Violin Memory's (VMEM) Kevin DeNuccio on Q2 2015 Results - Earnings Call Transcript

Aug.27.14 | About: Violin Memory, (VMEM)

Violin Memory, Inc. (NYSE:VMEM)

Q2 2015 Earnings Conference Call

August 27, 2014 05:00 PM ET

Executives

Cory Sindelar - CFO

Kevin DeNuccio - President and CEO

Analyst

Jason Noland - Robert Baird

Alex Kurtz - Sterne Agee

Nehal Chokshi - Technology Insights Research

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Violin Memory Second Quarter Fiscal Year 2015 Financial Results Conference Call. As a reminder, this call is being recorded. At this time, all participants are in a listen only mode. At the end of the call the floor will be opened for questions. We will give you instructions for asking questions at that time. I would now like to turn the call over to Cory Sindelar, Violin Memory’s Chief Financial Officer. Mr. Sindelar, please go ahead.

Cory Sindelar

Good afternoon and thank you for attending. Joining me today is Kevin DeNuccio, President and Chief Executive Officer. Kevin will begin with opening remarks and highlights from the quarter and I will subsequently cover our financial results and provide forward guidance. During the call, we will reference both GAAP and non-GAAP financial measures. Our earnings release issued earlier today includes a reconciliation of GAAP to non-GAAP measures. A copy of this release is available on our website at www.violin.memory/investors. We will also make projections estimates and other forward-looking statements regarding our overall business outlook. We caution you that such statements are predictions based on management’s current expectations or beliefs and that our actual results may differ materially. In addition to risks and uncertainties described on today’s call, other factors that may affect our business are described in the safe-harbor statement on our earnings release and in other documents we have filed with the Securities and Exchange Commission, including those noted on our most recent Forms 10-K and 10-Q.

The following information is presented during the call is current as of today, August 27, 2014. Please keep this is in mind who are listening to a replay of this call. Now I will turn the call over to Kevin for his opening remarks.

Kevin DeNuccio

Thanks, Cory and good afternoon, everyone. I am extremely pleased with the progress we made in our second fiscal quarter as we continued to execute through the transformative actions we undertook in the first quarter which included a major restructuring and strategic realignment. We began to feel some positive effects from the transition in the second quarter with our financial results reflecting a return to top line growth, improved gross margins, lower operating expenses and a narrowed net loss.

As we now enter the second phase of our recovery, we are starting to regain our sales focus and momentum winning significant new customers and closing large transactions that make me feel that we are on the right path and poised to grow from here.

So let me take you through my perspective. First and more than ever before, Violin has the right solutions. We are now well positioned to serve the primary storage needs of large enterprise and cloud data centers. Our new Concerto solutions, which we announced to begin to sell in the second quarter, delivered a comprehensive enterprise class data services needed to support the consolidated mixed workloads that comprise the main stream of enterprise and cloud data center storage. Combined with our leading All Flash Arrays, Concerto delivers an all flash enterprise storage solution that dramatically outperforms disk-based storage.

Not only just the flash technology creates significant business value and competitiveness at a dramatically lower total cost of ownership. But when combining hardware and software acquisition cost. The price of our All Flash Solution is now less than the majority of high-end enterprise disk solutions sold today for the first time. We also believe that our products and our roadmap position us to build a category and thought leader in the mainstream enterprise storage market. We also have the right customers. We now have close to 400 enterprise and cloud customers, many of which are Fortune Global 500 companies. These customers are successfully using our All Flash Arrays to solve performance problems for specific applications and they are highly leverageable as we expand our footprint into mainstream storage environments. Several of our largest customers also share our vision for the all-silicon data center, which is now creating very large recurring revenue opportunities for us to pursue.

The market is now shifting to a sweet spot. So what do I mean by this? The Flash storage market which the Violin pioneered, began as the high end performance solution with the high cost per gigabyte of flash, limiting the opportunity to specific applications within top tier enterprises where the ROI was well justified. Over the last year, the market has see-sawed toward the low end. As competitors and other players accelerated the cost curve by introducing entry level and VDI solutions that offered a lower cost per gigabyte based on either hybrid appliances or always on DD [ph] architectures. This has been fueling very high market growth. In fact, 2012 to ’13, sales of solid state arrays nearly tripled according to Gartner, while IDC has forecasted 2012 to ’16 compound annual revenue growth of 58%. This overall growth is driving customer interest in flash storage more generally as price points have come down across the board.

