Ladies and gentlemen, thank you for joining us, and welcome to the N-able first quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you'd like to ask a question please press star one to raise your hand. To withdraw your question press star one again. I will now hand the conference over to Griffin Gyr, Investor Relations. Please go ahead.
Thanks, operator, and welcome everyone to N-able's First quarter 2026 earnings call. With me today are John Pagliuca, N-able's President and CEO, and Tim O'Brien, EVP and CFO. Following our prepared remarks, we will open the line for a question-and-answer session. This call is being simultaneously webcast on our investor relations website at investors.n-able.com. There, you can also find our earnings press release, which is intended to supplement our prepared remarks during today's call. Certain statements made during this call are forward-looking statements, including those concerning our financial outlook, our market opportunities, and the impact of the global economic environment on our business. These statements are based on currently available information and assumptions, and we undertake no duty to update this information except as required by law.
These statements are also subject to a number of risks and uncertainties, including those highlighted in today's earnings release and our filings with the SEC. Additional information concerning these statements and the risks and uncertainties associated with them is highlighted in today's earnings release and in our filings with the SEC. Copies are available from the SEC or on our investor relations website. Furthermore, we will discuss various non-GAAP financial measures on today's call. Unless otherwise specified, when we refer to financial measures, we will be referring to non-GAAP financial measures. A reconciliation of certain GAAP to non-GAAP financial measures discussed on today's call is available in our earnings press release on our investor relations website. Now, I will turn the call over to John.
Thank you, Griffin, and welcome everyone to our call this morning. Today, we'll review our first quarter results, discuss key trends we're seeing through recent industry engagements, and highlight how AI innovation is tangibly expanding our software opportunity. We will focus particularly on our AI innovation, where we're automating work historically delivered through labor-intensive services, helping organizations operate more efficiently and securely while also growing our TAM. This progress matters now as advancements in frontier models are fundamentally rewriting the threat landscape, compressing response times for defenders and empowering attackers to exploit vulnerabilities at unprecedented speed and scale. We believe our end-to-end cyber resilience platform is purpose-built for this moment, positioning N-able to lead as cybersecurity reaches an inflection point. Let's jump right in. Starting with the quarter, our results were strong.
First quarter ARR was $548 million, growing 8% year-over-year in constant currency, and adjusted EBITDA margin was 27%. Quarterly gross and net revenue dollar retention both improved quarter-over-quarter and year-over-year, with trailing 12-month net retention now at 106%. Let's walk through the drivers of that performance. First, we continue to see momentum up market. The number of customers with over $50,000 of ARR grew by 13% year-over-year, and this cohort now represents 62% of N-able's total ARR. In addition, customers with over $100,000 of ARR represent 41% of our annual recurring revenue. This up-market progress is further exemplified by our selection as Manchester City Football Club's official cybersecurity partner.
As the club operates at global scale on the field, N-able protects its critical data and systems, securing its digital environment off the field. The partnership underscores our ability to serve complex, high-profile organizations. Given the stronger retention in our up-market cohorts, we believe our success in this segment provides a solid foundation for future growth. Second, our channel expansion strategy is working. Four of our top five new customer lands in the quarter, including the Manchester City deal, were through value-added resellers or VAR channel. With an established MSP motion that counts 25% of CRN's top 150 MSPs as customers and our scaling VAR presence, our broad channel footprint enables us to capture demand across the market. Third, the depth and breadth of our platform is resonating.
Strengthen cross-sell and up-sell underpinned improvement in both gross and net retention as customers realize value in expanding and consolidating with N-able. From a category perspective, security operations and data protection continue to outpace total company growth as customers prioritize advanced remediation and recovery capabilities in the face of rising cyber risk. Reflecting on the quarter, the business executed well, and our strategy delivered strong results. Let's now switch gears and discuss key observations from recent industry engagements. During the quarter, we engaged across the ecosystem through our annual customer conference Empower, a major industry event such as RSA, and ongoing dialogue with third-party research firms. One major takeaway is that we believe cybersecurity continues to experience strong secular tailwinds. We are consistently hearing from customers that the worsening threat environment and rising IT complexity are driving increased need for stronger cybersecurity solutions.
