2010-02-08 22:18:16 -

AUSTIN, TX -- (Marketwire) -- 02/08/10 -- SolarWinds®, Inc. (NYSE: SWI), a leading provider of powerful and affordable IT management software to more than 90,000 customers worldwide, today reported results for its fourth quarter and fiscal year ended December 31, 2009.



Financial Results


SolarWinds reported record total revenue for the fourth quarter of 2009 of $33.0 million, a 32% increase over total revenue in the fourth quarter of 2008, and reported total revenue for the full year 2009 of $116.4 million, a 25% increase over total revenue for the full year 2008.



License revenue was $17.6 million in the fourth quarter of 2009, representing a 26% increase over license revenue in the fourth quarter of 2008. Maintenance revenue was $15.4 million in the fourth quarter of 2009, representing a 40% increase over maintenance revenue in the fourth quarter of 2008.



Non-GAAP operating income was $17.5 million in the fourth quarter of 2009, or 53% of revenue, compared to $13.3 million and 53% of revenue in the fourth quarter of 2008. Non-GAAP net income was $13.5 million and non-GAAP diluted earnings per share was $0.19 in the fourth quarter of 2009, compared to $7.3 million and $0.12 per share in the fourth quarter of 2008.



On a GAAP basis, operating income was $6.9 million and diluted earnings per share was $0.09 in the fourth quarter of 2009, compared to operating income of $11.3 million and diluted earnings per share of $0.09 in the fourth quarter of 2008. For the full year 2009, operating income was $43.8 million and diluted earnings per share was $0.52, compared to operating income of $42.0 million and diluted earnings per share of $0.35 for the full year 2008.



Non-GAAP operating income was $61.7 million for the full year 2009, or 53% of revenue, compared to $48.8 million and 52% of revenue for the full year 2008. Non-GAAP net income was $42.5 million and Non-GAAP diluted earnings per share was $0.63 for the full year 2009 compared to $27.8 million and $0.47 for the full year 2008.



Non-GAAP net income and operating income exclude stock-based compensation expense, amortization of intangible assets, expenses related to the secondary offering of common stock by certain of our stockholders, lawsuit settlement and related legal fees, the write-off of debt issuance costs and the related tax impact of these items. Non-GAAP diluted earnings per share is equal to non-GAAP net income divided by non-GAAP weighted average shares outstanding, which adjusts GAAP weighted average shares outstanding to assume that the conversion of preferred stock in May 2009 occurred at the beginning of the applicable period.



Net cash provided by operating activities was $13.2 million in the fourth quarter of 2009, representing a 71% increase over net cash provided by operating activities in the fourth quarter of 2008. Net cash provided by operating activities was $49.2 million for the full year 2009, representing a 40% increase over net cash provided by operating activities for the full year 2008. Adjusted cash flow, which is defined as net cash provided by operating activities plus cash interest paid, cash taxes paid and lawsuit settlement and related legal fees, was $21.0 million in the fourth quarter of 2009 and $68.4 million for the full year 2009 as compared to $13.9 million and $57.3 million for the fourth quarter and full year of 2008, respectively.



Information about SolarWinds' use of non-GAAP financial information is provided under "Non-GAAP Financial Measures" below.



Recent Business Highlights


"The fourth quarter of 2009 was a strong quarter for SolarWinds, primarily due to a significant increase in interest and purchasing activity from commercial market customers, globally," said Kevin Thompson, SolarWinds' President, Chief Operating Officer and Chief Financial Officer. "The investments we have made over the past year in our product portfolio, coupled with the focus on our international sales and marketing efforts, have resulted in not only increased global demand for SolarWinds' products, but also improved our ability to satisfy that demand."



"2009 was an important year for SolarWinds," added Mike Bennett, SolarWinds' Chairman and Chief Executive Officer, "and our fourth quarter results and achievements are a reflection of investments and initiatives we made throughout the year in our people, products, operations and market awareness. As we continue to drive further demand for our products, we believe that we are well positioned to capitalize on that demand, and to quickly and seamlessly add capacity to our operations as needed."



Other business highlights:

-- In December 2009, the outstanding litigation with a former employee,
   which has been previously disclosed in SolarWinds' public filings, was
   completely and fully resolved. This resulted in settlement costs and
   related legal fees of $7.5 million in the fourth quarter.
-- SolarWinds released new versions of key products, including its most
   popular free tool, SolarWinds TFTP Server, and SolarWinds ipMonitor.
   SolarWinds also released updates to Orion Network Configuration Manager
   (NCM), Orion Application Performance Monitor (APM), and Orion IP
   Address Manager (IPAM).
-- In November, SolarWinds facilitated the secondary offering of
   13.8 million shares of common stock by certain of its stockholders.
-- For the second year in a row, SolarWinds was chosen by Redmond
   magazine's readers as the best Independent Software Vendor (ISV) and
   preferred performance management product over HP OpenView® in the
   2009 Reader's Choice Awards. SolarWinds Network Management Software
   was also named the ISV winner and preferred product in the "Best
   Network Management Product" category.
-- In January 2010, SolarWinds completed the acquisition of
   Tek-Tools, Inc., expanding its product offerings to include storage
   resource and virtualization management.

"Our commitment to providing the IT community with powerful, easy-to-use and affordable management solutions continues to be rewarded through broad market recognition and the trust our customers place in our products to help them manage mission-critical IT environments," continued Kevin Thompson. "Over the course of 2010 and as we expand into new areas, we hope to continue to build on our reputation of delivering powerful, easy-to-use and effective products that address the immediate needs of our customers and the market."



