Riverbed Technology, Inc. Q4 2007 Earnings Call Transcript

Riverbed Technology, Inc. (RVBD)

Q4 FY07 Earnings Call

February 05, 2008, 5:00 PM ET

Executives

Chris Danne - IR

Jerry M. Kennelly - Chairman and CEO

Randy S. Gottfried - CFO

Eric Wolford - Sr. VP, Marketing and Business Development

Analysts

Jason Ader - Thomas Weisel

Troy Jensen - Piper Jaffray

Samuel Wilson - JMP Securities

Brant Thompson - Goldman Sachs

Paul Mansky - Citigroup

Scott Zeller - Needham & Company

Rohit Chopra - Wedbush Morgan

Erik Suppiger - Signal Hill

Bill Choi - Jefferies & Company

Ittai Kidron - Oppenheimer

Jonathan Ruykhaver - Thinkequity Partners

Presentation

Operator

Ladies and gentlemen thank you very much for standing by and welcome to the Riverbed Technology Fourth Quarter 2007 Results Conference Call. During today's presentation all parties will be in a listen-only mode and following the presentation the conference will be open for question and answers. As a reminder this conference is being recorded Tuesday, February 5th of 2008. I would now like to turn the conference over to Chris Danne with Investor Relations. Please go ahead sir.

Chris Danne - Investor Relations

Good afternoon and thank you for joining us on today's conference call to discuss Riverbed's fourth quarter and fiscal year 2007 results. This call is also being broadcast live over the web and can be accessed in the investor relations section of Riverbed's website at riverbed.com for the next 30 days. With me on today’s call are Jerry Kennelly Riverbed's President and Chief Executive Officer, Randy Gottfried, Chief Financial Officer and Eric Wolford, Senior Vice President of Marketing and Business Development.

After the market closed today Riverbed issues a press release with the results for its fourth quarter and fiscal year ended December 31st, 2007. If you would like to copy the release you can access online at the company's website. We would like to remind you that during the course of this conference call, Riverbed's management may make forward-looking statements including financial projections, statements such as the plans and objectives of management for future operations.

Statements as to management's beliefs regarding the potential size of the markets for their products, market growth characteristics and statements as to the company's future economic performance, financial condition or results of operations. These forward-looking statements are not historical facts but rather are based on Riverbed's current expectations and beliefs and are based on information currently available to us. Words such as may, will, expects, intends, plans, beliefs, targets, estimates and variations of these words and similar words are intended to identify forward-looking statements.

By discussing our current perception of our market and making these forward-looking statements we are not undertaking any obligation to provide updates in the future. Riverbed's actual results may differ materially from those projected in these forward-looking statements and no one should assume at a latter date that these comments from today are still valid. The risk factor section of our 10-Q and subsequent reports filed with the SEC discloses risks that could cause these forward-looking statements to be incorrect. Any future products, future 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 future product plans at any time. Riverbed management will also be including non-GAAP financial measures in today's call. Operating results for the fourth quarter and full year 2007 have exclude the impact of stock based compensation and stock based payroll tax expenses will be used. These non-GAAP financial measures are provided to facilitate meaningful year-over-year and quarter-over-quarter comparisons. Please see the exhibit to Riverbed's earnings press release issued earlier today for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and then explanation of why these non-GAAP financial measures are useful and how they are used by management. On this call, Riverbed will also give guidance for the first quarter and full year 2008. In this guidance, management will include non-GAAP financial measures which exclude the impacts of stock based compensation and stock based payroll expenses from our results. We have not reconciled the forward-looking non-GAAP guidance that we will discuss today to comparable GAAP guidance because we cannot readily estimate the impact of our future stock price on future stock based compensation expenses. With that said I would now like to turn the call over to Riverbed's Chairman, President and CEO, Jerry Kennelly.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Thank you, Chris. Welcome everyone and thank you for joining us on today's conference call to discuss our fourth quarter and full fiscal year 2007 results. We had another record quarter of growth in the fourth quarter as we increased revenues by 126% year-over-year and 21% sequentially to $76.3 million. Non-GAAP gross margins came with at 76%, up from 73% in Q3 and non-GAAP operating margins increased to 19%. Our strong revenue performance in the fourth quarter was a highlight in a very successful year. With going public in late 2006, we demonstrated a record of over performance, executing on the key things we outlined at the time of our IPO. To name just a few of our accomplishments, we posted strong revenue growth each and every quarter in 2007 with full year revenue growth of 162%. If you recall, our original guidance we gave for 2007 was about $150 million versus our $236 million actual full year results or more than 50% over achievement. Our customer growth has also been extraordinary adding over 1800 new customers in 2007 we continue to win both global 2000 customers and smaller and mid-size companies. We also continued to win the most prestigious industry awards, including Network World’s Clear Choice Award for WAN Acceleration and four consecutive years of the Best WAN Accelerator by InfoWorld.

We have also been rated as having the best technology by the leading technology analyst firms. We dramatically improved our business model since the IPO, growing from a loss position to operating margins better than many mature companies in a relatively short amount of time. Most importantly, these accomplishments set us up to further growth and progress in the coming years. Here is why were are excited as we look forward. First and foremost, interest of wide-area data services has grown dramatically moving from a missionary sale with no earmarked IT budgets to becoming one of the top priorities today among many CIOs for improving productivity and performance and driving down costs.

Riverbed’s sales pipeline is at record levels and demand and interest in wide area data services is solid across all major verticals and all geographies. Importantly our competitive position remains strong in this fast growing market. When we went public we were winning 9 out of 10 deals in competitive backlogs [ph] in our primary competition with Cisco. Since then many competitors have jumped into the market promoting what they call Riverbed killer innovations that always seem about six months away. Today after all of that we are still winning nine out of ten backlogs against all comers including our primary competitor Cisco. There is a reason for that. We continue to lead the market in innovation, performance and focus and we are not the only one saying that, recently Gartner issued a new Magic Quadrant. Our competitive position and leadership remained absolutely unchanged from the original one they issued in 2006. Here is what Gartner said about our competitor's products, Cisco's Wireless product often requires multiple days by on-site engineers, due to the solutions’ complexity and lacks advanced features.

Juniper has limited WAN capacity of the high end and has failed to grow their business faster than the overall market. Blue Coat, offers only average acceleration and WAN performance and lacks the performance necessary for datacentre-to-datacentre acceleration. Our technological superiority allows us to beat our competition in the three key areas customers care about the most speed, scalability and simplicity. How fast does it go, can it support my full networks, and is it easy to install and maintain? We found these are the factors that customers really want and these are the areas of our greatest strength.

