynamics.
Well, a current Cove customer was dissatisfied with their existing platform provider has started a dialogue with us centered on the MDR leads impressed by our MDR offering. They also evaluated our in central platform and ultimately, they signed it over six figure ARR deal composed of MDR, EDR and in Central.
Our 2024 plan calls for ambitious progress in building on the great results we delivered in Q1. We believe we are on track to achieve the initiatives we laid out at the beginning of the year.
With that, I would like to turn the call over to Tim to discuss our financial results and outlook then I'll circle back some closing remarks. Tim?

Tim O’Brien

Thank you, John, and thank you all for joining us today. We delivered another strong quarter, again exceeding our guidance on the top and bottom line. There are encouraging indicators that our expanded product portfolio is resonating with customers, and we continue to innovate while delivering robust profitability.
For our first quarter results, total revenue was $113.7 million, representing approximately 14% year-over-year growth. On a reported and constant currency basis, subscription revenue was $111.5 million, also representing approximately 14% year-over-year growth on a reported and constant currency basis.
Other revenue, which consists primarily of revenue from the sale of maintenance services associated with the historical sales of perpetual licenses and revenue from professional services was $2.2 million, declining approximately 6% year over year.
We ended the quarter with 2,187 partners that contribute $50,000 or more of ARR, which is up approximately 13% year over year. Partners with over $50,000 of ARR now represent approximately 56% of our total ARR up from approximately 52% a year ago.
Dollar-based net revenue retention, which is calculated on a trailing 12 month basis, was approximately 111% or 110% on a constant currency basis. As a reminder, the impact of our pricing and packaging changes in 2023 will affect net revenue retention starting in Q2 this year.
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 84.7% compared to 84.6% in the same period in 2023. First quarter adjusted EBITDA was $39.6 million, up approximately 21% year over year, representing approximately 35% adjusted EBITDA margin, unlevered free cash flow was $7.3 million in the first quarter.
As a reminder, due to the timing of cash outlays throughout the year, Q1 is generally our lowest free cash flow quarter, CapEx, inclusive of $1.7 million of capitalized software development costs was $5.1 million or 4.5% of revenue.
Non-GAAP earnings per share was $0.11 in the quarter based on $187 million weighted average diluted shares. We ended the quarter with approximately $139 million of cash and an outstanding loan principal balance of approximately $341 million, representing net leverage of approximately 1.3 times. Approximately 46% of our revenue was outside of North America in the quarter.
Before turning to our financial outlook, I will give commentary on our first quarter results. First quarter revenue was above the high end of our guidance range. This outperformance was attributable to strong demand, led by Cove data protection and success with our long-term contract initiatives.
Turning to our financial outlook, our guidance account for the following elements first, we are assuming FX rate of 1.07 for the euro and 1.24 for the pound for the remainder of 2024, along with updates to other currencies to more closely reflect the current rate environment.
These updated rates drive approximately $800,000 of negative revenue impact for the remainder of 2024 relative to our FX assumption during our February call.
Second, our guidance accounts for the negative impact from the larger than normal 2023 pricing and packaging changes as our pricing and packaging changes are effective annually starting in April. The second quarter is when this impact will start to be realized.
Third, while we have previously touched on slower device growth due to the macro environment and some price sensitivity following our pricing changes in 2023, several indicators across our business and market give us the confidence to raise the midpoint of our constant currency revenue and adjusted EBITDA full year guidance.
With that in mind, for the second quarter of 2024, we expect total revenue in the range of $116.5 million to $117 million, representing approximately 10% year-over-year growth for approximately 10% to 11% on a constant currency basis.
We expect second quarter adjusted EBITDA in the range of $41 million to $41.5 million, representing an adjusted EBITDA margin of approximately 35%. For the full year 2024, we now expect total revenue of $462 million to $465 million representing approximately 10% year-over-year growth for approximately 10% to 11% on a constant currency basis.
We are raising our adjusted EBITDA outlook and now expect full year adjusted EBITDA of $162 million to $165 million, up approximately 14% year over year at the midpoint and representing an approximately 35% adjusted EBITDA margin.
We reiterate that we expect CapEx, which includes capitalized software development costs, will be approximately 5% of total revenue for 2024. We also expect adjusted EBITDA conversion to unlevered free cash flow to be approximately 67% for the full year.
We expect total weighted average diluted shares outstanding of approximately $187 million to $188 million for the second quarter and $188 million to $189 million for the full year. Finally, we expect our non-GAAP tax rate to be approximately 26% in the second quarter and for the full year.
Now I will turn it over to John for closing remarks.