This sentiment is reinforced by our internal data and third-party research. In our 2026 State of the SOC report, which is informed by telemetry and frontline response data from N-able SOC. We observed an alert every 30 seconds. We also saw a dramatic rise in perimeter-based attacks, with 50% of attacks bypassing endpoint controls entirely. Manual triage approaches are not able to keep pace with this scope and velocity, emphasizing the need for modern, machine-driven defense. Industry research firm Futurum reported a similarly challenging attack environment. In their 2025 Cybersecurity Global Enterprise Decision-Making Survey report, Futurum highlighted that 46% of organizations surveyed experienced more than three significant security incidents over the past year. We do not see these dynamics abating, particularly as advances in AI continue to lower the barrier to entry for increasingly sophisticated cyber attacks.
Together, these factors give us confidence that our mission to protect businesses from evolving cyber threats is underpinned by strong market demand. Another takeaway is that customers are struggling to balance the need for powerful, layered defense with practical constraints, such as managing vendor sprawl, staffing challenges, and budget limitations. This pain point validates our platform strategy. Spanning Unified Endpoint Management, security operations, and data protection, our platform enables customers to efficiently manage complex IT environments, detect and stop threats in real time, and safeguard and recover critical data. We deliver coverage across the entire life cycle, before, during, and after an incident, helping customers stay secure while operating efficiently. We are also hearing strong conviction that AI is a meaningful growth driver for MSPs. Our conversations at our customer conference Empower reflected a broadly bullish sentiment, improve efficiency, and create new revenue streams for MSPs.
While adoption is still early, customers were clear that they want a trusted partner to help them navigate this technological wave so they can focus on operating their businesses. In summary, our industry engagements reinforce our view that industry demand is strong and increasingly favors AI-powered, integrated, platform-based approach. This brings us to our innovation and how our software is expanding our opportunity by automating work historically delivered through services. Our platform is rapidly evolving from a system of record to a system of action, increasingly completing tasks previously handled by technicians. This evolution unlocks significant economic opportunity. Industry analysts such as Omdia estimate annual security services spend at about $200 billion, roughly twice the size of security software spend. We see a similar labor-heavy cost structure within our MSP customer base.
Our field work indicates MSPs operate at approximately 10% EBITDA margins, with a sizable portion of their cost structure composed of labor. As our intelligent software completes workflows historically owned by labor, we help our customers operate more efficiently and improve margins while expanding our monetization surface from software budgets into a much larger labor-driven services opportunity. A concrete example helps illustrate the opportunity we are driving. Technicians are the revenue engine for MSPs. The more IT assets, including AI, that each MSP technician can manage, the more revenue an MSP can generate. The challenge is that technicians have practical limits. A common industry benchmark is roughly one technician for every 200 devices. This creates a growth ceiling in the structurally tight IT labor market and pressures MSPs' profitability as they must continually hire additional technicians to support more customers.
Our aim is for our software to improve that ratio, empowering a single technician to manage 500, 1,000, or even more IT assets. Delivering this creates a win-win for our customers and N-able. Our customers can scale their businesses without linear increase in labor costs. We can gain market share as MSPs consolidate around platforms that can help them grow their businesses more efficiently. Importantly, this is not a future state. We are delivering progress today. In UEM, we recently introduced N-zo, our AI workflow assistant, and our custom model context protocol, or MCP server. These advancements mark an important step forward in AI-driven IT operations. For certain tasks, N-zo delivers up to 70% faster IT operations by enabling teams to interact with their environments using natural language and agentic workflows.
Our MCP server goes a step further, securely connecting external AI tools like Claude, ChatGPT, and Microsoft Copilot directly to live operational data inside N-able's UEM. This means AI no longer just tells customers what's wrong. It helps fix it real time with the control and governance our partners require. Together, these capabilities are empowering IT teams to move faster, reduce manual effort, and act directly within the environments where they already work. This progress directly improves the technician-to-manage device ratio we discussed earlier. UEM's value proposition is showing clearly in execution. Six of our top 10 new customer lands flowed through our UEM solution. A standout example is one of the fastest-growing quick-service U.K. restaurant brands that was looking for a trusted partner to ensure their digital operations worked seamlessly.
