UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
þ

☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018March 31, 2023
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                    
Commission File Number: 001-38711
SolarWinds Corporation
(Exact name of registrant as specified in its charter)
Delaware
81-0753267
Delaware
81-0753267
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
7171 Southwest Parkway
Building 400
Austin, Texas 78735
(512) 682.9300
(Address and telephone number of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, $0.001 par valueSWINew 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 filerþ☐Smaller reporting company¨☐
Emerging growth companyþ☐
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, 309,943,622May 2, 2023, 163,697,236 shares of common stock, par value $0.001 per share, were outstanding.





SOLARWINDS CORPORATION


Table of Contents

PART I - FINANCIAL INFORMATION
Page
Item 1.
45
45
56
7
Stockholders' DeficitEquity for the ninethree month periodperiods ended September 30, 2018March 31, 2023 and 2022
8
9
10
1. Organization and Nature of Operations
2. Summary of Significant Accounting Policies
3. Investments
4. Goodwill
5. Fair Value Measurements
6. Debt
7. Loss Per Share
8. Income Taxes
9. Commitment and Contingencies
Item 2.
2320
Item 3.
3832
Item 4.
4033
PART II - OTHER INFORMATION
Item 1.
4135
Item 1A.
4135
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds6.
36
Item 6.Exhibits
37
SignaturesCertifications
43
Certifications



2

Safe Harbor Cautionary Statement
This quarterly reportQuarterly 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, revenue growth, revenue mix, cost of revenue, operating expenses, operating income, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA and adjusted EBITDA margin, cash flows and effective income tax rate;
•expectations regarding the impact of the cyberattack on our Orion Software Platform and internal systems (the "Cyber Incident") on our business and reputation 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 investment in product development and our expectations about the results of those efforts;efforts and our ability to convert our customers to subscription products;
•expectations concerning acquisitions and opportunities resultingregarding our evolution from our acquisitions;monitoring to observability;
•expectations regarding hiring additional personnel globally in the areas of sales and marketing and research and development;
•expectations regarding the impact of macroeconomic conditions, including the war in Ukraine, geopolitical tensions involving China, inflation, instability in the banking sector and financial services industry, foreign currency exchange rates and the global COVID-19 pandemic on our business and financial results;
•intentions regarding our international earnings and investment of those earnings in international operations;
•expectations regarding our capital expenditures;
•expectations concerning acquisitions and opportunities resulting from our acquisitions; 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)
•numerous risks related to the Cyber Incident, including with respect to (1) numerous financial, legal, reputational and other risks to us related to the Cyber Incident, including risks that the incident or SolarWinds’ response thereto, may result in the loss of business as a result of termination or non-renewal of agreements or reduced purchases or upgrades of our products, reputational damage adversely affecting customer, partner and vendor relationships and investor confidence, increased attrition of personnel and distraction of key and other personnel, indemnity obligations, damages for contractual breach, penalties for violation of applicable laws or regulations and the incurrence of other liabilities, (2) litigation and investigation risks related to the Cyber Incident, including as a result of U.S. regulatory investigations and enforcement actions, including any proceeding that may be commenced by the Securities and Exchange Commission relating to the previously disclosed Wells Notice, and exposure to judgements, fines, settlements and other costs and liabilities related thereto, (3) risks that our insurance coverage may not be available or sufficient to compensate for all liabilities we incur related to these matters and (4) the possibility that our steps to secure our internal environment, improve our product development environment and ensure the security and integrity of the software that we deliver to our customers may not be successful or sufficient to protect against future threat actors or attacks or be perceived by existing and prospective customers as sufficient to address the harm caused by Cyber Incident;
•other risks related to cyber security, including that we may experience other security incidents or have vulnerabilities in our systems and services exploited, whether through the actions or inactions of our employees or otherwise, which may result in compromises or breaches of our and our customers’ systems or, theft or misappropriation of our and our customers’ confidential, proprietary or personal 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 evolving breadth of our sales motion and challenges, investments and additional costs associated with increased selling efforts toward enterprise customers and adopting a subscription-first approach;
3

•risks relating to increased investments in, and the timing of, our transformation from monitoring to observability;
•risks related to any shifts in our revenue mix and the timing of how we recognize revenue as we transition to a subscription-first model;
•regulatory risks, including risks related to evolving regulation of artificial intelligence, machine learning and the receipt, collection, storage, processing and transfer of data;
•potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity;
•any of the following factors either generally or as a result of the impacts of global macroeconomic conditions, including the war in Ukraine, geopolitical tensions involving China, inflation, instability in the banking sector and financial services industry, foreign currency exchange rates and the COVID-19 pandemic on the global economy or on our business operations and financial condition or on the business operations and financial conditions of our customers, their end-customers and our prospective customers:
◦reductions in information technology spending or delays in purchasing decisions by 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 or to convert our existing customers to subscription products;
◦any decline in our renewal or net retention rates or any delay or loss of U.S. government sales;
◦the inability to generate significant volumes of high qualityhigh-quality sales leads from our digital marketing initiatives and convert such leads into new business at acceptable conversion rates; (b)
◦the inability to selltiming and adoption of new products, to new customersproduct upgrades or to sell additional productspricing model changes by us or upgrades to our existing customers; (c) any declinecompetitors;
◦changes in our renewal or net retentioninterest 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)operations and any international expansion efforts; and
◦ongoing sanctions and disruptions resulting from 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) war in Ukraine;
•the possibility that our operating income could fluctuate and may decline as percentage of revenue as we make further expenditures to expand our operationsproduct offerings and sales motion in order to support additional growth in our business; (j) potential foreign exchange gains
•our ability to compete effectively in the markets we serve and lossesthe risks of increased competition as we enter new markets;
•our ability to attract, retain and motivate employees;
•risks related to expensesthe spin-off of the N-able business into a newly created and sales denominatedseparately traded public company, including that we could incur significant liability if the separation is determined to be a taxable transaction or potential indemnification liabilities incurred in currencies other thanconnection with the functional currency of anseparation could materially affect our business and financial results;
•our inability to successfully identify, complete and integrate acquisitions and manage our growth effectively;
•risks associated entity;with our status as a controlled company; 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 withAnnual 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, 2022.
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 reportQuarterly 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.

Investors and others should note that we announce material information to our investors using our investor relations website (https://investors.solarwinds.com), SEC filings, press releases, public conference calls and webcasts. We use these channels as well as social media to communicate with the public about our company, our business and other matters. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the social media channels listed on our investor relations website.

In this report “SolarWinds,” “Company,” “we,” “us” and “our” refer to SolarWinds Corporation and its consolidated subsidiaries.
4

PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
SolarWinds Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share and per share information)
(Unaudited)
March 31,December 31,
20232022
Assets
Current assets:
Cash and cash equivalents$129,180 $121,738 
Short-term investments11,553 27,114 
Accounts receivable, net of allowances of $1,772 and $1,173 as of March 31, 2023 and December 31, 2022, respectively108,064 100,204 
Income tax receivable1,316 987 
Prepaid and other current assets63,906 57,350 
Total current assets314,019 307,393 
Property and equipment, net23,447 26,634 
Operating lease assets52,739 61,418 
Deferred taxes136,958 134,922 
Goodwill2,388,999 2,380,059 
Intangible assets, net228,272 243,980 
Other assets, net47,015 45,600 
Total assets$3,191,449 $3,200,006 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$8,848 $14,045 
Accrued liabilities and other35,219 68,284 
Current operating lease liabilities15,013 15,005 
Accrued interest payable306 579 
Income taxes payable14,909 11,841 
Current portion of deferred revenue343,594 337,541 
Current debt obligation12,450 9,338 
Total current liabilities430,339 456,633 
Long-term liabilities:
Deferred revenue, net of current portion41,992 38,945 
Non-current deferred taxes10,488 8,582 
Non-current operating lease liabilities55,968 59,235 
Other long-term liabilities74,586 74,193 
Long-term debt, net of current portion1,192,276 1,192,765 
Total liabilities1,805,649 1,830,353 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.001 par value: 1,000,000,000 shares authorized and 163,666,768 and 161,928,532 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively164 162 
Preferred stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively— — 
Additional paid-in capital2,638,670 2,627,370 
Accumulated other comprehensive loss(37,648)(48,114)
Accumulated deficit(1,215,386)(1,209,765)
Total stockholders’ equity1,385,800 1,369,653 
Total liabilities and stockholders’ equity$3,191,449 $3,200,006 
 September 30, December 31,
 2018 2017
Assets   
Current assets:   
Cash and cash equivalents$278,333
 $277,716
Accounts receivable, net of allowances of $3,027 and $2,065 as of September 30, 2018 and December 31, 2017, respectively98,035
 85,133
Income tax receivable1,774
 1,713
Prepaid and other current assets16,103
 24,331
Total current assets394,245
 388,893
Property and equipment, net37,870
 34,209
Deferred taxes4,738
 4,425
Goodwill3,699,311
 3,695,640
Intangible assets, net1,020,995
 1,194,499
Other assets, net11,178
 9,398
Total assets$5,168,337
 $5,327,064
Liabilities, redeemable convertible common stock and stockholders’ deficit   
Current liabilities:   
Accounts payable$5,831
 $9,657
Accrued liabilities and other50,611
 39,593
Accrued interest payable1,116
 11,632
Income taxes payable2,536
 9,049
Current portion of deferred revenue259,456
 241,513
Current debt obligation19,900
 16,950
Total current liabilities339,450
 328,394
Long-term liabilities:   
Deferred revenue, net of current portion24,721
 20,278
Non-current deferred taxes152,397
 167,523
Other long-term liabilities141,531
 148,121
Long-term debt, net of current portion2,216,272
 2,245,622
Total liabilities2,874,371
 2,909,938
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, respectively3,363,491
 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, respectively102
 101
Accumulated other comprehensive income (loss)39,205
 75,294
Accumulated deficit(1,108,832) (805,156)
Total stockholders’ deficit(1,069,525) (729,761)
Total liabilities, redeemable convertible common stock and stockholders’ deficit$5,168,337
 $5,327,064
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

SolarWinds Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share information)
(Unaudited)
Three Months Ended March 31,
20232022
Revenue:
Subscription$54,357 $38,747 
Maintenance114,478 115,495 
Total recurring revenue168,835 154,242 
License17,141 22,626 
Total revenue185,976 176,868 
Cost of revenue:
Cost of recurring revenue18,394 17,831 
Amortization of acquired technologies3,436 17,227 
Total cost of revenue21,830 35,058 
Gross profit164,146 141,810 
Operating expenses:
Sales and marketing65,916 61,044 
Research and development23,791 23,422 
General and administrative25,601 32,664 
Amortization of acquired intangibles13,005 13,239 
Total operating expenses128,313 130,369 
Operating income35,833 11,441 
Other income (expense):
Interest expense, net(28,581)(16,087)
Other expense, net(89)(169)
Total other expense(28,670)(16,256)
Income (loss) before income taxes7,163 (4,815)
Income tax expense (benefit)12,784 (156)
Net loss$(5,621)$(4,659)
 Net loss available to common stockholders$(5,621)$(4,659)
Net loss available to common stockholders per share:
Basic loss per share$(0.03)$(0.03)
Diluted loss per share$(0.03)$(0.03)
Weighted-average shares used to compute net loss available to common stockholders per share:
Shares used in computation of basic loss per share162,773 159,847 
Shares used in computation of diluted loss per share162,773 159,847 
 Three Months Ended September 30, Nine Months Ended
September 30,
 2018 2017 2018 2017
Revenue:       
Subscription$67,713
 $55,361
 $196,004
 $155,402
Maintenance101,817
 93,258
 297,584
 261,461
Total recurring revenue169,530
 148,619
 493,588
 416,863
License43,747
 40,493
 118,320
 112,815
Total revenue213,277
 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 technologies43,835
 43,513
 132,121
 127,781
Total cost of revenue61,857
 58,703
 184,738
 172,660
Gross profit151,420
 130,409
 427,170
 357,018
Operating expenses:(1) 
       
Sales and marketing56,926
 50,942
 166,022
 152,070
Research and development23,274
 20,521
 71,800
 63,414
General and administrative19,597
 15,080
 59,849
 50,865
Amortization of acquired intangibles16,507
 17,035
 50,288
 49,910
Total operating expenses116,304
 103,578
 347,959
 316,259
Operating income35,116
 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 share102,078
 100,759
 101,915
 100,330
Shares used in computation of diluted loss per share102,078
 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 marketing115
 10
 234
 26
Research and development21
 6
 48
 14
General and administrative22
 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

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

6

SolarWinds Corporation
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
Three Months Ended March 31,
Three Months Ended September 30, Nine Months Ended
September 30,		20232022
2018 2017 2018 2017
Net income (loss)$(398) $1,637
 $(87,323) $(44,105)
Other comprehensive income (loss):       
Net lossNet loss$(5,621)$(4,659)
Other comprehensive loss:Other comprehensive loss:
Foreign currency translation adjustment(10,520) 37,414
 (36,089) 125,392
Foreign currency translation adjustment10,383 (16,895)
Unrealized gains on investments, net of income tax expense of $21 and $— for the three months ended March 31, 2023 and 2022, respectivelyUnrealized gains on investments, net of income tax expense of $21 and $— for the three months ended March 31, 2023 and 2022, respectively83 — 
Other comprehensive income (loss)(10,520) 37,414
 (36,089) 125,392
Other comprehensive income (loss)10,466 (16,895)
Comprehensive income (loss)$(10,918) $39,051
 $(123,412) $81,287
Comprehensive income (loss)$4,845 $(21,554)
The accompanying notes are an integral part of these condensed consolidated financial statements.


