SOURCE: Violin Memory, Inc.

Violin Memory, Inc.

March 10, 2016 16:04 ET

Violin Memory Announces Fiscal Fourth Quarter and Fiscal Year 2016 Financial Results and Restructuring Plan

SANTA CLARA, CA--(Marketwired - March 10, 2016) - Violin Memory®, Inc. (NYSE: VMEM), a global pioneer of award-winning all-flash storage platform solutions for primary storage and active workloads, today announced financial results for the fiscal fourth quarter and fiscal year ended January 31, 2016.

Violin Memory today also announced a restructuring plan focused on aligning its expense structure with current revenue expectations. In connection with the restructuring plan, the Company reduced headcount by approximately 25% from the ending headcount as of October 31, 2015. The Company has notified those affected by the workforce reduction and has taken steps to ensure a smooth transition.

The Company anticipates these actions to result in a reduction of quarterly non-GAAP operating expenses of approximately 33% when compared to the fiscal third quarter ended October 31, 2015. As a result, the Company expects operating expenses to be between $16 million and $17 million per quarter and its cash burn rate to be less than $10 million per quarter beginning with its fiscal second quarter ending July 31, 2016. More information about the restructuring plan will be provided during the Company's conference call today.

Fourth Quarter Fiscal 2016 Financial Highlights

  • Fourth quarter fiscal 2016 revenue of $10.9 million
  • Fourth quarter fiscal 2016 GAAP1 gross margin of 38%
  • Fourth quarter fiscal 2016 non-GAAP2 gross margin of 48%
  • Fourth quarter fiscal 2016 GAAP net loss of $0.26 per share
  • Fourth quarter fiscal 2016 non-GAAP net loss of $0.20 per share

Fiscal Year 2016 Financial Highlights

  • Fiscal year 2016 revenue of $50.9 million
  • Fiscal year 2016 GAAP1 gross margin of 44%
  • Fiscal year 2016 non-GAAP2 gross margin of 49%
  • Fiscal year 2016 GAAP net loss of $1.02 per share
  • Fiscal year 2016 non-GAAP net loss of $0.80 per share

"The review of strategic alternatives, which Violin conducted with Jefferies, has produced multiple strategic go-to-market and technology relationship opportunities, which we intend to pursue. We have also concluded the formal review process, thereby returning the company's focus to growth and profitability. In support of this, Violin has reset its cost structure to provide a pathway to profitability over the next 18-24 months without the need to raise additional capital," said Kevin DeNuccio, President and CEO Violin Memory. "Furthermore, the Flash Storage Platform, which achieved $17 million in sales in its first year of release, is positioned as the feature and performance standard for primary storage, a market segment that is poised to accelerate."

Fourth Quarter Fiscal 2016 Financial Results

Fourth quarter fiscal 2016 revenue was $10.9 million, 13% lower sequentially compared to $12.5 million reported in the third quarter of fiscal 2016, and 47% lower compared to $20.5 million reported in the fourth quarter of fiscal year 2015.

Fourth quarter fiscal 2016 GAAP gross margin was 38% compared to 51% reported in the third quarter of fiscal 2016 and compared to (50)% reported in the fourth quarter of fiscal year 2015.

Fourth quarter fiscal 2016 non-GAAP gross margin was 48% compared to 56% reported in the third quarter of fiscal 2016 and compared to 50% reported in the fourth quarter of fiscal year 2015.

Fourth quarter fiscal 2016 GAAP net loss was $25.5 million, or $0.26 per share, compared to third quarter fiscal 2016 GAAP net loss of $22.7 million, or $0.23 per share and compared to fourth quarter fiscal 2015 GAAP net loss of $46.8 million, or $0.50 per share.

Fourth quarter fiscal 2016 GAAP net loss included stock-based compensation expense of $6.1 million. Excluding stock-based compensation expense, fourth quarter fiscal 2016 non-GAAP net loss was $19.4 million, or $0.20 per share, compared to third quarter fiscal 2016 non-GAAP net loss of $18.6 million, or $0.19 per share, and compared to fourth quarter fiscal 2015 non-GAAP net loss of $18.1 million, or $0.19 per share.

