SolarWinds: Fiscal 4Q19 Financial Results

SolarWinds Corporation reported results for its fourth quarter ended December 31, 2019.

On a GAAP basis, reflecting the adoption of the new standard ASC 606
effective January 1, 2019:
• Total revenue for 4Q19 of $247.5 million, representing 11.9% growth on a reported basis.
• Total recurring revenue for 4Q19 of $202.9 million, representing 16.0% growth on a reported basis. Total recurring revenue includes:

• Maintenance revenue for 4Q19 of $115.6 million, representing 9.7% growth on a reported basis.
• Subscription revenue for 4Q19 of $87.3 million, representing 25.4% growth on a reported basis.

• Net income for 4Q19 of $13.2 million.

On a non-GAAP basis:
• Non-GAAP total revenue for 4Q19 of $249.4 million, representing 12.5% Y/Y growth on a reported basis and 13.3% Y/Y growth on a constant currency basis.
• Non-GAAP total recurring revenue for 4Q19 of $204.8 million, representing 16.8% Y/Y growth on a reported basis and 17.6% Y/Y growth on a constant currency basis. Non-GAAP total recurring revenue includes:

• Non-GAAP maintenance revenue for 4Q19 of $115.6 million, representing 9.3% growth on a reported basis.
• Non-GAAP subscription revenue for 4Q19 of $89.2 million, representing 28.1% growth on a reported basis.

• Adjusted EBITDA for 4Q19 of $122.9 million, representing a margin of 49.3% of non-GAAP total revenue.

“We had a solid finish to a successful 2019 delivering fourth quarter non-GAAP revenue of $249.4 million reflecting 13% Y/Y growth, which resulted in FY19 non-GAAP total revenue of $938.5 million,” said Kevin Thompson, president and CEO. “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 Y/Y 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, EVP and CFO.

Additional highlights for the 4FQ19 include:
• SolarWinds expanded its database performance offering through the acquisition of VividCortex, in 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’ Database Performance Analyzer (DPA) the on-premises and cloud-deployed product the firm 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.
• It 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 customers. These updates extend its 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, the firm introduced AppOptics Dev Edition, a free version of its SaaS infrastructure and application performance management solution. AppOptics Dev Edition offers the same features of the full AppOptics solution in a scaled-back version 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 increased its board of directors to 11 members and appointed Easwaran ‘Eash’ Sundaram to serve on its board, each effective February 25, 2020. He will also serve as a member of the board’s audit committee effective upon his appointment. He currently serves as the EVP, chief digital and technology officer of JetBlue Airways Corporation.

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.”

Balance Sheet
At December 31, 2019, total cash and cash equivalents were $173.4 million and total debt was $1.9 billion.

Financial Outlook for 1FQ20
• Non-GAAP total revenue in the range of $243.5 to $248.5 million, representing growth over 1FQ19 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 FY20
• 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.

Earnings call transcript