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Crossroads: Fiscal 2Q14 Financial Results

Accelerated decline in legacy product and recurring IP revenue

(in $ million) 2Q13 2Q14 6 mo. 13 6 mo. 14
Revenues 2.7 2.3 6.3 6.4
Growth   -16%   2%
Net income (loss) (4.0) (1.7) (7.1) (5.1)

Crossroads Systems, Inc. reported financial results for its fiscal second quarter ended April 30, 2014.

Revenue for fiscal Q2 2014 was $2.3 million, a decrease of 16% from $2.7 million in the same quarter a year ago.

The decrease is primarily attributable to a decrease in the company’s OEM SPHiNX business as well as revenue from an intellectual property licensee.

Gross profit for fiscal Q2 2014 was $1.8 million, or 80% of total revenue, as compared to $1.9 million or 70% of total revenue in the same quarter a year ago.

Operating expenses for fiscal Q2 2014 totaled $3.6 million as compared to $5.8 million in the same period a year ago, a decrease of 37%, primarily due to the reduction in force in October 2013.

Net loss available to common stockholders for fiscal Q2 2014 totaled $(1.8) million or $(0.14) loss per share, compared to a net loss available to common stockholders of $(4.8) million or $(0.41) loss per share in the same quarter a year ago.

At April 30, 2014, cash and cash equivalents increased $2.7 million to $10.7 million from $8.0 million in the previous quarter. The company completed a private placement of its common stock netting $4.3 million during the quarter and paid $865,000 toward its Fortress debt.

Richard K. Coleman, Jr., president and CEO, Crossroads Systems, said: “Despite the acceleration of the anticipated decline in our legacy product and recurring IP revenues, we’ve made great progress in positioning Crossroads for the future. StrongBox is poised for success in an expanding market and our future IP licensing potential presents us with exciting opportunities.

Comments

Abstracts of the earnings call transcript:

Rick Coleman, president and VEO:
"Our litigation tested 972 portfolio has generated $61 million in revenue, but most of which – most of it had been reinvested in additional research and development. This resulted in a rich patent portfolio, but despite the success of the 972 monetization campaign, the company had not initiated legal action against some of the largest infringers.
"Last month, we reached a licensing agreement with Tandberg Data, one of the smaller defendants and that suit has now been resolved.
"Over the last 13 years, Crossroads has received over $61 million from companies using our patented technology. Crossroads is now in litigation with some of the industry’s largest storage companies.
"After all the downward adjustments, the third party valuation team estimates the Crossroads may be entitled to a share of over $82 billion in estimated industry sales over the life of our patents."

Jennifer Crane, CFO:
"Quarter-over-quarter revenue declined $1.8 million and is mostly attributable to three factors. The first factor is the one-time $550,000 payment we received in Q1 for a terminated service agreement. Secondly, Crossroads received nearly $1 million less recurring IP royalty revenue in Q2 compared to Q1. (...) We expect future IBM royalty payments will be insignificant and have adjusted our forecast accordingly. HP OEM SPHiNX product and maintenance revenue decline much faster than anticipated. Although our visibility to HP’s plans for our legacy SPHiNX product has always been limited, we have previously shared with investors our expectations for declining revenues. Nonetheless, the $427,000 decrease in Q2 was well beyond our most pessimistic expectations.
"StrongBox revenues did increase 145% in Q2 from the same quarter a year ago. StrongBox sales in the second quarter were $621,000 including a final payment of $200,000 from Fujifilm as a result of successfully completing our custom development agreement."

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