Attached files
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| 8-K - 8-K - FALCONSTOR SOFTWARE INC | form8k-q22020.htm |
Exhibit 99.1
For more information, contact:
FalconStor Software, Inc.
Brad Wolfe
Chief Financial Officer
brad.wolfe@falconstor.com
FalconStor Software Announces Second Quarter 2020 Results, Including Strong New Customer Bookings and Net Income Growth
AUSTIN, TEXAS (August 5, 2020) - 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 second quarter ended June 30, 2020.
Key Strategic Highlights:
Despite the global disruptions caused by the COVID-19 pandemic, we:
• | Delivered year-over-year increase of 11.5% in sales bookings, as a result of strong new customer sales results in our core markets of the Americas, EMEA, SE Asia, Korea, and Japan, |
• | Recognized a 12.5% decrease in GAAP revenue, primarily as a result of a decline in recurring revenue retention rates in our non-core markets, including China, which offset our strong new customer gains, |
• | Generated year-over-year increase of 134.7% in Net Income, |
• | Secured our first StorSafeTM customer. 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. StorSafeTM 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. |
• | Continued delivering product innovations and ensure seamless upgrades for existing and new customers. |
“The global COVID-19 pandemic remains at the top of our minds, as our thoughts go out to everyone impacted by its spread. The safety of our employees has been a top FalconStor priority, as is ensuring we are delivering outstanding value to our customers”, said Todd Brooks, CEO FalconStor. “I am very proud of the FalconStor team and our global partners, as they remained focused during the quarter and allowed the company to deliver 11.5% year-over-year sales bookings growth, and 134.7% year-over-year Net Income growth. While uncertainties continue to exist as a result of COVID-19, we have seen our customers and prospects continue to invest in the business critical area of data production in which we sell our solutions.
We are especially encouraged by the strong level of new customers secured during the quarter in our core markets, which allowed us to generate a 251% year-over-year increase in total new customer sales bookings. These results helped to offset the year-over-year recurring revenue decline we continue to experience in our non-core markets, including China. Over the next several quarters, we expect our core market results to begin producing global revenue year-over-year increases as our non-core market revenue is strategically replaced.”
Additional Financial Highlights for the Second Quarter of 2020:
Despite our 11.5% year-over-year increase in sales bookings amid the unprecedented global outbreak of the novel COVID-19 pandemic, we closed the three months ended June 30, 2020 with $3.5 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
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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 June 30, 2020 we recorded a Non-GAAP Operating Income of $0.7 million, compared with a Non-GAAP Operating Loss of $0.7 million for the same period of the previous year.
During the three months ended June 30, 2020, we recorded a Non-GAAP Net Income of $0.6 million, compared with a Non-GAAP Net Loss of $1.0 million for the same period of the previous year. Deferred revenue as of June 30, 2020 totaled $5.4 million, compared with $7.4 million as of December 31, 2019.
We ended the quarter with $1.5 million of cash and cash equivalents, compared to $1.5 million at December 31, 2019.
The Company's ability to continue as a going concern, depends on its ability to execute its business plan, maintain revenue and billings and control expenditures. Given the financing commitments the Company has in place, and the aggressive expense controls implemented during Q1, management believes the Company can meet all its obligations for the next 12 months.
