Form 8-K SolarWinds, Inc. For: Oct 28
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
October�28, 2014
Date of Report (Date of earliest event reported)
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SOLARWINDS, INC.
(Exact name of registrant as specified in its charter)
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Delaware | 001-34358 | 73-1559348 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
7171 Southwest Parkway
Building 400
Austin, Texas 78735
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (512)�682-9300
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item�2.02 | Results of Operations and Financial Condition. |
On October�28, 2014, SolarWinds, Inc. ( SolarWinds ) issued a press release regarding its financial results for the fiscal quarter ended September�30, 2014. A copy of SolarWinds' press release is attached hereto as Exhibit 99.1.
The information contained in this report shall not be deemed filed for purposes of Section�18 of the Securities Exchange Act of 1934, as amended (the Exchange Act ), or otherwise subject to the liability of that section. The information in this report shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item�9.01 | Financial Statements and Exhibits. |
(d) | Exhibits. |
Exhibit Number | Description | |
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99.1 | Press release issued by SolarWinds, Inc. dated October�28, 2014. | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
SOLARWINDS, INC. | |||
Dated: | October�28, 2014 | By: | /s/�JASON REAM |
Jason Ream | |||
Executive Vice President, Finance and Chief Financial Officer | |||
EXHIBIT INDEX
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Exhibit Number | � | �Description |
99.1 | � | Press release issued by SolarWinds, Inc. dated October�28, 2014. |
Exhibit 99.1
SolarWinds Announces Third Quarter 2014 Results
AUSTIN, Texas - October�28, 2014 - SolarWinds� (NYSE: SWI), a leading provider of powerful and affordable IT management software, today reported results for its third quarter ended September�30, 2014.
" | Total revenue for the third quarter of $112.9 million, representing 28% year-over-year growth. |
" | Combined maintenance and subscription revenue for the third quarter of $70.1 million, representing 31% year-over-year growth in recurring revenue. |
" | License revenue for the third quarter of $42.8 million, representing 24% year-over-year growth. |
" | GAAP diluted earnings per share of $0.32 and non-GAAP diluted earnings per share of $0.50 for the third quarter. |
" | GAAP operating income of $31.7 million, or a GAAP operating margin of 28%, and non-GAAP operating income of $51.0 million, or a non-GAAP operating margin of 45% for the third quarter. |
Financial Results
SolarWinds reported total revenue for the third quarter of 2014 of $112.9 million, a 28% increase over total revenue for the third quarter of 2013. Record total recurring revenue, comprised of subscription revenue of $8.3 million and maintenance revenue of $61.8 million, reached $70.1 million, increasing by 31% over the third quarter of 2013, representing 62% of total revenue. License revenue was $42.8 million for the third quarter of 2014, representing a 24% increase over license revenue for the third quarter of 2013.
On a GAAP basis, diluted earnings per share were $0.32 for the third quarter of 2014 compared to $0.30 for the third quarter of 2013. Non-GAAP diluted earnings per share were $0.50 for the third quarter of 2014, compared to $0.41 for the third quarter of 2013.
Net cash provided by operating activities was $54.3 million for the third quarter of 2014 compared to $42.0 million for the third quarter of 2013, representing a year-over-year increase of 29%.
The financial results included in this press release are preliminary and pending final review by the company and its external auditors. Financial results will not be final until SolarWinds files its quarterly report on Form 10-Q for the period. Information about SolarWinds' use of these non-GAAP financial measures is provided below under Non-GAAP Financial Measures.
Recent Business Highlights
"We are very pleased to report another quarter of strong license and recurring revenue growth and leverage. Our results in the third quarter reflect broad-based strength across our product portfolio, including the strongest quarter of growth in the last three years in our core Network Management product portfolio. We also had a strong quarter of growth in key areas of our business including North American commercial and in U.S. Federal," said Kevin Thompson, SolarWinds' President and Chief Executive Officer.
"We continue to be excited about the opportunities we see to invest in our business in an effort to drive continued fast growth while leveraging our high volume, product- and user-centric business model and the strong skills and expertise of our team," added Thompson.
