SolarWinds Announces Second Quarter 2023 Results

Rhea-AI Summary

SolarWinds Corporation reported its second-quarter results, with total revenue of $185.0 million, representing 5% year-over-year growth. Net income for the quarter was $0.3 million, and adjusted EBITDA was $79.1 million, with a margin of 43% of total revenue and 18% year-over-year growth. The company highlighted strong performance and raised its full-year outlook.

Positive

• Total revenue for the second quarter grew by 5% year-over-year.
• Adjusted EBITDA margin was 43% of total revenue, with 18% year-over-year growth.
• The company raised its full-year outlook based on strong performance.
• SolarWinds announced the inclusion of artificial intelligence and machine learning capabilities to its IT service management solutions.
• The company hosted the SolarWinds Day: Secure by Design event on Capitol Hill to discuss the importance of public-private partnerships in cybersecurity.
• SolarWinds received recognition and awards for its Next-Generation Build System and its Chief Information Security Officer.
• The company was ranked as a Strong Performer in the Forrester Wave™ report for Process-Centric AI For IT Operations (AIOps).

Negative

• None.

AUSTIN, Texas--(BUSINESS WIRE)-- SolarWinds Corporation (NYSE:SWI), a leading provider of simple, powerful, secure observability and IT management software, today reported results for its second quarter ended June 30, 2023.

Second Quarter Financial Highlights

• Total revenue for the second quarter of $185.0 million, representing 5% year-over-year growth, and total recurring revenue representing 92% of total revenue.
• Net income for the second quarter of $0.3 million.
• Adjusted EBITDA for the second quarter of $79.1 million, representing a margin of 43% of total revenue and 18% year-over-year growth.

Please see the tables below for a reconciliation of our GAAP to non-GAAP results.

“For the second quarter, we once again delivered total revenue and adjusted EBITDA results above the high end of our guidance, highlighting another quarter of 5% year-over-year total revenue growth and strong year-over-year adjusted EBITDA growth of 18%,” said Sudhakar Ramakrishna, President and Chief Executive Officer, SolarWinds. “We are grateful for the trust our customers and partners place in us, and we have experienced continued momentum with our subscription transition and broad portfolio of observability, service management, and database solutions, enabling us to raise our total revenue and adjusted EBITDA outlook for the full year.”

Recent Business Highlights

• SolarWinds announced its inclusion of transformative artificial intelligence and machine learning capabilities to its IT service management (“ITSM”) solutions.
• In June, SolarWinds President and CEO Sudhakar Ramakrishna hosted the SolarWinds Day: Secure by Design event on Capitol Hill, in conjunction with Congressman Darrell Issa, Congressman Raja Krishnamoorthi, and CISA’s Executive Assistant Director for Cybersecurity, Eric Goldstein, to discuss the importance of public-private partnerships and transparent information-sharing to the security of the nation’s collective cyberinfrastructure.
• The SolarWinds Next-Generation Build System, a key component of Secure by Design, was also recognized by the 2023 BIG Innovation Awards and the Cloud Security Awards. The Cloud Security Awards judge stated the company’s cutting-edge technology sets “a new standard for excellence in the industry.”
• SolarWinds Chief Information Security Officer (“CISO”) and VP of Security Tim Brown was awarded CISO of the Year from the Globee Cybersecurity Awards. He was also named a winner of the G2Xchange Disruptive Tech Change Agents Award, which recognizes disruptors and trailblazers leading the transformation of federal IT.
• SolarWinds was ranked as a Strong Performer in the recent Forrester Wave™ report for Process-Centric AI For IT Operations (AIOps), published in Q2 2023.

