Gadzoox Networks Reports Fourth Quarter Earnings

Apr 30, 2001, 01:00 ET from Gadzoox Networks, Inc.

    SAN JOSE, Calif., April 30 /PRNewswire/ --
 Gadzoox Networks, Inc. (Nasdaq:   ZOOX) a provider of Storage Area Network (SAN)
 products, today reported financial results for its year-end and fourth quarter
 of fiscal 2001.
     During last quarter's conference call, the Company stated that it expected
 revenues to increase by 25% during the fourth fiscal quarter, and continuing
 on that rate of quarterly growth throughout fiscal 2002. Citing effects of the
 softening economy, on March 29th, the Company revised revenue estimates for
 the fourth fiscal quarter to a range of $6.0 to $6.5 million. Consistent with
 that guidance, the company today posted fiscal fourth quarter revenue of
 $6.4 million.
     In addition the Company announced the following fourth quarter financial
 adjustments:
 
     -- $5.0 million charge for excess and obsolete inventories, primarily the
        result of lower revenue forecasts and discontinued product development
        efforts;
     -- $3.2 million charge for restructuring and other expenses related to
        properly sizing the organization and maintaining focus on core
        business;
     -- $17.8 million charge for impairment of long-term assets, primarily
        relating to the write-off of the goodwill that arose from the SmartSAN
        acquisition; and
     -- Adoption of a sell-through revenue recognition policy for distributors.
        This change was made effective April 1, 2000 as a change in accounting
        principle. The change resulted in an increase in revenue and net income
        of $0.1 million for the fourth quarter of fiscal 2001.
 
     Without the financial adjustments, earnings for the fourth quarter,
 excluding amortization, was a loss of 48 cents per share. Including
 adjustments, but excluding impairments and amortization, EPS loss was 77 cents
 per share. This compares to a loss of 39 cents per share, excluding
 amortization, for the prior quarter. Gross margin for the quarter, before
 inventory adjustment charges, was 45%, compared to 40% in the prior quarter,
 or negative 32% when inventory charges are included.
     "The last few months have been challenging for Gadzoox Networks and many
 other high technology companies, and we have responded quickly and
 appropriately to the sudden changes in the economic environment by reducing
 costs and adjusting our business model and efforts accordingly," stated
 Michael Parides, Gadzoox Networks, President and CEO. "Overall, we view the
 past fiscal year as a period of significant transition and progress for the
 company, and are confident that we have focused the business and positioned
 the company for long-term success."
 
     The Company's Fiscal 2001 Highlights
     Throughout the fiscal year, the Company made significant progress toward
 building a foundation for improved execution and business success.
 
     -- Built a new management team capable of profitably growing the business;
     -- Eliminated non-core products and product development efforts to focus
        on delivering leadership products in the fibre channel fabric switching
        market;
     -- Expanded relationships with existing OEM customers, such as Compaq and
        Hewlett-Packard; and
     -- Led the market in the transition to standards-based 2Gb fibre channel
        fabric switching technology.
 
     Outlook
     The following statements are based on current expectations. These
 statements are forward-looking, and actual results may differ materially.
 
     -- Revenue is expected to remain flat for the next two quarters, compared
        to the fourth quarter of fiscal 2001. Depending upon the OEM adoption
        of Slingshot, the Company's new 2 Gb Open Fabric switch, revenue in the
        third and fourth quarters of fiscal 2002 is projected to grow
        40-70% sequentially quarter over quarter.
     -- Gross margin estimates remain the same for the next two quarters at a
        range of 40-45%. The Company expects gross margins to begin to increase
        to the 45-50% range by the third fiscal quarter of 2002 as the next
        generation of products achieve volume ramp.
     -- Operating expenses for the fourth fiscal quarter of 2001 were reduced
        across the organization by approximately 20%. In the first fiscal
        quarter of 2002, the company anticipates quarterly operating expenses
        to be in the $13.5 million range, and remain flat throughout each other
        quarter in fiscal 2002.
     -- Cash and short-term investment balance ended the fourth fiscal quarter
        at $10.9 million, compared to $25.4 million at the end of the
        third quarter, a decrease of $14.5 million. Due to its reduction in
        operating expenses, the Company expects a substantial decrease in cash
        use throughout fiscal 2002. Cash use for each of the next two quarters
        is expected to be in the range of $5 to $6 million. The Company is
        currently exploring financing alternatives to raise the capital needed
        to fund the fiscal 2002 plan.
 
