MELVILLE, N.Y., May 10, 2018 (GLOBE NEWSWIRE) -- FalconStor Software, Inc. (OTCQB:FALC), a market leader in storage software, today announced financial results for its first quarter ended March 31, 2018.
“We are pleased with our Q1 performance and resultant financial results, which continued the return to profitability delivered in Q3 and Q4 of 2017,” stated Todd Brooks, CEO of FalconStor. “Our products play a key role in efficiently managing and protecting critical data within enterprises around the world. Given our improved financial stability and continually improving operational efforts, our focus for the balance of 2018 will shift to further product innovation and strategic growth.”
Financial Overview:
| Three Months Ended March 31, | Change Period to Period | |||||||||||||||||||
| (in millions except per share data) | 2018 | 2017 | ||||||||||||||||||
| Total revenue | $ | 5.0 | 100 | % | $ | 6.0 | 100 | % | $ | (1.0 | ) | (17 | )% | |||||||
| Total cost of revenue | $ | 0.8 | 15 | % | $ | 1.5 | 24 | % | $ | (0.7 | ) | (48 | )% | |||||||
| Total operating expenses | $ | 3.7 | 74 | % | $ | 5.7 | 95 | % | $ | (2.1 | ) | (36 | )% | |||||||
| Operating income (loss) (GAAP) | $ | 0.6 | 11 | % | $ | (1.1 | ) | (19 | )% | $ | 1.7 | * | ||||||||
| Net income (loss) (GAAP) | $ | 0.5 | 10 | % | $ | (1.1 | ) | (18 | )% | $ | 1.6 | * | ||||||||
| Diluted EPS GAAP | $ | (0.05 | ) | $ | (0.03 | ) | $ | (0.02 | ) | |||||||||||
For the three months ended March 31, 2018 we delivered net GAAP operating income of $0.6 million on revenues of $5.0 million. Included in operating results above for the three months ended March 31, 2018 and 2017 were $0.0 million and $0.4 million of share-based compensation expense, respectively.
Deferred revenue at March 31, 2018 was $13.1 million, compared with $18.4 million at December 31, 2017. The decrease is primarily related to our adoption of new revenue recognition accounting guidance on January 1, 2018 using the modified retrospective transition method applied to contracts which were not completed as of January 1, 2018. Our cash balance at March 31, 2018 was $4.6 million, compared with $1.0 million at December 31, 2017.
| Three Months Ended, | |||||||||||
| (in millions except per share data) | March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||
| Revenue | $ | 5.0 | $ | 6.3 | $ | 6.0 | |||||
| Bookings | $ | 5.0 | $ | 5.7 | $ | 5.5 | |||||
| Non-GAAP Expenses | $ | 4.6 | $ | 4.7 | $ | 7.0 | |||||
| Non-GAAP Gross Margin | 85 | % | 83 | % | 77 | % | |||||
| Non-GAAP Operating Income (Loss) | $ | 0.4 | $ | 1.5 | $ | (0.9 | ) | ||||
| Non-GAAP Net Income (Loss) | $ | 0.3 | $ | 1.5 | $ | (0.9 | ) | ||||
| Non-GAAP Diluted EPS | $ | — | $ | 0.03 | $ | (0.02 | ) | ||||
| Cash (used in) provided by operations | $ | 1.2 | $ | (1.0 | ) | $ | 0.1 | ||||
Non-GAAP results 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.
Conference Call
The Company will host a conference call to discuss its financial results on Thursday, May 10, 2018 at 4:30 p.m. EST. To participate in the conference call, please dial:
Toll Free: 1-800-263-0877
International: +1-323-794-2094
Conference ID: 5146016
To view the presentation, please copy and paste the following link into your browser and register for this meeting. Once you have registered for the meeting, you will receive an email message confirming your registration.
Meeting: FalconStor Q1 2018 Earnings
Meeting Password: Q118meeting
Meeting Number: 794 483 353
A conference call replay will be available beginning May 10, 2018 at 6:30 p.m. CST through 6:30 p.m. CST on May 17, 2018. To listen to the replay of the call, dial: Toll Free: 1-888-203-1112; International: +1 719-457-0820; Passcode: 5146016
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 leading storage software company offering a converged data services software platform that is hardware agnostic. Our open, integrated flagship solution FreeStor® reduces vendor lock-in and gives enterprises the freedom to choose the applications and hardware components that make the best sense for their business. We empower organizations to modernize their data center with the right performance, in the right location, all while protecting existing investments. FalconStor’s mission is to maximize data availability and system uptime to ensure nonstop business productivity while simplifying data management to reduce operational costs. Our award-winning solutions are available and supported worldwide by OEMs as well as leading service providers, system integrators, resellers and FalconStor. The Company is headquartered in Melville, N.Y. with offices throughout Europe and the Asia Pacific region. For more information, visit www.falconstor.com or call 1-866-NOW-FALC (866-669-3252).