Financial Outlook


As of February 8, 2010, SolarWinds is providing its guidance for its first quarter of 2010 and its full year ending December 31, 2010. The financial information below represents forward-looking non-GAAP financial information, including an estimate of non-GAAP operating income, non-GAAP net income and non-GAAP diluted earnings per share, for the first quarter and full year 2010. These non-GAAP financial measures exclude, among other items mentioned previously, stock-based compensation expense and acquisition-related costs. SolarWinds cannot reasonably estimate the expected stock-based compensation expense 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 acquisitions are not something that SolarWinds can estimate because it is a function of what acquisitions, if any, are completed and what kinds of costs are incurred in connection with any such acquisitions.



Financial Outlook for Full Year 2010


SolarWinds management currently expects to achieve the following results for the full year 2010:

-- Total revenue in the range of $159.0-$164.0 million
-- Non-GAAP operating income of $77.5-$80.5 million
-- Non-GAAP net income of $54.0-$56.0 million
-- Non-GAAP diluted earnings per share of $0.72-$0. 75
-- Weighted average shares outstanding of approximately 74.8 million

Financial Outlook for the First Quarter of 2010


SolarWinds management currently expects to achieve the following results for the first quarter of 2010:



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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 CST (5:00pm EST/2:00pm PST). A live webcast of the event, a copy of this press release and any other financial and statistical information about the periods to be presented in the conference call will be available on the SolarWinds Investor Relations website at ir.solarwinds.com : . A live dial-in is available domestically at 888-554-1417 and internationally at +1-719-785-9447. It is recommended that participants access the webcast or dial into the call at least 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 relating to SolarWinds' possible or assumed future results of operations, potential growth and market opportunities and SolarWinds' ability to execute on such opportunities. 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 "expects,"
"believes," "hopes," "will," 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 possibility that general economic conditions or uncertainty cause information technology spending to be reduced or purchasing decisions to be delayed; (b) the presence or absence of occasional large customer orders, including in particular those placed by the U.S. federal government; (c) the inability to increase sales to existing customers and to attract new customers; (d) the failure to integrate Tek-Tools and any future acquisitions successfully; (e) the timing and success of new product introductions by SolarWinds or its competitors; and (f) such other risk and uncertainties described more fully in documents filed with or furnished to the Securities and Exchange Commission, including the Form 10-Q previously filed for the third quarter of 2009 and Form 10-K for the full year 2009 that we anticipate filing on or before February 28, 2010. 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 the following non-GAAP financial measures: non-GAAP operating income, non-GAAP net income, non-GAAP diluted earnings per share, adjusted EBITDA, adjusted cash flow and non-GAAP weighted average shares outstanding. Each of non-GAAP operating income, non-GAAP net income, non-GAAP diluted earnings per share and adjusted EBITDA exclude the impact of stock-based compensation expense, amortization of intangible assets, lawsuit settlement and related legal fees, secondary offerings expenses and acquisition costs from the comparable GAAP measure. Each of non-GAAP net income, non-GAAP diluted earnings per share and adjusted EBITDA also excludes the write-off of debt issuance costs and the tax benefits related to these items from the comparable GAAP measure. This press release also contains a reconciliation of each of these non-GAAP measures to its most comparable GAAP financial measure.



SolarWinds believes that each of these non-GAAP financial measures provides meaningful supplemental information regarding its liquidity and performance by excluding certain expenses and expenditures that may not be indicative of its core business operations. SolarWinds' management and Board of Directors use these non-GAAP measures to assess liquidity and operational performance as well as to determine employee incentive compensation.
Accordingly, these measures may provide helpful insight to investors on the motivation and decision-making of management in operating the business.



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 and liquidity 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.
These items are typically interest expense, income tax expense, depreciation and amortization and stock-based compensation expense.



SolarWinds also believes that adjusted EBITDA and adjusted cash flow are useful liquidity measures for investors and security analysts. Adjusted EBITDA is also the performance measure for two of the key operational covenants used to assess SolarWinds' ability to service the debt in its credit agreements. SolarWinds believes that adjusted EBITDA and adjusted cash flow provide useful information to management and investors about the amount of cash generated by the business that, after the acquisition of property and equipment, can be used for strategic opportunities, including investing in the business, making strategic acquisitions and increasing cash balances.



SolarWinds understands that, although these non-GAAP financial measures are frequently used by investors and securities analysts in their evaluations of companies, 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. Items such as the amortization of intangible assets, stock-based compensation expense, acquisition costs, interest expense and income tax expense that are excluded from these non-GAAP financial measures can have a material impact on net earnings.
Furthermore, Adjusted EBITDA and adjusted cash flow does not reflect (a) interest expense, interest income or cash requirements for income taxes; (b) cash requirements for potential replacements of assets being depreciated or amortized in the future; (c) cash expenditures or future requirements for capital expenditures or other contractual commitments; (d) changes in, or cash requirements for, working capital needs; (e) cash payment for the one-time settlement of an outstanding lawsuit and related legal fees; or (f) 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, operating income, net income, cash flow from operations or other measures of performance prepared in accordance with GAAP. 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 included elsewhere in this press release.



About SolarWinds


SolarWinds provides powerful and affordable network management software to more than 90,000 customers worldwide -- from Fortune 500 enterprises to small businesses. Focused on the real-world needs of network professionals, SolarWinds products are downloadable, easy to use and maintain, and provide the power, scale, and flexibility needed to manage today's complex network environments. SolarWinds' growing online community, thwack, offers users problem-solving and technology-sharing for all of SolarWinds' products.



SolarWinds, thwack and Orion are registered trademarks of SolarWinds. All other company and product names mentioned are used only for identification purposes and may be trademarks or registered trademarks of their respective companies.



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