Riverbed Technology Reports
Record Second Fiscal Quarter 2010 Financial Results

Revenue Increases 39% Year-over-Year to $126 Million
  • Record revenue and operating profit
  • Cash and investments exceed $422 million
  • Cumulative customer count exceeds 8,300

SAN FRANCISCO – July 22, 2010 — (BUSINESS WIRE)-- Riverbed Technology (NASDAQ:RVBD), the IT performance company, today reported financial results for its second fiscal quarter ended June 30, 2010 (Q2'10). Revenues for Q2'10 were $126.2 million, up 12.3% compared to the first fiscal quarter of 2010 (Q1'10), and up 38.7% compared to the second quarter of fiscal year 2009 (Q2'09).

Reporting on a GAAP basis, net income for Q2'10 was $6.6 million, or $0.09 per diluted share. This compares to GAAP net income of $1.1 million, or $0.01 per share, in Q1'10 and a GAAP net loss of $0.3 million, or $0.00 per share, in Q2'09.

Non-GAAP net income for Q2'10 was $19.2 million, or $0.25 per diluted share, as compared to non-GAAP net income for Q1'10 of $14.8 million, or $0.20 per diluted share, and non-GAAP net income of $10.3 million, or $0.14 per diluted share, in Q2'09. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

"Riverbed® reported a record breaking second quarter as WAN optimization continues to be a strategic priority investment for businesses and governments around the world," said Jerry M. Kennelly, Riverbed president and CEO. "We executed well, achieving 39 percent year-over-year revenue growth with product sales increasing more than 40 percent over the prior year, marking our fourth consecutive quarter of product revenue acceleration." Kennelly added, "We also achieved significant operating leverage with our non-GAAP operating profit doubling over the prior year."

Q2'10 Financial Highlights

  • Total revenue increased 12% sequentially and 39% year-over-year
  • Product revenue increased 13% sequentially and 40% year-over-year
  • Non-GAAP gross margin increased to 77.3%, compared to 77.1% in Q1'10 and 76.1% in Q2'09
  • Non-GAAP operating margin increased to 24.2% compared to 20.8% in Q1'10 and 16.7% in Q2'09
  • Non-GAAP net income increased 30% sequentially and 87% year-over-year
  • Days sales outstanding decreased to 32 days from 34 in Q1'10
  • Cash and investments grew to $422 million compared to $387 million in Q1'10 and $269 million in Q2'09

Q2'10 Business Highlights

  • Identified as the Advanced Platform WAN optimization controller worldwide market share leader for Q1'10 based on revenue in the June 2010 Gartner report, "Market Share Analysis: Application Acceleration Equipment, Worldwide, 1Q10".
  • Further enhanced competitive position with launch of the Riverbed Optimization System (RiOS®) version 6.1 making Riverbed the only WAN optimization vendor to offer optimizations for Microsoft Exchange Server 2010, Microsoft SharePoint 2010, Microsoft Online Services for both Exchange and SharePoint, Lotus Notes 8.5, EMC® SRDF® at both the network and application layers, auto configuration for EMC SRDF, and storage networking optimizations for FCIP traffic over the Brocade 7500 and Cisco MDS gateways.
  • Added five qualified solutions to the Riverbed Services Platform (RSP) including HP Client Automation (HPCA), McAfee Firewall Enterprise, Microsoft Forefront Threat Management Gateway, Polycom Video Edge, and Vyatta Subscription Edition router, firewall and VPN software.
  • Verizon added Riverbed WAN optimization and new consulting services to Verizon Managed WAN Optimization Services, available in 142 countries.
  • Awarded the 2009 EMC Partner Solution Award: Offering of the Year – Symmetrix®.
  • Awarded the 2010 Asia Pacific Frost & Sullivan Application Networking Vendor of the Year Award in recognition of outstanding performance in the Asia Pacific information and communications technology industry. Frost and Sullivan also highlighted Riverbed as the market share leader in the Asia Pacific WAN Optimization Controller Market, CY 2009.
  • Won two Technology Services Industry Association (TSIA) STAR Awards for Best Practices, in the categories of Emerging Company Support and SMB Service Delivery Optimization.
  • Highlighted in Everything Channel's 16th annual 2010 Partner Program Guide as one of North America's top IT vendors for its Riverbed Partner Network (RPN) program.
  • Recognized by the San Francisco Business Times as one of the 2010 Best Places to Work in the San Francisco Bay Area.

