Executive Summary

SolarWinds delivered Q2 revenue of $193.3M (+4% YoY) and produced its highest adjusted EBITDA in 15 quarters at $92.5M (48% margin), both exceeding the high end of guidance, underscoring disciplined execution amid a steady macro backdrop .
Subscription momentum remained robust: Subscription revenue rose 31% YoY, Subscription ARR grew 36% YoY to $269.9M, and Total ARR reached $704.7M (+7% YoY), while recurring revenue accounted for 93% of total revenue .
Full-year 2024 outlook was raised across revenue ($778–$788M), adjusted EBITDA ($368–$375M), and non-GAAP EPS ($1.04–$1.08); Q3 2024 guidance calls for revenue of $191–$196M, adjusted EBITDA of $90–$93M, and non-GAAP EPS of $0.24–$0.26 .
Potential stock catalysts: raised FY guide and durable profitability, continued ARR expansion, debt refinancing (SOFR +2.75%, maturity extended to 2030), and management noting a favorable court order largely granting its motion to dismiss in the SEC matter (July 18) .

What Went Well and What Went Wrong

What Went Well
- Executed above the high end of guidance on revenue and adjusted EBITDA; CEO highlighted “highest quarterly adjusted EBITDA of the past 15 quarters” and ongoing product innovation (e.g., AI by Design, HCO enhancements) .
- Subscription-first transition is working: Subscription revenue +31% YoY, Subscription ARR +36% YoY; trailing 12-mo maintenance renewal rate at 97% with 93% recurring revenue mix .
- Balance sheet actions improved flexibility: term loan refinanced in July to SOFR +2.75% (−50 bps) and extended to Feb 2030; cash and short-term investments at $169.6M .
What Went Wrong
- License revenue declined 17% YoY as the subscription-first motion continues to depress perpetual licenses; maintenance revenue also declined 5% YoY due to migrations to subscription .
- GAAP diluted EPS declined sequentially ($0.06 vs $0.09 in Q1) amid higher tax expense in Q2; management still emphasizes non-GAAP profitability .
- Street comparison unavailable via our S&P Global feed; while results topped company guidance, the inability to benchmark Street consensus limits external beat/miss framing this quarter (see Estimates Context) [GetEstimates error].

Financial Results

Metric	Q2 2023	Q1 2024	Q2 2024
Revenue ($M)	$185.034	$193.311	$193.250
GAAP Diluted EPS ($)	—	$0.09	$0.06
Non-GAAP Diluted EPS ($)	$0.21	$0.29	$0.26
Adjusted EBITDA ($M)	$79.142	$92.070	$92.496
Adjusted EBITDA Margin (%)	42.8%	47.6%	47.9%
GAAP Gross Margin (%)	88.1%	89.2%	89.5%
Non-GAAP Gross Margin (%)	90.3%	90.9%	90.8%
GAAP Operating Income ($M)	$32.645	$46.899	$49.486
Non-GAAP Operating Income ($M)	$74.591	$86.691	$87.161

Segment/Mix

Revenue Mix ($M)	Q2 2023	Q1 2024	Q2 2024
Subscription	$53.389	$68.757	$70.033
Maintenance	$116.056	$111.720	$110.306
License	$15.589	$12.834	$12.911
Recurring % of Total	—	93%	93%

Key KPIs

KPI	Q4 2023	Q1 2024	Q2 2024
Total ARR ($M)	$684	$695.3	$704.7
Subscription ARR ($M)	$233	$251.3	$269.9
Customers >$100k ARR (count)	979	1,021	1,042
Trailing 12-mo Maintenance Renewal Rate (%)	96%	97%	97%

Notes on non-GAAP: Non-GAAP results exclude stock-based compensation and related payroll taxes, amortization of acquired intangibles/technologies, restructuring costs, acquisition/other costs, Cyber Incident costs (net), and certain other items; reconciliations provided in the press release .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Total Revenue	FY 2024	$771–$786M	$778–$788M	Raised
Adjusted EBITDA	FY 2024	$360–$370M	$368–$375M	Raised
Non-GAAP Diluted EPS	FY 2024	$1.00–$1.04	$1.04–$1.08	Raised
Weighted Avg Diluted Shares	FY 2024	~173.4M	~173.8M	Increased
Total Revenue	Q3 2024	n/a	$191–$196M	New
Adjusted EBITDA	Q3 2024	n/a	$90–$93M	New
Non-GAAP Diluted EPS	Q3 2024	n/a	$0.24–$0.26	New
Weighted Avg Diluted Shares	Q3 2024	n/a	~173.6M	New

