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Executives

David Hafner

Kevin B. Thompson - Chief Executive Officer, President, Chief Operating Officer, Treasurer and Director

Michael J. Berry - Chief Financial Officer and Executive Vice President

Analysts

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

John S. DiFucci - JP Morgan Chase & Co, Research Division

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Stewart Materne - Evercore Partners Inc., Research Division

Jonathan Parker - Morgan Stanley, Research Division

Gregg Moskowitz - Cowen and Company, LLC, Research Division

Scott Zeller - Needham & Company, LLC, Research Division

Tim Klasell - Northland Capital Markets, Research Division

SolarWinds (SWI) Q4 2012 Earnings Call February 4, 2013 5:00 PM ET

Operator

Good afternoon, and welcome to the SolarWinds' Fourth Quarter 2012 Earnings Call. [Operator Instructions] Today's call is being recorded. And at this time, I would like to turn the conference over to Mr. Dave Hafner, Director of Investor Relations. Please go ahead, sir.

David Hafner

Thank you, Fara. Good afternoon, everyone, and welcome to SolarWinds' Fourth Quarter and Full Year 2012 Earnings Call. With me today are Kevin Thompson, our President and CEO; and Mike Berry, our Executive Vice President and CFO.

Following prepared remarks from Kevin and Mike, we'll have a brief question-and-answer session. Please note that this call is being simultaneously webcast on our Investor Relations website at ir.solarwinds.com.

The press release with our results for the fourth quarter and full year 2012 was issued earlier today and is also posted on our Investor Relations website. Please remember that certain statements made during this call, including those concerning our business and financial outlook, competitive advantage, expansion plans, areas of focus for 2013, growth strategy and expectations, estimates regarding our market opportunity and approaches for attacking this market opportunity, acquisition strategy and evaluation criteria, product development efforts, sales and marketing efforts, opportunities for the companies -- for the company and our products, and our ability to capitalize on these opportunities are forward-looking statements.

These statements are subject to a number of risks, uncertainties and assumptions described in our SEC filings, including our Form 10-K for the year ended December 31, 2012, which we anticipate filing with the SEC on or before March 1, 2013.

Should any of the risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, actual company results could differ materially and adversely from those anticipated in these forward-looking statements. These statements are also based on currently available information, and we undertake no duty to update this information, except as required by law. Cautionary statements regarding these forward-looking statements are further described in today's press release.

In addition, some of the numbers during this call will be presented on a non-GAAP basis. Our use and calculation of these non-GAAP financial measures are explained in today's press release, and a full reconciliation between each non-GAAP measure and its corresponding GAAP measure is provided in the tables accompanying the press release. Each non-GAAP item in our forward-looking financial outlook that we will...

Operator

Pardon the interruption gentlemen, we are unable to hear you at this time.

[Technical Difficulty]

Kevin B. Thompson

Hello, everyone, this is Kevin Thompson. I think, maybe, we had a small technical difficulty. So we're going to start again just to make sure that all of our remarks are heard.

So starting again, good afternoon, everyone. Thank you for joining us on our fourth quarter 2012 earnings call. I'm pleased to report that we finished what has been a very successful 2012 on a high note, delivering a strong fourth quarter, with total revenue reaching $73.5 million, reflecting 32% growth over the fourth quarter 2011 and for the eighth straight quarter, meaningfully exceeding our outlook.

For the full year 2012, total revenue reached a record $269 million, we delivered non-GAAP operating margins of 53.8%, our highest level since before IPO in 2009 and our total revenue growth accelerated to 36% in 2012 as compared to 30% for 2011.

I believe the strength in our 2012 performance demonstrates the success we have had in significantly increasing the number of problems we solve for IT professionals. This success has transitioned SolarWinds from being just a network management company into an IT management software company, with a portfolio of products that solve a connected set of problems for IT pros in organizations of all sizes.

We believe our 2012 results highlight our ability to create competitive advantage in new markets at economics consistent with our historical businesses, while remaining completely committed to the foundation principles of our unique and disruptive business model. These foundation principles include a go-to-market model, which leverages the Internet to reach our potential buyers, products, which are easy to evaluate, implement and use, that are priced at a fraction of competing products, a focus on the IT pros who use our software to solve their IT performance problems, a global development model that allows us to build products at a cost that we believe is among the lowest in the software industry, a sales model that is completely dedicated to selling from the inside and a financial model that delivers operating margins that are among the highest in software, while at same time, allowing us to invest for growth.

Importantly, before moving on to a discussion of some of the highlights of the fourth quarter results, I would like to thank the entire global SolarWinds team for all of their effort and hard work over the past year. The work you have done and the progress you have made allowed us to continue to defy the conventions of how enterprise software is built, purchased and used.

In 2012, we made significant investments in order to build awareness of the problems our products solve across IP markets and around the world. We meaningfully expanded the number of IT problems we can address and the users we are relevant to. In the process, we completed 5 product acquisitions, which have allowed us to grow broader and deeper in the markets we serve. As a result of all these activities, we accelerated our year-over-year revenue growth rate, reaching 36% for 2012.

However, despite these significant investments, your commitment to doing things the SolarWinds' way also enabled us to deliver non-GAAP operating margins of 53.8% for the full year, along with helping us to generate consistently strong free cash flow, which totaled $150 million for the year.

As I mentioned earlier in my remarks, total revenue for the fourth quarter increased to $73.5 million, representing growth of 32% versus the fourth quarter of 2011. Our growth in total revenue was driven by a combination of solid growth in license and maintenance revenue that were both well ahead of our outlook for the quarter. License revenue for the fourth quarter increased 31% year-over-year, reaching $33.1 million. Maintenance revenue also continued a series of rapid growth quarters reaching $40.5 million, reflecting 33% growth over the fourth quarter of 2011.

Our fourth quarter 2012 growth in new license sales reflects another strong and consistent quarter across both our global commercial business and our U.S. Federal business. Commercial new license sales grew 29% year-over-year in the fourth quarter, driven by solid results across each of our major geographies, despite the fourth quarter being the toughest compare from a growth perspective in 2012.

EMEA finished what has been an impressive year of growth in 2012 by delivering new license sales growth of 47% over the fourth quarter of 2011. For the full year, despite the host of macroeconomic issues that played out in the region during the year, new license sales in our EMEA business grew an impressive 56% versus 2011.

Asia-Pacific, which was a very fast growth business for us in 2011, returned to its high-growth ways in the fourth quarter of 2012, with new license sales increasing by 39%, as compared to the fourth quarter of 2011. This growth represents a significant acceleration over the 24% year-over-year growth in Asia-Pacific new license sales in the third quarter. Asia-Pacific finished 2012 with full year growth of 26% in new license sales, and we believe this region is positioned to deliver even faster growth in 2013. We also had a strong growth quarter in Latin America, with fourth quarter new license sales growing by 52% year-over-year.

In addition, our fourth quarter performance in Latin America concluded a solid year, where we grew full year new license sales by 43%, driven by the focus we placed on attacking the significant opportunity we see for our products in that region. Because of that view, we plan to place an even greater focus on expanding our presence in Latin America in 2013. Along with greater emphasis on building awareness through increased local language demand generation programs, search optimization and a localized Portuguese website, we plan to expand our dedicated Latin America sales team in 2013.

