Unaudited Pro Forma Condensed Consolidated Financial Statements
On July 19, 2021, SolarWinds Corporation (“Company, “we”, “us” and “our”) completed the previously announced separation of our managed service provider (“MSP” or “N-able”) business into a newly created and separately traded public company, N-able, Inc. The separation was completed by means of a distribution in which each holder of our common stock, par value $0.001 per share, received one share of N-able’s common stock, par value $0.001, for every two shares of our common stock held of record as of the close of business on July 12, 2021 (the “Record Date”). After the distribution, we will not beneficially own any shares of common stock in N-able and will no longer consolidate N-able into our financial results for periods ending after July 19, 2021 (the entire transaction being referred to as the “Separation”).
The unaudited pro forma condensed consolidated financial statements have been derived from the Company’s historical consolidated financial statements and give effect to the Separation. The unaudited pro forma condensed consolidated statements of operations reflect the Company’s results as if the Separation had occurred as of January 1, 2018. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2021 reflects the Company’s financial position as if the Separation had occurred on such date. After the date of the Separation, the historical financial results of N-able will be reflected in our consolidated financial statements as discontinued operations under U.S. generally accepted accounting principles (“GAAP”) for all periods presented through the Separation date.
The unaudited pro forma condensed consolidated financial statements are not intended to be a complete presentation of the Company’s financial position or results of operations had the Separation occurred as of and for the periods indicated. In addition, the unaudited pro forma condensed consolidated financial statements are provided for illustrative and informational purposes only and are not necessarily indicative of the Company’s future results of operations or financial condition had the Separation and related transactions been completed on the dates assumed. The unaudited pro forma condensed consolidated financial information should be read together with our historical consolidated financial statements and accompanying notes.
The “Historical” column in the unaudited pro forma condensed consolidated financial statements reflects our historical condensed consolidated financial statements for the periods presented and does not reflect any adjustments related to the Separation and related transactions.
The “N-able Separation” column in the unaudited pro forma condensed consolidated financial statements reflects the operations, assets, liabilities and equity of N-able, which have been derived from N-able’s historical condensed financial statements prepared on a “carve-out” basis of accounting.
The unaudited pro forma condensed consolidated financial statements have been prepared to include transaction accounting and autonomous entity adjustments to reflect the financial condition and results of operations as if we were a separate stand-alone entity in accordance with GAAP.
The “Transaction Accounting Adjustments” column in the unaudited pro forma condensed consolidated financial statements reflects the effects of N-able’s legal separation from the Company and includes the following adjustments:
•the impact of the separation agreement, tax matters agreement, employee matters agreement, transition services agreement, and other commercial agreements between the Company and N-able;
•the settlement of related party debt with N-able; and
•the elimination of our net investment in N-able.
The “Autonomous Entity Adjustments” column in the unaudited pro forma condensed consolidated financial statements reflects the operations and financial position of the Company as an autonomous entity when N-able was previously part of the Company, and includes the following adjustments:
•the contribution by the Company to N-able, pursuant to the separation agreement, of all assets and liabilities that comprises our business; and
•other adjustments as described in the notes to these unaudited pro forma condensed consolidated financial statements.
The pro forma adjustments represent our best estimates based on information currently available and may differ from those that will be calculated to report N-able as discontinued operations in our future filings.
The unaudited pro forma condensed financial statements have been prepared in accordance with Article 11 of the SEC’s Regulation S-X. In May 2020, the SEC adopted Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” or the “Final Rule”. The Final Rule became effective on January 1, 2021 and the unaudited pro forma condensed financial statements is presented in accordance therewith. The unaudited pro forma condensed consolidated financial statements do not include adjustments to reflect any potential synergies that may be achievable, or dis-synergy costs that may occur, in connection with the Separation.
