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SAN FRANCISCO—July 30, 2013— Riverbed Technology (NASDAQ: RVBD), the application performance company, today reported financial results for its second quarter ended June 30, 2013 (Q2'13).
GAAP revenue for Q2'13 was $250 million, compared to $198 million in the second quarter of 2012 (Q2'12), representing 26% year-over-year growth. GAAP net loss for Q2'13 was $16.5 million, or $0.10 per diluted share, compared to GAAP net income of $18.1 million, or $0.11 per diluted share, in Q2'12.
Non-GAAP revenue for Q2'13 was $255 million, an increase of 28% compared to $199 million in Q2'12. Non-GAAP net income for Q2'13 was $36.6 million, or $0.22 per diluted share, compared to non-GAAP net income of $37.3 million, or $0.23 per diluted share, in Q2'12.
"Total non-GAAP revenue increased twenty-eight percent year-over-year, with growth across all major product lines, geographies, and verticals," said Jerry M. Kennelly, chairman and CEO. "Riverbed's core revenue, excluding OPNET, grew 7% sequentially to $215 million in the second quarter. Non-GAAP revenue from the acquired OPNET products was $40 million, as we still have work to do integrating the two companies," continued Kennelly. "Our market expanding products outside of WAN optimization and OPNET grew almost 50% compared to last year, and we believe our multi-product strategy to deliver unmatched application performance will allow us to accelerate the company's revenue growth."
Q2'13 Business Highlights
Riverbed will host a conference call today, July 30, 2013, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its second quarter 2013 results. The call will be broadcast live over the Internet at http://www.riverbed.com/investors. A replay of the conference call will also be available via webcast at http://www.riverbed.com/investors 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 contain certain non-GAAP financial measures, including non-GAAP revenue, non-GAAP net income and non-GAAP net income per share, which 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:
Support and services deferred revenue: Business combination accounting rules require us to account for the fair value of support and service contracts assumed in connection with our acquisitions. The book value of the acquisition deferred support and services revenue related to OPNET was reduced by $19 million in the adjustment to fair value. Because these are typically one to five year contracts, our GAAP revenues for the periods 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.
Inventory and cost of product revenue: Business combination accounting rules require us to account for the fair value of inventory acquired in connection with our acquisitions. The fair value of inventory is estimated as the selling price minus the estimated cost to sell. In the period subsequent to the acquisition, the cost of product revenue includes the higher fair value of the acquired inventory.
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 incur 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 retention costs, integration related professional services, adjustments to the fair value of the acquisition related contingent consideration, the write-down of certain acquired in-progress research and development intangibles, and foreign exchange losses on the acquisition related contingent consideration. We believe it is useful for investors to understand the effects of these items on our total operating expenses.
This press release contains forward-looking statements, including statements relating to market expansion of our product offerings and revenue growth acceleration. 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 and to timely 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 inability 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, 2012, and our subsequent quarterly reports 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 disclaim any 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 the Magic Quadrant
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|GAAP Condensed Consolidated Statements of Operations|
|In thousands, except per share amounts|