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) | June 30, 2020 | March 31, 2020 | June 30, 2019 | ||||||||
Revenue | $ | 3.5 | $ | 3.2 | $ | 4.0 | |||||
Non-GAAP Expenses | $ | 2.8 | $ | 3.3 | $ | 4.7 | |||||
Non-GAAP Gross Margin | 89 | % | 83 | % | 68 | % | |||||
Non-GAAP Operating Income (Loss) | $ | 0.7 | $ | (0.1 | ) | $ | (0.7 | ) | |||
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 June 30, | Change Period to Period | |||||||||||||||||||
(in millions except per share data) | 2020 | 2019 | ||||||||||||||||||
Total revenue | $ | 3.5 | 100 | % | $ | 4.0 | 100 | % | $ | (0.5 | ) | (12 | )% | |||||||
Total cost of revenue | $ | 0.4 | 11 | % | $ | 1.3 | 32 | % | $ | (0.9 | ) | (69 | )% | |||||||
Total operating expenses | $ | 2.6 | 73 | % | $ | 3.7 | 92 | % | $ | (1.1 | ) | (30 | )% | |||||||
GAAP operating income (loss) | $ | 0.6 | 16 | % | $ | (1.0 | ) | (24 | )% | $ | 1.5 | (158 | )% | |||||||
GAAP net income (loss) | $ | — | — | % | $ | (1.6 | ) | (39 | )% | $ | 1.5 | (99 | )% | |||||||
GAAP diluted EPS | $ | — | $ | (0.27 | ) | $ | 0.27 | |||||||||||||
Webcast and Presentation:
WHO: Todd Brooks, Chief Executive Officer, FalconStor Brad Wolfe, Chief Financial Officer, FalconStor
WHEN: Wednesday, August 5, 2020 3:30 PM CDT
To register for our earnings call, please click the following link:
FALCONSTOR SECOND QUARTER 2020 FINANCIAL TELECONFERENCE AND PRESENTATION
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As an alternative, you can copy and paste the following link into your web browser to register:
https://register.gotowebinar.com/register/5488247882652551179
To dial into our earnings call by phone, please use the following dial-in number and access code.
United States: 1-562-247-8421
Access Code: 635-568-493
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 technology company whose mission is to deliver technical innovation that creates investment protection, flexibility, and leverage of modern cloud-based technologies for our enterprise customers. We provide software and cloud services that enable our enterprise customers to better manage, protect, secure, and make use of their valuable data. Our customers achieve lower costs, simpler operations, greater data security, higher confidence in their business continuity, and greater ability to effectively use their data assets to drive innovation.
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.
# # #
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.
CONTACT INFORMATION
For more information, contact:
Brad Wolfe
Chief Financial Officer FalconStor Software Inc.
investorrelations@falconstor.com
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FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2020 | December 31, 2019 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,514,351 | $ | 1,475,166 | ||||
Accounts receivable, net | 1,856,839 | 3,406,550 | ||||||
Prepaid expenses and other current assets | 1,892,842 | 2,252,372 | ||||||
Contract assets, net | 423,556 | 749,515 | ||||||
Inventory | 14,571 | 30,014 | ||||||
Total current assets | 5,702,159 | 7,913,617 | ||||||
Property and equipment, net | 278,345 | 369,273 | ||||||
Operating lease right-of-use assets | 1,155,028 | 1,842,254 | ||||||
Deferred tax assets, net | 258,985 | 258,841 | ||||||
Software development costs, net | 22,577 | 27,012 | ||||||
Other assets, net | 923,275 | 829,335 | ||||||
Goodwill | 4,150,339 | 4,150,339 | ||||||
Other intangible assets, net | 91,463 | 57,718 | ||||||
Contract assets | 254,397 | 327,757 | ||||||
Total assets | $ | 12,836,568 | $ | 15,776,146 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 696,459 | $ | 1,302,290 | ||||
Accrued expenses | 2,309,524 | 2,533,824 | ||||||
Operating lease liabilities | 1,438,448 | 1,655,522 | ||||||
Short-term loan, net of debt issuance costs and discounts | 1,812,210 | 947,501 | ||||||
