10-Q: N-able Q2 Profit Plunges Amid Rising Costs, Adlumin Integration

N-able, Inc. reported a net loss of $4.0 million in Q2 2025, a significant decline from a $9.5 million net income in Q2 2024, despite a 9.9% revenue increase.

Summary

• Total revenue increased by 9.9% to $131.2 million for Q2 2025, up from $119.4 million in Q2 2024.
• Subscription revenue grew by 10.6% to $129.9 million, primarily driven by sales of data protection, security, and unified endpoint management solutions, including revenue from the Adlumin acquisition.
• Operating income decreased by 53.9% to $10.1 million for Q2 2025, down from $22.0 million in Q2 2024.
• The company reported a net loss of $4.0 million for Q2 2025, compared to a net income of $9.5 million in Q2 2024.
• Adjusted EBITDA decreased by 11.1% to $41.6 million for Q2 2025, from $46.8 million in Q2 2024.
• Annual Recurring Revenue (ARR) increased by 14.5% to $513.7 million as of June 30, 2025, compared to $448.8 million as of June 30, 2024.
• Customers with ARR over $50,000 increased by 15.8% to 2,540 as of June 30, 2025.
• Dollar-based net revenue retention rate for subscription products was approximately 102% for the trailing twelve-month period ended June 30, 2025, down from 108% in the prior year.
• Cash flows from operations for the six months ended June 30, 2025, were $43.9 million, up from $31.5 million in the prior year period.
• Repurchased $10.0 million of common stock under the $75.0 million share repurchase program during Q2 2025.

Sentiment

Score: 4

Explanation: While revenue and ARR show growth, the significant decline in profitability (net loss, lower operating income and Adjusted EBITDA) and the drop in net revenue retention rate are concerning. The strategic acquisition of Adlumin is positive for long-term positioning but has contributed to increased costs in the short term. The share repurchase program is a positive for shareholders, but the overall financial performance for the quarter indicates deteriorating profitability.

Positives

• Total revenue increased by 9.9% to $131.2 million for Q2 2025.
• Subscription revenue grew by 10.6% to $129.9 million, indicating strong demand for core offerings.
• Annual Recurring Revenue (ARR) increased by 14.5% to $513.7 million.
• The number of customers with ARR over $50,000 increased by 15.8% to 2,540, showing growth in higher-value customer relationships.
• Cash flows from operating activities for the six months ended June 30, 2025, increased to $43.9 million from $31.5 million in the prior year.
• Initiated a $75.0 million share repurchase program, with $10.0 million repurchased in Q2 2025.

Negatives

• Shifted from a net income of $9.5 million in Q2 2024 to a net loss of $4.0 million in Q2 2025.
• Operating income decreased significantly by 53.9% to $10.1 million in Q2 2025.
• Adjusted EBITDA decreased by 11.1% to $41.6 million in Q2 2025.
• Dollar-based net revenue retention rate declined from 108% to 102%.
• Total cost of revenue increased by 49.7% to $28.7 million, outpacing revenue growth.
• Operating expenses increased by 18.0% to $92.4 million, driven by higher sales and marketing, and research and development costs.
• Amortization of acquired technologies and intangibles increased substantially due to the Adlumin acquisition, impacting profitability.
• Other (expense) income, net, decreased by $2.0 million, primarily due to a decrease in foreign currency exchange rates impact and dividend income.

Risks

• Adverse economic conditions, including inflation, rising interest rates, war, political unrest, terrorism, sanctions, and trade issues, may reduce IT spending or delay purchasing decisions.
• Inability to sell subscriptions to new customers, sell additional solutions to existing customers, or increase usage, as well as maintain customer loyalty.
• Potential decline in renewal or net retention rates.
• Inability to generate significant volumes of high-quality sales leads from digital marketing initiatives.
• Challenges in successfully identifying, completing, and integrating acquisitions, and managing growth effectively.
• Risks associated with international operations, including foreign exchange gains and losses.
• Cyberattacks and other security incidents could compromise systems, lead to data theft, interfere with operations, result in legal liabilities, increase customer and employee attrition, and cause reputational harm.
• Status as a controlled company.
• Ability to attract and retain qualified employees and key personnel.
• Timing and success of new product introductions and upgrades by the company or competitors.
• Ability to maintain or grow brands, including the Adlumin brand.
• Ability to protect and defend intellectual property and avoid infringing on others' intellectual property.
• Operating income could fluctuate and may decline as a percentage of revenue due to expenditures for expanding operations to support growth.
• Indebtedness, including increased borrowing costs from rising interest rates, potential restrictions on operations, and the impact of events of default.
• Risks related to the spin-off from SolarWinds, including potential tax liabilities and indemnification obligations.

