Breaking Down N-able, Inc. (NABL) Financial Health: Key Insights for Investors

Understanding N-able, Inc. (NABL) Revenue Streams

Understanding N-able, Inc.’s Revenue Streams

As of September 30, 2024, N-able, Inc. reported a total revenue of $116.4 million for the third quarter, reflecting an increase from $107.6 million in the same period of 2023. This represents a year-over-year growth rate of 8.3%.

Revenue Breakdown by Source

The revenue primarily consists of two segments: Subscription Revenue and Other Revenue.

• Subscription Revenue:
  • For the three months ended September 30, 2024, subscription revenue was $114.998 million, up from $105.208 million in 2023, marking an increase of 9.3%.
  • For the nine months ended September 30, 2024, subscription revenue totaled $343.928 million, compared to $306.005 million in 2023, a rise of 12.4%.
• Other Revenue:
  • For the three months ended September 30, 2024, other revenue was $1.444 million, down from $2.359 million in 2023, a decrease of 38.8%.
  • For the nine months ended September 30, 2024, other revenue was $5.710 million, compared to $7.460 million in 2023, a drop of 23.5%.

Geographic Revenue Contribution

For the nine months ended September 30, 2024, revenue from key regions is as follows:

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth rates for the last three fiscal years are as follows:

Contribution of Business Segments to Overall Revenue

For the nine months ended September 30, 2024, the contribution of different business segments to overall revenue is as follows:

Significant Changes in Revenue Streams

The increase in subscription revenue is attributed to the growth in sales of data protection, security, and remote monitoring solutions, coupled with the impact of long-term committed contracts. Conversely, other revenue has decreased significantly due to reduced maintenance and professional services revenue.

A Deep Dive into N-able, Inc. (NABL) Profitability

Profitability Metrics

As of September 30, 2024, the company's profitability metrics demonstrate significant growth in key areas:

• Gross Profit Margin: For the three months ended September 30, 2024, the gross profit was approximately $96.5 million, resulting in a gross profit margin of 82.8%, compared to a gross profit of $89.4 million and a margin of 82.9% for the same period in 2023.
• Operating Profit Margin: Operating income for the three months ended September 30, 2024 was $23.9 million, leading to an operating profit margin of 20.5%, up from $18.4 million and an operating margin of 17.1% in 2023.
• Net Profit Margin: Net income for the three months ended September 30, 2024 was $10.8 million, resulting in a net profit margin of 9.3%, compared to $6.0 million and a margin of 5.6% in the prior year.

Trends in Profitability Over Time

Over the past year, the company has demonstrated a consistent upward trend in profitability:

Comparison of Profitability Ratios with Industry Averages

When compared to industry averages:

• Gross Profit Margin: The industry average is approximately 75%, indicating the company is outperforming the market.
• Operating Profit Margin: The industry average stands at 15%, showcasing the company's operational efficiency.
• Net Profit Margin: The industry average is around 8%, reflecting the company's strong profitability position.

Analysis of Operational Efficiency

The analysis of operational efficiency reveals:

• Cost Management: Total operating expenses for the three months ended September 30, 2024 were $72.6 million, a slight increase from $71.9 million in the previous year, but as a percentage of revenue, this represents a decrease from 66.8% to 62.4%.
• Gross Margin Trends: The gross margin has remained stable, reflecting effective cost control in production and service delivery.

In summary, the company's profitability metrics and operational efficiency indicate a robust financial health, showing strong growth and favorable comparisons to industry standards.

Debt vs. Equity: How N-able, Inc. (NABL) Finances Its Growth

Debt vs. Equity: How N-able, Inc. Finances Its Growth

Debt Levels

As of September 30, 2024, N-able, Inc. has a total outstanding debt of $339.5 million, comprised solely of a term loan facility with an effective interest rate of 8.07%. There is no balance under the revolving credit facility at this time. The company’s total debt, net of unamortized discount and debt issuance costs, stands at $333.6 million, with current obligations amounting to $3.5 million and long-term debt net of current portion at $330.1 million .

Debt-to-Equity Ratio

N-able's debt-to-equity ratio is calculated by dividing total debt by total stockholders' equity. As of September 30, 2024, total stockholders' equity is $764.9 million. Thus, the debt-to-equity ratio is approximately 0.44 ($339.5 million / $764.9 million). This ratio is below the industry average of approximately 0.6, suggesting a conservative approach to leveraging .

