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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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Good morning, everyone. My name is Chris, and I will be your conference operator today. At this time, I'd like to welcome everyone to the SolarWinds Third Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions].
Dave Hafner, Head of Investor Relations. You may begin.
Thank you, Chris. Good morning, everyone, and welcome to SolarWinds third quarter 2021 earnings call. With me today are Sudhakar Ramakrishna, our President and CEO; and Bart Kalsu, our Executive Vice President and CFO. As Chris mentioned, following our prepared remarks, we'll have a brief question-and-answer session. This call is also being simultaneously webcast on our Investor Relations website at investors.solarwinds.com. On our Investor Relations website, you can also find our earnings press release and a summary slide deck, which is intended to supplement our prepared remarks during today's call.
Please remember that certain statements made during this call are forward-looking statements, including those concerning our financial outlook, the impact of the Cyber Incident on our business, our market opportunities, the impact of the global economic environment on our business and the spin-off of the N-able business. These statements are based on currently available information and assumptions, and we undertake no duty to update this information, except as required by law.
These statements are also subject to a number of risks and uncertainties, including the numerous risks related to the Cyber Incident and the recently completed spinoff of the N-able business. Additional information concerning these statements and the risks and uncertainties associated with them is highlighted in today's earnings release and in our filings with the SEC. Copies are available from the SEC or on our Investor Relations website. We completed the spin-off of the N-able business on July 19, 2021, and accordingly have included the results of the N-able business as discontinued operations for the current and historical periods. Therefore, the financial results presented on this call reflects SolarWinds as a standalone business and do not include any contribution from the N-able business.
Furthermore, we will discuss various non-GAAP financial measures on today's call. Unless otherwise specified, when we refer to the financial measures, we will be referring to the non-GAAP financial measure. A reconciliation of the differences between GAAP and non-GAAP financial measures discussed on today's call are available in our earnings press release and summary slide deck on the Investor Relations page of our website.
We note also that because there was no impact of purchase accounting on revenue in the third quarter, our non-GAAP total revenue is equivalent to our GAAP total revenue in this period. Going forward, we will begin to present certain financial measures on a GAAP basis only.
With that, I'll now turn the call over to Sudhakar.
Thank you, Dave. Good morning, everyone, and thank you for joining us today. I hope you're doing well and staying safe. I want to start by first thanking our employees, customers, partners and our shareholders for their ongoing commitment to SolarWinds.
As many of you know, we will hold our Annual Analyst Day Meeting on November 10, 2021. During this virtual event, we look forward to sharing our vision for SolarWinds and how we plan to retain, evolve and grow to build an even more successful business. Given the proximity of this call to the Analyst Day event, our comments today will be a bit shorter than normal.
As we move our discussion of financial and operational highlights for Q3, I've described our performance and continued progress. I attribute the progress to the dedication of our Solarians, the relevance of our solutions to address customer needs and the commitment of our partners and customers to SolarWinds.
For the third quarter, we delivered revenue above the high end of the range of the outlook we provided with total revenue ending the quarter at $181.3 million. Third quarter adjusted EBITDA was $75.3 million, representing an adjusted EBITDA margin of 42%, exceeding the high end of our outlook.
As I outlined in the Q4 2020 earnings call, customer retention is a top priority in 2021, and we continue to make great progress towards this goal in Q3. Our Q3 maintenance and annual rate of 88% was above the low to mid-80% renewal growth we noted we expected in 2021. Customer retention remains a key priority. And with our growing portfolio of offerings, we believe we have a great opportunity to continue to grow our LTV and net retention rates with our large customer base. While we continue to offer flexible pricing, purchasing options to our customers, we are increasing our focus on subscription bookings and we expect to continue to increase the mix of subscription in the upcoming quarters and years.
In Q3, our subscription revenue grew at a 20% year-over-year rate with subscription ARR growing 23% year-over-year. Bart will provide more color on how this part of our business will trend in Q4 and beyond, given the skew that the SentryOne acquisition timing creates.