They deployed our UEM in late 2025 across 100 locations, gaining real-time visibility into their devices, automating routine fixes, and significantly reducing downtime. We recently built on that success, signing their U.S. group and expanding the relationship significantly. We are also automating historically manual intensive work in data protection, where we recently introduced Disaster Recovery as a Service, or DRaaS. We are eliminating the need for customers to manage backup infrastructure themselves, reducing cost, time, risk, and operational headache. This shifts backup management from a labor-intensive activity to a software-led capability. Beyond efficiency, DRaaS meaningfully strengthens customer security posture. In the event of data loss, businesses can near instantly recover critical systems, minimizing their downtime and maintaining their operations. We also expanded our anomaly detection capabilities, which help identify changes to backup environments.
With threat actors increasingly using identity-based attacks to steal credentials and target backups from inside the organization, including altering retention policies or deleting servers, this advancement has real impact. Building on that momentum, we are excited about the planned addition of Google Workspace backup coverage later this year. From a broader perspective, we continue to see durable demand drivers for data protection. With time to exploit turning negative and adversaries exploiting vulnerabilities before patches exist, the criticality of our ability to protect and restore data is heightened. As we look ahead to a world with agents owning more workflows for businesses, the possibility of agents making costly mistakes also rises. We see the need to effectively undo agent mistakes and restore operations to a clean prior state as a potential demand catalyst for a data protection solution. Our execution and value are showing up in the numbers.
Data protection has now surpassed 3.5 million Microsoft 365 users and led our net new ARR growth in the quarter. In security operations, we are extending the same system of action approach into one of the most labor-intensive areas of cybersecurity. Businesses are facing more complex attacks, and N-able is helping them operate, contain, and scale security without standing up their own SOC. Our security operation solution is a system of action at its core as AI handles the bulk of our threats automatically. This is a critical differentiator. With breakout time shortening to minutes, the ability to neutralize threats in real time could be the difference between a contained event and a successful breach. Customer count has nearly doubled since the second quarter of 2025, reflecting our traction here. A recent customer win demonstrates the solution in action.
A compliance-focused MSP serving regulated industries was facing challenges managing a fragmented security stack, spanning multiple EDR, MDR, and SIEM tools. We standardized their security operation, replacing multiple legacy providers with a unified, scalable model, driving ARR of nearly $500,000. Importantly, AI reinforces the role our platform plays in agentic world. From an operating standpoint, AI is embedded into our platform, and we are deeply embedded in our customer environments and workflows. This positions us to serve as a control plane to govern and secure agents as they become more prevalent across their IT and security environments. Customers can access AI where they already operate. We pair that accessibility with a technical experience built on proven infrastructure, extensive data, deterministic workflows, domain context, and rigorous compliance standards.
From a demand perspective, we see AI increasing both the volume and severity of threats while also expanding the amount and criticality of data that must be protected. These forces directly drive the need for our solutions. Our trusted brand and established go-to-market further positions us to translate innovation and demand into real-world adoption. To close, we're executing with discipline as we pursue the large and compelling cybersecurity opportunity. We believe AI is expanding our software opportunity by enabling us to automate more workflows and reinforcing the critical role we play in helping customers navigate a more complex and hostile digital environment. With that, I'll turn it over to Tim and then circle back for closing remarks. Tim?
Thank you, John, and thank you all for joining us today. Our first quarter performance reflected the execution drivers John discussed, including continued upmarket momentum, strong contribution from both our MSP and VAR channels, and expanding platform adoption. Our innovation is also broadening the scope of what our software can deliver, unlocking significant opportunity as we automate work historically delivered through services. From a strategic and capital allocation perspective, our focus remains investing behind durable demand for cybersecurity solutions while delivering a robust financial profile. Before diving into the results and outlook, I also want to share perspective on how we believe our business is positioned for growth in an increasingly agentic era. Our revenue model is diversified. We have meaningful monetization across data growth, servers, and cloud assets, alongside more traditional drivers such as users and devices. We believe this diversified exposure powers multiple paths to growth.
