nabl-20220930

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, 2022


☐			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.)

30 Corporate Drive

Suite 400

Burlington, Massachusetts 01803

(781) 328-6490

(Address and telephone number of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value	NABL	New 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 filer	☑	Smaller 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 7, 2022, 180,684,640 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.	Financial Statement s (Unaudited)	5
	Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	5
	Consolidated Statements of Operations for the three and nine month periods ended September 30, 2022 and 2021	6
	Consolidated Statements of Comprehensive Loss for the three and nin e month periods ended September 30, 2022 and 2021	7
	Consolidated Statements of Stockholders' Equity for the three and nine month periods ended September 30, 2022 and 2021	8
	Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2022 and 2021	10
	Notes to the Consolidated Financial Statements	11
	1. Organization and Nature of Operations
	2. Summary of Significant Accounting Policies
	3. Acquisitions
	4 . Goodwill
	5 . Relationship with Parent and Related Entities
	6. Fair Value Measurements
	7. Accrued Liabilities and Other
	8. Debt
	9. Earnings Per Share
	10. Income Taxes
	11. Commitment and Contingencies
	12. Subsequent Events
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures of Market Risk	38
Item 4.	Controls and Procedures	40
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
	Signature	43
	Certifications

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 the impact of foreign exchange rates and macroeconomic conditions on our business;

•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;

•the impact of adverse economic conditions;

•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 may cause information technology spending to be reduced or purchasing decisions to be delayed, including as a result of the COVID-19 pandemic, inflation, rising interest rates, war and political unrest, military conflict (including between Russia and Ukraine), terrorism, sanctions or other geopolitical events globally, or that such factors may otherwise harm our financial condition or results of operations;

•any 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;

•any inability to successfully identify, complete and integrate acquisitions and manage our growth effectively;

•risks associated with our international operations;

•foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity;

•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 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 us or our 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;

•our indebtedness, including rising interest rates, potential restrictions on our operations and the impact of events of default;

•our ability to operate our business internationally and increase sales of our solutions to our MSP partners located outside of the United States; 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.

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

N-able, Inc.

Consolidated Balance Sheets

(In thousands)

(Unaudited)


	September 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	87,729	$	66,736

Accounts receivable, net of allowances of $1,791 and $1,653 as of September 30, 2022 and December 31, 2021, respectively	31,625		33,041
Income tax receivable	9,973		7,250

Prepaid and other current assets	14,265		13,962
Total current assets	143,592		120,989
Property and equipment, net	37,271		38,748
Operating lease right-of-use assets	33,033		36,206
Deferred taxes	1,707		1,681
Goodwill	795,937		840,923
Intangible assets, net	9,994		8,066
Other assets, net	9,922		9,086
Total assets	$	1,031,456	$	1,055,699
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	2,797	$	5,865
Due to affiliates	—		464
Accrued liabilities and other	33,802		30,944
Current operating lease liabilities	5,763		4,830


Income taxes payable	2,606		4,600
Current portion of deferred revenue	10,953		10,675
Current debt obligation	3,500		3,500
Total current liabilities	59,421		60,878
Long-term liabilities:

Deferred revenue, net of current portion	281		223
Non-current deferred taxes	5,224		2,632
Non-current operating lease liabilities	34,130		37,822
Long-term debt, net of current portion	333,959		335,379
Other long-term liabilities	4,309		410
Total liabilities	437,324		437,344
Commitments and contingencies (Note 11)

Stockholders’ equity:
Common stock, $0.001 par value: 550,000,000 shares authorized and 180,459,957 and 179,049,429 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	180		179
Preferred stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	—		—

Additional paid-in capital	626,240		602,996
Accumulated other comprehensive (loss) income	(42,137)		15,053
Retained earnings	9,849		127
Total stockholders' equity	594,132		618,355
Total liabilities and stockholders' equity	$	1,031,456	$	1,055,699

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

N-able, Inc.

Consolidated Statements of Operations

(In thousands, except per share information)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue:
Subscription and other revenue	$	93,527	$	88,423	$	276,014	256,953
Cost of revenue:
Cost of revenue	14,587		11,279		41,492		34,366
Amortization of acquired technologies	516		1,017		2,043		4,758
Total cost of revenue	15,103		12,296		43,535		39,124
Gross profit	78,424		76,127		232,479		217,829
Operating expenses:
Sales and marketing	31,149		30,178		94,223		80,390
Research and development	16,038		14,649		46,664		39,192
General and administrative	18,050		19,888		54,119		61,480
Amortization of acquired intangibles	1,465		1,640		4,386		11,935
Total operating expenses	66,702		66,355		199,392		192,997
Operating income	11,722		9,772		33,087		24,832
Other expense:
Interest expense, net	(5,088)		(3,111)		(12,459)		(15,711)
Other expense, net	(1,795)		(884)		(561)		(1,467)
Total other expense	(6,883)		(3,995)		(13,020)		(17,178)
Income before income taxes	4,839		5,777		20,067		7,654
Income tax expense	4,545		3,904		10,345		9,597
Net income (loss)	$	294	$	1,873	$	9,722	$	(1,943)

Net income (loss) per share:
Basic earnings (loss) per share	$	0.00	$	0.01	$	0.05	$	(0.01)
Diluted earnings (loss) per share	$	0.00	$	0.01	$	0.05	$	(0.01)
Weighted-average shares used to compute net income (loss) per share:
Shares used in computation of basic earnings (loss) per share:	180,323		174,468		180,072		163,601
Shares used in computation of diluted earnings (loss) per share:	181,145		175,752		180,966		163,601

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

N-able, Inc.

Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income (loss)	$	294	$	1,873	$	9,722	$	(1,943)
Other comprehensive loss:
Foreign currency translation adjustment	(22,248)		(10,512)		(57,190)		(24,424)

Other comprehensive loss	(22,248)		(10,512)		(57,190)		(24,424)
Comprehensive loss	$	(21,954)	$	(8,639)	$	(47,468)	$	(26,367)

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

N-able, Inc.

Consolidated Statements of Stockholders' Equity

(In thousands)

(Unaudited)


	Three Months Ended September 30, 2022
	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total








Balance as of June 30, 2022	180,147	$	180	$	616,148	$	(19,889)	$	9,555	$	605,994
Net income	—	—		—		—		294		294
Foreign currency translation adjustment	—	—		—		(22,248)		—		(22,248)
Exercise of stock options	3	—		4		—		—		4
Restricted stock units issued, net of shares withheld for taxes	221	—		(810)		—		—		(810)
Issuance of stock	4	—		—		—		—		—
Issuance of stock under employee stock purchase plan	85	—		747						747
Stock-based compensation	—	—		10,151		—		—		10,151
Balance as of September 30, 2022	180,460	$	180	$	626,240	$	(42,137)	$	9,849	$	594,132


	Nine Months Ended September 30, 2022
	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
Balance as of December 31, 2021	179,049	$	179	$	602,996	$	15,053	$	127	$	618,355








Net income	—	—		—		—		9,722		9,722
Foreign currency translation adjustment	—	—		—		(57,190)		—		(57,190)
Exercise of stock options	27	—		31		—		—		31
Restricted stock units issued, net of shares withheld for taxes	1,182	1		(6,354)		—		—		(6,353)
Issuance of stock	60	—		—		—		—		—
Issuance of stock under employee stock purchase plan	142	—		1,315		—		—		1,315
Stock-based compensation	—	—		28,252		—		—		28,252
Balance as of September 30, 2022	180,460	$	180	$	626,240	$	(42,137)	$	9,849	$	594,132


	Three Months Ended September 30, 2021
	Common Stock
	Shares	Amount		Parent Company Net Investment		Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total
Balance as of June 30, 2021	—	$	—	$	598,196	$	—	$	35,079	$	—	$	633,275
Net income	—	—		3,802		—		—		—		3,802
Proceeds from Private Placement shares, net of issuance costs	20,623	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 transaction	158,020	158		(583,837)		583,858		—		—		179
Balance as of July 19, 2021	178,643	$	179	$	—	$	583,837	$	35,079	$	—	$	619,095
Net loss	—	—		—		—		—		(1,929)		(1,929)
Foreign currency translation adjustment	—	—		—		—		(10,512)		—		(10,512)
Exercise of stock options	30	—		—		18		—		—		18
Restricted stock units issued, net of shares withheld for taxes	56	—		—		(382)		—		—		(382)
Issuance of stock	5	—		—		—		—		—		—
Stock-based compensation	—	—		—		11,617		—		—		11,617
Balance as of September 30, 2021	178,734	$	179	$	—	$	595,090	$	24,567	$	(1,929)	$	617,907


	Nine Months Ended September 30, 2021
	Common Stock
	Shares	Amount		Parent Company Net Investment		Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total
Balance as of 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 costs	20,623	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 transaction	158,020	158		(583,837)		583,858						179
Balance as of July 19, 2021	178,643	$	179	$	—	$	583,837	$	35,079	$	—	$	619,095
Net loss	—	—		—		—		—		(1,929)		(1,929)
Foreign currency translation adjustment	—	—		—		—		(10,512)		—		(10,512)
Exercise of stock options	30	—		—		18		—		—		18
Restricted stock units issued, net of shares withheld for taxes	56	—		—		(382)		—		—		(382)
Issuance of stock	5	—		—		—		—		—		—
Stock-based compensation	—	—		—		11,617		—		—		11,617
Balance as of September 30, 2021	178,734	$	179	$	—	$	595,090	$	24,567	$	(1,929)	$	617,907

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

N-able, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities
Net income (loss)	$	9,722	$	(1,943)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	18,270		25,058
Provision for doubtful accounts	138		1,549
Stock-based compensation expense	28,078		20,962
Deferred taxes	213		(2,426)
Amortization of debt issuance costs	1,219		324
Operating lease right-of-use assets, net	(1,153)		1,807
Loss on foreign currency exchange rates	889		1,195
Loss on contingent consideration	166		—
Other non-cash expenses	43		—
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business combinations:
Accounts receivable	278		(8,235)
Income tax receivable	(2,802)		(1,100)
Prepaid expenses and other assets	(397)		(10,301)
Accounts payable	(2,437)		(1,738)
Due to and from affiliates	(402)		(7,834)
Accrued liabilities and other	3,126		12,646
Accrued related party interest payable	—		(2,477)
Income taxes payable	(2,910)		(2,016)
Deferred revenue	493		688
Other long-term assets	481		—
Net cash provided by operating activities	53,015		26,159
Cash flows from investing activities
Purchases of property and equipment	(9,690)		(19,409)
Purchases of intangible assets	(3,512)		(2,920)
Acquisitions, net of cash acquired	(9,302)		—
Net cash used in investing activities	(22,504)		(22,329)
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	(6,353)		(381)
Exercise of stock options	31		18
Proceeds from issuance of common stock under employee stock purchase plan	1,315		—
Proceeds from Credit Agreement	—		350,000
Payments for debt issuance costs	—		(10,075)
Repayments of borrowings from Credit Agreement	(2,625)		—
Repayments of borrowings due to affiliates	—		(372,650)
Net transfers to Parent	—		(7,378)
Net cash used in financing activities	(7,632)		(40,466)
Effect of exchange rate changes on cash and cash equivalents	(1,886)		(1,582)
Net increase (decrease) in cash and cash equivalents	20,993		(38,218)
Cash and cash equivalents
Beginning of period	66,736		99,790
End of period	$	87,729	$	61,572

Supplemental disclosure of cash flow information:
Cash paid for interest	$	10,248	$	17,796
Cash paid for income taxes	$	13,157	$	14,985

Supplemental disclosure of non-cash activities:
Change in purchases of property, equipment and leasehold improvements included in accounts payable and accrued expenses	$	(572)	$	1,542
Right-of-use assets obtained in exchange for operating lease liabilities	$	967	$	31,079

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

N-able, Inc.

