SolarWinds Corp

NYSE:SWI

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the SolarWinds Fourth Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Ms. Ashley Hook. Thank you. Please go ahead, ma’am.

[Ashley Hook, Investor Relations and FP&A Manager]

Thanks, Elaine. Good afternoon, everyone, and welcome to SolarWinds’ fourth quarter 2019 earnings call. With me today are Kevin Thompson, our President and CEO; and Bart Kalsu, our Executive Vice President and CFO. Following prepared remarks from Kevin and Bart, we’ll have a brief question-and-answer session.

Please note that this call is being simultaneously webcast on our Investor Relations website at investors.solarwinds.com. Please remember that certain statements made during this call, including those concerning our financial outlook, our expectations regarding growth and profitability and our drivers of growth, areas of our focus and investment, expectations regarding collections and cash flow, our market opportunities and market share, and our M&A strategy are forward-looking statements.

These statements are subject to a number of risks, uncertainty and assumptions described in our SEC filings included – including the risk factors discussed in our Form 10-K that was filed on February 25, 2019 and the Form 10-K we plan to file on March 2, 2020. Should any of these risks or uncertainties materialize or should any of our assumptions prove to be incorrect, actual company results could differ materially and adversely from those anticipated in these forward-looking statements. These statements are also based on currently available information and we undertake no duty to update this information except as required by law. The cautionary statements regarding these forward-looking statements are further described in today’s press release.

Unless otherwise noted, all 2019 results will be discussed on today’s call will include adjustments for the adoption of ASC 606 and all 2018 financial measures discussed today will be presented on a 605 basis. All year-over-year comparisons will be impacted by these adjustments in 2019 unless otherwise noted. The tables accompanying today’s press release include a presentation of our 2019 results on a 606 and a 605 basis.

We will also provide our results and outlook for revenue growth rates on a constant currency basis to provide a framework for assessing our performance and how we expect our business to perform, excluding the effect of foreign currency fluctuations. Our use and calculations of these non-GAAP financial measures are further explained in today’s press release and a full reconciliation between each non-GAAP measure and its corresponding GAAP measure is provided in the tables accompanying the press release, including adjustments for the impact of ASC 606.

However, each non-GAAP item in our forward-looking financial outlook that we provide today has not been reconciled to the comparable GAAP outlook item because providing projections of changes in individual balance sheet and income statement amount is not possible without unreasonable effort and release of such reconciliations would imply an inappropriate degree of precision. Unless otherwise indicated, references to profitability and comparable measures refer to such measures on a non-GAAP basis.

With that, I’ll now turn the call over to Kevin.

[Kevin Thompson, President and Chief Executive Officer]

Thanks, Ashley. First, I would like to say that our forward-looking comments on this fourth quarter call will be a bit shorter than what you’ve come to expect from us, given the fact that we had our Analyst Day back on December 11 in New York City, which many of you attended.

We shared a tremendous amount of information about the company and our growth strategy at that event. If you did not get a chance to attend the event, the replay of our webcast, as well as the presentation are both available to stream and download from the IR section of our website.

I’m pleased to report, we had a solid finish to successful year in 2019, delivering fourth quarter 2019 non-GAAP total revenue on a constant currency basis of approximately $251 million, reflecting 13% year-over-year growth. This resulted in full-year 2019 non-GAAP total revenue on a constant currency basis of $951 million, or 14% year-over-year growth.

Our fourth quarter non-GAAP total revenue performance was within the range of the outlook we had previously provided. However, subscription revenue growth, which is today and will continue to be in the future, the primary driver of our overall growth rate came in above the high-end of our outlook range, with growth accelerating to its highest level in 2019 and 28% year-over-year growth on a reported basis for the quarter.

We also finished the year on a very strong profit note. As fourth quarter adjusted EBITDA totaled $123 million, or an adjusted EBITDA margin of over 49%, exceeding the high-end of the range of our previously provided outlook for the quarter. The strong finish to the year resulted in full-year 2019 adjusted EBITDA of $454 million and 11% growth, as compared to 2018, despite the dilutive impact of the mid-year 2019 Samanage acquisition.

Our operating model has continued to show tremendous resilience, as the business has grown and as our revenue profile has evolved to be dominated by recurring revenue. We had a number of operating and strategic highlights for the fourth quarter and the full-year that I’d like to make note of.

First, we have quickly driven our business to 82% recurring revenue in 2019, as compared to 80% for 2018, as our recurring revenue on a non GAAP basis grew by 15% in 2019, outpacing our total revenue growth for the year.

Non-GAAP subscription revenue, which was a small component of total revenue prior to our take private in early 2016, ending 2019 on a constant currency basis of $334 million, reflecting growth of 25% for the full-year, and for the fourth quarter totaled $90 million, increasing by 29%, as compared to the fourth quarter 2018.

We are pleased with the accelerating growth we saw in revenue from our cloud-based subscription products and expect to see a similar to slightly higher level of growth in the first quarter of 2020.

The growth we have driven in subscription bookings, both organically and through products that we’ve acquired, has also resulted in rapid growth of annual recurring revenue, which we defined as annualized value of our maintenance contracts, plus the annualized value of our subscription agreements.

Total ARR at the end of 2019 was $845 million, as compared to $710 million at the end of 2018, replacing an increase of 19% and an acceleration in year-over-year growth, as compared to what we saw in 2018. Subscription ARR, which is a component of total ARR, grew at an even more impressive rate of 31% in 2019, reaching $370 million at December 31, 2019.

During 2019, we also increased the number of large customer relationships we had, reaching a total of approximately 900 customers, who have spent over $100,000 with us in the last 12 months, which reflects 22% year-over-year growth. We have done this while still driving strong new customer additions, adding over 25,000 new customers in 2019.

Given the strength and breadth of our product portfolio and the fact that our products are already deployed in a significant number of large enterprises, we see the opportunity to continue to build the number of large customer relationships we have at a double-digit rate. We believe the ability we have shows to build large customer relationships, while still maintaining velocity in our business is a unique characteristic of our go-to-market model.

We believe our customer retention rates have continued to be among the best in software during 2019. As demonstrated by our maintenance renewal rates for the full-year coming in at or above 94% and the net retention rate on our subscription revenue stream reaching 105%, led by MSP business, which delivered a full-year net retention rate of 108%.

We continue to be focused on driving our overall net retention rate on subscription revenues above 110%, and maintaining our maintenance renewal rates in the 92% to 94% range for the long-term and believe that these goals are achievable.

We’re pleased with the full-year growth in our non-GAAP license and maintenance revenues, which increased to $612 million in 2019, reflecting growth of 7%, as compared to 2018, which is within the range of the long-term growth rates we are focused on delivering in this part of our business.

