SolarWinds Announces Third Quarter 2019 Results

AUSTIN, Texas--()--SolarWinds Corporation (NYSE: SWI), a leading provider of powerful and affordable IT management software, today reported results for its third quarter ended September 30, 2019.

On a GAAP basis, reflecting our adoption of the new standard ASC 606 effective January 1, 2019:

  • Total revenue for the third quarter of $240.5 million, representing 12.8% growth on a reported basis.
  • Total recurring revenue for the third quarter of $196.9 million, representing 16.1% growth on a reported basis. Total recurring revenue includes:
    • Maintenance revenue for the third quarter of $113.8 million, representing 11.7% growth on a reported basis.
    • Subscription revenue for the third quarter of $83.1 million, representing 22.8% growth on a reported basis.
  • Net income for the third quarter of $4.4 million.

On a non-GAAP basis:

  • Non-GAAP total revenue for the third quarter of $242.7 million, representing 13.4% year-over-year growth on a reported basis and 14.6% year-over-year growth on a constant currency basis.
  • Non-GAAP total recurring revenue for the third quarter of $199.1 million, representing 16.9% year-over-year growth on a reported basis and 18.3% year-over-year growth on a constant currency basis. Non-GAAP total recurring revenue includes:
    • Non-GAAP maintenance revenue for the third quarter of $113.8 million, representing 11.1% growth on a reported basis.
    • Non-GAAP subscription revenue for the third quarter of $85.3 million, representing 25.7% growth on a reported basis.
  • Adjusted EBITDA for the third quarter of $115.0 million, representing a margin of 47.4% of non-GAAP total revenue.

For a reconciliation of our GAAP to non-GAAP results including adjustments for the impact of ASC 606, please see the tables below.

We had a solid third quarter that included non-GAAP total revenue of $242.7 million, representing constant currency growth of 15% and Adjusted EBITDA of $115.0 million, representing a margin of 47%,” said Kevin Thompson, SolarWinds’ President & Chief Executive Officer. “We are pleased with how our business has performed through the first nine months of the year. Non-GAAP total revenue has grown 14% on a constant currency basis reflecting the solid position we have created in the market as the hybrid IT management provider of choice for IT Operations team and managed service providers. While our reputation is firmly rooted in our 20 years of network management expertise, our commitment to solving today’s IT management problems the way technology pros want them solved has helped us to develop a unique approach to hybrid IT environments and the IT Operations Management spectrum that directly addresses our customers’ needs and allows us to expand and continue to capture market share.”

In addition to solid year-to-date non-GAAP total revenue growth, non-GAAP recurring revenue has grown 16% on a constant currency basis and non-GAAP recurring revenue accounted for 82% of total non-GAAP revenue for the first nine months of the year. Included within recurring revenue, our non-GAAP subscription revenue has grown 24% year-to-date on a constant currency basis primarily driven by our MSP business along with the contribution from SolarWinds Service Desk, which was acquired from Samanage in the second quarter. Despite the scale and pace of growth of our subscription revenue stream, we continued to maintain Adjusted EBITDA margins that are among the highest within the public software industry, reflecting the efficiencies of our business model and the discipline with which we operate,” added Bart Kalsu, SolarWinds' Executive Vice President and Chief Financial Officer.

Additional highlights for the third quarter of 2019 include:

  • SolarWinds expands IT Service Management offering with the launch of SolarWinds Discovery. SolarWinds Discovery is a SaaS-based solution providing organizations with an accurate, powerful, and cost-effective way to discover, map, and manage their software and hardware assets, and improve their service delivery. SolarWinds Discovery fully integrates with SolarWinds Service Desk to provide insights allowing IT professionals to proactively address potential risks to IT services and stay more compliant with software licensing contracts.
  • TrustRadius, a trusted customer review platform for B2B technology has named four SolarWinds solutions as 2019 Top Rated Products based on reviews from customers and users. These solutions include SolarWinds Server & Application Monitor (SAM), Database Performance Analyzer (DPA), Visualization Manager (VMAN), and Network Performance Monitor (NPM).

Balance Sheet

At September 30, 2019, total cash and cash equivalents were $221.1 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 October 30, 2019, SolarWinds is providing its financial outlook for the fourth quarter of 2019 and full year 2019. 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, for the fourth quarter of 2019 and for the full year 2019. These non-GAAP financial measures exclude, among other items mentioned below, stock-based compensation expense and related employer-paid payroll taxes, amortization 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 Fourth Quarter of 2019

SolarWinds’ management currently expects to achieve the following results for the fourth quarter of 2019 under ASC 606:

  • Non-GAAP total revenue in the range of $249.0 to $254.5 million, representing growth over the fourth quarter of 2018 non-GAAP total revenue of 12.4% to 14.8%, or 13.3% to 16.0% on a constant currency basis assuming the same average foreign currency exchange rates as those in the fourth quarter of 2018.
  • Adjusted EBITDA in the range of $120.0 to $122.0 million, representing approximately 48.0% of non-GAAP total revenue.
  • Non-GAAP diluted earnings per share of $0.22 to $0.23.
  • Weighted average outstanding diluted shares of approximately 312.2 million.

Financial Outlook for Full Year 2019

SolarWinds’ management currently expects to achieve the following results for the full year 2019 under ASC 606:

  • Non-GAAP total revenue in the range of $938.1 to $943.6 million, representing growth over 2018 non-GAAP revenue of 12.1% to 12.8%, or 13.7% to 14.3% on a constant currency basis assuming the same average foreign currency exchange rates as those in 2018.
  • Adjusted EBITDA in the range of $450.7 to $452.7 million, representing approximately 48.0% of non-GAAP total revenue.
  • Non-GAAP diluted earnings per share of $0.82 to $0.83.
  • Weighted average outstanding diluted shares of approximately 311.5 million.

