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FalconStor Software Announces Second Quarter and First Half 2021 Results

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Continued Strategic Progress, Including New Growth Equity Raise

AUSTIN, Texas, August 04, 2021--(BUSINESS WIRE)--FalconStor Software, Inc. (OTCQB: FALC), a trusted data protection leader modernizing backup and archival solutions for the multi-cloud world, today announced financial results for its second quarter and first half of fiscal year 2021, which ended on June 30, 2021.

"We continue to make good progress against our strategic plans to reinvent FalconStor, enhance the value we deliver to our customers, and innovate within the cloud-based data protection market," said Todd Brooks, FalconStor CEO. "While we were disappointed that our second quarter total revenue declined year-over-year by 6.9%, total revenue for the first half of 2021 increased year-over-year by 6.1%. Over the next year, we expect our year-over-year quarterly revenue growth to continue to stabilize as our sales pipeline becomes more predictable, and we expand our markets."

"Migration to the cloud, data center rationalization and infrastructure optimization are top priorities for enterprise CIOs in the post-pandemic world, and FalconStor plays a vital role in each," added Brooks. "Our market, strategic focus, and results over the last three years allowed us to successfully raise $4 million in new growth equity since the beginning of the second quarter of 2021. We are excited by the trust our shareholders have placed in our team to deliver customer and shareholder value."

Second Quarter 2021 Financial Results

  • Product Revenue: 2% product revenue decline to $1,602,005, compared to $1,632,055 in the second quarter of fiscal year 2020

  • New Customer Billings: $1,938,863, compared to $1,915,199 in the second quarter of fiscal year 2020

  • Total Revenue: $3.3 million, compared to $3.5 million in the second quarter of fiscal year 2020

  • Total Cost of Revenue: $0.4 million, compared to $0.4 million in the second quarter of fiscal year 2020

  • Total Operating Expenses: $3.0 million, compared to $2.6 million in the second quarter of fiscal year 2020

  • GAAP Net Income (Loss): $(0.3) million, compared to $0.4 million in the second quarter of fiscal year 2020

  • Ending Cash: $3.7 million, compared to $1.5 million in the second quarter of fiscal year 2020

First Half 2021 Financial Results

  • Product Revenue: 40% product revenue increase to $3.7 million, compared to $2.7 million in the first half of fiscal year 2020

  • New Customer Billings: $1,500,540, compared to $1,469,815 in the first half of fiscal year 2020

  • Total Revenue: $7.1 million, compared to $6.7 million in the first half of fiscal year 2020

  • Total Cost of Revenue: $1.1 million, compared to $0.9 million in the first half of fiscal year 2020

  • Total Operating Expenses: $6.2 million, compared to $5.6 million in the first half of fiscal year 2020

  • GAAP Net Income (Loss): $0.1 million, compared to $(0.3) million in the first half of fiscal year 2020

  • Ending Cash: $3.7 million, compared to $1.5 million in the first half of fiscal year 2020

Second Quarter 2021 Business Highlights

  • Delivered updates to our next-generation long-term data retention and recovery technology in StorSafe, built with a bridge to all industry-leading public clouds for long-term archival optimization, including AWS, Microsoft Azure, IBM Cloud, and Wasabi

  • Continued our win trajectory in IBM environments, specifically IBM I and AS/400 system implementations

  • Continued to deliver value to our Managed Service Provider business partners, with our trusted partner BlueChip growing to 300 customers and 4 petabytes of data under management.

Guidance

We are affirming the 2021 guidance we have previously provided.

2021 Proposed Guidance

Guidance SEC Format (IN $ MILLIONS)

2020 Actual

Low

High

Increase

YOY

Increase

YOY

Total Revenue

$

14.77

$

15.08

$

16.15

3

%

9

%

Adjusted EBITDA*

$

4.13

$

4.24

$

5.06

3

%

22

%

%

28

%

28

%

31

%

Net Income

$

1.14

$

1.93

$

2.82

70

%

148

%

%

8

%

13

%

17

%

Rule of 40 (Revenue Growth % + Adjusted EBITDA %)

17

31

41

80

%

139

%

*Adjusted EBITDA excludes Non Operating Expenses

Conference Call and Webcast Information

WHO: Todd Brooks, Chief Executive Officer, FalconStor and Brad Wolfe, Chief Financial Officer, FalconStor

WHEN: Wednesday, August 4, 2021, 4:00 P.M. Central Time

To register for our earnings call, please click the following link:

FALCONSTOR SECOND QUARTER 2021 FINANCIAL TELECONFERENCE AND PRESENTATION

As an alternative, you can copy and paste the following link into your web browser to register:

https://register.gotowebinar.com/register/5598359582179255563

Conference Call:
Please dial the following if you would like to interact with and ask questions to FalconStor hosts:
Toll Free: 1-877-309-2074
Access Code: 613-637-608

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 reconciliation of GAAP to Non-GAAP financial measures presented in this release.

