SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

incorporation or organization)

(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	SWI	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 þ¨ 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	þ☐	Smaller reporting company	¨☐
Emerging growth company	þ☐

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 15, 2018, 309,943,622~~May 3, 2021, 315,731,293 shares of common stock, par value $0.001 per share, were outstanding.

SOLARWINDS CORPORATION

Table of Contents

PART I - FINANCIAL INFORMATION

Page

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets as of ~~September 30, 2018~~March 31 , 202 1 and December 31, ~~2017~~ 2020

Condensed Consolidated Statements of Operations for the three ~~and nine~~ month periods ended ~~September 30, 2018~~March 31 , 202 1 and ~~2017~~20 20

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three ~~and nine~~ month periods ended ~~September 30, 2018~~March 31 , 202 1 and ~~2017~~20 20

Condensed Consolidated Statements of ~~Redeemable Convertible Class A Common Stock and~~

Stockholders' ~~Deficit~~Equity for the ~~nine~~ three month ~~period~~periods ended ~~September 30, 2018~~March 31 , 202 1 and 20 20

Condensed Consolidated Statements of Cash Flows for the ~~nine months~~three month periods ended ~~September 30, 2018~~March 31 , 202 1 and ~~2017~~20 20

Notes to the Condensed Consolidated Financial Statements

1. Organization and Nature of Operations

2. Summary of Significant Accounting Policies

3. Goodwill

4. Fair Value Measurements

5. Debt

6. Earnings (Loss) Per Share

7. Income Taxes

8. Commitment and Contingencies

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

2317

Item 3.

Quantitative and Qualitative Disclosures of Market Risk

3831

Item 4.

Controls and Procedures

4032

PART II - OTHER INFORMATION

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4136

Item 6.

~~Exhibits~~

42Exhibits

~~Signatures~~

43Signatures

Certifications

Safe Harbor Cautionary Statement

This ~~quarterly report~~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,~~ “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, non-GAAP 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;

•findings from our investigations into the cyberattack on our Orion Software Platform and internal systems (the "Cyber Incident"), including our understanding of the nature, source and duration of the attack and our plans to ensure our products and internal systems are secure and provide additional information regarding our findings, as well as our expectations regarding the impact of the Cyber Incident on our business and reputation, the success of our related mitigation and remediation efforts and the additional costs, liabilities and other adverse consequences that we may incur as a result of the Cyber Incident;

•expectations regarding the impact the government investigations and litigation resulting from the Cyber Incident may have on our business;

•expectations regarding the potential spin-off of our N-able business into a newly created and separately traded public company;

•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;

~~expectations~~•intentions regarding our international ~~earnings and investment of those earnings in international operations;~~earnings;

•expectations regarding our capital expenditures;

•expectations regarding the impact of the COVID-19 pandemic on our business, results of operations and financial condition; and

•our beliefs regarding the sufficiency of our cash and cash equivalents, cash flows from operating activities and borrowing ~~capacity; and~~

~~our intentions for use of net proceeds from our initial public offering.~~capacity.

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: ~~(a)~~

•risks related to cyberattacks, including the Cyber Incident, and other security incidents resulting in compromises or breaches of our and our customers’ systems or, theft or misappropriation of our and our customers’ proprietary and confidential information, as well as exposure to legal and other liabilities, including the related risk of higher customer, employee and partner attrition and the loss of key personnel, as well as negative impacts to our sales, renewals and upgrades;

•risks related to the potential spin-off of our N-able business into a newly created and separately-traded public company, including that the process of potentially completing the spin-off could disrupt or adversely affect the consolidated or separate businesses, results of operations and financial condition, that the spin-off may not achieve some or all of any anticipated benefits with respect to either business, and that the spin-off may not be completed in accordance with our expected plans or anticipated timelines, or at all;

•the possibility that the global COVID-19 pandemic may 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 inability to sell products to new customers or to sell additional products or upgrades to our existing customers;

•any decline in our renewal or net retention rates;

•the possibility that general economic conditions or uncertainty cause information technology spending to be reduced or purchasing decisions to be delayed, including as a result of the COVID-19 pandemic;

•the 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; ~~(b) the inability to sell products to new customers or to sell additional products or upgrades to our existing customers; (c) any decline in our renewal or net retention rates; (d)~~

•our inability to successfully identify, complete and integrate acquisitions and manage our growth effectively; ~~(e)~~

•risks associated with our international operations; ~~(f)~~

•our status as a controlled company; ~~(g) the possibility that general economic conditions or uncertainty cause information technology spending to be reduced or purchasing decisions to be delayed; (h)~~

•the timing and success of new product introductions and product upgrades by SolarWinds or its competitors; ~~(i)~~

•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; ~~(j)~~

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

•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 our ~~final prospectus dated October 18, 2018 and filed with~~Annual Report on Form 10-K for the ~~SEC on October 22, 2018 pursuant to Rule 424(b) of the Securities Act of 1933, as amended.~~ year ended December 31, 2020.

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~~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 “SolarWinds,” “Company,” “we,” “us” and “our” refer to SolarWinds Corporation and its consolidated subsidiaries.

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

SolarWinds Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share and per share information)

(Unaudited)


	September 30,			December 31,				March 31,		December 31,
	2018			2017				2021		2020
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	278,333		$	277,716		Cash and cash equivalents	$	374,352	$	370,498
Accounts receivable, net of allowances of $3,027 and $2,065 as of September 30, 2018 and December 31, 2017, respectively	98,035			85,133

Accounts receivable, net of allowances of $3,023 and $2,736 as of March 31, 2021 and December 31, 2020, respectively							Accounts receivable, net of allowances of $3,023 and $2,736 as of March 31, 2021 and December 31, 2020, respectively	116,271		114,298
Income tax receivable	1,774			1,713			Income tax receivable	2,286		2,273

Prepaid and other current assets	16,103			24,331			Prepaid and other current assets	37,501		25,664
Total current assets	394,245			388,893			Total current assets	530,410		512,733
Property and equipment, net	37,870			34,209			Property and equipment, net	58,507		58,649
Operating lease assets							Operating lease assets	108,030		110,961
Deferred taxes	4,738			4,425			Deferred taxes	143,080		149,455
Goodwill	3,699,311			3,695,640			Goodwill	4,192,328		4,249,402
Intangible assets, net	1,020,995			1,194,499			Intangible assets, net	524,320		592,985
Other assets, net	11,178			9,398			Other assets, net	37,837		36,298
Total assets	$	5,168,337		$	5,327,064		Total assets	$	5,594,512	$	5,710,483
Liabilities, redeemable convertible common stock and stockholders’ deficit
Liabilities and stockholders’ equity							Liabilities and stockholders’ equity
Current liabilities:							Current liabilities:
Accounts payable	$	5,831		$	9,657		Accounts payable	$	19,299	$	17,932
Accrued liabilities and other	50,611			39,593			Accrued liabilities and other	56,594		72,971
Current operating lease liabilities							Current operating lease liabilities	18,476		17,811

Accrued interest payable	1,116			11,632			Accrued interest payable	154		157
Income taxes payable	2,536			9,049			Income taxes payable	11,324		16,358
Current portion of deferred revenue	259,456			241,513			Current portion of deferred revenue	343,412		346,075
Current debt obligation	19,900			16,950			Current debt obligation	19,900		19,900
Total current liabilities	339,450			328,394			Total current liabilities	469,159		491,204
Long-term liabilities:							Long-term liabilities:
Deferred revenue, net of current portion	24,721			20,278			Deferred revenue, net of current portion	34,853		36,679
Non-current deferred taxes	152,397			167,523			Non-current deferred taxes	47,706		59,149
Non-current operating lease liabilities							Non-current operating lease liabilities	111,102		115,071
Other long-term liabilities	141,531			148,121			Other long-term liabilities	101,590		115,021
Long-term debt, net of current portion	2,216,272			2,245,622			Long-term debt, net of current portion	1,879,936		1,882,672
Total liabilities	2,874,371			2,909,938			Total liabilities	2,644,346		2,699,796
Commitments and contingencies (Note 12)
Redeemable convertible Class A common stock, $0.001 par value: 5,755,000 Class A shares authorized; 2,661,015 and 2,661,030 Class A shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively	3,363,491			3,146,887
Stockholders’ deficit:
Common stock, $0.001 par value: 233,000,000 Class B shares authorized; 102,088,136 and 100,734,056 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively	102			101
Accumulated other comprehensive income (loss)	39,205			75,294
Commitments and contingencies (Note 8)							Commitments and contingencies (Note 8)	0		0

Stockholders’ equity:							Stockholders’ equity:
Common stock, $0.001 par value: 1,000,000,000 shares authorized and 315,403,617 and 313,039,222 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively							Common stock, $0.001 par value: 1,000,000,000 shares authorized and 315,403,617 and 313,039,222 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	315		313
Preferred stock, $0.001 par value: 50,000,000 shares authorized and 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively							Preferred stock, $0.001 par value: 50,000,000 shares authorized and 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	0		0
Additional paid-in capital							Additional paid-in capital	3,124,493		3,112,106
Accumulated other comprehensive income							Accumulated other comprehensive income	61,462		127,212
Accumulated deficit	(1,108,832		)	(805,156		)	Accumulated deficit	(236,104)		(228,944)
Total stockholders’ deficit	(1,069,525		)	(729,761		)
Total liabilities, redeemable convertible common stock and stockholders’ deficit	$	5,168,337		$	5,327,064
Total stockholders’ equity							Total stockholders’ equity	2,950,166		3,010,687
Total liabilities and stockholders’ equity							Total liabilities and stockholders’ equity	$	5,594,512	$	5,710,483

The accompanying notes are an integral part of these condensed consolidated financial statements.

SolarWinds Corporation

Condensed Consolidated Statements of Operations

(In thousands, except per share information)

(Unaudited)

Three Months Ended September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Revenue:
Subscription $ 67,713
$ 55,361
$ 196,004
$ 155,402
Maintenance 101,817
93,258
297,584
261,461
Total recurring revenue 169,530
148,619
493,588
416,863
License 43,747
40,493
118,320
112,815
Total revenue 213,277
189,112
611,908
529,678
Cost of revenue:
Cost of recurring revenue⁽¹⁾
18,022
15,190
52,617
44,879
Amortization of acquired technologies 43,835
43,513
132,121
127,781
Total cost of revenue 61,857
58,703
184,738
172,660
Gross profit 151,420
130,409
427,170
357,018
Operating expenses:⁽¹⁾

Sales and marketing 56,926
50,942
166,022
152,070
Research and development 23,274
20,521
71,800
63,414
General and administrative 19,597
15,080
59,849
50,865
Amortization of acquired intangibles 16,507
17,035
50,288
49,910
Total operating expenses 116,304
103,578
347,959
316,259
Operating income 35,116
26,831
79,211
40,759
Other income (expense):
Interest expense, net (35,627 ) (42,534 ) (112,103 ) (127,018 )
Other income (expense), net⁽²⁾
(13 ) 14,285
(74,476 ) 29,685
Total other income (expense) (35,640 ) (28,249 ) (186,579 ) (97,333 )
Loss before income taxes (524 ) (1,418 ) (107,368 ) (56,574 )
Income tax benefit (126 ) (3,055 ) (20,045 ) (12,469 )
Net income (loss) $ (398 ) $ 1,637
$ (87,323 ) $ (44,105 )
Net loss available to common stockholders $ (75,006 ) $ (66,627 ) $ (303,944 ) $ (242,310 )
Net loss per share:
Basic loss per share $ (0.73 ) $ (0.66 ) $ (2.98 ) $ (2.42 )
Diluted loss per share $ (0.73 ) $ (0.66 ) $ (2.98 ) $ (2.42 )
Weighted-average shares used to compute net loss per share:
Shares used in computation of basic loss per share 102,078
100,759
101,915
100,330
Shares used in computation of diluted loss per share 102,078
100,759
101,915
100,330

~~____________~~


~~(1)~~	~~Includes stock-based compensation expense as follows:~~

Three Months Ended September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Cost of recurring revenue $ 2
$ 1
$ 7
$ 3
Sales and marketing 115
10
234
26
Research and development 21
6
48
14
General and administrative 22
4
43
6
$ 160
$ 21
$ 332
$ 49


~~(2)~~	~~Other income (expense), net includes the following:~~

Three Months Ended September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Unrealized net transaction gains (losses) related to remeasurement of intercompany loans $ 51
$ 14,774
$ (12,660 ) $ 49,955


	Three Months Ended March 31,
	2021		2020
Revenue:
Subscription	$	108,988	$	93,635
Maintenance	123,040		116,349
Total recurring revenue	232,028		209,984
License	24,874		36,966
Total revenue	256,902		246,950
Cost of revenue:
Cost of recurring revenue	26,958		22,501
Amortization of acquired technologies	43,121		44,492
Total cost of revenue	70,079		66,993
Gross profit	186,823		179,957
Operating expenses:
Sales and marketing	83,297		72,378
Research and development	37,761		31,845
General and administrative	47,710		29,755
Amortization of acquired intangibles	20,057		18,296
Total operating expenses	188,825		152,274
Operating income (loss)	(2,002)		27,683
Other income (expense):
Interest expense, net	(16,174)		(24,095)
Other income (expense), net	127		(758)
Total other income (expense)	(16,047)		(24,853)
Income (loss) before income taxes	(18,049)		2,830
Income tax expense (benefit)	(10,889)		2,415
Net income (loss)	$	(7,160)	$	415
Net income (loss) available to common stockholders	$	(7,160)	$	412
Net income (loss) available to common stockholders per share:
Basic earnings (loss) per share	$	(0.02)	$	0
Diluted earnings (loss) per share	$	(0.02)	$	0
Weighted-average shares used to compute net income (loss) available to common stockholders per share:
Shares used in computation of basic earnings (loss) per share	314,246		308,937
Shares used in computation of diluted earnings (loss) per share	314,246		312,865

The accompanying notes are an integral part of these condensed consolidated financial statements.

SolarWinds Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,							Three Months Ended March 31,
	2018			2017		2018			2017				2021		2020
Net income (loss)	$	(398	)	$	1,637	$	(87,323	)	$	(44,105	)	Net income (loss)	$	(7,160)	$	415
Other comprehensive income (loss):												Other comprehensive income (loss):
Foreign currency translation adjustment	(10,520		)	37,414		(36,089		)	125,392			Foreign currency translation adjustment	(65,750)		(30,429)

Other comprehensive income (loss)	(10,520		)	37,414		(36,089		)	125,392			Other comprehensive income (loss)	(65,750)		(30,429)
Comprehensive income (loss)	$	(10,918	)	$	39,051	$	(123,412	)	$	81,287		Comprehensive income (loss)	$	(72,910)	$	(30,014)

The accompanying notes are an integral part of these condensed consolidated financial statements.

SolarWinds Corporation

Redeemable Convertible Class A


	Three Months Ended March 31, 2020
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2019	308,290	$	308	$	3,041,880	$	(5,247)	$	(387,419)	$	2,649,522
Foreign currency translation adjustment	—	—		—		(30,429)		—		(30,429)
Net income	—	—		—		—		415		415
Comprehensive loss										(30,014)
Exercise of stock options	59	—		51		—		—		51
Restricted stock units issued, net of shares withheld for taxes	276	—		(1,548)		—		—		(1,548)
Issuance of stock	1,105	2		627		—		—		629
Issuance of stock under employee stock purchase plan	161	—		2,357		—		—		2,357
Stock-based compensation	—	—		11,367		—		—		11,367

Balance at March 31, 2020	309,891	$	310	$	3,054,734	$	(35,676)	$	(387,004)	$	2,632,364

The accompanying notes are an integral part of these condensed consolidated financial statements.

SolarWinds Corporation

Condensed Consolidated Statements of Cash Flows

The accompanying notes are an integral part of these condensed consolidated financial statements.

SolarWinds Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Organization and Nature of Operations

SolarWinds Corporation, a Delaware corporation, and its subsidiaries (“Company” ~~or “Successor”~~, “we,” “us” and “our”) is a leading provider of information technology, or IT, infrastructure management software. ~~References to “we,” “us” and “our” refer to the Company.~~ Our products give organizations worldwide, regardless of type, size or IT infrastructure complexity, the power to monitor and manage the performance of their IT environments, whether on-premise, in the cloud, or in hybrid infrastructure models. Our approach, which we refer to as the SolarWinds Model, combines powerful, scalable, affordable, easy to use products with high-velocity, low-touch sales. We’ve built our business to enable the technology professionals who use our products to manage “all things IT.” Our range of customers has expanded over time ~~from~~to include network and systems engineers, ~~to a broad set of technology professionals, such as~~ database administrators, storage administrators, ~~web operators~~DevOps and ~~DevOps~~service desk professionals, as well as managed service providers, or MSPs. Our SolarWinds Model enables us to sell our products for use in organizations ranging in size from very small businesses to large enterprises.

