SOURCE: SolarWinds

SolarWinds

October 19, 2009 16:05 ET

SolarWinds Announces 2009 Third Quarter Results

Record Quarterly Total Revenue of $32.4 Million, Including Record Quarterly License Revenue of $17.6 Million; Record GAAP Operating Income of $15.2 Million, Non-GAAP Operating Income of $17.5 Million; GAAP Diluted Earnings per Share of $0.14, Non-GAAP Diluted Earnings per Share of $0.17

AUSTIN, TX--(Marketwire - October 19, 2009) - SolarWinds®, Inc. (NYSE: SWI), a leading provider of powerful, simple and affordable network management software to more than 88,000 customers worldwide, today reported results for its third quarter ended September 30, 2009.

Financial Results

SolarWinds reported record total revenue for the third quarter of 2009 of $32.4 million, a 24% increase over total revenue in the third quarter of 2008 and a 20% sequential increase over total revenue in the second quarter of 2009. License revenue was $17.6 million in the third quarter of 2009, the highest quarterly license revenue in SolarWinds' history and representing a 10% increase over license revenue in the third quarter of 2008. Maintenance revenue was $14.7 million in the third quarter of 2009, representing a 46% increase over maintenance revenue in the third quarter of 2008.

On a GAAP basis, operating income was $15.2 million, net income was $10.2 million and diluted earnings per share was $0.14 in the third quarter of 2009, compared to operating income of $11.8 million, net income of $7.3 million and diluted earnings per share of $0.11 in the third quarter of 2008.

Non-GAAP operating income was $17.5 million in the third quarter of 2009 compared to $13.6 million in the third quarter of 2008 and $13.8 million in the second quarter of 2009. Non-GAAP net income was $12.0 million and non-GAAP diluted earnings per share was $0.17 in the third quarter of 2009 compared to $8.7 million and $0.14 in the third quarter of 2008 and $8.8 million and $0.13 in the second quarter of 2009. Non-GAAP net income and operating income exclude stock-based compensation expense, amortization of intangible assets and the related tax impact of these items. Non-GAAP net income for the second quarter of 2009 also excludes the write-off of debt issuance costs and its related tax impact. 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 for the third quarter of 2008 and the second quarter of 2009 to assume that the conversion of our preferred stock in May 2009 occurred at the beginning of the applicable period.

Adjusted EBITDA was $17.8 million, or 55% of total revenue, in the third quarter of 2009, representing a 28% increase over adjusted EBITDA in the third quarter of 2008. Adjusted EBITDA is defined as net income plus net interest expense, income tax expense, depreciation and amortization and stock-based compensation expense. Net cash provided by operating activities was $14.0 million in the third quarter of 2009, representing a 21% increase over net cash provided by operating activities in the third quarter of 2008 and a 99% sequential increase over net cash provided by operating activities in the second quarter of 2009.

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

"Q3 was a strong quarter for SolarWinds, led by strong performance in our U.S. Federal Government business," said Kevin Thompson, SolarWinds' President, Chief Operating Officer and Chief Financial Officer. "The effort that we have invested over the past year has resulted in better traction for SolarWinds' products not just in the Department of Defense, but across a wide range of civilian government agencies. This strength in our Federal business was complemented by solid performance in our global commercial business."

Recent Business Highlights

"I'm very proud of the way SolarWinds executed this quarter," said Mike Bennett, SolarWinds' Chairman and Chief Executive Officer. "While the economic environment continues to be difficult, our excellent results demonstrate that, in addition to meeting a clear demand from IT professionals for powerful, affordable and easy-to-use network management software, this team remains focused on consistently executing upon every element of the business."

--  SolarWinds increased its total number of customers during the third
    quarter to over 88,000.
--  SolarWinds further simplified and expanded the company's ecommerce
    site, improving the online buying experience for users, providing global
    currency support and enabling transactions from anywhere in the world and
    further reducing friction in the buying process for our customers.
--  SolarWinds released a new product, Orion IP SLA Manager, which
    replaces Orion VoIP Monitor and allows network managers to easily monitor
    and manage WAN performance across multiple locations.
--  SolarWinds released new versions of many of its products, including
    Orion Application Performance Monitor v3.0, Orion NetFlow Traffic Analyzer
    v3.5, Orion IP Address Manager v1.5, SolarWinds Engineer's Toolset v10.3
    and Kiwi Syslog Server v9.0.
    

