Summary
N-able reported third quarter 2021 results on November 9, 2021, its first report as an independent public company after the spin-off from SolarWinds Corporation was completed on July 19, 2021. The stock began trading on the NYSE under the ticker NABL on July 20. Total revenue for the quarter ended September 30, 2021 was $88.4 million, up 15.9% from the prior-year quarter. Gross profit was $76.1 million, up 26.3%, and gross margin was 86.1%, up 7.1 percentage points. Operating income was $9.8 million, up 6.7%, while operating margin was 11.1%, down 1.0 percentage point. Net income was $1.9 million, a swing to a profit from the prior-year quarter, and diluted EPS was $0.01, also a swing to a profit.
Year-to-date results for the nine months ended September 30, 2021 show revenue of $257.0 million, up 15.2% from the prior-year period. Gross profit was $217.8 million, up 23.4%, and gross margin was 84.8%, up 5.6 percentage points. Operating income was $24.8 million, down 25.3%, and operating margin was 9.7%, down 5.3 percentage points. The company reported a net loss of $1.9 million for the nine months, a swing to a loss from the prior-year period, and diluted EPS was -$0.01, also a swing to a loss. Operating cash flow was $26.2 million, down 62.4%, and capital expenditures were $19.4 million, up 202.4%.
Cash generation slowed sharply in the quarter. Operating cash flow was $3.1 million, down 87.1% from the prior-year quarter. Capital expenditures were $6.7 million, up 193.7%. Deferred revenue was $10.4 million at September 30, 2021, and remaining performance obligations were also $10.4 million. On a non-GAAP basis, adjusted EBITDA was $29.7 million, representing an adjusted EBITDA margin of 33.6%. Non-GAAP net income was $17.2 million, or $0.10 per diluted share.
Operational metrics pointed to steady expansion. The trailing twelve-month dollar-based net retention rate was 110%. Large customers with $50,000 or more in annual recurring revenue grew 25% year-over-year and represented 46% of total ARR. MSP partners with more than $50,000 in ARR totaled 1,662, up from 1,331 a year earlier. N-able had approximately 25,000 customers at September 30, 2021. The company also highlighted its Mail Assure email security product, which received a VBSpam+ rating in September 2021 with a malware catch rate of 100.00% and zero false positives, and an award from CRN for Best in Class in the MSP Platforms category.
Management provided guidance for the fourth quarter of 2021 and the full year 2021. For the fourth quarter, total revenue is expected in the range of $88.5 to $89.0 million, representing approximately 11% year-over-year growth. Adjusted EBITDA is expected in the range of $27.5 to $28.0 million, or 31.1% to 31.5% of total revenue. For the full year 2021, total revenue is expected in the range of $345.5 to $346.0 million, representing approximately 14% year-over-year growth. Adjusted EBITDA is expected in the range of $113.1 to $113.6 million, or 32.7% to 32.8% of total revenue. Management said it is optimistic that investments made in 2021 will contribute to growth in 2022.
Risks remain significant. The spin-off from SolarWinds could disrupt the business, may not achieve anticipated benefits, and could fail to qualify as tax-free, which might require indemnification payments. The COVID-19 pandemic continues to create uncertainty for N-able, its MSP partners, and their SME customers. The SolarWinds cyber incident disclosed in December 2020 has caused reputational harm and an adverse impact on new subscription sales and net retention rates. N-able may face lawsuits or investigations related to the incident, though SolarWinds would indemnify the company under the separation agreement. Other risks include indebtedness, status as a controlled company, limited operating history as a stand-alone public company, foreign exchange fluctuations, and the possibility that operating income could decline as a percentage of revenue as the company spends to support growth.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $88.4M | $85.3M | +3.6% | — | — |
| Gross profit | $76.1M | $72.5M | +5.0% | — | — |
| Gross margin | 86.1% | 85.0% | +1.1 pp | — | — |
| Research & development | $14.6M | $12.5M | +17.2% | — | — |
| Sales & marketing | $30.2M | $24.5M | +23.2% | — | — |
| General & administrative | $19.9M | $21.4M | -6.9% | — | — |
| Total operating expenses | $66.4M | $62.6M | +5.9% | — | — |
| Operating income (loss) | $9.8M | $9.9M | -1.1% | — | — |
| Operating margin | 11.1% | 11.6% | -0.5 pp | — | — |
| Net income (loss) | $1.9M | $462.0K | +305.4% | — | — |
| Net margin | 2.1% | 0.5% | +1.6 pp | — | — |
| Diluted EPS | $0.01 | $0.00 | +$0.01 | — | — |
| Customers | 25,000 | 25,000 | ±0.0% | — | — |
| Net retention rate | 110.0% | 109.0% | +1.0 pp | — | — |
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 it caused reputational harm and an adverse impact on new subscription sales and net retention rates, and that 2021 new subscription sales and expansion rates were adversely affected relative to historical levels.