Balance Sheet

At June 30, 2023, total cash and cash equivalents and short-term investments were $178.2 million, and total debt was $1.2 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 3, 2023, SolarWinds is providing its financial outlook for the third quarter and its updated financial outlook for the full year of 2023. 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 Third Quarter of 2023

SolarWinds’ management currently expects to achieve the following results for the third quarter of 2023:

• Total revenue in the range of $182 to $186 million, representing growth at the midpoint of approximately 3% as compared to the third quarter of 2022 total revenue.
• Adjusted EBITDA of approximately $74 to $76.5 million, representing growth at the midpoint of approximately 7% over the third quarter of 2022 adjusted EBITDA.
• Non-GAAP diluted earnings per share of $0.17 to $0.19.
• Weighted average outstanding diluted shares of approximately 167.3 million.

Financial Outlook for Full Year of 2023

SolarWinds’ management currently expects to achieve the following results for the full year of 2023:

• Total revenue in the range of $740 to $748 million, representing growth at the midpoint of approximately 3% over the full year of 2022 total revenue.
• Adjusted EBITDA of approximately $308 to $313 million, representing growth at the midpoint of approximately 11% over the full year of 2022 adjusted EBITDA.
• Non-GAAP diluted earnings per share of $0.76 to $0.79.
• Weighted average outstanding diluted shares of approximately 166.5 million.

The conference call will provide additional details on the company's outlook.

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 third quarter and the full year 2023. 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) numerous financial, legal, reputational and other risks to us related to the Cyber Incident, including risks that the incident or SolarWinds’ response thereto may result in the loss of business as a result of termination or non-renewal of agreements or reduced purchases or upgrades of our products, reputational damage adversely affecting customer, partner and vendor relationships and investor confidence, increased attrition of personnel and distraction of key and other personnel, indemnity obligations, damages for contractual breach, penalties for violation of applicable laws or regulations, significant costs for remediation and the incurrence of other liabilities, (2) litigation and investigation risks related to the Cyber Incident, including as a result of U.S. regulatory investigations and enforcement actions, including any proceeding that may be commenced against us or our current and former executive officers and employees by the Securities and Exchange Commission, in each case relating to the previously disclosed Wells Notices, and exposure to judgements, fines, settlements and other costs and liabilities related thereto, (3) risks that our insurance coverage may not be sufficient to compensate for all liabilities we incur related to these matters and (4) 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 cybersecurity, including that we may experience other security incidents or have vulnerabilities in our systems and services exploited, whether through the actions or inactions of our employees or otherwise, 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 evolving breadth of our sales motion and challenges, investments and additional costs associated with increased selling efforts toward enterprise customers and adopting a subscription first approach; (d) risks relating to increased investments in, and the timing and success of, our ongoing transformation from monitoring to observability; (e) risks related to any shifts in our revenue mix and the timing of how we recognize revenue as we transition to subscription; (f) risks related to using artificial intelligence in our business and our solutions, including risks related to evolving regulation of artificial intelligence, machine learning and the receipt, collection, storage, processing and transfer of data, (g) potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity; (h) any of the following factors either generally or as a result of the impacts of global macroeconomic conditions, including the war in Ukraine, geopolitical tensions involving China, inflation, instability in the banking sector and financial services industry, foreign currency exchange rates and the effects of the 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 or to convert our existing customers to subscription products, (3) any decline in our renewal or net retention rates or any delay or loss of U.S. government sales, (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 us or our competitors, (6) changes in interest rates, (7) risks associated with our international operations and any international expansion efforts and (8) ongoing sanctions and export controls; (i) the possibility that our operating income could fluctuate and may decline as percentage of revenue as we make further expenditures to expand our product offerings and sales motion in order to support additional growth in our business; (j) our ability to compete effectively in the markets we serve and the risks of increased competition as we enter new markets; (k) our ability to attract, retain and motivate employees; (l) risks related to the spin-off of the N-able business into a newly created and separately traded public company, including that we could incur significant liability if the separation is determined to be a taxable transaction, or that potential indemnification liabilities incurred in connection with the separation could materially affect our business and financial results; (m) our inability to successfully identify, complete, and integrate acquisitions and manage our growth effectively; (n) risks associated with our status as a controlled company; and (o) 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 year ended December 31, 2022 filed on February 22, 2023, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 filed on May 4, 2023, and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 that SolarWinds anticipates filing on or before August 9, 2023. 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 investors and security analysts use these non-GAAP financial measures 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 calculation method 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 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 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 excluding such items as amortization of acquired intangible assets, stock-based compensation expense and related employer-paid payroll taxes, acquisition and other costs, restructuring costs, Cyber Incident costs and goodwill and indefinite-lived intangible asset impairment. 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 including our acquired technologies. 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 expenses 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 we would not have otherwise incurred 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, lease impairments and other costs incurred in connection with the exiting of certain leased facilities and other contracts 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. 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.

