CacheFlow misses estimates, restructures

3 min read

CacheFlow managed to hit lowered revenue estimates in its third quarter Tuesday, but missed earnings estimates, slashed jobs and said its CFO is leaving. The company also painted a bleak outlook for the fourth quarter.

Shares of CashFlow (Nasdaq: CFLO) were off $1, or 7 percent, to $14 in early trading. The stock has taken a tumble since the company warned Feb. 1 that its third-quarter revenue and net loss would miss estimates. CacheFlow makes caching appliances used to optimize Internet performance.

CacheFlow missed revised estimates. In its Feb. 1 profit warning, it didn't give a loss projection, but analysts cut estimates sharply. First Call Corp.'s revised estimate had been for a loss of 44 cents a share, much steeper than its initial loss estimate of 9 cents a share.

CacheFlow reported a third-quarter loss, excluding stock compensation expense, amortization of goodwill and acquired in-process technology related to the acquisition of Entera, was $18.3 million, or 49 cents a share. That's also wider than its loss in the third quarter of fiscal 2000, which was $7.2 million, or 24 cents a share.

Including stock compensation expense, amortization of goodwill and acquired in-process technology, net loss for the third quarter of fiscal 2001 was $119.2 million, or a whopping pro forma net loss of $3.19 per share.

Net sales for the third quarter of fiscal 2001 were $21.2 million, in line with the company's lowered estimate of $20 million to $21 million, but less than half of what analysts had been originally expecting, according to First Call's consensus estimate of $43.1 million. Sales were also down 35 percent from $32.5 million in the second quarter of fiscal 2001.

The company blamed sequential decline in revenue on macro-economic conditions and customer delays in spending. It also said the market for caching software is increasingly competitive and is evolving to longer sales cycles. A warning from competitor Inktomi (Nasdaq: INKT) had signaled tough times for the industry back in January. CacheFlow also cited Network Appliances (Nasdaq: NTAP) as a major rival.

The company also cut 10 percent to 15 percent of its workforce as part of a restructuring intended to bring operating expenses in line with anticipated lower revenue. The restructuring will result in a one-time charge in the range of $2 million to $3 million in the fourth quarter of 2001.

In addition, Chief Financial Officer Michael Johnson is stepping down as soon as a successor is appointed.

Expectations for the fourth quarter were also dismal; revenue is expected to be flat sequentially, gross margin is expected to remain constant, and pro forma net loss, excluding non-operating charges, is expected to be in the range of $14 million to $16 million.

For fiscal 2002, the company said that it believes "conservative guidance is appropriate near-term," and plans to issue guidance on a quarter-to-quarter basis until market visibility improves.

On a conference call with analysts, the company fended off accusations that it would run out of cash before it turned a profit.

CEO Brian NeSmith said the company has $95 million in cash and cash equivalents, and won't be going back to the capital markets. NeSmith said he couldn't provide a date when the company would be profitable, since that depends on the economy. NeSmith did add that CacheFlow could be profitable on revenue topping $40 million.

While he remains confident about the long-term viability of the company, NeSmith said that "demand is likely to be lower for the next few quarters."