AUSTIN, Texas, Aug. 01, 2019 (GLOBE NEWSWIRE) -- SolarWinds Corporation (NYSE: SWI), a leading provider of powerful and affordable IT management software, today reported results for its second quarter ended June 30, 2019.

On a GAAP basis, reflecting our adoption of the new standard ASC 606 effective January 1, 2019:

  • Total revenue for the second quarter of $228.7 million, representing 13.4% growth on a reported basis.

  • Total recurring revenue for the second quarter of $189.6 million, representing 15.6% growth on a reported basis. Total recurring revenue includes:

    • Maintenance revenue for the second quarter of $110.8 million, representing 12.2% growth on a reported basis.

    • Subscription revenue for the second quarter of $78.8 million, representing 20.8% growth on a reported basis.

  • Net loss for the second quarter of $2.1 million.

On a non-GAAP basis:

  • Non-GAAP total revenue for the second quarter of $230.6 million, representing 13.7% year-over-year growth and 15.4% year-over-year growth on a constant currency basis.

  • Non-GAAP total recurring revenue for the second quarter of $191.4 million, representing 15.9% year-over-year growth and 17.8% year-over-year growth on a constant currency basis. Non-GAAP total recurring revenue includes:

    • Non-GAAP maintenance revenue for the second quarter of $110.8 million, representing 11.3% growth on a reported basis.

    • Non-GAAP subscription revenue for the second quarter of $80.6 million, representing 22.9% growth on a reported basis.

  • Adjusted EBITDA for the second quarter of $110.9 million, representing a margin of 48.1% of non-GAAP total revenue.

For a reconciliation of our GAAP to non-GAAP results including adjustments for the impact of ASC 606, please see the tables below.

“We are very pleased with our second quarter performance. We accelerated our top- and bottom-line growth, that resulted in total non-GAAP revenue and Adjusted EBITDA results that were well above our outlook,” said Kevin Thompson, SolarWinds' President & Chief Executive Officer. “We also began to attack the opportunity we now have within the IT service management space following the close of the Samanage acquisition during the second quarter and we are excited about the additional avenue of growth this opens up for us.”

“In addition to our strong quarter of revenue growth, we expanded our Adjusted EBITDA margin despite the dilutive impact of the Samanage acquisition. We were able to drive this margin improvement while also increasing our percentage of total non-GAAP revenue coming from non-GAAP subscription revenue to 35% and our percentage of total non-GAAP recurring revenue to 83%. We believe that this reflects the power of our business model and its inherent efficiencies and leverage,”  said Bart Kalsu, SolarWinds' Executive Vice President and Chief Financial Officer.

Additional highlights for the second quarter of 2019 include:

  • SolarWinds introduced SolarWinds Service Desk (SWSD), making IT service management (ITSM) accessible to companies of all sizes through the availability of affordable and easy to use service desk software that helps them address the mounting pressures associated with digital business transformation and process automation. SWSD is based on technology acquired from Samanage during the second quarter.

  • SolarWinds announced the launch of SolarWinds Security Event Manager (SEM), a simple, powerful, and affordable SIEM solution designed to help IT security professional strengthen their security posture by providing increased visibility into cyber-security activity. SEM, which replaces SolarWinds Log & Event Manager, can be used to collect and normalize event logs generated across on-premises networks and systems into a central location, detect and protect against advanced cyber-threats, respond to cyber-incidents with unique user-defined actions, and help demonstrate regulatory and industry compliance.

  • SolarWinds announced the launch of SolarWinds Passportal suite, a unified set of password management and privileged client knowledge management tools, adding to its IT security product portfolio.

Balance Sheet

At June 30, 2019, total cash and cash equivalents were $155.3 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 August 1, 2019, SolarWinds is providing its financial outlook for the third quarter of 2019 and full year 2019. 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, for the third quarter of 2019 and for the full year 2019. These non-GAAP financial measures exclude, among other items mentioned below, stock-based compensation expense and related employer-paid payroll taxes, amortization and 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 Third Quarter of 2019

SolarWinds’ management currently expects to achieve the following results for the third quarter of 2019 under ASC 606:

  • Non-GAAP total revenue in the range of $241.5 to $246.0 million, representing growth over the third quarter of 2018 non-GAAP total revenue of 13% to 15%, or 14% to 16% on a constant currency basis assuming the same average foreign currency exchange rates as those in the third quarter of 2018.