Since the IPO in September of 2006 we've added an average of over six new customers every business day. The recent wins included one of the world’s largest integrated health care systems, one of the country's largest defense companies, a national restaurant chain, a large engineering and construction conglomerate in India, a global mining company in Canada, a Fortune 500 company focused on materials, packaging and machinery the list goes on and on. We're also seeing increase of what we call boomerang deals, prospects that are purchased or were given our competitors product in the past but then came to us when they couldn't make it work. For example in the fourth quarter, we won a deal with a leading global organization based in the Western U.S. replacing already purchased and installed equipment. They bought Cisco WAAS, couldn't make it work. They then did a trial with us and Blue Coat, couldn't make Blue Coat work. Riverbed got the order and the customer is thrilled with our performance. There are plenty of other similar examples, a lead HMO replaced her already paid for Cisco equipment with our equipment. A grocery store chain which gave Cisco six weeks to get their product to work with fail it took us one day to get them up and running.

Our ongoing success with the WDS market and the needs of our customers have led us in the new market that significantly expand our addressable market opportunity. A first of these we still had mobile, which InfoWorld just selected as a technology of the year. Since the product was made generally available four months ago we've added over 200 Steelhead mobile customers and while the 259 others currently are evaluating the product. We see everyday how Mobile has extended our differentiation even against those competitors who have announced products. Interest is extremely strong and we're right on schedule. Given our success with our core products in mobile we must continue to expand our sales and marketing coverage. We believe we've got a huge barely penetrated market and we have the best technology to address that market.

We have the best and most experienced sales force focused on our industry. At the same time there is no question that we face well respected competitors with powerful distribution and strong installed bases of other products. Even our competitive positioning we have every confidence that we will continue to win against these competitors when we get in front of a potential customer, to accelerate our market awareness and sales coverage we're continuing to make investment to take full advantage of the opportunity in front of us. To complement our sales efforts we also plan to extend our technological lead. We historically had two significant upgrades to our core product each year. We expect to continue to lead the industry with this upgrade strategy, for our appliances and we'll continue to enhance the performance in ease of use of Steelhead mobile.

Additionally, we are using our unique architecture to extend our competitive advantage by creating a new product offering that we call the Riverbed Services Platform or RSP. Even where we physically sit in the networks, at every remote site in our remote workers laptops, we've got a very powerful architectural position we can leverage. But RSP, we plan to extend our Steelhead solution through an additional feature for purchase on our appliances to make our products a platform for best of breed third party software blades. Through RSP, our platform can become an easy way to get the best of all worlds, make best of breed applications and the unified remote office solution. The Riverbed Services Platform will roll out in phases over time, with the first product and partners to be announced very shortly during this first quarter of 2008.

We summarized our outlook we couldn’t be more excited about the prospects for 2008 and beyond. Our market is big, largely untapped and growing. Our competitive position is strong, our pipeline is the largest as it has ever been and we are targeting new markets to enable future growth. Even in tougher spending environment our recent survey of CIO has found that WAN Acceleration technology is one of the networking technologies they intend to invest in most heavily in 2008. With 70% of the global workforce not located at headquarters offices, wide-area data services can significantly improve productivity and allow companies to consolidate equipment and software, saving billions of dollars for companies worldwide. This is an attractive value proposition in any economic climate.

More and more customers are realizing that our approach is permanently different from our competitors. Steelhead is not just a more advanced version of other products, our technology is based on a uniquely scalable data referencing and single data store architect, which gives us a sustainable competitive advantage and enables ongoing success in the WDS market. This architecture is highly extensible allowing us to continue to roll our new products such as RSP to expand our market opportunity.

On this call we talked about the early success of Steelhead Mobile and the imminent launch of Riverbed Services Platform. Later in the year we'll outline in more detail how we'll extend the power of Riverbed technology into the core of the data center, further leveraging our leadership in the areas of storage, applications and networking. With all that we have planned, it should be an exciting year.

On that note, I would like to turn the call over to our CFO, Randy Gottfried to go over the financials. Randy?

Randy S. Gottfrie - Chief Financial Officer

Thanks Jerry. We are pleased by our performance in the December quarter with continued strong growth in revenues and new customer acquisitions. Total revenue increased 21% sequentially and a 126% year-over-year to $76.3 million in the fourth quarter. We didn't have any 10% customers in the quarter or in the full year. Product revenue grew a 129% year-over-year fueled by sales growth across all major geographies as we continue to see broad based demand across the wide variety of verticals.

Sales of our new Steelhead Mobile product are tracking nicely with Steelhead mobile contributing about $2 million in product revenues this quarter. Product revenue from new customers represented 48% of the total in Q4, up from the 42% we achieved in Q3. We saw several new customers come in with big purse purchases, 52% of our product revenue came from existing customers. About 88% of our revenue came from indirect channels in Q4, with the remaining 12% coming from direct sales. Approximately 62% of our revenue was generated in the U.S. with the remaining 38% coming from outside the country. We saw strong momentum in our domestic market, which grew 21% quarter-to-quarter, International grew well as well at 19% sequentially. Services revenue grew 157% over the fourth quarter of 2006, as we continue to grow our installed base of customers with support contracts.

Let me shift over to the cost side, one important note as we talk about costs and expenses I am talking about non-GAAP numbers that excludes stock based compensation and stock based payroll taxes. Be sure to look at our press release for a reconciliation of the non-GAAP financial measures to the comparable GAAP amounts. Product gross margins were at a record level of 78% in Q4, up from 73% in Q3. The improvement was primarily from reduced costs and better product mix, especially the sale of our larger capacity Steelhead appliances. Service gross margins came in at 69%, down slightly from the 70% in Q3. The combination led to record gross margins of 76%. The product mix benefited from the sales of our larger appliances, which typically have a higher gross margin. They are also the units many people roll out early in the deployments as customers often start with core systems and face in remote site appliances over time. As reflected in our revenue from new customers metric, we had some significant first-time purchases, which had a heavy concentration of our larger units. Our remote site units also had nice gross margins, but not quite as good as the larger boxes.

Looking forward, we expect gross margins to be in the range of 74% to 76%, as we will not always have as favorable a product mix as we had this quarter. We also expect an increasing percentage of our revenues to go through larger borrowers, distributors, systems integrators, and service providers. Sales through these channels typically get better pricing though in return these channels will improve our long-term leverage and expand our distribution capabilities.

