SolarWinds Corporation (NYSE: SWI), a leading provider of
powerful and affordable IT management software, today reported
results for its second quarter ended June 30, 2020.
On a GAAP basis:
- Total revenue for the second quarter of $246.0 million,
representing 7.5% growth on a reported basis.
- Total recurring revenue for the second quarter of $212.3
million, representing 12.0% growth on a reported basis. Total
recurring revenue includes:
- Maintenance revenue for the second quarter of $116.5 million,
representing 5.1% growth on a reported basis.
- Subscription revenue for the second quarter of $95.8 million,
representing 21.7% growth on a reported basis.
- Net income for the second quarter of $12.8 million.
On a non-GAAP basis:
- Non-GAAP total revenue for the second quarter of $246.6
million, representing 6.9% year-over-year growth on a reported
basis and 7.7% year-over-year growth on a constant currency
basis.
- Non-GAAP total recurring revenue for the second quarter of
$212.9 million, representing 11.2% year-over-year growth on a
reported basis and 12.1% year-over-year growth on a constant
currency basis. Non-GAAP total recurring revenue includes:
- Non-GAAP maintenance revenue for the second quarter of $116.5
million, representing 5.1% year-over-year growth on a reported
basis.
- Non-GAAP subscription revenue for the second quarter of $96.4
million, representing 19.6% year-over-year growth on a reported
basis.
- Adjusted EBITDA for the second quarter of $119.1 million,
representing a margin of 48.3% of non-GAAP total revenue.
For a reconciliation of our GAAP to non-GAAP results, please see
the tables below.
“Operating in a challenging global economic environment, we
delivered second quarter non-GAAP total revenue of $246.6 million,
representing 7% year-over-year growth, and at the high end of our
outlook range,” said Kevin Thompson, president and CEO, SolarWinds.
“Despite evidence of ongoing budget pressures for IT pros, we
continue to see a bright spot for SolarWinds and an opportunity to
continue capturing market share. Our business was built to disrupt
markets through a set of integrated products that combine
affordability with ease of use. As we have seen over the previous
several months, the work that IT organizations and MSPs do to keep
the applications and systems that businesses rely on up and running
is as critical as ever. We remain focused on helping IT Pros and
MSPs maintain and secure business-critical environments, and we
believe that our unique approach to solving IT management
challenges positions us to be a partner of choice moving
forward.”
“We executed disciplined expense management in the quarter,
generating $119.1 million of Adjusted EBITDA, representing a 48%
Adjusted EBITDA margin that increased sequentially over three
percentage points from the first quarter,” added Bart Kalsu,
executive vice president and CFO, SolarWinds. “Cash collections
were strong in the quarter and contributed to the conversion of 95%
of our Adjusted EBITDA into Unlevered Free Cash Flow. Additionally,
our recurring revenue mix continued to grow to 86% in the second
quarter, and included better-than-expected sales of our Orion
product portfolio via our new subscription pricing option. We pride
ourselves in being adaptable to changing market conditions, whether
that requires responding to customer demands or maximizing our
business for sustainable growth and best-in-class
profitability.”
Additional highlights for the second quarter of 2020
include:
- SolarWinds closed the largest commercial transaction in its
history in the second quarter, as a large global financial
institution further standardized on SolarWinds’ monitoring and
management technology.
- In April 2020, SolarWinds introduced new subscription-based
pricing for its popular on-premises products as an additional
option alongside the company’s perpetual licensing model. As IT
organizations continue to face a wide range of challenges, this new
pricing model offers greater flexibility and predictability for
budgets, which are both front and center for IT leaders in
organizations around the world.
- SolarWinds also announced the release of SolarWinds Service
Desk Enterprise, which offers advanced ITSM capabilities to
meet the heightened security expectations of modern enterprises and
improve key service management processes for employees. Mature
organizations require an enhanced level of dedicated support, and
SolarWinds Service Desk Enterprise includes on-boarding management
and a dedicated customer success partner to help ensure successful
adoption making this service desk offering one of the best values
in the ITSM market today.
- Showcasing the company’s ongoing commitment to helping IT Pros
achieve scale, simplification and complete visibility across hybrid
IT environments, SolarWinds announced enhancements across its IT
operations management portfolio. The updates include new versions
of network, systems, and database management products designed to
deliver unprecedented depth in monitoring end-to-end hybrid
commercial-off-the-shelf and custom application delivery and
performance.
- During the quarter, SolarWinds earned a number of industry and
customer recognitions for its IT management and MSP products.
Notably, TrustRadius named nine SolarWinds IT operations management
products and one SolarWinds MSP product as 2020 Top Rated award
winners across 11 categories. These include Network Performance
Monitor (NPM), Server & Application Monitor (SAM),
SolarWinds Service Desk for IT Service and IT Management,
and Database Performance Analyzer (DPA). SolarWinds SAM was
named a winner in the IT Infrastructure Monitoring Tools category
of Gartner’s Peer Insights Customers Choice 2020 awards. SolarWinds
also won four Stevie Awards in the 2020 American Business Awards
program, including a Gold medal for SolarWinds Service
Desk.
- SolarWinds further built upon its Customer Success initiatives
to drive even greater MSP partner enablement, including an expanded
global customer care team, improved onboarding tools, dedicated and
enhanced localized customer success management, and new
peer-to-peer advisory programs. The newest components expand on key
customer success initiatives including the SolarWinds Head
Nerds program and the MSP Institute, which provides
training and tips through business, sales, marketing, and technical
tracks from experts and industry leaders.
