Fusion-io Shares Rally On Strong Earnings, Positive Margin Outlook

Fusion-io delivered strong revenue growth and a meaningful uptick in gross margin in Q4 2012.

The enterprise storage company surprised some analysts by posting a surprise per-share profit of $0.09, which was higher than the $0.04 that analysts were modeling.

“Our new products and the growth of our salesforce and channel have allowed us to expand our customer reach rapidly this past year”

David Flynn, Chief Executive Officer, Fusion-io Inc

Not only was it a beat on the bottom-line, but top line growth was also strong. Revenue was higher than anticipated, as Fusion-io’s delivered sales of $106.6M in Q4 compared to the $95.8M Wall Street had been forecasting. Revenues for the year surged 82% to $359.3M from $197.2M during the prior year.

The company designs, manufactures, and sells ultra-fast flash products used in servers and data centers through OEMs like Dell ($DELL) and IBM ($IBM), as well as directly to sophisticated technology companies like Facebook ($FB) and Apple ($AAPL).

Since the company was founded in 2006, the company has developed a reputation for being one of the most advanced and sophisticated players in the high-end enterprise storage sector.

Even though the results caught some analysts by surprise, the forecast was equally solid as well.  Looking ahead to fiscal year 2013, the company expects to achieve revenue growth of 45-50% and a gross margin of 56% to 58%.

Techinsidr Slant: Without a doubt, this is the strongest quarter yet for enterprise SSD upstart Fusion-io.  Not only did they continue to grow revenues at a better-than-expected rate, but their gross margin increased by 5.44% from Q3 2012 to Q4 2012.  So not only are they growing extremely fast, but they are also getting paid for their technology.

As longstanding customers with Fusion-io, Apple and Facebook continue to be important factors behind this company’s success.  Revenue from Facebook and Apple represented approximately 53% of total revenue for Q4 2012.  So clearly, the relationships with these sophisticated technology companies is really starting to pay off.

I have been following this company before they went public and it’s interesting to see just how quickly their business model has scaled up.  The company now serves over 3,500 customers, with over 50% of the Fortune 100 as customers.

Another big positive for Fusion-io is their expanded partnerships with Cisco ($CSCO) and NetApp ($NTAP), which should enable them to reach even more customers.  It also speaks to the strength of Fusion-io technology since you rarely see such big players partnering with a relatively new startup.

The biggest takeaway from this report is the sequential increase in margin and the strong margin outlook for 2013.  Gross margins decreased to 51% during Q1 2012 and caught investors by surprise, but during Q4 they were a very healthy 57.5%.  The company is now fully transitioned to their new iodrive2 product and clearly this is favorable from a margin perspective.

The margin story gets even better when you consider they issued gross margin guidance of 56% to 58% for FY 2013.

Overall, it was an incredibly strong quarter for Fusion-io as company continues to grow organically and establish key strategic partnerships.  Not only is this company growing their revenues at a fast clip, but they are earning strong margins on each dollar of revenue that they generate.

Also, the revenue guidance for FY 2013 seems relatively conservative given how quickly this company has grown.  I think there’s definitely headroom in that forecast and company could feasibly grow revenues by 60% or greater during FY 2013.

At the time of this writing, Rob currently has a long position in $FIO.  Rob formerly worked at Intel Corporation.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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