• Cyber Incident Costs. We exclude certain expenses resulting from the Cyber Incident. Expenses include costs to investigate and remediate the Cyber Incident, costs of lawsuits and investigations related thereto, including settlement costs and legal and other professional services, and consulting services being provided to customers at no charge. Cyber Incident costs are provided net of expected and received insurance reimbursements, although the timing of recognizing insurance reimbursements may differ from the timing of recognizing the associated expenses. We expect to incur significant legal and other professional services expenses associated with the Cyber Incident in future periods. The Cyber Incident results in operating expenses that we would not have otherwise incurred in the normal course of our organic business operations. We believe that providing non-GAAP measures that exclude these costs facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance. We continue to invest significantly in cybersecurity and expect to make additional investments. These investments are in addition to the Cyber Incident costs and not included in the net Cyber Incident costs reported.

• Goodwill and Indefinite-lived Intangible Asset Impairment. We provide non-GAAP information that excludes non-cash goodwill and indefinite-lived intangible asset impairment charges. We believe that providing these non-GAAP measures that exclude these non-cash impairment charges allows users of our financial statements to better review and understand our historical and current operating results. In addition, as a significant portion of our goodwill and indefinite-lived intangible assets were derived from the February 2016 take-private transaction, providing these non-GAAP measures that exclude these impairment charges facilitates comparisons to our peers who may not have undertaken a transformational acquisition resulting in significant goodwill and indefinite-lived intangible assets.

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 cost of revenue and non-GAAP operating income, 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 diluted 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 (loss), excluding 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, Cyber Incident costs, net, goodwill and indefinite-lived intangible asset impairment, 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 total 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 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, Cyber Incident costs, net, 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 simple, powerful, secure observability and IT management software built to enable customers to accelerate their digital transformation. Our solutions provide organizations worldwide—regardless of type, size, or complexity—with a comprehensive and unified view of today’s modern, distributed, and hybrid network environments. We continuously engage IT service and operations professionals, DevOps and SecOps professionals, and Database Administrators (DBAs) to understand the challenges they face in maintaining high-performing and highly available IT infrastructures, applications, and environments. The insights we gain from them, in places like our THWACK^® community, allow us to address customers’ needs now, and in the future. Our focus on the user and our commitment to excellence in end-to-end hybrid IT management have established SolarWinds as a worldwide leader in solutions for observability, IT service management, application performance, and database management. 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.