Balance Sheet
At June 30, 2020, total cash and cash equivalents were $331.4
million and total debt was $1.9 billion.
The financial results included in this press release are
preliminary and pending final review by the company and its
external auditors. Financial results will not be final until
SolarWinds files its quarterly report on Form 10-Q for the period.
Information about SolarWinds' use of non-GAAP financial measures is
provided below under “Non-GAAP Financial Measures.”
Financial Outlook
As of August 6, 2020, SolarWinds is providing its financial
outlook for the third quarter of 2020 and full year 2020. The
financial information below represents forward-looking non-GAAP
financial information, including an estimate of non-GAAP revenue
and revenue growth on a constant currency basis, adjusted EBITDA
and non-GAAP diluted earnings per share. These non-GAAP financial
measures exclude, among other items mentioned below, stock-based
compensation expense and related employer-paid payroll taxes,
amortization, the impact of purchase accounting from acquisitions
and costs related to non-recurring items. We have not reconciled
our estimates of these non-GAAP financial measures to their most
directly comparable GAAP measure as a result of uncertainty
regarding, and the potential variability of, these excluded items
in future periods. Accordingly, reconciliation is not available
without unreasonable effort, although it is important to note that
these excluded items could be material to our results computed in
accordance with GAAP in future periods. Our reported results
provide reconciliations of non-GAAP financial measures to their
nearest GAAP equivalents.
Financial Outlook for Third Quarter of 2020
SolarWinds’ management currently expects to achieve the
following results for the third quarter of 2020:
- Non-GAAP total revenue in the range of $254.0 to $259.0
million, representing growth over the third quarter of 2019
non-GAAP total revenue of 5% to 7%, or 4% to 6% on a constant
currency basis assuming the same average foreign currency exchange
rates as those in the third quarter of 2019.
- Adjusted EBITDA in the range of $119.0 to $122.0 million,
representing 47% of non-GAAP total revenue.
- Non-GAAP diluted earnings per share of $0.24.
- Weighted average outstanding diluted shares of approximately
316.3 million.
Financial Outlook for Full Year 2020
SolarWinds’ management currently expects to achieve the
following results for the full year 2020:
- Non-GAAP total revenue in the range of $1.008 to $1.018
billion, representing growth over 2019 non-GAAP revenue of 7% to
8%, or 7% to 8% on a constant currency basis assuming the same
average foreign currency exchange rates as those in 2019.
- Adjusted EBITDA in the range of $470.0 to $476.0 million,
representing approximately 47% of non-GAAP total revenue.
- Non-GAAP diluted earnings per share of $0.94.
- Weighted average outstanding diluted shares of approximately
315.5 million.
Additional details on the company's outlook will be provided on
the conference call. In addition, in conjunction with this
announcement, SolarWinds announced that its board of directors has
authorized the company’s management team to explore a potential
spin-off of its MSP business into a newly created and separately
traded public company. Additional information about the potential
spin-off transaction is available in the separate press release
issued today and will be discussed on the conference call.
Conference Call and Webcast
In conjunction with this announcement, SolarWinds will host a
conference call today to discuss its financial results, business,
business outlook and the potential spin-off of its MSP business at
4:00 p.m. CT (5:00 p.m. ET/2:00 p.m. PT). A live webcast of the
call and materials presented during the call will be available on
the SolarWinds Investor Relations website at
http://investors.solarwinds.com. A live dial-in will be available
domestically at (877) 823-8676 and internationally at +1 (647)
689-4178. To access the live call, please dial in 5-10 minutes
before the scheduled start time. A replay of the webcast will be
available on a temporary basis shortly after the event on the
SolarWinds Investor Relations website.
Forward-Looking Statements
This press release contains “forward-looking” statements, which
are subject to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, including statements regarding our
financial outlook for the third quarter of 2020 and full year 2020,
our market share and our positioning in the current economic
environment. These forward-looking statements are based on
management's beliefs and assumptions and on information currently
available to management. Forward-looking statements include all
statements that are not historical facts and may be identified by
terms such as “aim,” “anticipate,” “believe,” “can,” “could,”
“seek,” “should,” “feel,” “expect,” “will,” “would,” “plan,”
“intend,” “estimate,” “continue,” or similar expressions and the
negatives of those terms. Forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements to be materially
different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Factors
that could cause or contribute to such differences include, but are
not limited to, the following: (a) the possibility that the global
COVID-19 pandemic may adversely affect our business, results of
operations and financial condition; (b) any of the following
factors either generally or as a result of the impacts of the
global COVID-19 pandemic on the global economy or on our business
operations and financial condition or on the business operations
and financial conditions of our customers, their end-customers and
our prospective customers: (i) reductions in information technology
spending or delays in purchasing decisions by our customers, their
end-customers and our prospective customers, (ii) the inability to
sell products to new customers or to sell additional products or
upgrades to our existing customers, (iii) any decline in our
renewal or net retention rates, (iv) the inability to generate
significant volumes of high quality sales leads from our digital
marketing initiatives and convert such leads into new business at
acceptable conversion rates, (v) the timing and adoption of new
products, product upgrades or pricing model changes by SolarWinds
or its competitors, (vi) potential foreign exchange gains and
losses related to expenses and sales denominated in currencies
other than the functional currency of an associated entity, (vii)
risks associated with our international operations; (c) the
possibility that our operating income could fluctuate and may
decline as percentage of revenue as we make further expenditures to
expand our operations in order to support additional growth in our
business; (d) our inability to successfully identify, complete, and
integrate acquisitions and manage our growth effectively; (e) our
status as a controlled company; (f) risks related to the potential
spin-off of our MSP business into a newly created and separately
traded public company; and (g) such other risks and uncertainties
described more fully in documents filed with or furnished to the
Securities and Exchange Commission, including the risk factors
discussed in our Annual Report on Form 10-K for the period ended
December 31, 2019 filed on February 24, 2020, the Form 10-Q for the
quarter ended March 31, 2020 filed on May 8, 2020 and the Form 10-Q
for the quarter ended June 30, 2020 that SolarWinds anticipates
filing on or before August 10, 2020. All information provided in
this release is as of the date hereof and SolarWinds undertakes no
duty to update this information except as required by law.
