SOURCE: Data Domain

October 23, 2007 16:42 ET

Data Domain, Inc. Reports Third Quarter Financial Results

Revenue Increases 21% Compared to Second Quarter 2007, and 189% Compared to Third Quarter 2006

SANTA CLARA, CA--(Marketwire - October 23, 2007) - Data Domain, Inc. (NASDAQ: DDUP) today announced results for its third quarter ended September 30, 2007. Net revenue for the third quarter of 2007 was $32.0 million, an increase of 21% from the second quarter of 2007 and an increase of 189% from the third quarter of 2006. Net revenue for the nine months ended September 30, 2007 was $78.7 million, an increase of 176% from the nine months ended September 30, 2006.

Data Domain posted a GAAP net loss for the third quarter of 2007 of $880,000, or $0.02 per share. This compares to a GAAP net loss of $1.2 million, or $0.11 per share, in the immediately preceding second quarter of 2007, and a GAAP net loss of $934,000, or $0.12 per share, in the third quarter of 2006.

Excluding the impact of stock-based compensation and related payroll taxes in all periods, the non-GAAP net income for the third quarter of 2007 was $2.6 million, or $0.04 per fully diluted share, compared to a non-GAAP net loss of $607,000, or $0.08 per share, in the third quarter of 2006.

"Data Domain's strong revenue growth in the third quarter reinforces the continuing demand for our industry-leading technology and the rapid expansion of our market," commented Frank Slootman, president and chief executive officer of Data Domain. "During the past quarter, Data Domain added approximately 228 new customers, bringing its cumulative customer count to approximately 1,200 worldwide since it first began shipping its Enterprise Protection Storage systems in 2004."

"In addition to exceeding our revenue plan for the quarter, we had a gross margin of 70%, and generated positive cash flow from operations again this quarter, while increasing our number of employees by 60," added Michael Scarpelli, chief financial officer of Data Domain.

Recent Highlights

Data Domain's focus on delivering its industry-leading technologies to an increasingly broad spectrum of enterprises worldwide was reflected in a number of key business initiatives and recent milestones.

--  Data Domain introduced a new version of its file system software that
    significantly broadens system support for a wide range of nearline
    workloads and use cases beyond its core data protection markets.
--  Announced a new strategic partnership with Vizioncore, a leading
    provider of management tools for VMware virtual environments. Through its
    partnership with Vizioncore, Data Domain has significantly strengthened the
    value proposition it offers to VMware users for protection of their
    virtualized environments.
--  During the third quarter, 228 new Data Domain customers were acquired,
    more than in any single quarter in the company's history.
--  Strong sales of Data Domain's top-of-line DD580 system (first
    introduced during the second quarter of 2007) underscore the company's
    penetration of increasingly larger enterprises.
    

Conference Call Information

Data Domain will host a conference call for analysts and investors to discuss its third quarter results today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). The dial-in number for this conference call is 800-638-5439 (617-614-3945 international) and the call identification number is 24057102. A live webcast of the conference call will be accessible from the Investor Relations section of the Company's website at www.datadomain.com. Following the webcast, an archived version will be available on the company's website for 30 days. To hear the replay, parties in the United States and Canada should call 1-888-286-8010 and enter passcode 25044662. International parties can access the replay at 1-617-801-6888 and should enter passcode 25044662.

Use of Non-GAAP Financial Information

Data Domain has supplemented the financial measures contained in this press release that are provided in accordance with generally accepted accounting principles ("GAAP") with non-GAAP financial measures. Data Domain believes that these non-GAAP financial measures better reflect its core operating results and thus are appropriate to enhance the overall understanding of its past financial performance and its prospects for the future. These adjustments to Data Domain's GAAP results are made with the intent of providing both management and investors a more complete understanding of Data Domain's underlying operational results and trends and performance. Management uses these non-GAAP measures to evaluate Data Domain's financial results, develop budgets and manage expenditures. The method Data Domain uses to produce non-GAAP financial results may differ from the methods used by other companies. Data Domain's reference to these non-GAAP financial results should be considered in addition to results that are prepared under current accounting standards but should not be considered as a substitute for, or superior to, the financial results that are presented as consistent with GAAP. Reconciliation of the non-GAAP financial measures to the nearest GAAP financial measures is included in the financial measures attached hereto.

