Riverbed Technology Reports Record Third Quarter 2009 Financial Results as Revenue Exceeds $100 Million

(BUSINESS WIRE) Riverbed™ Technology (NASDAQ: RVBD), the IT infrastructure performance company for networks, applications and storage, today reported financial results for its third quarter ended September 30, 2009 (Q3'09).

Total GAAP revenue for Q3'09 was $102.0 million, an increase of 12% from $91.0 million reported in the second quarter of fiscal year 2009 (Q2'09) and an increase of 18% from $86.5 million of revenue reported in the third quarter of fiscal year 2008 (Q3'08). GAAP net income for Q3'09 was $5.5 million, or $0.08 per share. This compares to a GAAP net loss in Q2'09 of $290,000, or $0.00 per share, and a GAAP net loss of $12.4 million, or $0.17 per share, in Q3'08.

Non-GAAP revenue for Q3'09 was $102.6 million, an increase of 12% from $91.6 million of non-GAAP revenue reported in Q2'09 and an increase of 18% from $86.5 million of revenue reported in Q3'08. Non-GAAP net income for Q3'09 was $14.5 million, or $0.19 per diluted share. This compares to non-GAAP net income for Q2'09 of $10.3 million, or $0.14 cents per diluted share, and non-GAAP net income for Q3'08 of $11.0 million, or $0.15 per share.

"We are pleased with our third quarter financial results," said Jerry M. Kennelly, Riverbed® President and CEO. "We were able to generate record revenue and strong sequential and year-over-year growth against the backdrop of a still challenging global economy. As a critical enabler of fundamental business initiatives including virtualization, cloud computing and reducing data infrastructure costs, WAN optimization continues to be a top IT priority."

Q3'09 Financial Highlights

• Revenue increased 12% sequentially and 18% year-over-year
• Non-GAAP gross margin increased to 78%
• Non-GAAP operating margin increased to 22%
• Non-GAAP net income increased 41% sequentially and 32% year-over-year
• Days sales outstanding decreased to 42 days
• Deferred revenue increased to $76 million
• Cash flow from operations increased to $38 million
• Cash, cash equivalents, and marketable securities totaled approximately $297 million and no debt

Q3'09 Business Highlights

• Identified as the WAN optimization controller (WOC) Advanced Platform worldwide market share leader for Q2'09 based on revenue in the Gartner report, "Market Share: Application Acceleration Equipment, Worldwide, Q2'09"
• Positioned by Gartner in the leaders quadrant in the "Magic Quadrant for WAN Optimization Controllers 2009"
• Added eight Fortune 500 customers, with cumulative customer count approaching 7,000
• Introduced Central Management Console - Virtual Edition (CMC-VE) designed for managed service providers (MSPs). The new capabilities of CMC-VE allow MSPs to reduce operational costs, improve visibility, easily scale and flexibly allocate management licenses to enterprise customers through its new multi-tenant capabilities. CMC-VE runs on VMWare ESX, and MSPs can run it on any existing server that has capacity.

Conference Call

Riverbed will host a conference call today, October 22, 2009, at 2:30 p.m. Pacific Time (5:30 p.m. Eastern Time) to discuss its third quarter fiscal year 2009 results and outlook for the fourth quarter of 2009. The call will be broadcast live over the Internet. 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 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 June 30, 2009. 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 by approximately $2.0 million 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 delivers performance for the globally connected enterprise. With Riverbed, enterprises can successfully and intelligently implement strategic initiatives such as virtualization, consolidation, cloud computing, and disaster recovery without fear of compromising performance. By giving enterprises the platform they need to understand, optimize and consolidate their IT, Riverbed helps enterprises to build a fast, fluid and dynamic IT architecture that aligns the business needs of the organization. Additional information about Riverbed (NASDAQ: RVBD) is available at www.riverbed.com.

Riverbed and any Riverbed product or service name or logo used herein are trademarks of Riverbed Technology, Inc. All other trademarks used herein belong to their respective owners.

About the Magic Quadrant

The Magic Quadrant is copyrighted 2009 by Gartner, Inc. and is reused with permission. The Magic Quadrant is a graphical representation of a marketplace at and for a specific time period. It depicts Gartner's analysis of how certain vendors measure against criteria for that marketplace, as defined by Gartner. Gartner does not endorse any vendor, product or service depicted in the Magic Quadrant, and does not advise technology users to select only those vendors placed in the "Leaders" quadrant. The Magic Quadrant is intended solely as a research tool, and is not meant to be a specific guide to action. Gartner disclaims all warranties, express or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

  
Riverbed Technology 
GAAP Condensed Consolidated Statements of Operations 
In thousands, except per share amounts 
Unaudited