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Riverbed Technology Reports Record Fourth Quarter Revenue of $113 Million

Riverbed Technology (NASDAQ:RVBD), the IT infrastructure performance company for networks, applications and storage, today reported financial results for its fourth quarter (Q4’09) and fiscal year ended December 31, 2009 (FY’09).

Total GAAP revenue for Q4’09 was $112.9 million, an increase of 11% from $102.0 million reported in the third quarter of fiscal year 2009 (Q3’09) and an increase of 22% from $92.2 million reported in the fourth quarter of fiscal year 2008 (Q4’08). For fiscal year 2009 (FY’09), GAAP revenue was $394.1 million, up 18% from $333.3 million in fiscal year 2008 (FY’08). Non-GAAP revenue for Q4’09 was $113.2 million, an increase of 10% from $102.6 million of non-GAAP revenue reported in Q3’09 and an increase of 23% from $92.2 million of revenue reported in Q4’08. FY’09 non-GAAP revenue was $395.9 million, up 19% from $333.3 million in FY’08.

GAAP net income for Q4’09 was $0.9 million, or $0.01 per share. This compares to GAAP net income of $5.5 million, or $0.08 per share, in Q3’09 and $23.3 million, or $0.33 per share, in Q4’08. GAAP net income for FY’09 was $7.1 million, or $0.10 per share, compared to GAAP net income of $10.6 million, or $0.14 per diluted share, in FY’08. Non-GAAP net income for Q4’09 was $16.1 million, or $0.21 per diluted share. This compares to non-GAAP net income for Q3’09 of $14.5 million, or $0.19 cents per diluted share, and non-GAAP net income for Q4’08 of $13.6 million, or $0.19 per share. Non-GAAP net income for FY’09 was $50.1 million, or $0.68 per diluted share, which compares to non-GAAP net income of $42.5 million, or $0.57 per diluted share in FY’08.

“2009 was a year of significant achievement for Riverbed® characterized by market share gains every reported quarter,” said Jerry M. Kennelly, Riverbed chairman and CEO. “We executed well in a difficult economy, achieving strong revenue and profit growth while still advancing our technology. For the full year, both non-GAAP revenue and earnings per share increased 19 percent.”

“Sales momentum continued in the fourth quarter driven by growth in enterprise sales across all major geographies,” continued Kennelly. “Product revenue increased 12 percent sequentially and 15 percent year-over-year. In addition to providing a solid return on investment, WAN optimization was recognized as a critical enabler to the success of a variety of important IT projects including virtualization and consolidation, firmly establishing WAN optimization as a top priority item on IT spending surveys.”

Q4’09 and FY’09 Financial Highlights

  • Q4’09 non-GAAP revenue increased 10% sequentially and 23% year-over-year, with FY’09 non-GAAP revenue increasing 19%
  • Q4’09 non-GAAP gross margin was 77.3%, FY’09 non-GAAP gross margin was 76.9%
  • Q4’09 non-GAAP operating margin was 21.3%, FY’09 non-GAAP operating margin was 19.0%
  • Q4’09 non-GAAP net income increased 11% sequentially and 18% year-over-year
  • Days sales outstanding decreased to 39 days from 42 days in the prior quarter
  • Deferred revenue increased 14% sequentially
  • Q4’09 cash flow from operations of $23.1 million, and FY’09 cash flow from operations of $96.5 million
  • Cash, cash equivalents, and marketable securities totaled $325.7 million and no debt as of December 31, 2009

FY’09 Business Highlights

  • Identified as the WAN optimization controller (WOC) Advanced Platform worldwide market share leader for Q1’09, Q2’09 and Q3’09 based on revenue in the Gartner report, "Market Share: Application Acceleration Equipment, Q3’09"
  • Positioned by Gartner in the leaders quadrant in the "Magic Quadrant for WAN Optimization Controllers 2009"
  • Completed the acquisition of Mazu Networks allowing Riverbed to offer the most compelling enterprise-wide system for closed-loop application performance delivery over the WAN
  • Added EMC Select as distribution channel and achieved E-lab qualification with certain EMC products to accelerate disaster recovery and business continuity solutions
  • Achieved qualification with Hitachi TrueCopy Remote Replication and Hitachi Universal Replicator products for business continuity and disaster recovery
  • Extended relationship with Microsoft by announcing an OEM agreement to license Windows Server 2008 and support for Microsoft Windows Server 2008 R2 and BranchCache on the Riverbed Services Platform (RSP)
  • Included as the only WAN optimization vendor in HP ProCurve ONE
  • Cumulative customer count exceeding 7,300
  • Launched multiple new software releases including Riverbed Optimization System (RiOS™) 6.0, Steelhead® Mobile 3.0, Cascade® 8.3, and Central Management Console-Virtual Edition (CMC-VE)
  • Added four qualified solutions to RSP including Check Point Security Gateway R70™, Microsoft Windows Server 2008, Websense Web Security, and Riverbed’s Mobile SMC-VE

Conference Call

Riverbed will host a conference call today, February 2, 2010, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its fourth quarter and fiscal year 2009 results and outlook for the first quarter of 2010. 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.

