0001834488-21-000040.txt : 20211109 0001834488-21-000040.hdr.sgml : 20211109 20211109091227 ACCESSION NUMBER: 0001834488-21-000040 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 52 CONFORMED PERIOD OF REPORT: 20210930 FILED AS OF DATE: 20211109 DATE AS OF CHANGE: 20211109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: N-able, Inc. CENTRAL INDEX KEY: 0001834488 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 854069861 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-40297 FILM NUMBER: 211390113 BUSINESS ADDRESS: STREET 1: 1209 ORANGE STREET CITY: WILMINGTON STATE: DE ZIP: 19801 BUSINESS PHONE: 5126829300 MAIL ADDRESS: STREET 1: 1209 ORANGE STREET CITY: WILMINGTON STATE: DE ZIP: 19801 FORMER COMPANY: FORMER CONFORMED NAME: N-able, LLC DATE OF NAME CHANGE: 20210323 FORMER COMPANY: FORMER CONFORMED NAME: SWI Spinco, LLC DATE OF NAME CHANGE: 20201202 10-Q 1 nabl-20210930.htm 10-Q nabl-20210930
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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 September 30, 2021
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: 001-40297
N-able, Inc.
(Exact name of registrant as specified in its charter)
Delaware 85-4069861
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
301 Edgewater Dr
Suite 306
Wakefield, Massachusetts 01880
(781) 328-6490
(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 valueNABLNew 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 filerAccelerated 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 November 2, 2021, 178,972,178 shares of common stock, par value $0.001 per share, were outstanding.



N-able, Inc.

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 2.
Item 5.
Item 6.
Certifications

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 including, without limitation, the following:
expectations regarding our financial condition and results of operations, including revenue, revenue growth, revenue mix, cost of revenue, operating expenses, operating income, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA and adjusted EBITDA margin, cash flows and effective income tax rate;
expectations regarding investment in product development and our expectations about the results of those efforts;
expectations concerning acquisitions and opportunities resulting from our acquisitions;
expectations regarding hiring additional personnel globally in the areas of sales and marketing and research and development;
intentions regarding our international earnings;
expectations regarding our capital expenditures;
expectations regarding the impact of the COVID-19 pandemic on our business, results of operations and financial condition;
our beliefs regarding the sufficiency of our cash and cash equivalents, cash flows from operating activities and borrowing capacity; and
expectations regarding our spin-off from SolarWinds Corporation ("SolarWinds") into a newly created and separately traded public company.
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 our spin-off from SolarWinds into a newly created and separately-traded public company, including that the spin-off could disrupt or adversely affect our business, results of operations and financial condition, that the spin-off may not achieve some or all of any anticipated benefits with respect to our business; that the distribution, together with certain related transactions, may not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, which could result in N-able incurring significant tax liabilities, and, in certain circumstances, requiring us to indemnify SolarWinds for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement;
the possibility that the global COVID-19 pandemic may continue to adversely affect our business, results of operations and financial condition or the impact of the COVID-19 pandemic on the global economy or on the business operations and financial conditions of our customers, their end-customers and our prospective customers;
our ability to sell subscriptions to new MSP partners, to sell additional solutions to our existing MSP partners and to increase the usage of our solutions by our existing MSP partners, as well as our ability to generate and maintain MSP partner loyalty;
any decline in our renewal or net retention rates;
the possibility that general economic conditions or uncertainty cause information technology spending to be reduced or purchasing decisions to be delayed, including as a result of the COVID-19 pandemic;
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;
our inability to successfully identify, complete and integrate acquisitions and manage our growth effectively;
risks associated with our international operations;
risks that cyberattacks, including the cyberattack on SolarWinds’ Orion Software Platform and internal systems announced by SolarWinds in December 2020, or the Cyber Incident, and other security incidents may result, in compromises or breaches of our, our MSP partners’, or their SME customers’ systems, the insertion of malicious code, malware, ransomware or other vulnerabilities into our, our MSP partners’, or their SME customers’ environments, the exploitation of vulnerabilities in our, our MSP partners’, or their SME customers’ security, the theft or misappropriation of our, our
3


MSP partners’, or their SME customers’ proprietary and confidential information, and interference with our, our MSP partners’, or their SME customers’ operations, exposure to legal and other liabilities, higher MSP partner and employee attrition and the loss of key personnel, negative impacts to our sales, renewals and upgrades and reputational harm and other serious negative consequences, any or all of which could materially harm our business;
our status as a controlled company;
our ability to attract and retain qualified employees and key personnel as a standalone public company;
the timing and success of new product introductions and product upgrades by N-able or its competitors;
our ability to protect and defend our intellectual property and not infringe upon others’ intellectual property;
the possibility that our operating income could fluctuate and may decline as percentage of revenue as we make further expenditures to expand our operations in order to support additional growth in our business;
potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity;
our indebtedness, including potential restrictions on our operations and the impact of events of default; 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 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.

