Riverbed Technology Reports Third Quarter 2013 Results

Riverbed Technology (NASDAQ:RVBD), the application performance company, today reported financial results for its third quarter ended September 30, 2013 (Q3’13).

GAAP revenue for Q3’13 was $262 million, compared to $219 million in the third quarter of 2012 (Q3’12), representing 20% year-over-year growth. GAAP net income for Q3'13 was $3.8 million, or $0.02 per diluted share, compared to GAAP net income of $24.7 million, or $0.15 per diluted share, in Q3’12.

Non-GAAP revenue for Q3’13 was $265 million, an increase of 21% compared to $219 million in Q3’12. Non-GAAP net income for Q3’13 was $43.3 million, or $0.26 per diluted share, compared to non-GAAP net income of $46.1 million, or $0.28 per diluted share, in Q3’12.

“In a mixed economic environment, which was particularly evident in the government vertical, Riverbed delivered solid third quarter results,” said Jerry M. Kennelly, Riverbed chairman and CEO. “Strong margin performance and prudent expense control drove higher profitability in the quarter,” continued Kennelly. “We further demonstrated our commitment to driving shareholder value by executing a $50 million stock repurchase during the quarter, continuing our track record of returning a substantial amount of free cash flow to investors in the form of share repurchases.”

Q3’13 Business Highlights
  • Extended market-leading Riverbed® Steelhead® wide area network optimization (WAN) product family with the addition of a new hardware appliance and upgrades to Steelhead software with RiOS® 8.5
    • RiOS 8.5 introduces Path Selection which allows IT organizations to cost-effectively deploy and manage complex hybrid networks ensuring the right path and service level for each application with no impact to end user experience
    • RiOS 8.5 integration with Riverbed Cascade® Profiler software helps IT managers meet application service level agreements
    • New Steelhead CX 255 series appliance brings enterprise-class WAN optimization cost-effectively to every branch office offering the same benefits found in larger Steelhead WAN optimization solutions, including decreasing bandwidth utilization by up to 98 percent and improving application acceleration up to 100 times faster
  • Achieved significant milestone with the integration of the Riverbed Cascade® and OPNET product families introducing a single appliance combining application-aware network performance management and application performance management. The integrated solution provides end-to-end performance management giving customers a single solution to maximize performance, availability and productivity of critical applications.
  • Introduced new higher capacity, higher performance Riverbed Granite® appliance and added support for Fibre Channel
  • Announced alliance with Joyent to launch Riverbed Stingray® and Joyent Content Delivery Cloud. The new offering combines Joyent’s public cloud infrastructure with Stingray ADC software to improve performance and flexibility while reducing costs compared to the traditional content delivery network.
  • Awarded certification under the J.D. Power 2013 Certified Technology Service and Support Program for the third consecutive year. This certification acknowledges excellence in delivering outstanding service and support on a worldwide basis, with customer satisfaction scores among the top 20 percent of companies nationwide offering technology support.
  • Recently appointed executives:
    • Kate Hutchison, Senior Vice President and Chief Marketing Officer; joins Riverbed from executive marketing roles at Polycom, VMware, Citrix, and BEA Systems
    • Ginna Raahauge, Senior Vice President and Chief Information Officer; joins Riverbed from Cisco where she was responsible for the technology platform for Cisco’s global order through invoice process and revenue recognition

Conference Call

Riverbed will host a conference call today, October 28, 2013, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its third 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.

Analyst/Investor Meeting

Riverbed will host a meeting for analysts and investors at The Bently Reserve in San Francisco, from 1:00 p.m. to 5:00 p.m. PT on Monday, November 18, 2013.

To register online, please visit:

http://ir.riverbed.com/phoenix.zhtml?c=198235&p=AnalystMeeting2013

For more information email Riverbed Investor Relations at ir@riverbed.com.

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. 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 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   Nine months ended
September 30, September 30,
2013   2012 2013   2012
Revenue:
Product $ 153,167 $ 144,605 $ 444,690 $ 391,008
Support and services   108,556     73,992     313,082     208,470  
Total revenue 261,723 218,597 757,772 599,478
Cost of revenue:
Cost of product 41,772 30,985 123,135 89,412
Cost of support and services   29,085     19,072     87,020     57,112  
Total cost of revenue   70,857     50,057     210,155     146,524  
Gross profit 190,866 168,540 547,617 452,954
Operating expenses:
Sales and marketing 116,257 81,934 345,351 233,115
Research and development 49,461 36,139 149,440 106,052
General and administrative 17,729 13,884 55,164 44,010
Acquisition-related costs (credits)   4,882     (2,865 )   16,085     (12,505 )
Total operating expenses   188,329     129,092     566,040     370,672  
Operating profit (loss) 2,537 39,448 (18,423 ) 82,282
Other (expense) income, net   (5,063 )   5     (17,336 )   (1,241 )
(Loss) income before provision for income taxes (2,526 ) 39,453 (35,759 ) 81,041
(Benefit from) provision for income taxes   (6,344 )   14,723     (14,946 )   31,228  
Net income (loss) $ 3,818   $ 24,730   $ (20,813 ) $ 49,813  
Net income (loss) per share, basic $ 0.02 $ 0.16 $ (0.13 ) $ 0.32
Net income (loss) per share, diluted $ 0.02 $ 0.15 $ (0.13 ) $ 0.30
Shares used in computing basic net income (loss) per share 162,929 153,823 163,430 156,313
Shares used in computing diluted net income (loss) per share 167,692 161,877 163,430 164,880
 
