Good day ladies and gentlemen and welcome to the fourth quarter 3PAR Incorporated earnings conference call. My name is Louisa and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct the question-and-answer session towards the end of this conference. (Operator Instructions) I would now like to turn the call over to the management. Please proceed.

Good evening and welcome to 3PAR’s fiscal year 2009 fourth quarter and year end 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 Exchange Act of 1934 as amended. These forward-looking statements will include among others, statements about our financial projections and growth trends for fiscal 2010. Our ability to manage expenses, the potential impact of our market business and investment strategies, management current views concerning anticipated market share opportunities and the impact of diversification of our customer base, anticipated demand for our storage solution 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 or 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 December 31st, 2008. Additional risk factors and other information you should consider will also be set forth in our Annual Report on Form 10-K for the quarter ended March 31st, 2009, which will be filed with the SEC in June 2009. These factors may cause our results to differ materially from any forward-looking statements we 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 macroeconomic 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 revive the information contain 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 both for 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 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 are furnished to the SEC on Form 8-K. We encourage listeners to review these items. I would now like to turn the call over to David Scott, CEO of 3PAR. David?

Good afternoon. Thanks for joining us for our fourth quarter and fiscal year 2009 earnings call. We are pleased to report revenue of $48.5 million, 27 % higher than our revenue in this period a year ago, and a 1% sequential increase. We believe this is a strong result given the deteriorating general economic conditions that endured during the March quarter, and the reported results of a number of major storage class. This result brought our revenue for the full fiscal year 2009 to $184.7 million representing a 57% year-over-year increase. We maintained excellent gross margins in fiscal Q4 at 65% slightly above our full year gross margin performance of 64.9%. It is encouraging that we have been able to maintain gross margin at this level during various stress times by delivering demonstrable value to our customers. A continuing focus on constraining discretionary operating expenses during the quarter has allowed us to report net income of $906,000 on a non-GAAP basis that translates into delivering positive $0.01 non-GAAP earnings per share ahead of our expectations. On a GAAP basis, we reported a $907,000 net loss representing a GAAP EPS of negative $0.01 per share. For the full fiscal year 2009, we reported a non-GAAP EPS of positive $0.09, on a GAAP EPS of negative $0.02. We continued to be encouraged by the receptivity to our value proposition, demonstrated by solid customer spending commitments during the quarter. It is clear that a flight to savings and efficiency continues among customers in our target markets, and it has allowed us to continue to take significant market share from the major incumbents as evidenced by our differential growth rates reported this quarter. I would also like to update you today on the expansion of our product portfolio in the midrange, new executive talent…

Good afternoon and let me add my welcome to David’s. Thanks for joining us. As David mentioned we are very pleased to report revenue of $48.5 million for the quarter ended March 31st, an increase of 37% over the same quarter a year ago and a 1% increase over the $48.2 million we recorded in the previous quarter. Of this total, product revenue accounted for $43.3 million or 89% of total revenue, an increase of 32% over our product revenue recognized in the same quarter a year ago and a decrease of just under 1% from product revenue recognized in the previous quarter. Support revenue totaled $5.1 million, 11% of total revenue and an increase of 94% over support revenue recognized in the same quarter a year ago and a 16% increase from the previous quarter. For fiscal year 2009, we reported total revenue of $184.7 million, an increase of 57% from last fiscal year. Of this total, product revenue accounted for $168.4 million or 91% of total revenue, an increase of 31% from last fiscal year. Support revenue accounted for $16.3 million, an increase of 158% from last fiscal year. In terms of the split between new and repeat business, 83% of total revenue in this quarter and 82% of total revenue for fiscal 2009 came from customers who have purchased from us previously. The 17% of revenue representing new business this we are now expected range. Excluding revenue attributable to software contract renewals, our repeat revenue for this quarter and fiscal 2009 were both 73%. This quarter only one single customer accounted for more than 10% of our total revenue. For the fiscal year 2009, we do not have any customer account from more than 10% of our total revenue although our customer concentration will fluctuate quarter-over-quarter as…