  • Adjusted EBITDA in the range of $112.0 to $113.5 million, representing approximately 46% of non-GAAP total revenue.

  • Non-GAAP diluted earnings per share of $0.19 to $0.20.

  • Weighted average outstanding diluted shares of approximately 311.5 million.

Financial Outlook for Full Year 2019

SolarWinds’ management currently expects to achieve the following results for the full year 2019 under ASC 606:

  • Non-GAAP total revenue in the range of $938.0 to $950.0 million, representing growth over 2018 non-GAAP revenue of 12% to 14%, or 13% to 15% on a constant currency basis assuming the same average foreign currency exchange rates as those in 2018.

  • Adjusted EBITDA in the range of $450.0 to $453.0 million, representing approximately 48% of non-GAAP total revenue.

  • Non-GAAP diluted earnings per share of $0.81 to $0.82.

  • Weighted average outstanding diluted shares of approximately 311.7 million.

Additional details on our outlook 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 and its business at 4:00 p.m. CT (5:00 p.m. ET/2:00 p.m. PT). A live webcast of 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 (866) 393-4306 and internationally at +1 (734) 385-2616. To access the live call, please dial in 5-10 minutes before the scheduled start time. 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 third quarter and full year 2019 and our market opportunities. 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 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; (b) the inability to sell products to new customers or to sell additional products or upgrades to our existing customers; (c) any decline in our renewal or net retention rates; (d) our inability to successfully identify, complete, and integrate acquisitions and manage our growth effectively, including our integration of the Samanage acquisition; (e) risks associated with our international operations; (f) our status as a controlled company; (g) the possibility that general economic conditions or uncertainty cause information technology spending to be reduced or purchasing decisions to be delayed; (h) the timing and success of new product introductions and product upgrades by SolarWinds or its competitors; (i) 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; (j) potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity; and (k) 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, 2018 filed on February 25, 2019 and the Form 10-Q that SolarWinds anticipates filing on or before August 14, 2019. 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.

Adoption of the New Revenue Recognition Standard

Effective January 1, 2019, we adopted FASB Accounting Standards Codification (ASC) No. 2014-09 “Revenue from Contracts with Customers,” or ASC 606, using the modified retrospective method. Results for reporting periods beginning after January 1, 2019 are presented in compliance with the new revenue recognition standard ASC 606. Historical financial results for reporting periods prior to 2019 are presented in conformity with amounts previously disclosed under the prior revenue recognition standard, ASC 605 “Revenue Recognition,” or ASC 605. In the interest of comparability during the transition year to ASC 606, we present our financial results for the second quarter in accordance with both ASC 606 and ASC 605. Unless stated otherwise, year-over-year growth rates are calculated using financial results under ASC 606 for the current period and financial results under ASC 605 for the corresponding period in the prior year.

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 primarily from our take private transaction in early 2016 and the acquisitions of LOGICnow and Samanage. 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 Sponsor related costs and restructuring charges and other. 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 Sponsor Related 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. 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 Sponsor related 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.

  • Restructuring Charges and Other. We provide non-GAAP information that excludes restructuring charges 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 charges related to the separation of employment with executives of the Company. These charges 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 charges 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 non-GAAP weighted average outstanding common shares, proforma, which is calculated as if to reflect the conversion of Class A Common Stock and shares issued for accrued dividends and shares issued at our initial public offering as if each occurred at the beginning of each respective period.

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 and other charges, acquisition and Sponsor related costs, interest expense, net, 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 our acquisition, 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 our business prior to the impact of our capital structure, purchases of property and equipment, acquisition and Sponsor related 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.

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.

© 2019 SolarWinds Worldwide, LLC. All rights reserved.

