Crossroads: Fiscal 1Q14 Financial Results

(in $ million)	1Q13	1Q14
Revenue	3.6	4.1
Growth		*16%*
Net income (loss)	(3.1)	(3.3)

Crossroads Systems, Inc. reported financial results for its fiscal first quarter ended January 31, 2014.

Revenue for fiscal Q1 2014 was $4.1 million, an increase of 16% from $3.6 million in the same quarter a year ago.

The increase is primarily attributable to an increase in IP license, royalty and other revenue.

Gross profit for fiscal Q1 2014 was $3.5 million, or 85% of total revenue, as compared to $2.6 million or 73%t of total revenue in the same quarter a year ago.

Operating expenses for fiscal Q1 2014 totaled $3.9 million as compared to $5.7 million in the same period a year ago, a decrease of 31%, primarily due to our reduction in force in October 2013.

The company improved its loss from operations to $(395,000) in the quarter from $(3.1) million in the same quarter of 2013. It also recorded a $1.1 million gain on the termination of a previous service contract, resulting in income before interest and derivative expense of $655,000 in fiscal Q1 2014 compared to a loss of $(3.1) million in the same quarter a year ago.

Net loss available to common stockholders for fiscal Q1 2014 totaled $(3.5) million or $(0.28) loss per share, compared to a net loss available to common stockholders of $(3.1) million or $(0.27) loss per share in the same quarter a year ago. Approximately $(3.4) million of the loss is attributable to the change in value of derivative instruments as a result of fluctuations in our stock price. These derivative instruments are marked to market each quarter and a change in the value of the derivative instruments may cause fluctuations in our net loss per share from quarter to quarter until the ratchet on our Series F preferred stock and warrants expires in March.

At January 31, 2014, cash and cash equivalents increased $0.2 million to $8.0 million from $7.8 million in the previous quarter.

Richard K. Coleman, Jr., president and CEO, Crossroads, said: “I’m pleased with the progress we’re making toward generating positive cash flow from operations in 2014. We continue to believe the untapped potential for our products and patents offers tremendous upside for the company and for our shareholders.”

Comments

Rick Coleman, president and CEO:
"On a quarter-over-quarter basis, StrongBox revenue increased 29% and operating expenses declined 21%.
"In Q1, we also continued to execute on our commitment to deliver shareholder value through Crossroads litigation tested intellectual property portfolio. Since October of last year, we filed 7 lawsuits alleging infringement related to our 972 Patent Family. The defendants are Oracle, Dell, Tandberg, now Overland Storage, Huawei, Cisco Systems, NetApp and Quantum.
"Mainline, one of IBM's largest premier business partners is a great example. For more than 20 years Mainline has worked closely with IBM developing and implementing cutting edge business technology. Mainline has a well earned reputation as a trusted supplier of storage solutions and are proving to be a valuable and innovative partner for Crossroads as well.
"Mainline's IBM customers represent a huge StrongBox opportunity, but also ideal prospects for SPHiNX Virtual Tape Solution.
"In Europe, our relationship with HDS also continues to mature. Last year we estimated that 10% of our European opportunities would come from Hitachi related deals. Now it's almost 40% and over the next year we expect Hitachi opportunities to represent 60% of our European deal pipeline."

Jennifer Crane, CFO:
"Revenue increases throughout the business were partially offset by a 37% reduction in our HP OEM SPHiNX revenue. We expect HP revenue to continue to decline as they transition to their own virtual tape solution. However, we see these reductions in revenue being offset this year by Crossroads branded SPHiNX product sale."