"This quarter is a good demonstration of the strength of our product development model. We made significant additions to the Orion product family in response to customer demand while also releasing upgrades to our Engineer's Toolset and Kiwi Syslog," continued Bennett. "Customers get the benefit of new and updated features on a frequent basis and we are able simultaneously to expand our market opportunity, respond to the immediate needs of our customers and invest in our technology to build the foundations for growth in 2010 and beyond."

Financial Outlook

As of October 19, 2009, SolarWinds is providing its guidance for its fourth quarter of 2009 and increasing its guidance for its full year ending December 31, 2009. 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 fourth quarter of 2009 and for the full year 2009. These non-GAAP financial measures exclude, among other items mentioned previously, stock-based compensation expense. 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.

Financial Outlook for the Fourth Quarter of 2009

SolarWinds management currently expects to achieve the following results for the fourth quarter of 2009:

--  Total revenue in the range of $32.8-$34.2 million
--  Non-GAAP operating income of $16.3-$17.3 million
--  Non-GAAP net income of $11.1-$11.8 million
--  Non-GAAP diluted earnings per share of $0.15-$0.16
--  Weighted average shares outstanding of approximately 73.5 million
    

Financial Outlook for Full Year 2009

SolarWinds management currently expects to achieve the following results for the full year 2009:

--  Total revenue in the range of $116.3-$117.7 million
--  Non-GAAP operating income of $59.4-$60.4 million
--  Non-GAAP net income of $39.4-$40.1 million
--  Non-GAAP diluted earnings per share of $0.57-$0.58
--  Non-GAAP weighted average shares outstanding of approximately 69.0
    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 will be available on the SolarWinds Investor Relations website at http://ir.solarwinds.com. A live dial-in is available domestically at 888-850-2545 and internationally at +1-719-325-2128. 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 and potential growth and market 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" 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) our failure to integrate 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) the loss of the relationship with a distributor that helps fulfill most of our sales orders from the U.S. government; (h) potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity; and (i) such other risk and uncertainties described more fully in documents filed with or furnished to the Securities and Exchange Commission, including our Form 10-Q previously filed for the second quarter of 2009 and Form 10-Q for the third quarter of 2009 which we expect to file on or before November 15, 2009. 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 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 and the related tax benefits from the comparable GAAP measure. Non-GAAP net income for the second quarter of 2009 also excludes the write-off of debt issuance costs and its related tax benefit. 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 is a useful liquidity measure 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 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, 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 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; or (e) 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, simple and affordable network management software to more than 88,000 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.

                         SolarWinds, Inc.
              Condensed Consolidated Balance Sheets
          (In thousands, except for per share information)
                           (unaudited)


                                                 September 30, December 31,
                                                     2009          2008
                                                  -----------  -----------
Assets
Current assets:
  Cash and cash equivalents                       $   125,805  $    40,566
  Accounts receivable, net of allowances of $ 187
   and $ 117 as of September 30, 2009
   (unaudited) and December 31, 2008, respectively     20,964       13,722
  Income tax receivable                                   104          728
  Deferred taxes                                           49           40
  Other current assets                                  2,101        1,420
                                                  -----------  -----------
    Total current assets                              149,023       56,476
Property and equipment, net                             5,910        5,178
Debt issuance costs, net                                  450        1,101
Deferred taxes                                          2,019        1,847
Goodwill                                               15,791       15,745
Intangible assets and other, net                        4,092        6,560
                                                  -----------  -----------
    Total assets                                  $   177,285  $    86,907
                                                  ===========  ===========

