U.S. Markets close in 1 hr 36 mins

SolarWinds Announces First Quarter 2019 Results

AUSTIN, Texas, April 24, 2019 (GLOBE NEWSWIRE) -- SolarWinds Corporation (SWI), a leading provider of powerful and affordable IT management software, today reported results for its first quarter ended March 31, 2019.

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

  • Total revenue for the first quarter of $215.8 million, representing 9.6% growth on a reported basis.
  • Total recurring revenue for the first quarter of $177.9 million, representing 11.1% growth on a reported basis.
  • Net income for the first quarter of $3.1 million.

On a non-GAAP basis including presentation of results under ASC 605:

  • Non-GAAP total revenue for the first quarter of $216.0 million, representing 8.9% year-over-year growth and 11.2% year-over-year growth on a constant currency basis. Non-GAAP total revenue assuming foreign currency exchange rates used in previously issued outlook would have been $216.6 million.
  • Non-GAAP total recurring revenue for the first quarter of $178.2 million, representing 10.4% year-over-year growth and 12.9% year-over-year growth on a constant currency basis.
  • Adjusted EBITDA for the first quarter of $103.6 million, representing a margin of 48.0% on 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 had a good start to 2019 with first quarter total revenue results that were led by subscription revenue growth and included solid maintenance revenue growth and license revenue that grew for the fifth consecutive quarter,” said Kevin Thompson, SolarWinds' President & Chief Executive Officer.  “In addition, we added over 6,000 new customers for the thirteenth quarter in a row while doing an excellent job of retaining our existing customers as reflected by a very strong 97% maintenance renewal rate and subscription net retention rate of 105% both measured on a trailing twelve months basis.”

“As we look ahead to the rest of the year, we're excited about the opportunities for accelerating growth across our business, including the opportunity we now have to disrupt the ITSM market with SolarWinds Service Desk, which we plan to launch in the second quarter assuming completion of the Samanage acquisition,” added Thompson. “We believe that a powerful, market-leading ITSM solution offers us another opportunity to create a unique position to serve IT professionals in organizations of all sizes while expanding our addressable market and creating additional cross sell opportunities.”

“Adjusted EBITDA for the first quarter of 2019 of $103.6 million (ASC 605) came in well ahead of our outlook, representing a stronger than expected margin of 48% on non-GAAP total revenue (ASC 605). The first quarter also represented another period of solid cash flow generation,” said Bart Kalsu, SolarWinds' Executive Vice President and Chief Financial Officer.

Balance Sheet

At March 31, 2019, total cash and cash equivalents were $434.5 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 April 24, 2019, SolarWinds is providing its financial outlook for the second 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, adjusted EBITDA and non-GAAP diluted earnings per share, for the second quarter of 2019 and for the full year 2019. These non-GAAP financial measures exclude, among other items mentioned below, stock-based compensation expense, 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 Second Quarter of 2019

Including the expected contribution from the Samanage acquisition, SolarWinds’ management currently expects to achieve the following results for the second quarter of 2019 under ASC 606:

  • Non-GAAP total revenue in the range of $224.0 to $229.0 million, representing growth over the second quarter of 2018 non-GAAP total revenue of 10% to 13%, or 12% to 15% on a constant currency basis assuming the same average foreign currency exchange rates as those in the second quarter of 2018.
  • Adjusted EBITDA in the range of $107.0 to $109.0 million, representing approximately 48% of non-GAAP total revenue.
  • Non-GAAP diluted earnings per share of $0.18 to $0.19.
  • Weighted average outstanding diluted shares of approximately 311.5 million.