7

SolarWinds Corporation
Condensed Consolidated Statements of Redeemable Convertible Class A Common Stock and
Stockholders' DeficitEquity
(In thousands, except per share information)thousands)
(Unaudited)
Three Months Ended March 31, 2023
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 SharesAmount
Balance at December 31, 20172,661
 3,146,887
  100,734
 101
 —
 75,294
 (805,156) (729,761)
Balance at December 31, 2022Balance at December 31, 2022161,929$162 $2,627,370 $(48,114)$(1,209,765)$1,369,653 
Foreign currency translation adjustment—
 —
  —
 —
 —
 (36,089) —
 (36,089)Foreign currency translation adjustment— — — 10,383 — 10,383 
Unrealized gains on investments, net of taxesUnrealized gains on investments, net of taxes— — — 83 — 83 
Net loss—
 —
  —
 —
 —
 —
 (87,323) (87,323)Net loss— — — — (5,621)(5,621)
Comprehensive loss               (123,412)
Comprehensive incomeComprehensive income4,845 
Exercise of stock options—
 —
  39
 —
 13
 —
 —
 13
Exercise of stock options6 — 8 — — 8 
Restricted stock units issued, net of shares withheld for taxesRestricted stock units issued, net of shares withheld for taxes1,531 2 (6,993)— — (6,991)
Issuance of stock—
 —
  1,372
 1
 395
 —
 —
 396
Issuance of stock3 — 18 — — 18 
Repurchase of stock—
 (17)  (57) —
 (472) —
 —
 (472)
Accumulating dividends—
 216,621
  —
 —
 (268) —
 (216,353) (216,621)
Issuance of stock under employee stock purchase planIssuance of stock under employee stock purchase plan198 — 1,711 — — 1,711 
Stock-based compensation—
 —
  —
 —
 332
 —
 —
 332
Stock-based compensation— — 16,556 — — 16,556 
Balance at September 30, 20182,661
 $3,363,491
  102,088
 $102
 $—
 $39,205
 $(1,108,832) $(1,069,525)
Balance at March 31, 2023Balance at March 31, 2023163,667 $164 $2,638,670 $(37,648)$(1,215,386)$1,385,800 
Three Months Ended March 31, 2022

Common Stock		Additional
Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Accumulated
Deficit		Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 2021159,176$159 $2,566,783 $1,306 $(280,352)$2,287,896 
Foreign currency translation adjustment— — — (16,895)— (16,895)
Net loss— — — — (4,659)(4,659)
Comprehensive loss(21,554)
Exercise of stock options16 — 12 — — 12 
Restricted stock units issued, net of shares withheld for taxes1,063 1 (6,408)— — (6,407)
Issuance of stock51 — 216 — — 216 
Issuance of stock under employee stock purchase plan150 — 1,753 — — 1,753 
Stock-based compensation— — 15,462 — — 15,462 
Balance at March 31, 2022160,456$160 $2,577,818 $(15,589)$(285,011)$2,277,378 

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

8


SolarWinds Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended September 30,Three Months Ended March 31,
2018 201720232022
Cash flows from operating activities   Cash flows from operating activities
Net loss$(87,323) $(44,105)Net loss$(5,621)$(4,659)
Adjustments to reconcile net loss to net cash provided by operating activities:   Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization193,903
 187,086
Depreciation and amortization22,018 33,928 
Provision for doubtful accounts1,991
 2,140
Provision for losses on accounts receivableProvision for losses on accounts receivable594 297 
Stock-based compensation expense332
 49
Stock-based compensation expense16,234 15,269 
Amortization of debt issuance costs9,272
 14,226
Amortization of debt issuance costs2,666 2,258 
Loss on extinguishment of debt60,590
 18,559
Deferred taxes(14,085) (19,776)Deferred taxes1,906 (6,392)
(Gain) loss on foreign currency exchange rates12,747
 (49,648)
Other non-cash expenses (benefits)1,451
 3,452
Loss on foreign currency exchange ratesLoss on foreign currency exchange rates184 280 
Other non-cash expensesOther non-cash expenses5,920 211 
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(7,930)(3,332)
Income taxes receivable(131) 1,470
Income taxes receivable(312)(243)
Prepaid and other current assets(1,931) 4,497
Prepaid and other assetsPrepaid and other assets(6,339)8,073 
Accounts payable(3,958) (3,130)Accounts payable(5,205)(138)
Accrued liabilities and other9,745
 (8,783)Accrued liabilities and other(33,587)(8,482)
Accrued interest payable(10,516) 255
Accrued interest payable(273)18 
Income taxes payable(16,112) 768
Income taxes payable3,485 (822)
Deferred revenue22,291
 24,249
Deferred revenue7,059 3,876 
Other long-term liabilities1,779
 439
Other long-term liabilities— 116 
Net cash provided by operating activities166,082
 135,899
Net cash provided by operating activities799 40,258 
Cash flows from investing activities   Cash flows from investing activities
Maturities of investments—
 2,000
Maturities of investments15,035 — 
Purchases of property and equipment(12,794) (6,340)Purchases of property and equipment(342)(1,180)
Purchases of intangible assets(2,082) (3,158)Purchases of intangible assets(3,138)(3,120)
Acquisitions, net of cash acquired(60,578) (23,999)Acquisitions, net of cash acquired— (6,500)
Proceeds from sale of cost method investment10,715
 —
Net cash used in investing activities(64,739) (31,497)
Other investing activitiesOther investing activities564 — 
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities12,119 (10,800)
Cash flows from financing activities   Cash flows from financing activities
Proceeds from issuance of common stock and incentive restricted stock1,723
 108
Proceeds from issuance of common stock under employee stock purchase planProceeds from issuance of common stock under employee stock purchase plan1,711 1,753 
Repurchase of common stock and incentive restricted stock(568) (374)Repurchase of common stock and incentive restricted stock(6,991)(6,419)
Exercise of stock options13
 —
Exercise of stock options8 12 
Premium paid on debt extinguishment(22,725) —
Proceeds from credit agreement626,950
 3,500
Repayments of borrowings from credit agreement(694,925) (32,714)Repayments of borrowings from credit agreement— (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(5,272)(9,629)
Effect of exchange rate changes on cash and cash equivalents(3,439) 8,042
Effect of exchange rate changes on cash and cash equivalents(204)(727)
Net increase in cash and cash equivalents617
 81,676
Net increase in cash and cash equivalents7,442 19,102 
Cash and cash equivalents   Cash and cash equivalents
Beginning of period277,716
 101,643
Beginning of period121,738 732,116 
End of period$278,333
 $183,319
End of period$129,180 $751,218 
   
Supplemental disclosure of cash flow information   Supplemental disclosure of cash flow information
Cash paid for interest$114,148
 $109,203
Cash paid for interest$26,740 $13,907 
Cash paid for income taxes$8,045
 $3,741
Cash paid for income taxes$6,566 $6,259 

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

9
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”Company,” “we,” “us” and “our”) is a leading provider of simple, powerful and secure observability and information technology, or IT, infrastructure management software. ReferencesOur solutions are designed 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 optimize performance of their IT environments, no matter where they are in their digital transformation journeys. Our business is focused on building products designed to enable technology professionals and leaders to securely monitor and manage the performance of their IT environments, whether on-premise,they be on-premises, in the cloud or in hybrid infrastructure models.deployments. Our approach which we referhas enabled us to asserve the SolarWinds Model, combines powerful, scalable, affordable, easy to use products with high-velocity, low-touch sales. We’ve builtentire IT market and our business to enable the technology professionals who use our products to manage “all things IT.” Our range of customers has expanded over time frominclude network and systems engineers, to a broad set of technology professionals, such as database administrators, storage administrators, web operatorsDevOps, SecOps and DevOps professionals, as well as managed service providers, or MSPs. Our SolarWinds Model enables us todesk professionals. We sell our products for use in organizations across industries 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 Eventsfor 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,("GAAP"), and the reporting regulations of the Securities and Exchange Commission or the SEC.(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 our final prospectus dated October 18, 2018 and filed with the SEC on October 22, 2018 pursuant to Rule 424(b) of the Securities Act of 1933, as amended.2022.
Use of Estimates
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
•loss contingencies.
Foreign Currency TranslationRecently Issued Accounting Pronouncements
The functional currencyDuring the three months ended March 31, 2023, there have been no recently issued accounting pronouncements that are expected to have a material impact to our financial position, results of operations or cash flows.
Goodwill
Our goodwill was derived from the take private transaction in early 2016 ("Take Private") and acquisitions where the purchase price exceeded the fair value of the net identifiable assets acquired. Goodwill is tested for impairment at least annually during the fourth quarter or more frequently if events or circumstances indicate it is more likely than not that the fair value of our foreign subsidiariesreporting unit is less than its carrying value.
During the year ended December 31, 2022, we experienced declines in our market capitalization and after considering the impact of current macroeconomic conditions on the assumptions used in determining the fair value of our reporting unit, determined in accordance with authoritative guidance issued byit appropriate to perform interim quantitative assessments of our reporting unit as of June 30, 2022 and September 30, 2022. As a result of the Financial Accounting Standards Board, or FASB. We translate assetsinterim goodwill impairment analyses, our reporting unit was determined to have a carrying value that exceeded its fair value and liabilities for these subsidiaries at exchange rates in effect at the balance sheet date. We translate incometherefore, we recorded non-cash goodwill impairment charges of $612.4 million and expense accounts for these subsidiaries at the average monthly exchange rates$278.7 million for the periods. We record resulting translation adjustments as a componentthree months ended June 30, 2022 and September 30, 2022, respectively.
Throughout the period since the quantitative assessment on September 30, 2022, there has been no unanticipated changes or negative indicators in the qualitative factors or valuation assumptions that would negatively impact the fair value 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

10
SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)



denominated in foreign currencies forreporting unit. As such, we determined there were no indicators of impairment and that it was more likely than not that 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 lightfair value of our global treasury plansreporting unit was greater than its carrying value at March 31, 2023.
Fair value determination of our reporting unit requires considerable judgment and is sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the new Tax Act (as defined below)estimates and have determined there is no needassumptions made for purposes of the quantitative goodwill impairment tests will prove to settlebe an accurate prediction of future results. Examples of events or circumstances that could reasonably be expected to negatively affect the principal related tounderlying key assumptions and ultimately impact the loan. The intercompany loan has been designated as long-term based on the assertion that settlement is not planned or anticipatedestimated fair value of our reporting unit may include such items as: (i) volatility in the foreseeable future. Therefore, beginning on July 1, 2018,equity and debt markets or other macroeconomic factors, (ii) an increase in the foreign currency transaction gainsweighted-average cost of capital due to further increases in interest rates, (iii) timing 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 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 adoptionsuccess of new or revised financial accounting standards permitted underproducts introduced in our evolution from monitoring to observability, (iv) 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 have been evaluating theongoing impact of the new standardCyber Incident including a decrease in future cash flows due to lower than expected license sales or maintenance renewals, higher than expected customer attrition, higher than estimated costs to respond and adverse loss exposure from claims, fines or penalties resulting from government investigations and litigation; and (v) fluctuations in foreign currency exchange rates that may negatively impact our financial statements and accompanying disclosuresreported results of operations. Accordingly, if our current cash flow assumptions are not realized, we experience further sustained declines in our stock price or market capitalization, or there are further declines in the notes tomarket multiplies used in our consolidated financial statements. Our assessment of the impact includesanalysis, it is possible that an evaluation of the five-step process set forthadditional impairment charge may be recorded in the new standard along with the enhancement of disclosures that willfuture, which could 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.

11
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.material.
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.
We determine the fair value of our available-for-sale securities based on inputs obtained from multiple pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. However, we classify all of our available-for-sale securities as being valued using Level 2 inputs. The valuation techniques used to determine the fair value of our financial instruments having Level 2 inputs are derived from unadjusted, non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models. Our procedures include controls to ensure that appropriate fair values are recorded by a review of the valuation methods and assumptions.
See Note 5. 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.

