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SolarWinds (SWI)

Filed: 20 Jul 21, 7:53am
Exhibit 99.3
Unaudited Pro Forma Condensed Consolidated Financial Statements
On July 19, 2021, SolarWinds Corporation (“Company, “we”, “us” and “our”) completed the previously announced separation of our managed service provider (“MSP” or “N-able”) business into a newly created and separately traded public company, N-able, Inc. The separation was completed by means of a distribution in which each holder of our common stock, par value $0.001 per share, received one share of N-able’s common stock, par value $0.001, for every two shares of our common stock held of record as of the close of business on July 12, 2021 (the “Record Date”). After the distribution, we will not beneficially own any shares of common stock in N-able and will no longer consolidate N-able into our financial results for periods ending after July 19, 2021 (the entire transaction being referred to as the “Separation”).
The unaudited pro forma condensed consolidated financial statements have been derived from the Company’s historical consolidated financial statements and give effect to the Separation. The unaudited pro forma condensed consolidated statements of operations reflect the Company’s results as if the Separation had occurred as of January 1, 2018. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2021 reflects the Company’s financial position as if the Separation had occurred on such date. After the date of the Separation, the historical financial results of N-able will be reflected in our consolidated financial statements as discontinued operations under U.S. generally accepted accounting principles (“GAAP”) for all periods presented through the Separation date.
The unaudited pro forma condensed consolidated financial statements are not intended to be a complete presentation of the Company’s financial position or results of operations had the Separation occurred as of and for the periods indicated. In addition, the unaudited pro forma condensed consolidated financial statements are provided for illustrative and informational purposes only and are not necessarily indicative of the Company’s future results of operations or financial condition had the Separation and related transactions been completed on the dates assumed. The unaudited pro forma condensed consolidated financial information should be read together with our historical consolidated financial statements and accompanying notes.
The “Historical” column in the unaudited pro forma condensed consolidated financial statements reflects our historical condensed consolidated financial statements for the periods presented and does not reflect any adjustments related to the Separation and related transactions.
The “N-able Separation” column in the unaudited pro forma condensed consolidated financial statements reflects the operations, assets, liabilities and equity of N-able, which have been derived from N-able’s historical condensed financial statements prepared on a “carve-out” basis of accounting.
The unaudited pro forma condensed consolidated financial statements have been prepared to include transaction accounting and autonomous entity adjustments to reflect the financial condition and results of operations as if we were a separate stand-alone entity in accordance with GAAP.
The “Transaction Accounting Adjustments” column in the unaudited pro forma condensed consolidated financial statements reflects the effects of N-able’s legal separation from the Company and includes the following adjustments:
the impact of the separation agreement, tax matters agreement, employee matters agreement, transition services agreement, and other commercial agreements between the Company and N-able;
the settlement of related party debt with N-able; and
the elimination of our net investment in N-able.
The “Autonomous Entity Adjustments” column in the unaudited pro forma condensed consolidated financial statements reflects the operations and financial position of the Company as an autonomous entity when N-able was previously part of the Company, and includes the following adjustments:

the contribution by the Company to N-able, pursuant to the separation agreement, of all assets and liabilities that comprises our business; and
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other adjustments as described in the notes to these unaudited pro forma condensed consolidated financial statements.

The pro forma adjustments represent our best estimates based on information currently available and may differ from those that will be calculated to report N-able as discontinued operations in our future filings.

The unaudited pro forma condensed financial statements have been prepared in accordance with Article 11 of the SEC’s Regulation S-X. In May 2020, the SEC adopted Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” or the “Final Rule”. The Final Rule became effective on January 1, 2021 and the unaudited pro forma condensed financial statements is presented in accordance therewith. The unaudited pro forma condensed consolidated financial statements do not include adjustments to reflect any potential synergies that may be achievable, or dis-synergy costs that may occur, in connection with the Separation.













