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FalconStor FreeStor makes progress, but vendor sales still down

Beleaguered software vendor FalconStor Software reported a cash flow positive first quarter of 2017, although that highlight came more on the back of spending cuts than improved sales.

FalconStor revenues actually dipped in the quarter to $6 million after posting $7.4 million in the previous quarter and the first quarter of 2016. The vendor takes solace in a slight uptick in its FalconStor FreeStor software revenue, to $1.6 million compared to $900,000 a year ago.

The company has undertaken cost-cutting initiatives that resulted in non-GAAP expenses decreasing to $7 million compared to $8.1 million in the previous quarter and $10.7 million in the first quarter of 2016.

“We are pleased that we achieved our goal of being cash flow positive for the quarter,” said Daniel Murale, FalconStor’s vice president of finance and interim chief financial officer. “As of March 31, our cash and cash equivalents balance increased 1% to $3.4 million as compared with Dec. 31, 2016. Our No. 1 goal as a company is to continue to preserve our cash balance.”

Murale said FalconStor has gone from 224 employees a year ago to 165 at the end of last quarter. “We continually look to optimize our cost structure,” he said.

That doesn’t mean FalconStor was profitable. The vendor lost $1.1 million in the quarter. But that’s an improvement over a $4.3 million loss a year ago, and CEO Gary Quinn said customers are heating up to FalconStor FreeStor.

The vendor claims 360 FalconStor FreeStor customers as it tries to revitalize its business that incurred serious setbacks, including the 2011 suicide of its founder and CEO ReiJane Huai.

The Melville, NY-based company reported $5.5 million in bookings compared to $8.4 million in the previous quarter and $7.4 million it generated in the first quarter of 2016. FalconStor reported that OEM partner Hitachi Data Systems accounted for 10% of its total revenue.

FalconStor FreeStor is building block to growth

FalconStor, an early storage virtualization vendor, is trying to rebuild itself with its FreeStor storage virtualization. FalconStor FreeStor provides block-based services such as data migration, protection, recovery and analytics for heterogeneous storage.

“Our overall performance still requires some improvement,”said Gary Quinn, FalconStor’s president and CEO. “We have been able to grow FreeStor, but just not at a rate faster than the legacy product is weakening. Many of our legacy customers were larger virtual tape library (VTL) customers who have chosen to update their backup solutions with modern snapshot technology. In many cases, those VTL customers were part of a field-based OEM partners’ sales team, which meant FalconStor did not have direct contact (with) those customers.”

Quinn offered some insight into the storage market when asked by an analyst if the current market was “still hazy.”

“You could say you’re kind of underwater in a pond with a lot of algae at the moment with a snorkel,” Quinn said. “It’s fairly tough. I mean, there are a couple of people … I think Commvault had a pretty good result last quarter. I think they’ve finally got some traction going, but I think overall, for most people in the storage industry, it’s still a fairly significant slog out there.”

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