~~Initial Public Offering~~

In October 2018, we completed our initial public offering, or IPO, in which we sold and issued 25,000,000 shares of our common stock at an issue price of $15.00 per share. Upon the closing of our IPO, all shares of Class A Common Stock that were outstanding immediately prior to the closing of the offering converted into shares of common stock in accordance with the terms of our certificate of incorporation. In addition, we converted the accrued and unpaid dividends on the Class A Common Stock into shares of common stock equal to the result of the accrued and unpaid dividends on each share of Class A Common Stock, divided by the conversion price of $19.00 per share. See ~~Note~~ ~~13. Subsequent Events~~for additional details. The condensed consolidated financial statements as of September 30, 2018, including share and per share amounts, do not give effect to the sale of shares in connection with the IPO or conversion of Class A Common Stock as the IPO was completed subsequent to September 30, 2018.

2. Summary of Significant Accounting Policies

We prepared our interim condensed consolidated financial statements in conformity with United States of America generally accepted accounting principles, or GAAP, and the reporting regulations of the Securities and Exchange Commission, or the SEC. They do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements include the accounts of SolarWinds Corporation and the accounts of its wholly owned subsidiaries. We have eliminated all intercompany balances and transactions.

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 for the year ended December 31, ~~2017, contained in~~2020.

Potential Spin-Off of N-able Business

On August 6, 2020, we announced that our ~~final prospectus dated October 18, 2018~~board of directors has authorized management to explore a potential spin-off of our N‑able business into a newly created and ~~filed~~separately traded public company, and on March 30, 2021, we announced the public filing with the SEC of a Form 10 registration statement with respect to the potential spin-off. If completed, the standalone entity would provide broad cloud-based software solutions for MSPs, enabling them to support digital transformation and growth within small and medium-sized enterprises, or SMEs. SolarWinds would retain its Core IT Management business focused primarily on ~~October 22, 2018 pursuant~~selling software and cloud-based services to ~~Rule 424(b)~~corporate IT organizations. We believe that, if completed, the potential spin-off would allow each company to more effectively pursue its distinct operating priorities, strategies and capital allocation policies, while also allowing shareholders to separately evaluate and value the companies on their distinct markets, strategies and performance. If we proceed with the spin-off, it would be intended to be structured as a tax-free, pro-rata distribution to all SolarWinds shareholders as of a record date to be determined by the board of directors of SolarWinds. If completed, upon effectiveness of the ~~Securities Act~~transaction, SolarWinds shareholders would own shares of ~~1933, as amended.~~both companies. Completion of any spin-off would be subject to various conditions, including final approval of our board of directors, and there can be no assurance that the potential spin-off will be completed in the manner described above, or at all.

Spin-off costs incurred were $9.9 million during the three months ended March 31, 2021 which are primarily included in general and administrative expense in the condensed consolidated statements of operations. Spin-off costs include legal, accounting and advisory fees, implementation and integration costs, duplicative costs for subscriptions and information technology systems, employee and contract costs and other incremental separation costs related to the potential spin-off of the N-able business.

The preparation of financial statements in conformity with GAAP requires our 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 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;

•stock-based compensation;

•income taxes; and

~~Foreign Currency Translation~~

The functional currency of our foreign subsidiaries is determined in accordance with authoritative guidance issued by the Financial Accounting Standards Board, or FASB. We translate assets and liabilities for these subsidiaries at exchange rates in effect at the balance sheet date. We translate income and expense accounts for these subsidiaries at the average monthly exchange rates for the periods. We record resulting translation adjustments as a component of accumulated other comprehensive income (loss) within stockholders’ equity (deficit). We record gains and losses from currency transactions denominated in currencies other than the functional currency as other income (expense) in our consolidated statements of operations. There were no equity transactions

SolarWinds Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

•loss contingencies.

denominated in foreign currencies for the three and nine months ended September 30, 2018 and 2017. Local currency transactions of international subsidiaries that have the U.S. dollar as the functional currency are remeasured into U.S. dollars using current rates of exchange for monetary assets and liabilities and historical rates of exchange for non-monetary assets and liabilities.

We recorded an immaterial net transaction loss related to the remeasurement of monetary assets and liabilities for the three months ended September 30, 2018 and a net transaction gain of $14.3 million for the three months ended September 30, 2017 within our consolidated statements of operations. We recorded a net transaction loss related to the remeasurement of monetary assets and liabilities of $14.0 million and a net transaction gain of $48.2 million within our consolidated statements of operations for the nine months ended September 30, 2018 and 2017, respectively.

As of July 1, 2018, we changed our assertion regarding the planned settlement of a certain intercompany loan. We have evaluated our investment strategy in light of our global treasury plans and the new Tax Act (as defined below) and have determined there is no need to settle the principal related to the loan. The intercompany loan has been designated as long-term based on the assertion that settlement is not planned or anticipated in the foreseeable future. Therefore, beginning on July 1, 2018, the foreign currency transaction gains and losses resulting from the remeasurement of this long-term intercompany loan denominated in a currency other than the subsidiary's functional currency are recognized as a component of accumulated other comprehensive income (loss). In the three months ended September 30, 2018, a foreign currency translation adjustment of $3.3 million was recognized as a component of accumulated other comprehensive income related to this long-term intercompany loan.

~~Recent~~Recently Adopted Accounting Pronouncements ~~Not Yet Adopted~~

Under the Jumpstart our Business Startups Act, or the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to non-public companies. We intend to take advantage of the longer phase-in periods for the adoption of new or revised financial accounting standards permitted under the JOBS Act until we are no longer an emerging growth company.

~~In May 2014, FASB issued~~ ~~“Revenue from Contracts with Customers,”~~ which replaced all existing revenue guidance, including prescriptive industry-specific guidance. This standard’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Entities will need to apply more judgment and make more estimates than under the previous guidance. In July 2015, FASB deferred the effective date for all entities by one year, making the guidance for non-public companies effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted to the original effective date of December 15, 2016. The standard permits the use of either a full-retrospective or a modified-retrospective transition method. We will adopt the new standard effective first quarter 2019. Management anticipates using the modified-retrospective method for adoption.

~~In preparation for this planned adoption, we~~There have been ~~evaluating the impact of the new standard to our financial statements and accompanying disclosures~~no recent accounting pronouncements or changes in ~~the notes to our consolidated financial statements. Our assessment of the impact includes an evaluation of the five-step process set forth in the new standard along with the enhancement of disclosures~~accounting pronouncements that ~~will be required. We~~ are in the process of executing our plan for implementing the standard, which includes identifying customer contracts within the scope of the new standard, identifying performance obligations within those customer contracts, and evaluating the impact of incremental variable consideration paid to obtain those customer contracts. We have also undertaken a comprehensive review of all contracts that fall under the scope of the new standard. We are continuing our review of in-scope contracts and reviewing all potential impacts of the standard, including the tax related impact.

~~SolarWinds Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

Based on analysis performed to date, we expect that adoption of the new standard will result in changes to the classification and timing of our revenue recognition. The most significantly impacted areas are the following:

~~License and Recurring Revenue.~~ ~~Under the new guidance, the requirement to establish VSOE to recognize license revenue separately from the other elements is eliminated. This change is~~ expected to impact the allocation of the transaction price and timing of our revenue recognition between deliverables, or performance obligations, within an arrangement. In addition, we will recognize time-based license revenues upon the transfer of the license and the associated maintenance revenue over the contract period under the new standard instead of recognizing both the license and maintenance revenue ratably over the contract period. We expect the overall adoption impact to total revenue to be immaterial, though we do expect some changes to the timing and classification between license and recurring revenues. Additionally, some deferred revenue, primarily from arrangements involving time-based licenses, will never be recognized as revenue and instead will be a cumulative effect adjustment within accumulated deficit. We expect an immaterial reduction to the deferred revenue balance as a cumulative effect adjustment upon adoption.

~~Contract Acquisition Costs.~~ We expense all sales commissions as incurred under current guidance. The new guidance requires the deferral and amortization of certain incremental costs incurred to obtain a contract. This guidance will require us to capitalize and amortize certain sales commission costs over the remaining contractual term or over an expected period of benefit, which we have determined to be approximately three to six years. As part of the transition to the new guidance, we will recognize a contract asset as a cumulative effect adjustment upon adoption.

We do not expect the changes described above to have a material impact on our quarterly or annual consolidated financial statements, however the exact impact of the new standard will be dependent on facts and circumstances that could vary from quarter to quarter.

In February 2016, FASB issued an accounting standard to provide updated guidance requiring the recognition of all lease assets and liabilities on the balance sheet. The accounting standard required the use of a modified retrospective transition method. In July 2018, FASB issued additional guidance that provides entities with an optional transition method in which an entity can apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance retained earnings in the period of adoption. The updated accounting guidance is effective for non-public companies for fiscal years beginning after December 15, 2019 and interim periods beginning the following year. Early adoption is permitted and the standard provides for certain practical expedients. We expect to adopt the updated guidance in fiscal year 2020. Our evaluation of the new standard will extend into future periods and we will update our disclosures, including the expected impacts of the new standard, as we progress towards the required adoption date.

In January 2017, FASB issued an accounting standard to simplify the accounting for goodwill impairment. The new guidance removes step two of the two-step quantitative goodwill impairment test, which requires a hypothetical purchase price allocation. The updated guidance is effective for non-public companies for fiscal years beginning after December 15, 2021 and may be adopted early for any interim or annual goodwill impairment tests performed after January 1, 2017. We expect to adopt the updated guidance in fiscal year 2022. We do not believe that this standard will have a material impact on our consolidated financial ~~statements.~~position, results of operations, or cash flows.

Fair Value Measurements

We apply the authoritative guidance on fair value measurements for financial assets and 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.

See Note 5.4. Fair Value Measurementsfor a summary of our financial instruments accounted for at fair value on a recurring basis. 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.

~~SolarWinds Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~Deferred Offering Costs~~

Deferred offering costs, primarily consisting of legal, accounting, printer, and other direct fees and costs, related to our proposed initial public offering are capitalized. The deferred offering costs were offset against proceeds from our initial public offering upon the closing of the offering in October 2018. As of September 30, 2018, we have capitalized $2.2 million of offering costs in the consolidated balance sheet. As of December 31, 2017, we had not yet capitalized any offering costs in the consolidated balance sheet.

Accumulated Other Comprehensive Income (Loss)

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


	Foreign Currency Translation Adjustments		Accumulated Other Comprehensive Income (Loss)

	(in thousands)




Balance at December 31, 2020	$	127,212	$	127,212
Other comprehensive gain (loss) before reclassification	(65,750)		(65,750)
Amount reclassified from accumulated other comprehensive income (loss)	0		0
Net current period other comprehensive income (loss)	(65,750)		(65,750)
Balance at March 31, 2021	$	61,462	$	61,462

Details of our total deferred revenue balance was as follows:


	Total Deferred Revenue

	(in thousands)
Balance at December 31, 2020	$	382,754

Deferred revenue recognized	(131,972)
Additional amounts deferred	127,483

Balance at March 31, 2021	$	378,265

We expect to recognize revenue related to these remaining performance obligations as of March 31, 2021 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	$	378,265	$	343,412	$	34,495	$	358

SolarWinds Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Foreign Currency Translation Adjustments Accumulated Other Comprehensive Income (Loss)

(in thousands)
Balance at December 31, 2017 $ 75,294
$ 75,294
Other comprehensive gain (loss) before reclassification (36,089 ) (36,089 )
Amount reclassified from accumulated other comprehensive income (loss) —
—
Net current period other comprehensive income (loss) (36,089 ) (36,089 )
Balance at September 30, 2018 $ 39,205
$ 39,205
Deferred Commissions

Details of our deferred commissions balance was as follows:


			(in thousands)
Balance at December 31, 2020			$	14,801

Commissions capitalized			2,000
Amortization recognized			(1,129)
Balance at March 31, 2021			$	15,672

	March 31,		December 31,
	2021		2020

	(in thousands)
Classified as:
Current	$	4,143	$	3,824
Non-current	11,529		10,977
Total deferred commissions	$	15,672	$	14,801

Disaggregation of Revenue

The following table summarizes our revenue by product group:


	Three Months Ended March 31,
	2021		2020

	(in thousands)
Core IT Management product revenue	$	173,856	$	173,737
N-able product revenue	83,046		73,213
Total revenue	$	256,902	$	246,950

Amortization of ~~acquired technologies.~~ Acquired Technologies. Amortization of acquired technologies included in cost of revenue relate to our licensed products and subscription products as follows:


	Three Months Ended March 31,
	2021		2020

	(in thousands)
Amortization of acquired license technologies	$	37,336	$	35,572
Amortization of acquired subscription technologies	5,785		8,920
Total amortization of acquired technologies	$	43,121	$	44,492

Three Months Ended September 30, Nine Months Ended
September 30,
2018 2017 2018 2017

(in thousands)
Amortization of acquired license technologies $ 36,061
$ 36,232
$ 108,974
$ 106,487
Amortization of acquired subscription technologies 7,774
7,281
23,147
21,294
Total amortization of acquired technologies $ 43,835
$ 43,513
$ 132,121
$ 127,781

3. ~~Acquisitions~~Goodwill

InThe following table reflects the ~~nine~~changes in goodwill for the three months ended September 30, 2018, we completed acquisitions for a combined purchase price of approximately $62.9 million in cash, including $2.4 million of cash acquired. The acquisitions were funded with available cash on hand. We incurred $0.9 million in acquisition related costs, which are included in general and administrative expense for the nine months ended September 30, 2018. Goodwill for these acquisitions is not deductible for tax purposes.March 31, 2021:

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.

The amounts of revenue and net loss related to these acquisitions included in our condensed consolidated financial statements from the effective date of the respective acquisitions are insignificant for the nine months ended September 30, 2018. Pro forma information for these acquisitions have not been provided because the impact of the historical financials on our revenue, net loss and loss per share is not material.


	(in thousands)
Balance at December 31, 2020	$	4,249,402

Foreign currency translation and other adjustments	(57,074)
Balance at March 31, 2021	$	4,192,328

SolarWinds Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes the consideration paid and the amounts recognized for the assets acquired and liabilities assumed for our acquisitions completed in the nine months ended September 30, 2018:

Total
Fair Value
(in thousands)
Current assets, including cash acquired $ 4,577
Deferred tax asset 1,462
Fixed assets 1,272
Identifiable intangible assets 18,412
Goodwill 41,789
Current liabilities (1,628 )
Deferred revenue (2,944 )
Total consideration $ 62,940

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

Fair Value Weighted-average useful life
(in thousands) (in years)
Developed product technologies $ 13,317
5
Customer relationships 4,805
4
Tradenames 290
3
Total identifiable intangible assets $ 18,412

4. ~~Goodwill and Intangible Assets~~

~~The following table reflects the changes in goodwill for the nine months ended September 30, 2018:~~

(in thousands)
Balance at December 31, 2017 $ 3,695,640
Acquisitions 41,789
Foreign currency translation and other adjustments (38,118 )
Balance at September 30, 2018 $ 3,699,311

The goodwill from acquisitions resulted primarily from our expectations that we will now be able to offer our customers additional products in new markets. Additionally, we expect the acquisitions will attract new customers for our entire line of products.

~~SolarWinds Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~Intangible Assets~~

~~Intangible assets consisted of the following at September 30, 2018 and December 31, 2017:~~

September 30, 2018 December 31, 2017

Gross
Carrying
Amount
Accumulated
Amortization Net
Gross
Carrying
Amount

Accumulated
Amortization
Net

(in thousands)
Developed product technologies $ 1,010,952
$ (452,420 ) $ 558,532
$ 1,006,454
$ (324,196 ) $ 682,258
Customer relationships 544,823
(166,597 ) 378,226
546,207
(118,930 ) 427,277
Intellectual property 764
(109 ) 655
547
(59 ) 488
Trademarks 84,800
(1,218 ) 83,582
85,257
(1,075 ) 84,182
Customer backlog —
—
—
6,200
(5,906 ) 294
Total intangible assets $ 1,641,339
$ (620,344 ) $ 1,020,995
$ 1,644,665
$ (450,166 ) $ 1,194,499

~~Intangible asset amortization expense was as follows:~~

Three Months Ended September 30, Nine Months Ended
September 30,
2018 2017 2018 2017

(in thousands)
Intangible asset amortization expense $ 60,360
$ 60,559
$ 182,459
$ 177,721

5. Fair Value Measurements

The following table summarizes the fair value of our financial assets that were measured on a recurring basis as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017.~~2020. There have been no transfers between fair value measurement levels during the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2021.


	Fair Value Measurements at March 31, 2021 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)
Money market funds	$	130,000	$	0	$	0	$	130,000
Trading security	0		0		5,287		5,287

Total assets	$	130,000	$	0	$	5,287	$	135,287

Fair Value Measurements at
September 30, 2018 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)
Money market funds $ 67,100
$ —
$ —
$ 67,100


	Fair Value Measurements at December 31, 2020 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)
Money market funds	$	160,000	$	0	$	0	$	160,000
Trading security	0		0		5,238		5,238

Total assets	$	160,000	$	0	$	5,238	$	165,238

Fair Value Measurements at
December 31, 2017 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)
Money market funds $ 67,100
$ —
$ —
$ 67,100

As of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017,~~2020, the carrying value of our long-term debt approximates its estimated fair value as the interest rate on the debt agreements is adjusted for changes in the market rates. See Note 6.5. Debt for additional information regarding our debt.

