0001739942-24-000096.txt : 20240802 0001739942-24-000096.hdr.sgml : 20240802 20240802160656 ACCESSION NUMBER: 0001739942-24-000096 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 62 CONFORMED PERIOD OF REPORT: 20240630 FILED AS OF DATE: 20240802 DATE AS OF CHANGE: 20240802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SolarWinds Corp CENTRAL INDEX KEY: 0001739942 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] ORGANIZATION NAME: 06 Technology IRS NUMBER: 810753267 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38711 FILM NUMBER: 241170990 BUSINESS ADDRESS: STREET 1: 7171 SOUTHWEST PKWY., BLDG. 400 CITY: AUSTIN STATE: TX ZIP: 78735 BUSINESS PHONE: 5126829300 MAIL ADDRESS: STREET 1: 7171 SOUTHWEST PKWY., BLDG. 400 CITY: AUSTIN STATE: TX ZIP: 78735 FORMER COMPANY: FORMER CONFORMED NAME: SolarWinds Parent, Inc. DATE OF NAME CHANGE: 20180508 10-Q 1 swi-20240630.htm 10-Q swi-20240630
000173994212/312024Q2FALSE62xbrli:sharesiso4217:USDiso4217:USDxbrli:sharesxbrli:pureswi:shareholderDerivativeAction00017399422024-01-012024-06-3000017399422024-07-3000017399422024-06-3000017399422023-12-310001739942swi:SubscriptionMember2024-04-012024-06-300001739942swi:SubscriptionMember2023-04-012023-06-300001739942swi:SubscriptionMember2024-01-012024-06-300001739942swi:SubscriptionMember2023-01-012023-06-300001739942us-gaap:MaintenanceMember2024-04-012024-06-300001739942us-gaap:MaintenanceMember2023-04-012023-06-300001739942us-gaap:MaintenanceMember2024-01-012024-06-300001739942us-gaap:MaintenanceMember2023-01-012023-06-300001739942swi:SubscriptionAndMaintenanceMember2024-04-012024-06-300001739942swi:SubscriptionAndMaintenanceMember2023-04-012023-06-300001739942swi:SubscriptionAndMaintenanceMember2024-01-012024-06-300001739942swi:SubscriptionAndMaintenanceMember2023-01-012023-06-300001739942us-gaap:LicenseMember2024-04-012024-06-300001739942us-gaap:LicenseMember2023-04-012023-06-300001739942us-gaap:LicenseMember2024-01-012024-06-300001739942us-gaap:LicenseMember2023-01-012023-06-3000017399422024-04-012024-06-3000017399422023-04-012023-06-3000017399422023-01-012023-06-300001739942us-gaap:CommonStockMember2024-03-310001739942us-gaap:AdditionalPaidInCapitalMember2024-03-310001739942us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-310001739942us-gaap:RetainedEarningsMember2024-03-3100017399422024-03-310001739942us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-04-012024-06-300001739942us-gaap:RetainedEarningsMember2024-04-012024-06-300001739942us-gaap:CommonStockMember2024-04-012024-06-300001739942us-gaap:AdditionalPaidInCapitalMember2024-04-012024-06-300001739942us-gaap:CommonStockMember2024-06-300001739942us-gaap:AdditionalPaidInCapitalMember2024-06-300001739942us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-06-300001739942us-gaap:RetainedEarningsMember2024-06-300001739942us-gaap:CommonStockMember2023-12-310001739942us-gaap:AdditionalPaidInCapitalMember2023-12-310001739942us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310001739942us-gaap:RetainedEarningsMember2023-12-310001739942us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-01-012024-06-300001739942us-gaap:RetainedEarningsMember2024-01-012024-06-300001739942us-gaap:CommonStockMember2024-01-012024-06-300001739942us-gaap:AdditionalPaidInCapitalMember2024-01-012024-06-300001739942us-gaap:CommonStockMember2023-03-310001739942us-gaap:AdditionalPaidInCapitalMember2023-03-310001739942us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310001739942us-gaap:RetainedEarningsMember2023-03-3100017399422023-03-310001739942us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-04-012023-06-300001739942us-gaap:RetainedEarningsMember2023-04-012023-06-300001739942us-gaap:CommonStockMember2023-04-012023-06-300001739942us-gaap:AdditionalPaidInCapitalMember2023-04-012023-06-300001739942us-gaap:CommonStockMember2023-06-300001739942us-gaap:AdditionalPaidInCapitalMember2023-06-300001739942us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-06-300001739942us-gaap:RetainedEarningsMember2023-06-3000017399422023-06-300001739942us-gaap:CommonStockMember2022-12-310001739942us-gaap:AdditionalPaidInCapitalMember2022-12-310001739942us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310001739942us-gaap:RetainedEarningsMember2022-12-3100017399422022-12-310001739942us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-06-300001739942us-gaap:RetainedEarningsMember2023-01-012023-06-300001739942us-gaap:CommonStockMember2023-01-012023-06-300001739942us-gaap:AdditionalPaidInCapitalMember2023-01-012023-06-3000017399422024-04-152024-04-1500017399422024-03-152024-03-150001739942us-gaap:AccumulatedTranslationAdjustmentMember2023-12-310001739942us-gaap:AccumulatedTranslationAdjustmentMember2024-01-012024-06-300001739942us-gaap:AccumulatedTranslationAdjustmentMember2024-06-300001739942us-gaap:TransferredAtPointInTimeMember2024-04-012024-06-300001739942us-gaap:TransferredAtPointInTimeMember2023-04-012023-06-300001739942us-gaap:TransferredAtPointInTimeMember2024-01-012024-06-300001739942us-gaap:TransferredAtPointInTimeMember2023-01-012023-06-300001739942us-gaap:TransferredOverTimeMember2024-04-012024-06-300001739942us-gaap:TransferredOverTimeMember2023-04-012023-06-300001739942us-gaap:TransferredOverTimeMember2024-01-012024-06-300001739942us-gaap:TransferredOverTimeMember2023-01-012023-06-3000017399422024-07-012024-06-3000017399422025-07-012024-06-3000017399422027-07-012024-06-300001739942us-gaap:USTreasurySecuritiesMember2024-06-300001739942us-gaap:CommercialPaperMember2024-06-300001739942us-gaap:USTreasurySecuritiesMember2023-12-310001739942us-gaap:CommercialPaperMember2023-12-310001739942us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2024-06-300001739942us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2024-06-300001739942us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2024-06-300001739942us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2024-06-300001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel1Member2024-06-300001739942us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2024-06-300001739942us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2024-06-300001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2024-06-300001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2024-06-300001739942us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2024-06-300001739942us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2024-06-300001739942us-gaap:FairValueMeasurementsRecurringMember2024-06-300001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Member2024-06-300001739942us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2024-06-300001739942us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2024-06-300001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2024-06-300001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel1Member2024-06-300001739942us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2024-06-300001739942us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2024-06-300001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2024-06-300001739942us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2023-12-310001739942us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001739942us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001739942us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:USTreasurySecuritiesMember2023-12-310001739942us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2023-12-310001739942us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2023-12-310001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2023-12-310001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel1Member2023-12-310001739942us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2023-12-310001739942us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2023-12-310001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2023-12-310001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2023-12-310001739942us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001739942us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001739942us-gaap:FairValueMeasurementsRecurringMember2023-12-310001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Member2023-12-310001739942us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2023-12-310001739942us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2023-12-310001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2023-12-310001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel1Member2023-12-310001739942us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2023-12-310001739942us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2023-12-310001739942us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2023-12-310001739942us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMember2024-06-300001739942us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMember2023-12-310001739942us-gaap:SecuredDebtMemberswi:FirstLienTermLoanMember2024-06-300001739942us-gaap:SecuredDebtMemberswi:FirstLienTermLoanMember2023-12-310001739942us-gaap:SecuredDebtMemberswi:CreditSuisseMemberswi:FirstLienTermLoanMember2024-06-300001739942us-gaap:RevolvingCreditFacilityMemberswi:CreditSuisseMemberus-gaap:LineOfCreditMember2024-06-300001739942us-gaap:LetterOfCreditMemberswi:CreditSuisseMemberus-gaap:LineOfCreditMember2024-06-300001739942us-gaap:RevolvingCreditFacilityMemberswi:CreditSuisseMemberus-gaap:LineOfCreditMemberswi:MultiCurrencyTrancheMember2024-06-300001739942us-gaap:RevolvingCreditFacilityMemberswi:SingleCurrencyTrancheMemberswi:CreditSuisseMemberus-gaap:LineOfCreditMember2024-06-300001739942us-gaap:SecuredDebtMemberswi:CreditSuisseMemberswi:FirstLienTermLoanMature91DaysPriorToMaturityDateMember2024-06-300001739942us-gaap:RevolvingCreditFacilityMemberswi:CreditSuisseMemberus-gaap:LineOfCreditMemberus-gaap:SecuredOvernightFinancingRateSofrMember2024-01-012024-06-300001739942us-gaap:RevolvingCreditFacilityMemberswi:CreditSuisseMemberus-gaap:LineOfCreditMemberus-gaap:BaseRateMember2024-01-012024-06-300001739942us-gaap:RevolvingCreditFacilityMemberswi:CreditSuisseMemberus-gaap:LineOfCreditMemberus-gaap:SecuredOvernightFinancingRateSofrMember2024-06-300001739942us-gaap:SecuredDebtMemberswi:CreditSuisseMemberswi:FirstLienTermLoanMemberus-gaap:SecuredOvernightFinancingRateSofrMember2024-01-012024-06-300001739942us-gaap:SecuredDebtMemberswi:CreditSuisseMemberswi:FirstLienTermLoanMemberus-gaap:BaseRateMember2024-01-012024-06-300001739942us-gaap:SecuredDebtMemberswi:CreditSuisseMemberswi:FirstLienTermLoanMemberus-gaap:SecuredOvernightFinancingRateSofrMember2024-06-300001739942us-gaap:FederalFundsEffectiveSwapRateMemberswi:CreditSuisseMember2024-01-012024-06-300001739942swi:CreditSuisseMemberus-gaap:SecuredOvernightFinancingRateSofrMember2024-01-012024-06-300001739942us-gaap:RevolvingCreditFacilityMemberswi:CreditSuisseMemberus-gaap:LineOfCreditMember2024-01-012024-06-300001739942us-gaap:SubsequentEventMemberswi:CreditSuisseMemberswi:FirstLienTermLoanMembersrt:MaximumMemberus-gaap:SecuredOvernightFinancingRateSofrMember2024-07-242024-07-240001739942us-gaap:SubsequentEventMemberswi:CreditSuisseMembersrt:MinimumMemberswi:FirstLienTermLoanMemberus-gaap:SecuredOvernightFinancingRateSofrMember2024-07-242024-07-240001739942swi:CyberIncidentMember2024-04-012024-06-300001739942swi:CyberIncidentMember2023-04-012023-06-300001739942swi:CyberIncidentMember2024-01-012024-06-300001739942swi:CyberIncidentMember2023-01-012023-06-3000017399422023-03-022023-03-020001739942swi:CyberIncidentMember2022-10-280001739942swi:CyberIncidentMemberstpr:TX2022-10-280001739942stpr:DEswi:CyberIncidentMember2022-10-280001739942swi:CyberIncidentMember2024-06-30

