Business Overview and History
SolarWinds Corporation (SWI) is a leading provider of observability and IT management software, offering a comprehensive suite of products designed to help organizations of all sizes manage and secure their complex hybrid and multi-cloud environments. With a focus on simplicity, power, and security, SolarWinds has established itself as a trusted partner for technology professionals and business leaders seeking to accelerate their digital transformation journeys.
Headquartered in Austin, Texas, SolarWinds was founded in 1999 with the mission of developing innovative software solutions to address the growing challenges faced by IT professionals. The company's early success was driven by its flagship product, the Network Performance Monitor, which quickly gained traction in the market and established SolarWinds as a leader in network management tools.
SolarWinds operated as a publicly traded company following its initial public offering in 2009. However, in February 2016, the company was acquired by affiliates of Silver Lake Group, L.L.C. and Thoma Bravo, LLC in a take-private transaction. This strategic move allowed SolarWinds to focus on long-term growth and innovation without the pressures of quarterly public reporting.
In July 2021, SolarWinds completed a significant restructuring by separating and distributing its managed service provider business, N-able, Inc., into a newly created and separately traded public company. This separation enabled SolarWinds to concentrate on its core observability and IT management software business, streamlining its operations and strategic focus.
Throughout its history, SolarWinds has employed a cost-efficient, integrated global product development model to expand its product portfolio. The company has introduced new observability, database performance management, and service management solutions through both organic development and strategic acquisitions. This approach has allowed SolarWinds to offer a diverse array of solutions designed to provide organizations worldwide with comprehensive and unified visibility into their modern, distributed, and hybrid network environments.
Financial Performance and Metrics
SolarWinds has demonstrated a strong financial track record, with a focus on driving sustainable growth and profitability. In the fiscal year 2024, the company reported total revenue of $796.9 million, representing a 5% year-over-year increase. This revenue growth was primarily driven by the company's ongoing transition to a subscription-first model, which has resulted in a significant increase in recurring revenue. As of the end of fiscal year 2024, recurring revenue accounted for 94% of the company's total revenue.
The company's adjusted EBITDA for the fiscal year 2024 was $376 million, representing a 15% year-over-year growth and a margin of 47.5%. This strong profitability profile is a testament to SolarWinds' operational efficiency and the scalability of its business model.
For the most recent fiscal year ended December 31, 2024, SolarWinds reported annual net income of $111.9 million, annual operating cash flow of $188.3 million, and annual free cash flow of $167.8 million. The company's revenue mix consisted of $304.5 million (38.2%) from subscription revenue, $440.6 million (55.3%) from maintenance revenue, and $51.8 million (6.5%) from license revenue.
In the fourth quarter of 2024, SolarWinds reported revenue of $210.3 million, representing a 6.1% year-over-year increase, and net income of $72.7 million. The increase in revenue was driven by continued strong demand for SolarWinds' subscription offerings, particularly its SolarWinds Observability Self-Hosted and SolarWinds Observability SaaS solutions.
SolarWinds' annual recurring revenue (ARR) grew to $729 million as of December 31, 2024, representing a 6.6% year-over-year increase. The company's subscription ARR reached $311.7 million, up 33.7% compared to the prior year, reflecting the ongoing transition of customers to subscription-based offerings.
The company's non-GAAP operating income increased to $361.4 million, with a non-GAAP operating margin of 45.4%. Adjusted EBITDA reached $384.7 million, representing an adjusted EBITDA margin of 48.3%.
Liquidity
In terms of liquidity, SolarWinds maintained a healthy balance sheet, with $259.3 million in cash and cash equivalents as of December 31, 2024. The company's net debt to adjusted EBITDA ratio stood at 2.5x, indicating a manageable leverage position.
As of December 31, 2024, SolarWinds had a debt-to-equity ratio of 0.04. The company had access to a $130 million revolving credit facility, which was fully undrawn. SolarWinds' current ratio and quick ratio were both 0.85 as of the end of 2024.
Geographic Performance
SolarWinds operates globally, with 69% of its total revenue derived from North America for both the years ended December 31, 2024 and 2023. No single country outside of the United States accounted for more than 10% of total revenue.
Product Portfolio and Competitive Landscape
SolarWinds' comprehensive product portfolio is designed to address the evolving needs of IT professionals and business leaders. The company's key product offerings include:
1. Observability Solutions: SolarWinds Observability, comprising both self-hosted and SaaS-based solutions, provides organizations with unified visibility into their hybrid and multi-cloud environments, enabling them to effectively monitor, troubleshoot, and optimize their IT infrastructure.
2. IT Management Solutions: SolarWinds' IT management suite includes products for network management, systems and database performance monitoring, and security and compliance management, helping customers streamline their IT operations and enhance productivity.
3. Service Management Solutions: The company's service management offerings, including its ITSM platform, empower organizations to efficiently manage their IT service desk, automate workflows, and improve the overall end-user experience.
4. Network Management Software Suite: This suite provides real-time visibility into network utilization and bandwidth, enabling customers to quickly detect, diagnose, and resolve network performance issues across on-premises, cloud, and hybrid environments.
5. Infrastructure Management Solutions: These products help customers monitor and analyze the performance of their applications and supporting infrastructure, including servers, physical, virtual, and cloud infrastructure, storage, and databases.
6. Security and Compliance Tools: SolarWinds offers automated network configuration, log and event management, Security Information and Event Management (SIEM), access rights management, identity monitoring, server configuration monitoring and patching, and secure gateway and file transfer solutions.
7. Application Performance Management: This software suite enables visibility into log data, cloud infrastructure metrics, applications, tracing, and digital experiences, helping customers optimize application performance and user satisfaction.
