nabl-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40297

N-able, Inc.

(Exact name of registrant as specified in its charter)


Delaware						85-4069861
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

30 Corporate Drive

Suite 400

Burlington, Massachusetts 01803

(781) 328-6490

(Address and telephone number of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value	NABL	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☐
Emerging growth company	☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No

On May 8, 2023, 182,037,246 shares of common stock, par value $0.001 per share, were outstanding.

N-able, Inc.

Table of Contents


PART I - FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements (Unaudited)	5
	Consolidated Balance Sheets as of March 31 , 202 3 and December 31, 202 2	5
	Consolidated Statements of Operations for the T hree M onth s E nded March 31 , 202 3 and 202 2	6
	Consolidated Statements of Comprehensive Income (Loss ) for the T hree M onth s E nded March 31 , 202 3 and 202 2	7
	Consolidated Statements of Stockholders' Equity for the T hree M onth s E nded March 31 , 202 3 and 202 2	8
	Consolidated Statements of Cash Flows for the T hree M onth s E nded March 31 , 202 3 and 202 2	9
	Notes to the Consolidated Financial Statements	10
	1. Organization and Nature of Operations
	2. Summary of Significant Accounting Policies
	3. Acquisitions
	4. Goodwill
	5. Relationship with Parent and Related Entities
	6. Fair Value Measurements
	7. Accrued Liabilities and Other
	8. Debt
	9. Earnings Per Share
	10. Income Taxes
	11. Commitment and Contingencies

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures of Market Risk	31
Item 4.	Controls and Procedures	32
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34

Item 5.	Other Information	34
Item 6.	Exhibits	35
	Signature	36
	Certifications

Safe Harbor Cautionary Statement

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Such statements may be signified by terms such as “aim,” “anticipate,” “believe,” “continue,” “expect,” “feel,” “intend,” “estimate,” “seek,” “plan,” “may,” “can,” “could,” “should,” “will,” “would” or similar expressions and the negatives of those terms. In this report, forward-looking statements include statements regarding our financial projections, future financial performance and plans and objectives for future operations including, without limitation, the following:

•expectations regarding our financial condition and results of operations, including revenue, revenue growth, revenue mix, cost of revenue, operating expenses, operating income, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA and adjusted EBITDA margin, cash flows and effective income tax rate;

•expectations regarding the impact of foreign exchange rates and macroeconomic conditions on our business;

•expectations regarding investment in product development and our expectations about the results of those efforts;

•expectations concerning acquisitions and opportunities resulting from our acquisitions;

•expectations regarding hiring additional personnel globally in the areas of sales and marketing and research and development;

•intentions regarding our international earnings;

•expectations regarding our capital expenditures;

•expectations regarding the outcome or impact of litigation disclosed in this Quarterly Report on Form 10-Q;

•our beliefs regarding the sufficiency of our cash and cash equivalents, cash flows from operating activities and borrowing capacity; and

•expectations regarding our spin-off from SolarWinds Corporation (“SolarWinds”) into a newly created and separately traded public company.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially and adversely 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:

•risks related to our spin-off from SolarWinds into a newly created and separately-traded public company, including that the spin-off could disrupt or adversely affect our business, results of operations and financial condition, that the spin-off may not achieve some or all of any anticipated benefits with respect to our business; that the distribution, together with certain related transactions, may not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, which could result in N-able incurring significant tax liabilities, and, in certain circumstances, requiring us to indemnify SolarWinds for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement;

•the possibility that the global COVID-19 pandemic may continue to adversely affect our business, results of operations and financial condition or the impact of the COVID-19 pandemic on the global economy or on the business operations and financial conditions of our customers, their end customers and our prospective customers;

•the impact of adverse economic conditions;

•our ability to sell subscriptions to new managed service provider (“MSP”) partners, to sell additional solutions to our existing MSP partners and to increase the usage of our solutions by our existing MSP partners, as well as our ability to generate and maintain MSP partner loyalty;

•any decline in our renewal or net retention rates;

•the possibility that general economic conditions or uncertainty may cause information technology spending to be reduced or purchasing decisions to be delayed, including as a result of the COVID-19 pandemic, inflation, actions taken by central banks to counter inflation, rising interest rates, the impact of bank failures and related financial services industry uncertainty, war and political unrest, military conflict (including between Russia and Ukraine), terrorism, sanctions or other geopolitical events globally, or that such factors may otherwise harm our business, financial condition or results of operations;