     In closing, Parides stated, "While uncertainty about the duration of the
 external factors driving this quarter's results is causing us to be more
 cautious in our outlook, we strongly believe that we now have an excellent
 foundation in place for fiscal 2002. With the introduction of our
 market-leading 2Gb Open Fabric switch, we are confident that our business will
 rebound with the return of a growing economy."
     The Company will be holding a conference call at 2:30 p.m. PDT on
 April 30, 2001 to discuss results and answer questions. Interested parties are
 invited to participate either by phone or live webcast.
     To obtain the conference call information, go to www.gadzoox.com/ir. The
 live webcast can be accessed at www.gadzoox.com/ir.
     The foregoing statements regarding anticipated results for the next fiscal
 year ending March 31, 2002 and the Company's future prospects, performance
 such as expectations for future product development and deployment including
 development and deployment of a fibre channel fabric switch and other future
 products, inventory usage, sales and marketing and general and administrative
 activities, the sufficiency of the Company's cash balances to maintain
 operations and its ability to operate as a going concern, and the evolution of
 SAN capabilities and the market for SAN products. Actual results could differ
 materially from those anticipated in these forward-looking statements as a
 result of various factors, including but not limited to market acceptance of
 the Company's new products, in particular the Slingshot 2 Gigabit open fabric
 switch, and the speed at which customers adopt current and new products for
 SANs; the Company's dependence on a limited number of products, a significant
 portion of which are sold to a limited number of partners including OEM and
 distribution channel partners; the availability of capital; the ability and
 willingness of the Company's distribution channel partners to sell the
 Company's products; the Company's dependence on a limited number of customers;
 growth rates of the market segment within which the Company participates; the
 Company's ability to develop, introduce, ship and support new products; the
 Company's ability to meet future capital requirements; competition in the
 Company's industry and the timing of new technology and product introductions;
 the ability to retain and hire skilled personnel; and the Company's dependence
 on its contract manufacturer. These and other risks are further described
 under the caption "Risk Factors" beginning on page 22 in the Company's
 quarterly report on Form 10-QA for the fiscal quarter ended December 31, 2000.
 We assume no obligation to update any such forward-looking statements.
 
     About Gadzoox Networks
     Gadzoox Networks, the first company to announce and demonstrate 2 Gb open
 fabric switch technology, offers intelligent Storage Area Network (SAN)
 products that free IT managers from the increasing challenges of managing
 greater amounts of data with limited resources. Gadzoox Networks'
 industry-leading storage networking products improve backup and restore,
 enable high availability, accelerate performance, and reduce storage
 management costs. Gadzoox Networks is a voting member of the Storage
 Networking Industry Association (SNIA), with corporate headquarters located in
 San Jose, California. For more information about Gadzoox Networks' products
 and technology advancements in the SAN industry, visit the Company's Web site
 at www.gadzoox.com.
 
                             GADZOOX NETWORKS, INC.
 
                       CONDENSED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)
 
                                 Three Months Ended       Twelve Months Ended
                               Mar. 31,     Mar. 31,     Mar. 31,    Mar. 31,
                                 2001         2000         2001        2000
 
     Net revenues               $6,444      $15,079      $33,290     $47,931
     Cost of revenues            8,478        7,486       32,131      26,128
       Gross margin            (2,034)        7,593        1,159      21,803
     Operating expenses:
       Research and development  8,532        5,303       29,369      18,223
       Sales and marketing       6,301        5,094       23,667      11,638
       General and
        administrative           1,915        1,698        7,644       4,285
       In-process research
        & development               --           --        4,900          --
       Amortization of goodwill
        and intangible assets      698           --        3,842          --
       Impairment of long lived
        assets                  17,829           --       17,829          --
       Amortization of deferred
        compensation               109          321          608       1,285
       Restructuring and other
        expenses                 3,176           --        3,176          --
       Total operating
        expenses                38,560       12,416       91,035      35,431
     Loss from operations     (40,594)      (4,823)     (89,876)    (13,628)
     Total other income, net       205        1,446        2,332       3,267
     Loss before cumulative
      effect of accounting
      change                 $(40,389)     $(3,377)    $(87,544)   $(10,361)
     Cumulative effect of
      change in accounting
      principle                     --           --      (5,300)          --
     Net Loss                $(40,389)     $(3,377)    $(92,844)   $(10,361)
 