We completed the successful spin-off of the N-able business in July, and that has enabled us to plan and execute our standalone strategy, the details of which we look forward to sharing with you at Analyst Day. Our global system integrator and enterprise motions are resulting in larger subscription deals. Noteworthy here is that customers are investing in our entire solutions offering and taking advantage of our simplified packaging and pricing. These solutions are the underpinnings of our upcoming SolarWinds observability solutions, which we look forward to sharing more details about at our Analyst Day presentation. We will also highlight our views on our solutions potential to be a growth driver in the coming years through a comprehensive and differentiated approach to observability compared to the alternatives.
Our product team made significant progress in Q3, delivering new elements within our solutions that are designed to drive additional value to our customers based on their evolving needs, including updates to our database and ITSM solutions as well as Secure by Design initiatives that impact our entire product portfolio. We extended the breadth of our database monitoring portfolio's platform support, which now includes Google Cloud extensions and added enhanced integration, including with Microsoft Teams to our ITSM solutions. Increasingly, our application, database and ITSM offerings will become integral elements of SolarWinds' observability as we create -- as we support customers of all sizes with their IT, Dev and SecOps requirements.
We believe that this will help differentiate our offerings from all -- from those of the other vendors. We are expanding our global partner engagement with events in various geographies. Our global partners, including GSIs, cloud service providers and MSPs, are critical to expanding our GTM reach and to jointly deliver customer success. Differentiated offerings with rich enablement, incentives and a spirit of mutual accountability are the underpinnings of our partner strategy.
In September, we celebrated the 7th Annual IT Professionals Day holiday, which was originally established by SolarWinds in 2015. The IT Pro Day recognizes and celebrates all IT professionals and the contributions they make to their business every day. As part of the celebration, we released findings from our IT Pro Day 2021 Survey, Bring IT On, which revealed IT pro’s confidence and pride in their roles. We were also able to recognize 4 IT professionals nominated by their peers in our 2nd Annual IT Pro Day awards. We believe that IT professionals show a true grit under challenging conditions this past year and deserve recognition and appreciation for their efforts, commitment and resiliency.
We continue to attract excellent talent across all functions of our organization, and we are selectively adding footprint in international regions, including most recently in South Korea and parts of EMEA region.
With that, I'll turn it over to Bart to provide more color on our financial performance and outlook.
Thanks, Sudhakar, and thanks again to everyone joining us on today's call. I'll discuss our SolarWinds' results on a standalone basis. As most of you know, our spin of the N-able business happened earlier this quarter and was effective on July 19. Therefore, their results are reflected as discontinued operations in our third quarter financial results. Also, a quick reminder that the guidance for the third quarter that I provided in August did not include any impact from N-able as the spin had been completed at that time. Once again, our public filings will present N-able as discontinued operations in the third quarter as well as in prior periods for better comparability.
Our third quarter financial results reflect another quarter of improving execution while demonstrating the resiliency of our model. That execution led to another quarter of better-than-expected financial results for the third quarter, with total revenue ending at $181.3 million above the high end of our total revenue outlook of $176 million to $180 million.
For the third quarter of 2021, there was no impact of purchase accounting on revenue. So our non-GAAP total revenue is equivalent to our GAAP total revenue.
Total license and maintenance revenue was $149 million in the third quarter, which is a decrease of 6% from the prior year period. Maintenance revenue was $120 million in the third quarter, which is up slightly from the prior year. Our maintenance revenue has been impacted by a combination of year-over-year declines in license sales for the past 8 quarters and a reduction in our renewal rate in 2021. The trend of lower license sales intensified with the COVID-19 pandemic in the first quarter of 2020. And because of the introduction of subscriptions of our licensed products in Q2 of 2020 as well as the SUNBURST incident in December of 2020 as we focus more of our efforts on longer-term customer success and retention rather than maximizing near term sales.