SolarWinds Corporation
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 2021
(In thousands, except share and per share information)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Historical | | N-able Separation (a) | | Transaction Accounting Adjustments | | Notes | | Autonomous Entity Adjustments | | Notes | | Pro Forma Results |
| Assets | | | | | | | | | | | | | | |
| Current assets: | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 374,352 | | | $ | (111,218) | | | $ | 617,224 | | | (b-d) | | $ | — | | | | | $ | 880,358 | |
| | | | | | | | | | | | | | |
| Accounts receivable, net of allowances of $3,023 as of March 31, 2021 | | 116,271 | | | (29,033) | | | — | | | | | 4,137 | | | (n-p) | | 91,375 | |
| Income tax receivable | | 2,286 | | | (1,810) | | | 115 | | | (e) | | — | | | | | 591 | |
| | | | | | | | | | | | | | |
| Prepaid and other current assets | | 37,501 | | | (8,543) | | | 19,134 | | | (f) | | — | | | | | 48,092 | |
| Total current assets | | 530,410 | | | (150,604) | | | 636,473 | | | | | 4,137 | | | | | 1,020,416 | |
| Property and equipment, net | | 58,507 | | | (19,311) | | | — | | | | | — | | | | | 39,196 | |
| Operating lease assets | | 108,030 | | | (13,395) | | | — | | | | | — | | | | | 94,635 | |
| Deferred taxes | | 143,080 | | | (3,227) | | | 1,031 | | | (e) | | — | | | | | 140,884 | |
| Goodwill | | 4,192,328 | | | (855,578) | | | — | | | | | — | | | | | 3,336,750 | |
| Intangible assets, net | | 524,320 | | | (18,425) | | | — | | | | | — | | | | | 505,895 | |
| Other assets, net | | 37,837 | | | (7,569) | | | — | | | | | — | | | | | 30,268 | |
| Total assets | | $ | 5,594,512 | | | $ | (1,068,109) | | | $ | 637,504 | | | | | $ | 4,137 | | | | | $ | 5,168,044 | |
| Liabilities and stockholders’ equity | | | | | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | | | | |
| Accounts payable | | $ | 19,299 | | | $ | (2,181) | | | $ | — | | | | | $ | 864 | | | (n-p) | | $ | 17,982 | |
| Payable due to SolarWinds | | — | | | (19,134) | | | 19,134 | | | (f-g) | | — | | | | | — | |
| Payable due to N-able | | — | | | — | | | 780 | | | (h) | | — | | | | | 780 | |
| Accrued liabilities and other | | 56,594 | | | (19,968) | | | 588 | | | (g) | | — | | | | | 37,214 | |
| | | | | | | | | | | | | | |
| Current operating lease liabilities | | 18,476 | | | (2,882) | | | — | | | | | — | | | | | 15,594 | |
| | | | | | | | | | | | | | |
| Accrued interest payable | | 154 | | | — | | | — | | | | | — | | | | | 154 | |
| Accrued interest payable due to SolarWinds | | — | | | (5,722) | | | 5,722 | | | (b) | | — | | | | | — | |
| Income taxes payable | | 11,324 | | | (1,803) | | | 129 | | (e) | | — | | | | | 9,650 | |
| Current portion of deferred revenue | | 343,412 | | | (9,688) | | | — | | | | | — | | | | | 333,724 | |
| Current debt obligation | | 19,900 | | | — | | | — | | | | | — | | | | | 19,900 | |
| | | | | | | | | | | | | | |
| Total current liabilities | | 469,159 | | | (61,378) | | | 26,353 | | | | | 864 | | | | | 434,998 | |
| Long-term liabilities: | | | | | | | | | | | | | | |
| Deferred revenue, net of current portion | | 34,853 | | | (137) | | | — | | | | | — | | | | | 34,716 | |
| Non-current deferred taxes | | 47,706 | | | (4,641) | | | 9,188 | | | (e) | | — | | | | | 52,253 | |
| Non-current operating lease liabilities | | 111,102 | | | (14,162) | | | — | | | | | — | | | | | 96,940 | |
| Other long-term liabilities | | 101,590 | | | (409) | | | — | | | | | — | | | | | 101,181 | |
| Long-term debt, net of current portion | | 1,879,936 | | | — | | | — | | | | | — | | | | | 1,879,936 | |
| Due to SolarWinds | | — | | | (372,650) | | | 372,650 | | | (b) | | — | | | | | — | |
| Total liabilities | | 2,644,346 | | | (453,377) | | | 408,191 | | | | | 864 | | | | | 2,600,024 | |
| Commitments and contingencies | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Stockholders’ equity: | | | | | | | | | | | | | | |
