Riverbed Technology (RVBD)

Revenue

From time to time, we are involved in various legal proceedings, claims and litigation arising in the ordinary course of business. There are no currently pending legal proceedings at March 31, 2009 that, in the opinion of management, might have a material adverse effect on our financial position, results of operations or cash flows.

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Revenue

From time to time, we are involved in various legal proceedings, claims and litigation arising in the ordinary course of business. There are no currently pending legal proceedings at March 31, 2009 that, in the opinion of management, might have a material adverse effect on our financial position, results of operations or cash flows.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Form 10-Q. The information in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Such forward-looking statements include statements related to our business and strategy and statements related to growth of our revenue and sales and marketing expenses. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “could,” “should,” “estimates,” “predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those discussed elsewhere in this Form 10-Q in the section titled “Risk Factors” and the risks discussed in our other SEC filings. We disclaim any obligation to publicly release any revisions to the forward-looking statements after the date of this Form 10-Q.

Revenue

Our revenue has grown rapidly since we began shipping products in May 2004, increasing from $2.6 million in 2004 to $333.3 million in 2008. Revenue grew by 41% in 2008 to $333.3 million from $236.4 million in 2007. We believe that our revenue growth in 2008, when the global macroeconomic environment negatively impacted many businesses, is a positive sign that our products have a significant value proposition to our customers and that the WAN optimization market is still expanding despite the challenging macroeconomic environment.

Revenue

We derive our revenue from sales of our appliances and software licenses and from support and services. Product revenue primarily consists of revenue from sales of our Steelhead products and is typically recognized upon shipment. Support obligations include technical assistance, unspecified software license updates and defective hardware replacement. Support revenue is recognized ratably over the contractual period, which is typically one year. Service revenue includes professional services and training, which to date has not been significant, and is recognized as the services are performed.

Quarter Ended March 31, 2009 Compared to the Quarter Ended March 31, 2008: Product revenue increased in the three months ended March 31, 2009 as compared to the three months ended March 31, 2008 due primarily to an increase in unit volume from increasing sales to existing customers and the addition of new customers. We believe the market for our products has grown due to increased market awareness of WAN optimization and an increase in distributed organizations, which increases dependence on timely access to data and applications.

Substantially all of our customers purchase support when they purchase our products. The increase in support and services revenue on an absolute basis and as a percentage of total revenues is a result of increased product and first year support sales combined with the renewal of support contracts by existing customers. As our customer base grows, we expect the proportion of revenue generated from support and services to increase.

In the three months ended March 31, 2009, we derived 91% of our revenue from indirect channels compared to 89% in the three months ended March 31, 2008. We expect indirect channel revenue to continue to be a significant portion of our revenue.

We generated 45% of our revenue from international locations in both the three months ended March 31, 2009 and 2008. We continue to expand into international locations and introduce our products in new markets and expect international revenue to increase in dollar amount over time.

Revenue

Our revenue has grown rapidly since we began shipping products in May 2004, increasing from $2.6 million in 2004 to $333.3 million in 2008. Revenue grew by 41% in 2008 to $333.3 million from $236.4 million in 2007. We believe that our revenue growth in 2008, when the global macroeconomic environment negatively impacted many businesses, is a positive sign that our products have a significant value proposition to our customers and that the WAN optimization market is still expanding despite the challenging macroeconomic environment.

Revenue

Revenue

Revenue

Revenue

On September 30, 2008, we entered into a Mutual Release and Settlement Agreement (the “Settlement Agreement”) with Quantum Corporation, a Delaware corporation (“Quantum”), and certain affiliates of Quantum. Pursuant to the Settlement Agreement, we and Quantum have jointly executed and filed dismissals of patent infringement actions brought in the United States District Court for the Northern District of California involving United States Patent Nos. 7,116,249; 5,990,810; and 6,622,164 (collectively, the “Litigation Patents,” and such actions being hereinafter referred to as the “Patent Infringement Actions”).

