Riverbed Technology Reports Record Revenue for Second Fiscal Quarter 2011

Revenue increases 35% year-over-year

• Product revenue increases 38% year-over-year
• Operating profit increases 83% year-over-year
• Cash and investments exceed $611 million

SAN FRANCISCO--(BUSINESS WIRE)--Riverbed Technology (NASDAQ: RVBD), the IT performance company, today reported financial results for its second quarter ended June 30, 2011 (Q2’11). Revenue for Q2’11 was $170.3 million, up 35% compared to the second quarter of fiscal year 2010 (Q2’10).

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® 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 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, 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.

Riverbed Technology, Inc.
GAAP Condensed Consolidated Statements of Operations
In thousands, except per share amounts
Unaudited
	Three months ended				Six months ended
	June 30,				June 30,
	2011		2010		2011		2010
Revenue:
Product	$	116,860	$	84,505	$	229,012	$	159,242
Support and services		53,435		41,722		104,846		79,408
Total revenue		170,295		126,227		333,858		238,650
Cost of revenue:
Cost of product		23,683		18,612		47,418		35,244
Cost of support and services		16,415		12,364		31,635		23,598
Total cost of revenue		40,098		30,976		79,053		58,842
Gross profit		130,197		95,251		254,805		179,808
Operating expenses:
Sales and marketing		63,737		51,990		124,821		102,058
Research and development		29,942		20,664		58,251		39,549
General and administrative		14,913		11,569		28,596		22,315
Acquisition-related costs		1,392		-		1,392		2,725
Total operating expenses		109,984		84,223		213,060		166,647
Operating profit		20,213		11,028		41,745		13,161
Other income, net		341		184		839		299
Income before provision for income taxes		20,554		11,212		42,584		13,460
Provision for income taxes		9,271		4,658		18,256		5,823
Net income	$	11,283	$	6,554	$	24,328	$	7,637
Net income per share, basic	$	0.07	$	0.05	$	0.16	$	0.05
Net income per share, diluted	$	0.07	$	0.04	$	0.15	$	0.05
Shares used in computing basic net income per share		154,543		143,872		153,288		142,506
Shares used in computing diluted net income per share		167,270		152,954		166,865		151,352

Riverbed Technology, Inc.
Condensed Consolidated Balance Sheets
In thousands
	June 30,		December 31,
	2011		2010
ASSETS
Current assets:
Cash and cash equivalents	$	180,898	$	165,726
Short-term investments		355,867		259,245
Trade receivables, net		70,444		50,726
Inventory		14,979		15,180
Deferred tax assets		19,260		20,832
Prepaid expenses and other current assets		37,656		30,958
Total current assets		679,104		542,667
Long-term investments		74,360		76,169
Fixed assets, net		23,344		21,522
Goodwill		25,078		25,653
Intangible assets, net		26,494		30,789
Deferred tax assets, non-current		40,959		35,775
Other assets		24,095		3,506
Total assets	$	893,434	$	736,081
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	30,756	$	27,015
Accrued compensation and related benefits		26,503		32,915
Other accrued liabilities		18,979		18,813
Deferred revenue		103,301		89,026
Total current liabilities		179,539		167,769
Deferred revenue, non-current		30,367		26,511
Other long-term liabilities		13,002		4,381
Total long-term liabilities		43,369		30,892
Stockholders' equity:
Common stock		626,333		518,052
Retained earnings		43,637		19,309
Accumulated other comprehensive income		556		59
Total stockholders' equity		670,526		537,420
Total liabilities and stockholders' equity	$	893,434	$	736,081

Riverbed Technology, Inc.
Condensed Consolidated Statements of Cash Flows
In thousands
Unaudited
	Six months ended
	June 30,
	2011			2010
Operating activities:
Net income	$	24,328		$	7,637
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,718			7,534
Stock-based compensation		45,496			33,165
Deferred taxes		(3,624	)		(9,594	)
Excess tax benefit from employee stock plans		(34,221	)		(5,414	)
Changes in operating assets and liabilities:
Trade receivables		(19,717	)		4,236
Inventory		201			(136	)
Prepaid expenses and other assets		(24,899	)		(1,853	)
Accounts payable		3,505			5,869
Accruals and other liabilities		2,995			6,561
Acquisition-related contingent consideration		-			4,156
Income taxes payable		34,807			3,520
Deferred revenue		18,131			15,557
Net cash provided by operating activities		56,720			71,238
Investing activities:
Capital expenditures		(7,010	)		(4,688	)
Purchase of available for sale securities		(351,905	)		(274,968	)
Proceeds from maturities of available for sale securities		162,993			207,785
Proceeds from sales of available for sale securities		91,783			37,862
Net cash used in investing activities		(104,139	)		(34,009	)
Financing activities:
Proceeds from issuance of common stock under employee stock plans, net of repurchases		38,024			26,993
Cash used to net share settle equity awards		(10,088	)		(2,300	)
Excess tax benefit from employee stock plans		34,221			5,414
Net cash provided by financing activities		62,157			30,107
Effect of exchange rate changes on cash and cash equivalents		434			(328	)
Net increase in cash and cash equivalents		15,172			67,008
Cash and cash equivalents at beginning of period		165,726			67,749
Cash and cash equivalents at end of period	$	180,898		$	134,757

