AUSTIN, TX — (Marketwired) — 10/29/13 — SolarWinds® (NYSE: SWI), a leading provider of powerful and affordable IT management software, today reported results for its third quarter ended September 30, 2013.
Total revenue for the third quarter of $87.9 million, representing 23% year-over-year growth.
Combined maintenance and subscription revenue for the third quarter of $53.5 million, representing 42% year-over-year growth in recurring revenue.
GAAP diluted earnings per share of $0.30 and non-GAAP diluted earnings per share of $0.41 for the third quarter.
GAAP operating income of $31.9 million, or a GAAP operating margin of 36%, and non-GAAP operating income of $43.9 million, or a non-GAAP operating margin of 50% for the third quarter.
SolarWinds reported total revenue for the third quarter of 2013 of $87.9 million, a 23% increase over total revenue for the third quarter of 2012. Total recurring revenue, comprised of subscription revenue of $3.2 million and record maintenance revenue of $50.3 million, reached $53.5 million, increasing by 42% over the third quarter of 2012 and now represents over 60% of total revenue. License revenue increased to $34.4 million for the third quarter of 2013, driven by commercial market new license sales growth of 5% partially offset by a 22% decline in U.S. Federal new license sales.
On a GAAP basis, diluted earnings per share were $0.30 for the third quarter of 2013 compared to $0.29 for the third quarter of 2012. Non-GAAP diluted earnings per share were $0.41 for the third quarter of 2013 compared to $0.37 for the third quarter of 2012.
Net cash provided by operating activities was $42.0 million for the third quarter of 2013 compared to $34.9 million for the third quarter of 2012, representing a year-over-year increase of 20%. Free cash flow was $42.3 million for the third quarter of 2013 compared to $37.1 million for the third quarter of 2012, representing a year-over-year increase of 14%. Cash, cash equivalents, and investments at the end of the third quarter of 2013 were $222.9 million, an increase of $26.7 million from the end of the second quarter of 2013.
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.”
“Our third quarter results serve to highlight some of the improvements we made in our business,” said Kevin Thompson, SolarWinds- President and Chief Executive Officer. “The focus we placed on capitalizing on our opportunity within network management drove the highest individual and collective commercial market growth of SolarWinds Network Performance Monitor, Netflow Traffic Analyzer, and Network Configuration Monitor in six quarters. Within our systems management product portfolio, both our flagship Server and Application Monitor and Virtualization Manager saw solid year-over-year commercial market growth, reflecting the efforts we made to increase our relevance to sysadmins and penetrate the significant opportunity we believe exists for SolarWinds in systems management,” continued Thompson.
“In addition, the efforts we have made to expand the depth of our EMEA sales leadership team resulted in stronger results than we had expected for the third quarter growing over 12% sequentially. Our global commercial market business performed well, showing growth acceleration across many product areas. The one main area of disappointment in the quarter was our U.S. Federal sales results. Despite a strong start to the quarter, we believe the recent government shutdown prevented a number of deals from closing this quarter, which negatively impacted our overall third quarter results. We are focused on continuing the momentum that we have built in our commercial business and believe that our U.S. Federal business will get back on track now that the U.S. Federal government is back at work. We also are planning to continue to broaden the scope of IT management problems we can address and the number of IT Pros to whom we are relevant,” added Thompson.
Recent SolarWinds business highlights include:
The company recently completed the acquisition of privately held Confio® Software, the makers of the award-winning Confio Ignite® database performance management software. SolarWinds acquired Confio, which is headquartered in Boulder, CO, for $103 million in cash. Given the importance of databases to the levels of service that IT organizations are expected to deliver, SolarWinds believes that a significant opportunity exists to deliver an expanded IT infrastructure management portfolio integrated with robust, heterogeneous database performance management.
SolarWinds concluded a search for a key member of the leadership team, and selected John F. Rizzo as SolarWinds- new Executive Vice President, Chief Marketing and Customer Officer, effective November 4, 2013. Mr. Rizzo, formerly CMO of Jive Software, will report to Kevin Thompson, president and CEO, and will help drive the evolution of SolarWinds- marketing strategy, as well as the company-s new, focused customer experience initiative.
During the third quarter, SolarWinds released several new versions of their core products including the latest release of Server & Application Monitor (SAM), which extends the product-s capabilities to database monitoring. The latest version of SAM provides sysadmins, DBA-s and SQL developers with instant visibility into Microsoft SQL Server performance through AppInsight for SQL. SAM also features a new baseline threshold calculator for identifying abnormal server and application performance and an extensive dashboard for tracking IT asset inventory. In addition, Virtualization Manager now integrates with SAM, providing comprehensive monitoring and visibility for the entire virtualized application stack — applications, virtual machines (VMs), hosts, clusters and datastores. The company also began aggressive investment to accelerate product development. The investments are designed to allow the company to more rapidly enhance its product offerings based on the needs of IT Pros with a number of new product releases and advances.
