SOURCE: SolarWinds

SolarWinds

July 16, 2015 16:02 ET

SolarWinds Announces Second Quarter 2015 Results

AUSTIN, TX--(Marketwired - Jul 16, 2015) - SolarWinds (NYSE: SWI), a leading provider of powerful and affordable IT management software, today reported results for its second quarter ended June 30, 2015.

Financial Results

  • Total revenue for the second quarter of $119.1 million on a reported basis and $125.0 million on a constant currency basis, representing 17% year-over-year growth on a reported basis and 23% year-over-year growth on a constant currency basis.
  • Record recurring revenue for the second quarter of $80.5 million on a reported basis, comprising maintenance revenue of $67.6 million and subscription revenue of $12.9 million, and $85.3 million on a constant currency basis, representing 26% year-over-year growth on a reported basis and 34% year-over-year growth on a constant currency basis, and representing 68% of total revenue.
  • License revenue for the second quarter of $38.6 million on a reported basis and $39.6 million on a constant currency basis, representing 3% year-over-year growth on a reported basis and 5% year-over-year growth on a constant currency basis.
  • GAAP operating income of $27.9 million and GAAP operating margin of 24% for the second quarter of 2015 compared to GAAP operating income of $18.2 million and GAAP operating margin of 18% for the second quarter of 2014.
  • Non-GAAP operating income of $51.5 million and non-GAAP operating margin of 43% for the second quarter of 2015 compared to non-GAAP operating income of $42.7 million and non-GAAP operating margin of 42% for the second quarter of 2014.
  • Record cash flow from operations of $54.7 million in the second quarter of 2015 compared to $51.0 million in the second quarter of 2014.
  • GAAP diluted earnings per share of $0.29 for the second quarter of 2015 compared to $0.18 for the second quarter of 2014 and non-GAAP diluted earnings per share of $0.52 for the second quarter of 2015 compared to $0.41 for the second quarter of 2014.

Recent Business Highlights

"During the second quarter of 2015 several areas of our business performed well including our MSP and Cloud businesses, license sales in our US Federal and Asia-Pacific businesses, our installed base teams' sales efforts and our customer retention rates. In addition, we exceeded our margin and profit outlook and generated record cash flow from operations given the strength of our unique business model," said Kevin Thompson, SolarWinds' President and Chief Executive Officer.

"As we look ahead to the second half of 2015, we feel confident in our ability to deliver strong growth given the size of our market opportunity and our strategy to capitalize on it as we seek to become the IT management vendor of choice for managing all things IT for IT professionals in all geographies and in companies of all sizes," added Thompson.

Additional highlights include:

  • The company took important steps to strengthen its ability to reach IT pros and provide them with the best products to manage all things IT -- from on-premise to the Cloud -- regardless of where the asset or user sits. SolarWinds added a new strategic European R&D office in Kraków, Poland, expanded a dedicated international sales team to better serve national government IT pros and added Jason Marshall as Senior Vice President, Chief Marketing Officer.
  • SolarWinds also delivered important product updates. Among these enhancements, SolarWinds® Virtualization Manager now provides users the ability to perform remediation actions for performance issues in virtualized environments; SolarWinds Storage Resource Monitor added support for five market-leading storage array families; SolarWinds Network Configuration Manager now automates network vulnerability detection and security policy enforcement with remediation actions; and SolarWinds Database Performance Analyzer improved the performance management of business-critical applications whether hosted on premises, in a virtualized environment or on the Amazon Web Services® Cloud as well as introduced new integration with SolarWinds' Orion® technology backbone, providing a single view of performance, uptime, capacity and resource utilization across the stack. Additional product updates were made to SolarWinds Web Help Desk® software and DameWare® Remote Support.
  • SolarWinds and its products received recognition from several leading IT and business publications. SolarWinds systems management family of products won for overall "Application Performance Monitoring & Management" in NetworkWorld® Asia's Information Management Awards. SC Magazine® honored SolarWinds Network Configuration Manager with "Best Risk/Policy Management Solution" and "Best SIEM Solution" for SolarWinds Log & Event Manager. In addition, Database Trends and Applications included SolarWinds on their DBTA 100 2015 list based on SolarWinds' database performance management and optimization capabilities. Forbes® also recently ranked SolarWinds No. 19 on its list of the "Most Innovative Growth Companies."