To a series of product introductions and cost work, Violin is now very well positioned to address this market acceleration in mainstream storage. As we now have the right enterprise-class data services software, the lowest capital acquisition cost and more importantly the proven enterprise class reliability, scalability and availability to serve the mainstream market.

Turning to our financial results, which Cory will talk more in detail in just a few minutes, I would like to give you my perspective. To set the proper context let me remind you that we completed the sale of our PCIe card business during the quarter. So where it is relevant, Cory and I will talk about our results on a go forward basis excluding PCIe.

As I stated last quarter, we continue to believe that revenue will begin to grow and accelerate in the second half supported by the most robust product set in our history, our strategic software relationships, a balanced go-to-market model and the increasing customer adoption of our vision of an all silicon data center.

Sequentially, our second quarter revenues were up slight to $18.6 million or 3%. But excluding PCIe, we’re up 9%, representing a solid return to top-line growth and giving us further confidence that we correctly called the bottoms last quarter. Looking forward, we would expect to see similar revenue growth rate in Q3. Our sales indicatives also improved dramatically increasing for the first time in five quarters.

Our bookings were strong, up 19% sequentially, suggesting that we are in fact gaining sales momentum. Gross margin was 55%, up from 53% in the first quarter and above the consensus estimate. Operating expenses were $28.8 million down 6% from the first quarter and below consensus estimate.

And lastly, our net loss was $0.21, down $0.04 from Q1 and a penny less than consensus estimate as we continued our focus on converging on profitability. As I mentioned, we’re now entering our second phase of our recovery. We strategically centers on renewed revenue growth and momentum. While we remain sharply focused on managing operating expenses, streamlining our operations and converging on profitability, we intend to begin investing this quarter in sales coverage to capitalize on our much stronger product portfolio and alignment with the mainstream market. We’ve also gained more confidence that top-line growth can be a significant contributor to our recovery.

Let me provide some color on the why we’re changing our posture here. We’ve been on a phenomenal march of new product introductions. During the quarter, we expanded our offering in three dimensions software functionality, scalability, and pricing allowing us to significantly extend our reach to much larger datacenter opportunity as well as to smaller enterprises initial installations and departmental deployments within the enterprise.

Beginning in June, we announced our Concerto Solution, the most significant product introduction since the launch of our All Flash Arrays. Concerto is our comprehensive enterprise cloud data services solutions delivering business continuity, data protection, storage efficiency and transparent scale up capability. Concerto allows our All Flash Arrays to consolidate multiple and mixed workloads which can save customers up to millions of dollars on their enterprise storage cost.

Last week, we announced the enhancement of Concerto adding in line deduplication and compression to our portfolio. This was an important and strategic product gap that we needed to feel. With this enterprise class functionality, we give customers application by application control of their cost savings and storage efficiency. For example, customers can choose to enable dedup and compression for applications such as VDI or Virtual Server while still deploying the industry’s fastest storage for mainstream applications such as transaction processing or databases all within a single infrastructure.

Next, we increased our scale and capacity and deal size. Combined with our deduplication capability, our new Concerto 7000 All Flash Array becomes the fully featured datacenter solution with nearly three quarters of the terabyte of usable capacity and less than third of rack, which really enables the massive TTO savings I mentioned.

We have already seen some several situations we’re up selling Concerto in an All Flash Array opportunity turns a 250K deal into $1 million transaction. To net this out, Concerto represents the crossover point where we’re delivering the enterprise class functionality and capital acquisition cost to drive flash from just solving performance problems to serving as a mainstream storage in the datacenter.

And we’re now much more accessible to customers. We took steps in the second quarter to improve our price competitiveness by introducing a range of pay-as-you-grow options and launching our new 6100 series All Flash Array with a starting price below 100K. This significantly gives us broader reach as our ASPs have been nearly 250K previously.

