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Riverbed Reports Second Quarter Fiscal Year 2014 Results
[July 24, 2014]

Riverbed Reports Second Quarter Fiscal Year 2014 Results


SAN FRANCISCO --(Business Wire)--

Riverbed Technology (NASDAQ:RVBD), the leader in application performance infrastructure, today reported financial results for its second quarter fiscal 2014 (Q2'14) ended June 30, 2014.

Q2'14 GAAP Financials

GAAP revenue for Q2'14 was $264 million, compared to $250 million in the second quarter of 2013 (Q2'13), representing 6% year-over-year growth. GAAP net income for Q2'14 was $6.8 million, or $0.04 per diluted share, compared to a net loss of $16.5 million, or ($0.10) per diluted share, in Q2'13.





                     

(Dollars in millions, except EPS)

Q2'14     Q1'14     Q2'13     Change Q/Q     Change Y/Y
Revenue $264     $265     $250     -%     6%
Net Income $6.8     $3.3     ($16.5)     $3.5     $23.3
EPS $0.04     $0.02     ($0.10)     $0.02     $0.14
 

Q2'14 Non-GAAP Financials

Non-GAAP revenue for Q2'14 was $264 million, an increase of 4% compared to $255 million in Q2'13. Non-GAAP net income for Q2'14 was $42.6 million, or $0.26 per diluted share, compared to non-GAAP net income of $36.6 million, or $0.22 per diluted share, in Q2'13.

                       
(Dollars in millions, except EPS) Q2'14     Q1'14     Q2'13     Change Q/Q     Change Y/Y
Revenue $264     $266     $255    

-1%

    4%
Net Income $42.6     $40.4     $36.6     5%     17%
EPS $0.26     $0.24     $0.22     $0.02     $0.04
 

"Second quarter financial results were in-line with our revised guidance and were affected by longer sales cycles primarily attributed to certain verticals and territories," said Jerry M. Kennelly, chairman and CEO. "Despite this, our ongoing commitment to disciplined expense management enabled us to deliver solid earnings per share consistent with the expectations we outlined at the outset of the quarter," continued Kennelly. "Riverbed is undergoing an exciting transformation. Our vision and strategies enable our customers to embrace location-independent computing through a comprehensive platform of solutions. We made important strides in the second quarter to extend beyond our core WAN optimization business as evidenced by the number of multi-product transactions which increased both sequentially and year over year, and we expect this to accelerate our growth in the second half of the year and lead to long term sustainable growth in revenue and EPS."

Q2'14 Business Highlights

  • Positioned as a leader in Gartner's 2014 "Magic Quadrant for WAN Optimization" for the seventh consecutive year.
  • Introduced new features in Riverbed® SteelApp™ Traffic Manager 9.6 and Riverbed SteelApp Services Controller 1.2 that make cloud applications and websites more secure and enable faster and easier deployment.
  • Expanded the Riverbed® SteelCentral™ product family, enhancing the industry's leading performance management suite. Announced Riverbed SteelCentral AppResponse 9.0 and NetProfiler 10.6 to allow IT teams to share data more easily, identify trends faster and make performance data more relevant. Introduced a virtual edition of Riverbed SteelCentral NetExpress 460, which provides visibility into private cloud or software-defined data center environments running virtualized networks.
  • Announced Riverbed® SteelFusion™ validation with the EMC VSPEX Proven Infrastructure, which offers an open integration approach that brings together best-in-class technologies to create and deliver flexible IT solutions for customers.
  • Announced Riverbed® SteelHead™ 8.6 to support application acceleration for the Microsoft Azure cloud and expand optimization and acceleration of application delivery across 90% of public cloud deployments. Riverbed also introduced, SteelHead CX 7055v, an enterprise-scale virtual solution delivering up to 1Gbps of optimized traffic for private and hybrid clouds.

Q3'14 Outlook

The Company provides the following financial guidance for the third quarter of fiscal year 2014:

  • Non-GAAP revenues are expected to be in the range of $285 to $291 million
  • Non-GAAP earnings per share is expected to be in the range of $0.30 to $0.32 per share

Riverbed will host a conference call today, July 24, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its second quarter 2014 results and outlook for the third quarter of 2014. 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 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; as such, we believe it is useful for investors to understand the effects of these items on our total operating expenses. 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 that would not have otherwise been recorded by the acquired entity.