CONTACTS:

Investors: Media: 
Dave Hafner
Phone: 385.374.7059
ir@solarwinds.com 
 Tiffany Nels
Phone: 512.682.9535
pr@solarwinds.com 
 


SolarWinds Corporation

Condensed Consolidated Balance Sheets
(In thousands, except share and per share information)
(Unaudited)

 June 30, December 31,
    
 2019 2018
Assets   
Current assets:   
Cash and cash equivalents $155,290  $382,620 
Accounts receivable, net of allowances of $3,404 and $3,196 as of June 30, 2019 and December 31, 2018, respectively 96,293  100,528 
Income tax receivable 732  893 
Prepaid and other current assets27,756  16,267 
Total current assets280,071  500,308 
Property and equipment, net 37,921  35,864 
Deferred taxes6,854  6,873 
Goodwill 3,990,044  3,683,961 
Intangible assets, net 873,144  956,261 
Other assets, net 19,328  11,382 
Total assets$5,207,362  $5,194,649 
Liabilities and stockholders’ equity   
Current liabilities:   
Accounts payable $11,492  $9,742 
Accrued liabilities and other 49,022  52,055 
Accrued interest payable 846  290 
Income taxes payable 9,436  15,682 
Current portion of deferred revenue289,203  270,433 
Current debt obligation19,900  19,900 
Total current liabilities 379,899  368,102 
Long-term liabilities:   
Deferred revenue, net of current portion29,323  25,699 
Non-current deferred taxes 128,815  147,144 
Other long-term liabilities136,996  133,532 
Long-term debt, net of current portion1,898,713  1,904,072 
Total liabilities2,573,746  2,578,549 
Commitments and contingencies   
Stockholders’ equity:   
Common stock, $0.001 par value: 1,000,000,000 shares authorized and 306,747,844 and 304,942,415 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively 307  305 
Preferred stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively    
Additional paid-in capital3,027,849  3,011,080 
Accumulated other comprehensive income (loss)10,495  17,043 
Accumulated deficit (405,035) (412,328)
Total stockholders’ equity2,633,616  2,616,100 
Total liabilities and stockholders’ equity $5,207,362  $5,194,649 


SolarWinds Corporation

Condensed Consolidated Statements of Operations
(In thousands, except per share information)
(Unaudited)

 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
Revenue:       
Subscription$78,780  $65,238  $150,345  $128,291 
Maintenance110,793  98,767  217,085  195,767 
Total recurring revenue189,573  164,005  367,430  324,058 
License 39,175  37,713  77,110  74,573 
Total revenue 228,748  201,718  444,540  398,631 
Cost of revenue:       
Cost of recurring revenue19,386  17,708  37,545  34,595 
Amortization of acquired technologies43,972  43,967  87,789  88,286 
Total cost of revenue63,358  61,675  125,334  122,881 
Gross profit 165,390  140,043  319,206  275,750 
Operating expenses:       
Sales and marketing 64,813  56,414  125,408  109,096 
Research and development 27,705  23,773  52,893  48,526 
General and administrative 25,241  21,066  46,977  40,252 
Amortization of acquired intangibles 17,301  16,653  33,803  33,781 
Total operating expenses 135,060  117,906  259,081  231,655 
Operating income 30,330  22,137  60,125  44,095 
Other income (expense):       
Interest expense, net (28,177) (34,387) (55,559) (76,476)
Other income (expense), net (1,078) (26,327) 219  (74,463)
Total other income (expense) (29,255) (60,714) (55,340) (150,939)
Income (loss) before income taxes1,075  (38,577) 4,785  (106,844)
Income tax expense (benefit) 3,194  (11,562) 3,759  (19,919)
Net income (loss) $(2,119) $(27,015) $1,026  $(86,925)
Net income (loss) available to common stockholders $(2,119) $(99,193) $1,014  $(228,938)
Net income (loss) available to common stockholders per share:       
Basic earnings (loss) per share$(0.01) $(0.97) $  $(2.25)
Diluted earnings (loss) per share$(0.01) $(0.97) $  $(2.25)
Weighted-average shares used to compute net income (loss) available to commons stockholders per share:       
Shares used in computation of basic earnings (loss) per share 306,587  102,018  306,122  101,832 
Shares used in computation of diluted earnings (loss) per share 306,587  102,018  310,353  101,832 