Future Outlook

The company expects to continue growing its sales and marketing, and research and development organizations. Stock-based compensation expense is anticipated to increase during the year ending December 31, 2025. Management believes existing cash, cash equivalents, and cash flows from operating activities will be sufficient to fund operations and capital expenditures for at least the next twelve months. The company is evaluating the financial implications of the recently signed One Big Beautiful Bill Act (OBBBA) but does not anticipate a material overall impact. It does not expect to be subject to the OECD's Pillar Two global minimum tax rules in 2025.

Management Comments

• We have built our business to generate strong cash flow over the long term.
• We expect to continue to grow our sales and marketing organization over time to drive new customer adds, retain and expand with existing customers, and pursue initiatives designed to help our customers succeed and grow.
• We expect to continue to grow our research and development organization over time and also to incur additional expenses associated with bringing new product offerings to market and our enhancements of security, monitoring and authentication of our solutions.
• We expect to continue to grow our general and administrative organization over time to support continued growth of our business.
• We do not anticipate the overall impact [of the OBBBA] to be material.
• We do not expect to be subject to the Pillar Two rules in 2025.

Industry Context

N-able operates in the growing cloud-based security, data protection, and unified endpoint management software market, serving IT services providers for SMBs and mid-market businesses. The acquisition of Adlumin, Inc. is a strategic move to enhance its Extended Detection and Response (XDR) and Managed Detection and Response (MDR) capabilities, aligning with the increasing demand for comprehensive cybersecurity solutions. The decline in net revenue retention rate, despite overall ARR growth, suggests potential competitive pressures or pricing adjustments within the MSP software market.

Legal Proceedings

• The company may be involved in various legal proceedings and claims arising in the ordinary course of business.
• Management believes the resolution of any pending claims is not expected to have a material adverse impact on consolidated financial statements, cash flows, or financial position.
• The company is currently under examination by the IRS for tax years 2013 through February 2016, with a Form 870-AD signed on January 22, 2025, related to this period.
• Currently under audit by the Massachusetts Department of Revenue for 2015 through February 2016 tax years.
• Currently under audit by the Texas Comptroller for 2015 through 2018 tax years.
• Currently under audit by the Canada Revenue Agency (CRA) for tax years 2021 and 2022.

Related Party Transactions

• The company has ongoing agreements with SolarWinds Corporation, its former parent, including a Separation and Distribution Agreement, Tax Matters Agreement, Software OEM Agreements, Employee Matters Agreement, Intellectual Property Matters Agreement, Trademark License Agreement, Software Cross License Agreement, and a Sublease Agreement.
• Under Software OEM Agreements, N-able earned $0.5 million in revenue and incurred less than $0.1 million in costs for Q2 2025.
• Under the Sublease Agreement, N-able incurred operating lease costs of $0.1 million for Q2 2025.
• No costs were incurred under the Tax Matters Agreement, Employee Matters Agreement, Intellectual Property Matters Agreement, or Software Cross License Agreement for Q2 2025.

Stakeholder Impact

• Shareholders: Experienced a net loss and reduced earnings per share, but benefited from a share repurchase program.
• Employees: Increased headcount and personnel costs, including stock-based compensation, indicating continued investment in human capital.
• Customers: Benefited from continued investment in product development and the integration of Adlumin's XDR/MDR capabilities, but the decline in net revenue retention rate suggests some customers may be reducing spend or not expanding as much.
• Creditors: The company remains in compliance with all debt covenants, and debt levels are stable, indicating continued financial stability for creditors.

Next Steps

• Evaluate the financial implications of the One Big Beautiful Bill Act (OBBBA) and begin reflecting its effects in Q3 2025.
• Continue to grow sales and marketing organization to drive new customer adds, retain and expand with existing customers.
• Continue to grow research and development organization to bring new product offerings to market and enhance security, monitoring, and authentication of solutions.
• Continue to grow general and administrative organization to support continued business growth.
• The measurement period for the Adlumin, Inc. acquisition will conclude as of November 19, 2025.
• Quarterly repayments of the Term Loan under the Credit Agreement will continue through July 2028.

Key Dates

Recommendation

Despite healthy revenue and ARR growth, the significant decline in operating income and a shift to a net loss for the quarter are concerning. The drop in the dollar-based net revenue retention rate indicates challenges in expanding existing customer relationships. While the Adlumin acquisition is strategically sound, its integration costs are currently impacting profitability. The share repurchase program offers some support, but the mixed financial signals warrant a cautious 'Hold' stance, advising investors to monitor future quarters for signs of improved profitability and retention.

Keywords

Cloud-based Security, Data Protection, Unified Endpoint Management, Managed Service Providers, MSPs, SMBs, Mid-market Businesses, Software Solutions, IT Services, Adlumin Acquisition, Recurring Revenue, ARR, Cybersecurity, Financial Results, Quarterly Report, N-able