Exhibit 99.1
Crossroads Systems Reports First Quarter Results; Company Re-Aligns Work Force
To Allocate Resources To Current Strategy
AUSTIN, Texas--(BUSINESS WIRE)--March 10, 2005--Crossroads
Systems, Inc. (NASDAQ:CRDS), a leading provider of connectivity for
storage networking solutions, today reported results for its fiscal
first quarter ended January 31, 2005 (Q1'05).
Revenue totaled $4.7M for Q1'05 compared to $6.6M in the fiscal
fourth quarter ended October 31, 2004 (Q4'04) and $7.1M in the fiscal
first quarter ended January 31, 2004 (Q1'04). The primary factor
affecting the decrease in revenue in Q1'05 compared with Q4'04 was a
lack of IP license revenue. The decline in revenue in Q1'05 compared
with Q1'04 was due primarily to an overall decline in OEM revenue.
Gross margin percentage was 65% for Q1'05, compared to 73% for Q4'04,
and 65% for Q1'04. The consistency in gross margin percentages for
Q1'05 and Q1'04 reflects the impact of the royalty model, as well a
favorable product mix in Q1'04. Gross margin for Q4'04 was positively
impacted by IP licensing and HP royalty business. Net loss for Q1'05
was $3.0M, or $0.12 per share, compared to $2.5M net loss, or $0.10
per share in Q4'04, and net loss of $1.0M, or $.04 per share, in
Q1'04.
In December 2003, Crossroads entered into a strategic relationship
with NexQL Corporation, a development stage company, for the joint
development of hardware accelerated data management solutions. FASB
Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51," and the revised
interpretations, require consolidation by business enterprises of
Variable Interest Entities, as defined by FIN 46. As a result, the
operating results of NexQL were accounted for under the equity method
in Q1'04, and the company began consolidating the statements of
operations and cash flows of NexQL beginning May 1, 2004, such that
Q4'04 and Q1'05 reflect the consolidated operations and cash flows of
NexQL. The consolidation of NexQL had a direct impact on Crossroads'
net loss for Q4'04 and Q1'05. Net operating expenses attributable to
NexQL for Q1'05 was $0.7M, compared with $1.0M in Q4'04, and $0.3M in
Q1'04.
"Despite significant progress in executing our long-term strategy,
our first quarter results were below expectations, primarily due to
continued weakness in our distribution channel, as well as weakness in
a portion of our OEM business," said Rob Sims, president and chief
executive officer, Crossroads Systems.
In addition, Crossroads announced that it will reduce its current
workforce to streamline operations and re-align resources with the
company's current strategy in targeted growth areas. The workforce
reduction will result in an elimination of approximately 23 jobs out
of a current workforce of approximately 115 employees. The company
will recognize a charge in its second fiscal quarter as a result of
this restructuring plan. Crossroads management will announce details
of the restructuring plan during its fiscal first quarter financial
results call on March 10.
"We greatly appreciate the contribution of our colleagues affected
by this action," said Sims. "As we move forward, we believe that the
re-alignment will allow us to better focus our resources on several
promising opportunities relating to our core business and new products
while reducing our cash consumption."
Recent Operational Highlights:
-- Crossroads Announces Data Mover Appliance for SAN Backup
Solutions: Crossroads announced the DataMover 240f Appliance
that will complement Information Lifecycle Management (ILM)
storage strategies through a range of advanced features
supporting automation of policy-based storage management,
enterprise class performance, and system monitoring of hosts,
drives, and media for improved utilization and management of
storage resources. The DataMover 240f will work with leading
data protection applications for Fibre Channel Storage Area
Network (SAN) backup solutions.
-- Crossroads Announces Strongbox(TM) Family of Network Solutions
Appliances: Crossroads announced its StrongBox(TM) family of
network-based appliances to help IT organizations address
requirements for secure, compliant, managed solutions for
their database and application resources.
-- Crossroads Appoints Chief Technology Officer: Crossroads
appointed David Boles as its chief technology officer (CTO) in
January 2005. Mr. Boles will be directly responsible for
driving Crossroads vision for its Intelligence At the Edge
strategy to deliver versatile, high performance, low latency
solutions for improved utilization and management of storage
and database resources.
Conference Call
The conference call will be held at 3:30pm CST (4:30pm EST) March
10th. Interested parties can listen to the call by dialing
1-866-459-7779 (or 1-678-460-1867 for international callers).
An audio-only replay of the call will be available by March 10th
for a limited time by calling 1-866-453-6660 (or 1-678-460-1860 for
international callers) and using playback reference number 157813. An
audio replay will be available for a limited time by visiting the
Crossroads web site.
About Crossroads Systems, Inc.
With headquarters in Austin, Texas, Crossroads Systems
(Nasdaq:CRDS) is a leading global provider of data routing solutions
for Storage Area Networks (SANs). Crossroads' solutions serve the
growing storage connectivity and data storage markets, and are
designed to help companies store, manage and ensure the integrity and
availability of their data. Crossroads' products are in solutions from
companies such as EMC, HP and StorageTek, and are distributed through
partners such as Bell Micro, DLT Solutions, Info-X, and Promark.