Liabilities, convertible preferred stock and
 stockholders' equity (deficit)
Current liabilities:
  Accounts payable                                $     2,202  $     1,471
  Accrued liabilities                                   5,614        3,284
  Accrued interest payable                                574        2,011
  Dividends payable                                    20,000            -
  Income taxes payable                                  1,808          201
  Current portion of deferred revenue                  35,064       25,930
  Current portion of capital lease obligations             16           25
  Current portion of long-term debt                         -        7,161
                                                  -----------  -----------
    Total current liabilities                          65,278       40,083
Long-term liabilities:
  Deferred revenue, net of current portion              1,686        1,232
  Capital lease obligations, net of current
   portion                                                              10
  Other long-term liabilities                             366          188
  Long-term debt, net of current portion               44,097       93,922
                                                  -----------  -----------
    Total long-term liabilities                        46,149       95,352
                                                  -----------  -----------
    Total liabilities                                 111,427      135,435
                                                  -----------  -----------
Commitments and contingencies
Convertible preferred stock, $0.001 par value: no
 shares authorized and no shares issued and
 outstanding as of September 30, 2009 (unaudited)
 and 46,551,618 shares authorized and 27,000,003
 shares issued and outstanding as of December 31,
 2008                                                       -           27
Stockholders' equity (deficit):
  Common stock, $0.001 par value: 123,000,000
   shares authorized and 65,081,061 and
   28,166,656 shares issued and outstanding as of
   September 30, 2009 (unaudited) and December
   31, 2008, respectively                                  65           28
  Additional paid-in capital                          106,230       15,166
  Accumulated other comprehensive income (loss)            36         (315)
  Accumulated deficit                                 (40,473)     (63,434)
                                                  -----------  -----------
    Total stockholders' equity (deficit)               65,858      (48,555)
                                                  -----------  -----------

    Total liabilities, convertible preferred
     stock and stockholders' equity (deficit)     $   177,285  $    86,907
                                                  ===========  ===========




                            SolarWinds, Inc.
              Condensed Consolidated Statements of Income
           (In thousands, except for per share information)
                              (unaudited)


                                    Three Months Ended  Nine Months Ended
                                      September 30,       September 30,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------

Revenue:
     License                        $ 17,638  $ 16,070  $ 44,777  $ 41,545
     Maintenance and other            14,712    10,095    38,690    26,693
                                    --------  --------  --------  --------
             Total revenue            32,350    26,165    83,467    68,238

   Cost of  license revenue              153        61       458       191
   Cost of maintenance and other
    revenue                            1,110       879     3,127     2,415
                                    --------  --------  --------  --------
Gross profit                          31,087    25,225    79,882    65,632
                                    --------  --------  --------  --------

Operating expenses:
     Sales and marketing               7,765     6,522    21,690    16,198
     Research and development          2,986     2,339     8,167     6,249
     General and administrative        5,150     4,527    13,127    12,486
                                    --------  --------  --------  --------
          Total operating expenses    15,901    13,388    42,984    34,933
                                    --------  --------  --------  --------
Operating income                      15,186    11,837    36,898    30,699
                                    --------  --------  --------  --------

Other income (expense):
     Interest income                      93       140       225       400
     Interest expense                   (668)   (1,896)   (3,659)   (6,435)
     Other income (expense)              (82)       84       (88)      (43)
                                    --------  --------  --------  --------
          Total other expense           (657)   (1,672)   (3,522)   (6,078)
                                    --------  --------  --------  --------
Income before income taxes            14,529    10,165    33,376    24,621
     Income tax expense                4,374     2,878    10,415     7,956
                                    --------  --------  --------  --------
Net income                            10,155     7,287    22,961    16,665
Amount allocated to participating
 preferred stockholders                    -    (3,567)        -    (8,161)
                                    --------  --------  --------  --------
Net income available to common
 stockholders                       $ 10,155  $  3,720  $ 22,961  $  8,504
                                    ========  ========  ========  ========

Net income available to common
 stockholders per share:
  Basic earnings per share
   available to common stockholders $   0.16  $   0.13  $   0.50  $   0.30
                                    ========  ========  ========  ========
  Diluted earnings per share
   available to common stockholders $   0.14  $   0.11  $   0.44  $   0.26
                                    ========  ========  ========  ========
Weighted shares used to compute net
 income available to common
 stockholders per share:
  Shares used in computation of
   basic earnings per share
   available to common stockholders   65,045    28,153    46,183    28,130
                                    ========  ========  ========  ========
  Shares used in computation of
   diluted earnings per share
   available to common stockholders   71,794    33,407    51,801    32,410
                                    ========  ========  ========  ========




