Upgrade to SI Premium - Free Trial

SolarWinds Announces Third Quarter 2019 Results

October 30, 2019 4:05 PM

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

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

On a non-GAAP basis:

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

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

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

Additional highlights for the third quarter of 2019 include:

Balance Sheet

At September 30, 2019, total cash and cash equivalents were $221.1 million and total debt was $1.9 billion.

The financial results included in this press release are preliminary and pending final review by the company and its external auditors. Financial results will not be final until SolarWinds files its quarterly report on Form 10-Q for the period. Information about SolarWinds' use of non-GAAP financial measures is provided below under “Non-GAAP Financial Measures.”

Financial Outlook

As of October 30, 2019, SolarWinds is providing its financial outlook for the fourth quarter of 2019 and full year 2019. The financial information below represents forward-looking non-GAAP financial information, including an estimate of non-GAAP revenue and revenue growth on a constant currency basis, adjusted EBITDA and non-GAAP diluted earnings per share, for the fourth quarter of 2019 and for the full year 2019. These non-GAAP financial measures exclude, among other items mentioned below, stock-based compensation expense and related employer-paid payroll taxes, amortization and costs related to non-recurring items. We have not reconciled our estimates of these non-GAAP financial measures to their most directly comparable GAAP measure as a result of uncertainty regarding, and the potential variability of, these excluded items in future periods. Accordingly, reconciliation is not available without unreasonable effort, although it is important to note that these excluded items could be material to our results computed in accordance with GAAP in future periods. Our reported results provide reconciliations of non-GAAP financial measures to their nearest GAAP equivalents.

Financial Outlook for Fourth Quarter of 2019

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

Financial Outlook for Full Year 2019

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

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

Upcoming Analyst Day

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

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

Conference Call and Webcast

In conjunction with this announcement, SolarWinds will host a conference call today to discuss its financial results and its business at 4:00 p.m. CT (5:00 p.m. ET/2:00 p.m. PT). A live webcast of the call will be available on the SolarWinds Investor Relations website at http://investors.solarwinds.com. A live dial-in will be available domestically at (877) 823-8676 and internationally at +1 (647) 689-4178. To access the live call, please dial in 5-10 minutes before the scheduled start time. A replay of the webcast will be available on a temporary basis shortly after the event on the SolarWinds Investor Relations website.

Forward-Looking Statements

This press release contains “forward-looking” statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial outlook for the fourth quarter and full year 2019 and our market share. These forward-looking statements are based on management's beliefs and assumptions and on information currently available to management. Forward-looking statements include all statements that are not historical facts and may be identified by terms such as “aim,” “anticipate,” “believe,” “can,” “could,” “seek,” “should,” “feel,” “expect,” “will,” “would,” “plan,” “intend,” “estimate,” “continue,” or similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the following: (a) the inability to generate significant volumes of high quality sales leads from our digital marketing initiatives and convert such leads into new business at acceptable conversion rates; (b) the inability to sell products to new customers or to sell additional products or upgrades to our existing customers; (c) any decline in our renewal or net retention rates; (d) our inability to successfully identify, complete, and integrate acquisitions and manage our growth effectively, including our integration of the Samanage acquisition; (e) risks associated with our international operations; (f) our status as a controlled company; (g) the possibility that general economic conditions or uncertainty cause information technology spending to be reduced or purchasing decisions to be delayed; (h) the timing and success of new product introductions and product upgrades by SolarWinds or its competitors; (i) the possibility that our operating income could fluctuate and may decline as percentage of revenue as we make further expenditures to expand our operations in order to support additional growth in our business; (j) potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity; and (k) such other risks and uncertainties described more fully in documents filed with or furnished to the Securities and Exchange Commission, including the risk factors discussed in our Annual Report on Form 10-K for the period ended December 31, 2018 filed on February 25, 2019 and the Form 10-Q that SolarWinds anticipates filing on or before November 14, 2019. All information provided in this release is as of the date hereof and SolarWinds undertakes no duty to update this information except as required by law.

Adoption of the New Revenue Recognition Standard

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

Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures to clarify and enhance our understanding, and aid in the period-to-period comparison, of our performance. We believe that these non-GAAP financial measures provide supplemental information that is meaningful when assessing our operating performance because they exclude the impact of certain amounts that our management and board of directors do not consider part of core operating results when assessing our operational performance, allocating resources, preparing annual budgets and determining compensation. Accordingly, these non-GAAP financial measures may provide insight to investors into the motivation and decision-making of management in operating the business.

