10-Q: N-able Q3 2025 Earnings: Revenue Up, Profit Down

N-able, Inc. reported a 13.1% increase in Q3 2025 revenue to $131.7 million, but net income significantly declined to $1.4 million from $10.8 million in the prior year, primarily due to increased operating expenses and acquisition-related costs.

Summary

• Total revenue for the three months ended September 30, 2025, was $131.7 million, an increase of 13.1% compared to $116.4 million for the same period in 2024.
• Subscription revenue increased by 13.5% to $130.5 million for Q3 2025, driven by growth in data protection, security, and unified endpoint management solutions, including revenue from the Adlumin acquisition.
• Net income for the three months ended September 30, 2025, was $1.4 million, a substantial decrease from $10.8 million in Q3 2024.
• Operating income for Q3 2025 was $11.6 million, down from $23.9 million in Q3 2024.
• Adjusted EBITDA for Q3 2025 was $41.4 million, compared to $44.8 million for Q3 2024.
• Annual Recurring Revenue (ARR) as of September 30, 2025, reached $528.1 million, representing a 14.2% increase from $462.4 million as of September 30, 2024.
• The number of customers with ARR over $50,000 grew by 14.8% to 2,611 as of September 30, 2025, and these customers now represent approximately 61% of total ARR, up from 57% in the prior year.
• The dollar-based net revenue retention rate for subscription products was approximately 102% for the trailing twelve-month period ended September 30, 2025, a decrease from 105% in the prior year, impacted by pricing and packaging changes and the Long-Term Contract Initiative.
• For the nine months ended September 30, 2025, the company reported a net loss of $(9.8) million, a significant shift from a net income of $27.7 million for the same period in 2024.
• The company repurchased 1,237,001 shares for $10.0 million during Q3 2025 and a total of 2,487,179 shares for $20.0 million during the nine months ended September 30, 2025, under its $75.0 million share repurchase program.

Sentiment

Score: 4

Explanation: While N-able shows strong revenue and ARR growth, the significant decline in net income and operating income, coupled with a net loss for the nine-month period and a reduced net retention rate, indicates operational challenges and increased costs, particularly from the Adlumin acquisition and related expenses. The high effective tax rate also weighs negatively on overall financial health.

Positives

• Total revenue increased by 13.1% to $131.7 million for Q3 2025 and by 9.0% to $381.2 million for the nine months ended September 30, 2025, demonstrating consistent top-line growth.
• Subscription revenue, the primary revenue stream, grew by 13.5% in Q3 2025 and 9.7% for the nine months ended September 30, 2025, indicating strong demand for core software solutions.
• Annual Recurring Revenue (ARR) increased by 14.2% year-over-year to $528.1 million, reflecting a growing and stable recurring revenue base.
• The number of larger customers (with ARR over $50,000) grew by 14.8% to 2,611, and their contribution to total ARR increased from 57% to 61%, suggesting successful upselling and acquisition of higher-value clients.
• Net cash provided by operating activities increased to $67.9 million for the nine months ended September 30, 2025, from $53.5 million in the prior year, indicating improved operational cash generation.
• The company repurchased $20.0 million of its common stock during the nine months ended September 30, 2025, under its $75.0 million program, signaling confidence in its valuation and returning capital to shareholders.
• N-able was in compliance with all covenants of its Credit Agreement as of September 30, 2025, indicating sound financial management of its debt obligations.

Negatives

• Net income for Q3 2025 significantly declined to $1.4 million from $10.8 million in Q3 2024, representing an 87.2% decrease.
• Operating income for Q3 2025 decreased by 51.4% to $11.6 million from $23.9 million in Q3 2024.
• The company reported a net loss of $(9.8) million for the nine months ended September 30, 2025, a substantial reversal from a net income of $27.7 million for the same period in 2024.
• Adjusted EBITDA for Q3 2025 decreased to $41.4 million from $44.8 million in Q3 2024, indicating a decline in core operating profitability.
• Total cost of revenue increased significantly by 49.0% in Q3 2025 and 50.0% for the nine months ended September 30, 2025, primarily due to the Adlumin acquisition and higher public cloud infrastructure and hosting fees.
• Operating expenses (sales and marketing, research and development, general and administrative) all increased substantially, driven by higher personnel costs, transaction-related costs from the Adlumin acquisition, and an increase in bad debt expense.
• Interest expense, net, increased by $1.1 million in Q3 2025, partly due to the Adlumin deferred consideration liability and variable interest rates.
• The dollar-based net revenue retention rate decreased from 105% to 102% for the trailing twelve-month period, suggesting some churn or reduced expansion from existing customers.
• The effective tax rate for the nine months ended September 30, 2025, was 293.0%, primarily due to an unbenefited loss in the United States, indicating a disproportionately high tax burden relative to pre-tax income.