"Our focus on delighting our customers resulted in strong customer retention rates for maintenance and subscription in the quarter," said Jason Ream, SolarWinds Executive Vice President and Chief Financial Officer. "In addition, our highly efficient business model allowed us to deliver a very strong quarter of earnings and cash flow in the second quarter," added Ream.

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."

Financial Outlook

As of July 16, 2015, SolarWinds is providing its financial outlook for its third quarter of 2015 and full year of 2015. The financial information below represents forward-looking non-GAAP financial information, including an estimate of non-GAAP operating income as a percentage of revenue and non-GAAP diluted earnings per share, for the third quarter of 2015 and for the full year 2015. 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 costs 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. To determine projected revenue growth rates on a constant currency basis for the third quarter and full year 2015, expected revenue from entities reporting in foreign currencies was translated into U.S. dollars using the comparable prior year period's average foreign currency exchange rates.

Financial Outlook for the Third Quarter of 2015

SolarWinds' management currently expects to achieve the following results for the third quarter of 2015:

  • Total revenue on a reported basis in the range of $130 to $134 million, or 15% to 19% growth over the third quarter of 2014. Total revenue on a constant currency basis in the range of $135 to $138 million, or 19% to 23% growth over the third quarter of 2014.
  • Non-GAAP operating income representing 41% to 42% of revenue.
  • Non-GAAP diluted earnings per share of $0.49 to $0.53.
  • Weighted average outstanding diluted shares of approximately 77.8 million.

Financial Outlook for Full Year 2015

SolarWinds' management currently expects to achieve the following results for the full year 2015:

  • Total 2015 revenue on a reported basis in the range of $502 to $512 million, or 17% to 19% year-over-year growth. Total revenue on a constant currency basis in the range of $521 to $530 million, or 22% to 24% year-over-year growth.
  • Non-GAAP operating income for the full year representing 41.5% to 42.0% of revenue.
  • Non-GAAP diluted earnings per share of $2.00 to $2.08.
  • Weighted average outstanding diluted shares of approximately 77.6 million.

Conference Call and Webcast

In conjunction with this announcement, SolarWinds will host a conference call today to discuss its financial results, financial outlook and other business at 4:00pm CT (5:00pm ET/2:00pm PT). A live webcast of the event, including any supplemental information, will be available on the SolarWinds Investor Relations website at http://ir.solarwinds.com. A live dial-in will be available domestically at 888-211-9951 and internationally at +1-913-312-0398. To access the live call, please dial in 5-10 minutes before the scheduled start time. A replay of the webcast will be available on a temporary basis shortly after the event on the SolarWinds Investor Relations website.

Forward-Looking Statements

This press release contains "forward-looking" statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial outlook for the third quarter and full year 2015, our growth expectations and our market opportunity, including our ability to deliver faster growth given the size of our market opportunity and our strategy to capitalize on it as we seek to become the IT management vendor of choice for managing all things IT for IT professionals in all geographies and in companies of all sizes. These forward-looking statements are based on management's beliefs and assumptions and on information currently available to management. Forward-looking statements include all statements that are not historical facts and may be identified by terms such as "believe," "feel," "expect," "will," "plan," "intend," "estimate," "continue," or similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the following: (a) the inability to generate significant volumes of sales leads from Internet search engines, marketing campaigns and traffic to our websites; (b) the inability to expand our sales operations effectively; (c) the inability to increase sales to existing customers and to attract new customers; (d) SolarWinds' ability to successfully identify, complete, and integrate acquisitions; (e) the possibility that general economic conditions or uncertainty cause information technology spending to be reduced or purchasing decisions to be delayed; (f) the timing and success of new product introductions and product upgrades by SolarWinds or its competitors; (g) the presence or absence of occasional large customer orders, including in particular those placed by the U.S. federal government; (h) the possibility that our operating income could fluctuate and may decline as percentage of revenue as we make further expenditures to expand our operations in order to support additional growth in our business; (i) potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity; and (j) such other risks and uncertainties described more fully in documents filed with or furnished to the Securities and Exchange Commission, including the risk factors discussed in our Annual Report on Form 10-K for the period ended December 31, 2014 filed on February 23, 2015 and the Form 10-Q that SolarWinds anticipates filing on or before August 10, 2015. All information provided in this release is as of the date hereof and SolarWinds undertakes no duty to update this information except as required by law.

