Riverbed Technology Reports 45% Year-Over-Year Revenue Growth for First Fiscal Quarter 2011

• Product revenue increases 50% year-over-year
• Operating profit increases more than 100% year-over-year
• Cash and investments exceed $564 million

SAN FRANCISCO--(BUSINESS WIRE)--Riverbed Technology (NASDAQ: RVBD), the IT performance company, today reported financial results for its first quarter ended March 31, 2011 (Q1’11). Revenue for Q1’11 was $163.6 million, up 45% compared to the first quarter of fiscal year 2010 (Q1’10).

Reporting on a GAAP basis, net income for Q1’11 was $13.0 million, or $0.08 per diluted share. This compares to GAAP net income of $1.1 million, or $0.01 per share, in Q1’10. Non-GAAP net income for Q1’11 was $33.9 million, or $0.20 per diluted share, as compared to non-GAAP net income for Q1’10 of $14.8 million, or $0.10 per share.

“We are pleased with the strong results we generated in the first quarter,” said Jerry M. Kennelly, Riverbed® president and CEO. “We demonstrated solid execution. Top-line expansion was fueled by 50% year-over-year product revenue growth, and our operating profit more than doubled over the prior year period. Riverbed’s technology allows enterprises to successfully implement strategic initiatives such as virtualization, consolidation, cloud computing, and disaster recovery without compromising performance. These trends continue to drive our growth.”

Q1’11 Financial Highlights

• Total revenue increased 45% year-over-year to $163.6 million
• Product revenue increased 50% year-over-year to $112.2 million
• Service revenue increased 36% year-over-year to $51.4 million
• Non-GAAP gross margin increased to 78.4% from 77.1% in Q1’10
• Record non-GAAP operating profit of $47.9 million, increased 105% year-over-year
• Record non-GAAP operating margin of 29.3%, compared to 20.8% in Q1’10
• Record non-GAAP net income of $33.9 million, increased 129% year-over-year
• Cash and investments increased 46% year-over-year to $564.4 million
• Total assets increased 48% year-over-year to $832.0 million

Q1’11 Business Highlights

• Identified as the WAN optimization controller Advanced Platform worldwide market share leader for Q4'10 and calendar year 2010 based on revenue in the Gartner report, "Market Share: Application Acceleration Equipment, Worldwide, 4Q'10 and 2010" published by J. Skorupa, N. Pham on March 3, 2011
• Awarded IDG's InfoWorld 2011 Technology of the Year Award in the Best WAN Accelerator category for the sixth consecutive time
• Launched Riverbed Optimization System (RiOS®) 6.5, including a new classification and QoS (Hierarchical Fair Service Curve - HFSC) engine, full-spectrum optimizations for Microsoft Outlook Anywhere as well as native support for SMB v2. Riverbed Steelhead® appliances can now optimize SSL connections that use client-side certificates and can be managed via IPv6. For satellite networks the Riverbed Steelhead® appliance has integration with LTTS, and TCP Westwood as well as SCPS on RSP.
• Introduced Cascade® 9.0, providing customers with fine-grained classification of traffic, including advanced Layer-7 awareness and a single business-level performance view of applications and services

• Received EMC(R) E-Lab(TM) qualification for EMC RecoverPoint, the leading solution for intelligent network-based data protection and disaster recovery, for the Steelhead appliance.

Conference Call

Riverbed will host a conference call today, April 19, 2011, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its first quarter 2011 results and outlook for the second 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 expected future growth. 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-K filed with the SEC for the period ended December 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.

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.

Riverbed Technology, Inc.
GAAP Condensed Consolidated Statements of Operations
In thousands, except per share amounts
Unaudited
		Three months ended
		March 31,
		2011		2010
Revenue:
	Product	$	112,152	$	74,737
	Support and services		51,411		37,686
	Total revenue		163,563		112,423
Cost of revenue:
	Cost of product		23,735		16,632
	Cost of support and services		15,220		11,234
	Total cost of revenue		38,955		27,866
Gross profit			124,608		84,557
Operating expenses:
	Sales and marketing		61,084		50,068
	Research and development		28,309		18,885
	General and administrative		13,683		10,746
	Acquisition-related costs		-		2,725
	Total operating expenses		103,076		82,424
Operating profit			21,532		2,133
Other income, net			498		115
	Income before provision for income taxes		22,030		2,248
	Provision for income taxes		8,985		1,165
Net income		$	13,045	$	1,083
Net income per share, basic		$	0.09	$	0.01
Net income per share, diluted		$	0.08	$	0.01
Shares used in computing basic net income per share			152,034		141,138
Shares used in computing diluted net income per share			166,460		149,752

