Original Source: FD (FAIR DISCLOSURE) WIRE
. Sujal Patel, Isilon Systems, President and CEO . Rosemary Moonheart, Isilon Systems, Director, IR . Bill Richter, Isilon Systems, CFO
. Aaron Schwartz, JP Morgan, Analyst . Katy Huberty, Morgan Stanley, Analyst . Glenn Hanus, Needham & Company, Analyst . Thomas Curlin, RBC Capital Markets, Analyst . Min Park, Goldman Sachs, Analyst . Brent Bracelin, Pacific Crest Securities, Analyst . Sid Parakh, McAdams Wright Ragen, Analyst
ISLN reported 2Q08 revenues of $28.2m and non-GAAP net loss per share of $0.07.
A. Key Data From Call 1. 2Q08 total revenues = $28.2m. 2. 2Q08 non-GAAP net loss per share = $0.07. 3. 2Q08 GM = 57%. 4. 2Q08 total OpEx = $21m. 5. 2Q08 DSO = 60. 6. 2Q08-end cash, cash equivalents, and marketable securities = over $75m.
S1. 2Q08 Financial Review (B.R.) 1. Revenues: 1. Total revenues, $28.2m, 23% increase from $22.9m in 2Q07. 1. Sequentially, total revenue was up 17% from $24.1m in 1Q08. 2. Continued to diverse revenue base and fourth consecutive qtr. no customer represented 10% more revenue. 1. By Geography: 1. 71% domestic. 2. 29% international. 2. 57% of revenue was generated through channel.
3. Repeat orders from installed base represented 76% of total
revenue. 1. Acquired 72 new customers. 4. Software came in at 8% of total revenue or about $2.3m vs. 7% year ago and 9% last qtr. 1. Historically, charged a (Indiscernible) slab rate for software licenses. 2. In 2Q08 as Co.'s customers migrated to higher density systems, software revenue per terabyte declined. 1. Modified pricing structure of software products delivered on higher density notes. 3. With this change in 3Q08 and continued traction in overall tax rate, expects software as a percentage of revenue to increase in future. 2. Margins: 1. GM expanded to 57%, sequential improvement of more than 3 point. 2. Three factors contributed to margin expansion. 1. Penetrated opportunities where Co.'s value proposition is a clear win over competition.
2. Improved inventory levels and turns. 1. From cards perspective, managed inventory levels in order to effectively pass along cost per terabyte savings to customers without negatively impacting margins. 2. Had anticipated progress in improved margins. 3. Saw significant jump in service margins to 46% from 37% in 1Q08. 1. Growth in service margin was due to catch up revenue recorded on a few large service contracts and an uptick in professional service revenue. 2. Doesn't view current service margin level as sustainable
in near-term as Co. continues to invest on service business.
3. Other Financials: 1. Total OpEx was $21m vs. $22.4m in 1Q08.
1. In 1Q08, incurred $2.8m of expense related to audit committee review. 2. Excluding cost of audit committee review in 1Q08, OpEx grew 7% sequentially. 2. R&D spend increased 8% sequentially.
1. Plans to continue to invest in technology. 2. Expects R&D expense to increase in total dollars with decrease as a percentage of revenue for remainder of 2008. 3. Sales and marketing was up 6% from 1Q08, reflecting higher variable costs associated with higher revenue. 4. G&A expense was up 5% vs. 1Q08, excluding cost of 1Q08 audit committee review. 5. Non-GAAP net loss per share was $0.07, down from $0.14 in 1Q08. 1. 1Q08 audit committee review increased loss per share by $0.04. 2. Excluding this cost, loss per share improved $0.03 sequentially. 4. Balance Sheet & Cash Flow: 1. Ended 2Q08 with over $75m in cash, cash equivalents, and marketable securities. 1. Operations used $1.6m of cash, which included $2.9m in payments related to audit committee review. 2. Excluding these costs, operations generated positive cash flows in 2Q08. 2. Sequentially deferred revenue increased 13% to $23.3m from $20.6m in 1Q08. 3. DSO improved to 60 days from 66 in 1Q08.
S2. 2Q08 Business Review (S.J.) 1. Highlights: 1. Achieved 17% sequential topline growth, more than 3 points of improvement in GM and 7% sequential increase in OpEx, excluding 1Q08 audit committee review expenses. 2. File based data would require a new storage architecture, based on principles of clustered computing.
1. Growth of file base data has eclipsed even Co.'s expectations.
3. New data from IDC reports that 2008 is key influxion point in
storage market where disk capacities are for storage (Indiscernible) first time be home to more file level data than block level data. 1. IDC reports that by 2011 over 75% of disk storage system's capacity will be shift to support file level data.
4. Witnessing increasing demand for clustered storage with
mission critical enterprise environment across target vertical
markets. 1. A customer in life sciences market is Broad Institute. 1. Broad conducted an extensive side-by-side evaluation of several leading storage providers and ultimately standardized on Co. for their high-performance computing applications. 2. Another customer is Adobe Systems. 1. Adobe using Co.'s clustered storage across a number of its businesses, including Scene7, …