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SolarWinds Corporation
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 2021
(In thousands, except share and per share information)
HistoricalN-able Separation (a)Transaction Accounting AdjustmentsNotesAutonomous Entity AdjustmentsNotesPro Forma Results
Assets
Current assets:
Cash and cash equivalents$374,352 $(111,218)$617,224 (b-d)$— $880,358 
Accounts receivable, net of allowances of $3,023 as of March 31, 2021116,271 (29,033)— 4,137 (n-p)91,375 
Income tax receivable2,286 (1,810)115 (e)— 591 
Prepaid and other current assets37,501 (8,543)19,134 (f)— 48,092 
Total current assets530,410 (150,604)636,473 4,137 1,020,416 
Property and equipment, net58,507 (19,311)— — 39,196 
Operating lease assets108,030 (13,395)— — 94,635 
Deferred taxes143,080 (3,227)1,031 (e)— 140,884 
Goodwill4,192,328 (855,578)— — 3,336,750 
Intangible assets, net524,320 (18,425)— — 505,895 
Other assets, net37,837 (7,569)— — 30,268 
Total assets$5,594,512 $(1,068,109)$637,504 $4,137 $5,168,044 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$19,299 $(2,181)$— $864 (n-p)$17,982 
Payable due to SolarWinds— (19,134)19,134 (f-g)— — 
Payable due to N-able— — 780 (h)— 780 
Accrued liabilities and other56,594 (19,968)588 (g)— 37,214 
Current operating lease liabilities18,476 (2,882)— — 15,594 
Accrued interest payable154 — — — 154 
Accrued interest payable due to SolarWinds— (5,722)5,722 (b)— — 
Income taxes payable11,324 (1,803)129(e)— 9,650 
Current portion of deferred revenue343,412 (9,688)— — 333,724 
Current debt obligation19,900 — — — 19,900 
Total current liabilities469,159 (61,378)26,353 864 434,998 
Long-term liabilities:
Deferred revenue, net of current portion34,853 (137)— — 34,716 
Non-current deferred taxes47,706 (4,641)9,188 (e)— 52,253 
Non-current operating lease liabilities111,102 (14,162)— — 96,940 
Other long-term liabilities101,590 (409)— — 101,181 
Long-term debt, net of current portion1,879,936 — — — 1,879,936 
Due to SolarWinds— (372,650)372,650 (b)— — 
Total liabilities2,644,346 (453,377)408,191 864 2,600,024 
Commitments and contingencies
Stockholders’ equity:
Common Stock, $0.001 par value: 1,000,000,000 shares authorized and 315,403,617 shares issued and outstanding as of March 31, 2021315 — — — 315 
Preferred Stock, $0.001 par value: 50,000,000 shares authorized and no shares issued and outstanding as of March 31, 2021— — — — — 
Additional paid-in-capital/ Parent company net investment3,124,493 (585,060)229,313 (b-e), (g-h)— 2,768,746 
Accumulated other comprehensive income61,462 (29,672)— — 31,790 
Accumulated deficit(236,104)— — 3,273 (n-p)(232,831)
Total stockholders’ equity2,950,166 (614,732)229,313 3,273 2,568,020 
Total liabilities and stockholders’ equity$5,594,512 $(1,068,109)$637,504 $4,137 $5,168,044 
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
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SolarWinds Corporation
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2021
(In thousands, except per share information)
HistoricalN-able Separation (a)Transaction Accounting AdjustmentsNotesAutonomous Entity AdjustmentsNotesPro Forma Results
Revenue:
Subscription$108,988 $(80,671)$— $— $28,317 
Maintenance123,040 (2,519)— — 120,521 
Total recurring revenue232,028 (83,190)— — 148,838 
License24,874 — — — 24,874 
Total revenue256,902 (83,190)— — 173,712 
Cost of revenue:
Cost of recurring revenue26,958 (11,304)— — 15,654 
Amortization of acquired technologies43,121 (2,704)— — 40,417 
Total cost of revenue70,079 (14,008)— — 56,071 
Gross profit186,823 (69,182)— — 117,641 
Operating expenses:
Sales and marketing83,297 (25,714)(61)(i-j)— 57,522 
Research and development37,761 (12,042)639 (i-j)— 26,358 
General and administrative47,710 (20,228)3,383 (i-j)— 30,865 
Amortization of acquired intangibles20,057 (6,019)— — 14,038 
Total operating expenses188,825 (64,003)3,961 — 128,783 
Operating loss(2,002)(5,179)(3,961)— (11,142)
Other (expense) income:
Interest expense, net(16,174)6,518 (6,518)(k)— (16,174)
Other income, net127 529 — — 656 
Total other (expense) income(16,047)7,047 (6,518)— (15,518)
Loss before income taxes(18,049)1,868 (10,479)— (26,660)
Income tax benefit(10,889)(2,410)8,768 (l-m)— (4,531)
Net loss$(7,160)$4,278 $(19,247)$— $(22,129)
Net loss available to common stockholders$(7,160)$(22,129)
Net loss available to common stockholders per share:
Basic loss per share$(0.02)$(0.07)
Diluted loss per share$(0.02)$(0.07)
Weighted-average shares used to compute net loss available to common stockholders per share:
Shares used in computation of basic loss per share314,246 314,246 
Shares used in computation of diluted loss per share314,246 314,246 
See accompanying notes to unaudited pro forma condensed consolidated financial statements.







