SolarWinds Announces Second Quarter 2024 Results

Rhea-AI Summary

SolarWinds (NYSE:SWI) reported strong Q2 2024 results, with total revenue of $193.3 million, up 4% year-over-year. Recurring revenue accounted for 93% of total revenue. The company achieved a net income of $11.1 million and an Adjusted EBITDA of $92.5 million, representing a 48% margin and 17% year-over-year growth. Subscription ARR grew 36% to $269.9 million, while Total ARR increased 7% to $704.7 million.

SolarWinds highlighted product enhancements, including AI integration in its ITSM solution. The company appointed Lewis Black as the new CFO, effective August 2024. SolarWinds maintains a strong financial position with $169.6 million in cash and investments and $1.2 billion in total debt. A special cash dividend of $168.2 million was paid in April 2024.

Positive

• Total revenue increased 4% year-over-year to $193.3 million
• Adjusted EBITDA grew 17% year-over-year to $92.5 million, representing a 48% margin
• Subscription ARR increased 36% year-over-year to $269.9 million
• Total ARR grew 7% year-over-year to $704.7 million
• Recurring revenue accounted for 93% of total revenue

Negative

• None.

Insights

Financial Analyst

SolarWinds' Q2 2024 results demonstrate solid performance and strategic progress. The company reported total revenue of $193.3 million, a 4% year-over-year growth, with recurring revenue comprising an impressive 93% of the total. This high recurring revenue percentage indicates strong customer retention and a stable revenue stream.

The standout metric is the Subscription Annual Recurring Revenue (ARR) growth of 36% year-over-year, reaching $269.9 million. This substantial increase in subscription-based revenue suggests successful execution of SolarWinds' cloud transition strategy and growing customer adoption of their SaaS offerings.

Profitability looks healthy, with net income at $11.1 million and Adjusted EBITDA at $92.5 million. The Adjusted EBITDA margin of 48% is particularly impressive, indicating strong operational efficiency. The 17% year-over-year growth in Adjusted EBITDA, outpacing revenue growth, suggests effective cost management and scaling of operations.

The company's balance sheet appears solid with $169.6 million in cash and short-term investments, even after paying a substantial special dividend of $168.2 million. However, the $1.2 billion in total debt warrants monitoring, especially in a rising interest rate environment.

Overall, SolarWinds' Q2 results paint a picture of a company successfully navigating its transition to a subscription-based model while maintaining profitability and operational efficiency. The focus on AI integration and database management solutions aligns well with current market trends, potentially positioning the company for continued growth.

Tech Expert

SolarWinds' strategic focus on AI integration and database management solutions demonstrates a keen understanding of market trends and customer needs. The introduction of SolarWinds AI, a generative AI engine, into their ITSM solution is particularly noteworthy. This move aligns with the growing demand for AI-powered tools in IT management and could significantly enhance the value proposition of their offerings.

The enhancements to Plan Explorer® and Database Performance Analyzer (DPA) underscore SolarWinds' commitment to improving database management capabilities. The advanced support for PostgreSQL is especially relevant, given the rising popularity of this open-source database system among enterprises.

The company's '2024 IT Trends Report' on AI adoption provides valuable insights into the IT industry's perception of AI technologies. This research not only positions SolarWinds as a thought leader but also informs their product development strategy, ensuring alignment with customer needs and concerns.

SolarWinds' focus on solutions that "improve productivity while lowering complexity and costs" resonates well with current market demands, especially in an economic environment where efficiency is paramount. The emphasis on helping customers accelerate their business transformations suggests that SolarWinds is positioning itself as a strategic partner in digital transformation initiatives, rather than just a tool provider.

Overall, SolarWinds' product strategy appears well-aligned with market trends, focusing on high-growth areas like AI, cloud services and advanced database management. This approach, combined with their strong financial performance, positions them favorably in the competitive IT management software market.

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, 2024.

Second Quarter Financial Highlights

• Total revenue for the second quarter of $193.3 million, representing 4% year-over-year growth, and total recurring revenue representing 93% of total revenue.
• Net income for the second quarter of $11.1 million.
• Adjusted EBITDA for the second quarter of $92.5 million, representing a margin of 48% of total revenue and 17% year-over-year growth.
• Subscription Annual Recurring Revenue (ARR) of $269.9 million, representing year-over-year growth of 36%, and Total ARR of $704.7 million, representing year-over-year growth of 7%.

