Organization and Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Jan. 31, 2014 |
Accounting Policies [Abstract] | ' |
Description of Business | ' |
Description of Business |
Violin Memory, Inc. (the “Company”) was incorporated in the State of Delaware on March 9, 2005 under the name Violin Technologies, Inc. The Company re-incorporated as Violin Memory, Inc. in the State of Delaware on April 11, 2007. The Company is a developer and supplier of high-performance, persistent memory-based storage systems that are designed to bring storage performance in line with high-speed applications, servers and networks. These Flash Memory Arrays are specifically designed at each level of the system architecture, starting with memory and optimized through the array, to leverage the inherent capabilities of flash memory. These systems’ embedded software function together with the hardware to deliver their essential functionality. The Company also recently introduced the Violin Symphony Management Software Suite and Maestro Memory Services Software Suite as software offerings enhancing the process to manage, monitor and protect application data in the enterprise data center. The Company sells its products through its global direct sales force, systems vendors, resellers and other channel partners. The Company operates in a single business segment. |
The Company effected a two-for-one reverse stock split to its common stock for all stockholders of record as of September 12, 2013 with an automatic adjustment to the conversion ratio of the outstanding shares of convertible preferred stock to reflect the same reverse stock split ratio upon conversion of the convertible preferred stock into common stock. Based on the adjusted conversion ratio, two outstanding shares of preferred stock converted into one share of common stock, except for Series D convertible preferred stock for which every two shares converted into 1.016998402 shares of common stock. All information related to common stock, stock options, RSUs and earnings per share for prior periods has been retroactively adjusted to give effect to the two-for-one reverse stock split. |
On October 2, 2013, the Company closed its initial public offering, or IPO, of 18,000,000 shares of its common stock sold by the Company. The public offering price of the shares sold in the IPO was $9.00 per share. The total gross proceeds from the IPO to the Company were $162 million. After deducting underwriting discounts and commissions and IPO costs paid by the Company, the aggregate net proceeds to the Company totaled $145.8 million. |
Basis of Presentation and Consolidation | ' |
Basis of Presentation and Consolidation |
We prepared the consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). The consolidated financial statements include the accounts of Violin Memory, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. |
Foreign Currency Transactions and Remeasurement | ' |
Foreign Currency Transactions and Remeasurement |
The local currency is the functional currency for each of the Company’s subsidiaries. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at average exchange rates the respective period. |
Gains and losses from foreign currency transactions are included in other income (expense), net. Foreign currency translation adjustments are included in other comprehensive loss. |
Use of Estimates | ' |
Use of Estimates |
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its significant estimates, including those related to estimated selling prices for elements sold in multiple-element revenue arrangements, product warranty, determination of the fair value of stock options, carrying values of inventories, liabilities for unrecognized tax benefits and deferred income tax asset valuation allowances. The Company also uses estimates in determining the useful lives of property and equipment and in its provision for doubtful accounts. Actual results could differ from those estimates. |
Concentrations of Market, Credit Risk, Significant Customers and Manufacturing | ' |
Concentrations of Market, Credit Risk, Significant Customers and Manufacturing |
The Company participates in the business of developing and manufacturing scalable flash memory arrays and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations or cash flows: advances and trends in new technologies and industry standards; competitive pressures in the form of new products or price reduction on current products; changes in the overall demand for products offered by the Company; changes in certain strategic relationships or customer relationships; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; and risks associated with changes in domestic and international economic and international and/or political conditions or regulations. |
Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents, investments and accounts receivable. The Company places its cash and cash equivalents and investments with high credit quality financial institutions which the Company believes are creditworthy. Deposits may exceed the insured limits provided on them. |
The Company generally requires no collateral from its customers. The Company mitigates its credit risk with associated with its accounts receivable by performing ongoing credit evaluations of its customers and establishes an allowance for doubtful accounts for estimated losses based on management’s assessment of the collectability of customer accounts. |
The Company sells to a limited number of large systems vendors, resellers and end-customers and, as a result, maintains individually significant receivable balances with such customers. The Company’s systems vendor customers and certain large resellers tend to be well-capitalized, multi-national companies, while other customers may not be as well capitalized. Sales of products to large systems vendors and resellers are expected to account for a majority of the Company’s revenues in the foreseeable future, and the Company’s financial results will depend in part upon the success of these customers. The composition of the Company’s major customer base may change as the market demand for its products changes, and the Company expects this variability will continue in the future. The loss of, or a significant reduction in purchases by, any of the major customers may harm the Company’s business, financial condition and results of operations. |
The Company relies on a limited number of suppliers for its contract manufacturing and certain raw material components. The Company believes that other vendors would be able to provide similar products and services; however, the qualification of such vendors may require substantial start-up time. In order to mitigate any adverse impacts from disruption of supply, the Company attempts to maintain an adequate supply of critical single-sourced raw materials. |
Cash and Cash Equivalents | ' |
Cash and Cash Equivalents |
Cash consists of deposits with financial institutions. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of money market funds, which are readily convertible into cash and are stated at cost, which approximates fair market value. Cash and cash equivalents were $40.3 million as of January 31, 2014. The Company did not hold any cash equivalents as of January 31, 2013. |
