SolarWinds Announces Third Quarter 2021 Results

AUSTIN, Texas–(BUSINESS WIRE)–#BartKalsu–SolarWinds Corporation (NYSE:SWI), a leading provider of simple, powerful, and secure IT management software, today reported results for its third quarter ended September 30, 2021.

On July 19, 2021, we completed the previously announced separation and distribution of our managed service provider (“MSP” or “N-able”) business into a newly created and separately traded public company, N-able, Inc. After the distribution, we do not beneficially own any shares of common stock in N-able and no longer consolidate N‑able into our financial results for periods ending after July 19, 2021, such that N‑able’s historical financial results through July 19, 2021 are reflected in our consolidated financial statements as discontinued operations. As a result, our financial results described below reflect SolarWinds as a stand-alone business and do not include any contribution from the N-able business.

Third Quarter Financial Highlights from Continuing Operations

Total revenue for the third quarter of $181.3 million, representing 1.9% year-over-year decline and total recurring revenue representing 83.9% of total revenue.¹
Net income for the third quarter of $1.1 million.
Adjusted EBITDA for the third quarter of $75.3 million, representing a margin of 41.5% of total revenue.

For a reconciliation of our GAAP to non-GAAP results, please see the tables below.

“We’re encouraged and pleased with our third quarter results, outperforming our previously provided outlook for non-GAAP total revenue and adjusted EBITDA for the quarter. We continue to make significant progress on a number of key priorities, including customer retention, due to our employees’ dedication, the relevance of our solutions, and our partners’ and customers’ commitment to SolarWinds,” said Sudhakar Ramakrishna, President and Chief Executive Officer, SolarWinds. “As we look ahead to 2022, we’re focused on ensuring we continue to deliver solutions aligned with our customers’ evolving needs and we look forward to sharing our vision for the future at our Analyst Day on November 10, 2021.”

Third Quarter Business Highlights

Released the findings of our eighth-annual industry-wide study, IT Trends Report 2021: Building a Secure Future, examining how technology professionals perceive the evolving state of risk in today’s business environment following the internal impact of COVID-19 IT policies and exposure to external breaches.
Launched SolarWinds^® DBA xPress, a free tool to automate data and schema comparisons, making DataOps adoption and Microsoft^® SQL Server^® cloud migrations easier for all data pros.
Strengthened our international footprint by opening a South Korean entity in Seoul, Korea.
Celebrated the seventh annual IT Professionals’ Day – established by SolarWinds in 2015, IT Pro Day recognizes and celebrates all IT professionals, regardless of discipline. We released findings from our IT Pro Day 2021 survey: Bring IT On, which revealed IT pros’ confidence and pride in their roles. Celebrations included the recognition of our second annual IT Pro Day Awards, which honored the following IT pros, nominated by their peers:
- Rookie of the Year: Praharshita Gaur (Canada)
- Rockstar of the Year: Fabrizio Cabianca (United States)
- IT Mentor of the Year: David M. Williams (Australia)
- Trailblazer Award: Diana Awde (United States)
Hosted our Europe, Middle East, and Africa (EMEA) Virtual Partner Summit 2021 in August, and Asia-Pacific and Japan (APJ) Virtual Partner Summit in September, featuring product strategy sessions, technical and sales accreditation training, and keynote sessions delivered by our global c-suite and leadership team.

Balance Sheet

At September 30, 2021, total cash and cash equivalents were $708.9 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.” Effective July 30, 2021 at 5:00 p.m. ET, SolarWinds effected a 2:1 reverse stock split of its common stock. As a result of the reverse stock split, all share and per share figures contained in the financial statements have been retroactively restated as if the reverse stock split occurred at the beginning of the periods presented.

Financial Outlook

As of October 28, 2021, SolarWinds is providing its financial outlook for the fourth quarter of 2021 and full year 2021. The financial information below represents forward-looking non-GAAP financial information, including an estimate of 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, certain expenses related to the cyberattack that occurred in December 2020 (the “Cyber Incident”), restructuring costs and other 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 2021

SolarWinds’ management currently expects to achieve the following results for the fourth quarter of 2021:

Total revenue in the range of $180.0 to $184.0 million, representing a decline over the fourth quarter of 2020 total revenue from continuing operations of (3)% to (1)%.²
Adjusted EBITDA in the range of $72.0 to $74.0 million, representing approximately 40% of total revenue.
Non-GAAP diluted earnings per share of $0.25 to $0.26.
Weighted average outstanding diluted shares of approximately 160.7 million.

Financial Outlook for Full Year of 2021

SolarWinds’ management currently expects to achieve the following results for the full year of 2021:

Total revenue in the range of $712.0 to $716.0 million, representing a decline over the full year of 2020 total revenue from continuing operations of (1)% to 0%.²
Adjusted EBITDA in the range of $296.9 to $298.9 million, representing approximately 42% of total revenue.
Non-GAAP diluted earnings per share of $1.14 to $1.15.
Weighted average outstanding diluted shares of approximately 160.5 million.

Additional details on the company’s outlook will be provided on the conference call.