SolarWinds also believes that these non-GAAP financial measures are used by investors and security analysts to (a) compare and evaluate its performance from period to period and (b) compare its performance to those of its competitors. These non-GAAP measures exclude certain items that can vary substantially from company to company depending upon their financing and accounting methods, the book value of their assets, their capital structures and the method by which their assets were acquired.

There are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a comprehensive system of accounting and may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies. Certain items that are excluded from these non-GAAP financial measures can have a material impact on operating and net income (loss).

As a result, these non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, the most comparable GAAP measures. SolarWinds' management and board of directors compensate for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measure. Set forth in the tables below are the corresponding GAAP financial measures for each non-GAAP financial measure presented. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures that are set forth in the tables below.

Non-GAAP Revenue. We define non-GAAP subscription revenue, non-GAAP maintenance revenue, non-GAAP license revenue, and non-GAAP total revenue as subscription revenue, maintenance revenue, license revenue, and total revenue, respectively, excluding the impact of purchase accounting primarily from our take private transaction in early 2016 and the acquisitions of LOGICnow and Samanage. The non-GAAP revenue growth rates we provide are calculated using non-GAAP revenue from the comparable prior period. We monitor these measures to assess our performance because we believe our revenue growth rates would be overstated without these adjustments. We believe presenting non-GAAP subscription revenue, non-GAAP maintenance revenue, non-GAAP license revenue and non-GAAP total revenue aids in the comparability between periods and in assessing our overall operating performance.

Non-GAAP Revenue on a Constant Currency Basis. We provide non-GAAP revenue on a constant currency basis to provide a framework for assessing our performance and expectations regarding future performance excluding the effect of foreign currency rate fluctuations. To present this information, current period results and future period estimated results for entities reporting in currencies other than U.S. Dollars are converted into U.S. Dollars at the average exchange rates in effect during the corresponding prior period presented. We believe that providing non-GAAP revenue on a constant currency basis facilitates the comparison of non-GAAP revenue to prior periods.

Non-GAAP Cost of Revenue and Non-GAAP Operating Income. We provide non-GAAP cost of revenue and non-GAAP operating income and related non-GAAP margins using non-GAAP revenue as discussed above and excluding such items as the write-down of deferred revenue related to purchase accounting, amortization of acquired intangible assets, stock-based compensation expense and related employer-paid payroll taxes, acquisition and Sponsor related costs and restructuring charges and other. Management believes these measures are useful for the following reasons:

Non-GAAP Net Income (Loss) and Non-GAAP Net Income (Loss) Per Diluted Share. We believe that the use of non-GAAP net income (loss) and non-GAAP net income (loss) per diluted share is helpful to our investors to clarify and enhance their understanding of past performance and future prospects. Non-GAAP net income (loss) is calculated as net income (loss) excluding the adjustments to non-GAAP revenue, non-GAAP cost of revenue and non-GAAP operating income, losses on extinguishment of debt, certain other non-operating gains and losses and the income tax effect of the non-GAAP exclusions. We define non-GAAP net income (loss) per diluted share as non-GAAP net income (loss) divided by the non-GAAP weighted average outstanding common shares, pro forma, which is calculated as if to reflect the conversion of Class A Common Stock and shares issued for accrued dividends and shares issued at our initial public offering as if each occurred at the beginning of each respective period.

Adjusted EBITDA and Adjusted EBITDA Margin. We regularly monitor adjusted EBITDA and adjusted EBITDA margin, as it is a measure we use to assess our operating performance. We define adjusted EBITDA as net income or loss, excluding the impact of purchase accounting on total revenue, amortization of acquired intangible assets and developed technology, depreciation expense, stock-based compensation expense and related employer-paid payroll taxes, restructuring and other charges, acquisition and Sponsor related costs, interest expense, net, debt extinguishment and refinancing costs, unrealized foreign currency (gains) losses, and income tax expense (benefit). We define adjusted EBITDA margin as adjusted EBITDA divided by non-GAAP revenue. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; adjusted EBITDA excludes the impact of the write-down of deferred revenue due to purchase accounting in connection with our acquisition, and therefore includes revenue that will never be recognized under GAAP; adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Unlevered Free Cash Flow. Unlevered free cash flow is a measure of our liquidity used by management to evaluate cash flow from operations, after the deduction of capital expenditures and prior to the impact of our capital structure, acquisition and Sponsor related costs, restructuring costs, employer-paid payroll taxes on stock awards and other one time items, that can be used by us for strategic opportunities and strengthening our balance sheet. However, given our debt obligations, unlevered free cash flow does not represent residual cash flow available for discretionary expenses.

