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

Published

AUSTIN, Texas, Aug. 14, 2019 /PRNewswire/ -- 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."

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, Three Months Ended June 30, Change
(in millions except per share data) June 30, 2019 December 31, 2018   June 30, 2018 (in millions except per share data) 2019 2018 Period to Period
Revenue $              4.0 $              4.8 $              4.0 Total revenue $        4.0 100 % $       4.0 100 % $         — — %
Non-GAAP Expenses $              4.7 $              4.0 $              3.9 Total cost of revenue $        1.3 32 % $       0.6 16 % $        0.7 105 %
Non-GAAP Gross Margin 68% 81% 84% Total operating expenses $        3.7 92 % $       4.1 101 % $      (0.4) (10)%
Non-GAAP Operating Income $             (0.7) $              0.7 $              0.2 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: 1-800-353-6461International: 1-334-323-0501Conference ID: 8684576

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.

FALCONSTOR SECOND QUARTER 2019 FINANCIAL TELECONFERENCE AND PRESENTATION

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: 1-888-203-1112International: 1-719-457-0820Passcode: 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.

 Three Months Ended, Three Months Ended June 30, Change FalconStor Software, Inc. and Subsidiaries
(in millions except per share data) June 30, 2019 December 31, 2018   June 30, 2018 (in millions except per share data) 2019 2018 Period to Period CONDENSED CONSOLIDATED BALANCE SHEETS
Revenue $              4.0 $              4.8 $              4.0 Total revenue $        4.0 100 % $       4.0 100 % $         — — %
Non-GAAP Expenses $              4.7 $              4.0 $              3.9 Total cost of revenue $        1.3 32 % $       0.6 16 % $        0.7 105 % June 30, 2019 December 31, 2018
Non-GAAP Gross Margin 68% 81% 84% Total operating expenses $        3.7 92 % $       4.1 101 % $      (0.4) (10)% (unaudited)
Non-GAAP Operating Income $             (0.7) $              0.7 $              0.2 GAAP operating income (loss) $      (1.0) (24)% $      (0.7) (17)% $      (0.3) 41 % Assets
GAAP net income (loss) $      (1.6) (39)% $      (1.3) (32)% $      (0.3) 20 % Current assets:
GAAP diluted EPS $     (0.27) $      (1.54) $      1.27 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

 

