Violin Memory: Fiscal 3Q16 Financial Results

(in $ million)	3Q15	3Q16	9 mo. 16	9 mo. 16
Revenues	21.7	12.5	58.5	39.9
*Growth*		-42%		*-32%*
Net income (loss)	(23.5)	(22.7)	(62.1)	(73.6)

Violin Memory, Inc. announced financial results for the third fiscal quarter ended October 31, 2015.

3FQ16 Financial Highlights

revenue of $12.5 million
GAAP gross margin of 51%
non-GAAP gross margin of 56%
GAAP net loss of $0.23 per share
non-GAAP net loss of $0.19 per share

“Our strategic shift and product line transition to become a market leader in flash-based primary storage for enterprises continues to create short-term challenges in achieving predictable, consistent growth. However, we believe we are headed in the right direction overall and that our opportunity continues to be extremely attractive,” said Kevin DeNuccio, president and CEO.

The company also announced that its board of directors has authorized the exploration of strategic alternatives to enhance shareholder value and has retained the services of an investment banking firm to assist with the evaluation process. There is no set timetable for completion of this process and there is no assurance given that the process will result in the consummation of any transaction. The company does not intend to provide additional information until such time that the board of directors approves a specific alternative or the process is otherwise concluded.

“Our stock price remains at a level that we do not believe reflects the true value of our business and developed technology. As a management team, we are committed to act in the best interests of our shareholders, including considering alternate methods of enhancing shareholder value,” said DeNuccio.

3FQ16 Financial Results

revenue was $12.5 million, 18% lower sequentially compared to $15.3 million reported in the second quarter of fiscal 2016, and 42% lower compared to $21.7 million reported in the third quarter of fiscal year 2015.
GAAP gross margin was 51% compared to 43% reported in the second quarter of fiscal 2016 and compared to 51% reported in the third quarter of fiscal year 2015.
non-GAAP gross margin was 56% compared to 47% reported in the second quarter of fiscal 2016 and compared to 54% reported in the third quarter of fiscal year 2015.
GAAP net loss was $22.7 million, or $0.23 per share, compared to second quarter fiscal 2016 GAAP net loss of $24.4 million, or $0.25 per share and compared to third quarter fiscal 2015 GAAP net loss of $23.5 million, or $0.25 per share.
non-GAAP net loss was $18.6 million, or $0.19 per share, compared to second quarter fiscal 2016 non-GAAP net loss of $18.4 million, or $0.19 per share, and compared to third quarter fiscal 2015 non-GAAP net loss of $17.8 million, or $0.19 per share.
cash and cash equivalents, restricted cash and short-term investments totaled $95.9 million as of October 31, 2015.

Comments

At Violin Memory, the challenge is the transition from the 6000 series to the recent Flash Storage Platform (FSP) over the last few quarters.

FSP is now installed in only 40 customer environments including three Fortune 100 enterprises and a dozen Forbes Global 2000 enterprises.

Top 10 quarterly transactions included the mix of FSP in 6000 Series solutions with the majority of these deal wholly comprised of FSP systems and software. FSP represented approximately 60% of company's total product revenue for the quarter.

Globally, third quarter revenue below guidance range was at $12.5 million down 18% sequentially and 42% yearly, and slightly over 1FQ16 revenue ($12.1 million).

As remarked president and CEO Kevin DeNuccio: "Obviously, this result is extremely frustrating."

What the future of the company cumulating huge losses and even now refusing to reveal guidance for next quarter? In a fiercely competitive environment, the firm is now exploring strategic alternatives and retained the services of an investment banking firm to assist. This means that eventually selling the firm is an option probably at a price much lower than $183 million raised and $162 million IPO in 2013.

More precisely, DeNuccio explains the horrible quarter like that: "Part of our revenue challenge was our inability to close our largest forecasted opportunity as we continue to work through some technical challenges related to our large existing 6000 series base installed within the customers environment. Consequently, this delayed the planned rollout of our second phase of a multiphase 7000 series flash storage platform deployment that began in the second quarter. The slip in closing this very large transaction was a significant contributor to our revenue shortfall. As we rebuild our overall revenue base, any order fluctuation with this large customer could be very challenging as each transaction can represent more than 10% of revenue in given period."

Of total revenue, 60% came from the Americas, which is down from 65% last quarter. Europe was 25%, up from 21% last quarter, and Asia flat at 15%.

New customers accounted for 15% of revenue and transactions direct with end user customers were 35% of total sales.