SOURCE: SolarWinds

SolarWinds

February 08, 2010 16:05 ET

SolarWinds Announces Fourth Quarter and Full Year 2009 Results

Record Quarterly Total Revenue of $33.0 Million, 32% Growth Over Q4 2008; 11th Straight Quarter of 40% or Higher Year-Over-Year Maintenance Revenue Growth; GAAP Diluted Earnings per Share of $0.09, Non-GAAP Diluted Earnings per Share of $0.19

AUSTIN, TX--(Marketwire - February 8, 2010) - 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:

-- Total revenue in the range of $33.7-$34.7 million
-- Non-GAAP operating income of $16.2-$16.7 million
-- Non-GAAP net income of $11.3-$11.7 million
-- Non-GAAP diluted earnings per share of $0.15-$0.16
-- Weighted average shares outstanding of approximately 73.8 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 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 http://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.


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

                                               December 31,   December 31,
                                                  2009            2008
                                              -------------  -------------
Assets
Current assets:
  Cash and cash equivalents                   $     129,788  $      40,566
  Accounts receivable, net of allowances of
   $ 149 and $ 117 as of  December 31, 2009
   and December 31, 2008, respectively               15,786         13,722
  Income tax receivable                                 109            728
  Deferred taxes                                        252             40
  Prepaid income taxes                                4,675              -
  Other current assets                                2,116          1,420
                                              -------------  -------------
    Total current assets                            152,726         56,476

Property and equipment, net                           6,406          5,178
Debt issuance costs, net                                399          1,101
Deferred taxes                                        2,078          1,847
Goodwill                                             15,444         15,745
Intangible assets and other, net                      4,417          6,560
                                              -------------  -------------
    Total assets                              $     181,470  $      86,907
                                              =============  =============

Liabilities, convertible preferred stock and
 stockholders' equity (deficit)
Current liabilities:
  Accounts payable                            $       3,293  $       1,471
  Accrued liabilities                                 4,928          3,284
  Accrued interest payable                              539          2,011
  Income taxes payable                                  284            201
  Current portion of deferred revenue                37,103         25,930
  Current portion of capital lease
   obligations                                            9             25
  Current portion of long-term debt                  16,871          7,161
                                              -------------  -------------
    Total current liabilities                        63,027         40,083
Long-term liabilities:
  Deferred revenue, net of current portion            1,544          1,232
  Capital lease obligations, net of current
   portion                                                -             10
  Other long-term liabilities                           607            188
  Long-term debt, net of current portion             27,226         93,922
                                              -------------  -------------
    Total long-term liabilities                      29,377         95,352
                                              -------------  -------------
    Total liabilities                                92,404        135,435
Commitments and contingencies
Convertible preferred stock, $0.001 par
 value: no shares authorized and no shares
 issued and outstanding as of December 31,
 2009 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 66,502,098 and
   28,166,656 shares issued and outstanding
   as of December 31, 2009 and December 31,
   2008, respectively                                    67             28

  Additional paid-in capital                        123,083         15,166
  Accumulated other comprehensive loss                 (159)          (315)
  Accumulated deficit                               (33,925)       (63,434)
                                              -------------  -------------
    Total stockholders' equity (deficit)             89,066        (48,555)
                                              -------------  -------------

    Total liabilities, convertible preferred
     stock and stockholders' equity (deficit) $     181,470  $      86,907
                                              =============  =============



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


                                    Three Months Ended      Year Ended
                                       December 31,        December 31,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------

Revenue:
  License                           $ 17,601  $ 13,916  $ 62,378  $ 55,461
  Maintenance and other               15,378    10,981    54,068    37,674
                                    --------  --------  --------  --------
         Total revenue                32,979    24,897   116,446    93,135

  Cost of license revenue                 36        81       494       272
  Cost of maintenance and other
   revenue                             1,239       901     4,366     3,316
                                    --------  --------  --------  --------
Gross profit                          31,704    23,915   111,586    89,547

Operating expenses:
  Sales and marketing                  8,858     6,466    30,548    22,664
  Research and development             3,032     2,203    11,199     8,452
  General and administrative          12,911     3,978    26,038    16,464
                                    --------  --------  --------  --------
      Total operating expenses        24,801    12,647    67,785    47,580
                                    --------  --------  --------  --------
Operating income                       6,903    11,268    43,801    41,967