SolarWinds Corporation

Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
Cash flows from operating activities       
Net income (loss) $(2,119) $(27,015) $1,026  $(86,925)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:       
Depreciation and amortization 65,577  64,399  130,040  129,614 
Provision for doubtful accounts437  730  951  1,165 
Stock-based compensation expense 7,367  131  15,085  172 
Amortization of debt issuance costs 2,305  2,542  4,591  6,708 
Loss on extinguishment of debt      60,590 
Deferred taxes(9,069) (14,540) (20,352) (13,076)
(Gain) loss on foreign currency exchange rates1,208  26,088  (100) 12,545 
Other non-cash expenses (benefits) 273  760  (414) 1,332 
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business combinations:       
Accounts receivable 17,857  788  7,289  158 
Income taxes receivable 399  (94) 149  (409)
Prepaid and other assets (1,846) 2,402  (6,172) (1,107)
Accounts payable 963  4,705  1,442  920 
Accrued liabilities and other 5,789  5,940  (5,009) 3,974 
Accrued interest payable (17) (324) 556  (10,906)
Income taxes payable (6,931) (3,615) (4,385) (15,764)
Deferred revenue (3,319) 6,512  16,735  16,004 
Other long-term liabilities(585) 2,362  220  2,130 
Net cash provided by operating activities78,289  71,771  141,652  107,125 
Cash flows from investing activities       
Purchases of property and equipment (4,204) (6,310) (8,774) (9,256)
Purchases of intangible assets (1,240) (488) (2,480) (1,301)
Acquisitions, net of cash acquired(349,504)   (349,504) (12,990)
Proceeds from sale of cost method investment and other1,427    1,662  10,715 
Net cash used in investing activities (353,521) (6,798) (359,096) (12,832)
Cash flows from financing activities       
Proceeds from issuance of common stock and incentive restricted stock  623    1,723 
Repurchase of common stock and incentive restricted stock (133) (7) (141) (52)
Exercise of stock options221    257  1 
Premium paid on debt extinguishment      (22,725)
Proceeds from credit agreement35,000    35,000  626,950 
Repayments of borrowings from credit agreement (39,975) (4,975) (44,950) (689,950)
Payment of debt issuance costs       (5,561)
Payment for deferred offering costs   (1,009)   (1,009)
Net cash used in financing activities (4,887) (5,368) (9,834) (90,623)
Effect of exchange rate changes on cash and cash equivalents 944  (5,046) (52) (3,308)
Net increase (decrease) in cash and cash equivalents(279,175) 54,559  (227,330) 362 
Cash and cash equivalents       
Beginning of period 434,465  223,519  382,620  277,716 
End of period $155,290  $278,078  $155,290  $278,078 
        
Supplemental disclosure of cash flow information       
Cash paid for interest$26,326  $32,444  $51,749  $81,161 
Cash paid for income taxes $17,832  $5,818  $26,467  $7,857 


SolarWinds Corporation

Reconciliation of Financial Results ASC 606 to ASC 605
(Unaudited)

 Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
    
 As reported
(ASC 606)
 ASC 606 impact Without
adoption of
ASC 606 
(ASC 605)
 As reported
(ASC 606)
 ASC 606 impact Without
adoption of

ASC 606
(ASC 605)

            
            
 (in thousands)
Revenue:           
Subscription$78,780  $230  $79,010  $150,345  $354  $150,699 
Maintenance110,793  244  111,037  217,085  479  217,564 
Total recurring revenue189,573  474  190,047  367,430  833  368,263 
License 39,175  (472) 38,703  77,110  (664) 76,446 
Total revenue $228,748  $2  $228,750  $444,540  $169  $444,709 
            
Total operating expenses(1) 135,060  1,191  136,251  259,081  2,591  261,672 
            
Net income (loss) $(2,119) $(1,189) $(3,308) $1,026  $(2,422) $(1,396)

_______

(1)   Adjustment represents the impact of the capitalization and amortization of sales commissions related to ASC 606. These adjustments are recorded in the sales and marketing line item in our condensed consolidated statements of operations.


