SolarWinds Announces Fourth Quarter and Full Year 2012 Results

SolarWinds Announces Fourth Quarter and Full Year 2012 Results 
AUSTIN, TX -- (Marketwire) -- 02/04/13 --  SolarWinds(R) (NYSE: SWI),
a leading provider of powerful and affordable IT management software,
today reported results for its fourth quarter and full year ended
December 31, 2012. 


 
--  Record total revenue for the fourth quarter of $73.5 million,
    representing 32% year-over-year growth.
    
    
--  Record total revenue for the full year of 2012 of $269.0 million,
    representing 36% year-over-year growth.
    
    
--  Fourth quarter GAAP operating income of $31.6 million and non-GAAP
    operating income of $39.4 million, or a non-GAAP operating margin for
    the fourth quarter of 54%.
    
    
--  Fourth quarter GAAP diluted earnings per share of $0.29 and non-GAAP
    diluted earnings per share of $0.36.
    
    
--  Record fourth quarter free cash flow of $48.0 million, representing
    32% year-over-year growth.

  
Financial Results
 SolarWinds reported record total revenue for the
fourth quarter of 2012 of $73.5 million, a 32% increase over total
revenue for the fourth quarter of 2011. License revenue was $33.1
million for the fourth quarter of 2012, representing a 31% increase
over license revenue for the fourth quarter of 2011. Maintenance
revenue was a record $40.5 million for the fourth quarter of 2012,
representing a 33% increase over maintenance revenue for the fourth
quarter of 2011. 
On a GAAP basis, diluted earnings per share were $0.29 for the fourth
quarter of 2012 compared to $0.22 for the fourth quarter of 2011.
Non-GAAP diluted earnings per share were $0.36 for the fourth quarter
of 2012 compared to $0.29 for the fourth quarter of 2011. 
Net cash provided by operating activities was $47.2 million for the
fourth quarter of 2012 compared to $36.3 million for the fourth
quarter of 2011, representing a year-over-year increase of 30%. Free
cash flow was $48.0 million for the fourth quarter of 2012 compared
to $36.4 million for the fourth quarter of 2011, representing a
year-over-year increase of 32%. Cash, cash equivalents, and
investments at the end of the fourth quarter of 2012 were $241.8
million, an increase of $33.3 million from the end of the third
quarter of 2012. 
The financial result
s included in this press release are preliminary
and pending final review by the company and its external auditors.
Financial results will not be final until SolarWinds files its annual
report on Form 10-K for the period. Information about SolarWinds' use
of these non-GAAP financial measures is provided below under
"Non-GAAP Financial Measures."  
Recent Business Highlights
 "Once again, the SolarWinds team
delivered an impressive performance in 2012, resulting in full year
revenue growth of 36% and a solid acceleration over our strong
revenue growth last year. We believe that the team's hard work and
focus the past year to extend our product portfolio in meaningful
ways, engage the IT community through compelling content and targeted
marketing efforts, and establish ourselves as a significant player in
the broader IT management market are reflected in this quarter's and
full year 2012 results," said Kevin Thompson, SolarWinds' President
and Chief Executive Officer. 
"2012 marked a year of significant progress for our company and
brand. We believe that the investments that we made to raise systems
administrators' awareness of SolarWinds' brand and products paid off
with solid growth for many of our systems management products. Strong
demand for our network configuration products, in particular
SolarWinds IP Address Manager, helped to support our continued growth
in network management and helped us to
 reinforce our leadership in
that market. Once again, we believe that the strong growth across all
of our geographies demonstrates that our unique approach to solving
IT professionals' critical, real-world problems continues to be a
compelling alternative to our competitors," added Thompson. 
SolarWinds business highlights during the fourth quarter of 2012
include: 