Thanks Adriel. We are continuing to experience solid momentum through the recession so far. The San Jose Mercury News recently reported that 3PAR was the 7th fastest growing Silicon Valley Company in terms of sales over the last year of reported result. We believe that this is because our utility storage platform is aligned with the key customer requirements and demand over both the short and longer term. With our industry leading thin technologies, we appeal to customers wanting to do more with less in this period of severe economic slowdown. We also appeal to those looking towards eco-efficiency. A recent tech validate survey indicated that 95% of 3PAR customers surveyed would recommend 3PAR for green storage initiatives. We appeal to those revitalizing their next generation virtual datacenters using utility or virtualized computing architectures and we have established ourselves as the utility storage platform of choice in many of the hosting service providers delivering enterprise level cloud computing services. In summary, we have not only been able to demonstrably take market share during this recession but we are also aligned well to continue to do so in the future and I am proud of the 3PAR team that has maintained the disciplined approach to delivering strong results during difficult economic times. With that, let me turn it over to the operator to poll for questions. Thank you.

(Operator's instruction) Your first question comes from the line of Bill Shope - Credit Suisse.

I wanted to get a bit more of your comments on pricing. You said last quarter there were some pockets of aggressive pricing and it sounds like you were signaling that things got a bit more aggressive. Could you give us a bit more detail on what you are seeing out there? Is it that pricing is significantly worse from one or two competitors or is it more widespread?

I think it is more widespread and where we saw most of the pricing pressure was in new accounts or new projects where we were looking to unseat major incumbents and it is clear that the activity that were occurring amongst the major storage players was to try and spend their installed base at all cost. So, that is where we saw it and it was pretty broad based.

Now, are there any situations that you are responding in kind or are you walking away if it is too aggressive?

We take a judgment call on the business. If we think it is good business with a long-term potential, then we will be aggressive. If we do not think there is a significant long-term business where we can, in some way, catch our margin opportunity then we are prepared to walk away.

Okay and then on demand trends during the quarter, I know you had said that things improved in January. Did you see that sort of steady pace of improvement throughout the quarter and then your comment on visibility at least on the near term gain has somewhat improved, can you give us a little color on why that is that the case?

Well actually we said that we saw an exceptionally strong January. February was normal and I would characterize that the demand position is very solid throughout the whole of the March quarter and given that the approach we have to kind of being able to deliver revenue substantially out of backlog, we feel significantly improved visibility at least in the short term.

Your next question comes from the line of Mark Kelleher - Brigantine Advisors LLC.

I wanted to just ask about the competitive landscape a little bit more. EMC put out a new high end product, their V-Max. Are you seeing any effect in the market, any delays in sales cycles, things like that from that introduction?

Well, the quick answer is no but I think this is very important question for investors so maybe take a few minutes to respond. You can often tell a lot about a product from its internal project name and Tigon was the internal name for V-Max and as you may know, a Tigon is a hybrid tiger-lion offspring. It is the stellar big cat equivalent of a mule and it appears that EMC has boomed this platform by building the old ingenuity operating system onto a copycat type plastered architecture. The problem is that hybrids tend to be genetic dead ends and Tigon could be an architectural dead end because of its sterile operating system roots. EMC's V-Max supports the same old disk level RAID management, the same old complex underlying metavolume structures and the same old course green allocation units for their thin provisioning. V-Max fairly is not the generic power breed that sweep our brought-to-market seven years ago and it is not a utility storage platform design from the ground up to be optimized for new virtual datacenters. Just to name a few examples, V-Max does not have the ASIC-assisted mixed workload capability to support the diverse and unpredictable application sets found in virtual datacenters. It does not have the complete autonomic wide striping necessary to cost effectively support massive virtual service fronts. It does not have a storage hypervisor to provide secure isolation within shared infrastructures. It does not have an effective and efficient implementation of thin provisioning including hardware-based zero-detection and it does not support through an autonomic self configuration. In other words, it does not have the agility or efficiency necessary for utility computing and virtual datacenters. It seems to have missed the mark much in the same way the XIV did. What EMC and…

Great and that takes me into my second question. They do not have any of those things that they have tried to put up in high and the mid range. How is the take up of your new mid range, the F-Class Con and how much, can you give us maybe a percent of revenue that it was in the quarter?

We do not break up our product line split as I think you know Mark but we have been very encouraged by the ramp. Our ramp for the S to the T transition was very strong and we are seeing exactly the same shape for the E to the F-Class transition.

Your next question comes from the line of Alex Kurtz - Merriman Curhan Ford & Co.

David, I just wanted to continue with the V-Max and just poke a little further just to play devil's advocate here, I understand you won all the functionality but we know how EMC plays with some of their existing customers. What has been the common stock from the field about they have introduced this product into the installed base and has it shown up in any kind of disruption to any pipeline deals at this point?

