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FalconStor Software Announces Third Quarter 2020 Results, Including 11.7% Year-over-Year Revenue Growth

AUSTIN, Texas--(BUSINESS WIRE)--$FALC #archival--FalconStor Software, Inc. (OTCQB: FALC), a market leader in enterprise-class backup and archive data protection and software-defined storage, today announced financial results for its third quarter ended September 30, 2020.


Key Highlights:

  • 11.7% year-over-year increase in recognized revenue
  • 36.7% year-over-year increase in sales bookings, as a result of strong new customer sales and existing customer expansion results in our core markets of the Americas, EMEA, SE Asia, Korea, and Japan
  • 9.9% year-over-year increase in annual recurring sales bookings
  • 214.8% year-over-year increase in Net Income, resulting in $1.1 million in total Net Income
  • Retired $1 million short-term note secured in Q4 2019
  • Expanded early sales of StorSafeTM, our newest patent-pending long-term archive retention and reinstatement product, which leverages the power and simplicity of industry-standard container technology to enable persistent long-term archive storage. StorSafe dramatically improves archive data portability, accessibility, security, and integrity validation, especially as it relates to multi-cloud data storage leverage. We believe this will create game-changing capability that solves age old challenges in data usability and portability, resulting in a full spectrum of archive data storage options available to our enterprise customers to efficiently utilize essentially any storage environment, while confidently ensuring data security and efficient archive access.

“I am extremely proud of the FalconStor team and our engaged set of global partners, as we continued to make consistent progress against our strategic plans,” said Todd Brooks, CEO FalconStor. “Our momentum continued during the quarter, as the company delivered year-over-year revenue growth of 11.7%, while carefully managing our expenses. As a result, we generated $1.1 million of Net Income. In addition, our intentional shift to subscription-based offerings continued to improve as we delivered a 9.9% increase in annualized recurring sales. While uncertainties continue to exist as a result of COVID-19, we have seen our customers and prospects invest in the business-critical area of data production in which we sell our solutions. We continue to be encouraged by the strong level of new customers secured during the quarter in our core markets, which allowed us to generate a 19% year-over-year increase in total new customer sales bookings. As we move forward, we will continue to maniacally focus in our core markets, and with our innovative, patent-pending long-term archive retention and reinstatement solution, StorSafe, to help our enterprise customers reduce data storage costs, while improving data portability, accessibility, and security – including ransomware protection.”

Additional Financial Highlights for the Third Quarter of 2020:

Our 19% year-over-year increase in sales bookings, allowed us to close the three months ended September 30, 2020 with $4.4 million in recognized revenue, compared to $4.0 million for the same period of the previous year. Revenue recognition on sales is driven by several factors. First, the volume of new product licenses and maintenance sales, both for expansion of our existing installed base and the acquisition of new customers. Second, customer retention, which sustains maintenance renewal revenue over long term sales arrangements. Our software solutions play a key role in efficiently managing and protecting critical data for businesses around the world, and we are confident that, as the global economy recovers, our sales momentum will continue to capture the momentum achieved through our recent sales success. As we move forward through the balance of the year, our energy will be concentrated on generating positive cash flow, capital preservation, strategic growth in our core markets and continued product innovation.

During the three months ended September 30, 2020 we improved our Non-GAAP Operating Income to $2.0 million, compared with a Non-GAAP Operating Loss of $0.1 million for the same period of the previous year.

During the three months ended September 30, 2020, we improved our Non-GAAP Net Income to $1.9 million, compared with a Non-GAAP Net Loss of $0.2 million for the same period of the previous year. Deferred revenue as of September 30, 2020 totaled $6.1 million, compared with $7.4 million as of December 31, 2019.

We ended the quarter with $0.9 million of cash and cash equivalents, compared to $1.5 million at December 31, 2019.

In addition, we applied for the Payroll Protection Plan Loan (PPP) from the Small Business Administration and received $754 thousand dollars in May of 2020.