|Three months ended
|Six months ended
|Support and services||106,427||69,099||204,526||134,478|
|Cost of revenue:|
|Cost of product||40,463||30,538||81,363||58,427|
|Cost of support and services||29,893||19,258||57,935||38,040|
|Total cost of revenue||70,356||49,796||139,298||96,467|
|Sales and marketing||113,373||77,366||229,094||151,181|
|Research and development||51,018||35,802||99,979||69,913|
|General and administrative||18,321||15,492||37,435||30,126|
|Acquisition-related costs (credits)||7,067||(10,196||)||11,203||(9,640||)|
|Total operating expenses||189,779||118,464||377,711||241,580|
|Operating profit (loss)||(10,225||)||30,208||(20,960||)||42,834|
|Other income (expense), net||(5,909||)||259||(12,273||)||(1,246||)|
|Income (loss) before provision for income taxes||(16,134||)||30,467||(33,233||)||41,588|
|Provision (benefit) for income taxes||387||12,333||(8,602||)||16,505|
|Net income (loss)||$||(16,521||)||$||18,134||$||(24,631||)||$||25,083|
|Net income (loss) per share, basic||$||(0.10||)||$||0.12||$||(0.15||)||$||0.16|
|Net income (loss) per share, diluted||$||(0.10||)||$||0.11||$||(0.15||)||$||0.15|
|Shares used in computing basic net income (loss) per share||163,995||157,261||163,681||157,559|
|Shares used in computing diluted net income (loss) per share||163,995||165,253||163,681||166,381|
|Condensed Consolidated Balance Sheets|
|Cash and cash equivalents||$||218,663||$||280,509|
|Trade receivables, net||93,275||113,190|
|Deferred tax assets||18,312||11,185|
|Prepaid expenses and other current assets||54,817||50,245|
|Total current assets||607,768||649,909|
|Fixed assets, net||51,839||49,244|
|Intangible assets, net||455,313||506,842|
|Deferred tax assets, non-current||77||6,457|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Accrued compensation and related benefits||38,454||60,501|
|Other accrued liabilities||31,117||41,472|
|Current maturities of long-term borrowings||-||5,327|
|Total current liabilities||325,039||339,936|
|Deferred revenue, non-current||97,758||88,393|
|Long-term borrowings, net of current maturities||522,338||566,814|
|Deferred tax liability, non-current||80,479||109,311|
|Other long-term liabilities||46,211||25,663|
|Total long-term liabilities||746,786||790,181|
|Accumulated other comprehensive loss||(2,705||)||(1,268||)|
|Total stockholders' equity||886,679||894,222|
|Total liabilities and stockholders' equity||$||1,958,504||$||2,024,339|
|Condensed Consolidated Statements of Cash Flows|
|Six months ended
|Net income (loss)||$||(24,631||)||$||25,083|
|Adjustments to reconcile net income to net cash provided by operating activities:|
|Depreciation and amortization||62,780||18,455|
|Excess tax benefit from employee stock plans||(4,683||)||(12,170||)|
|Other non-cash items||1,213||-|
|Changes in operating assets and liabilities:|
|Prepaid expenses and other assets||(6,136||)||(838||)|
|Accruals and other liabilities||(11,384||)||(34,729||)|
|Acquisition-related contingent consideration||-||(11,682||)|
|Income taxes payable||(1,974||)||12,125|
|Net cash provided by operating activities||80,573||45,410|
|Purchase of available for sale securities||(229,009||)||(297,154||)|
|Proceeds from maturities of available for sale securities||161,250||225,202|
|Proceeds from sales of available for sale securities||15,045||82,051|
|Acquisitions, net of cash acquired||(1,000||)||(6,458||)|
|Net cash used in investing activities||(66,341||)||(7,664||)|
|Proceeds from issuance of common stock under employee stock plans, net of repurchases||49,813||23,613|
|Cash used to net share settle equity awards||(4,289||)||(4,278||)|
|Payments for repurchases of common stock||(75,078||)||(101,408||)|
|Payment of debt||(50,015||)||-|
|Excess tax benefit from employee stock plans||4,683||12,170|
Net cash used in financing activities
|Effect of exchange rate changes on cash and cash equivalents||(1,192||)||1,700|
|Net decrease in cash and cash equivalents||(61,846||)||(30,457||)|
|Cash and cash equivalents at beginning of period||280,509||215,476|
|Cash and cash equivalents at end of period||$||218,663||$||185,019|
|Supplemental Financial Information|
|Three months ended||Six months ended|