John Pagliuca

Thank you, Tim. There was a strong start to the year. We delivered strong performance and advanced important initiatives across the business. I would like to thank our 600 N-able employees for their ongoing dedication to serving the approximately 25,000 MSPs we partner with globally, with a focused operating plan, a clear long-term vision and a resilient market. We are excited for the rest of the year.

Question and Answer Session

John Pagliuca

And with that, operator, we'll open the line for questions.

Operator

Thank you. (Operator Instructions)
Mike Cikos, Needham. Your line is open, go ahead.

Mike Cikos

Hey, guys. Thanks. Thanks for taking the questions here in great quarter. Just wanted to circle up. I know we're in this. The macro remains challenging out there, right? And I think you guys even acknowledge, hey, the SMEs and device count still constrained, but you guys are obviously executing strongly and do have that confidence to take up the guide here.
Can you provide a little bit more color as far as what are some of those early indicators you're seeing? I know you spoke about in power and what you're seeing on COVID. It's an incremental color there would be beneficial as far as what you're seeing from a boots-on-the-ground perspective?

John Pagliuca

Good morning, Mike, John, and thanks for the question. What we do, as Tim mentioned, with the confidence in our guide and for the rest of the year. We continue to see strong indicators. Most notably, our new customer acquisition, bookings and customer wins have been up another up year over year.
That's if I think about the, um, the almost somewhat to be the future enterprise value of the business as we bring on these MSPs and we keep winning in the market, that's when we can get in and begin to start landing and expanding and helping them expand their SME base.
So that's a that's probably the primary most solid indicator is this new customer acquisition uptick in particular in our in central platform, which is for a reminder for the group, is on the platform where more of our larger MSPs tend to deploy their other software onto the fact that we're winning at that end of the market at a pace that's better than historically, especially year over year is probably the best indicator.

Mike Cikos

Thanks for that, John. And then Brian, just a quick follow-up here. I know we talked about some of the fluctuations from a cash flow perspective. It looks like cash flow from ops was down year on year, primarily related to accrued liabilities. Is that just is that a timing thing? Is there anything else to call out there?
And then the second pieces on the sequential decline to MSPs with ARR over 50,000. I think we went into that before, but is that entirely FX related? I guess those are the two cleanup questions I had, but I'd appreciate it.

Tim O’Brien

Yeah, thanks for the question Mike. On the cash movement, it, it's timing on the primary drivers there, just timing of some prepaid on taxes as well as just the timing of the year of cash outlays for bonuses and things like that within the model.
But on no change to the outlook on cash flow conversion from EBITDA that we stated back in February really just timing throughout the year on the cash flow front.
And then on your second question on the customers over 50,000 ARR, primarily FX driven, we would have been up slightly FX neutral.
And then another part of the equation is that John touched on. We're succeeding with new customer acquisition and generally are new customers. The vast majority of our new customers are coming in below that 50,000 threshold.
And then we work to cross-sell the portfolio and bring them up above that. But those are kind of the two contributing factors of we're seeing stronger mix of new coming in on new coming in the door. And there was some negative FX impact on that metric in the quarter.

Mike Cikos

Got it. Thanks for helping improve my understanding on this two dynamics, I'll turn it over to my colleagues.
Thank you guys.

