Editor's note: This article has been corrected to state that SolarWinds originally announced it was exploring a separation of N-able last August. 

What happened

Shares of SolarWinds (NYSE:SWI) are down more than 41% as of 11:10 a.m. EDT, according to data from S&P Global Market Intelligence. The embattled tech company completed its spinoff of IT service software outfit N-able (NYSE:NABL) into its own separate entity. The big share price drop reflects the split. SolarWinds shareholders of record on July 12, 2021 each received one share of N-able -- which is currently trading at $14 per share, down nearly 9% as of 11:10 a.m. EDT from its debut at market open on Tuesday.  

A faceless person wearing a hooded sweatshirt using a laptop, representing cybercrim.

Image source: Getty Images.

So what

SolarWinds originally announced it was exploring a separation of N-able last August, and filed paperwork with the Securities and Exchange Commission (SEC) last December making the spinoff official. Later in December, it was revealed by security firm FireEye (NASDAQ:FEYE) that a breach on its systems was exploited through SolarWinds IT monitoring and management software Orion -- which FireEye and a slew of other tech companies and government agencies use, and through which Russian hackers had infiltrated their systems.

It's been tough going for SolarWinds ever since. Its stock fell over 30% when news of the hack broke, and a meaningful rebound has yet to occur. Spinning off N-able will allow that growing cloud-based software business to divorce itself from the beleaguered IT management services that will remain under the SolarWinds name. 

Now what

SolarWinds reported preliminary second-quarter 2021 financial results in July. Total revenue is expected to be up approximately 6% year-over-year to $260.8 million to $262 million, but about $85 million of that revenue was generated by N-able (which grew 16% year over year). The core business that remains with SolarWinds was up a meager 2%.  

It will be an uphill battle for SolarWinds as it repairs its reputation and reestablishes trust with its customers, and it's unlikely to be a growing business anytime soon. The upshot, though, is that this is a profitable firm. Adjusted EBITDA profit margin, which excludes noncash expenses like depreciation and one-time costs of completing the spinoff, is expected to be about 42% in Q2. SolarWinds might be a potential rebound play going forward, but tread lightly here.

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