Deferred revenue, net | 2,926,017 | 5,270,190 | ||||||
Total current liabilities | 9,182,658 | 11,709,327 | ||||||
Other long-term liabilities | 688,441 | 745,254 | ||||||
Notes payable, net | 3,113,267 | 2,906,133 | ||||||
Operating lease liabilities | 31,507 | 624,859 | ||||||
Deferred tax liabilities, net | 432,301 | 432,520 | ||||||
Deferred revenue, net | 2,442,373 | 2,085,080 | ||||||
Total liabilities | 15,890,547 | 18,503,173 | ||||||
Commitments and contingencies | ||||||||
Series A redeemable convertible preferred stock | 12,041,865 | 11,304,279 | ||||||
Total stockholders' deficit | (15,095,844 | ) | (14,031,306 | ) | ||||
Total liabilities and stockholders' deficit | $ | 12,836,568 | $ | 15,776,146 | ||||
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FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue: | ||||||||||||||||
Product revenue | $ | 1,632,055 | $ | 1,470,430 | $ | 2,681,018 | $ | 3,216,214 | ||||||||
Support and services revenue | 1,867,557 | 2,528,959 | 3,998,781 | 5,276,153 | ||||||||||||
Total revenue | 3,499,612 | 3,999,389 | 6,679,799 | 8,492,367 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Product | 61,830 | 755,796 | 201,290 | 835,470 | ||||||||||||
Support and service | 334,396 | 537,105 | 742,316 | 1,107,590 | ||||||||||||
Total cost of revenue | 396,226 | 1,292,901 | 943,606 | 1,943,060 | ||||||||||||
Gross profit | $ | 3,103,386 | $ | 2,706,488 | $ | 5,736,193 | $ | 6,549,307 | ||||||||
Operating expenses: | ||||||||||||||||
Research and development costs | 534,000 | 764,276 | 1,208,924 | 1,720,847 | ||||||||||||
Selling and marketing | 1,019,940 | 1,296,909 | 2,001,131 | 2,369,347 | ||||||||||||
General and administrative | 845,581 | 1,397,886 | 1,938,750 | 2,826,085 | ||||||||||||
Restructuring costs | 153,685 | 202,679 | 441,145 | 360,372 | ||||||||||||
Total operating expenses | 2,553,206 | 3,661,750 | 5,589,950 | 7,276,651 | ||||||||||||
Operating income (loss) | 550,180 | (955,262 | ) | 146,243 | (727,344 | ) | ||||||||||
Interest and other expense | (180,249 | ) | (80,217 | ) | (426,088 | ) | (345,456 | ) | ||||||||
Income (loss) before income taxes | 369,931 | (1,035,479 | ) | (279,845 | ) | (1,072,800 | ) | |||||||||
Income tax expense (benefit) | (36,627 | ) | 136,244 | 33,437 | 223,830 | |||||||||||
Net income (loss) | $ | 406,558 | $ | (1,171,723 | ) | $ | (313,282 | ) | $ | (1,296,630 | ) | |||||
Less: Accrual of Series A redeemable convertible preferred stock dividends | 260,595 | 256,553 | 546,355 | 503,580 | ||||||||||||
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 165,141 | 134,223 | 191,231 | 263,462 | ||||||||||||
Net income (loss) attributable to common stockholders | $ | (19,178 | ) | $ | (1,562,499 | ) | $ | (1,050,868 | ) | $ | (2,063,672 | ) | ||||
Basic net income (loss) per share attributable to common stockholders | $ | — | $ | (0.27 | ) | $ | (0.18 | ) | $ | (0.35 | ) | |||||
Diluted net income (loss) per share attributable to common stockholders | $ | — | $ | (0.27 | ) | $ | (0.18 | ) | $ | (0.35 | ) | |||||
Weighted average basic shares outstanding | 5,919,837 | 5,879,225 | 5,919,740 | 5,875,907 | ||||||||||||
Weighted average diluted shares outstanding | 5,919,837 | 5,879,225 | 5,919,740 | 5,875,907 | ||||||||||||
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FalconStor Software, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
GAAP income (loss) from operations | $ | 550,180 | $ | (955,262 | ) | $ | 146,243 | $ | (727,344 | ) | ||||||
Non-cash stock option expense (1) | 3,060 | 16,231 | $ | 7,570 | $ | 25,482 | ||||||||||
Restructuring costs (3) | 153,685 | 202,679 | 441,145 | 360,372 | ||||||||||||
Non-GAAP income (loss) from operations | $ | 706,925 | $ | (736,352 | ) | $ | 594,958 | $ | (341,490 | ) | ||||||
