WAN optimization appliance maker Riverbed Technology turned in a very good second quarter yesterday and decided to blow some of its cash hoard buying two companies to pump up the applications that run on its Steelhead and other appliances.
The first company that Riverbed is snapping up is Zeus Technology, the maker of traffic shaping and load-balancing software based in Cambridge in the United Kingdom. Zeus was founded in 1995, and got its start with a very high performance web server. Nearly a decade later, web servers were not very good at generating money, so Zeus expanded out to traffic management. Zeus dabbled a bit in hardware appliances a few years back, but has since focused on selling virtualized software appliance versions of its Zeus Traffic Manager, which just came out with a 7.3R1 release in June. The virtual traffic manager runs on ESXi, Xen, Hyper-V, and KVM hypervisors and have been installed by 1,500 customers worldwide.
Interestingly, Rackspace Hosting chose Zeus Traffic Manager as the load balancer in its compute cloud back in April, and Riverbed wants to get a piece of this cloud action and hence is shelling out big bucks to buy Zeus. The British software company also sells Global Load Balancer, a tool that does workload balancing across multiple data centers and public clouds, and Multi-Site Manager, a performance management tool for distributed applications that span multiple data centers.
Under the deal announced by Riverbed yesterday after the market closed, Riverbed is paying $110m in cash plus $30m in additional cash if Zeus makes revenue and profit targets in the 12 months following the closure of the acquisition. Jim Darragh, who was brought in earlier this year to be CEO at Zeus, will stay on at Riverbed and manage Zeus as a business unit. This unit will continue to be based in Cambridge, and it is expected that most of the company's 91 employees will stay on. Zeus is privately held and raised three rounds of venture funding in the prior decade from Scottish Equity Partners and DFJ Esprit.
Riverbed said in a statement that it expected the Zeus acquisition to be neutral to its earnings in the second half of 2011 and that it would boost the bottom line in 2012. The company generated around $16m in revenues under UK accounting rules in the prior 12 months, according to Randy Gottfried – Riverbed's CFO – who talked about the deal on the conference call with Wall Street to go over Riverbed's second quarter financial results.
The other company that Riverbed swept away yesterday was a New Zealand firm with 10 employees called Aptimize, which does web content optimization. The company's Website Accelerator (abbreviated to WAX because marketeers do that sort of thing) works with the Apache or Microsoft IIS web server (and no doubt soon with the Zeus web Server). The tool looks at a web page and reorganizes the content so a web browser doesn't have to make so many roundtrips back to the web server to load a page. With dozens and dozens of elements on a page, reconfiguring the web pages on the fly can reduce load times by a factor of four. This optimization does not change the web applications one bit, so you don't have to modify your code. All of the mishing and mashing and reorganizing takes place between the web server and the browser, and both are oblivious to what WAX is up to.
WAX also works in conjunction with content delivery networks, which generally optimize network performance but don't change the web content. This is important, since Riverbed in May just announced a partnership with Akamai Technologies to create a shared cloud optimization platform that mixes Riverbed's Steelhead WAN optimization with Akamai's CDN service.
Aptimize is based in Wellington, but Riverbed said it planned to relocate its 10 employees to its San Francisco offices. Aptimize has over 150 customers. Co-founder Ed Robinson is expected to stay on as general manager of Riverbed's new Web Content Optimization group, and his co-founder Derek Watson, currently chief technology officer, will stay on as well. Financial terms of the Aptimize deal were not announced.
Making money hand over bits
One of the reasons why Riverbed can afford to buy Zeus and Aptimize is that is it making money. In the second quarter ended in June, Riverbed posted sales of $170.3m, up 34.9 per cent compared to the year-ago period. Product sales rose by 38.2 per cent to $116.8m, while support and services revenues were up by 28.1 per cent to $53.4m. Riverbed's net income for the period rose by 72.2 per cent to $11.3m, and the company exited the quarter with $611.1m in cash and equivalents.
WAN optimization product sales were up 36 per cent in the quarter, according to Gottfried, and represented 94 per cent of product revenues. The new Cascade network performance management tool accounted for the remaining 6 per cent of product revenues, but is growing at 75 per cent compared to NPM products from a year ago. The vast majority of Riverbed's product sales (94 per cent) came through its distribution partners, and monster IT distributor Arrow Electronics accounted for 15 per cent of product sales for Riverbed in Q2.
Jerry Kennelly, Riverbed's CEO, said in the call that product sales in the United States in the second quarter were "simply on fire", up 68 per cent compared to the year-ago period. He added that Asia did well, but that Riverbed and its partners had some execution issues in Europe, particularly in Germany.
Looking ahead to the third quarter, Riverbed expects to book sales of between $184m and $189m in the third quarter, with somewhere between $2m and $3m coming from a partial quarter's sales from both Zeus and Aptimize. Riverbed is projecting that Zeus will generate around $20m in the first year of its ownership by Riverbed. ®