© 2023 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,
		2023				2022
Assets
Current assets:
Cash and cash equivalents	$	177,194			$	121,738
Short-term investments		995				27,114
Accounts receivable, net of allowances of $2,425 and $1,173 as of June 30, 2023 and December 31, 2022, respectively		83,446				100,204
Income tax receivable		1,998				987
Prepaid and other current assets		67,046				57,350
Total current assets		330,679				307,393
Property and equipment, net		21,114				26,634
Operating lease assets		43,837				61,418
Deferred taxes		136,509				134,922
Goodwill		2,386,896				2,380,059
Intangible assets, net		212,592				243,980
Other assets, net		48,807				45,600
Total assets	$	3,180,434			$	3,200,006
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	10,928			$	14,045
Accrued liabilities and other		39,982				68,284
Current operating lease liabilities		14,847				15,005
Accrued interest payable		307				579
Income taxes payable		25,656				11,841
Current portion of deferred revenue		332,309				337,541
Current debt obligation		12,450				9,338
Total current liabilities		436,479				456,633
Long-term liabilities:
Deferred revenue, net of current portion		42,018				38,945
Non-current deferred taxes		4,995				8,582
Non-current operating lease liabilities		52,276				59,235
Other long-term liabilities		54,194				74,193
Long-term debt, net of current portion		1,191,816				1,192,765
Total liabilities		1,781,778				1,830,353
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value: 1,000,000,000 shares authorized and 164,710,793 and 161,928,532 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		165				162
Preferred stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		—				—
Additional paid-in capital		2,654,178				2,627,370
Accumulated other comprehensive loss		(40,561	)			(48,114	)
Accumulated deficit		(1,215,126	)			(1,209,765	)
Total stockholders’ equity		1,398,656				1,369,653
Total liabilities and stockholders’ equity	$	3,180,434			$	3,200,006

SolarWinds Corporation   Condensed Consolidated Statements of Operations (In thousands, except per share information) (Unaudited)
	Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Revenue:
Subscription	$	53,389			$	36,980			$	107,746			$	75,727
Maintenance		116,056				113,972				230,534				229,467
Total recurring revenue		169,445				150,952				338,280				305,194
License		15,589				25,082				32,730				47,708
Total revenue		185,034				176,034				371,010				352,902
Cost of revenue:
Cost of recurring revenue		18,533				15,460				36,927				33,291
Amortization of acquired technologies		3,425				3,648				6,861				20,875
Total cost of revenue		21,958				19,108				43,788				54,166
Gross profit		163,076				156,926				327,222				298,736
Operating expenses:
Sales and marketing		59,838				64,615				125,754				125,659
Research and development		24,081				22,108				47,872				45,530
General and administrative		34,418				41,283				60,019				73,947
Amortization of acquired intangibles		12,094				13,103				25,099				26,342
Goodwill impairment		—				612,395				—				612,395
Total operating expenses		130,431				753,504				258,744				883,873
Operating income (loss)		32,645				(596,578	)			68,478				(585,137	)
Other income (expense):
Interest expense, net		(29,443	)			(18,401	)			(58,024	)			(34,488	)
Other income (expense), net		13				726				(76	)			557
Total other expense		(29,430	)			(17,675	)			(58,100	)			(33,931	)
Income (loss) before income taxes		3,215				(614,253	)			10,378				(619,068	)
Income tax expense		2,955				7,871				15,739				7,715
Net income (loss)	$	260			$	(622,124	)		$	(5,361	)		$	(626,783	)
Net income (loss) available to common stockholders	$	260			$	(622,124	)		$	(5,361	)		$	(626,783	)
Net income (loss) available to common stockholders per share:
Basic income (loss) per share	$	—			$	(3.87	)		$	(0.03	)		$	(3.91	)
Diluted income (loss) per share	$	—			$	(3.87	)		$	(0.03	)		$	(3.91	)
Weighted-average shares used to compute net income (loss) available to common stockholders per share:
Shares used in computation of basic income (loss) per share		164,193				160,663				163,487				160,257
Shares used in computation of diluted income (loss) per share		165,386				160,663				163,487				160,257