 Three Months Ended, Three Months Ended June 30, Change FalconStor Software, Inc. and Subsidiaries FalconStor Software, Inc. and Subsidiaries
(in millions except per share data) June 30, 2019 December 31, 2018   June 30, 2018 (in millions except per share data) 2019 2018 Period to Period CONDENSED CONSOLIDATED BALANCE SHEETS CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue $              4.0 $              4.8 $              4.0 Total revenue $        4.0 100 % $       4.0 100 % $         — — % (Unaudited)
Non-GAAP Expenses $              4.7 $              4.0 $              3.9 Total cost of revenue $        1.3 32 % $       0.6 16 % $        0.7 105 % June 30, 2019 December 31, 2018
Non-GAAP Gross Margin 68% 81% 84% Total operating expenses $        3.7 92 % $       4.1 101 % $      (0.4) (10)% (unaudited) Three Months Ended June 30, Six Months Ended June 30,
Non-GAAP Operating Income $             (0.7) $              0.7 $              0.2 GAAP operating income (loss) $      (1.0) (24)% $      (0.7) (17)% $      (0.3) 41 % Assets 2019 2018 2019 2018
GAAP net income (loss) $      (1.6) (39)% $      (1.3) (32)% $      (0.3) 20 % Current assets: Revenue:
GAAP diluted EPS $     (0.27) $      (1.54) $      1.27 Cash and cash equivalents $       2,400,953 $      3,059,677 Product revenue $         1,470,430 $         983,645 $      3,216,214 $      2,917,589
Accounts receivable, net 1,706,141 3,605,411 Support and services revenue 2,528,959 3,027,936 5,276,153 6,087,941
Prepaid expenses and other current assets 1,736,775 1,909,846    Total revenue 3,999,389 4,011,581 8,492,367 9,005,530
Contract assets, net 838,273 637,179 Cost of revenue:
Inventory 104,737 14,885 Product 755,796 39,740 835,470 65,890
   Total current assets 6,786,879 9,226,998 Support and service 537,105 590,309 1,107,590 1,319,197
Property and equipment, net 484,588 433,935    Total cost of revenue 1,292,901 630,049 1,943,060 1,385,087
Operating lease right-of-use assets 2,454,349 Gross profit $         2,706,488 $      3,381,532 $      6,549,307 $      7,620,443
Deferred tax assets, net 553,738 545,044  Operating expenses:                                                                                                                                                                                                  
Software development costs, net 46,136 88,769 Research and development costs 764,276 928,097 1,720,847 1,932,795
Other assets, net 1,037,877 919,609 Selling and marketing 1,296,909 872,109 2,369,347 2,065,659
Goodwill 4,150,339 4,150,339 General and administrative 1,397,886 1,451,884 2,826,085 3,106,824
Other intangible assets, net 85,746 91,334 Restructuring costs 202,679 809,245 360,372 635,982
Contract assets 222,825 516,643    Total operating expenses 3,661,750 4,061,335 7,276,651 7,741,260
Total assets $ 15,822,477 $ 15,972,671    Operating income (loss) (955,262) (679,803) (727,344) (120,817)
Liabilities and Stockholders' Deficit Interest and other loss, net (80,217) (323,750) (345,456) (313,420)
Current liabilities:    Income (loss) before income taxes (1,035,479) (1,003,553) (1,072,800) (434,237)
Accounts payable $       1,109,862 $         551,389 Income tax expense 136,244 551 223,830 62,990
Accrued expenses 2,284,591 2,879,473    Net income (loss) $       (1,171,723) $     (1,004,104) $     (1,296,630) $        (497,227)
Operating lease liabilities 1,753,015 Less: Accrual of Series A redeemable convertible preferred stock dividends   256,553   214,963   503,580   458,130
Deferred revenue, net 5,071,197 6,859,592 Less: Deemed dividend on Series A redeemable convertible preferred stock   —   —   —   2,269,042
   Total current liabilities 10,218,665 10,290,454 Less: Accretion to redemption value of Series A redeemable convertible preferred stock   134,223   77,645   263,462   115,750
Other long-term liabilities 760,574 1,549,692    Net income (loss) attributable to common stockholders $       (1,562,499) $     (1,296,712) $     (2,063,672) $     (3,340,149)
Notes payable, net 2,746,419 3,124,827 Basic net income (loss) per share attributable to common stockholders   $                (0.27)   $              (1.54)   $              (0.35)   $              (5.17)
Operating lease liabilities 1,281,804 Diluted net income (loss) per share attributable to common stockholders   $                (0.27)   $              (1.54)   $              (0.35)   $              (5.17)
Deferred tax liabilities, net 297,715 297,890 Weighted average basic shares outstanding 5,879,225 844,482 5,875,907 646,163
Deferred revenue, net 3,615,556 2,506,898 Weighted average diluted shares outstanding 5,879,225 844,482 5,875,907 646,163
   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

      

                                            