Importantly, that expansion will include opening an inside sales office in Brazil this year that will allow us to do an even better job of exploiting the opportunity we see in Brazil and other Latin American countries. North America, which is, by far, our largest commercial region, representing over 50% of our new license sales during 2012, had another good growth quarter, delivering greater than 20% growth in new license sales for the seventh consecutive quarter. In fact, our fourth quarter results capped off an impressive year of North American commercial new license sales growth, which accelerated to 33% for the full year, reflecting a nearly 10% acceleration over 24% growth in 2011.

And last, our U.S. Federal business finished what has been a very consistent 2012, delivering new license sales growth of 42% over the fourth quarter of 2011, which resulted in full year growth of 12%. We are pleased with the progress our U.S. Federal team has made in transitioning to a volume driven business, with an improving level of predictability.

We expect to continue to leverage our competitive advantage of easy to use, quick to deploy and affordable products to deliver future growth in U.S. Federal new license sales. We believe the potential fallout regarding the fiscal cliff, Federal budgets, impossible to sequester should work to our advantage. However, in our 2013 outlook, we are taking a relatively conservative view of U.S. Federal sales, until we have a better view of the pace of the U.S. Federal business.

Now let's turn to a view of our product performance. During the fourth quarter, we were pleased to see a significant sequential increase in commercial demand for both our systems and network management products. In addition, our evolving focus on the opportunity inside our own install base continued to pay dividends in the fourth quarter. The increase in demand and success in penetrating our install base helped drive core product transaction volume growth of 42% on a year-over-year basis, including a 43% increase in commercial core product transaction volume and 9% growth in Federal core product transaction volume.

In addition, the fourth quarter increase in core product transaction volume was a strong finish to an overall solid year of growth in core product transaction volume, where we grew commercial core product transaction volume by 38% and Federal core product transaction volume by 9% for the full year. In the fourth quarter, new license sales for our core network management product experienced strong growth, accelerating from the solid growth we achieved in the third quarter of 2012. This strong finish to 2012 resulted in full year total revenue growth of 26% for our core network management business. Helping to drive our 2012 network management performance was the solid progress we feel we made in 2012 in expanding the number of network performance problems we can solve, especially in the area of network configuration.

In May, we released SolarWinds IP Address Manager version 3.0, which added integrated and automated DHCP, DNS and IP address management to an already powerful yet easy-to-use and affordable product. This allows us to address the majority of the problems saw by vendors of higher priced, and more complex solutions like Infoblox and BlueCat Networks.

We also added multi-vendor firewall security and policy management to the list of network management issues we can affordably address for our users through the August release of SolarWinds' Firewall Security Manager. When combined with the improvements we made during 2012 to SolarWinds' User Device Tracker and SolarWinds Network Configuration Manager, we have significantly increased the number of network security and configuration management problems we can address for our users.

The results of these efforts were reflected in year-over-year new license sales growth and sales of our network configuration products of greater than 25% in the fourth quarter of 2012, which reflects a meaningful acceleration over 2011 growth rates. We believe that through the continued improvement in our network management product, the increase in the number of problems we solve for IT pros, response for our network performance, the increased level of demand that we saw in the fourth quarter and our plans for further improvement and expansion of our network management products in 2013, we have positioned ourselves to deliver accelerating growth in network management new license sales in 2013.

2012 was a critical year for our systems and application management business. We entered 2012 with a plan to quickly and meaningfully expand our Systems and Application Management product portfolio to greatly increase the number of problems we solve for IT pros focused on server and application performance, and to drive a much higher level of awareness of our relevance to the problems faced in managing the performance of systems and applications. We believe that we made significant progress toward these objectives during 2012 and finished a year of very strong sales performance in Systems and Application Management, with year-over-year fourth quarter 2012 Systems and Application Management total revenue growth of 84% and full year 2012 Systems and Application Management revenue growth of 94%.

The fourth quarter and full year performance in our systems and application management business included strong contributions from SolarWinds' Server & Application Monitor, our flagship systems and application management product, SolarWinds' Web Performance Monitor and DameWare. SolarWinds Web Helpdesk also performed consistent with our expectations in the fourth quarter, which was its first full quarter of sales. We believe we have now established SolarWinds as a relevant and credible provider of solutions to the problems faced on a daily basis by systems and application administrators. In 2013, we plan to build on this foundation to drive accelerating global awareness of the breadth of the problems we solve.

In late December, we also made another addition to our Systems and Application Management product offerings through the release of SolarWinds' Serv-U Managed File Transfer Server, which was based on technology from our December 2012 acquisition of RhinoSoft. SolarWinds' Serv-U Managed File Transfer provides IT pros with a solution they're searching for to the problems of securely managing the transfer and sharing of sensitive company information, at a price that we believe is meaningfully less than the price of products for transferring files sold by our competitors.

SolarWinds' Serv-U Managed File Transfer Server also provides a much more secure and scalable solution than the homegrown solutions and processes with which many IT pros have been forced to make do. Consistent with our historical practice with many of the other products we've acquired, we've made significant pricing and packaging changes in the RhinoSoft product offering simultaneously -- simultaneous with the closing of the acquisition, with a goal of allowing these products to work effectively in our go-to-market and sales model.

I will now turn it over to Mike for a detailed review our fourth quarter financial results and of our outlook for the first quarter and full year 2013.

Michael J. Berry

Great. Thank you, Kevin, a very great good afternoon to everyone on the call. As Kevin just mentioned, the fourth quarter 2012 results exceeded our outlook and closed out a very strong 2012 for SolarWinds. To put this in perspective, let's go back to our earnings call 1 year ago in February 2012, when we discussed our expectations for full year 2012, which included the projected impact of the DameWare acquisition.

At that time, we were targeting revenue between $245 million and $255 million, with approximately 50% non-GAAP operating margins and non-GAAP earnings per share between $1.10 and $1.15. I am very happy to say that we finished the full year 2012 above all 3 of those outlook amounts. Total revenue increased on a year-over-year basis by 36% to finish at $269 million. Non-GAAP operating margins finished at nearly 54%, and non-GAAP earnings per share was $1.36. For the full year 2012, in a period where we completed 5 acquisitions of additional products, we were able to increase our non-GAAP operating margins by approximately 180 basis points versus the full year 2011.

Additionally, we generated free cash flow of $150 million during full year 2012, or approximately 56% of total revenue. I would call that a pretty darn strong year from a financial perspective. In addition to Kevin's comments during his prepared remarks, I would also like to add my congratulations to all of our SolarWinds colleagues for quite a successful year from a financial perspective. All of the nearly 870 SolarWinds employees worldwide should be very proud of their accomplishments.

Okay, let's move on. The power of the SolarWinds' business model continued to be highlighted in our financial results, that once again exceeded our outlook for each of the revenue and non-GAAP operating margin and earnings per share measures in the fourth quarter 2012. For the fourth quarter 2012, license revenue was $33.1 million for a year-over-year growth rate of 31%. Maintenance revenue was $40.5 million, for a year-over-year growth rate of 33%.

Total revenue was $73.5 million, for a 32% year-over-year growth rate. Non-GAAP operating income finished at $39.4 million, for a non-GAAP operating margin of 53.6%. Non-GAAP EPS was $0.36 in the quarter, versus $0.29 in the fourth quarter 2011. As you can see, our non-GAAP operating margins and earnings per share exceeded the high end of our outlook for the fourth quarter 2012 by 2.6 percentage points and $0.03, respectively.