Recent SolarWinds business highlights include:
" | SolarWinds bolstered its board of directors with the addition of Paul Cormier, Red Hat's President, Products and Technologies.�Mr. Cormier's deep expertise and involvement in how modern IT infrastructure is being architected coupled with a proven track record in high-transaction, volume-based software companies will provide SolarWinds with a unique perspective on how companies are evaluating, selecting, and deploying new and emerging technologies. |
" | During the quarter, SolarWinds released SolarWinds Network Performance Monitor 11.0, delivering an application-aware approach to network management, enabling companies of all sizes to answer the critical question - Is it the network or the application? �In contrast to pricey and cumbersome appliance-based solutions on the market today, |
NPM v11 is affordably priced and utilizes enterprise-class deep packet inspection technology combined with SolarWinds easy-to-use, software-only approach that provides IT professionals with deep insights into the impact of network performance on over 1,200 applications.
" | For the third time in a row both Fortune� and Forbes� Magazines recognized SolarWinds in the 100 Fastest-Growing Companies list and Best Small Companies in America, respectively. The inclusions are based on the companys track record of sustained revenue and earnings per share growth. The combination of strong revenue growth coupled with strong profitability continues to reflect SolarWinds unique ability to serve IT professionals at companies of all sizes. Its pioneering business model consisting of powerful and scalable yet easy-to-use and affordably priced products coupled with an efficient go-to-market and product development model has delivered both top-line growth and strong profitability. |
" | For the eighth consecutive year,�Software Magazine�included SolarWinds in its�Software 500 ranking, listing SolarWinds No. 177 - its highest rank to date. The Software 500 is a revenue-based ranking of the worlds largest software and services suppliers, targeting medium to large enterprises, their IT professionals, software developers, and business managers that are involved in software and services purchasing. |
" | SolarWinds��Database Performance Analyzer, formerly Confio Ignite�, was named a finalist for Best Database Performance Solution by�Database Trends and Application Magazine�in the 2014�DBTA Readers Choice Awards. This award highlights products that help optimize performance by quickly identifying performance problems with automated capabilities impacting every aspect of a databases performance. |
"In addition to strong revenue results, we are pleased with our ability to aggressively invest in our market opportunity while continuing to deliver high margins, said Jason Ream, SolarWinds Executive Vice President and Chief Financial Officer. "Looking ahead we plan to continue to invest in the opportunity to provide technology professionals with powerful yet affordable and easy-to-use tools that simplify their jobs amid increasingly complex on-premise, Cloud, and hybrid environments. At the same time, we intend to maintain our high standards for return on these investments," added Ream.
Financial Outlook
As of October�28, 2014, SolarWinds is providing its financial outlook for its fourth quarter and full year of 2014. 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 fourth quarter of 2014 and for the full year 2014. 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.
Financial Outlook for the Fourth Quarter of 2014
SolarWinds' management is increasing its previous outlook for the fourth quarter and currently expects to achieve the following results for the fourth quarter of 2014:
" | Total revenue in the range of $116.2 to $118.5 million, or 20% to 22% growth over the fourth quarter of 2013. |
" | Non-GAAP operating income representing 40.5% to 41.5% of revenue. |
" | Non-GAAP diluted earnings per share of $0.45 to $0.47. |
" | Weighted average outstanding diluted shares of approximately 77 million. |
Financial Outlook for Full Year 2014
SolarWinds' management currently expects to achieve the following results for the full year 2014:
" | Total 2014 revenue in the range of $426.5 to $428.8 million, or 27% to 28% year-over-year growth. |
" | Non-GAAP operating income for the full year representing approximately 42.5% of revenue. |
" | Non-GAAP diluted earnings per share of $1.77 to $1.79. |
" | Weighted average outstanding diluted shares of approximately 76.5 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 888-778-9052 and internationally at +1-913-312-1469. 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 SolarWinds' financial outlook for the fourth quarter and full year 2014, the opportunities we see to invest in our business in an effort to drive continued fast growth while leveraging our high volume, product and user-centric business model and the strong skills and expertise of our team, our plan to continue to invest in the opportunity to provide technology professionals with powerful yet affordable and easy-to-use tools that simplify their jobs amid increasingly complex on-premise, Cloud, and hybrid environments and our intent to maintain our high standards for return on these investments. 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, plan, will, expect, anticipate, 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, 2013 filed on February 14, 2014 and the Form 10-Q that SolarWinds anticipates filing on or before November 10, 2014. 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 considers free cash flow also to be a liquidity measure that provides important information regarding the cash generated by the business after the purchase of property and equipment that can then be used for, among other things, strategic acquisitions and investments in the business, stock repurchases and funding ongoing operations.