 Three Months Ended, Three Months Ended June 30, Change FalconStor Software, Inc. and Subsidiaries FalconStor Software, Inc. and Subsidiaries FalconStor Software, Inc. and Subsidiaries
(in millions except per share data) June 30, 2019 December 31, 2018   June 30, 2018 (in millions except per share data) 2019 2018 Period to Period CONDENSED CONSOLIDATED BALANCE SHEETS CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Reconciliation of GAAP to Non-GAAP Financial Measures
Revenue $              4.0 $              4.8 $              4.0 Total revenue $        4.0 100 % $       4.0 100 % $         — — % (Unaudited)  (Unaudited)
Non-GAAP Expenses $              4.7 $              4.0 $              3.9 Total cost of revenue $        1.3 32 % $       0.6 16 % $        0.7 105 % June 30, 2019 December 31, 2018
Non-GAAP Gross Margin 68% 81% 84% Total operating expenses $        3.7 92 % $       4.1 101 % $      (0.4) (10)% (unaudited) Three Months Ended June 30, Six Months Ended June 30, Three Months Ended June 30, Six Months Ended June 30,
Non-GAAP Operating Income $             (0.7) $              0.7 $              0.2 GAAP operating income (loss) $      (1.0) (24)% $      (0.7) (17)% $      (0.3) 41 % Assets 2019 2018 2019 2018 2019 2018 2019 2018
GAAP net income (loss) $      (1.6) (39)% $      (1.3) (32)% $      (0.3) 20 % Current assets: Revenue: GAAP income (loss) from operations $       (955,262) $     (679,803) $ (727,344) $ (120,817)
GAAP diluted EPS $     (0.27) $      (1.54) $      1.27 Cash and cash equivalents $       2,400,953 $      3,059,677 Product revenue $         1,470,430 $         983,645 $      3,216,214 $      2,917,589 Non-cash stock option expense (1) 16,231 29,519 $        25,482 $          6,624
Accounts receivable, net 1,706,141 3,605,411 Support and services revenue 2,528,959 3,027,936 5,276,153 6,087,941 Restructuring costs (benefit) (3) 202,679 809,245 360,372 635,982
Prepaid expenses and other current assets 1,736,775 1,909,846    Total revenue 3,999,389 4,011,581 8,492,367 9,005,530 Non-GAAP income (loss) from operations $       (736,352) $      158,961 $ (341,490) $      521,789
Contract assets, net 838,273 637,179 Cost of revenue:
Inventory 104,737 14,885 Product 755,796 39,740 835,470 65,890 GAAP net income (loss) attributable to common stockholders $ (1,562,499) $ (1,296,712) $ (2,063,672) $ (3,340,149)
   Total current assets 6,786,879 9,226,998 Support and service 537,105 590,309 1,107,590 1,319,197 Non-cash stock option expense, net of income taxes (2) 16,231 29,519 25,482 6,624
Property and equipment, net 484,588 433,935    Total cost of revenue 1,292,901 630,049 1,943,060 1,385,087 Restructuring costs (benefit) (3) 202,679 809,245 360,372 635,982
Operating lease right-of-use assets 2,454,349 Gross profit $         2,706,488 $      3,381,532 $      6,549,307 $      7,620,443 Effects of Series A redeemable convertible preferred stock (4) 390,776 292,608 767,042 2,842,922
Deferred tax assets, net 553,738 545,044  Operating expenses:                                                                                                                                                                                                   Non-GAAP net income (loss) attributable to common stockholders $       (952,813) $     (165,340) $ (910,776) $      145,379
Software development costs, net 46,136 88,769 Research and development costs 764,276 928,097 1,720,847 1,932,795