As always, there is no assurance that the Company will be successful in generating sufficient bookings, billings, revenue or continue to reduce operating costs. Failure to generate sufficient revenue, billings, control or further reduce expenditures could result in an inability of the Company to continue as a going concern. Subject to the foregoing, management believes that, based on projected cash flows, the Company will have sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying interim condensed financial statements.

 

Three Months Ended,

(in millions except per share data)

September 30, 2020

 

June 30, 2020

 

September 30, 2019

Revenue

$

4.4

 

 

$

3.5

 

 

$

4.0

 

Non-GAAP Expenses

$

2.4

 

 

$

2.8

 

 

$

4.1

 

Non-GAAP Gross Margin

91

%

 

89

%

 

81

%

Non-GAAP Operating Income (Loss)

$

2.0

 

 

$

0.7

 

 

$

(0.1)

 

Non-GAAP results above exclude the effects of stock-based compensation, restructuring costs and the effects of our Series A redeemable convertible preferred stock. A reconciliation between GAAP and non-GAAP information is provided on page 6 of this release.

 

Three Months Ended September 30,

 

Change
Period to Period

(in millions except per share data)

2020

 

2019

 

Total revenue

$

4.4

 

 

100

%

 

$

4.0

 

 

100

%

 

$

0.5

 

 

12

%

Total cost of revenue

$

0.4

 

 

9

%

 

$

0.8

 

 

19

%

 

$

(0.4)

 

 

(46)

%

Total operating expenses

$

2.3

 

 

52

%

 

$

3.7

 

 

93

%

 

$

(1.4)

 

 

(38)

%

GAAP operating income (loss)

$

1.7

 

 

39

%

 

$

(0.5)

 

 

(12)

%

 

$

2.2

 

 

451

%

GAAP net income (loss)

$

1.1

 

 

25

%

 

$

(1.0)

 

 

(24)

%

 

$

2.1

 

 

215

%

GAAP diluted EPS

$

0.15

 

 

 

 

$

(0.16)

 

 

 

 

$

0.31

 

 

 

Non-GAAP Financial Measures:

The non-GAAP financial measures used in this press release are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. The Company’s management refers to these non-GAAP financial measures in making operating decisions because they provide meaningful supplemental information regarding the Company’s operating performance. In addition, these non-GAAP financial measures facilitate management’s internal comparisons to the Company’s historical operating results and comparisons to competitors’ operating results. We include these non-GAAP financial measures (which should be viewed as a supplement to, and not a substitute for, their comparable GAAP measures) in this press release because we believe they are useful to investors in allowing for greater transparency into the supplemental information used by management in its financial and operational decision-making. The non-GAAP financial measures exclude (i) restructuring costs, (ii) effects of our Series A redeemable convertible preferred stock, and (iii) non-cash stock-based compensation charges and any potential tax effects. For a reconciliation of our GAAP and non-GAAP financial results, please refer to our Non-GAAP Operating Data GAAP Reconciliation, presented in this release.

About FalconStor Software:

FalconStor Software, Inc. (OTCQB: FALC) is a modern enterprise-class data protection company that is mobilizing the past, energizing the present, and empowering the future of data storage and archival. The company provides software and cloud services to optimize long-term retention of historical data, enhance performance and scalability for present data retention, and allow the seamless adoption of future storage technologies. Customers leveraging FalconStor’s container technology have a competitive advantage facilitating the transition between storage systems and the cloud to reduce the complexity and management of the 100-year data retention lifecycle.

Founded in 2000, FalconStor is headquartered in Austin, Texas and has additional offices in New York, Europe and Asia. Our solutions are available and supported by a vast network of system integrators and resellers. For more information, please visit www.falconstor.com. Connect with FalconStor on Twitter, Facebook, LinkedIn, and the company’s blog.

FalconStor and FalconStor Software are trademarks or registered trademarks of FalconStor Software, Inc., in the U.S. and other countries. All other company and product names contained herein may be trademarks of their respective holders.

