Riverbed Technology Reports Record Third Quarter 2012 Revenue and Profits

Revenue grows 10% sequentially and 15% over prior year
Cash and investments exceed $670 million

SAN FRANCISCO--()--Riverbed Technology, Inc. (NASDAQ:RVBD), the performance company, today reported financial results for its third quarter ended September 30, 2012 (Q3'12).

GAAP revenue for Q3’12 was $219 million, an increase of 10% compared to $198 million in the second quarter 2012 (Q2’12) and an increase of 15% compared to $190 million in the third quarter 2011 (Q3’11). GAAP net income for Q3’12 was $25 million, or $0.15 per diluted share, compared to $18 million, or $0.11 per diluted share, in Q2’12 and $19 million, or $0.12 per diluted share, in Q3’11.

Non-GAAP revenue for Q3’12 was $219 million, an increase of 10% compared to $199 million in Q2’12 and an increase of 15% compared to $191 million in Q3’11. Non-GAAP net income for Q3’12 was $46 million, or $0.28 per diluted share, compared to $37 million, or $0.23 per diluted share, in Q2’12 and $40 million, or $0.24 per diluted share, in Q3’11.

“The results we are announcing today reflect Riverbed’s position as a leader in the evolution to the software defined data center,” said Jerry M. Kennelly, President and CEO. “Sales of new products continued to ramp in the third quarter, and we saw strong enterprise growth as customers embrace Riverbed as a strategic vendor whose products deliver the best performance and highest availability.”

“Healthy revenue growth and good cost control generated record profits,” added Randy S. Gottfried, Chief Financial Officer. “Cash and investments grew by more than $100 million and totaled more than $670 million at September 30, 2012.”

Financial Highlights

  • Total revenue increased 10% sequentially and 15% year-over-year to record $219 million
  • Product revenue increased 12% sequentially and 9% year-over-year to record $145 million
  • Record Non-GAAP gross margin of 79.6%, compared to 77.8% in Q2’12
  • Non-GAAP operating profit increased 26% sequentially and 10% year-over-year to record $63 million
  • Non-GAAP net income increased 23% sequentially and 15% year-over-year to record $46 million
  • Total cash and investments of $670 million at September 30, 2012, compared to $550 million at June 30, 2012, and $559 million at September 30, 2011

Business Highlights

  • Upgraded Riverbed® Optimization System (RiOS®), the software that powers the Steelhead® appliance, with the addition of inbound quality of service (QoS). Inbound QoS provides the control needed over all incoming traffic to guarantee stable bandwidth with predictable levels of performance.
  • Enhanced strategic relationship with VMware across all Riverbed product solutions

    • Riverbed Cloud Steelhead will be further integrated with VMware vCloud Director to simplify deployment, configuration, and management of wide area network optimization-as-a-service for the Virtual Data Center
    • Previewed a solution leveraging Riverbed Granite™ edge virtual server infrastructure (edge-VSI) to deliver higher performance for distributed VMware View environments
    • Riverbed Cascade® will support VMware VXLAN providing IT organizations with an application-aware network performance management solution for software defined networking
    • Integrated Riverbed Stingray™ Traffic Manager with VMware vFabric Application Director to allow customers to create application blueprints that can be used to provision and scale multi-tier applications, faster and smarter in a hybrid cloud environment
  • Steelhead Cloud Accelerator received the Best of TechEd Award in the Cloud Computing category
  • Launched Cascade 9.6 reinforcing commitment to the Federal market

    • Met the testing requirements of the Joint Interoperability Test Command (JITC), a military organization under the Defense Information Systems Agency (DISA)
    • Achieved Federal Information Processing Standard (FIPS) and the Security Technical Implementation Guide (STIG) validations
    • Reached EAL3+ Evaluation Status under the Common Criteria for Information Technology Security Evaluation and Certification Scheme (CCS)
  • Introduced new Whitewater® 3010 cloud storage gateway model appliance that offers four times the local storage capacity of previous models to handle larger backup data workloads for large scale enterprise requirements
  • Named one of the Top Workplaces for 2012, according to a survey published by the Bay Area Newspaper Group, which includes the Contra Costa Times, InsideBayArea.com, the Oakland Tribune and the San Jose Mercury News

Conference Call

Riverbed will host a conference call today, October 18, 2012, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its third quarter 2012 results. The call will be broadcast live over the Internet at http://www.riverbed.com/investors and a replay of the webcast will be available 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 gross margin, non-GAAP operating profit, non-GAAP net income and non-GAAP net income per diluted 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 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 the acquisition deferred support revenue was reduced by $4 million in the adjustment to fair value. Because these are typically one-year contracts, our GAAP revenues for an 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 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 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.