| Common Stock, $0.001 par value: 1,000,000,000 shares authorized and 315,403,617 shares issued and outstanding as of March 31, 2021 | | 315 | | | — | | | — | | | | | — | | | | | 315 | |
| Preferred Stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of March 31, 2021 | | — | | | — | | | — | | | | | — | | | | | — | |
| Additional paid-in-capital/ Parent company net investment | | 3,124,493 | | | (585,060) | | | 229,313 | | | (b-e), (g-h) | | — | | | | | 2,768,746 | |
| Accumulated other comprehensive income | | 61,462 | | | (29,672) | | | — | | | | | — | | | | | 31,790 | |
| Accumulated deficit | | (236,104) | | | — | | | — | | | | | 3,273 | | | (n-p) | | (232,831) | |
| Total stockholders’ equity | | 2,950,166 | | | (614,732) | | | 229,313 | | | | | 3,273 | | | | | 2,568,020 | |
| Total liabilities and stockholders’ equity | | $ | 5,594,512 | | | $ | (1,068,109) | | | $ | 637,504 | | | | | $ | 4,137 | | | | | $ | 5,168,044 | |
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
SolarWinds Corporation
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2021
(In thousands, except per share information)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Historical | | N-able Separation (a) | | Transaction Accounting Adjustments | | Notes | | Autonomous Entity Adjustments | | Notes | | Pro Forma Results | | | | |
| Revenue: | | | | | | | | | | | | | | | | | | |
| Subscription | | $ | 108,988 | | | $ | (80,671) | | | $ | — | | | | | $ | — | | | | | $ | 28,317 | | | | | |
| Maintenance | | 123,040 | | | (2,519) | | | — | | | | | — | | | | | 120,521 | | | | | |
| Total recurring revenue | | 232,028 | | | (83,190) | | | — | | | | | — | | | | | 148,838 | | | | | |
| License | | 24,874 | | | — | | | — | | | | | — | | | | | 24,874 | | | | | |
| Total revenue | | 256,902 | | | (83,190) | | | — | | | | | — | | | | | 173,712 | | | | | |
| Cost of revenue: | | | | | | | | | | | | | | | | | | |
| Cost of recurring revenue | | 26,958 | | | (11,304) | | | — | | | | | — | | | | | 15,654 | | | | | |
| Amortization of acquired technologies | | 43,121 | | | (2,704) | | | — | | | | | — | | | | | 40,417 | | | | | |
| Total cost of revenue | | 70,079 | | | (14,008) | | | — | | | | | — | | | | | 56,071 | | | | | |
| Gross profit | | 186,823 | | | (69,182) | | | — | | | | | — | | | | | 117,641 | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | | | |
| Sales and marketing | | 83,297 | | | (25,714) | | | (61) | | | (i-j) | | — | | | | | 57,522 | | | | | |
| Research and development | | 37,761 | | | (12,042) | | | 639 | | | (i-j) | | — | | | | | 26,358 | | | | | |
| General and administrative | | 47,710 | | | (20,228) | | | 3,383 | | | (i-j) | | — | | | | | 30,865 | | | | | |
| Amortization of acquired intangibles | | 20,057 | | | (6,019) | | | — | | | | | — | | | | | 14,038 | | | | | |
| Total operating expenses | | 188,825 | | | (64,003) | | | 3,961 | | | | | — | | | | | 128,783 | | | | | |
| Operating loss | | (2,002) | | | (5,179) | | | (3,961) | | | | | — | | | | | (11,142) | | | | | |
| Other (expense) income: | | | | | | | | | | | | | | | | | | |
| Interest expense, net | | (16,174) | | | 6,518 | | | (6,518) | | | (k) | | — | | | | | (16,174) | | | | | |
| Other income, net | | 127 | | | 529 | | | — | | | | | — | | | | | 656 | | | | | |
| Total other (expense) income | | (16,047) | | | 7,047 | | | (6,518) | | | | | — | | | | | (15,518) | | | | | |
| Loss before income taxes | | (18,049) | | | 1,868 | | | (10,479) | | | | | — | | | | | (26,660) | | | | | |
| Income tax benefit | | (10,889) | | | (2,410) | | | 8,768 | | | (l-m) | | — | | | | | (4,531) | | | | | |
| Net loss | | $ | (7,160) | | | $ | 4,278 | | | $ | (19,247) | | | | | $ | — | | | | | $ | (22,129) | | | | | |
| Net loss available to common stockholders | | $ | (7,160) | | | | | | | | | | | | | $ | (22,129) | | | | | |
| Net loss available to common stockholders per share: | | | | | | | | | | | | | | | | | | |