12
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 $2.2 million of offering costs in the consolidated balance sheet. As of December 31, 2017, we had not yet capitalized any offering costs in the consolidated balance sheet.
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component are summarized below:
Foreign Currency
Translation Adjustments		Unrealized Gain (Loss) on Investments,
 Net of Tax		Accumulated Other Comprehensive
 Income (Loss)
(in thousands)
Balance at December 31, 2022$(47,996)$(118)$(48,114)
Other comprehensive gain before reclassification10,383 83 10,466 
Amount reclassified from accumulated other comprehensive income (loss)— — — 
Net current period other comprehensive income10,383 83 10,466 
Balance at March 31, 2023$(37,613)$(35)$(37,648)
11
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 Revenue
Details of our total deferred revenue balance are as follows:
Total Deferred Revenue
(in thousands)
Balance at December 31, 2022$376,486 
Deferred revenue recognized(130,163)
Additional amounts deferred139,263 
Balance at March 31, 2023$385,586 
We expect to recognize revenue related to these remaining performance obligations as of March 31, 2023 as follows:
Revenue Recognition Expected by Period
TotalLess than 
1 year		1-3 yearsMore than
3 years
(in thousands)
Expected recognition of deferred revenue$385,586 $343,594 $40,812 $1,180 
Deferred Commissions
Details of our deferred commissions balance are as follows:
Deferred Commissions
(in thousands)
Balance at December 31, 2022$22,540 
Commissions capitalized2,538 
Amortization recognized(1,979)
Balance at March 31, 2023$23,099 
March 31,December 31,
20232022
(in thousands)
Classified as:
Current$7,334 $6,936 
Non-current15,765 15,604 
Total deferred commissions$23,099 $22,540 
Cost of Revenue
Amortization of acquired technologies. Acquired Technologies. Amortization of acquired technologies included in cost of revenue relate to our licensed products and subscription productsofferings as follows:
Three Months Ended March 31,
20232022
(in thousands)
Amortization of acquired license technologies$922 $14,483 
Amortization of acquired subscription technologies2,514 2,744 
Total amortization of acquired technologies$3,436 $17,227 
The decrease in amortization of acquired license technologies for the three months ended March 31, 2023 in comparison to the same period in 2022 was primarily due to certain intangible assets acquired in connection with the Take Private being fully amortized during the three months ended March 31, 2022.
12
 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 technologies7,774
 7,281
 23,147
 21,294
Total amortization of acquired technologies$43,835
 $43,513
 $132,121
 $127,781
SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

3. AcquisitionsInvestments
In the nine months ended September 30, 2018, we completed acquisitions for a combined purchase priceOur short-term investments as of approximately $62.9 million in cash, including $2.4 millionMarch 31, 2023 and December 31, 2022 consist 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 generalavailable-for-sale securities, such as U.S. Treasury securities, corporate bonds, commercial paper and administrative expense for the nine months ended September 30, 2018. Goodwill for these acquisitions is not deductible for tax purposes.asset-backed securities.
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.following table summarizes our short-term investments:
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.



March 31, 2023
CostGross Unrealized GainsGross Unrealized LossesFair Value
(in thousands)
Short-term investments:
Available-for-sale securities:
U.S. Treasury securities$3,014 $— $(13)$3,001 
Corporate bonds8,584 — (32)8,552 
Total short-term investments$11,598 $— $(45)$11,553 
December 31, 2022
CostGross Unrealized GainsGross Unrealized LossesFair Value
(in thousands)
Short-term investments:
Available-for-sale securities:
U.S. Treasury securities$6,013 $— $(43)$5,970 
Corporate bonds19,887 — (105)19,782 
Commercial paper798 — — 798 
Asset-backed securities565 — (1)564 
Total short-term investments$27,263 $— $(149)$27,114 
13
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 asset1,462
Fixed assets1,272
Identifiable intangible assets18,412
Goodwill41,789
Current liabilities(1,628)
Deferred revenue(2,944)
Total consideration$62,940
The following table summarizes the fair value of our available-for-sale securities with unrealized losses aggregated by type of investment instrument and length of time those securities have been in a continuous unrealized loss position:
March 31, 2023
Less Than 12 Months12 Months or GreaterTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
(in thousands)
As of March 31, 2023
U.S. Treasury securities$3,001 $(13)$— $— $3,001 $(13)
Corporate bonds8,552 (32)— — 8,552 (32)
$11,553 $(45)$— $— $11,553 $(45)
December 31, 2022
Less Than 12 Months12 Months or GreaterTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
(in thousands)
As of December 31, 2022
U.S. Treasury securities$5,970 $(43)$— $— $5,970 $(43)
Corporate bonds19,782 (105)— — 19,782 (105)
Asset-backed securities564 (1)— — 564 (1)
$26,316 $(149)$— $— $26,316 $(149)
The following table summarizes the acquired identifiable intangible assets and weighted-average useful life:contractual underlying maturities of our available-for-sale securities:
March 31, 2023
CostFair Value
(in thousands)
Due in one year or less$11,598 $11,553 
 Fair Value Weighted-average useful life
 (in thousands) (in years)
Developed product technologies$13,317
 5
Customer relationships4,805
 4
Tradenames290
 3
Total identifiable intangible assets$18,412
  
4. Goodwill and Intangible Assets
Goodwill
The following table reflects the changes in goodwill for the ninethree months ended September 30, 2018:March 31, 2023:
(in thousands)
Balance at December 31, 2022$2,380,059 
Foreign currency translation8,940 
Balance at March 31, 2023$2,388,999 
 (in thousands)
Balance at December 31, 2017$3,695,640
Acquisitions41,789
Foreign currency translation and other adjustments(38,118)
Balance at September 30, 2018$3,699,311
As of March 31, 2023, the accumulated goodwill impairment on our condensed consolidated balance sheet was $895.1 million.
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.

14
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 relationships544,823
 (166,597) 378,226
 546,207
 (118,930) 427,277
Intellectual property764
 (109) 655
 547
 (59) 488
Trademarks84,800
 (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, 2018March 31, 2023 and December 31, 2017.2022. There have been no transfers between fair value measurement levels during the ninethree months ended September 30, 2018.March 31, 2023.
Fair Value Measurements at
March 31, 2023 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)
Cash equivalents:
Money market funds$73,771 $— $— $73,771 
Total cash equivalents73,771 — — 73,771 
Short-term investments:
U.S. Treasury securities— 3,001 — 3,001 
Corporate bonds—8,552—8,552 
Total short-term investments— 11,553 — 11,553 
Total assets$73,771 $11,553 $— $85,324 
 
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, 2022 Using
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
(in thousands)
Cash equivalents:
Money market funds$48,833 $— $— $48,833 
Total cash equivalents48,833 — — 48,833 
Short-term investments:
US Treasury bonds— 5,970 — 5,970 
Corporate bonds— 19,782 — 19,782 
Commercial paper— 798 — 798 
Asset backed securities— 564 — 564 
Total short-term investments— 27,114 — 27,114 
Total assets$48,833 $27,114 $— $75,947 
 
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, 2018March 31, 2023 and December 31, 2017,2022, 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. Debt for additional information regarding our debt.

The fair value of our non-financial assets and liabilities, which include goodwill, intangible assets and property, plant and equipment, are measured on a non-recurring basis. Fair value adjustments are made in the period an impairment charge is recognized. The fair value of our reporting unit and indefinite-lived intangible asset are classified as Level 3 within the fair value hierarchy due to the significant unobservable inputs developed using company-specific information.
15
SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)



6. Debt
Debt Agreements
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 20241,975,075
 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 2025315,000
 9.49% —
 —%
Total principal amount2,290,075
   2,358,050
  
Unamortized discount and debt issuance costs(53,903)   (95,478)  
Total debt2,236,172
   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,
20232022
AmountEffective RateAmountEffective Rate
(in thousands, except interest rates)
Revolving credit facility$— — %$— — %
First Lien Term Loan (as amended) due Feb 20271,245,000 8.81 %1,245,000 8.32 %
Total principal amount1,245,000 1,245,000 
Unamortized discount and debt issuance costs(40,274)(42,897)
Total debt1,204,726 1,202,103 
Less: Current portion of long-term debt(12,450)(9,338)
Total long-term debt$1,192,276 $1,192,765 
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 aOur 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.
Theor First Lien Credit Agreement, provides for senior secured first lien credit facilities, consisting as of September 30, 2018 of:the following:
•a $1.99$1.245 billion U.S. dollar term loan, or First Lien Term Loan, with a final maturity date of February 5, 2024;2027; and
•a $125.0$130.0 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$112.5 million multicurrency tranche and (ii) a $25.0$17.5 million tranche available only in U.S. dollars, of which $7.5 million haswith a final maturity date of February 5, 2021 and $17.5the earlier of: November 23, 2027 or, in the event that there are more than $150.0 million has a finalof the First Lien Term Loan outstanding on the 91st day prior to maturity date of February 5, 2022.the first lien term loans, the 91st day prior to the maturity date of the First Lien Term Loan.
Borrowings under our Revolving Credit Facility bear interest at a floating rate which can be,is, at our option, either (1) a Eurodollarsecured overnight financing rate (“SOFR”) 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%.1.75%, respectively. 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. The EurodollarSOFR 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 EurodollarSOFR rate for a specified interest period plus an applicable margin of 3.00%4.00% or (2) a base rate plus an applicable margin of 2.00%3.00%. The applicable margins for Eurodollar and base rate borrowings are each subject to a reduction to 2.75% and 1.75%, respectively, based

16
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. The EurodollarSOFR 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 LIBORSOFR rate 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, 2023, 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:
16
 As of September 30, 2018
  
 (in thousands)
2018$4,975
201919,900
202019,900
202119,900
202219,900
Thereafter1,890,500
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).

17
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
Common Stock
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.

18
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, 20172,156,550
 $0.45
    
Options granted1,327,475
 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, 20183,184,300
 $1.65
    
Options exercisable at September 30, 2018618,250
 $0.41
 $5,980
 8.17
Options vested and expected to vest at September 30, 20183,184,300
 $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 period302
Aggregate fair value of options vested during the period102
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, 20175,789,401
Restricted stock granted and issued820,500
Restricted stock vested(1,371,334)
Restricted stock repurchased - unvested shares(196,033)
Unvested balances at September 30, 20185,042,534
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

19
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 $1.7 million as of September 30, 2018 and December 31, 2017. See Note 13. Subsequent Eventsfor additional information regarding the adoption of our 2018 Equity Incentive Plan.
9. Net Loss Per Share
A reconciliation of the number of shares in the calculation of basic and diluted loss per share follows:
Three Months Ended March 31,
Three Months Ended September 30, Nine Months Ended
September 30,		20232022
2018 2017 2018 2017
       (in thousands)
Basic loss per shareBasic loss per share
Numerator:Numerator:
Net lossNet loss$(5,621)$(4,659)
(in thousands)
Basic net loss per share       
Numerator:       
Net income (loss)$(398) $1,637
 $(87,323) $(44,105)
Accretion of dividends on Class A common stock(74,608) (68,264) (216,621) (198,205)
Earnings allocated to unvested restricted stockEarnings allocated to unvested restricted stock— — 
Net loss available to common stockholders$(75,006) $(66,627) $(303,944) $(242,310)Net loss available to common stockholders$(5,621)$(4,659)
Denominator:       Denominator:
Weighted-average Class B common shares outstanding used in computing basic net loss per share102,078
 100,759
 101,915
 100,330
Weighted-average shares used in computing basic net loss per shareWeighted-average shares used in computing basic net loss per share162,773 159,847 
Diluted net loss per share       Diluted net loss per share
Numerator:       Numerator:
Net loss available to common stockholders$(75,006) $(66,627) $(303,944) $(242,310)Net loss available to common stockholders$(5,621)$(4,659)
Denominator:       Denominator:
Weighted-average shares used in computing basic net loss per share102,078
 100,759
 101,915
 100,330
Add options and restricted stock units to purchase common stock—
 —
 —
 —
Weighted-average shares used in computing basic loss per shareWeighted-average shares used in computing basic loss per share162,773 159,847 
Add dilutive impact of employee equity plansAdd dilutive impact of employee equity plans— — 
Weighted-average shares used in computing diluted net loss per share102,078
 100,759
 101,915
 100,330
Weighted-average shares used in computing diluted net loss per share162,773 159,847
The following weighted averageweighted-average outstanding shares of common stock equivalents were excluded from the computation of the diluted net 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,
20232022
(in thousands)
Total anti-dilutive shares12,699 9,618 
 Three Months Ended September 30, Nine Months Ended
September 30,
 2018 2017 2018 2017
        
 (in thousands)
Stock options to purchase common stock2,782
 1,816
 2,525
 1,509
Performance-based stock options to purchase common stock316
 116
 267
 96
Non-vested restricted stock incentive awards3,512
 3,410
 3,435
 3,605
Performance-based non-vested restricted stock incentive awards1,537
 2,260
 1,566
 2,601
Total anti-dilutive shares8,147
 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 earningsloss 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 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

