SolarWinds Corp (NYSE:SWI) Q4 2023 Earnings Conference Call February 8, 2024 8:30 AM ET Company Participants Tim Karaca - Vice President, Strategic Finance and Investor Relations Sudhakar Ramakrishna - President and Chief Executive Officer Barton Kalsu - Executive Vice President, Chief Financial Officer and Treasurer Conference Call Participants Robert Oliver - Baird Matthew Hedberg - RBC Capital Markets Jaiden Patel - JPMorgan Erik Suppiger - JMP Securities Operator Good morning. My name is Jeannie and I w ...

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 September 30, 2023 or ☐ 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 juri ...

Financial Data and Key Metrics - Q3 subscription revenue was $59 million, up 39% YoY, driven by the success of the subscription-first strategy and multi-year arrangements [3] - Maintenance revenue was $116 million in Q3, up 2% YoY, attributed to high renewal rates and price increases implemented at the start of the year [3] - Total revenue for Q3 was $190 million, a 6% increase YoY, exceeding the guidance range of $182-186 million [30] - Adjusted EBITDA for Q3 was $85 million, representing a 45% margin and a 21% YoY growth, the highest since Q4 2020 [25] - Non-GAAP fully diluted EPS is projected to be $0.83-$0.85 for the full year, assuming 166.4 million fully diluted shares outstanding [5] - Total ARR reached $668 million, up 8% YoY, with subscription ARR at $213 million, up 34% YoY [30] Business Line Data and Key Metrics - Subscription revenue growth reflects the ongoing success of the subscription-first strategy, with a higher percentage of new deals sold as subscriptions [3] - Hybrid Cloud Observability solution continues to gain widespread adoption, helping customers reduce tool sprawl and alert fatigue through AIOps services [26] - The company launched an upgraded version of its Database Performance Monitoring and DataOps solution, SQL Sentry, enhancing customers' ability to prevent database performance issues [27] - The Transform Partner Program was updated to accelerate growth and revenue for partners, with new opportunities for channel offerings and specialized options for database and ITSM products [68] Market Data and Key Metrics - The company's customer base is diversified across sizes and industries, with 955 customers spending over $100,000 in the last 12 months, an 8% increase YoY [25] - The Federal segment remains a strong area of growth, with continued expansion and high customer loyalty [9] - The SME sector shows robust demand, with mid-market customers investing in solutions to reduce complexity and improve productivity [10] - The company sees consistent demand across North America, Europe, and APAC, with transaction counts increasing despite macro challenges in EMEA [65] Company Strategy and Industry Competition - The company is focused on driving subscription adoption, improving profitability, and retaining customers through its subscription-first strategy [28] - The Hybrid Cloud Observability and SolarWinds Observability solutions are positioned as the most comprehensive AI-powered full-stack observability solutions in the industry [26] - The company is committed to public-private partnerships to improve cybersecurity and respond to cyberattacks, despite concerns about the SEC's actions [6] - The company is making selective investments in its product portfolio and go-to-market strategies, which are starting to yield results [39] Management Commentary on Operating Environment and Future Outlook - The company believes it is well-positioned to achieve its fiscal year goals and enter 2024 with strong momentum, despite macroeconomic challenges [2] - The company expects to grow its top-line in 2023, driven by an expanded product portfolio, improved execution, and strong customer renewal rates [4] - The company is focused on improving its profitability profile and maintaining expense discipline in a challenging macro environment [4] - The company raised its full-year revenue guidance to $749-753 million, representing 4% YoY growth, and adjusted EBITDA guidance to $322-324 million, representing 15% YoY growth [71] Other Important Information - The company received multiple industry awards, including the 2023 Cloud Security Award for the best security infrastructure in enterprise and the Gold Global Award as Most Innovative Company of the Year in the cloud SaaS category [58] - The company is working to reduce its net leverage ratio, which improved to 3.2x trailing 12-month adjusted EBITDA, down from 3.9x at the end of the previous year [32] - The company expects to pay approximately $8 million in cash taxes during Q4, with a non-GAAP tax rate of 26% [33] Q&A Session Summary Question: Drivers of growth in larger customers (spending over $100,000) - The company attributes the growth to delivering greater value to customers, including eliminating tool sprawl and consolidating vendor tools onto the SolarWinds Platform [74] Question: Public sector and Federal customer demand in Q3 - The company saw good demand in Q3, with some deals slipping into Q4 due to continuing resolution issues, but overall results were strong, reflecting the diversity and robustness of solutions across all verticals [9] Question: SME market health and customer spending trends - The SME sector shows robust demand, with mid-market customers investing in solutions to reduce complexity and improve productivity, while large enterprise deals face longer approval cycles [10] Question: New ESM product reception and typical customer profile - The new Enterprise Service Management (ESM) product is aimed at mid-market customers, particularly those where the CIO plays a significant role in technology decisions [78] Question: Potential upside in Q4 due to budget flushes - The company is cautious in its Q4 guidance due to macro headwinds but plans to exceed the guidance, with potential upside from budget flushes [63] Question: Vertical performance in Q3 - The company saw consistent results across all verticals, with traditional traction in the Federal segment despite government shutdown-related issues [67] Question: Net new ARR contribution from migrations and growth portfolio - The company noted that migrations often involve customer expansion, with consolidation of tool sprawl and preparation for the cloud contributing to ARR growth [50]

