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The Tintri storage hourglass is almost out of sand

Time is winding down for Tintri, whose slow-motion fall could come by the end of June. The remaining question is whether the publicly traded hybrid storage vendor can complete a last-second Hail Mary to force overtime.

Tintri postponed a June earnings call and has yet to announce a rescheduling date. The delay likely is tied to several factors. First, Tintri storage sales aren’t growing at a rate sufficient to cover a high burn rate. That first dynamic has created a second: Tintri’s effort to renegotiate loans and attract much-needed operating capital – and thus incur more debt. Not exactly a winning formula to satisfy investors, much less lure new ones.

Short of a major surge in organic growth, Tintri does “not have the ability to repay” existing debt, nor does it have “sufficient liquidity to continue our operations beyond June 2018,” according to a May 31 filing with the U.S. Securities and Exchange Commission.

Public companies are required to disclose investor risks within their financial statements, but it is unusual for a company to specify a calendar date on which it may be forced to suspend routine business operations. It is noteworthy that Tintri cited the date after disclosing it had recently been able to extend the maturity of existing credit lines and loans.

The Tintri storage platform launched in 2008 with all-flash VMstore arrays that catered to VMware shops. It was a promising market, but Tintri got passed by with the advent of cloud and containers. Most of its sales now are for EC 6000 Series all-flash and T800 hybrid cloud arrays, which Tintri markets to hyper-scale data centers and service providers.

Fiscal year revenue of $125.9 million was flat with 1% growth. Tintri product sales accounted for $91 million, with support and maintenance contracts generating deferred revenue of $35.1 million.

Tintri’s losses widened last year, with the company spending nearly $97 million more than it took in in product sales. Total operating expenses topped $222.5 million, including nearly $1 million in restructuring costs linked to a round of layoffs enacted in January, dropping headcount from 561 to 445 employees.

Although it has direct sales teams in nine countries, 90% of Tintri storage revenue is derived from its 447 channel partners.

Less than one year after its initial public offering (IPO), Tintri said it isn’t generating enough money to repay existing debt. It also faces unappetizing choices to close the gap; namely, to satisfy debt by taking on more debt, or to sell more shares, which would dilute the value of shareholders’ equity.

Debt terms were renegotiated earlier this year with Silicon Valley Bank, which reduced the aggregate principal available to it from $20 million to $12.5 million. The revolving loan facility allows Tintri to borrow the money, repay it, and then re-borrow it up until May 2019.  Tintri also reworked the loan terms with TriplePoint Capital LLC to extend maturity until April 2019.

New CEO Thomas Barton has yet to publicly disclose a turnaround strategy for Tintri. Barton took the reins in April following the voluntary resignation of Ken Klein, who had led Tintri since 2013. Tintri CFO Ian Halifax resigned several weeks later after Klein’s departure. Tintri declined requests to interview Barton.

Tintri’s slow slide actually began prior to completing the IPO. Spooked by anemic Tintri storage growth, and its staggering debt load, investors forced Tintri to postpone the offering. When it popped one day later, Tintri shares opened at $7 – well off the $11 target price. Tintri expected to net $109 million; it settled for proceeds of $60 million.

The ominous beginning foreshadowed struggles to come. Shares of Tintri, traded under the stock ticker TNTR, hit a high of $7.75 several weeks after its market debut, but have fallen steadily ever since. The stock was selling for 35 cents per share as recently as May. TNTR closed Tuesday at 56 cents.

June ends in 18 days. Will Tintri be able to find a way out of the doldrums in time? We shall know soon enough.

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Garry, this is a pretty good article.

Tom Barton likely has a life-line. He would not take the job on April 2nd for a piddly $450k salary, to then file for bankruptcy 3 months later, and make nothing on that move. He just came from PE. That is why they hired him...because he had a life-line. Or, scenario-said differently, that is why he took the job, because the current VCs said they would give him at least one more life-line if he takes the job. Everyone needs to understand that.

Silence is Tom's tool right now. Here is why. If they come out and report a bad quarter, that kills Tom's potential PE deal (acquisition by PE or private placment). If they come out and report a good quarter (better than expected burn, rev, etc), THAT ALSO KILLS TOM'S POTENTIAL PE DEAL...because the stock then rips, making the company too expensive for a PE acquisition. A good ER report will obviously not kill a private placement or a new debt deal, but if you are Tom right now, you want to stay quiet for a few more weeks so that you can keep all options (a PE acquisition) on the table.