Additional details on our outlook will be provided on the conference call.

Upcoming Analyst Day

SolarWinds will host Analyst Day on December 11, 2019 in New York, NY to discuss its business and strategic objectives.

An audio webcast will be available on the SolarWinds Investor Relations website at the time of the presentation and for a limited time thereafter at http://investors.solarwinds.com.

Conference Call and Webcast

In conjunction with this announcement, SolarWinds will host a conference call today to discuss its financial results and its business at 4:00 p.m. CT (5:00 p.m. ET/2:00 p.m. PT). A live webcast of 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 fourth quarter and full year 2019 and our market share. 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 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; (b) the inability to sell products to new customers or to sell additional products or upgrades to our existing customers; (c) any decline in our renewal or net retention rates; (d) our inability to successfully identify, complete, and integrate acquisitions and manage our growth effectively, including our integration of the Samanage acquisition; (e) risks associated with our international operations; (f) our status as a controlled company; (g) the possibility that general economic conditions or uncertainty cause information technology spending to be reduced or purchasing decisions to be delayed; (h) the timing and success of new product introductions and product upgrades by SolarWinds or its competitors; (i) 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; (j) potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity; and (k) 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, 2018 filed on February 25, 2019 and the Form 10-Q that SolarWinds anticipates filing on or before November 14, 2019. 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.

Adoption of the New Revenue Recognition Standard

Effective January 1, 2019, we adopted FASB Accounting Standards Codification (ASC) No. 2014-09 “Revenue from Contracts with Customers,” or ASC 606, using the modified retrospective method. Results for reporting periods beginning after January 1, 2019 are presented in compliance with the new revenue recognition standard ASC 606. Historical financial results for reporting periods prior to 2019 are presented in conformity with amounts previously disclosed under the prior revenue recognition standard, ASC 605 “Revenue Recognition,” or ASC 605. In the interest of comparability during the transition year to ASC 606, we present our financial results for the third quarter in accordance with both ASC 606 and ASC 605. Unless stated otherwise, year-over-year growth rates are calculated using financial results under ASC 606 for the current period and financial results under ASC 605 for the corresponding period in the prior year.

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 primarily from our take private transaction in early 2016 and the acquisitions of LOGICnow and Samanage. 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 Sponsor related costs and restructuring charges and other. 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 Sponsor Related 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. 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 Sponsor related 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 Charges and Other. We provide non-GAAP information that excludes restructuring charges 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 charges related to the separation of employment with executives of the Company. These charges 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 charges 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 non-GAAP weighted average outstanding common shares, pro forma, which is calculated as if to reflect the conversion of Class A Common Stock and shares issued for accrued dividends and shares issued at our initial public offering as if each occurred at the beginning of each respective period.

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 and other charges, acquisition and Sponsor related costs, interest expense, net, 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 our acquisition, 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 Sponsor related 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.

© 2019 SolarWinds Worldwide, LLC. All rights reserved.

SolarWinds Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share and per share information)

(Unaudited)

 

 

September 30,

 

December 31,

 

2019

 

2018

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

221,060

 

 

$

382,620

 

Accounts receivable, net of allowances of $3,469 and $3,196 as of September 30, 2019 and December 31, 2018, respectively

102,233

 

 

100,528

 

Income tax receivable

708

 

 

893

 

Prepaid and other current assets

24,108

 

 

16,267

 

Total current assets

348,109

 

 

500,308

 

Property and equipment, net

35,694

 

 

35,864

 

Deferred taxes

6,690

 

 

6,873

 

Goodwill

3,929,602

 

 

3,683,961

 

Intangible assets, net

815,801

 

 

956,261

 

Other assets, net

20,180

 

 

11,382

 

Total assets

$

5,156,076

 

 

$

5,194,649

 

Liabilities and stockholders’ equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

10,345

 

 

$

9,742

 

Accrued liabilities and other

47,933

 

 

52,055

 

Accrued interest payable

262

 

 

290

 

Income taxes payable

18,460

 

 

15,682

 

Current portion of deferred revenue

293,365

 

 

270,433

 

Current debt obligation

19,900

 

 

19,900

 

Total current liabilities

390,265

 

 

368,102

 

Long-term liabilities:

 

 

 

Deferred revenue, net of current portion

30,706

 

 

25,699

 

Non-current deferred taxes

114,919

 

 

147,144

 

Other long-term liabilities

130,565

 

 

133,532

 

Long-term debt, net of current portion

1,896,062

 

 

1,904,072

 

Total liabilities

2,562,517

 

 

2,578,549

 

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

Common stock, $0.001 par value: 1,000,000,000 shares authorized and 307,029,150 and 304,942,415 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively

307

 

 

305

 

Preferred stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively

 

 

 

Additional paid-in capital

3,037,845

 

 

3,011,080

 

Accumulated other comprehensive income (loss)

(43,951

)

 

17,043

 

Accumulated deficit

(400,642

)

 

(412,328

)

Total stockholders’ equity

2,593,559

 

 

2,616,100

 

Total liabilities and stockholders’ equity

$

5,156,076

 

 

$

5,194,649

 

SolarWinds Corporation

Condensed Consolidated Statements of Operations

(In thousands, except per share information)

(Unaudited)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Revenue:

 

 

 

 

 

 

 

Subscription

$

83,122

 

 

$

67,713

 

 

$

233,467

 

 

$

196,004

 

Maintenance

113,755

 

 

101,817

 

 

330,840

 

 

297,584

 

Total recurring revenue

196,877

 

 

169,530

 

 

564,307

 

 

493,588

 

License

43,613

 

 

43,747

 

