EX-99.1 2 ex991-q22019.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
 
logo_colora02.jpg

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

FalconStor Software Announces Second Quarter 2019 Results Including 15% Global Billings Growth


AUSTIN, TEXAS (August 14, 2019) - FalconStor Software, Inc. (OTCQB: FALC), a market leader in software-defined storage and data management, today announced financial results for its second quarter ended June 30, 2019.


Key Financial Highlights for the Second Quarter of Fiscal 2019:

•
Achieved 15% sales growth, year over year,
•
Captured 114% of additional sales in the Americas, as compared to the same period of the previous year,
•
Year over year sales from our Backup & Archive Modernization solution (VTL) grew 82%,
•
Our China-specific risk exposure declined to just 2% of total sales, as compared to 12% in 2018.

Key Product Highlights

•
Completed phase 2 integration of our Backup & Archive Modernization technology (VTL) into the FalconStor Data Mastery Platform during Q2 in order to extend our leading storage orchestration and ease-of-use capabilities to backup and archive use cases.
•
Published expanded independent testing of our VTL technology by the Evaluator Group, an information management and data storage analyst firm. Their findings conclude that our solution delivers up to 6x better price/ performance than the leading competitor.
•
Completed cloud integrations for Amazon Web Services (AWS) Deep Archive storage.
•
Completed several key software compatibility certifications; including, Windows 2019, VMWare 6.5, and 6.7

“Q2 marked an important milestone in our work to return FalconStor to growth, as we increased global billings by 15% as compared to Q2 of 2018”, said Todd Brooks, CEO FalconStor. “I am especially pleased with the 82% year-over-year billings growth delivered through our Backup & Archive Modernization solution (VTL). According to IDC, up to 75% of data managed by an enterprise is directly related to routine data backup and archive. Our solution allows an enterprise to leverage existing backup policies and procedures, while ensuring the most stringent backup window is met, data storage capacity is reduced by up to 95%, and Cloud storage alternatives such as AWS, IBM-Cloud, and the Hitachi Content Platform (HCP), are integrated for improved data storage efficiency.”

“It is important to note that our Q2 billings grew as compared to Q2 2018 despite the fact we intentionally executed several actions to reduce our revenue exposure in China during the quarter,” Brooks continued. “While we will work diligently to support our existing China-based enterprise customers, we have elected to significantly reduce our footprint within the country and any new sales pursuits.”

“Finally, despite our exciting growth, I was disappointed that we failed to achieve an operating profit for an eighth straight quarter,” Brooks continued. “Achieving both consistent growth and operating profitability is key to our success plans. To ensure on-going quarterly cash-flow positive operations, we are implementing several changes, which are primarily targeted at ensuring our commercial dollars are being invested in the most effective way. The significant reduction in our China footprint is a prime example of this decision.”





1


Additional Financial Highlights for the Second Quarter of 2019

On August 6, 2019, following stockholder approval, the Company filed a certificate of amendment (which was effective August 8, 2019) to the Company’s Restated Certificate of Incorporation, as amended, with the Delaware Secretary of State to reduce the authorized shares of common stock, $.001 par value per share, to 30,000,000. In connection with this event, the Company effected a 100-for-1 reverse stock split of its issued and outstanding common stock. The par value and authorized shares of common stock were not adjusted as a result of the reverse stock split. Pursuant to Federal Industry Regulatory Authority guidance, the Company's stock will trade on the OTC market under the symbol FALCD, instead of FALC, through August 28, 2019. After this twenty day period has lapsed, trading of the Company's stock will resume under the symbol FALC. All of the share and per share information presented in the accompanying financial statements have been adjusted to reflect, unless otherwise stated, the reverse common stock split on a retroactive basis for all periods and as of all dates presented.

During the three months ended June 30, 2019, we recorded a GAAP Net Loss of $1.6 million, as compared to a GAAP Net Loss of $1.3 million for the prior year period. Despite our growth in sales, our results were constrained by product mix, as a result higher than anticipated hardware and appliance sales during the current period, which yield significant less profit margins, as compared to our key proprietary technology offerings.

Overall, total revenue for the three months ended June 30, 2019 was $4.0 million compared to $4.0 million in the prior 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.

