Violin Memory: Fiscal 1Q17 Financial Results

(in $ million)	1Q16	1Q17	Growth
Revenue	12.1	9.7	*-20%*
Net income (loss)	(26.5)	(22.2)

Violin Memory, Inc. announced financial results for the first fiscal quarter ended April 30, 2016.

First Quarter Fiscal 2017 Financial Highlights

revenue of $9.7 million
GAAP gross margin of 40%
non-GAAP gross margin of 42%
GAAP net loss of $0.22 per share
non-GAAP net loss of $0.16 per share

“With the signing of a Global Fortune 100 account in North America this quarter, Violin Memory supports the storage foundation of 10 Fortune 100 accounts, half of whom are on Violin’s new product the Flash Storage Platform,” said Kevin DeNuccio, president and CEO.

“These largest accounts in the world have gained confidence in the Flash Storage Platform and how it can ‘be instrumental’ in their own data center transformations. These accounts create the foundation and turning point for Violin’s renewed growth,” added DeNuccio.

First Quarter Fiscal 2017 Financial Results

Revenue was $9.7 million, 11% lower sequentially compared to $10.9 million reported in the fourth quarter of fiscal 2016, and 20% lower compared to $12.1 million reported in the first quarter of fiscal year 2016.
GAAP gross margin was 40% compared to 38% reported in the fourth quarter of fiscal 2016 and compared to 43% reported in the first quarter of fiscal year 2016.
Non-GAAP gross margin was 42% compared to 48% reported in the fourth quarter of fiscal 2016 and compared to 48% reported in the first quarter of fiscal year 2016.
GAAP net loss was $22.2 million, or $0.22 per share, compared to fourth quarter fiscal 2016 GAAP net loss of $25.5 million, or $0.26 per share and compared to first quarter fiscal 2016 GAAP net loss of $26.5 million, or $0.28 per share.
GAAP net loss included stock-based compensation expense of $4.1 million and restructuring charges of $1.7 million.
Excluding special items, non-GAAP net loss was $16.4 million, or $0.16 per share, compared to fourth quarter fiscal 2016 non-GAAP net loss of $19.4 million, or $0.20 per share, and compared to first quarter fiscal 2016 non-GAAP net loss of $21.2 million, or $0.22 per share.
Cash and cash equivalents, restricted cash and short-term investments totaled $49.2 million as of April 30, 2016.

Comments

Violin Memory is by far the less successful public and private company in the fast growing market of all-flash storage subsystems.

After rising $186 million before 162 million IPO in 2013, the company's financial results have been catastrophic quarter after quarter (see table below).

The last one is the worst one with revenue under $10 million for the first time, 11% lower sequentially and 20% yearly.

Product revenue in 1FQ17 was $4.2 million as compared to $4.3 million last quarter and service revenue was $5.5 million versus $6.6 million for the former quarter. Product revenues were flat Q/Q with a slight decline in overall revenues coming from lower maintenance service revenues.

The flash company had seven new customers consistent with the prior quarter and accounted for 10% of revenue which is also consistent with last quarter, and transactions direct with end users were about 25% of total revenue.

70% of global sales came from the Americas, which are up from 58% 4FQ16. EMEA was 14%, down from 30% last quarter, and Asia came in at 15% as compared to 12% last quarter. "It was really a difficult quarter for Violin's European theater that prevented us from achieving the overall growth we had expected this quarter," commented CEO Kevin DeNuccio.

Violin is betting on its recent Flash Storage Platform to rebound. but it takes much longer time than expected. The company recorded 60 wins since its launch or an average of one win per week. Approximately half of these are new accounts and half migrations from the firm's 6,000 installed base.

Cash, restricted cash and investments totaled $49 million at the end of April, which is down $26.8 million from the year end. For the second quarter, CFO Cory Sindelar expects cash burn rate to be between $12 million and $14 million.

Total headcount at the end of 1FQ17 was 258 as compared to 318 at the end of the fourth quarter. The decrease primarily relates to a reduction in sales and marketing organization and to a lesser extent R&D. Sales and marketing headcount at the end of the quarter was 89, and engineering was 108. During the quarter, the firm added three positions to its customer support organization bringing the total to 35. Remember that, as of July 31, 2013, Violin had 445 employees, including 186 in R&D.

The company expects revenue in the range of $11 million to $13 million for the next coming three-month period. "In our largest Fortune 100 franchises there are several opportunities that could come into play during the quarter that together are in $6 million to $8 million range," said DeNuccio.

The main problem for Violin today: how to attract and convince customers to take the risk to sign more than $1 million deals with such atrocious financial results.

Violin Memory's main financial results since 3FQ13

Fiscal quarter

Revenue

Loss

3Q13

20.6

(34.1)

3Q13

22.9

(35.4)

1Q14

24.8