Solarwinds Corporation (SWI) Q3 2019 Earnings Call Transcript

Solarwinds Corporation (SWI 1.73%)
Q3 2019 Earnings Call
Oct 30, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the SWI Q3 '19 earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions].

I'll now turn the call over to our host for today, Mr. Dave Hafner, VP of investor relations.

Dave Hafner -- Vice President of Investor Relations

Thank you, Carmelli. Good afternoon, everyone. Welcome to SolarWinds third-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. Pleased remember that certain statements made during the call, including those concerning our financial outlook, our expectations regarding growth and profitability, our planned investments, and our expectations regarding the impact of those investments, our market opportunities, including opportunities within our existing customer base, our market share, our product roadmap, our key growth initiatives are forward-looking statements. These statements are subject to a number of risks, uncertainties and assumptions described in our SEC filings, including the risk factors discussed in our Form 10-K that was filed on February 25th, 2019 and the Form 10-Q that we plan to file by November 14th, 2019.

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 an ASC 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 ASC 606 and 605 basis. We will also provide our results and our outlook for revenue growth rates are 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 calculation 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 will provide today has not been reconciled to the comparable GAAP outlook item because providing projections of changes in individual balance sheet and income statement amounts 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, Dave. And thanks, everyone, for joining us on today's call. Stepping back and looking at our performance in the first nine months of 2019, I'm pleased with the same momentum with what we entered the year. This has allowed us to drive 14% constant currency in oil and gas total revenue growth in the first nine months of the year, and adjusted EBITDA over $330 million.

We're also pleased to report we delivered solid results in the third quarter. Non-GAAP total revenue is approximately $243 million to quarter, reflecting year-over-year growth of 15% on a constant-currency basis, and adjusted EBITDA was $115 million, which was above the high-end of our outlook. We're quickly approaching and expect to reach one of our goals in the business in the fourth quarter of this year, which is delivering our first quarter in which total revenues for the company exceed $250 million. When we openly reached this milestone and it will put us in a lead class of enterprise software companies, which have reached $1 billion in annual revenue run rate, and we will have that on delivering a level of profitability and cash flows rarely seen in software.

Third-quarter license and maintenance revenue totaled over $158 million on a constant-currency basis, reflecting growth of 8% versus the prior year. Our license and maintenance revenue growth has remained at a consistent level for the first three quarters of the year, illustrating the consistent high single-digit growth we have stated, that we believe that we can drive in this part of our business. This consistent growth has resulted from the strength of our competitive positioning in the network and system management markets, where we will continue to build market share, using our extremely broad and monitoring and management coverage of all the key assets of IT infrastructure, and the compelling value proposition of our product, which reflects meaningfully lower than most of our competition. In fact, according to Gartner's June 2019 market share analysis report on the IT operations, management performance analysis software market, we now hold the No.

3 rank as measured by 2018 software revenue. We are pleased with this progress and are focused on driving our business to the No. 1 rank over the next several years. Turning to the component for our license and maintenance revenue.

Our maintenance revenue continues to show consistent and durable growth in the third quarter, driven by strong maintenance renewal rate. These renewal rates have been at or above 95% on a trailing 12-month basis from the last four quarters in a row, which contributed to constant currency maintenance revenue growth of 12% for the third quarter. While our license revenue growth in the quarter was slightly lower than the average level that we delivered in the last six quarters, we feel good overall about our license sales performance in the quarter. We've continued to drive growth in international, including EMEA despite an uncertain [Inaudible] in the U.K., specifically for small businesses that we feel tend to be more conservative in large companies whether it's political volatility.

We also have strong quarter sale performance in the Americas, with a number of positive trends to the business, including a record number of $100,000-plus transaction. However, as we are going up against the largest single-quarter license sales we have ever delivered, which is in the third-quarter 2018, it was difficult quarter for us to compare. But that being said, we delivered the second-strongest quarter federal license sales in our history in the third-quarter 2019 and a good Americas commercial growth. We entered Q4 feeling positive about the momentum in our core IT business and our ability to continue to drive high single-digit license and maintenance revenue growth on a year-over-year basis.

Transacting to our subscription business, third quarter's subscription revenue grew 28% on a constant-currency basis, reflecting strong MSP billings growth, as well as, solid growth contributions from both our cloud infrastructure and application management products, as well as, SolarWinds service desk. Overall, I'm pleased with the momentum we are seeing on our subscription product, including those we acquired this year. This momentum has resulted in an acceleration in non-GAAP subscription revenue growth each quarter, through the first three quarters of the year. This growth has to a large part been driven by our MSP products, where we have seen strong cohort growth, rapid adoption of our new and advanced in VoIP protection offering, momentum and gain to build, our new passport management and IT documentation offering.

However, despite the decelerated growth, I do not believe that we've taken full advantage of the cloud infrastructure and application management market opportunities in front of us. We've invested a small fraction of our competitors in this market are spending in the go-to-market activity. As a result, while revenue growth from these products has accelerated as we moved through the year, the acceleration had been slower than we had planned. This is reflected in a smaller contribution to subscription revenue growth from these products, as compared to what was contemplated in the high-end of our subscription growth outlook for the year.

The cloud infrastructure and application management market is still in early stages. The competitors in this market are relatively young companies with modern products, and they have an approach to digital demand creation that's comparable to our own approach. While we continue to believe that we have created a very broad, strong, and differentiated portfolio of cloud native and cloud-agnostic products, that we have taken disruptive approach to pricing, and feel that we're better in digital marketing than our competitors, we have not been investing at a level that has allowed us to rise above the noise in this early stage market. We're planning to begin to address this in the fourth quarter by taking advantage of the fact that we're well ahead of the pace in delivering our adjusted EBITDA outlook for the year.

We will accelerate investment in go-to-market activity, including incremental expansion of our sales effort and higher levels in marketing spending, which we believe will increase our momentum in the cloud infrastructure and application management market heading into 2020. Bart will discuss the financial impact of these incremental investments on our results for the year and his remarks related to our fourth-quarter outlook. We've continued to build strong and growing customer relationships across each of our product lines. As our customers rely on our products to monitor and manage larger and larger portions of our hybrid IT infrastructure environment.

On a trailing 12-month period ended September 30th, 2019, we had 857 customers spent over $100,000 with us, which is an increase from 780 customers at the end of the second quarter. As you can see, we delivered a very strong third-quarter customer growth, as a number of customers reaching $100,000 in annual spend threshold grew meaningfully on a sequential basis. In addition, while we're building larger customer relationships at an accelerating rate, we also continue to add a very high volume of new customers, averaging almost 7,000 per quarter for the last 12 months. With that, I'll now turn the call over to Bart who'll walk you through the additional details on our third-quarter financial results and provide you with our outlook for the fourth quarter.

Bart Kalsu -- Executive Vice President and Chief Financial Officer

Thanks, Kevin, and thanks, again, to everyone joining us on today's call. Before I begin my remarks, I want to provide a little context. First, our GAAP results for the third quarter are presented in detail in our third-quarter press release. I also want to provide a quick reminder that we will discuss financial information on this call on a non-GAAP basis and that we are presenting results, as calculated under ASC 606, which aligns with the third-quarter outlook we provided on our second-quarter earnings call in August.

