Riverbed Technology Reports Record Fourth Quarter and 2012 Revenue

Riverbed Technology Reports Record Fourth Quarter and 2012 Revenue

Annual revenue grows 15%

SAN FRANCISCO--(BUSINESS WIRE)-- Riverbed Technology, Inc. (NAS: RVBD) , the performance company, today reported record revenue for its fourth quarter (Q4'12) and fiscal year ended December 31, 2012 (FY'12).

Total GAAP revenue for Q4'12 was $237 million, up 9% compared to the third quarter of fiscal year 2012 (Q3'12) and 17% compared to the fourth quarter of fiscal year 2011 (Q4'11). For the full year 2012, GAAP revenue was $837 million, up 15% compared to 2011. Non-GAAP revenue for Q4'12 was $239 million, an increase of 9% compared to Q3'12 and an increase of 17% compared to Q4'11. Non-GAAP revenue for 2012 was $840 million, an increase of 15% compared to 2011.

GAAP net income for Q4'12 was $5 million, or $0.03 per diluted share. This compares to $25 million, or $0.15 per diluted share, in Q3'12 and $20 million, or $0.12 per diluted share, in Q4'11. GAAP net income for 2012 was $55 million, or $0.33 per diluted share. Non-GAAP net income for Q4'12 was $46 million, or $0.29 per diluted share. This compares to $46 million, or $0.28 per diluted share, in Q3'12 and $41 million, or $0.25 per diluted share, in Q4'11. Non-GAAP net income for 2012 was $163 million, or $0.99 per diluted share.

The acquisition of OPNET Technologies, Inc., closed December 18, 2012, contributed $6 million to GAAP revenue and $7 million to non-GAAP revenue in the fourth quarter. Excluding any revenue or costs associated with OPNET, non-GAAP net income was $0.29 per diluted share in the fourth quarter.

"In 2012, we expanded our addressable market through organic innovation, new partnerships and strategic acquisitions," said Jerry M. Kennelly, Chairman and CEO. "Revenue dollars grew more than $111 million for the full year, with most of that growth from WAN optimization. Performance management was the fastest growing product line, underpinning our strategic decision to acquire OPNET. Looking ahead, we will benefit from continued growth in our WAN optimization business and performance management product suite. I am very optimistic as we enter our first year as a billion-dollar-plus revenue company."

"Our integration of OPNET is proceeding as planned and we intend to introduce the first phase of an integrated application and network performance management product line in the second half of this year," said Eric Wolford, president of products and marketing. "OPNET complements a broad lineup of new products introduced throughout 2012 and uniquely positions us for the future of performance management."

"We saw revenue expansion in all major regions, with solid growth in enterprise sales," said Randy S. Gottfried, COO and CFO. "The company continued to execute well and generated more than $217 million of free cash flow in 2012."

2012 Business Highlights

  • Completed the acquisition of OPNET Technologies, Inc. making Riverbed Performance Management, (RPM) a leader in the converging application and network performance management segments
  • Positioned by Gartner in the Leaders quadrant of the 2012 "Magic Quadrant for WAN Optimization Controllers" report authored by Joe Skorupa and Severine Real and published January 12, 2012
  • Captured more than 52% share of the worldwide Advanced Platform WAN optimization market share based on vendor revenue for the third quarter of 2012 per Gartner's report titled "Market Share: Application Acceleration Equipment, Worldwide 3Q12" authored by Joe Skorupa and Nhat Pham, December 2012
  • Positioned by Gartner in the Visionaries quadrant of the 2012 "Magic Quadrant for Application Delivery Controllers (ADC)" report authored by Joe Skorupa, Neil Rickard, and Bjarne Munch and published October 30, 2012
  • Positioned by Gartner in the Leaders quadrant of the 2012 "Magic Quadrant for Application Performance Monitoring" report authored by Jonah Kowall and Will Capelli and published August 16, 2012
  • Enhanced strategic relationship and product interoperability with VMware across Riverbed Steelhead®, Granite™, Performance Management and Stingray™ product solutions
  • Entered into a technology partnership with Juniper Networks in application delivery, WAN optimization and mobility to deliver market-leading technologies to more customers
  • Introduced multiple new appliance and virtual products within WAN optimization and performance management expanding the addressable market opportunity
  • 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 for the second consecutive year
  • Named a top three Best Place to Work for 2013 in the Glassdoor Employees' Choice Award. Riverbed ranked third out of close to a quarter of a million global companies rated by their employees, and second overall among technology companies.