Forward-Looking Statements

This press release contains forward-looking statements, including statements relating to our strategic and competitive position and the growth of our addressable markets. 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 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, 2011, and our subsequent quarterly reports on Form 10-Q 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 Riverbed Technology

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. 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.

 

Riverbed Technology

GAAP Condensed Consolidated Statements of Operations

In thousands, except per share amounts

Unaudited

         

Three months ended

Nine months ended

September 30,

September 30,
2012     2011 2012     2011
Revenue:
Product $ 144,605 $ 132,061 $ 391,008 $ 361,073
Support and services 73,992   57,722   208,470   162,568
Total revenue 218,597 189,783 599,478 523,641
Cost of revenue:
Cost of product 30,985 26,968 89,412 74,386
Cost of support and services 19,072   17,998   57,112   49,633
Total cost of revenue 50,057   44,966   146,524   124,019
Gross profit 168,540 144,817 452,954 399,622
Operating expenses:
Sales and marketing 81,934 70,208 233,115 195,029
Research and development 36,139 30,999 106,052 89,250
General and administrative 13,884 15,353 44,010 43,949
Acquisition-related costs (credits) (2,865 ) 2,732   (12,505 ) 4,124
Total operating expenses 129,092   119,292   370,672   332,352
Operating profit 39,448 25,525 82,282 67,270
Other income (expense), net 5   (151 ) (1,241 ) 688
Income before provision for income taxes 39,453 25,374 81,041 67,958
Provision for income taxes 14,723   6,049   31,228   24,305
Net income $ 24,730   $ 19,325   $ 49,813   $ 43,653
Net income per share, basic $ 0.16 $ 0.12 $ 0.32 $ 0.28
Net income per share, diluted $ 0.15 $ 0.12 $ 0.30 $ 0.26
Shares used in computing basic net income per share 153,823 155,367 156,313 153,981
Shares used in computing diluted net income per share 161,877 167,031 164,880 166,920
       

Riverbed Technology

Condensed Consolidated Balance Sheets

In thousands

 
September 30, December 31,
2012 2011
ASSETS
Current assets:
Cash and cash equivalents $ 279,281 $ 215,476
Short-term investments 253,770 254,753
Trade receivables, net 86,413 78,016
Inventory 18,840 11,437
Deferred tax assets 16,856 16,783
Prepaid expenses and other current assets 36,385   35,078  
Total current assets 691,545   611,543  
Long-term investments 137,053 123,134
Fixed assets, net 35,842 29,277
Goodwill 117,626 117,474
Intangible assets, net 57,895 68,274
Deferred tax assets, non-current 52,159 56,708
Other assets 23,263   24,789  
Total assets $ 1,115,383   $ 1,031,199  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,816 $ 35,341
Accrued compensation and related benefits 37,853 61,256
Other accrued liabilities 27,704 42,959
Deferred revenue 152,956   121,131  
Total current liabilities 257,329   260,687  
Deferred revenue, non-current 87,641 36,248
Other long-term liabilities 25,026   23,200  
Total long-term liabilities 112,667   59,448  
Stockholders' equity:
Common stock 613,889 631,921
Retained earnings 132,929 83,116
Accumulated other comprehensive loss (1,431 ) (3,973 )
Total stockholders' equity 745,387   711,064  
Total liabilities and stockholders' equity $ 1,115,383   $ 1,031,199  
   