The adjustments to revenue and expenses required by ASC 606 netted to an immaterial difference. As a reminder, our operating results for the third quarter and the year-to-date period ended September 30th, 2019, includes the results of Samanage from May 2019 forward. We have included the revenues of Samanage in our results on a non-GAAP basis, which is consistent with the second quarter and with our previously provided outlook. As Kevin indicated in his comments, the third quarter was another close quarter of solid execution.

We were within the range of our outlook for the quarter related to non-GAAP total revenue and finished with $242.7 million, representing year-over-year growth of 15% on a constant-currency basis. Non-GAAP recurring revenue was 82% of non-GAAP total revenue for the third quarter. I'll now walk you through the financial details of our third-quarter results, and then, provide you with our outlook for the fourth-quarter and full-year before turning it over to Kevin for some final thoughts. Third-quarter revenue growth was led by non-GAAP subscription revenue of 85.3 million, which grew 26% year over year on a reported basis, and 28% on a constant currency basis.

We have continued to grow products organically and through acquisition that expand our subscription revenue stream. New customer acquisition has been solid and customer expansion activities has delivered strong recent cohort growth. The growth in dollars was led by our MSP product lines and we got solid contribution from our cloud infrastructure and application management products, where we saw accelerated sequential growth in the third quarter, and also saw, solid performance from our new ITSM products that came from from the Samanage acquisition. Diving a bit more into the details of our subscription revenue performance.

We felt strong early contribution from our new advanced endpoint protection offerings by our MSP customers in the third quarter. We are excited about the opportunity we see to be a leader in delivering a security solutions that MSPs need to protect the IT environment of their small business customers, and plan to make this a continued area of product expansion focus. As we indicated in our second-quarter call, we also kicked off a new sales team to focus on selling our cloud infrastructure and application management products into our core IT customer base. And this team has already had some success which we plan to build on in the fourth quarter.

And finally, our subscription net retention rate remains consistent at 105% for the trailing 12-month. Total non-GAAP license and maintenance revenue was $157.4 million for the third quarter, which was an increase of 8% year-over-year on a reported and constant currency basis. Looking at the components of license to maintenance revenue for the third quarter, non-GAAP maintenance revenue was $113.8 million, which was an increase of 11% year-over-year on a reported basis, and an increase of 12% on a constant-currency basis. Our maintenance renewal rates continue to be strong at 95% on trailing 12-month basis through the end of the third quarter of 2019.

License revenue for the third quarter of 2019 totaled $43.6 million, which is consistent with license revenue in the third quarter of 2018, which as Kevin indicated in his comments, we believe is a solid result, given the fact that the year-ago quarter was a very strong license sales quarter for us. As Kevin mentioned earlier, we exceeded our outlook for non-GAAP profitability in the third quarter of 2019, delivering a $115 million in adjusted EBITDA for a year-over-year growth of 8%. We are pleased with our ability to drive at high-adjusted EBITDA in the first full quarter as we completed acquisition. Non-GAAP expenses were approximately $131.7 million in the third quarter of 2019, which includes $20.2 million of non-GAAP cost of revenue and a $111.6 million in non-GAAP operating expenses, which reflects an 18% year-over-year increase for the quarter, which is slightly lower than we included in our outlook for the quarter, as a result of slower than anticipated hiring and lower than expected variable marketing expenses.

Sales and marketing expense at a percentage of revenue remains consistent, as compared to the second quarter, even as subscription revenue became a bigger percentage of our total revenue. The total number of new customers that we've added across our business continues to be at very high level, and we have driven this result with a very consistent level of sales and marketing expense. With that said, in the fourth quarter, as Kevin indicated, we plan to make incremental investments in our marketing efforts around our brand and product awareness of our cloud infrastructure and application management products. This will total approximately $2 million of incremental go-to-market spending in the fourth quarter.

Finally, we ended the quarter with $221.1 million of cash, the increase since the end of the second quarter is reflected -- is reflective of our ability to convert earnings to cash flow. Cash collections were strong in the third quarter and DSOs at September 30th, 2019 were 39 days. As of September 30th, our net leverage was 3.9 times trailing 12-month adjusted EBITDA, compared to 4.2 times at June 30th. Our outlook for net leverage is for the ratio to be approximately 3.5 times to 3.6 times by the end of 2019, assuming no additional acquisition activity or other activities outside the ordinary course.

I will now walk you through our updated outlook for the full year, and our outlook for the fourth quarter of 2019 before turning it over to Kevin for some final thoughts. Please note that the revenue, adjusted EBITDA, and the EPS outlook we are providing today will be based on the ASC 606. OK. I'll first walk you through our updated outlook for the full year.

Foreign currency exchange rates are a bit of a moving target these days. Our updated outlook for the fourth quarter assumes a euro to USD exchange rate of 1.11 versus our initial 2019 assumption of 1.14. We're assuming a pound to dollar exchange rate of 1.26 versus our initial 2019 assumption of 1.30. As a reminder, the strengthening of the U.S.

dollar against these two key currencies is the root of most of our foreign currency headwinds so far in 2019. Our assumptions for other foreign currency exchange rates that we are exposed to are also lower against the U.S. dollars than they were in February, but these rates have a smaller impact on our outlook. Also, keep in mind that foreign currency fluctuations have a larger relative impact on our subscription revenue than our license and maintenance revenue streams.

Based on our results for the first nine months of 2019, we are updating and 2019 revenue outlook for the full year as follows. We now expect our full-year 2019 non-GAAP total revenue to be in the range of $938 million to $943.5 million, representing growth of 12% to 13% over total non-GAAP revenue in 2018. Adjusting our full-year 2019 outlook using the same foreign currency rates that we experienced in 2018 results in constant currency growth of 14%, were $951 million and $956.5 million in total revenue for the year. We expect total license to maintenance revenue to be in the range of $613 million to $617 million, representing growth of approximately 8% on a reported basis, and approximately 9% on a constant-currency basis.

Non-GAAP subscription revenue is expected to be approximately $325.5 million to $326.5 million, representing growth of approximately 22% on a reported basis, and approximately 25% on a constant-currency basis. Adjusted EBITDA is expected to be in the range of $451 million to $453 million, representing an estimated adjusted EBITDA margin for the full year of approximately 48%. Non-GAAP fully diluted earnings per share is expected to be in the range of $0.82 to $0.83 per share, assuming an estimated $311.5 million diluted shares outstanding for 2019. Our full-year 2019 EPS outlook reflects an assumed 21% non-GAAP tax rate, and our current outlook assumes that we will make approximately $45 million in cash tax payments in 2019, as compared to only $9 million in 2018.

