Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - SolarWinds, Inc. | d429844d8k.htm |
Exhibit 99.1
SolarWinds Announces Third Quarter 2012 Results
AUSTIN, Texas – October 25, 2012 – SolarWinds® (NYSE: SWI), a leading provider of powerful and affordable IT management software, today reported results for its third quarter ended September 30, 2012.
| • | Commercial new license sales grew 39% year-over-year, an acceleration of growth from the second quarter. |
| • | Record total revenue for the third quarter of $71.7 million, representing 33% year-over-year growth. |
| • | Record license revenue for the third quarter of $34.0 million, representing 33% year-over-year growth. |
| • | GAAP operating income of $31.5 million and non-GAAP operating income of $39.6 million, or a non-GAAP operating margin for the third quarter of 55%. |
| • | GAAP diluted earnings per share of $0.29 and non-GAAP diluted earnings per share of $0.37. |
Financial Results
SolarWinds reported record total revenue for the third quarter of 2012 of $71.7 million, a 33% increase over total revenue for the third quarter of 2011. License revenue was a record $34.0 million for the third quarter of 2012 also representing a 33% increase over license revenue for the third quarter of 2011. Maintenance revenue was a record $37.7 million for the third quarter of 2012, representing a 33% increase over maintenance revenue for the third quarter of 2011.
On a GAAP basis, diluted earnings per share were $0.29 for the third quarter of 2012 compared to $0.28 for the third quarter of 2011. Non-GAAP diluted earnings per share were $0.37 for the third quarter of 2012 compared to $0.31 for the third quarter of 2011.
Net cash provided by operating activities was $35.0 million for the third quarter of 2012 compared to $32.5 million for the third quarter of 2011, representing a year-over-year increase of 8%. Free cash flow was $37.2 million for the third quarter of 2012 compared to $32.4 million for the third quarter of 2011, representing a year-over-year increase of 15%. Cash, cash equivalents, and investments at the end of the third quarter of 2012 were $208.5 million, an increase of $12.3 million from the end of the second quarter of 2012. During the quarter, SolarWinds used approximately $28 million in cash related to acquisitions.
The financial results 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 quarterly report on Form 10-Q for the period. Information about SolarWinds’ use of these non-GAAP financial measures is provided below under “Non-GAAP Financial Measures.”
Recent Business Highlights
“The third quarter marked another strong performance by the entire SolarWinds team. Our results reflect the growing awareness we believe that we are building among IT professionals and the high value our wide range of IT management products provide to customers. Over the past two and a half years, our teams have focused on creating meaningful connections between our products and the IT professionals we serve. We have expanded our product family with products designed to easily and affordably address the problems IT professionals face every day while working to maintain their businesses’ critical systems. We believe that this focus has made us a trusted partner to IT professionals worldwide and contributed to SolarWinds recently being named the Best Small Company in America by Forbes Magazine,” said Kevin Thompson, SolarWinds’ President and Chief Executive Officer.
“Drilling into results for the third quarter, our US Federal business had a solid growth quarter, supported by the investments we have made in expanding awareness within the Federal government. Our commercial business continued to show strong results across each of the major geographic regions we serve delivering an acceleration in growth as compared to the second quarter. And, despite the ongoing difficult macroeconomic environment, our EMEA business produced the strongest growth overall within our global business, demonstrating the compelling value proposition we believe we provide to our users,” added Thompson.