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

“In Q2, we continued the momentum that we have been building over the last several quarters, exceeding the high end of our guidance for total revenue and adjusted EBITDA, and delivering our highest quarterly adjusted EBITDA of the past 15 quarters,” said SolarWinds President and Chief Executive Officer Sudhakar Ramakrishna. “I am proud of our team's focus on helping our customers to accelerate their business transformations through solutions built to improve their productivity while lowering complexity and costs. We look forward to continuing our focus on customer success and delivering great business results with our solutions.”

Recent Business Highlights

• In April, SolarWinds celebrated the 25th anniversary of its founding in Tulsa, Oklahoma in 1999.
• In the second quarter, the company announced enhancements to Plan Explorer^®—natively built into SolarWinds SQL Sentry^®—designed to help database pros improve their operations, performance, and business outcomes, and unveiled updates to SolarWinds Database Performance Analyzer (DPA), which delivers advanced support for PostgreSQL.
• In May, SolarWinds AI, a generative AI engine developed under its new AI by Design framework, debuted in SolarWinds Service Desk, the company’s ITSM solution.
• In June, SolarWinds announced the appointment of Lewis Black as its Executive Vice President, Chief Financial Officer to be effective in August 2024.
• Also in June, SolarWinds released the findings from its 2024 IT Trends Report, AI: Friend or Foe?, based on a survey of nearly 700 IT professionals about their views on artificial intelligence (AI).

Balance Sheet

At June 30, 2024, total cash and cash equivalents and short-term investments were $169.6 million, and total debt was $1.2 billion. The special cash dividend of $168.2 million declared in March was paid on April 15, 2024.

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 1, 2024, SolarWinds is providing its financial outlook for the third quarter and its updated financial outlook for the full year of 2024. 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 2024

SolarWinds’ management currently expects to achieve the following results for the third quarter of 2024:

• Total revenue in the range of $191 to $196 million, representing growth of approximately 2% as compared to the third quarter of 2023 total revenue at the midpoint of the range.
• Adjusted EBITDA of approximately $90 to $93 million, representing growth of approximately 8% over the third quarter of 2023 adjusted EBITDA at the midpoint of the range.
• Non-GAAP diluted earnings per share of $0.24 to $0.26.
• Weighted average outstanding diluted shares of approximately 173.6 million.

Financial Outlook for Full Year of 2024

SolarWinds’ management currently expects to achieve the following results for the full year of 2024:

• Total revenue in the range of $778 to $788 million, representing growth of approximately 3% over the full year of 2023 total revenue at the midpoint of the range.
• Adjusted EBITDA of approximately $368 to $375 million, representing growth of approximately 13% over the full year of 2023 adjusted EBITDA at the midpoint of the range.
• Non-GAAP diluted earnings per share of $1.04 to $1.08.
• Weighted average outstanding diluted shares of approximately 173.8 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 +1 (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 2024. 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) litigation and investigation risks related to the Cyber Incident, including as a result of the pending civil complaint filed by the Securities and Exchange Commission against us and our Chief Information Security Officer, including that we have and may continue to incur significant costs in defending ourselves and may be unsuccessful in doing so, resulting in exposure to potential penalties, judgements, fines, settlement-related costs and other costs and liabilities related thereto, (2) numerous financial, legal, reputational and other risks to us related to the Cyber Incident, including risks that the incident, SolarWinds’ response thereto or litigation related to the Cyber Incident has and may in the future 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 and risks related to the impact of any such costs and liabilities, and (3) 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 have experienced and may in the future experience other security incidents and have had and may in the future have vulnerabilities in our systems and services, including to a greater degree, with respect to our legacy products, which vulnerabilities have been and may in the future be exploited, whether through the actions or inactions of our employees, our customers, insider threats 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 (“AI”) in our business and our solutions, including risks related to evolving regulation of AI, machine learning and the receipt, collection, storage, processing and transfer of data as well as the threat of cyberattacks created through AI or leveraging AI; (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 wars in Israel and Ukraine, geopolitical tensions involving China, disruptions in the global supply chain and energy markets, inflation, uncertainty over liquidity concerns in the broader financial services industry and foreign currency exchange rates and their impact 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 maintenance 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 infrastructure, 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) any violation of legal and regulatory requirements or any misconduct by our employees or partners; (m) risks associated with increased efforts and costs to comply with ongoing changes in applicable laws and regulations; (n) our inability to successfully identify, complete, and integrate acquisitions and manage our growth effectively; (o) risks associated with our status as a controlled company; and (p) 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, 2023 filed on February 16, 2024, and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 that SolarWinds anticipates filing on or before August 9, 2024. 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 securities 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, 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 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 non-recurring costs, including internal investigation costs. 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 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 paid in connection with corporate restructuring activities, as well as costs related to the separation of employment with executives of the company. In addition, we exclude 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. These costs are infrequent, 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 estimated loss contingencies. Cyber Incident costs are provided net of insurance reimbursements, although the timing of recognizing insurance reimbursements has differed 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 by us 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 expect to continue to invest significantly in cybersecurity, and such additional investments are not included in the net Cyber Incident costs reported.

