RVBD (MM)

Riverbed Technology (NASDAQ: RVBD), the performance company, today reported financial results for its first quarter ended March 31, 2012 (Q1'12).

GAAP revenue for Q1'12 was $182 million, compared to $164 million in the first quarter of 2011 (Q1'11), representing 12% year-over-year growth. GAAP net income for Q1'12 was $7 million, or $0.04 per share, compared to GAAP net income of $13 million, or $0.08 per diluted share, in Q1'11.

Non-GAAP revenue for Q1'12 was $183 million, an increase of 12% over the $164 million reported in Q1'11. Non-GAAP net income for Q1'12 was $33 million, or $0.20 per diluted share, compared to non-GAAP net income of $34 million, or $0.20 per diluted share, in Q1'11.

“In a seasonally difficult quarter, we completed a major product cycle and achieved results within our guidance range,” said Jerry M. Kennelly, Riverbed president and CEO. “Looking ahead, we expect our new Steelhead, Granite, and Cascade products, along with Stingray and Whitewater, to form the basis for Riverbed's next leg of growth as we continue to execute on our vision to deliver a complete performance platform. Our competitive position is strong, our addressable market is growing, and we are optimistic about the opportunity before us.”

Business Highlights

• Launched Steelhead® CX Series - dedicated wide area network (WAN) optimization appliances that overcome bandwidth and geographic limitations to make users more productive, data transfers faster, and applications perform seamlessly regardless of location.
• Introduced Steelhead EX Series - multi-function, enterprise-class branch office appliances that build on Riverbed's award-winning WAN optimization solution and add a robust platform with more memory, solid state drives, and CPU capacity to support the Virtual Services Platform (VSP) and Granite™.
• Introduced Riverbed® Granite, extending WAN optimization to support edge-VSI (edge virtual server infrastructure) that allows IT to consolidate and manage all edge servers in the data center.
• Introduced Steelhead Cloud Accelerator, a jointly developed solution that combines Akamai's innovative Internet optimization technology and market-leading Riverbed WAN optimization technology to deliver end-to-end optimization for SAAS applications.
• Positioned by Gartner in the Leaders quadrant of the 2012 "Magic Quadrant for WAN Optimization Controllers" authored by Joe Skorupa and Severine Real and published in January 2012.
• Delivered industry-first capabilities to the Cascade® application-aware network performance management (NPM) solution. Cascade Profiler is the first NPM solution to provide streamlined configuration for service monitoring across application delivery controllers including Riverbed Stingray™ Traffic Manager, F5 Local Traffic Manager, and others. Virtual Cascade Shark is the first product to offer continuous packet capture and performance analysis in virtual environments.
• Announced Riverbed Performance Summit World Tour, a series of more than 50 conferences around the world to discuss strategies for improving IT performance with the Riverbed Performance Platform, a portfolio of market-leading IT solutions for the globally connected enterprise, and provide technical overviews, best practices in IT and solution demonstrations.
• Announced a new framework for its worldwide Riverbed Partner Network program designed to accelerate partnership momentum with new tools and resources and to increase channel partners' competencies across the entire Riverbed Performance Platform.

Conference Call

Riverbed will host a conference call today, April 19, 2012, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its first quarter 2012 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 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 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, future growth, 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. 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.

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

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, Inc.GAAP Condensed Consolidated Statements of OperationsIn thousands, except per share amountsUnaudited

 

 

Three months ended March 31, 2012   2011 Revenue: Product $ 117,034 $ 112,152 Support and services 65,379   51,411 Total revenue 182,413 163,563 Cost of revenue: Cost of product 27,889 23,735 Cost of support and services 18,782   15,220 Total cost of revenue 46,671   38,955 Gross profit 135,742 124,608 Operating expenses: Sales and marketing 73,815 61,084 Research and development 34,111 28,309 General and administrative 14,634 13,683 Acquisition-related costs 556   — Total operating expenses 123,116   103,076 Operating profit 12,626 21,532 Other income (expense), net (1,505 ) 498 Income before provision for income taxes 11,121 22,030 Provision for income taxes 4,172   8,985 Net income $ 6,949   $ 13,045 Net income per share, basic $ 0.04 $ 0.09 Net income per share, diluted $ 0.04 $ 0.08 Shares used in computing basic net income per share 157,856 152,034 Shares used in computing diluted net income per share 167,510 166,460  

Riverbed Technology, Inc.Condensed Consolidated Balance SheetsIn thousands

   

 

March 31, 2012

December 31,2011

ASSETS Current assets: Cash and cash equivalents $ 254,296 $ 215,476 Short-term investments 230,028 254,753 Trade receivables, net 71,328 78,016 Inventory 18,877 11,437 Deferred tax assets 19,003 16,783 Prepaid expenses and other current assets 39,579   35,078   Total current assets 633,111   611,543   Long-term investments 130,447 123,134 Fixed assets, net 32,129 29,277 Goodwill 117,626 117,474 Intangible assets, net 69,026 68,274 Deferred tax assets, non-current 57,934 56,708 Other assets 24,790   24,789   Total assets $ 1,065,063   $ 1,031,199  

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities: Accounts payable $ 36,341 $ 35,341 Accrued compensation and related benefits 33,659 61,256 Other accrued liabilities 39,784 42,959 Deferred revenue 130,197   121,131   Total current liabilities 239,981   260,687   Deferred revenue, non-current 39,452 36,248 Other long-term liabilities 24,188   23,200   Total long-term liabilities 63,640   59,448   Stockholders' equity: Common stock 673,139 631,921 Retained earnings 90,065 83,116 Accumulated other comprehensive loss (1,762 ) (3,973 ) Total stockholders' equity 761,442   711,064   Total liabilities and stockholders' equity $ 1,065,063   $ 1,031,199    

