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AUSTIN, TX -- (Marketwired) -- 10/29/13 -- SolarWinds® (NYSE: SWI), a leading provider of powerful and affordable IT management software, today reported results for its third quarter ended September 30, 2013.

• Total revenue for the third quarter of $87.9 million, representing 23% year-over-year growth.
• Combined maintenance and subscription revenue for the third quarter of $53.5 million, representing 42% year-over-year growth in recurring revenue.
• GAAP diluted earnings per share of $0.30 and non-GAAP diluted earnings per share of $0.41 for the third quarter.
• GAAP operating income of $31.9 million, or a GAAP operating margin of 36%, and non-GAAP operating income of $43.9 million, or a non-GAAP operating margin of 50% for the third quarter.

Financial Results
SolarWinds reported total revenue for the third quarter of 2013 of $87.9 million, a 23% increase over total revenue for the third quarter of 2012. Total recurring revenue, comprised of subscription revenue of $3.2 million and record maintenance revenue of $50.3 million, reached $53.5 million, increasing by 42% over the third quarter of 2012 and now represents over 60% of total revenue. License revenue increased to $34.4 million for the third quarter of 2013, driven by commercial market new license sales growth of 5% partially offset by a 22% decline in U.S. Federal new license sales.

On a GAAP basis, diluted earnings per share were $0.30 for the third quarter of 2013 compared to $0.29 for the third quarter of 2012. Non-GAAP diluted earnings per share were $0.41 for the third quarter of 2013 compared to $0.37 for the third quarter of 2012.

Net cash provided by operating activities was $42.0 million for the third quarter of 2013 compared to $34.9 million for the third quarter of 2012, representing a year-over-year increase of 20%. Free cash flow was $42.3 million for the third quarter of 2013 compared to $37.1 million for the third quarter of 2012, representing a year-over-year increase of 14%. Cash, cash equivalents, and investments at the end of the third quarter of 2013 were $222.9 million, an increase of $26.7 million from the end of the second quarter of 2013.

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

"Our third quarter results serve to highlight some of the improvements we made in our business," said Kevin Thompson, SolarWinds' President and Chief Executive Officer. "The focus we placed on capitalizing on our opportunity within network management drove the highest individual and collective commercial market growth of SolarWinds Network Performance Monitor, Netflow Traffic Analyzer, and Network Configuration Monitor in six quarters. Within our systems management product portfolio, both our flagship Server and Application Monitor and Virtualization Manager saw solid year-over-year commercial market growth, reflecting the efforts we made to increase our relevance to sysadmins and penetrate the significant opportunity we believe exists for SolarWinds in systems management," continued Thompson.

"In addition, the efforts we have made to expand the depth of our EMEA sales leadership team resulted in stronger results than we had expected for the third quarter growing over 12% sequentially. Our global commercial market business performed well, showing growth acceleration across many product areas. The one main area of disappointment in the quarter was our U.S. Federal sales results. Despite a strong start to the quarter, we believe the recent government shutdown prevented a number of deals from closing this quarter, which negatively impacted our overall third quarter results. We are focused on continuing the momentum that we have built in our commercial business and believe that our U.S. Federal business will get back on track now that the U.S. Federal government is back at work. We also are planning to continue to broaden the scope of IT management problems we can address and the number of IT Pros to whom we are relevant," added Thompson.

Recent SolarWinds business highlights include:

• The company recently completed the acquisition of privately held Confio® Software, the makers of the award-winning Confio Ignite® database performance management software. SolarWinds acquired Confio, which is headquartered in Boulder, CO, for $103 million in cash. Given the importance of databases to the levels of service that IT organizations are expected to deliver, SolarWinds believes that a significant opportunity exists to deliver an expanded IT infrastructure management portfolio integrated with robust, heterogeneous database performance management.
  
  
• SolarWinds concluded a search for a key member of the leadership team, and selected John F. Rizzo as SolarWinds' new Executive Vice President, Chief Marketing and Customer Officer, effective November 4, 2013. Mr. Rizzo, formerly CMO of Jive Software, will report to Kevin Thompson, president and CEO, and will help drive the evolution of SolarWinds' marketing strategy, as well as the company's new, focused customer experience initiative.
  