ABOUT DATA DOMAIN

Data Domain® is a leading provider of deduplication storage appliances for disk-based backup and network-based disaster recovery. Approximately 1,200 companies worldwide have purchased Data Domain's storage systems to reduce costs and simplify data management. Data Domain delivers the performance, reliability and scalability to address the data protection needs of enterprises of all sizes. Data Domain's products integrate into existing customer infrastructures and are compatible with leading enterprise backup software products. To find out more about Data Domain, visit www.datadomain.com. Data Domain is headquartered at 2300 Central Expressway, Santa Clara, CA 95050 and can be contacted by phone at 1-866-933-3873 or by e-mail at sales@datadomain.com.

Forward-Looking Statements

This press release contains forward-looking statements regarding the continuing demand for our industry-leading technology and the rapid expansion of our market, our penetration of increasingly larger enterprises, our support of a wide range of nearline workloads and use cases beyond our core data protection markets, and the strengthened value proposition we offer to VMware users for protection of their virtualized environments. These forward-looking statements involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties include our ability to react to trends and challenges in our business and the markets in which we operate; our ability to anticipate market needs or develop new or enhanced products to meet those needs; market acceptance of our products; our ability to scale our distribution channels; our ability to recruit and retain personnel; our ability to compete in our industry; our ability to maintain and expand relationships with technology partners; our ability to protect our intellectual property; shortages or price fluctuations in our supply chain and the performance of our contract manufacturer; general political, economic and market conditions and events; and other risks and uncertainties described more fully in our documents filed with or furnished to the Securities and Exchange Commission. More information about these and other risks that may impact our business are set forth in the "Risk Factors" section of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 filed with the SEC. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Data Domain and the Data Domain logo are trademarks or registered trademarks of Data Domain, Inc. All other trademarks used or mentioned herein belong to their respective owners.

A copy of this press release can be found on the Investor Relations page of Data Domain's website at www.datadomain.com


                            Data Domain, Inc.
                  Condensed Consolidated Balance Sheets
                              (in thousands)
                                (unaudited)


                                               September 30,  December 31,
                                                    2007          2006
                                               -------------  ------------

Current Assets:
   Cash and cash equivalents                   $      86,831  $     11,857
   Short-term investments                             42,448             -
   Accounts receivable, net (net of allowances
    of $0 and $10, respectively)                      23,303        15,454
   Inventories                                         4,047         1,193
   Prepaid expenses and other current assets           2,019           311
                                               -------------  ------------
      Total current assets                           158,648        28,815
Intangible asset                                         300           400
Property, plant and equipment, net                     6,807         1,698
                                               -------------  ------------

      Total assets                             $     165,755  $     30,913
                                               =============  ============

Current Liabilities:
   Accounts payable                            $       4,806  $      3,590
   Accrued compensation and related benefits           7,322         3,688
   Other accrued liabilities                           8,557         1,781
   Income taxes payable                                  428           246
   Deferred revenue, current                          12,499         6,654
                                               -------------  ------------
      Total current liabilities                       33,612        15,959

Deferred revenue, non-current                          6,933         2,641
Long-term exercised unvested stock options               979         1,046
Other liability                                            -         3,319
Commitments and contingencies
Mandatorily redeemable convertible preferred
 stock                                                     -        41,514

Stockholders' equity (deficit):
   Common stock and additional paid-in capital       164,464         3,049
   Accumulated other comprehensive income                (46)            3
   Stockholder note receivable                             -           (15)
   Accumulated deficit                               (40,187)      (36,603)
                                               -------------  ------------
      Total stockholders' equity (deficit)           124,231       (33,566)
                                               -------------  ------------

      Total liabilities, mandatorily
       redeemable convertible preferred stock
        and stockholders' equity (deficit)     $     165,755  $     30,913
                                               =============  ============



                            Data Domain, Inc.
              Condensed Consolidated Statements of Operations
                  (in thousands, except per share data)
                                (unaudited)