 
--  The company completed a year of strengthening its systems management
    portfolio with new releases of SolarWinds Web Performance Monitor
    (WPM), formerly SolarWinds Synthetic End User Monitor, and SolarWinds
    Virtualization Manager. Using SolarWinds WPM, System Administrators
    can continuously monitor websites and Web applications, including
    those that are internal (behind the firewall), customer-facing, SaaS,
    and cloud-based to keep a proactive watch on the end user's point of
    view. The latest version of SolarWinds WPM extends its application
    support to include Web-based Java applications such as Oracle forms
    and those served via the Citrix Web Interface. The latest version of
    SolarWinds Virtualization Manager includes feature enhancements
    designed to help simplify the monitoring of VDI performance issues
    like boot/logon storms related to storage I/O bottlenecks, CPU, memory
    contention and more.
--  Throughout 2012, the company used acquisitions to significantly expand
    the number of systems management problems that it solves for IT pros.
    Through the acquisition of Rhino Software, Inc. in December 2012,
    SolarWinds launched its new SolarWinds Serv-U(R) Managed File
    Transfer Server and a new free tool SolarWinds FTP Voyager(R).
    SolarWinds Serv-U Managed File Transfer Server provides a
    cost-effective, secure managed file transfer solution with an
    intuitive, easy-to-use web interface as well as the ability to access
    files on the go through secure mobile access. The addition of the free
    FTP Voyager to the company's robust offerings of free tools is an
    example of the company's ongoing commitment to creating value and
    giving back to the IT community.
--  New versions of SolarWinds IP Address Manager (IPAM) and SolarWinds
    Network Performance Monitor (NPM) were also released in the fourth
    quarter, increasing the depth of the company's network management
    capabilities. SolarWinds' latest version of IPAM combines feature-rich
    IP address management capabilities, support for Microsoft DHCP and DNS
    management, Cisco DHCP management and Cisco Adaptive Security
    Appliances (ASA), and integration with key SolarWinds IT management
    products.
--  As part of the ongoing effort to more effectively reach, market to,
    and support users around the world, SolarWinds introduced a new set of
    localized assets for the German markets in the fourth quarter 2012.
    The company launched a fully featured, localized German-language
    website (www.solarwinds.com/de), the German language version of its
    flagship network monitoring solution, SolarWinds Network Performance
    Monitor, and the German version of its most popular free tool,
    SolarWinds free TFTP Server.

  
"For the fourth quarter and full year of 2012, our financial results
continued to illustrate the strength of our team and the unique and
disruptive nature of our business model," added Mike Berry,
SolarWinds' Chief Financial Officer. "These factors once again
enabled us to deliver a combination of strong revenue growth,
non-GAAP operating margins, and record free cash flow amidst a period
of significant investment in our business. These investments included
extensive marketing to build awareness of our brands and products as
well as several product releases based on both acquired and
internally developed technologies that allowed us to go broader and
deeper within the markets we serve. Overall, we are very pleased with
our financial results for 2012, and given our disciplined approach to
investing in our business and the large opportunity we see before us,
we continue to be excited about our opportunity to generate solid
growth while delivering strong profitability and free cash flow in
2013." 
Financial Outlook
 As of February 4, 2013, SolarWinds is providing
its financial outlook for its first quarter and full year of 2013.
The financial information below represents forward-looking non-GAAP
financial information, including an estimate of non-GAAP operating
income as a percentage of revenue, and non-GAAP diluted earnings per
share, for the first quarter of 2013 and for the full year 2013.
These non-GAAP financial measures exclude, among other items
mentioned below, stock-based compensation expense and related
employer-paid payroll taxes. SolarWinds cannot reasonably estimate
the expected stock-based compensation expense and related
employer-paid payroll taxes for these future periods as the amounts
depend upon such factors as the future price of SolarWinds' stock for
purposes of computation. In addition, costs related to non-recurring
items and acquisitions are not something that SolarWinds can estimate
because they are a function of what non-recurring items and
acquisitions, if any, occur and the kind of costs incurred in
connection with any such non-recurring items or acquisitions. 
Financial Outlook for the First Quarter of 2013
 SolarWinds'
management currently expects to achieve the following results for the
first quarter of 2013: 


 
--  Total revenue in the range of $74.9-$75.7 million, or 26% to 27%
    growth over the first quarter of 2012.
    
    
--  Non-GAAP operating income representing 51%-51.5% of revenue.
    
    
--  Non-GAAP diluted earnings per share of approximately $0.37.
    
    
--  Weighted average outstanding diluted shares of approximately 77.2
    million.

  
Financial Outlook for Full Year 2013
 SolarWinds' management currently
expects to achieve the following results for the full year 2013: 


 
--  Total 2013 revenue in the range of $330.0-$338.0 million, or 23% to
    26% year-over-year growth.
    
    
--  Non-GAAP operating income for the full year representing 51%-52% of
    revenue.
    
    
--  Non-GAAP diluted earnings per share of $1.57-$1.62.
    
    
--  Weighted average outstanding diluted shares of approximately 78.0
    million.