     Basic net loss per
      share                    $(1.42)      $(0.13)      $(3.32)     $(0.53)
     Weighted average shares
      used in computing basic
      net loss per share        28,411       26,441       28,006      19,731
 
     Pro forma basic net loss
      per share                $(1.42)      $(0.13)      $(3.32)     $(0.43)
 
     Weighted average shares
      used in computing pro
      forma basic net loss
      per share                 28,411       26,441       28,006      23,960
 
                             GADZOOX NETWORKS, INC.
 
                            CONDENSED BALANCE SHEETS
                                 (IN THOUSANDS)
 
                                                      Mar. 31,
                                                        2001
                                                    (unaudited)
     ASSETS
     Current assets:
       Cash and cash equivalents                      $10,939
       Accounts receivable, net                         2,922
       Inventories                                     10,626
       Prepaid expenses and other current assets          961
         Total current assets                          25,448
     Property and equipment, net                        8,244
     Other assets                                         795
                                                      $34,487
 
     LIABILITIES AND STOCKHOLDERS' EQUITY
     Current liabilities:
       Current portion of capital lease obligations      $924
       Accounts payable                                 6,176
       Compensation related accruals                    1,331
       Other accrued liabilities                        5,232
         Total current liabilities                     13,663
     Capital lease obligations, net of current portion    403
         Total liabilities                             14,066
 
     Stockholders' equity:
       Common stock                                       141
       Additional paid-in capital                     153,004
       Deferred compensation                            (426)
       Accumulated deficit                          (132,298)
         Total stockholders' equity                    20,421
                                                      $34,487
 
                      MAKE YOUR OPINION COUNT - Click Here
                http://tbutton.prnewswire.com/prn/11690X69587746
 
 

SOURCE Gadzoox Networks, Inc.
    SAN JOSE, Calif., April 30 /PRNewswire/ --
 Gadzoox Networks, Inc. (Nasdaq:   ZOOX) a provider of Storage Area Network (SAN)
 products, today reported financial results for its year-end and fourth quarter
 of fiscal 2001.
     During last quarter's conference call, the Company stated that it expected
 revenues to increase by 25% during the fourth fiscal quarter, and continuing
 on that rate of quarterly growth throughout fiscal 2002. Citing effects of the
 softening economy, on March 29th, the Company revised revenue estimates for
 the fourth fiscal quarter to a range of $6.0 to $6.5 million. Consistent with
 that guidance, the company today posted fiscal fourth quarter revenue of
 $6.4 million.
     In addition the Company announced the following fourth quarter financial
 adjustments:
 
     -- $5.0 million charge for excess and obsolete inventories, primarily the
        result of lower revenue forecasts and discontinued product development
        efforts;
     -- $3.2 million charge for restructuring and other expenses related to
        properly sizing the organization and maintaining focus on core
        business;
     -- $17.8 million charge for impairment of long-term assets, primarily
        relating to the write-off of the goodwill that arose from the SmartSAN
        acquisition; and
     -- Adoption of a sell-through revenue recognition policy for distributors.
        This change was made effective April 1, 2000 as a change in accounting
        principle. The change resulted in an increase in revenue and net income
        of $0.1 million for the fourth quarter of fiscal 2001.
 
     Without the financial adjustments, earnings for the fourth quarter,
 excluding amortization, was a loss of 48 cents per share. Including
 adjustments, but excluding impairments and amortization, EPS loss was 77 cents
 per share. This compares to a loss of 39 cents per share, excluding
 amortization, for the prior quarter. Gross margin for the quarter, before
 inventory adjustment charges, was 45%, compared to 40% in the prior quarter,
 or negative 32% when inventory charges are included.
     "The last few months have been challenging for Gadzoox Networks and many
 other high technology companies, and we have responded quickly and
 appropriately to the sudden changes in the economic environment by reducing
 costs and adjusting our business model and efforts accordingly," stated
 Michael Parides, Gadzoox Networks, President and CEO. "Overall, we view the
 past fiscal year as a period of significant transition and progress for the
 company, and are confident that we have focused the business and positioned
 the company for long-term success."
 