 

120,723

 

 

118,320

 

Total revenue

240,490

 

 

213,277

 

 

685,030

 

 

611,908

 

Cost of revenue:

 

 

 

 

 

 

 

Cost of recurring revenue

20,614

 

 

18,022

 

 

58,159

 

 

52,617

 

Amortization of acquired technologies

44,172

 

 

43,835

 

 

131,961

 

 

132,121

 

Total cost of revenue

64,786

 

 

61,857

 

 

190,120

 

 

184,738

 

Gross profit

175,704

 

 

151,420

 

 

494,910

 

 

427,170

 

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing

68,290

 

 

56,926

 

 

193,698

 

 

166,022

 

Research and development

29,575

 

 

23,274

 

 

82,468

 

 

71,800

 

General and administrative

25,405

 

 

19,597

 

 

72,382

 

 

59,849

 

Amortization of acquired intangibles

18,015

 

 

16,507

 

 

51,818

 

 

50,288

 

Total operating expenses

141,285

 

 

116,304

 

 

400,366

 

 

347,959

 

Operating income

34,419

 

 

35,116

 

 

94,544

 

 

79,211

 

Other income (expense):

 

 

 

 

 

 

 

Interest expense, net

(27,418

)

 

(35,627

)

 

(82,977

)

 

(112,103

)

Other income (expense), net

287

 

 

(13

)

 

506

 

 

(74,476

)

Total other income (expense)

(27,131

)

 

(35,640

)

 

(82,471

)

 

(186,579

)

Income (loss) before income taxes

7,288

 

 

(524

)

 

12,073

 

 

(107,368

)

Income tax expense (benefit)

2,895

 

 

(126

)

 

6,654

 

 

(20,045

)

Net income (loss)

$

4,393

 

 

$

(398

)

 

$

5,419

 

 

$

(87,323

)

Net income (loss) available to common stockholders

$

4,350

 

 

$

(75,006

)

 

$

5,359

 

 

$

(303,944

)

Net income (loss) available to common stockholders per share:

 

 

 

 

 

 

 

Basic earnings (loss) per share

$

0.01

 

 

$

(0.73

)

 

$

0.02

 

 

$

(2.98

)

Diluted earnings (loss) per share

$

0.01

 

 

$

(0.73

)

 

$

0.02

 

 

$

(2.98

)

Weighted-average shares used to compute net income (loss) available to commons stockholders per share:

 

 

 

 

 

 

 

Shares used in computation of basic earnings (loss) per share

306,890

 

 

102,078

 

 

306,381

 

 

101,915

 

Shares used in computation of diluted earnings (loss) per share

311,102

 

 

102,078

 

 

310,607

 

 

101,915

 

SolarWinds Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Cash flows from operating activities

 

 

 

 

 

 

 

Net income (loss)

$

4,393

 

 

$

(398

)

 

$

5,419

 

 

$

(87,323

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

66,647

 

 

64,289

 

 

196,687

 

 

193,903

 

Provision for doubtful accounts

543

 

 

826

 

 

1,494

 

 

1,991

 

Stock-based compensation expense

8,832

 

 

160

 

 

23,917

 

 

332

 

Amortization of debt issuance costs

2,324

 

 

2,564

 

 

6,915

 

 

9,272

 

Loss on extinguishment of debt

 

 

 

 

 

 

60,590

 

Deferred taxes

(9,340

)

 

(1,009

)

 

(29,692

)

 

(14,085

)

(Gain) loss on foreign currency exchange rates

(807

)

 

202

 

 

(907

)

 

12,747

 

Other non-cash expenses

472

 

 

119

 

 

58

 

 

1,451

 

Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business combinations:

 

 

 

 

 

 

 

Accounts receivable

(8,070

)

 

(14,121

)

 

(781

)

 

(13,963

)

Income taxes receivable

(20

)

 

278

 

 

129

 

 

(131

)

Prepaid and other assets

(71

)

 

(824

)

 

(6,243

)

 

(1,931

)

Accounts payable

(1,085

)

 

(4,878

)

 

357

 

 

(3,958

)

Accrued liabilities and other

(318

)

 

5,771

 

 

(5,327

)

 

9,745

 

Accrued interest payable

(584

)

 

390

 

 

(28

)

 

(10,516

)

Income taxes payable

2,029

 

 

(348

)

 

(2,356

)

 

(16,112

)

Deferred revenue

9,564

 

 

6,287

 

 

26,299

 

 

22,291

 

Other long-term liabilities

685

 

 

(351

)

 

905

 

 

1,779

 

Net cash provided by operating activities

75,194

 

 

58,957

 

 

216,846

 

 

166,082

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

(1,832

)

 

(3,538

)

 

(10,606

)

 

(12,794

)

Purchases of intangible assets

(1,121

)

 

(781

)

 

(3,601

)

 

(2,082

)

Acquisitions, net of cash acquired

 

 

(47,588

)

 

(349,504

)

 

(60,578

)

Proceeds from sale of cost method investment and other

2,512

 

 

 

 

4,174

 

 

10,715

 

Net cash used in investing activities

(441

)

 

(51,907

)

 

(359,537

)

 

(64,739

)

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from issuance of common stock under employee stock purchase plan and incentive restricted stock

1,080

 

 

 

 

1,080

 

 

1,723

 

Repurchase of common stock and incentive restricted stock

(241

)

 

(516

)

 

(382

)

 

(568

)

Exercise of stock options

165

 

 

12

 

 

422

 

 

13

 

Premium paid on debt extinguishment

 

 

 

 

 

 

(22,725

)

Proceeds from credit agreement

 

 

 

 

35,000

 

 

626,950

 

Repayments of borrowings from credit agreement

(4,975

)