N-able has limited operating history as a stand-alone public company and faces transition risks and higher costs after the July 19, 2021 Separation from SolarWinds. MD&A reports general and administrative expenses increased 74.7% for the nine months ended September 30, 2021, primarily due to $16.1 million in separation costs, and spin-off costs were $14.6 million year to date.
As of September 30, 2021, total indebtedness outstanding under the credit agreement, net of debt issuance costs, was $339.3 million, with $60 million of additional unused borrowing capacity under the revolving credit facility. The credit agreement contains restrictive covenants and a first lien net leverage ratio covenant, and borrowings are subject to variable interest rates.
The Cyber Incident and related demand generation reduction through January 2021 contributed to adverse impacts on new subscription sales and expansion rates in 2021, and MSP partners delayed purchasing decisions. Sales and marketing expenses increased 43.6% for FY2021 Q3 versus FY2020 Q3, while operating cash flow decreased 87.1% in the same quarter.
Operating cash flow decreased 87.1% to $3.07 million in FY2021 Q3 from $23.89 million in FY2020 Q3, and decreased 62.4% to $26.16 million year to date from $69.51 million. The company may not achieve or sustain the same level of cash flows in the future as it increases operating expenses and standalone public company costs.
N-able operates in highly competitive markets against vendors such as Datto and Kaseya, and the brand change from SolarWinds MSP to N-able may cause loss of customer recognition. Competitive pressure could result in price reductions, decreases in net customer retention rates, reduced revenue and gross margins and loss of market share.
A portion of revenue is consumption-based, particularly RMM and backup, recovery and disaster recovery solutions, and N-able lacks visibility into timing of usage and revenue recognition compared with subscription revenue. If MSP partners use less of the platform than expected, results may fall below internal or external expectations.
N-able has international operations including research and development facilities in Belarus, which has experienced civil unrest and sanctions, and UK operations exposed to Brexit and data transfer uncertainty after Schrems II. These factors could disrupt operations or increase compliance costs.
The ability to recruit, retain and develop key employees and management personnel is critical, and the market for qualified personnel is competitive. The company increased headcount to 1,335 as of September 30, 2021 and may face higher stock-based compensation expenses to retain employees.
The global COVID-19 pandemic has adversely affected and may continue to adversely affect business, results of operations and financial condition. Although N-able saw improvement from Q3 2020 through Q3 2021, the duration and scope of the pandemic and its impact on MSP partners and SME IT spending remain uncertain.
The effective tax rate increased to 125.4% for the nine months ended September 30, 2021, primarily due to a decrease in income before income taxes and a valuation allowance recognized on U.S. deferred tax assets. This can increase volatility in net income and cash tax obligations.
The 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. This concentration could delay or prevent transactions that might otherwise give stockholders a premium.
SaaS KPIs
All quarters →Adjusted EBITDA Margin
Non-GAAP Operating Margin
Total customers
MSP partners with ARR over $50,000
MSP partners with ARR over $50,000 as % of total ARR
Summary, forecast, risks and KPIs are extracted from N-able, Inc.'s SEC filings for Q3 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.