#SWIfinancials

About SolarWinds

SolarWinds (NYSE: SWI) is a leading provider of powerful and affordable IT infrastructure management software. Our products give organizations worldwide, regardless of type, size or IT infrastructure complexity, the power to monitor and manage the performance of their IT environments, whether on-premises, in the cloud, or in hybrid models. We continuously engage with all types of technology professionals—IT operations professionals, DevOps professionals, and managed service providers (MSPs)—to understand the challenges they face maintaining high-performing and highly available IT infrastructures. The insights we gain from engaging with them, in places like our THWACK online community, allow us to build products that solve well-understood IT management challenges in ways that technology professionals want them solved. This focus on the user and commitment to excellence in end-to-end hybrid IT performance management has established SolarWinds as a worldwide leader in network management software and MSP solutions. Learn more today at www.solarwinds.com.

The SolarWinds, SolarWinds & Design, Orion, and THWACK trademarks are the exclusive property of SolarWinds Worldwide, LLC or its affiliates, are registered with the U.S. Patent and Trademark Office, and may be registered or pending registration in other countries. All other SolarWinds trademarks, service marks, and logos may be common law marks or are registered or pending registration. All other trademarks mentioned herein are used for identification purposes only and are trademarks of (and may be registered trademarks of) their respective companies.

© 2019 SolarWinds Worldwide, LLC. All rights reserved.

SolarWinds Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share and per share information)

(Unaudited)

September 30,

December 31,

2019

2018

Assets

Current assets:

Cash and cash equivalents

$

221,060

$

382,620

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

102,233

100,528

Income tax receivable

708

893

Prepaid and other current assets

24,108

16,267

Total current assets

348,109

500,308

Property and equipment, net

35,694

35,864

Deferred taxes

6,690

6,873

Goodwill

3,929,602

3,683,961

Intangible assets, net

815,801

956,261

Other assets, net

20,180

11,382

Total assets

$

5,156,076

$

5,194,649

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

10,345

$

9,742

Accrued liabilities and other

47,933

52,055

Accrued interest payable

262

290

Income taxes payable

18,460

15,682

Current portion of deferred revenue

293,365

270,433

Current debt obligation

19,900

19,900

Total current liabilities

390,265

368,102

Long-term liabilities:

Deferred revenue, net of current portion

30,706

25,699

Non-current deferred taxes

114,919

147,144

Other long-term liabilities

130,565

133,532

Long-term debt, net of current portion

1,896,062

1,904,072

Total liabilities

2,562,517

2,578,549

Commitments and contingencies

Stockholders’ equity:

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

307

305

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

—

—

Additional paid-in capital

3,037,845

3,011,080

Accumulated other comprehensive income (loss)

(43,951

)

17,043

Accumulated deficit

(400,642

)

(412,328

)

Total stockholders’ equity

2,593,559

2,616,100

Total liabilities and stockholders’ equity

$

5,156,076

$

5,194,649

SolarWinds Corporation

Condensed Consolidated Statements of Operations

(In thousands, except per share information)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Revenue:

Subscription

$

83,122

$

67,713

$

233,467

$

196,004

Maintenance

113,755

101,817

330,840

297,584

Total recurring revenue

196,877

169,530

564,307

493,588

License

43,613

43,747

120,723

118,320

Total revenue

240,490

213,277

685,030

611,908

Cost of revenue:

Cost of recurring revenue

20,614

18,022

58,159

52,617

Amortization of acquired technologies

44,172

43,835

131,961

132,121

Total cost of revenue

64,786

61,857

190,120

184,738

Gross profit

175,704

151,420

494,910

427,170

Operating expenses:

Sales and marketing

68,290

56,926

193,698

166,022

Research and development

29,575

23,274

82,468

71,800

General and administrative

25,405

19,597

72,382

59,849

Amortization of acquired intangibles

18,015

16,507

51,818

50,288

Total operating expenses

141,285

116,304

400,366

347,959

Operating income

34,419

35,116

94,544

79,211

Other income (expense):