Non-GAAP Financial Measures
In addition to financial measures prepared in accordance with
GAAP, we use certain non-GAAP financial measures to clarify and
enhance our understanding, and aid in the period-to-period
comparison, of our performance. We believe that these non-GAAP
financial measures provide supplemental information that is
meaningful when assessing our operating performance because they
exclude the impact of certain amounts that our management and board
of directors do not consider part of core operating results when
assessing our operational performance, allocating resources,
preparing annual budgets and determining compensation. Accordingly,
these non-GAAP financial measures may provide insight to investors
into the motivation and decision-making of management in operating
the business.
SolarWinds also believes that these non-GAAP financial measures
are used by investors and security analysts to (a) compare and
evaluate its performance from period to period and (b) compare its
performance to those of its competitors. These non-GAAP measures
exclude certain items that can vary substantially from company to
company depending upon their financing and accounting methods, the
book value of their assets, their capital structures and the method
by which their assets were acquired.
There are limitations associated with the use of these non-GAAP
financial measures. These non-GAAP financial measures are not
prepared in accordance with GAAP, do not reflect a comprehensive
system of accounting and may not be completely comparable to
similarly titled measures of other companies due to potential
differences in the exact method of calculation between companies.
Certain items that are excluded from these non-GAAP financial
measures can have a material impact on operating and net income
(loss).
As a result, these non-GAAP financial measures have limitations
and should not be considered in isolation from, or as a substitute
for, the most comparable GAAP measures. SolarWinds' management and
board of directors compensate for these limitations by using these
non-GAAP financial measures as supplements to GAAP financial
measures and by reviewing the reconciliations of the non-GAAP
financial measures to their most comparable GAAP financial measure.
Set forth in the tables below are the corresponding GAAP financial
measures for each non-GAAP financial measure presented. Investors
are encouraged to review the reconciliations of these non-GAAP
financial measures to their most comparable GAAP financial measures
that are set forth in the tables below.
Non-GAAP Revenue. We define non-GAAP subscription
revenue, non-GAAP maintenance revenue, non-GAAP license revenue,
and non-GAAP total revenue as subscription revenue, maintenance
revenue, license revenue, and total revenue, respectively,
excluding the impact of purchase accounting from acquisitions. The
non-GAAP revenue growth rates we provide are calculated using
non-GAAP revenue from the comparable prior period. We monitor these
measures to assess our performance because we believe our revenue
growth rates would be overstated without these adjustments. We
believe presenting non-GAAP subscription revenue, non-GAAP
maintenance revenue, non-GAAP license revenue and non-GAAP total
revenue aids in the comparability between periods and in assessing
our overall operating performance.
Non-GAAP Revenue on a Constant Currency Basis. We provide
non-GAAP revenue on a constant currency basis to provide a
framework for assessing our performance and expectations regarding
future performance excluding the effect of foreign currency rate
fluctuations. To present this information, current period results
and future period estimated results for entities reporting in
currencies other than U.S. Dollars are converted into U.S. Dollars
at the average exchange rates in effect during the corresponding
prior period presented. We believe that providing non-GAAP revenue
on a constant currency basis facilitates the comparison of non-GAAP
revenue to prior periods.
Non-GAAP Cost of Revenue and Non-GAAP Operating Income.
We provide non-GAAP cost of revenue and non-GAAP operating income
and related non-GAAP margins using non-GAAP revenue as discussed
above and excluding such items as the write-down of deferred
revenue related to purchase accounting, amortization of acquired
intangible assets, stock-based compensation expense and related
employer-paid payroll taxes, acquisition and other costs and
restructuring costs. Management believes these measures are useful
for the following reasons:
- Amortization of Acquired Intangible Assets. We provide non-GAAP
information that excludes expenses related to purchased intangible
assets associated with our acquisitions. We believe that
eliminating this expense from our non-GAAP measures is useful to
investors, because the amortization of acquired intangible assets
can be inconsistent in amount and frequency and is significantly
impacted by the timing and magnitude of our acquisition
transactions, which also vary in frequency from period to period.
Accordingly, we analyze the performance of our operations in each
period without regard to such expenses.
- Stock-Based Compensation Expense and Related Employer-paid
Payroll Taxes. We provide non-GAAP information that excludes
expenses related to stock-based compensation and related
employer-paid payroll taxes. We believe that the exclusion of
stock-based compensation expense provides for a better comparison
of our operating results to prior periods and to our peer companies
as the calculations of stock-based compensation vary from period to
period and company to company due to different valuation
methodologies, subjective assumptions and the variety of award
types. Employer-paid payroll taxes on stock-based compensation is
dependent on our stock price and the timing of the taxable events
related to the equity awards, over which our management has little
control, and does not correlate to the core operation of our
business. Because of these unique characteristics of stock-based
compensation and related employer-paid payroll taxes, management
excludes these expenses when analyzing the organization’s business
performance.