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 AC OF 1934 For the quarterly period ended June 30, 2023 or ☐ 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 jurisdicti ...

Financial Data and Key Metrics Changes - The company reported total revenue of $185 million for Q2 2023, a 5% increase year-over-year, exceeding the guidance range of $177 million to $182 million [47] - Subscription revenue grew by 44% year-over-year, reaching $53 million, while subscription ARR increased by 33% to $198 million [49][50] - Adjusted EBITDA for Q2 was $79.1 million, an 18% year-over-year growth, with an adjusted EBITDA margin of 43% [54][82] Business Line Data and Key Metrics Changes - The database monitoring portfolio and observability solutions are gaining traction, with significant adoption among both large and mid-market customers [6][7] - The service management solution, which is entirely SaaS-based, is particularly appealing to mid-market customers due to its quick time to value [9] - Maintenance revenue was $116 million, a 2% increase from the prior year, while license revenue declined by approximately 38% to $16 million [51][52] Market Data and Key Metrics Changes - The company has 933 customers who have spent more than $100,000 in the last 12 months, reflecting a 6% year-over-year growth [53] - The maintenance renewal rate was 94% on a trailing 12-month basis, indicating strong customer loyalty [51][81] Company Strategy and Development Direction - The company is focused on a subscription-first strategy, aiming to convert existing maintenance relationships to subscription models, which is expected to enhance recurring revenue [46][78] - Investments in AI and AIOps are ongoing, with the company positioned to leverage these technologies to improve customer productivity and security [12][84] - The company aims to reduce its net leverage ratio below 3x over the next couple of years, with a focus on debt paydown [16][17] Management's Comments on Operating Environment and Future Outlook - Management noted that while the macro environment remains challenging, the demand for their products is robust, with a growing pipeline [1][44] - The company is optimistic about maintaining revenue growth in 2023, despite potential macroeconomic headwinds affecting IT spending [58][59] - The company has raised its full-year guidance for total revenue to a range of $740 million to $748 million, reflecting confidence in its growth trajectory [61] Other Important Information - The company has received recognition for its innovations and efforts in cybersecurity, including awards for its Secure by Design principles [30][80] - The company is committed to selective investments and operational discipline to enhance profitability while managing costs [32][65] Q&A Session All Questions and Answers Question: Decline in the 100K customer cohort - Management explained that the decline is partly due to the conversion of customers to subscription arrangements, which tend to be smaller in size compared to perpetual deals, but noted a 6% year-over-year increase in this cohort [2] Question: Product traction in subscription, database management, ITSM, and observability - Management highlighted strong performance in the database monitoring portfolio and observability solutions, with significant traction among both large and mid-market customers [6][7] Question: Maintenance conversion and higher conversion rates - Management clarified that the higher conversion rates are due to customers moving to higher value solutions, not just like-for-like conversions [11] Question: AI investment and future integration - Management indicated that AI investments are ongoing, with expectations for increased integration into the product stack over the next year [12][13] Question: Debt ratio and future targets - Management confirmed a reduction in the net leverage ratio to 3.5x and expressed a goal to bring it down below 3x in the coming years [16][17] Question: International market opportunities - Management noted that the pipeline in EMEA is growing, although deal conversion cycles are longer due to macroeconomic conditions [24] Question: Hiring approach and headcount guidance - Management stated that hiring will be approached prudently, focusing on selective investments while managing costs [26][56]

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 AC OF 1934 For the quarterly period ended March 31, 2023 or ☐ 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 jurisdict ...

