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Gigamon Unreasonable Revenue Targets Securities Class Action

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This securities class action claims that Gigamon, Inc. overestimated its future earnings and did not disclose to investors that a major customer was deferring purchases, in violation of the Securities Exchange Act of 1934. However, the complaint suggests that company officers were unable to make reasonable projections.

The class for this action is all persons and entities who acquired the securities of Gigamon between October 27, 2016 and February 2, 2017.

Gigamon, a technology company, provides software and services to help customers monitor and control data traveling across Internet networks, so that they can increase the speed of its travel and enhance its security.

On October 27, 2016, Gigamon held an investor conference call on its third-quarter results for 2016. Since they were well into the fourth quarter, the company’s officers estimated revenues in that period to be “in the range of $91 million to $93 million” with a “healthy backlog” at the end of the year as well. At this, the company’s stock price rose from $47.38 to $55.01.

The complaint claims that at least one major customer was at that moment deferring purchases, and that the company should have allowed for that. But that’s not all.

At the time of the call, the complaint says, “Gigamon’s leadership was in a state of chaos.” The company’s CFO had resigned less than an hour before. It quotes confidential witnesses as saying there was increasing discord in the office and that people were being fired abruptly simply for questioning things.

Worst of all, the witnesses claim, the company was setting unrealistic sales targets. At one point, one said, “employees were asked to provide 12 times more than their quotas.” Another said that forecasts were based on “black magic” at times, and yet another said the company had immature leadership who did not have a good grasp of their industry. The complaint thus alleges that the company was making overly optimistic statements about its prospects and forecasts that did not have a solid basis in reality.

According to the complaint, because the company had to pull from its backlog to try to make up the difference for the fourth quarter, the “healthy backlog” was depleted to $3.1 million, yet the company still fell short of estimates by over $6 million. During the quarter, the company had held three conference calls and published five press releases, the complaint said, but never attempted to correct the inflated expectations.

On January 17, 2017, the company put out a press release estimating fourth-quarter revenue would be only $84.5 million to $85 million. At the news, the company’s stock fell by over 28%, to $31.40. On a conference call on February 2, the company’s CEO said this was “primarily due to lower than expected bookings in our North America West region, as several significant larger accounts deferred purchasing decisions into 2017.”

The stock fell again, to $30.40.

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