Data Domain: Fiscal 4Q08 Financial Results

Data Domain, Inc. announced results for its fourth quarter ended December 31, 2008. Net revenue for the fourth quarter of 2008 was $85.2 million, an increase of 14% from the third quarter of 2008 and an increase of 90% compared to the fourth quarter of 2007. Net revenue for the year ended December 31, 2008 was $274.1 million, an increase of 122% from the year ended December 31, 2007.

Under U.S. generally accepted accounting principles (GAAP), Data Domain posted net income of $13.9 million for the fourth quarter of 2008, or $0.21 per diluted share. The fourth quarter net income was positively impacted by the release of $13.2 million related to the Company’s deferred tax asset valuation allowance which resulted in a net $5.7 million tax benefit in the fourth quarter of 2008. Without this one-time item, net income would have been $749,000, or $0.01 per diluted share. This compares to GAAP net income of $3.2 million, or $0.05 per diluted share, in the third quarter of 2008, and a GAAP net loss of $76,000, or $0.00 per diluted share, in the fourth quarter of 2007. For the year ended December 31, 2008, GAAP net income was $21.6 million, or $0.33 per diluted share. Excluding the $13.2 million benefit resulting from the release of the deferred tax asset valuation allowance, GAAP net income would have been $8.4 million, or $0.13 per diluted share. This compares to a GAAP net loss of $3.7 million, or $0.09 loss per diluted share, from the year ended December 31, 2007.

Excluding the impact of stock-based compensation and the release of the deferred tax asset valuation allowance, non-GAAP net income for the fourth quarter of 2008 was $6.7 million, or $0.10 per diluted share. This compares to non-GAAP net income of $8.1 million, or $0.12 per diluted share, in the third quarter of 2008, and non-GAAP net income of $5.1 million, or $0.10 per diluted share, in the fourth quarter of 2007. For the year ended December 31, 2008, non-GAAP net income was $29.0 million, or $0.43 per diluted share compared to non-GAAP net income of $8.2 million, or $0.20 per diluted share from the year ended December 31, 2007.

"Data Domain’s fourth quarter results were again marked by record revenues and strong gross margins," said Frank Slootman, president and chief executive officer of Data Domain. "A record 383 new customers were added during this past quarter, bringing Data Domain’s cumulative customer count to over 2,900 worldwide that have purchased our products since 2004. As the Company continues to offer increasingly higher performance products such as the DD690, larger enterprises are becoming Data Domain customers. We believe that the maturity and stability of our platform, as well as the scalability we’ve demonstrated with each new generation of product, is attractive to these large organizations."

"Data Domain again executed to plan during the fourth quarter, exceeding its revenue targets while continuing to build out key elements of its infrastructure to position itself for future growth," added Michael Scarpelli, chief financial officer for Data Domain. "Operating margins were very healthy in the quarter at 10% GAAP. In addition, we achieved operating profit while hiring an additional 72 net new employees, bringing total headcount to 777, and we generated approximately $76 million in operating cash flow for the year."

Financial Outlook

• We estimate revenues for the first quarter of 2009 to be between $79 million and $84 million.
• We estimate that for the first quarter of 2009, GAAP net income (loss) per diluted share will be approximately $(0.01) to $0.01 and non-GAAP net income per diluted share will range from $0.04 to $0.07. The non-GAAP net income per share projections exclude stock-based compensation expense that we estimate will be in the range of $7.5 million to $7.7 million as well as tax benefits that we estimate will be in the range of $3.1 million to $3.3 million related to stock based compensation.
• We estimate revenues for the full year of 2009 will be between $365 million and $385 million.

Fourth Quarter Highlights

• In October, the Company announced that results from the TheInfoPro‘s latest Wave 11 Storage Study again cite Data Domain as the top in-use and in-plan deduplication vendor by responding storage professionals surveyed at  Fortune 1000 companies and  midsize enterprises. Additionally, according to the study’s Technology Heat Index — which gauges the immediacy of user need and planned spending among respondents
• Data Domain continued to be the fastest growing in-plan deduplication technology provider. More recently, in January, the Company announced similar results for the European InfoPro study, namely that among participating European enterprises Data Domain was again ranked lead in-plan deduplication vendor and was at the top of the in-use vendor standings.
• Also in October, Data Domain and F5 Networks announced a new strategic relationship to co-market a joint solution that automates the movement of static and archive data from higher cost primary storage to Data Domain’s cost-efficient deduplication storage.  Benefits of the joint solution may include considerably lower storage costs, simplified administration and accelerated ROI.
• In the fourth quarter, the Company noted strong performance in the Western United States and European markets, as well as an increased level of adoption of Data Domain systems by larger enterprises. The speed and scalability of the Company’s high-end DD690 storage system continues to drive penetration into these larger organizations.