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Riverbed Technology Reports Record Fourth Quarter and 2012 Revenue

  Riverbed Technology Reports Record Fourth Quarter and 2012 Revenue

                           Annual revenue grows 15%

Business Wire

SAN FRANCISCO -- February 7, 2013

Riverbed Technology, Inc. (NASDAQ:RVBD), the performance company, today
reported record revenue for its fourth quarter (Q4'12) and fiscal year ended
December 31, 2012 (FY’12).

Total GAAP revenue for Q4’12 was $237 million, up 9% compared to the third
quarter of fiscal year 2012 (Q3’12) and 17% compared to the fourth quarter of
fiscal year 2011 (Q4’11). For the full year 2012, GAAP revenue was $837
million, up 15% compared to 2011. Non-GAAP revenue for Q4'12 was $239 million,
an increase of 9% compared to Q3'12 and an increase of 17% compared to Q4'11.
Non-GAAP revenue for 2012 was $840 million, an increase of 15% compared to
2011.

GAAP net income for Q4’12 was $5 million, or $0.03 per diluted share. This
compares to $25 million, or $0.15 per diluted share, in Q3’12 and $20 million,
or $0.12 per diluted share, in Q4’11. GAAP net income for 2012 was $55
million, or $0.33 per diluted share. Non-GAAP net income for Q4'12 was $46
million, or $0.29 per diluted share. This compares to $46 million, or $0.28
per diluted share, in Q3'12 and $41 million, or $0.25 per diluted share, in
Q4'11. Non-GAAP net income for 2012 was $163 million, or $0.99 per diluted
share.

The acquisition of OPNET Technologies, Inc., closed December 18, 2012,
contributed $6 million to GAAP revenue and $7 million to non-GAAP revenue in
the fourth quarter. Excluding any revenue or costs associated with OPNET,
non-GAAP net income was $0.29 per diluted share in the fourth quarter.

“In 2012, we expanded our addressable market through organic innovation, new
partnerships and strategic acquisitions,” said Jerry M. Kennelly, Chairman and
CEO. “Revenue dollars grew more than $111 million for the full year, with most
of that growth from WAN optimization. Performance management was the fastest
growing product line, underpinning our strategic decision to acquire OPNET.
Looking ahead, we will benefit from continued growth in our WAN optimization
business and performance management product suite. I am very optimistic as we
enter our first year as a billion-dollar-plus revenue company.”

“Our integration of OPNET is proceeding as planned and we intend to introduce
the first phase of an integrated application and network performance
management product line in the second half of this year,” said Eric Wolford,
president of products and marketing. “OPNET complements a broad lineup of new
products introduced throughout 2012 and uniquely positions us for the future
of performance management.”

“We saw revenue expansion in all major regions, with solid growth in
enterprise sales,” said Randy S. Gottfried, COO and CFO. “The company
continued to execute well and generated more than $217 million of free cash
flow in 2012.”

2012 Business Highlights

  *Completed the acquisition of OPNET Technologies, Inc. making Riverbed
    Performance Management, (RPM) a leader in the converging application and
    network performance management segments
  *Positioned by Gartner in the Leaders quadrant of the 2012 "Magic Quadrant
    for WAN Optimization Controllers" report authored by Joe Skorupa and
    Severine Real and published January 12, 2012
  *Captured more than 52% share of the worldwide Advanced Platform WAN
    optimization market share based on vendor revenue for the third quarter of
    2012 per Gartner’s report titled “Market Share: Application Acceleration
    Equipment, Worldwide 3Q12” authored by Joe Skorupa and Nhat Pham, December
    2012
  *Positioned by Gartner in the Visionaries quadrant of the 2012 "Magic
    Quadrant for Application Delivery Controllers (ADC)" report authored by
    Joe Skorupa, Neil Rickard, and Bjarne Munch and published October 30, 2012
  *Positioned by Gartner in the Leaders quadrant of the 2012 “Magic Quadrant
    for Application Performance Monitoring” report authored by Jonah Kowall
    and Will Capelli and published August 16, 2012
  *Enhanced strategic relationship and product interoperability with VMware
    across Riverbed Steelhead®, Granite™, Performance Management and Stingray™
    product solutions
  *Entered into a technology partnership with Juniper Networks in application
    delivery, WAN optimization and mobility to deliver market-leading
    technologies to more customers
  *Introduced multiple new appliance and virtual products within WAN
    optimization and performance management expanding the addressable market
    opportunity
  *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 for the
    second consecutive year
  *Named a top three Best Place to Work for 2013 in the Glassdoor Employees’
    Choice Award. Riverbed ranked third out of close to a quarter of a million
    global companies rated by their employees, and second overall among
    technology companies.

