N-able Inc

Previous wording

N-able, Inc., a Delaware corporation, and its subsidiaries (“Company”, “we,” “us” and “our”) is a leading global provider of cloud-based software solutions for managed service providers (“MSPs”), enabling them to support digital transformation and growth for small and medium-sized enterprises (“SMEs”), which we define as those enterprises having less than 1,000 employees. With a flexible technology platform and powerful integrations, N-able makes it easy for MSPs to monitor, manage, and protect their end-customer systems, data, and networks. Our growing portfolio of security, automation, and backup and recovery solutions is built for IT services management professionals. N-able simplifies complex ecosystems and enables customers to solve their most pressing challenges. In addition, we provide extensive, proactive support—through enriching partner programs, hands-on training, and growth resources—to help MSPs deliver exceptional value and achieve success at scale. Through our multi-dimensional land and expand model and global presence, we are able to drive strong recurring revenue growth and profitability.

Current wording

N-able, Inc., a Delaware corporation, together with its subsidiaries, is a leading global provider of cloud-based security, data protection, and unified endpoint management software solutions for IT services providers, including managed service providers (“MSPs”). Our powerful technology enables them to support digital transformation and growth for small and medium-sized businesses (“SMBs”) and mid-market businesses, which we define as those businesses having fewer than 2,500 employees. With a flexible technology platform and powerful integrations, N-able makes it easy for our customers to monitor, manage, and protect systems, data, and networks. Our growing portfolio of management, security, automation, and data protection solutions is built for IT services management professionals. In addition, we provide extensive, proactive support—through enriching partner programs, hands-on training, and growth resources—to help our customers deliver exceptional value and achieve success at scale. Through our multi-dimensional land and expand model and global presence, we have been able to drive strong recurring revenue growth and profitability.

Previous wording

On July 19, 2021, SolarWinds completed the Separation through a pro-rata distribution (the “Distribution”) of all the outstanding shares of our common stock it held to the stockholders of record of SolarWinds as of the close of business on July 12, 2021 (the “Record Date”). Each SolarWinds stockholder of record received one share of our common stock, $0.001 par value, for every two shares of SolarWinds common stock, $0.001 par value, held by such stockholder as of the close of business on the Record Date. SolarWinds distributed 158,020,156 shares of our common stock in the Distribution, which was effective at 11:59 p.m., Eastern Time, on July 19, 2021. The Distribution reflected 316,040,312 shares of SolarWinds common stock outstanding on July 12, 2021 at a distribution ratio of one share of our common stock for every two shares of SolarWinds common stock. In addition, on July 19, 2021, and prior to completion of the Distribution, we issued 20,623,282 newly-issued shares of our common stock in connection with a private placement of N-able’s common stock (the “Private Placement”). As a result of the Distribution, we became an independent public company and our common stock is listed under the symbol “NABL” on the New York Stock Exchange.

Current wording

On August 6, 2020, SolarWinds Corporation (“SolarWinds” or “Parent”) announced that its board of directors had authorized management to explore a potential spin-off of its MSP business into our company, a newly created and separately traded public company, and separate into two distinct, publicly traded companies (the “Separation”). On July 19, 2021, SolarWinds completed the Separation through a pro-rata distribution (the “Distribution”) of all the outstanding shares of our common stock it held to the stockholders of record of SolarWinds as of the close of business on July 12, 2021. As a result of the Distribution, we became an independent public company and our common stock is listed under the symbol “NABL” on the New York Stock Exchange.

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, in 2020, 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

In response to the Cyber Incident and in connection with the Separation and Distribution, we continue to work to further enhance security, monitoring and authentication of our solutions. Specifically, we have implemented in-product security enhancements to the N-able portfolio of products, including, multi-factor authentication, unified single sign-on services, and secure secret vaults. We have also introduced new identity and access controls, scanning and remediation technologies and standards and monitoring tooling across our enterprise IT and production environments. We expect to incur additional expenses in future periods related to continued enhancements to our security measures across our solutions.

