N-able Inc

Previous wording

We believe the Cyber Incident has caused reputational harm to SolarWinds and also had an adverse impact on our reputation, new subscription sales and net retention rates. In general, our sales cycles and time from contract to revenue recognition are primarily short in nature, and we believe that the adverse impacts of the Cyber Incident on our financial results have diminished. Nevertheless, there is risk that the Cyber Incident may continue to have an adverse impact on our business in future periods, and to the extent such impact continues, including as a result of new discoveries or events, it could have an adverse effect on our business, results of operations, cash flows or financial position.

Current wording

We believe the Cyber Incident caused reputational harm to SolarWinds and also had an adverse impact on our reputation, new subscription sales and net retention rates. In general, our sales cycles and time from contract to revenue recognition are primarily short in nature, and we believe that the adverse impacts of the Cyber Incident on our financial results have diminished. Nevertheless, there is risk that the Cyber Incident may continue to have an adverse impact on our business in future periods, and to the extent such impact continues, including as a result of new discoveries or events, it could have an adverse effect on our business, results of operations, cash flows or financial position.

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 $119.4 million and $106.1 million for the three months ended June 30, 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 $116.4 million and $107.6 million for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

During the six months ended June 30, 2024, we began increasing the proportion of our subscriptions that are long-term committed contracts, as compared to month-to-month contracts (the “Long-Term Contract Initiative”). Under Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (“Topic 606”),” we recognize revenue for long-term subscriptions when the distinct license is made available to the customer, and support revenue is recognized ratably over the contract term. Point in time subscription revenue increased from $15.5 million during the three months ended June 30, 2023 to $19.6 million during the three months ended June 30, 2024, and from$30.8 million during the six months ended June 30, 2023 to $36.3 million during the six months ended June 30, 2024. The increase in point in time subscription revenue was primarily due to the impact of revenue recognition for long-term committed contracts under Topic 606, net of any volume and pricing rationalization when committing to long-term subscriptions. See Note 2. Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statementsfor further details regarding revenue recognized from subscription and other services at a point in time and over time.

Current wording

During the nine months ended September 30, 2024, we began increasing the proportion of our subscriptions that are long-term committed contracts, as compared to month-to-month contracts (the “Long-Term Contract Initiative”). Under Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (“Topic 606”),” we recognize revenue for long-term subscriptions when the distinct license is made available to the customer, and support revenue is recognized ratably over the contract term. Point in time subscription revenue increased from $10.9 million during the three months ended September 30, 2023 to $15.2 million during the three months ended September 30, 2024, and from$41.7 million during the nine months ended September 30, 2023 to $51.5 million during the nine months ended September 30, 2024. The increase in point in time subscription revenue was primarily due to the impact of revenue recognition for long-term committed contracts under Topic 606, net of any volume and pricing rationalization when committing to long-term subscriptions and any fluctuations in month to month contracts. See Note 2. Summary of Significant Accounting Policies in the Notes to Cons olidated Financial Statementsfor further details regarding revenue recognized from subscription and other services at a point in time and over time.

Previous 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.

Current wording

As of September 30, 2024, we had approximately 25,000 customers. Additionally, as of September 30, 2024, we had 2,275 MSP partners with annualized recurring revenue (“ARR”) over $50,000 on our platform, up from 2,134 as of September 30, 2023, representing an increase of 6.6%. 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 September 30, 2023 to approximately 57% of our total ARR as of September 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 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.

Current wording

We have grown while maintaining high levels of operating efficiency. Our operating income for the three months ended September 30, 2024 was $23.9 million compared to operating income of $18.4 million for the three months ended September 30, 2023. Our net income for the three months ended September 30, 2024 was $10.8 million compared to net income of $6.0 million for the three months ended September 30, 2023. The increase in net income for the three months ended September 30, 2024 was primarily due to an increase in revenue, an increase in other income, net, a decrease in sales and marketing expense, a decrease in general and administrative expense, and a decrease in interest expense, net, partially offset by an increase in research and development expense, an increase in income tax expense, and an increase in cost of revenue. Our Adjusted EBITDA, calculated as net income of $10.8 million and $6.0 million for the three months ended September 30, 2024 and 2023, respectively, excluding amortization of acquired intangible assets and developed technology of $2.1 million and $1.4 million, respectively, depreciation expense of $4.0 million and $3.9 million, respectively, income tax expense of $7.9 million and $4.1 million, respectively, interest expense, net of $7.5 million and $7.8 million, respectively, unrealized foreign currency (gains) losses of $(0.5) million and $1.6 million, respectively, transaction related costs of $(1.8) million and $(0.6) 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 $11.8 million and $11.6 million, respectively, and restructuring costs and other of $3.1 million and $0.6 million, respectively, was $44.8 million and $36.6 million for the three months ended September 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 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.