Interest expense, net

(27,418

)

(35,627

)

(82,977

)

(112,103

)

Other income (expense), net

287

(13

)

506

(74,476

)

Total other income (expense)

(27,131

)

(35,640

)

(82,471

)

(186,579

)

Income (loss) before income taxes

7,288

(524

)

12,073

(107,368

)

Income tax expense (benefit)

2,895

(126

)

6,654

(20,045

)

Net income (loss)

$

4,393

$

(398

)

$

5,419

$

(87,323

)

Net income (loss) available to common stockholders

$

4,350

$

(75,006

)

$

5,359

$

(303,944

)

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

Basic earnings (loss) per share

$

0.01

$

(0.73

)

$

0.02

$

(2.98

)

Diluted earnings (loss) per share

$

0.01

$

(0.73

)

$

0.02

$

(2.98

)

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

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

306,890

102,078

306,381

101,915

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

311,102

102,078

310,607

101,915

SolarWinds Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Cash flows from operating activities

Net income (loss)

$

4,393

$

(398

)

$

5,419

$

(87,323

)

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

Depreciation and amortization

66,647

64,289

196,687

193,903

Provision for doubtful accounts

543

826

1,494

1,991

Stock-based compensation expense

8,832

160

23,917

332

Amortization of debt issuance costs

2,324

2,564

6,915

9,272

Loss on extinguishment of debt

—

—

—

60,590

Deferred taxes

(9,340

)

(1,009

)

(29,692

)

(14,085

)

(Gain) loss on foreign currency exchange rates

(807

)

202

(907

)

12,747

Other non-cash expenses

472

119

58

1,451

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

Accounts receivable

(8,070

)

(14,121

)

(781

)

(13,963

)

Income taxes receivable

(20

)

278

129

(131

)

Prepaid and other assets

(71

)

(824

)

(6,243

)

(1,931

)

Accounts payable

(1,085

)

(4,878

)

357

(3,958

)

Accrued liabilities and other

(318

)

5,771

(5,327

)

9,745

Accrued interest payable

(584

)

390

(28

)

(10,516

)

Income taxes payable

2,029

(348

)

(2,356

)

(16,112

)

Deferred revenue

9,564

6,287

26,299

22,291

Other long-term liabilities

685

(351

)

905

1,779

Net cash provided by operating activities

75,194

58,957

216,846

166,082

Cash flows from investing activities

Purchases of property and equipment

(1,832

)

(3,538

)

(10,606

)

(12,794

)

Purchases of intangible assets

(1,121

)

(781

)

(3,601

)

(2,082

)

Acquisitions, net of cash acquired

—

(47,588

)

(349,504

)

(60,578

)

Proceeds from sale of cost method investment and other

2,512

—

4,174

10,715

Net cash used in investing activities

(441

)

(51,907

)

(359,537

)

(64,739

)

Cash flows from financing activities

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

1,080

—

1,080

1,723

Repurchase of common stock and incentive restricted stock

(241

)

(516

)

(382

)

(568

)

Exercise of stock options

165

12

422

13

Premium paid on debt extinguishment

—

—

—

(22,725

)

Proceeds from credit agreement

—

—

35,000

626,950

Repayments of borrowings from credit agreement

(4,975

)

(4,975

)

(49,925

)

(694,925

)

Payment of debt issuance costs

—

—

—

(5,561

)

Payment for deferred offering costs

—

(1,185

)

—

(2,194

)

Net cash used in financing activities

(3,971

)

(6,664

)

(13,805

)

(97,287

)

Effect of exchange rate changes on cash and cash equivalents

(5,012

)

(131

)

(5,064

)

(3,439

)

Net increase (decrease) in cash and cash equivalents

65,770

255

(161,560

)

617

Cash and cash equivalents

Beginning of period

155,290

278,078

382,620

277,716

End of period

$

221,060

$

278,333

$

221,060

$

278,333

Supplemental disclosure of cash flow information

Cash paid for interest

$

25,729

$

32,987

$

77,478

$

114,148

Cash paid for income taxes

$

9,176

$

188

$

35,643

$

8,045

SolarWinds Corporation

Reconciliation of Financial Results ASC 606 to ASC 605

(Unaudited)

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

As reported
(ASC 606)

ASC 606 impact

Without adoption of
ASC 606
(ASC 605)