20
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 Bravo1,018
 1,018
 3,054
 3,054
TB Partners232
 232
 696
 696
 $2,500
 $2,500
 $7,500
 $7,500
11.8. Income Taxes
For the three months ended September 30, 2018March 31, 2023 and 2017,2022, we recorded income tax expense of $12.8 million and income tax benefit of $0.1 million and $3.1$0.2 million, respectively, resulting in an effective tax rate of 24.0%178.5% 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%3.2%, respectively. The decreaseincrease in the effective tax rate for the three and nine months ended September 30, 2018March 31, 2023 compared to the same periodsperiod in 2017 were generally a result of2022 was primarily due to the lowerincrease in income before income taxes and an increase in the valuation allowance resulting from deduction limitations associated with the U.S. corporate 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 previously in the U.S., and creates new taxes on certain foreign sourced earnings. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining 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.
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, 2023, we had accrued interest and penalties related to unrecognized tax benefits of approximately $3.8$3.9 million.
We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 20112013 through 2017February 2016 and 2019 through 2022 tax years generally remain open and subject to examination by federal tax authorities. The 20102015 through 20172022 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 20112013 through the period ending February 2016. We are under audit by the Indian Tax Authority for the 2014 and 2017 tax years.year. We are currently under audit by the California Franchise Tax BoardTexas Comptroller for the 20122015 through 20142020 tax years. We were notified in December 2017 that the Swiss Tax Authorities would audit the 2014 through 2016 tax years. This audit concluded in April 2018 with no adjustments. We are not currently under audit in any other taxing jurisdictions.
17
SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

9. Commitments and Contingencies
Cyber Incident
As previously disclosed, we were the victim of a cyberattack on our Orion Software Platform and internal systems, or the Cyber Incident. We, together with our partners, have undertaken extensive measures to investigate, contain, eradicate, and remediate the Cyber Incident.
Expenses Incurred
We recorded pre-tax expenses (proceeds) related to the Cyber Incident as follows:
Three Months Ended March 31,
20232022
(in thousands)
Cost of recurring revenue$— $156 
Sales and marketing— 68 
Research and development— 2 
General and administrative2,028 5,490 
Total gross expenses related to the Cyber Incident2,028 5,716 
Less: proceeds received or expected to be received under our insurance coverage(9,798)— 
Total net expenses (proceeds) related to the Cyber Incident$(7,770)$5,716 
General and administrative expense is presented net of insurance proceeds received and expected insurance proceeds for costs we believe are reimbursable and probable of recovery in our condensed consolidated statements of operations. Expenses include one-time costs to investigate and remediate the Cyber Incident, costs of lawsuits and investigations related thereto, including settlement costs and legal and other professional services, and consulting services provided to customers at no charge, all of which were expensed as incurred.
Litigation, Claims and Government Investigations
As a result of the Cyber Incident, we are subject to multiple lawsuits and investigations. A consolidated putative class action lawsuit alleging violations of the federal securities laws is pending against us and certain of our current and former officers. The complainants seek certification of a class of all persons who purchased or otherwise acquired our securities between October 18, 2018 and December 17, 2020 and seek unspecified monetary damages, costs and attorneys’ fees. On July 24, 2018, U.S.October 28, 2022, the parties entered into a binding settlement term sheet with respect to the securities class action lawsuit and lead plaintiff filed the parties’ Stipulation and Agreement of Settlement with the court on December 8, 2022. The settlement is subject to certain conditions, including notice to potential class members and final court approval. On February 8, 2023, the court granted preliminary approval of the settlement, and on March 2, 2023, we paid $26 million to fund claims submitted by class members, the legal fees of plaintiffs’ counsel and the costs of administering the settlement. The settlement resolves all claims asserted against us and the other named defendants in connection with the class action litigation and contains provisions that the settlement does not constitute an admission, concession, or finding of any fault, liability, or wrongdoing of any kind by us or any defendant. There can be no assurance that the settlement agreement will be approved by the court. The settlement sum was authorized and approved by our insurers, and if the settlement agreement is approved by the court, we expect that the settlement payment will be reimbursed entirely by applicable directors’ and officers’ liability insurance. In addition, two shareholder derivative actions have been filed, purportedly on behalf of the Company, one in the Western District of Texas and one in the Delaware Court of Appeals forChancery, in each case asserting breach of duty and other claims against certain of our current and former officers and directors in connection with the Ninth Circuit reversedCyber Incident. On September 30, 2022, the decisionCompany and other named defendants filed a motion to dismiss the case filed in the Western District of Texas, which motion remains pending before that court. On October 13, 2022, the Delaware Court of Chancery entered an order dismissing the case in that court with prejudice, and on November 1, 2022 the plaintiffs filed an appeal of such order. We dispute the allegations in these complaints and intend to defend against the claims.
In addition, there are several pending investigations and inquiries by U.S. regulatory authorities related to the Cyber Incident, including from the Department of Justice and the SEC. 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. On October 28, 2022, the enforcement staff of the SEC provided us with a “Wells Notice” relating to its investigation into the Cyber Incident. The Wells Notice states that the SEC staff has made a preliminary determination to recommend that the SEC file an enforcement action against us alleging violations of certain provisions of the U.S. Tax Court in Altera Corp. v. Commissioner relatedfederal securities laws with respect to the treatment of stock-based compensation in an intercompany cost sharing arrangement. On August 7, 2018, the Ninth Circuit withdrew the opinion to allow time for a reconstituted panel to confer on this appeal. Until the reconstituted

our cybersecurity disclosures and public statements, as well as our
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SolarWinds Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)



internal controls and disclosure controls and procedures. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. We maintain that our disclosures, public statements, controls and procedures were appropriate, and we currently intend to continue to vigorously defend ourselves, including against any enforcement action or other charges. If the SEC were to authorize an action against us, it could seek an order enjoining us from engaging in future violations of provisions of the federal securities laws subject to the action, imposing civil monetary penalties and/or providing for other equitable relief within the SEC’s authority. The results of the Wells Notice process and any corresponding enforcement action and the costs, timing and other potential consequences of responding and complying therewith are unknown at this time.
panel issues a decision,While we believe it is reasonably possible that we could incur losses associated with these proceedings and investigations, other than with respect to the Tax Court's decision in Altera controls. Assecurities class action settlement, it is not possible to estimate the amount of September 30, 2018, weany 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 fact that alleged damages have not recordedbeen specified and the lack of resolution on significant factual and legal issues. The Company 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. Losses associated with any tax benefitadverse judgments, settlements, penalties or other resolutions of excluding stock-based compensationsuch proceedings and investigations could be material to our business, results of operations, financial condition or cash flows in future periods.
Additional lawsuits and claims related to the 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.
Insurance Coverage
We maintain $15 million of cybersecurity insurance coverage to limit our cost sharing agreement.
12. Commitmentsexposure to losses such as those related to the Cyber Incident, which renews annually. In addition, we maintain $50 million of directors and Contingencies
Take Private Deferred Stock Payments
Asofficers liability insurance coverage to reduce our exposure to our indemnification obligations for certain expenses incurred by our directors and officers, including as a result of the Take Private, RSUs granted to certain of our employees under the existing stock plans not subject to accelerated vesting were cancelled 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 based on the underlying original RSU vesting schedule and subject to continued employment of the holders of those RSUs. As of September 30, 2018, we had a liability for Take Private deferred stock payments recorded of $1.8 million included in accrued liabilities and other,legal proceedings related to the future paymentCyber Incident such as the securities class action settlement, which renews annually. As of March 31, 2023, we have a loss recovery asset of $40.0 million recorded for insurance proceeds deemed probable of recovery which is included in prepaid and other current assets in our condensed consolidated balance sheet.
Indemnification
In connection with the separation and distribution of our managed service provided. Forprovider (“N-able”) business into a newly created and separately traded public company, N-able, Inc. (“Separation”), we entered into a separation and distribution agreement and related agreements with N‑able to govern the nine months ended September 30, 2018,Separation and related transactions and the relationship between the respective companies going forward. The separation and distribution agreement provides for certain indemnity and liability obligations, including that we recognized $2.4 millionwill indemnify N-able for all liabilities based upon, arising out of compensation expense and made cash payments of approximately $3.5 million to employeesor related to the deferred compensation. We expectCyber Incident other than certain specified expenses for which N-able will be responsible. The amount of the indemnification liability, if any, cannot be determined and has not been recorded in our condensed consolidated financial statements as of March 31, 2023.
Other Matters
In addition to pay approximately $4.2 million through the year 2020. The expected future payment may differCyber Incident described above, from actual payment amounts due to future employee terminations.
Legal Proceedings
From time to time we have been and may beare involved in various legal proceedingslitigation arising in our ordinaryfrom the normal course of business. In themanagement'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 impacteffect 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.
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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 reportQuarterly 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 withAnnual Report on Form 10-K for the SEC on October 22, 2018 pursuant to Rule 424(b) of the Securities Act of 1933, as amendedyear ended December 31, 2022 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 simple, powerful, and secure information technology, or IT, infrastructure management and observability software. Our productssolutions are designed to give organizations worldwide, regardless of type, size, or IT infrastructure complexity, the power to monitor and manage theoptimize performance of their hybrid IT environments, whether on-premise,no matter where they are 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.their digital transformation journeys.
We offer over 50 productsa broad portfolio of solutions designed to help technology professionals and leaders to monitor, manage, and manage network,optimize networks, systems, desktop, application, storage, databasedatabases and website infrastructures, whether on-premise, in the public or private cloud or in aapplications across on-premises, multi-cloud and hybrid IT infrastructure.infrastructures. Most of our offerings are built on a platform-based approach, that we call the SolarWinds Platform, to enable our customers to easily purchase and deploy our products individually or as an integrated offering as their needs evolve. We utilize a cost-efficient, integrated global product development model and have expanded our offerings over time through both organic development and strategic acquisitions. We intend to continue to innovate and invest in areas of product development thatto bring new products to market and enhance the functionality, ease of use, and integration of our current products. We believe this will strengthenOver time, we intend to grow our subscription revenue by focusing more on selling subscriptions over perpetual licenses, which we call our subscription-first approach.
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 overall value proposition of our products in any IT environment.
Financial Highlights
Key financial highlights for the period include 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 operations58,957
 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 revenue170,258
 150,542
 13.1 % 496,877
 428,411
 16.0%
Adjusted EBITDA106,482
 99,302
 7.2 % 295,656
 261,804
 12.9%
______________
(1)See "Non-GAAP Financial Measures" for a reconciliation 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, in whichand once again become a publicly traded company. 
Cyber Incident
As previously disclosed, we soldwere the victim of a cyberattack on our Orion Software Platform and issued 25,000,000 sharesinternal systems, or the “Cyber Incident.” We, together with our partners, have undertaken extensive measures to investigate, contain, eradicate, and remediate the Cyber Incident. In addition, as part of our common stock at an issue price“Secure by Design” initiative, we continue to work with industry experts to implement enhanced security practices designed to further strengthen and protect our products and environment against these and other types 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.
See Note 13. Subsequent Eventsattacks in the future.
Expenses
Expenses incurred related to the Cyber Incident include one-time costs to investigate and remediate the Cyber Incident, costs of lawsuits and investigations related thereto, including settlement costs and legal and other professional services, and consulting services provided to customers at no charge, all of which were expensed as incurred. See Note 9. 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 for additional information regarding expenses incurred related to the Cyber Incident.
Our “Secure by Design” initiatives, which include costs to enhance our IPO.security measures across our systems and our software development and build environments, continue to be included in our ongoing research and development expense, as well as general and administrative expense.
Litigation, Claims and Government Investigations
As a result of the Cyber Incident, we are subject to several lawsuits and investigations or inquiries as described in Note 9. 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.
Future Costs
We expect to continue 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 may include increased expenses associated with ongoing claims, investigations
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and inquiries, and any new claims, investigations and inquiries. See Note 9. 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 information 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, other than the settlement of the consolidated putative class action lawsuit, it is currently 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 fact that alleged damages have not been specified and the lack of resolution on significant factual and legal issues. We also expect to incur increased expenses for insurance, finance, compliance activities, and to meet increased legal and regulatory requirements.
Insurance Coverage
We maintain $15 million of cybersecurity insurance coverage to limit our exposure to losses such as those related to the Cyber Incident, which renews annually. In addition, we maintain $50 million of directors and officers liability insurance coverage to reduce our exposure to our indemnification obligations for certain expenses incurred by our directors and officers, including as a result of the legal proceedings related to the Cyber Incident such as the securities class action settlement, which renews annually. As of March 31, 2023, we have a loss recovery asset of $40.0 million recorded for insurance proceeds deemed probable of recovery which is included in prepaid and other current assets in our condensed consolidated balance sheet.
Impacts of Macroeconomic Conditions
As a global company, we are subject to negative impacts and risks related to prevailing macroeconomic conditions and significant events with macroeconomic impacts, including, but not limited to, the ongoing conflict between Russia and Ukraine and resulting sanctions and other actions against Russia and Belarus, geopolitical tensions involving China, market conditions related to inflation and action taken by central banks to counter inflation, fluctuating foreign currency exchange rates, changes in interest rates, instability in the banking sector and financial services industry, supply chain disruption issues and the COVID-19 pandemic. During the second quarter of 2022, we suspended all of our business activities in Russia and Belarus, but such suspension has not had, and we do not expect it to have, a material impact on our financial results. Foreign currency exchange rate fluctuations during the past year negatively impacted our revenues and may continue to impact our revenues in 2023. In addition, rising interest rates have increased our borrowing expense under our credit agreement, and if rates continue to rise, our borrowing costs may continue to increase. We continuously monitor the direct and indirect impacts of these events on our business and financial results, as well as the overall global economy, and we anticipate that these macroeconomic events may continue to negatively impact our results of operation. See Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and Part II, Item 1A “Risk Factors” below for further discussion of the possible impacts of these macroeconomic conditions on our business and financial results.
First Quarter Highlights
Below are our key financial highlights for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.
Customers
Our approach allows us to both sell to a broad group of potential customers and close large transactions with significant customers. As of March 31, 2023, we had over 300,000 customers. While some customers may spend as little as $100 with us over a twelve-month period, we had 945 customers who spent more than $100,000 with us for the trailing twelve-month period ended March 31, 2023 as compared to 852 for the trailing twelve-month period ended March 31, 2022.
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.
Annual Recurring Revenue (ARR)
We use Subscription Annual Recurring Revenue, or Subscription ARR, and Total Annual Recurring Revenue, or Total ARR, to better understand and assess the performance of our business, as our mix of revenue generated from recurring revenue has increased in recent years. Subscription ARR and Total ARR each provides a normalized view of customer retention, renewal and expansion, as well as growth from new customers. Subscription ARR and Total ARR should each be viewed independently of revenue and deferred revenue and are not intended to be combined with or to replace either of those items.
Beginning in the quarter ended December 31, 2022, we revised the methodology used to calculate Total ARR. In calculating Total ARR, we now only recognize the impact of any price increases upon renewal of the expiring maintenance
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contracts rather than upon enactment of such price increases. We believe this change in methodology better represents the current value of our maintenance contracts and better aligns our definition with comparable companies.
Total ARR for the prior period ended March 31, 2022 presented below has been recalculated to conform to the current calculation method. The change in calculation method reduced our previously reported Total ARR as of March 31, 2022 by $5.2 million. There have been no changes in the calculation method for Subscription ARR.
As of March 31,Year-over-Year
Growth
20232022
(in thousands, except percentages)
Subscription ARR(1)
$185,178 $141,840 30.6 %
Total ARR(2)
648,000 617,635 4.9 
_______
(1)Subscription ARR represents the annualized recurring value of all active subscription contracts at the end of a reporting period.
(2)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.
The year-over-year growth in Subscription ARR was primarily driven by sales of our time-based subscription offerings as a result of customers transitioning to our subscription products and pricing models including our SolarWinds Hybrid Cloud Observability, sales of our database monitoring solution and sales of our service desk SaaS solution. Total ARR increased primarily due to the growth in Subscription ARR, partially offset by the decline in the annualized value of maintenance contracts as a result of lower new perpetual license sales and the impact of customers transitioning to our subscription offerings.
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 our time-based subscription offerings. We recognize revenue for SaaS offerings, including our SolarWinds Observability solution, ratably over the subscription term once the service is made available to the customer or when we have the right to invoice services performed. We also offer time-based subscription offerings for our SolarWinds Hybrid Cloud Observability solution along with many of our products historically sold as perpetual licenses, such as our network, systems and database management products, to give customers additional flexibility when purchasing our products. Revenue for our time-based subscription offerings, including multi-year arrangements, is recognized upfront upon delivery of the on-premise software license and ratably over the contract period for the related support. We generally invoice our time-based subscription agreements in advance at the beginning of the subscription period and invoice our SaaS offerings over the subscription period on either a monthly or annual basis and to a lesser extent, monthly based on usage. 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. In addition, while the majority of our contracts include annual subscription periods, subscription revenue is impacted by the timing, duration and volume of multi-year time-based subscription arrangements sold during a period, which impacts the amount of revenue recognized upfront and may cause subscription revenue to fluctuate.
▪
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. CustomersIn addition, we typically renew theirimplement annual price increases for our maintenance contracts at our standard list maintenance renewal pricing for their applicable products. We generally invoice maintenance contracts annually in advance.
services.
•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 upfront upon delivery of the electronic license key. We calculate the amount ofallocate revenue allocated to the license by subtracting the fair value,component based upon our estimated standalone selling
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prices, which is determinedderived by evaluating our standard maintenance renewal price list,historical pricing and discounting practices in observable bundled transactions.
Our continued efforts to increase sales of our subscription offerings as part of our subscription-first approach has impacted the applicablemix of license and recurring revenue. As we introduce new subscription offerings and incentivize our sales teams to focus on more subscription sales, we expect a continued shift in our revenue mix each quarter as existing customers transition to, and new customers purchase, our subscription offerings. However, due to uncertainty regarding the level of customer adoption of our subscription offerings, the timing and impact of this transition are difficult to predict at this time. While we encourage customers to transition to our subscription offerings, we do not require them to transition and plan to continue to sell perpetual licenses and renew maintenance services from the total invoicefor our network, systems and database management products. Our license sales and maintenance renewals may decline or contract amount. If we increase list prices for maintenance services without increasing prices by a similar percentage for perpetual licenses, the amount of license revenue we recognize at the time of the sale of the perpetual license could be adversely affected.
fluctuate in future periods as customers transition to our subscription offerings.
Cost of Revenue
•Cost of Recurring Revenue.Cost of recurring revenue primarily consists of technical support personnel costs, royaltypublic cloud infrastructure and hosting fees, hosting feesamortization of capitalized development costs related to our hosted solutions 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.
We expect our public cloud infrastructure and hosting fees and amortization of capitalized development costs to increase as we expand our subscription-based offerings.
•Amortization of Acquired Technologies.We amortizeAmortization of acquired technologies consists of amortization related to cost of revenue the capitalized costs of technologies acquired, including those acquired in connection with the Take Private and our other acquisitions.
Private.
Operating Expenses
Operating expenses consists of sales and marketing, research and development and general and administrative expenses as well as amortization of acquired intangibles. PersonnelGenerally, 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, 2023 was 2,160, as compared to 2,199 as of March 31, 2022. During the first quarter of 2023, as part of our ongoing efforts to improve our operating margins, we completed certain restructuring activities, resulting in lease impairment charges, other costs incurred in connection with the exiting of certain leased facilities and other contracts as well as costs related to headcount reductions.
While we are focused on disciplined expense management, we expect our operating expenses to continue to increase in absolute dollars as we make long-term investments in our business, including continued product development and increasing our selling efforts toward enterprise customers. Our operating expenses in future periods also may increase in absolute dollars and fluctuate as a percentage of revenue as a result of any future acquisitions and any further decisions to increase our investment in our business. 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.costs for our product development employees and executives and, to a lesser extent, contractor fees. We expect to continue to grow our research and development organization, particularly internationally.
We capitalize certain research and development costs related to developing new functionality for our solutions that are hosted and accessed by our customers on a subscription basis, which may cause our research and development expense to fluctuate from period to period.

