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AUSTIN, TX -- (Marketwire) -- 10/25/12 -- SolarWinds® (NYSE: SWI), a leading provider of powerful and affordable IT management software, today reported results for its third quarter ended September 30, 2012.

• Commercial new license sales grew 39% year-over-year, an acceleration of growth from the second quarter.
• Record total revenue for the third quarter of $71.7 million, representing 33% year-over-year growth.
• Record license revenue for the third quarter of $34.0 million, representing 33% year-over-year growth.
• GAAP operating income of $31.5 million and non-GAAP operating income of $39.6 million, or a non-GAAP operating margin for the third quarter of 55%.
• GAAP diluted earnings per share of $0.29 and non-GAAP diluted earnings per share of $0.37.

Financial Results

SolarWinds reported record total revenue for the third quarter of 2012 of $71.7 million, a 33% increase over total revenue for the third quarter of 2011. License revenue was a record $34.0 million for the third quarter of 2012 also representing a 33% increase over license revenue for the third quarter of 2011. Maintenance revenue was a record $37.7 million for the third quarter of 2012, representing a 33% increase over maintenance revenue for the third quarter of 2011.

On a GAAP basis, diluted earnings per share were $0.29 for the third quarter of 2012 compared to $0.28 for the third quarter of 2011. Non-GAAP diluted earnings per share were $0.37 for the third quarter of 2012 compared to $0.31 for the third quarter of 2011.

Net cash provided by operating activities was $35.0 million for the third quarter of 2012 compared to $32.5 million for the third quarter of 2011, representing a year-over-year increase of 8%. Free cash flow was $37.2 million for the third quarter of 2012 compared to $32.4 million for the third quarter of 2011, representing a year-over-year increase of 15%. Cash, cash equivalents, and investments at the end of the third quarter of 2012 were $208.5 million, an increase of $12.3 million from the end of the second quarter of 2012. During the quarter, SolarWinds used approximately $28 million in cash related to acquisitions.

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

"The third quarter marked another strong performance by the entire SolarWinds team. Our results reflect the growing awareness we believe that we are building among IT professionals and the high value our wide range of IT management products provide to customers. Over the past two and a half years, our teams have focused on creating meaningful connections between our products and the IT professionals we serve. We have expanded our product family with products designed to easily and affordably address the problems IT professionals face every day while working to maintain their businesses' critical systems. We believe that this focus has made us a trusted partner to IT professionals worldwide and contributed to SolarWinds recently being named the Best Small Company in America by Forbes Magazine," said Kevin Thompson, SolarWinds' President and Chief Executive Officer.

"Drilling into results for the third quarter, our US Federal business had a solid growth quarter, supported by the investments we have made in expanding awareness within the Federal government. Our commercial business continued to show strong results across each of the major geographic regions we serve delivering an acceleration in growth as compared to the second quarter. And, despite the ongoing difficult macroeconomic environment, our EMEA business produced the strongest growth overall within our global business, demonstrating the compelling value proposition we believe we provide to our users," added Thompson.

SolarWinds' business highlights during the third quarter of 2012 include:

• SolarWinds continued to expand its relevance with IT professionals through the release of SolarWinds Web Help Desk. The release added one of the industry's most affordable and easy-to-use Web-based products for solving problems like IT-specific ticketing, change management, and asset management, which adds to the list of IT management issues SolarWinds addresses.
• SolarWinds also made significant investments in its extensive portfolio of network management products. With the release of SolarWinds Firewall Security Manager (FSM), SolarWinds added an easy-to-use, multi-vendor product for firewall management. In keeping with the SolarWinds tradition, SolarWinds FSM is one of the most affordable firewall analytics and management solutions available. SolarWinds also released SolarWinds VoIP & Network Quality Manager, formerly known as SolarWinds IP SLA, which addresses the increasing need of IT pros for an affordable, easy-to-use tool for VoIP performance monitoring and proactive WAN performance analysis.
• SolarWinds launched a fully featured, localized Japanese website during the third quarter. The launch of solarwinds.jp is part of SolarWinds' ongoing strategy to become the top choice of Japanese IT professionals for IT management software. During the quarter, SolarWinds also released the Japanese version of SolarWinds NetFlow Traffic Analyzer, extending the network management functionality available to the company's Japanese-speaking users.
• As part of its ongoing efforts to support the IT community through relevant and valuable content, SolarWinds continued its expansion of the thwack® online community for IT professionals. These enhancements included the launch of PatchZone.org, a new resource to gain and share information on the latest Microsoft® and third party updates, as well as valuable content to help IT professionals improve their job performance and knowledge.

