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SolarWinds Announces Second Quarter 2013 Results

SolarWinds (NYSE: SWI), a leading provider of powerful and affordable IT management software, today reported results for its second quarter ended June 30, 2013.

  • GAAP diluted earnings per share of $0.30 and non-GAAP diluted earnings per share of $0.40 for the second quarter.
  • Record second quarter non-GAAP operating income of $42.1 million, or a non-GAAP operating margin of 54% for the second quarter.
  • Total revenue for the second quarter of $77.5 million, representing 21% year-over-year growth.
  • License revenue for the second quarter of $31.1 million, representing 6% year-over-year growth.

Financial Results
SolarWinds reported total revenue for the second quarter of 2013 of $77.5 million, a 21% increase over total revenue for the second quarter of 2012. License revenue was $31.1 million for the second quarter of 2013, representing a 6% increase over license revenue for the second quarter of 2012. Maintenance revenue was a record $45.4 million for the second quarter of 2013, representing a 31% increase over maintenance revenue for the second quarter of 2012.

On a GAAP basis, diluted earnings per share were $0.30 for the second quarter of 2013 compared to $0.26 for the second quarter of 2012. Non-GAAP diluted earnings per share were $0.40 for the second quarter of 2013 compared to $0.33 for the second quarter of 2012.

Net cash provided by operating activities was $40.7 million for the second quarter of 2013 compared to $33.2 million for the second quarter of 2012, representing a year-over-year increase of 23%. Free cash flow was $41.3 million for the second quarter of 2013 compared to $34.3 million for the second quarter of 2012, representing a year-over-year increase of 20%. Cash, cash equivalents, and investments at the end of the second quarter of 2013 were $196.3 million, a decrease of $77.7 million from the end of the first quarter of 2013. During the second quarter of 2013, SolarWinds paid approximately $120 million for N-able Technologies, net of cash acquired.

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

"While we addressed a number of strategic and operational items during the second quarter that we believe will positively impact our future results, our license sales results did not meet our expectations. Despite the shortfall in license sales, we delivered solid year-over-year total revenue growth of 21% and non-GAAP operating margins and non-GAAP EPS well ahead of our outlook," said Kevin Thompson, SolarWinds' President and Chief Executive Officer.

"Although we have had a slow start to 2013 relative to our outlook, our confidence in our core business is high. We believe that we have a large and growing market opportunity across our network management, systems management, and MSP tools businesses that remains largely untapped. While the IT purchasing environment has been difficult and inconsistent with our expectations during the first half of 2013, we believe that addressing this opportunity is a matter of returning to the high level of execution we operated at throughout 2011 and 2012," stated Thompson.

"In addition, given our confidence in the size and immediacy of our existing market opportunity, our outlook for the second half of 2013 includes aggressive investments in our business including new product features and modules, demand generation and branding activities, and additional resources within our sales and product development organizations," added Thompson.

SolarWinds business highlights during the second quarter of 2013 include:

  • SolarWinds completed the acquisition of N-able Technologies, giving SolarWinds a more effective and accelerated means of meeting the needs of the rapidly developing IT service market -- comprised of MSPs and Value-added Resellers, and the hundreds of thousands of SMBs they serve. The acquisition enhances SolarWinds' remote monitoring and management (RMM) offerings and adds MSP service automation to the range of IT management challenges that the company works to address for the entire IT community -- from large enterprises to the growing segment of small businesses who are deploying "light IT" and "no IT" initiatives.

  • Following the first quarter 2013 release of SolarWinds first full-featured free product, Alert Central, SolarWinds continued to deliver on its commitment to the IT community with the release of two additional free tools. SolarWinds Firewall Browser enables IT professionals to easily troubleshoot firewalls and manage change requests from the convenience of the desktop. It is the only free firewall configuration search tool that supports unlimited searches on mixed-vendor inventory from a single convenient interface. After a brief hiatus, SolarWinds re-released the popular free-version of Kiwi Syslog Server allowing IT pros to once again benefit from a simple way to collect, view and archive syslog messages and SNMP traps.

  • SolarWinds continued to add depth and breadth to its product portfolio including several updates to key products in its Network Management portfolio. The latest release of SolarWinds Network Performance Monitor (NPM) added new network route and multicast monitoring capabilities to the already feature-rich flagship network monitoring product. The update to SolarWinds IP Address Manager (IPAM) added new IP Address conflict detection, which automatically detects duplicate IP addresses and sends conflict alerts for both static and DHCP environments and quickly resolves the conflicts using detailed IP address connection information, as well as integration with SolarWinds User Device Tracker (UDT). The IPAM-UDT integration provides integrated endpoint tracking to improve troubleshooting and network access protection and to allow users to view IP addresses, switch port details, and user logins in a single window. The second quarter release of SolarWinds User Device Tracker also added two new features that aid in actively managing and mitigating security risks on a network. Whitelisting now allows IT pros to define a list of safe devices based on MAC address, IP address or host name, and receive an alert when a rogue device not on the list connects to the network. Port shutdown enables IT pros to remotely shut down a compromised port with point-and-click simplicity while the event is audited.

  • New versions of DameWare® Remote Support and SolarWinds Web Help Desk™ continued to improve the utility of both products. DameWare Remote Support now features DameWare Mobile, a mobile application for use on an iPhone or iPad that allows IT admins to connect remotely to Windows desktops, laptops and servers and share users' screens to provide support and troubleshooting from any location. DameWare Mobile includes an intuitive virtual mouse, keyboard, and hotkey controls that allow for simplified navigating and troubleshooting of an end-user's system and features enhancements to ensure secure remote connection. Web Help Desk's new automatic asset discovery allows users to keep IT inventory current by scheduling automated discovery of all hardware and software assets and information including hostname, model, serial number, logged-in user, operating system, hard drive, memory, and installed software. The product also added integration to SolarWinds NPM, SolarWinds Server & Application Monitor (SAM) and SolarWinds Network Configuration Manager (NCM).

"Driven by the leverage built into our business model and a strong revenue contribution from N-able, we delivered non-GAAP operating margins and non-GAAP EPS that exceeded our outlook during the second quarter, despite a shortfall in our license revenue results. That profitability helped translate into $41.3 million of free cash flow, representing 53% of revenue," said Mike Berry, SolarWinds' Executive Vice President and Chief Financial Officer.

"In an effort to improve our level of new business growth, we plan to make significant investments across our business for the second half of 2013. In spite of these investments, we have increased our outlook for non-GAAP operating margins and non-GAAP EPS for the year," added Berry.

Financial Outlook
As of July 25, 2013, SolarWinds is providing its financial outlook for its third 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 third 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.

Financial Outlook for the Third Quarter of 2013
SolarWinds' management currently expects to achieve the following results for the third quarter of 2013, which includes the impact of the N-able Technologies acquisition completed on May 28, 2013:

  • Total revenue in the range of $84.7 to $87.2 million, or 18% to 22% growth over the third quarter of 2012.
  • Non-GAAP operating income representing 44% to 45% of revenue.
  • Non-GAAP diluted earnings per share of $0.35 to $0.36.
  • Weighted average outstanding diluted shares of approximately 77.1 million.

Financial Outlook for Full Year 2013
SolarWinds' management is revising its outlook, previously announced on May 21, 2013, and currently expects to achieve the following results for the full year 2013, which includes the impact of the N-able Technologies acquisition completed on May 28, 2013:

  • Total 2013 revenue in the range of $322.7 to $327.7 million, or 20% to 22% year-over-year growth.
Published Friday, July 26, 2013 6:56 AM by David Marshall
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