Cash and cash equivalents, restricted cash and short-term investments totaled $76.0 million as of January 31, 2016.

Fiscal Year 2016 Financial Results

Fiscal year 2016 revenue was $50.9 million, 36% lower compared to $79.0 million reported for fiscal year 2015.

Fiscal year 2016 GAAP gross margin was 44% compared to 26% reported in fiscal year 2015. Fiscal year 2016 non-GAAP gross margin was 49% compared to 52% reported in fiscal year 2015.

Fiscal year 2016 GAAP net loss was $99.1 million, or $1.02 per share, compared to fiscal year 2015 GAAP net loss of $108.9 million, or $1.20 per share.

Fiscal year 2016 GAAP net loss included stock-based compensation expense of $21.4 million. Excluding stock-based compensation, fiscal year 2016 non-GAAP net loss was $77.7 million, or $0.80 per share, compared to fiscal year 2015 non-GAAP net loss of $76.0 million, or $0.84 per share.

Business Outlook

The Company will provide additional guidance during today's conference call. Guidance will be posted on Violin Memory's investor relations website at investor.violin-memory.com following the conclusion of the conference call.

All forward-looking non-GAAP measures exclude estimates for items such as stock-based compensation expense, amortization of acquired intangibles, restructuring or impairment charges and litigation settlements. A reconciliation of non-GAAP measures to corresponding GAAP measures is not available on a forward-looking basis.

1 Generally Accepted Accounting Principles.

A reconciliation of GAAP to non-GAAP financial measures is provided in the financial statement tables included in this press release. An explanation of these measures is also included under the heading "Non-GAAP Financial Measures."

Violin Memory Conference Call Information

Violin Memory will host a conference call today at 2:00 p.m. Pacific time to discuss financial results and business highlights. This call will be webcast and can be accessed via the Violin Memory website at investor.violin-memory.com. A replay will be available following the call on the same website for one week at the following numbers: (855) 859-2056 (domestic) or (404) 537-3406 (international) using ID #58102855.

Non-GAAP Financial Measures

To supplement the reader's overall understanding of both its reported results presented in accordance with U.S. generally accepted accounting principles ("GAAP") and its outlook, the Company also presents non-GAAP measures of gross profit, gross margin, operating expenses, net loss and net loss per share. The Company uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors as a supplement to GAAP measures in evaluating its ongoing operational performance and trends. As the calculation of non-GAAP financial measures differs between companies, the non-GAAP financial measures used by the Company may not be comparable to similarly titled measures used by other companies. As a result, the Company does not use, nor does it intend to use, the non-GAAP financial measures when assessing the Company's performance against that of other companies.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. A reconciliation of the non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

The Company defines non-GAAP gross profit, operating expenses, net loss and net loss per share as the respective GAAP balances adjusted for stock-based compensation expense, inventory provisions due to product transition, restructuring charges, loss on debt extinguishment, amortization of acquired intangibles, litigation settlement, gain on sale of the PCIe product line and impairment of cost method investment.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the following: the anticipated reduction of operating expenses of approximately 33% when compared to the fiscal third quarter ended October 31, 2015; the expectations that operating expenses will be between $16 million and $17 million per quarter and that the Company's cash burn rate will be less than $10 million per quarter beginning with its fiscal second quarter ending July 31, 2016; the opportunities for strategic go to market and technology relationships; the conclusion of the review of strategic alternatives; the Company's ability to focus on growth and profitability; the Company's ability to maintain the cost structure required to provide a pathway to profitability over the next 18-24 months without the need for additional capital; the future market for the Company's Flash Storage Platform products; the performance of the Company's Flash Storage Products; and the Company's future business plans and strategy. 