Although maintenance renewal rates have remained lower than historical levels since SUNBURST, we are encouraged by the fact that they have improved throughout the year. Our expectation at the start of the year was that maintenance renewal rates would be in the low to mid-80s. On a trailing 12-month basis, our maintenance renewal rate is 89%.
Working with our customers has been a top priority this year. Also consistent with recent quarters, we want to provide the in-quarter renewal rate for the third quarter which currently stands at approximately 88%, which again is above our expectations at the start of the year.
For the third quarter, license revenue was $29.2 million, which represents a decline of approximately 26% as compared to the third quarter of 2020. On-premises subscription sales resulted in an approximately 11 percentage point headwind to our license revenue for the quarter. The remainder of the decline in license revenue reflects the combination of the impact of the Cyber Incident and the continuing impact of the COVID-19 pandemic.
That said, our new license sales performance with commercial customers has improved sequentially each quarter during the year. And while we have continued to sell to customers in the Federal government and have had some key wins post SUNBURST, new sales to customers in the Federal space overall has been a challenge this year. We have an incredibly committed Federal team whose primary focus has been on working with customers and maintaining the security and stability of their environments.
Moving to our subscription revenue. Third quarter subscription revenue was $32.3 million, up 20% year-over-year. This increase is due to the additional subscription revenue from SentryOne products as well as increased sales of our on-premises subscriptions as part of our early efforts to shift more of our business to subscription.
Total ARR reached approximately $624 million as of September 30, 2021, reflecting year-over-year growth of 9% and is up slightly from our ending Q2 2021 ARR balance of $621 million, which is the corrected amount included in our 8-K filing from earlier this month. The growth in ARR is primarily due to the incremental revenue from SentryOne, which we acquired late last year, and our efforts on sales of our products at on-premises subscription. Our subscription ARR of $130.2 million increased 23% year-over-year and 9% sequentially from the second quarter.
We finished the third quarter of 2021 with 786 customers that have spent more than $100,000 with us in the last 12 months, which is a 4% improvement over the previous year. We are continuing our efforts to build larger relationships with our enterprise customers, which we will talk more about at our upcoming Analyst Day next month.
We delivered a solid quarter of non-GAAP profitability. Third quarter adjusted EBITDA was $75.3 million, representing an adjusted EBITDA margin of 42%, exceeding the high end of the outlook for the third quarter despite continuing to invest in our business. Excluded from adjusted EBITDA are onetime costs of approximately $2.9 million of cyber-related remediation, containment, investigation and professional fees, net of insurance proceeds. I do want to clarify that these cyber-related costs not included in adjusted EBITDA are one-time and nonrecurring. They are separate and distinct from our secured by design initiatives, which are aimed at enhancing our IT security and supply chain process. Costs related to our secured by design initiatives are and will remain part of our recurring cost structure as we go forward. We expect one-time cyber-related cost to fluctuate in future quarters, but to be less in future periods. These one-time cyber costs are, however, difficult to predict. They not only include the significant cost of the forensic investigation efforts we substantially completed in May, but also costs associated with our ongoing litigation, government investigations and any potential judgments or fines related and -- as well as related professional fees. We expect our insurance coverage to offset a portion of these expenses and will be presented net of insurance proceeds.
Net leverage at September 30 was approximately 3.8x our pro forma trailing 12-month adjusted EBITDA. We retained the full amount of the $1.9 billion in term debt that the company had spin.
During the third quarter, we completed a 2 for 1 reverse stock split and declared a dividend of $1.50 per share on a post-split basis, which was paid in August. In addition, N-able repaid $325 million of intercompany debt. As a result of this repayment, our cash balance is $709 million at the end of the third quarter, bringing our net debt to approximately $1.2 billion. Our plan is to keep that cash on our balance sheet for the foreseeable future. We believe we have favorable terms on our debt, so we intend to maintain flexibility as it relates to our cash on balance sheet. Our debt matures in February of 2024, and we expect to revisit our level of gross debt as we get closer to that date.
I will now walk you through our outlook before turning it back over to Sudhakar for some final thoughts. We are providing guidance for the fourth quarter of 2021 for total revenue, adjusted EBITDA and earnings per share, and we will tell you what that means for the full year.