SolarWinds’ business highlights during the third quarter of 2012 include:
| • | SolarWinds continued to expand its relevance with IT professionals through the release of SolarWinds Web Help Desk. The release added one of the industry’s most affordable and easy-to-use Web-based products for solving problems like IT-specific ticketing, change management, and asset management, which adds to the list of IT management issues SolarWinds addresses. |
| • | SolarWinds also made significant investments in its extensive portfolio of network management products. With the release of SolarWinds Firewall Security Manager (FSM), SolarWinds added an easy-to-use, multi-vendor product for firewall management. In keeping with the SolarWinds tradition, SolarWinds FSM is one of the most affordable firewall analytics and management solutions available. SolarWinds also released SolarWinds VoIP & Network Quality Manager, formerly known as SolarWinds IP SLA, which addresses the increasing need of IT pros for an affordable, easy-to-use tool for VoIP performance monitoring and proactive WAN performance analysis. |
| • | SolarWinds launched a fully featured, localized Japanese website during the third quarter. The launch of solarwinds.jp is part of SolarWinds’ ongoing strategy to become the top choice of Japanese IT professionals for IT management software. During the quarter, SolarWinds also released the Japanese version of SolarWinds NetFlow Traffic Analyzer, extending the network management functionality available to the company’s Japanese-speaking users. |
| • | As part of its ongoing efforts to support the IT community through relevant and valuable content, SolarWinds continued its expansion of the thwack® online community for IT professionals. These enhancements included the launch of PatchZone.org, a new resource to gain and share information on the latest Microsoft® and third party updates, as well as valuable content to help IT professionals improve their job performance and knowledge. |
“Driven by our solid third quarter results, we are raising our full year outlook for revenue, margins, and earnings per share. Our third quarter results continued to reflect the success of the focused investments we have made in our business to expand our IT management market opportunity, while leveraging SolarWinds’ unique business model. In the process, we generated the highest non-GAAP operating margin in three years, overcame the dilutive impact of two acquisitions, and demonstrated that high growth and profitability can go hand-in-hand,” said Mike Berry, SolarWinds’ Chief Financial Officer.
Financial Outlook
As of October 25, 2012, SolarWinds is providing its financial outlook for its fourth quarter and full year of 2012. 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 fourth quarter of 2012 and for the full year 2012. 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 Fourth Quarter of 2012
SolarWinds’ management currently expects to achieve the following results for the fourth quarter of 2012:
| • | Total revenue in the range of $69.3–$70.8 million, or 25% to 27% growth over the fourth quarter of 2011. |
| • | Non-GAAP operating income representing 50%-51% of revenue. |
| • | Non-GAAP diluted earnings per share of $0.31–$0.33. |
| • | Weighted average shares outstanding of approximately 77.0 million. |
Financial Outlook for Full Year 2012
SolarWinds’ management is increasing its annual outlook and currently expects to achieve the following results for the full year 2012:
| • | Total 2012 revenue in the range of $264.7–$266.2 million, or 33% to 34% year-over-year growth. |
| • | Non-GAAP operating income for the full year representing approximately 53% of revenue. |
| • | Non-GAAP diluted earnings per share of $1.31–$1.32. |
| • | Weighted average shares outstanding of approximately 76.5 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 8:00am CT (9:00am ET/6:00am 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 888-339-3482 and internationally at +1-719-325-2271. 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 SolarWinds’ financial
outlook. 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-Q that SolarWinds anticipates filing on or before November 9, 2012. 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, the SolarWinds logo, thwack, Web Help Desk, and PatchZone are exclusive trademarks of SolarWinds, are registered with the U.S. patent and trademark office, and may be registered or pending registration in other countries, or may be common law marks or registered or pending registration in the United States or in other countries. All other trademarks or registered trademarks mentioned herein are used for identification purposes only and may be trademarks or registered trademarks of their respective companies.
Copyright © 2012 SolarWinds Worldwide, LLC. All rights reserved.