- Acquisition and Other Costs. We exclude certain expense items
resulting from our take private transaction in early 2016 and other
acquisitions, such as legal, accounting and advisory fees, changes
in fair value of contingent consideration, costs related to
integrating the acquired businesses, deferred compensation,
severance and retention expense. In addition, we exclude certain
other costs including expense related to our offerings. We consider
these adjustments, to some extent, to be unpredictable and
dependent on a significant number of factors that are outside of
our control. Furthermore, acquisitions result in operating expenses
that would not otherwise have been incurred by us in the normal
course of our organic business operations. We believe that
providing these non-GAAP measures that exclude acquisition and
other costs, allows users of our financial statements to better
review and understand the historical and current results of our
continuing operations, and also facilitates comparisons to our
historical results and results of less acquisitive peer companies,
both with and without such adjustments.
- Restructuring Costs. We provide non-GAAP information that
excludes restructuring costs such as severance and the estimated
costs of exiting and terminating facility lease commitments, as
they relate to our corporate restructuring and exit activities and
costs related to the separation of employment with executives of
the Company. These costs are inconsistent in amount and are
significantly impacted by the timing and nature of these events.
Therefore, although we may incur these types of expenses in the
future, we believe that eliminating these costs for purposes of
calculating the non-GAAP financial measures facilitates a more
meaningful evaluation of our operating performance and comparisons
to our past operating performance.
Non-GAAP Net Income (Loss) and Non-GAAP Net Income (Loss) Per
Diluted Share. We believe that the use of non-GAAP net income
(loss) and non-GAAP net income (loss) per diluted share is helpful
to our investors to clarify and enhance their understanding of past
performance and future prospects. Non-GAAP net income (loss) is
calculated as net income (loss) excluding the adjustments to
non-GAAP revenue, non-GAAP cost of revenue and non-GAAP operating
income, losses on extinguishment of debt, certain other
non-operating gains and losses and the income tax effect of the
non-GAAP exclusions. We define non-GAAP net income (loss) per
diluted share as non-GAAP net income (loss) divided by the weighted
average outstanding common shares.
Adjusted EBITDA and Adjusted EBITDA Margin. We regularly
monitor adjusted EBITDA and adjusted EBITDA margin, as it is a
measure we use to assess our operating performance. We define
adjusted EBITDA as net income or loss, excluding the impact of
purchase accounting on total revenue, amortization of acquired
intangible assets and developed technology, depreciation expense,
stock-based compensation expense and related employer-paid payroll
taxes, restructuring costs, acquisition and other costs, interest
expense, net, debt related costs including fees related to our
credit agreements, debt extinguishment and refinancing costs,
unrealized foreign currency (gains) losses, and income tax expense
(benefit). We define adjusted EBITDA margin as adjusted EBITDA
divided by non-GAAP revenue. Adjusted EBITDA has limitations as an
analytical tool, and you should not consider it in isolation or as
a substitute for analysis of our results as reported under GAAP.
Some of these limitations are: although depreciation and
amortization are non-cash charges, the assets being depreciated and
amortized may have to be replaced in the future, and adjusted
EBITDA does not reflect cash capital expenditure requirements for
such replacements or for new capital expenditure requirements;
adjusted EBITDA excludes the impact of the write-down of deferred
revenue due to purchase accounting in connection with acquisitions,
and therefore includes revenue that will never be recognized under
GAAP; adjusted EBITDA does not reflect changes in, or cash
requirements for, our working capital needs; adjusted EBITDA does
not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments,
on our debt; adjusted EBITDA does not reflect tax payments that may
represent a reduction in cash available to us; and other companies,
including companies in our industry, may calculate adjusted EBITDA
differently, which reduces its usefulness as a comparative
measure.
Unlevered Free Cash Flow. Unlevered free cash flow is a
measure of our liquidity used by management to evaluate cash flow
from operations, after the deduction of capital expenditures and
prior to the impact of our capital structure, acquisition and other
costs, restructuring costs, employer-paid payroll taxes on stock
awards and other one time items, that can be used by us for
strategic opportunities and strengthening our balance sheet.
However, given our debt obligations, unlevered free cash flow does
not represent residual cash flow available for discretionary
expenses.
#SWIfinancials
About SolarWinds
SolarWinds (NYSE: SWI) is a leading provider of powerful and
affordable IT infrastructure management software. Our products give
organizations worldwide, regardless of type, size or IT
infrastructure complexity, the power to monitor and manage the
performance of their IT environments, whether on-premises, in the
cloud, or in hybrid models. We continuously engage with all types
of technology professionals—IT operations professionals, DevOps
professionals, and managed service providers (MSPs)—to understand
the challenges they face maintaining high-performing and highly
available IT infrastructures. The insights we gain from engaging
with them, in places like our THWACK online community, allow us to
build products that solve well-understood IT management challenges
in ways that technology professionals want them solved. This focus
on the user and commitment to excellence in end-to-end hybrid IT
performance management has established SolarWinds as a worldwide
leader in network management software and MSP solutions. Learn more
today at www.solarwinds.com.
The SolarWinds, SolarWinds & Design, Orion, and THWACK
trademarks are the exclusive property of SolarWinds Worldwide, LLC
or its affiliates, are registered with the U.S. Patent and
Trademark Office, and may be registered or pending registration in
other countries. All other SolarWinds trademarks, service marks,
and logos may be common law marks or are registered or pending
registration. All other trademarks mentioned herein are used for
identification purposes only and are trademarks of (and may be
registered trademarks of) their respective companies.
© 2020 SolarWinds Worldwide, LLC. All rights reserved.
