Riverbed Technology, Inc. Q1 2010 Earnings Call Transcript

Executives

Renee Lyall – Director, IR

Jerry Kennelly – Chairman and CEO

Randy Gottfried – CFO

Eric Wolford – SVP, Marketing and Business Development

Analysts

Troy Jensen – Piper Jaffray

Jason Ader – William Blair

Sanjiv Wadhwani – Stifel Nicolaus

Min Park – Goldman Sachs

Mark Sue – RBC Capital Markets

Alex Henderson – Miller Tabak

Ryan Hutchinson – Lazard Capital Markets

Tim Long – Bank of Montreal

Nikos Theodosopoulos – UBS

Daniel Ives – FBR

Ittai Kidron – Oppenheimer

Paul Mansky – Canaccord Adams

Jess Lubert – Wells Fargo Securities

Alex Kurtz – Merriman & Company

John Marchetti – Cowen and Company

Jonathan Ruykhaver – ThinkEquity

Erik Suppiger – Signal Hill

Rohit Chopra – Wedbush

Kevin Shea – MKM Partners

Douglas Ireland – JMP Securities

Bill Choi – Jefferies

Riverbed Technology, Inc. (RVBD) Q1 2010 Earnings Call Transcript April 22, 2009 4:30 PM ET

Operator

Good afternoon. My name is Molly and I will be your conference operator today. At this time I would like to welcome everyone to the Riverbed First Quarter 2010 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. I would now like to turn the conference over to Renee Lyall, Director of Investor Relations. You may begin your conference.

Renee Lyall

Thank you, Molly. Good afternoon and thank you for joining us on today’s conference call to discuss Riverbed’s first quarter fiscal year 2010 results. I’m Renee Lyall, Riverbed's Director of Investor Relations. Joining me on the call today are Jerry Kennelly, Riverbed’s President and CEO; Randy Gottfried, Riverbed’s Chief Financial Officer; and Eric Wolford, Riverbed’s Senior Vice President of Marketing and Business Development.

Before we begin, let me cover some administrative items. A press release detailing our fourth quarter financial results was distributed today at 1.05 PM Pacific Time via Business Wire. The press release is available on our website at riverbed.com. This conference call is being webcast live via the Internet at riverbed.com/investors and will be archived on our website for the next 12 months.

The information the presenters discuss today will include forward-looking statements including, without limitation, statements about Riverbed’s current and future products and partners, our financial outlook, our sales pipeline and our competitive and market position. These forward-looking statements are only predictions and involve risks and uncertainties such that actual results may vary significantly. These risks are set forth in detail and on our Form 10-K for the year ended December 31st, 2009.

These forward-looking statements reflect beliefs, estimates, and predictions as of the date of this call. Riverbed disclaims any obligation to update any forward-looking statements. Unless otherwise stated, financial information that we review on today’s conference call is presented on a non-GAAP basis. Non-GAAP net income excludes the impact of stock-based compensation, stock-based payroll expenses, amortization of acquired intangible assets, acquisition related expenses and related income tax effects. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP but not as a substitute for or superior to GAAP results.

The most directly comparable GAAP information, reasons why management uses non-GAAP information, and a reconciliation between non-GAAP and GAAP figures is provided in our Q1 2010 press release, which has been furnished to the SEC on Form 8-K today. Any future product, feature or related specification that may be referenced in today’s call are for informational purposes only and are not commitments to deliver any technology or enhancements. Riverbed reserves the right to modify or cancel future product plans at anytime.

I’d now like to turn the call over to Riverbed’s President and CEO, Jerry Kennelly.

Jerry Kennelly

Thank you, Renee. Welcome, everyone and thank you for joining us this afternoon. Riverbed had a strong first quarter with revenue increasing 27% over the prior year to $112.4 million and net income increasing 61% to $14.8 million.

Q1 was led by momentum in enterprise sales, which grew both sequentially and year-over-year in all major geographies. We exited the quarter with more than 7,800 cumulative customers and our customer acquisition rate was our highest in over a year. As of March 31st, we had $387 million in cash and investments, an increase of $62 million compared to last quarter.

Overall, our financial underpinning remains extremely strong. WAN optimization continues to be a spending priority as organizations consolidate and virtualize their IT infrastructure, as they continue to focus on cost efficiency, while increasing the productivity of their employees and network. Riverbed is in the enviable position of selling the market-leading technology that supports these initiatives.