After our $0.5 million Term Loan repayment, we ended the quarter with $2.4 million of cash and cash equivalents, as compared to $3.1 million at December 31, 2018. Our plan is to be cash flow positive for 2019 and we are on track to achieve this plan.

 
Three Months Ended,
(in millions except per share data)
June 30, 2019
 
December 31, 2018
 
June 30, 2018
Revenue
$
4.0

 
$
4.8

 
$
4.0

Non-GAAP Expenses
$
4.7

 
$
4.0

 
$
3.9

Non-GAAP Gross Margin
68
%
 
81
%
 
84
%
Non-GAAP Operating Income
$
(0.7
)
 
$
0.7

 
$
0.2


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)
2019
 
2018
 
Total revenue
$
4.0

 
100
 %
 
$
4.0

 
100
 %
 
$
—

 
—
 %
Total cost of revenue
$
1.3

 
32
 %
 
$
0.6

 
16
 %
 
$
0.7

 
105
 %
Total operating expenses
$
3.7

 
92
 %
 
$
4.1

 
101
 %
 
$
(0.4
)
 
(10
)%
GAAP operating income (loss)
$
(1.0
)
 
(24
)%
 
$
(0.7
)
 
(17
)%
 
$
(0.3
)
 
41
 %
GAAP net income (loss)
$
(1.6
)
 
(39
)%
 
$
(1.3
)
 
(32
)%
 
$
(0.3
)
 
20
 %
GAAP diluted EPS
$
(0.27
)
 
 
 
$
(1.54
)
 
 
 
$
1.27

 
 

Conference Call and Webcast Information
                             
The Company will host a conference call to discuss its financial results on Wednesday, August 14, 2019 at 3:30 p.m. CDT. To participate in the conference call, please dial:

Toll Free: 1-800-353-6461
International: 1-334-323-0501
Conference ID: 8684576

2



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.

https://www.webcaster4.com/Webcast/Page/1960/31102

A conference call replay will be available beginning August 14th at 6:30 PM CDT through 6:30 PM CDT on August 21st. To listen to the replay of the call, dial:

Toll Free: 1-888-203-1112
International: 1-719-457-0820
Passcode: 8684576

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 ) empowers IT professionals to achieve mastery of their data - an organization’s most precious asset - so they can responsibly push the boundaries of what’s possible in the digital economy. The company’s award- winning flagship solution, FreeStor®, is a modern, comprehensive and easy-to-use global data mastery software platform that gives IT professionals centralized data management control across all their resources to reduce operational costs, lower risk, and avoid technology compromises. FalconStor’s vendor- and hardware-agnostic solutions are designed to work with existing investments across complex environments, including legacy data centers, hyper-converged infrastructure, cloud, and hybrids.
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, 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.
CONTACT INFORMATION
For more information, contact:
Brad Wolfe
Chief Financial Officer FalconStor Software Inc.
investorrelations@falconstor.com

3


FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
June 30, 2019
 
December 31, 2018
 
 
(unaudited)
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
2,400,953

 
$
3,059,677

Accounts receivable, net
 
1,706,141

 
3,605,411

Prepaid expenses and other current assets
 
1,736,775

 
1,909,846

Contract assets, net
 
838,273

 
637,179

Inventory
 
104,737

 
14,885

Total current assets
 
6,786,879

 
9,226,998

Property and equipment, net
 
484,588

 
433,935

Operating lease right-of-use assets
 
2,454,349

 
—

Deferred tax assets, net
 
553,738

 
545,044

Software development costs, net
 
46,136

 
88,769

Other assets, net
 
1,037,877

 
919,609

Goodwill
 
4,150,339

 
4,150,339

Other intangible assets, net
 
85,746

 
91,334

Contract assets
 
222,825

 
516,643

 Total assets
 
$
15,822,477

 
$
15,972,671

Liabilities and Stockholders' Deficit
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
1,109,862

 
$
551,389

Accrued expenses
 
2,284,591

 
2,879,473

Operating lease liabilities
 
1,753,015

 
—

Deferred revenue, net
 
5,071,197

 
6,859,592

Total current liabilities
 
10,218,665

 
10,290,454

Other long-term liabilities
 
760,574

 
1,549,692

Notes payable, net
 
2,746,419

 
3,124,827

Operating lease liabilities
 
1,281,804

 
—

Deferred tax liabilities, net
 
297,715

 
297,890

Deferred revenue, net
 
3,615,556

 
2,506,898

Total liabilities
 
18,920,733

 
17,769,761

Commitments and contingencies
 
 