  
Conference Call and Webcast
 In conjunction with this announcement,
SolarWinds will host a conference call today to discuss its financial
results and other business at 4:00pm CT (5:00pm ET/2:00pm PT). A live
webcast of the event, including any supplemental information, will be
available on the SolarWinds Investor Relations website at
http://ir.solarwinds.com. A live dial-in will be available
domestically at 800-390-5311 and internationally at +1-719-325-2207.
To access the live call, please dial in 5-10 minutes before the
scheduled start time. A replay of the webcast will be available on a
temporary basis shortly after the event on the SolarWinds Investor
Relations website. 
Forward-Looking Statements
 This press release contains
"forward-looking" statements, which are subject to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995,
including statements regarding SolarWinds' financial outlook and
growth opportunity. These forward-looking statements are based on
management's beliefs and assumptions and on information currently
available to management. Forward-looking statements include all
statements that are not historical facts and may be identified by
terms such as "believe," "continue," "expect," or similar expressions
and the negatives of those terms. Forward-looking statements involve
known and unknown risks, uncertainties and other factors that may
cause actual results, performance or achievements to be materially
different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not
limited to, the following: (a) the inability to generate significant
volumes of sales leads from Internet search engines, marketing
campaigns and traffic to our websites; (b) the possibility that
general economic conditions or uncertainty cause information
technology spending to be reduced or purchasing decisions to be
delayed; (c) the presence or absence of occasional large customer
orders, including in particular those placed by the U.S. federal
government; (d) the inability to increase sales to existing customers
and to attract new customers; (e) SolarWinds' ability to successfully
identify, complete, and integrate acquisitions; (f) the timing and
success of new product introductions and product upgrades by
SolarWinds or its competitors; (g) potential foreign exchange gains
and losses related to expenses and sales denominated in currencies
other than the functional currency of an associated entity; and (h)
such other risks and uncertainties described more fully in documents
filed with or furnished to the Securities and Exchange Commission,
including the Form 10-K that SolarWinds anticipates filing on or
before March 1, 2013. All information provided in this release is as
of the date hereof and SolarWinds undertakes no duty to update this
information except as required by law. 
Non-GAAP Financial Measures 
 In addition to disclosing financial
measures prepared in accordance with GAAP, this press release and the
accompanying tables contain certain non-GAAP financial measures. The
tables below set forth a reconciliation of each of these non-GAAP
measures to a GAAP financial measure that we consider to be most
comparable. SolarWinds believes that each of these non-GAAP financial
measures provides meaningful supplemental information regarding its
performance by excluding certain items that may not be indicative of
its core business operations. SolarWinds' management and Board of
Directors use certain of these non-GAAP measures to assess
operational performance, allocate resources, prepare annual budgets,
and determine employee incentive compensation. Accordingly, these
measures may provide helpful insight to investors into the motivation
and decision-making of management in operating the business.
SolarWinds considers free cash flow also to be a liquidity measure
that provides important information regarding the cash generated by
the business after the purchase of property and equipment that can
then be used for, among other things, strategic acquisitions and
investments in the business, stock repurchases and funding ongoing
operations.  
SolarWinds also believes that these non-GAAP financial measures are
used by investors and security analysts to (a) compare and evaluate
its performance from period to period and (b) compare its performance
to those of its competitors. These non-GAAP measures exclude certain
items that can vary substantially from company to company depending
upon their financing and accounting methods, the book value of their
assets, their capital structures and the method by which their assets
were acquired.  
There are limitations associated with the use of these non-GAAP
financial measures. These non-GAAP financial measures are not
prepared in accordance with GAAP, do not reflect a comprehensive
system of accounting and may not be completely comparable to
similarly titled measures of other companies due to potential
differences in the exact method of calculation between companies.
Certain items that are excluded from these non-GAAP financial
measures can have a material impact on operating and net income. In
addition, free cash flow does not represent the total increase or
decrease in the cash balance for the period.  
As a result, these non-GAAP financial measures have limitations and
should not be considered in isolation from, or as a substitute for,
the most comparable GAAP measures. SolarWinds' management and Board
of Directors compensate for these limitations by using these non-GAAP
financial measures as supplements to GAAP financial measures and by
reviewing the reconciliations of the non-GAAP financial measures to
their most comparable GAAP financial measure. Investors are
encouraged to review the reconciliations of these non-GAAP financial
measures to their most comparable GAAP financial measures that are
set forth in the tables below. 
About SolarWinds 
SolarWinds (NYSE: SWI) provides powerful and affordable IT management
software to customers worldwide from Fortune 500 enterprises to small
businesses. In all of our market areas, our approach is consistent.
We focus exclusively on IT Pros and strive to eliminate the
complexity that they have been forced to accept from traditional
enterprise software vendors. SolarWinds delivers on this commitment
with unexpected simplicity through products that are easy to find,
buy, use and maintain while providing the power to address any IT
management problem on any scale. Our solutions are rooted in our deep
connection to our user base, which interacts in our thwack online
community to solve problems, share technology and best practices, and
directly participate in our product development process. Learn more
today at http://www.solarwinds.com. 
SolarWinds, SolarWinds & Design, thwack, FTP Voyager and Serv-U are
registered trademarks of SolarWinds. All other SolarWinds marks are
the exclusive property of SolarWinds, may be pending registration
with the U.S. Patent and Trademark Office, and may be registered or
pending registration in other countries. Any other company and
product names mentioned are used only for identification purposes and
may be trademarks or registered trademarks of their respective
companies.  
Copyright Copyright 2013 SolarWinds Worldwide, LLC. All rights
reserved. 