Conference Call

Riverbed will host a conference call today, February 7, at 1:30 p.m. Pacific
Time (4:30 p.m. Eastern Time) to discuss its fourth quarter and full year 2012
results and outlook for 2013. The call will be broadcast live over the
Internet at http://www.riverbed.com/investors and a replay of the webcast will
also be available 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 basic and 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 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, growth in our WAN
optimization business, growth from new products, the timing of introduction
and benefits of our integrated application and network performance management
product suite, and expansion of our addressable markets. 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, 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 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.

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                Twelve months ended
                          December 31,                      December 31,
                          2012            2011              2012            2011
Revenue:
Product                   $ 157,133       $ 140,303         $ 548,141       $ 501,376
Support and                80,249        62,532          288,719       225,100
services
Total revenue               237,382         202,835           836,860         726,476
Cost of revenue:
Cost of product             34,994          30,764            124,406         105,150
Cost of support and        23,300        19,292          80,412        68,925
services
Total cost of              58,294        50,056          204,818       174,075
revenue
Gross profit                179,088         152,779           632,042         552,401
Operating expenses:
Sales and marketing         95,542          77,606            328,657         272,635
Research and                40,056          33,714            146,108         122,964
development
General and                 16,584          15,750            60,594          59,699
administrative
Acquisition-related        13,231        1,087           726           5,211
costs
Total operating            165,413       128,157         536,085       460,509
expenses
Operating profit            13,675          24,622            95,957          91,892
Other income               (683    )      (534    )        (1,924  )      154
(expense), net
Income before
provision for               12,992          24,088            94,033          92,046
income taxes
Provision for              8,208         3,934           39,436        28,239
income taxes
Net income                $ 4,784        $ 20,154         $ 54,597       $ 63,807
Net income per            $ 0.03          $ 0.13            $ 0.35          $ 0.41
share, basic
Net income per            $ 0.03          $ 0.12            $ 0.33          $ 0.38
share, diluted
Shares used in
computing basic net         155,879         155,699           156,205         154,411
income per share
Shares used in
computing diluted           163,638         166,838           164,570         166,900
net income per
share
                                                                            

                                                       
Riverbed Technology
Condensed Consolidated Balance Sheets
In thousands

                                       December 31, 2012     December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents              $   280,509           $   215,476
Short-term investments                     170,605               254,753
Trade receivables, net                     113,190               78,016
Inventory                                  24,175                11,437
Deferred tax assets                        11,185                16,783
Prepaid expenses and other                50,245              35,078     
current assets
Total current assets                      649,909             611,543    
Long-term investments                      78,476                123,134
Fixed assets, net                          49,244                29,277
Goodwill                                   699,785               117,474
Intangible assets, net                     506,842               68,274
Deferred tax assets, non-current           6,457                 56,708
Other assets                              33,626              24,789     
Total assets                           $   2,024,339        $   1,031,199  
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable                       $   50,417            $   35,341
Accrued compensation and related           60,501                61,256
benefits
Other accrued liabilities                  41,472                42,959
Current maturities of long-term            5,327                 —
borrowings
Deferred revenue                          182,219             121,131    
Total current liabilities                 339,936             260,687    
Deferred revenue, non-current              88,393                36,248
Long-term borrowings, net of               566,814               —
current maturities
Deferred tax liability,                    109,311               103
non-current
Other long-term liabilities               25,663              23,097     
Total long-term liabilities               790,181             59,448     
Stockholders' equity:
Common stock                               757,777               631,921
Retained earnings                          137,713               83,116
Accumulated other comprehensive           (1,268     )         (3,973     )
loss
Total stockholders' equity                894,222             711,064    
Total liabilities and                  $   2,024,339        $   1,031,199  
stockholders' equity
                                                             