Current wording

In response to the Cyber Incident and in connection with the Separation and Distribution, we continue to work to further enhance security, monitoring and authentication of our solutions. Specifically, we have implemented in-product security enhancements to the N-able portfolio of products, including, multi-factor authentication, unified single sign-on services and secure secret vaults. We have also introduced new identity and access controls, scanning and remediation technologies and standards and monitoring tooling across our businesses IT and production environments. We expect to incur additional expenses in future periods related to continued enhancements to our security measures across our 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 December 31, 2023 and 2022, respectively. In addition, as a result of the Cyber Incident, SolarWinds is 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 December 31, 2024 and 2023, respectively. 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 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 2021, we experienced an adverse impact to new subscription sales and expansion rates relative to historical levels. We believe this was due in part to our decision in response to the Cyber Incident to temporarily reduce investments in demand generation activities through January 2021, as well as a result of certain MSP partners delaying their purchasing decisions as they assessed the potential impact of the Cyber Incident. In October 2023, the SEC filed a complaint against SolarWinds and its chief information officer alleging violations of the Exchange Act and Securities Act relating to SolarWinds’ cybersecurity disclosures and public statements, as well as its internal controls and disclosure controls and procedures. This brought renewed attention to the Cyber Incident and questions from some of our MSP partners. However, we also have seen consistency among renewal rates with our larger MSP partners and have not observed material adverse trends with respect to the usage of our solutions. In addition, following our resumption of regular demand generation activities in February 2021, we were encouraged by engagements with both prospective and existing MSP partners. In general, our sales cycles and time from contract to revenue recognition are primarily short in nature and based on trends through the fiscal year ended December 31, 2023, 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

As of December 31, 2023, we had approximately 25,000 customers. Additionally, as of December 31, 2023, we had 2,196 MSP partners with annualized recurring revenue, or ARR, over $50,000 on our platform, up from 1,898 as of December 31, 2022, representing an increase of approximately 16%. Over the same period, MSP partners with over $50,000 of ARR on our platform grew from approximately 51% of our total ARR as of December 31, 2022 to approximately 56% of our total ARR as of December 31, 2023. 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 December 31, 2024, we had 2,349 customers with ARR over $50,000 on our platform, up from 2,196 as of December 31, 2023, representing an increase of approximately 7%. Over the same period, customers with over $50,000 of ARR on our platform grew from approximately 56% of our total ARR as of December 31, 2023 to approximately 57% of our total ARR as of December 31, 2024.

Previous wording

We have grown while maintaining high levels of operating efficiency. Our net income for the three months ended December 31, 2023 and 2022 was $9.4 million and $7.0 million, respectively. The increase in net income for the three months ended December 31, 2023 was primarily due to an increase in revenue, a decrease in amortization of acquired intangibles, a decrease in general and administrative expense and an increase in other income, net, partially offset by an increase in income tax expense, an increase in research and development expense, an increase in cost of revenue, an increase in sales and marketing expense, and an increase in interest expense, net. Our Adjusted EBITDA, calculated as net income of $9.4 million and $7.0 million for the three months ended December 31, 2023 and 2022, respectively, excluding amortization of acquired intangible assets and developed technology of $1.6 million and $2.6 million, respectively, depreciation expense of $3.9 million and $3.5 million, respectively, income tax expense of $7.4 million and $3.4 million, respectively, interest expense, net of $7.7 million and $6.4 million, respectively, unrealized foreign currency gains of $(1.8) million and $(2.1) million, respectively, acquisition related costs of $(0.5) million and $(0.2) million, respectively, spin-off costs of $0.1 million and $0.3 million, respectively, stock-based compensation expense and related employer-paid payroll taxes of $10.9 million and $8.7 million, respectively, and restructuring costs and other of $0.5 million and $1.7 million, respectively, was $39.2 million and $31.2 million for the three months ended December 31, 2023 and 2022, respectively.

