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Article Excerpt
OPERATOR: Good day ladies and gentlemen, and welcome to the Fiscal Third Quarter 2009 3PAR Inc. Earnings Conference Call. My name is Melanie, and I will be your coordinator today. At this time, all participants are on a listen-only mode. We will conduct a question and answer session at the end of this conference.
(Operator Instructions)
As a reminder, today's call is being recorded for replay purposes.
I would now like to turn the call over to 3PAR's management. Go ahead.
ADRIEL LARES, CFO, 3PAR INC.: Thank you, Melanie. Good evening and welcome to 3PAR's Fiscal Year 2009 Third Quarter Earnings Release Conference Call. This conference call will include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended; and Section 21E of the Securities and Exchange Act of 1934, as amended.
These forward-looking statements will include, among others, statements about our financial projections and growth trends for the fourth quarter and the full year of fiscal 2009 and beyond as well as financial projections and growth trends for the overall storage market and segments thereof, the potential impact of our market, business and investment strategies, management's current views concerning anticipated market share opportunities, and the impact of diversification of our customer base, anticipated demand for our storage solutions, and adoption trends in our customer markets.
All of these forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements for those in our industry to differ from those expressed or implied by the statements we make.
In evaluating these forward-looking statements, you should specifically consider various risk factors, including the risk factors detailed from time to time in our filings with the Securities and Exchange Commission. These risk factors are included in our annual report on Form 10-K for the year ended March 31st, 2008 and our quarterly report on Form 10-Q for the quarter ended September 30th, 2008.
Additional risk factors and other information you should consider will also be set forth in our quarterly report on Form 10-Q for the quarter ended December 31st, 2008, which will be filed with the SEC in February 2009.
These factors may cause the results to differ materially from any forward-looking statements we may make in this conference call. We cannot guarantee future results, levels of activity, performance or achievements. Our future results will depend on numerous factors, including, among others, the impact of macro economic trends on information technology spending, market acceptance of our utility storage solutions, and competitive practices in our industry.
These forward-looking statements are made only as of today's date and we expressly disclaim any obligation to update or revise the information contained in any forward-looking statements.
Please also note that this conference call will provide listeners with certain financial metrics determined on a non-GAAP basis for both a comparison to previous quarters and the previous fiscal year and for our outlook for the current quarter. These financial metrics, together with a reconciliation to our comparable GAAP financial measures, are contained in today's financial results press release, which we have posted on our website at investor relations on www.3par.com, under press releases and have furnished to the SEC on Form 8-K.
We encourage listeners to review the items.
I'd now like to turn the call over to David Scott, CEO of 3PAR.
DAVID SCOTT, CEO, 3PAR INC.: Good evening. Thanks for joining us for our Third Quarter Fiscal Year 2009 Earnings Call. We're delighted to report revenue of $48.2 million, 57% higher than our revenue in this period a year ago and a 7% sequential increase. We continue to deliver strong results and take market share at a significant rate, in spite of the unprecedented economic conditions.
In fiscal Q3, we achieved a gross margin of 64.5%, showing that customers maintain a demonstrable belief in our do-more-with-less value proposition. As we move to a more cautious spending start, in light of the macro economic environment, we managed to deliver excellent cost control. So in addition to achieving a strong gross profit result, we also maintained a flat expense structure this quarter.
As a result, we were able to deliver net income of $2.3 million on a non-GAAP basis. This allows us to report a non-GAAP earnings per share of $0.04, significantly exceeding our own expectations. We delivered $461,000 in GAAP net income for a GAAP EPS, including expenses related to stock options, of $0.01 per share.
The overall spending environment proved to be more uncertain and less predictable as the December quarter progressed. As we've reiterated on a number of occasions, we do not believe that bookings recorded at a specific point in time, such as at the end of the quarter, are necessarily sound indicators of our future revenue performance. This is the reason we don't report either bookings or backlog numbers in our earnings calls.
As an example of this, we saw clear evidence of increased turbulence in our bookings performance towards the end of the quarter. There was a pronounced increase in last minute decisions by customers and prospects to de-fund or defer previously planned and budgeted projects. Yet the counter to that trend, we've seen an unusual and extremely strong start to bookings performance in January as well as a very healthy pipeline of opportunities. These contradictory signposts result in much less certain visibility, and we expect this weakened visibility to remain unchanged, at least through the first half of this calendar year.
In spite of this cautionary turn, we were encouraged by the performance we continue to deliver in this economic climate and believe we have every opportunity to weather this storm as well as or even better than many of our competitors.
I'd like to talk about a few other elements of our business that have been important in the last few months, including business trends within our target markets, recognition for the 3PAR utility storage platform and progress in Asia Pacific.
First, I'd like to announce that we've now sold more than 1,000 systems to over 400 customers. This a tremendous milestone for the company. We were also encouraged by the healthy balance of revenues between new and repeat business during this quarter. 80% of our business came from existing accounts and 20% from new customers. And I'm pleased to say that the business-to-business service provider market continued to deliver strong business performance to 3PAR in the December quarter. The B2B segment retained its position as our largest segment in the mid to high 30 percentage points of revenue and we announced Data Intensity earlier this week as the latest managed service provider to adopt 3PAR utility storage.
We maintain our view that shared cloud computer IT infrastructure services have a good probability of being beneficiaries of the economic slowdown. We believe the pressure on traditional enterprise CapEx spending may accelerate the move to subscription-based models.
For the second quarter in a row, we saw strong sequential revenue growth in financial services. That we were able to see sustained growth in such a stressed industry segment might provide further evidence that our value proposition is strongly counter-cyclical as these customers need to find ways to save money. And they appear to have become increasingly aware that they can save money by using 3PAR as an alternative to EMC and HDS.
From a product perspective, 41% of the disk capacity ordered in this quarter was Nearline and 59% fibre channel as compared to 52% and 48% respectively in the previous quarter. This result was more a demonstration of the strength of demand for the high-performance fibre channel disk technologies rather than weakness in near line.
We did see an unexpected drop in our iScuzzy connect rate to 9% of bookings for the quarter. We'll be monitoring this closely to see whether this signals a greater interest in fibre channel over Ethernet as the longer-term direction chosen by customers for SANs in their enterprise data centers.
In the most recent Wave 11, winter 2008 surveys conducted by the Infoprobe, an independent research organization and leading supplier of market intelligence for the IT industry, we were pleased to see that the 3PAR InServ storage array was rated the most exciting product in use. This result...
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