Notes to Consolidated 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. Our financial statements for the periods through the Separation and Distribution date of July 19, 2021 are prepared on a “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 for 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 and profitability.

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 interim Consolidated Financial Statements do not include all of the information and footnotes required by United States of America generally accepted accounting principles (“GAAP”) for complete financial statements. 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 and Amendment No. 1 on Form 10-K/A for the year ended December 31, 2021, collectively referred to as our “2021 Annual Report.”

Prior to the Separation from SolarWinds

Our financial statements for the periods through the Separation and Distribution date of July 19, 2021 are Consolidated Financial Statements prepared on a “carve-out” basis. The Consolidated 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 and Distribution. 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 5. 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 Statements of Operations and these settlements were reflected in cash flows from operating activities in the Consolidated Statements of Cash Flows. 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).

N-able, Inc.

Notes to Consolidated Financial Statements (Unaudited)

SolarWinds maintains various stock-based compensation plans at a corporate level. N-able employees participated in those programs prior to the Separation and Distribution and a portion of the compensation cost associated with those plans is included in N-able’s Consolidated Statements of Operations. The stock-based compensation expense is included within Parent company net investment for periods prior to the Separation and Distribution, with the accumulated balance included within Parent company net investment being transferred to additional paid-in capital upon consummation of the Separation and Distribution. The amounts presented in the Consolidated Financial Statements are not necessarily indicative of future awards. See Note 5. 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 Financial Statements from legal entities which are not exclusively operating as N-able legal entities are considered to be effectively settled in the Consolidated 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 Statements of Cash Flows as a financing activity. See Note 5. Relationship with Parent and Related Entities for further details.

All of the allocations and estimates in the Consolidated Financial Statements are based on assumptions that management believes are reasonable. However, the Consolidated Financial Statements included herein may not be indicative of the 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 and Distribution, 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. See Note 5. Relationship with Parent and Related Entities for further details regarding allocated shared costs with SolarWinds.

Following the Separation from SolarWinds

Our financial statements for periods from July 20, 2021 forward are Consolidated Financial Statements based on our reported results as a standalone company. We prepared our Consolidated Financial Statements in conformity with GAAP and the reporting regulations of the Securities and Exchange Commission (“SEC”). The accompanying Consolidated 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.

Use of Estimates

The preparation of Consolidated 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 pandemic within our financial statements as of and for the three and nine months ended September 30, 2022 and 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 of expenses prior to the Separation and Distribution.

N-able, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Recently Adopted and Issued Accounting Pronouncements

As of September 30, 2022, 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.

Money Market Fund Financial Assets

As of September 30, 2022, we have money market fund financial assets of $43.1 million, which are included in “cash and cash equivalents” in our Consolidated Balance Sheets. We had no money market fund financial assets as of December 31, 2021. See “Fair Value Measurements” below and Note 6. Fair Value Measurements for further details regarding the fair value measurements of our money market fund financial assets.

Fair Value Measurements

We apply the authoritative guidance on fair value measurements for financial assets and liabilities, such as our money market fund financial assets and contingent consideration 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 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 5. Relationship with Parent and Related Entities for further details regarding our related party debt. See Note 6. Fair Value Measurements for a summary of our financial instruments accounted for at fair value on a recurring basis as of September 30, 2022. We held no financial instruments as of December 31, 2021. As of September 30, 2022 and December 31, 2021, the carrying value of our outstanding debt approximates its estimated fair value as the interest rate on the debt is adjusted for changes in market rates. See Note 8. Debt for additional information regarding our debt.

Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss by component are summarized below:


	Foreign Currency Translation Adjustments		Accumulated Other Comprehensive Income (Loss)

	(in thousands)




Balance at December 31, 2021	$	15,053	$	15,053
Other comprehensive loss before reclassification	(57,190)		(57,190)

Net current period other comprehensive loss	(57,190)		(57,190)
Balance at September 30, 2022	$	(42,137)	$	(42,137)

N-able, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Revenue

Our revenue consists of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(in thousands)
Subscription revenue	$	91,213	$	86,100	$	269,217	$	249,592
Other revenue	2,314		2,323		6,797		7,361
Total subscription and other revenue	$	93,527	$	88,423	$	276,014	$	256,953

During the three month periods ended September 30, 2022 and 2021, 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,
	2022		2021		2022		2021

	(in thousands)
Revenue recognized at a point in time	$	14,997	$	16,481	$	45,260	$	46,673
Revenue recognized over time	78,530		71,942		$	230,754	$	210,280
Total revenue recognized	$	93,527	$	88,423	$	276,014	$	256,953

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 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, 2021	$	10,898

Deferred revenue recognized	(14,804)
Additional amounts deferred	15,140

Balance at September 30, 2022	$	11,234

We expect to recognize revenue related to remaining performance obligations as of September 30, 2022 as follows:


	Revenue Recognition Expected by Period
	Total		Less than 1 year		1-3 years		More than 3 years

	(in thousands)
Expected recognition of deferred revenue	$	11,234	$	10,953	$	281	$	—

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,
	2022		2021		2022		2021

	(in thousands)

Amortization of acquired technologies	$	516	$	1,017	$	2,043	$	4,758

N-able, Inc.

Notes to Consolidated Financial Statements (Unaudited)

3. Acquisitions

On July 1, 2022, we completed the acquisition of all the outstanding equity of Spinpanel B.V. (“Spinpanel”) for a total consideration of up to approximately $20.0 million, including up to $10.0 million payable upon the achievement of certain revenue metrics through July 1, 2025. We funded the transaction with cash on hand. Based in the Netherlands, Spinpanel is a multi-tenant Microsoft 365 management and automation platform built for Microsoft Cloud Solution Providers to automate the provisioning, security, and management of all Microsoft tenants, users, and licenses in a single consolidated hub. The acquisition of Spinpanel is intended to help our partners optimize the value of their Microsoft Cloud products and, in turn, give Spinpanel customers access to a wider array of IT management and security solutions. We incurred $0.2 million and $0.5 million in acquisition-related costs during the three and nine months ended September 30, 2022, respectively, which are included in general and administrative expense. Goodwill and acquired identifiable intangible assets for this acquisition are not deductible for tax purposes.

The initial determination of the fair value of the assets acquired and liabilities assumed is based on a preliminary valuation and the estimates and assumptions for these items are subject to change as we obtain additional information during the measurement period. Subsequent changes to the purchase price or other fair value adjustments determined during the measurement period will be recorded as an adjustment to goodwill. We may have additional measurement period adjustments as we finalize the fair value of certain assets acquired and liabilities assumed, including the identifiable intangible assets.

The following table summarizes the amounts recognized for the assets acquired and liabilities assumed:


	(in thousands)
Current assets, including cash acquired of $6	$	128
Property and equipment, net	48
Current liabilities	(1,199)
Identifiable intangible assets
Developed technology	8,890
Customer relationships	80
Goodwill	6,515
Total assets acquired, net	$	14,462

The following table summarizes the total consideration for the assets acquired and liabilities assumed:


	(in thousands)
Cash paid, net of cash acquired of $6	$	9,302
Contingent consideration	5,160
Total consideration, net	$	14,462

The following table summarizes the fair value of the acquired identifiable intangible assets and weighted-average useful life by category:


	Fair Value		Weighted-Average Useful Life
	(in thousands)		(in years)
Developed technology	$	8,890	5
Customer relationships	80		3
Total identifiable intangible assets	$	8,970

The results of operations related to Spinpanel since the acquisition date are included in our Consolidated Financial Statements during the three and nine months ended September 30, 2022. As noted above, total consideration includes up to $10.0 million payable upon the achievement of certain revenue metrics through July 1, 2025. The contingent consideration liabilities will be re-evaluated periodically, but at least quarterly, with the resulting gains and losses recognized within general and administrative expense in our Consolidated Statements of Operations and acquisition related costs within our non-GAAP financial measures. As of July 1, 2022, the fair value of this contingent consideration was $5.2 million. As of September 30, 2022, the fair value of this contingent consideration is $5.3 million, resulting in the recognition of a loss of $0.2 million for the three months ended September 30, 2022. The current portion of the contingent consideration of $1.4 million is included in accrued liabilities and other and the non-current portion of $3.9 million is included in other long-term liabilities in our Consolidated Balance Sheets as of September 30, 2022. See Note 6. Fair Value Measurements and Note 11. Commitments and Contingencies for additional information regarding our contingent consideration liabilities.

We estimate the amounts of revenue and net loss related to the Spinpanel acquisition included in our Consolidated Financial Statements from the effective date of the acquisition are insignificant during the three and nine months ended September 30, 2022. Pro forma information for the acquisition has not been provided because the impact of the historical financials on our revenue, net income (loss) and net income (loss) per share is not material. We recognize revenue on the

N-able, Inc.

Notes to Consolidated Financial Statements (Unaudited)

acquired products in accordance with our revenue recognition policy as described in Note 2. Summary of Significant Accounting Policies.

4. Goodwill

The following table reflects the changes in goodwill for the nine months ended September 30, 2022:


	(in thousands)
Balance at December 31, 2021	$	840,923
Acquisitions	6,515
Foreign currency translation	(51,501)
Balance at September 30, 2022	$	795,937

5. Relationship with Parent and Related Entities

Prior to the Separation and Distribution, 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 and Distribution date of July 19, 2021 have been allocated to N-able and reflected as expenses in the Consolidated 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 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 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 and Distribution 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 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,
	2021		2021

	(in thousands)
General and administrative	$	1,256	$	20,357
Research and development	118		253
Sales and marketing	263		297
Cost of revenue	90		140
Total	$	1,727	$	21,047

Due to and from Affiliates

In connection with the Separation and Distribution, we repaid all related party debt due to SolarWinds Holdings, Inc. and had no remaining related party debt due to SolarWinds Holdings, Inc. as of September 30, 2022 and December 31, 2021.