                              Three Months Ended       Nine Months Ended
                            ==========  ==========  ==========  ==========
                             September   September   September   September
                                30,         30,         30,         30,
                               2007        2006        2007        2006
                            ==========  ==========  ==========  ==========

Revenue:
     Product                $   27,992  $    8,717  $   69,470  $   21,149
     Support and services        4,000         776       8,975       1,400
     Ratable product and
      related support and
      services                      33       1,583         297       6,006
                            ----------  ----------  ----------  ----------
             Total revenue      32,025      11,076      78,742      28,555
                            ----------  ----------  ----------  ----------
Cost of revenue:
     Cost of product             8,176       2,888      20,467       6,976
     Cost of support and
      services                   1,330         480       3,033       1,246
     Cost of ratable
      product and related
      support and services           3         374         100       1,429
                            ----------  ----------  ----------  ----------
             Total cost of
              revenue            9,509       3,742      23,600       9,651
                            ----------  ----------  ----------  ----------
     Gross profit               22,516       7,334      55,142      18,904
                            ----------  ----------  ----------  ----------

Operating expenses:
     Sales and marketing        15,831       5,182      36,933      12,386
     Research and
      development                6,111       2,665      16,273       7,162
     General and
      administrative             2,816         574       6,904       1,505
                            ----------  ----------  ----------  ----------
             Total
              operating
              expenses          24,758       8,421      60,110      21,053
                            ----------  ----------  ----------  ----------
     Operating loss             (2,242)     (1,087)     (4,968)     (2,149)
                            ----------  ----------  ----------  ----------
Other income (expense),
 net:
     Interest income             1,614         130       1,950         391
     Other income
      (expense), net                68          62         (41)        196
                            ----------  ----------  ----------  ----------
             Total other
              income
              (expense),
              net                1,682         192       1,909         587
                            ----------  ----------  ----------  ----------
Loss before income taxes          (560)       (895)     (3,059)     (1,562)
Provision for income taxes         320          39         525          72
                            ----------  ----------  ----------  ----------
Net loss                    $     (880) $     (934) $   (3,584) $   (1,634)
                            ==========  ==========  ==========  ==========

Net loss per share, basic
 and diluted                $    (0.02) $    (0.12) $    (0.14) $    (0.21)
                            ==========  ==========  ==========  ==========

Shares used in computing
 basic and diluted net loss
 per share                      53,405       8,074      24,988       7,798
                            ==========  ==========  ==========  ==========

Shares used in computing
 diluted net loss per share     53,405       8,074      24,988       7,798
                            ==========  ==========  ==========  ==========

Stock-based compensation
 expense included in above:
     Cost of product        $       74  $        6  $      116  $       13
     Cost of support and
      services                      90           6         204           8
     Sales and marketing         1,698         121       2,993         267
     Research and
      development                  942         148       1,918         333
     General and
      administrative               699          46       1,475         121
                            ----------  ----------  ----------  ----------
         Total stock-based
          compensation
          expense           $    3,503  $      327  $    6,706  $      742
                            ==========  ==========  ==========  ==========




                            Data Domain, Inc.
                      GAAP to Non-GAAP Reconciliation
                  (in thousands, except per share data)
                                (unaudited)


                                                  Three months ended
                                                  September 30, 2007
                                           ========  ===========  =========
                                             GAAP    Adjustments  Non-GAAP
                                           ========  ===========  =========
Reconciliation of gross profit:
        Total revenue                      $ 32,025  $         -  $  32,025
        Total cost of revenue                 9,509         (164)     9,345
                                           --------  -----------  ---------
                Gross profit               $ 22,516  $      (164) $  22,680
                                           ========  ===========  =========

Reconciliation of operating expenses:
        Sales and marketing                $ 15,831  $    (1,698) $  14,133
        Research and development              6,111         (942)     5,169
        General and administrative            2,816         (699)     2,117
                                           --------  -----------  ---------
                Total operating expenses   $ 24,758  $    (3,339) $  21,419
                                           ========  ===========  =========