                                                          
Riverbed Technology
Condensed Consolidated Statements of Cash Flows
In thousands
Unaudited

                                             Twelve months ended
                                             December 31,
                                             2012                 2011
Operating activities:
Net income                                   $ 54,597             $ 63,807
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization                  40,010               24,474
Stock-based compensation                       89,294               89,734
Deferred taxes                                 10,239               (24,693  )
Excess tax benefit from employee stock         (23,883  )           (50,673  )
plans
Changes in operating assets and
liabilities:
Trade receivables                              (13,386  )           (23,294  )
Inventory                                      (6,238   )           3,742
Prepaid expenses and other assets              (5,734   )           (21,900  )
Accounts payable                               4,567                7,259
Accruals and other liabilities                 (5,894   )           46,293
Acquisition-related contingent                 (15,882  )           1,323
consideration
Income taxes payable                           20,176               50,993
Deferred revenue                              91,397             41,843   
Net cash provided by operating                 239,263              208,908
activities
Investing activities:
Capital expenditures                           (21,956  )           (18,059  )
Purchase of available for sale                 (444,472 )           (616,592 )
securities
Proceeds from maturities of available          344,353              401,795
for sale securities
Proceeds from sales of available for           257,961              169,123
sale securities
Acquisitions, net of cash acquired            (790,269 )          (120,537 )
Net cash used in investing activities          (654,383 )           (184,270 )
Financing activities:
Proceeds from issuance of common stock
under employee stock plans, net of             47,606               55,830
repurchases
Cash used to net share settle equity           (27,309  )           (47,648  )
awards
Payments for repurchases of common             (127,144 )           (35,040  )
stock
Debt borrowing, net of issuance costs          560,371              —
Excess tax benefit from employee stock        23,883             50,673   
plans
Net cash provided by financing                 477,407              23,815
activities
Effect of exchange rate changes on            2,746              1,297    
cash and cash equivalents
Net increase in cash and cash                  65,033               49,750
equivalents
Cash and cash equivalents at beginning        215,476            165,726  
of period
Cash and cash equivalents at end of          $ 280,509           $ 215,476  
period
                                                                  

                                                             
Riverbed Technology
Supplemental Financial Information
In thousands
Unaudited

                 Three months ended                        Twelve months ended
                 December      September     December      December      December
                 31,           30,           31,           31,           31,
                 2012          2012          2011          2012          2011
Revenue by
Geography
Americas         $ 140,059     $ 133,656     $ 117,367     $ 494,907     $ 437,945
Europe,
Middle             66,450        56,992        58,501        225,652       187,425
East and
Africa
Asia              30,873       27,949       26,967       116,301      101,106
Pacific
Total            $ 237,382     $ 218,597     $ 202,835     $ 836,860     $ 726,476
revenue
As a
percentage
of total
revenues:
Americas           59 %          61 %          58 %          59 %          60 %
Europe,
Middle             28 %          26 %          29 %          27 %          26 %
East and
Africa
Asia              13 %         13 %         13 %         14 %         14 %
Pacific
Total             100 %        100 %        100 %        100 %        100 %
revenue
Revenue by
Sales
Channel
Direct           $ 16,477      $ 6,625       $ 7,599       $ 43,526      $ 32,627
Indirect          220,905      211,972      195,236      793,334      693,849
Total            $ 237,382     $ 218,597     $ 202,835     $ 836,860     $ 726,476
revenue
As a
percentage
of total
revenues:
Direct             7 %           3 %           4 %           5 %           4 %
Indirect          93 %         97 %         96 %         95 %         96 %
Total             100 %        100 %        100 %        100 %        100 %
revenue
                                                                         