~~SolarWinds Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

The following table summarizes information relating to our debt:

September 30, December 31,
2018 2017
Amount Effective Rate Amount Effective Rate

(in thousands, except interest rates)
Revolving credit facility $ —
— % $ —
— %
First Lien Term Loan (as amended) due Feb 2024 1,975,075
5.24 % 1,678,050
5.07 %
Second Lien Floating Rate Notes (as amended) due Feb 2024 —
— % 680,000
10.14 %
Second Lien Term Loan due Feb 2025 315,000
9.49 % —
— %
Total principal amount 2,290,075
2,358,050

Unamortized discount and debt issuance costs (53,903 ) (95,478 )
Total debt 2,236,172
2,262,572

Less: Current portion of long-term debt (19,900 ) (16,950 )
Total long-term debt $ 2,216,272
$ 2,245,622

~~Senior Secured Debt~~


	March 31,				December 31,
	2021				2020
	Amount		Effective Rate		Amount		Effective Rate

	(in thousands, except interest rates)
Revolving credit facility	$	0	0	%	$	0	0	%
First Lien Term Loan (as amended) due Feb 2024	1,925,325		2.86	%	1,930,300		2.90	%


Total principal amount	1,925,325				1,930,300
Unamortized discount and debt issuance costs	(25,489)				(27,728)
Total debt	1,899,836				1,902,572
Less: Current portion of long-term debt	(19,900)				(19,900)
Total long-term debt	$	1,879,936			$	1,882,672

Senior Secured First Lien Credit Facilities

~~On February 5, 2016, we were acquired by the Sponsors in a take private transaction, or the Take Private. In connection with the Take Private, we entered into a~~Our first lien credit agreement, with Credit Suisse AG, Cayman Islands Branch, or Credit Suisse, as administrative agent and collateral agent, and a syndicate of institutional lenders and financial institutions, or Initial First Lien Credit Agreement.

In March 2018, we entered into Amendment No. 4 to the Initial First Lien Credit Agreement, or Amendment No. 4, which replaced the outstanding borrowings with a new $1.99 billion U.S. dollar term loan, or First Lien Term Loan. The Initial First Lien Credit Agreement, as amended, is referred to here as the First Lien Credit Agreement. The proceeds of the First Lien Term Loan were used to repay all outstanding borrowings including accrued interest under the existing First Lien Term Loan and a portion of the Second Lien Notes, including accrued interest and related transaction costs. In connection with Amendment No. 4, a loss on debt extinguishment of $21.4 million was recorded to other income (expense) in the consolidated statement of operations for the nine months ended September 30, 2018.

~~The~~or First Lien Credit Agreement, provides for senior secured first lien credit facilities, consisting of the following as of ~~September 30, 2018 of:~~March 31, 2021:

•a $1.99 billion U.S. dollar term loan, or First Lien Term Loan, with a final maturity date of February 5, 2024; and

SolarWinds Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

•a ~~$125.0~~$117.5 million revolving credit facility (with a letter of credit sub-facility in the amount of $35.0 million), or the Revolving Credit Facility, consisting of (i) a $100.0 million multicurrency tranche and (ii) a ~~$25.0~~$17.5 million tranche available only in U.S. dollars, ~~of which $7.5 million has~~with a final maturity date of February 5, ~~2021 and $17.5 million has a final maturity date of February 5,~~ 2022.

Borrowings under our Revolving Credit Facility bear interest at a floating rate which ~~can be,~~is, at our option, either (1) a Eurodollar rate for a specified interest period plus an applicable margin of ~~3.00%~~2.50% or (2) a base rate plus an applicable margin of ~~2.00%. The applicable margins for Eurodollar rate and base rate borrowings are subject to reductions to 2.75% and 2.50%, and to 1.75% and~~ 1.50%, ~~respectively, based on our first lien net leverage ratio or based upon the completion of an initial public offering.~~respectively. The Eurodollar rate applicable to the Revolving Credit Facility is subject to a “floor” of 0.0%.

Borrowings under our First Lien Term Loan bear interest at a floating rate which ~~can be,~~is, at our option, either (1) a Eurodollar rate for a specified interest period plus an applicable margin of ~~3.00%~~2.75% or (2) a base rate plus an applicable margin of ~~2.00%. The applicable margins for Eurodollar and base rate borrowings are each subject to a reduction to 2.75% and~~ 1.75%, ~~respectively, based~~

~~SolarWinds Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~on our first lien net leverage ratio or based upon the completion of an initial public offering.~~respectively. The Eurodollar rate applicable to the First Lien Term Loan is subject to a “floor” of 0.0%.

The Eurodollar rate is equal to an adjusted London Interbank Offered Rate, or LIBOR, for a one-, two-, three- or six-month interest period with a LIBOR floor of 0%. The base rate for any day is a fluctuating rate per annum equal to the highest of (a) the rate of interest in effect for such day as publicly announced by Credit Suisse as its “prime rate” and (b) the federal funds effective rate in effect on such day plus 0.50% and (c) the one-month adjusted LIBOR plus 1.0% per annum.

The First Lien Term Loan requires equal quarterly repayments equal to 0.25% of the original principal amount.

In addition to paying interest on loans outstanding under the Revolving Credit Facility and the First Lien Term Loan, we are required to pay a commitment fee of 0.50% per annum of unused commitments under the Revolving Credit Facility. The commitment fee is subject to a reduction to 0.375% per annum based on our first lien net leverage ratio.

The First Lien Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability to: incur additional indebtedness; incur liens; engage in mergers, consolidations, liquidations or dissolutions; pay dividends and distributions on, or redeem, repurchase or retire our capital stock; and make certain investments, acquisitions, loans, or advances. In addition, the terms of the First Lien Credit Agreement include a financial covenant which requires that, at the end of each fiscal quarter, if the aggregate amount of borrowings under the Revolving Credit Facility exceeds 35% of the aggregate commitments under the Revolving Credit Facility, our first lien net leverage ratio cannot exceed 7.40 to 1.00. The First Lien Credit Agreement also contains certain customary representations and warranties, affirmative covenants and events of default. As of ~~September 30, 2018,~~March 31, 2021, we were in compliance with all covenants of the First Lien Credit Agreement.

~~The following table summarizes the future minimum principal payments under the First Lien Term Loan outstanding as of September 30, 2018:~~

As of September 30, 2018

(in thousands)
2018 $ 4,975
2019 19,900
2020 19,900
2021 19,900
2022 19,900
Thereafter 1,890,500
Total minimum principal payments $ 1,975,075

~~Senior Secured Second Lien Credit Facility~~

In March 2018, we terminated the agreements governing our senior secured second lien floating rate notes, or the Second Lien Notes, and repaid or exchanged the then-outstanding principal on our Second Lien Notes of $680.0 million and replaced the Second Lien Notes with a new second lien credit agreement, or the Second Lien Credit Agreement, with Wilmington Trust, National Association or Wilmington Trust, as administrative agent and collateral agent, and certain other financial institutions. The Second Lien Credit Agreement provides for a $315.0 million U.S. dollar term loan, or the Second Lien Term Loan, with a final maturity of February 5, 2025 and does not require periodic principal payments. In connection with the redemption and exchange of our Second Lien Notes, a loss on debt extinguishment of $39.2 million, which includes a $22.7 million redemption premium, was recorded to other income (expense) in the consolidated statement of operations for the nine months ended September 30, 2018.

The borrowings under the Second Lien Term Loan bear interest at a floating rate which can be, at our option, either (1) a Eurodollar rate for a specified interest period plus an applicable margin of 7.25% or (2) a base rate plus an applicable margin of 6.25%. The Eurodollar rate is equal to the adjusted LIBOR Rate for a one-, two-, three or six-month interest period. The base rate for any day is a fluctuating rate per annum equal to the rate last quoted by the Wall Street Journal as the “Prime Rate” in the United States, or if the Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board as “bank prime loan” rate or, if such rate is no longer quoted therein (as determined by Wilmington Trust) or any similar release by the Federal Reserve Board (as determined by Wilmington Trust).

~~SolarWinds Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

The Second Lien Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability to: incur additional indebtedness; incur liens; engage in mergers, consolidations, liquidations or dissolutions; pay dividends and distributions on, or redeem, repurchase or retire our capital stock; or make investments, acquisitions, loans, or advances. The Second Lien Credit Agreement also contains certain customary representations and warranties, affirmative covenants and events of default. As of September 30, 2018, we were in compliance with all covenants of the Second Lien Credit Agreement.

~~In October 2018, we completed our IPO and used a portion of the net proceeds from the offering to repay the $315.0 million in borrowings outstanding under our Second Lien Term Loan. See~~ ~~Note~~ ~~13. Subsequent Eventsfor additional information.~~

~~7. Redeemable Convertible Class A Common Stock~~

Class A Common Stock accrued dividends at a rate of 9% per annum and had a liquidation preference equal to $1,000 per share plus any accrued and unpaid dividends. Prior to the conversion of the Class A Common Stock into common stock, in a future liquidation event, such as a sale, the holders of the Class A Common Stock would have been entitled to payment up to the amount of the liquidation preference and holders of the Class B Common Stock would have been entitled to the residual value of the Company.

Cumulative undeclared and unpaid dividends on Class A Common Stock totaled $702.5 million and $485.9 million at September 30, 2018 and December 31, 2017, respectively. Redeemable convertible Class A Common Stock was recorded at liquidation value plus accrued, unpaid dividends in our consolidated balance sheets.

Immediately prior to the completion of our IPO in October 2018, we converted each outstanding share of our Class A Common Stock into a number of shares of common stock equal to the result of the liquidation value of such share of Class A Common Stock, divided by $19.00 per share. The liquidation value for each share of Class A Common Stock was equal to $1,000. At the time of the conversion of the Class A Common Stock, we converted $717.4 million of accrued and unpaid dividends on the Class A Common Stock into 37,758,109 shares of common stock equal to the result of the accrued and unpaid dividends on each share of Class A Common Stock, divided by $19.00 per share. See ~~Note~~ ~~13. Subsequent Eventsfor additional information regarding the conversion of our Class A Common Stock.~~

~~8. Stockholders’ Deficit and Stock-Based Compensation~~

As of September 30, 2018, the Company had authorized capital stock of 238,755,000 shares consisting of 5,755,000 shares of Class A Common Stock, par value $0.001 per share, or Class A Common Stock, and 233,000,000 shares of Class B Common Stock, par value of $0.001 per share, or Class B Common Stock. See ~~Note 13. Subsequent Eventsfor additional information regarding the conversion of our Class A Common Stock and Class B Common Stock into common stock immediately prior to the completion of our IPO.~~

~~2016 Equity Plan~~

Equity awards to the Company’s employees, consultants, directors, managers and advisors are issued by the Company. The board of directors adopted, and the stockholders approved, the SolarWinds Corporation Equity Plan, or 2016 Plan, in June 2016. Under the 2016 Plan, the Company is able to sell or grant shares of Class A Common Stock and Class B Common Stock and common stock-based awards, including nonqualified stock options, to the Company’s employees, consultants, directors, managers and advisors.

The Company has issued common stock-based incentive awards, consisting of nonqualified stock options exercisable for shares of Class B Common Stock and restricted shares of Class B Common Stock, under the 2016 Plan to employees and certain members of the Company’s board of directors. As of September 30, 2018, common stock-based incentive awards of 8,241,934 were outstanding under the 2016 Plan consisting of 3,199,400 stock options and 5,042,534 shares of restricted Class B Common Stock and 502,833 shares of Class B Common Stock were reserved for future equity incentive awards under the 2016 Plan. For the nine months ended September 30, 2018, the Company repurchased 250,333 shares of vested and unvested restricted Class B Common Stock upon employee terminations.

~~SolarWinds Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~Stock Option Awards~~

~~Option grant activity under the 2016 Plan was as follows:~~

Number of
Shares
Outstanding

Weighted-
Average
Exercise
Price

Aggregate
Intrinsic
Value
(in thousands)

Weighted-
Average
Remaining
Contractual
Term
(in years)
Outstanding balances at December 31, 2017 2,156,550
$ 0.45

Options granted 1,327,475
3.40

Options exercised (38,600 ) 0.35

Options forfeited (231,075 ) 0.94

Options expired (30,050 ) 0.30

Outstanding balances at September 30, 2018 3,184,300
$ 1.65

Options exercisable at September 30, 2018 618,250
$ 0.41
$ 5,980
8.17
Options vested and expected to vest at September 30, 2018 3,184,300
$ 1.65
$ 26,856
8.84

~~Additional information regarding options follows (in thousands except for per share amounts):~~

Nine Months Ended September 30,
2018
Weighted-average grant date fair value per share of options granted during the period $ 1.98
Aggregate intrinsic value of options exercised during the period 302
Aggregate fair value of options vested during the period 102

Stock-based compensation expense related to stock option awards recorded for the three and nine months ended September 30, 2018 and 2017 was immaterial. The unrecognized stock-based compensation expense related to unvested stock options and subject to recognition in future periods was approximately $2.5 million and $0.3 million as of September 30, 2018 and December 31, 2017, respectively. We expect to recognize this expense over weighted average periods of approximately 3.5 years and 3.8 years at September 30, 2018 and December 31, 2017, respectively.

~~Restricted Stock~~

~~The following table summarizes information about employee restricted stock activity subject to vesting under the 2016 Plan:~~



	~~Number of~~ ~~Shares~~ ~~Outstanding~~
~~Unvested balances at December 31, 2017~~	~~5,789,401~~
~~Restricted stock granted and issued~~	~~820,500~~
~~Restricted stock vested~~	~~(1,371,334~~	)
~~Restricted stock repurchased - unvested shares~~	~~(196,033~~	)
~~Unvested balances at September 30, 2018~~	~~5,042,534~~

Restricted stock is purchased at fair market value by the employee and Class B Common Stock is issued at the date of grant. The weighted-average grant date fair market value of restricted Class B Common Stock purchased was $2.10 per share for the nine months ended September 30, 2018. Restricted stock is subject to certain restrictions, such as vesting and a repurchase right. The Class B Common Stock acquired by the employee is restricted stock because vesting is conditioned upon (i) continued employment through the applicable vesting date and (ii) for employees at the level of group vice president and above, the achievement of certain financial performance targets determined by the board of directors. The restricted stock is subject to repurchase in the event the stockholder ceases to be employed or engaged (as applicable) by the Company for any reason or in the event of a change of control or due to certain regulatory burdens. As the restricted stock is purchased at fair market value at the time of grant, there is no stock-based compensation expense recognized related to these awards. The related liability for unvested

~~SolarWinds Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~shares is included in other long-term liabilities on the consolidated balance sheet and was $2.9 million and $1.7 million as of September 30, 2018 and December 31, 2017. See~~ ~~Note 13. Subsequent Eventsfor additional information regarding the adoption of our 2018 Equity Incentive Plan.~~

~~9. Net Loss~~6. Earnings (Loss) Per Share

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


	Three Months Ended March 31,
	2021		2020

	(in thousands)
Basic earnings (loss) per share
Numerator:
Net income (loss)	$	(7,160)	$	415

Earnings allocated to unvested restricted stock	0		(3)
Net income (loss) available to common stockholders	$	(7,160)	$	412
Denominator:
Weighted-average common shares outstanding used in computing basic earnings (loss) per share	314,246		308,937

Diluted earnings (loss) per share
Numerator:
Net income (loss) available to common stockholders	$	(7,160)	$	412
Denominator:
Weighted-average shares used in computing basic earnings (loss) per share	314,246		308,937
Add dilutive impact of employee equity plans	0		3,928
Weighted-average shares used in computing diluted earnings (loss) per share	314,246		312,865

Three Months Ended September 30, Nine Months Ended
September 30,
2018 2017 2018 2017

(in thousands)
Basic net loss per share
Numerator:
Net income (loss) $ (398 ) $ 1,637
$ (87,323 ) $ (44,105 )
Accretion of dividends on Class A common stock (74,608 ) (68,264 ) (216,621 ) (198,205 )
Net loss available to common stockholders $ (75,006 ) $ (66,627 ) $ (303,944 ) $ (242,310 )
Denominator:
Weighted-average Class B common shares outstanding used in computing basic net loss per share 102,078
100,759
101,915
100,330
Diluted net loss per share
Numerator:
Net loss available to common stockholders $ (75,006 ) $ (66,627 ) $ (303,944 ) $ (242,310 )
Denominator:
Weighted-average shares used in computing basic net loss per share 102,078
100,759
101,915
100,330
Add options and restricted stock units to purchase common stock —
—
—
—
Weighted-average shares used in computing diluted net loss per share 102,078
100,759
101,915
100,330

SolarWinds Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following ~~weighted average~~weighted-average outstanding shares of common stock equivalents were excluded from the computation of the diluted net ~~loss~~income (loss) per share attributable to common stockholders for the periods presented 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 March 31,
	2021	2020

	(in thousands)
Stock options to purchase common stock	1,107	247
Performance-based stock options to purchase common stock	130	84
Non-vested restricted stock incentive awards	662	1,669
Performance-based non-vested restricted stock incentive awards	8	845
Restricted stock units	10,927	5,650
Performance stock units	205	677
Employee stock purchase plan	213	177
Total anti-dilutive shares	13,252	9,349

Three Months Ended September 30, Nine Months Ended
September 30,
2018 2017 2018 2017

(in thousands)
Stock options to purchase common stock 2,782
1,816
2,525
1,509
Performance-based stock options to purchase common stock 316
116
267
96
Non-vested restricted stock incentive awards 3,512
3,410
3,435
3,605
Performance-based non-vested restricted stock incentive awards 1,537
2,260
1,566
2,601
Total anti-dilutive shares 8,147
7,602
7,793
7,811

~~Class A Common Stock was not included in the basic or diluted earnings (loss) per share calculations as it was contingently convertible upon a future event.~~ The calculation of diluted earnings (loss) per share requires us to make certain assumptions related to the use of proceeds that would be received upon the assumed exercise of stock ~~options.~~options, purchase of restricted stock or proceeds from the employee stock purchase plan.

