N-able Inc

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially and adversely from those anticipated in the forward-looking statements. Please see the section entitled “Safe Harbor Cautionary Statement” above and the risk factors discussed in “Item 1A. Risk Factors” below for a discussion of the uncertainties, risks and assumptions associated with these statements. The following discussion and analysis also includes a discussion of certain non-GAAP financial measures. For a description and reconciliation of the non-GAAP measures discussed in this section, see “Non-GAAP Financial Measures” below.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially and adversely from those anticipated in the forward-looking statements. Please see the section entitled “Safe Harbor Cautionary Statement” above and the risk factors described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, for a discussion of the uncertainties, risks and assumptions associated with these statements. The following discussion and analysis also includes a discussion of certain non-GAAP financial measures. For a description and reconciliation of the non-GAAP measures discussed in this section, see “Non-GAAP Financial Measures” below.

Previous wording

As previously disclosed, SolarWinds was the victim of a cyberattack on its Orion Software Platform and internal systems, or the Cyber Incident. SolarWinds has confirmed to us that it has concluded its internal investigations related to the Cyber Incident. SolarWinds has not identified SUNBURST in any of its more than 70 non-Orion products and tools, including, as previously disclosed, any of our N-able solutions. SolarWinds, together with its partners, have undertaken extensive measures to investigate, contain, eradicate and remediate the Cyber Incident. As SolarWinds previously disclosed in its investigatory updates, it has substantially completed this process and believes the threat actor is no longer active in its environments.

Current wording

As previously disclosed, SolarWinds was the victim of a cyberattack on its Orion Software Platform and internal systems, or the Cyber Incident. SolarWinds concluded its internal investigations related to the Cyber Incident and did not identify SUNBURST in any of its more than 70 non-Orion products and tools, including, as previously disclosed, any of our N-able solutions.

Previous wording

Of the expenses SolarWinds recorded related to the Cyber Incident through the Separation and Distribution date of July 19, 2021, none have been allocated to the N-able business and, as a result of the indemnification provisions under the Separation and Distribution Agreement entered into in connection with the Separation and Distribution (the “Separation and Distribution Agreement”), we have not recorded any contingent liabilities with respect to the Cyber Incident as of March 31, 2024 and December 31, 2023. In addition, as a result of the Cyber Incident, SolarWinds has been subject to numerous lawsuits and governmental investigations or inquiries. To date, we have not been separately named in such lawsuits and investigations, but in the future we may become subject to lawsuits, investigations or inquiries related to the Cyber Incident. In such event, subject to the terms of the Separation and Distribution Agreement, SolarWinds would indemnify us for costs we may incur.

Current wording

Of the expenses SolarWinds recorded related to the Cyber Incident through the Separation and Distribution date of July 19, 2021, none were allocated to the N-able business and, as a result of the indemnification provisions under the Separation and Distribution Agreement entered into in connection with the Separation and Distribution (the “Separation and Distribution Agreement”), we have not recorded any contingent liabilities with respect to the Cyber Incident as of June 30, 2024 and December 31, 2023. In addition, as a result of the Cyber Incident, SolarWinds has been subject to numerous lawsuits and governmental investigations or inquiries. To date, we have not been separately named in such lawsuits and investigations, but in the future we may become subject to lawsuits, investigations or inquiries related to the Cyber Incident. In such event, subject to the terms of the Separation and Distribution Agreement, SolarWinds would indemnify us for costs we may incur.

Previous wording

We deliver a platform of solutions that enables our MSP partners to manage and secure the IT environments and assets for their SME end customers, as well as more efficiently manage their own businesses. Our total revenue was $113.7 million and $99.8 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

We deliver a platform of solutions that enables our MSP partners to manage and secure the IT environments and assets for their SME end customers, as well as more efficiently manage their own businesses. Our total revenue was $119.4 million and $106.1 million for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

As of March 31, 2024, we had approximately 25,000 customers. Additionally, as of March 31, 2024, we had 2,187 MSP partners with annualized recurring revenue (“ARR”) over $50,000 on our platform, up from 1,936 as of March 31, 2023, representing an increase of approximately 13%. The number of MSP partners may fluctuate over time as the result of a number of factors. Over the same period, MSP partners with over $50,000 of ARR on our platform grew from approximately 52% of our total ARR as of March 31, 2023 to approximately 56% of our total ARR as of March 31, 2024. We determine ARR as the annualized recurring revenue as of the last month of a given period. We calculate ARR by multiplying the recurring revenue and related usage revenue, excluding the impacts of credits and reserves, recognized during the final month of the reporting period from both long-term and month-to-month subscriptions by twelve. We use ARR, and in particular, ARR attributable to MSP partners with over $50,000 of ARR, to enhance the understanding of our business performance and the growth of our relationships with our MSP partners.