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This press release includes forward-looking statements that involve risk and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include: delays in product development; market acceptance of FalconStor’s products and services; technological change in the data protection industry; competition in the data protection market; results and costs associated with governmental investigations; intellectual property issues; and other risk factors discussed in FalconStor’s reports on Forms 10-K, 10-Q and other reports filed with the Securities and Exchange Commission.
FalconStor, FalconStor Software, FreeStor and Intelligent Abstraction 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
| March 31, 2018 | December 31, 2017 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 4,563,260 | $ | 1,011,472 | ||||
| Accounts receivable, net | 3,118,556 | 4,168,015 | ||||||
| Prepaid expenses and other current assets | 1,415,950 | 1,244,494 | ||||||
| Contract assets, net | 1,624,533 | — | ||||||
| Total current assets | 10,722,299 | 6,423,981 | ||||||
| Property and equipment, net | 557,799 | 636,112 | ||||||
| Deferred tax assets, net | 618,078 | 590,977 | ||||||
| Software development costs, net | 236,991 | 279,414 | ||||||
| Other assets, net | 966,867 | 992,760 | ||||||
| Goodwill | 4,150,339 | 4,150,339 | ||||||
| Other intangible assets, net | 134,628 | 141,631 | ||||||
| Contract assets | $ | 1,786,369 | $ | — | ||||
| Total assets | $ | 19,173,370 | $ | 13,215,214 | ||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,271,429 | $ | 1,092,864 | ||||
| Accrued expenses | 2,622,150 | 4,376,235 | ||||||
| Short-term loan, net of debt issuance costs and discounts | — | 370,151 | ||||||
| Deferred revenue, net | 7,391,371 | 11,760,327 | ||||||
| Total current liabilities | 11,284,950 | 17,599,577 | ||||||
| Other long-term liabilities | 1,140,671 | 1,154,512 | ||||||
| Notes payable, net | 2,468,696 | — | ||||||
| Warrant liability | 4,143,000 | — | ||||||
| Deferred tax liabilities, net | 85,559 | 85,559 | ||||||
| Deferred revenue, net | 5,748,448 | 6,600,363 | ||||||
| Total liabilities | 24,871,324 | 25,440,011 | ||||||
| Commitments and contingencies | ||||||||
| Series A redeemable convertible preferred stock | 8,747,789 | 9,000,000 | ||||||
| Total stockholders' deficit | (14,445,743 | ) | (21,224,797 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 19,173,370 | $ | 13,215,214 | ||||
FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| Revenue: | ||||||||
| Product revenue | $ | 1,933,944 | $ | 1,921,052 | ||||
| Support and services revenue | 3,060,005 | 4,118,063 | ||||||
| Total revenue | 4,993,949 | 6,039,115 | ||||||
| Cost of revenue: | ||||||||
| Product | 26,150 | 198,715 | ||||||
| Support and service | 728,888 | 1,253,916 | ||||||
| Total cost of revenue | 755,038 | 1,452,631 | ||||||
| Gross profit | $ | 4,238,911 | $ | 4,586,484 | ||||
| Operating expenses: | ||||||||
| Research and development costs | 1,004,698 | 2,294,863 | ||||||
| Selling and marketing | 1,193,550 | 2,050,542 | ||||||
| General and administrative | 1,654,940 | 1,621,551 | ||||||
| Restructuring costs (benefit) | (173,263 | ) | (236,302 | ) | ||||
| Total operating expenses | 3,679,925 | 5,730,654 | ||||||
| Operating income (loss) | 558,986 | (1,144,170 | ) | |||||
| Interest and other income (loss), net | 10,330 | 154,921 | ||||||
| Income (Loss) before income taxes | 569,316 | (989,249 | ) | |||||
| Provision for income taxes | 62,439 | 122,948 | ||||||
| Net income (loss) | $ | 506,877 | $ | (1,112,197 | ) | |||
| Less: Accrual of Series A redeemable convertible preferred stock dividends | 243,167 | 204,575 | ||||||
| Less: Deemed dividend on Series A redeemable convertible preferred stock | 2,269,042 | — | ||||||
| Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 38,105 | — | ||||||