Now turning to our outlook for the fourth quarter of 2019. For the fourth quarter, we expect total non-GAAP revenue to be in the range of $249 million to $254.5 million, representing year-over-year growth of 12% to 15% on a reported basis, and 13% to 16% growth on a constant-currency basis. Total license to maintenance revenue for the fourth quarter is expected to be in the range of $161 million to $165.5 million, representing growth of 6% to 9% on a reported basis, and 7% to 10% on a constant-currency basis. Subscription revenue is expected to be in the range of $88 million to $89 million, representing growth of 26% to 28% on a reported basis, and 28% to 29% on a constant-currency basis.

We expect adjusted EBITDA to be in the range of $120 million to $122 million for the fourth quarter, representing an adjusted EBITDA margin of approximately 48%. Non-GAAP fully diluted earnings per share is expected to be between $0.22 and $0.23 per share, assuming an estimated $312.2 million diluted shares outstanding for the full quarter. Our outlook for the fourth quarter assumes a non-GAAP tax rate of 22%, and that we will make $9 million in cash tax payments in the fourth quarter. And last, we plan to provide our initial outlook for 2020 at our Investor and Analyst Day on December 11 in New York.

We hope to see all of you there. With that, I will now turn the call back over to Kevin.

Kevin Thompson -- President and Chief Executive Officer

Thanks, Bart. A quick summary of our comments on the third quarter and the first nine months of this year. We feel positive about our third-quarter results and our performance for the first nine months of 2019. We have consistently delivered total constant currency license and maintenance revenue growth in the high single-digit to low-double-digit.

And in addition, we've driven constant currency license revenue growth in each quarter of 2019, within or above the range of year-over-year growth of flat 2%, which we have previously -- which we've said previously, we consider a strong level of performance. In the quarters in which we deliver great license sales performance and we believe that the opportunity continues to exist versus delivered great license sales quarters, we expect it'll be above 2% of year-over-year growth. We've also seen our subscription revenue stream show another, in a series of quarters, of consistent constant-currency revenue growth in the high-teens to low 20% range, and this growth rate has accelerated as we've moved through the year. In addition, we've accelerated the rate in which we're building large customer relationships while maintaining the velocity of our business.

And finally, our customer retention rate is measured by maintenance renewal rates, the subscription net retention rates have remained high. As we wrap up, I want to provide a glimpse into some of the the exciting product and what we're doing right now, which we believe will further differentiate our ability to provide a deeper and broader level of visibility in the performance of hybrid IT infrastructures that any of our competitors will be able to provide. And in true SWI fashion, we intend to provide this capability at a price point that cannot be matched. As I said, this will only be a glimpse into some of the cool new stuff we're working on, as we will go into much more details at our Analyst and Investor Day on December 11th, which will be held in the New York Stock Exchange.

In the fourth quarter, we were launching a new campaign focused on all of the capabilities we have developed to help customers manage, monitor, and secure their Microsoft Azure environment. But in the course of 2019, we have developed capabilities across our network management, systems management, security, application management, and ITSM product portfolios, which will help our customers create a bridge into their journey to Azure and IT operations management across hybrid and multi-cloud environment. For the product releases we've already done this year and product releases that are planned for the fourth quarter early 2020, we have added our plan to add a depth of capabilities that we believe no other performance management vendor has today. Two of the key capabilities related to Azure we are providing or we'll soon provide are improved talent-to-value for our customers with the ability to deploy our entire Orion-based suite of products into Azure from the Microsoft Azure marketplace.

In addition, we will provide deep monitoring of commercial and customer applications hosted on Azure with insights across Azure infrastructure and platform services through a SolarWinds server application monitor and SolarWinds AppOptics. In our cloud infrastructure and application management product line, we are driving toward delivering a deeply integrated cloud infrastructure management and APM suite, which will include common dashboards across AppOptics, paying them logged in paper trail to provide users with a single-payment glass connecting metrics, traces, logs, and user experience together to provide full visibility into all aspects of application performance. In our MSP product portfolio, we're focused on continuing to deliver the knowledge and the deep technology coverage we have in our core IT operation management business to allow them and see, to be more successful in serving their customers in running their businesses. We're working on bringing more and more of the power of Orion-based network management products to our MSP platform.

We've already migrated the capability of SolarWinds's network policy mapping onto our MSP product platform, and are now focused on bringing the capability of SolarWinds network configuration monitor in the MSP market in the first half of 2020. And last, during the third quarter, we released a new asset -- we released new asset management capability for SolarWinds service desk to make it incredibly easy for IT pros and discovery endpoints connected to the network to scan changes to those endpoints and identify new ones in realtime. And in the fourth quarter, we plan to release a set of deeper integration between SolarWinds service desk and our Orion products that will help us more effectively attack the large opportunity to cross-sell SolarWinds service desk into our core IT customer base. This is just a few of the exciting things that we have planned for late 2019 and early 2020, and we believe we'll continue to increase the relevance of our product portfolio across all areas of the IT operations markets we serve.

We plan to share more about our roadmap and technology direction at our Analyst and Investor Day. With that, we'll open up the call for questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Brad Zelnick.

Brad Zelnick -- Analyst

Thank you very much. Clearly, a lot of great things happening at SolarWinds. And I personally get excited by a number of the innovations that you talked about at the end of your prepared remarks, Kevin. But Kevin, as we think about your license results, and I appreciate everything you've already shared about a tough federal comp and a lot of things that went really well in the quarter in North America and in EMEA, but you still become a shy of expectations.

Just wondering how much of this you would attribute to pricing versus perhaps deals not closing in the time that you would expect. Are there any changes in competitive dynamics that we should be thinking about?

Kevin Thompson -- President and Chief Executive Officer

Yeah. So, in terms of competitive dynamics, no real changes over the course of this year. I think we've got with certain competitors that are really pretty broad. We've got the old competitors from this space, many of which, are getting smaller and going away.

We're taking market share from them, which is why we're now No. 3 in the IT management market as mentioned by Gartner. And then, we're No. 4 management measured by IDC.

We're No. 1 in our management. So, the historical competitors we've had, that part of the competitive environment, I could say those competitors are getting weaker. We are taking share.

We also have a little bit of competition from the cloud management vendors, but really, that's more on the cloud infrastructure and application management part of our business. And there they are, very strong competitors but really not having any impact on the license side of our business. When you kind of look at how the quarter played out, we had good international growth. We're definitely are seeing just a little bit of noise in Europe, particularly in the U.K., so the growth there was not as strong as it has been in the past.

We had good -- Americas growth and was really -- the only place where we didn't grow being in federal, and we had a really great quarter. We had great volume quarter, actually a much stronger volume-based quarter this year, than we did in the year-ago quarter. We didn't have as many large federal transactions closed this year as we did last year. So, I feel really good about the overall performance.

I feel actually very good about what our federal team performed, second-largest quarter we've ever delivered, and we've delivered it at a very high volume of transactions, which is the way I like to see business come in. So overall, we feel very good about -- not just where we were in the quarter, it was a good quarter. We wouldn't call it a great quarter but it was a good quarter. But I feel like we've got good momentum, we're well-positioned as we move into the fourth quarter, and well-positioned as we move into next year in the license and maintenance part of our business to continue to take share.

