SolarWinds Corp. (SWI) is a provider of information technology (IT) infrastructure management software. The company's broad suite of tools is designed to serve the needs of network engineers, systems engineers, database administrators, storage administrators, DevOps, service desk professionals, and managed service providers (MSPs). The company generates revenue through maintenance services, subscriptions, and perpetual licenses.

SolarWinds, which was founded in 1999 and is headquartered in Texas, operates in a highly competitive industry. Rivals include large network management and IT companies like Cisco Systems Inc. (CSCO), U.K.-based MicroFocus International PLC, CA Technologies, International Business Machines Corp. (IBM), and BMC Software Inc. The company also competes with smaller firms in markets including cloud and application monitoring.

The ability to secure client data is a top priority - and ongoing concern - among suppliers and customers in the IT management industry. In this area, SolarWinds has suffered a major setback. Major news organizations reported in December that software developed by SolarWinds was recently compromised by hackers, enabling them to infiltrate the sensitive computer systems of the U.S. government and some major corporations.

Key Takeaways

  • SolarWinds provides IT infrastructure management software.
  • Most of its revenue is generated through maintenance services, but subscriptions are growing the fastest.
  • The company is seeking to expand its international footprint.
  • SolarWinds software recently was compromised by hackers, enabling a cyberattack on U.S. government computer systems and some major corporations.
  • SolarWinds recently appointed Sudhakar Ramakrishna as president and CEO.

SolarWinds' Financials

SolarWinds posted net income of $12.5 million on revenue of $261.0 million in Q3 2020, which ended September 30, 2020. Net income rose 184.6% while revenue grew 8.5% compared to the same three-month period a year ago. Net income was largely boosted by significantly lower interest expense compared to the year-ago quarter.

The company's revenue growth has slowed over the last several years. Revenue grew 11.9% in 2019, a slowdown from 14.4% growth in 2018, and from 55.1% in 2017. However, 2019 marked SolarWinds' first year of profitability in at least five years.

SolarWinds' Business Segments

SolarWinds does not separate its operations into separate business segments. However, it does break down its revenue into two main components: recurring revenue, which consists of subscription revenue and maintenance revenue; and perpetual license revenue. Recurring revenue comprises the majority of the company's total revenue. We look at these separate revenue streams in more detail below.

Subscription Revenue (recurring)

SolarWinds primarily generates subscription revenue from fees received for subscriptions to its software-as-a-service (SaaS) offerings, and some revenue from its time-based license arrangements. Subscription revenue includes sales of products for cloud infrastructure, application performance management, and IT service management, and other tasks. Subscription revenue grew 21.0% to $100.6 million in Q3 2020. It comprises about 39% of the company's total revenue.

Maintenance Revenue (recurring)

The company generates maintenance revenue from the sale of maintenance services associated with its perpetual license products. Customers pay for these services depending on the products purchased. Maintenance revenue rose 6.5% to $121.1 million in Q3 2020. It makes up about 46% of SolarWinds' total revenue.

License Revenue (non-recurring)

License revenue is generated from sales of perpetual licenses for the company's on-premise network, systems, storage, and database management products. Customers receive one year of maintenance services when they first purchase a license. License revenue fell 9.9% to $39.3 million in Q3 2020. It comprises about 15% of the company's total revenue.

SolarWinds' Recent Developments

SolarWinds was thrust into the spotlight recently after it was reported that the U.S. government and major U.S. corporations were victims of a cyberattack attributed to Russia's foreign-intelligence service. The hackers built a back door into software developed by SolarWinds, enabling the hackers to access sensitive data when government agencies and corporations that use the software updated their computer systems. The hack is believed to have taken place undetected over several months. SolarWinds estimates that as many as 18,000 customers could have downloaded the compromised software, but investigators believe the number of victims to be much smaller.

On December 9, 2020, SolarWinds announced the appointment of Sudhakar Ramakrishna as the company's new president and chief executive officer (CEO) and a member of the board of directors, effective January 4, 2021. Mr. Ramakrishna most recently served as CEO of Pulse Secure, a provider of secure and zero trust access solutions for hybrid IT environments. He has nearly 25 years of experience across cloud, mobility, networking, security, and collaboration markets.