Sign in

You're signed outSign in or to get full access.

SC

SolarWinds Corp (SWI)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 revenue was $200.0M (+6% YoY), adjusted EBITDA $96.0M (48% margin), and non-GAAP EPS $0.27 — all above the high end of management’s Q3 guidance, reflecting strong subscription-first execution and disciplined cost control .
  • Subscription ARR grew 36% YoY to $289.5M; Total ARR rose 8% YoY to $724.1M; recurring revenue reached 94% of total, with maintenance renewal rates of 96% in-quarter and 97% trailing 12 months .
  • Guidance raised: Q4 revenue $201–$204M, FY24 revenue to $788–$791M; FY adjusted EBITDA to $376–$379M; FY non-GAAP EPS to $1.08–$1.09 — signaling confidence in execution despite a cautious macro backdrop .
  • Potential stock catalysts: broad-based beat vs company guidance, continued ARR momentum, and product updates (Observability renaming/expansion and GenAI features) that support consolidation/ASP uplift narratives .

What Went Well and What Went Wrong

What Went Well

  • Delivered revenue and adjusted EBITDA above guidance; CEO: “We delivered another solid quarter, once again highlighted by total revenue and adjusted EBITDA above the high end of our guidance range” .
  • Subscription momentum: Q3 subscription revenue +30% YoY to $76.5M; Subscription ARR +36% YoY to $289.5M; recurring revenue mix 94% — CFO highlighted 1,100 customers >$100K ARR (+18% YoY) and sustained ARR growth .
  • Platform/product updates: Observability rebranded and enhanced; management emphasized closing the “hybrid observability gap” and AIOps advancements to cut alert fatigue and time-to-resolution, plus GenAI-enabled ITSM driving ASP uplift in premium packages .

What Went Wrong

  • Legacy revenue headwinds: Maintenance revenue fell 5% YoY to $110.6M amid conversions to subscription; license revenue down 10% YoY to $12.9M; these trends reflect the subscription-first transition but weigh on legacy lines .
  • Ongoing Cyber Incident/legal costs: Non-GAAP excludes “Cyber Incident costs, net”; risk factors include SEC enforcement action and potential costs/penalties; G&A includes Cyber Incident costs in reconciliations .
  • Analyst concern (prior quarter): subscription revenue appeared flattish sequentially vs strong ARR — management cited rev-rec timing differences for on-prem subscription (HCO) and expected back-half increase; Q3 subscription revenue inflected to $76.5M .

Financial Results

Core P&L and Profitability (YoY and Seq)

MetricQ3 2023Q2 2024Q3 2024
Total Revenue ($USD Millions)$189.6 $193.3 $200.0
GAAP Diluted EPS ($)$(0.02) $0.06 $0.07
Non-GAAP Diluted EPS ($)$0.23 $0.26 $0.27
Operating Income ($USD Millions)$38.5 $49.5 $51.7
Adjusted EBITDA ($USD Millions)$85.1 $92.5 $96.0
Adjusted EBITDA Margin (%)44.9% 47.9% 48.0%
GAAP Gross Margin (%)88.7% 89.5% 89.5%
Non-GAAP Gross Margin (%)90.8% 90.8% 90.5%

Revenue Mix

Revenue Component ($USD Millions)Q3 2023Q2 2024Q3 2024
Subscription$58.8 $70.0 $76.5
Maintenance$116.4 $110.3 $110.6
License$14.4 $12.9 $12.9
Total Revenue$189.6 $193.3 $200.0

KPIs and Balance Sheet

KPI / MetricQ1 2024Q2 2024Q3 2024
Subscription ARR ($USD Millions)$251.3 $269.9 $289.5
Total ARR ($USD Millions)$695.3 $704.7 $724.1
Recurring Revenue (% of total)93% 93% 94%
In-Quarter Maintenance Renewal Rate (%)98% 97% 96%
Trailing 12-Month Maintenance Renewal Rate (%)97% 97% 97%
Customers >$100K ARR (count)1,021 1,042 1,100
Cash & ST Investments ($USD Millions)$312.8 $169.6 $199.2
Total Debt ($USD Billions)~$1.2 ~$1.2 ~$1.2
Net Leverage Ratio (TTM Adj. EBITDA, x)~2.7x ~3.0x ~2.8x

Actual vs Company Guidance (Q3 2024)

MetricGuidance High End (Q2 release)Actual Q3Surprise
Total Revenue ($USD Millions)$196 $200.0 +$4.0M
Adjusted EBITDA ($USD Millions)$93 $96.0 +$3.0M
Non-GAAP Diluted EPS ($)$0.26 $0.27 +$0.01

Note: Wall Street consensus from S&P Global was unavailable for SWI due to mapping constraints; estimate comparisons are anchored to company guidance [GetEstimates error].