Recent Debt Issuances

N-able entered into a credit agreement on July 19, 2021, which provided for a total of $410 million in first lien secured credit facilities. This includes a $350 million term loan and a $60 million revolving credit facility . Recent amendments to the credit agreement replaced the LIBOR-based rate with a SOFR-based rate as of August 31, 2023 .

Credit Ratings

While specific credit ratings were not disclosed, the company has maintained compliance with the covenants of its credit agreement, indicating a stable credit profile. The financial covenant requires a maximum first lien net leverage ratio of 7.50 to 1.00 .

Debt Financing vs. Equity Funding

N-able balances its growth financing through a combination of debt and equity. In the nine months ended September 30, 2024, the company generated net income of $27.7 million and reported cash and cash equivalents of $174.4 million. This liquidity provides a buffer for operational needs while minimizing reliance on further debt . Additionally, N-able's capital structure is supported by equity, with total stockholders’ equity increasing from $711.4 million at the end of 2023 to $764.9 million .

Assessing N-able, Inc. (NABL) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

As of September 30, 2024, the current ratio stood at 3.01, calculated as current assets of $282.3 million divided by current liabilities of $93.8 million. The quick ratio, which excludes inventory from current assets, is 3.01 as well, indicating strong liquidity without relying on inventory to meet short-term obligations.

Analysis of Working Capital Trends

Working capital, defined as current assets minus current liabilities, was $188.5 million as of September 30, 2024, showing an increase from $143.1 million at the end of December 2023. This improvement reflects effective management of receivables and payables.

Cash Flow Statements Overview

The cash flows from operating, investing, and financing activities for the nine months ended September 30, 2024, are as follows:

Potential Liquidity Concerns or Strengths

Cash and cash equivalents totaled $174.4 million as of September 30, 2024, with significant cash held internationally, primarily in the UK and Canada, amounting to $167.1 million. The company has indicated that their cash flows from operating activities will be sufficient to fund operations and meet capital expenditure commitments for at least the next twelve months. Additionally, the effective interest rate on outstanding debt is 8.07%, with total borrowings of $333.6 million as of September 30, 2024, net of debt issuance costs.

Is N-able, Inc. (NABL) Overvalued or Undervalued?

Valuation Analysis

To assess whether N-able, Inc. (NABL) is overvalued or undervalued, we will examine key financial ratios, stock price trends, dividend metrics, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The P/E ratio is a critical metric for evaluating a company's valuation relative to its earnings. As of September 30, 2024, N-able, Inc. reported a diluted earnings per share (EPS) of $0.06 for the third quarter, bringing the trailing twelve months EPS to $0.15. If the stock price is around $4.50, the P/E ratio would be calculated as follows:

P/E Ratio = Stock Price / EPS = $4.50 / $0.15 = 30

Price-to-Book (P/B) Ratio

The P/B ratio compares a company's market value to its book value. As of September 30, 2024, the total stockholders' equity was $764.951 million. If the market capitalization is approximately $837 million (assuming a stock price of $4.50 and 185.755 million shares outstanding), the P/B ratio would be:

P/B Ratio = Market Capitalization / Total Equity = $837 million / $764.951 million = 1.1

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio provides insight into the valuation of a company, factoring in both debt and equity. N-able reported an adjusted EBITDA of $44.832 million for the third quarter of 2024. The enterprise value is calculated as follows:

• Market Capitalization: $837 million
• Debt: $333.581 million
• Cash: $174.445 million

Enterprise Value = Market Capitalization + Debt - Cash = $837 million + $333.581 million - $174.445 million = $996.136 million

EV/EBITDA = Enterprise Value / Adjusted EBITDA = $996.136 million / $44.832 million = 22.2

Stock Price Trends

Over the last 12 months, N-able's stock has experienced fluctuations. The stock price has ranged from a low of $3.50 to a high of $5.00, reflecting a 28.6% increase from the low to the high.

Dividend Yield and Payout Ratios

N-able does not currently pay a dividend, which results in a dividend yield of 0%. Consequently, there are no payout ratios to report.

Analyst Consensus on Stock Valuation

As of the latest reports, analysts have a consensus rating of "Hold" for N-able. The average price target among analysts is approximately $4.75, suggesting a potential upside from the current trading levels.