 

(4,975

)

 

(49,925

)

 

(694,925

)

Payment of debt issuance costs

 

 

 

 

 

 

(5,561

)

Payment for deferred offering costs

 

 

(1,185

)

 

 

 

(2,194

)

Net cash used in financing activities

(3,971

)

 

(6,664

)

 

(13,805

)

 

(97,287

)

Effect of exchange rate changes on cash and cash equivalents

(5,012

)

 

(131

)

 

(5,064

)

 

(3,439

)

Net increase (decrease) in cash and cash equivalents

65,770

 

 

255

 

 

(161,560

)

 

617

 

Cash and cash equivalents

 

 

 

 

 

 

 

Beginning of period

155,290

 

 

278,078

 

 

382,620

 

 

277,716

 

End of period

$

221,060

 

 

$

278,333

 

 

$

221,060

 

 

$

278,333

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Cash paid for interest

$

25,729

 

 

$

32,987

 

 

$

77,478

 

 

$

114,148

 

Cash paid for income taxes

$

9,176

 

$

188

 

$

35,643

 

$

8,045

SolarWinds Corporation

Reconciliation of Financial Results ASC 606 to ASC 605

(Unaudited)

 

 

Three Months Ended September 30, 2019

 

Nine Months Ended September 30, 2019

 

As reported
(ASC 606)

 

ASC 606 impact

 

Without adoption of
ASC 606
(ASC 605)

 

As reported
(ASC 606)

 

ASC 606 impact

 

Without adoption of

ASC 606
(ASC 605)

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Subscription

$

83,122

 

 

$

12

 

 

$

83,134

 

 

$

233,467

 

 

$

366

 

 

$

233,833

 

Maintenance

113,755

 

 

298

 

 

114,053

 

 

330,840

 

 

777

 

 

331,617

 

Total recurring revenue

196,877

 

 

310

 

 

197,187

 

 

564,307

 

 

1,143

 

 

565,450

 

License

43,613

 

 

(1,161

)

 

42,452

 

 

120,723

 

 

(1,825

)

 

118,898

 

Total revenue

$

240,490

 

 

$

(851

)

 

$

239,639

 

 

$

685,030

 

 

$

(682

)

 

$

684,348

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses(1)

141,285

 

 

1,361

 

 

142,646

 

 

400,366

 

 

3,952

 

 

404,318

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

4,393

 

 

$

(2,212

)

 

$

2,181

 

 

$

5,419

 

 

$

(4,634

)

 

$

785

 

_______

(1)

Adjustment represents the impact of the capitalization and amortization of sales commissions related to ASC 606. These adjustments are recorded in the sales and marketing line item in our condensed consolidated statements of operations.

SolarWinds Corporation

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

ASC 606

 

ASC 606 impact

 

ASC 605

 

ASC 605

 

ASC 606

 

ASC 606 impact

 

ASC 605

 

ASC 605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except margin data)

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP subscription revenue

$

83,122

 

 

$

12

 

 

$

83,134

 

 

$

67,713

 

 

$

233,467

 

 

$

366

 

 

$

233,833

 

 

$

196,004

 

Impact of purchase accounting

2,215

 

 

 

 

2,215

 

 

154

 

 

4,034

 

 

 

 

4,034

 

 

1,116

 

Non-GAAP subscription revenue

85,337

 

 

12

 

 

85,349

 

 

67,867

 

 

237,501

 

 

366

 

 

237,867

 

 

197,120

 

GAAP maintenance revenue

113,755

 

 

298

 

 

114,053

 

 

101,817

 

 

330,840

 

 

777

 

 

331,617

 

 

297,584

 

Impact of purchase accounting

 

 

 

 

 

 

574

 

 

 

 

 

 

 

 

2,173

 

Non-GAAP maintenance revenue

113,755

 

 

298

 

 

114,053

 

 

102,391

 

 

330,840

 

 

777

 

 

331,617

 

 

299,757

 

GAAP total recurring revenue

196,877

 

 

310

 

 

197,187

 

 

169,530

 

 

564,307

 

 

1,143

 

 

565,450

 

 

493,588

 

Impact of purchase accounting

2,215

 

 

 

 

2,215

 

 

728

 

 

4,034

 

 

 

 

4,034

 

 

3,289

 

Non-GAAP total recurring revenue

199,092

 

 

310

 

 

199,402

 

 

170,258

 

 

568,341

 

 

1,143

 

 

569,484

 

 

496,877

 

GAAP license revenue

43,613

 

 

(1,161

)

 

42,452

 

 

43,747

 

 

120,723

 

 

(1,825

)

 

118,898

 

 

118,320

 

Impact of purchase accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP license revenue

43,613

 

 

(1,161

)

 

42,452

 

 

43,747

 

 

120,723

 

 

(1,825

)

 

118,898

 

 

118,320

 

Total GAAP revenue

$

240,490

 

 

$

(851

)

 

$

239,639

 

 

$

213,277

 

 

$

685,030

 

 

$

(682

)

 

$

684,348

 

 

$

611,908

 

Impact of purchase accounting

$

2,215

 

 

$

 

 

$

2,215

 

 

$

728

 

 

$

4,034

 

 

$

 

 

$

4,034

 

 

$

3,289

 

Total non-GAAP revenue

$

242,705

 

 

$

(851

)

 

$

241,854

 

 

$

214,005

 

 

$

689,064

 

 

$

(682

)

 

$

688,382

 

 

$

615,197

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP cost of revenue

$

64,786

 

 

 

 

$

64,786

 

 

$

61,857

 

 

$

190,120

 

 

 

 

$

190,120

 

 

$

184,738

 

Stock-based compensation expense and related employer-paid payroll taxes

(402

)