With pay-as-you-grow customers can get started with our solutions at smaller capacity and price point with the ability to grow in place as their needs expand. This pricing option is available for our 6100 and 6200 series of arrays as well as our Windows Flash Array. This is a game changing strategy for us sales force and more importantly for our channels partners and our channel expansion, accelerating sales cycle and allowing them to more readily fit within pilot projects or initial project budget for all flash storage, creating opportunities to get new customers started with Violin sooner than before.

I now like to share some of the customer highlights for the quarter. Our top three transactions in the quarter represented 36% of our product revenue with one transaction exceeding 10% of our total revenue. These blue-chip customers are impressive, including a top five global retailer, a top five global electronics company and a top five global telecom operator. We also added several significant new accounts during the quarter including a top five U.S. cable company and a top five global publishers. As these wins illustrate, our customer base is at the top of the pyramid and include some of the largest corporations in the world. This will be a key strategic asset for us as a transition from primary storage, from their primary storage from disc to flash. We believe this class of customer will become a source recurring quarterly revenue as this transition continues, building an increasingly stronger revenue base going forward. They are big. So it takes more time for them to move. But when they do, it should pay dividends for a very long time.

Our top transaction represents a very large strategic opportunity we were selected for primary storage use, on the basis of our ROI and total cost of ownership, after that customer had previously deployed Violin All Flash Arrays for two performance sensitive applications. To give you some color on how aggressive the competitive landscape can get, in this case we fought the incumbent all the way to free.

The initial order was for nearly a petabyte of storage. And we anticipate a recurring quarterly revenue stream $7 million as this customer continues to migrate from risk to benefits of an all silicon data center. We see several more opportunities like this as customers become more familiar with the two economic values of our solutions beyond our performance.

And another used case, we enabled a top five global telecom operator to create a significant revenue stream based on their ability to implement the timing processes needed to support it, something that was previously impossible for them using their existing storage solution. This is the second time we help the major telecom to capitalize on such an opportunity underscoring our ability to help customers create significant business and economic impact beyond the cost savings.

Our core technology is well proven, accepted and awarded. We launched our first All Array in 2007 and are currently shipping our third generation of technology. Our arrays are field proven in some of the largest enterprise and cloud data centers on earth.

Our Flash Fabric Architecture offer sustainable performance, density and cost advantages over SSD based All Flash design, hybrid arrays and conventional discourage with added SSDs. In addition, our Flash Fabric Architecture coupled with our proprietary software results in unmatched system performance along with the lowest system cost.

Most of our competitors use SSD architectures which emulate disc drive interfaces in physical form factors and are inherently more expensive, less dense and have unpredictable performance. We think of this as an SSD tax, as it only allows them to innovate in software which we believe will become an increasing challenge in end storage. Our customers in the industry have recognized the innovation of our products and the innovative ways in which our customers are using them. In fact, we received nine awards to-date in 2014 with five of them coming in the last 60 days. We’ve also been an award finalist an additional eight times.

A couple of recent examples of this include being named the Best Data Storage Solution in the inaugural Database Trends and Applications Readers’ Choice Award and being named Best of Show for most innovate Flash Memory, customer implementation at the 9th Annual Flash Memory Summit for our Windows Flash Array publication at the Australian Department of Defense in Canberra, Australia.

As I mentioned at the top of the call, I’m extremely pleased with our second quarter progress and execution. Our team did a great job on all fronts and I’m very proud of them.

Cory will now provide his remarks on our financial results.

Cory Sindelar

Thanks Kevin. Revenue for the second quarter was $18.6 million, an increase of 3% sequentially from the revenue $18.1 million in the first quarter of fiscal 2015. Excluding $1 million of service revenue in the first quarter related to PCIe cards, our array business grew 9% quarter-over-quarter and our product revenue was up 11%. From a geographical perspective, we saw strength in the Americas partially offset by weakness internationally. Specifically, the Americas generated $12.5 million of revenue in Q2, which represents an increase of $2.7 million from the $9.8 million in the prior quarter. In EMEA, we saw revenue of $3.7 million, a decrease of $900,000 from $4.6 million reported last quarter.