There are a number of risks and uncertainties that could affect the Company's performance and financial results are included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Company's Report on Form 10-Q for the third quarter of fiscal year 2016 which was filed with the SEC on December 4, 2015, and is available on the Company's investor relations website at investor.violin-memory.com and on the SEC's website at www.sec.gov. All forward-looking statements in this press release are based on information available to the Company as of the date hereof, and the Company does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made. 

About Violin Memory, Inc.

Business in a Flash. Violin Memory, the industry pioneer in All Flash Arrays, is the agile innovator, transforming the speed of business with enterprise-grade data services software on its leadership Flash Storage Platforms™. Violin Concerto™ OS 7 delivers complete data protection and data reduction services and consistent high performance in a storage operating system fully integrated with Violin's patented Flash Fabric Architecture™ for cloud, enterprise and virtualized business and mission-critical storage applications. Violin Flash Storage Platforms are designed for primary storage applications at costs below traditional hard disk arrays and accelerate breakthrough CAPEX and OPEX savings while helping customers build the next generation data center. Violin Flash Storage Platforms and All Flash Arrays enhance business agility while revolutionizing data center economics. Founded in 2005, Violin Memory is headquartered in Santa Clara, California. For more information, visit www.violin-memory.com. Follow us on Twitter at twitter.com/violinmemory.

All Violin Memory news releases (financial, acquisitions, manufacturing, products, technology, etc.) are issued exclusively by Business Wire and are immediately thereafter posted on the company's external website. For more information about Violin Memory, including Violin Memory's trademarks, visit www.violin-memory.com.

                     
VIOLIN MEMORY, INC.  
Condensed Consolidated Statements of Operations  
(Unaudited; in thousands, except per share data)  
                 
  Three Months Ended   Year Ended  
 
  January 31,   October 31,   January 31,   January 31,   January 31,  
  2016   2015   2015   2016   2015  
             
Revenue:                              
  Product revenue $ 4,346   $ 6,326   $ 14,530   $ 27,342   $ 58,378  
  Service revenue   6,578     6,213     5,990     23,525     20,597  
    Total revenue   10,924     12,539     20,520     50,867     78,975  
Cost of revenue:                              
  Cost of product revenue (1)   3,692     3,383     8,373     17,177     30,450  
  Inventory provisions   -     -     19,928     -     19,928  
  Cost of service revenue (1)   3,067     2,785     2,421     11,404     8,389  
    Total cost of revenue   6,759     6,168     30,722     28,581     58,767  
    Gross profit (loss)   4,165     6,371     (10,202 )   22,286     20,208  
Operating expenses:                              
  Sales and marketing (1)   14,479     14,049     14,871     55,623     61,871  
  Research and development (1)   9,480     10,110     10,724     41,696     52,091  
  General and administrative (1)   3,850     3,456     4,769     17,165     20,645  
  Gain on sale of PCIe product line   -     -     -     -     (17,448 )
  Restructuring charges   -     -     -     -     3,062  
  Litigation settlement   -     -     -     -     652  
    Total operating expenses   27,809     27,615     30,364     114,484     120,873  
    Loss from operations   (23,644 )   (21,244 )   (40,566 )   (92,198 )   (100,665 )
Other income (expense), net   (90 )   126     (4,421 )   (11 )   (4,910 )
Interest and other financing expense   (1,623 )   (1,649 )   (1,791 )   (6,716 )   (3,205 )
    Loss before income taxes   (25,357 )   (22,767 )   (46,778 )   (98,925 )   (108,780 )
Provision for (benefit from) income taxes   157     (98 )   43     142     123  
    Net loss $ (25,514 ) $ (22,669 ) $ (46,821 ) $ (99,067 ) $ (108,903 )
Net loss per share of common stock,                              
basic and diluted $ (0.26 ) $ (0.23 ) $ (0.50 ) $ (1.02 ) $ (1.20 )
Shares used in computing net loss per                              
share of common stock, basic and diluted   98,363     97,556     93,611     97,008     90,959  
(1) Includes stock-based compensation expense as follows:                              
                             