SolarWinds Corporation
Condensed Consolidated Balance
Sheets (In thousands, except share and per share information)
(Unaudited)
June 30,
December 31,
2020
2019
Assets
Current assets:
Cash and cash equivalents
$
331,414
$
173,372
Accounts receivable, net of allowances of
$3,735 and $3,171 as of June 30, 2020 and December 31, 2019,
respectively
104,281
121,930
Income tax receivable
1,155
1,117
Prepaid and other current assets
22,228
23,480
Total current assets
459,078
319,899
Property and equipment, net
43,497
38,945
Operating lease assets
108,099
89,825
Deferred taxes
4,410
4,533
Goodwill
4,058,287
4,058,198
Intangible assets, net
644,361
771,513
Other assets, net
31,477
27,829
Total assets
$
5,349,209
$
5,310,742
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
11,071
$
13,796
Accrued liabilities and other
47,118
47,035
Current operating lease liabilities
15,201
14,093
Accrued interest payable
159
248
Income taxes payable
25,246
15,714
Current portion of deferred revenue
314,105
312,227
Current debt obligation
19,900
19,900
Total current liabilities
432,800
423,013
Long-term liabilities:
Deferred revenue, net of current
portion
32,314
31,173
Non-current deferred taxes
82,332
97,884
Non-current operating lease
liabilities
111,537
93,084
Other long-term liabilities
116,488
122,660
Long-term debt, net of current portion
1,888,026
1,893,406
Total liabilities
2,663,497
2,661,220
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value:
1,000,000,000 shares authorized and 310,571,064 and 308,290,310
shares issued and outstanding as of June 30, 2020 and December 31,
2019, respectively
311
308
Preferred stock, $0.001 par value:
50,000,000 shares authorized and no shares issued and outstanding
as of June 30, 2020 and December 31, 2019, respectively
—
—
Additional paid-in capital
3,067,458
3,041,880
Accumulated other comprehensive loss
(7,898
)
(5,247
)
Accumulated deficit
(374,159
)
(387,419
)
Total stockholders’ equity
2,685,712
2,649,522
Total liabilities and stockholders’
equity
$
5,349,209
$
5,310,742
SolarWinds Corporation
Condensed Consolidated
Statements of Operations (In thousands, except per share
information) (Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Revenue:
Subscription
$
95,840
$
78,780
$
189,475
$
150,345
Maintenance
116,498
110,793
232,847
217,085
Total recurring revenue
212,338
189,573
422,322
367,430
License
33,677
39,175
70,643
77,110
Total revenue
246,015
228,748
492,965
444,540
Cost of revenue:
Cost of recurring revenue
21,822
19,386
44,323
37,545
Amortization of acquired technologies
44,834
43,972
89,326
87,789
Total cost of revenue
66,656
63,358
133,649
125,334
Gross profit
179,359
165,390
359,316
319,206
Operating expenses:
Sales and marketing
70,712
64,813
143,090
125,408
Research and development
30,745
27,705
62,590
52,893
General and administrative
24,467
25,241
54,222
46,977
Amortization of acquired intangibles
18,294
17,301
36,590
33,803
Total operating expenses
144,218
135,060
296,492
259,081
Operating income
35,141
30,330
62,824
60,125
Other income (expense):
Interest expense, net
(18,313
)
(28,177
)
(42,408
)
(55,559
)
Other income (expense), net
363
(1,078
)
(395
)
219
Total other income (expense)
(17,950
)
(29,255
)
(42,803
)
(55,340
)
Income before income taxes
17,191
1,075
20,021
4,785
Income tax expense
4,346
3,194
6,761
3,759
Net income (loss)
$
12,845
$
(2,119
)
$
13,260
$
1,026
Net income (loss) available to common
stockholders
$
12,772
$
(2,119
)
$
13,169
$
1,014
Net income (loss) available to common
stockholders per share:
Basic earnings (loss) per share
$
0.04
$
(0.01
)
$
0.04
$
—
Diluted earnings (loss) per share
$
0.04
$
(0.01
)
$
0.04
$
—
Weighted-average shares used to compute
net income (loss) available to common stockholders per share:
Shares used in computation of basic
earnings (loss) per share
310,244
306,587
309,591
306,122
Shares used in computation of diluted
earnings (loss) per share
314,898
306,587
313,874
310,353
SolarWinds Corporation
Condensed Consolidated Statements of Cash Flows (In thousands)
(Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Cash flows from operating activities
Net income (loss)
$
12,845
$
(2,119
)
$
13,260
$
1,026
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization
68,247
65,577
136,015
130,040
Provision for losses on accounts
receivable
(54
)
437
2,960
951
Stock-based compensation expense
12,977
7,367
24,245
15,085
Amortization of debt issuance costs
2,282
2,305
4,570
4,591
Deferred taxes
(7,288
)
(9,069
)
(16,032
)
(20,352
)
(Gain) loss on foreign currency exchange
rates
656
1,208
1,639
(100
)
Other non-cash expenses (benefits)
(710
)
273
(900
)
(414
)
Changes in operating assets and
liabilities, net of assets acquired and liabilities assumed in
business combinations:
Accounts receivable
17,938