Current wording

We have built our business to generate strong cash flow over the long term. For the three months ended September 30, 2024 and 2023, cash flows from operations were $22.0 million and $27.5 million, respectively. Our cash flows from operations were reduced by cash payments for interest of $7.2 million and $7.4 million for the three months ended September 30, 2024 and 2023, respectively, and cash payments for income taxes of $2.1 million and $1.2 million for the three months ended September 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 1,623, 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.

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 1,635, 1,584, and 1,580 as of September 30, 2024, December 31, 2023, and September 30, 2023, respectively. Our stock-based compensation expense increased during the three and nine months ended September 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 September 30, 2024.

Previous 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.

Current wording

Total revenue increased $8.9 million, or 8.3%, for the three months ended September 30, 2024 compared to the three months ended September 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 47.6% and 48.6% of total revenue for the three months ended September 30, 2024 and 2023, respectively. Revenue from the United Kingdom was approximately 10.6% and 10.2% of total revenue for the three months ended September 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 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.

Current wording

Subscription Revenue. Subscription revenue increased $9.8 million, or 9.3%, for the three months ended September 30, 2024 compared to the three months ended September 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 Third Quarter Financial Highlightsfor further details regarding the impact of long-term committed contracts during thethree months ended September 30, 2024. Subscription revenue as a percentage of our total revenue was 98.8% for the three months ended September 30, 2024, compared to 97.8% for the three months ended September 30, 2023.

Previous 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.

Current wording

Our annual dollar-based net revenue retention rate for our subscription products was approximately 105% and 108% for the trailing twelve-month periods ended September 30, 2024 and 2023, respectively. The 105% dollar-based net revenue retention rate reflects the pressure from our pricing and packaging changes, coupled with rationalization related to our Long-Term Contract Initiative, which began materially 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 $0.7 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.

Current wording

Other Revenue. Other revenue decreased $0.9 million, or 38.8%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to a decrease in maintenance and professional services revenue. Other revenue as a percentage of our total revenue was 1.2% for the three months ended September 30, 2024, compared to 2.2% for the three months ended September 30, 2023.

Previous 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.

Current wording

Total cost of revenue increased $2.5 million, or 14.7%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to an increase in public cloud infrastructure and hosting fees and royalties related to our subscription products of $1.7 million, an increase in depreciation of servers and amortization of capitalized internal-use software costs of $0.8 million, and an increase in stock-based compensation expense of $0.1 million, partially offset by a decrease in allocated facilities and IT costs of $0.1 million.

Previous wording

Sales and Marketing. Sales and marketing expenses increased $1.2 million, or 1.8%, primarily due to an increase in personnel costs driven by headcount and salary increases of $2.2 million, which includes an increase in stock-based compensation expense of $0.2 million, an increase in travel and event-related costs of $1.3 million, an increase in restructuring costs of $0.4 million and an increase in allocated facilities and IT costs of $0.3 million, partially offset by a decrease in advertising expense of $1.5 million, 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, a decrease in subscription costs of $0.1 million and a decrease in contract services costs of $0.1 million.

Current wording

Sales and Marketing. Sales and marketing expenses decreased $1.4 million, or 4.1%, primarily due to an increase in commissions related to long-term committed contracts that were capitalized from sales and marketing expenses to the Consolidated Balance Sheets of $1.0 million, a decrease in advertising expense of $0.3 million, a decrease in personnel costs of $0.2 million, and a decrease in contract services costs of $0.1 million, partially offset by an increase in travel and event-related 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 $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.

Current wording

Research and Development. Research and development expenses increased $3.2 million, or 16.4%, primarily due to an increase in personnel costs driven by headcount and salary increases of $1.3 million, which includes an increase in stock-based compensation expense of $0.3 million, an increase in allocated facilities and IT costs of $1.1 million, an increase in subscription costs of $0.5 million, and a decrease in capitalized internal-use software costs of $0.2 million.

Previous wording

Interest expense, net increased by $0.5 million, or 3.4%, for the six months ended June 30, 2024 compared to the six 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.