Riverbed Technology, Inc.Condensed Consolidated Statements of Cash FlowsIn thousandsUnaudited

  Three months endedMarch 31, 2012   2011 Operating activities: Net income $ 6,949 $ 13,045 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,678 4,760 Stock-based compensation 22,975 21,941 Deferred taxes (3,243 ) (5,017 ) Excess tax benefit from employee stock plans (10,701 ) (21,220 ) Changes in operating assets and liabilities: Trade receivables 6,688 (10,501 ) Inventory (7,330 ) (347 ) Prepaid expenses and other assets (3,488 ) (18,490 ) Accounts payable 1,563 (296 ) Accruals and other liabilities (30,219 ) 2,637 Acquisition-related contingent consideration 235 — Income taxes payable 10,742 21,679 Deferred revenue 12,270   16,599   Net cash provided by operating activities 15,119 24,790 Investing activities: Capital expenditures (6,649 ) (3,338 ) Purchase of available for sale securities (171,496 ) (168,242 ) Proceeds from maturities of available for sale securities 143,037 112,956 Proceeds from sales of available for sale securities 44,846 23,205 Acquisitions, net of cash acquired (6,458 ) —   Net cash provided by (used in) investing activities 3,280 (35,419 ) Financing activities:

Proceeds from issuance of common stock under employee stock plans, net of repurchases

8,910 20,338 Payments for repurchases of common stock (1,408 ) — Excess tax benefit from employee stock plans 10,701   21,220   Net cash provided by financing activities 18,203 41,558 Effect of exchange rate changes on cash and cash equivalents 2,218   293   Net increase in cash and cash equivalents 38,820 31,222 Cash and cash equivalents at beginning of period 215,476   165,726   Cash and cash equivalents at end of period $ 254,296   $ 196,948    

Riverbed Technology, Inc.Supplemental Financial InformationIn thousandsUnaudited

  Three months ended March 31, 2012  

December 31,2011

  March 31, 2011 Revenue by Geography United States $ 96,177 $ 108,976 $ 90,339 Europe, Middle East and Africa 50,538 58,501 39,049 Rest of the world 35,698   35,358   34,175   Total revenue $ 182,413   $ 202,835   $ 163,563   As a percentage of total revenues: United States 53 % 54 % 55 % Europe, Middle East and Africa 28 % 29 % 24 % Rest of the world 19 % 17 % 21 % Total revenue 100 % 100 % 100 % Revenue by Sales Channel Direct $ 10,815 $ 7,599 $ 8,798 Indirect 171,598   195,236   154,765   Total revenue $ 182,413   $ 202,835   $ 163,563   As a percentage of total revenues: Direct 6 % 4 % 5 % Indirect 94 % 96 % 95 % Total revenue 100 % 100 % 100 %  

Riverbed Technology, Inc.GAAP to Non-GAAP ReconciliationIn thousands, except per share amountsUnaudited

 

Three months ended

GAAP to Non-GAAP Reconciliations:

March 31,2012

 

December 31,2011

 

March 31,2011

Reconciliation of Total revenue: U.S. GAAP as reported $ 182,413 $ 202,835 $ 163,563 Adjustments:

Deferred revenue adjustment (6)

829   1,189   —   As adjusted $ 183,242   $ 204,024   $ 163,563   Reconciliation of Net income: U.S. GAAP as reported $ 6,949 $ 20,154 $ 13,045 Adjustments:

Stock-based compensation (1)

22,975 21,734 21,941

Payroll tax on stock-based compensation (2)

687 3,565 2,159

Amortization on intangibles (3)

5,444 4,858 2,123

Acquisition-related costs (5)

1,949 2,789 —

Inventory fair value adjustment (4)

— — 114

Deferred revenue adjustment (6)

829 1,189 —

Other income (expense), net (8)

2,138 611 —

Income tax adjustments (7)

(7,520 ) (13,787 ) (5,496 ) As adjusted $ 33,451   $ 41,113   $ 33,886   Reconciliation of Net income per share, diluted: U.S. GAAP as reported $ 0.04 $ 0.12 $ 0.08 Adjustments:

Stock-based compensation (1)

0.14 0.13 0.13

Payroll tax on stock-based compensation (2)

— 0.02 0.01

Amortization on intangibles (3)

0.03 0.03 0.01

Acquisition-related costs (5)

0.01 0.02 —

Deferred revenue adjustment (6)

0.01 0.01 —

Other income (expense), net (8)

0.01 — —

Income tax adjustments (7)

(0.04 ) (0.08 ) (0.03 ) As adjusted $ 0.20   $ 0.25   $ 0.20   Non-GAAP Net income per share, basic $ 0.21 $ 0.26 $ 0.22 Non-GAAP Net income per share, diluted $ 0.20 $ 0.25 $ 0.20

Shares used in computing basic net income per share

157,856 155,699 152,034

Shares used in computing diluted net income per share

167,510 166,838 166,460 Non-GAAP adjustments: Support and services revenue $ 829 $ 1,189 $ — Cost of product 3,867 3,781 1,942 Cost of support and services 1,643 1,793 1,712 Sales and marketing 12,007 12,063 10,123 Research and development 8,091 8,688 7,306 General and administrative 4,891 5,534 5,254 Acquisition-related costs 556 1,087 — Other income (expense), net 2,138 611 — Provision for income taxes (7,520 ) (13,787 ) (5,496 ) Total Non-GAAP adjustments $ 26,502   $ 20,959   $ 20,841    

_____________

(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.