17,857
13,854
7,289
Income taxes receivable
479
399
(104
)
149
Prepaid and other assets
2,868
(1,846
)
(1,224
)
(6,172
)
Accounts payable
253
963
(2,794
)
1,442
Accrued liabilities and other
7,039
5,789
1,239
(5,009
)
Accrued interest payable
(44
)
(17
)
(89
)
556
Income taxes payable
(544
)
(6,931
)
4,022
(4,385
)
Deferred revenue
(11,376
)
(3,319
)
3,363
16,735
Other long-term liabilities
151
(585
)
66
220
Net cash provided by operating
activities
105,719
78,289
184,090
141,652
Cash flows from investing activities
Purchases of property and equipment
(5,587
)
(4,204
)
(12,123
)
(8,774
)
Purchases of intangible assets
(2,488
)
(1,240
)
(4,182
)
(2,480
)
Acquisitions, net of cash acquired
—
(349,504
)
—
(349,504
)
Other investing activities
—
1,427
—
1,662
Net cash used in investing activities
(8,075
)
(353,521
)
(16,305
)
(359,096
)
Cash flows from financing activities
Proceeds from issuance of common stock
under employee stock purchase plan
—
—
2,357
—
Repurchase of common stock and incentive
restricted stock
(805
)
(133
)
(2,376
)
(141
)
Exercise of stock options
258
221
309
257
Proceeds from credit agreement
—
35,000
—
35,000
Repayments of borrowings from credit
agreement
(4,975
)
(39,975
)
(9,950
)
(44,950
)
Net cash used in financing activities
(5,522
)
(4,887
)
(9,660
)
(9,834
)
Effect of exchange rate changes on cash
and cash equivalents
2,337
944
(83
)
(52
)
Net increase (decrease) in cash and cash
equivalents
94,459
(279,175
)
158,042
(227,330
)
Cash and cash equivalents
Beginning of period
236,955
434,465
173,372
382,620
End of period
$
331,414
$
155,290
$
331,414
$
155,290
Supplemental disclosure of cash flow
information
Cash paid for interest
$
16,177
$
26,326
$
38,149
$
51,749
Cash paid for income taxes
$
10,720
$
17,832
$
16,755
$
26,467
SolarWinds Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
(in thousands, except margin
data)
Revenue:
GAAP subscription revenue
$
95,840
$
78,780
$
189,475
$
150,345
Impact of purchase accounting
560
1,819
2,073
1,819
Non-GAAP subscription revenue
96,400
80,599
191,548
152,164
GAAP maintenance revenue
116,498
110,793
232,847
217,085
Impact of purchase accounting
—
—
—
—
Non-GAAP maintenance revenue
116,498
110,793
232,847
217,085
GAAP total recurring revenue
212,338
189,573
422,322
367,430
Impact of purchase accounting
560
1,819
2,073
1,819
Non-GAAP total recurring revenue
212,898
191,392
424,395
369,249
GAAP license revenue
33,677
39,175
70,643
77,110
Impact of purchase accounting
—
—
—
—
Non-GAAP license revenue
33,677
39,175
70,643
77,110
Total GAAP revenue
$
246,015
$
228,748
$
492,965
$
444,540
Impact of purchase accounting
$
560
$
1,819
$
2,073
$
1,819
Total non-GAAP revenue
$
246,575
$
230,567
$
495,038
$
446,359
GAAP cost of revenue
$
66,656
$
63,358
$
133,649
$
125,334
Stock-based compensation expense and
related employer-paid payroll taxes
(542
)
(414
)
(1,033
)
(786
)
Amortization of acquired technologies
(44,834
)
(43,972
)
(89,326
)
(87,789
)
Acquisition and other costs
(7
)
(38
)
(16
)
(98
)
Restructuring costs
—
(8
)
—
(8
)
Non-GAAP cost of revenue
$
21,273
$
18,926
$
43,274
$
36,653
GAAP gross profit
$
179,359
$
165,390
$
359,316
$
319,206
Impact of purchase accounting
560
1,819
2,073
1,819
Stock-based compensation expense and
related employer-paid payroll taxes
542
414
1,033
786
Amortization of acquired technologies
44,834
43,972
89,326
87,789
Acquisition and other costs
7
38
16
98
Restructuring costs
—
8
—
8
Non-GAAP gross profit
$
225,302
$
211,641
$
451,764
$
409,706
GAAP gross margin
72.9
%
72.3
%
72.9
%
71.8
%
Non-GAAP gross margin
91.4
%
91.8
%
91.3
%
91.8
%
GAAP sales and marketing expense
$
70,712
$
64,813
$
143,090
$
125,408
Stock-based compensation expense and
related employer-paid payroll taxes
(4,686
)
(2,463
)
(8,021
)
(5,268
)
Acquisition and other costs
(27
)
(509
)
(58
)
(1,229
)
Restructuring costs
—
(8
)
(33
)
(333
)
Non-GAAP sales and marketing expense
$
65,999
$
61,833
$
134,978
$
118,578
GAAP research and development expense
$
30,745
$
27,705
$
62,590
$
52,893
Stock-based compensation expense and
related employer-paid payroll taxes
(3,817
)
(2,019
)
(7,105
)
(3,651
)
Acquisition and other costs
—
(306
)
(9
)
(553
)
Restructuring costs
—
(116
)
—
(121
)
Non-GAAP research and development
expense
$
26,928
$
25,264
$
55,476
$
48,568
GAAP general and administrative
expense
$
24,467
$
25,241
$
54,222
$
46,977
Stock-based compensation expense and
related employer-paid payroll taxes
(4,107
)
(2,644
)
(8,476
)
(5,553
)
Acquisition and other costs
(844
)
(2,646
)
(2,738
)
(3,877
)
Restructuring costs
9
(1,740
)
(180
)
(1,934
)
Non-GAAP general and administrative
expense
$
19,525
$
18,211
$
42,828
$
35,613
GAAP operating expenses
$
144,218
$
135,060
$
296,492
$
259,081
Stock-based compensation expense and