Financial Outlook for Full Year 2019

Including the expected contribution from the Samanage acquisition, 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 $934.0 to $949.0 million, representing growth over 2018 non-GAAP revenue of 12% to 13%, or 13% to 15% on a constant currency basis, assuming the same average foreign currency exchange rates as those in 2018. This includes approximately $11.5 to $12.5 million of revenue contribution from the Samanage acquisition.
  • Adjusted EBITDA in the range of $446.0 to $453.0 million, representing approximately 48% of non-GAAP total revenue.  This includes the dilutive impact of approximately $8.0 to $10.0 million loss associated with the Samanage acquisition.
  • Non-GAAP diluted earnings per share of $0.80 to $0.82.
  • Weighted average outstanding diluted shares of approximately 312.5 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 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 (877) 823-8676 and internationally at +1 (647) 689-4178. 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 second quarter and full year 2019, the completion, timing and impact of the Samanage acquisition and our beliefs regarding our related 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; (e) the risk that the Samanage acquisition does not close at all or when expected or that its contribution to our financial results are lower than expected; (f) risks associated with our international operations; (g) our status as a controlled company; (h) the possibility that general economic conditions or uncertainty cause information technology spending to be reduced or purchasing decisions to be delayed; (i) the timing and success of new product introductions and product upgrades by SolarWinds or its competitors; (j) 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; (k) potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity; and (l) 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 May 15, 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 three month period ended March 31, 2019 in accordance with both ASC 606 and ASC 605.

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.

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 acquisition of LOGICnow for periods prior to 2019 and the expected impact of the Samanage acquisition for 2019 outlook. 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, 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. We provide non-GAAP information that excludes expenses related to stock-based compensation. 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. Because of these unique characteristics of stock-based compensation, 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, 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 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 (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)

  March 31,   December 31,
  2019   2018
Assets      
Current assets:      
Cash and cash equivalents $ 434,465     $ 382,620  
Accounts receivable, net of allowances of $3,466 and $3,196 as of March 31, 2019 and December 31, 2018, respectively 109,837     100,528  
Income tax receivable 1,141     893  
Prepaid and other current assets 20,811     16,267  
Total current assets 566,254     500,308  
Property and equipment, net 36,918     35,864  
Deferred taxes 6,879     6,873  
Goodwill 3,661,794     3,683,961  
Intangible assets, net 891,958     956,261  
Other assets, net 16,669     11,382  
Total assets $ 5,180,472     $ 5,194,649  
Liabilities and stockholders’ equity      
Current liabilities:      
Accounts payable $ 10,052     $ 9,742  
Accrued liabilities and other 40,873     52,055  
Accrued interest payable 863     290  
Income taxes payable 17,878     15,682  
Current portion of deferred revenue 285,212     270,433  
Current debt obligation 19,900     19,900  
Total current liabilities 374,778     368,102  
Long-term liabilities:      
Deferred revenue, net of current portion 26,578     25,699  
Non-current deferred taxes 137,454     147,144  
Other long-term liabilities 133,902     133,532  
Long-term debt, net of current portion 1,901,383     1,904,072  
Total liabilities 2,574,095     2,578,549  
Commitments and contingencies      
Stockholders’ equity:      
Common stock, $0.001 par value: 1,000,000,000 shares authorized and 306,405,049 and 304,942,415 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively 306     305  
Preferred stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively      
Additional paid-in capital 3,019,652     3,011,080  
Accumulated other comprehensive income (loss) (10,665 )   17,043  
Accumulated deficit (402,916 )   (412,328 )
Total stockholders’ equity 2,606,377     2,616,100  
Total liabilities and stockholders’ equity $ 5,180,472     $ 5,194,649  
               