Financial Data and Key Metrics Changes - In Q1 2023, total revenues reached $186 million, a 5% year-over-year increase, exceeding the high end of the guidance range [5][38] - Adjusted EBITDA grew 12% year-over-year to $77.4 million, representing an adjusted EBITDA margin of 42% [6][20] - Subscription revenue was $54 million, up 40% year-over-year, while subscription ARR increased by 31% to $185 million [5][18] Business Line Data and Key Metrics Changes - The company reported strong growth in its observability, service management, and database monitoring product lines, with double-digit year-over-year adjusted EBITDA growth [10][71] - Maintenance revenue was $114 million, a decrease of 1% from the prior year, reflecting the transition to subscription models [39] - The trailing 12-month renewal rate was 93%, the highest since Q4 2019, indicating strong customer retention [19][30] Market Data and Key Metrics Changes - The company expanded its SaaS observability solutions in Europe by opening a new data center in Germany and launched an ITSM data center in Australia for the Asia Pacific region [12][31] - The company ended Q1 with 945 customers spending over $100,000 in the last 12 months, an increase of 11% year-over-year [11][20] Company Strategy and Development Direction - The company is focused on a subscription-first transformation, aiming to drive subscription adoption and improve profitability while managing costs [15][36] - Key priorities include enhancing customer retention, expanding the product portfolio, and evolving hybrid cloud observability solutions [16][36] - The company aims to achieve $1 billion in ARR with mid-40s adjusted EBITDA margins, emphasizing the importance of subscription growth for revenue stability [36][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strategy and portfolio despite macroeconomic challenges affecting IT spending [46][43] - The outlook for Q2 2023 includes total revenue guidance of $177 million to $182 million, reflecting a 2% year-over-year growth at the midpoint [23][44] - The company plans to continue selective hiring and disciplined expense management to navigate the uncertain economic environment [21][82] Other Important Information - The company reported a net leverage of approximately 3.8x trailing 12-month adjusted EBITDA, with cash and cash equivalents totaling $141 million at the end of Q1 [42] - One-time costs related to a cyber incident and restructuring charges were noted, with expectations for these costs to fluctuate in future quarters [41] Q&A Session Summary Question: Can you elaborate on the traction with partners and co-selling motions with AWS and Azure? - Management indicated strong co-sell motions with AWS and Azure, noting that these partnerships are still in the early stages, representing a larger opportunity moving forward [50] Question: Can you quantify the size of the larger deals being won? - Management highlighted an increase in the number of deals over $100,000, indicating a positive trend in winning larger customers [61][74] Question: What is the conversion ratio from maintenance to subscription? - The conversion rate from maintenance to subscription was reported at approximately 1.8, exceeding expectations [80] Question: How are you managing expenses in the current environment? - Management emphasized prudent expense management, with selective hiring and a focus on reaping dividends from past investments [82] Question: What are the trends in customer demand from 2022 to 2023? - Management noted a mix of demand driven by both 2022 budget decisions and 2023 budgeting processes, indicating a combination of factors influencing customer decisions [67][68]

Safe Harbor and Other Information These forward-looking statements are based on management's beliefs and assumptions and on information currently available to management. Forward-looking statements include all statements that are not historical facts and may be identified by terms such as "aim," "anticipate," "believe," "can," "could," "seek," "should," "feel," "expect," "will," "would," "plan," "project," "intend," "estimate," "continue," "may," or similar expressions and the negatives of those terms. Forw ...

