Summary
N-able's fiscal 2023 second quarter delivered the company's first $100 million revenue quarter. Revenue for the three months ended June 30, 2023 came in at $106.1 million, up 15.8% from the prior-year quarter. Management framed the growth as roughly 16% in reported terms and about 17% on a constant currency basis. Gross profit of $89.1 million rose 15.0%, but gross margin slipped 0.6 percentage points to 84.0% as royalties, public cloud hosting fees and server depreciation grew faster than the top line.
Profitability improved sharply further down the income statement. Operating income rose 53.8% to $15.8 million, lifting operating margin to 14.9%, up 3.7 percentage points. Net income of $4.5 million was up just 4.2%, and diluted earnings per share of $0.02 were flat year over year. The gap between operating income and net income came from the cost of the company's debt and a bigger tax bill. Interest expense, net of $7.5 million rose 95.8%, and the effective tax rate climbed to 51.6% from 34.7%. On a non-GAAP basis, N-able reported net income of $16.3 million, or $0.09 per diluted share, and adjusted EBITDA of $34.9 million, up approximately 26% year over year at a 32.9% margin.
The installed base kept expanding. N-able counted roughly 25,000 customers at June 30, 2023, and 2,162 MSP partners with annualized recurring revenue above $50,000, up 18.9% from 1,818 a year earlier. Those larger partners accounted for approximately 55% of total ARR, up from roughly 50%. The trailing-twelve-month dollar-based net retention rate was 105%, below the 106% reported for the prior-year trailing period; management attributed the decline to adverse foreign currency movements and pointed to a 109% rate on a constant currency basis. Product news centered on disaster recovery as a service, with Standby Image recovery added in Microsoft Azure.
The balance sheet carried $109.2 million in cash and cash equivalents and $336.0 million of total debt, net of debt issuance costs, at June 30, 2023. Operating cash flow was $20.7 million for the quarter, down 8.8%, and $31.4 million for the six months, down 12.6%; the quarterly figure absorbed $7.0 million of cash interest and $5.2 million of cash taxes. Capital expenditures of $3.6 million rose 30.9%. Deferred revenue of $11.7 million was up 5.1%, and remaining performance obligations of $12.7 million rose 14.0%. On a year-to-date basis, revenue of $205.9 million was up 12.8%, while net income of $8.0 million fell 14.6%.
Guidance for the third quarter of 2023 puts total sales at $106.5 million to $107.0 million, about 14% year-over-year growth, or 12% to 13% on a constant currency basis, with adjusted EBITDA of $34.5 million to $35.0 million. For the full fiscal year 2023, management raised its outlook to $419.5 million to $421.0 million in total sales, roughly 13% growth on both a reported and constant currency basis, and adjusted EBITDA of $135.5 million to $137.0 million, or 32% to 33% of total sales.
Risks look familiar. Borrowings under the credit agreement carry variable rates, and the company expects interest rates under it to keep rising in the year ending December 31, 2023, which pressures cash flow and net income. Foreign exchange moves already trimmed the retention rate. The cyber incident at former parent SolarWinds still casts a reputational shadow and could draw future litigation, although SolarWinds would indemnify N-able under the separation agreement. Management also flagged research and development expense, which rose 32.8% in the quarter, alongside macroeconomic uncertainty, competition and hiring as ongoing exposures. The quarter's results were preliminary and subject to final review before the Form 10-Q filing.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $106.1M | $99.8M | +6.3% | $91.6M | +15.8% |
| Gross profit | $89.1M | $83.6M | +6.5% | $77.5M | +15.0% |
| Gross margin | 84.0% | 83.8% | +0.2 pp | 84.5% | -0.6 pp |
| Research & development | $20.2M | $18.8M | +7.6% | $15.2M | +32.8% |
| Sales & marketing | $34.9M | $32.6M | +7.1% | $32.0M | +9.0% |
| General & administrative | $18.1M | $17.3M | +4.3% | $18.4M | -1.9% |
| Total operating expenses | $73.2M | $69.3M | +5.7% | $67.2M | +9.0% |
| Operating income (loss) | $15.8M | $14.3M | +10.5% | $10.3M | +53.8% |
| Operating margin | 14.9% | 14.3% | +0.6 pp | 11.2% | +3.7 pp |
| Net income (loss) | $4.5M | $3.5M | +27.4% | $4.3M | +4.2% |
| Net margin | 4.3% | 3.5% | +0.7 pp | 4.7% | -0.5 pp |
| Diluted EPS | $0.02 | $0.02 | ±$0.00 | $0.02 | ±$0.00 |
| Customers | 25,000 | 25,000 | ±0.0% | 25,000 | ±0.0% |
| Net retention rate | 105.0% | 103.0% | +2.0 pp | 106.0% | -1.0 pp |
Risks
Interest expense, net increased by $3.7 million, or 95.8%, in the three months ended June 30, 2023 compared to the prior-year quarter, and by $7.4 million, or 99.8%, for the six months ended June 30, 2023, due to higher rates on variable-rate borrowings under the Credit Agreement. The company expects interest rates under the Credit Agreement to continue to increase in the year ending December 31, 2023 compared to the year ended December 31, 2022, which could further pressure financial results and cash flows.
The SolarWinds Cyber Incident has caused reputational harm and had an adverse impact on N-able's reputation, new subscription sales and net retention rates, though the company believes adverse impacts on financial results have diminished based on trends through the three and six months ended June 30, 2023. N-able may become subject to lawsuits, investigations or inquiries related to the Cyber Incident in the future, and expects to incur additional expenses for continued security enhancements.
Adverse movements in foreign currency exchange rates reduced the annual dollar-based net revenue retention rate for subscription products to approximately 105% for the trailing twelve months ended June 30, 2023 from approximately 106% for the trailing twelve months ended June 30, 2022. Fluctuations in foreign currencies impact reported total assets, liabilities, revenue, operating expenses and cash flows.
The effective tax rate increased to 51.6% for the three months ended June 30, 2023 from 34.7% in the prior-year quarter, and to 53.8% for the six months ended June 30, 2023 from 38.1% in the prior-year period, primarily due to an increase in income before income taxes outside the United States. Income tax expense for the six months ended June 30, 2023 increased by $3.6 million compared to the prior-year period, and net income year to date decreased 14.6%.
SaaS KPIs
All quarters →Adjusted EBITDA Margin
Non-GAAP Operating Margin
Non-GAAP Gross Margin
Total customers
Unlevered Free Cash Flow
MSP partners with ARR over $50,000
Free Cash Flow
MSP partners with over $50,000 ARR as % of total ARR
Summary, forecast, risks and KPIs are extracted from N-able, Inc.'s SEC filings for Q2 FY2023 (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 2, 2026.