For the fourth quarter of 2021, we expect total revenue to be in the range of $180 million to $184 million, representing a year-over-year decline of negative 3% to negative 1%. Adjusted EBITDA for the fourth quarter is expected to be approximately $72 million to $74 million, which implies an approximately 40% adjusted EBITDA margin. Non-GAAP fully diluted earnings per share is projected to be $0.25 to $0.26 per share, assuming an estimated 160.7 million fully diluted shares outstanding, which reflects the reverse stock split completed on July 30. And finally, our outlook for the fourth quarter assumes a non-GAAP tax rate of 22%, and we expect to pay approximately $8 million in cash taxes during the fourth quarter of 2021.
For the full year, we expect total revenue to be in the range of $712 million to $716 million, representing a year-over-year decline of negative 1% to flat with prior year. Adjusted EBITDA for the full year is expected to be approximately $297 million to $299 million, which implies an approximately 42% adjusted EBITDA margin for the year. Non-GAAP fully diluted earnings per share is projected to be $1.14 to $1.15 per share, assuming an estimated 160.5 million fully diluted shares outstanding.
As you think about the components of revenue in the fourth quarter, it is important to remember that we acquired SentryOne last year in late year. We expect our subscription revenue growth in the fourth quarter to be in the high single-digits. However, looking ahead to 2022 and beyond, we intend to continue to expand our subscription offerings while making new subscription sales a much higher priority with our sales team.
Based on what we've seen year-to-date, we expect that maintenance renewal rates will be in the high 80s for the fourth quarter and anticipate continued progress throughout 2022. In the near term, we expect that maintenance revenue will continue to be relatively flat to slightly down compared to prior year periods.
And as we think about EBITDA margins for the rest of the year and into 2022, the costs associated with our Secure by Design initiatives, investments in transitioning our product portfolio to a greater subscription mix and our continued investments in our sales and marketing initiatives are factored into the margins in the short-term. We anticipate accelerating margins again in the future, but believe that these investments are now necessary. We will talk more about these initiatives at our Analyst Day on November 10.
With that, I will turn the call back over to Sudhakar for his closing remarks.
Thank you, Bart. Our team's competence, commitment and attitude continues to be on display as we delivered a strong Q3 performance exceeding our outlook in both total revenue and adjusted EBITDA. We are executing our mission to help customers accelerate their business transformation via simple, powerful and secure solutions for multi-cloud environments.
In Q3, we introduced an early adopter program of SolarWinds' observability to select customers. These customers currently under maintenance have the opportunity to make an early move to subscribe to our offerings and begin a journey to multi-cloud with SolarWinds as the strategic partner. By eliminating customer complexity and meeting them where they currently are, we believe we are uniquely positioned to protect their investments while increasing our relevance to them over time. We expect this motion to become a mainstream activity in our upcoming quarters and a significant contributor to our subscription and ARR.
In Q4, we continue to execute on the initiatives that I outlined during our Q4 2020 earnings call, focusing on customer retention and demonstrating ongoing progress in subscription, license and maintenance growth across all geographies and sectors.
I'll conclude by again thanking our employees, partners and customers for their commitments to SolarWinds. We hope to see you all on November 10. Bart and I will now be happy to address your questions.
[Operator Instructions]. Our first question is from Matt Hedberg with RBC Capital Markets.
This is [Anushka] for Matt Hedberg. Maybe to start with, could you talk about how Q4 is looking from a new bookings perspective, given Q4 is your biggest new bookings quarter?
So, yes. Obviously, the new bookings for the fourth quarter is factored into the range that I provided from a total revenue perspective. It also, as you said, is our biggest quarter. We talked about commercial bookings trending positively through the year, and we expect that to be the case as well in the fourth quarter.