~~10. Related Party Transactions~~

~~Management Fee Agreement with Silver Lake Management, Thoma Bravo and TB Partners~~

On February 5, 2016, we entered into a Management Fee Agreement with Silver Lake Management Company IV, L.L.C. (Silver Lake Management), Thoma Bravo, LLC (Thoma Bravo) and Thoma Bravo Partners XI, L.P. (TB Partners and, collectively with Silver Lake Management and Thoma Bravo, the Managers), pursuant to which the Managers provided business and organizational strategy and financial and advisory services. Under the Management Fee Agreement, we paid to the Managers quarterly payments of $2.5 million in the aggregate, plus fees for certain corporate transactions in the Managers’ discretion. Each

~~SolarWinds Corporation~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

payment of fees under the Management Fee Agreement was allocated among the Managers as follows: 50% to Silver Lake Management, 40.73% to Thoma Bravo and 9.27% to TB Partners. We also reimbursed each of the Managers for all out-of-pocket costs incurred in connection with activities under the Management Fee Agreement, and we indemnified the Managers and their respective related parties from and against all losses, claims, damages and liabilities related to the performance of the Managers obligations under the Management Fee Agreement. The Management Fee Agreement terminated upon the consummation of the IPO in October 2018 and no future payments are required.

~~The following table details the management fees for the respective periods:~~

Three Months Ended September 30, Nine Months Ended
September 30,
2018 2017 2018 2017

(in thousands)
Silver Lake Management $ 1,250
$ 1,250
$ 3,750
$ 3,750
Thoma Bravo 1,018
1,018
3,054
3,054
TB Partners 232
232
696
696
$ 2,500
$ 2,500
$ 7,500
$ 7,500

~~11.~~7. Income Taxes

For the three months ended ~~September 30, 2018~~March 31, 2021 and ~~2017,~~2020, we recorded income tax benefit of ~~$0.1~~$10.9 million and ~~$3.1~~income tax expense of $2.4 million, respectively, resulting in an effective tax rate of ~~24.0%~~60.3% and 215.4%, respectively. For the nine months ended September 30, 2018 and 2017, we recorded income tax benefit of $20.0 million and $12.5 million, respectively, resulting in an effective tax rate of 18.7% and 22.0%85.3%, respectively. The decrease in the effective tax rate for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2021 compared to the same ~~periods~~period in ~~2017 were generally~~2020 was primarily due to a ~~result~~decrease in income before income taxes and the reversal of ~~the lower U.S. corporate~~uncertain tax ~~rate attributable to the Tax Cuts and Jobs Act, or the Tax Act, as well as discrete items related to expired statutes in various jurisdictions.~~

The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that have not been taxed previouslypositions in the ~~U.S.,~~amount of $6.1 million and ~~creates new taxes on certain foreign sourced earnings. We are required to recognize the effect of the tax law changes~~related accrued interest in the ~~period~~amount of ~~enactment, such as determining~~$2.7 million resulting from an IRS settlement agreement entered into during the transition tax, re-measuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the SEC staff issued ~~Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118)~~, which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in our consolidated financial statements for the year ended December 31, 2017.

As the Company collects and prepares the necessary data, interprets the Tax Act and reviews any additional guidance issued by the U.S. Treasury Department, state taxation authorities and other standard-setting bodies, the Company may make adjustments to the provisional amounts noted above which may materially impact its provision for income taxes from continuing operations in the period in which the adjustments are made. The accounting for the tax effects of the Tax Act will be completed in 2018.quarter.

Our policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense. At ~~September 30, 2018,~~March 31, 2021, we had accrued interest and penalties related to unrecognized tax benefits of approximately ~~$3.8~~$2.6 million.

We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The ~~2011~~2012 through ~~2017~~2020 tax years generally remain open and subject to examination by federal, ~~tax authorities. The 2010 through 2017 tax years generally remain open and subject to examination by the~~ state ~~tax authorities~~ and foreign tax authorities. We are currently under examination by the IRS for the tax years ~~2011~~2013 through the period ending February 2016. During the three months ended March 31, 2021, we finalized a settlement agreement with the IRS for the tax years 2011 to 2012. We are under audit by the Indian Tax Authority for the 2014 and 2017 tax years. We are currently under audit by the California Franchise Tax Board for the 2012 through 2014 tax ~~years. We were notified in December 2017 that~~years, the ~~Swiss Tax Authorities would audit~~Massachusetts Department of Revenue for the ~~2014~~2015 through February 2016 tax ~~years. This audit concluded in April~~years and the Texas Comptroller for the 2015 through 2018 ~~with no adjustments.~~tax years. We are not currently under audit in any other taxing jurisdictions.

8. Commitments and Contingencies

On ~~July 24, 2018, U.S. Court~~December 14, 2020, we announced that we had been the victim of ~~Appeals~~a cyberattack on our Orion Software Platform and internal systems, or the Cyber Incident. Together with outside security professionals and other third parties, we are conducting investigations into the Cyber Incident which we are close to completing.

Our investigations to date revealed that as part of this attack, malicious code, or Sunburst, was injected into builds of our Orion Software Platform that we released between March 2020 and June 2020. We released remediations for the ~~Ninth Circuit reversed~~versions of our Orion Software Platform known to be affected by Sunburst and have taken and expect to continue to take extensive efforts to support and protect our customers.

For the ~~decision~~three months ended March 31, 2021, we recorded $20.4 million of ~~the U.S. Tax Court in Altera Corp. v. Commissioner~~pretax gross expenses related to the ~~treatment~~Cyber Incident, partially offset by $10.2 million of ~~stock-based compensation~~expected insurance proceeds for costs we believe are reimbursable and probable of recovery under our insurance coverage, for pretax net expenses of $10.2 million. We have included $0.8 million of these gross expenses in ~~an intercompany~~ cost ~~sharing arrangement. On August 7, 2018,~~of recurring revenue, $0.8 million in sales and marketing expense and $18.8 million in general and administrative expense in the ~~Ninth Circuit withdrew~~condensed consolidated statements of operations for the ~~opinion to allow time for a reconstituted panel to confer on this appeal. Until the reconstituted~~

three months ended March 31, 2021.

SolarWinds Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

General and administrative expense is presented net of insurance proceeds in the condensed consolidated statements of operations. Expenses include costs to investigate and remediate the Cyber Incident, and legal and other professional services related thereto, and consulting services being provided to customers at no charge, all of which were expensed as incurred.

panel issues a decision, the Tax Court's decision in Altera controls. As of September 30, 2018, we have not recorded any tax benefit of excluding stock-based compensation from our cost sharing agreement.

~~12. Commitments~~Litigation, Claims and ~~Contingencies~~

~~Take Private Deferred Stock Payments~~Government Investigations

As a result of the ~~Take Private, RSUs granted~~Cyber Incident, we are subject to numerous lawsuits and investigations. Multiple class action lawsuits alleging, among other things, violations of the federal securities laws are pending against us and certain of our ~~employees under~~current and former officers. The complainants seek certification of a class of all persons who purchased or otherwise acquired our securities during set periods of time and unspecified monetary damages, costs and attorneys’ fees. In addition, a shareholder derivative action, purportedly on behalf of the ~~existing stock plans~~Company, is pending in the Western District of Texas asserting breach of duty and other claims against certain of our current and former officers and directors in connection with the cyberattack. We dispute the allegations in these complaints and intend to defend against the claims.

In addition, there are underway numerous investigations and inquiries by domestic and foreign law enforcement and other governmental authorities related to the Cyber Incident, including from the Department of Justice, the Securities and Exchange Commission, and various state Attorneys General. We are cooperating and providing information in connection with these investigations and inquiries and are incurring, and in future periods expect to incur, costs and other expenses in connection with these investigations and inquiries.

While we believe it is reasonably possible that we could incur losses associated with these proceedings and investigations, it is not ~~subject~~possible to ~~accelerated vesting were cancelled~~estimate the amount of any loss or range of possible loss that might result from adverse judgments, settlements, penalties or other resolutions of such proceedings and ~~converted into the right to receive the per share price of $60.10 less applicable withholding taxes shortly after those RSUs would have vested~~investigations based on the ~~underlying original RSU vesting schedule~~early stage thereof, the fact that alleged damages have not been specified, the uncertainty as to the certification of a class or classes and ~~subject~~the size of any certified class, as applicable, and the lack of resolution on significant factual and legal issues. The Company will continue to ~~continued employment~~evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the ~~holders~~loss is reasonably estimable. Losses associated with any adverse judgments, settlements, penalties or other resolutions of ~~those RSUs. As~~such proceedings and investigations could be material to our business, results of ~~September 30, 2018, we had a liability for Take Private deferred stock payments recorded of $1.8 million included~~operations, financial condition or cash flows in ~~accrued liabilities~~future periods.

Additional lawsuits and ~~other,~~claims related to the ~~future payment for service provided. For the nine months ended September 30, 2018, we recognized $2.4~~Cyber Incident may be asserted by or on behalf of customers, stockholders or others seeking damages or other related relief and additional inquiries from governmental agencies may be received or investigations by governmental agencies commenced.

We maintain $15 million of ~~compensation expense and made cash payments of approximately $3.5 million~~cybersecurity insurance coverage to ~~employees~~limit our exposure to losses such as those related to the ~~deferred compensation. We expect~~Cyber Incident. As of March 31, 2021, we recorded a loss recovery asset of $9.2 million for insurance proceeds deemed probable of recovery which is included in prepaid and other current assets in our condensed consolidated balance sheet and received payments of $1.0 million for costs incurred.

In addition to ~~pay approximately $4.2 million through~~ the ~~year 2020. The expected future payment may differ~~Cyber Incident described above, from ~~actual payment amounts due to future employee terminations.~~

~~Legal Proceedings~~

~~From~~ time to time we ~~have been and may be~~are involved in ~~various legal proceedings~~litigation arising ~~in our ordinary~~from the normal course of business. In ~~the~~management's opinion, ~~of management, resolution of any pending claims (either individually or in the aggregate)~~this litigation is not expected to have a material adverse ~~impact~~effect 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 futurecondition, results of operations or cash ~~flows, or both, in a particular period.~~flows.

~~13. Subsequent Events~~

~~Initial Public Offering~~

In October 2018, we completed our IPO, in which we sold and issued 25,000,000 shares of our common stock at an issue price of $15.00 per share. We raised a total of $375.0 million in gross proceeds from the offering, or approximately $353.0 million in net proceeds after deducting underwriting discounts and commissions of $17.8 million and estimated offering-related expenses of approximately $4.2 million. A portion of the net proceeds from the offering were used to repay the $315.0 million in borrowings outstanding under our Second Lien Term Loan. In connection with the voluntary prepayment of the Second Lien Term Loan, we paid a $14.2 million prepayment fee.

Upon the closing of our IPO, all 2,661,015 shares of Class A Common Stock that were outstanding immediately prior to the closing of such offering converted into 140,053,370 shares of common stock in accordance with the terms of our certificate of incorporation. In addition, we converted $717.4 million of accrued and unpaid dividends on the Class A Common Stock into 37,758,109 shares of common stock equal to the result of the accrued and unpaid dividends on each share of Class A Common Stock, divided by $19.00 per share. All outstanding shares of Class B Common Stock converted into common stock on a one-for-one basis.

Following consummation of our IPO, we amended our certificate of incorporation to, among other things, set the authorized capital stock of the company at 1,000,000,000 shares of common stock, par value of $0.001 per share, and 50,000,000 shares of preferred stock, par value of $0.001 per share. Each share of common stock entitles the holder thereof to one vote on each matter submitted to a vote at any meeting of stockholders.

~~2018 Equity Incentive Plan~~

In October 2018, the board of directors adopted, and the stockholders approved, the SolarWinds Corporation 2018 Equity Incentive Plan, or 2018 Plan. We reserved 30,000,000 shares of our common stock for issuance under the 2018 Plan. On October 27, 2018, we granted 7,342,878 equity awards to our employees and directors consisting of 6,371,956 restricted stock units, or RSUs, and 970,922 performance stock units, or PSUs. RSUs generally vest over a four-year service period. PSUs generally vest over a three-year period based on the achievement of specified performance targets for the fiscal year ended December 31, 2019 and subject to continued service through the applicable vesting dates. Based on the extent to which the performance targets are achieved, vested shares may range from 0% to 150% of the target award amount. We will not grant any additional awards under our 2016 Plan; however, the 2016 Plan will continue to govern the terms and conditions of all outstanding equity awards granted under the 2016 Plan.

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 condensed consolidated financial statements and related notes thereto included elsewhere in this ~~quarterly report~~Quarterly Report on Form 10-Q. In addition to historical condensed 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 our ~~final prospectus dated October 18, 2018 and filed with~~Annual Report on Form 10-K for the ~~SEC on October 22, 2018 pursuant to Rule 424(b) of the Securities Act of 1933, as amended~~year ended December 31, 2020 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

SolarWinds is a leading provider of information technology, or IT, infrastructure management software. Our products give organizations worldwide, regardless of type, size or IT infrastructure complexity, the power to monitor and manage the performance of their IT environments, whether on-premise, in the cloud, or in hybrid models. We combine powerful, scalable, affordable, easy to use products with a high-velocity, low-touch sales model to grow our business while also generating significant cash flow.

We offer ~~over 50~~a broad portfolio of infrastructure location-agnostic products to monitor and manage network, systems, desktop, application, storage, database, ~~and~~ website infrastructures ~~whether on-premise, in the public or private cloud or in a hybrid~~and IT ~~infrastructure.~~service desks. We intend to continue to innovate and invest in areas of product development that bring new products to market and enhance the functionality, ease of use and integration of our current products. We believe this will strengthen the overall value proposition of our products in any IT environment.

~~Financial Highlights~~

~~Key financial highlights for~~On February 5, 2016, we were acquired by affiliates of Silver Lake Group, L.L.C and Thoma Bravo, LLC in a take private transaction, or the ~~period include~~Take Private. We applied purchase accounting on the ~~following:~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 Change 2018 2017 Change

(in thousands, except per share data and percentages)
GAAP Results
Total revenue $ 213,277
$ 189,112
12.8 % $ 611,908
$ 529,678
15.5 %
Net income (loss) (398 ) 1,637
(124.3 )% (87,323 ) (44,105 ) 98.0 %
Net cash flow provided by operations 58,957
40,226
46.6 % 166,082
135,899
22.2 %
Non-GAAP Results⁽¹⁾

Non-GAAP total revenue $ 214,005
$ 191,035
12.0 % $ 615,197
$ 541,229
13.7 %
Non-GAAP total recurring revenue 170,258
150,542
13.1 % 496,877
428,411
16.0 %
Adjusted EBITDA 106,482
99,302
7.2 % 295,656
261,804
12.9 %

~~______________~~


~~(1)~~	~~See "Non-GAAP Financial Measures" for a reconciliation~~date of ~~our GAAP to non-GAAP results.~~

~~Business Highlights~~

~~During~~ the third quarter, SolarWinds made a number of updates and enhancements to its network and systems management, MSP and public cloud IT management product lines. We also released new products that add depth and breadth to our IT infrastructure management products while also introducing new security capabilities to quickly position us in the infrastructure security market:

We released Log Manager, making enterprise class machine data analysis accessible to companies of all sizes with an easy to use product at a disruptive price point. We also broadened our systems management capabilities with the release of SolarWinds Server Configuration Monitor (SCM) and added user access rights management with the release of Access Rights Manager (ARM).

We launched the latest version of SolarWinds N-Central with a wide range of features, including deeper PSA application integration, enhanced patch management, and NetPath. NetPath is a strong example of how SolarWinds is designing products and features that can be utilized across a wider set of product lines.