related employer-paid payroll taxes
(12,610
)
(7,126
)
(23,602
)
(14,472
)
Amortization of acquired intangibles
(18,294
)
(17,301
)
(36,590
)
(33,803
)
Acquisition and other costs
(871
)
(3,461
)
(2,805
)
(5,659
)
Restructuring costs
9
(1,864
)
(213
)
(2,388
)
Non-GAAP operating expenses
$
112,452
$
105,308
$
233,282
$
202,759
GAAP operating income
$
35,141
$
30,330
$
62,824
$
60,125
Impact of purchase accounting
560
1,819
2,073
1,819
Stock-based compensation expense and
related employer-paid payroll taxes
13,152
7,540
24,635
15,258
Amortization of acquired technologies
44,834
43,972
89,326
87,789
Amortization of acquired intangibles
18,294
17,301
36,590
33,803
Acquisition and other costs
878
3,499
2,821
5,757
Restructuring costs
(9
)
1,872
213
2,396
Non-GAAP operating income
$
112,850
$
106,333
$
218,482
$
206,947
GAAP operating margin
14.3
%
13.3
%
12.7
%
13.5
%
Non-GAAP operating margin
45.8
%
46.1
%
44.1
%
46.4
%
GAAP net income (loss)
$
12,845
$
(2,119
)
$
13,260
$
1,026
Impact of purchase accounting
560
1,819
2,073
1,819
Stock-based compensation expense and
related employer-paid payroll taxes
13,152
7,540
24,635
15,258
Amortization of acquired technologies
44,834
43,972
89,326
87,789
Amortization of acquired intangibles
18,294
17,301
36,590
33,803
Acquisition and other costs
878
3,499
2,821
5,757
Restructuring costs
(9
)
1,872
213
2,396
Tax benefits associated with above
adjustments
(12,637
)
(13,760
)
(27,090
)
(26,809
)
Non-GAAP net income
$
77,917
$
60,124
$
141,828
$
121,039
GAAP diluted earnings (loss) per share
$
0.04
$
(0.01
)
$
0.04
$
—
Non-GAAP diluted earnings per share
$
0.25
$
0.20
$
0.45
$
0.39
Reconciliation of GAAP Net
Income (Loss) to Adjusted EBITDA (Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
(in thousands)
Net income (loss)
$
12,845
$
(2,119
)
$
13,260
$
1,026
Amortization and depreciation
68,247
65,577
136,015
130,040
Income tax expense
4,346
3,194
6,761
3,759
Interest expense, net
18,313
28,177
42,408
55,559
Impact of purchase accounting on total
revenue
560
1,819
2,073
1,819
Unrealized foreign currency (gains)
losses
656
1,208
1,639
(100
)
Acquisition and other costs
878
3,499
2,821
5,757
Debt related costs
91
95
184
196
Stock-based compensation expense and
related employer-paid payroll taxes
13,152
7,540
24,635
15,258
Restructuring costs
(9
)
1,872
213
2,396
Adjusted EBITDA
$
119,079
$
110,862
$
230,009
$
215,710
Adjusted EBITDA margin
48.3
%
48.1
%
46.5
%
48.3
%
Reconciliation of Non-GAAP
Revenue to Non-GAAP Revenue on a Constant Currency Basis
(Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
Growth Rate
2020
2019
Growth Rate
(in thousands, except
percentages)
GAAP subscription revenue
$
95,840
$
78,780
21.7
%
$
189,475
$
150,345
26.0
%
Impact of purchase accounting
560
1,819
(2.1
)
2,073
1,819
(0.1
)
Non-GAAP subscription revenue
96,400
80,599
19.6
191,548
152,164
25.9
Estimated foreign currency impact(1)
1,210
—
1.5
2,148
—
1.4
Non-GAAP subscription revenue on a
constant currency basis
$
97,610
$
80,599
21.1
%
$
193,696
$
152,164
27.3
%
GAAP maintenance revenue
$
116,498
$
110,793
5.1
%
$
232,847
$
217,085
7.3
%
Impact of purchase accounting
—
—
—
—
—
—
Non-GAAP maintenance revenue
116,498
110,793
5.1
232,847
217,085
7.3
Estimated foreign currency impact(1)
440
—
0.4
1,010
—
0.5
Non-GAAP maintenance revenue on a constant
currency basis
$
116,938
$
110,793
5.5
%
$
233,857
$
217,085
7.7
%
GAAP total recurring revenue
$
212,338
$
189,573
12.0
%
$
422,322
$
367,430
14.9
%
Impact of purchase accounting
560
1,819
(0.8
)
2,073
1,819
—
Non-GAAP total recurring revenue
212,898
191,392
11.2
424,395
369,249
14.9
Estimated foreign currency impact(1)
1,650
—
0.9
3,158
—
0.9
Non-GAAP total recurring revenue on a
constant currency basis
$
214,548
$
191,392
12.1
%
$
427,553
$
369,249
15.8
%
GAAP license revenue
$
33,677
$
39,175
(14.0
)%
$
70,643
$
77,110
(8.4
)%
Impact of purchase accounting
—
—
—
—
—
—
Non-GAAP license revenue
33,677
39,175
(14.0
)
70,643
77,110
(8.4
)
Estimated foreign currency impact(1)
171
—
0.4
383
—
0.5
Non-GAAP license revenue on a constant
currency basis
$
33,848
$
39,175
(13.6
)%
$
71,026
$
77,110
(7.9
)%
Total GAAP revenue
$
246,015
$
228,748
7.5
%
$
492,965
$
444,540
10.9
%
Impact of purchase accounting
560
1,819
(0.6
)
2,073
1,819
—
Non-GAAP total revenue
246,575
230,567
6.9
495,038
446,359
10.9
Estimated foreign currency impact(1)
1,821
—
0.8
3,541
—
0.8
Non-GAAP total revenue on a constant
currency basis
$
248,396
$
230,567
7.7
%
$
498,579
$
446,359
11.7
________ (1) The estimated foreign currency impact is calculated
using the average foreign currency exchange rates in the comparable
prior year monthly periods and applying those rates to
foreign-denominated revenue in the corresponding monthly periods in
the three and six months ended June 30, 2020.
