SolarWinds revenues come from two sources: sales of new software licenses, and maintenance agreements with existing customers. Maintenance revenues are derived from customers upgrading and enhancing their software products, as well as Swiss training, consulting and product development services. Maintenance revenues are an excellent source of recurring business and have been increasing as the customer base grows. They doubled from 2008 to 2010, accounting for two-thirds of overall revenue growth, and are now more than 50% of revenues.
As the growth of maintenance revenues shows, SolarWinds markets very efficiently. The costs of acquiring new customers are very low for SolarWinds, as it develops its leads primarily from its website and existing customer base. As a result, it needs only maintain a low-cost in-house sales force that focuses on a high volume of standardized transactions.
Take a quick look at the company’s growth, and you can’t help but be impressed. Revenues grew 147% from 2007 through 2010 — all the more impressive because that includes a historic recession — and earnings more than tripled from 20 cents per share to 64 cents. The strong results continued through the first six months of 2011. Aided by the Hyper9 acquisition, revenues increased 27% to $88.8 million. Maintenance revenues grew 33%, and software license revenues gained 20%. The Hyper9 acquisition enhanced profitability as well as sales, with operating income increasing 41.4% to $36.2 million. For the full year, the company is guiding for revenues of $191.5 million to $196 million and non-GAAP earnings of 86 to 90 cents per share
SolarWinds has been an impressive grower in the most difficult of times, and there is plenty of room for more growth as the company expands its product offerings, increasingly monetizes its existing customer base and continues to win new customers. And because of its appeal to midsize companies that don’t want to shell out the big bucks for high-end software, SolarWinds also could be an attractive acquisition target for some of the bigger players looking to strengthen sales to that market.