•any 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;

•any inability to successfully identify, complete and integrate acquisitions and manage our growth effectively;

•risks associated with our international operations;

•foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity;

•risks that cyberattacks, including the cyberattack on SolarWinds’ Orion Software Platform and internal systems announced by SolarWinds in December 2020, or the Cyber Incident, and other security incidents may result in compromises or breaches of our, our MSP partners’, or their SME customers’ systems, the insertion of malicious code, malware, ransomware or other vulnerabilities into our, our MSP partners’, or their SME customers’ environments, the exploitation of vulnerabilities in our, our MSP partners’, or their SME customers’ security, the theft or misappropriation of our, our MSP partners’, or their SME customers’ proprietary and confidential information, and interference with our, our MSP partners’, or their SME customers’ operations, exposure to legal and other liabilities, higher MSP partner and employee attrition and the loss of key personnel, negative impacts to our sales, renewals and upgrades and reputational harm and other serious negative consequences, any or all of which could materially harm our business;

•our status as a controlled company;

•our ability to attract and retain qualified employees and key personnel as a standalone public company;

•the timing and success of new product introductions and product upgrades by us or our competitors;

•our ability to protect and defend our intellectual property and not infringe upon others’ intellectual property;

•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;

•our indebtedness, including increased borrowing costs resulting from rising interest rates, potential restrictions on our operations and the impact of events of default;

•our ability to operate our business internationally and increase sales of our solutions to our MSP partners located outside of the United States; and

•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 this Quarterly Report on Form 10-Q.

Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially and adversely from those anticipated in these forward-looking statements, even if new information becomes available in the future.

In this report “N-able,” “Company,” “we,” “us” and “our” refer to N-able, Inc. and its consolidated subsidiaries, and references to “SolarWinds” and “Parent” refer to SolarWinds Corporation.

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

N-able, Inc.

Consolidated Balance Sheets

(In thousands)

(Unaudited)


	March 31,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	98,080	$	98,847
Accounts receivable, net of allowances of $1,239 and $1,330 as of March 31, 2023 and December 31, 2022, respectively	36,003		34,798
Income tax receivable	13,641		7,814
Prepaid and other current assets	14,893		12,697
Total current assets	162,617		154,156
Property and equipment, net	37,061		37,404
Operating lease right-of-use assets	30,516		31,752
Deferred taxes	1,571		795
Goodwill	833,015		828,795
Intangible assets, net	7,999		8,873
Other assets, net	19,799		17,082
Total assets	$	1,092,578	$	1,078,857
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	3,141	$	3,544
Accrued liabilities and other	32,303		35,630
Current operating lease liabilities	5,678		5,771
Income taxes payable	6,822		1,629
Current portion of deferred revenue	12,407		11,740
Current debt obligation	3,500		3,500
Total current liabilities	63,851		61,814
Long-term liabilities:
Deferred revenue, net of current portion	231		387
Non-current deferred taxes	1,983		2,783
Non-current operating lease liabilities	31,765		33,110
Long-term debt, net of current portion	333,007		333,488
Other long-term liabilities	5,546		5,204
Total liabilities	436,383		436,786
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $0.001 par value: 550,000,000 shares authorized and 182,036,421 and 180,849,537 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	182		181
Preferred stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	—		—
Additional paid-in capital	637,752		632,871
Accumulated other comprehensive loss	(2,112)		(7,815)
Retained earnings	20,373		16,834
Total stockholders' equity	656,195		642,071
Total liabilities and stockholders' equity	$	1,092,578	$	1,078,857

The accompanying notes are an integral part of these Consolidated Financial Statements.

N-able, Inc.