Got it. And my second question. Given it has been over 10 months since the breach, if you could provide us an update on how the conversations with customers have evolved from Q2 to Q3? Maybe give us an update on the renewal trends? You have noted an uptick in the renewal rate at 88%, which is great. And I know on the last call, you've noted in the past that customers have been taking -- customers have taken longer to buy. Have you seen that ease in Q3?
So let me address that, Bart. First of all, on the renewal rate, as you highlighted, we exceeded the range that we previously provided of low to mid-80s by delivering at 88% renewal rate in Q3, which, as you have observed, has been trending higher throughout the year. What we anticipate is that, that trend will continue as we go into Q4 and into 2022.
Now to your previous question as to how our customer conversation is going, I’d classify it as in Q1 and Q2, most of the customer conversations were related to the incident itself in terms of what happened, how did it happen and so on. And these days, the conversations are more about our learnings from the incident, the improvements that we have made in Secure by Design and how we can apply those improvements to customer environments because many of our customers are also producers of software, and they obviously want to deliver secure software as well.
So in that regard, we are becoming more strategic to our customers rather than simply being a technology supplier.
The next question is from Sterling Auty with JPMorgan.
So maybe just following on that a little bit. I'm just curious in terms of new logo traction in the quarter in the enterprise, you mentioned what was happening in government, but what specifically did you see in terms of new logos on the enterprise side? And is there any particular product area that particularly is resonating?
So Bart, I'll take a crack at it, Sterling, and if you have a follow-on question, please ask as well. We are seeing traction all across the portfolio. So starting with our Orion Platform, including through some of our partners, such as the GSIs that I mentioned in my prepared remarks, Sterling; additionally, database monitoring has been part of our portfolio now for almost -- SentryOne I should say, almost for a year with additional components in our database monitoring, which is also seeing very good traction, both with, call it, our velocity motion as well as our enterprise motion.
And then more recently, we have started packaging and integrating these solutions, call it, in a better together fashion. And what I know this is that some of the enterprise customers are preferring that entire portfolio approach because it gives them optionality to leverage the technology in multiple ways. So broadly speaking, all across, I don't think it's one concentrated part of the portfolio.
Yes. And Sterling, from a customer account standpoint, the trend in the third quarter has been consistent with what we've seen in every other quarter and as it's trended over the last couple of years. And we even had our typical spike in the third quarter, and we hope that, that will happen again in the fourth quarter as well.
All right. That makes sense. And then one follow-up -- I'm sorry, go ahead, Bart.
Well, I gave the number in the script at 786 customers. That's the number that we've focused on in the past, and that trended up as well this quarter.
That makes sense. One other area is you mentioned observability a couple of times, is the observability kind of suite of package or bundle, really going to be focused for behind the firewall applications, in the cloud, hybrid? What's going to be kind of the focal area that you're really trying to zero-in on?
It -- Sterling, I'll address that. It will be a combination. Our trajectory is to go towards multi-cloud. That obviously includes hybrid in our context. So it will be across the board. And what has been appealing to customers is the point that I was making about meeting them where they are today and extending them into the cloud. While some customers are – let’s call it, completely cloud native, and that's fine by us, many of our customers rely on hybrid environments. And we are able to now provide an effective bridge, so to speak, for them. And that's been the topic of conversations as it relates to the early adopter program that I mentioned. We are seriously in early days on that, and we will continue to drive traction on that. And then from a solutions detail standpoint, we look forward to presenting them at the Analyst Day.
The next question is from Sanjit Singh with Morgan Stanley.
I had a question more on kind of the shape of the revenue curve. What some of the factors have influenced that growth and how should we think about that going forward? And that's specifically related to a couple of factors, but I was hoping you could comment on: one, what has been the impact on revenue growth from the shift to subscription? If you could just walk through the unit economics and the breakeven timelines for a deal that's driven by subscription versus a deal that's coming in through license and maintenance? That's number one; two, the impact of COVID; and three, the impact of the breach. How are those trend lines shaping across those 3 metrics to inform our view of growth going forward?