We have heard about it but we have seen no impact on our deal structures. The feedback that we have had from accounts who have been better served there has been that they expected more.

Okay and just looking at the account executives in the quarter, guys, you went from 48 to 49. Can you just give us an outlook into fiscal 2010 just sort of looking at your pipeline of new guidance that were coming up sort of how many net new we could expect in the first couple of quarters going into the new fiscal year? How we should think about growth there?

Well obviously the move from 48 to 49 was not significant but I think underneath that, you have to understand that there are couple of people that we promoted who kind of productive days and unfortunately, once we kind of promote them, they evolve off with the productive account into management over time and that transition is a sense of our expectation for kind of increased growth in productive day headcount over time. So, I think that can be taken as an indicator that we are expecting to see that productive account go up significantly in order to achieve our current guidance plans that we outlined for you earlier.

Okay and Adriel, just a couple of questions for you. Can you just address the deferred revenue quarter-over-quarter? I believe it was down quarter-over-quarter and as I am looking at the P&L going into fiscal 2010, if you had to choose where the leverage work to drop a little bit more to the bottom line, could you sort of identify what kind of programs you could identify for cost reductions to drive a little bit more earnings leverage this year? Thanks.

Sure. On the deferred revenue, I think we also talked a bit in the past that it has fluctuated a bit and to not focus too much on that only because of the fact that I am taking into account deferred revenue, the backlog that we have and just the fact that turns booking as a percentage of our sort of revenue in a quarter is increasing. So, I have kind of taken all that into account that kind of goes into the revenue guidance I gave for the first quarter of $48 million to $50 million. So, I think at that point, I would not focus too much on it. It has fluctuated in the past and I think it could fluctuate in the future depending on the time at when we get orders and when we ship them. To your question on potential leverage in fiscal 2010, it just kind of be coming from all areas but ultimately part of this can be coming from R&D in its down point but that is the area that will be growing slower obviously than sort of revenue growth. So, that potentially is one area but I do not want to be too stingy in that area as well because that has what allowed us to keep obviously our technology edge and I am hesitant to go too far into that. Obviously, to the extent that we can over achieve either revenue or gross margin then we will try to obviously use a bit of that money to keep up the R&D spending as well as in that areas.

Your next question comes from the line of Amit Daryanani - RBC Capital Markets.

It looks like you guys are probably one of the few companies that I can think about that have upside the sale on the slowing season. Can you just talk about what drove that? Did you see some larger deals getting pulled in this quarter or is it just a reflection of the product offering we have?

I think it is a general reflection of the strength of the product portfolio that we developed and the countercyclical nature that appears to be holding true of our value proposition as the economy sours, people are looking to become more efficient and that plays straight into our value proposition.

Yes and then just guiding the F-Class, the midrange offering that we are having now, how should we think about the impact we could have on the gross margin line and would it be fair to think that EMC and Hitachi would still be the bigger competitors even on the midrange offering?

Certainly in the midrange offering, you will see kind of EMC as well as platforms like HP EVA so Clarion EVA as competitors for the F-Class platform. Forgive me, could you repeat the second part of that question or the first part of the question?

Yes, in yourself, I was just trying to get sense I mean how should we think about impacting gross margins for you guys to telling it then?

I apologize. We have a product structure that is pretty much gross margin neutral by design and therefore we do not expect to see any significant changes depending on mix shifts between either [RT] or F-Class.

Got it and then just two quick ones for you Adriel, I am sorry if I missed those but could you just give what cash flow from operations this quarter and if you guys had any, if you guys had any share repurchase?

We did not do any share repurchases and operating cash flow actually was $6.9 million positive this quarter.

Your next question comes from the line of David Bailey - Goldman Sachs.

You have had a significant attach rate with VMWare in the past and a lot of success there. Well, VMWare is expecting a pause because of the vSphere launch. What expect you have this to have on your sales?

David it is a good question. We have not seen any showering of our trajectory as far as VMWare attach is concerned. I think you have to recognize that there are many kinds of enterprise license agreements that are out there with VMWare that have not necessarily been deployed in large enterprises and service providers and so VMWare may have acquired those enterprise license agreements but the deployment that follows is not necessarily linked and we very much ride the wave of the following deployments of those licenses. So, we have not seen any signs of pause.