SolarWinds Corporation Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
	Six Months Ended June 30,
		2023				2022
Cash flows from operating activities
Net loss	$	(5,361	)		$	(626,783	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		43,132				54,059
Goodwill and indefinite-lived intangible asset impairment		—				621,760
Provision for losses on accounts receivable		1,293				366
Stock-based compensation expense		34,494				32,684
Amortization of debt issuance costs		5,361				4,536
Deferred taxes		(3,593	)			(9,027	)
(Gain) loss on foreign currency exchange rates		116				(440	)
Lease impairment charges		11,689				—
Other non-cash expenses		245				142
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business combinations:
Accounts receivable		15,873				8,912
Income taxes receivable		(999	)			(110	)
Prepaid and other assets		(9,522	)			6,566
Accounts payable		(3,048	)			252
Accrued liabilities and other		(29,736	)			(3,976	)
Accrued interest payable		(272	)			81
Income taxes payable		(6,171	)			(4,700	)
Deferred revenue		(3,734	)			(2,998	)
Other long-term liabilities		—				116
Net cash provided by operating activities		49,767				81,440
Cash flows from investing activities
Purchases of investments		(988	)			(55,885	)
Maturities of investments		26,535				—
Purchases of property and equipment		(1,387	)			(3,533	)
Purchases of intangible assets		(6,867	)			(7,508	)
Acquisitions, net of cash acquired		—				(6,500	)
Other investing activities		564				—
Net cash provided by (used in) investing activities		17,857				(73,426	)
Cash flows from financing activities
Proceeds from issuance of common stock under employee stock purchase plan		1,711				1,753
Repurchase of common stock and incentive restricted stock		(10,167	)			(7,921	)
Exercise of stock options		112				37
Repayments of borrowings from credit agreement		(3,113	)			(9,950	)
Net cash used in financing activities		(11,457	)			(16,081	)
Effect of exchange rate changes on cash and cash equivalents		(711	)			(1,609	)
Net increase (decrease) in cash and cash equivalents		55,456				(9,676	)
Cash and cash equivalents
Beginning of period		121,738				732,116
End of period	$	177,194			$	722,440
Supplemental disclosure of cash flow information
Cash paid for interest	$	54,935			$	30,933
Cash paid for income taxes	$	24,140			$	19,422