Current wording

As of June 30, 2024, we had approximately 25,000 customers. Additionally, as of June 30, 2024, we had 2,194 MSP partners with annualized recurring revenue (“ARR”) over $50,000 on our platform, up from 2,162 as of June 30, 2023, representing an increase of approximately 1.5%. The number of MSP partners may fluctuate over time as the result of a number of factors. Over the same period, MSP partners with over $50,000 of ARR on our platform grew from approximately 55% of our total ARR as of June 30, 2023 to approximately 56% of our total ARR as of June 30, 2024. We define ARR as the annualized recurring revenue as of the last month of a given period. We calculate ARR by multiplying the recurring revenue and related usage revenue, excluding the impacts of credits and reserves, recognized during the final month of the reporting period from both long-term and month-to-month subscriptions by twelve. We use ARR, and in particular, ARR attributable to MSP partners with over $50,000 of ARR, to enhance the understanding of our business performance and the growth of our relationships with our MSP partners.

Previous wording

We have grown while maintaining high levels of operating efficiency. Our operating income for the three months ended March 31, 2024 was $20.5 million compared to operating income of $14.3 million for the three months ended March 31, 2023. Our net income for the three months ended March 31, 2024 was $7.5 million compared to net income of $3.5 million for the three months ended March 31, 2023. The increase in net income for the three months ended March 31, 2024 was primarily due to an increase in revenue, a decrease in amortization of acquired intangibles and a decrease in general and administrative expense, partially offset by an increase in research and development expense, an increase in sales and marketing expense, an increase in cost of revenue, an increase in income tax expense, a decrease in other income, net and an increase in interest expense, net. Our Adjusted EBITDA, calculated as net income of $7.5 million and $3.5 million for the three months ended March 31, 2024 and 2023, respectively, excluding amortization of acquired intangible assets and developed technology of $1.9 million and $2.0 million, respectively, depreciation expense of $4.0 million and $3.7 million, respectively, income tax expense of $5.7 million and $4.6 million, respectively, interest expense, net of $7.6 million and $7.2 million, respectively, unrealized foreign currency losses of $0.8 million and less than $0.1 million, respectively, acquisition related costs of $(1.4) million and $0.3 million, respectively, spin-off costs of $0.1 million and $0.2 million, respectively, stock-based compensation expense and related employer-paid payroll taxes of $13.0 million and $10.6 million, respectively, and restructuring costs and other of $0.6 million and $0.6 million, respectively, was $39.6 million and $32.7 million for the three months ended March 31, 2024 and 2023, respectively. For a description and reconciliation of the non-GAAP measures discussed in this section, see Non-GAAP Financial Measures below.

Current wording

We have grown while maintaining high levels of operating efficiency. Our operating income for the three months ended June 30, 2024 was $22.0 million compared to operating income of $15.8 million for the three months ended June 30, 2023. Our net income for the three months ended June 30, 2024 was $9.5 million compared to net income of $4.5 million for the three months ended June 30, 2023. The increase in net income for the three months ended June 30, 2024 was primarily due to an increase in revenue, a decrease in sales and marketing expense and an increase in other income, net, partially offset by an increase in general and administrative expense, an increase in research and development expense, an increase in cost of revenue, an increase in income tax expense and an increase in interest expense, net. Our Adjusted EBITDA, calculated as net income of $9.5 million and $4.5 million for the three months ended June 30, 2024 and 2023, respectively, excluding amortization of acquired intangible assets and developed technology of $1.9 million and $1.4 million, respectively, depreciation expense of $4.0 million and $3.8 million, respectively, income tax expense of $6.1 million and $4.8 million, respectively, interest expense, net of $7.6 million and $7.5 million, respectively, unrealized foreign currency losses of $0.4 million and $0.5 million, respectively, transaction related costs of $4.9 million and $(0.3) million, respectively, spin-off costs of $0.0 million and $0.2 million, respectively, stock-based compensation expense and related employer-paid payroll taxes of $12.2 million and $12.0 million, respectively, and restructuring costs and other of $0.3 million and $0.4 million, respectively, was $46.8 million and $34.9 million for the three months ended June 30, 2024 and 2023, respectively. For a description and reconciliation of the non-GAAP measures discussed in this section, see Non-GAAP Financial Measures below.