| Net loss attributable to common stockholders | $ | (2,043,437 | ) | $ | (1,316,772 | ) | ||
| Basic net loss per share attributable to common stockholders | $ | (0.05 | ) | $ | (0.03 | ) | ||
| Diluted net loss per share attributable to common stockholders | $ | (0.05 | ) | $ | (0.03 | ) | ||
| Weighted average basic shares outstanding | 44,564,094 | 44,088,352 | ||||||
| Weighted average diluted shares outstanding | 44,564,094 | 44,088,352 | ||||||
FalconStor Software, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| GAAP income (loss) from operations | $ | 558,986 | $ | (1,144,170 | ) | |||
| Non-cash stock option expense (1) | (22,895 | ) | 445,414 | |||||
| Restructuring costs (3) | (173,263 | ) | (236,302 | ) | ||||
| Non-GAAP income (loss) from operations | $ | 362,828 | $ | (935,058 | ) | |||
| GAAP net loss attributable to common stockholders | $ | (2,043,437 | ) | $ | (1,316,772 | ) | ||
| Non-cash stock option expense, net of income taxes (2) | (22,895 | ) | 445,414 | |||||
| Restructuring costs (3) | (173,263 | ) | (236,302 | ) | ||||
| Effects of Series A redeemable convertible preferred stock (4) | 2,550,314 | 204,575 | ||||||
| Non-GAAP net income (loss) attributable to common stockholders | $ | 310,719 | $ | (903,085 | ) | |||
| GAAP gross margin | 85 | % | 76 | % | ||||
| Non-cash stock option expense (1) | 0 | % | 1 | % | ||||
| Non-GAAP gross margin | 85 | % | 77 | % | ||||
| GAAP gross margin - Product | 99 | % | 90 | % | ||||
| Non-cash stock option expense (1) | 0 | % | 0 | % | ||||
| Non-GAAP gross margin - Product | 99 | % | 90 | % | ||||
| GAAP gross margin - Support and Service | 76 | % | 70 | % | ||||
| Non-cash stock option expense (1) | 0 | % | 1 | % | ||||
| Non-GAAP gross margin - Support and Service | 76 | % | 71 | % | ||||
| GAAP operating margin | 11 | % | (19 | %) | ||||
| Non-cash stock option expense (1) | 0 | % | 7 | % | ||||
| Restructuring costs (3) | (3 | %) | (4 | %) | ||||
| Non-GAAP operating margin | 8 | % | (16 | %) | ||||
| GAAP Basic EPS | $ | (0.05 | ) | $ | (0.03 | ) | ||
| Non-cash stock option expense, net of income taxes (2) | 0.00 | 0.01 | ||||||
| Restructuring costs (3) | 0.00 | 0.00 | ||||||
| Effects of Series A redeemable convertible preferred stock (4) | 0.06 | 0.00 | ||||||
| Non-GAAP Basic EPS | $ | 0.01 | $ | (0.02 | ) | |||
| GAAP Diluted EPS | $ | (0.05 | ) | $ | (0.03 | ) | ||
| Non-cash stock option expense, net of income taxes (2) | 0.00 | 0.01 | ||||||
| Restructuring costs (3) | 0.00 | 0.00 | ||||||
| Effects of Series A redeemable convertible preferred stock (4) | 0.05 | 0.00 | ||||||
| Non-GAAP Diluted EPS | $ | 0.00 | $ | (0.02 | ) | |||
| Weighted average basic shares outstanding (GAAP and as adjusted) | 44,564,094 | 44,088,352 | ||||||
| Weighted average diluted shares outstanding (GAAP) | 44,564,094 | 44,088,352 | ||||||
| Weighted average diluted shares outstanding (Non-GAAP) | 261,370,198 | 44,088,352 | ||||||
Footnotes:
- Represents non-cash, stock-based compensation charges as follows:
| Three Months Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| Cost of revenue - Product | $ | — | $ | — | ||||
| Cost of revenue - Support and Service | 8,700 | 56,451 | ||||||
| Research and development costs | 22,606 | 129,715 | ||||||
| Selling and marketing | 7,932 | 56,540 | ||||||
| General and administrative | (62,133 | ) | 202,708 | |||||
| Total non-cash stock based compensation expense | $ | (22,895 | ) | $ | 445,414 | |||
- Represents the effects of non-cash stock-based compensation expense recognized, net of related income tax effects. For the three months ended March 31, 2018 and 2017, the tax expense for both GAAP and Non-GAAP basis approximate the same amount.
- Represents restructuring costs which were incurred during each respective period presented.
- 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.
For more information, contact:
FalconStor Software, Inc.
Brad Wolfe
Chief Financial Officer
brad.wolfe@falconstor.com