SolarWinds also believes that these non-GAAP financial measures are used by investors and security analysts to (a)�compare and evaluate its performance from period to period and (b)�compare its performance to those of its competitors. These non-GAAP measures exclude certain items that can vary substantially from company to company depending upon their financing and accounting methods, the book value of their assets, their capital structures and the method by which their assets were acquired.
There are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a comprehensive system of accounting and may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies. Certain items that are excluded from these non-GAAP financial measures can have a material impact on operating and net income. In addition, free cash flow does not represent the total increase or decrease in the cash balance for the period.
As a result, these non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, the most comparable GAAP measures. SolarWinds' management and Board of Directors compensate for these limitations by using�these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measure. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures that are set forth in the tables below.
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 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. All other company and product names mentioned are used only for identification purposes and may be trademarks or registered trademarks of their respective companies.
Copyright � 2014 SolarWinds Worldwide, LLC. All rights reserved.
CONTACTS:
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Investors: | � | Media: | � |
Dave Hafner Phone: 512.682.9867 | � | Tiffany Nels Phone: 512.682.9545 | � |
SolarWinds, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share information)
(Unaudited)
September 30, 2014 | December 31, 2013 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 195,203 | $ | 165,973 | |||
Short-term investments | 14,394 | 19,327 | |||||
Accounts receivable, net of allowances of $717 and $473 as of September 30, 2014 and December�31, 2013, respectively | 47,698 | 45,694 | |||||
Income tax receivable | 195 | 1,535 | |||||
Deferred taxes | 8,860 | 5,410 | |||||
Prepaid and other current assets | 6,490 | 4,846 | |||||
Total current assets | 272,840 | 242,785 | |||||
Property and equipment, net | 22,735 | 9,213 | |||||
Long-term investments | 5,189 | 11,012 | |||||
Deferred taxes | 514 | 478 | |||||
Goodwill | 366,700 | 317,054 | |||||
Intangible assets and other, net | 112,238 | 125,800 | |||||
Total assets | $ | 780,216 | $ | 706,342 | |||
Liabilities and stockholders equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 7,451 | $ | 7,187 | |||
Accrued liabilities and other | 31,784 | 17,716 | |||||
Income taxes payable | 4,953 | 563 | |||||
Current portion of deferred revenue | 146,830 | 128,328 | |||||
Current debt obligations | 40,000 | ||||||
Total current liabilities | 191,018 | 193,794 | |||||
Long-term liabilities: | |||||||
Deferred revenue, net of current portion | 8,550 | 6,863 | |||||
Non-current deferred taxes | 4,348 | 4,975 | |||||
Other long-term liabilities | 22,625 | 16,816 | |||||
Total liabilities | 226,541 | 222,448 | |||||
Commitments and Contingencies | |||||||
Stockholders equity: | |||||||