SolarWinds Corporation

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

  Three Months Ended March 31,
  2019   2018
Revenue:      
Subscription $ 71,565     $ 63,053  
Maintenance 106,292     97,000  
Total recurring revenue 177,857     160,053  
License 37,935     36,860  
Total revenue 215,792     196,913  
Cost of revenue:      
Cost of recurring revenue 18,159     16,887  
Amortization of acquired technologies 43,817     44,319  
Total cost of revenue 61,976     61,206  
Gross profit 153,816     135,707  
Operating expenses:      
Sales and marketing 60,595     52,682  
Research and development 25,188     24,753  
General and administrative 21,736     19,186  
Amortization of acquired intangibles 16,502     17,128  
Total operating expenses 124,021     113,749  
Operating income 29,795     21,958  
Other income (expense):      
Interest expense, net (27,382 )   (42,089 )
Other income (expense), net 1,297     (48,136 )
Total other income (expense) (26,085 )   (90,225 )
Income (loss) before income taxes 3,710     (68,267 )
Income tax expense (benefit) 565     (8,357 )
Net income (loss) $ 3,145     $ (59,910 )
Net income (loss) available to common stockholders $ 3,103     $ (129,745 )
Net income (loss) available to common stockholders per share:      
Basic earnings (loss) per share $ 0.01     $ (1.28 )
Diluted earnings (loss) per share $ 0.01     $ (1.28 )
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 305,653     101,644  
Shares used in computation of diluted earnings (loss) per share 309,783     101,644  
           

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

  Three Months Ended March 31,
  2019   2018
Cash flows from operating activities      
Net income (loss) $ 3,145     $ (59,910 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Depreciation and amortization 64,463     65,215  
Provision for doubtful accounts 514     435  
Stock-based compensation expense 7,718     41  
Amortization of debt issuance costs 2,286     4,166  
Loss on extinguishment of debt     60,590  
Deferred taxes (11,283 )   1,464  
(Gain) loss on foreign currency exchange rates (1,308 )   (13,543 )
Other non-cash expenses (benefits) (687 )   572  
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business combinations:      
Accounts receivable (10,568 )   (630 )
Income taxes receivable (250 )   (315 )
Prepaid and other assets (4,326 )   (3,509 )
Accounts payable 479     (3,785 )
Accrued liabilities and other (10,798 )   (1,966 )
Accrued interest payable 573     (10,582 )
Income taxes payable 2,546     (12,149 )
Deferred revenue 20,054     9,492  
Other long-term liabilities 805     (232 )
Net cash provided by operating activities 63,363     35,354  
Cash flows from investing activities      
Purchases of property and equipment (4,570 )   (2,946 )
Purchases of intangible assets (1,240 )   (813 )
Acquisitions, net of cash acquired     (12,990 )
Proceeds from sale of cost method investment and other 235     10,715  
Net cash used in investing activities (5,575 )   (6,034 )
Cash flows from financing activities      
Proceeds from issuance of common stock and incentive restricted stock     1,100  
Repurchase of common stock and incentive restricted stock (8 )   (45 )
Exercise of stock options 36     1  
Premium paid on debt extinguishment     (22,725 )
Proceeds from credit agreement     626,950  
Repayments of borrowings from credit agreement (4,975 )   (684,975 )
Payment of debt issuance costs     (5,561 )
Net cash used in financing activities (4,947 )   (85,255 )
Effect of exchange rate changes on cash and cash equivalents (996 )   1,738  
Net increase (decrease) in cash and cash equivalents 51,845     (54,197 )
Cash and cash equivalents      
Beginning of period 382,620     277,716  
End of period $ 434,465     $ 223,519  
       
Supplemental disclosure of cash flow information      
Cash paid for interest $ 25,423     $ 48,717  
Cash paid for income taxes $ 8,635     $ 2,039  
               

SolarWinds Corporation

Reconciliation of Q1 2019 Financial Results ASC 606 to ASC 605
(Unaudited)

  Three Months Ended March 31, 2019
  As reported
(ASC 606)
  ASC 606 impact   Without adoption of ASC 606
(ASC 605)
      (in thousands)    
Revenue:          
Subscription $ 71,565     $ 124     $ 71,689  
Maintenance 106,292     235     106,527  
Total recurring revenue 177,857     359     178,216  
License 37,935     (192 )   37,743  
Total revenue $ 215,792     $ 167     $ 215,959  
           
Total operating expenses(1) 124,021     1,400     125,421  
           
Net income $ 3,145     $ (1,233 )   $ 1,912  
                       

_______

  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 March 31,
  2019   2018
  ASC 606   ASC 606 impact   ASC 605   ASC 605
               