•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 and other acquisition-relatedcosts, acquisition costs, certain Cyber Incident costs, professional fees, certain non-cash impairment charges and other general corporate expenses. SinceThe Cyber Incident has resulted in increased general and administrative expenses which we expect to continue in 2023 and beyond, although expenses may fluctuate from period to period depending on the Take Private, these expenses have also included management fees payable to our Sponsors that were eliminated upon the completiontiming of our initial public offering.related activities.
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•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, interest income and gains (losses) resulting from changes in exchange rates on foreign currency denominated intercompany loans,accounts. The interest expense on our debt has increased due to increases in interest rates and losses on extinguishmentas a result of debt.the increase in applicable margins resulting from the refinancing of our debt in November 2022. We expect our interest expense may continue 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 recognizedincrease as a componentresult of accumulated other comprehensive income (loss).anticipated interest rate increases since the borrowings outstanding under our credit agreement currently bear interest at variable rates.
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 generally 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 maycould 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, 2018March 31, 2023 and 20172022
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
Maintenance101,817
 47.7
 93,258
 49.3
 8,559
Total recurring revenue169,530
 79.5
 148,619
 78.6
 20,911
License43,747
 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 September 30,  Three Months Ended March 31,
2018 2017  20232022
Amount Amount ChangeAmountPercentage of RevenueAmountPercentage of RevenueChange
     
  (in thousands)  (in thousands, except percentages)
Subscription$154
 $353
 $(199)Subscription$54,357 29.2 %$38,747 21.9 %$15,610 
Maintenance574
 1,570
 (996)Maintenance114,478 61.6 115,495 65.3 (1,017)
Total recurring revenue728
 1,923
 (1,195)Total recurring revenue168,835 90.8 154,242 87.2 14,593 
License—
 —
 —
License17,141 9.2 22,626 12.8 (5,485)
Total revenue$728
 $1,923
 $(1,195)Total revenue$185,976 100.0 %$176,868 100.0 %$9,108 
Total revenue increased $24.2$9.1 million, or 12.8%5.1%, for the three months ended September 30, 2018March 31, 2023 compared to the three months ended September 30, 2017.March 31, 2022, primarily due to an increase in subscription revenue partially offset by decreases in license and maintenance revenue as we continue to transition to a subscription model. Revenue from North America was approximately 64%70% and 67%69% of total revenue for the three months ended September 30, 2018March 31, 2023 and 2017,2022, 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.
As a result of macroeconomic conditions, certain of our customers have, and others may, defer renewals or cancel subscriptions which has had, and could in the future have, a negative impact on our revenue. However, despite the impact of macroeconomic conditions, our maintenance renewal rate for the trailing twelve month period was 93%.
Recurring Revenue
Subscription Revenue. Subscription revenue increased $12.4$15.6 million, or 22.3%40.3%, for the three months ended September 30, 2018March 31, 2023 compared to the three months ended September 30, 2017,March 31, 2022, primarily due to increased sales of additional cloud managementour time-based subscription offerings resulting from customers transitioning to our subscription pricing model, including our SolarWinds Hybrid Cloud Observability solution, and MSP products.includes a $3.0 million increase resulting from sales of multi-year time-based arrangements during the period. Our subscription revenue increased as a percentage of our total revenue for the three months ended September 30, 2018 compared to the three months ended September 30, 2017.
Maintenance Revenue. Maintenance revenue increased $8.6 million, or 9.2%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Of this change, $7.6 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 $1.0 million increase was attributable to a smaller purchase accounting adjustment to deferred revenue in the three months ended September 30, 2018March 31, 2023 as compared to the three months ended September 30, 2017.March 31, 2022.
We define
24

Our net retention rate for our subscription products was as follows:
Trailing Twelve Months Ended March 31,
20232022
Net retention rate(1)
95 %96 %
_______
(1)Net retention rate for subscription products represents 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 the calculation for that same customer base.
Maintenance Revenue. Maintenance revenue decreased $1.0 million, or 0.9%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to the impact on maintenance revenue from customers transitioning to our time-based subscription offerings and the effect of the weakening of most foreign currencies relative to the U.S. dollar.
Our maintenance renewal rate for our perpetual license products was as follows:
Trailing Twelve Months Ended March 31,
20232022
Maintenance renewal rate(1)
93 %89 %
_______
(1)Maintenance renewal rate represents 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. The calculation of maintenance renewal rate only includes customers renewing maintenance contracts and excludes all customers that transition from maintenance contracts to subscription offerings. 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 $3.3decreased $5.5 million, or 8.0%24.2%, primarily due to increasedthe impact of customers transitioning to our subscription offerings including an increase in the subscription sales of our licensedSolarWinds Hybrid Cloud Observability solution and other products in each ofthat have historically been sold only as perpetual licenses. We expect license revenue to continue to decline as customers transition to 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 sales of our licensed products globally.

subscription offerings.
Cost of Revenue
Three Months Ended September 30,  Three Months Ended March 31,
2018 2017  20232022
Amount Percentage of Revenue Amount Percentage of Revenue ChangeAmountPercentage of RevenueAmountPercentage of RevenueChange
         
