swi-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38711

SolarWinds Corporation

(Exact name of registrant as specified in its charter)


Delaware						81-0753267
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

7171 Southwest Parkway

Building 400

Austin, Texas 78735

(512) 682.9300

(Address and telephone number of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value	SWI	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No

On May 3, 2021, 315,731,293 shares of common stock, par value $0.001 per share, were outstanding.

SOLARWINDS CORPORATION

Table of Contents


PART I - FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets as of March 31 , 202 1 and December 31, 2020	5
	Condensed Consolidated Statements of Operations for the three month periods ended March 31 , 202 1 and 20 20	6
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three month periods ended March 31 , 202 1 and 20 20	7
	Condensed Consolidated Statements of Stockholders' Equity for the three month periods ended March 31 , 202 1 and 20 20	8
	Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31 , 202 1 and 20 20	9
	Notes to the Condensed Consolidated Financial Statements	10
	1. Organization and Nature of Operations
	2. Summary of Significant Accounting Policies
	3. Goodwill
	4. Fair Value Measurements
	5. Debt
	6. Earnings (Loss) Per Share
	7. Income Taxes
	8. Commitment and Contingencies
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures of Market Risk	31
Item 4.	Controls and Procedures	32
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	36
	Signatures	38
	Certifications

Safe Harbor Cautionary Statement

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Such statements may be signified by terms such as “aim,” “anticipate,” “believe,” “continue,” “expect,” “feel,” “intend,” “estimate,” “seek,” “plan,” “may,” “can,” “could,” “should,” “will,” “would” or similar expressions and the negatives of those terms. In this report, forward-looking statements include statements regarding our financial projections, future financial performance and plans and objectives for future operations including, without limitation, the following:

•expectations regarding our financial condition and results of operations, including revenue, non-GAAP revenue, revenue growth, revenue mix, cost of revenue, operating expenses, operating income, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA and adjusted EBITDA margin, cash flows and effective income tax rate;

•findings from our investigations into the cyberattack on our Orion Software Platform and internal systems (the "Cyber Incident"), including our understanding of the nature, source and duration of the attack and our plans to ensure our products and internal systems are secure and provide additional information regarding our findings, as well as our expectations regarding the impact of the Cyber Incident on our business and reputation, the success of our related mitigation and remediation efforts and the additional costs, liabilities and other adverse consequences that we may incur as a result of the Cyber Incident;

•expectations regarding the impact the government investigations and litigation resulting from the Cyber Incident may have on our business;

•expectations regarding the potential spin-off of our N-able business into a newly created and separately traded public company;

•expectations regarding investment in product development and our expectations about the results of those efforts;

•expectations concerning acquisitions and opportunities resulting from our acquisitions;

•expectations regarding hiring additional personnel globally in the areas of sales and marketing and research and development;

•intentions regarding our international earnings;

•expectations regarding our capital expenditures;

•expectations regarding the impact of the COVID-19 pandemic on our business, results of operations and financial condition; and

•our beliefs regarding the sufficiency of our cash and cash equivalents, cash flows from operating activities and borrowing capacity.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially and adversely 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:

•risks related to cyberattacks, including the Cyber Incident, and other security incidents resulting in compromises or breaches of our and our customers’ systems or, theft or misappropriation of our and our customers’ proprietary and confidential information, as well as exposure to legal and other liabilities, including the related risk of higher customer, employee and partner attrition and the loss of key personnel, as well as negative impacts to our sales, renewals and upgrades;

•risks related to the potential spin-off of our N-able business into a newly created and separately-traded public company, including that the process of 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;

•the possibility that the global COVID-19 pandemic may adversely affect our business, results of operations and financial condition or the impact of the COVID-19 pandemic on the global economy or on the business operations and financial conditions of our customers, their end-customers and our prospective customers;

•the inability to sell products to new customers or to sell additional products or upgrades to our existing customers;

•any decline in our renewal or net retention rates;

•the possibility that general economic conditions or uncertainty cause information technology spending to be reduced or purchasing decisions to be delayed, including as a result of the COVID-19 pandemic;

•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;

•our inability to successfully identify, complete and integrate acquisitions and manage our growth effectively;

•risks associated with our international operations;

•our status as a controlled company;

•the timing and success of new product introductions and product upgrades by SolarWinds or its competitors;

•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;

•potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity; and

•such other risks and uncertainties described more fully in documents filed with or furnished to the Securities and Exchange Commission, including the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2020.

Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially and adversely from those anticipated in these forward-looking statements, even if new information becomes available in the future.

In this report “SolarWinds,” “Company,” “we,” “us” and “our” refer to SolarWinds Corporation and its consolidated subsidiaries.