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, 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. Additionally, adjusted EBITDA: excludes the impact of restructuring impairment charges related to exited leased facilities which may continue to require future cash rent payments; does not reflect changes in, or cash requirements for, our working capital needs; does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; and does not reflect tax payments that may represent a reduction in cash available to us. 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.

Other Defined Terms

Subscription Annual Recurring Revenue (Subscription ARR). Subscription ARR represents the annualized recurring value of all active subscription contracts at the end of a reporting period.

Total Annual Recurring Revenue (Total ARR). Total ARR represents the sum of Subscription ARR and the annualized value of all maintenance contracts related to perpetual licenses active at the end of a reporting period assuming those contracts are renewed at their existing terms.

We use Subscription ARR and Total ARR to better understand and assess the performance of our business, as our mix of revenue generated from recurring revenue has increased in recent years. Subscription ARR and Total ARR each provides a normalized view of customer retention, renewal and expansion, as well as growth from new customers. Subscription ARR and Total ARR should each be viewed independently of revenue and deferred revenue and are not intended to be combined with or to replace either of those items.

#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.

© 2024 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,
		2024				2023
Assets
Current assets:
Cash and cash equivalents	$	158,845			$	284,695
Short-term investments		10,705				4,477
Accounts receivable, net of allowances of $761 and $743 as of June 30, 2024 and December 31, 2023, respectively		88,111				103,455
Income tax receivable		1,024				459
Prepaid and other current assets		24,149				28,241
Total current assets		282,834				421,327
Property and equipment, net		18,852				19,669
Operating lease assets		36,182				43,776
Deferred taxes		133,690				133,224
Goodwill		2,379,739				2,397,545
Intangible assets, net		155,133				183,688
Other assets, net		52,257				51,686
Total assets	$	3,058,687			$	3,250,915
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	9,505			$	9,701
Accrued liabilities and other		43,491				56,643
Current operating lease liabilities		14,225				14,925
Accrued interest payable		889				942
Income taxes payable		42,248				29,240
Current portion of deferred revenue		332,120				344,907
Current debt obligation		12,357				12,450
Total current liabilities		454,835				468,808
Long-term liabilities:
Deferred revenue, net of current portion		42,815				42,070
Non-current deferred taxes		1,896				1,933
Non-current operating lease liabilities		42,839				49,848
Other long-term liabilities		15,578				55,278
Long-term debt, net of current portion		1,195,415				1,190,934
Total liabilities		1,753,378				1,808,871
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value: 1,000,000,000 shares authorized and 169,377,216 and 166,637,506 shares issued and outstanding as of June 30, 2024 and December 31, 2023 respectively		169				167
Preferred stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		—				—
Additional paid-in capital		2,546,118				2,688,854
Accumulated other comprehensive loss		(48,767	)			(28,103	)
Accumulated deficit		(1,192,211	)			(1,218,874	)
Total stockholders’ equity		1,305,309				1,442,044
Total liabilities and stockholders’ equity	$	3,058,687			$	3,250,915