 
 

Series A redeemable convertible preferred stock
 
10,523,748

 
9,756,706

Total stockholders' deficit
 
(13,622,004
)
 
(11,553,796
)
Total liabilities and stockholders' deficit
 
$
15,822,477

 
$
15,972,671



4


FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) 

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
 
Product revenue
 
$
1,470,430

 
$
983,645

 
$
3,216,214

 
$
2,917,589

Support and services revenue
 
2,528,959

 
3,027,936

 
5,276,153

 
6,087,941

Total revenue
 
3,999,389

 
4,011,581

 
8,492,367

 
9,005,530

Cost of revenue:
 
 

 
 

 
 

 
 

Product
 
755,796

 
39,740

 
835,470

 
65,890

Support and service
 
537,105

 
590,309

 
1,107,590

 
1,319,197

Total cost of revenue
 
1,292,901

 
630,049

 
1,943,060

 
1,385,087

Gross profit
 
$
2,706,488

 
$
3,381,532

 
$
6,549,307

 
$
7,620,443

Operating expenses:
 
 

 
 

 
 

 
 

Research and development costs
 
764,276

 
928,097

 
1,720,847

 
1,932,795

Selling and marketing
 
1,296,909

 
872,109

 
2,369,347

 
2,065,659

General and administrative
 
1,397,886

 
1,451,884

 
2,826,085

 
3,106,824

Restructuring costs
 
202,679

 
809,245

 
360,372

 
635,982

Total operating expenses
 
3,661,750

 
4,061,335

 
7,276,651

 
7,741,260

Operating income (loss)
 
(955,262
)
 
(679,803
)
 
(727,344
)
 
(120,817
)
Interest and other loss, net
 
(80,217
)
 
(323,750
)
 
(345,456
)
 
(313,420
)
Income (loss) before income taxes
 
(1,035,479
)
 
(1,003,553
)
 
(1,072,800
)
 
(434,237
)
Income tax expense
 
136,244

 
551

 
223,830

 
62,990

Net income (loss)
 
$
(1,171,723
)
 
$
(1,004,104
)
 
$
(1,296,630
)
 
$
(497,227
)
Less: Accrual of Series A redeemable convertible preferred stock dividends
 
256,553

 
214,963

 
503,580

 
458,130

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
 
134,223

 
77,645

 
263,462

 
115,750

Net income (loss) attributable to common stockholders
 
$
(1,562,499
)
 
$
(1,296,712
)
 
$
(2,063,672
)
 
$
(3,340,149
)
Basic net income (loss) per share attributable to common stockholders
 
$
(0.27
)
 
$
(1.54
)
 
$
(0.35
)
 
$
(5.17
)
Diluted net income (loss) per share attributable to common stockholders
 
$
(0.27
)
 
$
(1.54
)
 
$
(0.35
)
 
$
(5.17
)
Weighted average basic shares outstanding
 
5,879,225

 
844,482

 
5,875,907

 
646,163

Weighted average diluted shares outstanding
 
5,879,225

 
844,482

 
5,875,907

 
646,163


5


FalconStor Software, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited) 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
GAAP income (loss) from operations
 
$
(955,262
)
 
$
(679,803
)
 
$
(727,344
)
 
$
(120,817
)
Non-cash stock option expense (1)
 
16,231

 
29,519

 
$
25,482

 
$
6,624

Restructuring costs (benefit) (3)
 
202,679

 
809,245

 
360,372

 
635,982

Non-GAAP income (loss) from operations
 
$
(736,352
)
 
$
158,961

 
$
(341,490
)
 
$
521,789

 
 
 
 
 
 
 
 
 
GAAP net income (loss) attributable to common stockholders
 
$
(1,562,499
)
 
$
(1,296,712
)
 
$
(2,063,672
)
 
$
(3,340,149
)
Non-cash stock option expense, net of income taxes (2)
 
16,231

 
29,519

 
25,482

 
6,624

Restructuring costs (benefit) (3)
 
