Riverbed Technology (NASDAQ:RVBD), the IT performance company, today reported financial results for its third quarter ended September 30, 2011 (Q3’11).

Reporting on a GAAP basis, revenue for Q3’11 was $190 million, an increase of 28% from $148 million of GAAP revenue reported in the third quarter of fiscal year 2010 (Q3’10). Non-GAAP revenue increased 29% to $191 million.

GAAP net income for Q3’11 was $19 million, or $0.12 per share. This compares to GAAP net income of $14 million, or $0.09 per diluted share, in Q3’10. Non-GAAP net income for Q3’11 was $40 million, or $0.24 per diluted share, as compared to non-GAAP net income for Q3’10 of $27 million, or $0.17 per diluted share.

“We are very pleased with our third quarter financial results,” said Jerry M. Kennelly, Riverbed® president and CEO. “We were able to generate record revenue and strong sequential and year-over-year growth against the backdrop of an uncertain global economy. We achieved record non-GAAP operating margin of 30% and record non-GAAP net income of $40 million during a quarter in which we closed two acquisitions. Riverbed has evolved into a company that delivers a performance platform to dramatically improve IT. Our market position is stronger than ever and we are excited about the opportunity before us.”

“Our third quarter results underscore the compelling value Riverbed delivers to customers and the strength of our operating model and balance sheet,” said Randy S. Gottfried, Riverbed chief financial officer. “During the third quarter we generated $90 million in cash flow from operations. We exited the period with $559 million in cash and investments after repurchasing $20 million of Riverbed shares and paying out $120 million for acquisitions.”

Q3’11 Financial Highlights
  • Total non-GAAP revenue grew 29% year-over-year to $191 million
  • Product revenue grew 28% year-over-year to $132 million
  • Non-GAAP service revenue grew 30% year-over-year to $59 million
  • Record non-GAAP gross margin of 79.0%, compared to 78.0% in Q3’10
  • Record non-GAAP operating profit of $57 million, increased 38% year-over-year
  • Record non-GAAP operating margin of 30.1%, compared to 28.1% in Q3’10
  • Record non-GAAP net income of $40 million, increased 51% year-over-year
  • Deferred revenue grew 37% year-over-year to $148 million

Q3’11 Business Highlights
  • Acquired two privately-owned companies, Zeus Technology and Aptimize Limited, broadening our product solution set to include Application Delivery Controllers (ADC) and extending our total addressable market opportunity.
  • Identified as the WAN optimization controller Advanced Platform worldwide market share leader for Q211 based on revenue in the Gartner report, "Market Share: Application Acceleration Equipment, Worldwide, 2Q11" published by J. Skorupa, N. Pham on September 27, 2011.
  • Selected for this year's InformationWeek 500, an annual listing of the nation's most innovative users of business technology. Riverbed was selected based on its innovation and successful entry into two new markets -- public cloud and cloud storage.
  • Announced Steelhead(R) appliance solutions accelerate VMware vSphere(R) Replication, a new feature of VMware vCenter(TM) Site Recovery Manager(TM) 5. The combination of the Riverbed and VMware solutions address the challenges of replicating data across the WAN in cloud and virtualized environments.

Conference Call

Riverbed will host a conference call today, October 19, 2011, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its third quarter 2011 results and outlook for the fourth quarter of 2011. The call will be broadcast live over the Internet at www.riverbed.com/investors. A replay of the conference call will also be available via webcast 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 and the related earnings conference call contain certain non-GAAP financial measures, including non-GAAP revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net income, non-GAAP gross margin and non-GAAP operating margin, that 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: 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 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 expected future growth. 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, 2010, and our subsequent Forms 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

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.