Yes. Sanjit, to answer the first question, we -- the shift in subscription mix for us was an 11% headwind to our total revenue number for the quarter to license revenue in particular there. And then your question about how much of it is related to COVID-19 versus the Cyber Incident, that's a little harder to quantify. What I would tell you is that I think we're getting the pandemic kind of behind us at this point. And most of the impact from a license -- or from a growth perspective right now is due to the SUNBURST incident. We're obviously seeing less and less as we get further away from last December, but the trend has been improving.
Understood. And then a last question, and it goes sort of back to growth. But this time, just -- I'm sorry, Sudhakar?
Yes. I just wanted to clarify or extend a point that Bart made as well on the new license bookings. I just want to remind everybody that starting, let's call it, middle of December all the way through to end of Q1, most of our demand in activities were essentially put on pause as we worked with customers to bring them back on track and really focused on the security of their environments. And so we have to kick it back into gear, let's call it, in Q2 and so that -- you're seeing some of the positive effects of that as well. And you should continue to see that going forward as well.
Understood and very well noted. And then the next question I have is around subscription growth and ARR. So the ARR growth has been hovering in the 20% range for subscription. And then for 4Q, you're sort of pointing to 9% growth. And I know there's some inorganic contribution. But I was wondering if you could sort of draw that or provide that bridge for us on why subscription revenue growth would decelerate to the extent that it has given the 20% subscription ARR growth that we've seen over the last couple of quarters?
Yes. The subscription ARR growth is obviously takes the -- takes what our ending run rate is and annualizes that number, Sanjit. And so obviously, the subscription revenue that we picked up from SentryOne, we get a bigger impact of that when you annualize that number. You'll see -- that's why I guided for the fourth quarter that you'll see more of what our organic growth is in the fourth quarter because we are coming up on the anniversary of the SentryOne deal. So subscription revenue will -- growth in the fourth quarter will be in the high single-digits.
Our next question is from Rob Oliver with Baird.
Bart, in your comments, you talked about some of the challenges in new sales to Fed, and I think that makes absolute sense. But just curious on Fed retention and how you guys felt in the quarter relative to some of those Fed renewals in the fiscal year end? I know Sudhakar, you had mentioned customer retention was really #1 focus for you guys through this period. And you've done a really nice job, I think, kind of managing a really unprecedented [play]. Just curious relative to U.S. Fed, in particular, did you see churn out of U.S. Fed? Were there agencies that walked away? Just how do you characterize that opportunity?
Bart, I'll take a crack at it, and Bart will add to it. First of all, as you can imagine, if you were to look at a customer curve on helping customers with their environments and security, the Fed customers, the is a little longer than the commercial customers that you're seeing in the new license sales as well. That being said, on an overall blended rate of 88% renewal rate, if I were to break it down simply as said, it still turned out to be over 80%. That's not a segment that we normally break it out. But if you put that in context, that is a very good result even in a sector that had the longest arc of recovery. So I'm encouraged by that. And as I mentioned, we have a super dedicated Fed team and our customers have also been very supportive of us, including in the Fed sector.
Got it. Okay. That's very helpful. And then just 1 general question. I know going to get a lot of detail at the analyst event, but there's been talk about observability in DevOps. And historically, you guys have had a really good reputation with those IT professionals. And is there any thought about revamping the developer and IT pro focus, in particular, I'm thinking about the community that you guys historically had, it was pretty strong, and it seems flat. Just seems activity levels there have slackened a bit. Just curious if that's a part of the strategy going forward?
Most definitely. So the community has always been an incredibly important part of our strategy. And as you noted, IT pros have been the foundation of that. I would say that, that is continued to be the case and sailed on it. But when I mentioned DevOps and SecOps, it's a recognition that the lines are sometimes blurred across those and their needs tend to be a little different, and we need to listen to every one of those communities. And so you will notice that our track community will also start reflecting that strategy as we move forward into 2022 and beyond.
The next question is from Erik Suppiger with JMP Securities.
I just want to make sure I heard it correctly. The renewal rate in the Fed sector is still north of 80%, is that correct?
