SAN FRANCISCO--(BUSINESS WIRE)-- Riverbed Technology (NASDAQ: RVBD), the IT infrastructure performance company for networks, applications and storage, today reported financial results for its third quarter ended September 30, 2009 (Q3'09).

Total GAAP revenue for Q3'09 was $102.0 million, an increase of 12% from $91.0 million reported in the second quarter of fiscal year 2009 (Q2'09) and an increase of 18% from $86.5 million of revenue reported in the third quarter of fiscal year 2008 (Q3'08). GAAP net income for Q3'09 was $5.5 million, or $0.08 per share. This compares to a GAAP net loss in Q2'09 of $290,000, or $0.00 per share, and a GAAP net loss of $12.4 million, or $0.17 per share, in Q3'08.

Non-GAAP revenue for Q3'09 was $102.6 million, an increase of 12% from $91.6 million of non-GAAP revenue reported in Q2'09 and an increase of 18% from $86.5 million of revenue reported in Q3'08. Non-GAAP net income for Q3'09 was $14.5 million, or $0.19 per diluted share. This compares to non-GAAP net income for Q2'09 of $10.3 million, or $0.14 cents per diluted share, and non-GAAP net income for Q3'08 of $11.0 million, or $0.15 per share.

"We are 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 a still challenging global economy. As a critical enabler of fundamental business initiatives including virtualization, cloud computing and reducing data infrastructure costs, WAN optimization continues to be a top IT priority."

Q3'09 Financial Highlights

• Revenue increased 12% sequentially and 18% year-over-year
• Non-GAAP gross margin increased to 78%
• Non-GAAP operating margin increased to 22%
• Non-GAAP net income increased 41% sequentially and 32%
  year-over-year
• Days sales outstanding decreased to 42 days
• Deferred revenue increased to $76 million
• Cash flow from operations increased to $38 million
• Cash, cash equivalents, and marketable securities totaled approximately $297 million and no debt

Q3'09 Business Highlights

• Identified as the WAN optimization controller (WOC) Advanced Platform worldwide market share leader for Q2'09 based on revenue in the Gartner report, "Market Share: Application Acceleration Equipment, Worldwide, Q2'09"
• Positioned by Gartner in the leaders quadrant in the "Magic Quadrant for WAN Optimization Controllers 2009"
• Added eight Fortune 500 customers, with cumulative customer count approaching 7,000
• Introduced Central Management Console - Virtual Edition (CMC-VE) designed for managed service providers (MSPs). The new capabilities of CMC-VE allow MSPs to reduce operational costs, improve visibility, easily scale and flexibly allocate management licenses to enterprise customers through its new multi-tenant capabilities. CMC-VE runs on VMWare ESX, and MSPs can run it on any existing server that has capacity.

Conference Call

Riverbed will host a conference call today, October 22, 2009, at 2:30 p.m. Pacific Time (5:30 p.m. Eastern Time) to discuss its third quarter fiscal year 2009 results and outlook for the fourth quarter of 2009. 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 at www.riverbed.com/investors for 12 months.

Forward Looking Statements

This press release contains forward-looking statements, including statements related to WAN optimization as an IT priority. 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; 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-Q filed for the quarter ended June 30, 2009. 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.

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 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 and adjustments related to our tax valuation allowance:

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 our deferred support revenue was reduced by approximately $2.0 million in the adjustment to fair value. Because these are typically one-year contracts, our GAAP revenues for the 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 stock-based payroll 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 incurred significant expenses in connection with our acquisition of Mazu 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 costs, integration related professional services, and adjustments to the fair value of the acquisition related contingent consideration. We believe it is useful for investors to understand the effects of these items on our total operating expenses.

About Riverbed

Riverbed Technology is the IT infrastructure performance company. The Riverbed family of wide area network (WAN) optimization solutions liberates 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 with distributed operations use Riverbed to make their IT infrastructure faster, less expensive and more responsive. Additional information about Riverbed (NASDAQ: RVBD) is available at www.riverbed.com.

Riverbed Technology, Riverbed, Steelhead, RiOS, Interceptor, Think Fast, the Riverbed logo, Mazu, Profiler, and Cascade are trademarks or registered trademarks of Riverbed Technology All other trademarks used or mentioned herein belong to their respective owners.