CONTACTS:
| Investors: | Media: | |
| Dave Hafner | Tiffany Nels | |
| Phone: 512.682.9867 | Phone: 512.682.9545 | |
| ir@solarwinds.com | pr@solarwinds.com |
SolarWinds, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share information)
(Unaudited)
| September 30, 2012 |
December 31, 2011 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 157,060 | $ | 122,707 | ||||
| Short-term investments |
38,647 | 29,688 | ||||||
| Accounts receivable, net of allowances of $226 and $192 as of September 30, 2012 and December 31, 2011, respectively |
39,049 | 26,965 | ||||||
| Income tax receivable |
88 | 110 | ||||||
| Deferred taxes |
813 | 668 | ||||||
| Prepaid and other current assets |
3,991 | 2,770 | ||||||
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|
|
|
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| Total current assets |
239,648 | 182,908 | ||||||
| Property and equipment, net |
8,320 | 7,341 | ||||||
| Long-term investments |
12,815 | — | ||||||
| Deferred taxes |
3,182 | 3,334 | ||||||
| Goodwill |
143,965 | 110,746 | ||||||
| Intangible assets and other, net |
67,126 | 58,079 | ||||||
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|
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| Total assets |
$ | 475,056 | $ | 362,408 | ||||
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| Liabilities and stockholders’ equity |
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| Current liabilities: |
||||||||
| Accounts payable |
$ | 3,853 | $ | 2,213 | ||||
| Accrued liabilities |
12,096 | 9,442 | ||||||
| Accrued earnout |
600 | 3,513 | ||||||
| Income taxes payable |
2,130 | 779 | ||||||
| Current portion of deferred revenue |
93,412 | 73,774 | ||||||
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|
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| Total current liabilities |
112,091 | 89,721 | ||||||
| Long-term liabilities: |
||||||||
| Deferred revenue, net of current portion |
4,730 | 3,373 | ||||||
| Non-current deferred taxes |
— | 289 | ||||||
| Other long-term liabilities |
6,904 | 4,078 | ||||||
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|
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| Total liabilities |
123,725 | 97,461 | ||||||
| Commitments and contingencies |
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| Stockholders’ equity: |
||||||||
| Common stock, $0.001 par value: 123,000,000 shares authorized and 74,431,573 and 73,367,367 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively |
74 | 73 | ||||||
| Additional paid-in capital |
221,857 | 194,379 | ||||||
| Accumulated other comprehensive loss |
(2,908 | ) | (2,769 | ) | ||||
| Accumulated earnings |
132,308 | 73,264 | ||||||
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|
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| Total stockholders’ equity |
351,331 | 264,947 | ||||||
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|
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| Total liabilities and stockholders’ equity |
$ | 475,056 | $ | 362,408 | ||||
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SolarWinds, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share information)
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Revenue: |
||||||||||||||||
| License |
$ | 34,008 | $ | 25,522 | $ | 90,919 | $ | 66,971 | ||||||||
| Maintenance and other |
37,715 | 28,426 | 104,515 | 75,778 | ||||||||||||
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|
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| Total revenue |
71,723 | 53,948 | 195,434 | 142,749 | ||||||||||||
| Cost of license revenue |
2,080 | 1,337 | 5,820 | 2,911 | ||||||||||||
| Cost of maintenance and other revenue |
2,511 | 2,201 | 7,314 | 5,680 | ||||||||||||
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| Gross profit |
67,132 | 50,410 | 182,300 | 134,158 | ||||||||||||
| Operating expenses: |
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| Sales and marketing |
19,146 | 14,193 | 53,289 | 38,698 | ||||||||||||
| Research and development |
7,214 | 5,568 | 20,814 | 15,640 | ||||||||||||
| General and administrative |
9,288 | 6,996 | 26,177 | 19,983 | ||||||||||||
| Accrued earnout gain |
— | (1,600 | ) | (70 | ) | (1,600 | ) | |||||||||
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| Total operating expenses |
35,648 | 25,157 | 100,210 | 72,721 | ||||||||||||
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| Operating income |
31,484 | 25,253 | 82,090 | 61,437 | ||||||||||||
| Other income (expense): |
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| Interest income |
112 | 89 | 307 | 214 | ||||||||||||
| Other income, net |