Conference Call
Riverbed will host a conference call today, July 22, 2010, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its second quarter 2010 results and outlook for the third quarter of 2010. The call will be broadcast live over the Internet at www.riverbed.com/investors. A replay of the conference call will also be available via webcast for 12 months.

Forward Looking Statements
This press release contains forward-looking statements, including statements related to WAN optimization as an IT spending priority. These forward-looking statements involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include our ability to react to trends and challenges in our business and the markets in which we operate; our ability to anticipate market needs or develop new or enhanced products to meet those needs; the adoption rate of our products; our ability to establish and maintain successful relationships with our distribution partners; our ability to compete in our industry; fluctuations in demand, sales cycles and prices for our products and services; shortages or price fluctuations in our supply chain; our ability to protect our intellectual property rights; general political, economic and market conditions and events; and other risks and uncertainties described more fully in our documents filed with or furnished to the Securities and Exchange Commission. More information about these and other risks that may impact Riverbed's business are set forth in our Form 10-Q filed for the quarter ended March 31, 2010. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements. Any future product, feature or related specification that may be referenced in this release are for information purposes only and are not commitments to deliver any technology or enhancement. Riverbed reserves the right to modify future product plans at any time.

Use of Non-GAAP Financial Information
To supplement our financial results presented in accordance with Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables and the related earnings conference call contain certain non-GAAP financial measures that we believe are helpful in understanding our past financial performance and future results. For reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled, "GAAP to Non-GAAP Reconciliations." Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand and manage our business and forecast future periods. Our non-GAAP financial measures include adjustments based on the following items, as well as the related income tax effects and adjustments related to our tax valuation allowance:

Support deferred revenue: Business combination accounting rules require us to account for the fair value of support contracts assumed in connection with our acquisitions. The book value of our deferred support revenue was reduced in the adjustment to fair value. Because these are typically one-year contracts, our GAAP revenues for the one year period subsequent to the acquisition of a business do not reflect the full amount of service revenues on assumed support contracts that would have otherwise been recorded by the acquired entity. The non-GAAP adjustment is intended to reflect the full amount of such revenues. We believe this adjustment is useful to investors as a measure of the ongoing performance of our business because we have historically experienced high renewal rates on support contracts, although we cannot be certain that customers will renew these contracts.

Stock-based compensation expenses: We have excluded the effect of stock-based compensation and stock-based payroll expenses from our non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to our employees, we continue to evaluate our business performance excluding stock-based compensation expenses. Stock-based compensation expenses will recur in future periods.

Amortization of intangible assets: We have excluded the effect of amortization of intangible assets from our non-GAAP net income. Amortization of intangible assets is a non-cash expense, and it is not part of our core operations. Investors should note that the use of intangible assets contributed to revenues earned during the periods presented and will contribute to future period revenues as well.

Acquisition related and other expenses: We incurred significant expenses in connection with our acquisition of Mazu and also incurred certain other operating expenses, which we would not have otherwise incurred in the periods presented as a part of our continuing operations. Acquisition related and other expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, integration related professional services, and adjustments to the fair value of the acquisition related contingent consideration. We believe it is useful for investors to understand the effects of these items on our total operating expenses.

About Riverbed
Riverbed Technology is the IT performance company. The Riverbed family of wide area network (WAN) optimization solutions liberates businesses from common IT constraints by increasing application performance, enabling consolidation, and providing enterprise-wide network and application visibility – all while eliminating the need to increase bandwidth, storage or servers. Thousands of companies with distributed operations use Riverbed to make their IT infrastructure faster, less expensive and more responsive. Additional information about Riverbed (NASDAQ: RVBD) is available at www.riverbed.com.

Riverbed Technology, Riverbed, Steelhead, RiOS, Interceptor, Think Fast, the Riverbed logo, Mazu, Profiler and Cascade are trademarks or registered trademarks of Riverbed Technology, Inc. All other trademarks used or mentioned herein belong to their respective owners.