"Driven by our solid third quarter results, we are raising our full year outlook for revenue, margins, and earnings per share. Our third quarter results continued to reflect the success of the focused investments we have made in our business to expand our IT management market opportunity, while leveraging SolarWinds' unique business model. In the process, we generated the highest non-GAAP operating margin in three years, overcame the dilutive impact of two acquisitions, and demonstrated that high growth and profitability can go hand-in-hand," said Mike Berry, SolarWinds' Chief Financial Officer.

Financial Outlook

As of October 25, 2012, SolarWinds is providing its financial outlook for its fourth quarter and full year of 2012. 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 2012 and for the full year 2012. 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 something 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 2012

SolarWinds' management currently expects to achieve the following results for the fourth quarter of 2012:

• Total revenue in the range of $69.3-$70.8 million, or 25% to 27% growth over the fourth quarter of 2011.
• Non-GAAP operating income representing 50%-51% of revenue.
• Non-GAAP diluted earnings per share of $0.31-$0.33.
• Weighted average shares outstanding of approximately 77.0 million.

Financial Outlook for Full Year 2012

SolarWinds' management is increasing its annual outlook and currently expects to achieve the following results for the full year 2012:

• Total 2012 revenue in the range of $264.7-$266.2 million, or 33% to 34% year-over-year growth.
• Non-GAAP operating income for the full year representing approximately 53% of revenue.
• Non-GAAP diluted earnings per share of $1.31-$1.32.
• Weighted average shares outstanding 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 and other business at 8:00am CT (9:00am ET/6:00am 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 888-339-3482 and internationally at +1-719-325-2271. 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 SolarWinds' financial outlook. 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," "continue," "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 presence or absence of occasional large customer orders, including in particular those placed by the U.S. federal government; (d) the inability to increase sales to existing customers and to attract new customers; (e) SolarWinds' ability to successfully identify, complete, and integrate acquisitions; (f) the timing and success of new product introductions and product upgrades by SolarWinds or its competitors; (g) potential foreign exchange gains and losses related to expenses and sales denominated in currencies other than the functional currency of an associated entity; and (h) such other risks and uncertainties described more fully in documents filed with or furnished to the Securities and Exchange Commission, including the Form 10-Q that SolarWinds anticipates filing on or before November 9, 2012. 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, the SolarWinds logo, thwack, Web Help Desk, and PatchZone are exclusive trademarks of SolarWinds, are registered with the U.S. patent and trademark office, and may be registered or pending registration in other countries, or may be common law marks or registered or pending registration in the United States or in other countries. All other trademarks or registered trademarks mentioned herein are used for identification purposes only and may be trademarks or registered trademarks of their respective companies.

Copyright © 2012 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,
                                                    2012           2011
                                               -------------  -------------
Assets
Current assets:
   Cash and cash equivalents                   $     157,060  $     122,707
   Short-term investments                             38,647         29,688
   Accounts receivable, net of allowances of
    $226 and $192 as of September 30, 2012 and
    December 31, 2011, respectively                   39,049         26,965
   Income tax receivable                                  88            110
   Deferred taxes                                        813            668
   Prepaid and other current assets                    3,991          2,770
                                               -------------  -------------
      Total current assets                           239,648        182,908
Property and equipment, net                            8,320          7,341
Long-term investments                                 12,815              -
Deferred taxes                                         3,182          3,334
Goodwill                                             143,965        110,746
Intangible assets and other, net                      67,126         58,079
                                               -------------  -------------
      Total assets                             $     475,056  $     362,408
                                               =============  =============

Liabilities and stockholders' equity
Current liabilities:
   Accounts payable                            $       3,853  $       2,213
   Accrued liabilities                                12,096          9,442
   Accrued earnout                                       600          3,513
   Income taxes payable                                2,130            779
   Current portion of deferred revenue                93,412         73,774
                                               -------------  -------------
      Total current liabilities                      112,091         89,721
Long-term liabilities:
   Deferred revenue, net of current portion            4,730          3,373
   Non-current deferred taxes                              -            289
   Other long-term liabilities                         6,904          4,078
                                               -------------  -------------
      Total liabilities                              123,725         97,461
Commitments and contingencies
Stockholders' equity:
   Common stock, $0.001 par value: 123,000,000
    shares authorized and 74,431,573 and
    73,367,367 shares issued and outstanding
    as of September 30, 2012 and December 31,
    2011, respectively                                    74             73
   Additional paid-in capital                        221,857        194,379
   Accumulated other comprehensive loss               (2,908)        (2,769)
   Accumulated earnings                              132,308         73,264
                                               -------------  -------------
      Total stockholders' equity                     351,331        264,947
                                               -------------  -------------
      Total liabilities and stockholders'
       equity                                  $     475,056  $     362,408
                                               =============  =============