SolarWinds products and overall corporate performance were recognized, once again, by its users and the industry. Most recently, the company was named one of Network World-s “Ten Most Powerful Companies in Network Management.” Forbes featured SolarWinds on its “Best Small Companies in America” and “Fastest Growing Tech Companies” lists. And, SolarWinds Server and Application Monitor was named 2013 Market Leader for APM Software by IT Brand Pulse based on its survey of IT Professionals conducted in September 2013. In addition, N-able by SolarWinds was named a 2013 Tech Innovator by CRN. The win marks the second consecutive year N-able has won the top spot in the managed services category.
SolarWinds also announced changes in its financial leadership with two internal promotions during the quarter. Jason Ream was named Executive Vice President and Chief Financial Officer and Bart Kalsu was named Executive Vice President and Chief Accounting Officer.
SolarWinds initiated a $50 million share repurchase program, reflecting the management team and board of directors- confidence in the long-term strategy of the company.
“Looking ahead, we continue to be excited about the significant opportunity that we see in IT management. To target that opportunity, we increased the level of product development, marketing and sales investment in our business as we moved through the third quarter. We believe those investments drove an improvement in growth in our business, especially for our network management products, during the quarter,” said Jason Ream, SolarWinds- Executive Vice President and Chief Financial Officer. “Moving into the fourth quarter, we have continued to invest in our business at an accelerated pace in an effort to capitalize on our market opportunity and build upon the early momentum we believe we have created,” added Ream.
As of October 29, 2013, SolarWinds is providing its financial outlook for its fourth 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 fourth 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 costs 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.
SolarWinds- management currently expects to achieve the following results for the fourth quarter of 2013, which includes the impact of the Confio acquisition completed on October 7, 2013:
Total revenue in the range of $90.3 to $92.2 million, or 23% to 25% growth over the fourth quarter of 2012.
Non-GAAP operating income representing 40% to 41% of revenue.
Non-GAAP diluted earnings per share of $0.33 to $0.34.
Weighted average outstanding diluted shares of approximately 77.1 million.
SolarWinds- management currently expects to achieve the following results for the full year 2013, which includes the impact of the Confio acquisition completed on October 7, 2013:
Total 2013 revenue in the range of $329.3 to $331.2 million, or 22% to 23% year-over-year growth.
Non-GAAP operating income for the full year representing approximately 50% of revenue.
Non-GAAP diluted earnings per share of $1.56 to $1.57.
Weighted average outstanding diluted shares of approximately 76.7 million.
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 . A live dial-in will be available domestically at 800-723-6498 and internationally at +1-785-830-7989. 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.
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 for the fourth quarter and full year 2013, our belief that our U.S. Federal business will get back on track, our ability to continue the momentum we believe we are building in our commercial business, our ability to continue to broaden the scope of IT management problems we can address and the number of IT Pros to whom we are relevant, the existing opportunity to deliver an expanded IT infrastructure management portfolio integrated with a robust, heterogeneous database performance management and our plans for investments in our business. 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,” “will,” “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 inability to expand our sales operations effectively; (d) the presence or absence of occasional large customer orders, including in particular those placed by the U.S. federal government; (e) the inability to increase sales to existing customers and to attract new customers; (f) SolarWinds- ability to successfully identify, complete, and integrate acquisitions; (g) the timing and success of new product introductions and product upgrades by SolarWinds or its competitors; (h) potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity; and (i) such other risks and uncertainties described more fully in documents filed with or furnished to the Securities and Exchange Commission, including the risk factors discussed in our Annual Report on Form 10-K for the period ended December 31, 2012 and the Form 10-Q that SolarWinds anticipates filing on or before November 12, 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.
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.
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 .
SolarWinds, SolarWinds& Design, thwack, Confio and Confio Ignite are registered trademarks of SolarWinds and Confio. All other SolarWinds, N-able and Confio marks are the exclusive property of SolarWinds, N-able or Confio, may be pending registration with the U.S. Patent and Trademark Office, and may be registered or pending registration in other countries. All other company and product names mentioned are used only for identification purposes and may be trademarks or registered trademarks of their respective companies.
Copyright © 2013 SolarWinds Worldwide, LLC. All rights reserved.
Dave Hafner
Phone: 512.682.9867
Tiffany Nels
Phone: 512.682.9545
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