Other assets, net 1,037,877 919,609 Selling and marketing 1,296,909 872,109 2,369,347 2,065,659 GAAP gross margin 68 % 84 % 77 % 85 %
Goodwill 4,150,339 4,150,339 General and administrative 1,397,886 1,451,884 2,826,085 3,106,824 Non-cash stock option expense (1) 0 % 0 % 0 % 0 %
Other intangible assets, net 85,746 91,334 Restructuring costs 202,679 809,245 360,372 635,982 Non-GAAP gross margin 68 % 84 % 77 % 85 %
Contract assets 222,825 516,643    Total operating expenses 3,661,750 4,061,335 7,276,651 7,741,260
Total assets $ 15,822,477 $ 15,972,671    Operating income (loss) (955,262) (679,803) (727,344) (120,817) GAAP gross margin - Product 49 % 96 % 74 % 98 %
Liabilities and Stockholders' Deficit Interest and other loss, net (80,217) (323,750) (345,456) (313,420) Non-cash stock option expense (1) 0 % 0 % 0 % 0 %
Current liabilities:    Income (loss) before income taxes (1,035,479) (1,003,553) (1,072,800) (434,237) Non-GAAP gross margin - Product 49 % 96 % 74 % 98 %
Accounts payable $       1,109,862 $         551,389 Income tax expense 136,244 551 223,830 62,990
Accrued expenses 2,284,591 2,879,473    Net income (loss) $       (1,171,723) $     (1,004,104) $     (1,296,630) $        (497,227) GAAP gross margin - Support and Service 79 % 81 % 79 % 78 %
Operating lease liabilities 1,753,015 Less: Accrual of Series A redeemable convertible preferred stock dividends   256,553   214,963   503,580   458,130 Non-cash stock option expense (1) 0 % 0 % 0 % 0 %
Deferred revenue, net 5,071,197 6,859,592 Less: Deemed dividend on Series A redeemable convertible preferred stock   —   —   —   2,269,042 Non-GAAP gross margin - Support and Service 79 % 81 % 79 % 78 %
   Total current liabilities 10,218,665 10,290,454 Less: Accretion to redemption value of Series A redeemable convertible preferred stock   134,223   77,645   263,462   115,750
Other long-term liabilities 760,574 1,549,692    Net income (loss) attributable to common stockholders $       (1,562,499) $     (1,296,712) $     (2,063,672) $     (3,340,149) GAAP operating margin (24%) (17%) (9%) (1%)
Notes payable, net 2,746,419 3,124,827 Basic net income (loss) per share attributable to common stockholders   $                (0.27)   $              (1.54)   $              (0.35)   $              (5.17) Non-cash stock option expense (1) 0% 1% —% —%
Operating lease liabilities 1,281,804 Diluted net income (loss) per share attributable to common stockholders   $                (0.27)   $              (1.54)   $              (0.35)   $              (5.17) Restructuring costs (3) 5% 20% 4% 7%
Deferred tax liabilities, net 297,715 297,890 Weighted average basic shares outstanding 5,879,225 844,482 5,875,907 646,163 Non-GAAP operating margin (19%) 4% (5%) 6%
Deferred revenue, net 3,615,556 2,506,898 Weighted average diluted shares outstanding 5,879,225 844,482 5,875,907 646,163
   Total liabilities 18,920,733 17,769,761 GAAP Basic EPS $             (0.27) $           (1.54) $          (0.35) $          (5.17)
Commitments and contingencies Non-cash stock option expense, net of income taxes (2) 0.00 0.03 0.00 0.01
Series A redeemable convertible preferred stock 10,523,748 9,756,706 Restructuring costs (3) 0.04 0.96 0.06 0.98
   Total stockholders' deficit (13,622,004) (11,553,796) Effects of Series A redeemable convertible preferred stock (4) 0.07 0.35 0.13 4.40
   Total liabilities and stockholders' deficit $ 15,822,477 $ 15,972,671 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
Footnotes:
(1)  Represents non-cash, stock-based compensation charges as follows:

 Three Months Ended, Three Months Ended June 30, Change FalconStor Software, Inc. and Subsidiaries FalconStor Software, Inc. and Subsidiaries FalconStor Software, Inc. and Subsidiaries
(in millions except per share data) June 30, 2019 December 31, 2018   June 30, 2018 (in millions except per share data) 2019 2018 Period to Period CONDENSED CONSOLIDATED BALANCE SHEETS CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Reconciliation of GAAP to Non-GAAP Financial Measures Three Months Ended June 30, Six Months Ended June 30,
Revenue $              4.0 $              4.8 $              4.0 Total revenue $        4.0 100 % $       4.0 100 % $         — — % (Unaudited)  (Unaudited) 2019 2018 2019 2018
Non-GAAP Expenses $              4.7 $              4.0 $              3.9 Total cost of revenue $        1.3 32 % $       0.6 16 % $        0.7 105 % June 30, 2019 December 31, 2018 Cost of revenue - Support and Service $                  449 $              4,875 2,042 13,575
Non-GAAP Gross Margin 68% 81% 84% Total operating expenses $        3.7 92 % $       4.1 101 % $      (0.4) (10)% (unaudited) Three Months Ended June 30, Six Months Ended June 30, Three Months Ended June 30, Six Months Ended June 30, Research and development costs 861 18,744 5,606 41,350
Non-GAAP Operating Income $             (0.7) $              0.7 $              0.2 GAAP operating income (loss) $      (1.0) (24)% $      (0.7) (17)% $      (0.3) 41 % Assets 2019 2018 2019 2018 2019 2018 2019 2018 Selling and marketing 1,248 4,525 3,658 12,457
GAAP net income (loss) $      (1.6) (39)% $      (1.3) (32)% $      (0.3) 20 % Current assets: Revenue: GAAP income (loss) from operations $       (955,262) $     (679,803) $ (727,344) $ (120,817) General and administrative 13,673 1,375 14,176 (60,758)
GAAP diluted EPS $     (0.27) $      (1.54) $      1.27 Cash and cash equivalents $       2,400,953 $      3,059,677 Product revenue $         1,470,430 $         983,645 $      3,216,214 $      2,917,589 Non-cash stock option expense (1) 16,231 29,519 $        25,482 $          6,624 Total non-cash stock based compensation expense $             16,231 $            29,519 $           25,482 $             6,624
Accounts receivable, net 1,706,141 3,605,411 Support and services revenue 2,528,959 3,027,936 5,276,153 6,087,941 Restructuring costs (benefit) (3) 202,679 809,245 360,372 635,982
Prepaid expenses and other current assets 1,736,775 1,909,846    Total revenue 3,999,389 4,011,581 8,492,367 9,005,530 Non-GAAP income (loss) from operations $       (736,352) $      158,961 $ (341,490) $      521,789
Contract assets, net 838,273 637,179 Cost of revenue:
Inventory 104,737 14,885 Product 755,796 39,740 835,470 65,890 GAAP net income (loss) attributable to common stockholders $ (1,562,499) $ (1,296,712) $ (2,063,672) $ (3,340,149)
   Total current assets 6,786,879 9,226,998 Support and service 537,105 590,309 1,107,590 1,319,197 Non-cash stock option expense, net of income taxes (2) 16,231 29,519 25,482 6,624
Property and equipment, net 484,588 433,935    Total cost of revenue 1,292,901 630,049 1,943,060 1,385,087 Restructuring costs (benefit) (3) 202,679 809,245 360,372 635,982
Operating lease right-of-use assets 2,454,349 Gross profit $         2,706,488 $      3,381,532 $      6,549,307 $      7,620,443 Effects of Series A redeemable convertible preferred stock (4) 390,776 292,608 767,042 2,842,922
Deferred tax assets, net 553,738 545,044  Operating expenses:                                                                                                                                                                                                   Non-GAAP net income (loss) attributable to common stockholders $       (952,813) $     (165,340) $ (910,776) $      145,379
