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Crossroads: Fiscal 2Q15 Financial Results

Decrease in custom development revenue and OEM Sphinx product

(in $ million) 2Q14 2Q15 6 mo. 14 6 mo. 15
Revenue 2.3 1.7 6.4 3.9
Growth   -25%   -39%
Net income (loss) (1.7 (3.5) (5.1) (5.8)

Crossroads Systems, Inc. reported financial results for its fiscal second quarter ended April 30, 2015.

Revenue for fiscal Q2 2015 was $1.7 million, compared to $2.3 million in the same quarter a year ago. The decrease is primarily attributable to a decrease in custom development revenue as well as an expected decrease from our OEM SPHiNX product.

Gross profit for fiscal Q2 2015 was $1.3 million, or 75% of total revenue, compared to $1.8 million, or 80% of total revenue in the same quarter a year ago. The decrease is due to a change in the mix of hardware and software products sold during the quarter.

Operating expenses for fiscal Q2 2015 increased 25% to $4.5 million, compared to $3.6 million in the same period a year ago. The increase is attributable to litigation expenses related to the company’s ongoing patent infringement lawsuits against NetApp, Oracle, Cisco, Quantum, Huawei and Dot Hill.

Net loss available to common stockholders was $(3.6) million or $(0.19) loss per share, compared to a net loss available to common stockholders of $(1.8) million, or $(0.14) loss per share, in the same quarter a year ago.

At April 30, 2015, cash, cash equivalents, and restricted cash totaled $5.1 million compared to $8.4 million in the previous quarter.

Richard K. Coleman, Jr., president and CEO, said: “Although several major sales opportunities were delayed past the end of the quarter, our newest strategic partners, TIM AG in Germany and ARJ Distribution AB in Sweden, have well known and successful enterprise storage distribution channels and are working to expand our StrongBox opportunities in Europe. Litigation expenses were higher than anticipated, but reflect our recent successful efforts to consolidate scheduling and accelerate certain inter partes review proceedings. Our IP monetization strategy is unfolding as expected as we pursue companies that have been illegally using Crossroads’ proprietary technology. We have previously advised investors that the potential compensatory damages could be in excess of $200 million and have no reason to revise that estimate. We remain confident that we will deliver significant returns to our investors.”

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Abstracts of the earnings call transcript:

Jennifer Crane, CFO:
"The decrease (in revenue) was primarily due to three factors: $163,000 reduction in our legacy HP OEM SPHiNX product sales and $111,000 reduction primarily due to a decrease in legacy HP OEM SPHiNX maintenance subscriptions and a $200,000 decrease in revenue from a custom development project we completed in Q2 of last year.
"This quarter StrongBox product and maintenance revenue was $514,000, a decrease of $52,000 from $566,000 during the same quarter last year. We had several large deals in the quarter that were delayed for a variety of reasons and expect they'll close in Q3.
"In Q2 we spent $1.7 million on legal expenses."

Mark Hood, EVP corporate development:
"We also developed compelling used cases that correctly targets the industries largest supplier of expensive disc and cloud based solutions including NetApp, EMC, and Amazon. We have now begun offering NetApp and EMC customers a logical and reliable alternative to endless digital expansion. With our recent upgrades, StrongBox can also mitigate the burdensome cost of NetApp's forced migration to their ONTAP 8 operating system."

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