  
• During the third quarter, SolarWinds released several new versions of their core products including the latest release of Server & Application Monitor (SAM), which extends the product's capabilities to database monitoring. The latest version of SAM provides sysadmins, DBA's and SQL developers with instant visibility into Microsoft SQL Server performance through AppInsight for SQL. SAM also features a new baseline threshold calculator for identifying abnormal server and application performance and an extensive dashboard for tracking IT asset inventory. In addition, Virtualization Manager now integrates with SAM, providing comprehensive monitoring and visibility for the entire virtualized application stack -- applications, virtual machines (VMs), hosts, clusters and datastores. The company also began aggressive investment to accelerate product development. The investments are designed to allow the company to more rapidly enhance its product offerings based on the needs of IT Pros with a number of new product releases and advances.
  
  
• SolarWinds products and overall corporate performance were recognized, once again, by its users and the industry. Most recently, the company was named one of Network World's "Ten Most Powerful Companies in Network Management." Forbes featured SolarWinds on its "Best Small Companies in America" and "Fastest Growing Tech Companies" lists. And, SolarWinds Server and Application Monitor was named 2013 Market Leader for APM Software by IT Brand Pulse based on its survey of IT Professionals conducted in September 2013. In addition, N-able™ by SolarWinds was named a 2013 Tech Innovator by CRN. The win marks the second consecutive year N-able has won the top spot in the managed services category.
  
  
• SolarWinds also announced changes in its financial leadership with two internal promotions during the quarter. Jason Ream was named Executive Vice President and Chief Financial Officer and Bart Kalsu was named Executive Vice President and Chief Accounting Officer.
  
  
• SolarWinds initiated a $50 million share repurchase program, reflecting the management team and board of directors' confidence in the long-term strategy of the company.
  
  

"Looking ahead, we continue to be excited about the significant opportunity that we see in IT management. To target that opportunity, we increased the level of product development, marketing and sales investment in our business as we moved through the third quarter. We believe those investments drove an improvement in growth in our business, especially for our network management products, during the quarter," said Jason Ream, SolarWinds' Executive Vice President and Chief Financial Officer. "Moving into the fourth quarter, we have continued to invest in our business at an accelerated pace in an effort to capitalize on our market opportunity and build upon the early momentum we believe we have created," added Ream.

Financial Outlook
As of October 29, 2013, SolarWinds is providing its financial outlook for its fourth quarter and full year of 2013. 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 2013 and for the full year 2013. 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 2013
SolarWinds' management currently expects to achieve the following results for the fourth quarter of 2013, which includes the impact of the Confio acquisition completed on October 7, 2013:

• Total revenue in the range of $90.3 to $92.2 million, or 23% to 25% growth over the fourth quarter of 2012.
• Non-GAAP operating income representing 40% to 41% of revenue.
• Non-GAAP diluted earnings per share of $0.33 to $0.34.
• Weighted average outstanding diluted shares of approximately 77.1 million.

Financial Outlook for Full Year 2013
SolarWinds' management currently expects to achieve the following results for the full year 2013, which includes the impact of the Confio acquisition completed on October 7, 2013:

• Total 2013 revenue in the range of $329.3 to $331.2 million, or 22% to 23% year-over-year growth.
• Non-GAAP operating income for the full year representing approximately 50% of revenue.
• Non-GAAP diluted earnings per share of $1.56 to $1.57.
• Weighted average outstanding diluted shares of approximately 76.7 million.

Conference Call and Webcast
In conjunction with this announcement, SolarWinds will host a conference call today to discuss its financial results 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 800-723-6498 and internationally at +1-785-830-7989. 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 2013, our belief that our U.S. Federal business will get back on track, our ability to continue the momentum we believe we are building in our commercial business, our ability to continue to broaden the scope of IT management problems we can address and the number of IT Pros to whom we are relevant, the existing opportunity to deliver an expanded IT infrastructure management portfolio integrated with a robust, heterogeneous database performance management and our plans for investments in our business. 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," "will," "expect," 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 possibility that general economic conditions or uncertainty cause information technology spending to be reduced or purchasing decisions to be delayed; (c) the inability to expand our sales operations effectively; (d) the presence or absence of occasional large customer orders, including in particular those placed by the U.S. federal government; (e) the inability to increase sales to existing customers and to attract new customers; (f) SolarWinds' ability to successfully identify, complete, and integrate acquisitions; (g) the timing and success of new product introductions and product upgrades by SolarWinds or its competitors; (h) potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity; and (i) 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, 2012 and the Form 10-Q that SolarWinds anticipates filing on or before November 12, 2013. 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, thwack, Confio and Confio Ignite are registered trademarks of SolarWinds and Confio. All other SolarWinds, N-able and Confio marks are the exclusive property of SolarWinds, N-able or Confio, 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 © 2013 SolarWinds Worldwide, LLC. All rights reserved.