In an APJ, we saw a decrease of $1.3 million to $2.4 million in Q2 from $3.7 million in Q1, which is mostly due to a decline in the PCIe revenue. 16% of our revenue in the second quarter came from new customers, which is down slightly from 20% in the prior quarter. The top five transactions in the quarter accounted for 44% of product revenue, which is up from 41% in the prior quarter and only one of our top five customers this quarter was also a top five customers last quarter showing good diverse customer base.

Our GAAP gross margin for the Q2 was 52% versus 53% in Q1. As a reminder, we benefited from the recovery of approximately $0.5 million or 280 basis points after disclosing of certain PCIe component parts in Q1. Excluding this item our overall gross margin improved approximately 210 basis points from the prior quarter. Our non-GAAP gross margin for the second quarter was 55% which is at the high end of our annual guidance of 52% to 56% and represents an improvement of approximately 240 basis points over the last quarter. The increase from prior quarter is a result of an increase in product gross margin partially offset by a decrease in service gross margin. Non-GAAP product gross margin increased from 46% in Q1 to 54% in Q2. As you may recall, we experienced a loss on the sale of SSD RAM in Q1 of approximately 400,000 or 350 basis points. We were able to expand our product gross margin with a greater mix of products based on 90 nanometer flash. In the second quarter, approximately 75% of our product sales were based on 90 nanometer which compares to roughly 50% last quarter. As we have previously discussed, the 90 nanometer based products had a better margin profile than products based on 32 nanometer. We also benefited from a lower warranty provision of approximately 170 basis points. Overall, we are pleased with our product gross margin expansion in the second quarter especially in light of a very competitive pricing environment.

Our non-GAAP service margin in Q2 was 57% compared to 66% in the first quarter. During Q1, we recognized $1 million of service revenue related to PCIe cards. Excluding the service fees our non-GAAP service margin would have been 58% in Q1 versus the 57% in Q2. The slight decline is consistent with our prior guidance. We expect our service margin will continue to be in the mid to high-50s for the next couple of quarters.

Looking forward, we have greater confidence in our ability to achieve our long term target gross margin for a number of reasons; first, we have just introduced significant value added software including enterprise data services and deduplication and the early indications look good. Second, we have a better understanding of the price and performance points possible with our next generation platform. And last, with our differentiated architecture and hardware platform we continue to have the ability to move quickly to smaller geometries of NAND as they become available.

With all of these dynamics coming to bear, we believe we can continue to come down the price the cost curve for our flash memory arrays and to grow our margins over time. With this increased confidence, we have become more aggressive with our pricing strategies. We are focused on growing the top line and acquiring new customers and are willing to trade off some margin in the short term to do so. This is the rationale behind our recently introduced pay-as-you-grow models. These models are expected to shift at initial average gross margin well below our annual gross margin guidance. However, in future periods when these customers buy the capacity extensions as they grow into these units, those transactions will be at a 100% gross margin. So while there are a lot of moving parts to our gross margin story today, I expect that we can continue to manage to be within the band at 52% to 56% for the fiscal year.

Operating expenses on GAAP basis were $17.8 million in the second quarter, a decrease of approximately $22 million from the prior quarter primarily as a result of the gain on sale of PCIe product line of $17.4 million, a decrease in stock based compensation of $2.8 million and lower operating expenditures of $1.8 million. At the end of June, we transferred our PCIe workforce to SK Hynix, which completed our restructuring activities. In Q2, we recorded an additional restructuring charge of $1.3 million consisting of excess facilities of $1 million in severance of $300,000.

Non-GAAP operating expenses for Q1 were 28.8 million down from $30.5 million in Q1. The decrease is primarily related to lower personnel cost of 1.2 and outside services of 1 million partially offset by an increase in marketing activities of $0.5 million. Total headcount at the end of the quarter was 328, down from 352 at the end of the first quarter. The decrease reflects an exit of our PCIe workforce of 30 offset by net hiring of six individuals.

Moving forward as Kevin mentioned, we intend to begin making investments in our sales coverage taking our headcount to around 345 by the end of the third quarter. So while we would have expected to see a $1 million savings in OpEx due to the sale of the PCIe cards that decrease is likely to be offset by increases in headcount and a slight tick up in R&D program spending. Overall, we believe our non-GAAP operating expenses will be between $29 million and $30 million for the third quarter.