 
                                                                          
                                                                          
                             SolarWinds, Inc.                             
                       Consolidated Balanc
e Sheets                        
          (In thousands, except share and per share information)          
                               (Unaudited)                                
                                                                          
                                                                          
                                                December 31, December 31, 
                                                    2012         2011     
                                                ------------ ------------ 
Assets                                                                    
Current assets:                                                           
  Cash and cash equivalents                     $    179,702 $    122,707 
  Short-term investments                              49,276       29,688 
  Accounts receivable, net of allowances of $271                          
   and $192 as of December 31, 2012 and 2011,                             
   respectively                                       32,506       26,965 
  Income tax receivable                                  142          110 
  Deferred taxes                                       1,712          668 
  Prepaid and other current assets                     3,322        2,770 
                                                ------------ ------------ 
    Total current assets                             266,660      182,908 
Property and equipment, net                            8,342        7,341 
Long-term investments                                 12,823            - 
Deferred taxes                                           338        3,334 
Goodwill                                             158,601      110,746 
Intangible assets and other, net                      70,631       58,079 
                                                ------------ ------------ 
    Total assets                                $    517,395 $    362,408 
                                                ============ ============ 
                                                                          
Liabilities and stockholders' equity                                      
Current liabilities:                                                      
  Accounts payable                              $      4,050 $      2,213 
  Accrued liabilities                                 14,226        9,442 
  Accrued earnout                                        121        3,513 
  Income taxes payable                                 4,037          779 
  Current portion of deferred revenue                 97,672       73,774 
                                                ------------ ------------ 
    Total current liabilities                        120,106       89,721 
Long-term liabilities:                                                    
  Deferred revenue, net of current portion             5,084        3,373 
  Non-current deferred taxes                             483          289 
  Other long-term liabilities                          8,908        4,078 
                                                ------------ ------------ 
    Total liabilities                                134,581       97,461 
Commitments and contingencies                                             
Stockholders' equity:                                                     
  Common stock, $0.001 par value: 123,000,000                             
   shares authorized and 74,633,412 and                                   
   73,367,367 shares issued and outstanding as                            
   of December 31, 2012 and 2011, respectively            75           73 
  Additional paid-in capital                         229,277      194,379 
  Accumulated other comprehensive loss                (1,145)      (2,769)
  Accumulated earnings                               154,607       73,264 
                                                ------------ ------------ 
    Total stockholders' equity                       382,814      264,947 
                                                ------------ ------------ 
    Total liabilities and stockholders' equity  $    517,395 $    362,408 
                                                ============ ============ 
                                                                          
                                                                            
                                                                            
                              SolarWinds, Inc.                              
                     Consolidated Statements of Income                      
                (In thousands, except per share information)                
                                (Unaudited)                                 
                                                                            
                                                                            
                              Three Months Ended      Twelve Months Ended   
                                  December 31,            December 31,      
                            ----------------------- ----------------------- 
                                2012        2011        2012        2011    
                            ----------- ----------- ----------- ----------- 
                                                                            