As I have discussed throughout 2012, we plan the business at a certain margin level and if we exceed the revenue outlook that corresponds to that margin target, the majority of that revenue outperformance is likely to find its way to the bottom line and result in higher than expected non-GAAP operating margins and earnings per share. The fourth quarter was consistent with that practice, hence, the higher margin versus our outlook.

For the fourth quarter 2012, the new license sales in the commercial business increased on a year-over-year basis by 29% and the U.S. Federal business by 42%. And for the fourth quarter 2012, our international revenue as a percent of total revenue grew to nearly 27% versus 22% of total revenue in the third quarter 2012. This was mainly driven by strong new license sales growth in both EMEA and APAC.

Cash flow from operations in the fourth quarter was a record $47.2 million versus $34.9 million in the third quarter 2012 and $36.3 million during the fourth quarter 2011. Free cash flow was also a record in the fourth quarter 2012, finishing at $48 million.

As I mentioned during the earnings call in October 2012, we had expected cash flow from operations to increase nicely in the fourth quarter 2012, mainly due to the timing of the cash collection from certain larger U.S. Federal new license sales and maintenance renewals, which had closed during the latter part of the third quarter 2012.

However, even excluding the impact from these specific transactions, cash collections were still higher than expected in the fourth quarter, which drove the majority of the strength in cash flow from operations. Also, please remember that we made tax payments totaling $15.3 million for the full year 2012, versus $1 million during the full year 2011.

Moving on to the balance sheet. Our total cash balance finished at $241.8 million, which includes our short- and long-term investments of approximately $62 million. The increase in cash and cash equivalents during the fourth quarter 2012 of approximately $23 million consisted of cash generated from cash flow from operations of $47.2 million and cash from financing of $3.5 million, offset by cash used in investing activities of $29.3 million.

The cash used in investing was a combination of cash used for the acquisition of RhinoSoft, as well as the net purchases of additional investment securities. Approximately 20% of the total cash and investments balance is held in our international subsidiaries as of December 31, 2012.

Accounts receivable finished at $32.5 million on December 31, 2012, versus a balance of $39 million as of September 30, 2012. This resulted in DSOs for the fourth quarter 2012 of 40.7 days, which is the lowest DSO since we started tracking this measure in 2008. Our total deferred revenue was $102.8 million as of December 31, 2012, an increase of $4.6 million from September 30, 2012.

Moving on to our key business metrics. Total core transaction volume grew by 42%, comprised of commercial growth of 43% and U.S. Federal growth of 9%. These increases are very similar to the levels seen during the third quarter 2012 and we continue to be pleased with this level of core product transaction growth as core product sales are expected to continue to be the biggest drivers of our growth.

The total trailing 12-month average transaction size of approximately $8,500, excluding Kiwi and DameWare, was basically flat for the fourth quarter 2012. Please keep in mind that the average transaction size metrics will move around a little, based mainly on changes in our product mix.

Okay, let's move on to the outlook for the first quarter and the full year 2013. Before I go through the specific numbers for the first quarter 2013 outlook, I would like to hit on a few important drivers. We completed the acquisition of RhinoSoft very late in the fourth quarter 2012, thus the contribution from the data file transfer management server products was insignificant for the fourth quarter. Similar to many of our previous acquisitions, we expect the revenue impact of the acquired products to ramp throughout the year. We very quickly integrated the new products into our sales and marketing motion and did not retain any of the former RhinoSoft sales team.

For the first quarter of 2013, we expect the Serv-U Managed File Transfer Server to contribute less than $500,000 in total revenue and approximately $2 million in total revenue for the full year 2013. From a non-GAAP operating income perspective, the acquired products are expected [ph] widely dilutive to margins during the first half of 2013 and then reach our company margins for the second half of 2013.

Importantly, we have not lowered the full year non-GAAP operating margin outlook for 2013 that we discussed at our Analyst Day in November 2012 as a result of the RhinoSoft acquisition.

Instead, we expect to be able to cover the dilutive impact on operating margins of RhinoSoft through higher than initially forecasted operating margins in other areas of our business. It is certainly an understatement to say that the negotiations associated with the 2013 U.S. Federal budget and the fiscal cliff was a much watched drama. While personal tax rates were a big part of the agreement that was reached at the end of December, also included in the bill that was ultimately signed on January 2, 2013, was an extension of the R&D tax credit.

The new bill extended the R&D tax credit for 1 more year and also made it retroactive for 2012. However, believe it or not, since the bill was not signed until January 2013, we are not allowed to include any benefit in the tax rate for the fourth quarter 2012 and thus the entire retroactive benefit for 2012 will be included in our first quarter 2013 results. So in effect, we will get 2 years of benefit from the R&D tax credit in the full year 2013 tax provision. Therefore, we expect the non-GAAP tax rate to be approximately 25% in the first quarter 2013 and then approximately 28% for the remaining 3 quarters in 2013.

Even though we do not give outlook for cash flow from operations, there are a few timing items for the first quarter 2013 that I want to highlight. As I mentioned earlier in my comments, we had a strong collections quarter in the fourth quarter 2012 that was helped due to the timing of cash collections from certain transactions completed during the latter part of the third quarter 2012.

In the fourth quarter 2012, we had cash collections of approximately $85 million on total revenues of approximately $74 million. For the first quarter 2013, we expect collections to be much closer to the total revenue outlook of $75 million to $76 million. Additionally, from a cash outflow perspective, on a sequential basis versus the fourth quarter 2012, as a result of our outperformance for the year, we will have higher cash payments in the first quarter 2013 related to accrued annual company-wide bonus payments of approximately $6 million, due mainly to these cash timing related items, we expect free cash flow to be below the record levels seen in the fourth quarter 2012. However, more importantly, we currently expect free cash flow margin for the full year 2013 to be in a similar range to what we saw during the full year 2012.

As it relates to FX rates, our outlook assumes a euro to U.S. dollar exchange rate of $1.30 for the first quarter of 2013. Going back to the outlook for 2013, the high-end of our new full year outlook is approximately $3 million higher than the range we provided at our Analyst Day in November 2012. This increase is primarily due to the expected 2013 revenue contribution from the Serv-U Managed File Transfer Server, as well as the slightly higher maintenance revenue expectations for 2013.

Okay, with that being said, for the first quarter 2013, we currently expect the following: License revenue in the range of $33.1 million to $33.7 million, or a year-over-year growth rate of 21% to 23%; maintenance revenue in the range of $41.8 million to $42 million, or a year-over-year growth rate of approximately 30%; total revenue of $74.9 million to $75.7 million or a growth rate of 26% to 27%; non-GAAP operating income margin between 51% and 51.5%, which includes the dilutive impact of the RhinoSoft acquisition and non-GAAP earnings per share of approximately $0.37, assuming fully diluted shares outstanding of 77.2 million and a non-GAAP effective tax rate of 25%.

For the first quarter 2013, the revenue outlook assumes growth in the commercial business in the mid-20% range and growth in the U.S. Federal business in the mid- to high-teens.

For the full year 2013, we currently expect the following: Total revenue in the range of $330 million to $338 million, or a year-over-year growth rate of 23% to 26%. Non-GAAP operating margins between 51% and 52%. Non-GAAP earnings per share between $1.57 and $1.62, assuming full year diluted shares outstanding of 78 million and a full year tax rate of approximately 27.5%.

