SOURCE: Data Domain

Data Domain

April 23, 2009 16:00 ET

Data Domain, Inc. Reports First Quarter Financial Results

Revenue Increases 50% in the First Quarter 2009 Compared to the First Quarter 2008

SANTA CLARA, CA--(Marketwire - April 23, 2009) - Data Domain, Inc. (NASDAQ: DDUP) today announced results for its first quarter ended March 31, 2009. Net revenue for the first quarter of 2009 was $79.0 million, an increase of 50% compared to the first quarter of 2008, and a decrease of 7% from the fourth quarter of 2008.

Under U.S. generally accepted accounting principles ("GAAP"), Data Domain posted net income of $1.3 million for the first quarter of 2009, or $0.02 per share. This compared to a GAAP net income of $13.9 million in the fourth quarter 2008, or $0.21 per 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, fourth quarter 2008 net income would have been $749,000, or $0.01 per share. For the first quarter 2008, GAAP net income was $2.7 million, or $0.04 per share.

Excluding the impact of stock-based compensation, non-GAAP net income for the first quarter of 2009 was $4.9 million, or $0.07 per share. This compares to non-GAAP net income of $6.7 million, or $0.10 per share, in the fourth quarter of 2008, which excluded the impact of stock-based compensation and the release of the deferred tax asset valuation allowance. For the first quarter of 2008, non-GAAP net income was $7.7 million, or $0.11 per share.

"Data Domain's first quarter results were marked by significant customer wins in large enterprise accounts, as evidenced by the number of transactions in excess of a million dollars," said Frank Slootman, president and chief executive officer of Data Domain. "The Company added 218 new customers during the quarter, increasing its worldwide roster of customers to over 3,100. With the significant performance increases Data Domain delivered through recent product additions and operating system upgrades, we are well positioned to continue our push into the enterprise marketplace."

"Data Domain executed well in a challenging sales environment during the first quarter and continues to build out key elements of its infrastructure to fuel future growth," added Michael Scarpelli, chief financial officer for Data Domain. "Operating margins were very healthy in the quarter at 3% GAAP and 11% non-GAAP. In addition, we achieved operating profit while hiring an additional 50 net new employees, bringing total headcount to 827, and we generated approximately $12 million in operating cash flow for the quarter."

Financial Outlook

--  We estimate revenues for the second quarter of 2009 to be between $82
    million and $87 million.
--  We estimate that for the second quarter of 2009 GAAP income (loss) per
    share will be approximately $(0.01) to $0.01 and non-GAAP income per share
    will range from $0.05 to $0.07. The non-GAAP income (loss) per share
    projections exclude stock-based compensation expense that we estimate will
    be in the range of $7.1 million to $7.3 million as well as tax benefits
    that we estimate will be in the range of $3.3 million to $3.5 million
    related to stock-based compensation.
--  We reiterate our previous revenue estimates for the full year 2009 to
    be between $365 million and $385 million.
    

First Quarter Highlights

--  In March, the Company announced the availability of its new platform
    operating software, which accelerates the backup throughput of its current
    product line up to 100% from initial product specifications without any
    additional hardware or disk provisioning.  The upgrade enabled new levels
    of performance across all systems and customer types -- from demanding data
    center environments to remote offices at the edge.
--  Also in March, Data Domain introduced the DD660, a new quad-core
    processor-based midrange system that provides up to a 50% price/performance
    improvement and a 50% larger base system capacity as compared to its dual-
    core predecessor. The Company also announced support for 1 TB disk drives,
    in both the base model DD660 and in all expansion shelves for both the
    DD660 and DD690.
--  In February Data Domain announced that its flagship DD690 enterprise
    storage system has been recognized by SearchStorage.com and Storage
    Magazine with the 2008 Product of the Year Award. The DD690 was the
    recipient of the publications' highly coveted Gold Award, the top
    achievement in its category.
--  In January, Data Domain announced that results from TheInfoPro's
    latest Wave 11 European Storage Study again indicated Data Domain is the
    top In Plan deduplication vendor among IT storage users at large European
    enterprises participating in the study.
    

Conference Call Information

Data Domain will host a conference call for analysts and investors to discuss its first quarter results on Thursday, April 23rd at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). The dial-in number for this conference call is 800-688-0836 (617-614-4072 international) and the participant passcode is 84362173#. A live webcast of the conference call will be accessible from the Investor Relations section of our website at www.datadomain.com. Following the webcast, an archived version will be available on our website for 30 days. To hear the replay, parties in the United States and Canada should call 1-888-286-8010 and enter passcode 98807555#. International parties can access the replay at 617-801-6888 and should enter passcode 98807555#.