Based on the trends in IT infrastructure, the strength of our product portfolio, loyalty and trust of our customer base and the reach of our go-to-market model, we believe that a rate of overall growth in sales of our core on-premise deployed IT management portfolio in the range of our 2019 performance is sustainable for the long-term.

We currently serve all 500 of the Fortune 500 based on the 2018 Fortune 500 list, and our total direct customer count grew to over 320,000 customers during 2019. The total number of companies whose environments are being managed by a SolarWinds products, either directly or indirectly through one of our MSP partners, has reached almost 850,000 customers.

There are very few companies in enterprise software have shown the ability to reach a group of users with their products and go-to-market motions that is this large. We also continue to expand our footprint in IT Operations Management during 2019 through the acquisition of Samanage in the second quarter, which added IT service management to our product portfolio and through the acquisition of VividCortex late in the fourth quarter, which completed our infrastructure and application management picture.

We now manage all key components of today’s hybrid IT infrastructure, including the applications and all key databases that those applications rely on in addition to providing technology pros with the tools to manage issues that are identified through to resolution and to improve the efficiency of their technical operations.

We believe that we’ve assembled the broadest coverage of modern IT infrastructure and application environment in the ITOM market. Overall, I’m pleased with the performance we are seeing across our different product lines and geographic regions. We delivered a strong year performance in 2019 and believe we have positioned the company from an ITOM market coverage and operating metrics perspective for another strong year in 2020.

With that, I’ll turn the call over to Bart, who will provide additional details and thoughts on our fourth quarter performance and will provide a detailed view of our outlook for the first quarter and full-year 2020.

[Barton Kalsu]

Thanks, Kevin, and thanks again to everyone joining us on today’s call. Our fourth quarter financial results will reflect another solid quarter of execution, while demonstrating the significant leverage that we have in our model.

As Kevin indicated in his remarks, we were within the range of our previously provided outlook for the fourth quarter for non-GAAP total revenue, finishing the year with $249.4 million in revenue on a reported basis, or $251 million on a constant currency basis, representing year-over-year growth of approximately 13% on both a reported and constant currency basis.

Fourth quarter non-GAAP total revenue growth was led by non-GAAP subscription revenue of $89.2 billion, which grew 28% year-over-year on a reported basis and 29% on a constant currency basis. The growth in subscription revenue in the fourth quarter was driven by strong performance by our MSP business and a solid contribution from SolarWinds Service Desk, or ITSM product.

Non-GAAP license and maintenance revenue was $160.2 million in the fourth quarter, increasing by 5% on a reported basis and 6% on a constant currency basis. Non-GAAP maintenance revenue was $115.6 million in the fourth quarter, reflecting growth at 9% on a reported basis and 10% on a constant currency basis, driven by continued strong maintenance renewal bookings.

For the fourth quarter, non-GAAP license revenue was $44.6 million, which represents a decline of approximately 3.5%, as compared to the fourth quarter of 2018. And Kevin indicated on our third quarter earnings call, we are driving the business to deliver license sales growth in the 0% to 2% range on an annual basis.

So while our full-year license sales performance was within that range and we are pleased with that level of full-year performance, the fourth quarter license sales performance was not as strong as we wanted it to be.

However, with that being said, as we look at our fourth quarter license sales performance, we saw several highlights, which include: our international new license sales performance was much stronger in the fourth quarter of 2019 than it was in the third quarter of 2019. This acceleration was driven by a meaningful level of improvement in license sales in EMEA.

As we saw operational improvement and market stabilization across the region and continued growth from Asia Pacific, we expect to see a similar level of positive performance from our international business in 2020. We also had several strong areas of North American license sales performance and growth in our – in the fourth quarter that unfortunately were offset by a single week area of performance.

On the positive front, our new customer business in our state, local, federal and education businesses were strong in the fourth quarter delivering year-over-year growth. In addition, we meaningfully grew the number of our large customer relationships sequentially, reaching approximately 900 customers at the end of the year, with the majority of this growth being driven by our North American customer sales teams.

Among these positive fourth quarter areas of North American performance, there was one area of weakness that caused our global license sales in the fourth quarter to be lower than where we expected. This area of weakness related to execution issues and a portion of our North American installed base sales teams. We’re actively addressing this issue and I’ve already seen a meaningful level of improvement in performance at annually.

Total non-GAAP revenue for the year ended December 31, 2019 was $938.5 million, which is a 12% increase over the prior year, the prior year amount of $836.8 million on a reported basis and 14% on a constant currency basis.

For the year ended December 31, 2019, non-GAAP subscription revenue was $326.7 million, which represents growth of 22% year-over-year and was $333.7 million on a constant currency basis, which represents growth of 25%. The growth was led by our MSP business and from the solid contribution we got from SolarWinds Service Desk, or ITSM products.

Our success at landing, expanding and retaining subscription customers has translated into consistent growth of our customer relationships. Our subscription net retention rate for the year was 105%, led by a 108% net retention rate for our MSP business.

Non-GAAP license and maintenance revenue increased 7% year-over-year to $611.8 million for the full-year. Non-GAAP maintenance revenue grew at a rate of 10%, reaching over $446 million. This growth was driven by a very strong customer retention, as evidenced by maintenance renewal rates for 2019 of 94%, which was at the high-end of the range of performance we have indicated investors should expect.

License revenue grew at approximately 0.5% year-over-year on a reported basis and approximately 1.5% on a constant currency basis, which is within the range of 0% to 2% growth that we consider solid performance.

We also had a very strong quarter of non-GAAP profitability in the fourth quarter. Fourth quarter adjusted EBITDA was $122.9 million, representing an adjusted EBITDA margin of 49.3%. And for the year ended December 31, 2019, adjusted EBITDA was $453.6 million, representing an adjusted EBITDA margin of over 48%. These results are defined as dilutive impact of the Samanage acquisition, which was closed in the second quarter.

The combination of revenue growth and profitability is still well above even the high industry standard, as we ended 2019 with yet another year that puts us above our rule of 60 on a non-GAAP basis.

Unlevered free cash flow for the full-year 2019 totaled $372 million, which reflected conversion rate of 82%. The conversion rate, while very solid in the fourth quarter was slightly lower than we had anticipated, as license bookings for the fourth quarter came in a bit later than our historical trends, which resulted in a higher accounts receivable balance of approximately $13 million that we had expected at the end of the year, which is reflected in our DSO at December 31, 2019 of 45 days, compared to an expectation of 40 days.

We expect to collect these receivables in the first quarter, which should help our cash flow performance in Q1 2020. In addition, cash taxes for the fourth quarter, and as a result for the year, were higher than originally forecasted by approximately $5 million.