Lastly, from a product perspective, for the full year 2013, we still expect that total revenue for core network management to grow greater than 20% and the total revenue growth for the core Systems Management products to be above 40%.

That concludes my prepared remarks. I'll now turn the call back to Kevin.

Kevin B. Thompson

Thanks, Mike. I believe we made meaningful progress in a number of very important strategic objectives during 2012. We have significantly increased the number of problems that we solve for IT pros, specifically in the areas of systems and application management, as well as network management. As a result, we have created a market opportunity for SolarWinds in systems and application management over the last 18 months, that based on our current estimate, is now as large as our market opportunity in network management.

We believe that we have made significant progress in repositioning ourselves in the minds of IT professionals as an IT management vendor with products that solve a wide range of problems for IT pros of many types, including network engineers, sys admins, application admins, storage admins, virtualization admins and IT generalists.

During 2013, we will continue to focus on building the level of awareness of the number of problems we solve for IT pros, and are expanding the knowledge of the relevance of the SolarWinds brand globally and within the IT markets where we currently compete. We will accomplish this by continuing the website and product globalization work that we began in 2012, by increasing the level of optimized search content on our websites, that speaks to the IT infrastructure and application performance problems that our products solve, by increasing the number of relevant conversations on the web where we are present and by leveraging our customers and our community of IT pros.

During 2012, through our product development and product acquisition efforts, we increased the size of the estimated market opportunity inside our own install base from approximately $6 billion to over $11 billion. In response to this increasing market opportunity within our own install base, we have developed and implemented a number of new marketing and sales team approaches focused on our install base. We believe that we've enjoyed a good amount of initial success with these approaches, as evidenced by a 9% increase in the number of core products owned by our core product customers during 2012.

In the first half of 2013, we plan to further expand our efforts to penetrate the install base opportunity, by implementing certain of the teams' structure and sales and marketing methodologies that we pioneered in North America during 2012 in our EMEA and Asia-Pacific teams. In addition, we are currently implementing additional new approaches to reach our North American install base. As these new approaches become successful, we will quickly implement them in EMEA and Asia Pacific.

In addition, we are planning to continue to invest in relationships with our thwack community and with the IT professional community more broadly. We believe there are certain challenges that IT pros face each day that while important, do not rise to the level that IT pros should be faced with a challenge of having to try and stretch their already tight budgets to solve these problems.

Our free tool strategy has always been differentiated from other companies in enterprise software in that we have not followed a premium model, instead we build and release free tools for IT pros that solve a specific problem, and that are not baby versions of what we sell.

In the second half of 2012, we decided to meaningfully increase the level of our investment in the broader IT community. The result of that decision is that in the first quarter 2013, we are taking our purpose built free tool concept to the next level.

We have recently released for beta a new free product that goes well beyond the free tools we've released in the past. This new free product is called SolarWinds Alert Central. SolarWinds Alert Central solves the problem of managing hundreds of alerts that are generated each day by all the different monitoring solutions that IT pros are using to manage the performance of their networks, servers, applications and websites. This is a problem that all IT pros, no matter size of organization or geography, face on a daily basis that creates significant complexity in how they manage their day.

We believe this problem should simply be solved and that IT pros should not have to pay for this solution. SolarWinds Alert Central will solve this problem for IT pros. SolarWinds Alert Central will provide on call schedule management and alerting for most of the different monitoring systems that IT pros use. If the monitoring system generates an alert and can send an e-mail, it should work with SolarWinds Alert Central. SolarWinds' Alert Central will allow IT pros to add scheduling to existing monitoring solutions, alert teams via email and SMS, and will allow IT pros to respond or escalate issues via their mobile device.

We are excited about this new free solution to a set of problems that all the IT pros face, but that we believe they should not be forced to use their scarce budget to solve. We have a large number of IT pros currently involved in our public beta and will love to have as many IT pros as are interested join the beta program to provide us feedback on the existing set of features in SolarWinds Alert Central, as well as to help us define the future features that we will add to the product.

This focus on IT pros, in making their jobs easier, is an important component of the SolarWinds model. Our goal is to take the complexity out of the enterprise software model for IT pros, to remove the complexity from the products themselves and provide IT pros the tools that simply work. We call this concept unexpected simplicity.

Anyone who has been following us for the last several years should know that small technology acquisitions have been one of the strategies that have allowed us to quickly expand our product portfolio, the number of problems that we can solve for IT pros and our addressable market opportunity. In 2012, our acquisition activity was used to significantly expand the numbers of Systems Management problems that we solved for IT pros, while also closing gaps in our network management product portfolio.

In 2013, our focus for M&A will shift a bit. As we mentioned in our Analyst Day in November, we will continue to look for opportunities to go deeper into network management and systems management markets by adding additional products. However in 2013, we also plan to explore opportunities to take our model of enterprise software into new markets. In doing so, we will evaluate each potential acquisition target using the same set of criteria that has helped guide our decision-making process for the past 3 years.

For us, it all comes down to the evaluation of the answers to a few simple questions when considering potential acquisitions. Do the products solve real-world problems that are well recognized and understood, and are they critical must solve problems? Do the products solve problems that technical professionals in organizations of all sizes care about? Do the products offer immediate value? Meaning are they easy to evaluate, implement and use? Can we sell these products through our go-to-market model and deliver rapid value to the market and shareholders?

As we move into additional new markets in the future, we will carry with us the principles that we believe contributes significantly to our leadership in network management and to our transition to becoming a dominant player in the overall IT management market. Our primary focus will continue to be on the individual user and making sure that our products are easy to use and affordable and solve the well understood challenges the way these technical users want them solved.

We will remain disciplined in our sales and marketing efforts, stepping in front of demand with targeted web marketing in a frictionless sales process based on selling from the inside. We believe that we are laying a foundation that will allow us to create long-term profitable growth. We believe that this is the key financial differentiator of our operating model, the ability to deliver growth rates that are among the highest in enterprise software, while at the same time, generating a level of non-GAAP operating margins that most enterprise software companies will never be able to reach.

With that, we'll open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll hear first from Rob Owens of Pacific Crest Securities.

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

I was just wondering, now that you have a full year under your belt, with your cross-selling efforts, whether or not you could provide it, even the metric for the fourth quarter core products for core product customers, or just a sense of if you're happy with where you're at this point, I think you mentioned in your prepared comments you were going to explore some new approaches to reach the North American install base.

Kevin B. Thompson

Yes. So what I indicated, Rob, was that for the year we increased the number of core products owned by core product customers by 9%. We feel like we made good progress. I feel good about the approaches that we implemented. We learned a lot during 2012, about how to get our customers to more proactively communicate with us. To get our customers interested and knowledgeable, for that matter, about all the problems that our products solve. As you know, we've added a bunch of technology over the last 18 months. And many of our users don't even know all the problems that our product set can solve for them today. So part of the challenge is figuring out a way to communicate in a way they can hear, in a way that they will listen and understand all the problems we can solve for them. So I feel like we made a lot of progress. I will tell you, that it's been a big focus as we moved into 2013. We've got some pretty significant new things that we are in the process of designing and implementing that we will try as we move through the first half of this year. And hopefully a number of those will work as well as the new approaches we tried during 2012. And when and if they do, we'll roll them out to our global business. So we're in a good position. We made a lot of progress. We feel good about what we've done. But the opportunity to make that grow much faster is definitely there. And it's going to be a major focus for us this year.