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SolarWinds Corporation
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Year Ended December 31, 2020
(In thousands, except per share information)
HistoricalN-able Separation (a)Transaction Accounting AdjustmentsNotesAutonomous Entity AdjustmentsNotesPro Forma Results
Revenue:
Subscription$396,496 $(292,027)$— $— $104,469 
Maintenance478,284 (10,371)— — 467,913
Total recurring revenue874,780 (302,398)— — 572,382
License144,461 (473)— — 143,988
Total revenue1,019,241 (302,871)— — 716,370
Cost of revenue:
Cost of recurring revenue93,255 (38,916)— — 54,339 
Amortization of acquired technologies181,361 (24,257)— — 157,104 
Total cost of revenue274,616 (63,173)— — 211,443 
Gross profit744,625 (239,698)— — 504,927 
Operating expenses:
Sales and marketing298,452 (82,034)1,069 (i-j)— 217,487 
Research and development126,216 (42,719)2,257 (i-j)— 85,754 
General and administrative137,541 (57,331)18,098 (i-j)— 98,308 
Amortization of acquired intangibles74,973 (23,848)— — 51,125 
Total operating expenses637,182 (205,932)21,424 — 452,674 
Operating income107,443 (33,766)(21,424)— 52,253 
Other expense:
Interest expense, net(75,884)28,137 (28,139)(k)— (75,886)
Other expense, net(1,240)773 — — (467)
Total other expense(77,124)28,910 (28,139)— (76,353)
(Loss) income before income taxes30,319 (4,856)(49,563)— (24,100)
Income tax benefit(128,156)(12,014)1,494 (l-m)— (138,676)
Net income$158,475 $7,158 (51,057)$— $114,576 
Net income available to common stockholders$157,508 $113,877 
Net income available to common stockholders per share:
Basic earnings per share$0.51 $0.37 
Diluted earnings per share$0.50 $0.36 
Weighted-average shares used to compute net income available to common stockholders per share:
Shares used in computation of basic earnings per share310,554 310,554 
Shares used in computation of diluted earnings per share315,563 315,563 
See accompanying notes to unaudited pro forma condensed consolidated financial statements.









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SolarWinds Corporation
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Year Ended December 31, 2019
(In thousands, except per share information)
HistoricalN-able Separation (a)Transaction Accounting AdjustmentsNotesAutonomous Entity AdjustmentsNotesPro Forma Results
Revenue:
Subscription$320,747 $(251,695)$— $— $69,052 
Maintenance446,450 (10,558)— — 435,892 
Total recurring revenue767,197 (262,253)— — 504,944 
License165,328 (1,265)— 215 (o-p)164,278 
Total revenue932,525 (263,518)— 215 669,222 
Cost of revenue:
Cost of recurring revenue79,571 (33,253)— 269(p)46,587 
Amortization of acquired technologies175,883 (24,067)— — 151,816 
Total cost of revenue255,454 (57,320)— 269 198,403 
Gross profit677,071 (206,198)— (54)470,819 
Operating expenses:
Sales and marketing264,199 (70,254)212 (i)— 194,157 
Research and development110,362 (37,172)2,692 (i)32 (o)75,914 
General and administrative97,525 (38,971)15,798 (i)— 74,352 
Amortization of acquired intangibles69,812 (23,189)— — 46,623 
Total operating expenses541,898 (169,586)18,702 32 391,046 
Operating income135,173 (36,612)(18,702)(86)79,773 
Other (expense) income:
Interest expense, net(108,071)33,805 (33,812)(k)— (108,078)
Other income, net402 (386)— 300 (n)316 
Total other expense(107,669)33,419 (33,812)300 (107,762)
(Loss) income before income taxes27,504 (3,193)(52,514)214 (27,989)
Income tax (benefit) expense8,862 (5,705)(11,065)(l-m)48 (m)(7,860)
Net (loss) income$18,642 $2,512 $(41,449)$166 $(20,129)
Net (loss) income available to common stockholders$18,441 $(20,129)
Net (loss) income available to common stockholders per share:
Basic (loss) earnings per share$0.06 $(0.07)
Diluted (loss) earnings per share$0.06 $(0.07)
Weighted-average shares used to compute net (loss) income available to common stockholders per share:
Shares used in computation of basic (loss) earnings per share306,768 306,768 
Shares used in computation of diluted (loss) earnings per share311,168 306,768 
See accompanying notes to unaudited pro forma condensed consolidated financial statements.