In this report “N-able,” “Company,” “we,” “us” and “our” refer to N-able, Inc. and its consolidated subsidiaries, and references to “SolarWinds” and “Parent” refer to SolarWinds Corporation.
4


PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
N-able, Inc.
Consolidated and Combined Balance Sheets
(In thousands)
(Unaudited)
September 30,December 31,
20212020
Assets
Current assets:
Cash and cash equivalents$61,572 $99,790 
Accounts receivable, net of allowances of $1,049 and $751 as of September 30, 2021 and December 31, 2020, respectively
36,254 29,086 
Income tax receivable2,363 1,262 
Prepaid and other current assets13,593 5,584 
Total current assets113,782 135,722 
Property and equipment, net33,254 19,590 
Operating lease right-of-use assets42,426 13,697 
Deferred taxes3,316 2,982 
Goodwill850,445 874,083 
Intangible assets, net10,571 27,374 
Other assets, net8,771 6,287 
Total assets$1,062,565 $1,079,735 
Liabilities and parent company net investment
Current liabilities:
Accounts payable$5,471 $5,542 
Due to affiliates583 8,023 
Accrued liabilities and other30,897 21,976 
Current operating lease liabilities4,990 2,860 
Accrued related party interest payable 2,477 
Income taxes payable2,377 4,447 
Current portion of deferred revenue10,144 9,502 
Current debt obligation3,500  
Total current liabilities57,962 54,827 
Long-term liabilities:
Due to affiliates 372,650 
Deferred revenue, net of current portion220 168 
Non-current deferred taxes3,754 5,846 
Non-current operating lease liabilities46,464 14,641 
Long-term debt, net of current portion335,846  
Other long-term liabilities412 406 
Total liabilities444,658 448,538 
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock, $0.001 par value: 550,000,000 shares authorized and 178,734,321 and no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
179  
Preferred stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
  
Parent company net investment 582,206 
Additional paid-in capital595,090  
Accumulated other comprehensive income24,567 48,991 
Accumulated deficit(1,929) 
Total stockholders' equity617,907 631,197 
Total liabilities and stockholders' equity$1,062,565 $1,079,735 
The accompanying notes are an integral part of these Consolidated and Combined Financial Statements.
5


N-able, Inc.
Consolidated and Combined Statements of Operations
(In thousands, except per share information)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue:
Subscription and other revenue$88,423 $76,299 $256,953 222,991 
Cost of revenue:
Cost of revenue11,279 9,839 34,366 28,366 
Amortization of acquired technologies1,017 6,181 4,758 18,056 
Total cost of revenue12,296 16,020 39,124 46,422 
Gross profit76,127 60,279 217,829 176,569 
Operating expenses:
Sales and marketing30,178 21,017 80,390 58,424 
Research and development14,649 10,413 39,192 31,933 
General and administrative 19,888 13,661 61,480 35,190 
Amortization of acquired intangibles1,640 6,027 11,935 17,761 
Total operating expenses66,355 51,118 192,997 143,308 
Operating income9,772 9,161 24,832 33,261 
Other expense:
Interest expense, net(3,111)(6,724)(15,711)(21,459)
Other expense, net(884)(292)(1,467)(458)
Total other expense(3,995)(7,016)(17,178)(21,917)
Income before income taxes5,777 2,145 7,654 11,344 
Income tax expense3,904 3,274 9,597 8,560 
Net income (loss) $1,873 $(1,129)$(1,943)$2,784 
Net income (loss) available to common stockholders$1,873 $(1,129)$(1,943)$2,784 
Net income (loss) available to common stockholders per share:
    Basic earnings (loss) per share$0.01 $(0.01)$(0.01)$0.02 
    Diluted earnings (loss) per share$0.01 $(0.01)$(0.01)$0.02 
Weighted-average shares used to compute net income (loss) available to common stockholders per share:
    Shares used in computation of basic earnings (loss) per share:174,468 158,124 163,601 158,124 
    Shares used in computation of diluted earnings (loss) per share:175,752 158,124 163,601 158,124 
The accompanying notes are an integral part of these Consolidated and Combined Financial Statements.
6


N-able, Inc.
Consolidated and Combined Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net income (loss) $1,873 $(1,129)$(1,943)$2,784 
Other comprehensive (loss) income:
Foreign currency translation adjustment(10,512)20,299 (24,424)17,265 
Other comprehensive (loss) income(10,512)20,299 (24,424)17,265 
Comprehensive (loss) income$(8,639)$19,170 $(26,367)$20,049 
The accompanying notes are an integral part of these Consolidated and Combined Financial Statements.

