Falconstor financials show stability may be round the corner

FalconStor, the struggling storage software supplier, is showing signs of stabilising in its latest set of results.

The company is the developer of FreeStore and Virtual Tape Library (VTL) products, and in 2011 was hit badly by a fraud accusation against its CEO, who subsequently committed suicide. This led to sales collapse as the severely wounded company went through a succession of CEOs.

 CEO Todd Brooks arrived in August 2017 and has brought stability, cost control and hope back to the company.

It reported revenues of $4 million for its third 2018 quarter, down 33 per cent on a year ago. Losses were $700,000, compared with a profit of $1.2 million last year.  Cash and cash equivalents increased to $2.8 million at the end of Q3 from $1 million at the end of 2017.

FalconStor revenue and rofit/loss history

The company is moving to subscription-based revenues and has been profitable, in a non-GAAP sense, for the past five quarters.

Gross margins increased to 83 per cent from 80 per cent from third quarter of 2017.

There could even be decent year-over-year growth in the second and third quarters of 2019.

Brooks said: “There’s no crystal ball here, but certainly would hope that we’re beginning now to drive growth, it won’t be a straight line right perfect path to the moving fund growth, but it will certainly will get there one region at a time.”

In the earnings call Brooks said: “I’m excited by the operational consistency and the profitability that team continues to deliver a quarter-over-quarter. However, the real excitement will begin when we’re able to begin generating year-over-year billings growth once again.

“In Q3, we were able to do just that and generate a 24 per cent year-over-year billions growth in our Americas region after rebuilding the commercial team in Q1 and Q2 of this year, and increasing focus on engaged partners. 

“We began our commercial restructuring in our EMEA region in Q2 and while year-over-year billings growth declined by 14 per cent in Q3, we’re confident that changes that we’ve made will gradually generate billings growth that we expect in this region also.

“Our most challenging region continues to be Asia-Pacific and our commercial restructuring efforts there have just begun.”

Product launches

According to Brooks, product strength is improving with the Evaluator Group demonstrating “that our single node [VTL] configuration produced backup and data deduplication throughput speeds of nearly 40 terabytes per hour. [This is] significantly better than any similarly configured solution in the industry.”

The VTL is the anchor product. FalconStor Data Mastery Platform is the next major update of FreeStore and will include hybrid cloud data management capabilities. It is scheduled for general release at the end of the year. 

With two products re-established the company will have a platform from which to move forward.

FalconStor received $1 million in the quarter from new investors, which was in addition to $3 million previously received from Hale Capital over the past year.

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