FalconStor Software Announces Third Quarter 2016 Results
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MELVILLE, NY -- (Marketwired) -- 11/02/16 -- FalconStor Software ®, Inc. (NASDAQ: FALC), a market leader in software-defined storage, today announced financial results for its third quarter ended September 30, 2016.
"We continue to see our flagship FreeStor® platform adding new customer adoptions, existing customer conversions, additional industry award recognition and a new release to support the increasingly expanding footprint of the cloud" said Gary Quinn, President and CEO. "While we are pleased with the performance of FreeStor over the last fifteen months of availability, we have found difficulty in out pacing the decline of our legacy point solution business as customers transform their infrastructures. We will continue to optimize our cost structures to match our run-rate outlook of bookings, billings and total revenue."
Business Highlights:
- The Company added 11 new customers or conversion customers from the install base utilizing the FreeStor subscription model during Q3 2016, including Fujitsu FIP Corporation and I-Net Corp., in Japan and 9 new customers in EMEA. We added 57 new customers or conversion customers from the install base utilizing the FreeStor technology perpetual licenses during Q3 2016. We now have over 300 customers using our FreeStor platform, not including the customers of our MSP and OEM partners.
- The Company year-to-date 2016 achieved 128% of its total FY 2015 FreeStor platform bookings results.
- FreeStor MSP subscription business increased over 400% in the first nine months of 2016 as compared with total FY 2015 bookings results.
- FreeStor Enterprise subscription business increased over 600% in the first nine months of 2016 as compared with total FY 2015 bookings results.
- FreeStor technology perpetual license business achieved over 70% of the total FY 2015 bookings results in the first nine months of 2016.
- FreeStor technology OEMs achieved their first year annual commitments and achieved over 100% of the total FY 2015 bookings results in the first nine months of 2016.
- Customers who purchased FreeStor or the FreeStor Technology during the first nine months of 2015 expanded their storage capacity by a total of 32% during 2016.
- Customers who purchased the FreeStor subscription model during the first nine months of 2015 expanded their storage capacity by 44% during 2016.
- Enterprise customers who purchased the FreeStor technology during the first nine months of 2015 expanded their storage capacity by 17% during 2016.
- OEM customers who purchased the FreeStor technology during the first nine months of 2015 expanded their storage capacity by 55% during 2016.
- During October 2016, the Company delivered the latest enhancements to its FreeStor platform which included new primary instance only pricing, public cloud connectors (AWS, Azure, Oracle Cloud, Aliyun, Huawei), enhanced Core-to-Edge Analytics, Unified Client Management, improved secure multi-tenancy, external security (A.D. and LDAP), and numerous performance optimizations.
- During the quarter ended September 30, 2016, the FreeStor Cinder Driver for OpenStack was approved and is now included in the OpenStack Newton distribution as well as the RedHat OpenStack 8 distribution.
- During October 2016, FreeStor achieved VMWare Metro Storage Cluster Certification.
- During October 2016, FreeStor won product-of-the-year from the CloudHosting Awards. Since its release, FreeStor has won 11 software-defined storage (SDS) product-of-the-year awards at various leading industry publications, including three publications servicing the Asia markets and six publications servicing the European marketplace and two publications in the Americas.
Financial Highlights:
- Total revenue for the third quarter of 2016 was $7.3 million, compared with $8.1 million in the second quarter of 2016 and compared with $9.7 million in the third quarter of 2015.
- Total bookings for the third quarter of 2016 were $5.5 million, compared with $8.8 million in the second quarter of 2016 and compared with $8.8 million in the third quarter of 2015.
- In the third quarter of 2016 approximately 84% of our total bookings were ratable as compared with 75% in the third quarter of 2015.
- In the third quarter of 2016 approximately 65% of our total product bookings were ratable compared with 45% in the third quarter of 2015.
- The Company closed the quarter with $6.1 million of cash, cash equivalents and marketable securities, compared with $13.4 million at December 31, 2015.