Links to websites or pages controlled by parties other than FalconStor are provided for the reader's convenience and information only. FalconStor does not incorporate into this release the information found at those links nor does FalconStor represent or warrant that any information found at those links is complete or accurate. Use of information obtained by following these links is at the reader's own risk.

FalconStor Software, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

September 30, 2020

 

December 31, 2019

 

 

(unaudited)

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

871,281

 

 

$

1,475,166

 

Accounts receivable, net

 

3,476,930

 

 

3,406,550

 

Prepaid expenses and other current assets

 

1,930,671

 

 

2,252,372

 

Contract assets, net

 

419,940

 

 

749,515

 

Inventory

 

14,809

 

 

30,014

 

Total current assets

 

6,713,631

 

 

7,913,617

 

Property and equipment, net

 

236,442

 

 

369,273

 

Operating lease right-of-use assets

 

854,712

 

 

1,842,254

 

Deferred tax assets, net

 

259,209

 

 

258,841

 

Software development costs, net

 

20,928

 

 

27,012

 

Other assets, net

 

926,928

 

 

829,335

 

Goodwill

 

4,150,339

 

 

4,150,339

 

Other intangible assets, net

 

100,358

 

 

57,718

 

Contract assets

 

225,128

 

 

327,757

 

Total assets

 

$

13,487,675

 

 

$

15,776,146

 

Liabilities and Stockholders' Deficit

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

764,371

 

 

$

1,302,290

 

Accrued expenses

 

2,046,399

 

 

2,533,824

 

Operating lease liabilities

 

1,074,032

 

 

1,655,522

 

Short-term loan, net of debt issuance costs and discounts

 

3,968,827

 

 

947,501

 

Deferred revenue, net

 

4,010,383

 

 

5,270,190

 

Total current liabilities

 

11,864,012

 

 

11,709,327

 

Other long-term liabilities

 

679,644

 

 

745,254

 

Notes payable, net

 

 

 

2,906,133

 

Operating lease liabilities

 

2,194

 

 

624,859

 

Deferred tax liabilities, net

 

427,030

 

 

432,520

 

Deferred revenue, net

 

2,042,978

 

 

2,085,080

 

Total liabilities

 

15,015,858

 

 

18,503,173

 

Commitments and contingencies

 

 

 

 

Series A redeemable convertible preferred stock

 

12,483,206

 

 

11,304,279

 

Total stockholders' deficit

 

(14,011,389)

 

 

(14,031,306)

 

Total liabilities and stockholders' deficit

 

$

13,487,675

 

 

$

15,776,146

 

FalconStor Software, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2020

 

2019

 

2020

 

2019

Revenue:

 

 

 

 

 

 

 

 

Product revenue

 

$

2,521,695

 

 

$

1,663,782

 

 

$

5,202,713

 

 

$

4,879,996

 

Support and services revenue

 

1,914,705

 

 

2,308,663

 

 

5,913,486

 

 

7,584,816

 

Total revenue

 

4,436,400

 

 

3,972,445

 

 

11,116,199

 

 

12,464,812

 

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

48,895

 

 

241,134

 

 

250,185

 

 

1,076,604

 

Support and service

 

367,063

 

 

531,709

 

 

1,109,379

 

 

1,639,299

 

Total cost of revenue

 

415,958

 

 

772,843

 

 

1,359,564

 

 

2,715,903

 

Gross profit

 

$

4,020,442

 

 

$

3,199,602

 

 

$

9,756,635

 

 

$

9,748,909

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development costs

 

600,430

 

 

782,161

 

 

1,809,354

 

 

2,503,008

 

Selling and marketing

 

1,026,241

 

 

1,067,436

 

 

3,027,372

 

 

3,436,783

 

General and administrative

 

358,701

 

 

1,454,103

 

 

2,297,451

 

 

4,280,188

 

Restructuring costs

 

317,595

 

 

384,829

 

 

758,740

 

 

745,201

 

Total operating expenses

 

2,302,967

 

 

3,688,529

 

 

7,892,917

 

 

10,965,180

 

Operating income (loss)

 

1,717,475

 

 

(488,927)

 

 

1,863,718

 

 