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


                                  Three Months Ended    Nine Months Ended
                                     September 30,         September 30,
                                 --------------------  --------------------
                                    2012       2011       2012       2011
                                 ---------- ---------  ---------  ---------

Revenue:
  License                        $   34,008 $  25,522  $  90,919  $  66,971
  Maintenance and other              37,715    28,426    104,515     75,778
                                 ---------- ---------  ---------  ---------
    Total revenue                    71,723    53,948    195,434    142,749
  Cost of license revenue             2,080     1,337      5,820      2,911
  Cost of maintenance and other
   revenue                            2,511     2,201      7,314      5,680
                                 ---------- ---------  ---------  ---------
Gross profit                         67,132    50,410    182,300    134,158
Operating expenses:
  Sales and marketing                19,146    14,193     53,289     38,698
  Research and development            7,214     5,568     20,814     15,640
  General and administrative          9,288     6,996     26,177     19,983
  Accrued earnout gain                    -    (1,600)       (70)    (1,600)
                                 ---------- ---------  ---------  ---------
    Total operating expenses         35,648    25,157    100,210     72,721
                                 ---------- ---------  ---------  ---------
Operating income                     31,484    25,253     82,090     61,437
Other income (expense):
  Interest income                       112        89        307        214
  Other income, net                      90       537         41         21
                                 ---------- ---------  ---------  ---------
    Total other income                  202       626        348        235
                                 ---------- ---------  ---------  ---------
Income before income taxes           31,686    25,879     82,438     61,672
  Income tax expense                  9,200     4,991     23,394     15,523
                                 ---------- ---------  ---------  ---------
Net income                       $   22,486 $  20,888  $  59,044  $  46,149
                                 ========== =========  =========  =========
Net income per share:
    Basic earnings per share     $     0.30 $    0.29  $    0.80  $    0.63
                                 ========== =========  =========  =========
    Diluted earnings per share   $     0.29 $    0.28  $    0.78  $    0.62
                                 ========== =========  =========  =========
Weighted-average shares used to
 compute net income per share:
    Shares used in computation
     of basic earnings per share     74,344    72,947     74,038     72,677
                                 ========== =========  =========  =========
    Shares used in computation
     of diluted earnings per
     share                           76,303    74,457     75,871     74,269
                                 ========== =========  =========  =========

                              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,
                                 --------------------  --------------------
                                    2012       2011       2012       2011
                                 ---------  ---------  ---------  ---------

GAAP cost of revenue             $   4,591  $   3,538  $  13,134  $   8,591
    Amortization of intangible
     assets (1)                     (1,766)    (1,188)    (5,151)    (2,641)
    Stock-based compensation
     expense and related
     employer-paid payroll taxes
     (2)                               (86)       (44)      (249)      (144)
                                 ---------  ---------  ---------  ---------
Non-GAAP cost of revenue         $   2,739  $   2,306  $   7,734  $   5,806
                                 =========  =========  =========  =========

GAAP gross profit                $  67,132  $  50,410  $ 182,300  $ 134,158
    Amortization of intangible
     assets (1)                      1,766      1,188      5,151      2,641
    Stock-based compensation
     expense and related
     employer-paid payroll taxes
     (2)                                86         44        249        144
                                 ---------  ---------  ---------  ---------
Non-GAAP gross profit            $  68,984  $  51,642  $ 187,700  $ 136,943
                                 =========  =========  =========  =========

GAAP sales and marketing expense $  19,146  $  14,193  $  53,289  $  38,698
    Stock-based compensation
     expense and related
     employer-paid payroll taxes
     (2)                            (1,209)      (715)    (3,723)    (2,545)
                                 ---------  ---------  ---------  ---------
Non-GAAP sales and marketing
 expense                         $  17,937  $  13,478  $  49,566  $  36,153
                                 =========  =========  =========  =========

GAAP research and development
 expense                         $   7,214  $   5,568  $  20,814  $  15,640
    Stock-based compensation
     expense and related
     employer-paid payroll taxes
     (2)                              (784)      (399)    (2,295)    (1,275)
                                 ---------  ---------  ---------  ---------
Non-GAAP research and
 development expense             $   6,430  $   5,169  $  18,519  $  14,365
                                 =========  =========  =========  =========