Net leverage at December 31 was 3.9 times our trailing 12 months adjusted EBITDA, which reflects our ability to continue to delever rapidly, as our leverage ratio at the end of June 2019 was 4.2 times, following the acquisition of Samanage in the second quarter.

Another recent highlight is the fact that we were upgraded by both S&P and Moody’s in our most recent ratings review cycle. Both agencies cited our consistent performance and strong cash flows as reasons for the upgrade.

I will now walk you through our outlook before turning it over to Kevin for some final thoughts. I will start with first quarter outlook and subsequently expand on the full-year 2020 outlook that we gave you back in December.

For the first quarter of 2020, we expect non-GAAP revenue to be in the range of $243.5 million to $248.5 million, representing year-over-year growth of 13% to 15%, which on a constant currency basis would be 14% to 15%.

Total non-GAAP license and maintenance revenue is projected to be in the range of $152 million to $155 million, representing year-over-year growth of approximately 5.5% to 7.5% on a reported basis and 6% to 8% on a constant currency basis.

Non-GAAP subscription revenue for the first quarter is expected to be in the range of $91.5 million to $93.5 million, representing growth of 28% to 31% on a reported basis, or 29% to 32% on a constant currency basis.

Adjusted EBITDA for the first quarter is expected to be $108 million to $112 million. Consistent with our historical trends, we expect our adjusted EBITDA as a percentage of revenue to trend up over the course of 2020 and will end the year meaningfully higher than the Q1 levels, as a dilutive impact of the acquisitions we made in 2019 will become less impactful and as a result of the operational – as a result of operational efficiencies, which build as we move throughout the year.

Non-GAAP fully diluted earnings per share is projected to be $0.20 to $0.21 per share, assuming an estimated $313.6 million fully diluted shares outstanding. Our outlook for the first quarter assumes a non-GAAP tax rate of 22%, and we expect to pay approximately $10 million in cash taxes during the first quarter of 2020.

Last, our first quarter outlook assumes the euro to dollar exchange rate – U.S. dollar exchange rate of 1.11 and a pound to US dollar exchange rate of 1.28.

Our outlook, as it relates to the full-year for 2020 is as follows. We expect total non-GAAP revenue to be in the range of $1.035 billion to $1.055 billion, representing growth of approximately 10.5% to 12.5% on a reported and constant currency basis.

Total non-GAAP license and maintenance revenue is expected to be in the range of $641 million to $653 million, representing growth of approximately 5% to 7% on a reported and constant currency basis. This range assumes a maintenance renewal rate of 92% to 93%.

Non-GAAP subscription revenue is expected to be in the range of $394 to $402 million, representing growth of approximately 21% to 23% on a reported and constant currency basis. This assumes a range of net retention rate of 105% to 108% across our different subscription product lines.

Adjusted EBITDA is expected to be $475 million to $485 millions. As you think about adjusted EBITDA on a quarterly basis, we expect to exit 2020 at a meaningful – meaningfully higher level of profitability than where we began the year.

Our historical trend has been that the first quarter of the year is at a lower level of profitability due to several factors, including payroll taxes on year-end bonuses, higher levels of social taxes and now we kick off our growth initiatives early in each year with an expectation that those growth initiatives will begin to deliver results by the second-half of the year. We did expect our level of profitability to rise in each subsequent quarter, with a third and fourth quarter delivering our highest levels of profitability.

Non-GAAP fully diluted earnings per share is expected to be $0.88 to $0.91 per share, assuming an estimated 317.2 million shares outstanding for 2020. Our full-year outlook, like our first quarter outlook assumes a euro to U.S. dollar exchange rate of 1.11 and a pound to U.S. dollar exchange rate of 1.28.

As we stated in the Analyst Day, our long-term goal is for the conversion rate of EBITDA to unlevered free cash flow to grow slightly faster than revenue growth. However, our conversion rate in 2020 will be negatively impacted by a few large one-time items, which includes the major expansion of our Manila office, as we believe it will be one of our fastest-growing locations over the next several years, as well as the dilutive impact on cash flows in 2020 from our 2019 acquisitions of Samanage and VividCortex.

In addition, in 2020, like in 2019, we will have to continue to make additional total tax payments, which relate to our historical earnings outside of the United States. These items will keep our conversion rate in 2020 in the mid-80% range.

Finally, due to our expected earnings and cash flow growth in 2020, net leverage absent any M&A activity will continue to decline and will be approximately three times at the end of 2020.

With that, I will now turn the call back over to Kevin for his closing remarks.

[Kevin Thompson, President and Chief Executive Officer]

Thanks, Bart. As you can hear from our comments, both on this call and the comments we made at our Investor and Analyst Day in December, we believe that we have positioned SolarWinds to take advantage of both historical trends and deployment models and IT infrastructure in the on-premises and data center market and for the current and future trends and how hybrid IT infrastructure and applications we architected, deployed and used.

This belief is supported by several facts. First, according to IDC, we have been in the market leader and network management for the last three years, and our lead in this market is growing.

Second, in 2019, we moved from the number four spot in Gartner’s IT operations management performance analysis software market rankings to the number three position, which reflects the success we have had, taking market share in the systems and application management markets, as well as the network management market.

We also believe we have positioned SolarWinds to be disruptive in several fast-growing parts of the ITOM market, namely hybrid IT infrastructure and application management and IT service management. The hybrid IT infrastructure and application market is still early in its maturity cycle.

However, the understanding of the problems that need to be addressed and the way the technology pros want the problems to be solved continue to be defined. We have created a portfolio of easy to use and powerful product priced at disruptive levels, which we believe will enable us to begin taking meaningful market share from the early interest into the hybrid IT infrastructure management markets, who have already pivoted their go-to-market models and focus on only large customers and only big deals.

This leaves a large portion of the market wide open for us, ultimately of. You’re confident that over time, we will not only continue to be a meaningful player in the management of on-premises and hybrid IT infrastructure and applications, but also in the management of standalone cloud native infrastructure and applications.

In the IT service management market, we believe that the issues that IT teams need to be able to manage successfully are well understood, and then companies of all sizes are facing the same challenges. We are currently focused on bringing the power of ITSM to the mid-market in the small business with an intuitive easy to use product we can deliver at compelling price points.

Consistent with our approach over the last 20 years, however, we plan to improve SolarWinds Service Desk with each new release, adding capabilities and features and ultimately allow us to serve the ideas and needs of the entire market. We believe the SolarWinds Service Desk will be a long-term growth driver for our business.

We also plan to continue to invest in the MSP market, where we have been a recognized leader since 2013. We believe in a large opportunity in this market, well before any other companies of size really understood it. With a new round of investment in the MSP market over the last three years, it is becoming one of those hot new markets that is not really new at all.