  (in thousands, except margin data)
Revenue:              
GAAP subscription revenue $ 71,565     $ 124     $ 71,689     $ 63,053  
Impact of purchase accounting             634  
Non-GAAP subscription revenue 71,565     124     71,689     63,687  
GAAP maintenance revenue 106,292     235     106,527     97,000  
Impact of purchase accounting             813  
Non-GAAP maintenance revenue 106,292     235     106,527     97,813  
GAAP total recurring revenue 177,857     359     178,216     160,053  
Impact of purchase accounting             1,447  
Non-GAAP total recurring revenue 177,857     359     178,216     161,500  
GAAP license revenue 37,935     (192 )   37,743     36,860  
Impact of purchase accounting              
Non-GAAP license revenue 37,935     (192 )   37,743     36,860  
Total GAAP revenue $ 215,792     $ 167     $ 215,959     $ 196,913  
Impact of purchase accounting $     $     $     $ 1,447  
Total non-GAAP revenue $ 215,792     $ 167     $ 215,959     $ 198,360  
               
GAAP cost of revenue $ 61,976         $ 61,976     $ 61,206  
Stock-based compensation expense (372 )       (372 )   (1 )
Amortization of acquired technologies (43,817 )       (43,817 )   (44,319 )
Acquisition and Sponsor related costs (60 )       (60 )   (84 )
Non-GAAP cost of revenue $ 17,727         $ 17,727     $ 16,802  
               
GAAP gross profit $ 153,816     $ 167     $ 153,983     $ 135,707  
Impact of purchase accounting             1,447  
Stock-based compensation expense 372         372     1  
Amortization of acquired technologies 43,817         43,817     44,319  
Acquisition and Sponsor related costs 60         60     84  
Non-GAAP gross profit $ 198,065     $ 167     $ 198,232     $ 181,558  
GAAP gross margin 71.3 %       71.3 %   68.9 %
Non-GAAP gross margin 91.8 %       91.8 %   91.5 %
               
GAAP sales and marketing expense $ 60,595     $ 1,400     $ 61,995     $ 52,682  
Stock-based compensation expense (2,805 )       (2,805 )   (25 )
Acquisition and Sponsor related costs (720 )       (720 )   (669 )
Restructuring costs and other (325 )       (325 )   (49 )
Non-GAAP sales and marketing expense $ 56,745     $ 1,400     $ 58,145     $ 51,939  
               
GAAP research and development expense $ 25,188         $ 25,188     $ 24,753  
Stock-based compensation expense (1,632 )       (1,632 )   (8 )
Acquisition and Sponsor related costs (247 )       (247 )   (852 )
Restructuring costs and other (5 )       (5 )   (106 )
Non-GAAP research and development expense $ 23,304         $ 23,304     $ 23,787  
               
                           
                           
GAAP general and administrative expense $ 21,736         $ 21,736     $ 19,186  
Stock-based compensation expense (2,909 )       (2,909 )   (7 )
Acquisition and Sponsor related costs (1,231 )       (1,231 )   (3,583 )
Restructuring costs and other (194 )       (194 )   (239 )
Non-GAAP general and administrative expense $ 17,402         $ 17,402     $ 15,357  
               
GAAP operating expenses $ 124,021     $ 1,400     $ 125,421     $ 113,749  
Stock-based compensation expense (7,346 )       (7,346 )   (40 )
Amortization of acquired intangibles (16,502 )       (16,502 )   (17,128 )
Acquisition and Sponsor related costs (2,198 )       (2,198 )   (5,104 )
Restructuring costs and other (524 )       (524 )   (394 )
Non-GAAP operating expenses $ 97,451     $ 1,400     $ 98,851     $ 91,083  
               