SolarWinds Corporation

Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)

 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
 ASC 606 ASC 606
impact
 ASC 605 ASC 605 ASC 606 ASC 606
impact
 ASC 605 ASC 605
                
 (in thousands, except margin data)
Revenue:               
GAAP subscription revenue$78,780  $230  $79,010  $65,238  $150,345  $354  $150,699  $128,291 
Impact of purchase accounting 1,819    1,819  328  1,819    1,819  962 
Non-GAAP subscription revenue 80,599  230  80,829  65,566  152,164  354  152,518  129,253 
GAAP maintenance revenue 110,793  244  111,037  98,767  217,085  479  217,564  195,767 
Impact of purchase accounting       786        1,599 
Non-GAAP maintenance revenue 110,793  244  111,037  99,553  217,085  479  217,564  197,366 
GAAP total recurring revenue189,573  474  190,047  164,005  367,430  833  368,263  324,058 
Impact of purchase accounting 1,819    1,819  1,114  1,819    1,819  2,561 
Non-GAAP total recurring revenue 191,392  474  191,866  165,119  369,249  833  370,082  326,619 
GAAP license revenue 39,175  (472) 38,703  37,713  77,110  (664) 76,446  74,573 
Impact of purchase accounting                
Non-GAAP license revenue39,175  (472) 38,703  37,713  77,110  (664) 76,446  74,573 
Total GAAP revenue$228,748  $2  $228,750  $201,718  $444,540  $169  $444,709  $398,631 
Impact of purchase accounting $1,819  $  $1,819  $1,114  $1,819  $  $1,819  $2,561 
Total non-GAAP revenue$230,567  $2  $230,569  $202,832  $446,359  $169  $446,528  $401,192 
                
GAAP cost of revenue $63,358    $63,358  $61,675  $125,334    $125,334  $122,881 
Stock-based compensation expense and related employer-paid payroll taxes (414)   (414) (4) (786)   (786) (5)
Amortization of acquired technologies(43,972)   (43,972) (43,967) (87,789)   (87,789) (88,286)
Acquisition and Sponsor related costs (38)   (38) (78) (98)   (98) (162)
Restructuring costs and other(8)   (8)   (8)   (8)  
Non-GAAP cost of revenue$18,926    $18,926  $17,626  $36,653    $36,653  $34,428 
                
GAAP gross profit$165,390  $2  $165,392  $140,043  $319,206  $169  $319,375  $275,750 
Impact of purchase accounting 1,819    1,819  1,114  1,819    1,819  2,561 
Stock-based compensation expense and related employer-paid payroll taxes 414    414  4  786    786  5 
Amortization of acquired technologies43,972    43,972  43,967  87,789    87,789  88,286 
Acquisition and Sponsor related costs 38    38  78  98    98  162 
Restructuring costs and other 8    8    8    8   
Non-GAAP gross profit $211,641  $2  $211,643  $185,206  $409,706  $169  $409,875  $366,764 
GAAP gross margin 72.3%   72.3% 69.4% 71.8%   71.8% 69.2%
Non-GAAP gross margin91.8%   91.8% 91.3% 91.8%   91.8% 91.4%
                
GAAP sales and marketing expense $64,813  $1,191  $66,004  $56,414  $125,408  $2,591  $127,999  $109,096 
Stock-based compensation expense and related employer-paid payroll taxes (2,463)   (2,463) (94) (5,268)   (5,268) (119)
Acquisition and Sponsor related costs (509)   (509) (656) (1,229)   (1,229) (1,325)
Restructuring costs and other (8)   (8) 4  (333)   (333) (45)
Non-GAAP sales and marketing expense$61,833  $1,191  $63,024  $55,668  $118,578  $2,591  $121,169  $107,607 
                
GAAP research and development expense$27,705    $27,705  $23,773  $52,893    $52,893  $48,526 
Stock-based compensation expense and related employer-paid payroll taxes(2,019)   (2,019) (19) (3,651)   (3,651) (27)
Acquisition and Sponsor related costs(306)   (306) (593) (553)   (553) (1,445)
Restructuring costs and other(116)   (116) (95) (121)   (121) (201)
Non-GAAP research and development expense$25,264    $25,264  $23,066  $48,568    $48,568  $46,853 
                