~~We added threat monitoring and management and entered the infrastructure security market. The new product~~, SolarWinds Threat Monitor, is an automated tool that is designed to reduce the complexity of threat detection for IT operations teams as well as for MSPs and MSSPs (Managed Security Service Providers).

~~Initial Public Offering~~

Take Private. In October 2018, we completed our initial public offering, or IPO, and once again become a publicly traded company.

Cyber Incident

As previously disclosed, on December 14, 2020, we announced that we had been the victim of a cyberattack on our Orion Software Platform and internal systems, or the “Cyber Incident.” Together with outside security professionals and other third parties, we have been conducting investigations into the Cyber Incident, and are providing an update on our investigations to date.

Investigative Update

Impacted Customers. At the earliest stages of our investigation, we reported up to 18,000 customers could potentially have been vulnerable to SUNBURST, based on our records of the total number of customer downloads of the specific, impacted versions of our Orion Platform products. We now estimate that the actual number of customers who were hacked through SUNBURST to be fewer than 100. It’s important to note that this group of up to 18,000 downloads includes two significant groups that could not have been affected by SUNBURST due to the inability of the malicious code to contact the threat actor command-and-control server: (1) those customers who did not install the downloaded version and (2) those customers who did install the affected version, but only did so on a server without access to the internet. Among a third group of customers, those whose affected servers accessed the internet, we believe, based on sample DNS data, only a very small proportion saw any activity with the command-and-control server deployed by the threat actor. This statistical analysis of the same DNS data leads to our belief that fewer than 100 customers had servers that communicated with the threat actor.

Orion Supply Chain Attack. Our investigations to date have revealed that the threat actor employed novel and sophisticated techniques indicative of a nation state actor and consistent with the goal of cyber espionage via a supply-chain attack. Through the use of the novel SUNSPOT code injector that we discovered in our investigation, the threat actor surreptitiously injected the SUNBURST malicious code solely into builds of the Orion Software Platform. The threat actor undertook a test run of its ability to inject code into builds of the Orion Software Platform in October 2019, months prior to initiating the actual SUNBURST injection into builds of our Orion Software Platform that we released between March and June 2020. We have not identified Sunburst in any of our more than 70 non-Orion products and tools, including those of our N-able business.

Shared IT Environment Activities. While we do not know precisely when or how the threat actor first gained access to our environment, our investigations have uncovered evidence that the threat actor compromised credentials and conducted research and surveillance in furtherance of its objectives through persistent access to our software development environment and internal systems, including our Office 365 environment, for at least nine months prior to initiating the test run in October 2019. We also have found evidence that causes us to believe that the threat actor exfiltrated certain information as part of its research and surveillance. The threat actor created and moved files that we believe contained source code for both Orion and non-Orion

products, although we are unable to determine the actual contents of those files. In addition, the threat actor created and moved additional files, including a file that may have contained data supporting our customer portal application. Although we are unable to determine the actual contents of the files, the information included in our customer portal databases does not contain highly sensitive personal information, such as credit card, social security, passport or bank account numbers, but contains other information such as corporate customer name, business email addresses, business billing addresses, encrypted portal login credentials, IP addresses downloading any software and MAC addresses of the registered Orion servers. Our investigations have also revealed that the threat actor accessed the email accounts of certain of our personnel, some of which contained information related to current or former employees and customers. We are currently in the process of identifying all personal information contained in the emails of these accounts and expect to provide notices to any impacted individuals and other parties as appropriate. The threat actor also moved files to a jump server, which we ~~sold and issued 25,000,000 shares~~believe was intended to facilitate exfiltration of the files out of our ~~common stock at~~environment.

Remediation and Secure by Design. We, together with our partners, have undertaken extensive measures to investigate, contain, eradicate, and remediate the Cyber Incident. At this time, we have substantially completed this process and believe the threat actor is no longer active in our environments. As part of our “Secure by Design” initiative, we are working with industry experts to implement enhanced security practices designed to further strengthen and protect our products and environment against these and other types of attacks in the future. To that end, we are further securing our environment and systems, adopting zero trust and least privilege access mechanisms and addressing the possible risks associated with third-party applications access. Additionally, we have made significant progress in redesigning our automated build process to help ensure the security and integrity of the code for our products and that no insertions or alterations have occurred during the build process as happened with SUNSPOT and SUNBURST. We see an ~~issue price~~opportunity to help lead an industry-wide effort we believe will position SolarWinds as a model for secure software environments, development processes, and products.

Expenses

For the three months ended March 31, 2021, we recorded $20.4 million of ~~$15.00 per share.~~pretax gross expenses related to the Cyber Incident, partially offset by $10.2 million of expected insurance proceeds for costs we believe are reimbursable and probable of recovery under our insurance coverage, for pretax net expenses of $10.2 million. We ~~raised a total~~have included $0.8 million of ~~$375.0~~these gross expenses in cost of recurring revenue, $0.8 million in ~~gross proceeds from the offering, or approximately $353.0~~sales and marketing expense and $18.8 million in general and administrative expense in the condensed consolidated statements of operations for the three months ended March 31, 2021. General and administrative expense is presented net of insurance proceeds ~~after deducting underwriting discounts~~in the condensed consolidated statements of operations. Expenses include costs to investigate and ~~commissions~~remediate the Cyber Incident, and legal and other professional services related thereto, and consulting services being provided to customers at no charge, all of ~~$17.8~~which were expensed as incurred. These expenses do not include the $20 to $25 million of expected costs in 2021 associated with our “Secure By Design” initiatives which include costs to enhance our security measures across our systems and ~~estimated offering-related expenses of approximately $4.2 million. A portion~~our software development and build environments.

Litigation, Claims and Government Investigations

As a result of the ~~net proceeds from~~Cyber Incident, we are subject to numerous lawsuits and investigations or inquiries as described in Part I, Item 1A. Risk Factors – Risks Related to Cybersecurity and the ~~offering were used to repay~~Cyber Incident in our Annual Report on Form 10-K for the ~~$315.0 million in borrowings outstanding under our Second Lien Term Loan. In connection with the voluntary prepayment of the Second Lien Term Loan, we paid a $14.2 million prepayment fee.~~

~~See~~ year ended December 31, 2020 andNote ~~13. Subsequent Events~~8. Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q. While we will incur costs and other expenses associated with these proceedings and investigations, it is not possible to estimate the amount of any loss or range of possible loss that might result from adverse judgments, settlements, penalties or other resolutions of such proceedings and investigations based on the early stage thereof, the fact that alleged damages have not been specified, the uncertainty as to the certification of a class or classes and the size of any certified class, as applicable, and the lack of resolution on significant factual and legal issues. We will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable.

Future Costs

We expect to incur additional legal and other professional services costs and expenses associated with the Cyber Incident in future periods. We expect to recognize these expenses as services are received. Costs related to the Cyber Incident that will be incurred in future periods will include increased expenses associated with ongoing claims, investigations and inquiries, and any new claims, investigations and inquiries, as well as increased customer support activities and other related matters. We expect to incur increased expenses for insurance, finance, compliance activities, and to meet increased legal and regulatory requirements. We are also providing, at our cost, free third-party support services to customers related to the Cyber Incident. Although the ultimate magnitude and timing of expenses or other impacts to our business or reputation related to the Cyber Incident are uncertain, they could be significant. We also expect to incur increased expenses and capital investments related to our “Secure By Design” initiatives.

Insurance Coverage

We maintain $15 million of cybersecurity insurance coverage to limit our exposure to losses such as those related to the Cyber Incident. As of March 31, 2021, we recorded a loss recovery asset of $9.2 million for insurance proceeds deemed probable of recovery which is included in prepaid and other current assets in our condensed consolidated balance sheet and received payments of $1.0 million for costs incurred.

Impacts of COVID-19

The impact from the rapidly changing market and economic conditions due to the COVID-19 pandemic on our business is uncertain. We initially responded to the COVID-19 pandemic by executing our business continuity plan and transitioning nearly all of our workforce to a remote working environment to prioritize the safety of our personnel. Substantially all of our workforce is currently working remotely. Due to the nature of our business, at this time, we have seen an impact on our financial results, including a decline in license revenue, but do not expect to experience a significant impact on our financial results due to the COVID-19 pandemic. However, we are unable to predict with a level of precision the longer term impact it 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 in response to the pandemic, its impact to the business of our customers and their end-customers and other factors identified in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. We will continue to evaluate the nature and extent of the impact of the COVID-19 pandemic to our business, consolidated results of operations and financial condition.

Potential Spin-Off of N-able Business

On August 6, 2020, we announced that our board of directors has authorized management to explore a potential spin-off of our N‑able business into a newly created and separately traded public company, and on March 30, 2021, we announced the public filing with the SEC of a Form 10 registration statement with respect to the potential spin-off. If completed, the standalone entity would provide broad cloud-based software solutions for managed service providers, or MSPs, enabling them to support digital transformation and growth within small and medium-sized enterprises, or SMEs. SolarWinds would retain its Core IT Management business focused primarily on selling software and cloud-based services to corporate IT organizations. We believe that, if completed, the potential spin-off would allow each company to more effectively pursue its distinct operating priorities, strategies and capital allocation policies, while also allowing stockholders to separately evaluate and value the companies on their distinct markets, strategies and performance. If we proceed with the spin-off, it would be intended to be structured as a tax-free, pro-rata distribution to all SolarWinds stockholders as of a record date to be determined by the board of directors of SolarWinds. If completed, upon effectiveness of the transaction, SolarWinds stockholders would own shares of both companies. Completion of any spin-off would be subject to various conditions, including final approval of our board of directors, and there can be no assurance that the potential spin-off will be completed in the manner described above, or at all. If we proceed with the spin-off, we currently are targeting to complete the transaction late in the second quarter of 2021.

We have incurred significant costs in connection with exploring the potential spin-off transaction of our N‑able business into a newly created and separately traded public company. Spin-off exploration costs include legal, accounting and advisory fees, implementation and integration costs, duplicative costs for subscriptions and information technology systems, employee and contractor costs and other incremental separation costs related to the potential spin-off of the N‑able business. The potential 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. Spin-off exploration costs incurred were $9.9 million during the three months ended March 31, 2021. We expect to incur additional spin-off exploration costs in future periods, although we expect such costs to begin to subside in the second half of the year after completion of the spin-off.

First Quarter Financial Highlights

Our approach, which we call the “SolarWinds Model,” is based on our commitment to building a business that is focused on growth and profitability. Below are our key financial highlights for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Revenue

Our total revenue was $256.9 million and $247.0 million for the three months ended March 31, 2021 and 2020, respectively. Our non-GAAP total revenue, which excludes the impact of purchase accounting, was $257.0 million and $248.5 million for the three months ended March 31, 2021 and 2020, respectively. Recurring revenue, which consists of subscription and maintenance revenue, represented approximately 90% of our total revenue for the three months ended March 31, 2021 compared to 85% for the three months ended March 31, 2020. We have increased our recurring revenue as a result of the growth in our subscription sales and the continued growth of our maintenance revenue.

Our Core IT Management products are targeted for ITOps, DevOps, and IT security professionals and provide hybrid IT performance management with a deep visibility into applications, databases, IT infrastructures, and the full IT stack, while remaining infrastructure-location agnostic. Core IT Management product revenue was $173.9 million and $173.7 million for the three months ended March 31, 2021 and 2020, respectively.

Our N‑able products enable MSPs to deploy, manage and secure technologies for their small and medium size business end-customers, as well as and more efficiently manage their own businesses. N‑able product revenue was $83.0 million and $73.2 million for the three months ended March 31, 2021 and 2020, respectively.

We use Subscription Annual Recurring Revenue, or Subscription ARR, and Total Annual Recurring Revenue, or Total ARR, to evaluate the results of our recurring revenue model. Subscription ARR represents the annualized recurring value of all active subscription contracts at the end of a reporting period. As of March 31, 2021, Subscription ARR was $438.4 million, up from $387.0 million as of March 31, 2020. Total ARR represents the sum of Subscription ARR and the annualized value of all maintenance contracts related to perpetual licenses active at the end of a reporting period. As of March 31, 2021, Total ARR was $961.3 million, up from $861.6 million as of March 31, 2020, reflecting an increase of 11.6%.

As of March 31, 2021, we had over 320,000 customers. We have a broad and diverse customer base that is not concentrated in any segment or vertical industry. We define customers as individuals or entities that have purchased one or more of our products under a unique customer identification number since our inception for our perpetual license products and individuals or entities that have an active subscription for at least one of our subscription products. Each unique customer identification number constitutes a separate customer regardless of the amount purchased. We may have multiple purchasers of our products within a single organization, each of which may be assigned a unique customer identification number and deemed a separate customer.

The SolarWinds Model allows us to both sell to a broad group of potential customers and close large transactions with significant customers. While some customers may spend as little as $100 with us over a twelve-month period, we had 1,074 customers who spent more than $100,000 with us for the trailing twelve-month period ended March 31, 2021 as compared to 926 for the twelve-month period ended March 31, 2020.

We expect that the continued growth in the use of public and private clouds, increased outsourcing of IT management services to MSPs and cross-selling of subscription products into our existing customer base could result in an increase in our subscription revenue. We believe this increase, coupled with continued growth in maintenance revenue, could cause our recurring revenue to increase as a percentage of total revenue over time.

Our license revenue has declined as a percentage of total revenue primarily due to the higher growth of our recurring revenue, the impact of the Cyber Incident on our first quarter results as well as the continued impact of the Covid-19 pandemic, and represented approximately 9.7% of our total revenue in the three months ended March 31, 2021. We expect license revenue to remain flat as a percentage of revenue over time as we grow our recurring revenue while continuing to invest in international sales growth, new product development and enhancements and increased productivity and efficiency of our sales and marketing operations.

Profitability

Our net loss for the three months ended March 31, 2021 was $7.2 million compared to net income of $0.4 million for the three months ended March 31, 2020. Our Adjusted EBITDA was $106.5 million and $110.9 million for the three months ended March 31, 2021 and 2020, respectively.

Cash Flow

We have built our business to generate strong cash flow over the long term. For the three months ended March 31, 2021 and 2020, cash flows from operations were $26.9 million and $78.4 million, respectively. During those periods, our cash flows from operations were reduced by cash payments for interest on our long-term debt of $14.0 million and $22.0 million, respectively and cash payments for income taxes of $14.4 million and $6.0 million, respectively.

Cyber Incident

The Cyber Incident is expected to negatively impact revenue, profitability and cash flows in 2021 and beyond. Certain of our customers have, and others may, defer renewals or cancel subscriptions which would have a negative impact on our revenue. In addition, we expect to incur significant expenses associated with the Cyber Incident in future periods, primarily related to legal proceedings and regulatory investigations, increased customer support activities and other related matters, and increased costs and expenses for insurance, compliance activities, and to meet increased legal and regulatory requirements. We also expect to incur increased expenses and capital investments associated with our “Secure By Design” initiatives in 2021. See Note 8. Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q for ~~additional~~ information ~~regarding our IPO.~~related to the legal proceedings and governmental investigations related to

the Cyber Incident. While we will incur costs and other expenses associated with these proceedings and investigations, it is not possible to estimate the amount of any loss or range of possible loss that might result from adverse judgments, settlements, penalties or other resolutions of such proceedings and investigations based on the early stage thereof, the fact that alleged damages have not been specified, the uncertainty as to the certification of a class or classes and the size of any certified class, as applicable, and the lack of resolution on significant factual and legal issues.

Components of Our Results of Operations

Revenue

Our revenue consists of recurring revenue and perpetual license revenue.

•Recurring Revenue.The significant majority of our revenue is recurring and consists of subscription and maintenance revenue.

▪Subscription Revenue. We primarily derive subscription revenue from fees received for subscriptions to our SaaS offerings, and to a lesser extent, our time-based license arrangements. Subscription revenue includes sales of our N‑able products as well as our cloud infrastructure, database, application performance management and IT service management, or ITSM products. We generally recognize revenue ratably over the subscription term once the service is made available to the customer or when we have the right to invoice for services performed. We generally invoice subscription agreements monthly based on usage or in advance over the subscription period on either a monthly or annual basis. Our subscription revenue grows as customers add new subscription products, upgrade the capacity level of their existing subscription products or increase the usage of their subscription products. Our revenue from N‑able products increases with the addition of end customers served by our MSP customers, the proliferation of devices managed by those MSPs and the expansion of products used by those MSPs to manage end customers’ IT infrastructures.

▪

~~Subscription Revenue.~~ We derive subscription revenue from fees received for subscriptions to our cloud management and MSP products. Subscription revenue is recognized ratably over the subscription term after all revenue recognition criteria have been met. We generally invoice subscription agreements monthly in arrears based on usage or monthly in advance over the subscription period. Our subscription revenue grows as customers add new subscription products, upgrade the capacity level of their existing subscription products or increase the usage of their subscription products. Our revenue from MSP products increases with the addition of end customers served by our MSP customers, the proliferation of devices managed by those MSPs and the expansion of products used by those MSPs to manage end customers’ IT infrastructures.