Tim O’Brien

Thanks, Mike.

Operator

Jason Ader, William Blair. Your line is open, go ahead.

Jason Ader

Yes, thank you. Good morning, guys. A couple of things. First, you talked about the new customer acquisition uptick and with and Central. Can you just talk about when you winning those deals? Is it a displacement?
Is this customers where you and maybe we're selling certain things and you've added more capability, added more elements to the package that you're selling them. Just a little more background on those types of deals. And when you're winning and who you're displacing and why you're winning, that would be helpful.
Thanks.

John Pagliuca

Sure. Good morning, Jason. Thanks for the questions that John again. So a couple of things historically you know this from following the space, we were known as an RMM offering with two solutions for the lower end and the high end, and that was the primary on-ramp onto the business right with Cove and with that platform and the fact that that's really just a disruptive technology at a disruptive price, we're now bringing customers in there and so.
We're getting Cove customers to walk in the door style people on ramping into N-able with Cove. How that's manifesting itself in our RM category is a significant amount of our Cove customers are now being cross-sold into the in Central or even into the Insight platform so that that cross-sell in that pattern is somewhat new for us, but it's accretive.
So we're getting that on combination where historically backup was more of a or data protection is more of a cross-sell. We're now landing with Cove and going from there. You asked a question about like rip-and-replace look primarily at the high end, it is a rip-and-replace, I would say the vast majority at the high end on the low end, you have some greenfield and you also have some ancillary folks getting involved.
So MSP, so security providers now need a monitoring and management platform as well. We're seeing a good amount of internal IT departments now needing a platform that looks and behaves a lot like our RM. It has the patching and take control and monitoring capability.
So in the classic high end MSP, it's rip-and-replace in the internal IT department is actually a little bit more of a greenfield because the combination of these offerings are new to an internal IT department and the collection of them are new not to the individual solutions are different, but that's the collection.
And at the low end, they're new. And then lastly, we are having some progress with it right out of the gate, especially with some of our us that actually across the spectrum, small customers and large customers where we're coming to them now that the line between monitoring and security is effectively gone to the MSP, what's enticing packages we're walking in the door and saying, hey, we have this powerful, a world-class EDR technology, coupled with the RM that's integrated, that's also helping the land.
So we are getting that, that one-two punch of monitoring and security right out of the gate in NCA. So it's a collection of all those that's really driving it.

Jason Ader

Great, thank you. And then, Tim, just on the model and the guidance that you gave for the full year, I'm trying to understand the second half because it looks like at least in my model sequentially, revenue would be flat from Q2 into Q3 and Q4 as well. Just if I use the midpoint of your annual guidance.
So can you talk about why there would not be sequential growth in the second half relative to and where you where you got to fix from Q2?

Tim O’Brien

Yeah, absolutely, Jason, on when we think about the second half, I would say we're continuing to be prudent just with the outlook on mostly due to the macro environment that we're that we're kind of hearing and seeing across the board on.
And then the other part of our equation is related to our long term, our long-term contract strategy that we put in place here for 2024 as it relates to them, that strategy for our pricing and packaging changes for '24 versus '23 on that's where we'll start to feel that impact on the on the year-over-years spectrum starting here in Q2.
So it's a combination of those things, as we've said on kind of the rest of the full year guide, we did bring up the midpoint slightly, but I would say just continuing to be prudent until we kind of see how kind of the macro plays out over the course of the rest of the year.

Jason Ader

And what's the quantification of those mechanics around the pricing and packaging change, like what how much impact it had in Q1 and Q2, it sounds like 2Q second half is not going to have a bad year over year, a positive impact. But what I guess I'm not super familiar with the how to think about those mechanics?