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 June 30, 2024
or
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 ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, $0.001 par valueSWINew 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 filerSmaller 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 July 30, 2024, 169,407,013 shares of common stock, par value $0.001 per share, were outstanding.



SOLARWINDS CORPORATION
Table of Contents
PART I - FINANCIAL INFORMATION
Page
Item 1.
Item 2.
Item 3.
Item 4.
PART II - OTHER INFORMATION
Item 1.
Item 1A.
Item 6.

2


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. 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) litigation and investigation risks related to the Cyber Incident, including as a result of the pending civil complaint filed by the Securities and Exchange Commission against us and our Chief Information Security Officer, including that we have and may continue to 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, (2) numerous financial, legal, reputational and other risks to us related to the Cyber Incident, including risks that the incident, SolarWinds’ response thereto or litigation related to the Cyber Incident has and may in the future 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, significant costs for remediation, and the incurrence of other liabilities and risks related to the impact of any such costs and liabilities, 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 the Cyber Incident;
other risks related to cybersecurity, including that we have experienced and may in the future experience other security incidents and have had and may in the future have vulnerabilities in our systems and services, including to a greater degree with respect to our legacy products, which vulnerabilities have been and may in the future be exploited, whether through the actions or inactions of our employees, our customers, insider threats 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 and success 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 (AI) in our business and our solutions, including risks related to evolving regulation of AI, machine learning and the receipt, collection, storage, processing and transfer of data as well as the threat of cyberattacks created through AI or leveraging AI;
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, disruptions in the global supply chain and energy markets, inflation, uncertainty over liquidity concerns in the broader financial services industry and foreign currency exchange rates and their impact 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:
3


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 maintenance 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;
changes in interest rates;
risks associated with our international operations and any international expansion efforts; and
ongoing sanctions and export controls;
the possibility that our operating income could fluctuate and may decline as percentage of revenue as we make further expenditures to expand our infrastructure, product offerings and sales motion in order to support additional growth in our business;
our ability to compete effectively in the markets we serve and the risks of increased competition as we enter new markets;
our ability to attract, retain and motivate employees;
any violation of legal and regulatory requirements or any misconduct by our employees or partners;
risks associated with increased efforts and costs to comply with ongoing changes in applicable laws and regulations;
our inability to successfully identify, complete and integrate acquisitions and manage our growth effectively;
risks associated with our status as a controlled company; and
such other risks and uncertainties described more fully in documents filed with or furnished to the Securities and Exchange Commission, including the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2023 and this Quarterly Report on Form 10-Q.
Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially and adversely from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Investors and others should note that we announce material information to our investors using our investor relations website (https://investors.solarwinds.com), SEC filings, press releases, public conference calls and webcasts. We use these channels as well as social media to communicate with the public about our company, our business and other matters. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the social media channels listed on our investor relations website.
In this report “SolarWinds,” “Company,” “we,” “us” and “our” refer to SolarWinds Corporation and its consolidated subsidiaries.
4


PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
SolarWinds Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share and per share information)
(Unaudited)
June 30,December 31,
20242023
Assets
Current assets:
Cash and cash equivalents$158,845 $284,695 
Short-term investments10,705 4,477 
Accounts receivable, net of allowances of $761 and $743 as of June 30, 2024 and December 31, 2023, respectively
88,111 103,455 
Income tax receivable1,024 459 
Prepaid and other current assets24,149 28,241 
Total current assets282,834 421,327 
Property and equipment, net18,852 19,669 
Operating lease assets36,182 43,776 
Deferred taxes133,690 133,224 
Goodwill2,379,739 2,397,545 
Intangible assets, net155,133 183,688 
Other assets, net52,257 51,686 
Total assets$3,058,687 $3,250,915 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$9,505 $9,701 
Accrued liabilities and other43,491 56,643 
Current operating lease liabilities14,225 14,925 
Accrued interest payable889 942 
Income taxes payable42,248 29,240 
Current portion of deferred revenue332,120 344,907 
Current debt obligation12,357 12,450 
Total current liabilities454,835 468,808 
Long-term liabilities:
Deferred revenue, net of current portion42,815 42,070 
Non-current deferred taxes1,896 1,933 
Non-current operating lease liabilities42,839 49,848 
Other long-term liabilities15,578 55,278 
Long-term debt, net of current portion1,195,415 1,190,934 
Total liabilities1,753,378 1,808,871 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.001 par value: 1,000,000,000 shares authorized and 169,377,216 and 166,637,506 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively
169 167 
Preferred stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively
  
Additional paid-in capital2,546,118 2,688,854 
Accumulated other comprehensive loss(48,767)(28,103)
Accumulated deficit(1,192,211)(1,218,874)
Total stockholders’ equity1,305,309 1,442,044 
Total liabilities and stockholders’ equity$3,058,687 $3,250,915 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5


SolarWinds Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share information)
(Unaudited)
Three Months Ended June 30,
  Six Months Ended June 30,
2024202320242023
Revenue:
Subscription$70,033 $53,389 $138,790 $107,746 
Maintenance110,306 116,056 222,026 230,534 
Total recurring revenue180,339 169,445 360,816 338,280 
License12,911 15,589 25,745 32,730 
Total revenue193,250 185,034 386,561 371,010 
Cost of revenue:
Cost of recurring revenue18,481 18,533 36,653 36,927 
Amortization of acquired technologies1,767 3,425 4,431 6,861 
Total cost of revenue20,248 21,958 41,084 43,788 
Gross profit173,002 163,076 345,477 327,222 
Operating expenses:
Sales and marketing55,304 59,838 110,225 125,754 
Research and development26,399 24,081 54,227 47,872 
General and administrative
30,321 34,418 61,629 60,019 
Amortization of acquired intangibles11,492 12,094 23,011 25,099 
Total operating expenses123,516 130,431 249,092 258,744 
Operating income
49,486 32,645 96,385 68,478 
Other income (expense):
Interest expense, net(28,047)(29,443)(54,877)(58,024)
Other income (expense), net(61)13 (10)(76)
Total other expense(28,108)(29,430)(54,887)(58,100)
Income before income taxes
21,378 3,215 41,498 10,378 
Income tax expense10,274 2,955 14,835 15,739 
Net income (loss)
$11,104 $260 $26,663 $(5,361)
 Net income (loss) available to common stockholders
$11,104 $260 $26,663 $(5,361)
Net income (loss) available to common stockholders per share:
Basic income (loss) per share
$0.07 $ $0.16 $(0.03)
Diluted income (loss) per share
$0.06 $ $0.15 $(0.03)
Weighted-average shares used to compute net income (loss) available to common stockholders per share:
Shares used in computation of basic income (loss) per share
168,768 164,193 168,093 163,487 
Shares used in computation of diluted income (loss) per share
172,562 165,386 172,109 163,487 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6