7


N-able, Inc.
Consolidated and Combined Statements of Stockholders' Equity and Parent Company Net Investment
(In thousands)
(Unaudited)
Three Months Ended September 30, 2021
Common Stock
SharesAmountParent Company Net InvestmentAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal
Balance at June 30, 2021 $ $598,196 $ $35,079 $ $633,275 
Net income— — 3,802 — — — 3,802 
Proceeds from Private Placement shares, net of issuance costs20,623 21 216,000 (21)— — 216,000 
Distribution of net proceeds from Private Placement to Parent— — (216,000)— — — (216,000)
Net transfers to Parent— — (18,161)— — — (18,161)
Consummation of Separation transaction158,020 158 (583,837)583,858 — — 179 
Balance as of July 19, 2021178,643 $179 $ $583,837 $35,079 $ $619,095 
Net loss— — — — — (1,929)(1,929)
Foreign currency translation adjustment— — — — (10,512)*— (10,512)
Exercise of stock options30 — — 18 — — 18 
Restricted stock units issued, net of shares withheld for taxes56 — — (382)— — (382)
Issuance of stock5 — — — — — — 
Stock-based compensation— — — 11,617 — — 11,617 
Balance at September 30, 2021178,734 $179 $ $595,090 $24,567 $(1,929)$617,907 
Nine Months Ended September 30, 2021
Common Stock
SharesAmountParent Company Net InvestmentAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal
Balance at December 31, 2020 $ $582,206 $ $48,991 $ $631,197 
Net loss— — (14)— — — (14)
Foreign currency translation adjustment— — — — (13,912)— (13,912)
Stock-based compensation— — 9,023 — — — 9,023 
Net transfers from Parent— — 10,783 — — — 10,783 
Proceeds from Private Placement shares, net of issuance costs20,623 21 216,000 (21)— — 216,000 
Distribution of net proceeds from Private Placement to Parent— — (216,000)— — — (216,000)
Net transfers to Parent— — (18,161)— — — (18,161)
Consummation of Separation transaction158,020 158 (583,837)583,858 — — 179 
Balance as of July 19, 2021178,643 $179 $ $583,837 $35,079 $ $619,095 
Net loss— — — — — (1,929)(1,929)
Foreign currency translation adjustment— — — — (10,512)*— (10,512)
Exercise of stock options30 — — 18 — — 18 
Restricted stock units issued, net of shares withheld for taxes56 — — (382)— — (382)
Issuance of stock5 — — — — — — 
Stock-based compensation— — — 11,617 — — 11,617 
Balance at September 30, 2021178,734 $179 $ $595,090 $24,567 $(1,929)$617,907 
__________
* In connection with the Separation and Distribution, as defined in Note 1. Organization and Nature of Operations of the Notes to Consolidated and Combined Financial Statements, our United Kingdom legal entity changed its functional currency from the Pound Sterling to the US dollar. The impact of this change is reflected in the foreign currency translation adjustment for the period of July 20, 2021 through September 30, 2021.
8


Three Months Ended September 30, 2020
Common Stock
SharesAmountParent Company Net InvestmentAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal
Balance at June 30, 2020 $ $573,709 $ $3,543 $ $577,252 
Net loss— — (1,129)— — — (1,129)
Foreign currency translation adjustment— — — — 20,299 — 20,299 
Stock-based compensation— — 6,165 — — — 6,165 
Net transfers from Parent— — 4,412 — — — 4,412 
Balance at September 30, 2020 $ $583,157 $ $23,842 $ $606,999 


Nine Months Ended September 30, 2020
Common Stock
SharesAmountParent Company Net InvestmentAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal
Balance at December 31, 2019 $ $557,120 $ $6,577 $ $563,697 
Net income— — 2,784 — — — 2,784 
Foreign currency translation adjustment— — — — 17,265 — 17,265 
Stock-based compensation— — 12,081 — — — 12,081 
Net transfers from Parent— — 11,172 — — — 11,172 
Balance at September 30, 2020 $ $583,157 $ $23,842 $ $606,999 
The accompanying notes are an integral part of these Consolidated and Combined Financial Statements
9


N-able, Inc.
Consolidated and Combined Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20212020
Cash flows from operating activities
Net (loss) income $(1,943)$2,784 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization25,058 41,760 
Provision for doubtful accounts1,549 1,389 
Stock-based compensation expense20,962 12,081 
Deferred taxes(2,426)(2,594)
Amortization of debt issuance costs324  
Operating lease right-of-use assets, net1,807 (2,797)
Loss on foreign currency exchange rates1,195 1,359 
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business combinations:
Accounts receivable(8,235)(3,194)
Income tax receivable(1,100)(546)
Prepaid expenses and other assets(10,301)172 
Accounts payable(1,738)498 
Due to and from affiliates(7,834)5,902 
Accrued liabilities and other12,646 5,414 
Accrued related party interest payable(2,477)4,636 
Income taxes payable(2,016)(980)
Deferred revenue688 497 
Other long-term liabilities 3,132 
Net cash provided by operating activities26,159 69,513 
Cash flows from investing activities
Purchases of property and equipment(19,409)(6,418)
Purchases of intangible assets(2,920)(2,746)
Net cash used in investing activities(22,329)(9,164)
Cash flows from financing activities
Proceeds from Private Placement, net of $9,000 of issuance costs
216,000  
Distribution of net proceeds from Private Placement to Parent(216,000)
Payments of tax withholding obligations related to restricted stock(381) 
Exercise of stock options18  
Proceeds from Credit Agreement350,000  
Payments for debt issuance costs(10,075) 
Repayments of borrowings due to affiliates(372,650)(21,750)
Net transfers (to) from Parent(7,378)11,172 
Net cash used in financing activities(40,466)(10,578)
Effect of exchange rate changes on cash and cash equivalents(1,582)(747)
Net (decrease) increase in cash and cash equivalents(38,218)49,024 
Cash and cash equivalents
Beginning of period99,790 39,348 
End of period$61,572 $88,372 
Supplemental disclosure of cash flow information:
Cash paid for interest$17,796 $16,827 
Cash paid for income taxes$14,985 $11,492 
Supplemental disclosure of non-cash activities:
Change in purchases of property, equipment and leasehold improvements included in accounts payable and accrued expenses$1,542 $19 
Right-of-use assets obtained in exchange for operating lease liabilities$31,079 $5,765 
10