Current wording

Our net income for the three months ended December 31, 2024 and 2023 was $3.3 million and $9.4 million, respectively. The decrease in net income for the three months ended December 31, 2024 was due to increases in research and development expense, other expense, net, cost of revenue, amortization of acquired technologies, sales and marketing expense, amortization of acquired intangibles, and general and administrative expense, partially offset by an increase in revenue and a decrease in income tax expense. Our Adjusted EBITDA, calculated as net income of $3.3 million and $9.4 million for the three months ended December 31, 2024 and 2023, respectively, excluding amortization of acquired intangible assets and developed technology of $3.9 million and $1.6 million, respectively, depreciation expense of $4.0 million and $3.9 million, respectively, income tax expense of $3.7 million and $7.4 million, respectively, interest expense, net of $7.3 million and $7.7 million, respectively, unrealized foreign currency losses (gains) of $2.0 million and $(1.8) million, respectively, transaction related costs of $2.4 million and $(0.5) million, respectively, spin-off costs of $0.0 million and $0.1 million, respectively, stock-based compensation expense and related employer-paid payroll taxes of $10.8 million and $10.9 million, respectively, and restructuring costs and other of $0.7 million and $0.5 million, respectively, was $38.1 million and $39.2 million for the three months ended December 31, 2024 and 2023, respectively.

Previous wording

We have built our business to generate strong cash flow over the long term. For the three months ended December 31, 2023 and 2022, cash flows from operations were $31.2 million and $18.4 million, respectively. Our cash flows from operations were reduced by cash payments for interest of $7.3 million and $5.3 million for the three months ended December 31, 2023 and 2022, respectively, and cash payments for income taxes of $3.9 million and $3.1 million for the three months ended December 31, 2023 and 2022, respectively.

Current wording

We have built our business to generate strong cash flow over the long term. For the three months ended December 31, 2024 and 2023, cash flows from operations were $26.0 million and $31.2 million, respectively. Our cash flows from operations were reduced by cash payments for interest of $6.9 million and $7.3 million for the three months ended December 31, 2024 and 2023, respectively, and cash payments for income taxes of $4.6 million and $3.9 million for the three months ended December 31, 2024 and 2023, respectively.

Previous wording

•Subscription Revenue. We primarily derive subscription revenue from the sale of subscriptions to the SaaS solutions that we host and manage on our platform. Our subscriptions provide access to the latest versions of our software platform, technical support and unspecified software upgrades and updates. Subscription revenue for our SaaS solutions is generally recognized ratably over the subscription term once the service is made available to the MSP partner or when we have the right to invoice for services performed. In addition, our subscription revenue includes sales of our self-managed solutions, which are hosted and managed by our MSP partners. Subscriptions of our self-managed solutions include term licenses, technical support and unspecified software upgrades. Revenue from the license performance obligation of our self-managed solutions is recognized at a point in time upon delivery of the access to the licenses and revenue from the performance obligation related to the technical support and unspecified software upgrades of our subscription-based license arrangements is recognized ratably over the agreement period. We generally invoice subscription agreements monthly based on usage or in advance over the subscription period on either a monthly or annual basis.

Current wording

•Subscription Revenue. We primarily derive subscription revenue from the sale of subscriptions to the SaaS solutions that we host and manage on our platform. Our subscriptions provide access to the latest versions of our software platform, technical support and unspecified software upgrades and updates. Subscription revenue for our SaaS solutions is generally recognized ratably over the subscription term once the service is made available to the customer or when we have the right to invoice for services performed. In addition, our subscription revenue includes sales of our self-managed solutions, which are hosted and managed by our customers. Subscriptions of our self-managed solutions include term licenses, technical support and unspecified software upgrades. Revenue from the license performance obligation of our self-managed solutions is recognized at a point in time upon delivery of the access to the licenses and revenue from the performance obligation related to the technical support and unspecified software upgrades of our subscription-based license arrangements is recognized ratably over the agreement period. We generally invoice subscription agreements monthly based on usage or in advance over the subscription period on either a monthly or annual basis.

Previous wording

•Other Revenue. Other revenue consists primarily of revenue from the sale of our maintenance services associated with the historical sales of perpetual licenses and revenue from professional services. MSP partners with maintenance agreements are entitled to receive technical support and unspecified upgrades or enhancements to new versions of their solutions on a when-and-if-available basis for the specified agreement period.