Other income (expense):
  Interest income                         42       128       267       528
  Interest expense                      (594)   (2,104)   (4,253)   (8,539)
  Other income (expense)                 178      (891)       90      (934)
                                    --------  --------  --------  --------
      Total other expense               (374)   (2,867)   (3,896)   (8,945)
                                    --------  --------  --------  --------
Income before income taxes             6,529     8,401    39,905    33,022
  Income tax expense (benefit)           (19)    2,761    10,396    10,717
                                    --------  --------  --------  --------
Net income                             6,548     5,640    29,509    22,305
Amount allocated to participating
 preferred stockholders                    -    (2,761)        -   (10,922)
                                    --------  --------  --------  --------
Net income available to common
 stockholders                       $  6,548  $  2,879  $ 29,509  $ 11,383
                                    ========  ========  ========  ========
Net income available to common
 stockholders per share:
    Basic earnings per share
     available to common
     stockholders                   $   0.10  $   0.10  $   0.58  $   0.40
                                    ========  ========  ========  ========
    Diluted earnings per share
     available to common
     stockholders                   $   0.09  $   0.09  $   0.52  $   0.35
                                    ========  ========  ========  ========
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                     65,661    28,157    51,042    28,137
                                    ========  ========  ========  ========
    Shares used in computation of
     diluted earnings per share
     available to common
     stockholders                     71,935    33,380    56,824    32,652
                                    ========  ========  ========  ========




                          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
                  December 31, 2009               December 31, 2008
            ------------------------------  ------------------------------
              GAAP   Adjustments  Non-GAAP    GAAP   Adjustments  Non-GAAP
            --------  -------     --------  --------  -------     --------
Total
 revenue    $ 32,979  $     -     $ 32,979  $ 24,897  $     -     $ 24,897
Gross
 profit       31,704       57       31,761    23,915       75       23,990
  Operating
   expenses   24,801  (10,577)      14,224    12,647   (1,932)      10,715
            --------  -------     --------  --------  -------     --------
Operating
 income        6,903   10,634 (a)   17,537    11,268    2,007 (a)   13,275
  Total
   other
   expense      (374)       -         (374)   (2,867)       -       (2,867)
            --------  -------     --------  --------  -------     --------
Income
 before
 income
 taxes         6,529   10,634       17,163     8,401    2,007       10,408
  Income
   tax
   expense
   (benefit)     (19)   3,679 (b)    3,660     2,761      393 (b)    3,154
            --------  -------     --------  --------  -------     --------
Net income  $  6,548  $ 6,955     $ 13,503  $  5,640  $ 1,614     $  7,254
            ========  =======     ========  ========  =======     ========

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

 Amortization of intangible
  assets:
                                     Three Months Ended
                                        December 31,
                                    ---------------------
                                      2009       2008
                                    ---------- ----------
   Cost of license revenue          $       30 $       58
   Sales and marketing                       -          -
   Research and development                  -          -
   General and administrative               81         26

 Stock-based compensation expense:


                                     Three Months Ended
                                        December 31,
                                    ---------------------
                                       2009       2008
                                    ---------- ----------
   Cost of maintenance revenue      $       27 $       17
   Sales and marketing                     515        414
   Research and development                333        192
   General and administrative            1,388        994

 Other excluded expenses:


                                     Three Months Ended
                                        December 31,
                                    ---------------------
                                       2009       2008
                                    ---------- ----------
   Lawsuit settlement and related
    legal fees                      $    7,480 $      306
   Secondary offering costs                720          -
   Acquisition costs                        60          -


(b) Reflects the removal of the tax benefits associated with amortization
    of intangible assets, stock-based compensation expense and other
    excluded expenses.




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

                        Year                             Year
                        Ended                           Ended
                   December 31, 2009               December 31, 2008
           --------------------------------  -----------------------------
             GAAP    Adjustments   Non-GAAP    GAAP  Adjustments  Non-GAAP
           ---------  --------    ---------  --------  -------    --------
Total
 revenue   $ 116,446  $      -    $ 116,446  $ 93,135  $     -    $ 93,135
Gross
 profit      111,586       559      112,145    89,547      295      89,842
  Operating
   expenses   67,785   (17,352)      50,433    47,580   (6,548)     41,032
           ---------  --------    ---------  --------  -------    --------
Operating
 income       43,801    17,911 (a)   61,712    41,967    6,843 (a)  48,810
  Total
   other
   expense    (3,896)      428 (c)   (3,468)   (8,945)       -      (8,945)
           ---------  --------    ---------  --------  -------    --------
Income
 before
 income
 taxes        39,905    18,339       58,244    33,022    6,843      39,865
  Income
   tax
   expense    10,396     5,323 (b)   15,719    10,717    1,342 (b)  12,059
           ---------  --------    ---------  --------  -------    --------
Net income $  29,509  $ 13,016    $  42,525  $ 22,305  $ 5,501    $ 27,806
           =========  ========    =========  ========  =======    ========

