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FalconStor CEO: We’re normal again

With 2015 in the rear-view mirror, FalconStor CEO Gary Quinn says the storage software vendor has completed its transition phase and is ready to reverse its years-long streak of losing money.

“We believe that FalconStor has moved from its transition phase from when I first took over the company in July 2013, and we are now on a normal operating pattern in 2016 and beyond,” Quinn said Tuesday during FalconStor’s earnings call.

“Normal” for FalconStor means its FreeStor data protection and storage management software is fully in the market and subscriptions are coming in. It doesn’t mean the vendor is flush in sales or money, though. For the final quarter of 2015, FalconStor reported revenue of $9.4 million, down from $11.8 million from the previous year. The vendor lost $1.3 million in the quarter compared to a loss of $2.1 million a year ago.

For the full year of 2015, FalconStor’s $48.6 million in revenue was up from $46.3 million in 2014 and its loss of $1.3 million compared to a $6.1 million loss for 2014. FalconStor finished the year with $13.4 million in cash.

Quinn and CFO Lou Petrucelly said the company’s goal is to at least break even for this year. FalconStor has suffered through years of losses and turmoil, including the 2011 suicide of founder ReiJane Huai in the wake of fraud charges.

FalconStor executives claim more than 170 customers are using FreeStor in production. Quinn said FalconStor has 0.1 percent of the software-defined storage market as defined by IDC. But he expects that to grow significantly and predictably as FalconStor moves from perpetual licensing to a subscription model. Because the subscription pricing is deferred revenue, the switch resulted in lower revenue over the last few quarters but Quinn said it will bring growth in the long run.

However, FalconStor is losing a steady revenue stream from an OEM deal with Hitachi Data Systems (HDS). HDS sales of FalconStor virtual tape library backup software regularly accounted for more than 10% of FalconStor revenue, and came to 34% in the fourth quarter of 2014. HDS is now selling its own disk backup product from its 2014 Sepaton acquisition, which will relegate FalconStor software to occasional deals through HDS.

“I would not view them as a contributor going forward,” Quinn said of HDS. “It’s really more opportunistic on a one-off deal here and there where our technology is better than Sepaton or we have existing installed base customers  who like our technology and are renewing it.”

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