GAAP general and administrative
 expense                         $   9,288  $   6,996  $  26,177  $  19,983
    Amortization of intangible
     assets (1)                     (1,857)      (877)    (5,515)    (2,031)
    Stock-based compensation
     expense and related
     employer-paid payroll taxes
     (2)                            (1,900)    (1,507)    (5,564)    (4,368)
    Acquisition related
     adjustments (3)                  (498)      (228)      (901)    (1,142)
                                 ---------  ---------  ---------  ---------
Non-GAAP general and
 administrative expense          $   5,033  $   4,384  $  14,197  $  12,442
                                 =========  =========  =========  =========

GAAP accrued earnout gain        $       -  $  (1,600) $     (70) $  (1,600)
    Acquisition related
     adjustments (3)                     -      1,600         70      1,600
                                 ---------  ---------  ---------  ---------
Non-GAAP accrued earnout gain    $       -  $       -  $       -  $       -
                                 =========  =========  =========  =========

GAAP operating expenses          $  35,648  $  25,157  $ 100,210  $  72,721
    Amortization of intangible
     assets (1)                     (1,857)      (877)    (5,515)    (2,031)
    Stock-based compensation
     expense and related
     employer-paid payroll taxes
     (2)                            (3,893)    (2,621)   (11,582)    (8,188)
    Acquisition related
     adjustments (3)                  (498)     1,372       (831)       458
                                 ---------  ---------  ---------  ---------
Non-GAAP operating expenses      $  29,400  $  23,031  $  82,282  $  62,960
                                 =========  =========  =========  =========

GAAP operating income            $  31,484  $  25,253  $  82,090  $  61,437
    Amortization of intangible
     assets (1)                      3,623      2,065     10,666      4,672
    Stock-based compensation
     expense and related
     employer-paid payroll taxes
     (2)                             3,979      2,665     11,831      8,332
    Acquisition related
     adjustments (3)                   498     (1,372)       831       (458)
                                 ---------  ---------  ---------  ---------
Non-GAAP operating income        $  39,584  $  28,611  $ 105,418  $  73,983
                                 =========  =========  =========  =========

GAAP other income                $     202  $     626  $     348  $     235
    Acquisition related
     adjustments (3)                    31         97         53        205
                                 ---------  ---------  ---------  ---------
Non-GAAP other income            $     233  $     723  $     401  $     440
                                 =========  =========  =========  =========

GAAP income tax expense          $   9,200  $   4,991  $  23,394  $  15,523
    Income tax effect on non-
     GAAP exclusions (4)             2,240      1,355      6,456      3,525
                                 ---------  ---------  ---------  ---------
Non-GAAP income tax expense      $  11,440  $   6,346  $  29,850  $  19,048
                                 =========  =========  =========  =========

GAAP net income                  $  22,486  $  20,888  $  59,044  $  46,149
    Amortization of intangible
     assets (1)                      3,623      2,065     10,666      4,672
    Stock-based compensation
     expense and related
     employer-paid payroll taxes
     (2)                             3,979      2,665     11,831      8,332
    Acquisition related
     adjustments (3)                   529     (1,275)       884       (253)
    Tax benefits associated with
     above adjustments (4)          (2,240)    (1,355)    (6,456)    (3,525)
                                 ---------  ---------  ---------  ---------
Non-GAAP net income              $  28,377  $  22,988  $  75,969  $  55,375
                                 =========  =========  =========  =========

Non-GAAP diluted earnings per
 share (5)                       $    0.37  $    0.31  $    1.00  $    0.75
                                 =========  =========  =========  =========
Weighted-average shares used in
 computing diluted earnings per
 share                              76,303     74,457     75,871     74,269
                                 =========  =========  =========  =========

Percentage of Revenue:

GAAP gross profit                     93.6%      93.4%      93.3%      94.0%
    Non-GAAP adjustments (1)(2)        2.6%       2.3%       2.8%       2.0%
                                 ---------  ---------  ---------  ---------
Non-GAAP gross profit                 96.2%      95.7%      96.0%      95.9%
                                 =========  =========  =========  =========

GAAP operating margin                 43.9%      46.8%      42.0%      43.0%
    Non-GAAP adjustments
     (1)(2)(3)                        11.3%       6.2%      11.9%       8.8%
                                 ---------  ---------  ---------  ---------
Non-GAAP operating margin             55.2%      53.0%      53.9%      51.8%
                                 =========  =========  =========  =========

GAAP net income                       31.4%      38.7%      30.2%      32.3%
    Non-GAAP adjustments
     (1)(2)(3)(4)                      8.2%       3.9%       8.7%       6.5%
                                 ---------  ---------  ---------  ---------
Non-GAAP net income                   39.6%      42.6%      38.9%      38.8%
                                 =========  =========  =========  =========

(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. Because of varying fair value amounts of intangible assets,
 subjective impairment assumptions and the variety of useful lives, which
 affect the recognition of amortization expense, we believe that the
 exclusion of amortization expense allows for more accurate comparisons of
 our operating results to our peer companies. The amortization of purchased
 intangible assets associated with our acquisitions results in our
 recording expenses in our GAAP financial statements that were already
 expensed by the acquired company before the acquisition and for which we
 have not expended cash. 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) 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.