We believe that we are well-positioned for the broadest, most compelling set of products in the MSP market to continue to be a leader and to take share in this market. As we stated our – at our Investor and Analyst Day, we are focused on building a business in the MSP market. We can grow subscription revenue and a sustained level of 20% or greater for the foreseeable future.

Next, I thought I would share a few additional comments on our M&A strategy as we move into a new decade. And, in fact, what is the third decade of SolarWinds’ history. We believe that we have made M&A and core competency of our business and have demonstrated the ability to acquire companies or, in some cases, just acquire products and quickly adapt them to the SolarWinds model, driving revenue growth and a high level of profitability.

We will continue to aggressively look for opportunities to add capabilities to our product portfolios, that our customers are telling us that they need from us to allow them to manage their IT environments in a way they want to manage them. We will, of course, focus on being a disciplined acquirer of companies and technologies to ensure that we deliver a high rate of return on these investments.

Last, turning specifically to our thoughts on 2020. We believe that we will deliver a solid year on a non-GAAP total revenue and adjusted EBITDA growth in 2020. While at the same time investing in some of the fast-growing parts of our business position SolarWinds to grow at a CAGR of at least 15% over the next five years.

We have entered 2020 from a position of strength, with $845 million in ARR, which is 19% higher than where we entered 2019; strong maintenance renewal and subscription net retention rates, which are at historically high level; a solid level of international momentum across all of our product lines; and meaningfully increased the number of large customer relationships we have, while maintaining high velocity of new customer additions, which has been the hallmark for SolarWinds model.

As you can tell on the outlook, which Bart provided, we expect to drive accelerated growth in our subscription revenue stream in 2020, driven by strong growth from our MSP business, SolarWinds Service Desk and our cloud infrastructure management product.

With that, we’ll now open up the call for questions.

[Operator]

[Operator Instructions] And your first question comes from the line of Sterling Auty from JPMorgan.

[Sterling Auty, JPMorgan]

Yes, thanks. Hi, guys. So maybe just focusing in on the license sales into the installed base in North America, you mentioned that you’ve already made some changes. Can you just peel back the onion, give us a little bit better clarity on what changes you actually have made and how long you think it’ll take for that to kind of get back to optimal productivity?

[Kevin Thompson, President and Chief Executive Officer]

Sure. So what Bart indicated, Sterling, we had a really strong performance across most of North America. In the quarter, we had good performance in the EMEA, with EMEA delivering growth again in the fourth quarter, which is great; and Asia Pacific continuing to deliver growth. Federal, our new customer business, state, local and educational very strong in North America and our customer sales team did really great across most of them team. We have one of our geographic regions that just did not perform very well.

In the fourth quarter, we made changes in approach, we made changes in kind of way we’re managing that team to make sure that they’re performing consistently with the rest of the business. And I expect performance to be – we had a very strong January in customer by sales. So we feel like we’ve already addressed the problem that we’ve corrected the issues we saw in the fourth quarter, and we’re already seeing improvement in performance in the first 30 days of this year.

[Sterling Auty, JPMorgan]

Got it. And then one follow-up, in relation to the first quarter guidance, how do we think about the organic versus inorganic acquisition contribution for the quarter?

[Kevin Thompson, President and Chief Executive Officer]

Yes. So if you look at kind of the third and fourth quarter, I think, as examples, really the the inorganic impact of any material level is really driven by Samanage acquisition, which we made in the second quarter of last year. So what you’ve seen in Q3, Q4 is really what’s continuing into Q1. And so, Samanage, as Bart indicated in this comments, and maybe I did also, performed well and it really contributed positively to our growth in the fourth quarter.

So that acquisition is performing very consistent with our expectations. Great product, great team, great market opportunity, continuing to grow at the rate that we said that it would back when we made that acquisition, which was in the your 30%-plus range. So that’s really the only inorganic material contribution in 2020 that is built into our outlook.

[Sterling Auty, JPMorgan]

Got it. Thank you.

[Kevin Thompson, President and Chief Executive Officer]

All right. Thanks, Sterling.

[Operator]

And your next question comes from the line of Brad Zelnick from Credit Suisse.

[Brad Zelnick, Credit Suisse]

Great. Thanks so much, guys, and it’s great to see the momentum and – especially in the subscription side of the business. On that note, we were impressed recently to see that Pingdom showed up as a top 10 most popular developer tool in a recent report out from Okta, I don’t know if you guys have seen it. But how are other products within the cloud suite ramping, Kevin? And can you give us a sense of how big Pingdom is versus the other solutions?

[Kevin Thompson, President and Chief Executive Officer]

Yes. So, we talked about a few things. We said, we have 40,000, paying customers across our cloud infrastructure and application management products. But there’s also customers who are relatively small in terms of their annual financial relationship with us, but those relationships are growing.

Pingdom has by far the most users out of that total 40,000 of the other product lines. It’s a brand, it’s incredibly well-known, it’s a brand that is widely used by both web developers, as well as product development teams. But the – if you look at the website and see the pricing on Pingdom, the pricing ranges from about $7.99 a month to $349 a month.

So you can see that the ASP is not very large. So decent revenue stream in the double digits growing nicely, but it’s not going to be the driver of growth of that portfolio. The driver of growth will ultimately be AppOptics, which is our application infrastructure management product. It’s going to be Loggly, which is which is our infrastructure Log Management product. And then Papertrail, which is our Log Management product for developer, that’s where you’re going to see more of the dollar growth. But user growth, Pingdom does have and will always have a very large number of users.

So great product, great brand awareness for us across the DevOps market, in the cloud market, bringing in and has brought a lot of users to look at the other products that we have. So it’s really great, high volume profitable marketing is a great way to think about it.

[Brad Zelnick, Credit Suisse]

Excellent. And if I could just follow-up with a question on net retention, not to completely rehash Analyst Day, but to make sure I’ve got my facts straight and again, ask a question that follows, 105% net retention on the subscription business for 2019, which, if I’m not mistaken, is at the bottom end of the 105% to 108% assumption embedded in your 2020 guidance?

[Kevin Thompson, President and Chief Executive Officer]

Yes.

[Brad Zelnick, Credit Suisse]

But you also talked about being able to get to over 110%. A, can you just confirm that I’ve got it right; and B, the confidence in the motions that get you to 110% and the optimism and things that you’re already seeing that should give us confidence that you’re going to be able to get there?