The accompanying notes are an integral part of these Consolidated and Combined Financial Statements.
11

N-able, Inc.
Notes to Consolidated and Combined Financial Statements (Unaudited)


1. Organization and Nature of Operations
Background
On August 6, 2020, SolarWinds Corporation ("SolarWinds" or "Parent") announced that its board of directors had authorized management to explore a potential spin-off of its managed service provider ("MSP") business into our company, a newly created and separately traded public company, and separate into two distinct, publicly traded companies (the "Separation").
On July 19, 2021, SolarWinds completed the Separation through a pro-rata distribution (the "Distribution") of all the outstanding shares of our common stock it held to the stockholders of record of SolarWinds as of the close of business on July 12, 2021 (the "Record Date"). Each SolarWinds stockholder of record received one share of our common stock, $0.001 par value, for every two shares of SolarWinds common stock, $0.001 par value, held by such stockholder as of the close of business on the Record Date. SolarWinds distributed 158,020,156 shares of our common stock in the Distribution, which was effective at 11:59 p.m., Eastern Time, on July 19, 2021. The Distribution reflected 316,040,312 shares of SolarWinds common stock outstanding on July 12, 2021 at a distribution ratio of one share of our common stock for every two shares of SolarWinds common stock. In addition, on July 19, 2021, and prior to completion of the Distribution, we issued 20,623,282 newly-issued shares of our common stock in connection with a private placement of N-able’s common stock (the “Private Placement”). As a result of the Distribution, we became an independent public company and our common stock is listed under the symbol "NABL" on the New York Stock Exchange. Depending on the periods presented, our interim financial statements are presented on a consolidated or combined, "carve out," basis as described below.
Description of Business
N-able, Inc., a Delaware corporation, together with its subsidiaries is a leading global provider of cloud-based software solutions for MSPs, enabling them to support digital transformation and growth within small and medium-sized enterprises ("SMEs"), which we define as those enterprises having less than 1,000 employees. With a flexible technology platform and powerful integrations, N-able makes it easy for MSPs to monitor, manage, and protect their end-customer systems, data, and networks. Our growing portfolio of security, automation, and backup and recovery solutions is built for IT services management professionals. N-able simplifies complex ecosystems and enables customers to solve their most pressing challenges. In addition, we provide extensive, proactive support—through enriching partner programs, hands-on training, and growth resources—to help MSPs deliver exceptional value and achieve success at scale. Through our multi-dimensional land and expand model and global presence, we are able to drive strong recurring revenue growth, profitability and retention.
N-able qualifies as an “emerging growth company” (“EGC”) as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).
2. Summary of Significant Accounting Policies
Basis of Presentation
Our financial statements for the periods through the Separation date of July 19, 2021 are Combined Financial Statements prepared on a “carve-out” basis. Our financial statements for the period from July 20, 2021 through September 30, 2021 are Consolidated Financial Statements based on our reported results as a standalone company. We prepared our interim Consolidated and Combined Financial Statements in conformity with United States of America generally accepted accounting principles ("GAAP") and the reporting regulations of the Securities and Exchange Commission ("SEC"). They do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying Consolidated and Combined Financial Statements include the accounts of N-able, Inc. and the accounts of its wholly owned subsidiaries. We have eliminated all intercompany balances and transactions.
The Consolidated and Combined Financial Statements at September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 are unaudited, but in our opinion include all normal recurring adjustments necessary for a fair statement of the results for the interim periods presented. The Combined Balance Sheet at December 31, 2020 was derived from our audited financial statements. The results reported in these Consolidated and Combined Financial Statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the financial statements and notes in our registration statement on Form 10 (File No. 001-40297), initially filed with the SEC on March 29, 2021, as amended by Amendment No. 1 filed on April 6, 2021, Amendment No. 2 filed on April 14, 2021, Amendment No. 3 filed on May 27, 2021, and Amendment No. 4 filed on June 15, 2021 (the "Form 10"). The Form 10 includes a preliminary information statement that describes the Distribution and provides information regarding our business and management. The Registration Statement was declared effective by the SEC at 3:00
12