Investments | ' |
Investments |
The Company classifies its investments as available-for-sale at the time of purchase since it is the Company’s intent that these investments are available for current operations, and includes these investments on the consolidated balance sheet as short-term or long-term investments depending on their maturity and management’s intention with regard to the utilization of these investments, as needed, to fund current operations. As of January 31, 2014, all investments have been classified as short-term. |
Investments are considered impaired when a decline in fair value is judged to be other-than-temporary. The Company consults with its investment managers and considers available quantitative and qualitative evidence in evaluating potential impairment of its investments on a quarterly basis. If the cost of an individual investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and its intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. |
Fair Value Measurements and Disclosures | ' |
Fair Value Measurements and Disclosures |
The Company records its financial assets and liabilities at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: |
Level 1 – Quoted prices in active markets for identical assets or liabilities. |
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The Company recognizes transfers among Level 1, Level 2 and Level 3 classifications as of the actual date of the events or change in circumstances that caused the transfers. |
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The Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities have carrying amounts which approximate fair value due to the short-term maturity of these instruments. |
Accounts Receivable | ' |
Accounts Receivable |
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers expected losses after taking into account current market conditions, customers’ financial condition, current receivable aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of January 31, 2014 and 2013, the Company’s allowance for doubtful accounts was insignificant. |
Inventory | ' |
Inventory |
Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method (FIFO method). The Company periodically assesses the recoverability of all inventory, including raw materials and finished goods to determine whether adjustments are required to record inventory at the lower of cost or market. Inventory that the Company determines to be obsolete or in excess of forecasted usage is reduced to its estimated realizable value based on assumptions about future and current market conditions. In the case of inventory which has been written down below cost through the use of a reserve, such reduced amount is considered the cost for subsequent accounting purposes. |
Revenue Recognition | ' |
Revenue Recognition |
The Company derives revenue primarily from sales of its flash memory arrays, flash memory cards, software and related support and development services. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable and collectability is reasonably assured. Evidence of an arrangement exists when there is a customer contract or purchase order. The Company considers delivery complete when title and risk of loss transfer to the customer, which is generally upon shipment, but no later than physical receipt by the customer. |
The Company sells its products and support services directly to end-customers, systems vendors and resellers. The Company currently does not provide price protection, rebates or other sales incentives to customers. The Company generally does not allow a right of return to its customers, including resellers. |
The Company’s multiple-element arrangements typically include two elements: hardware, which includes embedded software, and support services. Beginning in the second quarter of fiscal 2014, following introduction of the Violin Symphony Management Software Suite, the Company’s multiple-element arrangements also may include software elements. The Company has determined that its hardware and the embedded software are considered a single unit of accounting, because the hardware and software individually do not have standalone value and are not sold separately. Standalone software and support services are each considered a separate unit of accounting as they can be sold separately and have standalone value. |
When more than one element, such as hardware, software and services, are contained in a single arrangement, the Company first allocates arrangement consideration to the software deliverables as a group and non-software deliverables based on the relative selling price method. The Company’s appliance products, embedded software, and certain other services are considered to be non-software deliverables in such arrangements. The Company allocates revenue within the software group based upon fair value using vendor-specific objective evidence, or VSOE, with the residual revenue allocated to the delivered element. If VSOE of fair value cannot be objectivity determined for any undelivered software elements, we defer revenue until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. The Company allocates revenue within the non-software group to each element based upon its relative selling price in accordance with the selling price hierarchy, which includes: (1) VSOE, if available; (2) third-party evidence, or TPE, if VSOE is not available; and (3) best estimate of selling price, or BESP, if neither VSOE nor TPE is available. The Company establishes BESP considering multiple factors including, but not limited to, historical prices of products sold on a stand-alone basis, cost and gross margin objectives, competitive pricing practices and customer and market specific considerations. |
The Company then recognizes revenue on each deliverable in accordance with its policies for product and service revenue recognition. Revenue allocated to the Company’s products is recognized upon shipment or delivery. Revenue allocated to support services is recognized over the term, which is generally one or three years. |
The Company’s policy is to record revenue net of any applicable sales, use or excise tax. |
Property and Equipment | ' |
Property and Equipment |
Property and equipment consist primarily of capitalized equipment and computer hardware and software, which are stated at cost and depreciated using the straight-line method over the estimated useful lives of two years and three years, respectively. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operating expenses. |
Research and Development | ' |
Research and Development |
Research and development costs are expensed as incurred. Research and development costs consist primarily of personnel costs, prototype expenses, software tools, consulting services and allocated facilities costs. |
Software Development Costs | ' |
Software Development Costs |