[Kevin Thompson, President and Chief Executive Officer]

Yes. So you’re right, we’re 105% for the full-year 2019, and for that matter, we were – we’ve been 105% pretty much on a trailing 12-month basis all year long across all of our subscription products. But we’re 108% right now in our MSP business and then the net retention of our ITSM product is already above 110%. And we also – you have recently added a database management product, which is very tiny revenue today, based on the characteristics of that buyer, and we believe that product will have very, very strong net retention and it already does above our 105% average.

And so when you look at the fact that our MSP net retention has been increasing over the last 12 months, it was less than 108% 12 months ago, instead of 108% now. When you look at the fact that it is one of the faster-growing parts of our subscription revenue stream, that ITSM is already above 110%, it is the fastest-growing part of our subscription revenue product line right now.

Those are the things that give us a lot of confidence that we can get above 110%. I’ve said I’d really like us to get into the 112%, 115% range. I – we have a path to 110% and we know what that path is and we’re on it and making really good progress to get to 110%. Once we get to 100%, we’re not done, then we’re going to try to drive to between 112% and 115%, and we actually do believe that’s possible. I just don’t have as much visibility to that as I do to 110%.

The other thing to know is the 105% was negatively impacted by MSP in 2019. So it’s more like 106% on a constant currency basis. So it’s a little better than the 105%. So we have a good path that we’re on and we got visibility to the ones in. And we believe we know how to get from 110% to 115%. But we’ll get the 110% first and then we’ll get 110%, 115% is one of my favorite leaders – sales leaders used to say, I got to sell $1 to get the $2. I got to get to 110% to get 115%, but hopefully think we can get beyond 10%. We still have much visibility yet in terms of how we get all the way there.

[Brad Zelnick, Credit Suisse]

Awesome color. Thank you, and thanks for all the other disclosure. Really appreciate the transparency.

[Kevin Thompson, President and Chief Executive Officer]

All right. Thanks, Brad.

[Operator]

And our next question comes from the line of Walter Pritchard from Citi.

[Walter Pritchard, Citigroup]

Hi, thanks. Two questions. One, just on the incremental marketing spend you’ve been talking about over the last few months before the Analyst Day and then a little bit of an update as to Analyst Day. Can you just update us on what sort of returns you’re seeing there? And then I had a follow-up product question.

[Kevin Thompson, President and Chief Executive Officer]

Yes. So we are seeing positive returns on that investment through the end of the year. As indicated, we have decent view by the end of December, we’d have a better view kind of by the end of February, given our average cycle time. We’re seeing a positive return on that investment. It’s not at the level I’d like it to be yet. So we’re going to have to tweak it a little bit. We are tweaking it a little bit in January in terms of our executing on some of those marketing campaigns.

So what I’d say is, we’re not at the point, where Bart and I have said, Okay, we’re going to increase our marketing spend through 2018 through all of 2020, and why we built 2018 and sit back in the past, through all of 2020, because we’re just not seeing – we’re not seeing the level of return we want to see it. It’s positive, but it’s not positive at the ROI than we generally expect.

So we’re going to keep tweaking it in terms of the activities in campaign we’re running in the first quarter. We’re going to try to drive that ROI up. But when we got built in our outlook, it’s not an assumption we’ll continue to spend at the level we did in the fourth quarter. This is really specifically around our cloud infrastructure and application management products.

So we’re not going to spend in 2020 right now to the level we spend in the fourth quarter of 2019 until we see a higher ROI than what we saw in the fourth quarter. So it’s positive. If we were probably any other software company you know, we would – we put a bucket of money in and dump it out and spend like crazy people.

But because we run our business in a higher level disciplined than that positive is not good enough, it’s got to have an ROI level. It’s better than just – I’ll make a little bit of profit on the dollar that I spend. So we’re going to have to tweak it a little bit. It works. It delivers more dollars in revenue than it costs, but it’s not where I wanted to be at.

[Walter Pritchard, Citigroup]

And then on the product side, Kevin, how – any update as to how you’re thinking about the security area, and you’ve done some M&A work there and so forth, but curious any update?

[Kevin Thompson, President and Chief Executive Officer]

Yes. So we continued to do a decent amount of work in security. We added, if you remember, an advanced endpoint protection product or MSP product offering in 2019. That’s been incredibly well accepted by our MSPs. It’s one of the fastest-growing products on a percentage basis we have right now in our MSP product portfolio. In 2019, we expect it to continue to be a driver of growth in 2020.

And so we’ve added capabilities there. We have expanded our kind of, what I’d like to call our infrastructure – security infrastructure management capabilities, the 19, with a couple of different products. We have one Loggly, which is used in some security used cases and we have a product called security event manager, which is both a compliance product in a lightweight SIM for companies, who don’t have the sophistication of a wholesale. And those products are performing well in the back-half of 2019.

As I think about security, I really like security that’s tightly attached to infrastructure into the network. So what you should expect from us is that, we will either build and/or look for opportunities to acquire the only infrastructure security product, either at the network level or at the server level, because that’s where the connection to the rest of our product portfolios creates the most value for our customers.

And so definitely a space, we’re going to continue to expand in. We’re going to do it a little bit at a time like we did until the 2019, make sure we really understand the market. We understand the dynamics of the buyer, how they behave, budgets they control, like how they want to engage with the product. And then hopefully, make intelligent decisions about what we build and buy, so that we have the same kind of results we have with this endpoint protection product we brought in the MSP market in 2019.

[Walter Pritchard, Citigroup]

Great. Thank you.

[Kevin Thompson, President and Chief Executive Officer]

All right. Thank you.

[Operator]

And your next question comes from the line of Sanjit Singh from Morgan Stanley.

[Keith Weiss, Morgan Stanley]

Hey, guys, this is actually Keith Weiss sitting in for Sanjit. Very nice quarter, particularly on that subscription side. It’s really great to see the acceleration you’re seeing there and the good traction in a lot of experimental investments that you guys have been making through 2019.

Two questions kind of around that. One on, just in terms of understanding kind of the weaker license revenues, how do you sort of parse out like license weakness coming from sort of more demand going towards subscriptions versus kind of license weakness overall? Why shouldn’t this be kind of a more durable kind of trend going forward, if you will, as more and more the business shift towards the areas that are more cloud subscription-focused? Number one.

And then number two, you talked a little bit about within the MSP business, starting to see some incremental or some increased competition in that space. You guys had a good idea of front-end had been – you’ve gotten some competitors on building up over time. Can you talk to us just what that environment looks like today and sort of how you’re competing to get sort of more MSPs on your platform?

[Kevin Thompson, President and Chief Executive Officer]

Yes. Keith, in regard to the first question, it kind of relates to the opportunity for us to continue to grow our on-premise kind of license products today and we sell the license. And then we talked about at Analyst Day that we are going to do at some point in 2020, and we don’t have that date nailed down yet. We are still working on it to get offer both on-premise products also as a subscription, as we are beginning to see some level of demand to buy our most products that way.

