Summary
N-able reported total revenue of $85.3 million for the quarter ended June 30, 2021, up 16.2% from $73.4 million in the prior-year quarter. Year-to-date revenue reached $168.5 million, up 14.9%. Subscription revenue carried the load at $82.8 million, up 16.9%, while other revenue slipped 3.3% to $2.5 million as perpetual license sales and the related maintenance agreements kept shrinking. Gross profit rose 24.9% to $72.5 million. Gross margin expanded to 85.0% from 79.1%, a gain of 5.9 percentage points, helped by lower amortization of acquired technologies.
Profitability moved the other way. Operating income fell 27.0% to $9.9 million from $13.5 million, and operating margin compressed to 11.6% from 18.4%, down 6.9 percentage points. Net income was $0.5 million, down 85.7% from $3.2 million, and diluted EPS came in at $0.00 against $0.02 a year earlier. The year-to-date picture is starker. N-able posted a net loss of $3.8 million versus net income of $3.9 million, with diluted EPS of -$0.02 compared with $0.02. Year-to-date operating income of $15.1 million was down 37.5%.
Costs explain most of the swing. General and administrative expense rose 121.8%, or $11.7 million, and included $6.7 million tied to the separation from SolarWinds. Sales and marketing climbed 29.4% and research and development 24.1% as headcount grew to 1,327 employees from 1,067 a year earlier. Adjusted EBITDA was $28.2 million against $31.5 million, and the adjusted EBITDA margin fell to 33.1% from 42.9%. Non-GAAP operating income of $25.6 million compared with $28.8 million.
Cash generation weakened. Operating cash flow was $9.9 million for the quarter and $23.1 million for the first half, down 49.4% from $45.6 million. Capital expenditures ran at $10.3 million in the quarter and $12.8 million year to date, up 207.2% from $4.2 million, mostly for servers supporting cloud infrastructure. Deferred revenue and remaining performance obligations each stood at $9.6 million. Cash and cash equivalents were $49.6 million at June 30, 2021, and total indebtedness was $304.0 million owed to SolarWinds Holdings.
The partner base kept expanding. N-able counted roughly 25,000 customers at June 30, 2021, and 1,647 MSP partners with annualized recurring revenue above $50,000, up 32% from 1,252 a year earlier. Those larger partners generated 46% of total ARR, up from 38%. The annual dollar-based net revenue retention rate for subscription products was approximately 110%, compared with 109% for the trailing twelve months ended June 30, 2020.
Corporate news centered on the separation from SolarWinds, which closed on July 19, 2021 with a distribution of 158,124,341 N-able shares at a ratio of one share for every two SolarWinds shares. Ahead of that, N-able raised $225 million in gross proceeds from a private placement of 20,623,282 shares at $10.91 per share, led by CPP Investments, and passed roughly $216 million of net proceeds to SolarWinds. The company also put in place $410.0 million of first lien credit facilities, split between a $60.0 million revolver and a $350.0 million term loan. Cash above $50.0 million will be distributed to SolarWinds during the three months ended September 30, 2021.
The Cyber Incident remains the biggest overhang. N-able said the incident hurt its reputation, new subscription sales and net retention rates, and that it cut demand generation spending through January 2021 before resuming in February. Renewal rates among larger MSP partners held steady, and the company expects the drag to fade over time absent new discoveries. Other risks include the COVID-19 pandemic, continued separation costs, and possible future litigation or investigations tied to the incident.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $85.3M | — | — | — | — |
| Gross profit | $72.5M | — | — | — | — |
| Gross margin | 85.0% | — | — | — | — |
| Research & development | $12.5M | — | — | — | — |
| Sales & marketing | $24.5M | — | — | — | — |
| General & administrative | $21.4M | — | — | — | — |
| Total operating expenses | $62.6M | — | — | — | — |
| Operating income (loss) | $9.9M | — | — | — | — |
| Operating margin | 11.6% | — | — | — | — |
| Net income (loss) | $462.0K | — | — | — | — |
| Net margin | 0.5% | — | — | — | — |
| Diluted EPS | $0.00 | — | — | — | — |
| Customers | 25,000 | — | — | — | — |
| Net retention rate | 109.0% | — | — | — | — |
Risks
The SolarWinds Cyber Incident has had and may continue to have an adverse effect on N-able's business, reputation, MSP partner relations, results of operations, financial condition or cash flows. MD&A states that in the first half of 2021 N-able experienced an adverse impact to new subscription sales and expansion rates relative to historical levels, partly due to temporarily reduced demand generation through January 2021 and MSP partners delaying purchasing decisions.