 
Riverbed Technology, Inc.
GAAP Condensed Consolidated Statements of Operations      
In thousands, except per share amounts  
Unaudited
  Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
Revenue:
Product $ 84,505 $ 60,314 $ 159,242 $ 120,779
Support and services   41,722     30,673     79,408     58,419  
Total revenue 126,227 90,987 238,650 179,198
 
Cost of revenue:
Cost of product 18,612 14,389 35,244 28,794
Cost of support and services   12,364     9,466     23,598     17,975  
Total cost of revenue 30,976 23,855 58,842 46,769
           
Gross profit 95,251 67,132 179,808 132,429
 
Operating expenses:
Sales and marketing 51,990 42,025 102,058 82,811
Research and development 20,664 17,028 39,549 33,066
General and administrative 11,569 9,092 22,315 18,085
Acquisition-related costs (credits)   -     (2,959 )   2,725     (1,439 )
Total operating expenses 84,223 65,186 166,647 132,523
           
Operating income (loss) 11,028 1,946 13,161 (94 )
 
Other income, net 184 45 299 683
           
Income before provision for income taxes 11,212 1,991 13,460 589
Provision (benefit) for income taxes 4,658 2,281 5,823 (95 )
           
Net income (loss) $ 6,554   $ (290 ) $ 7,637   $ 684  
 
Net income (loss) per share, basic $ 0.09 $ - $ 0.11 $ 0.01
Net income (loss) per share, diluted $ 0.09 $ - $ 0.10 $ 0.01
 
Shares used in computing basic net income (loss) per share 71,936 69,007 71,253 68,868
Shares used in computing diluted net income (loss) per share 76,477 69,007 75,676 70,576
 
 
Riverbed Technology, Inc.      
GAAP to Non-GAAP Reconciliation
In thousands, except per share amounts
Unaudited
      Three months ended Six months ended
GAAP to Non-GAAP Reconciliations: June 30,   March 31, June 30, June 30,
2010 2010 2009 2010 2009
 

Reconciliation of Gross Margin:

U.S. GAAP as reported 75.5 % 75.2 % 73.8 % 75.3 % 73.9 %
Adjustments:
Stock-based compensation (1) 1.2 % 1.2 % 1.4 % 1.3 % 1.3 %
Amortization on intangibles (3) 0.6 % 0.7 % 0.8 % 0.6 % 0.6 %
Deferred revenue adjustment (5)   0.0 %   0.0 %   0.1 %   0.0 %   0.2 %
As Adjusted   77.3 %   77.1 %   76.1 %   77.2 %   76.0 %
 
Reconciliation of Operating Income (Loss):
U.S. GAAP as reported $ 11,028 $ 2,133 $ 1,946 $ 13,161 $ (94 )
Adjustments:
Stock-based compensation (1) 17,715 15,450 13,738 33,165 26,520
Payroll tax on stock-based compensation (2) 573 424 252 997 278
Amortization on intangibles (3) 1,195 1,195 1,195 2,390 1,721
Acquisition-related costs (credits) (4) - 4,156 (2,459 ) 4,156 (572 )
Deferred revenue adjustment (5)   -     -     658     -     974  
As Adjusted $ 30,511   $ 23,358   $ 15,330   $ 53,869   $ 28,827  
 
Reconciliation of Operating Margin:
U.S. GAAP as reported 8.7 % 1.9 % 2.1 % 5.5 % -0.1 %
Adjustments:
Stock-based compensation (1) 14.1 % 13.7 % 15.0 % 14.0 % 14.8 %
Payroll tax on stock-based compensation (2) 0.5 % 0.4 % 0.3 % 0.4 % 0.2 %
Amortization on intangibles (3) 0.9 % 1.1 % 1.3 % 1.0 % 1.0 %
Acquisition-related costs (credits) (4) 0.0 % 3.7 % -2.7 % 1.7 % -0.3 %
Deferred revenue adjustment (5)   0.0 %   0.0 %   0.7 %   0.0 %   0.4 %
As Adjusted   24.2 %   20.8 %   16.7 %   22.6 %   16.0 %
 
Reconciliation of Net Income (Loss):
U.S. GAAP as reported $ 6,554 $ 1,083 $ (290 ) $ 7,637 $ 684
Adjustments:
Stock-based compensation (1) 17,715 15,450 13,738 33,165 26,520
Payroll tax on stock-based compensation (2) 573 424 252 997 278
Amortization on intangibles (3) 1,195 1,195 1,195 2,390 1,721
Acquisition-related costs (credits) (4) - 4,156 (2,459 ) 4,156 (572 )
Deferred revenue adjustment (5) - - 658 - 974
Income tax adjustments (6)   (6,807 )   (7,504 )   (2,808 )   (14,311 )   (10,103 )
As Adjusted $ 19,230   $ 14,804   $ 10,286   $ 34,034   $ 19,502  
 