About the Magic Quadrant

The Magic Quadrant is copyrighted 2009 by Gartner, Inc. and is reused with permission. The Magic Quadrant is a graphical representation of a marketplace at and for a specific time period. It depicts Gartner's analysis of how certain vendors measure against criteria for that marketplace, as defined by Gartner. Gartner does not endorse any vendor, product or service depicted in the Magic Quadrant, and does not advise technology users to select only those vendors placed in the "Leaders" quadrant. The Magic Quadrant is intended solely as a research tool, and is not meant to be a specific guide to action. Gartner disclaims all warranties, express 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 September 30,								Nine months ended September 30,
			2009				2008				2009				2008
Revenue:
	Product		$	69,543			$	65,238			$	190,322			$	185,574
	Support and services			32,506				21,309				90,925				55,547
	Total revenue			102,049				86,547				281,247				241,121
Cost of revenue:
	Cost of product			14,982				16,653				43,776				45,153
	Cost of support and services			9,410				7,174				27,385				20,151
	Total cost of revenue			24,392				23,827				71,161				65,304
Gross profit				77,657				62,720				210,086				175,817
Operating expenses:
	Sales and marketing			44,192				34,855				127,003				100,992
	Research and development			17,302				14,582				50,368				43,278
	General and administrative			9,297				10,419				27,382				29,925
	Other charges			-				11,000				-				11,000
	Acquisition-related costs			(3,008	)			-				(4,447	)			-
	Total operating expenses			67,783				70,856				200,306				185,195
Operating income (loss)				9,874				(8,136	)			9,780				(9,378	)
Other income, net				141				1,287				824				5,059
	Income (loss) before provision for income taxes			10,015				(6,849	)			10,604				(4,319	)
	Provision for income taxes			4,546				5,574				4,451				8,335
Net income (loss)			$	5,469			$	(12,423	)		$	6,153			$	(12,654	)
Net income (loss) per share, basic			$	0.08			$	(0.17	)		$	0.09			$	(0.18	)
Net income (loss) per share, diluted			$	0.08			$	(0.17	)		$	0.09			$	(0.18	)
Shares used in computing basic net income (loss) per share				69,370				71,005				69,035				70,915
Shares used in computing diluted net income (loss) per share				71,968				71,005				71,040				70,915

