SolarWinds Corporation (NYSE: SWI), a leading provider of powerful and affordable IT management software, today 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.

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

“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™ 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.

Additional details on the acquisition of SentryOne will be discussed on the conference call.

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.

Conference Call and Webcast

In conjunction with this announcement, SolarWinds will host a conference call today to discuss its financial results, business, business outlook and an update on the potential spin-off of its MSP business at 4:00 p.m. CT (5:00 p.m. ET/2:00 p.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 (833) 968-2238 and internationally at +1 (825) 312-2061. To access the live call, please dial in 5-10 minutes before the scheduled start time and enter the conference ID 8865708. 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 of 2020 and full year 2020, our market share and our positioning in the current economic environment. 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 possibility that the global COVID-19 pandemic may adversely affect our business, results of operations and financial condition; (b) any of the following factors either generally or as a result of the impacts of the global COVID-19 pandemic on the global economy or on our business operations and financial condition or on the business operations and financial conditions of our customers, their end-customers and our prospective customers: (i) reductions in information technology spending or delays in purchasing decisions by our customers, their end-customers and our prospective customers, (ii) the inability to sell products to new customers or to sell additional products or upgrades to our existing customers, (iii) any decline in our renewal or net retention rates, (iv) 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, (v) the timing and adoption of new products, product upgrades or pricing model changes by SolarWinds or its competitors, (vi) potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity, (vii) risks associated with our international operations; (c) 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; (d) our inability to successfully identify, complete, and integrate acquisitions and manage our growth effectively; (e) our status as a controlled company; (f) risks related to the potential spin-off of our MSP business into a newly created and separately traded public company, including that the process of exploring the spin-off and potentially completing the spin-off could disrupt or adversely affect the consolidated or separate businesses, results of operations and financial condition, that the spin-off may not achieve some or all of any anticipated benefits with respect to either business, and that the spin-off may not be completed in accordance with our expected plans or anticipated timelines, or at all; and (g) 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, 2019 filed on February 24, 2020, the Form 10-Q for the quarter ended March 31, 2020 filed on May 8, 2020, the Form 10-Q for the quarter ended June 30, 2020 filed on August 10, 2020 and the Form 10-Q for the quarter ended September 30, 2020 that SolarWinds anticipates filing on or before November 9, 2020. All information provided in this release is as of the date hereof and SolarWinds undertakes no duty to update this information except as required by law.

Non-GAAP Financial Measures

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

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

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

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

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 from acquisitions. 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 other costs, spin-off exploration costs and restructuring costs. Management believes these measures are useful for the following reasons:

  • Amortization of Acquired Intangible Assets. We provide non-GAAP information that excludes expenses related to purchased intangible assets associated with our acquisitions. We believe that eliminating this expense from our non-GAAP measures is useful to investors, because the amortization of acquired intangible assets can be inconsistent in amount and frequency and is significantly impacted by the timing and magnitude of our acquisition transactions, which also vary in frequency from period to period. Accordingly, we analyze the performance of our operations in each period without regard to such expenses.
  • Stock-Based Compensation Expense and Related Employer-paid Payroll Taxes. We provide non-GAAP information that excludes expenses related to stock-based compensation and related employer-paid payroll taxes. We believe that the exclusion of stock-based compensation expense provides for a better comparison of our operating results to prior periods and to our peer companies as the calculations of stock-based compensation vary from period to period and company to company due to different valuation methodologies, subjective assumptions and the variety of award types. Employer-paid payroll taxes on stock-based compensation is dependent on our stock price and the timing of the taxable events related to the equity awards, over which our management has little control, and does not correlate to the core operation of our business. Because of these unique characteristics of stock-based compensation and related employer-paid payroll taxes, management excludes these expenses when analyzing the organization’s business performance.
  • Acquisition and Other Costs. We exclude certain expense items resulting from our take private transaction in early 2016 and other acquisitions, such as legal, accounting and advisory fees, changes in fair value of contingent consideration, costs related to integrating the acquired businesses, deferred compensation, severance and retention expense. In addition, we exclude certain other costs including expense related to our offerings. We consider these adjustments, to some extent, to be unpredictable and dependent on a significant number of factors that are outside of our control. Furthermore, acquisitions result in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations. We believe that providing these non-GAAP measures that exclude acquisition and other costs, allows users of our financial statements to better review and understand the historical and current results of our continuing operations, and also facilitates comparisons to our historical results and results of less acquisitive peer companies, both with and without such adjustments.
  • Spin-off Exploration Costs. We exclude certain expense items resulting from the exploration of a potential spin-off transaction of our MSP business into a newly created and separately traded public company. These costs include legal, accounting and advisory fees, implementation and integration costs, duplicative costs for subscriptions, employee and contractor costs and other incremental separation costs related to the potential spin-off of the MSP business. The potential MSP spin-off transaction results in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations. We believe that providing non-GAAP measures that exclude these costs facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance.
  • Restructuring Costs. We provide non-GAAP information that excludes restructuring costs such as severance and the estimated costs of exiting and terminating facility lease commitments, as they relate to our corporate restructuring and exit activities and costs related to the separation of employment with executives of the Company. These costs are inconsistent in amount and are significantly impacted by the timing and nature of these events. Therefore, although we may incur these types of expenses in the future, we believe that eliminating these costs for purposes of calculating the non-GAAP financial measures facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance.