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 revenues as well.

Acquisition related expenses: We incur significant expenses in connection with our acquisitions. Acquisition related expenses consist of transaction costs, costs for transitional employees, other acquired employee related retention costs, facilities consolidation and exit 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.

Other expenses are those which we would not otherwise have incurred in the periods presented as a part of our ongoing expenses. In this quarter, Other expenses included:

Operating lease not in service - We entered into an operating lease on a new corporate headquarters in San Francisco. The lease accounting rules require that rent expense begin on a straight line basis starting in the period that we have the right to access the new facility. We gained the right to access the facility in November 2013 to begin constructing our leasehold improvements. We occupied the new facility in the second quarter of 2014. We believe that the duplicate rent of the new facility during the construction period is not representative of the ongoing operating costs of the company.

Non-routine corporate governance and shareholder matters - Beginning in the fourth quarter of 2013, we began incurring professional service fees related to non-routine corporate governance and shareholder matters. We believe these fees are not representative of the ongoing operating costs of the company.

Forward Looking Statements This press release contains forward-looking statements, including statements relating to revenue and earnings growth, customer adoption of the full breadth of our Application Performance Platform, and other forward opportunities. 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; customer adoption rate of our products and our Application Performance Platform; 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-K filed with the SEC for the period ended December 31, 2013, 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 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, at more than $1 billion in annual revenue, is the leader in Application Performance Infrastructure, delivering the most complete platform for Location-Independent Computing. Location-Independent Computing turns location and distance into a competitive advantage by allowing IT to have the flexibility to host applications and data in the most optimal locations while ensuring applications perform as expected, data is always available when needed, and performance issues are detected and fixed before end users notice. Riverbed's 25,000+ customers include 97% of both the Fortune 100 and the Forbes Global 100. Learn more 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 Six months ended
June 30, June 30,
2014 2013 2014 2013
Revenue:
Product $ 144,914 $ 143,483 $ 295,075 $ 291,523
Support and services   119,112     106,427     234,367     204,526  
Total revenue 264,026 249,910 529,442 496,049
Cost of revenue:
Cost of product 36,388 40,463 74,669 81,363
Cost of support and services   32,633     29,893     64,264     57,935  
Total cost of revenue   69,021     70,356     138,933     139,298  
Gross profit 195,005 179,554 390,509 356,751
Operating expenses:
Sales and marketing 110,690 113,373 225,435 229,094
Research and development 51,298 51,018 101,945 99,979
General and administrative 20,279 18,321 39,404 37,435
Acquisition-related costs   272     7,067     2,940     11,203  
Total operating expenses   182,539     189,779     369,724     377,711  
Operating profit (loss) 12,466 (10,225 ) 20,785 (20,960 )

Interest expense and other, net

  (2,713 )   (5,909 )   (5,426 )   (12,273 )
Income (loss) before provision for income taxes 9,753 (16,134 ) 15,359 (33,233 )
Provision for (benefit from) income taxes   2,988     387   $ 5,306     (8,602 )
Net income (loss) $ 6,765   $ (16,521 ) $ 10,053   $ (24,631 )
Net income (loss) per share, basic $ 0.04 $ (0.10 ) $ 0.06 $ (0.15 )
Net income (loss) per share, diluted $ 0.04 $ (0.10 ) $ 0.06 $ (0.15 )
Shares used in computing basic net income (loss) per share 160,580 163,995 160,385 163,681
Shares used in computing diluted net income (loss) per share 164,650 163,995 164,982 163,681
 