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. In connection with the Separation and Distribution, we repaid this debt in full.

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. In connection with the Separation and Distribution, we repaid this debt in full.

N-able, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Interest expense related to the activity with SolarWinds Holdings, Inc. was $3.1 million and $15.7 million for the three and nine months ended September 30, 2021, respectively. The repayment of principal for these related party borrowings is reflected as a financing activity in the Consolidated Statements of Cash Flows.

Due to affiliates within current liabilities primarily comprises $0.5 million relating to transition services provided by SolarWinds as of December 31, 2021. Due from affiliates within accounts receivable comprises $0.1 million of receivables due from SolarWinds as of December 31, 2021. There were no amounts due to or from SolarWinds as of September 30, 2022.

Equity-Based Incentive Plans

Prior to the Separation and Distribution, 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 and Distribution 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 $9.3 million for the three and nine months ended September 30, 2021, respectively. In connection with the Separation and Distribution, all of the vested and outstanding and unvested SolarWinds equity awards held by our employees were converted to N-able awards through the Conversion. The modification of these 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 vested and outstanding awards and over the remaining vesting term for all unvested awards. For the three and nine months ended September 30, 2022, we recognized $0.6 million and $1.8 million, respectively, 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 Statements of Operations, depending on the nature of the employee’s role in our operations.

Agreements with SolarWinds

In connection with the completion of the Separation and Distribution on July 19, 2021, we entered into several agreements with SolarWinds that, among other things, provide a framework for our relationship with SolarWinds after the Separation and Distribution. The following summarizes some of the most significant agreements and relationships that we continue to have with SolarWinds.

Separation and Distribution Agreement

The Separation and Distribution Agreement sets forth our agreements with SolarWinds regarding the principal actions taken in connection with the Separation and Distribution. It also sets forth other agreements that govern aspects of our relationship with SolarWinds following the Separation and Distribution, including (i) the manner in which legal matters and claims are allocated and certain liabilities are shared between N-able and SolarWinds; (ii) other matters including transfers of assets and liabilities, treatment or termination of intercompany arrangements and the settlement or extinguishment of certain liabilities and other obligations between N-able and SolarWinds; and (iii) mutual indemnification clauses. The Separation and Distribution Agreement also provides that SolarWinds will be liable and obligated to indemnify us for all liabilities based upon, arising out of, or relating to the Cyber Incident other than certain specified expenses for which we will be responsible. The term of the Separation and Distribution Agreement is indefinite and it may only be terminated with the prior written consent of both N-able and SolarWinds.

Transition Services Agreement

We entered into a Transition Services Agreement pursuant to which N-able and SolarWinds provide various services to each other. Under this agreement, SolarWinds continues to provide us with certain corporate and shared services, such as engineering, marketing, internal audit and travel support in exchange for the fees specified in the agreement. The Transition Services Agreement will terminate on the expiration of the term of the last service provided under it, which N-able anticipates to be on or around December 31, 2022. We incurred less than $0.1 million of costs under the Transition Services Agreement during the three and nine months ended September 30, 2022, respectively.

N-able, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Tax Matters Agreement

We entered into a Tax Matters Agreement with SolarWinds that governs the parties’ respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes. Costs incurred under the Tax Matters Agreement were insignificant during the three and nine months ended September 30, 2022, respectively.

Software OEM Agreements

We entered into Software OEM Agreements with SolarWinds pursuant to which SolarWinds granted to N-able, and N-able granted to SolarWinds, a non-exclusive and royalty-bearing license to market, advertise, distribute and sublicense certain SolarWinds and N-able software products, respectively, to customers on a worldwide basis. Each agreement has a two year term, and may be terminated by the applicable licensor in certain instances. We earned $0.4 million and $1.1 million of revenue and incurred less than $0.1 million and $0.2 million of costs under the Software OEM Agreements during the three and nine months ended September 30, 2022, respectively.

Employee Matters Agreement

We entered into an Employee Matters Agreement with SolarWinds that governs N-able's and SolarWinds’ compensation and employee benefit obligations with respect to the employees and other service providers of each company, and generally allocated liabilities and responsibilities relating to employment matters and employee compensation and benefit plans and programs. Costs incurred under the Employee Matters Agreement were insignificant during the three and nine months ended September 30, 2022, respectively.

Intellectual Property Matters Agreement

We entered into an Intellectual Property Matters Agreement with SolarWinds pursuant to which each party granted to the other party a generally irrevocable, non-exclusive, worldwide, and royalty-free license to use certain intellectual property rights retained by the other party. Under the Intellectual Property Matters Agreement, the term for the licensed or sublicensed know-how is perpetual and the term for each licensed or sublicensed patent is until expiration of the last valid claim of such patent. The Intellectual Property Matters Agreement will terminate only if N-able and SolarWinds agree in writing to terminate it. Costs incurred under the Intellectual Property Matters Agreement were insignificant during the three and nine months ended September 30, 2022, respectively.

Trademark License Agreement

We entered into a Trademark License Agreement with SolarWinds pursuant to which SolarWinds granted to N-able a generally limited, worldwide, non-exclusive and royalty-free license to use certain trademarks retained by SolarWinds that were used by SolarWinds in the conduct of its business prior to the Separation and Distribution. The Trademark License Agreement will terminate once we cease to use all of the licensed trademarks. Costs incurred under the Trademark License Agreement were insignificant during the three and nine months ended September 30, 2022, respectively.

Software Cross License Agreement

We entered into a Software Cross License Agreement with SolarWinds pursuant to which each party granted to the other party a generally perpetual, irrevocable, non-exclusive, worldwide and, subject to certain exceptions, royalty-free license to certain software libraries and internal tools for limited uses. The term of the Software Cross License Agreement will be perpetual unless N-able and SolarWinds agree in writing to terminate the agreement. We earned less than $0.1 million and $0.1 million of revenue and incurred $0.1 million and $0.5 million of costs under the Software Cross License Agreement during the three and nine months ended September 30, 2022, respectively.

6. Fair Value Measurements

The following table summarizes the fair value of our money market fund financial assets and contingent consideration financial liabilities that were measured on a recurring basis as of September 30, 2022. We held no financial assets and liabilities as of December 31, 2021. See Note 3. Acquisitions and Note 11. Commitments and Contingencies for additional information

N-able, Inc.

Notes to Consolidated Financial Statements (Unaudited)

regarding our contingent consideration liabilities. There have been no transfers between fair value measurement levels during the nine months ended September 30, 2022.


	Fair Value Measurements at September 30, 2022 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)
Assets:
Money market funds	$	43,125	$	—	$	—	$	43,125
Liabilities:
Contingent consideration	$	—	$	—	$	5,320	$	5,320

As of September 30, 2022, the carrying value of our outstanding debt approximates its estimated fair value as the interest rate on the debt is adjusted for changes in market rates. See Note 8. Debt for additional information regarding our debt.

7. Accrued Liabilities and Other

Accrued and other current liabilities were as follows:


	September 30,		December 31,
	2022		2021

	(in thousands)
Payroll-related accruals	$	16,838	$	16,657
Other accrued expenses and current liabilities	16,964		14,287
Total accrued liabilities and other	$	33,802	$	30,944

8. Debt

In connection with the Separation and Distribution, on July 19, 2021, certain subsidiaries of the Company, including N-able International Holdings I, Inc. (as guarantor) and N-able International Holdings II, Inc. (as borrower), 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. N-able International Holdings I, Inc. is a holding company with no other operations, cash flows, material assets or liabilities other than the equity interests in N-able International Holdings II, Inc. 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, 2022:


	September 30, 2022
	Amount Outstanding		Effective Rate

	(in thousands, except interest rates)
Term loan facility	$	346,500	6.07	%
Revolving credit facility	—		—	%
Total principal amount	346,500
Unamortized discount and debt issuance costs	(9,041)
Total debt, net	337,459
Less: Current debt obligation	(3,500)
Long-term debt, net of current portion	$	333,959

N-able, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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, 2022, we were in compliance with all covenants of the Credit Agreement.

The following table summarizes the remaining future minimum principal payments under Credit Agreement as of September 30, 2022:



	(in thousands)
2022	$	875
2023	3,500
2024	3,500
2025	3,500
2026	3,500
Thereafter	331,625
Total minimum principal payments	$	346,500

N-able, Inc.

Notes to Consolidated Financial Statements (Unaudited)

9. Earnings Per Share

A reconciliation of the number of shares in the calculation of basic and diluted earnings (loss) per share follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(in thousands)
Basic earnings (loss) per share:
Numerator:
Net income (loss)	$	294	$	1,873	$	9,722	$	(1,943)

Denominator:
Weighted-average common shares outstanding used in computing basic earnings (loss) per share	180,323		174,468		180,072		163,601
Basic earnings (loss) per share	$	0.00	$	0.01	$	0.05	$	(0.01)

Diluted earnings (loss) per share:
Numerator:
Net income (loss)	$	294	$	1,873	$	9,722	$	(1,943)
Denominator:
Weighted-average shares used in computing basic earnings (loss) per share	180,323		174,468		180,072		163,601
Add dilutive impact of employee equity plans	822		1,284		894		—
Weighted-average shares used in computing diluted earnings (loss) per share	181,145		175,752		180,966		163,601
Diluted earnings (loss) per share	$	0.00	$	0.01	$	0.05	$	(0.01)

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.

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of the diluted net income per share attributable to common stockholders for the three and nine months ended September 30, 2022 because their effect would have been anti-dilutive or for which the performance condition had not been met at the end of the period:


	Three Months Ended September 30,	Nine Months Ended September 30,
	2022	2022

	(in thousands)




Restricted stock units	5,460	3,589


Total anti-dilutive shares	5,460	3,589

10. Income Taxes

For the three months ended September 30, 2022 and 2021, we recorded income tax expense of $4.5 million and $3.9 million, respectively, resulting in an effective tax rate of 93.9% and 67.6%, respectively. The increase in the effective tax rate for the three months ended September 30, 2022 compared to the same period in 2021 was primarily related to the increase in the amount of unbenefited loss in the U.S. For the nine months ended September 30, 2022 and 2021, we recorded income tax expense of $10.3 million and $9.6 million, respectively, resulting in an effective tax rate of 51.6% and 125.4%, respectively. The decrease in the effective tax rate for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to an increase in income before income taxes and a decrease in the amount of the unbenefited loss in the U.S.

Our policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense. At September 30, 2022, we did not have any accrued interest and penalties related to unrecognized tax benefits.