Use of Non-GAAP Financial Information

Data Domain has supplemented the financial measures contained in this press release that are provided in accordance with U.S. 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 the leading provider of deduplication storage systems. Thousands of companies worldwide have purchased Data Domain systems to reduce storage costs and simplify data management. Data Domain delivers the performance, reliability and scalability to address the data protection and nearline storage needs of enterprises of all sizes. Data Domain products integrate into existing customer infrastructures and are compatible with leading enterprise backup and archive software products. To find out more about Data Domain, visit www.datadomain.com.

Data Domain is headquartered at 2421 Mission College Blvd., Santa Clara, CA 95054 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 our being well positioned to continue our push into the enterprise marketplace; and our continuing to build out key elements of our infrastructure to fuel future growth; as well as all of the information set forth under the heading "Financial Outlook," and other statements identified by forward-looking words such as "anticipated," "believed," "could," "estimate," "expect," "intend," "may," "should," "will" and "would" or similar words. 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: the impact of the continuing weakening of general economic and market conditions and customer budgets for information technology spending; 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; 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" sections in our Annual Report on Form 10-K for the year ended December 31, 2008 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.
                        Consolidated Balance Sheets
                              (in thousands)
                                (unaudited)

                                                March 31,    December 31,
                                                  2009           2008
                                              -------------  -------------
Current assets:
    Cash and cash equivalents                 $     119,167  $     128,380
    Short-term investments                          127,685        105,512
    Accounts receivable (net of allowances of
     $250 and $120, respectively)                    60,563         60,322
    Inventories, net                                  4,051          4,638
    Deferred tax asset, net                           8,517          7,531
    Prepaid expenses and other current assets         4,737          5,116
                                              -------------  -------------
       Total current assets                         324,720        311,499

Long-term investments                                30,931         30,866
Long-term deferred tax asset, net                     5,629          5,629
Intangible asset                                        100            133
Property, plant and equipment, net                   39,333         38,854
                                              -------------  -------------

      Total assets                            $     400,713  $     386,981
                                              =============  =============

Current liabilities:
    Accounts payable                          $      10,804  $      10,970
    Accrued compensation and related benefits        11,692         16,720
    Other accrued liabilities                         8,267         10,441
    Income taxes payable                              2,150          1,051
    Deferred revenue, current                        43,749         39,321
                                              -------------  -------------
      Total current liabilities                      76,662         78,503

Deferred revenue, non-current                        31,985         28,399
Long-term exercised unvested stock options              260            285
Other liabilities                                     2,058          2,910

Stockholders equity:
    Common stock and additional paid-in
     capital                                        308,619        295,564
    Accumulated other comprehensive loss             (1,451)           (10)
    Accumulated deficit                             (17,420)       (18,670)
                                              -------------  -------------
    Total stockholders' equity                      289,748        276,884
                                              -------------  -------------

      Total liabilities and stockholders'
       equity                                 $     400,713  $     386,981
                                              =============  =============





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


                                                              Three Months
                                          Three Months Ended      Ended
                                              March 31,        December 31,
                                        ----------------------- ----------
                                           2009        2008        2008
                                        ----------  ----------- ----------
Revenue:
   Product                            $   63,921   $    45,247  $   71,661
   Support and services                   15,115         7,368      13,568
                                      ----------   -----------  ----------
         Total revenue                    79,036        52,615      85,229
                                      ----------   -----------  ----------

Cost of revenue:
   Cost of product                        17,295        11,317      19,327
   Cost of support and services            5,536         2,489       5,191
                                      ----------   -----------  ----------
         Total cost of revenue            22,831        13,806      24,518
                                      ----------   -----------  ----------
   Gross profit                           56,205        38,809      60,711
                                      ----------   -----------  ----------

Operating expenses:
   Sales and marketing                    32,726        23,232      32,950
   Research and development               14,211         8,736      12,358
   General and administrative              7,146         5,606       6,885
                                      ----------   -----------  ----------
         Total operating expenses         54,083        37,574      52,193
                                      ----------   -----------  ----------
   Operating income                        2,122         1,235       8,518
                                      ----------   -----------  ----------

Other income (expense), net:
   Interest income                         1,041         2,163       1,258
   Other income (expense), net                77         1,243      (1,542)
                                      ----------   -----------  ----------
         Total other income
          (expense), net                   1,118         3,406        (284)
                                      ----------   -----------  ----------