                              SolarWinds, Inc.
          Reconciliation of GAAP to Non-GAAP Results of Operations
             (In thousands, except for per share information)
                               (unaudited)


                     Three Months Ended            Three Months Ended
                     September 30, 2009            September 30, 2008
                ----------------------------  ----------------------------
                 GAAP   Adjustments  Non-GAAP  GAAP   Adjustments  Non-GAAP
                -------  --------    -------  -------  --------    -------
Total revenue   $32,350  $      -    $32,350  $26,165  $      -    $26,165
Gross profit     31,087       163     31,250   25,225        75     25,300
  Operating
   expenses      15,901    (2,108)    13,793   13,388    (1,655)    11,733
                -------  --------    -------  -------  --------    -------
Operating
 income          15,186     2,271 (a) 17,457   11,837     1,730 (a) 13,567
  Total other
   expense         (657)        -       (657)  (1,672)        -     (1,672)
                -------  --------    -------  -------  --------    -------
Income before
 income taxes    14,529     2,271     16,800   10,165     1,730     11,895
   Income tax
    expense       4,374       413 (b)  4,787    2,878       301 (b)  3,179
                -------  --------    -------  -------  --------    -------
Net income      $10,155  $  1,858    $12,013  $ 7,287  $  1,429    $ 8,716
                =======  ========    =======  =======  ========    =======

(a) Reflects the reversal of amortization of intangible assets and
    stock-based compensation expense as follows:

  Amortization of intangible assets:

                                   Three Months Ended
                                      September 30,
                                    -----------------
                                     2009      2008
                                    -------  --------
   Cost of license revenue          $   145  $     58
   Sales and marketing                    -         -
   Research and development               -         -
   General and administrative            51        25

  Stock-based compensation expense:

                                   Three Months Ended
                                      September 30,
                                    -----------------
                                      2009      2008
                                    -------  --------
   Cost of maintenance revenue      $    18  $     17
   Sales and marketing                  541       416
   Research and development             303       193
   General and administrative         1,213     1,021


(b) Reflects the removal of the tax benefits associated with amortization
    of intangible assets, stock-based compensation expense and write-off of
    debt issuance costs.




                             SolarWinds, Inc.
           Reconciliation of GAAP to Non-GAAP Results of Operations
              (In thousands, except for per share information)
                              (unaudited)


                      Nine Months Ended             Nine Months Ended
                     September 30, 2009            September 30, 2008
                ----------------------------  ----------------------------
                 GAAP   Adjustments  Non-GAAP  GAAP   Adjustments  Non-GAAP
                -------  --------    -------  -------  --------    -------
Total revenue   $83,467  $      -    $83,467  $68,238  $      -    $68,238
Gross profit     79,882       502     80,384   65,632       220     65,852
  Operating
   expenses      42,984    (5,704)    37,280   34,933    (4,329)    30,604
                -------  --------    -------  -------  --------    -------
Operating
 income          36,898     6,206 (a) 43,104   30,699     4,549 (a) 35,248
  Total other
   expense       (3,522)      428 (c) (3,094)  (6,078)        -     (6,078)
                -------  --------    -------  -------  --------    -------
Income before
 income taxes    33,376     6,634     40,010   24,621     4,549     29,170
   Income tax
    expense      10,415     1,265 (b) 11,680    7,956       847 (b)  8,803
                -------  --------    -------  -------  --------    -------
Net income      $22,961  $  5,369    $28,330  $16,665  $  3,702    $20,367
                =======  ========    =======  =======  ========    =======

(a) Reflects the reversal of amortization of intangible assets and
    stock-based compensation expense as follows:

  Amortization of intangible assets:

                                    Nine Months Ended
                                      September 30,
                                    -----------------
                                      2009      2008
                                    -------  --------
   Cost of license revenue          $   450  $    174
   Sales and marketing                    -         -
   Research and development               -         -
   General and administrative           128        72

  Stock-based compensation expense:

                                    Nine Months Ended
                                      September 30,
                                    -----------------
                                      2009      2008
                                    -------  --------
   Cost of maintenance revenue      $    52  $     46
   Sales and marketing                1,435     1,179
   Research and development             818       563
   General and administrative         3,323     2,515


(b) Reflects the removal of the tax benefits associated with amortization
    of intangible assets, stock-based compensation expense and write-off of
    debt issuance costs.