Upcoming Analyst Day

SolarWinds will host a virtual Analyst Day on November 10, 2021 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, business and business outlook at 7:30 a.m. CT (8:30 a.m. ET/5:30 a.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 (888) 510-2008 and internationally at +1 (646) 960-0306. To access the live call, please dial in 5-10 minutes before the scheduled start time and enter the conference passcode 2975715. 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 the full year. 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,” “project,” “intend,” “estimate,” “continue,” “may,” 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) risks related to the Cyber Incident, including with respect to (1) the discovery of new or different information regarding the Cyber Incident, including with respect to its scope, the threat actor’s access to SolarWinds’ environments and its related activities during such period, and the related impact on SolarWinds’ systems, products, current or former employees and customers, (2) the possibility that our mitigation and remediation efforts with respect to the Cyber Incident may not be successful, (3) the possibility that additional confidential, proprietary, or personal information, including information of SolarWinds’ current or former employees and customers, was accessed and exfiltrated as a result of the Cyber Incident, (4) numerous financial, legal, reputational and other risks to us related to the Cyber Incident, including risks that the incident or SolarWinds’ response thereto, including with respect to providing notices to any impacted individuals, may result in the loss, compromise or corruption of data and proprietary information, loss of business as a result of termination or non-renewal of agreements or reduced purchases or upgrades of our products, severe reputational damage adversely affecting customer, partner and vendor relationships and investor confidence, increased attrition of personnel and distraction of key and other personnel, U.S. or foreign regulatory investigations and enforcement actions, litigation, indemnity obligations, damages for contractual breach, penalties for violation of applicable laws or regulations, significant costs for remediation and the incurrence of other liabilities, (5) risks that our insurance coverage, including coverage relating to certain security and privacy damages and claim expenses, may not be available or sufficient to compensate for all liabilities we incur related to these matters, (6) the possibility that our steps to secure our internal environment, improve our product development environment and ensure the security and integrity of the software that we deliver to our customers may not be successful or sufficient to protect against future threat actors or attacks or be perceived by existing and prospective customers as sufficient to address the harm caused by the Cyber Incident, (b) other risks related to cyber security, including that we may experience other security incidents or have vulnerabilities in our systems and services exploited, which may result in compromises or breaches of our and our customers’ systems or, theft or misappropriation of our and our customers’ confidential, proprietary or personal information, as well as exposure to legal and other liabilities, including the related risk of higher customer, employee and partner attrition and the loss of key personnel, as well as negative impacts to our sales, renewals and upgrades; (c) risks related to the recently completed spin-off of the N-able business into a newly created and separately traded public company, including that we may not realize some or all of the anticipated strategic, financial, operational, marketing or other benefits from the separation, or such benefits may be delayed by a variety of circumstances, which may not be under our control, we may experience increased difficulties in attracting, retaining and motivating employees or maintaining or initiating relationships with partners, customers and other parties with which we currently do business, or may do business in the future, we could incur significant liability if the separation is determined to be a taxable transaction, potential indemnification liabilities incurred in connection with the separation could materially affect our business and financial results and N-able may fail to perform under various transaction agreements that were executed as part of the separation; (d) the possibility that the global COVID-19 pandemic may adversely affect our business, results of operations and financial condition; (e) any of the following factors either generally or as a result of the impacts of the Cyber Incident or 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: (1) reductions in information technology spending or delays in purchasing decisions by our customers, their end-customers and our prospective customers, (2) the inability to sell products to new customers or to sell additional products or upgrades to our existing customers, (3) any decline in our renewal or net retention rates, (4) 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, (5) the timing and adoption of new products, product upgrades or pricing model changes by SolarWinds or its competitors, (6) potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity, and (7) risks associated with our international operations; (f) the possibility that our operating income could fluctuate and may decline as percentage of revenue as we make further expenditures to support our business or expand our operations; (g) risks related to our evolving focus in our sales motion and challenges and costs associated with selling products to enterprise customers; (h) our inability to successfully identify, complete, and integrate acquisitions and manage our growth effectively; (i) risks associated with our status as a controlled company; and (j) 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, 2020 filed on March 1, 2021, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 filed on May 10, 2021, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 filed on August 6, 2021 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 that SolarWinds anticipates filing on or before November 9, 2021. 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. Unless noted otherwise, all non-GAAP financial measures are derived from our GAAP financial measures from continuing operations.

Non-GAAP Revenue. We define non-GAAP total revenue as total revenue excluding the impact of purchase accounting from acquisitions. The non-GAAP revenue growth rate we provide is calculated using non-GAAP total revenue from the comparable prior period. We monitor this measure to assess our performance because we believe our revenue growth rate would be overstated without this adjustment. We believe presenting non-GAAP total revenue aids in the comparability between periods and in assessing our overall operating performance. For the third quarter of 2021, there was no impact of purchase accounting on revenue so our non-GAAP total revenue is equivalent to our GAAP total revenue.

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 excluding the effect of foreign currency rate fluctuations. To present this information, current period 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 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, restructuring costs and Cyber Incident 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 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. In addition, we exclude certain costs resulting from the spin-off of N-able reported in continuing operations. 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.

Contacts

Investors:
Ashley Hook

Phone: 512.682.9683

ir@solarwinds.com

Media:
Jenne Barbour

Phone: 512.498.6804

pr@solarwinds.com

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