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

 Amortization of intangible
  assets:
                                           Year Ended
                                          December 31,
                                    -------------------------
                                        2009         2008
                                    ------------ ------------
   Cost of license revenue          $        480 $        232
   Sales and marketing                         -            -
   Research and development                    -            -
   General and administrative                209           98

 Stock-based compensation expense:
                                           Year Ended
                                          December 31,
                                    -------------------------
                                         2009         2008
                                    ------------ ------------
   Cost of maintenance revenue      $         79 $         63
   Sales and marketing                     1,950        1,593
   Research and development                1,151          755
   General and administrative              4,711        3,509

 Other excluded expenses:
                                           Year Ended
                                          December 31,
                                    -------------------------
                                         2009         2008
                                    ------------ ------------
   Lawsuit settlement and related
    legal fees                      $      8,551 $        593
   Secondary offering costs                  720            -
   Acquisition costs                          60            -


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

(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      Year Ended
                                       December 31,        December 31,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------
Numerator:
Reconciliation between GAAP and
 non-GAAP net income:
   Net income                       $  6,548  $  5,640  $ 29,509  $ 22,305
   Reversal of intangible assets
    amortization                         111        84       689       330
   Reversal of stock-based
    compensation expense               2,263     1,617     7,891     5,920
   Reversal of debt issuance costs
    write-off                              -         -       428         -
   Reversal of secondary offering
    costs                                720         -       720         -
   Reversal of lawsuit settlement
    costs and related legal fees       7,480       306     8,551       593
   Reversal of acquisition related
    costs                                 60         -        60         -
   Reversal of tax benefits
    associated with above
    adjustments                       (3,679)     (393)   (5,323)   (1,342)
                                    --------  --------  --------  --------
   Non-GAAP net income              $ 13,503  $  7,254  $ 42,525  $ 27,806
                                    ========  ========  ========  ========

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        71,935    33,380    56,824    32,652

   Pro forma adjustments to reflect
    assumed weighted average effect
    of conversion of preferred
    stock (a)                              -    27,000    10,356    27,000
                                    --------  --------  --------  --------
   Non-GAAP weighted average shares
    used in computing non-GAAP
    diluted  earnings per share (b)   71,935    60,380    67,180    59,652
                                    ========  ========  ========  ========

   Diluted earnings per share       $   0.09  $   0.09  $   0.52  $   0.35
                                    ========  ========  ========  ========

   Non-GAAP diluted earnings per
    share                           $   0.19  $   0.12  $   0.63  $   0.47
                                    ========  ========  ========  ========

(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 71,935 shares and $0.19 per share, respectively, and 70,104
    shares and $0.10 per share, respectively, for the three months ended
    December 31, 2009 and 2008 and 70,924 shares and $0.60 per share,
    respectively, and 69,376 shares and $0.40 per share, respectively,
    for the year ended December 31, 2009 and 2008.



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

                                    Three Months Ended      Year Ended
                                       December 31,        December 31,
                                    ------------------- -------------------
                                      2009      2008      2009      2008
                                    --------  --------- --------- ---------
Reconciliation of Net Income to
 Adjusted EBITDA:

         Net income                 $  6,548  $   5,640 $  29,509 $  22,305
         Interest expense, net           552      1,976     3,986     8,011
         Income tax expense
          (benefit)                      (19)     2,761    10,396    10,717
         Depreciation and
          amortization                   539        374     2,166     1,436
         Lawsuit settlement and
          related legal fees           7,480        306     8,551       593
         Stock-based compensation
          expense                      2,263      1,617     7,891     5,920
                                    --------  --------- --------- ---------
            Adjusted EBITDA         $ 17,363  $  12,674 $  62,499 $  48,982
                                    ========  ========= ========= =========



                          SolarWinds, Inc.
    Reconciliation of Net Cash Provided by Operating Activities to
                         Adjusted Cash Flow
                           (In thousands)
                            (unaudited)