And as I said, I think we got some work to do on the cloud infrastructure and application management part of our business to deliver the kind of growth that I believe we can deliver because that's where we're really behind a little bit. But it's because we don't have a great product, it's just we are -- we're running the true SolarWinds model. We've taken a very smart part of our business and run it at a very high level of profitability, while we're trying to drive growth. And I think, when we really kind of step back and take a look at our performance, and we're going have to be willing to spend just a little bit more money in that part of our business.

We want to drive the level of growth that we believe that we can because we have a little bit of set of competitors there.

Brad Zelnick -- Analyst

That's very helpful commentary. And actually, I just wanted to follow-up on the last point for both you and Bart, spoke about the success you're having, participating in the cloud end-market opportunity, while spending less than competitors. And you've got some strong competitors as you say that are willing to lose money. So, to what extent should we think about increased investments being necessary to maintain current growth levels versus accelerating the business in light of such robust market opportunity?

Bart Kalsu -- Executive Vice President and Chief Financial Officer

So, we talked about the fact that we are going to increase our go-to-market spending in that -- in our cloud infrastructure and application management business in the fourth quarter. We're going to increase that spend by about $2 million on the marketing side. And then, we're hoping that that will drive new growth for us.

Kevin Thompson -- President and Chief Executive Officer

Yeah. I think as we think about how we move forward, Brad. We're still working through what that's going to look like in 2020. We'll talk about our 2020 plan at Analyst Day.

But what I want to make sure we're doing is that we are disrupting that market, that we are taking kind of more than our fair of share, then we are doing what we do really well, which started the entire market from very small and very large. So, the reality that cloud infrastructure and application management market today is most of the growth that have been driven by the other vendors in the marketplace, is being driven at a very high-end market. They've all added outside sales drive. They're trying to close a $100,000-plus transaction because the market is still relatively early.

And I think, from when our goal -- always been with any product we bring to market, in any part of the market we decide to compete in, if we want to be competitive across the entire market, we make sure the price points allow every company that needs the technology to be able to afford to buy it. And we make the product really easy to use, but we've got to do a better job than we're doing right now in creating awareness of all the capabilities we have. We've gone to several SolarWinds user groups but you think you've attended one in the past. And even our customers don't know all the things we can do, don't do -- for the cloud infrastructure and application management, and we got to make sure we solve that problem.

When we tell people these are all the capabilities that we have, and oh, by the way, we're half the cost of a Datadog, we're 75% less than an AppD. We are meaningfully less expensive than in New Relic because we really are disruptive in the way we're approaching that market, just not enough people know it.

Brad Zelnick -- Analyst

That makes a lot of sense. As always, thanks so much and we look forward to seeing you soon. Thank you.

Kevin Thompson -- President and Chief Executive Officer

Thanks, Brad.

Bart Kalsu -- Executive Vice President and Chief Financial Officer

Thanks, Brad. Next question.

Operator

Your next question comes from the line of Sterling Auty.

Sterling Auty -- Analyst

Yeah, thanks. Hi, guys. So, I just wanted to go back and clarify, it wasn't 100% clear. The softness in, specifically the license, you had the Fed quarter, but it sounds like that was good against the tough compare.

Was all of the sluggishness isolated to EMEA? And was that all macro or something else?

Kevin Thompson -- President and Chief Executive Officer

Yeah. I think it's two things, Sterling. So one, we actually were down a little bit year-over-year in federal because last year was a record quarter. We had a very strong quarter in the third -- in this year's third quarter, but it wasn't quite at the level of what we saw last year.

So, second-biggest quarter we've ever had in U.S. federal, so a really great quarter, but definitely down year over year. And then, we saw a reduction in growth rate in Europe. We didn't decline year over year in Europe but the growth rate in Europe was not as robust as it has been over the last two years.

So, we definitely are seeing a little bit of noise. And what I would say is, it's really the small -- and what we believe is in the small business in really the U.K. market, where they gave a remark, small businesses. We can't just -- we will tend to know the changes in [Inaudible] behavior a little earlier than coming to just sell at the CIO level of closing very large transactions because those companies tend to forget their budgets, and they'll reset budgets when they get to the next year.

Whereas small businesses tend to be a little more reactive if they're feeling uncertain. So, still growing, but not at the level we have been growing. Really, the only area of decline was in U.S. federal.

And like I said, great quarter, we just had a really tough compare where we're going up against.

Sterling Auty -- Analyst

OK. And then one follow-up. The investment that you're planning at the end of the year, it sounds like it's both on R&D and sales and marketing. But I just want to make sure I understand.

Do you feel like there's still some disparity, if you will, on feature functionality relative to the Datadogs, New Relics, etc., that you need to accomplish, as well as, increasing the awareness of your products? Or just help me understand the split of the investment.

Kevin Thompson -- President and Chief Executive Officer

Yeah. So, the incremental $2 million that Bart was talking about is really going to all go-to-market. So, be it sales and marketing activities to really create high-level of awareness of the set of problems when you solve, how strong our products are, and how great the pricing is for our product compared to anybody else in that marketplace that has any traction anyway. Right now, I don't know every little player in that market.

As it relates to larger players, we have a meaningful price advantage, as compared to [Inaudible]. In terms of technology capability and functionality, what we say is we have a broader suite of technologies. We believe that any of the other players, but some of them have a little more depth in certain areas than we do. We do everything from custom metrics to log, to distributed tracing, to end-user experience monitoring.

We do that across some products are fully integrated into the same platform and some products are integrated in the UI level, but not integrated at the platform level. So, if there are certain areas where our competitors have deeper functionality than we do? Yes, that has always been true at the low end. We're never going to be the deepest provider on any individual day in the marketplace in terms of technology capability, but we will catch up over time. So, I don't think it's a technology capability perspective.

We can go and win a lot of business and we are winning business against those companies. They have just outset by a very, very wide margin. And I don't think they'll need to spend what they spend, by the way. They're spending at a level where they hit declining economic returns on every dollar they spend, which is something we try not to do.

But I think, we have been more cautious than we should be -- if we want to create a really aggressive, rapidly growing disruptive business in the space, is growing very, very fast.

Sterling Auty -- Analyst

Got it. Thank you.

Bart Kalsu -- Executive Vice President and Chief Financial Officer

Next question, please.

Operator

Your next question comes from the line of Sanjit Singh.

Sanjit Singh -- Analyst

HI, thank you for taking my questions and an early congrats on seeing that $1 billion run rate. A hell of an accomplishment. I have maybe two questions on different sides of the product portfolio. First, maybe on the MSP business, Kevin, I was wondering if you could give us any additional metrics or color on what multi-product adoption looks like, particularly outside remote management and monitoring? I know in your script, you mentioned advanced debt protection seems to be, one you're seeing a lot of uptakes.

But just in terms of like kind of the other parts of the portfolio and the multi-product adoption, more generally, what sort of the progress there?

Kevin Thompson -- President and Chief Executive Officer

Yeah. So, when you look at the MSP market, there's a bunch of technologies that MSPs are buying, and then, providing as a service for their customers that they serve all around the world. We have a pretty broad portfolio. We added three new offerings in the second and third quarters that we are now selling into that customer base.