Non-GAAP Financial Measures

In addition to disclosing financial measures prepared in accordance with GAAP, this press release and the accompanying tables contain certain non-GAAP financial measures. The tables below set forth a reconciliation of each of these non-GAAP measures to a GAAP financial measure that we consider to be most comparable. SolarWinds believes that each of these non-GAAP financial measures provides meaningful supplemental information regarding its performance by excluding certain items that may not be indicative of its core business operations. SolarWinds' management and Board of Directors use certain of these non-GAAP measures to assess operational performance, allocate resources, prepare annual budgets, and determine employee incentive compensation. Accordingly, these measures may provide helpful insight to investors into the motivation and decision-making of management in operating the business. SolarWinds' management and Board of Directors analyzes revenue growth on a constant currency basis in order to provide a comparable framework for assessing how the business performed excluding the effect of foreign currency fluctuations.

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.

As a result, these non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, the most comparable GAAP measures. SolarWinds' management and Board of Directors compensate for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measure. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures that are set forth in the tables below.

About SolarWinds

SolarWinds (NYSE: SWI) provides powerful and affordable IT management software to customers worldwide from Fortune 500® enterprises to small businesses. In all of our market areas, our approach is consistent. We focus exclusively on IT Pros and strive to eliminate the complexity that they have been forced to accept from traditional enterprise software vendors. SolarWinds delivers on this commitment with unexpected simplicity through products that are easy to find, buy, use and maintain while providing the power to address any IT management problem on any scale. Our solutions are rooted in our deep connection to our user base, which interacts in our thwack® online community to solve problems, share technology and best practices, and directly participate in our product development process. Learn more today at http://www.solarwinds.com.

SolarWinds, SolarWinds & Design, Web Help Desk, DameWare, Orion, and thwack are registered trademarks of SolarWinds or its affiliates. All other SolarWinds marks are the exclusive property of SolarWinds, may be pending registration with the U.S. Patent and Trademark Office, and may be registered or pending registration in other countries. Amazon Web Services is a trademark of Amazon.com, Inc. or its affiliates in the United States and/or other countries. Also referenced at http://aws.amazon.com. All other company and product names mentioned are used only for identification purposes and may be trademarks or registered trademarks of their respective companies.

© 2015 SolarWinds Worldwide, LLC. All rights reserved.

   
   
SolarWinds, Inc.  
Condensed Consolidated Balance Sheets  
(In thousands, except share and per share information)  
(Unaudited)  
   
    June 30,
2015
    December 31,
2014
 
Assets                
Current assets:                
  Cash and cash equivalents   $ 226,076     $ 237,942  
  Short-term investments     20,327       12,384  
  Accounts receivable, net of allowances of $637 and $1,088 as of June 30, 2015 and December 31, 2014, respectively     47,613       50,791  
  Income tax receivable     2,031       128  
  Deferred taxes     7,308       8,350  
  Prepaid and other current assets     6,517       6,492  
    Total current assets     309,872       316,087  
Property and equipment, net     28,602       23,614  
Long-term investments     9,387       17,423  
Deferred taxes     3,449       830  
Goodwill     431,853       363,585  
Intangible assets, net     85,534       93,046  
Other assets, net     10,234       10,447  
    Total assets   $ 878,931     $ 825,032  
Liabilities and stockholders' equity                
Current liabilities:                
  Accounts payable   $ 8,275     $ 6,829  
  Accrued liabilities and other     19,103       35,276  
  Income taxes payable     2,012       2,351  
  Current portion of deferred revenue     168,906       154,799  
    Total current liabilities     198,296       199,255  
Long-term liabilities:                
  Deferred revenue, net of current portion     10,316       8,609  
  Non-current deferred taxes     3,621       5,319  
  Other long-term liabilities     24,364       22,990  
    Total liabilities     236,597       236,173  
Commitments and Contingencies                
Stockholders' equity:                
  Common stock, $0.001 par value: 123,000,000 shares authorized and 76,575,254 and 75,911,349 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively     77       76  
  Additional paid-in capital     304,457       279,584  
  Accumulated other comprehensive loss     (25,009 )     (13,299 )
  Accumulated earnings     362,809       322,498  
    Total stockholders' equity     642,334       588,859  
    Total liabilities and stockholders' equity   $ 878,931     $ 825,032  
                     
                     
                     
SolarWinds, Inc.  
Condensed Consolidated Statements of Income  
(In thousands, except per share information)  
(Unaudited)  
   