                              SolarWinds, Inc.

                   Condensed Consolidated Balance Sheets
           (In thousands, except share and per share information)
                                 (Unaudited)


                                                 September 30, December 31,
                                                      2013         2012
                                                 ------------- ------------
Assets
Current assets:
  Cash and cash equivalents                      $     182,831 $    179,702
  Short-term investments                                23,276       49,276
  Accounts receivable, net of allowances of $345
   and $271 as of September 30, 2013 and
   December 31, 2012, respectively                      45,544       32,506
  Income tax receivable                                    745          142
  Deferred taxes                                         2,030        1,712
  Prepaid and other current assets                       4,434        3,322
                                                 ------------- ------------
    Total current assets                               258,860      266,660
Property and equipment, net                              8,644        8,342
Long-term investments                                   16,819       12,823
Deferred taxes                                           3,031          338
Goodwill                                               253,605      158,601
Intangible assets and other, net                        94,099       70,631
                                                 ------------- ------------
    Total assets                                 $     635,058 $    517,395
                                                 ============= ============
Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                               $       5,868 $      4,050
  Accrued liabilities and other                         13,337       14,226
  Accrued earnout                                           --          121
  Income taxes payable                                   3,334        4,037
  Current portion of deferred revenue                  120,637       97,672
                                                 ------------- ------------
    Total current liabilities                          143,176      120,106
Long-term liabilities:
  Deferred revenue, net of current portion               6,685        5,084
  Non-current deferred taxes                             2,729          483
  Other long-term liabilities                           14,255        8,908
                                                 ------------- ------------
    Total liabilities                                  166,845      134,581
Stockholders' equity:
  Common stock, $0.001 par value: 123,000,000
   shares authorized and 75,244,873 and
   74,633,412 shares issued and outstanding as
   of September 30, 2013 and December 31, 2012,
   respectively                                             75           75
  Additional paid-in capital                           243,882      229,277
  Accumulated other comprehensive income (loss)          1,030       (1,145)
  Accumulated earnings                                 223,226      154,607
                                                 ------------- ------------
    Total stockholders' equity                         468,213      382,814
                                                 ------------- ------------
    Total liabilities and stockholders' equity   $     635,058 $    517,395
                                                 ============= ============



                              SolarWinds, Inc.

                 Condensed Consolidated Statements of Income
                (In thousands, except per share information)
                                 (Unaudited)


                                   Three months ended    Nine months ended
                                     September 30,         September 30,
                                 --------------------- ---------------------
                                    2013       2012       2013       2012
                                 ---------  ---------- ---------  ----------
Revenue:
  License                        $  34,358  $   34,008 $  96,300  $   90,919
  Maintenance and other             50,283      37,715   137,841     104,515
  Subscription                       3,222          --     4,151          --
                                 ---------  ---------- ---------  ----------
    Total revenue                   87,863      71,723   238,292     195,434
  Cost of license revenue            2,646       2,080     8,263       5,820
  Cost of maintenance and other
   revenue                           2,942       2,511     8,578       7,314
  Cost of subscription revenue       1,511          --     2,046          --
                                 ---------  ---------- ---------  ----------
Gross profit                        80,764      67,132   219,405     182,300
Operating expenses:
  Sales and marketing               25,962      19,146    66,538      53,289
  Research and development           9,558       7,214    25,622      20,814
  General and administrative        13,383       9,288    34,758      26,107
                                 ---------  ---------- ---------  ----------
    Total operating expenses        48,903      35,648   126,918     100,210
                                 ---------  ---------- ---------  ----------
Operating income                    31,861      31,484    92,487      82,090
Other income (expense):
  Interest income                       91         112       324         307
  Other income (expense), net           (6)         90      (497)         41
                                 ---------  ---------- ---------  ----------
    Total other income (expense)        85         202      (173)        348
                                 ---------  ---------- ---------  ----------
Income before income taxes          31,946      31,686    92,314      82,438
  Income tax expense                 9,123       9,200    23,695      23,394
                                 ---------  ---------- ---------  ----------
Net income                       $  22,823  $   22,486 $  68,619  $   59,044
                                 =========  ========== =========  ==========
Net income per share:
  Basic earnings per share       $    0.30  $     0.30 $    0.91  $     0.80
                                 =========  ========== =========  ==========
  Diluted earnings per share     $    0.30  $     0.29 $    0.90  $     0.78
                                 =========  ========== =========  ==========
Weighted-average shares used to
 compute net income per share:
  Shares used in computation of
   basic earnings per share         75,371      74,344    75,202      74,038
                                 =========  ========== =========  ==========
  Shares used in computation of
   diluted earnings per share       76,466      76,303    76,580      75,871
                                 =========  ========== =========  ==========