And then on the SSD side, what are your plans as far as integrating SSDs in your offerings?

We believe that solid state disk will have a kind of meaningful place in data storage raise but the price performance characteristics of it related to kind of capacity have to change so you should expect us to see us include solid state disk maybe around the turn of the year but the major benefit that solid state disk provide in terms of providing access to [P-Gialps_46.08] is something we achieve through kind of our complete autonomic wide striping which is not necessarily available to many of the legacy incumbents architectures and so our need and drive for solid state disk is not nearly as significant as theirs and the only other use threat is in very late into sensitive applications and there are many tiny fraction of applications out there which qualify for the use of solid state disk in that environment.

Your next question comes from the line of Brian Freed - Morgan Keegan.

Two quick questions. First with the introduction of the F-Class, do you think there is any significant risk that it might cannibalize revenue out of the T-Class side of things or do you think it is really a foray into a totally different market in the midrange?

I believe that there is always the opportunity particularly between the F400 and the T400 to see some kind of mixed shift but because we have designed the product line to be effectively gross margin neutral, we expect the net effect on our business to be somewhat limited.

Okay and then the second, I know it was addressed in part but in terms of your report, the only thing that anybody could possibly knocks the deferred revenue in the quarter, could you dive a little further into that kind of give us the puts and takes and why we really should not be too focused on that?

Yes, I mean, the deferred revenue the bulk of it really is product that we have shipped but have not yet installed and so depending on how that can load a quarter is or the amount of shipments that are going whether they are upgrades or whether they are full systems, you could see a fluctuations of that especially given our deal sizes can range anywhere from 50,000 to multi thousands and millions of dollars so it is part of a "backlog" that goes into the following quarter but as we have taken that into account when I am actually giving the revenue guidance for that following quarter.

Your next question comes from the line of Rajesh Ghai - ThinkEquity LLC.

My first question was related to what you said about weakness in the Web 2.0 space. I am just wondering, was that competitive or was that just people not spending money this quarter? In case it is the second, do you see pent-up demand and o you expect a good rebound going forward?

I think the Web 2.0 internet space is where a lot of the kind of accounts are heavily focused on business to consumer kind of opportunities and that kind of consumer space I think that is a clearly a sign post of people kind of cutting back the use of those types of services and I think we are seeing companies in that space just be far more cautious. We have absolutely no sense at all that it is a competitive issue that we are facing there. It is a general budgetary pressure.

And if that is the case, do you see any pent-up demand given that I guess a lot of the users of the verticals doing clearly pay for that. There is the data that continues to increase 10 years ago. Does that mean a pent-up demand going forward or..?

Certainly, it could, normally whenever you see a segment holding back, it does lead you to the possible conclusion that there will be increased pent-up demand over time as people try and kind of stretch their asset utilization as far as they can but we have yet to see signs that that turnaround is occurring.

Okay and if I look at your guidance for the quarter and for the full year and if I put it in my model, I see that it is pretty flat sequentially after the first quarter of the fiscal 2010. I am just wondering what your assumptions are and what do you kind of fear the back end that leads you to give such caution guidance?

Rajesh, it is not fear. I think it has a lot to do with just the general conservative nature which is our visibility obviously has improved over the short term but of the long term that is let us say we are a little less sure about so that is why when we go into the $205 million to $210 million number, that is where I feel comfortable at this point and so to kind of speculate beyond this quarter in terms of how it is going to weigh out is difficult given the visibility.

Okay and regarding the F-Class, I assume that the midrange product, you probably would be going after the SME market a little bit more. Does that change your go-to-market strategy in terms of being a direct model or are you going to use the resellers more going forward? I know you know how to especially the various stores recently so I am just wondering if there is change in strategy.

Rajesh, absolutely not. We have no intention of going after the small and medium sized enterprise market, pretty much the only small to medium size business as we have to go after are in the Web 2.0 internet space where we think they have massive opportunities for growth over time. So, we are not signaling any change in our target customer segments. We do not target SME today. We are not planning to and we are certainly not expecting to move into a distribution type channel.

Your next question comes from the line of Jayson Noland - Robert W. Baird & Co., Inc.

The first question for me on OpEx sequentially unto the next quarter, should we expect that to be flat to up, Adriel?

It is likely to go up obviously as we are continuing to put more infrastructure into the Company as our sales grow and to the extent that we are forecasting an up tick in revenue go up to bring along infrastructure as well.