    Three months ended
June 30,
    Six months ended
June 30,
 
    2015     2014     2015     2014  
Revenue:                        
  License   $ 38,591     $ 37,636     $ 80,953     $ 73,987  
  Maintenance and other     67,556       58,035       131,285       112,956  
  Subscription     12,929       5,833       23,630       10,470  
    Total revenue     119,076       101,504       235,868       197,413  
  Cost of license revenue     4,371       4,112       8,586       8,221  
  Cost of maintenance and other revenue     4,130       3,875       8,267       7,331  
  Cost of subscription revenue     4,920       2,911       9,147       5,374  
Gross profit     105,655       90,606       209,868       176,487  
Operating expenses:                                
  Sales and marketing     43,193       35,254       86,585       69,234  
  Research and development     15,133       13,883       31,503       28,023  
  General and administrative     19,399       23,263       39,737       39,192  
    Total operating expenses     77,725       72,400       157,825       136,449  
Operating income     27,930       18,206       52,043       40,038  
Other income (expense):                                
  Interest income     108       83       217       161  
  Interest expense     (88 )     (216 )     (191 )     (435 )
  Other income, net     2,356       13       2,453       208  
    Total other income (expense)     2,376       (120 )     2,479       (66 )
Income before income taxes     30,306       18,086       54,522       39,972  
    Income tax expense     8,161       4,707       14,211       8,947  
Net income   $ 22,145     $ 13,379     $ 40,311     $ 31,025  
Net income per share:                                
  Basic earnings per share   $ 0.29     $ 0.18     $ 0.53     $ 0.41  
  Diluted earnings per share   $ 0.29     $ 0.18     $ 0.52     $ 0.41  
Weighted-average shares used to compute net income per share:                                
  Shares used in computation of basic earnings per share     76,476       75,411       76,339       75,308  
  Shares used in computation of diluted earnings per share     77,400       76,296       77,306       76,245  
                                   
                                   
                                   
SolarWinds, Inc.  
Reconciliation of GAAP to Non-GAAP Financial Measures  
(In thousands, except per share amounts and percentages)  
(Unaudited)  
   
    Three months ended
June 30,
    Six months ended
June 30,
 
    2015     2014     2015     2014  
GAAP cost of revenue   $ 13,421     $ 10,898     $ 26,000     $ 20,926  
  Amortization of intangible assets (1)     (5,996 )     (4,978 )     (11,701 )     (9,911 )
  Stock-based compensation expense and related employer-paid payroll taxes (2)     (498 )     (330 )     (1,026 )     (680 )
Non-GAAP cost of revenue   $ 6,927     $ 5,590     $ 13,273     $ 10,335  
                                 
GAAP gross profit   $ 105,655     $ 90,606     $ 209,868     $ 176,487  
  Amortization of intangible assets (1)     5,996       4,978       11,701       9,911  
  Stock-based compensation expense and related employer-paid payroll taxes (2)     498       330       1,026       680  
Non-GAAP gross profit   $ 112,149     $ 95,914     $ 222,595     $ 187,078  
                                 
GAAP sales and marketing expense   $ 43,193     $ 35,254     $ 86,585     $ 69,234  
  Stock-based compensation expense and related employer-paid payroll taxes (2)     (4,229 )     (3,144 )     (8,997 )     (7,103 )
Non-GAAP sales and marketing expense   $ 38,964     $ 32,110     $ 77,588     $ 62,131  
                                 
GAAP research and development expense   $ 15,133     $ 13,883     $ 31,503     $ 28,023  
  Stock-based compensation expense and related employer-paid payroll taxes (2)     (3,054 )     (1,658 )     (5,941 )     (3,984 )
  Restructuring charges (4)     --       (8 )     --       (38 )
Non-GAAP research and development expense   $ 12,079     $ 12,217     $ 25,562     $ 24,001  
                                 
GAAP general and administrative expense   $ 19,399     $ 23,263     $ 39,737     $ 39,192  
  Amortization of intangible assets (1)     (2,490 )     (2,609 )     (4,919 )     (5,235 )
  Stock-based compensation expense and related employer-paid payroll taxes (2)     (4,928 )     (3,475 )     (10,060 )     (7,634 )
  Acquisition related adjustments (3)     (2,361 )     (1,398 )     (5,156 )     (1,395 )
  Restructuring charges (4)     --       (6,899 )     327       (7,443 )
Non-GAAP general and administrative expense   $ 9,620     $ 8,882     $ 19,929     $ 17,485  
                                 