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

Great. And then second is, as we look at your acquisition strategy and the pace of acquisitions. For '13, should we expect something similar to '12? I think you guys did 5 acquisitions for the year. Would you expect that pace to pick up, with a lot of the new areas you highlighted at the Analyst Day?

Kevin B. Thompson

Yes. I think I said at Analyst Day, our acquisition strategy is shopping with an intent to buy. But we are a picky buyer. Meaning, if the products don't fit our model, if we don't feel like we can, very quickly, put them in our go-to-market marketing model and sales model, then we're not going to make the acquisition. So we're actively looking. There's a number of areas where we can add to our systems and application management product portfolio. There are still things, believe it or not, we can add to our network management product portfolio, even though it is fairly mature. But there is still some small problems we don't solve. Some functionality we can add. So we're out actively looking for those products, both -- and then we're also actively building some of those technologies. So I can't tell you for sure we'll do 5 acquisitions in 2013, but I will tell you that we're actively looking. And if we find good assets and good technology to add to our product portfolio, then we'll do that.

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

Do you have the capacity to do meaningfully more than 5? Do you have the people, the process?

Kevin B. Thompson

It's a good question. I would say it really depends on the character of the acquisitions. If you look at the deals that we did during 2012, they're all very small. We basically added products. We added very few people to the company through acquisition in 2012. So if the character of the acquisitions look like that, I think we can handle 5 or more. If the character of acquisitions are such that we need -- that we add a few more employees to the mix, if the acquisition require more system effort in order to get them to work inside of our model than they did 2012, then it could impact the number of acquisitions we're able to do. I think we have defined the process relatively well. We can always get better at it, and we absolutely do get better at it every time we do an acquisition. But we do have a model, that for the size acquisitions we've been doing, works pretty well. We integrate them quickly and generally within, sometimes within the first day after we close the deal and sometimes, it's a few weeks. We're [indiscernible] inside our model and that's the goal. And so, if we can continue to find transactions where we can do that, then I think we've got capacity there to do that, many if there are more work than that, then it could impact that capacity a little bit.

Operator

We'll hear next from John DiFucci of JPMorgan.

John S. DiFucci - JP Morgan Chase & Co, Research Division

Kevin, you have a lot happening here on the product side, but also geographically, with international revenue at 27%, that's a big number compared to a couple of years ago. Is this just the beginning? I mean, in other words, internationally, can you grow faster overall next year, like you said you're going to do for APAC? But APAC is a smaller part, EMEA is a much bigger part. It sounds like Latin America's coming on strong. As you build out sort of international sales and marketing infrastructure, should we see even stronger growth out of that and as a bigger piece? Or should we still see strong growth, but at lower rates?

Kevin B. Thompson

As we look forward, and I think I've said this a number of times, I believe our international business should be close to 50% of our total revenue. And today, it's about 27%. So it's growing a little faster than North America in 2012, where we continue to have pretty rapid North American growth. So I do believe, when I look out over the next 3 to 5 years, that international will grow faster than North America. I believe that parts of our International business can grow faster than they did in 2012. EMEA had a very strong growth year. So I'm not telling you it's not possible, but I'm also telling you, we don't have that baked in right now than EMEA grows faster in 2013 than in 2012 because it was a very strong year of growth in a difficult environment. But I do believe that international ought to grow faster than North America. My North American team doesn't like it when I say that, so they're going to do all they can to make sure that doesn't happen, which is -- we like competition around here and so we like that. But it's going to be a fast growth opportunity for us. We have barely penetrated the international market opportunity. We've barely penetrated the global market opportunity for that matter. But it's a very big opportunity. We have a lot of awareness to build. IT pros outside the U.S. are not even close to aware of all the problems we solved with IT pros in North America. So all those things give as the ability to continue to have that part of our business grow very quickly.

John S. DiFucci - JP Morgan Chase & Co, Research Division

Okay, great. And if I might, just a quick follow-up, on the Federal government. I don't want to focus too much on this because you've diversified into commercial significantly. You're not as -- I don't know if dependent might be too strong a word, but you're not dependent on the Federal government, but you probably have a relevant view on it given your history. You say you've taken a conservative view. You gave -- you told us a little bit about what you're going to do in the first quarter or what you're assuming. But can you just talk generally about what you expect out of the Federal government as far as spending, how you look at it? I mean, it seems obvious to me anyway, but and perhaps what's implied in your guidance for the year?

Kevin B. Thompson

Yes. So when you look at the U.S. Federal government and the way they spend money, it's an interesting animal to look at. Definitely what we're seeing now is that you've got a lot of shifting going on in the Federal government. You have money that is not been completely allocated across all areas of Federal. And the departments of the Federal government across both civilian and Department of Defense are trying to figure out how much money they're going to have and when they're going to have that money. We actually like uncertainty, because uncertainty, I think, creates opportunity for us. And then we're a big believer that change should give us something to exploit. We believe that the departments inside the Federal government are going to be forced to try to find ways to get the same amount or more work done with flat to lower funding and that if we continue to make Federal IT pros aware of our presence and aware of the problems we solve, that we should be able to take advantage of that and they'll be really be forced to start to look for alternatives to some of the higher priced products that our competitors sell. Because they're just not going to have the funds, in some cases, even to renew the maintenance. The great thing about our pricing model, is in many cases the customer can buy new license for us, licenses from us, for less than what they're going to pay for their maintenance renewal on one of our framework vendor competitors. And then their maintenance bill obviously drops significantly every year thereafter. So we're going to try to make sure we get that message out in U.S. Federal in 2013, that folks know what a broad set of problems we can solve and how well we solve them. And that we can do it in a fraction of the cost of the solutions they're using today, as they're thinking about renewing maintenance, or as they're thinking about additional rollouts. And the great thing about our Federal government, I guess a bad thing if you're a taxpayer, is when they say they're reducing spending, that just means they're not going to increase by as much, which is a little bit distressing for those of us paying taxes, but it's just a fact of where we've been over the last several years. So there will be money available. The real challenge is making sure that people know that we are there, we are relevant. And that we step in front of those purchase cycles and I think we've done a nice job of increasing awareness in the Federal government over the last couple of years.

John S. DiFucci - JP Morgan Chase & Co, Research Division

So does that mean that implied in guidance is that Federal government will grow faster, slower, or the same as it did last year?

Michael J. Berry

John, it's Mike. So this year, the new license sales in U.S. Federal grew by about 12%, it was about 11% of the business. We expect Federal to grow at or above that. But we do expect commercial to grow faster than Fed in 2013. But again, we do expect Fed to grow and that's also illustrated by we continue to invest in that business, with sales, sales engineers, marketing. So we do continue to have high hopes for Federal.

Operator

We'll take our next question from Aaron Schwartz of Jefferies & Company.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

You spoke a little bit about the expansion in Latin America, it sounds like a new office down there. Presumably, that was sold from your Austin facility prior to that. Can you just kind of walk through the timing of when you would expect that and how much has been done on the web localization and the product localization? And then does that free up some sales resources in Austin and are those being redeployed in other areas?

