Company also announces the appointment of Easwaran Sundaram to its Board of Directors
AUSTIN, Texas--(BUSINESS WIRE)--SolarWinds Corporation (NYSE: SWI), a leading provider of powerful and affordable IT management software, today reported results for its fourth quarter ended December 31, 2019.
On a GAAP basis, reflecting our adoption of the new standard ASC 606 effective January 1, 2019:
- Total revenue for the fourth quarter of $247.5 million, representing 11.9% growth on a reported basis.
Total recurring revenue for the fourth quarter of $202.9 million, representing 16.0% growth on a reported basis. Total recurring revenue includes:
- Maintenance revenue for the fourth quarter of $115.6 million, representing 9.7% growth on a reported basis.
- Subscription revenue for the fourth quarter of $87.3 million, representing 25.4% growth on a reported basis.
- Net income for the fourth quarter of $13.2 million.
On a non-GAAP basis:
- Non-GAAP total revenue for the fourth quarter of $249.4 million, representing 12.5% year-over-year growth on a reported basis and 13.3% year-over-year growth on a constant currency basis.
Non-GAAP total recurring revenue for the fourth quarter of $204.8 million, representing 16.8% year-over-year growth on a reported basis and 17.6% year-over-year growth on a constant currency basis. Non-GAAP total recurring revenue includes:
- Non-GAAP maintenance revenue for the fourth quarter of $115.6 million, representing 9.3% growth on a reported basis.
- Non-GAAP subscription revenue for the fourth quarter of $89.2 million, representing 28.1% growth on a reported basis.
- Adjusted EBITDA for the fourth quarter of $122.9 million, representing a margin of 49.3% 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 had a solid finish to a successful 2019 delivering fourth quarter non-GAAP revenue of $249.4 million reflecting 13% year-over-year growth, which resulted in full year 2019 non-GAAP total revenue of $938.5 million,” said Kevin Thompson, SolarWinds’ President & Chief Executive Officer. “Our fourth quarter revenue performance was within the range of our outlook, led primarily by non-GAAP subscription revenue exceeding the high end of our outlook representing 28% growth year-over-year for the quarter. In 2019, we also made significant progress towards our goal of solving the full complement of IT management challenges for our customers. We expanded our footprint in IT Operations Management through the acquisition of Samanage in the second quarter and the acquisition of VividCortex late in the fourth quarter which completed our infrastructure and application management picture. We can now help technology professionals monitor and manage all the key components of hybrid IT infrastructure through what we believe is the broadest coverage of the modern IT infrastructure and application environments.”
“In addition to solid 2019 non-GAAP total revenue growth, non-GAAP recurring revenue has grown 17% on a constant currency basis and non-GAAP recurring revenue accounted for 82% of total non-GAAP revenue for 2019. We also finished the year with strong profit margins exceeding the high end of our outlook for the year with full year 2019 Adjusted EBITDA of $453.6 million or an Adjusted EBITDA margin of 48% for 2019, despite the dilutive impact of the Samanage acquisition,” added Bart Kalsu, SolarWinds' Executive Vice President and Chief Financial Officer.
Additional highlights for the fourth quarter of 2019 include:
- SolarWinds expanded its Database Performance offering through the acquisition of VividCortex, a leading database performance management product with an emphasis on monitoring and managing databases commonly used in cloud-native applications. This SaaS-based offering will complement SolarWinds’ award-winning Database Performance Analyzer (DPA) the on-premises and cloud-deployed product SolarWinds offers today to serve the needs of businesses of all sizes. With this addition, the company can now offer IT teams the ability to go deep on app traces, infrastructure monitoring, metrics, both traditional and cloud-native database performance, digital experience monitoring, logs and network monitoring.
- SolarWinds also launched Identity Monitor, an easy-to-use solution designed to help IT and security professionals strengthen their security posture and combat instances of account fraud, loss of revenue, brand damage and spam by automating account takeover prevention. This latest release deepens SolarWinds’ commitment to making security solutions accessible to organizations of all sizes.
- SolarWinds released a wave of updates to its Orion Platform and Application Performance Management suite, bringing new and expanded Microsoft Azure support to SolarWinds customers. These updates extend SolarWinds’ support for organizations investing in Microsoft Azure as their strategic digital transformation partner and offers technology professionals the comprehensive ability to monitor, manage and secure hybrid IT operations.