N-able, Inc.
Notes to Consolidated and Combined Financial Statements (Unaudited)

p.m. Central Time on June 25, 2021. The final information statement was furnished as exhibit 99.3 to the Form 8-K we filed with the SEC on July 12, 2021 (the "Information Statement").
The Consolidated and Combined Statements of Operations include all revenues and costs directly attributable to N-able as well as an allocation of expenses related to facilities, functions and services provided by SolarWinds prior to the Separation. These corporate expenses have been allocated to us based on direct usage or benefit, where identifiable, with the remainder allocated based on headcount. See Note 4. Relationship with Parent and Related Entities for further details. The allocated costs were deemed to be settled by N-able to SolarWinds in the period in which the expense was recorded in the Consolidated and Combined Statements of Operations. The Consolidated and Combined Statements of Cash Flows present these corporate expenses as cash flows from operating activities, as these costs were incurred by SolarWinds. Current and deferred income taxes and related tax expense have been determined based on the stand-alone results of N-able by applying Accounting Standards Codification No. 740, Income Taxes (“ASC 740”), to N-able’s operations in each country as if it were a separate taxpayer (i.e. following the Separate Return Methodology).
The Consolidated and Combined Financial Statements include all assets and liabilities that resided in N-able legal entities. Assets and liabilities in shared entities as of December 31, 2020 were included in the stand-alone financial statements to the extent the asset or liability is primarily used by N-able. If N-able was not the primary user of the asset or liability, it was excluded entirely from the Consolidated and Combined Financial Statements. SolarWinds used a legal entity approach to cash management and financing its operations. Accordingly, cash and cash equivalents, related party debt and related interest expense have been attributed to N‑able in the Consolidated and Combined Financial Statements only to the extent such items had been historically legally entitled within N-able legal entities. Any such items which existed in other entities, whether shared or otherwise, wee outside of the control of the N-able business and have been excluded from the Consolidated and Combined Financial Statements.
SolarWinds maintains various stock-based compensation plans at a corporate level. N-able employees participated in those programs prior to the Separation and a portion of the compensation cost associated with those plans is included in N-able’s Consolidated and Combined Statements of Operations. The stock-based compensation expense is included within Parent company net investment for periods prior to the Separation, and is included within additional paid-in capital following the Separation. The amounts presented in the Consolidated and Combined Financial Statements are not necessarily indicative of future awards. See Note 4. Relationship with Parent and Related Entities for further details.
SolarWinds' third party debt and the related interest have not been allocated to us for any of the applicable periods presented because SolarWinds' borrowings were primarily for corporate cash purposes and were not directly attributable to N-able. In addition, none of the N-able legal entities guaranteed the debt nor were they jointly and severally liable for SolarWinds' debt.
Any transactions which have been included in the Consolidated and Combined Financial Statements from legal entities which are not exclusively operating as N-able legal entities are considered to be effectively settled in the Consolidated and Combined Financial Statements at the time the transaction is recorded between SolarWinds and the N-able business. The total net effect of the settlement of these intercompany transactions is reflected in the Consolidated and Combined Statements of Cash Flows as a financing activity and in the Consolidated and Combined Balance Sheets as Parent company net investment. Other transactions between N-able legal entities and other SolarWinds legal entities, to the extent such transactions have not been settled in cash as of the period-end date, are reflected in the Consolidated and Combined Balance Sheets as due to affiliates, and due from affiliates which is included within accounts receivable.
All of the allocations and estimates in the Consolidated and Combined Financial Statements are based on assumptions that management believes are reasonable. However, the Consolidated and Combined Financial Statements included herein may not be indicative of the financial position, results of operations and cash flows of N-able in the future or if N-able had been a separate, stand-alone publicly traded entity during the applicable periods presented. Actual costs that may have been incurred if we had been a standalone company would depend on a number of factors, including the organizational structure, whether functions were outsourced or performed by employees, and strategic decisions made in areas such as information technology and infrastructure. Going forward, we may perform these functions using our own resources or outsourced services. For a period following the Separation, however, some of these functions continue to be provided by SolarWinds under a Transition Services Agreement. Additionally, we provide some services to SolarWinds under such Transition Services Agreement.
Use of Estimates
The preparation of Consolidated and Combined Financial Statements in conformity with GAAP requires 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 impact from the rapidly changing market and economic conditions due to the coronavirus disease 2019 ("COVID-19") pandemic on our business, results of operations and financial condition is uncertain. We have made estimates of the impact of the COVID-19
13