According to Gartner, Riverbed has gained share in the advanced platform WAN optimization controller market for five consecutive quarters. As of Gartner's most current report, Riverbed's share increased to 34.5% for the December quarter, 9 points ahead of the closest competitor.

Riverbed's technology has made a real difference in the lives of IT professionals across the globe and driven an ever-growing, enthusiastic and loyal customer base with the highest satisfaction marks in this sector. This was confirmed in the recent survey by the InfoPro.

Based on interviews with 235 networking professionals at large and mid-size enterprises in North America and Europe, Riverbed received the highest ratings in strategic vision, technical vision, product quality, product performance, and delivery as promised to its customers. The value support Riverbed delivers to its users is why we continue to gain new customers and market share quarter after quarter.

During the first quarter, we extended our market reach with the addition of the Steelhead 7050, the largest and most scalable data center to data center box in the market. Large enterprises are quickly seeing the value of including the 7050 for faster and more efficient replication in their business continuity and disaster recovery or BCDR solutions. Our 3U Steelhead appliances, the 5050, 6050, and 7050, can all be deployed in the traditional data center to remote office deployment for WAN optimization or as data center to data center solutions.

You may have seen our announcement last week that we successfully completed Brocade Data Center Ready Program, further expanding the range of BCDR solutions that our Steelhead appliances support. We also broadened our distribution announcing Arrow and Avnet in North America as value-added distributors. We began training and joint-selling activities during the first quarter. Mirroring what we already do in our international locations, we expect most of our North American VAR business to shift over to the two-tier model in the second quarter.

As we said in February, we expect to see the benefits of the enhanced distribution ramp over the next 12 months. The expected long-term benefits include expanding customer reach and lower operating expenses as the VADs assume some of the sales, marketing, channel management, and other activities currently handled internally.

Our WAN optimization remains at the core of our success and the primary driver of our revenue growth. We continue to see momentum with both the Riverbed services platform and Cascade. The ability to consolidate services in the remote office, creating a single branch office box is very compelling to customers and makes Riverbed services platform a powerful differentiator for us.

We recently added McAfee and Vyatta as partners with qualified solutions running on RSP, bringing the total number of supported modules to 11. We continue to see stronger catch rates with about 20% of Steelhead appliance sales including RSP. Windows Server remains the most commonly deployed module, but every customer has different needs. By partnering with market-leading vendors, we provide the customer with the best solution.

The Cascade product is the top application performance visibility and diagnostics tool in the market and we recently published a Whitepaper with IDC, discussing its values to customers. IDC's analysis reveals that Cascade has a payback period of only five-and-a-half months. In addition, use of Cascade diagnostics reduced average mean time to repair WAN application issues to about two hours from 13 hours and the duration of helpdesk calls were cut by 87%. As you can see, Cascade is a very compelling product and a strong addition to Riverbed's product portfolio.

With the recently launched Cascade version 8.4, Riverbed offers the first fully integrated WAN optimization and application performance management solution in the market. IDC also updated their analysis for Riverbed's Steelhead appliance. On average, large customers experienced a payback period of just seven months and annual savings of almost $1 million on bandwidth costs alone. These are attractive economics for any CIO.

Before I turn the call over to Randy, I want to discuss some of the products we plan to bring to market. Every day, we see the numerous articles, research reports and blogs about the cloud. Some cite the positives of the new computing model, others focus on the challenges.

I think advocates and skeptics would agree that consolidation and virtualization of data are trends that are being embraced by organizations around the world. Consolidation is simply another name for private cloud. And the public part is an extension of that consolidation, leveraging data centers outside of an organization.

I meet with customers constantly. And whether they have a private, public, or hybrid cloud preference, they all tell me that they will require WAN optimization to successfully deploy a cloud infrastructure. The byproduct of any consolidation is that data is ultimately forwarded from the end users and the end users will experience latency and diminished application performance, the same complexities that Riverbed helps companies overcome today.

Over the coming quarters, we will bring to market multiple new products. One product will allow customers to run a software-only virtual Steelhead on privately owned and procured hardware of their choice. Another product will allow customers to place a virtual Steelhead in the public cloud so they may accelerate access to applications in the public cloud. Yet another product is targeted at accelerating access to public cloud storage.