GAAP operating income $ 29,795     $ (1,233 )   $ 28,562     $ 21,958  
Impact of purchase accounting             1,447  
Stock-based compensation expense 7,718         7,718     41  
Amortization of acquired technologies 43,817         43,817     44,319  
Amortization of acquired intangibles 16,502         16,502     17,128  
Acquisition and Sponsor related costs 2,258         2,258     5,188  
Restructuring costs and other 524         524     394  
Non-GAAP operating income $ 100,614     $ (1,233 )   $ 99,381     $ 90,475  
GAAP operating margin 13.8 %       13.2 %   11.2 %
Non-GAAP operating margin 46.6 %       46.0 %   45.6 %
               
GAAP net income (loss) $ 3,145     $ (1,233 )   $ 1,912     $ (59,910 )
Impact of purchase accounting             1,447  
Stock-based compensation expense 7,718         7,718     41  
Amortization of acquired technologies 43,817         43,817     44,319  
Amortization of acquired intangibles 16,502         16,502     17,128  
Acquisition and Sponsor related costs 2,258         2,258     5,188  
Restructuring costs and other 524         524     394  
Loss on extinguishment of debt             60,590  
Tax benefits associated with above adjustments (13,049 )       (13,049 )   (26,166 )
Non-GAAP net income $ 60,915     $ (1,233 )   $ 59,682     $ 43,031  
               
GAAP diluted earnings (loss) per share $ 0.01         $ 0.01     $ (1.28 )
Non-GAAP diluted earnings (loss) per share, pro forma $ 0.20         $ 0.19     $ 0.14  
               
Weighted-average shares used to compute GAAP diluted earnings (loss) per share 309,783         309,783     101,644  
Weighted-average shares used to compute Non-GAAP diluted earnings (loss) per share, pro forma(1) 309,783         309,783     304,456  
                     

___________

  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 March 31,
  2019   2018
       
  (in thousands)
GAAP weighted-average shares used in computing diluted earnings (loss) per share available to common shareholders 309,783     101,644  
       
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  
Shares issued at offering(2)     25,000  
Non-GAAP weighted-average shares used in computing diluted earnings (loss) per share, pro forma(3) 309,783     304,456  
           

_____________

  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.
  3. Does not give effect to anti-dilutive incentive stock awards including 7.3 million of equity awards issued in connection with the initial public offering in October 2018.


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

  Three Months Ended March 31,
  2019   2018
   ASC 606   ASC 606 impact   ASC 605   ASC 605
               
  (in thousands)
Net income (loss) $ 3,145     $ (1,233 )   $ 1,912     $ (59,910 )
Amortization and depreciation 64,463         64,463     65,215  
Income tax expense (benefit) 565         565     (8,357 )
Interest expense, net 27,382         27,382     42,089  
Impact of purchase accounting on total revenue             1,447  
Unrealized foreign currency (gains) losses(1) (1,308 )       (1,308 )   (12,586 )
Acquisition and Sponsor related costs 2,258         2,258     5,188  
Debt related costs(2) 101         101     61,589  
Stock-based compensation expense 7,718         7,718     41  
Restructuring costs and other 524         524     394  
Adjusted EBITDA $ 104,848     $ (1,233 )   $ 103,615     $ 95,110  
Adjusted EBITDA margin 48.6 %       48.0 %   47.9 %
                     

_______________

  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 March 31,
  2019   2018   Growth Rate
           
  (in thousands, except percentages)
GAAP subscription revenue $ 71,565     $ 63,053     13.5 %
Impact of purchase accounting     634     (1.0 )
Non-GAAP subscription revenue 71,565     63,687     12.4  
Adjustment due to adoption of ASC 606 124         0.2  
Estimated foreign currency impact(1) 2,616         4.1  
Non-GAAP subscription revenue on a constant currency basis as if reported under ASC 605 $ 74,305     $ 63,687     16.7 %
           
GAAP maintenance revenue $ 106,292     $ 97,000     9.6 %
Impact of purchase accounting     813     (0.8 )
Non-GAAP maintenance revenue 106,292     97,813     8.7  
Adjustment due to adoption of ASC 606 235         0.2  
Estimated foreign currency impact(1) 1,507         1.5  
Non-GAAP maintenance revenue on a constant currency basis as if reported under ASC 605 $ 108,034     $ 97,813     10.4 %
           