Reconciliation of Net Income (Loss) per share, diluted:
U.S. GAAP as reported $ 0.09 $ 0.01 $ - $ 0.10 $ 0.01
Adjustments:
Stock-based compensation (1) 0.22 0.21 0.18 0.45 0.38
Payroll tax on stock-based compensation (2) 0.01 - - 0.01 -
Amortization on intangibles (3) 0.02 0.02 0.02 0.03 0.02
Acquisition-related costs (credits) (4) - 0.06 (0.03 ) 0.05 (0.01 )
Deferred revenue adjustment (5) - - 0.01 - 0.01
Income tax adjustments (6)   (0.09 )   (0.10 )   (0.04 )   (0.19 )   (0.14 )
As Adjusted $ 0.25   $ 0.20   $ 0.14   $ 0.45   $ 0.27  
 
Non-GAAP Net income per share, basic $ 0.27 $ 0.21 $ 0.15 $ 0.48 $ 0.28
Non-GAAP Net income per share, diluted (7) $ 0.25 $ 0.20 $ 0.14 $ 0.45 $ 0.27
 
Shares used in computing basic net income per share 71,936 70,569 69,007 71,253 68,868
Shares used in computing diluted net income per share (7) 76,477 74,876 73,611 75,676 72,458
 
Non-GAAP adjustments:
Support and services revenue $ - $ - $ 658 $ - $ 974
Cost of product 881 865 855 1,746 1,276
Cost of support and services 1,398 1,284 1,139 2,682 2,162
Sales and marketing 8,030 7,789 6,768 15,819 13,106
Research and development 5,102 4,750 3,747 9,852 7,050
General and administrative 4,072 3,812 3,176 7,884 5,792
Other acquisition costs (credits) - 2,725 (2,959 ) 2,725 (1,439 )
Provision (benefit) for income taxes   (6,807 )   (7,504 )   (2,808 )   (14,311 )   (10,103 )
Total Non-GAAP Adjustments $ 12,676   $ 13,721   $ 10,576   $ 26,397   $ 18,818  
 
       
(1 ) Stock-based compensation expense is calculated in accordance with the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718, Compensation - Stock Compensation effective January 1, 2006.
(2 ) Payroll tax on stock-based compensation represents the incremental cost for employer payroll taxes on stock option exercises and restricted stock units vested and released.
(3 ) The intangible assets recorded at fair value as a result of our acquisition are amortized over the estimated useful life of the respective asset.
(4 ) We incurred expenses, such as revaluation of the contingent consideration, in connection with our acquisition, which would not have otherwise occurred in the period presented as part of our operating expenses; therefore, these costs or credits are excluded from our non-GAAP operating expenses.
(5 ) Business combination accounting rules require us to account for the fair value of deferred revenue assumed in connection with an acquisition. The non-GAAP adjustment is intended to reflect the full amount of support and service revenue that would have otherwise been recorded by the acquired entity.
(6 ) The non-GAAP tax rate excludes the income tax effects of non-GAAP adjustments. Additionally, the non-GAAP tax rate does not assume a valuation allowance on our deferred tax assets.
(7 ) Non-GAAP diluted earnings per share and non-GAAP diluted weighted average shares outstanding were calculated excluding the effects of expensing stock options under ASC Topic 718 for the three and six month periods ended June 30, 2009.
 
 
Riverbed Technology, Inc.
Condensed Consolidated Balance Sheets
In thousands
             

     June 30,     

December 31,
2010 2009
ASSETS
Current assets:
Cash and cash equivalents $ 134,757 $ 67,749
Short-term investments 227,366 257,938
Trade receivables, net 44,232 48,468
Inventory 9,878 9,742
Deferred tax assets 12,183 9,451
Prepaid expenses and other current assets   18,992     16,816  
Total current assets   447,408     410,164  
 
Long-term investments 59,972 -
Fixed assets, net 21,042 21,698
Goodwill 11,312 11,312
Intangible assets, net 16,999 19,389
Deferred tax assets, non-current 45,451 38,619
Other assets 3,765 4,097
   