(1,216,271)

 

Interest and other expense

 

(159,994)

 

 

(123,261)

 

 

(586,082)

 

 

(468,717)

 

Income (loss) before income taxes

 

1,557,481

 

 

(612,188)

 

 

1,277,636

 

 

(1,684,988)

 

Income tax expense (benefit)

 

11,272

 

 

(55,274)

 

 

44,709

 

 

168,556

 

Net income (loss)

 

$

1,546,209

 

 

$

(556,914)

 

 

$

1,232,927

 

 

$

(1,853,544)

 

Less: Accrual of Series A redeemable convertible preferred stock dividends

 

266,007

 

 

266,447

 

 

812,362

 

 

770,027

 

Less: Accretion to redemption value of Series A redeemable convertible preferred stock

 

175,335

 

 

139,399

 

 

366,566

 

 

402,861

 

Net income (loss) attributable to common stockholders

 

$

1,104,867

 

 

$

(962,760)

 

 

$

53,999

 

 

$

(3,026,432)

 

Basic net income (loss) per share attributable to common stockholders

 

$

0.19

 

 

$

(0.16)

 

 

$

0.01

 

 

$

(0.51)

 

Diluted net income (loss) per share attributable to common stockholders

 

$

0.15

 

 

$

(0.16)

 

 

$

0.01

 

 

$

(0.51)

 

Weighted average basic shares outstanding

 

5,919,837

 

 

5,910,718

 

 

7,197,050

 

 

5,887,638

 

Weighted average diluted shares outstanding

 

7,393,082

 

 

5,910,718

 

 

7,197,050

 

 

5,887,638

 

FalconStor Software, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2020

 

2019

 

2020

 

2019

GAAP income (loss) from operations

 

$

1,717,475

 

 

$

(488,927)

 

 

$

1,863,718

 

 

$

(1,216,271)

 

Non-cash stock option expense (1)

 

3,822

 

 

3,100

 

 

$

11,392

 

 

$

28,582

 

Restructuring costs (3)

 

317,595

 

 

384,829

 

 

758,740

 

 

745,201

 

Non-GAAP income (loss) from operations

 

$

2,038,892

 

 

$

(100,998)

 

 

$

2,633,850

 

 

$

(442,488)

 

 

 

 

 

 

 

 

 

 

GAAP net income (loss) attributable to common stockholders

 

$

1,104,867

 

 

$

(962,760)

 

 

$

53,999

 

 

$

(3,026,432)

 

Non-cash stock option expense, net of income taxes (2)

 

3,822

 

 

3,100

 

 

11,392

 

 

28,582

 

Restructuring costs (3)

 

317,595

 

 

384,829

 

 

758,740

 

 

745,201

 

Effects of Series A redeemable convertible preferred stock (4)

 

441,342

 

 

405,846

 

 

1,178,928

 

 

1,172,888

 

Non-GAAP net income (loss) attributable to common stockholders

 

$

1,867,626

 

 

$

(168,985)

 

 

$

2,003,059

 

 

$

(1,079,761)

 

 

 

 

 

 

 

 

 

 

GAAP gross margin

 

91

%

 

81

%

 

88

%

 

78

%

Non-cash stock option expense (1)

 

0

%

 

0

%

 

0

%

 

0

%

Non-GAAP gross margin

 

91

%

 

81

%

 

88

%

 

78

%

 

 

 

 

 

 

 

 

 

GAAP gross margin - Product

 

98

%

 

86

%

 

95

%

 

78

%

Non-cash stock option expense (1)

 

0

%

 

0

%

 

0

%

 

0

%

Non-GAAP gross margin - Product

 

98

%

 

86

%

 

95

%

 

78

%

 

 

 

 

 

 

 

 

 

GAAP gross margin - Support and Service

 

81

%

 

77

%

 

81

%

 

78

%

Non-cash stock option expense (1)

 

0

%

 

0

%

 

0

%

 

0

%

Non-GAAP gross margin - Support and Service

 

81

%

 

77

%

 

81

%

 