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, Inc.
GAAP Condensed Consolidated Statements of Operations
In thousands, except per share amounts
Unaudited
  Three months ended   Nine months ended
September 30, September 30,
2011   2010 2011   2010
Revenue:
Product $ 132,061 $ 102,841 $ 361,073 $ 262,083
Support and services   57,722     44,965   162,568   124,373
Total revenue 189,783 147,806 523,641 386,456
 
Cost of revenue:
Cost of product 26,968 21,889 74,386 57,133
Cost of support and services   17,998     12,878   49,633   36,476
Total cost of revenue 44,966 34,767 124,019 93,609
                 
Gross profit 144,817 113,039 399,622 292,847
 
Operating expenses:
Sales and marketing 70,208 56,517 195,029 158,575
Research and development 30,999 21,951 89,250 61,500
General and administrative 15,353 12,078 43,949 34,393
Acquisition-related costs   2,732     -   4,124   2,725
Total operating expenses 119,292 90,546 332,352 257,193
                 
Operating profit 25,525 22,493 67,270 35,654
 
Other income (expense), net (151 ) 384 688 683
                 
Income before provision for income taxes 25,374 22,877 67,958 36,337
Provision for income taxes 6,049 8,967 24,305 14,790
                 
Net income $ 19,325   $ 13,910 $ 43,653 $ 21,547
 
Net income per share, basic $ 0.12 $ 0.10 $ 0.28 $ 0.15
Net income per share, diluted $ 0.12 $ 0.09 $ 0.26 $ 0.14
 
Shares used in computing basic net income per share 155,367 145,978 153,981 143,662
Shares used in computing diluted net income per share 167,031 157,930 166,920 153,546
 
Riverbed Technology, Inc.
Condensed Consolidated Balance Sheets
In thousands
   
September 30, December 31,
2011 2010
 
ASSETS
Current assets:
Cash and cash equivalents $ 153,856 $ 165,726
Short-term investments 321,829 259,245
Trade receivables, net 70,614 50,726
Inventory 15,399 15,180
Deferred tax assets 17,034 20,832
Prepaid expenses and other current assets   30,191     30,958
Total current assets   608,923     542,667
 
Long-term investments 83,575 76,169
Fixed assets, net 27,745 21,522
Goodwill 117,689 25,653
Intangible assets, net 73,449 30,789
Deferred tax assets, non-current 45,728 35,775
Other assets 22,577 3,506
   
Total assets $ 979,686   $ 736,081
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,419 $ 27,015
Accrued compensation and related benefits 32,393 32,915
Other accrued liabilities 48,026 18,813
Deferred revenue   114,425     89,026
Total current liabilities   232,263     167,769
 
Deferred revenue, non-current 33,295 26,511
Other long-term liabilities   21,833     4,381
Total long-term liabilities   55,128     30,892
 
 
Stockholders' equity:
Common stock 633,028 518,052
Retained earnings 62,962 19,309
Accumulated other comprehensive income (loss)   (3,695 )   59
Total stockholders' equity   692,295     537,420
 
   
Total liabilities and stockholders' equity $ 979,686   $ 736,081
 
Riverbed Technology, Inc.
Condensed Consolidated Statements of Cash Flows
In thousands
Unaudited
  Nine months ended
September 30,
2011   2010
Operating activities:
Net income $ 43,653 $ 21,547

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 16,477 11,388
Stock-based compensation 68,000 50,496
Deferred taxes (6,463) (10,267)
Excess tax benefit from employee stock plans (34,482) (9,600)
Changes in operating assets and liabilities:
Trade receivables (15,892) 4,792
Inventory (219) (3,603)
Prepaid expenses and other assets (14,405) (3,377)
Accounts payable 7,982 12,906
Accruals and other liabilities 6,354 14,385
Acquisition-related contingent consideration 1,552 (5,249)
Income taxes payable 42,546 8,355
Deferred revenue 32,184 21,492
Net cash provided by operating activities 147,287 113,265
 
Investing activities:
Capital expenditures (12,017) (7,876)
Purchase of available for sale securities (504,074) (430,659)
Proceeds from maturities of available for sale securities 294,511 307,970
Proceeds from sales of available for sale securities 135,926 40,862
Acquisitions, net of cash acquired (120,179) -
Net cash used in investing activities (205,833) (89,703)
 
Financing activities:
Acquisition-related contingent consideration - (9,909)

Proceeds from issuance of common stock under employee stock plans, net of repurchases
41,996 40,504
Cash used to net share settle equity awards (10,088) (2,300)
Payments for repurchases of common stock (20,017) -
Excess tax benefit from employee stock plans 34,482 9,600
Net cash provided by financing activities 46,373 37,895
Effect of exchange rate changes on cash and cash equivalents 303 129
Net increase (decrease) in cash and cash equivalents (11,870) 61,586
Cash and cash equivalents at beginning of period 165,726 67,749
   