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 weighted average outstanding 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 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 costs, acquisition and other costs, spin-off exploration costs, 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 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 acquisitions, 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 other costs, spin-off exploration 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.

© 2020 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,

 

2020

 

2019

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

424,986

 

 

$

173,372

 

Accounts receivable, net of allowances of $2,961 and $3,171 as of September 30, 2020 and December 31, 2019, respectively

115,604

 

 

121,930

 

Income tax receivable

3,380

 

 

1,117

 

Prepaid and other current assets

19,139

 

 

23,480

 

Total current assets

563,109

 

 

319,899

 

Property and equipment, net

48,167

 

 

38,945

 

Operating lease assets

104,844

 

 

89,825

 

Deferred taxes

4,542

 

 

4,533

 

Goodwill

4,108,746

 

 

4,058,198

 

Intangible assets, net

587,458

 

 

771,513

 

Other assets, net

33,133

 

 

27,829

 

Total assets

$

5,449,999

 

 

$

5,310,742

 

Liabilities and stockholders’ equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

12,903

 

 

$

13,796

 

Accrued liabilities and other

56,840

 

 

47,035

 

Current operating lease liabilities

16,277

 

 

14,093

 

Accrued interest payable

157

 

 

248

 

Income taxes payable

16,007

 

 

15,714

 

Current portion of deferred revenue

323,313

 

 

312,227

 

Current debt obligation

19,900

 

 

19,900

 

Total current liabilities

445,397

 

 

423,013

 

Long-term liabilities:

 

 

 

Deferred revenue, net of current portion

34,839

 

 

31,173

 

Non-current deferred taxes

73,171

 

 

97,884

 

Non-current operating lease liabilities

109,936

 

 

93,084

 

Other long-term liabilities

118,876

 

 

122,660

 

Long-term debt, net of current portion

1,885,352

 

 

1,893,406

 

Total liabilities

2,667,571

 

 

2,661,220

 

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

Common stock, $0.001 par value: 1,000,000,000 shares authorized and 311,263,373 and 308,290,310 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

311

 

 

308

 

Preferred stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

—

 

 

—

 

Additional paid-in capital

3,092,633

 

 

3,041,880

 

Accumulated other comprehensive income (loss)

51,141

 

 

(5,247

)

Accumulated deficit

(361,657

)

 

(387,419

)

Total stockholders’ equity

2,782,428

 

 

2,649,522

 

Total liabilities and stockholders’ equity

$

5,449,999

 

 

$

5,310,742

 

 

SolarWinds Corporation

 

Condensed Consolidated Statements of Operations

(In thousands, except per share information)

(Unaudited)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2020

 

2019

 

2020

 

2019

Revenue:

 

 

 

 

 

 

 

Subscription

$

100,564

 

 

$

83,122

 

 

$

290,039

 

 

$

233,467

 

Maintenance

121,134

 

 

113,755

 

 

353,981

 

 

330,840

 

Total recurring revenue

221,698

 

 

196,877

 

 

644,020

 

 

564,307

 

License

39,284

 

 

43,613

 

 

109,927

 

 

120,723

 

Total revenue

260,982

 

 

240,490

 

 

753,947

 

 

685,030

 

Cost of revenue:

 

 

 

 

 

 

 

Cost of recurring revenue

23,484

 

 

20,614

 

 

67,807

 

 

58,159

 

Amortization of acquired technologies

45,463

 

 

44,172

 

 

134,789

 

 

131,961

 

Total cost of revenue

68,947

 