  (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$18,394 9.9 %$17,831 10.1 %$563 
Amortization of acquired technologies43,835
 20.6
 43,513
 23.0
 322
Amortization of acquired technologies3,436 1.8 17,227 9.7 (13,791)
Total cost of revenue$61,857
 29.0% $58,703
 31.0% $3,154
Total cost of revenue$21,830 11.7 %$35,058 19.8 %$(13,228)
Total cost of revenue increaseddecreased in the three months ended September 30, 2018March 31, 2023 compared to the three months ended September 30, 2017March 31, 2022, primarily due to a decrease in amortization of acquired technologies due to certain intangible assets acquired in connection with the Take Private being fully amortized during the three months ended March 31, 2022. Cost of recurring revenue increased primarily due to increases in amortization of capitalized development costs of $1.1 million and contract services of $0.4 million, partially offset by a decrease in personnel costs of $1.1 million to support new customers and additional product offerings, royalty and hosting fees related to our subscription products of $1.0 million and depreciation and other amortization of $0.8 million. In addition, 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.
25

Operating Expenses
Three Months Ended March 31,
20232022
AmountPercentage of RevenueAmountPercentage of RevenueChange
(in thousands, except percentages)
Sales and marketing$65,916 35.4 %$61,044 34.5 %$4,872 
Research and development23,791 12.8 23,422 13.2 369 
General and administrative25,601 13.8 32,664 18.5 (7,063)
Amortization of acquired intangibles13,005 7.0 13,239 7.5 (234)
Total operating expenses$128,313 69.0 %$130,369 73.7 %$(2,056)
 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 development23,274
 10.9
 20,521
 10.9
 2,753
General and administrative19,597
 9.2
 15,080
 8.0
 4,517
Amortization of acquired intangibles16,507
 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$4.9 million, or 11.7%8.0%, primarily due to increases in personnel costs of $5.8$3.2 million, restructuring charges primarily related to severance expense of $2.4 million and consulting, contract services and subscription costs of $1.2 million. These increases were partially offset by a decrease in marketing program costs of $0.5$2.0 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$0.4 million, or 13.4%1.6%, primarily due to increases in costs for subscriptions used in the development of our offerings of $0.7 million and contract services of $0.6 million, partially offset by a decrease in personnel costs of $1.1 million. The decrease in personnel costs was primarily due to an increase in personnelemployee turnover and a $0.5 million increase in capitalized employee costs of $3.7 million. We increasedprimarily related to work on 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.Observability platform.
General and Administrative. General and administrative expenses increased $4.5decreased $7.1 million, or 30.0%21.6%, primarily due to a $3.1$13.3 million decrease in costs related to the Cyber Incident, which includes a $9.8 million increase in personnelexpected insurance recovery proceeds. Cyber Incident costs may fluctuate period to supportperiod depending upon the growthstatus of litigation and timing of the business, a $1.1 millionrecording of expected insurance recoveries. The decrease in Cyber Incident costs was partially offset by an increase in professional fees and other offering costsrestructuring charges of $6.7 million primarily related to our IPO.lease impairment charges and accelerated depreciation expense in connection with the exiting of certain leased facilities.
Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased $0.5$0.2 million, or 3.1%1.8%, forprimarily due to certain intangible assets being fully amortized during the three months ended September 30, 2018March 31, 2022.

Interest Expense, Net
Three Months Ended March 31,
20232022
AmountPercentage of RevenueAmountPercentage of RevenueChange
(in thousands, except percentages)
Interest expense, net$(28,581)(15.4)%$(16,087)(9.1)%$(12,494)
Interest expense, net increased by $12.5 million, or 77.7%, in the three months ended March 31, 2023 compared to the three months ended September 30, 2017. Amortization of intangible assets includes $11.9 million and $12.7 million of amortization relatedMarch 31, 2022. The increase in interest expense is primarily due to the Take Privateincrease in interest rates on our debt, including an increase in applicable margins resulting from the refinancing of our debt in November 2022. The weighted-average effective interest rate on our debt was 8.5% for the three months ended September 30, 2018 and 2017, respectively, with the remaining balance related primarilyMarch 31, 2023 compared 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 $6.9 million, or 16.2%, in2.9% for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The decrease in interest expense is due to the reduction March 31, 2022. See Note 6. Debt in the interest rate spread under our credit facilities resulting from the refinancing transaction we completed in March 2018. See Note6. Debtin the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information regarding our debt.
Other Income (Expense),Expense, Net
Three Months Ended March 31,
20232022
AmountPercentage of RevenueAmountPercentage of RevenueChange
(in thousands, except percentages)
Other expense, net$(89)0.0 %$(169)(0.1)%$80 
26
 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),expense, net decreased by $14.3$0.1 million in the three months ended September 30, 2018March 31, 2023 compared to the three months ended September 30, 2017March 31, 2022, primarily due to the impact of changes in exchange rates on 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.accounts.
Income Tax Expense (Benefit)
Three Months Ended March 31,
20232022
AmountPercentage of RevenueAmountPercentage of RevenueChange
(in thousands, except percentages)
Income (loss) before income taxes$7,163 3.9 %$(4,815)(2.7)%$11,978 
Income tax expense (benefit)12,784 6.9 (156)(0.1)12,940 
Effective tax rate178.5 %3.2 %175.3 %
 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 rate24.0%   215.4%   (191.4)%
Our income tax benefitexpense for the three months ended September 30, 2018 decreased by $2.9March 31, 2023 was $12.8 million as compared to an income tax benefit of $0.2 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, 2022. The effective tax rate decreasedincreased to 178.5% for the period, as a result of the lower U.S. corporate tax rate attributableprimarily due to the Tax Act as well as discrete items related to expired statutesincrease in various jurisdictions recordedincome before income taxes and an increase in the three months ended September 30,valuation allowance resulting from deduction limitations associated with the U.S. Tax Cuts and Jobs Act of 2017. For additional discussion about our income taxes, see Note 11.8. 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
Maintenance297,584
 48.6
 261,461
 49.4
 36,123
Total recurring revenue493,588
 80.7
 416,863
 78.7
 76,725
License118,320
 19.3
 112,815
 21.3
 5,505
Total revenue$611,908
 100.0% $529,678
 100.0% $82,230
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:
 Nine Months Ended
September 30,		  
 2018 2017  
 Amount Amount Change
      
   (in thousands)  
Subscription$1,116
 $1,168
 $(52)
Maintenance2,173
 10,380
 (8,207)
Total recurring revenue3,289
 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 technologies132,121
 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 development71,800
 11.7
 63,414
 12.0
 8,386
General and administrative59,849
 9.8
 50,865
 9.6
 8,984
Amortization of acquired intangibles50,288
 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 Privatefor 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 rate18.7%   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, andthe Cyber Incident, 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. 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 September 30, Nine Months Ended
September 30,
 2018 2017 2018 2017
        
 (in thousands)
Revenue:       
GAAP subscription revenue$67,713
 $55,361
 $196,004
 $155,402
Impact of purchase accounting154
 353
 1,116
 1,168
Non-GAAP subscription revenue67,867
 55,714
 197,120
 156,570
GAAP maintenance revenue101,817
 93,258
 297,584
 261,461
Impact of purchase accounting574
 1,570
 2,173
 10,380
Non-GAAP maintenance revenue102,391
 94,828
 299,757
 271,841
GAAP total recurring revenue169,530
 148,619
 493,588
 416,863
Impact of purchase accounting728
 1,923
 3,289
 11,548
Non-GAAP total recurring revenue170,258
 150,542
 496,877
 428,411
GAAP license revenue43,747
 40,493
 118,320
 112,815
Impact of purchase accounting—
 —
 —
 3
Non-GAAP license revenue43,747
 40,493
 118,320
 112,818
Total GAAP revenue$213,277
 $189,112
 $611,908
 $529,678
Impact of purchase accounting$728
 $1,923
 $3,289
 $11,551
Total non-GAAP revenue$214,005
 $191,035
 $615,197
 $541,229


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 relatedother 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
27

employer-paid payroll taxes, management excludes these expenses when analyzing the organization’s business performance.
•Acquisition and Sponsor RelatedOther 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 expenses 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 we would not have 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 relatedother 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.
•Restructuring Charges and Other. Costs. We provide non-GAAP information that excludes restructuring chargescosts such as severance, lease impairments and other costs incurred in connection with the estimated costsexiting of exitingcertain leased facilities and terminating facility lease commitments,other contracts as they relate to our corporate restructuring and exit activities.activities and costs related to the separation of employment with executives of the Company. In addition, we exclude certain costs resulting from the spin-off of N-able, Inc. These restructuring chargescosts 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 chargescosts 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, costs of lawsuits and investigations related thereto, including settlement costs and legal and other professional services, 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 we would not have otherwise incurred 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 September 30, 
Nine Months Ended
September 30,
 2018 2017 2018 2017
        
 (in thousands, except margin data)
GAAP operating income$35,116
 $26,831
 $79,211
 $40,759
Impact of purchase accounting728
 1,923
 3,289
 11,551
Stock-based compensation expense160
 21
 332
 49
Amortization of acquired technologies43,835
 43,513
 132,121
 127,781
Amortization of acquired intangibles16,507
 17,035
 50,288
 49,910
Acquisition and Sponsor related costs5,614
 6,097
 16,361
 18,163
Restructuring costs and other281
 556
 1,494
 2,644
Non-GAAP operating income$102,241

$95,976

$283,096

$250,857
GAAP operating margin16.5% 14.2% 12.9% 7.7%
Non-GAAP operating margin47.8% 50.2% 46.0% 46.3%


Three Months Ended March 31,
20232022
(in thousands, except percentages)
GAAP operating income$35,833 $11,441 
Stock-based compensation expense and related employer-paid payroll taxes17,157 15,937 
Amortization of acquired technologies3,436 17,227 
Amortization of acquired intangibles13,005 13,239 
Acquisition and other costs55 168 
Restructuring costs10,959 1,423 
Cyber Incident costs, net(7,770)5,716 
Non-GAAP operating income$72,675 $65,151 
GAAP operating margin19.3 %6.5 %
Non-GAAP operating margin39.1 %36.8 %
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,(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,

acquisition and Sponsor related costs, Cyber Incident costs, net, interest expense, net, debt-related costs including fees related to our credit agreements, debt extinguishment and refinancing costs, unrealized foreign currency (gains) losses, and
28

income tax expense (benefit). We define adjusted EBITDA margin as adjusted EBITDA divided by non-GAAPtotal revenue. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; adjusted EBITDA excludes the impact of the write-down of deferred revenue due to purchase accounting in connection with our acquisition, and therefore includes revenue that will never be recognized under GAAP; adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including net income (loss) and our other GAAP results. In evaluating adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the types of items excluded from the calculation of adjusted EBITDA. Adjusted EBITDA is not a presentation made in accordance with GAAP and the use of the term varies from others in our industry.
 Three Months Ended March 31,
 20232022
(in thousands, except margin data)
Net loss$(5,621)$(4,659)
Amortization and depreciation20,931 33,928 
Income tax expense (benefit)12,784 (156)
Interest expense, net28,581 16,087 
Unrealized foreign currency losses184 280 
Acquisition and other costs55 168 
Debt-related costs105 102 
Stock-based compensation expense and related employer-paid payroll taxes17,157 15,937 
Restructuring costs10,959 1,387 
Cyber Incident costs, net(7,770)5,716 
Adjusted EBITDA$77,365 $68,790 
Adjusted EBITDA margin41.6 %38.9 %
 Three Months Ended September 30, Nine Months Ended
September 30,
 2018 2017 2018 2017
        
 (in thousands)
Net income (loss)$(398) $1,637
 $(87,323) $(44,105)
Amortization and depreciation64,289
 63,825
 193,903
 187,086
Income tax expense (benefit)(126) (3,055) (20,045) (12,469)
Interest expense, net35,627
 42,534
 112,103
 127,018
Impact of purchase accounting on total revenue728
 1,923
 3,289
 11,551
Unrealized foreign currency (gains) losses(1)
202
 (14,428) 13,704
 (47,551)
Acquisition and Sponsor related costs5,614
 6,097
 16,361
 18,163
Debt related costs(2)
105
 192
 61,838
 19,418
Stock-based compensation expense160
 21
 332
 49
Restructuring costs and other281
 556
 1,494
 2,644
Adjusted EBITDA$106,482
 $99,302
 $295,656
 $261,804
Adjusted EBITDA margin49.8% 52.0% 48.1% 48.4%
________________
(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.
(2)
Debt related costs include fees related to our credit agreements, debt refinancing costs and the related write-off of debt issuance costs. The fees related to our credit agreements were $0.1 million and $0.2 million for the three months ended September 30, 2018 and 2017, respectively and $1.2 million and $0.9 million for the nine months ended September 30, 2018 and 2017, respectively. See Note 6. Debt 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 debt and the write-off of debt issuance costs.