Sales and marketing increased in actual dollars and as a percentage of revenue to 37% in Q4 as we added more sales people and paid year-end commission accelerators. While sales and marketing expenses will decline as a percent of sales in the first quarter we will continue to invest in expanding our sales force as we continue to see massive opportunities for growth in the marketplace. R&D increased in absolute dollars, but remained flat at 13% of revenues.

G&A expenses also increased in absolute dollars this quarter, but decreased to about 8% of revenues. Expenses related to our IP litigation with Quantum reduced our EPS by about $0.005 per share. Total headcount increased 13% in the period going from 551 people at the end of September to 623 people at the end of December. Our operating margin was 19% this quarter, up slightly from 18% in Q3. Our pro forma tax rate was 14% in Q4. We had some volatility in tax rates. In 2008 and going forward, we plan to adopt another commonly used approach for presenting non-GAAP numbers, which is to strip out certain key components of stock based compensation, our tax valuation allowance and certain other extraordinary items from the tax rate. This should be less volatile. I will go into the actual rate when I give guidance later.

Q4 non-GAAP net income was $14.6 million or $0.20 per share, up from net income of $12.4 million or $0.17 per share in Q3. We generated a GAAP profit of $4.8 million or $0.07 a share. On to the balance sheet, we finished December with $246 million of cash and short-term investments. Cash from operations was $13 million. Moving down to balance sheet, we ended the quarter with $50 million of accounts receivable, which represents 59 days sales outstanding, up from 53 days in Q3, reflecting a strong December. As we mentioned for sometime, our long-term target for DSOs is between 50 and 60 days. Inventory totaled $9 million at December 31st, down slightly from September 30th. Much of our inventory is evaluation inventory in the field. Deferred revenue, current and long-term portions increased to $33 million at quarter end.

In summary, we were pleased by our growth and profits in Q4 and the overall progress in our business model in 2007. Looking forward, here are some guidance as we go into the first quarter and full-year 2008. Again that profit numbers I am going to mention are non-GAAP which excludes stock-based compensation and stock-based payroll taxes. Stock-based compensation includes expenses derived from the issuance of options and shares under Employee Stock Purchase Plan. We exclude these items from our guidance, as we don't use them for our internal operational decisions and also because it requires estimates of our future stock price which is obviously unknown and a big driver for those calculations.

First lets look at the year. As the fourth quarter demonstrated, we have strong business momentum. Given this, we are projecting revenues in the range of $370 million to $380 million in 2008, with EPS in the range of $0.70 to $.75 per share utilizing a 39% tax rate. Bottom line guidance incorporates about $3 million to $4 million of legal fees related to our Quantum litigation. This has approximately $0.03 per share impact on our results. In 2008, gross margins are expected to be in the range of 74% to 76%, and we expect to achieve our long-term goal of 25% operating margins as we exit the year. Improvement in operating margins will be back end loaded, as we continue to invest heavily in the first half of the year. As our... as long as our outlook remains strong, we expect to spend more in absolute dollars every quarter.

Looking at further we are raising our long-term gross margin and operating margin targets as we expect to see continued growth and leverage in the longer-term. Our long-term gross margin target is now in the mid-to-high 70s with operating margins reaching into the mid-to-high 20s. During 2008, we expect some seasonality in our business with Q2 and Q4 being our strongest quarters as we had outlined in the past. Currently our pipeline is at record levels and we expect continued top line growth in Q1 to the range of $79 million to $82 million. This represents a $3 million to $6 million increase over current consensus analyst estimates.

On a bottom line basis, we expect non-GAAP EPS of $0.11 to $0.12 per share for the quarter. This projection incorporates approximately $1 million in extra expenses related to Quantum litigation and a tax rate of 39%, which assumes that R&D tax credit is not renewed. We are assuming fully diluted share count of $76 million shares.

With that let me turn it back over to Jerry.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Thank you Andy. To summarize we're very pleased by the growth we saw in Q4 and for the full year. We continue to lead the market in both share and technology innovation and are aggressively leveraging our unique architecture advantage to roll out new products. Revenues were up 21% sequentially, and a 162% full year, with no 10% customers. We had record gross margins and strong operating margins, while at the same time continuing to invest heavily in the future to extend our lead in a market that is still in its infancy. We now have over 3,500 customers and over 500 channel partners worldwide after another record quarter of rapid expansion. Our balance sheet is strong with almost $250 million in cash and no debt. And importantly we continue to have overwhelming customer, partner and third-party endorsements, all contributing to a strong pipeline and positive momentum as we enter 2008. We believe the strength of our technology, market position and competitive leadership is clearly evident in our results. And we're very excited about our prospects for the coming year. With that said Andy, Eric Wolford and I would now be happy to answer any questions that you may have.

Operator you can open it up for questions.

Question and Answer

Operator

Thank you sir. [ Operator Instructions] One moment please for the first question. First question comes from the line of Jason Ader with Thomas Weisel. Please go ahead.

Jason Ader - Thomas Weisel

Thank you. Yes, so guys, a couple of quick questions first, Jerry could you comment on the macro environment, what you guys are seeing out there, any impact so far? And then secondly I was a little bit surprised on the international side that grew slower than the U.S., just given the fact that you guys are just, I think building out so aggressively there. Could you talk about what's happening in each of the different geographies, Europe and Asia and where you think you are in terms of the development?

Jerry M. Kennelly - Chairman and Chief Executive Officer

Sure. Thanks Ader. Yes, on the macro side, we just had a great fourth-quarter. Our pipeline is big and robust; we haven't seen the buggy man show up yet. Like everyone else we want CNBC and CNN and read the papers. So, we have our antennas up but its not yet showing in our business. By nature, our business is the type of spending people do in tough times. We've a great ROI, we save money on bandwidth, we save money on equipment and we help productivity. So, we're cautiously optimistic that we'll flow right through these macro economic environment.

Jason Ader - Thomas Weisel

Okay.

Jerry M. Kennelly - Chairman and Chief Executive Officer

On the international, international grew strongly at Europe, had a good quarter. Asia was very strong, Japan is still nascent for us in getting started but we were happy there. It varies a bit quarter-to-quarter which territory pulls ahead, but it was up... it was a strong finish internationally, particularly in Europe.

Jason Ader - Thomas Weisel

And do you have any sense for '08, whether domestic or international where you know some of the divergence in growth rates goes... you think it'll grow roughly at the same rate or you think international grows faster, how do you look at that?

Jerry M. Kennelly - Chairman and Chief Executive Officer

Our longer view for '08 and '09 is that we expect to get to a point where the company is... essentially 50/50 between U.S. and the rest of the world. And so, under that scheme we expect since our plan for international to grow slightly faster quarter-over-quarter over the course of many quarters. And any one quarter that may vary, but in general we expect international to grow little faster.