- Non-GAAP expenses decreased 15%, compared with the second quarter of 2016 and decreased 25% when compared with the third quarter of 2015. Non-GAAP expenses totaled $8.9 million in the third quarter of 2016, compared with non-GAAP expenses of $10.5 million in the second quarter of 2016 and non-GAAP expenses of $11.8 million in the third quarter of 2015.
- Non-GAAP gross margins were 72% in both the second and third quarter of 2016, compared with non-GAAP gross margins of 75% in the third quarter of 2015.
Financials
Total revenue for the three months ended September 30, 2016 was $7.3 million, compared with $9.7 million in the same period a year ago. Cost of revenue was $2.1 million for the three months ended September 30, 2016, compared with $2.4 million in the same period a year ago. Operating expenses were $7.1 million for the three months ended September 30, 2016, compared with $9.7 million in the same period a year ago. GAAP loss from operations for the three months ended September 30, 2016 was $1.8 million, compared with $2.5 million in the same period a year ago. Included in operating results for the three months ended September 30, 2016 and 2015 were $0.3 million and $0.4 million of share-based compensation expense, respectively. GAAP net loss for the three months ended September 30, 2016 was $2.0 million, compared with $2.6 million for the same period a year ago. Included in net loss for both the three months ended September 30, 2016 and 2015 was an income tax provision of $0.1 million. GAAP net loss attributable to common stockholders for the three months ended September 30, 2016, which includes the effects of the accretion to redemption value of the Series A redeemable convertible preferred stock and the accrual of Series A redeemable convertible preferred stock dividends, was $2.3 million, or $0.05 per diluted share, compared with $2.9 million, or $0.07 per diluted share, for the same period a year ago.
Non-GAAP loss from operations was $1.5 million for the three months ended September 30, 2016, compared with $2.1 million for the same period a year ago. Non-GAAP net loss was $1.7 million, or $0.04 per diluted share, for the three months ended September 30, 2016, compared with $2.2 million, or $0.05 per diluted share, for the three months ended September 30, 2015. Non-GAAP results exclude the effects of stock-based compensation, costs associated with the Company's investigations, litigation and settlement related costs, restructuring costs and the effects of our Series A redeemable convertible preferred stock.
Total revenue for the nine months ended September 30, 2016 was $22.8 million, compared with $39.2 million in the same period a year ago. Included in total revenue for the nine months ended September 30, 2015 was $11.3 million of revenue from a joint-development agreement. Cost of revenue was $6.4 million for the nine months ended September 30, 2016, compared with $7.5 million in the same period a year ago. Operating expenses were $26.1 million for the nine months ended September 30, 2016, compared with $30.9 million in the same period a year ago. GAAP loss from operations for the nine months ended September 30, 2016 was $9.7 million, compared with income from operations of $0.8 million in the same period a year ago. Included in operating results for the nine months ended September 30, 2016 and 2015 were; (i) $2.4 million and $1.2 million of share-based compensation expense, respectively; and (ii) $0.2 million of restructuring costs in both periods. GAAP net loss for the nine months ended September 30, 2016 was $9.8 million, compared with net income of less than $0.1 million for the same period a year ago. Included in net loss for both the nine months ended September 30, 2016 and 2015 was an income tax provision of $0.4 million. GAAP net loss attributable to common stockholders for the nine months ended September 30, 2016, which includes the effects of the accretion to redemption value of the Series A redeemable convertible preferred stock and the accrual of Series A redeemable convertible preferred stock dividends, was $10.9 million, or $0.25 per diluted share, compared with $1.0 million, or $0.02 per diluted share, for the same period a year ago.
Non-GAAP loss from operations was $7.1 million for the nine months ended September 30, 2016, compared with income from operations of $2.1 million for the same period a year ago. Non-GAAP net loss was $7.2 million, or $0.17 per diluted share, for the nine months ended September 30, 2016, compared with net income of $1.4 million, or $0.03 per diluted share, for the nine months ended September 30, 2015.
