SolarWinds	SWI, C+, 7
Network mgt software						Post-IPO shrs: 64.2mm
Austin, Texas		2006	2007	2008	MarchQtr 09	IPO Mkt
Rev ($mm)		$38	$62	$93	$24	Cap (mm)
Gross profit %		99%	96%	96%	95%	$674
Operating income %		66%	50%	46%	43%	@$17
Net after-tax income		$9.6	$13.6	$22.3	$6.0
Net income %		25.1%	22.0%	24.0%	24.9%
			2008 Quarterly Progression		2009
	March	June	Sept	Dec	March
Rev ($mm)	$20	$22	$26	$25	$24
Gross profit %	95%	96%	96%	96%	96%
Operating income %	44%	46%	45%	45%	41%
Net after-tax income	$4.1	$5.2	$7.3	$5.6	$6.0
Net income %	20%	24%	28%	22%	25%
VALUATION RATIOS	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
trailing 12 mos	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
SolarWinds (SWI)	$674	7.0	28.1	22.0	52.5	19%
SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	mination	tary	rating
20 is perfect		2	2	2	1	7
BUSINESS
. A leading provider of powerful yet easy-to-use enterprise-class network management software designed by network professionals for network professionals.
Products can be downloaded directly from websites and installed and configured by end-users in a matter of hours.
. Designs software to meet the requirements of networks and implementations of varying sizes and levels of complexity, ranging from a single device to over 100,000 installed devices.
IN THE TOP 10 & MARKET GROWTH
. According to an April 2009 report published by IDC, in 2007 and 2008, SWI was one of the top ten network performance and operations management vendors based on market share.
. IDC estimates that worldwide revenue for network performance and operations management grew 10.7% from 2007 to 2008 while SWI's revenue during the same period grew 50.9%, which was the highest revenue growth rate among the top ten vendors.
. Increased the number of customers from over 28,000 as of June 30, 2006 to over 80,000 as of March 31, 2009.
CUSTOMERS
. Customers include small and mid-size businesses, enterprises, including more than 400 of the Fortune 500 companies, and local, state and federal government entities that have purchased one or more of SWI’s products.
. Has an active, loyal end-user community that is built from customers and over one million registered end-users who have downloaded SWI’s free tools.
. Seeks to expand, and generate loyalty from, the customer base and the end-user community by providing a variety of free tools for network professionals, by hosting the online community website, Thwack, and through other marketing programs.
COMPETITION
. Competes with both traditional, larger software vendors offering enterprise-wide software frameworks and services and smaller companies offering point solutions for specific network management issues.
. Also compete with network equipment vendors and systems management solution providers whose products and services address network management requirements.
. Principal competitors vary depending on the product SWI offers and include Hewlett Packard, IBM, CA, BMC, Cisco and several smaller vendors.
GROWTH BY PRIVATE EQUITY
. In 2005, SWI’s founder decided to explore alternatives in order to grow the business more rapidly than had been possible under our historical model.
. In December 2005, investors led by Bain Capital Ventures and Insight Venture Partners acquired an aggregate of 67.8% of the outstanding capital stock from original stockholders and the company was recapitalized.
. As a result, SWI incurred $110.0 million of long-term debt, $93.9 million of which remained outstanding at March 31, 2009. In the second half of 2006, SWI hired most of our current management team.
. As of March 31, 2009, Bain Capital Venture Integral Investors, LLC beneficially owned approximately 25.5% of SWI’s outstanding common stock, or approximately 19.6% following this offering if the underwriters exercise their option to purchase additional shares in full.
INTELLECTUAL PROPERTY
. SWI currently has no patents, and no patents may issue with respect to SWI’s current patent applications. Any future patents issued to us may be challenged, invalidated or circumvented, may not provide sufficiently broad protection or may not prove to be enforceable in actions against alleged infringers. . SWI relies on a combination of copyright, trademark, trade dress, unfair competition and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect SWI’s proprietary rights. These laws, procedures and restrictions provide only limited protection.
LEGAL INTELLECTUAL PROPERTY BATTLE
. On November 26, 2007, a former employee brought a lawsuit in Oklahoma State Court asserting a number of claims against SWI and Donald C. Yonce, SWI’s founder and a current member of the board of directors.
. The former employee claims that he is a co-author and that he is, therefore, co-owner of all of SWI’s major software products, which he claims he assisted in developing while an employee of SWI company. The former employee makes this claim despite the fact that he signed an agreement with us which provides that SWI is the exclusive owner of all copyrights and other intellectual property relating to any work performed by the former employee while employed by us. He also claims that Donald C. Yonce made certain oral promises to him regarding future potential compensation at SWI company prior to SWI’s recapitalization in December 2005 in the event of a sale of SWI company, and further alleges violations of Oklahoma labor protection laws.
. The former employee is seeking half of the profits from sales of SWI software products of which he claims to be a co-author and co-owner, as well as punitive damages and unspecified other legal and equitable relief. . SWI has agreed to indemnify Mr. Yonce from these claims pursuant to a stock purchase agreement entered into in 2005 between Mr. Yonce, SWI and certain stockholders who are parties to that agreement.
. Even if SWI prevails in the litigation, SWI could incur significant litigation fees and expenses. Because this lawsuit is at an early stage, it is not possible to predict the outcome.
OTHER INTELLECTUAL PROPERTY ISSUES
The software and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights.
. SWI has received, and from time to time may receive, letters claiming that its products infringe or may infringe the patents or other intellectual property rights of others. . As SWI faces increasing competition, the possibility of intellectual property rights claims against SWI grows. SWI technologies may not be able to withstand any third-party claims or rights against their use. Additionally, SWI has licensed from other parties proprietary technology covered by patents, and these patents may be challenged, invalidated or circumvented. These types of claims could harm SWI’s relationships with customers, might deter future customers from acquiring SWI products or could expose SWI to litigation with respect to these claims. . Even if SWI is not a party to any litigation between a customer and a third party, an adverse outcome in that litigation could make it more difficult for SWI to defend its intellectual property in any subsequent litigation in which SWI is a named as a party. Any of these results could harm SWI’s brand and operating results.
USE OF IPO PROCEEDS
Use of $84 in IPO proceeds from sale of 9mm shares
(shareholders intend to sell 3.1mm shares)
. Repay a portion of $94mm in debt, under a December 2005 credit facilities agreement
. Pay up to $20mm in earnout payments to original stockholders
. Balance for general corporate purposes