(c) The amortization of debt issuance cost was decreased as a result of the
    lower outstanding principal balance due to the repayment of the
    long-term debt.




                              SolarWinds, Inc.
              Reconciliation of Diluted Earnings Per Share to
                   Non-GAAP Diluted Earnings Per Share
            (In thousands, except for per share information)
                              (unaudited)


                                    Three Months Ended  Nine Months Ended
                                      September 30,       September 30,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------
Numerator:
Reconciliation between GAAP and
 non-GAAP net income:
   Net income                       $ 10,155  $  7,287  $ 22,961  $ 16,665
   Reversal of intangible assets
    amortization                         196        83       578       246
   Reversal of stock-based
    compensation expense               2,075     1,647     5,628     4,303
   Reversal of debt issuance costs
    write-off                              -         -       428         -
   Reversal of tax benefit for
    amortization of intangible
    assets                               (53)      (30)     (153)      (88)
   Reversal of tax benefit of
    stock-based compensation
    expense                             (360)     (271)     (961)     (759)
   Reversal of tax benefit of debt
    issuance costs write-off               -         -      (151)        -
                                    --------  --------  --------  --------
   Non-GAAP net income              $ 12,013  $  8,716  $ 28,330  $ 20,367
                                    --------  --------  --------  --------

Denominator:
Reconciliation between GAAP and
 non-GAAP weighted average shares
 used in computing diluted earnings
 per share:
   Weighted average number of
    shares used in computing
    diluted earnings per share        71,794    33,407    51,801    32,410
   Pro forma adjustments to reflect
    assumed weighted average effect
    of conversion of preferred
    stock (a)                              -    27,000    13,798    27,000
                                    --------  --------  --------  --------
   Non-GAAP weighted average shares
    used in computing non-GAAP
    diluted earnings per share (b)    71,794    60,407    65,599    59,410
                                    ========  ========  ========  ========

   Diluted earnings per share       $   0.14  $   0.11  $   0.44  $   0.26
                                    ========  ========  ========  ========

   Non-GAAP diluted earnings per
    share                           $   0.17  $   0.14  $   0.43  $   0.34
                                    ========  ========  ========  ========

   (a) Represents common shares from the conversion of convertible
   preferred shares as if the shares were converted as of the beginning of
   the indicated period.

   (b) If the company assumed the common shares issued in the IPO were
   issued as of the beginning of the comparable periods, or January 1,
   2008, then the weighted average shares used in computing non-GAAP
   diluted earnings per share and the non-GAAP diluted earnings per share
   would have been 71,794 shares and $0.17 per share, respectively, and
   70,131 shares and $0.12 per share, respectively, for the three months
   ended September 30, 2009 and 2008 and 70,587 shares and $0.40 per share,
   respectively, and 69,134 shares and $0.29 per share, respectively, for
   the nine months ended September 30, 2009 and 2008.




                             SolarWinds, Inc.
              Reconciliation of Net Income to Adjusted EBITDA
                             (In thousands)
                               (unaudited)


                                    Three Months Ended   Nine Months Ended
                                      September 30,        September 30,
                                    ------------------- -------------------
                                      2009      2008      2009      2008
                                    --------- --------- --------- ---------
Reconciliation of Net Income to
 Adjusted EBITDA:

      Net income                    $  10,155 $   7,287 $  22,961 $  16,665
      Interest expense, net               575     1,756     3,434     6,035
      Income tax expense                4,374     2,878    10,415     7,956
      Depreciation and
       amortization                       596       365     1,627     1,062
      Stock-based compensation
       expense                          2,075     1,647     5,628     4,303
                                    --------- --------- --------- ---------
         Adjusted EBITDA            $  17,775 $  13,933 $  44,065 $  36,021
                                    ========= ========= ========= =========