Unfortunately, most retail investors freak out because of the silence and assume bankruptcy, incorrectly. Bankruptcy risk is certainly a real risk, but unlikely given Tom's background and recent timing. Homeboy likely has a life-line. If so this stock doubles or triples in no time.
"Homeboy?" I presume this is a typo, rather than your description of him. 

On your larger point: you certainly may prove correct. I tend to think thought that the longer a company says nothing - esp. in light of cancelling its earnings report to Wall Street - the greater the uncertainty that is planted in the minds of customers. See: Systems, Violin. 
Garry, homeboy is a very pertinent reflexive pronoun. I highly recommend the use of homeboy versus he. Try it out. It feels great when you type it. 

Violin's history makes Tom's effort to raise money a lot harder, yes.

If I were Tom in the room during the pitch, here is how I would handle this push back...

1. Violin only had 500 customers, many unhappy. Tintri has 1500, and they are all mostly happy (fact, if you talk to 20 Tintri customers, channel partners, etc).

2. Violin had no working Tier 1 data services IP. They were still a Tier 0 workload company who were trying to compete against Pure and the big boys who all launched flash-optimized Tier 1 data services and beat them to those deal conversations. Customers like Tier 1 compression because it makes flash cheaper, for those who don't know. Violin never got the FalconStor IP working well, sadly. (they called it Concerto, but it came right from FalconStor because they bought that code base from FalconStor). Eric Herzog came in from EMC and created a PR revival for Violin, which really helped Violin get more life, but the FalconStor stuff never worked completely. That is what killed Violin. Tintri does not have that problem. They have a great product and happy customers, leveraging Tier 1 data services IP from Tintri, successfully. If you fund/buy us, our chances for turn-around or stability are way greater than Violin's. We think you (PE shops) could fetch $200mil or so for us 18-24 months out no problem.

3. Tintri could do something Violin was not smart enough to do, which is go private and get out of the 90-day reporting cycle for a year or two, and all the competitor FUD that comes with it. The debt is not big enough to scare some PE shops at an $18mil market cap. Private company status will actually help the turn-around story. Taking us private is probably smarter than raising debt or a private placement. Ask Kevin at Violin.

4. 445 employees is still a huge number. We can easily restructure 2 or 3 times more over the next 12 months if you give us bridge money. Ken and Ian built up this company structure for growth while sales stayed flat. That is why the losses were so huge this last year. There is a lot Tintri can do over the next 12 months if you give us the bridge money. Here are the models we projected out, etc. Take a look.

Garry, they did not cancel their ER. They just haven't scheduled it yet, nor have they filed for a late report, fyi. I have been watching this daily. I have no idea why you are stating they cancelled their ER. I have seen nothing on that anywhere.

Tom has a few more weeks to take advantage of this silence. It sure wouldn't be like him to take a piddly salary and then go run a bankrupt company that no one will want to buy later. Storage is too competitive. Bankrupt storage companies who re-org don't get much of valuation renaissance later in this era. Bankruptcy pretty much kills the brand permanently and Tom knows that (this is Storage, not Networking folks).

I would bet that Tom has a life-line versus just making the worst 3-month job decision in his career (and it has been a pretty good career so far). He knew he would have to raise money in a few months. That was just a fact he knew walking in. Guys like him don't just take a low-paying job in these circumstances and wing it. There is always a plan backed by someone in one's PE network.

You are correct. Silence is scary, to both customers and investors, and it creates a lot of fear-mongering. However, silence is also Tom's biggest negotiating tool right now. The cheaper the stock stays, the more options Tom has on the table to negotiate. Anyone with a PE background will tell you that Tom is more concerned about getting his company the very best deal for survival right now, and not the stock price, or how the customers feel about the stock price, or how smaller investors feel about the stock price.

It should be an interesting few weeks and thank you for writing the article.