 

64,786

 

 

202,596

 

 

190,120

 

Gross profit

192,035

 

 

175,704

 

 

551,351

 

 

494,910

 

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing

73,460

 

 

68,290

 

 

216,550

 

 

193,698

 

Research and development

31,288

 

 

29,575

 

 

93,878

 

 

82,468

 

General and administrative

33,558

 

 

25,405

 

 

87,780

 

 

72,382

 

Amortization of acquired intangibles

18,624

 

 

18,015

 

 

55,214

 

 

51,818

 

Total operating expenses

156,930

 

 

141,285

 

 

453,422

 

 

400,366

 

Operating income

35,105

 

 

34,419

 

 

97,929

 

 

94,544

 

Other income (expense):

 

 

 

 

 

 

 

Interest expense, net

(16,792

)

 

(27,418

)

 

(59,200

)

 

(82,977

)

Other income (expense), net

(547

)

 

287

 

 

(942

)

 

506

 

Total other income (expense)

(17,339

)

 

(27,131

)

 

(60,142

)

 

(82,471

)

Income before income taxes

17,766

 

 

7,288

 

 

37,787

 

 

12,073

 

Income tax expense

5,264

 

 

2,895

 

 

12,025

 

 

6,654

 

Net income

$

12,502

 

 

$

4,393

 

 

$

25,762

 

 

$

5,419

 

Net income available to common stockholders

$

12,433

 

 

$

4,350

 

 

$

25,597

 

 

$

5,359

 

Net income available to common stockholders per share:

 

 

 

 

 

 

 

Basic earnings per share

$

0.04

 

 

$

0.01

 

 

$

0.08

 

 

$

0.02

 

Diluted earnings per share

$

0.04

 

 

$

0.01

 

 

$

0.08

 

 

$

0.02

 

Weighted-average shares used to compute net income available to common stockholders per share:

 

 

 

 

 

 

 

Shares used in computation of basic earnings per share

310,894

 

 

306,890

 

 

310,028

 

 

306,381

 

Shares used in computation of diluted earnings per share

316,721

 

 

311,102

 

 

314,814

 

 

310,607

 

 

SolarWinds Corporation

 

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2020

 

2019

 

2020

 

2019

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

12,502

 

 

$

4,393

 

 

$

25,762

 

 

$

5,419

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

69,510

 

 

66,647

 

 

205,525

 

 

196,687

 

Provision for losses on accounts receivable

(327

)

 

543

 

 

2,633

 

 

1,494

 

Stock-based compensation expense

21,739

 

 

8,832

 

 

45,984

 

 

23,917

 

Amortization of debt issuance costs

2,301

 

 

2,324

 

 

6,871

 

 

6,915

 

Deferred taxes

(9,989

)

 

(9,340

)

 

(26,021

)

 

(29,692

)

(Gain) loss on foreign currency exchange rates

370

 

 

(807

)

 

2,009

 

 

(907

)

Other non-cash expenses (benefits)

88

 

 

472

 

 

(812

)

 

58

 

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

 

 

 

 

 

 

 

Accounts receivable

(8,760

)

 

(8,070

)

 

5,094

 

 

(781

)

Income taxes receivable

(2,143

)

 

(20

)

 

(2,247

)

 

129

 

Prepaid and other assets

3,283

 

 

(71

)

 

2,059

 

 

(6,243

)

Accounts payable

1,730

 

 

(1,085

)

 

(1,064

)

 

357

 

Accrued liabilities and other

10,695

 

 

(318

)

 

11,934

 

 

(5,327

)

Accrued interest payable

(2

)

 

(584

)

 

(91

)

 

(28

)

Income taxes payable

(7,264

)

 

2,029

 

 

(3,242

)

 

(2,356

)

Deferred revenue

6,886

 

 

9,564

 

 

10,249

 

 

26,299

 

Other long-term liabilities

308

 

 

685

 

 

374

 

 

905

 

Net cash provided by operating activities

100,927

 

 

75,194

 

 

285,017

 

 

216,846

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

(8,296

)

 

(1,832

)

 

(20,419

)

 

(10,606

)

Purchases of intangible assets

(2,679

)

 

(1,121

)

 

(6,861

)

 

(3,601

)

Acquisitions, net of cash acquired

—

 

 

—

 

 

—

 

 

(349,504

)

Other investing activities

—

 

 

2,512

 

 

—

 

 

4,174

 

Net cash used in investing activities

(10,975

)

