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/.... A replay of the conference call will also be available via webcast at http://www.riverbed.com/... 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/...
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.
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/.... A replay of the conference call will also be available via webcast at http://www.riverbed.com/... 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/...
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.