N-able, Inc.
Notes to Consolidated and Combined Financial Statements (Unaudited)

pandemic within our financial statements as of and for the three and nine months ended September 30, 2021 which did not result in material adjustments. The estimates assessed included, but were not limited to, allowances for credit losses, the carrying values of goodwill and intangible assets and other long-lived assets, valuation allowances for tax assets and revenue recognition and may change in future 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;
income taxes; and
management’s assessment of allocations.
Recently Adopted Accounting Pronouncements
As of September 30, 2021, there have been no recent accounting pronouncements or changes in accounting pronouncements that are expected to have a material impact on our consolidated financial position, results of operations, or cash flows from those that were disclosed in the Information Statement.
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.
The carrying amounts reported in our Consolidated and Combined Balance Sheets for cash, accounts receivable, accounts payable and other accrued expenses approximate fair value due to relatively short periods to maturity. Our related party debt with SolarWinds Holdings, Inc. prior to the Separation is not carried at fair value. See Note 4. Relationship with Parent and Related Entities for further details regarding our related party debt.
Accumulated Other Comprehensive Income
Changes in accumulated other comprehensive income by component are summarized below:
Foreign Currency Translation AdjustmentsAccumulated Other Comprehensive Income (Loss)
(in thousands)
Balance at December 31, 2020$48,991 $48,991 
Other comprehensive loss before reclassification(24,424)(24,424)
Net current period other comprehensive loss(24,424)(24,424)
Balance at September 30, 2021$24,567 $24,567 
14

N-able, Inc.
Notes to Consolidated and Combined Financial Statements (Unaudited)

Revenue
Our revenue consists of the following:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Subscription revenue$86,100 $73,692 $249,592 $214,667 
Other revenue2,323 2,607 7,361 8,324 
Total subscription and other revenue$88,423 $76,299 $256,953 $222,991 

During the three months and nine months periods ended September 30, 2021 and 2020, respectively, we recognized the following revenue from subscription and other services at a point in time and over time:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Revenue recognized at a point in time$16,481 $14,692 $46,673 $43,303 
Revenue recognized over time$71,942 $61,607 $210,280 $179,688 
Total revenue recognized$88,423 $76,299 $256,953 $222,991 

Deferred Revenue
Deferred revenue primarily consists of transaction prices allocated to remaining performance obligations from annually billed subscription agreements and maintenance services associated with our historical sales of perpetual license products, as well as from annually billed subscriptions to our SaaS solutions, which are delivered over time. Certain of our maintenance agreements are billed annually in advance for services to be performed over a 12-month period. We initially record the amounts allocated to maintenance performance obligations as deferred revenue and recognize these amounts ratably on a daily basis over the term of the maintenance agreement.
Details of our total deferred revenue balance was as follows:
Total Deferred Revenue
(in thousands)
Balance at December 31, 2020$9,670 
Deferred revenue recognized(12,862)
Additional amounts deferred13,556 
Balance at September 30, 2021$10,364 
We expect to recognize revenue related to remaining performance obligations as follows:
Revenue Recognition Expected by Period
TotalLess than 1
year
1-3 yearsMore than
3 years
(in thousands)
Expected recognition of deferred revenue$10,364 $10,144 $220 $ 

15

N-able, Inc.
Notes to Consolidated and Combined Financial Statements (Unaudited)

Cost of Revenue
Amortization of Acquired Technologies. Amortization of acquired technologies included in cost of revenue relate to our subscription products as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Amortization of acquired technologies$1,017 $6,181 $4,758 $18,056 
3. Goodwill
The following table reflects the changes in goodwill for the nine months ended September 30, 2021:
(in thousands)
Balance at December 31, 2020$874,083 
Foreign currency translation(23,638)
Balance at September 30, 2021$850,445 
4. Relationship with Parent and Related Entities
Prior to the Separation, the N-able business was managed and operated in the normal course of business consistent with other affiliates of SolarWinds. Accordingly, certain shared costs for the periods through the Separation date of July 19, 2021 have been allocated to N-able and reflected as expenses in the Consolidated and Combined Financial Statements. Management considers the allocation methodologies used to be reasonable and appropriate reflections of the historical SolarWinds expenses attributable to N-able for purposes of the stand-alone financial statements. However, the expenses reflected in the Consolidated and Combined Financial Statements may not be indicative of the actual expenses that would have been incurred during the periods presented if N-able historically operated as a separate, stand-alone entity. In addition, the expenses reflected in the Consolidated and Combined Financial Statements may not be indicative of related expenses that will be incurred in the future by N-able.
General Corporate Overhead
For the periods through the Separation date of July 19, 2021, SolarWinds provided facilities, information technology services and certain corporate and administrative services to the N-able business. Expenses relating to these services have been allocated to N-able and are reflected in the Consolidated and Combined Financial Statements. Where direct assignment is not possible or practical, these costs were allocated based on headcount. The following table summarizes the components of general allocated corporate expenses for the three and nine months ended September 30, 2021:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
General and administrative$1,256 $7,287 $20,357 $16,675 
Research and development118 446 253 1,299 
Sales and marketing263 585 297 1,295 
Cost of revenue90 26 140 132 
Total$1,727 $8,344 $21,047 $19,401 

Due to and from Affiliates
Due to affiliates within long-term liabilities in the Consolidated and Combined Balance Sheets represents N-able's related party debt due to SolarWinds Holdings, Inc. of $372.7 million as of December 31, 2020. In connection with the Separation and Distribution, we repaid this related party debt and we had no remaining related party debt due to SolarWinds Holdings, Inc. as of September 30, 2021.
16