Revenue:                                                                    
  License                   $    33,065 $    25,283 $   123,984 $    92,254 
  Maintenance and other          40,465      30,326     144,980     106,104 
                            ----------- ----------- ----------- ----------- 
    Total revenue                73,530      55,609     268,964     198,358 
  Cost of license revenue         2,383       1,186       8,203       4,097 
  Cost of maintenance and                                                   
   other revenue                  2,883       2,212      10,197       7,892 
                            ----------- ----------- ----------- ----------- 
Gross profit                     68,264      52,211     250,564     186,369 
Operating expenses:                                                         
  Sales and marketing            19,757      15,152      73,046      53,850 
  Research and development        7,955       5,692      28,769      21,332 
  General and                                                               
   administrative                 9,472       8,093      35,649      28,076 
  Accrued earnout (gain)                                                    
   loss                            (500)        936        (570)       (664)
                            ----------- ----------- ----------- ----------- 
    Total operating                                                         
     expenses                    36,684      29,873     136,894     102,594 
                            ----------- ----------- ----------- ----------- 
Operating income                 31,580      22,338     113,670      83,775 
Other income (expense):                                                     
  Interest income                   123          94         430         308 
  Other income, net                 378         699         419         720 
                            ----------- ----------- ----------- ----------- 
    Total other income              501         793         849       1,028 
                            ----------- ----------- ----------- ----------- 
Income before income taxes       32,081      23,131     114,519      84,803 
  Income tax expense              9,782       6,837      33,176      22,360 
                            ----------- ----------- ----------- ----------- 
Net income                  $    22,299 $    16,294 $    81,343 $    62,443 
                            =========== =========== =========== =========== 
Net income per share:                                                       
  Basic earnings per share  $      0.30 $      0.22 $      1.10 $      0.86 
                            =========== =========== =========== =========== 
  Diluted earnings per                                                      
   share                    $      0.29 $      0.22 $      1.07 $      0.84 
                            =========== =========== =========== =========== 
Weighted-average shares                                                     
 used to compute net income                                                 
 per share:                                                                 
  Shares used in                                                            
   computation of basic                                                     
   earnings per share            74,550      73,215      74,166      72,812 
                            =========== =========== =========== =========== 
  Shares used in                                                            
   computation of diluted                                                   
   earnings per share            76,467      74,885      76,030      74,413 
                            =========== =========== =========== =========== 
                                                                            
                                                                            
                                                                            
                              SolarWinds, Inc.                              
           Reconciliation of GAAP to Non-GAAP Financial Measures            
          (In thousands, except per share amounts and percentages)          
                                (Unaudited)                                 
                                                                            
                                    Three Months Ended  Twelve Months Ended 
                                        December 31,        December 31,    
                                    ------------------- ------------------- 
                                       2012      2011      2012      2011   
                                    --------- --------- --------- --------- 
                                                                            
GAAP cost of revenue                $   5,266 $   3,398 $  18,400 $  11,989 
  Amortization of intangible assets                                         
   (1)                                 (2,149)   (1,011)   (7,300)   (3,651)
  Stock-based compensation expense                                          
   and related employer-paid                                                
   payroll taxes (2)                      (85)      (48)     (334)     (192)
                                    --------- --------- --------- --------- 
Non-GAAP cost of revenue            $   3,032 $   2,339 $  10,766 $   8,146 
                                    ========= ========= ========= ========= 
                                                                            
GAAP gross profit                   $  68,264 $  52,211 $ 250,564 $ 186,369 
  Amortization of intangible assets                                         
   (1)                                  2,149     1,011     7,300     3,651 
  Stock-based compensation expense                                          
   and related employer-paid                                                
   payroll taxes (2)                       85        48       334       192 
                                    --------- --------- --------- --------- 
Non-GAAP gross profit               $  70,498 $  53,270 $ 258,198 $ 190,212 
                                    ========= ========= ========= ========= 
                                                                            
GAAP sales and marketing expense    $  19,757 $  15,152 $  73,046 $  53,850 
  Stock-based compensation expense                                          
   and related employer-paid                                                
   payroll taxes (2)                   (1,235)     (817)   (4,958)   (3,363)
                                    --------- --------- --------- --------- 
Non-GAAP sales and marketing                                                
 expense                            $  18,522 $  14,335 $  68,088 $  50,487 
                                    ========= ========= ========= ========= 
                                                                            
GAAP research and development                                               
 expense                            $   7,955 $   5,692 $  28,769 $  21,332 
  Stock-based compensation expense                                          
   and related employer-paid                                                
   payroll taxes (2)                     (795)     (398)   (3,090)   (1,673)
                                    --------- --------- --------- --------- 
Non-GAAP research and development                                           
 expense                            $   7,160 $   5,294 $  25,679 $  19,659 
                                    ========= ========= ========= ========= 
                                                                            
GAAP general and administrative                                             
 expense                            $   9,472 $   8,093 $  35,649 $  28,076 
  Amortization of intangible assets                                         
   (1)                                 (2,079)   (1,487)   (7,594)   (3,519)
  Stock-based compensation expense                                          
   and related employer-paid                                                
   payroll taxes (2)                   (1,873)   (1,379)   (7,437)   (5,746)
  Acquisition related adjustments                                           
   (3)                                   (114)     (861)   (1,015)   (2,003)
                                    --------- --------- --------- --------- 
Non-GAAP general and administrative                                         
 expense                            $   5,406 $   4,366 $  19,603 $  16,808 
                                    ========= ========= ========= ========= 
                                                                            