         
Riverbed Technology
Condensed Consolidated Balance Sheets
In thousands
Unaudited
June 30, December 31,
2014 2013
ASSETS
Current assets:
Cash and cash equivalents $ 217,611 $ 208,022
Short-term investments 207,162 251,339
Trade receivables, net 108,560 93,836
Inventory 17,504 25,025
Deferred tax assets 17,255 7,222
Prepaid expenses and other current assets   62,905   49,016
Total current assets   630,997   634,460
Long-term investments 95,092 72,675
Fixed assets, net 75,953 57,810
Goodwill 704,305 704,305
Intangible assets, net 361,129 404,467
Deferred tax assets, non-current - 74
Other assets   21,435   23,807
Total assets $ 1,888,911 $ 1,897,598
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,390 $ 45,518
Accrued compensation and related benefits 40,816 51,988
Other accrued liabilities 52,639 36,520
Current maturities of long-term borrowings 15,000 15,000
Deferred revenue   231,142   217,131
Total current liabilities   380,987   366,157
Deferred revenue, non-current 87,863 95,344
Borrowings, non-current, net of current maturities 502,500 510,000
Deferred tax liability, non-current 42,789 48,548
Other long-term liabilities   50,993   48,910
Total long-term liabilities   684,145   702,802
Stockholders' equity:
Common stock 688,133 702,928
Retained earnings 135,348 125,295
Accumulated other comprehensive income   298   416
Total stockholders' equity   823,779   828,639
Total liabilities and stockholders' equity $ 1,888,911 $ 1,897,598
 
         
Riverbed Technology
Condensed Consolidated Statements of Cash Flows
In thousands
Unaudited
Six months ended
June 30,
2014 2013
Operating activities:
Net income (loss) $ 10,053 $ (24,631 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 57,047 62,780
Stock-based compensation 43,321 50,055
Deferred taxes (15,715 ) (32,867 )
Excess tax benefit from employee stock plans (5,245 ) (4,683 )
Other non-cash items 454 1,213
Changes in operating assets and liabilities:
Trade receivables (14,724 ) 19,915
Inventory 7,521 (3,690 )
Prepaid expenses and other assets (11,008 ) (6,136 )
Accounts payable (4,771 ) (8,282 )
Accruals and other liabilities 7,029 (11,384 )
Income taxes payable 1,602 (1,974 )
Deferred revenue   6,530     40,257  
Net cash provided by operating activities 82,094 80,573
Investing activities:
Capital expenditures (31,208 ) (12,627 )
Purchase of available for sale securities (170,606 ) (229,009 )
Proceeds from maturities of available for sale securities 166,314 161,250
Proceeds from sales of available for sale securities 25,145 15,045
Acquisitions, net of cash acquired   -     (1,000 )
Net cash used in investing activities (10,355 ) (66,341 )
Financing activities:
Proceeds from issuance of common stock under employee stock plans 48,491 49,813
Cash used related to net shares settlement of equity awards (8,171 ) (4,289 )
Payments for repurchases of common stock (100,038 ) (75,078 )
Payment of borrowings (7,500 ) (50,015 )
Excess tax benefit from employee stock plans   5,245     4,683  
Net cash used in financing activities (61,973 ) (74,886 )
Effect of exchange rate changes on cash and cash equivalents   (177 )   (1,192 )
Net increase (decrease) in cash and cash equivalents 9,589 (61,846 )
Cash and cash equivalents at beginning of period   208,022     280,509  
Cash and cash equivalents at end of period $ 217,611   $ 218,663  
 
                     
Riverbed Technology
Supplemental Financial Information
In thousands
Unaudited
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
2014 2014 2013 2014 2013
Revenue by Geography
Americas $ 154,744 $ 160,818 $ 156,850 $ 315,562 $ 314,992
Europe, Middle East and Africa 69,421 69,030 59,397 138,451 117,231
Asia Pacific   39,861     35,568     33,663     75,429     63,826  
Total revenue $ 264,026   $ 265,416   $ 249,910   $ 529,442   $ 496,049  
As a percentage of total revenues:
Americas 59 % 61 % 63 % 60 % 63 %
Europe, Middle East and Africa 26 % 26 % 24 % 26 % 24 %
Asia Pacific   15 %   13 %   13 %   14 %   13 %
Total revenue   100 %   100 %   100 %   100 %   100 %
Revenue by Sales Channel
Direct $ 22,519 $ 31,400 $ 42,988 $ 53,918 $ 91,957
Indirect   241,507     234,016     206,922     475,524     404,092  
Total revenue $ 264,026   $ 265,416   $ 249,910   $ 529,442   $ 496,049  
As a percentage of total revenues:
Direct 9 % 12 % 17 % 10 % 19 %
Indirect   91 %   88 %   83 %   90 %   81 %
Total revenue   100 %   100 %   100 %   100 %   100 %
 