Looking ahead, we see a significant new monetization opportunity as customers increasingly adopt agents and other non-human identities across their environments. As these new IT assets introduce requirements around security, governance, and resilience, we believe we are well-positioned to help customers secure, govern, and back up these new IT assets. At the same time, we intend to continue innovating by delivering our own agents, building on our existing platform capabilities and system of action. Taken together, we believe these dynamics reinforce the durability of our model and create additional long-term growth opportunities as the market evolves. I'll now walk through our first quarter results, provide additional detail on the drivers of our performance, and discuss our outlook for 2026. First, let's discuss our results for the first quarter.
For our first quarter results, total ARR was $548 million, growing at 11% year-over-year on a reported basis, and 8% on a constant currency basis. Total revenue was $134 million, $2 million above the high end of our guidance, representing approximately 13% year-over-year growth on a reported basis, and 8% on a constant currency basis. Subscription revenue was $132 million, representing approximately 13% year-over-year growth on a reported basis, and 9% on a constant currency basis. We ended the quarter with 2,710 customers that contributed $50,000 or more of ARR, which is up approximately 13% year-over-year.
Customers with over $50,000 of ARR now represent approximately 62% of our total ARR, up from approximately 58% a year ago. Dollar-based net revenue retention, which is calculated on a trailing twelve-month basis, was approximately 106% on a reported basis and 103% on a constant currency basis. Approximately 46% of our revenue was outside of North America in the quarter. Turning to profit and margins, note that unless otherwise stated, all references to profit measures and expenses are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliations provided in today's press release. First quarter gross margin was 80% compared to 81% in the same period in 2025. First quarter adjusted EBITDA was $37 million, representing approximately 27% adjusted EBITDA margin.
Unlevered free cash flow was $22 million in the first quarter. CapEx, inclusive of $3 million of capitalized software development costs, was $4 million or 3% of revenue in the first quarter. We ended the quarter with approximately $118 million of cash and an outstanding loan principal balance of approximately $399 million, representing net leverage of approximately 1.8 times. Non-GAAP earnings per share was $0.09 in the first quarter based on 189 million weighted average diluted shares. Turning to our financial outlook, which assumes FX rates of 1.17 for the euro and 1.34 for the pound.
For the second quarter of 2026, we expect total revenue in the range of $137.5 million-$138.5 million, representing approximately 5%-6% year-over-year growth on a reported basis, and 4% on a constant currency basis. We expect second quarter adjusted EBITDA in the range of $39.5 million-$40.5 million, representing an adjusted EBITDA margin of approximately 29%. As a reminder, revenue growth is impacted by the timing and magnitude of on-premise deals and related revenue recognition dynamics, and we continue to view ARR as the best velocity metric for our business.
For the full year 2026, our total revenue outlook is approximately $554 million-$559 million, representing approximately 8%-9% year-over-year growth on a reported basis, and 7%-8% on a constant currency basis. Our full year ARR outlook is $581 million-$586 million, representing 8%-9% year-over-year growth on a reported and constant currency basis. We expect full-year adjusted EBITDA of $167 million-$171 million, representing an adjusted EBITDA margin of 30%-31%. We are raising our unlevered free cash flow outlook and expect our unlevered free cash flow to be approximately $116 million-$120 million.
We expect CapEx, which includes capitalized software development costs, to be approximately 5% of total revenue for 2026. We expect cash interest payments of approximately $27 million, assuming interest rates remain in line with current levels. We expect total weighted average diluted shares outstanding of approximately 189 million-192 million for the second quarter and 188 million-192 million for the full year. Finally, we expect our non-GAAP tax rate to be approximately 24%-27% for both the second quarter and the full year. Now, I will turn it over to John for closing remarks.
Thanks, Tim. We delivered another quarter of consistent execution with solid ARR growth, strong margins, and practical AI innovation. As cyber threats continue to evolve and agent adoption grows, we remain focused on helping our customers prevent incidents, recover quickly, and operate with confidence while delivering durable value for our shareholders. With that, operator, we'll open the line for questions.
We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mike Cikos with Needham & Company. Your line is open. Please go ahead.