Riverbed Technology

Condensed Consolidated Statements of Cash Flows

In thousands

Unaudited

 
Nine months ended
September 30,
2012     2011
Operating activities:
Net income $ 49,813 $ 43,653
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 27,743 16,477
Stock-based compensation 66,170 68,000
Deferred taxes 4,655 (6,463 )
Excess tax benefit from employee stock plans (14,532 ) (34,482 )
Changes in operating assets and liabilities:
Trade receivables (8,397 ) (15,892 )
Inventory (7,293 ) (219 )
Prepaid expenses and other assets 3,637 (14,405 )
Accounts payable 3,563 7,982
Accruals and other liabilities (23,579 ) 6,354
Acquisition-related contingent consideration (15,882 ) 1,552
Income taxes payable 16,895 42,546
Deferred revenue 82,518   32,184  
Net cash provided by operating activities 185,311 147,287
Investing activities:
Capital expenditures (17,121 ) (12,017 )
Purchase of available for sale securities (403,482 ) (504,074 )
Proceeds from maturities of available for sale securities 274,428 294,511
Proceeds from sales of available for sale securities 112,760 135,926
Acquisitions, net of cash acquired (6,458 ) (120,179 )
Net cash used in investing activities (39,873 ) (205,833 )
Financing activities:
Proceeds from issuance of common stock under employee stock plans, net of repurchases 32,751 41,996
Taxes paid related to net shares settlement of equity awards (4,278 ) (10,088 )
Payments for repurchases of common stock (127,144 ) (20,017 )
Excess tax benefit from employee stock plans 14,532   34,482  
Net cash (used in) provided by financing activities (84,139 ) 46,373
Effect of exchange rate changes on cash and cash equivalents 2,506   303  
Net increase (decrease) in cash and cash equivalents 63,805 (11,870 )
Cash and cash equivalents at beginning of period 215,476   165,726  
Cash and cash equivalents at end of period $ 279,281   $ 153,856  
       

Riverbed Technology

Supplemental Financial Information

In thousands

Unaudited

 
Three months ended Nine months ended
September 30,
2012
  June 30,
2012
  September 30,
2011
September 30,
2012
  September 30,
2011
Revenue by Geography
Americas $ 133,656 $ 117,536 $ 113,239 $ 354,848 $ 320,578
Europe, Middle East and Africa 56,992 51,672 49,847 159,202 128,924
Asia Pacific 27,949   29,260   26,697   85,428   74,139  
Total revenue $ 218,597   $ 198,468   $ 189,783   $ 599,478   $ 523,641  
As a percentage of total revenues:
Americas 61 % 59 % 60 % 59 % 61 %
Europe, Middle East and Africa 26 % 26 % 26 % 27 % 25 %
Asia Pacific 13 % 15 % 14 % 14 % 14 %
Total revenue 100 % 100 % 100 % 100 % 100 %
Revenue by Sales Channel
Direct $ 10,626 $ 9,609 $ 7,068 $ 31,050 $ 25,028
Indirect 207,971   188,859   182,715   568,428   498,613  
Total revenue $ 218,597   $ 198,468   $ 189,783   $ 599,478   $ 523,641  
As a percentage of total revenues:
Direct 5 % 5 % 4 % 5 % 5 %
Indirect 95 % 95 % 96 % 95 % 95 %
Total revenue 100 % 100 % 100 % 100 % 100 %
     