| Basic loss per share | | $ | (0.02) | | | | | | | | | | | | | $ | (0.07) | | | | | |
| Diluted loss per share | | $ | (0.02) | | | | | | | | | | | | | $ | (0.07) | | | | | |
| Weighted-average shares used to compute net loss available to common stockholders per share: | | | | | | | | | | | | | | | | | | |
| Shares used in computation of basic loss per share | | 314,246 | | | | | | | | | | | | | 314,246 | | | | | |
| Shares used in computation of diluted loss per share | | 314,246 | | | | | | | | | | | | | 314,246 | | | | | |
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
SolarWinds Corporation
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Year Ended December 31, 2020
(In thousands, except per share information)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Historical | | N-able Separation (a) | | Transaction Accounting Adjustments | | Notes | | Autonomous Entity Adjustments | | Notes | | Pro Forma Results | | | | |
| Revenue: | | | | | | | | | | | | | | | | | | |
| Subscription | | $ | 396,496 | | | $ | (292,027) | | | $ | — | | | | | $ | — | | | | | $ | 104,469 | | | | | |
| Maintenance | | 478,284 | | | (10,371) | | | — | | | | | — | | | | | 467,913 | | | | |
| Total recurring revenue | | 874,780 | | | (302,398) | | | — | | | | | — | | | | | 572,382 | | | | |
| License | | 144,461 | | | (473) | | | — | | | | | — | | | | | 143,988 | | | | |
| Total revenue | | 1,019,241 | | | (302,871) | | | — | | | | | — | | | | | 716,370 | | | | |
| Cost of revenue: | | | | | | | | | | | | | | | | | | |
| Cost of recurring revenue | | 93,255 | | | (38,916) | | | — | | | | | — | | | | | 54,339 | | | | | |
| Amortization of acquired technologies | | 181,361 | | | (24,257) | | | — | | | | | — | | | | | 157,104 | | | | | |
| Total cost of revenue | | 274,616 | | | (63,173) | | | — | | | | | — | | | | | 211,443 | | | | | |
| Gross profit | | 744,625 | | | (239,698) | | | — | | | | | — | | | | | 504,927 | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | | | |
| Sales and marketing | | 298,452 | | | (82,034) | | | 1,069 | | | (i-j) | | — | | | | | 217,487 | | | | | |
| Research and development | | 126,216 | | | (42,719) | | | 2,257 | | | (i-j) | | — | | | | | 85,754 | | | | | |
| General and administrative | | 137,541 | | | (57,331) | | | 18,098 | | | (i-j) | | — | | | | | 98,308 | | | | | |
| Amortization of acquired intangibles | | 74,973 | | | (23,848) | | | — | | | | | — | | | | | 51,125 | | | | | |
| Total operating expenses | | 637,182 | | | (205,932) | | | 21,424 | | | | | — | | | | | 452,674 | | | | | |
| Operating income | | 107,443 | | | (33,766) | | | (21,424) | | | | | — | | | | | 52,253 | | | | | |
| Other expense: | | | | | | | | | | | | | | | | | | |
| Interest expense, net | | (75,884) | | | 28,137 | | | (28,139) | | | (k) | | — | | | | | (75,886) | | | | | |
| Other expense, net | | (1,240) | | | 773 | | | — | | | | | — | | | | | (467) | | | | | |
| Total other expense | | (77,124) | | | 28,910 | | | (28,139) | | | | | — | | | | | (76,353) | | | | | |
| (Loss) income before income taxes | | 30,319 | | | (4,856) | | | (49,563) | | | | | — | | | | | (24,100) | | | | | |
| Income tax benefit | | (128,156) | | | (12,014) | | | 1,494 | | | (l-m) | | — | | | | | (138,676) | | | | | |
| Net income | | $ | 158,475 | | | $ | 7,158 | | | (51,057) | | | | | $ | — | | | | | $ | 114,576 | | | | | |
| Net income available to common stockholders | | $ | 157,508 | | | | | | | | | | | | | $ | 113,877 | | | | | |
| Net income available to common stockholders per share: | | | | | | | | | | | | | | | | | | |
| Basic earnings per share | | $ | 0.51 | | | | | | | | | | | | | $ | 0.37 | | | | | |
| Diluted earnings per share | | $ | 0.50 | | | | | | | | | | | | | $ | 0.36 | | | | | |
| Weighted-average shares used to compute net income available to common stockholders per share: | | | | | | | | | | | | | | | | | | |