Key Risks Facing N-able, Inc. (NABL)

Key Risks Facing N-able, Inc.

Understanding the risk factors that impact the financial health of N-able, Inc. is crucial for investors. This company faces a variety of internal and external risks that could affect its performance.

Industry Competition

The competitive landscape in the IT management sector is intensifying. N-able competes with established players such as SolarWinds and newer entrants that are innovating rapidly. As of September 30, 2024, N-able had approximately 25,000 customers and 2,275 MSP partners with annualized recurring revenue (ARR) over $50,000, reflecting a 6.6% increase from the previous year. This growth indicates a strong market presence but also highlights the need for continuous innovation to maintain and expand its market share.

Regulatory Changes

Changes in regulations, particularly in data privacy and cybersecurity, pose significant risks. Compliance with regulations such as GDPR and CCPA is essential for operations. The effective tax rate for the nine months ended September 30, 2024, was 41.5%, a decrease from 49.0% in the previous year, indicating adjustments in tax strategy potentially influenced by regulatory changes.

Market Conditions

Market fluctuations can adversely affect demand for IT services. The annual dollar-based net revenue retention rate for N-able's subscription products was approximately 105% for the trailing twelve-month period ended September 30, 2024, down from 108% the previous year. This decline reflects potential pressures from pricing changes and market conditions that could impact future revenue.

Operational Risks

Operational efficiency is crucial for profitability. For the three months ended September 30, 2024, N-able reported operating income of $23.9 million, up from $18.4 million the previous year. However, net income rose to $10.8 million from $6.0 million, indicating that while revenues are increasing, cost management remains critical.

Financial Risks

N-able's debt levels pose a financial risk. As of September 30, 2024, total borrowings amounted to $333.6 million, down slightly from $335.0 million at the end of 2023. The company must manage interest expenses, which were $22.8 million for the nine months ended September 30, 2024.

Mitigation Strategies

To address these risks, N-able has implemented various strategies. The Long-Term Contract Initiative aims to increase the proportion of long-term contracts, which can stabilize revenue. As of September 30, 2024, N-able recognized $349.6 million in total revenue, reflecting a 11.5% increase year-over-year. Furthermore, cash and cash equivalents stood at $174.4 million, providing a buffer against operational and financial uncertainties.

Future Growth Prospects for N-able, Inc. (NABL)

Future Growth Prospects for N-able, Inc.

Analysis of Key Growth Drivers

Product Innovations: N-able, Inc. has focused on enhancing its SaaS solutions, which include data protection, security, and remote monitoring. Subscription revenue for these services increased by 12.4%, reaching $343.9 million for the nine months ended September 30, 2024, compared to $306.0 million for the same period in 2023.

Market Expansions: The company reported approximately 25,000 customers and a growth in Managed Service Provider (MSP) partners to 2,275, a 6.6% increase from 2,134 in 2023. Revenue from the United States constituted 47.8% of total revenue, while the United Kingdom contributed 10.5%.

Acquisitions: The acquisition of Spinpanel B.V. in July 2022 for up to $20 million is expected to enhance N-able's offerings and customer base.

Future Revenue Growth Projections and Earnings Estimates

N-able's total revenue for the three months ended September 30, 2024, was $116.4 million, an 8.3% increase from $107.6 million in 2023. Subscription revenue for the same period reached $114.998 million, a rise of 9.3% from $105.208 million. The annual dollar-based net revenue retention rate was approximately 105% as of September 30, 2024.

Strategic Initiatives or Partnerships That May Drive Future Growth

N-able's Long-Term Contract Initiative aims to increase long-term subscriptions, positively impacting revenue recognition and stability. The company's partnerships with MSPs are crucial for expanding its market reach and enhancing service offerings.

Competitive Advantages That Position the Company for Growth

Operating Efficiency: N-able's operating income for the three months ended September 30, 2024, was $23.9 million, up from $18.4 million in 2023. This reflects strong operational management and cost control measures.

Cash Flow: Cash flows from operations were $22 million for the three months ended September 30, 2024, compared to $27.5 million in 2023. N-able maintained cash and cash equivalents of $174.4 million as of September 30, 2024.

Updated on 16 Nov 2024

Resources:

1. N-able, Inc. (NABL) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of N-able, Inc. (NABL)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View N-able, Inc. (NABL)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.