GAAP accrued earnout (gain) loss    $    (500)$     936 $    (570)$    (664)
  Acquisition related adjustments                                           
   (3)                                    500      (936)      570       664 
                                    --------- --------- --------- --------- 
Non-GAAP accrued earnout (gain)                                             
 loss                               $       - $       - $       - $       - 
                                    ========= ========= ========= ========= 
                                                                            
GAAP operating expenses             $  36,684 $  29,873 $ 136,894 $ 102,594 
  Amortization of intangible assets                                         
   (1)                                 (2,079)   (1,487)   (7,594)   (3,519)
  Stock-based compensation expense                                          
   and related employer-paid                                                
   payroll taxes (2)                   (3,903)   (2,594)  (15,485)  (10,782)
  Acquisition related adjustments                                           
   (3)                                    386    (1,797)     (445)   (1,339)
                                    --------- --------- --------- --------- 
Non-GAAP operating expenses         $  31,088 $  23,995 $ 113,370 $  86,954 
                                    ========= ========= ========= ========= 
                                                                            
GAAP operating income               $  31,580 $  22,338 $ 113,670 $  83,775 
  Amortization of intangible assets                                         
   (1)                                  4,228     2,498    14,894     7,170 
  Stock-based compensation expense                                          
   and related employer-paid                                                
   payroll taxes (2)                    3,988     2,642    15,819    10,974 
  Acquisition related adjustments                                           
   (3)                                   (386)    1,797       445     1,339 
                                    --------- --------- --------- --------- 
Non-GAAP operating income           $  39,410 $  29,275 $ 144,828 $ 103,258 
                                    ========= ========= ========= ========= 
                                                                            
GAAP other income                   $     501 $     793 $     849 $   1,028 
  Acquisition related adjustments                                           
   (3)                                     21        34        74       239 
                                    --------- --------- --------- --------- 
Non-GAAP other income               $     522 $     827 $     923 $   1,267 
                                    ========= ========= ========= ========= 
                                                                            
GAAP income tax expense             $   9,782 $   6,837 $  33,176 $  22,360 
  Income tax effect on non-GAAP                                             
   exclusions (4)                       2,430     1,445     8,886     4,970 
                                    --------- --------- --------- --------- 
Non-GAAP income tax expense         $  12,212 $   8,282 $  42,062 $  27,330 
                                    ========= ========= ========= ========= 
                                                                            
GAAP net income                     $  22,299 $  16,294 $  81,343 $  62,443 
  Amortization of intangible assets                                         
   (1)                                  4,228     2,498    14,894     7,170 
  Stock-based compensation expense                                          
   and related employer-paid                                                
   payroll taxes (2)                    3,988     2,642    15,819    10,974 
  Acquisition related adjustments                                           
   (3)                                   (365)    1,831       519     1,578 
  Tax benefits associated with                                              
   above adjustments (4)               (2,430)   (1,445)   (8,886)   (4,970)
                                    --------- --------- --------- --------- 
Non-GAAP net income                 $  27,720 $  21,820 $ 103,689 $  77,195 
                                    ========= ========= ========= ========= 
                                                                            
Non-GAAP diluted earnings per share                                         
 (5)                                $    0.36 $    0.29 $    1.36 $    1.04 
                                    ========= ========= ========= ========= 
Weighted-average shares used in                                             
 computing diluted earnings per                                             
 share                                 76,467    74,885    76,030    74,413 
                                    ========= ========= ========= ========= 
                                                                            
Percentage of Revenue:                                                      
                                                                            
GAAP gross profit                        92.8%     93.9%     93.2%     94.0%
  Non-GAAP adjustments (1)(2)             3.0%      1.9%      2.8%      1.9%
                                    --------- --------- --------- --------- 
Non-GAAP gross profit                    95.9%     95.8%     96.0%     95.9%
                                    ========= ========= ========= ========= 
                                                                            
GAAP operating margin                    42.9%     40.2%     42.3%     42.2%
  Non-GAAP adjustments (1)(2)(3)         10.6%     12.5%     11.6%      9.8%
                                    --------- --------- --------- --------- 
Non-GAAP operating margin                53.6%     52.6%     53.8%     52.1%
                                    ========= ========= ========= ========= 
                                                                            
GAAP net income                          30.3%     29.3%     30.2%     31.5%
  Non-GAAP adjustments (1)(2)(3)(4)       7.4%      9.9%      8.3%      7.4%
                                    --------- --------- --------- --------- 
Non-GAAP net income                      37.7%     39.2%     38.6%     38.9%
                                    ========= ========= ========= ========= 
                                                                            