Pursuant to the terms of the Settlement Agreement, we paid Quantum a lump sum of $11.0 million, and the parties, on behalf of themselves and their affiliates, entered into a perpetual covenant not to sue (the “Perpetual Covenant”) the other parties, any of their respective affiliates, or, subject to certain qualifications, any of their respective resellers, customers, OEM partners or suppliers (i) alleging infringement of any patents relating to data de-duplication that a party or any of its affiliates currently owns, has the right to enforce or will acquire or have the right to enforce within five (5) years following the date of the Settlement Agreement, including the Litigation Patents (collectively, the “Subject Patents”), or (ii) challenging the validity or enforceability of any Subject Patent.

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In addition to the Perpetual Covenant, the parties to the Settlement Agreement agreed, on behalf of themselves and their affiliates, for a period of three (3) years, not to file any patent infringement lawsuits against any other party to the Settlement Agreement, their affiliates, or, subject to certain qualifications, any of their respective resellers, customers, OEM partners or suppliers. In addition, we and Quantum released each other from any and all claims, demands, losses, liabilities and causes of action relating to the Patent Infringement Actions or any infringement of any patent based on acts occurring prior to the date of the Settlement Agreement.

Please refer to our Current Report on Form 8-K filed with the SEC on October 1, 2008 for further details.

The $11.0 million settlement was recorded as Other charges in our consolidated statements of operations for the quarter ended September 30, 2008.

From time to time, we are involved in various legal proceedings, claims and litigation arising in the ordinary course of business. There are no currently pending legal proceedings at September 30, 2008 that, in the opinion of management, might have a material adverse effect on our financial position, results of operations or cash flows.

In June 2007, the FASB ratified EITF 07-3, Accounting for Non-Refundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities. EITF 07-3 requires that non-refundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. EITF 07-3 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007. The adoption of EITF 07-3 did not have an impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 became effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued Staff Position (FSP) No. 157-2, which delayed the effective date of SFAS No. 157 one year for all non-financial assets and non-financial liabilities, except those recognized or disclosed at fair value in the financial statements on a recurring basis. Assets and liabilities measured at fair value under SFAS No. 157 in the nine months ended September 30, 2008 did not have a material impact on our condensed consolidated financial statements. In accordance with FSP No. 157-2, we will measure the remaining assets and liabilities no later than the quarter ended March 31, 2009, and have not yet determined the impact of this standard on our consolidated financial statements.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Form 10-Q. The information in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those discussed elsewhere in this Form 10-Q in the section titled “Risk Factors” and the risks discussed in our other SEC filings. We disclaim any obligation to publicly release any revisions to the forward-looking statements after the date of this Form 10-Q.

Revenue

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Revenue

We derive our revenue from sales of our appliances and software licenses and from support and services. Product revenue primarily consists of revenue from sales of our Steelhead products and is typically recognized upon shipment. Support and services revenue includes unspecified software license updates and product support. Support revenue is recognized ratably over the contractual period, which is typically one year. Service revenue includes professional services and training, which to date has not been significant, and is recognized as the services are performed.

Quarter Ended March 31, 2008 Compared to the Quarter Ended March 31, 2007: Product revenue increased in the three months ended March 31, 2008 as compared to the three months ended March 31, 2007 due primarily to an increase in new customers and additional purchases by existing customers. As of March 31, 2008, our products had been sold to over 4,000 customers, compared to approximately 2,000 as of March 31, 2007. We believe the market for our products has grown due to increased market awareness of wide area data services and distributed organizations, which increases dependence on timely access to data and applications.

Substantially all of our customers purchase support when they purchase our products. The increase in support and services revenue on an absolute basis and as a percentage of total revenues is a result of increased product and first year support sales combined with the renewal of support contracts by existing customers. As our customer base grows, we expect the proportion of revenue generated from support and services to increase.

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In the three months ended March 31, 2008, we derived 89% of our revenue from indirect channels compared to 91% in the three months ended March 31, 2007. We expect indirect channel revenue to continue to be a significant portion of our revenue.

We generated 45% of our revenue in the three months ended March 31, 2008 from international locations, compared to 31% in the three months ended March 31, 2007. We continue to expand into international locations and introduce our products in new markets and expect international revenue to increase in absolute dollars over time.

Revenue

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RIVERBED TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue

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RIVERBED TECHNOLOGY, INC.

FACE="ARIAL" SIZE="2">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

SIZE="2">Long-lived Assets

Revenue