We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2013 through 2021 tax years generally remain open and subject to examination by federal, state and foreign tax authorities. We are currently under examination by the IRS for the tax years 2013 through the period ending February 2016. During the nine months ended September 30, 2021, we finalized a settlement agreement with the IRS for the tax years 2011 to 2012. We are currently under

N-able, Inc.

Notes to Consolidated Financial Statements (Unaudited)

audit by the Texas Comptroller for the 2015 through 2018 tax years. The Massachusetts Department of Revenue audit for the 2015 through February 2016 tax years was closed with immaterial adjustments. On March 31, 2022, we received correspondence from the Canadian Revenue Agency (“CRA”) indicating that we are under Part XIII Income Tax audit of non-resident withholding for tax years 2017 through 2018. On June 16, 2022, we received correspondence from the CRA indicating the audit for Part XIII Income Tax audit of non-resident withholding for tax years 2017 through 2018 was closed without adjustments.

11. Commitments and Contingencies

Legal Proceedings

From time to time, we have been and may be involved in various legal proceedings arising in our ordinary course of business. In the opinion of management, resolution of any pending claims (either individually or in the aggregate) is not expected to have a material adverse impact on our Consolidated Financial Statements, cash flows or financial position and it is not possible to provide an estimated amount of any such loss. However, the outcome of disputes is inherently uncertain. Therefore, although management considers the likelihood of such an outcome to be remote, an unfavorable resolution of one or more matters could materially affect our future results of operations or cash flows, or both, in a particular period.

Commitments as a Result of Acquisitions

On July 1, 2022, we completed the acquisition of all the outstanding equity of Spinpanel for a total consideration of up to approximately $20.0 million, including up to $10.0 million payable upon the achievement of certain revenue metrics through July 1, 2025. The contingent consideration liabilities will be re-evaluated periodically, but at least quarterly, with the resulting gains and losses recognized within general and administrative expense in our Consolidated Statements of Operations and acquisition related costs within our non-GAAP financial measures. As of July 1, 2022, the fair value of this contingent consideration was $5.2 million. As of September 30, 2022, the fair value of this contingent consideration is $5.3 million, resulting in the recognition of a loss of $0.2 million for the three months ended September 30, 2022. The current portion of the contingent consideration of $1.4 million is included in “accrued liabilities and other” and the non-current portion of $3.9 million is included in “other long-term liabilities” in our Consolidated Balance Sheets as of September 30, 2022. See Note 3. Acquisitions and Note 6. Fair Value Measurements for additional information regarding our contingent consideration liabilities.

12. Subsequent Events

On November 2, 2022, each of Michael Hoffman and Kristin Nimsger Weston notified us and our Board of Directors (the “Board”) of their decision, effective immediately, to resign from the Board and any committee of the Board on which they serve. Each of Mr. Hoffmann and Ms. Weston was elected to the Board as designees of affiliates of Thoma Bravo, L.P. (“Thoma Bravo”) pursuant to the Stockholders’ Agreement, dated as of July 19, 2021, as amended, by and among N-able and certain stockholders named therein. Thoma Bravo has informed us that the resignations are related to Thoma Bravo’s proactive efforts to comply with the interlocking directorate provisions of Section 8 of The Clayton Antitrust Act of 1914. Neither Mr. Hoffmann’s nor Ms. Weston’s resignation was due to any disagreement with N-able on any matter relating to our operations, policies, or practices.

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 Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical 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 “Item 1A. Risk Factors” below for a discussion of the uncertainties, risks and assumptions associated with these statements. 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

N-able, Inc., a Delaware corporation, and its subsidiaries (“Company”, “we,” “us” and “our”) is a leading global provider of cloud-based software solutions for managed service providers (“MSPs”), enabling them to support digital transformation and growth for 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 and profitability.

Separation from SolarWinds

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 MSP business into our company, a newly created and separately traded public company, and separate into two distinct, publicly traded companies (the “Separation”).

Our financial statements for the periods through the Separation and Distribution date of July 19, 2021 are Consolidated Financial Statements prepared on a “carve-out” basis. Our financial statements for the period from July 20, 2021 forward are Consolidated Financial Statements based on our reported results as a standalone company. The Consolidated Financial Statements at September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 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 Consolidated Balance Sheet at December 31, 2021 was derived from audited financial statements. The results reported in these Consolidated 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 audited Consolidated Financial Statements in our Annual Report on Form 10-K and Amendment No. 1 on Form 10-K/A for the year ended December 31, 2021, collectively referred to as our “2021 Annual Report,” and the financial statements and notes in our registration statement on Form 10 (File No. 001-40297), initially filed with the Securities and Exchange Commission (“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 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”). See Note 2. Summary of Significant Accounting Policies and Note 5. Relationship with Parent and Related Entities of the Notes to Consolidated Financial Statements for further details.

Impacts of COVID-19

The impact from the rapidly changing market and economic conditions due to the coronavirus disease 2019 (“COVID-19”) pandemic on our business is uncertain. Prior to the Separation and Distribution, SolarWinds, of which we were a part, initially responded to the COVID-19 pandemic by executing its business continuity plan and transitioning nearly all of its workforce to a remote work environment to prioritize the safety of its personnel. We have maintained a similar plan following the Separation and Distribution, and substantially all of our workforce is still working remotely and, to date, we have not incurred significant disruptions to our business operations as a result of this transition.

We believe that the COVID-19 pandemic creates both opportunities and challenges for our business. As a result of the pandemic, we have seen an acceleration of digital transformation efforts among SMEs with increased demand for secure, modern remote work environments. We believe this will support long-term demand for services offered by our MSP partners. The pandemic also has resulted in significant volatility, uncertainty and disruption in the global economy, in particular for SMEs. As a result of the impact of the COVID-19 pandemic, we experienced a deceleration in our year-over-year subscription revenue growth rate in the second quarter of 2020 as compared to our growth rates in prior periods. We attribute this deceleration primarily to increased churn and downgrades from existing MSP partners and slower MSP partner adds. Beginning in the third quarter of 2020, and continuing through the third quarter of 2022, we have seen the impact on revenue growth continue to dissipate.

We are unable to predict the long-term impact that the pandemic may have on our business, results of operations and financial condition due to numerous uncertainties, including the duration of the pandemic, actions that may be taken by governmental authorities around the world in response to the pandemic, the impacts on the businesses of our MSP partners and their customers and other factors identified in the section entitled Item 1A. Risk Factors in our 2021 Annual Report. We will continue to evaluate the nature and extent of the impacts of the COVID-19 pandemic on our business, results of operations and financial condition.

SolarWinds Cyber Incident

As previously disclosed, SolarWinds was the victim of a cyberattack on its Orion Software Platform and internal systems, or the Cyber Incident. SolarWinds has confirmed to us that it has concluded its internal investigations related to the Cyber Incident. SolarWinds has not identified Sunburst in any of its more than 70 non-Orion products and tools, including, as previously disclosed, any of our N-able solutions. SolarWinds, together with its partners, have undertaken extensive measures to investigate, contain, eradicate, and remediate the Cyber Incident. As SolarWinds previously disclosed in its investigatory updates, it has substantially completed this process and believes the threat actor is no longer active in its environments.

In response to the Cyber Incident and in connection with the Separation and Distribution, we are working to further enhance security, monitoring and authentication of our solutions. Specifically, we have implemented in-product security enhancements to the N-able portfolio of products, including, multi-factor authentication, unified single sign-on services, and secure secret vaults. We have also introduced new identity and access controls, scanning and remediation technologies and standards and monitoring tooling across our enterprise IT and production environments. We expect to incur additional expenses in future periods related to continued enhancements to our security measures across our solutions.

Of the expenses SolarWinds recorded related to the Cyber Incident through the Separation and Distribution date of July 19, 2021, none have been allocated to the N-able business and, as a result of the indemnification provisions under the Separation and Distribution Agreement entered into in connection with the Separation and Distribution (the “Separation and Distribution Agreement”), we have not recorded any contingent liabilities with respect to the Cyber Incident as of September 30, 2022. In addition, as a result of the Cyber Incident, SolarWinds is subject to numerous lawsuits and governmental investigations or inquiries. To date, we have not been separately named in such lawsuits and investigations, but in the future we may become subject to lawsuits, investigations or inquiries related to the Cyber Incident. In such event, subject to the terms of the Separation and Distribution Agreement, SolarWinds would indemnify us for costs we may incur.

We believe the Cyber Incident has caused reputational harm to SolarWinds and also had an adverse impact on our reputation, new subscription sales and net retention rates. In 2021, we experienced an adverse impact to new subscription sales and expansion rates relative to historical levels. We believe this was due in part to our decision in response to the Cyber Incident to temporarily reduce investments in demand generation activities through January 2021, as well as a result of certain MSP partners delaying their purchasing decisions as they assessed the potential impact of the Cyber Incident. However, we also have seen consistency among renewal rates with our larger MSP partners and have not observed material adverse trends with respect to the usage of our solutions. In addition, following our resumption of regular demand generation activities in February 2021, we were encouraged by engagements with both prospective and existing MSP partners. In general our sales cycles and time from contract to revenue recognition are primarily short in nature and based on trends through the nine months ended September 30, 2022, we believe that the adverse impacts of the Cyber Incident on our financial results will diminish over time in the absence of new discoveries or events. Nevertheless, there is risk that the Cyber Incident may continue to have an adverse

impact on our business in future periods, and to the extent such impact continues, including as a result of new discoveries or events, it could have an adverse effect on our business, results of operations, cash flows or financial position.

Results of Operations

Prior to the Separation and Distribution, N-able comprised certain stand-alone legal entities for which discrete financial information was available. As SolarWinds recorded transactions at the legal entity level, for the legal entities which were shared between the N-able business and other SolarWinds operations for which discrete financial information was not available, allocation methodologies were applied to certain accounts to allocate amounts to us as discussed in Note 1. Organization and Nature of Operations in the Notes to Consolidated Financial Statements.

The Consolidated Statements of Operations include all revenue 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 and Distribution. These corporate expenses have been allocated to our business based on direct usage or benefit, where identifiable, with the remainder allocated based on headcount where appropriate. These allocations are primarily reflected within operating expenses in our Consolidated Statements of Operations. We believe the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to, or the benefit received by, us during the periods presented. However, these allocations may not be indicative of the actual expenses we would have incurred as a stand-alone company during the periods prior to the Separation and Distribution or of the costs we will incur in the future. See Note 5. Relationship with Parent and Related Entities of the Notes to Consolidated Financial Statements for further details of the allocated costs.