 

 

 

(402

)

 

(2

)

 

(1,188

)

 

 

 

(1,188

)

 

(7

)

Amortization of acquired technologies

(44,172

)

 

 

 

(44,172

)

 

(43,835

)

 

(131,961

)

 

 

 

(131,961

)

 

(132,121

)

Acquisition and Sponsor related costs

(41

)

 

 

 

(41

)

 

(73

)

 

(139

)

 

 

 

(139

)

 

(235

)

Restructuring costs and other

(14

)

 

 

 

(14

)

 

 

 

(22

)

 

 

 

(22

)

 

 

Non-GAAP cost of revenue

$

20,157

 

 

 

 

$

20,157

 

 

$

17,947

 

 

$

56,810

 

 

 

 

$

56,810

 

 

$

52,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP gross profit

$

175,704

 

 

$

(851

)

 

$

174,853

 

 

$

151,420

 

 

$

494,910

 

 

$

(682

)

 

$

494,228

 

 

$

427,170

 

Impact of purchase accounting

2,215

 

 

 

 

2,215

 

 

728

 

 

4,034

 

 

 

 

4,034

 

 

3,289

 

Stock-based compensation expense and related employer-paid payroll taxes

402

 

 

 

 

402

 

 

2

 

 

1,188

 

 

 

 

1,188

 

 

7

 

Amortization of acquired technologies

44,172

 

 

 

 

44,172

 

 

43,835

 

 

131,961

 

 

 

 

131,961

 

 

132,121

 

Acquisition and Sponsor related costs

41

 

 

 

 

41

 

 

73

 

 

139

 

 

 

 

139

 

 

235

 

Restructuring costs and other

14

 

 

 

 

14

 

 

 

 

22

 

 

 

 

22

 

 

 

Non-GAAP gross profit

$

222,548

 

 

$

(851

)

 

$

221,697

 

 

$

196,058

 

 

$

632,254

 

 

$

(682

)

 

$

631,572

 

 

$

562,822

 

GAAP gross margin

73.1

%

 

 

 

73.0

%

 

71.0

%

 

72.2

%

 

 

 

72.2

%

 

69.8

%

Non-GAAP gross margin

91.7

%

 

 

 

91.7

%

 

91.6

%

 

91.8

%

 

 

 

91.7

%

 

91.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP sales and marketing expense

$

68,290

 

 

$

1,361

 

 

$

69,651

 

 

$

56,926

 

 

$

193,698

 

 

$

3,952

 

 

$

197,650

 

 

$

166,022

 

Stock-based compensation expense and related employer-paid payroll taxes

(2,700

)

 

 

 

(2,700

)

 

(115

)

 

(7,968

)

 

 

 

(7,968

)

 

(234

)

Acquisition and Sponsor related costs

(435

)

 

 

 

(435

)

 

(793

)

 

(1,664

)

 

 

 

(1,664

)

 

(2,118

)

Restructuring costs and other

(327

)

 

 

 

(327

)

 

 

 

(660

)

 

 

 

(660

)

 

(45

)

Non-GAAP sales and marketing expense

$

64,828

 

 

$

1,361

 

 

$

66,189

 

 

$

56,018

 

 

$

183,406

 

 

$

3,952

 

 

$

187,358

 

 

$

163,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP research and development expense

$

29,575

 

 

 

 

$

29,575

 

 

$

23,274

 

 

$

82,468

 

 

 

 

$

82,468

 

 

$

71,800

 

Stock-based compensation expense and related employer-paid payroll taxes

(2,650

)

 

 

 

(2,650

)

 

(21

)

 

(6,301

)

 

 

 

(6,301

)

 

(48

)

Acquisition and Sponsor related costs

(201

)

 

 

 

(201

)

 

(535

)

 

(754

)

 

 

 

(754

)

 

(1,980

)

Restructuring costs and other

(2

)

 

 

 

(2

)

 

 

 

(123

)

 

 

 

(123

)

 

(201

)

Non-GAAP research and development expense

$

26,722

 

 

 

 

$

26,722

 

 

$

22,718

 

 

$

75,290

 

 

 

 

$

75,290

 

 

$

69,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP general and administrative expense

$

25,405

 

 

 

 

$

25,405

 

 

$

19,597

 

 

$

72,382

 

 

 

 

$

72,382

 

 

$

59,849

 

Stock-based compensation expense and related employer-paid payroll taxes

(3,137

)

 

 

 

(3,137

)

 

(22

)

 

(8,690

)

 

 

 

(8,690

)

 

(43

)

Acquisition and Sponsor related costs

(1,023

)

 

 

 

(1,023

)

 

(4,213

)

 

(4,900

)

 

 

 

(4,900

)

 

(12,028

)

Restructuring costs and other

(1,243

)

 

 

 

(1,243

)

 

(281

)

 

(3,177

)

 

 

 

(3,177

)

 

(1,248

)

Non-GAAP general and administrative expense

$

20,002

 

 

 

 

$

20,002

 

 

$

15,081

 

 

$

55,615

 

 

 

 

$

55,615

 

 

$

46,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating expenses

$

141,285

 

 

$

1,361

 

 

$

142,646

 

 

$

116,304

 

 

$

400,366

 

 

$

3,952

 

 

$

404,318

 

 

$

347,959

 

Stock-based compensation expense and related employer-paid payroll taxes

(8,487

)

 

 

 

(8,487

)

 

(158

)

 

(22,959

)

 

 

 

(22,959

)

 

(325

)

Amortization of acquired intangibles

(18,015

)

 

 

 

(18,015

)

 

(16,507

)

 

(51,818

)

 

 

 

(51,818

)

 

(50,288

)

Acquisition and Sponsor related costs

(1,659

)