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’23, Q1’24)	Current Period (Q2’24)	Trend
Macro/linearity	Macro uncertain but stable; velocity benefits from mid-market mix	No meaningful macro change vs Q1; pipeline supported by partners	Stable
Subscription-first & ARR	Strong subscription growth; >$100k ARR customer count introduced	Sub ARR +36% YoY; 1,021 customers >$100k ARR	Sustained strength
Observability (HCO)	Rapid adoption, targeting $100M ARR run-rate	Exceeded $100M in total ARR for HCO; tool consolidation driver	Improving
AI strategy	Multi-year AI work; alert fatigue reduction; ITSM enhancements coming	“AI by Design” principles; ITSM AI in premium tier, flexible hybrid deployment	Expanding scope
Guidance philosophy	Prudent given macro; raised EBITDA in Q1	Raised FY revenue, EBITDA, EPS; Q3 guide prudent	Constructively cautious
Debt & capital allocation	Jan refi to SOFR+3.25%; special dividend in April	July refi to SOFR+2.75%; maturity to 2030; ~3x net leverage post dividend	Improving terms
Legal/SEC matter	Operatively non-disruptive; confidence in facts	Judge largely agreed with motion to dismiss on 7/18	Sentiment positive

Management Commentary

“In Q2, we continued the momentum… exceeding the high end of our guidance for total revenue and adjusted EBITDA, and delivering our highest quarterly adjusted EBITDA of the past 15 quarters.” — Sudhakar Ramakrishna, CEO .
“We ended the second quarter with total ARR of $705 million… subscription ARR… $270 million, an increase of 36% year-over-year.” — J. Barton Kalsu, CFO .
“Our maintenance renewal rate is at 97% on a trailing 12-month basis and was 97% for the second quarter.” — J. Barton Kalsu, CFO .
“In July, we refinanced our term loan, decreasing the interest rate by 50 basis points… and extended the maturity to February 2030.” — J. Barton Kalsu, CFO .
On SEC case: “Judge Engelmayer largely agreed with our motion to dismiss… on Thursday, July 18th.” — Sudhakar Ramakrishna, CEO .

Q&A Highlights

Macro and pipeline: No material change vs Q1; partner program continues to extend reach while maintaining expense discipline .
AI monetization: ITSM AI features in a premium tier with higher ASP; hybrid model lets self-hosted customers use cloud AI extensions; AI permeates across portfolio beyond ITSM .
Subscription revenue vs ARR: Flattish subscription revenue QoQ reflects rev rec dynamics (on-prem HCO) and seasonality; ARR is better health indicator; expect subscription revenue to increase in H2 .
Investments vs margins: With EBITDA above mid-40s target, management may lean into investments to accelerate roadmap and GTM, balancing growth/profitability into 2025 .
Migration pace: Broadened from NA to EMEA and APJ; seeing consistent results across geographies as partners and sales prioritize conversion .

Estimates Context

S&P Global consensus estimates were unavailable via our feed for SWI this quarter (tool mapping error), so we cannot quantify Street revenue/EPS vs actuals; the company exceeded the high end of its own Q2 guidance on revenue and adjusted EBITDA, and raised full-year guidance across revenue, adjusted EBITDA, and non-GAAP EPS .
Given the raised FY 2024 ranges, Street models will need to align upward to at least the new midpoints for revenue ($783M), adjusted EBITDA (~$371.5M), and non-GAAP EPS ($1.06) absent contrary views .

Key Takeaways for Investors

Durable execution: Two consecutive quarters above guidance with high-40s adjusted EBITDA margins despite a steady but unspectacular macro; non-GAAP operating margin ~45% reflects structural discipline .
Subscription transition on track: +36% Subscription ARR and 93% recurring revenue mix reduce volatility and support visibility; continued HCO adoption and >$100k ARR customer growth are positive quality signals .
FY guide raised: Upward revisions to revenue, EBITDA, and EPS suggest confidence into H2; Q3 guide remains prudent, setting a bar that appears achievable given recent trends .
Capital structure strengthened: July refi to SOFR+2.75% and extended maturity to 2030 lowers interest burden and liquidity risk; net leverage ~3x post special dividend .
AI/observability narrative building: “AI by Design” and ITSM AI monetization can enhance pricing/mix, while AIOps capabilities deepen differentiation in hybrid observability and database management .
Watch items: Continued decline in license revenue and maintenance (as intended) should be offset by subscription growth; monitor sequential subscription revenue trajectory in H2 and the pace of global migrations .
Legal overhang: Court’s July order largely agreeing with SolarWinds’ motion to dismiss may reduce event risk perception, but case is not fully concluded; management remains focused on operations .

Appendix: Additional Data Points

Cash & short-term investments: $169.6M at 6/30/24; Total debt ~$1.21B .
Q2 GAAP net income: $11.1M; non-GAAP diluted EPS: $0.26; weighted avg diluted shares ~172.6M in Q2 .
Non-GAAP adjustments include stock-based comp, amortization, restructuring, acquisition/other costs, and Cyber Incident costs (net); see reconciliations .

SolarWinds Corp (SWI)·Q2 2024 Earnings Summary