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($USD Millions)Q4 2024N/A$201–$204 New
Adjusted EBITDA ($USD Millions)Q4 2024N/A$95–$98 New
Non-GAAP Diluted EPS ($)Q4 2024N/A$0.27–$0.28 New
Total Revenue ($USD Millions)FY 2024$778–$788 $788–$791 Raised
Adjusted EBITDA ($USD Millions)FY 2024$368–$375 $376–$379 Raised
Non-GAAP Diluted EPS ($)FY 2024$1.04–$1.08 $1.08–$1.09 Raised
Diluted Shares (Millions)Q4 2024N/A~175.0 New
Diluted Shares (Millions)FY 2024~173.8 ~173.9 Maintained

Earnings Call Themes & Trends

TopicQ1 2024 (Prev)Q2 2024 (Prev)Q3 2024 (Current)Trend
Subscription-first, ARR momentumSubscription ARR +36%; Total ARR +7%; raised FY adj. EBITDA; maintenance renewal 98% in-quarter Subscription ARR +36%; Total ARR +7%; 93% recurring revenue; Rule of 50 and beat Subscription ARR +36%; Total ARR +8%; 94% recurring; continued Rule of 50 Sustained strength
Observability strategyBroad observability/database/ITSM platform; hybrid support growth HCO ARR surpassed $100M milestone; Azure/AWS support expanding Rebranded to SolarWinds Observability; self-hosted + SaaS; closes “hybrid observability gap” Expanding capabilities
AI/AIOps and GenAIAIOps to reduce alert fatigue; AI services framework; Secure by Design AI by Design principles; GenAI in Service Desk to accelerate remediation GenAI runbooks in ITSM premium package; ASP uplift; AIOps anomaly-based alerts Increasing adoption/monetization
Macro/demandSelling environment broadly similar; execution-driven upside Mixed macro but stable; pipeline/partners active Demand “stable”; upside from installed base + new logos; prudence maintained Stable, execution-led
Regulatory/legalFirst to publish CISA secure software self-attestation SEC motion to dismiss largely granted; continued focus on Secure by Design Forward-looking risks reiterated; Cyber Incident costs highlighted Legal risk persists
Go-to-marketInside sales + partner expansion (GSIs/cloud) Transform Partner program; broaden partner ecosystem New CRO joining; extend partner/GSI reach; maintain expense discipline Scaling via partners
Balance sheet/debtJan refinancing −50bps (SOFR+3.25%) July refinancing −50bps to SOFR+2.75%; maturity extended to 2030 Net leverage ~2.8x; monitoring rates to reduce variable interest Improving leverage/cost of debt

Management Commentary

  • CEO on beat and strategy: “We delivered another strong quarter, once again exceeding our guidance across our key metrics… subscription revenue growth of 30% and subscription ARR growth of 36%” .
  • On closing the observability gap: “We designed our observability solutions to close the hybrid observability gap and give our customers unified visibility across on-premises and cloud environments” .
  • AI/ITSM monetization: “Gen AI capabilities… are part of our service desk solutions premium package and result in higher average sales prices” .
  • CFO on profitability and leverage: “Adjusted EBITDA… $96 million… 48% margin… net leverage ratio… ~2.8x… we will look for opportunities to further reduce our variable interest rate” .
  • CEO on customer consolidation: “Customers… use our platform to consolidate their tools, lower TCO and increase visibility across their environments” .

Q&A Highlights

  • Demand backdrop: Management characterized demand as stable; beats driven by execution and value to installed base plus new customers .
  • Guidance philosophy: CFO emphasized prudence and confidence in deliverability; tracking external signals and performance; non-GAAP tax rate 26% for Q4 .
  • Go-to-market evolution: New CRO to expand partner/GSI channels while preserving inside sales strengths and expense-to-bookings discipline .
  • GenAI monetization: GenAI features included in premium ITSM package to drive ASP uplift; consumption-based pricing contemplated but not modeled currently .
  • Consolidation motion: Both renewal cycles and continuous touch customer success drive consolidation motions, improving share of wallet .

Estimates Context

  • S&P Global/Capital IQ consensus data for SWI was unavailable due to a missing mapping in our feed at the time of this analysis; therefore, comparisons to Wall Street consensus could not be provided. As an alternative, we benchmarked actual results against company guidance, which showed beats on revenue, adjusted EBITDA, and non-GAAP EPS [GetEstimates error] .

Key Takeaways for Investors

  • Subscription-first transformation is working: strong ARR growth, rising recurring mix, and sustained maintenance renewals underpin resilience and revenue visibility .
  • Profitability remains a differentiator: 48% adjusted EBITDA margin and raised FY24 EBITDA guidance support cash generation and deleveraging; leverage down to ~2.8x TTM adjusted EBITDA .
  • Beat and raise quarter: Q3 delivered above guidance with Q4 and FY24 outlook raised — a positive narrative catalyst in a cautious macro .
  • Product momentum: Observability renaming and capability expansions, plus AIOps/GenAI features, bolster consolidation/ASP uplift opportunities across on-prem and SaaS .
  • Transition headwinds manageable: Maintenance/license declines are consistent with conversion strategy; subscription revenue should benefit as conversions broaden across geographies/partners .
  • Debt structure improved: July refinancing cut spreads and extended term; management continues to seek lower variable rates — a tailwind for net interest expense over time .
  • Modeling 2025: Management suggests using implied Q4 exit growth rate as baseline; continued focus on ARR, profitability, selective investments and partner-led reach .

Appendix: Non-GAAP Considerations

  • Non-GAAP metrics exclude stock-based comp, amortization, acquisition/other costs, restructuring costs, and “Cyber Incident costs, net”; adjusted EBITDA further excludes interest, taxes, FX, and debt-related costs. Reconciliations provided in the press release .