 
Riverbed Technology
Condensed Consolidated Balance Sheets
In thousands
Unaudited
  September 30,   December 31,
2013

2012
ASSETS
Current assets:
Cash and cash equivalents $ 207,811 $ 280,509
Short-term investments 225,249 170,605
Trade receivables, net 100,794 113,190
Inventory 31,687 24,175
Deferred tax assets 19,013 11,185
Prepaid expenses and other current assets   56,626   50,245  
Total current assets   641,180   649,909  
Long-term investments 87,852 78,476
Fixed assets, net 53,589 49,244
Goodwill 702,519 699,785
Intangible assets, net 429,496 506,842
Deferred tax assets, non-current 78 6,457
Other assets   33,322   33,626  
Total assets $ 1,948,036 $ 2,024,339  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 42,711 $ 50,417
Accrued compensation and related benefits 48,838 60,501
Other accrued liabilities 31,938 41,472
Current maturities of long-term borrowings 5,327
Deferred revenue   212,440   182,219  
Total current liabilities   335,927   339,936  
Deferred revenue, non-current 96,351 88,393
Long-term borrowings, net of current maturities 522,441 566,814
Deferred tax liability, non-current 70,022 109,311
Other long-term liabilities   47,953   25,663  
Total long-term liabilities   736,767   790,181  
Stockholders' equity:
Common stock 758,143 757,777
Retained earnings 116,900 137,713
Accumulated other comprehensive income (loss)   299   (1,268 )
Total stockholders' equity   875,342   894,222  
Total liabilities and stockholders' equity $ 1,948,036 $ 2,024,339  
 
   
Riverbed Technology
Condensed Consolidated Statements of Cash Flows
In thousands
Unaudited
Nine months ended
September 30,
2013 2012
Operating activities:
Net (loss) income $ (20,813 ) $ 49,813
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization

94,617
27,743
Stock-based compensation 75,159 66,170
Deferred taxes

(43,985
) 4,655
Excess tax benefit from employee stock plans (5,507 ) (14,532 )
Other non-cash items 1,736
Changes in operating assets and liabilities:
Trade receivables 12,396 (8,397 )
Inventory (7,511 ) (7,293 )
Prepaid expenses and other assets (5,691 ) 3,637
Accounts payable (10,038 ) 3,563
Accruals and other liabilities 1,561 (23,579 )
Acquisition-related contingent consideration (15,882 )
Income taxes payable (1,714 ) 16,895
Deferred revenue   38,179     82,518  
Net cash provided by operating activities

128,389
185,311
Investing activities:
Capital expenditures

(18,284
) (17,121 )
Purchase of available for sale securities (317,399 ) (403,482 )
Proceeds from maturities of available for sale securities 236,562 274,428
Proceeds from sales of available for sale securities 15,045 112,760
Acquisitions, net of cash acquired   (1,000 )   (6,458 )
Net cash used in investing activities

(85,076
) (39,873 )
Financing activities:
Proceeds from issuance of common stock under employee stock plans, net of repurchases 56,293 32,751
Cash used to net share settle equity awards (4,289 ) (4,278 )
Payments for repurchases of common stock (125,081 ) (127,144 )
Payment of debt (50,015 )
Excess tax benefit from employee stock plans   5,507     14,532  
Net cash used in financing activities (117,585 ) (84,139 )
Effect of exchange rate changes on cash and cash equivalents  

1,574
    2,506  
Net (decrease) increase in cash and cash equivalents (72,698 ) 63,805
Cash and cash equivalents at beginning of period   280,509     215,476  
Cash and cash equivalents at end of period $ 207,811   $ 279,281  
 
 
Riverbed Technology
Supplemental Financial Information
In thousands
Unaudited
  Three months ended   Nine months ended
September 30,   June 30,   September 30, September 30,   September 30,
2013 2013 2012 2013 2012
Revenue by Geography
Americas $ 164,015 $ 156,850 $ 133,656 $ 479,056 $ 354,848
Europe, Middle East and Africa 64,179 59,397 56,992 181,445 159,202
Asia Pacific   33,529     33,663     27,949     97,271     85,428  
Total revenue $ 261,723   $ 249,910   $ 218,597   $ 757,772   $ 599,478  
As a percentage of total revenues:
Americas 63 % 63 % 61 % 63 % 59 %
Europe, Middle East and Africa 25 % 24 % 26 % 24 % 27 %
Asia Pacific   12 %   13 %   13 %   13 %   14 %
Total revenue   100 %   100 %   100 %   100 %   100 %
Revenue by Sales Channel
Direct $ 28,654 $ 42,988 $ 10,626 $ 120,611 $ 31,050
Indirect   233,069     206,922     207,971   $ 637,161     568,428  
Total revenue $ 261,723   $ 249,910   $ 218,597   $ 757,772   $ 599,478  