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

SolarWinds Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share and per share information)

(Unaudited)


	March 31,		December 31,
	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	374,352	$	370,498

Accounts receivable, net of allowances of $3,023 and $2,736 as of March 31, 2021 and December 31, 2020, respectively	116,271		114,298
Income tax receivable	2,286		2,273

Prepaid and other current assets	37,501		25,664
Total current assets	530,410		512,733
Property and equipment, net	58,507		58,649
Operating lease assets	108,030		110,961
Deferred taxes	143,080		149,455
Goodwill	4,192,328		4,249,402
Intangible assets, net	524,320		592,985
Other assets, net	37,837		36,298
Total assets	$	5,594,512	$	5,710,483
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	19,299	$	17,932
Accrued liabilities and other	56,594		72,971
Current operating lease liabilities	18,476		17,811

Accrued interest payable	154		157
Income taxes payable	11,324		16,358
Current portion of deferred revenue	343,412		346,075
Current debt obligation	19,900		19,900
Total current liabilities	469,159		491,204
Long-term liabilities:
Deferred revenue, net of current portion	34,853		36,679
Non-current deferred taxes	47,706		59,149
Non-current operating lease liabilities	111,102		115,071
Other long-term liabilities	101,590		115,021
Long-term debt, net of current portion	1,879,936		1,882,672
Total liabilities	2,644,346		2,699,796
Commitments and contingencies (Note 8)

Stockholders’ equity:
Common stock, $0.001 par value: 1,000,000,000 shares authorized and 315,403,617 and 313,039,222 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	315		313
Preferred stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	—		—
Additional paid-in capital	3,124,493		3,112,106
Accumulated other comprehensive income	61,462		127,212
Accumulated deficit	(236,104)		(228,944)
Total stockholders’ equity	2,950,166		3,010,687
Total liabilities and stockholders’ equity	$	5,594,512	$	5,710,483

The accompanying notes are an integral part of these condensed consolidated financial statements.

SolarWinds Corporation

Condensed Consolidated Statements of Operations

(In thousands, except per share information)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Revenue:
Subscription	$	108,988	$	93,635
Maintenance	123,040		116,349
Total recurring revenue	232,028		209,984
License	24,874		36,966
Total revenue	256,902		246,950
Cost of revenue:
Cost of recurring revenue	26,958		22,501
Amortization of acquired technologies	43,121		44,492
Total cost of revenue	70,079		66,993
Gross profit	186,823		179,957
Operating expenses:
Sales and marketing	83,297		72,378
Research and development	37,761		31,845
General and administrative	47,710		29,755
Amortization of acquired intangibles	20,057		18,296
Total operating expenses	188,825		152,274
Operating income (loss)	(2,002)		27,683
Other income (expense):
Interest expense, net	(16,174)		(24,095)
Other income (expense), net	127		(758)
Total other income (expense)	(16,047)		(24,853)
Income (loss) before income taxes	(18,049)		2,830
Income tax expense (benefit)	(10,889)		2,415
Net income (loss)	$	(7,160)	$	415
Net income (loss) available to common stockholders	$	(7,160)	$	412
Net income (loss) available to common stockholders per share:
Basic earnings (loss) per share	$	(0.02)	$	—
Diluted earnings (loss) per share	$	(0.02)	$	—
Weighted-average shares used to compute net income (loss) available to common stockholders per share:
Shares used in computation of basic earnings (loss) per share	314,246		308,937
Shares used in computation of diluted earnings (loss) per share	314,246		312,865

The accompanying notes are an integral part of these condensed consolidated financial statements.

SolarWinds Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Net income (loss)	$	(7,160)	$	415
Other comprehensive income (loss):
Foreign currency translation adjustment	(65,750)		(30,429)

Other comprehensive income (loss)	(65,750)		(30,429)
Comprehensive income (loss)	$	(72,910)	$	(30,014)

The accompanying notes are an integral part of these condensed consolidated financial statements.

SolarWinds Corporation

Condensed Consolidated Statements of Stockholders' Equity

(In thousands)

(Unaudited)


	Three Months Ended March 31, 2021
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2020	313,039	$	313	$	3,112,106	$	127,212	$	(228,944)	$	3,010,687
Foreign currency translation adjustment	—	—		—		(65,750)		—		(65,750)
Net loss	—	—		—		—		(7,160)		(7,160)
Comprehensive loss										(72,910)
Exercise of stock options	10	—		11		—		—		11
Restricted stock units issued, net of shares withheld for taxes	1,319	1		(8,398)		—		—		(8,397)
Issuance of stock	820	1		462		—		—		463
Issuance of stock under employee stock purchase plan	216	—		3,129		—		—		3,129
Stock-based compensation	—	—		17,183		—		—		17,183
Balance at March 31, 2021	315,404	$	315	$	3,124,493	$	61,462	$	(236,104)	$	2,950,166


	Three Months Ended March 31, 2020
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2019	308,290	$	308	$	3,041,880	$	(5,247)	$	(387,419)	$	2,649,522
Foreign currency translation adjustment	—	—		—		(30,429)		—		(30,429)
Net income	—	—		—		—		415		415
Comprehensive loss										(30,014)
Exercise of stock options	59	—		51		—		—		51
Restricted stock units issued, net of shares withheld for taxes	276	—		(1,548)		—		—		(1,548)
Issuance of stock	1,105	2		627		—		—		629
Issuance of stock under employee stock purchase plan	161	—		2,357		—		—		2,357
Stock-based compensation	—	—		11,367		—		—		11,367

Balance at March 31, 2020	309,891	$	310	$	3,054,734	$	(35,676)	$	(387,004)	$	2,632,364

SEC Form 10-Q filed by SolarWinds Corporation