Cybersecurity and Data Privacy - The company was a victim of a cyberattack on its Orion Software Platform and internal systems on December 14, 2020, referred to as the "Cyber Incident" [81] - The Cyber Incident has led to several lawsuits and an ongoing SEC investigation, which could result in significant costs and impact the company's financial condition and stock price [100] - The company has incurred significant costs related to the Cyber Incident, including investigations and remediation efforts, which are expected to continue [97] - The Cyber Incident has adversely affected the company's reputation, customer relations, and may lead to deferred or canceled customer agreements [96] - The company is subject to various global data privacy and security regulations, which could result in additional costs and liabilities [89] - The company has experienced increased costs for cybersecurity insurance as a result of the Cyber Incident, which may continue to rise [98] - The company maintains that its disclosures and internal controls were appropriate, despite the SEC's preliminary determination to recommend enforcement action [100] - The company is heavily dependent on its technology infrastructure, and any future cyberattacks could further compromise its systems and customer data [92] - The company has deployed significant resources as part of its "Secure by Design" plan to enhance cybersecurity measures [99] - The company is currently incurring legal expenses related to ongoing investigations and anticipates significant costs that may not be covered by insurance, potentially impacting its financial condition and operations [102] - The company is subject to various data privacy laws that could impact its marketing practices and increase costs if compliance is required [113] - Recent investigations revealed that a cyber incident involved unauthorized access to email accounts containing personal information, potentially harming the company's reputation and customer trust [158] - Compliance with evolving data protection laws, such as the GDPR, may impose significant costs and operational challenges [160] - The regulatory framework for data protection varies significantly across jurisdictions, increasing compliance costs and potential liabilities [161] - The company may face reputational harm and loss of customer confidence if it fails to adequately protect personal data [160] Financial Performance and Revenue - The company expects fluctuations in quarterly revenue and operating results due to various factors, making future performance difficult to predict [107] - A significant portion of the company's revenue is recurring, and any decline in maintenance or subscription renewals could harm future operating results [118] - The company is focused on increasing sales to existing customers and attracting new customers, which is essential for revenue growth [115] - The success of the company's digital marketing initiatives is critical for capturing high-quality sales leads, and any failure in this area could adversely affect revenue growth [111] - The company is undergoing a shift from perpetual licenses to subscription models, which may lead to variations in revenue recognition timing [117] - The company plans to expand its sales force both domestically and internationally to drive revenue growth, but may face challenges in hiring and retaining qualified personnel [116] - Customer retention rates may decline due to factors such as satisfaction levels, pricing, and competitive offerings, potentially impacting revenue [119] - The company has experienced growth in recent years, but effective management of this growth is critical to maintaining customer satisfaction and financial performance [132] - The company’s financial outlook is based on management estimates and is subject to significant uncertainties, which may lead to material variations from actual results [135] - The success of new products and enhancements is uncertain, with potential challenges in market acceptance and competition affecting financial results [140] International Operations and Market Risks - The company has international operations in multiple countries, including the UK, Canada, and Germany, and plans to continue expanding internationally [120] - The company faces risks associated with international operations, including political instability and compliance costs, which could adversely affect financial performance [121] - Research and development activities are conducted internationally, with some coding outsourced to vendors in Ukraine, which may be impacted by geopolitical conflicts [122] - The company faces risks related to economic conditions, including the impact of the COVID-19 pandemic and geopolitical tensions, which may affect IT spending and demand for products [143] - The company operates in a highly competitive market, facing challenges from larger competitors with greater resources and established customer bases [126] - The company relies on U.S. federal government contracts for a significant portion of on-premises license sales, which can be unpredictable and subject to budgetary constraints [137] Corporate Governance and Structure - The Sponsors beneficially owned 68.9% of the company's common stock as of December 31, 2022, allowing them significant influence over operations and business strategy [213] - The company does not intend to pay dividends on its common stock, opting to retain earnings for business operations and expansion [209] - The trading price of the company's common stock has been volatile, influenced by factors such as new product announcements and changes in customer perception [199] - The company is a controlled entity under NYSE rules, with Sponsors owning a majority of the voting power, allowing exemptions from certain corporate governance requirements [222] - The company has a classified board of directors with staggered terms, which could hinder stockholder efforts to change board membership [211] - The company has the right to amend bylaws to prevent unsolicited takeovers, which may inhibit potential acquirers [215] - The company’s restated charter designates the Delaware Court of Chancery as the exclusive forum for certain disputes, potentially limiting stockholders' options [221] - The company may face conflicts of interest due to relationships between its directors and the Lead Sponsors [215] Debt and Financial Obligations - As of December 31, 2022, the company's total indebtedness was $1.2 billion, with $130 million available for additional borrowing under credit facilities [180] - The net interest expense for the years ended December 31, 2022, 2021, and 2020 was approximately $83.4 million, $64.5 million, and $75.9 million, respectively [180] - The company is subject to a financial covenant requiring that its first lien net leverage ratio cannot exceed 7.40 to 1.00 when borrowings exceed 35% of the aggregate commitments under the revolving credit facility [183] - The company has substantial indebtedness, which could limit its ability to react to changes in business conditions and restrict strategic acquisitions [181] - Borrowings under credit facilities are subject to variable interest rates, exposing the company to interest rate risk [187] - The company may face increased tax liabilities due to complex tax laws and potential changes in tax regulations [198] - The company is subject to various tax obligations across multiple jurisdictions, which could lead to material assessments and penalties [197] - The company may incur significant liabilities if the N-able spin-off is determined to be a taxable transaction, affecting financial results [225] Spin-off and Operational Challenges - On July 19, 2021, the company completed the spin-off of its managed service provider business, N-able, into a separately traded public company, resulting in no longer consolidating N-able's financial results [82] - The spin-off of N-able may not achieve anticipated benefits, potentially disrupting the company's business and financial condition [224] - The company may face challenges in attracting and retaining employees post-separation from N-able, impacting its operational effectiveness [224] - The separation agreements with N-able include indemnity obligations that could lead to substantial liabilities for the company [228] - The IRS could challenge the tax-free status of the N-able spin-off, leading to unexpected tax liabilities for the company and its shareholders [226] - The company may not successfully achieve its operational objectives post-separation, which could affect its market position [224]