Hey, guys. This is Matthew Calitri for Mike Cikos over at Needham. Thanks for taking our questions and great to see the uptick in growth and retention. I wanted to dig in on the revenue beat was a bit more modest than we've seen over the last couple quarters.
It didn't flow through the EBITDA margin or the full-year guide. Can you give us some color on what you're seeing in the market in terms of sales cycles and linearity as well as how that influenced guidance construction?
Sure. Hey, and thanks for the question. This is John. I'll talk a little bit about sales cycles, and I'll pass it over to Tim on some of the compare. Look, as we continue to go up market, we are seeing a little bit of a lengthening of the sales cycle and a little bit more of scrutiny around the ROI. I think some of this is a natural expectation. We're now landing deals, we referenced one or two during the call, you know, a $500,000, you know, ACV deal. We're seeing more and more six-figure deals. We're seeing multi-year seven-figure deals.
As you go up market, you'll start to get requiring, you know, CEO sign-off and actually in some cases we're starting to see a board level sign-off. As you're going up market, we're starting to see a little bit of a lengthening of the sales cycle, and overall, I'd say a little bit more of a scrutiny on the ROI. Frankly, we feel we're in a good position with that. We pride ourselves on delivering really strong TCO across the portfolio, right? In Cove, in our data protection, it's the software, but it's the labor. As there's more scrutiny on our ROI across the landscape, we believe, we're well-positioned to win in that category because it is one of our strengths.
How do we allow MSPs to do more with their dollar, both from the software point of view and from the labor point of view? I'd say that's the one trend that we're keeping an eye on, and I think it's somewhat expected as we continue to go up market.
Okay, great. Thank you for the color there. Then you mentioned agent mistakes as a demand driver, which is extremely topical. Following reports of the rogue PocketOS agent.
Right.
That deleted production database and backups. Have you seen a noticeable uptick in demand or initial conversations following, like, incidents like this sound like it's becoming more prevalent, sort of as you alluded to? Is there any other color you can provide on the data protection growth during the quarter?
It's much more top of mind, and I think there's a realization across the landscape that the need to recover and the need for business resilience and continuity in the world of this agentic era is gonna become more and more top of mind. If you think about backup in general, the last couple of years it's been dominated by this cybersecurity bit, right? Ransomware or attacks from threat actors and the ability to back it up. Right along for a long time, there's also friendly fire. In other words, if an employee unintentionally or intentionally deletes a bunch of data.
Well, now we have all these agents in some state, in an autonomous state that if not governed the right way, have the same ability to go delete data. I think there's a realization that this will happen. This could happen across small organizations or large organizations, and the ability to get back up and running is top of mind. Frankly, that's why we pitch business resilience, not cyber resilience. That's what we know when we're talking to our MSPs and we're talking to mid-market companies and small, medium enterprises, what they're really worried about is avoiding disruption, and if there is disruption, how quick can we get back up and running? That's why we're really excited about DRaaS. DRaaS provides an immediate failover or near immediate failover.
If something happens, via a threat actor or friendly fire or because an agent goes, you know, goes rogue on you have the ability to fail over and keep your business going. All of these things are creating a bunch more of demand. There is a, I'd say a realization across the industry that this is more and more of a real thing as agents continue to proliferate across the IT environments.
Awesome. Thanks so much.
Your next question comes from the line of Jason Ader with William Blair. Your line is open. Please go ahead.
Yeah, thank you. Good morning. Couple of things. First, on the macro environment, John, can you talk about any impact? Has it changed given the situation in the Middle East, the supply chain tightness going on out there? In Q1, did you see any kind of variance from what you've seen throughout 2025 on the macro front?
Hey, Jason. Thanks for the question. You know, as it relates to some of the geopolitical issues, no. We're not seeing any slowdown from any geopolitical issues. We are very international. A good amount of our business is in the U.K., a good amount of our business is in Western Europe. No, we're not really seeing any impact from what's going on, you know, related to what's going on in Iran.
Okay. All right. Then, Tim, for you, just can you talk about I guess you've had a two-point NRR improvement over the last several quarters. Can you just talk through what is driving that improvement?
Yeah, on the NRR, Jason?
Yes.
