Here’s Why Nimble Storage Is Set Up for Future Growth

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Nimble Storage Inc. (NYSE:NMBL) isn’t exactly a household name. However, the company has been growing for the past few years and has expanded its business in multiple areas. The company primarily provides flash-optimized hybrid storage platforms. The company’s software and storage systems handle various mainstream applications, including virtual desktops, databases, email, collaboration, and analytics.

It offers systems that provide adaptive performance for high-input/output and high-capacity mainstream business applications and environments, such as Exchange, Oracle, SharePoint, SQL Server, virtual desktop infrastructure, and server virtualization. The company sells its products through a network of value-added resellers and distributors to a range of industries comprising cloud-based service providers, education, financial services, healthcare, manufacturing, state and local government, and technology worldwide. The stock is relatively young, having been public for less than a year. It has lost 30 percent of its value in six months. But does this represent an opportunity. Well, the company beat its most recent earnings estimates and offered strong top line guidance.

Total revenue for the first quarter of fiscal 2015 was $46.5 million compared to $22.1 million in the first quarter of fiscal 2014, representing growth of 110 percent year over year. Non-GAAP gross margin was 66.2 percent for the first quarter of fiscal 2015, compared to 61.8 percent in the first quarter of fiscal 2014. Non-GAAP operating margin improved to a negative 22 percent, compared to negative 36 percent in the first quarter of fiscal 2014.

Its GAAP net loss increased for the fiscal first quarter at $19.6 million, or 28 cents per basic and diluted share, compared with a net loss of $9.4 million, or 47 cents per basic and diluted share, in the fiscal first quarter of 2014.  The company’s non-GAAP net loss for the fiscal first quarter was $10 million, or 14 cents per basic and diluted share, compared with a non-GAAP net loss of $8.2 million, or 14 cents per basic and diluted share, in the fiscal first quarter of 2014.

While the finances improved in most areas, there were also significant achievements made by the business itself, setting it up nicely for future growth. First, the company announced that more than 200 enterprise customers have implemented SmartStack converged infrastructure solutions to accelerate deployment and eliminate risks associated with their datacenter infrastructure. Since late 2012, the company has rolled out a series of SmartStack solutions built on Cisco UCS and pre-validated through ecosystem partners including Citrix, Microsoft, Oracle, and VMware to deliver aggressive performance, shorten deployment times, and reduce project risk.

The scale-to-fit approach enables customers to grow capacity and increase performance beyond the physical limits of a single storage array. Second, the company also announced a pan-European distribution agreement with Ingram Micro, the world’s largest wholesale technology distributor and a global leader in IT supply-chain and mobile device lifecycle services that enables the distributor to sell the company’s portfolio of flash storage arrays.

Through the distribution agreement, Ingram Micro Europe’s Advanced Solutions Division will also offer Nimble Storage’s SmartStack converged infrastructure solutions to the Nimble Storage partner community and Ingram’s broader reseller partners across Europe. Finally, Nimble announced that its flash-optimized storage solutions have been verified as part of the Citrix Ready VDI Capacity Program Verified for Citrix XenDesktop, a major accomplishment for Nimble’s progress.

Looking ahead, the company anticipates that revenue for next quarter will be in the range of $49 million to $51 million, and for operating losses between $11 million and $12 million. This translates into a non-GAAP loss of 16 cents to 17 cents a share, which is based on approximately 70,800,000 shares outstanding. The guidance for the range of Q2 operating losses is similar to what the company guided for in Q1 and is in the range of what I would expect for the next few quarters.

While operating margins may fluctuate on a quarterly basis, the company currently expects to continue to drive sequential improvement in operating margin every fiscal year. Based on the current estimates, by the end of next fiscal yearb the company projects that it will break even on earnings and start moving toward profitability. Thus, I think on small pullbacks, a position can be initiated at current levels.

Disclosure: Christopher F. Davis holds no position in Nimble Storageand has no plans to initiate a position in the next 72 hours. He has a soft buy rating on the stock and a $31 price target.

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