The Company expenses software development costs as incurred until technological feasibility is attained, including research and development costs associated with stand-alone software products and software embedded in hardware products. Technological feasibility is attained with the Company has completed the planning, design, and testing phase of development of its software and the software has been determined viable for its intended use, which typically occurs when beta testing commences. The period of time between when beta testing commences and when the software is available for general release to customers has historically been short with immaterial amounts of software development costs incurred during this period. Accordingly, the Company has not capitalized any software development costs to date. |
Advertising Expenses | ' |
Advertising Expenses |
All advertising costs are expensed as incurred. The Company recognized advertising expenses of $0.6 million, $1.0 million and $1.7 million for the year ended January 31, 2014, 2013 and 2012, respectively. |
Income Taxes | ' |
Income Taxes |
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (or loss) in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established for deferred tax assets to the extent of the likelihood that the deferred tax assets may not be realized. |
The Company evaluates uncertain tax positions taken or expected to be taken in the course of preparing an enterprise’s tax return to determine whether the tax positions are more likely than not of being sustained upon challenge by the applicable tax authority. Tax positions with respect to any potential income tax for the Company not deemed to meet the more likely than not threshold would be recorded as a tax expense in the current year. |
Net Loss Per Share | ' |
Net Loss Per Share |
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding for each fiscal period presented. |
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Diluted net loss per share is computed by giving effect to all potential shares of common stock, including stock options, warrants and convertible preferred stock, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive. |
Stock-Based Compensation | ' |
Stock-Based Compensation |
The Company records stock-based compensation expense related to employee stock-based awards on a straight-line basis based on the estimated fair value of the awards as determined on the date of grant. The Company utilizes the Black-Scholes option pricing model to estimate the fair value of employee stock options. The Black-Scholes model requires the input of highly subjective and complex assumptions, including the estimated fair value of the Company’s common stock on the date of grant, the expected term of the stock option and the expected volatility of the Company’s common stock over the period equal to the expected term of the grant. The Company estimates forfeitures at the date of grant and revises the estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. |
The Company accounts for stock options that are issued to nonemployees based on the estimated fair value of such awards using the Black-Scholes option pricing model. The measurement of stock-based compensation expense for these awards is variable and subject to periodic adjustments to the estimated fair value until the awards vest and the resulting change in the estimated fair value is recognized in the Company’s consolidated statements of operations during the period in which the related services are rendered. |
Starting in fiscal 2013, the Company granted restricted stock units (RSUs) to employees. These restricted stock units vest upon the satisfaction of both a service condition and a liquidity condition. The service condition for the majority of these awards is satisfied over three to four years. The liquidity condition is satisfied upon the occurrence of a qualifying event, defined as a change in control transaction or the earlier of (a) 181 days following the completion of an initial public offering or (b) the March 15th of the year following the completion of an initial public offering. RSUs for which the service condition has been satisfied are not forfeited should an employee terminate prior to the liquidity condition being met. Share-based compensation expense related to these grants is based on the grant date fair value of the RSUs and is recognized on a straight-line basis over the applicable service period. |
Impairment of Long-Lived Assets | ' |
Impairment of Long-Lived Assets |
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. |
Investment in Privately-held Companies | ' |
Investment in Privately-held Companies |
The Company analyzes equity investments in privately held companies to determine if it should be accounted for under the cost or equity method of accounting based on such factors as the percentage ownership of the voting stock outstanding and our ability to exert significant influence over these companies. For the cost method investments, the Company determines if a decline in fair value is considered to be an other-than-temporary impairment. If a decline in fair value is determined to be other-than-temporary, the Company would recognize an impairment at the lower of cost or fair value. As of January 31, 2014, the net carrying value of the Company’s investment in RiverMeadow Software, Inc. was approximately $3.5 million. |
For the year ended January 31, 2014, the Company recorded an impairment on one of its cost-method investments in the amount of $0.7 million, which has been recorded in other income (expense), net in the consolidated statement of operations. There was no impairment recorded for the year ended January 31, 2013 or January 31, 2012. |
Commitments and Contingencies | ' |
Commitments and Contingencies |
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. |
Product Warranties | ' |
Product Warranties |
The Company generally provides a three-year warranty on all of its products. The Company accrues for potential liability claims as a component of cost of revenue based upon performance of equipment in the Company’s test and support labs, historical data and trends of product reliability and costs of repairing and replacing defective products. The accrued warranty balance is reviewed periodically for adequacy and is included in accrued liabilities in the consolidated balance sheets. |
Recent Accounting Pronouncements | ' |
Recent Accounting Pronouncements |
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02) which is effective prospectively for public companies for reporting periods beginning after December 15, 2012. This new accounting standard improves the reporting of reclassifications out of accumulated other comprehensive income (AOCI) by requiring an entity to report the effect of significant reclassifications out of AOCI on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. We adopted this new guidance on February 1, 2013, and the adoption did not have a material effect on our consolidated financial statements. |
In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists, which is effective for the periods beginning after December 15, 2013. The new guidance provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new guidance becomes effective for the Company on February 1, 2014, and it will be applied prospectively to unrecognized tax benefits that exist at the effective date with retrospective application permitted. The Company does not anticipate that adoption of this new guidance will have a material impact on its consolidated financial position, results of operations or cash flows. |