Reconciliation of 2020
Non-GAAP Revenue to Adjusted Non-GAAP Revenue Assuming Rates in
Previously Issued Outlook (Unaudited)
Three Months
Ended June 30,
2020
(in thousands)
Total non-GAAP revenue
$
246,575
Estimated foreign currency impact(2)
(1,590
)
Total adjusted non-GAAP revenue assuming
foreign currency exchange rates used in previously issued
outlook
$
244,985
________ (2) Estimated foreign currency impact represents the
impact of the difference between the actual foreign currency
exchange rates in the period used to calculate our three months
ended June 30, 2020 actual non-GAAP results and the rates assumed
in our previously issued outlook dated April 30, 2020.
Reconciliation of Non-GAAP
Revenue Outlook
Q3 2020
Low
High
Low(2)
High(2)
(in millions, except
year-over-year percentages)
Total non-GAAP revenue
$
254
$
259
5
%
7
%
Estimated foreign currency impact
(2
)
(2
)
(1
)
(1
)
Non-GAAP total revenue on a constant
currency basis(1)
$
252
$
257
4
%
6
%
Full Year 2020
Low
High
Low(2)
High(2)
(in millions, except
year-over-year percentages)
Total non-GAAP revenue
$
1,008
$
1,018
7
%
8
%
Estimated foreign currency impact
(1
)
(1
)
—
—
Non-GAAP total revenue on a constant
currency basis(1)
$
1,007
$
1,017
7
%
8
%
________ (1) Non-GAAP revenue on a constant currency basis is
calculated using the average foreign currency exchange rates in the
comparable prior year periods and applying those rates to the
estimated foreign-denominated revenue in the corresponding periods
rather than the forecasted foreign currency exchange rates for the
future periods. (2) Revenue growth rates are calculated using
non-GAAP revenue from the comparable prior period.
Reconciliation of Unlevered
Free Cash Flow (Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
(in thousands)
Net cash provided by operating
activities
$
105,719
$
78,289
$
184,090
$
141,652
Capital expenditures(1)
(8,075
)
(5,444
)
(16,305
)
(11,254
)
Free cash flow
97,644
72,845
167,785
130,398
Cash paid for interest and other debt
related items
16,166
25,984
38,111
50,608
Cash paid for acquisition and other costs,
restructuring costs, employer-paid payroll taxes on stock awards
and other one time items
2,734
6,234
6,445
10,620
Unlevered free cash flow (excluding
forfeited tax shield)
116,544
105,063
212,341
191,626
Forfeited tax shield related to interest
payments(2)
(3,640
)
(5,923
)
(8,584
)
(11,644
)
Unlevered free cash flow
$
112,904
$
99,140
$
203,757
$
179,982
_______________ (1) Includes purchases of property and equipment
and purchases of intangible assets. (2) Forfeited tax shield
related to interest payments assumes a statutory rate of 22.5% for
the three and six months ended June 30, 2020 and 2019.
Supplemental Reconciliation of
Compound Annual Growth Rate (CAGR) on GAAP Revenue to Non-GAAP
Revenue on a Constant Currency Basis (Unaudited)
Three Months Ended
March 31, 2018
June 30, 2020
CAGR(2)
(in millions, except
percentages)
GAAP total revenue - Core IT
Management
$
142.1
$
172.7
9
%
Impact of purchase accounting
1.3
0.6
Non-GAAP total revenue - Core IT
Management
143.4
173.3
9
%
Estimated foreign currency impact(1)
(3.0
)
0.5
Non-GAAP total revenue on a constant
currency basis - Core IT Management
$
140.4
$
173.8
10
%
GAAP total revenue - MSP
$
54.8
$
73.3
14
%
Impact of purchase accounting
0.2
—
Non-GAAP total revenue - MSP
55.0
73.3
14
%
Estimated foreign currency impact(1)
(3.1
)
1.3
Non-GAAP total revenue on a constant
currency basis - MSP
$
51.9
$
74.6
17
%
GAAP total revenue
$
196.9
$
246.0
10
%
Impact of purchase accounting
1.5
0.6
Non-GAAP total revenue
198.4
246.6
10
%
Estimated foreign currency impact(1)
(6.1
)
1.8
Non-GAAP total revenue on a constant
currency basis
$
192.3
$
248.4
12
%
________ (1) The estimated foreign currency impact is calculated
using the average foreign currency exchange rates in the comparable
prior year monthly periods and applying those rates to
foreign-denominated revenue in the corresponding monthly periods in
the current year monthly periods. (2) Compound Annual Growth Rate
(CAGR) is calculated based on total revenue, as adjusted if
applicable, for the period from the three months ended March 31,
2018 to the three months ended June 30, 2020.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200806005923/en/
Investors: Howard Ma Phone: 512.498.6707
ir@solarwinds.com
Media: Tiffany Nels Phone: 512.682.9535
pr@solarwinds.com
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