Yeah. On the operational front, a lot of it's on the heels of the execution we've had with cross-selling MDR into the customer base. That's continued to be very successful, and demand remains very healthy from that perspective. We also have some benefit from FX on the NRR rate as well. The combination of those two things are the key drivers of the NRR improvement.
Gotcha. Okay. Last, I guess last thing for you, John. You know, what's the number one thing you want people to take away from this print?
Yeah, look, I think the number one thing is that we're really well-positioned in this agentic era, and that's not a future state, that's a now state. We have, we've introduced N-zo, which is an AI assistant in our UEM offering, which is really going to take a lot of the high volume operational work off the load of our technicians. This is our first really, or our continuation of turning labor into software. We're excited about that, and we plan to do it, and we are doing it across all three fronts.
You know, we pride ourselves on being the platform of choice for MSPs for before the attack, during the attack, and after the attack, and we're layering in, you know, an agentic technology to take the labor off of our MSPs, making them more efficient, making them more profitable. In turn, we expect better GRR, better NRR, and being more of a critical piece of the MSP and the internal IT departments go forward. The best way of doing that, frankly, is to make sure that AI is helping them run their business and driving the efficiency. We believe we're very well-positioned there.
Thank you.
Thank you for your questions so far. We will now go to the next in queue. Your next question comes from the line of Joe Vandrick with Scotiabank.
Thanks for the question. John, can you talk about if you're seeing frontier AI cyber developments like Mythos and GPT-5.5-Cyber changing customer urgency around N-able's core products? I'm thinking especially around the automated patching, and maybe endpoint, but backup and recovery as well. Are you seeing that show up in pipeline or maybe even just in customer conversations?
Hey, Joe. Definitely in customer conversations. I wouldn't say it's necessarily showing up in pipeline. Look, patching and vulnerability management is a fundamental layer in cyber resilience and in overall business resilience. We've been preaching that for a while. I think it just makes it more top of mind, and folks need to make sure that they have a level of autonomous patching and vulnerability management, regardless of the environment. And as it relates to backup, I think I brought this up earlier with the previous call from Mike and his team. You know, it just provides another tailwind as to the use case, why you need to be able to back things up, and more importantly, recover, and recover in a near time way.
I think it's really just driving a lot more conversation and awareness across the industry. By and large, you know, the MSPs that are in the upper quartile, they've been practicing this layered security approach. We've been helping them with that layered security approach. Again, this is why we think our best of breed platform approach is the right one for our customers. Because it helps tie in together and drive a lot more efficiency before the attack, during the attack and after the attack, whether it's agentic or not. It's definitely making some of these conversations that might have been out of vogue more in vogue. You know, that's overall good for the community, good for the industry, and good for N-able.
Yep. Great. Makes sense. Maybe one tactical one for Tim. How should we think about net new ARR for the remainder of the year? Is there any commentary that you can provide that could help us understand the trajectory throughout 2026?
Yeah, we touched on it slightly last quarter. There was going to be more back-half led than front-half led. More so due to some of the new offerings that we're bringing to market throughout the course of 2026. That's specifically more so on the data protection side with DRaaS and Google Backup that John touched on.
Okay, great. Thanks, guys.
Your next question comes from the line of Erik Suppiger with B. Riley Securities. Your line is open. Please go ahead.
Yeah, thanks for taking the question, and apologize if this was asked. I'm balancing a couple calls. Just curious, has the developments with Anthropic and Mythos highlighting new or highlighting zero-day attacks, has that changed your customer behavior in terms of the way they're using N-able to do patch management and trying to move forward on more of an accelerated path to implementing patches in response to kind of a threat landscape that's getting more, more visible?
Hey, Erik. Yeah, yeah, we talked about this a little bit before. What it's really done is just, I think making patching and vulnerability management, which is a fundamental layer in cyber resilience, more top of mind for the overall for the industry. Look, you know, a internal IT department and/or an MSP who is established that is growing their business, that practices the right proper layered security, that is driving more of a compliance forward type of business, is executing on these areas already. It really just puts our solution more to the center of what it needs.