 

(441

)

 

(27,280

)

 

(359,537

)

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from issuance of common stock under employee stock purchase plan

3,049

 

 

1,080

 

 

5,406

 

 

1,080

 

Repurchase of common stock and incentive restricted stock

(418

)

 

(241

)

 

(2,794

)

 

(382

)

Exercise of stock options

556

 

 

165

 

 

865

 

 

422

 

Proceeds from credit agreement

—

 

 

—

 

 

—

 

 

35,000

 

Repayments of borrowings from credit agreement

(4,975

)

 

(4,975

)

 

(14,925

)

 

(49,925

)

Net cash used in financing activities

(1,788

)

 

(3,971

)

 

(11,448

)

 

(13,805

)

Effect of exchange rate changes on cash and cash equivalents

5,408

 

 

(5,012

)

 

5,325

 

 

(5,064

)

Net increase (decrease) in cash and cash equivalents

93,572

 

 

65,770

 

 

251,614

 

 

(161,560

)

Cash and cash equivalents

 

 

 

 

 

 

 

Beginning of period

331,414

 

 

155,290

 

 

173,372

 

 

382,620

 

End of period

$

424,986

 

 

$

221,060

 

 

$

424,986

 

 

$

221,060

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Cash paid for interest

$

14,574

 

 

$

25,729

 

 

$

52,723

 

 

$

77,478

 

Cash paid for income taxes

$

23,692

 

 

$

9,176

 

 

$

40,447

 

 

$

35,643

 

 

SolarWinds Corporation

 

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

(in thousands, except margin data)

Revenue:

 

 

 

 

 

 

 

GAAP subscription revenue

$

100,564

 

 

$

83,122

 

 

$

290,039

 

 

$

233,467

 

Impact of purchase accounting

293

 

 

2,215

 

 

2,366

 

 

4,034

 

Non-GAAP subscription revenue

100,857

 

 

85,337

 

 

292,405

 

 

237,501

 

GAAP maintenance revenue

121,134

 

 

113,755

 

 

353,981

 

 

330,840

 

Impact of purchase accounting

—

 

 

—

 

 

—

 

 

—

 

Non-GAAP maintenance revenue

121,134

 

 

113,755

 

 

353,981

 

 

330,840

 

GAAP total recurring revenue

221,698

 

 

196,877

 

 

644,020

 

 

564,307

 

Impact of purchase accounting

293

 

 

2,215

 

 

2,366

 

 

4,034

 

Non-GAAP total recurring revenue

221,991

 

 

199,092

 

 

646,386

 

 

568,341

 

GAAP license revenue

39,284

 

 

43,613

 

 

109,927

 

 

120,723

 

Impact of purchase accounting

—

 

 

—

 

 

—

 

 

—

 

Non-GAAP license revenue

39,284

 

 

43,613

 

 

109,927

 

 

120,723

 

Total GAAP revenue

$

260,982

 

 

$

240,490

 

 

$

753,947

 

 

$

685,030

 

Impact of purchase accounting

$

293

 

 

$

2,215

 

 

$

2,366

 

 

$

4,034

 

Total non-GAAP revenue

$

261,275

 

 

$

242,705

 

 

$

756,313

 

 

$

689,064

 

 

 

 

 

 

 

 

 

GAAP cost of revenue

$

68,947

 

 

$

64,786

 

 

$

202,596

 

 

$

190,120

 

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

(777

)

 

(402

)

 

(1,810

)

 

(1,188

)

Amortization of acquired technologies

(45,463

)

 

(44,172

)

 

(134,789

)

 

(131,961

)

Acquisition and other costs

(8

)

 

(41

)

 

(24

)

 

(139

)

Spin-off exploration costs

—

 

 

—

 

 

—

 

 

—

 

Restructuring costs

(20

)

 

(14

)

 

(20

)

 

(22

)

Non-GAAP cost of revenue

$

22,679

 

 

$

20,157

 

 

$

65,953

 

 

$

56,810

 

 

 

 

 

 

 

 

 

GAAP gross profit

$

192,035

 

 

$

175,704

 

 

$

551,351

 

 

$

494,910

 

Impact of purchase accounting

293

 

 

2,215

 

 

2,366

 

 

4,034

 

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

777

 

 

402

 

 

1,810

 

 

1,188

 

Amortization of acquired technologies

45,463

 

 

44,172

 

 

134,789

 

 

131,961

 

Acquisition and other costs

8

 