We delivered about 1.5% growth year-over-year on a constant currency basis and license revenue. What we consistently said is anywhere between 0% and 2% license growth on an annual basis is, where we believe we can – in the level, which we believe we can perform.

And we think we can do that on a sustainable basis for the longer-term. We had really good growth across most of our sales teams and most of our core on-premise product in the year and for the quarter for that matter, we’ve had a little bit of weakness on the customer – on part on the customer base side in the fourth quarter.

What I tell you is, when I look at what’s happening in infrastructure, some things are happening. Without a doubt, we’ve seen some small businesses stop buying technology to manage environments themselves and begin to ask MSP to manage those environments for them. And that’s something that we’ve built into our business model as we look forward.

And it’s one of the reasons why we don’t expect 5% to 8% license growth is, because we know a portion of that small business market and an increasing portion of that small business market is thrown up their hands and said, I can’t do it myself anymore. Somebody needs to do it for me, which is why we’ve invested in the MSP market as heavily as we have and why we’ve got the really strong growth that we’re seeing in that part of the market.

However, at the same time, what we have seen is that, there’s a tremendous amount of technology still deployed on-premise, and there’s still new technology being deployed on-premise. We think we’re really well-positioned from a product portfolio perspective to take share in that market, because almost every other vendor that has any real focus on that market has reduced their level of focus, reduced their level of investment either, because they got acquired by companies and just harvest those technologies for profit, or because they simply don’t have the level of profitability they need to be able to invest in those areas. And they’re looking for areas that have higher easier growth, which is where a lot of big companies tend to turn when things get a little bit difficult.

So that market is still growing. The number of competitors in that market is actually shrinking, not growing. The strength of those competitors has actually been declining. And we’re seeing a lot of our customers who are large companies, in some cases, they’re also large customers of ours, expanding the footprint of their SolarWinds product portfolio in pretty dramatic ways, which is why we built as many large relationships as we have and we’re still adding a lot of new customers.

So a couple of things, I think, can happen as we look at 2020 through kind of 2024. You’re going to see us continue to build an increasing number of large relationships with large customers that will start at the ground level with initial very small transaction. But we’re going to grow more rapidly in those accounts than we have historically.

There are many accounts, we’ve got large footprints already, and – but there’s still an opportunity to increase those footprints in meaningful ways. And we talked about at Analyst Day, we’ve added a new sales motion to our bag of sales motions, I guess, you want to put it that way to allow us to more rapidly expand those relationships, because we’re having a lot of success. And we really haven’t intentionally trying to do that over the last five years. It’s happening, because our products are strong, they’re deep, they’re abroad, and no one else really has anymore.

And so those are the things that give us confidence that we’re not saying that license revenue is going to grow at 10%. What we’re saying is that, 0% to 2% range, which allows us to grow total license and maintenance on a combined basis. In that 6% to 8% range, maybe 9% range is absolutely a level we’re comfortable at saying. We were there in 2019. We picked a few there in 2020, because the competition is just got very strong.

On your MSP question, that market is an interesting market. So I think, yes, there are a number of competitors in that market. There’s really no one knew in that market of any size. Over the last five years, there’s just been a lot of investment into the companies that are in that market, either by IDC, [ph] who have funded some of the smaller players, or by PE firms that bought some of the larger players.

So there’s not a lot of new strong competitors in that market. But there are a number of competitors in that market, where we’ve had an advantage, where I think we’re going to continue to have an advantage is the overall strength, depth and breadth of the SolarWinds technology portfolio.

None of the competitors in that space have the products we’ve had for the last 20 years In the ITS, we have the knowledge and know-how we have by managing infrastructure environments, wherever those infrastructure environments happen to sit. And nobody has the breadth of capabilities on their MSP platform that we have today.

So as long as we continue to improve the products we have, as long as we continue to bring the IP we’ve had for the last 20 years to bear on the MSP market problem, we’ve accelerated the rate at which we’re doing that. We believe we’re going to continue to be one of the leaders in that market and we’re able to deliver 20%-plus growth. We’re really far out as we can see.

[Keith Weiss, Morgan Stanley]

Got it. That’s super helpful. Thank you, guys.

[Kevin Thompson, President and Chief Executive Officer]

Thank you.

[Operator]

Your next question comes from the line of Brent Thill from Jefferies.

[Luv Sodha, Jefferies]

Hi. This is Luv Sodha on for Brent Thill. I just wanted to ask, maybe peel the onion back a little bit on the sales and marketing investments that you made this quarter.

[Kevin Thompson, President and Chief Executive Officer]

Yes.

[Luv Sodha, Jefferies]

Maybe could you talk about like the competitive environment, how – what was it about those investments that didn’t sort of live up to the expectations that you’ve had in terms of returns?

[Kevin Thompson, President and Chief Executive Officer]

Yes. So look, here is a couple of things. So one, when I mentioned at the last quarter’s call, is because we’re still relatively early in maturity of that market, there is a level – the level of demand that exists on the web. While at a decent level, it’s not so high that as you start to – people start to spend more money, trying to market to that demand, you’re seeing the rate, the cost per click, if you will, go up at a pretty rapid pace.

So one of the things we were trying to test is, as we deploy dollars, what rate does that cost per click go up? What’s the rate of conversion we get as a rate per dollar goes up, because the reality of web-based marketing is, as you push the volume limit, as you push the dollar cost per click, you will see some level of declining conversion. That’s just math.

And so what we’re trying to test is, how the cost goes up. What is the conversion rate look like to opportunity? And then what does that conversion rate look like opportunity to closed deals. But while we can spend those dollars profitably, they don’t meet my hurdle rates that the Board and I’ve established in terms of what – how many dollars in revenue do we want to get for every dollar marketing spend. And if you look at our historically, we spend about 25% to 27% of revenue in sales and marketing combined.

So we’ve got a pretty high hurdle rate, much higher hurdle rate than other companies have. I absolutely do believe, however, that we can drive demand even in that cloud infrastructure and application management market at a level of profitability that meets our hurdle rate. So we can increase the level of demand that we’re driving, increase the rate at which we’re adding new customers in that part of our business, and increase our growth rate.

So we haven’t lost any of our confidence in that. We just haven’t gotten to the math equation that where Bart said, Okay, now I’m going to open up the vault and give you more money. You still got the vault locked at this point, waiting for them to prove to him that it was a good investment from taking money on that vault and give it to them. So we’ll get there. I’m not worried about our ability to solve that math equation. We just didn’t solve it completely in the fourth quarter.

