Riverbed: Fiscal 2Q14 Financial Results

(in $ million)	2Q13	2Q14	6 mo. 13	6 mo. 14
Revenues	249.9	264.0	496.0	529.4
*Growth*		6%		7%
Net income (loss)	(16.5)	6.8	(24.6)	10.1

Riverbed Technology, Inc. reported financial results for its 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.

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.

“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 SteelApp Traffic Manager 9.6 and SteelApp Services Controller 1.2 that make cloud applications and websites more secure and enable faster and easier deployment.
Expanded the SteelCentral product family, enhancing the performance management suite. Announced 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 SteelCentral NetExpress 460, which provides visibility into private cloud or software-defined data center environments running virtualized networks.
Announced SteelFusion validation with the EMC VSPEX Proven Infrastructure, which offers an open integration approach that brings together technologies to create and deliver flexible IT solutions for customers.
Announced 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 1Gb/s of optimized traffic for private and hybrid clouds.

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

Comments

Jerry M. Kennelly, president, chairman and CEO:
"Our revenue shortfall was concentrated in North America, largely in the government vertical.
"While our SteelCentral performance did not with our expectations, we're encouraged by key wins and our outlook for opportunities supporting long-term growth. During the second quarter, we closed several multimillion-dollar-plus transactions for SteelCentral and combinations of SteelCentral with SteelHead.
"SteelHead revenue was most impacted by the deals that didn't close in the quarter."

Ernest E. Maddock, CFO:
"For the quarter, product revenue represented about 55% of sales, totaling $145 million, with support and service revenue contributing $119 million, or 45% of total sales.
"Application acceleration revenue, comprised of the WAN optimization and ADC product lines, was $205 million, equating to 78% of total sales. WAN optimization, which includes SteelHead and SteelFusion, was $191 million, an increase of 4% compared with the second quarter of last year.
"SteelApp ADC revenue was $13 million, up roughly 6% year-over-year and flat quarter-on-quarter. SteelCentral accounted for the remaining 22% of total revenue at $59 million, down about 3% from the prior quarter and up about 2% year-over-year.
"Two distributors contributed more than 10% to revenue in the quarter, with Arrow at 19% and AppNet at 13%. Geographically, the Americas represented 59% of total revenue, EMEA was 26%, and APJ was 15%.
"The government vertical was 14% and contributed less than we expected, as several larger transactions moved out of the second quarter.
"We ended the June quarter with total assets of $1.9 billion and cash and investments of $520 million.
"We now expect annual revenue growth between 7% and 8% this year."