                               SolarWinds, Inc.
               Condensed Consolidated Statements of Cash Flows
                               (In thousands)
                                (unaudited)


                                 Three Months Ended     Nine Months Ended
                                    September 30,         September 30,
                                --------------------  --------------------
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------
Cash flows from operating
 activities
  Net income                    $  10,155  $   7,287  $  22,961  $  16,665
  Adjustments to reconcile net
   income to net cash provided
   by operating activities:
    Depreciation and
     amortization                     596        365      1,627      1,062
    Provision for doubtful
     accounts                          17        214        132        315
    Stock-based compensation
     expense                        2,075      1,647      5,628      4,303
    Deferred taxes                   (153)      (333)      (181)      (878)
    Excess tax benefit from
     stock-based compensation        (491)         -     (2,212)       (85)
    Other non-cash expenses            32        149        896        509
  Changes in operating assets
   and liabilities, net of
   assets acquired and
   liabilities assumed in
   business combinations:
    Accounts receivable            (8,099)    (2,371)    (7,224)    (4,050)
    Income taxes receivable           213          -        619          -
    Prepaid income taxes            2,129          -          -          -
    Prepaid & other current
     assets                          (144)      (552)      (643)      (497)
    Accounts payable                  406       (101)       700        279
    Accrued liabilities             1,105      1,812      1,872      2,124
    Accrued interest payable         (459)        39     (1,437)      (660)
    Income taxes payable            2,091        562      3,991         49
    Deferred revenue and other
     liabilities                    4,562      2,860      9,292      8,354
                                ---------  ---------  ---------  ---------
      Net cash provided by
       operating activities        14,035     11,578     36,021     27,490
                                ---------  ---------  ---------  ---------

Cash flows from investing
 activities
  Purchases of property and
   equipment                         (831)      (766)    (1,806)    (3,024)
  Purchases of intangible
   assets                            (105)       (53)      (305)      (291)
  Acquisition of businesses,
   net of cash acquired                 -       (500)       (46)    (1,574)
                                ---------  ---------  ---------  ---------
      Net cash used in
       investing activities          (936)    (1,319)    (2,157)    (4,889)
                                ---------  ---------  ---------  ---------

Cash flows from financing
 activities
  Repayment of long-term debt           -          -    (56,986)    (1,417)
  Exercise of stock options           294          -      2,685        170
  Net cash proceeds from
   initial public offering              -          -    104,625          -
  Interest on options exercised
   with note                            -          -          -         15
  Excess tax benefit from
   stock-based compensation           491          -      2,212         85
  Repayments of capital lease
   obligations                         (6)        (7)       (19)       (20)
  Payments for offering costs        (618)      (364)    (1,496)    (1,932)
  Proceeds from note receivable
   from stockholder                     -          -          -      1,738
  Proceeds from issuance of
   stock                                -          -          -     13,640
  Purchase of stock                     -          -          -    (13,640)
                                ---------  ---------  ---------  ---------
      Net cash provided by
       (used in) financing
       activities                     161       (371)    51,021     (1,361)
Effect of exchange rate changes
 on cash and cash equivalents         395       (522)       354       (736)
                                ---------  ---------  ---------  ---------
  Net increase in cash and cash
   equivalents                     13,655      9,366     85,239     20,504
Cash and cash equivalents
  Beginning of period             112,150     30,441     40,566     19,303
                                ---------  ---------  ---------  ---------
  End of period                 $ 125,805  $  39,807  $ 125,805  $  39,807
                                =========  =========  =========  =========

Supplemental disclosure of cash
 flow information
  Cash paid for interest        $   1,033  $   1,764  $   4,402  $   6,815
                                =========  =========  =========  =========
  Cash paid for income taxes    $      38  $   2,648  $   5,903  $   8,789
                                =========  =========  =========  =========

Noncash investing and financing
 transactions
  Capital lease termination and
   related asset write-off      $       -  $       -  $       -  $     412
                                =========  =========  =========  =========
  Debt issuance costs write-off $       -  $       -  $     428  $       -
                                =========  =========  =========  =========

Contact Information