Riverbed is in a leadership position to remove the barriers to cloud computing and help make the vision a reality with both our current portfolio and the new products we will bring to market.

And now, I'd like to turn the call over to Randy to review the financials and provide guidance for the second quarter.

Randy Gottfried

Thanks, Jerry. As a reminder, unless stated otherwise, the numbers all discussed today are non-GAAP. For your reference, in addition to the reconciliation included in the press release, we posted a supplemental reconciliation of non-GAAP financial measures to the directly comparable GAAP measures on the Investor Relations portion of our website.

As Jerry said earlier, we had a strong first quarter. Seasonality was less pronounced than we expected with revenue down less than 1% sequentially and up 27% over the prior year to $112.4 million. First quarter product revenue increased 24% over Q1 2009 to $74.7 million. 94% of our product revenue is generated by our Steelhead appliances and related products. The 1U clients contributed the most to Steelhead product revenue, following by the 3U, then desktop models. Cascade represented almost 6% of product revenue.

We did early-adapt the new accounting rules in Q1, but there was very little difference in our numbers. We recognized less than $500,000 of product revenue upfront in Q1 than would have otherwise been amortized in the product revenue over multiple periods under the old rules. Also to be clear, our guidance was prepared anticipating the new standards.

First quarter service revenue grew 34% year-over-year to $37.7 million. The majority of our service revenue is from maintenance contracts, with a small contribution from professional services.

Turning to distribution, in Q1, 92% of our revenue came from indirect channels, with the remaining 8% coming from direct sales. Sales tied to the systems integrator and service provider channel grew both sequentially and year-over-year and represented more than a third of our revenue.

Geographically, U.S. sales increased 20% over Q1 2009. EMEA revenue was up 29% and sales to the rest of the world grew 46% year-over-year. U.S. revenue contributed 52% to total revenue compared to 58% in the fourth quarter and 55% one year ago. As we expected, sales to the federal government declined sequentially in Q1, but that seasonality was offset by sequential and year-over-year growth in the U.S. enterprise market where we are seeing solid momentum.

EMEA was 28% of total revenue compared to 26% in Q4 and 28% a year ago. In the EMEA region, northern Europe was strong, particularly the U.K. Rest of world contributed 20% to total revenue compared to 16% in Q4 and 17% one year ago. Canada and Australia continue to be solid contributors and we saw positive growth in Brazil.

Overall, our business remains very well diversified across all major industry sectors. The strongest performing verticals in the first quarter were financial services, government, manufacturing, and technology, all contributing more than 10% to product revenue. As I said a moment ago, government sales were seasonally lower in Q1 as anticipated and financial services were notably strong in the period.

Shifting to costs and expenses, as expected, consistent product and channel mix in combination with a typical pricing environment held total gross margins fairly flat with the fourth quarter at 77.1%. Product gross margin was 78.9% in Q1, slightly higher than Q4 and up 2 full points from Q1 2009. Service gross margin came in at 73.6%, down slightly from Q4 and about flat year-over-year.

Total operating expenses were down slightly from the fourth quarter at $63.3 million. Operating expenses increased 18% over the prior year, growing at a much slower rate than our revenue growth of 27%. Operating margin for the quarter was 20.8% compared to 15.2% one year ago.

We exited the first quarter with 1,068 employees, a net increase of 55 compared to the fourth quarter. The tax rate in the first quarter was 37%. Net income was $14.8 million or $0.20 per diluted share. Net income increased 61% year-over-year.

Moving on to the balance sheet and cash flows, Riverbed ended the March quarter with cash, short and long-term investments of $387.3 million, an increase of almost $61.7 million over the balance at December 31st and we continue to have no debt. The long-term investments line on our balance sheet, which is new to us this quarter, is made up of the same type of high-quality securities that we have in short-term investments, but simply go up beyond one year.

Cash flow from operations was $50.4 million in the first quarter, up from $23.1 million in the fourth quarter. Strong collections and good linearity resulted in Q1 day sales outstanding of 34 days compared to 39 days in the fourth quarter. Inventory totaled $6.7 million at March 31st, down from $9.7 million at December 31st. Evaluation units in the field increased quarter-over-quarter and the decline in inventory is largely finished goods. We expect to grow our inventory during the second quarter as we replenish our finished goods balances.