Third Quarter Financial Highlights

Revenue

We deliver a platform of integrated solutions that enables our MSP partners to manage and secure the IT environments and assets for their SME end customers, as well as more efficiently manage their own businesses. Our total revenue was $93.5 million and $88.4 million for the three months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, we had approximately 25,000 customers. Additionally, as of September 30, 2022, we had 1,786 MSP partners with annualized recurring revenue (“ARR”) over $50,000 on our platform, up from 1,662 as of September 30, 2021, representing an increase of 7.5%. Over the same period, MSP partners with over $50,000 of ARR on our platform grew from approximately 46% of our total ARR as of September 30, 2021 to approximately 50% of our total ARR as of September 30, 2022. We determine ARR as the annualized recurring revenue as of the last month of a given period. We calculate ARR by multiplying the recurring revenue and related usage revenue, excluding the impacts of credits and reserves, recognized during the final month of the reporting period from both long-term and month-to-month subscriptions by twelve. We use ARR, and in particular, ARR attributable to MSP partners with over $50,000 of ARR, to enhance the understanding of our business performance and the growth of our relationships with our MSP partners.

Profitability

We have grown while maintaining high levels of operating efficiency. However, our profitability for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was negatively impacted by adverse movements in foreign currency exchange rates. Our operating income for the three months ended September 30, 2022 was $11.7 million compared to operating income of $9.8 million for the three months ended September 30, 2021. Our net income for the three months ended September 30, 2022 was $0.3 million compared to net income of $1.9 million for the three months ended September 30, 2021. The decrease in net income for the three months ended September 30, 2022 was primarily due to an increase in cost of revenue, an increase in interest expense, net, an increase in research and development and sales and marketing expense, and an increase in other expense, net, partially offset by an increase in revenue, a decrease in general and administrative expense, and a decrease in amortization of both acquired technologies and intangibles. Our Adjusted EBITDA, calculated as net income of $0.3 million and net income of $1.9 million for the three months ended September 30, 2022 and 2021, respectively, excluding amortization of acquired intangible assets and developed technology of $2.7 million and $3.2 million, respectively, depreciation expense of $3.3 million and $2.5 million, respectively, income tax expense of $4.5 million and $3.9 million, respectively, interest expense, net of $5.1 million and $3.1 million, respectively, unrealized foreign currency losses of $1.5 million and $0.7 million, respectively, acquisition related costs of $0.2 million and zero, respectively, spin-off costs of $0.4 million and $2.4 million, respectively, stock-based compensation expense and related employer-paid payroll taxes of $10.2 million and $11.9 million, respectively, and restructuring costs and other of $0.6 million and less than $0.1 million, respectively, was $28.9 million and $29.7 million for the three months ended September 30, 2022 and 2021, respectively.

Cash Flow

We have built our business to generate strong cash flow over the long term. For the three months ended September 30, 2022 and 2021, cash flows from operations were $17.1 million and $3.1 million, respectively. Our cash flows from operations were reduced by cash payments for interest of $4.1 million and $3.2 million for the three months ended September 30, 2022 and 2021, respectively, and cash payments for income taxes of $9.3 million and $4.7 million for the three months ended September 30, 2022 and 2021, respectively.

Acquisitions

The results of operations related to Spinpanel since the acquisition date are included in our Consolidated Financial Statements during the three and nine months ended September 30, 2022. We estimate the amounts of revenue and net loss related to the Spinpanel acquisition included in our Consolidated Financial Statements from the effective date of the acquisition are insignificant during the three and nine months ended September 30, 2022. As noted above, total consideration includes up to $10.0 million payable upon the achievement of certain revenue metrics through July 1, 2025. The contingent consideration liabilities will be re-evaluated periodically, but at least quarterly, with the resulting gains and losses recognized within general and administrative expense in our Consolidated Statements of Operations and acquisition related costs within our non-GAAP financial measures. As of July 1, 2022, the fair value of this contingent consideration was $5.2 million. As of September 30, 2022, the fair value of this contingent consideration is $5.3 million, resulting in the recognition of a loss of $0.2 million for the three months ended September 30, 2022. See Note 3. Acquisitions, Note 6. Fair Value Measurements, and Note 11. Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information regarding the acquisition of Spinpanel.

Components of Our Results of Operations

Revenue

Our revenue consists of the following:

•Subscription Revenue. We primarily derive subscription revenue from the sale of subscriptions to the SaaS solutions that we host and manage on our platform. Our subscriptions provide access to the latest versions of our software platform, technical support and unspecified software upgrades and updates. Subscription

revenue for our SaaS solutions is generally recognized ratably over the subscription term once the service is made available to the MSP partner or when we have the right to invoice for services performed. In addition, our subscription revenue includes sales of our self-managed solutions, which are hosted and managed by our MSP partners. Subscriptions of our self-managed solutions include term licenses, technical support and unspecified software upgrades. Revenue from the license performance obligation of our self-managed solutions is recognized at a point in time upon delivery of the access to the licenses and revenue from the performance obligation related to the technical support and unspecified software upgrades of our subscription-based license arrangements is recognized ratably over the agreement period. We generally invoice subscription agreements monthly based on usage or in advance over the subscription period on either a monthly or annual basis.

•Other Revenue. Other revenue consists primarily of revenue from the sale of our maintenance services associated with the historical sales of perpetual licenses. MSP partners with maintenance agreements are entitled to receive technical support and unspecified upgrades or enhancements to new versions of their solutions on a when-and-if-available basis for the specified agreement period. We expect maintenance revenue to decrease as a proportion of our total revenue over time.

Cost of Revenue

•Cost of Revenue. Cost of revenue consists of technical support personnel costs, public cloud infrastructure and hosting fees, royalty fees and an allocation of overhead costs for our subscription revenue and maintenance services. We allocate facilities, depreciation, benefits and IT costs based on headcount.

•Amortization of Acquired Technologies. We amortize to cost of revenue capitalized costs of technologies acquired in connection with the take private transaction of SolarWinds in early 2016 and our acquisitions.

Operating Expenses

Operating expenses consist of sales and marketing, research and development and general and administrative expenses as well as amortization of acquired intangibles. Personnel costs include salaries, bonuses and stock-based compensation and related employer-paid payroll taxes, as well as an allocation of our facilities, depreciation, benefits and IT costs. For the periods through the Separation and Distribution date of July 19, 2021, SolarWinds provided facilities, information technology services and certain corporate and administrative services to us. Expenses relating to these services have been allocated to N‑able and are reflected in the Consolidated Financial Statements. We had total employees of 1,486, 1,399, and 1,335 as of September 30, 2022, December 31, 2021, and September 30, 2021, respectively. Our stock-based compensation expense increased during the three and nine months ended September 30, 2022 as compared to the corresponding period of the prior fiscal year primarily due to the impact of both the conversion of existing unvested and unexercised equity awards in connection with the Separation and Distribution and new equity awards granted to employees following the Separation and Distribution through September 30, 2022. Our travel costs increased during the three and nine months ended September 30, 2022 as compared to the corresponding period of the prior fiscal year, which reflected reduced travel due to COVID-19.

•Sales and Marketing. Sales and marketing expenses primarily consist of related personnel costs, including our sales, marketing, partner success and product management teams. Sales and marketing expenses also include the cost of digital marketing programs such as paid search, search engine optimization and management and website maintenance and design, as well as the cost of events for existing and prospective customers. We expect to continue to grow our sales and marketing organization domestically and internationally to drive new MSP partner adds, expand with existing MSP partners and pursue initiatives designed to help our MSP partners succeed and grow.

•Research and Development. Research and development expenses primarily consist of related personnel costs. We expect to continue to grow our research and development organization domestically and internationally and also to incur additional expenses associated with bringing new product offerings to market and our enhancements of security, monitoring and authentication of our solutions.

•General and Administrative. General and administrative expenses primarily consist of personnel costs for executives, finance, legal, human resources, business applications and other administrative personnel, general restructuring charges and other acquisition-related costs, professional fees and other general corporate expenses. We expect to continue to grow our general and administrative organization domestically and internationally to support continued growth and the requirements associated with being a stand-alone public company following the Separation and Distribution.

•Amortization of Acquired Intangibles. We amortize to operating expenses capitalized costs of intangible assets acquired in connection with the take private transaction of SolarWinds in early 2016 and our acquisitions.

Other Expense

Other expense primarily consists of interest expense related to our credit agreement and related party debt and gains (losses) resulting from changes in exchange rates on foreign currency denominated accounts. See Item 3. Quantitative and Qualitative Disclosures About Market Risk for additional information on how interest rates impact our financial results.

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

Income tax expense consists of domestic and foreign corporate income taxes related to the sale of subscriptions. Our effective tax rate will be affected by many factors including changes in tax laws, regulations or rates, new interpretations of existing laws or regulations, valuation allowance, uncertain tax positions, stock based compensation, permanent nondeductible book and tax differences, 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 September 30, 2022 and 2021

Revenue


	Three Months Ended September 30,
	2022				2021
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)
Subscription revenue	$	91,213	97.5	%	$	86,100	97.4	%	$	5,113
Other revenue	2,314		2.5		2,323		2.6		(9)
Total subscription and other revenue	$	93,527	100.0	%	$	88,423	100.0	%	$	5,104

Total revenue increased $5.1 million, or 5.8%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by our security and data protection solutions. Based on MSP partner location, revenue from the United States was approximately 49.5% and 45.7% of total revenue for the three months ended September 30, 2022 and 2021, respectively. Revenue from the United Kingdom was approximately 10.0% and 11.0% of total revenue for the three months ended September 30, 2022 and 2021, respectively. Other than the United States and the United Kingdom, no single country accounted for 10% or more of our total revenue during these periods.

Subscription Revenue. Subscription revenue increased $5.1 million, or 5.9%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Our increase in subscription revenue was driven by the addition of new MSP partners and an increase in revenue from existing MSP partners as they added new SME customers and adopted new solutions. Our subscription revenue increased slightly as a percentage of our total revenue for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Our annual dollar-based net revenue retention rate for our subscription products was approximately 104% and 110% for the trailing twelve-month periods ended September 30, 2022 and 2021, respectively, and was driven primarily by strong customer retention and expansion in our MSP products. The decline in our annual dollar-based net revenue retention rate for the trailing twelve-month period ended September 30, 2022 compared to the trailing twelve-month period ended September 30, 2021 was due to adverse movements in foreign currency exchange rates. To calculate our annual dollar-based net revenue retention rate, we first identify the MSP partners with active paid subscriptions in the last month of the prior-year period, or the base partners. We then divide the subscription revenue in the last month of the current-year period attributable to the base partners by the revenue attributable to those base partners in the last month of the prior-year period. Our dollar-based net revenue retention rate for a particular period is then obtained by averaging the rates from that particular period with the results from each of the prior eleven months. Our calculation includes any expansion revenue and is net of any contraction or cancellation, but excludes credits and revenue attributable to any MSP partner who was not a partner with a paid subscription in the prior period.