Kevin B. Thompson

Yes, so all good questions. Yes, we had [ph] a good fourth quarter and a good year in Latin America. As I indicated, 52% growth on the fourth quarter, 43% growth in Latin America year-over-year. We have served Latin America from Austin in the past, all of Latin America for that matter. And we have a number of partners in Latin America we rely on, just like in other countries in the world, where we don't have dedicated local inside sales folks. Our team in Austin will continue to be here and they'll continue to serve, really, all of Latin America other than Brazil. We will move the Brazilian market to Brazil as we get that office open, as we add salespeople in Brazil, that'll happen during the first of this year is our current expectation. But we'll continue to have a team here in Austin that will stay focused on the other parts of Latin America outside of Brazil, including the Caribbean. So we'll serve it from both locations during 2013.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Okay. And second question I had, if I could, you sort of mentioned, I think it was called Alert Central, but sounds like a new initiative on the freemium type model, I know it's very early, so you probably don't have any feedback yet. But how would you expect conversion rates off that to track? I mean is that going to be sort of in line with your freemium products? Would you expect that to be any different going forward?

Kevin B. Thompson

So when you look at the free product we've had in the past here, they're very different. They are free products that solve a very specific problem for an individual IT Pro. We have a lot of different free products that we have made available to IT pros over the years. And the conversion rates on those free products actually vary pretty greatly depending upon the product and the problem it solves and kind of the type of IT Pro that's using that product. Alert Central is a very different product, it's a different product in that it is a product that an IT pro will use every single day. It's a product that a lot of other companies are charging for today and charging relatively meaningful amounts for. We happen to believe that it's a table stage [ph] problem. IT pros need to be able to manage alerts that are created by technologies like ours and we need to help them do their jobs more effectively. So this product, the great thing about it is, it solves a problem that gives IT pros pain every day. Believe it or not, they're still using pagers. They're handing the pager to me today, to Mike tomorrow. Today is the next day, or hit it all 3 of us during a Saturday. And so it's a really antiquated way to manage an IT infrastructure, which is why we decided we need to invest in our community, invest in IT pros to solve this problem. The great thing for us is they will literally use this product every single day. This is going to be a part of how they do their job every day. And I think what it shows is that we are continuing to invest in our relationship with IT pros, that we are concerned about the problems they face every day and none of our competitors are. Our competitors are focused on selling to the CIO, they don't even know the IT pro, they don't care about the problems they face every day. And that's the real big difference in our model. So it really is taking our free product model to the next level, with a significant investment in a product that we think is going to make IT pros jobs a whole lot easier. We've got a number of IT pros involved in the beta right now. So the product's not out for general use yet. But we expect we'll get it out before too long and hopefully have a very, very large number of IT pros are beginning to use it, getting experienced with SolarWinds, and look, if we provide a great product for free, imagine how awesome our products are if you actually to pay for them. And those are how we want IT pros to think about the SolarWinds brand.

Operator

And moving on, we'll hear from Steve Ashley of Robert W. Baird.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Great. I'd just like to drill down into the international business. EMEA, very strong, and I was just trying to understand relative to when you are making the improvements in Germany to the website, to the products. This surge in growth is coming ahead of some of those improvements. Am I saying that right? And can you comment on that?

Kevin B. Thompson

So you're right in terms of -- we are still in the process of increasing our web presence in Germany. We've done some good work during 2012, but we still have a lot of work to do on our German web presence and we'll never be done, right? The one thing I've learned about the web is you're never finished. You just keep improving every day and there's really not a finish line you're running at. It's just how you make sure that IT pros are finding you more and more often when they're out looking for solutions to problems. We have a lot of work left to do. Our growth in Europe -- we grew in Germany in 2012 and our growth rate in Germany increased in 2012 over 2011, which was great. Are we anywhere close to where I'd like us to be ultimately? Not even close. We still have a lot of growth that we need to drive in Germany over time. We will continue to improve that German web presence and the awareness of the SolarWinds brand and all the problems our products solve, in 2013 and beyond. The growth in 2012 was driven by some of that work, because we definitely increased our web presence in Germany in 2012. It was driven by the fact that we are doing a better job of selling all of our products in Europe in 2012 than we did in 2011. Part of that is we took some of the product specialization that we developed in North America in 2011 and we implemented that in Europe in 2012. It tends to be, not always, but tends to be our practice to pioneer new things on the sale side in North America. Make sure we've got really define and the process is documented and then we'll roll them out to the rest of the world. And so I think those are some of the things that you saw in 2012. But we've got high hopes for Europe, as we move forward. Their economy has not been great and there's definitely a lot of noise. So we had good year, good growth year, despite that. And we think we can continue to drive strong growth in Europe.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

And maybe a quick comment on Japan. I know, again, a little bit different model there with your partners, was that one of the drivers of Asia-Pac and how is that going?

Kevin B. Thompson

Japan is going well. It definitely contributed to Asia Pac growth, but it was a relatively small contributor, which was consistent with our expectation. Japan is about creating awareness right now. It's about getting the SolarWinds brand much more well known in Japan because very few IT pros in Japan know the brand. Very few IT pros know what to expect from the brand and very few IT pros in Japan know what the brand means. So our 2012 efforts have been about building that initial Japanese web presence, localizing our key network management products, SolarWinds Network Performance Monitor and SolarWinds NetFlow Traffic Analyzer. It's about working with our partners to start to help -- to start to get the message out about all the different areas where we're relevant. So we're making good progress. We're where I expected us to be, as we kind of exit 2012 and as we move into 2013. That will be a contributor to growth in 2013, but it's going to be a process that gets a little bit better every quarter and it's not a big bang kind of approach that we're taking. But it is a market where we believe we can be successful, where we believe we can start to change the expectations of Japanese IT professionals about the enterprise software experience. So that's what we're trying to make sure that we're getting that message out. And so we've done a nice job and we'll continue to really focus on it.

Operator

We'll take our next question from Greg Dunham of Goldman Sachs.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Just a couple. Switching back to the U.S. commercial business, two questions here. What are you seeing in terms of lead flow in that segment of the market? And a follow up would be, and you might have already answered this, but are you expecting to expand the install base team this year as well?

Kevin B. Thompson

Yes, good question. So as I indicated in my remarks, we saw a meaningful increase in demand. In, really, globally, around our network management, system management products, particularly in the fourth quarter and that includes North America. So that's a North American comment, it's a European comment, it's an Asia Pacific comment for that matter, in terms of the level of demand that we're generating. We're doing a better job every day of stepping in front of the demand that exists in the marketplace. As I've indicated before, there are thousands of purchasing cycles going on right now, on the web, we need to step in front of all of them. We're not even close to in front of all of them yet. So we're trying as best we can to try and get in front of them and so we saw a nice increase in demand in the fourth quarter. We hope to be able to continue to drive that increase in demand as we move through 2013. So we continue to learn a lot about how to use the web. It's one of those things that I think I know more today by a good bit, than I knew 12 months ago, and I thought I knew a lot, but it turns out I didn't know very much. So we learning a lot and we're getting better, all the time. We want to be the best company in the world in using the web to reach our potential buyer. We want to be as good as the best B2C companies out there and that really is the focus as we move forward. Now, remind me, the other part of your question, because I got -- install base team. So the way the install base team is going to work is like every other sales team in SolarWinds, which is we will increase the size of that team as we see success. Now, the great thing about our sales model is, I don't have to add reps today to sell something 6 months from now, like most of our enterprise software competitors. Because our reps don't create demand, they respond to demand. And so as we see our communication methodology start to work inside that install base, as we drive and increase level of interaction, then I'm going to add reps. So I really hope to be able to add reps to that team every quarter as we move forward, but we'll only do that as the demand grows. Now, we definitely grew that team a little bit, as we moved into Q1, because we saw the 9% growth in the number of core products owned by our core product customers during 2012. We saw an increase in demand and so we've added a few reps to that team, to respond to that increase, and it's our goal to make that -- hopefully make that a very big team. Because we have an $11 billion opportunity. We just need to get guys to raise their hands and say, "Hey I want to talk." And I'll make sure I've got enough guys on the phone to have that conversation.

