solarwinds(SWI) - 2024 Q2 - Quarterly Results

SolarWinds Second Quarter 2024 Financial Results Financial Highlights SolarWinds reported Q2 2024 total revenue of $193.3 million, a 4% year-over-year increase, with recurring revenue constituting 93% of the total, and Adjusted EBITDA grew 17% YoY to $92.5 million, achieving a 48% margin, demonstrating strong growth in its subscription model with Subscription Annual Recurring Revenue (ARR) increasing by 36% YoY to $269.9 million Q2 2024 Key Financial Metrics | Metric | Value | YoY Growth | | :--- | :--- | :--- | | Total Revenue | $193.3 million | 4% | | Net Income | $11.1 million | N/A | | Adjusted EBITDA | $92.5 million | 17% | | Adjusted EBITDA Margin | 48% | N/A | | Subscription ARR | $269.9 million | 36% | | Total ARR | $704.7 million | 7% | - Total recurring revenue represented 93% of total revenue for the second quarter[2] Business Highlights and Management Commentary CEO Sudhakar Ramakrishna noted that the company exceeded the high end of its guidance for total revenue and adjusted EBITDA, delivering the highest quarterly adjusted EBITDA in 15 quarters - The company exceeded guidance for total revenue and adjusted EBITDA, achieving its highest quarterly adjusted EBITDA in the last 15 quarters[3] - Recent business highlights include: - Celebrated its 25th anniversary - Enhanced Plan Explorer® in SQL Sentry® and updated Database Performance Analyzer (DPA) - Debuted SolarWinds AI, a generative AI engine, in SolarWinds Service Desk - Appointed Lewis Black as the new Executive Vice President, Chief Financial Officer[3] Financial Condition As of June 30, 2024, SolarWinds reported total cash, cash equivalents, and short-term investments of $169.6 million and total debt of $1.2 billion, with a significant cash outflow being a $168.2 million special cash dividend paid on April 15, 2024 Balance Sheet Summary (as of June 30, 2024) | Item | Amount | | :--- | :--- | | Total Cash, Cash Equivalents & Short-term Investments | $169.6 million | | Total Debt | $1.2 billion | - A special cash dividend of $168.2 million was paid on April 15, 2024[4] Financial Outlook SolarWinds provided its financial outlook for the third quarter, expecting revenue between $191 to $196 million and adjusted EBITDA of $90 to $93 million, and updated its forecast for the full year of 2024, anticipating revenue of $778 to $788 million and adjusted EBITDA of $368 to $375 million Financial Outlook for Q3 2024 | Metric | Guidance Range | | :--- | :--- | | Total Revenue | $191 - $196 million | | Adjusted EBITDA | $90 - $93 million | | Non-GAAP Diluted EPS | $0.24 - $0.26 | | Weighted Avg. Diluted Shares | ~173.6 million | Updated Financial Outlook for Full Year 2024 | Metric | Guidance Range | | :--- | :--- | | Total Revenue | $778 - $788 million | | Adjusted EBITDA | $368 - $375 million | | Non-GAAP Diluted EPS | $1.04 - $1.08 | | Weighted Avg. Diluted Shares | ~173.8 million | - The financial outlook is provided on a non-GAAP basis and has not been reconciled to GAAP measures due to uncertainty regarding certain excluded items[4] Financial Statements This section presents the unaudited condensed consolidated financial statements for the periods ended June 30, 2024, including the Balance Sheets, Statements of Operations, and Statements of Cash Flows, providing a detailed view of the company's financial position and performance Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2024, shows total assets of $3.06 billion, a decrease from $3.25 billion at the end of 2023, mainly driven by a reduction in cash and cash equivalents, while total liabilities decreased to $1.75 billion from $1.81 billion over the same period Balance Sheet Comparison (in thousands) | Account | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $158,845 | $284,695 | | Total current assets | $282,834 | $421,327 | | Total assets | $3,058,687 | $3,250,915 | | Total current liabilities | $454,835 | $468,808 | | Long-term debt, net | $1,195,415 | $1,190,934 | | Total liabilities | $1,753,378 | $1,808,871 | | Total stockholders' equity | $1,305,309 | $1,442,044 | Condensed Consolidated Statements of Operations For the second quarter of 2024, SolarWinds' total revenue increased to $193.3 million from $185.0 million in Q2 2023, with operating income growing significantly to $49.5 million from $32.6 million, and net income surging to $11.1 million compared to $0.3 million in the prior-year quarter, driven by a 31% increase in subscription revenue offsetting a decline in maintenance revenue Statement of Operations Highlights - Q2 (in thousands) | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Subscription Revenue | $70,033 | $53,389 | | Maintenance Revenue | $110,306 | $116,056 | | Total Revenue | $193,250 | $185,034 | | Gross Profit | $173,002 | $163,076 | | Operating Income | $49,486 | $32,645 | | Net Income | $11,104 | $260 | | Diluted EPS | $0.06 | $0.00 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2024, net cash from operating activities was $73.4 million, an increase from $49.8 million in the prior year period, while net cash used in financing activities was $181.9 million, primarily due to a $168.2 million dividend payment, compared