Riverbed Technology

GAAP to Non-GAAP Reconciliation

In thousands, except per share amounts

Unaudited

 
Three months ended Nine months ended
GAAP to Non-GAAP Reconciliations: September 30,
2012
  June 30,
2012
  September 30,
2011
September 30,
2012
  September 30,
2011
Reconciliation of Total revenue:
U.S. GAAP as reported $ 218,597 $ 198,468 $ 189,783 $ 599,478 $ 523,641
Adjustments:
Deferred revenue adjustment (6) 199   498   813   1,526   813  
As adjusted $ 218,796   $ 198,966   $ 190,596   $ 601,004   $ 524,454  
Reconciliation of Gross margin:
U.S. GAAP as reported 77.1 % 74.9 % 76.3 % 75.6 % 76.3 %
Adjustments:
Stock-based compensation (1) 0.8 % 1.0 % 1.0 % 0.9 % 1.0 %
Payroll tax on stock-based compensation (2) 0.0 % 0.0 % 0.0 % 0.0 % 0.1 %
Amortization on intangibles (3) 1.7 % 1.8 % 1.5 % 1.8 % 1.2 %
Inventory fair value adjustment (4) 0.0 % 0.0 % 0.1 % 0.0 % 0.1 %
Deferred revenue adjustment (6) 0.0 % 0.1 % 0.1 % 0.1 % 0.0 %
As adjusted 79.6 % 77.8 % 79.0 % 78.4 % 78.7 %
Reconciliation of Operating profit:
U.S. GAAP as reported $ 39,448 $ 30,208 $ 25,525 $ 82,282 $ 67,270
Adjustments:
Stock-based compensation (1) 20,252 22,943 22,504 66,170 68,000
Payroll tax on stock-based compensation (2) 230 737 234 1,654 3,900
Amortization on intangibles (3) 5,474 5,417 3,968 16,335 8,262
Acquisition-related costs (credits) (5) (2,371 ) (9,593 ) 4,200 (10,015 ) 6,972
Inventory fair value adjustment (4) 120 359
Deferred revenue adjustment (6) 199   498   813   1,526   813  
As adjusted $ 63,232   $ 50,210   $ 57,364   $ 157,952   $ 155,576  
Reconciliation of Net income:
U.S. GAAP as reported $ 24,730 $ 18,134 $ 19,325 $ 49,813 $ 43,653
Adjustments:
Stock-based compensation (1) 20,252 22,943 22,504 66,170 68,000
Payroll tax on stock-based compensation (2) 230 737 234 1,654 3,900
Amortization on intangibles (3) 5,474 5,417 3,968 16,335 8,262
Acquisition-related costs (credits) (5) (2,371 ) (9,593 ) 4,200 (10,015 ) 6,972
Inventory fair value adjustment (4) 120 359
Deferred revenue adjustment (6) 199 498 813 1,526 813
Other income (expense), net (8) 525 (51 ) 481 2,612 481
Income tax adjustments (7) (2,958 ) (740 ) (11,565 ) (11,218 ) (23,588 )
As adjusted $ 46,081   $ 37,345   $ 40,080   $ 116,877   $ 108,852  
Reconciliation of Net income per share, diluted:
U.S. GAAP as reported $ 0.15 $ 0.11 $ 0.12 $ 0.30 $ 0.26
Adjustments:
Stock-based compensation (1) 0.13 0.15 0.14 0.40 0.42
Payroll tax on stock-based compensation (2) 0.01 0.02
Amortization on intangibles (3) 0.03 0.03 0.02 0.10 0.05
Acquisition-related costs (credits) (5) (0.01 ) (0.06 ) 0.03 (0.06 ) 0.04
Deferred revenue adjustment (6) 0.01
Other income (expense), net (8) 0.02
Income tax adjustments (7) (0.02 )   (0.07 ) (0.07 ) (0.14 )
As adjusted $ 0.28   $ 0.23   $ 0.24   $ 0.71   $ 0.65  
Non-GAAP Net income per share, basic $ 0.30 $ 0.24 $ 0.26 $ 0.75 $ 0.71
Non-GAAP Net income per share, diluted $ 0.28 $ 0.23 $ 0.24 $ 0.71 $ 0.65
Shares used in computing basic net income per share 153,823 157,261 155,367 156,313 153,981
Shares used in computing diluted net income per share 161,877 165,253 167,031 164,880 166,920
Non-GAAP adjustments:
Support and services revenue $ 199 $ 498 $ 813 $ 1,526 $ 813
Cost of product 3,858 3,857 3,250 11,582 7,210
Cost of support and services 1,660 1,843 1,604 5,146 5,208
Sales and marketing 10,547 10,705 10,593 33,259 31,415
Research and development 7,079 8,107 7,699 23,277 23,769
General and administrative 3,306 5,188 5,148 13,385 15,767
Acquisition-related costs (credits) (2,865 ) (10,196 ) 2,732 (12,505 ) 4,124
Other income (expense), net 525 (51 ) 481 2,612 481
Provision for income taxes (2,958 ) (740 ) (11,565 ) (11,218 ) (23,588 )
Total Non-GAAP adjustments $ 21,351   $ 19,211   $ 20,755   $ 67,064   $ 65,199  

_______________________

(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 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.

Contacts

Riverbed Technology
Renee Lyall, 415-247-6353 (Investor Relations)
renee.lyall@riverbed.com

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Contacts

Riverbed Technology
Renee Lyall, 415-247-6353 (Investor Relations)
renee.lyall@riverbed.com