                              SolarWinds, Inc.

            Reconciliation of GAAP to Non-GAAP Financial Measures
          (In thousands, except per share amounts and percentages)
                                 (Unaudited)


                                  Three months ended     Nine months ended
                                     September 30,         September 30,
                                 --------------------  --------------------
                                    2013       2012       2013       2012
                                 ---------  ---------  ---------  ---------
GAAP cost of revenue             $   7,099  $   4,591  $  18,887  $  13,134
  Amortization of intangible
   assets (1)                       (2,633)    (1,766)    (7,768)    (5,151)
  Stock-based compensation
   expense and related employer-
   paid payroll taxes (2)             (189)       (86)      (502)      (249)
  Restructuring charges (4)            (17)        --        (27)        --
                                 ---------  ---------  ---------  ---------
Non-GAAP cost of revenue         $   4,260  $   2,739  $  10,590  $   7,734
                                 =========  =========  =========  =========

GAAP gross profit                $  80,764  $  67,132  $ 219,405  $ 182,300
  Amortization of intangible
   assets (1)                        2,633      1,766      7,768      5,151
  Stock-based compensation
   expense and related employer-
   paid payroll taxes (2)              189         86        502        249
  Restructuring charges (4)             17         --         27         --
                                 ---------  ---------  ---------  ---------
Non-GAAP gross profit            $  83,603  $  68,984  $ 227,702  $ 187,700
                                 =========  =========  =========  =========

GAAP sales and marketing expense $  25,962  $  19,146  $  66,538  $  53,289
  Stock-based compensation
   expense and related employer-
   paid payroll taxes (2)           (1,945)    (1,209)    (6,385)    (3,723)
  Restructuring charges (4)           (190)        --       (223)        --
                                 ---------  ---------  ---------  ---------
Non-GAAP sales and marketing
 expense                         $  23,827  $  17,937  $  59,930  $  49,566
                                 =========  =========  =========  =========

GAAP research and development
 expense                         $   9,558  $   7,214  $  25,622  $  20,814
  Stock-based compensation
   expense and related employer-
   paid payroll taxes (2)           (1,071)      (784)    (3,407)    (2,295)
  Restructuring charges (4)            (91)        --        (99)        --
                                 ---------  ---------  ---------  ---------
Non-GAAP research and
 development expense             $   8,396  $   6,430  $  22,116  $  18,519
                                 =========  =========  =========  =========

GAAP general and administrative
 expense                         $  13,383  $   9,288  $  34,758  $  26,107
  Amortization of intangible
   assets (1)                       (2,482)    (1,857)    (6,320)    (5,515)
  Stock-based compensation
   expense and related employer-
   paid payroll taxes (2)           (2,470)    (1,900)    (7,584)    (5,564)
  Acquisition related
   adjustments (3)                    (402)      (498)    (1,006)      (831)
  Restructuring charges (4)           (529)        --       (961)        --
                                 ---------  ---------  ---------  ---------
Non-GAAP general and
 administrative expense          $   7,500  $   5,033  $  18,887  $  14,197
                                 =========  =========  =========  =========