Cash and cash equivalents at end of period $ 153,856 $ 129,335
 
Riverbed Technology, Inc.
Supplemental Financial Information
In thousands

Unaudited

 
  Three months ended   Nine months ended
September 30,   June 30,   September 30, September 30,
2011 2011 2010 2011   2010
Revenue by Geography
 
United States $ 106,326 $ 96,516 $ 80,839 $ 293,181 $ 202,970
Europe, Middle East and Africa 49,847 40,028 38,405 128,924 106,660
Rest of the world   33,610     33,751     28,562     101,536     76,826  
Total revenue $ 189,783   $ 170,295   $ 147,806   $ 523,641   $ 386,456  
 
As a percentage of total revenues:
United States 56 % 57 % 55 % 56 % 53 %
Europe, Middle East and Africa 26 % 23 % 26 % 25 % 28 %
Rest of the world   18 %   20 %   19 %   19 %   19 %
Total revenue   100 %   100 %   100 %   100 %   100 %
 
Revenue by Sales Channel
 
Direct $ 7,068 $ 9,705 $ 7,721 $ 25,028 $ 23,999
Indirect   182,715     160,590     140,085     498,613     362,457  
Total revenue $ 189,783   $ 170,295   $ 147,806   $ 523,641   $ 386,456  
 
As a percentage of total revenues:
Direct 4 % 6 % 5 % 5 % 6 %
Indirect   96 %   94 %   95 %   95 %   94 %
Total revenue   100 %   100 %   100 %   100 %   100 %
 
Riverbed Technology, Inc.
GAAP to Non-GAAP Reconciliation
In thousands, except per share amounts
Unaudited
  Three months ended   Nine months ended
GAAP to Non-GAAP Reconciliations: September 30,   June 30,   September 30, September 30,
2011 2011 2010 2011   2010
 
Reconciliation of Support and service revenue:
U.S. GAAP as reported $ 57,722 $ 53,435 $ 44,965 $ 162,568 $ 124,373
Adjustments:
Deferred revenue adjustment (6)   813     -     -     813     -  
As adjusted $ 58,535   $ 53,435   $ 44,965   $ 163,381   $ 124,373  
 
Reconciliation of Total revenue:
U.S. GAAP as reported $ 189,783 $ 170,295 $ 147,806 $ 523,641 $ 386,456
Adjustments:
Deferred revenue adjustment (6)   813     -     -     813     -  
As adjusted $ 190,596   $ 170,295   $ 147,806   $ 524,454   $ 386,456  
 
Reconciliation of Gross profit:
U.S. GAAP as reported $ 144,817 $ 130,197 $ 113,039 $ 399,622 $ 292,847
Adjustments:
Stock-based compensation (1) 1,834 2,011 1,487 5,586 4,361
Payroll tax on stock-based compensation (2) 20 167 54 426 128
Amortization on intangibles (3) 2,880 1,607 740 6,047 2,220
Inventory fair value adjustment (4) 120 125 - 359 -
Deferred revenue adjustment (6)   813     -     -     813     -  
As adjusted $ 150,484   $ 134,107   $ 115,320   $ 412,853   $ 299,556  
 
Reconciliation of Gross margin:
U.S. GAAP as reported 76.3 % 76.5 % 76.5 % 76.3 % 75.8 %
Adjustments:
Stock-based compensation (1) 1.0 % 1.1 % 1.0 % 1.0 % 1.1 %
Payroll tax on stock-based compensation (2) 0.0 % 0.1 % 0.0 % 0.1 % 0.0 %
Amortization on intangibles (3) 1.5 % 0.9 % 0.5 % 1.2 % 0.6 %
Inventory fair value adjustment (4) 0.1 % 0.1 % 0.0 % 0.1 % 0.0 %
Deferred revenue adjustment (6)   0.1 %   0.0 %   0.0 %   0.0 %   0.0 %
As adjusted   79.0 %   78.7 %   78.0 %   78.7 %   77.5 %
 