90 | 537 | 41 | 21 | ||||||||||||
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| Total other income |
202 | 626 | 348 | 235 | ||||||||||||
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| Income before income taxes |
31,686 | 25,879 | 82,438 | 61,672 | ||||||||||||
| Income tax expense |
9,200 | 4,991 | 23,394 | 15,523 | ||||||||||||
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| Net income |
$ | 22,486 | $ | 20,888 | $ | 59,044 | $ | 46,149 | ||||||||
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| Net income per share: |
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| Basic earnings per share |
$ | 0.30 | $ | 0.29 | $ | 0.80 | $ | 0.63 | ||||||||
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| Diluted earnings per share |
$ | 0.29 | $ | 0.28 | $ | 0.78 | $ | 0.62 | ||||||||
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| Weighted-average shares used to compute net income per share: |
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| Shares used in computation of basic earnings per share |
74,344 | 72,947 | 74,038 | 72,677 | ||||||||||||
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| Shares used in computation of diluted earnings per share |
76,303 | 74,457 | 75,871 | 74,269 | ||||||||||||
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SolarWinds, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share amounts and percentages)
(Unaudited)
| Three Months
Ended September 30, |
Nine Months
Ended September 30, |
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| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| GAAP cost of revenue |
$ | 4,591 | $ | 3,538 | $ | 13,134 | $ | 8,591 | ||||||||
| Amortization of intangible assets (1) |
(1,766 | ) | (1,188 | ) | (5,151 | ) | (2,641 | ) | ||||||||
| Stock-based compensation expense and related employer-paid payroll taxes (2) |
(86 | ) | (44 | ) | (249 | ) | (144 | ) | ||||||||
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| Non-GAAP cost of revenue |
$ | 2,739 | $ | 2,306 | $ | 7,734 | $ | 5,806 | ||||||||
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| GAAP gross profit |
$ | 67,132 | $ | 50,410 | $ | 182,300 | $ | 134,158 | ||||||||
| Amortization of intangible assets (1) |
1,766 | 1,188 | 5,151 | 2,641 | ||||||||||||
| Stock-based compensation expense and related employer-paid payroll taxes (2) |
86 | 44 | 249 | 144 | ||||||||||||
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| Non-GAAP gross profit |
$ | 68,984 | $ | 51,642 | $ | 187,700 | $ | 136,943 | ||||||||
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| GAAP sales and marketing expense |
$ | 19,146 | $ | 14,193 | $ | 53,289 | $ | 38,698 | ||||||||
| Stock-based compensation expense and related employer-paid payroll taxes (2) |
(1,209 | ) | (715 | ) | (3,723 | ) | (2,545 | ) | ||||||||
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| Non-GAAP sales and marketing expense |
$ | 17,937 | $ | 13,478 | $ | 49,566 | $ | 36,153 | ||||||||
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| GAAP research and development expense |
$ | 7,214 | $ | 5,568 | $ | 20,814 | $ | 15,640 | ||||||||
| Stock-based compensation expense and related employer-paid payroll taxes (2) |
(784 | ) | (399 | ) | (2,295 | ) | (1,275 | ) | ||||||||
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| Non-GAAP research and development expense |
$ | 6,430 | $ | 5,169 | $ | 18,519 | $ | 14,365 | ||||||||
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| GAAP general and administrative expense |
$ | 9,288 | $ | 6,996 | $ | 26,177 | $ | 19,983 | ||||||||
| Amortization of intangible assets (1) |
(1,857 | ) | (877 | ) | (5,515 | ) | (2,031 | ) | ||||||||
| Stock-based compensation expense and related employer-paid payroll taxes (2) |
(1,900 | ) | (1,507 | ) | (5,564 | ) | (4,368 | ) | ||||||||
| Acquisition related adjustments (3) |
(498 | ) | (228 | ) | (901 | ) | (1,142 | ) | ||||||||
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| Non-GAAP general and administrative expense |
$ | 5,033 | $ | 4,384 | $ | 14,197 | $ | 12,442 | ||||||||
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| GAAP accrued earnout gain |
$ | — | $ | (1,600 | ) | $ | (70 | ) | $ | (1,600 | ) | |||||
| Acquisition related adjustments (3) |
— | 1,600 | 70 | 1,600 | ||||||||||||
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| Non-GAAP accrued earnout gain |
$ | — | $ | — | $ | — | $ | — | ||||||||
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| GAAP operating expenses |
$ | 35,648 | $ | 25,157 | $ | 100,210 | $ | 72,721 | ||||||||
| Amortization of intangible assets (1) |
(1,857 | ) | (877 | ) | (5,515 | ) | (2,031 | ) | ||||||||