•Maintenance Revenue. We derive maintenance revenue from the sale of maintenance services associated with our perpetual license products. Perpetual license customers pay for maintenance services based on the products they have purchased. We recognize maintenance revenue ratably on a daily basis over the contract period. Our maintenance revenue grows when we renew existing maintenance contracts and add new perpetual license customers, and as existing customers add new products. In addition, we typically implement annual price increases for our maintenance services. Customers typically renew their maintenance contracts at our standard list maintenance renewal pricing for their applicable products. We generally invoice maintenance contracts annually in advance.

•License Revenue.We derive license revenue from sales of perpetual licenses of our on-premise network, systems, storage and database management products to new and existing customers. We include one year of maintenance services as part of our customers’ initial license purchase. License revenue is recognized at a point in time upon delivery of the electronic license key. We ~~calculate the amount of~~allocate revenue ~~allocated~~ to the license ~~by subtracting the fair value,~~component based upon our estimated standalone selling prices, which is ~~determined~~derived by evaluating our ~~standard maintenance renewal price list,~~historical pricing and discounting practices in observable bundled transactions.

In April 2020, we launched subscription pricing options for certain of our network, systems and database management products that have historically been sold as perpetual licenses. The new on-premise subscription option gives customers additional flexibility when purchasing our products. The on-premise subscription offerings are time-based revenue arrangements recognized at a point in time upon delivery of the ~~applicable maintenance services from~~software and support is recognized ratably over the ~~total invoice or~~ contract ~~amount. If we increase list prices for maintenance services without increasing prices by a similar percentage for~~period. On-premise subscription offerings are recorded in subscription revenue in our condensed consolidated statement of operations. We plan to continue to sell perpetual licenses for these products and not require customers to transition to a subscription pricing model. The subscription pricing option may impact the ~~amount~~mix of license and recurring revenue, ~~we recognize~~but this impact is difficult to predict at this time due to uncertainty regarding the ~~time~~level of customer adoption of the ~~sale of~~new subscription pricing options. We expect a gradual shift in the ~~perpetual~~mix between license ~~could be adversely affected.~~

and recurring revenue in each quarter as new customers purchase these on-premise subscription offerings.

Cost of Revenue

•Cost of Recurring Revenue.Cost of recurring revenue consists of technical support personnel costs, royalty fees, public cloud infrastructure and hosting fees and an allocation of overhead costs for our subscription revenue and maintenance services. Allocated costs consist of certain facilities, depreciation, benefits ~~recruiting~~ and IT costs allocated based on headcount.

•Amortization of Acquired Technologies.~~We amortize~~Amortization of acquired technologies primarily consists of amortization related to ~~cost of revenue the~~ capitalized costs of technologies acquired in connection with the Take Private, and to a lesser extent, acquired technologies from our other acquisitions.

Operating Expenses

Operating expenses consists of sales and marketing, research and development and general and administrative expenses as well as amortization of acquired intangibles. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, sales commissions, stock-based compensation and ~~contractor fees.~~an allocation of overhead costs based on headcount. The total number of employees as of March 31, 2021 was 3,342, as compared to 3,298 as of March 31, 2020. Our stock-based compensation expense has increased due to equity awards granted to our employees and directors and we intend to continue to grant equity awards which will result in additional stock-based compensation expense in future periods.

•Sales and Marketing. Sales and marketing expenses primarily consist of related personnel costs, including our sales, marketing and maintenance renewal and subscription retention teams. Sales and marketing expenses also includes the cost of digital marketing programs such as paid search, search engine optimization and management, website maintenance and design. We expect to continue to hire personnel globally to drive new sales and maintenance renewals.

•Research and Development. Research and development expenses primarily consist of related personnel costs. We expect to continue to grow our research and development organization, particularly internationally.

•General and Administrative. General and administrative expenses primarily consist of personnel costs for our executive, finance, legal, human resources and other administrative personnel, general restructuring ~~charges~~costs, acquisition costs, certain Cyber Incident and ~~other acquisition-related~~spin-off exploration costs, professional fees and other general corporate expenses. ~~Since~~As a result of the ~~Take Private, these~~Cyber Incident, we expect an increase in general and administrative expenses ~~have also included management fees payable to our Sponsors that were eliminated upon~~in the ~~completion of our initial public offering.~~

near term.

•Amortization of Acquired Intangibles. We amortize to operating expenses the capitalized costs of intangible assets acquired in connection with the Take Private and our other acquisitions.

Other Income (Expense)

Other income (expense) primarily consists of interest expense and gains (losses) resulting from changes in exchange rates on foreign currency denominated ~~intercompany loans, and losses on extinguishment of debt.~~accounts. We expect interest expense to decrease ~~following the completion of our initial public offering~~ as we repay indebtedness.

We established a foreign currency denominated intercompany loan as part of the Take Private to provide a conduit to utilize foreign earnings effectively. Until any cash payments are made with respect to this loan, the gains (losses) associated with the changes in exchange rates on amounts borrowed are unrealized non-cash events. Substantially all of these unrealized amounts are related to this one foreign currency denominated loan. As of July 1, 2018, this foreign currency denominated intercompany loan was designated as long-term due to a change in our investment strategy and the new Tax Act. Therefore, beginning on July 1, 2018, the foreign currency transaction gains and losses resulting from remeasurement are recognized as a component of accumulated other comprehensive income (loss).

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: 3. Quantitative and Qualitative Disclosures About Market Risk”for additional information on how foreign currency impacts our financial results.

Income Tax Expense (Benefit)

Income tax expense (benefit) consists of domestic and foreign corporate income taxes related to the sale of products. The tax rate on income earned by our North American entities is higher than the tax rate on income earned by our international entities. We expect the income earned by our international entities to grow over time as a percentage of total income, which may result in a decline in our effective income tax rate. However, our effective tax rate will be affected by many other factors including changes in tax laws, regulations or rates, new interpretations of existing laws or regulations, shifts in the allocation of income earned throughout the world and changes in overall levels of income before tax.

The Tax Act was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that have not been taxed previously in the U.S. and creates new taxes on certain foreign sourced earnings. For additional discussion about our income taxes, see ~~Note~~ ~~11. Income Taxes~~ ~~in the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.~~

Comparison of the Three Months Ended ~~September 30, 2018~~March 31, 2021 and ~~2017~~2020

Revenue

Three Months Ended September 30,
2018 2017
Amount
Percentage of
Revenue
Amount
Percentage of
Revenue
Change

(in thousands, except percentages)
Subscription $ 67,713
31.7 % $ 55,361
29.3 % $ 12,352
Maintenance 101,817
47.7
93,258
49.3
8,559
Total recurring revenue 169,530
79.5
148,619
78.6
20,911
License 43,747
20.5
40,493
21.4
3,254
Total revenue $ 213,277
100.0 % $ 189,112
100.0 % $ 24,165

Our revenue recognized is impacted by our accounting for acquisitions, including the Take Private. We account for acquired businesses using the acquisition method of accounting, which requires the assets acquired and liabilities assumed, including deferred revenue, be recorded at the date of acquisition at their respective fair values which could differ from the historical book values. In most cases, adjusting the acquired deferred revenue balances to fair value on the date of acquisition had the effect of reducing the historical deferred revenue balance and therefore reducing the revenue recognized in subsequent periods. The impact to revenue as a result of purchase accounting adjustments during the relevant periods were as follows:


	Three Months Ended March 31,
	2021				2020
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)
Subscription	$	108,988	42.4	%	$	93,635	37.9	%	$	15,353
Maintenance	123,040		47.9		116,349		47.1		6,691
Total recurring revenue	232,028		90.3		209,984		85.0		22,044
License	24,874		9.7		36,966		15.0		(12,092)
Total revenue	$	256,902	100.0	%	$	246,950	100.0	%	$	9,952

Three Months Ended September 30,
2018 2017
Amount Amount Change

(in thousands)
Subscription $ 154
$ 353
$ (199 )
Maintenance 574
1,570
(996 )
Total recurring revenue 728
1,923
(1,195 )
License —
—
—
Total revenue $ 728
$ 1,923
$ (1,195 )

Total revenue increased ~~$24.2~~$10.0 million, or ~~12.8%~~4.0%, for the three months ended ~~September 30, 2018~~March 31, 2021 compared to the three months ended ~~September 30, 2017.~~March 31, 2020. Revenue from North America was approximately ~~64%~~63% and ~~67%~~66% of total revenue for the three months ended ~~September 30, 2018~~March 31, 2021 and ~~2017,~~2020, respectively. Other than the United States, no single country accounted for 10% or more of our total revenue during these periods. We expect our international total revenue to increase slightly as a percentage of total revenue as we expand our international sales and marketing efforts across our product lines. Core IT Management product revenue was $173.9 million for the three months ended March 31, 2021 compared to $173.7 million for the three months ended March 31, 2020, representing an increase of 0.1%. N‑able product revenue was $83.0 million for the three months ended March 31, 2021 compared to $73.2 million for the three months ended March 31, 2020, representing an increase of 13.4%.

Recurring Revenue

Subscription Revenue. Subscription revenue increased ~~$12.4~~$15.4 million, or ~~22.3%~~16.4%, for the three months ended ~~September 30, 2018~~March 31, 2021 compared to the three months ended ~~September 30, 2017,~~March 31, 2020, primarily due to sales of additional ~~cloud management~~N‑able products and ~~MSP products.~~the effect of the strengthening of most foreign currencies relative to the U.S. dollar. Our subscription revenue increased as a percentage of our total revenue for the three months ended ~~September 30, 2018~~March 31, 2021 compared to the three months ended ~~September 30, 2017.~~March 31, 2020.

Our net retention rate for our subscription products was approximately 104% and 105% for the trailing twelve-month periods ended March 31, 2021 and 2020, respectively, and was driven primarily by customer retention and expansion in our N‑able products. We define our net retention rate for subscription products as the implied monthly subscription revenue at the end of a period for the base set of customers from which we generated subscription revenue in the year prior to the calculation, divided by the implied monthly subscription revenue one year prior to the date of calculation for that same customer base.

Maintenance Revenue. Maintenance revenue increased ~~$8.6~~$6.7 million, or ~~9.2%~~5.8%, for the three months ended ~~September 30, 2018~~March 31, 2021 compared to the three months ended ~~September 30, 2017. Of this change, $7.6 million was attributable~~March 31, 2020 primarily due to ~~a growing~~strong maintenance renewal ~~customer base from sales of~~rates.

Our maintenance renewal rate for our perpetual license products was approximately 91% and 92%, respectively, for the trailing twelve-month periods ended March 31, 2021 and 2020. The decrease in the maintenance renewal rate for the trailing twelve-month period ended March 31, 2021 was primarily due to a decline in renewals during the first quarter due to the Cyber Incident. We expect our maintenance renewal rates may decline or fluctuate in future periods as a result of the low- to mid-90 percent range. The remaining $1.0 million increase was attributable to a smaller purchase accounting adjustment to deferred revenue in the three months ended September 30, 2018 as compared to the three months ended September 30, 2017.

Cyber Incident. We define our maintenance renewal rate as the sales of maintenance services for all existing maintenance contracts expiring in a period, divided by the sum of previous sales of maintenance services corresponding to those services expiring in the current period. Sales of maintenance services includes sales of maintenance renewals for a previously purchased product and the amount allocated to maintenance revenue from a license purchase.

License Revenue

License revenue ~~increased $3.3~~decreased $12.1 million, or ~~8.0%,~~32.7% primarily due to ~~increased~~decreased sales of our licensed products as a result of the Cyber Incident, the continuing impact of the difficult economic environment caused by COVID-19 and, to a lesser extent, an increase in ~~each of our North American and international locations. We believe our more tenured sales and marketing leadership teams, particularly in our international regions, during 2018 was primarily~~ the ~~reason for the increased growth in~~subscription sales of our ~~licensed~~network, systems and database management products ~~globally.~~

that have historically been sold only as perpetual licenses. We expect our license sales may decline or fluctuate in future periods as a result of the Cyber Incident.

Cost of Revenue


	Three Months Ended September 30,											Three Months Ended March 31,
	2018				2017							2021				2020
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change			Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

			(in thousands, except percentages)									(in thousands, except percentages)
Cost of recurring revenue	$	18,022	8.5	%	$	15,190	8.0	%	$	2,832	Cost of recurring revenue	$	26,958	10.5	%	$	22,501	9.1	%	$	4,457
Amortization of acquired technologies	43,835		20.6		43,513		23.0		322		Amortization of acquired technologies	43,121		16.8		44,492		18.0		(1,371)
Total cost of revenue	$	61,857	29.0	%	$	58,703	31.0	%	$	3,154	Total cost of revenue	$	70,079	27.3	%	$	66,993	27.1	%	$	3,086

Total cost of revenue increased in the three months ended ~~September 30, 2018~~March 31, 2021 compared to the three months ended ~~September 30, 2017~~March 31, 2020 primarily due to increases in ~~personnel costs of $1.1 million to support new customers and additional product offerings, royalty~~public cloud infrastructure and hosting fees related to our subscription products of ~~$1.0~~$1.6 million, personnel costs to support new customers and additional product offerings of $1.1 million, which includes a $0.2 million increase in stock-based compensation expense, depreciation and other amortization of $0.9 million and costs related to the Cyber Incident of $0.8 million. ~~In addition,~~These increases were partially offset by a decrease in amortization of acquired technologies increased $0.3 million. Amortization of acquired technologies includes $41.3 million and $41.4 million of amortization related to the Take Private for the three months ended September 30, 2018 and three months ended September 30, 2017, respectively, with the remaining balance related primarily to the LOGICnow acquisition in May 2016.subscription technologies.

Operating Expenses


	Three Months Ended March 31,
	2021				2020
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)
Sales and marketing	$	83,297	32.4	%	$	72,378	29.3	%	$	10,919
Research and development	37,761		14.7		31,845		12.9		5,916
General and administrative	47,710		18.6		29,755		12.0		17,955
Amortization of acquired intangibles	20,057		7.8		18,296		7.4		1,761
Total operating expenses	$	188,825	73.5	%	$	152,274	61.7	%	$	36,551

Three Months Ended September 30,
2018 2017
Amount Percentage of Revenue Amount Percentage of Revenue Change

(in thousands, except percentages)
Sales and marketing $ 56,926
26.7 % $ 50,942
26.9 % $ 5,984
Research and development 23,274
10.9
20,521
10.9
2,753
General and administrative 19,597
9.2
15,080
8.0
4,517
Amortization of acquired intangibles 16,507
7.7
17,035
9.0
(528 )
Total operating expenses $ 116,304
54.5 % $ 103,578
54.8 % $ 12,726

Sales and Marketing. Sales and marketing expenses increased ~~$6.0~~$10.9 million, or ~~11.7%~~15.1%, primarily due to increases in personnel costs of ~~$5.8~~$9.0 million, which includes an increase of $3.5 million in stock-based compensation expense, as a result of the SentryOne acquisition in October 2020 and an increase in worldwide sales and marketing bonus expense. In addition, marketing program costs and public relation costs resulting from the Cyber Incident increased $2.0 million. These increases were partially offset by reductions in travel costs of ~~$0.5~~$1.0 million. ~~We increased our sales and marketing employee headcount to support the sales of additional products and growth in the business.~~

Research and Development. Research and development expenses increased ~~$2.8~~$5.9 million, or ~~13.4%~~18.6%, primarily due to an increase in personnel costs of ~~$3.7~~$6.0 million, which includes an increase in stock-based compensation expense of $1.1 million, partially offset by a reduction in travel costs of $0.3 million. We increased our worldwide research and development employee headcount to expedite delivery of product enhancements and new product offerings to our ~~customers. This increase was offset by reductions in acquisition and Take Private related costs of $0.6 million and contract services of $0.3 million.~~customers as well as through acquisitions.

General and Administrative. General and administrative expenses increased ~~$4.5~~$18.0 million, or ~~30.0%~~60.3%, primarily due to $9.2 million of costs related to the exploration of a ~~$3.1~~potential spin-off of our N‑able business, $8.6 million of costs related to the Cyber Incident, net of expected insurance proceeds, and a $3.6 million increase in personnel costs, ~~to support the growth of the business,~~which includes a ~~$1.1~~$1.8 million increase in ~~professional fees~~stock-based compensation expense. These increases were partially offset by decreases in our provision for losses on accounts receivables of $2.3 million and ~~other offering~~acquisition costs ~~related to our IPO.~~of $1.3 million. As a result of the Cyber Incident, we expect an increase in general and administrative expenses in the near term.

Amortization of Acquired Intangibles. Amortization of acquired intangibles ~~decreased $0.5~~increased $1.8 million, or ~~3.1%~~9.6%, ~~for~~primarily due to amortization related to intangibles acquired in the fourth quarter of 2020.