                     
Riverbed Technology
GAAP to Non-GAAP Reconciliation
In thousands, except per share amounts
Unaudited
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,

GAAP to Non-GAAP Reconciliations:

2014 2014 2013 2014 2013
Reconciliation of Total revenue:
U.S. GAAP as reported $ 264,026 $ 265,416 $ 249,910 $ 529,442 $ 496,049
Adjustments:
Deferred revenue adjustment (6)   374     509     4,842     883     11,321  
As adjusted $ 264,400   $ 265,925   $ 254,752   $ 530,325   $ 507,370  
Reconciliation of Net income (loss):
U.S. GAAP as reported $ 6,765 $ 3,288 $ (16,521 ) $ 10,053 $ (24,631 )
Adjustments:
Stock-based compensation (1) 21,572 21,749 25,529 43,321 50,055
Payroll tax on stock-based compensation (2)

1,196

298 1,076 1,494 1,469

Amortization of intangibles (3)

21,328 22,010 25,818 43,338 52,128
Acquisition-related costs (5) 292 2,730 7,751 3,022 12,315
Inventory fair value adjustment (4) - - 191 - 1,700
Deferred revenue adjustment (6) 374 509 4,842 883 11,321
Other expense (7) 3,065 2,396 - 5,461 -
Income tax adjustments (8)   (11,983 )   (12,574 )   (12,127 )   (24,557 )   (29,141 )
As adjusted $ 42,609   $ 40,406   $ 36,559   $ 83,015   $ 75,216  
Reconciliation of Net income (loss) per share, diluted:
U.S. GAAP as reported $ 0.04 $ 0.02 $ (0.10 ) $ 0.06 $ (0.15 )
Adjustments:
Stock-based compensation (1) 0.13 0.13 0.15 0.26 0.30
Payroll tax on stock-based compensation (2) 0.01 - 0.01 0.01 0.01

Amortization of intangibles (3)

0.13 0.14 0.15 0.26 0.31
Acquisition-related costs (credits) (5) - 0.02 0.05 0.02 0.07
Inventory fair value adjustment (4) - - - - 0.01
Deferred revenue adjustment (6) - - 0.03 0.01 0.07
Other expense (7) 0.02 0.01 - 0.03 -
Income tax adjustments (8)   (0.07 )   (0.08 )   (0.07 )   (0.15 )   (0.17 )

As adjusted

$ 0.26   $ 0.24   $ 0.22   $ 0.50   $ 0.45  
Non-GAAP Net income per share, basic $ 0.27 $ 0.25 $ 0.22 $ 0.52 $ 0.46
Non-GAAP Net income per share, diluted $ 0.26 $ 0.24 $ 0.22 $ 0.50 $ 0.45

Shares used in computing basic net income per share

160,580 160,190 163,995 160,385 163,681

Shares used in computing diluted net income per share

164,650 165,313 168,126 164,982 168,770
Non-GAAP adjustments:
Product revenue $ 24 $ 33 $ - $ 57 $ -
Support and services revenue 350 476 4,842 826 11,321
Cost of product 11,021 11,437 12,413 22,458 26,025
Cost of support and services 2,488 2,366 2,506 4,854 4,367
Sales and marketing 19,478 21,269 24,821 40,747 50,300
Research and development 7,856 7,682 9,668 15,538 17,406
General and administrative 6,338 3,761 3,890 10,099 8,366
Acquisition-related costs 272 2,668 7,067 2,940 11,203
Provision for income taxes   (11,983 )   (12,574 )   (12,127 )   (24,557 )   (29,141 )
Total Non-GAAP adjustments $ 35,844   $ 37,118   $ 53,080   $ 72,962   $ 99,847  
 

_____________

(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 acquisitions are amortized over the estimated useful life of the respective asset.

(4) The inventory fair value adjustment recorded pursuant to our acquisitions 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, including transaction costs, integration costs, employee retention and severance costs, restructuring costs, write-down of certain acquired in-process research and development intangibles, and revaluation of the fair value of contingent consideration, 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) Other expense, net, includes expenses associated with non-routine corporate governance and shareholder matters and rent expense related to the new corporate headquarters, which is the amount of straight-line rent expense incurred from the date we gained the right to access to the facility for construction purposes prior to the date of occupancy in May 2014.

(8) 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.

 

 


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