Reconciliation of operating income (loss),
 net income and net
  income per share:
        Operating income (loss)            $ (2,242) $     3,503  $   1,261
        Net income (loss)                  $   (880) $     3,503  $   2,623
        Net income (loss) per share, basic $  (0.02)              $    0.05
        Net income (loss) per share,
         diluted                           $  (0.02)              $    0.04
        Shares used in computing basic net
         income (loss) per share             53,405                  53,405
        Shares used in computing diluted
         net income (loss) per share         53,405                  63,057


Stock-based compensation expense:
        Cost of product                    $     74
        Cost of support and services             90
        Sales and marketing                   1,698
        Research and development                942
        General and administrative              699
                                           --------
            Total stock-based compensation
             expense                       $  3,503
                                           ========



                                                 Nine months ended
                                                 September 30, 2007
                                           ========  ===========  =========
                                             GAAP    Adjustments  Non-GAAP
                                           ========  ===========  =========
Reconciliation of gross profit:
        Total revenue                      $ 78,742  $         -  $  78,742
        Total cost of revenue                23,600         (320)    23,280
                                           --------  -----------  ---------
                Gross profit               $ 55,142  $      (320) $  55,462
                                           ========  ===========  =========

Reconciliation of operating expenses:
        Sales and marketing                $ 36,933  $    (2,993) $  33,940
        Research and development             16,273       (1,918)    14,355
        General and administrative            6,904       (1,475)     5,429
                                           --------  -----------  ---------
                Total operating expenses   $ 60,110  $    (6,386) $  53,724
                                           ========  ===========  =========

Reconciliation of operating income (loss),
 net income and net
  income per share:
        Operating income (loss)            $ (4,968) $     6,706  $   1,738
        Net income (loss)                  $ (3,584) $     6,706  $   3,122
        Net income (loss) per share, basic $  (0.14)              $    0.12
        Net income (loss) per share,
         diluted                           $  (0.14)              $    0.09
        Shares used in computing basic net
         income (loss) per share             24,988                  24,988
        Shares used in computing diluted
         net income (loss) per share         24,988                  34,640


Stock-based compensation expense:
        Cost of product                    $    116
        Cost of support and services            204
        Sales and marketing                   2,993
        Research and development              1,918
        General and administrative            1,475
                                           --------
            Total stock-based compensation
             expense                       $  6,706
                                           ========



                            Data Domain, Inc.
                      GAAP to Non-GAAP Reconciliation
                  (in thousands, except per share data)
                                (unaudited)


                                                Three months ended
                                                 September 30, 2006
                                           ========  ===========  ========
                                             GAAP    Adjustments  Non-GAAP
                                           ========  ===========  ========

Reconciliation of gross profit:
        Total revenue                      $ 11,076  $         -  $ 11,076
        Total cost of revenue                 3,742          (12)    3,730
                                           --------  -----------  --------
                Gross profit               $  7,334  $       (12) $  7,346
                                           ========  ===========  ========

Reconciliation of operating expenses:
        Sales and marketing                $  5,182  $      (121) $  5,061
        Research and development              2,665         (148)    2,516
        General and administrative              574          (46)      528
                                           --------  -----------  --------
                Total operating expenses   $  8,421  $      (315) $  8,105
                                           ========  ===========  ========

Reconciliation of operating income (loss),
 net income and net
  income per share:
        Operating income (loss)            $ (1,087) $       327  $   (760)
        Net income (loss)                  $   (934) $       327  $   (607)
        Net loss per share, basic          $  (0.12)              $  (0.08)
        Net loss per share, diluted        $  (0.12)              $  (0.08)
        Shares used in computing basic net
         loss per share                       8,074                  8,074
        Shares used in computing diluted
         net loss per share                   8,074                  8,074


Stock-based compensation expense:
        Cost of product                    $      6
        Cost of support and services              6
        Sales and marketing                     121
        Research and development                148
        General and administrative               46
                                           --------
            Total stock-based compensation
             expense                       $    327
                                           ========


                                                 Nine months ended
                                                 September 30, 2006
                                           ========  ===========  ========
                                             GAAP    Adjustments  Non-GAAP
                                           ========  ===========  ========

Reconciliation of gross profit:
        Total revenue                      $ 28,555  $         -  $ 28,555
        Total cost of revenue                 9,651          (21)    9,630
                                           --------  -----------  --------
                Gross profit               $ 18,904  $       (21) $ 18,925
                                           ========  ===========  ========