N-able has no operating history as a stand-alone public company and may incur higher costs than anticipated transitioning from SolarWinds systems and data centers. General and administrative expenses increased 121.8% for FY2021 Q2 vs prior-year quarter, primarily due to $6.7 million in separation costs, and net income decreased 85.7% to $0.46 million.
Risk factors state N-able may not achieve or sustain the same level of cash flows in the future. Operating cash flow decreased 49.4% to $23.09 million for FY2021 year to date vs prior-year year to date, while capital expenditures increased 207.2% to $12.76 million.
N-able operates in highly competitive markets with vendors such as Datto, Kaseya, Auvik, Mimecast and Veeam, and MSP partners have limited barriers to switching. Competitive pressures may result in price reductions, decreases in net customer retention rates, reduced revenue and gross margins and loss of market share.
N-able's business depends on MSP partners renewing subscription agreements and on selling new subscriptions and additional solutions. If renewals decline or occur on less favorable terms, revenue may decline; annual dollar-based net revenue retention rate was approximately 110% for the trailing twelve months ended June 30, 2021.
The global COVID-19 pandemic may adversely affect N-able's business, results of operations and financial condition. MD&A notes N-able experienced a deceleration in year-over-year subscription revenue growth in Q2 2020 due to increased churn and downgrades from existing MSP partners and slower MSP partner adds, though improvement began in Q3 2020.
A portion of revenue is consumption-based, particularly for RMM and backup, recovery and disaster recovery solutions, and N-able lacks visibility into the timing of revenue recognition. If MSP partners use portions of the platform more slowly than expected, actual results may differ from forecasts.
N-able has international operations including R&D facilities in Belarus, which has experienced public protests and civil unrest since August 2020 and EU sanctions against specific Belarusian officials. It also has critical UK operations and faces Brexit-related regulatory and economic uncertainty.
N-able's ability to recruit, retain and develop key employees and management personnel is critical, and the market for qualified personnel is competitive. Stock price volatility could affect the value of equity awards, and failure to retain or attract key personnel could have a material adverse effect.
N-able changed its brand from SolarWinds MSP to N-able in connection with the Separation, which may result in loss of customer recognition and adversely affect business and profitability.
The Lead Sponsors collectively owned approximately 68.8% of voting power after the Private Placement and Separation, giving them controlling influence over stockholder matters and board composition. N-able is a controlled company under NYSE rules and intends to rely on exemptions from certain corporate governance requirements.
If the Separation and Distribution is determined to be a taxable transaction, N-able could incur significant liability and may be required to indemnify SolarWinds for material taxes under the tax matters agreement.
N-able's solutions use third-party software and rely on third-party data centers and internal systems such as NetSuite and Salesforce. Loss of rights, errors, or interruptions could harm the business and its ability to meet reporting obligations.
As of June 30, 2021, N-able had six issued patents, and protection may be limited. Agreements with SolarWinds include non-exclusive licenses and restrictions on use of certain intellectual property and data, which could affect competitive position.
N-able has made several acquisitions and expects to continue making acquisitions. Risks include integration difficulties, diversion of management, inability to retain key business relationships, and potential goodwill and intangible asset impairment charges.
N-able may need to reduce or change its per-device or per-user pricing model to remain competitive, which could adversely affect business, operating results and financial condition.
N-able's future performance depends on continued growth in SME IT spending and demand for MSPs. If this market fails to grow or grows more slowly than anticipated, results of operations and financial condition could be adversely affected.
Digital marketing initiatives, including SEO and email campaigns, drive sales opportunities, but search engine algorithm changes and privacy laws such as GDPR may restrict data collection and marketing practices, increasing costs or reducing website traffic.
SaaS KPIs
All quarters →Adjusted EBITDA Margin
Non-GAAP Operating Margin
Adjusted EBITDA
Total customers
MSP partners with ARR over $50,000
MSP partners with over $50,000 ARR as % of total ARR
Non-GAAP Operating Income
Summary, forecast, risks and KPIs are extracted from N-able, Inc.'s SEC filings for Q2 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.