Riverbed Technology Reports Record Revenue for Second Fiscal Quarter 2011

Reporting on a GAAP basis, net income for Q2’11 was $11.3 million, or $0.07 per share. This compares to GAAP net income of $6.6 million, or $0.04 per diluted share, in Q2’10. Non-GAAP net income for Q2’11 was $34.9 million, or $0.21 per diluted share, as compared to non-GAAP net income for Q2’10 of $19.2 million, or $0.13 per share.

“Overall it was a solid second quarter, with sales in the U.S. increasing 50% over the prior year,” said Jerry M. Kennelly, Riverbed® president and CEO. “We experienced softness in the EMEA region, which we attribute to both the regional economy and our own execution. Looking ahead, we have confidence in our ability to improve our execution in this region with new EMEA sales leadership announced last week. Our top-line growth was led by a 38% year-over-year increase in product sales. Non-GAAP product gross margin reached an all-time high of 81.5%, and we achieved a record non-GAAP operating margin of 29.6%. Our competitive position is stronger than ever, our product portfolio is even more robust with the acquisitions announced today, and our market opportunity is growing. We expect a strong second half of 2011.”

Q2’11 Financial Highlights

• Total revenue increased 35% year-over-year to $170.3 million
• Product revenue increased 38% year-over-year to $116.9 million
• Service revenue increased 28% year-over-year to $53.4 million
• Record non-GAAP gross margin of 78.7%, compared to 77.3% in Q2’10
• Record non-GAAP operating profit of $50.3 million, increased 65% year-over-year
• Record non-GAAP operating margin of 29.6%, compared to 24.2% in Q2’10
• Record non-GAAP net income of $34.9 million, increased 81% year-over-year
• Cash and investments increased 45% year-over-year to $611.1 million

Q2’11 Business Highlights

• Identified as the WAN optimization controller Advanced Platform worldwide market share leader for Q1’11 based on revenue in the Gartner report, "Market Share: Application Acceleration Equipment, Worldwide, 1Q’11" published by J. Skorupa, N. Pham on June 10, 2011
• Achieved number one Asia Pacific market share ranking for 2010 based on revenue, based on the Asia Pacific WAN Optimization Controller Market CY2010 report by Frost & Sullivan
• Announced with Akamai the intention to develop a joint application acceleration solution for hybrid cloud networks that leverages a combination of Internet optimization and wide area network (WAN) optimization. The planned solution would be designed to accelerate cloud-based applications.
• Introduced three new Riverbed Whitewater(TM) cloud storage gateway models allowing a wider range of organizations to take advantage of the benefits of cloud data protection
• Introduced enhanced architecture for Cascade(R) network performance management (NPM) solution that fully integrates the application-aware NPM functionality of Cascade Profiler(TM) with the Cascade Shark(TM) network traffic recording appliance and Cascade Pilot(TM) network analysis software
• Added enhanced support for Citrix XenDesktop virtual desktop solutions to Steelhead(R) appliance
• Extended the WAN optimization solutions available through the EMC(R) Select Program to include all Steelhead appliance models, Steelhead Mobile, Riverbed Services Platform, Central Management Controller and Interceptor
• Named by Microsoft as an application acceleration hardware partner in the worldwide network of Microsoft Technology Centers (MTCs)
• Received certification under the J.D. Power and Associates Certified Technology Service & Support (CTSS) program and the Technology Service Industry Association's (TSIA) Excellence in Service Operations. Riverbed is one of a select few companies to receive this distinction for global certification under both the J.D. Power and Associates CTSS and the TSIA Excellence in Service Operations program in the same year.
• Ranked third among large companies on the San Francisco Business Times and Silicon Valley/San Jose Business Journal Best Places to Work in the Bay Area 2011 Awards list

Separately, Riverbed announced today the acquisition of two companies, Zeus Technology and Aptimize. Zeus is a privately-owned company based in the United Kingdom. Zeus delivers high performance application delivery control for virtual and cloud environments. Aptimize is a privately-owned company based in New Zealand, and is a leader in web content optimization. Zeus and Aptimize enable asymmetric optimization of applications and web content. Their product offerings are highly complementary to Riverbed’s and will allow Riverbed to be a more strategic vendor to customers.

Conference Call

Riverbed will host a conference call today, July 19, 2011, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss the acquisitions of Zeus Technology and Aptimize, its second quarter 2011 results and outlook for the third quarter of 2011. 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.

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, including non-GAAP operating profit, non-GAAP operating margin, 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, adjustments related to our tax valuation allowance and the interim tax cost of the one-time transfer of intellectual property rights between Riverbed legal entities:

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 incur significant expenses in connection with our acquisitions 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.

Forward-Looking Statements

This press release contains forward-looking statements, including statements relating to our future financial results and the effect of our acquisitions. 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; difficulties encountered in integrating new or acquired businesses and technologies: the inablility to identify and realize the anticipated benefits of acquisitions; the expense and impact of legal proceedings; 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-K filed with the SEC for the period ended December 31, 2010 and our subsequent Form 10-Qs filed with the SEC. 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.

About Riverbed

Riverbed 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 with the business needs of the organization.

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.