(1) Amortization of Intangible Assets. We provide non-GAAP information which
excludes expenses for the amortization of intangible assets which primarily 
relate to purchased intangible assets associated with our acquisitions.  We 
believe that eliminating this expense from our non-GAAP measures is useful  
to investors, because the amortization of intangible assets can be          
inconsistent in amount and frequency and is significantly impacted by the   
timing and magnitude of our acquisition transactions, which also vary in    
frequency from period to period. Accordingly, we analyze the performance of 
our operations in each period without regard to such expenses.              
                                                                            
(2) Stock-Based Compensation Expense and Related Employer-Paid Payroll      
Taxes. We provide non-GAAP information which excludes expenses for stock-   
based compensation and related employer-paid payroll taxes. We believe the  
exclusion of these items allows for financial results that are more         
indicative of our continuing operations.  We believe that the exclusion of  
stock-based compensation expense provides for a better comparison of our    
operating results to prior periods and to our peer companies as the         
calculations of stock-based compensation vary from period to period and     
company to company due to different valuation methodologies, subjective     
assumptions and the variety of award types. Employer-paid payroll taxes on  
stock-based compensation is dependent on our stock price and the timing of  
the taxable events related to the equity awards, over which our management  
has little control, and does not correlate to the core operation of our     
business.  Because of these unique characteristics of stock-based           
compensation and the related employer-paid payroll taxes, management        
excludes these expenses when analyzing the organization's business          
performance.                                                                
                                                                            
(3) Acquisition Related Adjustments. We exclude certain expense items       
resulting from acquisitions including the following, when applicable: (i)   
amortization of purchased intangible assets associated with our acquisitions
(see Note 1 for further discussion); (ii) legal, accounting and advisory    
fees to the extent associated with acquisitions; (iii) changes in fair value
of contingent consideration; (iv) costs related to integrating the acquired 
businesses; and (v) restructuring costs, including adjustments related to   
changes in estimates, related to acquisitions. We consider these            
adjustments, to some extent, to be unpredictable and dependent on a         
significant number of factors that are outside of our control. Furthermore, 
acquisitions result in non-continuing operating expenses, which would not   
otherwise have been incurred by us in the normal course of our organic      
business operations, with respect to each acquisition. We believe that      
providing non-GAAP information for acquisition related expense items in     
addition to the corresponding GAAP information allows the users of our      
financial statements to better review and understand the historic and       
current results of our continuing operations, and also facilitates          
comparisons to our historical results and results of less acquisitive peer  
companies, both with and without such adjustments.                          
                                                                            
(4) Income Tax Effect of Non-GAAP Exclusions. We believe providing financial
information with and without the income tax effect of excluding items       
related to our non-GAAP financial measures provide our management and users 
of the financial statements with better clarity regarding the ongoing       
performance and future liquidity of our business.                           
                                                                            
(5) Non-GAAP Diluted Earnings Per Share Item. We provide non-GAAP diluted   
earnings per share. The non-GAAP diluted earnings per share amount was      
calculated based on our non-GAAP net income and the shares used in the      
computation of GAAP diluted earnings per share.                             
                                                                            
                                                                            
                                                                            
                              SolarWinds, Inc.                              
     Reconciliation of Free Cash Flow to GAAP Cash Flows From Operating     
                                 Activities                                 
                               (In thousands)                               
                                (Unaudited)                                 
                                                                            
                                                                            
                                    Three Months Ended  Twelve Months Ended 
                                        December 31,        December 31,    
                                    ------------------- ------------------- 
                                       2012      2011      2012      2011   
                                    --------- --------- --------- --------- 
                                                                            
Reconciliation of free cash flow to                                         
 GAAP cash flows from operating                                             
 activities:                                                                
  GAAP cash flows from operating                                            
   activities                       $  47,198 $  36,279 $ 143,447 $ 110,530 
  Excess tax benefit from stock-                                            
   based compensation                   1,565     1,227    10,486     6,359 
  Purchases of property and                                                 
   equipment                             (804)   (1,102)   (3,885)   (2,945)
                                    --------- --------- --------- --------- 
  Free cash flow (1)                $  47,959 $  36,404 $ 150,048 $ 113,944 
                                    ========= ========= ========= ========= 
                                                                            
                                                                            
(1) Free Cash Flow. We define free cash flow as cash flows from operating   
activities plus the excess tax benefit from stock-based compensation and    
less the purchases of property and equipment.  We believe free cash flow is 
an important liquidity measure that reflects the cash generated by the      
business after the purchase of property and equipment that can then be used 
for, among other things, strategic acquisitions and investments in the      
business, stock repurchases and funding ongoing operations.                 
                                                                            