Total deferred revenue was $101 million, a sequential increase of 17% and a year-over-year increase of 57%. The majority of our deferred revenue was derived from maintenance and support contracts.

Let me shift over to our second quarter outlook. Our second quarter guidance is non-GAAP. We expect 28% to 31% year-over-year revenue growth in the second quarter with total revenue of approximately $117 million to $120 million. Gross margins are expected to be within our targeted 76% to 78% range and roughly flat with Q1, though we may experience a fractional point decline, driven by the continued ramp of our two-tier distribution model in North America.

We are planning for operating expenses between $65 million and $66 million, a small increase over Q1 due to high – due to higher marketing program spending in the second quarter and some incremental hiring. We are targeting a tax rate of 37%, which assumes the R&D tax credit is not renewed. This results in forecasted earnings per share of about $0.21 to $0.22, based upon about 76 million diluted shares outstanding.

I’ll now turn the call back over to Jerry for his closing comments.

Jerry Kennelly

Thank you, Randy. The first quarter was a strong start to what we believe could be another standout year for Riverbed. We are selling the leading product into an underpenetrated market. We will introduce new products that can support and accelerate the transition to the cloud computing model. And the distribution of all our products through extended channels should wrap throughout the year.

We are very optimistic about the opportunity before us. In 2009, Riverbed was number two on Forbes America's Fastest-Growing Tech Companies list. It's my goal to make that list again in 2010.

With that said, Eric, Randy, and I would now be happy to answer your questions. Molly, if you could open the line for questions, we'd appreciate it.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Troy Jensen with Piper Jaffray.

Troy Jensen – Piper Jaffray

Hey, congrats on the nice quarter, gentlemen.

Jerry Kennelly

Thank you, Troy.

Randy Gottfried

Thanks, Troy.

Troy Jensen – Piper Jaffray

Randy, I just want to touch on operating margins. I'm just kind of curious to know where you are headed as far as – your business model targets 24% to 26%. Is there any time frame we can think of, any revenue level, or just going throughout this year, do you expect to show leverage and grow up that should accelerate the revenues?

Randy Gottfried

Yes, we still think that mid-20s, about 25% as our long-term target is appropriate for our business. We tried to make some progress toward that, we showed some nice margin improvement over last year in the Q1 numbers. As we look forward, in general, we continue to look to grow revenues faster than expenses. We could get to those long-term targets pretty fast if we wanted, but we are always faced with basic investments in this business because we think there is such a great growth profile potential.

Troy Jensen – Piper Jaffray

Okay. But no real – no time frame or no revenue level, just kind of as we go?

Randy Gottfried

Not –

Troy Jensen – Piper Jaffray

Okay. All right. Keep up the good work, guys.

Randy Gottfried

Thank you.

Jerry Kennelly

Thank you.

Operator

Your next question comes from the line of Jason Ader with William Blair.

Jason Ader – William Blair

Yes, thanks. I have two quick questions. One, can you – I don't know. Randy or Jerry, can you expand on this whole switch over to two-tier? You mentioned, I think, on the call that most of the North American VARs, if not all, are going to switch to two-tiers. Did I hear you correctly there, because I guess my impression was if you are of a certain size then you are going to continue to work directly with Riverbed and then the smaller guys will work through two-tier. So just a clarification there.

And then a question on the – the second question is just on deferred revenues. Just that didn’t seem normal to be up so strongly.

Jerry Kennelly

Yes, I'll take the first one and let Randy take the second one. So the two-tier is for our VARs. Our VARs are typically the smaller resellers out there. Our big systems integrator and service provider partners will still be direct to Riverbed and then the big guys, Arrow and Avnet will handle sort of the mass of smaller VARs. There will – there are some larger VARs that we call Diamond VARs that will still be direct.

So we will have – direct to Riverbed will be the big SIs, the big SPs, the giant VARs that are Diamond level and then the rest of the smaller VARs will go through the two big, two-tier guys. And that’s normal. We are not reinventing the wheel here. As we seek to be a much larger company and we have to pull the levers of growth and –

Jason Ader – William Blair

Are you getting – Jerry, are you getting any flack from some of the VARs that maybe, I don't know, their margins are going to get affected, but I would imagine there is – there might be some impact on margins if they have to go through another tier?

Jerry Kennelly

No, the VARs in general – most of our VARs already have relationship with these – one or more of these guys. They – it's easier operationally for them to order and buy this way and in fact, some of the movement has been pushed on us or encouraged to us by our VAR community frankly.