GAAP general and administrative expense$25,241    $25,241  $21,066  $46,977    $46,977  $40,252 
Stock-based compensation expense and related employer-paid payroll taxes (2,644)   (2,644) (14) (5,553)   (5,553) (21)
Acquisition and Sponsor related costs (2,646)   (2,646) (4,232) (3,877)   (3,877) (7,815)
Restructuring costs and other (1,740)   (1,740) (728) (1,934)   (1,934) (967)
Non-GAAP general and administrative expense$18,211    $18,211  $16,092  $35,613    $35,613  $31,449 
                
GAAP operating expenses $135,060  $1,191  $136,251  $117,906  $259,081  $2,591  $261,672  $231,655 
Stock-based compensation expense and related employer-paid payroll taxes (7,126)   (7,126) (127) (14,472)   (14,472) (167)
Amortization of acquired intangibles (17,301)   (17,301) (16,653) (33,803)   (33,803) (33,781)
Acquisition and Sponsor related costs (3,461)   (3,461) (5,481) (5,659)   (5,659) (10,585)
Restructuring costs and other (1,864)   (1,864) (819) (2,388)   (2,388) (1,213)
Non-GAAP operating expenses $105,308  $1,191  $106,499  $94,826  $202,759  $2,591  $205,350  $185,909 
                
GAAP operating income $30,330  $(1,189) $29,141  $22,137  $60,125  $(2,422) $57,703  $44,095 
Impact of purchase accounting 1,819    1,819  1,114  1,819    1,819  2,561 
Stock-based compensation expense and related employer-paid payroll taxes 7,540    7,540  131  15,258    15,258  172 
Amortization of acquired technologies43,972    43,972  43,967  87,789    87,789  88,286 
Amortization of acquired intangibles 17,301    17,301  16,653  33,803    33,803  33,781 
Acquisition and Sponsor related costs 3,499    3,499  5,559  5,757    5,757  10,747 
Restructuring costs and other 1,872    1,872  819  2,396    2,396  1,213 
Non-GAAP operating income$106,333  $(1,189) $105,144  $90,380  $206,947  $(2,422) $204,525  $180,855 
GAAP operating margin 13.3%   12.7% 11.0% 13.5%   13.0% 11.1%
Non-GAAP operating margin46.1%   45.6% 44.6% 46.4%   45.8% 45.1%
                
GAAP net income (loss) $(2,119) $(1,189) $(3,308) $(27,015) $1,026  $(2,422) $(1,396) $(86,925)
Impact of purchase accounting 1,819    1,819  1,114  1,819    1,819  2,561 
Stock-based compensation expense and related employer-paid payroll taxes 7,540    7,540  131  15,258    15,258  172 
Amortization of acquired technologies43,972    43,972  43,967  87,789    87,789  88,286 
Amortization of acquired intangibles 17,301    17,301  16,653  33,803    33,803  33,781 
Acquisition and Sponsor related costs 3,499    3,499  5,559  5,757    5,757  10,747 
Restructuring costs and other 1,872    1,872  819  2,396    2,396  1,213 
Loss on extinguishment of debt              60,590 
Tax benefits associated with above adjustments (13,760)   (13,760) (12,326) (26,809)   (26,809) (38,492)
Non-GAAP net income$60,124  $(1,189) $58,935  $28,902  $121,039  $(2,422) $118,617  $71,933 
                
                
GAAP diluted earnings (loss) per share $(0.01)   $(0.01) $(0.97)     $  $(2.25)
Non-GAAP diluted earnings (loss) per share, pro forma$0.20    $0.19  $0.09  $0.39    $0.38  $0.24 
                
Weighted-average shares used to compute GAAP diluted earnings (loss) per share306,587    306,587  102,018  310,353    310,353  101,832 
Weighted-average shares used to compute Non-GAAP diluted earnings (loss) per share, pro forma(1) 306,587    306,587  304,830  310,353    310,353  304,644 

___________

  1. For an explanation of the pro forma calculation, please see "Reconciliation of GAAP to Non-GAAP Weighted-Average Outstanding Diluted Common Shares" below.