 

 

 

(1,659

)

 

(5,541

)

 

(7,318

)

 

 

 

(7,318

)

 

(16,126

)

Restructuring costs and other

(1,572

)

 

 

 

(1,572

)

 

(281

)

 

(3,960

)

 

 

 

(3,960

)

 

(1,494

)

Non-GAAP operating expenses

$

111,552

 

 

$

1,361

 

 

$

112,913

 

 

$

93,817

 

 

$

314,311

 

 

$

3,952

 

 

$

318,263

 

 

$

279,726

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating income

$

34,419

 

 

$

(2,212

)

 

$

32,207

 

 

$

35,116

 

 

$

94,544

 

 

$

(4,634

)

 

$

89,910

 

 

$

79,211

 

Impact of purchase accounting

2,215

 

 

 

 

2,215

 

 

728

 

 

4,034

 

 

 

 

4,034

 

 

3,289

 

Stock-based compensation expense and related employer-paid payroll taxes

8,889

 

 

 

 

8,889

 

 

160

 

 

24,147

 

 

 

 

24,147

 

 

332

 

Amortization of acquired technologies

44,172

 

 

 

 

44,172

 

 

43,835

 

 

131,961

 

 

 

 

131,961

 

 

132,121

 

Amortization of acquired intangibles

18,015

 

 

 

 

18,015

 

 

16,507

 

 

51,818

 

 

 

 

51,818

 

 

50,288

 

Acquisition and Sponsor related costs

1,700

 

 

 

 

1,700

 

 

5,614

 

 

7,457

 

 

 

 

7,457

 

 

16,361

 

Restructuring costs and other

1,586

 

 

 

 

1,586

 

 

281

 

 

3,982

 

 

 

 

3,982

 

 

1,494

 

Non-GAAP operating income

$

110,996

 

 

$

(2,212

)

 

$

108,784

 

 

$

102,241

 

 

$

317,943

 

 

$

(4,634

)

 

$

313,309

 

 

$

283,096

 

GAAP operating margin

14.3

%

 

 

 

13.4

%

 

16.5

%

 

13.8

%

 

 

 

13.1

%

 

12.9

%

Non-GAAP operating margin

45.7

%

 

 

 

45.0

%

 

47.8

%

 

46.1

%

 

 

 

45.5

%

 

46.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net income (loss)

$

4,393

 

 

$

(2,212

)

 

$

2,181

 

 

$

(398

)

 

$

5,419

 

 

$

(4,634

)

 

$

785

 

 

$

(87,323

)

Impact of purchase accounting

2,215

 

 

 

 

2,215

 

 

728

 

 

4,034

 

 

 

 

4,034

 

 

3,289

 

Stock-based compensation expense and related employer-paid payroll taxes

8,889

 

 

 

 

8,889

 

 

160

 

 

24,147

 

 

 

 

24,147

 

 

332

 

Amortization of acquired technologies

44,172

 

 

 

 

44,172

 

 

43,835

 

 

131,961

 

 

 

 

131,961

 

 

132,121

 

Amortization of acquired intangibles

18,015

 

 

 

 

18,015

 

 

16,507

 

 

51,818

 

 

 

 

51,818

 

 

50,288

 

Acquisition and Sponsor related costs

1,700

 

 

 

 

1,700

 

 

5,614

 

 

7,457

 

 

 

 

7,457

 

 

16,361

 

Restructuring costs and other

1,586

 

 

 

 

1,586

 

 

281

 

 

3,982

 

 

 

 

3,982

 

 

1,494

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60,590

 

Tax benefits associated with above adjustments

(14,223

)

 

 

 

(14,223

)

 

(12,255

)

 

(41,032

)

 

 

 

(41,032

)

 

(50,747

)

Non-GAAP net income

$

66,747

 

 

$

(2,212

)

 

$

64,535

 

 

$

54,472

 

 

$

187,786

 

 

$

(4,634

)

 

$

183,152

 

 

$

126,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP diluted earnings (loss) per share

$

0.01

 

 

 

 

$

0.01

 

 

$

(0.73

)

 

$

0.02

 

 

 

 

$

 

 

$

(2.98

)

Non-GAAP diluted earnings (loss) per share, pro forma

$

0.21

 

 

 

 

$

0.21

 

 

$

0.18

 

 

$

0.60

 

 

 

 

$

0.59

 

 

$

0.41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used to compute GAAP diluted earnings (loss) per share

311,102

 

 

 

 

311,102

 

 

102,078

 

 

310,607

 

 

 

 

310,607

 

 

101,915

 

Weighted-average shares used to compute Non-GAAP diluted earnings (loss) per share, pro forma(1)

311,102

 

 

 

 

311,102

 

 

304,890

 

 

310,607

 

 

 

 

310,607

 

 

304,727

 

___________

(1)

For an explanation of the pro forma calculation, please see "Reconciliation of GAAP to Non-GAAP Weighted-Average Outstanding Diluted Common Shares" below.

Reconciliation of GAAP to Non-GAAP Weighted-Average Outstanding Diluted Common Shares

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

(in thousands)

GAAP weighted-average shares used in computing diluted earnings (loss) per share available to common shareholders

311,102

 

 

102,078

 

 

310,607

 

 

101,915

 

 

 

 

 

 

 

 

 

Pro forma dilutive shares:

 

 

 

 

 

 

 

Weighted-average pro forma adjustment to reflect conversion of redeemed convertible Class A Common Stock and shares issued for accrued dividends(1)

 

 

177,812

 

 

 

 

177,812

 

Shares issued at offering(2)

 

 

25,000

 

 

 

 

25,000

 

Non-GAAP weighted-average shares used in computing diluted earnings (loss) per share, pro forma

311,102

 

 

304,890

 

 

310,607

 

 

304,727

 

_____________

(1)

Adjustment to give effect to the conversion of 2,661,015 shares of Class A Common Stock that were outstanding immediately prior to the closing of the initial public offering into 140,053,370 shares of common stock and the conversion of $717.4 million of accrued and unpaid dividends on the Class A Common Stock into 37,758,109 shares of common stock equal to the result of the accrued and unpaid dividends on each share of Class A Common Stock, divided by $19.00 per share, as if the shares had been issued at the beginning of the period.