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, including non-GAAP revenue, non-GAAP net income, non-GAAP gross margin and non-GAAP operating margin, 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 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 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, Inc. 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, Inc.
GAAP Condensed Consolidated Statements of Operations
In thousands, except per share amounts
Unaudited
  Three months ended   Twelve months ended
December 31, December 31,
  2009       2008     2009     2008  
Revenue:
Product $ 77,563 $ 67,355 $ 267,885 $ 252,929
Support and services   35,336     24,873     126,261   80,420  
Total revenue 112,899 92,228 394,146 333,349
 
Cost of revenue:
Cost of product 17,276 15,286 61,052 60,439
Cost of support and services   10,531     8,024     37,916   28,175  
Total cost of revenue 27,807 23,310 98,968 88,614
       
Gross profit 85,092 68,918 295,178 244,735
 
Operating expenses:
Sales and marketing 50,484 39,661 177,487 140,653
Research and development 18,796 15,380 69,164 58,658
General and administrative 10,698 8,744 38,080 38,669
Other charges - - - 11,000
Acquisition-related costs   4,551     -     104   -  
Total operating expenses 84,529 63,785 284,835 248,980
       
Operating income (loss) 563 5,133 10,343 (4,245 )
 
Other income, net 218 1,455 1,042 6,514
       
Income before provision for income taxes 781 6,588 11,385 2,269
Provision (benefit) for income taxes (151 ) (16,667 ) 4,300 (8,332 )
       
Net income $ 932   $ 23,255   $ 7,085 $ 10,601  
 
Net income per share, basic $ 0.01 $ 0.33 $ 0.10 $ 0.15
Net income per share, diluted $ 0.01 $ 0.33 $ 0.10 $ 0.14
 
Shares used in computing basic net income per share 69,695 70,283 69,200 70,757
Shares used in computing diluted net income per share 73,038 71,328 71,540 73,267
Riverbed Technology, Inc.
GAAP to Non-GAAP Reconciliation
In thousands, except per share amounts
Unaudited
  Three months ended   Twelve months ended
GAAP to Non-GAAP Reconciliations: December 31,   September 30,   December 31, December 31,
  2009     2009     2008     2009       2008  
 
Reconciliation of Total Revenue:
U.S. GAAP as reported $ 112,899 $ 102,049 $ 92,228 $ 394,146 $ 333,349
Adjustments:
Deferred revenue adjustment (5)   313     505     -     1,792     -  
As Adjusted $ 113,212   $ 102,554   $ 92,228   $ 395,938   $ 333,349  
 
Reconciliation of Gross Profit:
U.S. GAAP as reported $ 85,092 $ 77,657 $ 68,918 $ 295,178 $ 244,735
Adjustments:
Stock-based compensation (1) 1,373 1,239 1,068 4,967 4,669
Payroll tax on stock-based compensation (2) 7 2 1 26 6
Amortization on intangibles (3) 740 740 - 2,546 -
Deferred revenue adjustment (5)   313     505     -     1,792     -  
As Adjusted $ 87,525   $ 80,143   $ 69,987   $ 304,509   $ 249,410  
 
Reconciliation of Gross Margin:
U.S. GAAP as reported 75.4 % 76.1 % 74.7 % 74.9 % 73.4 %
Adjustments:
Stock-based compensation (1) 1.2 % 1.2 % 1.2 % 1.3 % 1.4 %
Amortization on intangibles (3) 0.7 % 0.7 % 0.0 % 0.6 % 0.0 %
Deferred revenue adjustment (5)   0.0 %   0.1 %   0.0 %   0.1 %   0.0 %
As Adjusted   77.3 %   78.1 %   75.9 %   76.9 %   74.8 %
 
Reconciliation of Operating Income (Loss):
U.S. GAAP as reported $ 563 $ 9,874 $ 5,133 $ 10,343 $ (4,245 )
Adjustments:
Stock-based compensation (1) 15,787 13,911 12,251 56,218 50,408
Payroll tax on stock-based compensation (2) 172 40 31 490 181
Amortization on intangibles (3) 1,195 1,195 - 4,111 -