The Company closed the quarter with $6.1 million in cash, cash equivalents and marketable securities. Cash flow used in operations for the nine months ended September 30, 2016 was $7.1 million, compared with cash flow used in operations of $4.0 million during the same period in 2015. Deferred revenue at September 30, 2016 was $23.5 million, compared with $25.7 million at December 31, 2015.
Conference Call
The Company will host a conference call to discuss its financial results on Wednesday, November 2, 2016 at 4:30 p.m. EDT. To participate in the conference call, please dial:
Toll Free: 1-888-219-1217
International: +1-913-312-1448
Conference ID: 7335610
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://falconstor.webex.com/falconstor/j.php?RGID=rde6e605784f7caa3afa3d8498af14e11
Meeting: FalconStor Q3 2016 Earnings
Meeting Password: Q3numbers16
Meeting Number: 799 231 953
If you are unable to register via the Internet, please contact Dori White, Investor Relations at 631-773-5819 or [email protected]
A conference call replay will be available beginning November 2, 2016 at 7:30 p.m. EDT through 7:30 p.m. EDT on November 9th. To listen to the replay of the call, dial toll free: 1-888-203-1112 or International: +1-719-457-0820, passcode: 7335610.
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) costs associated with the Company's class action and derivative lawsuits, government investigations, and related legal fees, (ii) restructuring costs, (iii) effects of our Series A redeemable convertible preferred stock, and (iv) 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. (NASDAQ: FALC) is a leading software-defined storage 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 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
September 30, December 31,
2016 2015
-------------- --------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 5,643,610 $ 6,013,382
Marketable securities 500,040 7,420,042
Accounts receivable, net 3,253,257 6,635,262
Prepaid expenses and other current assets 1,357,254 1,742,668
Inventory 6,181 70,534
Deferred tax assets, net 533,589 205,816
-------------- --------------
Total current assets 11,293,931 22,087,704
Property and equipment, net 1,129,565 1,565,932
Deferred tax assets, net 128,990 110,060
Software development costs, net 636,799 1,116,816
Other assets, net 1,037,763 1,139,377
Goodwill 4,150,339 4,150,339
Other intangible assets, net 227,883 256,137
-------------- --------------
Total assets $ 18,605,270 $ 30,426,365
============== ==============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 716,709 $ 1,005,944
Accrued expenses 5,069,086 6,783,514
Deferred tax liabilities, net 89,662 89,343
Deferred revenue, net 14,589,751 16,553,519
-------------- --------------
Total current liabilities 20,465,208 24,432,320
Other long-term liabilities 1,008,067 735,089
Deferred tax liabilities, net 46,938 27,069
Deferred revenue, net 8,887,015 9,122,289
-------------- --------------
Total liabilities 30,407,228 34,316,767
-------------- --------------
Commitments and contingencies
Series A redeemable convertible preferred
stock 8,331,823 7,818,554
Total stockholders' deficit (20,133,781) (11,708,956)
-------------- --------------
Total liabilities and stockholders'
deficit $ 18,605,270 $ 30,426,365
============== ==============
FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
2016 2015 2016 2015
----------- ----------- ------------ -----------
Revenue:
Product revenue $ 2,245,544 $ 3,756,579 $ 7,465,996 $21,377,450
Support and services
revenue 5,081,266 5,926,647 15,361,096 17,798,241
----------- ----------- ------------ -----------
Total revenue 7,326,810 9,683,226 22,827,092 39,175,691
----------- ----------- ------------ -----------
Cost of revenue:
Product 145,986 510,861 710,233 1,619,142
Support and service 1,914,383 1,915,090 5,675,728 5,875,837
----------- ----------- ------------ -----------
Total cost of
revenue 2,060,369 2,425,951 6,385,961 7,494,979
----------- ----------- ------------ -----------
Gross profit $ 5,266,441 $ 7,257,275 $ 16,441,131 $31,680,712
Operating expenses:
Research and
development costs 2,514,822 3,454,128 9,475,678 9,727,727
Selling and marketing 2,991,901 4,128,814 11,385,051 13,805,689
General and
administrative 1,561,335 2,132,665 5,100,739 7,209,499
Investigation,
litigation, and
settlement related
costs - - - 8,842
Restructuring costs - 15,024 177,389 172,995
----------- ----------- ------------ -----------
Total operating
expenses 7,068,058 9,730,631 26,138,857 30,924,752
----------- ----------- ------------ -----------
Operating (loss)
income (1,801,617) (2,473,356) (9,697,726) 755,960
----------- ----------- ------------ -----------
Interest and other
(loss) income, net (90,037) 25,697 265,397 (339,968)
----------- ----------- ------------ -----------
(Loss) income
before income
taxes (1,891,654) (2,447,659) (9,432,329) 415,992
Provision for income
taxes 84,519 134,280 375,338 403,736
----------- ----------- ------------ -----------
Net (loss) income $(1,976,173) $(2,581,939) $ (9,807,667) $ 12,256
=========== =========== ============ ===========
Less: Accrual of Series
A redeemable
convertible preferred
stock dividends 194,012 190,786 581,986 568,476
Less: Accretion to
redemption value of
Series A redeemable
convertible preferred
stock 178,619 149,969 513,269 430,943
----------- ----------- ------------ -----------
Net loss
attributable to
common
stockholders $(2,348,804) $(2,922,694) $(10,902,922) $ (987,163)
=========== =========== ============ ===========
Basic net loss per
share attributable to
common stockholders $ (0.05) $ (0.07) $ (0.25) $ (0.02)
=========== =========== ============ ===========
Diluted net loss per
share attributable to
common stockholders $ (0.05) $ (0.07) $ (0.25) $ (0.02)
=========== =========== ============ ===========
Weighted average basic
shares outstanding 43,488,448 41,113,431 42,847,038 41,004,976
=========== =========== ============ ===========
Weighted average
diluted shares
outstanding 43,488,448 41,113,431 42,847,038 41,004,976
=========== =========== ============ ===========
FalconStor Software, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
2016 2015 2016 2015
----------- ----------- ------------ -----------
GAAP (loss) income
from operations $(1,801,617) $(2,473,356) $ (9,697,726) $ 755,960
Non-cash stock
option expense
(1) 274,206 372,173 2,392,162 1,172,947
Legal related
costs (3) - - - 8,842
Restructuring
costs (4) - 15,024 177,389 172,995
----------- ----------- ------------ -----------
Non-GAAP (loss)
income from
operations $(1,527,411) $(2,086,159) $ (7,128,175) $ 2,110,744
----------- ----------- ------------ -----------
GAAP net (loss)
income attributable
to common
stockholders $(2,348,804) $(2,922,694) $(10,902,922) $ (987,163)
Non-cash stock
option expense,
net of income
taxes (2) 274,206 372,173 2,392,162 1,172,947
Legal related
costs (3) - - - 8,842
Restructuring
costs (4) - 15,024 177,389 172,995
Effects of Series
A redeemable
convertible
preferred stock
(5) 372,631 340,755 1,095,255 999,419
----------- ----------- ------------ -----------
Non-GAAP net (loss)
income $(1,701,967) $(2,194,742) $ (7,238,116) $ 1,367,040
----------- ----------- ------------ -----------
GAAP gross margin 72% 75% 72% 81%
Non-cash stock
option expense
(1) 0% 0% 0% 0%
----------- ----------- ------------ -----------
Non-GAAP gross
margin 72% 75% 72% 81%
----------- ----------- ------------ -----------
GAAP gross margin -
Product 93% 86% 90% 92%
Non-cash stock
option expense
(1) 0% 0% 0% 0%