GAAP operating expenses          $  48,903  $  35,648  $ 126,918  $ 100,210
  Amortization of intangible
   assets (1)                       (2,482)    (1,857)    (6,320)    (5,515)
  Stock-based compensation
   expense and related employer-
   paid payroll taxes (2)           (5,486)    (3,893)   (17,376)   (11,582)
  Acquisition related
   adjustments (3)                    (402)      (498)    (1,006)      (831)
  Restructuring charges (4)           (810)        --     (1,283)        --
                                 ---------  ---------  ---------  ---------
Non-GAAP operating expenses      $  39,723  $  29,400  $ 100,933  $  82,282
                                 =========  =========  =========  =========

GAAP operating income            $  31,861  $  31,484  $  92,487  $  82,090
  Amortization of intangible
   assets (1)                        5,115      3,623     14,088     10,666
  Stock-based compensation
   expense and related employer-
   paid payroll taxes (2)            5,675      3,979     17,878     11,831
  Acquisition related
   adjustments (3)                     402        498      1,006        831
  Restructuring charges (4)            827         --      1,310         --
                                 ---------  ---------  ---------  ---------
Non-GAAP operating income        $  43,880  $  39,584  $ 126,769  $ 105,418
                                 =========  =========  =========  =========

GAAP other income (expense)      $      85  $     202  $    (173) $     348
  Acquisition related
   adjustments (3)                      --         31          4         53
                                 ---------  ---------  ---------  ---------
Non-GAAP other income (expense)  $      85  $     233  $    (169) $     401
                                 =========  =========  =========  =========

GAAP income tax expense          $   9,123  $   9,200  $  23,695  $  23,394
  Income tax effect on non-GAAP
   exclusions (5)                    3,183      2,240      9,308      6,456
                                 ---------  ---------  ---------  ---------
Non-GAAP income tax expense      $  12,306  $  11,440  $  33,003  $  29,850
                                 =========  =========  =========  =========

GAAP net income                  $  22,823  $  22,486  $  68,619  $  59,044
  Amortization of intangible
   assets (1)                        5,115      3,623     14,088     10,666
  Stock-based compensation
   expense and related employer-
   paid payroll taxes (2)            5,675      3,979     17,878     11,831
  Acquisition related
   adjustments (3)                     402        529      1,010        884
  Restructuring charges (4)            827         --      1,310         --
  Tax benefits associated with
   above adjustments (5)            (3,183)    (2,240)    (9,308)    (6,456)
                                 ---------  ---------  ---------  ---------
Non-GAAP net income              $  31,659  $  28,377  $  93,597  $  75,969
                                 =========  =========  =========  =========

Non-GAAP diluted earnings per
 share (6)                       $    0.41  $    0.37  $    1.22  $    1.00
                                 =========  =========  =========  =========
Weighted-average shares used in
 computing diluted earnings per
 share                              76,466     76,303     76,580     75,871
                                 =========  =========  =========  =========

Percentage of Revenue:

GAAP gross profit                     91.9%      93.6%      92.1%      93.3%
  Non-GAAP adjustments (1)(2)(4)       3.2        2.6        3.5        2.8
                                 ---------  ---------  ---------  ---------
Non-GAAP gross profit                 95.2%      96.2%      95.6%      96.0%
                                 =========  =========  =========  =========

GAAP operating margin                 36.3%      43.9%      38.8%      42.0%
  Non-GAAP adjustments
   (1)(2)(3)(4)                       13.7       11.3       14.4       11.9
                                 ---------  ---------  ---------  ---------
Non-GAAP operating margin             49.9%      55.2%      53.2%      53.9%
                                 =========  =========  =========  =========

GAAP net income                       26.0%      31.4%      28.8%      30.2%
  Non-GAAP adjustments
   (1)(2)(3)(4)(5)                    10.1        8.2       10.5        8.7
                                 ---------  ---------  ---------  ---------
Non-GAAP net income                   36.0%      39.6%      39.3%      38.9%
                                 =========  =========  =========  =========

(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
    integrating the acquired businesses; and (v) 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     Nine months ended
                                     September 30,         September 30,
                                 --------------------  --------------------
                                    2013       2012       2013       2012
                                 ---------  ---------  ---------  ---------
Reconciliation of free cash flow
 to GAAP cash flows from
 operating activities:
GAAP cash flows from operating
 activities                      $  42,004  $  34,881  $ 113,603  $  96,249
Excess tax benefit from stock-
 based compensation                  1,500      3,737      7,746      8,921
Purchases of property and
 equipment                          (1,217)    (1,521)    (2,963)    (3,081)
                                 ---------  ---------  ---------  ---------
Free cash flow (1)               $  42,287  $  37,097  $ 118,386  $ 102,089
                                 =========  =========  =========  =========

(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.