Our GAAP net loss for the second quarter was $8.4 million or $0.09 per share compared to a net loss of $30.1 million or $0.35 per share in the first quarter. The gain on the sale of PCIe product line resulted in a $0.19 per share improvement. Excluding this gain, our GAAP net loss improved by $0.07 per share compared to last quarter. Our non-GAAP net loss for the second quarter was $19 million or $0.21 per share which is an improvement of $0.04 per share compared to the net loss of $21.1 million or $0.25 per share for the first quarter. Total outstanding shares for the end of the second quarter 92 million shares, we expect outstanding shares will be around $93 million at the end of the third quarter.

Turning to our balance sheet, we finished the quarter with cash restricted cash and investments totaling a little more than $80 million, which was down approximately $7 million from the prior quarter and better than our guidance of $72 to $77 million. We used approximately $30 million in cash from operating activities which approximates our $19 million net loss per share or net loss and a reduction of accrued liabilities of approximately $11 million as we refunded $6 million to Toshiba and paid over $5 million to vendors associated with the buildup of inventory from earlier in the year.

The $23 million that we received from SK hynix was recorded as an investing activity. Our DSOs decreased to 60 days from 75 days in the prior quarter, reflecting good collections activity and the prepayment on a couple of large deals. Our inventory totaled $34 million at the end of the quarter, a decrease of approximately $4 million from the prior quarter and consistent with our expectations.

Looking to Q3, we expect our cash, restricted cash and investments to be around $65 million. We continue to aggressively manage the balance sheet and evaluate our overall liquidity and working capital requirements with a watchful eye towards customers’ perceptions of our financial health. We do not want any present our future concerns about our ability to stay the course and become -- to become a barrier to the sales process.

That is why today we have secured a new $40 million credit facility from Silicon Valley Bank to provide us with additional working capital. The facility consists of a $30 million line of credit and a $10 million term loan which is payable over 3 years. Our ability to secure this important resource is a reflection of the improved financial position of the company and creates and extra level of flexibility to meet our capital needs as we go forward and to provide our customers increased confidence that we are managing our balance sheet for our long-term success.

I will now turn the call over to Kevin for his closing remarks before we take your questions.

Kevin DeNuccio

Thanks, Cory. I am very excited about our emerging opportunity ahead of us to serve our customers’ mainstream storage needs. As the pioneer of the flash storage market, we learned early on that using flash technology could change the fundamental competitiveness of enterprises by removing bottlenecks and reducing latency, and that using flash for primary storage, we’d one day transform data center economics.

As a result, flash has become a disruptive force to mainstream storage, one that will ultimately displace the hard disk drive that has been the mainstay of storage for more than 30 years. As a disruptor, our vision is to make the all-silicon data center a readily achievable reality for enterprises and cloud customers. And with a lot of the hard work over the last couple of quarters behind us, we are now in a strong position to do just that. We have the lowest price per gigabyte of raw flash of any major player and a sustainable architectural advantage in the way we use it.

We now have deduplication and compression technology to deliver price leadership on a usable capacity basis, offering customers the lowest cost of acquisition in addition to the lowest total cost of ownership regardless of technology. We have the enterprise data services and protection software to offer compelling alternatives to the major players at a much lower cost.

The savings can run into the millions of dollars for a large enterprise. We have an enviable base of top tier enterprises to leverage while our reputation and visibility are improving with customers, industry analysts and the media. And finally, the market for what we have is heating up quickly, accelerating to as much as 100% annually. While we have more work to do to realize our vision, the opportunity and our ability to capitalize on it has never been better.

I will now turn the call over to Cory to begin the Q&A.

Cory Sindelar

Hi, operator. Please read the instructions for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Jason Noland with Robert Baird.

Jason Noland - Robert Baird

Cory and Kevin, the revenue commentary for the second half sounded positive and in my right, rough estimates to think about, single-digit growth into FQ3 sequentially and then the potential for double digit growth into FQ4 sequential?

Kevin DeNuccio

Yes, I think well if you look at the core array business that was up 9% quarter-on-quarter and product revenue is up 11%. So what we are saying is that we think we can be in that range into Q3 and going forward.