Previous wording

We have built our business to generate strong cash flow over the long term. For the three months ended March 31, 2024 and 2023, cash flows from operations were $4.2 million and $10.6 million, respectively. Our cash flows from operations were reduced by cash payments for interest of $7.3 million and $6.7 million for the three months ended March 31, 2024 and 2023, respectively, and cash payments for income taxes of $1.8 million and $4.7 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

We have built our business to generate strong cash flow over the long term. For the three months ended June 30, 2024 and 2023, cash flows from operations were $27.3 million and $20.7 million, respectively. Our cash flows from operations were reduced by cash payments for interest of $7.3 million and $7.0 million for the three months ended June 30, 2024 and 2023, respectively, and cash payments for income taxes of $4.2 million and $5.2 million for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Operating expenses consist of sales and marketing, research and development and general and administrative expenses as well as amortization of acquired intangibles. Generally, personnel costs are the most significant component of operating expenses and include salaries, bonuses and stock-based compensation and related employer-paid payroll taxes, as well as an allocation of our facilities, depreciation, IT and benefits costs. We had total employees of 1,598, 1,584, and 1,538 as of March 31, 2024, December 31, 2023, and March 31, 2023, respectively. Our stock-based compensation expense increased during the three months ended March 31, 2024 as compared to the corresponding period of the prior fiscal year primarily due to the impact of new equity awards that were granted to employees through March 31, 2024.

Current wording

Operating expenses consist of sales and marketing, research and development and general and administrative expenses as well as amortization of acquired intangibles. Generally, personnel costs are the most significant component of operating expenses and include salaries, bonuses and stock-based compensation and related employer-paid payroll taxes, as well as an allocation of our facilities, depreciation, IT and benefits costs. We had total employees of 1,623, 1,584, and 1,567 as of June 30, 2024, December 31, 2023, and June 30, 2023, respectively. Our stock-based compensation expense increased during the three and six months ended June 30, 2024 as compared to the corresponding period of the prior fiscal year primarily due to the impact of new equity awards that were granted to employees through June 30, 2024.

Previous wording

•Sales and Marketing. Sales and marketing expenses primarily consist of related personnel costs, including our sales, marketing, partner success and product management teams, as well as an allocation of our facilities, depreciation, IT and benefits costs. Sales and marketing expenses also include the cost of digital marketing programs such as paid search, search engine optimization and management and website maintenance and design, marketing development funds, as well as the cost of events for existing and prospective customers. We expect to continue to grow our sales and marketing organization over time to drive new MSP partner adds, retain and expand with existing MSP partners and pursue initiatives designed to help our MSP partners succeed and grow.

Current wording

•Sales and Marketing. Sales and marketing expenses primarily consist of related personnel costs, including our sales, marketing, partner success and product management teams, net of capitalized commissions related to long-term committed contracts, as well as an allocation of our facilities, depreciation, IT and benefits costs. Sales and marketing expenses also include the cost of digital marketing programs such as paid search, search engine optimization and management and website maintenance and design, marketing development funds, as well as the cost of events for existing and prospective customers. We expect to continue to grow our sales and marketing organization over time to drive new MSP partner adds, retain and expand with existing MSP partners and pursue initiatives designed to help our MSP partners succeed and grow.

Previous wording

•General and Administrative. General and administrative expenses primarily consist of personnel costs for executives, finance, legal, human resources, business applications and other administrative personnel, general restructuring charges and other acquisition-related costs, professional fees and other general corporate expenses, as well as an allocation of our facilities, depreciation, IT and benefits costs. We expect to continue to grow our general and administrative organization over time to support continued growth of our business.

Current wording

•General and Administrative. General and administrative expenses primarily consist of personnel costs for executives, finance, legal, human resources, business applications and other administrative personnel, general restructuring charges and other transaction related costs, professional fees and other general corporate expenses, as well as an allocation of our facilities, depreciation, IT and benefits costs. We expect to continue to grow our general and administrative organization over time to support continued growth of our business.

Previous wording

Other expense, net primarily consists of interest expense related to the Credit Agreement and losses resulting from changes in exchange rates on foreign currency denominated accounts, partially offset by gains resulting from changes in exchange rates on foreign currency denominated accounts and dividend income from our money market fund financial assets. See Item 3.

Current wording

Other expense, net primarily consists of interest expense related to the Credit Agreement and losses resulting from changes in exchange rates on foreign currency denominated accounts, partially offset by gains resulting from changes in exchange rates on foreign currency denominated accounts and dividend income from our money market fund financial assets. See Item 3. Quantitative and Qualitative Disclosures About Market Risk for additional information on how interest rates impact our financial results.