| Stock-based compensation expense and related employer-paid payroll taxes (2) |
(3,893 | ) | (2,621 | ) | (11,582 | ) | (8,188 | ) | ||||||||
| Acquisition related adjustments (3) |
(498 | ) | 1,372 | (831 | ) | 458 | ||||||||||
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| Non-GAAP operating expenses |
$ | 29,400 | $ | 23,031 | $ | 82,282 | $ | 62,960 | ||||||||
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| GAAP operating income |
$ | 31,484 | $ | 25,253 | $ | 82,090 | $ | 61,437 | ||||||||
| Amortization of intangible assets (1) |
3,623 | 2,065 | 10,666 | 4,672 | ||||||||||||
| Stock-based compensation expense and related employer-paid payroll taxes (2) |
3,979 | 2,665 | 11,831 | 8,332 | ||||||||||||
| Acquisition related adjustments (3) |
498 | (1,372 | ) | 831 | (458 | ) | ||||||||||
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| Non-GAAP operating income |
$ | 39,584 | $ | 28,611 | $ | 105,418 | $ | 73,983 | ||||||||
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| GAAP other income |
$ | 202 | $ | 626 | $ | 348 | $ | 235 | ||||||||
| Acquisition related adjustments (3) |
31 | 97 | 53 | 205 | ||||||||||||
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| Non-GAAP other income |
$ | 233 | $ | 723 | $ | 401 | $ | 440 | ||||||||
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| GAAP income tax expense |
$ | 9,200 | $ | 4,991 | $ | 23,394 | $ | 15,523 | ||||||||
| Income tax effect on non-GAAP exclusions (4) |
2,240 | 1,355 | 6,456 | 3,525 | ||||||||||||
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| Non-GAAP income tax expense |
$ | 11,440 | $ | 6,346 | $ | 29,850 | $ | 19,048 | ||||||||
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| GAAP net income |
$ | 22,486 | $ | 20,888 | $ | 59,044 | $ | 46,149 | ||||||||
| Amortization of intangible assets (1) |
3,623 | 2,065 | 10,666 | 4,672 | ||||||||||||
| Stock-based compensation expense and related employer-paid payroll taxes (2) |
3,979 | 2,665 | 11,831 | 8,332 | ||||||||||||
| Acquisition related adjustments (3) |
529 | (1,275 | ) | 884 | (253 | ) | ||||||||||
| Tax benefits associated with above adjustments (4) |
(2,240 | ) | (1,355 | ) | (6,456 | ) | (3,525 | ) | ||||||||
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| Non-GAAP net income |
$ | 28,377 | $ | 22,988 | $ | 75,969 | $ | 55,375 | ||||||||
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| Non-GAAP diluted earnings per share (5) |
$ | 0.37 | $ | 0.31 | $ | 1.00 | $ | 0.75 | ||||||||
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| Weighted-average shares used in computing diluted earnings per share |
76,303 | 74,457 | 75,871 | 74,269 | ||||||||||||
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| Percentage of Revenue: |
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| GAAP gross profit |
93.6 | % | 93.4 | % | 93.3 | % | 94.0 | % | ||||||||
| Non-GAAP adjustments (1)(2) |
2.6 | 2.3 | 2.8 | 2.0 | ||||||||||||
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| Non-GAAP gross profit |
96.2 | % | 95.7 | % | 96.0 | % | 95.9 | % | ||||||||
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| GAAP operating margin |
43.9 | % | 46.8 | % | 42.0 | % | 43.0 | % | ||||||||
| Non-GAAP adjustments (1)(2)(3) |
11.3 | 6.2 | 11.9 | 8.8 | ||||||||||||
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| Non-GAAP operating margin |
55.2 | % | 53.0 | % | 53.9 | % | 51.8 | % | ||||||||
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| GAAP net income |
31.4 | % | 38.7 | % | 30.2 | % | 32.3 | % | ||||||||
| Non-GAAP adjustments (1)(2)(3)(4) |
8.2 | 3.9 | 8.7 | 6.5 | ||||||||||||
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| Non-GAAP net income |
39.6 | % | 42.6 | % | 38.9 | % | 38.8 | % | ||||||||
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| (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. Because of varying fair value amounts of intangible assets, subjective impairment assumptions and the variety of useful lives, which affect the recognition of amortization expense, we believe that the exclusion of amortization expense allows for more accurate comparisons of our operating results to our peer companies. The amortization of purchased intangible assets associated with our acquisitions results in our recording expenses in our GAAP financial statements that were already expensed by the acquired company before the acquisition and for which we have not expended cash. 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 September 30, |
Nine Months
Ended September 30, |
|||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Reconciliation of free cash flow to GAAP cash flows from operating activities: |
