SolarWinds Announces Third Quarter 2020 Results

SolarWinds Corporation, a leading provider of powerful and affordable IT management software, reported results for its third quarter ended September 30, 2020.

On a GAAP basis:

• Total revenue for the third quarter of $261.0 million, representing 8.5% growth on a reported basis.
• Total recurring revenue for the third quarter of $221.7 million, representing 12.6% growth on a reported basis. Total recurring revenue includes:
  • Maintenance revenue for the third quarter of $121.1 million, representing 6.5% growth on a reported basis.
  • Subscription revenue for the third quarter of $100.6 million, representing 21.0% growth on a reported basis.
• Net income for the third quarter of $12.5 million.

On a non-GAAP basis:

• Non-GAAP total revenue for the third quarter of $261.3 million, representing 7.7% year-over-year growth on a reported basis and 6.5% year-over-year growth on a constant currency basis.
• Non-GAAP total recurring revenue for the third quarter of $222.0 million, representing 11.5% year-over-year growth on a reported basis and 10.2% year-over-year growth on a constant currency basis. Non-GAAP total recurring revenue includes:
  • Non-GAAP maintenance revenue for the third quarter of $121.1 million, representing 6.5% year-over-year growth on a reported basis.
  • Non-GAAP subscription revenue for the third quarter of $100.9 million, representing 18.2% year-over-year growth on a reported basis.
• Adjusted EBITDA for the third quarter of $132.7 million, representing a margin of 50.8% of non-GAAP total revenue.

“We delivered a strong performance in the third quarter of 2020 that included total non-GAAP revenue of $261 million, representing year-over-year growth of 8%, which exceeded the high end of our outlook range,” said Kevin Thompson, president and CEO, SolarWinds. “In the face of what has continued to be a volatile and uncertain economic environment, we continued to execute disciplined expense management, delivering an exceptional quarter of profitability generating $133 million of Adjusted EBITDA representing a margin of 51%. This year has shown us how critical the flexibility and resiliency of IT systems must be to support today’s modern businesses, which makes the work we do every day to support IT professionals as important as ever. We believe that the trend that we saw developing in the third quarter – CIOs and IT organizations aggressively looking for ways to reduce costs while still maintaining a depth of monitoring to ensure peak performance – gives us a strong opportunity to continue to capture share in our key markets.”

“The combination of our uniquely high level of profitability and focus on conversion of Adjusted EBITDA to free cash flow continued to pay dividends in the third quarter as our total cash balance reached $425 million dollars,” added Bart Kalsu, executive vice president and CFO, SolarWinds ” We converted approximately $108 million in unlevered free cash flow in the third quarter which puts our unlevered free cash for the first nine months of 2020 at $312 million and a year to date conversation rate of 86%. Additionally, our total non-GAAP recurring revenue grew 12% reaching $222 million dollars in the third quarter. Our non-GAAP recurring revenue included non-GAAP subscription revenue of $101 million dollars, reflecting year-over-year growth of 18%.”

Additional highlights for the third quarter of 2020 include:

• During the quarter, SolarWinds’ commitment to customer success earned industry recognition from the 2020 Stevie Awards for outstanding customer service and support achievement. SolarWinds understands speed to value when troubleshooting fires and managing critical systems are of top importance for IT professionals driving business performance. The company won three awards in the 14th annual Stevie Awards for Sales & Customer Service, recognizing the worldwide achievements of sales, customer service, and call center professionals; one award in the Asia-Pacific Stevie Awards, recognizing outstanding achievements to all organizations in the 22 nations of the Asia-Pacific region; and one award in the German Stevie Awards, recognizing outstanding achievements to all organizations in the European nations where German is an official language.
• SolarWinds announced a collaboration with Microsoft which will enhance monitoring and management for MSPs by integrating Microsoft 365^TM capabilities with SolarWinds® N-Central and RMM. The integration is designed to deliver Microsoft Intune® device monitoring from within the SolarWinds dashboard, which means the majority of client devices can be managed from a single place, with the same configuration and alerting policies-strengthening data protection and streamlining efficiency. This integration builds on SolarWinds’ commitment to deliver an integrated ecosystem that MSP partners need, enabling them to offer more comprehensive service and protection for the myriad of devices they manage.
• During the third quarter, SolarWinds also announced an expansion of its monitoring capabilities with the Cisco® Meraki® Marketplace to boost efficiencies for Meraki device monitoring, further building on the promise of a fully connected ecosystem. With this integration, MSP partners are now able to see the status of Cisco Meraki customers’ devices right in their SolarWinds N-central monitoring and management dashboard, enable notifications and alerts, and monitor connectivity and traffic-as well as conduct license warranty reporting, while leveraging the power of N-central to control, customize, and help secure complex environments.
• SolarWinds announced in the third quarter it has joined the ServiceNow® Service Graph Connector Program, a new designation within the Technology Partner Program, by integrating its Orion Platform with Service Graph, helping customers to quickly, easily, and reliably load data from SolarWinds into ServiceNow – to realize better IT management outcomes. The new integration arms customers with the ability to automatically populate the Service Graph and CMDB with inventory discovered by SolarWinds Orion Platform products, schedule synchronization and reconciliation of asset data with Service Graph and CMDB, and build associations and stack relationships based on the discovered environment for faster root cause and impact analysis for outages.

Additional business highlights:

• SolarWinds announced it has signed a definitive agreement to acquire SentryOne, a leading technology provider of database performance monitoring and DataOps solutions on SQL Server, Azure SQL Database, and the Microsoft Data Platform. Over the past 16 years, SentryOne has built a strong, well-respected product portfolio guided by a customer-centric model well-aligned to SolarWinds’ mission and commitment to the IT professional community. The SentryOne offering complements the on-premises and cloud-native database management offerings SolarWinds has today to serve the full needs of the mid-market and better serve larger organizations. The expected addition of the SentryOne products to the SolarWinds portfolio also will amplify the depth and breadth of support SolarWinds can offer for Microsoft and Microsoft Azure environments.

Balance Sheet

At September 30, 2020, total cash and cash equivalents were $425.0 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 27, 2020, SolarWinds is providing its financial outlook for the fourth quarter of 2020 and full year 2020. 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. These non-GAAP financial measures exclude, among other items mentioned below, stock-based compensation expense and related employer-paid payroll taxes, amortization, the impact of purchase accounting from acquisitions, costs related to the exploration of a potential spin-off of SolarWinds’ MSP business and other costs related to non-recurring items. We have not reconciled our estimates of these non-GAAP financial measures to their most directly comparable GAAP measure as a result of uncertainty regarding, and the potential variability of, these excluded items in future periods. Accordingly, reconciliation is not available without unreasonable effort, although it is important to note that these excluded items could be material to our results computed in accordance with GAAP in future periods. Our reported results provide reconciliations of non-GAAP financial measures to their nearest GAAP equivalents.

Financial Outlook for Fourth Quarter of 2020

SolarWinds’ management currently expects to achieve the following results for the fourth quarter of 2020:

• Non-GAAP total revenue in the range of $261.0 to $266.0 million, representing growth over the fourth quarter of 2019 non-GAAP total revenue of 5% to 7%, or 4% to 6% on a constant currency basis assuming the same average foreign currency exchange rates as those in the fourth quarter of 2019.
• Adjusted EBITDA in the range of $123.0 to $126.0 million, representing approximately 47% of non-GAAP total revenue.
• Non-GAAP diluted earnings per share of $0.25.
• Weighted average outstanding diluted shares of approximately 317.5 million.

Financial Outlook for Full Year 2020

SolarWinds’ management currently expects to achieve the following results for the full year 2020:

• Non-GAAP total revenue in the range of $1.017 to $1.022 billion, representing growth over 2019 non-GAAP revenue of 8% to 9%, or 8% to 9% on a constant currency basis assuming the same average foreign currency exchange rates as those in 2019.
• Adjusted EBITDA in the range of $486.0 to $489.0 million, representing approximately 48% of non-GAAP total revenue.
• Non-GAAP diluted earnings per share of $0.98.
• Weighted average outstanding diluted shares of approximately 315.5 million.

Additional details on the company’s outlook as well as an update on the previously announced exploration of a potential spin-off of the company’s MSP business will be provided on the conference call.