As a percentage of total revenues:
Direct 11 % 17 % 5 % 16 % 5 %
Indirect   89 %   83 %   95 %   84 %   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   Nine months ended

 
September 30,   June 30,   September 30, September 30,   September 30,

GAAP to Non-GAAP Reconciliations:
2013 2013 2012 2013 2012
Reconciliation of Total revenue:
U.S. GAAP as reported $ 261,723 $ 249,910 $ 218,597 $ 757,772 $ 599,478
Adjustments:
Deferred revenue adjustment (6)   3,250     4,842     199     14,571     1,526  
As adjusted $ 264,973   $ 254,752   $ 218,796   $ 772,343   $ 601,004  
Reconciliation of Net income (loss):
U.S. GAAP as reported $ 3,818 $ (16,521 ) $ 24,730 $ (20,813 ) $ 49,813
Adjustments:
Stock-based compensation (1) 25,104 25,529 20,252 75,159 66,170
Payroll tax on stock-based compensation (2) 63 1,076 230 1,532 1,654
Amortization on intangibles (3) 25,817 25,818 5,474 77,945 16,335
Acquisition-related costs (credits) (5) 4,902 7,751 (2,371 ) 17,217 (10,015 )
Inventory fair value adjustment (4) 191 1,700
Deferred revenue adjustment (6) 3,250 4,842 199 14,571 1,526
Other income (expense), net (8) 525 2,612
Income tax adjustments (7)   (19,698 )   (12,127 )   (2,958 )   (48,839 )   (11,218 )
As adjusted $ 43,256   $ 36,559   $ 46,081   $ 118,472   $ 116,877  
Reconciliation of Net income (loss) per share, diluted:
U.S. GAAP as reported $ 0.02 $ (0.10 ) $ 0.15 $ (0.13 ) $ 0.30
Adjustments:
Stock-based compensation (1) 0.15 0.15 0.13 0.45 0.40
Payroll tax on stock-based compensation (2) 0.01 0.01 0.01
Amortization on intangibles (3) 0.15 0.15 0.03 0.46 0.10
Acquisition-related costs (credits) (5) 0.03 0.05 (0.01 ) 0.10 (0.06 )
Inventory fair value adjustment (4) 0.01
Deferred revenue adjustment (6) 0.03 0.03 0.09 0.01
Other income (expense), net (8) 0.02
Income tax adjustments (7)   (0.12 )   (0.07 )   (0.02 )   (0.29 )   (0.07 )
As adjusted $ 0.26   $ 0.22   $ 0.28   $ 0.70   $ 0.71  
Non-GAAP Net income per share, basic $ 0.27 $ 0.22 $ 0.30 $ 0.72 $ 0.75
Non-GAAP Net income per share, diluted $ 0.26 $ 0.22 $ 0.28 $ 0.70 $ 0.71
Shares used in computing basic net income per share 162,929 163,995 153,823 163,430 156,313
Shares used in computing diluted net income per share 167,692 168,126 161,877 168,411 164,880
Non-GAAP adjustments:
Product revenue $ 87 $ $ $ 87 $
Support and services revenue 3,163 4,842 199 14,484 1,526
Cost of product 12,201 12,413 3,858 38,226 11,582
Cost of support and services 2,209 2,506 1,660 6,576 5,146
Sales and marketing 24,236 24,821 10,547 74,536 33,259
Research and development 8,697 9,668 7,079 26,103 23,277
General and administrative 3,661 3,890 3,306 12,027 13,385
Acquisition-related costs (credits) 4,882 7,067 (2,865 ) 16,085 (12,505 )
Other income (expense), net (8) 525 2,612
Provision for income taxes   (19,698 )   (12,127 )   (2,958 )   (48,839 )   (11,218 )
Total Non-GAAP adjustments $ 39,438   $ 53,080   $ 21,351   $ 139,285   $ 67,064  
 
_____________

(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)

We incurred expenses, including revaluation of the contingent consideration, in connection our acquisitions, which would not have otherwise occurred in the period presented as part of our with other income (expense); therefore, these costs are excluded from our non-GAAP operating expenses.

 

Copyright Business Wire 2010

More from Press Releases

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

21st Century Fox Scoops Up Local News Stations

21st Century Fox Scoops Up Local News Stations

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Three-Part FREE Webinar Series

Three-Part FREE Webinar Series

March 24 Full-Day Course Offering: Professional Approach to Trading SPX

March 24 Full-Day Course Offering: Professional Approach to Trading SPX