Other Revenue. Other revenue remained consistent for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Cost of Revenue


	Three Months Ended September 30,
	2022				2021
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)
Cost of revenue	$	14,587	15.6	%	$	11,279	12.8	%	$	3,308
Amortization of acquired technologies	516		0.6		1,017		1.2		(501)
Total cost of revenue	$	15,103	16.1	%	$	12,296	13.9	%	$	2,807

Total cost of revenue increased $2.8 million, or 22.8%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to an increase in royalties and public cloud infrastructure and hosting fees of $1.5 million, an increase in personnel costs of $1.0 million, which is net of a decrease in stock-based compensation expense of $0.1 million, an increase in allocated costs of $0.8 million, and an increase in depreciation and other amortization of $0.3 million, partially offset by a decrease of $0.5 million in amortization of intangible assets acquired in connection with the take private transaction of SolarWinds in early 2016.

Operating Expenses


	Three Months Ended September 30,
	2022				2021
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)
Sales and marketing	$	31,149	33.3	%	$	30,178	34.1	%	$	971
Research and development	16,038		17.1		14,649		16.6		1,389
General and administrative	18,050		19.3		19,888		22.5		(1,838)
Amortization of acquired intangibles	1,465		1.6		1,640		1.9		(175)
Total operating expenses	$	66,702	71.3	%	$	66,355	75.0	%	$	347

Sales and Marketing. Sales and marketing expenses increased $1.0 million, or 3.2%, primarily due to a net increase in personnel costs of $2.6 million, which is net of a decrease in stock-based compensation expense of $0.7 million, partially offset by a decrease of $0.8 million in costs associated with our separation from SolarWinds, a decrease of $0.4 million in allocated facilities and IT costs to support our standalone domestic and international operations following our separation from SolarWinds, and a decrease in marketing program costs of $0.1 million. We increased our sales and marketing employee headcount to support the sales of additional solutions and drive growth in the business.

Research and Development. Research and development expenses increased $1.4 million, or 9.5%, primarily due to an increase in personnel costs of $0.8 million, which is net of a decrease in stock-based compensation expense of $0.8 million, an increase of $0.7 million in contract services costs, an increase of $0.1 million in subscription costs, and an increase of $0.1 million in allocated facilities and IT costs to support our standalone domestic and international operations following our separation from SolarWinds, partially offset by an increase in capitalized internal-use software costs of $0.6 million. We increased our worldwide research and development employee headcount to expedite delivery of enhancements and new solutions to our MSP partners.

General and Administrative. General and administrative expenses decreased $1.8 million, or 9.2%, primarily due to a decrease in costs associated with our separation from SolarWinds of $4.0 million, partially offset by an increase of $0.6 million in personnel costs, which includes an increase in stock-based compensation expense of less than $0.1 million, an increase of $0.5 million in depreciation of leasehold improvements, computers, furniture and equipment and an increase of $0.4 million in facilities expenses to support our domestic and international office locations following our separation from SolarWinds, an increase in acquisition-related costs of $0.2 million and losses on contingent consideration of $0.2 million related to the July 1, 2022 acquisition of Spinpanel, and an increase of $0.1 million in contract services costs. We increased our worldwide general and administrative employee headcount in connection with the Separation and Distribution. See Note 3. Acquisitions, Note 6. Fair Value Measurements, and Note 11. Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information regarding the acquisition of Spinpanel.

Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased $0.2 million, or 10.7%, primarily due to a decrease in amortization of intangible assets acquired in connection with the take private transaction of SolarWinds in early 2016 and the impact of changes in foreign currency exchange rates.

Interest Expense, Net


	Three Months Ended September 30,
	2022				2021
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)
Interest expense, net	$	(5,088)	(5.4)	%	$	(3,111)	(3.5)	%	$	(1,977)

Interest expense, net increased by $2.0 million, or 63.5%, in the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to the impact of increased interest rates on borrowings under the Credit Agreement and the repayment of borrowings under our long-term related party debt during the three months ended September 30, 2021. See Note 5. Relationship with Parent and Related Entities and Note 8. Debt of the Notes to Consolidated Financial Statements for additional information regarding our related party debt and the Credit Agreement.

Other Expense, Net


	Three Months Ended September 30,
	2022				2021
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)

Other expense, net	$	(1,795)	(1.9)	%	$	(884)	(1.0)	%	$	(911)

Other expense, net increased by $0.9 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to the impact of changes in foreign currency exchange rates related to various accounts for the period.

Income Tax Expense


	Three Months Ended September 30,
	2022					2021
	Amount			Percentage of Revenue		Amount			Percentage of Revenue		Change

	(in thousands, except percentages)
Income before income taxes	$	4,839		5.2	%	$	5,777		6.5	%	$	(938)
Income tax expense	4,545			4.9		3,904			4.4		641
Effective tax rate	93.9		%			67.6		%			26.3		%

Our income tax expense for the three months ended September 30, 2022 increased by $0.6 million as compared to the three months ended September 30, 2021. The effective tax rate increased to 93.9% for the period primarily due to a decrease in income before income taxes and an increase in the amount of the unbenefited loss in the U.S. For additional discussion about our income taxes, see Note 10. Income Taxes of the Notes to Consolidated Financial Statements.

Comparison of the Nine Months Ended September 30, 2022 and 2021

Revenue


	Nine Months Ended September 30,
	2022				2021
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)
Subscription Revenue	$	269,217	97.5	%	$	249,592	97.1	%	$	19,625
Other revenue	6,797		2.5		7,361		2.9		(564)
Total subscription and other revenue	$	276,014	100.0	%	$	256,953	100.0	%	$	19,061

Total revenue increased $19.1 million, or 7.4%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by our security and data protection solutions. Based on MSP partner location, revenue from the United States was approximately 48.4% and 45.5% of total revenue for the nine months ended September 30, 2022 and 2021, respectively. Revenue from the United Kingdom was approximately 10.4% and 11.0% of total revenue for the nine months ended September 30, 2022 and 2021, respectively. Other than the United States and the United Kingdom, no single country accounted for 10% or more of our total revenue during these periods.

Subscription Revenue. Subscription revenue increased $19.6 million, or 7.9%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. Our increase in subscription revenue was driven primarily by an increase in revenue from existing MSP partners as they added new SME customers and adopted new solutions. Our subscription revenue increased slightly as a percentage of our total revenue for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Other Revenue. Other revenue decreased $0.6 million, or 7.7%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to decreases in sales of our maintenance agreements.

Cost of Revenue


	Nine Months Ended September 30,
	2022				2021
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)
Cost of revenue	$	41,492	15.0	%	$	34,366	13.4	%	$	7,126
Amortization of acquired technologies	2,043		0.7		4,758		1.9		(2,715)
Total cost of revenue	$	43,535	15.8	%	$	39,124	15.2	%	$	4,411

Total cost of revenue increased $4.4 million, or 11.3%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to an increase in royalties and public cloud infrastructure and hosting fees related to our subscription products of $3.8 million, an increase in personnel costs to support new MSP partners and additional solution offerings of $1.7 million, which includes an increase of less than $0.2 million in stock-based compensation expense, an increase in allocated costs of $1.0 million, and an increase in depreciation and other amortization of $0.9 million, partially offset by a decrease of $2.7 million in amortization of intangible assets acquired in connection with the take private transaction of SolarWinds in early 2016.

Operating Expenses


	Nine Months Ended September 30,
	2022				2021
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)
Sales and marketing	$	94,223	34.1	%	$	80,390	31.3	%	$	13,833
Research and development	46,664		16.9		39,192		15.3		7,472
General and administrative	54,119		19.6		61,480		23.9		(7,361)
Amortization of acquired intangibles	4,386		1.6		11,935		4.6		(7,549)
Total operating expenses	$	199,392	72.2	%	$	192,997	75.1	%	$	6,395

Sales and Marketing. Sales and marketing expenses increased $13.8 million, or 17.2%, primarily due to a net increase in personnel costs of $11.2 million, which includes an increase of $3.8 million in stock-based compensation expense, an increase of $2.4 million in allocated facilities and IT costs to support our standalone domestic and international operations following our separation from SolarWinds, and an increase in marketing program costs of $0.4 million, partially offset by a decrease in contract services costs of $0.2 million. We increased our sales and marketing employee headcount to support the sales of additional solutions and drive growth in the business.

Research and Development. Research and development expenses increased $7.5 million, or 19.1%, primarily due to an increase in personnel costs of $5.0 million, which includes an increase of $2.5 million in stock-based compensation expense, an increase of $1.4 million in contract services costs, an increase of $1.2 million in subscription costs, and an increase of $0.9 million in allocated facilities and IT costs to support our standalone domestic and international operations following our separation from SolarWinds, partially offset by an increase in capitalized internal-use software costs of $1.3 million. We increased our worldwide research and development employee headcount to expedite delivery of enhancements and new solutions to our MSP partners.

General and Administrative. General and administrative expenses decreased $7.4 million, or 12.0%, primarily due to a decrease of $16.1 million in costs associated with our separation from SolarWinds, partially offset by a $3.7 million increase in personnel costs, which includes an increase of $3.0 million in stock-based compensation expense, an increase of $3.5 million in depreciation of leasehold improvements, computers, furniture and equipment to support our domestic and international office locations following our separation from SolarWinds, an increase of $1.4 million in contract services costs, and an increase in acquisition-related costs of $0.5 million and losses on contingent consideration of $0.2 million related to the July 1, 2022 acquisition of Spinpanel. We increased our worldwide general and administrative employee headcount in connection with the Separation and Distribution. See Note 3. Acquisitions, Note 6. Fair Value Measurements, and Note 11. Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information regarding the acquisition of Spinpanel.

Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased $7.5 million, or 63.3%, primarily due to a decrease in amortization of intangible assets acquired in connection with the take private transaction of SolarWinds in early 2016 and the impact of changes in foreign currency exchange rates.

Interest Expense, Net


	Nine Months Ended September 30,
	2022				2021
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)
Interest expense, net	$	(12,459)	(4.5)	%	$	(15,711)	(6.1)	%	$	3,252

Interest expense, net decreased by $3.3 million, or 20.7%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to repayment of borrowings under our long-term related party debt and the impact of lower interest rates under the Credit Agreement compared to our long-term related party debt. See Note 5. Relationship with Parent and Related Entities and Note 8. Debt of the Notes to Consolidated Financial Statements for further details regarding our related party debt.

Other Expense, Net


	Nine Months Ended September 30,
	2022				2021
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)


Other expense, net	$	(561)	(0.2)	%	$	(1,467)	(0.6)	%	$	906

Other expense, net decreased by $0.9 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to the impact of changes in foreign currency exchange rates related to various accounts for the period.