Reconciliation of GAAP to Non-GAAP Weighted-Average Outstanding Diluted Common Shares
(Unaudited)

 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
        
 (in thousands)
GAAP weighted-average shares used in computing diluted earnings (loss) per share available to common shareholders 306,587  102,018  310,353  101,832 
        
Pro forma dilutive shares:       
Weighted-average pro forma adjustment to reflect conversion of redeemed convertible Class A Common Stock and shares issued for accrued dividends(1)   177,812    177,812 
Shares issued at offering(2)   25,000    25,000 
Non-GAAP weighted-average shares used in computing diluted earnings (loss) per share, pro forma 306,587  304,830  310,353  304,644 

_____________

  1. Adjustment to give effect to the conversion of 2,661,015 shares of Class A Common Stock that were outstanding immediately prior to the closing of the initial public offering into 140,053,370 shares of common stock and the conversion of $717.4 million of accrued and unpaid dividends on the Class A Common Stock into 37,758,109 shares of common stock equal to the result of the accrued and unpaid dividends on each share of Class A Common Stock, divided by $19.00 per share, as if the shares had been issued at the beginning of the period.
  2. Adjustment to give effect to 25.0 million shares issued in connection with the initial public offering retroactively applied as if the shares had been issued at the beginning of the period.


Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA
(Unaudited)

 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
 ASC 606 ASC 606
impact
 ASC 605 ASC 605 ASC 606 ASC 606
impact
 ASC 605 ASC 605
                
 (in thousands)
Net income (loss) $(2,119) $(1,189) $(3,308) $(27,015) $1,026  $(2,422) $(1,396) $(86,925)
Amortization and depreciation 65,577    65,577  64,399  130,040    130,040  129,614 
Income tax expense (benefit) 3,194    3,194  (11,562) 3,759    3,759  (19,919)
Interest expense, net 28,177    28,177  34,387  55,559    55,559  76,476 
Impact of purchase accounting on total revenue 1,819    1,819  1,114  1,819    1,819  2,561 
Unrealized foreign currency (gains) losses(1) 1,208    1,208  26,088  (100)   (100) 13,502 
Acquisition and Sponsor related costs 3,499    3,499  5,559  5,757    5,757  10,747 
Debt related costs(2)95    95  144  196    196  61,733 
Stock-based compensation expense and related employer-paid payroll taxes 7,540    7,540  131  15,258    15,258  172 
Restructuring costs and other 1,872    1,872  819  2,396    2,396  1,213 
Adjusted EBITDA $110,862  $(1,189) $109,673  $94,064  $215,710  $(2,422) $213,288  $189,174 
Adjusted EBITDA margin48.1%   47.6% 46.4% 48.3%   47.8% 47.2%

_______________

  1. Unrealized foreign currency (gains) losses primarily relate to the remeasurement of our intercompany loans and to a lesser extent, unrealized foreign currency (gains) losses on selected assets and liabilities.
  2. Debt related costs include fees related to our credit agreements, debt refinancing costs and the related write-off of debt issuance costs.


Reconciliation of Non-GAAP Revenue to Non-GAAP Revenue on a Constant Currency Basis
(Unaudited)

 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 Growth Rate 2019 2018 Growth Rate
            
 (in thousands, except percentages)
GAAP subscription revenue$78,780  $65,238  20.8% $150,345  $128,291  17.2%
Impact of purchase accounting 1,819  328  2.1  1,819  962  0.5 
Non-GAAP subscription revenue 80,599  65,566  22.9  152,164  129,253  17.7 
Estimated foreign currency impact(1)1,931    2.9  4,546    3.5 
Non-GAAP subscription revenue on a constant currency basis $82,530  $65,566  25.9% $156,710  $129,253  21.2%
            
GAAP maintenance revenue $110,793  $98,767  12.2% $217,085  $195,767  10.9%
Impact of purchase accounting   786  (0.9)   1,599  (0.9)
Non-GAAP maintenance revenue 110,793  99,553  11.3  217,085  197,366  10.0 
Estimated foreign currency impact(1)1,112    1.1  2,532    1.3 
Non-GAAP maintenance revenue on a constant currency basis $111,905  $99,553  12.4% $219,617  $197,366  11.3%
            