Riverbed Technology, Inc.
Supplemental Financial Information
In thousands
Unaudited
	Three months ended									Six months ended
	June 30,			March 31,			June 30,			June 30,
	2011			2011			2010			2011			2010
Revenue by Geography
United States	$	96,516		$	90,339		$	63,820		$	186,855		$	122,131
Europe, Middle East and Africa		40,028			39,049			36,842			79,077			68,255
Rest of the world		33,751			34,175			25,565			67,926			48,264
Total revenue	$	170,295		$	163,563		$	126,227		$	333,858		$	238,650
As a percentage of total revenues:
United States		57	%		55	%		51	%		56	%		51	%
Europe, Middle East and Africa		23	%		24	%		29	%		24	%		29	%
Rest of the world		20	%		21	%		20	%		20	%		20	%
Total revenue		100	%		100	%		100	%		100	%		100	%
Revenue by Sales Channel
Direct	$	9,705		$	8,255		$	6,982		$	17,960		$	16,278
Indirect		160,590			155,308			119,245			315,898			222,372
Total revenue	$	170,295		$	163,563		$	126,227		$	333,858		$	238,650
As a percentage of total revenues:
Direct		6	%		5	%		6	%		5	%		7	%
Indirect		94	%		95	%		94	%		95	%		93	%
Total revenue		100	%		100	%		100	%		100	%		100	%