I'm not sure that Violin is an apples to apples comparison. It was an inadequate platform to begin with and didn't have nearly the install base or maintenance stream that Tintri does. As a consumer and investor in the product, I think there is a tremendous amount of upside for Tintri, both in market position, and current install base. I know of a lot of die hard and loyal consumers of the product. Personally, I think this will play in their favor toward acquisition. I think that may be the only way the product moves forward without a constant looming risk. The maintenance revenue stream from the existing install base alone should tempt a buyer. Just my two cents.
What incentive is there for an existing vendor to buy Tintri? The cloud arrays Tintri is trying to sell are going up against (by Tintri's own admission, "intense competition") from Dell EMC, NetApp, Nutanix - heck, they even list Hitachi, which by design is selling less storage hardware these days. I don't believe other storage vendors will view Tintri as filling any glaring hole in their portfolios, not enough to justify an acquisition. At least not one in which Tintri gets acquired for anything but pennies on the dollar. 

As to Violin, I see it differently. The hardware was not an "inadequate platform," as evidenced by the number of Fortune 500 customers that signed on early. Where Violin failed was in the software piece - ie., not developing its own integrated stack for flash, which allowed competitors to surpass them in the market. The question now for Violin is whether it is too late to recover so much lost ground.  More to the point is that Violin sought aggressively for a buyer - and found no takers. Tintri may be facing the parallel circumstance very soon.

Either way, we are talking about a pair of vendors lost in the woods and seeking the forest's edge. Not a strong position if the goal is to be an acquisition target.
It is called the VC shuffle. The VCs invest a hundreds of millions of their investors' money into a crapshoot. They take out their fees and sometimes a carry and if the company falls apart, the VCs buy bigger homes in Atherton and tell their LPs you cannot win them all. Barton is a joke. He claims to have been CEO of Rackable, but a quick  google search  shows he was CEO for a weekend. He is there to get a $600k (1.5xsalary) payday for 2 months of "work" and try to get SVB and Triplepoint some money  back.

The equity market cap is $17 million. A listed shell company sells for not much less. TNTR is bankrupt in the eyes of the  market participants. Going public and not raising enough  money for a 12 -month runway was a desperate move for the VCs to cash out  with no downside,  except some very minimal reputational damage.

It is all a game. Any sucker thinking Barton is a genius by being silent is just that - a sucker.

What a really big, poorly-timed, bad opinion. You have a lot of learning to do. You ought to check the 35% move today. Barton's salary is also $450k and he is not there to bankrupt the company. Do your homework please.
Talk about a poorly timed comment. YOU ought to check out the move today.
Teg397, Tom has until June 29th to file the10-Q. You just don't now what next week might look like. Morgan Stanley put out a maintain equal-weight rating on Wednesday with a 60-cent target and there was a lot of real buying this week and last before today. Morgan Stanley were one of the lead underwriters. That implies they knew about a private-placement discussion in the works. It may have fallen through, or Tom may still have a trick up his sleeve in the next week or two.

From the outside, it certainly looks likely that Tom has offers from PE, post-bankruptcy scenario, and not pre-bankruptcy scenario, at this point.
Shares in TNTR fell nearly 40% yesterday, so the gains you mention were wiped out. I'd be wary of any one-day move of the stock. Sustained upward momentum is needed for Tintri to get back over the $1 listing requirement. Like I said, clock is ticking. Shares closed at 44 cents - that's nearing its all-time low. Time will tell
...and your not posting my comment I tried to post above, so why bother trying to offer further insight?
PEdude, I believe I have responded to all your comments, so am presuming your latest remark is directed at another poster? I don't have the ability to block anyone's post btw. Good discussion folks. Just keep it respectful. I don't have anything further to add to my previous comments.
You referring to TechTarget, not you. I tried posting some important comments last night and they wouldn't post:( Your comment review platform is not working perfectly.
Also Garry, shares of TNTR were UP YESTERDAY. closed 35% up yesterday on 7.5mil volume, before today's news and filing (45 days after EOQ). $1 is a moot point. Companies have 180 days to fix the first 30-day violation, but it does not matter when you only have a few weeks of money left.
I ran one of the largest US short hedge funds. while the VCs play the shuffle, the daytraders play musical chairs and the lottery. with a burn rate of 7.5-8 million and forced to pay back 8mm to SVB and incurring 3mm in early lease termination cash expense, tintri will have just enough to pay the bankruptcy lawyers at EOM. whoever posted my opinion was poor because of the following day's runup, really needs to learn how to read a balance sheet, cash flow statement as well as the debt covenant exhibits. While some longs will have made some money, most will have lost. shorts cleaned up.
Oh really? How was your performance?.. because you are spending time posting on techtarget, and you can't read an inducement package well because you think Tom is making $600k. He is making $450k and he will receive no bonus in about 2 weeks when/if he files bankruptcy. Priority status is pretty clear-cut. Triple Point will get the same amount at out of bankruptcy if Tom were there, or he wasn't.

