RVBD (MM)

Riverbed Technology, Inc. (NASDAQ:RVBD), the performance company, today reported financial results for its second quarter ended June 30, 2012 (Q2'12).

GAAP revenue for Q2’12 was $198 million, an increase of 9% compared to $182 million in the first quarter 2012 (Q1’12) and an increase of 17% compared to $170 million in the second quarter 2011 (Q2’11). GAAP net income for Q2’12 was $18 million, or $0.11 per diluted share, compared to $7 million, or $0.04 per diluted share, in Q1’12 and $11 million, or $0.07 per diluted share, in Q2’11.

Non-GAAP revenue for Q2’12 was $199 million, an increase of 9% compared to $183 million in Q1’12 and an increase of 17% compared to $170 million in Q2’11. Non-GAAP net income for Q2’12 was $37 million, or $0.23 per diluted share, compared to $33 million, or $0.20 per diluted share, in Q1’12 and $35 million, or $0.21 per diluted share in Q2’11.

“We executed well in the second quarter, driving stronger sales of our new Steelhead and Cascade platforms, demonstrating continued demand for performance-improvement technologies,” said Jerry M. Kennelly, Riverbed president and CEO. “Revenue grew across all major geographies and revenue growth accelerated across our core product offerings. Looking forward, we believe our expanded product offerings and partnerships will further extend our reach to new customers and market segments.”

Business Highlights

• Introduced new Steelhead® 150 appliance and Virtual Steelhead 150 targeting emerging markets and locations with fewer employees.
• Delivered industry-first capabilities to Stingray™, extending the benefits of application delivery controller (ADC) to include Aptimizer web content optimization (WCO). Stingray is the first ADC with integrated WCO.
• Riverbed Steelhead Cloud Accelerator named the Best of TechEd Award winner in the Cloud Computing category.
• Announced another collaboration with VMware using Riverbed Steelhead to accelerate virtual machines (VMs) moving between clouds -- private, public and hybrid -- with VMware vCloud® Connector.
• Showcased next-generation storage architecture with Riverbed Granite™ and EMC storage solutions for globally distributed enterprises looking to achieve the highest levels of consolidation.
• 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, for two consecutive years.
• Recognized by the San Francisco Business Times, Silicon Valley/San Jose Business Journal and its employees as one of the Best Places to Work in the San Francisco Bay Area for the third consecutive year.

Separately, Riverbed announced today a new technology partnership with Juniper Networks in wide area network (WAN) optimization, application delivery and mobility to deliver market-leading technologies for enterprises looking to increase the efficiency of their IT infrastructures and securely deliver better performance of applications across mobile devices, networks and clouds.

Conference Call

Riverbed will host a conference call today, July 24, 2012, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its second 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 (credits): 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, 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 and the effects of our expanded product offerings and partnerships. 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, 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 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 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 GAAP Condensed Consolidated Statements of Operations In thousands, except per share amounts Unaudited   Three months ended June 30, Six months endedJune 30, 2012   2011 2012   2011 Revenue: Product $ 129,369 $ 116,860 $ 246,403 $ 229,012 Support and services 69,099   53,435   134,478   104,846 Total revenue 198,468 170,295 380,881 333,858 Cost of revenue: Cost of product 30,538 23,683 58,427 47,418 Cost of support and services 19,258   16,415   38,040   31,635 Total cost of revenue 49,796   40,098   96,467   79,053 Gross profit 148,672 130,197 284,414 254,805 Operating expenses: Sales and marketing 77,366 63,737 151,181 124,821 Research and development 35,802 29,942 69,913 58,251 General and administrative 15,492 14,913 30,126 28,596 Acquisition-related costs (credits) (10,196 ) 1,392   (9,640 ) 1,392 Total operating expenses 118,464   109,984   241,580   213,060 Operating profit 30,208 20,213 42,834 41,745 Other income (expense), net 259   341   (1,246 ) 839 Income before provision for income taxes 30,467 20,554 41,588 42,584 Provision for income taxes 12,333   9,271   16,505   18,256 Net income $ 18,134   $ 11,283   $ 25,083   $ 24,328 Net income per share, basic $ 0.12 $ 0.07 $ 0.16 $ 0.16 Net income per share, diluted $ 0.11 $ 0.07 $ 0.15 $ 0.15 Shares used in computing basic net income per share 157,261 154,543 157,559 153,288 Shares used in computing diluted net income per share 165,253 167,270 166,381 166,865       Riverbed Technology Condensed Consolidated Balance Sheets In thousands  

