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Nimble Storage, Inc. Q3Fy16 Shareholder Letter Executive Summary

The following excerpt is from the company's SEC filing.

Although our Q3FY16 revenue grew at 37% compared to Q3FY15, our Q3FY16 financial results fell short of our expectations. Revenue of $80.7 million came in below our guidance of $86 to $88 million, resulting in non-GAAP operating loss of $10.8 million, which was greater than our guidance for operating loss of $5 to $6 million.

We believe there were two developments during the quarter that impacted our performance.

Our enterprise investments are taking longer to achieve full productivity

. Over the last several quarters, we have made significant investments aimed at accelerating large global en terprise customer growth. While those investments have helped us to acquire large enterprises at a strong pace and grow our enterprise business, the competitive intensity in the market is causing our enterprise investments to take longer than expected to achieve full productivity.

The shift in investment from our commercial business to enterprise business impacted our growth

. We have been managing our total sales and marketing investments in light of our goal of achieving non-GAAP breakeven operating income in Q4FY16. Within this overall investment envelope, we increased our investments in the large enterprise business at the expense of investments in our commercial business. At the time when the storage market remains very competitive, this led to lower growth in our commercial business than we believe we could have achieved by maintaining our prior pace of investment in that segment of the market.

Despite our Q3 results, we believe our business foundation remains extremely strong. Our Adaptive Flash platform offers the broadest approach to leveraging flash storage in the modern data center, while our InfoSight cloud-based management provides infrastructure visibility, resiliency and operational simplicity. We also believe our market opportunity remains large as the $40B storage market goes through a major disruption with disk-centric architectures transitioning to flash-centric architectures. Highlights during Q3 include the following:

Continued steady expansion of our customer base, leveraging our proven go-to-market engine

. We have built a strong go-to-market engine that resulted in 617 new customers during Q3 as our installed base grew to 6,828 customers. Our channel ecosystem continues to pay dividends as the portion of bookings initiated by channel partners was at the highest level in over six quarters.

Continued strong growth in large enterprises and cloud service providers

, with over 400 global enterprises and over 600 cloud service providers as part of our installed base.

Strong international growth,

as international revenue during Q3 grew to a record 22% of total revenue.

Growing transaction size

. Across mid-sized and large enterprises, larger deployments resulted in new customer transaction value reaching record levels. A key enabler has been the growth in the mix of Fibre Channel bookings (as a percentage of Fibre Channel + iSCSI), which grew to 23.5% from 17.4% during Q2FY16.

Land and expand business model

. High customer satisfaction translates into a predictable pattern of repeat purchases by our customers, with repeat bookings accounting for 47% of total bookings in the last 12 months.

Gartner recognition

. Gartner named us as a Leader in the Gartner magic quadrant for general-purpose storage arrays the only company built in the last two decades to be in the Leader Quadrant.

Leveraging our strengths, we plan to reaccelerate growth over the next few quarters by focusing on the following:

Increased sales and marketing investments in our core commercial segment

in order to aggressively capture the large market opportunity ahead of us. Our commercial go-to-market engine is a core competence for the company, and we believe that investments in our commercial business will drive future growth.

Sustained investments in continuing to grow our large enterprise business

, both in terms of go-to-market investments as well as R&D investments aimed at further broadening our Adaptive Flash platform to address the broadest spectrum of workloads within large enterprises.

Factors that impacted our growth during Q3FY16

We have been executing a strategy of augmenting our traditional base of mid-sized enterprises by focusing on the large enterprise segment. At the same time, we have also been focused on achieving non-GAAP breakeven operating income in Q4FY16 by balancing top-line growth versus investments in the business. We now believe this strategy of diversifying our customer base within a constrained investment envelope, at a time when the storage market is extremely competitive, may have impacted our growth.

Our Enterprise business is taking longer to achieve full productivity

Over the last several quarters we made significant investments to grow our enterprise business. These investments include quota carrying enterprise sales teams, marketing programs, channel incentives and programs, and other sales enablement investments. These investments have helped to grow our enterprise business and we now have over 400 large, global enterprises within our customer base. However, the productivity of these investments is slower to develop than we anticipated because of the intensifying competition in the storage market.

