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Tintri flash sales won't keep CEO Klein in job much longer

Popularity of Tintri E6000 flash storage helped the vendor beat quarterly revenue and earnings estimates on Monday, but muting the upbeat tone was news of layoffs and CEO Ken Klein’s decision to step down from the job.

Tintri said it cut 20% of its workforce last quarter as part of a plan to slash operating expenses 70% by April 2019. Klein said engineering and go-to-market teams absorbed the bulk of the cuts. Tintri said it plans to recognize up to $7.2 million in severance-based restructuring costs.

In other moves to strengthen its balance sheet, Tintri gained up to $25 million in incremental financing from a promissory note issued to venture investors, and said it is negotiating  with principal lenders to soften the terms of existing debt.

Klein’s departure comes a week after Tintri issued layoff notices to an undisclosed number of employees.  According to previous filing, Tintri employed 561 people as of April 2017; Klein said Monday that Tintri ‘s headcount now stands at 445 employees..  Klein said he will remain on board to help find his successor. A timetable was not given for finding his replacement.

“Tintri is in the strongest position since our public offering in June. I’m very proud of the company we’ve built, and believe Tintri is on the right path. With Tintri on solid footing, I plan to transition out of my role as CEO and will assist in a smooth and orderly leadership transition,” Klein said.

It has been a turbulent 12 months for Tintri, which went public in June with an initial public offering that disappointed out of the gate.  The equity initially was priced at $11 per share, but opened nearly 40% lower at $7 per share. The stock sold as high as $7.75 and as low of $2.28 during its 52-week range.

For the quarter, Tintri posted nearly $30 million in revenue, exceeding its guidance but representing a 29% drop year over year. Analysts had braced for Tintri revenue in the neighborhood of $26 million. Full fiscal-year revenue growth of $126 million was flat at 1%.

Earnings per share of 72 cents beat Wall Street estimates by 8 cents, although Tintri’s net loss widened to $37.4 million, compared to $25.5 million in the year-ago quarter.

Tintri flash product revenue, which consists of system sales and Tintri software licenses, fell 41% from a year ago ($19.3). Revenue from maintenance and support agreements grew to $9.6 million, up 24%, and nearly doubled as a percentage of revenue to 33%.

EC6000 all-flash arrays appear to have surpassed VMstore arrays as the flagship Tintri flash storage. Klein said EC6000 sales generated two-thirds of product revenue last quarter.  Recent Tintri flash rollouts included Tintri FlexDrive, which allows customers to expand EC6000 storage capacity on a drive-by-drive basis.

International sales accounted for about 32% of Tintri revenue, up from 26%. The remaining 68% of sales were to U.S.-based customers.  More than 50 Tintri flash customers were added last quarter, bringing the total number of logo to 1,540.

Product gross margin tumbled from 62% last quarter to 57%, bringing overall gross margin down more than four percentage points to 59%.  CFO Ian Halifax said industry-wide price hikes for dynamic RAM weighed down product margins.

“We expect flash pricing to stabilize but DRAM memory pricing to continue to increase over the near to mid-term,” Halifax said.

Klein also acknowledged that customers “remain cautious” about doing business with Tintri.  He said the layoffs are part of a plan to “restore confidence that allow customers to increase their investments with us.”

With Klein headed out the door, it will fall to his successor to try and keep Tintri flash customers from exiting as well.

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