| Shares used in computation of basic earnings per share | | 310,554 | | | | | | | | | | | | | 310,554 | | | | | |
| Shares used in computation of diluted earnings per share | | 315,563 | | | | | | | | | | | | | 315,563 | | | | | |
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
SolarWinds Corporation
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Year Ended December 31, 2019
(In thousands, except per share information)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Historical | | N-able Separation (a) | | Transaction Accounting Adjustments | | Notes | | Autonomous Entity Adjustments | | Notes | | Pro Forma Results | | | | |
| Revenue: | | | | | | | | | | | | | | | | | |
| Subscription | $ | 320,747 | | | $ | (251,695) | | | $ | — | | | | | $ | — | | | | | $ | 69,052 | | | | | |
| Maintenance | 446,450 | | | (10,558) | | | — | | | | | — | | | | | 435,892 | | | | | |
| Total recurring revenue | 767,197 | | | (262,253) | | | — | | | | | — | | | | | 504,944 | | | | | |
| License | 165,328 | | | (1,265) | | | — | | | | | 215 | | | (o-p) | | 164,278 | | | | | |
| Total revenue | 932,525 | | | (263,518) | | | — | | | | | 215 | | | | | 669,222 | | | | | |
| Cost of revenue: | | | | | | | | | | | | | | | | | |
| Cost of recurring revenue | 79,571 | | | (33,253) | | | — | | | | | 269 | | (p) | | 46,587 | | | | | |
| Amortization of acquired technologies | 175,883 | | | (24,067) | | | — | | | | | — | | | | | 151,816 | | | | | |
| Total cost of revenue | 255,454 | | | (57,320) | | | — | | | | | 269 | | | | | 198,403 | | | | | |
| Gross profit | 677,071 | | | (206,198) | | | — | | | | | (54) | | | | | 470,819 | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | | |
| Sales and marketing | 264,199 | | | (70,254) | | | 212 | | | (i) | | — | | | | | 194,157 | | | | | |
| Research and development | 110,362 | | | (37,172) | | | 2,692 | | | (i) | | 32 | | | (o) | | 75,914 | | | | | |
| General and administrative | 97,525 | | | (38,971) | | | 15,798 | | | (i) | | — | | | | | 74,352 | | | | | |
| Amortization of acquired intangibles | 69,812 | | | (23,189) | | | — | | | | | — | | | | | 46,623 | | | | | |
| Total operating expenses | 541,898 | | | (169,586) | | | 18,702 | | | | | 32 | | | | | 391,046 | | | | | |
| Operating income | 135,173 | | | (36,612) | | | (18,702) | | | | | (86) | | | | | 79,773 | | | | | |
| Other (expense) income: | | | | | | | | | | | | | | | | | |
| Interest expense, net | (108,071) | | | 33,805 | | | (33,812) | | | (k) | | — | | | | | (108,078) | | | | | |
| Other income, net | 402 | | | (386) | | | — | | | | | 300 | | | (n) | | 316 | | | | | |
| Total other expense | (107,669) | | | 33,419 | | | (33,812) | | | | | 300 | | | | | (107,762) | | | | | |
| (Loss) income before income taxes | 27,504 | | | (3,193) | | | (52,514) | | | | | 214 | | | | | (27,989) | | | | | |
| Income tax (benefit) expense | 8,862 | | | (5,705) | | | (11,065) | | | (l-m) | | 48 | | | (m) | | (7,860) | | | | | |
| Net (loss) income | $ | 18,642 | | | $ | 2,512 | | | $ | (41,449) | | | | | $ | 166 | | | | | $ | (20,129) | | | | | |
| Net (loss) income available to common stockholders | $ | 18,441 | | | | | | | | | | | | | $ | (20,129) | | | | | |
| Net (loss) income available to common stockholders per share: | | | | | | | | | | | | | | | | | |
| Basic (loss) earnings per share | $ | 0.06 | | | | | | | | | | | | | $ | (0.07) | | | | | |
| Diluted (loss) earnings per share | $ | 0.06 | | | | | | | | | | | | | $ | (0.07) | | | | | |
| Weighted-average shares used to compute net (loss) income available to common stockholders per share: | | | | | | | | | | | | | | | | | |
| Shares used in computation of basic (loss) earnings per share | 306,768 | | | | | | | | | | | | | 306,768 | | | | | |
| Shares used in computation of diluted (loss) earnings per share | 311,168 | | | | | | | | | | | | | 306,768 | | | | | |
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