So, advanced debt protection, we had a tougher management, we had IT documentation management. So, we've got, depending on how you count them, we've got 13 to 16 products that we can sell-through to our MSPs that they can turn around and sell to their different customers. The majority of our MSPs are -- there are two things -- there are two dynamics going on: one, the majority of them are not are buying from us less than half of the solutions that we sell to them. We are adding to that.

We're doing a good job of cross-selling and upselling, it's happening in a pretty consistent pace. We're actually seeing better cohort growth this year than we did last year, which means we're seeing a higher rate of adoption of new products and additional products by our MSPs. But we're still at a long runway to get those MSPs to do two things: one, buy all the capabilities we have. And keep in mind, the dynamics of that market is, they buy a capability from us and they're going to turn around and sell that capability through to their end customer.

So, what we help them do is we brought them knowledge and marketing collateral, that allows them to convince their end customers, they want that additional service. So, kind of a two-step sales process. We convince them, and then, they convince their end customer, and that's something we're doing as part of our marketing activity really every day. And I think, we're doing a have a, kind of, better and better job of that over the last 18 months.

So, we're seeing good traction. We're seeing an acceleration in pickup. I mentioned the advanced employee protection and more offering is doing really well. It's getting adopted by our customers very, very quickly, a lot of runway.

We only had it since early this quarter or early in the third quarter, it's being picked up very, very quickly. And now, the market management momentum is beginning to build and we're seeing a number of customers pick that up. So, long runway for us to continue to drive just growth in the customers by getting them to adopt more of our technology. Those are kind of interesting thing about the MSP market is that MSPs will use -- they usually will only one remote monitoring provider, but they may use multiple backup providers.

They may use multiple security offerings. And why they do that? Because when you add an end customer, that end customer may have had a piece of technology they were already using or if someone else was using to manage a part of their environment, whether it's part of the security environment, whether it's backup, whatever it might happen to be. And so, the MSP has to do is, over period of time, what the MSP wants to do is get that end customer to stop using those different pieces of technology and consolidate down all the technology that MSP wants to offer, but that actually takes a little bit of time. So, there's really great growth opportunity, in fact, both of those aspects of growth.

In addition, we want to help the MSPs gain new customers, which is the other leg of the stool. So really, three vectors of growth that we're trying to leverage every day inside of our MSP customer base.

Sanjit Singh -- Analyst

That makes a ton of sense. And for my follow-up question, I wanted to go back to the core, actually, the sort of first major product is around network monitoring. And I guess the question is, as the network seems to be changing, and it's sort of becoming a policy fabric connect to other clouds. As kind of the rule of the network and how it's becoming more software-defined.

In terms of that core network management business, to what extent does that have to evolve with some of how the broader network is being deployed within your customer base? Is there more -- is there another class of capabilities that you need to build? Are you sort of ahead of those trends? I just want to get an update on the core network management piece.

Kevin Thompson -- President and Chief Executive Officer

Yeah. So, it's a really good point. Look, the network is absolutely changing. The great thing about that is the network infrastructure, just as you think about connectivity for a minute between user and application, wherever the application happens to sit and where the user happens to be.

That connectivity has become more critical today than it's ever been because the applications are so widely distributed today, compared to where users sit. That performance can get impacted negatively in a lot of different ways. And when that performance gets impacted, you have to very quickly, as an IT operation pro or DevOps pro, be able to ascertain where is the problem? What's causing the problem, so that you very quickly can solve that problem, either to prevent users from being impacted or if users are being impacted, you can make an impact go away and make the infrastructure in the network run as fast as it possibly can. So network management, which is great for us, is becoming more critical, not less critical.

There are more means for a worker than it does -- I'll explain it. There are more network nodes today that need to be managed than ever before, and the number of network nodes is going to continue to grow. Now, that node is changing and it's more effective. That node is not always a piece of hardware today.

In some cases, it's a piece of hardware. In some cases, it is not a piece of hardware, it is not something you can see, touch, and feel. It's something that is much more software-defined. So, if you think about computing at the edge of the network, when you think about the way and how you have data move across the WAN and how traffic moves across the WAN to get to those endpoints and get to those users, we're going to have to be able to provide a level of visibility tomorrow that is much deeper than the level of visibility we provided today.

Today, I can provide you some level of visibility across all of those environments. I can provide you some level of visibility in terms of the connection between the user and the application even if the user is behind the firewall, the application sitting in AWS, the application sitting in salesforce or wherever it happens to sit. We can -- we can provide some level of ability into all of that. However, what we believe even is that there's a level of visibility that we don't provide yet.

And by the way, no one else does either of any real size and even no real bundles that we really need to be able to provide, then we're going to have to create. And what it means is we've got to build it or maybe we buy some small company that's traded and we buy it, and we integrate it into our offerings. But there is another opportunity to find a good way to place of growth in the network management market that is coming, and it's not that far off, that we believe we can participate in. It will be more cloud-based, it will be more software-defined.

We think it'll be a little bit harder because there won't be as much standardization around protocols and there are -- and there is with hardware, but that's something that we already know how to deal with. We just haven't solved all the problems yet. Why? Because they're not all well defined as we need them to be. Don't forget that one of the keys to our success has been, we [Inaudible] problems are well understood and well-defined, and the user can tell us.

This is exactly how we want the problem to be solved. Thay way, when we build the product for them, this is an analogy I've been using a lot lately. You'll like it if you're a Marvel fan anyway. It's like a Spiderman suit, it fits to everyone.

Well, that's how we build products. We build products that really fits everyone, and it fits everyone in a custom way without having to customize the product. That means, we have to really be able to understand the problem, which is why you haven't seen us start talking about it yet when that's coming. But, oh, by the way, we're going to talk about a bunch of cool stuff on Analyst Day, and this area of computing is something we'll talk about.

Sanjit Singh -- Analyst

Looking forward to it. Thanks, Kevin.

Kevin Thompson -- President and Chief Executive Officer

Yeah.

Operator

Your next question comes from the line of Brent [Inaudible].

Unknown speaker

Hi, this is [Inaudible] on for Brent. Thank you again for all the commentary. I was wondering if I could ask a couple of questions. One was, I know you guys have released a bunch of new features on the SolarWinds service desk side.

Kevin Thompson -- President and Chief Executive Officer

Yeah.

Unknown speaker

I was wondering if you could offer some more insight into how you view this product going forward, especially as it competes with ServiceNow or other vendors? And what kind of growth kind of drive in the future?

Kevin Thompson -- President and Chief Executive Officer

Yeah. So look, I think the key features we released over the last -- really since we made the acquisition early in the second quarter is the Discovery. And asset management, some really expanded asset management capabilities. We've already released some amount of incremental integration as we fill in service desk and our core IT set of products, but we've got a lot more -- a lot deeper integration coming in this quarter, which will make it probably a lot more compelling to our SolarWinds customer base.

