FalconStor's playing beat the clock with FreeStor

The bad news for FalconsStor is it lost $3.2 million last quarter. If there is good news, it’s that its new FreeStor software is picking up OEM and managed service provider (MSP) customers and selling way ahead of last year. But the really bad news is, the software vendor is down to $11.4 million in cash and needs to turn its fortunes around in a hurry to survive.

On Wednesday, FalconStor reported $7.4 million in revenue last quarter compared to $8.7 million a year ago and $9.4 million the last quarter of 2015. Executives blame the decrease on a sharp drop in sales of legacy products that were on the market before FreeStor.

CEO Gary Quinn said FalconStor sold three times as much FreeStor through MSPs last quarter than it did all of 2015, and enterprise subscription licensing in the quarter was nearly half of the 2015 total. FalconStor lists Volkswagen in Poland, Sunrise Communications in China and Petrofac in the U.K. among its FreeStor enterprise customers although most of the revenue has come from international MSPs such as Hitachi Systems in Japan, Blue Chip in the U.K. and LG CNS in South Korea. FreeStor OEMs include array vendors X-IO and Kaminario, backup appliance vendor Synerway and subsystems vendor Rorke Data, but that business relies on the partners’ success.

“There was a decline in our legacy business. Many storage companies are experiencing that now,” FalconStor CFO Lou Petrucelly said. “That’s not an excuse, but it’s the reality.”

Petrucelly admitted the financials must improve, but said “We feel confident that our new product can work, and that gives us the gas to move forward.”

FalconStor launched FreeStor storage virtualization and data protection software in February, 2015. The platform combines data migration, continuous availability, protection and recovery, and inline data deduplication. FalconStor added predictive analytics to FreeStor this month for capacity planning, service-level management and storage health monitoring.

Quinn said FalconStor’s internal forecast called for about $9 million to $10 million in revenue for the quarter, and it came up about because of around $1.5 million to $2 million of late orders. “We still have that business, it wasn’t lost,” Quinn said. “We would have been close to break even for the quarter. If we can bounce back [this quarter] and show positive cash results, that will go a long way towards saying we just hit a bump in the road or stepped in a hole.”

Quinn said the primary use cases so far for Freestor has been backup as a service and disaster recovery as a service. That gives FalconStor hope that FalconStor can pick up steam if businesses move to the cloud in droves.

Quinn said reaction to the technology has been good, but FalconStor is still battling reputation problems from several years back, especially in the United States.

“Our U.S. presence has been diminished, and a lot of that is due to the history of the company,” he said. “Something went on between FalconStor and the marketplace, and we just have had a difficult task getting traction.”