And the fact that Tom burned through $20mil in the month of May is not a sign that he is helping preserve cash for TriplePoint. He could have cut the employee count in half easily, upon arrival to squeeze out some more time. The best way to get SVB or TriplePoint there money back was to not go bankrupt. Now, they might get $10-15mil tops.

I was short all the way down and I have been trading these levels. As of Friday's news, things do not look good so I will have decisions to make starting early tomorrow. Looks like Tom had a miscalculation in taking this low-paying job. If he had a life-line or two, he likely dealt poorly, and not timely.

"$1 is a moot point" Until it isn't. Tintri shares sank to 31 cents to close Friday. So again, looking at a stock's one-day move in a vacuum is pointless. What triggered the Thursday runup? Certainly nothing substantive changed in the Tintri model to justify the surge, but what is a moot point are those gains you mention of 35%,on Thursday, which were erased by a 56% fall Friday. This ping-pong game could go on for days, but it's all paper. As you correctly note, it doesn't much matter when there is more month than money left. Which was the basic premise of my original post. Thanks for reading and commenting. I've got nothing further to add.
Garry, a company has 180 days to make remedy on the $1, after the initial 30-day violation. Companies just do reverse splits later if they feel like staying listed. And it is a moot point because Tom does not have 180 days so writing about it only suggests you are not up to speed on your nasdaq listing requirements, no offense. He has maybe 1-3 weeks of cash, or bankruptcy.

Whatever note Katy Huberty put out to MS clients (that you and I do not get to read) on Wed with the equal-weight rating was likely what caused the run-up on Thursday. It was not retail buying 7.5mil shares and there are only 2.5mil shares short, so it was not covering explaining that volume.

Something does not add up though between Wed and Friday, so maybe a deal fell through. All optics as of Friday suggest bankruptcy at this point. If a suitor comes in and tells SVB/TriplePoint we are willing to pay half of the debt, but not all of it, that might be a bettter offer than the $10mil or so they will get back through bankruptcy, but that is very unlikely at this point. At this point, one should only be trading intraday and not hoping for anything positive.
Barton makes 650k and maybe more. read the filing. "Mr. Barton's employment is terminated without Cause (and other than due to death or Disability) or Mr. Barton resigns for Good Reason, Mr. Barton will be entitled to the following severance benefits if he timely signs and does not revoke a release of claims: (1) a lump sum payment equal to 18 months of his then-current annual base salary; (2) a lump sum payment equal to 150% of his target annual bonus for the year of termination; " also, often CEOs renegotiate in bk.

and, barton did not burn through 20mm. svb required 7.5mm repayment based on lower a/r and early lease termination cost a few million. barton spent 7.5mm in the month as was spent in prior months. you don't know what you're doing.

I can read dwlima, but thank you. Base is $450k. If you want to talk about future severance and lump it in there, ok, fine. Inducement packages get in line behind the debt, and you know that.

I bought a bunch of June $5 puts the day after Ken resigned, so apparently I do know what I am doing. I was just playing some bounces at these levels. I agree there is no case to be long given Friday's PR. Thursday action supported my thesis. Friday does not.
dwlima, Barton there to protect TriplePoint money? Your conspiracy theory just got debunked today. Barton resigned. Again, he was there to get them a life-line, not live through bankruptcy. Also, he ran Rackable for many years. Do your research. Google searches don't get you to far and sounds like you don't have analysts to do your thinking for you anymore.
" He is there to get a $600k (1.5xsalary) payday for 2 months of "work" and try to get SVB and Triplepoint some money  back.":

dwlima, nice conspiracy theory while it lasted. How much money did he get back for TriplePoint?? Do tell!!

His resignation today clearly shows you do not know what you are talking about. Also, try different methods of research, other than a google search. Tom ran Rackable for many years. You don't know this space, clearly.