In terms of growth rate, what we said back on the Q2 call is that we believe that ITSM product could grow at a rate of 35% in 2020, over kind of what we said the run rate of that probably was in 2019. And we then believe in 2021, '22, '23, they can deliver a growth rate in the 30%-plus range. So big market, big opportunity. Now, what I would say is from a competitive perspective, is don't expect in the next 24 months, that we're going to go ahead to head with ServiceNow.

That's not how we enter markets. When we enter a market, we enter a market with a product that is really good, and really need to use a price competitively. We're going to go to be disruptive from a pricing point of view, we're going to be disruptive from a go-to-market perspective. We're not going to solve every problem right of the bat of every large, large enterprise customer wants to solve.

ServeNow is only focused on maybe the top 1,000 companies in the world, and they're really focused on the top 500 companies in the world. And with their new CEO, maybe they'll focus on the top 100 companies in the world. These are large enterprise guy than our own CEO was. So, you're not going to see us go head-to-head with ServiceNow.

You'll see us really focus on the mid-market. You'll focus -- We'll focus on the smaller and medium-sized business. We'll focus on the midsized enterprise, not the Global 2000. And I think, we'll see some success in departments of large enterprises, where they don't want to use the ServiceNow because they're looking for something that's a lot more lightweight, that's a lot easier to use.

Now, fast forward four or five years from now, and we will be competing with the largest vendors, so that ServiceNow, [Inaudible] we're stealing that marketplace. We will be competing with them, just like we did in the network management market. I got here in 2006, we were not competing when the HP and the CA and now we're No. 1 in that market.

So we'll get there, but we get there over time. We don't build to the large enterprises as a destination, we just make our product get better every time we release it, You know, solve their greater set of problems, then we'll be more scalable, ultimately, it will be good enough, strong enough compelling enough, the largest companies in the world will use it to manage their entire infrastructure from an IT source management perspective, but that's not where we focus right off the bat.

Unknown speaker

Got it. And a quick follow-up. I know last quarter, you provided some commentary on the M&A strategy, specifically SolarWinds and you guys have done a bunch of deals. Is that still a core focus on the strategy? And what kind of space or sectors are you sort of looking at to disrupt? Thank you.

Kevin Thompson -- President and Chief Executive Officer

Look, we've always believed that having a core capability and confidence around M&A, the ability to do deals, bring companies into our portfolio, put the product in our go-to-market motion, make them begin to sell at a faster rate at a much higher level of profitability, is an important part of how we can grow. It's how we've gotten a very broad product portfolio very quickly. And so, we continue to believe that that's a part of the growth strategy as we move forward. That being said, we don't build M&A activity into our outlook until the deals are done because you never know what transactions you're going to be able to close, and which one you are -- and we are very selective about the products we buy, and that's No.

1 priority, and if the product's really good, they deploy quickly to the show value immediately. Is it easier for a user, is it intuitive, can we price it at a really competitive rate, and be disruptive in the market? If all that's true, then maybe, we'll make an acquisition instead of buying technology. So, we'll continue to aggressively look. It doesn't mean we'll aggressively buy because we've got to find something that meets our criteria.

You haven't bought anything since the last time we talked. So it means we didn't buy anything in the last 90 days, but we'll see what we find over the next 12, 18, 24 months. But we'll continue to look aggressively, but we're going to be very selective about what we acquire if we make acquisitions.

Unknown speaker

Got it. Thank you.

Kevin Thompson -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Rob Oliver.

Rob Oliver -- Analyst

Great. Thanks for taking my question, guys. I just wanted to follow-up a little bit on trying to get the attached rates up on the cloud products. And Kevin, I know you and I have talked a little bit in the past, but in our experience, attending some of the SolarWinds user groups, we've always been positively impressed by that user experience team that you have down there in Austin.

And I'm wondering, as you charge that new internal salesforce to go out and sell cloud, if there's a way for them to cross-pollinate with that team or if they're already doing it, because certainly, those guys seem to have a great rapport with your current installed base on the core side? Thanks.

Kevin Thompson -- President and Chief Executive Officer

Yeah. So look, I think, Rob, we've not done that at the level we should, but we are beginning to do it at the level we should now, is probably the way to put it. You will see us being much more comprehensive, and maybe it could work. When we're talking to our user community about all the products we have and all the problems we've solved.

I think one of the things that we did, we did have good reason. But now, we're at the point that it needs to change is because our cloud product portfolio came through a series of acquisitions, we spent a bunch of time making sure we got those acquisitions integrated, then, we took those products and we integrated them into a single platform. As a result, we ran that group of products relatively separately over the last couple of years. What you will see us doing even now, if you look at our website, if you look at some of our marketing messaging, even if you listen to my script, we will begin to talk about those products in a very, very connected way.

We'll share a bunch of that thinking once we get to Analyst Day, in terms of how they're thinking has now evolved, and what it's going to look like as we move into 2020, 2021. Because you're right, we've got a great loyal set of customers. We've got a great team that has phenomenal relationship with those customers, and we've not done a great job to make sure those customers understand all the problems that we can solve for them. And look, it's always a challenge we have on product, and we have a lot of products.

But the challenge that we've been good at solving in the past, and we've not been as good at it with this particular portfolio of technologies, but we absolutely will be better at it. And we'll always be great at it, as we move into the future. But it's a really good point and one that we actually step back, and said, hey, we got these great relationships. They've got to want these products from us, we didn't tell them we have them.

And we've got to start telling, I call it a one siloed story, because we are one company, one set of technology solution, and we sell to a probable buyer that sold a very similar set of problems, they may sell them a little bit differently and the problem may exist in different locations. We've got to make sure we're doing a great job in telling that one story, and we are very focused on doing that in the fourth quarter, and as we move into next year.

Rob Oliver -- Analyst

Great. I appreciate it. That's great color. Thanks, Bart, Kevin.

See you guys in New York.

Kevin Thompson -- President and Chief Executive Officer

See you in New York.

Operator

Question comes from the line of Matt Hedberg.

Matt Swanson -- Analyst

Thanks. This is actually Matt Swanson on for Matt. So, Kevin, you released a survey during the quarter, kind of highlighting the skills or training gap in tech right now. Could you just talk about how prevalent this topic is with like your customers and partners in terms of driving buying decisions? And just maybe how that varies between SMB, mid-market, and enterprise?

Kevin Thompson -- President and Chief Executive Officer

Yeah. So look, I think the last part of your question was a really good part of the question, which is how does that vary between small business, mid-market, and enterprise. And when you look at what's happening and kind of connect it back to our business in the managed service product market, the reason the managed service provider market has grown so quickly over the last, kind of, six years and why we think that market is going to continue to grow is, because there is a really dire shortage of skill sets on the IT [Inaudible] side and on the DevOps side for companies all around the world. And small businesses just cannot be competitive, they can't be competitive in terms of pay, they can't be competitive in terms of business.

And for that matter, they really can't be competitive in terms of breadth and scope with the role. And so they're really struggling to be able to hire people who have the skills they need them to have and be able to manage things is very, very complex IT protection world. So, the MSP market is going to continue to grow because more and more small businesses are going to turn to the MSPs, and say, hey, I cannot hire people, I can't hire skill sets, I can't afford to have the breadth of skills that I need, I need you to be able to solve that problem for me. So, it's one of the drivers of growth in the MSP market.

