Crossroads: Fiscal 4Q14 Financial Results

(in $ million)	4Q13	4Q14	FY13	FY14
Revenue	3.6	2.6	12.6	11.1
*Growth*		-26%		*-12%*
Net income (loss)	(2.2)	(2.0)	(12.1)	(9.2)

Crossroads Systems, Inc. reported financial results for its fiscal fourth quarter and full year ended October 31, 2014.

Fiscal Q4 and Full Year 2014 Financial Results

Total revenue for fiscal Q4 2014 decreased 26% to $2.6 million from $3.6 million in the same quarter a year ago. The decrease is primarily due to lower SPHiNX OEM revenue and lower IP licensing revenue. SPHiNX OEM revenue decreased 32% from $1.4 million in Q4’13 to $0.9 million in Q4’14. IP licensing revenue decreased 67% from $0.8 million in Q4’13 to $0.3 million in Q4’14. Comparing Q4’13 to Q4’14, StrongBox product revenue increased 70%. Comparing Q3’14 to Q4’14, following the StrongBox re-launch, total revenue increased $557,000 or 27% and StrongBox product revenue increased $601,000 or 161%.

Total revenue for the fiscal full year 2014 decreased 12% to $11.1 million from $12.6 million in the prior year. The decrease was due primarily to lower SPHiNX OEM revenue but was offset by an increase in Crossroads branded revenue from both the SPHiNX and StrongBox products. StrongBox product revenue increased 24% to $2.7 million in the fiscal year ended October 31, 2014 from $2.1 million in the fiscal year ended October 31, 2013.

Gross profit for fiscal Q4 2014 was $2.1 million or 79% of total revenue, compared to $2.8 million, or 80% of total revenue in the same quarter a year ago.

Gross profit for fiscal year 2014 was $9.1 million or 81% of total revenue, compared to $9.5 million or 75% of total revenue in fiscal 2013. The quarter-to-quarter and year-over-year decreases in gross profit percentage were mainly due to a higher concentration of lower margin products, including the resale of tape libraries and tape drives.

Operating expenses for fiscal Q4 2014 totaled $3.7 million, compared to $4.9 million in the same period a year ago.

Operating expenses for fiscal year 2014 totaled $14.6 million, compared to $22.1 million in the prior year. The decreases were primarily due to headcount reductions and other reductions in employee-related expenses.

Net loss available to common stockholders for fiscal Q4 2014 totaled $(2.0) million or $(0.14) loss per share, compared to a net loss of $(2.2) million or $(0.19) loss per share in the same quarter a year ago.

Net loss available to common stockholders for fiscal year 2014 totaled $(9.7) million or $(0.69) loss per share, compared to a net loss of $(14.3) million or $(1.20) loss per share in fiscal year 2013.

At October 31, 2014, cash, cash equivalents and restricted cash totaled $4.9 million compared to $7.1 million at July 31, 2014.

Richard K. Coleman, Jr., president and CEO, said: “The fourth quarter was an important turning point for our product business. At nearly a million dollars, StrongBox product revenue reached an all time high, following our re-launch at the end of the third quarter. We also made significant headway on our 972 patent monetization strategy with our Markman hearing on October 6th and 7th and major progress on the strategic analysis of monetization alternatives related to our remaining patent assets.“

Comments

Rick Coleman, president and CEO:
"Let's review the 972 portfolio. Late in 2013 through early 2014, Crossroads filed patent infringement suits in the Western District Court of Texas against Oracle, Cisco, NetApp, Huawei, Quantum, and Dot Hill. On October 6 and 7, 2014, a Markman hearing was held in Austin, TX with all six defendants. During the two-day hearing, each side argued the meaning of disputed patent claim terms. As a reminder, this was not our first Markman hearing. We've had three Markman rulings related to the 972 family of patents, all of which were favorable to Crossroads. This, our fourth Markman related to the 972 patents did not present any surprises. Although I can't comment on any particular part of the proceeding, I will say that I'm proud of the performance of our legal team. The Special Magistrate advised all attorneys to expect a ruling from the court as early as February 2015."

Jennifer Crane, CFO:
"Fourth quarter revenue at $2.6 million reflect an increase of $557,000 or 27% over the third quarter. The increase was primarily the result of a record quarter for StrongBox, with revenue coming in at $975,000. That's a 161% increase over the third quarter.
"The other factor contributing to the revenue decline was HP's decision to move from the Crossroad SPHiNX product to their own virtual tape platform."

Mark Hood, EVP, corporate development:
"In the fourth quarter, we continue the addition of marquee StrongBox customers, including toymaker Hasbro, the National Archives, Texas Tech University, the L.A. Kings Hockey team, the Arizona Diamondbacks baseball team, renowned Whitehead Institute, and one deal of note source by our European team, the Irish Film Institute. We also signed one of the world's largest music companies who purchased StrongBox, StrongBox DataManager and our tape library, rather than continuing to invest in our existing NetApp storage solution."