Tim O’Brien

Yeah, we touched on the impact in last call, probably in the range of 2 points to 2.5 points for the full year, no real impact in Q1. The impact is really centered in Q2, Q3 and Q4 from a year-over-year perspective.
So it's probably more in that 2.53% range for those three quarters, specifically in that 2% to 2.5% range for the full year on just from the timing is there was effective as of April and '23. And that's when that grow-over impact is starting to be felt on a year over year perspective.

Jason Ader

Got it. So you get that step-up in Q2 and then it's sort of the way you're thinking about it as sort of it steps up and then it doesn't go up a lot once steps up at least in the second half?

Tim O’Brien

Right.

Jason Ader

Thank you.

Tim O’Brien

Thank you.

Operator

Brian Essex, J.P. Morgan Chase & Co., Your line is open, please go ahead.

Brian Essex

Hi, good morning. Thank you for taking the question and nice set of results this quarter. John, I had a follow-up. You noted a nice rip out of a competitor in your prepared remarks. And just kind of curious, particularly in your over 50,000 customers.
Can you quantify or give us a sense of the CO penetration? And is this is this a consistent theme where and that's leading to a lot of expansion within your customer base once they get a sense of the platform and what it can do?

John Pagliuca

So we've I think we mentioned this on a call or two, but we have about 10,000 or so customers on using our Cove offering. The one thing I'll caution folks on is when we think about penetration in our business, again, because of the sell-through nature of our business, there's two levels of adoption versus the MSPs and that's that 10,000 number percentage.
What level of penetration to those MSPs are using at their SME level. And we believe with Cove, we're very much in early innings and early levels of penetration there because unlike RMM, the RMM is effectively an enterprise-wide decision for the MSP, they really usually have one RMM with the data protection offering. They might inherit one to seven, 11 different backup offerings and so on.
We're happy that we have 10,000 MSPs using Cove. We're not satisfied with the level of penetration we have at the SME and the fact that we've made all these improvements and the offerings in particular with our recovery set and in particular with our disaster recovery and our M365, now we can really go out to the MSPs and win that entire estate.
It's a huge white space opportunity inside of our base. That's a data protection and security are one into as far as the whitespace opportunity within the base. So that's how we think about it. And now with our MDR offering, we actually can now expand that whitespace offering.
We can also land those customers. The example I gave in the script is interesting and we tried to give you guys nuggets that show where the model and where the business strategy is heading in that we won that customer, not a very big customer.
It is actually now using our MDR offering, which we believe to be best in class are in central offering and the EDR. And so it's that it's that powerful combination of the monitoring and security that we think is a winning one.
Obviously, data protection is a part of the mist framework. It's a part of the security stack and coupling those in is the right combination for our MSPs. So we continue to see good traction there.
You've had. I'm sorry, you had a second part of your comment, your question that I'm not sure I addressed. If you could just remind me what that was.

Brian Essex

Yeah, I think what I would love to get your sense of is so is Cove typically the tip of the spear of that expansion strategy as opposed to maybe the other way around or maybe they have EDR and then they kind of back into Cove?

John Pagliuca

You know what it really depends on what where the MSPs are in their journey. I'd say if it's either going to be Cove or security. And it's for us at it, frankly, it really doesn't matter, we want to show them the breadth and depth of our portfolio and the fact that these are all integrated into our platform is really the compelling. The compelling story for the MSPs because it drives that level of efficiency.
So in the example that we gave there was actually a Cove customer and we expanded them into these other bits. But to my previous statement to out to Jason, what we're doing now and a lot of our cases is we're bundling up an EDR offering along with our RMM offering or bundling up our MDR and EDR together. And so providing that type of benefit to the MSP out of the gate, we've is resonating with customers both on the low end and the high end of the spectrum.

Brian Essex

Got it. Super helpful. Maybe just one quick follow-up for Tim. Just looking at so quick math in terms of OpEx, seems to have moderated pretty well in the quarter, helping with the performance on operating margin and EBITDA side, it looks like a lot of it came from G&A and how do we think about that as we kind of model this out for the rest of the year and Trian assess what kind of operating leverage you have in the business?

