Riverbed Technology Reports Record Fourth Quarter Revenue of $113 Million

Riverbed™ Technology (NASDAQ:RVBD), the IT infrastructure performance company for networks, applications and storage, today reported financial results for its fourth quarter (Q4’09) and fiscal year ended December 31, 2009 (FY’09).

Total GAAP revenue for Q4’09 was $112.9 million, an increase of 11% from $102.0 million reported in the third quarter of fiscal year 2009 (Q3’09) and an increase of 22% from $92.2 million reported in the fourth quarter of fiscal year 2008 (Q4’08). For fiscal year 2009 (FY’09), GAAP revenue was $394.1 million, up 18% from $333.3 million in fiscal year 2008 (FY’08). Non-GAAP revenue for Q4’09 was $113.2 million, an increase of 10% from $102.6 million of non-GAAP revenue reported in Q3’09 and an increase of 23% from $92.2 million of revenue reported in Q4’08. FY’09 non-GAAP revenue was $395.9 million, up 19% from $333.3 million in FY’08.

GAAP net income for Q4’09 was $0.9 million, or $0.01 per share. This compares to GAAP net income of $5.5 million, or $0.08 per share, in Q3’09 and $23.3 million, or $0.33 per share, in Q4’08. GAAP net income for FY’09 was $7.1 million, or $0.10 per share, compared to GAAP net income of $10.6 million, or $0.14 per diluted share, in FY’08. Non-GAAP net income for Q4’09 was $16.1 million, or $0.21 per diluted share. This compares to non-GAAP net income for Q3’09 of $14.5 million, or $0.19 cents per diluted share, and non-GAAP net income for Q4’08 of $13.6 million, or $0.19 per share. Non-GAAP net income for FY’09 was $50.1 million, or $0.68 per diluted share, which compares to non-GAAP net income of $42.5 million, or $0.57 per diluted share in FY’08.

/>“2009 was a year of significant achievement for Riverbed® characterized by market share gains every reported quarter,” said Jerry M. Kennelly, Riverbed chairman and CEO. “We executed well in a difficult economy, achieving strong revenue and profit growth while still advancing our technology. For the full year, both non-GAAP revenue and earnings per share increased 19 percent.”

“Sales momentum continued in the fourth quarter driven by growth in enterprise sales across all major geographies,” continued Kennelly. “Product revenue increased 12 percent sequentially and 15 percent year-over-year. In addition to providing a solid return on investment, WAN optimization was recognized as a critical enabler to the success of a variety of important IT projects including virtualization and consolidation, firmly establishing WAN optimization as a top priority item on IT spending surveys.”
Q4’09 and FY’09 Financial Highlights

•     Q4’09 non-GAAP revenue increased 10% sequentially and 23% year-over-year, with FY’09 non-GAAP revenue increasing 19%
•     Q4’09 non-GAAP gross margin was 77.3%, FY’09 non-GAAP gross margin was 76.9%
•     Q4’09 non-GAAP operating margin was 21.3%, FY’09 non-GAAP operating margin was 19.0%
•     Q4’09 non-GAAP net income increased 11% sequentially and 18% year-over-year
•     Days sales outstanding decreased to 39 days from 42 days in the prior quarter
•     Deferred revenue increased 14% sequentially
•     Q4’09 cash flow from operations of $23.1 million, and FY’09 cash flow from operations of $96.5 million
•     Cash, cash equivalents, and marketable securities totaled $325.7 million and no debt as of December 31, 2009

•     Identified as the WAN optimization controller (WOC) Advanced Platform worldwide market share leader for Q1’09, Q2’09 and Q3’09 based on revenue in the Gartner report, "Market Share: Application Acceleration Equipment, Q3’09"
•     Positioned by Gartner in the leaders quadrant in the "Magic Quadrant for WAN Optimization Controllers 2009"
•     Completed the acquisition of Mazu Networks allowing Riverbed to offer the most compelling enterprise-wide system for closed-loop application performance delivery over the WAN
•     Added EMC Select as distribution channel and achieved E-lab qualification with certain EMC products to accelerate disaster recovery and business continuity solutions
•     Achieved qualification with Hitachi TrueCopy Remote Replication and Hitachi Universal Replicator products for business continuity and disaster recovery
•     Extended relationship with Microsoft by announcing an OEM agreement to license Windows Server 2008 and support for Microsoft Windows Server 2008 R2 and BranchCache on the Riverbed Services Platform (RSP)
•     Included as the only WAN optimization vendor in HP ProCurve ONE
•     Cumulative customer count exceeding 7,300
•     Launched multiple new software releases including Riverbed Optimization System (RiOS™) 6.0, Steelhead® Mobile 3.0, Cascade® 8.3, and Central Management Console-Virtual Edition (CMC-VE)
•     Added four qualified solutions to RSP including Check Point Security Gateway R70™, Microsoft Windows Server 2008, Websense Web Security, and Riverbed’s Mobile SMC-VE

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o 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, including non-GAAP revenue, non-GAAP net income, non-GAAP gross margin and non-GAAP operating margin, 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 related payroll tax 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.

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.