Jason Ader - Thomas Weisel

Okay. And then last question. Randy do you have any estimate for us on the Steelhead Mobile for 2008? Or you are not breaking that out in the guidance?

Randy S. Gottfrie - Chief Financial Officer

No, in general, our... I thought it’s the same. So, it's tracking exactly as we expected. Our goal will be to exit 2008 with roughly 8% to 10% of our product revenues coming from Steelhead Mobile.

Jason Ader - Thomas Weisel

Okay. Great, thanks guys.

Randy S. Gottfrie - Chief Financial Officer

Thank you.

Operator

Thank you, Sir. The next question comes from the line of Troy Jensen with Piper Jaffray. Please go ahead?

Troy Jensen - Piper Jaffray

Hi, congrats on a nice quarter gentlemen.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Thanks, Troy.

Troy Jensen - Piper Jaffray

Hi, is any chance you guys could potentially quantify how much commission accelerators were during the December quarter?

Randy S. Gottfrie - Chief Financial Officer

While, let me phrase it, maybe… we will hopefully give some help to that. So, our average headcount in sales and marketing grew about 20% quarter-on-quarter. So, that's roughly half of the driver. A good chunk of the remainder were commission accelerators. So, we had some nice over treatment in the quarter, and lot of that came from people who were at the peak of their accelerated rates.

Troy Jensen - Piper Jaffray

Thank you Randy. If I factored that into… kind of your guidance here, it looks like all the operating expenses are going to step up meaningfully here in the quarter?

Randy S. Gottfrie - Chief Financial Officer

In Q1 or...

Troy Jensen - Piper Jaffray

In Q1, yes exactly Q1.

Randy S. Gottfrie - Chief Financial Officer

In absolute dollars, we would expect all categories to go up and I think as a percentage of revenue, our assumption is that sales and marketing decreases slightly. We didn't really comment on any of the other categories directionally.

Troy Jensen - Piper Jaffray

All right fair. And then I'm just wondering if, I'm... Jerry if you could get a starts on our penetration levels, currently what you guys are thinking, number of units versus number of WAN links out there?

Jerry M. Kennelly - Chairman and Chief Executive Officer

It is well under 10% at this point. So both in terms of... to be able to market even in our installed base. So there is lots of spots statistics steelheads.

Troy Jensen - Piper Jaffray

Last question, I'll jump off either Jerry or Eric. Your RSP just maybe help us out obviously I don't want you to announce in advance who you are partnering with, but potentially which applications can RSP type of support.

Eric Wolford - Senior Vice President, Marketing and Business Development

Sure, yes. This is Eric Jason. Yes let me tell a little bit about it. We sort of observed that we have the strategic architectural position in the remote office and that we're getting in lots and lots of boxes deployed and there is a strong desire on the part of the customer, the buyer to put and consolidate more servers and more boxes into our data services box. But the anchored tenant that drives the deployment of the box is Accelerated Date Services. So the acceleration is something that's general and then there is this fragmented set of demand for other EDGE date services. Let me list some of them for you. So, print services, application probe or sensor type service, DNS, DHCP, IP address management, streaming media, Active Directory domain controller, VMDKs, unified threat management and various customized services. And so what we saw was that we had an opportunity to open up our platform protect it and allow software blades to be placed on steel heads, and we have seen a tremendous amount of interest from customers who have heard our Road map pitch. And in terms of partners the natural place for us to go for partners would be our RTA partners, Riverbank Technology Alliance partners.

Troy Jensen - Piper Jaffray

Got it. Okay. Keep up the good work.

Eric Wolford - Senior Vice President, Marketing and Business Development

Okay. Thank you.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Thanks, Troy.

Randy S. Gottfrie - Chief Financial Officer

Thanks, Troy.

Operator

The next question comes from the line of Samuel Wilson with JMP Securities. Please go ahead.

Samuel Wilson - JMP Securities

Good afternoon gentlemen. Couple of questions. First on your guidance and earnings, I want to understand this correctly. You guided non-GAAP EPS for the first quarter to a $0.11 $0.12 and you guided the year to $0.70 to $0.75. So effectively you were talking about $0.21 operating EPS average over the back three quarters of the year?

Randy S. Gottfrie - Chief Financial Officer

That math is about right. But... obviously no specifics other than first quarter and full-year.

Samuel Wilson - JMP Securities

But in your prepared remarks you said operating margin is very back-end loaded. So, you think this is sort of a big ramp to the year. I sort of want to make sure I get the tone correct here.

Randy S. Gottfrie - Chief Financial Officer

Correct.

Samuel Wilson - JMP Securities

Okay. Sort of the easy questions have been asked. But I wanted to just sort of get two things as a follow-up. One is, have you noticed any change at all, and there is a little bit of fallout on the macro economic but any change at all in like the number of quotes you are doing or RFP activity, or anything among customers that would lead you to believe that this market segment is seeing a slowdown.

Jerry M. Kennelly - Chairman and Chief Executive Officer

No.

Randy S. Gottfrie - Chief Financial Officer

No. Not at all.

Jerry M. Kennelly - Chairman and Chief Executive Officer

And we have a sales force in place that works like a machine between our inside sales group, our resellers and our field guys. We run it like a machine with a big pipeline using salesgforce.com, using disciplined weekly calls with the entire sales field following up every lead and these guys are working as hard as they can. So, again, we're not going to have our head in the sand or anything, but we haven't seen it.

Samuel Wilson - JMP Securities

Okay. But...

Eric Wolford - Senior Vice President, Marketing and Business Development

In Jerry's comment, he mentioned that the funnels are fuller than they have ever been.

Samuel Wilson - JMP Securities

Right. So second is, do you think Riverbed is growing faster than the market right now, in line with the market or a little bit less than the market?

Eric Wolford - Senior Vice President, Marketing and Business Development

So the market is of course a direct question.

Samuel Wilson - JMP Securities

A big pause there.

Eric Wolford - Senior Vice President, Marketing and Business Development

We think we are growing faster than the market. But how you define and place and what you put into a market and not put into a market is definitely of some art, some science. And so, we definitely feel like we are growing faster than the market.

Samuel Wilson - JMP Securities

So, do you have, Eric, any guess as to what you think your market share is?

Eric Wolford - Senior Vice President, Marketing and Business Development

There is like three or four different third parties that have published various share positions that range from 25%, 27% to 35%. And those are the ranges that are out there, but they all bucket different things and include different things, so.

