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FalconStor Software hires new CEO, Quinn to resign

Come July 1, FalconStor Software will have a new leader. And that leader will have fewer followers due to plans for a new round of staff reductions.

Storage industry veteran Todd Oseth will replace Gary Quinn as CEO at the struggling software company. FalconStor disclosed the change Tuesday, calling Quinn’s resignation “voluntary.”

Quinn became FalconStor Software CEO in July 2013 to try and stabilize a company that had been struggling due to pending fraud charges, poor sales and the 2011 suicide of founder and CEO ReiJane Huai. FalconStor revamped its data protection and management products under Quinn but it continues to suffer from losses due to declining revenue.

Oseth left his job as president and CEO of Intermap Technologies, which sells geospatial solutions for geographic information systems professionals. His resume includes vice president of the infrastructure software group at EMC Corp. for two years and chief operating officer at Fibre Channel switch vendor McData Corp. for almost two years. He was also CEO of ColdStor Data.

“FalconStor has been around a long time,” Oseth said of the 20-year-old company. “It has a good name and a good customer base. It’s in a bit of a lull right now, but that is OK.”

Actually, FalconStor Software’s name and customer base have seen better days. Its quarterly revenue has been under $10 million for each of the past eight quarters, falling to a low of $6 million in the first quarter of 2017. Quinn and his predecessor Jim McNiel both talked about how competitors would bring up FalconStor’s past troubles to scare off potential customers. McNiel resigned in 2013 after unsuccessfully trying to sell the company.

Oseth said one reason he decided to take the helm at FalconStor was because it provides “the same products I had at EMC. It’s going back into what I’ve done before. I was the EMC vice president of infrastructure software, which had Invista, EMC PowerPath, Virtual SRM and RepliStor.”

FalconStor’s FreeStor virtualization platform launched in February 2015. The company also signed a licensing and co-development agreement with Cumulus Logic that gave FalconStor Software exclusive use of Cumulus Logic analytics code.

FalconStor trying to find its financial footing

In May, FalconStor reported a cash flow positive first quarter for 2017, but that was due more to spending cuts than sales. The company’s revenues dropped 19% from its previous quarter and the first quarter of 2016. FalconStor did have an uptick in its FreeStor revenue, which came in at $1.6 million compared to $900,000 a year ago.

FalconStor lost $11 million in 2016 and $1.9 million in 2015. It finished the first quarter of 2017 with $3.4 million in cash, down from $21 million from the first quarter of 2015 and $11.4 million in the first quarter of 2016. Nasdaq has sent FalconStor Software a letter threatening to delist it from its stock exchange because it does not meet the minimum $1 share price and $35 million market cap. FalconStor shares opened at 26 cents today.

More spending cuts are coming. In the Securities and Exchange Commission filing about the CEO change, FalconStor disclosed that the board this month approved another workforce reduction plan. FalconStor intends to cut its employee headcount to approximately 90 by the end of 2017. This follows a series of reductions that brought FalconStor from 224 employees last year to 165.

FalconStor estimates the reductions will save the firm approximately $10 million per year. The company’s filing said it would cut direct sales resources and consolidate operations, while making customer support and development priorities when implementing the cuts.

Oseth said the company will assess its financial balance sheet in the near term, and he intends to have a plan in place within the first 90 days.

“There have been a number of reductions at FalconStor and it will be more than sufficient to move forward,” Oseth said.

Oseth said he plans to spend the first three months on the job talking to customers and channel partners to assess what is and is not working at FalconStor. One of the company’s main assets is that FreeStor can help customers migrate to the cloud, and it can do it from any storage device on the market.

“There is going to be a lot of legwork for the first 90 days,” Oseth said. “From a product standpoint, there is a lot of competition out there today.”

FalconStor was once a strong player in the virtual tape library (VTL) market, as EMC, IBM and other major storage vendors re-branded FalconStor software on their backup disk libraries. The rise of data deduplication hurt VTL and FalconStor, but Oseth said there is still life for VTL as a storage source in the cloud.

“People tell me VTL is dead. I’ve been told that for 10 years now,” he said. “It continues to be a big market.”

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