Reconciliation of operating expenses:
        Sales and marketing                $ 12,386  $      (267) $ 12,119
        Research and development              7,162         (333)    6,828
        General and administrative            1,505         (121)    1,384
                                           --------  -----------  --------
                Total operating expenses   $ 21,053  $      (721) $ 20,331
                                           ========  ===========  ========

Reconciliation of operating income (loss),
 net income and net
  income per share:
        Operating income (loss)            $ (2,149) $       742  $ (1,407)
        Net income (loss)                  $ (1,634) $       742  $   (892)
        Net loss per share, basic          $  (0.14)              $  (0.11)
        Net loss per share, diluted        $  (0.14)              $  (0.11)
        Shares used in computing basic net
         loss per share                       7,798                  7,798
        Shares used in computing diluted
         net loss per share                   7,798                  7,798


Stock-based compensation expense:
        Cost of product                    $     13
        Cost of support and services              8
        Sales and marketing                     267
        Research and development                333
        General and administrative              121
                                           --------
            Total stock-based compensation
             expense                       $    742
                                           ========




                             Data Domain, Inc.
              Condensed Consolidated Statements of Cash Flows
                              (in thousands)
                                (unaudited)

                                                   Nine Months Ended
                                              ============    ============
                                              September 30,   September 30,
                                                  2007            2006
                                              ============    ============
Operating Activities:
 Net loss                                     $     (3,584)   $     (1,634)
 Adjustments to reconcile net loss to net
   cash provided by (used in) operating
    activities:
   Depreciation and amortization                     1,188             734
   Stock-based compensation                          6,706             742
   Accounts receivable allowance                        10              10
   Provision for inventories                           264               -
   Amortization of evaluation inventory              1,870             951
   Settlement expense                                    -               -
   Common stock issued for services                      -               6
   Changes in operating assets and
    liabiilties:
     (Increase) in accounts receivable              (7,859)         (5,999)
     (Increase) in inventories                      (4,988)         (1,144)
     (Increase) in prepaid expenses and other
      current
        assets                                      (1,708)           (258)
     (Increase) in prepaid offering costs                -               -
     Increase in accounts payable                    1,216           1,536
     Increase in accrued compensation and
      related benefits                               3,634             963
     Increase in other accrued liabilities           6,785             546
     Increase in income taxes payable                  182               -
     Increase in deferred revenue                   10,137           1,725
                                              ------------    ------------
 Net cash provided by (used in) operating
  activities                                        13,853          (1,822)
                                              ------------    ------------

Investing activities:
    Purchase of property, plant and equipment       (6,197)           (838)
    Purchases of available for sale
     securities                                    (49,248)              -
    Proceeds from available for sale
     securities                                      6,800               -
                                              ------------    ------------
 Net cash used in investing activities:            (48,645)           (838)
                                              ------------    ------------

Financing activities:
   Proceeds from issuance of mandatorily
    redeemable convertible
      preferred stock, net of issuance costs             -               -
   Cost foroffering costs associated
   Proceeds from initial public offering, net
    of offering costs of $3.9 million              109,162               -
   Repayment of shareholder note receivable             15               -
   Proceeds from issuance of common
      stock, net of repurchases                        638             319
                                              ------------    ------------
 Net cash provided by financing activities         109,815             319
                                              ------------    ------------

Effect of exchange rate changes on cash
  and cash equivalents                                 (49)            (89)
                                              ------------    ------------

 Net increase (decrease) in cash and cash
  equivalents                                       74,974          (2,430)
 Cash and cash equivalents at beginning of
  period                                            11,857          12,505
                                              ------------    ------------

 Cash and cash equivalents at end of period   $     86,831    $     10,075
                                              ============    ============

Supplemental schedule of cash flow data:
 Cash paid for income taxes                   $        374    $         12
                                              ============    ============

Non-cash operating activity:
  Issuance of common stock for Quantum
   settlement                                 $      3,319    $          -
                                              ============    ============

Non-cash financing activities:
  Conversation of mandatorily redeemable
   convertible preferred stock to common
      stock and additional paid in capital    $     41,514    $          -
                                              ============    ============



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