SolarWinds Corporation
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
Three Months Ended June 30,
  Six Months Ended June 30,
2024202320242023
Net income (loss)
$11,104 $260 $26,663 $(5,361)
Other comprehensive income (loss):
Foreign currency translation adjustment(4,864)(2,950)(20,664)7,433 
Unrealized gains on investments, net of income tax expense of $ and $10 for the three months ended June 30, 2024 and 2023, respectively, and $ and $31 for the six months ended June 30, 2024 and 2023, respectively
 37  120 
Other comprehensive income (loss)
(4,864)(2,913)(20,664)7,553 
Comprehensive income (loss)
$6,240 $(2,653)$5,999 $2,192 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7


SolarWinds Corporation
Condensed Consolidated Statements of Stockholders' Equity
(In thousands)
(Unaudited)
Three Months Ended June 30, 2024

Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at March 31, 2024
168,162$168 $2,532,169 $(43,903)$(1,203,315)$1,285,119 
Foreign currency translation adjustment— — — (4,864)— (4,864)
Net income
— — — — 11,104 11,104 
Comprehensive income
6,240 
Exercise of stock options 7 — 4 — — 4 
Restricted stock units issued, net of shares withheld for taxes1,208 1 (5,982)— — (5,981)
Stock-based compensation — — 19,927 — — 19,927 
Balance at June 30, 2024
169,377 $169 $2,546,118 $(48,767)$(1,192,211)$1,305,309 
Six Months Ended June 30, 2024

Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 2023
166,638$167 $2,688,854 $(28,103)$(1,218,874)$1,442,044 
Foreign currency translation adjustment— — — (20,664)— (20,664)
Net income— — — — 26,663 26,663 
Comprehensive income
5,999 
Exercise of stock options 9 — 12 — — 12 
Restricted stock units issued, net of shares withheld for taxes2,562 2 (14,272)— — (14,270)
Issuance of stock under employee stock purchase plan168 — 1,594 — — 1,594 
Special dividend paid ($1.00 per share)
— — (168,162)— — (168,162)
Stock-based compensation — — 38,092 — — 38,092 
Balance at June 30, 2024169,377 $169 $2,546,118 $(48,767)$(1,192,211)$1,305,309 
Three Months Ended June 30, 2023

Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at March 31, 2023
163,667$164 $2,638,670 $(37,648)$(1,215,386)$1,385,800 
Foreign currency translation adjustment— — — (2,950)— (2,950)
Unrealized gain on investments, net of taxes— — — 37 — 37 
Net income
— — — — 260 260 
Comprehensive loss
(2,653)
Exercise of stock options 115 — 104 — — 104 
Restricted stock units issued, net of shares withheld for taxes929 1 (3,177)— — (3,176)
Stock-based compensation — — 18,581 — — 18,581 
Balance at June 30, 2023
164,711$165 $2,654,178 $(40,561)$(1,215,126)$1,398,656 
8


Six Months Ended June 30, 2023

Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 2022
161,929$162 $2,627,370 $(48,114)$(1,209,765)$1,369,653 
Foreign currency translation adjustment— — — 7,433 — 7,433 
Unrealized gain on investments, net of taxes
— — — 120 — 120 
Net loss
— — — — (5,361)(5,361)
Comprehensive income
2,192 
Exercise of stock options 121 — 112 — — 112 
Restricted stock units issued, net of shares withheld for taxes2,460 3 (10,170)— — (10,167)
Issuance of stock3 — 18 — — 18 
Issuance of stock under employee stock purchase plan198 — 1,711 — — 1,711 
Stock-based compensation — — 35,137 — — 35,137 
Balance at June 30, 2023
164,711 $165 $2,654,178 $(40,561)$(1,215,126)$1,398,656 
The accompanying notes are an integral part of these condensed consolidated financial statements.






9


SolarWinds Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
  Six Months Ended June 30,
20242023
Cash flows from operating activities
Net income (loss)
$26,663 $(5,361)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization37,794 43,132 
Provision for losses on accounts receivable83 1,293 
Stock-based compensation expense37,526 34,494 
Amortization of debt issuance costs5,360 5,361 
Deferred taxes(4,371)(3,593)
(Gain) loss on foreign currency exchange rates
(162)116 
Lease impairment charges2,141 11,689 
Other non-cash expenses (benefit)
(135)245 
Changes in operating assets and liabilities:
Accounts receivable14,009 15,873 
Income taxes receivable(584)(999)
Prepaid and other assets4,844 (9,522)
Accounts payable(165)(3,048)
Accrued liabilities and other(15,037)(29,736)
Accrued interest payable(53)(272)
Income taxes payable(26,575)(6,171)
Deferred revenue(7,944)(3,734)
Net cash provided by operating activities73,394 49,767 
Cash flows from investing activities
Purchases of investments(18,945)(988)
Maturities of investments12,922 26,535 
Purchases of property and equipment(3,932)(1,387)
Capitalized software development costs
(6,996)(6,759)
Purchases of intangible assets(170)(108)
Other investing activities 564 
Net cash provided by (used in) investing activities(17,121)17,857 
Cash flows from financing activities
Proceeds from issuance of common stock under employee stock purchase plan1,594 1,711 
Repurchase of common stock
(14,270)(10,167)
Exercise of stock options12 112 
Dividends paid(168,162) 
Repayments of borrowings from credit agreement (3,113)
Payment of debt issuance costs(1,036) 
Net cash used in financing activities(181,862)(11,457)
Effect of exchange rate changes on cash and cash equivalents(261)(711)
Net increase (decrease) in cash and cash equivalents
(125,850)55,456 
Cash and cash equivalents
Beginning of period284,695 121,738 
End of period$158,845 $177,194 
10


  Six Months Ended June 30,
20242023
Supplemental disclosure of cash flow information
Cash paid for interest$54,285 $54,935 
Cash paid for income taxes$43,795 $24,140 
Non-cash investing and financing transactions
Stock-based compensation included in capitalized software development costs$565 $644 

The accompanying notes are an integral part of these condensed consolidated financial statements.
11

SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)


1. Organization and Nature of Operations
SolarWinds Corporation, a Delaware corporation, and its subsidiaries (“Company,” “we,” “us” and “our”) is a leading provider of simple, powerful and secure observability and information technology, or IT, management software. Our solutions are designed to give organizations worldwide, regardless of type, size or complexity, with a comprehensive and unified view of today’s modern, distributed and hybrid network environments. Our business is focused on building products to enable technology professionals and leaders to securely monitor and manage the performance of their IT environments, whether they be on-premises, in the cloud or in hybrid deployments. Our approach has enabled us to serve the entire IT market and our customers include network and systems engineers, database administrators, storage administrators, DevOps, SecOps and service desk professionals. We sell our products for use in organizations across industries ranging in size from very small businesses to large enterprises.
2. Summary of Significant Accounting Policies
We prepared our interim condensed consolidated financial statements in conformity with United States of America generally accepted accounting principles ("GAAP"), and the reporting regulations of the Securities and Exchange Commission (the "SEC"). They do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements include the accounts of SolarWinds Corporation and the accounts of its wholly owned subsidiaries. We have eliminated all intercompany balances and transactions.
The interim financial information is unaudited, but reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. This interim information should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023.
Special Cash Dividend
On March 15, 2024, our Board of Directors declared a special cash dividend of $1.00 per share of common stock issued and outstanding as of April 3, 2024. The special cash dividend in the aggregate amount of $168.2 million was paid on April 15, 2024.
Reclassifications
Certain reclassifications have been made to the prior period condensed consolidated statements of cash flows to conform to the current period presentation. These reclassifications did not impact previously reported net income (loss), total assets or net operating, investing or financing cash flows.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts and the disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. The actual results that we experience may differ materially from our estimates. The accounting estimates that require our most significant, difficult and subjective judgments include:
the valuation of goodwill, intangibles, long-lived assets and contingent consideration;
revenue recognition;
stock-based compensation;
income taxes; and
loss contingencies.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued Accounting Standards Update ("ASU") No. 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." The updated guidance expands segment disclosures by requiring additional disclosure of significant segment expenses included within segment profit or loss along with other segment information. The updated guidance is effective for public companies for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024, and early adoption is permitted. We currently operate as a single reportable segment and while we do not expect the adoption of this
12

SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

guidance to have a material impact on our consolidated financial statements, we will be required to provide enhanced segment disclosures beginning in our Annual Report for the fiscal year ended December 31, 2024 and subsequent interim periods.
In December 2023, the FASB issued ASU No. 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. The updated guidance is effective for public companies for fiscal years beginning after December 15, 2024 and early adoption permitted. We currently do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements.
Fair Value Measurements
We apply the authoritative guidance on fair value measurements for financial assets and liabilities that are measured at fair value on a recurring basis and non-financial assets and liabilities, such as goodwill, intangible assets and property, plant and equipment that are measured at fair value on a non-recurring basis.
The guidance establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows:
Level 1: Unadjusted quoted prices for identical assets or liabilities in active markets accessible by us.
Level 2: Inputs that are observable in the marketplace other than those inputs classified as Level 1.
Level 3: Inputs that are unobservable in the marketplace and significant to the valuation.
We determine the fair value of our available-for-sale securities based on inputs obtained from multiple pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. However, we classify all of our available-for-sale securities as being valued using Level 2 inputs. The valuation techniques used to determine the fair value of our financial instruments having Level 2 inputs are derived from unadjusted, non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models. Our procedures include controls to ensure that appropriate fair values are recorded by a review of the valuation methods and assumptions.
See Note 5. Fair Value Measurements for a summary of our financial instruments accounted for at fair value on a recurring basis. The carrying amounts reported in our condensed consolidated balance sheets for cash, accounts receivable, accounts payable and other accrued expenses approximate fair value due to relatively short periods to maturity.
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component are summarized below:
Foreign Currency
Translation Adjustments
Accumulated Other Comprehensive
 Income (Loss)
(in thousands)
Balance at December 31, 2023$(28,103)$(28,103)
Other comprehensive loss before reclassification
(20,664)(20,664)
Amount reclassified from accumulated other comprehensive income (loss)   
Net current period other comprehensive loss
(20,664)(20,664)
Balance at June 30, 2024$(48,767)$(48,767)
13

SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

Disaggregation of Revenue
The following summarizes the revenue we recognized at a point in time and over time:

Three Months Ended June 30,
  Six Months Ended June 30,
2024202320242023
(in thousands)
Revenue recognized at a point in time
$43,314 $34,636 $86,943 $72,627 
Revenue recognized over time
149,936 150,398 299,618 298,383 
Total revenue recognized
$193,250 $185,034 $386,561 $371,010 
Deferred Revenue
Details of our total deferred revenue balance are as follows:
Total Deferred Revenue
(in thousands)
Balance at December 31, 2023$386,977 
Deferred revenue recognized(266,971)
Additional amounts deferred254,929 
Balance at June 30, 2024$374,935 
During the three and six months ended June 30, 2024, we recognized revenue of approximately $100.0 million and $232.6 million, respectively, that was included in our deferred revenue balance reported as of December 31, 2023.
We expect to recognize revenue related to these remaining performance obligations as of June 30, 2024 as follows:
Revenue Recognition Expected by Period
TotalLess than 
1 year
1-3 yearsMore than
3 years
(in thousands)
Expected recognition of deferred revenue$374,935 $332,120 $41,648 $1,167 
Deferred Commissions
Details of our deferred commissions balance are as follows:
Deferred Commissions
(in thousands)
Balance at December 31, 2023$23,563 
Commissions capitalized4,575 
Amortization recognized(4,610)
Balance at June 30, 2024$23,528 
June 30,December 31,
20242023
(in thousands)
Classified as:
Current$8,210 $7,926 
Non-current15,318 15,637 
Total deferred commissions$23,528 $23,563 
14

SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

Cost of Revenue
Amortization of Acquired Technologies. Amortization of acquired technologies included in cost of revenue relate to our licensed products and subscription offerings as follows:
Three Months Ended June 30,
  Six Months Ended June 30,
2024202320242023
(in thousands)
Amortization of acquired license technologies$923 $924 $1,846 $1,846 
Amortization of acquired subscription technologies844 2,501 2,585 5,015 
Total amortization of acquired technologies$1,767 $3,425 $4,431 $6,861 
3. Investments
The following table summarizes our short-term investments:
June 30, 2024
CostGross Unrealized GainsGross Unrealized LossesFair Value
(in thousands)
Short-term investments:
Available-for-sale securities:
U.S. Treasury securities$7,950 $ $ $7,950 
Commercial paper2,755   2,755 
Total short-term investments$10,705 $ $ $10,705 
December 31, 2023
CostGross Unrealized GainsGross Unrealized LossesFair Value
(in thousands)
Short-term investments:
Available-for-sale securities:
U.S. Treasury securities$3,979 $1 $ $3,980 
Commercial paper497   497 
Total short-term investments$4,476 $1 $ $4,477 
The following table summarizes the contractual underlying maturities of our available-for-sale securities:
June 30, 2024
CostFair Value
(in thousands)
Due in one year or less$10,705 $10,705 
15

SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

4. Goodwill
The following table reflects the changes in goodwill for the six months ended June 30, 2024:
(in thousands)
Balance at December 31, 2023$2,397,545 
Foreign currency translation(17,806)
Balance at June 30, 2024$2,379,739 
Accumulated goodwill impairment on our condensed consolidated balance sheet was $893.0 million and $897.2 million as of June 30, 2024 and December 31, 2023, respectively, and is impacted by changes in foreign currency exchange rates.
5. Fair Value Measurements
The following table summarizes the fair value of our financial assets that were measured on a recurring basis as of June 30, 2024 and December 31, 2023. There have been no transfers between fair value measurement levels during the six months ended June 30, 2024.
Fair Value Measurements at
June 30, 2024 Using
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
(in thousands)
Cash equivalents:
Money market funds$44,473 $ $ $44,473 
Commercial paper 28,052  28,052 
Total cash equivalents44,473 28,052  72,525 
Short-term investments:
U.S. Treasury securities 7,950  7,950 
Commercial paper 2,755  2,755 
Total short-term investments 10,705  10,705 
Total assets$44,473 $38,757 $ $83,230 
16

SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

Fair Value Measurements at
December 31, 2023 Using
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
(in thousands)
Cash equivalents:
Money market funds$195,017 $ $ $195,017 
U.S. Treasury securities
 1,987  1,987 
Commercial paper
 31,586  31,586 
Total cash equivalents195,017 33,573  228,590 
Short-term investments:
U.S. Treasury securities
 3,980  3,980 
Commercial paper 497  497 
Total short-term investments 4,477  4,477 
Total assets$195,017 $38,050 $ $233,067 
As of June 30, 2024 and December 31, 2023, the carrying value of our long-term debt approximates its estimated fair value as the interest rate on the debt agreements is adjusted for changes in the market rates. See Note 6. Debt for additional information regarding our debt.
The fair value of our non-financial assets and liabilities, which include goodwill, intangible assets and property, plant and equipment, are measured on a non-recurring basis. Fair value adjustments are made in the period an impairment charge is recognized. The fair value of our reporting unit and indefinite-lived intangible asset are classified as Level 3 within the fair value hierarchy due to the significant unobservable inputs developed using company-specific information.
6. Debt
The following table summarizes information relating to our debt:
June 30,December 31,
20242023
AmountEffective RateAmountEffective Rate
(in thousands, except interest rates)
Revolving credit facility$  %$  %
First Lien Term Loan (as amended) due Feb 20271,235,662 8.59 %1,235,662 9.11 %
Total principal amount1,235,662 1,235,662 
Unamortized discount and debt issuance costs(27,890)(32,278)
Total debt1,207,772 1,203,384 
Less: Current portion of long-term debt(12,357)(12,450)
Total long-term debt$1,195,415 $1,190,934 
Senior Secured First Lien Credit Facilities
In connection with the February 2016 take private transaction, we entered into a first lien credit agreement with a syndicate of institutional lenders and financial institutions (the "Credit Agreement").
In January 2024, we entered into Amendment No. 7 to the Credit Agreement to, among other things, (i) refinance the first lien term loans, (ii) decrease the applicable margin for the existing first lien term loans with respect to secured overnight financing rate (“SOFR”) borrowings and (iii) remove the first lien net leverage ratio component of determining the applicable margin. As a result of the refinancing, the required quarterly principal payments were deferred until the third quarter of 2024.
17

SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

The Credit Agreement, as amended, consisted of the following as of June 30, 2024:
a $1.236 billion U.S. dollar term loan, or First Lien Term Loan, with a final maturity date of February 5, 2027; and
a $130.0 million revolving credit facility (with a letter of credit sub-facility in the amount of $35.0 million), or the Revolving Credit Facility, consisting of (i) a $112.5 million multicurrency tranche and (ii) a $17.5 million tranche available only in U.S. dollars, with a final maturity of the earlier of: November 23, 2027 or, in the event that there is more than $150.0 million of the First Lien Term Loan outstanding on the 91st day prior to maturity date of the first lien term loans, the 91st day prior to the maturity date of the First Lien Term Loan.
Borrowings under our Revolving Credit Facility bear interest at a floating rate which is, at our option, either (1) a SOFR rate for a specified interest period plus an applicable margin of 2.25% or (2) a base rate plus an applicable margin of 1.25%. The SOFR rate applicable to the Revolving Credit Facility is subject to a “floor” of 0.0%.
Borrowings under our First Lien Term Loan bear interest at a floating rate which is, at our option, either (1) a SOFR rate for a specified interest period plus an applicable margin of 3.25% or (2) a base rate plus an applicable margin of 2.25%. The SOFR rate applicable to the First Lien Term Loan is subject to a “floor” of 0.0%.
The base rate for any day is a fluctuating rate per annum equal to the highest of (a) the rate of interest in effect for such day as publicly announced by the administrative agent, JPMorgan Chase, as its “prime rate” and (b) the federal funds effective rate in effect on such day plus 0.50% and (c) the one-month SOFR rate plus 1.0% per annum.
The First Lien Term Loan requires equal quarterly repayments equal to 0.25% of the amended principal amount.
In addition to paying interest on loans outstanding under the Revolving Credit Facility and the First Lien Term Loan, we are required to pay a commitment fee of 0.375% per annum of unused commitments under the Revolving Credit Facility.
The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability to: incur additional indebtedness; incur liens; engage in mergers, consolidations, liquidations or dissolutions; pay dividends and distributions on, or redeem, repurchase or retire our capital stock; and make certain investments, acquisitions, loans, or advances. In addition, the terms of the Credit Agreement include a financial covenant which requires that, at the end of each fiscal quarter, if the aggregate amount of borrowings under the Revolving Credit Facility exceeds 35% of the aggregate commitments under the Revolving Credit Facility, our first lien net leverage ratio cannot exceed 7.40 to 1.00. The Credit Agreement also contains certain customary representations and warranties, affirmative covenants and events of default. As of June 30, 2024, we were in compliance with all covenants of the Credit Agreement.
On July 24, 2024, we entered into Amendment No. 8 to the Credit Agreement to, among other things, (i) extend the maturity date of the Revolving Credit Facility to July 24, 2029, (ii) extend the maturity date of the First Lien Term Loan to February 5, 2030, and (iii) decrease the applicable margin for our existing first lien term loans from 3.25% to 2.75% with respect to SOFR borrowings.
18

SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

7. Earnings (Loss) Per Share
A reconciliation of the number of shares in the calculation of basic and diluted income (loss) per share follows:
Three Months Ended June 30,
  Six Months Ended June 30,
2024202320242023
(in thousands)
Basic income (loss) per share
Numerator:
Net income (loss)
$11,104 $260 $26,663 $(5,361)
Earnings allocated to unvested restricted stock(1)
    
Net income (loss) available to common stockholders
$11,104 $260 $26,663 $(5,361)
Denominator:
Weighted-average shares used in computing basic income (loss) per share
168,768 164,193 168,093 163,487 
Diluted income (loss) per share
Numerator:
Net income (loss) available to common stockholders
$11,104 $260 $26,663 $(5,361)
Denominator:
Weighted-average shares used in computing basic income (loss) per share
168,768 164,193 168,093 163,487 
Add dilutive impact of employee equity plans3,794 1,193 4,016  
Weighted-average shares used in computing diluted income (loss) per share
172,562 165,386172,109 163,487
______
(1)There were no unvested restricted stock outstanding during the three and six months ended June 30, 2024.
The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of the diluted net income (loss) per share attributable to common stockholders for the periods presented because their effect would have been anti-dilutive or the performance condition had not been met at the end of the period:
Three Months Ended June 30,
  Six Months Ended June 30,
2024202320242023
(in thousands)
Total anti-dilutive shares6,637 7,429 2,112 14,089 
The calculation of diluted income (loss) per share requires us to make certain assumptions related to the use of proceeds that would be received upon the assumed exercise of stock options or proceeds from the employee stock purchase plan.
8. Income Taxes
We compute our interim provision for income taxes by applying the estimated annual effective tax rate to year-to-date income before income tax and adjust the provision for discrete tax items recorded in the period. Each quarter, we update the estimated annual effective tax rate and make a year-to-date adjustment to the provision. The interim provision for income taxes and estimated annual effective tax rate are subject to volatility due to several factors, including changes in our domestic and foreign earnings, changes to our valuation allowances, material discrete tax items and the effects of tax law changes.
For the three months ended June 30, 2024 and 2023, we recorded income tax expense of $10.3 million and $3.0 million, respectively, resulting in an effective tax rate of 48.1% and 91.9%, respectively. For the six months ended June 30, 2024 and 2023, we recorded income tax expense of $14.8 million and $15.7 million, respectively, resulting in an effective tax rate of 35.7% and 151.7%, respectively. The decrease in the effective tax rates for the
19

SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

three and six months ended June 30, 2024 compared to the same periods in 2023 was primarily a result of the impact of valuation allowances recorded during the periods and an increase in our income before income taxes, specifically foreign income, which reduced the estimated annual effective tax rate for the current periods. The decrease in the effective tax rate for the six months ended June 30, 2024 compared to the same period in 2023 was also impacted by changes in our reserves for uncertain tax positions.
Our policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense. At June 30, 2024, we had accrued interest and penalties related to unrecognized tax benefits of approximately $0.5 million.
We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2013 through February 2016 and 2020 through 2023 tax years generally remain open and subject to examination by federal tax authorities. The 2015 through 2023 tax years generally remain open and subject to examination by the state tax authorities and foreign tax authorities. We are currently under examination by the IRS for the tax years 2013 through the period ending February 2016 and expect this audit to be fully resolved in 2024. We are currently under audit by the Texas Comptroller for the 2015 through 2020 tax years. We are currently under audit by the Philippines Bureau of Internal Revenue for the 2022 tax year. We were notified during the three months ended June 30, 2024 that the Swedish Tax Agency intends to audit the 2022 tax year. We are not currently under audit in any other taxing jurisdictions.
In December 2021, the Organisation for Economic Co-operation and Development ("OECD") enacted model rules defining a new global minimum tax framework which establishes a global minimum effective tax rate of 15% for multinational groups with annual global revenue exceeding €750 million ("Pillar Two"). Although we operate in one or more jurisdictions that have substantively enacted Pillar Two legislation, we have not exceeded the revenue threshold in such jurisdictions and therefore do not expect to be subject to the Pillar Two rules this fiscal year. We will continue to evaluate the impact of these tax law changes on future reporting periods.
9. Commitments and Contingencies
Cyber Incident
As previously disclosed, we were the victim of a cyberattack on our Orion Software Platform and internal systems, or the Cyber Incident. We, together with our partners, have undertaken extensive measures to investigate, contain, eradicate, and remediate the Cyber Incident.
Expenses Incurred
Expenses incurred as a result of the Cyber Incident for the three and six months ended June 30, 2024 and 2023 are presented net of insurance proceeds and recorded within general and administrative expense in our condensed consolidated statements of operations. Expenses include costs of lawsuits and investigations related thereto, including legal and other professional services, which are expensed as incurred.
We recorded pre-tax expenses (proceeds) related to the Cyber Incident as follows:
Three Months Ended June 30,
  Six Months Ended June 30,
2024202320242023
(in thousands)
Gross expenses related to the Cyber Incident
$2,104 $5,580 $5,109 $7,608 
Less: proceeds received or expected to be received under our insurance coverage (5,000) (14,798)
Total net expenses (proceeds) related to the Cyber Incident$2,104 $580 $5,109 $(7,190)
Litigation, Claims and Government Investigations
As a result of the Cyber Incident, we have been subject to multiple lawsuits and investigations. A consolidated putative class action lawsuit alleging violations of the federal securities laws was filed against us and certain of our current and former officers. The complainants sought certification of a class of all persons who purchased or otherwise acquired our common stock between October 18, 2018 and December 17, 2020 and sought unspecified monetary damages, costs and attorneys’ fees. On October 28, 2022, the parties entered into a binding settlement term sheet with respect to the securities class action lawsuit, and lead plaintiff filed the parties’ Stipulation and Agreement of Settlement with the court on December 8, 2022. On March 2, 2023, we paid $26 million to fund claims submitted by class members, the legal fees of plaintiffs’ counsel and the costs of administering the settlement. On
20

SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

July 28, 2023, the court held a final settlement hearing after which the court entered an order and final judgment approving the settlement. The settlement resolved all claims asserted against us and the other named defendants in connection with the securities class action litigation and contained provisions that the settlement does not constitute an admission, concession, or finding of any fault, liability, or wrongdoing of any kind by us or any defendant. The settlement sum was reimbursed entirely by applicable directors’ and officers’ liability insurance. In addition, two shareholder derivative actions were filed, purportedly on behalf of the Company, one in the Western District of Texas and one in the Delaware Court of Chancery, in each case asserting breach of duty and other claims against certain of our current and former officers and directors in connection with the Cyber Incident. On October 13, 2022, the Delaware Court of Chancery entered an order dismissing the case in that court with prejudice, and on May 17, 2023, the Supreme Court of the State of Delaware entered an order affirming the Delaware Court of Chancery’s judgment. On July 12, 2023, the United States District Court for the Western District of Texas entered a final judgment dismissing the case in that court without prejudice.
In addition, we have been subject to several investigations and inquiries by U.S. regulatory authorities related to the Cyber Incident, including from the Department of Justice and the SEC, although currently the only active matter relates to the SEC litigation. On October 30, 2023, the SEC filed a civil complaint, or the SEC Complaint, in the United States District Court for the Southern District of New York naming us and our Chief Information Security Officer, or CISO, as defendants. The SEC Complaint alleges violations of the Exchange Act and the Securities Act relating to our cybersecurity disclosures and public statements, as well as our internal controls and disclosure controls and procedures. The SEC Complaint seeks permanent injunctions against the Company and our CISO, disgorgement of profits, civil penalties and a permanent officer-and-director bar against our CISO. We accrued an immaterial loss contingency related to the SEC investigation during the year ended December 31, 2023. On May 3, 2024, the Company and our CISO filed a motion to dismiss the SEC Complaint. On July 18, 2024, the District Court for the Southern District of New York entered an order granting in large part the Company's motion to dismiss. Only one claim remains pending before the court which concerns the accuracy of our online Security Statement. We maintain that the Security Statement was accurate and intend to continue to vigorously defend ourselves against the remaining claim. We have incurred, and expect to continue to incur, costs and other expenses in connection with this matter, and the ultimate results of the action initiated by the SEC Complaint are unknown at this time. The Company will continue to evaluate information as it becomes known and will adjust our estimate for losses or will record additional losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable. Losses associated with any adverse judgments, settlements, penalties or other resolutions of the SEC Complaint could be material to our business, results of operations, financial condition or cash flows in future periods.
Additional lawsuits and claims related to the Cyber Incident may be asserted by or on behalf of customers, stockholders or others seeking damages or other related relief and additional inquiries from governmental agencies may be received or investigations by governmental agencies commenced.
Insurance Coverage
We maintain $15 million of cybersecurity insurance coverage which renews annually. In addition, we maintain $50 million of directors and officers liability insurance coverage to reduce our exposure to our indemnification obligations for certain expenses incurred by our directors and officers which renews annually. All proceeds from our cybersecurity insurance and our directors and officers liability insurance relating to the losses incurred as a result of the Cyber Incident have been received.
Indemnification
In connection with the separation and distribution of our managed service provider ("N-able") business into a newly created and separately traded public company, N-able, Inc. (the "Separation"), we entered into a separation and distribution agreement and related agreements with N‑able to govern the Separation and related transactions and the relationship between the respective companies going forward. The separation and distribution agreement provides for certain indemnity and liability obligations, including that we will indemnify N-able for all liabilities based upon, arising out of or related to the Cyber Incident other than certain specified expenses for which N-able will be responsible. The amount of the indemnification liability, if any, cannot be determined and has not been recorded in our condensed consolidated financial statements as of June 30, 2024.
Other Matters
In addition to the Cyber Incident described above, from time to time we are involved in litigation arising from the normal course of business. In management's opinion, this litigation is not expected to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
21


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially and adversely from those anticipated in the forward-looking statements. Please see the section entitled “Safe Harbor Cautionary Statement” above and the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2023 and this Quarterly Report on Form 10-Q. The following discussion and analysis also includes a discussion of certain non-GAAP financial measures. For a description and reconciliation of the non-GAAP measures discussed in this section, see “Non-GAAP Financial Measures.”
Overview
SolarWinds is a leading provider of simple, powerful and secure observability and IT management software. We offer full-stack observability solutions designed to provide organizations worldwide, regardless of type, size, or complexity, with a comprehensive and unified view of today’s modern, distributed and hybrid network environments.
Our products are designed to monitor and manage networks, systems, databases and applications across on-premises, multi-cloud and hybrid IT environments. Most of our offerings are purpose-built on the SolarWinds Platform so our customers can easily purchase and deploy our products individually or as an integrated offering as their needs evolve. We utilize a cost-efficient, integrated global product development model and have expanded our offerings over time through both organic development and strategic acquisitions. We currently derive our revenue from a combination of subscription revenue from the sale of observability, database, application performance management and service desk products, and license and maintenance revenue from the sale of our on-premises network, systems, storage and database management perpetual license products. Over time, we intend to grow our subscription revenue by focusing more on selling subscriptions over perpetual licenses, which we call our subscription-first approach.
Impacts of Macroeconomic Conditions
As a global company, we are subject to negative impacts and risks related to prevailing macroeconomic conditions and significant events with macroeconomic impacts, including, but not limited to, the wars in Israel and Ukraine, rising escalations in the Middle East, geopolitical tensions involving China, market conditions related to inflation, fluctuating foreign currency exchange rates, changes in interest rates, uncertainty over liquidity concerns in the broader financial services industry and supply chain and energy markets disruption issues. As a result of these macroeconomic conditions, certain of our customers have, and others may, defer renewals or cancel subscriptions which has had, and could in the future have, a negative impact on our revenue. We have suspended all of our business activities in Russia and Belarus, but such suspension has not had, and we do not expect it to have, a material impact on our financial results. In addition, although we have research and development operations in Israel, we do not expect the ongoing war to have a material impact on our operations or our financial results given the limited nature of these operations. In addition, our borrowings outstanding under our credit agreement currently bear interest at variable rates and may continue to fluctuate as a result of changes in interest rates. We continuously monitor the direct and indirect impacts of these events on our business and financial results, as well as the overall global economy, and we anticipate that these macroeconomic events could continue to negatively impact our results of operation. See Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for further discussion of the possible impacts of these macroeconomic conditions on our business and financial results.
Cyber Incident
As previously disclosed, we were the victim of a cyberattack on our Orion Software Platform and internal systems, or the “Cyber Incident.” We, together with our partners, have undertaken extensive measures to investigate, contain, eradicate, and remediate the Cyber Incident. Expenses incurred related to the Cyber Incident include costs of lawsuits and investigations related thereto, including settlement costs and legal and other professional services, which were expensed as incurred, as well as estimated loss contingencies. We expect to continue to incur additional legal and other professional services costs and expenses associated with the Cyber Incident in future periods as we defend ourselves in litigation with the SEC, and such costs and expenses could be material. We have exhausted our insurance coverage under our applicable insurance policies and will therefore be required to pay for such costs without reimbursement. We expect to recognize these expenses as services are
22


received. See Note 9. Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information related to the legal proceedings and governmental investigations related to the Cyber Incident.
In addition, as part of our “Secure by Design” initiative, we continue to work with industry experts to implement enhanced security practices designed to further strengthen and protect our products and environment against these and other types of attacks in the future. Our “Secure by Design” initiatives continue to be included in our ongoing research and development expense, as well as general and administrative expense.
Second Quarter Highlights
In June, we announced the appointment of Lewis Black as our Executive Vice President, Chief Financial Officer, to be effective in August 2024. Mr. Black will succeed J. Barton Kalsu, who tendered his resignation on June 6, 2024 and will remain as the Company’s Chief Financial Officer through August 15, 2024 to support an orderly transition.
Below are our key business highlights for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.
Annual Recurring Revenue (ARR)
We use Subscription Annual Recurring Revenue, or Subscription ARR, and Total Annual Recurring Revenue, or Total ARR, to better understand and assess the performance of our business, as our mix of revenue generated from recurring revenue has increased in recent years. Subscription ARR and Total ARR each provides a normalized view of customer retention, renewal and expansion, as well as growth from new customers. Subscription ARR and Total ARR should each be viewed independently of revenue and deferred revenue and are not intended to be combined with or to replace either of those items.
As of June 30,Year-over-Year
Growth
20242023
(in thousands, except percentages)
Subscription ARR(1)
$269,886 $197,725 36.5 %
Total ARR(2)
704,722 657,104 7.2 
______
(1)Subscription ARR represents the annualized recurring value of all active subscription contracts at the end of a reporting period.
(2)Total ARR represents the sum of Subscription ARR and the annualized value of all maintenance contracts related to perpetual licenses active at the end of a reporting period assuming those contracts are renewed at their existing terms.
The year-over-year growth in Subscription ARR was primarily driven by sales of our time-based subscription offerings as a result of customers transitioning to our subscription products and pricing models, including our SolarWinds Hybrid Cloud Observability, as well as sales of our database monitoring and service desk subscription solutions. Total ARR increased primarily due to the growth in Subscription ARR, partially offset by a decline in the annualized value of maintenance contracts as a result of lower new perpetual license sales and the impact of customers transitioning to our subscription offerings.
Customers
Our sales and marketing approach allows us to both sell to a broad group of potential customers and close large transactions with significant customers. We had 1,042 and 902 customers with Total ARR greater than $100,000 as of June 30, 2024 and 2023, respectively. We believe the number of customers with Total ARR greater than $100,000 best measures our progress toward developing and expanding our relationships with new and existing customers as Total ARR provides an indicator of the performance of our recurring business as we continue our transition to a subscription model. As we continue to augment our high-velocity "selling from the inside" sales model with an account-based customer success motion, we have begun to aggregate individual purchasers into single customer profiles of parent entity by region. Therefore, for purposes of this metric, we define customer as an individual or an entity that has an active subscription for at least one of our subscription products or active maintenance on our license products. In situations where an entity has multiple purchasers, we generally treat the parent entity by region as the customer instead of treating each purchaser within the parent entity as a separate customer. As part of this transition, we no longer consider the number of our total customers to be a key business metric.
23