Current wording

•Other Revenue. Other revenue consists primarily of revenue from the sale of our maintenance services associated with the historical sales of perpetual licenses and revenue from professional services. MSP customers with maintenance agreements are entitled to receive technical support and unspecified upgrades or enhancements to new versions of their solutions on a when-and-if-available basis for the specified agreement period.

Previous wording

•Cost of Revenue. Cost of revenue consists of public cloud infrastructure and hosting fees, an allocation of overhead costs for our subscription revenue and maintenance services, royalty fees and technical support personnel costs. We allocate facilities, depreciation, IT and benefits costs based on headcount.

Current wording

•Cost of Revenue. Cost of revenue consists of public cloud infrastructure and hosting fees, an allocation of overhead costs for our subscription revenue and maintenance services, royalty fees, and personnel costs for technical support and our security operations center. We allocate facilities, depreciation, IT and benefits costs based on headcount.

Previous wording

•Amortization of Acquired Technologies. We amortize to cost of revenue capitalized costs of technologies acquired in connection with the take private transaction of SolarWinds in early 2016 and subsequent business combinations, including the July 1, 2022 acquisition of Spinpanel B.V. (“Spinpanel”). Amortization related to the take private transaction of SolarWinds concluded during the three months ended March 31, 2023.

Current wording

•Amortization of Acquired Technologies. We amortize to cost of revenue capitalized costs of technologies acquired in connection with the take private transaction of SolarWinds in early 2016 and subsequent business combinations, including the July 1, 2022 acquisition of Spinpanel B.V. (“Spinpanel”) and November 20, 2024 acquisition of Adlumin. Amortization related to the take private transaction of SolarWinds concluded during the three months ended March 31, 2023.

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. For the periods through the Separation and Distribution date of July 19, 2021, SolarWinds provided facilities, information technology services and certain corporate and administrative services to us. Expenses relating to these services have been allocated to N‑able and are reflected in the Consolidated Financial Statements. We had total employees of 1,584 and 1,462 as of December 31, 2023 and 2022, respectively. Our stock-based compensation expense increased during the year ended December 31, 2023 as compared to the prior fiscal year primarily due to the impact of new equity awards that were granted to employees following the Separation and Distribution through December 31, 2023.

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 1,773 and 1,584 as of December 31, 2024 and 2023, respectively. Our stock-based compensation expense increased during the year ended December 31, 2024 as compared to the prior fiscal year primarily due to the impact of new equity awards that were granted to employees through December 31, 2024, and we expect stock-based compensation expense to continue to increase during the year ended December 31, 2025.

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 customer adds, retain and expand with existing customers and pursue initiatives designed to help our customers 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

•Amortization of Acquired Intangibles. We amortize to operating expenses capitalized costs of intangible assets primarily acquired in connection with the take private transaction of SolarWinds in early 2016 and subsequent business combinations, including the July 1, 2022 acquisition of Spinpanel. Amortization related to the take private transaction of SolarWinds concluded during the three months ended March 31, 2023.

Current wording

•Amortization of Acquired Intangibles. We amortize to operating expenses capitalized costs of intangible assets primarily acquired in connection with the take private transaction of SolarWinds in early 2016 and subsequent business combinations, including the July 1, 2022 acquisition of Spinpanel and the November 20, 2024 acquisition of Adlumin. Amortization related to the take private transaction of SolarWinds concluded during the three months ended March 31, 2023.

Previous wording

Total revenue increased $25.3 million, or 7.3%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, driven by our data protection and security solutions. 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 48.7% and 46.4% of total revenue for the years ended December 31, 2022 and 2021, respectively. Revenue from the United Kingdom was approximately 10.3% and 11.1% of total revenue for the years ended December 31, 2022 and 2021, 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 $44.3 million or 10.5%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. We base revenue by geography on the billing address of each customer. Based on customer location, revenue from the United States was approximately 48.2% and 48.8% of total revenue for the years ended December 31, 2024 and 2023, respectively. Revenue from the United Kingdom was approximately 10.5% and 10.2% of total revenue for the years ended December 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.