About FalconStor Software

FalconStor is a data protection technology company enabling enterprises to modernize their data backup and archival operations across multiple sites and public clouds. We deliver increased data security and provide fast recovery from ransomware attacks, while driving down an enterprise’s data storage footprint by up to 90%. As an established technology leader with 39 issued patents and six patent applications, we have over an exabyte of data under management and offer products that are used by approximately 600 enterprise customers. Our products are offered through and supported by a worldwide network of leading service providers, systems integrators, resellers, managed services providers ("MSPs") and original equipment manufacturers ("OEMs"). To learn more, visit www.falconstor.com and stay connected with us on YouTube, Twitter, and LinkedIn.

FalconStor and FalconStor Software are trademarks or registered trademarks of FalconStor Software, Inc., in the U.S. and other countries. All other company and product names contained herein may be trademarks of their respective holders.

Links to websites or pages controlled by parties other than FalconStor are provided for the reader's convenience and information only. FalconStor does not incorporate into this release the information found at those links nor does FalconStor represent or warrant that any information found at those links is complete or accurate. Use of information obtained by following these links is at the reader's own risk.

FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2021

December 31, 2020

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

3,741,600

$

1,920,656

Accounts receivable, net

2,162,640

2,836,571

Prepaid expenses and other current assets

1,513,363

1,837,596

Contract assets, net

354,096

254,483

Inventory

15,381

15,275

Total current assets

7,787,080

6,864,581

Property and equipment, net

186,476

197,020

Operating lease right-of-use assets

194,888

536,272

Deferred tax assets, net

313,697

330,552

Software development costs, net

15,994

19,278

Other assets, net

124,552

863,964

Goodwill

4,150,339

4,150,339

Other intangible assets, net

78,504

100,134

Contract assets

206,305

343,934

Total assets

$

13,057,835

$

13,406,074

Liabilities and Stockholders' Deficit

Current liabilities:

Accounts payable

$

578,660

$

453,791

Accrued expenses

1,778,444

2,293,765

Operating lease liabilities

125,048

665,074

Short-term loan, net of debt issuance costs and discounts

3,320,863

Deferred revenue, net

4,097,365

4,603,270

Total current liabilities

6,579,517

11,336,763

Other long-term liabilities

638,300

703,889

Notes payable, net

2,146,596

754,000

Operating lease liabilities

71,205

Deferred tax liabilities, net

520,166

513,027

Deferred revenue, net

1,865,355

1,765,859

Total liabilities

11,821,139

15,073,538

Commitments and contingencies

Series A redeemable convertible preferred stock

13,773,115

12,940,722

Total stockholders' deficit

(12,536,419

)

(14,608,186

)

Total liabilities and stockholders' deficit

$

13,057,835

$

13,406,074

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

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Revenue:

Product revenue

$

1,602,005

$

1,632,055

$

3,741,734

$

2,681,018

Support and services revenue

1,656,742

1,867,557

3,345,339

3,998,781

Total revenue

3,258,747

3,499,612

7,087,073

6,679,799

Cost of revenue:

Product

34,781

61,830

257,615

201,290

Support and service

405,960

334,396

832,133

742,316

Total cost of revenue

440,741

396,226

1,089,748

943,606

Gross profit

$

2,818,006

$

3,103,386

$

5,997,325

$

5,736,193

Operating expenses:

Research and development costs

661,147

534,000

1,321,087

1,208,924

Selling and marketing

1,259,735

1,019,940

2,656,375

2,001,131

General and administrative

658,100

845,581

1,495,967

1,938,750

Restructuring costs

421,737

153,685

724,050

441,145

Total operating expenses

3,000,719

2,553,206

6,197,479

5,589,950

Operating income (loss)

(182,713

)

550,180

(200,154

)

146,243

Gain on debt extinguishment

754,000

Interest and other expense

(164,312

)

(180,249

)

(431,007

)

(426,088

)

Income (loss) before income taxes

(347,025

)

369,931

122,839

(279,845

)

Income tax expense (benefit)

2,659

(36,627

)

47,275

33,437

Net income (loss)

$

(349,684

)

$

406,558

$

75,564

$

(313,282

)

Less: Accrual of Series A redeemable convertible preferred stock dividends

282,926

260,595

560,096

546,355

Less: Accretion to redemption value of Series A redeemable convertible preferred stock

75,183

165,141

272,297

191,231

Net income (loss) attributable to common stockholders

$

(707,793

)

$

(19,178

)

$

(756,829

)

$

(1,050,868

)

Basic net income (loss) per share attributable to common stockholders

$

(0.12

)

$

$

(0.13

)

$

(0.18

)

Diluted net income (loss) per share attributable to common stockholders

$

(0.12

)

$

$

(0.13

)

$

(0.18

)