  Cost of product revenue $ 402   $ 232   $ 104   $ 1,155   $ 718  
  Cost of service revenue   650     383     268     1,702     658  
  Sales and marketing   1,677     786     879     4,744     4,792  
  Research and development   1,647     1,582     1,735     7,183     9,570  
  General and administrative   1,732     1,052     2,277     6,577     7,228  
  $ 6,108   $ 4,035   $ 5,263   $ 21,361   $ 22,966  
                               
   
VIOLIN MEMORY, INC.  
Condensed Consolidated Balance Sheets  
(Unaudited; in thousands)  
         
  January 31,  
  2016   2015  
Assets            
Current assets:            
  Cash and cash equivalents $ 23,921   $ 93,432  
  Restricted cash   10,000     2,300  
  Short-term investments   42,058     60,483  
  Accounts receivable, net   5,308     15,080  
  Inventory   12,001     10,322  
  Other current assets   4,170     5,949  
    Total current assets   97,458     187,566  
Property and equipment, net   9,322     9,863  
Intangibles and other assets   8,603     10,806  
  $ 115,383   $ 208,235  
             
Liabilities and Stockholders' (Deficit) Equity            
Current liabilities:            
  Short-term borrowings $ 13,398   $ 10,000  
  Accounts payable   3,747     11,065  
  Accrued liabilities   13,420     18,024  
  Deferred revenue   13,006     15,635  
    Total current liabilities   43,571     54,724  
Deferred revenue, noncurrent   6,239     10,398  
Long-term liabilities   425     1,707  
Convertible senior notes   120,000     120,000  
    Total liabilities   170,235     186,829  
             
Stockholders' (deficit) equity:            
  Preferred stock   -     -  
  Common stock   10     9  
  Additional paid-in capital   505,274     482,674  
  Accumulated other comprehensive income   456     248  
  Accumulated deficit   (560,592 )   (461,525 )
    Total stockholders' (deficit) equity   (54,852 )   21,406  
  $ 115,383   $ 208,235  
             
         
VIOLIN MEMORY, INC.  
Condensed Consolidated Statements of Cash Flows  
(Unaudited; in thousands)  
     
  Year Ended  
 
  January 31,   January 31,  
  2016   2015  
     
Cash flows from operating activities:            
Net loss $ (99,067 ) $ (108,903 )
Adjustments to reconcile net loss to net cash used in operating activities:            
  Depreciation and amortization   8,667     10,961  
  Gain on sale of PCIe product line   -     (17,448 )
  Accretion of debt issuance costs to interest expense   1,667     639  
  Gain on sale of long-term investment   (360 )   -  
  Provision for excess and obsolete inventory   (3,478 )   20,961  
  Loss on extinguishment of debt   -     372  
  Impairment of assets   -     3,470  
  Stock-based compensation   21,361     22,966  
  Changes in operating assets and liabilities, net:            
    Accounts receivable   9,772     5,975  
    Inventory   1,862     9,076  
    Other assets   1,473     531  
    Accounts payable   (7,774 )   (11,804 )
    Accrued liabilities   (5,926 )   (17,097 )
    Deferred revenue   (6,788 )   798  
      Net cash used in operating activities   (78,591 )   (79,503 )
             
Cash flows from investing activities:            
  Purchase of property and equipment   (6,891 )   (11,745 )
  Proceeds from sale of PCIe product line   -     23,000  
  Increase in restricted cash   (7,700 )   (2,300 )
  Purchase of investments   (52,373 )   (57,396 )
  Proceeds from sale and maturity of investments   71,198     56,017  
      Net cash provided by investing activities   4,234     7,576  
             