Randy Gottfried

I'll take that second question on deferred revenue. So a number of our balance sheet and cash flow metrics came in especially good in the quarter including deferred revenue. We had very good collections, which helps on a lot of fronts. The renewals rates on our support contracts continue to do well, and so we made some progress there.

While being very good in Q1, the deferred revenue growth isn’t that far off of what we've seen in some other quarters. Q4 was up mid-teens at about 14%, we've had quarters over the past year or two where it's been as high as 16%. So I don't think we are that far off.

Jason Ader – William Blair

Okay. Thank you very much.

Randy Gottfried

Next question?

Operator

(Operator Instructions) Your next question comes from the line of Sanjiv Wadhwani with Stifel Nicolaus.

Sanjiv Wadhwani – Stifel Nicolaus

Thanks. Any color on the 7050? I know you gave some qualitative stuff there. Any metrics that you could provide will be just helpful and just any other color on sort of types of customers that have looked at it or any names you could share? Thanks.

Eric Wolford

Sure, Sanjiv. This is Eric. And yes, we are very excited about the launch of that product and we are delighted with the response from the market, from our sales force, and our channels qualitatively. Quantitatively, there isn’t too much to report, it was just started shipping mid-February and what happens first is everyone wants to get their hands on it; they want to try it, and test it. We did make some sales, so there are – there is – in our revenue, we did make some sales, but most encouraging is the long term. It looks like it's going to be a solid contributor to revenue for Riverbed.

Sanjiv Wadhwani – Stifel Nicolaus

Any types of customers that have sort of shown more interest than others?

Eric Wolford

Yes, big customers.

Jerry Kennelly

Big companies.

Eric Wolford

Big companies with big data centers.

Sanjiv Wadhwani – Stifel Nicolaus

No particular vertical that stands out?

Eric Wolford

Boy, it's across the board, because –

Jerry Kennelly

Horizontal capabilities.

Eric Wolford

– people consolidate and when they consolidate, the importance of their – the DR site increases.

Sanjiv Wadhwani – Stifel Nicolaus

Got it.

Eric Wolford

As consolidation increases and especially for bigger companies, their reliance on the DR site becomes even more important. So it's a well-timed product to where the market is.

Sanjiv Wadhwani – Stifel Nicolaus

Got it. Appreciate it, thank you.

Operator

(Operator Instructions) Your next question comes from the line of Min Park with Goldman Sachs.

Min Park – Goldman Sachs

Yes, great. Thank you. You noted that the enterprise business was up sequentially and year-over-year. Could you just give us what those growth rates were and how that bears relative to what you saw maybe in the December quarter?

Jerry Kennelly

Sure. So when you look at the total growth rate of the business without government, grew mid-single digits as a percent quarter-on-quarter, up mid-20s year-over-year.

Min Park – Goldman Sachs

Okay. And do you expect to see that kind of growth again in the June quarter from the enterprise side?

Jerry Kennelly

Everything we have is sort of baked into our guidance that we gave.

Min Park – Goldman Sachs

Great. Thank you.

Operator

Your next question comes from the line of Mark Sue with RBC Capital Markets.

Mark Sue – RBC Capital Markets

Thank you. Jerry, maybe just on the sustainability of the growth trajectory. I know that things are normal. Is this a 30% plus growth business? Have you been able to triangulate the data a little bit more and maybe just qualitatively little things like deal sizes, closure rates, maybe you could comment on those as well?

Jerry Kennelly

Yes, sure, Mark. So the data points we haven't talked about it, the quarter just finished and the one quarter guidance we've given. Our growth last year was 19%, which was of course top of the industry when most people were shrinking. But – so we've just done a 27% quarter and our Q2 guidance is roughly 30% growth.

So things are feeling more normal. There is this – the feeling of a global economic recovery coming and it's in the U.S., as well as Asia-Pacific, and as well as Europe. So we believe it's sustainable throughout our guidance period, which is through the end of June and the overall sort of pipeline and enthusiasm from the field is feeling quite good. In terms of deal sizes, yada, yada, yada, very normal.

Mark Sue – RBC Capital Markets

Okay, thank you.

Operator

Your next question comes from the line of Alex Henderson with Miller Tabak.