GAAP operating expenses   $ 77,725     $ 72,400     $ 157,825     $ 136,449  
  Amortization of intangible assets (1)     (2,490 )     (2,609 )     (4,919 )     (5,235 )
  Stock-based compensation expense and related employer-paid payroll taxes (2)     (12,211 )     (8,277 )     (24,998 )     (18,721 )
  Acquisition related adjustments (3)     (2,361 )     (1,398 )     (5,156 )     (1,395 )
  Restructuring charges (4)     --       (6,907 )     327       (7,481 )
Non-GAAP operating expenses   $ 60,663     $ 53,209     $ 123,079     $ 103,617  
                                 
GAAP operating income   $ 27,930     $ 18,206     $ 52,043     $ 40,038  
  Amortization of intangible assets (1)     8,486       7,587       16,620       15,146  
  Stock-based compensation expense and related employer-paid payroll taxes (2)     12,709       8,607       26,024       19,401  
  Acquisition related adjustments (3)     2,361       1,398       5,156       1,395  
  Restructuring charges (4)     --       6,907       (327 )     7,481  
Non-GAAP operating income   $ 51,486     $ 42,705     $ 99,516     $ 83,461  
                                 
GAAP income tax expense   $ 8,161     $ 4,707     $ 14,211     $ 8,947  
  Income tax effect on non-GAAP exclusions (5)     5,216       6,409       11,524       11,831  
Non-GAAP income tax expense   $ 13,377     $ 11,116     $ 25,735     $ 20,778  
                                 
GAAP net income   $ 22,145     $ 13,379     $ 40,311     $ 31,025  
  Amortization of intangible assets (1)     8,486       7,587       16,620       15,146  
  Stock-based compensation expense and related employer-paid payroll taxes (2)     12,709       8,607       26,024       19,401  
  Acquisition related adjustments (3)     2,361       1,398       5,156       1,395  
  Restructuring charges (4)     --       6,907       (327 )     7,481  
  Tax benefits associated with above adjustments (5)     (5,216 )     (6,409 )     (11,524 )     (11,831 )
Non-GAAP net income   $ 40,485     $ 31,469     $ 76,260     $ 62,617  
                                 
Non-GAAP diluted earnings per share (6)   $ 0.52     $ 0.41     $ 0.99     $ 0.82  
Weighted-average shares used in computing diluted earnings per share     77,400       76,296       77,306       76,245  
                                 
Percentage of Revenue:                                
                                 
GAAP gross profit     88.7 %     89.3 %     89.0 %     89.4 %
  Non-GAAP adjustments (1)(2)     5.5       5.2       5.4       5.4  
Non-GAAP gross profit     94.2 %     94.5 %     94.4 %     94.8 %
                                 
GAAP operating margin     23.5 %     17.9 %     22.1 %     20.3 %
  Non-GAAP adjustments (1)(2)(3)(4)     19.8       24.1       20.1       22.0  
Non-GAAP operating margin     43.2 %     42.1 %     42.2 %     42.3 %
                                 
GAAP net income     18.6 %     13.2 %     17.1 %     15.7 %
  Non-GAAP adjustments (1)(2)(3)(4)(5)     15.4       17.8       15.2       16.0  
Non-GAAP net income     34.0 %     31.0 %     32.3 %     31.7 %
     
(1)   Amortization of Intangible Assets. We provide non-GAAP information which excludes expenses for the amortization of intangible assets which primarily relate to purchased intangible assets associated with our acquisitions. We believe that eliminating this expense from our non-GAAP measures is useful to investors, because the amortization of intangible assets can be inconsistent in amount and frequency and is significantly impacted by the timing and magnitude of our acquisition transactions, which also vary in frequency from period to period. Accordingly, we analyze the performance of our operations in each period without regard to such expenses.
     
(2)   Stock-Based Compensation Expense and Related Employer-Paid Payroll Taxes. We provide non-GAAP information which excludes expenses for stock-based compensation and related employer-paid payroll taxes. We believe the exclusion of these items allows for financial results that are more indicative of our continuing operations. We believe that the exclusion of stock-based compensation expense provides for a better comparison of our operating results to prior periods and to our peer companies as the calculations of stock-based compensation vary from period to period and company to company due to different valuation methodologies, subjective assumptions and the variety of award types. Employer-paid payroll taxes on stock-based compensation is dependent on our stock price and the timing of the taxable events related to the equity awards, over which our management has little control, and does not correlate to the core operation of our business. Because of these unique characteristics of stock-based compensation and the related employer-paid payroll taxes, management excludes these expenses when analyzing the organization's business performance.
     