SolarWinds Corporation   Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited)
	Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
	(in thousands, except margin data)
GAAP cost of revenue	$	21,958			$	19,108			$	43,788			$	54,166
Stock-based compensation expense and related employer-paid payroll taxes		(551	)			(578	)			(1,070	)			(1,097	)
Amortization of acquired technologies		(3,425	)			(3,648	)			(6,861	)			(20,875	)
Restructuring costs		—				—				(377	)			—
Cyber Incident costs		—				(7	)			—				(163	)
Non-GAAP cost of revenue	$	17,982			$	14,875			$	35,480			$	32,031
GAAP gross profit	$	163,076			$	156,926			$	327,222			$	298,736
Stock-based compensation expense and related employer-paid payroll taxes		551				578				1,070				1,097
Amortization of acquired technologies		3,425				3,648				6,861				20,875
Restructuring costs		—				—				377				—
Cyber Incident costs		—				7				—				163
Non-GAAP gross profit	$	167,052			$	161,159			$	335,530			$	320,871
GAAP gross margin		88.1	%			89.1	%			88.2	%			84.7	%
Non-GAAP gross margin		90.3	%			91.5	%			90.4	%			90.9	%
GAAP sales and marketing expense	$	59,838			$	64,615			$	125,754			$	125,659
Stock-based compensation expense and related employer-paid payroll taxes		(6,190	)			(5,718	)			(11,726	)			(11,233	)
Restructuring costs		(43	)			—				(2,617	)			(163	)
Cyber Incident costs		—				(62	)			—				(130	)
Non-GAAP sales and marketing expense	$	53,605			$	58,835			$	111,411			$	114,133
GAAP research and development expense	$	24,081			$	22,108			$	47,872			$	45,530
Stock-based compensation expense and related employer-paid payroll taxes		(3,413	)			(2,731	)			(6,425	)			(5,355	)
Restructuring costs		(2	)			—				(242	)			—
Cyber Incident costs		—				—				—				(2	)
Non-GAAP research and development expense	$	20,666			$	19,377			$	41,205			$	40,173
GAAP general and administrative expense	$	34,418			$	41,283			$	60,019			$	73,947
Stock-based compensation expense and related employer-paid payroll taxes		(8,389	)			(8,514	)			(16,479	)			(15,793	)
Acquisition and other costs		(69	)			(118	)			(124	)			(286	)
Restructuring costs		(7,190	)			(7	)			(14,958	)			(1,267	)
Cyber Incident costs, net		(580	)			(3,679	)			7,190				(9,169	)
Goodwill and indefinite-lived intangible asset impairment		—				(9,365	)			—				(9,365	)
Non-GAAP general and administrative expense	$	18,190			$	19,600			$	35,648			$	38,067
GAAP operating expenses	$	130,431			$	753,504			$	258,744			$	883,873
Stock-based compensation expense and related employer-paid payroll taxes		(17,992	)			(16,963	)			(34,630	)			(32,381	)
Amortization of acquired intangibles		(12,094	)			(13,103	)			(25,099	)			(26,342	)
Acquisition and other costs		(69	)			(118	)			(124	)			(286	)
Restructuring costs		(7,235	)			(7	)			(17,817	)			(1,430	)
Cyber Incident costs, net		(580	)			(3,741	)			7,190				(9,301	)
Goodwill and indefinite-lived intangible asset impairment		—				(621,760	)			—				(621,760	)
Non-GAAP operating expenses	$	92,461			$	97,812			$	188,264			$	192,373
GAAP operating income (loss)	$	32,645			$	(596,578	)		$	68,478			$	(585,137	)
Stock-based compensation expense and related employer-paid payroll taxes		18,543				17,541				35,700				33,478
Amortization of acquired technologies		3,425				3,648				6,861				20,875
Amortization of acquired intangibles		12,094				13,103				25,099				26,342
Acquisition and other costs		69				118				124				286
Restructuring costs		7,235				7				18,194				1,430
Cyber Incident costs, net		580				3,748				(7,190	)			9,464
Goodwill and indefinite-lived intangible asset impairment		—				621,760				—				621,760
Non-GAAP operating income	$	74,591			$	63,347			$	147,266			$	128,498
GAAP operating margin		17.6	%			(338.9	)%			18.5	%			(165.8	)%
Non-GAAP operating margin		40.3	%			36.0	%			39.7	%			36.4	%
GAAP net income (loss)	$	260			$	(622,124	)		$	(5,361	)		$	(626,783	)
Stock-based compensation expense and related employer-paid payroll taxes		18,543				17,541				35,700				33,478
Amortization of acquired technologies		3,425				3,648				6,861				20,875
Amortization of acquired intangibles		12,094				13,103				25,099				26,342
Acquisition and other costs		69				118				124				286
Restructuring costs		7,235				3				18,194				1,390
Cyber Incident costs, net		580				3,748				(7,190	)			9,464
Goodwill and indefinite-lived intangible asset impairment		—				621,760				—				621,760
Tax benefits associated with above adjustments		(8,140	)			(3,312	)			(6,478	)			(14,759	)
Non-GAAP net income	$	34,066			$	34,485			$	66,949			$	72,053
GAAP diluted income (loss) per share	$	—			$	(3.87	)		$	(0.03	)		$	(3.91	)
Non-GAAP diluted earnings per share	$	0.21			$	0.21			$	0.41			$	0.45

Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA (Unaudited)
	Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
	(in thousands, except margin data)
Net income (loss)	$	260			$	(622,124	)		$	(5,361	)		$	(626,783	)
Amortization and depreciation		20,027				20,131				40,958				54,059
Income tax expense		2,955				7,871				15,739				7,715
Interest expense, net		29,443				18,401				58,024				34,488
Unrealized foreign currency (gains) losses		(68	)			(720	)			116				(440	)
Acquisition and other costs		69				118				124				286
Debt-related costs		98				95				203				197
Stock-based compensation expense and related employer-paid payroll taxes		18,543				17,541				35,700				33,478
Restructuring costs(1)		7,235				3				18,194				1,390
Cyber Incident costs, net		580				3,748				(7,190	)			9,464
Goodwill and indefinite-lived intangible asset impairment		—				621,760				—				621,760
Adjusted EBITDA	$	79,142			$	66,824			$	156,507			$	135,614
Adjusted EBITDA margin		42.8	%			38.0	%			42.2	%			38.4	%

_______
(1)	Restructuring costs for the three and six months ended June 30, 2023 includes $7.1 million and $13.9 million, respectively, of non-cash lease impairment and other charges incurred in connection with the exiting of certain leased facilities.

