swi-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2023


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

For the transition period from to

Commission File Number: 001-38711

SolarWinds Corporation

(Exact name of registrant as specified in its charter)


Delaware						81-0753267
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

7171 Southwest Parkway

Building 400

Austin, Texas 78735

(512) 682.9300

(Address and telephone number of principal executive offices)

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


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

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

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

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


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

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

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

On November 3, 2023, 165,845,600 shares of common stock, par value $0.001 per share, were outstanding.

SOLARWINDS CORPORATION

Table of Contents


PART I - FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements	6
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	6
	Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2023 and 2022	7
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine month periods ended September 30, 2023 and 2022	8
	Condensed Consolidated Statements of Stockholders' Equity for the three and nine month periods ended September 30, 2023 and 2022	9
	Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2023 and 2022	11
	Notes to the Condensed Consolidated Financial Statements	12
	1. Organization and Nature of Operations
	2. Summary of Significant Accounting Policies
	3. Investments
	4. Goodwill
	5. Fair Value Measurements
	6. Debt
	7. Loss Per Share
	8. Income Taxes
	9. Commitment and Contingencies

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures of Market Risk	37
Item 4.	Controls and Procedures	38
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 6.	Exhibits	40
	Signatures	41

Safe Harbor Cautionary Statement

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

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

•expectations regarding the impact of the cyberattack on our Orion Software Platform and internal systems (the "Cyber Incident") on our business and reputation and the additional costs, liabilities and other adverse consequences that we may incur as a result of the Cyber Incident;

•expectations regarding the impact the government investigations and litigation resulting from the Cyber Incident, including the civil complaint filed by the Securities and Exchange Commission on October 30, 2023 against us and our Chief Information Security Officer relating to the previously disclosed Wells Notices, may have on our business;

•expectations regarding investment in product development and our expectations about the results of those efforts and our ability to convert our customers to subscription products;

•expectations regarding our evolution from monitoring to observability;

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

•expectations regarding the impact of macroeconomic conditions, including the wars in Israel and Ukraine, geopolitical tensions involving China, inflation, instability in the banking sector and financial services industry and foreign currency exchange rates on our business and financial results;

•intentions regarding our international earnings and investment of those earnings in international operations;

•expectations regarding our capital expenditures;

•expectations concerning acquisitions and opportunities resulting from our acquisitions; and

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

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially and adversely different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the following:

•risks related to the Cyber Incident, including with respect to (1) numerous financial, legal, reputational and other risks to us related to the Cyber Incident, including risks that the incident, SolarWinds’ response thereto or litigation and investigations related to the Cyber Incident may result in the loss of business as a result of termination or non-renewal of agreements or reduced purchases or upgrades of our products, reputational damage adversely affecting customer, partner and vendor relationships and investor confidence, increased attrition of personnel and distraction of key and other personnel, indemnity obligations, damages for contractual breach, penalties for violation of applicable laws or regulations and the incurrence of other liabilities and risks related to the impact of any such costs and liabilities resulting from the exhaustion of our insurance coverage related to the Cyber Incident, (2) litigation and investigation risks related to the Cyber Incident, including as a result of the civil complaint filed by the Securities and Exchange Commission on October 30, 2023 against us and our Chief Information Security Officer relating to the previously disclosed Wells Notices, including that we may incur significant costs in defending ourselves and may be unsuccessful in doing so, resulting in exposure to potential penalties, judgements, fines, settlement-related costs and other costs and liabilities related thereto, and (3) the possibility that our steps to secure our internal environment, improve our product development environment and ensure the security and integrity of the software that we deliver to our customers may not be successful or sufficient to protect against future threat actors or attacks or be perceived by existing and prospective customers as sufficient to address the harm caused by Cyber Incident;

•other risks related to cyber security, including that we may experience other security incidents or have vulnerabilities in our systems and services exploited, whether through the actions or inactions of our employees, our customers or otherwise, which may result in compromises or breaches of our and our customers’ systems or, theft or misappropriation of our and our customers’ confidential, proprietary or personal information, as well as exposure to legal and other liabilities,

including the related risk of higher customer, employee and partner attrition and the loss of key personnel, as well as negative impacts to our sales, renewals and upgrades;

•risks related to the evolving breadth of our sales motion and challenges, investments and additional costs associated with increased selling efforts toward enterprise customers and adopting a subscription-first approach;

•risks relating to increased investments in, and the timing of, our transformation from monitoring to observability;

•risks related to any shifts in our revenue mix and the timing of how we recognize revenue as we transition to a subscription-first model;

•risks related to using artificial intelligence in our business and our solutions, including risks related to evolving regulation of artificial intelligence, machine learning and the receipt, collection, storage, processing and transfer of data;

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

•any of the following factors either generally or as a result of the impacts of global macroeconomic conditions, including the wars in Israel and Ukraine, geopolitical tensions involving China, inflation, instability in the banking sector and financial services industry, foreign currency exchange rates and the effects of the COVID-19 pandemic or other public health crisis on the global economy or on our business operations and financial condition or on the business operations and financial conditions of our customers, their end-customers and our prospective customers:

◦reductions in information technology spending or delays in purchasing decisions by our customers, their end-customers and our prospective customers;

◦the inability to sell products to new customers or to sell additional products or upgrades to our existing customers or to convert our existing customers to subscription products;

◦any decline in our renewal or net retention rates or any delay or loss of U.S. government sales;

◦the inability to generate significant volumes of high-quality sales leads from our digital marketing initiatives and convert such leads into new business at acceptable conversion rates;

◦the timing and adoption of new products, product upgrades or pricing model changes by us or our competitors;

SEC Form 10-Q filed by SolarWinds Corporation