Riverbed Technology Reports First Quarter 2013 Results

Riverbed Technology Reports First Quarter 2013 Results

SAN FRANCISCO--(BUSINESS WIRE)-- Riverbed Technology (NAS: RVBD) , the application performance company, today reported financial results for its first quarter ended March 31, 2013 (Q1'13).

GAAP revenue for Q1'13 was $246 million, compared to $182 million in the first quarter of 2012 (Q1'12), representing 35% year-over-year growth. GAAP net loss for Q1'13 was $8.1 million, or $0.05 per diluted share, compared to GAAP net income of $6.9 million, or $0.04 per diluted share, in Q1'12.


Non-GAAP revenue for Q1'13 was $253 million, an increase of 38% compared to $183 million in Q1'12. Non-GAAP net income for Q1'13 was $39 million, or $0.23 per diluted share, compared to non-GAAP net income of $33 million, or $0.20 per diluted share, in Q1'12.

"Non-GAAP revenue grew thirty-eight percent over the prior year and ten percent without the benefit of $52 million contributed by OPNET in the quarter," said Jerry M. Kennelly, chairman and CEO. "Despite weak government spending and general economic softness impacting results, WAN optimization revenue increased six percent year-over-year," continued Kennelly. "Our market expanding products outside of WAN optimization and OPNET generated more than 40% year-over-year growth. Over the long-term, we believe our multi-product strategy to deliver unmatched application performance will allow us to accelerate the company's revenue growth."

Q1'13 Business Highlights

  • Riverbed® Steelhead® was awarded Infoworld Technology of the Year for Best WAN Accelerator for the seventh consecutive time

  • Riverbed Granite® was awarded Infoworld Technology of the Year recognizing Riverbed for developing the groundbreaking technology that enables complete consolidation of branch servers and storage while ensuring consistent performance for remote users

  • Strengthened VMware alliance with certification of Riverbed Granite for VMware Horizon View 5.2, enabling high performance remote and branch office virtual desktop deployments

  • Riverbed and T-Systems demonstrated acceleration of enterprise applications on an android tablet as part of T-Systems' Mobile Application Performance Management

  • Riverbed Stingray™ was named as a winner in the Web Services Excellence Category of the 2012-2013 Cloud Awards program

  • Introduced larger Whitewater® virtual appliances and Whitewater Operating System (WWOS) 2.1 supporting Amazon Glacier storage and Google Cloud Storage

  • Launched new FlyScript™ developer tools which allow IT to create a programmable infrastructure that is highly flexible and in-line with the needs of modern virtualized and software-defined IT architectures

  • Introduced Riverbed Splash™, an online community where customers can learn more about using FlyScript to get better performance, control, and scale for their applications

  • Appointed new board members and key executives:

    • Kimberly Stevenson, Board of Directors; currently serves as vice president and Chief Information Officer of Intel Corporation

    • Satya Nadella, Board of Directors; currently serves as president of Microsoft Corporation's Server and Tools Business

    • David Wu, Chief Technology Officer; member of Riverbed's founding team since 2003

    • Ernie Maddock, Chief Financial Officer; joins following fifteen-year tenure in finance and operations at Lam Research

    • Jeff Pancottine, Senior Vice President and General Manager of Application Delivery Business Unit; joins from Juniper Networks Emerging Technology Business Group following a six-year tenure at F5 Networks

Conference Call

Riverbed will host a conference call today, April 29, 2013, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its first quarter 2013 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 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, market expansion of our product offerings, and revenue growth acceleration. 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, 2012. 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 application 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.

Riverbed Technology

GAAP Condensed Consolidated Statements of Operations

In thousands, except per share amounts

Unaudited

Three months ended

March 31,

2013

2012

Revenue:

Product

$

148,040

$

117,034

Support and services

98,099

65,379

Total revenue

246,139

182,413

Cost of revenue:

Cost of product

40,900

27,889

Cost of support and services

28,042

18,782

Total cost of revenue

68,942

46,671

Gross profit

177,197

135,742

Operating expenses:

Sales and marketing

115,721

73,815

Research and development

48,961

34,111

General and administrative

19,114

14,634

Acquisition-related costs

4,136

556

Total operating expenses

187,932

123,116

Operating profit (loss)

(10,735

)

12,626

Other expense, net

(6,364

)