It also calls it -- drives growth, not just because you can't get IT pros and other technology pros, and also because there's a lot of technology challenges today. And even if you can hire them, you can't hire enough of those to have the breadth of knowledge you need to have, you need to address all the issues you have. So, that's definitely driving growth in the MSP market. We're absolutely seeing that it's becoming more important that products simply work because there are not as many sophisticated technology growth out there to hire, and a lot of the technology pros that are enrolled, where they're still learning, right? Maybe they made a new network really well, maybe they know network system really well.

Now, they're kind of large database and security and cloud, and they're trying to learn multiple public clouds, and almost everybody is in a multi-cloud environment. And those technology pros need us to make the products solve the problems in a simple way because they simply can't keep up with the rate of change. And so, we're hearing a lot from our users that you need to be able to provide a technology solution that tell us where to go, that tell us where to look, that tell us what the problem is. We don't have the time, and in many cases, we don't have the knowledge yet.

And we want to build it, but we don't have it yet. We needed you to kind of -- we need to spoonfeed it to us a little bit so that we can keep up. And I think if you're -- the vendors they're able to do that, I think you're going to be really, really successful, as we move into the kind of three to five years in technology. The vendors were not good at thinking about what does the UI look like? How does the product work? Does the product make it intuitive and easy for the user to understand what I need to do right now to solve the problem in front of me? And to that identify the problems that in a really rapid and intuitive way.

If you can't do that, I think you're really going to struggle. And I think, you've seen that when some of the platforms out there. If you listen to the comments New Relic made around their old platform, and then, their new platform, New Relic One, I don't know how good New Relic One was, but the problem with the old New Relic platform is, it wasn't meeting that bar. And as a result, they had to do something about it.

So there's not that many vendors who are positioned to do something about it, right? Rather, there's a handful of it in the market that are in a position from a technology perspective to be able to provide all of that. I think those will be the winners and the rest of the losers. It could be critically important.

Matt Swanson -- Analyst

That's really helpful. And then, I know it's early days, but one product we got excited about last quarter was the security event manager. Is there any update around that?

Kevin Thompson -- President and Chief Executive Officer

So, we are doing better this quarter than the last quarter, which is great. We don't talk about it from a revenue perspective. But we have gotten some traction, which is good in the MSSP market, and in the MSP market. We mentioned, Bart has mentioned in his comments that we want to be as a leading provider of security solutions to the MSPs, not just the MSSPs because MSPs want to provide a lot of those security solutions, so they don't lose revenue to the MSSPs cousins.

And so, they may need us to provide really simple security solution because they don't run a stock, they don't have much of security experts on their team, and security event monitor is a product that can be that. And so, we've been kind of take a two-approach into that market. One, we've gone out and signed up some MSSPs that are providing a service using our product. We have MSPs, so they can provide a service to their customers because the MSPs still want to be in the loop.

So, that helps us allow the MSPs to be able to provide a higher set of security services to their customers without having to hire staff or security experts, and without having to build the stock because all that's expensive and hard to do. Also, we're trying to make sure that probably it is easy enough to use that MSP could use it on their own. We're not quite there yet on ease-of-use to that product. But that's what we're working on from a technology perspective.

Matt Swanson -- Analyst

All right. Thanks for the time.

Kevin Thompson -- President and Chief Executive Officer

Sure.

Operator

Your next question comes from the line of Matthew Wells.

Matthew Wells -- Analyst

Hi, and thanks for taking my question. I just want to dig into the incremental $2 million in spend that you highlighted? And can you just talk about how that's going to be allocated between maybe your existing product set within the subscription revenue base versus the acquired, specifically, the Samanage asset?

Kevin Thompson -- President and Chief Executive Officer

Yeah. So that -- Do you remember Bart talked about it really focused on primary cloud infrastructure and application management, which is a product that we've had. They're managing markets in public cloud, and private cloud for that matter. We're cloud-agnostic, we're going to all the clouds.

So, it's primarily going to be there and there will be some incremental spending in our, kind of, on-premise application management product that connects to that cloud infrastructure and application management product offering, but really, primarily in marketing, a little bit on sales, really nothing -- no material incremental amounts that we believe we need to spend right now on our service desk offering. We've already had a good budget there. I think we're sitting at the level we need to spend, in order to drive the level of growth that we all want to drive. So, not really any incremental spending there right now.

Matthew Wells -- Analyst

Got it. That's helpful. And any softness in the subscription base? If you're just sizing that, do you think it came from, kind of, the organic drivers or the recently acquired Samanage assets?

Kevin Thompson -- President and Chief Executive Officer

I came -- as I indicated in my comments, it's really cloud infrastructure and application management, where we saw acceleration in growth in the third quarter, and we think we'll see acceleration in growth in the fourth quarter. But the level of acceleration is not where we had planned for it to be. So, that's really where we're seeing a little bit of softness, still growth, just not -- and still acceleration. Just not acceleration at the level we had built into our plan.

And that acceleration, by the way, led us the level that is acceptable to me. We should be accelerating at a higher level than we are, we can break market, we have great products. We just have to do a much better job of execution, and we have to make sure we're investing at the right level. So, that's really where it came from.

The idea is the same as Bart I think, he indicated in his comment to services and product performed consistent with our expectations. So, that is where we thought it would be and MSPs had a strong quarter. So, it's really the cloud infrastructure and application management, part of our subscription revenue stream, where we've got to see a higher level of acceleration than what we're seeing. Good thing is we saw acceleration.

Bad thing is it wasn't at the levels that we had built into our plan.

Dave Hafner -- Vice President of Investor Relations

Carmelli, we have time for some more questions. I'm sorry. Sorry to cut you off there.

Matthew Wells -- Analyst

Oh, no. I was just going to say thanks for the color, Kevin. I appreciate it.

Kevin Thompson -- President and Chief Executive Officer

Thank you.

Dave Hafner -- Vice President of Investor Relations

Let's move to the next one, please.

Operator

Question from the line of Kirk Materne.

Kirk Materne -- Analyst

Yes. Thanks, guys. I appreciate squeezing me in. Kevin, I was just wondering about the MSP business.

Where is that geographically? Is that pretty much all of the U.S. right now? And what's the opportunity for maybe seeing some expansion internationally with that part of the business, in particular? I know it's been going well, but I was just wondering if you could kind of refresh me on sort of the opportunity for that business more broadly? Thanks.

Kevin Thompson -- President and Chief Executive Officer

Yeah. So, what I would say is it's a global business, but it's primarily a North American, European, and Australian business. So, we have very little penetration outside of Australia and Asia Pac. We've got good coverage across much of Europe, some markets were stronger than others, some markets are more mature as the company that relates to the MSP markets than others.

But it's pretty much a Pan-European business. It's a very strong American business and it's an Australia business and Asia Pac. So, where are the growth opportunities? There's a big growth opportunity, I think, outside of Australia and Asia Pacific. One of the things we'll focus on sales in '20, we'll talk about that more at Analyst Day.

