) reported third quarter 2012 non-GAAP earnings of 37 cents per
share, which increased 19.4% from the previous-year quarter.
Including stock based compensation, earnings came at 32 cents per
share, ahead of the Zacks Consensus Estimate of 28 cents per
share. The upside in the earnings was driven by robust top-line
growth and margin expansion.
Revenue for quarter increased 33% from the previous-year
quarter to $71.7 million and exceeded management's revenue
guidance of $66-$68.5 million. Moreover, reported revenue also
surpassed the Zacks Consensus Estimate of $68 million.
The encouraging top-line expansion was aided by higher license
and maintenance revenue. License revenue, which accounted for 47%
of the total revenue, increased 33.3% year on year primarily due
to the robust performance of the commercial business.
Maintenance revenue, which accounted for the remaining 53% of
revenues, increased 32.7% from the previous-year quarter. The
higher maintenance revenue was primarily attributed to strong
Gross profit (including stock based compensation) increased
33.5% from the previous-year quarter to $68.9 million. Gross
margin for the quarter expanded approximately 50 basis points
from the previous-year quarter to 96.1% due to higher revenue
Operating expenses (including stock based compensation)
increased 29.6% from the previous-year quarter to $33.3 million
due to 34.5% increase in the sales and marketing expense, 28.6%
jump in the research and development expense and 17% rise in the
general and administrative expense. However, as a percentage of
revenue, operating expenses contracted 130 basis points from the
previous-year quarter to 46.4%.
Operating income (including stock based compensation)
increased 37.5% from the previous-year quarter to $35.6 million.
Operating margin increased 150 basis points to 49.6% primarily
due to the decline in operating expenses as a percentage of
Non-GAAP net income increased from $23 million or 31 cents to
$28.4 million or 37 cents. However, including stock based
compensation, net income came at $24.4 million or 32 cents.
SolarWinds exited the quarter with cash, cash equivalents and
short-term investments of $195.7 million versus $183.1 million in
the previous quarter. Cash from operations increased sequentially
from $34.1 million to $35 million. Free cash flow for the quarter
was $37.2 million, which improved from $35.2 million in the
For the fourth quarter, SolarWinds expects revenues in the
range of $69.3-$70.8 million, reflecting a 25%-27% upside from
the previous-year quarter. Management expects non-GAAP diluted
earnings per share to be in the range of 31-33 cents. The Zacks
Consensus Estimate expects SolarWinds to report 28 cents per
share in the fourth quarter.
For fiscal 2012, management expects revenues in the range of
$264.7-$266.2 million and non-GAAP diluted earnings per share
between $1.31 and $1.32.
We believe that SolarWinds is well positioned to grow based on
its recurring maintenance revenue stream. Moreover, strategic
acquisitions are expected to be incrementally beneficial over the
However, volatile macroeconomic environment and competition
from bellwethers such as
Hewlett Packard Company
) are the major headwinds going forward.
We have a Neutral recommendation on SolarWinds over the long
term. Currently, SolarWinds has a Zacks #3 Rank, which implies a
short-term Hold rating.
HEWLETT PACKARD (HPQ): Free Stock Analysis
INTL BUS MACH (IBM): Free Stock Analysis
SOLARWINDS INC (SWI): Free Stock Analysis
To read this article on Zacks.com click here.