Common stock, $0.001 par value: 123,000,000 shares authorized and 75,628,926 and 75,009,620 shares issued and outstanding as of September 30, 2014 and December�31, 2013, respectively | 76 | 75 | |||||
Additional paid-in capital | 261,617 | 236,481 | |||||
Accumulated other comprehensive income (loss) | (7,549 | ) | 2,953 | ||||
Accumulated earnings | 299,531 | 244,385 | |||||
Total stockholders equity | 553,675 | 483,894 | |||||
Total liabilities and stockholders equity | $ | 780,216 | $ | 706,342 | |||
SolarWinds, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share information)
(Unaudited)
� | Three months ended September 30, | Nine months ended September 30, | |||||||||||||
� | 2014 | 2013 | 2014 | 2013 | |||||||||||
Revenue: | |||||||||||||||
License | $ | 42,756 | $ | 34,358 | $ | 116,743 | $ | 96,300 | |||||||
Maintenance and other | 61,844 | 50,283 | 174,800 | 137,841 | |||||||||||
Subscription | 8,262 | 3,222 | 18,732 | 4,151 | |||||||||||
Total revenue | 112,862 | 87,863 | 310,275 | 238,292 | |||||||||||
Cost of license revenue | 4,100 | 2,646 | 12,321 | 8,263 | |||||||||||
Cost of maintenance and other revenue | 3,965 | 2,942 | 11,296 | 8,578 | |||||||||||
Cost of subscription revenue | 3,513 | 1,511 | 8,887 | 2,046 | |||||||||||
Gross profit | 101,284 | 80,764 | 277,771 | 219,405 | |||||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 37,538 | 25,962 | 106,772 | 66,538 | |||||||||||
Research and development | 13,761 | 9,558 | 41,784 | 25,622 | |||||||||||
General and administrative | 18,274 | 13,383 | 57,466 | 34,758 | |||||||||||
Total operating expenses | 69,573 | 48,903 | 206,022 | 126,918 | |||||||||||
Operating income | 31,711 | 31,861 | 71,749 | 92,487 | |||||||||||
Other income (expense): | |||||||||||||||
Interest income | 85 | 91 | 246 | 324 | |||||||||||
Interest expense | (142 | ) | (577 | ) | |||||||||||
Other income (expense), net | 238 | (6 | ) | 446 | (497 | ) | |||||||||
Total other income (expense) | 181 | 85 | 115 | (173 | ) | ||||||||||
Income before income taxes | 31,892 | 31,946 | 71,864 | 92,314 | |||||||||||
Income tax expense | 7,771 | 9,123 | 16,718 | 23,695 | |||||||||||
Net income | $ | 24,121 | $ | 22,823 | $ | 55,146 | $ | 68,619 | |||||||
Net income per share: | |||||||||||||||
Basic earnings per share | $ | 0.32 | $ | 0.30 | $ | 0.73 | $ | 0.91 | |||||||
Diluted earnings per share | $ | 0.32 | $ | 0.30 | $ | 0.72 | $ | 0.90 | |||||||
Weighted-average shares used to compute net income per share: | |||||||||||||||
Shares used in computation of basic earnings per share | 75,508 | 75,371 | 75,375 | 75,202 | |||||||||||
Shares used in computation of diluted earnings per share | 76,463 | 76,466 | 76,321 | 76,580 | |||||||||||
SolarWinds, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share amounts and percentages)
(Unaudited)
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
GAAP cost of revenue | $ | 11,578 | $ | 7,099 | $ | 32,504 | $ | 18,887 | |||||||
Amortization of intangible assets (1) | (5,185 | ) | (2,633 | ) | (15,096 | ) | (7,768 | ) | |||||||
Stock-based compensation expense and related employer-paid payroll taxes (2) | (367 | ) | (189 | ) | (1,047 | ) | (502 | ) | |||||||
Restructuring charges (4) | (17 | ) | (27 | ) | |||||||||||
Non-GAAP cost of revenue | $ | 6,026 | $ | 4,260 | $ | 16,361 | $ | 10,590 | |||||||