Samuel Wilson - JMP Securities

I guess my question is more... I've seen those. Do you think they are reasonable or do you think they understate your share, overstate your share?

Eric Wolford - Senior Vice President, Marketing and Business Development

Yes. I mean of course we think they understate our share, but I think that is a touch self serving, but when you strip up things that we don't complete with, then you get a closer look at just the stuff we compete with day in and day out. Then yes, I do think that.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Here is a top level observation which is, and I think it is really pretty much all the vendors in the space is going to test you which is, this is a big market we're in the earlier stages of a very big market. And it is everything we've talked about in the past, we found has played out. It is a market that has 8 million to 10 million possible sort of sites whereas plant [ph], product could go and many more where you can put a sort of laptop orientated product. So, this is a huge market probably the life to-date penetration our guess would be... low single digit percentages. So, we remain as optimistic as we've ever been at the total available market we're going up against.

Samuel Wilson - JMP Securities

Awesome. Last question, I promise. Just want to get a sense for... as you go into these international markets and you sign up resellers, any issues signing up resellers? Have you had good success signing up resellers? Do you feel like the rate in which you are signing up reseller needs to accelerate, it had a good level. I just want to get a sense as to how you think about that stuff?

Jerry M. Kennelly - Chairman and Chief Executive Officer

We do very well there. All of our international revenue comes from e-source. It is basically 100% channel model. It’s developed, we started with the sort of the local guys, local countries and the evolution is they go to the big pan regional people cover all of Asia, all of Europe and now the ten global companies that have global ability to distribute and install and sell the product. And so... and that just gets better every day frankly. And we have a big investment in our sales organization not only [inaudible] headquarters and regional, divisional level people who focus specifically on cultivating the biggest systems ingrate as the biggest service providers and sort of a pan global reseller that we think are important to servicing the biggest companies in the world.

Eric Wolford - Senior Vice President, Marketing and Business Development

But Sam as the market gets bigger, we need bigger distribution, right, to go with bigger market. So we are boarding the distribution as the market is growing.

Operator

Thank you sir. And the next question comes from the line of Brant Thompson with Goldman Sachs. Please go ahead.

Brant Thompson - Goldman Sachs

Hi, I was wondering if you could just touch on three quick things. First, when this market first started to get going not every player got to look at every opportunity. And you quoted that you are wining nine out of ten right now, but could you just comment a little bit on are you at the point of distribution channel or you feel like you are seeing every opportunity or if there is more to go there. The second question is, if you look back over 2007 can you give us any indication as to how the split between large corporate customers was versus the small and medium size businesses and how that trended throughout the year. And then lastly any color on the Steelhead in terms of type of customers that is buying it, are they small, medium-size businesses on the mobile side rather and... or is the mobile going to be picked up by the large corporations? Thanks.

Eric Wolford - Senior Vice President, Marketing and Business Development

Hey Brant, this is Eric. Nice to see you here again. Yes, so in terms of distribution, yeah, we think there is a fair amount of the market we don't see. In fact we know that for sure, we know that 30% to 40% of the deals that we do in a given quarter we are unopposed and so that's a solid fact and then we always learn about deals that we did not participate in that we seek to participate in. So, participation rate that just indicates the market is big and we still are striving to get distribution to where we see all of those deals. So the answer to the first question. And second question was in 2007, is there a shift between large customers and small customers who are buying the product and I think Jerry mentioned and Randy in their comments that we are seeing one of the shifts this quarter was big initial purchases from big companies. So we haven't seen that trend until just recently where that first purchase is not four or five boxes but many hundreds of thousands to millions of dollars for that initial purchase and that is definitely coming from the big enterprises who are doing that. So the big enterprises are getting much more serious. It is a budgeted lined item, it is a serious project that they have been reviewing for four to six months and so that is a shift. And then Steelhead mobile I think which was your third question, Steelhead mobile is across the board, big companies we have made a first sale to a Fortune 100 company and the first thing they purchased from us was Steelhead Mobile and at the same time we have made follow-on sales to big companies and follow-on sales to medium and small companies.

Brant Thompson - Goldman Sachs

I am sorry, I don't know if it came through in the remarks, but out of the 3500 customer install base in the first four months, close to 500, maybe the boarder looked at a trial Steelhead Mobile 500 in four months out of the entire slots, that's what we talk about and we are pleased with the traction. So that is why we have that feeling about the exit rate for 2008. So it actually is making a big difference.

Eric Wolford - Senior Vice President, Marketing and Business Development

And is across horizontally and across the verticals across small to big customers.

Brant Thompson - Goldman Sachs

Great. Thanks very much.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Thanks, Brant.

Operator

Thank you sir. The next question comes from the line of Paul Mansky, with Citigroup. Go ahead.

Paul Mansky - Citigroup

Great, a few questions, hopefully they are not too easy I know the bar was set pretty high. As we look as Steelhead Mobile you mentioned 200 customers, can you talk about approximately how many seats that covers?

Randy S. Gottfrie - Chief Financial Officer

You would call that specific seats I think in general it is tracking as we expected, which were usually in the sale cycle some of the valuation period and then when they purchase they will typically purchase the mobile controller which has a certain starter set of licenses and over time we would expect them to come back and deploy more fully within the company. So it is tracking as we expected with smaller first deployments.

Eric Wolford - Senior Vice President, Marketing and Business Development

Hey, Paul, a lot of guys are buying, so far around $13,000, you get boxes with some license right, that package we talked about before. And a bulk of the purchases are for that with some who bought additional licenses, but there is a lot of people who are doing exactly what you would expect which is they buy the $13,000 thing and then they test it for some time in a production level proof of concept that they purchase and then there is this big sort of embedded follow-up sales opportunity to sell to the rest of the company and that is the part we are particularly excited about. These are all like seeds that we have planted, that we get try to go back and harvest later for really big deployments.

Paul Mansky - Citigroup

Okay perfect. And then on the operating expense side, specifically R&D, what percentage of that figure would you say is being spent on activities outside the "Classic Steelhead" space at present?

Randy S. Gottfrie - Chief Financial Officer

We have not given a whole lot of flavor on the composition within R&D. At the end of the day, you need both. I think we have a fair bit of investment in our core business. There is, as Jerry talked about, sort of an overarching architecture that we can leverage, so that gets leveraged by the RSP products that we have talked about, some of the things that we are doing that we talked about to get into the core of the data center, leverage some of that same architecture. So, it's kind of hard to give you a specific composition, but there's a good chunk of our development that are on things that aren't even out yet.