June 30,2012

December 31,2011

ASSETS Current assets: Cash and cash equivalents $ 185,019 $ 215,476 Short-term investments 242,493 254,753 Trade receivables, net 85,142 78,016 Inventory 18,230 11,437 Deferred tax assets 15,499 16,783 Prepaid expenses and other current assets 38,874   35,078   Total current assets 585,257   611,543   Long-term investments 122,674 123,134 Fixed assets, net 32,732 29,277 Goodwill 117,626 117,474 Intangible assets, net 62,810 68,274 Deferred tax assets, non-current 56,485 56,708 Other assets 24,366   24,789   Total assets $ 1,001,950   $ 1,031,199   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 33,667 $ 35,341 Accrued compensation and related benefits 29,269 61,256 Other accrued liabilities 27,319 42,959 Deferred revenue 134,010   121,131   Total current liabilities 224,265   260,687   Deferred revenue, non-current 39,308 36,248 Other long-term liabilities 24,612   23,200   Total long-term liabilities 63,920   59,448   Stockholders' equity: Common stock 607,890 631,921 Retained earnings 108,199 83,116 Accumulated other comprehensive loss (2,324 ) (3,973 ) Total stockholders' equity 713,765   711,064   Total liabilities and stockholders' equity $ 1,001,950   $ 1,031,199       Riverbed Technology Condensed Consolidated Statements of Cash Flows In thousands Unaudited

 

Six months endedJune 30,

2012   2011 Operating activities: Net income $ 25,083 $ 24,328 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,455 9,718 Stock-based compensation 45,918 45,496 Deferred taxes 1,735 (3,624 ) Excess tax benefit from employee stock plans (12,170 ) (34,221 ) Changes in operating assets and liabilities: Trade receivables (7,126 ) (19,717 ) Inventory (6,682 ) 201 Prepaid expenses and other assets (838 ) (24,899 ) Accounts payable (618 ) 3,505 Accruals and other liabilities (34,729 ) 2,995 Acquisition-related contingent consideration (11,682 ) — Income taxes payable 12,125 34,807 Deferred revenue 15,939   18,131   Net cash provided by operating activities 45,410 56,720 Investing activities: Capital expenditures (11,305 ) (7,010 ) Purchase of available for sale securities (297,154 ) (351,905 ) Proceeds from maturities of available for sale securities 225,202 162,993 Proceeds from sales of available for sale securities 82,051 91,783 Acquisitions, net of cash acquired (6,458 ) —   Net cash used in investing activities (7,664 ) (104,139 ) Financing activities: Proceeds from issuance of common stock under employee stock plans, net of repurchases 23,613 38,024 Taxes paid related to net shares settlement of equity awards (4,278 ) (10,088 ) Payments for repurchases of common stock (101,408 ) — Excess tax benefit from employee stock plans 12,170   34,221   Net cash (used in) provided by financing activities (69,903 ) 62,157 Effect of exchange rate changes on cash and cash equivalents 1,700   434   Net (decrease) increase in cash and cash equivalents (30,457 ) 15,172 Cash and cash equivalents at beginning of period 215,476   165,726   Cash and cash equivalents at end of period $ 185,019   $ 180,898         Riverbed Technology Supplemental Financial Information In thousands Unaudited   Three months ended Six months ended June 30, 2012   March 31, 2012   June 30, 2011 June 30, 2012   June 30, 2011 Revenue by Geography

Americas

$

117,536

$

103,656

$

106,443

$

221,192

$

207,340

Europe, Middle East and Africa 51,672 50,538 40,028 102,210 79,077 Asia Pacific 29,260   28,219   23,824   57,479   47,441   Total revenue $ 198,468   $ 182,413   $ 170,295   $ 380,881   $ 333,858  

As a percentage of total revenues:

Americas

59 % 57 % 63 % 58 % 62 % Europe, Middle East and Africa 26 % 28 % 23 % 27 % 24 % Asia Pacific 15 % 15 % 14 % 15 % 14 % Total revenue 100 % 100 % 100 % 100 % 100 % Revenue by Sales Channel Direct $ 9,609 $ 10,815 $ 9,705 $ 20,424 $ 17,960 Indirect 188,859   171,598   160,590   360,457   315,898   Total revenue $ 198,468   $ 182,413   $ 170,295   $ 380,881   $ 333,858   As a percentage of total revenues: Direct 5 % 6 % 6 % 5 % 5 % Indirect 95 % 94 % 94 % 95 % 95 % Total revenue 100 % 100 % 100 % 100 % 100 %       Riverbed Technology 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, 2012   March 31, 2012   June 30, 2011 June 30, 2012   June 30, 2011 Reconciliation of Total revenue: U.S. GAAP as reported $ 198,468 $ 182,413 $ 170,295 $ 380,881 $ 333,858 Adjustments: Deferred revenue adjustment (6) 498   829   —   1,327   —   As adjusted $ 198,966   $ 183,242   $ 170,295   $ 382,208   $ 333,858   Reconciliation of Net income: U.S. GAAP as reported $ 18,134 $ 6,949 $ 11,283 $ 25,083 $ 24,328 Adjustments: Stock-based compensation (1) 22,943 22,975 23,555 45,918 45,496 Payroll tax on stock-based compensation (2) 737 687 1,507 1,424 3,666 Amortization on intangibles (3) 5,417 5,444 2,171 10,861 4,294 Acquisition-related costs (credits) (5) (9,593 ) 1,949 2,772 (7,644 ) 2,772 Inventory fair value adjustment (4) — — 125 — 239 Deferred revenue adjustment (6) 498 829 — 1,327 — Other income (expense), net (8) (51 ) 2,138 — 2,087 — Income tax adjustments (7) (740 ) (7,520 ) (6,527 ) (8,260 ) (12,023 ) As adjusted $ 37,345   $ 33,451   $ 34,886   $ 70,796   $ 68,772   Reconciliation of Net income per share, diluted: U.S. GAAP as reported $ 0.11 $ 0.04 $ 0.07 $ 0.15 $ 0.15 Adjustments: Stock-based compensation (1) 0.15 0.14 0.14 0.28 0.26 Payroll tax on stock-based compensation (2) — — 0.01 0.01 0.02 Amortization on intangibles (3) 0.03 0.03 0.01 0.07 0.03 Acquisition-related costs (credits) (5) (0.06 ) 0.01 0.02 (0.05 ) 0.02 Deferred revenue adjustment (6) — 0.01 — 0.01 — Other income (expense), net (8) — 0.01 — 0.01 — Income tax adjustments (7) —   (0.04 ) (0.04 ) (0.05 ) (0.07 ) As adjusted $ 0.23   $ 0.20   $ 0.21   $ 0.43   $ 0.41   Non-GAAP Net income per share, basic $ 0.24 $ 0.21 $ 0.23 $ 0.45 $ 0.45 Non-GAAP Net income per share, diluted $ 0.23 $ 0.20 $ 0.21 $ 0.43 $ 0.41 Shares used in computing basic net income per share 157,261 157,856 154,543 157,559 153,288 Shares used in computing diluted net income per share 165,253 167,510 167,270 166,381 166,865 Non-GAAP adjustments: Support and services revenue $ 498 $ 829 $ — $ 1,327 $ — Cost of product 3,857 3,867 2,018 7,724 3,960 Cost of support and services 1,843 1,643 1,892 3,486 3,604 Sales and marketing 10,705 12,007 10,699 22,712 20,822 Research and development 8,107 8,091 8,764 16,198 16,070 General and administrative 5,188 4,891 5,365 10,079 10,619

Acquisition-related costs (credits)

(10,196 ) 556 1,392 (9,640 ) 1,392 Other income (expense), net (51 ) 2,138 — 2,087 — Provision for income taxes (740 ) (7,520 ) (6,527 ) (8,260 ) (12,023 ) Total Non-GAAP adjustments $ 19,211   $ 26,502   $ 23,603   $ 45,713   $ 44,444  

_____________

(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.