[Luv Sodha, Jefferies]

Got it. And a quick follow-up for me. In terms of the – your progress on international markets, I know you’re mentioning that next year you’re planning to open an office in Manila. Is that sort of – how do you think about international growth? And how should we think about it going forward in 2020? Thank you.

[Kevin Thompson, President and Chief Executive Officer]

Yes. So maybe to clarify, we had a big operation in Manila already. What Bart indicated is, we’re really going to double down and meaningfully increase the size of that operation, because the employees we have in Manila are truly phenomenal, great attitude, incredibly committed to the company, do an incredibly high level of work. And so it’s really been a home run for us in terms of that operation.

So we’re planning to double down, really double the size of that operation over the next 12 months. In order to do that, we had to do more than double the size of the footprint we have in terms of facilities in Manila. So that’s been a great, great location for us, one that I’m incredibly enthusiastic about, and one that just delivers tremendous amount of value to the company.

In terms of international growth, you indicated, we saw it was a good performance in the fourth quarter. From EMEA, we saw continued good performance. From Asia Pacific, we’re still focused on really cracking the code in the German market. We started to invest in that in the kind of middle of 2019. We continue to invest in the German market.

We’re seeing some improvement in performance in Germany, particularly in the fourth quarter. We’re going to continue to push on that. We believe that’s a market where we should be much larger, we should be able to grow much faster than even we’re growing in the fourth quarter, though we saw a performance, and we’re going to push on that.

We’re going to push hard this year to get our ITSM product and to get our – to continue to get our cloud infrastructure and application management product really deployed into the international market, Europe first; Asia, second because those products are mainly North American in terms of revenue streams.

And then when we talk about last year, we opened a Japanese office in late 2019. We’ve got a small handful, so I guess, it’s less than five employees in Japan today and we’re beginning to see some positive traction from their efforts. And so that was going to be, as I said, slow work, but ultimately will be a really good market for us. So that’s how we’re thinking about international right now.

[Luv Sodha, Jefferies]

Got it. Thank you, guys.

[Kevin Thompson, President and Chief Executive Officer]

Thank you.

[Operator]

And your next question comes from the line of Matt Hedberg from RBC Capital Markets.

[Matt Hedberg, RBC Capital Markets]

…for taking my questions. I wanted to circle back on at Analyst Day, you talked about introducing core IT subscriptions at some point in 2020. I know, Kevin, you said there’s really not a date yet. But I guess, I’m wondering, Bart, how do you think about that when you offered the 2020 outlook from a revenue perspective? Is – I mean, is this something that, as you are selling more, you’ll sort of call it out? And if it does have any cannibalistic effect, we note that I’m just really curious on your thoughts on the guide?

[Barton Kalsu]

Yes. So the guide I gave for the first quarter, as well as for the full-year 2020 doesn’t include any of the subscription story that we talked about at Analyst Day. Once again, it’s not a subscription transition for us. We’re just going to offer our core IT products under a subscription pricing model.

We’re going through the process of putting together the systems and all the other work behind the scenes in order to offer subscriptions. So in the quarter that we rolled that out, we will obviously adjust our guidance and talk about how that’s going to impact on our income statement.

[Kevin Thompson, President and Chief Executive Officer]

And in terms of kind of from a kind of business momentum perspective, based on the work we’ve done, the research we’ve done, the hundreds, if not thousands of conversations we’ve had with both prospects and customers, I do believe we’re going to see some level of volume pick up, particularly at the lower-end of our product lines, where our price points are not as competitive when you have to buy a license. And then you can buy a subscription from some of our smaller competitors that small companies might look at, small companies worry about $5,000 upfront or can I pay $1,800 a year, and they’ll make decisions at that level.

So we do believe that it is a smaller version of our products. We will see some level of volume pick up once we get a subscription offering in the market, so choose, do I want to buy a license or do I want to buy a subscription. So once we get the date nailed down, we’ve got all the work done and we’ll obviously do a launch we’ll announce that we’re doing it and then we’ll update our outlook.

[Matt Hedberg, RBC Capital Markets]

Got it. That’s helpful. And then in your prepared remarks, Kevin, you talked a lot about ITOM, a lot of investments last year and I know you’re pleased with the success there. Now that you’ve had certainly the ITSM product under your watch for a couple of quarters now. Can you talk about maybe the competitive landscape? Are you surprised by who you’re running up against maybe win rates? Just a little bit more detail there?

[Kevin Thompson, President and Chief Executive Officer]

Yes. So we’re running up against kind of group of companies we thought we would. So we’re running up against people who have kind of legacy ITSM products deployed. So remedy products like that from BMC and CA and HP and others.

So there’s a bunch of old service desk product out there that really are not modern ITSM that we run up against, that was really a customer design, those products don’t meet their needs anymore. They need something much more modern, much more easy, much easier to use. They want something that is cloud deployed, so they don’t have to deploy it on our infrastructure.

We’re also seeing some of the competitors that are – some of the larger private players in the space, so companies like Cherwell and Fresh Set or fresh, whatever, they got a lot of different fresh names. And so we’ll bump up against them a little bit and then there’s a bunch of cheap and cheerful service desk companies out there, really they are help desks, literally hundreds of them, because when we started our research for this space, we were actually shocked at the number of very small kind of $1 million to $3 billion revenue, maybe $5 million revenue companies that are out there that provide help desk.

So there’s a bunch of those out there where customer, prospects and potential customers are trying to decide, do I just need a help desk, or do I want to move to something that actually gives me much more functionality than that? So that’s who we run up against competitively.

I think the mid-market and even the small enterprise is pretty wide open from a competitive perspective. I don’t think any of the competitors are particularly strong, and they definitely don’t have to go to market reach that we have, they don’t have a customer base that we have. We’re seeing a lot of interest by the SolarWinds customer rate in our ITSM product, which we thought we’d see, because now you can connect the operational management – the infrastructure management product that we provide you with operational management of your IT team. And we can connect that much more tightly than anyone else can.

So there, somebody – they’ve got some deployed in almost every case. But in most cases, we believe we can win that business relatively easily. We don’t – we’re not running against – up against service now very often. Why? Because I’m not going that high in the market today.

As I indicated, my comments were really focused on the mid-market, small enterprise, small business. Our products are really good for that level of company. If you’re a large business, who doesn’t have really complex IT, we scale to very large. But if you’re really complex, we’re not the right solution for you yet, but we will be.

So whether that’s 24 months from now, or 30 months from now with every release we make, we’re going to be – the product will be stronger and stronger. And we will get to the point over a relatively short period of time, where we can compete against the ServiceNow and some of those really large opportunities. But that’s all we’re doing today.

[Matt Hedberg, RBC Capital Markets]

Got it. Thanks a lot, guys.

[Operator]

And your next question comes from the line of Erik Suppiger from JMP.