 

41

 

 

24

 

 

139

 

Spin-off exploration costs

—

 

 

—

 

 

—

 

 

—

 

Restructuring costs

20

 

 

14

 

 

20

 

 

22

 

Non-GAAP gross profit

$

238,596

 

 

$

222,548

 

 

$

690,360

 

 

$

632,254

 

GAAP gross margin

73.6

%

 

73.1

%

 

73.1

%

 

72.2

%

Non-GAAP gross margin

91.3

%

 

91.7

%

 

91.3

%

 

91.8

%

 

 

 

 

 

 

 

 

GAAP sales and marketing expense

$

73,460

 

 

$

68,290

 

 

$

216,550

 

 

$

193,698

 

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

(6,739

)

 

(2,700

)

 

(14,760

)

 

(7,968

)

Acquisition and other costs

(53

)

 

(435

)

 

(111

)

 

(1,664

)

Spin-off exploration costs

(115

)

 

—

 

 

(115

)

 

—

 

Restructuring costs

(149

)

 

(327

)

 

(182

)

 

(660

)

Non-GAAP sales and marketing expense

$

66,404

 

 

$

64,828

 

 

$

201,382

 

 

$

183,406

 

 

 

 

 

 

 

 

 

GAAP research and development expense

$

31,288

 

 

$

29,575

 

 

$

93,878

 

 

$

82,468

 

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

(4,607

)

 

(2,650

)

 

(11,712

)

 

(6,301

)

Acquisition and other costs

—

 

 

(201

)

 

(9

)

 

(754

)

Spin-off exploration costs

—

 

 

—

 

 

—

 

 

—

 

Restructuring costs

—

 

 

(2

)

 

—

 

 

(123

)

Non-GAAP research and development expense

$

26,681

 

 

$

26,722

 

 

$

82,157

 

 

$

75,290

 

 

 

 

 

 

 

 

 

GAAP general and administrative expense

$

33,558

 

 

$

25,405

 

 

$

87,780

 

 

$

72,382

 

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

(9,744

)

 

(3,137

)

 

(18,220

)

 

(8,690

)

Acquisition and other costs

(1,115

)

 

(1,023

)

 

(3,853

)

 

(4,900

)

Spin-off exploration costs

(2,517

)

 

—

 

 

(2,517

)

 

—

 

Restructuring costs

(1,986

)

 

(1,243

)

 

(2,166

)

 

(3,177

)

Non-GAAP general and administrative expense

$

18,196

 

 

$

20,002

 

 

$

61,024

 

 

$

55,615

 

 

 

 

 

 

 

 

 

GAAP operating expenses

$

156,930

 

 

$

141,285

 

 

$

453,422

 

 

$

400,366

 

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

(21,090

)

 

(8,487

)

 

(44,692

)

 

(22,959

)

Amortization of acquired intangibles

(18,624

)

 

(18,015

)

 

(55,214

)

 

(51,818

)

Acquisition and other costs

(1,168

)

 

(1,659

)

 

(3,973

)

 

(7,318

)

Spin-off exploration costs

(2,632

)

 

—

 

 

(2,632

)

 

—

 

Restructuring costs

(2,135

)

 

(1,572

)

 

(2,348

)

 

(3,960

)

Non-GAAP operating expenses

$

111,281

 

 

$

111,552

 

 

$

344,563

 

 

$

314,311

 

 

 

 

 

 

 

 

 

GAAP operating income

$

35,105

 

 

$

34,419

 

 

$

97,929

 

 

$

94,544

 

Impact of purchase accounting

293

 

 

2,215

 

 

2,366

 

 

4,034

 

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

21,867

 

 

8,889

 

 

46,502

 

 

24,147

 

Amortization of acquired technologies

45,463

 

 

44,172

 

 

134,789

 

 

131,961

 

Amortization of acquired intangibles

18,624

 

 

18,015

 

 

55,214

 

 

51,818

 

Acquisition and other costs

1,176

 

 

1,700

 

 

3,997

 

 

7,457

 

Spin-off exploration costs

2,632

 

 

—

 

 

2,632

 

 

—

 

Restructuring costs

2,155

 

 

1,586

 

 

2,368

 

 

3,982

 

Non-GAAP operating income

$

127,315

 

 

$

110,996

 

 

$

345,797

 

 

$

317,943

 

GAAP operating margin

13.5

%

 

14.3

%

 

13.0

%

 

13.8

%

Non-GAAP operating margin

48.7

%

 

