Riverbed Technology Reports Second Quarter 2013 Results

Riverbed Technology Reports Second Quarter 2013 Results

SAN FRANCISCO--(BUSINESS WIRE)-- Riverbed Technology (NAS: RVBD) , the application performance company, today reported financial results for its second quarter ended June 30, 2013 (Q2'13).

GAAP revenue for Q2'13 was $250 million, compared to $198 million in the second quarter of 2012 (Q2'12), representing 26% year-over-year growth. GAAP net loss for Q2'13 was $16.5 million, or $0.10 per diluted share, compared to GAAP net income of $18.1 million, or $0.11 per diluted share, in Q2'12.


Non-GAAP revenue for Q2'13 was $255 million, an increase of 28% compared to $199 million in Q2'12. Non-GAAP net income for Q2'13 was $36.6 million, or $0.22 per diluted share, compared to non-GAAP net income of $37.3 million, or $0.23 per diluted share, in Q2'12.

"Total non-GAAP revenue increased twenty-eight percent year-over-year, with growth across all major product lines, geographies, and verticals," said Jerry M. Kennelly, chairman and CEO. "Riverbed's core revenue, excluding OPNET, grew 7% sequentially to $215 million in the second quarter. Non-GAAP revenue from the acquired OPNET products was $40 million, as we still have work to do integrating the two companies," continued Kennelly. "Our market expanding products outside of WAN optimization and OPNET grew almost 50% compared to last year, and we believe our multi-product strategy to deliver unmatched application performance will allow us to accelerate the company's revenue growth."

Q2'13 Business Highlights

  • Positioned by Gartner as the only vendor in the Leaders Quadrant of the 2013 "Magic Quadrant for WAN Optimization Controllers" authored by Joe Skorupa, Mark Fabbi, Bjarne Munch and published in April 2013
  • Completed EMC E-Lab qualification of Riverbed® Granite® with EMC VNX®
  • Riverbed OPNET AppInternals Xpert® introduced big data techniques to application performance management (APM) through its Transaction Trace Warehouse that records all application transactions across multiple application tiers making it fast and easy to find a single problematic transaction
  • Named a "Value Leader" by the Enterprise Management Associates (EMA) Radar™ report for Application-Aware Network Performance Management (ANPM) Q1 2013. The Riverbed Performance Management solution achieved the highest aggregate score in total ANPM functionality for its integrated, scalable and proactive application and network performance monitoring, analysis and troubleshooting solutions.
  • Introduced new application delivery as a service (ADCaaS) with the Riverbed Stingray® Services Controller making possible an "ADC per application" deployment model that directly addresses the evolving application and data center architectures, workflows, and operations models that call for a next generation ADC architecture
  • Stingray Traffic Manager 9.1 achieved Oracle Validated Integration with Oracle E-Business Suite 12.1
  • Announced virtual performance solutions support on Windows Server 2012 Hyper-V and Hyper-V Server 2012 for Stingray Traffic Manager and Virtual Steelhead
  • Riverbed Partner Network awarded a 5-Star Partner rating within CRN's 2013 Partner Program Guide and was also recognized as a 2013 Channel Champion in the wide area network Optimization/WAN Acceleration category

Conference Call

Riverbed will host a conference call today, July 30, 2013, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its second 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 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, and our subsequent quarterly reports 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

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.

About the Magic Quadrant

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               
Unaudited
Three months ended

June 30,

 Six months ended

June 30,

 2013  2012  2013  2012 
Revenue:
Product$143,483$129,369$291,523$246,403
Support and services 106,427  69,099  204,526  134,478 
Total revenue249,910198,468496,049380,881
Cost of revenue:
Cost of product40,46330,53881,36358,427
Cost of support and services 29,893  19,258  57,935  38,040 
Total cost of revenue 70,356  49,796  139,298  96,467 
Gross profit179,554148,672356,751284,414
Operating expenses:
Sales and marketing113,37377,366229,094151,181
Research and development51,01835,80299,97969,913
General and administrative18,32115,49237,43530,126
Acquisition-related costs (credits) 7,067  (10,196) 11,203  (9,640)
Total operating expenses 189,779  118,464  377,711  241,580 
Operating profit (loss)(10,225)30,208(20,960)42,834
Other income (expense), net (5,909) 259  (12,273) (1,246)
Income (loss) before provision for income taxes(16,134)30,467(33,233)41,588
Provision (benefit) for income taxes 387  12,333  (8,602) 16,505 
Net income (loss)$(16,521)$18,134 $(24,631)$25,083 
Net income (loss) per share, basic$(0.10)$0.12$(0.15)$0.16
Net income (loss) per share, diluted$(0.10)$0.11$(0.15)$0.15
Shares used in computing basic net income (loss) per share163,995157,261163,681157,559
Shares used in computing diluted net income (loss) per share163,995165,253163,681166,381
 
Riverbed Technology        
Condensed Consolidated Balance Sheets
In thousands
Unaudited
June 30,

2013

December 31,

2012

ASSETS
Current assets:
Cash and cash equivalents$218,663$280,509
Short-term investments194,836170,605
Trade receivables, net93,275113,190
Inventory27,86524,175
Deferred tax assets18,31211,185
Prepaid expenses and other current assets 54,817  50,245 
Total current assets 607,768  649,909 
Long-term investments105,33378,476
Fixed assets, net51,83949,244
Goodwill702,519699,785
Intangible assets, net455,313506,842
Deferred tax assets, non-current776,457
Other assets 35,655  33,626 
Total assets$1,958,504 $2,024,339 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$42,356$50,417
Accrued compensation and related benefits38,45460,501
Other accrued liabilities31,11741,472
Current maturities of long-term borrowings5,327
Deferred revenue 213,112  182,219 
Total current liabilities 325,039  339,936 
Deferred revenue, non-current97,75888,393
Long-term borrowings, net of current maturities522,338566,814
Deferred tax liability, non-current80,479109,311
Other long-term liabilities 46,211  25,663 
Total long-term liabilities 746,786  790,181 
Stockholders' equity:
Common stock776,302757,777
Retained earnings113,082137,713
Accumulated other comprehensive loss (2,705) (1,268)
Total stockholders' equity 886,679  894,222 
Total liabilities and stockholders' equity$1,958,504 $2,024,339 
 
Riverbed Technology      
Condensed Consolidated Statements of Cash Flows
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