Reconciliation of Revenue to Non-GAAP Revenue on a Constant Currency Basis (Unaudited)
	Three Months Ended June 30,										Six Months Ended June 30,
	2023				2022			Growth Rate			2023			2022			Growth Rate
	(in thousands, except percentages)
Total revenue	$	185,034			$	176,034		5.1	%		$	371,010		$	352,902		5.1	%
Estimated foreign currency impact(1)		(154	)			—		(0.1	)			1,624			—		0.5
Non-GAAP total revenue on a constant currency basis	$	184,880			$	176,034		5.0	%		$	372,634		$	352,902		5.6	%

_______
(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, 2023.

Reconciliation of Unlevered Free Cash Flow (Unaudited)
	Six Months Ended June 30,
		2023				2022
	(in thousands)
Net cash provided by operating activities	$	49,767			$	81,440
Capital expenditures(1)		(8,254	)			(11,041	)
Free cash flow		41,513				70,399
Cash paid for interest and other debt related items		53,139				30,069
Cash paid for acquisition and other costs, restructuring costs, Cyber Incident costs, net(2), employer-paid payroll taxes on stock awards and other one-time items		26,587				13,922
Unlevered free cash flow (excluding forfeited tax shield)		121,239				114,390
Forfeited tax shield related to interest payments(3)		(14,283	)			(7,579	)
Unlevered free cash flow	$	106,956			$	106,811

_______________
(1)	Includes purchases of property and equipment and purchases of intangible assets.
(2)	Includes the $26 million consolidated putative class action lawsuit settlement payment made during the six months ended June 30, 2023.
(3)	Forfeited tax shield related to interest payments assumes a statutory rate of 26.0% for the six months ended June 30, 2023 and 24.5% for the six months ended June 30, 2022.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230803429594/en/

Media:

Jenne Barbour

Phone: 512.498.6804

Media: pr@solarwinds.com



Investors:

Tim Karaca

Phone: 512.498.6739

Investors: ir@solarwinds.com

Source: SolarWinds Worldwide, LLC.

FAQ

What was SolarWinds' total revenue for the second quarter?

SolarWinds reported total revenue of $185.0 million for the second quarter.

What was SolarWinds' net income for the second quarter?

SolarWinds' net income for the second quarter was $0.3 million.

What was SolarWinds' adjusted EBITDA for the second quarter?

SolarWinds' adjusted EBITDA for the second quarter was $79.1 million.

What was the year-over-year growth in SolarWinds' total revenue?

SolarWinds' total revenue grew by 5% year-over-year.

What was the margin of SolarWinds' adjusted EBITDA?

SolarWinds' adjusted EBITDA had a margin of 43% of total revenue.

What was the year-over-year growth in SolarWinds' adjusted EBITDA?

SolarWinds' adjusted EBITDA had a year-over-year growth of 18%.

What did SolarWinds announce regarding its IT service management solutions?

SolarWinds announced the inclusion of transformative artificial intelligence and machine learning capabilities to its IT service management solutions.

What event did SolarWinds host on Capitol Hill?

SolarWinds hosted the SolarWinds Day: Secure by Design event on Capitol Hill.

Who received the CISO of the Year award from the Globee Cybersecurity Awards?

SolarWinds' Chief Information Security Officer, Tim Brown, received the CISO of the Year award from the Globee Cybersecurity Awards.

How was SolarWinds ranked in the Forrester Wave™ report for Process-Centric AI For IT Operations (AIOps)?

SolarWinds was ranked as a Strong Performer in the Forrester Wave™ report for Process-Centric AI For IT Operations (AIOps).