45.7

%

 

45.7

%

 

46.1

%

 

 

 

 

 

 

 

 

GAAP net income

$

12,502

 

 

$

4,393

 

 

$

25,762

 

 

$

5,419

 

Impact of purchase accounting

293

 

 

2,215

 

 

2,366

 

 

4,034

 

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

21,867

 

 

8,889

 

 

46,502

 

 

24,147

 

Amortization of acquired technologies

45,463

 

 

44,172

 

 

134,789

 

 

131,961

 

Amortization of acquired intangibles

18,624

 

 

18,015

 

 

55,214

 

 

51,818

 

Acquisition and other costs

1,176

 

 

1,700

 

 

3,997

 

 

7,457

 

Spin-off exploration costs

2,632

 

 

—

 

 

2,632

 

 

—

 

Restructuring costs

2,155

 

 

1,586

 

 

2,368

 

 

3,982

 

Tax benefits associated with above adjustments

(17,045

)

 

(14,223

)

 

(44,135

)

 

(41,032

)

Non-GAAP net income

$

87,667

 

 

$

66,747

 

 

$

229,495

 

 

$

187,786

 

 

 

 

 

 

 

 

 

GAAP diluted earnings per share

$

0.04

 

 

$

0.01

 

 

$

0.08

 

 

$

0.02

 

Non-GAAP diluted earnings per share

$

0.28

 

 

$

0.21

 

 

$

0.73

 

 

$

0.60

 

 

Reconciliation of GAAP Net Income to Adjusted EBITDA

(Unaudited)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

(in thousands)

Net income

$

12,502

 

 

$

4,393

 

 

$

25,762

 

 

$

5,419

 

Amortization and depreciation

69,510

 

 

66,647

 

 

205,525

 

 

196,687

 

Income tax expense

5,264

 

 

2,895

 

 

12,025

 

 

6,654

 

Interest expense, net

16,792

 

 

27,418

 

 

59,200

 

 

82,977

 

Impact of purchase accounting on total revenue

293

 

 

2,215

 

 

2,366

 

 

4,034

 

Unrealized foreign currency (gains) losses

370

 

 

(807

)

 

2,009

 

 

(907

)

Acquisition and other costs

1,176

 

 

1,700

 

 

3,997

 

 

7,457

 

Spin-off exploration costs

2,632

 

 

—

 

 

2,632

 

 

—

 

Debt related costs

90

 

 

94

 

 

274

 

 

290

 

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

21,867

 

 

8,889

 

 

46,502

 

 

24,147

 

Restructuring costs

2,155

 

 

1,586

 

 

2,368

 

 

3,982

 

Adjusted EBITDA

$

132,651

 

 

$

115,030

 

 

$

362,660

 

 

$

330,740

 

Adjusted EBITDA margin

50.8

%

 

47.4

%

 

48.0

%

 

48.0

%

 

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,

 

2020

 

2019

 

Growth Rate

 

2020

 

2019

 

Growth Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except percentages)

GAAP subscription revenue

$

100,564

 

 

$

83,122

 

 

21.0

%

 

$

290,039

 

 

$

233,467

 

 

24.2

%

Impact of purchase accounting

293

 

 

2,215

 

 

(2.8

)

 

2,366

 

 

4,034

 

 

(1.1

)

Non-GAAP subscription revenue

100,857

 

 

85,337

 

 

18.2

 

 

292,405

 

 

237,501

 

 

23.1

 

Estimated foreign currency impact(1)

(1,362

)

 

—

 

 

(1.6

)

 

786

 

 

—

 

 

0.3

 

Non-GAAP subscription revenue on a constant currency basis

$

99,495

 

 

$

85,337

 

 

16.6

%

 

$

293,191

 

 

$

237,501

 

 

23.4

%

 

 

 

 

 

 

 

 

 

 

 

 

GAAP maintenance revenue

$

121,134

 

 

$

113,755

 

 

6.5

%

 

$

353,981

 

 

$

330,840

 

 

7.0

%

Impact of purchase accounting

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Non-GAAP maintenance revenue

121,134

 

 

113,755

 

 

6.5

 

 

353,981

 

 

330,840

 

 

7.0

 

Estimated foreign currency impact(1)

(1,159

)

 

—

 

 

(1.0

)

 

(149

)

 

—

 

 

—

 

Non-GAAP maintenance revenue on a constant currency basis

$

119,975

 

 

$

113,755

 

 