Alex Henderson – Miller Tabak

Hello?

Jerry Kennelly

Hello.

Alex Henderson – Miller Tabak

I had a – had it on mute. I wasn't sure I did it right. So can you give us some – a little bit of clarifications on a couple of items? One, the new products that you talked about, the software virtualization product, virtualization for public cloud computing and the access to public cloud storage product, those are all products we've – you've discussed before. Those are not new at this juncture, right?

Jerry Kennelly

That's correct. We are just reiterating –

Alex Henderson – Miller Tabak

Okay. I just want to make sure there wasn't anything different there. And then the change in the two-tier status of – can you just talk – is that mainly going to impact the sales and marketing line and so we should be looking at predominantly improvements in that line within the components of the margin change?

Randy Gottfried

Correct. Eventually, as we start to see the payout from going to two-tier distribution, we hope to be more efficient as a company, which is largely coming from the sales and marketing line.

Alex Henderson – Miller Tabak

All right. Then the last question really – since they were both clarifications is just the linearity during the quarter, please? Thanks.

Randy Gottfried

Yes, we typically target about 50% of our business in the first two months of the quarter, about 50% in the last month. That does vary quarter-on-quarter. We've historically not given out specifics, but Q1, I'd say it was at the better end of the normal range.

Alex Henderson – Miller Tabak

By better you mean more linear?

Randy Gottfried

Yes.

Alex Henderson – Miller Tabak

Okay. Thanks.

Operator

Your next question comes from the line of Ryan Hutchinson with Lazard Capital Markets.

Ryan Hutchinson – Lazard Capital Markets

Good afternoon, guys.

Jerry Kennelly

Hey, Ryan.

Ryan Hutchinson – Lazard Capital Markets

Quick clarification for Randy, then just a question here. Clarification is just on the Rev-Rec change. The impact you anticipate, I'm assuming, is minimal going into the future quarters as it was in the first quarter?

Randy Gottfried

Correct.

Ryan Hutchinson – Lazard Capital Markets

Okay. And then on the question, it's really around partnerships. Maybe if you could just provide an update there, specifically who is strong, who is weak. And with HP, I mean, has there been any disruption related to that as the 3Com integration has taken place?

Eric Wolford

Yes, Ryan. This is Eric. I'll comment on HP and some of our key partners. HP was our single largest partner, reseller this past quarter. So our relationship with HP is fantastic, we continue to align with them at a field level and are working on doing it at a product level. That we are delighted that that as well as closed, we look forward to the possibilities of working with the acquired entity and we have nothing new to say about that right now, but looking forward to the future.

In terms of other partners, it's – as it was said in the script, the systems integrator, service provider, big partners have continued to perform well and perform well with large customers.

Ryan Hutchinson – Lazard Capital Markets

Great. Thanks, guys.

Eric Wolford

Yes.

Operator

Your next question comes from the line of Tim Long with Bank of Montreal.

Tim Long – Bank of Montreal

Thank you. Just one on Cascade, if I could. Still kind of early stages here, but it seems like if I did the math right, that was down a little bit – little bit over 10% sequential. So more than the rest of the – overall revenue base. Just talk a little bit about traction there, are those numbers right and is it a piece of the business where you would characterize the orders as being stronger than the revenues at this point? Thank you.

Randy Gottfried

I'd say in general, Cascade has done quite well. It actually were probably up a little bit quarter-on-quarter. They had a very strong Q4, they had a solid Q1. And in general, we are optimistic about the business.

Jerry Kennelly

No, it's –

Tim Long – Bank of Montreal

Okay. And pipeline for it maybe?

Jerry Kennelly

It was up, I'm not sure what's your calculation, but it was up quarter-on-quarter.

Tim Long – Bank of Montreal

Okay. Did you say 6% of product this quarter?

Randy Gottfried

Yes, that excludes services. All-in revenue was – including product and service was closer to 6%.

Tim Long – Bank of Montreal

I got you.

Randy Gottfried

That was about 5% in change last quarter.

Tim Long – Bank of Montreal

Okay. And if you could just address pipeline there?

Jerry Kennelly

They have a good pipeline, a good number of pilot and test installations out there, which is sort of a leading indicator. We have done a good job of keeping the Cascade as a separate coherent business unit headquartered in Cambridge. Most of the original management team is still on board, the original CEO is the General Manager of that group, the original Head of Development is still with us, the original Head of Sales is still with us. And they've got a good spirit, they’ve integrated well with our field sales people, the customers like the product, it's a great product, and we are going for it.