Riverbed Technology
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,
				2009				2009				2008				2009				2008
Reconciliation of Total Revenue:
	U.S. GAAP as reported			$	102,049			$	90,987			$	86,547			$	281,247			$	241,121
	Adjustments:
		Deferred revenue adjustment (5)			505				658				-				1,479				-
	As Adjusted			$	102,554			$	91,645			$	86,547			$	282,726			$	241,121
Reconciliation of Gross Profit:
	U.S. GAAP as reported			$	77,657			$	67,132			$	62,720			$	210,086			$	175,817
	Adjustments:
		Stock-based compensation (1)			1,239				1,237				1,179				3,594				3,601
		Payroll taxes on option exercises (2)			2				17				1				19				6
		Amortization on intangibles (3)			740				740				-				1,806				-
		Deferred revenue adjustment (5)			505				658				-				1,479				-
	As Adjusted			$	80,143			$	69,784			$	63,900			$	216,984			$	179,424
Reconciliation of Gross Margin:
	U.S. GAAP as reported				76.1	%			73.8	%			72.5	%			74.7	%			72.9	%
	Adjustments:
		Stock-based compensation (1)			1.2	%			1.4	%			1.3	%			1.3	%			1.5	%
		Amortization on intangibles (3)			0.7	%			0.8	%			0.0	%			0.6	%			0.0	%
		Deferred revenue adjustment (5)			0.1	%			0.1	%			0.0	%			0.1	%			0.0	%
	As Adjusted				78.1	%			76.1	%			73.8	%			76.7	%			74.4	%
Reconciliation of Operating Income (Loss):
	U.S. GAAP as reported			$	9,874			$	1,946			$	(8,136	)		$	9,780			$	(9,378	)
	Adjustments:
		Stock-based compensation (1)			13,911				13,738				13,031				40,431				38,157
		Payroll taxes on option exercises (2)			40				252				45				318				150
		Amortization on intangibles (3)			1,195				1,195				-				2,916				-
		Acquisition-related costs (4)			(3,004	)			(2,459	)			-				(3,576	)			-
		Deferred revenue adjustment (5)			505				658				-				1,479				-
		Litigation settlement (8)			-				-				11,000				-				11,000
	As Adjusted			$	22,521			$	15,330			$	15,940			$	51,348			$	39,929
Reconciliation of Operating Margin:
	U.S. GAAP as reported				9.7	%			2.1	%			-9.4	%			3.5	%			-3.9	%
	Adjustments:
		Stock-based compensation (1)			13.6	%			15.0	%			15.1	%			14.4	%			15.8	%
		Payroll taxes on option exercises (2)			0.0	%			0.3	%			0.0	%			0.1	%			0.1	%
		Amortization on intangibles (3)			1.2	%			1.3	%			0.0	%			1.0	%			0.0	%
		Acquisition-related costs (4)			-2.9	%			-2.7	%			0.0	%			-1.3	%			0.0	%
		Deferred revenue adjustment (5)			0.4	%			0.7	%			0.0	%			0.5	%			0.0	%
		Litigation settlement (8)			0.0	%			0.0	%			12.7	%			0.0	%			4.6	%
	As Adjusted				22.0	%			16.7	%			18.4	%			18.2	%			16.6	%
Reconciliation of Net Income (Loss):
	U.S. GAAP as reported			$	5,469			$	(290	)		$	(12,423	)		$	6,153			$	(12,654	)
	Adjustments:
		Stock-based compensation (1)			13,911				13,738				13,031				40,431				38,157
		Payroll taxes on option exercises (2)			40				252				45				318				150
		Amortization on intangibles (3)			1,195				1,195				-				2,916				-
		Acquisition-related costs (4)			(3,004	)			(2,459	)			-				(3,576	)			-
		Deferred revenue adjustment (5)			505				658				-				1,479				-
		Litigation settlement (8)			-				-				11,000				-				11,000
		Income tax adjustments (6)			(3,626	)			(2,808	)			(662	)			(13,729	)			(7,838	)
	As Adjusted			$	14,490			$	10,286			$	10,991			$	33,992			$	28,815
Reconciliation of Net Income (Loss) per share, diluted:
	U.S. GAAP as reported			$	0.08			$	-			$	(0.17	)		$	0.09			$	(0.18	)
	Adjustments:
		Stock-based compensation (1)			0.17				0.18				0.18				0.55				0.53
		Amortization on intangibles (3)			0.02				0.02				-				0.04				-
		Acquisition-related costs (4)			(0.04	)			(0.03	)			-				(0.05	)			-
		Deferred revenue adjustment (5)			0.01				0.01				-				0.02				-
		Litigation settlement (8)			-				-				0.15				-				0.15
		Income tax adjustments (6)			(0.05	)			(0.04	)			(0.01	)			(0.19	)			(0.11	)
	As Adjusted			$	0.19			$	0.14			$	0.15			$	0.46			$	0.39
Non-GAAP Net income per share, basic				$	0.21			$	0.15			$	0.15			$	0.49			$	0.41
Non-GAAP Net income per share, diluted (7)				$	0.19			$	0.14			$	0.15			$	0.46			$	0.39
Shares used in computing basic net income per share					69,370				69,007				71,005				69,035				70,915
Shares used in computing diluted net income per share (7)					75,301				73,611				74,472				73,406				74,503
	Non-GAAP adjustments:
		Support and services revenue		$	505			$	658			$	-			$	1,479			$	-
		Cost of product			860				855				54				2,136				131
		Cost of support and services			1,121				1,139				1,126				3,283				3,476
		Sales and marketing			6,742				6,768				5,931				19,848				17,912
		Research and development			3,629				3,747				3,431				10,679				9,950
		General and administrative			2,798				3,176				2,534				8,590				6,838
		Other acquisition costs			(3,008	)			(2,959	)			-				(4,447	)			-
		Other charges			-				-				11,000				-				11,000
		Provision for income taxes			(3,626	)			(2,808	)			(662	)			(13,729	)			(7,838	)
	Total Non-GAAP Adjustments			$	9,021			$	10,576			$	23,414			$	27,839			$	41,469
(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 option exercises represents the incremental cost for employer payroll taxes on stock option exercises.
(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)	We incurred expenses in connection with our acquisition, 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.
(5)	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.
(6)	The non-GAAP tax rate excludes the income tax effects of non-GAAP adjustments. Additionally, the non-GAAP tax rate does not assume a valuation allowance on our deferred tax assets.
(7)	Non-GAAP diluted earnings per share and non-GAAP diluted weighted average shares outstanding were calculated excluding the effects of expensing stock options under ASC Topic 718.
(8)	Other charges represent the Q3 2008 litigation settlement with Quantum Corporation with payment in Q4 2008.

