SolarWinds, 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.
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.
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.