                                    Three Months Ended      Year Ended
                                       December 31,        December 31,
                                    ------------------- -------------------
                                      2009      2008      2009      2008
                                    --------  --------- --------- ---------
Reconciliation of Net Cash Provided
 by Operating Activities to
 Adjusted Cash Flow:

         Net cash provided by
          operating activities      $ 13,204  $   7,727 $  49,225 $  35,217
         Cash paid for interest          574      1,804     4,976     8,619
         Cash (received) paid for
          income taxes                  (238)     4,090     5,665    12,879
         Lawsuit settlement and
          related legal fees           7,480        306     8,551       593
                                    --------  --------- --------- ---------
            Adjusted Cash Flow      $ 21,020  $  13,927 $  68,417 $  57,308
                                    ========  ========= ========= =========



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


                                 Three Months Ended       Year Ended
                                    December 31,         December 31,
                                --------------------  --------------------
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------

Cash flows from operating
 activities
  Net income                    $   6,548  $   5,640  $  29,509  $  22,305
  Adjustments to reconcile net
   income to net cash provided
   by operating activities:
    Depreciation and
     amortization                     539        374      2,166      1,436
    Provision for doubtful
     accounts                          43        190        175        505
    Stock-based compensation
     expense                        2,263      1,617      7,891      5,920
    Expenses paid by
     stockholder                    2,100          -      2,100          -
    Deferred taxes                   (100)      (127)      (281)    (1,005)
    Excess tax benefit from
     stock-based compensation      (6,522)         2     (8,734)       (83)
    Other non-cash expenses            19        154        915        663
  Changes in operating assets
   and liabilities, net of
   assets acquired and
   liabilities assumed in
   business combinations:
    Accounts receivable             5,125        497     (2,099)    (3,553)
    Income taxes receivable            (6)      (693)       613       (693)
    Prepaid income taxes           (4,675)         -     (4,675)         -
    Prepaid & other current
     assets                           (30)      (349)      (673)      (846)
    Accounts payable                1,091       (311)     1,791        (32)
    Accrued liabilities              (291)    (1,168)     1,581        956
    Accrued interest payable          (35)       208     (1,472)      (452)
    Income taxes payable            5,087       (446)     9,078       (397)
    Deferred revenue and other
     liabilities                    2,048      2,139     11,340     10,493
                                ---------  ---------  ---------  ---------
      Net cash provided by
       operating activities        13,204      7,727     49,225     35,217

Cash flows from investing
 activities
  Purchases of property and
   equipment                         (923)      (371)    (2,729)    (3,395)
  Purchases of intangible
   assets                             (96)       (58)      (401)      (349)
  Decrease in restricted cash                  1,000                 1,000
  Acquisition of businesses,
   net of cash acquired                 -     (6,707)       (46)    (8,281)
                                ---------  ---------  ---------  ---------
      Net cash used in
       investing activities        (1,019)    (6,136)    (3,176)   (11,025)

Cash flows from financing
 activities
  Repayment of long-term debt           -          -    (56,986)    (1,417)
  Exercise of stock options         5,833         57      8,518        227
  Net cash proceeds from
   initial public offering              -          -    104,625          -
  Interest on options exercised
   with note                            -          -          -         15
  Excess tax benefit from
   stock-based compensation         6,522         (2)     8,734         83
  Repayments of capital lease
   obligations                         (7)        (7)       (26)       (27)
  Payments for offering costs        (249)      (160)    (1,745)    (2,092)
  Earnout dividend paid           (20,000)         -    (20,000)         -
  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                  (7,901)      (112)    43,120     (1,473)
Effect of exchange rate changes
 on cash and cash equivalents        (301)      (720)        53     (1,456)
                                ---------  ---------  ---------  ---------
  Net increase in cash and cash
   equivalents                      3,983        759     89,222     21,263
Cash and cash equivalents
  Beginning of period             125,805     39,807     40,566     19,303
                                ---------  ---------  ---------  ---------
  End of period                 $ 129,788  $  40,566  $ 129,788  $  40,566
                                =========  =========  =========  =========

Supplemental disclosure of cash
 flow information
  Cash paid for interest        $     574  $   1,804  $   4,976  $   8,619
                                =========  =========  =========  =========
  Cash (received) paid for
   income taxes                 $    (238) $   4,090  $   5,665  $  12,879
                                =========  =========  =========  =========

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

Contact Information