Previous wording

Total revenue increased $13.9 million, or 14.0%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. We base revenue by geography on the billing address of each MSP partner. Based on MSP partner location, revenue from the United States was approximately 47.9% and 48.5% of total revenue for the three months ended March 31, 2024 and 2023, respectively. Revenue from the United Kingdom was approximately 10.4% and 10.2% of total revenue for the three months ended March 31, 2024 and 2023, respectively. Other than the United States and the United Kingdom, no single country accounted for 10% or more of our total revenue during these periods.

Current wording

Total revenue increased $13.4 million, or 12.6%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. We base revenue by geography on the billing address of each MSP partner. Based on MSP partner location, revenue from the United States was approximately 48.0% and 49.1% of total revenue for the three months ended June 30, 2024 and 2023, respectively. Revenue from the United Kingdom was approximately 10.3% and 10.6% of total revenue for the three months ended June 30, 2024 and 2023, respectively. Other than the United States and the United Kingdom, no single country accounted for 10% or more of our total revenue during these periods.

Previous wording

Subscription Revenue. Subscription revenue increased $14.1 million, or 14.4%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase in subscription revenue was primarily driven by growth in sales of our data protection, security and remote monitoring and management solutions, inclusive of the impact from long-term committed contracts. Subscription revenue as a percentage of our total revenue was 98.0% for the three months ended March 31, 2024, compared to 97.6% for the three months ended March 31, 2023.

Current wording

Subscription Revenue. Subscription revenue increased $14.1 million, or 13.6%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase in subscription revenue was primarily driven by growth in sales of our data protection, security and remote monitoring and management solutions, inclusive of the net positive impact from long-term committed contracts. See Second Quarter Financial Highlightsfor further details regarding the impact of long-term committed contracts during thethree months ended June 30, 2024. Subscription revenue as a percentage of our total revenue was 98.3% for the three months ended June 30, 2024, compared to 97.4% for the three months ended June 30, 2023.

Previous wording

Our annual dollar-based net revenue retention rate for our subscription products was approximately 111% and 103% for the trailing twelve-month periods ended March 31, 2024 and 2023, respectively, and was driven primarily by strong customer retention and expansion in our MSP products, in addition to favorable movements in foreign currency exchange rates. To calculate our annual dollar-based net revenue retention rate, we first identify the MSP partners with active paid subscriptions in the last month of the prior-year period, or the base partners. We then divide the subscription revenue in the last month of the current-year period attributable to the base partners by the revenue attributable to those base partners in the last month of the prior-year period. Our dollar-based net revenue retention rate for a particular period is then obtained by averaging the rates from that particular period with the results from each of the prior eleven months. Our calculation includes any expansion revenue and is net of any contraction or cancellation, but excludes credits and revenue attributable to any MSP partner who was not a partner with a paid subscription in the prior period.

Current wording

Our annual dollar-based net revenue retention rate for our subscription products was approximately 108% and 105% for the trailing twelve-month periods ended June 30, 2024 and 2023, respectively, and was driven primarily by strong customer retention and expansion in our MSP products, in addition to favorable movements in foreign currency exchange rates. The 108% dollar-based net revenue retention rate includes the pressure from our pricing and packaging changes, coupled with rationalization related to our Long-Term Contract Initiative, which began impacting net revenue retention during the three months ended June 30, 2024. Our calculation includes any expansion revenue and is net of any contraction or cancellation, but excludes credits and revenue attributable to any MSP partner who was not a partner with a paid subscription in the prior period. To calculate our annual dollar-based net revenue retention rate, we first identify the MSP partners with active paid subscriptions in the last month of the prior-year period, or the base partners. We then divide the subscription revenue in the last month of the current-year period attributable to the base partners by the revenue attributable to those base partners in the last month of the prior-year period. Our dollar-based net revenue retention rate for a particular period is then obtained by averaging the rates from that particular period with the results from each of the prior eleven months.

Previous wording

Other Revenue. Other revenue decreased $0.1 million, or 6.1%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to a decrease in maintenance revenue, partially offset by an increase in professional services revenue. Other revenue as a percentage of our total revenue was 2.0% for the three months ended March 31, 2024, compared to 2.4% for the three months ended March 31, 2023.

Current wording

Other Revenue. Other revenue decreased $0.7 million, or 25.4%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to a decrease in maintenance revenue, partially offset by an increase in professional services revenue. Other revenue as a percentage of our total revenue was 1.7% for the three months ended June 30, 2024, compared to 2.6% for the three months ended June 30, 2023.