Paul Mansky - Citigroup

Right. Ultimately, what I'm trying to get to is, as we kind of think about the implied earnings ramp throughout the course of the year, I'm trying to get a handle on... how much of it is back-end loaded with respect to that uptick on Steelhead Mobile versus the opportunity for you to derive some incremental leverage out of their R&D line, how would we kind of handicap the two?

Randy S. Gottfrie - Chief Financial Officer

For R&D, we are at about 13% of revenues. We think that we are not far off from our long-term target, it's... for us... we think we've got a great technological lead now and we fully plan to maintain, if not extend that lead, and that means continuing to invest in R&D. So, we think, we can get to some of those long term targets I described without a whole lot of impact to the R&D line, maybe there is a point or two to squeeze out of there, but not a whole lot.

Paul Mansky - Citigroup

Okay. And then finally just... can you give us just a broad slice... the revenue exposure by vertical?

Randy S. Gottfrie - Chief Financial Officer

The great thing about Riverbed is just the diversified customer base we have. There is... in any given quarter, there may be a handful that are 10% or so of revenue, that varies quarter-to-quarter. To cut to sort of the next question, which usually comes up is financials. Financials were just over 10% for the quarter, which we are actually delighted by. It showed a lot of strength in that sector and it showed, given the dynamics in their business, how important Steelheads can be to their environment. So... but again the key message for us on verticals is just how broad based our customer base is.

Jerry M. Kennelly - Chairman and Chief Executive Officer

We had seven verticals that range between 8% and 13% of revenue this quarter and then another half dozen that were 3% to 5% of revenue. So, an astounding sort of spread of the revenue, which really lowers the risk for our generation model.

Paul Mansky - Citigroup

Yes, absolutely. Great, thank you for that, and congratulations on the quarter and outlook.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Thank you.

Operator

Thank you sir. The next question comes from the line of Scott Zeller with Needham & Company. Please go ahead.

Scott Zeller - Needham & Company

Thank you. A question on Cisco. Could you tell us if they have changed their pricing strategies, given that everyone is watching their IT dollar spend more carefully, have you noticed them try to get a leg up by dropping the price perhaps to free for this offering?

Eric Wolford - Senior Vice President, Marketing and Business Development

Yes. I think Jerry mentioned some comments about that. This is Eric by the way. Hi Scott.

Scott Zeller - Needham & Company

Hi.

Eric Wolford - Senior Vice President, Marketing and Business Development

Yes, there's no question that we compete with heavily discounted and to... sometimes even free for competing products from Cisco, and we are now very used to that and very comfortably competing with that. Jerry mentioned some of the, what we are terming boomerang deals where customers were... there was a coverage when we didn't get into participate, it is a very appealing offer at 85% of and then when they find out that it doesn't work or it causes collateral damage, then they come and look for an alternative and that's when we have had a tremendous... not just an isolated incident, right? This is like a trend of success where we go in after and we look like the heroes. So… and there as you can tell by the gross margins, our pricing is the same pricing that it's been past few quarters.

Jerry M. Kennelly - Chairman and Chief Executive Officer

The message is that free is not free, number one and it's not really a change, it's been that way most of the time we've competed with them.

Scott Zeller - Needham & Company

So there is no real material change in aggressiveness of pricing with [inaudible].

Jerry M. Kennelly - Chairman and Chief Executive Officer

It’s been aggressive.

Scott Zeller - Needham & Company

But it’s consistently aggressive. No.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Consistently aggressive.

Randy S. Gottfrie - Chief Financial Officer

No. There is a sell on this brand and price and you don’t really have [inaudible] technologies that's what you do and that's what we do.

Scott Zeller - Needham & Company

Okay. So no change there, thank you.

Operator

Thank you, sir. The next question comes from the line of Rohit Chopra with Wedbush Morgan. Please go ahead.

Rohit Chopra - Wedbush Morgan

Hi, guys. I have three questions. First one is a even though the quarter of course was a little bit back end loaded, was it different from your expectations?

Randy S. Gottfrie - Chief Financial Officer

Yes, it was about the same. Yes, we typically talk about… I don't know if I… both the party that comes in December is the over achievement and so you don't really think about it as being back end loaded perhaps as sort of the wonderful Christmas surprise.

Rohit Chopra - Wedbush Morgan

Right. Good way to look at it. And over the last four quarters, have you noticed any change in the sales cycle? Is that shorter or longer, I mean, have new competitors created any issues where it just taking over a bit more time to evaluate?

Eric Wolford - Senior Vice President, Marketing and Business Development

Yes, sure. There is puts and takes, right. So on the one hand, it is more mature, right? So it is more [inaudible] machinery selling. So you give up that long front-end process of what the heck is this, the more and more customers are coming I want it and I am trying to decide between as I opposed to should I do the project? It’s yes I should do the project and who should I do it with? So whereas before maybe we were doing a lot of machinery work with less competition, now there is competition and people are more aware of it. But I will see the competitiveness measure that I use is how many of our deals are unopposed and the percent unopposed has remained the past three quarters remarkably consistent. And so that could be if the market is growing so fast and even though competition is growing, the market is keeping pace. But so the strong [ph] assured is, no we haven't seen a big change in the sales cycle.

Rohit Chopra - Wedbush Morgan

In the sales cycle. And then Eric, you mentioned last quarter that there were some new features you are adding in addition to QoS, you talked about application visibility, any timing on that?

Eric Wolford - Senior Vice President, Marketing and Business Development

Oh, yes. So Jerry mentioned we do two releases a year, is the target. We have one that's coming out this quarter, which is version 5.0 embedded in version 5.0 is something that Jerry was talking about and I was talking about called the Riverbed Services Platform (RSP) and then there is a host of probably 10, 12 other features some of them visibility oriented, some of them QoS oriented that are delivering the commitments that we have made in the past and so we have a press release that will go out probably towards the end of latter part of February about all that is in 5.0.

Rohit Chopra - Wedbush Morgan

I had one last question, can you give us a sense of where the greatest demand is from a customer perspective as far as their solutions that they are looking for, is it acceleration? Is it data replication? Is it in that area, is it say some kind of consolidation of data industrial going on? What specifically maybe you have a better sense of that?

Eric Wolford - Senior Vice President, Marketing and Business Development

Sure. Well, this is a question near and dear to my heart. We have asked this that very question every six months for the life of the company, ever since we had customers we would survey customers and so we track that statistic about 50% of our business is driven by the primary purchase motivation is accelerated applications. So people wanting the speed, right. They just want it fast. Make it fast and then there is 25% to 33% of the business is driven by consolidation where the primary motivation is you want to take file service, mail service, take backup systems and consolidate them without compromising end user performance and experience and then the other two that compete for the rest are either backup and replication as a primary driver where you are wanting to protect your data as your motivation. You want to comply, you want to protect your data and we can make it build a lot faster as you replicate between data centers, or backup servers and/or compression where the whole purchase motivation is the bandwidth savings where the main reason why they are writing the check is because it is cheaper to put this box in and then to upgrade the pipes. So those are the four key value drivers, the first two are the leaders and then the other two are also meaningful.

