AUSTIN, TX -- (Marketwire) -- 02/04/13 -- SolarWinds® (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 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 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® Managed File Transfer Server and a new free tool SolarWinds FTP Voyager®. 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 © 2013 SolarWinds Worldwide, LLC. All rights reserved.
SolarWinds, Inc.
Consolidated Balance 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
========= ========= ========= =========
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