Interest Expense, Net


	Three Months Ended March 31,
	2021				2020
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)
Interest expense, net	$	(16,174)	(6.3)	%	$	(24,095)	(9.8)	%	$	7,921

Interest expense, net decreased by $7.9 million, or 32.9%, in the three months ended ~~September 30, 2018~~March 31, 2021 compared to the three months ended ~~September 30, 2017. Amortization of intangible assets includes $11.9 million and $12.7 million of amortization related to the Take Privatefor the three months ended September 30, 2018 and 2017, respectively, with the remaining balance related primarily to the LOGICnow acquisition in May 2016.~~

~~Interest Expense, Net~~

Three Months Ended September 30,
2018 2017
Amount Percentage of Revenue Amount Percentage of Revenue Change

(in thousands, except percentages)
Interest expense, net $ (35,627 ) (16.7 )% $ (42,534 ) (22.5 )% $ 6,907

~~Interest expense, net decreased by $6.9 million, or 16.2%, in the three months ended September 30, 2018 compared to the three months ended September 30, 2017.~~March 31, 2020. The decrease in interest expense is primarily due to decreases in interest rates on our debt and the reduction in ~~the~~our outstanding debt balance related to quarterly principal repayments. The weighted-average effective interest rate ~~spread under~~on our ~~credit facilities resulting from~~debt for the ~~refinancing transaction we completed in~~three months ended March ~~2018.~~31, 2021 was 2.88% compared to 4.42% for the three months ended March 31, 2020. See Note6.5. Debtin the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information regarding our debt.

Other Income (Expense), Net


	Three Months Ended March 31,
	2021				2020
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Change

	(in thousands, except percentages)

Other income (expense), net	$	127	—	%	$	(758)	(0.3)	%	$	885

Three Months Ended September 30,
2018 2017
Amount Percentage of Revenue Amount Percentage of Revenue Change

(in thousands, except percentages)
Unrealized net transaction gains (losses) related to remeasurement of intercompany loans $ 51
— % $ 14,774
7.8 % $ (14,723 )
Other income (expense) (64 ) —
(489 ) (0.3 ) 425
Total other income (expense), net $ (13 ) — % $ 14,285
7.6 % $ (14,298 )

Other income (expense), net ~~decreased~~increased by ~~$14.3~~$0.9 million in the three months ended ~~September 30, 2018~~March 31, 2021 compared to the three months ended ~~September 30, 2017~~March 31, 2020 primarily due to the impact of changes in foreign currency exchange rates related to various ~~intercompany loans and~~ accounts for the period. As of July 1, 2018, we changed our assertion regarding the planned settlement of a certain intercompany loan. We have evaluated our investment strategy in light of our global treasury plans and the new Tax Act and have determined there is no need to settle the principal related to the loan. Therefore, beginning on July 1, 2018, the foreign currency transaction gains and losses resulting from the remeasurement of this long-term intercompany loan denominated in a currency other than the subsidiary's functional currency are recognized as a component of accumulated other comprehensive income (loss) and not included in other income (expense), net.

Income Tax Expense (Benefit)


	Three Months Ended March 31,
	2021					2020
	Amount			Percentage of Revenue		Amount			Percentage of Revenue		Change

	(in thousands, except percentages)
Income (loss) before income taxes	$	(18,049)		(7.0)	%	$	2,830		1.1	%	$	(20,879)
Income tax expense (benefit)	(10,889)			(4.2)		2,415			1.0		(13,304)
Effective tax rate	60.3		%			85.3		%			(25.0)		%

Three Months Ended September 30,
2018 2017
Amount Percentage of Revenue Amount Percentage of Revenue Change

(in thousands, except percentages)
Income tax expense (benefit) $ (126 ) (0.1 )% $ (3,055 ) (1.6 )% $ 2,929
Effective tax rate 24.0 % 215.4 % (191.4 )%

Our income tax benefit for the three months ended ~~September 30, 2018 decreased by $2.9~~March 31, 2021 was $10.9 million as compared to income tax expense of $2.4 million for the three months ended ~~September 30, 2017 primarily as a result of a decrease in the loss before income taxes for the period and a lower U.S. corporate tax rate attributable to the Tax Act.~~March 31, 2020. The effective tax rate decreased to 60.3% for the period asprimarily due to a ~~result~~decrease in income before income taxes and the reversal of ~~the lower U.S. corporate~~uncertain tax ~~rate attributable to the Tax Act as well as discrete items related to expired statutes in various jurisdictions recorded~~positions in the ~~three months ended September 30, 2017.~~amount of $6.1 million and related accrued interest in the amount of $2.7 million due to an IRS settlement agreement entered into during the quarter. For additional discussion about our income taxes, see Note ~~11.~~7. Income Taxesin the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Form 10-Q.

~~Comparison of the Nine Months Ended September 30, 2018 and 2017~~

~~Revenue~~

Nine Months Ended September 30,
2018 2017
Amount
Percentage of
Revenue
Amount
Percentage of
Revenue
Change

(in thousands, except percentages)
Subscription $ 196,004
32.0 % $ 155,402
29.3 % $ 40,602
Maintenance 297,584
48.6
261,461
49.4
36,123
Total recurring revenue 493,588
80.7
416,863
78.7
76,725
License 118,320
19.3
112,815
21.3
5,505
Total revenue $ 611,908
100.0 % $ 529,678
100.0 % $ 82,230

Nine Months Ended
September 30,
2018 2017
Amount Amount Change

(in thousands)
Subscription $ 1,116
$ 1,168
$ (52 )
Maintenance 2,173
10,380
(8,207 )
Total recurring revenue 3,289
11,548
(8,259 )
License —
3
(3 )
Total revenue $ 3,289
$ 11,551
$ (8,262 )

Total revenue increased $82.2 million, or 15.5%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Revenue from North America was approximately 65% and 67% of total revenue for the nine months ended September 30, 2018 and 2017, respectively. Other than the United States, no single country accounted for 10% or more of our total revenue during these periods.

~~Recurring Revenue~~

~~Subscription Revenue.~~ Subscription revenue increased $40.6 million, or 26.1%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017, primarily due to sales of additional cloud management and MSP products. Our subscription revenue increased as a percentage of our total revenue for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.

~~Maintenance Revenue.~~ Maintenance revenue increased $36.1 million, or 13.8%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Of this change, $27.9 million was attributable to a growing maintenance renewal customer base from sales of our perpetual license products and maintenance renewal rates in the low- to mid-90 percent range. The remaining $8.2 million increase was attributable to a smaller purchase accounting adjustment to deferred revenue in the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017.

~~License Revenue~~

License revenue increased $5.5 million, or 4.9%, due to increased sales of our licensed products, particularly in our international locations. We believe our more tenured sales and marketing leadership teams in international regions during 2018 was primarily the reason for the increased growth in these regions.

~~Cost of Revenue~~

Nine Months Ended September 30,
2018 2017
Amount Percentage of Revenue Amount Percentage of Revenue Change

(in thousands, except percentages)
Cost of recurring revenue $ 52,617
8.6 % $ 44,879
8.5 % $ 7,738
Amortization of acquired technologies 132,121
21.6
127,781
24.1
4,340
Total cost of revenue $ 184,738
30.2 % $ 172,660
32.6 % $ 12,078

Total cost of revenue increased in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 primarily due to increases in amortization of acquired technologies of $4.3 million, royalty and hosting fees related to our subscription products of $2.8 million, personnel costs to support new customers and additional product offerings of $2.6 million and depreciation and other amortization of $2.3 million. Amortization of acquired technologies includes $124.6 million and $122.0 million of amortization related to the Take Private for the nine months ended September 30, 2018 and September 30, 2017, respectively, with the remaining balance related primarily to the LOGICnow acquisition in May 2016.

~~Operating Expenses~~

Nine Months Ended September 30,
2018 2017
Amount Percentage of Revenue Amount Percentage of Revenue Change

(in thousands, except percentages)
Sales and marketing $ 166,022
27.1 % $ 152,070
28.7 % $ 13,952
Research and development 71,800
11.7
63,414
12.0
8,386
General and administrative 59,849
9.8
50,865
9.6
8,984
Amortization of acquired intangibles 50,288
8.2
49,910
9.4
378
Total operating expenses $ 347,959
56.9 % $ 316,259
59.7 % $ 31,700

~~Sales and Marketing.~~ Sales and marketing expenses increased $14.0 million, or 9.2%, primarily due to increases in personnel costs of $13.3 million and marketing program costs of $0.9 million. We increased our sales and marketing employee headcount to support the sales of additional products and growth in the business.

~~Research and Development.~~ Research and development expenses increased $8.4 million, or 13.2%, primarily due to an increase in personnel costs of $10.7 million. We increased our worldwide research and development employee headcount to expedite delivery of product enhancements and new product offerings to our customers. This increase was offset by reductions in contract services of $1.2 million and acquisition and Take Private related costs of $1.1 million.

~~General and Administrative~~. General and administrative expenses increased $9.0 million, or 17.7%, primarily due to a $9.1 million increase in personnel costs to support the growth of the business, a $2.3 million increase in offering costs related to our IPO and other professional fees. These increases were partially offset by a lease abandonment charge of $1.7 million in the nine months ended September 30, 2017 that did not reoccur in the nine months ended September 30, 2018 and a decrease of acquisition and Take Private related costs of $1.5 million.

~~Amortization of Acquired Intangibles.~~ Amortization of acquired intangibles increased $0.4 million, or 0.8%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 due to the addition of intangible assets related to acquisitions. Amortization of intangible assets includes $36.3 million and $37.7 million of amortization related to the Take Private~~for the nine months ended September 30, 2018 and September 30, 2017, respectively, with the remaining balance related primarily to the LOGICnow acquisition in May 2016.~~

~~Interest Expense, Net~~

Nine Months Ended September 30,
2018 2017
Amount Percentage of Revenue Amount Percentage of Revenue Change

(in thousands, except percentages)
Interest expense, net $ (112,103 ) (18.3 )% $ (127,018 ) (24.0 )% $ 14,915

Interest expense, net decreased by $14.9 million, or 11.7%, in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The decrease in interest expense is due to the reduction in the interest rate spread under our credit facilities resulting from the refinancing transaction we completed in March 2018. See ~~Note6. Debt~~ ~~in the~~ ~~Notes to Consolidated Financial Statements~~ ~~included in Item 1 of Part I of this Form 10-Q for additional information regarding our debt.~~

~~Other Income (Expense), Net~~

Nine Months Ended September 30,
2018 2017
Amount Percentage of Revenue Amount Percentage of Revenue Change

(in thousands, except percentages)
Unrealized net transaction gains (losses) related to remeasurement of intercompany loans $ (12,660 ) (2.1 )% $ 49,955
9.4 % $ (62,615 )
Loss on extinguishment of debt (60,590 ) (9.9 ) (18,559 ) (3.5 ) (42,031 )
Other income (expense) (1,226 ) (0.2 ) (1,711 ) (0.3 ) 485
Total other income (expense), net $ (74,476 ) (12.2 )% $ 29,685
5.6 % $ (104,161 )

Other income (expense), net decreased by $104.2 million in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 primarily due to the impact of changes in foreign currency exchange rates related to various intercompany loans for the period and a loss of $60.6 million on extinguishment of debt related to the refinancing of our credit facilities in March 2018. See ~~Note6. Debtin the~~ ~~Notes to Consolidated Financial Statements~~ ~~included in Item 1 of Part I of this Form 10-Q for additional information regarding our debt.~~

~~Income Tax Expense (Benefit)~~

Nine Months Ended September 30,
2018 2017
Amount Percentage of Revenue Amount Percentage of Revenue Change

(in thousands, except percentages)
Income tax expense (benefit) $ (20,045 ) (3.3 )% $ (12,469 ) (2.4 )% $ (7,576 )
Effective tax rate 18.7 % 22.0 % (3.3 )%

Our income tax benefit for the nine months ended September 30, 2018 increased by $7.6 million as compared to the nine months ended September 30, 2017 primarily as a result of an increase in the loss before income taxes for the period offset by a lower U.S. corporate tax rate attributable to the Tax Act. For additional discussion about our income taxes, see ~~Note~~ ~~11. Income Taxes~~ ~~in the~~ ~~Notes to Consolidated Financial Statements~~ ~~included in Item 1 of Part I of this Form 10-Q.~~

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. ~~Set forth in the first table below are the corresponding GAAP financial measures for each non-GAAP financial measure.~~ 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, costs related to the exploration of a potential spin-off of our N‑able business, the Cyber Incident and restructuring ~~charges,~~costs, as well as the related tax impacts of these items can have a material impact on our GAAP financial results.

Non-GAAP Revenue

We define non-GAAP subscription revenue, non-GAAP maintenance revenue, non-GAAP license revenue and non-GAAP total revenue, as subscription revenue, maintenance revenue, license revenue and total revenue, respectively, excluding the impact of purchase ~~accounting.~~accounting from our acquisitions. We monitor these measures to assess our performance because we believe our revenue growth rates would be overstated without these adjustments. We believe presenting non-GAAP subscription revenue, non-GAAP maintenance revenue, non-GAAP license revenue and non-GAAP total revenue aids in the comparability between periods and in assessing our overall operating performance.


										Three Months Ended March 31,
	Three Months Ended September 30,				Nine Months Ended September 30,					2021		2020
	2018		2017		2018		2017

	(in thousands)									(in thousands)
Revenue:									Revenue:
GAAP subscription revenue	$	67,713	$	55,361	$	196,004	$	155,402	GAAP subscription revenue	$	108,988	$	93,635
Impact of purchase accounting	154		353		1,116		1,168		Impact of purchase accounting	79		1,513
Non-GAAP subscription revenue	67,867		55,714		197,120		156,570		Non-GAAP subscription revenue	109,067		95,148
GAAP maintenance revenue	101,817		93,258		297,584		261,461		GAAP maintenance revenue	123,040		116,349
Impact of purchase accounting	574		1,570		2,173		10,380		Impact of purchase accounting	—		—
Non-GAAP maintenance revenue	102,391		94,828		299,757		271,841		Non-GAAP maintenance revenue	123,040		116,349
GAAP total recurring revenue	169,530		148,619		493,588		416,863		GAAP total recurring revenue	232,028		209,984
Impact of purchase accounting	728		1,923		3,289		11,548		Impact of purchase accounting	79		1,513
Non-GAAP total recurring revenue	170,258		150,542		496,877		428,411		Non-GAAP total recurring revenue	232,107		211,497
GAAP license revenue	43,747		40,493		118,320		112,815		GAAP license revenue	24,874		36,966
Impact of purchase accounting	—		—		—		3		Impact of purchase accounting	—		—
Non-GAAP license revenue	43,747		40,493		118,320		112,818		Non-GAAP license revenue	24,874		36,966
Total GAAP revenue	$	213,277	$	189,112	$	611,908	$	529,678	Total GAAP revenue	$	256,902	$	246,950
Impact of purchase accounting	$	728	$	1,923	$	3,289	$	11,551	Impact of purchase accounting	$	79	$	1,513
Total non-GAAP revenue	$	214,005	$	191,035	$	615,197	$	541,229	Total non-GAAP revenue	$	256,981	$	248,463

Non-GAAP Operating Income and Non-GAAP Operating Margin

We provide non-GAAP operating income and related non-GAAP margin using non-GAAP revenue as discussed above and excluding such items as the write-down of deferred revenue related to purchase accounting, amortization of acquired intangible assets, stock-based compensation expense and related employer-paid payroll taxes, acquisition and ~~Sponsor related~~other costs, spin-off exploration costs, restructuring costs and ~~restructuring charges and other.~~Cyber Incident costs. Management believes these measures are useful for the following reasons:

•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.

•Stock-Based Compensation ~~Expense.~~ Expense and Related Employer-Paid Payroll Taxes. We provide non-GAAP information that excludes expenses related to stock-based ~~compensation.~~compensation and related employer-paid payroll taxes. 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 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.

•Acquisition and ~~Sponsor Related~~Other Costs. We exclude certain expense items resulting from ~~the Take Private and other~~ 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. In addition, we exclude certain other costs including expense related to our offerings. 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 these non-GAAP measures that exclude acquisition and ~~Sponsor related~~other costs, allows users of our financial statements 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 Exploration Costs. We exclude certain expense items resulting from the exploration of a potential spin-off transaction of our N‑able business into a newly created and separately traded public company. These costs include legal, accounting and advisory fees, implementation and integration costs, duplicative costs for subscriptions and information technology systems, employee and contractor costs and other incremental separation costs related to the potential spin-off of the N‑able business. The potential 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 ~~Charges and Other.~~ Costs. We provide non-GAAP information that excludes restructuring ~~charges~~costs such as severance and the estimated costs of exiting and terminating facility lease commitments, as they relate to our corporate restructuring and exit ~~activities.~~activities and costs related to the separation of employment with executives of the Company. These ~~restructuring charges~~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 ~~charges~~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.