Rohit Chopra - Wedbush Morgan

And was there any change in that, as you have noticed over time, what you said was --?

Eric Wolford - Senior Vice President, Marketing and Business Development

The only change that I would say we’ve noticed over time is that the... if you were to revenue weight some of this, this is just now individual buyers. If you had to revenue weight at the consolidation projects are definitely heavier on the revenue weighting because they are by their nature very large whereas an application acceleration project can be just for the size that are complaining, a consolidation project in order for the customer to enjoy the benefits that they are anticipating needs to be a pretty broad deployment.

Rohit Chopra - Wedbush Morgan

Extremely helpful. Thank you.

Operator

Thank you. The next question comes from the line of Erik Suppiger with Signal Hill. Please go ahead.

Erik Suppiger - Signal Hill

Good afternoon.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Hi Erik.

Erik Suppiger - Signal Hill

I am just trying to get a little better handle on some of the guidance to be clear the G&A you are going to be adding incrementally about half a million more on the legal side, is that right?

Randy S. Gottfrie - Chief Financial Officer

I don't think we have... for Q1.

Erik Suppiger - Signal Hill

Yes

Randy S. Gottfrie - Chief Financial Officer

I think we said closer to a million.

Erik Suppiger - Signal Hill

Is the million all inclusive of... ?

Randy S. Gottfrie - Chief Financial Officer

Actually just to be clear, we do actually call out sort of specifics of G&A or the other incrementally it will be larger absolute dollars and about a million of litigation expenses.

Erik Suppiger - Signal Hill

Then on the R&D, it sounds like that’s going to be reasonably close to your 13% target. Is that the way to think of it or is there anything that would be unusual about Q1 that would get it north of your target.

Randy S. Gottfrie - Chief Financial Officer

We have not given specific sort of bucket by bucket guidance. In general, R&D is not something that typically varies that dramatically.

Erik Suppiger - Signal Hill

Okay and then on the gross margin is there any reason why you would be at the low end of your 74 to 76 target

Randy S. Gottfrie - Chief Financial Officer

You know in general Q4 came in great. We did as I mentioned, we did have the benefit of a couple of key drivers in Q4. We got the benefit of product mix. We had… our costs were particularly good as well in Q4. As we go into 2008 we still remain very optimistic in our gross margin profile, we are not planning around the same product mix in Q1 as we have achieved in Q4. So we're assuming similar lower gross margins in Q1.

Jerry M. Kennelly - Chairman and Chief Executive Officer

The other thing we can put a little pressures on the gross margins is that as we move to bigger and bigger distribution and you move to bigger deals. That can put some pressure.

Erik Suppiger - Signal Hill

Would there be anything about Q1 that would imply something more pressure than in other quarters or any reason I guess what I'm getting as would it be reasonable to expect the midpoint of your guidance or is there something unusual about Q1.

Jerry M. Kennelly - Chairman and Chief Executive Officer

I don't think we have given any specific, anything more specific than we described. So;, again the long-term profile for gross margin we remain pretty optimistic on the variables are all working towards our favor. We are assuming lower gross margins in Q1 in the ranges that I described. In the lower price… the lower end of the range that I described.

Erik Suppiger - Signal Hill

Okay. And then if we look out, you do have a pretty good uptick after Q1, is it reasonable to expect a fair amount of volatility in the earnings as we get into the latter three quarters or you say your strong Q2 and Q4 would you expect the same kind of volatility in Q3 that we are seeing here in Q1?

Randy S. Gottfrie - Chief Financial Officer

We don't provide any more specific items than we have described. As we get on Q1, we will have five more specifics that we can share with you.

Erik Suppiger - Signal Hill

Okay. Then lastly you said financial was 10% of revenue in the fourth quarter, is that right?

Randy S. Gottfrie - Chief Financial Officer

Yes just over.

Erik Suppiger - Signal Hill

Can you give us a flavor for what it was in Q3, I think it was less than 10%, any sense for how it would compare?

Randy S. Gottfrie - Chief Financial Officer

Well I think in general for verticals, they do vary quarter-on-quarter and there are some that have sort of gone up above and below 10%, as Jerry mentioned earlier, we've got about seven verticals that aren’t even from 8% to 12% in a given quarter, it's just as a testament to how broad base the demand from our... for our products are.

Erik Suppiger - Signal Hill

Okay this was the only one that was about 10% in the current quarter though?

Randy S. Gottfrie - Chief Financial Officer

No. we had several. Nothing dramatic, all roughly in that same range.

Jerry M. Kennelly - Chairman and Chief Executive Officer

The highest one was 13%.

Erik Suppiger - Signal Hill

All right. Very good. Thank you very much.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Thank you.

Operator

The next question comes from the line of Bill Choi with Jefferies & Company. Please go ahead.

Unidentified Analyst

Hey guys this is [inaudible] for Bill. A couple of questions on the RSP that you just mentioned and the services that you just listed, is it fair to assume that Microsoft will be the partner?

Jerry M. Kennelly - Chairman and Chief Executive Officer

We are not here to announce anything like that, that's for sure. But, we do anticipate especially with the development, I am sure you all are following the development of virtualization technologies, the OS dependency that used to sort of be fundamental to every hardware platform is just less fundamental then it once was. And so, yes we do have customers that are looking for features, functions, facilities that are inside of windows and we do want to make those facilities available to customers.

Unidentified Analyst

And how would the business model work, would you get a license on everybody that uses, everybody [inaudible] software blade or is it just a feature that will be in the next release?

Jerry M. Kennelly - Chairman and Chief Executive Officer

Yes. That's a good point. So our business model is, we are not reselling other people's technology. What we are offering is a sort of open platform that will allow other third party technologies to go on, it will qualify them to give users the comfort and confidence that it will work and do corporative support and all of those things. But the customer will pay Riverbed an incremental, the list price to be around $495 and then they will pay the vendor, the third party, for whatever that software blade is that they want to put on the platform and thereby avoiding multiple servers, multiple boxes, right. So, that's the economic saving that the customer enjoys.