Risks

• The impact of adverse economic conditions on business operations and financial performance.
• Challenges in selling subscriptions to new customers, upselling existing customers, and maintaining customer loyalty.
• Potential decline in renewal or net retention rates.
• Difficulties in successfully incorporating AI-powered features into solutions, marketing AI-powered solutions, and realizing efficiencies from internal AI tools.
• General economic, political, legal, and regulatory conditions (e.g., inflation, rising interest rates, geopolitical conflicts) may reduce information technology spending or delay purchasing decisions.
• Volatility and uncertainty caused by changes to U.S. trade policies and reciprocal trade measures.
• Inability to generate significant volumes of high-quality sales leads from digital marketing initiatives.
• Challenges in successfully identifying, completing, and integrating acquisitions, and managing overall growth effectively.
• Risks associated with international operations, including foreign exchange gains and losses.
• Exposure to cyberattacks and other security incidents that could lead to system compromises, data theft, operational interference, legal liabilities, customer/employee attrition, and reputational harm.
• The company's status as a controlled company.
• Difficulties in attracting and retaining qualified employees and key personnel.
• The timing and success of new product introductions and product upgrades by the company or its competitors.
• The ability to maintain or grow its brands, including the Adlumin brand.
• Challenges in protecting and defending intellectual property and avoiding infringement on others' intellectual property.
• The possibility that operating income could fluctuate and decline as a percentage of revenue due to expenditures for business expansion.
• Risks related to 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 under the tax matters agreement, and that anticipated benefits may not be achieved.

Future Outlook

The company expects continued growth in revenue, ARR, and cash flows, but anticipates fluctuations in operating income and effective income tax rates. Investments in product development, acquisitions (including Adlumin), and global hiring in sales, marketing, and R&D are planned. Stock-based compensation expense is expected to increase for the remainder of 2025. Management believes existing cash, cash equivalents, and operating cash flows will be sufficient to fund operations and capital expenditures for at least the next twelve months. The company may pursue further investments or acquisitions, which could impact liquidity and financing needs.

Management Comments

• Our cyber-resilience platform helps protect businesses against evolving cyberthreats while enabling digital transformation and growth for small and medium-sized businesses (SMBs) and mid-market businesses.
• Through our multi-dimensional land and expand model and global presence, we have been able to drive strong recurring revenue growth and profitability.
• We have built our business to generate strong cash flow over the long term.
• Despite the uncertainty of rapidly changing market and economic conditions, we believe that our existing cash and cash equivalents and our cash flows from operating activities will be sufficient to fund our operations and meet our commitments for capital expenditures for at least the next twelve months.

Industry Context

N-able operates in the dynamic cloud-based security, data protection, and unified endpoint management software market, primarily serving IT services providers and MSPs for SMBs and mid-market businesses. The acquisition of Adlumin, an enterprise-grade security operations platform provider, aligns with the industry trend towards comprehensive cybersecurity solutions, including Extended Detection and Response (XDR) and Managed Detection and Response (MDR) services, to combat evolving cyberthreats. The company's 'Long-Term Contract Initiative' reflects a strategic move common in the SaaS industry to secure more predictable, recurring revenue streams. The mention of AI-powered features in risk factors highlights the ongoing industry-wide integration of artificial intelligence to enhance software capabilities and operational efficiencies.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to global benchmarks for a direct assessment.
• A dollar-based net revenue retention rate of 102% for subscription products, while positive, is lower than the 105% reported in the prior year and may be below the performance of top-tier SaaS companies that often achieve 120%+ NRR, suggesting potential headwinds in customer expansion or retention relative to industry leaders.
• The strategic acquisition of Adlumin for XDR and MDR capabilities is consistent with broader industry trends of consolidation and expansion into advanced security offerings to meet the increasing demand for robust cyber defense.

Corporate Governance

Legal Proceedings

• The company is involved in various legal proceedings and claims arising in the ordinary course of business, but management does not expect their resolution to have a material adverse impact on consolidated financial statements, cash flows, or financial position.
• SolarWinds is liable and obligated to indemnify N-able for all liabilities related to the cyberattack on SolarWinds Orion Software Platform and internal systems, except for certain specified expenses for which N-able is responsible through July 21, 2025.

