N-able, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. The filing was signed March 7, 2022. N-able provides subscription software and related services to managed service providers (MSPs), which use its platform to manage, secure and back up small and midsize businesses.
Business context and reporting period
N-able became an independent public company on July 19, 2021, following its spin-off from SolarWinds; its shares trade on the NYSE as NABL. Results through July 19 are presented on a carve-out basis, while results thereafter reflect standalone operations, limiting direct comparability with prior periods. At year-end, the company reported approximately 25,000 customers and 1,678 MSP partners with more than $50,000 of annualized recurring revenue (ARR), up 14% from 2020.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $346.5 million | $302.9 million |
| Subscription revenue | $336.8 million | $292.0 million |
| Gross profit / gross margin | $294.0 million / 84.8% | $239.7 million / 79.1% |
| Operating income / operating margin | $33.3 million / 9.6% | $33.8 million / 11.1% |
| Net income (loss) | $0.1 million | $(7.2) million |
| Adjusted EBITDA / margin | $113.3 million / 32.7% | $120.6 million / 39.8% |
| Cash from operating activities | $45.3 million | $85.7 million |
| Cash and cash equivalents at year-end | $66.7 million | $99.8 million |
| Debt at year-end | $338.9 million, net of issuance costs | $372.7 million related-party debt |
Revenue increased 14.4%; subscription revenue grew 15.3%. Dollar-based net revenue retention was 110%, compared with 109% in 2020. The company reported fourth-quarter revenue of $89.5 million versus $79.9 million, net income of $2.1 million versus a $9.9 million loss, and Adjusted EBITDA of $27.8 million versus $30.6 million.
Cash from operations declined year over year, which management attributed primarily to working-capital movements and changes in affiliate balances. Investing activities used $34.8 million and financing activities used $42.3 million in 2021. The company had a $350 million term loan and an undrawn $60 million revolving facility; it reported compliance with debt covenants. Management stated available cash and operating cash flows were expected to fund operations and capital commitments for at least 12 months.
Material changes versus prior periods
- Revenue growth continued, led by security and data protection solutions; subscription revenue reached 97.2% of total revenue.
- Gross margin improved mainly because amortization of acquired technologies fell to $5.8 million from $24.3 million. Operating income was broadly flat as higher sales and marketing, research and development, and general and administrative expenses offset this benefit.
- Adjusted EBITDA declined 6.0%, and its margin fell 7.1 percentage points. The measure excludes significant items, including stock compensation and spin-off costs.
- Interest expense decreased to $20.5 million from $28.1 million following repayment of SolarWinds-related debt and refinancing under the new credit agreement. Year-end borrowings are floating-rate and expose the company to rate increases.
- Operating cash flow fell to $45.3 million from $85.7 million. Cash declined by $33.1 million during 2021.
- Standalone transition costs increased expenses: 2021 spin-off costs were $15.7 million, versus $7.4 million in 2020. The company also reported $29.4 million of stock-based compensation expense.
Outlook, commentary, risks and unusual items
The 10-K provides no specific numerical revenue or earnings guidance. Management described continued investment in sales, research and development, security, and standalone-company infrastructure. It cited partner expansion, broader product adoption, and digital transformation as growth drivers, while noting uncertainty about sustaining cash flow and profitability.
Management said the COVID-19-related slowdown in partner adds, churn and downgrades seen in 2020 improved from the third quarter of 2020 through the fourth quarter of 2021. It also said the SolarWinds cyber incident adversely affected N-able’s reputation, new subscription sales and expansion rates in 2021. SolarWinds reported no Sunburst malware in N-able products; N-able nevertheless described potential continuing reputational, legal and cybersecurity exposure. SolarWinds indemnification obligations are subject to the separation agreements.
Other notable risks include substantial debt and variable interest rates; competition and subscription-renewal dependence; foreign currency, privacy and regulatory exposure; and operational risks associated with the standalone transition and the expiration of transition services from SolarWinds, expected around the end of 2022. The filing also flags uncertainty affecting operations and development resources in Belarus and Ukraine. N-able reported no material legal proceedings and no goodwill impairment indicators in its 2021 annual assessment. The effective tax rate was 99.0%, reflecting, among other factors, U.S. deferred-tax valuation allowances and spin-off-related items.
Important facts for investors to verify
- Check subsequent results for subscription growth, retention, partner expansion and the effect of the cyber incident on new sales and renewals.
- Review cash conversion and working-capital trends alongside Adjusted EBITDA; the filing cautions that Adjusted EBITDA excludes cash needs such as debt service, taxes and capital expenditures.
- Monitor debt principal, floating-rate exposure, covenant requirements and the availability of the revolving facility.
- Assess standalone costs, transition-service replacement, and whether operating expenses and margins improve after the spin-off transition.
- Review the separation and tax matters agreements, including potential indemnification obligations and restrictions on certain transactions.
- Note that the auditor issued an unqualified opinion on the financial statements, but the company did not include management’s assessment or auditor attestation of internal control over financial reporting because it was in the permitted transition period for newly public companies.