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SolarWinds Corporation
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Year Ended December 31, 2018
(In thousands, except per share information)
HistoricalN-able Separation (a)Transaction Accounting AdjustmentsNotesAutonomous Entity AdjustmentsNotesPro Forma Results
Revenue:
Subscription$265,591 $(216,750)$— $— $48,841 
Maintenance402,938 (9,318)— — 393,620 
Total recurring revenue668,529 (226,068)— — 442,461 
License164,560 (2,226)— 877 (o-p)163,211 
Total revenue833,089 (228,294)— 877 605,672 
Cost of revenue:
Cost of recurring revenue70,744 (30,920)— 684 (p)40,508 
Amortization of acquired technologies175,991 (26,428)— — 149,563 
Total cost of revenue246,735 (57,348)— 684 190,071 
Gross profit586,354 (170,946)— 193 415,601 
Operating expenses:
Sales and marketing227,468 (62,278)393 (i)— 165,583 
Research and development96,272 (32,892)1,732 (i)129 (o)65,241 
General and administrative80,641 (33,286)10,157 (i)51 (n)57,563 
Amortization of acquired intangibles66,788 (23,716)— — 43,072 
Total operating expenses471,169 (152,172)12,282 180 331,459 
Operating income115,185 (18,774)(12,282)13 84,142 
Other expense:
Interest expense, net(142,008)34,523 (34,714)(k)— (142,199)
Other expense, net(94,887)1,742 — 3,260 (n)(89,885)
Total other expense(236,895)36,265 (34,714)3,260 (232,084)
Loss before income taxes(121,710)17,491 (46,996)3,273 (147,942)
Income tax benefit(19,644)3,799 (19,705)(l-m)756 (m)(34,794)
Net loss$(102,066)$13,692 $(27,291)$2,517 $(113,148)
Net income available to common stockholders$364,635 $353,934 
Net income available to common stockholders per share:
Basic earnings per share$2.60 $2.52 
Diluted earnings per share$2.56 $2.48 
Weighted-average shares used to compute net income available to common stockholders per share:
Shares used in computation of basic earnings per share140,301 140,301 
Shares used in computation of diluted earnings per share142,541 142,541 
See accompanying notes to unaudited pro forma condensed consolidated financial statements.













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Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

The adjustments included in the unaudited pro forma condensed consolidated financial statements are described below:

(a)Reflects the operations, assets, liabilities and equity of N-able, which have been derived from N-able’s historical combined financial statements prepared on a “carve-out” basis of accounting.

Note 1: Transaction Accounting Adjustments

This note should be read in conjunction with other notes in the pro forma condensed consolidated financial statements. Adjustments included in the column under the heading “Transaction Accounting Adjustments” represent the following:                

(b)Reflects the settlement of the outstanding related party indebtedness between us and N-able of $372.7 million. To settle the outstanding related party indebtedness, N-able will enter into new debt for an estimated principal amount of $350.0 million and estimated debt issuance costs of $9.9 million. The adjustment includes the removal of $5.7 million of related accrued and unpaid interest payable.

(c)Reflects an estimated cash payment N-able will distribute to SolarWinds in connection with the Separation.

(d)In connection with the Separation, N-able will enter into privately negotiated agreements with certain accredited investors to sell newly-issued shares of N‑able common stock for net proceeds of $216 million. The transaction is referred to as the "Private Placement". Upon the closing of the Private Placement, and prior to consummation of the separation and distribution, N-able will pay a dividend to SolarWinds in an amount equal to the net proceeds of the Private Placement. This adjustment reflects the dividend payment N-able will distribute to SolarWinds in connection with the Private Placement.

(e)Represents the pro forma adjustments for income taxes after discontinued operations were removed in connection with the Separation.

(f)Reflects outstanding intercompany trade receivables due from N-able that will remain outstanding upon completion of the Separation.

(g)Represents intercompany employee related liabilities that were historically assigned to N-able on a carve-out basis of accounting which were fully eliminated in the carve-out basis of accounting and are still fully eliminated under the discontinued operation basis of accounting.

(h)Reflects outstanding intercompany trade payables due to N-able that will remain outstanding upon completion of the Separation.