(2)

Adjustment to give effect to 25.0 million shares issued in connection with the initial public offering retroactively applied as if the shares had been issued at the beginning of the period.

Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

 

 


ASC 606

 

ASC 606 impact

 

ASC 605

 

ASC 605

 


ASC 606

 

ASC 606 impact

 

ASC 605

 

ASC 605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Net income (loss)

$

4,393

 

 

$

(2,212

)

 

$

2,181

 

 

$

(398

)

 

$

5,419

 

 

$

(4,634

)

 

$

785

 

 

$

(87,323

)

Amortization and depreciation

66,647

 

 

 

 

66,647

 

 

64,289

 

 

196,687

 

 

 

 

196,687

 

 

193,903

 

Income tax expense (benefit)

2,895

 

 

 

 

2,895

 

 

(126

)

 

6,654

 

 

 

 

6,654

 

 

(20,045

)

Interest expense, net

27,418

 

 

 

 

27,418

 

 

35,627

 

 

82,977

 

 

 

 

82,977

 

 

112,103

 

Impact of purchase accounting on total revenue

2,215

 

 

 

 

2,215

 

 

728

 

 

4,034

 

 

 

 

4,034

 

 

3,289

 

Unrealized foreign currency (gains) losses(1)

(807

)

 

 

 

(807

)

 

202

 

 

(907

)

 

 

 

(907

)

 

13,704

 

Acquisition and Sponsor related costs

1,700

 

 

 

 

1,700

 

 

5,614

 

 

7,457

 

 

 

 

7,457

 

 

16,361

 

Debt related costs(2)

94

 

 

 

 

94

 

 

105

 

 

290

 

 

 

 

290

 

 

61,838

 

Stock-based compensation expense and related employer-paid payroll taxes

8,889

 

 

 

 

8,889

 

 

160

 

 

24,147

 

 

 

 

24,147

 

 

332

 

Restructuring costs and other

1,586

 

 

 

 

1,586

 

 

281

 

 

3,982

 

 

 

 

3,982

 

 

1,494

 

Adjusted EBITDA

$

115,030

 

 

$

(2,212

)

 

$

112,818

 

 

$

106,482

 

 

$

330,740

 

 

$

(4,634

)

 

$

326,106

 

 

$

295,656

 

Adjusted EBITDA margin

47.4

%

 

 

 

46.6

%

 

49.8

%

 

48.0

%

 

 

 

47.4

%

 

48.1

%

_______________

(1)

Unrealized foreign currency (gains) losses primarily relate to the remeasurement of our intercompany loans and to a lesser extent, unrealized foreign currency (gains) losses on selected assets and liabilities.

(2)

Debt related costs include fees related to our credit agreements, debt refinancing costs and the related write-off of debt issuance costs.

Reconciliation of Non-GAAP Revenue to Non-GAAP Revenue on a Constant Currency Basis

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

Growth Rate

 

2019

 

2018

 

Growth Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except percentages)

GAAP subscription revenue

$

83,122

 

 

$

67,713

 

 

22.8

%

 

$

233,467

 

 

$

196,004

 

 

19.1

%

Impact of purchase accounting

2,215

 

 

154

 

 

2.9

 

 

4,034

 

 

1,116

 

 

1.4

 

Non-GAAP subscription revenue

85,337

 

 

67,867

 

 

25.7

 

 

237,501

 

 

197,120

 

 

20.5

 

Estimated foreign currency impact(1)

1,522

 

 

 

 

2.2

 

 

6,068

 

 

 

 

3.1

 

Non-GAAP subscription revenue on a constant currency basis

$

86,859

 

 

$

67,867

 

 

28.0

%

 

$

243,569

 

 

$

197,120

 

 

23.6

%

 

 

 

 

 

 

 

 

 

 

 

 

GAAP maintenance revenue

$

113,755

 

 

$

101,817

 

 

11.7

%

 

$

330,840

 

 

$

297,584

 

 

11.2

%

Impact of purchase accounting

 

 

574

 

 

(0.6

)

 

 

 

2,173

 

 

(0.8

)

Non-GAAP maintenance revenue

113,755

 

 

102,391

 

 

11.1

 

 

330,840

 

 

299,757

 

 

10.4

 

Estimated foreign currency impact(1)

732

 

 

 

 

0.7

 

 

3,264

 

 

 

 

1.1

 

Non-GAAP maintenance revenue on a constant currency basis

$

114,487

 

 

$

102,391

 

 

11.8

%

 

$

334,104

 

 

$

299,757

 

 

11.5

%

 

 

 

 

 

 

 

 

 

 

 

 

GAAP total recurring revenue

$

196,877

 

 

$

169,530

 

 

16.1

%

 

$

564,307

 

 

$

493,588

 

 

14.3

%

Impact of purchase accounting

2,215

 

 

728

 

 

0.8

 

 

4,034

 

 

3,289

 

 

0.1

 

Non-GAAP total recurring revenue

199,092

 

 

170,258

 

 

16.9

 

 

568,341

 

 

496,877

 

 

14.4

 

Estimated foreign currency impact(1)

2,254

 

 

 

 

1.3

 

 

9,332

 

 

 

 

1.9

 