8. Database Performance Management: SolarWinds' database performance management software monitors, analyzes, diagnoses, and optimizes database performance for various database management systems, including traditional, open-source, and cloud-native databases.
SolarWinds operates in a highly competitive market, with a diverse range of competitors, including network management and IT vendors such as Cisco Systems, BMC Software, and IBM, as well as cloud and application performance monitoring providers like Datadog, Dynatrace, and New Relic. However, the company's focus on simplicity, power, and security, coupled with its ability to deliver comprehensive solutions across the IT management and observability spectrum, has enabled it to maintain a strong market position and consistently win new customers.
Subscription-First Approach and Customer Retention
One of the key strategic initiatives driving SolarWinds' growth is its "Subscription-First" approach, which involves transitioning its customer base from perpetual license models to time-based subscription offerings. This transition has been a core focus for the company over the past few years and has resulted in a significant increase in recurring revenue.
SolarWinds' customer retention metrics have remained robust, with a trailing 12-month maintenance renewal rate of 97% and a net retention rate of 99% for its subscription products as of the end of fiscal year 2024. These strong retention rates are a testament to the value that SolarWinds' solutions provide to its customers and the company's commitment to delivering exceptional customer service and support.
Cybersecurity Resilience and the Cyber Incident
In 2020, SolarWinds was the victim of a high-profile cyberattack, known as the "Cyber Incident," which impacted the company's Orion Software Platform and internal systems. The incident highlighted the importance of robust cybersecurity measures and the need for organizations to prioritize the security of their IT infrastructure and supply chain.
SolarWinds has taken significant steps to enhance its cybersecurity posture, investing in its "Secure by Design" initiatives and implementing additional security controls and processes. The company has also cooperated with authorities and worked to address the legal and financial implications of the Cyber Incident.
In October 2023, the SEC filed a civil complaint against SolarWinds and its Chief Information Security Officer related to the company's cybersecurity disclosures and internal controls. The District Court for the Southern District of New York has since granted in large part SolarWinds' motion to dismiss the SEC's complaint, with only one claim remaining.
While the Cyber Incident had a short-term impact on the company's operations and reputation, SolarWinds has demonstrated its resilience and commitment to maintaining the trust of its customers. The company's ongoing efforts to strengthen its security measures and provide secure, reliable solutions have been well-received by the market and have contributed to its continued growth and success.
Geopolitical Risks and Macroeconomic Challenges
SolarWinds operates in a global environment, exposing the company to various geopolitical and macroeconomic risks. The ongoing tensions between the United States and other nations, as well as regional conflicts, have the potential to disrupt the company's international operations and supply chain. Additionally, the COVID-19 pandemic and its lingering effects have introduced new challenges, such as shifts in IT spending patterns and disruptions to global supply chains.
To mitigate these risks, SolarWinds has diversified its customer base, both geographically and across industries, and has implemented robust business continuity and disaster recovery plans. The company also closely monitors global developments and adjusts its strategies accordingly to ensure the resilience of its operations and the stability of its financial performance.
Future Outlook and Growth Opportunities
As organizations continue to navigate the complexities of hybrid and multi-cloud environments, the demand for SolarWinds' observability and IT management solutions is expected to remain strong. The company's focus on innovation, product integration, and customer success has positioned it well to capitalize on the growing need for comprehensive, secure, and user-friendly IT management tools.
SolarWinds' ongoing transition to a subscription-first model and the increasing adoption of its cloud-based offerings are expected to drive further growth in the company's recurring revenue streams. Additionally, the company's strategic investments in its partner ecosystem and international expansion efforts are anticipated to unlock new growth opportunities and broaden its global footprint.
The IT management software industry has seen a compound annual growth rate of approximately 8-10% over the past three years, driven by ongoing digital transformation and migration to hybrid and multi-cloud environments. This trend aligns well with SolarWinds' product offerings and strategic focus.
In 2024, SolarWinds announced significant updates to its Observability offerings, including improved system scalability, expanded support for cloud platforms, and enhanced AIOps capabilities to reduce alert fatigue and improve incident management. The company also continued to simplify the packaging and pricing of its Database Performance Management solutions.
For the fourth quarter of 2024, SolarWinds expects total revenue to be in the range of $201 million to $204 million, representing 2% growth at the midpoint. The company projects adjusted EBITDA to be approximately $95 million to $98 million, representing 11% growth at the midpoint. Non-GAAP fully diluted earnings per share are expected to be $0.27 to $0.28 per share.
For the full year 2024, SolarWinds has raised its revenue guidance and now expects total revenue to be in the range of $788 million to $791 million, representing 4% year-over-year growth at the midpoint. The company has also raised its adjusted EBITDA guidance, which is now expected to be approximately $376 million to $379 million, representing 15% year-over-year growth at the midpoint. Non-GAAP diluted earnings are projected to be $1.08 to $1.09 per share.
Furthermore, the company's commitment to addressing the evolving needs of its customers, such as the integration of advanced technologies like artificial intelligence and machine learning, is expected to enhance the value proposition of SolarWinds' solutions and strengthen its competitive positioning.
Conclusion
SolarWinds Corporation has demonstrated its ability to navigate the dynamic IT management landscape, offering a comprehensive suite of observability, IT management, and service management solutions that cater to the evolving needs of its customers. The company's focus on simplicity, power, and security, coupled with its strong financial performance, customer retention, and cybersecurity resilience, positions it well for continued growth and success in the years ahead.
As organizations increasingly rely on hybrid and multi-cloud environments to support their digital transformation initiatives, the demand for SolarWinds' solutions is expected to remain robust. The company's strategic initiatives, product innovation, and commitment to customer success will be key factors in driving its future growth and solidifying its position as a trusted partner in the IT management industry.