That's correct. Yes, that is correct.
Okay. And then the license revenue declined about 26%. Do you think that's going to remain in that kind of decline range in maybe the 20% to 30% range as you continue to shift towards subscription? Is that what we can expect going forward?
No. I mean, Erik, as you start to build out in your models, obviously, we expect 2021 to be the year that's most impacted by SUNBURST. So hopefully, you'll start to see improvement in our license revenue and you won't see the same kind of year-over-year decline as we start to anniversary the SUNBURST incident. So you should start to see an improvement there as it relates to our license sales, and the impact on subscription, at this point, like I said, it's an 11% headwind on our total license revenue. That will become a bigger number as we move into 2022, really more bill in the second half with the observability product or prevalence online.
The next question is from Kirk Materne with Evercore ISI.
I guess to start, Sudhakar, you'll probably talk about this a little bit at the Analyst Day. But does the shift to selling more subscription change the go-to-market model for you all in a material way? Is it just more of the incentives have to be shifted around? I'm just curious if sort of the structure of the sales model has had to be tweaked to sort of sell something that's a more sort of ongoing subscription versus more of a traditional perpetual license?
I’d classify it more as sales compensation models and sales enablement practices will evolve and change, not so much the sales structure, per se. The one area that we will look at it from a programmatic standpoint is how we engage with partners and the partner incentives and the partner motivations to do that.
That's helpful. And then, Bart, on the maintenance renewal side, when you lose a customer these days, are they moving off the technology? Have they just suspended maintenance? I was just kind of curious if there's any opportunity to sort of have some of the maintenance that you've lost, reattached over a period of time if they're just sort of running SolarWinds without maintenance attached to it? Or is it more of a decision on their part to move technically to another vendor potentially?
Yes. So I'll address that, Bart.
Go ahead.
So there have been cases of, let's say, customers who may have responded, let's say, to the fact that we had that incident by trying to go a different direction. And some of them have actually come back to us even after possibly evaluating alternate solutions. On a programmatic basis, our customer retention team going back to that being our #1 priority in Q4 is expressly going back to some of those customers and figuring out ways to, call it, bring them back online, either through, call it, reestablishment of maintenance or through, call it, re-upping them through the entire portfolio. So that is a motion that we've started. And I believe that we will have some traction around that. We haven't fully characterized it.
Okay. And then just last one for me. Is there any real change in, say, the sales trajectory or maintenance renewal rates, if you look at it on a geographic basis, meaning, was the U.S. kind of hit harder than maybe EMEA and Asia Pac? Or is it pretty similar across the board when you think about sort of just bookings momentum, renewal rates, et cetera?
Yes. I mean, obviously, North America, just like on the license side, was a little lower, but not meaningful, to be honest with you, Kirk. We were very encouraged by the fact that we've managed to get renewal rates up to 88% for the year, obviously, well above what we projected at the start of the year. And obviously, very pleased with the performance of the Fed team as well to get the renewal rate with our Federal customers above 80% as well.
Our next question is from Erik Suppiger with JMP Securities.
Yes. Just curious, has the -- have the supply chain issues been a factor for either you or for any of your customers, either in the build-out of your cloud capabilities or in terms of customers getting projects underway?
Please ask me a follow-up, if I don't answer the question to the point that you're raising. So I'm frank might have to make sure that I address the intent of what you said. If your question is that whether the supply chain challenges or the supply chain issues that we had in our -- no, that's not the issue. Okay. If your question is about the broader industry supply chain issue, I would say, no. That has not had any impact on us.
Okay. That's what I was asking. Is the broader supply chain, if that's made any difference to you? But it has not. Okay.
Yes. I mean, as you know, we are almost entirely selling software and many of our customers either deployed in cloud infrastructure or virtual infrastructure, so they're not dependent on physical parts for the most part.
We have no further questions at this time. I'll turn the call back to the presenters.
Great. Thanks, Chris, and thanks, everybody, who tuned in today. That concludes our third quarter earnings call. Have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.