Okay and then financials was mentioned as a relatively strong segment I guess. Is that mostly at the expense of a competitor? I would assume that is not general strength from the market.

Yes, it is mostly an expense from competitors. We had strong new business acquisition at the expense of both EMC and Hitachi.

Okay, fair enough and last question for me on VMWare vSphere, they were talking about a couple of storage features on one thing thin provisioning and in our mind, those are mostly geared for the small and medium business market that maybe if you can comment there and does it create any confusion in the hosted service providers?

We agree that it is targeted more on the small to medium size companies as a solution and we do not believe it will have any significant impact in the target segment that we go after in the higher enterprise, the big service providers or large couple of organization.

Your next question comes from the line of Douglas Reid - Thomas Weisel Partners.

Adriel, just wondering at what stage you began to develop better confidence in the outlook, these recent weeks or that improved visibility than something you have seen over the past or full quarter?

We kind of wait until the very last minute when we actually coming up with sort of the guidance for the first quarter and even then, I think as we spoke last quarter, we were not sure whether we are going to give fiscal year 2010 guidance to begin with. So, I think that this is something that we sort of been building over time understanding many factors such as the conversion rates of orders, the amount of turns bookings contribution to our quarterly revenue and then obviously or most importantly which was the yearend bookings achievement and then the composition of those orders. So, when we actually go through and give our quarterly guidance, we kind of just compare that and as you know, we mentioned in the call that relative to last quarter, it has improved and it is still not great visibility out there but I think at this point, we are comfortable giving that yearly number as well as sort of this near-term quarterly guidance.

And I think Doug just to expand on that, we continue to see a very solid kind of forward spending commitment during the month of April.

Last quick one for me just the bad debt expense, Adriel, could you give a little color on what that was?

Yes, a lot of that is related to the fact that it is just the current macroeconomic environment that we are seeing out there and we are trying to be conservative and place these reserves on the sort of adjusting case measure. We are also obviously looking at particular accounts where there could be issues. So, it is just a general reflection sort of the macroeconomic environment.

Your next question comes from the line of Andrew Schopick - Nutmeg Securities.

A couple of quick financial questions; Adriel, what is the non-GAAP effective tax rate implied in your earnings per share of $0.15 to $0.17 for fiscal 2010?

The implied rate there is, it is a probably a fairly small amount that you have seen so far. We currently have a number of NOLs and at this point, it is probably somewhere in the order of sort of 1% maybe to 2% but very small.

And what is the size of the deferred tax asset?

Currently, today it is approximately $78 million.

Seventy eight million?

Correct.

And the bad debt provision for fiscal 2009, what was that actual provision?

The total amount of balance sheet?

No, the bad debt expense, the provision that was expense in G&A for the year.

For the year?

Yes.

About $1.2 million.

And how that compare with the last year or the year before I should say?

It was certainly and definitely an increase from the previous fiscal year.

Okay and the last thing I would like to just ask is, how our credit conditions in the market place affecting your ability to close the guidance that you are giving? How much of a concern do you have about these credit conditions?

It is not so much in closing a deal that the credit condition is coming. It is much more about really accepting the deal and yes, we are certainly doing a lot more due diligence. There is a lot of companies that suffered a bit and/or even new companies that we are considering as they maybe relatively smaller but then has very big storage appetite and so we have to sort of look at each one individually to understand their sort of credit situation. As it relates to the fiscal year, I mean that that sort of incorporated into our sort of fiscal year 2010 revenue guidance and so there will be some turbulence in that so that is why our visibility as we mentioned earlier is not perfect and we are sort of taking that into account.

Your next question comes from the line of Kaushik Roy - Wedbush Morgan Securities, Inc.

It seems like you have beat the high end of your revenue guidance for the last five quarters. Going back to the EMC question, has there been any instance where a 3PAR customer had switched over to EMC? If so, why have this rate?

I cannot recall any that stands out, Kaushik, there in terms of a 3PAR customer turning to EMC; certainly not in relationship to V-Max.

Okay and then what is your expectations for the midrange, let us say, as a percent of the mix in the next 12 months or so?

First of all, we do not report our mix between our midrange and high end platforms and so we do not certainly do not forecast it publicly either.

At this time, we have no more questions and I would like to turn the call back over to the management for any closing remarks.

We just want to thank you all for joining us and we look forward to communicating with a number of you over conferences in the upcoming weeks. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.