to $11.5 million used in the same period last year, resulting in a $125.9 million decrease in cash and cash equivalents during the first half of 2024 Cash Flow Summary - Six Months Ended June 30 (in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $73,394 | $49,767 | | Capital expenditures | ($11,098) | ($8,254) | | Free cash flow | $62,296 | $41,513 | | Adjustments for interest, one-time items, etc. | $49,053 | $65,443 | | Net decrease in cash | ($125,850) | $55,456 | | Cash at end of period | $158,845 | $177,194 | Reconciliation of GAAP to Non-GAAP Financial Measures This section provides detailed reconciliations of GAAP financial measures to their non-GAAP counterparts, which management uses to assess core operating performance, with reconciliations provided for key metrics including operating income, net income, adjusted EBITDA, constant currency revenue, and unlevered free cash flow, adjusting for items like amortization, stock-based compensation, and Cyber Incident costs Reconciliation of GAAP Costs, Profit, and Income For Q2 2024, non-GAAP operating income was $87.2 million (45.1% margin), significantly higher than the GAAP operating income of $49.5 million (25.6% margin), and non-GAAP net income was $44.3 million ($0.26 per diluted share), compared to GAAP net income of $11.1 million ($0.06 per diluted share), with primary adjustments for stock-based compensation, amortization of intangibles, and restructuring costs Q2 2024 GAAP vs. Non-GAAP Operating Income (in thousands) | Metric | Amount | Margin | | :--- | :--- | :--- | | GAAP operating income | $49,486 | 25.6% | | Adjustments | $37,675 | - | | Non-GAAP operating income | $87,161 | 45.1% | Q2 2024 GAAP vs. Non-GAAP Net Income (in thousands) | Metric | Amount | | :--- | :--- | | GAAP net income | $11,104 | | Adjustments | $33,194 | | Non-GAAP net income | $44,298 | Reconciliation of Net Income to Adjusted EBITDA Adjusted EBITDA for Q2 2024 increased to $92.5 million from $79.1 million in Q2 2023, representing a 17% YoY growth, with the adjusted EBITDA margin improving from 42.8% to 47.9% over the same period, and key adjustments to reconcile from net income include interest expense, taxes, depreciation & amortization, and stock-based compensation Reconciliation to Adjusted EBITDA - Q2 (in thousands) | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net income (loss) | $11,104 | $260 | | Amortization and depreciation | $18,398 | $20,027 | | Income tax expense | $10,274 | $2,955 | | Interest expense, net | $28,047 | $29,443 | | Stock-based compensation | $20,086 | $18,543 | | Other adjustments | $4,587 | $7,914 | | Adjusted EBITDA | $92,496 | $79,142 | Reconciliation of Revenue to Constant Currency Revenue After adjusting for foreign currency fluctuations, non-GAAP total revenue on a constant currency basis for Q2 2024 was $193.5 million, reflecting a growth rate of 4.6% year-over-year, which is slightly higher than the reported GAAP revenue growth of 4.4%, indicating a minor negative impact from currency exchange rates Constant Currency Revenue Reconciliation - Q2 (in thousands) | Metric | Amount | YoY Growth | | :--- | :--- | :--- | | Total revenue (GAAP) | $193,250 | 4.4% | | Estimated foreign currency impact | $253 | 0.1% | | Non-GAAP total revenue on a constant currency basis | $193,503 | 4.6% | Reconciliation of Unlevered Free Cash Flow For the first six months of 2024, unlevered free cash flow was $111.3 million, a slight increase from $107.0 million in the same period of 2023, derived from net cash provided by operating activities, adjusted for capital expenditures and cash payments for interest, restructuring, and other one-time items Unlevered Free Cash Flow - Six Months Ended June 30 (in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $73,394 | $49,767 | | Capital expenditures | ($11,098) | ($8,254) | | Free cash flow | $62,296 | $41,513 | | Adjustments for interest, one-time items, etc. | $49,053 | $65,443 | | Unlevered free cash flow | $111,349 | $106,956 | Forward-Looking Statements and Non-GAAP Disclosures The report includes forward-looking statements concerning financial outlooks that are subject to significant risks and uncertainties, including litigation related to the 2020 Cyber Incident, broader cybersecurity threats, macroeconomic conditions, and the successful transition to an observability and subscription-first model, with the company justifying its use of non-GAAP financial measures as a way to provide supplemental information for assessing core operating performance - The report contains forward-looking statements that are subject to risks, including ongoing litigation and investigation risks related to the Cyber Incident, such as a pending civil complaint filed by the SEC[8][9] - The company explains its use of non-GAAP measures to enhance understanding of its performance by excluding items that management does not consider part of core operating results, such as amortization, stock-based compensation, restructuring costs, and Cyber Incident costs[10][13][17] - Key defined metrics used to assess performance include Subscription Annual Recurring Revenue (Subscription ARR) and Total Annual Recurring Revenue (Total ARR)[21]