Previous wording

Our annual dollar-based net revenue retention rate for our subscription products was approximately 110% and 103% for the years ended December 31, 2023 and 2022, 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 103% and 110% for the years ended December 31, 2024 and 2023, respectively. The 103% 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 customer who was not a customer with a paid subscription in the prior period. To calculate our annual dollar-based net revenue retention rate, we first identify the customers with active paid subscriptions in the last month of the prior-year period, or the base customers. We then divide the subscription revenue in the last month of the current-year period attributable to the base customers by the revenue attributable to those base customers 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

Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased $7.6 million, or 56.6%, primarily due to a decrease in amortization of intangible assets acquired in connection with the take private transaction of SolarWinds in early 2016 and the impact of changes in foreign currency exchange rates.

Current wording

Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased $0.3 million, or 53.4%, primarily due a decrease in expense of $0.6 million related 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, partially offset by an increase in expense of $0.2 million related to the November 20, 2024 acquisition of Adlumin.

Previous wording

Other (expense), net increased by $3.1 million, or 248.6%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to the impact of changes in foreign currency exchange rates related to various accounts for the period and dividend income from our money market fund financial assets.

Current wording

Other income, net decreased by $2.3 million, or 54.7%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to a decrease in the impact of changes in foreign currency exchange rates of $3.8 million related to various accounts for the period, partially offset by an increase in dividend income from our money market fund financial assets of $1.9 million.

Previous wording

Our income tax expense for the year ended December 31, 2022 decreased by $2.2 million as compared to the year ended December 31, 2021. The effective tax rate decreased to 45.1% for the year ended December 31, 2022 primarily due to changes in income before income taxes by jurisdiction, offset by the valuation allowance recognized on the deferred tax assets in the U.S. and non-deductible stock-based compensation and costs associated with the Separation and Distribution. For additional discussion about our income taxes, see Note 14. Income Taxes in the Notes to Consolidated Financial Statements.

Current wording

Our income tax expense for the year ended December 31, 2024 increased by $2.4 million as compared to the year ended December 31, 2023. The effective tax rate decreased to 43.0% for the year ended December 31, 2024 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 14. Income Taxesin the Notes to Consolidated Financial Statements.

Previous wording

Total revenue increased $50.1 million or 13.5%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. 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 48.8% and 48.7% of total revenue for the years ended December 31, 2023 and 2022, respectively. Revenue from the United Kingdom was approximately 10.2% and 10.3% of total revenue for the years ended December 31, 2023 and 2022, 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 $50.1 million, or 13.5%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. We base revenue by geography on the billing address of each customer. Based on customer location, revenue from the United States was approximately 48.8% and 48.7% of total revenue for the years ended December 31, 2023 and 2022, respectively. Revenue from the United Kingdom was approximately 10.2% and 10.3% of total revenue for the years ended December 31, 2023 and 2022, 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 $49.5 million, or 13.6%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase in subscription revenue was primarily driven by growth in sales of our data protection, security, and remote monitoring and management solutions. Our subscription revenue increased slightly as a percentage of our total revenue for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Current wording

Subscription Revenue. Subscription revenue increased $49.5 million, or 13.6%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase in subscription revenue was primarily driven by growth in sales of our data protection, security, and unified endpoint management solutions. Our subscription revenue increased slightly as a percentage of our total revenue for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Previous wording

Our annual dollar-based net revenue retention rate for our subscription products was approximately 103% and 110% for the years ended December 31, 2022 and 2021, respectively, and was driven primarily by strong customer retention and expansion in our MSP products. The decline in our annual dollar-based net revenue retention rate for the year ended December 31, 2022 compared to the year ended December 31, 2021 was due to adverse movements in foreign currency exchange rates.

Current wording

Our annual dollar-based net revenue retention rate for our subscription products was approximately 110% and 103% for the years ended December 31, 2023 and 2022, 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.