Previous wording

Total cost of revenue increased $2.1 million, or 12.9%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, due to an increase in public cloud infrastructure and hosting fees and royalties related to our subscription products of $1.3 million, as well as an increase in depreciation of servers and amortization of capitalized internal-use software costs of $0.6 million, an increase in stock-based compensation expense of $0.1 million and an increase in allocated facilities and IT costs of $0.1 million.

Current wording

Total cost of revenue increased $2.1 million, or 12.6%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, due to an increase in public cloud infrastructure and hosting fees and royalties related to our subscription products of $1.5 million, as well as an increase in depreciation of servers and amortization of capitalized internal-use software costs of $0.6 million, an increase in allocated facilities and IT costs of $0.1 million and an increase in stock-based compensation expense of less than $0.1 million.

Previous wording

Sales and Marketing. Sales and marketing expenses increased $3.3 million, or 10.0%, primarily due to an increase in personnel costs driven by headcount and salary increases of $1.8 million, which includes an increase in stock-based compensation expense of $0.6 million, as well as an increase in travel and event-related costs of $1.0 million, an increase in advertising expense of $0.4 million and an increase in allocated facilities and IT costs of $0.1 million, partially offset by a decrease in subscription costs of $0.1 million.

Current wording

Sales and Marketing. Sales and marketing expenses decreased $2.0 million, or 5.8%, primarily due to a decrease in advertising expense of $1.9 million and an increase in commissions related to long-term committed contracts that were capitalized from sales and marketing expenses to the Consolidated Balance Sheets of $1.3 million, partially offset by an increase in travel and event-related costs of $0.4 million, an increase in personnel costs of $0.4 million, which includes a decrease in stock-based compensation expense of $0.3 million, an increase in restructuring costs of $0.2 million and an increase in allocated facilities and IT costs of $0.1 million.

Previous wording

Research and Development. Research and development expenses increased $3.3 million, or 17.4%, primarily due to an increase in personnel costs driven by headcount and salary increases of $2.7 million, which includes an increase in stock-based compensation expense of $0.6 million, as well as an increase in subscription costs of $0.5 million, a decrease in capitalized internal-use software costs of $0.3 million and an increase in allocated facilities and IT costs of $0.2 million, partially offset by a decrease in restructuring costs of $0.6 million and a decrease in contract services costs of $0.1 million.

Current wording

Research and Development. Research and development expenses increased $2.2 million, or 10.7%, primarily due to an increase in personnel costs driven by headcount and salary increases of $1.1 million, which includes an increase in stock-based compensation expense of $0.2 million, an increase in subscription costs of $0.6 million, an increase in allocated facilities and IT costs of $0.2 million and a decrease in capitalized internal-use software costs of $0.1 million, partially offset by a decrease in restructuring costs of $0.1 million.

Previous wording

Interest expense, net increased by $0.4 million, or 5.8%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to the impact of increased interest rates on borrowings under the Credit Agreement during the three months ended March 31, 2024. Changes in interest rates have had and could continue to have an adverse impact on our financial results and cash flows since outstanding borrowings under the Credit Agreement bear interest at variable rates. See Note 8. Debt in the Notes to Consolidated Financial Statementsfor further details regarding the Credit Agreement.

Current wording

Interest expense, net increased by $0.1 million, or 1.0%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to the impact of increased interest rates on borrowings under the Credit Agreement. Changes in interest rates have had, and could continue to have, an adverse impact on our financial results and cash flows since outstanding borrowings under the Credit Agreement bear interest at variable rates. See Note 8. Debt in the Notes to Consolidated Financial Statementsfor further details regarding the Credit Agreement.

Previous wording

Other income, net decreased by $0.7 million, or 71.2%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to a decrease in the impact of changes in foreign currency exchange rates of $1.5 million related to various accounts for the period, partially offset by an increase in dividend income from our money market fund financial assets of $0.8 million.

Current wording

Other income, net increased by $0.1 million, or 13.7%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to an increase in dividend income from our money market fund financial assets of $0.6 million, partially offset by a decrease in the impact of changes in foreign currency exchange rates of $0.4 million related to various accounts for the period.

Previous wording

Our income tax expense for the three months ended March 31, 2024 increased by $1.1 million as compared to the three months ended March 31, 2023. The effective tax rate decreased to 43.3% for the period primarily due to a decrease in the amount of the unbenefited loss in the United States, partially offset by an increase in income before income taxes outside of the United States. For additional discussion about our income taxes, see Note 10. Income Taxesin the Notes to Consolidated Financial Statements.