Income before provision (benefit) for
 income taxes                              3,240         4,641       8,234
Provision (benefit) for income taxes       1,990         1,900      (5,692)
                                      ----------   -----------  ----------
Net income                            $    1,250   $     2,741  $   13,926
                                      ==========   ===========  ==========

Net income per share, basic           $     0.02   $      0.05  $     0.23
                                      ==========   ===========  ==========
Net income per share, diluted         $     0.02   $      0.04  $     0.21
                                      ==========   ===========  ==========

Shares used in computing basic income
 per share                                60,157        56,414      59,394
Shares used in computing diluted
 income per share                         65,739        65,378      66,387

Cost of product                       $     (115)  $       134  $      278
Cost of support and services                   6           121         309
Sales and marketing                        3,192         2,792       3,029
Research and development                   1,976         1,320       1,408
General and administrative                 1,403         1,013       1,381
                                      ----------   -----------  ----------
   Total stock-based compensation
    expense                           $    6,462   $     5,380  $    6,405
                                      ==========   ===========  ==========




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


                     Three Months Ended             Three Months Ended
                       March 31, 2009               December 31, 2008
                ----------------------------- -----------------------------
                  GAAP  Adjustments  Non-GAAP   GAAP  Adjustments  Non-GAAP
                --------  --------  --------- --------  --------  ---------
Reconciliation
of gross profit:
  Total revenue $ 79,036  $      -  $  79,036 $ 85,229  $      -  $  85,229
  Total cost of
   revenue        22,831       109     22,940   24,518      (587)    23,931
                --------  --------  --------- --------  --------  ---------
     Gross
      profit    $ 56,205  $   (109) $  56,096 $ 60,711  $    587  $  61,298
                ========  ========  ========= ========  ========  =========

Reconciliation
 of operating
 expenses:
  Sales and
   marketing    $ 32,726  $ (3,192) $  29,534 $ 32,950  $ (3,029) $  29,921
  Research and
   development    14,211    (1,976)    12,235   12,358    (1,408)    10,950
  General and
   administrative  7,146    (1,403)     5,743    6,885    (1,381)     5,504
                --------  --------  --------- --------  --------  ---------
     Total operating
      expenses  $ 54,083  $ (6,571) $  47,512 $ 52,193  $ (5,818) $  46,375
                ========  ========  ========= ========  ========  =========


Reconciliation
 of operating income,
 provision (benefit) for
 income taxes, net income
 and net income per
 share:
  Operating
   income       $  2,122  $  6,462  $   8,584 $  8,518  $  6,405  $  14,923
  Income before
   provision for
   income taxes $  3,240  $  6,462  $   9,702 $  8,234  $  6,405  $  14,639
  Provision
   (benefit) for
   income taxes $  1,990  $  2,781  $   4,771 $ (5,692) $ 13,668  $   7,976
  Net income    $  1,250  $  3,681  $   4,931 $ 13,926  $ (7,263) $   6,663
  Net income per
   share, basic $   0.02            $    0.08 $   0.23            $    0.11
  Net income
   per share,
   diluted      $   0.02            $    0.07 $   0.21            $    0.10
  Shares used in
   computing
   basic net
   income per
   share          60,157               60,157   59,394               59,394
  Shares used in
   computing
   diluted net
   income per
   share          65,739     1,411     67,150   66,387       880     67,267

Stock-based
 compensation
 expense:
  Cost of
   product      $   (115)                     $    278
  Cost of support
   and services        6                           309
  Sales and
   marketing       3,192                         3,029
  Research and
   development     1,976                         1,408
  General and
   administrative  1,403                         1,381
                --------                      --------
 Total
  stock-based
  compensation
  expense       $  6,462                      $  6,405
                ========                      ========




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


                Three Months Ended March 31,  Three Months Ended March 31,
                            2009                          2008
                ----------------------------- -----------------------------
                  GAAP  Adjustments Non-GAAP    GAAP  Adjustments Non-GAAP
                --------  --------  --------- --------- --------  ---------
Reconciliation
 of gross profit:
  Total revenue $ 79,036  $      -  $  79,036 $  52,615 $      -  $  52,615
  Total cost of
   revenue        22,831       109     22,940    13,806     (255)    13,551
                --------  --------  --------- --------- --------  ---------
     Gross
      profit    $ 56,205  $   (109) $  56,096 $  38,809 $    255  $  39,064
                ========  ========  ========= ========= ========  =========

