) reported first-quarter 2013 non-GAAP earnings of 41 cents per
share, which increased 36.7% from the year-ago quarter. Including
stock-based compensation, earnings came in at 34 cents per share,
ahead of the Zacks Consensus Estimate of 32 cents per share. The
upside in earnings was driven by robust top-line growth and
Revenues for the reported quarter increased 22.2% year over
year to $72.9 million but failed to beat management's revenue
guidance of $74.9-$75.7 million. Reported revenues also lagged
the Zacks Consensus Estimate of $75 million.
Higher license and maintenance revenues aided the
year-over-year top-line expansion. License revenues, which
accounted for 42% of the total revenue, increased 11.9% year over
year to $30.7 million, primarily attributable to the commercial
Maintenance revenues, which accounted for the remaining 58% of
revenues, increased 31.0% from the year-ago quarter to $42.2
million on strong customer retention.
Non-GAAP gross profit increased 22.4% from the year-ago
quarter to $70.0 million. Gross margin for the quarter expanded
approximately 20 basis points ("bps") from the year-ago quarter
to 96.0% due to higher revenue base. Including stock-based
compensation expense and related employer-paid payroll taxes,
gross profit came in at $69.8 million.
Non-GAAP operating income increased 29% from the year-ago
quarter to $40.7 million, while operating margin increased 300
bps to 55.9%. Operating margins expanded primarily due to a 280
bps improvement in operating expenses as a percentage of
revenues. Including stock-based compensation expense and related
employer-paid payroll taxes, income from operations came in at
Non-GAAP net income increased from $22.8 million or 30 cents
per share to $31.2 million or 41 cents. Including stock-based
compensation and related employer-paid payroll taxes, net income
came in at $26.2 million or 34 cents.
SolarWinds exited the quarter with cash, cash equivalents and
short-term investments of $265.8 million versus $229 million in
the previous quarter. Cash from operations was $30.9 million
compared with $35 million in the previous quarter. Free cash flow
for the quarter was $34.8 million.
For the second quarter of 2013, SolarWinds expects revenues in
the range of $77.8-$78.8 million, up 21%-23% on a year-over-year
basis. License revenues are expected to increase in the range of
15%-17% on a year-over-year basis, while management expects
maintenance revenues to grow in the range of 27% to 28% in the
Management expects non-GAAP earnings per share between 37
cents and 38 cents for the forthcoming quarter. The Zacks
Consensus Estimate for the second-quarter earnings is pegged at
35 cents per share.
SolarWinds lowered its fiscal 2013 revenue guidance range from
$330-$338 million to $326.5-$334.0 million. However, management
increased its non-GAAP earnings per share guidance from
$1.57-$1.62 to $1.59-$1.65.
We believe that SolarWinds is well positioned to grow on its
recurring maintenance revenues stream. Moreover, the company's
expanding product portfolio and expansions across the
Asia-Pacific and Latin America, particularly in Brazil, should
act as positive catalysts going forward.
However, increased investments in products and expansion
initiatives will likely impact margins in the near term.
Moreover, volatile macroeconomic environment and competition from
bellwethers such as
Hewlett Packard Company
) are the major headwinds going forward.
Currently, SolarWinds has a Zacks Rank #3 (Hold).
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