(5) 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,
                                 --------------------  --------------------
                                    2012       2011       2012       2011
                                 ---------  ---------  ---------  ---------

Reconciliation of free cash flow
 to GAAP cash flows from
 operating activities:
    GAAP cash flows from
     operating activities        $  34,992  $  32,470  $  97,427  $  74,973
    Excess tax benefit from
     stock-based compensation        3,737        693      8,921      5,132
    Purchases of property and
     equipment                      (1,521)      (780)    (3,081)    (1,843)
                                 ---------  ---------  ---------  ---------
    Free cash flow (1)           $  37,208  $  32,383  $ 103,267  $  78,262
                                 =========  =========  =========  =========


(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,
                                 --------------------  --------------------
                                    2012       2011       2012       2011
                                 ---------  ---------  ---------  ---------
Cash flows from operating
 activities
  Net income                     $  22,486  $  20,888  $  59,044  $  46,149
  Adjustments to reconcile net
   income to net cash provided
   by operating activities:
    Depreciation and
     amortization                    4,535      2,765     13,166      6,723
    Provision for doubtful
     accounts                          131         18        138         86
    Stock-based compensation
     expense                         3,832      2,634     11,368      8,084
    Accrued earnout gain                 -     (1,600)       (70)    (1,600)
    Deferred taxes                     570       (257)    (1,085)        36
    Excess tax benefit from
     stock-based compensation       (3,737)      (693)    (8,921)    (5,132)
    Other non-cash expenses            244        146        978        359
  Changes in operating assets
   and liabilities, net of
   assets acquired and
   liabilities assumed in
   business combinations:
    Accounts receivable            (10,294)    (6,108)   (12,344)    (8,262)
    Income taxes receivable            (14)        84         22        (25)
    Prepaid and other current
     assets                           (618)       641     (1,201)       389
    Accounts payable                 1,349       (125)     1,616        338
    Accrued liabilities              1,932      1,296      2,389       (488)
    Income taxes payable             4,843      4,449     13,102     14,249
    Deferred revenue                 9,733      8,332     19,225     14,067
                                 ---------  ---------  ---------  ---------
      Net cash provided by
       operating activities         34,992     32,470     97,427     74,973

Cash flows from investing
 activities
  Purchases of investments          (7,161)   (30,179)   (49,245)   (30,179)
  Maturities of investments          7,750          -     26,750          -
  Purchases of property and
   equipment                        (1,521)      (780)    (3,081)    (1,843)
  Purchases of intangible assets
   and other                          (166)      (262)    (1,068)      (554)
  Acquisition of businesses, net
   of cash acquired                (27,439)   (35,483)   (48,323)   (58,483)
  Earnout payments for
   acquisitions                       (951)         -     (4,154)    (3,743)
                                 ---------  ---------  ---------  ---------
      Net cash used in investing
       activities                  (29,488)   (66,704)   (79,121)   (94,802)

Cash flows from financing
 activities
  Repurchase of common stock          (138)         -     (1,472)      (307)
  Exercise of stock options          2,979      1,762      8,662      8,771
  Excess tax benefit from stock-
   based compensation                3,737        693      8,921      5,132
                                 ---------  ---------  ---------  ---------
      Net cash provided by
       financing activities          6,578      2,455     16,111     13,596
Effect of exchange rate changes
 on cash and cash equivalents          970     (1,911)       (64)        53
                                 ---------  ---------  ---------  ---------
  Net increase (decrease) in
   cash and cash equivalents        13,052    (33,690)    34,353     (6,180)
Cash and cash equivalents
  Beginning of period              144,008    169,513    122,707    142,003
                                 ---------  ---------  ---------  ---------
  End of period                  $ 157,060  $ 135,823  $ 157,060  $ 135,823
                                 =========  =========  =========  =========

Supplemental disclosure of cash
 flow information
  Cash paid for income taxes     $   3,724  $     646  $  11,122  $   1,110
                                 =========  =========  =========  =========
Noncash investing transactions
  Accrued earnout                $     596  $       -  $     596  $   3,938
                                 =========  =========  =========  =========

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