10-Q: N-able Reports Q2 2026 Growth, Returns to Profitability

N-able, Inc. announced its second quarter 2026 financial results, showcasing a 5.9% increase in total revenue to $138.2 million and a return to net income.

Summary

• N-able reported total revenue of $138.2 million for the three months ended June 30, 2026, a 5.9% increase compared to $130.5 million in the same period last year.
• Net income for the quarter was $1.8 million, a significant improvement from a net loss of $4.6 million in the prior year's second quarter.
• Annual Recurring Revenue (ARR) grew by 6.0% to $544.5 million as of June 30, 2026, compared to $513.7 million as of June 30, 2025.
• The company identified a material weakness in internal control over financial reporting related to revenue recognition for certain subscription arrangements, which has led to a revision of previously issued financial statements.
• Operating income increased to $16.5 million from $9.3 million year-over-year.
• Adjusted EBITDA was $39.9 million for the quarter, a slight decrease from $40.9 million in the prior year.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a moderately positive report, with revenue growth and a return to net income, though offset by a material weakness in internal controls and increased costs in certain areas.

Positives

• Total revenue increased by 5.9% to $138.2 million for the three months ended June 30, 2026.
• The company returned to profitability with a net income of $1.8 million, compared to a net loss of $4.6 million in the prior year's second quarter.
• Annual Recurring Revenue (ARR) grew by 6.0% to $544.5 million.
• Customers with ARR over $50,000 increased by 6.5% to 2,706.
• Operating income more than doubled to $16.5 million from $9.3 million.
• Dollar-based net revenue retention rate for subscription products was 106% for the trailing twelve months ended June 30, 2026, up from 102% in the prior year.

Negatives

• A material weakness in internal control over financial reporting was identified related to revenue recognition for certain subscription arrangements.
• Total cost of revenue increased by 11.3% to $32.0 million.
• Interest expense, net, increased by 3.1% to $8.3 million.
• Income tax expense increased significantly to $6.0 million from $5.0 million, resulting in a high effective tax rate of 77.2%.

Risks

• The material weakness in internal control over financial reporting could lead to future material misstatements in financial statements if not remediated effectively.
• The company faces exposure to adverse movements in foreign currency exchange rates, particularly the Euro, British Pound Sterling, and Canadian Dollar against the U.S. dollar.
• Changes in interest rates could have an adverse impact on financial results and cash flows due to variable rate borrowings under the Credit Agreement.
• A sustained decline in the Company's stock price could trigger a future material non-cash goodwill impairment charge.
• The company has a new minimum spend commitment of $56.0 million for a software licensing agreement starting August 1, 2026.

Future Outlook

The company expects to continue growing its sales and marketing and research and development organizations. Management believes existing cash and cash equivalents and cash flows from operating activities will be sufficient to fund operations and capital expenditures for at least the next twelve months. A workforce reorganization is planned to reduce headcount by approximately 6% to align investments and drive productivity, expected to result in annual cash compensation savings.

Management Comments

• Management believes 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.
• The company is implementing measures to remediate the material weakness in internal control over financial reporting, including enhancing revenue recognition processes and reconciliation controls.
• The workforce reorganization is part of cost-reduction initiatives intended to align investments with highest priority opportunities, operate a streamlined organization, and drive high levels of productivity.

Industry Context

StockSavvy.ai notes that N-able's performance aligns with the ongoing demand for cybersecurity solutions driven by increasing cyber threats. The growth in ARR and customer base, particularly larger ARR customers, indicates a strengthening market position. However, the increased cost of revenue and the identified material weakness in internal controls are areas requiring close monitoring.

Comparison to Industry Standards

• N-able's revenue growth of 5.9% for the quarter is solid within the cybersecurity sector, which generally experiences robust demand.
• The dollar-based net revenue retention rate of 106% is a strong indicator of customer satisfaction and upselling success, often exceeding industry averages for SaaS companies.
• The return to net income is a positive sign, though the high effective tax rate and increased cost of revenue warrant attention when compared to peers.
• The material weakness in internal controls is a significant concern and is not typical for established public companies, potentially impacting investor confidence compared to competitors with stronger control environments.

Corporate Governance

Legal Proceedings

• The company is involved in various legal proceedings arising in the ordinary course of business, but management does not expect their resolution to have a material adverse impact on financial statements, cash flows, or financial position.

Related Party Transactions

• Prior to the Separation and Distribution, employees participated in SolarWinds' equity-based incentive plans.
• Agreements with SolarWinds (Separation and Distribution Agreement, Tax Matters Agreement, Software OEM Agreements, Employee Matters Agreement, Intellectual Property Matters Agreement, Trademark License Agreement, Software Cross License Agreement, Sublease Agreement) govern the relationship post-separation.

Stakeholder Impact

• Shareholders: The return to profitability and revenue growth are positive indicators, but the material weakness in internal controls poses a risk to share price stability.
• Employees: A workforce reorganization is planned, resulting in a 6% headcount reduction, impacting affected employees.
• Creditors: The company remains in compliance with its credit agreement covenants, indicating stability for lenders.

Next Steps

• Remediate the material weakness in internal control over financial reporting.
• Continue to monitor and manage foreign currency exchange rate fluctuations.
• Evaluate the impact of the workforce reorganization and cost-reduction initiatives.
• Monitor the new minimum spend commitment for the software licensing agreement.
• Complete the determination of the impact of the asset acquisition from N-able Technologies Ltd.

Key Dates

Recommendation

The company shows positive revenue growth and a return to profitability, which are encouraging signs. However, the identified material weakness in internal controls is a significant concern that introduces uncertainty and requires effective remediation. The increase in costs and high effective tax rate also warrant caution. Therefore, a 'hold' recommendation is appropriate pending successful resolution of the control deficiencies and sustained financial performance.

Keywords

cybersecurity, SaaS, revenue, profitability, ARR, financial results, internal controls, Adlumin acquisition