Software development costs, net 46,136 88,769 Research and development costs 764,276 928,097 1,720,847 1,932,795
Other assets, net 1,037,877 919,609 Selling and marketing 1,296,909 872,109 2,369,347 2,065,659 GAAP gross margin 68 % 84 % 77 % 85 %
Goodwill 4,150,339 4,150,339 General and administrative 1,397,886 1,451,884 2,826,085 3,106,824 Non-cash stock option expense (1) 0 % 0 % 0 % 0 %
Other intangible assets, net 85,746 91,334 Restructuring costs 202,679 809,245 360,372 635,982 Non-GAAP gross margin 68 % 84 % 77 % 85 %
Contract assets 222,825 516,643    Total operating expenses 3,661,750 4,061,335 7,276,651 7,741,260
Total assets $ 15,822,477 $ 15,972,671    Operating income (loss) (955,262) (679,803) (727,344) (120,817) GAAP gross margin - Product 49 % 96 % 74 % 98 %
Liabilities and Stockholders' Deficit Interest and other loss, net (80,217) (323,750) (345,456) (313,420) Non-cash stock option expense (1) 0 % 0 % 0 % 0 %
Current liabilities:    Income (loss) before income taxes (1,035,479) (1,003,553) (1,072,800) (434,237) Non-GAAP gross margin - Product 49 % 96 % 74 % 98 %
Accounts payable $       1,109,862 $         551,389 Income tax expense 136,244 551 223,830 62,990
Accrued expenses 2,284,591 2,879,473    Net income (loss) $       (1,171,723) $     (1,004,104) $     (1,296,630) $        (497,227) GAAP gross margin - Support and Service 79 % 81 % 79 % 78 %
Operating lease liabilities 1,753,015 Less: Accrual of Series A redeemable convertible preferred stock dividends   256,553   214,963   503,580   458,130 Non-cash stock option expense (1) 0 % 0 % 0 % 0 %
Deferred revenue, net 5,071,197 6,859,592 Less: Deemed dividend on Series A redeemable convertible preferred stock   —   —   —   2,269,042 Non-GAAP gross margin - Support and Service 79 % 81 % 79 % 78 %
   Total current liabilities 10,218,665 10,290,454 Less: Accretion to redemption value of Series A redeemable convertible preferred stock   134,223   77,645   263,462   115,750
Other long-term liabilities 760,574 1,549,692    Net income (loss) attributable to common stockholders $       (1,562,499) $     (1,296,712) $     (2,063,672) $     (3,340,149) GAAP operating margin (24%) (17%) (9%) (1%)
Notes payable, net 2,746,419 3,124,827 Basic net income (loss) per share attributable to common stockholders   $                (0.27)   $              (1.54)   $              (0.35)   $              (5.17) Non-cash stock option expense (1) 0% 1% —% —%
Operating lease liabilities 1,281,804 Diluted net income (loss) per share attributable to common stockholders   $                (0.27)   $              (1.54)   $              (0.35)   $              (5.17) Restructuring costs (3) 5% 20% 4% 7%
Deferred tax liabilities, net 297,715 297,890 Weighted average basic shares outstanding 5,879,225 844,482 5,875,907 646,163 Non-GAAP operating margin (19%) 4% (5%) 6%
Deferred revenue, net 3,615,556 2,506,898 Weighted average diluted shares outstanding 5,879,225 844,482 5,875,907 646,163
   Total liabilities 18,920,733 17,769,761 GAAP Basic EPS $             (0.27) $           (1.54) $          (0.35) $          (5.17)
Commitments and contingencies Non-cash stock option expense, net of income taxes (2) 0.00 0.03 0.00 0.01
Series A redeemable convertible preferred stock 10,523,748 9,756,706 Restructuring costs (3) 0.04 0.96 0.06 0.98
   Total stockholders' deficit (13,622,004) (11,553,796) Effects of Series A redeemable convertible preferred stock (4) 0.07 0.35 0.13 4.40
   Total liabilities and stockholders' deficit $ 15,822,477 $ 15,972,671 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
Footnotes:
(1)  Represents non-cash, stock-based compensation charges as follows:

 Three Months Ended, Three Months Ended June 30, Change FalconStor Software, Inc. and Subsidiaries FalconStor Software, Inc. and Subsidiaries FalconStor Software, Inc. and Subsidiaries
(in millions except per share data) June 30, 2019 December 31, 2018   June 30, 2018 (in millions except per share data) 2019 2018 Period to Period CONDENSED CONSOLIDATED BALANCE SHEETS CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Reconciliation of GAAP to Non-GAAP Financial Measures Three Months Ended June 30, Six Months Ended June 30, (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.
Revenue $              4.0 $              4.8 $              4.0 Total revenue $        4.0 100 % $       4.0 100 % $         — — % (Unaudited)  (Unaudited) 2019 2018 2019 2018
Non-GAAP Expenses $              4.7 $              4.0 $              3.9 Total cost of revenue $        1.3 32 % $       0.6 16 % $        0.7 105 % June 30, 2019 December 31, 2018 Cost of revenue - Support and Service $                  449 $              4,875 2,042 13,575 (3) Represents restructuring costs which were incurred during each respective period presented.
Non-GAAP Gross Margin 68% 81% 84% Total operating expenses $        3.7 92 % $       4.1 101 % $      (0.4) (10)% (unaudited) Three Months Ended June 30, Six Months Ended June 30, Three Months Ended June 30, Six Months Ended June 30, Research and development costs 861 18,744 5,606 41,350
Non-GAAP Operating Income $             (0.7) $              0.7 $              0.2 GAAP operating income (loss) $      (1.0) (24)% $      (0.7) (17)% $      (0.3) 41 % Assets 2019 2018 2019 2018 2019 2018 2019 2018 Selling and marketing 1,248 4,525 3,658 12,457 (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.
GAAP net income (loss) $      (1.6) (39)% $      (1.3) (32)% $      (0.3) 20 % Current assets: Revenue: GAAP income (loss) from operations $       (955,262) $     (679,803) $ (727,344) $ (120,817) General and administrative 13,673 1,375 14,176 (60,758)
GAAP diluted EPS $     (0.27) $      (1.54) $      1.27 Cash and cash equivalents $       2,400,953 $      3,059,677 Product revenue $         1,470,430 $         983,645 $      3,216,214 $      2,917,589 Non-cash stock option expense (1) 16,231 29,519 $        25,482 $          6,624 Total non-cash stock based compensation expense $             16,231 $            29,519 $           25,482 $             6,624
Accounts receivable, net 1,706,141 3,605,411 Support and services revenue 2,528,959 3,027,936 5,276,153 6,087,941 Restructuring costs (benefit) (3) 202,679 809,245 360,372 635,982
Prepaid expenses and other current assets 1,736,775 1,909,846    Total revenue 3,999,389 4,011,581 8,492,367 9,005,530 Non-GAAP income (loss) from operations $       (736,352) $      158,961 $ (341,490) $      521,789
Contract assets, net 838,273 637,179 Cost of revenue:
Inventory 104,737 14,885 Product 755,796 39,740 835,470 65,890 GAAP net income (loss) attributable to common stockholders $ (1,562,499) $ (1,296,712) $ (2,063,672) $ (3,340,149)
   Total current assets 6,786,879 9,226,998 Support and service 537,105 590,309 1,107,590 1,319,197 Non-cash stock option expense, net of income taxes (2) 16,231 29,519 25,482 6,624
Property and equipment, net 484,588 433,935    Total cost of revenue 1,292,901 630,049 1,943,060 1,385,087 Restructuring costs (benefit) (3) 202,679 809,245 360,372 635,982
Operating lease right-of-use assets 2,454,349 Gross profit $         2,706,488 $      3,381,532 $      6,549,307 $      7,620,443 Effects of Series A redeemable convertible preferred stock (4) 390,776 292,608 767,042 2,842,922
Deferred tax assets, net 553,738 545,044  Operating expenses:                                                                                                                                                                                                   Non-GAAP net income (loss) attributable to common stockholders $       (952,813) $     (165,340) $ (910,776) $      145,379