Conference Call

Riverbed will host a conference call today, February 7, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its fourth quarter and full year 2012 results and outlook for 2013. The call will be broadcast live over the Internet at http://www.riverbed.com/investors and a replay of the webcast will also 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 net income and non-GAAP net income per basic and 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 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.

Forward-Looking Statements

This press release contains forward-looking statements, including statements relating to our strategic and competitive position, growth in our WAN optimization business, growth from new products, the timing of introduction and benefits of our integrated application and network performance management product suite, and expansion 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 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, 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 (NAS: 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.

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.

Riverbed Technology
GAAP Condensed Consolidated Statements of Operations
In thousands, except per share amounts
Three months endedTwelve months ended
December 31,December 31,
Support and services 80,249  62,532  288,719  225,100
Total revenue237,382202,835836,860726,476
Cost of revenue:
Cost of product34,99430,764124,406105,150
Cost of support and services 23,300  19,292  80,412  68,925
Total cost of revenue 58,294  50,056  204,818  174,075
Gross profit179,088152,779632,042552,401
Operating expenses:
Sales and marketing95,54277,606328,657272,635
Research and development40,05633,714146,108122,964
General and administrative16,58415,75060,59459,699
Acquisition-related costs 13,231  1,087  726  5,211
Total operating expenses 165,413  128,157  536,085  460,509
Operating profit13,67524,62295,95791,892
Other income (expense), net (683) (534) (1,924) 154
Income before provision for income taxes12,99224,08894,03392,046
Provision for income taxes 8,208  3,934  39,436  28,239
Net income$4,784 $20,154 $54,597 $63,807
Net income per share, basic$0.03$0.13$0.35$0.41
Net income per share, diluted$0.03$0.12$0.33$0.38
Shares used in computing basic net income per share155,879155,699156,205154,411
Shares used in computing diluted net income per share163,638166,838164,570166,900
Riverbed Technology
Condensed Consolidated Balance Sheets
In thousands
December 31, 2012December 31, 2011
Current assets:
Cash and cash equivalents$280,509$215,476
Short-term investments170,605254,753
Trade receivables, net113,19078,016
Deferred tax assets11,18516,783
Prepaid expenses and other current assets 50,245  35,078 
Total current assets 649,909  611,543 
Long-term investments78,476123,134
Fixed assets, net49,24429,277
Intangible assets, net506,84268,274
Deferred tax assets, non-current6,45756,708
Other assets 33,626  24,789 
Total assets$2,024,339 $1,031,199 
Current liabilities:
Accounts payable$50,417$35,341
Accrued compensation and related benefits60,50161,256
Other accrued liabilities41,47242,959
Current maturities of long-term borrowings5,327
Deferred revenue 182,219  121,131 
Total current liabilities 339,936  260,687 
Deferred revenue, non-current88,39336,248
Long-term borrowings, net of current maturities566,814
Deferred tax liability, non-current109,311103
Other long-term liabilities 25,663  23,097 
Total long-term liabilities 790,181  59,448 
Stockholders' equity:
Common stock757,777631,921
Retained earnings137,71383,116
Accumulated other comprehensive loss (1,268) (3,973)
Total stockholders' equity 894,222  711,064 
Total liabilities and stockholders' equity$2,024,339 $1,031,199 
Riverbed Technology
Condensed Consolidated Statements of Cash Flows
In thousands
Twelve months ended
December 31,
Operating activities:
Net income$54,597$63,807
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization40,01024,474
Stock-based compensation89,29489,734
Deferred taxes10,239(24,693)
Excess tax benefit from employee stock plans(23,883)(50,673)
Changes in operating assets and liabilities:
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