Jason Noland - Robert Baird

And Cory could you touch on some of the major cash flow puts and takes again at FQ2 and any color on cash flow expectations for FQ3 would be great too?

Cory Sindelar

Sure, sure. I can provide a little bit of that. Give me just a second. The major puts and takes is kind of Q2. As I said on the call, it was largely the net loss about $19 million. There is offset, if you are looking at starting the GAAP loss of $8.4 million, you have to add back to 17 associated to the gain. So I am more or less trying to get you there once you back out the stock-based compensation and depreciation. So looking at the fluctuations on the balance sheet, you can sum it up as really the $11 million that came off of the crude liabilities.

And as I said on the call that was largely $6 million being refunded back to Toshiba and $5 million being paid up at the vendor associated with some of the inventory we accumulated in Q4 and Q1.

Jason Noland - Robert Baird

Okay.

Cory Sindelar

Around Q3, we talked about cash being down about $15 million from the current levels.

Jason Noland - Robert Baird

Okay roughly in line with the EBIT loss little better I guess.

Cory Sindelar

Yes, it’s been the money that we’ll get from the line of from the term loan for SVB will largely go to pay some of accrued liabilities that we expect to pay down in the third quarter as well.

Jason Noland - Robert Baird

Okay and last topic for me on pay-as-you-grow, it sounds like you recognized the cogs cost upfront and then revenue as the customer turns on capacity?

Cory Sindelar

Exactly.

Jason Noland - Robert Baird

Okay was this -- do you see others in the industry doing something similar?

Kevin DeNuccio

Well, I think we were certainly one of the first out and if there are I really haven’t seen any in the marketplace, I think what we’re trying to do was really broaden our footprint as we felt we got. Well understood both from the platforms we’re shipping today and our next generation systems that are coming that we want to be more aggressive in grabbing footprint and taking our ASP down from 250K to under 100 was I thought significant as we’re trying to expand the channel. So given the gross margin outlook we had for the various reasons as Cory said, we felt it was better posture to get a better entry level point that we could distribute much more broadly for the channels and get the footprint now as we see gross margin getting healthy over the course of next year or so.

Operator

Your next question comes from the line of Alex Kurtz with Sterne Agee.

Alex Kurtz - Sterne Agee

Can you just give us the quota carrying count rep for Q2 and what you’d expect it to be exiting the year as part of your expansion plan here for overall employees?

Kevin DeNuccio

Yes, we haven’t really broken out the RSM count, but what I can tell you is that we ended the second quarter with sales and marketing headcount of around 145 individuals. And then I gave guidance of growing there from 328 up to 345 absolutely the majority of those would be in the sales and marketing area.

Alex Kurtz - Sterne Agee

I think in the past maybe I’d heard a number sort of in the 50 range as far as RSM, is that sort of in the right ballpark?

Kevin DeNuccio

Yes, it’s in the right ballpark.

Alex Kurtz - Sterne Agee

Okay and Cory just to understand what happened this quarter, did I hear you right there was three transactions that represented about 45% of the business this quarter?

Cory Sindelar

No, three with 36% and then I’d say five represented 44%.

Alex Kurtz - Sterne Agee

And were those all-in customers or were there some OEMs in there?

Cory Sindelar

Those will be possibly some resellers and users but not OEM customers.

Alex Kurtz - Sterne Agee

Okay.

Cory Sindelar

And two-thirds of our business this quarter went through channels and understand that most of our channel business at this point is more of a fulfillment agent as opposed to channel source.

Alex Kurtz - Sterne Agee

Okay so five transactions several of them end customers several of them resellers who then could sell multiple products and to multiple customers right, so I shouldn’t just think about five end customers for 45%?

Kevin DeNuccio

No, let me clarify. I think that Cory was talking about two different things because even when we referenced the percentage of revenue, we were talking about end user customers even though they may be going through channels. So when you look at the top five end user customers they were 44% of revenue. And if you look at the top three that I referenced, they were 36% of product revenue. They were all end users but even some of the big end users are going through a channel.

