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Riverbed Technology Reports First Quarter 2013 Results

SAN FRANCISCO--(BUSINESS WIRE)--Apr. 29, 2013-- Riverbed Technology (NASDAQ: 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 (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

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   $ 237,382   $ 182,413  
As a percentage of total revenues:
Americas 65 % 59 % 57 %
Europe, Middle East and Africa 23 % 28 % 28 %
Asia Pacific   12 %   13 %   15 %
Total revenue   100 %   100 %   100 %
Revenue by Sales Channel
Direct $ 48,969 $ 16,477 $ 10,815
Indirect   197,170     220,905     171,598  
Total revenue $ 246,139   $ 237,382   $ 182,413  
As a percentage of total revenues:
Direct 20 % 7 % 6 %
Indirect   80 %   93 %   94 %
Total revenue   100 %   100 %   100 %
Riverbed Technology
GAAP to Non-GAAP Reconciliation
In thousands, except per share amounts

Unaudited

 
  Three months ended
GAAP to Non-GAAP Reconciliations:

March 31,
2013

 

December 31,
2012

 

March 31,
2012

Reconciliation of Total revenue:
U.S. GAAP as reported $ 246,139 $ 237,382 $ 182,413
Adjustments:
Deferred revenue adjustment (6)   6,479     1,292     829  
As adjusted $ 252,618   $ 238,674   $ 183,242  
Reconciliation of Net income (loss):
U.S. GAAP as reported $ (8,110 ) $ 4,784 $ 6,949
Adjustments:
Stock-based compensation (1) 24,526 23,124 22,975
Payroll tax on stock-based compensation (2) 393 1,523 687
Amortization on intangibles (3) 26,310 9,553 5,444
Acquisition-related costs (5) 4,564 13,484 1,949
Inventory fair value adjustment (4) 1,509 699
Deferred revenue adjustment (6) 6,479 1,292 829
Other expense, net (8) 6 2,138
Income tax adjustments (7)   (17,014 )   (8,006 )   (7,520 )
As adjusted $ 38,657   $ 46,459   $ 33,451  
Reconciliation of Net income (loss) per share, diluted:
U.S. GAAP as reported $ (0.05 ) $ 0.03 $ 0.04
Adjustments:
Stock-based compensation (1) 0.14 0.15 0.14
Payroll tax on stock-based compensation (2) - 0.01 -
Amortization on intangibles (3) 0.16 0.06 0.03
Acquisition-related costs (5) 0.03 0.08 0.01
Inventory fair value adjustment (4) 0.01 - -
Deferred revenue adjustment (6) 0.04 0.01 0.01
Other expense, net (8) - - 0.01
Income tax adjustments (7)   (0.10 )   (0.05 )   (0.04 )
As adjusted $ 0.23   $ 0.29   $ 0.20  
Non-GAAP Net income per share, basic $ 0.24 $ 0.30 $ 0.21
Non-GAAP Net income per share, diluted $ 0.23 $ 0.29 $ 0.20
Shares used in computing basic net income per share (9) 163,367 154,818 157,856
Shares used in computing diluted net income per share (9) 169,415 162,578 167,510
Non-GAAP adjustments:
Support and services revenue $ 6,479 $ 1,292 $ 829
Cost of product 13,612 5,840 3,867
Cost of support and services 1,861 2,059 1,643
Sales and marketing 25,479 14,344 12,007
Research and development 7,738 8,264 8,091
General and administrative 4,476 4,645 4,891
Acquisition-related costs 4,136 13,231 556
Other expense, net (8) 6 2,138
Provision for income taxes   (17,014 )   (8,006 )   (7,520 )
Total Non-GAAP adjustments $ 46,767   $ 41,675   $ 26,502  

(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 expense, net; therefore, these costs are excluded from our non-GAAP operating expenses.

(9) Shares used in computing basic and diluted net income per share for the December 31, 2012 period excludes shares issued in connection with the OPNET acquisition.

Source: Riverbed Technology

Riverbed Technology
Renee Lyall, 415-247-6353
renee.lyall@riverbed.com

Riverbed. WAN optimization for your network: Application acceleration, WAN bandwidth optimization, and IT consolidation. Riverbed is the IT performance company. WAN optimization solutions from Riverbed liberate businesses from common IT constraints by increasing application performance, enabling consolidation, and providing enterprise-wide network and application visibility – all while eliminating the need to increase bandwidth, storage or servers. Thousands of companies trust Riverbed to deliver greater productivity and cost savings by making their IT infrastructure faster, less expensive and more responsive. Riverbed solutions are also available as managed services through select providers.