Crossroads is a voting member of the Storage Networking Industry
Association (SNIA) in both the United States and Europe. For more
information about Crossroads Systems, please visit www.crossroads.com
or call 800/643-7148.
Forward-Looking Statements
This release may include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The
words "believe," "expect," "intend," "plan," "project," "will" and
similar phrases as they relate to Crossroads are intended to identify
such forward-looking statements. These statements reflect the current
views and assumptions of Crossroads, and are subject to various risks
and uncertainties that could cause actual results to differ materially
from expectations. Among the important factors that could cause actual
results to differ materially from those in the forward-looking
statements are: the quarterly fluctuations of Crossroads' operating
results and Crossroads' inability to accurately predict revenue and
budget for expenses for future periods; the extent to which Crossroads
can reduce its cash consumption and achieve positive cash flow; the
company's ability to maintain its operating margins; the acceptance by
our existing customers of any new family of products; the performance
of NexQL with whom we are required to consolidate our financial
statements; our ability to incorporate the assets of Teracruz that we
recently acquired into our products and/or to develop new products
based on Teracruz technology that achieve market acceptance; any
general economic slowdown, including, in particular, related expense
reductions by organizations affecting their IT spending and budget
which could impact sales; the dependence of Crossroads' business on
the storage area network market which has been declining and is
unpredictable; the possibility that the pending stockholder class
action lawsuits could result in an adverse outcome to the company;
unforeseen changes in anticipated expenses or revenues; the
continuation of Crossroads' successful relationships with its limited
number of OEM customers; Crossroads' inability to protect its
intellectual property rights; our ability to retain the services of
key employees; as well as, other factors detailed in Crossroads'
filings with the Securities and Exchange Commission, including its
Annual Report on Form 10-K and Quarterly Reports on 10-Q. Crossroads
expressly disclaims any obligation to release publicly any updates or
revisions to the information contained in this press release or with
respect to any future distribution of its stock by investors, or to
update or revise any forward-looking statements to reflect any changes
in expectations, or any change in events or circumstances on which
those statements are based, unless otherwise required by law.
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
October 31, January 31,
2004 2005
------------ ------------
ASSETS
Current assets:
Cash, cash equivalents and short-term
investments $28,537 $25,540
Accounts receivable, net 2,581 2,523
Inventories, net 1,160 1,239
Prepaids and other current assets 669 762
------------ ------------
Total current assets 32,947 30,064
Property and equipment, net 2,909 2,697
Intangible 809 742
Other assets 104 70
------------ ------------
Total assets $36,769 $33,573
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,901 $1,725
Accrued expenses 3,432 3,193
Accrued warranty costs 508 463
Deferred revenue 1,262 1,300
------------ ------------
Total current liabilities 7,103 6,681
Stockholders' equity 29,666 26,892
------------ ------------
Total liabilities and stockholders'
equity $36,769 $33,573
============ ============
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Share and Per Share Data)
Three Months Ended Three Months Ended
----------------------- -----------------------
January 31, January 31, October 31, January 31,
2004 2005 2004 2005
----------- ----------- ----------- -----------
Revenue:
Product $4,941 $2,520 $2,485 $2,520
Royalty and other 2,184 2,171 4,117 2,171
----------- ----------- ----------- -----------
Total revenue 7,125 4,691 6,602 4,691
Cost of revenue:
Product 2,479 1,612 1,366 1,612
Royalty and other 36 35 436 35
----------- ----------- ----------- -----------
Total cost of
revenue 2,515 1,647 1,802 1,647
----------- ----------- ----------- -----------
Gross profit 4,610 3,044 4,800 3,044
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 1,140 910 1,058 910
Research and
development 3,021 4,038 3,893 4,038
General and
administrative 1,382 1,304 1,584 1,304
NexQL research and
development 270 - - -
Litigation
settlement - - 1,000 -
Business
restructuring
expense (52) (92) (119) (92)
Amortization of
intangibles - 67 - 67
----------- ----------- ----------- -----------
Total operating
expenses 5,761 6,227 7,416 6,227
----------- ----------- ----------- -----------
Loss from operations (1,151) (3,183) (2,616) (3,183)
Other income, net 121 153 148 153
----------- ----------- ----------- -----------
Net loss $(1,030) $(3,030) $(2,468) $(3,030)
=========== =========== =========== ===========
Basic and diluted net
loss per share (0.04) (0.12) (0.10) (0.12)
Shares used in
computing basic and
diluted net loss per
share 24,699,222 25,708,764 25,437,968 25,708,764
=========== =========== =========== ===========
CONTACT: Crossroads Systems, Inc., Austin
Valerie Savage, 512-928-6897 or 800-643-7148
info@crossroads.com