Riverbed Technology, Inc.
Condensed Consolidated Balance Sheets
In thousands
Unaudited
		March 31,		December 31,
		2011		2010
ASSETS
Current assets:
	Cash and cash equivalents	$	196,948	$	165,726
	Short-term investments		274,935		259,245
	Trade receivables, net		61,227		50,726
	Inventory		15,527		15,180
	Deferred tax assets		22,817		20,832
	Prepaid expenses and other current assets		27,704		30,958
	Total current assets		599,158		542,667
Long-term investments			92,508		76,169
Fixed assets, net			22,466		21,522
Goodwill			25,078		25,653
Intangible assets, net			28,665		30,789
Deferred tax assets, non-current			38,842		35,775
Other assets			25,249		3,506
	Total assets	$	831,966	$	736,081
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable	$	26,961	$	27,015
	Accrued compensation and related benefits		29,243		32,915
	Other accrued liabilities		16,902		18,813
	Deferred revenue		103,237		89,026
	Total current liabilities		176,343		167,769
Deferred revenue, non-current			28,898		26,511
Other long-term liabilities			12,026		4,381
	Total long-term liabilities		40,924		30,892
Stockholders' equity:
	Common stock		582,010		518,052
	Retained earnings		32,354		19,309
	Accumulated other comprehensive gain		335		59
	Total stockholders' equity		614,699		537,420
	Total liabilities and stockholders' equity	$	831,966	$	736,081

Riverbed Technology, Inc.
Condensed Consolidated Statements of Cash Flows
In thousands
Unaudited
		Three months ended
		March 31,
			2011			2010
Operating activities:
	Net income	$	13,045		$	1,083
	Adjustments to reconcile net income to net
	cash provided by operating activities:
	Depreciation and amortization		4,760			3,068
	Stock-based compensation		21,941			15,450
	Deferred taxes		(5,017	)		(4,170	)
	Excess tax benefit from employee stock plans		(21,220	)		(1,486	)
	Changes in operating assets and liabilities:
	Trade receivables		(10,501	)		5,448
	Inventory		(347	)		3,038
	Prepaid expenses and other assets		(18,490	)		(237	)
	Accounts payable		(296	)		1,487
	Accruals and other liabilities		2,637			4,990
	Acquisition-related contingent consideration		-			4,156
	Income taxes payable		21,679			2,992
	Deferred revenue		16,599			14,608
	Net cash provided by operating activities		24,790			50,427
Investing activities:
	Capital expenditures		(3,338	)		(2,549	)
	Purchase of available for sale securities		(168,242	)		(116,075	)
	Proceeds from maturities of available for sale securities		112,956			52,468
	Proceeds from sales of available for sale securities		23,205			-
	Net cash used in investing activities		(35,419	)		(66,156	)
Financing activities:
	Proceeds from issuance of common stock under employee
	stock plans, net of repurchases		20,338			12,533
	Excess tax benefit from employee stock plans		21,220			1,486
	Net cash provided by financing activities		41,558			14,019
Effect of exchange rate changes on cash and cash equivalents			293			(199	)
Net change in cash and cash equivalents			31,222			(1,909	)
Cash and cash equivalents at beginning of period			165,726			67,749
Cash and cash equivalents at end of period		$	196,948		$	65,840

Riverbed Technology, Inc.
Supplemental Financial Information
In thousands
Unaudited
		Three months ended
		March 31,			December 31,			March 31,
			2011			2010			2010
Revenue by Geography
	United States	$	90,339		$	91,661		$	58,311
	Europe, Middle East and Africa		39,049			42,987			31,413
	Rest of the world		34,175			30,785			22,699
	Total revenue	$	163,563		$	165,433		$	112,423
	As a percentage of total revenues:
	United States		55	%		55	%		52	%
	Europe, Middle East and Africa		24	%		26	%		28	%
	Rest of the world		21	%		19	%		20	%
	Total revenue		100	%		100	%		100	%
Revenue by Sales Channel
	Direct	$	8,798		$	7,526		$	9,296
	Indirect		154,765			157,907			103,127
	Total revenue	$	163,563		$	165,433		$	112,423
	As a percentage of total revenues:
	Direct		5	%		5	%		8	%
	Indirect		95	%		95	%		92	%
	Total revenue		100	%		100	%		100	%