Current wording

Our income tax expense for the three months ended June 30, 2024 increased by $1.3 million as compared to the three months ended June 30, 2023. The effective tax rate decreased to 39.1% for the same period primarily due to a decrease in the amount of the unbenefited loss in the United States, partially offset by an increase in income before income taxes outside of the United States. For additional discussion about our income taxes, see Note 10. Income Taxesin the Notes to Consolidated Financial Statements.

Previous wording

General and Administrative. General and administrative expenses decreased $0.3 million, or 1.7%, primarily due to gains on contingent consideration related to the July 1, 2022 acquisition of Spinpanel of $1.4 million, as well as a decrease in allocated facilities and IT costs of $0.4 million, a decrease in director and officer liability insurance costs of $0.3 million and a decrease in costs associated with our separation from SolarWinds of $0.2 million, partially offset by an increase in personnel costs driven by headcount and salary increases of $0.6 million, which includes an increase in stock-based compensation expense of $0.4 million, an increase in professional fees of $0.5 million, an increase in restructuring costs of $0.4 million and an increase in rent expense of $0.3 million. See Note 3. Acquisitions, Note 6. Fair Value Measurementsand Note 11. Commitments and Contingencies in the Notes to Consolidated Financial Statementsfor further details regarding the acquisition of Spinpanel.

Current wording

General and Administrative. General and administrative expenses increased $4.7 million, or 13.1%, primarily due to an increase in transaction related costs of $4.9 million, an increase in personnel costs driven by headcount and salary increases of $0.8 million, which includes an increase in stock-based compensation expense of $0.4 million, an increase in rent expense of $0.6 million, an increase in restructuring costs of $0.4 million, an increase in contract services costs of $0.4 million and an increase in bad debt expense of $0.4 million, partially offset by gains on contingent consideration related to the July 1, 2022 acquisition of Spinpanel of $1.3 million, a decrease in allocated facilities and IT costs of $0.8 million, a decrease in director and officer liability insurance costs of $0.5 million and a decrease in costs associated with our separation from SolarWinds of $0.4 million. See Note 3. Acquisitions, Note 6. Fair Value Measurements, and Note 11. Commitments and Contingencies of the Notes to Consolidated Financial Statementsfor further details regarding the acquisition of Spinpanel.

Previous wording

Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased $0.6 million, or 97.5%, primarily due to the conclusion of amortization of intangible assets acquired in connection with the take private transaction of SolarWinds in early 2016 during the three months ended March 31, 2023.

Current wording

Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased $0.5 million, or 95.0%, primarily due to the conclusion of amortization of intangible assets acquired in connection with the take private transaction of SolarWinds in early 2016 during the three months ended March 31, 2023.

Previous wording

While we believe that these non-GAAP financial measures provide useful supplemental information, non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, their most comparable GAAP 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 comparable to similarly titled measures of other companies due to potential differences in their financing and accounting methods, the book value of their assets, their capital structures, the method by which their assets were acquired and the manner in which they define non-GAAP measures. Items such as the amortization of intangible assets, stock-based compensation expense and related employer-paid payroll taxes, acquisition related adjustments, spin-off costs related to associated with the Separation and Distribution, as well as the related tax impacts of these items can have a material impact on our GAAP financial results.

Current wording

While we believe that these non-GAAP financial measures provide useful supplemental information, non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, their most comparable GAAP 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 comparable to similarly titled measures of other companies due to potential differences in their financing and accounting methods, the book value of their assets, their capital structures, the method by which their assets were acquired and the manner in which they define non-GAAP measures. Items such as the amortization of intangible assets, stock-based compensation expense and related employer-paid payroll taxes, transaction related adjustments, spin-off costs related to the Separation and Distribution, as well as the related tax impacts of these items can have a material impact on our GAAP financial results.

Previous wording

We provide non-GAAP operating income and related non-GAAP operating margins excluding such items as stock-based compensation expense and related employer-paid payroll taxes, amortization of acquired intangible assets, acquisition related costs, spin-off costs and restructuring costs and other. We define non-GAAP operating margin as non-GAAP operating income divided by total revenue. Management believes these measures are useful for the following reasons:

Current wording

We provide non-GAAP operating income and related non-GAAP operating margins excluding such items as stock-based compensation expense and related employer-paid payroll taxes, amortization of acquired intangible assets, transaction related costs, spin-off costs and restructuring costs and other. We define non-GAAP operating margin as non-GAAP operating income divided by total revenue. Management believes these measures are useful for the following reasons:

Previous wording

•Acquisition Related Costs. We exclude certain expense items resulting from 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 non-GAAP measures that exclude acquisition related costs allows investors 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.