Operator

And our next question comes from Kirk Materne of Evercore Partners.

Stewart Materne - Evercore Partners Inc., Research Division

I guess, Kevin, I was curious about your comment on the net man side in terms of potentially seeing acceleration in '13 and just sort of juxtaposing that versus, I think, Mike's high-level comments on '13 about net man sort of guiding in the low 20% range. I guess, can you just talk about, did the -- I mean, you guys see -- you have pretty good visibility into future, I guess, demand in some of the indicators there. I guess, did things get better, I guess, over the course of fourth quarter? And I guess, can you just translate that back into sort of how the guidance plays out because it's not like you guys took up the high level of your numbers a ton, so I was just trying to sort of get those things in order a little bit.

Kevin B. Thompson

Sure. Yes, yes, so first, Mike said greater than 20% for network management, so not just 20%. And I think what we saw in the fourth quarter, as in my response to Greg's comment -- question is, we definitely saw an increase in demand. Now it's our job to make sure we're turning that increase in demand to increased sales. I believe we've done some pretty interesting things on the technology side, to make the product more attractive. We've done some really cool things around configuration management, around IP address management, where we entered 2012 with a product that wasn't that great. We exited 2012 with a product we think is very competitive in managing DNS, DHCP, and IP address management. So we feel like we've got an opportunity to begin to take market share there and it is now it's really about making sure that all the IT pros that are trying to solve that problem know that we can solve that problem for them. And we can do it at a much lower cost and much easier than any of the other solutions that they've been looking at in the past. So I think you can take my comment to believe -- to be that I believe we can. I believe we should, over time. I think implied in our guidance is we believe we're going to have a strong year in 2013. But there's no reason to get of our skis and start to include things in our outlook before we really see all the metrics that we'd like to see improve. I think that's the way we've been providing guidance over the last couple of years, which has given us an ability to be consistent in our performance, to deliver results that are at or above what we committed to. And I think we took the same approach to 2013 guidance that we took to 2011 and 2012.

Stewart Materne - Evercore Partners Inc., Research Division

Great, thanks for the clarification on that. I guess just finally in EMEA, obviously a really, really strong period there. And I think you talked about this a little bit, I guess was there anything sort of one-time in nature in EMEA that's going to be hard for you guys to replicate? Or is it -- do you guys still see enough sort of groundswell demand that as you mentioned being able to outperform the -- I guess, the North American market is still very plausible, even when you're going up, obviously, against much more difficult comps?

Kevin B. Thompson

Yes, definitely the comps will be a lot tougher in 2013 than they were in 2012. We had a good year in EMEA in 2011, but a very, very strong year, obviously, in 2012. I wouldn't say that there was anything particularly one-time. However, what I would say is that we made a lot of changes, in EMEA, coming into 2012. We've put new leadership in place, we've built out a deeper sales marketing team that we had before focused on Europe. We took and implemented a number of approaches that we had tried and were successful in North America, implemented those in EMEA. We'll continue to do some of that in 2013. But we definitely have it included -- if not, included in our guidance that the growth rate will be quite as strong in 2013 on a percentage basis, as it was in 2012. And that's not an indication of our confidence in that market or our confidence in that team. It's just being prudent about how we look at that business. When you come off a growth year as strong as the one we had, I think it's prudent to step back and say, "All right, we're growing off much tougher comparables." And so even though we think we're going to grow very quickly and have a strong year, we're not going to forecast, we're going to grow quite that fast at this point. But we've got a lot of opportunity left to grow. We're not even close to the large [ph] in Germany as we ought to be as a percentage of total European sales. There are a number of other countries in Europe where we ought to be much stronger and that's where the focus will be in 2013 and beyond. And then in continuing to grow and take market share in the markets where we've been strong, we've been strong in the U.K. for a number of years, but I think we can continue to take market share in the U.K. and so we're going to make sure that we don't forget those markets, while we're focusing on the markets where we haven't been doing as well.

Operator

Adam Holt, of Morgan Stanley, has our next question.

Jonathan Parker - Morgan Stanley, Research Division

This is Jon Parker, calling in for Adam. Following up on the one of the earlier points around M&A, I think at your Analyst Day you spoke about potentially spending more than half of your operating cash flow on acquisitions. Is this still the case? And then how should we think about where some of these new market opportunities you alluded to earlier could be focused in? As you guys grow, should we expect any changes in the size or scale of acquisitions that you make?

Kevin B. Thompson

Yes, it's a good question. So I would say is, I don't -- we don't target a certain amount of cash to spend each year on acquisitions. We're out actively looking for the right acquisitions with great technology that we can very quickly put in our go-to-market model. Looking for technology to meet the characteristics I mentioned in my script, which is, it solves a problem that is a must solve problem. It solves a problem that IT pros in organizations of all sizes care about and not just large companies, or not just small companies. So we could spend half, we could spend 25% of our operating cash flow. We could spend more. Mike is tough to beat. He generates a lot of cash. I told my M&A team that he kicked their butt pretty soundly in 2012, because he generates so much more cash than they were able to find, good acquisitions to spend on. But we're going to continue to careful. We're going to make acquisitions we believe will work. We're going to make acquisitions that meet our criteria and that's not the criteria that other companies look at. And if we can find them, we'll make them. If we don't, we won't. I mean, there's a scenario that says we wouldn't buy anything in 2013, if we don't find the right deals to do. We're not out there just trying to do deals, we're out there trying to make the right acquisitions that fit our strategy, that fit our model. So I wouldn't necessarily think about, they're going to spend half, they're going to spend 25%, they're going to spend 75%. Think about it more in the sense of, they will make acquisitions if they can find great technology that fits the model very, very quickly, where we can deliver value to IT pros and we can drive growth in the sales of the company that we're -- of the products we're buying very, very quickly. That's what I'm looking for.

Jonathan Parker - Morgan Stanley, Research Division

That's really helpful. And maybe sort of following up on that point, looking back over last year in the 5 acquisitions you made. How did those products overall perform compared to your targets that you originally had going into those deals?

Kevin B. Thompson

Yes, I would say we feel good about all the technology we added during 2012, both the technology we acquired, as well as the technology that we built. I'd say those technologies all perform consistent or better than our expectation, which is great. I think my team did just a really awesome job of very quickly integrating the acquired products, of getting them into our model, very fast, making any changes in the products that need to be made, in the licensing that needed to be made. So that our sales reps could sell them literally Day 1 in most cases. The team really has gotten good at that and it doesn't mean we'll be able to do it with every deal that we do, because some acquisitions may be slightly more complex than the ones we did in 2012. But we really focused on being quick at integrating the technology first, then the people, or really kind of the same time, the people -- we haven't really added a lot of people to date. So we'll continue to apply that same discipline to everything we look at, which hopefully reduces risk. It doesn't mean there's no risk, there is, but it hopefully reduces risk, because we are trying to take a very disciplined approach to how we look at potential acquisitions.

