Nimble Storage (NMBL) is expected to price this week and has raised the proposed range up from $16-$18 to $18-$20. This Goldman Sachs/Morgan Stanley deal is hot and would debut at $1.4B at the new mid-point or about 10x sales. Based on prior deals this one will probably reach 2x+ the IPO price in the aftermarket.
After watching FLASH storage companies like Violin Memory (VMEM), STEC (STEC) and Fusion-io (FIO) fail investors are still looking for a company with the “secret sauce” to play new innovations in storage and the Nimble software solution might be it.
The company is being bold in their claims to go up against the established players in the industry – EMC (EMC), NetApp (NTAP) Dell (DELL), and HP (HPQ) in the mainstream storage market by combining the benefits of FLASH and conventional disk storage using a proprietary software management platform.
Here are some choice sections from the IPO roadshow transcript with a link to the roadshow slides following:
Nimble could dramatically reshape the architecture of the storage industry over the next decade driven by a couple of external catalysts that we leveraged in building our platform. Our belief was that a ground-up design storage system needs to be efficient in leveraging both flash and disk drives and perhaps, more importantly, it needs to be media agnostic and flexible in leveraging both as their characteristics change over time.
[There are two big catalysts for a shift in the storage industry.] The first catalyst is flash. Our belief was that flash is so different from disk drives which have been the core underpinnings of companies like NetApp and EMC from an architectural standpoint. The second catalyst is cloud. Our belief was that cloud-based management would radically transform data center operations for our customers.
[We have] two core innovations. The first is CASL, our flash-optimized file system that is industry leading in leveraging both flash and disk drives. The second innovation is InfoSight, our cloud-based management software that radically simplifies storage management.
When a customer benchmarks us for a mainstream enterprise application, typically we need about one-third to one-fifth of the hardware resources compared to other competitive storage systems — competitive storage systems that are using both flash and disks.
Flash is so radically different at the media layer from traditional hard disk drives that it requires a rethinking of the file system foundation itself, and that’s what makes it so challenging for incumbents to build a flash-optimized storage system.
The first innovation within CASL relates to compression. Unlike traditional file systems that store data in fixed block containers, CASL was designed to store data in variable-sized blocks which allows it to compress data inline, whether that data lives in flash or on disk. This results in saving 30-70% of the flash and disk resources within our storage systems compared to competitive storage systems.
The second innovation within CASL is how it drives data. Unlike traditional storage systems that accelerate write performance by using an expensive tier of flash drives, CASL uses sophisticated software to convert random IO into disk-friendly sequential IO. As a result, we are able to deliver flash-like write performance while using low-cost disk drives.
The third innovation within CASL relates to how we accelerate reads. Traditional file systems migrate data between tiers to accelerate read performance. CASL, on the other hand, uses flash as a cost-effective read cache which translates into requiring a lot less flash as well as low-cost flash. As a result, we’re able to deliver read acceleration while spending a lot less on flash within our storage system.
The fourth innovation within CASL relates to data protection. CASL is able to store hundreds to thousands of de-duplicated, compressed snapshots. What that means for customers is that unlike traditional systems where they have very few backups, CASL is able to store hundreds of backups that result in dramatically better data protection.
InfoSight [is] our cloud-based management software. Here’s how it works. Any Nimble array deployed anywhere around the world every few minutes is sending us heartbeats — heartbeats with enormous amount of “health” information. To put this in perspective, from every system per day we get between 10 million to 17 million sensors. So, across our install base already we get hundreds of billions of sensors populating our database. We have a team of data scientists and engineers that are constantly parsing this incoming feed to understand how we can improve our customers’ environments.
As I step back and I think about the impact of the platform we’ve brought to bear and the go-to-market model we have on the competitive landscape within our industry, we see a fairly big shift over the next decade. Within any enterprise at the high-performance end of the spectrum, there’s a small sliver of applications we think over time will migrate towards server-based flash products or all flash products. The bulk of what an enterprise deploys by way of storage today is modular storage systems: EMC’s VNX platform; NetApp’s ONTAP platform, Dell’s Compellent and EqualLogic platform and HP’s 3PAR platform are the bulk of what enterprises deploy by way of modular midrange storage — and these five products account for almost 85% of the competitive engagements that we have — and we have an extremely healthy win rate against all of them put together.
[Customer Growth: Number of customers went from 174 in FY12 to 780 in FY13 to 2,121 in FY14.]
[Revenue Growth: revenue in the first 9 months of this fiscal year was $84M, up 2.5x for the same period last year.]
As important as new customers are to driving revenue, what’s significant about our industry — driven by data growth in most organizations — is the repeat purchases that stem from customer acquisition are very significant in driving revenue growth for us, as well. What we’ve seen across our entire customer base is that for every dollar that a customer first spends with us, in the next two years they spend an incremental 1.2 dollars over the course of two years — more than doubling their spend with us. We then took a look at some of our largest customers. We went back and looked at all of our customers that have been with us for over a year and picked the 50 largest customers.
What you see is the pattern of purchases. Typically when one of these 50 [large] customers spends a dollar with us initially; in the course of the next two years, they more than quadruple the amount of spend that they have with us. We are seeing very strong traction overall within our business model in the form of repeat bookings from customers that we’ve acquired.
What’s driving the pace of customer acquisition for us is also the leverage in our business model. We are a channel-centric, go-to-market organization and we’ve seen almost a nine-fold increase in the number of channel partners we have in just the space of two years. What’s really significant is that these channel partners are not just fulfillment partners for us. Our channel partners are a key part of going to market and generating demand for us. In just the last nine months of this year, we’ve trained over 800 channel salespeople and more than 50% of the opportunities that make up our pipeline are opportunities that our channel is generating for us. So, the channel is a key go-to-market partner bringing leverage to bear for us as an organization.
The total market that we address today with our platform we estimate to be about $30 billion — $23 billion in systems revenue and $7 billion in software revenue. Of that total market, based on the price points we serve and based on the workloads we compete in today, we believe our served market today to be about $18 billion.
We believe our long-term financial model is very attractive. Our gross margins are already in the range of our long-term targets. As we continue to drive leverage in operating expenses, we expect our operating margins to improve each year. [Gross margin 64%, R&D at 12%, S&M at 30%, G&A at 6% with NGOM of ~18%]
The market capitalization of NMBL at the new midpoint of $19/share comes to $1.4B. That’s about 10x current year sales which is healthy but based on other hot deals investors can expect to see this trade up from there, probably to 2x the IPO price.
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