N-able, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. N-able provides subscription-based cloud software and related services to managed service providers (MSPs), which use its tools to monitor, manage, secure and back up small and medium-sized businesses. The filing was signed March 14, 2023.
Financial performance
| Metric | FY2022 | FY2021 | Change or context |
|---|---|---|---|
| Revenue | $371.8 million | $346.5 million | Up 7.3%; subscription revenue was $362.6 million, or 97.5% of total revenue. |
| Gross profit | $313.2 million | $294.0 million | Gross margin was 84.2%, versus 84.8% in FY2021. |
| Operating income | $47.4 million | $33.3 million | GAAP operating margin increased to 12.7% from 9.6%. |
| Net income | $16.7 million | $0.1 million | Diluted EPS was $0.09, versus approximately zero. |
| Adjusted EBITDA | $114.7 million | $113.3 million | Up 1.2%; margin declined to 30.9% from 32.7%. Non-GAAP measure. |
| Cash from operations | $71.4 million | $45.3 million | Net cash increased by $32.1 million in FY2022. |
Fourth quarter: Revenue was $95.8 million, up from $89.5 million in Q4 2021 (about 7.0%). Net income was $7.0 million versus $2.1 million, and adjusted EBITDA was $31.2 million versus $27.8 million. Operating cash flow was $18.4 million versus $19.2 million. The supplied filing text does not provide a clear Q4 gross-margin figure.
Liquidity and debt: Cash and cash equivalents were $98.8 million at year-end, including $65.7 million held by international subsidiaries. Debt was $345.6 million principal, or $337.0 million net of issuance costs; the $60 million revolving facility was undrawn. Term-loan interest was variable, with a 7.73% effective rate at year-end. The company reported covenant compliance. It estimated that a 100-basis-point rate increase would add about $3.5 million to annual interest expense. It also had $87.2 million of purchase obligations through 2027 and $38.9 million of operating lease liabilities.
Material changes versus prior year
- Revenue growth slowed to 7.3% from 14.4% in FY2021. Management attributed FY2022 growth mainly to data protection and security sales and to new MSP partners and expansion within existing partners.
- Annual dollar-based net revenue retention fell to 103% from 110%; management attributed the decline primarily to adverse foreign-exchange movements. Partners with more than $50,000 in ARR increased 13.1% to 1,898 and represented about 51% of ARR, versus 47% a year earlier.
- Sales and marketing expense rose 11.2%, and research and development expense rose 17.7%, reflecting increased staffing and investment. General and administrative expense fell 11.7%, mainly because separation-related costs decreased by $17.0 million.
- Operating cash flow improved, while capital spending declined; investing cash use included $9.2 million, net of cash acquired, for the Spinpanel acquisition.
- FY2022 foreign-currency translation reduced other comprehensive income by $22.9 million. The effective tax rate was 45.1%, compared with 99.0% in FY2021; the filing cites jurisdictional income mix and tax-related adjustments.
Outlook, commentary and risks
- No quantified FY2023 revenue or earnings guidance is provided in this 10-K. Management stated that cash, operating cash flows and borrowing capacity should be sufficient for operations and capital commitments for at least the next 12 months.
- Management expects continued investment in sales and marketing, research and development, international growth, and product and security enhancements. These investments may pressure margins and cash generation.
- The SolarWinds cyber incident remains a significant reputational and legal risk. SolarWinds reported no Sunburst code in N-able products; N-able said the incident affected reputation, new sales and expansion in 2021, with effects diminishing through 2022. The filing describes potential access to N-able source-code-related files and partner information, but says the actual contents could not be determined. N-able recorded no related contingent liability at year-end and cites SolarWinds’ indemnification obligations, subject to agreement terms.
- Other important risks include competition and customer retention, lower-than-historical retention, consumption-based revenue variability, foreign-exchange exposure, data privacy and cybersecurity, and political instability affecting operations and development resources in Belarus and nearby regions.
- The July 2022 Spinpanel acquisition had consideration of up to approximately $20 million, including contingent payments tied to revenue metrics. In December 2022, N-able also acquired software-related intellectual property for consideration of up to $6.5 million, including milestone-dependent payments.
- Silver Lake and Thoma Bravo collectively held approximately 61.7% of voting power at December 31, 2022, giving the sponsors substantial control over stockholder matters. The company does not expect to pay dividends in the foreseeable future.
Investor facts to verify
- Whether retention and expansion stabilize after the decline to 103%, and how much reported growth reflects currency movements versus underlying usage and customer adds.
- Quarterly subscription revenue, consumption-based revenue, renewal trends and product-level growth; the filing does not quantify these components separately for Q4.
- Debt principal amortization, variable-rate exposure, covenant headroom and the effect of higher interest rates on cash flow.
- Progress and costs of cybersecurity remediation, any new findings related to the SolarWinds incident, and the practical scope of indemnification and insurance coverage.
- Integration and performance of Spinpanel and the acquired intellectual property, including contingent consideration and expected returns on investment.
- Tax-rate sustainability and the company’s ability to generate taxable income in jurisdictions where deferred tax assets carry valuation allowances.