GAAP gross profit | $ | 101,284 | $ | 80,764 | $ | 277,771 | $ | 219,405 | |||||||
Amortization of intangible assets (1) | 5,185 | 2,633 | 15,096 | 7,768 | |||||||||||
Stock-based compensation expense and related employer-paid payroll taxes (2) | 367 | 189 | 1,047 | 502 | |||||||||||
Restructuring charges (4) | 17 | 27 | |||||||||||||
Non-GAAP gross profit | $ | 106,836 | $ | 83,603 | $ | 293,914 | $ | 227,702 | |||||||
GAAP sales and marketing expense | $ | 37,538 | $ | 25,962 | $ | 106,772 | $ | 66,538 | |||||||
Stock-based compensation expense and related employer-paid payroll taxes (2) | (3,088 | ) | (1,945 | ) | (10,191 | ) | (6,385 | ) | |||||||
Restructuring charges (4) | (13 | ) | (190 | ) | (13 | ) | (223 | ) | |||||||
Non-GAAP sales and marketing expense | $ | 34,437 | $ | 23,827 | $ | 96,568 | $ | 59,930 | |||||||
GAAP research and development expense | $ | 13,761 | $ | 9,558 | $ | 41,784 | $ | 25,622 | |||||||
Stock-based compensation expense and related employer-paid payroll taxes (2) | (1,423 | ) | (1,071 | ) | (5,407 | ) | (3,407 | ) | |||||||
Restructuring charges (4) | (39 | ) | (91 | ) | (77 | ) | (99 | ) | |||||||
Non-GAAP research and development expense | $ | 12,299 | $ | 8,396 | $ | 36,300 | $ | 22,116 | |||||||
GAAP general and administrative expense | $ | 18,274 | $ | 13,383 | $ | 57,466 | $ | 34,758 | |||||||
Amortization of intangible assets (1) | (2,796 | ) | (2,482 | ) | (8,031 | ) | (6,320 | ) | |||||||
Stock-based compensation expense and related employer-paid payroll taxes (2) | (3,892 | ) | (2,470 | ) | (11,526 | ) | (7,584 | ) | |||||||
Acquisition related adjustments (3) | (2,510 | ) | (402 | ) | (3,905 | ) | (1,006 | ) | |||||||
Restructuring charges (4) | 27 | (529 | ) | (7,416 | ) | (961 | ) | ||||||||
Non-GAAP general and administrative expense | $ | 9,103 | $ | 7,500 | $ | 26,588 | $ | 18,887 | |||||||
GAAP operating expenses | $ | 69,573 | $ | 48,903 | $ | 206,022 | $ | 126,918 | |||||||
Amortization of intangible assets (1) | (2,796 | ) | (2,482 | ) | (8,031 | ) | (6,320 | ) | |||||||
Stock-based compensation expense and related employer-paid payroll taxes (2) | (8,403 | ) | (5,486 | ) | (27,124 | ) | (17,376 | ) | |||||||
Acquisition related adjustments (3) | (2,510 | ) | (402 | ) | (3,905 | ) | (1,006 | ) | |||||||
Restructuring charges (4) | (25 | ) | (810 | ) | (7,506 | ) | (1,283 | ) | |||||||
Non-GAAP operating expenses | $ | 55,839 | $ | 39,723 | $ | 159,456 | $ | 100,933 | |||||||
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
GAAP operating income | $ | 31,711 | $ | 31,861 | $ | 71,749 | $ | 92,487 | |||||||
Amortization of intangible assets (1) | 7,981 | 5,115 | 23,127 | 14,088 | |||||||||||
Stock-based compensation expense and related employer-paid payroll taxes (2) | 8,770 | 5,675 | 28,171 | 17,878 | |||||||||||
Acquisition related adjustments (3) | 2,510 | 402 | 3,905 | 1,006 | |||||||||||
Restructuring charges (4) | 25 | 827 | 7,506 | 1,310 | |||||||||||
Non-GAAP operating income | $ | 50,997 | $ | 43,880 | $ | 134,458 | $ | 126,769 | |||||||
GAAP other income (expense) | $ | 181 | $ | 85 | $ | 115 | $ | (173 | ) | ||||||
Acquisition related adjustments (3) | 4 | ||||||||||||||
Non-GAAP other income (expense) | $ | 181 | $ | 85 | $ | 115 | $ | (169 | ) | ||||||