Liquidity and Capital Resources
Cash and cash equivalents and short-term investments were $278.3$140.7 million as of September 30, 2018.March 31, 2023. Our international subsidiaries held approximately $129.9$46.9 million of cash and cash equivalents, of which 73.7%68.4% were held in Euros. The Tax Act imposes a mandatory transition tax on accumulated foreign earnings and eliminates U.S. federal income taxes on foreign subsidiary distribution. Effective January 1, 2018, we began recognizing the tax impact of including certain foreign earnings in U.S. taxable income as a period cost. We intend either to invest our foreign earnings permanently in foreign operations or to remit these earnings to our U.S. entities in a tax-free manner. For this reason, we have not recognized deferredmanner with the exception for immaterial state income taxes. The U.S. Tax Act imposed a mandatory transition tax on accumulated foreign earnings and eliminates U.S. federal income taxes for local country income and withholding taxes that could be incurred on distributions of certain foreign earnings or for outside basis differences in our subsidiaries.subsidiary distribution.
Our primary source of cash for funding operations and growth has been through cash provided by operating activities. We continue to evaluate the nature and extent of the impact of the Cyber Incident to our business and financial position. Other than with respect to the settlement of the consolidated putative class action lawsuit, currently it is not possible to estimate the amount of loss or range of possible loss that might result from adverse judgments, settlements, penalties, or other resolution of the other proceedings and investigations resulting from the Cyber Incident. Such potential payments, if great enough, could have an adverse effect on our liquidity. In addition, there continues to be uncertainty in the rapidly changing market and macroeconomic conditions related in part to the war in Ukraine, market conditions related to inflation, fluctuating foreign currency exchange rates, changes in interest rates, geopolitical tensions involving China and instability in the banking sector and financial services industry. However, despite these uncertainties, we believe that our existing cash and cash equivalents, our cash flows from operating activities and our borrowing capacity under our credit facilities will be sufficient to fund our operations, fund required debt repayments and meet our commitments for capital expenditures for at least the next 12 months.

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. See Note 13. Subsequent Events 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.
Although we are not currently a party to any material definitive agreement regarding potential investments in, or acquisitions of, complementary businesses, applications or technologies, we may enter into these types of arrangements, which could reduce our cash and cash equivalents, require us to seek additional equity or debt financing or repatriate cash generated
29

by our international operations that could cause us to incur withholding taxes on any distributions. Additional funds from financing arrangements may not be available on terms favorable to us or at all.
Indebtedness
As of September 30, 2018,March 31, 2023, our total indebtedness was $2.3$1.2 billion, with up to $125.0$130.0 million of available borrowings under our revolving credit facility. See Note 6. 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.
First Lien Credit Agreement
On March 15, 2018, or the Refinancing Date, we entered into Amendment No. 4 to First Lien Credit Agreement, originally dated as of February 5, 2016.
The First Lien Credit Agreement, as amended, provides for a senior secured revolving credit facility in an aggregate principal amount of $125.0$130.0 million, or the Revolving Credit Facility, consisting of a $25.0$17.5 million U.S. dollar revolving credit facility, or the U.S. Dollar Revolver, and a $100.0$112.5 million multicurrency revolving credit facility, or the Multicurrency Revolver. The Revolving Credit Facility includes a $35.0 million sublimit for the issuance of letters of credit. The First Lien Credit Agreement also contains a term loan facility (which we refer to as the First Lien Term Loan, and together with the Revolving Credit Facility, as the First Lien Credit Facilities) in an originalamended aggregate principal amount of $1,990.0$1,245.0 million.
The First Lien Credit Agreement provides us the right to request additional commitments for new incremental term loans and revolving loans, in an aggregate principal amount not to exceed (a) the greater of (i) $400.0 million and (ii) 100% of our consolidated EBITDA, as defined in the First Lien Credit Agreement (calculated on a pro forma basis), for the most recent four fiscal quarter period, or the First Lien Fixed Basket, minusplus (b) the amount of any incremental loans incurred under the Second Lien Fixed Basket (as defined below), plus (c) the amount of certain voluntary prepayments of the First Lien Credit Facilities, plus (d) (c) an unlimited amount subject to pro forma compliance with a first lien net leverage ratio not to exceed 4.75 to 1.00.
Under the U.S. Dollar Revolver, $7.5 million of commitments will mature on February 5, 2021, and $17.5 million along with all commitments under the Multicurrency Revolver will mature on February 5, 2022. The First Lien Term Loan will mature on February 5, 2024.
The First Lien Term Loan requires equal quarterly repayments equal to 0.25% of the original principal amount.
Second Lien Credit Facility
On the Refinancing Date, we entered into the Second Lien Credit Agreement with Wilmington Trust, National Association, or Wilmington Trust, as administrative agent and collateral agent, and the other parties thereto. The Second Lien Credit Agreement provides for a term loan facility, or the Second Lien Credit Facility, in an original aggregate principal amount and has a final maturity date of $315.0 million.
In October 2018, we completed our IPO and used a portion of our net proceeds from the offering to repay the borrowings under our Second Lien Credit Facility.


February 5, 2027.
Summary of Cash Flows
Summarized cash flow information is as follows:
Nine Months Ended
September 30,		Three Months Ended March 31,
2018 201720232022
   
(in thousands)(in thousands)
Net cash provided by operating activities$166,082
 $135,899
Net cash provided by operating activities$799 $40,258 
Net cash used in investing activities(64,739) (31,497)
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities12,119 (10,800)
Net cash used in financing activities(97,287) (30,768)Net cash used in financing activities(5,272)(9,629)
Effect of exchange rate changes on cash and cash equivalents(3,439) 8,042
Effect of exchange rate changes on cash and cash equivalents(204)(727)
Net increase in cash and cash equivalents617
 81,676
Net increase in cash and cash equivalents$7,442 $19,102 
Operating Activities
Our primary source of cash from operating activities is cash collections from our customers. We expect cash inflows from operating activities to be affected by the timing of our sales. Our primary uses of cash from operating activities are for personnel-related expenditures, and other general operating expenses, as well as payments related to taxes, interest and facilities.
For the ninethree months ended September 30, 2018, netMarch 31, 2023 as compared to the three months ended March 31, 2022, the decrease in cash provided by operating activities was $166.1 million which consisted of a net loss of $87.3 million, adjusted for $266.2 million of non-cash expenses and other adjustments and a $12.8 million net changeprimarily due to increased cash outflows resulting from the changes in operating assets and liabilities. Non-cash expenses include depreciation and amortization of $193.9 million primarily related to the intangible assets recorded in connection with the Take Private and other acquisitions. The other adjustments include the loss on extinguishment of debt related to amendments to our credit facilities of $60.6 million. Significant changes in operating assets and liabilities include:
Deferred revenue increasedrelated to the timing of sales and cash payments and receipts. The net cash outflow resulting from the changes in our operating assets and liabilities was $43.1 million for the three months ended March 31, 2023 as compared to $0.9 million for the balance at Decemberthree months ended March 31, 2017 resulting2022.
Cash flow from operating activities during the three months ended March 31, 2023 includes the $26.0 million consolidated putative class action lawsuit settlement payment made during the period. We expect that this settlement payment will be reimbursed entirely by the applicable directors’ and officers’ liability insurance in a future period. In addition, cash flow from operating activities was impacted by an increase in operating liabilitiescash paid for interest and reflectingan increase in the receivable for expected insurance recoveries related to Cyber Incident litigation costs of $9.8 million. Cash flow from operations for the three months ended March 31, 2022 included a cash inflow of $22.3$5.0 million of cybersecurity insurance proceeds received for the nine months ended September 30, 2018.
Changes in our income tax receivable and payable balances are significant components of our cash flows from operating activities. The cash outflows related to our income tax payable balance includes $10.4 millioncosts incurred related to the impacts of the Tax Act enacted during 2017 and $8.0 million of income tax payments for the nine months ended September Cyber Incident.
30 2018. See Note11. Income Taxes in the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Form 10-Q for additional information.
For the nine months ended September 30, 2017, net cash provided by operating activities was $135.9 million, which consisted of a net loss of $44.1 million, adjusted for $156.1 million of non-cash expenses and other adjustments and a $23.9 million net change in operating assets and liabilities. Non-cash expenses include depreciation and amortization of $187.1 million primarily related to the intangible assets recorded in connection with the Take Private and other acquisitions. The significant changes in operating assets and liabilities during the period include the following:

Deferred revenue increased as compared to the balance in prior period at September 30, 2017 resulting in an increase in operating liabilities and reflecting a cash inflow of $24.2 million for the nine months ended September 30, 2017. The deferred revenue balances were impacted by the purchase accounting adjustments made at the Take Private.
Investing Activities
NetInvesting cash used in investing activities for the nine months ended September 30, 2018 wasflows consist primarily related to $60.6 million of cash used for acquisitions, purchases and $12.8 millionmaturities of cash usedinvestments, capital expenditures and purchases of intangible assets. Our capital expenditures primarily relate to purchase propertypurchases of computers, servers and equipment offset by $10.7 millionand leasehold improvements to support our domestic and international office locations. Purchases of cash proceeds from the saleintangible assets consist primarily of a cost-method investment.capitalized research and development costs.
Net cash used inprovided by investing activities forincreased in the ninethree months ended September 30, 2017 wasMarch 31, 2023, as compared to the three months ended March 31, 2022, primarily relateddue to $24.0$15.0 million in maturities of short-term investments and the absence in the period of cash used for acquisitionsthe acquisition of Monalytic, Inc., a monitoring, analytics and $6.3 million of cash used to purchase property and equipment.professional services company we acquired during the prior year period.
Financing Activities
Financing cash flows consist primarily of issuance and repayments associated with our long-term debt, the proceeds from the issuance of shares of common stock through equity incentive plans and the repurchase of unvested incentive restricted stock and common stock to satisfy withholding tax requirements related to the settlement of restricted stock units.
Net cash used in financing activities fordecreased in the ninethree months ended September 30, 2018 wasMarch 31, 2023 as compared to the three months ended March 31, 2022, primarily due to debt principala $5.0 million decrease in repayments of $694.9 million, offset by $627.0 million of additional proceeds from the refinancing of our debt agreements. These cash flows primarily relate to deemed gross repayments and borrowings made in connection with the refinancing of debt agreements and $14.9 million of total quarterly principal payments under our First Lien Credit Agreement.Term Loan. In addition, we paid a redemption premium of $22.7 million in connection with our debt refinancing in November 2022, no quarterly debt repayment was required in the redemptionthree months ended March 31, 2023.
In the three months ended March 31, 2023 and exchange2022, we withheld and retired shares of common stock to satisfy $7.0 million and $6.4 million, respectively, of statutory withholding tax requirements that we pay in cash to the appropriate taxing authorities on behalf of our Second Lien Notes.
Net cash used in financing activities for the nine months ended September 30, 2017 was primarily due to debt repayments of $32.7 millionemployees related to the repaymentsettlement of outstanding borrowings underrestricted stock units during the period. These shares are treated as common stock repurchases in our revolving credit facility and quarterly principal paymentscondensed consolidated financial statements.

under our First Lien Credit Agreement. These repayments were offset by $3.5 million of additional proceeds from refinancing related to Amendment 3 of our First Lien Credit Agreement.
Contractual Obligations and Commitments
As of September 30, 2018, with the exception of long-term debt obligations and cash interest expense,March 31, 2023, there have been no material changes in our contractual obligations and commitments as of December 31, 20172022 that were disclosed in our final prospectus dated October 18, 2018 and filedAnnual Report on Form 10-K.
During the three months ended March 31, 2023, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the SEC on October 22, 2018 pursuant to Rule 424(b)purpose of the Securities Act of 1933, as amended, and included below.facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
The following table summarizes our outstanding contractual obligations as of December 31, 2017 that require us to make future cash payments:
 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 leases144,049
 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 compensation5,549
 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.
In March 2018, we entered into Amendment No. 4 to First Lien Credit Agreement. In addition, we terminated our Second Lien Notes Agreement and entered into a new Senior Secured Second Lien Credit Agreement. The amounts below reflect the obligations due under these new and amended agreements as of September 30, 2018. The estimated cash interest expense is based upon (i) an interest rate of 5.24% on our First Lien and (ii) an interest rate of 9.49% on our Second Lien.
In October 2018, we completed our IPO and used a portion of our net proceeds from the offering to repay the $315.0 million of borrowings under our Second Lien Credit Facility.
The following table summarizes principal maturities and estimated cash interest expense as of September 30, 2018:
 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, as amended$2,290,075
 $4,975
 $39,800
 $39,800
 $2,205,500
Cash interest expense739,511
 34,101
 268,564
 263,966
 172,880
Total$3,029,586
 $39,076
 $308,364
 $303,766
 $2,378,380
(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.
(4)
As a result of the Take Private, certain restricted stock units, or RSUs, not subject to accelerated vesting were cancelled 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 based on the underlying original RSU vesting schedule and subject to the continued employment of the holders of those RSUs. See Note 12. Commitments and Contingenciesin 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.
(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.

Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in conformity with GAAP and require our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates, and such estimates may change if the underlying conditions or assumptions change. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected, perhaps materially.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application, while in other cases, management’s judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions. We believe that these accounting policies requiring significant management judgment and estimates are critical to understanding our historical and future performance, as these policies relate to the more significant areas of our financial results. These critical accounting policies are:
•the valuation of goodwill, intangibles, long-lived assets and contingent consideration;
•revenue recognition;
•stock-based compensation;
•income taxes; and
•loss contingencies.
A full description of our critical accounting policies that involve significant management judgment appears in our final prospectus dated October 18, 2018 andAnnual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on OctoberFebruary 22, 2018 pursuant to Rule 424(b) of the Securities Act of 1933, as amended.2023. There have been no material changes to our critical accounting policies and estimates since that time.
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Recent Accounting Pronouncements
See Note 2. Summary of Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, for a full description of recent accounting pronouncements, if any, which is incorporated herein by reference.
Off-Balance Sheet Arrangements
During the nine months ended September 30, 2018, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We had cash and cash equivalents of $278.3$129.2 million and $277.7$121.7 million at September 30, 2018March 31, 2023 and December 31, 2017,2022, respectively. We also had short-term investments classified as available-for-sale securities of $11.6 million and $27.1 million at March 31, 2023 and December 31, 2022, respectively. Our cash and cash equivalents consist primarily of bank demand deposits, and money market funds.funds and investments with original maturities of three months or less. Our short-term investments consist primarily of corporate bonds and U.S. Treasury securities. We hold cash and cash equivalents and short-term investments for working capital purposes. Our investments are made for capital preservation purposes, and we do not enter into investments for trading or speculative purposes.
We do not have material exposure to market risk with respect to our cash and cash equivalents, as these consist primarily of highly liquid investments purchased with original maturities of three months or less at September 30, 2018.March 31, 2023. We strive to maintain our cash deposits and invest in money market funds with multiple financial institutions of reputable credit and perform periodic evaluations of the relative credit standing of the financial institutions. We believe the financial institutions that hold our cash and cash equivalents are financially sound and minimal credit risk exists with respect to cash.
Our portfolio of available-for-sale securities classified as investments is subject to market risk due to changes in interest rates. Changes in interest rates could impact our future investment income, or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our investment securities as “available for sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.
We had total indebtedness with an outstanding principal balance of $2.3 billion and $2.4$1.25 billion at September 30, 2018each of March 31, 2023 and December 31, 2017, respectively.2022. Borrowings outstanding under our various credit agreementsagreement bear interest at variable rates equal to applicable margins plus specified base rates or LIBOR-based ratesa secured overnight financing rate (“SOFR”) with a 1%0% floor. As of September 30, 2018March 31, 2023 and December 31, 2017,2022, the annual weighted-average rate on borrowings was 5.8%8.81% and 6.5%8.32%, respectively. If there was a hypothetical 100 basis point increase in interest rates, the annual impact to interest expense would be approximately $22.9$12.5 million. This hypothetical change in interest expense has been calculated based on the borrowings outstanding at December 31, 20172022 and a 100 basis point per annum change in interest rate applied over a one-year period.
We do not have material exposure to fair value market risk with respect to our total long-term outstanding indebtedness which consists of $2.3$1.25 billion U.S. dollar term loans as of September 30, 2018,March 31, 2023, not subject to market pricing.
See Note6. Debtin 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 debt.

Foreign Currency Exchange Risk
As a global company, we face exposure to adverse movements in foreign currency exchange rates. We primarily conduct business in the following locations: the United States, Europe, Canada, South America and Australia. This exposure is the result of selling in multiple currencies, growth in our international investments, additional headcount in foreign countries and operating in countries where the functional currency is the local currency. Specifically, our results of operations and cash flows are subject to fluctuations in the following currencies: the Euro, British Pound Sterling and Australian Dollar against the United States Dollar, or USD. These exposures may change over time as business practices evolve and economic conditions change.change, including as a result of the impact of the war in Ukraine, geopolitical tensions involving China, instability in the banking sector and financial services industry, inflation, or changes in interest rates on the global economy. Changes in foreign currency exchange rates have had and could continue to have an adverse impact on our financial results and cash flows.
Our condensed consolidated statements of operations are translated into USD at the average exchange rates in each applicable period. Our international revenue, operating expenses and significant balance sheet accounts denominated in currencies other than the USD primarily flow through our United Kingdom and European subsidiaries, which have British Pound Sterling and Euro functional currencies, respectively.currency. This results in a two-step currency exchange process wherein the currencies other than the British Pound Sterling and Euro are first converted into thosethe functional currenciescurrency and then translated into USD for our consolidated financial statements. As an example, revenue for sales in Australia is translated from the Australian Dollar to the Euro and then into the USD.
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Our statement of operations and balance sheet accounts are also impacted by the re-measurement of non-functional currency transactions such as intercompany loans, cash accounts held by our overseas subsidiaries, accounts receivable denominated in foreign currencies, deferred revenue and accounts payable denominated in foreign currencies. Our foreign currency denominated intercompany loan was established as part of the Take Private to provide a conduit to utilize foreign earnings effectively. The gains (losses) associated with the changes in exchange rates on amounts borrowed are unrealized non-cash events. As of July 1, 2018, the foreign currency denominated intercompany loan is 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 Transaction Risk
Our foreign currency exposures typically arise from selling annual and multi-year maintenance contracts and subscriptions in multiple currencies, accounts receivable, intercompany transfer pricing arrangements and other intercompany transactions. Our foreign currency management objective is to minimize the effect of fluctuations in foreign exchange rates on selected assets or liabilities without exposing us to additional risk associated with transactions that could be regarded as speculative.
We utilize purchased foreign currency forward contracts to minimize our foreign exchange exposure on certain foreign balance sheet positions denominated in currencies other than the Euro. We do not enter into any derivative financial instruments for trading or speculative purposes. Our objective in managing our exposure to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations in such exchange rates on our earnings and cash flow. The notional amounts and currencies underlying our foreign currency forward contracts will fluctuate period to period as they are principally dependent on the balances of the balance sheet positions that are denominated in currencies other than the Euro held by our global entities. There can be no assurance that our foreign currency hedging activities will substantially offset the impact of fluctuation in currency exchange rates on our results of operations and functional positions. As of September 30, 2018March 31, 2023 and December 31, 2017,2022, we did not have any forward contracts outstanding and while we do not have a formal policy to settle all derivatives prior to the end of each quarter, our current practice is to do so. The effect of derivative instruments on our condensed consolidated statements of operations was insignificant for the ninethree months ended September 30, 2018March 31, 2023 and 2017.2022.
We are exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments, but we do not expect any counterparties to fail to meet their obligations given their high credit ratings. In addition, we diversify this risk across several counterparties and actively monitor their ratings.
Foreign Currency Translation Risk
Fluctuations in foreign currencies impact the amount of total assets, liabilities, revenue, operating expenses and cash flows that we report for our foreign subsidiaries upon the translation of these amounts into U.S. dollars. If there is a change in foreign currency exchange rates, the amounts of assets, liabilities, revenue, operating expenses and cash flows that we report in U.S. dollars for foreign subsidiaries that transact in international currencies may be higher or lower to what we would have reported using a constant currency rate. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions results in reduced assets, liabilities, revenue, operating expenses and cash flows for our international operations. Similarly, our assets, liabilities, revenue, operating expenses and cash flows will increase for our international operations if the U.S. dollar weakens against foreign currencies. The conversion of the foreign subsidiaries’ financial statements into U.S. dollars will also lead to remeasurement gains and losses recorded in income, or translation gains or losses that are recorded as a component of accumulated other comprehensive income (loss).

Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2018.March 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2018,March 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2018March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
FromFor a description of the lawsuits and government investigations or inquiries related to the Cyber Incident, see Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 9. Commitments and Contingenciesin the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, which description is incorporated herein by reference.
In addition, from time to time, we have been and may be involved in various legal proceedings and claims arising in our ordinary course of business. At this time,Other than with respect to the Cyber Incident, neither we nor any of our subsidiaries is a party to, and none of our respective property is the subject of, any material legal proceeding. However, the outcome of legal proceedings and claims brought against us are subject to significant uncertainty. Therefore, if one or more of these legal matters were resolved against us in the same reporting period for amounts in excess of management’s expectations, our consolidated financial statements for a particular period could be materially adversely affected.
Item 1A. Risk Factors
For a discussionWith the exception of the following updated risk factors, there have been no other material changes in our potential risks and uncertainties, see the informationrisk factors from those disclosed in Part I, Item 1A, under the heading "Risk Factors"“Risk Factors” in our final prospectus dated October 18, 2018Annual Report on Form 10-K for the year ended December 31, 2022.
Risks Related to Our Business and filedIndustry
Adverse developments affecting the financial services industry could have an adverse impact on our business, financial condition or results of operations.
Actual events involving reduced or limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, have in the past and may in the future lead to market-wide liquidity problems. For example, the closures of Silicon Valley Bank ("SVB") and Signature Bank in March 2023 have created bank-specific and broader financial institution liquidity risk and concerns. Although the U.S. government has taken measures to strengthen public confidence in the banking system and protect depositors, such steps may be insufficient to resolve the volatility in the financial markets and reduce the risk of additional bank failures. Future adverse developments with respect to specific financial institutions or the SECbroader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access working capital needs, and create additional market and economic uncertainty.
Although we do not hold any cash or cash equivalents at SVB or Signature Bank, and we do not have any banking, credit or other relationship with either SVB or Signature Bank, if other banks and financial institutions wind down and liquidate, enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on October 22, 2018 pursuant to Rule 424(b)our business and financial condition. In addition, the residual effects of the Securities Actcollapse of 1933, as amended. ThereSVB and Signature Bank and related instability in the global financial markets may cause difficulties for our customers and channel partners, resulting in reduced spending by them on our solutions. Finally, if any of our vendors have relationships with any of the banks that have been no material changes fromclosed, it could negatively impact their ability to deliver their services to the risk factors disclosedCompany.
More generally, these events have resulted in market disruption and volatility and could lead to greater instability in the credit and financial markets and a deterioration in confidence in economic conditions. Our operations may be adversely affected by any such economic downturn, liquidity shortages, volatile business environments, or unpredictable market conditions. The future effect of these events on the financial services industry and broader economy are unknown and difficult to predict but could include failures of other financial institutions to which we or our final prospectus.
Item 2. Unregistered Salescustomers, partners, vendors, or other counterparties face direct or more significant exposure. Any such developments could adversely impact our results of Equity Securitiesoperation and Use of Proceeds
On October 18, 2018, the Registration Statement on Form S-1 (File No.  333-227479) (the “Registration Statement”)financial position, and we cannot guarantee we will be able to avoid any negative consequences relating to our initial public offering was declared effective by the SEC. Pursuant to the Registration Statement, we registered an aggregate of 25,000,000 shares of our common stock, all of which were sold by us at a price to the public of $15.00 per share. Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC acted as the representatives of the underwriters in our initial public offering. We received 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. No payments of the net proceeds were made to our directors or officers or their associates, holders of 10% or more of any class of our equity securitiesthese recent developments or any affiliates. future related developments.
We used a portion of the net proceeds from the offering to repay $315.0 million in borrowings outstanding under our Second Lien Term Loan and a related voluntary prepayment fee of approximately $14.2 million concurrently with the closing of our initial public offering in October 2018. All of the remaining net proceeds are held in cash and have not been deployed. We intend to apply the remaining net proceeds to monthly interest payments under our First Lien Credit Agreement.
Issuer Purchases of Equity Securities
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 Class A Common Stock Class B Common Stock    
PeriodNumber 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, 201814.85
 1,179.85
 126,054
 3.58
 —
 —
September 1-30, 2018—
 —
 12,000
 3.54
 —
 —
       Total14.85
   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.

Item 6. Exhibits
EXHIBIT INDEX
Exhibit NumberExhibit 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
Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation of SolarWinds Corporation (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (File No. 001-38711), filed with the Securities and Exchange Commission on July 26, 2021)
3.3
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)
4.131.1*
Amended and Restated Stockholders' Agreement, dated October 18, 2018, by and among the Company and the stockholders' named therein
10.1
SolarWinds Corporation 2018 Equity Incentive Plan and forms of agreements thereunder
10.2
SolarWinds Corporation 2018 Employee Stock Purchase Plan
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
31.231.2*
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
32.132.1**
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.INS101*XBRL Instance DocumentInteractive Data Files (formatted as Inline XBRL)
101.SCH104*Cover Page Interactive Data File (formatted as Inline XBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Calculation Linkbase Document
101.DEFXBRL Taxonomy Definition Linkbase Document
101.LABXBRL Taxonomy Label Linkbase Document
101.PREXBRL Taxonomy Presentation Linkbase Documentand contained in Exhibit 101)

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

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SOLARWINDS CORPORATION
SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SOLARWINDS CORPORATION
Dated:May 4, 2023SOLARWINDS CORPORATION
By:
Dated:November 27, 2018By:/s/ J. Barton Kalsu
J. Barton Kalsu
Chief Financial Officer
(Principal Financial and Accounting Officer)





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