SolarWinds Corporation Condensed Consolidated Statements of Operations (In thousands, except per share information) (Unaudited)
	Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Revenue:
Subscription	$	70,033			$	53,389			$	138,790			$	107,746
Maintenance		110,306				116,056				222,026				230,534
Total recurring revenue		180,339				169,445				360,816				338,280
License		12,911				15,589				25,745				32,730
Total revenue		193,250				185,034				386,561				371,010
Cost of revenue:
Cost of recurring revenue		18,481				18,533				36,653				36,927
Amortization of acquired technologies		1,767				3,425				4,431				6,861
Total cost of revenue		20,248				21,958				41,084				43,788
Gross profit		173,002				163,076				345,477				327,222
Operating expenses:
Sales and marketing		55,304				59,838				110,225				125,754
Research and development		26,399				24,081				54,227				47,872
General and administrative		30,321				34,418				61,629				60,019
Amortization of acquired intangibles		11,492				12,094				23,011				25,099
Total operating expenses		123,516				130,431				249,092				258,744
Operating income		49,486				32,645				96,385				68,478
Other income (expense):
Interest expense, net		(28,047	)			(29,443	)			(54,877	)			(58,024	)
Other income (expense), net		(61	)			13				(10	)			(76	)
Total other expense		(28,108	)			(29,430	)			(54,887	)			(58,100	)
Income before income taxes		21,378				3,215				41,498				10,378
Income tax expense		10,274				2,955				14,835				15,739
Net income (loss)	$	11,104			$	260			$	26,663			$	(5,361	)
Net income (loss) available to common stockholders	$	11,104			$	260			$	26,663			$	(5,361	)
Net income (loss) available to common stockholders per share:
Basic income (loss) per share	$	0.07			$	—			$	0.16			$	(0.03	)
Diluted income (loss) per share	$	0.06			$	—			$	0.15			$	(0.03	)
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		168,768				164,193				168,093				163,487
Shares used in computation of diluted income (loss) per share		172,562				165,386				172,109				163,487

SolarWinds Corporation Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
	Six Months Ended June 30,
		2024				2023
Cash flows from operating activities
Net income (loss)	$	26,663			$	(5,361	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		37,794				43,132
Provision for losses on accounts receivable		83				1,293
Stock-based compensation expense		37,526				34,494
Amortization of debt issuance costs		5,360				5,361
Deferred taxes		(4,371	)			(3,593	)
(Gain) loss on foreign currency exchange rates		(162	)			116
Lease impairment charges		2,141				11,689
Other non-cash expenses (benefit)		(135	)			245
Changes in operating assets and liabilities:
Accounts receivable		14,009				15,873
Income taxes receivable		(584	)			(999	)
Prepaid and other assets		4,844				(9,522	)
Accounts payable		(165	)			(3,048	)
Accrued liabilities and other		(15,037	)			(29,736	)
Accrued interest payable		(53	)			(272	)
Income taxes payable		(26,575	)			(6,171	)
Deferred revenue		(7,944	)			(3,734	)
Net cash provided by operating activities		73,394				49,767
Cash flows from investing activities
Purchases of investments		(18,945	)			(988	)
Maturities of investments		12,922				26,535
Purchases of property and equipment		(3,932	)			(1,387	)
Capitalized software development costs		(6,996	)			(6,759	)
Purchases of intangible assets		(170	)			(108	)
Other investing activities		—				564
Net cash provided by (used in) investing activities		(17,121	)			17,857
Cash flows from financing activities
Proceeds from issuance of common stock under employee stock purchase plan		1,594				1,711
Repurchase of common stock		(14,270	)			(10,167	)
Exercise of stock options		12				112
Dividends paid		(168,162	)			—
Repayments of borrowings from credit agreement		—				(3,113	)
Payment of debt issuance costs		(1,036	)			—
Net cash used in financing activities		(181,862	)			(11,457	)
Effect of exchange rate changes on cash and cash equivalents		(261	)			(711	)
Net increase (decrease) in cash and cash equivalents		(125,850	)			55,456
Cash and cash equivalents
Beginning of period		284,695				121,738
End of period	$	158,845			$	177,194
Supplemental disclosure of cash flow information
Cash paid for interest	$	54,285			$	54,935
Cash paid for income taxes	$	43,795			$	24,140
Non-cash investing and financing transactions
Stock-based compensation included in capitalized software development costs	$	565			$	644