Riverbed Technology, Inc.
GAAP to Non-GAAP Reconciliation
In thousands, except per share amounts
Unaudited
	Three months ended									Six months ended
GAAP to Non-GAAP Reconciliations:	June 30,			March 31,			June 30,			June 30,
	2011			2011			2010			2011			2010
Reconciliation of Product Gross Profit:
U.S. GAAP as reported	$	93,177		$	88,417		$	65,893		$	181,594		$	123,998
Adjustments:
Stock-based compensation (1)		266			220			135			486			255
Payroll tax on stock-based compensation (2)		20			48			6			68			11
Amortization on intangibles (3)		1,607			1,560			740			3,167			1,480
Inventory fair value adjustment (4)		125			114			-			239			-
As Adjusted	$	95,195		$	90,359		$	66,774		$	185,554		$	125,744
Reconciliation of Product Gross Margin:
U.S. GAAP as reported		79.7	%		78.8	%		78.0	%		79.3	%		77.9	%
Adjustments:
Stock-based compensation (1)		0.3	%		0.3	%		0.1	%		0.2	%		0.2	%
Amortization on intangibles (3)		1.4	%		1.4	%		0.9	%		1.4	%		0.9	%
Inventory fair value adjustment (4)		0.1	%		0.1	%		0.0	%		0.1	%		0.0	%
As Adjusted		81.5	%		80.6	%		79.0	%		81.0	%		79.0	%
Reconciliation of Gross Profit:
U.S. GAAP as reported	$	130,197		$	124,608		$	95,251		$	254,805		$	179,808
Adjustments:
Stock-based compensation (1)		2,011			1,741			1,491			3,752			2,874
Payroll tax on stock-based compensation (2)		167			239			48			406			74
Amortization on intangibles (3)		1,607			1,560			740			3,167			1,480
Inventory fair value adjustment (4)		125			114			-			239			-
As Adjusted	$	134,107		$	128,262		$	97,530		$	262,369		$	184,236
Reconciliation of Gross Margin:
U.S. GAAP as reported		76.5	%		76.2	%		75.5	%		76.3	%		75.3	%
Adjustments:
Stock-based compensation (1)		1.1	%		1.0	%		1.2	%		1.2	%		1.3	%
Payroll tax on stock-based compensation (2)		0.1	%		0.1	%		0.0	%		0.1	%		0.0	%
Amortization on intangibles (3)		0.9	%		1.0	%		0.6	%		0.9	%		0.6	%
Inventory fair value adjustment (4)		0.1	%		0.1	%		0.0	%		0.1	%		0.0	%
As Adjusted		78.7	%		78.4	%		77.3	%		78.6	%		77.2	%
Reconciliation of Operating Profit:
U.S. GAAP as reported	$	20,213		$	21,532		$	11,028		$	41,745		$	13,161
Adjustments:
Stock-based compensation (1)		23,555			21,941			17,715			45,496			33,165
Payroll tax on stock-based compensation (2)		1,507			2,159			573			3,666			997
Amortization on intangibles (3)		2,171			2,123			1,195			4,294			2,390
Acquisition-related costs (credits) (5)		2,772			-			-			2,772			4,156
Inventory fair value adjustment (4)		125			114			-			239			-
As Adjusted	$	50,343		$	47,869		$	30,511		$	98,212		$	53,869
Reconciliation of Operating Margin:
U.S. GAAP as reported		11.9	%		13.2	%		8.7	%		12.5	%		5.5	%
Adjustments:
Stock-based compensation (1)		13.8	%		13.4	%		14.1	%		13.6	%		14.0	%
Payroll tax on stock-based compensation (2)		0.9	%		1.3	%		0.5	%		1.1	%		0.4	%
Amortization on intangibles (3)		1.3	%		1.3	%		0.9	%		1.3	%		1.0	%
Acquisition-related costs (credits) (5)		1.6	%		0.0	%		0.0	%		0.8	%		1.7	%
Inventory fair value adjustment (4)		0.1	%		0.1	%		0.0	%		0.1	%		0.0	%
As Adjusted		29.6	%		29.3	%		24.2	%		29.4	%		22.6	%
Reconciliation of Net Income:
U.S. GAAP as reported	$	11,283		$	13,045		$	6,554		$	24,328		$	7,637
Adjustments:
Stock-based compensation (1)		23,555			21,941			17,715			45,496			33,165
Payroll tax on stock-based compensation (2)		1,507			2,159			573			3,666			997
Amortization on intangibles (3)		2,171			2,123			1,195			4,294			2,390
Acquisition-related costs (credits) (5)		2,772			-			-			2,772			4,156
Inventory fair value adjustment (4)		125			114			-			239			-
Income tax adjustments (6)		(6,527	)		(5,496	)		(6,807	)		(12,023	)		(14,311	)
As Adjusted	$	34,886		$	33,886		$	19,230		$	68,772		$	34,034
Reconciliation of Net Income per share, diluted:
U.S. GAAP as reported	$	0.07		$	0.08		$	0.04		$	0.15		$	0.05
Adjustments:
Stock-based compensation (1)		0.14			0.13			0.13			0.26			0.22
Payroll tax on stock-based compensation (2)		0.01			0.01			-			0.02			-
Amortization on intangibles (3)		0.01			0.01			0.01			0.03			0.02
Acquisition-related costs (credits) (5)		0.02			-			-			0.02			0.03
Income tax adjustments (6)		(0.04	)		(0.03	)		(0.05	)		(0.07	)		(0.10	)
As Adjusted	$	0.21		$	0.20		$	0.13		$	0.41		$	0.22
Non-GAAP Net income per share, basic	$	0.23		$	0.22		$	0.13		$	0.45		$	0.24
Non-GAAP Net income per share, diluted	$	0.21		$	0.20		$	0.13		$	0.41		$	0.22
Shares used in computing basic net income per share (7)		154,543			152,034			143,872			153,288			142,506
Shares used in computing diluted net income per share (7)		167,270			166,460			152,954			166,865			151,352
Non-GAAP adjustments:
Cost of product	$	2,018		$	1,942		$	881		$	3,960		$	1,746
Cost of support and services		1,892			1,712			1,398			3,604			2,682
Sales and marketing		10,699			10,123			8,030			20,822			15,819
Research and development		8,764			7,306			5,102			16,070			9,852
General and administrative		5,365			5,254			4,072			10,619			7,884
Other acquisition costs		1,392			-			-			1,392			2,725
Provision for income taxes		(6,527	)		(5,496	)		(6,807	)		(12,023	)		(14,311	)
Total Non-GAAP Adjustments	$	23,603		$	20,841		$	12,676		$	44,444		$	26,397

(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, 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.