And also, I think there -- we can penetrate Europe more aggressively than we have. We're really channel dependent in channel [Inaudible]. There's a channel partner between us and MSP in lot of Europe, and that's OK. But I think, we're a little more reactive and a little less proactive than I'd like us to be.

And so, there's an opportunity to grow more aggressively in Europe, in countries where we're not as direct in our presence, and we're really relied on, kind of, partner to be us in those markets, and there was good reason to do that. And we'll continue to leverage those partners and great relationships with those partners. So I think, we can help them grow faster, we can help ourselves grow faster by having more of a direct presence. And there's still an opportunity to grow in the Americas.

I think two things are going to happen. One, I think the number of MSPs will continue to grow. That market is growing somewhere in the kind of 15%-plus rate, if they don't know who's data to look at. But we've been taking share, we should be able to continue to take share and told the team to accelerate the rate at which they're taking share.

I think all those things are possible if we execute well. But in terms of greenfield, Asia is really the biggest greenfield opportunity because it really is an Australian business for us today.

Kirk Materne -- Analyst

That's helpful. Thanks. See you in December.

Kevin Thompson -- President and Chief Executive Officer

See you.

Dave Hafner -- Vice President of Investor Relations

We'll move to the last question, please.

Kevin Thompson -- President and Chief Executive Officer

We have one more question?

Operator

Next question comes from the line of Erik Suppiger.

Erik Suppiger -- Analyst

Yeah. Thanks for putting me in. Coming back to the cloud infrastructure, do you coexist in accounts with the likes of Datadog and New Relic? And do you think that that market is going to consolidate or converge around single-vendor solutions because there's a lot of discussion from those vendors about expanding into each other's markets and trying to become the sole solution? So, I want to know how you fit into that?

Kevin Thompson -- President and Chief Executive Officer

Yeah. So look, so do I think it will consolidate in a company that's picking a single vendor, no. And why is the answer no? It never really has any area of technology for lots of different reasons: One, is vendor lock-in, customers don't like to be locked to a single vendor; two, the reality is no one does everything incredibly well. When you get your solution that is, got lots of pieces and parts to it.

And so as a result, you tend to sub-optimize. If you pick a single vendor, because you're not going to get the visibility you need across all the areas of your infrastructure. The other reality is different vendors have different price points, they're able to solve a problem for you at. And certain problems, you should only be willing to pay at a certain price in order to solve those problems.

So, I don't think we're going to end up in a world where every company has got to pick a single vendor to do their cloud and restructuring application management. I think, there will be multi-vendor just like they've been across every other technology across the history of time. I doubt. Do I believe it's important to have an integrated solution where you integrate metrics trades along, end-user experience, yeah, I believe it's important that you can offer integration between the solutions to those problems.

But I also think it's really important you'll allow a customer to just buy those individual capabilities, and that's what they want to buy. You make that super easy for them to do that, and you make those capabilities that are operable across vendors, which is what we've always done across all the products we bring to market, and we'll do the same in the cloud infrastructure and application management market. Because I'm already hearing, for example, I got to talk a number of CIOs lately, not because I'm calling in CIOs. I'm not, I'm not.

But they're looking for a board member and I if I want to add a CIO in my board, and so, I called the CIOs lately. And forget, one of the things they tell me is, look, we love [Inaudible] in certain areas of our infrastructure, and we want to -- but we want to look at logs across our entire infrastructure, but we can't afford to use them across our entire infrastructure. We don't want to use them across our entire infrastructure. Give me something that's really cheap and easy to use in other areas of infrastructure.

Just a point to make to, kind of, support the point. We're not going to end up in a single-vendor world. I know the stories are telling, but you've heard that story before from CA, from HP, from IBM, from Quest, from BMC, and the list goes on, and where are they? They're not really here anymore. So, it would be really important problem to solve individual problems well, the price that makes sense.

It's going to be important to integrate those solutions together when customers need them integrated, which is what we do a great job of, although I'm -- and it's going to be important to be able to allow customers to use one of our products with the product from someone else, which is what we are more than willing to do. Because I don't need to own a customer. I'm happy to deploy alongside and solve the problems. We're going to solve really well on a price point, we're going to solve that and no one else can touch, and let them to somebody use someone else to solve problem also.

So, that's where I think we'll end up. But I understand why they're telling that story because it's a good story.

Erik Suppiger -- Analyst

Do you coexist with the likes of a Splunk or Datadog in the majority of your accounts right now?

Kevin Thompson -- President and Chief Executive Officer

Almost all, right? I mean, but not necessarily the cloud set of our product portfolio today. But keep in mind, we've got all 500 or Fortune 500, we almost have all of the Global 2000 as customers. We have almost over 300,000 customers around the world, and most large companies around the world use us somewhere in their infrastructure. So, we absolutely coexist today with all of those companies.

And in fact, most of them we're going to have many -- in many cases, we're going have a larger footprint than they have. In other cases, we'll have the smaller footprint than they have in those customers. So, we coexist today and we'll continue to coexist. The advantage we have is that we have an ability to solve the on-premise and off-premise problem in a way no one else can.

And they don't have it in New Relic. They can't solve the on-premise problem and even close to the level of depth that we can. They're never going to have a level of network visibility we have. They're not going to have the level of on-premise capabilities that we have that we've spent 20 years building.

And -- but we do have much of the capability they have in the cloud because they only built those capability for six to seven years, and we've build over four or five years. So, they don't have the kind of lead in the cloud that we have on-premise. And then, our ability to connect those problems, which Bart and I will talk about what does that really mean? Because that's really the easy thing to say and a much harder thing to understand. We'll talk about that more at Analyst Day.

But our ability to connect those problems, we think is a key differentiator that will give us a competitive advantage.

Erik Suppiger -- Analyst

OK. And last one, you had mentioned both Splunk and Datadog, are those the two that you see the most or who do you think you see the most?

Kevin Thompson -- President and Chief Executive Officer

So look, I think if you look at just sheer volume of customers, Datadog got -- they said around 8,000 customers, which is a peebly amount of customers compared to the number we have. But it's still a lot of customers for a software company. And we're going to see them more just based on the number of customers they have. But we don't see them a lot, and they'll probably tell you they don't see us at all.

And they're right because we are in -- we're in smaller business as they are. We're in a lot of the customers that they're in, but we're in very, very small levels in those environments. So, they're going to tell you, we feel like we're much of a competitor on the cloud side right now. And well, I've got more cloud customers that they have, they're right.

We don't really compete with them at all in the parts of the business they're selling into. It's probably not too much --

Duration: 69 minutes

Call participants:

Dave Hafner -- Vice President of Investor Relations

Kevin Thompson -- President and Chief Executive Officer

Bart Kalsu -- Executive Vice President and Chief Financial Officer

Brad Zelnick -- Analyst

Sterling Auty -- Analyst

Sanjit Singh -- Analyst

Unknown speaker

Rob Oliver -- Analyst

Matt Swanson -- Analyst

Matthew Wells -- Analyst

Kirk Materne -- Analyst

Erik Suppiger -- Analyst

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