Riverbed Technology
Condensed Consolidated Balance Sheets
In thousands
Unaudited
			September 30,				December 31,
			2009				2008
ASSETS
Current assets:
	Cash and cash equivalents		$	75,709			$	95,378
	Marketable securities			221,058				172,398
	Trade receivables, net			47,099				46,839
	Inventory			12,100				10,637
	Deferred tax assets			8,730				6,185
	Prepaid expenses and other current assets			15,169				12,605
	Total current assets			379,865				344,042
Fixed assets, net				21,810				21,993
Goodwill				11,711				-
Intangible assets, net				20,584				-
Deferred tax assets, non-current				35,360				27,033
Other assets				5,115				5,449
	Total assets		$	474,445			$	398,517
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	21,267			$	18,290
	Accrued compensation and related benefits			19,766				13,137
	Other accrued liabilities			26,583				13,342
	Deferred revenue			58,472				45,194
	Total current liabilities			126,088				89,963
Deferred revenue, non-current				17,561				12,967
Other long-term liabilities				2,892				1,758
	Total long-term liabilities			20,453				14,725
Stockholders' equity:
	Common stock			343,637				315,882
	Accumulated deficit			(15,781	)			(21,934	)
	Accumulated other comprehensive income (loss)			48				(119	)
	Total stockholders' equity			327,904				293,829
	Total liabilities and stockholders' equity		$	474,445			$	398,517

Riverbed Technology
Condensed Consolidated Statements of Cash Flows
In thousands
Unaudited
			Nine months ended September 30,
			2009				2008
Operating activities:
	Net income (loss)		$	6,153			$	(12,654	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization			10,376				5,739
	Stock-based compensation			40,431				38,157
	Deferred taxes			(10,019	)			-
	Excess tax benefit from employee stock plans			(1,694	)			(1,427	)
	Changes in operating assets and liabilities:
	Trade receivables			1,608				5,521
	Inventory			(1,017	)			(7,720	)
	Prepaid expenses and other assets			(2,128	)			(4,870	)
	Accounts payable			2,398				1,599
	Accruals and other liabilities			8,603				14,503
	Acquisition-related contingent consideration			(4,947	)			-
	Income taxes payable			6,562				4,762
	Deferred revenue			17,073				17,385
	Net cash provided by operating activities			73,399				60,995
Investing activities:
	Capital expenditures			(7,173	)			(10,761	)
	Purchase of available for sale securities			(244,208	)			(264,179	)
	Proceeds from maturities of available for sale securities			181,761				143,102
	Proceeds from sales of available for sale securities			13,500				39,803
	Acquisitions, net of cash acquired			(20,469	)			-
	Net cash used in investing activities			(76,589	)			(92,035	)
Financing activities:
	Proceeds from issuance of common stock under employee stock plans, net of repurchases			15,512				9,119
	Payments for repurchases of common stock			(29,016	)			(24,992	)
	Payment of debt assumed in acquisition			(5,004	)			-
	Excess tax benefit from employee stock plans			1,694				1,427
	Net cash used in financing activities			(16,814	)			(14,446	)
Effect of exchange rate changes on cash and cash equivalents				335				(169	)
Net decrease in cash and cash equivalents				(19,669	)			(45,655	)
Cash and cash equivalents at beginning of period				95,378				162,979
Cash and cash equivalents at end of period			$	75,709			$	117,324

Riverbed Technology
Supplemental Financial Information
In thousands
Unaudited
			Three months ended												Nine months ended
			September 30,				June 30,				September 30,				September 30,
			2009				2009				2008				2009				2008
Revenue by Geography
	United States		$	58,264			$	49,640			$	54,289			$	156,208			$	142,386
	Europe, Middle East and Africa			25,747				24,934				20,476				75,019				59,369
	Rest of the world			18,038				16,413				11,782				50,020				39,366
	Total revenue		$	102,049			$	90,987			$	86,547			$	281,247			$	241,121
	As a percentage of total revenues:
	United States			57	%			55	%			63	%			56	%			59	%
	Europe, Middle East and Africa			25	%			27	%			24	%			27	%			25	%
	Rest of the world			18	%			18	%			13	%			17	%			16	%
	Total revenue			100	%			100	%			100	%			100	%			100	%
Revenue by Sales Channel
	Direct		$	6,640			$	8,232			$	5,649			$	22,637			$	21,003
	Indirect			95,409				82,755				80,898				258,610				220,118
	Total revenue		$	102,049			$	90,987			$	86,547			$	281,247			$	241,121
	As a percentage of total revenues:
	Direct			7	%			9	%			7	%			8	%			9	%
	Indirect			93	%			91	%			93	%			92	%			91	%
	Total revenue			100	%			100	%			100	%			100	%			100	%

MEDIA CONTACT
Kristalle Ward
Riverbed Technology
415-247-8140
Kristalle.Ward@riverbed.com

INVESTOR RELATIONS CONTACT
Renee Lyall
Riverbed Technology
415-247-6353
Renee.Lyall@riverbed.com

 

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