- In keeping with its long tradition of offering valuable free tools to technology professionals, SolarWinds introduced SolarWinds AppOptics Dev Edition, a free version of its SaaS infrastructure and application performance management solution. AppOptics Dev Edition offers the same rich features of the full AppOptics solution in a scaled-back version well-suited for development environments, enabling technology professionals at any stage in the APM journey to test, optimize and troubleshoot business applications before they go live in production operations.
SolarWinds also announced today that it increased its board of directors to 11 members and appointed Easwaran “Eash” Sundaram to serve on its Board of Directors, each effective February 25, 2020. Mr. Sundaram will also serve as a member of the board’s audit committee effective upon his appointment. Mr. Sundaram currently serves as the Executive Vice President, Chief Digital & Technology Officer of JetBlue Airways Corporation.
Kevin Thompson stated, “We are excited to welcome Eash to SolarWinds’ Board of Directors. Eash is a well-rounded business executive, in addition to being an experienced CIO. He has a deep understanding of today’s hybrid IT architectures and the challenges that digital transformation initiatives introduce for IT teams. His first-hand knowledge of the criticality of delivering the level of application and IT performance that a business demands will be incredibly valuable to us as we strive to deliver technology that meets our customers’ needs.”
At December 31, 2019, total cash and cash equivalents were $173.4 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 annual report on Form 10-K for the period. Information about SolarWinds' use of non-GAAP financial measures is provided below under “Non-GAAP Financial Measures.”
As of February 4, 2020, SolarWinds is providing its financial outlook for the first quarter of 2020 and full year 2020. 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 first quarter of 2020 and for the full year 2020. 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 First Quarter of 2020
SolarWinds’ management currently expects to achieve the following results for the first quarter of 2020:
- Non-GAAP total revenue in the range of $243.5 to $248.5 million, representing growth over the first quarter of 2019 non-GAAP total revenue of 12.8% to 15.2%, or 13.5% to 15.9% on a constant currency basis assuming the same average foreign currency exchange rates as those in the first quarter of 2019.
- Adjusted EBITDA in the range of $108.0 to $112.0 million, representing 44.4% to 45.1% of non-GAAP total revenue.
- Non-GAAP diluted earnings per share of $0.20 to $0.21.
- Weighted average outstanding diluted shares of approximately 313.6 million.
Financial Outlook for Full Year 2020
SolarWinds’ management currently expects to achieve the following results for the full year 2020:
- Non-GAAP total revenue in the range of $1.035 to $1.055 billion, representing growth over 2019 non-GAAP revenue of 10.3% to 12.4%, or 10.5% to 12.6% on a constant currency basis assuming the same average foreign currency exchange rates as those in 2019.
- Adjusted EBITDA in the range of $475.0 to $485.0 million, representing approximately 46.0% of non-GAAP total revenue.
- Non-GAAP diluted earnings per share of $0.88 to $0.91.
- Weighted average outstanding diluted shares of approximately 317.2 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 (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.
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 first quarter and full year 2020. These forward-looking statements are based on management's beliefs and assumptions and on information currently available to management. Forward-looking statements include all statements that are not historical facts and may be identified by terms such as “aim,” “anticipate,” “believe,” “can,” “could,” “seek,” “should,” “feel,” “expect,” “will,” “would,” “plan,” “project,” “intend,” “estimate,” “continue,” 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) 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-K that SolarWinds anticipates filing on or before March 2, 2020. 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 fourth 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.
Adoption of the New Lease Accounting Standard
Effective December 31, 2019, as we no longer qualify as an emerging growth company, we retroactively adopted the FASB ASC No. 2016-02 “Leases (Topic 842),” or ASC 842, as of January 1, 2019 using the optional transition method in which an entity can apply the new standard at the adoption date without adjusting comparative prior periods. Historical financial results for reporting periods prior to 2019 are presented in conformity with amounts previously disclosed under the prior lease accounting standard. The adoption of the new standard resulted in leases currently designated as operating leases being reported on our consolidated balance sheet at their net present value, which increased total assets and total liabilities. The standard did not have a material impact to our consolidated statement of operations or consolidated statement of cash flows for 2019.
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 from our take private transaction in early 2016 and other acquisitions. 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.
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