Components of Our Results of Operations
Revenue
Our revenue consists of recurring revenue and perpetual license revenue.
Recurring Revenue. The significant majority of our revenue is recurring and consists of subscription and maintenance revenue.
Subscription Revenue. We primarily derive subscription revenue from fees received for subscriptions to our SaaS offerings and our time-based subscription offerings. We recognize revenue for SaaS offerings, including our SolarWinds Observability solution, ratably over the subscription term once the service is made available to the customer or when we have the right to invoice services performed. We also offer time-based subscription offerings for our SolarWinds Hybrid Cloud Observability solution along with many of our products historically sold as perpetual licenses, such as our network, systems and database management products, to give customers additional flexibility when purchasing our products. Revenue for our time-based subscription offerings, including multi-year arrangements, is recognized upfront upon delivery of the on-premise software license and ratably over the contract period for the related support. We generally invoice our time-based subscription agreements in advance at the beginning of the subscription period and invoice our SaaS offerings over the subscription period on either a monthly or annual basis and to a lesser extent, monthly based on usage. Our subscription revenue grows as customers transition to our subscription model, add new subscription products, upgrade the capacity level of their existing subscription products or increase the usage of their subscription products. In addition, while the majority of our contracts include annual subscription periods, subscription revenue is impacted by the timing, duration and volume of multi-year time-based subscription arrangements sold during a period, which impacts the amount of revenue recognized upfront and may cause subscription revenue to fluctuate.
Maintenance Revenue. We derive maintenance revenue from the sale of maintenance services associated with our perpetual license products. Perpetual license customers pay for maintenance services based on the products they have purchased. We recognize maintenance revenue ratably on a daily basis over the contract period. Our maintenance revenue grows when we renew existing maintenance contracts and add new perpetual license customers, and as existing customers add new products. In addition, we typically implement annual price increases for our maintenance services. We also include professional services and other revenue in maintenance revenue, which is generally recognized ratably or as delivered.
License Revenue. We derive license revenue from sales of perpetual licenses of our on-premise network, systems, storage and database management products to new and existing customers. We include one year of maintenance services as part of our customers’ initial license purchase. License revenue is recognized upfront upon delivery of the electronic license key. We allocate revenue to the license component based upon our estimated standalone selling prices, which is derived by evaluating our historical pricing and discounting practices in observable bundled transactions.
Our continued efforts to increase sales of our subscription offerings as part of our subscription-first approach has impacted the mix of license and recurring revenue. As we introduce new subscription offerings and incentivize our sales teams to focus on more subscription sales, we expect a continued shift in our revenue mix each quarter as existing customers transition to, and new customers purchase, our subscription offerings. However, due to uncertainty regarding the level of customer adoption of our subscription offerings, the timing and impact of this transition are difficult to predict at this time. While we encourage customers to transition to our subscription offerings, we do not require them to transition and we plan to continue to sell perpetual licenses and renew maintenance services for our network, systems and database management products. Our license sales and maintenance renewals may decline or fluctuate in future periods as customers transition to our subscription offerings.
Cost of Revenue
Cost of Recurring Revenue. Cost of recurring revenue primarily consists of technical support personnel costs, public cloud infrastructure and hosting fees, amortization of capitalized software development costs related to our hosted solutions and an allocation of overhead costs for our subscription revenue and maintenance services. Allocated costs consist of certain facilities, depreciation, benefits and IT costs
24


allocated based on headcount. We expect our public cloud infrastructure and hosting fees and amortization of capitalized software development costs to increase as we expand our subscription-based offerings.
Amortization of Acquired Technologies. Amortization of acquired technologies consists of amortization related to capitalized costs of technologies acquired.
Operating Expenses
Operating expenses consists of sales and marketing, research and development and general and administrative expenses as well as amortization of acquired intangibles. Generally, personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, sales commissions, stock-based compensation and an allocation of overhead costs based on headcount. The total number of employees as of June 30, 2024 was 2,073, as compared to 2,129 as of June 30, 2023. During 2023, as part of our ongoing efforts to improve our operating margins, we completed certain restructuring activities, resulting in lease impairment charges and other costs incurred in connection with the exiting of certain leased facilities and other contracts, as well as costs related to headcount reductions.
While we are focused on disciplined expense management, we expect our operating expenses to increase in absolute dollars as we make long-term investments in our business, including continued product development, increasing our selling efforts toward enterprise customers and expanding our routes to market. Our operating expenses in future periods also may increase in absolute dollars and fluctuate as a percentage of revenue as a result of any further decisions to increase our investment in our business or any future acquisitions. Our stock-based compensation expense has increased due to equity awards granted to our employees and directors, and we intend to continue to grant equity awards which may result in additional stock-based compensation expense in future periods.
Sales and Marketing. Sales and marketing expenses primarily consist of related personnel costs, including our sales, marketing and maintenance renewal and subscription retention teams. Sales and marketing expenses also includes the cost of digital marketing programs such as paid search, search engine optimization and management, website maintenance and design and costs related to our channel marketing programs. As part of our ongoing efforts to improve our operating margins, we have and expect to continue to invest selectively in our marketing programs as we look to optimize our sales and marketing productivity and expand our routes to market. We have made investments to increase our sales and marketing operations internationally and expect continued focus on our international sales and global brand awareness.
Research and Development. Research and development expenses primarily consist of related personnel costs for our product development employees and executives and, to a lesser extent, contractor fees. We expect to continue to grow our research and development organization, particularly internationally. In addition, beginning in the first quarter of 2024, we amended the categorization of certain expenses to conform to internal department structure changes, and now include costs related to our product management organization within research and development expense instead of sales and marketing expense. We capitalize certain research and development costs related to developing new functionality for our solutions that are hosted and accessed by our customers on a subscription basis, which may cause our research and development expense to fluctuate from period to period.
General and Administrative. General and administrative expenses primarily consist of personnel costs for our executive, finance, legal, human resources and other administrative personnel, general restructuring costs, certain Cyber Incident costs, professional fees, certain non-cash impairment charges and other general corporate expenses. The Cyber Incident has resulted in increased general and administrative expenses which we expect to continue, although such expenses may continue to fluctuate from period to period depending on the timing of related activities.
Amortization of Acquired Intangibles. We amortize to operating expenses the capitalized costs of intangible assets acquired in connection with our acquisitions.
Interest Expense, Net
Interest expense, net consists of interest paid and accrued on our debt and amortization of debt discount and issuance costs, offset by interest income earned on our cash and cash equivalents. Since the borrowings outstanding under our credit agreement currently bear interest at variable rates, we expect our interest expense to fluctuate as a result of changes in interest rates.
25