78

%

 

 

 

 

 

 

 

 

 

GAAP operating margin

 

39

%

 

(12

%)

 

17

%

 

(10

%)

Non-cash stock option expense (1)

 

0

%

 

%

 

%

 

%

Restructuring costs (3)

 

7

%

 

10

%

 

7

%

 

6

%

Non-GAAP operating margin

 

46

%

 

(2

%)

 

24

%

 

(4

%)

 

 

 

 

 

 

 

 

 

GAAP Basic EPS

 

$

0.19

 

 

$

(0.16)

 

 

$

0.01

 

 

$

(0.51)

 

Non-cash stock option expense, net of income taxes (2)

 

0.00

 

 

0.00

 

 

0.00

 

 

0.00

 

Restructuring costs (3)

 

0.05

 

 

0.07

 

 

0.13

 

 

0.13

 

Effects of Series A redeemable convertible preferred stock (4)

 

0.08

 

 

0.06

 

 

0.20

 

 

0.20

 

Non-GAAP Basic EPS

 

$

0.32

 

 

$

(0.03)

 

 

$

0.34

 

 

$

(0.18)

 

 

 

 

 

 

 

 

 

 

GAAP Diluted EPS

 

$

0.15

 

 

$

(0.16)

 

 

$

0.01

 

 

$

(0.51)

 

Non-cash stock option expense, net of income taxes (2)

 

0.00

 

 

0.00

 

 

0.00

 

 

0.00

 

Restructuring costs (3)

 

0.04

 

 

0.07

 

 

0.11

 

 

0.13

 

Effects of Series A redeemable convertible preferred stock (4)

 

0.06

 

 

0.06

 

 

0.16

 

 

0.20

 

Effects of increase in Non-GAAP diluted shares outstanding (5)

 

0.00

 

 

0.00

 

 

0.00

 

 

0.00

 

Non-GAAP Diluted EPS

 

$

0.25

 

 

$

(0.03)

 

 

$

0.28

 

 

$

(0.18)

 

 

 

 

 

 

 

 

 

 

Weighted average basic shares outstanding (GAAP and Non-GAAP)

 

5,919,837

 

 

5,910,718

 

 

5,919,773

 

 

5,887,638

 

Weighted average diluted shares outstanding (GAAP)

 

7,393,082

 

 

5,910,718

 

 

7,197,050

 

 

5,887,638

 

Weighted average diluted shares outstanding (Non-GAAP)

 

7,393,082

 

 

5,910,718

 

 

7,197,050

 

 

5,887,638

 

Footnotes:

(1)

Represents non-cash, stock-based compensation charges as follows:

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2020

 

2019

 

2020

 

2019

Cost of revenue - Support and Service

 

$

104

 

 

$

104

 

 

310

 

 

2,146

 

Research and development costs

 

433

 

 

371

 

 

1,289

 

 

5,977

 

Selling and marketing

 

186

 

 

186

 

 

554

 

 

3,844

 

General and administrative

 

3,099

 

 

2,439

 

 

9,239

 

 

16,615

 

Total non-cash stock based compensation expense

 

$

3,822

 

 

$

3,100

 

 

$

11,392

 

 

$

28,582

 

 

(2)

Represents the effects of non-cash stock-based compensation expense recognized, net of related income tax effects. For the three and nine months ended September 30, 2020 and 2019, the tax expense for both GAAP and Non-GAAP basis approximate the same amount.

 

(3)

Represents restructuring costs which were incurred during each respective period presented.

 

(4)

Represents the effects of the accretion to redemption value of the Series A redeemable convertible preferred stock, accrual of Series A redeemable convertible preferred stock dividends and deemed dividend on Series A redeemable convertible preferred stock.

 

(5)

Represents the impact of an increase in diluted shares outstanding resulting from Non-GAAP adjustments to a GAAP net loss in the nine months ended September 30, 2019.

 


Contacts

For more information, contact:
FalconStor Software, Inc.
Brad Wolfe
Chief Financial Officer
brad.wolfe@falconstor.com