Current wording

•Transaction Related Costs. We exclude certain expense items resulting from proposed and completed acquisitions, dispositions and similar transactions, 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, such proposed and completed transactions 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 non-GAAP measures that exclude transaction related costs allows investors 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 peer companies with different transaction related activities, both with and without such adjustments.

Previous wording

We regularly monitor adjusted EBITDA and adjusted EBITDA margin, as they are measures we use to assess our operating performance. We define adjusted EBITDA as net income or loss, excluding amortization of acquired intangible assets and developed technology, depreciation expense, income tax expense (benefit), interest expense, net, unrealized foreign currency losses (gains), acquisition related costs, spin-off costs, stock-based compensation expense and related employer-paid payroll taxes and restructuring and other costs. We define adjusted EBITDA margin as adjusted EBITDA divided by total 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 include:

Current wording

We regularly monitor adjusted EBITDA and adjusted EBITDA margin, as they are measures we use to assess our operating performance. We define adjusted EBITDA as net income or loss, excluding amortization of acquired intangible assets and developed technology, depreciation expense, income tax expense (benefit), interest expense, net, unrealized foreign currency losses (gains), transaction related costs, spin-off costs, stock-based compensation expense and related employer-paid payroll taxes and restructuring and other costs. We define adjusted EBITDA margin as adjusted EBITDA divided by total 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 include:

Previous wording

Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including operating income and net income and our other GAAP results. In evaluating adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as, or similar to, some of the adjustments in this presentation. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the types of items excluded from the calculation of adjusted EBITDA. Adjusted EBITDA is not a presentation made in accordance with GAAP and the use of the term varies from others in our industry.

Current wording

Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including operating income and net income and our other GAAP results. In evaluating adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as, or similar to, some of the adjustments in this presentation. Our presentation of adjusted EBITDA should not be construed as an implication that our future results will be unaffected by the types of items excluded from the calculation of adjusted EBITDA. Adjusted EBITDA is not a presentation made in accordance with GAAP and the use of the term varies from others in our industry.

Previous wording

Cash and cash equivalents were $139.2 million as of March 31, 2024. As our sales and operating cash flows are primarily generated by international entities in the United Kingdom and Canada, our international subsidiaries held approximately $136.3 million of cash and cash equivalents, of which 85.1%, 9.9% and 0.1% were held in United States Dollars, Euros and British Pound Sterling, respectively. We intend either to invest our foreign earnings permanently into foreign operations or to remit these earnings to our United States entities in a tax-efficient manner. The U.S. Tax Cuts and Jobs Act of 2017 imposed a mandatory transition tax on accumulated foreign earnings and eliminates United States federal income taxes on foreign subsidiary distributions. As a result, our earnings in foreign jurisdictions are generally available for distribution to the United States without significant U.S. tax consequences.

Current wording

Cash and cash equivalents were $157.5 million as of June 30, 2024. As our sales and operating cash flows are primarily generated by international entities in the United Kingdom and Canada, our international subsidiaries held approximately $151.4 million of cash and cash equivalents, of which 85.0%, 9.1% and 1.6% were held in United States Dollars, Euros and British Pound Sterling, respectively. We intend either to invest our foreign earnings permanently into foreign operations or to remit these earnings to our United States entities in a tax-efficient manner. The U.S. Tax Cuts and Jobs Act of 2017 imposed a mandatory transition tax on accumulated foreign earnings and eliminates United States federal income taxes on foreign subsidiary distributions. As a result, our earnings in foreign jurisdictions are generally available for distribution to the United States without significant U.S. tax consequences.

Previous wording

In connection with the Separation and Distribution, on July 19, 2021, certain subsidiaries of the Company entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase, Bank, N.A. as administrative agent and collateral agent and the lenders from time to time party thereto. The Credit Agreement provides for $410.0 million of first lien secured credit facilities (the “Credit Facilities”), consisting of a $60.0 million revolving credit facility (the “Revolving Facility”), and a $350.0 million term loan facility (the “Term Loan”). On July 19, 2021, prior to the completion of the Distribution, the Company distributed approximately $16.5 million, representing the proceeds from the Term Loan, net of the repayment of related party debt due to SolarWinds Holdings, Inc., payment of intercompany trade payables, and fees and other transaction-related expenses, to SolarWinds. The Revolving Facility is primarily available for general corporate purposes. We had total borrowings of $334.5 million and $335.0 million as of March 31, 2024 and December 31, 2023, respectively, net of debt issuance costs of $6.7 million and $7.1 million, respectively. See Note 8. Debtin the Notes to Consolidated Financial Statements for further details regarding the Credit Agreement.

