The screeching of Violin Memory's parting strings is horrible
Revenues walk the falling walk again as CEO talks the turnaround talk – again
Another great quarter. Not. Violin Memory made a paltry $9.7m in revenue and posted a $22m loss for its first fiscal 2017 quarter.
Revenues were down 20 per cent on the year-ago quarter and 11 per cent on the previous quarter, the fourth fiscal 2016 quarter, when revenues of $10.9m and losses of $25.5m were followed by lay-offs as the firm reduced its cost structure following more than 20 quarters of losses.
Back then management was working on forming revenue-increasing partnerships, with one or more being in place by the end of April.
Net losses were $22.2m, with Violin seeing losses of $26.5m a year ago and $25.5m a quarter ago, so trimming this to $22.2m is no big improvement.
To put this in context, Pure Storage just announced a near-90 per cent year-on-year increase in flash storage revenue, EMC and HPE have flash revenues growing at 100 per cent plus year-on-year, and NetApp has a $700m/year flash array run rate. Violin's annual run rate is down to $40m.
The earnings call provide more information about the revenues. CEO and president Kevin De Nuccio said:m "Product revenues were flat quarter-on-quarter with a slight decline in overall revenues coming from lower Q1 maintenance service revenues. We continue to see strong new account deals in our APAC theater and achieve significant progress within the Fortune 100 accounts in North America, creating a stable of large enterprises relying on Violin Memory. While we had expected a service revenue decline, it was really a difficult quarter for Violin's European theater that prevented us from achieving the overall growth we had expected this quarter."
Violin's ex-EMEA boss Mick Bradley now works for Kaminario as its EMEA boss and Mick might know a thing or two about selling flash arrays in Europe.
CFO Cory Sindelar said; "Product revenue was $4.2m as compared to $4.3m last quarter and service revenue was $5.5m versus $6.6m last quarter."
DeNuccio wanted us to understand that "the Violin business is stabilizing on a number of fronts. An important barometer regarding the company's progress is a number of wins since the launch of Violin's Flash Storage Platform which incorporates a new operating system on next generation hardware. This product line is showing strong traction despite prevailing headwinds, as evidenced by 60 wins since its launch resulting in an average of one win per week."
Half of these are new accounts to Violin and half migrations from its 6,000 installed base. That's a slow upgrade rate then. Also, enterprise sales cycles are l-o-n-g, with De Nuccio saying: "Violin's focus on very large enterprise customers does bring with them extended sales cycles. For example, the Fortune 100 win I just mentioned, took more than 18 months trials and initial deployment before this major multi-year rollout for the next generation data center design was awarded. ... The initial sale was well over 10 per cent of our revenue this quarter. ... Along with two other large scale Fortune 100 rollouts of FSP deployment planned this year, we are finally reaching the maturity of the FSP product line within our base."
Yes, but recent layoffs have cut sales headcounts, which can't do much to improve long-cycle enterprise sales prospects.
He enthused about the wins, as he needed to do: "These are mega franchise wins that can easily produce one [to] 10+ million per year. Additionally, we had seven other new FSP accounts this quarter creating the foundation and turning point for our renewed growth."
It's that old regular Violin quarterly results earnings call pitch; jam tomorrow: "We hope that these Fortune 100 rollouts will be a key catalyst to rejuvenating Violin's US and EMEA market traction."
DeNuccio emphasised that Violin's execs had personal investments in the company's stock, and that the recent wins represented a turning point. The company could come back.
Whither the Clinton Group?
The Clinton Group, the activist investor circling Violin like a pack of sharks, will be sharpening its teeth, loading its proxy war artillery, and already tasting the blood in the water.
They'll promise cash for the disheartened investors and bludgeon the board and management for destroying value; accusations for which the board can only respond with appeals to investors to have faith. Look at the revenue and profit/loss chart and think about that for a moment from the point if vuew if a duisheartened investor. Have faith in what? The ability to generate red ink?
Here's DeNuccio again; "We believe flash is now mainstreaming to primary storage in 2016, a position we staked out in 2015 when we launched the Flash Storage Platform. We've positioned our products and services capabilities along with our company mindset to catch this biggest segment and market opportunity. This is why we are confident in our ability to deliver shareholder value over the long term as we execute fully against our turnaround plan."
He says mid to small enterprises along with select large scale enterprise applications will continue their migration to the cloud, while large scale enterprises will keep IT on premises because of the security, performance, prudence and confidence that comes with that. Also: "large enterprises cannot move their legacy and often most important core business apps into the cloud."
"Therefore we believe our focus on the Fortune 500 and Global 1000 will payout for our shareholders and customers."
Violin is developing its Concerto OS, according to the call. "We are building our Concerto operating system to be introduced later this year as Concerto and the cloud to allow customers in the future to integrate and interact gracefully between both on-premise infrastructure and the cloud."
Sounds like a data fabric.
DeNuccio said Violin had closed an OEM deal for VDI: "We closed [an] OEM relationship this quarter that will incorporate our arrays along with their software and servers to deliver an industry-leading, fully integrated VDI solution." Well, that's hopeful. He added; "The go-to-market discussion are focused first on EMEA as well as [new] US target account which should help bolster the return of our European theater revenue production."
Violin thinks the next quarter's revenues will be in the range of $11m to $13m. They were $15.5m a year ago, so another decline. It says large account sales are lumpy and revenue forecasting hard.
Management looks confident, finds good news and healthy signs amongst the numbers and says it's confident; that's its job. But investment analysts and channel partners look into this ever-shrinking business pit and easily draw different conclusions. Look guys, they might say to the exec team, you have done your absolute, level best. You're bloody, you're unbowed, you're still fighting, but this isn't Rocky 4; it's looking more and more like Rocky no more. It's surely time to throw in the towel.
There was just one analyst on the call by the way; others simply not bothering with the company any more.
Is Violin a basket case? Is it toast? Or can it still, somehow, on the rim of the drain, grow its way back to health? It sure is hard avoiding despondency when thinking about Violin, but miracles have happened. Let's hope there's one coming for DeNuccio and his team. ®
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