Current wording

Interest expense, net decreased by $0.3 million, or 3.4%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to the impact of decreased interest rates and lower outstanding borrowings under the Credit Agreement. Outstanding borrowings under the Credit Agreement bear interest at variable rates, and therefore changes in interest rates will have an impact on our financial results and cash flows. See Note 8. Debt in the Notes to Consolidated Financial Statementsfor further details regarding the Credit Agreement.

Previous 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.

Current wording

Other income (expense), net increased by $2.7 million, or 636.4%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to an increase in the impact of changes in foreign currency exchange rates of $2.2 million related to various accounts for the period and an increase in dividend income from our money market fund financial assets of $0.6 million.

Previous 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.

Current wording

Our income tax expense for the three months ended September 30, 2024 increased by $3.8 million as compared to the three months ended September 30, 2023. The effective tax rate increased to 42.3% for the same period primarily due to an increase in the amount of the unbenefited loss in the United States, partially offset by a decrease in income taxes on income 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

Total revenue increased $27.3 million, or 13.3%, for the six months ended June 30, 2024 compared to the six 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 47.9% and 48.8% of total revenue for the six months ended June 30, 2024 and 2023, respectively. Revenue from the United Kingdom was approximately 10.4% of total revenue for each of the six months ended June 30, 2024 and 2023. 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 $36.2 million, or 11.5%, for the nine months ended September 30, 2024 compared to the nine months ended September 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 47.8% and 48.7% of total revenue for the nine months ended September 30, 2024 and 2023, respectively. Revenue from the United Kingdom was approximately 10.5% and 10.3% of total revenue for the nine months ended September 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 $28.1 million, or 14.0%, for the six months ended June 30, 2024 compared to the six 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 impact from long-term committed contracts. See Second Quarter Financial Highlightsfor further details regarding the impact of long-term committed contracts during thesix months ended June 30, 2024. Subscription revenue as a percentage of our total revenue was 98.2% for the six months ended June 30, 2024, compared to 97.5% for the six months ended June 30, 2023.

Current wording

Subscription Revenue. Subscription revenue increased $37.9 million, or 12.4%, for the nine months ended September 30, 2024 compared to the nine months ended September 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 impact from long-term committed contracts. See Third Quarter Financial Highlightsfor further details regarding the impact of long-term committed contracts during the nine months ended September 30, 2024. Subscription revenue as a percentage of our total revenue was 98.4% for the nine months ended September 30, 2024, compared to 97.6% for the nine months ended September 30, 2023.

Previous 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.

Current wording

Our annual dollar-based net revenue retention rate for our subscription products was approximately 105% and 108% for the trailing twelve-month periods ended September 30, 2024 and 2023, respectively. The 105% dollar-based net revenue retention rate reflects the pressure from our pricing and packaging changes, coupled with rationalization related to our Long-Term Contract Initiative, which began materially impacting net revenue retention during the three months ended June 30, 2024.

Previous wording

Total cost of revenue increased $4.2 million, or 12.7%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to an increase in public cloud infrastructure and hosting fees and royalties related to our subscription products of $2.8 million, an increase in depreciation of servers and amortization of capitalized internal-use software costs of $1.3 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 $6.8 million, or 13.4%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to an increase in public cloud infrastructure and hosting fees and royalties related to our subscription products of $4.5 million, an increase in depreciation of servers and amortization of capitalized internal-use software costs of $2.1 million, an increase in stock-based compensation expense of $0.2 million and an increase in allocated facilities and IT costs of $0.1 million.

Previous 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.

Current wording

Sales and Marketing. Sales and marketing expenses decreased $0.2 million, or 0.2%, primarily due to an increase in commissions related to long-term committed contracts that were capitalized from sales and marketing expenses to the Consolidated Balance Sheets of $2.2 million and a decrease in advertising expense of $1.8 million, partially offset by an increase in personnel costs driven by headcount and salary increases of $2.0 million, which includes an increase in stock-based compensation expense of $0.3 million, an increase in travel and event-related costs of $1.4 million, and an increase in restructuring and other costs of $0.4 million.

Previous wording

Research and Development. Research and development expenses increased $5.4 million, or 13.9%, primarily due to an increase in personnel costs driven by headcount and salary increases of $3.8 million, which includes an increase in stock-based compensation expense of $0.8 million, an increase in subscription costs of $1.1 million, an increase in allocated facilities and IT costs of $0.4 million, a decrease in capitalized internal-use software costs of $0.4 million and an increase in amortization expense of $0.2 million, partially offset by a decrease in restructuring costs of $0.7 million.