SolarWinds Corporation Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited)
	Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
	(in thousands, except margin data)
GAAP cost of revenue	$	20,248			$	21,958			$	41,084			$	43,788
Stock-based compensation expense and related employer-paid payroll taxes		(617	)			(551	)			(1,207	)			(1,070	)
Amortization of acquired technologies		(1,767	)			(3,425	)			(4,431	)			(6,861	)
Restructuring costs		—				—				(39	)			(377	)
Non-GAAP cost of revenue	$	17,864			$	17,982			$	35,407			$	35,480
GAAP gross profit	$	173,002			$	163,076			$	345,477			$	327,222
Stock-based compensation expense and related employer-paid payroll taxes		617				551				1,207				1,070
Amortization of acquired technologies		1,767				3,425				4,431				6,861
Restructuring costs		—				—				39				377
Non-GAAP gross profit	$	175,386			$	167,052			$	351,154			$	335,530
GAAP gross margin		89.5	%			88.1	%			89.4	%			88.2	%
Non-GAAP gross margin		90.8	%			90.3	%			90.8	%			90.4	%
GAAP sales and marketing expense	$	55,304			$	59,838			$	110,225			$	125,754
Stock-based compensation expense and related employer-paid payroll taxes		(5,895	)			(6,190	)			(11,097	)			(11,726	)
Restructuring costs		(154	)			(43	)			(1,062	)			(2,617	)
Non-GAAP sales and marketing expense	$	49,255			$	53,605			$	98,066			$	111,411
GAAP research and development expense	$	26,399			$	24,081			$	54,227			$	47,872
Stock-based compensation expense and related employer-paid payroll taxes		(3,594	)			(3,413	)			(7,085	)			(6,425	)
Restructuring costs		(260	)			(2	)			(889	)			(242	)
Non-GAAP research and development expense	$	22,545			$	20,666			$	46,253			$	41,205
GAAP general and administrative expense	$	30,321			$	34,418			$	61,629			$	60,019
Stock-based compensation expense and related employer-paid payroll taxes		(9,980	)			(8,389	)			(19,420	)			(16,479	)
Acquisition and other costs		(485	)			(69	)			(992	)			(124	)
Restructuring costs		(1,327	)			(7,190	)			(3,125	)			(14,958	)
Cyber Incident costs, net		(2,104	)			(580	)			(5,109	)			7,190
Non-GAAP general and administrative expense	$	16,425			$	18,190			$	32,983			$	35,648
GAAP operating expenses	$	123,516			$	130,431			$	249,092			$	258,744
Stock-based compensation expense and related employer-paid payroll taxes		(19,469	)			(17,992	)			(37,602	)			(34,630	)
Amortization of acquired intangibles		(11,492	)			(12,094	)			(23,011	)			(25,099	)
Acquisition and other costs		(485	)			(69	)			(992	)			(124	)
Restructuring costs		(1,741	)			(7,235	)			(5,076	)			(17,817	)
Cyber Incident costs, net		(2,104	)			(580	)			(5,109	)			7,190
Non-GAAP operating expenses	$	88,225			$	92,461			$	177,302			$	188,264
GAAP operating income	$	49,486			$	32,645			$	96,385			$	68,478
Stock-based compensation expense and related employer-paid payroll taxes		20,086				18,543				38,809				35,700
Amortization of acquired technologies		1,767				3,425				4,431				6,861
Amortization of acquired intangibles		11,492				12,094				23,011				25,099
Acquisition and other costs		485				69				992				124
Restructuring costs		1,741				7,235				5,115				18,194
Cyber Incident costs, net		2,104				580				5,109				(7,190	)
Non-GAAP operating income	$	87,161			$	74,591			$	173,852			$	147,266
GAAP operating margin		25.6	%			17.6	%			24.9	%			18.5	%
Non-GAAP operating margin		45.1	%			40.3	%			45.0	%			39.7	%
GAAP net income (loss)	$	11,104			$	260			$	26,663			$	(5,361	)
Stock-based compensation expense and related employer-paid payroll taxes		20,086				18,543				38,809				35,700
Amortization of acquired technologies		1,767				3,425				4,431				6,861
Amortization of acquired intangibles		11,492				12,094				23,011				25,099
Acquisition and other costs		485				69				992				124
Restructuring costs		1,741				7,235				5,115				18,194
Cyber Incident costs, net		2,104				580				5,109				(7,190	)
Loss on extinguishment of debt		—				—				65				—
Tax expense associated with above adjustments		(4,481	)			(8,140	)			(10,064	)			(6,478	)
Non-GAAP net income	$	44,298			$	34,066			$	94,131			$	66,949
GAAP diluted earnings (loss) per share	$	0.06			$	—			$	0.15			$	(0.03	)
Non-GAAP diluted earnings per share	$	0.26			$	0.21			$	0.55			$	0.41

Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA (Unaudited)
	Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
	(in thousands, except margin data)
Net income (loss)	$	11,104			$	260			$	26,663			$	(5,361	)
Amortization and depreciation		18,398				20,027				37,438				40,958
Income tax expense		10,274				2,955				14,835				15,739
Interest expense, net		28,047				29,443				54,877				58,024
Unrealized foreign currency (gains) losses		68				(68	)			(162	)			116
Acquisition and other costs		485				69				992				124
Debt-related costs		189				98				890				203
Stock-based compensation expense and related employer-paid payroll taxes		20,086				18,543				38,809				35,700
Restructuring costs(1)		1,741				7,235				5,115				18,194
Cyber Incident costs, net		2,104				580				5,109				(7,190	)
Adjusted EBITDA	$	92,496			$	79,142			$	184,566			$	156,507
Adjusted EBITDA margin		47.9	%			42.8	%			47.7	%			42.2	%

_______________
(1)		Restructuring costs include non-cash lease impairment and other charges incurred in connection with the exiting of certain leased facilities of $0.9 million and $7.1 million for the three months ended June 30, 2024 and 2023, respectively, and $2.5 million and $13.9 million for the six months ended June 30, 2024 and 2023, respectively.

Reconciliation of Revenue to Non-GAAP Revenue on a Constant Currency Basis (Unaudited)
	Three Months Ended June 30,									Six Months Ended June 30,
	2024			2023			Growth Rate				2024			2023			Growth Rate
	(in thousands, except percentages)
Total revenue	$	193,250		$	185,034		4.4	%		$	386,561			$	371,010		4.2	%
Estimated foreign currency impact(1)		253			—		0.1				(154	)			—		—
Non-GAAP total revenue on a constant currency basis	$	193,503		$	185,034		4.6	%		$	386,407			$	371,010		4.2	%

_______________
(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, 2024.

Reconciliation of Unlevered Free Cash Flow (Unaudited)
	Six Months Ended June 30,
		2024				2023
	(in thousands)
Net cash provided by operating activities	$	73,394			$	49,767
Capital expenditures(1)		(11,098	)			(8,254	)
Free cash flow		62,296				41,513
Cash paid for interest and other debt related items		50,395				53,139
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		12,772				26,587
Unlevered free cash flow (excluding forfeited tax shield)		125,463				121,239
Forfeited tax shield related to interest payments(3)		(14,114	)			(14,283	)
Unlevered free cash flow	$	111,349			$	106,956

_______________
(1)		Includes purchases of property and equipment, capitalized software development costs 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 both the six months ended June 30, 2024 and 2023.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240801328843/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' (SWI) total revenue for Q2 2024?

SolarWinds reported total revenue of $193.3 million for Q2 2024, representing a 4% year-over-year growth.

How much did SolarWinds' (SWI) Subscription ARR grow in Q2 2024?

SolarWinds' Subscription Annual Recurring Revenue (ARR) grew 36% year-over-year to $269.9 million in Q2 2024.

What was SolarWinds' (SWI) Adjusted EBITDA for Q2 2024?

SolarWinds reported an Adjusted EBITDA of $92.5 million for Q2 2024, representing a 48% margin and 17% year-over-year growth.

When did SolarWinds (SWI) pay its special cash dividend in 2024?

SolarWinds paid a special cash dividend of $168.2 million on April 15, 2024.