Current wording

In connection with the Separation and Distribution, on July 19, 2021, certain subsidiaries of the Company entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase, Bank, N.A. as administrative agent and collateral agent and the lenders from time to time party thereto. The Credit Agreement provides for $410.0 million of first lien secured credit facilities (the “Credit Facilities”), consisting of a $60.0 million revolving credit facility (the “Revolving Facility”), and a $350.0 million term loan facility (the “Term Loan”). On July 19, 2021, prior to the completion of the Distribution, the Company distributed approximately $16.5 million, representing the proceeds from the Term Loan, net of the repayment of related party debt due to SolarWinds Holdings, Inc., payment of intercompany trade payables, and fees and other transaction related expenses, to SolarWinds. The Revolving Facility is primarily available for general corporate purposes. We had total borrowings of $334.1 million and $335.0 million as of June 30, 2024 and December 31, 2023, respectively, net of debt issuance costs of $6.3 million and $7.1 million, respectively. See Note 8. Debtin the Notes to Consolidated Financial Statements for further details regarding the Credit Agreement.

Previous wording

During the three months ended March 31, 2024 and 2023, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Current wording

During the three and six months ended June 30, 2024 and 2023, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Previous wording

Cash provided by operating activities decreased in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to a decrease in accrued liabilities and other, an increase in prepaid expenses and other assets, a decrease in accounts payable, an increase in other long-term assets, a decrease in other long-term liabilities and an increase in deferred revenue, partially offset by a decrease in income taxes receivable, a decrease in accounts receivable and an increase in income taxes payable. The net cash outflow of $20.5 million and $8.9 million resulting from the changes in our operating assets and liabilities for the three months ended March 31, 2024 and 2023, respectively, excluding the changes noted above, was primarily due to the timing of sales, cash payments and receipts.

Current wording

Cash provided by operating activities increased for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to an increase in net income, adjusted for an increase in non-cash items within net income, partially offset by a net cash outflow resulting from changes in our operating assets and liabilities. The net cash outflow resulting from changes in our operating assets and liabilities was primarily due to an increase in prepaid expenses and other assets, a decrease in accrued liabilities and other, an increase in recoverable taxes, an increase in deferred revenue, an increase in other long-term assets, a decrease in other long-term liabilities and a decrease in accounts payable, partially offset by a decrease in accounts receivable, a decrease in income taxes receivable and an increase in income taxes payable. The net cash outflow of $21.5 million and $9.7 million resulting from changes in our operating assets and liabilities for the six months ended June 30, 2024 and 2023, respectively, excluding the changes noted above, was primarily due to the timing of sales, cash payments and receipts.

Previous wording

Investing cash flows consist of cash used for acquisitions, net of cash acquired, capital expenditures and intangible assets. Our capital expenditures principally relate to purchases of servers for cloud infrastructure primarily to support our data protection solutions, as well as leasehold improvements, computers and equipment to support our domestic and international office locations. Purchases of intangible assets consist of capitalized research and development costs.

Current wording

Investing cash flows consist of cash used for capital expenditures and intangible assets. Our capital expenditures principally relate to purchases of servers for cloud infrastructure primarily to support our data protection solutions, as well as leasehold improvements, computers and equipment to support our domestic and international office locations. Purchases of intangible assets consist of capitalized research and development costs.

Previous wording

Net cash used in investing activities decreased in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to a decrease in capitalized research and development costs related to internal-use software, partially offset by an increase in capital expenditures to support our domestic and international office locations.

Current wording

Net cash used in investing activities decreased for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to a decrease in capitalized research and development costs related to internal-use software and a decrease in capital expenditures to support our domestic and international office locations.

Previous wording

Net cash used in financing activities increased in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to an increase in payments of tax withholding obligations related to restricted stock and a decrease in proceeds from exercises of stock options, partially offset by an increase in proceeds from the issuance of common stock under the Employee Stock Purchase Plan.

Current wording

Net cash used in financing activities increased for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to an increase in payments of tax withholding obligations related to restricted stock, an increase in deferred acquisition payments and a decrease in proceeds from exercises of stock options, partially offset by an increase in proceeds from the issuance of common stock under the Employee Stock Purchase Plan.

Previous wording

See Note 2. Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, which is incorporated herein by reference.

Current wording

See Note 2. Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements for a full description of recently adopted accounting pronouncements, which is incorporated herein by reference.