N-ABLE(NABL) - 2022 Q3 - Quarterly Report

PART I Item 1. Financial Statements N-able, Inc.'s unaudited consolidated financial statements for Q3 2022 show $93.5 million revenue, $1.03 billion total assets, and $0.3 million net income Consolidated Balance Sheets Total assets decreased to $1.031 billion, total liabilities stable at $437.3 million, and equity declined to $594.1 million Consolidated Balance Sheet Summary (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $87,729 | $66,736 | | Goodwill | $795,937 | $840,922 | | Total current assets | $143,592 | $120,981 | | Total assets | $1,031,456 | $1,055,680 | | Liabilities & Equity | | | | Total current liabilities | $59,421 | $60,801 | | Long-term debt, net | $333,959 | $335,399 | | Total liabilities | $437,324 | $437,348 | | Total stockholders' equity | $594,132 | $618,332 | Consolidated Statements of Operations Q3 2022 revenue grew to $93.5 million, but net income fell to $0.3 million; nine-month revenue reached $276.0 million Statement of Operations Summary (in thousands) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Subscription and other revenue | $93,527 | $88,423 | $276,014 | $256,953 | | Gross profit | $78,424 | $76,127 | $232,479 | $217,828 | | Operating income | $11,722 | $9,772 | $33,087 | $24,832 | | Net income (loss) | $294 | $1,873 | $9,722 | $(1,943) | | Diluted EPS | $0.00 | $0.01 | $0.05 | $(0.01) | Consolidated Statements of Cash Flows Operating cash flow significantly increased to $53.0 million; cash and equivalents rose by $21.0 million Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $53,015 | $26,159 | | Net cash used in investing activities | $(22,504) | $(22,329) | | Net cash used in financing activities | $(7,632) | $(40,466) | | Effect of exchange rate changes | $(1,886) | $(1,582) | | Net increase (decrease) in cash | $20,993 | $(38,218) | | Cash at end of period | $87,729 | $61,572 | Notes to the Consolidated Financial Statements These notes provide detailed disclosures on accounting policies and specific financial statement items, including the Spinpanel acquisition, goodwill changes, and debt structure - On July 1, 2022, the company acquired Spinpanel B.V. for up to $20.0 million, including $10.0 million in contingent consideration based on revenue metrics. The acquisition is intended to enhance Microsoft 365 management capabilities for MSP partners[57] - Goodwill decreased by $45.0 million in the first nine months of 2022, from $840.9 million to $795.9 million, primarily due to a $51.5 million negative impact from foreign currency translation[63] - In connection with the SolarWinds separation, the company entered into a new Credit Agreement for $410.0 million, with an outstanding principal of $346.5 million on the term loan as of September 30, 2022[89][90] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2022 performance, noting a 5.8% revenue increase to $93.5 million, impacted by foreign currency movements, and presents non-GAAP measures - The company had approximately 25,000 customers as of September 30, 2022, with MSP partners having annualized recurring revenue over $50,000 growing by 7.5% year-over-year to 1,786[127] - The annual dollar-based net revenue retention rate was approximately 104% for the trailing twelve months ended September 30, 2022, down from 110% in the prior year, due to adverse foreign currency exchange rates[146] - Management believes the adverse impacts of the SolarWinds Cyber Incident on financial results will diminish over time, based on trends through the first nine months of 2022[121] Results of Operations This section details Q3 2022 results, showing 5.8% revenue growth but higher cost of revenue, while nine-month revenue grew 7.4% Revenue Comparison (Q3 2022 vs Q3 2021, in thousands) | Revenue Type | Q3 2022 | Q3 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Subscription revenue | $91,213 | $86,100 | $5,113 | 5.9% | | Other revenue | $2,314 | $2,323 | $(9) | -0.4% | | Total revenue | $93,527 | $88,423 | $5,104 | 5.8% | Operating Expenses Comparison (Q3 2022 vs Q3 2021, in thousands) | Expense Category | Q3 2022 | Q3 2021 | Change ($) | | :--- | :--- | :--- | :--- | | Sales and marketing | $31,149 | $30,178 | $971 | | Research and development | $16,038 | $14,649 | $1,389 | | General and administrative | $18,050 | $19,888 | $(1,838) | | Amortization of acquired intangibles | $1,465 | $1,640 | $(175) | | Total operating expenses | $66,702 | $66,355 | $347 | - For the nine months ended Sep 30, 2022, total revenue increased by $19.1 million (7.4%) year-over-year, while total cost of revenue increased by $4.4 million (11.3%)[157][161] Non-GAAP Financial Measures The company uses non-GAAP measures; Q3 2022 Non-GAAP Operating Income was $25.1 million (26.8% margin), and Adjusted EBITDA was $28.9 million (30.9% margin) Adjusted EBITDA Reconciliation (in thousands) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $294 | $1,873 | $9,722 | $(1,943) | | Adjustments (Amortization, Depreciation, Taxes, Interest, etc.) | $28,560 | $27,802 | $73,777 | $87,512 | | Adjusted EBITDA | $28,854 | $29,675 | $83,499 | $85,569 | | Adjusted EBITDA margin | 30.9% | 33.6% | 30.3% | 33.3% | Non-GAAP Operating Income Reconciliation (in thousands) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | GAAP operating income | $11,722 | $9,772 | $33,087 | $24,832 | | Adjustments (Stock-comp, Amortization, Spin-off costs, etc.) | $13,385 | $16,947 | $38,243 | $52,645 | | Non-GAAP operating income | $25,107 | $26,719 | $71,330 | $77,477 | | Non-GAAP operating margin | 26.8% | 30.2% | 25.8% | 30.2% | Liquidity and Capital Resources As of September 30, 2022, cash and equivalents were $87.7 million, with operating activities providing $53.0 million in cash - Cash and cash equivalents increased to $87.7 million as of September 30, 2022[183] Summary of Cash Flows (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $53,015 | $26,159 | | Net cash used in investing activities | $(22,504) | $(22,329) | | Net cash used in financing activities | $(7,632) | $(40,466) | | Net increase (decrease) in cash | $20,993 | $(38,218) | - Total borrowings under the Credit Agreement, net of debt issuance costs, were $337.5 million as of September 30, 2022[207] Quantitative and Qualitative Disclosures of Market Risk The company faces market risks from interest rate fluctuations on variable-rate debt and foreign currency exchange rate movements - A hypothetical 100 basis point increase in interest rates would increase annual interest expense by approximately $3.5 million due to variable-rate debt[208] - N-able faces foreign currency exchange risk from international operations, primarily involving the Euro, British Pound Sterling, and Canadian Dollar[210] Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[217] - No material changes occurred in internal control over financial reporting during the quarter ended September 30, 2022[218] PART II Item 1. Legal Proceedings The company is not currently a party to any legal proceeding that would have a material adverse effect on its financial condition or operations - As of the report date, the company is not involved in any legal proceedings expected to have a material adverse effect[221] Item 1A. Risk Factors No material changes to the company's risk factors are reported from prior disclosures in the 2021 Annual Report and Q1 2022 Form 10-Q - No material changes in risk factors are reported since the disclosures in the 2021 Annual Report and the Q1 2022 10-Q[222] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2022, the company repurchased 600 shares of common stock related to unvested restricted stock from a former employee Issuer Purchases of Securities (Q3 2022) | Period | Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 1 - 31, 2022 | — | $— | | August 1 - 31, 2022 | — | $— | | September 1 - 30, 2022 | 600 | $0 | | Total | 600 | | - All repurchases relate to the company exercising its right to repurchase unvested employee-held restricted stock upon cessation of employment[225] Item 5. Other Information There is no other information to report for this item - None[226] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Interactive Data Files - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906[229]