Unidentified Analyst

Okay. And I had a question for Randy. How would you... I mean in terms of the gross margin, though pretty strong this quarter, how much was it, could you kind of break it out as to how much was it related to the mobile client or the large deal, any kind of color there?

Randy S. Gottfrie - Chief Financial Officer

Yes most of... as we mentioned roughly $2 million of business was... came from Steelhead Mobile. It wasn't a huge contributor to the gross margins as I described in prior quarters. The initial deployments of Steelhead Mobile have a small hardware element to it, which have similar gross margins as our appliances. So, really the core of... the success we had in gross margins for Q4 was just our basic appliance business, the product mix, the cost associated with those.

Unidentified Analyst

Okay. And then the one large customer that you mentioned. Could you tell us what vertical it was and how long were they trialing the product?

Randy S. Gottfrie - Chief Financial Officer

Actually we had a number of new customers that came in with larger first purchases. There wasn't necessarily any one that drove this.

Unidentified Analyst

Okay. Thanks a lot. That is it for you.

Randy S. Gottfrie - Chief Financial Officer

Thank you.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. The next question comes from the line of Ittai Kidron with Oppenheimer. Please go ahead.

Ittai Kidron - Oppenheimer

Hi Thanks. Sorry to beat a dead horse here but Randy, with regards to the sales and marketing expenses, this quarter you had the biggest jump ever in the company's history from an absolute dollar standpoint. Was there anything one-time in nature as far as ramping sales and marketing here that perhaps related to mobile or other business part or how should we think about this for this quarter specifically?

Randy S. Gottfrie - Chief Financial Officer

I won't say there is any sort of one-time item in sales and marketing. I'd say, in general, that the drivers are... your continued growth in the number of people. So as we said in other parts of the call, we're excited about the prospects at the market, we are trying to get better and better coverage. So we continue to invest in more sales teams, more marketing air cover for those sales teams. So that's sort of an ongoing investment. Because we see a real solid ROI. It's not forever away. It's just those, we think those, the return on those investments are 6 months to 12 months away. So just more people is one of the drivers. You do have a little bit of anomaly within the year. In that... some of the peak accelerators, people reach over in the fourth quarter. So that was sort of one of the big chunks. A better part of that is, I didn't really mention much, consistent with getting better coverage we are also moving into more and more countries. So, the cost of moving into a new country all about, we got be legal, admin, just people costs of getting things up and running thus adds to the mix. But that is more of an ongoing thing as we get some broader coverage.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Right. So there is a bit of commission voluntary expense in the fourth quarter. In a year where we started with a plan of $150 million and you did $236 million, a large percentage of our sales force was of record in accelerators in the fourth quarter so.

Ittai Kidron - Oppenheimer

Very good. And with regards to the tax rates. At what point will you feel comfortable in knowing whether you get the tax benefits as you hoped to get in which case hopeful your tax rate is going to be much more normalized?

Randy S. Gottfrie - Chief Financial Officer

Yes, we continue to work on projects that will ideally lower our tax rate. Nothing to announce yet, it's an ongoing project. I hope that we will talk more about it later in the year but at this point there is nothing material enough to talk about.

Ittai Kidron - Oppenheimer

But why won't your exposure to international markets which is growing result with a lower tax rate which typically is the case for many update on the Fortune companies?

Randy S. Gottfrie - Chief Financial Officer

There is a variety of reasons that sort of could be it's own cause. But in general, a lot of the business is transacted with the U.S. company. And but there are some obvious things to do down the road that we are looking into. This has taken a little bit longer than we originally expected, some of the regulatory environment has changed over the course of last year making some sort of more traditional approaches to that topic, more difficult to come by. So again, we are working on it and again our goal would be to talk about it later, but don't have any resolution on the topic.

Ittai Kidron - Oppenheimer

Are your NOLs now fully used at this point?

Randy S. Gottfrie - Chief Financial Officer

That’s a bit of a tricky answer and that for GAAP purposes, we still have our valuation allowance still on the books. I would say for the purposes of tax guidance we gave assume that our NOLs are used up.

Ittai Kidron - Oppenheimer

Okay. And lastly with regards to your mobile product. Is there anything that you can tell about that part of the business that gives you different type of visibility relative to your core products?

Randy S. Gottfrie - Chief Financial Officer

I think the visibility is similar. I think the great thing about this business as you get big customers who are rolling out over time, we think we've got better than average visibility in the enterprise space, customer adopts your technology, rolls it out to more and more sites in the form of when they roll out appliances and for Steelhead Mobile rollout to more and more users over time. So, again I think it's better than average visibility, but I don't think it's any different necessarily from our appliances.

Ittai Kidron - Oppenheimer

Very good. Good luck, guys.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. There is time for one more question and it comes from the line of Jonathan Ruykhaver with Thinkequity Partners.

Jonathan Ruykhaver - Thinkequity Partners

Yes, hi guys. Congratulations on the quarter.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Thank you.

Jonathan Ruykhaver - Thinkequity Partners

All of my questions have been answered. Just one quick one. What do you see out there in terms of an opportunity for managed WAN optimized services? I think everybody knows Juniper has a partnership with Verizon. Do you see that market growing and if so when would we potentially see partnerships for Riverbed with other service providers?

Eric Wolford - Senior Vice President, Marketing and Business Development

Yes. This is Eric. Yes, we think that managed services represent an opportunity that we are very interested in, are aggressively pursuing. We already have many... what I would call one off deals, dozens of them with customers and service providers, where a services provider is managing our box on behalf of the customer providing them a managed WAN optimized service and we're now in the process of trying to turn those into productized service offering in every major global service providers. So we have a global team that is set up and we're investing in that area and we see that it's something that's attractive and we'll particularly attractive probably the latter half of 2008 and especially in 2009.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Juniper is non-exclusive and we also do deal-by-deal transactions with Verizon.

Jonathan Ruykhaver - Thinkequity Partners

Okay. Good. So just for clarification. If sounds like your sales team that were on the training aspect of going to market with those service providers. But the activity really kicks in in second half of '08 and 2009?

Jerry M. Kennelly - Chairman and Chief Executive Officer

That's right.

Jonathan Ruykhaver - Thinkequity Partners

Okay. Great. Thanks guys.

Operator

Thank you very much. At this I would like to turn it back to management.

Jerry M. Kennelly - Chairman and Chief Executive Officer

Thanks Mike. Well, thank you everyone for being on the call, we look forward to keeping you updated and talking to you again next quarter. Thank you very much.

Operator

Thank you. Ladies and gentlemen this does conclude the Riverbed Technologies fourth quarter 2007 results call. You may now disconnect, and thank you for using AT&T teleconferencing.

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