Investment shift away from our commercial business impacted growth in our commercial business

Our goal of achieving non-GAAP breakeven operating income in Q4FY16 defined our overall sales and marketing investments. Within this overall envelope, the investments we made in our enterprise business have constrained the investment in our commercial business. This decreased investment has led to a slower pace of addition of commercial sales teams, and lower investments in marketing programs and channel programs directed at acquiring new mid-sized enterprise customers. At a time when the storage market remains very competitive, we believe the shift in investment towards enterprise business led to slower growth.

We have a strong foundation in the breadth and differentiation of our Adaptive Flash Platform

We believe that the Nimble Storage Adaptive Flash platform offers the broadest approach to leveraging flash storage in the modern data center. As Hybrid-Flash arrays and All-Flash arrays displace disk-only storage arrays over the next several years, we believe that we are uniquely positioned to address the broadest spectrum of workloads within the data center.

Some large-scale wins at major enterprises during Q3 that illustrate the value proposition of our platform include the following:

A major global reinsurance company selected us as their storage standard to replace a leading incumbent vendor after evaluating several flash vendors, for a deployment of over 1PB of storage hosting databases, file servers, Exchange and their virtual server environment

A major healthcare information and data analytics firm selected us as a high performance storage solution to replace their legacy storage infrastructure in an environment that includes large-scale Oracle databases and petabytes of unstructured data

CareCentrix uses SmartStack for 8X storage consolidation from VMAX to Nimble

CareCentrix is a national home healthcare services network serving more than 23 million patients across the US. CareCentrix works with Payers and over 8,000 qualified Providers to create programs that improve quality and lower the cost of delivering patient care to the home. The IT organization faced an aging storage infrastructure that included VMAX, Data Domain, and an all-flash XtremIO array from EMC. In addition to the complexity of managing three different platforms, the legacy storage infrastructure didnt provide the space reduction tools or ease of management CareCentrix required. With a requirement to eliminate storage silos and consolidate applications and workloads, CareCentrix selected the Nimble Storage Adaptive Flash platform combined with Veeam for data protection and immediately discovered increased system performance and overall flexibility. The combined Cisco UCS and Nimble arrays and Veeam Enterprise Suite, work seamlessly to deliver annual storage maintenance and power reduction costs of over 8X compared to the silos across their legacy storage environment. In addition, CareCentrix reduced its storage footprint 8X moving from 252RUs of VMAX to just 30RUs with Nimble. The ongoing dollar and time savings from the consolidation is being focused on driving strategic IT projects used to streamline and enhance the Payer, Provider and especially the CareCentrix Patient experience.

We partnered with a major systems integration firm to deliver hosted Exchange services to a large US Federal agency that was considering Office 365 or extending their current legacy storage solution as alternatives

A major law firm selected us as their consolidation platform after evaluating a traditional tier 1 storage array as well as an all-flash array, based on the performance benefits, the simplicity of our data management and our ability to deliver resiliency through InfoSight

Underscoring the differentiation of our Adaptive Flash platform, we were named a Leader in the 2015 Gartner Magic Quadrant for General-Purpose Disk arrays the only storage vendor built in the last two decades to be in the Leader Quadrant. This is an important validation for us as a company, and key to our success within large enterprises that seek validation in choosing Nimble as their storage vendor.

As customers seek to simplify the deployment of infrastructure, we have partnered with industry leaders to create SmartStack converged infrastructure solutions that are experiencing rapid adoption. Since 2012, Cisco and Nimble Storage have partnered with software partners to develop nine SmartStack reference architecture-based solutions that have been deployed by over 750 enterprises.

We have a proven go-to-market engine for driving growth

Our strategy for driving growth is to acquire customers rapidly, spanning mid-sized enterprises, large global enterprises and cloud service enterprises, across the globe. Even as we acquire new customers rapidly, our storage systems are being deployed in larger and more mission-critical environments, which in turn drives larger transaction sizes. As important as new customer acquisition is, a steady and predictable pattern of repeat purchases by our installed-base customers driven by high levels of customer satisfaction is an even more critical driver of long-term growth. We executed well on several of our key growth drivers during Q3FY16:

Building a large customer base

. During Q3, we acquired 617 new customers to end with an installed base of...