•Cyber Incident Costs. We exclude certain expenses resulting from the Cyber Incident. Expenses include costs to investigate and remediate the Cyber Incident, and legal and other professional services related thereto, and consulting services being provided to customers at no charge. Cyber Incident costs are provided net of expected and received insurance reimbursements, although the timing of recognizing insurance reimbursements may differ from the timing of recognizing the associated expenses. We expect to incur significant legal and other professional services expenses associated with the Cyber Incident in future periods. The Cyber Incident results in operating expenses that would not have otherwise 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. We continue to invest significantly in cybersecurity and expect to make additional investments. These estimated investments are in addition to the Cyber Incident costs and not included in the net Cyber Incident costs reported.


														Three Months Ended March 31,
	Three Months Ended September 30,						Nine Months Ended September 30,							2021			2020
	2018			2017			2018			2017
														(in thousands, except margin data)
	(in thousands, except margin data)
GAAP operating income	$	35,116		$	26,831		$	79,211		$	40,759
GAAP operating income (loss)													GAAP operating income (loss)	$	(2,002)		$	27,683
Impact of purchase accounting	728			1,923			3,289			11,551			Impact of purchase accounting	79			1,513
Stock-based compensation expense	160			21			332			49
Stock-based compensation expense and related employer-paid payroll taxes													Stock-based compensation expense and related employer-paid payroll taxes	18,112			11,483
Amortization of acquired technologies	43,835			43,513			132,121			127,781			Amortization of acquired technologies	43,121			44,492
Amortization of acquired intangibles	16,507			17,035			50,288			49,910			Amortization of acquired intangibles	20,057			18,296
Acquisition and Sponsor related costs	5,614			6,097			16,361			18,163
Restructuring costs and other	281			556			1,494			2,644
Acquisition and other costs													Acquisition and other costs	926			1,943
Spin-off exploration costs													Spin-off exploration costs	9,895			—
Restructuring costs													Restructuring costs	409			222
Cyber Incident costs													Cyber Incident costs	10,163			—
Non-GAAP operating income	$	102,241		$	95,976		$	283,096		$	250,857		Non-GAAP operating income	$	100,760		$	105,632
GAAP operating margin	16.5		%	14.2		%	12.9		%	7.7		%	GAAP operating margin	(0.8)		%	11.2		%
Non-GAAP operating margin	47.8		%	50.2		%	46.0		%	46.3		%	Non-GAAP operating margin	39.2		%	42.5		%

Adjusted EBITDAand Adjusted EBITDA Margin

We regularly monitor adjusted EBITDA and adjusted EBITDA margin, as it is a measure we use to assess our operating performance. We define adjusted EBITDA as net income or loss, excluding the impact of purchase accounting on total revenue, amortization of acquired intangible assets and developed technology, depreciation expense, stock-based compensation expense and related employer-paid payroll taxes, restructuring costs, acquisition and other ~~charges,~~

	~~81-0753267~~
Delaware		81-0753267
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


	Nine Months Ended September 30,							Three Months Ended March 31,
	2018			2017				2021		2020
Cash flows from operating activities							Cash flows from operating activities
Net loss	$	(87,323	)	$	(44,105	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net income (loss)							Net income (loss)	$	(7,160)	$	415
Adjustments to reconcile net income (loss) to net cash provided by operating activities:							Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	193,903			187,086			Depreciation and amortization	69,685		67,768
Provision for doubtful accounts	1,991			2,140
Provision for losses on accounts receivable							Provision for losses on accounts receivable	696		3,014
Stock-based compensation expense	332			49			Stock-based compensation expense	17,063		11,268

Amortization of debt issuance costs	9,272			14,226			Amortization of debt issuance costs	2,239		2,288
Loss on extinguishment of debt	60,590			18,559

Deferred taxes	(14,085		)	(19,776		)	Deferred taxes	(8,985)		(8,744)

(Gain) loss on foreign currency exchange rates	12,747			(49,648		)	(Gain) loss on foreign currency exchange rates	(1,041)		983
Other non-cash expenses (benefits)	1,451			3,452			Other non-cash expenses (benefits)	2,268		(190)
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business combinations:							Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business combinations:
Accounts receivable	(13,963		)	4,151			Accounts receivable	(4,076)		(4,084)
Income taxes receivable	(131		)	1,470			Income taxes receivable	(71)		(583)
Prepaid and other current assets	(1,931		)	4,497
Prepaid and other assets							Prepaid and other assets	(13,190)		(4,092)
Accounts payable	(3,958		)	(3,130		)	Accounts payable	1,520		(3,047)
Accrued liabilities and other	9,745			(8,783		)	Accrued liabilities and other	(15,310)		(5,800)
Accrued interest payable	(10,516		)	255			Accrued interest payable	(3)		(45)
Income taxes payable	(16,112		)	768			Income taxes payable	(17,467)		4,566
Deferred revenue	22,291			24,249			Deferred revenue	763		14,739
Other long-term liabilities	1,779			439			Other long-term liabilities	0		(85)
Net cash provided by operating activities	166,082			135,899			Net cash provided by operating activities	26,931		78,371
Cash flows from investing activities							Cash flows from investing activities
Maturities of investments	—			2,000

Purchases of property and equipment	(12,794		)	(6,340		)	Purchases of property and equipment	(5,806)		(6,536)
Purchases of intangible assets	(2,082		)	(3,158		)	Purchases of intangible assets	(2,170)		(1,694)
Acquisitions, net of cash acquired	(60,578		)	(23,999		)	Acquisitions, net of cash acquired	447		0
Proceeds from sale of cost method investment	10,715			—

Net cash used in investing activities	(64,739		)	(31,497		)	Net cash used in investing activities	(7,529)		(8,230)
Cash flows from financing activities							Cash flows from financing activities
Proceeds from issuance of common stock and incentive restricted stock	1,723			108

Proceeds from issuance of common stock under employee stock purchase plan							Proceeds from issuance of common stock under employee stock purchase plan	3,129		2,357
Repurchase of common stock and incentive restricted stock	(568		)	(374		)	Repurchase of common stock and incentive restricted stock	(8,588)		(1,571)
Exercise of stock options	13			—			Exercise of stock options	11		51
Premium paid on debt extinguishment	(22,725		)	—
Proceeds from credit agreement	626,950			3,500

Repayments of borrowings from credit agreement	(694,925		)	(32,714		)	Repayments of borrowings from credit agreement	(4,975)		(4,975)
Payment of debt issuance costs	(5,561		)	(1,288		)
Payment for offering costs	(2,194		)	—

Net cash used in financing activities	(97,287		)	(30,768		)	Net cash used in financing activities	(10,423)		(4,138)
Effect of exchange rate changes on cash and cash equivalents	(3,439		)	8,042			Effect of exchange rate changes on cash and cash equivalents	(5,125)		(2,420)
Net increase in cash and cash equivalents	617			81,676			Net increase in cash and cash equivalents	3,854		63,583
Cash and cash equivalents							Cash and cash equivalents
Beginning of period	277,716			101,643			Beginning of period	370,498		173,372
End of period	$	278,333		$	183,319		End of period	$	374,352	$	236,955

Supplemental disclosure of cash flow information							Supplemental disclosure of cash flow information
Cash paid for interest	$	114,148		$	109,203		Cash paid for interest	$	13,993	$	21,972
Cash paid for income taxes	$	8,045		$	3,741		Cash paid for income taxes	$	14,408	$	6,035



þ ☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


																						Three Months Ended March 31, 2021
	Redeemable Convertible Class A Common Stock				Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Earnings (Deficit)			Total Stockholders’ Deficit				Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount			Shares		Amount															Shares	Amount
Balance at December 31, 2017	2,661	3,146,887			100,734		101		—			75,294			(805,156		)	(729,761		)
Balance at December 31, 2020																					Balance at December 31, 2020	313,039	$	313	$	3,112,106	$	127,212	$	(228,944)	$	3,010,687
Foreign currency translation adjustment	—	—			—		—		—			(36,089		)	—			(36,089		)	Foreign currency translation adjustment	—	—		—		(65,750)		—		(65,750)
Net loss	—	—			—		—		—			—			(87,323		)	(87,323		)	Net loss	—	—		—		—		(7,160)		(7,160)
Comprehensive loss																		(123,412		)	Comprehensive loss										(72,910)
Exercise of stock options	—	—			39		—		13			—			—			13			Exercise of stock options	10	—		11		—		—		11
Restricted stock units issued, net of shares withheld for taxes																					Restricted stock units issued, net of shares withheld for taxes	1,319	1		(8,398)		—		—		(8,397)
Issuance of stock	—	—			1,372		1		395			—			—			396			Issuance of stock	820	1		462		—		—		463
Repurchase of stock	—	(17		)	(57	)	—		(472		)	—			—			(472		)
Accumulating dividends	—	216,621			—		—		(268		)	—			(216,353		)	(216,621		)
Issuance of stock under employee stock purchase plan																					Issuance of stock under employee stock purchase plan	216	—		3,129		—		—		3,129
Stock-based compensation	—	—			—		—		332			—			—			332			Stock-based compensation	—	—		17,183		—		—		17,183
Balance at September 30, 2018	2,661	$	3,363,491		102,088		$	102	$	—		$	39,205		$	(1,108,832	)	$	(1,069,525	)
Balance at March 31, 2021																					Balance at March 31, 2021	315,404	$	315	$	3,124,493	$	61,462	$	(236,104)	$	2,950,166



	Total Fair Value
	(in thousands)
Current assets, including cash acquired	$	4,577
Deferred tax asset	1,462
Fixed assets	1,272
Identifiable intangible assets	18,412
Goodwill	41,789
Current liabilities	(1,628		)
Deferred revenue	(2,944		)
Total consideration	$	62,940



	Fair Value		Weighted-average useful life
	(in thousands)		(in years)
Developed product technologies	$	13,317	5
Customer relationships	4,805		4
Tradenames	290		3
Total identifiable intangible assets	$	18,412



	September 30, 2018							December 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net

	(in thousands)
Developed product technologies	$	1,010,952	$	(452,420	)	$	558,532	$	1,006,454	$	(324,196	)	$	682,258
Customer relationships	544,823		(166,597		)	378,226		546,207		(118,930		)	427,277
Intellectual property	764		(109		)	655		547		(59		)	488
Trademarks	84,800		(1,218		)	83,582		85,257		(1,075		)	84,182
Customer backlog	—		—			—		6,200		(5,906		)	294
Total intangible assets	$	1,641,339	$	(620,344	)	$	1,020,995	$	1,644,665	$	(450,166	)	$	1,194,499



	Fair Value Measurements at September 30, 2018 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)
Money market funds	$	67,100	$	—	$	—	$	67,100



	As of September 30, 2018

	(in thousands)
2018	$	4,975
2019	19,900
2020	19,900
2021	19,900
2022	19,900
Thereafter	1,890,500
Total minimum principal payments	$	1,975,075



	Number of Shares Outstanding		Weighted- Average Exercise Price		Aggregate Intrinsic Value (in thousands)		Weighted- Average Remaining Contractual Term (in years)
Outstanding balances at December 31, 2017	2,156,550		$	0.45
Options granted	1,327,475		3.40
Options exercised	(38,600	)	0.35
Options forfeited	(231,075	)	0.94
Options expired	(30,050	)	0.30
Outstanding balances at September 30, 2018	3,184,300		$	1.65
Options exercisable at September 30, 2018	618,250		$	0.41	$	5,980	8.17
Options vested and expected to vest at September 30, 2018	3,184,300		$	1.65	$	26,856	8.84



	Nine Months Ended September 30,
	2018
Weighted-average grant date fair value per share of options granted during the period	$	1.98
Aggregate intrinsic value of options exercised during the period	302
Aggregate fair value of options vested during the period	102



~~Delaware~~


~~(1)~~	Unrealized foreign currency (gains) losses primarily relate to the remeasurement of our intercompany loans and to a lesser extent, unrealized foreign currency (gains) losses on selected assets and liabilities.



	Payments Due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

	(in thousands)
Long-term debt obligations⁽¹⁾	$	2,358,050	$	16,950	$	33,900	$	33,900	$	2,273,300
Cash interest expense⁽¹⁾	854,933		155,832		309,474		305,567		84,060
Operating leases	144,049		16,607		32,549		28,762		66,131
Purchase obligations⁽²⁾	65,986		47,810		18,176		—		—
Related party consulting agreement⁽³⁾	50,986		10,000		20,000		20,000		986
Take Private deferred stock payments⁽⁴⁾	8,071		4,553		3,518		—		—
Acquisition related retention and deferred compensation	5,549		2,699		2,850		—		—
Transition tax payable⁽⁵⁾	120,793		6,545		19,327		19,327		75,594
Total⁽⁶⁾	$	3,608,417	$	260,996	$	439,794	$	407,556	$	2,500,071


~~(1)~~	Represents principal maturities of our Senior Secured First Lien Credit Facility and our Senior Secured Second Lien Floating Rate Note Agreement in effect at December 31, 2017. The estimated cash interest expense is based upon (i) an interest rate of 5.07% on our First Lien and (ii) an interest rate of 10.14% on the Second Lien Notes.


~~(2)~~	Purchase obligations primarily represent outstanding purchase orders for purchases of software license and support fees, marketing activities, hosting, corporate health insurance costs, accounting, legal and contractor fees and computer hardware and software costs.


~~(3)~~	~~Our consulting agreement with our Sponsors terminated in October 2018 upon the consummation of the IPO. For more information, see~~ ~~Note10. Related Party Transactionsin the~~ ~~Notes to Condensed Consolidated Financial Statements~~ ~~included in Item 1 of Part I of this Quarterly Report on Form 10-Q.~~


~~(5)~~	~~Represents the provisional one–time transition tax as a result of the Tax Act which we have elected to pay over eight years. See~~ ~~Note~~ ~~11. Income Taxes~~ ~~in the~~ ~~Notes to Condensed Consolidated Financial Statements~~ ~~included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional details of the impact of the Tax Act.~~


~~(6)~~	Other long-term obligations on our balance sheet at December 31, 2017 included non-current income tax liabilities of $22.5 million, which related primarily to unrecognized tax benefits. We have not included this amount in the table above because we cannot reasonably estimate the period during which this obligation may be incurred, if at all.



	Class A Common Stock			Class B Common Stock
Period	Number of Shares Purchased (1)	Average Price Paid Per Share (2)		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, 2018	—	$	—	16,000	$	0.27	—	$	—
August 1-31, 2018	14.85	1,179.85		126,054	3.58		—	—
September 1-30, 2018	—	—		12,000	3.54		—	—
Total	14.85			154,054			—


~~(1)~~	All repurchases relate to employee held common stock and common stock-based incentive awards that are subject to repurchase in the event the stockholder ceases to be employed or engaged (as applicable) by the Company for any reason or in the event of a change of control or due to certain regulatory burdens.


~~(2)~~	~~Class A common stock price paid includes the $1,000 per share liquidation value plus accrued dividends.~~



Exhibit Number		Exhibit Title
3.1		Third Amended and Restated Certificate of Incorporation as currently in effect (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 10-Q (File No. 001-38711), filed with the Securities and Exchange Commission on November 27, 2018)
3.2		Amended and Restated Bylaws as currently in effect (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 10-Q (File No. 001-38711), filed with the Securities and Exchange Commission on November 27, 2018)
~~4.1~~10.1#		~~Amended and Restated Stockholders'~~Transition Agreement, dated ~~October 18, 2018,~~as of January 1, 2021, between SolarWinds Corporation and Kevin B. Thompson (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-38711), filed with the Securities and ~~among the Company and the stockholders' named therein~~Exchange Commission on January 6, 2021)
~~10.1~~10.2#		Amendment to Employment Agreement, dated as of January 4, 2021, between SolarWinds Corporation ~~2018 Equity Incentive Plan~~ and ~~forms of agreements thereunder~~Sudhakar Ramakrishna (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-38711), filed with the Securities and Exchange Commission on January 6, 2021)
~~10.2~~10.3#		Second Amendment to Employment Agreement, dated March 9, 2021, between SolarWinds Corporation ~~2018 Employee Stock Purchase Plan~~and Sudhakar Ramakrishna (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-38711), filed with the Securities and Exchange Commission on March 11, 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.INS~~101*		~~XBRL Instance Document~~Interactive Data Files (formatted as Inline XBRL)
~~101.SCH~~104*		Cover Page Interactive Data File (formatted as Inline XBRL ~~Taxonomy Extension Schema Document~~
~~101.CAL~~	~~XBRL Taxonomy Calculation Linkbase Document~~
~~101.DEF~~	~~XBRL Taxonomy Definition Linkbase Document~~
~~101.LAB~~	~~XBRL Taxonomy Label Linkbase Document~~
~~101.PRE~~	~~XBRL Taxonomy Presentation Linkbase Document~~and contained in Exhibit 101)


#			Indicates management contract or compensatory plan or arrangement.
*			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


				SOLARWINDS CORPORATION

Dated:			May 10, 2021	~~SOLARWINDS CORPORATION~~
By:
~~Dated:~~	~~November 27, 2018~~	~~By:~~	/s/ J. Barton Kalsu

					J. Barton Kalsu
					Chief Financial Officer
					(Principal Financial and Accounting Officer)