Eric Wolford

And Jerry, evals are up going into this quarter from last quarter.

Tim Long – Bank of Montreal

Okay. All right, thank you.

Operator

Your next question comes from the line of Nikos Theodosopoulos with UBS.

Nikos Theodosopoulos – UBS

Yes, thanks. Just a quick clarification. You have a percentage of the business that goes through two-tier and then my question is on the cash, it keeps building. I don't think you've ever fully utilized the prior buyback program that you announced way back. So what's your sense on the use of cash going forward here? Are you going to be looking to be more acquisitive or just letting it build on the balance sheet? Thank you.

Jerry Kennelly

Yes, this is Jerry. So we do like having a strong balance sheet. That's always been our goal. That being said, we recognize a solid chunk of cash there and it really is dry powder should we come across any sort of technical tuck-in acquisitions or to do some larger, more strategic acquisitions. So that's really what it's there for.

Randy Gottfried

On your other part of your question on two-tier, a lot of our non-U.S. business is two-tier. There is a mix, but there is a lot of two-tier already in the model. Separately, there is a chunk of our business, service providers. And so two-tier is sort of an evolution for us in the U.S. where we went primarily single-tier to adding two-tier just recently and I think that helps us as we think about how do we scale the business to be what we hope will someday be a multi-billion dollar company.

Nikos Theodosopoulos – UBS

Got it. Thanks.

Operator

Your next question comes from the line of Daniel Ives with FBR.

Daniel Ives – FBR

Yes, obviously financial was really strong. Can you talk about buying behavior there, what you have seen over the last three to six months and has it surprised you to the upside, maybe just talk about that? Thanks.

Jerry Kennelly

We sort of came to the whole downturn in a relatively normal shape. And so unlike many of our brotherhood in the industry who had sort of negative or down years in '08 and '09, we were pretty positive. Now, our growth rate did – has ticked up almost 10 points from 2009. So the global recovery is helping us, but I guess what I'm trying to say is we haven't seen any mass – we didn’t see any massive turndown and so we are seeing sort of a normal flow that's a little stronger than normal than it has been, returning to some sort of normalcy. But no giant changes.

Daniel Ives – FBR

Thanks.

Operator

Your next question comes from the line of Ittai Kidron with Oppenheimer.

Ittai Kidron – Oppenheimer

Thanks and congrats on good numbers. Couple of household and then a question. Randy, can you give us the percent of revenue of product revenue? There was repeat customers and also, what was mobile sales? And Jerry, it seems like you had a very strong quarter sequentially in the rest of world. If you can give us some more color into the strength or you've been stuck for a long time in sort of the mid-upper teens and you've made strong progress sequentially. Andy color there would be appreciated.

Randy Gottfried

So let me take the first two parts of that three-part question. First on the customer revenue contribution, I'll answer sort of the reverse. So new – the percentage of revenue coming from new customers was about 31% of revenue in Q1. That’s up from about 27% in the first quarter. You separately asked on mobile. Mobile was about 3% of revenue for the quarter, which is consistent to some – to past few quarters.

Jerry Kennelly

Yes. And Asia-Pacific team is fantastic, they've got some good steam in their pipes there and the Asia-Pacific region has been very strong and we have a good management group out there and Asia-Pacific economy seem to be sort of leading the recovery in the world economics and we feel great about it.

Ittai Kidron – Oppenheimer

Were there any big contracts in there that made for this jump or was it a lot of collection of a lot of small or normal size transactions?

Jerry Kennelly

Yes, it was a very normal quarter. Most – typical quarter of Riverbed is a handful of million-plus contracts and then a bunch of $300,000 to $800,000 contracts and then hundreds and hundreds and hundreds of smaller contracts. So it was a very typical quarter for us.

Randy Gottfried

I'll add to that. It is – it's the smallest of the three regional categories of revenue. So sometimes the quarterly numbers can be a little bit more lumpy than others. So the mass is getting a little bit bigger, so maybe they are a little less volatile going forward.

Ittai Kidron – Oppenheimer

Very good. Good luck.

Jerry Kennelly

Thank you.

Operator

Your next question comes from the line of Paul Mansky with Canaccord Adams.