N-able, Inc.
Notes to Consolidated and Combined Financial Statements (Unaudited)

On February 25, 2016, we entered into a loan agreement with SolarWinds Holdings, Inc. with an original principal amount of $250.0 million and a maturity date of February 25, 2023. Borrowings under the loan agreement bear interest at a floating rate which is equal to an adjusted London Interbank Offered Rate ("LIBOR") for a three-month interest period plus 9.8%. Prepayments of borrowings under the loan are permitted. As of December 31, 2020, $228.5 million in borrowings were outstanding. In connection with the Separation and Distribution, we repaid this debt and no borrowings were outstanding as of September 30, 2021.
On May 27, 2016, we entered into an additional loan agreement with SolarWinds Holdings, Inc. The loan agreement, as amended, has an original principal amount of $200.0 million and a maturity date of May 27, 2026. Borrowings under the loan agreement bear interest at a fixed rate of 2.24%. Prepayments of borrowings under the loan are permitted. As of December 31, 2020, $144.2 million in borrowings were outstanding. In connection with the Separation and Distribution, we repaid this debt and no borrowings were outstanding as of September 30, 2021.
Interest expense related to the activity with SolarWinds Holdings, Inc. was $3.1 million and $6.7 million for the three months ended September 30, 2021 and 2020, respectively. Interest expense related to the activity with SolarWinds Holdings, Inc. was $15.7 million and $21.5 million for the nine months ended September 30, 2021 and 2020, respectively. The repayment of principal for these related party borrowings is reflected as a financing activity in the Consolidated and Combined Statements of Cash Flows.
Due to affiliates within current liabilities primarily comprises $0.6 million relating to transition services provided by SolarWinds and $8.0 million of intercompany trade payables as of September 30, 2021 and December 31, 2020, respectively. Due from affiliates within accounts receivable comprises $1.4 million of receivables due from SolarWinds and $0.3 million of intercompany trade receivables for the periods ended September 30, 2021 and December 31, 2020, respectively.
Equity-Based Incentive Plans
Prior to the Separation, certain of our employees participated in Parent’s equity-based incentive plans. Under the SolarWinds Corporation 2016 Equity Incentive Plan (the "2016 Plan"), our employees, consultants, directors, managers and advisors were awarded stock-based incentive awards in a number of forms, including non-qualified stock options. The ability to grant any future equity awards under the 2016 Plan terminated in October 2018. Under the SolarWinds Corporation 2018 Equity Incentive Plan, our employees were eligible to be awarded stock-based incentive awards, including non-statutory stock options or incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock units and other cash-based or share-based awards. Awards granted to our employees under the Parent incentive plans generally vested over periods ranging from one to five years. We measure stock-based compensation for all stock-based incentive awards at fair value on the grant date. Stock-based compensation expense is generally recognized on a straight-line basis over the requisite service periods of the awards.
For the periods through the Separation date of July 19, 2021, compensation costs associated with our employees’ participation in Parent's incentive plans have been specifically identified for employees who exclusively supported our operations and were allocated to us as part of the cost allocations from Parent. Total costs charged to us related to our employees’ participation in Parent’s incentive plans were $0.5 million and $6.0 million for the three months ended September 30, 2021 and 2020, respectively, and $9.3 million and $11.8 million for the nine months ended September 30, 2021 and 2020, respectively. In connection with the Separation and Distribution, all of the outstanding and unvested SolarWinds equity awards held by our employees were converted to N-able awards (the “Conversion”). The modification of these outstanding equity awards resulted in incremental compensation expense to the extent the estimated fair value of the awards immediately following the modification exceeded the estimated fair value of the awards immediately prior to the modification. This expense is to be recognized upfront for all outstanding awards and over the remaining vesting term for all unvested awards. For the three months ended September 30, 2021, we recognized $1.7 million of incremental expense in connection with the Conversion.We include stock-based compensation expense in operating expense (general and administrative, sales and marketing and research and development) and cost of revenue on our Consolidated and Combined Statements of Operations, depending on the nature of the employee’s role in our operations.
Employee Stock Purchase Plan
Prior to the Separation, our eligible employees participated in Parent’s 2018 Employee Stock Purchase Plan (the "ESPP"). The ESPP permitted eligible participants to purchase SolarWinds' shares at a discount through regular payroll deductions of up to 20% of their eligible compensation during the offering period. The ESPP was typically implemented through consecutive six-month offering periods. The purchase price of the shares was 85% of the lesser of the fair market value of the closing price per share on the first day of the offering period and the fair market value of the closing price per share on the last day of the offering period. No participant could purchase more than $25,000 worth of common stock per calendar year.
Costs charged to us related to our employees’ participation in Parent’s ESPP were immaterial for the three and nine months ended September 30, 2021 and 2020, respectively.
17

N-able, Inc.
Notes to Consolidated and Combined Financial Statements (Unaudited)