(3)   Acquisition Related Adjustments. We exclude certain expense items resulting from acquisitions including the following, when applicable: (i) amortization of purchased intangible assets associated with our acquisitions (see Note 1 for further discussion); (ii) legal, accounting and advisory fees to the extent associated with acquisitions; (iii) changes in fair value of contingent consideration; (iv) costs related to due diligence and integrating the acquired businesses; (v) deferred compensation expense related to acquisitions; and (vi) restructuring costs, including adjustments related to changes in estimates, related to acquisitions. We consider these adjustments, to some extent, to be unpredictable and dependent on a significant number of factors that are outside of our control. Furthermore, acquisitions result in non-continuing operating expenses, which would not otherwise have been incurred by us in the normal course of our organic business operations, with respect to each acquisition. We believe that providing non-GAAP information for acquisition related expense items in addition to the corresponding GAAP information allows the users of our financial statements to better review and understand the historic and current results of our continuing operations, and also facilitates comparisons to our historical results and results of less acquisitive peer companies, both with and without such adjustments.
     
(4)   Restructuring Charges. We provide non-GAAP information that excludes restructuring charges such as severance, relocation and benefits and the estimated costs of exiting and terminating facility lease commitments, including accelerated depreciation on leasehold improvements and fixed assets, as they relate to our corporate restructuring and exit activities. These restructuring charges are inconsistent in amount and are significantly impacted by the timing and nature of these events. Therefore, although we may incur these types of expenses in the future, we believe that eliminating these charges for purposes of calculating the non-GAAP financial measures facilitates a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.
     
(5)   Income Tax Effect of Non-GAAP Exclusions. We believe providing financial information with and without the income tax effect of excluding items related to our non-GAAP financial measures provide our management and users of the financial statements with better clarity regarding the ongoing performance and future liquidity of our business.
     
(6)   Non-GAAP Diluted Earnings Per Share Item. We provide non-GAAP diluted earnings per share. The non-GAAP diluted earnings per share amount was calculated based on our non-GAAP net income and the shares used in the computation of GAAP diluted earnings per share.
     
     
     
SolarWinds, Inc.  
Reconciliation of GAAP Revenue to Non-GAAP Revenue on a Constant Currency Basis  
(In thousands, except percentages)  
(Unaudited)  
   
    Three months ended
June 30, 2015
    Six months ended
June 30, 2015
 
Reconciliation of GAAP revenue to Non-GAAP revenue:   Using Foreign Exchange Rates in Second Quarter of 2014   Growth % Compared to Second Quarter of 2014     Using Foreign Exchange Rates in First Half of 2014   Growth % Compared to First Half of 2014  
GAAP license revenue   $ 38,591   3 %   $ 80,953   9 %
  Estimated foreign currency impact     1,037   2       1,973   3  
Non-GAAP license revenue on a constant currency basis (1)   $ 39,628   5 %   $ 82,926   12 %
                         
GAAP maintenance and other revenue   $ 67,556   16 %   $ 131,285   16 %
  Estimated foreign currency impact     3,906   7       7,032   6  
Non-GAAP maintenance and other revenue on a constant currency basis (1)   $ 71,462   23 %   $ 138,317   22 %
                         
GAAP subscription revenue   $ 12,929   122 %   $ 23,630   126 %
  Estimated foreign currency impact     957   16       1,471   14  
Non-GAAP subscription revenue on a constant currency basis (1)   $ 13,886   138 %   $ 25,101   140 %
                         
GAAP total revenue   $ 119,076   17 %   $ 235,868   19 %
  Estimated foreign currency impact     5,900   6       10,476   6  
Non-GAAP total revenue on a constant currency basis (1)   $ 124,976   23 %   $ 246,344   25 %
                         
    Three months ended
June 30, 2015
    Six months ended
June 30, 2015
 
Reconciliation of GAAP revenue to Non-GAAP revenue by product group:   Using Foreign Exchange Rates in Second Quarter of 2014   Growth % Compared to Second Quarter of 2014     Using Foreign Exchange Rates in First Half of 2014   Growth % Compared to First Half of 2014  
GAAP network management revenue   $ 66,779   11 %   $ 133,472   13 %
  Estimated foreign currency impact     3,233   5       5,826   5  
Non-GAAP network management revenue on a constant currency basis (1)   $ 70,012   16 %   $ 139,298   18 %
                         