That's why, again, we believe the way that we're positioned for before the attack, and when we talk about before the attack, that is patching, that is vulnerability management, that is monitoring and managing, and during the attack with our threat hunting and our XDR, which is AI infused, and then of course recovery if you need to get things back up and going. You know, we believe that's the right formula for internal IT departments and MSPs. Tying these all together and adding an agentic layer that takes away from some of the high volume operational work from a technician, that's the right formula. At the end of the day, what AI will also do for the bad guys is accelerate their speed and their volume for the threats.
We need to be able to give our customers the ability to fight fire with fire and provide them AI infused or AI led technology so they can keep up with the speed. Often the human is the bottleneck, and it's our job here at N-able to give them the software so it's not on a labor burden, but it's on technology to, one, keep their customers safe and also drive their efficiency. We mentioned in the prepared remarks, you know, an average MSP has an EBITDA of 10%, and a lot of that's because of the labor and on the high volume mundane tasks.
As we usher in the AI technology, our hope is to really break that linearity in the model, number one, to help them improve their EBITDA, but also be able to make sure that they're thwarting off any threats as a result of some of the, you know, AI in the wrong hands type of thing. All of this frankly is pointing, I think, to an area where cybersecurity will see a tailwind, and it's making it more top of mind.
Very good. Thank you.
As a reminder, if you would like to ask a question, press star one to raise your hand. Our next question comes from the line of Keith Bachman with BMO. Your line is open. Please go ahead.
Hi, guys. This is Adam on for Keith. Thanks for the question. I wanted to circle back to the new products and ask that, you know, now that Disaster Recovery and N-zo are formally launched, what are adoption trends and uptake there relative to your prior expectations? Then inclusive of those as well as the Google Workspace launch expected later this year, are you guys embedding any expectations into the guide for revenue or ARR? Thank you.
Hey, Adam. Thanks for the question and it's good. That way we, I wanna clarify. DRaaS is in limited preview right now. It's in customers' hands. We'll do the full launch a little bit later on in the back half of the year. To Tim's point, that's why we have the ARR, you know, building more to the back half of the year. It's early days. I'm happy to report that so far so good. We're building the pipeline. We have customers in preview. The experience so far, again, it's early days, has been really positive. We're excited there. On N-zo, it's also promising.
In N-zo, we're not gonna directly monetize this in this first phase. What we're seeing is MSPs coming back saying, "Hey, that saved me hours." You know, "You're improving certain tasks that I'm doing by 70%." The feedback has been good. That being said, the use cases are limited right now, so our plan is to continue to expand those use cases so we continue to get some of those reviews and savings from the labor. DRaaS, just to be clear, that one will be directly monetizable. N-zo in its initial phase is really gonna be about helping the customer experience, driving our GRR, and helping them, you know, improve their profits as well.
Then we'll layer in, you know, coworkers and other monetization paths as we continue on the agentic lane. As it relates to Google, that's more to the back half of the year, and we actually have customers in the queue and doing some limited preview there. Because of where that sits in the year, we're not necessarily baking that in into our financial plan just yet, just because that sits a little bit closer to the back half of the year. Good question. Look, this is also DRaaS and backup for Google are the top two areas that people were requesting for backup and data protection for the last couple years.
Just as a reminder, as it relates to data protection, this will help us improve our win rate now that we have these offerings. It will help us with the expand, of course, because we'll be able to cross-sell, and it should help us with the GRR as well because now we have that one complete offering that an MSP is looking for. We're cautiously optimistic. Cove continues to be, you know, a fantastic offering and our data protection area is our largest ARR area. We expect this to just accelerate the data protection story.
Got it. Thank you. Just to follow up, if I may, I just wanted to ask about packaging and pricing changes. I believe you previously mentioned there's gonna be a one to two point net benefit for FY 2026. Is that still the expectation?
Yeah. I would say it's probably closer to the one, but yeah, we're still expecting a slight benefit from pricing and packaging, overall on the year.
Okay. Got it. Great. Thank you.
There are no further questions at this time. I will now turn the call back to CEO, John Pagliuca, for closing remarks.
Thank you everyone for joining N-able's quarterly results. We'll see you next time. Thank you.
This concludes today's call. Thank you for attending. You may now disconnect.