Related Party Transactions

• **SolarWinds Corporation (Parent):**
• Separation and Distribution Agreement: Governs legal matters, claims, liabilities, asset transfers, intercompany arrangements, and mutual indemnification. SolarWinds indemnifies N-able for cyberattack liabilities (except certain N-able expenses through July 21, 2025).
• Tax Matters Agreement: Governs tax liabilities, benefits, attributes, returns, and audits. No costs incurred during the three and nine months ended September 30, 2025 and 2024.
• Software OEM Agreements: N-able earned $0.6 million in revenue (Q3 2025) and $1.5 million (9M 2025), and incurred less than $0.1 million in costs (Q3 2025) and $0.2 million (9M 2025).
• Employee Matters Agreement: Governs compensation and employee benefit obligations. No costs incurred during the three and nine months ended September 30, 2025 and 2024.
• Intellectual Property Matters Agreement: Grants generally irrevocable, non-exclusive, worldwide, and royalty-free licenses for certain intellectual property rights. No costs incurred during the three and nine months ended September 30, 2025 and 2024.
• Trademark License Agreement: Grants a generally limited, worldwide, non-exclusive, and royalty-free license to use certain SolarWinds trademarks. No costs incurred during the three and nine months ended September 30, 2025 and 2024.
• Software Cross License Agreement: Grants generally perpetual, irrevocable, non-exclusive, worldwide, and royalty-free licenses to certain software libraries and internal tools. N-able earned no revenue and incurred no costs during the three months ended September 30, 2025.
• Sublease Agreement: N-able incurred operating lease costs of $0.2 million (Q3 2025) and $0.5 million (9M 2025) for office space in Austin, Texas.

Stakeholder Impact

• **Shareholders:** Experienced a significant decline in net income and a net loss for the nine-month period, which could negatively impact shareholder value. Diluted EPS decreased to $0.01 in Q3 2025 from $0.06 in Q3 2024, and was $(0.05) for the nine months ended September 30, 2025, from $0.15 in the prior year. The share repurchase program may provide some support for shareholder returns.
• **Employees:** Increased personnel costs and plans to grow sales, marketing, R&D, and general and administrative organizations suggest continued investment in the workforce. Increased stock-based compensation expense may also benefit employees.
• **Customers (MSPs, SMBs, mid-market businesses):** Continued growth in subscription revenue and ARR indicates ongoing adoption and reliance on N-able's solutions. The Adlumin acquisition aims to enhance security offerings (XDR/MDR), potentially providing more comprehensive protection against cyberthreats. The Long-Term Contract Initiative may lead to more committed contracts, offering stability but also requiring longer commitments.
• **Creditors:** The company remains in compliance with all debt covenants, which is positive. However, increased interest expense due to the Adlumin deferred consideration liability and variable interest rates could be a factor to monitor regarding debt servicing capacity.

Next Steps

• Conclude the measurement period for the Adlumin acquisition as of November 19, 2025.
• Continue to evaluate the impact of recently issued accounting pronouncements (ASU No. 2024-03, ASU No. 2025-05, ASU No. 2025-06) on consolidated financial statements.
• Continue to grow sales and marketing, research and development, and general and administrative organizations.
• Continue share repurchases under the $75.0 million program, with $55.0 million remaining authorized.
• Potentially enter into agreements for investments in, or acquisitions of, complementary businesses, applications, or technologies.

Key Dates

Recommendation

While N-able demonstrates solid revenue and ARR growth, driven by demand for its solutions and strategic acquisitions like Adlumin, the significant decline in profitability (net income and operating income) and the net loss for the nine-month period are concerning. These declines are largely attributed to increased operating expenses, amortization from acquisitions, and higher interest costs. The decrease in the dollar-based net revenue retention rate also warrants caution. The company is investing heavily in growth and integration, which is impacting short-term profitability. A 'Hold' recommendation is appropriate as investors should monitor whether these investments translate into improved profitability and a rebound in net retention rates in future periods, while acknowledging the underlying revenue strength.

Keywords

Cloud-based security, Data protection, Unified endpoint management, Managed service providers, MSPs, Cyber-resilience, SMBs, Subscription revenue, Annual Recurring Revenue, ARR, Adlumin acquisition, Software, IT services, Financial results, 10-Q