|Revenue by Geography|
|Europe, Middle East and Africa||59,397||57,834||51,672||117,231||102,210|
|As a percentage of total revenues:|
|Europe, Middle East and Africa||24||%||23||%||26||%||24||%||27||%|
|Revenue by Sales Channel|
|As a percentage of total revenues:|
|GAAP to Non-GAAP Reconciliation|
|In thousands, except per share amounts|
|Three months ended||Six months ended|
|GAAP to Non-GAAP Reconciliations:||June 30,
|Reconciliation of Total revenue:|
|U.S. GAAP as reported||$ 249,910||$ 246,139||$ 198,468||$ 496,049||$ 380,881|
|Deferred revenue adjustment (6)||4,842||6,479||
|As adjusted||$ 254,752||$ 252,618||
|$ 507,370||$ 382,208|
|Reconciliation of Net income (loss):|
|U.S. GAAP as reported||$ (16,521)||$ (8,110)||$ 18,134||$ (24,631)||$ 25,083|
|Stock-based compensation (1)||25,529||24,526||22,943||50,055||45,918|
|Payroll tax on stock-based compensation (2)||1,076||393||737||1,469||1,424|
|Amortization on intangibles (3)||25,818||26,310||5,417||52,128||10,861|
|Acquisition-related costs (credits) (5)||7,751||4,564||(9,593)||12,315||(7,644)|
|Inventory fair value adjustment (4)||191||1,509||-||1,700||-|
|Deferred revenue adjustment (6)||4,842||6,479||498||11,321||1,327|
|Other income (expense), net (8)||-||-||(51)||-||2,087|
|Income tax adjustments (7)||(12,127)||(17,014)||(740)||(29,141)||(8,260)|
|As adjusted||$ 36,559||$ 38,657||$ 37,345||$ 75,216||$ 70,796|
|Reconciliation of Net income (loss) per share, diluted:|
|U.S. GAAP as reported||$ (0.10)||$ (0.05)||$ 0.11||$ (0.15)||$ 0.15|
|Stock-based compensation (1)||0.15||0.14||0.15||0.30||0.28|
|Payroll tax on stock-based compensation (2)||0.01||-||-||0.01||0.01|
|Amortization on intangibles (3)||0.15||0.16||0.03||0.31||0.07|
|Acquisition-related costs (credits) (5)||0.05||0.03||(0.06)||0.07||(0.05)|
|Inventory fair value adjustment (4)||-||0.01||-||0.01||-|
|Deferred revenue adjustment (6)||0.03||0.04||-||0.07||0.01|
|Other income (expense), net (8)||-||-||-||-||0.01|
|Income tax adjustments (7)||(0.07)||(0.10)||-||(0.17)||(0.05)|
|As adjusted||$ 0.22||$ 0.23||$ 0.23||$ 0.45||$ 0.43|
|Non-GAAP Net income per share, basic||$ 0.22||$ 0.24||$ 0.24||$ 0.46||$ 0.45|
|Non-GAAP Net income per share, diluted||$ 0.22||$ 0.23||$ 0.23||$ 0.45||$ 0.43|
|Shares used in computing basic net income per share||163,995||163,367||157,261||163,681||157,559|
|Shares used in computing diluted net income per share||168,126||169,415||165,253||168,770||166,381|
|Support and services revenue||$ 4,842||$ 6,479||$ 498||$ 11,321||$ 1,327|
|Cost of product||12,413||13,612||3,857||26,025||7,724|
|Cost of support and services||2,506||1,861||1,843||4,367||3,486|
|Sales and marketing||24,821||25,479||10,705||50,300||22,712|
|Research and development||9,668||7,738||8,107||17,406||16,198|
|General and administrative||3,890||4,476||5,188||8,366||10,079|
|Acquisition-related costs (credits)||7,067||4,136||(10,196)||11,203||(9,640)|
|Other income (expense), net (8)||-||-||(51)||-||2,087|
|Provision for income taxes||(12,127)||(17,014)||(740)||(29,141)||(8,260)|
|Total Non-GAAP adjustments||$ 53,080||$ 46,767||$ 19,211||$ 99,847||$ 45,713|
(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) The inventory fair value adjustment recorded pursuant to our acquisition is excluded from our non-GAAP operating expenses as this cost would not have otherwise occurred in the period presented.
(5) We incurred expenses in connection with our acquisitions, 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.
(6) 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.
(7) The non-GAAP tax rate excludes the income tax effects of non-GAAP adjustments. Additionally, the non-GAAP tax rate includes adjustments to our tax valuation allowance on deferred tax assets and excludes the interim tax cost of the one-time transfer of intellectual property rights between our legal entities.
(8) We incurred expenses, including revaluation of the contingent consideration, in connection with our acquisitions, which would not have otherwise occurred in the period presented as part of our other income (expense); therefore, these costs are excluded from our non-GAAP operating expenses.
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