SolarWinds Corporation
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Year Ended December 31, 2018
(In thousands, except per share information)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Historical | | N-able Separation (a) | | Transaction Accounting Adjustments | | Notes | | Autonomous Entity Adjustments | | Notes | | Pro Forma Results | | | | |
| Revenue: | | | | | | | | | | | | | | | | | |
| Subscription | $ | 265,591 | | | $ | (216,750) | | | $ | — | | | | | $ | — | | | | | $ | 48,841 | | | | | |
| Maintenance | 402,938 | | | (9,318) | | | — | | | | | — | | | | | 393,620 | | | | | |
| Total recurring revenue | 668,529 | | | (226,068) | | | — | | | | | — | | | | | 442,461 | | | | | |
| License | 164,560 | | | (2,226) | | | — | | | | | 877 | | | (o-p) | | 163,211 | | | | | |
| Total revenue | 833,089 | | | (228,294) | | | — | | | | | 877 | | | | | 605,672 | | | | | |
| Cost of revenue: | | | | | | | | | | | | | | | | | |
| Cost of recurring revenue | 70,744 | | | (30,920) | | | — | | | | | 684 | | | (p) | | 40,508 | | | | | |
| Amortization of acquired technologies | 175,991 | | | (26,428) | | | — | | | | | — | | | | | 149,563 | | | | | |
| Total cost of revenue | 246,735 | | | (57,348) | | | — | | | | | 684 | | | | | 190,071 | | | | | |
| Gross profit | 586,354 | | | (170,946) | | | — | | | | | 193 | | | | | 415,601 | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | | |
| Sales and marketing | 227,468 | | | (62,278) | | | 393 | | | (i) | | — | | | | | 165,583 | | | | | |
| Research and development | 96,272 | | | (32,892) | | | 1,732 | | | (i) | | 129 | | | (o) | | 65,241 | | | | | |
| General and administrative | 80,641 | | | (33,286) | | | 10,157 | | | (i) | | 51 | | | (n) | | 57,563 | | | | | |
| Amortization of acquired intangibles | 66,788 | | | (23,716) | | | — | | | | | — | | | | | 43,072 | | | | | |
| Total operating expenses | 471,169 | | | (152,172) | | | 12,282 | | | | | 180 | | | | | 331,459 | | | | | |
| Operating income | 115,185 | | | (18,774) | | | (12,282) | | | | | 13 | | | | | 84,142 | | | | | |
| Other expense: | | | | | | | | | | | | | | | | | |
| Interest expense, net | (142,008) | | | 34,523 | | | (34,714) | | | (k) | | — | | | | | (142,199) | | | | | |
| Other expense, net | (94,887) | | | 1,742 | | | — | | | | | 3,260 | | | (n) | | (89,885) | | | | | |
| Total other expense | (236,895) | | | 36,265 | | | (34,714) | | | | | 3,260 | | | | | (232,084) | | | | | |
| Loss before income taxes | (121,710) | | | 17,491 | | | (46,996) | | | | | 3,273 | | | | | (147,942) | | | | | |
| Income tax benefit | (19,644) | | | 3,799 | | | (19,705) | | | (l-m) | | 756 | | | (m) | | (34,794) | | | | | |
| Net loss | $ | (102,066) | | | $ | 13,692 | | | $ | (27,291) | | | | | $ | 2,517 | | | | | $ | (113,148) | | | | | |
| Net income available to common stockholders | $ | 364,635 | | | | | | | | | | | | | $ | 353,934 | | | | | |
| Net income available to common stockholders per share: | | | | | | | | | | | | | | | | | |
| Basic earnings per share | $ | 2.60 | | | | | | | | | | | | | $ | 2.52 | | | | | |
| Diluted earnings per share | $ | 2.56 | | | | | | | | | | | | | $ | 2.48 | | | | | |
| Weighted-average shares used to compute net income available to common stockholders per share: | | | | | | | | | | | | | | | | | |
| Shares used in computation of basic earnings per share | 140,301 | | | | | | | | | | | | | 140,301 | | | | | |
| Shares used in computation of diluted earnings per share | 142,541 | | | | | | | | | | | | | 142,541 | | | | | |
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
The adjustments included in the unaudited pro forma condensed consolidated financial statements are described below:
(a)Reflects the operations, assets, liabilities and equity of N-able, which have been derived from N-able’s historical combined financial statements prepared on a “carve-out” basis of accounting.