                                                                            
                                                                            
                              SolarWinds, Inc.                              
                   Consolidated Statements of Cash Flows                    
                               (In thousands)                               
                                (Unaudited)                                 
                                                                            
                                                                            
                                   Three Months Ended   Twelve Months Ended 
                                       December 31,         December 31,    
                                   -------------------  ------------------- 
                                      2012      2011       2012      2011   
                                   --------- ---------  --------- --------- 
Cash flows from operating                                                   
 activities                                                                 
  Net income                       $  22,299 $  16,294  $  81,343 $  62,443 
  Adjustments to reconcile net                                              
   income to net cash provided by                                           
  operating activities:                                                     
    Depreciation and amortization      5,193     3,234     18,359     9,957 
    Provision for doubtful                                                  
     accounts                            120        11        258        97 
    Stock-based compensation                                                
     expense                           3,896     2,606     15,264    10,690 
    Accrued earnout (gain) loss         (500)      936       (570)     (664)
    Deferred taxes                        96     2,087       (989)    2,123 
    Excess tax benefit from stock-                                          
     based compensation               (1,565)   (1,227)   (10,486)   (6,359)
    Premium on investments              (427)     (166)    (1,605)     (888)
    Other non-cash expenses              454       263      1,432       622 
  Changes in operating assets and                                           
   liabilities, net of assets                                               
  acquired and liabilities assumed                                          
   in business combinations:                                                
    Accounts receivable                6,649     1,224     (5,695)   (7,038)
    Income taxes receivable              (50)       (8)       (28)      (33)
    Prepaid and other current                                               
     assets                              (19)     (578)    (1,220)     (189)
    Accounts payable                     191      (282)     1,807        56 
    Accrued liabilities                2,084     1,235      4,473       747 
    Income taxes payable               5,463     5,637     18,565    19,886 
    Deferred revenue                   3,314     5,013     22,539    19,080 
                                   --------- ---------  --------- --------- 
      Net cash provided by                                                  
       operating activities           47,198    36,279    143,447   110,530 
                                                                            
Cash flows from investing                                                   
 activities                                                                 
  Purchases of investments           (17,862)   (3,784)   (65,929)  (33,241)
  Maturities of investments            7,180     4,000     33,930     4,000 
  Purchases of property and                                                 
   equipment                            (804)   (1,102)    (3,885)   (2,945)
  Purchases of intangible assets                                            
   and other                            (135)     (191)    (1,203)     (745)
  Acquisition of businesses, net                                            
   of cash acquired                  (17,708)  (51,000)   (66,031) (109,483)
                                   --------- ---------  --------- --------- 
    Net cash used in investing                                              
     activities                      (29,329)  (52,077)  (103,118) (142,414)
                                                                            
Cash flows from financing                                                   
 activities                                                                 
  Repurchase of common stock               -       (35)    (1,472)     (342)
  Exercise of stock options            1,960     3,148     10,622    11,919 
  Excess tax benefit from stock-                                            
   based compensation                  1,565     1,227     10,486     6,359 
  Earnout payments for                                                      
   acquisitions                            -         -     (4,154)   (3,743)
                                   --------- ---------  --------- --------- 
    Net cash provided by financing                                          
     activities                        3,525     4,340     15,482    14,193 
Effect of exchange rate changes on                                          
 cash and cash equivalents             1,248    (1,658)     1,184    (1,605)
                                   --------- ---------  --------- --------- 
  Net increase (decrease) in cash                                           
   and cash equivalents               22,642   (13,116)    56,995   (19,296)
Cash and cash equivalents                                                   
  Beginning of period                157,060   135,823    122,707   142,003 
                                   --------- ---------  --------- --------- 
  End of period                    $ 179,702 $ 122,707  $ 179,702 $ 122,707 
                                   ========= =========  ========= ========= 
                                                                            
Supplemental disclosure of cash                                             
 flow information                                                           
  Cash paid (received) for income                                           
   taxes                           $   4,163 $     (97) $  15,285 $   1,013 
                                   ========= =========  ========= ========= 
Noncash financing transactions                                              
  Accrued earnout                  $       - $       -  $   1,547 $   3,938 
                                   ========= =========  ========= ========= 

  
CONTACTS:
Investors: 
Dave Hafner 
Phone: 512.682.9867 
ir@solarwinds.com  
Media:
Tiffany Nels
Phone: 512.682.9545
pr@solarwinds.com 
 
 
Press spacebar to pause and continue. Press esc to stop.