Income Tax Expense


	Nine Months Ended September 30,
	2022					2021
	Amount			Percentage of Revenue		Amount			Percentage of Revenue		Change

	(in thousands, except percentages)
Income before income taxes	$	20,067		7.3	%	$	7,654		3.0	%	$	12,413
Income tax expense	10,345			3.7		9,597			3.7		748
Effective tax rate	51.6		%			125.4		%			(73.8)		%

Our income tax expense for the nine months ended September 30, 2022 increased by $0.7 million as compared to the nine months ended September 30, 2021. The effective tax rate decreased to 51.6% for the period primarily due to an increase in income before income taxes and a decrease in the amount of the unbenefited loss in the U.S. For additional discussion about our income taxes, see Note 10. Income Taxes of the Notes to Consolidated Financial Statements.

Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures to clarify and enhance our understanding, and aid in the period-to-period comparison, of our performance. We believe that these non-GAAP financial measures provide supplemental information that is meaningful when assessing our operating performance because they exclude the impact of certain amounts that our management and Board of Directors do not consider part of core operating results when assessing our operational performance, allocating resources, preparing annual budgets and determining compensation. Accordingly, these non-GAAP financial measures may provide insight to investors into the motivation and decision-making of management in operating the business. Investors are encouraged to review the reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure included below.

While we believe that these non-GAAP financial measures provide useful supplemental information, non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, their most comparable GAAP measures. These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a comprehensive system of accounting and may not be comparable to similarly titled measures of other companies due to potential differences in their financing and accounting methods, the book value of their assets, their capital structures, the method by which their assets were acquired and the manner in which they define non-GAAP measures. Items such as the amortization of intangible assets, stock-based compensation expense and related employer-paid payroll taxes, acquisition related adjustments, spin-off costs related to associated with the Separation and Distribution, as well as the related tax impacts of these items can have a material impact on our GAAP financial results.

Non-GAAP Operating Income and Non-GAAP Operating Margin

We provide non-GAAP operating income and related non-GAAP operating margins excluding such items as stock-based compensation expense and related employer-paid payroll taxes, amortization of acquired intangible assets, acquisition related

costs, spin-off costs and restructuring costs and other. Management believes these measures are useful for the following reasons:

•Stock-Based Compensation Expense and Related Employer-Paid Payroll Taxes. We provide non-GAAP information that excludes expenses related to stock-based compensation and related employer-paid payroll taxes associated with our employees’ participation in N-able's stock-based incentive compensation plans. We believe that the exclusion of stock-based compensation expense provides for a better comparison of our operating results to prior periods and to our peer companies as the calculations of stock-based compensation vary from period to period and company to company due to different valuation methodologies, subjective assumptions and the variety of award types. Employer-paid payroll taxes on stock-based compensation is dependent on our stock price and the timing of the taxable events related to the equity awards, over which our management has little control, and does not necessarily correlate to the core operation of our business. Because of these unique characteristics of stock-based compensation and related employer-paid payroll taxes, management excludes these expenses when analyzing the organization’s business performance.

•Amortization of Acquired Intangible Assets. We provide non-GAAP information that excludes expenses related to purchased intangible assets associated with our acquisitions. We believe that eliminating this expense from our non-GAAP measures is useful to investors because the amortization of acquired intangible assets can be inconsistent in amount and frequency and is significantly impacted by the timing and magnitude of our acquisition transactions, which also vary in frequency from period to period. Accordingly, we analyze the performance of our operations in each period without regard to such expenses.

•Acquisition Related Costs. We exclude certain expense items resulting from acquisitions, such as legal, accounting and advisory fees, changes in fair value of contingent consideration, costs related to integrating the acquired businesses, deferred compensation, severance and retention expense. We consider these adjustments, to some extent, to be unpredictable and dependent on a significant number of factors that are outside of our control. Furthermore, acquisitions result in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations. We believe that providing non-GAAP measures that exclude acquisition related costs allows investors to better review and understand the historical and current results of our continuing operations and also facilitates comparisons to our historical results and results of less acquisitive peer companies, both with and without such adjustments.

•Spin-off Costs. We exclude certain expense items resulting from the spin-off into a newly created and separately traded public company. These costs include legal, accounting and advisory fees, system implementation costs and other incremental costs incurred by us related to the Separation and Distribution. The spin-off transaction results in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations. We believe that providing non-GAAP measures that exclude these costs facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance.

•Restructuring Costs and Other. We provide non-GAAP information that excludes restructuring costs such as severance, certain employee relocation costs, and the estimated costs of exiting and terminating facility lease commitments, as they relate to our corporate restructuring and exit activities. These costs are inconsistent in amount and are significantly impacted by the timing and nature of these events. Therefore, although we may incur these types of expenses in the future, we believe that eliminating these costs for purposes of calculating the non-GAAP financial measures facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

	(in thousands, except margin data)
GAAP operating income	$	11,722		$	9,772		$	33,087		$	24,832

Stock-based compensation expense and related employer-paid payroll taxes	10,222			11,885			28,980			21,357
Amortization of acquired technologies	516			1,017			2,043			4,758
Amortization of acquired intangibles	1,465			1,640			4,386			11,935
Acquisition related costs	237			—			506			(87)
Spin-off costs	394			2,404			1,348			14,550
Restructuring costs and other	551			1			980			132
Non-GAAP operating income	$	25,107		$	26,719		$	71,330		$	77,477
GAAP operating margin	12.5		%	11.1		%	12.0		%	9.7		%
Non-GAAP operating margin	26.8		%	30.2		%	25.8		%	30.2		%

Adjusted EBITDA and Adjusted EBITDA Margin

We regularly monitor adjusted EBITDA and adjusted EBITDA margin, as they are measures we use to assess our operating performance. We define adjusted EBITDA as net income or loss, excluding amortization of acquired intangible assets and developed technology, depreciation expense, income tax expense (benefit), interest expense, net, unrealized foreign currency losses (gains), acquisition related costs, spin-off costs, stock-based compensation expense and related employer-paid payroll taxes and restructuring and other costs. We define adjusted EBITDA margin as adjusted EBITDA divided by total revenue. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

•adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our related party debt;

•adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and

•other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including operating income and net income (loss) and our other GAAP results. In evaluating adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the types of items excluded from the calculation of adjusted EBITDA. Adjusted EBITDA is not a presentation made in accordance with GAAP and the use of the term varies from others in our industry.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

	(in thousands, except margin data)
Net income (loss)	$	294		1,873			$	9,722		(1,943)
Amortization	2,711			3,225			8,548			17,261
Depreciation	3,326			2,544			9,722			7,796
Income tax expense	4,545			3,904			10,345			9,597
Interest expense, net	5,088			3,111			12,459			15,711

Unrealized foreign currency losses	1,486			728			889			1,195
Acquisition related costs	237			—			506			(87)
Spin-off costs	394			2,404			1,348			14,550

Stock-based compensation expense and related employer-paid payroll taxes	10,222			11,885			28,980			21,357
Restructuring costs and other	551			1			980			132
Adjusted EBITDA	$	28,854		$	29,675		$	83,499		$	85,569
Adjusted EBITDA margin	30.9		%	33.6		%	30.3		%	33.3		%

Liquidity and Capital Resources

Cash and cash equivalents were $87.7 million as of September 30, 2022. As our sales and operating cash flows are primarily generated by international entities in the United Kingdom and Canada, our international subsidiaries held approximately $79.1 million of cash and cash equivalents, of which 76.3%, 13.0% and 4.8% were held in United States Dollars, Euros, and British Pound Sterling, respectively. We intend either to invest our foreign earnings permanently into foreign operations or to remit these earnings to our U.S. entities in a tax-efficient manner. The Tax Act imposed a mandatory transition tax on accumulated foreign earnings and eliminates U.S. federal income taxes on foreign subsidiary distribution.

Our primary source of cash for funding operations and growth has been through cash provided by operating activities. Given the uncertainty in the rapidly changing market and economic conditions, we continue to evaluate the nature and extent of the impact to our business and financial position. However, despite this uncertainty, we believe that our existing cash and cash

equivalents and our cash flows from operating activities will be sufficient to fund our operations and meet our commitments for capital expenditures for at least the next twelve months.

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 is primarily available for general corporate purposes. We had total borrowings of $337.5 million and $338.9 million as of September 30, 2022 and December 31, 2021, respectively, net of debt issuance costs of $9.0 million and $10.2 million, respectively. See Note 8. Debt of the Notes to Consolidated Financial Statements for further details regarding the Credit Agreement.

In addition, as contemplated by the Separation and Distribution agreement, cash in excess of $50.0 million was distributed by the Company to SolarWinds during the three months ended September 30, 2021.

Although we are not currently a party to any material definitive agreement regarding potential investments in, or acquisitions of, complementary businesses, applications or technologies, we may enter into these types of arrangements, which could reduce our cash and cash equivalents, require us to seek additional equity or debt financing or repatriate cash generated by our international operations. Additional funds from financing arrangements may not be available on terms favorable to us or at all.

During the three months ended September 30, 2022, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Related Party Indebtedness

Interest expense related to the activity with SolarWinds Holdings, Inc. was $3.1 million and $15.7 million for the three and nine months ended September 30, 2021. The repayment of principal for these related party borrowings is reflected as a financing activity in the Consolidated Statements of Cash Flows.

See Note 5. Relationship with Parent and Related Entities of the Notes to Consolidated Financial Statements for further details regarding our borrowings due to affiliates.

Summary of Cash Flows

Summarized cash flow information is as follows:


	Nine Months Ended September 30,
	2022		2021

	(in thousands)
Net cash provided by operating activities	$	53,015	$	26,159
Net cash used in investing activities	(22,504)		(22,329)
Net cash used in financing activities	(7,632)		(40,466)
Effect of exchange rate changes on cash and cash equivalents	(1,886)		(1,582)
Net increase (decrease) in cash and cash equivalents	$	20,993	$	(38,218)

Operating Activities

Our primary source of cash from operating activities is cash collections from our MSP partners and our distributors. We expect cash inflows from operating activities to be affected by the timing of our sales and the consumption of our solutions by our MSP partners. Our primary uses of cash from operating activities are for personnel-related expenditures, and other general operating expenses, as well as payments related to taxes, interest and facilities.