Acquisition-related costs (credits) (4)

6,040 (3,004 ) - 2,464 -
Deferred revenue adjustment (5) 313 505 - 1,792 -
Litigation settlement (8)   -     -     -     -     11,000  
As Adjusted $ 24,070   $ 22,521   $ 17,415   $ 75,418   $ 57,344  
 
Reconciliation of Operating Margin:
U.S. GAAP as reported 0.5 % 9.7 % 5.6 % 2.6 % -1.3 %
Adjustments:
Stock-based compensation (1) 13.9 % 13.6 % 13.3 % 14.2 % 15.1 %
Payroll tax on stock-based compensation (2) 0.2 % 0.0 % 0.0 % 0.1 % 0.1 %
Amortization on intangibles (3) 1.1 % 1.2 % 0.0 % 1.0 % 0.0 %

Acquisition-related costs (credits) (4)

5.3 % -2.9 % 0.0 % 0.6 % 0.0 %
Deferred revenue adjustment (5) 0.3 % 0.4 % 0.0 % 0.5 % 0.0 %
Litigation settlement (8)   0.0 %   0.0 %   0.0 %   0.0 %   3.3 %
As Adjusted   21.3 %   22.0 %   18.9 %   19.0 %   17.2 %
 
Reconciliation of Net Income:
U.S. GAAP as reported $ 932 $ 5,469 $ 23,255 $ 7,085 $ 10,601
Adjustments:
Stock-based compensation (1) 15,787 13,911 12,251 56,218 50,408
Payroll tax on stock-based compensation (2) 172 40 31 490 181
Amortization on intangibles (3) 1,195 1,195 - 4,111 -
Acquisition-related costs (4) 6,040 (3,004 ) - 2,464 -
Deferred revenue adjustment (5) 313 505 - 1,792 -
Litigation settlement (8) - - - - 11,000
Income tax adjustments (6)   (8,368 )   (3,626 )   (21,894 )   (22,097 )   (29,732 )
As Adjusted $ 16,071   $ 14,490   $ 13,643   $ 50,063   $ 42,458  
 
Reconciliation of Net Income per share, diluted:
U.S. GAAP as reported $ 0.01 $ 0.08 $ 0.33 $ 0.10 $ 0.14
Adjustments:
Stock-based compensation (1) 0.21 0.17 0.16 0.76 0.68
Payroll tax on stock-based compensation (2) - - - 0.01 -
Amortization on intangibles (3) 0.02 0.02 - 0.06 -
Acquisition-related costs (4) 0.08 (0.04 ) - 0.03 -
Deferred revenue adjustment (5) - 0.01 - 0.02 -
Litigation settlement (8) - - - - 0.15
Income tax adjustments (6)   (0.11 )   (0.05 )   (0.30 )   (0.30 )   (0.40 )
As Adjusted $ 0.21   $ 0.19   $ 0.19   $ 0.68   $ 0.57  
 
Non-GAAP Net income per share, basic $ 0.23 $ 0.21 $ 0.19 $ 0.72 $ 0.60
Non-GAAP Net income per share, diluted (7) $ 0.21 $ 0.19 $ 0.19 $ 0.68 $ 0.57
 
Shares used in computing basic net income per share 69,695 69,370 70,283 69,200 70,757
Shares used in computing diluted net income per share (7) 76,134 75,301 72,578 74,088 74,022
 
Non-GAAP adjustments:
Support and services revenue $ 313 $ 505 $ - $ 1,792 $ -
Cost of product 863 860 49 2,999 182
Cost of support and services 1,257 1,121 1,020 4,540 4,493
Sales and marketing 8,140 6,742 5,721 27,988 23,632
Research and development 4,566 3,629 3,129 15,245 13,080
General and administrative 3,817 2,798 2,363 12,407 9,202
Other acquisition costs 4,551 (3,008 ) - 104 -
Other charges - - - - 11,000
Provision for income taxes   (8,368 )   (3,626 )   (21,894 )   (22,097 )   (29,732 )
Total Non-GAAP Adjustments $ 15,139   $ 9,021   $ (9,612 ) $ 42,978   $ 31,857  
 
   

(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)

We incurred expenses, such as revaluation of the contingent consideration, in connection with our acquisition, 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.

