Record quarterly total revenue of $45.8 million, representing 29% year-over-year growth.
GAAP operating income of $19.1 million and non-GAAP operating income of $23.3 million, or a non-GAAP operating margin of 51%.
GAAP diluted earnings per share of $0.18 and non-GAAP diluted earnings per share of $0.22.
Cash flows from operating activities of $23.6 million, representing 40% year-over-year growth.
SolarWinds reported record total revenue for the second quarter of 2011 of $45.8 million, a 29% increase over total revenue in the second quarter of 2010. License revenue was a record $21.1 million in the second quarter of 2011, representing a 22% increase over license revenue in the second quarter of 2010. Maintenance revenue was a record $24.8 million in the second quarter of 2011, representing a 36% increase over maintenance revenue in the second quarter of 2010.
On a GAAP basis, diluted earnings per share were $0.18 in the second quarter of 2011 compared to $0.11 in the second quarter of 2010. Non-GAAP diluted earnings per share were $0.22 in the second quarter of 2011 compared to $0.17 in the second quarter of 2010.
Net cash provided by operating activities was $23.6 million in the second quarter of 2011 compared to $16.9 million for the second quarter of 2010, representing a year-over-year increase of 40%. Free cash flow was $24.0 million in the second quarter of 2011 compared to $19.4 million for the second quarter of 2010, representing a year-over-year increase of 24%. Cash and cash equivalents at the end of the second quarter of 2011 were $169.5 million, an increase of $26.2 million from the end of the first quarter of 2011.
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
"We are pleased with our second quarter results. Our revenue and bookings growth trends highlight the momentum that we have created with our strategy to extend the SolarWinds brand into new areas of IT management," said Kevin Thompson, SolarWinds' President and CEO.
"Users expressed healthy demand for our new products, including SolarWinds Storage Manager, Virtualization Manager, User Device Tracker, and Application Performance Monitor. In addition, the release of SolarWinds Log and Event Manager, which is based on technology we acquired from TriGeo, has received a positive initial reception from the market. We believe it addresses a long-time need from our user base for a powerful, affordable and easy-to-use solution for log and event management."
SolarWinds' business highlights during the second quarter of 2011 include:
SolarWinds released SolarWinds Virtualization Manager and SolarWinds Storage Manager, which are complementary and comprehensive solutions designed to help the IT community conquer virtualization complexity as environments scale and mature, including managing the server virtualization layer and optimizing storage performance and capacity for virtualization.
SolarWinds announced the acquisition of TriGeo, which adds affordable and easy-to-use solutions for log and event management to its family of offerings, and further extends the range of problems SolarWinds can solve for its users.
SolarWinds introduced SolarWinds User Device Tracker (UDT), which provides network engineers with a powerful, affordable, and easy-to-use solution for comprehensive switch port mapping, historical switch port tracking, switch capacity analysis, and watch list alerts.
SolarWinds introduced Real-Time AppFlow Analyzer (RTAFA), which is a free tool for monitoring AppFlow(tm), an emerging application data capture method from Citrix.
SolarWinds also introduced SAN Monitor for EMC CLARiiON, a free tool for real-time insight into storage performance and capacity on EMC CLARiiON disk arrays and SAN devices.
"Looking back on the year so far, we're very pleased with our financial performance. In addition to accelerating revenue growth, we generated year-over-year operating cash flow growth of 29% along with non-GAAP operating margins of over 50% in each quarter even after taking into account the acquisition of Hyper9 in January," added Mike Berry, SolarWinds' Chief Financial Officer. "For the second half of the year, we plan to remain focused on delivering strong margins and cash flow despite the significant investments we continue to make in order to drive future growth in our business."
As of August 3, 2011, SolarWinds is providing its financial outlook for its third quarter and full year of 2011. The financial outlook includes the anticipated impact of the acquisition of TriGeo, which was completed on July 1, 2011. The financial information below represents forward-looking non-GAAP financial information, including an estimate of non-GAAP operating income, and non-GAAP diluted earnings per share, for the third quarter of 2011 and for the full year 2011. 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 Third Quarter of 2011
SolarWinds management currently expects to achieve the following results for the third quarter of 2011:
Total revenue in the range of $50.5-$52.5 million.