5.5

%

 

$

353,832

 

 

$

330,840

 

 

6.9

%

 

 

 

 

 

 

 

 

 

 

 

 

GAAP total recurring revenue

$

221,698

 

 

$

196,877

 

 

12.6

%

 

$

644,020

 

 

$

564,307

 

 

14.1

%

Impact of purchase accounting

293

 

 

2,215

 

 

(1.1

)

 

2,366

 

 

4,034

 

 

(0.4

)

Non-GAAP total recurring revenue

221,991

 

 

199,092

 

 

11.5

 

 

646,386

 

 

568,341

 

 

13.7

 

Estimated foreign currency impact(1)

(2,521

)

 

—

 

 

(1.3

)

 

637

 

 

—

 

 

0.1

 

Non-GAAP total recurring revenue on a constant currency basis

$

219,470

 

 

$

199,092

 

 

10.2

%

 

$

647,023

 

 

$

568,341

 

 

13.8

%

 

 

 

 

 

 

 

 

 

 

 

 

GAAP license revenue

$

39,284

 

 

$

43,613

 

 

(9.9

)%

 

$

109,927

 

 

$

120,723

 

 

(8.9

)%

Impact of purchase accounting

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Non-GAAP license revenue

39,284

 

 

43,613

 

 

(9.9

)

 

109,927

 

 

120,723

 

 

(8.9

)

Estimated foreign currency impact(1)

(270

)

 

—

 

 

(0.6

)

 

113

 

 

—

 

 

0.1

 

Non-GAAP license revenue on a constant currency basis

$

39,014

 

 

$

43,613

 

 

(10.5

)%

 

$

110,040

 

 

$

120,723

 

 

(8.8

)%

 

 

 

 

 

 

 

 

 

 

 

 

Total GAAP revenue

$

260,982

 

 

$

240,490

 

 

8.5

%

 

$

753,947

 

 

$

685,030

 

 

10.1

%

Impact of purchase accounting

293

 

 

2,215

 

 

(0.8

)

 

2,366

 

 

4,034

 

 

(0.3

)

Non-GAAP total revenue

261,275

 

 

242,705

 

 

7.7

 

 

756,313

 

 

689,064

 

 

9.8

 

Estimated foreign currency impact(1)

(2,791

)

 

—

 

 

(1.1

)

 

750

 

 

—

 

 

0.1

 

Non-GAAP total revenue on a constant currency basis

$

258,484

 

 

$

242,705

 

 

6.5

%

 

$

757,063

 

 

$

689,064

 

 

9.9

%

 

 

 

 

 

 

 

 

 

 

 

 

Total GAAP revenue - Core IT Management

$

184,819

 

 

$

173,352

 

 

6.6

%

 

$

531,221

 

 

$

491,080

 

 

8.2

%

Impact of purchase accounting

293

 

 

2,215

 

 

(1.2

)

 

2,366

 

 

4,034

 

 

(0.4

)

Non-GAAP total revenue - Core IT Management

185,112

 

 

175,567

 

 

5.4

 

 

533,587

 

 

495,114

 

 

7.8

 

Estimated foreign currency impact(1)

(1,522

)

 

—

 

 

(0.9

)

 

(103

)

 

—

 

 

—

 

Non-GAAP total revenue on a constant currency basis - Core IT Management

$

183,590

 

 

$

175,567

 

 

4.6

%

 

$

533,484

 

 

$

495,114

 

 

7.7

%

 

 

 

 

 

 

 

 

 

 

 

 

Total GAAP revenue - MSP

$

76,163

 

 

$

67,138

 

 

13.4

%

 

$

222,726

 

 

$

193,950

 

 

14.8

%

Impact of purchase accounting

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Non-GAAP total revenue - MSP

76,163

 

 

67,138

 

 

13.4

 

 

222,726

 

 

193,950

 

 

14.8

 

Estimated foreign currency impact(1)

(1,269

)

 

—

 

 

(1.9

)

 

853

 

 

—

 

 

0.4

 

Non-GAAP total revenue on a constant currency basis - MSP

$

74,894

 

 

$

67,138

 

 

11.6

%

 

$

223,579

 

 

$

193,950

 

 

15.3

%

_______________

(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, 2020.

