N-able, Inc. Q3 FY2022 earnings

N-able's third quarter revenue rose 5.8% to $93.5 million. Foreign exchange pressure was heavy. The company said total revenue grew 12.9% on a constant currency basis, with an estimated foreign currency impact of $6.3 million. Gross profit increased 3.0% to $78.4 million, but gross margin slipped to 83.9%. Operating income improved 20.0% to $11.7 million, and operating margin expanded to 12.5%. Net income fell 84.3% to $0.3 million, and diluted EPS was $0.00, down 100.0%. The profit decline came from higher cost of revenue, interest expense, research and development, sales and marketing, and other expense, partly offset by higher revenue, lower general and administrative expense, and lower amortization. For the nine months, revenue was $276.0 million, up 7.4%, and net income was $9.7 million, up 600.4% and swung to a profit.

Cash generation was a bright spot. Operating cash flow was $17.1 million for the quarter, up 458.6%. Year-to-date operating cash flow was $53.0 million, up 102.7%. Capital expenditures were $4.3 million in the quarter, down 35.9%, and $9.7 million year to date, down 50.1%. Deferred revenue and remaining performance obligations both stood at $11.2 million, up 8.4%. On a non-GAAP basis, adjusted EBITDA was $28.8 million, or 30.9% of revenue, and non-GAAP net income was $12.3 million, or $0.07 per diluted share. The company said it maintained cost discipline while continuing to invest in growth.

Operational metrics showed steady partner expansion. As of September 30, 2022, N-able had approximately 25,000 customers. It had 1,786 MSP partners with annualized recurring revenue over $50,000, up from 1,662 a year earlier, an increase of 7.5%. Those larger partners represented approximately 50% of total ARR, up from approximately 46%. The trailing twelve-month dollar-based net retention rate was 104%, down from 110%, mostly because of adverse foreign currency movements. Product news included the launch of N-sight RMM, a new all-in-one solution for growing MSPs, and Cloud User Hub, which uses technology from the Spinpanel acquisition. N-able also released Private Portal for Mail Assure and won the MSP RMM Platforms category in the 2022 CRN Annual Report Card Awards.

Management provided guidance for the fourth quarter and full year 2022. For the fourth quarter, it expects total revenue growth of approximately 5% year-over-year, or approximately 11% to 12% on a constant currency basis. Fourth quarter adjusted EBITDA is expected to be $27.5 million to $28.0 million, or approximately 30% of total revenue. For the full year, the company expects total revenue growth of 7% year-over-year, or 12% to 13% on a constant currency basis. Full-year adjusted EBITDA is expected to be $111.0 million to $111.5 million, or approximately 30% of total revenue. Risks include foreign exchange volatility, macroeconomic uncertainty, the COVID-19 pandemic, the SolarWinds cyber incident and its reputational impact, rising interest rates, indebtedness, and the integration of acquisitions. The Spinpanel deal closed on July 1, 2022, with total consideration of up to approximately $20.0 million, including up to $10.0 million payable upon achievement of revenue metrics through July 1, 2025. The fair value of the contingent consideration was $5.3 million as of September 30, 2022.