Violin Memory Shares Plummet 50 Percent of Earnings Miss, Poor Outlook

Andrew Klips |

Wall Street players that like to try and catch a falling knife will be hawking Violin Memory, Inc. (VMEM) Friday morning after the maker of flash-based storage systems whiffed on third quarter financials after Thursday’s closing bell.  Shares have jettisoned about 50 percent in pre-market activity on Friday after closing yesterday at $6.00.

For the quarter ended October 31, Violin Memory recorded revenue of $28.3 million, up 37 percent from the third quarter of 2012.  GAAP net loss totaled $34.1 million, or 85 cents per share, compared to a net loss of $25.4 million, or $1.79 per share, in the year prior quarter.  Excluding one time items, the company posted a net loss of $25.4 million, or 63 cents per share, versus an adjusted net loss of $21.3 million, or $1.50 per share, in the same quarter last year.  The stark change in per share losses as compared to dollar losses were the result of the Violin Memory having only 14.2 million shares outstanding at this time last year as compared to 40.4 million in the recent quarter.

Both figures missed analyst predictions of an adjusted loss of 44 cents per share on revenue of $31.7 million.

Product revenue improved from $19.33 million in last year’s quarter to $21.42 million.  Service revenue provided most of the jump in total sales; rising to $6.89 million from $1.27 million.

The company spent a lot more, though.  Research and development costs surged 43 percent to $20.11 million, while sales and marketing expenses rose 37 percent to $21.3 million.  General and administrative costs expanded 44 percent to $6.63 million.

Seeing the shiny side of the coin, Don Basile, chief executive of Violin Memory, said in a statement yesterday, “Enterprise data center storage is in the early stages of a major transformation to an Enterprise Memory based infrastructure, and Violin is at the forefront of accelerating this transformation.”  He added, “During the quarter, we added 32 new customers and delivered record revenue and gross margins, even in a challenging Federal spending environment.”

Violin Memory went public late in September, pricing shares at $9 each, only to open on IPO day at $7.50 and sinking to $7.00 on the first day of trading.  The company was hoping to raise $173 million, but only raised $162 million (for a net of about $146 million) with its initial public offering.  Shares have yet to make it over $8 each.

If Wall Street players didn’t like the last quarter’s financials, the probably didn't like the guidance either.  Violin sees revenues for the current quarter between $30 million and $32 million, far short of the $44 million that analysts expected.

Through the first nine months of 2013, Violin Memory has lost $93.3 million on revenue of $79.6 million.

The performance caused analysts to chime in with downgrades of the stock.  J.P. Morgan analyst Mark Moskowitz cut his price target from $9.00 to $5.50 and took his rating to neutral from overweight.  Sterne Agee’s Alex Kurtz has a neutral rating on the Violin Memory.  He lowered his price target from $6.00 to $4.50.

Shares plunged as low as $2.99 in early trading, but have managed to pare some of those losses 30 minutes into the trading day; climbing back up to $3.40.

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