 

Reconciliation of 2020 Non-GAAP Revenue to Adjusted Non-GAAP Revenue

Assuming Rates in Previously Issued Outlook

(Unaudited)

 

 

Three Months Ended
September 30, 2020

 

 

 

(in thousands)

Total non-GAAP revenue

$

261,275

 

Estimated foreign currency impact(2)

(1,301

)

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

$

259,974

 

_______________

(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, 2020 actual non-GAAP results and the rates assumed in our previously issued outlook dated August 6, 2020.

 

Reconciliation of Non-GAAP Revenue Outlook

 

 

Q4 2020

 

Low

 

High

 

Low(2)

 

High(2)

 

 

 

 

 

 

 

 

 

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

Total non-GAAP revenue

$

261

 

 

$

266

 

 

5

%

 

7

%

Estimated foreign currency impact

(3

)

 

(3

)

 

(1

)

 

(1

)

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

$

258

 

 

$

263

 

 

4

%

 

6

%

 

 

Full Year 2020

 

Low

 

High

 

Low(2)

 

High(2)

 

 

 

 

 

 

 

 

 

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

Total non-GAAP revenue

$

1,017

 

 

$

1,022

 

 

8

%

 

9

%

Estimated foreign currency impact

(1

)

 

(1

)

 

—

 

 

—

 

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

$

1,016

 

 

$

1,021

 

 

8

%

 

9

%

_______________

(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

(Unaudited)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

(in thousands)

Net cash provided by operating activities

$

100,927

 

 

$

75,194

 

 

$

285,017

 

 

$

216,846

 

Capital expenditures(1)

(10,975

)

 

(2,953

)

 

(27,280

)

 

(14,207

)

Free cash flow

89,952

 

 

72,241

 

 

257,737

 

 

202,639

 

Cash paid for interest and other debt related items

14,583

 

 

25,771

 

 

52,694

 

 

76,379

 

Cash paid for acquisition and other costs, spin-off exploration costs, restructuring costs, employer-paid payroll taxes on stock awards and other one-time items

6,970

 

 

3,922

 

 

13,415

 

 

14,542

 

Unlevered free cash flow (excluding forfeited tax shield)

111,505

 

 

101,934

 

 

323,846

 

 

293,560

 

Forfeited tax shield related to interest payments(2)

(3,279

)

 

(5,789

)

 

(11,863

)

 

(17,433

)

Unlevered free cash flow

$

108,226

 

 

$

96,145

 

 

$

311,983

 

 

$

276,127

 

_______________

(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, 2020 and 2019.

 

Supplemental Reconciliation of Compound Annual Growth Rate (CAGR)

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

(Unaudited)

 

 

Three Months Ended

 

 

 

March 31, 2018

 

September 30, 2020

 

CAGR(2)

 

 

 

 

 

 

 

(in millions, except percentages)

GAAP total revenue - Core IT Management

$

142.1

 

 

$

184.8

 

 

11

%

Impact of purchase accounting

1.3

 

 

0.3

 

 

 

Non-GAAP total revenue - Core IT Management

143.4

 

 

185.1

 

 

11

%

Estimated foreign currency impact(1)

—

 

 

1.6

 

 

 

Non-GAAP total revenue on a constant currency basis - Core IT Management

$

143.4

 

 

$

186.7

 

 

11

%

 

 

 

 

 

 

GAAP total revenue - MSP

$

54.8

 

 

$

76.2

 

 

14

%

Impact of purchase accounting

0.2

 

 

—

 

 

 

Non-GAAP total revenue - MSP

55.0

 

 

76.2

 

 

14

%

Estimated foreign currency impact(1)

—

 

 

2.8

 

 

 

Non-GAAP total revenue on a constant currency basis - MSP

$

55.0

 

 

$

79.0

 

 

16

%

 

 

 

 

 

 

GAAP total revenue

$

196.9

 

 

$

261.0

 

 

12

%

Impact of purchase accounting

1.5

 

 

0.3

 

 

 

Non-GAAP total revenue

198.4

 

 

261.3

 

 

12

%

Estimated foreign currency impact(1)

—

 

 

4.4

 

 

 

Non-GAAP total revenue on a constant currency basis

$

198.4

 

 

$

265.7

 

 

12

%

_______________

(1)

The estimated foreign currency impact is calculated using the average foreign currency exchange rates in the three months ended March 31, 2018 and applying those rates to foreign-denominated revenue in the corresponding monthly periods in the three months ended September 30, 2020.

(2)

Compound Annual Growth Rate (CAGR) is calculated based on total revenue, as adjusted if applicable, for the period from the three months ended March 31, 2018 to the three months ended September 30, 2020.