     The Company's Fiscal 2001 Highlights
     Throughout the fiscal year, the Company made significant progress toward
 building a foundation for improved execution and business success.
 
     -- Built a new management team capable of profitably growing the business;
     -- Eliminated non-core products and product development efforts to focus
        on delivering leadership products in the fibre channel fabric switching
        market;
     -- Expanded relationships with existing OEM customers, such as Compaq and
        Hewlett-Packard; and
     -- Led the market in the transition to standards-based 2Gb fibre channel
        fabric switching technology.
 
     Outlook
     The following statements are based on current expectations. These
 statements are forward-looking, and actual results may differ materially.
 
     -- Revenue is expected to remain flat for the next two quarters, compared
        to the fourth quarter of fiscal 2001. Depending upon the OEM adoption
        of Slingshot, the Company's new 2 Gb Open Fabric switch, revenue in the
        third and fourth quarters of fiscal 2002 is projected to grow
        40-70% sequentially quarter over quarter.
     -- Gross margin estimates remain the same for the next two quarters at a
        range of 40-45%. The Company expects gross margins to begin to increase
        to the 45-50% range by the third fiscal quarter of 2002 as the next
        generation of products achieve volume ramp.
     -- Operating expenses for the fourth fiscal quarter of 2001 were reduced
        across the organization by approximately 20%. In the first fiscal
        quarter of 2002, the company anticipates quarterly operating expenses
        to be in the $13.5 million range, and remain flat throughout each other
        quarter in fiscal 2002.
     -- Cash and short-term investment balance ended the fourth fiscal quarter
        at $10.9 million, compared to $25.4 million at the end of the
        third quarter, a decrease of $14.5 million. Due to its reduction in
        operating expenses, the Company expects a substantial decrease in cash
        use throughout fiscal 2002. Cash use for each of the next two quarters
        is expected to be in the range of $5 to $6 million. The Company is
        currently exploring financing alternatives to raise the capital needed
        to fund the fiscal 2002 plan.
 
     In closing, Parides stated, "While uncertainty about the duration of the
 external factors driving this quarter's results is causing us to be more
 cautious in our outlook, we strongly believe that we now have an excellent
 foundation in place for fiscal 2002. With the introduction of our
 market-leading 2Gb Open Fabric switch, we are confident that our business will
 rebound with the return of a growing economy."
     The Company will be holding a conference call at 2:30 p.m. PDT on
 April 30, 2001 to discuss results and answer questions. Interested parties are
 invited to participate either by phone or live webcast.
     To obtain the conference call information, go to www.gadzoox.com/ir. The
 live webcast can be accessed at www.gadzoox.com/ir.
     The foregoing statements regarding anticipated results for the next fiscal
 year ending March 31, 2002 and the Company's future prospects, performance
 such as expectations for future product development and deployment including
 development and deployment of a fibre channel fabric switch and other future
 products, inventory usage, sales and marketing and general and administrative
 activities, the sufficiency of the Company's cash balances to maintain
 operations and its ability to operate as a going concern, and the evolution of
 SAN capabilities and the market for SAN products. Actual results could differ
 materially from those anticipated in these forward-looking statements as a
 result of various factors, including but not limited to market acceptance of
 the Company's new products, in particular the Slingshot 2 Gigabit open fabric
 switch, and the speed at which customers adopt current and new products for
 SANs; the Company's dependence on a limited number of products, a significant
 portion of which are sold to a limited number of partners including OEM and
 distribution channel partners; the availability of capital; the ability and
 willingness of the Company's distribution channel partners to sell the
 Company's products; the Company's dependence on a limited number of customers;
 growth rates of the market segment within which the Company participates; the
 Company's ability to develop, introduce, ship and support new products; the
 Company's ability to meet future capital requirements; competition in the
 Company's industry and the timing of new technology and product introductions;
 the ability to retain and hire skilled personnel; and the Company's dependence
 on its contract manufacturer. These and other risks are further described
 under the caption "Risk Factors" beginning on page 22 in the Company's
 quarterly report on Form 10-QA for the fiscal quarter ended December 31, 2000.
 We assume no obligation to update any such forward-looking statements.
 