GAAP total recurring revenue$189,573  $164,005  15.6% $367,430  $324,058  13.4%
Impact of purchase accounting 1,819  1,114  0.3  1,819  2,561  (0.3)
Non-GAAP total recurring revenue 191,392  165,119  15.9  369,249  326,619  13.1 
Estimated foreign currency impact(1)3,043    1.8  7,078    2.2 
Non-GAAP total recurring revenue on a constant currency basis $194,435  $165,119  17.8% $376,327  $326,619  15.2%
            
GAAP license revenue $39,175  $37,713  3.9% $77,110  $74,573  3.4%
Impact of purchase accounting            
Non-GAAP license revenue39,175  37,713  3.9  77,110  74,573  3.4 
Estimated foreign currency impact(1)483    1.3  1,061    1.4 
Non-GAAP license revenue on a constant currency basis $39,658  $37,713  5.2% $78,171  $74,573  4.8%
            
Total GAAP revenue$228,748  $201,718  13.4% $444,540  $398,631  11.5%
Impact of purchase accounting 1,819  1,114  0.3  1,819  2,561  (0.2)
Non-GAAP total revenue230,567  202,832  13.7  446,359  401,192  11.3 
Estimated foreign currency impact(1)3,526    1.7  8,139    2.0 
Non-GAAP total revenue on a constant currency basis $234,093  $202,832  15.4% $454,498  $401,192  13.3%

________

  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 six months ended June 30, 2019.


Reconciliation of 2019 Non-GAAP Revenue to Adjusted Non-GAAP Revenue
Assuming Rates in Previously Issued Outlook
(Unaudited)

 Three Months Ended
June 30, 2019
  
 (in thousands)
Total non-GAAP revenue$230,567 
Estimated foreign currency impact(2)368 
Total adjusted non-GAAP revenue assuming foreign currency exchange rates used in previously issued outlook...........................................................................................................................................................................................$230,935 

________
(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 June 30, 2019 actual non-GAAP results and the rates assumed in our previously issued outlook dated April 24, 2019.


Reconciliation of Non-GAAP Revenue Outlook

 Full Year 2019
 Low High Low(2) High(2)
        
 (in millions, except year-over-year percentages)
Total non-GAAP revenue$938  $950  12% 14%
Estimated foreign currency impact 10  10  1  1 
Non-GAAP total revenue on a constant currency basis(1)$948  $960  13% 15%


 Q3 2019
 Low High Low(2) High(2)
        
 (in millions, except year-over-year percentages)
Total non-GAAP revenue$241.5  $246  13% 15%
Estimated foreign currency impact 1.5  2  1  1 
Non-GAAP total revenue on a constant currency basis(1)$243  $248  14% 16%


 Full Year 2019(2) Q3 2019(2)
 Low High Low High
        
Non-GAAP subscription revenue growth23% 24% 25% 27%
Estimated foreign currency impact 1  2    1 
Non-GAAP subscription revenue growth on a constant currency basis(1) 24% 26% 25% 28%
        
Non-GAAP license and maintenance revenue growth 7% 9% 7% 9%
Estimated foreign currency impact 1  1  2  1 
Non-GAAP license and maintenance revenue growth on a constant currency basis(1) 8% 10% 9% 10%

________

  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

 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
        
 (in thousands)
Net cash provided by operating activities$78,289  $71,771  $141,652  $107,125 
Capital expenditures(1) (5,444) (6,798) (11,254) (10,557)
Free cash flow72,845  64,973  130,398  96,568 
Cash paid for interest and other debt related items25,984  32,313  50,608  81,817 
Cash paid for acquisition and Sponsor related costs, restructuring costs, employer-paid payroll taxes on stock awards and other one time items 6,234  6,487  10,620  13,058 
Unlevered free cash flow (excluding forfeited tax shield) 105,063  103,773  191,626  191,443 
Forfeited tax shield related to interest payments(2)(5,923) (7,300) (11,644) (18,261)
Unlevered free cash flow$99,140  $96,473  $179,982  $173,182 

_______________

  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 six months ended June 30, 2019 and 2018.