[Erik Suppiger, JMP Securities LLC]

Yes. Thanks for taking the question. Just a quick question. On your larger customers, can you talk a little bit about what kind of success you had with $100,000 customers, the volume that you generated at the end of the year?

[Kevin Thompson, President and Chief Executive Officer]

Sure. So I think one of the trends we’re seeing, Erik, is that, we have a footprint in a lot of companies around the world. We’ve got a footprint in most of the large companies around the world with some volume of SolarWinds technologies deployed. So footprints are small, maybe about $15,000 or $20,000 of licenses.

So some footprints are large, and maybe they bought $0.5 million or $1 million of licenses. But there are very few organizations of any size anyway, where we are managing their entire environment. There are some, but that’s the distinct minority of our customer base.

And definitely, what we’ve seen over the last 24 months, because the trend has really been building in 2018 until the 2019, we really dramatically increased the number of large customer relationships we have over the last 24 months. And the trend we’re seeing is those companies coming to us are using our products already in a certain area of infrastructure coming to us and say, okay, we’ve got all these other legacy products deployed. They’re not meeting the need we have anymore. In order to give us a level of visibility, we needed our infrastructure.

They’re not dealing with the modern IT architecture that these companies are creating and deploying. We need you to be able to help us manage that and we want to go from a smaller, medium-sized relationship to very large relationships. So we’ve built a really large number of significant relationships in the last 24 months.

And the level of activity there, the level of interest is building, which is why David talked about at Analyst Day, he created a new sales motion, which we put in place in January for brand-new teams in place now handling the rest on that team. And that team’s job is to go into those large customers, who have meaningful relationships with us. But we know there’s a much larger opportunity and try to accelerate the rate in which we’re capturing that large opportunity.

So we’ll be able to give us six months. So by the end of the second quarter, I think, we’re going to be able to talk about what kind of success we’re having. With that new sales approach, it’s still a typical SolarWinds’ approach, selling from the inside still, but it’s much more proactive touch, going in and telling a bigger story, making sure these organizations know the breadth of our capabilities, which in many cases they don’t.

And then showing of how rapidly that they can actually deliver value as an organization and the ROI we can give them, which is incredibly rapid, because we’re going to be generally less than the maintenance they’re paying for some of the older products that they’ve got deployed to buy our licenses and then our maintenance ones would be much cheaper than the maintenance relationships we have – they have today.

So it’s a big opportunity, one we’re really excited about, because we’re already seeing a very significant level of success and we really haven’t intentionally focused on driving that success until now.

[Erik Suppiger, JMP Securities LLC]

I think you had 238 customers at the end of Q3. Can you update us what it was at the end of Q4?

[Kevin Thompson, President and Chief Executive Officer]

So we had 900 at the end of Q4, and we had over a little over 800 at the end of Q3. So we’ve been adding anywhere between kind of on a trailing 12-month basis, we’ve been adding anywhere between kind of 50 to 70 a quarter that reached that level of spend with us.

[Erik Suppiger, JMP Securities LLC]

All right. Very good. Thank you.

[Kevin Thompson, President and Chief Executive Officer]

We’re going to take one more question.

[Operator]

Okay. Your next question comes from the line of Heather Bellini from Goldman Sachs.

[Heather Bellini, Goldman Sachs]

Thank you. Thanks, Kevin. I’ll make it quick. Just wanted to follow-up on the comments about the back-end load quarter. Just wondering in any particular markets, if you’re seeing it was that mostly focused in the U.S., where you mentioned you had a couple of pockets of weakness, or is it related to the UK, where I know you cited weakness in your Q3 quarter?

And then the second topic I just wanted to get your comment on is just the maintenance renewal rates, obviously, been running very high. You had 97% in Q1 and it’s fully been ticking down. I’m just wondering, what caused the spike to 97% in Q1? And what makes you feel like it’s going to – gives you, I guess – what gives you the sense to guide to it being 90% to 93%?Thanks.

[Kevin Thompson, President and Chief Executive Officer]

Yes. Yes, in terms of the linearity of the fourth quarter, we definitely saw more visits in the last 30 days a quarter than we typically have seen, even in the fourth quarter. Fourth quarter is always more shifted towards the back-end. Our DSOs typically run kind of 35, 36 days. Every other quarter, they typically bounce up to 40 days in the fourth quarter.

So consistently, we’ve seen more of the fourth quarter business come in, in the last 30 days than other quarters in the year. However, this year, in the fourth quarter, we definitely saw a little heavier loading in the fourth quarter that was a little bit on the federal side.

So U.S. federal, we had indicated a federal plan. We had a strong fourth quarter and that doesn’t tend to be a little bit less predictable in terms of timing. We saw more of that business come in, late in the quarter. And then on the North American side, from a commercial perspective, we saw a little bit more coming. Europe was not significantly less linear than it historically has been in the fourth quarter, really nor is Asia Pac. It’s really more federal North American.

As I indicated, we saw a reversal of that trend already this quarter. We had a strong January, which is much better than our October in terms of performance and expectation and what we expect from linearity. So it’s feels a little bit like a fourth quarter blip, which is we’re still more linear than most companies in software.

I’m not getting 70% of our year in the fourth quarter and 90% of my fourth quarter in December. But less linear than what we’ve historically seen by about $30 million in bookings. And that’s what Bart said, the ARR went up by. So that’s kind of the shift in linearity.

On maintenance renewals kind of two – a couple of things. One, what we consistently said all year long is, don’t bank on 95%, 96%, 97%. 92% to 94% is where we believe it will be. That’s where we’ve trended historically over long periods of time. And then we were – you had really, really strong maintenance renewal performance.

In the first part of this year – in the first quarter, we talked about the fact, we had a very, very large federal renewal, which came in, in the first quarter, which boosted our maintenance renewal rates in the first quarter. And because we disclosed maintenance renewal rate on a trailing 12-month basis, that had some mathematical impact all the way through the year. We do believe that 90% to 94% is the right range to expect.

We’ve got 92% to 93% baked into our view. For 2020, we hopefully can do better than that and deliver that 94%, maybe a little bit higher than that. But anywhere between 92% to 94%, we felt we did a really good job. And if we get 94% higher, we’re doing a great job. And we’ve got – we feel like we’ve got the process of methodology and the track record to be able to deliver that 92% to 94% and hopefully we’re at the higher-end of that range. But that’s really kind of what happened in 2019.

[Heather Bellini, Goldman Sachs]

Thank you so much.

[Kevin Thompson, President and Chief Executive Officer]

And with that, operator, we’re going to end the call for today. We appreciate everyone’s attendance on the call and for the questions we got. Thanks.

[Operator]

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.