Note 1: Transaction Accounting Adjustments
This note should be read in conjunction with other notes in the pro forma condensed consolidated financial statements. Adjustments included in the column under the heading “Transaction Accounting Adjustments” represent the following:
(b)Reflects the settlement of the outstanding related party indebtedness between us and N-able of $372.7 million. To settle the outstanding related party indebtedness, N-able will enter into new debt for an estimated principal amount of $350.0 million and estimated debt issuance costs of $9.9 million. The adjustment includes the removal of $5.7 million of related accrued and unpaid interest payable.
(c)Reflects an estimated cash payment N-able will distribute to SolarWinds in connection with the Separation.
(d)In connection with the Separation, N-able will enter into privately negotiated agreements with certain accredited investors to sell newly-issued shares of N‑able common stock for net proceeds of $216 million. The transaction is referred to as the "Private Placement". Upon the closing of the Private Placement, and prior to consummation of the separation and distribution, N-able will pay a dividend to SolarWinds in an amount equal to the net proceeds of the Private Placement. This adjustment reflects the dividend payment N-able will distribute to SolarWinds in connection with the Private Placement.
(e)Represents the pro forma adjustments for income taxes after discontinued operations were removed in connection with the Separation.
(f)Reflects outstanding intercompany trade receivables due from N-able that will remain outstanding upon completion of the Separation.
(g)Represents intercompany employee related liabilities that were historically assigned to N-able on a carve-out basis of accounting which were fully eliminated in the carve-out basis of accounting and are still fully eliminated under the discontinued operation basis of accounting.
(h)Reflects outstanding intercompany trade payables due to N-able that will remain outstanding upon completion of the Separation.
(i)Adjustment represents general corporate overhead costs related to executive management, finance, legal, information technology, and other shared services functions that were historically assigned to N-able on a carve-out basis of accounting which SolarWinds expect to be representative of pro forma continuing operations. The pro forma adjustments are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, 2021 | | For the year ended December 31, 2020 | | For the year ended December 31, 2019 | | For the year ended December 31, 2018 |
| (in thousands) |
| Sales and marketing | $ | 11 | | $ | 1,160 | | $ | 212 | | $ | 393 |
| Research and development | 649 | | 2,313 | | 2,692 | | 1,732 |
| General and administrative | 9,533 | | 28,229 | | 15,798 | | 10,157 |
| $ | 10,193 | | $ | 31,702 | | $ | 18,702 | | $ | 12,282 |
(j)Represents the transaction costs directly attributable to the separation of N-able, which will be retrospectively reclassified to discontinued operations upon completion of the Separation. There were no transaction costs for the years ended December 31, 2019 and 2018, respectively. The pro forma adjustments are summarized below:
| | | | | | | | | | | |
| For the three months ended March 31, 2021 | | For the year ended December 31, 2020 |
| (in thousands) |
| Sales and marketing | $ | (72) | | $ | (91) |
| Research and development | (10) | | (56) |
| General and administrative | (6,150) | | (10,131) |
| $ | (6,232) | | $ | (10,278) |
��
(k)Reflects the removal of the historical interest expense related to the outstanding related party indebtedness expected to be repaid as described in Note (b) above.
