) reported second-quarter 2013 non-GAAP earnings of 40 cents per
share, which increased 21.2% from the year-ago quarter. Including
stock-based compensation, earnings came in at 35 cents per share,
ahead of the Zacks Consensus Estimate of 31 cents. The upside in
earnings was driven by robust top-line growth and margin
Revenues for the reported quarter increased 21.0% year over
year to $77.5 million but failed to beat management's revenue
guidance of $77.8 million-$78.7 million. Reported revenues also
lagged the Zacks Consensus Estimate of $79 million.
Higher license and maintenance revenues aided the
year-over-year top-line expansion. License revenues, which
accounted for 40.0% of the total revenue, increased 5.7% year
over year to $31.1 million, primarily attributable to the
Maintenance revenues, which accounted for 58.0% of revenues,
increased 31.2% from the year-ago quarter to $45.3 million ($700K
from N-able Technologies) on the back of strong customer
retention. The company earned $1.01 million as subscription
revenues from the N-able Technologies acquisition.
Non-GAAP gross profit increased 20.4% from the year-ago
quarter to $74.1 million. Gross margin for the quarter contracted
approximately 50 basis points (bps) from the year-ago quarter to
95.6% primarily due to unfavorable revenues mix. Including
stock-based compensation, expense and related employer-paid
payroll taxes, gross profit came in at $73.9 million.
Non-GAAP operating income increased 23.0% from the year-ago
quarter to $42.1 million, while operating margin increased 90 bps
to 54.4%. Operating margins expanded primarily due to a 140 bps
contraction 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 $24.8 million or 33 cents
per share to $30.7 million or 40 cents. Including stock-based
compensation and related employer-paid payroll taxes, net income
came in at $27.1 million or 35 cents per share.
SolarWinds exited the quarter with cash, cash equivalents and
short-term investments of $175.9 million versus $265.8 million in
the previous quarter. Cash from operations was $40.7 million
compared with $30.9 million in the previous quarter. Free cash
flow for the quarter was $41.2 million.
For the third quarter of 2013, SolarWinds expects revenues in
the range of $84.7 million-$87.2 million, up 18.0%-22.0% on a
year-over-year basis. License revenues are expected to increase
in the range of 1%-5% on a year-over-year basis, while management
expects maintenance revenues to grow in the range of 28% to 30%.
Subscription revenues are expected in the range of $2.2 million
to $2.5 million.
Management expects non-GAAP earnings between 35 cents and 36
cents per share for the forthcoming quarter.
SolarWinds expects fiscal 2013 revenue guidance in the range
of $322.7 million-$327.7 million. Management expects its non-GAAP
earnings per share guidance to range from $1.51 to $1.54.
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
International Business Machines Corp.
Hewlett Packard Company
) are the major headwinds, going forward.
Currently, SolarWinds carries a Zacks Rank #4 (Sell).
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