Total assets $ 605,949   $ 505,279  
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,713 $ 19,053
Accrued compensation and related benefits 20,944 18,692
Other accrued liabilities 32,172 25,976
Deferred revenue   79,668     64,478  
Total current liabilities   157,497     128,199  
 
Deferred revenue, non-current 22,339 21,972
Other long-term liabilities   4,456     2,801  
Total long-term liabilities   26,795     24,773  
 
 
Stockholders' equity:
Common stock 429,227 367,236
Accumulated deficit (7,212 ) (14,849 )
Accumulated other comprehensive loss   (358 )   (80 )
Total stockholders' equity   421,657     352,307  
 
   
Total liabilities and stockholders' equity $ 605,949   $ 505,279  
 
 
Riverbed Technology, Inc.        
Condensed Consolidated Statements of Cash Flows
In thousands
Unaudited
Six months ended
June 30,
2010 2009
Operating activities:
Net income $ 7,637 $ 684

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 7,534 6,647
Stock-based compensation

33,165

26,520
Deferred taxes (9,594 ) (6,508 )
Excess tax benefit from employee stock plans (5,414 ) (1,340 )
Changes in operating assets and liabilities:
Trade receivables 4,236 (166 )
Inventory (136 ) 1,907
Prepaid expenses and other assets (1,853 ) (122 )
Accounts payable 5,869 (2,159 )
Accruals and other liabilities

6,561

1,207

Acquisition-related contingent consideration

4,156 (1,943 )
Income taxes payable 3,520 (246 )
Deferred revenue   15,557     10,740  
Net cash provided by operating activities 71,238 35,221
 
Investing activities:
Capital expenditures (4,688 ) (5,560 )
Purchase of available for sale securities (274,968 ) (178,446 )
Proceeds from maturities of available for sale securities 207,785 118,599
Proceeds from sales of available for sale securities 37,862 13,500
Acquisitions, net of cash acquired   -     (20,469 )
Net cash used in investing activities (34,009 ) (72,376 )
 
Financing activities:

Proceeds from issuance of common stock under employee stock plans, net of repurchases

26,993 13,983
Cash used to net share settle equity awards (2,300 ) (1,308 )
Payments for repurchases of common stock - (16,806 )
Payment of debt - (5,004 )
Excess tax benefit from employee stock plans   5,414     1,340  
Net cash provided by (used in) financing activities 30,107 (7,795 )
Effect of exchange rate changes on cash and cash equivalents   (328 )   215  
Net increase (decrease) in cash and cash equivalents 67,008 (44,735 )
Cash and cash equivalents at beginning of period   67,749     95,378  
 
Cash and cash equivalents at end of period $ 134,757   $ 50,643  
 
 
Riverbed Technology, Inc.      
Supplemental Financial Information
In thousands
Unaudited   Three months ended Six months ended
June 30,   March 31, June 30, June 30,
2010 2010 2009 2010 2009
Revenue by Geography
 
United States $ 63,820 $ 58,311 $ 49,640 $ 122,131 $ 97,944
Europe, Middle East and Africa 36,842 31,413 24,934 68,255 49,272
Rest of the world   25,565     22,699     16,413     48,264     31,982  
Total revenue $ 126,227   $ 112,423   $ 90,987   $ 238,650   $ 179,198  
 
As a percentage of total revenues:
United States 51 % 52 % 55 % 51 % 55 %
Europe, Middle East and Africa 29 % 28 % 27 % 29 % 27 %
Rest of the world   20 %   20 %   18 %   20 %   18 %

Total revenue

  100 %   100 %   100 %   100 %   100 %
 
Revenue by Sales Channel
 
Direct $ 6,982 $ 9,296 $ 8,232 $ 16,278 $ 15,997
Indirect   119,245     103,127     82,755     222,372     163,201  
Total revenue $ 126,227   $ 112,423   $ 90,987   $ 238,650   $ 179,198  
 
As a percentage of total revenues:
Direct 6 % 8 % 9 % 7 % 9 %
Indirect   94 %   92 %   91 %   93 %   91 %
Total revenue   100 %   100 %   100 %   100 %   100 %

INVESTOR RELATIONS CONTACT
Renee Lyall
Riverbed Technology
415-247-6353
Renee.Lyall@riverbed.com

MEDIA CONTACT
Kristalle Ward
Riverbed Technology
415-247-8140
Kristalle.Ward@riverbed.com

 

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