                              SolarWinds, Inc.

               Condensed Consolidated Statements of Cash Flows
                               (In thousands)
                                 (Unaudited)


                                  Three months ended     Nine months ended
                                     September 30,         September 30,
                                 --------------------  --------------------
                                    2013       2012       2013       2012
                                 ---------  ---------  ---------  ---------
Cash flows from operating
 activities
  Net income                     $  22,823  $  22,486  $  68,619  $  59,044
  Adjustments to reconcile net
   income to net cash provided
   by operating activities:
    Depreciation and
     amortization                    6,851      4,535     17,727     13,166
    Provision for doubtful
     accounts                          134        131        261        138
    Stock-based compensation
     expense                         5,601      3,832     17,143     11,368
    Deferred taxes                  (1,519)       570     (4,393)    (1,085)
    Excess tax benefit from
     stock-based compensation       (1,500)    (3,737)    (7,746)    (8,921)
    Discount (premium) on
     investments                         6       (111)      (607)    (1,178)
    Other non-cash expenses             84        244        822        908
  Changes in operating assets
   and liabilities, net of
   assets acquired and
   liabilities assumed in
   business combinations:
    Accounts receivable             (9,605)   (10,294)    (9,706)   (12,344)
    Income taxes receivable            169        (14)       133         22
    Prepaid and other assets          (641)      (618)      (236)    (1,201)
    Accounts payable                 1,654      1,349        968      1,616
    Accrued liabilities              1,453      1,932     (3,596)     2,389
    Income taxes payable             4,916      4,843     11,989     13,102
    Deferred revenue and other
     liabilities                    11,578      9,733     22,225     19,225
                                 ---------  ---------  ---------  ---------
      Net cash provided by
       operating activities         42,004     34,881    113,603     96,249
Cash flows from investing
 activities
  Purchases of investments              --     (7,050)   (17,288)   (48,067)
  Maturities of investments          7,179      7,750     38,674     26,750
  Purchases of property and
   equipment                        (1,217)    (1,521)    (2,963)    (3,081)
  Purchases of intangible assets
   and other long-term
   investments                      (8,078)      (166)    (8,249)    (1,068)
  Acquisition of businesses, net
   of cash acquired                     --    (27,439)  (120,868)   (48,323)
  Other investing activities           579         --        579         --
                                 ---------  ---------  ---------  ---------
      Net cash used in investing
       activities                   (1,537)   (28,426)  (110,115)   (73,789)
Cash flows from financing
 activities
  Repurchase of common stock       (13,852)      (138)   (18,351)    (1,472)
  Exercise of stock options          2,734      2,979      8,124      8,662
  Excess tax benefit from stock-
   based compensation                1,500      3,737      7,746      8,921
  Earnout payments for
   acquisitions                         --       (951)        --     (4,154)
                                 ---------  ---------  ---------  ---------
      Net cash provided by (used
       in) financing activities     (9,618)     5,627     (2,481)    11,957
Effect of exchange rate changes
 on cash and cash equivalents        3,088        970      2,122        (64)
                                 ---------  ---------  ---------  ---------
  Net increase in cash and cash
   equivalents                      33,937     13,052      3,129     34,353
Cash and cash equivalents
  Beginning of period              148,894    144,008    179,702    122,707
                                 ---------  ---------  ---------  ---------
  End of period                  $ 182,831  $ 157,060  $ 182,831  $ 157,060
                                 =========  =========  =========  =========
Supplemental disclosure of cash
 flow information
  Cash paid for income taxes     $   5,514  $   3,724  $  15,737  $  11,122
                                 =========  =========  =========  =========
Non-cash financing transactions
  Accrued earnout                $      --  $     596  $      --  $   1,547
                                 =========  =========  =========  =========

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