                                                                              
Riverbed Technology
GAAP to Non-GAAP Reconciliation
In thousands, except per share amounts
Unaudited
                                                                                          
                         Three months ended                              Twelve months ended
                          December        September       December        December        December
GAAP to Non-GAAP          31,             30,             31,             31,             31,
Reconciliations:          2012            2012            2011            2012            2011
Reconciliation of
Total revenue:
U.S. GAAP as              $ 237,382       $ 218,597       $ 202,835       $ 836,860       $ 726,476
reported
Adjustments:
Deferred revenue           1,292         199           1,189         2,818         2,002   
adjustment (6)
As adjusted               $ 238,674      $ 218,796      $ 204,024      $ 839,678      $ 728,478 
Reconciliation of
Net income:
U.S. GAAP as              $ 4,784         $ 24,730        $ 20,154        $ 54,597        $ 63,807
reported
Adjustments:
Stock-based                 23,124          20,252          21,734          89,294          89,734
compensation (1)
Payroll tax on
stock-based                 1,523           230             3,565           3,177           7,465
compensation (2)
Amortization on             9,553           5,474           4,858           25,888          13,120
intangibles (3)
Acquisition-related         13,484          (2,371  )       2,789           3,469           9,761
costs (credits) (5)
Inventory fair
value adjustment            699             —               —               699             359
(4)
Deferred revenue            1,292           199             1,189           2,818           2,002
adjustment (6)
Other income                6               525             611             2,618           1,092
(expense), net (8)
Income tax                 (8,006  )      (2,958  )      (13,787 )      (19,224 )      (37,375 )
adjustments (7)
As adjusted               $ 46,459       $ 46,081       $ 41,113       $ 163,336      $ 149,965 
Reconciliation of
Net income per
share, diluted:
U.S. GAAP as              $ 0.03          $ 0.15          $ 0.12          $ 0.33          $ 0.38
reported
Adjustments:
Stock-based                 0.15            0.13            0.13            0.54            0.54
compensation (1)
Payroll tax on
stock-based                 0.01            0.00            0.02            0.02            0.04
compensation (2)
Amortization on             0.06            0.03            0.03            0.16            0.08
intangibles (3)
Acquisition-related         0.08            (0.01   )       0.02            0.02            0.06
costs (credits) (5)
Deferred revenue            0.01            0.00            0.01            0.02            0.01
adjustment (6)
Other income                0.00            0.00            0.00            0.02            0.01
(expense), net (8)
Income tax                 (0.05   )      (0.02   )      (0.08   )      (0.12   )      (0.22   )
adjustments (7)
As adjusted               $ 0.29         $ 0.28         $ 0.25         $ 0.99         $ 0.90    
Non-GAAP Net income       $ 0.30          $ 0.30          $ 0.26          $ 1.05          $ 0.97
per share, basic
Non-GAAP Net income       $ 0.29          $ 0.28          $ 0.25          $ 0.99          $ 0.90
per share, diluted
Shares used in
computing basic net         154,818         153,823         155,699         155,940         154,411
income per share
(9)
Shares used in
computing diluted           162,578         161,877         166,838         164,305         166,900
net income per
share (9)
Non-GAAP
adjustments:
Support and               $ 1,292         $ 199           $ 1,189         $ 2,818         $ 2,002
services revenue
Cost of product             5,840           3,858           3,781           17,422          10,991
Cost of support and         2,059           1,660           1,793           7,205           7,001
services
Sales and marketing         14,344          10,547          12,063          47,603          43,478
Research and                8,264           7,079           8,688           31,541          32,457
development
General and                 4,645           3,306           5,534           18,030          21,301
administrative
Acquisition-related         13,231          (2,865  )       1,087           726             5,211
costs (credits)
Other income                6               525             611             2,618           1,092
(expense), net (8)
Provision for              (8,006  )      (2,958  )      (13,787 )      (19,224 )      (37,375 )
income taxes
Total Non-GAAP            $ 41,675       $ 21,351       $ 20,959       $ 108,739      $ 86,158  
adjustments


(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 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.

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

Contact:

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