June 28, 2018
Kevin Thompson
Chief Executive Officer
SolarWinds Corporattion
7171 Southwest Parkway, Building 400
Austin, TX 78735
Re: SolarWinds Corporation
Draft Registration Statement on Form S-1
Submitted June 1, 2018
CIK 0001739942
Dear Mr. Thompson:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form S-1
Prospectus Summary, page 3
1. Your disclosure on page 6 indicates that SolarWinds plans to convert the
amount of
cumulative but unpaid accrued dividends on the Class A common stock into
shares of
common stock or pay in cash at the company's election. In addition, your
Footnote 11 on
page F-40 discloses the dividend payment effect on Pro Forma Net Loss
Per Share.
Please clarify whether you intend to pay cash and if so describe such
plans throughout the
registration statement, including but not limited to, in the use of
proceeds and dividend
policy sections. Discuss the timing of the election relative to this
offering.
Kevin Thompson
FirstName LastNameKevin Thompson
SolarWinds Corporattion
Comapany NameSolarWinds Corporattion
June 28, 2018
June 28, 2018 Page 2
Page 2
FirstName LastName
2. You believe that the report by International Data Corporation
underestimates the size of
you market opportunity beyond the enterprise and mid-market. Please
explain the
differences in methodologies between the IDC estimate and the estimate
in the survey
you commissioned from Compass Intelligence Research and more clearly
indicate why
you believe the IDC report you cite underestimates your market
opportunity.
Market Opportunity, page 3
3. We note your prospectus contains references to a study commissioned by
you and
conducted by Compass Intelligence Research. Please revise to provide
the date of the
Compass Intelligence report and provide us with a copy for our review
with the specific
language that supports each statement in the prospectus clearly
marked. Also, please file
the consent of Compass Intelligence as an exhibit to the registration
statement. Refer to
Rule 436 of Regulation C and Section 7 of the Securities Act.
Non-GAAP Financial Measures, page 16
4. You provide a tabular disclosure of non-GAAP financial measures
without equally
prominent disclosure of the comparable GAAP measures. In this regard,
revise to include
the comparable GAAP measures in this table. Please revise. We refer
you to Question
102.10 of the updated Non-GAAP Compliance and Disclosure
Interpretations issued on
October 17, 2016.
Market and Industry Data, page 47
5. Please remove disclaiming language under this heading. In this regard,
we note that
investors are entitled to rely upon the information presented in the
prospectus and you
may not disclaim your responsibility the information presented.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, page
62
6. You indicate a risk factor on page 19 that your business depends on
customers renewing
their maintenance or subscription agreements and any decline in
renewal or net retention
rates could harm your future operating results. In addition, you have
disclosed that your
net retention rate for your subscription products averaged
approximately 105% over the
12-month period ending March 31, 2018. Given the risk factor that is
disclosed on page
19, please tell us what consideration was given in including a
discussion of key metrics
such as renewal rates for maintenance and subscription agreements
during the periods
presented or retention rates (i.e., the number of annual maintenance
contracts customers
have renewed and declined to renew, the percentage of subscribers on
the last day of the
prior year or quarter who remain customers on the last day of the
current year or quarter).
In addition, please tell us your consideration for disclosing the
total number of customers
at the end of each period presented with a breakdown for each period
of new and existing
customers. Further, please discuss any known trends relating to
renewals (subscription or
Kevin Thompson
FirstName LastNameKevin Thompson
SolarWinds Corporattion
Comapany NameSolarWinds Corporattion
June 28, 2018
June 28, 2018 Page 3
Page 3
FirstName LastName
maintenance) or new customers, to the extent material. We refer you to
Section III.B of
SEC Release No. 33-8350.
Results of Operations, page 68
7. We note that your subscription revenue increased $14.4 million, or
29.7%, for the three
months ended March 31, 2018 compared to the three months ended March
31, 2017,
primarily due to sales of additional cloud management and MSP
products. Please tell us if
these components of revenue are significant and what consideration was
given to
separately quantifying and discussing these components in order to
better understand your
revenue trends. We refer you to Rule 303(a)(3) of Regulation S-K and
SEC Release No.
33-8350.
Business, page 97
8. You disclose that you have increased your number of customers by 6,000
in each of the
last eight quarters and you have over 275,000 customers. Please
provide the smallest or a
range of amounts a customer could purchase in order to provide some
context to this
metric. Indicate how many of these customers are individuals and
describe the revenue
growth opportunity for one of these customers. To the extent that the
increase constitute a
material trend, please expand your discussion to address any material
opportunities,
challenges, and risks associated with such known trend. Refer to Item
303(a) of
Regulation S-K and Section III of SEC Release No. 33-8350.
9. Please provide support for the following assertions in your
prospectus: SolarWinds is a
leading provider of information technology, or IT, infrastructure
management software;
and you have established a leading position in the market for remote
management and
monitoring software for MSPs.
Concentrations of Risks, page F-24
10. Your risk factor disclosure on page 26 indicates that you have a
meaningful portion of
your sales to a number of different departments of the U.S. federal
government. Please
tell us what consideration was given to disclosing the amount of
revenue generated from
the U.S. federal government. We refer you to FASB ASC 280-10-50-42.
Fair Value Measurements, page F-29
11. We note that you disclose that you did not have any financial
liabilities as of December
31, 2016, December 31, 2017 and at March 31, 2018. However, you have a
significant
balance in long-term debt on the face of the balance sheets. Please
revise to provide the
information required by ASC 825-10-50-10 and ASC 820-10-50-2E for your
financial
instruments for which is practicable to estimate fair value.
General
Kevin Thompson
SolarWinds Corporattion
June 28, 2018
Page 4
12. Please supplementally provide us with copies of all written
communications, as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to
do so on your behalf,
present to potential investors in reliance on Section 5(d) of the
Securities Act, whether or
not they retain copies of the communications.
13. Please supplementally provide us with copies of any graphical
materials or artwork you
intend to use in your prospectus. Upon review of such materials, we
may have further
comments. For guidance, refer to Question 101.02 of our Securities Act
Forms
Compliance and Disclosure Interpretations.
You may contact Amanda Kim, Staff Accountant, at (202) 551-3241 or
Stephen
Krikorian, Accounting Branch Chief, at (202) 551-3488 if you have questions
regarding
comments on the financial statements and related matters. Please contact
Matthew Derby, Staff
Attorney, at (202) 551-3334 or Barbara Jacobs, Assistant Director, at (202)
551-3735 with any
other questions.
FirstName LastNameKevin Thompson
Division of
Corporation Finance
Comapany NameSolarWinds Corporattion
Office of
Information Technologies
June 28, 2018 Page 4 and Services
FirstName LastName