GAAP net income (loss) attributable to common stockholders | $ | (19,178 | ) | $ | (1,562,499 | ) | $ | (1,050,868 | ) | $ | (2,063,672 | ) | ||||
Non-cash stock option expense, net of income taxes (2) | 3,060 | 16,231 | 7,570 | 25,482 | ||||||||||||
Restructuring costs (3) | 153,685 | 202,679 | 441,145 | 360,372 | ||||||||||||
Effects of Series A redeemable convertible preferred stock (4) | 425,736 | 390,776 | 737,586 | 767,042 | ||||||||||||
Non-GAAP net income (loss) attributable to common stockholders | $ | 563,303 | $ | (952,813 | ) | $ | 135,433 | $ | (910,776 | ) | ||||||
GAAP gross margin | 89 | % | 68 | % | 86 | % | 77 | % | ||||||||
Non-cash stock option expense (1) | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Non-GAAP gross margin | 89 | % | 68 | % | 86 | % | 77 | % | ||||||||
GAAP gross margin - Product | 96 | % | 49 | % | 92 | % | 74 | % | ||||||||
Non-cash stock option expense (1) | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Non-GAAP gross margin - Product | 96 | % | 49 | % | 92 | % | 74 | % | ||||||||
GAAP gross margin - Support and Service | 82 | % | 79 | % | 81 | % | 79 | % | ||||||||
Non-cash stock option expense (1) | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Non-GAAP gross margin - Support and Service | 82 | % | 79 | % | 81 | % | 79 | % | ||||||||
GAAP operating margin | 16 | % | (24 | %) | 2 | % | (9 | %) | ||||||||
Non-cash stock option expense (1) | 0 | % | — | % | — | % | — | % | ||||||||
Restructuring costs (3) | 4 | % | 5 | % | 7 | % | 4 | % | ||||||||
Non-GAAP operating margin | 20 | % | (19 | %) | 9 | % | (5 | %) | ||||||||
GAAP Basic EPS | $ | 0.00 | $ | (0.27 | ) | $ | (0.18 | ) | $ | (0.35 | ) | |||||
Non-cash stock option expense, net of income taxes (2) | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Restructuring costs (3) | 0.03 | 0.04 | 0.07 | 0.06 | ||||||||||||
Effects of Series A redeemable convertible preferred stock (4) | 0.07 | 0.07 | 0.13 | 0.13 | ||||||||||||
Non-GAAP Basic EPS | $ | 0.10 | $ | (0.16 | ) | $ | 0.02 | $ | (0.16 | ) | ||||||
GAAP Diluted EPS | $ | 0.00 | $ | (0.27 | ) | $ | (0.18 | ) | $ | (0.35 | ) | |||||
Non-cash stock option expense, net of income taxes (2) | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Restructuring costs (3) | 0.03 | 0.04 | 0.07 | 0.06 | ||||||||||||
Effects of Series A redeemable convertible preferred stock (4) | 0.07 | 0.07 | 0.13 | 0.13 | ||||||||||||
Effects of increase in Non-GAAP diluted shares outstanding (5) | (0.02 | ) | 0.00 | 0.00 | 0.00 | |||||||||||
Non-GAAP Diluted EPS | $ | 0.08 | $ | (0.16 | ) | $ | 0.02 | $ | (0.16 | ) | ||||||
Weighted average basic shares outstanding (GAAP and Non-GAAP) | 5,919,837 | 5,879,225 | 5,919,740 | 5,875,907 | ||||||||||||
Weighted average diluted shares outstanding (GAAP) | 5,919,837 | 5,879,225 | 5,919,740 | 5,875,907 | ||||||||||||
Weighted average diluted shares outstanding (Non-GAAP) | 7,109,893 | 5,879,225 | 7,099,033 | 5,875,907 | ||||||||||||
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Footnotes:
(1) | Represents non-cash, stock-based compensation charges as follows: |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Cost of revenue - Support and Service | $ | 103 | $ | 449 | 206 | 2,042 | ||||||||||
Research and development costs | 428 | 861 | 856 | 5,606 | ||||||||||||
Selling and marketing | 184 | 1,248 | 368 | 3,658 | ||||||||||||
General and administrative | 2,345 | 13,673 | 6,140 | 14,176 | ||||||||||||
Total non-cash stock based compensation expense | $ | 3,060 | $ | 16,231 | $ | 7,570 | $ | 25,482 | ||||||||
(2) | Represents the effects of non-cash stock-based compensation expense recognized, net of related income tax effects. For the three and six months ended June 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 six months ended June 30, 2019. |
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