(1,505

)

Income (loss) before provision for income taxes

(17,099

)

11,121

Provision (benefit) for income taxes

(8,989

)

4,172

Net income (loss)

$

(8,110

)

$

6,949

Net income (loss) per share, basic

$

(0.05

)

$

0.04

Net income (loss) per share, diluted

$

(0.05

)

$

0.04

Shares used in computing basic net income (loss) per share

163,367

157,856

Shares used in computing diluted net income (loss) per share

163,367

167,510

Riverbed Technology

Condensed Consolidated Balance Sheets

In thousands

Unaudited

March 31,

2013

December 31,

2012

ASSETS

Current assets:

Cash and cash equivalents

$

227,347

$

280,509

Short-term investments

179,303

170,605

Trade receivables, net

101,042

113,190

Inventory

26,722

24,175

Deferred tax assets

12,707

11,185

Prepaid expenses and other current assets

61,403

50,245

Total current assets

608,524

649,909

Long-term investments

96,160

78,476

Fixed assets, net

49,383

49,244

Goodwill

700,962

699,785

Intangible assets, net

481,532

506,842

Deferred tax assets, non-current

1,663

6,457

Other assets

31,011

33,626

Total assets

$

1,969,235

$

2,024,339

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

38,068

$

50,417

Accrued compensation and related benefits

46,376

60,501

Other accrued liabilities

35,730

41,472

Current maturities of long-term borrowings

5,327

Deferred revenue

203,626

182,219

Total current liabilities

323,800

339,936

Deferred revenue, non-current

91,984

88,393

Long-term borrowings, net of current maturities

522,236

566,814

Deferred tax liability, non-current

106,319

109,311

Other long-term liabilities

28,268

25,663

Total long-term liabilities

748,807

790,181

Stockholders' equity:

Common stock

769,798

757,777

Retained earnings

129,603

137,713

Accumulated other comprehensive loss

(2,773

)

(1,268

)

Total stockholders' equity

896,628

894,222

Total liabilities and stockholders' equity

$

1,969,235

$

2,024,339

Riverbed Technology

Condensed Consolidated Statements of Cash Flows

In thousands

Unaudited

Three months ended

March 31,

2013

2012

Operating activities:

Net income (loss)

$

(8,110

)

$

6,949

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

31,363

8,678

Stock-based compensation

24,526

22,975

Deferred taxes

(895

)

(3,243

)

Excess tax benefit from employee stock plans

(1,806

)

(10,701

)

Changes in operating assets and liabilities:

Trade receivables

12,148

6,688

Inventory

(2,546

)

(7,330

)

Prepaid expenses and other assets

(8,668

)

(3,488

)

Accounts payable

(12,186

)

1,563

Accruals and other liabilities

(17,265

)

(30,219

)

Acquisition-related contingent consideration

235

Income taxes payable

1,713

10,742

Deferred revenue

24,997

12,270

Net cash provided by operating activities

43,271

15,119

Investing activities:

Capital expenditures

(5,354

)

(6,649

)

Purchase of available for sale securities

(132,178

)

(171,496

)

Proceeds from maturities of available for sale securities

90,695

143,037

Proceeds from sales of available for sale securities

14,500

44,846

Acquisitions, net of cash acquired

(1,000

)

(6,458

)

Net cash (used in) provided by investing activities

(33,337

)

3,280

Financing activities:

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

10,815

8,910

Payments for repurchases of common stock

(25,030

)

(1,408

)

Payment of borrowings principal

(49,319

)

Excess tax benefit from employee stock plans

1,806

10,701

Net cash (used in) provided by financing activities

(61,728

)

18,203

Effect of exchange rate changes on cash and cash equivalents

(1,368

)

2,218

Net increase (decrease) in cash and cash equivalents

(53,162

)

38,820

Cash and cash equivalents at beginning of period

280,509

215,476

Cash and cash equivalents at end of period

$

227,347

$

254,296

Riverbed Technology

Supplemental Financial Information

In thousands

Unaudited

Three months ended

March 31,
2013

December 31,
2012

March 31,
2012

Revenue by Geography

Americas

158,142

140,059

103,656

Europe, Middle East and Africa

57,834

66,450

50,538

Asia Pacific

30,163

30,873

28,219

Total revenue

$

246,139

$