     About Gadzoox Networks
     Gadzoox Networks, the first company to announce and demonstrate 2 Gb open
 fabric switch technology, offers intelligent Storage Area Network (SAN)
 products that free IT managers from the increasing challenges of managing
 greater amounts of data with limited resources. Gadzoox Networks'
 industry-leading storage networking products improve backup and restore,
 enable high availability, accelerate performance, and reduce storage
 management costs. Gadzoox Networks is a voting member of the Storage
 Networking Industry Association (SNIA), with corporate headquarters located in
 San Jose, California. For more information about Gadzoox Networks' products
 and technology advancements in the SAN industry, visit the Company's Web site
 at www.gadzoox.com.
 
                             GADZOOX NETWORKS, INC.
 
                       CONDENSED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)
 
                                 Three Months Ended       Twelve Months Ended
                               Mar. 31,     Mar. 31,     Mar. 31,    Mar. 31,
                                 2001         2000         2001        2000
 
     Net revenues               $6,444      $15,079      $33,290     $47,931
     Cost of revenues            8,478        7,486       32,131      26,128
       Gross margin            (2,034)        7,593        1,159      21,803
     Operating expenses:
       Research and development  8,532        5,303       29,369      18,223
       Sales and marketing       6,301        5,094       23,667      11,638
       General and
        administrative           1,915        1,698        7,644       4,285
       In-process research
        & development               --           --        4,900          --
       Amortization of goodwill
        and intangible assets      698           --        3,842          --
       Impairment of long lived
        assets                  17,829           --       17,829          --
       Amortization of deferred
        compensation               109          321          608       1,285
       Restructuring and other
        expenses                 3,176           --        3,176          --
       Total operating
        expenses                38,560       12,416       91,035      35,431
     Loss from operations     (40,594)      (4,823)     (89,876)    (13,628)
     Total other income, net       205        1,446        2,332       3,267
     Loss before cumulative
      effect of accounting
      change                 $(40,389)     $(3,377)    $(87,544)   $(10,361)
     Cumulative effect of
      change in accounting
      principle                     --           --      (5,300)          --
     Net Loss                $(40,389)     $(3,377)    $(92,844)   $(10,361)
 
     Basic net loss per
      share                    $(1.42)      $(0.13)      $(3.32)     $(0.53)
     Weighted average shares
      used in computing basic
      net loss per share        28,411       26,441       28,006      19,731
 
     Pro forma basic net loss
      per share                $(1.42)      $(0.13)      $(3.32)     $(0.43)
 
     Weighted average shares
      used in computing pro
      forma basic net loss
      per share                 28,411       26,441       28,006      23,960
 
                             GADZOOX NETWORKS, INC.
 
                            CONDENSED BALANCE SHEETS
                                 (IN THOUSANDS)
 
                                                      Mar. 31,
                                                        2001
                                                    (unaudited)
     ASSETS
     Current assets:
       Cash and cash equivalents                      $10,939
       Accounts receivable, net                         2,922
       Inventories                                     10,626
       Prepaid expenses and other current assets          961
         Total current assets                          25,448
     Property and equipment, net                        8,244
     Other assets                                         795
                                                      $34,487
 
     LIABILITIES AND STOCKHOLDERS' EQUITY
     Current liabilities:
       Current portion of capital lease obligations      $924
       Accounts payable                                 6,176
       Compensation related accruals                    1,331
       Other accrued liabilities                        5,232
         Total current liabilities                     13,663
     Capital lease obligations, net of current portion    403
         Total liabilities                             14,066
 
     Stockholders' equity:
       Common stock                                       141
       Additional paid-in capital                     153,004
       Deferred compensation                            (426)
       Accumulated deficit                          (132,298)
         Total stockholders' equity                    20,421
                                                      $34,487
 
                      MAKE YOUR OPINION COUNT - Click Here
                http://tbutton.prnewswire.com/prn/11690X69587746
 
 SOURCE  Gadzoox Networks, Inc.