As reported
(ASC 606)

ASC 606 impact

Without adoption of

ASC 606
(ASC 605)

(in thousands)

Revenue:

Subscription

$

83,122

$

12

$

83,134

$

233,467

$

366

$

233,833

Maintenance

113,755

298

114,053

330,840

777

331,617

Total recurring revenue

196,877

310

197,187

564,307

1,143

565,450

License

43,613

(1,161

)

42,452

120,723

(1,825

)

118,898

Total revenue

$

240,490

$

(851

)

$

239,639

$

685,030

$

(682

)

$

684,348

Total operating expenses(1)

141,285

1,361

142,646

400,366

3,952

404,318

Net income (loss)

$

4,393

$

(2,212

)

$

2,181

$

5,419

$

(4,634

)

$

785

_______

(1)

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

SolarWinds Corporation

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

ASC 606

ASC 606 impact

ASC 605

ASC 605

ASC 606

ASC 606 impact

ASC 605

ASC 605

(in thousands, except margin data)

Revenue:

GAAP subscription revenue

$

83,122

$

12

$

83,134

$

67,713

$

233,467

$

366

$

233,833

$

196,004

Impact of purchase accounting

2,215

—

2,215

154

4,034

—

4,034

1,116

Non-GAAP subscription revenue

85,337

12

85,349

67,867

237,501

366

237,867

197,120

GAAP maintenance revenue

113,755

298

114,053

101,817

330,840

777

331,617

297,584

Impact of purchase accounting

—

—

—

574

—

—

—

2,173

Non-GAAP maintenance revenue

113,755

298

114,053

102,391

330,840

777

331,617

299,757

GAAP total recurring revenue

196,877

310

197,187

169,530

564,307

1,143

565,450

493,588

Impact of purchase accounting

2,215

—

2,215

728

4,034

—

4,034

3,289

Non-GAAP total recurring revenue

199,092

310

199,402

170,258

568,341

1,143

569,484

496,877

GAAP license revenue

43,613

(1,161

)

42,452

43,747

120,723

(1,825

)

118,898

118,320

Impact of purchase accounting

—

—

—

—

—

—

—

—

Non-GAAP license revenue

43,613

(1,161

)

42,452

43,747

120,723

(1,825

)

118,898

118,320

Total GAAP revenue

$

240,490

$

(851

)

$

239,639

$

213,277

$

685,030

$

(682

)

$

684,348

$

611,908

Impact of purchase accounting

$

2,215

$

—

$

2,215

$

728

$

4,034

$

—

$

4,034

$

3,289

Total non-GAAP revenue

$

242,705

$

(851

)

$

241,854

$

214,005

$

689,064

$

(682

)

$

688,382

$

615,197

GAAP cost of revenue

$

64,786

$

64,786

$

61,857

$

190,120

$

190,120

$

184,738

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

(402

)

(402

)

(2

)

(1,188

)

(1,188

)

(7

)

Amortization of acquired technologies

(44,172

)

(44,172

)

(43,835

)

(131,961

)

(131,961

)

(132,121

)

Acquisition and Sponsor related costs

(41

)

(41

)

(73

)

(139

)

(139

)

(235

)

Restructuring costs and other

(14

)

(14

)

—

(22

)

(22

)

—

Non-GAAP cost of revenue

$

20,157

$

20,157

$

17,947

$

56,810

$

56,810

$

52,375

GAAP gross profit

$

175,704

$

(851

)

$

174,853

$

151,420

$

494,910

$

(682

)

$

494,228

$

427,170

Impact of purchase accounting

2,215

—

2,215

728

4,034

—

4,034

3,289

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

402

—

402

2

1,188

—

1,188

7

Amortization of acquired technologies

44,172

—

44,172

43,835

131,961

—

131,961

132,121

Acquisition and Sponsor related costs

41

—

41

73

139

—

139

235

Restructuring costs and other

14

—

14

—

22

—

22

—

Non-GAAP gross profit

$

222,548

$

(851

)

$

221,697

$

196,058

$

632,254

$

(682

)

$

631,572

$

562,822

GAAP gross margin

73.1

%

73.0

%

71.0

%

72.2

%

72.2

%

69.8

%

Non-GAAP gross margin

91.7

%

91.7

%

91.6

%

91.8

%

91.7

%

91.5

%

GAAP sales and marketing expense

$

68,290

$

1,361

$

69,651

$

56,926

$

193,698

$

3,952

$

197,650

$

166,022

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

(2,700

)