Other Income (Expense), Net
Other income (expense), net primarily consists of gains (losses) resulting from changes in exchange rates on foreign currency denominated accounts, losses on extinguishment of debt and other non-operating income (expense).
Foreign Currency
As a global company, we face exposure to adverse movements in foreign currency exchange rates. Fluctuations in foreign currencies impact the amount of total assets, liabilities, revenue, operating expenses and cash flows that we report for our foreign subsidiaries upon the translation of these amounts into U.S. dollars. See “Item 3. Quantitative and Qualitative Disclosures About Market Risk for additional information on how foreign currency impacts our financial results.
Income Tax Expense (Benefit)
Income tax expense (benefit) consists of domestic and foreign corporate income taxes related to the sale of products. The tax rate on income earned by our North American entities is generally higher than the tax rate on income earned by our international entities. We expect the income earned by our international entities to grow over time as a percentage of total income, which could result in a decline in our effective income tax rate. However, our effective tax rate will be affected by many other factors including changes in tax laws, regulations or rates, new interpretations of existing laws or regulations, shifts in the allocation of income earned throughout the world and changes in overall levels of income before tax.
Comparison of the Three Months Ended June 30, 2024 and 2023
Revenue
Three Months Ended June 30,
20242023
AmountPercentage of RevenueAmountPercentage of RevenueChange
(in thousands, except percentages)
Subscription$70,033 36.2 %$53,389 28.9 %$16,644 
Maintenance110,306 57.1 116,056 62.7 (5,750)
Total recurring revenue180,339 93.3 169,445 91.6 10,894 
License12,911 6.7 15,589 8.4 (2,678)
Total revenue$193,250 100.0 %$185,034 100.0 %$8,216 
Total revenue increased $8.2 million, or 4.4%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, due to an increase in subscription revenue partially offset by decreases in license and maintenance revenue as we continue to transition to a subscription model. Revenue from North America was approximately 68% and 69% of total revenue for the three months ended June 30, 2024 and 2023, respectively. Other than the United States, no single country accounted for 10% or more of our total revenue during these periods. We expect our international total revenue to increase slightly as a percentage of total revenue as we expand our international sales and marketing efforts across our product lines.
Recurring Revenue
Subscription Revenue. Subscription revenue increased $16.6 million, or 31.2%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to increased sales of our time-based subscription offerings resulting from existing customers transitioning to our subscription pricing model and new customers purchasing our subscription solutions, including our SolarWinds Hybrid Cloud Observability solution. The increase in subscription revenue includes a $1.3 million increase in sales of multi-year time-based arrangements during the period. Our subscription revenue increased as a percentage of our total revenue for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.
26


Our net retention rate for our subscription products was as follows:
Trailing Twelve Months Ended June 30,
20242023
Net retention rate(1)
97 %97 %
_______
(1)Beginning in the fourth quarter of 2023, we define net retention rate as the current period Subscription ARR for customers that had Subscription ARR one year ago, divided by their prior year Subscription ARR. We use this metric to measure our success in retaining and growing revenue from existing customers. Current period Subscription ARR includes expansion and is net of any downgrades or churn over the last 12 months. Prior period Subscription ARR includes all Subscription ARR in the prior year ending balance. The net retention rate for the prior year has been recalculated to conform to the current calculation method.

Maintenance Revenue. Maintenance revenue decreased $5.8 million, or 5.0%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to the impact of conversions of customers to subscription-based products, partially offset by the impact of increased maintenance renewal rates and the impact of price increases on our maintenance services.
Our maintenance renewal rate for our perpetual license products was as follows:
Trailing Twelve Months Ended June 30,
20242023
Maintenance renewal rate(1)
97 %94 %
_______
(1)Maintenance renewal rate represents the sales of maintenance services for all existing maintenance contracts expiring in a period, divided by the sum of previous sales of maintenance services corresponding to those services expiring in the current period. The calculation of maintenance renewal rate only includes customers renewing maintenance contracts and excludes all customers that transition from maintenance contracts to subscription offerings. Sales of maintenance services includes sales of maintenance renewals for a previously purchased product and the amount allocated to maintenance revenue from a license purchase.
License Revenue
License revenue decreased $2.7 million, or 17.2%, primarily due to the impact of customers transitioning to our subscription offerings including an increase in the subscription sales of our SolarWinds Hybrid Cloud Observability solution and other products that have historically been sold only as perpetual licenses. We expect license revenue to continue to decline as customers transition to our subscription offerings.
Cost of Revenue
Three Months Ended June 30,
20242023
AmountPercentage of RevenueAmountPercentage of RevenueChange
(in thousands, except percentages)
Cost of recurring revenue$18,481 9.6 %$18,533 10.0 %$(52)
Amortization of acquired technologies1,767 0.9 3,425 1.9 (1,658)
Total cost of revenue$20,248 10.5 %$21,958 11.9 %$(1,710)
Total cost of revenue decreased $1.7 million, or 7.8%, primarily due to a decrease in amortization expense due to certain intangible assets being fully amortized. The decrease in cost of recurring revenue was primarily due to decreases in public cloud infrastructure and hosting fees related to our subscription offerings of $0.4 million and personnel costs and contract services of $0.4 million, partially offset by an increase in amortization of capitalized software development costs of $0.8 million.

27


Operating Expenses
Three Months Ended June 30,
20242023
AmountPercentage of RevenueAmountPercentage of RevenueChange
(in thousands, except percentages)
Sales and marketing$55,304 28.6 %$59,838 32.3 %$(4,534)
Research and development26,399 13.7 24,081 13.0 2,318 
General and administrative30,321 15.7 34,418 18.6 (4,097)
Amortization of acquired intangibles11,492 5.9 12,094 6.5 (602)
Total operating expenses$123,516 63.9 %$130,431 70.5 %$(6,915)
Sales and Marketing. Sales and marketing expenses decreased $4.5 million, or 7.6%, and includes a $2.9 million decrease as a result of departmental structure changes for our product management organization which involved moving their expenses from sales and marketing to research and development beginning in 2024. Expenses associated with our product management organization were relatively flat throughout the prior year. In addition, marketing program costs decreased $2.9 million and subscription costs decreased $0.4 million. These decreases were partially offset by an increase in personnel costs of $1.6 million, which includes an increase in stock-based compensation expense of $0.5 million.
Research and Development. Research and development expenses increased $2.3 million, or 9.6%, primarily due to a $3.0 million increase resulting from departmental structure changes related to our product management organization. In addition, hosting fees related to the development of our offerings increased $1.2 million, contract services and professional fees increased $0.4 million and restructuring costs increased $0.3 million. These increases were partially offset by a decrease in personnel costs of $2.6 million as a result of our restructuring activities.
General and Administrative. General and administrative expenses decreased $4.1 million, or 11.9%, primarily due to a decrease in restructuring charges of $5.9 million, primarily related to lease impairment charges and accelerated depreciation expense in connection with exiting certain leased facilities in the prior period, and a decrease in the provision for losses on accounts receivable of $0.7 million. These decreases were partially offset by a $1.5 million increase in Cyber Incident costs. Cyber Incident costs are reported net of insurance recovery proceeds and the increase during the current period reflects a $5.0 million decrease in such proceeds as compared to the prior period. In addition, personnel costs increased $1.1 million, primarily due an increase in stock-based compensation expense.
Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased $0.6 million, or 5.0%, due to certain acquired intangibles being fully amortized.
Interest Expense, Net
Three Months Ended June 30,
20242023
AmountPercentage of RevenueAmountPercentage of RevenueChange
(in thousands, except percentages)
Interest expense
$(29,611)(15.3)%$(30,726)(16.6)%$1,115 
Interest income
1,564 0.8 1,283 0.7 281 
Interest expense, net$(28,047)(14.5)%$(29,443)(15.9)%$1,396 
Interest expense, net decreased by $1.4 million, or 4.7%, in the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to a decrease in interest expense of $1.1 million resulting from the impact of lower applicable margins on outstanding debt as a result of the refinancing in January 2024, partially offset by increases in interest rates on our debt. The weighted-average effective interest rate on our debt was 8.6% for the three months ended June 30, 2024 compared to 8.9% for the three months ended June 30, 2023. See Note 6. Debt in the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information regarding our debt.
28


Other Income (Expense), Net
Three Months Ended June 30,
20242023
AmountPercentage of RevenueAmountPercentage of RevenueChange
(in thousands, except percentages)
Other income (expense), net$(61)— %$13 — %$(74)
Other income (expense), net decreased by $0.1 million in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to a decrease in other income and the impact of changes in exchange rates on foreign currency denominated accounts.
Income Tax Expense
Three Months Ended June 30,
20242023
AmountPercentage of RevenueAmountPercentage of RevenueChange
(in thousands, except percentages)
Income before income taxes
$21,378 11.1 %$3,215 1.7 %$18,163 
Income tax expense10,274 5.3 2,955 1.6 7,319 
Effective tax rate48.1 %91.9 %(43.8)%
Our income tax expense for the three months ended June 30, 2024 was $10.3 million as compared to $3.0 million for the three months ended June 30, 2023. The effective tax rate decreased to 48.1% for the period, primarily due to the impact of valuation allowances recorded during the periods and an increase in our income before income taxes, specifically foreign income, which reduces the estimated annual effective tax rate for the current period. For additional discussion about our income taxes, see Note 8. Income Taxes in the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Form 10-Q.
Comparison of the Six Months Ended June 30, 2024 and 2023
Revenue
Six Months Ended June 30,
20242023
AmountPercentage of RevenueAmountPercentage of RevenueChange
(in thousands, except percentages)
Subscription$138,790 35.9 %$107,746 29.0 %$31,044 
Maintenance222,026 57.4 230,534 62.1 (8,508)
Total recurring revenue360,816 93.3 338,280 91.2