Reconciliation of Operating profit:
U.S. GAAP as reported $ 25,525 $ 20,213 $ 22,493 $ 67,270 $ 35,654
Adjustments:
Stock-based compensation (1) 22,504 23,555 17,331 68,000 50,496
Payroll tax on stock-based compensation (2) 234 1,507 516 3,900 1,513
Amortization on intangibles (3) 3,968 2,171 1,195 8,262 3,585
Acquisition-related costs (5) 4,200 2,772 - 6,942 4,156
Inventory fair value adjustment (4) 120 125 - 359 -
Deferred revenue adjustment (6)   813     -     -     813     -  
As adjusted $ 57,364   $ 50,343   $ 41,535   $ 155,546   $ 95,404  
 
Reconciliation of Operating margin:
U.S. GAAP as reported 13.4 % 11.9 % 15.2 % 12.8 % 9.2 %
Adjustments:
Stock-based compensation (1) 11.8 % 13.8 % 11.8 % 13.0 % 13.1 %
Payroll tax on stock-based compensation (2) 0.1 % 0.9 % 0.3 % 0.7 % 0.4 %
Amortization on intangibles (3) 2.1 % 1.3 % 0.8 % 1.6 % 0.9 %
Acquisition-related costs (5) 2.2 % 1.6 % 0.0 % 1.3 % 1.1 %
Inventory fair value adjustment (4) 0.1 % 0.1 % 0.0 % 0.1 % 0.0 %
Deferred revenue adjustment (6)   0.4 %   0.0 %   0.0 %   0.2 %   0.0 %
As adjusted   30.1 %   29.6 %   28.1 %   29.7 %   24.7 %
 
Reconciliation of Net income:
U.S. GAAP as reported $ 19,325 $ 11,283 $ 13,910 $ 43,653 $ 21,547
Adjustments:
Stock-based compensation (1) 22,504 23,555 17,331 68,000 50,496
Payroll tax on stock-based compensation (2) 234 1,507 516 3,900 1,513
Amortization on intangibles (3) 3,968 2,171 1,195 8,262 3,585
Acquisition-related costs (5) 4,681 2,772 - 7,423 4,156
Inventory fair value adjustment (4) 120 125 - 359 -
Deferred revenue adjustment (6) 813 - - 813 -
Income tax adjustments (7)   (11,565 )   (6,527 )   (6,333 )   (23,588 )   (20,644 )
As adjusted $ 40,080   $ 34,886   $ 26,619   $ 108,822   $ 60,653  
 
Reconciliation of Net income per share, diluted:
U.S. GAAP as reported $ 0.12 $ 0.07 $ 0.09 $ 0.26 $ 0.14
Adjustments:

Stock-based compensation (1)
0.14 0.14 0.11 0.42 0.33
Payroll tax on stock-based compensation (2) - 0.01 - 0.02 0.01
Amortization on intangibles (3) 0.02 0.01 0.01 0.05 0.02
Acquisition-related costs (5) 0.03 0.02 - 0.04 0.03
Income tax adjustments (7)   (0.07 )   (0.04 )   (0.04 )   (0.14 )     (0.13 )
As adjusted $ 0.24   $ 0.21   $ 0.17   $ 0.65     $ 0.40  
 
Non-GAAP Net income per share, basic $ 0.26 $ 0.23 $ 0.18 $ 0.71 $ 0.42
Non-GAAP Net income per share, diluted $ 0.24 $ 0.21 $ 0.17 $ 0.65 $ 0.40
 
Shares used in computing basic net income per share (8) 155,367 154,543 145,978 153,981 143,662
Shares used in computing diluted net income per share (8) 167,031 167,270 157,930 166,920 153,546
 
Non-GAAP adjustments:
Support and services revenue $ 813 $ - $ - $ 813 $ -
Cost of product 3,250 2,018 877 7,210 2,623
Cost of support and services 1,604 1,892 1,404 5,208 4,086
Sales and marketing 10,593 10,699 7,904 31,415 23,723
Research and development 7,699 8,764 4,923 23,769 14,775
General and administrative 5,148 5,365 3,934 15,767 11,818
Other acquisition costs 2,732 1,392 - 4,094 2,725
Other expense (9) 481 - - 481 -
Provision for income taxes   (11,565 )   (6,527 )   (6,333 )   (23,588 )     (20,644 )
Total Non-GAAP adjustments $ 20,755   $ 23,603   $ 12,709   $ 65,169     $ 39,106  
 

(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 or credits 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) Shares used in computing basic and diluted net income per share is reflective of the stock split for all periods presented.

(9) 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 other income (expense).

Copyright Business Wire 2010

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