Previous wording

Sales and Marketing. Sales and marketing expenses increased $9.4 million, or 7.5%, primarily due to an increase in personnel costs driven by headcount and salary increases of $8.0 million, which includes an increase in stock-based compensation expense of $2.0 million, an increase in marketing program costs of $1.4 million, and an increase in subscription costs of $0.8 million, partially offset by a decrease in contract services costs of $0.3 million, a decrease in restructuring costs of $0.2 million, and a decrease in allocated facilities and IT costs of $0.1 million. 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 increased $9.4 million, or 7.5%, primarily due to an increase in personnel costs driven by headcount and salary increases of $8.0 million, which includes an increase in stock-based compensation expense of $2.0 million, an increase in marketing program costs of $1.4 million, and an increase in subscription costs of $0.8 million, partially offset by a decrease in contract services costs of $0.3 million, a decrease in restructuring costs of $0.2 million, and a decrease in allocated facilities and IT costs of $0.1 million. We expect to continue to grow our sales and marketing organization over time to drive new customer adds, retain and expand with existing customers and pursue initiatives designed to help our customers succeed and grow.

Previous wording

Interest expense, net increased by $11.4 million, or 60.5%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, 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 13. Relationship with Parent and Related Entities and Note 9. Debt in the Notes to Consolidated Financial Statementsfor additional information regarding our related party debt and Credit Agreement, respectively.

Current wording

Interest expense, net decreased by $(11.4) million, or 60.5%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, 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 13. Relationship with Parent and Related Entities and Note 9. Debt in the Notes to Consolidated Financial Statementsfor additional information regarding our related party debt and Credit Agreement, respectively.

Previous wording

Other expense, net increased by $2.4 million, or 126.4%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to an increase in dividend income from our money market fund financial assets of $3.1 million, partially offset by an increase in the impact of changes in foreign currency exchange rates of $0.7 million related to various accounts for the period.

Current wording

Other income, net increased by $2.4 million, or 126.4%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to an increase in dividend income from our money market fund financial assets of $3.1 million, partially offset by an increase in the impact of changes in foreign currency exchange rates of $0.7 million related to various accounts for the period.

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 $153.0 million as of December 31, 2023. As our sales and operating cash flows are primarily generated by international entities in the United Kingdom and Canada, our international subsidiaries held approximately $146.1 million of cash and cash equivalents, of which 76.2%, 15.3% and 2.8% 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.

Current wording

Cash and cash equivalents were $85.2 million as of December 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 $79.3 million of cash and cash equivalents, of which 69.6%, 19.1% and 3.3% 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

Our primary source of cash for funding operations and growth has been through cash provided by operating activities. Given the uncertainty in the rapidly changing market and economic conditions, we continue to evaluate the nature and extent of the impact to our business and financial position. However, despite this uncertainty, we believe that our existing cash and cash equivalents and our cash flows from operating activities will be sufficient to fund our operations and meet our commitments for capital expenditures for at least the next twelve months.

Current wording

Our primary source of cash for funding operations and growth has been through cash provided by operating activities. Given the uncertainty of rapidly changing market and economic conditions, we continue to evaluate the nature and extent of the impact to our business and financial position. However, despite this uncertainty, we believe that our existing cash and cash equivalents and our cash flows from operating activities will be sufficient to fund our operations and meet our commitments for capital expenditures for at least the next twelve months.

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 $335.0 million and $337.0 million as of December 31, 2023 and 2022, respectively, net of debt issuance costs of $7.1 million and $8.6 million, respectively. In addition to our total borrowings, we are also committed to cash interest payments of approximately $129.7 million over the term of the Credit Agreement, based upon an interest rate as of December 31, 2023 of 8.40%. See Note 9. Debt in 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 $333.1 million and $335.0 million as of December 31, 2024 and 2023, respectively, net of debt issuance costs of $5.5 million and $7.1 million, respectively. In addition to our total borrowings, we are also committed to cash interest payments of approximately $90.1 million over the term of the Credit Agreement, based upon an interest rate as of December 31, 2024 of 7.53%. See Note 9. Debt in the Notes to Consolidated Financial Statements for further details regarding the Credit Agreement.