Alex Kurtz - Sterne Agee

Now, I appreciate that’s great clarification. So just building on that point, if you are thinking about growth in Q3 and Q4 here through what Jason was talking about and those rates, is there good visibility because those are big customers -- that’s a big chunk of your business through a handful of customers, so is there a really good visibility with follow-on business with those customers or other customers that sort of give you this confidence given the concentration?

Kevin DeNuccio

Yes, both I think. I think with the top customers that we saw this quarter. We think they’re moving into a range where we will be able to get recurring revenue from them on a quarterly basis. So they have progressed in their thinking around flash and what that can be towards mainstream storage, particularly the biggest referenced example I was talking about. We think there is visibility there in the biggest guys that we have moving with us now that will be recurring revenue, but we’re also getting visibility to a broader look at the market where we’re gaining that confidence to be able to go back on to outlook for revenue growth.

Operator

Your next question is from the line of Nehal Chokshi with Technology Insights Research.

Nehal Chokshi - Technology Insights Research

Encouraging to see the 19% Q-to-Q bookings growth. Can you dive in a little bit further into what’s driving that? Is it the new capability from Concerto? Is it Windows Flash Array, stabilization of organization structure perhaps all of these maybe can rank these and if there is missing, can you touch on those as well then?

Kevin DeNuccio

I think the way to think about it is, is really primarily spending around getting stabilization with the sales force that we highly disrupted over the course of the first quarter.

So I think that dealing with customers along with our financial progress has just kind of settled down the customer disruption side of things. But then if you look at the product lines from a cost stand point getting pay-as-you-grow and units that can sell now sub-$100,000 gives us a much broader applicability to both the end user customer and channels that we’ve been expanding in.

And then I think one of the biggest steps is really centered around the Concerto software and what that does to really expanding our ability to address datacenter applications versus just a single array that might be useful performance application. So Concerto gives us two things, one it give us broad functionality that gives you the ability to run out the multiple and mix workloads that a large enterprise would run and have always a data protection kind of scheme where you need to run when you’re running a datacenter.

So it gives you all the software functionality but it also gives us a proprietary control of our software and system together. We’re in the path we’re selling platform where the customer have to actually go buy software from one of competitors. So today we control the entire stack from flash all the way through the highest level of data services software and that’s given us a competitiveness and a broader appeal and the ability to scale up and have the functionality necessary to really start to attack the datacenter and not just the cream of the crop performance applications that we’re able to address in the past.

So I think it’s a combination of all that stuff.

Nehal Chokshi - Technology Insights Research

All those three factors you mentioned each of those, the first one was the most important, second one was second most important, third was third most important or all are equally important --?

Kevin DeNuccio

I would say the most important factor is really having the Concerto capabilities that we have because that gives you the broad set of software functionalities as necessary. It lowers our overall cost and our ability to control all the cost that you need to go to mainstream storage. So between that and all of the functionality under that getting deduplication software and compression ups your usable capacity. So I’d say that’s probably the most impactful because it affects kind of everything functionality cost and our control of the entire sales cycle. And so I think that’s the most impactful on top the Company dealing from all the changes.

Nehal Chokshi - Technology Insights Research

And when was the deduplication compression actually coming your customers?

Kevin DeNuccio

Last week. So, we announced that VM world, we’re at VM world this week. And yes it was announced last week so it’s available.

Nehal Chokshi - Technology Insights Research

Okay. And then it sounds like there is a pretty big differential between the bookings the reported revenue growth, is that due to linearity in the quarter or what else is going on there?

Kevin DeNuccio

No, I think it’s just an indication of how the momentum in the business has changed. So for basically five quarters, we had -- bookings were negative. So this is first quarter that they turned around and turned around significantly at 19% quarter-on-quarter. So we think that was a significant turn in the business and that has given us the confidence the kind of give the revenue guidance that we have.

Operator

(Operator Instructions) There are no further questions at this time. I’d now like to turn the floor back over to Cory Sindelar.

Cory Sindelar

Thank you. This concludes our call today. You may disconnect. Thank you for participating on our call.

Operator

Thank you. This does conclude today’s conference call. You may now disconnect.

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Violin Memory (NYSE:VMEM): Q2 EPS of -$0.21 beats by $0.02. Revenue of $18.59M (-29.8% Y/Y) misses by $0.47M.