Riverbed: Fiscal 3Q14 Financial Results

(in US$ million)	3Q13	3Q14	9 mo. 13	9 mo. 14
Revenues	261.7	276.4	757.8	805.8
*Growth*		6%		6%
Net income (loss)	3.8	11.5	(20.8)	21.5

Riverbed Technology, Inc. reported financial results for its third quarter fiscal 2014 (Q3’14) ended September 30, 2014.

Q3’14 GAAP Financials
GAAP revenue for Q3’14 was $276 million, compared to $262 million in the third quarter of 2013 (Q3’13), representing 6% year-over-year growth. GAAP net income for Q3’14 was $11.5 million, or $0.07 per diluted share, compared to GAAP net income of $3.8 million, or $0.02 per diluted share, in Q3’13.

Q3’14 Non-GAAP Financials
Non-GAAP revenue for Q3’14 was $277 million, an increase of 4% compared to $265 million in Q3’13. Non-GAAP net income for Q3’14 was $48.7 million compared to non-GAAP net income of $43.3 million in Q3’13. Non-GAAP earnings were $0.30 per diluted share for Q3’14 compared with $0.26 per diluted share in Q3’13, representing a 15% increase year-over-year.

“Our third quarter financial results were in-line with our revised guidance. While we are not satisfied with our top line performance, we are pleased to see steady growth in our SteelFusion and SteelCentral businesses,” said Jerry M. Kennelly, chairman and CEO. “Our ongoing focus to gain increased operating leverage is evident in our Q3 results, delivering earnings per share in-line with our expectations. We’ve started to execute our previously announced restructuring plans to drive further operational improvements and remain committed to delivering profitable growth and enhancing shareholder value.“

Q3’14 Business Highlights

Strengthened VMware partnership by achieving VMware Ready – vCloud Air status on Riverbed SteelApp Traffic Manager, SteelCentral Services Controller for SteelApp and SteelHead CX application performance solutions.
Named an inaugural member of the Microsoft Azure Certified Program and announced SteelHead CX for IaaS (Infrastructure-as-a-Service) which can accelerate data and applications hosted by Azure up to 33x faster, while using up to 97% less bandwidth.
Gained customer traction with SteelFusion branch converged infrastructure solution: Deployed by Canadian based mining company, Alamos Gold, to centralize server, storage, and network infrastructure into a single branch appliance, improving data protection and increasing business performance; Deployed by WAMGROUP, industrial equipment manufacturer and longstanding SteelHead customer, to strengthen its disaster-recovery capabilities and provide resilient IT support for branch offices located in a seismic zone. SteelCentral enabled Allianz, a global insurance provider, to resolve network performance issues up to 50% faster, resulting in improved productivity and a better customer experience.

Appointed new board members and key executives: Mike Nefkens, board of directors; currently serves as EVP of Hewlett-Packard Enterprise Services, Steffan Tomlinson, board of directors; currently serves as CFO of Palo Alto Networks, Paul Mountford, SVP and chief sales officer; seasoned industry veteran with 30 years of leadership experience in the technology sector, including 16 years with Cisco

Q4’14 Outlook
The company provides the following financial guidance for the fourth quarter of fiscal year 2014, which reflects the partial quarter impact of the planned Q4 restructuring:

Non-GAAP revenues are expected to be in the range of $285 million and $290 million
Non-GAAP earnings per share are expected to be in the range of $0.31 to $0.33 per share

Comments

Jerry Kennelly, executive chairman, CEO and president:
"We had a strong quarter with our SteelCentral business delivering revenue growth of 13% sequentially and 21% versus the same period last year."

Ernest E. Maddock, CFO:
"Product revenue was $153 million, representing about 55% of sales and flat year-over-year. Revenue from support and services totaled $123 million or 45% of total sales, representing an increase of 10% over last year. Relative to our businesses, application acceleration, which includes both WAN optimization and our virtual ADC product, represented 76% of total sales with revenue of $210 million. The WAN op business, comprised of Steelhead and SteelFusion, came in at $196 million, up approximately 2% year-over-year. Sales of SteelFusion nearly doubled compared with the same period last year.
"SteelApp virtual ADC revenue was $12 million, down roughly 22% year-over-year and below our expectations for the quarter.
"Performance management, comprised of our SteelCentral product line, made up the remaining 24% of total revenue. We saw healthy growth during the quarter with revenue of $67 million, up 21% compared to last year.
"Looking at our channel makeup, 90% of our third quarter revenue came from indirect channels while 10% was sold direct. Three distributors each contributed more than 10% to revenue in the quarter with Arrow at 19%, Avnet at 16% and Zycko at 10%. We had no 10% end-user customers this quarter.
"Geographically, we saw year-over-year growth in both the Americas and EMEA, which represented 63% and 26% of total revenue, respectively. Our APJ region, whose year-over-year sales declined by approximately 9%, represented the balance of total revenue at 11%. Orders were slightly weaker than our beginning of the quarter expectations across all regions. However, the difference was most pronounced in a few of the more mature markets including Australia, Germany, the U.K. and the U.S.
"Turning to verticals. Government, financial services, manufacturing, professional services and technology each contributed 10% or more to revenue in the quarter. Revenue from the government vertical represented 19% of total revenue.
"Our headcount was approximately 2,660 employees at the end of September, up slightly from the prior quarter."