—

(2,700

)

(115

)

(7,968

)

—

(7,968

)

(234

)

Acquisition and Sponsor related costs

(435

)

—

(435

)

(793

)

(1,664

)

—

(1,664

)

(2,118

)

Restructuring costs and other

(327

)

—

(327

)

—

(660

)

—

(660

)

(45

)

Non-GAAP sales and marketing expense

$

64,828

$

1,361

$

66,189

$

56,018

$

183,406

$

3,952

$

187,358

$

163,625

GAAP research and development expense

$

29,575

$

29,575

$

23,274

$

82,468

$

82,468

$

71,800

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

(2,650

)

(2,650

)

(21

)

(6,301

)

(6,301

)

(48

)

Acquisition and Sponsor related costs

(201

)

(201

)

(535

)

(754

)

(754

)

(1,980

)

Restructuring costs and other

(2

)

(2

)

—

(123

)

(123

)

(201

)

Non-GAAP research and development expense

$

26,722

$

26,722

$

22,718

$

75,290

$

75,290

$

69,571

GAAP general and administrative expense

$

25,405

$

25,405

$

19,597

$

72,382

$

72,382

$

59,849

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

(3,137

)

(3,137

)

(22

)

(8,690

)

(8,690

)

(43

)

Acquisition and Sponsor related costs

(1,023

)

(1,023

)

(4,213

)

(4,900

)

(4,900

)

(12,028

)

Restructuring costs and other

(1,243

)

(1,243

)

(281

)

(3,177

)

(3,177

)

(1,248

)

Non-GAAP general and administrative expense

$

20,002

$

20,002

$

15,081

$

55,615

$

55,615

$

46,530

GAAP operating expenses

$

141,285

$

1,361

$

142,646

$

116,304

$

400,366

$

3,952

$

404,318

$

347,959

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

(8,487

)

—

(8,487

)

(158

)

(22,959

)

—

(22,959

)

(325

)

Amortization of acquired intangibles

(18,015

)

—

(18,015

)

(16,507

)

(51,818

)

—

(51,818

)

(50,288

)

Acquisition and Sponsor related costs

(1,659

)

—

(1,659

)

(5,541

)

(7,318

)

—

(7,318

)

(16,126

)

Restructuring costs and other

(1,572

)

—

(1,572

)

(281

)

(3,960

)

—

(3,960

)

(1,494

)

Non-GAAP operating expenses

$

111,552

$

1,361

$

112,913

$

93,817

$

314,311

$

3,952

$

318,263

$

279,726

GAAP operating income

$

34,419

$

(2,212

)

$

32,207

$

35,116

$

94,544

$

(4,634

)

$

89,910

$

79,211

Impact of purchase accounting

2,215

—

2,215

728

4,034

—

4,034

3,289

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

8,889

—

8,889

160

24,147

—

24,147

332

Amortization of acquired technologies

44,172

—

44,172

43,835

131,961

—

131,961

132,121

Amortization of acquired intangibles

18,015

—

18,015

16,507

51,818

—

51,818

50,288

Acquisition and Sponsor related costs

1,700

—

1,700

5,614

7,457

—

7,457

16,361

Restructuring costs and other

1,586

—

1,586

281

3,982

—

3,982

1,494

Non-GAAP operating income

$

110,996

$

(2,212

)

$

108,784

$

102,241

$

317,943

$

(4,634

)

$

313,309

$

283,096

GAAP operating margin

14.3

%

13.4

%

16.5

%

13.8

%

13.1

%

12.9

%

Non-GAAP operating margin

45.7

%

45.0

%

47.8

%

46.1

%

45.5

%

46.0

%

GAAP net income (loss)

$

4,393

$

(2,212

)

$

2,181

$

(398

)

$

5,419

$

(4,634

)

$

785

$

(87,323

)

Impact of purchase accounting

2,215

—

2,215

728

4,034

—

4,034

3,289

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

8,889

—

8,889

160

24,147

—

24,147

332

Amortization of acquired technologies

44,172

—

44,172

43,835

131,961

—

131,961

132,121

Amortization of acquired intangibles

18,015

—

18,015

16,507

51,818

—

51,818

50,288

Acquisition and Sponsor related costs

1,700

—

1,700

5,614

7,457

—

7,457

16,361

Restructuring costs and other

1,586

—

1,586

281

3,982

—

3,982

1,494

Loss on extinguishment of debt

—

—

—

—

—

—

—

60,590

Tax benefits associated with above adjustments

(14,223

)