Cash provided by operating activities increased in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to a decrease in prepaid expenses and other assets, a decrease in accounts receivable, and the elimination of due to and from affiliates and accrued related party interest payable, partially offset by a decrease in accrued liabilities and other, an increase in income taxes receivable, a decrease in income taxes payable, and a decrease in accounts payable. The net cash outflow of $4.6 million and $20.4 million resulting from the changes in our operating assets and liabilities for the nine months ended September 30, 2022 and 2021, respectively, excluding the changes noted above, was primarily due to the timing of sales, cash payments and receipts. Cash flows from operations were reduced by cash payments for interest of $10.2 million and $17.8 million for the nine months ended September 30, 2022 and 2021, respectively, and cash payments for income taxes of $13.2 million and $15.0 million for the nine months ended September 30, 2022 and 2021, respectively.

Investing Activities

Investing cash flows consist of cash used for acquisitions, net of cash acquired, capital expenditures and intangible assets. Our capital expenditures principally relate to purchases of servers for cloud infrastructure primarily to support our data protection solutions, as well as leasehold improvements, computers and equipment to support our domestic and international office locations. Purchases of intangible assets consist of capitalized research and development costs.

Net cash used in investing activities decreased in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to decreases in capital expenditures, partially offset by increases in acquisitions, net of cash acquired, and increases in capitalized research and development costs.

Financing Activities

Financing cash flows consist of payments of tax withholding obligations related to restricted stock, the exercise of stock options, proceeds from the issuance of common stock under the Employee Stock Purchase Plan, repayments of borrowings from the Credit Agreement, repayments associated with our borrowings due to affiliates, and net transfers to Parent.

Net cash used in financing activities decreased in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to the elimination of repayments of borrowings due to affiliates and net transfers to Parent following the Separation and Distribution, proceeds from the issuance of common stock under the Employee Stock Purchase Plan, and the exercise of stock options, partially offset by payments of tax withholding obligations related to restricted stock and repayments of borrowings from the Credit Agreement. Net transfers to Parent include the total net effect of the settlement of any transactions prior to the Separation and Distribution which have been included in our Consolidated Financial Statements from legal entities which are not exclusively operating as our legal entities and are considered to be effectively settled at the time the transaction is recorded between SolarWinds and us. See Note 1. Organization and Nature of Operations and Note 5. Relationship with Parent and Related Entities of the Notes to Consolidated Financial Statements for further details regarding the Parent company net investment.

Contractual Obligations and Commitments

During the three months ended March 31, 2022, we entered into a lease agreement for our existing office space in Sydney, Australia for a term of three years. This lease is classified as an operating lease. On July 1, 2022, we completed the acquisition of all the outstanding equity of Spinpanel for a total consideration of up to approximately $20.0 million, including up to $10.0 million payable upon the achievement of certain revenue metrics through July 1, 2025. As of September 30, 2022, the fair value of this contingent consideration is $5.3 million, with the current portion of $1.4 million being included in “accrued liabilities and other” and the non-current portion of $3.9 million being included in “other long-term liabilities” in our Consolidated Balance Sheets. The contingent consideration liabilities will be periodically re-evaluated and adjustments will be recorded as needed. See Note 3. Acquisitions, Note 6. Fair Value Measurements, and Note 11. Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information regarding our contingent consideration liabilities. With the exception of this lease agreement, and the resulting impact on our operating lease right-of-use assets and current and non-current operating lease liabilities, and our contingent consideration liabilities, as of September 30, 2022, there have been no material changes in our contractual obligations and commitments as of December 31, 2021 that were disclosed in our 2021 Annual Report.

Critical Accounting Policies and Estimates

Our Consolidated Financial Statements are prepared in conformity with GAAP and require our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates, and such estimates may change if the underlying conditions or assumptions change. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected, perhaps materially.

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application, while in other cases, management’s judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions. We believe that these accounting policies requiring significant management judgment and estimates are critical to understanding our historical and future performance, as these policies relate to the more significant areas of our financial results. These critical accounting policies are:

•the valuation of goodwill, intangibles, long-lived assets and contingent consideration;

•revenue recognition;

•income taxes; and

•management’s assessment of allocations of expenses prior to the Separation and Distribution.

A full description of our critical accounting policies that involve significant management judgment appears in our 2021 Annual Report. There have been no material changes to our critical accounting policies and estimates since that time.

Recent Accounting Pronouncements

See Note 2. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, which is incorporated herein by reference.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We had cash and cash equivalents of $87.7 million and $66.7 million at September 30, 2022 and December 31, 2021, respectively. Our cash and cash equivalents consist of bank demand deposits and money market funds and do not have material exposure to market risk. We hold cash and cash equivalents for working capital purposes. Our investments are made for capital preservation purposes, and we do not enter into investments for trading or speculative purposes.

We had total borrowings under the Credit Agreement, net of debt issuance costs, of $337.5 million and $338.9 million as of September 30, 2022 and December 31, 2021, respectively. 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. As of September 30, 2022 and December 31, 2021, the annual weighted-average interest rate on borrowings was 6.07% and 3.50%, respectively. If there was a hypothetical 100 basis point increase in interest rates, the annual impact to interest expense would be approximately $3.5 million as of September 30, 2022 and December 31, 2021, respectively. This hypothetical change in interest expense has been calculated based on the variable rate borrowings outstanding at September 30, 2022 and December 31, 2021 and a 100 basis point per annum change in interest rate applied over a one-year period. Changes in interest rates have had and could continue to have an adverse impact on our financial results and cash flows since outstanding borrowings under the Credit Agreement bear interest at variable rates.

We do not have material exposure to market risk with respect to our cash and cash equivalents, as these consist primarily of highly liquid investments purchased with original maturities of three months or less at September 30, 2022 and December 31, 2021.

See Note 8. Debt of the Notes to Consolidated Financial Statements for further details regarding the Credit Agreement.

Foreign Currency Exchange Risk

As a global company, we face exposure to adverse movements in foreign currency exchange rates. We primarily conduct business in the following locations: the United States, United Kingdom, Europe and Canada. This exposure is the result of selling in multiple currencies, growth in our international investments, additional headcount in foreign countries and operating in countries where the functional currency is the local currency. Specifically, our results of operations and cash flows are primarily subject to fluctuations in the following currencies: the Euro, British Pound Sterling and Canadian Dollar against the U.S. dollar. These exposures may change over time as business practices evolve and economic conditions change, including as a result of the impact on the global economy of, or governmental actions taken in response, to the COVID-19 pandemic or the Russia-Ukraine conflict. Changes in foreign currency exchange rates have had and could continue to have an adverse impact on our financial results and cash flows.

Our Consolidated Statements of Operations are translated into U.S. dollars at the average exchange rates in each applicable period. Our international revenue, operating expenses and significant balance sheet accounts denominated in currencies other than the U.S. dollar primarily flow through our United Kingdom and European subsidiaries, which have historically had British Pound Sterling and Euro functional currencies, respectively, resulting in a two-step currency exchange process wherein the currencies other than the British Pound Sterling and Euro are first converted into those functional currencies and then translated into U.S. dollars for our Consolidated Financial Statements. In connection with the Separation and Distribution, as defined in Note 1. Organization and Nature of Operations in the Notes to Consolidated Financial Statements, our United Kingdom legal entity changed its functional currency from the British Pound Sterling to the US dollar.

Our Consolidated Statements of Operations and Balance Sheets accounts are also impacted by the re-measurement of non-functional currency transactions such as cash accounts held by our overseas subsidiaries, accounts receivable denominated in foreign currencies, deferred revenue and accounts payable denominated in foreign currencies.

Foreign Currency Transaction Risk

Our foreign currency exposures typically arise from selling annual and multi-year subscriptions in multiple currencies, accounts receivable, and other intercompany transactions.

Foreign Currency Translation Risk

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. If there is a change in foreign currency exchange rates, the amounts of assets, liabilities, revenue, operating expenses and cash flows that we report in U.S. dollars for foreign subsidiaries that transact in international currencies may be higher or lower to what we would have reported if using a constant currency rate. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions results in reduced assets, liabilities, revenue, operating expenses and cash flows for our international operations. Similarly, our assets, liabilities, revenue, operating expenses and cash flows will increase for our international operations if the U.S. dollar weakens against foreign currencies. The conversion of the foreign subsidiaries’ financial statements into U.S. dollars will also lead to remeasurement gains and losses recorded in income, or translation gains or losses that are recorded as a component of accumulated other comprehensive income (loss).

Emerging Growth Company

We qualify as an emerging growth company, as defined in the JOBS Act. The JOBS Act allows emerging growth companies to delay the adoption of new or revised accounting standards until such time as those standards apply to private companies. We intend to utilize these transition periods, which may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act.

Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we have been and may be involved in various legal proceedings and claims arising in our ordinary course of business. At this time, neither we nor any of our subsidiaries is a party to, and none of our respective property is the subject of, any legal proceeding that, if determined adversely to us, would have a material adverse effect on us.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, under the heading “Risk Factors” in our 2021 Annual Report and Quarterly Report on Form 10-Q for the three months ended March 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Securities

During the three months ended September 30, 2022, the Company repurchased shares of its common stock as follows.



Period	Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan or Program (in thousands)
July 1 - 31, 2022	—	$	—	—	$	—
August 1 - 31, 2022	—	—		—	—
September 1 - 30, 2022	600	0		—	—
Total	600			—

________________

(1)All repurchases relate to employee held restricted stock that is subject to vesting. Unvested shares are subject to a right of repurchase by us in the event the employee stockholder ceases to be employed or engaged (as applicable) by us prior to vesting. All shares in the above table were shares repurchased as a result of us exercising this right and not pursuant to a publicly announced plan or program.

Item 5. Other Information

None.

Item 6. Exhibits

EXHIBIT INDEX


Exhibit Number						Exhibit Title
2.1						Separation and Distribution Agreement, dated as of July 16, 2021, by and between SolarWinds Corporation and N-able, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 20, 2021).
3.1						Amended and Restated Certificate of Incorporation of N-able, Inc., dated as of July 16, 2021 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 20, 2021).
3.2						Amended and Restated Bylaws of N-able, Inc., dated as of July 16, 2021 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the Commission on July 20, 2021).
4.1						Stockholders' Agreement, dated as of July 19, 2021, by and among N-able, Inc. and the stockholders' named therein (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 20, 2021).
4.2						First Amendment to Stockholders' Agreement among the Company and the stockholders named therein, dated December 13, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 15, 2021).
4.3						Registration Rights Agreement, dated as of July 19, 2021, by and among N-able, Inc. and the stockholders' named therein (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the Commission on July 20, 2021).
31.1*						Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*						Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**						Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*						Interactive Data Files (formatted as Inline XBRL)
101.INS						Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)



*			Filed herewith
**			The certifications attached as Exhibit 32.1 accompanying this Quarterly Report on Form 10-Q, are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing

N-able, Inc.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		N-able, Inc.

Dated:	November 10, 2022	By:	/s/ Tim O'Brien

			Tim O'Brien
			Chief Financial Officer
			(Principal Financial and Accounting Officer)