Weighted average basic shares outstanding

6,021,483

5,919,837

5,985,672

5,919,740

Weighted average diluted shares outstanding

6,021,483

5,919,837

5,985,672

5,919,740

FalconStor Software, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

GAAP income (loss) from operations

$

(182,713

)

$

550,180

$

(200,154

)

$

146,243

Non-cash stock option expense (1)

4,697

3,060

$

9,168

$

7,570

Restructuring costs (3)

421,737

153,685

724,050

441,145

Non-GAAP income (loss) from operations

$

243,721

$

706,925

$

533,064

$

594,958

GAAP net income (loss) attributable to common stockholders

$

(707,793

)

$

(19,178

)

$

(756,829

)

$

(1,050,868

)

Non-cash stock option expense, net of income taxes (2)

4,697

3,060

9,168

7,570

Restructuring costs (3)

421,737

153,685

724,050

441,145

Effects of Series A redeemable convertible preferred stock (4)

358,109

425,736

832,393

737,586

Non-GAAP net income (loss) attributable to common stockholders

$

76,750

$

563,303

$

808,782

$

135,433

GAAP gross margin

86

%

89

%

85

%

86

%

Non-cash stock option expense (1)

0

%

0

%

0

%

0

%

Non-GAAP gross margin

86

%

89

%

85

%

86

%

GAAP gross margin - Product

98

%

96

%

93

%

92

%

Non-cash stock option expense (1)

0

%

0

%

0

%

0

%

Non-GAAP gross margin - Product

98

%

96

%

93

%

92

%

GAAP gross margin - Support and Service

75

%

82

%

75

%

81

%

Non-cash stock option expense (1)

0

%

0

%

0

%

0

%

Non-GAAP gross margin - Support and Service

75

%

82

%

75

%

81

%

GAAP operating margin

(6

%)

16

%

(3

%)

2

%

Non-cash stock option expense (1)

0

%

%

%

%

Restructuring costs (3)

13

%

4

%

10

%

7

%

Non-GAAP operating margin

7

%

20

%

7

%

9

%

GAAP Basic EPS

$

(0.12

)

$

0.00

$

(0.13

)

$

(0.18

)

Non-cash stock option expense, net of income taxes (2)

0.00

0.00

0.00

0.00

Restructuring costs (3)

0.07

0.03

0.13

0.07

Effects of Series A redeemable convertible preferred stock (4)

0.06

0.07

0.14

0.13

Non-GAAP Basic EPS

$

0.01

$

0.10

$

0.14

$

0.02

GAAP Diluted EPS

$

(0.12

)

$

0.00

$

(0.13

)

$

(0.18

)

Non-cash stock option expense, net of income taxes (2)

0.00

0.00

0.00

0.00

Restructuring costs (3)

0.07

0.03

0.12

0.07

Effects of Series A redeemable convertible preferred stock (4)

0.06

0.07

0.14

0.13

Effects of increase in Non-GAAP diluted shares outstanding (5)

0.00

(0.01

)

0.00

0.00

Non-GAAP Diluted EPS

$

0.01

$

0.09

$

0.13

$

0.02

Weighted average basic shares outstanding (GAAP and Non-GAAP)

6,021,483

5,919,837

5,985,672

5,919,740

Weighted average diluted shares outstanding (GAAP)

6,021,483

5,919,837

5,985,672

5,919,740

Weighted average diluted shares outstanding (Non-GAAP)

6,093,507

5,949,389

6,034,514

5,934,744

Footnotes:

(1)

Represents non-cash, stock-based compensation charges as follows:

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Cost of revenue - Product

$

229

$

$

456

$

Cost of revenue - Support and Service

183

103

364

206

Research and development costs

428

856

Selling and marketing

2,883

184

5,560

368

General and administrative

1,402

2,345

2,788

6,140

Total non-cash stock based compensation expense

$

4,697

$

3,060

$

9,168

$

7,570

(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, 2021 and 2020, the tax expense for both GAAP and Non-GAAP basis approximate the same amount.

(3)

Represents restructuring costs which were incurred during each respective period presented.

(4)

Represents the effects of the accretion to redemption value of the Series A redeemable convertible preferred stock, accrual of Series A redeemable convertible preferred stock dividends and deemed dividend on Series A redeemable convertible preferred stock.

(5)

Represents the impact of an increase in diluted shares outstanding resulting from Non-GAAP adjustments to a GAAP net loss in the six months ended June 30, 2020.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210804006149/en/

Contacts

Brad Wolfe
Chief Financial Officer FalconStor Software Inc.
investorrelations@falconstor.com

CONTACT US AROUND THE GLOBE

Corporate Headquarters
701 Brazos Street
Suite 400
Austin, Texas 78701
Tel: +1.631.777.5188
salesinfo@falconstor.com

Europe Headquarters
Rosa-Bavarese-Straße 3
80639 Munich, Germany
Tel: +49 (0) 89.41615321.10
salesemea@falconstor.com

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