GAAP systems and application management revenue   $ 35,989   14 %   $ 72,100   17 %
  Estimated foreign currency impact     1,567   4       2,928   5  
Non-GAAP systems and application management revenue on a constant currency basis (1)   $ 37,556   18 %   $ 75,028   22 %
                         
GAAP MSP and cloud revenue   $ 16,308   72 %   $ 30,296   73 %
  Estimated foreign currency impact     1,100   12       1,722   10  
Non-GAAP MSP and cloud revenue on a constant currency basis (1)   $ 17,408   84 %   $ 32,018   83 %
                         
(1)   Revenue on a constant currency basis is calculated using the average foreign exchange rates in the comparable prior year monthly periods and applying these rates to foreign-denominated revenue in the corresponding monthly periods in the second quarter and the first half of 2015. The difference between revenue calculated based on these foreign exchange rates and revenue calculated in accordance with GAAP is listed as estimated foreign currency impact in the table above.
   
   
   
SolarWinds, Inc.  
Condensed Consolidated Statements of Cash Flows  
(In thousands)  
(Unaudited)  
   
    Three months ended
June 30,
    Six months ended
June 30,
 
    2015     2014     2015     2014  
Cash flows from operating activities                                
  Net income   $ 22,145     $ 13,379     $ 40,311     $ 31,025  
  Adjustments to reconcile net income to net cash provided by operating activities:                                
    Depreciation and amortization     10,223       8,827       19,952       17,722  
    Provision for doubtful accounts     301       125       689       473  
    Stock-based compensation expense     12,402       8,592       24,727       18,799  
    Deferred taxes     551       (3,294 )     1,876       (4,492 )
    Excess tax benefit from stock-based compensation     (978 )     (415 )     (3,565 )     (3,401 )
    Premium on investments     (121 )     --       (156 )     --  
    Other non-cash expenses     491       748       1,039       1,133  
  Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business combinations:                                
    Accounts receivable     5,082       1,808       764       3,524  
    Income taxes receivable     858       4,543       (1,921 )     3,078  
    Prepaid and other assets     (26 )     (820 )     37       (2,574 )
    Accounts payable     64       (1,104 )     1,322       (1,857 )
    Accrued liabilities and other     (8,628 )     13,485       (16,766 )     12,116  
    Income taxes payable     1,713       (105 )     3,260       1,017  
    Deferred revenue     9,272       2,030       19,634       10,638  
    Other long-term liabilities     1,358       3,154       1,177       6,343  
      Net cash provided by operating activities     54,707       50,953       92,380       93,544  
Cash flows from investing activities                                
  Purchases of investments     (4,044 )     --       (5,745 )     --  
  Maturities of investments     4,000       3,515       5,650       10,015  
  Purchases of property and equipment     (3,773 )     (8,139 )     (7,051 )     (14,316 )
  Purchases of intangible assets     (83 )     (68 )     (131 )     (185 )
  Acquisition of businesses, net of cash acquired     (50,125 )     (63,996 )     (90,067 )     (63,996 )
      Net cash used in investing activities     (54,025 )     (68,688 )     (97,344 )     (68,482 )
Cash flows from financing activities                                
  Repurchase of common stock     (1,636 )     (3,256 )     (8,651 )     (9,844 )
  Exercise of stock options     2,695       914       5,411       4,128  
  Excess tax benefit from stock-based compensation     978       415       3,565       3,401  
      Net cash provided by (used in) financing activities     2,037       (1,927 )     325       (2,315 )
Effect of exchange rate changes on cash and cash equivalents     1,784       (1,456 )     (7,227 )     (1,503 )
  Net increase (decrease) in cash and cash equivalents     4,503       (21,118 )     (11,866 )     21,244  
Cash and cash equivalents                                
  Beginning of period     221,573       208,335       237,942       165,973  
  End of period   $ 226,076     $ 187,217     $ 226,076     $ 187,217  
Supplemental disclosure of cash flow information                                
  Cash paid for interest   $ 63     $ 148     $ 125     $ 330  
  Cash paid for income taxes   $ 4,957     $ 3,379     $ 10,684     $ 8,940  
Non-cash investing transactions                                
  Purchases of property and equipment included in accrued liabilities   $ 1,393     $ 486     $ 1,393     $ 486  

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