Operator

Moving next to Gregg Moskowitz, of Cowen and Company.

Gregg Moskowitz - Cowen and Company, LLC, Research Division

Kevin, just to start, you talked about Asia Pac and you made a comment that you think it's positioned for even faster growth in 2013. I'm just wondering if you could elaborate on that.

Kevin B. Thompson

Yes, I think there's a couple of things: So one, we have, be able to [ph] build critical mass, if you will, of a sales team based on the level of demand that we're generating. As we indicated before, we don't add reps to create demand, we add reps to respond to demand. We now have enough reps and enough infrastructure in our management team in Asia to start to implement some of the specialization that we've done in North America that we've already done in Europe, that we have not done in Asia yet. So that's really a part of it. I think the other part is that we have a sales leadership team that, at least in some part, has been with as for quite a long time now in Asia. And we've been able to create some stability and we've got some strong leaders in that market, particularly in the Asia market. And then our VP that runs all of Asia Pac has been with us a long time now. And really, they understand what we do, how we do it, how to train sales rep and that's always a process. As you build a team, as the team grows, what we've learned is you've got to have enough management that really lives and breathes the SolarWinds model, so that they pass it on in the right way. Because it's not just about adding sales reps, it's of adding reps who understand what we do. You can actually add reps and get in the way sometimes here. And I think we've finally gotten to a level of maturity that we can start to build on it. We're not done, we need to build more maturity, more infrastructure in that team. But we definitely making progress in 2012. We want to build on that progress as we move into 2013.

Gregg Moskowitz - Cowen and Company, LLC, Research Division

That's very helpful. And then for Mike, just a couple of questions. I guess, first off, is it fair to assume that there were not any transactions over 500K in the quarter? And just secondly, I wanted to get your view on cash taxes in 2013?

Michael J. Berry

Sure. So, Gregg, to take those in order, no, there were not any transactions more than $500,000 in license revenue in Q4. And cash taxes, right now, we're looking at -- our expectations are probably somewhere between $20 million and $22 million in cash taxes out the door in 2013.

Operator

Our next question will come from Scott Zeller of Needham & Company.

Scott Zeller - Needham & Company, LLC, Research Division

I may -- I apologize if I missed this earlier. I wanted to ask about the license growth for calendar '13. We heard about the March quarter. But calendar '13, given that at Analyst Day, we did hear a range of, I think, it was 20% to 23%.

Michael J. Berry

So Scott, this is Mike. So consistent with the last couple of years, we only are giving out total revenue outlook for the full year. We have not broken it into license and maintenance.

Scott Zeller - Needham & Company, LLC, Research Division

Okay. And then there were a number of questions about international and the prospects for that in '13. I think I heard from the prepared comments that you'll be rolling out the same sales methodology for cross-selling within the install base, internationally. Should we -- just to clarify, was that effort not rolled out internationally during '12?

Kevin B. Thompson

Yes, what I indicated is we rolled some of the methodologies that we created in North America to Europe and Asia Pac during 2012. We had not -- and definitely for the full year, we had not rolled all of the new things that we tried here in North America. We're also implementing a number of additional new approaches in North America right now that, as we get experience with them, as we get them defined, as we get them successful, we would expect during -- sometimes during 2013 to roll those methodologies to Europe and Asia also. So some things Europe and Asia did a good part of 2012. Some of the things we've been doing on the install base side we didn't roll to Europe and Asia until late in 2012. So it's kind of answers -- kind of yes and no to your question.

Operator

And our last question today will come from Tim Klasell of Northland Capital Markets.

Tim Klasell - Northland Capital Markets, Research Division

Just a couple of quick questions. First, your predictability has gotten to be very good despite your high growth and a number of acquisitions. Can you share with us what metrics you focus on to help drive your guidance, if you will?

Kevin B. Thompson

Tim, we focus on a lot of different things, from a metric point of view. It's a bunch of different metrics we look at that range from web traffic, all the way down to close rates by product, by geo, once an opportunity is created in our pipeline. As you know, our sales reps are managing hundreds of opportunities at a time, many, many, many more than any enterprise sales rep manages. So it's really the process and the commitment to that process, the discipline around following that process that allows us to be able to predict how our business is going to perform. So it's too many metrics to give you a list. I just -- suffice it to say, it's everything from very early you know who we are and you've at least come to our website, to we've got an opportunity in our pipeline for a product in a certain geo that we're tracking and what all the conversions along that funnel, from the very earliest all the way down to close one on a transaction that we're tracking. And some of those we look at weekly, some of those we look at monthly. But we're tracking a lot of different things to try to make sure we can triangulate in on expected performance. Because as you know, we don't walk into a quarter with all the deals even close in the pipeline that we're going to close during that quarter. In fact, most of the deals we're going to close at the quarter, we're going to create the opportunity inside the quarter and close it in the quarter. And so it requires us to look at a lot of different things in order to build our forecast and build our outlook.

Tim Klasell - Northland Capital Markets, Research Division

Okay, great. And then just a quick detail here. It looks Quest went to Dell this last summer and now it looks like they're going private. And they had some old product overlap. Are you seeing any extra traction inside of that install base? Or were their products just too complex and too expensive that you didn't [ph]?

Kevin B. Thompson

I'd say that we -- as you know, most of our sales cycles are not competitive in the sense that there's a bake-off with another product. In most cases, your user's out looking for a solution to a problem. They find our website. They find the product. They download it, then one of our sales guy are going to call you and make sure you see how the problem -- how the product solves the problem you already know you have. We definitely have a number of customers who, over time, have bought technology from us to solve a very specific problem, because they can afford to buy us and use us alongside, which is what our model is all about. But we have a number of customers who come to us and say, "Hey, I bought 2 or 3 of your products, I think if I buy these other 2 products, I can get rid of that old framework solution from Quest, HP, IBM, BMC." You keep going with the old framework vendors, and they'll end up displacing. But the great thing about our model is, is because they made that decision, they internally had that conversation, we're not out trying to get them to have that conversation with us. If you call and want to have it, we'll have it, but it's because you've already decided it's the right thing to do. So I do think change creates opportunity. I think that our products are better than Quest. I think that our products are much less expensive than Quest and we solve the problems the way IT pros want to solve them. And that I think most IT pros have no idea what the Quest brands stands for anymore. I think we've been taking advantage of that for a number of years. I expect that we'll continue to take advantage of that. But it's not just with Quest, I think it's with a number of the large, old and tired vendors that are in the spaces we're in. Because they just aren't having a conversation with IT pros that's current. They don't understand their problems, they're not investing in the relationships, right? You look at SolarWinds Alert Central and why did we do that? Because IT pros deserve for us to invest in a relationship with them. They deserve for us to solve some problems for them and not ask for money, because we know that problem needs to be solved and we know they have tight budgets. We should ask for money when we're solving a problem large enough that it makes sense for them to go and get budget. So that's really how we differentiate how we think about the market than folks like Quest.

David Hafner

Okay, great. Thanks to everyone who listened in today. That concludes our fourth quarter earnings call.

Operator

Again, ladies and gentlemen, that does conclude today's conference. Thank you, all, for joining us.

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