(i)Adjustment represents general corporate overhead costs related to executive management, finance, legal, information technology, and other shared services functions that were historically assigned to N-able on a carve-out basis of accounting which SolarWinds expect to be representative of pro forma continuing operations. The pro forma adjustments are summarized below:
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For the three months ended March 31, 2021For the year ended December 31, 2020For the year ended December 31, 2019For the year ended December 31, 2018
(in thousands)
Sales and marketing$11$1,160$212$393
Research and development6492,3132,6921,732
General and administrative9,53328,22915,79810,157
$10,193$31,702$18,702$12,282


(j)Represents the transaction costs directly attributable to the separation of N-able, which will be retrospectively reclassified to discontinued operations upon completion of the Separation. There were no transaction costs for the years ended December 31, 2019 and 2018, respectively. The pro forma adjustments are summarized below:
For the three months ended March 31, 2021For the year ended December 31, 2020
(in thousands)
Sales and marketing$(72)$(91)
Research and development(10)(56)
General and administrative(6,150)(10,131)
$(6,232)$(10,278)
                              ��                                                                                                                                                                         

(k)Reflects the removal of the historical interest expense related to the outstanding related party indebtedness expected to be repaid as described in Note (b) above.

(l)Reflects the removal of the income tax effect of the historical interest expense and income related to the outstanding related party indebtedness as described in Notes (b) and (k) above. The pro forma adjustments are summarized below:
For the three months ended March 31, 2021For the year ended December 31, 2020For the year ended December 31, 2019For the year ended December 31, 2018
(in thousands)
Income tax expense (benefit)$349$1,490$(4,763)$(8,132)

(m)Represents the income tax effect of the pro forma adjustments calculated using enacted statutory tax rates applicable at the legal entity in which the pro forma adjustments were made.
                                                                                                                                                                        
Note 2: Autonomous Entity Adjustments

This note should be read in conjunction with other notes in the pro forma condensed consolidated financial statements. Adjustments included in the column under the heading “Autonomous Entity Adjustments” represent the following:

(n)In connection with the Separation, the Company and N-able entered into a transition services agreement whereby the Company and N-able will provide certain post-closing services to each other on a transitional basis. As such, a pro forma adjustment has been recorded to general and administrative expenses for services incurred by the Company from N-able and a pro forma adjustment has been recorded to other
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income for services provided by the Company to N-able to reflect this contractual arrangement. The pro forma adjustments are summarized below:
    
For the year ended December 31, 2019For the year ended December 31, 2018
(in thousands)
General and administrative$— $51 
Other income300 3,260 
$300 $3,209 

(o)Represents the impact of the software cross license agreement that will be entered into between N-able and the Company after the Separation pursuant to which N-able will grant to the Company a generally perpetual, irrevocable, nonexclusive, worldwide and, subject to certain exceptions, royalty-free license to certain software libraries and internal tools for limited uses. We will be able to sublicense our rights to third parties solely for use on behalf of us. We will pay a license fee to N-able for the license to certain software libraries. We will also grant to N-able a generally perpetual, irrevocable, non-exclusive, worldwide and, subject to certain exceptions, royalty-free license to certain software libraries and internal tools for limited uses. We will be able to sublicense our rights to third parties solely for use on behalf of us. The pro forma adjustments are summarized below:
For the year ended December 31, 2019For the year ended December 31, 2018
(in thousands)
License revenue$113 $454 
Research and development32 129 
$81 $325 
                                                                
                                                                    
(p)Represents the impact of the software OEM agreement that will be entered into between N-able and us after the Separation pursuant to which N-able will grant to us a non-exclusive and royalty-bearing license to market, advertise, distribute and sublicense certain N-able software products to customers on a worldwide basis. We will enter into a substantially similar software OEM agreement under which we will grant to N-able a non-exclusive and royalty-bearing license to market, advertise, distribute and sublicense certain of our software products to customers on a worldwide basis. The pro forma adjustments are summarized below:
For the year ended December 31, 2019For the year ended December 31, 2018
(in thousands)
License revenue$102 $423 
Cost of recurring revenue269 684 
$(167)$(261)











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The following table illustrates the accumulated impact of footnotes a, b, c and d:
March 31, 2021
(in thousands)
Cash and cash equivalents
Historical$374,352 
N-able Separation (a)(111,218)
N-able repayment of outstanding indebtedness (b)372,650 
Cash distribution to SolarWinds (c)28,574 
Dividend payment to SolarWinds (d)216,000 
$880,358 

The following table illustrates the accumulated impact of footnotes a, b, c, d, e, g and h:
March 31, 2021
(in thousands)
Additional paid-in-capital/Parent company net investment
Historical$3,124,493 
N-able separation (a)(585,060)
Removal of unpaid interest expense (b)(5,722)
Cash distribution to SolarWinds (c)28,574 
Dividend payment to SolarWinds (d)216,000 
Tax adjustments (e)(8,171)
Intercompany employee related liabilities elimination (g)(588)
Outstanding trade payables due to N-able (h)(780)
$2,768,746 
                            
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