—

(14,223

)

(12,255

)

(41,032

)

—

(41,032

)

(50,747

)

Non-GAAP net income

$

66,747

$

(2,212

)

$

64,535

$

54,472

$

187,786

$

(4,634

)

$

183,152

$

126,405

GAAP diluted earnings (loss) per share

$

0.01

$

0.01

$

(0.73

)

$

0.02

$

—

$

(2.98

)

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

$

0.21

$

0.21

$

0.18

$

0.60

$

0.59

$

0.41

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

311,102

311,102

102,078

310,607

310,607

101,915

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

311,102

311,102

304,890

310,607

310,607

304,727

___________

(1)

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

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

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

(in thousands)

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

311,102

102,078

310,607

101,915

Pro forma dilutive shares:

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

—

177,812

—

177,812

Shares issued at offering(2)

—

25,000

—

25,000

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

311,102

304,890

310,607

304,727

_____________

(1)

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

(2)

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

Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018


ASC 606

ASC 606 impact

ASC 605

ASC 605


ASC 606

ASC 606 impact

ASC 605

ASC 605

(in thousands)

Net income (loss)

$

4,393

$

(2,212

)

$

2,181

$

(398

)

$

5,419

$

(4,634

)

$

785

$

(87,323

)

Amortization and depreciation

66,647

—

66,647

64,289

196,687

—

196,687

193,903

Income tax expense (benefit)

2,895

—

2,895

(126

)

6,654

—

6,654

(20,045

)

Interest expense, net

27,418

—

27,418

35,627

82,977

—

82,977

112,103

Impact of purchase accounting on total revenue

2,215

—

2,215

728

4,034

—

4,034

3,289

Unrealized foreign currency (gains) losses(1)

(807

)

—

(807

)

202

(907

)

—

(907

)

13,704

Acquisition and Sponsor related costs

1,700

—

1,700

5,614

7,457

—

7,457

16,361

Debt related costs(2)

94

—

94

105

290

—

290

61,838

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

8,889

—

8,889

160

24,147

—

24,147

332

Restructuring costs and other

1,586

—

1,586

281

3,982

—

3,982

1,494

Adjusted EBITDA

$

115,030

$

(2,212

)

$

112,818

$

106,482

$

330,740

$

(4,634

)

$

326,106

$

295,656

Adjusted EBITDA margin

47.4

%

46.6

%

49.8

%

48.0

%

47.4

%

48.1

%

_______________

(1)

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

(2)

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

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

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

Growth Rate

2019

2018

Growth Rate

(in thousands, except percentages)

GAAP subscription revenue

$

83,122

$

67,713

22.8

%

$

233,467

$

196,004

19.1

%

Impact of purchase accounting

2,215

154

2.9

4,034

1,116

1.4

Non-GAAP subscription revenue

85,337

67,867

25.7

237,501

197,120

20.5

Estimated foreign currency impact(1)

1,522

—

2.2

6,068

—

3.1

Non-GAAP subscription revenue on a constant currency basis

$

86,859

$

67,867

28.0

%

$

243,569

$

197,120

23.6

%

GAAP maintenance revenue

$

113,755

$

101,817

11.7

%

$

330,840

$

297,584

11.2

%

Impact of purchase accounting

—

574

(0.6

)

—

2,173

(0.8

)

Non-GAAP maintenance revenue

113,755

102,391

11.1

330,840

299,757

10.4

Estimated foreign currency impact(1)

732

—

0.7

3,264

—

1.1

Non-GAAP maintenance revenue on a constant currency basis

$

114,487

$

102,391

11.8

%

$

334,104

$

299,757

11.5

%

GAAP total recurring revenue

$

196,877

$

169,530

16.1

%

$

564,307

$

493,588

14.3

%

Impact of purchase accounting

2,215

728

0.8

4,034

3,289

0.1

Non-GAAP total recurring revenue

199,092

170,258

16.9

568,341

496,877

14.4

Estimated foreign currency impact(1)