5. Debt
In connection with the Separation and Distribution, on July 19, 2021, certain subsidiaries of the Company entered into a credit agreement (the "Credit Agreement") with JPMorgan Chase, Bank, N.A. as administrative agent and collateral agent and the lenders from time to time party thereto. The Credit Agreement provides for $410.0 million of first lien secured credit facilities (the "Credit Facilities"), consisting of a $60.0 million revolving credit facility (the "Revolving Facility"), and a $350.0 million term loan facility (the "Term Loan"). On July 19, 2021, prior to the completion of the Distribution, the Company distributed approximately $16.5 million, representing the proceeds from the Term Loan, net of the repayment of related party debt due to SolarWinds Holdings, Inc., payment of intercompany trade payables, and fees and other transaction-related expenses, to SolarWinds. The Revolving Facility will primarily be available for general corporate purposes.
The following table summarizes information relating to our outstanding debt as of September 30, 2021:
September 30,
2021
Amount OutstandingEffective Rate
(in thousands, except interest rates)
Term loan facility$350,000 3.50 %
Revolving credit facility  %
Total principal amount350,000 
Unamortized discount and debt issuance costs(10,654)
Total debt, net339,346 
Less: Current debt obligation(3,500)
Long-term debt, net of current portion$335,846 
Borrowings denominated in U.S. dollars under the Revolving Facility bear interest at a floating rate of an Adjusted LIBOR rate (subject to a “floor” of 0.0%) for a specified interest period plus an applicable margin of 3.00%. The borrowings denominated in Euros under the Revolving Facility bear interest at a floating rate of an Adjusted EURIBOR rate (subject to a “floor” of 0.0%) for a specified interest period plus an applicable margin of 3.00%. Borrowings under the Term Loan bear interest at a floating rate of an Adjusted LIBOR rate (subject to a “floor” of 0.5%) for a specified interest period plus an applicable margin of 3.00%. Each margin is subject to reductions to 2.75% and 1.75%, respectively, based on our first lien net leverage ratio.

In addition to paying interest on loans outstanding under the Revolving Facility, we are required to pay a commitment fee of 0.375% per annum in respect of unused commitments thereunder, subject to a reduction to 0.25% per annum based on our first lien net leverage ratio.

The Term Loan requires quarterly repayments equal to 0.25% of the original principal amount, commencing in December 2021 through June 2028. The final maturity dates of the Revolving Facility and Term Loan are July 18, 2026 and July 18, 2028, respectively.

The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability to: incur additional indebtedness; create liens; engage in mergers or consolidations; sell or transfer assets; pay dividends and distributions or repurchase our capital stock; make investments, loans, or advances; prepay certain junior indebtedness; engage in certain transactions with affiliates; and enter into negative pledge agreements. In addition, the Revolving Facility is subject to a financial covenant requiring compliance with a maximum first lien net leverage ratio of 7.50 to 1.00 at the end of each fiscal quarter, which will trigger when loans outstanding under the Revolving Facility exceed 35% of the aggregate commitments under the Revolving Facility. The Credit Agreement contains certain customary events of default, including, among others, failure to pay principal, interest or other amounts; inaccuracy of representations and warranties; violation of covenants; cross events of default; certain bankruptcy and insolvency events; certain ERISA events; certain undischarged judgments; and change of control.

As of September 30, 2021, we were in compliance with all covenants of the Credit Agreement.

6. Earnings Per Share
18

N-able, Inc.
Notes to Consolidated and Combined Financial Statements (Unaudited)

A reconciliation of the number of shares in the calculation of basic and diluted (loss) earnings per share follows:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Basic earnings (loss) per share:
Numerator:
Net income (loss)$1,873 $(1,129)$(1,943)$2,784 
Net income (loss) available to common stockholders$1,873 $(1,129)$(1,943)$2,784 
Denominator:
Weighted-average common shares outstanding used in computing basic earnings (loss) per share174,468 158,124 163,601 158,124 
Basic earnings (loss) per share$0.01 $(0.01)$(0.01)$0.02 
Diluted earnings (loss) per share:
Numerator:
Net income (loss) available to common stockholders$1,873 $(1,129)$(1,943)$2,784 
Denominator:
Weighted-average shares used in computing basic earnings (loss) per share174,468 158,124 163,601 158,124 
Add dilutive impact of employee equity plans1,284    
Weighted-average shares used in computing diluted earnings (loss) per share175,752 158,124 163,601 158,124 
Diluted earnings (loss) per share$0.01 $(0.01)$(0.01)$0.02 
The dilutive impact of employee equity awards was not applicable to the calculation of diluted net loss per share for the nine months ended September 30, 2021 as the effect would have been anti-dilutive.
7. Income Taxes
For the three months ended September 30, 2021 and 2020, we recorded income tax expense of $3.9 million and $3.3 million, respectively, resulting in an effective tax rate of 67.6% and 152.6%, respectively. For the nine months ended September 30, 2021 and 2020, we recorded income tax expense of $9.6 million and $