Financial Data and Key Metrics Changes - In Q4 2022, total revenue was $187 million, a slight increase year-over-year, and above the guidance range of $178 million to $183 million [42] - Adjusted EBITDA for Q4 was $74.5 million, representing a margin of 40%, exceeding the previous outlook of 38% to 39% [21][42] - For the full year 2022, total revenue was $719 million, slightly higher than the prior year and above the guidance of $710 million to $715 million [42] - Subscription ARR as of December 31 was $175 million, a 30% increase year-over-year [19] Business Line Data and Key Metrics Changes - Subscription revenue in Q4 was $50 million, up 45% year-over-year, with full-year subscription revenue of $168 million, up 35% [118] - Maintenance revenue for Q4 was $115 million, a decrease of 3% year-over-year, and $459 million for the full year, down 4% [44] - License revenue for Q4 was $22 million, a decline of approximately 34% compared to Q4 2021, and $93 million for the full year, down 19% [45] Market Data and Key Metrics Changes - The company experienced currency headwinds, with constant currency revenue for Q4 estimated at approximately $191 million, reflecting a 2% year-over-year growth [18] - The total ARR at the end of Q4 was $636 million, up 2% year-over-year, with a constant currency increase of over 3% [43] Company Strategy and Development Direction - The company is focused on a subscription-first strategy, aiming to grow subscription ARR to over $1 billion with mid-40s adjusted EBITDA margins in the coming years [26] - The transition to subscription is seen as a way to deliver greater value to customers, despite some total revenue headwinds [34] - The company is expanding its observability solutions and enhancing its product portfolio to address the growing complexity of IT environments [37][39] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging macro environment in 2022 but noted healthy demand and strong customer retention [39] - For 2023, the company plans to continue optimizing its expense structure while selectively investing to improve profitability [40] - The outlook for Q1 2023 includes total revenue guidance of $177 million to $182 million, representing a 1% year-over-year growth at the midpoint [23] Other Important Information - The company refinanced its debt, extending the maturity date to February 2027 and making voluntary prepayments totaling approximately $650 million [22] - Adjusted EBITDA for 2023 is expected to be approximately $290 million to $300 million, reflecting a 5% year-over-year growth at the midpoint [48] Q&A Session All Questions and Answers Question: How are SME customers thinking about cloud optimization? - Management noted that the hybrid cloud solutions provide flexibility for customers to pace their investments alongside their cloud evolution [78] Question: Can you comment on the trends in the international market, particularly in Europe? - The pipeline remains robust, but management is modeling lower pipeline conversion due to increased deal scrutiny in the macro environment [62] Question: What are the expectations for the observability solutions launched in 2022? - Initial customer success has been positive, and management is optimistic about the contributions of observability to revenue growth [122] Question: How is the company addressing the transition from maintenance to subscription? - The company is using maintenance renewals as opportunities to pitch the Hybrid Cloud Observability product, with high conversion rates observed [111]