Tim O’Brien

Yeah, absolutely. We've continued to get leverage on the G&A front, and I would expect us to continue to get leverage there as we move forward. We really built out the G&A functions for scale when we spun the business off a couple of years ago and continue to optimize on our spend there and making sure it's pointed at higher ROI type areas, whether it be engineering or sales and marketing.
Will we've continued to kind of operate with that balanced approach between growth and profit as we kind of march towards that sustained rule of 50 as our as our kind of medium to long-term goal here is as an operating model and there's additional leverage to get, I would say in all parts of the business, we'll take that in a very measured fashion.
Our path to 50 on desire is to get there via revenue growth acceleration. And that being said, there's leverage in the model to get there different ways. And if we need to and kind of stack ranking and they have gone through this before, but kind of stack ranking where that opportunity lies.
It's probably on number one G&A, two in sales and marketing, and three in R&D, just we'll get that. We'll continue to want to innovate over the years and can do to drive innovation to kind of feed that top line.

Brian Essex

But I guess maybe just really quick. It looks like if my math is right here because I am remote today, but did it go down sequentially? And if so, where do some of the cost rationalization come from?
looking at the overall spend Kodak announcement? (multiple speakers)
Yeah.

Tim O’Brien

On a non-GAAP basis as it was, it was about flat quarter over quarter. I'm looking at Q4 versus Q1. It was up year over year, but now I think generates spend overall and from a non-GAAP OpEx perspective was flat sequentially.

Brian Essex

Okay, great. Thank you.

Operator

(Operator Instructions)
Matthew Hedberg, RBC Capital. Your line is now open. Please go ahead.

Good morning, guys. It's Mike Richards on for Matt. Maybe just going back MDR, I was just wondering, you know how that's tracked relative to your expectations on out now that we have over a quarter under our belt and sort of what you're seeing on the top end of the market versus the lower end of the market and the competitive dynamics there that are maybe different from what you expected?

John Pagliuca

Thanks for the question, Mike. So MDR, it's early days and we really kicked this off in the US in Jan. We had some pre activity a little bit in Q4. And then we went worldwide from later on in the first quarter and expect exceeding expectations both on the level of bookings and even more so on the number of lands and it's been encouraging.
On the low end, we're finding a lot of greenfield, right? And we're really allowing a smaller MSP to now provide security services that are required at the SME. And so if you're a small shop, a 5 or 10 person managed service provider and you're trying to stay up with larger MSPs, are we really even just trying to service your existing customer base, you need a level of security offering and selling that can help you with the 24/7 and keeping an eye on and all in all the threats that are out there.
And so we're finding it to be a welcome new offering combining technology and human services at the low end that allows them to keep their customers safe, but also frankly presents as a much larger capability of an organization.
At the high end, we're finding greenfield. We're also finding some rip and replace there have there are some legacy vendors in there that are not necessarily bespoke for an MSP. And what I mean by that is our offering is unique in that we provide eyes on glass for MSPs, some MDR services. It's like a black box service, right on the MSP, just kind of gets the output of that.
We provide a level of transparency for our managed service providers, which they love because now they can see the same thing that our stock analysts are looking at. And as a result, they're getting more transparency. They can better inform their customers.
So it's I'll call it a rip and replace, but I actually believe it's more of a next-gen offering that we're providing at the high end and that's why it's been resonating. So we're quite bullish on it. Again, it's early days and but it's an offering that it's being well received at the low end and the high end.

Great. Thanks, John.

Operator

As there are no additional questions waiting at this time, I'd like to hand the conference back over to John Pagliuca for closing remarks.

John Pagliuca

Thank you all for joining us today and your continued interest in N-able and look forward to seeing you again in the future.

Operator

Ladies and gentlemen, thank you for joining today's call. You may now disconnect your lines.