GAAP income tax expense | $ | 7,771 | $ | 9,123 | $ | 16,718 | $ | 23,695 | |||||||
Income tax effect on non-GAAP exclusions (5) | 4,843 | 3,183 | 16,674 | 9,308 | |||||||||||
Non-GAAP income tax expense | $ | 12,614 | $ | 12,306 | $ | 33,392 | $ | 33,003 | |||||||
GAAP net income | $ | 24,121 | $ | 22,823 | $ | 55,146 | $ | 68,619 | |||||||
Amortization of intangible assets (1) | 7,981 | 5,115 | 23,127 | 14,088 | |||||||||||
Stock-based compensation expense and related employer-paid payroll taxes (2) | 8,770 | 5,675 | 28,171 | 17,878 | |||||||||||
Acquisition related adjustments (3) | 2,510 | 402 | 3,905 | 1,010 | |||||||||||
Restructuring charges (4) | 25 | 827 | 7,506 | 1,310 | |||||||||||
Tax benefits associated with above adjustments (5) | (4,843 | ) | (3,183 | ) | (16,674 | ) | (9,308 | ) | |||||||
Non-GAAP net income | $ | 38,564 | $ | 31,659 | $ | 101,181 | $ | 93,597 | |||||||
Non-GAAP diluted earnings per share (6) | $ | 0.50 | $ | 0.41 | $ | 1.33 | $ | 1.22 | |||||||
Weighted-average shares used in computing diluted earnings per share | 76,463 | 76,466 | 76,321 | 76,580 | |||||||||||
Percentage of Revenue: | |||||||||||||||
GAAP gross profit | 89.7 | % | 91.9 | % | 89.5 | % | 92.1 | % | |||||||
Non-GAAP adjustments (1)(2)(4) | 4.9 | 3.2 | 5.2 | 3.5 | |||||||||||
Non-GAAP gross profit | 94.7 | % | 95.2 | % | 94.7 | % | 95.6 | % | |||||||
GAAP operating margin | 28.1 | % | 36.3 | % | 23.1 | % | 38.8 | % | |||||||
Non-GAAP adjustments (1)(2)(3)(4) | 17.1 | 13.7 | 20.2 | 14.4 | |||||||||||
Non-GAAP operating margin | 45.2 | % | 49.9 | % | 43.3 | % | 53.2 | % | |||||||
GAAP net income | 21.4 | % | 26.0 | % | 17.8 | % | 28.8 | % | |||||||
Non-GAAP adjustments (1)(2)(3)(4)(5) | 12.8 | 10.1 | 14.8 | 10.5 | |||||||||||
Non-GAAP net income | 34.2 | % | 36.0 | % | 32.6 | % | 39.3 | % | |||||||
(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 Free Cash Flow to GAAP Cash Flows From Operating Activities
(In thousands)
(Unaudited)
�
� | Three months ended September 30, | Nine months ended September 30, | |||||||||||||
� | 2014 | 2013 | 2014 | 2013 | |||||||||||
Reconciliation of free cash flow to GAAP cash flows from operating activities: | |||||||||||||||
GAAP cash flows from operating activities | $ | 54,300 | $ | 42,004 | $ | 147,844 | $ | 113,603 | |||||||
Excess tax benefit from stock-based compensation | 1,908 | 1,500 | 5,309 | 7,746 | |||||||||||
Purchases of property and equipment | (2,524 | ) | (1,217 | ) | (16,840 | ) | (2,963 | ) | |||||||
Free cash flow (1) | $ | 53,684 | $ | 42,287 | $ | 136,313 | $ | 118,386 | |||||||
Free cash flow margin (1) | 47.6 | % | 48.1 | % | 43.9 | % | 49.7 | % | |||||||
(1) | Free Cash Flow.�We define free cash flow as cash flows from operating activities plus the excess tax benefit from stock-based compensation and less the purchases of property and equipment.�We believe free cash flow is an important liquidity measure that reflects the cash generated by the business after the purchase of property and equipment that can then be used for, among other things, strategic acquisitions and investments in the business, stock repurchases and funding ongoing operations.�Free cash flow margin�is defined as free cash flow divided by total revenue. |
�
SolarWinds, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
� | Three months ended September 30, | Nine months ended September 30, | |||||||||||||