Previous wording

In addition to committed payments related to the Credit Agreement, we are also committed to purchase obligations of $71.0 million through the fiscal year ended December 31, 2027 and remaining operating lease liabilities of $39.5 million through the fiscal year ended December 31, 2032. Purchase obligations represent outstanding purchase orders for items including public cloud infrastructure and hosting fees, royalty fees, marketing activities, software license and support fees, and accounting and legal fees. On October 4, 2023, we entered into a non-cancellable royalty agreement for third-party cloud-based platform and hosting services, with an effective date of September 1, 2023. Our total commitment under this agreement is $39.0 million, with royalty fees of $35.8 million payable over the next 2.7 years as of December 31, 2023. See Note 6. Leases in the Notes to Consolidated Financial Statements for further details regarding our operating leases.

Current wording

In addition to committed payments related to the Credit Agreement, we are also committed to purchase obligations of $119.1 million through the fiscal year ended December 31, 2028 and remaining operating lease liabilities of $36.1 million through the fiscal year ended December 31, 2032. Purchase obligations represent outstanding purchase orders for items including public cloud infrastructure and hosting fees, royalty fees, marketing activities, software license and support fees, and accounting and legal fees. On October 4, 2023, we entered into a non-cancellable royalty agreement for third-party cloud-based platform and hosting services, with an effective date of September 1, 2023. Our total commitment under this agreement is $39.0 million, with royalty fees of $24.4 million payable over the next 1.7 years as of December 31, 2024. See Note 6. Leases in the Notes to Consolidated Financial Statements for further details regarding our operating leases.

Previous wording

Our primary source of cash from operating activities is cash collections from our MSP partners and our distributors. We expect cash inflows from operating activities to be affected by the timing of our sales and the consumption of our solutions by our MSP partners. Our primary uses of cash from operating activities are for personnel-related expenditures, and other general operating expenses, as well as payments related to taxes, interest and facilities.

Current wording

Our primary source of cash from operating activities is cash collections from our customers. We expect cash inflows from operating activities to be affected by the timing of our sales and the consumption of our solutions by our customers. Our primary uses of cash from operating activities are for personnel-related expenditures, and other general operating expenses, as well as payments related to taxes, interest and facilities.

Previous wording

For the year ended December 31, 2023 as compared to the year ended December 31, 2022, the increase in cash provided by operating activities was primarily due to an increase in accrued liabilities and other, an increase in income taxes payable, an increase in accounts payable, the elimination of due to and from affiliates, and a decrease in income taxes receivable, partially offset by an increase in prepaid expenses and other assets, an increase in accounts receivable, an increase in other long-term assets, an increase in deferred revenue, and a decrease in other long-term liabilities. The net cash inflow of $2.1 million and net cash outflow of $3.8 million resulting from the changes in our operating assets and liabilities for the years ended December 31, 2023 and 2022, respectively, excluding the changes noted above, was primarily due to the timing of sales, cash payments and receipts.

Current wording

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, the decrease in cash provided by operating activities was primarily due to a decrease in accrued liabilities and other, an increase in recoverable taxes, an increase in current contract assets, an increase in other long-term assets, and a decrease in accounts payable, partially offset by a decrease in prepaid expenses and other assets, a decrease in accounts receivable, a decrease in income taxes receivable, a decrease in operating lease right-of-use assets, net, an increase in income taxes payable, an increase in deferred revenue, and an increase in other long-term liabilities. The net cash outflow of $21.5 million and net cash inflow of $2.1 million resulting from the changes in our operating assets and liabilities for the years ended December 31, 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 year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to a decrease in acquisitions, net of cash acquired, partially offset by increases in capital expenditures and capitalized research and development costs.

Current wording

Net cash used in investing activities increased for the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to an increase in acquisitions, net of cash acquired and an increase in capital expenditures, partially offset by a decrease in capitalized research and development costs.