Consolidated Statements of Operations

(In thousands, except per share information)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Revenue:
Subscription and other revenue	$	99,818	$	90,860
Cost of revenue:
Cost of revenue	15,753		13,281
Amortization of acquired technologies	456		982
Total cost of revenue	16,209		14,263
Gross profit	83,609		76,597
Operating expenses:
Sales and marketing	32,563		31,054
Research and development	18,810		15,385
General and administrative	17,348		17,629
Amortization of acquired intangibles	564		1,461
Total operating expenses	69,285		65,529
Operating income	14,324		11,068
Other expense:
Interest expense, net	(7,200)		(3,526)
Other income, net	988		1,059
Total other expense	(6,212)		(2,467)
Income before income taxes	8,112		8,601
Income tax expense	4,573		3,500
Net income	$	3,539	$	5,101
Net income per share:
Basic earnings per share	$	0.02	$	0.03
Diluted earnings per share	$	0.02	$	0.03
Weighted-average shares used to compute net income per share:
Shares used in computation of basic earnings per share:	181,435		179,460
Shares used in computation of diluted earnings per share:	183,191		180,184

The accompanying notes are an integral part of these Consolidated Financial Statements.

N-able, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Net income	$	3,539	$	5,101
Other comprehensive income (loss):
Foreign currency translation adjustment	5,703		(9,167)

Other comprehensive income (loss)	5,703		(9,167)
Comprehensive income (loss)	$	9,242	$	(4,066)

The accompanying notes are an integral part of these Consolidated Financial Statements.

N-able, Inc.

Consolidated Statements of Stockholders' Equity

(In thousands)

(Unaudited)


	Three Months Ended March 31, 2023
	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total








Balance as of December 31, 2022	180,850	$	181	$	632,871	$	(7,815)	$	16,834	$	642,071
Net income	—	—		—		—		3,539		3,539
Foreign currency translation adjustment	—	—		—		5,703		—		5,703
Exercise of stock options	26	—		21		—		—		21
Restricted stock units issued, net of shares withheld for taxes	1,069	1		(5,838)		—		—		(5,837)
Issuance of stock	3	—		—		—		—		—
Issuance of stock under employee stock purchase plan	88	—		771		—		—		771
Stock-based compensation	—	—		9,927		—		—		9,927
Balance as of March 31, 2023	182,036	$	182	$	637,752	$	(2,112)	$	20,373	$	656,195


	Three Months Ended March 31, 2022
	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
Balance as of December 31, 2021	179,049	$	179	$	602,996	$	15,053	$	127	$	618,355
Net income	—	—		—		—		5,101		5,101
Foreign currency translation adjustment	—	—		—		(9,167)		—		(9,167)
Exercise of stock options	13	—		16		—		—		16
Restricted stock units issued, net of shares withheld for taxes	746	1		(4,554)		—		—		(4,553)
Issuance of stock	51	—		—		—		—		—
Issuance of stock under employee stock purchase plan	57	—		568		$	—	—		568
Stock-based compensation	—	—		8,235		—		—		8,235
Balance as of March 31, 2022	179,916	$	180	$	607,261	$	5,886	$	5,228	$	618,555

The accompanying notes are an integral part of these Consolidated Financial Statements.

N-able, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities
Net income	$	3,539	$	5,101
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,667		6,338
Benefit from doubtful accounts	(91)		(17)
Stock-based compensation expense	9,850		8,169
Deferred taxes	8		480
Amortization of debt issuance costs	394		398

Operating lease right-of-use assets, net	(110)		(892)
Loss (gain) on foreign currency exchange rates	25		(825)
Loss on contingent consideration	240		—
Other non-cash expenses	31		39
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business combinations:
Accounts receivable	(1,393)		(1,097)
Income tax receivable	(5,816)		(972)
Prepaid expenses and other assets	(2,181)		(59)
Accounts payable	(270)		(2,043)
Due to and from affiliates	—		(394)
Accrued liabilities and other	(3,837)		(4,945)

Income taxes payable	5,297		3,363
Deferred revenue	509		673
Other long-term assets	(1,275)		(187)
Other long-term liabilities	44		—
Net cash provided by operating activities	10,631		13,130
Cash flows from investing activities
Purchases of property and equipment	(3,404)		(2,704)
Purchases of intangible assets	(2,211)		(1,141)

Net cash used in investing activities	(5,615)		(3,845)
Cash flows from financing activities

Payments of tax withholding obligations related to restricted stock units	(5,838)		(4,553)
Exercise of stock options	21		16
Proceeds from issuance of common stock under employee stock purchase plan	771		568
Repayments of borrowings from Credit Agreement	(875)		(875)
Net cash used in financing activities	(5,921)

SEC Form 10-Q filed by N-able Inc.