N-able, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing also reports fourth-quarter results for the three months ended December 31, 2023. N-able (NYSE: NABL) provides subscription-based cloud software and related services to managed service providers (MSPs), which use its platform to manage, secure and protect small and medium-sized businesses.
Key financial metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $421.9 million | $371.8 million | +13.5% |
| Subscription revenue | $412.1 million | $362.6 million | +13.6% |
| Gross profit / gross margin | $353.7 million / 83.8% | $313.2 million / 84.2% | Margin down 0.4 percentage points |
| Operating income / margin | $70.3 million / 16.7% | $47.4 million / 12.7% | Improved |
| Net income | $23.4 million | $16.7 million | +40.1% |
| Adjusted EBITDA / margin | $143.4 million / 34.0% | $114.7 million / 30.9% | Non-GAAP measure |
| Operating cash flow | $90.1 million | $71.4 million | +26.1% |
| Cash and cash equivalents | $153.0 million | $98.8 million | +$54.2 million |
| Debt | $342.1 million principal; $335.0 million net carrying value | $337.0 million net carrying value | Variable-rate debt |
FY2023 investing cash outflow was $22.3 million and financing cash outflow was $15.2 million. The company reported a 47.2% effective tax rate, up from 45.1%. Basic and diluted earnings per share were each $0.13.
Fourth quarter: Revenue was $108.4 million, versus $95.8 million a year earlier. Net income was $9.4 million, versus $7.0 million; Adjusted EBITDA was $39.2 million, versus $31.2 million; and cash from operations was $31.2 million, versus $18.4 million.
Business performance and changes
- Subscription revenue represented 97.7% of FY2023 revenue. Growth was attributed primarily to data protection, security and remote monitoring and management solutions.
- Annual dollar-based net revenue retention increased to 110% from 103% in FY2022. N-able attributed this to customer retention and expansion, with favorable foreign-exchange movements also contributing.
- MSP partners generating over $50,000 in ARR increased 15.7% to 2,196; their share of total ARR rose from approximately 51% to 56%. The company reported approximately 25,000 customers.
- Operating expenses increased 6.6% to $283.4 million. Research and development rose 23.1% and sales and marketing rose 7.5%; general and administrative expense fell 1.7%. Lower acquired-intangible amortization helped lift operating margin.
- Interest expense increased 60.5% to $30.3 million, primarily due to higher interest rates on borrowings. The annual weighted-average debt rate was 8.40%, compared with 7.73% in 2022.
- International markets generated 51.2% of revenue. Foreign-currency translation contributed $12.2 million of other comprehensive income in 2023, following a $22.9 million loss in 2022.
Outlook, risks and unusual items
The filing does not provide a quantified FY2024 forecast. Management expects to continue investing in sales and marketing, research and development, product expansion, and security, monitoring and authentication improvements. Management stated that cash, operating cash flows and borrowing capacity are expected to fund operations and capital-expenditure commitments for at least the next 12 months.
- Debt and liquidity: Debt bears variable interest. A hypothetical 100-basis-point rate increase would add approximately $3.4 million to annual interest expense based on year-end borrowings. The term loan matures in 2028; the $60 million revolver was undrawn at year-end. The company reported compliance with credit covenants.
- Commitments: Disclosed obligations included $71.0 million of purchase commitments through 2027, $39.5 million of operating lease liabilities, and approximately $129.7 million of projected cash interest over the remaining credit-agreement term, based on the December 31, 2023 rate.
- Cybersecurity: N-able said SolarWinds’ 2020 Cyber Incident did not involve identified SUNBURST code in N-able products, but the company describes continuing reputational, legal and operational exposure. It reports no material cybersecurity incidents since becoming standalone; further security investments and costs are expected. The SEC’s October 2023 complaint against SolarWinds renewed partner questions.
- Taxes and separation: The company reported $20.9 million of tax expense and a U.S. deferred-tax valuation allowance of $4.9 million. It also faces potential indemnity exposure if the 2021 separation is determined taxable or specified tax-agreement obligations are breached.
- Contingencies and unusual items: A stockholder’s Delaware action challenging provisions of the stockholders’ agreement remained pending; management did not expect a material adverse financial impact, but said the outcome is uncertain and no loss estimate was available. A $1.4 million gain from remeasurement of Spinpanel contingent consideration reduced general and administrative expense. Amortization of certain legacy acquired intangibles concluded during 2023.
- Other risks: The filing highlights competition, renewal and consumption-based revenue variability, macroeconomic and foreign-exchange exposure, privacy regulation, international operations including Belarus, and sponsor control. Sponsors held approximately 60.9% of voting power at year-end.
Investor verification priorities
- Review the reconciliation of Adjusted EBITDA and other non-GAAP measures to GAAP results, including stock-based compensation and other exclusions.
- Assess whether revenue growth and 110% retention are sustainable, particularly given usage-based revenue and the concentration of ARR among larger MSP partners.
- Confirm the impact of variable-rate debt, scheduled repayments, cash interest and contractual commitments on future free cash flow.
- Monitor cybersecurity developments, related indemnification and litigation exposure, and the outcome of the Delaware stockholder action.
- Review the effective tax rate, deferred-tax valuation allowance, foreign-earnings plans and potential tax obligations related to the SolarWinds separation.
The company reported effective disclosure controls and internal control over financial reporting as of December 31, 2023; the independent auditor issued unqualified opinions on the financial statements and internal controls.