Data Domain: Fiscal 3Q08 Financial Results

Data Domain, Inc. announced results for its third quarter ended September 30, 2008. Net revenue for the third quarter of 2008 was $75.0 million, an increase of 23% from the second quarter of 2008 and an increase of 134% from the third quarter of 2007.

Under U.S. generally accepted accounting principles (GAAP), Data Domain posted net income of $3.2 million for the third quarter of 2008, or $0.05 per diluted share. This compares to GAAP net income of $1.7 million, or $0.03 per diluted share, in the second quarter of 2008, and a GAAP net loss of $0.9 million, or $0.02 per diluted share, in the third quarter of 2007.

Excluding the impact of stock-based compensation and related taxes in all periods, non-GAAP net income for the third quarter of 2008 was $8.1 million, or $0.12 per diluted share, compared to non-GAAP net income of $6.5 million, or $0.10 per diluted share, in the second quarter of 2008, and non-GAAP net income of $2.6 million, or $0.05 per diluted share, in the third quarter of 2007.

"Our results for the third quarter of 2008 included record revenues, strong gross margins and significant growth in our customer base," said Frank Slootman, president and chief executive officer of Data Domain. “A record 355 new customers were added during this past quarter, bringing Data Domain’s cumulative customer count to over 2,500 worldwide that have purchased our products since 2004. Demand continued to accelerate for the DD690, which we announced in May as the industry’s highest performance inline deduplication storage system for backup and other nearline applications. In addition, we noted expanded use of our systems for mixed storage applications such as archiving.”

“Data Domain has again exceeded its plan, beating its revenue targets for the quarter, while continuing to invest in its infrastructure for growth,” added Michael Scarpelli, chief financial officer for Data Domain. “GAAP net income was $3.2 million and gross margins were strong at 72%. In addition, we achieved operating profit while hiring an additional 91 employees, bringing total headcount to 705, and we added approximately $22 million to operating cash flow in the quarter.”

Financial Outlook

• We estimate revenues for the fourth quarter of 2008 to be between $80 million and $84 million.
• We estimate that for the fourth quarter of 2008 GAAP earnings per diluted share will be approximately $0.01 to $0.03 and non-GAAP earnings per share will range from $0.09 to $0.11. The non-GAAP earnings per share projections exclude stock-based compensation expense that we estimate will be in the range of $6.4 million to $6.6 million as well as tax benefits that we estimate will be in the range of $900,000 to $1.0 million related to stock based compensation.
• We estimate revenues for the full year of 2008 will be between $269 million and $273 million, up from our previous estimate of $250 million to $255 million.

Third Quarter Highlights

• During the quarter, we announced multiple new technology partnerships with leading eDiscovery, archiving and file virtualization vendors. The new partnerships underscore the flexibility of Data Domain systems to be applied broadly in mixed storage environments.
• We also announced new managed services partner agreements with companies that offer outsourced disaster recovery services, reflecting another market that can benefit from the cost efficiencies that can be achieved with Data Domain systems. These service providers leverage our network-efficient replication to reduce the delivery costs of the disaster recovery services.
• During the quarter, we noted strong penetration of the financial and government vertical markets. These customers are typically large enterprise data centers that require the high performance characteristics of systems like the DD690 and the platform stability that Data Domain delivers.