Cash flows from financing activities:            
  Proceeds from issuance of convertible notes, net of issuance costs   -     115,397  
  Proceeds from sale of common stock, net of issuance costs   -     908  
  Proceeds from debt and line of credit, net of facility set-up costs   45,015     46,776  
  Repayment of debt and line of credit   (41,618 )   (37,326 )
  Proceeds from exercise of common stock options, net   1,240     3,169  
  Taxes paid related to net share settlement of equity awards   (17 )   (3,971 )
      Net cash provided by financing activities   4,620     124,953  
    Effect of exchange rates on cash and cash equivalents   226     133  
      Net increase (decrease) in cash and cash equivalents   (69,511 )   53,159  
Cash and cash equivalents at beginning of year   93,432     40,273  
Cash and cash equivalents at end of period $ 23,921   $ 93,432  
             
                     
VIOLIN MEMORY, INC.  
Reconciliation of GAAP to Non-GAAP Measures  
(Unaudited; in thousands, except per share data)  
                     
  Three Months Ended   Year Ended  
  January 31,   October 31,   January 31,   January 31,   January 31,  
  2016   2015   2015   2016   2015  
             
                               
Gross profit (loss) (GAAP) $ 4,165   $ 6,371   $ (10,202 ) $ 22,286   $ 20,208  
  Stock-based compensation   1,052     616     372     2,857     1,376  
  Inventory provisions due to product transition   -     -     19,928     -     19,928  
  Amortization of acquired intangibles   -     -     74     14     407  
Gross profit (loss) (Non-GAAP) $ 5,217   $ 6,987   $ 10,172   $ 25,157   $ 41,919  
                               
Operating expenses (GAAP) $ 27,809   $ 27,615   $ 30,364   $ 114,484   $ 120,873  
  Stock-based compensation   (5,056 )   (3,419 )   (4,891 )   (18,504 )   (21,590 )
  Gain on sale of PCIe product line   -     -     -     -     17,448  
  Restructuring charges   -     -     -     -     (3,062 )
  Litigation settlement   -     -     -     -     (652 )
Operating expenses (Non-GAAP) $ 22,753   $ 24,196   $ 25,473   $ 95,980   $ 113,017  
                               
Net loss (GAAP) $ (25,514 ) $ (22,669 ) $ (46,821 ) $ (99,067 ) $ (108,903 )
  Stock-based compensation   6,108     4,035     5,263     21,361     22,966  
  Inventory provisions due to product transition   -     -     19,928     -     19,928  
  Restructuring charges   -     -     -     -     3,062  
  Loss on debt extinguishment   -     -     -     -     372  
  Amortization of acquired intangibles   -     -     74     14     407  
  Litigation settlement   -     -     -     -     652  
  Gain on sale of PCIe product line   -     -     -     -     (17,448 )
  Impairment of cost method investment   -     -     3,470     -     3,470  
Net loss (Non-GAAP) $ (19,406 ) $ (18,634 ) $ (18,086 ) $ (77,692 ) $ (75,494 )
                               
Net loss per common share, basic and diluted (GAAP) $ (0.26 ) $ (0.23 ) $ (0.50 ) $ (1.02 ) $ (1.20 )
  Stock-based compensation   0.06     0.04     0.06     0.22     0.25  
  Inventory provisions due to product transition   -     -     0.21     -     0.22  
  Restructuring charges   -     -     -     -     0.03  
  Loss on debt extinguishment   -     -     -     -     0.00  
  Amortization of acquired intangibles   -     -     0.00     0.00     0.00  
  Litigation settlement   -     -     -     -     0.01  
  Gain on sale of PCIe product line   -     -     -     -     (0.19 )
  Impairment of cost method investment   -     -     0.04     -     0.04  
Net loss per common share, basic and diluted (Non-GAAP) $ (0.20 ) $ (0.19 ) $ (0.19 ) $ (0.80 ) $ (0.84 )
                               

Contact Information

  • Investor Relations Contact:
    Olga Dorovskikh
    Violin Memory, Inc.
    650-396-1525
    ir@vmem.com

    Media Contact:
    Justin Gillespie
    10Fold
    925-271-8215
    violin@10fold.com