202,679

 
809,245

 
360,372

 
635,982

Effects of Series A redeemable convertible preferred stock (4)
 
390,776

 
292,608

 
767,042

 
2,842,922

Non-GAAP net income (loss) attributable to common stockholders
 
$
(952,813
)
 
$
(165,340
)
 
$
(910,776
)
 
$
145,379

 
 
 
 
 
 
 
 
 
GAAP gross margin
 
68
 %
 
84
 %
 
77
 %
 
85
 %
Non-cash stock option expense (1)
 
0
 %
 
0
 %
 
0
 %
 
0
 %
Non-GAAP gross margin
 
68
 %
 
84
 %
 
77
 %
 
85
 %
 
 
 
 
 
 
 
 
 
GAAP gross margin - Product
 
49
 %
 
96
 %
 
74
 %
 
98
 %
Non-cash stock option expense (1)
 
0
 %
 
0
 %
 
0
 %
 
0
 %
Non-GAAP gross margin - Product
 
49
 %
 
96
 %
 
74
 %
 
98
 %
 
 
 
 
 
 
 
 
 
GAAP gross margin - Support and Service
 
79
 %
 
81
 %
 
79
 %
 
78
 %
Non-cash stock option expense (1)
 
0
 %
 
0
 %
 
0
 %
 
0
 %
Non-GAAP gross margin - Support and Service
 
79
 %
 
81
 %
 
79
 %
 
78
 %
 
 
 
 
 
 
 
 
 
GAAP operating margin
 
(24
%)
 
(17
%)
 
(9
%)
 
(1
%)
Non-cash stock option expense (1)
 
0
%
 
1
%
 
—
%
 
—
%
Restructuring costs (3)
 
5
%
 
20
%
 
4
%
 
7
%
Non-GAAP operating margin
 
(19
%)
 
4
%
 
(5
%)
 
6
%
 
 
 
 
 
 
 
 
 
GAAP Basic EPS
 
$
(0.27
)
 
$
(1.54
)
 
$
(0.35
)
 
$
(5.17
)
Non-cash stock option expense, net of income taxes (2)
 
0.00

 
0.03

 
0.00

 
0.01

Restructuring costs (3)
 
0.04

 
0.96

 
0.06

 
0.98

Effects of Series A redeemable convertible preferred stock (4)
 
0.07

 
0.35

 
0.13

 
4.40

Non-GAAP Basic EPS
 
$
(0.16
)
 
$
(0.20
)
 
$
(0.16
)
 
$
0.22

 
 
 
 
 
 
 
 
 
GAAP Diluted EPS
 
$
(0.27
)
 
$
(1.54
)
 
$
(0.35
)
 
$
(5.17
)
Non-cash stock option expense, net of income taxes (2)
 
0.00

 
0.03

 
0.00

 
0.01

Restructuring costs (3)
 
0.04

 
0.96

 
0.06

 
0.98

Effects of Series A redeemable convertible preferred stock (4)
 
0.07

 
0.35

 
0.13

 
4.40

Non-GAAP Diluted EPS
 
$
(0.16
)
 
$
(0.20
)
 
$
(0.16
)
 
$
0.04

 
 
 
 
 
 
 
 
 
Weighted average basic shares outstanding (GAAP and Non-GAAP)
 
5,879,225

 
844,482

 
5,875,907

 
646,163

Weighted average diluted shares outstanding (GAAP)
 
5,879,225

 
844,482

 
5,875,907

 
646,163

Weighted average diluted shares outstanding (Non-GAAP)
 
5,879,225

 
844,482

 
5,875,907

 
3,685,463



6


Footnotes:
(1)
Represents non-cash, stock-based compensation charges as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Cost of revenue - Support and Service
 
$
449

 
$
4,875

 
2,042

 
13,575

Research and development costs
 
861

 
18,744

 
5,606

 
41,350

Selling and marketing
 
1,248

 
4,525

 
3,658

 
12,457

General and administrative
 
13,673

 
1,375

 
14,176

 
(60,758
)
Total non-cash stock based compensation expense
 
$
16,231

 
$
29,519

 
$
25,482

 
$
6,624

 
(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, 2019 and 2018, 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.

7