Software development costs, net 46,136 88,769 Research and development costs 764,276 928,097 1,720,847 1,932,795
Other assets, net 1,037,877 919,609 Selling and marketing 1,296,909 872,109 2,369,347 2,065,659 GAAP gross margin 68 % 84 % 77 % 85 %
Goodwill 4,150,339 4,150,339 General and administrative 1,397,886 1,451,884 2,826,085 3,106,824 Non-cash stock option expense (1) 0 % 0 % 0 % 0 %
Other intangible assets, net 85,746 91,334 Restructuring costs 202,679 809,245 360,372 635,982 Non-GAAP gross margin 68 % 84 % 77 % 85 %
Contract assets 222,825 516,643    Total operating expenses 3,661,750 4,061,335 7,276,651 7,741,260
Total assets $ 15,822,477 $ 15,972,671    Operating income (loss) (955,262) (679,803) (727,344) (120,817) GAAP gross margin - Product 49 % 96 % 74 % 98 %
Liabilities and Stockholders' Deficit Interest and other loss, net (80,217) (323,750) (345,456) (313,420) Non-cash stock option expense (1) 0 % 0 % 0 % 0 %
Current liabilities:    Income (loss) before income taxes (1,035,479) (1,003,553) (1,072,800) (434,237) Non-GAAP gross margin - Product 49 % 96 % 74 % 98 %
Accounts payable $       1,109,862 $         551,389 Income tax expense 136,244 551 223,830 62,990
Accrued expenses 2,284,591 2,879,473    Net income (loss) $       (1,171,723) $     (1,004,104) $     (1,296,630) $        (497,227) GAAP gross margin - Support and Service 79 % 81 % 79 % 78 %
Operating lease liabilities 1,753,015 Less: Accrual of Series A redeemable convertible preferred stock dividends   256,553   214,963   503,580   458,130 Non-cash stock option expense (1) 0 % 0 % 0 % 0 %
Deferred revenue, net 5,071,197 6,859,592 Less: Deemed dividend on Series A redeemable convertible preferred stock   —   —   —   2,269,042 Non-GAAP gross margin - Support and Service 79 % 81 % 79 % 78 %
   Total current liabilities 10,218,665 10,290,454 Less: Accretion to redemption value of Series A redeemable convertible preferred stock   134,223   77,645   263,462   115,750
Other long-term liabilities 760,574 1,549,692    Net income (loss) attributable to common stockholders $       (1,562,499) $     (1,296,712) $     (2,063,672) $     (3,340,149) GAAP operating margin (24%) (17%) (9%) (1%)
Notes payable, net 2,746,419 3,124,827 Basic net income (loss) per share attributable to common stockholders   $                (0.27)   $              (1.54)   $              (0.35)   $              (5.17) Non-cash stock option expense (1) 0% 1% —% —%
Operating lease liabilities 1,281,804 Diluted net income (loss) per share attributable to common stockholders   $                (0.27)   $              (1.54)   $              (0.35)   $              (5.17) Restructuring costs (3) 5% 20% 4% 7%
Deferred tax liabilities, net 297,715 297,890 Weighted average basic shares outstanding 5,879,225 844,482 5,875,907 646,163 Non-GAAP operating margin (19%) 4% (5%) 6%
Deferred revenue, net 3,615,556 2,506,898 Weighted average diluted shares outstanding 5,879,225 844,482 5,875,907 646,163
   Total liabilities 18,920,733 17,769,761 GAAP Basic EPS $             (0.27) $           (1.54) $          (0.35) $          (5.17)
Commitments and contingencies Non-cash stock option expense, net of income taxes (2) 0.00 0.03 0.00 0.01
Series A redeemable convertible preferred stock 10,523,748 9,756,706 Restructuring costs (3) 0.04 0.96 0.06 0.98
   Total stockholders' deficit (13,622,004) (11,553,796) Effects of Series A redeemable convertible preferred stock (4) 0.07 0.35 0.13 4.40
   Total liabilities and stockholders' deficit $ 15,822,477 $ 15,972,671 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
Footnotes:
(1)  Represents non-cash, stock-based compensation charges as follows:

 

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

Cision View original content:http://www.prnewswire.com/news-releases/falconstor-software-announces-second-quarter-2019-results-including-15-global-billings-growth-300900961.html

SOURCE FalconStor Software, Inc.

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