Non-GAAP total recurring revenue on a constant currency basis

$

201,346

 

 

$

170,258

 

 

18.3

%

 

$

577,673

 

 

$

496,877

 

 

16.3

%

 

 

 

 

 

 

 

 

 

 

 

 

GAAP license revenue

$

43,613

 

 

$

43,747

 

 

(0.3

)%

 

$

120,723

 

 

$

118,320

 

 

2.0

%

Impact of purchase accounting

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP license revenue

43,613

 

 

43,747

 

 

(0.3

)

 

120,723

 

 

118,320

 

 

2.0

 

Estimated foreign currency impact(1)

316

 

 

 

 

0.7

 

 

1,377

 

 

 

 

1.2

 

Non-GAAP license revenue on a constant currency basis

$

43,929

 

 

$

43,747

 

 

0.4

%

 

$

122,100

 

 

$

118,320

 

 

3.2

%

 

 

 

 

 

 

 

 

 

 

 

 

Total GAAP revenue

$

240,490

 

 

$

213,277

 

 

12.8

%

 

$

685,030

 

 

$

611,908

 

 

11.9

%

Impact of purchase accounting

2,215

 

 

728

 

 

0.6

 

 

4,034

 

 

3,289

 

 

0.1

 

Non-GAAP total revenue

242,705

 

 

214,005

 

 

13.4

 

 

689,064

 

 

615,197

 

 

12.0

 

Estimated foreign currency impact(1)

2,570

 

 

 

 

1.2

 

 

10,709

 

 

 

 

1.7

 

Non-GAAP total revenue on a constant currency basis

$

245,275

 

 

$

214,005

 

 

14.6

%

 

$

699,773

 

 

$

615,197

 

 

13.7

%

________

(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 nine months ended September 30, 2019.

Reconciliation of 2019 Non-GAAP Revenue to Adjusted Non-GAAP Revenue

Assuming Rates in Previously Issued Outlook

(Unaudited)

 

 

 

 

 

Three Months Ended

September 30, 2019

 

 

 

(in thousands)

Total non-GAAP revenue

$

242,705

 

Estimated foreign currency impact(2)

(308

)

Total adjusted non-GAAP revenue assuming foreign currency exchange rates used in previously issued outlook

$

242,397

 

________

(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 September 30, 2019 actual non-GAAP results and the rates assumed in our previously issued outlook dated August 1, 2019.

Reconciliation of Non-GAAP Revenue Outlook

 

 

Full Year 2019

 

Low

 

High

 

Low(2)

 

High(2)

 

(in millions, except year-over-year percentages)

Total non-GAAP revenue

$

938

 

 

$

944

 

 

12

%

 

13

%

Estimated foreign currency impact

13

 

 

13

 

 

2

 

 

1

 

Non-GAAP total revenue on a constant currency basis(1)

$

951

 

 

$

957

 

 

14

%

 

14

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q4 2019

 

Low

 

High

 

Low(2)

 

High(2)

 

(in millions, except year-over-year percentages)

Total non-GAAP revenue

$

249

 

 

$

255

 

 

12

%

 

15

%

Estimated foreign currency impact

2

 

 

2

 

 

1

 

 

1

 

Non-GAAP total revenue on a constant currency basis(1)

$

251

 

 

$

257

 

 

13

%

 

16

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Full Year 2019(2)

 

Q4 2019(2)

 

Low

 

High

 

Low

 

High

Non-GAAP subscription revenue growth

22

%

 

22

%

 

26

%

 

28

%

Estimated foreign currency impact

3

 

 

3

 

 

2

 

 

1

 

Non-GAAP subscription revenue growth on a constant currency basis(1)

25

%

 

25

%

 

28

%

 

29

%

 

 

 

 

 

 

 

 

Non-GAAP license and maintenance revenue growth

7

%

 

8

%

 

6

%

 

9

%

Estimated foreign currency impact

2

 

 

1

 

 

1

 

 

1

 

Non-GAAP license and maintenance revenue growth on a constant currency basis(1)

9

%

 

9

%

 

7

%

 

10

%

________

(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

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

(in thousands)

Net cash provided by operating activities

$

75,194

 

 

$

58,957

 

 

$

216,846

 

 

$

166,082

 

Capital expenditures(1)

(2,953

)

 

(4,319

)

 

(14,207

)

 

(14,876

)

Free cash flow

72,241

 

 

54,638

 

 

202,639

 

 

151,206

 

Cash paid for interest and other debt related items

25,771

 

 

32,777

 

 

76,379

 

 

114,594

 

Cash paid for acquisition and Sponsor related costs, restructuring costs, employer-paid payroll taxes on stock awards and other one time items

3,922

 

 

6,541

 

 

14,542

 

 

19,599

 

Unlevered free cash flow (excluding forfeited tax shield)

101,934

 

 

93,956

 

 

293,560

 

 

285,399

 

Forfeited tax shield related to interest payments(2)

(5,789

)

 

(7,422

)

 

(17,433

)

 

(25,683

)

Unlevered free cash flow

$

96,145

 

 

$

86,534

 

 

$

276,127

 

 

$

259,716

 

_______________

(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 nine months ended September 30, 2019 and 2018.

 

Contacts

Investors:
Dave Hafner
Phone: 385.374.7059
ir@solarwinds.com

Media:
Tiffany Nels
Phone: 512.682.9535
pr@solarwinds.com

Release Summary

SolarWinds Corporation (NYSE:SWI), a leading provider of powerful and affordable IT management software, today reported results for its third quarter

Contacts

Investors:
Dave Hafner
Phone: 385.374.7059
ir@solarwinds.com

Media:
Tiffany Nels
Phone: 512.682.9535
pr@solarwinds.com