(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, Inc.
Condensed Consolidated Balance Sheets
In thousands
Unaudited
  As of December 31,
  2009       2008  
 
ASSETS
Current assets:
Cash and cash equivalents $ 67,749 $ 95,378
Marketable securities 257,938 172,398
Trade receivables, net 48,468 46,839
Inventory 9,742 10,637
Deferred tax assets 9,451 6,185
Prepaid expenses and other current assets   16,816     12,605  
Total current assets   410,164     344,042  
 
Fixed assets, net 21,698 21,993
Goodwill 11,312 -
Intangible assets, net 19,389 -
Deferred tax assets, non-current 38,619 27,033
Other assets 4,097 5,449
   
Total assets $ 505,279   $ 398,517  
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,053 $ 18,290
Accrued compensation and related benefits 18,692 13,137
Other accrued liabilities 25,976 13,342
Deferred revenue   64,478     45,194  
Total current liabilities   128,199     89,963  
 
Deferred revenue, non-current 21,972 12,967
Other long-term liabilities   2,801     1,758  
Total long-term liabilities   24,773     14,725  
 
 
Stockholders' equity:
Common stock 367,236 315,882
Accumulated deficit (14,849 ) (21,934 )
Accumulated other comprehensive loss   (80 )   (119 )
Total stockholders' equity   352,307     293,829  
 
   
Total liabilities and stockholders' equity $ 505,279   $ 398,517  
Riverbed Technology, Inc.    
Condensed Consolidated Statements of Cash Flows
In thousands
Unaudited
 
Year ended December 31,
  2009     2008  
Operating activities:
Net income $ 7,085 $ 10,601

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 14,340 7,965
Stock-based compensation 56,218 50,408
Deferred taxes (13,517 ) (32,619 )
Excess tax benefit from employee stock plans (2,792 ) (4,909 )
Changes in operating assets and liabilities:
Trade receivables 940 1,926
Inventory 1,341 (6,040 )
Prepaid expenses and other assets (2,756 ) (1,489 )
Accounts payable (665 ) 994
Accruals and other liabilities 6,640 3,884
Acquisition-related contingent consideration 1,093 -
Income taxes payable 1,772 11,499
Deferred revenue   26,788     25,386  
Net cash provided by operating activities 96,487 67,606
 
Investing activities:
Capital expenditures (8,978 ) (12,406 )
Purchase of available for sale securities (375,056 ) (424,864 )
Proceeds from maturities of available for sale securities 272,818 245,312
Proceeds from sales of available for sale securities 16,250 90,743
Acquisitions, net of cash acquired   (20,469 )   -  
Net cash used in investing activities (115,435 ) (101,215 )
 
Financing activities:

Proceeds from issuance of common stock under employee stock plans, net of repurchases

25,288

11,568

Cash used to net share settle equity awards

(3,044

)

-

Payments for repurchases of common stock (29,016 ) (49,992 )
Payment of debt assumed in acquisition (5,004 ) -
Excess tax benefit from employee stock plans   2,792     4,909  
Net cash used in financing activities (8,984 ) (33,515 )
Effect of exchange rate changes on cash and cash equivalents   303     (477 )
Net decrease in cash and cash equivalents (27,629 ) (67,601 )
Cash and cash equivalents at beginning of period 95,378 162,979
   
Cash and cash equivalents at end of period $ 67,749   $ 95,378  
Riverbed Technology, Inc.
Supplemental Financial Information
In thousands
Unaudited   Three months ended   Twelve months ended
December 31,   September 30,   December 31, December 31,
  2009     2009     2008     2009       2008  
Revenue by Geography
 

 

United States $ 64,998 $ 58,264 $ 50,803 $ 221,206 $ 193,190
Europe, Middle East and Africa 29,971 25,747 28,077 104,990 87,446
Rest of the world   17,930     18,038     13,348     67,950     52,713  
Total revenue $ 112,899   $ 102,049   $ 92,228   $ 394,146   $ 333,349  
 
As a percentage of total revenues:
United States 58 % 57 % 55 % 56 % 58 %
Europe, Middle East and Africa 27 % 25 % 30 % 27 % 26 %
Rest of the world   15 %   18 %   15 %   17 %   16 %
Total revenue   100 %   100 %   100 %   100 %   100 %
 
Revenue by Sales Channel
 
 
Direct $ 7,278 $ 6,640 $ 6,701 $ 29,915 $ 27,703
Indirect   105,621     95,409     85,527     364,231     305,646  
Total revenue $ 112,899   $ 102,049   $ 92,228   $ 394,146   $ 333,349  
 
As a percentage of total revenues:
Direct 6 % 7 % 7 % 8 % 8 %
Indirect   94 %   93 %   93 %   92 %   92 %
Total revenue   100 %   100 %   100 %   100 %   100 %

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