2,254

—

1.3

9,332

—

1.9

Non-GAAP total recurring revenue on a constant currency basis

$

201,346

$

170,258

18.3

%

$

577,673

$

496,877

16.3

%

GAAP license revenue

$

43,613

$

43,747

(0.3

)%

$

120,723

$

118,320

2.0

%

Impact of purchase accounting

—

—

—

—

—

—

Non-GAAP license revenue

43,613

43,747

(0.3

)

120,723

118,320

2.0

Estimated foreign currency impact(1)

316

—

0.7

1,377

—

1.2

Non-GAAP license revenue on a constant currency basis

$

43,929

$

43,747

0.4

%

$

122,100

$

118,320

3.2

%

Total GAAP revenue

$

240,490

$

213,277

12.8

%

$

685,030

$

611,908

11.9

%

Impact of purchase accounting

2,215

728

0.6

4,034

3,289

0.1

Non-GAAP total revenue

242,705

214,005

13.4

689,064

615,197

12.0

Estimated foreign currency impact(1)

2,570

—

1.2

10,709

—

1.7

Non-GAAP total revenue on a constant currency basis

$

245,275

$

214,005

14.6

%

$

699,773

$

615,197

13.7

%

________

(1)

The estimated foreign currency impact is calculated using the average foreign currency exchange rates in the comparable prior year monthly periods and applying those rates to foreign-denominated revenue in the corresponding monthly periods in the three and nine months ended September 30, 2019.

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

Assuming Rates in Previously Issued Outlook

(Unaudited)

Three Months Ended

September 30, 2019

(in thousands)

Total non-GAAP revenue

$

242,705

Estimated foreign currency impact(2)

(308

)

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

$

242,397

________

(2)

Estimated foreign currency impact represents the impact of the difference between the actual foreign currency exchange rates in the period used to calculate our three months ended September 30, 2019 actual non-GAAP results and the rates assumed in our previously issued outlook dated August 1, 2019.

Reconciliation of Non-GAAP Revenue Outlook

Full Year 2019

Low

High

Low(2)

High(2)

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

Total non-GAAP revenue

$

938

$

944

12

%

13

%

Estimated foreign currency impact

13

13

2

1

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

$

951

$

957

14

%

14

%

Q4 2019

Low

High

Low(2)

High(2)

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

Total non-GAAP revenue

$

249

$

255

12

%

15

%

Estimated foreign currency impact

2

2

1

1

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

$

251

$

257

13

%

16

%

Full Year 2019(2)

Q4 2019(2)

Low

High

Low

High

Non-GAAP subscription revenue growth

22

%

22

%

26

%

28

%

Estimated foreign currency impact

3

3

2

1

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

25

%

25

%

28

%

29

%

Non-GAAP license and maintenance revenue growth

7

%

8

%

6

%

9

%

Estimated foreign currency impact

2

1

1

1

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

9

%

9

%

7

%

10

%

________

(1)

Non-GAAP revenue on a constant currency basis is calculated using the average foreign currency exchange rates in the comparable prior year periods and applying those rates to the estimated foreign-denominated revenue in the corresponding periods rather than the forecasted foreign currency exchange rates for the future periods.

(2)

Revenue growth rates are calculated using non-GAAP revenue from the comparable prior period.

Reconciliation of Unlevered Free Cash Flow

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

(in thousands)

Net cash provided by operating activities

$

75,194

$

58,957

$

216,846

$

166,082

Capital expenditures(1)

(2,953

)

(4,319

)

(14,207

)

(14,876

)

Free cash flow

72,241

54,638

202,639

151,206

Cash paid for interest and other debt related items

25,771

32,777

76,379

114,594

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

3,922

6,541

14,542

19,599

Unlevered free cash flow (excluding forfeited tax shield)

101,934

93,956

293,560

285,399

Forfeited tax shield related to interest payments(2)

(5,789

)

(7,422

)

(17,433

)

(25,683

)

Unlevered free cash flow

$

96,145

$

86,534

$

276,127

$

259,716

_______________

(1)

Includes purchases of property and equipment and purchases of intangible assets.

(2)

Forfeited tax shield related to interest payments assumes a statutory rate of 22.5% for the three and nine months ended September 30, 2019 and 2018.

Investors:

Dave Hafner

Phone: 385.374.7059

[email protected]

Media:

Tiffany Nels

Phone: 512.682.9535

[email protected]

Source: SolarWinds Worldwide, LLC.

Categories

Business Wire Press Releases

Next Articles