Riverbed Technology, Inc.
GAAP to Non-GAAP Reconciliation
In thousands, except per share amounts
Unaudited
			Three months ended
GAAP to Non-GAAP Reconciliations:			March 31,			December 31,			March 31,
				2011			2010			2010
Reconciliation of Gross Profit:
	U.S. GAAP as reported		$	124,608		$	126,294		$	84,557
	Adjustments:
		Stock-based compensation (1)		1,741			1,732			1,383
		Payroll tax on stock-based compensation (2)		239			162			26
		Amortization on intangibles (3)		1,560			1,287			740
		Inventory fair value adjustment (4)		114			376			-
	As Adjusted		$	128,262		$	129,851		$	86,706
Reconciliation of Gross Margin:
	U.S. GAAP as reported			76.2	%		76.3	%		75.2	%
	Adjustments:
		Stock-based compensation (1)		1.0	%		1.1	%		1.2	%
		Payroll tax on stock-based compensation (2)		0.1	%		0.1	%		0.0	%
		Amortization on intangibles (3)		1.0	%		0.8	%		0.7	%
		Inventory fair value adjustment (4)		0.1	%		0.2	%		0.0	%
	As Adjusted			78.4	%		78.5	%		77.1	%
Reconciliation of Operating Profit:
	U.S. GAAP as reported		$	21,532		$	20,593		$	2,133
	Adjustments:
		Stock-based compensation (1)		21,941			20,305			15,450
		Payroll tax on stock-based compensation (2)		2,159			1,634			424
		Amortization on intangibles (3)		2,123			1,815			1,195
		Acquisition-related costs (credits) (5)		-			1,104			4,156
		Inventory fair value adjustment (4)		114			376			-
	As Adjusted		$	47,869		$	45,827		$	23,358
Reconciliation of Operating Margin:
	U.S. GAAP as reported			13.2	%		12.4	%		1.9	%
	Adjustments:
		Stock-based compensation (1)		13.4	%		12.3	%		13.7	%
		Payroll tax on stock-based compensation (2)		1.3	%		1.0	%		0.4	%
		Amortization on intangibles (3)		1.3	%		1.1	%		1.1	%
		Acquisition-related costs (credits) (5)		0.0	%		0.7	%		3.7	%
		Inventory fair value adjustment (4)		0.1	%		0.2	%		0.0	%
	As Adjusted			29.3	%		27.7	%		20.8	%
Reconciliation of Net Income:
	U.S. GAAP as reported		$	13,045		$	12,611		$	1,083
	Adjustments:
		Stock-based compensation (1)		21,941			20,305			15,450
		Payroll tax on stock-based compensation (2)		2,159			1,634			424
		Amortization on intangibles (3)		2,123			1,815			1,195
		Acquisition-related costs (credits) (5)		-			1,104			4,156
		Inventory fair value adjustment (4)		114			376			-
		Income tax adjustments (6)		(5,496	)		(6,114	)		(7,504	)
	As Adjusted		$	33,886		$	31,731		$	14,804
Reconciliation of Net Income per share, diluted:
	U.S. GAAP as reported		$	0.08		$	0.08		$	0.01
	Adjustments:
		Stock-based compensation (1)		0.13			0.12			0.10
		Payroll tax on stock-based compensation (2)		0.01			0.01			-
		Amortization on intangibles (3)		0.01			0.01			0.01
		Acquisition-related costs (credits) (5)		-			0.01			0.03
		Income tax adjustments (6)		(0.03	)		(0.04	)		(0.05	)
	As Adjusted		$	0.20		$	0.19		$	0.10
Non-GAAP Net income per share, basic			$	0.22		$	0.21		$	0.10
Non-GAAP Net income per share, diluted			$	0.20		$	0.19		$	0.10
Shares used in computing basic net income per share (7)				152,034			149,058			141,138
Shares used in computing diluted net income per share (7)				166,460			163,359			149,752
	Non-GAAP adjustments:
		Cost of product	$	1,942		$	1,838		$	865
		Cost of support and services		1,712			1,719			1,284
		Sales and marketing		10,123			9,287			7,789
		Research and development		7,306			6,846			4,750
		General and administrative		5,254			4,926			3,812
		Other acquisition costs (credits)		-			618			2,725
		Provision for income taxes		(5,496	)		(6,114	)		(7,504	)
	Total Non-GAAP Adjustments		$	20,841		$	19,120		$	13,721

(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 acquisitions 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, such as revaluation of the contingent consideration, 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)	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.
(7)	Shares used in computing basic and diluted net income per share is reflective of the stock split for all periods presented.