Reconciliation
 of operating
 expenses:
  Sales and
   marketing    $ 32,726  $ (3,192) $  29,534 $  23,232 $ (2,792) $  20,440
  Research and
   development    14,211    (1,976)    12,235     8,736   (1,320)     7,416
  General and
   administrative  7,146    (1,403)     5,743     5,606   (1,013)     4,593
                --------  --------  --------- --------- --------  ---------
     Total
      operating
      expenses  $ 54,083  $ (6,571) $  47,512 $  37,574 $ (5,125) $  32,449
                ========  ========  ========= ========= ========  =========


Reconciliation
 of operating
 income, provision for
 income taxes, net income
 and net income per
 share:
  Operating
   income       $  2,122  $  6,462  $   8,584 $   1,235 $  5,380  $   6,615
  Income before
   provision for
   income taxes $  3,240  $  6,462  $   9,702 $   4,641 $  5,380  $  10,021
  Provision for
   income taxes $  1,990  $  2,781  $   4,771 $   1,900 $    440  $   2,340
  Net income    $  1,250  $  3,681  $   4,931 $   2,741 $  4,940  $   7,681
  Net income per
   share, basic $   0.02            $    0.08 $    0.05           $    0.14
  Net income per
   share,
   diluted      $   0.02            $    0.07 $    0.04           $    0.11
  Shares used in
   computing basic
   net income per
   share          60,157               60,157    56,414              56,414
  Shares used in
   computing
   diluted net
   income per
   share          65,739     1,411     67,150    65,378    1,624     67,002

Stock-based
 compensation
 expense:
  Cost of
   product      $   (115)                     $     134
  Cost of
   support and
   services            6                            121
  Sales and
   marketing       3,192                          2,792
  Research and
   development     1,976                          1,320
  General and
   administrative  1,403                          1,013
                --------                      ---------
 Total
  stock-based
  compensation
  expense       $  6,462                      $   5,380
                ========                      =========




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

                                                     Three Months Ended
                                                         March 31,
                                                 -------------------------
                                                     2009          2008
                                                 -----------   -----------
Operating activities:
Net income                                       $     1,250   $     2,741
Adjustments to reconcile net income to net cash
 provided by operating activities:
   Depreciation and amortization                       2,576         1,201
   Stock-based compensation                            6,462         5,380
   Tax benefit for excess stock option deduction       1,382          --
   Deferred income taxes                                (986)         --
   Loss on value of option to put securities           1,527          --
   Mark to market, trading (gain)                     (1,592)         --
   Provision for accounts receivable allowances          130             4
   Amortization of evaluation units in inventory         580           654
   Changes in operating assets and liabilities:
     (Increase) decrease in accounts receivable         (371)        4,945
     (Increase) decrease in inventories                    7          (826)
     (Increase) decrease in prepaid expenses and
      other current assets                               379        (1,242)
     Increase (decrease) in accounts payable            (166)        1,562
     Decrease in accrued compensation and
      related benefits                                (5,028)       (3,092)
     Increase (decrease) in other accrued
      liabilities                                     (3,026)          595
     Increase in income taxes payable                  1,099         1,743
     Increase in deferred revenue                      8,014         6,360
                                                 -----------   -----------
Net cash provided by operating activities             12,237        20,025
                                                 -----------   -----------

Investing activities:
    Purchase of property, plant and equipment         (3,022)       (8,349)
    Purchases of available-for-sale securities       (57,075)      (42,004)
    Proceeds from maturity of available-for-sale
     securities                                       34,389        49,400
                                                 -----------   -----------
Net cash used in investing activities                (25,708)         (953)
                                                 -----------   -----------

Financing activities:
   Proceeds from issuance of common stock, net
    of repurchases                                     5,186         4,501
                                                 -----------   -----------
Net cash provided by financing activities              5,186         4,501
                                                 -----------   -----------

Effect of exchange rate changes on cash and cash
 equivalents                                            (928)           10
                                                 -----------   -----------

 Net increase (decrease) in cash and cash
  equivalents                                         (9,213)       23,583

 Cash and cash equivalents at beginning of
  period                                             128,380       102,939
                                                 -----------   -----------

 Cash and cash equivalents at end of period      $   119,167   $   126,522
                                                 ===========   ===========

Supplemental schedule of cash flow data:
 Cash paid for income taxes                      $       260   $       248
                                                 ===========   ===========

Contact Information