Current wording

Research and Development. Research and development expenses increased $8.7 million, or 14.7%, primarily due to an increase in personnel costs driven by headcount and salary increases of $5.1 million, which includes an increase in stock-based compensation expense of $1.1 million, an increase in subscription costs of $1.7 million, an increase in allocated facilities and IT costs of $1.6 million, a decrease in capitalized internal-use software costs of $0.6 million and an increase in amortization expense of $0.3 million, partially offset by a decrease in restructuring costs of $0.7 million.

Previous wording

General and Administrative. General and administrative expenses increased $5.0 million, or 27.4%, primarily due to an increase in transaction related costs of $4.9 million, an increase in rent expense of $0.3 million, an increase in personnel costs driven by headcount and salary increases of $0.2 million, an increase in bad debt expense of $0.2 million, an increase in contract services costs of $0.1 million and losses on contingent consideration related to the July 1, 2022 acquisition of Spinpanel of $0.1 million, partially offset by 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. 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.

Current wording

General and Administrative. General and administrative expenses increased $3.6 million, or 6.6%, primarily due to an increase in transaction related costs of $5.9 million, an increase in restructuring and other costs of $2.0 million, an increase in rent expense of $2.0 million, and 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 $0.2 million, partially offset by gains on contingent consideration related to the July 1, 2022 acquisition of Spinpanel of $3.7 million, a decrease in allocated facilities and IT costs of $2.0 million, a decrease in director and officer liability insurance costs of $0.6 million and a decrease in costs associated with our separation from SolarWinds of $0.6 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 $0.5 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.

Current wording

Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased $0.5 million, or 92.5%, 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.

Previous 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.

Current wording

Interest expense, net increased by $0.2 million, or 1.0%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to the impact of increased interest rates on borrowings under the Credit Agreement. Outstanding borrowings under the Credit Agreement bear interest at variable rates, and therefore changes in interest rates will have an impact on our financial results and cash flows. See Note 8. Debt in the Notes to Consolidated Financial Statementsfor further details regarding the Credit Agreement.

Previous wording

Other income, net decreased by $0.6 million, or 28.4%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to a decrease in the impact of changes in foreign currency exchange rates of $1.9 million related to various accounts for the period, partially offset by an increase in dividend income from our money market fund financial assets of $1.4 million.

Current wording

Other income, net decreased by $2.1 million, or 135.6%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due an increase in dividend income from our money market fund financial assets of $2.1 million and an increase 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 six months ended June 30, 2024 increased by $2.4 million as compared to the six months ended June 30, 2023. The effective tax rate decreased to 41.0% 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 Taxesof the Notes to Consolidated Financial Statements.

Current wording

Our income tax expense for the nine months ended September 30, 2024 increased by $6.2 million as compared to the nine months ended September 30, 2023. The effective tax rate decreased to 41.5% for the same period primarily due to a decrease in income taxes on income outside of the United States, partially offset by an increase in the amount of the unbenefited loss in the United States. For additional discussion about our income taxes, see Note 10. Income Taxesof the Notes to Consolidated Financial Statements.

Previous 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.

Current wording

Cash and cash equivalents were $174.4 million as of September 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 $167.1 million of cash and cash equivalents, of which 82.8%, 9.5% and 3.5% 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 $334.1 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.

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 $333.6 million and $335.0 million as of September 30, 2024 and December 31, 2023, respectively, net of debt issuance costs of $5.9 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 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.

Current wording

During the three and nine months ended September 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 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.

Current wording

Cash provided by operating activities decreased for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to a net cash outflow resulting from changes in our operating assets and liabilities, partially offset by an increase in net income and an increase in non-cash items within net income. The net cash outflow resulting from changes in our operating assets and liabilities was primarily due to an increase in current contract assets, a decrease in accrued liabilities and other, an increase in prepaid expenses and other assets, an increase in recoverable taxes, an increase in other long-term assets, an increase in deferred revenue, and a decrease in other long-term liabilities, partially offset by an increase in income taxes payable, a decrease in accounts receivable, a decrease in income taxes receivable, and an increase in accounts payable. The net cash outflow of $26.1 million and $6.0 million resulting from changes in our operating assets and liabilities for the nine months ended September 30, 2024 and 2023, respectively, excluding the changes noted above, was primarily due to the timing of sales, cash payments and receipts.

Previous 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.

Current wording

Net cash used in investing activities decreased for the nine months ended September 30, 2024 as compared to the nine months ended September 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 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.

Current wording

Net cash used in financing activities increased for the nine months ended September 30, 2024 as compared to the nine months ended September 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.