(l)Reflects the removal of the income tax effect of the historical interest expense and income related to the outstanding related party indebtedness as described in Notes (b) and (k) above. The pro forma adjustments are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, 2021 | | For the year ended December 31, 2020 | | For the year ended December 31, 2019 | | For the year ended December 31, 2018 |
| (in thousands) |
| Income tax expense (benefit) | $ | 349 | | $ | 1,490 | | $ | (4,763) | | $ | (8,132) |
(m)Represents the income tax effect of the pro forma adjustments calculated using enacted statutory tax rates applicable at the legal entity in which the pro forma adjustments were made.
Note 2: Autonomous Entity Adjustments
This note should be read in conjunction with other notes in the pro forma condensed consolidated financial statements. Adjustments included in the column under the heading “Autonomous Entity Adjustments” represent the following:
(n)In connection with the Separation, the Company and N-able entered into a transition services agreement whereby the Company and N-able will provide certain post-closing services to each other on a transitional basis. As such, a pro forma adjustment has been recorded to general and administrative expenses for services incurred by the Company from N-able and a pro forma adjustment has been recorded to other
income for services provided by the Company to N-able to reflect this contractual arrangement. The pro forma adjustments are summarized below:
| | | | | | | | | | | |
| For the year ended December 31, 2019 | | For the year ended December 31, 2018 |
| (in thousands) |
| General and administrative | $ | — | | | $ | 51 | |
| Other income | 300 | | | 3,260 | |
| $ | 300 | | | $ | 3,209 | |
(o)Represents the impact of the software cross license agreement that will be entered into between N-able and the Company after the Separation pursuant to which N-able will grant to the Company a generally perpetual, irrevocable, nonexclusive, worldwide and, subject to certain exceptions, royalty-free license to certain software libraries and internal tools for limited uses. We will be able to sublicense our rights to third parties solely for use on behalf of us. We will pay a license fee to N-able for the license to certain software libraries. We will also grant to N-able 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. We will be able to sublicense our rights to third parties solely for use on behalf of us. The pro forma adjustments are summarized below:
| | | | | | | | | | | |
| For the year ended December 31, 2019 | | For the year ended December 31, 2018 |
| (in thousands) |
| License revenue | $ | 113 | | | $ | 454 | |
| Research and development | 32 | | | 129 | |
| $ | 81 | | | $ | 325 | |
(p)Represents the impact of the software OEM agreement that will be entered into between N-able and us after the Separation pursuant to which N-able will grant to us a non-exclusive and royalty-bearing license to market, advertise, distribute and sublicense certain N-able software products to customers on a worldwide basis. We will enter into a substantially similar software OEM agreement under which we will grant to N-able a non-exclusive and royalty-bearing license to market, advertise, distribute and sublicense certain of our software products to customers on a worldwide basis. The pro forma adjustments are summarized below: | | | | | | | | | | | |
| For the year ended December 31, 2019 | | For the year ended December 31, 2018 |
| (in thousands) |
| License revenue | $ | 102 | | | $ | 423 | |
| Cost of recurring revenue | 269 | | | 684 | |
| $ | (167) | | | $ | (261) | |
The following table illustrates the accumulated impact of footnotes a, b, c and d:
| | | | | |
| March 31, 2021 |
| (in thousands) |
| Cash and cash equivalents | |
| Historical | $ | 374,352 | |
| N-able Separation (a) | (111,218) | |
| N-able repayment of outstanding indebtedness (b) | 372,650 | |
| Cash distribution to SolarWinds (c) | 28,574 | |
| Dividend payment to SolarWinds (d) | 216,000 | |
| $ | 880,358 | |
The following table illustrates the accumulated impact of footnotes a, b, c, d, e, g and h:
| | | | | |
| March 31, 2021 |
| (in thousands) |
| Additional paid-in-capital/Parent company net investment | |
| Historical | $ | 3,124,493 | |
| N-able separation (a) | (585,060) | |
| Removal of unpaid interest expense (b) | (5,722) | |
| Cash distribution to SolarWinds (c) | 28,574 | |
| Dividend payment to SolarWinds (d) | 216,000 | |
| Tax adjustments (e) | (8,171) | |
| Intercompany employee related liabilities elimination (g) | (588) | |
| Outstanding trade payables due to N-able (h) | (780) | |
| $ | 2,768,746 | |