GAAP total recurring revenue $ 177,857     $ 160,053     11.1 %
Impact of purchase accounting     1,447     (0.9 )
Non-GAAP total recurring revenue 177,857     161,500     10.1  
Adjustment due to adoption of ASC 606 359         0.2  
Estimated foreign currency impact(1) 4,123         2.6  
Non-GAAP total recurring revenue on a constant currency basis as if reported under ASC 605 $ 182,339     $ 161,500     12.9 %
           
GAAP license revenue $ 37,935     $ 36,860     2.9 %
Impact of purchase accounting          
Non-GAAP license revenue 37,935     36,860     2.9  
Adjustment due to adoption of ASC 606 (192 )       (0.5 )
Estimated foreign currency impact(1) 581         1.6  
Non-GAAP license revenue on a constant currency basis as if reported under ASC 605 $ 38,324     $ 36,860     4.0 %
           
Total GAAP revenue $ 215,792     $ 196,913     9.6 %
Impact of purchase accounting     1,447     (0.7 )
Non-GAAP total revenue 215,792     198,360     8.8  
Adjustment due to adoption of ASC 606 167         0.1  
Estimated foreign currency impact(1) 4,704         2.4  
Non-GAAP total revenue on a constant currency basis as if reported under ASC 605 $ 220,663     $ 198,360     11.2 %
                     

________

(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 as calculated under ASC 605 in the corresponding monthly periods in the first quarter of 2019.

Reconciliation of Q1 2019 ASC 605 Revenue to Adjusted Revenue Assuming Rates in Previously Issued Outlook

  Three Months Ended
March 31, 2019
   
  (in thousands)
Total revenue under ASC 605 $ 215,959  
Estimated foreign currency impact(2) 655  
Total adjusted revenue under ASC 605 assuming foreign currency exchange rates used in previously issued outlook $ 216,614  
       

________

(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 Q1 2019 actual results under ASC 605 and the rates assumed in our previously issued outlook dated February 7, 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 $ 934     $ 949     12 %   13 %
Estimated foreign currency impact 12     12     1     2  
Non-GAAP total revenue on a constant currency basis(1) $ 946     $ 961     13 %   15 %
                           


  Q2 2019
  Low   High   Low(2)   High(2)
               
  (in millions, except year-over-year percentages)
Total non-GAAP revenue $ 224     $ 229     10 %   13 %
Estimated foreign currency impact 4     4     2     2  
Non-GAAP total revenue on a constant currency basis(1) $ 228     $ 233     12 %   15 %
                           


  Full Year 2019(2)   Q2 2019(2)
  Low   High   Low   High
               
Non-GAAP subscription revenue growth 23 %   25 %   18 %   21 %
Estimated foreign currency impact 2     2     3     3  
Non-GAAP subscription revenue growth on a constant currency basis(1) 25 %   27 %   21 %   24 %
               
Non-GAAP license and maintenance revenue growth 6 %   8 %   7 %   9 %
Estimated foreign currency impact 2     1     1     2  
Non-GAAP license and maintenance revenue growth on a constant currency basis(1) 8 %   9 %   8 %   11 %
                       

________

  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 March 31,
  2019   2018
       
  (in thousands)
Net cash provided by operating activities $ 63,363     $ 35,354  
Capital expenditures(1) (5,810 )   (3,759 )
Cash paid for interest and other debt related items 24,624     49,504  
Cash paid for acquisition and sponsor related costs, restructuring costs and other one time items 4,386     6,571  
Unlevered free cash flow (excluding forfeited tax shield) 86,563     87,670  
Forfeited tax shield related to interest payments(2) (5,720 )   (10,961 )
Unlevered free cash flow $ 80,843     $ 76,709  
               

_______________

  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 months ended March 31, 2019 and 2018.