----------- ----------- ------------ -----------
Non-GAAP gross
margin - Product 93% 86% 90% 92%
----------- ----------- ------------ -----------
GAAP gross margin -
Support and Service 62% 68% 63% 67%
Non-cash stock
option expense
(1) 0% 0% 1% 0%
----------- ----------- ------------ -----------
Non-GAAP gross
margin - Support
and Service 63% 68% 64% 67%
----------- ----------- ------------ -----------
GAAP operating
margin (25%) (26%) (42%) 2%
Non-cash stock
option expense
(1) 4% 4% 10% 3%
Legal related
costs (3) 0% 0% 0% 0%
Restructuring
costs (4) 0% 0% 1% 0%
----------- ----------- ------------ -----------
Non-GAAP operating
margin (21%) (22%) (31%) 5%
----------- ----------- ------------ -----------
GAAP Basic EPS $ (0.05) $ (0.07) $ (0.25) $ (0.02)
Non-cash stock
option expense,
net of income
taxes (2) 0.01 0.01 0.06 0.03
Legal related
costs (3) 0.00 0.00 0.00 0.00
Restructuring
costs (4) 0.00 0.00 0.00 0.00
Effects of Series
A redeemable
convertible
preferred stock
(5) 0.01 0.01 0.03 0.02
----------- ----------- ------------ -----------
Non-GAAP Basic EPS $ (0.04) $ (0.05) $ (0.17) $ 0.03
----------- ----------- ------------ -----------
GAAP Diluted EPS $ (0.05) $ (0.07) $ (0.25) $ (0.02)
Non-cash stock
option expense,
net of income
taxes (2) 0.01 0.01 0.06 0.03
Legal related
costs (3) 0.00 0.00 0.00 0.00
Restructuring
costs (4) 0.00 0.00 0.00 0.00
Effects of Series
A redeemable
convertible
preferred stock
(5) 0.01 0.01 0.03 0.02
----------- ----------- ------------ -----------
Non-GAAP Diluted EPS $ (0.04) $ (0.05) $ (0.17) $ 0.03
----------- ----------- ------------ -----------
Weighted average
basic shares
outstanding (GAAP
and as adjusted) 43,488,448 41,113,431 42,847,038 41,004,976
=========== =========== ============ ===========
Weighted average
diluted shares
outstanding (GAAP) 43,488,448 41,113,431 42,847,038 41,004,976
=========== =========== ============ ===========
Weighted average
diluted shares
outstanding (as
adjusted) 43,488,448 41,113,431 42,847,038 42,637,654
=========== =========== ============ ===========
Footnotes: (1) Represents non-cash, stock-based compensation charges as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ---------------------
2016 2015 2016 2015
--------- --------- ---------- ----------
Cost of revenue - Product $ - $ - $ - $ -
Cost of revenue - Support and
Service 16,684 26,653 85,521 80,357
Research and development costs 80,310 57,478 1,652,107 228,993
Selling and marketing 88,907 73,575 231,979 225,155
General and administrative 88,305 214,467 422,555 638,442
--------- --------- ---------- ----------
Total non-cash stock based
compensation expense $ 274,206 $ 372,173 $2,392,162 $1,172,947
========= ========= ========== ==========
(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, 2016 and 2015, the tax expense for both GAAP
and Non-GAAP basis approximate the same amount. Included in share-based
compensation expense for the nine months ended September 30, 2016, was
$1.5 million, related to costs associated with our exclusive source code
license and development agreement which were paid through the issuance
of our common stock.
(3) Legal related costs represent expenses in connection with the Company's
investigations, litigation and settlement related costs for each
respective period presented.
(4) Represents restructuring costs which were incurred during each
respective period presented.
(5) Represents the effects of the accretion to redemption value of the
Series A redeemable convertible preferred stock and accrual of Series A
redeemable convertible preferred stock dividends.
For more information, contact:FalconStor Software, Inc.Dori WhiteInvestor [email protected]
Source: FalconStor Software, Inc.
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