Non-GAAP operating income representing approximately 48% of revenue.
Non-GAAP diluted earnings per share of $0.21-$0.23.
Weighted average shares outstanding of approximately 75.5 million.
Financial Outlook for Full Year 2011
SolarWinds management currently expects to achieve the following results for the full year 2011:
Total revenue in the range of $191.5-$196.0 million.
Non-GAAP operating income representing approximately 49%-50% of revenue.
Non-GAAP diluted earnings per share of $0.86-$0.90.
Weighted average shares outstanding of approximately 75.0 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 CDT (5:00pm EDT/2:00pm PDT). 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 877-681-3372 and internationally at +1-719-325-4838. 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 SolarWinds' financial outlook and its plan to remain focused on delivering strong margins and cash flow. 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 "continues," "plans," "believes," "intends" 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) SolarWinds' failure to integrate acquired businesses and any future acquisitions successfully; (e) the timing and success of new product introductions by SolarWinds or its competitors; (f) changes in SolarWinds' pricing policies or those of 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-Q that SolarWinds anticipates filing on or before August 9, 2011. 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 and 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 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. We work to put our users first and remove the obstacles that have become "status quo" in traditional enterprise software. SolarWinds products are downloadable, easy to use and maintain, and provide the power, scale, and flexibility needed to address users' management priorities. Our online user community, thwack, is a gathering-place where tens of thousands of IT pros solve problems, share technology, and participate in product development for all of SolarWinds' products. Learn more today at http://www.solarwinds.com.
SolarWinds, SolarWinds.com 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.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share information)
June 30, December 31,
Cash and cash equivalents $ 169,513 $ 142,003
Accounts receivable, net of allowances of
$263 and $201 as of June 30, 2011 and
December 31, 2010, respectively 22,664 20,255
Income tax receivable 5,815 10,350
Deferred taxes 240 261
Other current assets 3,509 3,210
Total current assets 201,741 176,079
Property and equipment, net 6,701 6,702
Deferred taxes 7,160 4,099
Goodwill 55,523 40,424
Intangible assets and other, net 27,316 20,173
Total assets $ 298,441 $ 247,477
Liabilities and stockholders' equity
Accounts payable $ 2,636 $ 2,150
Accrued liabilities 7,260 8,588
Accrued earnout 4,046 4,000
Income taxes payable 891 555
Current portion of deferred revenue 59,719 52,583
Total current liabilities 74,552 67,876
Deferred revenue, net of current portion 3,163 3,175
Other long-term liabilities 1,377 817
Total liabilities 79,092 71,868
Commitments and contingencies
Common stock, $0.001 par value: 123,000,000
shares authorized and 72,801,342 and
71,658,808 shares issued and outstanding
as of June 30, 2011 and December 31, 2010,
respectively 73 72
Additional paid-in capital 182,730 165,972
Accumulated other comprehensive income
(loss) 771 (1,256)
Accumulated earnings 35,775 10,821
Total stockholders' equity 219,349 175,609
Total liabilities and stockholders'
equity $ 298,441 $ 247,477
Condensed Consolidated Statements of Income
(In thousands, except per share information)
Three Months Ended Six Months Ended
June 30, June 30,
2011 2010 2011 2010
-------- -------- -------- --------
License $ 21,069 $ 17,264 $ 41,449 $ 34,885
Maintenance and other 24,754 18,244 47,352 34,948
-------- -------- -------- --------
Total revenue 45,823 35,508 88,801 69,833
Cost of license revenue 809 462 1,574 817
Cost of maintenance and other
revenue 1,758 1,458 3,479 2,802
-------- -------- -------- --------
Gross profit 43,256 33,588 83,748 66,214
Sales and marketing 12,778 10,688 24,505 20,937
Research and development 5,034 3,824 10,072 7,451
General and administrative 6,317 6,925 12,987 12,246
-------- -------- -------- --------
Total operating expenses 24,129 21,437 47,564 40,634
-------- -------- -------- --------
Operating income 19,127 12,151 36,184 25,580