� | 2014 | 2013 | 2014 | 2013 | |||||||||||
Cash flows from operating activities | |||||||||||||||
Net income | $ | 24,121 | $ | 22,823 | $ | 55,146 | $ | 68,619 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 9,418 | 6,851 | 27,140 | 17,727 | |||||||||||
Provision for doubtful accounts | (34 | ) | 134 | 439 | 261 | ||||||||||
Stock-based compensation expense | 8,630 | 5,601 | 27,429 | 17,143 | |||||||||||
Deferred taxes | (1,895 | ) | (1,519 | ) | (6,387 | ) | (4,393 | ) | |||||||
Excess tax benefit from stock-based compensation | (1,908 | ) | (1,500 | ) | (5,309 | ) | (7,746 | ) | |||||||
(Premium) discount on investments | (90 | ) | 6 | (90 | ) | (607 | ) | ||||||||
Other non-cash expenses (benefits) | (108 | ) | 84 | 1,025 | 822 | ||||||||||
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business combinations: | |||||||||||||||
Accounts receivable | (6,583 | ) | (9,605 | ) | (3,059 | ) | (9,706 | ) | |||||||
Income taxes receivable | 806 | 169 | 3,884 | 133 | |||||||||||
Prepaid and other assets | 668 | (641 | ) | (1,906 | ) | (236 | ) | ||||||||
Accounts payable | 1,905 | 1,654 | 48 | 968 | |||||||||||
Accrued liabilities and other | 2,155 | 1,453 | 14,271 | (3,596 | ) | ||||||||||
Income taxes payable | 5,235 | 4,916 | 6,252 | 11,989 | |||||||||||
Deferred revenue | 12,301 | 11,582 | 22,939 | 21,991 | |||||||||||
Other long-term liabilities | (321 | ) | (4 | ) | 6,022 | 234 | |||||||||
Net cash provided by operating activities | 54,300 | 42,004 | 147,844 | 113,603 | |||||||||||
Cash flows from investing activities | |||||||||||||||
Purchases of investments | (3,001 | ) | (3,001 | ) | (17,288 | ) | |||||||||
Maturities of investments | 3,473 | 7,179 | 13,488 | 38,674 | |||||||||||
Purchases of property and equipment | (2,524 | ) | (1,217 | ) | (16,840 | ) | (2,963 | ) | |||||||
Purchases of intangible assets and other long-term investments | (14 | ) | (8,078 | ) | (199 | ) | (8,249 | ) | |||||||
Acquisition of businesses, net of cash acquired | 296 | (63,700 | ) | (120,868 | ) | ||||||||||
Other investing activities | 579 | 579 | |||||||||||||
Net cash used in investing activities | (1,770 | ) | (1,537 | ) | (70,252 | ) | (110,115 | ) | |||||||
Cash flows from financing activities | |||||||||||||||
Repurchase of common stock | (3,379 | ) | (13,852 | ) | (13,223 | ) | (18,351 | ) | |||||||
Exercise of stock options | 1,921 | 2,734 | 6,049 | 8,124 | |||||||||||
Excess tax benefit from stock-based compensation | 1,908 | 1,500 | 5,309 | 7,746 | |||||||||||
Repayments of borrowings from credit agreement | (40,000 | ) | (40,000 | ) | |||||||||||
Net cash used in financing activities | (39,550 | ) | (9,618 | ) | (41,865 | ) | (2,481 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | (4,994 | ) | 3,088 | (6,497 | ) | 2,122 | |||||||||
Net increase in cash and cash equivalents | 7,986 | 33,937 | 29,230 | 3,129 | |||||||||||
Cash and cash equivalents | |||||||||||||||
Beginning of period | 187,217 | 148,894 | 165,973 | 179,702 | |||||||||||
End of period | $ | 195,203 | $ | 182,831 | $ | 195,203 | $ | 182,831 | |||||||
Supplemental disclosure of cash flow information | |||||||||||||||
Cash paid for interest | $ | 191 | $ | $ | 521 | $ | |||||||||
Cash paid for income taxes | $ | 3,823 | $ | 5,514 | $ | 12,763 | $ | 15,737 | |||||||