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| GAAP cash flows from operating activities |
$ | 34,992 | $ | 32,470 | $ | 97,427 | $ | 74,973 | ||||||||
| Excess tax benefit from stock-based compensation |
3,737 | 693 | 8,921 | 5,132 | ||||||||||||
| Purchases of property and equipment |
(1,521 | ) | (780 | ) | (3,081 | ) | (1,843 | ) | ||||||||
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| Free cash flow (1) |
$ | 37,208 | $ | 32,383 | $ | 103,267 | $ | 78,262 | ||||||||
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| (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.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Three Months
Ended September 30, |
Nine Months
Ended September 30, |
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| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Cash flows from operating activities |
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| Net income |
$ | 22,486 | $ | 20,888 | $ | 59,044 | $ | 46,149 | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Depreciation and amortization |
4,535 | 2,765 | 13,166 | 6,723 | ||||||||||||
| Provision for doubtful accounts |
131 | 18 | 138 | 86 | ||||||||||||
| Stock-based compensation expense |
3,832 | 2,634 | 11,368 | 8,084 | ||||||||||||
| Accrued earnout gain |
— | (1,600 | ) | (70 | ) | (1,600 | ) | |||||||||
| Deferred taxes |
570 | (257 | ) | (1,085 | ) | 36 | ||||||||||
| Excess tax benefit from stock-based compensation |
(3,737 | ) | (693 | ) | (8,921 | ) | (5,132 | ) | ||||||||
| Other non-cash expenses |
244 | 146 | 978 | 359 | ||||||||||||
| Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business combinations: |
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| Accounts receivable |
(10,294 | ) | (6,108 | ) | (12,344 | ) | (8,262 | ) | ||||||||
| Income taxes receivable |
(14 | ) | 84 | 22 | (25 | ) | ||||||||||
| Prepaid and other current assets |
(618 | ) | 641 | (1,201 | ) | 389 | ||||||||||
| Accounts payable |
1,349 | (125 | ) | 1,616 | 338 | |||||||||||
| Accrued liabilities |
1,932 | 1,296 | 2,389 | (488 | ) | |||||||||||
| Income taxes payable |
4,843 | 4,449 | 13,102 | 14,249 | ||||||||||||
| Deferred revenue |
9,733 | 8,332 | 19,225 | 14,067 | ||||||||||||
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| Net cash provided by operating activities |
34,992 | 32,470 | 97,427 | 74,973 | ||||||||||||
| Cash flows from investing activities |
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| Purchases of investments |
(7,161 | ) | (30,179 | ) | (49,245 | ) | (30,179 | ) | ||||||||
| Maturities of investments |
7,750 | — | 26,750 | — | ||||||||||||
| Purchases of property and equipment |
(1,521 | ) | (780 | ) | (3,081 | ) | (1,843 | ) | ||||||||
| Purchases of intangible assets and other |
(166 | ) | (262 | ) | (1,068 | ) | (554 | ) | ||||||||
| Acquisition of businesses, net of cash acquired |
(27,439 | ) | (35,483 | ) | (48,323 | ) | (58,483 | ) | ||||||||
| Earnout payments for acquisitions |
(951 | ) | — | (4,154 | ) | (3,743 | ) | |||||||||
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| Net cash used in investing activities |
(29,488 | ) | (66,704 | ) | (79,121 | ) | (94,802 | ) | ||||||||
| Cash flows from financing activities |
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| Repurchase of common stock |
(138 | ) | — | (1,472 | ) | (307 | ) | |||||||||
| Exercise of stock options |
2,979 | 1,762 | 8,662 | 8,771 | ||||||||||||
| Excess tax benefit from stock-based compensation |
3,737 | 693 | 8,921 | 5,132 | ||||||||||||
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| Net cash provided by financing activities |
6,578 | 2,455 | 16,111 | 13,596 | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents |
970 | (1,911 | ) | (64 | ) | 53 | ||||||||||
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| Net increase (decrease) in cash and cash equivalents |
13,052 | (33,690 | ) | 34,353 | (6,180 | ) | ||||||||||
| Cash and cash equivalents |
||||||||||||||||
| Beginning of period |
144,008 | 169,513 | 122,707 | 142,003 | ||||||||||||
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| End of period |
$ | 157,060 | $ | 135,823 | $ | 157,060 | $ | 135,823 | ||||||||
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| Supplemental disclosure of cash flow information |
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| Cash paid for income taxes |
$ | 3,724 | $ | 646 | $ | 11,122 | $ | 1,110 | ||||||||
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| Noncash investing transactions |
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| Accrued earnout |
$ | 596 | $ | — | $ | 596 | $ | 3,938 | ||||||||
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